Fuji Electric Co Ltd

TSE:6504

Earnings Call Transcript 2021-Q1

[Junichi Arai, executive]

Good afternoon, ladies and gentlemen. I am Junichi Arai, Corporate General Manager, Corporate Management Planning Headquarters. I will explain consolidated financial results of Fuji Electric for the first quarter of the fiscal year 2020.

We started the first quarter of this fiscal year in a very challenging situation due to the impact of COVID-19, as you know. Unfortunately, sales and income were down year-on-year. However, income was higher than our internal forecast, and we are relieved.

Page 2 shows year-on-year comparison of financial results for the first quarter. Net sales were JPY 168.8 billion, down JPY 7.2 billion or 4% year-on-year. Excluding loss on translation of earnings of overseas subsidiaries, net sales decreased JPY 6.3 billion in real terms. Operating income was JPY 2.4 billion, down JPY 1.2 billion or 33% year-on-year.

I will give you details of operating income on the next page. As for nonoperating income and expenses, although there were both positive and negative factors, nonoperating income, net of nonoperating expenses, were flat year-on-year. As a result, ordinary income was JPY 2.6 billion. As for extraordinary income and loss, gain on sales of investment securities and loss on valuation of investment securities were booked in the first quarter of the fiscal year 2019. As a result, extraordinary income, net of extraordinary loss, improved by JPY 200 million year-on-year. Net income attributable to owners of parent was JPY 1.4 billion, down JPY 1.2 billion.

The stacked chart on Page 3 shows year-on-year changes in operating income from JPY 3.6 billion to JPY 2.4 billion. As for major factors, a decrease in sales and production volumes pushed down operating income by JPY 3 billion. Sales and production volumes decreased mainly in-store distribution and vending machines of food and beverage distribution, smart meters and ED&C components. JPY 2.7 billion was recovered by a decrease in fixed cost. R&D costs decreased JPY 700 million.

On the other hand, depreciation and leases paid increased JPY 1 billion due to continuing upfront investments in semiconductors in Electronic Devices. Other costs decreased JPY 2.9 billion. The decrease was mainly of controllable expenses, traveling expenses, entertainment expenses, advertising expenses and others. Partly due to the appreciation of the yen, exchange rate effect was negative JPY 500 million. Negative JPY 300 million of others was mainly due to difference in product mix of planned projects. In total, operating income was down JPY 1.2 billion year-on-year.

Page 4 shows net sales and operating income by segment. Net sales of Power Electronics Systems Energy decreased. Operating income of Electronic Devices decreased. In Food and Beverage Distribution, including vending machines and store distribution, net sales decreased JPY 9.7 billion, and operating income decreased JPY 2.4 billion. Unfortunately, the decrease in Food and Beverage Distribution pushed down total results.

Page 5, please. Now I will talk about business results by segment. In Power Electronics Systems Energy, operating income increased slightly year-on-year, although it says 0 on this page. In overview, we added description about whether our net sales increased or decreased and percentage of change in each business this time.

There are 3 businesses in this segment. In Energy Management, net sales and operating results decreased due to the rebound from large-scale projects for industrial power supply equipment recorded in the previous equivalent period and lower demand for smart meters. In Power Supply and Facility Systems, net sales decreased due to the rebound from large-scale projects recorded in the previous equivalent period in the electrical facilities and a switchgear and controlgear operations of the company called FSMBE we acquired. But operating results increased, thanks to the benefits of cost reduction efforts.

In ED&C components, net sales decreased as a result of sluggish demand from Japanese machine manufacturers, including machine tools and switchboard manufacturers. But operating results increased slightly, thanks to the benefits of cost reduction efforts and others.

In Power Electronics Systems Industry, net sales increased and operating loss improved. There are 4 businesses in this segment. In automation systems, demand for low-voltage inverters decreased mainly in Japan. On the other hand, demand for factory automation systems mainly SOx scrubbers increased in Japan, and demand for factory automation components increased in China. As a result, net sales and operating results increased.

In Social Solutions, net sales and operating results increased, thanks to increased large-scale projects for electrical equipment for railcars. In equipment construction, net sales decreased due to the postponement of capital investment plans by customers and extension of construction periods. But the operating results increased thanks to the strong cost reduction efforts. In IT Solutions, net sales and operating results increased as we benefited from digitalization of school education, large-scale projects increased in the public and academic sectors.

Please go to Page 6. In Electronic Devices, net sales increased, but operating income decreased. For semiconductors in industrial field, demand for power semiconductors for the new energy market increased mainly in China. Besides, demand for power semiconductors for electrified vehicles increased mainly in Japan. As a result, net sales increased. However, operating results decreased due to an increase in depreciation and leases paid associated with upfront investments and the appreciation of the yen.

In magnetic disks, net sales and operating results increased, thanks to higher demand for data centers. For reference, year-on-year comparison, a breakdown of sales between semiconductors and magnetic disks is shown in the table. Distribution of semiconductor sales by field is also shown. Semiconductor sales in industrial field increased in absolute value, partially due to the ratio of automobiles was up only 1 percentage point.

In Food and Beverage Distribution for vending machines, net sales and operating results decreased due to the self-restraint on sales activities and reduced capital investment of Japanese beverage manufacturers and lower demand in China.

For store distribution, net sales and operating results decreased due to reduced demand for convenience stores and cancellations of and delays in some renovation works. Net sales and operating results of this segment were due to the impact of COVID-19.

In Power Generation, net sales and operating results increased as a result of the increased large lower scale thermal power and solar power generation system projects. This page shows net sales by Japan and overseas area. Overseas sales were JPY 49 billion, up JPY 100 million year-on-year. Net sales decreased mainly in Japan. Net sales were JPY 119.8 billion, down JPY 7.3 billion in Japan. As for overseas areas, net sales decreased year-on-year in Asia and others, Europe and Americas. However, in China, sales for semiconductors and automation systems increased. As a result, in total, overseas net sales increased year-on-year. As I mentioned earlier, net sales in Japan decreased mainly due to Food and Beverage Distribution.

Page 8 shows balance sheet. Sales accumulated until March and collection of receivables progressed in the first quarter, the period between April and June, as usual. JPY 55.7 billion of notes and account receivables, trade receivables was collected from the end of March. Inventories, mainly including plant-related inventories, increased JPY 18.3 billion. In total, long-term assets, investments and other assets increased JPY 15.6 billion as gain on valuation of investment securities increased during the 3 months.

Cash and time deposits stood at JPY 152.4 billion, up JPY 88.3 billion. Normally, we have approximately JPY 30 billion of cash and time deposits. We kept 5x of the amount at the end of June. We took this measure to cover the impact of COVID-19. As a result, interest-bearing debts increased more than JPY 100 billion. We raised funds at low interest rates. The amount hitting the income statement is very small. Consequently, as you see on the bottom left, net interest-bearing debt increased JPY 20.7 billion to JPY 174.4 billion. Net D/E ratio was 0.5x. Equity ratio was 35.6%.

That concludes my presentation. Thank you very much.

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