Amada : Consolidated Results for the Fiscal Year Ended March 31,2024（with script）

AMADA CO.,LTD.

Financial Results Briefing for the Fiscal Year Ended March 2024 (Presentation)

May 14, 2024

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Once again, I am Miwa. I am going to begin my explanation with the financial summary on page one. While inflation rates passed their peak last fiscal year but remained high, global economic growth slowed down due to higher policy interest rates, escalating geopolitical risks, and deceleration of the Chinese economy.

Under these circumstances, we were able to increase sales revenue to JPY403.5 billion, up 10.3% from the previous fiscal year, due in part to the progress of order backlogs as production activities returned to normal thanks to an improved procurement environment.

Operating profit was JPY56.5 billion, up 13.3% from the previous year, thanks to the effect of increased sales, improved selling prices, and a decrease in overseas transportation costs, despite the impact of continuously rising material costs and increased personnel costs.

Net income was JPY40.6 billion, up 19% from the previous fiscal year, due in part to a significant increase in net financial revenue, reflecting the impact of the yen's depreciation toward the end of the fiscal year.

This enabled us to achieve record-high in sales revenue, operating profit, and net income for the second consecutive year. Even excluding the impact of foreign exchange rates, both sales and income increased compared to the previous fiscal year.

Order backlog received totaled JPY381.2 billion, down 3.4% from the previous fiscal year, but still the second highest level after the record high of JPY394.8 billion in the previous fiscal year.

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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 JPY403.5 billion, up 10.3% from the previous year, exceeding the target of JPY400 billion set in the medium- term business plan, despite the impact of foreign exchange rates.

Gross profit was JPY175.1 billion, up 9.9% from the previous year, but the gross profit margin declined 0.2 percentage points from 43.6% in the previous year to 43.4%.

The decline in gross profit margin was affected by the continued impact of rising material costs, the negative impact on factory operating rates from production adjustments, and discounts aimed at clearing inventory due to product discontinuation, which have delayed the effects of new products

SG&A expenses totaled JPY119.1 billion, up JPY9.4 billion from the previous year, but the SG&A-to-sales ratio improved slightly to 29.5% from 30% in the same period last year. Despite the revenue increase, variable costs decreased by JPY0.3 billion from the same period last year, contributing to a variable ratio of 4.4%, down 0.6 percentage points from 5% in the previous year.

Fixed costs increased by JPY9.7 billion from the previous year, largely due to an increase in personnel costs. As a result, operating profit was JPY56.5 billion, up 13.3% from the previous year.

Compared to the revised forecast stated at the time of the announcement of Q2 results on the right, sales revenue, gross profit, and net income were higher, but operating profit was affected by production adjustments made in H2 of the year to curb high inventory levels and a delay in switching to new products, then fell slightly short of the stated forecast of JPY57 billion.

The yen's depreciation against the US dollar and euro was JPY144.62 and JPY156.79, respectively, which had a positive impact on the business results.

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Next, on page three, we show trends in orders received, which totaled JPY381.2 billion, down 3.4% from JPY394.8 billion in the previous fiscal year.

Orders received by region are shown in the center of the graph. While orders in Japan totaled JPY146.8 billion, down 11.5% from the previous fiscal year, overseas orders totaled JPY234.3 billion, up 2.4% from the previous fiscal year.

The sheet-metal division, shown in the bar graph on the right, decreased only 1.4% to JPY284.5 billion. Orders for machines, shown in black, totaled JPY193.1 billion, down 5.1% from the previous fiscal year.

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Next, on page four, the bar graph on the left shows sales revenue of JPY334.6 billion in the metalworking machinery segment, an 11% increase from the previous year's JPY301.3 billion, and operating profit of JPY48.4 billion, a 16.7% increase from the previous year's JPY41.5 billion.

In the metal machine tools segment on the right side, the sales revenue was JPY67.5 billion, up 7.2% from JPY63 billion in the previous year, but operating profit was JPY7.3 billion, down 3.6% from JPY7.6 billion in the previous year.

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Next, on page five, I will explain the matrix of sales revenue by geographical & industry segments.

By industry, sheet metal fabrication segment under metal working machinery totaled JPY300.4 billion, an increase of 11% from the previous year, of which 11% came from machines and 9% from after-sales service. The precision welding segment recorded JPY34.1 billion, a 10% increase over the previous year.

Next, metal cutting and grinding machine segment under metal machine tools posted sales of JPY47.1 billion, up 8% from the previous fiscal year. In addition, stamping press sales increased 5% from the previous year to JPY20.4 billion.

By geographical, sales in Japan were JPY149 billion, up 5% from the previous year. Overseas, sales in North America were JPY113.1 billion, up 18% from the previous year, and sales in Europe were JPY84.6 billion, up 18% from the previous year, thanks to strong sales in Eastern Europe in addition to France, Italy, and Spain. As a result, sales revenue in Japan, North America, and Europe reached record highs, the third consecutive year of record highs in North America and the second consecutive year of record highs in Europe.

Finally, in Asia and others, while China's economy slowed due to the real estate recession and sluggish personal consumption, and then ASEAN was affected by this, both orders and sales revenue were sluggish, growth in Taiwan, India, and Brazil contributed to a 2% YoY increase in sales, to JPY56.6 billion.

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Next, page six, which is also related to the non-financial targets set forth in the medium- term business plan, is the status of penetration of products that will lead to growth as well as fulfill our social responsibility by actively working to solve social issues such as CO2 reduction and labor shortage.

The upper row is responding to environmental issues. The sales ratio of fiber lasers, shown on the left side, was 95.4%, almost unchanged from the previous year. Although the ratio of fiber lasers overseas is almost 100%, demand for CO2 lasers in Japan is strong, so we will further strengthen our environmental awareness activities, including the CO2 monitoring service we are currently expanding.

The right side of the upper row shows the sales ratio of the electric servo bending machines introduced in the last fiscal year to the products to be replaced. Last fiscal year, the replacement rate was only 20.2% due to the slow replacement with new products, but this fiscal year, the replacement with electrified products is expected to progress.

The lower row shows labor-saving measures to respond with labor shortages. The automation ratio of bending machines on the left side was 27%, down 3.8 percentage points from the previous fiscal year.

Bending machines were the product that had the greatest impact on production activities due to delays in material procurement in FY2022, the previous fiscal year. However, as the procurement environment recovered from Q4 of the previous fiscal year, sales revenue increased more than 20% YoY in the last fiscal year, mainly for non-automated machines. As a result, the automation ratio has decreased slightly.

The ratio of automated by peripheral equipment attached to lasers and punching machines, shown on the right side of the bottom row, was 53.3%, up 2.4 percentage points from the previous fiscal year. We expect the ratio of automation to increase in the current fiscal year as well, reflecting the progress of automation initiatives investment.

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Next is the analysis of changes in operating profit on page seven, which shows that operating profit increased by JPY6.6 billion from the previous year. The bar graph in blue shows the positive factors. Excluding foreign exchange factors, the sales volume factor was JPY6.3 billion, and the foreign exchange impact from the weaker yen was a major contributor at JPY5.2 billion.

Next, regarding the negative factors shown in red, changes in COGS percentage factor amounted to JPY0.9 billion and SG&A expenses amounted to JPY4.2 billion.

As for the change in COGS percentage factor, although the effect of new products appeared in Q4, the effect of sales price improvement declined as a result of inventory reductions through discounting of products to be replaced overseas, where sales of new products were not expanded. In addition, the negative impact on factory operating rates from production adjustments and higher labor costs, as well as continued increases in material procurement costs, particularly for electronic components, had a negative impact on the results.

Next, I am going to explain SG&A expenses. First, variable expense had a positive effect of JPY1.6 billion as the variable ratio decreased 0.6 percentage points YoY to 4.4% thanks to a decrease in air transportation and reduced vessel consumption.

On the other hand, the fixed costs increased by JPY3.2 billion due to higher-than-expected personnel expenses overseas and higher base salary and bonuses in Japan, as well as an increase in commissions related with DX promotion and an increase in depreciation expenses related with the renovation of the Amada Global Innovation Center.

In addition, we managed to control sales-related expenses, resulting in a positive effect, although we did not achieve the planned increase of JPY100 million. This was achieved despite increased expenses from participating in domestic and international public exhibitions and activities aimed at attracting customers to the Amada Global Innovation Center.

The positive factor of JPY200 million in other income and expenses was due to the loss on retirement of non-current assets posted in the previous fiscal year.

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Next, the bar graph on the left side of page eight shows inventory volume on a consolidated basis. Inventory volume at the end of March was JPY146.5 billion, an increase of JPY12 billion from JPY134.5 billion at the end of March last year, although reductions were made from JPY157.2 billion at the end of September and JPY156.6 billion at the end of December last year.

Work in process, shown in dark gray, has decreased since the end of March last year due to the normalization of production activities, while merchandise & finished goods, shown in black, and inventories of raw materials, shown in light gray, have both increased since the end of March last year, as some of them remained as inventory volume despite the production adjustments.

In Q4, we continued to adjust production as we did in Q3. However, we take seriously the fact that the resulting reduction in inventory fell far short of our plan, due in part to customer support for plant construction and requests to postpone deliveries due to procurement difficulties for power cables and other items, so we will continue to make production adjustments this fiscal year to reduce inventories to an appropriate level.

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Next, Q4 orders saw an increase of 4% on a consolidated basis compared to the previous fiscal year. Domestic sales were expected to decrease 17%, but sheet metal business exceeds its previous year performance which was boosted by a rush demand for replacement products, deffered due to the transition to new products, and pre-orders in anticipation of longer lead times. As a result, orders decreased by only 5%, including other businesses.In North America, despite the completion of supply chain enhancements and a wait-and-see attitude toward large projects due to labor shortages and high interest rates, orders received increased 9% YoY. Large investments related to EVs and semiconductors through government support are expected in the future.

In Europe, the GDP growth rate in the euro zone turned positive 1.3% in Q4 after two consecutive quarters of negative growth, according to preliminary figures, and there are signs that the prolonged economic slump caused by the Ukraine crisis has bottomed out. Orders were particularly strong in the UK, France, Italy, and Scandinavia. Consumption is expected to improve as inflation slows, and if interest rates are cut, the improvement is expected to spill over to the corporate sector.

As for Asia and others, sales remained almost flat compared to the same period of the previous year amid a slowdown in China due to the real estate recession and withdrawal of foreign companies, as well as an environment that also affected ASEAN countries against the backdrop of declining exports. China turned positive, then there were signs of recovery in Malaysia and Vietnam, while Taiwan, South Korea, India, and Brazil also performed relatively well. Although there are concerns that China's economic recovery will be slow and affected by geo-economics fragmentation, moderate growth is expected in ASEAN and Asia due to the recovery of exports, especially semiconductors.

Finally, looking back at orders received on a consolidated basis over the last fiscal year, while order activity in H1 of the year progressed in line with the initial plan, orders received in Q3 fell far short of the plan on a consolidated basis due to the continuing economic standstill in Japan, the complete lack of opportunities to adopt subsidies, and the slowdown in capital investment in North America as interest rates remained at high levels.

We had expected that it would be difficult to achieve the target, but orders received in Q4 exceeded the plan, resulting in only an 8% decrease YoY, compared to the annual plan of a 6% decrease YoY.

That all the results for the last fiscal year, and then guidance for the current fiscal year will begin on page 10. The preliminary figures for April orders are available and are shown on the right side of the table. Domestic sales decreased 15% YoY, partly due to a reactionary decline in March, but overseas sales increased 10% YoY, led by North America, and on a consolidated basis, sales started the month on a positive note YoY.

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