2021_1q_omron_e

33/37 - Questioner(1)

Questioner 1: Could you talk about how we should think about the full-year forecasts? I have one question each about IAB and HCB. Earlier you said you felt the true level of Q1 FY2020 operating income was between ￥7.7 - ￥8 billion. If we calculate the implied guidance for the remaining 9 months of the fiscal year based on the full-year forecast, this implies quarterly average sales and OP of around ￥75 billion and ￥7 billion respectively. These levels feel quite weak. With regard to sales, I believe it reflects the assumptions you have already explained but would we be correct in assuming that the OP forecast similarly only includes profits that OMRON is certain of? Should we view the OP forecast as conservative or as a minimum base level? Or does the forecast reflect some special factors? A. (Yamada): The profit forecast does not include any special factors that would depress profit levels. As noted earlier, we have chosen to take a conservative view of the operating environment and our revenue forecast includes only revenue with a high degree of certainty. From this perspective, our OP forecast represents a minimum, base level. With regard to expenses, we remain committed to reducing full-year fixed costs by ￥20 billion, but at the same time, we will also execute on investments that we believe to be essential to future growth. Our forecasts assume that we will fully follow through on our plans; unlike Q1, we will not allow activity levels to languish. Q: Thank you. On HCB, the Q1 OPM was very high. You mentioned that the thermometer business was strong in Q1. I had assumed thermometers do not make much of a profit contribution. Did strong thermometer sales contribute to the higher margins? If not, what drove the higher HCB margin? Also, the implied OPM for the remaining 9 months is around the 12% level; why are you expecting the margin to decline? A. (Takeda) It is true that the revenue share of thermometers in Q1 was high, which pushed up the GP margin for HCB, which then boosted OPM. Also, lockdowns and shelter in place orders depressed real store sales in Q1, reducing real store-related marketing expenses, while the share of sales from the online channel increased. The online channel’s GP margin is also high. The improvement in the Q1 GP margin contributed to the higher OPM. From Q2 onward, although we expect thermometer demand to continue and BPM demand to kick in on a global basis on rising health-consciousness, real stores have re-opened in Q2, so we will be incurring fixed costs in full. We will also be undertaking essential investments from Q2 onward, optically making OP look lower. Generally, revenue trends are strong and the GP margin is likely to remain high throughout the fiscal year. However, with the re-opening of real stores and resumption of more normal activity levels from Q2 onward, we will incur fixed costs in full and will also be making essential growth investments. This will have the effect of making the OPM for Q2 and beyond look weak in comparison to Q1. That said, we expect to be able to maintain OPM at a very high level on a full-year basis. Q: Thank you. May I just confirm that the Q1 GP margin benefited from the decline in real store sales, which led to a decline in marketing costs, and the increased share of higher margin online sales? A. (Takeda): Yes. The GP margin on online sales is different in that we sell directly to online players like Amazon. As a result, margins tend to be higher. Q: Thank you.