To Daifuku’s Shareholders and Investors

To Daifuku's Shareholders and Investors

We would like to begin this message by expressing gratitude to our shareholders and investors for their ongoing support.

1. Operating and financial review

During the fiscal year ended March 31, 2019, the global economy benefited from an expansion in the U.S. and generally firm trends in Japan as well as in European and emerging nations in the first half. Meanwhile, in the second half, a trade conflict between the U.S. and China, a slowdown in economic growth in China, and other issues are creating uncertainty about the future.

The Daifuku Group’s mainstay material handling systems continued to enjoy robust investment as a whole, bolstered by demand from a broad range of industries, including e-commerce and other distribution sectors, semiconductors, flat-panel displays (FPDs), automobiles, and airports. In the background are increases in the global movement of people and goods, transformations of distribution systems, and changes in the industrial structure associated with technological innovations, including the Internet of Things (IoT). Investment in automatization was spurred by labor shortages.

Amid these economic and business conditions, the operating results of the Daifuku Group remained favorable and achieved new record highs in terms of orders, sales and income during the fiscal year. The fiscal year ended March 31, 2019 was the second year of the four-year business plan Value Innovation 2020 (April 2017 to March 2021), and the plan’s targets were already achieved.

For more details, please refer to “Four-Year Business Plan”.

Orders remained strong, driven by large projects from semiconductor manufacturers in East Asia and North America, as well as from pharmaceutical wholesalers and distributors including e-commerce in Japan. In systems for airports, which non-Japanese subsidiaries have been handling, large orders were posted in North America. In addition, the Group continued to build its track record in Japan, where demand for equipment upgrades is rising in preparation for the 2020 Tokyo Summer Olympics.

Sales were positive, underpinned by the high level of orders. With increased production capacity due to continued capital investment and increased supply capacity to meet rapidly rising demand, achieved in cooperation among Group companies worldwide, the Group was able to achieve growth in sales.

As a consequence, the Group received orders of 503,399 million yen, up 3.2% from the previous fiscal year and recorded sales of 459,486 million yen, up 13.5%.

In terms of profits, operating income significantly surpassed the year-ago figure, reflecting increased earnings strength from higher revenue and cost cutting by the parent company Daifuku Co., Ltd., while also benefiting from the strong performance of an East Asian subsidiary that handles systems for the semiconductor and FPD sectors.

With the transfer of shares of Knapp AG, which was an equity-method affiliate in Austria, Daifuku posted extraordinary income from a gain on the sale of shares in affiliates of 6,948 million yen (balance of consolidated book value). A buyout of part of the defined benefit pension plan of a consolidated subsidiary, Jervis B. Webb Company (a wholly owned subsidiary of Daifuku North America Holding Company, a company overseeing operations in North America) resulted in retirement benefit expenses of 6,897 million yen (including consolidated adjustment) in extraordinary losses. The purpose of the transfer of shares of Knapp was concentrating management resources in the growth markets of Asia and North America. The buyout of the pension plan of Jervis B. Webb was intended to remove accounting and financial uncertainties, including pension fund management risk and financial deterioration risk.

Consequently, the Group posted operating income of 54,681 million yen, up 37.0% from a year earlier, and ordinary income of 55,842 million yen, up 35.9%. Net income attributable to shareholders of the parent company was 39,567 million yen, up 36.4%.

2. Outlook for the fiscal year ending March 31, 2020

The earnings forecast for the fiscal year ending March 31, 2020 (April 1, 2019 - March 31, 2020)

The earnings forecast for the fiscal year ending March 31, 2020 (April 1, 2019 - March 31, 2020)
FY2018 FY2019 (Forecast) Rate of change
Orders received 503.3 billion yen 530.0 billion yen up 5.3%
Net sales 459.4 billion yen 480.0 billion yen up 4.5%
Operating income 54.6 billion yen 52.8 billion yen down 3.4%
Ordinary income 55.8 billion yen 53.5 billion yen down 4.2%
Net income attributable to shareholders of the parent company 39.5 billion yen 38.2 billion yen down 3.5%

Impact from currency exchange

The actual exchange rate of 110.37 yen to the U.S. dollar was used for the results of the fiscal year ended March 31, 2019. The same exchange rate is assumed in preparing the plan for the next fiscal year. No significant impact from the exchange rate is factored in.

Orders received

Daifuku Group’s mainstay business of material handling systems is bolstered by demand in a broad range of sectors, including distribution, manufacturing, and airports. In the fiscal year ending March 31, 2020, orders are expected to be driven by orders for systems in the distribution industry, where e-commerce is increasing. Orders for systems for airports are likely to be strong as the number of air travelers are increasing. Capital investment in the semiconductor sector is expected to remain at a high level, underpinned by factors including the progress of 5G mobile telecommunications. Overall, the environment for orders is expected to support sustainable growth.

Net sales

Given an extensive order backlog, net sales are likely to reach a new record high. To ensure supply capacity, the Group is expanding production capacity systematically around the world.

Operating income

The ratio of operating income to net sales increased steadily from 7.2% in the fiscal year ended March 31, 2017, to 9.9% in the fiscal year ended March 31, 2018, to 11.9% in the fiscal year ended March 31, 2019. In the fiscal year ending March 31, 2020, the business environment and the competitive environment surrounding customers in the semiconductor and FPD sectors are anticipated to be harsh. Despite that environment, the Group will strive to further improve profitability.

The above forecast values are our projections based on information available at the time of this release and contain various uncertainties. Actual results may differ materially from forecast values due to factors such as changes in the business performance of the Company.

3. Basic policy for dividends

Daifuku regards the return of profits to shareholders as its most important management task and adopts a performance-based policy for dividends from surpluses based on consolidated net income, with the aim of achieving additional profit distribution to shareholders. We appropriate the remaining surplus to internal reserves for future growth.

Under its medium-term business plan, Value Innovation 2020, Daifuku aims to achieve a dividend payout ratio of 30% and increase its corporate value through investment in growth.

For the fiscal year ended March 31, 2019, Daifuku paid an interim dividend of 30 yen per share, and the Board of Directors passed a resolution to pay a year-end dividend of 60 yen per share at a meeting held on May 10, 2019, for an annual dividend of 90 yen per share. The annual dividend rose for the 6th consecutive year from the fiscal year ended March 31, 2014, when the annual dividend increased 3 yen, to 18 yen.

With respect to dividends for the fiscal year ending March 31, 2020, the Company plans to pay an annual dividend of 90 yen (an interim dividend of 30 yen per share and a year-end dividend of 60 yen), taking into consideration the earnings forecast for the fiscal year ending March 31, 2020 and the basic policy described above.

We respectfully ask our shareholders and investors for their continued support.

May 2019
Hiroshi Geshiro, President and CEO