Fuji Electric Co Ltd

Good afternoon. I am Arai, in charge of Corporate Management Planning Headquarters. I would like to explain the consolidated financial results for the third quarter fiscal year 2024. Please turn to page 4 for the financial results in the nine-month period ended December 31, 2024, an year-on-year comparison. Thanks to all of you, net sales, operating profit, ordinary profit, and profit attributable to owners or parent all recorded historical highs for the company. Net sales increased by 31.4 billion yen year-on-year to 791.1 billion yen. Excluding the FX impact coming from yen depreciation, it was up 17.9 billion yen. Operating profit increased 10.8 billion yen to 68.4 billion yen and operating profit ratio was up 1.1% year-on-year to 8.7%. In absolute value, it was up approximately 19% year-on-year. As for non-operating profit, it increased by 1 billion yen, mainly due to net interest expense, as we made investment in factory in Malaysia in FY 2024, using loans denominated in US dollars. This resulted in net interest expense of minus 1.3 billion yen, foreign exchange loss of 400 million yen, and others, many comprising of cost of converting the business of an affiliated company in Malaysia, which was quite substantial in FY 2023, resulting in non-operating profit of 2.7 billion yen, up in total 1 billion yen year-on-year. Ordinary profit increased by 11.7 billion yen year-on-year to 68.4 billion yen. Extraordinary profit was up 10.2 billion yen year-on-year to 16.2 billion yen, mainly from gain on sales of investment securities. Last fiscal year, the gain came to 6 billion yen, but this year we saw it increase significantly to 16.6 billion yen. With this as the main factor, extraordinary profit increased 10.2 billion yen. Profit attributable to owners or parent up 18.2 billion yen or 49% year-on-year to 55.4 billion yen. Please turn to page 5. This is a waterfall chart showing the breakdown of year-on-year changes in operating profit compared to the previous fiscal year. Operating profit was up 10.8 billion yen year-on-year. Sales and production volume showed opposite trends for components and plant systems. Components including factory automation business, semiconductors automotive business, and ED&C components business were negative, while plant systems, including substation system business, store distribution business, IT and process automation businesses, offset the loss, resulting in increase in sales and production volumes of 3 billion yen. As for fixed costs, labor costs, R&D costs, mainly related to investment into the semiconductor business and depreciation increased, resulting in negative 7.8 billion yen. Exchange rate effect increased by 2 billion yen due to depreciation of the yen. Others increased substantially by 13.6 billion yen. Effects of higher product selling prices came to plus 3.8 billion yen. Impacts of rising raw material costs came to minus 4.2 billion yen, half of which is for ED&C components business and rest for semiconductor segment and vending machines business. We were short of offsetting the rise in raw material costs with increased selling prices. Next, differences in model mix, profitability between projects, and cost reduction. Profitability between projects mainly with plant systems, power supply and facility systems business, and equipment construction business came to a total of 9.7 billion yen increase year-on-year. Cost reductions of ¥4.4 billion were realized in semiconductor segment with improved non-defect rate, vending machines business and ED&C components business. With all these factors, others were up ¥13.6 billion. Page 6 onwards, please find information on each segment. Page 6 shows net sales and operating profit by segment for the third quarter fiscal year 2024 with year-on-year comparison. Semiconductor segment showed sluggish net sales operating profit year-on-year. Energy segment, industry segment and food and beverage distribution segment had recorded strong net sales and operating profit. Page 7 shows business results by segment for the third quarter fiscal year 2024 with year-on-year comparison. In energy segment, net sales increased by 7.6 billion yen year-on-year to 237 billion yen, and operating profit up 5.5 billion yen year-on-year to 20 billion yen. There are four businesses under energy segment. First, power generation. It had higher net sales and operating results as it recorded large-scale hydropower energy projects. Secondly, energy management business had higher net sales and operating profit due to large-scale orders for substation equipment. Thirdly, power supply and facility systems business saw a decrease in large-scale projects from overseas semiconductor manufacturers, but as demand from data center operators was strong, net sales was unchanged from the previous fiscal year, but we saw improvement in operating results. With differences in profitability between projects and cost reduction, operating results were positive. ED&C components business struggled because of lower demand. With lower net sales compounded with higher material prices, operating results were negative. Page 8 is a business result for the industry segment. Net sales increased 13.1 billion yen year-on-year to 292.2 billion yen, and operating profit was up 6 billion yen year-on-year to 17.5 billion yen. Automation systems business saw increases in both net sales and operating profit, as the benefits of increased demand for drive control systems resulting in higher net sales and operating results for process automation application counteracted the ongoing inventory adjustment due to sluggish market for low voltage inverters for factory automation applications, which saw lower net sales and operating results. Both sales and operating profit increased for social solutions business due to increases in large-scale orders for nuclear power-related equipment. Digital transformation business has been integrated with IT solutions subsidiary since last year, in which large-scale projects increased, resulting in higher net sales and operating results. Equipment construction business saw lower net sales due to absence of large-scale air conditioning equipment construction projects recorded in the previous year. but operating results improved because of differences in profitability between projects and cost reduction initiatives. Page 9 is the business results for the semiconductor segment. Net sales increased by 0.1 billion yen year-on-year to 166.7 billion yen, and operating profit decreased by 4.9 billion yen year-on-year to 21.5 billion yen. Comparison of the industrial and automotive semiconductors are shown on the right-hand side of the page. Industrial was up 7.3 billion yen, while automotive was down 7.1 billion yen. In semiconductor industrial, renewable energy sector in China performed relatively well, while semiconductor automotive was negative due to decrease in sales to overseas customers, mainly XEVs. Semiconductors automotive saw depreciation increase in line with increased production and sharp rise in raw material costs, resulting, unfortunately, in a profit decline. In food and beverage distribution segment, net sales were up 6 billion yen year-on-year to 85.5 billion yen, with operating profit of 12.3 billion yen up 5.4 billion yen year-on-year. Both vending machines and store distribution businesses saw substantially higher net sales as well as operating profit. Vending machines saw benefits of cost reduction activities and increased demand from domestic customers. Store distribution business saw a special demand stemming from the issuance of newly designed paper currency in Japan, resulting in a few billion yen increase in net sales and operating results. Page 10 shows net sales for Japan and overseas area for the third quarter fiscal year 2024 and year-on-year changes. Net sales were up 31.4 billion yen in total, of which 32.2 billion yen was in Japan, and overseas saw decline of 800 million yen, and if FX factor is excluded, it was negative by around 10 billion yen. Looking at overseas, in Asia, due mainly to decline in power supply and facility systems business and semiconductor automotives business, net sales were down 11.3 billion yen. Europe was down 2.5 billion yen, mainly due to decline in semiconductor segment. On the other hand, China saw increased sales both for semiconductor industry and automotives compared to the same period of the previous year, resulting in a net sales increase of 12.3 billion yen. Net sales for Americas was slightly higher. Page 11 shows the amount of orders received in the nine-month period ended December 31, 2024. Orders received were up 37.8 billion yen year-on-year to 859.7 billion yen. Orders increased 19.2 billion yen year-on-year in plant systems, strong performance mainly in energy management and power supply and facility systems businesses, showing 33.6 billion yen increase in total. Major components were up 18.7 billion yen year-on-year, but as yen depreciated further at the end of December, it was practically up about 10 billion yen. Semiconductors, industrial and ED&C components businesses had increased orders. On the right of the page, the quarterly trend of the amounts of orders of major components are shown. Third quarter was up by 10 billion yen from the second quarter, but as mentioned, favourable impacts of exchange rate of about 10 billion yen is included. Therefore, excluding this impact, in real terms it was flat, quarter on quarter. ED&C components business was up by a few percent, but others were flat from the second quarter. Page 13 is a balance sheet comparison between March 31, 2024, that is the end of the previous fiscal year, and the end of the third quarter, December 31, 2024. Notes and accounts receivables, trade and contract assets saw progress in collection, decreasing by 46.1 billion yen. Investments of fixed assets and other assets decreased 10 billion yen with sale of investment securities. Inventories increased 28.9 billion yen. Property, plant and equipment increased 32.4 billion yen, mainly related to semiconductor segment. Total assets increased by 24.1 billion yen to 1,295.3 billion yen. As for liabilities, interest-bearing debts were down 33.9 billion yen with advance payments received as a fund. Net interest-bearing debt was down 29.8 billion yen to 67.5 billion yen. Net D ratio was 0.1 times and with equity ratio increased to 49.3% mainly due to increased retained earnings. Page 14 is a cash flow statement. In FY2024, internal reserves increased 98 billion yen, with cash flows from operating activities up to 96.2 billion yen. Cash flows from investing activities increased 19 billion yen due to sales of shares owned, but capital investment came to 56 billion yen, resulting in minus 41.8 billion yen in total. As for free cash flow, adding the numbers together comes to 54.4 billion yen. Cash flow from operating activities was up 57.3 billion yen year-on-year due to increased internal reserves and decreased inventories and contract assets. Free cash flow was up 56.9 billion yen year-on-year. Page 16 is a consolidated financial forecast for the fiscal year ending March 31, 2025. No revision is made to the consolidated forecast for the full year. Net sales and operating results from last October. With the start of the Trump administration in the U.S., there are heightened uncertainty in the geopolitical and economic outlook. This is the reason why the forecasts remain unchanged. However, revision is made to sales forecasts of segments. Energy segments are upward revision due to strong performance of facilities and power supply systems business. Industry segment was revised down because of delays in the recovery in demand for factory automation components, namely the low voltage inverters. Semiconductor segment was revised down due to weak overseas semiconductors automotives. Food and beverage distribution segment saw upward revision with expectations of strong demand in store distribution business. As you can see on page 17, the forecast is for net sales increase of 10.8 billion yen, operating profit to increase by 5.4 billion yen with operating profit ratio of 10%. Profit attributable to owners or parent projected to increase 10.6 billion yen with ratio of profit attributable to owners or parent to net sales of 7.7%. By segment, energy will see higher net sales and operating profit. Industry segment will see lower net sales due to factory automation business, but slightly higher operating profit. Semiconductor segment will see net sales increase but lower operating profit, and food and beverage distribution segment will see growth in both net sales and operating profit for vending machines business and store distribution business. Page 19 shows amounts of orders received for ED&C components, low-voltage inverters, semiconductors, and vending machines businesses. As mentioned earlier, yen is trending lower in the third quarter, resulting in flat trend from the second quarter to the third, except for ED&C components. The figures for the third quarter against the previous year and the previous quarter are impacted greatly by FX rate. giving numbers that do not reflect the real picture, so please view them only as reference. Personally speaking, I believe we are on the conservative side when it comes to the fourth quarter numbers. We will promote an operating profit-loss ratio of double digits or more as the minimum target, and we are confident of achieving this target. As I always say, there are uncertainties that make us look at the foreign exchange rates in a conservative manner. So if the current level is maintained, we can expect an upside of around 5 billion yen in net sales and 0.5 billion yen in operating profit. As for costs, we would like to see a reduction of about 1 billion yen, so that we will continue to advance our businesses forward, building further on the record high profits we are envisioning for ourselves. Thank you very much for your attention.