OMRON : FY2020 Q1 Earnings Financial Results for the First Quarter Ended June 30, 2020

July 28, 2020 at 02:10 am EDT

FY2020 Q1 Earnings

Financial Results for the First Quarter Ended June 30, 2020

July 28, 2020 OMRON Corporation

Summary

■Q1 FY2020 Results

Resilience in the face of unprecedented change: strong profit gains despite lower sales
Captured COVID-19-driven demand: magnitude of sales decline smaller than expected
Continued GP margin gains on efforts to strengthen products, structural reforms
Fixed cost cuts progressing in line with plan

■FY2020 Plan

Forecast full-year sales and profits to fall Y/Y. Assume tough operating environment continues to the end of FY2020
Aim to maximize sales and profits: pursue all opportunities
Reiterate full-year DPS guidance of ¥84, unchanged Y/Y

■Preparing for the Post-COVID-19 Challenge

Position FY2020/2021 as period of transformation to prepare for a post-COVID-19 world
Accelerate transformation to highly resilient business structure through business model evolution
Capture emerging post-COVID-19 social needs to achieve profitable growth

Contents

Q1 FY2020

Results

(¥bn)

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Q1 FY2020 Results		Confidential A

Demonstrate resilience under tough operating conditions, achieve strong profit growth

	Q1 FY2019	Q1 FY2020
	Actual	Actual
Net Sales	160.0	146.5
Gross Profit	71.5	66.4
(%)	(44.7%)	(45.3%)
Operating Income	10.0	12.5
(%)	(6.3%)	(8.5%)
Net Income	7.8	9.7


1USD (JPY)	110.7	107.9
1EUR (JPY)	123.6	118.3
1RMB (JPY)	16.3	15.1

Y/Y

-8.5%

-7.2% (+0.6%pt)

+24.2%

(+2.2%pt)

+25.0%

-2.8-5.3-1.2

*Q1 FY2019 Net Income excludes Net Income from Discontinued Operations (AEC profits and gains on sale of AEC business). If Net Income from Discontinued Operations are included, Q1 FY2019 Net Income is ¥8.5 bn

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Operating Income Analysis (Y/Y)	Confidential A

Operating income ahead of plan partly owing to temporary factors. Maintaining fixed cost discipline in line with plan

R&D down

12.5 (¥bn)

SG&A

10.0

Forex

down

+1.2

impact

Added

-2.4

Fixed

+5.0

value down

manufacturing

costs down

-3.4

+2.1

Fixed cost down 8.3

of which: Internal efforts

4.9

Lower activity levels

3.4

Q1 FY2019

Q1 FY2020

Actual

(¥bn)

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Sales by Business Segment		Confidential A

Magnitude of sales decline at IAB lower than expected, reflecting resilience

	Q1 FY2019	Q1 FY2020	Y/Y
	Actual	Actual


IAB	89.1	82.1	-7.9%
Industrial Automation


EMC	23.0	18.0	-21.9%
Electronic & Mechanical Components


SSB	17.3	18.1	+4.9%
Social Systems, Solutions & Service


HCB	27.7	26.6	-4.1%
Healthcare

	3.0	1.8	-40.1%
Eliminations & Corporate

Total	160.0	146.5	-8.5%

FY2019 figures adjusted to reflect the transfer of the Environmental Solutions business from the Other segment to SSB and the winding down of the Backlight business

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
IAB Sales Growth by Region	Confidential A

Strong growth in China and South Korea, on back of rising demand in Digital

Q1 FY2020

IAB Sales Growth by Region

(Y/Y, local currency basis)

Japan	Americas	Europe		Greater	SE Asia/Other

	China
	Ex-S.Korea		S. Korea



-9%	-10%	-22%		+22%		-23%	+31%

		vs. Q4	(+64%)			(+27%)

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Operating Income by Business Segment	Confidential A

Profits up Y/Y for all segments despite COVID-19 impact, reflecting resilience of OMRON's businesses

			(¥bn, %:OPM)

	Q1 FY2019	Q1 FY2020	Y/Y
	Actual	Actual

IAB	13.3	13.8	+0.5
Industrial Automation	(14.9%)	(16.8%)	(+1.9%pt)

EMC	0.0	0.1	+0.1
Electronic & Mechanical Components	(0.0%)	(0.5%)	(+0.4%pt)

SSB	-1.4	-0.9	+0.5
Social Systems, Solutions & Service	(-)	(-)	(-)

HCB	3.4	4.5	+1.1
Healthcare	(12.3%)	(16.9%)	(+4.6%pt)
	-5.3	-5.1	+0.2
Eliminations & Corporate

Total	10.0	12.5	+2.4
(6.3%)	(8.5%)	(+2.2%pt)

NB. FY2019 figures adjusted to reflect the transfer of the Environmental Solutions business from the Other segment to SSB and the winding down of the Backlight business

FY2020

Plan

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
FY2020 Plan: Assumptions		Confidential A

Expect COVID-19 outbreak to have prolonged impact, both in Japan and overseas. Operating environment visibility to remain poor
Forecasts for Q2 and beyond assume tough operating conditions remain in place at least until the end of FY2020
Maintain cautious stance on fixed costs as planned, but will undertake investments deemed essential for post- COVID-19 growth

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Business Outlook by Segment: Q2 and beyond	Confidential A

Visibility extremely limited. Expect operating environment to remain challenging

IAB

Industrial Automation

EMC

Electronic & Mechanical Components

SSB

Social Systems, Solutions & Service

HCB

Healthcare

Automotive: Auto sales down on COVID-19; expect capex to remain weak

Digital: Expect weaker China, S. Korea after strong Q1 but gradual recovery from Q4

Food & bev.: Expect flat Y/Y trend. Continued impact from weak economy but initiatives to control COVID-19 outbreak and maintain activity levels to be supportive

Social infrastructure: Flat Y/Y overall on government stimulus measures despite COVID-19 impact

Consumer: China domestic market recovering but not back to last year's levels. Expect gradual recovery for US/Europe

Automotive: Expect substantial decline in demand on falling auto sales

Station sys.: Capex appetite increasingly declining; demand to be weak

Transport:	Expect firm replacement demand
Energy:	Restart of selling activity to support gradual recovery in sales of battery storage systems
Domestic:	Firm, primarily in thermometers. Expect gradual recovery in store sales on reopening
Overseas:	Online sales firm primarily in BPMs. Similar to domestic store sales, expect gradual recovery

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
FY2020 Plan		Confidential A

Expect to maintain FY2019 GP margin level and achieve ¥30bn in operating income despite Y/Y sales and profit decline

			(¥bn)

	FY2019	FY2020	Y/Y
	Actual	Plan

Net Sales	678.0	590.0	-13.0%

Gross Profit	303.7	264.5	-12.9%
(%)	(44.8%)	(44.8%)	(+0.0%pt)
Operating Income	54.8	30.0	-45.2%
(%)	(8.1%)	(5.1%)	(-3.0%pt)

Net Income	39.2	16.5	-57.9%


1USD (JPY)	109.1	106.5	-2.6
1EUR (JPY)	121.2	119.6	-1.6
1RMB (JPY)	15.7	15.0	-0.7

*excluding forex impact ＋0.7%pt

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
FY2020 Plan: Operating Income Analysis (Y/Y)	Confidential A

Continue to undertake investments deemed critical but maintain discipline in fixed cost reductions

	Forex
54.8	impact on
added value
	-12.5	Added
	value

down

-33.9

FY2019

Actual

Fixed cost reduction *21.6

						Critical
	SG&A	R&D down	investments

	down						30.0 (¥bn)
	+1.0
				-1.6



Fixed	+15.1				FY19	3.4bn
manufacturing
			FY20	5.0bn
costs down

+7.2

FY2020

Plan

*Includes impact of yen appreciation

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

Sales Forecasts by Business Segment

HCB sales to remain unchanged Y/Y

Confidential A

(¥bn)

	FY2019	FY2020		Y/Y
	Actual	Plan


IAB	352.8	307.0	-13.0%
Industrial Automation


EMC	88.4	76.0	-14.0%
Electronic & Mechanical Components


SSB	116.0	93.0	-19.8%
Social Systems, Solutions & Service


HCB	112.0	112.0	+0.0%
Healthcare

	8.9	2.0	-77.5%
Eliminations & Corporate

Total	678.0	590.0	-13.0%

FY2019 figures adjusted to reflect the transfer of the Environmental Solutions business from the Other segment to SSB and the winding down of the Backlight business

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
IAB: Expected Quarterly Sales Trend by Region	Confidential A

Greater China, S. Korea strong in Q1 but expect tough conditions to prevail from Q2 onward, similar to other regions

					Greater	South
Japan	Americas		Europe
				SE Asia ex. S. Korea
		China		Korea

change relative to Q4 FY2019

Q4	Q1	Q2	Q3	Q4
FY2019	FY2020	FY2020	FY2020	FY2020

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
HCB: Online Channel Sales Growth	Confidential A

Solid progress in growing online channel. HCB increasingly less impacted by weak real store sales

HCB: Online Channel Share of Total Sales

Japan

North

America

Europe

China

India

FY2019

FY2020

FY2019

FY2020

FY2019

FY2020

FY2019

FY2020

FY2019

FY2020

17％	+1%
18%

33%		+4%
37%

13%	+3%
16%

43%		+4%
47%

30%		+20%
	50%

Top: Full-year FY2019 Actual

Bottom: Q1 FY2020 Actual

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

Operating Income by Business Segment

Expect HCB profits to grow Y/Y

Confidential A

(¥bn, %: OPM)

	FY2019	FY2020	Y/Y
	Actual	Plan


IAB	53.6	35.0	-18.6
Industrial Automation	(15.2%)	(11.4%)	(-3.8%pt)


EMC	0.9	0.5	-0.4
Electronic & Mechanical Components	(1.0%)	(0.7%)	(-0.4%pt)


SSB	10.9	5.0	-5.9
Social Systems, Solutions & Service	(9.4%)	(5.4%)	(-4.0%pt)


HCB	13.5	15.0	+1.5
Healthcare	(12.1%)	(13.4%)	(+1.3%pt)

	-24.1	-25.5	-1.4
Eliminations & Corporate

Total	54.8	30.0	-24.8
(8.1%)	(5.1%)	(-3.0%pt)

FY2019 figures adjusted to reflect the transfer of the Environmental Solutions business from the Other segment to SSB and the winding down of the Backlight business

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Full-year Dividend Guidance	Confidential A

Maintain full-year dividend guidance based on DOE target. DPS guidance at ¥84, unchanged Y/Y

FY2019 FY2020

(Actual) (Forecast)

Full-year¥84 ¥84 Dividend

NB. Guidance for interim and year-end dividend TBD

Preparing for

Post-COVID-19

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Post-COVID-19: Emerging Social Issues	Confidential A

COVID-19 is accelerating the pace of social change. Social issues, business opportunities expected in the future materializing now



Changes in	Changes in	Changes in
	Society and
Manufacturing	Medicine
	Services



		Needs for remote
New reduced labor	Need for remote	and labor-saving
intensity	medical treatment	solutions for
		station services

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Post-COVID-19: Emerging Social Issues	Confidential A

New, emerging labor-saving needs: Averting 3 C's on the shop floor

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
New Labor-saving Needs		Confidential A

Creating new market with a controller which integrates robotic control to achieve ILOR+S

Achieving integrated line and

robotic control with a single controller: One Controller

Shipments start July 31!

World

First

Saving Labor

Automating delicate processes only possible by human hand through seamless ILOR+S control

World

First

Now possible to conduct remote simulations from design and operations to maintenance, using aggregated data

World

First

*Regarding "ILOR+S", please refer to P42

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

Automating Delicate Processes Only Possible for HumanConfidentialHands A

Creating solutions that leverage the revolutionary nature of One Controller

Smartphone

camera module

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

One Software: Leveraging Aggregated Data to Enable SimulationsConf dential A

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19: Emerging Social Issues

Changes in		Changes in
Manufacturing		Medicine

New reduced labor		Need for remote
intensity		medical treatment

Post-COVID-19

Confidential A

Changes in

Society and

Services

Needs for remote and labor-saving solutions for station services

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

OMRON Strengths: Focusing on Post-COVID-19 OpportunitiesConfidential A

Leveraging OMRON's dominant strengths to create new businesses aligned for a post-COVID-19 world

BPM Share

Global Coverage

App Downloads

1.9 mn

50％ *

Real Store Network

Focused on Pharmacies

Global Share No. 1

	Online Channel	FY16 FY17 FY18 FY19
*Value basis, OMRON estimate

Q1 FY2020 Results	FY2020 Plan	Post-COVID-19
Remote Medicine Service Business Model	Confidential A

Develop business model for remote medicine service. Already launched at US medical institutions

Hospital Core System

3 Algorithms to support physician's diagnosis

EPR*

(Test results, Symptoms, History)

Billing Payments

Payer, Insurance

company, etc.

2 Share vitals with physician

						1	Collect

						vital	signs


							BP

４		Doctor's PC				ECG
		Exam		Weight

	Propose treatment /
			Activity

			Rx program, lifestyle				levels
			changes	Dr.	Video/ Patient



					Online
					5 Continue Rx
					Conferencing
						program, support

physical activity

* Electronic Patient Records

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

Global Expansion of ECG Devices: Accelerating RemoteConfidentialMedicine A

Expand BPM enabled for ECG and mobile ECG businesses. Establish concept of home readings for ECG

			FY2019
			▼ Launched May 2019

BPM			in US

Enabled
for ECG
Readings

Launched June 2017 in US

Mobile

ECG

FY2020FY2021

European Launch February

Enable OMRON connect	▼Japan Launch March
app for ECG

	Other Asian launches
	to follow

European launch in September

▼Japan Launch May

(China Launch

EnabledforMay '22) OMRON connect

app

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19: Emerging Social Issues

Changes in		Changes in
Manufacturing		Medicine

New reduced labor		Need for remote
intensity		medical treatment

Post-COVID-19

Confidential A

Changes in

Society and

Services

Needs for remote and labor-saving solutions for station services

Q1 FY2020 Results

FY2020 Plan

Post-COVID-19

Station Services: Migrate to Remote, Reduce Labor IntensityConfidential A

Create safe, secure and pleasant railway stations through remote monitoring service, in addition to existing products, remote systems

Conventional Systems

Provide station equipment, remote monitoring systems

OMRON		Provide station
	equipment & systems



Railway		Monitor/Operate A Rail

Targeted Operations Service

Solve operational issues for stations through remote monitoring operations service

OMRON

Provide station equipment & systems

＋

Monitor/Operate

Service Center

Remote Cust. Svc

Focus Area

Railway

Going Forward

・・・

A Rail

B Rail

be to .Eq		・・・

monitored
	Station equipment
	/systems

monitored be to .Eq


Station equipment/systems		Manage station
	facilities

Security

・・・

Customer svc.

Reference

Segment Changes

Eliminating Other segment: Environmental Solutions business transferred to SSB, winding down Backlight business

Up to FY2019

IAB

Industrial Automation

EMC

Electronic & Mechanical Components

SSB

Social Systems, Solutions & Service

HCB

Healthcare

OtherEnv.Solutions

Businesses under Direct Control of HQ	Backlight

Eliminations & Corporate

From FY2020

IAB

Industrial Automation

EMC

Electronic & Mechanical Components

SSB

Social Systems, Solutions & Service	Env.Solutions

HCB

Healthcare

Wind down Backlight

Consolidated Balance Sheet

			(¥bn)

	End-March 2020	End-June 2020	Q/Q

Current assets	447.1	434.6	-12.6
(Cash and cash equivalents)	(185.5)	(195.9)	(+10.4)
(Inventory)	(104.3)	(109.7)	(+5.4)
Property, plant and equipment	114.5	111.8	-2.7
Investments and other assets	196.5	196.2	-0.3

Total assets	758.1	742.6	-15.5
Current liabilities	151.3	129.0	-22.3
Long-term liabilities	74.2	73.1	-1.2

Total Liabilities	225.5	202.0	-23.5

Shareholders' equity	530.4	538.6	+8.2
Noncontrolling interests	2.2	2.0	-0.2

Total net assets	532.6	540.6	+8.0

Total Liabilities and net assets	758.1	742.6	-15.5


Equity ratio	70.0%	72.5%	+2.5%pt

Consolidated Statement of Cash Flow

	Q1 FY2019	Q1 FY2020
	Actual	Actual

Operating cash flow	17.2	27.5
Investment cash flow	-6.3	-4.6

Free cash flow (FCF)	10.9	22.9

Financing cash flow	-8.8	-11.3
Cash and cash equivalents as of end of period	110.3	195.9


Capital expenditure	5.6	3.9
Depreciation	6.0	6.0

(¥bn)

Y/Y

+10.3

+1.6

+12.0

-2.6 +85.5

-1.6-0.0

FY2020 Forex Assumptions


	FY2020	*RMB impact	of ¥0.1 move
		Impact of ¥1 move	(full-year, approx.)
	Assumptions for
	Sales	OP
	2Q and beyond

USD	106円	¥1.3bn	¥0.1bn

EUR	120円	¥0.8bn	¥0.4bn

RMB	15.0円	¥0.7bn	¥0.1bn

If emerging market currency trends diverge from trends in major currencies contrary to our expectations, it will impact sensitivities

OMRON Included in Major ESG Indices (As of July 2020)

ESG Indices which include OMRON

DJSI－World
FTSE4Good Index Series
MSCI ESG Leaders Indexes
MSCI SRI Indexes
STOXX Global ESG Leaders indices
FTSE Blossom Japan Index
MSCI Japan ESG Select Leaders Index
MSCI Japan Empowering Women Index
S&P/JPX Carbon Efficient Index

3rd consecutive year

4th consecutive year

3rd consecutive year

4th consecutive year

２nd consecutive year

OMRON discloses information and contributes to numerous external surveys for ESG assessment organizations, including the CDP Climate Change & Water Security questionnaires.
FY2019 Assessment: Climate Change 'A⁻', Water Security 'B'

External Recognition (As of July 2020)

Domestic ESG awards, selection for inclusion

Japan Association of Corporate Directors

✓ Corporate Governance of the Year 2018

METI Minister's Award for Corporate Governance of the Year FY2018

Ministry of the Environment

FY2018 Minister's Award for Global Warming Prevention Activity 'Implementation of Countermeasures and Dissemination Category' FY2018

Market Closed - Japan Exchange Other stock markets 02:00:00 2024-04-26 am EDT			5-day change	1st Jan Change
5,273 ^JPY	+0.84%		+3.84%	-19.90%

Feb. 28	Omron to Reduce Workforce by 2,000 Following China's Slowdown	MT
Feb. 27	Jefferies Adjusts Omron’s Price Target to 7,000 Yen From 8,000 Yen, Keeps at Buy	MT

✓ Nadeshiko Brand	3rd consecutive year from FY2017
✓ Health & Productivity Stock	2nd consecutive year from FY2018
✓ Health & Productivity: White 500	4th consecutive year from FY2016

On-site		KPI

	• Sales in focus

		industries/areas
	• Sales of new/focus products
	• Selling price control
To-Dos	• Variable cost reduction,
Cycle		value/%
• Defect cost %


	• Per-head production # unit
	• Automation % (headcount
		reduction)
	• Labor costs-sales %

	• Inventory turnover months
	• Slow-moving inv. months
	• Credits & debts months
	• Facilities turnover
	(1/N automation ratio)

	Net income attributable
ROIC =	to OMRON shareholders
Invested capital

OMRON Corporation

Equities

6645

JP3197800000

Electrical Components & Equipment

OMRON : FY2020 Q1 Earnings Financial Results for the First Quarter Ended June 30, 2020

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	Expecting

Growth		Investment
	Growth


Rate		C	Ａ
	Profit	Examining
(%)
Restructuring	Regrowth

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