Amada : Consolidated Results for the Six Months Ended September 30, 2023(with script)

AMADA CO.,LTD.

Financial Results Briefing for 2nd Quarter FY2023 (Presentation)

November 9, 2023

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In the current fiscal year, while economic activities are normalizing, the outlook remains uncertain, with monetary policy tightening and reduction of fiscal support in many regions, the impact of extreme weather conditions becoming a concern for economic recession, and the emergence of geopolitical risks and the widening impact of geomorphological fragmentation.

Against this backdrop, we steadily converted the JPY172.1 billion order backlog accumulated at the end of the previous fiscal year into sales revenue and maintained a high level of orders received, as the impact on production activities eased due to an improved materials procurement environment. From this, net sales increased 10.4% from the same period of the previous fiscal year to JPY187 billion.

Operating profit benefited from improved selling prices, which offset the impact of continuous price hikes for materials amid rising labor and other fixed costs, a decrease in overseas transportation costs, and the effect of higher sales, as well as the impact of foreign exchange rates. As a result, operating profit totaled JPY27.2 billion, up 14.5% from the same period last year.

Net income was JPY19.7 billion, up 16.2% from the same period last year.

As a result, sales revenue, operating profit, and net income all exceeded internal expectations and reached record highs for H1.

Orders received totaled JPY184.6 billion, down 10% from the same period last year, but second only to the JPY205.2 billion received in the previous fiscal year as a cumulative Q2.

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Continued on page two is a summary of the financial results.

As mentioned at the beginning of this report, sales revenue was JPY187 billion, up 10.4% from the same period last year.

Gross profit amounted to JPY83.4 billion, up 12.7% from the same period last year, and the gross profit margin rose 0.9 percentage points to 44.6%, from 43.7% in the same period last year. This 0.9-point increase in gross margin was due to the 0.4-point improvement in selling prices for existing products, which exceeded the 0.3-point impact of higher material costs, and a 0.1-point capacity utilization effect resulting from higher output, despite the impact of foreign exchange rates.

SG&A expenses totaled JPY56.4 billion, up JPY5.5 billion from the same period last year, and the SG&A-to-sales ratio rose slightly to 30.2% from 30.1% in the same period last year.

Variable expenses increased only JPY0.4 billion YoY, and the variable cost ratio was 4.7%, down 0.2 percentage points from 4.9% in the same period of the previous year, while fixed costs increased JPY5 billion YoY. We will explain later the factors that led to the increase in fixed costs.

As a result, operating profit was JPY27.2 billion, up 14.5% from the same period last year.

The percentage of progress toward the announced forecast shown on the right side of the table is approximately 50% for net sales, 55% for operating profit, and 57% for net income, which are significantly higher than the same period of the previous year and the historical average, partly due to the impact of foreign exchange rates.

The yen weakened significantly against the US dollar and euro, with the US dollar at JPY141, the euro at JPY153.38, and the Chinese yuan at JPY19.75.

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Next is the order trends on page three.

The amount was JPY184.6 billion, down 10% from JPY205.2 billion in the same period of the previous year.

Of this amount, the sheet metal sector, shown in the bar graph in the center of the chart, totaled JPY137.9 billion, down 8% from JPY150.5 billion in the same period of the previous year. Machines, shown in black, amounted to JPY93.7 billion, down 14% from JPY109.3 billion in the same period last year.

Orders by region are shown on the right side of the chart, and while orders received in Japan were JPY74.8 billion, down 13% from JPY86.2 billion in the same period last year, due in part to the hurdles faced in the previous fiscal year, they turned positive in Q2 alone. Overseas sales amounted to JPY109.8 billion, down only 8% from JPY118.9 billion in the same period of the previous year, although this was also affected by foreign exchange rates.

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Next, on page four are the results by business segment.

The metal working machinery business, shown in the bar graph on the left, reported net sales of JPY154.7 billion, up 12% from JPY138.8 billion in the same period last year, and operating profit of JPY23 billion, up 18% from JPY19.6 billion in the same period last year.

On the right side, the metal working machinery business posted sales revenue of JPY31.6 billion, up 6% from JPY29.9 billion in the same period of the previous year, and operating profit of JPY3.7 billion, almost unchanged from the same period of the previous year.

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On page five we will explain the matrix of sales revenue by sector and region.

By business segment, the sheet metal segment of metal working machinery totaled JPY139.4 billion, a 12% increase over the same period last year, of which machines and after-sales service accounted for 14% and 8%, respectively. In the precision welding segment, sales increased only 5% YoY to JPY15.3 billion, due in part to the postponement of the posting of sales for a large project that had been scheduled in Asia until Q3. The large orders related to storage batteries in Europe, which we reported last fiscal year, will be gradually booked as sales revenue starting this fiscal year.

Next, the metal cutting & grinding machine segment of metal machine tools posted JPY22 billion, a 10% increase over the same period last year. On the other hand, in the press division, orders received in H2 of the previous fiscal year declined along with production cutbacks in the automobile industry, resulting in a residual effect of JPY9.6 billion, a decrease of 3% from the same period of the previous year.

By region, sales in Japan were JPY68.8 billion, up 5% from the same period last year. Overseas, sales in North America were JPY50.5 billion, up 13% from the same period last year. In Europe, sales were JPY38.9 billion, up 25% YoY, due to strong sales in the UK, France, Italy, and Spain, as well as in Eastern and Northern Europe. In Asia and others, while sales in China declined due to the impact of the economic slowdown, sales in some ASEAN regions, Australia, and Brazil contributed to a 5% YoY increase in sales to JPY28.6 billion.

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Next is the analysis of changes in operating profit on page six.

Operating profit increased by JPY3.4 billion from the same period last year.

The bar graph in blue shows positive factors, with the largest factor of JPY3.5 billion contributing to the real sales increase/decrease excluding foreign exchange, JPY2.4 billion from foreign exchange effects due to yen depreciation, and JPY1.3 billion from factors affecting the cost of sales ratio.

Next, the negative factors shown in red are JPY3.4 billion for SG&A expenses and JPY0.4 billion for other income and expenses.

As for the cost ratio fluctuation, although costs have continued to rise due to material cost increases, the operating rate effect resulting from the improved procurement environment and the sales price improvement of orders for existing products acquired in the previous fiscal year had a significant impact, turning from a negative factor until the previous fiscal year to a positive factor.

Improvements in selling prices for sheet metal and machines continued to make progress from the previous fiscal year, and the effects of price increases are steadily emerging in businesses other than sheet metal.

Next, I will explain SG&A expenses.

First, variable costs decreased by 0.2 percentage points to 4.7% from 4.9% in the same period of the previous year, due to a decrease in airfreight and lower shipping costs to Asia, despite an increase in warehouse storage costs due to higher inventories, which was a positive factor of JPY100 million.

On the other hand, fixed costs increased by JPY1.7 billion in overall personnel expenses, including higher personnel expenses overseas and bonuses paid to employees in Japan. In addition, expenses for exhibiting at public exhibitions such as MF-TOKYO in July and FABTECH in Chicago, USA, in September, as well as sales-related expenses increased by JPY1.1 billion due to the ongoing intensive activities to attract customers from Japan and overseas following the reopening of the AMADA Global Innovation Center.

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Regarding inventory on page seven, the bar graph on the left side shows changes on a consolidated basis.

Inventory volume at the end of September was JPY157.2 billion, up another JPY22.7 billion from JPY134.5 billion at the end of March. Work in process, shown in dark gray, began to decline as the procurement environment improved, but inventories of raw materials, shown in light gray, and merchandise products, shown in black, increased significantly from the same period last year and from the end of March.

As delivery schedules are returning to normal, we will proceed with the digestion of order backlogs toward the end of the fiscal year and curtail inventories to an appropriate level while making production adjustments.

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We will continue with an explanation of order performance trends on page eight.

From July to September, domestic sales turned to 13% growth, and overseas sales remained at minus 11% due to relatively strong sales in Europe, resulting in a consolidated basis of minus 2% YoY, landing in line with our initial projection. Looking at H1 year-to-date, the Company's sales remained at the initially planned level of minus 11%.

In the financial results meeting for Q1, we explained that we expected orders in Japan to turn positive from August onward, but the adoption of subsidies in August fell at the end of the month, and as a result orders were concentrated in September.

In North America, orders received from July to September were minus 13%, but demand was strong in the US, especially for high-power machines, and in Canada and Mexico, due in part to the restructuring of the supply chain.

In Europe, inflation and sales have caused the economy to stagnate, with GDP growth in the eurozone for the July to September period at an annualized rate of minus 0.4% from the previous quarter. But it was only minus 5%, due in part to relatively strong orders in the US, Spain, Italy, and Scandinavia.

As for Asia and other regions, sales were strong in India, as well as in South Korea and China, where orders for EV-related and other products in the precision welding sector were underpinned by strong sales. However, the Chinese economy is still slowing down due to sluggish real estate development and other factors, and capital investment in Asia and ASEAN countries was down 15% due to a drop in exports and a wait-and-see attitude toward capital investment. Preliminary figures for October are for Japan only, but they were unchanged from the same period of the previous year. We expect domestic orders in H2 to remain on a negative trend, as there was an upward swing of about JPY4 billion in Q4 of the previous fiscal year due to rush demand for existing products in preparation for the transition to new products.

As explained so far, the results for H1 under review show that both sales revenue and profit have progressed at a high rate compared to the announced forecasts, as the ample order backlog has steadily led to sales revenue, and the high level of orders received has continued.

In light of these business performance trends and the foreign exchange environment, we have revised our consolidated earnings forecast for the full year, which is explained on the next page, page nine.

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First, we revise our revenue forecast to JPY395 billion, an increase of JPY20 billion from the initial forecast, or 8% over the previous year.

Next, gross profit is estimated to be JPY175 billion, an increase of JPY13.5 billion from the original forecast, or 9.8% over the previous year.

Operating profit is expected to be JPY57 billion, an increase of JPY7 billion from the initial forecast, and a 14.3% increase from the previous fiscal year.

Since the yen has weakened more than initially assumed, we have revised our foreign exchange rate assumptions for H2 from JPY125 to JPY135 for the US dollar and JPY135 to JPY145 for the euro, and for the full year from JPY138 for the US dollar and JPY149.19 for the euro, reflecting the results of H1.

As for orders received, we will leave the initial plan of JPY360 billion unchanged, but revise it upward to JPY380 billion by revising the foreign exchange assumptions, since H1 is progressing as initially expected and the economic environment still remains uncertain.

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