FY2020 Q3 Presentation
|Date||January 29, 2021|
|Presenter||Haruhiko Akiyama, Director and Senior Executive Officer, CFO|
Q&AFor PDF file, please refer to “presentation material (with script)” on the previous page.
Common subject matters
Earnings forecast : Plans for Q4 are slight decrease in sales YoY and weaker recovery in income compared to Q3. I understand that you are expecting some increase of expenses, but isn’t it difficult to expect a little more growth in the top line?
As the background of this full year plan, we assume the negative case scenario that the spread of the new coronavirus infection will be accelerated, especially in the countries where the lockdown continues such as the U.S and Europe. Eyecare Business had been significantly affected by COVID-19 in Q4 in the last FY and we hope not this will happen again. However, we take such possible risks into account and set the sales plan this time.
Earnings forecast: Could you explain the main contributing factor of 1 billion yen which is improved in OP this time?
The fixed cost reduction exceeds the previous estimate by 0.7 billion yen in Q3 YTD, and sales volume and product mix will account for the remaining 0.3 billion yen in Q4.
Fixed cost reductions: I understand that business travel expenses have been drastically reduced due to changes in the way people work. I would like to know if there are any major changes in the way of business and earnings structure due to COVID-19.
Activity-related expenses were significantly declined such as marketing expenses including travel, exhibition and advertising expenses. Based on our experience so far, we have found that a certain amount of business can be carried out without business trips as before. So, as for the outlook for the next fiscal year, we believe that we will be able to manage those activity-related expenses although it won’t be similar level as this fiscal year.
Fixed cost reductions: Regarding fixed cost reduction of 4.5 billion yen, how can you divide it into transitory factors due to COVID-19 and others due to efficiency improvement which we can expect to continue in the next fiscal year and beyond?
Although we have not broken down into specific figures, out of the 4.5 billion yen, more than half are estimated to be expenses so to say “we wanted to use but we couldn’t” such as business trips, and exhibitions. In addition, we will tightly manage overall expense usages under recent harsh business environment.
Semiconductor shortage: How would semiconductor shortage influence on your business?
Although almost all our products use semiconductors and/or microcomputers, there is some impact on a small part of surveying business at present. We are doing our best not to make a negative impact in this fiscal year. If the supply-demand balance for semiconductors deteriorates further in the future, some risks may possibly actualize.
Positioning Company/Smart Infrastructure Business
OEM: The OEM sales have come back to the level of last year in Q3. Could you explain the background and future prospects?
OEM sales had declined in 2H last FY but it recovered to close to previous-year level. Although it is difficult to estimate the future because we don’t know the inventory level and production plans of OEM customers concretely, we do not believe that OEM demands will decline significantly as in the previous year since the aftermarket demands have not declined.
Demand for construction and agricultural machinery: Do you expect that current momentum due to subsidies effects and market recovery is likely to continue next FY? Do you see some downside risk due to deterioration in demands of construction and agricultural machinery in this FY?
We cannot comment on the outlook over the next fiscal year for now, but recently, IT Construction sales have increased in both the aftermarket and OEM YoY, also construction-related indicators have improved. We believe this trend will continue. On the other hand, there has been large subsidy effect on IT Agriculture. However, if farmers who used to hesitate to invest in IT technology would start adopting with the aid of subsidies and once recognized its productivity, we believe the demands may not shrink significantly even if the subsidies effect will be reduced.
IT Agriculture Subsidies: In both the Positioning and Smart Infrastructure business segments, you mentioned subsidies in IT Agriculture. Could you explain the period and quantitative image of this impact?
In Japan, Auto Steering System is applicable for “Business Continuation Program” subsidies by the Ministry of Agriculture, Forestry and Fisheries. The first phase of new applications has already been closed and we are now in the delivery phase of the products. Therefore, the subsidies effect in Q3 will be settled for the time being, but we can still have a bright outlook since there is a possibility in the extension of “Business Continuation Program”. Taking a look at overseas, various subsidies are applied to IT Agriculture in European countries. Especially in Q3, the impact from the subsidies was the largest in Italy.
Eye Care Business
Optician market : HOYA said that the European optician market has been very weak since late December. Do you have such recognition?
We have heard such stories in some European optical stores but there was not much impact on our company’s business in Q3. There is a possibility that demand will decline in the future as people refrain from going to optical stores. We have taken that into account as a risk in our full year plan.
Earnings forecast : In the past few years, the OP margin stays low due to upfront investments, but look like it has improved to 10% in Q3 alone. Can we expect 10% will continue in FY21, or the ratio is more likely to be closer to Q3 YTD figure?
As there were some special factors in Q3 result, we don’t think this OP margin level will continue. If COVID-19 is under control in the next fiscal year and our activities get back to normal, SG&A expenses will be likely to increase. In the meantime, there will be no significant upfront investments anymore, since it has already been peaked out to some extent.
Inventory status : I heard that production was adjusted to cope with inventory reduction in 1H. Could you explain the current production and inventory situation?
As a result of the production adjustment in Q1 and Q2, the situation has been almost normalized, and there was no production adjustment in Q3. The inventory for the whole company as well as for the Eye Care Business is on a decreasing trend.
Income structure : In Q3 alone, operating income appears to be strong compared to sales recovery. Was it the result of large reductions in general and fixed expenses? Is there any change in the aspect of overall income structure?
Nothing in particular has changed structurally. In Q1 and Q2, probably a lot of people couldn’t go to see opticians or ophthalmologists due to lockdown, though they wanted to. These demands came back after COVID-19 situation was slightly eased. As a result, our sales increased sharply in Q3 due to pent-up demand after the slump in the 1H. Also, thanks to the normalization of the Chinese market, the sales increased by approximately 30% YoY. The reduction in SG&A expenses is also a major contributing factor for increasing income in all segments.
Inquiries and orders received : I have the impression that the reorganization of distribution networks in China, new product developments and business development with major optical chain stores, which you have been working on since before COVID-19 pandemic, are taking shape at this time. Could you explain me about inquiry situation of Chronos which was pre-launched in Europe, also the current progress of the Screening Business development for major optical chain stores?
Between Q2 and Q3, the Screening Business for optical chain stores was recovering. We can’t disclose the specific name of the chain, but the sales lead has been increasing and we have received large orders of Maestro. In terms of Chronos, we have started to receive orders in Europe where the launch was early, followed by in the U.S and Japan where it has been just launched. We have a high expectation for the sales of this product from Q4 to the next FY.
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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