2020_1q_omron_e

35/38 Questioner(6)

(Questioner 6) I have two simple questions. I would like to confirm some figures. First, I would like to ask about profit and what the figures include. At the segment level, some results were relatively solid while others were weak. Despite flat revenues, HCB profits appear slightly weak. Can you talk about the backdrop to this and how we should think about the trend going forward? At the same time, the Other segment profit level looks slightly firmer relative to plan. What is behind this? (Nitto) Mr. Takeda, can you respond to the first part of the question about HCB? (Takeda) If you compare the Q1 operating profit level for HCB to Q1 FY2018, it is virtually unchanged. It is only slightly lower Y/Y. This level is largely in line with plan. Q1 SG&A spend does include R&D expenditures and investments in new businesses, but neither was a significant drag on profitability. The HCB profit level is in line with plan, including the impact of planned investments. We have not seen any major disruption that has hurt profitability. (Nitto) With regard to the Other segment, this segment includes the PV-related Environmental Solutions business, which is doing very well. It is true that PV inverter unit volumes have been tough but sales of power storage systems for captive use or targeting post-FIT demand have been very strong. Sales and profits from this product category are up Y/Y. This is making a major positive contribution to overall segment profits. (Questioner 6) Understood. I have one more question related to margins at IAB. Earlier, you mentioned raising selling prices. Could you discuss the background to the price hikes and how sustainable this might be? I wouldn’t expect to see a tougher operating environment lead to an intensification of price competition in the sensor space but I would guess that there is competition to win orders. Given this, could you talk about how sustainable price hikes are? Also, on a full-year basis, you are targeting a 1%-pt. improvement in the IAB GP margin. However, despite the low level of sales in Q1, you reported at 1.8%-pt. improvement to GP margin. Are there parts of the business that are doing well, despite the overall weakness? (Nitto) With regard to the hike in selling prices, we initiated the process in the autumn of last year. At that time, the market was still struggling with component shortages. There was a lot of pressure from customers to lock in supply in exchange for higher prices. This is the backdrop to the price hikes we referred to earlier. Customers were willing at that point in time to pay up for components. The price hikes did have a positive impact on IAB profitability but beyond this, the improvements are due to the aggregation of small improvements resulting from in-house initiatives. By nature, we do not typically see margins jumping up significantly; instead, the improvements are the result of accumulated incremental gains. The relatively high 1.8%-pt. improvement in Q1 is partly related to inventory moves, boosting the scale of gains. However, even excluding such factors, the improvement was still more than 1%-pt. I believe this is a reflection of the ongoing improvements in our profit-generating capabilities, although it is probably challenging to point at specific examples of this within Q1. (Questioner 6) Understood. Thank you. Could you pass the mic toward the back?