Topcon : Q&A for FY2020 Financial Results posted

Financial targets for Mid-Term Business Plan：Upon your explanation on Mid-Term Business Plan that only the timeline is extended for a year while the vision stays the same, is it correct to understand that the original financial target of operating income of 20.0 billion yen is now targeted in FY2022?

We have had a careful consideration on the extension of the timeline. We acknowledge that the financial target of Mid-Term Business Plan is a very high compared to financial targets for FY2021 with sales of 150.0 billion yen and operating income of 10.0 billion yen. FY2020 results which prove our strength as an essential business give us some confidence. On the other hand, COVID-19 impacts are yet to cease completely. By thorough consideration of these points, we decided to keep the financial targets unchanged for the final year of Mid-Term Business Plan at this point and will closely examine the progress of FY2021 targets.

FY2021 operating income YoY breakdown (fixed cost)：I think it's been a while hearing the investment plan for Smart Infrastructure Business who generates relatively high stable OP margin. Could you explain the breakdown of increase in fixed cost of 4.5 billion yen by businesses?

A breakdown of the increase of 4.5 billion yen in FY2021 is as follows;

- Breakdown by business segments: Positioning Company accounts for approximately half of 4.5 billion yen, and the remaining half for Smart Infrastructure and Eye Care Businesses, respectively.

- Breakdown by elements: Approximately half is attributable to the strengthening of sales capability and driving new businesses, and R&D investments. Another half is for the expense which we suppressed due to COVID-19 in FY2020 such as travels and exhibitions related expenses.

Results and forecast of expense：SG&A expenses in Q4 were almost the same as the previous year and the ratio to sales was also low at 39%. Could you explain how it may change in FY2021 onward? Can we expect that you have created a robust structure that would enable to secure sales and profits under new sales model with/post COVID-19?

In FY2020, COVID-19 outbreak made us not to spend appropriate SG&A expenses such as business travels, that was significantly different from normal year. I don't think we'll be able to keep this expense level in FY2021. However, I also think some businesses can be operated with less expense than it used to be. Meanwhile, we also plan to increase other costs associated with strategic investments to accelerate business growth in FY2021.

Breakdown of profits into 1H and 2H：Given the momentum in 2H of FY2020, we can expect strong performance to continue in 1H of FY2021. What is the outlook on the breakdown of profit in 1H and 2H?

We don't disclose the specific breakdown of profits into 1H and 2H this time, but sales and profits in 2H tend to exceed those in 1H under normal circumstances, and this trend is most likely to happen in FY2021.

Advantages in IT Construction：I understand that the automation of excavators has a high technological hurdle. Could you explain your overall technological advantages and the innovative point of the new ICT system for small-sized excavators?

Precise measurement of the position of excavators is needed for the automation. Key feature of this new system is using 'LN-150 (layout navigator) ', a 3D surveying instrument, instead of GPS receiver. LN-150 has been widely prevalent in domestic construction market thanks to its easy-to-operate functions. GPS sometimes does not work well in the locations where it is difficult to receive GPS signals and correction information. This is a major distinction from car navigation system that the users can be ignorant of GPS. Taking this point into consideration, this new system is the world's first epoch-making system that utilizes 'LN-150' which is easy-to-operate and widely used as a positioning sensor.

Outlook for FY 2021：I understand that the sales growth is coming from tele-optometry system, growing demands of Maestro for screening purposes, and business in China. Do you have certain confidence for the growth in FY2021?

Many optical stores and ophthalmology clinics had closed around Q1 to Q2 last year due to the lockdown, but they gradually resumed operations in the latter half of Q2. While the impact of COVID-19 still remains, we feel confidence in further business growth. Assuming the impact of COVID-19 will not worsen any further, we don't think it is difficult to recover the sales to the level of pre-COVID-19.

Business in China：Do you proceed the business with local health centers and AI developers in the Chinese market? Is there any risk that Chinese local manufacturers will emerge and dominate the market after you develop and cultivate Screening Business?

Since Chinese AI companies are moving quickly and aggressively, we have decided to work with them. The Screening Business is getting bigger as our envisioned scenario is gradually becoming a reality. It is true that similar products at less cost are starting to appear in China. However, the reliability of data is important for screening while our products have been used by ophthalmologists who are keen on the reliability. We don't' think the similar local products targeting only screening become a threat because of their low reliability. In addition, we are preparing for a business scheme that screening data of potential patients can be used at ophthalmology clinics as well. As a result, our products will also be used more in the ophthalmology clinics.

Earnings forecast：The growth rate of operating income in FY2021 appears to be very high. How are you confident with this forecast?

The results for Q3 and Q4 in FY2020 were definitely strong. Although there still remain uncertainties, we do not foresee any significant negative factors as of now. We believe that this financial target is achievable.

Difference of impacts on optical boutiques and optical chain stores：According to information from other companies, major optical store chains are sluggish while optical boutiques are performing better in the U.S. and Europe. Is this the case for your Screening Business?

Our Screening Business started to produce successful results in optical store chains. We would say our business with them is better than the boutique stores. I guess one of the points would be that Screening Business is also a new business for optical store chains. That may be the reason why our situation is different from other companies.

Comparison between Q3 and Q4 in FY2020：Q4 results were sales increase of 3.1 billion yen and increase in operating income of 0.2 billion yen QoQ. Although the strong performance continued, what lead the smaller increase in operating income compared to that of sales in Q4?

While sales increased in North America, Europe, and China in Q4, operating income was slightly affected by increased expenses along with the sales increase. In addition, operating margin in Q3 was better than normal with some reasons including timing of recognition of some expense.