Coretronic : 2023 Annual Report

Stock Code: 5371

This annual report is accessible at the following website

http://mops.tse.com.tw

Coretronic Corporation

2023

Annual Report

Published May 3, 2024

1. Name, designation, contact number, and e-mail of spokesperson and acting spokesperson

Spokesperson	: Cindy Wen	Special Assistant of IR & ESG Office
Contact No.	: [phone]
E-mail	: [e-mail]
Acting	: Franck Ho	CFO
Spokesperson
Contact No.	: [phone]
E-mail	: [e-mail]

2. Address and contact number of the headquarter, branches and plant sites

Headquarter and	: No. 11, Lixing Rd., Hsinchu Science Park , Hsinchu City
plant address
TEL	: [phone]
Plant address	: No. 2, Kebei 5th Rd., Zhunan Science Park, Miaoli County
TEL	: [phone]
Branch and plant	: No. 2-1, Nanke 6th Road, Tainan Science Park
address
TEL	: [phone]
Branch and plant	: No. 5, Wenhua Road, Fengshan Village, Hukou Township,
address	Hsinchu County
TEL	: [phone]
3. Name, address, website, and contact number of share service agency
Name	: Taishin Securities Co., Limited Stock Affairs Department
Address	: B1, No. 96, Sec. 1, Jianguo N. Rd., Taipei City
Website	: www.tssco.com.tw
TEL	: [phone]

4. Auditors and the name, address, website and contact number of the accounting firm for the latest financial report

Name of CPA	: Shao-Pin Kuo, Chih-Chung Chen
Name of accounting	: Ernst & Young
firm
Address	: E-3, No. 1, Lixing Rd., Hsinchu Science Park
Website	: www.ey.com
TEL	: [phone]

1. Name of overseas exchange where securities are listed, and method of inquiry: None
2. Company website : www.coretronic.com

Table of Contents
	Page
One. Letter to the Shareholders	1
Two. Company overview	9
Three. Corporate Governance Report	16
I. Organization	16

1. Background information of directors, the President, vice presidents, associate vice

	presidents, and heads of departments and branch offices	17
III.	Remuneration paid to directors, supervisors, the President, and vice presidents
	in the last year	25
IV.	Corporate governance	29
V.	Information about CPA professional fees	92
VI. Change of CPA	92
VII. The company's Chairman, President, or any managers involved in financial or
	accounting affairs being employed by the accounting firm or any of its affiliated
	company in the last year	93
VIII.Details of shares transferred or pledged by directors, managers and shareholders
	with more than 10% ownership interest in the last year, up till the publication date
	of annual report	93
IX.	Top ten shareholders by shareholding who are related parties or spouses, relatives
	within the second degree of kinship	95

1. The number of shares and the consolidated shareholding of the same investee invested by the company, directors and/or officers of the company, and

	the businesses directly or indirectly controlled by the company	96
Four. Capital Overview	97
I.	Source of capital	97
II.	Shareholder structure	98
III.	Diversity of ownership	98
IV.	Major shareholders	98

1. Information relating to market price, net worth, earnings, and dividends per share

	for the last 2 years	99
VI.	Dividend policy and implementation	100
VII. Impacts of proposed stock dividends on the Company's business performance and
	earnings per share	100
VIII.Employee and director remuneration	100
IX. Buyback of company shares	101
X.	Disclosure relating to corporate bonds	101
XI.	Preferred shares, global depository receipts, employee warrants, restricted
	employee shares, or merger/acquisition/divestment through the exchange of shares 101
XII. Progress on planned uses of capital	101
Five. Overview of operation	102
I.	Business Activities	102
II.	Market and Production Overview	114

III.	Employees	124
IV.	Environmental protection expenditure	124
V.	Labor relations	125
VI.	Information, communication, and security management	129
VII. Important contracts	134
Six. Financial Summary	138

1. Summary balance sheet and statement of comprehensive income for

	the last 5 years	138
II.	Financial analysis for the last 5 years	142
III.	Audit Committee's report on the review of the latest financial statements	145
IV.	Latest financial statements	146
V.	Latest audited individual financial statements	146
VI.	Impacts on the company's financial position of financial distress on the company
	and its affiliates in the most recent year and by the date of report publication	146
VII. Attainment of mandatory certification by personnel involved in financial
	information transparency	146
Seven. Review and Analysis of Financial Position and Financial Performance, and Risk
Management Issues	146
I.	Fnancial position	146
II.	Financial performance	147
III.	Cash flow	147
IV.	Material capital expenditures in the last year and impacts on financial/business
	performance	148

1. Causes of profit or loss incurred on investments in the last year, and any

improvements or investments planned for the next year	148
VI. Risk management	148
VII. Other important disclosures	151
Eight. Special Disclosure	152
I. Information of affiliated companies	152

1. Private placement of securities in the last year up till the publication date of

	annual report	166
III.	Holding or disposal of the Company's shares by subsidiaries in the last financial
	year, up till the publication date of annual report	166
IV.	Other supplementary information	166
Nine. Occurrences Significant to Shareholders' Equity or Securities Price, as Defined in
Subparagraph 2, Paragraph 3, Article 36 of the Securities and Exchange Act,
in the Last Year Up Till the Publication Date of Annual Report	166

One. Letter to the Shareholders

Dear Shareholders,

I. Introduction

For the fiscal year of 2023, Coretronic reported a consolidated sales revenue of NT$39,492 million, drop 21% YoY. The consolidated operating income totaled NT$931 million with a pre-tax income of NT$1,588 million. Net income was reported at NT$1,202 million. Net income attributable to equity holders of the parent company was NT$1,392 million, and the EPS in 2023 was NT$3.56.

1. Business Report for 2023
2. 1. The sales volume of each major product of the Company in FY 2023 is as follows:

Product	2022	2023	Diff.
Energy Saving Products	40,008,434	30,466,227	-23.85%
(unit/pc)
Visual Solutions	1,357,622	974,847	-28.19%
Products (unit)

1. Budget Execution: The Company was not required to publish financial forecasts for FY2023.

1. The results of financial income and expenditure and profitability analysis are tabulated below:

	Fiscal Year	2022	2023
Item
Financial	Liabilities to assets ratio (%)	55.10	53.87
Long-term capital to property, plant and
structure	340.92	293.81
equipment ratio (%)
	Liquidity ratio (%)	155.63	135.23
Solvency	Current ratio (%)	112.27	102.06
	Interest coverage ratio	10.30	4.86
	Return on assets (%)	4.49	3.09
	Return on equity (%)	10.51	6.02
	Net income before tax to paid-up capital	81.15	40.63
Profitability	ratio (%)
	Net margin (%)	4.85	3.04
	Earnings per share (dollar) / average	6.03	3.56
	weighted number of outstanding shares

1

(IV) Research and Development Status

1. Energy Saving Products：

Reflecting to 2023, in response to the ultra-thin, narrow bezel, high-resolution,high-contrast and energy-saving displays on the market, we continued to develop its core technology of light guide plates, display technology, and system integration technology to enhance product competency. In injection-molded light guide plates, the Company introduced the new IML light guide plates, combined with special optical components to further enhance efficiency at least 50%~70% higher than traditional BLU. In hot embossing LGP, also continues refined, optimized process and microstructure design developed new PC/PMMA RS-IML, in addition to having the advantages of efficiency, low internal stress, resistance to material sticking, no need for molds, similar optical performance to injection type and high productivity, the thickness can be down to 0.3T, and can be used for ultra-narrow bezel thin displays. Looking forward to the energy-saving requirements of Energy star 9.0 in monitor displays, it has mass produced in high energy-efficient LGPs of 27" or below, which are 15-25% more efficient than existing products.

In the development of HDR, we stared the mass production of Mini-LED area dimming and scanning backlight modules for use on narrow-bezel gaming laptops and FPDs. Alongside with company's specially developed optical alignment splicing light board, special diffusion plate/ sheet & printing technology has improved optics, picture quality and production stability. In response to the needs of future display technology ESG, small and medium-sized "front light" products have been developed to meet the high transparency and high contrast requirements of reflective LCD. Its special microstructure design can further improve the luminous efficiency and will make a certain contribution to the trend of energy saving and carbon reduction.

Furthermore, leveraging core technologies in light guide panels, backlight modules, special LCD cell and film processing, we have developed the sixth-generation switchable NB privacy module, which is lighter, thinner, and offers enhanced privacy and has been recognized by many customers and plans are under way. Additionally, for the privacy needs of the next generation OLED display, working sample and testing have been ongoing discussed with potential customers. By extending related concepts to automotive and industrial applications, such as the development of one-way and two-way privacy protection technology for automotive center information displays (CID) and passenger displays for drivers to dynamically switch the viewing angle in different scenarios to prevent driving safety caused by light interference, the first generation product has entered the trial production stage. In the face of the improvement of vehicle anti-peeping performance, a variety of new designs and trials have been completed and are being promoted with many customers. To cope with the trend towards large-size,high-brightness, and high-contrast automotive display, we have successfully developed a 2D dynamic dimming LCD display featuring optics structure, diffusion layer & LED design, a 2.0~4mm OD with low Halo effect, and dynamic dimming function. Its outline can be traditional rectangle or even free form type (ex. circle

2

outline). Collaborative development with customers has also begun. In semi-system integration, it smoothly won orders from global customers with the integrated technology covering open cell, LGP, touch module, and assembly and production integration business model. Based on these advantages, the Company also integrated the open cell in privacy display technology to in-house splitting and polarizer to form an integrated process from front-end to LCM.

2. Visual Solutions Products：

Development of solid state illumination based on triple pure laser (RGB laser) and hybrid laser (Multi-Color Light Architecture, MCLA™ ) has been a key strategy for the Company in the field of image products. With the patented multi-source light combining technology and high efficiency thermal system, we continue to be the DLP #1 leader in the projector market. In 2023 we launched a series of 5000lm mainstream products that are industry leading in terms of energy saving, miniaturization and efficiency and use standard power suppliers. In addition to being compatible with a variety of light sources, they also adopted ESG concept in the product design. We also launched a smart Pico RGB laser product that is the smallest in its class. It's portable, easy to install and has smart and streaming features bringing great convenience in use, also is has wide color gamut and high contrast making it unaffected by ambient light. All of which combined allow it to provide ultimate color and brightness performance in any personal or business use scenarios.

In response to the urgent demand for AI applications and the evolution of technology, we are actively developing the smart projectors. By integrating advanced smart features such as voice control, personal projection mapping, and personalized smart desktop, we aim to provide intelligent and convenient product experiences. We will also incorporate smart projectors into smart home to achieve a seamless interconnection of the smart home ecosystem, meeting the expectations of consumers for smart living.

Projectors, from low brightness to high brightness, are first designed based on system's minimum requirements of air flow. The thermal management is then optimized following the principles of quiet, compact, light and energy-efficient. The R&D team conducted research on heat dissipation components and thermal interface materials to improve the efficiency of active and passive cooling measures. Also, by building a vibration digital model, the noise of the actuator and phosphor wheel were further reduced, thereby reducing the overall noise of the projector products. Also, digital simulation technology is used to simulate the system vibration and photo thermal coupling, which improved the systems' photo thermal conversion efficiency and the design accuracy, expedited the projector development, extended the service life of the projector, and improved the product stability.

Under the global consensus on environmental sustainability and the Company's carbon reduction strategy, the commitment to ESG is not just limited to organizational and product level, but also deeply ingrained in the Company's core objectives covering from supply chains' compliance with ESG regulation, energy saving and carbon reduction at the manufacturing end and the overall planning of

3

green projectors. Specifically, this includes the use of recycled materials in cardboard, adopting PCR in material selection standards, continuously improving the energy efficiency of projectors, striving to reduce the size, and effectively improving the carbon emission efficiency of the factory through modular design. In 2023, three models obtained the Carbon Footprint of Product ISO 14067:2018 certification for the complete life cycle (raw material acquisition, manufacturing, distribution, sales, consumer use, and waste disposal). By implementing these projects and conducting actual audits, we have demonstrated our commitment to ESG initiatives and fulfilled corporate's social responsibility through concrete actions.

1. Summary of Business Plan in 2024
2. 1. Looking forward to 2024, the Company's operations will be directed towards the following management principles and policy.

   1. Continue with the transformation of business profit model and product

competitiveness, and promote lean and smart manufacturing to enhance efficiency, improve product quality, and create profit.

2 Build a sustainable supply chain, cultivating localization while expanding globally to secure competitiveness and enhance global market share.

1. 1. Cultivating core technologies and key components to provide innovative display systems and total solutions through integration and application of optical/ mechanical/ electrical/ thermal/ software/ material solutions and system design.
   2. Focus on high value-added products and multiple visual solutions, cultivate and develop intelligent service platforms for AI, big data, cloud technology, and intelligent interaction to expand growth momentum as well as lead future growth trends.
2. Furnish a sales volume forecast and the basis thereof.

According to the supply and demand situation, business strategy, and the Company's production capacity, market share, etc., it is expected that the sales volume of Energy Saving products and Visual Solutions products under the Display Business Group in 2024 is expected to grow by 10% to 15% compared to the previous year and by 20% to 25% respectively.

IV. Future Development Strategies

Moving forward, we will adhere to the mission to be the leader of the digital display system technology, continue to develop innovative display solutions, and aim at cloud services, AI, and complete solutions for various smart fields. The specific development strategies are as follows:

1. Intensely develop optical core technology to extend the cross-sector application of optical components, system products and semi-system products to increase product add value and price competitiveness and secure global competitiveness in the display

and visual technology fields

1. In BLM technology, apart from constantly developing various new type LGPs, direct type LGLs, special optical control films, and Mini-LED BLMs and its related optical diffusion film/plate and printing technology; we will continue to reduce the thickness, bezel width, optical films and LEDs and enhance the optical efficiency of

4

BLMs to develop slim, small, lightweight, energy-efficient, HDR, and high-value added displays with privacy protection, for game consoles, tablets, notebooks, industrial monitors, automotive HUDs and touch screens, advanced monitors for medical and gaming, AIO monitors, slim and smart high-end TVs and smart home display modules. In terms of front light module technology, in response to the needs of different products, combined with our experience in optical design and light guide plate manufacturing, we continue to develop and send samples to potential customers.

1. In response to the changes in market business models and customer demands, product development has turned from BLMs to semi-system and integrated system products designed and manufactured in combination with tablets/notebooks/ automotive HUDs and displays, and TV outer parts. This move aims to provide the best possible design, production, and global after-sales services for Brand Name/SI,

and panel customers through a highly flexible business model.

(IV) Mainstream products will focus on three strategic directions: (1) To develop SSI based on triple pure laser (RGB laser) and hybrid laser (Multi-Color Light Architecture, MCLA™) and drive for light source tra nsition for lamp-based products; (2) To accelerate the development and adoption of AI and incorporate advanced smart technologies to strengthen the connection between smart features and user experience to provide an even more friendly user interface; (3) To consolidate the projector industry with business strategy cooperation and expansion, and strengthen the connection with the industry ecosystem. Looking forward, we will continue to focus on laser light source technology and patent acquisition as the foundation, develop smart technologies for applications, expand the influence of mainstream products in the commercial and consumer market by strategic alliances with key suppliers and aggressive customer acquisition to achieve a smarter, more convenience and more superior product experience.

1. Leveraging the advantages of DLP technology, further expanding the DLP technology, products, and business models to ensure competitive and seek revenue growth. (1) Deployment of HEP & 4K/2K platforms, expanding the product line and applications in the 1-DLP segment. (2) Keep 3-DLP business development,

buildup the EMS/OEM manufacturing capabilities to ensure full deployment by 2025. Keep development of 3-DLP technology and product platform expansion.

(VI) Extending projection technology and applications, focus & explore the opportunities of specific fields and automotive projection applications, to make sure the momentum of future growth. (1) Focusing on automotive Augmented Reality Head-Up Display (AR HUD) and in-car/out-car projection applications, engaging with automotive manufacturers for implementation by 2024 and ensuring revenue momentum by 2026. (2) Continuing the strategic layout of simulation, dome, and specific industrial application technologies and products, targeting key customers to explore opportunities for solution implementation.

(VII) Will develop new 2K, 4K, and 8K smart laser ultra-short-throw projection TVs to complete the full range of products for our customers. Provide customized optical engine or complete projector services for a variety of applications for the growing pico-projector market. While continue to refine the R&D and manufacturing

5

capabilities of AR optical engines and develop international brands and vertical markets, to establish a long-term competitive advantage in the AR glasses market.

(VIII) Plan and implement group resources allocation and ensure the information security with Digital optimization technology to enhance overall organizational performance; define information processes and system resource utilization required for business operations and quickly provide integrated information management platforms; design, plan, and implement cloud computing architecture, digital platforms and IoT environments and applications to promote the new business development within the group.

(IX) In response to the group's operations and growth, raise low-cost funding to support organizational development and develop strength for long-term development.

V. Influences of External Competitions, Regulatory Environment and Macro Environment

1. Influences of External Competitions：
   The statistics of a market survey indicated that the estimated shipments of the large-size LCD panel were 681 million in 2023. The Company's overall shipment of Energy Saving products in 2023 was 30 million units, with a global market share of about 4.41%. Looking ahead to 2024, the consecutive launches of three major sports events-the European Cup, the America's Cup, and the Paris Olympics-will stimulate the demand for TV panels as viewers seek to upgrade their viewing experiences. This surge in demand is expected to contribute to a moderate growth trend in the TV panel market. In 2024, global LCD display panel shipments are projected to reach 149 million units, indicating a marginal increase of 0.8% compared to the previous year. As we approach the next rotation cycle spanning from 2025 to 2026, the market is anticipated to experience concurrent growth. With the easing of global inventory pressures, the laptop product market is poised to return to a healthy supply and demand cycle. Optimism prevails as the primary driver of growth is expected to stem from the terminal business market gradually releasing replacement demand for AI PCs, as well as from segments such as Chromebooks and electronics. Despite facing competition from the continued expansion of notebooks (NB), global NB shipments are forecasted to reach 172 million units in 2024, marking a yearly increase of 3.2%. In recent years, escalating trade tensions between China and the United States, coupled with increasing geopolitical risks, have prompted brand company and panel makers to relocate their production sites outside of China. Destinations such as Taiwan, Southeast Asia, and Mexico have become favored locations for this strategic shift, aimed at both production site diversification and supply chain optimization. Over the long term, this restructuring results in a shorter and potentially more resilient supply chain. In contrast to its competitors, The Company has not only made investments in China but has also established factories in Vietnam, distinguishing itself as the most rapidly expanding among Taiwan's leading backlight module manufacturers in the southward direction. Additionally, The Company demonstrates a commitment to energy-saving design and embodies the principles of ESG through its swift adoption of green design technology in backlight modules, outpacing competitors. This advantage enables The Company to assist customers in implementing tailored

6