Fuji Electric Co Ltd

TSE:6504

Earnings Call Transcript 2020-Q3

[Junichi Arai, executive]

I am Arai, Managing Executive Officer. I will talk about consolidated financial results for the 9 months of fiscal year 2019. This page shows year-on-year comparison. In the 9 months, sales and income were down. As I'll discuss later, results were almost flat year-on-year in the third quarter. In the 9 months, net sales were JPY 611.7 billion, down JPY 10.5 billion. Out of that, reduction of JPY 3.3 billion was due to foreign exchange rate. That means net sales were down JPY 7.2 billion in real terms year-on-year.

Operating income were JPY 16.8 billion, down JPY 7.6 billion. As for non-operating income and expenses, negative JPY 800 million was from exchange rate effect. Mainly due to that, nonoperating items deteriorated by JPY 1.1 billion year-on-year.

Income before income taxes was JPY 18.5 billion. In extraordinary income, we booked gain on sales of investment securities. On the other hand, in the last fiscal year, we booked foreign exchange gain associated with the merger of businesses into 1 subsidiary in Malaysia. As a result, extraordinary income net of extraordinary loss was JPY 800 million, down JPY 900 million. Net income, attributable to owners of parent, was JPY 10.3 billion, down JPY 6.1 billion. When we look at results by segment, net sales only of Power Electronics Systems Energy increased. Net sales of all other segments decreased. Operating income of Power Electronics Systems Energy, Power Electronics Systems Industry and Electronic Devices decreased significantly year-on-year.

Now I will talk about results by segment in detail. In Power Electronics Systems Energy, net sales increased JPY 2.5 billion to JPY 146.3 billion. Operating income decreased JPY 3.2 billion to JPY 4.7 billion. There are 3 businesses in this segment. In the energy management business, net sales and operating results were almost flat year-on-year. In our power supply and facility systems business, switchgear and controlgear operations of a company in Singapore we acquired performed very well. As a result, net sales and operating results increased. The ED&C components business was a major factor for a drop in operating income for the segment. In the ED&C components business, net sales and operating results decreased significantly due to reduced demand from machine manufacturers, including those of machine tools.

In Power Electronics Systems Industry, net sales decreased JPY 8.4 billion to JPY 204.4 billion. Operating income decreased JPY 3.2 billion to JPY 1.1 billion. There are 4 businesses in this segment. In the automation systems business, net sales and operating results decreased following reduced demand for low-voltage inverters and factory automation components centered on the domestic and Chinese markets. In our social solutions business, net sales decreased due to the absence of large-scale orders for electrical equipment for railcars recorded in the previous equivalent period. In the equipment construction business, net sales decreased following declines in electrical and air conditioning equipment construction projects. But operating results increased due to the benefits of cost reduction efforts. In the IT Solutions business, net sales increased because of a rise in large-scale orders in the private sector, and operating results were almost flat. In Electronic Devices, net sales decreased JPY 1.2 billion to JPY 102.6 billion. And operating income decreased JPY 2.8 billion to JPY 8.9 billion. The numbers in squares indicate exchange rate effect. Excluding exchange rate effect, net sales were almost flat year-on-year. Operating income decreased JPY 1.6 billion. For semiconductors, automotive for semiconductors were strong and increased sales. However, net sales and operating results for semiconductors decreased due to the impacts of lower demand in the industrial field, centered on the Chinese market, the impacts of foreign exchange influences and increased depreciation and leases paid as a result of active investments. For magnetic disks, although demand reduced slightly, operating results increased year-on-year due to benefits of cost reduction and others. For reference, breakdown of sales between semiconductors and magnetic disks for the 9 months is shown. Distribution of semiconductor sales by field is also indicated here. In the 9 months of fiscal year 2019, industrial modules accounted for 46%; industrial discrete devices, 20%; and automobiles, 34%.

In Food and Beverage Distribution, net sales decreased JPY 4.1 billion to JPY 77.7 billion. Operating income decreased JPY 100 million to JPY 3.1 billion. There are 2 businesses in this segment. In the vending machines business, net sales and operating results decreased due to reduced demand in the Japanese and Chinese markets. In the store distribution business, net sales and operating results increased as new products for convenience stores started to grow and sold well.

In Power Generation, net sales decreased JPY 1.5 billion to JPY 69.6 billion. And operating income increased JPY 1.6 billion to JPY 1.1 billion. Despite an increase in sales of thermal and geothermal power generation system projects, net sales decreased due to a decline in new energy-related projects such as large-scale solar power generation system projects. On the other hand, operating results increased as a result of the rebound from the higher cost associated with a large-scale power generation project incurred in the previous equivalent period. This page shows net sales by Japan and overseas area. Net sales decreased JPY 10.5 billion in total. Overseas sales decreased JPY 4.3 billion, and sales in Japan decreased JPY 6.2 billion. The decrease in overseas sales increased JPY 3.3 billion of negative exchange rate effect. Therefore, overseas sales decreased JPY 1 billion in real terms. By area in Asia and others, net sales increased JPY 3.5 billion, including exchange rate effect of negative JPY 1.5 billion. Although net sales of automation systems and ED&C components decreased, net sales of power supply and facility systems, mainly switchgears and controlgears that I mentioned earlier, increased significantly. As a result, in Asia and others, net sales increased JPY 3.5 billion in total year-on-year.

In Europe, net sales increased JPY 2.1 billion year-on-year, mainly due to semiconductors. On the other hand, in the Chinese market, one of our main markets, net sales, mainly including component sales, decreased JPY 9.3 billion year-on-year. Net sales in Americas decreased JPY 600 million.

This page shows year-on-year comparison in net sales of major components and plant systems and others. Net sales decreased JPY 10.5 billion in total. Net sales of major components decreased from JPY 253.5 billion to JPY 237.4 billion. Net sales of major components of vending machines, semiconductors, factory automation, including low-voltage inverters, motors, factory automation components and measuring instruments and ED&C components, decreased JPY 16.1 billion year-on-year in the 9 months. Net sales of plant systems and others increased JPY 5.6 billion. For reference, orders slightly increased by JPY 1 billion. As with the case of net sales, orders of major components decreased JPY 13.4 billion and orders of plant systems and others increased substantially by JPY 14.4 billion.

This page shows year-on-year comparison of results only for the third quarter. Net sales were JPY 205.1 billion, up JPY 2.3 billion. Operating income was JPY 5.7 billion, down JPY 200 million. Ordinary income were JPY 6.9 billion, down JPY 200 million. Net income attributable to owners of parent was JPY 4.3 billion, up JPY 500 million as we booked extraordinary gain on sales of investment securities.

By segment, in Power Electronics Systems Energy, net sales and operating income decreased. That is mainly because net sales and operating results in the ED&C components business decreased year-on-year unfortunately also in the third quarter. In Power Electronics Systems Industry, net sales decreased JPY 5.1 billion, and operating income decreased JPY 600 million. Exchange rate effect is shown in squares. In this segment, components, including factory automation components and low-voltage inverters, were weak.

In Electronic Devices, net sales increased JPY 4.8 billion, and operating income decreased JPY 200 million. Excluding exchange rate effect of negative JPY 300 million, operating income increased JPY 100 million in real terms. Magnetic disks performed well. However, in semiconductors, depreciation for capital expenditures increased and there were negative exchange rate effect and start-up losses for some new products. As a result, operating income decreased JPY 200 million for this segment in total year-on-year.

In Food and Beverage Distribution, both net sales and operating income decreased. That was partly due to a slight drop of store distribution projects in the third quarter in this fiscal year. In Power Generation, net sales increased JPY 5.8 billion and operating income increased JPY 2.7 billion, partly due to progress of large-scale projects in the third quarter. Let me move on to balance sheet. This page shows comparison of balance sheet between March 31, 2019, and December 31, 2019. Notes and account receivables, trade receivables decreased JPY 52.5 billion. Collection of receivables of large-scale projects progressed steadily and cash came in. Inventories increased as we accumulate inventories mainly for plant-related sales expected for March. Total assets stood at JPY 981.7 billion, an increase of JPY 29.1 billion due to capital expenditures for semiconductors, acquisition of a company in India and others. Interest-bearing debts increased partially. As a result, net interest-bearing debt amounted to JPY 177.2 billion, up JPY 52.3 billion. Net D/E ratio was 0.5x. Equity ratio was 36.9%.

This page shows comparison between results for fiscal year 2018 and forecast for fiscal year 2019. There is no change to full year forecast announced in October. Net sales are forecasted to be JPY 915 billion. Operating income will be JPY 50 billion, down JPY 10 billion. Ordinary income will be JPY 51.6 billion, down JPY 11.9 billion. Net income attributable to owners of parent will be JPY 33 billion, down JPY 7.3 billion. There is no change to forecast by segment either.

In Power Electronics Systems Energy, both net sales and operating income will decrease mainly due to tough situation of ED&C components compared to the previous year. In Power Electronics Systems Industry, net sales will increase and operating income will be flat. As components will remain unchanged from the previous fiscal year, operating income is expected to be flat. In Electronic Devices, both net sales and operating income are forecasted to decrease. In particular, negative exchange rate effect of JPY 2.3 billion will have a big impact on operating income. Also due to depreciation for capital expenditures and others, operating income will decrease JPY 4 billion. In Electronic Devices, as magnetic disks have been strong, there is a possibility that the forecast will be exceeded slightly. In Foods and Beverage Distribution, although net sales will decrease JPY 1.6 billion, operating income will be flat. In total, net sales will be almost flat and operating income will decrease JPY 10 billion year-on-year. As for JPY 50 billion of disclosed forecast of operating income, we will work harder in each segment and achieve the target as the minimum target. As we mentioned every time, we will further promote reduction of expenses, mainly including fixed cost. We want to achieve this forecast by all means. I think you have high interest in 3 businesses of components, including ED&C components, low-voltage inverters and semiconductors.

Today, corporate general managers in charge of those businesses will talk about each business.

[Toru Housen, executive]

I am Housen, Corporate General Manager, Electronic Devices business group. I will talk about order situation of semiconductors. In the third quarter, orders increased 18% year-on-year in total. Orders for automobiles increased 29%, and industrial motors increased 21%. Orders increased 13% in the third quarter from the second quarter. Orders for automobiles increased 8%; industrial discrete devices, 10%; and industrial modules, 18%.

In briefing our results for the first half announced in October, we said the bottom was hit in semiconductors in the fourth quarter in the last fiscal year. The bottom was hit in the fourth quarter, excluding exchange rate. After that, orders started to increase slightly. The pace of growth of orders is gradually picking up. In the 9 months, orders increased 2% year-on-year. Automobiles were the major growth driver and orders for automobiles increased 19%. Orders for automobiles increased due to electrification. Orders for industrial modules increased 18% in the third quarter from the second quarter.

Industrial modules are strong for new energy, in particular, for wind power and solar power generation. Besides, adoption by new customers for room air conditioners progressed. As a result, orders for industrial modules increased significantly. That's all for status of semiconductors.

[Hiroshi Tetsutani, executive]

Next, I will talk about low-voltage inverters. I am Tetsutani, Corporate General Manager, Power Electronics Systems Industries business group.

Regarding orders of low-voltage inverters, in the 9 months in terms of year-on-year comparison, we struggled both in Japan and overseas. Such a situation hasn't changed significantly from the previous report. However, in the third quarter, we started to see a small changing point. Finally, in the third quarter, year-on-year growth became positive overseas. Growth overseas was 3 percentage points. In Japan, as we had big projects in the last fiscal year, orders dropped by 14% year-on-year. We see that similar market conditions have been continuing since the first quarter. On the other hand, growth of orders was 8 percentage points in total quarter-on-quarter. As we mentioned in the previous meeting here, for the base volume of machine manufacturers, we've been taking measures since last year. We increased project orders and took measures in component businesses, which will lead to system and plant businesses. These efforts started to be bear fruit. Quarter-on-quarter growth was 7% in Japan and 9% overseas. We were able to achieve these results. We think inverters also started to be on a slight recovery track. Although I didn't prepare materials, situation of factory automation components was better. In the third quarter, for factory automation components, year-on-year growth rate recovered to 0. Quarter-on-quarter growth was 5%. Factory automation components dropped early in the last fiscal year. Factory automation components are on a recovery track from the last fiscal year. Situation of components is still tough. A changing point was seen slightly in the third quarter. We want to achieve our commitment somehow in the fourth quarter. That's all.

[Masahiro Morimoto, executive]

I am Morimoto, Corporate General Manager, Power Electronics Systems Energy business group. I will talk about ED&C components, including changes in orders. In the 9 months, orders decreased 7% year-on-year. As you know, demand from machine manufacturers dropped sharply. In our case, about 50% of ED&C component sales depends on machine manufacturers. Orders in machine to industry decreased 65% year-on-year. Considering a drop in total demand, this number is relatively good. From the second quarter to the third quarter, slight growth was seen in Japan in particular. It is a yearly trend. Demand for distribution equipment and facility systems will increase significantly in the second half in Japan. So we will finish up this fiscal year, including the fourth quarter by capturing the demand. That's all. [Statements in English on this transcript were spoken by an interpreter present on the live call.]