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Hello, everyone. Welcome to our Q4 2019 investor conference. Our CEO will be joining us in 1 minute because he is doing another meeting. But he will be joining us in 1 minute. During the time we are waiting for our CEO, we will have our IR manager, Rodney, to report the financial numbers of Q4 and 2019 for you. So after the presentation, we will have the Q&A session. But before the Q&A session, we will still have some updates for you regarding the coronavirus.
So as usual, I need to remind you that all the financial numbers are reported based on IFRS, and the annual consolidated numbers have been audited by CPA.
In terms of the sales, roughly in line with the normal seasonality. Sales revenue was up 6% year-on-year to TWD 68.2 billion, but down 6% quarter-on-quarter in Q4. But thanks to the better product mix and cost control, our GP margin in Q4 increased to 29.3% from 28.2% in Q3 and 28.3% a year ago, with gross profit up 10% year-on-year and down 2% quarter-on-quarter.
Year-on-year, R&D and SG&A expenses increased by 24% and 14%, respectively, which were largely related to the consolidation of DET amortization from acquisitions. Q4 R&D expense as a percentage of sales increased to 9.8% from 8.8% in Q3 and 8.4% a year ago. Q4 SG&A as a percentage of sales decreased to 11.6% from 11.8% in Q3, but increased from 10.7% a year ago.
With the [ real ] scale the OpEx ratio hit a new high at 21.4%. However, thanks to the better GP margin, OP margin in Q4 increased to 7.9% from 7.6% in Q3. [ DO ] decreased from 9.2% a year ago.
So in terms of the performance by segment because of the consolidation of DET and Amerlux, year-on-year, we found some decent growth and profit improvement for Power Electronics and Automation while Infrastructure segment remained sluggish in Q4 due to the soft demand for telecom power and networking business.
Sequentially, we had seasonal decline in Power Electronics and Infrastructure with a little growth in Automation. Profit-wise, we have significant expansion in Infrastructure and Automation as well as some contraction in Power Electronics. So the percentage of Power Electronics decreased to 50 -- 51% from 53% in Q3, but increased from 44% a year ago. Automation was slightly up to 14% in Q4 compared to 13% in the previous quarter and a year ago. Infrastructure stay at 4 -- 34% from the previous quarter, but declined from 42% a year ago.
Our operating profit was around TWD 880 million in Q4, which was within the normal range. So the profit before tax in Q4, we had around like TWD 6.2 billion profit before tax, down 14% year-on-year and 4% quarter-on-quarter. Our EBITDA (sic) [EBITA] in Q4 was TWD 10.2 billion, which was up 1% year-on-year, but down 3% quarter-on-quarter.
Q4 tax expense was about TWD 1.2 billion, representing 18.3% effective tax rate. The net profit after tax in Q4 was TWD 5.1 billion, down 16% year-on-year and 1% quarter-on-quarter due to higher tax -- sorry, due to higher tax accrual.
So the EPS in Q4 was TWD 1.96, which was quite similar to the previous quarter. So I would like to remind you that if you look at abnormally high EPS in the second quarter because there was -- TWD 1.75 was the noncash and operating disposal gains from the Delta Thailand acquisition. So if we look at the full year numbers of 2019, 2019 revenue was TWD 268.1 billion, up 13% from a year ago. Again, the fast growth had a lot to do with the consolidation of the Delta Thailand since Q2.
GP margin in 2019 increased to 27.8% from 26.8% a year ago. Due to the consolidation of DET, R&D expense increased by 24% to 8.9% as a percentage of sales in 2019. Likewise, SG&A increased by 19% from 11.6 -- 11% as a percentage of sales to 11.6%. So the OpEx ratio in 2019 increased to 20.5% from 19.1% a year ago. So our OP margin in 2019 dropped to 7.2% from 7.7% in 2018, despite an increase in GP margin.
Year-on-year, we saw the most significant sales increase in Power Electronics, follow Automation -- followed by Automation and Infrastructure. As mentioned, the fast growth of Power Electronics was largely related to the consolidation of Delta Thailand. Profit-wise, we also fund expansion in Power Electronics, but there was a 24% profit contraction in Automation and a 7% decline in Infrastructure due to the sluggish IA demand in China and a slow telecom power market.
In 2019, we had about like TWD 9.7 billion operating profit, significantly higher than a year ago, mainly because of the disposal gains of Delta Thailand in the second quarter. So in total, we had TWD 29.1 billion pretax incomes. Our EBITDA (sic) [ EBITA ] in 2019 was TWD 43.9 billion, which was up 27% from a year ago. Tax expense in 2019 was around TWD 5 billion, representing a 17.9% effective rate. The increase of noncontrolling interest was related to the consolidation of DET. So the net profit after tax was TWD 23 billion, up from TWD 18.2 billion a year ago.
The EPS in 2019 was TWD 8.9. However, there was $1.75 of debt was a nonoperating and noncash disposal gains from DET, as I mentioned earlier. So the proposed cash dividend per share was TWD 5 based on the TWD 7.15 EPS, the payout ratio is, again, about 70%.
Okay. So our IR manager have reported the financial numbers to you. So right now, we will have our CEO to share some updates regarding the impact and what we are doing for the prevention of this outbreak of the coronavirus.
So we set up a dedicated team on January 30 in order to prevent the outbreak of this virus in our factories. So far, I think that we are doing okay. We are, like -- most things are under our control. So in January, actually, only -- there was only 60% of our workers returned back to our factories to -- because of this -- because of this coronavirus thing. And also, there was some material shortage by the end of -- in the end of January. But so far, I mean, it was by the end of the -- by the end of February, that everything is -- were getting better compared to January.
So okay. So our CEO just shared our views on this coronavirus thing. So right now, we will open this Q&A session.
So we have some questions from the media.
So do you have any plans to produce your own masks for your workers?
Yes, we do. So according to the new regulations from the Chinese government, every worker needs to have 1 mask per day if you want them to resume or return back to the factories to work. So I think that we already have our own mask production lines right now. I think we are okay in terms of the volume. But it's not -- I mean, not enough to sell to the outside units. But for us, we think it's okay.
So any negative impact from passive component pricing increase in 2020?
I think that is not news. I mean, in terms of the volatility of the passive components, the price of passive components. But compared to many of our peers, I think that our situation should be slightly better, given we are the biggest client for many of our suppliers. And we also have a pretty long contract with some of our suppliers. So for us, I think, so far, we are okay. Don't see any significant impact for now.
So how many workers in China? And please remind us the -- your Automation progress in your factories.
We have around 45,000 employees in China, and half of them are -- sorry, in our factories, half of them are the indirect workers, and half of them are direct workers. So our direct workers are less than -- the number of our direct workers is less than 20,000 right now. And the automation of our batches is part of the company's strategy.
So I think that is also part of the reason why we can -- I mean, resume the production lines pretty fast under this coronavirus thing because our automation, I mean, the degree of our automation is already pretty high, I mean, compared to many of other peers.
So the next question is, can you share some outlook for the first quarter?
So this question is really, really hard to answer. Because, I mean, the outbreak in China seems to be under control now, but the things in European country and Americas seems getting severe. So it's really hard to say. But hopefully that things can be, I mean, getting better or at least getting back to normal in second quarter.
Okay. So could you please share us the demand outlook for each business segment? Say which segment will grow the most and which will decline?
So I have to remind you that our visibility at this moment is pretty, pretty limited because many forecasts were done before the outbreak of coronavirus. So based on that, our data center business, our Building Automation business will grow this year. If the virus thing is not getting more severe, the fan -- cooling fan business might be growing this year.
But regarding like our power supply business and our telecom power business, I think it's still highly uncertain. The outlook -- demand outlook for that for this year.
Okay. So how much capacity expansion for a Cyntec with CapEx TWD 1.6 billion just approved. Is it mainly for the equipment?
The expansion, I mean, the capacity expansion can be applied to many different operations, actually. Since we have so many different product lines, it's hard to simply give simple answers for that. But the new capacity will be released in the next few months.
Can you share with us the -- your CapEx allocation plan for this year?
So our CapEx plans will include the new factories in Thailand and in India and new offices in Taiwan, the automation plants in Chinese factories and the capacity expansion for Cyntec.
Sure. Okay. Yes. Just as our CFO just mentioned because there are many new offices and new factories and also the new capacity expansion for Cyntec will be ongoing this year, so our CapEx might be a little bit higher than the previous year.
Okay. So what's the outlook for EV business this year and whether the outlook will be hurt by coronavirus? When do we expect it to reach breakeven?
Okay. This year because there will be many new models on the road, and also because we are the partners of many European and American clients and so given, there will be new model -- more new model release this year, I think that the demand outlook for the EV business should be positive this year.
Okay. So I would like to share some more things regarding what we have done and what we are doing for the prevention of this or the things for the coronavirus. Actually, we didn't even stop our production for 1 day, I mean, even during this thing. I think that our high level of the factory automation is one of the most key reasons for that. And also some of our workers, they didn't leave their factories. We have some workers stay in the factories, even during the holidays. So if we haven't, I mean, if we didn't have this high-level factory automation, I think we wouldn't have this kind of smooth production progress at this moment.
So as I always emphasized, I think the whole factory automation plans is a part of our long-term strategy of the company.
Okay. So for the automotive business, could you just give us more colors in terms of the business model, product portfolio, competition, landscape and profit share and so on and so forth?
Okay. So there are so many components within an EV car. So -- but the trend, I mean, right now, is the suppliers, they -- or the client OEMs, they tend to integrate many components into 1 unit. So I think many suppliers are working on that, including us.
Thank you. So how should we expect -- I mean, the first quarter, more earnings outlook and everything?
So as I always mention that only during the raining days that you will see who can really survive in the market. So every time, if we are, like everyone encountered this kind of storm, I think that is also a chance to -- for the consolidation of the market, just like what happened in 2008. So the things, I think, including us, the companies should do is we need to have like enough cash at hands, that we always need to have good control of the cost and so on and so forth. But it's also a good chance to see some consolidation of the market.
Could you just share with us what is the reason that your Delta networking business, I mean, in terms of the company location is moved to other countries? Is that because of the tax issues?
No, it's not because of a tax issue.
So what's the impact from coronavirus on Delta Thailand? When will we see the margins and earnings recovery?
So, I mean, being part of the supply chain of, of course, Delta Thailand would be impacted, I mean, somewhat impacted by the coronavirus things. But I think the bigger problem is because many of the materials are -- it may even -- some products might be, I mean, produced in Thailand, but many materials are shipped from China. But I think that is also a good chance pushing us to accelerate our pace in local sourcing.
So what's the reason behind networking business' underperformance in the past few years? The data market seems to benefit from [ Ybus ] trend.
We do have our [ Ybus ] products for [ Ybus ] and for the data center market, but I think our focus for the -- for our networking business is still on the -- on enterprise clients.
Okay. So server segment demand seems relatively better. Do you have any plan to be more aggressive in this segment in 2020? How is the order outlook for server power this year?
I think one of the reasons why the, I mean, demand for -- server demand seems to be relatively better than others, I think that is because of the fast growth or the healthy demand from data center.
So what's your strategy to reduce earnings volatility given that our business model is now less flexible?
Okay. So I will have our CEO to answer this question.
Okay. So during this year, I mean, this few years during the transition process of the company, we actually saw many business opportunities. So because we have seen those business opportunities, so we decided to invest for the long-term growth and sustainability for the company. But given the -- so there are so many uncertainties in this year, I think that we will be more conservative, I mean, for the cost control -- in terms of cost control for this year.
But if you ask me about the absolute number of investment, I think that we still have a lot to do. So the only thing that we need to do is, how should we -- how can we accelerate the pace of our growth, the top line growth, and that is something we are doing now, but they're still subject to the macro environment.
So can we expect -- or when do we expect the EV business to reach breakeven?
So as I just mentioned, I think this year, I mean, the outlook for -- the demand outlook for our EV business is quite positive. So it's hard to say that whether -- I mean, or how much in -- how much it would be impacted by the coronavirus thing. But compared to the -- I mean, the coronavirus, I think I have also concern about the petrol price. So I think for a short-term outlook, the petrol price is more crucial to the -- for -- more crucial to the demand for the EV business or the EV market.
So given the production disruption in China, are you going to accelerate production diversification to Thailand, India and Taiwan?
Yes. As I just mentioned and shared like earlier that we will have more new factories in Thailand and India and Taiwan is more of an R&D center and a headquarter. And I think that our new factory, I mean, in India, will be ready in like the next few months, next 1 or 2 months.
So I got one question from the media. So how much is the capacity -- total capacity in China? I mean, sorry, the capacity in China in terms of your total capacity and your sales exposure in China or the sales contribution from China market?
So in terms of the capacity, we have around like 70% in -- from China.
So in terms of the Delta Thailand acquisition, will we see any synergy to be -- will we see any synergy in this year?
So after we consolidate our -- we have more -- higher shareholders in Delta Thailand. Actually, we have done some reshuffling there in their Board structure. So we have some members on the Board now.
So before we consolidated or before we acquired Delta Thailand because it was not part of us, I mean, we didn't have the majority -- major shareholdings. So it was not part of our factory automation plans. But after we consolidated -- or sorry, we acquired Delta Thailand, it's part of the plan now. And we also said that we dedicate team to improve their production efficiency and automation level.
So if we exclude the impact from the coronavirus, what is the normalized GP margin and OP margin level we can expect in the next 2 to 3 years?
Okay. So our expectation for our GP margin, hopefully, that we can remain at this like high 20s gross GP margin. And if you look at the -- our gross margin in the fourth quarter, with the better product mix, that we actually can achieve this level. So hopefully, we can maintain at this level.
So the outlook for 5G, when would telecom power and networking recover and the reasons for the recovery?
It's still pretty hard to say now because even there, you see many operators or global motor operators, they have really high interest in this 5G investment. But in terms of CapEx investment, there are still -- many of them are still pretty conservative. So for us, we -- it's hard for us to forecast market recovery.
Okay. So how should I expect OP margin expansion given your high level of factory automation?
So for that question, how much we can benefit from our -- how much our OP margin can benefit from this high-level factory automation? I think the conversion rate in terms of conversion -- sorry, conversion cost from 2018 to 2019, it was down by 0.5%. But when you try to achieve the -- this higher level of factory automation, it's not only about like using fewer direct workers, and then you can transfer those labor costs into your margins or into your profits because you still need to like apply more new components and materials, and you need to implement more new product designs before the production.
And those are also some invisible costs. But hopefully, our -- the number, I mean, the direct number plus our overheads can go down like by 0.5% to 1% next year. But in order to achieve that, there are still a lot of things to do.
So any supply bottleneck other than worker issues?
So now is already the -- I mean, mid-March. I think right now, it's not -- there isn't any big issues. And also, we help out some of our smaller suppliers to solve their problems during this time. So I think we are okay for now.
So despite limited visibility towards second quarter or even second half, how do you see the IA demand recovery for China and outside of China?
Okay. So the IA business or the whole market suffered by the U.S. and -- the trade war between U.S. and China in last year. And this year, it suffer -- I mean, you also get hurt by the coronavirus thing. But as I always mention or emphasize for the long run, that is obvious trend for, like, every manufacturer in China or, but -- so I think for the long run, we are still pretty positive.
So you just mentioned that you have new factories in India. So when the new factory in India will be ready?
Okay. So I think that our factories in India will be ready like between -- during April to May -- or May. So the productions -- the products which are, I mean, producing in those factories -- I mean, our India factories will be like our Industrial Automation products or some infrastructure products.
So considering the impact from coronavirus, could you give us some simple guidance on the first quarter margin?
The guidance is pretty simple. Actually because the supply -- both the supply and demand are impacted by this coronavirus, so I think the market will be slower than history. So the margins will also be impacted.
So why do we see some loss making in your Cyntec business in the fourth quarter?
Because Cyntec is a 100% owned private company. So I don't know why you can't see the numbers, I mean, the numbers of Cyntec. So that's something I'm curious. But in terms of the consolidated view, I think our Cyntec is -- I mean, in terms of the margins, and cost and everything, that is pretty healthy and pretty good.
I am not sure why you so -- we have some loss-making in Cyntec in fourth quarter, but actually, if you look at the gross -- the GP margin of our fourth quarter, the better GP margin of our fourth quarter, which is partially related to the better demand for our Cyntec business, passive business. So in our view that, I think that the Cyntec situation is pretty healthy. So I think that's probably because of the accounting thing.
So I think I -- we have mentioned -- sorry, we have answered all the questions. So okay, thank you for joining this online meeting. We'll see you next month. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]