Second Quarter of FY 2016 Consolidated Financial …...2016/11/09 · to the next quarter and...

November 9, 2016

Second Quarter of FY 2016

Consolidated Financial Results

Japan Display Inc.

2 Copyright © 2016 Japan Display Inc. All Rights Reserved.

Agenda

Note: The depreciation costs noted in this document include amortization of goodwill and non-operating depreciation. The R&D costs noted in this document are the total of the amounts included in costs of goods sold and SG&A.

1. 2Q16 Financial Results & 3Q16 Guidance

2. Technology Strategy

3. Growth Strategy (Structural Reforms)


2Q16 Financial Results & 3Q16 Guidance

Keiichi Yoshida Chief Financial Officer


2Q-FY16 Topics

(Billion Yen)Net

salesOp.

incomeOrdinaryincome

Net profit Dep. &Amort.

R&Dexpense

FX rate(\/US$)

2Q-FY16 (A) 196.6 1.2 (6.3) (4.9) 21.5 3.6 102.42Q-FY16 (F) 210.0 1.0 - - 21.0 4.6 105.02Q-FY15 (A) 261.7 8.3 1.8 0.1 20.2 6.5 122.3

Due mainly to lower demand from some customers, shipments carried over to the next quarter and stronger yen 2Q sales fell short of Aug 9 announcement, but cost improvements etc. brought op. income near forecast.

20 yen YoY appreciation against a dollar likely to have reduced sales by roughly Y30bn & op. income by Y5bn.

Large YoY drop in sales due in part to forex effects, but mgmt. & structural reform benefits started from last year to limit op. income decline.

With higher demand ahead in 2H, from late 2Q seeing higher fab utilization rate

Non-operating: Forex & other losses booked


2Q-FY2016 Financial Results (Billion yen)

Q2-FY16 Q2-FY15 Q1-FY16Net sales 196.6 261.7 (65.1) －24.9% 174.3 +22.3 ＋12.8%

Cost of sales 183.5 237.1 (53.6) 165.9 +17.6Gross profit 13.1 24.6 (11.5) －46.9% 8.4 +4.7 ＋55.8%

6.7% 9.4% 4.8%

SG&A 11.9 16.3 (4.4) 11.8 +0.1Operating income (loss) 1.2 8.3 (7.1) －85.2% (3.4) +4.6 -

0.6% 3.2% -2.0%

Non-operating profit (loss) (7.6) (6.6) (1.0) (10.8) +3.2Ordinary income (loss) (6.3) 1.8 (8.1) - (14.2) +7.9 -

-3.2% 0.7% -8.2%Extraordinary income (loss) 0.0 0.0 +0.0 (1.6) +1.6Income (loss) before tax (6.3) 1.8 (8.1) - (15.8) +9.5 -

-3.2% 0.7% -9.1%

Net income (loss) (4.9) 0.1 (5.0) - (11.8) +6.9 --2.5% 0.1% -6.8%

EBITDA 20.3 28.4 (8.1) －28.4% 15.0 +5.3 ＋35.7%10.3% 10.8% 8.6%

Avg. FX rate (JPY/USD) 102.4 122.3 108.0Q-End FX rate (JPY/USD) 101.1 120.0 102.9

QoQ Chg.YoYChg.


1H-FY2016 Consolidated Operating Results

６ mo. endedMar.31, 2015

Net sales 371.0 507.9 (136.9) －27.0%

Cost of sales 349.5 465.4 (115.9)Gross profit 21.5 42.5 (21.0) －49.4%

5.8% 8.4%

SG&A 23.7 31.9 (8.3)Operating income (loss) (2.2) 10.6 (12.8) -

-0.6% 2.1%

Non-operating profit (loss) (18.4) (8.9) (9.5)Ordinary income (loss) (20.6) 1.7 (22.2) -

-5.5% 0.3%Extraordinary income (loss) (1.6) 0.0 (1.6)Income (loss) before tax (22.2) 1.7 (23.8) -

-6.0% 0.3%

Net income (loss) (16.7) (0.3) (16.4) --4.5% -0.1%

EBITDA 35.3 50.8 (15.5) －30.6%9.5% 10.0%

6 mo. endedMar.31, 2016

(Billion yen)

YoY Chg.


-3.4

1.2

-0.2

+6.4

+1.8 -2.0

-1.4

（Billion Yen）

Selling prices & product mix

Variable costs

Fixed costs

FX

Shipment Volume

1.0 1.2 -0.5

-0.9

（Billion Yen）

Shipment volume

Variable costs

Fixed costs

Selling prices & product mix FX

+1.9

+1.6 -1.9

Operating Profit Change Factors

2Q16 forecast

2Q16 actual

vs. August 9 forecast vs. Previous quarter

1Q16 actual

2Q16 actual


Balance Sheet (Billion yen)

9/2016 3/2016　 Cash and deposits 72.7 55.1 Accounts receivable 81.3 80.7 Other receivables 103.0 57.1 Inventories 109.2 114.1 Others 26.6 15.8Total current assets 392.9 322.8Non-current assets 516.8 491.0Total assets 909.7 813.9 Accounts payable 226.7 138.1 Interest-bearing debt 55.3 77.3 Advance payments 190.9 131.9 Other liabilities 93.2 101.3Total liabilities 566.1 448.6Total net assets 343.6 365.2Shareholders' equity ratio 37.5% 44.6%Net debt to equity ratio -17.4 22.2

Merchandise and finished goods 14 28 Work in process 25 21 Raw materials and supplies 11 10

Days in inventory 50 58


Cash Flows

(1) Working capital = Accounts receivable + Inventories + Accounts payable + Other receivables (2) Free cash flow = Cash flow from operating activities + Cash flow from investing activities

(Billion yen)

Q1-FY16 1H-FY16 1H-FY15 Increase/Decrease

Income before income taxes (15.8) (6.3) (22.2) 1.7 (23.9) Depreciation and amortization 20.0 21.5 41.5 40.5 1.0 Working capital (1) (26.4) 61.7 35.3 (52.9) 88.2 Advance receipts 60.0 (1.0) 59.0 17.8 41.2 Other (4.7) (2.9) (7.5) 6.0 (13.5)Cash flow from operating activities 33.1 73.0 106.1 13.1 93.0 Acquisitions of property and equipment (42.2) (23.9) (66.1) (59.4) (6.7) Other 0.5 3.4 3.9 2.0 1.9Cash flow from investing activities (41.7) (20.5) (62.2) (57.4) (4.8)Cash flow from financing activities 20.5 (42.7) (22.3) 1.3 (23.6)Ending balance, cash and equivalents 63.6 72.7 72.7 51.8 20.9Free cash flow (2) (8.5) 52.5 44.0 (44.3) 88.3

Q2-FY16


3Q-FY16 Guidance

※3Q-FY16 forex impact per ¥1 movement against $US1 = ¥600mn operating income/quarter

3Q-FY16 Forecast

• Sales forecast to rise 35% QoQ to Y265bn on seasonal factors & recovery of China market share.

• Operating income of Y10bn owing to higher sales.

• Utilization rate high at every fab, same expected in 4Q.

• Appreciation of Y16.5 YoY likely to lower op. income by about Y10bn but expect mgmt. & structural reforms to largely offset

(Billion Yen)Net

salesOperating

incomeOrdinaryincome

Netincome

Dep. &Amort.

R&Dexpense

FX rate(\/US$)

3Q-FY16 (F) 265.0 10.0 - - 21.7 4.8 105.02Q-FY16 (A) 196.6 1.2 (6.3) (4.9) 21.5 3.6 102.43Q-FY15 (A) 305.0 13.3 8.2 4.7 20.3 3.9 121.5


Technology Strategy

Shuji Aruga President & Chief Operating Officer


Quarterly Sales by Product Category and Region

0

50

100

150

200

250

300

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16F

(Billon Yen)

(FY)

4Q16 sales forecast

US/EUR

China

Other region Automotive, Non-mobile

Mobile

2Q16 sales: Lower demand from some customers in China, US/EUR sales short of forecast

3Q16: US/EUR recovery driven by new product starts. China: steady business with established customers & with customers switching from OLED to LCD => expect much higher revenues QoQ


3Q16 and 4Q16 Forecast

Expect 3Q total sales to greatly exceed 2Q. Recovering share of China smartphone makers.

4Q sales: Lower vs. 3Q due to US/EUR seasonal

factors but forecast higher sales YoY on recovery in China smartphone display business.

Automotive sales to rise thru 2H. Anticipate continuous steady growth.


Platform Technology That Supports Growth

Reflective LCD

“FULL ACTIVE” 4-side bezel free/ Non-rectangular

Low-power consump

Thinness

High-speed response

Pixel Eyes™・Sensing

MIP

Flexible

E-paper

Plat

form

tec

hnol

ogy

Ultra high res.

With platform core technology as base => expand applications& business

Envisioned applications

Signage Automotive

Smartphone Aviation/ Medical Book/

Education Gaming PC VR/AR 2in1 PC


“FULL ACTIVE” Technology Road Map

2017 2018 2019

Phase1

Phase2

Phase3

4-side bezel free, Non-rectangular shape

Low power consump, Thin formfactor

Flexible

Co-development with multiple firms in LCD supply chain


Flexible OLED vs “FULL ACTIVE” OLED FULL ACTIVE（LCD）

Flexible Phase3 (Flexible) Resolution Fair (=<400ppi) Excellent (=<800ppi)

Power consumption Good Excellent

Des

igna

bilit

y Thinness Excellent Excellent Border

(Top, left, right / bottom) Fair / Excellent Good / Excellent

Bendable Excellent Excellent Foldable TBD TBD

Movie quality Excellent Excellent Contrast Excellent Excellent

Color viewing angle Fair Excellent

Luminance viewing angle Excellent Good

Life time (burn-in) Poor Excellent Cost Fair Excellent


Growth Strategy (Business Structural Reforms)

Mitsuru Homma

Chairman and Chief Executive Officer


Medium-Term Business Scenario : Structural Reforms

Change business portfolio;

Non-mobile 33% of portfolio by 2018, 50% by 2021 (mfg ratio)

・ With CMOS (LTPS/Advanced-LTPS) as core technology shift to high value-added displays

OLED R&D to continue going forward, will build

structure geared to customer demand for either LCD or OLED

■ Cooperation with different types of businesses to

drive open innovation


Current Display Revolution = Growth Industry

VR/AR

Book/ Education

1. Expanded display application areas 2. Evolution of interactive devices

Growth opportunities

Smart- phones

Faster comm. infrastructure

(5G/6G)

•Cooperation with different types of businesses to drive open innovation

•Fusion of software/hardware •System integration

FY21 Approx. Y5 Trillion scale

(Global market)

FY21 Approx. Y2 Trillion scale

(Global market)

Auto

Gaming PC

Signage

2in1 Note PC Aviation/

Medical

More IoT/AI


Platform Technology That Supports Growth (same slide as P14)

Reflective LCD

“FULL ACTIVE” 4-side bezel free/ Non-rectangular

Low-power consump

Thinness

High-speed response

Pixel Eyes™・Sensing

MIP

Flexible

E-paper

Plat

form

tec

hnol

ogy

Ultra high res.

With platform core technology as base => expand applications & business

Envisioned applications

Signage Automotive

Smartphone Aviation/ Medical Book/

Education Gaming PC VR/AR 2in1 PC


JDI’s Target Segments

1000 800 600

400

200

0 0 5 10 15 20 30

ppi

Size (inches)

VR AR

40 50 60

Wearable

Key areas: FHD smartphones (FULL ACTIVE), automotive (designability), VR/AR (ultra fast response & high-res), light & thin/2in1 note PCs (low-power consumption/Pixel Eyes™), signage (reflective)

*()= Technology advantage of each application

TV Signage

High-res・Low power consump(LTPS) FULL ACTIVE・Flexible

*PE: Pixel Eyes™

Fast response

Auto(CID/Cluster) Aviation

2in1 notebook PCs /tablets

Sensing(PE*)

Monitors

Gaming PC Book/ Education

Medical monitors

Smart- phone

Auto (HUD)

Reflective・ E-Paper


Strategic Alliance with E Ink® Holdings Inc.

Electronic paper displays using E Ink's "electrophoretic ink

technology"

JDI's LCD-nurtured LTPS "backplane technology",

in-cell touch etc. × Strategic alliance with E Ink is a business structural reform for creating a variety of non-mobile new markets in the areas of signage, electric shelf labels, logistic tags, electronic-note &

education, building materials etc.

✓ Leading innovator of electrophoretic technology ✓ Excellent display quality with paper-like still images ✓ Promoting electronic paper display applications


JDI & E Ink Strategic Alliance Offers Synergies Strategic alliance with E Ink to add to line-up of electronic paper

displays & strengthen line-up of reflective displays

TFT backplane

E-Ink

E Ink (EPD)

TFT backplane Organic EL

Sealants

OLED

TFT backplane

Color filter

LCD (Reflective MIP)

LCD


Progress of Structural Reforms

■ Progress Transfer of all shares in MOZ, a low operating

rate maker of low-end products, to a Chinese mobile phone module maker Holitech Technology Co. (Nov 3, 2016: MOZ equity transfer registration of alteration completed)

■ Related Reorganize Taiwan operations (including

subsidiaries STC & TDI, which managed sales of MOZ products) & improve business efficiency (Nov 15: STC to delist)

MOZ

KOE

TDI STC JDIT

Sale

*JDI Group companies in Taiwan STC: Star World Technology Corp. TDI: Taiwan Display Inc. KOE: Kaohsiung Opto-Electronics Inc. JDIT: JDI Taiwan Inc.

Reorganize Taiwan operations

1. Back-end production: MOZ* share transfer/Taiwan business reorg.

Structural Reforms (Announced March 2016)

Delist

■ Goal Lower fixed costs by reorganizing back-end mfg ops

*Morningstar Optronics Zhuhai


Progress of Structural Reforms

Japan employees

Overseas employees Total

End of March 2016 5,702 10,020 15,722

End of March 2017 (est) 5,066 5,920 10,986

2. Front-end production

Front-end mfg.

Higashiura Plant

・ Structural reform: Completed retirement of Fab 1

・ Fab 2: Currently at full operating capacity

Mobara Plant, V3 line

・ Closure impending, so building inventory ・ Glass input ending in Dec.

3. Labor cost reductions Plan to reduce no. of employees by 4,736 (Japan: 636, overseas: 4,100)

as of March 2017 (end FY16), 30% fewer vs a year earlier.


Forward Looking Statement: Any information related to market trends or industries mentioned in this document is based on information available at present and JDI does not guarantee that this information is accurate or complete. Any plan, estimation, calculation, quotation, evaluation, prediction, expectation or other forward-looking information in this document is based on the current assumptions and beliefs of JDI in light of the information currently available to it, and involves known and unknown risks, uncertainties, and other factors. Such risks, uncertainties and other factors may cause JDI’s actual results, performance, achievements or financial position to be materially different from any future results, performance, achievements or financial position expressed or implied by such forward-looking information. Such risks, uncertainties and other factors include, without limitation: economic conditions and individual consumption trends in Japan and overseas, currency exchange rate movements, trends in the market for smartphones and other electronic equipment, the management policies of our major business partners and fluctuations in the price of raw materials.

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