Omron 2007 Annual Report Download - page 17

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A.In fiscal 2007, we are expecting total operating
income of ¥97.4 billion (including inter-segment
income of ¥22.4 billion) for all business segments
and we anticipate that IAB will generate ¥64.6 billion of that
amount. Therefore, it is no exaggeration to say that the IAB will
be the leader in determining whether we will reach our con-
solidated operating income target of ¥75 billion for fiscal 2007.
During the 2nd Stage of GD2010, our long-term man-
agement plan, IAB, which is the core business of the
Omron Group, undertook decisive measures on a large
scale, implementing sweeping structural reforms in its
operations. Specifically, over the past three years we
have consolidated three of our plants in China (Shanghai)
into one plant. In Japan we also streamlined operations by
consolidating our development and production operations
in Mishima and Okayama into our plant at Kusatsu.
In addition, by transferring production of general-pur-
pose products to China, we also expect to achieve a 30%
improvement in productivity in that area in comparison with
the start of the 2nd Stage of GD2010. These initiatives in
streamlining and reform have significantly cut our manu-
facturing fixed costs. Furthermore, we were able to com-
plete spending to accommodate RoHS requirements (restric-
tions of hazardous substances in electric and electronic
devices) by the end of the previous fiscal year, and this will
result in cost reduction from fiscal 2007 onwards.
As a result of IAB’s efforts to increase sales since fiscal
2004, and the initiatives I just mentioned to control pro-
duction and selling, general and administrative (SG&A)
expenses, we expect to achieve for the most part (operating
margin will be 19%) our commitment of establishing an
earnings structure based on a ratio of 5:3:2, representing
gross profit, SG&A expenses (including R&D expenses),
and operating income respectively. This is, in fact, the most
important IAB company theme of the 2nd Stage of GD2010.
We plan to generate about half of the ¥16.1 billion
increase in operating income expected in fiscal 2007
through structural reforms in fixed expenses, and the
remaining half from an increase in volume. In sales for fis-
cal 2007, we expect a ¥34 billion increase year on year,
largely in Japan and Greater China. At home in Japan, we
will promote aggressive sales for resolving customer issues
in areas such as quality, safety and the environment, and in
those areas we will focus particular attention on the auto-
motive, semiconductor, flat panel display and liquid crys-
tal areas with a view to growing our applications business.
In Greater China, on the other hand, we will concentrate
on expanding our business operations in AOI (automated
optical inspection) and PLC (programmable logic controllers)
by reinforcing our sales framework, boosting productivity
and launching new products.
Q.5I understand that you are looking at a significant increase in operating
income (up 33.1% year on year) in IAB as the main force driving growth in
results for fiscal 2007, but can you give some specific details of the
possibilities for achieving that?
*Figures for the profit structure plan are based on management of IAB
itself. The share of operating expenses is approximately 1 percentage
point lower than figures released due to the way in which operating
expenses for headquarters are allocated.