OMRON Corporation, a global leader in automation, sensing and control technology, has announced its consolidated financial results for the nine months ended December 31, 2006. In markets related to the Omron Group, sales of factory automation control systems, the Group's core business, remained strong, supported by robust capital investment. With the recovery in the electronic components industry, sales of consumer and commerce components for IT and digital-related products were also solid.
In this environment, due in part to the effects of the weaker yen and business acquisitions, Omron Group net sales increased by 17.5 percent from the same period in the previous year to JPY 520,182 million. As for income for the nine-month period, the increase in net sales and efficient management of selling, general and administrative (SG&A) expenses resulted in operating income of JPY 42,409m, a 3.6 percent decrease from the same period in the previous year. Excluding the JPY 11,915m gain on the transfer of the substitutional portion of the employees' pension fund recorded in the same period in the previous year, operating income increased 32.1 %.
Income before income taxes was JPY 49,257m, an increase of 4.7 percent from the same period in the previous year, due to factors including a JPY 10,141m gain on the establishment of a retirement benefit trust and a JPY 5,915m loss on the sale of land and buildings of the Tokyo Head Office (Minato-ku, Tokyo). Net income for the period was JPY 27,372m, an increase of 4.6 percent over the same period in the previous year.
Industrial Automation Business
In Japan, sales of the safety business, application business and other strategic growth businesses grew steadily, reflecting brisk investment in improvement of quality and safety in order to enhance the functions of existing equipment. Sales of core factory automation control systems also surpassed the level of the same period in the previous year as a result of continued solid capital investment related to liquid crystal displays, semiconductors and digital home appliances.
Overseas, sales in North America and Europe were solid. In China, where high growth is projected, sales increased due to Omron's efforts in areas such as improvement of its sales capabilities, expansion of production capacity and introduction of new products.
As a result, segment sales for the period totaled JPY 222,259m, an increase of 11.7% compared with the same period in the previous year.
Electronic Components Business
In Japan, conditions in the semiconductor and machinery and equipment industries were strong, and the electronic components industry also maintained an expansion trend. In this environment, segment sales were generally solid. In November 2006, Omron acquired the optical communications components business of NHK Spring Co., Ltd. to strengthen its position in this business. In December, Omron reached a basic agreement to purchase a semiconductor factory from Seiko Epson Corporation, with the aim of reinforcing its semiconductor-related operations. Overseas, sales expanded in China amid steady growth in sales of consumer and commerce components. Sales were also solid in the United States, Europe and Southeast Asia, centered on relays, a core product.
In addition to the above, the miniature backlight business of OMRON PRECISION TECHNOLOGY Co., Ltd. (formerly Pioneer Precision Machinery Corporation), which became a consolidated subsidiary in August 2006, contributed to sales. Segment sales for the nine-month period were JPY 101,213m, an increase of 40.5 % compared with the same period in the previous year.
Automotive Electronic Components Business
Global automobile production volume was generally stable overall, and needs are increasing for car electronics for automobile safety and environmental friendliness. Against this backdrop, Omron's products continued to be adopted in new car models, contributing to strong sales in this segment. By area, sales in Japan were essentially unchanged from the same period in the previous year, but overseas sales were strong. In particular, sales in North America grew substantially as Omron launched new products such as wireless control devices and power window switches.
As a result, segment sales for the nine-month period were JPY 67,288m, an increase of 21.1% compared with the same period in the previous year.
Social Systems Business
In the public transportation systems business, sales increased substantially compared to the same period in the previous year, reflecting favorable demand for equipment upgrades and renewals and other projects related to the use of common IC cards among different railway companies, mainly in the Kanto area. In the traffic and road management solutions business, sales increased substantially, backed by strong demand for weigh-in-motion systems.
As a result, segment sales for the nine-month period totalled JPY 60,641m, an increase of 16.1% compared to the same period in the previous year.
Healthcare Business
In Japan, with expanding awareness of metabolic syndrome (a condition with multiple risk factors that can easily cause lifestyle diseases such as diabetes, hypertension, hyperlipidemia and obesity), sales of pedometers and body composition analysers increased strongly. Overseas, sales of digital blood pressure monitors, a core product, were weak in the United States, but the digital blood pressure monitor business was solid overall, with growth in other markets including Russia, Eastern Europe, China and Australia.
As a result, segment sales for the nine-month period were JPY 48,293m, an increase of 7.6 percent compared with the same period in the previous year.
Others
The others segment consists mainly of new businesses being explored and developed by the Business Development Group and development and expansion of other businesses that are not covered by internal companies.
Among existing businesses, sales of the entertainment business continued to expand with strong sales of photo sticker vending machines, a core product, and a steady increase in membership of mobile sites related to these machines. In the computer peripheral business, sales of uninterruptible power supplies and other products grew strongly. Sales were also brisk in the growth areas of radio frequency identification (RFID) equipment and insulation monitoring devices.
As a result, segment sales for the nine-month period were JPY 20,488m, an increase of 7.5% compared with the same period in the previous year.
Financial condition
As of December 31, 2006, total assets were JPY 624,118m, an increase of JPY 35,057m compared with the end of the previous fiscal year. The main factors included increases in inventories and short-term bank loans.
Net assets increased JPY 10,873m compared with the end of the previous fiscal year to JPY 373,810m despite the increase from net income of JPY 27,372m, due to factors including a JPY 10,666m increase in treasury stock (which decreases net assets). As a result, the net worth ratio decreased to 59.9 % from 61.6 % at the end of the previous fiscal year.
Regarding cash flow in the third quarter, net cash provided by operating activities was JPY 10,219m, a decrease of JPY 14,533m compared with the same period in the previous year, despite net income of JPY 27,372m, due to factors including a gain on establishment of a retirement benefit trust and the increase in inventories.
Net cash used in investing activities totalled JPY 34,069m, an increase of JPY 2,780m over the same period in the previous year. Despite a gain on the sale of land and buildings of the Tokyo Head Office, expenditures increased because of the acquisition of business entities, as well as other factors.
Net cash provided by financing activities was JPY 21,896m (an increase of JPY 48,192m over the same period in the previous year due to the effect of repayments of debt in the same period in the previous year), mainly because of an increase in proceeds from short-term bank loans.
As a result, cash and cash equivalents at the end of the nine-month period were JPY 51,011m, a decrease of JPY 1,274m from the end of the previous fiscal year.
Outlook for the fiscal year ending March 31, 2007
Despite lingering elements of uncertainty such as high raw material prices, a slowdown in the U.S. economy and exchange rate movements, firm consumer spending and robust corporate capital investment can be expected in the fourth quarter. As a result, moderate growth is projected to continue.
In markets related to the Omron Group, the market for factory automation control devices is expected to gradually expand, supported by corporate capital investment, and the market for consumer and commerce components for IT and digital products is also projected to continue on a recovery track.
In regard to the forecast for the fiscal year, Omron will continue to work toward its current fiscal year policy of Accelerated Growth with an Upswing in Income, and as a result expects to reach the figures announced on October 30, 2006.
Projections of results and future developments are based on information available to Omron at the present time, as well as certain assumptions judged by Omron 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 affecting the Omron's businesses in Japan and overseas, (ii) demand trends for the Omron'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 markets.