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- 00:45:33.0 Thank you for the presentation.
I have a question about the section of the presentation starting from slide 21. You talked about the use of IoT in future manufacturing and the expanding roles of controllers and sensors. Given that you do both, this should be viewed as a positive. That said, there is competition in this field. For instance, I believe that you compete fiercely in China with Mitsubishi Electric and Siemens in PLCs and with Keyence in sensors. Can you talk about your current strengths versus your competitors? Also, going forward, will your strategy be to further elevate your strengths or to address your weaknesses through corporate actions like M&A? It would be helpful if you could talk about both controllers and sensors.
- 00:46:34.3 We believe that the elements that have historically constituted strength in FA have changed significantly. To date, dedicated specialist players have tended to be strong, such as sensor specialists or players focused on a specific field. Up until now, such players enjoyed success in growing their businesses.
Now, however, the biggest determinant of competitive superiority is the ability to harmonize and integrate a wide array of discrete elements into a single software-controlled package: the market now demands total solutions.
As we show on slide 22, Omron has all of the key product categories of ILOR+S, including robotics, sensors and controllers. This makes it possible to provide customers with integrated package solutions and is Omron’s greatest strength.
One other key element is the controller, which is at the heart of all FA solutions. It is significant that Omron has a PLC that is also enabled for motion control. Robotics and manufacturing line equipment have historically used separate controllers. However, the application software that Omron proposes is controlled by a single controller. The single controller is also able to aggregate all of the data to be transmitted to upper layers. This allows Omron to provide vastly superior value, both in terms of quality and scale.
Obviously, we recognize that if you look within our categories, there are still areas of weakness. The recent acquisition of Sentech is a good example. We had been weak in cameras. Going forward, we will continue to bolster areas of weakness through M&A as well as further expand our suite of package software applications, in terms of both quantity and quality. This will be Omron’s strength.
Earlier, I talked about our China business. I chose to highlight China because it is the most dynamic market in the world. Although this is the market that is changing the most, we have had significant success with our approach. Our success in China has reaffirmed our confidence in our strategy. Our basic approach for IAB over the next four years will be to apply what we have learned from our experience in China to the rest of the world.
- 00:48:46.2 Can I ask for additional clarification on this point?
Can you talk more about your strength in sensors? Omron is known to be strong in categories like photoelectric or fiber sensors. Does Omron’s strength derive from its nano level precision manufacturing capabilities in photoelectric sensors? Or, is having strength in one type of sensor not as relevant to differentiation? Is differentiation more a function of having a variety of sensors such as thermal or vibration sensors that you can combine with photoelectric sensors? How should I think about your strength in sensors?
- 00:49:20.0 Omron is known for two things: a very high level of precision and a very diverse product lineup of different types of sensors which allows for a wide variety of combinations. Additionally, the robustness of our product has recently become a differentiator. We have recently rolled out a lineup of more robust, heavy-duty product that has been very well accepted by our customers.
These are Omron’s strengths if we are talking purely about sensors.
That said, our strategy going forward will not be to focus specifically on discrete sensor devices but to provide total package solutions that combine products across our product lineup. From Omron’s perspective, once we are able to get a foot in the door, we can grow business with our customers by applying our full product lineup. For our customers, they will benefit from buying solutions from Omron, rather than buying discrete components and devices from specialty manufacturers. This is what we are aiming to achieve.
- 00:50:09.0 Thank you.
My second question is about the waterfall chart on slide 40. It is clear that Omron has improved its ability to generate profits and that its GP margin will rise as a result in FY2017. However, both SG&A and R&D spend will grow faster than sales. Although you indicated that the focus of the increased spending will be on IAB and HCB, can you be a little more specific? For instance, will the SG&A spend be allocated to building out the distributor network in China? Will you be adding more engineering staff to focus on direct sales in China? In terms of products, will the increased investment focus on the integrated controller to incorporate AI functionality? Can you also give us a sense for how much the increased spend might contribute to future sales? For instance, how much will annual sales increase as a result of the incremental ¥16 billion spend? For instance, are we talking about a sales increase of the order of ¥5 billion? I would be grateful for more information.
- 00:50:56.8 We do not have detailed information to share at this time but basically, we have prioritized the allocation of increased investments to IAB, HCB and advanced research being done at headquarters.
Within IAB, in addition to investing more in R&D, we will also be strengthening our system engineering resources. As I talked about earlier, our plan is to focus on selling more integrated software packages, where we devise solutions to challenges faced by our customers, based on a deep understanding of their processes. The field application engineers at Omron are responsible for creating these solutions. Increasing SE manpower and upgrading our system engineering expertise will be key. We will invest proactively, including increasing SE headcount.
At the same time, we are also restructuring, so there will be areas where SG&A will decline but our advance investments will outweigh these reductions. In FY2017, all of the increase in added value will be allocated toward investments for future growth.
Under VG 2.0, we have declared that we aim for 10% YoY sales growth in both IAB and HCB. FY2017 is positioned as a year of preparation to realize our medium-term management plan goals.
- 00:52:15.9 To achieve the FY2020 OPM of 10%, you will need to add another 150 bps. GP margin at 40.3% is already very high. Should we assume that SG&A growth will moderate after this first year, and that the 10% OPM will be achieved in combination with topline growth?
- 00:52:34.6 We aim to manage SG&A spend with discipline: on the one hand, continuing rationalization efforts, while, on the other hand, hiring to grow sales.
- 00:52:44.4 Thank you.
- 00:52:46.4 Next, the second person across in the middle section.