The financial results briefing for the second quarter of the fiscal year ending December 31, 2021 was held online on August 20, 2021.
Speaker: Kohei Tanabe, President, and Toshiharu Uwai, Director
Cautionary statement
This is a summary of the question-and-answer session at the financial results briefing.
This contains forward-looking statements concerning the financial forecasts, plans, strategies of the Company, which are not historical facts. They are based on management's assumptions made in accordance with information available at the time of the briefing (as of August 20, 2021) and are subject to risks and uncertainties. Actual results may differ materially from these forecasts.
Q: Sales in the sign market are strong, but what do you think about the future outlook?
A: In the sign market, in addition to the demand for infection prevention signs that arose during the COVID-19 pandemic, demand for conventional advertising signs has recovered after the lockdown was lifted, and demand for eco-solvent printers is higher than anticipated. We expect this trend to continue through the end of the current fiscal year regardless of the effects diffusion of vaccinations and the resurgence of COVID-19.
Q: The elimination of order backlogs is given as one reason for the increase in sales, but when do you plan to clear the order backlogs?
A: We had planned to eliminate half of the order backlogs in the first half of the current fiscal year and the remaining order backlogs in the second half, but we were able to eliminate approximately two thirds by the end of the first half by setting up a system to boost our production capacity. However, we expect it to take until the end of the second half to clear the remaining order backlogs, as we anticipate that parts procurement will continue to be limited.
Q: In the DGSHAPE business (dental), sales in existing business and growth markets are increasing, but are the markets themselves becoming bigger?
A: The market size for dental milling machines is expanding. Due to last year’s lockdowns, there was a rapid move to insource dental technical work in Europe and North America to provide safe and quick treatment. In addition, due to the soaring prices of metal dental materials, demand for milling machines that use ceramic dental materials is expected to increase. The Company has been able to use its strengths in “productivity,” “processing quality,” and “stability” to develop products even in growth markets.
Q: Has production in Thailand been affected by COVID-19? How are you setting up a system to increase production?
A: In Southeast Asia, the Delta variant infection has been spreading since June. Even in Thailand, limits have been placed on activities, but production activities are underway at the Thai factory with thorough measures to prevent infection in place. Regarding a system to increase production, there are delay in the floor expansion construction work due to the spread of COVID-19, but we hope to complete construction by the end of the year, and we will work to increase the number of production staff.
Q: What are the reasons for the increased market share in Europe and North America, and is this sustainable?
A: The Group made business proposals by using SNS messages even before COVID-19. We believe one reason for the growth in sales is that this resonated with users at home during the COVID-19 pandemic who want to start new businesses. In the DGSHAPE business, the main reason is increased demand for milling machines due to soaring dental material prices.
Q: If production needs to be adjusted, will financial results forecasts for the second half of the fiscal year be achieved?
A: Our financial results forecasts for the full year are based on the assumption that parts procurement will continue to be difficult into the third quarter and thereafter as well, which will affect production and development to a certain extent. If conditions change unexpectedly, we will inform you accordingly.
Q: I would like to know a breakdown of the approximately 1.0 billion yen of delays in growth markets and new markets of business, as well as the reasons for this.
A: Limitations on activities and parts procurement difficulties due to COVID-19 can be given as reasons for the delays. Of the 1.0 billion yen in delays, growth markets account for 0.7 billion yen, and new markets of business account for 0.3 billion yen.
Q: Regarding the upward revision of second quarter amounts, the percentage change in quarterly profit is higher than that in ordinary profit. A press release states, “recording deferred tax assets due to financial results recovery.” What caused this?
A: When we reviewed our outlook for the full year, we were able to record deferred tax assets because sufficient income was expected for the full year even on a non-consolidated basis, and deferred income taxes were 465 million yen, which boosted quarterly profit above the previous forecast.
