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Edited Transcript of 6504.T earnings conference call or presentation 26-Jul-19 1:00am GMT

Q1 2020 Fuji Electric Co Ltd Earnings Presentation

Tokyo Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Fuji Electric Co Ltd earnings conference call or presentation Friday, July 26, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Junichi Arai

Fuji Electric Co., Ltd. - Managing Exec. Officer, GM of Corp Mgmt Planning HQ & Export Admin Office and Director

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Presentation

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Junichi Arai, Fuji Electric Co., Ltd. - Managing Exec. Officer, GM of Corp Mgmt Planning HQ & Export Admin Office and Director [1]

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Good morning. I will explain about consolidated financial results for the first quarter of fiscal year 2019.

The first quarter of fiscal year 2018 ended with great results with quite favorable market environment. However, in the second half of fiscal year 2018, market started to be stagnant, and we regrettably recognized a decreased sales and income in this first quarter and review as expected.

Net sales were JPY 176 billion, down JPY 19.8 billion year-on-year. This is a decrease of JPY 18.5 billion in real terms considering the loss on translation of earnings of overseas subsidiaries of JPY 1.3 billion.

Operating income was JPY 3.6 billion, down JPY 2.7 billion year-on-year. Cost reduction, sales mix exchanges and other factors improved by JPY 1.9 billion. But as we had negative factors such as exchange rate effect of minus JPY 300 million, impact from decreasing sales volume of minus JPY 3.8 billion and a slight increase in fixed cost of minus JPY 500 million, operating income decreased JPY 2.7 billion year-on-year.

As for nonoperating income and loss, again, foreign exchange loss increased JPY 1 billion year-on-year. As a result, the total result for this item was minus JPY 800 million despite the positive effect of net interest expense of JPY 300 million. As a result, ordinary income declined by JPY 3.5 billion year-on-year to JPY 3.9 billion.

Regarding extraordinary income and loss in the previous fiscal year, we posted gain on reversal of foreign currency translation adjustments due to subsidiary liquidation as we integrated semiconductor and magnetic disk subsidiaries in Malaysia for efficiency improvement, and this gain was JPY 1.3 billion. With the absence of such gain in this quarter, extraordinary income or loss decreased JPY 1.4 billion year-on-year. Net income attributable to owners of parent was JPY 2.5 billion, down JPY 2.8 billion year-on-year.

Let me explain the results by segment. Food and Beverage Distribution recorded increase in sales and income. However, we regrettably posted decreased sales and income for Power Electronics Systems Energy and Industry, Electronic Devices and Power Generation.

Now I will explain business results by segment with overview of their subsegments. Power Electronics Systems Energy decreased net sales by JPY 2.2 billion to JPY 42.4 billion, and operating results declined by JPY 100 million to JPY 1.2 billion. It has 3 subsegments.

Energy management decreased its net sales due to the absence of large-scale projects for overseas electric power companies in the same quarter of the previous fiscal year, but it recognized increased operating results by cost reduction efforts. Power supply and facility systems increased both net sales and operating results despite the absence of a large-scale order recorded in the previous equivalent period in Japan, owing to the large-scale overseas orders in switchgear and controlgear operations. The acquisition of FSMBE, a company in Singapore, significantly contributed the results. ED&C components decreased both net sales and operating results due to reduced demand from machine-tool and other equipment manufacturers in Japan and overseas.

Next is about Power Electronics Systems Industry. Net sales were down JPY 5.7 billion to JPY 53.5 billion, and operating results decreased JPY 1.4 billion to minus JPY 2.7 billion. It has 4 subsegments.

Automation systems decreased in net sales and operating results due to reduced demand for low-voltage inverters and FA components in Japan and overseas. Social solutions posted decreased net sales and operating results due to the absence of large-scale orders for electrical equipment for railcars recorded in the same period of the previous fiscal year. Equipment construction increased net sales and operating results due to strong demand for plant and equipment construction. IT solutions slightly decreased in net sales and operating results.

Electronic Devices decreased net sales by JPY 2.4 billion to JPY 32.9 billion. Operating results declined JPY 1.5 billion to JPY 3.3 billion. Automotive power semiconductors continue to be strong. However, semiconductors for industrial field decreased net sales and operating results due to slowdown in Japan and China market. Magnetic disks recognized a slight decline in net sales and operating results due to a little lower demand for data centers, et cetera.

Tables on the slide show the sales of semiconductors for this first quarter decreased by JPY 2 billion year-on-year from JPY 29.5 billion to JPY 27.5 billion. Magnetic disks sales were down by JPY 400 million year-on-year to JPY 5.4 billion. Looking at the semiconductor sales by field. Automobiles grew from 26% to 33% to indicate the gradual shift from industrial field to automobiles.

Next is Food and Beverage Distribution. Net sales grew JPY 200 million to JPY 28.7 billion, and operating results increased JPY 800 million to JPY 2.2 billion. Vending machines regrettably recorded decreased net sales and operating results due to reduced demand in Japan and China markets. Store distribution is performing strongly to record growth in net sales and operating results year-on-year due to increased demand for store equipment for convenience stores. And as a result, we could post an increase in net sales and operating results for this segment.

Next is about Power Generation. Net sales decreased JPY 9.8 billion to JPY 14.6 billion, and operating results declined by JPY 400 million to JPY 600 million. Net sales decreased for thermal power systems, and renewable energy systems significantly decreased its net sales due to the absence of large-scale projects from solar power generation systems in the previous fiscal year.

This is a new slide we included for the first time as an aid for explanation. JPY 9.4 billion decreased year-on-year for the total net sales of major components such as vending machines; semiconductors; FA-related components, including low-voltage inverters and motors; and ED&C components. And net sales of Power Generation was down JPY 9.8 billion. Our consolidated net sales of this first quarter was down JPY 19.8 billion year-on-year to JPY 176 billion, and the total sales decrease of Power Generation and major components is almost equal to the amount of decline in the consolidated net sales. Others such as system and plants of Power Electronics Systems were JPY 85 billion, and they remain unchanged from the previous year.

We also included additional information about amount of orders received for your reference. In this first quarter under review, we received orders of JPY 246.3 billion, up JPY 2.1 billion year-on-year. Major components decreased JPY 11 billion year-on-year, and Power Generation declined JPY 13.1 billion. System orders of Power Electronics Systems increased by JPY 26.2 billion year-on-year. As such, component systems are down due to weak market. However, system orders in Power Electronics Systems are increasing steadily.

Now let me explain net sales by Japan and overseas. The total net sales decreased JPY 19.8 billion year-on-year with overseas decrease of JPY 7.5 billion to JPY 48.9 billion, and the ratio of overseas sales was 28%. Our operations focus on Asia and China, and Asia decreased its sales by JPY 3.2 billion to JPY 24.6 billion, and China declined by JPY 4.5 billion to JPY 16.5 billion. By segment, negative results were recognized in Energy, Industry, Electronic Devices and Food and Beverage Distribution.

This slide is about our consolidated balance sheet to compare the results of the first quarter under review and the end of March 2019. Notes and account receivables, trade receivables accumulated at the end of March while collected steadily to be reduced by JPY 28.9 billion. Inventories increased mainly for plants by JPY 28.3 billion. And the total assets were JPY 952.9 billion, which is almost equivalent to the figure at the end of March. Interest-bearing debt increased by JPY 26.6 billion due to increased working capital, and net interest-bearing debt, including cash decrease, was JPY 155.7 billion, up JPY 30.8 billion. Net D/E ratio was increased by 0.1 to 0.5. Equity ratio was 36.2%.

This slide shows forecast for the first half of fiscal year 2019. I will explain it with the full year forecast. Based on the assumption that market conditions in the first half will deteriorate, mainly for components, we revised the first half forecast downward. The revised forecast for net sales is JPY 405.5 billion, down JPY 6 billion; and JPY 12.6 billion for operating income, down JPY 3 billion; JPY 11.8 billion for ordinary income, down JPY 3 billion; and JPY 6.5 billion for net income, down JPY 2.1 billion.

For full year forecast, there is uncertainty around the market conditions due to U.S.-China trade conflict and other reasons. On the other hand, however, it is said that market recovery can be expected in the second half for some areas, including semiconductors. Given such a mixed outlook, the full year forecast remains unchanged as JPY 930 billion for net sales and JPY 62 billion for operating income.

Overall, due to market conditions or external reasons, components are expected to continue to be weak in the second quarter, but we intend to offset the decline in net sales and operating results by systems business in Power Electronics Systems as much as possible and also by cost reduction mainly for fixed costs and secure sales and income.

That is all from me. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]