2019_3q_omron_e

33/34 Questioner(6)

(Questioner 6) Thank you. With regard to the revised forecast relative to the previous forecast as shown on slide 15, the decline in added value is very large. You commented earlier that volume declines were the main factor. If you calculate the ratio of the profit revision to the IAB sales revision, it is significant with marginal profitability at around 50%. You indicated that you are reviewing costs, but from the perspective of being resilient in the face of changes in the external environment, how would you characterize the actions you have taken? For instance, was there actually room to reduce costs more because it is Q4? Also, along similar lines, would I be wrong to assume the reason why the profit impact is so large is because the downward sales revisions were relatively larger for regions where margins are higher? Could you answer these two questions please? (Nitto) There is probably room for debate as to whether the scale of cost reductions is sufficient in light of the downward revision. However, we wanted to be mindful of our medium- and long-term objectives while also responding in the short-term. Being selective allows us to maintain the balance between our longer-term objectives while doing as much as possible in the short-term. As a result, it is true that we have not been able to fully offset the impact of the downward revisions with cost reductions. From that perspective in my role as CFO, given previous guidance on profits, it pains me to lower our forecasts as it means we have fallen short of our overall objectives. That said, we manage our business over a multi-year span. Also, in terms of reducing costs, we do not believe the circumstances warrant a decision to cut headcount significantly; we have chosen to do what we can in the short-term. In terms of margins, overall margins are high at IAB but there aren’t significant regional differences in margins within IAB. IAB margins are high across all regions. Therefore, when we see declines at IAB, it is true that we cannot make up for shortfalls at IAB by growing other businesses. We are aware there are differing opinions as to how to view the overall portfolio approach. Some suggest we should have a more concentrated business portfolio but that would make our earnings more cyclical. On the other hand, we were able to mitigate the declines at IAB through growth at SSB and HCB. There isn’t a single correct answer to how best to manage this balancing act. I hope this gives you a sense for how we think about managing this process. (Q) Thank you. I think I may not have been clear. The downward revision to profits for IAB appears to be large relative to the scale of the IAB sales revision. I believe that this is the case because, despite cost reductions, the margins for the China business are relatively high, so a change to the sales forecast for China has significant implications for profitability. Does this sound like a fair assessment to you? (Oue) As I noted earlier, it isn’t the case that margins for China are particularly higher than the other geographies. Instead, it is the overall impact of the downward revision to the high-margin IAB business which is depressing added value and, therefore, profits. (Q) Thank you. (Itagaki) We are almost out of time. Are there any further questions? We will take one final question from the gentleman in the middle section, 4 rows from the front.