Fuji Electric Co Ltd

I am Junichi Arai, Corporate General Manager, Corporate Management Planning Headquarters. I will explain consolidated financial results for the third quarter for the fiscal year 2022. Page 4 shows year-on-year comparison of consolidated financial results for the 9 months. Net sales were 690.8 billion yen, up 70.8 billion yen. Excluding gain on translation of earnings of overseas subsidiaries, net sales increased 55.4 billion yen due to demand increase. 55.4 billion yen includes approximately negative 12 billion yen from China where we experienced great difficulty. Operating income was 42.4 billion yen up 9.8 billion yen. Operating margin was 6.1%. Known operating income net of known operating expenses was down 2.6 billion yen year-on-year. Net interest income increased 300 million yen. Foreign exchange income decreased 1.2 billion yen partly due to the stronger yen. Others, including conversion of magnetic disk production lines to semiconductor production lines in Malaysia, decreased 1.7 billion yen. Non-operating income net of non-operating expenses was 1.2 billion yen. Ordinary income was 41.3 billion yen up 7.1 billion yen. Extraordinary income net of extraordinary loss was 8.3 billion yen. up 1.1 billion yen. It is mainly because of gain on sales of investment securities and an absence of loss of withdrawal from magnetic disk business in Malaysia booked in the previous year. Others included expenses associated with withdrawal from Shinshu Fuji Electric in the previous year. Also due to the absence of that, extraordinary income, net of extraordinary loss, increased 1.1 billion yen year on year. After deducting income taxes and net income attributable to non-controlling interest, net income attributable to owners of parent was 29 billion yen, up 3.6 billion yen. Page 5 shows breakdown of ¥9.8 billion increase of operating income. The biggest factor was increase in sales and the associated production volumes. Sales and production volumes pushed up operating income by ¥24.6 billion mainly due to increase in automotive semiconductor, power supply and facility systems, ED&C components, and vending machines. As for fixed costs, partly due to year-on-year improvement of market conditions, labor costs, R&D, and depreciation and leases paid increased. In other expenses, controllable expenses and others increased. Besides, other expenses included about 2 billion yen of allowance for doubtful accounts mainly due to COVID-19 impacts and slightly less than 1 billion yen from depreciation of inventories. Due to those factors, other expenses increased 9.1 billion yen. As a result, increase in fixed cost pushed down operating income by 15.9 billion yen. Exchange rate effect was still positive partly due to monthly average pushing up operating income by 4.2 billion yen. Others pushed down operating income by 3.2 billion yen. Impacts of rising raw material prices and energy prices, including electricity expenses, pushed down operating income by approximately 10 billion yen. 5.7 billion yen from higher product selling prices partially offset the negative impacts, but not fully. Cost reduction also had a positive impact. However, others in total pushed down operating income by slightly more than 3 billion yen. As a result, operating income increased 9.8 billion yen in total. Page 6 shows a summary of year-on-year comparison by segment. Net sales increased in all the segments. In power electronics industry, operating income decreased 2.5 billion yen due to COVID-19 impacts in China and reduced production in Japan because of difficulty in procurement of parts. Operating income in all other segments increased. From page 7, I will explain each segment in more detail. In power electronics energy, net sales were up 24.6 billion yen and operating income was up 6 billion yen. In energy management, net sales and operating results decreased. as a result of the absence of lower-scale orders for industrial applications recorded in the previous equivalent period. Operating results include several hundred million yen of allowance for doubtful accounts in Indonesia and Asia. In power supply and facility systems, net sales and operating results increased. In particular, sales and operating results of switch gears and control gears at our subsidiary in Singapore increased significantly. It was an important point in this business. Demand for projects from data centers and semiconductor manufacturers increased substantially. Also, in ED&C components, net sales and operating results increased significantly. Although we struggled in China, demand mainly from manufacturers of machine tools and semiconductor production equipment in Japan increased. In power electronics industry, there are four businesses. In automation systems, net sales increased but operating results decreased. Net sales increased as the benefits of voting exchange influences outweighed the significant impacts of lockdowns in China. However, operating results decreased unfortunately due to the high prices for materials and effects of difficulties in procuring parts on production in Japan, as well as lockdowns in China. In addition, several hundred million yen in allowance for doubtful accounts in Thailand is included. In equipment construction, net sales slightly increased and operating results decreased slightly. Net sales increased as a result of higher demand for electrical equipment construction, but operating results decreased slightly due to increase in material and equipment prices. In IT solutions, net sales and operating results increased substantially due to higher demand for large-scale school, academic, and private sector projects. Please go to page 8. In semiconductor, net sales and operating income increased, as shown on the table. Sales and operating results for industrial applications increased. 6 billion yen of sales and 1 billion and several hundred million yen of operating income from magnetic disks were included in the fiscal year 2021. In consideration of that, we can say industrial applications were strong in the fiscal year 2022. In automotive applications in particular, sales and operating results of power semiconductor for electrified vehicles increased significantly year on year. Demand for power semiconductor from customers has been quite high. As we increased production capacity in a timely manner, depreciation and leases paid increased. Operating results increased as we maintained operating rate in production at almost 100% at all the factories, despite the increases in material and energy cost, in particular electricity cost. As a result, net sales and operating results for both industrial and automotive applications increased. Also in power generation, net sales and operating income increased due to large-scale renewable energy projects. Despite the negative factor, ¥1 billion and several hundred million yen of cost increase, from overseas projects we won in the past, ¥200 million of operating income was secured. Also, in food and beverage distribution, net sales and operating income increased. In vending machines, net sales and operating results increased due to growth in Japan, although we struggled in China. vending machine customers in China struggled very much partly due to COVID-19 impacts, and we recorded 1 billion and several hundred million yen of allowance for doubtful accounts. Despite that, net sales and operating results increased. In-store distribution, net sales and operating results decreased year-on-year due to the absence of large-scale orders for automatic change dispensers recorded in the previous equivalent period. Page 9 shows net sales by Japan and overseas area. Net sales were up 70.8 billion yen in total. Overseas sales were up 27.5 billion yen including 15.4 billion yen of exchange rate defect. Sales in Japan were up 43.3 billion yen. Ratio of overseas sales was 30% by area. In China, we had a hard time and sales decreased 7.9 billion yen year-on-year. In consideration of exchange rate effect, sales decreased 12 billion yen in real terms. Sales increased slightly more than 20 billion yen in Asia and others. Sales increased 8 billion yen in Europe and sales increased 6 billion yen in Americas. Although there was exchange rate effect, sales of automation systems, semiconductor, and others increased. Page 10 indicates year-on-year comparison of amount of orders received by product. For the 9 months in the fiscal year 2022, amount of orders received was 831 billion yen, up 95.1 billion yen year-on-year from 736 billion yen. As for major components, orders for semiconductor increased 10%. Orders for factory automation decreased 4%. Orders for ED&C components were almost flat. Orders for components increased 9.3 billion yen. Plan and system orders increased 85.8 billion yen. Orders in power supply and facility systems, energy management, and equipment construction increased substantially for the 9-month. Quarterly trend is shown on the right. As there were advance orders in and before the second quarter, major components orders, received slightly, decreased in the third quarter. However, orders are expected to recover to 100 billion yen level in the fourth quarter. Orders for semiconductor and factory automation will increase, and orders for ED&C components will decrease slightly in the fourth quarter. Plan and system orders have been quite strong every quarter. Around 170 billion yen of orders were booked each quarter. Orders for the fourth quarter are expected to exceed 150 billion yen. Page 11 shows year-on-year comparison of amount of sales by product. Sales were up 70.8 billion yen year-on-year. Major component sales increased 30.9 billion yen in absolute terms. Plant and system sales also continued to be favorable and increased 39.9 billion yen. Sales of power supply and facility systems Power generation and IT solutions increased. Quarterly sales trend of major components is indicated. Orders decreased in the third quarter However, partly due to high level of order backlog, sales of major components exceeded 100 billion yen. We expect trend will be the same in the fourth quarter. Due to sufficient order backlog, we don't have major concerns for this fiscal year, the fiscal year 2022. Pay 13 shares, consolidated balance sheet. Comparison is made between the end of December and the end of March or the end of the last fiscal year. Collection progressed smoothly for nodes and account receivables, trade receivables accumulated at the end of March. As a result, nodes and account receivables, trade receivables decreased 28.5 billion yen. Inventories increased due to increase in sales of components. Besides, we are building up inventories for plan and system sales toward February and March. As a result, inventories increased approximately 40 billion yen. Transferable fixed assets increased 33 billion yen mainly due to investment to increase production of power semiconductor. Investments and other assets in long-term assets decreased 18.2 billion yen mainly due to planned sales of close shareholdings. Consequently, total assets stood at 1,149.2 billion yen of 32.1 billion yen. Interest-varying debts decreased 3.5 billion yen. Also, due to increasing cash, net interest-varying debt decreased 8.8 billion yen to slightly more than 100 billion yen. Net DE ratio was 0.2 times. Equity ratio was 42.1%. Phase 15 shows full-year forecast in comparison with the last fiscal year. We have kept unchanged the previous full-year forecast. No changes to forecast of net sales operating income, ordinary income, and net income attributable to owners of parent. Sales and income will increase year-on-year. We aim at record high income. Forecast by segment is shown on the bottom. Sales and income are expected to increase in all the segments year-on-year. Of course, our internal targets are higher than disclosed forecast. To achieve medium-term management plan of 1 trillion yen in net sales if possible, we are making efforts in each department. We want to exceed operating income and net income forecast even if only slightly. As I mentioned earlier, full-year forecasts include extraordinary factors. Due to situation of customers in Indonesia and Thailand, 1 billion and several hundred million yen of allowance for doubtful accounts is included. Vending machine customers in China were heavily impacted by COVID-19. We expect doubtful accounts will be 2 billion and several hundred million yen and allowance is included in the plan as for inventories for the first time in about ten years we reduced the value of inventories using lower of cost or market method by several hundred million yen For the full year, there are risks and upside potential. I think the biggest risk is foreign exchange. For reference, net sales decreased slightly more than 1 billion yen at yesterday's exchange rate. Impact on operating income is different depending on currency, US dollar, renminbi, or euro. In total, impact on operating income is zero at yesterday's exchange rate. As for forecast by segment, I personally feel forecasts for power electronics industry are slightly bullish. As for upside factors, I always mention exchange rate and expenses. However, as the yen is slightly getting stronger this time, exchange rate is a negative factor, as I explained. As for expenses, I think we can probably reduce expenses by 1 billion and several hundred million yen. If possible, we want to achieve medium-term plan of 1 trillion yen in net sales and operating margin of 8% or higher ahead of the plan. We already achieved operating margin target in the previous fiscal year. We also want to aim at 8.5% or higher. in operating margin in this fiscal year. Reference is shown on page 17. Quarter-on-quarter and year-on-year comparison for the third quarter and year-on-year comparison for the nine-month of amount of orders received are indicated for ED&C components, low voltage inverters, semiconductor, and vending machines. As I mentioned earlier, demand will be positive in the fourth quarter, although I'm not sure about ED&C components. That concludes my presentation.