2020_1q_omron_e

31/38 Questioner(2)

(Questioner 2) Thank you for the presentation. I would first like to reconfirm several numbers. With regard to the reclassification of AEC and other businesses, I am looking at the figures you have presented. I thought that AEC revenues were initially ￥124bn. With the adjustment to the EMC business, this then became ￥121bn. I had also thought that AEC’s operating income was ￥4bn but as HQ payments drop out, the adjustment is ￥7.5 billion, implying that AEC’s HQ payments were ￥3.5bn. Is this the right way to understand the figures? (Nitto) Yes, that is correct. (Questioner 2) The HQ payment of ￥3.5bn seems quite large. Also, when you look at the Q1 HQ expenses for the continuing operations, I believe it was around ￥5.3bn. You had said that the operating environment is deteriorating: this seems like an aggressive level of spending given the environment. What does this include? Can you also talk about your policy for this spending going forward? For example, will you continue to invest in IT because you believe it to be necessary over time? To the extent that you can, could you provide more color on how to think about this? (Nitto) If we were use the accelerator and brake pedals as an analogy, on the brake side, we have been reducing overall fixed costs in the June and March quarters of 2019. Also, with regard to HQ staff we need to optimize in conjunction with the sale of the AEC business, although obviously, it is still too early to have an impact on results. These are the major initiatives in terms of reducing costs. With regard to investments in focus areas, we believe further investments in IT are necessary, given major trends such as the 2025 issue and digital transformation. As such, we are committed to fully following through on investments in this area. Beyond this, there are a variety of other investments which are positioned as growth investments. Given the increase in spending, we have already initiated a rigorous selection process to identify priority projects versus projects that can be pushed out. We will continue with this selective approach in FY2019. We will not be going full throttle with all of the proposed investments. Therefore, for some things we will be hitting the accelerator pedal while hitting the brakes in other areas. (Questioner 2) Thank you. You are saying that you will not be spending indiscriminately. My second question is about SSB. Thank you for the segment on SSB in the presentation. I understand that you have a very strong presence in the domestic market for traffic light systems. At the same time, you have not been able to expand into the overseas markets. Why is this the case? What are the barriers to expanding overseas? What are you doing to potentially overcome these barriers? (Nitto) If we use traffic control center systems as an example, these types of systems are typically used by public sector bodies at the national or municipal level. When you think about the systems, rules or direct customers, they are different in each country. Therefore, if we were to attempt to get into the overseas markets with our traffic control center systems, effectively we would not have any strengths. This is why we have chosen not to enter the overseas markets yet. We could participate in competitive bids but OMRON’s strength is its vertically integrated approach, starting from development through to ops and maintenance services. The model for this business is not simply to sell equipment on a one-time basis, but instead, to generate revenue over the life of the system on the back of the initial sale of equipment. It would be challenging for us to try to apply this model overseas. For now, therefore, we will concentrate on the domestic market. The flip side of the situation is that barriers to entry for the Japanese markets are very high for overseas peers. By nature, this is not the type of business where you can win business with low costs alone. If we look at OMRON’s competitiveness in the domestic market, it is very high. Barriers to entry are also high. This is why we have chosen to focus on this business. (Questioner 2) Thank you. Next, the person toward the back, please.