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Financial Results Conference Call - Q&A Transcript

1st Quarter Ended June 30, 2019

Date and Time: 6-7 p.m. Friday, July 26, 2019

Please note that this document is not a direct transcript of the Q&A session from the conference call, but is a simple summary including additions and corrections at the discretion of the company. The results and forecasts are forward-looking statements determined by the Company based on currently available information that may include risks and uncertainties. Please be aware that actual results may vary significantly due to various factors.

1. Please explain the variance in operating profit for Q1 FY2019, in comparison with Q1 FY2018.

The factors impacting operating profits were approximately:

-Sales volume -5.5   billion yen
-Price reduction offset by streamlining +1     billion yen
-Impact of foreign exchange +1.5  billion yen
-Earnings from oligonucleotide contract manufacturing by changes in our customer's situation on new drug development -5~-6 billion yen
-Others, including products mix -3.5    billion yen

This all combined to give a loss of 11.7 billion yen. Furthermore, there were gains of 10 billion yen from the oligonucleotide contract manufacturing as above and that from the transfer of our FPC business which had been recorded as temporary earnings in the Q1 of the previous year.

2. Please explain the variance in operating profit for Q1 FY2019, in comparison with Q4 FY2018.

The factors impacting operating profits were approximately:

-Sales volume +0.5   billion yen
-Price reduction offset by streamlining +1      billion yen
-Variation of fixed costs -2       billion yen
-Others, including products mix +6.5   billion yen

This all combined is to give an increase of 6.2 billion yen.

3. Are there any changes to the full-year forecasts for the fiscal year?

It is difficult to assess market conditions in the second half of the fiscal year given the impact of the US-China trade conflict and other factors. The consolidated full-year forecasts for the fiscal year has not been changed. We will disclose the revisions immediately , if any are required due to changes in the market environment and the business results.

4. Please explain the factors behind Optronics Q1 performance, why the operating income remains almost the same, while the net sales decreased, in comparison with Q1 FY2018.

The main reasons are the improvement in product mix and increased market share. Price reduction was also within the scope of the assumption. In the smartphone market, the middle-end products have grown rather than the high-end ones. Optronics was able to take up this demand. However, as a result of the US-China trade conflict, there is a possibility of rush demand.

5. Please tell us about the outlook for Optronics from Q2 onward.

In Q2, the product mix will be improving by decrease in products for TVs, increase in products for mobile and touch panels. Increased revenue and profit are expected as there is a production peak for smartphone after Q2. However, the US-China trade conflict and others remain a possibility that the market conditions will change from the current outlook.

6. Please tell us about the outlook for Industrial Tape from Q2 onward.

It can be severe for Industrial Tape to meet the earnings target for the first half of the fiscal year. One reason is the sluggish performance of the products for high-end smartphones in Q1. However, as the inventory had been absorbed, we anticipate it contributes to the performance from Q2 onward.

7. Please share details on Q1 performance for oligonucleotide contract manufacturing in Life Sciences.

The results for Q1 decreased significantly, as a result of change in our customer’s new drug discovery, the profit had been recorded in the previous fiscal year (Q1 of fiscal year ended March 2019), but it has already started on a recovering trend. There was an equipment shut down for maintenance in Q1, which impacted the sales and profits.

8. Please tell us about the impacts of the US-China trade conflict.

There is a possibility that we are seeing some impacts such as reduced demand, future demand taken in advance, and high inventory level in our customers. While it is difficult to assess the impacts on future business, we will optimize our business strategy including supply chain and resource distribution if the impacts seem likely to become long-term.

9. Are there any impacts from the Japan-Korea trade dispute?

There are no direct impacts at the present time. We have not seen impacts such as rush demand, either.

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