FY2020 Q2 Presentation

DateOctober 30, 2020
PresenterSatoshi Hirano, President and CEO

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

Common subject matters

  • Earnings forecast : Financial results for 1H exceeded the published original plan, but you have left the full year plan unchanged. Are you expecting any other major concerns besides re-spread of COVID-19 and intensifying U.S-China friction you mentioned in the presentation?

    The only uncertain factor in 2H is COVID-19. We don’t think it will have as much impact as it did in 1H although it is depending on the extent of re-implementation of lockdown in Europe.

  • Cost management policy: You have reduced considerable amount of fixed cost in 1H. Is there any changes in the full year plan?

    We have announced fixed cost reduction of 3.8 billion yen for full year when we announced our Q1 results. 1H result slightly exceeds the plan, but we have left the plan unchanged.

Positioning Company/Smart Infrastructure Business

  • IT Construction : Since the 2H of last year, the sales of OEMs have been weak. Is that coming back? What are your prospects, including a forecasts and/or indications of purchases from OEM customers?

    I mentioned that the aftermarket of both IT Construction and IT agriculture are very strong and OEM is on the recovery trend. Current situation is that OEM is starting to follow the aftermarket which is in brisk performance. Here is our analysis of the reason for rapid recovery for aftermarket business compared to OEM. In the aftermarket, where you attach our IT Agriculture system onto existing farm machines, as such the demand on relatively small amount of investment is growing. On the other hand, users tend to refrain from big investment such as buying new machines in light of COVID-19 and unforeseen situation due to U.S presidential election and U.S-China friction.

    In terms of the forecast from OEM customers, the portion of the firm order is not big while the majorities are subject to change. However, as mentioned above, OEM sales are generally on a recovery trend, and efforts are also being made to cultivate new customers.

  • Regional situation : What was the unexpected increase in sales by region and sub-segment?

    North America was the first region to recover from the impact of COVID-19 in Q2, followed by Europe and China. Sales improved mainly at these three areas with more-than-expected sales for aftermarket of IT Construction and IT Agriculture. Other than that, IT Agriculture in Japan has continued to be strong since Q1.

Eye Care Business

  • Tele-optometry : Could you explain in detail, such as actual sales amount, penetration rate, and concrete needs?

    I’m afraid we cannot disclose the detailed figures at this time. We are expecting further increase in demands for tele-optometry and screening corresponding to social distancing. The societal challenge that we address is increase in eye disease resulting from global population aging. We started the Screening business based on the idea that enabling eye Screening at various places with easier systems is necessary for early detection of eye diseases because there exist only limited numbers of ophthalmologists and hospitals. We have been receiving some positive feedbacks.

  • Tele-optometry : I have an image that the distance between a doctor and a patient has to be close, but do you think that the world will change in the future so that all examinations can be conducted remotely?

    We don’t believe that methods of detailed visual examination by ophthalmologists using slit lamps will disappear easily. However, as a manufacturer engaged in research and development, we will challenge to develop robotization such as remote diagnosis in future.

  • Screening Business : How is the shipping status of remaining orders from the chain stores before COVID-19? Has it been cancelled?

    Although there has been no major progress in the shipment, the situation is gradually improving and we expect the shipment to be done in the second half. We have not lost the orders.

  • Inventory adjustments: For Eye Care Business, have you completed the inventory adjustments in Q2 and do you expect to become normal in the second half? The plan for the second half looks a little too bullish. Is it mainly due to the positive impact of the normalization of inventories?

    At the end of the previous fiscal year, the inventories increased due to COVID-19 impact, and we continued production adjustments in Q1 and Q2. This resulted in sluggish performance of Eye Care Business with decline in sales and gross margin ratio. We think it will recover thanks to normalization of production in Q3 and onward. On a consolidated basis, sales in the second half are expected to increase by about 11.0 billion yen from the first half. Production volume will increase thanks to inventory adjustments so far. Operating income is expected to increase by about 4.0 billion yen, as expenses and fixed costs will increase due to sales growth.

  • Earnings forecast : I think you receive orders from other than ophthalmologists. I guess those customers’ business conditions have considerably affected by COVID-19. Are there any changes in customers’ appetite for investment?

    At the time of the lockdown, not only the hospitals but also the optical stores were completely closed. So, we could not do anything. However, we have not heard of the stories saying optical stores go bankrupt due to deterioration of the businesses as many of them belong to big chains.

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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