2020_1q_omron_e

38/38 Questioner(9)

(Questioner 9) I have 2 simple questions. One question was asked earlier by Mr. Mizuno but can you go over your forecasts for the HCB margin again? You have reiterated a number of times that the margin is in line with plan but versus last fiscal year, the margin is down 2%-pts. It is also down relative to 2 years’ ago. When I look at HCB, you are reporting strong growth in Greater China, which I believe is driven by strong e-commerce growth. The margin on e-commerce should be high and you have indicated that online is an area of focus for HCB. I want to know if the margin you generated in Q1 is truly in line with plan. It feels like you should be able to generate a slightly higher margin. (Takeda) Just to confirm that you mean OPM when you say margin? (Questioner 9) I feel like your margin is a little weak and the absolute amount of profit that you are generating is also weak. (Takeda) In response to your question, the Q1 margin was largely in line with plan. Within Q1, there was a change in product mix versus Q1 FY2018. This relates to a product that is specifically for the China market only. Sales of this product were weaker in Q1. This depressed GP margin slightly and had an impact on Q1 results. With regard to this product from Q2 onward, we have already implemented measures which should drive a recovery in the GP margin. This was already factored into our initial plan. (Questioner 9) The China HCB business grew 14% in yen terms in Q1. What’s going on in China now? (Takeda) Are you asking what is driving sales growth in China? The underlying healthcare market in China is growing. One of the drivers is, as you alluded to in your question, the online channel. Another driver is the rise in health consciousness, which is spreading beyond Tier 1 and 2 cities to Tier 3 and 4 cities. The key channel for this is not online, but real store sales. We continue to see growth in real store sales. This is supporting the topline. HCB continues to see growth driven by the BPM and nebulizer businesses. In addition, with regard to the China-dedicated product which depressed GP margin in Q1, we have already implemented remedial measures in Q1. (Questioner 9) Thank you. I have a question about IAB. What is disappointing is that although you had included the 4 focus domains in previous presentations, when conditions get tough, this content goes away. I believe there should be more discussion of the i-BELT business, another strategic focus business. This did not even rate a mention in the presentation this time around. I expect you are continuing to make progress with i-BELT but could you talk specifically about progress you are making? There have been suggestions in the press that sales could hit ￥50bn in the longer term. It sounds very promising. Can you talk about the current status of this business? (Nitto) It is true that we did not include a slide on the 4 focus domains in the presentation this time, but we continue to concentrate on this strategy. In addition, we also focus on 2 categories for the customer base. The first is what we refer to as the Global 10K (10,000 companies); the second is other customers, including distributors. Unfortunately, sales for the Global 10K, which is the target for our solution business, were down Y/Y. However, the magnitude of the decline for the other category was even larger. Given the operating environment, we do believe that the Global 10K is contributing to mitigating the scale of declines. When we ask about conditions for the Global 10K, we are hearing that there is a constant flow of new inquiries and the number of projects in the works is rising. However, although progress is being made, the current challenge we face is that some customers are holding back on final investment decisions. In some cases, we have heard that project owners were instructed to suspend or cancel projects on the eve of project initiation by their head offices. That said, we continue to make progress in increasing the number of customers and solutions. With regard to i-BELT, we continue to make good progress. Revenue contribution at this stage is still small but we have been able to make inroads into the global top 10 or 20 customers. We are collaborating with these customers to address their manufacturing challenges. We are in preparations to develop a wide array of solutions, such as quality control solutions. Progress is good, but it is still too early to see a significant sales contribution. In future, however, we expect such services to develop into a significant source of revenue as we shift to a recurring revenue model. We expect this will account for a rising share of revenue and will clearly become a key business for IAB. As such, we will not be cutting investments and will continue to invest. (Itagaki) Thank you. We will close the Q&A session here. We would be grateful if you can take the time to complete our feedback sheet. This concludes the Q1 FY2019 results briefing for OMRON. Thank you for your participation today.