Earnings Call: Q4 2018

Apr 27, 2018

Now I will explain about consolidated financial results for fiscal year 2017. Fiscal year 2017 ended with better than expected financial results. Net sales were 893,500,000,000 yen up 55,700,000,000 yen or 7% year on year. Operating income improved by 11,300,000,000 yen to 56,000,000,000 yen up 25% year on year. Operating margin was up 0.9 point to 6.3%. Ordinary income was 56,000,000,000 yen and we could achieve record high results in operating income, operating margin and ordinary income. Just for your information, in our medium term management plan, the target operating income and operating margin for fiscal year 2018 are 54,000,000,000 and 6%, respectively. And we already achieved these numbers in this fiscal year 2017. Extraordinary income or loss was minus 16,900,000,000 because we recognized gain on sale of Fujitsu shares in the previous fiscal year, and this led to the year on year decrease. As a result, net income attributable to owners of parent decreased by 3,200,000,000 to 37,800,000,000 Now let me explain the year on year comparison of net sales and operating income by segment. Power Electronics Systems and Electronic Devices considerably drove sales and operating income. Industry solutions of power electronic systems and semiconductors in electronic devices grew substantially to record an increase of 55,700,000,000 yen in net sales and 11,300,000,000 yen in operating income, respectively. Now I will explain each segment. In Energy Solutions of Power Electronics Systems, net sales grew 5,400,000,000 yen and operating income was up 900,000,000 yen It has 4 business areas. In Energy Management, net sales decreased due to a decline in smart meter sales volumes, but operating results were relatively unchanged due to the benefits of cost reduction efforts. Transmission and Distribution Systems increased its net sales, thanks to contributions from large scale orders overseas in power and industrial fields. But operating results decreased year on year as a result of a less favorable sales mix. Power Supply Systems decreased in net sales due to reduced demand for power conditioning systems for solar power generation systems, but slightly improved its operating results. The important point in this segment is EDMC Components. It recorded significant increase in net sales and operating results as a result of strong demand from machine tool and other machinery manufacturers in China and Japan as well as overseas semiconductor manufacturers. Next area is Industry Solutions of Par Electronics Systems. Net sales were up 29,800,000,000 yen and operating income improved by 4,300,000,000 yen And this is one of the segments which significantly improved the entire Fuji Electric financial results. It has 5 business areas and factory automation and process automation posted substantial growth in sales and profit year on year. Factory Automation increased in net sales and operating results due to strong conditions in Japan and China centered on markets for inverters and factory automation components. Process automation improved in net sales and operating results because of risk replacement demand seen in the Japanese market. Environmental and Social Solutions grew in net sales and operating results as a result of higher demand for electrical equipment for railcars in Asia and other regions. Equipment construction increased in net sales following strong performance in air conditioning equipment and electricity and information distribution operations, but slightly decrease in operating results due to a less favorable sales mix. IT Solutions improved in net sales and operating results due to increases in orders from the academic sector and large scale orders from the public sector. Next one is pa and new energy. We recognize an increase in net sales of 3,000,000,000 yen However, unfortunately, operating results decreased by 2,000,000,000 yen year on year. Net sales increased owing to large scale orders in thermal power generation systems, but operating results declined by 2,000,000,000 yen because of a less favorable sales mix and operating margin. Electronic devices is another segment which drove the earnings improvement of the company. Net sales increased by 8,400,000,000 yen year on year, and operating income grew by 5,700,000,000 yen This is because of increased demand, especially in industrial fields due to growing needs in automation, labor saving and energy saving in Chinese and Japanese markets as well as solid demand from automotive field. Food and beverage distribution recognized increase in net sales by 8,200,000,000 yen and operating income by 200,000,000 yen respectively, year on year. Vending machine increased its sales and profit due to stronger demand in domestic market, although the demand in Chinese market remained around the same level as in the previous fiscal year. Store distribution increased in net sales following a rise in demand for store equipment for convenience stores, but operating results decreased slightly as a result of a less favorable sales mix. Next slide shows domestic and overseas net sales for year 2017. In total, net sales increased 55,700,000,000 year on year, including domestic increase of 42,000,000,000 yen and overseas increase of 13,700,000,000 yen Looking at the overseas sales increase by region, China was 7,500,000,000 yen and Asia and others was 4,800,000,000 yen And a total increase of 13,700,000,000 yen mainly came from these two regions. They account for about 85% of our total overseas net sales of 218,700,000,000 With such balanced growth of domestic and overseas sales, the ratio of overseas sales remained unchanged as 24%. On the next page, we compare the actual results to the forecast announced on January 29. Positive changes were recognized for each item, such as JPY 18,500,000,000 for net sales, JPY 3,000,000,000 for operating income, JPY 5,000,000,000 for ordinary income and JPY 6,800,000,000 for net income attributable to owners of parent. I will elaborate more on that next page. Net sales grew significantly year on year in Energy Solutions and Industry Solutions of Power Electronics Systems and Electronic Devices, and they drove the 18,500,000,000 better result than the forecast. Electronic devices increased its operating income by 900,000,000 yen and this contributed to the total improvement of 3,000,000,000 yen This slide shows consolidated balance sheet at the end of fiscal year 2017. Operating capital and fixed assets increased year on year as indicated in the items such as notes and account receivables, trade receivables, inventories and notes and account payables, trade payables. This increase was covered by retained earnings, which was left after dividend payment. And remained surplus was used to repay interest bearing debts. That is the overview of the balance sheet for fiscal year 2017. As a result, net interest bearing debt was reduced by 11,400,000,000 yen to 130,200,000,000 yen Net DE ratio was 0.4 times, and equity ratio was 36%. This slide shows consolidated cash flow. In fiscal year 2016, we posted 33,300,000,000 yen as proceeds from sales of investment securities, including Fujitsu shares. And this resulted in positive cash flows from investing activities of 9,700,000,000 In fiscal year 2017, however, we did not have such gain on sale of shares, and our investment activities were directly reflected 67,900,000,000 in fiscal year 2016 to 38,600,000,000 yen in fiscal year 2017. However, it was 8,600,000,000 yen higher than the forecast, which was 30,000,000,000 yen This is my last slide, dividend of surplus. We plan to pay 8 as year end dividend per share. For full year dividend, it will be 14 with 6 interim dividend per share and 8 for year end dividend per share. In fiscal year 2016, the full year dividend was 11 yen so it is expected to increase by about 27%. In retrospect, we have been able to continue dividend increase for 6 years in a row since fiscal year 2012. We intend to continue this trend and increase dividend again in fiscal year 2018.