FY2019 Q3 Presentation

DateJanuary 31, 2020
PresenterSatoshi Hirano, President & CEO

Q&AFor PDF file, please refer to “presentation material (with script)” on the previous page.

Positioning Company

  • IT Construction: What is the year-on-year growth for the cumulative three quarters and the third quarter alone respectively?

    Cumulative three quarters: a high single digit growth for the aftermarket despite a double-digit decline for OEM. The third quarter alone: a high single digit growth for the aftermarket. OEM declined to roughly half.

  • IT Construction: Do you think the major OEM client may be changing the way to develop business for ICT construction equipment? I have heard that there is a plan to provide own retrofit products.

    We are not in position to know what kind of plan they have. However, we don’t think it is relevant. ICT excavator system is classified as automatic or guidance. Our OEM products are former while theirs are latter. Their specifications are completely different.

  • IT Construction: In terms of the OEM, how is the indication for the fourth quarter?

    At the moment, the forecast is not weak. We think the slowdown in the third quarter is temporary. However, there remains uncertainty. We do not expect a full recovery in short term.

  • IT Construction: Could you give us the breakdown of the amount revised-down operating income forecast (minus 1.5 billion yen) for Positioning segment for the third and fourth quarters?

    Roughly 1 billion yen is in the third-quarter. It is mainly due to OEM in the IT Construction business and slight impact from IT Agriculture. 0.5 billion yen is factored into the fourth quarter as there is uncertainty if sales of our OEM products would recover or not.

  • IT Construction: I think the situation is different between OEM and the aftermarket. Do we not need to worry about the aftermarket? How do you assess the inventory of OEM clients?

    Sales to OEM clients are affected by not only ICT construction equipment demand but also their inventory level. In terms of the aftermarket, we think it is directly linked to users’ demand. If the aftermarket is performing solidly, we would think the slowdown in OEM is temporary. We have not grasped the situation of OEM clients’ inventory.

  • Investment plan: When you revised down the forecast at the briefing for the second-quarter earnings results, you said you would focus on cost cutting. Could you explain current status?

    We continue to invest in necessary development projects. However, we assess them selectively and some have been halted. In particular, if the agriculture-related areas continue to face a slowdown, we will implement the second and third rounds of cuts in expenses and fixed cost.

  • IT construction: In terms of the large volume of orders to be placed at the US biggest construction machine exhibition in March, do you expect the same level of orders as what you saw 3 years ago? Or are you assuming more aggressive numbers?

    We are projecting relatively bullish number. There are two reasons. First, we now have featured product, the automatic excavator machine control system. Second, the market condition is better than 3 years ago. However, the contribution to the fourth quarter sales would be limited because certain part of the expected sales will be recognized next fiscal year.

Smart Infrastructure business

  • Analysis of changes in profit: Why was the operating profit margin for the third quarter down year-on-year? Don’t you think the competition is getting harsher?

    The operating profit margin declined due to worsening capacity utilization rates while sales dropped for the third quarter by 1.2 billion yen year-on-year. There is no big change in the competitive environment.

Eye Care Business

  • Screening business: You explained that orders from major chain stores were on the rise. Could you tell us the volumes and period of these orders?

    We cannot disclose the details. In mid-term business plan (from fiscal year 2019 to 2021), we identified Screening business and China business as growing segments for Eye Care business. You can safely assume that the majority of contribution to the growth should come from Screening business.

  • Screening business: You have mentioned the delay of sales to be booked. Were you talking about the large-lot deal in the US which you explained at the briefing for the second-quarter earnings results or different one? How long do you expect to be delayed? Could you let me know the cause?

    It is regarding the large-lot deal in the US which we explained at the second-quarter earnings results announcement. We assume the booking the sales has been delayed for a few months. The cause is at the client side and there is nothing we can do. So, we revised down the forecast by 0.4 billion yen.

  • Screening Business: Is the number of major optical chain store partners growing? What is your strength to accelerate the increase?

    The number is increasing. It started in Australia followed by the US and Europe. Our products can be used quite easily because they are fully automated. It is the main competitive advantage. Screening exams can be easily and quickly done at optical chain stores.

  • Subscription Business: Do you have any update on the software and subscription businesses?

    The number of contracts for the subscription business is steadily increasing. However, the pace is not as fast as we expected. We do not disclose detail figures.

  • Earnings forecast: The downward revision for Eye Care business is small. How do you factor in the impact of changes of the economic environment?

    Negative impact from the trade friction between US and China is limited on Eye Care business, different from our Positioning Business. However, if there is any big move which will cause a negative impact on individual consumption, it will likely to influence on our business. We are concerned about the outbreak of the Novel Coronavirus in China because it may affect our Eye Care business which is growing fast there. Having said that, we have not factored into our earnings forecast at this point.

Common questions for the overall company

  • Analysis of changes in profit: Could you tell us the breakdown of the analysis of changes in profit for full-year earnings forecast?

    The breakdown of a year-on-year decline of 3.6 billion yen in operating income is as follows: ±0 in sales and product mix; 0.8 to 1 billion yen increase in cost reduction;3 to 3.5 billion yen decrease in fixed cost ; and 1 billion yen of negative on FX effects.

  • Analysis of changes in profit: Could you give us breakdown of “Sales Volume, Product Mix” by segment for cumulative 9 month base?

    1 billion yen negative in each of Positioning and Smart Infrastructure; 1 billion yen positive in Eye Care. 0.9 billion yen of negative in total.

  • Analysis of changes in profit: Some of the businesses including IT Construction are growing. Could you explain where the product mix deteriorated?

    Sales slowdown of OEM in IT Construction caused a negative impact on product mix.

  • China exposure: In final demand base, how much of the revenue is coming from China?

    It is 6 % for China as disclosed in Summary of Business Results. It is the same as final demand base.

*i-Construction is a trademark registered with National Institution for Land and Infrastructure Management, MLIT, JAPAN.

Cautionary Note regarding Forward-Looking Statements

These materials contain forward-looking statements, including assumptions and projections based on the information available at the time these statements are made. However, please be aware that actual performance may differ from projected figures owing to unexpected changes in the economic environment in which we operate, as well as to market fluctuations.

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