Renesas Electronics Corp

Thank you very much for attending the Rinses' second quarter earnings report for fiscal year 2024 despite your busy schedule. Today, we offer simultaneous interpretation service. On the bottom of the screen, please click on the interpretation channel and select the language of your choice. Please, speakers, please turn on your video. In today's presentation, we have the CEO and representative president, Mr. Hidetoshi Shibata, and the CFO, the executive officer, Mr. Shuhei Shinkai, and other members of the staff are present. Mr. Shibata will give us a world of opening, and then CFO Shinkai will talk about the earnings. And after that, we'll have a Q&A session. We are planning 60 minutes for this meeting. The presentation material that is going to be used today is uploaded on the IR site of our company. Mr. Shibata, please. Thank you very much. Good morning, everybody. I am Shibata. In today's earnings, I think basically we have to reflect on our performance. In the second quarter numbers, putting that aside, the first quarter financial results, I think maybe our outlook is a bit optimistic. The reason I say this is mainly, one, the automotive business, there has been, we have been anticipating sustainable growth, but we have been robust, but I think we have been adjusting to a more cautious outlook. That's the current state. That's number one. Number two is that, so the industrial window, a more wider sense of industrial demand, there has been adjustment. Compared to our initial expectations, it seems that this adjustment is continuing for longer and in depth than anticipation. Initially, we thought that the second quarter, third quarter, we'll start to see a recovery. But currently, the third quarter seems to be continues to be tough. From the fourth quarter onwards, at some timing, the recovery will be seen, but we'll have to be very cautious about the outlook. And we are thinking about controlling the inventory more significantly in the third quarter, the channel inventory control that and to be able to manage that the top line is going to go down. I think that is how we're going to manage our business. But that said, sooner rather than later, the market will recover. That's our view. And going forward, our theme is more than ever growth. we are going to control the top line, the third quarter, in terms of OPEX and R&D. In terms of the investment, we will not put on the brakes and go forward. So that means the operating margin will decline a bit in the third quarter, but even so, we will continue investing in R&D so that we will continue to conduct initiatives towards our growth. So in the second quarter, so unintentionally, we have increased the channel inventory in the third quarter. Quickly, we will get just that. On the other hand, towards growth, we will continue to invest for R&D. So that will be our outlook for the third quarter. So, Chris, Let's go into the details of this second quarter. I'll give you a word to Mr. Shinkai about the financial results. Shinkai-san, please. I'm Shinkai, the CFO. I would like to give a presentation about the second quarter of this fiscal year utilizing the presentation material. Please turn to the next slide. And then to the next slide. On the very bottom bullet, on the 20th of June, we have completed the acquisition of Transform. So the ablation at the end of June reflects the consolidation of Transform. After we complete the calculation of PPA, we will retrospectively conduct a revision, but this PPA is expected to finish by the fourth quarter of this fiscal year. The third quarter forecast reflects the contribution of Transform. Next slide, please. This is the financial snapshot for the second quarter. In the middle, darker blue column, please refer to that. In terms of revenue, it was 358.8 billion yen, gross margin of 56.7%, operating profit 110.6 billion yen at margin will be 30.8%. Net profit, 96.7 billion. EBITDA, 132.8 billion. In terms of the forex, 153 yen to the dollar and 165 yen to the euro. Against the forecast, if you want to make a comparison, it's on the very right-hand side, but I would like to refer to that later. Going to the next slide. This page is about the second quarter details. First of all, I compared to the forecast company total and the very right hand side. Please look at the top box in terms of the revenue. Compared to the median range that we have slightly over outperformed, it's a 1.1% outperforming. So basically this is due to the currency impact excluding the currency impact is flat against our forecast. The automotive has been increased slightly and the industrial infrastructure and IoT has decreased. But in total, it was in line with expectations. In terms of the gross margin, it's 1.2% above our forecast. The impact of the foreign currency is basically flat. In terms of the product mix, the industrial infrastructure and IoT within the segment, the mix has worsened. But in terms of manufacturing costs, it's gone down. So overall, we have been able to see a positive improvement. In terms of manufacturing costs, there's a decrease. The cost of the ramp up of the Kofu plant has gone down and disposal and the inventory relation losses has not shown up. These are the factors for this situation. Going to the operating margin is 0.3 percentage points increase for this quarter. In terms of the operating expenses, compared to the forecast, it has increased. the impact is coming mainly from the currency. In terms of their calculation of the currency sensitivity, there has been an underestimation, so there has been a big impact coming due to this forex. To talk more in detail in the cost side, to the non-measured currencies, this has been impacted by the weaker yen, but we have underestimated this impact. So that is the reason why we're seeing this level of impact. basically in line with our forecast. And as a NRE milestone adjustment has been transferred to that. So there has been some increase there. So going to the quarter on quarter comparison in terms of revenue, it is increased by 7 billion yen. So this is a 2% improvement in terms of the gross margin. It has been basically flat. In terms of the operating margin, it is 1.5% of these points worsening. So this is because of the increase of the R&D. The first quarter, basically, it has been at a low level. In the second quarter, the R&D level has gone up compared to the first quarter. On the left-hand side, the segment situation, I would like to give some more color there. In terms of the gross margin, The automotive, due to the increase of utilization, it has improved. In terms of the industrial infrastructure IoT, the product mix has worsened within the segment, and the gross margin quarter-on-quarter has gone down. In terms of the operating margin automotive, because of the volume increase, the gross margin has improved. Industry infrastructure IoT, due to less volume, and the margin has worsened quarter-on-quarter. Please go to the next slide. So this is about the revenue of the quarterly revenue trends. The second quarter is on the very right-hand side. Overall, year-on-year is at 2.6%, and Q&Q, it is 2.6% increase.

Excluding forex for automotive, year-on-year, 11.5% growth, and Q-on-Q up 6.9%. And as for IIoT,

Year-on-year, 24.5% decline, and Q1Q, decline of 5.5%. And going on to the next page. Here, we're looking at the financial indicators. And down below, free cash flow in the second quarter has grown. This occurs in the first quarter. There has been inter-corporate tax paid and also first quarter bonus payment, which have had an impact. And here we're looking at the inventory levels. Q1Q, we are looking at the factors of inventory level change and outlook to the right. Now, DOI on a Q1Q basis has increased to 103 days. This is attributed to die bank expansion, which has pushed up work in progress. And the same applies for the third quarter attributed to die bank expansion.