3689 UDE Gary Chen April 2014
Disclaimer • The information contained in this confidential document ("Presentation") has been prepared by UDE (the "Company"). It has not been fully verified and is subject to material updating, revision and further amendment. • While the information contained herein has been prepared in good faith, neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers gives, has given or has authority to give, any representations or warranties (express or implied) as to, or in relation to, the accuracy, reliability or completeness of the information in this Presentation, or any revision or supplement thereof, or of any other written or oral information made or to be made available to any interested party or its advisers (all such information being referred to as "Information") and liability therefore is expressly disclaimed. Accordingly, neither the Company nor any of its shareholders, directors, officers, agents, employees or advisers takes any responsibility for, or will accept any liability whether direct or indirect, express or implied, contractual, tortious, statutory or otherwise, in respect of, the accuracy or completeness or injury of the Information or for any of the opinions contained herein or for any errors, omissions or misstatements or for any loss, howsoever arising, from the use of this Presentation or the information. • Neither the issue of this Presentation nor any part of its contents is to be taken as any form of commitment on the part of the Company to proceed with any transaction and the right is reserved by the Company to terminate any discussions or negotiations with any prospective investors. In no circumstances will the Company be responsible for any costs, losses or expenses incurred in connection with any appraisal or investigation of the Company. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the recipient with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation which may become apparent. • This Presentation should not be considered as the giving of investment advice by the Company or any of its shareholders, directors, officers, agents, employees or advisers. Each party to whom this Presentation is made available must make its own independent assessment of the Company after making such investigations and taking such advice as may be deemed necessary. In particular, any estimates or projections or opinions contained herein necessarily involve significant elements of subjective judgment, analysis and assumptions and each recipient should satisfy itself in relation to such matters. • This Presentation includes certain statements that may be deemed “forward-looking statements”. All statements in this discussion, other than statements of historical facts, that address future activities and events or developments that the Company expects, are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing, general economic, market or business conditions and other unforeseen events. Prospective Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in forward-looking statements. 2
UDE – Young and Restless We are a Global Leader in Ethernet Technology Applications. • We are the rare manufacturer that is able to combine automated volume • production capability with a high degree of product customization. While we are proud of our historical record of healthy growth in profits • and 20%+ ROE, we seek investors who believe in our vision for future growth. We are not wedded to any single product, but instead seek to leverage • UDE manufacturing management expertise to seek out new business opportunities. 3
2013 Results & 2014 Outlook Strategic Vision for 2014 & Beyond The UDE Way Appendix 4
2013 Results and 2014 Outlook 5
Total Shareholder Return was 54% in 2013 • Share Price Appreciation : UDE’s share price rose 48% in 2013, closing at NT$91.1/share on December 31, 2013. • A 5.8% Yield : We paid a cash-dividend of NT$3.8/share on 2012 earnings, representing a 5.8% yield based on UDE’s year-end 2012 close. • Rising Dividend Payment : The UDE Board of Directors has proposed a cash dividend of NT$4.5/share for 2013 earnings. This is an increase of 18% over 2012 and represents a 60% payout. 6
Review of 2013 Operating Results Record High Revenues : • UDE’s 2013 revenue reached a record NT$4.7bn, growing 21% YoY. Margin Expansion : • Operating income and Income Before Tax both reached record highs, growing by 26% and 25% YoY, respectively. － Networking revenues reached a record high 38% of sales. － Efficiency and automation gains extended our cost advantage versus peers. Higher Tax Rate : • Effective 2013 tax rate was 23.7% versus 17.8% in 2012. － Higher tax rate for Dongguan plant. － Extra taxes were booked in 3Q13 due to insufficient booking of taxes for the China plant in the previous two years. 7
Networking Revenues are Driving Revenue Growth NT$mn 5,000 PC Networking Consumer 4,000 33% 31% 3,000 30% 31% 38% 34% 2,000 25% 16% 23% 23% 1,000 45% 46% 35% 29% 61% 0 2009 2010 2011 2012 2013 8
2013 Operating Profit Reached a Record High Gross Margin % Operating Margin % 27.8% 15.2% 27.4% 27.4% 14.1% 26.5% 13.6% 13.4% 13.0% 25.5% 4,692 664 3,876 3,486 528 472 3,094 454 1,993 268 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Revenues NT$ million Operating Profit NT$ million 9
UDPS + Automation: Continued Payoff in 2013 More efficient production and higher profitability NT$ million 2010 v 2009 2011 v 2010 1,400 30% 28% 2012 v 2011 2013 v 2012 27% 27% 27% 70% 26% 62% 1,200 25% 1,078 60% 26% 1,000 19% 50% 20% 39% 800 19% 40% 662 13% 15% 12% 600 30% 408 10% 400 16% 16% 483 10% 20% 5% 200 10% 5% 34 4% 0 0 0% 0% 2008 2009 2010 2011 2012 2013 -2% -10% -6% -7% Estimated Gross Margin Improvement from TPS -20% Reported Gross Margin (includes effects of TPS implementation) Growth in number of Growth in unit production Estimated Gross Margin (without TPS implementation) operators 10
2014 Outlook A strong start to 2014: Pricing Pressure: 1Q14 revenues grew 15% YoY to Our clients in the PC and consumer NT$1.28bn as a strong start to space are under significant pricing 2014. pressure. Accelerated investment in Accelerated investment in Sales & Marketing + R&D: Capex: We feel that the timing is right to The outlook for volume demand is put increased emphasis on the strong. We are also optimistic development of advanced about the prospects for share products and penetration into gains in the networking segment, these markets. and subsequent product mix improvement. 11
Strategic Vision for 2014 & Beyond 12
Strategic Vision for 2014 & Beyond Robust Investment in Advanced Products and Markets 1. Systematic Cultivation of Human Resources 2. Accelerate Process Automation 3. 13
Integrated Investment in R&D, Sales and Marketing Penetrating New Markets Robust R&D Investment Sales & Marketing outlay to be increased R&D spending to be increased by 50% by 30% over the next two years. over the next two years. New hires to be focused on North Focus to be on high-end networking American networking market. products Secondary focus is mass market consumer Will establish an advanced R&D lab in segment in China. Taiwan. Seek to win share when networking companies introduce new generation products. This generally happens on a 2-year cycle. Our initial efforts in this area look set to pay off in 4Q14. 14
Investing in HR to Manage Future Growth • With an eye to the next stage of UDE’s growth, we are cultivating teams of veteran employees that will be capable of managing new product initiatives. Systematic Training SOP: We have established a program of rigorous and systematic training for all UDE operators and technicians. Apprenticeship Program in Sichuan: We offer 2-year apprenticeships with on-site plant training to students attending our technical college. • We are pursuing organic product development and M&A, seeking to take small but promising business lines and expand their scale. 15
The UDE Way 16
Differentiated Targeting Market Product Focus Share Gains Outstanding Keeping Up With Financial the Cloud Performance 17
The UDE Way Soft Power 1. UDPS Lean Production System 2. Production Line Automation 3. Strict Cost Management 4. 18
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