8/1/2005 - Omron Corporation (TSE: 6645; US: OMRNY), a global leader in automation, sensing and control technology, has reported earnigs for the first quarter. The Omron Group's net sales for the first quarter totaled JPY 138.4 billion. Operating income was JPY 9.0 billion, gross income totaled JPY 5.1 bil., and net income totaled 5.1 billion yen.
Looking at economic conditions during the first quarter (April 1 - June 30, 2005) of the Omron Group's fiscal year, factors including high crude oil prices and the start of an adjustment phase in inventories of information technology (IT) and digital-related products led to slower growth in consumer spending and capital investment in North America and Europe. In greater China and Southeast Asia, production slowed, particularly in China, South Korea and Taiwan. As a result, the global economy overall continued in a decelerating trend. The Japanese economy also tended toward slower growth due to sluggish exports and corporate capital investment, which have been driving economic growth until now.
Omron Group's net sales for the first quarter were below the level of the same period of the previous year, totaling JPY 138,474 million (a decrease of 6.4 percent compared with the same period of the previous year). The transfer of the ATM and other information equipment business to an equity affiliate had a substantial impact on sales. However, although domestic and overseas sales of consumer and commerce components for IT and digital-related products were weak, sales of electronic components for automobiles and control devices for factory automation, two key products of the Omron Group, were solid.
As a result, net sales for the first quarter, excluding the transferred information equipment business, surpassed net sales for the same period of the previous year. While conducting aggressive investment for future growth, the Omron Group made continuous structural reforms to promote lasting efficiency improvements aimed at realizing a solid profit structure. However, the decrease in net sales due to the transfer of the information equipment business and increases in sales, general and administrative expenses and research and development expenses resulted in operating income of JPY 9,099 million (a decrease of 40.2 percent compared with the same period of the previous year) income before income taxes of JPY 8,576 million (a decrease of 43.1 percent compared with the same period of the previous year) and net income for the quarter of JPY 5,147 million (a decrease of 46.4 percent compared with the same period of the previous year). Each of these figures was below that for the same period of the previous year.
In calculations for the fourth quarter (the three months from January to March 2005), Omron has assumed exchange rates of US$1=100 yen and 1 euro=135 yen.*
Industrial Automation Business
In Japan, investment to improve quality and safety was firm, and businesses such as the safety business and quality solutions business, which are positioned as strategic growth businesses, achieved steady expansion in sales. However, sales of existing products for the semiconductor and digital home appliance industries, which are in an adjustment phase, were lackluster, and overall sales in Japan were below the level of the same period of the previous year.
Overseas, sales in North America were solid, particularly sales of products for the automobile industry. In Europe, sales were also firm due to favorable growth in sales of inverters, servomotors and other products. Also in greater China, Omron Group performed strongly as a result of aggressive investment in enhancing productivity and boosting sales through measures such as upgrading sales channels.
As a result, segment sales for the first quarter were JPY 64,642 million, an increase of 1.0 percent compared with the same period in the previous year.
Electronic Components Business
In Japan, sales were down from the same period of the previous year due to factors including weakness in the air conditioning market and continued production adjustments by customers that reflected delays in approval of new machines in the pachinko slot machine industry. Overseas sales were sluggish overall. Sales of signal relays in Europe declined as demand from the telecommunications industry remained weak, and sales of backlights in greater China dropped substantially due to increased competition, customer inventory adjustments and other factors.
As a result, segment sales for the first quarter were JPY 22,589 million, a decrease of 9.0 percent compared with the same period of the previous year.
Automotive Electronic Components Business
Although performance in each country varied, overall automobile sales volume worldwide showed stable growth, and sales of this segment also grew steadily. First-quarter sales were higher than in the same period of the previous year in the United States, Europe and Japan, and sales in South Korea increased substantially.
As a result, segment sales were JPY 17,474 million, an increase of 17.2 percent compared with the same period of the previous year.
Social Systems Business
In the station management and settlement system business, despite a decrease in sales in reaction to strong demand in the first quarter of the previous year for the renewal and upgrade of ticket machines and other equipment in order to accommodate newly designed currency bills, sales were favorable due to increased demand for IC card-compatible settlement equipment to prevent counterfeiting. In addition, the security solutions business achieved strong sales growth, centered on security system packages.
However, sales in the same period of the previous year included sales of the ATM and other information systems business, which was transferred to an equity affiliate established through a joint venture and corporate separation. Due in part to the absence of sales from this business, segment sales for the first quarter were JPY 15,579 million, a decrease of 41.2 percent compared with the same period of the previous year.
In Japan, electronic blood pressure monitors and body composition monitors continued to perform well. Overseas, sales in North America declined compared with the same period of the previous year, due in part to a slower growth rate in the key electronic blood pressure monitor market, but demand for electronic blood pressure monitors was firm in Europe. In greater China and Southeast Asia, sales of blood pressure monitors and nebulizers, which are core products, declined from the same period of the previous year due to increased competition in China. However, sales continued to expand in Southeast Asia.
As a result, segment sales for the first quarter were JPY 12,396 million, an increase of 0.2 percent compared with the same period of the previous year.
The Others segment primarily consists of the Business Development Group, which seeks out and develops new businesses and nurtures and strengthens businesses not covered by internal companies.
Among existing businesses, sales were solid in the computer peripheral business, centered on corporate demand, despite a continued drop in market prices due to intensified competition. In the entertainment business, while difficult conditions continued due to factors including increased competition for commercial game machines, the mobile phone content distribution business, a new area, performed well. Among new growth themes, sales were solid in the radio frequency identification (RFID) business.
Segment sales for the first quarter were JPY 5,794 million, an increase of 8.2 percent compared with the same period of the previous year.
Total assets decreased JPY 15,095 million compared with the end of the previous fiscal year, to JPY 570,334 million. Shareholders' equity increased JPY 4,598 million compared with the end of the previous fiscal year, to JPY 310,408 million. As a result, the ratio of shareholders' equity to total assets increased from 52.2 percent at March 31, 2005, to 54.4 percent.
Net cash provided by operating activities was JPY 8,073 million, a decrease of JPY 2,616 million compared with the same period in the previous year, due to the decrease in net income, an increase in income taxes payable and other factors. Net cash used in investing activities totaled JPY 11,560 million, an increase of JPY 6,181 million from the same period in the previous year. As in the same period of the previous fiscal year, Omron made investments for the future and also acquired businesses. Net cash used in financing activities was JPY 3,155 million, a decrease of JPY 373 million from the same period in the previous year. The principal use of cash was payment of cash dividends.
As a result, cash and cash equivalents at the end of the first quarter totaled JPY 70,175 million, a decrease of JPY 10,444 million from the end of the previous fiscal year.
Outlook for the Year Ending March 31, 2006
In the second quarter and beyond, Omron assumes that on the whole, the economic recovery trend will continue. Although elements of uncertainty will remain, including high crude oil prices, inventory adjustments for IT and digital-related products are generally running their course, and consumer spending and corporate capital investment are expected to be firm.
In these conditions, the Omron Group's net sales for the first quarter, although lower than in the same period of the previous year, were in line with the initial forecast, and sales are expected to continue according to the initial forecast in the second quarter and beyond. Income is also expected to be in line with the initial forecast, as the Omron Group will continue working to promote continuous structural reforms to advance toward a strong profit structure while aggressively investing in future growth.
No changes have been made to the projections of results for the interim period and full fiscal year announced on April 27, 2005. The projected results for the interim period and the full fiscal year assume exchange rates of JPY 110 to US$1 and JPY 135 to 1 euro during the second quarter, and JPY 100 to US$1 and JPY 130 to 1 euro in the third quarter and thereafter.
Projections of results and future developments are based on information available to the Company at the present time, as well as certain assumptions judged by the Company to be reasonable. Various factors could cause actual results to differ materially from these projections. Major factors influencing Omron's actual results include, but are not limited to, (i) the economic conditions surrounding the Company's businesses in Japan and overseas, (ii) demand trends for the Company's products and services, (iii) the ability of the Omron Group to develop new technologies and new products, (iv) major changes in the fund-raising environment, (v) tie-ups or cooperative relationships with other companies, and (vi) movements in currency exchange rates and stock market.
Headquartered in Kyoto, Japan, OMRON Corporation is a global leader in the field of automation. Established in 1933 and headed by President Hisao Sakuta, Omron has more than 25,000 employees in over 35 countries working to provide products and services to customers in a variety of fields including industrial automation, electronic components industries, and healthcare. The company is divided into five regions and head offices are in Japan (Kyoto), Asia Pacific (Singapore), China (Hong Kong), Europe (Amsterdam) and US (Chicago). The European organisation has its own development and manufacturing facilities, and provides local customer support in all European countries. For more information, visit Omron's Web site at www.omron.com.
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