Omron 2003 Annual Report Download - page 25

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, 2003, economic
concerns in Japan due to issues such as the continuing
problems in disposing of nonperforming loans restrained
both consumer spending and corporate capital invest-
ment. The U.S economy drew support from housing
investment and consumer spending during the first half
of the year, but conditions worsened in the second half
because of higher oil prices, a weak stock market and the
situation in Iraq. Europe showed signs of recovery, while
increased exports and growth in consumer spending led
to expansion in the economies of Asia, particularly in
greater China.
In the markets where Omron conducts business, a
recovery in production and steady consumption lent
vigor to the Industrial Automation Company, the
Electronic Components Company and the Healthcare
Company. However, the Social Systems Business, which
includes the Social Systems Solutions and Service
Business Company and the Advanced Modules Business
Company, faced challenging conditions, including
restrained capital investment among financial institutions
and public entities.
As a result of these factors, consolidated net sales
increased 0.2 percent compared with the previous fiscal
year to ¥535,073 million. Omron recorded non-operating
expenses including retirement payments associated with
the implementation of an early retirement program as part
of the Group’s structural reform measures, a loss associat-
ed with the sale and disposal of idle assets, and loss on
sale and impairment of investment securities. Income
before income taxes, minority interests and cumulative
effect of accounting change totaled ¥4,732 million, com-
pared to a loss before income taxes, minority interests
and cumulative effect of accounting change of ¥25,373
million for the previous fiscal year. Despite the effect of
the tax burden resulting from implementation of a new
factor-based standard for use in calculating the effective
tax rate, net income totaled ¥511 million, compared to a
net loss of ¥15,773 million for the previous fiscal year.
Sales
Consolidated net sales increased 0.2 percent year-on-
year to ¥535,073 million. Overall, sales in Japan
decreased year-on-year, while overseas sales increased,
resulting in the marginal year-on-year increase in net
sales. While overall capital investment in all types of con-
trol devices, machinery and equipment remained low,
sales in China and Southeast Asia were higher.
Cost of Sales, SGA Expenses and Income
Cost of sales decreased ¥26,016 million, or 7.4 percent,
to ¥327,413 million, reflecting Omron’s progress in reduc-
ing manufacturing costs and raising efficiency through
the Structural Reforms for Group Productivity. As a result,
gross profit increased ¥27,125 million, or 15.0 percent, to
¥207,660 million. The gross profit margin was 38.8 per-
cent, compared to 33.8 percent for the previous fiscal
year. Selling, general and administrative (SGA) expenses
increased marginally, and represented 25.3 percent of net
sales, unchanged from the previous fiscal year. Research
and development expenses decreased 2.8 percent to
¥40,235 million, and represented 7.5 percent of net sales,
compared to 7.7 percent in the previous fiscal year. R&D
is essential to the Group’s future growth, and Omron’s
policy is to maintain R&D expenses close to 7 percent of
net sales each year.
1999 2000 2001 2002 2003
38.8
34.4 35.4 36.7
33.8
1999 2000 2001 2002 2003
24.6 24.1 22.1
25.3 25.3
7.6 6.6 7.1 7.7 7.5
Gross Profit Margin (%) SGA Expenses/Net Sales and
R&D Expenses/Net Sales (%)
● SGA Expenses/Net Sales
■ (excluding R&D Expenses)
●R&D Expenses/Net Sales
Annual Report 2003 • 23