Bridge Report:（6914）OPTEX GROUPFirst quarter of fiscal year ending December 2021

Isamu Oguni President and CEO	OPTEX GROUP (6914)

Company Information

Stock Information

*The share price is the closing price on May 10. Shares outstanding, DPS, and EPS are taken from the brief financial report for the first quarter of FY December 2021. ROE and BPS are the results in the previous term.

Earnings Trend

* Net profit is net profit attributed to parent shareholders. On April 1, 2018, a 2-for-1 stock split was implemented. Both EPS and DPS are revised retroactively.

This Bridge Report presents OPTEX GROUP’s earnings results for the first quarter of fiscal year ending December 2021 and so on.

Table of Contents

Key Points
1. Company Overview
2. The First Quarter of Fiscal Year Ending December 2021 Earnings Results
3. Fiscal Year Ending December 2021 Earnings Forecasts
4. Central Policy for the Medium-Term Management Goals: Shift from “Mono Uri (Selling Products)” to “Koto Uri (Selling Solutions and Services)”
5. Conclusions
<Reference: Regarding Corporate Governance>

Key Points

• The sales for the first quarter of the fiscal year ending December 2021 were 10,974 million yen, up 24.7% year on year. In addition to the growth of existing businesses, mainly the FA segment, IA business, and Sanritz Automation Co., Ltd. which became a subsidiary in the previous term, contributed to the sales growth. Both Japan and overseas showed a double-digit increase in sales, with Asia including China showing large growth. Operating profit was 1,326 million yen, up 139.0% year on year. Gross profit margin decreased, but due to an increase in sales, gross profit increased, offsetting the increase in SG&A expenses. Even on the quarterly base, sales and profit greatly increased from the previous quarter and from the same period of the previous year, exceeding the pre-pandemic level.

   

• There is no change in the financial forecast. For the fiscal year ending December 2021, sales are estimated to grow 14.8% year on year to 40 billion yen, and operating profit is projected to rise 43.0% year on year to 3 billion yen. The company aims to increase sales in all segments. Sanritz Automation Co., Ltd., which the company made into a subsidiary, will contribute approximately 3 billion yen to sales. By region, Asia, centered on Japan and China, will drive sales. The dividend is scheduled to be the same as the previous fiscal year at 30.00 yen/share. The estimated payout ratio is 49.3%.

   

• The central policy for accomplishing the medium-term management plan of achieving “50 Billion Yen in Sales by the Fiscal Year ending December 2023” is to transform the business model from “Mono Uri (Selling Products)” to “Koto Uri (Selling Solutions and Services).” The transformation from “Mono Uri” to “Koto Uri” is being pursued in every business.

   

• A double-digit increase in sales and a large increase in profits were recorded, mainly due to the growth of FA business in the Chinese market. Security sensor segment which had been sluggish during the previous term have also been steadily growing in every region, obtaining a favorable start for the fiscal year ending December 2021. All the profits have exceeded the estimates for the first half of the fiscal year and an upward adjustment is very likely as long as there are no major changes in the business environment.

   

• Meanwhile, this term will be the first step towards the reattempt to achieve 50 billion yen in sales. The company believes the transformation of the business model from “Mono Uri” to “Koto Uri” will be the key to achieving this, but we would like to pay attention to how cases including the “Visual Verification Solution Business” will progress and contribute to revenues, as the company exerts its competitive advantage while the external business environment is favorable.

   

1. Company Overview

OPTEX GROUP Co., Ltd. is a holding company centered around OPTEX Co., Ltd. that manufactures and sells outdoor sensors (top share of 40% in the global market), automatic door sensors (30% share of the global market and 50% share of the domestic market) and environment-related products.
OPTEX GROUP holds subsidiaries including OPTEX FA CO., LTD., which deals with FA related sensing business; CCS Inc., which holds the global top share in the LED lighting business for image processing; Sanritz Automation Co., Ltd., which has a wealth of results in the development, manufacturing and sales of industrial computers, Three Ace Co., Ltd., which specializes in the development of various systems, applications, and digital content; Optex MFG Co., Ltd., which is responsible for manufacturing Group products, RAYTEC LIMITED (UK), which has attained the largest global share (about 50 %) for supplemental lights for CCTV; and FIBER SENSYS INC. (US), which deals with optical fiber intrusion detection systems.
As of December 31, 2020, the company operates in 84 locations worldwide, including 28 overseas companies.

【1-1. Corporate History】

In May 1979, Mr. Toru Kobayashi (currently serving as a director and senior corporate adviser), who was developing security sensors in a manufacturer of anti-crime devices in Kyoto, established OPTEX Co., Ltd. with the spirit of the endeavor to “make their products recognized in the world as much as possible.”
In November 1979, the company developed “the world’s first far-infrared sensor for automatic doors.” Around that time, pressure-sensitive rubber mats were used for automatic doors, and an automatic door sensor that utilizes far-infrared light was epoch-making. OPTEX was unrivaled in maintenance and installation services, and seized the largest share in the market of automatic door sensors in the third year after inauguration (currently occupying about 50% of the Japanese market).
Since then, the company has developed a wide array of products for security, automatic doors, and industrial equipment with its unique ideas and technologies that embodies them.

In the 1980s, the company entered overseas markets. While it had been considered impossible to set a far-infrared sensor outdoors because external factors, such as light, would cause errors, the company developed the outdoor far-infrared sensor “VX-40” with its original technology, and that sensor was highly evaluated mainly in the European market, and occupied the largest share in the global market of outdoor intrusion detection sensors.
Through business expansion, the company became an over-the-counter company (equivalent to being listed in the JASDAQ market) in 1991. Then, it was listed in the second section of Tokyo Stock Exchange (TSE) in 2001, and in the first section of TSE in 2003.
Recently, the company has been strengthening solutions based on image processing technologies and high-end security systems. In 2008, it reorganized ZENIC INC., which undertakes the development of ICs and LSI for image processing, etc., into a subsidiary. In 2010, it acquired FIBER SENSYS INC. (US), which has plenty of experience handling high-end security systems (optical fiber intrusion detection systems) for important facilities in Europe and the U.S., as a subsidiary. In 2012, it acquired RAYTEC LIMITED (UK), which handles supplemental lighting for cameras of high-end security systems for important large-scale facilities, as a subsidiary.
In May 2016, it acquired CCS Inc., which has the world’s largest share in the market of LED lighting for image processing, as a subsidiary, and transformed it into a 100% subsidiary in July 2018.
With the aim of adopting next-generation business administration and pursuing group synergy, it shifted to the holding company system on January 1, 2017.
Mr. Isamu Oguni was appointed as President and CEO in March 2019.

In December 2020, the company acquired Sanritz Automation Co., Ltd., which has an abundance of experience in developing, manufacturing, and selling industrial computer systems, as a subsidiary. In February 2021, it announced a three-year medium-term management plan ending fiscal 2023. To achieve this plan, the company aims for further growth as the global niche No. 1 company by promoting business model reforms and strengthening solution proposal capabilities.

1-2 Business Description

The Company’s business is composed of its main SS business (security sensor segment and automatic door sensor segment), sensors for industrial machinery, LED lighting device and system for image processing, the “IA Business” which works towards the automation, labor saving, and optimization of the production line using industrial computers, “EMS business,” which was included in the SS business up until the previous term and provides contract manufacturing services for electronic equipment in China, and Other business (operation of sport clubs and development of applications and digital content).
The above segmentation will be put into practice from the first quarter of the fiscal year ending December 2021.

＊SS: Sensing Solution、IA：Industrial Automation、FA：Factory Automation、MVL：Machine Vision Lighting、IPC：Industrial PC 、EMS: Electronics Manufacturing Service

1-3 Advantages: Diversified Technologies/Expertise on Sensing and Unique Sensing Algorithm

To produce stable and reliable sensors, it is essential to build on a number of elemental technologies and expertise, as well as “algorithms” to control physical changes. The company takes advantage of its technologies/expertise suitable for intended applications and its unique sensing algorithm to secure the largest share in the global market.

1-4 ROE analysis

The company is aiming for an early recovery to the target of 10% or more.

1-5 Efforts on ESG

The company believes that building a relationship of trust with a wide range of stakeholders is essential for improving corporate value and has posted 「ESG information」（https://www.optexgroup.co.jp/en/esg/stakeholder.html）on its website to further enhance ESG information disclosure. In addition, Published the ESG Bridge Report through Investment Bridge Inc.
The company identify the materiality for sustainable growth for the first time, and mention the challenges and initiatives for the future in the report.
https://www.bridge-salon.jp/report_bridge/archives/eng/6914/20210525.html

2. The First Quarter of Fiscal Year Ending December 2021 Earnings Results

(1) Business Results

*Unit: million yen. The Quarterly Net profit is the quarterly profit attributable to owners of the parent company. The same shall apply hereinafter.

Substantial increase in sales and profit
The sales for the first quarter of the fiscal year ending December 2021 were 10,974 million yen, up 24.7% year on year. In addition to the growth of existing businesses, mainly the FA segment, IA business, and Sanritz Automation Co., Ltd. which became a subsidiary in the previous term, contributed to the sales growth.
Operating profit was 1,326 million yen, up 138.9% year on year. Gross profit margin decreased, but due to an increase in sales, gross profit increased, offsetting the increase in SG&A expenses.

◎Trends in each quarter

Even on the quarterly base, sales and profit greatly increased from the previous quarter and from the same period of the previous year, exceeding the pre-pandemic level.

◎Regional trends

*Unit: million yen.

Both Japan and overseas showed a double-digit increase in sales. Although sales in America increased only slightly, Asia, especially China showed large growth.

◎Average exchange rate

(2) Earnings by Segment

①Trends in each segment

*Unit: million yen. Ratio to sales of Operating profit refers to Sales Profit margin.

②Trends in each segment and region

*Unit: million yen

◎SS Business
Sales and profits increased.
（Security sensor segment）
Sales increased.
* Japan: The sale of outdoor intrusion detectors for security companies and large-scale critical facilities were healthy, resulting in an increase in sales.
* AMERICAs: While the sale of outdoor intrusion detectors for general housing and business offices was sluggish, the sale of products for large-scale critical facilities was favorable, resulting in an increase in sales.
* EMEA: The sale of detectors for large-scale critical facilities through the sales subsidiary in Europe and the sale of outdoor intrusion detectors for general housing in the Southern European region were healthy, resulting in an increase in sales.
* Asi The sale of intrusion detectors in India and Southeast Asia was favorable, resulting in an increase in sales.

（Automatic door sensor segment）
Sales increased.
* Japan: Due to the steady demand from stores that sell daily necessities, the sale to automatic door dealers has increased steadily, resulting in an increase in sales.
* AMERICAs: The sale of products for major automatic door manufacturers in North America was sluggish due to disruption in the physical distribution and a shortage of parts, resulting in a decrease in sales.
* EMEA: The sale of products for major automatic door manufacturers in Europe was healthy, resulting in an increase in sales.

◎IA Business
Sales and profits increased.
（FA segment）
Sales increased.
* Japan: The sale for the food industry was sluggish, but the sale for electric devices, electronics and semiconductor related investments was healthy, resulting in the same level of sales year on year.
* EMEA: The sale of displacement sensors for electronic parts was healthy, resulting in a large increase in sales.
* Asi The vigorous capital investment demand in China caused a steady growth in the sale of displacement sensors, resulting in a large increase in sales.

（MVL segment）
Sales increased.
* Japan: The sale for the automotive industry was sluggish, but the sale for electric devices, electronics and semiconductor related investments was healthy, resulting in the same level of sales year on year.
* AMERICAs: The continued projects for the medical industry in the North American region and the orders received for semiconductor related investments resulted in an increase in sales.
* EMEA: The sales for the French subsidiary expanded due to the recovery of economic activities in Europe and product distribution to the United States of America, resulting in an increase in sales.
* Asi The sale for semiconductor related investments in China expanded, resulting in a large increase in sales.

(3) Financial Conditions and Cash Flow

◎Main BS

*Unit: million yen

Total assets were 49,761 million yen, up 2,370 million yen from the end of the previous term, due to an increase in receivables, etc.
Total liabilities were 15,968 million yen, up 1,203 million yen from the end of the previous term, due to an increase in payables, etc.
Net assets were 33,792 million yen, up 1,167 million yen from the end of the previous term, due to an increase in retained earnings, etc.
The equity ratio was 67.4%, down 1.0 point from the end of the previous fiscal year.

3. Fiscal Year Ending December 2021 Earnings Forecasts

(1) Earnings forecast

*Unit: million yen.

No change in earnings forecast. Forecast increase in sales and profit
There is no change in the financial forecast. For the fiscal year ending December 2021, sales are estimated to grow 14.8% year on year to 40 billion yen, and operating profit is projected to rise 43.0% year on year to 3 billion yen.
The company aims to increase sales in all segments. Sanritz Automation Co., Ltd., which the company made into a subsidiary, will contribute approximately 3 billion yen to sales.
By region, Asia, centered on Japan and China, will drive sales.
The dividend is scheduled to be the same as the previous fiscal year at 30.00 yen/share. The estimated payout ratio is 49.3%.

◎Regional trends

*Unit: million yen.

(2) Trends in each segment

①Sales of each segment

*Unit: million yen.

②Trends in each segment and region

*Unit: million yen.

4. Central Policy for the Medium-Term Management Goals: Shift from “Mono Uri (Selling Products)” to “Koto Uri (Selling Solutions and Services)”

(1) Medium-term Managerial Goals

Under the group philosophy, “We aim to become a corporate group full of Venture Spirit!” the company will continue to (1) reduce fixed costs aiming for a consolidated sales operating profit margin of 10% or more in the fiscal year ending December 2022, (2) improve profit per person, and (3) achieve sales growth of 10%. In this way, the company will take on the challenge again of achieving sales of 50 billion yen in the fiscal year ending December 2023 as a medium-term managerial goal.
To curb the indirect cost increase for the entire company by enhancing the functions of the headquarters through the installation of CMS (Cash Management System).
The company will get back on track for growth by expanding existing business and promoting new business.

(2) Main Measures: Shift from “Mono Uri (Selling Products)” to “Koto Uri (Selling Solutions and Services)

The central policy for accomplishing the medium-term management plan is to transform the business model from “Mono Uri (Selling Products)” to “Koto Uri (Selling Solutions and Services).”
The shift from “Mono Uri” to “Koto Uri” in each business is as follows.

①SS Business：Security Sensor segment
The company is developing its "visual verification solution business" with the aim of expanding its market share in the US and Europe through an alliance with the US venture company CHeKT.

（Outline）

(Taken from the reference material of the company)

② SS Business: Automatic Door Sensor Segment
The company will expand its Data Service Business using its advantage of occupying 50% of the domestic market.

◎ Offer the First Domestic Automatic Door Data Platform
The company is offering an “Automatic Door Data Platform” which provides data obtained from automatic doors (operational information, set values like speed, etc., and error information).

(Outline)

(Taken from the reference material of the company)

◎ Sharing Service “OMNICITY” Utilizing Automatic Door Sensors
The company started operating OMNICITY in February 2021 as a specific example of the reform to the business model. This is a sharing service that utilizes automatic door sensors equipped with beacon functions.

（Outline）

(Taken from the reference material of the company)

③IA Business：FA segment
The company will further promote cooperation with SICK AG, the world’s leading sensor manufacturer.

（Outline）

(Taken from the reference material of the company)

④ IA Business: MVL Segment
Offering a comprehensive solution using AI and robots.

（Outline）

(Taken from the reference material of the company)

5. Conclusions

A double-digit increase in sales and a large increase in profits were recorded, mainly due to the growth of FA segment in the Chinese market. Security sensor segment which had been sluggish during the previous term have also been steadily growing in every region, obtaining a favorable start for the fiscal year ending December 2021. All the profits have exceeded the estimates for the first half of the fiscal year and an upward adjustment is very likely as long as there are no major changes in the business environment.

Meanwhile, this term will be the first step towards the reattempt to achieve 50 billion yen in sales. The company believes the transformation of the business model from “Mono Uri” to “Koto Uri” will be the key to achieving this, but we would like to pay attention to how cases including the “Visual Verification Solution Business” will progress and contribute to revenues, as the company exerts its competitive advantage while the external business environment is favorable.

＜Reference: Regarding Corporate Governance＞

◎Organization type, and the composition of directors and auditors

◎Corporate Governance ReportThe latest revision date: March 26, 2021

<Fundamental concept>
As the Group, we recognize that it is our greatest mission to continuously improve corporate value while earning the trust of our shareholders, investors, customers and society. To practice it, we consider enhancement of the corporate governance as one of important management tasks and aim to improve the transparency of management, maintain management systems accompanying fair and prompt decision making and strengthen management monitoring function.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
The company has implemented all of the principles of the Governance Code.

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>