Omron Corporation, a global leader in automation, sensing and control technology, has reported record financial results for the Fiscal year ended March 31, 2007.
- Fifth consecutive year of sales and profit growth
- High net sales ever; 17.5% increase year-on-year as strategic acquisitions in niche markets boost revenues, helped on by favourable exchange rates
- 27.5% operating profit growth (when gain on transfer of the substitutional portion of employees' pension fund recorded in previous year is excluded)
Net sales rose 17.5% year-on-year to JPY 736.7 billion, setting a new record for the second consecutive year.
Operating profits were also at their high-ever level for a fourth consecutive term, surpassing the firm's targets and growing 3.1% to JPY 64 billion (excluding the gain on the transfer of the substitutional portion of the employees' pension fund recorded in the previous year, this represents an increase of 27.5%).
Net income before taxes increased 3% to JPY 66.3 billion, and net income rose 7% to JPY 38.3 billion. Each of these figures represents record highs for the company.
In markets related to the Omron Group, sales of factory automation control systems, the Group's core business, remained strong, supported by robust corporate capital investment.
With recovery in the electronic components industry, sales of consumer and commerce components for IT and digital products were also solid.
Sales of automotive electronic components continued to expand against a backdrop of increasing needs for car electronics related to vehicle safety and the environment.
In addition, demand for renewal of public transportation systems and other projects expanded as railway companies nationwide moved to adopt common IC cards.
In this environment, the Omron Group set accelerating growth while securing profit increase as its Fiscal year policy, with advancing toward FY07 targets by front-loading growth as the sub-heading.
Assuming an increase in income, the Omron Group accelerated the growth of each business, made the necessary investments to ensure that targets are reached in Fiscal 2007, the final year of the second stage of GD2010 and promoted lasting efficiency gains aimed at realizing its envisioned profit structure.
In accordance with Company's basic policy for distribution of profits and in consideration of results for the Fiscal year ended March 31, 2007 and the previous Fiscal year, Omron plans to pay an ordinary year-end dividend of JPY 19 per share for Fiscal 2006 (ended March 31, 2007).
Combined with the earlier interim dividend of JPY 15 per share, this will bring total dividends for the year to JPY 34 per share, an increase of JPY 4 per share from the previous Fiscal year. Omron plans to place this matter on the agenda at the 70th ordinary general meeting of shareholders, to be held in June 2007.
Results by business segment:
In Japan, sales of the safety components business, applications business and other businesses showed solid growth, reflecting needs related to quality, safety and the environment, a major trend in the manufacturing sector.
Sales of core factory automation control systems also surpassed the level of the previous Fiscal year as a result of continued robust capital investment related to semiconductors and digital home appliances.
Overseas, sales in North America were solid, with particular expansion of sales of control equipment to oil and gas-related companies.
In Europe, corporate capital investment remained at a high level, and sales of products such as inverters and servomotors expanded strongly as a result.
In China, where high growth is projected, sales increased substantially due to Omron's aggressive investment in strengthening its sales force, including reinforcement of its dedicated sales network, establishment of a call center and stronger support for dealers.
In addition, Scientific Technologies Incorporated (now Omron Scientific Technologies Incorporated; hereinafter OSTI), a North American safety equipment manufacturer that became a consolidated subsidiary in September 2006, contributed to sales.
As a result, segment sales for the period totaled JPY 305,568 million, an increase of 12.1 percent compared with the previous Fiscal year.
In Japan, conditions in the semiconductor and machinery and equipment industries were strong, and the electronic components industry also maintained strength after bottoming out in the second half of the previous Fiscal year.
In this environment, segment sales were generally solid, starting with sales of printed circuit board relays, a core product.
In November 2006, Omron acquired the optical communications components business of NHK Spring. to strengthen its position in this business.
Overseas, sales increased substantially in China, which Omron has positioned as a key area, amid expansion of the electronic components market centered on the home appliance and mobile device industries. Sales were also solid in the United States, Europe and Southeast Asia, centered on relays.
In addition, the miniature backlight business of Pioneer Precision Machinery Corporation (now Omron Precision Technology.; hereinafter OPT), which became a consolidated subsidiary in August 2006, contributed to sales.
Segment sales for the Fiscal year totaled JPY 138,352 million, an increase of 41.6 percent compared with the previous Fiscal year.
Global automobile production volume was generally stable, and the need is 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 limited to the level of the previous Fiscal year, but overseas sales were strong.
In North America, this segment faced a tough operating environment, with slumping business and declining market shares among the top three U.S. auto makers, which are major customers, but Omron's launch of new products such as wireless control devices and power window switches spurred sales.
In China, full-scale operations at Omron's manufacturing subsidiary, which began production in January 2006, contributed to the overall increase in sales as auto makers continued to shift production to China and expanded global procurement.
As a result, segment sales were JPY 93,321 million, an increase of 20.3 percent compared with the previous Fiscal year.
In the public transportation systems business, the nationwide shift from train tickets to IC cards, including common IC cards among different railway companies in the Tokyo metropolitan area and the Kansai region and the start of IC card service in the Nagoya metropolitan area, led to demand for retrofitting and renewal of public transportation equipment such as automated ticket gates and ticket vending machines.
As a result, sales increased substantially. In the IC card and mobile solutions business, sales increased strongly with rising demand for payment terminals.
Sales increased in related maintenance businesses, reflecting increased demand for services in the public transportation systems business.
Sales in new service areas also increased. In the traffic and road management systems business, although Omron worked to expand sales of passing vehicle measurement systems, sales declined substantially, reflecting a decrease in large-scale orders.
Sales in the software business were weak as companies carried out business reforms due to selection and concentration.
As a result, segment sales were JPY 105,944 million, an increase of 15.4 percent compared with the previous Fiscal year.
In Japan, sales of digital blood pressure monitors, body composition analyzers and pedometers increased strongly on the back of expanding awareness of metabolic syndrome and healthcare system reforms that will obligate insurers to provide specified health checkups and health guidance to insured persons starting in Fiscal 2008.
Overseas, sales of digital blood pressure monitors, a core product, were weak in the United States, reflecting a slowdown in consumer spending, but sales in Europe were strong overall, led by the digital blood pressure monitor business in Russia and Eastern Europe.
In China, the decline in selling prices of blood pressure monitors continued in an intensely competitive environment, but sales increased over the previous Fiscal year due to sales expansion in the second half of the period.
As a result, segment sales were JPY 65,726 million, an increase of 7.6 percent compared with the previous Fiscal year.
Metabolic syndrome is a condition with multiple risk factors that can easily cause lifestyle diseases such as diabetes, hypertension, hyperlipidemia and obesity.
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, entertainment business sales increased substantially with strong sales of photo sticker vending machines, a core product, and steady expansion of mobile content and other new business areas, including a steady increase in membership at mobile sites related to these machines.
In the computer peripherals business, sales of broadband routers, uninterruptible power supplies and other products increased solidly. In exploration and nurturing of new businesses, sales of radio frequency identification (RFID) equipment and insulation monitoring devices were strong.
As a result, segment sales were JPY 27,740 million, an increase of 6.9 percent compared with the previous Fiscal year.
Outlook for Fiscal 2007 (Ending March 31, 2008):
The outlook for the economic environment in Fiscal 2007 (ending March 31, 2008) is for continued moderate growth. Elements of uncertainty regarding the outlook will remain, including high raw material prices, a slowdown in the U.S. economy and trends in exchange rates, but brisk consumer spending and corporate capital investment are expected.
In markets related to the Omron Group, it expects that the market for factory automation control systems for domestic and overseas manufacturers will expand modestly against the backdrop of corporate capital investment.
Sales of consumer and commerce components for IT and digital related products are also expected to maintain upward momentum.
In addition, strong sales of automotive electronic components are likely to continue, reflecting increasing needs for car electronics, despite causes for concern such as slumping business at the top three auto manufacturers in North America.
In this environment, Omron has set prioritising profits to meet GD2010 second-stage goals as its Fiscal year policy for the final year of the second stage of GD2010, which started in Fiscal 2004. The objective of the second stage is to double the Omron Group's total business value compared with Fiscal 2003, and we will make the necessary investments to accomplish this.
In addition, Omron will aim to realise its growth structure leading into the third stage of GD2010, which will start in Fiscal 2008.
In Fiscal 2007, OSTI and OPT, acquired during the past Fiscal year, will contribute to results for the full year.
In addition, from the standpoint of balancing earnings and growth, Omron will increase operating income by strengthening the profit structure of existing businesses and proactively make growth investments in new business areas.
The Omron Group expects to achieve net sales of JPY 800.0 billion, operating income of JPY 75.0 billion, income before income taxes of JPY 72.0 billion, and net income of JPY 46.0 billion, for the sixth consecutive year of growth in sales and profits.
In Fiscal 2001 (ended March 31, 2002), Omron began implementing grand design 2010 (GD2010), a vision that sets the basic policies for management of the Omron Group for the 10 years through Fiscal 2010.
In accordance with these basic policies, Omron aims to become a 21st century company by maximising its corporate value over the long term, based on its basic philosophy of working for the benefit of society, Omron's management objective is to be a profitable growth company than maximises corporate value by aiming to be small but global.
The goal of the first stage of GD2010, which covered the period from Fiscal 2001-Fiscal 2004, was ROE of 10%.
Omron achieved this goal in Fiscal 2003, one year ahead of plan. The second stage of GD2010 covers the four years from fiscal 2004-2007.
In working to increase corporate value, Omron will shift its focus from creating a profit structure in the first stage to securing a balance between growth and profit in the second stage.
Specifically, from a growth perspective, Omron has been working toward expansion of business value through sales growth in China and creation of business value in new areas centred around core technologies as part of its business domain reform aimed at identifying target growth markets and technologies to redefine its business domains.
From an income perspective, as operational structural reform, Omron is working to realise a stronger profit structure by establishing appropriate profit structures for its businesses.
Issues facing the company:
In the second stage of GD2010, Omron has identified the profit and growth structures it intends to achieve in Fiscal 2007.
The company positioned the interim years of Fiscal 2005 and Fiscal 2006 as milestones toward realising the Fiscal 2007 targets, and has been promoting ongoing structural reforms.
As a result, Omron achieved growth in sales and income for both Fiscal 2005 and Fiscal 2006.
With these milestones toward reaching the Fiscal 2007 targets cleared, achievement of the goals of the second stage of GD2010 is now in sight.
For this reason, the Company has set prioritising profits to achieve GD2010 second-stage goals as its policy for Fiscal 2007, as well as a basic stance for its implementation that includes setting out profit focused measures to ensure operating profit in excess of JPY 75 billion and laying the foundation of a growth structure that supports increased profits, in preparation for the third stage of GD2010.
With regard to revising the profit structure to ensure income, Omron will advance toward its target profit structure by capitalizing on the results of structural reform efforts in selling, general and administrative expenses and production, despite factors such as lower selling prices and higher raw material costs.
In Fiscal 2006, Omron newly established the Monozukuri Innovation HQ and the global procurement and purchasing centre.
The Monozukuri Innovatio HQ carries out overall supervision of quality and support the production technology and control technology of each business in order to accelerate the quality and profit capabilities of the Omron Group on a global basis.
The Global procurement and purchasing centre conducts centralized management of information on the Omron Group's purchased materials and suppliers, promotes sharing of an optimal procurement and purchasing system on a global scale and works to strengthen procurement and purchasing functions within the Omron Group.
Growth in China is one strategy on which the entire company is focusing. China remains the fast-growing market, and in addition to the entry of companies from around the world, intensifying competition with local Chinese companies has made China a microcosm of global competition.
Under these conditions, Omron positioned China as a key area and made aggressive, proactive investments with the goal of increasing Fiscal 2007 sales there by JPY 100 billion over Fiscal 2003 figures.
Omron currently anticipates that achievement of Fiscal 2007 targets will be set back by one year due to the time required for some investment effects to materialise.
However, Omron will continue to focus on growth based on proactive investments made up to Fiscal 2006.
For technology-driven growth, to date Omron has set core technology and growth areas to strengthen at the corporate level, created a detailed map of technology and applications as a process for steadily developing technology, and moved toward the establishment of a growth structure.
From Fiscal 2006, Omron added energy, environment, security and safety as areas of focus.
Aiming to further accelerate growth in Fiscal 2007, the Company has revised its initial target of increasing net sales by JPY 50 billion compared to Fiscal 2003 to JPY 68 billion' upward to increasing net sales by JPY 82 billion compared to Fiscal 2003 to JPY 100 billion by including the effect of purchases conducted in Fiscal 2006.
In tandem, Omron will work to establish a base for achieving a profitable growth structure and formulate management strategies for the third stage of GD2010, which starts in Fiscal 2008.