Fuji Electric Co Ltd

I am Junichi Arai, Corporate General Manager, Corporate Management Planning Headquarters. I will explain consolidated financial results for the fiscal year 2021 and management plan for the fiscal year 2022. As Kondo said earlier, the market environment was very challenging in the fiscal year 2021. We accelerated semiconductor capital investment for market expansion of EVs. And to cope with rising material prices, we took responses such as cost reduction or increase in selling prices. We have been continuing company-wide Pro7 activities for about 10 years since the fiscal year 2012. Through the activities, we were able to reinforce earnings structure mainly of factories. I think the results we achieved were thanks to the activities. Both sales and income increased in the fiscal year 2021. On page 4 onwards, I will explain in concrete terms. Net sales were 910.2 billion yen, up 34.3 billion yen year on year. Excluding 20.7 billion yen of gain on translation of earnings of overseas subsidiaries, net sales increased 13.6 billion yen in real terms due to demand increase. Operating income was 74.8 billion yen, up 26.2 billion yen. Operating margin was 8.2% and achieved medium-term management plan of 8% or more. Operating income was up 54% year-on-year. Non-operating income, net of non-operating expenses, was up 2.7 billion yen. mainly due to foreign exchange gain and share of profit of entities accounted for using equity method. As a result, ordinary income was 79.3 billion yen. Extraordinary income net of extraordinary loss was 9.2 billion yen, down 3.7 billion yen. As shown on the bottom right, In the fiscal year 2020, significant gain on sales of investment securities or cross-share holdings of slightly more than 40 billion yen was booked. That was 10 billion yen in the fiscal year 2021. As a result, gain on sales of investment securities was down 30 billion yen. On the other hand, cost of corrective measures for product defects of 25.7 billion yen was booked in the fiscal year 2020. Due to the absence of the item in the fiscal year 2021, Cost of corrective measures for product defects improved by 25.7 billion yen. Mainly due to these factors, extraordinary income net of extraordinary loss was 9.2 billion yen, down 3.7 billion yen year-on-year. Net income attributable to owners of parent was 58.7 billion yen of 40% or 16.7 billion yen year-on-year. As said before, record highs were achieved for operating income, ordinary income, and net income attributable to owners of parent. Medium-term management plan operating margin target of 8% or more was achieved. On page 5, using the waterfall chart, I will talk about factors pushing up operating income by 26.2 billion yen. Increase in sales and production volumes pushed up operating income by 24.7 billion yen. High-margin products, mainly in components such as semiconductor, ED&C components, and factory automation boosted income. Also, in system-related businesses, both sales and income increased in power supply and facility systems and store distribution. As for fixed costs, labor costs, R&D costs, and depreciation and leases paid increased. As a result, increase in fixed cost pushed down income by 7.7 billion yen. Mainly due to the depreciation of the yen in March and April 2022, exchange rate effect was positive 5.1 billion yen. Others pushed up income by 4.1 billion yen. Impacts of rising raw material prices were negative 7.4 billion yen. Effects of higher product selling prices were 6 billion yen. We passed on rising raw material prices to products selling prices as much as possible, although we were not able to cover the impact fully. Cost reduction, product mix, and others boosted income by 5.5 billion yen. Others in total pushed up income by 4.1 billion yen. As a result, operating income increased 26.2 billion yen year-on-year. Page 6 shows year-on-year comparison of net sales, operating income, and operating margin by segment. In power electronics energy, due to very strong performance of ED&C components, sales and income increased. Operating margin was 8.9%. In power electronics industry, sales decreased unfortunately due to the absence of the large-scale gigascore projects recorded in the previous fiscal year in IT solutions despite increase in factory automation. Income increased as factory automation and others offset decrease in IT solutions. Operating margin was 7.5%. In semiconductor, sales and income increased. Both semiconductor for industrial and automotive applications increased. Operating margin exceeded 15% and was 15.2%. In power generation, unfortunately, sales decreased. However, income increased slightly because of differences in profitability between projects, cost reduction, and others. In food and beverage distribution, operating income was negative 5.3 billion yen in the fiscal year 2020. Partly due to that, both sales and income increased significantly. Operating margin recovered from negative 6.9% to positive 3.3%. In total, net sales were 910.2 billion yen, operating income was 74.8 billion yen, and operating margin was 8.2%. Change is shown on the right. On pages 7 and 8, I will explain business results by segment. In power electronics energy, net sales were 240.6 billion yen, up 31.3 billion yen. operating income was ¥21.4 billion, up ¥7.3 billion. The point is significant increase in net sales and operating results of ED&C components. Earnings structure was reinforced as a result of restructuring and reduction of fixed cost we have been working on since the end of the fiscal year 2020. Income increased substantially also due to cost reduction. Profitability also reached double desert. Those are results of ED&C components. Net sales and operating results in power supply and facility systems also increased as a result of increased demand for projects from data centers and semiconductor manufacturers. In power electronics industry, net sales were 314.3 billion yen down 31.6 billion yen. Operating income was 23.7 billion yen up 1.9 billion yen. The point is increase in net sales and operating results of automation systems. Demand increased centered on low voltage inverters and factory automation components. Despite difficulty of parts procurement, by changing designs, switching to alternative parts, and reducing cost, we achieved increase in net sales and operating results. On the other hand, as I mentioned earlier, Net sales and operating results decreased sharply in IT solutions. As a result, net sales decreased significantly in this segment. Net sales of GigaSchool decreased slightly, more than 40 billion yen. Please go to page 8. In semiconductor, net sales were 178.8 billion yen, up 21.3 billion yen. Operating income was 27.1 billion yen, up 9.5 billion yen. Year-on-year change of sales of industrial and automotive applications are shown in the table. Both net sales and operating results in semiconductor for both industrial and automotive applications increased. Despite the repercussions of withdrawing, from magnetic disk operations, net sales increased due to production capacity increases and production increases undertaken in response to substantial growth in demand for power semiconductor, for electrified vehicles, and for industrial applications. As for parts procurement, we adopted multiple supply chains and procured alternative parts. A request for price increase was accepted. As a result, high operating ratios were maintained, leading to massive increases in sales volumes and subsequently improvements in operating results. In power generation, net sales were 78.6 billion yen, down 1.8 billion yen. Operating income was 3.1 billion yen, up 600 million yen. Net sales decreased due to the rebound from a large-scale solar power project recorded in the previous fiscal year. Operating results increased year on year because of the benefits of cost reductions, activities, and others. In food and beverage distribution, net sales were 90.8 billion yen, up 14.2 billion yen. Operating income was 3 billion yen, up 8.3 billion yen. In vending machines, net sales increased by 15%. In store distribution, net sales increased by 22%. Operating income turned positive as a result of reinforcement of earnings structure promoted through cost reduction, personnel shift, and others since the second half of the previous fiscal year. Page 9 shows net sales by Japan and overseas area. In total, net sales were up 34.3 billion yen. Sales in Japan were up 1.8 billion yen almost flat. Overseas sales were 254.4 billion yen, up 32.5 billion yen partly due to exchange rate defect. As for sales by overseas area, sales increased 16.7 billion yen in China mainly due to increase of components such as ED&C components, automation systems, and semiconductor. Sales increased 8.6 billion yen in Asia and others, including negative 12.6 billion yen of magnetic disks. Sales in Europe and Americas also increased slightly more than 3 billion yen respectively. On page 10, you see a graph showing breakdown of quarterly changes in amount of orders received by product. Amount of orders received was 887.9 billion yen in the fiscal year 2020. Orders received for major components including semiconductor, factory automation, and ED&C components were 299.4 billion yen. In the fiscal year 2021, amount of orders received exceeded a long-awaited dream of 1 trillion yen and was 1 trillion 7.9 billion yen, up 120 billion yen year-on-year. Orders received for major components including semiconductor, factory automation, and ED&C components were 410.9 billion yen, up 37%, or 111.5 billion yen year-on-year. Growth of semiconductor was 25%, factory automation 46%, and ED&C components 51%. On a simple quarterly basis, quarterly average was 75 billion yen in the fiscal year 2020 and was slightly more than 100 billion yen in the fiscal year 2021. We were able to increase orders significantly.

Page 11 is a breakdown of changes in amount of sales by product. Sales increased ¥34.3 billion from ¥875.9 billion in FY2020 to ¥910.2 billion in FY2021. Sales of major components came up to 356.4 billion yen, up 68.2 billion yen year-on-year from 288.2 billion yen in fiscal year 20, a 24% year-on-year growth. By product, 25% year-on-year growth for semiconductors, 14% for factory automation, and 31% for ED&C components. The quarterly sales trend shown on the right shows a steady increase in sales of major components. Page 13 is a comparison of the consolidated financial results against the forecast announced January 27th of this year. The forecast was of net sales of 900 billion yen, operating income of 72 billion yen, ordinary income of 73 billion yen, and net income attributable to owners or parent of 52.5 billion yen. There was forex impact, but actual results were net sales exceeded the forecast by ¥10.2 billion, operating income by ¥2.8 billion, ordinary income by ¥6.3 billion and by ¥6.2 billion for the net income attributable to owners or parent. The result by segment is shown bottom half of the slide. Net sales and operating income for paraelectronics energy was up by 7.6 billion yen and 1.4 billion yen respectively, with higher results of ED&C components. Paraelectronics industry were below the forecast by 10.7 billion yen and 1.3 billion yen respectively due to decline in FSR and IT solution. Semiconductors exceeded net sales and operating income forecast by 8.8 billion yen and 1.1 billion yen respectively, due to growth in industry segments. Power generation saw net sales below forecast by 5.4 billion yen and operating income by 200 million yen, due to postponement of a major project to the following year. Food and beverage distribution showed higher growth in stores and distribution against the forecast, about by 3.3 billion yen in net sales and 300 million yen in operating income. In total, net sales exceeded the forecast by 10.2 billion yen and operating income by 2.8 billion yen. Page 15 is a consolidated balance sheet. This is a comparison with the previous year as of March 31st. I would like to highlight that cash and time deposit increased by 16.4 billion yen, inventories by 10.6 billion yen, mainly work in process and materials. Tangible fixed assets up 23.9 billion yen, mainly from increased capital investments into semiconductors. As for investments and other assets, approximately 10 billion yen of cross-share holdings was sold, resulting in a decline of 9.9 billion yen. Retained earnings was up 45.8 billion yen, interest-bearing debt down 7.8 billion yen, resulting in ROA of 5%, ROE of 13%, up 2% year-on-year. Net interest-bearing debt declined by 23.8 billion yen, with increased cash and decreased interest-bearing debt totaling 117 billion yen. As a result, net DE ratio was 0.2 times and equity ratio 42.3%. Record high for the company were recorded. Page 16 shows the cash flows. Cash flows from operating activity was up 49.9 billion yen year-on-year to 76.8 billion yen. There was about 20 billion yen decline related to subcontract act management in the previous year. In this fiscal year, fiscal year 21, increased profit of 20 billion yen and increase in the sales collected coming to increase of 50 billion yen year-on-year. As for cash flows from investing activities, a sizable increase in sales of shares were conducted in the previous year and with the increased investment this fiscal year, it came to minus 22.4 billion yen for the year. down 45.8 billion yen year-on-year. Free cash flow was 54.5 billion yen, up 4 billion yen from the previous year. On page 18 is a dividend of surplus. Our dividend policy is for stable and continuous dividend payment while aiming for increasing dividend payment as much as possible. The slide shows the dividend payment over the past 10 years. In 2010, the dividend was at ¥20, and in fiscal year 2021, the tentative dividend is to reach ¥100. The dividend rose by about 5 yen to 10 yen year-on-year up until fiscal year 2020, but we will increase year-end dividend by 10 yen year-on-year and total of 15 yen increase per annum to come to an annual dividend of 100 yen for fiscal year 2021. This is in light of our target of coming close to payout ratio of 30% in fiscal year 2022, thus resulting in this amount for the dividend. That concludes the presentation of the financial results for fiscal year 2021. On page 20, please find as supplementary information amount of orders received for ED&C components, low-voltage inverters, semiconductors, and vending machines, showing fourth-quarter, quarter-on-quarter comparison, year-on-year comparison, and annual comparison against the previous fiscal year. Now, I would like to explain the management plan for fiscal year 2022. On page 4 is a summary of consolidated financial results for fiscal year 2022, with net sales to increase 49.8 billion yen year-on-year to 960 billion yen, operating income up 7.2 billion yen year-on-year to 82 billion yen, operating margin up 0.3% to 8.5% and net income attributable to owners or parent increased 300 million yen year-on-year to 59 billion yen. There is a large difference between operating income and net income due to sales of stock holdings and Malaysian operating company to change from magnetic disk operation to semiconductor incurring non-operating expenses. As for the financial indicators, net DE ratio is 0.2 times, equity ratio 44%, ROA 5%, and ROE 12%. The exchange rate used for the calculation is 120 yen to the US dollar, 133 yen to the euro, and 19 yen to the RMB. The waterfall chart on page 5 shows a breakdown of changes in operating results to come to an increase of 7.2 billion yen year-on-year. The biggest contributor for the increase is from rise in sales and production volumes, especially from automotive power semiconductors or semiconductor, and factory automation and in systems, power supply and facility systems, and vending machines were significant factors for increased sales and production volumes as well, coming to an increase of 20.6 billion yen year-on-year. Increasing fixed cost will come to 19.9 billion yen, factored in as a negative impact. It consists of labor costs, R&D, depreciation and leases paid, with capital investment into semiconductors being maintained. Other expenses include controllable costs such as outsourcing costs. The increase of expenses will come close to 20 billion yen. As for exchange rate effect, if we take the median rate during the period, it will be a slight increase in terms of operating income, an impact of positive 900 million yen. Others at 5.6 billion yen include impact of rising raw material prices of 7.2 billion yen, effects of higher product selling prices of 7 billion yen, and cost reduction and others, including semiconductor and new product for food and beverage distribution. In total, operating income will increase 7.2 billion yen to 82 billion yen. The following pages starting with page 6 shows year-on-year comparison of net sales and operating income by segment. For power electronics energy segment, net sales will go up 5 billion yen to 236 billion yen and operating income up 0.9 billion yen to 22.1 billion yen with operating margin of 9.4%. The increase will come as we target capturing business opportunities at data centres in full scale for power supply and facility systems. For power electronics industry segment, net sales to increase 24.9 billion yen to 349 billion yen, operating income by 3 billion yen to 26.8 billion yen, and operating margin of 7.7%. The factors here include rising energy conservation, automation, and digital transformation needs. We will also capture growth in demand for automation and IT solutions to show higher sales and income. For semiconductor segment, net sales to increase 21.2 billion yen to 200 billion yen, operating income by 3.4 billion yen to 30.5 billion yen with operating margin of 15.3%, with higher sales and income driven largely by growth in demand for XCV power semiconductors amid automobile electrification. Turning to page 7, for power generation, net sales to increase 3.4 billion yen to 82 billion yen, operating income by 1 billion yen to 4.1 billion yen, with operating margin of 5%. We plan to see higher sales and income due largely to renewable energy and service projects. For food and beverage distribution, we will see net sales increase of 1.2 billion yen to 92 billion yen and operating income by 2.1 billion yen to 5.1 billion yen with operating margin of 5.5%. High sales and income is planned as a result of deployment of new high-value added products and cost reduction efforts. On page 8 is a comparison of net sales of Japan and overseas area. The management plan for fiscal year 2022 is for a year-on-year increase of 49.8 billion yen coming to 960 billion yen, with projected increase in sales for Japan of 45.3 billion yen to 701.1 billion yen. and 4.5 billion yen increase overseas with sports impact to 258.9 billion yen. The ratio of overseas sales will come to 27%. By area, Asia and others will increase 10.8 billion yen to 127.6 billion yen, including the negative 6 billion yen coming from magnetic disks. As for China, We have factored in the lockdown in China due to COVID-19 of minus 13.9 billion yen to 86.6 billion yen. ED&C components, factory automation and semiconductor segments are expected to show a decline. We expect Europe to show an increase of 7.9 billion yen to 27.9 billion yen, and as for Americas, almost a flat, just declining slightly from the previous year. Page 9 shows breakdown of changes in amount of orders received by product, together with year-on-year comparison. We have a target of reaching ¥1 trillion in orders for fiscal year 2022 and 2023. We will make efforts to win orders to exceed this target of ¥1 trillion in fiscal year 2022. Major components will come to 405.8 billion yen with plus 6% for semiconductors, but we have a conservative outlook for factory automation and ED&C components, projected to show a decline in orders due to orders received in advance in the previous year. Page 10 shows a year-on-year comparison of capital investment. Capital investment in fiscal year 2022 will total 92 billion yen, up 32.7 billion yen from 59.3 billion yen in fiscal year 2021. semiconductor up 29.8 billion yen to 71.7 billion yen, making up 78% of the total. Power electronic industry and power electronics energy will increase by 7 billion yen and 9.5 billion yen respectively. The investment plan includes increased investments into semiconductor with increased front-end production capacity of 8-inch wafers and back-end production capacity of automotive modules, coming to an increase of 30 billion yen from the previous year. R&D investment will increase by 3.2 billion yen from 33.8 billion yen in fiscal year 2021 to 37 billion yen in fiscal year 2022. Semiconductor up by 34%, up 27% for power electronics industry and up 17% for power electronics energy. 80% of R&D investment will go to semiconductor and power electronics. For semiconductor, the keywords of R&D will be IGBT for automotive, SIC module chip, 8th generation industrial IGBTs, and next generation SIC. The keywords of R&D for power electronics industry will be products for overseas for plant and process automation and mobility field products, and for power electronics energy, products for overseas. Page 13 is a consolidated balance sheet at the end of fiscal year 2022. To highlight, cash and time deposit will decrease 17.5 billion yen. Tangible fixed assets with proactive investments into semiconductor will increase 41.2 billion yen. With continued sales of cross-share holdings, investments and other assets will decline by more than 10 billion yen. Interest-bearing debt declined 15.9 billion yen, with retained earnings up 43.3 billion yen. We will make investments with profits made with gains on sales of shares and decrease cash together with interest-bearing debt. Net interest-bearing debt will be flat at 117.3 billion yen in fiscal year 2022, net DE ratio of 0.2 times and equity ratio of 44%. Page 14 shows the cash flows. Cash flows from operating activities will go up by 33.2 billion yen to 110 billion yen year-on-year, with increases in internal reserves and reduction in inventory totaling over 30 billion yen. Cash flows from investing activities will decline by 27.6 billion yen to minus 50 billion yen, with increased investments being the contributing factor. The plan for the free cash flow is to increase 5.5 billion yen to 60 billion yen. The minus 30 billion yen for cash flows from financial activities is included to be put to paying down the debt. For your information on page 16 is the changes in segments. The smart meters under power electronics energy as their components have been moved to automation systems under power electronics industry, while power conditioning systems under automation systems of power electronics industry have been moved to energy management. The information subsegment under semiconductor dealing with photo conductors has now moved to industrial subsegment. On page 17 is a year-on-year comparison of management plan for the first half of fiscal year 2022. Net sales up 26.3 billion yen to 424 billion yen. Operating income up 5.7 billion yen to 22 billion yen. Ordinary income up 5.1 billion yen to 22 billion yen. Net income attributable to owners or parent up 1.5 billion yen to 15.5 billion yen. Increases in raw material costs, increased sales price, increased volume and costs are all factored in for an increased operating income of 5.7 billion yen. By segment, power electronics will see both net sales and operating income increase with power supply and facility systems being the main factor. In power electronics industry, IT solutions will show efforts compared to the previous year with increased net sales but with a small operating loss. Semiconductors will see increased net sales as well as operating income. coming mainly from automotive's power semiconductors. Power generation will show slight growth in new energy with increased net sales and operating income. Food and beverage distribution will grow vending machines, but net sales will decline slightly with increased operating income. In total, we are planning increased net sales and operating income in the first half. For your reference, I would like to touch on some upside and downside factors for fiscal year 2022. Exchange rate assumption is for Japanese yen at 120 yen against the dollar and 133 yen against the euro and also 19 yen to the RMB. But with the current exchange rate, we expect gain on forex will be a few billion yen. And as for costs, for the whole company, we will aim to reduce costs by two digits – The impact of the lockdown in China, we have rather conservative outlook for it to continue for about six months. So if it is lifted earlier than that, it will bring a small positive effect. As for downside risks, one is rising material prices and other the global recession if we continue with the current trajectory. I don't think it will go as far as stagflation, but there remains a possibility that recession may impact our business. The lockdown in China and higher material prices are some of the risks incorporated into the fund in the level of 10 billion yen. Thank you for your attention.