2019_2q_omron_e
35/42 Questioner(1)

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【ノート】
Thank you. This time you have revised down your forecasts for IAB. My impression is that the revision to operating income is large relative to the revision you made to sales. The waterfall chart indicates that you have significantly reduced the expected contribution from added value. I would like to understand what is behind this. Which slide are you referring to? Slides 15 and 16, in terms of the revisions to sales and operating income, where you show the downward revision to IAB operating income of ¥10 billion versus a sales revision of slightly more than ¥16 billion. This implies an assumption of a substantially lower OPM. If I look at slide 13, which is the waterfall chart for changes in operating income, it looks like the reduction in added value is a major contributor to the lower profits. I would like to have a better understanding of what is behind this. I will ask Mr. Oue to respond with specifics but basically, OMRON has been consistently improving its GP margin over time. Of all of the businesses, IAB generates the highest GP margin. This time, the biggest negative factor for profits is the downward revision to sales. However, in addition to this, we executed on our planned growth investments, such as the increase in Automation Centers and adding more sales engineers, which also has implications for profits. (Oue) If you look at the factors for Y/Y change, investments for future growth are a significant factor in the expected decline in operating income for FY2018. However, there are also some special one-off factors this year. Of these, the forex impact is relatively significant, and in particular, the impact from weaker emerging market currencies. Emerging market currencies have not been a major topic for discussion to date but the depreciation in these currencies has a relatively large impact on added value. As examples, the Korean Won, the New Taiwan Dollar or Thai Bahts are currencies that account for sizable portions of IAB sales. There has also been some impact from tariffs. Also, as we touched upon in the slides on H1 results, we provisioned some inventory reserves, although this is more an accounting treatment issue. These are some of the factors that have led to a relatively larger decline in added value versus sales. Thank you. My second question is along similar lines. When looking at H2 versus H1, although you have revised down your forecasts for IAB, you are expecting a significant improvement in the OPM in H2. Does this mean that the downward revision is more a reflection of near term trends? Relatively to the H/H increase of slightly less than ¥10 billion in IAB sales in H2, you are projecting operating income to improve H/H by around ¥5 billion. This the opposite of what is happening with the full-year forecasts. Why is this possible? (Oue) Are you talking about the Y/Y changes? One factor is our expectation that the GP margin will improve in H2. There are also other factors such as forex. In addition, we had already started investing in earnest for future growth in H2 of last fiscal year, so the incremental Y/Yimpact of investments is smaller in H2. Hence the improvement in profitability in H2 is larger. If we look at the H/H change, the growth you expect in sales is not that large but the improvement in operating income is significant: in other words, you expect the OPM will improve substantially. (Oue) That is related to trends in inventory. From last year, we had been more proactive in procuring components but much of the provisioning for inventory reserves, particularly for the Digital business, has been completed in H1. This is one factor that impacts the added value ratio in H2. This is on top of the expected real improvements to the GP margin in H2. Thank you. Next, the person in the middle section.