Final Results
Maruwa Co Ld
16 May 2006
16 May 2006
MARUWA CO., LTD.
3-83, Minamihonjigahara-cho, Owariasahi-city, Aichi-pref., 488-0044 JAPAN
Final Results for Fiscal 2006
MARUWA CO., LTD. today announced its consolidated business results for the full fiscal year ended
31st March, 2006 as follows;
*The financial statements are prepared in conformity with the accounting principles generally
accepted in Japan.
*US dollar amounts are converted for convenience only at the rate of US$1 = JPY113.42.
*Consolidated subsidiaries: 6 companies (Maruwa (Malaysia) Sdn. Bhd., Taiwan Maruwa Co., Ltd.,
MARUWA Electronics (Taiwan) Co., Ltd., Maruwa Europe Ltd., MARUWA QUARTZ Co., Ltd., and MARUWA
SHOMEI Co., Ltd.)
I. Summary of Consolidated Results
(1) Summary of consolidated statement of
income
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 2006 31st March 2005 31st March 2006
Net sales 20,278 15,529 30.6% 178,788
Operating income 1,693 1,357 24.8% 14,930
Income before income taxes 1,669 1,180 41.4% 14,713
Net income 1,135 1,225 -7.3% 10,004
JPY USD
Net income per share (yen) 103.82 112.40 -7.6% 0.92
Return on equity (ROE) (%) 4.5% 5.1%
*Average number of issued 10,880,952 10,814,036
shares
(2) Summary of consolidated financial
condition
JPY million USD thousand
As of 31st As of 31st March Change % As of 31st March
March
2006 2005 2006
Total Assets 33,044 28,465 16.1% 291,338
Shareholders' equity 26,557 24,328 9.2% 234,143
Shareholders' equity ratio 80.4% 85.5% -5.1%
JPY USD
Shareholders' equity per share 2,423.40 2,256.48 7.4% 21.37
*Number of issued shares at 10,956,360 10,777,260
year end
(3) Summary of consolidated statement of cash
flows
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 2006 31st March 2005 31st March 2006
Net cash provided by operating 2,036 3,319 -38.7% 17,948
activities
Net cash used in investing (1,234) (2,062) 40.2% (10,878)
activities
Net cash used in financing 51 (583) 108.7% 454
activities
Cash and cash equivalents at 7,899 6,935 13.9% 69,642
end of term
II. Outlook for the fiscal
2007
JPY million
Interim Full year
Net sales 10,220 24,530
Net income 710 1,690
Net income per share -- 154.25
*Cautionary statements: the above forecasts are forward-looking statements involving risks and
uncertainties. Due to a number of factors, actual results may differ significantly from these
estimates.
Management Policies
(1) Basic management policy
Based on the basic corporate principle - The three roots of our trunk:
Advancement of the company, Welfare of the workforce, and Satisfaction of the
shareholders,- MARUWA group strives to differentiate us from our peers by
consistently being professional of material technology and following quality
first policy, and to enhance the corporate value to meet the expectations of all
the stakeholders.
Based on this policy, it is MARUWA's management policy to survive among severe
global business competition as well as to develop No.1 products in global niche
markets by reinforcing its core business with a selection and concentration
strategy.
(2) Dividend policy
As a profit allocation policy, MARUWA considers to allocate acquired
cash-flows through operations to active investment into new growing areas,
consolidated results-considered dividends, and the appropriation of retained
earnings for flexible use against management environment changes. We have made
efforts to increase dividends since the previous term, focusing on profit
returns to shareholders while we hold the internal reserves for strategic
investment required to expand our core business continuously. Meanwhile, we do
not plan to change our dividend payment policy after the new corporate law took
effect in Japan.
(3) Targeted management indices
MARUWA emphasizes operating income ratio as an important index to indicate
profitability. We set a medium-to-long term target, operating income ratio 20%.
For this goal, we are determined to establish profit-acquiring system of
production and sales together toward solid growth in the electronic components
industry amid rapid changes and severe competition.
(4) Business strategies in medium-to-long term
We have enforced to build up an operational system responsive to market
changes, learning from the management lessons of the IT bubble and its collapse
in 2000 and 2001. As a result, we achieved the enhancement of financial
condition and the establishment of profitability. Now the whole MARUWA group is
focusing on the mid-term target - total sales 40 billion yen / operating income
margin 20%.
For a medium-to-long term growth strategy, in addition to the development and
creation of new products and businesses within the company, we will maintain our
M&A strategy to acquire business or products that could create a synergetic
effect with our material technology and other base technologies and product
line-ups.
Together with above expansion strategy, MARUWA aims for being 'a respected
company' by sticking with the basis of manufacturing, and contributing to local
societies with fulfillment of social responsibility.
Management issues
1. Enhance the businesses acquired through M&A
The businesses acquired through M&A in the past have grown by management
efforts from deficit to the level that can contribute to revenue. We will start
working for new growth, further enhancing the business structure as well as
adding synergetic effects with our core businesses.
2. Start the mass-production of new developed products
We will start the mass-production of the products developed with our unique
material technology to earn profits aggressively.
3. Improve material technology and product development capability
For more customers' satisfaction, each product will be staffed with sales
engineers in charge of product planning and development in order to supply
products that meet the needs of customers in rapidly changing markets in the
name of 'MARUWA of material technology'.
4. Strengthen the sales force in overseas
To increase sales in the global manufacturing areas of our customers and the
markets of important international companies, we will strengthen and increase
overseas sales sites, take the needs of customers in advance, expand new
customers, and improve our market shares. Also, the global manufacturing system
will be strengthened with a production site in India as well as a factory in
Malaysia.
(5)Parent company
1. Corporate name and other matters of parent company
Parent company Attribute Ratio of shareholder voting Stock exchange on which the
right held by the parent shares the parent company
company issues are listed
K Maruwa Co., Ltd. In case the listed company 30.21% None
is a related company of
other companies, one of such
other companies
2. Position of the listed company in the corporate group, and relationships
between the parent company and other companies in the group in trading,
personnel and capital
i) Additional posts of the directors
Position Name Position at the parent company Reason
Representative director Sei Kanbe Representative director of Requested by the parent
K Maruwa Co., Ltd. company
Auditor Koji Chujo Auditor Requested by the parent
company
Only 2 persons listed above out of the 5 directors and 3 auditors of MARUWA have
additional posts at the parent company.
ii) Restrictions, risks and merits concerning the parent company due to the
belonging to the group which includes the parent company, and influences to
management and operation concerning relationships with the parent company and
the other companies of the group in trading, personnel and capital.
There is no connection between the business operations of MARUWA group and the
business of K Maruwa Co., Ltd, which mainly engages in the supportive activities
for a foundation for promoting arts and culture, and loan business on real
property.
There is a payment to K Maruwa of a negligible amount of rent on real estate
(less than 1 million yen a year) through which K Maruwa gives neither
restriction, risk, nor influence on management and operating activities.
iii) Policy to ensure stable independency and measures for it if there is any
restrictions, risks and merits concerning the parent company due to the
belonging to the group which includes the parent company, and influences to
management and operation concerning relationships with the parent company and
the other companies of the group in trading, personnel and capital.
The situation that the directors of MARUWA have additional positions at K
Maruwa does not prevent our management from being independent. The trading with
K Maruwa gives no influence to our operations.
iv) Conditions to ensure stable independence from the parent company
The independence of MARUWA is secured without any operational restrictions by K
Maruwa.
3. Trading with the parent company
There is a payment to K Maruwa of a negligible amount of rent on real estate
(less than 1 million yen a year)
Review of Operations and Financial Condition
I. Operating Results
Quarterly JPY million
Fiscal 2005 Fiscal 2006
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Net sales 4,176 3,981 3,757 3,615 4,481 4,524 5,082 6,191
Operating income 308 380 378 291 398 321 522 452
Net income 156 599 352 118 51 231 399 454
Full year JPY million
Previous Current
For year ended For year ended
31st March 2005 31st March 2006
Net sales 15,529 20,278
Operating income 1,357 1,693
Net income 1,225 1,135
(1) Review of operations
The management situation in the fiscal 2006 shifted to a recovery trend by a
recovery in exports mainly for Asia as inventory adjustments were eased in
IT-related markets. A favorable business environment was created by a private
consumption increase influenced by a favorable demand in corporate sector due to
an autonomous recovery trend of Japanese economy along with the increase of
overseas demands.
Under these circumstances, MARUWA group also generally benefited from the
recovery of the electronic components market partially except for the
semiconductor equipment-related business. Also due to sales contribution by the
lighting equipment business which has been consolidated since this fiscal year,
net sales increased 30.6% to 20,278 million yen compared to the last year.
Operating income except for Lighting Equipment segment also increased 64.6% to
2,234 million yen compared to the previous year thanks to the effects of the
various measures carried on in recent years, including cut-down of inventories,
lead-time reduction, quality and yield rate improvement, production enhancement
by saving cost, restructuring of acquired businesses which had been in deficit
and product lineups, and profitability improvement of new products.
The Lighting Equipment business, however, was not able to turn to the black,
and resulted in a loss of 27 million yen despite of our efforts to integrate
sales offices and to cut operating expenses.
As a result, operating income was 1,693 million yen, an increase of 24.8%
compared to the previous year.
Net income was 1,135 million yen, a decrease of 7.4% compared to the last year
due mainly to the payment of 261 million yen as retirement benefits for
directors on the termination of this retirement benefits system.
Regarding these operating situations above and profit returns to shareholders,
we will pay 12 yen per share as dividend, total 21 yen for annual dividend, an
increase of 6 yen compared to the annual dividend 15 yen for the last year.
(2) Review of operating results by segment
JPY million
Previous Current
For year ended For year ended
31st March 2005 31st March 2006
Ceramic Components:
Net sales 15,529 16,628
Operating income 1,357 2,234
Lighting Equipment:
Net sales - 3,650
Operating income - (27)
Total:
Net sales 15,529 20,278
Operating income 1,357 2,207
Elimination:
Net sales - -
Operating income - (514)
Consolidated:
Net sales 15,529 20,278
Operating income 1,357 1,693
Quarterly sales results of Ceramic Components segment by product division
JPY million
Fiscal 2005 Fiscal 2006
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Circuit Ceramics 1,746 1,566 1,479 1,421 1,649 1,576 1,519 1,601
Machinery Ceramics 1,363 1,376 1,257 1,256 1,129 1,117 1,135 1,063
RF Products* 259 270 302 265 344 364 417 464
EMC Components 808 768 720 673 1,096 1,024 1,075 1,055
Total 4,176 3,980 3,758 3,615 4,218 4,081 4,146 4,183
*RF=Radio Frequency
JPY million
Fiscal 2005 Fiscal 2006
Circuit Ceramics 6,212 6,345
Machinery Ceramics 5,252 4,444
RF Products 1,096 1,589
EMC Components 2,969 4,250
Total 15,529 16,628
Circuit Ceramics
Circuit Ceramics include ceramic substrates for chip resistors which are
essential for a wide range of electronic appliances, glazed ceramic substrates
for thermal printer head (TPH) for FAX or barcode label printers, large ceramic
substrates for hybrid ICs, and Aluminum Nitride (AlN) for power modules and
automobiles.
This division was reflected by a recovery trend for information communication
markets such as mobile phones and PCs, increasing its sales 2.1% to 6,345
million yen compared to the previous year. As for ceramic substrates for chip
resistors, orders decreased in the third quarter in Asian regions, but have
recovered since the fourth quarter with a rapid increase of demand for
multi-array types.
Machinery Ceramics
Machinery Ceramics include quarts glass products mainly for semiconductor
equipment, magnetic head-supporting blocks for PCs, and ceramic facet valves.
The products in this division require high precision process techniques.
Total sales for this division were 4,444 million yen, a decrease of 15.4%
compared to the previous term due to inactive orders for quartz glass products,
a core of this division.
Radio Frequency Products
Radio Frequency Products include device products such as band pass filters for
mobile phones and other wireless communication appliances, dielectric ceramics
for filters used in mobile communications or antennas, and thin film substrates
for optical information and communications.
Total sales of this division increased 45.0% to 1,589 million yen compared to
the previous term, being blessed by good demands from communications and digital
home device industries.
The sales of device products largely increased due to favorable orders for
business wireless communications and base stations. Thin-film products also
expanded sales due to solid orders in a DVD-related market.
EMC Components
EMC Components include multi-layer ceramic capacitors of high-voltage/
high-capacitance mainly for digital cameras, LCD backlights, and power supply of
electronic devices, and components as a countermeasure against noise/surge,
including EMI filters, chip varistors, chip beads, and inductors. Such
components against noise/surge are expected to be more required in the future
for various electronic appliances such as information communication tools
including mobile phones and PCs, digital home appliances, amusement equipment,
and automotive electronics.
Total sales of EMC Components increased 43.2% to 4,250 million yen compared to
the last year due to a recovery trend in the electronic components market and
new product lineups added in this term.
Due to sales expansion in Asia, EMI filters gained stable orders for base
stations for mobile phones, digital home devices such as thin-screen TVs and
DVDs. Also, as for chip varistors, sales increased due to a growing demand in
automotive components-related markets.
Lighting Equipment
This segment started since this year as a new business; it posted total sales
in this term 3,650 million yen, and operating loss 27 million yen.
This segment includes lighting equipment for public works such as roads and
bridges, and sales tend to be largely concentrated in the end of a fiscal term.
We successfully reduced the amount of loss due to our various cost reduction
efforts such as the review of sales location and the cutting of purchases cost
since the beginning of the year, but could not turn to the black.
II. Outlook for Full Fiscal 2007
JPY million
For year ended For year ending Change
31st March 2006 31st March 2007 Amount %
Net sales 20,278 24,530 4,252 21.0%
Operating income 1,693 2,850 1,157 68.3%
Net income 1,135 1,690 555 48.9%
Dividend per share (yen) 21.00 24.00 3.00
Markets in the fiscal term ended March 2006 were generally solid due to a
modest increase of demands in PCs and communication devices including mobile
phones, and a favorable demand for digital home appliances such as thin-screen
TVs. This market condition is expected to continue in the fiscal 2007 ending
March 2007.
Especially, MARUWA is determined to fully focus on the strategic target to
acquire and expand the market shares of our electronic components in digital
home appliances that are expected further growth, and rapidly-computerized
automotive components.
In Circuit Ceramics division, demand expansion is expected in Asian markets.
We will promote further expansion of shares in Alumina substrates, preparing for
production increase. The sales forecast of this division for the fiscal 2007 is
6,950 million yen, up 9.5% compared to this term.
Machinery Ceramics division has been influenced continuously by a sales
decrease in the fiscal 2006, but domestic demands are shifting to recovery. We
aim for a recovery in revenue by centralizing and streamlining of the
administration department through the merger of MARUWA QUARTZ Co., Ltd. and
MARUWA TFG Co., Ltd. in this term, restructuring of manufacturing processes,
responding to customized products, and entering overseas markets. Regarding
above measures, sales for the fiscal 2007 is forecast to increase 26.7% to 5,630
million yen compared to this term.
Radio Frequency Products division has been on a sales-increasing trend since
the latter half of this term. We will focus on expanding markets with the
development of new products, and responding to a wide variety of product orders
in small quantities, catching the changes of market needs. Therefore, sales in
this division are forecast to increase 23.3% to 1,960 million yen in next fiscal
term compared to this fiscal term.
In EMC Components division, we expect a revenue increase with a sales
expansion in favorable digital home appliances markets both in Japan and in
overseas. We are planning to strengthen sales forces in order to acquire more
orders for components including ceramic capacitors, EMI filters, or inductors
particularly in Asian markets. The sales of this division are expected to
increase 40.5% to 5,970 million yen in the fiscal 2007 compared to this fiscal
year.
For Lighting Equipment segment, it will be difficult to increase sales due to
budget cuts for public works, and price competition; however, we aim for sales
expansion by the indirect sales of exterior luminaries which have LED as their
light sources. The sales of this segment are expected to be 4,020 million yen,
up 10.1% compared to this fiscal year.
Regarding above situation, we forecast net sales 24,530 million yen, up 21.0%,
operating income 2,750 million yen, up 62.4%, and net income 1,690 yen, up 48.9%
for next fiscal year compared to this fiscal term.
In addition, net income for next fiscal term will cover the loss of 100
million yen on disposal of facilities in reorganizing factories.
*Cautionary statements: the above forecasts are based on the present business
environment and currently-available information, and include forward-looking
statements involving risks and uncertainties. The reader is cautioned not to
place reliance entirely on the above forecasts for making investment decisions.
Due to a number of factors such as future economic situations and market
environment changes, actual results may differ significantly from these
estimates. Also, please refer to Risks for business operations.
III. Financial condition
JPY million
As of 31st March As of 31st March As of 31st March Change
2004 2005 2006 Amount %
Total assets 26,664 28,465 33,044 4,579 16.1%
Total liabilities 3,235 4,137 6,487 2,350 56.8%
Total shareholders' 23,429 24,328 26,557 2,229 9.2%
equity
Shareholders' equity 87.9% 85.5% 80.4% -5.1%
ratio
For year ended For year ended For year ended Change
31st March 2004 31st March 2005 31st March 2006 Amount %
Net cash provided by 2,102 3,319 2,036 -1,283 -38.7%
operating activities
Net cash used in (708) (2,062) (1,234) 828 40.2%
investing activities
Net cash used in (407) (583) 51 634 108.7%
financing activities
Cash and cash 6,202 6,935 7,899 964 13.9%
equivalents
at end of term
Net sales 12,003 15,529 20,278 4,749 30.6%
Capital investment 742 1,253 1,737 484 38.6%
Depreciation 1,466 1,481 1,614 133 9.0%
Total assets at the end of this year were 33,044 million yen, an increase of
4,579 million yen as a result of operating activities in this fiscal year,
including an increase of 2,754 million yen due to the acquisition of MARUWA
SHOMEI Co., Ltd. ('MARUWA SHOMEI'), a new consolidated subsidiary since this
year. Due mainly to the assets of MARUWA SHOMEI, trade notes and accounts
receivable increased 2,291 million yen, and inventories increased 315 million
yen. Net property, plant and equipment increased 779 million yen.
Total liabilities were 6,487 million yen, an increase of 2,350 million yen
also due mainly to the trade and notes payable of MARUWA SHOMEI.
Shareholders' equity increased 2,229 million yen due to net income despite of
a decrease by dividend payment.
As for the use of internal reserve, MARUWA aims to invest in the mass
production of new products and, to pursue high proactiveness and timely M&A
strategies.
As a result, shareholders' equity ratio at the end of this term is 80.4%, down
5.1% compared to the end of the last term.
Net cash provided from operating activities was 2,036 million yen, a decrease of
1,283 million yen from the last year. The major factors for the decrease are
the decrease of accrued pension and severance costs due to the change of
corporate pension by 986 million yen, and an increase of 23 million yen of
inventories in comparison with the substantial decrease of inventories in the
last term. The positive adjustment of depreciation was 1,614 million yen.
Net cash used in investing activities totaled 1,234 million yen, a decrease of
828 million yen compared to the cash used in the previous term. The principal
investments in this term were 1,452 million yen of the purchases of net
property, plant and equipment, and 9 million yen of the acquisition of the
shares of MARUWA SHOMEI Co., Ltd. As for the acquisition of MARUWA SHOMEI, the
actual cash flow was positive 358 million yen since cash assets were acquired
together.
Net cash provided in financing activities amounted to 51 million yen an increase
of 634 million yen compared to the previous term, including 349 million yen of
proceeds from sales of own shares upon the exercises of stock options, payments
for long-term debt, 147 million yen, and for dividends, 180 million yen.
Consequently, cash and cash equivalents at the end of this year increased 964
million yen to 7,899 million yen compared to the end of the previous year since
net cash provided from operating and financing activities were larger than net
cash used in investing activities.
Trends of cash-flows indices are as follows;
JPY million
For year ended For year ended For year ended For year ended For year ended
31st March 2002 31st March 2003 31st March 2004 31st March 2005 31st March 2006
Shareholders' equity 90.7% 87.4% 87.9% 85.5% 80.4%
ratio
Shareholders' equity 87.0% 37.1% 62.8% 80.3% 100.8%
ratio
at market value
Debt redemption period 4.4 0.4 0.3 0.1 0.2
(year)
Interest coverage 11.0 124.0 967.7 316.1 251.9
ratio
Note)
Shareholders' equity ratio : Shareholders' equity / Total assets
Shareholders' equity ratio at market value : Total market value of shares /
Total assets
Debt redemption period : Interest-bearing debts / Cash flows from operating
activities
Interest coverage ratio : Cash flows from operating activities / Interest
payment
*Each index is calculated with the consolidated financial figures.
*Total market value of shares is calculated by multiplying the share value as of
the end of the fiscal year by the total number of issued shares after deduction
of own shares at the end of the year.
*For cash flows from operating activities, the figure in the consolidated cash
flows statement is used. Interest-bearing debt includes all debts for which
interests are paid among the liabilities booked in the consolidated balance
sheet. For interest payment, the figure of interest expenses paid booked in the
consolidated cash flows statement is used.
IV. Risks for business operations
MARUWA considers following issues as risks which may have influence on
operating results, share price, and financial conditions of MARUWA group.
Forward-looking statements contained in this document are due to discussion by
MARUWA group as of the date this document was released.
1. Reliance on the electronic components market
Our major customers are electronic components makers which are influenced by the
semiconductor market. The semiconductor market has been fluctuating cyclically
by the influence of the market's distinctive 'silicon cycle' due to market
prices and technological innovation progress in addition to general economic
influence.
In the past, our operations were impacted by plunge in orders when the
electronics and semiconductor markets declined. Even though we expect the
electronics market will expand in the medium-term led by smaller sized products
with multi-functions and rapidly developing automotive components, our
operations may be adversely affected in case that the growth of the electronics
market slows down due to influences of general economy or cyclical slump of the
semiconductor market.
2. Response to technological innovation
Amid the rapidly changing market requiring quick adjustment and sustainable
growth, MARUWA group aims to increase our corporate values by enhancing
profitability and growth, promoting product development in new areas with
integration of our developed core technologies For this purpose, we believe it
is important to recruit necessary personnel and train employees.
In principle, MARUWA group conducts technological development in response to
market needs, and will keep developing new products in the future. In case,
however, we fail to catch up with development speed the market requires and to
enhance production capacity, our operations may be affected along with the drop
of our market shares
3. Product cycle in the electronic components market (risks of inventories at
the market)
In electronics markets, new products are constantly supplied supported by
continuous technological innovation. Especially, when demands for new products
with non-conventional functions are heightened in a full scale, orders rush
temporarily due to competition for components among set makers. However,
overestimation for demands among those set makers may cause an excess of
inventories supply in the markets and saturation of the markets. In such market
environment, our group business operations may be affected.
4. Regulations for environmental protection
Various regulations are applied to us about the usage, storage, destruction
and disposal of chemical products used in manufacturing processes. We have
never been complaint regarding environmental regulations, and we believe that we
comply with currently applicable environmental law and regulations. In case,
however, that we are imposed any compensation or fine regarding a delay in
response to future tightening of regulations and forced to halt production or
terminate businesses, that we are required a large amount of expenditure for
equipment or other expenses, and that we are accused of failing to comply with
regulations for the usage, control and disposal of hazardous materials,
operating results of the group may be impacted.
5. Risks on a growth strategy through M&A
MARUWA group focuses on M&A (merger, acquisition and affiliation of
businesses) as a part of our growth strategy. Regarding the cases which we were
involved, acquired businesses were improved into revenue sources relatively in a
short period with intensive investment in personnel and materials after M&A,
following careful preliminary assessment. In the future, we are also planning
on expanding business areas and exploring new fields, continuously carrying on M
&A. Future M&A, however, may not be linked to the resources of profits unlike
our past M&A cases. In case that restructuring at acquired businesses is
prolonged or operating costs are mounted, the group's operating results and
financial condition may be impacted.
6. Reliance on material suppliers
For ceramics production, we purchase low materials such as alumina from
several low material refining companies outside MARUWA group. Although we have
ensured supply by appropriately increasing a number of trading suppliers
according to materials price trend or our production volume, there is no
guarantee that we will never have shortage of materials. The shortage of
materials may cause escalating of materials prices, slowdown of supply, or
increase of materials costs at our group, consequently affecting operating
results and financial condition of the group.
7. Dependence on key persons
The future growth of MARUWA group highly depends on key figures such as
competent researchers or engineers since we mainly engage in manufacturing of
electronic materials and components in rapid technological innovation.
Therefore, it is essential for the management to ensure those core figures and
to train them; otherwise, the future growth and operating results of the group
may be impacted.
On the other hand, active employment of highly capable or experienced
engineers may largely increase recruitment and labor costs, influencing our
operating results and financial status.
8. Violations of intellectual property rights of other companies
MARUWA group aggressively promotes the development of new products, and
prepare against the risks of violations at research and development with full
preliminary research about intellectual property rights held by other companies.
If we become an object of a suit for the fact of violations happened beyond
our control, the group's business results and financial condition may be
influenced.
9. Exchange rate fluctuations
MARUWA group trades in foreign currency including U.S. dollar, Euro or
Malaysia ringgit other than in yen. Also, we hold production and sales sites
around the world, and some items on consolidated financial statements are
converted into yen from originally traded foreign currency. Consequently, at the
time of consolidation of financial statements, conversion into yen may affect
the results of overseas companies of the group. MARUWA uses foreign exchange
forward contracts if necessary to manage exposures resulting from fluctuations
in foreign currency exchange, but it is impossible to avoid all the influences
of foreign currency exchange. Therefore, our operating results may be affected
by the fluctuations of foreign currency exchange.
10. Political and economic situations in Malaysia
Maruwa (Malaysia) Sdn.Bhd., a 100% owned consolidated subsidiary of MARUWA,
produces and sells products of Circuit Ceramics and Machinery Ceramics
divisions, consisting of 16.0% of total sales for the fiscal year ended in March
2006. Since there are instability factors in Malaysian political situation
because of being a multiethnic state, future political conditions and financial
instability may influence our operating results in case that there are
difficulty for the Malaysian subsidiary to continue its operations.
11. Dependence on public works
The lighting equipment business largely depends on public projects. It is a
trend for public works in Japan to be focused on efficient projects such as for
major/core cities, sightseeing cities matched with a national plan for promoting
sightseeing, and development of central urban areas fit for an aging society,
shifting from conventional pork-barrel projects. Compensating for this change
of public works, MARUWA has promoted sales expansion and product development;
however, our business results may be affected in case that the proceeding of
public project delays due to various factors.
Consolidated Balance Sheet
JPY million USD thousand
As of 31st March As of 31st March Change % As of 31st March
2006 2005 2006
ASSETS
Current assets:
Cash & deposits 7,898 6,935 13.9% 69,638
Notes and accounts 7,003 4,712 48.6% 61,746
receivable, trade
Inventories 2,869 2,554 12.3% 25,291
Deferred income taxes 226 388 -41.8% 1,993
Other current assets 609 245 148.6% 5,365
Allowance for doubtful (17) (4) -- (150)
accounts
Total current assets 18,588 14,830 25.3% 163,883
Fixed assets:
(Property, plant & equipment)
Land 3,412 2,957 15.4% 30,087
Building & structures 3,969 3,703 7.2% 34,992
Machinery & equipments 3,949 3,829 3.1% 34,819
Construction in progress 152 242 -37.2% 1,337
Other 605 577 4.9% 5,335
Net property, plant & 12,087 11,308 6.9% 106,570
equipment
(Investment & other assets)
Investment securities 784 701 11.8% 6,909
Deferred income taxes 152 184 -17.4% 1,341
Property & equipment for 960 977 -1.7% 8,463
investments
Other 478 469 1.9% 4,219
Allowance for doubtful (5) (4) -- (47)
accounts
Total investments & other 2,369 2,327 1.8% 20,885
assets
Total fixed assets 14,456 13,635 6.0% 127,455
Total assets 33,044 28,465 16.1% 291,338
LIABILITIES AND SHAREHOLDERS' EQUITY
JPY million USD thousand
As of 31st March As of 31st March Change % As of 31st March
2006 2005 2006
Current liabilities:
Notes & accounts 2,590 797 225.0% 22,838
payable, trade
Current portion of long-term 147 147 0.0% 1,300
debt
Accrued income taxes 210 65 223.1% 1,852
Accrued bonus 334 195 71.3% 2,946
Stock purchase warrants -- 11 -- --
Equipment notes payable 532 339 56.9% 4,687
Other current liabilities 1,168 857 36.3% 10,292
Total current liabilities 4,981 2,411 106.6% 43,915
Long-term liabilities:
Long-term debt 187 335 -44.2% 1,653
Accrued pension & severance 300 858 -65.0% 2,646
costs
Deferred tax liabilities 62 7 -- 549
Consolidation goodwill 579 448 29.2% 5,107
Other 378 78 -- 3,323
Total long-term liabilities 1,506 1,726 -12.7% 13,278
Total liabilities 6,487 4,137 56.8% 57,193
Shareholders' equity:
Common stock, authorized: 6,710 6,683 0.4% 59,159
26,000,000 shares; issued & outstanding:
11,050,000 shares in 2005, 11,072,000 in 2006
Additional paid-in capital 9,747 9,710 0.4% 85,935
Retained earnings 10,522 9,577 9.9% 92,774
Net unrealized gain (loss) 38 16 137.5% 334
on other securities
Foreign currency (206) (1,077) -- (1,817)
translation adjustment
Treasury stock, at cost (254) (581) -- (2,242)
Total shareholders' equity 26,557 24,328 9.2% 234,143
Total liabilities & 33,044 28,465 16.1% 291,336
shareholders' equity
Consolidated Statements of Income
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 2006 31st March 2005 31st March 2006
Net sales 20,278 15,529 30.6% 178,788
Cost of sales 14,494 11,187 29.6% 127,795
Gross profit 5,784 4,342 33.2% 50,993
Selling, general & 4,091 2,985 37.1% 36,063
administrative expenses
Operating income 1,693 1,357 24.8% 14,930
Other income (expenses):
Interest & dividend income 35 20 75.0% 305
Interest expenses (8) (10) -- (71)
Foreign exchange gain (loss), (158) 19 -- (1,390)
net
Other, net 107 (206) -- 939
Other income, net (24) (177) -- (217)
Income before income taxes 1,669 1,180 41.4% 14,713
Income taxes:
Current 299 170 75.9% 2,636
Deferred 235 (215) -- 2,073
534 (45) -- 4,709
Net income 1,135 1,225 -7.3% 10,004
Consolidated Statement of Cash Flows
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 2006 31st March 2005 31st March 2006
Operating activities:
Income before income taxes 1,669 1,180 41.4% 14,713
Adjustments for:
Depreciation 1,614 1,481 9.0% 14,232
Amortization of (214) (156) -37.2% (1,883)
consolidation goodwill
Increase (decrease) in 7 1 -- 58
allowance for doubtful accounts
Increase (decrease) in (878) 108 -- (7,738)
accrued
pension & severance costs
Loss (gain) on sales of (146) -- -- (1,289)
investment securities
Loss on write-down of -- 3 -- --
investment securities
Loss on disposal of 140 122 14.8% 492
property, plant & equipment
Interest & dividends income (39) (22) -77.3% (340)
Foreign exchange (gain) loss 159 (29) -- 1,399
(Increase) decrease in (303) (331) 8.5% (2,671)
notes & accounts receivable
(Increase) decrease in (23) 1,089 -102.1% (204)
inventories
Increase (decrease) in (250) (86) -190.7% (2,201)
accounts payable
Other 389 102 -- 3,752
Sub total 2,125 3,462 -38.6% 18,320
Interest & dividend income 38 22 72.7% 335
received
Interest expenses paid (8) (10) -- (71)
Income taxes paid (119) (155) -- (1,050)
Net cash provided by 2,036 3,319 -38.7% 17,534
operating activities
Investment activities:
Payments for purchase of (1,452) (1,236) -17.5% (12,798)
property, plant & equipment
Proceeds from sales of 78 18 -- 690
property, plant & equipment
Payments for disposal of (47) -- -- (414)
property, plant & equipment
Payments for purchase of (309) (59) -- (2,727)
investment securities
Proceeds from sales of 163 1 -- 1,435
investment securities
Payments for purchase of -- (774) -- --
stocks of subsidiaries
Proceeds from purchase of 358 -- -- 3,157
stocks of subsidiaries
Payments for purchase of (23) -- -- (200)
subsidiaries
Increase in intangible fixed (29) (6) -- (257)
assets
Other 27 (6) -- 236
Net cash used in investing (1,234) (2,062) 40.2% (10,878)
activities
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 2006 31st March 2005 31st March 2006
Financing activities:
Payments of long-term debt (147) (147) 0.0% (1,300)
Proceeds from issue of new 52 -- -- 459
shares
Cash dividends paid (180) (157) -14.6% (1,584)
Sales of treasury stock 349 1 -- 3,081
Purchase of treasury stock (23) (280) 91.8% (202)
Net cash provided by 51 (583) 108.7% 454
(used in) financing
activities
Effect of exchange rate 111 59 88.1% 975
changes on cash & cash equivalents
Net increase (decrease) in 964 733 31.5% 8,499
cash & cash equivalents
Cash and cash equivalents 6,935 6,202 11.8% 61,143
at beginning of year
Cash and cash equivalents 7,899 6,935 13.9% 69,642
at end of year
Segment Information
(1) Consolidated business segment information
JPY million
For year ended 2006 For year ended 2005
Ceramic Components: Net sales 16,628 15,529
Operating expenses 14,394 13,621
Operating income 2,234 1,908
Total assets 31,870 29,355
Lighting Equipment: Net sales
Operating expenses 3,650 -
Operating income 3,677 -
Total assets (27) -
2,755 -
Total: Net sales 20,278 15,529
Operating expenses 18,071 13,621
Operating income 2,207 1,908
Total assets 34,625 29,355
Elimination: Net sales - -
Operating expenses 514 551
Operating income (514) (551)
Total assets (1,581) (890)
Consolidated: Net sales 20,278 15,529
Operating expenses 18,585 14,172
Operating income 1,693 1,357
Total assets 33,044 28,465
(2) Consolidated geographic segment information
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 31st March 31st March
2006 2005 2006
JAPAN
Net sales:
Unaffiliated customers 16,170 11,641 38.9% 142,570
Intersegment 830 805 3.1% 7,318
Total 17,000 12,446 36.6% 149,888
Operating cost 15,354 11,132 37.9% 135,376
Operating income (loss) 1,646 1,314 25.3% 14,512
ASIA
Net sales:
Unaffiliated customers 3,528 3,384 4.3% 31,110
Intersegment 1,349 1,068 26.3% 11,892
Total 4,877 4,452 9.5% 43,002
Operating cost 4,206 3,725 12.9% 37,082
Operating income (loss) 671 727 -7.7% 5,920
EUROPE and AMERICA
Net sales:
Unaffiliated customers 579 503 15.1% 5,108
Intersegment 2 2 0.0% 18
Total 581 505 15.0% 5,126
Operating cost 617 583 5.8% 5,438
Operating income (loss) (36) (78) -- (312)
TOTAL
Net sales:
Unaffiliated customers 20,278 15,529 30.6% 178,788
Intersegment 2,181 1,875 16.3% 19,228
Total 22,459 17,404 29.0% 198,016
Operating cost 20,177 15,440 30.7% 177,896
Operating income (loss) 2,282 1,964 16.2% 20,120
ELIMINATION
Net sales:
Total (2,181) (1,875) -- 19,228
Operating cost 1,592 1,268 25.6% 14,038
Operating income (loss) (589) (607) -- 5,190
CONSOLIDATED
Net sales:
Total 20,278 15,529 30.6% 178,788
Operating cost 18,585 14,172 31.1% 163,858
Operating income (loss) 1,693 1,357 24.8% 14,930
(3) Net overseas sales by customer's geographic location
JPY million USD thousand
For year ended For year ended Change % For year ended
31st March 31st March 31st March
2006 2005 2006
Overseas sales:
Asia 6,376 5,677 12.3% 56,219
Europe 375 356 5.3% 3,308
Others 495 430 15.1% 4,360
Total 7,246 6,463 12.1% 63,887
Consolidated net sales 20,278 15,529 30.6% 178,788
% of consolidated net sales:
Asia 31.4% 36.6%
Europe 1.8% 2.3%
Others 2.4% 2.8%
Total 35.7% 41.6%
*Countries are divided in geographical
vicinity.
*Main countries included in each are as indicated below;
Asia - Malaysia, Taiwan, Korea, Hong Kong
Europe - Germany, England
Others - United States
*Overseas sales indicate net sales of the Company and its subsidiaries to customers outside
Japan.
END.
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