Alps Alpine : Results Briefing 2023FY 2Q (SCRIPTS)

ALPS ALPINE CO., LTD.

Q2 FY2023 Earnings Call

October 30, 2023

Event Summary

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Presentation

Suzuki: Hello, everyone. Thank you very much for taking time out of your busy schedule to join us today. ALPS ALPINE Co., LTD., will now hold a financial results meeting for Q2 of the fiscal year ending March 31, 2024.

Here are today's speakers. Izumi, Representative Director, President & CEO; Kodaira, EVP CFO; Kobayashi, General Manager of the Accounting Department; and I, Suzuki of the Corporate Communications Department, will serve as the moderator. Thank you for your cooperation.

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The contents we will explain today are as you see them. Now, CFO Kodaira will explain the Q2 results. Mr. Kodaira, please go ahead.

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Kodaira: Hello, everyone. I am Kodaira, CFO in charge of administration. Thank you for your cooperation.

Both sales and profits increased in H1 of the current fiscal year. Net sales increased 4.6% YoY to JPY18.3 billion due to the impact of yen depreciation.

Operating income declined 46% to JPY10.6 billion due to the impact of lower sales of camera actuators for smartphones in the component business, changes in product mix, and failure to achieve production start-up yields for new module products, despite higher sales and a JPY3.7 billion positive impact from foreign exchange.

Since Alps Logistics was transferred from a consolidated subsidiary to an equity-method affiliate in June last year, operating income for H1 of the previous year included a profit contribution of JPY1.8 billion from Alps Logistics, and if this effect is excluded, operating income would have decreased 41%.

Ordinary income was JPY16.9 billion, including foreign exchange gains of JPY4.3 billion. As a result, net income attributable to owners of the parent was JPY6.7 billion.

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Next, I will explain the factors behind the increase or decrease in operating income. See next page.

The leftmost figure is for H1 of FY2022, and the rightmost figure is for H1 of FY2023. The intervening space indicates the factors that caused the change from the same period of the previous year.

Explanations are given from left to right. The increase in profit from sales was JPY5.7 billion, mainly due to the recovery of automobile production and new products for automotive applications. Foreign exchange rates decreased by JPY3.7 billion as a result of the weaker yen, and variable costs decreased by JPY8.1 billion. By breakdown, progress in price optimization proceeded as planned, but changes in the product mix of camera actuators for smartphones and deteriorating start-up yields of new module products for European automakers contributed to lower profits.

Fixed costs decreased due to the control and recovery of development costs and the postponement of some development costs to H2 but increased due to wage hikes and soaring energy costs. Depreciation and amortization expenses decreased by JPY2.1 billion as investment in actuators has settled down.

The other negative JPY4.2 billion was due to fixed cost fluctuations related to inventory changes resulting from the Shanghai lockdown that occurred in H1 of last fiscal year. The JPY1.8 billion decrease in the logistics business is due to the fact that the logistics business has been accounted for by the equity method from June 2022.

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Next, I will explain each segments. Here is a comparison of sales and operating income by segment for the previous year.

As you can see, sales and profits increased YoY for the module and system business. On the other hand, the component business and the sensor and communication business reported lower sales and profits. The analysis for each business segment is explained on the next and subsequent pages.

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First is the component business. Net sales decreased JPY9.5 billion to JPY150.4 billion compared to JPY160 billion in H1 of the previous fiscal year.

Despite the yen's depreciation as a positive factor, the consumer market declined due to a decrease in sales of products for the mobile market, as well as a decrease in orders in the tact switch business due to the impact of deteriorating market conditions that could not be recovered from the decrease in scale caused by the Shanghai lockdown that occurred in Q1 of last year.

Operating income decreased JPY11 billion to JPY10.7 billion compared to JPY21.7 billion in H1 of the previous fiscal year. Another positive factor here was the depreciation of the yen, but in addition to the decline in sales, the change in product mix also contributed to the decrease in earnings.

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Next, please see the next page on the sensors and communications business.

Sales in the sensors and communications business decreased JPY3.7 billion to JPY40.7 billion, compared to JPY44.4 billion in H1 of the previous fiscal year.

As a positive factor, sales of products for the automotive market grew, but sales of products for the mobile market declined due to the model changeover.

Operating income decreased JPY2.2 billion to a negative JPY1.4 billion compared to JPY0.7 billion in H1 of the previous fiscal year.

The decrease in sales, mainly in the mobile market, and the increase in development costs this fiscal year for new products to be launched in the next fiscal year and beyond, have resulted in a decrease in profits.

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Next, please see the next page regarding the modules and systems business.

In the module and system business, net sales increased JPY52.8 billion to JPY274.3 billion, compared to JPY221.5 billion in H1 of the previous fiscal year.

Positive factors included a higher sales volume due to the weaker yen and recovery in automobile production, as well as contributions from new products in the systems business.

Operating income increased JPY5.8 billion to JPY0.5 billion, compared to a negative JPY5.2 billion in H1 of the previous fiscal year. Both the module business and the system business improved from the previous year due to increased sales, postponement of some development costs, and progress in price optimization as planned.

In addition, on the systems business side, earnings improved mainly due to a better product mix of display products. On the other hand, the module business has been suffering from a decline in profitability due to the failure to achieve the planned yield rate for the start-up of new product production. This issue continues to be a priority for improvement in Q2 and H2 of the fiscal year and beyond.

In the systems business, there was a royalty payment of about JPY2 billion for the past fiscal year, but this has all been completed by the end of Q2.

As a result of this, the operating profit margin deteriorated in the module business and improved in the systems business, despite a one-time royalty payment.

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