Financial Results for the First Quarter of FY ending March 31, 2006 July 28, 2005 Oki Electric Industry Co., Ltd. 1 Table of Contents 1. Financial Results for the Q1 of FY ending Mar. 2006 1-1 1-2 1-3 1-4 1-5 1-6 Business Environments Financial Result Overview Profit and Loss Segment Information Balance Sheet Cash Flows 2. First Half Projections for the FY ending Mar. 2006 2-1 2-2 2-3 Profit and Loss Projections Projections by Segment Product Development for High Profitability * The projections and plans on this material are subject to change depending upon the changes of business environments and other conditions. 2 Business Environments 1. Because of the completion of new banknote related investments, financial institutions’ investments on ATM-related equipment stagnated since the latter half of previous fiscal year. Investments on security expand gradually, but move in high gear from the next fiscal year 2. Telecom carriers’ investments on optical and broadband IP networks remained in a high level, while fiercer competitions among carriers to gain subscribers led pricedrop pressure 3. Slowdown in the semiconductor market continued from the latter half of the previous year. While there were recovery signs in PC-related and some other items, overall market continued to stagnate 4. While the color NIP market continued to grow, price competition for gaining shares intensified 5. Foreign currency exchange rate Oki internal rate for FY ending Mar. 06 Q1 actual rate Q2 projected rate USD 105.0 yen 107.7 yen 107.0 yen Euro 135.0 yen 135.6 yen 135.0 yen 3 Q1 Financial Result Overview Net sales decreased by 5.7 billion yen on a year-on-year basis, particularly sales for financial institutions and semiconductors Operating income decreased by 1.8 billion yen along with the sales decline Both shareholders’ equity ratio and interest-bearing debt ratio improved (Billion yen) (Billion yen) Q1 of FY Mar. 05 Q1 of FY Mar. 06 Variance 142.0 136.3 (5.7) Operating income (2.1) (3.9) (1.8) Recurring income (3.1) (4.5) (1.4) Net income (2.6) (4.0) (1.4) (4.28) yen (6.54) yen (2.26) yen Total assets 583.4 595.4 12.0 Shareholders’ equity 110.5 118.0 7.5 180.63 yen 192.90 yen 12.27 yen 283.4 279.0 (4.4) Net sales Net income per share Shareholders’ equity per share Interest-bearing debt 4 Q1 Profit and Loss Comparison of consolidated P/L Q1 of FY Mar. 05 (Billion yen) Q1 of FY Mar. 06 Variance Operating loss was 3.9 billion yen, decreased by 1.8 billion yen on a yearon-year basis, due to sales reduction 142.0 136.3 (5.7) (75.4%) (76.8%) (-1.4 %) 107.1 37.0 104.7 35.5 (2.4) (1.5) Cost of sales ratio dropped by 1.4 point, largely due to price down Operating income (2.1) (3.9) (1.8) Other income (1.0) (0.6) 0.4 Other income improved by 0.4 billion yen, due to 0.4 billion yen increase in dividend earned Recurring income (3.1) (4.5) (1.4) 0.1 0.1 0.0 1.3 0.6 (0.7) Income before taxes (4.3) (5.0) (0.7) Income taxes (1.7) (1.0) 0.7 Net income (2.6) (4.0) (1.4) Net sales (Cost of sales ratio) Cost of sales SG&A Extraordinary income Extraordinary loss 0.5 billion yen reduction of loss on disposal of fixed assets and 0.2 billion yen reduction of special retirement payments improved extraordinary loss by 0.7 billion yen 5 Q1 Segment Information: Segment Total While printer sales increased, sales in info-telecom systems and semiconductors decreased Due to sales reduction, both operating income and net income decreased Income Net sales (Billion yen) 142.0 6.1 29.5 37.6 68.8 Q1, FY Mar. 05 136.3 Operating income 7.3 Others 31.8 Printers 35.8 Semiconductors 61.4 Info-telecom systems Net income (Billion yen) (2.1) (2.6) (3.9) (4.0) Q1, FY Mar. 05 Q1, FY Mar. 06 Q1, FY Mar. 06 6 Q1 Segment Information: Info-Telecom Systems Telecom carriers’ active investments on optical and broadband IP networks increased sales for telecom carriers Net sales decreased on a year-on-year basis, due to slow investments on ATMs by financial institutions and slow IT investments by public sector Operating income Net sales (Billion yen) 68.8 3.5 12.2 7.6 17.5 28.0 Q1, FY Mar. 05 (Billion yen) 61.4 3.9 8.9 3.9 Others Enterprises Public sector 22.8 Telecom carriers (1.7) 21.9 Financial market Q1, FY Mar. 05 (1.6) Q1, FY Mar. 06 Q1, FY Mar. 06 7 Q1 Segment Information: Semiconductors Net sales in LCD drivers increased, due to the effect of the acquisition of Japan TI’s driver business Net sales in PHS baseband LSIs and sound generator LSIs decreased, affected by mobile terminal inventory adjustment in China Operating income decreased by 1.9 billion yen on a year-on-year basis, because of price drop, etc. Operating income Net sales (Billion yen) 37.6 0.4 35.8 Optical components 12.0 0.5 9.2 15.9 19.8 Logic LSIs 6.3 System LSIs 9.3 Q1, FY Mar. 05 System memories (Billion yen) 1.2 (0.7) Q1, FY Mar. 05 Q1, FY Mar. 06 Q1, FY Mar. 06 8 Q1 Segment Information: Printers Color NIP unit shipment drastically increased, which led increase in net sales under the severer price competition among printer vendors to gain shares Price drop and active investment on sales reduced operating income Operating income Net sales (Billion yen) 29.5 15.6 13.9 31.8 14.8 17.0 (Billion yen) Others 0.6 0.1 Color NIP Q1, FY Mar. 05 Q1, FY Mar. 05 Q1, FY Mar. 06 Q1, FY Mar. 06 9 Q1 Balance Sheet (1) <Balance Sheet: Assets> Inventory increased by 22.1 billion yen on a year-on-year basis, because of the printer sales growth and the increase in inventory value in Yen in overseas subsidiaries caused by the depreciation of the Yen. (Billion yen) 600 609.6 583.4 608.0 595.4 55.4 46.6 46.6 31.5 155.3 115.7 146.0 120.6 139.0 152.3 149.3 174.4 30.1 33.3 33.1 33.4 119.7 120.1 126.5 125.4 Variance with Jun. 30, 2004 Cash and deposits - 15.1 Notes and accounts receivable + 4.9 400 200 110.1 115.4 106.5 Jun. 30, 04 Mar. 31, 05 + 22.1 Other current assets + 0.1 Propety, plant and equipment + 5.3 Investments and other assets - 5.3 110.1 0 Mar. 31, 04 Inventories Jun. 30, 05 10 Q1 Balance Sheet (2) <Balance Sheet: Liabilities and Shareholders’ Equity> Balance of interest-bearing debt was 279.0 billion yen, decreased by 4.4 billion yen on a year-on-year basis Interest-bearing debt ratio reached 46.9%, improved by 1.7 points on a year-on-year basis, shareholders’ equity ratio was 19.8%, improved by 0.9 points (Billion yen) 600 400 200 609.6 135.8 583.4 608.0 595.4 118.1 144.5 120.4 129.8 131.6 135.3 145.7 31.1 30.6 24.0 25.2 161.7 151.8 129.9 133.3 40.7 40.8 49.5 52.8 110.5 110.5 124.8 118.0 0 Variance with Jun. 30, 2004 Notes and accounts payable + 2.3 Short-term borrowings + 14.1 Other current liabilities - 5.4 Bond and long-term debts - 18.5 Other fixed liabilities and minority interests + 12.0 Shareholders' equity + 7.5 Mar. 31, 04 Jun. 30, 04 Mar. 31, 05 Jun. 30, 05 Bonds due within a year and commercial paper are included in bond and long-term debt, and short-term borrowings respectively. 11 Q1 Cash Flows Increase in working capital, including notes and accounts receivable and inventory, worsened cash flows from operating activities by 29.1 billion yen on a year-on-year basis Accordingly, free cash flows worsened by 27.6 billion yen (Billion yen) Q1 of FY Q1 of FY Variance Mar. 05 Mar. 06 I. Cash flows from operating activities 10.4 (18.7) (29.1) (4.3) (5.0) (0.7) 7.3 7.9 0.6 Changes in working capital 17.2 (12.6) (29.8) Others (9.8) (9.0) 0.8 (9.0) (7.5) 1.5 Purchases of property, plant & equipment (6.7) (6.2) 0.5 Others (2.3) (1.3) 1.0 1.4 (8.4) (26.2) 11.9 (27.6) 20.3 0.0 (10.0) (10.0) (8.4) 21.9 30.3 (7.0) 51.4 (14.3) 36.3 (7.3) (15.1) Income before income taxes Depreciation & amortization II. Cash flows from investing activities Free cash flows (I+II) III. Cash flows from financing activities Redemption of bonds Changes in other interest bearing debts, etc. Net cash flow (I+II+III) IV. Cash and cash equivalents at the period end Notes <Changes in working capital> Q1 of FY Mar. 05 Receivables 40.3 Inventories (13.2) Payables (9.9) Total 17.2 Q1 of FY Mar. 06 26.1 (25.0) (13.7) (12.6) 12 First Half Projections: Profit and Loss Though net sales is unchanged, operating income decreases 4.0 billion yen from the previous projections announced on Apr. 27 While net sales slightly increases on a year-on-year basis, Oki expects an operating loss of 4.0 billion yen, affected by price drops, etc. Net loss will be 5.0 billion yen, decreased by 2.1 billion yen (Billion yen) 1H, FY Mar. 05 (Results) 1H, FY Mar. 06 (July 28 announcement) Reference: Variances 1H, FY Mar. 06 (Apr. 27 announcement) 319.7 320.0 0.3 320.0 1.5 (4.0) (5.5) 0.0 Other income (2.1) (3.0) (0.9) (3.5) Recurring income (0.6) (7.0) (6.4) (3.5) Extraordinary income (4.1) (0.5) 3.6 (1.0) Income before taxes (4.7) (7.5) (2.8) (4.5) Income taxes (1.8) (2.5) (0.7) (2.0) Net income (2.9) (5.0) (2.1) (2.5) Net sales Operating income 13 First Half Projections: Segment Total Net sales is 320.0 billion yen, unchanged from Apr. 27 announcement. Operating income decreases by 4.0 billion yen from previous projections, affected by decrease in sales for financial institutions and price drop in semiconductor segment On a year-on-year basis, while sales of info-telecom systems decreases by 8.4 billion yen, sales of printer increases by 6.8 billion yen, which makes total net sales flat. Operating income decreases by 5.5 billion yen, largely affected by semiconductor price drop Income Net sales (Billion yen) 319.7 320.0 320.0 13.5 65.2 13.0 70.0 15.0 Others 72.0 Printers 76.6 77.0 77.0 (Billion yen) Operating income 1.5 0.0 Semiconductors (2.9) 164.4 1H, FY Mar. 05 160.0 156.0 Net income Info-Telecom systems Apr. 27 July 28 1H, FY Mar. 06 (projections) 1H, FY Mar. 05 (2.5) (4.0) (5.0) Apr. 27 July 28 1H, FY Mar. 06 (projections) 14 First Half Projections: Info-Telecom Systems Sales in telecom carriers increases by 2.0 billion yen, while sales in financial institutions decreases by 6.0 billion yen, which leads decrease in both net sales and operating income from the previous projections announced on Apr. 27 On a year-on-year basis, sales in telecom carriers increase while sales in financial institutions and public sectors decrease drastically, and in total, net sales decreases by 8.4 billion yen. Operating income decreases by 1.2 billion yen Operating income Net sales (Billion yen) 164.4 160.0 156.0 10.0 29.0 15.0 Others Enterprises 20.2 10.0 29.0 15.0 40.3 50.0 52.0 Telecom carriers 7.1 31.6 (Billion yen) Public sector 2.0 0.2 (1.0) 65.2 1H, FY Mar. 05 56.0 50.0 Financial institutions Apr. 27 July 28 1H, FY Mar. 06 (projections) 1H, FY Mar. 05 Apr. 27 July 28 1H, FY Mar. 06 (projections) 15 First Half Projections: Semiconductors Net sales of 77.0 billion yen is unchanged from the previous projections on Apr. 27. Operating income decreases by 1.0 billion yen, due to price drop On a year-on-year basis, while there is sales increase factor caused by the driver LSI business acquisition, net sales remains unchanged due to adjustment in the semiconductor market since the latter half of the previous year. Operating income decreases by 3.9 billion yen on a year-on-year basis, due to price down Operating income Net sales (Billion yen) 76.6 77.0 77.0 1.3 2.0 2.0 24.8 24.0 24.0 System memories 32.2 35.0 35.0 Logic LSIs 18.3 16.0 16.0 System LSIs 1H, FY Mar. 05 Others Apr. 27 July 28 1H, FY Mar. 06 (projections) (Billion yen) 3.4 0.5 (0.5) 1H, FY Mar. 05 Apr. 27 July 28 1H, FY Mar. 06 (projections) 16 First Half Projections: Printers Sales in color NIP increases by 2.0 billion yen from the previous projections on Apr. 27. Operating income is 1.5 billion yen, unchanged from the previous projections, due to price down On a year-on-year basis, net sales increases by 6.8 billion yen due to large increase in color NIP unit shipment. Operating income decreases by 0.6 billion yen, due to price down and active investments on sales Operating income Net sales (Billion yen) 65.2 36.5 28.7 1H, FY Mar. 05 70.0 72.0 32.0 32.0 (Billion yen) Others 2.1 1.5 38.0 40.0 1.5 Color NIP Apr. 27 July 28 1H, FY Mar. 06 (projections) 1H, FY Mar. 05 Apr. 27 July 28 1H, FY Mar. 06 (projections) 17 Product Development for High Profitability Create “strong products” which generate high profitability Info-telecom System Business Deliver ATM-BankIT to mega banks, regional banks and Shinkin banks (Oct. 2005) Expand line-up of SS9100 (Q3, Oct-Dec. 2005) Unveil products that realize triple-play (Q2, July-Sept. 2005) Semiconductor Business Launch TFT driver products, which converge Oki products and products of driver business acquired from Texas Instrument Japan (Q3, Oct.-Dec. 2005) Expand custom P2ROM business and unveil advanced P2ROM (Q4, Jan.-Mar. 2006) Printer Business Launch new models of color LED printer - Color multifunction printer for the U.S. and Europe (May 2005) - High speed color printer with high color management capability (providing 32 levels of halftones per dot) (May 2005) Develop more competitive color LED printer (low cost, high speed, compact, high resolution) 18