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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Now we will start the second quarter of fiscal year '22 results briefing. Thank you for joining today. Again, please refrain from recording during the earnings session. Presentation material is available on the top page of our website. Please note that today's conference is being recorded.
[Interpreted] Hello, everyone. I am Minegishi from Corporate Communications Department.
On behalf of Mr. Habe, who was intended to be speaker today, I will be in charge of session for today for 1 hour. Based on the presentation material we mentioned earlier, I will give you a presentation for about 20 minutes, I will give you outline, and then we'll move on to Q&A session. Without further ado, let me start presentation. Page 5, please. I will talk about the situation or result of the first half. In the first half, accessibility business segment, including automatic door. And in the first half sales was JPY 3.4 billion higher than the plan. However out of JPY 3.4 billion increase, impact of exchange rate was JPY 1.8 billion. And as for the reason why sales of ACB increased, factor is overseas platform door. And originally we expected the sales for the second half, but that part of the sales was accelerated from the second half to the first half. And as for sales decrease, as you can see, sales of hydraulic equipment included in Component Solutions segment was down significantly by JPY 8.1 billion. There are 2 factors behind that. First of all, in China, demand for hydraulic excavators was down significantly. Then secondly, we have hydraulic equipment plant in Shanghai and that Shanghai plant was impacted by lockdown in Shanghai. As for Transport Solutions segment and Manufacturing Solutions segment, due to shortage of electronic component, we were not able to produce nor their ship. That's why sales were down. Please look at the operating profit on the right-hand side. Operating profit of Component Solutions segment was down dramatically. As for the factors for that, as I said earlier, sales for hydraulic equipment declined sharply. So let me summarize the results of the first half compared to our original expectation. In the first half, impact of Shanghai lockdown and shortage of electronic components were significant. As a result, both sales and operating profit was reduced. Please go to the next page for the summary of profit and loss statement. Let me mention only one thing on this page. Please look at financial income and cost. And as you can see here, the valuation gain and loss of Harmonic Drive System is negative JPY 16.6 billion. And this is because of the decline in share price of HDS from JPY 4,860 at the end of the fourth quarter to JPY 3,995 at the end of June, and that's why. Next page shows balance sheet. On this page, let me touch upon liabilities. Liabilities decreased significantly from the end of December. And this is related to the fact that I mentioned earlier, meaning, sales of shares of Harmonic Drive System associated with the sales of the shares we paid on corporate income tax. Please go to Page 9. Now I will talk about how we forecast the market for the second half from July to December this year. First of all, regarding Precision Reduction Gear, we expect a continued strong demand for industrial robot as we expect automotive manufacturer will introduce new production line for producing electric vehicles. As for hydraulic excavator, we expect demand, total demand in China will continue to be flattish in the second half. And originally we expected demand for hydraulic excavator will be down by 20% from 2021, in 2022. And in the first half, total demand dropped by 36%. I think this level of the drop will continue for the full year. Regarding Transport Solutions segment. And after the COVID-19, we expect demand from passengers is recovering and demand for the railroad, vehicle or the aircraft or the distribution or logistics are recovering. So we expect demand for the marine vessel and commercial vehicles will recover. Please take a look at order taking. Gray bar indicates order taking for the first half of 2022, Precision reduction gear, TRS, ACB there and order taking increased from the second half of 2021. On the other hand, if you look at the sales, gray bar indicates the first half of this fiscal year. And if you look at the precision reduction gear or the TRS, they were down from the previous term. So that is to say, market environment or order takings was strong. However in the first half, due to lockdown or shortage of electronic component, we were not able to produce sufficiently. We were not able to book sufficient sales. So we plan to recover sales as you see in the yellow bar in the second half. So on the right-hand side, you see actions we need to take to achieve our targets. For sales expansion, in order to meet high demand for precision reduction gear, we'll increase production. For reference, in Japan plant, our annual production capacity is 840,000 units. Utilization ratio in the second quarter was 105%. Annual production capacity of China is 160,000. So that production utilization ratio was 115%. In Japan plant, we plan to increase production capacity from the current 840,000 to 890,000 by the end of this year. And there is another initiative we will take to expand sales. And there was a shortage in electronic component in the first half. So in order to secure electronic components, we restarted the look for new electronic components suppliers. And also, along with that, we're changing design drawings as well. As for expansion of operating profit, there was delay in production, so we make sure to recover delayed production. In addition to that, in TRS, MRO business, it is relatively easy to increase prices in the short-term. So we want to focus on price increase. And all raw material prices are increasing. So we're making effort to pass on cost increase on to products, their prices. For reference, in the first half, for the entire company, we achieved price increase of JPY 200 million. In the second half we plan to achieve price increase of JPY 600 million. Please look at the left-hand side, and this shows sales. In the first half, we were not able to produce sufficiently. So in the second half, we will make sure to produce products and sell those products. And orders are piling up, so we will make sure to produce products, to sell products. And through that, we plan to achieve sales of JPY 167.8 billion in the second half. Right-hand side shows operating profit. We plan to achieve operating profit of JPY 18.1 billion. As for the factor, JPY 600 million will be from price pass-through, productivity improvement, JPY 200 million, cost reduction of JPY 800 million. In total we plan to achieve JPY 18.1 billion of operating profit. I will skip Page 11, as I already touched upon the content earlier. Page 13 shows full year revised plan. And for the full year, now we expect JPY 310 billion. We revised down initial plan by JPY 10 billion. And then on the right-hand side, you see operating profit. We revised down operating profit from the initial plan of JPY 33 billion to JPY 26 billion, which was JPY 7 billion revised down. And in the space below, you see the difference from the plan of -- from the first plan of the first half. So please take a look at that later. Next page shows full year PL. Let me mention one thing on this page. And that is about valuation on gain and loss of the Harmonic Drive System. As you see, it says JPY 4.9 billion for the full year. And as you know, on July 11, we completed the sales of 60% of Harmonic Drive System shares held. And in the third quarter, we plan to book JPY 4.9 billion as financial income. Let me move on to CapEx and others. If you look at the CapEx, it says, we revised CapEx plan from initial plan of JPY 36.1 billion to JPY 30.2 billion. And this level of CapEx is quite high level of CapEx. As for the content of CapEx, for precision reduction gear, we intend to do production to meet future orders. And for that, we plan to build a new plant. Please go to Page 17. As I mentioned, we are concentrating CapEx in precision reduction gear. As you see in the graph on the left-hand side, order taking achieved record high for 3 quarters in a row. In the second quarter, Q-on-Q increase was 1%, year-on-year increase was 18%. Please look at the graph on the right-hand side. This shows production capacity of precision reduction gear. The current production capacity is 1 million units. By the end of the year, we plan to increase the capacity to 1.06 million. In 2030, new plant will have the capacity of 1.2 million. The total capacity will be 2.34 million. Next page shows an outline of Hamamatsu new plant. In 2030, we aim at production capacity of 1.2 million units at this new plant in Hamamatsu City in Shizuoka Prefecture. We will construct the plant going forward, on September 23, we plan to have groundbreaking ceremony. That concludes my presentation. Now I will move on to a Q&A session.
[Operator Instructions] [indiscernible].
My question is how many percent of the raw material cost increase can realistically be eventually passed on to customers?
[Foreign Language]
[Interpreted] Of course, it depends on the -- with when we should compare. But if you look at the raw material cost increase for this year, I think we will be able to pass on about 1/3 or 1/4 to product prices. Basically we plan to pass on all the cost increase on to product prices, and that is the basic target. And we want to raise this pass-through ratio next year. So I will unmute telephone participants. So if you have questions, please ask questions. As there is no question, so I would like to give you reference information. For hydraulic equipment, sales for the first half of this fiscal year was JPY 23.8 billion. As for the regional breakdown, sales for China accounted for 40%, sales in Japan accounted for 40% and Asia 15%, that's based on invoice. And in the first half of last year, 2021, China accounted for 60%. That means the ratio of sales to China came down year-on-year. And then in TRS, for Railroad Vehicle Equipment, the sales for the first half for China was JPY 1.3 billion. So along with that, we revised down sales forecast for China from JPY 6.2 billion to JPY 5 billion. In TRS, we revised down sales forecast, the main reason is change of the plan for sales in China for Railroad Vehicle Equipment. And for aircraft equipment, sales in the first half of this fiscal year was JPY 5.7 billion. As for the breakdown, commercial aircraft accounted for 55% and self-defense accounted for 45%. Out of the commercial aircraft, MRO accounted for 35%. I think that is because on aircraft operation volume of commercial aircraft is increasing. That's why MRO business is increasing, which I think is a good trend. For reference and to the total TRS, MRO ratio in the first half of this fiscal year was 45%. Next I will give you regional breakdown of sales of ACB. Japan accounted for 60% and Europe 30%. And as for platform door in the first half of this fiscal year, sales were JPY 5 billion. To the total ACB segment, in the first half, MRO accounted for 45%. Those are the numbers we normally communicate to investor in a discussion.
[Operator Instructions]
[Interpreted] As there seems to be no more questions, now we would like to finish the results briefing for the second half of the fiscal year ending December 2022. Thank you very much for your participation today.
If you have any further questions, please -- Mr. [indiscernible], please, if you have any other questions?
I have no further questions. Thank you.
[Interpreted] Thank you so much. Appreciate it to join us today's meeting. Thank you.
Thank you. Have a good evening. Thank you.
Have a nice day. Thank you. Bye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]