The financial results briefing for the second quarter of the fiscal year ending December 31, 2022 was held online on August 5, 2022.
Speaker: Kohei Tanabe, President, Representative Director, and Kazuhiro Ogawa, Managing Executive Officer
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 5, 2022) and are subject to risks and uncertainties. Actual results may differ materially from these forecasts.
Q：The financial results forecast for the second half of FY2022 indicates an increase in both sales and profit. What are the main factors that will enable you to achieve these targets?
A：There are three main factors. First, we are carrying a backlog of orders for the TrueVIS VG3/SG3 Series launched in March, due to parts procurement difficulties in the first half of the fiscal year. We are confident of securing parts for the second half, and we will work through the rest of this backlog of orders. We will also endeavor to further boost demand in the second half. Second, we estimate that the price revisions that we will implement in the second half for our products and inks will boost operating profit by 800 million yen. The third factor is the effect of a weaker yen. We forecast an increase in sales and profit due to these factors.
Q：Tell us about the status of parts procurement. Have you taken any measures to secure parts?
A：We continue to face a difficult situation for parts procurement. We have already put in advance orders for semiconductors and other parts that are subject to lengthy delivery times, but at present, we are still experiencing delays in the delivery of parts. We are working to ensure stable supply under these conditions, by making full use of our Digital Yatai (digitally-controlled cell production system), which is one of our strengths, and revising our production plans as necessary. Overall, we can see our way through to completing production for sales for this year, through measures such as adopting alternative parts.
Q：Sales of dental milling machines are rising in growth markets. Why has India managed to capture demand for work previously outsourced to China, and what other countries are experiencing demand growth?
A：The manufacture of dental prostheses outsourced from North America has shifted from China to India against the backdrop of US-China trade frictions. India is an IT powerhouse, and it has established systems for dental procedures covering everything from the receipt of orders to processing and shipping. For example, if a dental laboratory in North America puts in an order and transfers the necessary data, dental technician’s offices in India can process and deliver the order within three days. The 12-hour time difference is another factor contributing to short delivery times. Sales are also progressing in other growth markets, including Vietnam, the Middle East, North Africa, South America, and Eastern Europe. We expect that our successful development and maintenance of distributor channels in emerging countries will continue to bring growth in these markets.
Q：How will you transfer the increase in parts and shipping costs to product prices?
A：With parts cost and shipping cost soaring, we will revise the prices of our products from the second half of this fiscal year. In the second half, we anticipate an increase of 0.9 billion yen from higher parts prices and 0.2 billion yen from the higher shipping cost, for a total increase of 1.1 billion yen. We plan to absorb some of this cost hike by revising our selling prices. There will be a time lag before the effect of this price revision is felt, so we aim to implement it as early as possible.
Q：How significant is the risk that this price revision will lead to performance falling short of your targets, due to factors like a decline in sales or failed negotiations (business talks)?
A：Our competitors have already implemented price revisions without encountering much resistance. We will be fair about how we raise prices, based on increases in the cost of parts and the market situation. We have the understanding of our sales agents, and we do not anticipate much risk of a decline in sales or performance falling short of targets due to this price revision.
Q：What is the reason for the increase in sales and the decrease in profit in the first half of FY2022?
A：Net sales rose by 2.2 billion yen year-on-year due to an increase of 0.6 billion yen in sales and 1.6 billion yen resulting from the effect of a weaker yen. VC-Solvent and the BN-20A desktop Eco-Solvent printer contributed to sales in North America in particular. Operating profit was boosted by a higher sales volume, the effect of structural reforms implemented last fiscal year, and the effect of a weaker yen. However, it was pushed down by factors such as increases in parts cost, shipping cost, and selling, general and administrative expenses. As a result, operating profit declined by 0.3 billion yen year-on-year.
Q：How much will be the scale of consolidated net sales increase with the construction of the new production building at the Thailand Factory?
A：The new building will boost our production capability by 60%. In terms of production capacity, we anticipate being able to cover our net sales target of 54.0 billion yen for FY2023, the final year of the Mid-term Plan, using just half of the newly-added floorspace. We have added this extra capacity in anticipation of further growth under the next Mid-term Plan.
Q：What is the status of your backlog of orders?
A：We had a backlog of orders of approximately 1.2 billion yen as of June 30 (the end of the second quarter). Approximately 1.0 billion yen of these orders were for the new VG3/SG3 Series of Eco-Solvent printers. We are confident of procuring parts for sales of these new products in the second half, and we think we will be able to decrease our order backlog.
