Amada : FY2023 Financial Results Announcement Analyst and Investor Briefing Q&A (Summary)

Wednesday, May 15, 2024

AMADA CO., LTD.

FY2023 Financial Results Briefing:Q&A(Summary)

【Speakers】

Tsutomu Isobe (Representative Director, Chairman) Takaaki Yamanashi (Representative Director, President)

Kazuhiko Miwa (Director, Executive Officer, Executive General Manager of Financial Div.)

【Q&A】

1. I see you are launching new products one after another, and during last year's factory tour I noticed that you made some good progress on improving the production process. I think improving the COGS percentage might be the key to boosting your profitability. What's your take on that?

1. What you've said underscores the goal of our Medium-term Business Plan 2025, which focuses on improving sales prices and the COGS percentage by launching new high value-added products with the aim of driving profits up. One example of our efforts to improve the COGS percentage is how we've redesigned the laser oscillator used in our laser machines to enhance quality and reduce the number of parts while improving functionality. In addition to making improvements to design and production technology, we are building a global procurement system that enables us to buy inexpensive parts from suppliers in India and supply them to our major manufacturing sites.

Q Could you give us a breakdown of the factors behind the changes in the COGS percentage in both the actual results and forecast?

1. In lieu of a breakdown of the 0.9-billion-yen change in the COGS in the actual results, I will give you a breakdown of the 15.8 billion yen increase in gross profit. The improvement in sales prices contributed by a little above 20%, the increase in material costs by minus a little less than 20%, while the decline in the factory operating rate brought it down a few percentage points as well.
   Similarly, the breakdown for the expected 6.8 billion yen increase in gross profit includes a 50-60% increase due to sales price improvements, a 20% increase due to an improvement in material costs, and an approximate 30% decrease due to a decline in the factory operating rate. Material costs are expected to improve because we expect that cost cuts in overall new product manufacturing, including the streamlined oscillator design, as well as future streamlining efforts, will offset a year-on-year increase in material prices, resulting in lower material costs.

Q What is your outlook on orders by region?

1. While we had forecasted that orders for the fourth quarter standalone of FY 2023 would increase by 2% year on year, they actually rose 4%. In light of this, we expect the FY 2024 full-year increase in orders to be 5%.
   By region, orders are expected to remain flat or increase slightly in Japan. In overseas markets, we expect orders to remain high. We anticipate single- or double-digit percentage point increases in North America where orders should bounce back from the previous year's 9% drop, as well as in Europe where an economic recovery is on the horizon, and in Asia where orders are expected to get back on track after a prolonged slump.

Q Would you elaborate on the outlook on orders in Japan?

1. Basically, we expect orders to remain flat, but by business sector, the sheet metal division is doing relatively well. The sectors in which customers are doing well include logistics and trucks, and there have also been signs of recovery in the semiconductor industry. Meanwhile, machine tool and construction equipment manufacturers continue to suffer from poor performance. There is also much anticipation for an announcement of a large supplementary budget in June, and some companies seem to be holding off on purchases until the subsidies start rolling in. As a result, orders for the first quarter of the current fiscal year will remain negative but will be positive from the second quarter onward. There is strong interest in our key products that contribute to environmental protection, automation and high productivity. When the time comes for our customers to make new capital investments, we believe this interest will lead to orders.

Q You mentioned a new strategy for the Asian market. Can we expect growth in sales revenue or profit in Asia in the future?

1. We will launch a new entry-level product in Asian markets with an eye to increasing sales revenue. This product will have limited functionality and a lower sale price compared with our current models. Our European competitors have already introduced machines in a similar category, but we aim to increase our market share by introducing new products that are competitive in terms of both functionality and price. When it comes to profits, we will reduce costs by starting manufacturing at a new Asian site and procuring cheaper parts from suppliers in India.

Q What is your target for future inventory levels and what would the impact of inventory reductions be on operating cash flows?

1. We are setting up an internal organization aiming to achieve an inventory turnover of 3.8 months by the end of this fiscal year. The FY2023 balance sheet shows that inventories increased by approximately 12 billion yen, but this was partially due to foreign exchange fluctuation, and the increase in terms of cash flow was approximately 2 billion yen. Going forward, we hope to generate about 20-30 billion yen in funds by reducing inventories, taking into account foreign exchange fluctuations.

End