Omron Corporation (TSE: 6645; US: OMRNY), a global leader in electronic components, sensing and control technologies, has reported earnigs for the first quarter. The Omron Group’s net sales for the first quarter totaled JPY 155.4 billion. Operating income was JPY 9.5 billion, income before income taxes was JPY 13.6 billion, and net income was JPY 6.9 billion.
Looking at economic conditions during the first quarter (April – June 2006) of the Omron Group’s fiscal year, the direction of the global economy remained difficult to predict, with continued high crude oil prices. However, the U.S. economy continued to be firm against the backdrop of solid capital investment. The European economy continued to improve, and export-led expansion also continued in the economies of Asia. In the Japanese economy, a steady recovery continued overall, due to factors including improved corporate earnings reflecting strong corporate performance, while improved employment and income conditions supported steady consumer spending.
In this economic environment, the Omron Group’s net sales for the first quarter were JPY 155,414 million (an increase of 12.2 percent compared with the same period of the previous year). Supported by brisk corporate capital investment, the Omron Group’s factory automation control devices, consumer and commerce components for IT and digital-related products, and automotive electronic components performed well.
As a result, net sales for the first quarter were higher than in the same period a year earlier. While making aggressive investments for future growth, the Omron Group proceeded with ongoing structure reforms to strengthen the profit structure of existing businesses, resulting in operating income of JPY 9,519 million (an increase of 4.6 percent compared with the same period of the previous year). Income before income taxes was JPY 13,612 million (an increase of 58.7 percent compared with the same period of the previous year) due to factors including a JPY 10,141 million gain on the establishment of a retirement benefit trust and a JPY 5,915 million loss on the sale of land and buildings of the Tokyo Head Office (Minato-ku, Tokyo). Net income for the first quarter was JPY 6,858 million (an increase of 33.2 percent compared with the same period of the previous year).
Industrial Automation Business
In Japan, investment to improve quality and safety for the purpose of upgrading the functions of existing equipment was firm, and businesses such as the safety business, quality solutions business and application business, which are positioned as strategic growth businesses, achieved steady expansion in sales. In addition, sales of control devices for factory automation, the main product of this segment, surpassed the level of the first quarter of the previous year as solid capital investment related to semiconductors and digital home appliances continued.
Overseas, sales in North America were solid, with particular growth in oil- and gas-related businesses, In Europe, sales increased strongly, mainly due to growth in sales of inverters, servomotors, sensor devices and other products. In China, where high growth is expected, sales were firm as the Omron Group aggressively made investments such as strengthening its sales force and production capacity and introducing new products.
As a result, segment sales for the first quarter were JPY 71,813 million, an increase of 11.1 percent compared with the same period in the previous year.
Electronic Components Business
In Japan, the semiconductor market was in a recovery trend, and sales related to FPD production equipment also expanded. As a result, the electronic components market was strong, and sales exceeded the level of the same period in the previous year. Overseas, amid improvement in general economic trends in the United States and Europe, sales of communications relays were firm, as investment in communication infrastructures expanded. Sales in Asia were solid as the mobile market and electronic components market continued to expand. Particularly in China, sales increased strongly with the launch of the large backlight business.
As a result, segment sales for the first quarter were JPY 26,941 million, an increase of 19.3 percent compared with the same period of the previous year.
Automotive Electronic Components Business
Global automobile production volume was stable overall, while needs continued to increase for car electronics for automobile safety and environmental friendliness, and sales in this segment were firm. By geographic region, sales in Japan were near the same level as in the previous year, but increased strongly in the United States, and expanded steadily in Asia.
As a result, segment sales for the first quarter totaled JPY 21,482 million, an increase of 22.9 percent compared with the same period of the previous year.
Social Systems Business
In the station management systems business, full-scale delivery in response to strong demand, including demand for equipment renewal and conversions to accommodate IC cards, is expected to begin in the second quarter, and sales in the first-quarter therefore declined in comparison to the same period in the previous year. In the public transportation systems and modules, traffic and road management systems business, sales were also down from the first quarter of the previous year, due to factors including reduction of budgets for traffic safety facilities support projects. However, sales in the maintenance and services business increased compared with the same period in the previous year due to strong performance in the personal computer and server maintenance business.
As a result, segment sales for the first quarter were JPY 13,932 million, a decrease of 10.6 percent compared with the same period of the previous year.
In Japan, blood pressure monitors, body composition monitors and digital pedometers performed well as health consciousness continued to rise around the world. Overseas, sales of blood pressure monitors, a core product, were weak in North America, but demand in Europe expanded, primarily for electronic blood pressure monitors, driven by the growth of emerging markets such as Russia and Eastern Europe. In Asia, sales declined in China due to intensifying competition, but sales grew steadily in Southeast Asia.
In addition to the above, the net sales of Colin Medical Technology Corporation (current name OMRON Colin Co., Ltd.), which became a consolidated subsidiary in June 2005, contributed to sales. As a result, segment sales for the first quarter were JPY 15,057 million, an increase of 21.5 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 robust in the computer peripheral business, centered on power sources. In the entertainment business, sales were solid due to a steady increase in the number of subscribers to mobile sites linked to photo-sticker vending machines. In growth businesses, sales of insulation monitoring devices sold well in the wireless sensing business, and demand increased for radio frequency identification (RFID) equipment, primarily in Japan.
Segment sales for the first quarter were JPY 6,189 million, an increase of 6.8 percent compared with the same period of the previous year.
Total assets decreased JPY 32,210 million compared with the end of the previous fiscal year, to JPY 556,851 million. Shareholders’ equity decreased JPY 2,357 million compared with the end of the previous fiscal year, to JPY 360,580 million. As a result, the ratio of shareholders’ equity to total assets increased from 61.6 percent at March 31, 2005 to 64.8 percent.
Net cash provided by operating activities was JPY 6,691 million, a decrease of JPY 1,382 million compared with the same period in the previous year, due to factors including the reporting of a gain on the establishment of a retirement benefit trust and an increase in inventories, despite the increase in net income. Net cash provided by investing activities totaled JPY 2,324 million, an increase of JPY 13,884 million from the same period in the previous year, reflecting the effect of business acquisitions in the previous fiscal year. While Omron made investments for the future, it sold the land and buildings of the Tokyo Head Office. Net cash used in financing activities was JPY 3,630 million, an increase of JPY 475 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 58,909 million, an increase of JPY 6,624 million from the end of the previous fiscal year.
Outlook for the Year Ending March 31, 2007
In the second quarter and beyond, Omron assumes that moderate economic growth will continue. Although the economic outlook continues to provide no reason for optimism regarding high crude oil prices, rising raw material prices, currency exchange fluctuations and other factors, steady consumer spending and solid corporate capital investment can be expected.
In these conditions, the Omron Group’s net sales for the first quarter were higher than in the same period of the previous year, 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 ongoing structural reforms toward “accelerating growth while securing profit increase,” the policy for this fiscal year.
No changes have been made to the projections of results for the interim period and full fiscal year announced on April 26, 2006. 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 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 and CEO Hisao Sakuta, OMRON has more than 26,000 employees in over 35 countries working to provide products and services to customers in a variety of fields including industrial automation, electronic components, social systems (ticket gate machines, ticket vending machines, and traffic control), and healthcare. The company is divided into five regions and head offices are in Japan (Kyoto), Asia Pacific (Singapore), China (Shanghai), Europe (Amsterdam) and US (Chicago).