2019_4q_omron_e

35/39 Questioner(2)

(Questioner 2) Thank you for the presentation. I have 2 questions. The first is about EMC. In the Financial Data book, you show historical sales and OPM. Frankly speaking, I do not expect to see huge sales growth at EMC going forward. I would like to know if you see a major driver of sales growth for EMC? If you do not, do you expect to see the OPM improve above the 10% level? I think the executive officer in charge of EMC is Mr. Yukumoto. Can you share with us what you expect from Mr. Yukumoto and what you consider his mission to be? (Yamada) FY2018 was positioned as a year of structural reform for EMC. Specifically, we were winding down unprofitable products as well as dramatically consolidating production lines. We completed our initiatives in FY2018 and therefore expect to see an improved contribution to profit from FY2019. The core products are electronic components, which are used by a wide range of industries. As discussed today, this device and module business is positioned to support the 3 domains. Mr. Yukumoto’s mission is to have EMC develop into a business that enhances our competitive capabilities. It is a business that requires capex, so in times like this when there is a headwind, it is challenging to improve margins. However, if capacity utilization improves, it is a business which can contribute substantially to profits. This business has a different structure compared to the other OMRON businesses, so FY2018 and FY2019 are likely to be years where EMC needs to hunker down. That said, the business is gradually rolling out competitive products, so I have expectations for this business. One example is the relays that are used in FA. OMRON has a high market share in this product. This product is manufactured by EMC and is sold through the IAB sales channel. The manufacturing profits are recognized at EMC, while the sales and marketing profits are recognized at IAB. EMC is also positioned as a business that supports other OMRON businesses. This is why we have depicted it as a base, under the triangle which represents the focus domains in the slide. (Q) Thank you. Within the current medium-term management plan, I believe FY2018 and FY2019 are positioned as years where OMRON reaps the benefits of earlier investments. However, when I look at this year’s plan, you have been very frank in disclosing that you have incorporated a buffer against the risk of earnings fluctuations. If you include the buffer, it does not feel like you are expecting a bountiful harvest from earlier investments. In the context of your peer group or the operating environment, the plan does not feel particularly out of line but it does not feel like OMRON is reaping any benefits from previous investments. How should we think about this buffer? Can we assume that the buffer will shrink by 25% each quarter as the year progresses, so that if the earnings fluctuations do not materialize, there would be a push-up to sales of ￥2.5bn and OP of ￥1.3 bn per quarter? Or, is the nature of the risk such that the buffer will be required in full to the end of Q4? Any color you could provide would be helpful. (Yamada) First of all, the potential impact of earnings fluctuation risk we have set aside should not be viewed as a buffer. As noted earlier, the current business environment for IAB is very tough. Our customers have indicated that their visibility is poor; some are suspending, delaying or shrinking their capex projects. Therefore, our forecasts assume the tough conditions will continue throughout FY2019. However, we also considered scenarios where the market fell short of our assumptions and felt that there was a possibility that we could see a profit shortfall of around ￥5-6 bn. Obviously, there is a possibility that the market could do better than we expect. This is the first time that OMRON has chosen to adopt a risk factor at the overall corporate level, namely ￥10 bn in sales and ￥5 bn in OP. Management will aim to overshoot the segment targets as disclosed but given the uncertainty about how the operating environment could change, or the potential for a sudden appreciation in the yen, we felt it was appropriate to set aside ￥10 bn for sales and ￥5 bn for OP to reflect the risk to earnings at a corporate level, rather than allocating this to the individual businesses. If this risk does not materialize, then, yes, it would push up overall earnings. Going forward, when we talk about our earnings performance each quarter, we will talk about the results for the individual segments. If the corporate-level risk factor does not materialize, we will factor it back into the earnings plan. (Q) Thank you. (Itagaki) Could you kindly pass the mic to the person next to you, please?