Tomita – IR Group
Makoto Kubo – Corporate EVP
Toshiba Corporation (OTCPK:TOSBF) F4Q11 Earnings Call May 8, 2012 3:30 AM ET
Thank you for attending announcement of Fiscal 2011 Consolidated Business Results of Toshiba Corporation. First off, allow me to introduce today’s participants, Makoto Kubo, Representative Executive Officer and Corporate Executive Vice President; Naohiro Tomura, Accounting Group Manager; Kohei Hayashi, IR Group Manager. And my name is Tomita from the Corporate Communications Office. I will be serving as EMC. First, the presentation by Makoto Kubo.
Let me begin my presentation on fiscal 2011 consolidated business results of Toshiba Corporation. I will be using the PowerPoint slides. On page three, you can see the key points of fiscal 2011.
Net sales were ¥6,100.3 billion. Social Infrastructure saw higher sales reflecting positive results from acceleration of business expansion in the global market. Sales of other segments, however, were affected by the yen appreciation, sluggish markets in the US and Europe and the impact of the earthquake in Japan and flooding in Thailand, resulting in a year-on-year decrease of a little less than 5% in overall net sales.
Operating income was ¥206.6 billion. Lower operating income year-on-year in Digital Products affected by sluggish sales of LCD TV, primarily in Japan. However, despite the impact of yen appreciation, the earthquake in Japan and flooding in Thailand, the Electronic Devices and Social Infrastructure secured higher operating income at ¥90.2 billion and ¥134.2 billion, respectively.
On year-on-year basis, as you can see, we saw a decrease in income. However, compared with the forecast as of January 31, results show an improvement of ¥6.6 billion in operating income, ¥27.4 billion in income before income taxes and non-controlling interests, and ¥8.7 billion in net income.
Debt to equity ratio is 142%, reflecting strategic investments for future business growth such as acquisition of Landis+Gyr AG. As for year-end dividend, as was announced on March 19, the profit exceeded our plan, and therefore we will be paying ¥4 per share, as planned, as year-end dividend, or ¥8 for the year.
On page four, you can see net sales, operating income, income from continuing operations and net income comparing to the results in fiscal 2010.
On page five, you can see information by segments. As I have just explained, on a year-on-year basis, net sales for Social Infrastructure increased. As for operating income due to sluggish TV business in Japan, Digital Products recorded a decline of ¥57.1 billion, but Electronic Devices and Social Infrastructure thus recorded increase in operating income.
Operating income analysis of fiscal 2010, ¥240.3 billion versus fiscal 2011, ¥206.6 billion. The noteworthy factor is as shown at the center, the impact of earthquake in Japan and the flooding in Thailand. The impact totaled ¥90 billion. Impact of earthquake was ¥47 billion and the impact of flooding in Thailand was ¥43 billion.
Page seven compares sales, operating income and net income for the last three years. Details by segments starting with Digital Products. Net sales dropped by 13%, the segments are lower overall sales reflecting the impact of yen appreciation, sluggish sales of PCs in the US and Europe and price erosion and lower demand for LCD TVs mainly in Japan.
Operating income was higher in PCs, but the impacts of price erosion and lower demand in Japan for LCD TVs on completion of the transition to digital terrestrial broadcasting and end of eco-point system brought the segment into the red.
As for TV business in Japan in particular, since the second half of fiscal 2011, the drop far exceeded our expectation. During the third quarter, the October-December quarter, volume dropped by over 70% year-on-year. For the second half, since the fourth quarter saw a drop in volume by close to 70%, for the second half overall the volume dropped by 70%. As of the end of January, we said we hoped to sell 15 million units globally, but unfortunately we fell short of that target.
PC Business. Net sales dropped by 10%. Sales grew in Japan, but the impact of the yen appreciation and sluggish sales in the US and Europe resulted in lower sales. But operating income was higher on increased sales in Japan, cost reduction measures and the effect of lower parts and materials costs.
For Electronic Devices, net sales dropped by 8%. The segment saw overall sales decrease reflecting the impact of the yen appreciation and such impacts as sluggish demand for consumer products resulting from the earthquake in Japan and flooding in Thailand. But operating income increased by ¥19 billion, despite the impact of the yen appreciation, flooding in Thailand and sluggish demand, a healthy performance in Storage Products such as HDD allowed the overall segment to record a higher income.
In Semiconductor Business, comprising of discrete System LSIs and Memories, net sales dropped by 14%. Although, Memories saw a boom in demand for smartphones, sales were lower on the impact of yen appreciation. System LSIs and Discrete saw lower sales on lower demand since early part of fall.
Operating income dropped by ¥19.1 billion. Memories secured profit, despite the impact of yen appreciation, but income was lower. Discretes saw lower income on lower demand and overall operating income decreased, despite improvement in the System LSIs as a result of restructuring.
Semiconductor Business results breakdown is shown on page 12 compared to fiscal 2010. As you can see Discrete and System LSI saw decrease in net sales by 14% and over 20%, respectively. And for memory, net sales dropped by close to 10%. Quarterly trend in operating income is shown on page 13. Fiscal 2011 can be characterized by bad first and third quarters with some recovery in the fourth quarter, however, it fell short of reaching the peak recorded in the second quarter.
For the LCD Business, which was sold to Japan Display as of the end of March, net sales dropped by 14%. Lower sales resulted from the sale of an overseas subsidiary in Singapore that manufactured PC displays and, in part, the impact of the earthquake in Japan, but improved operating income reflected continued healthy demand centering on Smartphones and positive progress in cost cutting.
Operating income in LCD Business increased by ¥4.7 billion. Earlier, it was shown that for the Semiconductor Business, the operating income dropped by ¥19.1 billion year-on-year. And earlier it was also shown that for the Electronic Devices segment, the operating income improved by ¥19 billion. The biggest contributor was the HDD business.
Page 15, Social Infrastructure. Net sales increased by 6% or by ¥135 billion. Despite the impact of the yen appreciation, positive results from accelerating business expansion in the global market such as acquiring Landis+Gyr AG and a healthy performance in Thermal & Hydro Power Systems produced higher sales. Higher operating income reflected a healthy performance in Thermal & Hydro Power Systems, increased operating income in IT Solutions and the positive impact of acquiring Landis+Gyr AG.
In Home Appliances, net sales dropped by 4%. A healthy performance in LED Lighting was stimulated by a rise in demand for energy efficient products, but lower sales in White Goods, reflecting the impact of flooding in Thailand and lower demand on the end of the eco-point system in Japan, resulted in lower overall sales.
As for operating income, despite higher income in LED Lighting, overall income decreased, albeit still in Black due to lower income in White Goods, reflecting the impact of flooding in Thailand.
Non-operating income and loss, net operating loss of ¥54.2 billion or a deterioration of ¥9.4 billion compared to fiscal 2010. As you can see there are ups and downs, but throughout fiscal 2011 until the early part of February, we saw continued appreciation of the yen both against the US dollar and Euro resulting in the deterioration in foreign exchange loss.
Page 18, income taxes and others. As for income tax totaling ¥65 billion. This includes the impact of the tax system reform as of November, totaling ¥45 billion. This is due to the negative impact of the reversal of deferred tax asset, resulting in net income of ¥73.7 billion.
Page 19, cash flows, free cash flow. As I have been mentioning, we have made investments for strategic reasons for future business growth, including the acquisition of Landis+Gyr AG, which totaled ¥150 billion including that free cash flow was net up flow of ¥42.2 billion.
Consolidated balance sheets compared to fiscal 2010, an increase of about ¥350 billion. As for assets primarily in Social Infrastructure, sales concentrated toward the end of the term resulting in increase in accounts receivable added with increase in assets through strategic mergers and acquisitions.
As for total equity, with profit of ¥73.7 billion, equity attributable to shareholders of the company remained almost the same as with the previous year. Accumulated other comprehensive loss almost cancelled retained earnings. In particular, the pension liabilities adjustments had lower discount rates resulting in increased liability. As a result, the equity attributable to shareholders of the company remained almost the same as in the previous year.
On page 22, you can see debt to equity ratio, 142%. With the acquisition of POS business from IBM Apps, our subsidiary Toshiba TEC, we are targeting 108% as of the end of fiscal 2012. So these are the results for fiscal 2011.
On page 23, you can see the forecast for fiscal 2012. Net sales are expected to grow by 5% year-over-year to total ¥6.4 trillion. Operating income is expected to improve by over ¥90 billion to total ¥300 billion. Income from continuing operations before income taxes and non-controlling interests is to improve by ¥57.6 billion to total ¥210 billion. Net income is to improve by ¥61.3 billion to ¥135 billion.
The assumed exchange rates are difficult to foresee, given uncertainties in the situation in Europe. But we are assuming a slight yen appreciation from the current level, ¥76 to the US dollar and ¥102 to the euro. Those are the assumptions that are used in making this forecast.
Forecast by segment. As you can see, we are expecting large growth in net sales for Electronic Devices and Social Infrastructure. Both for net sales and operating income, as you can see at the bottom in notes, fiscal year 2011 data for the LCD Display business has been reclassified from Electronic Devices to Others as the business was sold to Japan Display at the end of March, so as to allow comparison to fiscal 2012.
As a result, we are expecting large growth for Electronic Devices and Social Infrastructure. The forecast for Digital Products incorporate acquisition of POS business from IBM. As for operating income, Digital Products, Electronic Devices and Social Infrastructure are to achieve increase by double-digit billion ¥. And for Home Appliances, we are expecting ¥10 billion operating income to achieve a total of ¥300 billion. Thank you for your attention.
[No Q&A session for this event]
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!