Consolidated Results for the Second Quarter Ended September 30, 2015
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Why did you significantly change your US dollar sensitivity outlook?
In the past, Latin American currencies were linked to and moved with the US dollar, and we were able to cover foreign exchange fluctuations by adjusting local product prices. Therefore, when we calculated foreign exchange effects, we converted receivables and payables in Latin American currencies into US dollars, and added them to the receivables and payables in US dollars.
However, the rapid and severe nature of the devaluation in the second quarter meant that we were unable to cover the losses in product prices.
Previously we converted receivables and payables in Latin American currencies into US dollars, but in consideration of the recent Latin American currency situation, we have decided to separate these currencies from the US dollar in our calculations of foreign exchange sensitivity. We are therefore adjusting our outlook for dollar sensitivity to a 400 million negative impact.
Most of Epson's businesses saw their second-quarter results change significantly after the first quarter. What factors had the biggest impact on profit?
The factors in each segment are listed on slide 6 of the earnings presentation, but the rapid and severe devaluation of Latin American currencies had a major impact on the real economy. A certain percentage of Epson's revenue comes from Latin America, and the effect of currency devaluations extended across many of our businesses, including the printer, professional printing, and visual communications businesses.
In addition to this, we experienced higher printer and projector manufacturing costs due to dollar appreciation, since the percentage of products manufactured on a US-dollar base is relatively high. Profit was also affected by a decline in demand for education projectors in developed economies and by price promotions of competitors in the printer market.
While you lowered your full-year outlook, you did not change your dividend forecast. What is Epson's policy on shareholder dividends?
Our policy is to pay regular dividends to shareholders while also investing on the basis of a growth strategy and building a robust financial structure that is capable of withstanding changes in the business environment.
Our goal with respect to dividends is to achieve a 30% consolidated dividend payout and to consider increasing the dividend if that ratio is achieved.
We are currently exploring our strategic investment needs as part of the mid-range business planning process. Our mid-term policy on shareholder returns including dividends and share buybacks will be steered in part by our investment needs. We will announce the policy at a later date.
Can you provide the factors that led you to lower your second-half business profit outlook in printing solutions, and the extent of their impact?
The most important factor was large-format printers in professional printing. Given growing uncertainty about the economy, we lowered our outlook for both unit shipments and price. In addition, we revised our planned launch schedule for new models, and plan to adjust prices on our existing models. We also revised our demand forecast for LFP components.
In inkjet printers we expect to see lower revenue as competitors further step up their price promotions. On the other hand, we have forecast firm growth for high-capacity ink tank printers and ink revenue owing to an improved install base with a more favorable ratio of ink cartridge printers. Some of the ink cartridge models we had planned to produce in the second quarter slid into the third quarter, and this was also factored into the outlook.