2021_2q_omron_e

31/33 Questioner(1)

Questioner 1: With regard to the H2 guidance for IAB, the sales forecast appears to be very conservative or cautious as mentioned in the presentation, with an implied H2 OPM of just over 10%. Please explain the background to the lower margin. If we compare the implied H2 forecasts versus H1, essentially the absolute H/H sales decline accounts for the vast majority of the H/H OP decline. How should we understand this? A. (Oue) I will respond to this question. With regard to the sales forecast for IAB, effectively we have cautiously assumed that quarterly sales will generally remain at Q2 levels in H2. However, relative to H1, we have factored in our expectation of a pause in the Digital investments seen in H1 as well as the impact of normal seasonality. Although the outlook for the operating environment is mixed, we do expect there will be social needs that emerge. We will focus on fully capturing these opportunities. In order to ensure that we are able to capture these opportunities as we look into the next fiscal year, we will be stepping up our activities, which will have implications for fixed costs. We will also increase investments. This is the background to the IAB sales and OP forecasts. Q. May I ask for clarification? When you say you are taking a cautious view for H2, should we understand this to mean that you are not only taking a conservative view of topline which has an impact on OP, but are also taking a conservative view of OP as well? A. We are not trying to be conservative. We believe our forecasts are based on a realistic view of the markets and represent our best estimates. With regard to fixed costs, we will be stepping up the intensity of our activities. This is one of the key elements of our forecast. Q. Thank you. My second question relates to the waterfall charts for H1, which is on slide 5, and the full year. Can you elaborate on what is behind the increase in added value as a result of a higher added value ratio? Is it the increased focus on direct marketing for IAB? Or, is there a contribution from HCB as well? Also, the contribution in H1 was ￥0.7 bn, so the implied H2 contribution will be ￥4.1 bn. Can you explain the backdrop to this as well, please? A. (Oue) The improvement in added value is not just driven by improvements at IAB, but reflects the efforts of all of the business companies to increase added value. The absolute value may appear small, but this is the net result of positive and negative factors. As an example, logistics costs have been higher during the COVID-19 outbreak; some materials costs have also been higher. These figures reflect the fact that we have been able to overcome higher costs to improve added value. Therefore, in absolute terms, the impact of cost reductions and higher price points which reflect our customers’ acknowledgement of the value we provide, is larger than the net figures shown here. With regard to the difference between the H1 and H2 contributions to added value, the cumulative impact of ongoing activities to enhance value should have a larger impact in H2. This is factored into our plan. Q. May I confirm that the contribution from IAB’s shift to focus on solutions is included in this figure? Also, if possible, could you share the relative weights for this figure by segment? Even a rough image would be fine. A. (Nitto) Under the innovative-Automation concept, IAB has been shifting toward selling solutions, so although overall sales have fallen significantly, our GP margin is improving on a Y/Y basis. As such, there has been a cumulative impact. With regard to individual segment contributions, I can say that the GP margins for both IAB and HCB, as well as EMC, have improved. The GP margin is a key metric for OMRON. With sales falling this much, the situation is very tough but, despite this, we have made progress on many fronts, such as cost reductions or the shift to selling solutions which you alluded to earlier, or efforts to maintain selling prices. In spite of the challenging environment, we continue to improve our ability to generate profits. Q. Thank you. That’s very helpful.