Letter to Shareholders

In 2021, LITEON has faced extreme challenges such as the COVID-19 pandemic in Taiwan and the obstruction of global supply chains. However, our employees have not only conquered all obstacles and increased the overall revenue of LITEON but also obtained new perspectives and abilities to face challenges, thereby bringing more resilience and competitiveness to the operations of LITEON. The company created record highs in profitability and net income per share for the year. The global consolidated gross revenue of LITEON in 2021 was NT$164.828 billion, an increase of 5% compared to the year before. Benefiting from the optimization of product combinations along with the flexible and speedy global smart manufacturing and supply chain management, LITEON was able to enhance its operational efficiency and had a global gross margin of 18.5% and an operating profit margin of 7.9%. The operating profit was NT$13.042 billion, an increase of 28% compared to the year before, and the profit after tax was NT$13.887 billion with EPS at NT$6.01, an increase of 39% compared to the year before. The profit growth rate of LITEON has apparently exceeded its increase in revenue, thus realizing the company's goal of high profit growth.

Market-oriented growth strategy

Ever since the current management team took office in August 2020, it has been promoting a market-oriented growth strategy, leading LITEON back on the track of positive growth. With “opto-electronics, energy conservation, and environmental sustainability” as our main developmental theme, LITEON focuses on applications such as “smart homes”, “smart electric vehicles”, “5G telecommunication”, “cloud computing”, and “smart grid”, hoping to use light and electricity to make the future lives of humanity smarter, more convenient, and more energy-saving, and in doing so realize the sustainability of both the company and the environment. In 2021, we invested a lot of money in research & development, having increased the overall budget by over 20%. This accounted for 3.7% of the company's revenue, an increase of 0.5% compared to the 3.2% in 2020. In 2022, we will continue to increase that number to 4.5%, which will mainly be invested in the development of opto-electronic semiconductors, power management solutions used in cloud computing, 5G, AIoT, and automotive electronics. In addition to the development of hardware, we will also invest in the development of a variety of software features. LITEON does not merely provide services for the design and manufacture of products according to the customer need; instead, our strategies are now more oriented towards the future needs of the market. Through the company's independent research and development, LITEON provides market systematic solutions to increase the value of products.

To achieve growth momentum and improve the planning of product deployment, our goal is to build a LITEON core business with a double-digit compound annual growth rate. By successfully adding new product lines and acquiring new customers in 2021, the opto-electronics department and the power products of the cloud computing department at LITEON saw massive increases in market share. The two departments have accounted for 47% of the company's revenue and will become the two main growth engines of LITEON for the coming three years. The new products and new customers these two departments have accumulated in the past few years have brought them large numbers of orders, and it is estimated that their revenue will both have double-digit annual growth rates.

The automotive electronics and 5G products of LITEON have completed the certifications necessary for cooperation with customers over the past two years, and as the market becomes mature, these products will start to grow this year. The automotive electronics department is built on a strong foundation of more than 40 years of experience. It provides LED lamp modules, head-up displays for self-driving vehicles, and the camera modules for Area View in and outside of vehicles, and has international automotive standard manufacturing processes and management systems such as IATF 16949, ISO 26262, and ASPICE. The customers of the automotive electronics department are all tier 1 automotive manufacturers from around the world. With the high global demand for electric vehicles, LITEON satisfies the market's requirements with a full range of product lines, including the independently developed charging stations for electric vehicles based on a mature power inverter technology, which have been bought by the top three electric vehicle service providers and emerging automotive manufacturers in both Europe and America. As the number one supplier of optical coupling equipment in the world, LITEON has become the first AEC-Q102 certified optical coupling equipment supplier to satisfy the requirements for batteries and power management in electric vehicles. The field of 5G products represents a new battleground for corporations. LITEON has joined the O-RAN Alliance, and has introduced 5G small cells and solutions that support the O-RAN standard in 2021 to enter the global telecommunication market.

In mid- to long-term development, we continue to use the core technologies of light and electricity to invest in micro-grid solutions that mainly focus on power management for families in the future as our mid- to long-term strategy of ESG investment. This will not only to contribute to environmental sustainability but also help build a second growth curve for LITEON, thereby implementing LITEON’s business philosophy of energy conservation and environmental sustainability, and providing our shareholders a better investment efficiency. Furthermore, the strategic alliance between LITEON and Playnitride has increased the deployment of MicroLED display technology on high-tech wearable devices such as augmented reality (AR) and mixed reality (MR) devices. Moreover, the strategic cooperation with Kneron, an emerging company developing AI chips, has accelerated the realization of smart cities and the applications of auto-piloting.

A corporate culture based on people

We believe talent is a key factor for LITEON to succeed in this competitive industry. We have strategies, and we devise plans to tie the development of business operation with the goal of sustainability, transforming LITEON into a corporation that can easily adapt to the digital age. In 2021, LITEON initiated the digital transformation project for the in-depth integration of company resources, transforming data we would not see in a conventional process into valuable information through digital tools, thus optimizing the management process and the efficiency of decision-making. Building on the goal of focusing on talent, the digital transformation of LITEON further includes assisting all employees to become digital workers, and also discover new talent who have strong potential in the process of transformation, who can help turn LITEON into a digital corporation. Furthermore, we also welcome all young talent who share our vision, so that together we may create an organization and corporate culture of diversity, open-mindedness, and tolerance, and providing a chance to fulfill our dreams together as well as a platform to attract outstanding personnel. For this purpose, LITEON initiated the employee stock ownership trust in 2021. Employees in Taiwan may choose to participate or opt out, and through the long-term ownership of LITEON stocks, employees are able to share the operational results of the company, resulting in the goals of talent recruitment, talent retainment, talent cultivation, and happy retirement, creating a three-way win for employees, shareholders, and LITEON.

Supply chain carbon management

We will continue to closely cooperate with customers and suppliers, accelerating the global deployment as well as the flexible allocation of production management. In the face of global raw material shortages and uncertain prices of raw materials, LITEON has chosen to actively pursue co-beneficial solutions, thereby ensuring the overall resilience of supply chain. Not only do we focus on achieving the sustainable development goals of LITEON but we also care about how to bring our partners in the value chain to understand and help each other. This way, we may continuously enhance the overall industry together. As one of the eight founding members of the Taiwan Climate Partnership, LITEON has spoken out at the COP26 summit with the other seven members in 2021, pledging to facilitate zero carbon emissions in Taiwan. LITEON has set global Science Based Targets (SBTs) as its basis of calculation and has committed to reduce carbon emission per unit revenue by 39.3% in 2025 compared to the base year 2014. Other than reducing carbon emission on its own, LITEON is also influencing others and promoting the energy conservation assistance program for suppliers, combining external resources to assist suppliers with carbon reduction inspection. In 2021, a total of 77 concrete solutions were presented, potentially saving 10,930 thousand kWh of power. Furthermore, LITEON also commenced the sustainable supply chain green transformation, inviting members of the supply chain to engage in organizational green house gas emissions and inspections for carbon footprint of products, and continuously refining the carbon management of supply chain.

LITEON has received the highest rating in the CDP Supplier Engagement Rating Leaderboard for two years in a row and has won the silver award at the S&P Global Sustainability Yearbook 2022. As of 2021, LITEON has been listed as a constituent in DJSI for 11 years consecutively, and is listed on world indexes and emerging markets indexes. LITEON was listed by MSCI and the ESG Leaders Index for 8 consecutive years, listed by FTSE4Good Emerging Markets Index and Taiwan Sustainability Index for 4 consecutive years, and has received “The Most Prestigious Sustainability Awards-Top Ten Domestic Corporates”, the “IT&IC Manufacturing Platinum Award” under the Corporate Sustainability Report Awards category, and under Best Performance of Specific Categories, the “Climate Leadership Awards”, the “Circular Economy Leadership Awards”, and the “Supply Chain Management Awards” at the 2021 TCSA.

LITEON is transforming

Different perspectives often lead to different results even if the differing perspectives are all on the same thing. LITEON had faced many unprecedented difficulties in 2021. But when we start to see things from a positive perspective and view challenges as opportunities for us to enhance our abilities, we will have created a chance to win in spite of all hindrances. A single change of perspective has not only led LITEON out of the woods, but has also led to the company achieving fine results. The employees of LITEON have worked side-by-side to overcome a wide array of challenges. They are not only colleagues to one another but also partners who can fulfill dreams together. To them, this is not just a job, but instead something meaningful and valuable which they identify with. With this sense of identity, we encourage our employees to set higher goals for themselves and challenge themselves to achieve unlikely victories together. Our cooperation with suppliers is also a partnership of mutual trust and mutual assistance. We believe that with this kind of corporate culture, LITEON will become a unique and dynamic corporation that is capable of quickly adapting to changes in the industry. LITEON has always emphasized integrity. Our word is our bond. This is our commitment.

We deeply appreciate the long-term trust and support from our shareholders, and we also sincerely invite our shareholders to actively take an interest in understanding the changes and growth of LITEON. Together we will welcome a new future through the transformation of LITEON.