FY2019 1Q Presentation Q&A
|Date||July 31, 2019|
|Presenter||Haruhiko Akiyama, Director and Senior Executive Officer, CFO|
Could you give us the breakdown of the IT construction's sales growth for OEM as well as Aftermarket for the first quarter?
Both OEM and Aftermarket sales posted double-digit growth, but OEM sales particularly saw a strong growth.
We heard IT construction was affected by a slowdown in the market in the latter half of fiscal year 2018. Have you seen any developments or changes after that? Could you also give us update on each region?
We cannot say the market has turned around as of the first quarter, but we exhibited our products at Bauma, the world's largest construction machinery trade fair which is held every three years, and also launched some strategic products, both of which helped support our business. If you look at our performance by region, Europe and North America, especially Europe, fared well. We saw a slowdown in the U.S. for the third quarter of fiscal year 2018, but things are steadily picking up after the fourth quarter.
＜Eye Care Business＞
When was 3D OCT Maestro2 released? Did it receive FDA clearance? What is the price?
The timing of the release differs as each country has different clearance procedures. It was released in April in Europe. In the U.S., it received FDA clearance at the end of June, and was released in the second quarter. As for pricing, Maestro's price was kept the same level but additional charge was set for new function Angiography as an option.
What is the trade volume with Vision Source? We understand that 350 units of 3D OCT Maestro were sold to Specsavers, but is there a possibility that there will be more orders to exceed that number?
We are negotiating with multiple optical chain stores, but Vision Source has the biggest sales in the U.S. and offers the best opportunity for us. Expectations are also high that sales of Maestro to Vision Source will lead to bigger business than Specsavers.
Judging from the sales growth in 3D OCT for Screening Business, can we expect further growth in the annual unit sales?
So far, retinal camera has been the main driver for our Screening Business, but we are expecting 3D OCT sales to grow. We will aggressively roll out various measures such as partnerships with Chinese AI development companies to promote Maestro sales.
Is it correct to say that for the Screening Business, your company will push for sales of not only hardware but also software by utilizing application released by THS, U.S. software development base.
That is correct. We plan to aggressively sell software bundled with hardware to promote sales.
As for the strong sales in China, what kind of products are contributing to the sales? And how is that affecting profit margin?
Sales of fundus camera is the biggest contributor. We expect 3D OCT sales to expand going forward. In order to win a contract for a large number of units for Screening, we may have to offer a volume discount which could potentially push down our profit margin, but its sheer volume size should allow us to make enough profit in value terms.
As for research and development cost for Eye Care which accounted for about half of a 900-million-yen increase in the first quarter's fixed cost, could you tell us at what pace more expenses would be incurred going forward and when do you expect the costs to be recovered?
Investments for Screening Business, and research and development cost for new products will constantly arise. We will not be able to recover the investment cost this fiscal year, but we should be able to get the return on the investment in the fiscal year 2020.
How do you manage the research and development cost? Do you look at it in terms of sales ratio, or do you manage it on an actual cost basis?
Basically, we manage it on an actual cost basis. We used to work on device approval such as FDA after products were released, but we now take more advance action for device approval while we are still developing the products. Therefore, such advanced costs are included in the research and development cost.
My impression was that the first quarter earnings were not as strong as your planned numbers. Under such circumstances, some companies may decide to take measures such as cost cuts, but your company will continue to make upfront investment and aim to recover earnings through sales growth in your core business. Is that correct?
That is correct. We will keep our upfront investment for our mid- to long- term growth. Meanwhile, we will cut spending on items that do not directly lead to our business growth.
Analysis of changes in operating income: fixed cost for the first quarter was negative 900 million yen against full-year forecast of negative 4 to 5 billion yen. I assume it is on its way to the target on a good pace, but can you give us the breakdown of the 900 million yen by segment?
Costs for Positioning and Eye Care are about the same, although Positioning is slightly higher. For Positioning, research and development cost including labor cost, tariff hike on imports from China, and expenditure for large exhibition are the main outlays. For Eye Care, they include development cost and labor cost to start up the Screening Business, and cost to set up a sales subsidiary in China.
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