Explanatory Meeting for the Fiscal Year Ended March 31, 2016 Outline of Answers to Main Questions
Q: Regarding the revenue and the operating income of FY2015, what are the factors that caused year-on-year fluctuations?
A: The revenue decreased ¥57.5 billion (7%) year-on-year to ¥758.3 billion. This was due to a ¥45.5 billion decrease in sales affected by the deteriorated construction machinery market and a ¥12 billion decrease affected by the foreign exchange fluctuations. The negative foreign exchange impact was mainly due to appreciation of the Japanese yen against the euro, Australian dollar, and currencies of emerging markets, while the Japanese yen depreciated against the US dollar and the Chinese yuan.
The operating income decreased ¥29.1 billion (46%) year-on-year to ¥34.1 billion. Regarding the fluctuation factors, we increased profit by approximately ¥16 billion through the reduction of overhead costs and material costs; however, two factors have negatively affected and the overall operating income decrease: (i) a decrease of ¥34 billion caused by decreased physical quantity of materials and differences in product structure and (ii) a decrease of ¥11 billion, which is the amount deducting the business structure improvement expenses from the gain on business restructuring temporarily incurred. The operating income will be ¥45.1 billion if that ¥11 billion decrease is excluded.
Q: Please let us know the breakdown of ¥11 billion of the business structure improvement expenses in FY2015.
A: In FY2015, ¥32.5 billion of restructuring expense was incurred. The main items contributing to this expense are ¥7.2 billion of the special severance payment associated with Early Retirement Incentive Program, ¥13.8 billion of valuation loss related to inventories, ¥4.9 billion of expenses for business measures in China and Asia, and ¥6.6 billion of other expenses. On the other hand, there was a ¥21.5 billion gain on business restructuring brought by the sale of Company shares in UniCarriers Holdings Corporation, a company of the consolidated group accounted for using the equity method. As a result of aggregating the ¥32.5 billion of restructuring expense and ¥21.5 billion gain on business restructuring, a loss of ¥11 billion was recorded.
Please note that the ¥21.5 billion gain on the sale of UniCarriers Holdings shares is recorded in “other income,” and ¥10.1 billion, which is the aggregated amount of ¥7.2 billion in the special severance payment associated with Early Retirement Incentive Program and some part of other expenses, is recorded in “other expenses.”
Q: The operating income forecast in FY2016 is ¥30 billion, which means a decrease from FY2015 (¥34.1 billion in operating income), when structural reform was conducted. Please let us know the details of such forecast.
A: As positive factors, we expect a total gain of ¥28.5 billion, consisting of (i) ¥7 billion through the material cost reduction and an increase in selling price, etc., (ii) ¥20.7 billion through overhead cost reduction, which includes the ¥7.5 billion reduction in expenses related to human resources, including outsourcing expenses, and (iii) ¥0.8 billion through the increase of other income. As negative factors, we expect a total loss of ¥32.6 billion, consisting of ¥15.1 billion in negative foreign exchange impact affected by yen appreciation, and ¥17.5 billion in restructuring and structural reforms. By aggregating the gain and loss factors, we forecast that the operating income will decrease ¥4.1 billion year-on-year. The breakdown of ¥17.5 billion in restructuring and structural reforms is (i) the negative factor of the ¥11.5 billion total loss in “other income and expenses” described in the preceding QA and (ii) ¥6 billion in restructuring expenses in FY2016.
Q: Please let us know your thought behind the decision to set the dividend plan of FY2016 as ''to be determined''.
A: Due to the effect of the financial restructuring, B/S and C/F have been improving. However, we plan to continue business structure reform in FY2016, and the business environment is severe since we cannot expect the demand for hydraulic excavators and mining machinery to increase. Considering the many uncertain factors, we set the dividend amount for FY2016 as “to be determined.”
