2020_2q_omron_e

36/37 Questioner(5)

(Questioner 5) Thank you. I have 2 questions. My first question is about OMRON’s profits. Earlier there was a question about SG&A. With regard to GP margin, which is your key focus, when I looked back at my notes from 2 years ago, your target under VG2020 was an overall GP margin of 42%. At the time you indicated you hoped to generate a GP margin for IAB of more than 50%. You have subsequently talked about how IAB has been a key driver of improvements to the overall GP margin. How high do you think the GP margin can go? Fundamentally, it seems no matter how much you focus on raising your GP margins, you will continue to be compared to a peer that generates a GP margin of 80%. Given this peer’s margins, some might argue that the sky is the limit. What is the level you are targeting internally? (Yamada) Given that we manufacture in-house, I don’t really think that the sky is the limit for us. Mr. Oue, can you take this question? (Oue) It is tough to say how high we might be able to go but within the framework of the VG plan, while the absolute level has been impacted by forex from time to time, in real terms we have been able to consistently improve our GP margin by a range of between 0.5% pt. to 1% pt. a year. Even now, there is still plenty of room to make further improvements from a cost perspective or by launching strong new products or solutions which boost added value. We will continue to gradually raise our GP margin over time. (Questioner 5) CEO Yamada, do you believe that you can continue to generate similar levels of improvements to the GP margin every year, if you continue to execute on your strategies? (Yamada) Yes. As indicated by Mr. Oue, over the last few years, we have been able to generate improvements of between 0.5% pt. to 1% pt. to our GP margin every year, for an average of around 0.8% pt. The major driver has been the fact that our customers have been willing to pay higher prices for our products, reflecting their recognition of the value the products provide. I believe that there is still plenty of room to improve our GP margin in this way. At the same time, we must also improve our success in winning business in order to grow the topline. Unfortunately, in times when like now when operating conditions are poor, we have not yet developed the self-sustaining growth capability that would allow us to thrive in a tough operating environment. We are significantly impacted by changes in the external environment. This is particularly true of the FA business. We want to develop the capability to grow even when we are facing headwinds from the external environment. There is more that needs to be done in terms of strengthening our front office capabilities. (Questioner 5) Understood. I have one more question. When you think about your strengths, particularly in IAB, I admit I find it difficult to really understand what you mean when you say Sensing & Control + Think. Could you highlight some specific examples that reflect how the IAB business has improved? For instance, my impression is that improvements at IAB have tended to be driven more by solutions rather than hardware. This is reflected in the 2 examples you discussed today relative to the examples you cited last time, AXI or mobile robots, which would be classified as hardware-like in nature. How has OMRON’s penetration in newer areas such as food & beverage or pharmaceuticals improved? Have you seen an increase in the proportion of revenue you generate in these industries? (Yamada) There isn’t an easy way to distill IAB’s strengths down to a single neat phrase. We would be happy to discuss IAB’s strengths and expand on the kinds of revolutionary applications that IAB has developed at a separate opportunity. If you can find the time to visit one of the ATCs, we would be happy to demonstrate using actual equipment. What I will say is that the biggest strength for OMRON’s IAB is the breadth of the product portfolio as defined as ILOR + S, in terms of providing total control solutions including robotics on a one-stop basis. The reason why OMRON can create revolutionary solutions is because we already have all of the necessary elements, both hardware and software, in our product portfolio. This is OMRON’s biggest strength. OMRON is the only player in the control space that has full coverage of control products. The industry is generally populated with players that focus on a single category, such as sensors or controllers, or on a specific industry, such as automotive. Historically, the development of the industry has been driven by the growth of dedicated specialist manufacturers. Globally, OMRON is uniquely positioned. No other player has the full suite of control products including robotics necessary to control production lines. This strength is the foundation for our business. This is why we are focusing our sales activities on solutions packages. This is why we need ATCs. If we were only competing in a specific product category, then we would be competing on the basis of cost or specs or compatibility. We are focusing on solutions in order to change the rules of the game and break free from competing on the basis of cost or specs. This is the innovative-Automation strategy. It is OMRON’s defining characteristic and our biggest strength. I would urge you to visit our ATCs to directly experience what I am talking about. (Questioner 5) Understood. I would be very interested in participating in a session focusing just on the IAB strategy, and look forward to visiting an ATC. (Yamada) Yes, thank you. (Okumura) Are there any other questions? Next, from the person in the front row.