Dear investors and media, Happy New Year. Welcome to Lite-On Technology 2021 Q4 online earnings conference. When you raise your questions, please type your questions with your name. We will organize your questions and pose them for you later. Our agenda today has three parts. First of all, I will present to you 2021 Q4 and the whole year of 2021's earnings. Then President Anson Chiu will explain to you our operation results and future prospects. In the QA session, we will open the floor for questions with further explanations.
2021 Q4 results, net sales TWD 44.569 billion. Cost of goods sold TWD 36.867 billion. Gross profit TWD 7.702 billion. The rate is 17.3%. Operating expenses TWD 4.089 billion. The rate is 9.2%. Operating profit in Q4 TWD 3.613 billion. The rate is 8.1%. In Q4, in terms of other income and expense, it was TWD 455 million. Profit before tax TWD 3.158 billion. Income tax expense TWD 642 million. Non-controlling interests TWD 7 million. Profit attributable to parent TWD 2.509 billion. After-tax EPS TWD 1.111. In Q4 last year, non-operating income includes the goodwill impairment of TWD 960 million at ODD business. In recent years, the company has concentrated resources on high growth and stable profit businesses, and for businesses with uncertain prospects, their economic value is adjusted. In Q4 last year, if we exclude this impairment, the non-operating income is about TWD 510 million.
Well, in terms of QOQ, net sales is 6%, YoY 8%. Gross profit QOQ, well, due to raw material cost increase, the QOQ in Q4 was -5%, but YoY is 15%, and this is thanks to profit portfolio optimization and operation efficiency enhancement. There was an annual growth of 1.1 percentage points. Operating expenses QOQ -10%, YoY -16%. The largest growth comes from R&D. In Q4 last year, it accounted for 3.7% of the sales. The annual growth was 30%, so it's our policy to continue to invest in R&D. Operating profit QOQ 3%, YoY 99%. There was an annual growth of 3.7 percentage points. Profit before tax YoY 27%. Profit attributable to parent 25%.
In Q4 last year, our gross profit 17.3% and operating profit 8.1% were all historic highs in Q4. Our EPS TWD 1.11 was also historic high in five years. If we look at each segment's sales and profit numbers, Optoelectronics in Q4, sales TWD 8.336 billion, YoY 7%, sales percentage 19%, gross profit margin 22%-32%. Operating profit TWD 928 million, YoY 20%. Now as for Cloud and AIoT, sales in Q4 TWD 12.456 billion, YoY 13%, sales percentage 28%, gross profit margin 15%-25%. Operating profit TWD 828 million, YoY 16%.
As for Information Technology & Consumer Electronics, in Q4, sales TWD 23.776 billion, YoY 5%, sales percentage 53%, gross profit margin range between 12% and 18%, operating profit TWD 2.312 billion, YoY 221%. In Q4 last year, the three segments sales and profit continued to go up, especially the high GP segments, which are Optoelectronics and Cloud and AIoT, they grew relatively more.
If we look at the entire year of 2021, last year, net sales TWD 164.828 billion. Gross profit TWD 30.498 billion. The rate is 18.5%. Operating expenses TWD 17.455 billion. The rate is 10.6%. Operating profit TWD 13.042 billion. The rate is 7.9%. Other income and expense, positive TWD 4.590 billion. Profit before tax, TWD 17.632 billion. Income tax expense, TWD 3.703 billion. Non-controlling interest, TWD 43 million. Profit attributable to parent, TWD 13.887 billion. After-tax EPS, TWD 6.01. The group has recognized the expected credit loss from the Silitech business with the best solution in 2021 financial report. If we exclude the expected credit loss and other adjustment, the OpEx of the entire year was 10%, and the operating profit margin was 8.5%. The YoY for sales is 5%. If we exclude the transferred businesses in 2020, the YoY is up by 10%. Gross profit YoY, 11%. This is mainly due to product portfolio optimization and operation efficiency enhancement.
The annual growth was 1.1 percentage points. Operating expenses YoY, 2%. The fastest growth comes from R&D. Last year, throughout the year, it accounted for 3.7% of the sales. The annual growth was more than 20%. Operating profit YoY, 28%. The growth was 1.4 percentage points. The profit before tax YoY was 40%, and the profit attributable to parent YoY, 39%. Overall, our gross profit rate, our operating profit rate, and EPS in 2021 were all historic highs. 2021 revenue contribution by segment. In 2021, Optoelectronics accounted for 20%, Cloud and AIoT, 27%, Information Technology & Consumer Electronics, 53%. We can see that the revenue growth momentum is mainly Optoelectronics and Cloud and AIoT. Now let's look at some numbers.
Last year, Optoelectronics sales TWD 33.297 billion, YoY 16%, sales percentage 20%, gross profit margin range between 22% and 32%, which is higher than the corporate average. Operating profit TWD 4.238 billion, YoY 24%. Cloud and AIoT sales TWD 44.845 billion, YoY 11%, sales percentage 27%. Gross profit margin range between 15% and 25%. Operating profit TWD 2.935 billion, YoY 18%. Information Technology & Consumer Electronics sales TWD 86.685 billion, YoY 7%, sales percentage 53%. Gross profit margin range between 12% and 18%. Operating profit TWD 8.737 billion, YoY 49%. We can see that last year, the three major segments all enjoyed high quality growth, especially the high GP segments of Optoelectronics and Cloud and AIoT grew relatively higher than the corporate average.
Now in terms of the balance sheet, in Q4 last year, compared to the previous quarter, there are some items with bigger changes. First of all, cash and equivalent. In Q4, there was -TWD 1.2 billion, accounts receivable +TWD 2.5 billion, inventories +TWD 1.5 billion, short-term debt -TWD 3 billion, accounts payable +TWD 1.7 billion. In Q4 last year, our current assets was +TWD 2.6 billion, current liabilities -TWD 0.9 billion, so the current ratio went up slightly compared to the previous quarter.
Now let's look at our inventories. In Q4, it was TWD 32.3 billion, which was 1% more YoY. This is mainly because in 2020, we started our strategic procurement. For our supply chain management, we had more flexible and efficient responses to make sure that our shipment starting from Q1 2020 would increase every quarter and ensure our shipment speed and flexibility. As for net cash, in Q4, it was TWD 39.891 billion. This shows that at the end of Q3 last year, we successfully purchased 40,000 treasury stocks. The fact that we paid the cash dividend with TWD 7.1 billion for the first half of this year. This is why net cash returned to this level in Q4 last year.
Very quickly, a conclusion for last year and visions for this year. In Q4 last year, sales YoY 9%, GPM 17.3%, OPM 8.1%. All of these are historic highs in Q4. EPS 1.11 with 25% year-over-year, which is also historic high for Q4 in five years. For the whole year, sales growth 5%, gross profit 18.5%, operating profit 7.9%, EPS 6.01. All of these are historic highs. More importantly, GPM and OPM annual growth enjoyed 11% and 28% respectively, which surpass the growth for sales, which realizes high quality profitability and growth. All in all, last year the profit continued to increase mainly because product portfolio optimization, smart manufacturing globally, and the flexibility and speed of supply chain management.
As for the vision for Q1 this year, we expect to see that both sales and profit will enjoy moderate growth YoY. Optoelectronics and cloud AIoT segments will account for more than 50% of the corporate sales. The growth for Q1 mainly comes from Optoelectronics, cloud computing, and automobile electronics. Optoelectronics semiconductors are used in green energy, industrial automation, wearables, AR and VR, and Mini LED. The demand and shipment are increasing. As for cloud, it benefits from high wattage, high efficiency, and high density products. These power management products enjoy higher production value and market shares in data centers and enterprise users. As for automobile electronics, it benefits from EV chargers and ADAS market demand's rapid growth.
In terms of our ESG results, we just received CDP Supplier Engagement Rating. We received the highest rating, Leaderboard. In addition, in S&P Global Sustainability Yearbook this year, 2022, we received the Silver Class. In addition, we have long been included in ESG indices. Now, I'm going to give the floor to the president, who will talk about the operation results and future prospects.
Dear investors, first of all, belated Happy New Year. I wish you great health and prosperity in the Year of Tiger. Last year, in terms of supply chains, there were many challenges, such as the shortage of labor, raw materials, port congestion, raw materials price increase, among others. However, as Julia just told you, our sales came back to normal growth already, and our profit even achieved historic highs. In terms of sales, in addition to the ICT market growth, last year in optoelectronics and cloud power supply products, we enjoyed an increase of market shares, new clients and new products.
If we exclude the transfer businesses such as SSD and Silitech, our overall annual growth rate was 10%. As our growth came from relatively higher GP segments of optoelectronics and cloud AIoT products, our product portfolio became more robust and our product increased as a result. This is a high quality growth. This is also a very important indicator for our future growth. When we look at this year's prospects, cloud and optoelectronics products will continue to be the two most important growth engines for the next three years. The sales are expected to enjoy double-digit growth. The main reason is because over the past few years we have developed new products and new clients and they are entering the phase of mass production and shipment. In this regard, our market shares will continue to grow steadily.
Apart from Cloud and Optoelectronics products, in terms of 5G AIoT and automotive electronics, we will also have double-digit growth. Last year, we invested more R&D expenses in these areas, so the company's R&D spending went from 3.2% of 2020 to 3.7% of last year. This year it will continue to grow to 4.5%. In the development of these system products, it requires more R&D investment because these products are not just about hardware equipment development, they also require software functions. These products are not just about following clients' needs to design, manufacture, and service. They also look at future market trends and needs, and Lite-On researches and develops by itself to provide systematic solutions for the market, so the product value is higher.
Over the past two years, we have gradually finished certification with clients. This provides a very good opportunity for Lite-On's future growth. As a result, we are optimistic about that over the next three years, our core business' CAGR will enjoy double-digit growth. We can be optimistic about this. Last but not least, energy saving and carbon reduction will be something that enterprises will have to face seriously. In terms of ESG, we will make good use of Lite-On's Optoelectronics core technologies. We will choose microgrid solutions as the strategy for the mid to long-term ESG investment strategy for the company.
In addition to contributing significantly to environmental sustainability, this also makes good use of our core technologies and capabilities in order to establish a second growth curve for the company. This can truly realize using Optoelectronic technologies to achieve sustainability. At the same time, it provides shareholders with better investment performance. This concludes my brief presentation and explanation. Now, the floor is open for investors to raise questions. Thank you all.
Thank you, everyone. Now it's time for Q&A. We will also give you further explanations. You can type your questions with your name. The first question is this. First, congratulations to the management team that Lite-On now has positive growth again. What are the mid to long-term goals and development strategies?
Well, as we just explained to you a while ago, in the future, in mid to long-term, the company will continue to invest in the mega trends which we just talked about, cloud, optoelectronics, and automotive electronics. These will be our mid to long-term growth drivers. By high quality growth, we mean that in mid to long-term, we try to continue to grow our sales. At the same time, our profit growth will have to be larger than that of our sales. Over the next three years in our core business sales CAGR, the CAGR will enjoy double-digit growth.
Next question: Could you further explain many great products of the company, and what are the current results?
Sorry, let me add one thing to the first question. Internally, we have another mid- to long-term goal, which is 2010. Well, the sales are expected to surpass TWD 200 billion, and GP is expected to be higher than 20% and OP higher than 10%. This is to add to the first question. As for the next question about microgrid, it requires some time to explain to you, but let me be very brief in explaining this idea. Well, energy management will become more diverse in the future. It means that power supply will not only come from power companies, but also solar, thermal, and wind energies. When these energies come, they are less stable and more intermittent.
When we receive such energies, we need to have some energy storage technologies in order to store such energies. Energy storage will be one key point. Second, with storage equipment, we also need to manage power. In that case, we need to have converters or inverters and related products on the system end to manage energy. Simply put, such an energy management system can enhance the efficiency of energy usage. I'm sure that in the future, there will be more opportunities for us to disclose more information to you investors so that you can have a better understanding about such investment.
Next question. How do you look at Q1 and 2022's GP prospects? You mentioned, sales over TWD 200 billion and GP over 20% and OP over 10%. Are these the goals for the next three years?
Yes. These are mid to long-term goals. Sales over TWD 200 billion by 2023 and GP over 20% and OP over 10%. These goals are set internally and will not change. As for Q1, we will have an opportunity to grow compared to, well, in YoY terms. In Q1 this year, we will likely surpass the sales from last year. Well, in Q4, as you all know, raw material shortage was there, so there were some price increases which impacted our profit. In Q1, we will start to negotiate with clients and to adjust prices. In Q1 this year, our profit is expected to grow as opposed to last year.
Next question is related to the shortage of raw materials. The capabilities of cost transfer compared to last year, are there any differences? And what is the visibility of our orders now, and also the shortage of raw materials?
Well, in terms of raw materials, I think the situation will not be as last year or two years ago, because I'm sure that you are all very clear about this. All the raw material prices have more or less peaked. We think that there's little room this year for raw material prices to continue to go up. As for semiconductors, the demand is still there for automotive semiconductors, so it's harder to make projections. For semiconductors, the demand in Q3 and Q4 this year seems to calm down as well. I think there's little pressure or little room for raw material prices to go up. I think this year we need to focus more on enhance the competitiveness of our products. If the cost can be more optimized for our products, then our products can enjoy higher competitiveness on the market. I think this should be our key point.
Next question. What is the situation of dividend distribution this year and the timing?
Well, let me answer this question. Well, this is the decision of the BOD. We will make an immediate announcement after the decision of the BOD. Our corporate charter stipulates that the dividend distribution rate will not be lower than 70%, so compared to the past, it will be more or less similar. We have to wait for the decision of the BOD before we make an announcement.
Next question. At the end of Q4, the inventories continued to go up. Could you explain the reasons for that? And also, you mentioned R&D expenditure will go up to 4.5%. Is it for the entire year or is it incremental growth, quarter after quarter?
Well, in terms of inventories, that was the calculation at the end of the quarter. You know that at the beginning of this year, there was a New Year vacation. So this is why we had one more week's inventories before the vacation. This has always been the case. The clients always requested that. So one more week's inventory for the New Year vacation, this is something that has always been the case and should be considered normal. In January and in February, during the vacation, such inventories are gradually digested and come down to the original level. As for the R&D investment, R&D investment cannot be done overnight. It has to be incremental. In 2020, it accounted for 3.7%, and last year we aimed at 4%, and this year, at the end of the year, we hope that it will account for 4.5%. We look at this issue from a whole year perspective.
Next question has to do with new businesses. We look forward to the development of the new businesses. I want to know the expansion plans, especially for the niche products. What are the CapEx plans?
Well, last year, I think I explained to you, well, our cloud and Optoelectronics capacity. In last year's budget, we had about TWD 6 billion CapEx. TWD 3 billion out of it was used to expand capacity. Last year, the implementation was completed. This year, the expansion will not be as large as last year. It will be about between TWD 1 billion-TWD 1.5 billion. Our CapEx this year is not less than last year. This year, the investment, as we told you, we will increase R&D. At the same time, in terms of production line automation, we will also invest more CapEx. On a YoY basis, our CapEx this year is roughly the same as last year, but it will go from capacity expansion towards R&D investment and also towards production line automation equipment improvement.
You mentioned that over the past two years, we've been doing certification with clients. This year, which products can start to contribute to sales, and what are the products?
First of all, 5G O-RAN products. Second, EV chargers. Third, cloud products, new cloud products. As I said previously, PSU plus BBU, so PSU plus power supply management system. This year, such products will enter the phase of mass production and will start to contribute to our future growth and sales.
Next question about Mini LED. What are the growth prospects for it, and what are the applications?
We've been investing in this area. It's been growing. It's another important growth driver in our Optoelectronics. It's hard to make a projection for its future growth, but basically, its CAGR will be positive growth. I think this is something worth expectations.
Next, automotive electronics sales percentage, how much is it, and what are the growth prospects? How do you look at the growth target and shipment for EV chargers?
Well, for automotive electronics, last year it was less than 10%. We hope that this year it will approach 10%. This is the initial forecast. As for EVs, over the past few years, the product portfolio has been made more comprehensive. This year, for EV only, compared to the past, it will be more than double the speed of growth, will be more than double.
Next question. In terms of photocoupler and cloud server power supply, what are the goals this year?
Photocoupler and cloud server power supply. Well, photocoupler is a single product, so it's hard to project the market share. As we said previously, we are now number one worldwide in terms of photocoupler market share. We will continue to take the lead. As for power supply, if we look at cloud power supply only, our past market share was only about 10%-20%, but last year it was over 20%. In the future, we aim at 50% of market share as our goal. I think over the next two years, we will have a chance, in terms of cloud, to achieve a 50% as our market share.
Next question. This year, are there still asset impairment plans, and what is the estimated sum?
Well, as Julia said, over the past two years, we've had some arrangement, and I think this year, the handling is almost done in the company. So in the future, we will simply follow accounting rules for necessary handling. There won't be that many, well, impairment opportunities.
There's one question about Q4 GP minus 2%. Why was that?
Well, in Q4, as you can see, our sales went up. My personal observation is that in Q4, semiconductors had some, well, price increase requests. In order to satisfy our clients, we aim to satisfy our clients as our priority. We accepted suppliers' price raise. We are now negotiating with our clients. Maybe in the future, it won't be reflected on prices, but rather we will use a one-off price difference to compensate for that gap.
Next question about capacity and utilization. What is the utilization situation and capacity distribution? Also overseas, progress in Vietnam, Thailand, in India. Has the construction started in Vietnam? When will the new capacity in Kaohsiung start its construction?
Well, as I said, last year, the expansion, capacity expansion was almost implemented, and now capacity utilization is almost 100%. Apart from mainland China, we have some major presences in Vietnam, in Thailand, and in Kaohsiung, Taiwan. The expansion is ongoing. Well, in Kaohsiung, for example, now there are some restrictions due to COVID-19. Many migrant workers cannot be recruited, so in terms of capacity expansion, there are some limitations. In Thailand, it's done, so no problem there. In Vietnam, we are now in the second phase of the construction, the expansion construction. So over the next two years, capacity in Vietnam will double.
Next question. One survey institution indicates that in 2022, the notebook shipment growth will be zero. So what do you think about our IT segment's Q1 sales in 2022 operation prospects?
What do you mean by zero?
Well, zero growth. 0% growth for notebooks shipment this year.
Yeah. I think people have more concerns about notebooks because the pandemic seems to come to an end, and people tend to think that notebooks are also coming to an end. People may think, may project that there might be some decline in the short term. Based on the data from the clients, we are not seeing such, well, such decline or contraction. First of all, work from home and work in the office are combined, so it's a hybrid mode of working. We may work in the office or we may work from home. Some companies during the pandemic realized that work from home actually has higher efficiency than work in the office, so they encourage employees to work from home. If you want to travel between home and office, notebooks are still the best option.
Currently, perhaps in terms of educational notebooks, it's going to be stagnant. In terms of business notebooks, we are still seeing growth trends. In terms of gaming notebooks, it's still growing as well. We don't think that there won't be any growth for notebooks or there will be decline for notebooks. We don't agree with such an opinion. We are still seeing growth for notebooks this year.
A few questions online want to confirm about our GP and OP prospects. They wanna know what we think about Q1 and the whole year's GP targets.
Well, as we explained to you a while ago, in terms of YoY, Q1 will enjoy moderate growth compared to Q1 last year. If we look at the GP for the whole year of 2022, our projection is that the growth will be quarter by quarter. The GP growth will also, and the sales growth will both be there. In terms of GP growth, we will have the chance to surpass the GP growth from last year.
Next question. Optoelectronics growth momentum, does it mainly come from EV chargers or AR, VR, photocouplers or anything else?
Well, for optoelectronics, it's not just these two areas because the application is very wide. For example, AIoT, hand-carry devices, and also consumer products. They all require optoelectronics products, and the application continues to grow. So I think optoelectronics growth is still there because the demand, market demand is going up still.
Next question. The future rising interest rates, what is the impact on the company?
Well, we're not seeing any major impact of rising interest rates because our overall operation and investment focus on high-growth areas such as cloud and also optoelectronics semiconductors and automotive electronics. I think you can see these trends in many different reports. We have invested for many years in these areas. Well, regardless of the rising interest rates and regardless of their impact on the economy as a whole, the growth trends in these areas will remain. Any other questions?
We have one new question coming in about cloud. The investor wants to know why the market share of cloud can achieve 50%, and what are the products, and how much will our production value go up?
Well, let me explain it this way. In the past, our cloud market share was between 17% and 20% because we only had one single client. Last year, we successfully obtained another client, also from North America, and two other important clients are certifying our samples already. Market share increase mainly comes from new clients. This is one major reason. New products also allow our sales to go up. As we mentioned, PSU and BBU, this new product combination, we are taking the lead in this regard. Well, these two factors allow our sales and market share to go up, and they also allow our GP to be better.
There's another important factor which helps us increase our sales. Last year, when clients were facing global supply chain shortage, one of our major competitors had some supply chain issues. We were able to, within a very short period of time, supply to our clients, but our major competitor could not provide the same services for clients. We grew our market share significantly last year because of this as well.
If there are no further questions, this concludes our earnings conference. The content is going to be put on our official website. Thank you for your participation. We wish you a happy and successful new year.