Fiscal 2005 in review:
- Sales decline and high one-time charges against earnings
Outlook fiscal 2006:
- Largest loss-maker eliminated
- Return to sales growth and positive EBIT in continuing operations
Medium-term perspectives:
Fiscal 2005 (October 1, 2004 to September 30, 2005)
Fiscal 2005 was a difficult year that confronted EPCOS with great challenges. The economic upturn in the previous fiscal year proved short-lived, and the company was unable to carry the positive business development experienced in 2004 over into 2005. In the first half of fiscal 2005, customers’ inventory adjustments placed a heavy burden on business development. Business stabilized more and more in the second half of fiscal 2005, and even revived vigorously toward the end of the fiscal year. EPCOS was able to further increase the sales of its new products such as piezo actuators and multilayer ceramic modules. Nevertheless, these gains were not able to compensate for the weak first half of fiscal 2005. Thus, sales declined by 9% from EUR 1.36 billion in the previous year to EUR 1.24 billion in the year under review.
EBIT was minus EUR 88 million (plus EUR 65 million in fiscal 2004). The main reasons for the drop in earnings were the decline in sales and a number of one-time special charges, which totaled EUR 69 million. Moreover, a valuation allowance for deferred tax assets resulting from net operating loss carryforwards from recent years negatively affected earnings after taxes by minus EUR 25 million. The net income thus came to minus EUR 119 million (plus EUR 49 million in the previous year). Earnings per share were minus EUR 1.83 against plus EUR 0.75 in the previous year. The net cash flow for the year amounted to minus EUR 65 million. This resulted mainly from the loss and capital expenditures to ramp-up production capacities for new products.
Progress since October 2004
Despite the difficult business development EPCOS has made progress toward becoming a globally more competitive company:
The tantalum capacitor business was sold to the US capacitor manufacturer KEMET. EPCOS has thus eliminated the company’s biggest source of losses and improved the conditions for sustainable positive earnings. Closing of the transfer of the business to KEMET is expected in early 2006.
As was successfully accomplished with Ferrites in the past, EPCOS is now focusing more strongly on specific market segments in the Ceramics Capacitors business. The portfolio of these products has been streamlined accordingly and aligned especially for automotive electronics applications. “This shift of focus is a measure that will lay the foundation for sustained medium-term profitability,” explained President and CEO Gerhard Pegam at EPCOS’ Annual General Meeting in Munich today. “But this strategy only applies to a few areas of our overall portfolio – areas in which we will probably not be able to achieve global market leadership, but where we want to preserve the basic technology. As a whole, EPCOS remains committed to manufacturing a very broad spectrum of standard and special-purpose products and solutions.”
Within the framework of the corporate-wide COMPETE program EPCOS has reduced its costs in fiscal 2005 by an additional EUR 110 million, meaning that since 2002 a total of about EUR 600 million has been saved (COMPETE: COst Management, Process Excellence, Time Efficiency).
At the same time, EPCOS intensified its work on innovation projects designed to lay the basis for successful business in future. Sales of new products rose by over 40% in the period under review. Products that have been on the market for less than three years now account for about one-third of total sales. The contribution made by new products is to be increased even further. With current innovation projects EPCOS will develop additional sales potential worth well over half a billion euros in the years ahead.
EPCOS has further expanded its presence in Asia, the fastest growing regional electronics market. For example, the SAW filter business for multimedia applications was completely concentrated in Singapore. Moreover, EPCOS established two more joint ventures in China. The joint venture with Chinese conglomerate XINDECO will manufacture aluminum electrolytic capacitors, primarily for use in industrial electronics. In collaboration with BEIJING JONES, a Chinese manufacturer of EMC components, EPCOS will produce and market EMC filters, which ensure the electromagnetic compatibility (EMC) of electronic equipment and systems. With these joint ventures EPCOS will open the door to new Chinese customers and increase its value added in Asia. Moreover, this creates an additional low-cost production base in Asia from which the global market can be served later.
