Fuji Electric Co Ltd

TSE:6504

Earnings Call Transcript 2022-Q1

[Junichi Arai, executive]

Hello. I'm Junichi Arai from Corporate Channel Planning headquarters. I will talk about consolidated financial results for the first quarter of fiscal year 2021.

We are happy to report to you that it was a great quarter. Net sales rose JPY 21.1 billion to JPY 190 billion. Subtracting a gain of JPY 3.7 billion on translation of earnings of overseas subsidiaries, net sales increased by JPY 17.5 billion in real terms.

Operating income rose by JPY 2.9 billion to JPY 5.3 billion. That's 2.2x that of the same period of the previous year.

Ordinary income rose to JPY 5.9 billion, up JPY 3.3 billion, including nonoperating income of exchange rate gain.

We recorded an extraordinary income of JPY 2.2 billion, which includes JPY 2.3 billion in share sales.

Income before tax is up JPY 5.5 billion to JPY 8.1 billion.

Net income attributable to owners of the parent grew JPY 3.6 billion to JPY 5 billion or 3.6x that of the same period previous year.

The step chart on Page 3 shows how we pushed up operating income by JPY 2.9 billion.

An increase in sales and production volumes was attributable to high demand for components of industrial and automotive semiconductors, ED&C devices and factory automation. These components have high profitability. They together pushed operating income by JPY 3.8 billion.

Fixed cost increased JPY 1.8 billion year-on-year. That pushed down the operating income. Under our plan, we are anticipating a full year increase of JPY 14.5 billion in fixed cost. The actual increase was JPY 1.8 billion this quarter.

The exchange rate gain was JPY 1.3 billion due to the weaker yen.

Other costs, including the unfavorable project and product mix pushed down operating income by JPY 400 million. Taken together, operating income rose JPY 2.9 billion to JPY 5.3 billion.

Page 4 shows year-on-year changes in net sales and operating income by segment. Both net sales and operating income in Power Generation segment were negative, but all other segments saw increased net sales. Operating income dropped in Power Generation and energy to a much lesser extent.

Power Electronics Systems Industry and Semiconductors led the overall net sales gain of JPY 21.1 billion and an increase in operating income of JPY 2.9 billion.

Food and Beverage Distribution has chalked up profit in the absolute term after posting a loss the previous year.

Page 5 and 6, take a look at business results by segment. Power Electronics Systems Energy saw an increased net sales and a slight decline in operating income. Energy management and power supply and facility systems saw an increase in net sales, thanks to large-scale projects, but a slight drop in operating income due to the unfavorable product mix.

Net sales in energy management were driven by large-scale projects for substation equipment for power distribution and industrial fields.

Net sales increased in power supply and facility systems are attributable to a large-scale data center and semiconductor-related projects.

The ED&C component market continues to be buoyant. Both net sales and operating income jumped largely due to expanded demand from domestic and overseas manufacturers of machine tools and other finished equipment.

Next, power electronics and energy industry saw a sharp increase in both sales and operating income.

Automation systems were driven by higher demand for low-voltage inverters and factory automation components in Japan and overseas.

In Social Solutions, both net sales and operating income grew, thanks to an increase in demand for electrical equipment for railcars and radiation monitoring systems.

In equipment construction, net sales increased by 10%, but operating income declined slightly due to the unfavorable project mix.

In IT Solutions, net sales plunged by 30% because unlike the previous period, there were no large-scale public sector projects, but operating income is up, thanks to the favorable product mix.

Page 6. The semiconductor segment also saw a sharp increase in sales and operating income. Expenses increased due to boosted production capacity of power semiconductors and R&D costs but expanded demand for chips for electric vehicles in the industrial power semiconductors more than offset the increased expenses.

The table in the slide shows chip sales by application. Industrial semiconductors grew by 20% year-on-year while automotive semiconductors grew by 73%.

Next, Power Generation. Unfortunately, both sales and operating income dropped because unlike a year before, we did not have a large-scale renewable energy project in the first quarter this year.

Food and Beverage Distribution saw higher net sales and operating income. Vending machine performance was unchanged from the previous year. Due to the postponement of capital investment plans by some domestic beverage makers, operating income was slightly lower than the previous year.

Store distribution saw good sales and operating income, thanks to expanded demand for equipment for convenience stores. Operating income was up JPY 400 million, a turnaround from a loss in the previous year.

Page 7 takes a look at net sales by product compared against the same period previous year.

Net sales this quarter was JPY 190 billion, up JPY 21.1 billion year-on-year. Of that increase, major components for vending machines, semiconductors, factory automation, ED&C components contributed JPY 18.7 billion or nearly 90% of the total.

Semiconductors grew 38 points year-on-year. Low-voltage inverters and other factory automation components grew by 16%, and ED&C components grew by 32% over the same period.

Page 8 shows overseas and the domestic net sales. Net sales grew JPY 21.1 billion to JPY 190 billion. Overseas sales increased by JPY 10.2 billion while Japanese sales rose by JPY 10.9 billion, and geographical regions helped achieve overseas sales of JPY 59.2 billion. China and the rest of Asia contributed around JPY 4 billion each while contributions by Europe and Americas were 1 digit smaller than Asia.

Components for power supply and facility systems, ED&C automation systems and semiconductors contributed to overseas sales growth.

Page 9 shows order received by product compared against the same period last year. We received orders worth JPY 40.2 billion more or a total of JPY 238.4 billion. Here again, components contributed JPY 33.2 billion or over 80% of the order increase.

Semiconductors for industry and automobile grew by 47%. Components for factory automation, up 53%; and ED&C, up 53%.

The chart on the right shows orders received by major components since fiscal 2020. Orders have been trending up for own components. Orders for semiconductor components fell by 4% due to exchange loss, but overall order intake situation remains pretty much unchanged since the fourth quarter of last fiscal year. The fourth quarter was exceptionally a good quarter with orders exceeding the actual demand flowing in.

Page 10 shows our balance sheet. It shows numbers on June 30 compared against those as of March 31 this year.

Our rigorous collection efforts of receivables resulted in a reduction of JPY 61 billion in receivables. This led to an increase in cash and a reduction of JPY 11.5 billion in net interest-bearing debt to JPY 129.4 billion.

Net asset is shown on the right. We've had other accumulated comprehensive income or a gain on stock revaluation. As a result, net assets increased by JPY 7.9 billion. Equity ratio also improved by 2.2% to 41.8%. Net D/E ratio stood at 0.3x. So our balance sheet is in good shape.

Page 11 shows our earnings forecast for the first half of this year and full year. Our forecast is unchanged from the one announced on April 27. Our forecast for the first half is JPY 410 billion in sales, JPY 11.5 billion in operating income and ordinary income of JPY 11 billion and net income of JPY 8 billion. Our full year forecast calls for sales of JPY 900 billion, JPY 60 billion in operating income, JPY 61 billion in ordinary income and JPY 42 billion in net profit.

By segment. Power Generation is expected to see a decline in sales and operating income for the first half.

For full year, net sales for Power Electronics Systems Industry and IT Solutions will fall from the previous year when we had a large-scale GIGA School project. We only said that we will stick to our full year forecast released in April.

There are some concerning factors anticipated in the second quarter. They are the possible impact of higher material purchasing prices and the possible postponement and increased cost of plant system projects overseas due to the pandemic.

In the second quarter, we will phase out the magnetic disks business, and this can be a negative factor. Positive factors we are anticipating is strong orders for components, as I have talked about. Components for factory automation, industrial and automotive semiconductors and ED&C have been strong, and their performance can exceed our forecast.

Turning to expenses. I said earlier that we expect fixed cost to grow by JPY 14.5 billion year-on-year. In the first quarter, an increase was JPY 1.8 billion. We also expect cost reduction of billions of yen more than what we had planned.

If the yen stays weak, we can expect billions of yen in exchange gains. We will weigh these positive and negative factors in detail based on the result of the first quarter.

When we released the results of the first half of the year, we will review and adjust our full year forecast. I personally have a feeling that we will be upgrading our forecast.

This concludes my presentation. Thank you.

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