Fuji Electric Co Ltd

Good afternoon. This is Arai, in charge of Corporate Management Planning Headquarters. I would like to present the consolidated financial results for the first quarter of FY 2024 in comparison to the previous year. Net sales increased by 2.2 billion yen year-on-year to 236.4 billion yen. Excluding gain on translation of earnings of overseas subsidiaries of 5.5 billion yen, net sales were down 3.3 billion yen. Operating profit increased by 2.6 billion yen to 17.3 billion yen, and operating profit ratio was up 1% year-on-year to 7.3%. As for non-operating profit, foreign exchange losses and negative net interest expenses were recorded, but others were positive. ¥1.4 billion, mainly decrease of cost of converting the business of our affiliated company in Malaysia, FI 2023, resulting in non-operating profit of ¥0.5 billion or ¥1 billion in absolute terms. Ordinary profit increased by 3.1 billion yen year-on-year to 18.3 billion yen, a record high. In FI 2023, we recorded sales of investment securities of 4.6 billion yen, resulting in an extraordinary profit decrease of 4.3 billion yen year-on-year to 0.3 billion yen in FI 2024. Profit before income taxes was down 1.2 billion yen year-on-year to 18.5 billion yen, with the final profit attributable to owners of the parent down 0.8 billion yen to 11.5 billion yen. This is a waterfall chart showing the breakdown of year-on-year changes in operating results. we saw a decrease in sales and production volumes. Automotive business in semiconductor segment, store distribution business, substation system business were positive. However, ED&C components business, power supply and facility systems business, and power generation business were negative, resulting in a slight decline of 0.2 billion yen in total. As for fixed costs, labor costs, mainly in Japan, increased by 1.8 billion yen. R&D cost was also up, reflecting proactive investment into semiconductor segment. Others decreased, which include reduction in outsourcing cost. In total, fixed costs increased by 3.4 billion yen. The exchange rate effect increased by 1 billion yen. Others increased by 5.2 billion yen. Impacts of rising raw material costs came to minus 1.1 billion yen, but raising the selling prices of products resulted in an increase of 1.5 billion yen, offsetting the negative impacts. Differences in model mix, in profitability between projects, were positive for equipment construction business, industrial business in semiconductors segment, factory automation business, etc., while cost reduction was realized in semiconductors segment coming to an increase of 4.8 billion yen. This resulted in an operating profit increase of 2.6 billion yen year-on-year. Next page shows net sales and operating profit by segment for the first quarter of FY 2024 and year-on-year changes. In the energy segment, net sales decreased by 4.5 billion yen. ED&C components business, power supply and facility systems business recorded lower net sales and operating results, but industry segment, semiconductor segment, and food and beverage distribution segment all recorded higher sales and profit. The following pages show details of each of the segments. In the energy segment, net sales decreased by ¥4.5 billion year-on-year to ¥68.2 billion, and operating profit decreased by ¥1.7 billion year-on-year to ¥3.3 billion. Energy management business had higher net sales and operating profit due to a large order for substation equipment for power and industrial applications. However, the remaining three businesses saw decreased net sales. Power generation business recorded lower net sales and operating profit due to the absence of large-scale hydroelectric projects in the same period of the previous year. Net sales and profits decreased year-on-year for power supply and facility systems business, with a rebound of strong results of the subsidiary in Singapore in the previous fiscal year. despite strong demand from data center operators in Japan. The ED&C components business recorded lower net sales and operating results due to a reduction in demand from domestic finished machinery manufacturers. In the industry segment, net sales increased by 0.5 billion yen to 80.2 billion yen, and operating profit increased by 2 billion yen to 2 billion yen. There are four businesses in this segment. Three businesses, except digital transformation solutions business, recorded higher net sales and operating profit. Digital transformation solutions businesses' net sales and operating profit declined due to the absence of large-scale IT solutions projects recorded in the previous year. Automation systems business saw increases in both net sales and operating profit, as the benefits of increased demand for drive control systems for process automation applications counteracted the decrease in demand for low-voltage inverters for factory automation applications. Thus, sales and operating profit increased for social solutions business due to increases in orders for nuclear power-related equipment and differences in profitability between railway system projects. The equipment construction business also saw an increase in net sales and operating profit because of strong construction project trends. Next, semiconductor segment. Net sales increased by 2.8 billion yen to 53.9 billion yen, and operating profit increased slightly by 0.6 billion yen to 7.7 billion yen. In the industrial business, demand declined for industrial power semiconductors for factory automation applications, which was offset by favorable foreign exchange impact. Automotive business showed higher net sales with slight decline in operating profit. Despite the negative factors including rises in expenses for power semiconductor production and higher material costs, growth in sales coupled with the benefit of cost reduction activities and favorable foreign exchange impact resulted in both higher net sales and operating profit. In the food and beverage distribution segment, both the vending machines business and the store distribution business saw higher net sales and operating profit. The vending machines business saw a slight increase in net sales, but operating profit improved by two digits due to cost reduction activities. The store distribution business saw significantly higher net sales and operating profit due to special demand stemming from the issuance of newly designed paper currency here in Japan. The next slide shows net sales for Japan and overseas areas for the first quarter of fiscal year 2024 and year-on-year changes. Net sales increased by 1.5 billion yen year-on-year to 72.7 billion yen overseas and by 0.8 billion yen year-on-year to 163.7 billion yen domestically. Excluding the foreign exchange, in fact, it was approximately negative 4 billion yen in total. By region, sales in Asia were down 4.5 billion yen, of which 3.3 billion yen was from the rebound of the strong result recorded by a subsidiary in Singapore with power supply and facility system business in the previous year, and minus 2.3 billion yen mainly for automotive business in semiconductor segment. In China, both industrial and automotive business in the semiconductor segment saw higher net sales of 4.2 billion yen, resulting in a strong increase in net sales of 4.9 billion yen from a week FY2023. Europe and the Americas had slightly higher net sales due to favorable FX impact. The next slide shows major component orders in the three-month period that ended June 30, 2024. Orders received were up 23.9 billion yen a year to 296.1 billion yen. Orders increased significantly in plant systems, mainly in energy management business, power supply and facility systems business, and social solutions business. Major components were up 1.7 billion yen year-on-year to 99.9 billion yen. Compared to the same period of the previous year, semiconductors automotive were up 10%, semiconductors industrial up 7%, factory automation was down by 12%, and ED&C components were up only slightly by 3%. The right half of the slide shows quarterly trends of a number of orders and net sales. On the right is a quarter-on-quarter changes, which are down slightly in total. Semiconductor segment, both industrial and automotive businesses, were down 5% and 3% respectively, while factory automation business and ED&C components business were both up by 5%. Low voltage inverters for factory automation business was down 31%. Next, I would like to explain FY2024 forecasts in comparison to the forecast announced on April 25, 2024. There are no changes in FX assumptions for both the first half and the second half. the forecasts of net sales, operating profit loss, operating profit ratio and ordinary profit remain unchanged. However, as extraordinary gains on sale of investment securities were recorded in the first half, net profit is expected to increase by 9.5 billion yen and the net profit ratio by 2 points in the second quarter. By segment in semiconductors, reflecting the lower EV demand from certain overseas automotive manufacturers, net sales and operating profit loss are expected to decline by ¥4 billion and ¥2 billion respectively. Food and beverage distribution segment, on the other hand, is expected to increase net sales and operating profit loss by ¥4 billion and ¥2 billion respectively. mainly due to special demand for automatic change dispensers. As a result, total net sales and operating profit loss will remain unchanged. Next is the consolidated financial results forecast for the full year. Due to continued uncertainty in the second half of the year, net sales, operating profit loss, operating profit ratio, and ordinary profit loss remain unchanged. The sales of investment securities were originally planned for the second half of the year, but have been brought forward to the first half, and the volume of sales has also been increased. As a result, the net profit loss for the year is expected to increase by 4 billion yen to 80.5 billion yen and the net profit ratio to increase by 0.3 percentage points to 7.2%. By segment, semiconductor segment is expected to be negative and food and beverage distribution segment to be positive as in the first half of the year. This is a comparison of the consolidated balance sheet at the end of March and end of June. Inventories increased by 22.2 billion yen, and property, plant and equipment, mainly in semiconductor segment, increased by 25.4 billion yen. On the other hand, trade receivables, which had built up at the end of March, were collected by June, reducing receivables by 74 billion yen. total assets decreased by ¥18.8 billion to ¥1,252.4 billion. On the liabilities side, total liabilities were reduced by ¥27.5 billion, mainly due to a decrease in interest-bearing debt, despite an increase in advances received. Retained earnings increased by 0.7 billion yen, but this figure was after dividend payments of 10.7 billion yen. As a result, the equity ratio increased by 1.7 percentage points to 49.1%. Net interest-bearing debt decreased by 27.2 billion yen to 70.2 billion yen, and the debt-to-equity ratio was 0.1 times. In the first quarter of FY2024, cash flow from operating activities was 66.2 billion yen, mainly due to positive retained earnings of approximately 25 billion yen, an increase in receivables collection and advances received, which covered the negative impact from inventories and accounts payable, and an upturn in working capital of approximately 41 billion yen. On the other hand, cash flows from investing activities decreased by 27 billion yen, mainly due to investments in semiconductor segment. In total, free cash flow was positive by 39.2 billion yen, an improvement of 32.5 billion yen compared to the previous year, mainly due to the upturn in working capital. Looking ahead, the global situation is uncertain, not only in the US but also in China, due to policy differences between the candidates in the US presidential election. Interest rate trends and exchange rates are also uncertain, as the Fed indicated a cut in interest rates in September, and the BOJ has indicated that it will raise rates. As of today, we are seeing significant fluctuations in the stock market. The exchange rate assumptions of ¥140 to the dollar and ¥150 to the euro and ¥19.5 to the yuan remain unchanged from the initial forecast. When we review the plan in October, we will disclose the forecast based on the situation in each segment as well as any changes to the exchange rate assumptions. As I have always said, the foreign exchange impact and cost improvements are expected to boost profits in both the first half and the full year, if the current situation is maintained. That concludes my explanation. Thank you for your kind attention.