Earnings exposure to manufacturing capital investment and factory utilization

「In the machinery and equipment-related industries surrounding the Group, capital expenditure began to recover, particularly in generative AI, semiconductors, automation and DX-related fields. However, investment in steel, construction, machine tools, consumer electronics and EV-related fields remained cautious, affected by higher costs, inventory adjustments and slowing demand, resulting in a selective business environment with pronounced differences between fields throughout the consolidated fiscal year.」

「Although generative AI and semiconductor-related fields remained strong, sales were somewhat below the target level due to the postponement of capital investment in other fields.」

「In the machinery and equipment-related industries surrounding the Group, investment in generative AI and secondary batteries showed an upward trend, and willingness to increase production going forward remained intact. However, affected by recent price inflation, capital expenditure remained restrained against a backdrop of uncertainty over the outlook.」

「Although disparities between industries have widened, companies in strong-performing fields have a strong appetite for capital investment against a backdrop of earnings growth, and investment in intellectual property and other areas has increased, while machinery investment, which had been stagnant, has also shown signs of recovery.」

「Corporate willingness to invest remains strong against a backdrop of solid earnings, and investment in intellectual property and other areas has increased, while machinery investment, which had been stagnant, has also shown signs of recovery.」

「Although some areas have paused in their recovery of capital investment through the resumption of investment plans independent of the business cycle, including digitalization and decarbonization projects that had been held back because of COVID-19, and through increased forward-looking investment in anticipation of the post-pandemic period, a recovery is expected to continue against a backdrop of firm corporate earnings and other factors.」

「Capital investment has paused in its recovery from the resumption of investment plans independent of the business cycle, including digitalization and decarbonization projects that had been held back because of COVID-19, and from increased forward-looking investment in anticipation of the post-pandemic period. However, a recovery is expected against a backdrop of firm corporate earnings and other factors.」

「In the West, capital investment was restrained and projects were postponed because of weak semiconductor demand, reducing the momentum seen previously. However, steel and secondary-battery companies continued to advance capital investment plans with a view to future demand, and overall conditions remained firm.」

「Meanwhile, concerns about an overseas-driven economic slowdown continue because of the prolonged conflict in Ukraine and economic sanctions against Russia, the impact of yen depreciation caused by the widening US-Japan interest rate differential, globally higher resource and raw material prices, and lower production activity resulting from supply constraints and logistics disruptions, although these constraints have eased somewhat. However, overall corporate earnings continue to improve moderately and remain firm, while capital investment continues to grow strongly as investment plans, including digitalization projects, that had been held back because of COVID-19 resume and investment increases in anticipation of the post-pandemic period.」

「In the current consolidated fiscal year, the impact of the slowdown in corporate capital investment and production activity on our group's performance resulted in achievement rates against the earnings forecasts announced on 26 April 2022 of 100.9% for revenue, 97.6% for operating profit, 99.6% for ordinary profit and 118.1% for net income attributable to owners of the parent.」

「Meanwhile, concerns about an overseas-driven economic slowdown continue because of the prolonged conflict in Ukraine and economic sanctions against Russia, the impact of yen depreciation caused by the widening US-Japan interest rate differential, globally higher resource and raw material prices, and lower production activity resulting from supply constraints and logistics disruptions. However, overall corporate earnings continue to improve moderately and remain firm, while capital investment continues to grow strongly as postponed investment plans, including digitalization projects, resume and investment increases in anticipation of the post-pandemic period.」

「The impact of the prolonged conflict in Ukraine and economic sanctions against Russia, globally higher resource and raw material prices, and lower production activity caused by supply constraints and logistics disruptions continues. Although the US economy remains firm, China's economy has slowed sharply, and domestic production activity has also been significantly affected by the rapid depreciation of the yen. However, overall corporate earnings remain firm, with moderate improvement continuing, and capital investment continues to grow strongly, partly because investment plans postponed due to COVID-19, including decarbonization and digitalization projects, are now being implemented.」

「During the first quarter of the current consolidated cumulative period, Japan's economy was moving toward normalization as the impact of COVID-19 subsided to some extent, but concerns about overseas-driven downward pressure on the economy intensified. The prolonged conflict in Ukraine and economic sanctions against Russia, together with the impact of China's zero-COVID policy, continued to affect economic activity through globally higher resource and raw material prices, supply constraints and logistics disruptions. Although the US economy remained firm, China's economy slowed sharply, significantly affecting domestic production activity. As corporate earnings continued to improve and remained firm, capital investment continued to show a moderate recovery trend.」

「In the East, shortages of goods and the impact of higher crude oil prices have begun to prevent all industries from implementing their planned capital investment programs.」

「During the third quarter of the current consolidated cumulative period, Japan's economy generally continued to recover as the impact of COVID-19 subsided and various restrictions were eased. Exports to the United States, China and other markets and capital investment also showed a moderate recovery trend. Meanwhile, manufacturing, in particular, showed signs of stagnation because of higher resource and raw material prices and supply constraints on components and other items, mainly semiconductors. In addition, risks including the spread of the Omicron variant and other developments related to the pandemic, as well as US-China tensions, prevented a complete reopening of economic activity.」

「Although production and corporate earnings showed signs of recovery, with some weakness remaining in parts of the non-manufacturing sector, exports to the United States, China and other markets and capital investment also showed a moderate recovery trend. Meanwhile, concerns are growing across a broad range of industries, led by automotive-related industries, about the impact of the pandemic on supply chains, the impact of semiconductor shortages and the emergence of downside risks in overseas economies.」

「Manufacturing, our group's principal customer industry, remained firm. In particular, exports to China and the United States, where economic recovery has been pronounced as responses to COVID-19 progressed, had already exceeded pre-pandemic levels. Corporate production activity showed similar trends, led by semiconductor-related and automotive-related businesses. Meanwhile, uncertainty surrounding COVID-19 remained high, and a generally cautious stance toward capital investment continued.」

「Production and export activity among our major customers in manufacturing, particularly the automotive and electronic components industries, showed clear signs of recovery, mainly for shipments to China and the United States. Meanwhile, uncertainty surrounding COVID-19 remained high, and a generally cautious stance toward capital investment continued.」

「By industry, semiconductor-related and automotive-related businesses were recovering, although they had not yet returned to pre-pandemic levels. Meanwhile, uncertainty surrounding COVID-19 remained high, and a generally cautious stance toward capital investment continued.」

「In the Central region, production and exports declined in the major automotive, steel, machine tool and aircraft industries, partly because of the impact of the global economic downturn associated with COVID-19. Although some semiconductor and electronic industries appeared to be performing well, overall conditions remained weak because of lower factory operating rates and the postponement or freezing of capital investment.」

「During the first quarter of the current consolidated cumulative period, Japan's economy was in an extremely challenging condition across a broad range of industries, both manufacturing and non-manufacturing, except for some sectors, as exports and production plunged because of the spread of COVID-19. By industry, the deterioration in automotive-related businesses, where demand was sluggish worldwide, had a significant impact on performance, while cancellations and postponements of capital investment also became pronounced.」

「However, since April, the impact of the spread of COVID-19 on corporate earnings has become increasingly severe, with cancellations and postponements of capital investment and declines in production activity becoming pronounced.」

「In the East, automotive and automotive parts manufacturing, steelmaking and machine tool manufacturing were trending downward rather than remaining firm because of the continuing US-China trade friction. In the Central region, although capital investment was seen in semiconductors and electronic-related fields, investment in the automotive, machine tool and steel industries was restrained because of the slowdown in overseas markets, resulting in generally weak performance. In the West, capital investment remained firm, particularly in steel and food, driven by labor-saving and workforce-reduction initiatives. However, the prolonged US-China trade friction and resulting slowdown in China's economy led domestic manufacturers to restrain or postpone capital investment, resulting in generally weak performance overall.」

「In the East, the impact of US-China trade friction began to affect manufacturing, with production cuts spreading from semiconductors to steelmaking and automotive-related industries. Although replacement and labor-saving investment continued, upfront investment to strengthen competitiveness was postponed, resulting in generally weak performance.」

「In the East, equipment-related activity remained firm, but production adjustments and production curbs were seen across various fields, particularly semiconductors, because of US-China trade friction, resulting in generally weak performance. In the West, production equipment expansion and replacement investment advanced on the back of strength in the steel and food industries, but restraint in capital investment in semiconductors and liquid crystals was seen because of the impact of US-China trade friction and the slowdown in China's economy, resulting in generally weak performance.」

「In the East, momentum has begun to fade from the summer peak as semiconductor equipment manufacturers adjust inventories. In the iron and chemical industries, purchases of consumables have been restrained because of higher raw material costs, but manufacturing remains strong. In the West, there was investment in semiconductors and liquid crystals for China and in capacity expansion at domestic manufacturing facilities. However, the decline in the special demand for secondary-battery investment seen in the previous fiscal year and a trend toward lower consumables purchases amid concerns about overseas conditions led to generally weak performance.」

「In the West, production temporarily halted at some sites because of natural disasters, and investment in secondary batteries, which had been strong in the previous fiscal year, has yet to resume. However, investment in semiconductors and liquid crystals for overseas markets remains firm, production volumes at various manufacturers are stable, and consumables are selling steadily.」

「Japan's economy continues to expand moderately, supported by improvements in corporate earnings and domestic production, mainly due to substantial profit growth in manufacturing. Against a backdrop of ample cash flow, corporate sentiment toward the future business environment and capital investment also appears to be steadily improving.」

「Although our group is pursuing sales initiatives, including developing sales channels by reviewing distribution processes, developing new products and expanding its sales area through new store openings, our group's performance could be affected if capital investment at manufacturing sites and factory operating rates in the automotive, light electrical equipment and semiconductor-related industries decline.」

「During the third quarter of the current consolidated cumulative period, Japan's economy continued to expand moderately, supported by improvements in corporate earnings and domestic production, mainly due to substantial profit growth in manufacturing. The global economy, led by the United States and China, remained firm, exports and production recovered against a backdrop of yen depreciation, and domestic demand, including capital investment, residential investment and personal consumption, also grew strongly. Against a backdrop of ample cash flow, corporate sentiment toward the future business environment and capital investment also appears to be steadily improving.」

「Against a backdrop of ample cash flow, corporate sentiment toward the future business environment and capital investment also appears to be steadily improving. In particular, the automotive, machine tool, electrical equipment and electronic components industries, which have broad exposure to export-related sectors, have remained strong.」

「Against a backdrop of ample cash flow, corporate sentiment toward the future business environment and capital investment also appears to be steadily improving. In particular, the automotive, machine tool, electrical equipment and electronic components industries, which have broad exposure to export-related sectors, have remained strong.」

「Amid concerns about currency fluctuations in export-related industries, the manufacturing sector as a whole has shifted toward caution as the economic slowdown has become more apparent, and future conditions have increasingly shown signs of stagnation.」

「Across the manufacturing sector, concerns about an economic slowdown have become more apparent, prompting a shift toward caution, and future conditions are increasingly showing signs of stagnation.」

「Across the manufacturing sector, concerns about an economic slowdown have become more apparent, prompting a shift toward caution, and conditions are increasingly likely to become more challenging going forward.」

「Concerns about a slowdown in the domestic economy are becoming more apparent, with the automotive, machine tool, electrical equipment and electronic components industries all beginning to take a cautious stance toward new capital investment in response to the stagnation of the global economy and the yen's appreciation.」

「Our group operates in an industry that is relatively susceptible to economic trends, particularly in fields represented by statistical data such as the industrial production index, the manufacturing operating rate index and machinery orders.」