Earnings call transcript: Omron misses Q2 2025 EPS forecast, stock dips

OMRON Corporation reported its Q2 2025 earnings on November 7, revealing a significant miss on earnings per share (EPS) forecasts, which led to a negative market reaction. Despite higher-than-expected revenue, the company's stock fell by 9.34% in after-hours trading.

Key Takeaways

• Omron's Q2 EPS was $11.34, missing the forecast of $39.08.
• Revenue surpassed expectations, reaching $203.97 billion against a forecast of $197.24 billion.
• Stock price dropped by 9.34% in after-hours trading following the earnings release.
• Omron aims for JPY 1.2 trillion in revenue by 2030, focusing on core businesses.
• The company plans substantial investments in business development and innovation.

Company Performance

OMRON's performance this quarter was mixed, with a notable miss on EPS despite achieving higher-than-expected revenue. The company's strategic focus on its core businesses and innovation seems well-aligned with industry trends, though the earnings miss indicates potential challenges in cost management or market conditions.

Financial Highlights

• Revenue: $203.97 billion, exceeding the forecast of $197.24 billion.
• Earnings per share: $11.34, well below the forecast of $39.08.
• Gross profit margin improvement target of 2.5 percentage points by 2030.

Earnings vs. Forecast

OMRON's Q2 2025 EPS came in at $11.34, significantly below the forecast of $39.08, resulting in a negative surprise of -70.98%. This marks a substantial deviation from expectations, potentially impacting investor confidence. However, the revenue surprise of 3.41% indicates strong sales performance.

Market Reaction

Following the earnings release, OMRON's stock price decreased by 9.34% in after-hours trading, reflecting investor disappointment with the EPS miss. The stock's recent performance shows resilience within its 52-week range, with a last close value of $3927, but the immediate drop signals concerns over profitability.

Outlook & Guidance

OMRON remains committed to its long-term goals, including a revenue target of JPY 1.2 trillion by 2030. The company plans to focus on its 13 core businesses, which are expected to contribute 80% of profits. Future guidance suggests continued emphasis on innovation and strategic investments.

Executive Commentary

CEO Junita Tsujinaga emphasized, "Our second stage theme is trusted growth," highlighting the company's commitment to stakeholder trust and expectations. Tsujinaga also noted, "We do not intend to compete on price in China," focusing on supply chain completion for a competitive edge.

Risks and Challenges

• Supply chain optimization in China remains a focus to mitigate potential disruptions.
• Market competition, especially in China, could pressure margins.
• Economic volatility and currency fluctuations pose financial risks.
• Execution of structural reforms and business investments are critical for growth.
• Dependence on core businesses requires successful innovation and market adaptation.

Q&A

During the earnings call, analysts inquired about OMRON's strategy in China, flexible portfolio management, and distributor collaborations. The company confirmed no immediate changes to its JMDC relationship and detailed its approach to enhancing customer mapping and distributor networks.

OMRON's earnings call for Q2 2025 highlighted a challenging quarter with mixed results, underscoring the importance of strategic execution in achieving its long-term objectives.

Full transcript - Omron Cor (6645) Q2 2026:

Moderator, OMRON: Ladies and gentlemen, thank you for watching. Now we are starting a presentation for the Midterm Roadmap SF Second Stage, and this session will be translated into English as well in a simultaneous manner. Let me introduce today's speakers: President and CEO Junita Tsujinaga. This is Tsujinaga speaking. Nice to meet you.

続きまして、決算説明会に引き続き。

Continuing on the financial results briefing, we also have Seiji Takeda, Senior Managing Executive Officer, CFO and General Manager, Global Strategy Headquarters, and Mr. Kodaro Suzuki, Executive Officer, General Manager, Corporate Planning Department, Global Strategy Headquarters. First, CEO Tsujinaga will give us a presentation followed by a Q&A session, and the presentation material is available on our website, so please download.

そうですね。

Let me give the floor to Mr. Tsujinaga. Good afternoon, everyone. This is Tsujinaga. I'm the President of OMRON. Thank you very much for coming to this financial results briefing for the second quarter and also the explanation meeting for the Midterm Roadmap SF Second Stage out of your busy schedule. It's going to be a long session today, but I hope you stay with us throughout the session. Today I'll talk about OMRON's roadmap for the next five years from 2026 to 2030, the SF Second Stage. Here's today's agenda. First, I will talk about what I'm aiming for and how I'll lead OMRON through this roadmap. Then we'll go into more details on the roadmap for the second stage. Let me share how I'm thinking right now.

The second stage of SF Second Stage and SF 2030 in our long-term vision, we also have set the three social challenges in there, and they all remain to be unchanged. The goal of this roadmap is not to fine-tune our vision or strategy, but to clarify what actions we'll take and how we'll consistently deliver results. Over the next five years, as CEO, I want to accomplish the growth both through offensive and defensive management. I aim to put OMRON back on the growth track and to build a company trusted by stakeholders. On offense, we'll make bold investments for growth. We'll invest in IAB and other key businesses. Also, we will shift towards becoming a gained by GX company, which will be explained later. On the defense side, we'll continue portfolio and structural reform to boost capital efficiency and investment capacity.

Structural reform we have done was completed in September, but we will continue to implement reform furthermore to improve the efficiency of fixed costs, also further expand our gross margin level. My focus in this second stage is to build an organization which is driven by results. For that purpose, we want to strengthen execution capability, and I have four priorities to accomplish them. I'm showing them on the slide. First is the governance. It's not just the governance by the directors, but also the executive team to have a governance on the field and led by CEO, and we want to reinforce the executive governance. We want to implement the initiatives on a hands-on basis, so we will seek for the results along with the field members.

Secondly, we need to follow and keep up with the changing environment, and even overpassing them, we need to implement speed management. We will further enhance the self-sustained EC and the field operations, and also implement further DX of the operations. Thirdly, the source of execution is the human resources, the talents. We'll try to ourselves to basically transform to be driven by the results. We're making a major change in our assessment system, so we'll pursue more results in the outcome. We also want to develop the potential 100 candidates for running the business. Of course, this will be mainly led by the HR department, but I will also be involved in trying to develop those 100 candidates. Number four is upgrading the corporate culture.

OMRON, we want to go back to the very basic, that's the starting point, so we can actually implement the very basics. Those basic items should be executed as a common practice, and such culture will need to be nurtured. That should actually involve entrepreneurship, also venture spirits among the employees. By combining the culture with such a challenging spirit, we want to upgrade OMRON's corporate culture. Now, let me talk about SF 2030 Second Stage image that we are trying to aim for. Our second stage theme is trusted growth. It reflects our will to deepen customer trust and shift towards a gained by DX company and achieve strong growth again. OMRON has long solved customer issues through its devices and grown alongside customers.

We'll return to our roots and spend the next five years building the foundations for our gained by DX shift and sharpen our competitiveness so we can deliver sustainable growth. What exactly will we do for the future? For the coming five years, we want to be persistent on reinforcing our devices. Today, OMRON's growth and profit come from our devices. Unless we strengthen this foundation, we can't build new growth like data services and DX services. To expand the value we bring to society in the long run, first, we'll refine our device business and evolve our business model as a result of such refinement. What exactly do we mean by this gained by DX? This gained by DX, what do you mean? What does OMRON mean by this?

It is about combining high-quality data from our devices with other on-site data using our field expertise to turn it into valuable information and data services that solve real on-site challenges. DX has become a common term today. It is being utilized as a buzzword now by many companies. In areas like factory automation and healthcare, where it is mainly focused, the progress of DX is still limited. We have the strength to break through this slow DX progress in these industries. Let me talk about our strengths, and these are the three points at the bottom. First, our global high-market share device platform. Second, the device data and know-how built through close relationships with customers. Thirdly, our unique technology to turn these data into valuable insights. With these strengths, OMRON will deliver gains by DX and contribute to society progress.

Let me share one concrete example. Here's an example from the factory automation industry. In the manufacturing business and industry, the shortage of workers and skilled technicians is becoming an increasingly serious issue for not being able to continue manufacturing. To solve such a challenge, not just by devices and hardware, we believe there's a need for service by utilizing data. What is that data? Like you see in the middle, that is the real-time, high-quality data that can be effectively utilized. This will be actually leading to the solutions in the future or accomplishing traceability, controlling the predictions. Those data will help. It's not just the data collection from sensors and controllers. Converting the data into the usable format is going to be a key.

In April, we have announced a partnership with Cognizant, and Cognizant was drawn to this unique data that we can offer. That is why they began collaborating with us. Let me also share some success stories with Cognizant since it has been six months already. Please take a look at the slide in the front. At the bottom, this is where we are stronger, basically, on this slide. There is the abundant IoT device data available. Not just each individual data from each device, but more importantly, the integrated data will mean a lot. Not just data from the hardware, but also know-how data from the field, like daily reports and quality data, maintenance data. We will synchronize them with the IoT data with the time. They are coming up from a different timing, from a different location.

You can visualize them that it's difficult to make it into a solution. It's key that we integrate them in a timely, chronical manner. This is the IT area, and a certain area, this information is also integrated, and that creates a very unique data. A certain customer utilizing this data, they actually started to utilize AI agents. With the integration of such data, the know-how of skilled engineers, technicians can be also transferred, passed on to the next generation. You're also able to predict the quality improvements, the failures of machines. At another client, actually, we've enabled data-driven operation to support quick changeovers for small lot variable production, or even reducing the workers to implement these changeovers. It's not just based on know-how, but we are allowing these changeovers utilizing data. That's what we are accomplishing.

As a result, this user was able to reduce the improved productivity a lot. Both these solutions were only possible because of our unique high-quality data. This example, due to confidentiality reasons, we are not able to share this customer name and actual results in more detail. It is quite unfortunate, but this itself is actually allowing us to build a deep relationship with the customer, meaning that we have reached the essential issue faced by the customers. Over time, I want to be able to introduce more of these success cases in the future. Now, let me walk you through our concrete strategies. In this SF Second Stage, our core strategy is rebuilding the business portfolio. We will accelerate selection and focus to build a portfolio that maximizes group-wide growth.

In the roadmap, we've identified 13 key businesses that will drive the group's growth. To maximize the growth, we'll drive transformation across three dimensions: value, front, and resource allocation. First, let's talk about portfolio management, which is our core strategy. In this roadmap, we'll significantly realign resource allocation to support growth. Previously, we managed all businesses, roughly 52 different businesses underneath each business company. We have managed them with disciplined oversight. From the gross investment perspective, we weren't able to invest enough. That actually has slowed the strengthening of high potential areas. On the left-hand side of the slide, as you can see, among those 52 businesses at OMRON, only 10 device businesses are generating 80% of our operating profit. However, only 40% of our development is invested into those 10 businesses.

The investment is spread out among those 52 businesses, which made it difficult for us to invest enough in our growing businesses. As you can see on the right-hand side, in this new portfolio management, we'll concentrate investment in core device businesses to build a solid growth base. Then reinvest the cash generated into data service businesses. Creating this positive growth cycle is the core of our sustainable growth and also allowing us to accomplish the transformation into a gained by DX company. What are these focus businesses? They're consisting of eight device businesses and five data service businesses. The selection point for selecting these 13 businesses would be, first, profitability and market growth, and definitely necessary for transforming into gained by DX.

The remaining 39 businesses will be managed as cash cows and will invest selectively depending on the market environment and enhance profitability accordingly. We want to be flexible and implement a portfolio in a speedy manner. That is going to be the core strategy for us. Depending on the business opportunities or business environment we are surrounded by, we want to implement proper management of the portfolio. Let me also talk about the growth targets for the 13 focus businesses. In a nutshell, the targets with the 13 businesses is growth above the market average. Of course, by going above the market average, we can take market share away from the others to contribute to our growth. All these businesses, 13 businesses, are quite attractive. Also, they have opportunities expected to grow in the future.

We'll invest strategically and we'll further enhance competitiveness so we can achieve growth beyond the market growth. On the data service side, in addition to JMDC's own growth, but also by its synergies with each business company, our intention is to raise its share to 15% of total group sales by 2030, the data service ratio. So far, JMDC has exceeded our initial expectations, and its collaboration with other business units are progressing quite well. The momentum is strong so far. Next, let me talk about our company-wide initiatives to achieve these goals from those three perspectives. First, let me start talking about strengthening our values, device itself, and services to be reinforced. There are two parts to it. First, reinforcing, enhancing our core technologies. We'll go back to the basics as a manufacturer, and we want to focus on strengthening our technology.

In this roadmap, as you can see on the right-hand side, we've identified six key areas of core shared technologies across the company. These include our traditional sensing and control plus think, which drives device competitiveness, and AI data management, essential for developing data service businesses. These core technologies share some commonalities among 13 focus businesses. By strengthening them company-wide, we can accelerate the growth across all the businesses. At the same time, not just increasing investment into development, we will also try to boost our R&D productivity. Targeting a 2.5 times stronger improvement over the next five years. The second is improving cost competitiveness. In the current market, the technological prowess alone will not suffice. There are three other majors here. First, the completing complete supply chain in China, as we have been explaining about it on different occasions.

We'd like to have the established supply chain in China to create a product development platform. The development of the various products that will have the embedded philosophy of product development and optimizing SKUs so that we are going to have SKUs which will be more profitable. As to these three other majors, we have already started, and we aim to further accelerate the implementation and produce results sooner than later. As you can see on the right-hand side, compared to FY2024, by 2030, we are going to improve our gross profit margin by 2.5 percentage points, which will grow strongly, support our profitable growth. In the front, it's service and data sales team. The OMRON's greatest strength here is our customer intimacy. To be close to our customers over the past over the five years which are coming, we are going to expand this relationship depth.

The partners times DX will be one of the other axes so that we will have the front which is matching with the attributes of the customers. First, we will expand our partner collaboration. We are going to have partnership with each of the regional distributors so that we are going to shift to a system in which we integrate a distributor and a sales strategy. We are also going to promote the sales DX ERP that will be rolled out from fiscal year 2026 and the CRM such data that will be utilized to enhance the sales process efficiency. By doing so, we can improve accuracy, proposal speed, and proposal capabilities. We are going to solve more of the problems for our customers. For that, we are going to work. Lastly, resource allocation. I think resource allocation is one of the important points.

We are going to make a shift to the focus businesses. Currently, development investment ratio of focus business that is about 40% toward fiscal year 2030, we are going to raise it to the 60% year on year. In order to strengthen the focus resources businesses, rather, we need to strengthen our human capital. We are going to add 1,000. It's not just data addition that we are going to hire from outside or the other relocation. Leveraging efficient fixed cost operation achieved in structural reforms, we are going to strengthen with these 1,000 staff. So much for overall strategy. Next, the financial guidance. This slide here shows basic philosophy of capital allocation. This slide here, the point here is for over five years, we are going to leverage the debt financing. We are going to work on the focus businesses, especially IAB.

We are going to invest in those areas with priority. We are going to come back to the other shareholder return rate. Let me start with the strengthening cash generating capability. Comparing with the other five years in the past, we are going to improve the capital generating capability. Number one, we are going to center around highly profitable focus businesses. Growth here will be most effective. At the same time, we will continue fixed cost productivity initiatives as we did in structural reform. We expand financial sources for investment. We secure financial sources for shorter CCC and asset efficiency as well. Next, capital allocation. JPY 1.05 trillion is the estimated number. We switch 80% will go to the business investment, in which about 7% will be invested in focus businesses.

For EC signal, as I repeatedly said, IAB is to be positioned as the first priority area. M&A activities will be promoted as such with priority. Shareholders' return, excuse me, will be exercised focusing on its stability and continuity, with sustainability as our improvement as a basic policy. As to access the capital, we are going to be flexible about share buybacks. Now, I would like to talk about the stretch targets based on these strategies by 2030. As you can see, in this second stage, we will work for much more significant growth than in the past with focus business as axis. At the same time, we will aim at improving the operating profit. At the same time, over the coming five years, we will expand the EPS to enhance shareholders' value.

Each business will grasp growth opportunities, as you can see here in the market, to grow in a sustained manner. Also, we will achieve much higher OP margin than before, increasing the group's earnings power. Now, non-financial targets. Based on our company's materiality, we have revisited those targets and repositioned them as important management metrics linked to our business. That is for the brief explanation of second stage and the roadmap. From here, the refocusing on IAB and the other related strategy is going to be explained here. For the sake of time, we are going to explain only about IAB. For others, please refer to appendix. We have a summary attached. In this second stage, what we are going to achieve is recovery in the IAB. We are going to achieve strong IAB growth, and we will make complete recovery.

It's about going back to basics and focus on customers and remain trusted by customers. The key action this time will be transforming value chain based on visualized customers, as you can see on the left-hand side, visualization of customers. We start to be going to transform our value chain. Now, I would like to explain about the overall picture of this growth model. So what is visualization? Until now, IAB has focused on about 20,000 companies in specific rapidly growing industries globally through our solutions business. However, 50,000-60,000 or more than 100,000 customers exist there. But we grasp those customers only indirectly through distributors. So we could not grasp the overall needs of the other customers or challenges facing the customers. This time, we are going to strengthen the collaboration with distributors.

We are going to expand the current 20,000 to 110,000 by collaborating with our extensive distributor network and leveraging digital technology. We are going to, with that, we can update fully our customer data. More specifically, what can be visualized? Simply put, on the right-hand side, it says customer basemap. This table is an image of visualization. Horizontally, 110,000 company names will be shown. Vertically, the product lineup of the controller, the sensor and safety, and so on. In each box or cell, dark blue or gray, blue is the customer to which we deliver our products. Gray are the customers which are not using our products. You can see where what customers are using our products. The status of the current status of the customer and the timing of purchase can be visualized on this customer basemap.

Based on this map, we'd like to engage in various activities. Factor data on the left-hand side, the customer trade status. Of course, with that, we will get in-house share information and in what area we have strong products and so on. Based on that, we can use such information, the product development, and we can get insights on the formatting. It's not only about the visualization, but it is going to be the starting point of value chain. Using this customer basemap, what kind of values will be evolved? On the left-hand side, we're showing device, the customer's digital solution, and devices. As we explained on the other occasion, these three will remain intact, starting with devices at the bottom. This is the other IAB's other starting point, customer basemap. The insight will be used to improve QCD further.

By doing so, we are going to have a very solid customer base, as you can see on the right-hand side. Second, industry solutions. In the past, IAB automation designated for industries like semiconductor, EV, fast-growing areas will be our focus to provide support, the mass production of leading-edge equipment. We would like to support the sophisticated manufacturing process. Lastly, data services. I talked about the example of Cognizant. Later, the global large companies, the smart factory will be supported by this IT/OT covering via the products will be provided. The products, the characteristics are all related to each other, causing the virtual cycle. The strong devices are the starting point. By combining those devices, we provide solutions, and EC will be sophisticated. With solutions, higher quality data will be obtained, which will be used for data services.

IT/OT will connect it at the data services, and then the components will be aligned, and that cycle will continue. That is the evolution of IAB that we are talking about. Next. Let me talk about strengthening our front. As mentioned in the company-wide section, the key to this evolution lies in combining our partners with sales DX. Utilizing the customer basemap I showed you earlier, in China and Japan, we've already started integrating activities with our distributors. As mentioned in the financial results, we started to see the result at the base customers, and we have been visualizing opportunities, and we have better accuracy in our targeting. Based on this visualization, we are making the proposal at the right timing, and we can place the right people in the right tools, right roles, and we are able to evaluate sales performance accurately.

Now that we are talking about performance-driven assessment, we will be able to evaluate more accurately, and that will allow us to improve execution across the board on the sales side. There is an extensive distributor network. We have distributors to support 110,000 customer information. We map them out, and based on this map, we will implement strategies. Such an extensive distributor network itself, based on this customer basemap, will become a true competitive strength. We are able to implement a very unique distributor business using customer basemap, which cannot be copied by any other players, and building that entry barrier for the others. Lastly, let me also talk about the sales growth target by region. In a nutshell, in this IAB, in the second stage, we will not be depending on China, but still accomplish sustainable, stable growth globally.

Then people might say that, so you're not focusing on China anymore, but that's not true. Of course, the growth will maybe slow down from the past level, but still, China remains a vital, important market for us. We'll keep winning semiconductor and EV investments and capture domestic demand in traditional industries. In Europe and the US, we'll utilize the leverage on the Cognizant collaboration. We'll win major small factory projects and deliver high growth with region-specific sales strategies. That way, we can strengthen our alliance with Cognizant at the same time. The biggest growth is seen among all the region in this area, but we will expect what happens in the future. We will implement sales strategies suitable for this area.

That way, we can lower the dependence on China for the coming five years, but still accomplish much larger growth for the coming five years. Lastly, for the coming five years, we'll sharpen our forecasts and priorities and unite management and the front lines and build a company to achieve sustainable growth with solid profitability. We continue striving and bringing out results. We want to be a company that earns the trust and expectation of our stakeholders. We sincerely appreciate your continued support. Thank you for your attention. Now we want to move on to the Q&A session. We want to first take questions from investors and analysts. Just like earlier, for those in the room, please raise your hand. For those participating online, please push the raise hand button. For those on the phone line, please press star and nine.

We want to take as many questions as possible, so I hope you can limit your questions to per person. Starting with the person in the room. Thank you very much for your explanation. Itani from Goldman Sachs Securities. Only two questions. I have a lot to ask, but the first question is about financials. There was the case with the JC and the capital allocation you mentioned today. It was quite pleasing to see that you showed that. Simple calculations said your payout ratio is going to be around 90% or so based on the net income and within JPY 900 billion over that equity level. It can be a drastic change in also ROIC and there are many other indicators you showed us.

Coming to this, the roadmap, management, senior management members, have you discussed what you think about your common cash cost and what should be the cash flow and what would be the cash conversion cycle and also debt level? You clearly said you will utilize leverage, right? I'm sure you must have a huge discussion on this point. How much of a discussion did you cover? Was it also involving a major change? Unless you take such a major change, can you maybe explain how you got to this discussion to require you to have a drastic change? It'd be great if you could talk about using numbers, but if it's difficult, then what was the biggest bottleneck that you come to when you were discussing about this roadmap this time?

We discussed the senior management level, especially which I mentioned the portfolio management. The growing business and the business that is generating profits are not being invested enough. We identified the issue in that point first. For the coming five years or even beyond 2030, our growth and profit, so the businesses to sustain the growth and the profit should be invested a lot more. That is what we discussed first. Then we thought about how we can generate cash to be invested in those businesses. That is how we came to this cash allocation that we presented today. Data service business and IAB business, in order to reinforce them furthermore, and M&A would be essential. Of course, time changes and environment changes a lot. That is why we think it is necessary.

Just by utilizing the cash at hand would not allow us to conduct all the actions that we need. That is why we decided to take a step forward to utilize the leverage so we can execute the M&A. That is also incorporated into our presentation. I'm sorry that we're not showing the specific numbers, but that's our intention behind it. Thank you very much. You're not maybe announcing this externally, but for example, you had a JMDC, but are you looking at a much bigger acquisition possibly, especially in the data solution area? Yes, if there is such an opportunity, then we want to challenge to go for it. Priority, as mentioned earlier, will be on IAB. Opportunities in IAB will be the main focus to challenge. Thank you. Sorry. This is a second question.

In IAB and data solution chart, I think you showed us at the beginning, you showed us when I was looking at that information last year, you were when you were talking about JMDC, this is on page nine, a device business competitiveness reinforcement. Talking about data service beyond 2030, in case of JMDC, you were talking about the upside created by JMDC, and I do expect that to come. Earlier, you also showed us an example with Cognizant, even though you talk about some promising area, but I kind of think like maybe that's all you can get out of this business in terms of sales figure. Your expansion of your added value in data solution, would that be taking a quite long time to see? Would that be beyond 2030? There are many different technologies like physical AI and many others.

Is it something you can gain or you can expect in a much shorter period? That's what I'm hoping to see from your seeding activity to be seen in the near term, but it seems like it's taking longer. IAB, some additional point in IAB or data solution, what is the vision on them? Thank you for your question. Data service, at the time when we acquired JMDC, we have set targets and we haven't lowered them. We actually have a plan to go beyond that. In 2030, 15% is the target we have so far. The technology is evolving and social issues, and there's the labor issue, things are moving a lot. Focusing our investment into data services, there's a risk of actually causing a collapse in our foundation for the future.

Of course, we want to invest a lot in data service, but first we want to establish the foundation, the base business, and that's what we want to focus on in the coming five years. Just by investing in devices, for example, from 2030 to resume investment in data service, rather than that, we even included the five businesses out of data service to be invested over the coming five years so we can verify the business or we can commercialize them. The main focus is to reinforce the base foundation, and this should actually help and start contributing a lot beyond 2030. I hope you understand that. Thank you very much. If that's the case, manual focus business, JMDC data service was also one of the focus business.

Looking at your capital efficiency and many different factors, if the current situation is good enough for full consolidation, if you have more Cognizant projects and if you do not know what happens to healthcare, you can think of many different situations. Once again, I want to hear about your view on how the relationship with JMDC, and because since you have a minority, that part of the profit will be lost and taken by others. Do you have any change, have your thinking ever changed on JMDC at this point? Data service and the synergy with JMDC, we actually want to take another opportunity to explain that topic. Synergy, when it comes to synergy with JMDC, which was briefly touched on during the presentation, the growth of JMDC itself is actually much larger than expected.

We are making good progress in generating synergies. We will explain more in a separate briefing. There are many different interesting ideas, projects coming up so far. I do not see any need to make any change to the relationship with JMDC right now. We will keep the status quo for the time being. Our core strategy right now is to rebuild the portfolio management. In this effort, that will also be part of the discussion point. I am sure that requires a discussion point. To respond to your question at this point, the synergy and also growth of JMDC will continue to be supported. There is no change to that. Understood. Very much. Thank you very much. はい。では次の質問に移りたいと思います。 Moving on to the next question. From Jeffries Securities, Mr. Fukuhara, are they online, participating online? This is Fukuhara, Jeffries Securities. Thank you.

I have two questions. Page 16 of the slide, the bottom half, cash cow and the underperforming businesses. Cash cow businesses, of course, that should be well evaluated. As to underperforming business, on a little bit abstract tone, I would say that the collaboration with other companies, or like DMB, in the future may be coming out, is the choice that you can make in the future. Those 39 businesses, what is the size of the revenue of those 39 businesses? As to cash cow businesses, as to 39 businesses, we will continue to improve, try to improve profitability. In the other changing other market, if the competitiveness will be at a less than, we will make some investment as well. We are going to develop cash cow businesses. That is our basic policy.

If the improvement does not happen easily, and the combined ways, the future potential, other growth, not so good, then we might think about collaborating with other companies. As to coming out, we are not thinking about it at all. As to 39 businesses here, we will aim at making them profitable businesses. As to revenue, Takeda-san is going to answer. Thirteen other businesses will account for 50%. The remaining 39 businesses account for another 50%. On the profit, the 13 focus businesses account for 80% of the profit. Understood. Thank you. My second question, going to page 25, bottom left, this white part, other JPY 250 billion. This year's CapEx exceeds JPY 50 billion given the dividend payout. How much of the JPY 250 billion can be used for dividend payout? There is a small footnote here. CapEx or the borrowing.

From JPY 250 billion, how much of it can be used for share buyback, for example? Could you please give us some numbers? As to JPY 250 billion, Takeda-san is going to answer your question. From JPY 250 billion, as to dividend, as you can see, DOE 3%. That is sufficient to pay that level. As to buyback, the operating cash flow, targeting that operating cash flow or a certain fund for growth investment. If it is any dormant part of the other cash, then that will go for share buyback. Of course, we are going to think about the possibility of doing share buyback. Thank you. ありがとうございました。 Thank you. Next question. Yoshizumi-san from SMBC Nikkō Securities. Yoshizumi from SMBC Nikkō Securities. I will have two questions. An overall midterm plan, where do you see the risks within the midterm plan? That would be my first question.

You are talking about execution capability. I believe that matters a lot. You always have a sense of crisis. I always do feel that you do have the sense of crisis. How about the heads of each business division? What are the incentives considered for them? Is there any change in order to increase the executive capabilities? What are the incentives? What type of system is considered to encourage them to be motivated in reinforcing execution? Are you also thinking about changing incentives with the distributors as well? During the structural reform period, in each business company, there is a heightened sense of high risk among all the business companies. We have had repeated discussions and made decisions to set this roadmap.

Like you said, the increasing reinforcing execution capability is going to be the biggest theme, and we will be required to be able to accomplish this. You don't just, you know, just by having your spirit doesn't really allow you to accomplish to improve the execution. We will also take actions to address the evaluation system, so we can actually evaluate and assess people based on the performance as well. More details of such an evaluation system can be explained at another opportunity, but not just the salaries and bonus. We will set new types of incentives or also the stock shareholder remuneration. By combining all these different factors, we want to introduce into a new incentive system and to motivate them. With the distributors, I think we are about time to review the revised rebate system.

We are in the middle of discussion right now. Towards next April, we will finalize the details so we can start taking action to make a reform. Thank you. My second question, your business portfolio strategy, and you identify the focus businesses, and you call them as cash cow business, the also focus business. How often do you review and reshuffle such businesses? What is your plan on reviewing them? You mentioned you're not planning on curbing out of any business, but I think that doesn't really make sense if it's the business portfolio strategy. Can you maybe elaborate more on that intention? Regarding carbon, it doesn't mean that we are not thinking any carbon in the future. It's just we don't have any right now at this point, but it doesn't mean that we will never have carbon in the future.

Please understand that. Regarding portfolio management, we have been implementing managing the portfolio in a disciplined manner. In the past, we reviewed portfolio every year, and based on the results of business, many focus on discipline and trying to improve the challenging businesses. Like I said at the beginning, now as a CEO, I am involved in lodging and making planning for the focus businesses. If this plan does not work as expected, then we are going to have to take new measures or new actions as needed. Of course, for the focus business, we also want to take a broad action to replace the head or the leading person of those businesses, also reshuffling the business. We want to be flexible in reviewing them, not just in a limited.

I think it's not something to be fixed to have once a year, but now that I'll be involved more on a hands-on basis, I want to leverage my capability to be able to flexibly reshuffle the portfolio. Thank you for your answer. Next question. Tanaka-san, Mizuho Securities participating online. Are you there? Thank you for the presentation, Ms. Tanaka of Mizuho Securities. I also have two questions. On page 16, portfolio transformation, the 50% of the revenue comes from 39 businesses. What is the breakdown of this 50% between cash cow businesses and underperforming businesses? How many businesses each, and how much did they weight in the revenue? The coming out could be potential. At what timing when they cannot be the other cash cow other business? Do you have any timeline for cash cow and underperforming businesses, respectively?

Takeda-san is going to answer your question about cash cow and underperforming businesses. ROIC, the management business portfolio, we have been pursuing numbers as well as portfolio management. Among the other 39 businesses, the number of really underperforming businesses is decreasing. There are some businesses which are a bit more difficult to produce the profits in the future. During one to two years, we would like to identify those businesses, and if necessary, we will address the issues. Even if the business is running in the red, that does not necessarily mean that they are problematic, the other business. There are other businesses among those 39 which are necessary for the operation of 13 focus other businesses. Now we have the categorization between cash cow and underperforming business.

Underperforming businesses, but supporting businesses for focus businesses, we need to think about how to address those other businesses. Page 26 and 27. JPY 1.2 trillion is the revenue by 2030, a little bit less than JPY 1.2 trillion. The revenue seems to be very important for each business. Coming out might happen, but there will be some potential increase in revenue. At this moment, there is no carve-out assumption, and a different assumption is used for the numbers on this page. From various aspects, those numbers have been simulated. M&A case, carve-out case. We assumed those scenarios to come to those numbers. It is not just based on one scenario, but as a percentage, we are going to achieve those numbers. Thank you. Thank you. My second question. On page 26, financial targets.

It says gross, OP margin, ROE, ROIC, various KPIs are shown here. Is there any particular focus on a certain metrics? Is there any priority if it is ROIC or ROE? Focusing on these. You might not hesitate to reduce the capital ratio. In the past, we had many KPIs shown. This time, you said that there are many indicators here. Here, we have disclosed our focus metrics alone. It is difficult to prioritize those five indicators or metrics. We are going to continue to challenge those stretch targets. In the past, ROIC and ROE were not really disclosed in the past, but now you are showing it. With leverage, and you would like to show the, we would like to focus on ROIC, ROIC, and EPS growth rate. It is another stretch target. Options here are to increase profit or exercise share buyback.

EPS growth rate is included here. There are some other changes reflected on this table. That's clear. Thank you. では次のご質問です。 Next question. Okawa-san from Daiwa Securities. Are you connected? Thank you for today's presentation. This is Okawa from Daiwa Securities. I have two questions. First, it's on page 27. And the target numbers by segment and with IAB. The net sales grows by 6% while growing market share to see improved profitability. Spending more in R&D, increasing headcounts. Not so high margin in your Western country to see the strong growth. Even though you may be exposed to the stressed margin level, you can actually grow the business. Would that be possible to grow the business while improving the profitability? Are you able to accomplish this OP margin for sure? Thank you for your question.

Not just the sales growth, but also it has to come with profit. That is our basic idea. In this sales growth, we'll have to go beyond the market growth, which would be 6% for IAB. As I mentioned, IAB should be driven by the focus business, which are high profitable businesses. These businesses, the growth of these businesses will change the mix, and that should actually change the value, and that should generate more earnings. As I mentioned, as part of reinforcing values, including the other players, Chinese players, I think it's going to be quite important to be more competitive in cost against them. Not just the gross margin improvement, but the whole company will work hard to contribute to the gross margin improvement.

Closing down supply chain in China is going to be the biggest contributor, and SKU optimization is going to be another contributing factor. The operational cost and component holdings, and they need to be optimized further more to improve gross margin. I believe this OP margin as well and this sales growth is well within our reach, I believe. Thank you. My second question is strategy for IAB. You're talking about reinforcing relationship with the distributor to visualize the 110,000 customers around the world. Looking at the growth in Japan and China, not so much high growth. I believe distributor business will come from China and Japan, whereas in Western countries tend to show higher growth rate. With the collaboration with Cognizant, is it really possible to accomplish this growth? It seems like the situation is not really making sense to me.

If you can explain that, it would be great if you can elaborate more on this point. For the Western countries, one major initiative is the collaboration partnership with Cognizant to enter the business with major clients. We can expand the component and service business with those major clients, and that is one pillar. In addition, for the U.S. market, the extensive region area they have, we want to cover the whole area. Our sales reps are acting to be able to cover the whole region. That is also bringing out the results, not just the collaboration with Cognizant, but we are also taking such a basic action in sales. The same thing for Europe. With these actions, we will aim for the growth that was not seen in the past before.

Also, the distributor business market in Japan and China may not see much of the strong growth, but a CAGR of 6% is not that low. I believe this is still a quite challenging growth number. We will work with distributors so that we can expand our market or the business in those markets as well. Thank you. それでは投資家アナリストの。 From investors and analysts, this is going to be the last question. Here is Maikawa, Nomura Securities. Thank you for the presentation. I have two questions as well. Device component, you're going to focus on that, which is important for the foundation. The cost competitiveness, especially with Chinese manufacturers, that is what I would like to ask. On page 19, as you referred to, you would like to complete supply chain in China, that's important, you said.

Looking at local players, they are very aggressive, very speedy. Probably you want to, or they want to get more share despite the low profitability. How are you going to face with those competitors? How do you think you can win in the Chinese market? There are very other sectors which are struggling in the Chinese market. How are you going to face with the competition in China? What is your stance? We have received the similar question many times. We do not intend very much to compete with price in China. We would like to complete the supply chain so that we will have a competitive edge. The main scenario in China is solution business, value-added business, and going to the leading edge of the sectors to get market share. We keep the strengths there, and we would like to brush up that strength.

As to supply chain, its supply chain description is on this page, but development sales. To do all that in China, what does it mean? We would like to deliver our values to the Chinese needs speedily. We would like to make a big change there. We would like to provide products or values which match even more adequately with the other market. Let me repeat. We would like to add the strength in our capability to respond to the needs with high-value products and the speed of the value chain, not on the cost or the price. Thank you. Thank you. As to health, what about healthcare? BPM, for example, I can get the other image. Right now I have a good image about IAB, but how about healthcare? It's the same.

To compete with the Chinese local players, we need to have a price competition. We need to immediately work on that. We have technology and the physicians' network, which are a differentiating factor in the Chinese market. We are going to continue to brush it up, strengthen it to compete in the Chinese market. Thank you. My second question. Looking back, there is a high volatility of results, and you're committed to perform better. The customer base map using distributors, individualization. You are talking about 110,000 other customers, and you need to get a lot of data from distributors. How much progress have you made so far? How are you collaborating with distributors? How are you utilizing actually this customer base map? We are still making progress, but we are in more than 50% of these 110,000 companies are visualized.

In Japan and in China, the visualization exists, so we can use this map. New products to whom and at when, and such the strategy or the consolidation of the strategies are paying off and a good reaction. We would like to roll it out globally to contribute to the growth of IAB. As to distributors, you talked about products vis-à-vis customers. What about inventory management? This map can be used for that purpose as well? Inventory of distributors? Distributors' inventory. Of course, distributors have a very strong relationship with customers. Pipeline, and they need to have their inventory level as such. Using this map, there is some clarification, visualization, so the customer state will be available, and the distributors can evolve their inventory level in a new way. The same applies to us.

We can have two-dimensional, if you like, the view of inventory, including standard inventory, and that will certainly lead to the better efficiency of inventory. Thank you. Thank you so much. Now, we want to open the floor to the media questions. Anyone who has questions in this room, please raise your hand. If you have questions online, please push the raise hand button, and please leave your questions to two per person. 徳田さんから。 From Toyo Keizai. Japan Activation Capital has now become your partner. In making this mid-term plan, how did you utilize their resources? For the coming few years, I bet you're going to have the relationship with them. What is your plan to collaborate with them utilizing the resources? You haven't really disclosed much in details at this point, but anything that you can talk today, can you share some?

Basically, we won't be able to give you details in terms of this collaboration, but we do have many different discussions in this mid-term plan, mainly with IAB. They are involved in the discussions in IAB, mainly like in the U.S. market, how to compete in the U.S. market. We have many discussions with them. They have a very comprehensive holistic view to determine where we have room for further improvement. We receive their advice, and we will have some discussions. When it comes to this roadmap, even before JAC came as a partner, we have been discussing a lot. The very basic, the backbone has been basically discussed by ourselves in the beginning. Thank you. For focus businesses, and you're talking about reinforcing 1,000 headcounts. Lately, you had early departures of staff.

How are you going to manage these new headcounts to be hired this time? We will optimize the human resources and talents, and we have downsized the headcounts to some level. Now, we want to reinforce device businesses furthermore, and we want to convert into data services. We will also need to reinforce more suitable resources to support such efforts and initiatives. Of course, we're going to have to continue growing the business. Of course, we won't be adding resources without having any growth. While accomplishing growth, first, we will reallocate the internal resources over to those growing businesses, but we will also hire new people. Not just the net increases. We will actually have a slight control over the total number by utilizing natural attrition as well. Thank you for the answer. ではご質問ございますでしょうか。 Any other questions?

Miyata-san from Diamond Quarterly, thank you for your time today. The visualization of customers, and I'd like to ask about customer basemap. You are going to tap on the white space, white space strategy. You are going to collaborate with distributors. You said earlier that this effort is paying off as much as possible. Could you please talk about some examples? Right now, in IAB, we are accelerating new product development. I mentioned in the results briefing that during the pandemic, we could not develop many products. Forty-two other new products over three years to come. That's our plan. We are already launching some new products. When we do so, we can use this other basemap, basically in Japan and China. This new product is going to fit in this space of this customer.

Here is a proposal that we are going to bring to a customer. Whether actually the sales are made or not, you can see by changing color. If you cannot make sales, then maybe you can adjust the proposal. In the past, here is a new product and target how to sell, or we did not really think about the attributes of the specific customers. We just tried to sell the products to the customers in the same manner. Here, with the map, we can discuss how we are going to sell new products to each customer. What is the reaction or voices of your distributors? From the distributor side, the products that are easy to sell for them. Such products, more products to sell are good news to distributors. By repeating this other base map operation, the targeting accuracy will be better.

We can align our new products to that information given by the map. The distributors, we believe that we can win the support from the distributors because this will contribute to them. Next question. This is Tsunoda from Nikkei newspaper. Can you hear me okay? Thank you. I have some questions about investments. For the 13 focus businesses, you will spend more resources mainly on these businesses. Just confirm some numbers first. For the past five years, for this time, you are talking about investment to be JPY 800 billion for reinvesting into businesses. How much have you invested for the last five years? For those 13 businesses, how much have you invested in the past? First, can I get some numbers on them? Okay. Takeda will answer the questions.

Sorry, I don't have the exact figures with me. Let me get back to you later. Understood. Thank you. Also, you will be making clear ideas into the investments. That might make it difficult for you to bolster the challenging businesses. For those businesses who are not making profits a lot, may actually get weakened. What do you think about that possibility? As we manage a portfolio, we will accelerate and more tearfully. Of course, that could happen, as you just mentioned. This is about selection and focus. Now all the business cannot be invested evenly. This will actually bring us to continue what we are doing right now. We want to have a strong intention to manage the portfolio. I see. The size of investment on slide 24, you're talking about the sources for the investment.

During this period, the operating cash flow, if the operating cash flow turned out to be quite different from your expectation, what happens? The investment can be also adjusted, increased or decreased. Would that be also a possibility? This JPY 800 billion is actually set as your estimate or rough target? Yeah, of course, the cash inflow can vary depending on the market environment. The reinforcement will not be completed as expected in that case, and we can see the gap from what we are aiming for. When we look at the cash allocation, we will make an adjustment at a time appropriately to manage the funds properly. Of course, we do not. There is a huge risk if we just continue investing, as we mentioned right now. We will be flexible in adjusting them. Thank you. Lastly, I know I have this detailed question.

These 13 businesses, focus business, relay switches, those electrical components are not included. Does that mean that you do not need a huge investment in those businesses? Partly in the factory automation business, there is a control component section which covers those products that you just mentioned. Okay, so that is covered. Okay, I see. Thank you. では次のご質問です。 Next question. 近藤さん of Kyoto newspaper. Can you hear us? Here is Kondo speaking. Kyoto newspaper. I would like to need clarification. Revenue target, sales target. ありがとうございます。先ほどのご質問も回答させていただいたんですけど。 We have answered that question earlier, but the portfolio in the optimization of the business portfolio, the ultimate numbers, what will be the ultimate numbers figures? We are thinking about it using multiple numbers of scenarios. Whatever the scenario is, the gross rate will be the focus on it. Whatever the scenario is.

Simply put, for example, if I 2024, starting on that, the CAGR are the X %, and then the revenue will be this much. Without a certain business, the portfolio, then the revenue will be this much. We have discussed that way using various scenarios. We just determined those percentage numbers. Thank you. Sorry. For investment, M&As, development investment. At this moment, about the types of investment, could you please talk about what kind of the investment that you are going to make specifically? As to capital allocation, simply put, we are going to invest in development. That is the biggest chunk. Also, we are making CapEx, usually JPY 20 billion-JPY 30 billion per annum. This is for business. Going forward, it will be very important to invest in IT.

We need to think about how to control it, DX, or the operational transformation, and the management should be digitized as well. Investment there will increase. M&As, leveraging debt financing. We are talking about JPY 200 billion level debt. When we invest in M&As, we are going to use debt financing. Development, IT, M&A, these are the big areas for investment. The HR cost is in the SG&A. Thank you. Thank you. ではお時間が近づいております。 I think it's getting close to the ending time. We will make it a last question. 長澤さん from Monolist. This is Nagasawa from IT Media, Monolist Editor's Office. The 13 focus businesses, especially IAB-related businesses. Earlier, I think you mentioned relays and switches are also part of the, you know, the components, right? Control components.

If that's the case, the drives are also part of the control components. Sorry, it's a bit too specific, but can I confirm? Yeah, motions and drives, they're under controllers. Because in providing solutions or data service, the combination of these different components will be provided as a solution to customers. These will actually help to improve the value of controllers. That's why we included drives as part of the controllers, and that is covered as focus businesses. Another question. Robotics. Is it also included somewhere? The robots, no, it's not included among them. I see. One more thing, lastly. For IAB, as you are developing, working on new products. Those new products in IAB, can you give us your view on the direction forward for IAB new developments?

This also was covered in the presentation as well, but the customer basemap, that is going to be the source or starting point for the value chain. We will identify which area, which customer attributes, which industry where we show our strengths or where we show our weakness compared to the other players. Depending on this map information, we are analyzing them as well. We will use that as a basis to determine where to reinforce the products and also reinforce in terms of technology. Those 42 products that we are working on right now are actually aligned with the concept, and we will be introducing them into the business. I see. Thank you so much. ありがとうございました。 Thank you very much. We start. We'd like to conclude this briefing. We are going to send you the questionnaire form.

Thank you for your collaboration. After this, we are going to have some time to exchange name cards with the other presenters. Thank you very much for your participation for long hours. Thank you.

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