Earnings Call: Q1 2020

Jul 26, 2019

Good morning. I will explain about consolidated financial results for the Q1 of fiscal year 2019. The Q1 of fiscal year 2018 ended with great results with quite favorable market environment. However, in the second half of fiscal year twenty eighteen, market started to be stagnant and we regrettably recognized decreased sales and income in this Q1 and review as expected. Net sales were 176,000,000,000 yen down 19,800,000,000 yen year on year. This is a decrease of 18,500,000,000 yen in real terms, considering the loss on translation of earnings of overseas subsidiaries of 1,300,000,000 yen Operating income was 3,600,000,000 yen down 2,700,000,000 yen year on year. Cost reduction, sales mix changes and other factors improved by 1,900,000,000 yen but as we had negative factors such as exchange rate effect of minus 300,000,000 yen impact from decrease in sales volume of minus 3,800,000,000 yen and a slight increase in fixed costs of minus 500,000,000 yen operating income decreased 2,700,000,000 yen year on year. As for non operating income loss, again, foreign exchange loss increased 1,000,000,000 yen year on year. As a result, the total result for this item was minus 800,000,000 yen despite the positive effect of net interest expense of 300,000,000 yen As a result, ordinary income declined by 3,500,000,000 yen year on year to 3,900,000,000 yen Regarding extraordinary income and loss, in the previous fiscal year, we posted gain on reversal of foreign currency translation adjustments due to subsidiary liquidation as we integrated semiconductor and magnetic disk subsidiaries in Malaysia for efficiency improvement, and this gain was 1,300,000,000 yen With the absence of such gain in this quarter, extraordinary income or loss decreased 1,400,000,000 yen year on year. Net income attributable to owners of parent was 2,500,000,000 yen down 2,800,000,000 yen year on year. Let me explain the results by segment. Food and beverage distribution recorded increase in sales and income. However, we regrettably posted decreased sales and income for Power Electronics Systems Energy and Industry, Electronic Devices and Power Generation. Now I will explain business results by segment with overview of their subsegments. Power Electronics Systems Energy decreased net sales by 2,200,000,000 yen to 42,400,000,000 yen and operating results declined by 100,000,000 yen to 1,200,000,000 yen It has 3 subsegments. Energy Management decreased its net sales due to the absence of large scale projects for overseas electric power companies in the same quarter of the previous fiscal year, but it recognized increased operating results by cost reduction efforts. Power Supply and Facility Systems increased both net sales and operating results despite the absence of a large scale order recorded in the previous equivalent period in Japan owing to the large scale overseas orders in switchgear and control gear operations. The acquisition of SMBE, a company in Singapore, significantly contributed the results. ED and C Components decreased both net sales and operating results due to reduced demand from machine tool and other equipment manufacturers in Japan and overseas. Next is about Power Electronics Systems Industry. Net sales were down 5,700,000,000 yen to 53,500,000,000 yen and operating results decreased 1,400,000,000 yen to minus 2,700,000,000 yen It has 4 subsegments. Automation Systems decreased in net sales and operating results due to reduced demand for low voltage inverters and FA components in Japan and overseas. Social Solutions posted decreased net sales and operating results due to the absence of large scale orders for electrical equipment for railcars recorded in the same period of the previous fiscal year. Equipment Construction increased net sales and operating results due to strong demand for plant and equipment construction. IT Solutions slightly decreased in net sales and operating results. Electronic Devices decreased net sales by 2 point 4,000,000,000 yen to 32,900,000,000 yen Operating results declined 1,500,000,000 yen to 3,300,000,000 yen Automotive power semiconductors continued to be strong. However, semiconductors for industrial field decreased net sales and operating results due to slowdown in Japan and China market. Magnetic Disks recognized a slight decline in net sales and operating results due to a little lower demand for data centers etcetera. Tables on the slide show the sales of semiconductors for this Q1 decreased by 2,000,000,000 yen year on year from 29,500,000,000 yen to 27,500,000,000 yen Magnetic Discs sales were down by 400,000,000 yen year on year to 5,400,000,000 yen Looking at the semiconductor sales by field, automobiles grew from 26% to 33% to indicate a gradual shift from industrial field to automobiles. Next is food and beverage distribution. Net sales grew 200,000,000 yen to 28,700,000,000 yen and operating results increased 800,000,000 yen to 2,200,000,000 yen Fending machines regrettably recorded decreased net sales and operating results due to reduced demand in Japan and China markets. Store distribution is performing strongly increased demand for store equipment for convenience stores. And as a result, we could post an increase in net sales and operating results for this segment. Next is about power generation. Net sales decreased 9,800,000,000 yen to 14,600,000,000 yen and operating results declined by 400,000,000 yen to 600,000,000 yen Net sales decreased for Thermal Power Systems and Renewable Energy Systems significantly decreased its net sales due to the absence of large scale projects from solar power generation systems in the previous fiscal year. This is a new slide we included for the first time as an aid for explanation. 9,400,000,000 yen decreased year on year for the total net sales of major components such as vending machines, semiconductors, FA related components including low voltage inverters and motors and EDMC components. And net sales of power generation was down 9,800,000,000 yen Our consolidated net sales of this first quarter was down 19,800,000,000 yen year on year to 176,000,000,000 yen And the total sales decrease of power generation and major components is almost equal to the amount of decline in the consolidated net sales. Others such as system and plant of power electronics systems were 85,000,000,000 yen and they remain unchanged from the previous year. We also included additional information about amount of orders received for your reference. In this Q1 under review, we received orders of 246,300,000,000 yen up 2,100,000,000 yen year on year. Major components decreased 11,000,000,000 yen year on year, and the power generation declined 13,100,000,000 yen System orders of power electronics systems increased by 26,200,000,000 yen year on year. As such, component systems are down due to weak market. However, system orders in power electronics systems are increasing steadily. Now let me explain net sales by Japan and overseas. The total net sales decreased 19,800,000,000 yen year on year, with overseas decrease of 7,500,000,000 yen to 48,900,000,000 yen and the ratio of overseas sales was 28%. Our operations focus on Asia and China, And Asia decreased its sales by 3,200,000,000 yen to 24,600,000,000 yen and China declined by 4,500,000,000 yen to 16 16,500,000,000 yen By segment, negative results were recognized in energy, This slide is about our consolidated balance sheet to compare the results of the Q1 under review and the end of March 2019. Notes and account receivables, trade receivables accumulated at the end of March were collected steadily to be reduced by 28 900,000,000 yen Inventories increased mainly for plants by 28,300,000,000 yen and the total assets were 952,900,000,000 yen which is almost equivalent to the figure at the end of March. Interest bearing debt increased by 26,600,000,000 yen due to increased working capital. And net interest bearing debt, including cash decrease, was 155,700,000,000 yen up 30,800,000,000 yen Net DE ratio was increased by 0.1 to 0.5. Equity ratio was 36.2%. This slide shows forecasts for the first half of fiscal year twenty nineteen. I will explain it with the full year forecast. Based on the assumption that market conditions in the first half will deteriorate mainly for components, we revised the first half forecast downward. The revised forecast for net sales is 405,500,000,000 yen down 6,000,000,000 yen and 12,600,000,000 yen for operating income, down 3,000,000,000 yen 11,800,000,000 yen for ordinary income, down 3,000,000,000 yen and 6,500,000,000 yen for net income, down 2,100,000,000 yen For full year forecast, there is uncertainty around the market conditions due to U. S.-China trade conflict and other reasons. On the other hand, however, it is said that market recovery can be expected in the second half for some areas, including semiconductors. Given such a mixed outlook, the full year forecast remains unchanged as 930,000,000,000 yen for net sales and 62,000,000,000 yen for operating income. Overall, due to market conditions or external reasons, components are expected to continue to be weak in the Q2, but we intend to offset the decline in net sales and operating results by systems business in power electronics systems as much as possible and also by cost reduction mainly for fixed costs and secure sales and income. That is all from me. Thank you.