Omron 2002 Annual Report Download - page 23

Management’s Discussion and Analysis
Financial Strategy
The financial policies aimed at strengthening the earn-
ings base of Omron Corporation and the Omron Group of
companies include improving asset efficiency, disciplined
liquidity management and efforts to raise competitive-
ness. In addition, Omron invests capital according to spe-
cific plans and keeps capital expenditures within the
scope of cash flow, while focusing on high-profit busi-
nesses to increase corporate value.
General Overview
During the fiscal year ended March 31, 2002, continued
weakness in consumer spending and falling exports and
production output contributed to a large decline in corpo-
rate earnings in Japan, prompting companies to sharply
curtail capital investment, particularly in the semiconduc-
tor and information technology (IT) industries. The U.S.
economy experienced a significant downturn due to the
slump in IT industries, and recovery was delayed by the
September 11 terrorist attacks. The impact of this down-
turn was reflected in the economies of Asia and Europe,
where growth remained weak.
In the markets where Omron conducts business,
restrained capital investment in the semiconductor and
IT-related industries and deteriorating results in the elec-
trical machinery and electronics industries led to lower
demand for control system equipment. As a result, sales
of Omron’s core Industrial Automation Company and
Electronic Components Company declined substantially.
Restrained investment by domestic financial institutions
and railway companies had a substantial negative impact
on the Social Systems Business Company. Weak domes-
tic consumer spending limited the Healthcare Company
to a small increase in sales.
As a result of these factors, consolidated net sales
decreased 10.1 percent compared with the previous fiscal
year to ¥534.0 billion. Reflecting the decline in net sales,
operating income, although remaining in the black,
declined 90.5 percent year-on-year to ¥4.2 billion. Omron
posted losses on impairment of nonperforming assets in
connection with business restructuring, and on impair-
ment of securities. As a result, the Company recorded a
net loss before income taxes, minority interests and
cumulative effect of accounting change of ¥25.4 billion
and a net loss of ¥15.8 billion.
Sales
Consolidated net sales decreased 10.1 percent year-on-
year to ¥534.0 billion. A major factor behind the sales
decline was restrained capital investment in the semicon-
ductor and IT industries and lower earnings in the electri-
cal machinery and electronics industries, which led to
weaker demand for control components. Sales decreased
both in Japan and overseas.
Cost of Sales, SGA Expenses and Income
Cost of sales decreased ¥22.8 billion, or 6.1 percent, to
¥353.4 billion, reflecting the decline in net sales. As a
result, gross profit was ¥180.5 billion, a year-on-year
decrease of 17.2 percent. The gross profit margin was
33.8 percent, compared to 36.7 percent in the previous
fiscal year. Selling, general and administrative (SGA)
expenses increased 2.8 percent to ¥134.9 billion, and
increased to 25.3 percent of net sales, compared to 22.1
percent in the previous fiscal year. Research and develop-
ment expenses decreased 2.6 percent to ¥41.4 billion,
representing 7.7 percent of net sales, up from 7.1 percent
in the previous fiscal year. R&D is essential to the
Company’s future growth, and Omron’s policy is to main-
tain R&D expenses close to 7 percent of net sales each
year.
1998 1999 2000 2001 2002
36.7 34.4 35.4 36.7
33.8
1998 1999 2000 2001 2002
22.6
24.6 24.1
22.1
25.3
6.5 7.6 6.6 7.1 7.7
Gross Profit Margin (%) SGA Expenses/Net Sales
R&D Expenses/Net Sales (%)
● SGA Expenses/Net Sales
■ (excluding R&D Expenses)
●R&D Expenses/Net Sales
Omron Corporation 21