Executives
Tomita – Corporate Communication Office
Makoto Kubo – Representative Executive Officer and Corporate EVP
Naohiro Tomura – Accounting Group Manager
Kohei Hayashi – IR Group Manager
Analysts
Toshiba Corp. (TOSBF.PK) F1Q2012 Results Earnings Call July 31, 2012 ET
Tomita
Ladies and gentlemen, thank you very much for coming to the Fiscal Year 2012 First Quarter Consolidated Business Results Presentation. Thank you for coming despite your busy schedule and very hot weather.
First I would like to introduce representative before you. We have Makoto Kubo, Representative Executive Officer and Corporate Executive Vice President. Then we have Naohiro Tomura, Accounting Group Manager; and Kohei Hayashi, IR Group Manager.
I’ll be serving as the EMC today. My name is [Tomita] from the Corporate Communication Office.
So Mr. Kubo, please.
Makoto Kubo
Thank you very much. I would like to present the fiscal year 2012 first quarter consolidated business results of Toshiba Corporation. I will be using the PowerPoint slides in my presentation. Please look at page three.
Net sales, we have seen increased orders in the energy related business especially for our Thermal Power plant and therefore, we have seen higher sales in the Social Infrastructure segment.
However, the effect of the transfer of the LCD business 30 billion yen plus and the effect of the yen appreciation 25 billion yen. I’ll let to -- our net sales decreased year-on-year. Net sales ended at 1,268.9 trillion yen minus 4.3%.
As per operating income, despite the effect of the yen appreciation of 10 billion yen. Electronic Devices and Social Infrastructure has seen an increase year-on-year and therefore, overall, we have seen an increase by 7.4 billion yen. Operating income ended at 11.5 billion yen.
Net income because of the structural reform we have seen some increases in non-operating expenditure. But, therefore, we have seen a decrease here. It ended at a negative 12.1 billion yen. As per free cash flow, this was secured at the same level as last year.
So net sales operating income and income before taxes and net income a comparison between for last year’s first quarter as shown on page four.
Page five shows you the breakdown by segment. As I explained at the outset, Social Infrastructure, we have seen an increase in net sales by 17% and I will explain later. But for Digital Product, Electronic Devices and Home Appliances we have seen a decrease.
As for others, the 38 billion yen in the negative, as I said at the outset, the main cause for this is the transfer of the LCD business.
On the operating income side, Electronic Devices and Social Infrastructure we have seen an increase, but for Digital Products and Home Appliances we have a decrease. In the Digital Product area we have a negative figure of 3.6 billion.
Page six looks at the past three years first quarter performance. And page seven gives you a order flowchart of the operating income of how we came from 4.1 billion yen a year ago to 11.5 billion yen this year.
This time especially we have seen price erosion in the memory business areas, such as the NAND flash memories.
Against that, however, we have made efforts such as process migration and others in the semiconductor area which had an effect of around 70 billion yen. And also we had company-wide value analysis and cost down effort to compensate for the price erosion, and to compensate for the exchange rate losses we have made effort to reduce fixed cost.
From page eight and onward, we have some data by segment, starting from the Digital Products area. Sales was negative 17%. We have seen a significant decrease in demand for LCD TVs in Japan and the decrease was more than expected.
Of course a year ago in July, the analog television service was discontinued and we had special sales increased before that. But it seems that our assumption has not been sufficient.
And since last autumn, we still see that demand in Japan is quite weak. And also in addition to that, we see decreased demand for PCs in the United States and that has led to lower sales overall.
Operating income, the LCD TV is still in the red. However, compared to January till March 2012, which was at its worst, we have seen that the deficit margin has been reduced to about half. But still we are in the negative and we also have seen the affect of the higher yen and therefore, we see the operating income has deteriorated.
We have seen increased units sales in Japan and Europe for PCs, but in the United States, the demand went down and also we have the yen appreciation and therefore, sales for PC went down.
Operating income is lower than last year. However, we were able to secure a certain level of operating income due to continued cost reduction measures.
Page 10 looks at the overall Electronic Device business for sales. Storage such as hard disks had very good performance. However, because of the price reduction in memories and also the affect of the exchange rate has lowered the sales quickly. I will give you the breakdown later on.
Operating income, the price reduction of memory had a very big affect here and therefore, we see lower operating income figures. However, the storage business had very good performance and we see a double-digit figure here and System LSI has seen the affect of our structural reform.
It doesn’t mean that we have just reduced fixed costs here. We have reduced a number of items and we have also reviewed our operation overall. And starting from fourth quarter of last fiscal year, we have been able to eliminate our deficit. Therefore, we see improvements here. However, in the overall Electronic Device business here, the memory price reduction had a quite a big affect.
Now to look at the results breakdown for this segment, we have -- we see a decrease in operating income overall in the memory area. However, we do see a great increase in the storage products, so storage products have seen very good performance.
System LSI, we were able to eliminate our deficit for discrete products, it’s at break-even. For discrete, it’s at break-even. However, memory has seen a great decrease in sales, so the overall operating income stood at 9.1 billion yen.
Page 12 looks at the quarterly trend in operating income for the past two years.
Page 13, Social Infrastructure, the segment had very good performance overall and we have seen an increase of net sales by 17%. The performance in thermal and hydropower systems, both in Japan and overseas has seen a very healthy performance. And elevators and medical systems also had higher sales overseas and also last July, we acquired Landis+Gyr and that had a positive contribution.
Now, operating income, we do see a trend that matches the trend in sales. We see good performance in thermal and hydropower systems for transmission and distribution. After the March ‘11 disaster, the power companies have focused mainly on securing power sources and therefore orders in this area has become slow that we do see orders coming back bit by bit and also we do see an increase for our medical systems. This segment has great seasonality or should I say reduced the very distinct patterns.
This segment has very strong seasonality or should I say, we always see a very distinct pattern in the first half of the year and the second half of the year. Usually, the highest profit is gained in the fourth quarter. So usually in the first quarter, we do not see very high volumes. However, for this first quarter, we see the first highest ever first quarter operating income.
Page 14, Home Appliances. We had higher sales in the industrial air-conditioning and LED lighting, however light good such as washing machines and refrigerators have seen lower sales and overall the sales has gone down.
Operating income for industrial air-conditioning, it has gone up but for light goods such as washing machines and refrigerators because of the reduction in sales, the overall operating income is barely in the positive area.
As I said at the outset, non-operating income in expenses was quite large and that is shown on page 15, the second from the top foreign exchange loss. During the first quarter, the yen has trended always high. And for the foreign loss, we have a negative 7.9 billion yen.
Income on sales of fixed assets, year ago, it was a positive 6.7 billion and that was because we have sold the Nagasaki factory for System LSI.
Expenditure on the structural reform, negative 6.7 billion yen. And the main reason here is as we’ve announced last fall, we are going to structural reform in the semiconductor System LSI area and we see progress here and that’s why we have this figure.
So the total non-operating income in expenses was minus 26.2 billion and the difference was minus 25 billion or so.
Based on that the income before taxes was minus 14.7 billion yen and adding the income tax and net income or loss attributable to non-controlling interests brings us the net income or loss of minus 12.1 billion yen.
As for cash flow, we have secured a similar level as last year. The income level of the first quarter as I mentioned before hand tends to be rather low. But the operating cash flow was in the negative and that was because we had an increase in the expenditure of about 40 billion yen for our operating capital.
The reason has been that the inventory for TVs and PCs did not fall down as we expected at the end of June and also payment from the power companies has been shifted to the second quarter.
The payment from the power companies and nowadays it’s not feasible to get advance payment as in the past. Usually, the payments would come after the final inspection. Therefore the deterioration that we see in our operating capital we believe is just a temporary phenomenon.
The consolidated balance sheet, 5,569 trillion yen, year-on-year increase of 160 billion yen. If I may explain this, this is the effect of the acquisition of Landis+Gyr and also the increase in the interest-bearing debt because of that.
Total equity on page 19, if you can look at the fourth line from the top, accumulated other comprehensive loss compared to the beginning of the quarter; it’s a minus 43 billion yen. And that is because of the effect of the foreign currency translation adjustment, where we make adjustments because of the higher yen to the investments we make to the overseas group companies.
Now, the DE ratio stands at 170%. As I said, the operating expenditure situation though we eliminated in the second quarter and we will make profit as planned through this year. And therefore, we believe that by the end of March, we will be able to achieve our target of 108%.
The overall forecast for fiscal year 2012, net sales and operating income, that has been announce at the beginning of this term, we will not be changing our forecast but before explaining that I’d like to explain a little about the fiscal year 2011 figures.
The operating income for fiscal year 2011, we announced at the beginning of May, when we settle our accounts that it stood at 206.6 million yen. But now you see this figure, which is lower by about 3.9 billion yen. This doesn’t mean that we have corrected our accounts settlements.
As indicated at the bottom of this page, last year in July, we acquired Landis+Gyr and the amount incurred in that acquisition was appropriated allocated to assets and liabilities. What we mean is that the goodwill has been confirmed and established, and over the year we have been reviewing the intangible assets to be amortized based on the accounting rules.
And just recently, now our auditor gave us their approval for our plan. And therefore, we have just completed the amortization of the intangible assets up to end of March 2012. So therefore, from now one when we make year-on-year comparison of performance between fiscal year 2012 and 2011, these are the figures that we will be using.
Now, the forecast for fiscal year 2012, net sales 6,400 trillion yen, operating income 300 billion yen, net income 135 billion yen. For the first half of this fiscal year, the figures would be net sales 3 trillion yen, operating income 90 billion yen and net income 20 billion yen, has been announced already. And we believe that these figures are achievable.
Now, the last page, page 22, we believe the first half of the year will trend similarly to the full year forecast, and how sure are we that we will achieve the 90 billion yen target for the first half of the year.
As for Electronic Devices, the first quarter performance of NAND unfortunately was not very good. And starting from July 24, that the Yokkaichi factory, we have reduced production by 30%.
And we may need a bit more time to see the effect of this reduced production. However, we believe we see science of improvement. So, we do expect to see improvements, but it maybe demanding.
As for social infrastructure, we had good performance in the first quarter, which we believe we will continue in the second quarter. And by segment, we might see some changes in the figures here. But the first half operating income target of 90 billion yen, the full year target of 300 billion yen, we believe are achievable. And therefore, we will not change the overall forecast for the fiscal year 2012.
And that is all from myself. Thank you.
Question-and-Answer Session
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