OMRON Corporation Reports Earnings for Fiscal 2007

KYOTO, Japan--(BUSINESS WIRE)--OMRON Corporation (TOKYO:6645)(US:OMRNY) has reported earnings for the full fiscal year 2007, ended March 31, 2008.

1. Overview of Fiscal 2007

The Omron Group’s net sales for the fiscal year were JPY 762,985 million, an increase of 5.4 percent from the previous fiscal year., supported by the effects of the weaker yen and business acquisitions. Operating income increased 5.2 percent from the previous fiscal year to JPY 65,253 million, mainly as a result of higher net sales. Income from continuing operations before income taxes(^*1) was JPY 64,166 million, a decrease of 0.2 percent from the previous fiscal year due to gain on sale of investment securities and other factors. In the previous fiscal year, the Omron Group recorded a gain on the establishment of a retirement benefit trust and a loss on the sale of the land and buildings of its Tokyo Head Office. Net income for the fiscal year was JPY 42,383 million, an increase of 10.7 percent from the previous fiscal year due to factors including a gain on the transfer of a business.

(*1) Pursuant to Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” figures for the fiscal year ended March 31, 2007 have been reclassified in relation to operations discontinued during the first quarter of the fiscal year ended March 31, 2008.

Notes: All amounts are rounded to the nearest million yen.

Consolidated Sales and Income
(Percentages for net sales, operating income, income from continuing operations before income taxes, and net income represent changes compared with the previous fiscal year.)
Millions of yen - except per share data and percentages
		Year ended March 31, 2007					Year ended March 31, 2008
				Change (	%)				Change (	%)
Net sales		723,866		17.5			762,985		5.4
Operating income		62,046		2.1			65,253		5.2
Income from continuing operations before income taxes		64,279		2.0			64,166		(0.2	)
Net income		38,280		7.0			42,383		10.7
Net income per share (JPY)		164.96					185.89
Net income per share, diluted (JPY)		164.85					185.84
(Reference) Equity in earnings (losses) of affiliates: Fiscal year ended March 31, 2007: (JPY 1,352 million), Fiscal year ended March 31, 2008: (JPY 348 million)
Note: Pursuant to Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” figures for the fiscal year ended March 31, 2007 have been reclassified in relation to operations discontinued during the first quarter of the fiscal year ended March 31, 2008.

Results by Business Segment

Industrial Automation Business (IAB)

Operations in Japan were impacted by a slowdown in expansion of capital investment among customers in the semiconductor and electronic components industry in comparison with the previous fiscal year and a decrease in capital investment in the flat panel display (FPD) industry, although investment remained firm among manufacturers in general. Beginning in fiscal 2007, the Omron Group worked to reinforce its sales infrastructure in order to expand the applications business, which focuses on quality, safety and the environment. Sales of the application sensor business and safety component business in particular increased over the previous year.

In addition, sales of Laserfront Technologies (now OMRON LASERFRONT INC., hereinafter “OLFT”), in which Omron acquired a 95 percent stake at the end of June 2007, contributed to domestic sales of this segment from July onward.

Overseas, demand for programmable controllers and motion controllers in Europe was solid, and sales of image sensors expanded. In North America, demand for control equipment for oil and gas-related companies, which had remained strong, fell sharply in the fourth quarter. Omron worked to compensate for this by expanding its core factory automation business and ancillary services, but overall sales were impacted by the slowing economy. In China, sales increased on the back of strong sales of products including programmable controllers and AOI, a result of the Omron Group’s focus on strengthening its sales force and rolling out new products.

As a result, segment sales for the fiscal year totaled JPY 328,811 million, an increase of 7.6 percent compared with the previous fiscal year.

Electronic Components Business (ECB)

In Japan, consumer spending and capital investment remained firm in the first half of the period, but overall, the semiconductor and automobile manufacturing industries slowed, and inventory adjustments continued in the consumer and commerce components industry, a key market for this segment. Overseas, electronic manufacturing services (EMS) in China, which had been strong, slowed down.

In this business environment, sales of PCB relays, a core product, were flat overall, as sales of air conditioner relays expanded due to increased demand in the BRIC countries and other emerging markets, but sales of relays for communications were sluggish. On the other hand, sales of electronic components such as HMI devices and thin connectors for mobile and IT devices increased strongly because they met customer needs for slimmer products.

In addition, the backlight business of OMRON PRECISION TECHNOLOGY Co., Ltd., which was included in the scope of consolidation in August 2006, contributed to sales, and OMRON SEMICONDUCTORS Co., Ltd., posted solid sales overall after starting contract manufacturing of semiconductors in April 2007.

As a result, segment sales for the fiscal year totaled JPY 154,233 million, an increase of 11.5 percent compared with the previous fiscal year.

Automotive Electronic Components Business (AEC)

Global automobile production volume during the fiscal year was generally steady, and Omron products continued to be adopted in new cars, reflecting the demand for car electronics that support automobile safety and environmental friendliness. As a result, sales of this segment increased strongly. By geographic region, sales in Japan were solid, and overseas, sales of keyless entry systems and other wireless devices were strong in North America despite a challenging market environment in which automobile sales volume remained at the level of the previous fiscal year. Furthermore, in China, where automobile manufacturers are shifting production and expanding global procurement, Omron’s Chinese manufacturing subsidiary steadily expanded production, and sales to the Chinese market increased substantially.

As a result, segment sales for the fiscal year were JPY 107,521 million, an increase of 15.2 percent compared with the previous fiscal year.

Social Systems Business (SSB)

In the public transportation systems business, large-scale demand for projects associated with the use of common IC cards in railway stations (primarily in the Tokyo metropolitan area) dropped to a lower level, and sales declined compared with the previous fiscal year, when demand peaked. In the traffic and road management systems business, sales decreased due to the effect of restrained public investment. However, this business continued to expand solutions such as driving safety support systems. The ID management solutions business was impacted by the “gray zone” interest rate issue in the credit industry, but security-related sales were solid. In the maintenance business, sales of the public transportation-related business declined, and there were fewer IT-related maintenance and service calls, but the software business posted solid sales due to sales expansion of packages and components to the distribution and mobile device industries.

As a result, segment sales for the fiscal year were JPY 85,223 million, a decrease of 19.6 percent compared with the previous fiscal year.

Healthcare Business (HCB)

In Japan, sales of digital blood pressure monitors and pedometers were strong, backed by increasing recognition of metabolic syndrome and related medical checkups that will become mandatory in fiscal 2008. While sales of body composition analyzers leveled off, sales of electric toothbrushes expanded strongly, due partly to the effect of television commercials.

Overseas, sales in Europe remained generally strong overall, led by the digital blood pressure monitor business in Russia and Eastern Europe, although sales of digital blood pressure monitors in North America were sluggish due to weak consumer spending. In China, sales expanded sharply due to factors including steadily rising sales of newly introduced blood glucose monitors.

As a result, segment sales for the fiscal year were JPY 71,562 million, an increase of 8.9 percent compared with the previous fiscal 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.

In existing businesses, sales of uninterruptible power supplies and broadband routers in Omron’s computer peripherals business increased steadily. In new businesses, conditions became more competitive in the radio frequency identification (RFID) equipment market, but the electricity usage monitoring business posted solid sales.

As a result, segment sales were JPY 15,635 million, an increase of 4.5 percent compared with the previous fiscal year.

2. Consolidated Financial Position and Cash Flows

Total assets decreased JPY 12,970 million compared with the end of the previous fiscal year. Among assets, notes and accounts receivable at the end of the fiscal year decreased JPY 8,822 million because of large-scale special procurement in the public transportation systems business in the fourth quarter of the previous fiscal year. In addition, investment securities decreased JPY 7,631 million due to a drop in stock prices. In liabilities, short-term debt decreased JPY 2,073 million. Total shareholders’ equity decreased JPY 14,320 million compared with the end of the previous fiscal year. While net income of JPY 42,383 million increased shareholders’ equity, factors decreasing shareholders’ equity were a JPY 12,342 million decrease in foreign currency translation adjustments and a JPY 6,237 million decrease in net unrealized gains on available-for-sale securities.

Net cash provided by operating activities was JPY 68,996 million (an increase of JPY 28,457 million compared with the previous fiscal year) due to factors including net income of JPY 42,383 million and an increase in depreciation and amortization, a non-cash item. Net cash used in investing activities was JPY 36,681 million (a decrease in cash used of JPY 10,394 million compared with the previous fiscal year). In addition to investments made for future growth, other factors included payment for acquisition of business entities and proceeds from the transfer of a business in April 2007. Net cash used in financing activities was JPY 34,481 million (an increase in cash used of JPY 29,784 million compared with the previous fiscal year), mainly due to acquisition of treasury stock and dividends paid by the Company.

As a result, the balance of cash and cash equivalents at March 31, 2008 decreased JPY 2,371 million from a year earlier to JPY 40,624 million.

Consolidated Financial Position
		Millions of yen - except per share data and percentages
		As of March 31, 2007		As of March 31, 2008
Total assets		630,337		617,367
Net assets		382,822		368,502
Net worth ratio (%)		60.7		59.7
Net assets per share (JPY)		1,660.68		1,662.32
Note: In accordance with U.S. GAAP, net assets, net worth ratio and net assets per share are calculated using total shareholders’ equity.

Consolidated Cash Flows
		Millions of yen
		Year ended March 31, 2007			Year ended March 31, 2008
Net cash provided by operating activities		40,539			68,996
Net cash used in investing activities		(47,075	)		(36,681	)
Net cash used in financing activities		(4,697	)		(34,481	)
Cash and cash equivalents at end of period		42,995			40,624

3. Dividends

In accordance with its policy for distribution of profits and dividends, Omron plans to pay an ordinary year-end dividend of JPY 20 per share for fiscal 2007. In addition, Omron plans to pay a special dividend of JPY 5 per share to express its appreciation to shareholders on the 75^th anniversary of the Company’s founding on May 10, 2008 for total dividends of JPY 25 per share. For the full fiscal year, including the interim dividend of JPY 17 per share paid on December 6, 2007, Omron plans to pay total dividends of JPY 42 per share (an increase of JPY 8 from the previous fiscal year).

Dividends
				Year ended March 31, 2007		Year ended March 31, 2008		Year ending March 31, 2009 (projected)
Dividends per share		Interim dividend (JPY)		15.00		17.00		18.00
		Year-end dividend (JPY)		19.00		25.00		—
		Total dividend for the year (JPY)		34.00		42.00		—
Total cash dividends paid (JPY millions)				7,839		9,415
Payout ratio				20.6		22.6		—
Net assets/ dividends ratio				2.1		2.5
Note: Year-end dividend and payout ratio for the year ending March 31, 2009 are not presented because forecasts have not been made.

4. Outlook for Fiscal 2008 (Ending March 31, 2009)

In the fiscal year ending March 31, 2009, although solid economic expansion is projected in some regions (primarily in Asia), uncertainty regarding economic prospects is expected to increase further due to factors including rising crude oil and raw material prices, the slowdown of the U.S. economy and the strengthening of the yen against the U.S. dollar. Reflecting these trends, we are assuming a downturn in consumer spending and a deteriorating climate for corporate capital investment.

In markets related to the Omron Group, we expect weak conditions mainly in the semiconductor and electronic component industries due to the impact of restrained capital investment. We also expect the economic downturn in North America to affect the market for automotive electronic components, despite a continued strong need for car electronics.

In this environment, we have set “securing a foothold for sustainable growth” as the OMRON Group’s policy for fiscal 2008, the start of the third stage of GD2010. We will make the necessary investments to realize a mechanism for sustained growth: investments in products and businesses in which we aim to be global no. 1, investments in new growth areas, and IT investments to ensure business speed and flexibility.

As for the performance outlook for the fiscal year ending March 31, 2009, even in the continued challenging economic environment, after making the investments necessary to achieve the third-stage goals we project net sales of JPY 780 billion, operating income of JPY 60 billion, income from continuing operations before income taxes of JPY 59 billion and net income of JPY 36.5 billion.

The assumed exchange rates are US$1 = JPY 100 and 1 Euro = JPY 155.

Projected Results for Fiscal 2008 (Ending March 31, 2009) (Percentages represent changes compared to the previous fiscal year for the full year and compared with the previous interim period for the interim year.)
		Millions of yen
		Interim period ending September 30, 2008		Change (	%)		Full year ending March 31, 2009		Change (	%)
Net sales		368,000		0.5			780,000		2.2
Operating income		20,000		(24.8	)		60,000		(8.1	)
Income from continuing operations before income taxes		19,500		(28.6	)		59,000		(8.1	)
Net income		12,000		(36.2	)		36,500		(13.9	)
Net income per share, basic (JPY)		54.13		—			164.65		—

Outlook by Business Segment

Industrial Automation Business (IAB)

In domestic business, although the flat panel display (FPD) industry is expected to move onto a recovery track, uncertainty about the overall outlook is increasing due to the impact of the rapid strengthening of the yen against the U.S. dollar, and the downturn in the U.S. economy. Under these conditions, Omron will work to increase sales in this segment by further strengthening its sales organization to expand the applications business, and by aggressively proposing solutions to customer issues in the areas of quality, safety and the environment. Omron will also continue to focus on strengthening coordination with sales channels and expansion of general-use products.

Overseas, Omron will begin strengthening its sales organization for expansion of the applications business. The Company will also promote sales expansion by bolstering cooperation in sales to key industries and customers, particularly in East Asia; by enhancing marketing in emerging markets such as India and Russia; and by continuing to focus on rolling out new products as well as strengthening the sales force and expanding production in China.

As a result, segment sales for the fiscal year are projected to be JPY 337.5 billion, a year-on-year increase of 2.6 percent.

Electronic Components Business (ECB)

The environment surrounding the consumer and commerce components industry is expected to be challenging due to factors including a projected drop in demand for household appliances, equipment and systems, reflecting the decrease in new home construction in the United States. However, Omron will work to expand business by introducing new products and using core technologies to enhance product appeal. In addition, Omron will roll out new products for the key automotive and mobile device industries, and will make focused investments in next-generation product development in micro electro mechanical systems (MEMS), which is positioned as a growth product.

In Japan, Omron will merge OMRON Semiconductors Co., Ltd., which commenced operations in April 2007, into the parent company in July 2008 to promote its strategy of fusing semiconductor-related technologies with existing businesses (expansion of products that incorporate semiconductor devices). This merger is aimed at integrating planning, development and marketing functions to improve efficiency and reduce lead time.

Overseas, Omron is establishing engineering centers in each area in which the Company does business, beginning with Eastern Europe in fiscal 2007, in order to accelerate business expansion by moving closer to customers. In addition to China, where continuing growth is anticipated, Omron will work to expand business in newly developing countries, particularly Mexico and Vietnam.

As a result, segment sales for the fiscal year are projected to be JPY 154.5 billion, a year-on-year increase of 0.2 percent.

Automotive Electronic Components Business (AEC)

Although automobile production volume is projected to expand in China, India, Eastern Europe and South America, the business environment in this segment is expected to be challenging due to the business slump among the major North American auto manufacturers and a decline in new car sales volume in Japan, in addition to the rapidly weakening dollar. Under these conditions, Omron will work to expand sales of strategic products such as electric power steering controllers, as auto manufacturers are adopting Omron’s new products in more of their new vehicles in Japan and overseas.

As a result, segment sales for the fiscal year are expected to be JPY 108.5 billion, a year-on-year increase of 0.9 percent.

Social Systems Business (SSB)

In the public transportation systems business, weak sales are projected as railway companies complete an investment cycle. In the traffic and road management systems business, Omron will focus on renewal demand in the law-enforcement market and expansion of sales of weigh-in-motion systems. In the ID management solutions business, Omron projects sales growth through new services utilizing IC cards and the new sensing business, which uses image processing technology. In the maintenance business, Omron will work to strengthen new business areas related to engineering and IT. In the software business, Omron aims to expand business through electronic money solutions and the acquisition of new customers among information appliance manufacturers and mobile phone companies.

As a result, segment sales for the fiscal year are projected to be JPY 90.0 billion, a year-on-year increase of 5.6 percent.

Healthcare Business (HCB)

Continued expansion of demand for digital blood pressure monitors and pedometers is projected as health consciousness continues to rise in Japan as well as overseas. Particularly strong growth is predicted for digital blood pressure monitors in China, Russia, Eastern Europe, India and other newly industrialized countries. While the business environment for vital sign monitors for medical institutions is likely to be challenging due to the effect of reduced compensation for medical treatment, healthcare structure reforms designed to shift the focus from treatment to prevention are expected to lead to expanding sales of lifestyle disease prevention equipment to medical practitioners, including arteriosclerosis detection systems and central blood pressure measurement systems.

As a result, segment sales for the fiscal year are projected to be JPY 74.0 billion, a year-on-year increase of 3.4 percent.

Others

In existing businesses, growth is expected in the computer peripherals business, backed by an increase in the number of fields using uninterruptible power supplies and Omron’s expanding product lineup. In new growth businesses, the RFID business will respond to the move toward practical use of IC tags, and will accelerate business development mainly in Japan. In the remote monitoring and reporting systems business, Omron will work to expand its power consumption monitoring business amid rising interest in energy saving following the revision of Japan’s Energy Conservation Law.

As a result, segment sales for the fiscal year are projected to be JPY 15.5 billion, a year-on-year decrease of 0.9 percent.

5. Outlook on Financial Condition for Fiscal 2008 (Ending March 31, 2009)

Although Omron will continuously strengthen its existing businesses and make ongoing investments in new product development as part of its growth strategy, free cash flow, calculated as net cash provided by operating activities less net cash used in investing activities, is expected to remain near the level of the previous fiscal year. In financing activities, despite the above capital requirements, Omron will flexibly manage sources and uses of capital, taking financial conditions into consideration while efficiently deploying capital and maintaining appropriate capital levels throughout the Group.

Considering the above cash flow projections, Omron believes that the balance of cash and cash equivalents of JPY 40,624 million as of March 31, 2008 is more than sufficient for business operations in the current economic conditions.

Note: This information has been translated from Japanese as a guide for non-Japanese investors and contains forward-looking statements that are based on management’s estimates, assumptions and projections at the time of writing. A number of factors could cause actual results to differ materially from projections.

About OMRON

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 over 33,000 employees in 36 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. For more information, visit OMRON's website at www.omron.com.