2020_2q_omron_e

32/37 Questioner(1)

(Questioner 1)Thank you. I would first like to ask about how you think about SG&A. Given the decline at the topline, I understand this pushes up the SG&A ratio but, at over 30%, it feels too high relative to your peers. If you have an image for where you would like the SG&A ratio to be in 3 years’ time or 5 years’ time, could you share it with us? (Yamada) Given that our business segments are operated as independent entities, it has meant that structurally we tend to have higher SG&A ratios. However, this is not to suggest that we are satisfied with the current level. As we integrate some of the businesses , we aim to reduce the SG&A ratio. However, our top priority at this time is to raise the GP margin to boost profitability. As such, we are not currently considering reducing our spending on initiatives such as expanding the number of ATCs or hiring SEs for IAB as discussed earlier, to lower the SG&A ratio. Our ultimate goal is to create a structure that will allow us to generate a double-digit OPM; within this framework, we would be ultimately looking at the appropriate cost structure and balance between the GP margin, SG&A ratio and R&D expense ratio to achieve this. (Questioner 1) The topline will decline significantly in the absence of AEC but given there hasn’t been a reduction in HQ headcount, I think this is an area that could be addressed in the short-term. What do you think? (Yamada) It is true that the ratio of HQ costs has gone up as a consequence of a lower topline. However, we do not feel it is appropriate to simply take an attritional approach. We believe we can revert to an appropriate level by growing revenues in the 3 domains of IAB, SSB and HCB. (Questioner 1) Thank you. My second question is a more short-term question. With regard to the external operating environment for IAB and EMC, some have suggested that market inventory adjustments have been completed. You have said your assumption is that we will not see a recovery during H2, but could you provide a little more color on your views? For example, do you think that prospects may be brighter once we get into FY2020? Or, are you expecting the tough conditions to persist into the next fiscal year, which means your approach to the business will continue to be more of a balancing act? (Yamada) I am certainly praying for brighter prospects in the next fiscal year! Seriously, our forecasts assume a challenging environment. It may be that the market is bottoming now but we have yet to see any evidence of this in our business. We have not seen anything that suggests that the market has bottomed. This is the view we have factored into our forecasts. As a consequence, if, in fact, the market is bottoming now, we would expect to better our forecasts, given our improved profit-generating capability. Although the downward spiral in trade and capex was initially triggered by trade tensions between the US and China, we are now seeing knock-on effects on a global basis, particularly in the automotive industry. This is the current reality for OMRON. That said, there will be opportunities when the markets turn; we want to be positioned to move aggressively when this happens. We certainly want to be prepared for this possibility. (Questioner 1) Understood. (Okumura) Are there more questions? Next, the person in closest block in the second row, second from the aisle.