Final Results

Maruwa Co Ld 10 May 2005 10 May 2005 MARUWA CO., LTD. 3-83, Minamihonjigahara-cho, Owariasahi-city, Aichi-pref., 488-0044 JAPAN Final Results for Fiscal 2005 MARUWA CO., LTD. today announced its consolidated business results for the full fiscal year ended 31st March, 2005 as follows; *The financial statements are not audited. *US dollar amounts are converted for convenience only at the rate of US$1 = 107.45yen. *Consolidated subsidiaries: 6 companies (Maruwa (Malaysia) Sdn. Bhd., Taiwan Maruwa Co., Ltd., MARUWA Electronics (Taiwan) Co., Ltd. (former NEC TOKIN Electronics (Taiwan) Co.,Ltd.), Maruwa Europe Ltd., MARUWA TFG Co., Ltd., and MARUWA QUARTZ Co., Ltd.) Summary of Consolidated Results (1) Summary of consolidated statement of income JPY million JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 Net sales 15,529 12,003 29.4% 144,519 Operating income (loss) 1,357 686 97.8% 12,630 Income before income taxes 1,180 711 66.0% 10,982 Net income 1,225 475 157.9% 11,401 JPY USD Net income per share 112.40 42.67 163.4% 1.00 (2) Summary of consolidated financial condition JPY million JPY million USD thousand As of 31st March As of 31st March Change % As of 31st March 2005 2004 2005 Total Assets 28,466 26,664 6.8% 264,926 Shareholders' equity 24,328 23,429 3.8% 226,415 Shareholders' equity ratio 85.5% 87.9% -2.7% JPY USD Shareholders' equity per share 2,256.48 2,144.11 5.2% 21.00 (3) Summary of consolidated statement of cash flows JPY million JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 Net cash provided by operating 3,319 2,102 57.9% 30,886 activities Net cash used in investing (2,062) (708) -- (19,189) activities Net cash used in financing (583) (406) -- (5,429) activities Cash and cash equivalents at end 6,935 6,202 11.8% 64,540 of term Management Policies (1) Basic management policy 'MARUWA OF CERAMIC MATERIAL TECHNOLOGY' is MARUWA's corporate vision. We strive to differentiate us from our peers and to enhance the corporate value by following consistently 'quality first' policy, which entails constant technological innovation and to meet the expectations of all the stakeholders including shareholders, customers, and employees. Based on this policy, it is MARUWA's management policy to expand into new fields and to survive among severe global business competition by reinforcing its core business with 'selection and concentration' strategy and boosting shares in global niche markets. (2) Dividend policy As a profit allocation policy, MARUWA considers to allocate acquired cash-flows through operations to positive investment into new growing areas, consolidated results-considered dividends, and the appropriation of retained earnings for flexible use against changes of management environment. In a rapidly changing industry, our current most important issue is to meet market needs appropriately and promptly. Therefore, we continue to carry out aggressive upfront investment especially into R&D equipment, and the effective use of cash flows for agile M&A strategies. (3) The number of shares per unit MARUWA is currently on a growth phase as an electronic components manufacturer and aims to increase liquidity at the stock market in this stage. Based on this policy, when we changed the company name 6 years ago, we lowered the number of shares per unit to 100 to increase the accessibility of shares for individual investors. As a result, the number of total shareholders increased from 2,800 at that time to 4,440 in March 2005, proving that the individual shareholder base was successfully broadened and liquidity was improved. (4) Business strategies and management issues In the midst of the IT era, in which quick adjustment and sustained growth are required to ride on the rapidly changing market, MARUWA, whose core competence is our technologies, acquired and combined base technologies such as ceramic material technology, electronic device technology, and multi-layering technology, and promotes its business mainly in information-communication areas. Recently, we also target components for automobiles while keeping our business core in ceramics. Also, developing our fields from quartz glass to semiconductor manufacturing, we supply our products for the electronic components industry from a wider range of materials. As for management issues, we are determined to make intensive and collective efforts on management objectives set out as plain as possible in every fiscal year, taking advantage of small corporate size that is suitable for company-wide efforts. In fiscal 2003, MARUWA made efforts to strengthen its internal organization by thorough structural improvement to build up a defensive, flexible company, which is enable to secure profit in the dynamically changing electronic components industry. In fiscal 2004, MARUWA focused on enhancing external business activities to establish an aggressive style by conducting a sales reinforcement project that improved the integrity among the sales, production and R&D divisions. Also, We enhanced our core technology, material technology, in company-wide to reconstruct the market-focused R&D structure and flexible system of materials production. In line with these efforts, in fiscal 2005, MARUWA enhanced our operating structure with an added management policy of 'focus on cash-flows', implementing asset efficient indices in each production unit. Also regarding production, the priority challenges are to shorten lead-time and to supply products in a timely manner in order to respond resiliently to the accelerated shifts of market needs to high mix, low volume and quick delivery. At the same time, one of the big challenges in related to M&A is to introduce and penetrate the 'MARUWA Culture' into each subsidiary which is newly brought to the MARUWA group. In fiscal 2006, MARUWA will focus on enhancing possibility-included business values as each operation including acquired business through M&A develops a growth strategy for each growth stage and business size. (5) Corporate governance 1. Basic policy for corporate governance MARUWA is enhancing our governance structure, focusing on realizing efficient management that is the priority issue on management. Efficient management includes prompt and resilient approach to the rapidly changing electronic components market. As a public being in the society, we commit ourselves to building up corporate governance structure by improving evaluation and internal control, and pursue sustainable growth toward next stage. Also, we vow to enhance the quality of governance to exercise open and transparent management to the society and stock markets as a global public company. 2. Progress of measures i. Governance structure MARUWA adopts a governance structure of auditing system. Our governance structure consists of the board of directors, the board of auditors, and the internal auditing office under the direct control of the president. - There are 9 directors. They discuss important issues at regular or special meetings of the board of directors, and mutually monitor business operations for which 5 directors are responsible. (These 5 directors are also responsible on a practical level.) - There is no outside director. - There are 3 auditors, including 2 outside auditors. They attend every meeting of the board of directors to audit the directors. In addition, they work with internal audit officers who directly belong to the management to audit the directors who are responsible on a practical level and to propose improvement measures. ii. Interest and personal relationship with outside auditors No special interest between MARUWA and outside auditors. 3. Measures for enhancement of corporate governance MARUWA believes that excellent corporate governance would be realized when measures are well implemented not only on directors and auditors but also on all employees. Based on this view, on 1 April every year, virtually all employees in Japan and overseas gather in a hall to hear the speech of the president about management and business policies and instructions for being a MARUWA's employee. At a quarterly management meeting, officers on and above manager class in the whole group attend to hear corporate strategies explained directly by the president to improve the integrity. Taking advantage of our small corporate size, every each production division was reorganized as a 'mini-mini company' to strengthen each production system and to clarify the locus of responsibility. At the same time, we are making an effort to realizing swift communication of the management's decisions to every division and open and transparent management including divisional evaluation system. 4. Financial audit MARUWA appoints ChuoAoyama PricewaterhouseCoopers as our financial auditor pursuant to the Commercial Code and Securities and Exchange Law of Japan. The managing partners who engage in auditing of MARUWA are as follows; - Certified public accountants (audit years) Kazunori Tajima (12) Morio Ichiyanagi (12) Hitoshi Kiuchi (3) - Assistants who engage in auditing 6 certified public accountants / 9 assistant accountants 5. Compensation and audit fee Compensation for the directors and the auditors and audit fee for the financial auditor paid in fiscal 2005 are as follows; (Compensation for) - Directors 67 million yen - Auditors 8 million yen Total 75 million yen (Audit fee) - Audit fee 18 million yen (Fee based on the audit contract) -Other fee 5 million yen Total 23 million yen (6) Parent company 1. Corporate name and other matters of parent company Parent company Attribute Ratio of shareholder Stock exchange on which voting right held by the shares the parent the parent company company issues are listed K Maruwa Co., Ltd. In case the listed company is a 29.51% None related company of other companies, one of such other companies 2. Position of the listed company in the corporate group including the parent company and relationship between other listed companies and the parent company K Maruwa Co., Ltd. ('K Maruwa'), a related company, holds the 29.51% of the entire shareholder voting rights of MARUWA CO., LTD. ('MARUWA') and 2 directors and 3 employees of MARUWA double as directors. K Maruwa mainly supports a foundation for promoting arts and culture, and conducts loan business on real property, having no relation with business operations of MARUWA. 3. Trading with the parent company To K Maruwa, MARUWA counts a negligible amount of rent on real estate (less than 1 million yen a year.) Review of Operations and Financial Condition I. Operating Results JPY million Fiscal 2004 Fiscal 2005 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Net sales 2,852 2,871 3057 3,223 4,176 3,981 3757 3,615 Operating income 43 84 234 325 308 380 378 291 Net income 54 60 249 112 156 599 352 118 Previous Current JPY million For year ended For year ended change 31st March 2004 31st March 2005 amount % Net sales 12,003 15,529 3,526 29.4% Operating income 686 1,357 671 97.8% Net income 475 1,225 750 157.9% (1) Review of operations In this term, electronic components market showed a strong and swift recovery led by digital home appliances in the first quarter, but from the late second quarter, stagnant sales of mobile phones in the Chinese and the other Asian markets put components manufacturers into the period of adjustment for the balance of supply and demand. From the third quarter, also in Japan, the semiconductors equipment market slowed down, and a moderate deceleration period generally prolonged due to a kickback from the rapid growth in the first half. In the latter half of the fourth quarter, materials-related business moved onto a recovery, and components-related became active in domestic markets. At MARUWA, we expanded our quartz glass business through the M&A of MARUWA QUARTZ CO., LTD., former 'Kimmon Quartz Co.,Ltd.', especially for the purpose of acquiring a synergetic effect in sales, following the start of this business at MARUWA TFG Co., Ltd. in the previous year. This M&A contributed to increasing both sales and profits in this year, placing the quartz glass business as a new prop of MARUWA. Also, we continuously endeavored to earn more cash by reducing stocks between the production lines. Regarding profits, our profit-earning structure was improved as intensive efforts to reduce inventories in the first half of this term had effect on profit gains in the second half despite of a negative factor of order decrease. In addition, there is another positive factor for profit that new product units, which had moved from R&D stage to mass production in the last year, now became profitable, stepping out of deficit with the burden of R&D expenses. As results, net sales in the first half of this year ended in 15,529 million yen, an increase of 3,526 million yen (29.4%) compared with the previous interim result. Operating income increased 671 million yen (97.8%) to 1,357 million yen compared to the previous interim result due to such three factors stated above, posted nearly the same figure forecasted and announced on 7 February 2005. Net income was 1,225 million yen million yen (up 157.9%) with the loss on disposal/ write-down of inventories of 336 million yen was reported. As for dividend at year-end, our proposal at the 32nd shareholders' meeting will be to pay out 7.50 yen per share. As a result, annual dividend will be 15.00 yen with the interim dividend 7.50 yen, an increase of 1.00 yen from the last year's annual dividend. (2) Review of operating results by product division Consolidated sales results by product division JPY million Fiscal 2004 Fiscal 2005 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Circuit Ceramics 1,239 1,306 1,396 1,492 1,746 1,566 1,479 1,421 Machinery 637 671 682 718 1,363 1,376 1,257 1,256 Ceramics RF Products 253 209 271 255 259 270 302 265 EMC Components 723 685 708 758 808 768 720 673 Total 2,852 2,871 3,057 3,223 4,176 3,980 3,758 3,615 Previous Current JPY million For year ended For year ended change 31st March 2004 31st March 2005 amount % Circuit Ceramics 5,433 6,212 779 14.3% Machinery 2,708 5,252 2,544 93.9% Ceramics RF Products 988 1,096 108 10.9% EMC Components 2,874 2,969 95 3.3% Total 12,003 15,529 3,526 29.4% Circuit Ceramics Circuit Ceramics include ceramic substrates for chip resistors which are essential for a wide range of electronic appliances, Aluminium Nitride for power modules and automobiles, glazed ceramic substrates for thermal printer head (TPH), and large ceramic substrates for hybrid ICs. Total sales of this division were 6,212 million yen, an increase of 779 million yen (14.3%) compared with the last year. About the substrates for chip resistors, markets both in Asia and in Japan were strongly led by a brisk demand for digital home devices in the first quarter as well as solid demands for other home electronic appliances. Since the second quarter, however, components markets in China and Taiwan have been forced into an adjustment phase. In the second half of the year, we had relatively solid orders from Japanese manufacturers while orders from Taiwanese makers decreased. From the latter half of the fourth quarter, orders from overseas began to recover, hoping moderate increases of sales. The sales of Aluminum Nitride are solid for power modules. As for large substrates, we aim to expand product lineups for markets in Europe as well as firm Asian markets. Machinery Ceramics Machinery Ceramics include quarts glass products mainly for semiconductors equipment, magnetic head-supporting blocks for personal computers, and ceramic facet valves. The products in this division require high precision process techniques. Total sales for this year were 5,252 million yen, an increase of 2,544 million yen (93.9%) compared with the previous year's result. Quartz glass products, including those manufactured at MARUWA QUARTZ CO., LTD., a new consolidated subsidiary since April 2004, held favorable orders from domestic semiconductor manufacturing markets until the third quarter. In the fourth quarter, however, orders decreased due to market adjustments. In this term, we focused on the reorganization of factories and the improvement of manufacturing lines after another M&A, laying foundation for future sales expansion. Radio Frequency Products Radio Frequency Products include device products such as VCO (voltage controlled oscillator) 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 devices and communications. The products in this group largely contain R&D elements. Those end products in which our products are used are particularly characterized with highly speedy development and remarkably short life cycles. Device products sales were inactive for Chinese communication markets which had been unclear throughout the year. From the fourth quarter, sales are increasing month by month thanks to enhancing applications in new areas. Dielectric ceramics, being in a long-term slump, acquired stable orders from overseas markets for LNB (low noise box) products and GPS products, and are expected to grow in the future while a flexible manufacturing system was established to respond high mix/low volume orders. Thin film products gained variable new orders especially for DVD devices. As a result, total sales were 1,096 million yen (up 10.9%) compared to the previous result. EMC Components EMC Components include EMI filters of chip-type, feed through-type, or complex type as countermeasures against electromagnetic waves, chip varistors as a solution for abnormal voltages such as noise/surge, and multi-layer ceramic capacitors of high-voltage high-capacitance. EMI filters, especially feed-through types, were sold well mainly for base stations of mobile phones. Both EMI filters and chip varistors have been firmly growing especially for automobile components markets, which MARUWA group as a whole focused on breaking into. As a result, total sales in this year were 2,969 million yen (up 3.3%) compared to the previous result. II. Outlook for the Full Fiscal 2005 JPY million For year ended For year ending Change 31st March 2005 31st March 2006 Amount % Net sales 15,529 21,230 5,701 36.7% Operating income 1,357 1,630 273 20.1% Net income 1,225 930 -295 -24.1% Dividend per share (yen) 15.00 18.00 3.00 Surveying the markets on which we play, the electronic components market is expected to slowly step into a recovery trend after inventory adjustments particularly marked in Asian markets hit the bottom in the second half of this term. On the other hand, although the semiconductor equipment market slowed down in the latter half of the year, uncertainty over the future has been eased. In the electronic components market, as end products have been constantly enhanced in higher functions and smaller sizes, expectations for ceramic products are being raised, including for automotive parts which have been rapidly shifted to electronics. In next term, MARUWA group will focus on developing more effective strategies based on growth state/operation size of each business. As for Circuit Ceramics, we aim to win more stable market shares especially in recovering markets of China/Asia as a leading company of Al2O3 (alumina) substrates while in Europe and U.S. we promote expansion in size as cash-cow products through sales promotion of newly developed AlN products with high thermal conductivity or market cultivation for large substrates. Machinery Ceramics increased weight of quartz glass in the division through the M&A of MARUWA QUARTZ Co., Ltd. We prepared for business expansion in next year, making efforts on reorganization of factories and restructuring of manufacturing processes after the M&A. The next year's theme of this division is to enhance markets shares in the quartz glass industry by reconsidering domestic management strategies and improving technologies for custom-made products and response to 12-inch sized wafers. About Radio Frequency Products, every item in this division has been on an upward sales trend since the fourth quarter of this term. We will aim to increase product variation targeting the future and to enhance continuous R&D capacity. EMC Components division anticipates an order increase in automotive markets. MARUWA plans to launch differentiation strategies at a material level, facing increasing demands on components for electromagnetic compatibility or components as countermeasures against abnormal surge, along with multi-functioning of end products. Also, from next year, new products as a solution against noise acquired through M&A will contribute to increase sales. In addition, we add new business segment, a lighting business, from next term, expecting annual sales increase of 3.2 billion yen in consideration of adjustment or integration of deficit products. Based on the outlook stated above, we forecast net sales of 21,320 million yen, up 5,701 million yen (36.7%) compared with this fiscal year, operating income of 1,630 million yen, up 20.1%, and net income of 930 million yen, down 24.1%. Net income of fiscal 2005 includes tax effect thanks to the merger of a subsidiary. For net income forecast for fiscal 2006, we take account of settlements along with transition to 401K (defined-contribution pension scheme), payment of retirement benefits for directors for termination and retirement of equipment following the reorganization of the factories. Annual dividend per share will be 18.00 yen, up 3.0 yen in anticipation of leading products on development including acquired products through M&A out of deficit and establishment of a profitable system. *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. III. Financial Condition JPY million JPY million As of 31st March As of 31st March Change 2004 2005 Amount % Total assets 26,664 28,466 1,802 6.8% Total liabilities 3,235 4,138 903 27.9% Total shareholders' 23,429 24,328 899 3.8% equity Shareholders' equity 87.9% 85.5% ratio JPY million JPY million For year ended For year ended Change 31st March 2004 31st March 2005 Amount % Net cash provided by 2,102 3,319 1,217 57.9% operating activities (+) Net cash used in 708 2,062 1,354 191.2% investing activities (-) Net cash used in 406 583 177 43.6% financing activities (-) Cash and cash equivalents 6,202 6,935 733 11.8% at end of term Net sales 12,003 15,529 3,526 29.4% Capital investment 742 1,253 511 68.9% Depreciation 1,466 1,481 15 1.0% Total assets at the end of this year were 28,466 million yen, an increase of 1,802 million yen as a result of operating activities in this term, compared to the end of the previous year, including 2,311 million yen due to the acquisition of consolidated subsidiaries such as MARUWA QUARTZ CO., LTD. from this year and NEC TOKIN Electronics (Taiwan) Co., Ltd. from the end of this fiscal year, respectively. With an increase of new customers, trade notes and accounts receivable increased 972 million yen while inventories reduced 726 million yen due to our efforts to cut inventories at the existing productions. Also, net property, plant and equipment increased 600 million yen due mainly to the acquisition of MARUWA QUARTZ. Comparing with the operating results, we keep relatively large amount of internal reserve and consequently high shareholders' ratio since the company aims to pursue high proactiveness and timely M&A strategies as important corporate growth strategies. Net cash provided from operating activities rose 3,319 million yen to 1,217 million yen from the previous year. The principal factors of cash increase are income before income taxes of 1,180 million yen, and 1,089 million yen in reduction of inventories as a result of our company-wide efforts. Depreciation was 1,481 million yen, and cash flows are adjusted due to amortization of consolidated adjustment account of 156 million yen to decrease. On the other hand, the major factor of cash decrease is an increase of 331 million yen in trade notes and accounts. Taxes paid were 155 million yen. Net cash used in investing activities totaled 2,062 million yen. We invested mainly in facilities such as 1,236 million yen for the purchase of property, plant and equipment, and 644 million yen for the purchase of stocks of MARUWA QUARTZ CO., LTD., a new consolidated subsidiary. At the same time, since cash assets of MARUWA QUARTZ were also transferred, actual cash-out amount was 497 million yen. Net cash used in financing activities amounted to 583 million yen, including payments for the long-term debt of 147 million yen, the purchase of treasury stocks of 279 million yen, and cash dividends paid of 157 million yen. Consequently, cash and cash equivalents at the end of the first half period of this year increased 733 million yen to 6,935 million yen compared to the end of the previous year since net cash provided from operating activities were larger than net cash used in investing activities and financing activities. 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 MARUWA group engage in sales and manufacturing mainly of ceramics for electronic devices, and has wide-ranged product lineups including ceramics for resistors used in electronic circuit boards of various electric appliances, wireless communications, base stations of mobile phones, antenna-related products, radio frequency products or EMC components. In 2003, we acquired semiconductor equipment glass business through M&A to diversify our products. 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. V. Consolidated Balance Sheet JPY million JPY million USD thousand As of 31st March As of 31st March Change % As of 31st March 2005 2004 2005 ASSETS Current assets: Cash & deposits 6,935 6,202 11.8% 64,540 Notes and accounts 4,712 3,740 26.0% 43,853 receivable, trade Inventories 2,554 3,280 -22.1% 23,766 Deferred income taxes 388 81 379.0% 3,613 Other current assets 245 252 -2.8% 2,279 Allowance for doubtful (4) (1) -- (34) accounts Total current assets 14,830 13,554 9.4% 138,017 Fixed assets: (Property, plant & equipment) Land 2,988 2,548 17.3% 27,806 Building & structures 3,674 3,449 6.5% 34,191 Machinery & equipments 3,829 4,006 -4.4% 35,632 Construction in 242 152 59.2% 2,250 progress Other 577 555 4.0% 5,378 Net property, plant & 11,310 10,710 5.6% 105,257 equipment (Investment & other assets) Investment securities 701 662 5.9% 6,522 Deferred income taxes 184 245 -24.9% 1,714 Property & equipment 977 996 -1.9% 9,092 for investments Other 468 502 -6.8% 4,362 Allowance for doubtful (4) (5) -- (38) accounts Total investments & 2,326 2,400 -3.1% 21,652 other assets Total fixed assets 13,636 13,110 4.0% 126,909 Total assets 28,466 26,664 6.8% 264,926 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes & accounts 797 670 19.0% 7,413 payable, trade Current portion of 147 148 -0.7% 1,373 long-term debt Accrued income taxes 65 88 -26.1% 605 Accrued bonus 195 137 42.3% 1,812 Stock purchase warrants 11 11 0.0% 101 Equipment notes payable 339 328 3.4% 3,152 Other current 858 648 32.4% 7,993 liabilities Total current 2,412 2,030 18.8% 22,449 liabilities Long-term liabilities: Long-term debt 335 482 -30.5% 3,117 Accrued pension & 858 176 387.5% 7,989 severance costs Deferred tax 7 0 -- 62 liabilities Consolidation goodwill 448 477 -6.1% 4,173 Other 78 70 11.4% 721 Total long-term 1,726 1,205 43.2% 16,062 liabilities Total liabilities 4,138 3,235 27.9% 38,511 Shareholders' equity: Common stock, 6,683 6,683 0.0% 62,201 authorized: 26,000,000 shares; issued & outstanding: 11,050,000 shares Additional paid-in 9,710 9,710 0.0% 90,371 capital Retained earnings 9,577 8,516 12.5% 89,126 Net unrealized gain 16 38 -57.9% 150 (loss) on other securities Foreign currency (1,077) (1,216) -- (10,026) translation adjustment Treasury stock, at cost (581) (302) -- (5,407) Total shareholders' 24,328 23,429 3.8% 226,415 equity Total liabilities & 28,466 26,664 6.8% 264,926 shareholders' equity VI. Consolidated Statements of Income JPY million JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 Net sales 15,529 12,003 29.4% 144,519 Cost of sales 11,187 9,022 24.0% 104,113 Gross profit 4,342 2,981 45.7% 40,406 Selling, general & 2,985 2,295 30.1% 27,776 administrative expenses Operating income 1,357 686 97.8% 12,630 Other income (expenses): Interest & dividend 20 12 66.7% 183 income Interest expenses (10) (13) -- (98) Foreign exchange gain 19 30 -- 175 (loss), net Other, net (206) (4) -- (1,908) Other income, net (177) 25 -- (1,648) Income before income 1,180 711 66.0% 10,982 taxes Income taxes: Current 170 112 51.8% 1,582 Deferred (215) 124 -- (2,001) (45) 236 -- (419) Net income 1,225 475 157.9% 11,401 VII. Consolidated Statement of Cash Flows JPY million JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 Operating activities: Income before income 1,180 711 66.0% 10,982 taxes Adjustments for: Depreciation 1,481 1,466 1.0% 13,787 Amortization of (156) (119) -- (1,449) consolidation goodwill Increase (decrease) in 1 (20) -- 12 allowance for doubtful accounts Decrease in accrued 108 36 200.0% 1,002 pension & severance costs Loss on write-down of 3 -- -- 24 investment securities Loss on disposal of 112 51 119.6% 1,042 property, plant & equipment Interest & dividends (22) (13) -- (207) income Foreign exchange (gain) (29) 7 -- (270) loss (Increase) decrease in (331) (605) -- (3,079) notes & accounts receivable (Increase) decrease in 1,089 477 128.3% 10,131 inventories Increase (decrease) in (86) 207 -- (799) accounts payable Other 112 (6) -- 1,042 Sub total 3,462 2,192 57.9% 32,218 Interest & dividend 22 12 83.3% 207 income received Interest expenses paid (10) (2) -- (98) Income taxes paid (155) (100) -- (1,441) Net cash provided by 3,319 2,102 57.9% 30,886 operating activities Investment activities: Payments for purchase (1,236) (733) -- (11,503) of property, plant & equipment Proceeds from sales of 18 39 -53.8% 165 property, plant & equipment Payments for purchase (59) (41) -- (546) of investment securities Proceeds from sales of 0 133 -- 4 investment securities Payments for purchase (774) -- -- (7,206) of stocks of subsidiaries Collection from loan 0 1 -- 3 receivables Increase in intangible (6) (109) -- (59) fixed assets Other (5) 2 -- (47) Net cash used in (2,062) (708) -- (19,189) investing activities Financing activities: Payments of long-term (147) (152) -- (1,373) debt Cash dividends paid (157) (154) -- (1,462) Sales of treasury stock -- 7 Purchase of treasury (279) (100) -- (2,601) stock Net cash provided by (583) (406) -- (5,429) (used in) financing activities Effect of exchange rate 59 (77) -- 553 changes on cash & cash equivalents Net increase (decrease) 733 911 -19.5% 6,821 in cash & cash equivalents Cash and cash 6,202 5,291 17.2% 57,719 equivalents at beginning of year Cash and cash 6,935 6,202 11.8% 64,540 equivalents at end of year VIII. Segment Information (1) Consolidated business segment information MARUWA's business is comprised of one segment. Therefore, segment breakdown is not applicable. (2) Consolidated geographic segment information JPY million JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 JAPAN Net sales: Unaffiliated customers 11,641 8,877 31.1% 108,341 Intersegment 805 567 42.0% 7,490 Total 12,446 9,444 31.8% 115,831 Operating cost 11,132 8,776 26.8% 103,592 Operating income (loss) 1,314 668 96.7% 12,239 ASIA Net sales: Unaffiliated customers 3,384 2,707 25.0% 31,492 Intersegment 1,068 1,003 6.5% 9,941 Total 4,452 3,710 20.0% 41,433 Operating cost 3,725 3,127 19.1% 34,668 Operating income (loss) 727 583 24.7% 6,765 EUROPE and AMERICA Net sales: Unaffiliated customers 503 419 20.0% 4,686 Intersegment 2 2 0.0% 18 Total 505 421 20.0% 4,704 Operating cost 583 508 14.8% 5,432 Operating income (loss) (78) (87) -- (728) TOTAL Net sales: Unaffiliated customers 15,529 12,003 29.4% 144,519 Intersegment 1,875 1,572 19.3% 17,449 Total 17,404 13,575 28.2% 161,968 Operating cost 15,440 12,411 24.4% 143,692 Operating income (loss) 1,964 1,164 68.7% 18,276 ELIMINATION Net sales: Total 1,875 1,572 19.3% 17,449 Operating cost 1,268 1,094 15.9% 11,803 Operating income (loss) 607 478 27.0% 5,646 CONSOLIDATED Net sales: Total 15,529 12,003 29.4% 144,519 Operating cost 14,172 11,317 25.2% 131,889 Operating income (loss) 1,357 686 97.8% 12,630 (3) Net overseas sales by customer's geographic location JPY million JPY million JPY million For year ended For year ended Change % For year ended 31st March 31st March 31st March 2005 2004 2005 Overseas sales: Asia 5,677 5,019 13.1% 52,835 Europe 356 287 24.0% 3,310 Others 430 376 14.4% 4,000 Total 6,463 5,682 13.7% 60,145 Consolidated net sales 15,529 12,003 29.4% 144,519 % of consolidated net sales: Asia 36.6% 41.8% Europe 2.3% 2.4% Others 2.8% 3.1% Total 41.6% 47.3% *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. This information is provided by RNS The company news service from the London Stock Exchange

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