TECO — Investor Presentation 2021

Jun 22, 2021

TECO Electric & Machinery Co., Ltd.

2021 1[st] Quarter Earnings Conference

May 21[st] , 2021

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Safe Harbor Statement

• This Presentation contains certain statements that are forward-looking

• based on current expectations and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

 Except as required by law, we undertake no obligation to update any – forward looking statements, whether as a result of new information, future events or otherwise.

2

Agenda

I. 1Q21 Financial Results II. Recap of Recent Major Events

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Statements of Comprehensive Income – 1Q21

(In NT Millions)	1Q 2021	4Q 2020	QoQ 1Q 2020	YoY	YoY
Operating Revenue	11,991	12,474	-3.9% 10,665 12.4%
- Recurring Operating Revenue	11,540	12,472	-7.5% 10,584 # 9.0%
- Gain(Loss) on financial assets at fair value through profit or Loss Net Gross Profit Operating Profit Non-operating Income Income Before Tax Income Tax Net Income **	451 3,189 1,395 37 1,432 (201) 1,102	2 2,564 860 144 1,004 (104) 783	22450.0% 81 24.4% 2,647 62.2% 809 -74.3% (171) 42.6% 638 93.3% (99) 40.7% 447		456.8% 20.5% 72.4% -121.6% 124.5% 103.0% 146.5%
EPS(NT$)	0.53	0.40	32.5% 0.23		130.4%

• Revenue in 2021Q1 increased by 12.4% compared to 2020Q1, mainly due to: 1) growth in Taiwan Engineering & Home Appliances business; 2) financial asset valuation increase of Fubon Media and other financial assets held by Tong-An Investment and 3) business growth from automation business in China, Motovario, Pelican and ITTS .

• Recurring operating income in 2021Q1 decreased by 7.5% compared to 2020Q4, mainly due to one-time income from the EID project of Teco and equipment purchase case of ITTS in 2020Q4.

• The net non-operating income in 2021Q1 increased by 210 million compared to 2020Q1, mainly due to the increase in the appraisal of financial assets at fair value through profit and loss.

• • Income tax expenses in 2021Q1 decreased by 102 million compared with 2020Q1, mainly due to the offset of income tax payable in 2020Q1 due to the capital reduction of high-speed rail in 2015.2021Q1

• Excluding non-controlling interest

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Revenue Breakdown

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In 1Q2021, total
consolidated topline up
12.4% YoY
Others
Others
Electrification 9.1%
12.2%
Electrification
Products
Products
34.4% New Energy &
38.0%
New Energy & Engineering
10.3%
Engineering
11.2%
1Q21 1Q20
Smart City
20.6%
Smart City
20.0%
Smart
Smart
Manufacturin
Manufacturin
g
g
22.2%
22.0%
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Sales on Major Business Lines

• ⚫ "Electrification products" decreased by about TWD2.7 billion. The decline was mainly due to the impact of the epidemic, which reduced the demand in the North American market.

• ⚫ "Smart manufacturing” increased by about 320 million, mainly due to: 1) growth in automation in China, Motovario; 2) ITTS equipment procurement business.

• ⚫ "Smart City" revenue increased by about TWD210 million (YoY+9.4%), mainly due to the revenue growth of Teco's home appliance and the increasing demand for e-commerce shopping has led to the growth of Taiwan Pelican due to the impact of the epidemic.

• ⚫ "New energy and engineering" revenue increased by approximately TWD240 million(YoY+22.0%), mainly due to the increase in offshore wind farm substation & IDC engineering revenue.

TWD Billion

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20
15
10
4.0 4.1
5 2.3 2.7 2.2 2.4
1.1 1.3
0
Electrification Smart Smart City New Energy &
Products Manufacturing Engineering
1Q20 1Q21
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Financial Highlights – 1Q21

(In NT Millions)	4Q 2020 3Q 2020 QoQ 4Q 2019	4Q 2020 3Q 2020 QoQ 4Q 2019	4Q 2020 3Q 2020 QoQ 4Q 2019	YoY
Net sales -Recurring *	11,540	12,472 -7.5% 10,584		9.0%
Gross Margin - Recurring *	23.7% 20.5% +320bps 24.2% -50bps
Operating Margin - Recurring *	8.2% 6.9% +130bps 6.9%			+130bps
EPS (NT$)	0.53	0.40 32.5% 0.23 130.4%
ROE (%) **	6.7%	5.1% +160bps 3.2% +350bps
ROA (%) **	4.0%	3.0% +100bps 1.8% +220bps

2021Q1 recurring revenue increased by about 9% compared to 2020Q1, mainly due to: 1) growth of engineering and home appliance in Taiwan; 2) growth in automation in China, Motovario, Pelican and ITTS.

• The recurring gross profit margin for the first quarter of 2021 was 23.7%, a decrease of 0.5% from 24.2% in the same period last year, mainly due to the increase in material costs and the impact of the revenue mix.

  • The recurring operating profit margin in the first quarter of 2021 increased by 1.3% compared with the first quarter of last year, mainly due to the management efficiency enhancement and better expense control .

• Excluding gain(loss) on financial assets at fair value through profit or loss

• ** Annualized number and excluding non-controlling interests

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Recurring Operating Revenue vs. Gross Margin

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NT$ Billion
•
14 30%
24.2%
24.2%
12 22.1%
25%
20.5% 23.7%
10
•
20%
8
15%
12.5
6
11.4 11.5
10.6 10.9
10%
4
5%
2
0 0%
1Q20 2Q20 3Q20 4Q20 1Q21
Recurring Operating Revenue Gross Margin
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The recurring gross profit margin for the first quarter of 2021 was 23.7%, a decrease of 0.5% from 24.2% in the same period last year, mainly due to the increase in material costs and the impact of the revenue mix.

The low gross profit margin in the fourth quarter of 2020 is mainly due to: 1) the increase in the proportion of engineering revenue in the revenue mix in the revenue, and 2) due to the fact that the new Taiwan dollar in 2020 is relative to the US dollar, RMB, Euro, Australian dollar, Singapore dollar, etc. Relatively strong, the appreciation is large, so that the exchange rate has an adverse effect.

• Recurring Operating Revenue = Operating Revenue – financial assets at fair value through profit or loss ** Gross Margin = Recurring Gross Profit / Recurring Operating Revenue

• *** Recurring Gross profit excludes financial assets at fair value through profit or loss

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Recurring Operating Profit vs. Operating Margin

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NT$ Million
1,200 8.2% 9.0% • The recurring operating profit
margin in the first quarter of 2021
6.9% 7.1% 6.9% 8.0% increased by 1.3% compared with
1,000 6.1% the first quarter of last year,
7.0%
mainly due to the management
800 6.0% efficiency enhancement and
better expense control .
5.0%
600
4.0%
944
858
400 774 3.0%
728 701
2.0%
200
1.0%
0 0.0%
1Q20 2Q20 3Q20 4Q20 1Q21
Recurring Operting Profit Operating Margin
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• Recurring Operating Profit excludes financial assets at fair value through profit or loss

• ** Operating Margin = Recurring Operating Profit / Recurring Operating Revenue

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Balance Sheets – March 2021

( In NT$ 1,000)

( In NT$ 1,000)	Amount % Mar. 2021		Amount % Dec. 2020		Mar. 2020
					Amount %
Cash & Cash Equivalent	21,565,432	19%	20,397,260	19%	23,759,597	23%
Receivable	10,188,696 9%		10,642,883 10% 9,627,248 9% 105,679,071 100% 12,921,618 12% 2,816,832 3% 3,611,731 3% 6,000,000 6% 38,053,839 36% 67,625,232 64% 4.41 3.36 2.33 1.75 -11.8%		9,941,792 10%
Inventories	10,319,388	9%	9,627,248		9,832,914 10%
Total Assets	116,958,623 100%				102,023,782 100%
Payable	15,450,054	13%	12,921,618		12,508,412 12%
Short-term Borrowings(inclu. Long - term liabilitis, current portion)	3,189,293 3%				6,083,959 6%
Long-term Borrowings	3,295,687	3%	3,611,731		7,427,410 7%
Corporate Bond Payable	6,000,000 5%				4,000,000 4%
Total Liabilities	41,014,568	35%	38,053,839		42,647,561 42%
Equities	75,944,055 65% 4.68 3.30 2.09 1.54 -12.0%				59,376,221 58%
Key Indices AR Turnover (times) Inventory Turnover (times) Current Ratio Quick Ratio Net Debt to Equity					4.32 3.05 1.88 1.40 -10.5%

• The amount payable at the end of March 2021 increased by 2.53 billion from the end of 2020, mainly due to the recognition of a cash dividend of 2.46 billion.

• At the end of March 2021, short-term loans + long-term loans (due within one year) + corporate bonds payable (due within one year), a decrease of 5.02 billion from the end of March 2020, mainly due to repayment of bank loans.

• Shareholders’ equity at the end of March 2021 increased by 8.32 billion compared with the end of 2020. In addition to the current period’s net profit and capital increase, it was mainly due to the substantial increase in financial asset appraisal benefits.

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Asset Breakdown

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Non Operating Asset -
Non Operating Asset -
Songjiang Building,
Songjiang Building,
Strategic
Strategic Xinchung Factory & Tanshui
Xinchung Factory & Investment-
Investment- Factory
Tanshui Factory Momo.com & THSR
Momo.com & 2.2%
2.0%
16.1%
THSR…
2021/3/31 Operating 2020/12/31 Operating
Asset Cash & Asset
60.1% Equivalent Cash 62.4%
Cash &
19.3%
Equivalent Cash
18.5%
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Adjusted ROE Calculation

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13%
12.3%
12%
11%
10.3%
10%
9%
7.7%
8%
6.7%
7%
6.4% 6.3%
6.4% 6.2%
6%
6.1% 6.0% 5.8% 5.9%
5%
2017 2018 2019 2020
ROE (Net Income) ROE (Exclud. Strategic Investment)
ROE (Includ. Comprehesive Income)
ROE
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Agenda

I. 1Q21 Financial Results

II. Recap of Recent Major Events

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1/2 Recent Business Development

✓ 4/12 Invested ZEPT Inc.

• Represent 25% of ZEPT’s total issued shares and obtain one seat in its board.

• It can fulfill TECO’S needs for automotive drive and integration technology , and can strengthen powertrain design capabilities to shorten the time for consumer verification and mass production.

✓ 4/19 The first Taiwanese company to manufacture offshore wind turbine prototypes.

• Singed a cooperation framework agreement with several local and international offshore wind farm developers and global renowned permanent magnet wind turbine manufactures, and will undertake the production of stator and rotor prototypes for wind turbines.

• Work with partners to strive for the production of prototype wind turbines that Taiwan needs after 2025

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2/2 Recent Business Development

✓ 4/27 Establishment of a sales partnership with Schneider Electric.

• Acting as an agent in Taiwan for Schneider’s low-voltage products ranked No. 1 in global market, covering the Easy product series of building power distribution and automation control.

• Schneider Electric has a complete industrial IOT solutions, coupled with TECO's industrial leadership and experience in Taiwan, it is expected that the synergy development of both parties will increase the product series by 30 to 50% compound annual growth rate within three years.

• ✓ 5/3 Affiliated company, TECO Electro Devices Co., Ltd. applied for a public offering and is expected to be listed in Emerging stock in August.

• Mainly producing servo motors, permanent magnet stepping motors, brushless DC motors and other products..

• TECO Electro Devices’ revenue has continued to grow in recent years, and its full-year revenue in 2020 will grow by more than 30% compared to the previous year, which is expected to become a cash cow in TECO group.

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Corporate governance wins more honor

• ✓ 5/3 TECO has been ranked in the top 5% of corporate governance evaluations for 7 consecutive years, and only 10 domestic listed companies can receive this honor.

• ✓ TCGA pointed out that “TECO holds a standing board meeting every two months to conduct preliminary consultation and communication on the company’s future business plans and major proposals. After reaching a consensus, it will be submitted to the board of directors for decisions, which will help the board of directors. Improvement of deliberative efficiency". TCGA also believes that "TECO has set up a R&D and Innovation Committee, invited external professional scholars to serve as members, provided international information, combined with the company's comprehensive research institute to conduct market research from strategic directions and forward-looking technologies, and systematically thought about future product directions, and helped the enterprise group. Draw a blueprint for short, medium and long-term product development to enhance the company’s business competitiveness"

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Http//www.teco.com.tw ir@teco.com.tw

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