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Nabtesco Corp
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Good morning, good evening, ladies and gentlemen. Thank you for standing by, and welcome to Nabtesco Fiscal Year 2019 First Quarter Earnings Call. [Operator Instructions] Please note that today's conference is being recorded.
I would now like to hand the conference over to Mr. Akihito Kurosu, IR Manager of Nabtesco.
Okay. Thank you, operator. Let me start my explanation of our company guidance. So please make sure that the meeting material for this telephone conference is on your hand. You can download it from our website as informed before by e-mail.
As for the consolidated 3-months results for this fiscal year 2019, please see Slide #2 of the meeting materials. For sales for this term the result is JPY 70.3 billion. This is reduced minus 2.3% from the last year. Operating profit JPY 6.2 billion. This is minus 8.3% from the last year. And operating margin is also 8.8%, minus 0.5 points from the last year.
Out of the first quarter results summary, also the sales and profit results were decreased compared to the 2018 first quarter results. Each segment information is stated on the material Slide #3 year-on-year basis. For the Component Solutions segment, this is decreased in both of sales and operating profit. And Transport Solutions segment almost flat in sales and decreased in operating profit. And Accessibility Solutions segment increased in both sales and operating profit. And Manufacturing Solutions segment is decreased in both of sales and operating profit.
The achievement rate to the company's sales trend of first half of this year was 48%, 4-8%, which is company total. If you look at each segment for the Component Solutions, it's 48% and Transport, 44% and Accessibility, 54% and Manufacturing Solutions segment, 40%. So we see almost all of business is progressing as planned.
In addition, the achievements linked to operating profit of first half of this year was 60%, 6-0%, due to stable sales amount and gains offering of sales, general and administrative expenses. So move on to the explanation for the status of each segment and business.
First for the Component Solutions segment. Sales of the precision reduction gear was decreased year-on-year due to the performance of CapEx in automobile industries, which had continued since last year. Order received were increased by 10% year-on-year on a consolidated quarterly basis. It has increased for the first time in 5 quarters, since 2017 first quarter. On the other hand, compared with the same period last year, it is minus 18%, and we think it is still difficult to say that the company has been steady.
Sales of the Hydraulic Equipment were increased year-on-year due to continued high demand of construction machinery in China. The operating income of this segment decreased by 23%, 2-3%, year-on-year due to the decrease in precision reduction gears sales and increase of depreciation cost.
Okay, move on to the Transport Solutions segment. Railroad Vehicle Equipment sales for China high-speed trains were offered by the increase for subways and sales were flat year-on-year. Sales of railroad equipment in China for the first quarter was JPY 2.2 billion and sales portion to high-speed train remained at 10% of China sales as planned.
Aircraft Equipment sales was increased due to the increased production of commercial aircraft like, B737MAX. Year-on-year sales of Commercial Vehicle Equipment was almost flat due to stable demand in Japan and Southeast Asia. Year-on-year sales in Marine Vessel Equipment was flat due to gradual recovery in market conditions. Year-on-year segment operating profit was decreased by minus 70%, the reason that an increase in depreciation expenses associated with mass production of aircraft in OVALO.
Okay, move on to Accessibility Solutions segment. In the Automatic Doors business, sales increased year-on-year due to strong demand of platform door and MRO in Japan. And operation profit increased due to the increase in sales and the delay in expensing.
Last, Manufacturing Solutions segment. Sales of packaging machine decreased year-on-year as sales of some project was delayed to second quarter. Segment sales and the profit decreased year-on-year due to the impact of low sales of packaging machines.
These are the status of each segment. So from this situation there is no change to the following year and in focus for this year at this moment.
That's all my explanation. Thank you for listening. So now, we accept your questions.
[Operator Instructions] The first question is from James Pulsford, Eikoh Research Investment Management.
In your Component Solutions area, can you talk about the demand that you expect in Q2 for both the precision reduction gears, whether you think that's like to be higher -- in terms of orders higher than Q1 or lower? And also for the Hydraulic Equipment area the outlook you see there for orders please?
Sorry, the line was breaking up. Can you repeat the question once again?
Certainly. I wondered in the Component Solutions area, could you comment on the demand outlook, the order outlook for both precision reduction gears and Hydraulic Equipments that you see in Q2 and for the rest of the year?
[Foreign Language] [Interpreted] Okay. First of all, I'd like to explain about the Precision Reduction Gears.
[Foreign Language] [Interpreted] Yes. We are starting to see some signs of recovery sequentially quarter-on-quarter. However, it is not yet a full fledge recovery. So we are actually expecting a recovery in the second half of this year.
[Foreign Language] [Interpreted] Now for the Hydraulic Equipments, we are still continuing to experience a favorable situation in China.
[Foreign Language] [Interpreted] However, in Southeast Asia, we are starting to observe some weakness in some areas. So up until now, we've been experiencing a favorable situation, but we are starting to observe some weakness in some areas.
Okay. Can I just follow up? Can I ask the -- within comparing these 2 components of -- comparing precision and Hydraulic Equipment, do they have similar profit margins? Or are they quite different between the 2 businesses?
[Foreign Language] [Interpreted] Well, we don't disclose, which has a higher margin or which has a lower margin.
[Foreign Language] [Interpreted] But there is a characteristic that as the volume grows, the margin does improve for both of the businesses. So as the sales grows, the margin will be improving both for the precision reduction gears and the Hydraulic Equipment.
Okay. And you mentioned the depreciation charges were rising here which depressed margins a bit in Q1. How much was depreciation rise from what-to-what to which division as in the year?
[Foreign Language] [Interpreted] Sorry, are you talking for the total company or for any specific business?
Yes. Component Solutions.
[Foreign Language] [Interpreted] For the Component Solutions segment, the depreciation increased by JPY 100 million year-on-year.
And for the full year, how much will it be like?
[Foreign Language] [Interpreted] It will increase by JPY 1.2 billion for the full year.
Okay. And can I just ask two -- can I just ask couple questions on different areas. In the aircraft area, can you comment again on if you look for the full year for the impact of the Boeing problems which you referred to, how -- does that mean that the full year numbers might be possibly be changed in this area.
[Foreign Language] [Interpreted] Yes, we have heard that Boeing will be cutting the production of B737MAX, but we don't know how long they will be reducing the production. So at this point in time, the full year impact as a result of that is uncertain.
[Foreign Language] [Interpreted] But the revenue contribution from this 737MAX business within the Aircraft businesses is more, against the overall sales. So we do believe that the impact would be moderate for the total company.
Okay. Very last question. In terms of the railroad operations, could you just remind me what the Chinese sales were for last year? What do you expect this to be for the full year this year and how much of that is high-speed, please?
[Foreign Language] [Interpreted] Last year, China's railroad-related sales was JPY 8.9 billion.
[Foreign Language] [Interpreted] And this year we're guiding for JPY 8 billion for the full year.
[Foreign Language] [Interpreted] And in the first quarter for the China was JPY 2.2 billion.
[Foreign Language] [Interpreted] Out of which, the high-speed related cost, we estimated to be 10% for the full year, and also for the first quarter it was 10%.
Okay. And was it last year, was the percentage also 10% or different?
[Foreign Language] [Interpreted] Last year it was 30% highway and then 70% subway.
The next question is from Lorraine Tan, Morningstar.
I just wanted to follow up on what was mentioned. You indicate that you're expecting a sequential recovery in the second half of this year. I'm just curious what you think could derail that. And also just a couple of other questions. If there is basically a slower recovery in -- or rather a slower pickup in revenue growth and demand, do you think that this will have an impact on the utilization rate of your new expanded capacity and would that have an impact on the margins in that case?
[Foreign Language] [Interpreted] So we're responding based upon the presumption, that you're asking about the precision reduction gears?
Yes, correct.
[Foreign Language] [Interpreted] Yes, even though we are expecting a recovery in the second half, in order to be -- in order to have a conviction as to the recovery, we actually do have to see the situation in the second half.
[Foreign Language] [Interpreted] And in terms of production capacity in Japan, last year's capacity was 680,000 units and the capacity has not changed this year.
[Foreign Language] [Interpreted] And before we install the equipment, we would like to confirm the recovery in the second quarter and after. So if we do not observe any recovery then we will not be installing any equipment, meaning we'll be able to control the CapEx spending.
Right. Then in that case, what -- so you have the CapEx plans as you stated. What sort of flexibility would you be looking at in that? Would you -- what would be the rough percentage that you'd be able to defer the CapEx spending then?
[Foreign Language] [Interpreted] Yes. Out of the total CapEx spending for this year, a large part would be related to acquisition of land in order to the increasing the capacity from 2021 and onwards. So even if we do defer the installment of equipment, the amount of CapEx that we can reduce would be limited. But since the large part of the CapEx is allocated to land, this will not be impacting the depreciation.
Right. Just a quick -- another quick one. Just looking at your geographical breakdown of revenue. The revenue from China sales is still growing, I think, okay at about 12.6% year-on-year. I'm just curious whether you -- which are the -- were the main drivers of that revenue. Was it mainly components or were there other elements?
[Foreign Language] [Interpreted] Yes. Drivers of sales growth will be within CMP component, and within component, it's Hydraulic that's driving the growth.
[Operator Instructions] The next question is from Lorraine Tan, Morningstar.
Sorry, just one more question for me. I was just wondering because last year, you made the impairment loss for OVALO in Europe. I'm just wondering whether your -- the turnaround in the activities are in place. Or you're seeing an improved contribution this year from OVALO as you have -- would have anticipated originally?
[Foreign Language] [Interpreted] Yes. When we made the impairment last year, we announced that we are expecting the mass production to start for Audi from the second half of this year. And we are still expecting this mass production to take place from the second half. So we believe that the recovery is in line with the plan.
[Operator Instructions] The next question is from [ Hon Chai ], UBS Research Malaysia.
May I ask the main reason for the increasing inventory of about 6.8% quarter-on-quarter during the first quarter?
[Foreign Language] [Interpreted] Yes. Within the aircraft area the increase in production is now starting for the private sector aircraft companies, and then so as a result inventory risen as a result.
[Operator Instructions] There are no further question at this time. I would now like to hand the conference back to Mr. Kurosu. Please continue.
Okay. Thank you joining our telephone conference. So I hope you have a good weekend. Thank you very much.
Ladies and gentlemen, that concludes our conference for today. Thank you for participating in Nabtesco Fiscal Year 2019 First Quarter Earnings Call.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]