Maruwa Regulatory News (MAW)

16 May 2006 09:05

Maruwa Co Ld16 May 2006 16 May 2006MARUWA CO., LTD. 3-83, Minamihonjigahara-cho, Owariasahi-city, Aichi-pref., 488-0044 JAPAN Final Results for Fiscal 2006 MARUWA CO., LTD. today announced its consolidated business results for the full fiscal year ended31st March, 2006 as follows; \* The financial statements are prepared in conformity with the accounting principles generallyaccepted in Japan. *US dollar amounts are converted for convenience only at the rate of US$1 = JPY113.42. *Consolidated subsidiaries: 6 companies (Maruwa (Malaysia) Sdn. Bhd., Taiwan Maruwa Co., Ltd.,MARUWA Electronics (Taiwan) Co., Ltd., Maruwa Europe Ltd., MARUWA QUARTZ Co., Ltd., and MARUWASHOMEI Co., Ltd.) I. Summary of Consolidated Results (1) Summary of consolidated statement ofincome JPY million USD thousand For year ended For year ended Change % For year ended 31st March 2006 31st March 2005 31st March 2006 Net sales 20,278 15,529 30.6% 178,788Operating income 1,693 1,357 24.8% 14,930Income before income taxes 1,669 1,180 41.4% 14,713Net income 1,135 1,225 -7.3% 10,004 JPY USDNet income per share (yen) 103.82 112.40 -7.6% 0.92 Return on equity (ROE) (%) 4.5% 5.1%*Average number of issued 10,880,952 10,814,036shares (2) Summary of consolidated financialcondition JPY million USD thousand As of 31st As of 31st March Change % As of 31st March March 2006 2005 2006Total Assets 33,044 28,465 16.1% 291,338Shareholders' equity 26,557 24,328 9.2% 234,143Shareholders' equity ratio 80.4% 85.5% -5.1% JPY USDShareholders' equity per share 2,423.40 2,256.48 7.4% 21.37*Number of issued shares at 10,956,360 10,777,260year end (3) Summary of consolidated statement of cashflows JPY million USD thousand For year ended For year ended Change % For year ended 31st March 2006 31st March 2005 31st March 2006Net cash provided by operating 2,036 3,319 -38.7% 17,948activitiesNet cash used in investing (1,234) (2,062) 40.2% (10,878)activitiesNet cash used in financing 51 (583) 108.7% 454activitiesCash and cash equivalents at 7,899 6,935 13.9% 69,642end of term II. Outlook for the fiscal2007 JPY million Interim Full yearNet sales 10,220 24,530Net income 710 1,690Net income per share -- 154.25 *Cautionary statements: the above forecasts are forward-looking statements involving risks anduncertainties. Due to a number of factors, actual results may differ significantly from theseestimates. Management Policies (1) Basic management policy Based on the basic corporate principle - The three roots of our trunk:Advancement of the company, Welfare of the workforce, and Satisfaction of theshareholders,- MARUWA group strives to differentiate us from our peers byconsistently being professional of material technology and following qualityfirst policy, and to enhance the corporate value to meet the expectations of allthe stakeholders. Based on this policy, it is MARUWA's management policy to survive among severeglobal business competition as well as to develop No.1 products in global nichemarkets by reinforcing its core business with a selection and concentrationstrategy. (2) Dividend policy As a profit allocation policy, MARUWA considers to allocate acquiredcash-flows through operations to active investment into new growing areas,consolidated results-considered dividends, and the appropriation of retainedearnings for flexible use against management environment changes. We have madeefforts to increase dividends since the previous term, focusing on profitreturns to shareholders while we hold the internal reserves for strategicinvestment required to expand our core business continuously. Meanwhile, we donot plan to change our dividend payment policy after the new corporate law tookeffect in Japan. (3) Targeted management indices MARUWA emphasizes operating income ratio as an important index to indicateprofitability. We set a medium-to-long term target, operating income ratio 20%. For this goal, we are determined to establish profit-acquiring system ofproduction and sales together toward solid growth in the electronic componentsindustry amid rapid changes and severe competition. (4) Business strategies in medium-to-long term We have enforced to build up an operational system responsive to marketchanges, learning from the management lessons of the IT bubble and its collapsein 2000 and 2001. As a result, we achieved the enhancement of financialcondition and the establishment of profitability. Now the whole MARUWA group isfocusing on the mid-term target - total sales 40 billion yen / operating incomemargin 20%. For a medium-to-long term growth strategy, in addition to the development andcreation of new products and businesses within the company, we will maintain ourM&A strategy to acquire business or products that could create a synergeticeffect with our material technology and other base technologies and productline-ups. Together with above expansion strategy, MARUWA aims for being "a respectedcompany" by sticking with the basis of manufacturing, and contributing to localsocieties with fulfillment of social responsibility. Management issues 1. Enhance the businesses acquired through M&A The businesses acquired through M&A in the past have grown by managementefforts from deficit to the level that can contribute to revenue. We will startworking for new growth, further enhancing the business structure as well asadding synergetic effects with our core businesses. 2. Start the mass-production of new developed products We will start the mass-production of the products developed with our uniquematerial technology to earn profits aggressively. 3. Improve material technology and product development capability For more customers' satisfaction, each product will be staffed with salesengineers in charge of product planning and development in order to supplyproducts that meet the needs of customers in rapidly changing markets in thename of 'MARUWA of material technology'. 4. Strengthen the sales force in overseas To increase sales in the global manufacturing areas of our customers and themarkets of important international companies, we will strengthen and increaseoverseas sales sites, take the needs of customers in advance, expand newcustomers, and improve our market shares. Also, the global manufacturing systemwill be strengthened with a production site in India as well as a factory inMalaysia. (5)Parent company 1. Corporate name and other matters of parent company Parent company Attribute Ratio of shareholder voting Stock exchange on which the right held by the parent shares the parent company company issues are listed K Maruwa Co., Ltd. In case the listed company 30.21% None is a related company of other companies, one of such other companies 2. Position of the listed company in the corporate group, and relationshipsbetween the parent company and other companies in the group in trading,personnel and capital i) Additional posts of the directors Position Name Position at the parent company Reason Representative director Sei Kanbe Representative director of Requested by the parent K Maruwa Co., Ltd. companyAuditor Koji Chujo Auditor Requested by the parent company Only 2 persons listed above out of the 5 directors and 3 auditors of MARUWA haveadditional posts at the parent company. ii) Restrictions, risks and merits concerning the parent company due to thebelonging to the group which includes the parent company, and influences tomanagement and operation concerning relationships with the parent company andthe other companies of the group in trading, personnel and capital. There is no connection between the business operations of MARUWA group and thebusiness of K Maruwa Co., Ltd, which mainly engages in the supportive activitiesfor a foundation for promoting arts and culture, and loan business on realproperty. There is a payment to K Maruwa of a negligible amount of rent on real estate(less than 1 million yen a year) through which K Maruwa gives neitherrestriction, risk, nor influence on management and operating activities. iii) Policy to ensure stable independency and measures for it if there is anyrestrictions, risks and merits concerning the parent company due to thebelonging to the group which includes the parent company, and influences tomanagement and operation concerning relationships with the parent company andthe other companies of the group in trading, personnel and capital. The situation that the directors of MARUWA have additional positions at KMaruwa does not prevent our management from being independent. The trading withK Maruwa gives no influence to our operations. iv) Conditions to ensure stable independence from the parent company The independence of MARUWA is secured without any operational restrictions by KMaruwa. 3. Trading with the parent company There is a payment to K Maruwa of a negligible amount of rent on real estate(less than 1 million yen a year) Review of Operations and Financial Condition I. Operating ResultsQuarterly JPY million Fiscal 2005 Fiscal 2006 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Net sales 4,176 3,981 3,757 3,615 4,481 4,524 5,082 6,191Operating income 308 380 378 291 398 321 522 452Net income 156 599 352 118 51 231 399 454 Full year JPY million Previous Current For year ended For year ended 31st March 2005 31st March 2006Net sales 15,529 20,278Operating income 1,357 1,693Net income 1,225 1,135 (1) Review of operations The management situation in the fiscal 2006 shifted to a recovery trend by arecovery in exports mainly for Asia as inventory adjustments were eased inIT-related markets. A favorable business environment was created by a privateconsumption increase influenced by a favorable demand in corporate sector due toan autonomous recovery trend of Japanese economy along with the increase ofoverseas demands. Under these circumstances, MARUWA group also generally benefited from therecovery of the electronic components market partially except for thesemiconductor equipment-related business. Also due to sales contribution by thelighting equipment business which has been consolidated since this fiscal year,net sales increased 30.6% to 20,278 million yen compared to the last year. Operating income except for Lighting Equipment segment also increased 64.6% to2,234 million yen compared to the previous year thanks to the effects of thevarious measures carried on in recent years, including cut-down of inventories,lead-time reduction, quality and yield rate improvement, production enhancementby saving cost, restructuring of acquired businesses which had been in deficitand product lineups, and profitability improvement of new products. The Lighting Equipment business, however, was not able to turn to the black,and resulted in a loss of 27 million yen despite of our efforts to integratesales offices and to cut operating expenses. As a result, operating income was 1,693 million yen, an increase of 24.8%compared to the previous year. Net income was 1,135 million yen, a decrease of 7.4% compared to the last yeardue mainly to the payment of 261 million yen as retirement benefits fordirectors on the termination of this retirement benefits system. Regarding these operating situations above and profit returns to shareholders,we will pay 12 yen per share as dividend, total 21 yen for annual dividend, anincrease of 6 yen compared to the annual dividend 15 yen for the last year. (2) Review of operating results by segment JPY million Previous Current For year ended For year ended 31st March 2005 31st March 2006 Ceramic Components:Net sales 15,529 16,628Operating income 1,357 2,234 Lighting Equipment:Net sales - 3,650Operating income - (27) Total:Net sales 15,529 20,278Operating income 1,357 2,207 Elimination:Net sales - -Operating income - (514) Consolidated:Net sales 15,529 20,278Operating income 1,357 1,693 Quarterly sales results of Ceramic Components segment by product division JPY million Fiscal 2005 Fiscal 2006 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Circuit Ceramics 1,746 1,566 1,479 1,421 1,649 1,576 1,519 1,601Machinery Ceramics 1,363 1,376 1,257 1,256 1,129 1,117 1,135 1,063RF Products* 259 270 302 265 344 364 417 464EMC Components 808 768 720 673 1,096 1,024 1,075 1,055Total 4,176 3,980 3,758 3,615 4,218 4,081 4,146 4,183 *RF=Radio Frequency JPY million Fiscal 2005 Fiscal 2006Circuit Ceramics 6,212 6,345Machinery Ceramics 5,252 4,444RF Products 1,096 1,589EMC Components 2,969 4,250Total 15,529 16,628 Circuit Ceramics Circuit Ceramics include ceramic substrates for chip resistors which areessential for a wide range of electronic appliances, glazed ceramic substratesfor thermal printer head (TPH) for FAX or barcode label printers, large ceramicsubstrates for hybrid ICs, and Aluminum Nitride (AlN) for power modules andautomobiles. This division was reflected by a recovery trend for information communicationmarkets such as mobile phones and PCs, increasing its sales 2.1% to 6,345million yen compared to the previous year. As for ceramic substrates for chipresistors, orders decreased in the third quarter in Asian regions, but haverecovered since the fourth quarter with a rapid increase of demand formulti-array types. Machinery Ceramics Machinery Ceramics include quarts glass products mainly for semiconductorequipment, magnetic head-supporting blocks for PCs, and ceramic facet valves.The products in this division require high precision process techniques. Total sales for this division were 4,444 million yen, a decrease of 15.4%compared to the previous term due to inactive orders for quartz glass products,a core of this division. Radio Frequency Products Radio Frequency Products include device products such as band pass filters formobile phones and other wireless communication appliances, dielectric ceramicsfor filters used in mobile communications or antennas, and thin film substratesfor optical information and communications. Total sales of this division increased 45.0% to 1,589 million yen compared tothe previous term, being blessed by good demands from communications and digitalhome device industries. The sales of device products largely increased due to favorable orders forbusiness wireless communications and base stations. Thin-film products alsoexpanded sales due to solid orders in a DVD-related market. EMC Components EMC Components include multi-layer ceramic capacitors of high-voltage/high-capacitance mainly for digital cameras, LCD backlights, and power supply ofelectronic devices, and components as a countermeasure against noise/surge,including EMI filters, chip varistors, chip beads, and inductors. Suchcomponents against noise/surge are expected to be more required in the futurefor various electronic appliances such as information communication toolsincluding mobile phones and PCs, digital home appliances, amusement equipment,and automotive electronics. Total sales of EMC Components increased 43.2% to 4,250 million yen compared tothe last year due to a recovery trend in the electronic components market andnew product lineups added in this term. Due to sales expansion in Asia, EMI filters gained stable orders for basestations for mobile phones, digital home devices such as thin-screen TVs andDVDs. Also, as for chip varistors, sales increased due to a growing demand inautomotive components-related markets. Lighting Equipment This segment started since this year as a new business; it posted total salesin this term 3,650 million yen, and operating loss 27 million yen. This segment includes lighting equipment for public works such as roads andbridges, and sales tend to be largely concentrated in the end of a fiscal term.We successfully reduced the amount of loss due to our various cost reductionefforts such as the review of sales location and the cutting of purchases costsince the beginning of the year, but could not turn to the black. II. Outlook for Full Fiscal 2007 JPY million For year ended For year ending Change 31st March 2006 31st March 2007 Amount % Net sales 20,278 24,530 4,252 21.0%Operating income 1,693 2,850 1,157 68.3%Net income 1,135 1,690 555 48.9%Dividend per share (yen) 21.00 24.00 3.00 Markets in the fiscal term ended March 2006 were generally solid due to amodest increase of demands in PCs and communication devices including mobilephones, and a favorable demand for digital home appliances such as thin-screenTVs. This market condition is expected to continue in the fiscal 2007 endingMarch 2007. Especially, MARUWA is determined to fully focus on the strategic target toacquire and expand the market shares of our electronic components in digitalhome appliances that are expected further growth, and rapidly-computerizedautomotive components. In Circuit Ceramics division, demand expansion is expected in Asian markets.We will promote further expansion of shares in Alumina substrates, preparing forproduction increase. The sales forecast of this division for the fiscal 2007 is6,950 million yen, up 9.5% compared to this term. Machinery Ceramics division has been influenced continuously by a salesdecrease in the fiscal 2006, but domestic demands are shifting to recovery. Weaim for a recovery in revenue by centralizing and streamlining of theadministration department through the merger of MARUWA QUARTZ Co., Ltd. andMARUWA TFG Co., Ltd. in this term, restructuring of manufacturing processes,responding to customized products, and entering overseas markets. Regardingabove measures, sales for the fiscal 2007 is forecast to increase 26.7% to 5,630million yen compared to this term. Radio Frequency Products division has been on a sales-increasing trend sincethe latter half of this term. We will focus on expanding markets with thedevelopment of new products, and responding to a wide variety of product ordersin small quantities, catching the changes of market needs. Therefore, sales inthis division are forecast to increase 23.3% to 1,960 million yen in next fiscalterm compared to this fiscal term. In EMC Components division, we expect a revenue increase with a salesexpansion in favorable digital home appliances markets both in Japan and inoverseas. We are planning to strengthen sales forces in order to acquire moreorders for components including ceramic capacitors, EMI filters, or inductorsparticularly in Asian markets. The sales of this division are expected toincrease 40.5% to 5,970 million yen in the fiscal 2007 compared to this fiscalyear. For Lighting Equipment segment, it will be difficult to increase sales due tobudget cuts for public works, and price competition; however, we aim for salesexpansion by the indirect sales of exterior luminaries which have LED as theirlight sources. The sales of this segment are expected to be 4,020 million yen,up 10.1% compared to this fiscal year. Regarding above situation, we forecast net sales 24,530 million yen, up 21.0%,operating income 2,750 million yen, up 62.4%, and net income 1,690 yen, up 48.9%for next fiscal year compared to this fiscal term. In addition, net income for next fiscal term will cover the loss of 100million yen on disposal of facilities in reorganizing factories. *Cautionary statements: the above forecasts are based on the present businessenvironment and currently-available information, and include forward-lookingstatements involving risks and uncertainties. The reader is cautioned not toplace reliance entirely on the above forecasts for making investment decisions.Due to a number of factors such as future economic situations and marketenvironment changes, actual results may differ significantly from theseestimates. Also, please refer to Risks for business operations. III. Financial condition JPY million As of 31st March As of 31st March As of 31st March Change 2004 2005 2006 Amount % Total assets 26,664 28,465 33,044 4,579 16.1%Total liabilities 3,235 4,137 6,487 2,350 56.8%Total shareholders' 23,429 24,328 26,557 2,229 9.2%equityShareholders' equity 87.9% 85.5% 80.4% -5.1%ratio For year ended For year ended For year ended Change 31st March 2004 31st March 2005 31st March 2006 Amount % Net cash provided by 2,102 3,319 2,036 -1,283 -38.7% operating activitiesNet cash used in (708) (2,062) (1,234) 828 40.2% investing activitiesNet cash used in (407) (583) 51 634 108.7% financing activitiesCash and cash 6,202 6,935 7,899 964 13.9%equivalents at end of term Net sales 12,003 15,529 20,278 4,749 30.6%Capital investment 742 1,253 1,737 484 38.6%Depreciation 1,466 1,481 1,614 133 9.0% Total assets at the end of this year were 33,044 million yen, an increase of4,579 million yen as a result of operating activities in this fiscal year,including an increase of 2,754 million yen due to the acquisition of MARUWASHOMEI Co., Ltd. ("MARUWA SHOMEI"), a new consolidated subsidiary since thisyear. Due mainly to the assets of MARUWA SHOMEI, trade notes and accountsreceivable increased 2,291 million yen, and inventories increased 315 millionyen. Net property, plant and equipment increased 779 million yen. Total liabilities were 6,487 million yen, an increase of 2,350 million yenalso due mainly to the trade and notes payable of MARUWA SHOMEI. Shareholders' equity increased 2,229 million yen due to net income despite ofa decrease by dividend payment. As for the use of internal reserve, MARUWA aims to invest in the massproduction of new products and, to pursue high proactiveness and timely M&Astrategies. As a result, shareholders' equity ratio at the end of this term is 80.4%, down5.1% compared to the end of the last term. Net cash provided from operating activities was 2,036 million yen, a decrease of1,283 million yen from the last year. The major factors for the decrease arethe decrease of accrued pension and severance costs due to the change ofcorporate pension by 986 million yen, and an increase of 23 million yen ofinventories in comparison with the substantial decrease of inventories in thelast term. The positive adjustment of depreciation was 1,614 million yen. Net cash used in investing activities totaled 1,234 million yen, a decrease of828 million yen compared to the cash used in the previous term. The principalinvestments in this term were 1,452 million yen of the purchases of netproperty, plant and equipment, and 9 million yen of the acquisition of theshares of MARUWA SHOMEI Co., Ltd. As for the acquisition of MARUWA SHOMEI, theactual cash flow was positive 358 million yen since cash assets were acquiredtogether. Net cash provided in financing activities amounted to 51 million yen an increaseof 634 million yen compared to the previous term, including 349 million yen ofproceeds from sales of own shares upon the exercises of stock options, paymentsfor long-term debt, 147 million yen, and for dividends, 180 million yen. Consequently, cash and cash equivalents at the end of this year increased 964million yen to 7,899 million yen compared to the end of the previous year sincenet cash provided from operating and financing activities were larger than netcash used in investing activities. Trends of cash-flows indices are as follows; JPY million For year ended For year ended For year ended For year ended For year ended 31st March 2002 31st March 2003 31st March 2004 31st March 2005 31st March 2006 Shareholders' equity 90.7% 87.4% 87.9% 85.5% 80.4%ratioShareholders' equity 87.0% 37.1% 62.8% 80.3% 100.8%ratio at market valueDebt redemption period 4.4 0.4 0.3 0.1 0.2(year)Interest coverage 11.0 124.0 967.7 316.1 251.9ratio Note) Shareholders' equity ratio : Shareholders' equity / Total assets Shareholders' equity ratio at market value : Total market value of shares /Total assets Debt redemption period : Interest-bearing debts / Cash flows from operatingactivities Interest coverage ratio : Cash flows from operating activities / Interestpayment *Each index is calculated with the consolidated financial figures. \* Total market value of shares is calculated by multiplying the share value as ofthe end of the fiscal year by the total number of issued shares after deductionof own shares at the end of the year. *For cash flows from operating activities, the figure in the consolidated cashflows statement is used. Interest-bearing debt includes all debts for whichinterests are paid among the liabilities booked in the consolidated balancesheet. For interest payment, the figure of interest expenses paid booked in theconsolidated cash flows statement is used. IV. Risks for business operations MARUWA considers following issues as risks which may have influence onoperating results, share price, and financial conditions of MARUWA group. Forward-looking statements contained in this document are due to discussion byMARUWA group as of the date this document was released. 1. Reliance on the electronic components market Our major customers are electronic components makers which are influenced by thesemiconductor market. The semiconductor market has been fluctuating cyclicallyby the influence of the market's distinctive "silicon cycle" due to marketprices and technological innovation progress in addition to general economicinfluence. In the past, our operations were impacted by plunge in orders when theelectronics and semiconductor markets declined. Even though we expect theelectronics market will expand in the medium-term led by smaller sized productswith multi-functions and rapidly developing automotive components, ouroperations may be adversely affected in case that the growth of the electronicsmarket slows down due to influences of general economy or cyclical slump of thesemiconductor market. 2. Response to technological innovation Amid the rapidly changing market requiring quick adjustment and sustainablegrowth, MARUWA group aims to increase our corporate values by enhancingprofitability and growth, promoting product development in new areas withintegration of our developed core technologies For this purpose, we believe itis important to recruit necessary personnel and train employees. In principle, MARUWA group conducts technological development in response tomarket needs, and will keep developing new products in the future. In case,however, we fail to catch up with development speed the market requires and toenhance production capacity, our operations may be affected along with the dropof our market shares 3. Product cycle in the electronic components market (risks of inventories atthe market) In electronics markets, new products are constantly supplied supported bycontinuous technological innovation. Especially, when demands for new productswith non-conventional functions are heightened in a full scale, orders rushtemporarily due to competition for components among set makers. However,overestimation for demands among those set makers may cause an excess ofinventories supply in the markets and saturation of the markets. In such marketenvironment, our group business operations may be affected. 4. Regulations for environmental protection Various regulations are applied to us about the usage, storage, destructionand disposal of chemical products used in manufacturing processes. We havenever been complaint regarding environmental regulations, and we believe that wecomply with currently applicable environmental law and regulations. In case,however, that we are imposed any compensation or fine regarding a delay inresponse to future tightening of regulations and forced to halt production orterminate businesses, that we are required a large amount of expenditure forequipment or other expenses, and that we are accused of failing to comply withregulations for the usage, control and disposal of hazardous materials,operating results of the group may be impacted. 5. Risks on a growth strategy through M&A MARUWA group focuses on M&A (merger, acquisition and affiliation ofbusinesses) as a part of our growth strategy. Regarding the cases which we wereinvolved, acquired businesses were improved into revenue sources relatively in ashort period with intensive investment in personnel and materials after M&A,following careful preliminary assessment. In the future, we are also planningon expanding business areas and exploring new fields, continuously carrying on M&A. Future M&A, however, may not be linked to the resources of profits unlikeour past M&A cases. In case that restructuring at acquired businesses isprolonged or operating costs are mounted, the group's operating results andfinancial condition may be impacted. 6. Reliance on material suppliers For ceramics production, we purchase low materials such as alumina fromseveral low material refining companies outside MARUWA group. Although we haveensured supply by appropriately increasing a number of trading suppliersaccording to materials price trend or our production volume, there is noguarantee that we will never have shortage of materials. The shortage ofmaterials may cause escalating of materials prices, slowdown of supply, orincrease of materials costs at our group, consequently affecting operatingresults and financial condition of the group. 7. Dependence on key persons The future growth of MARUWA group highly depends on key figures such ascompetent researchers or engineers since we mainly engage in manufacturing ofelectronic materials and components in rapid technological innovation.Therefore, it is essential for the management to ensure those core figures andto train them; otherwise, the future growth and operating results of the groupmay be impacted. On the other hand, active employment of highly capable or experiencedengineers may largely increase recruitment and labor costs, influencing ouroperating results and financial status. 8. Violations of intellectual property rights of other companies MARUWA group aggressively promotes the development of new products, andprepare against the risks of violations at research and development with fullpreliminary research about intellectual property rights held by other companies. If we become an object of a suit for the fact of violations happened beyondour control, the group's business results and financial condition may beinfluenced. 9. Exchange rate fluctuations MARUWA group trades in foreign currency including U.S. dollar, Euro orMalaysia ringgit other than in yen. Also, we hold production and sales sitesaround the world, and some items on consolidated financial statements areconverted into yen from originally traded foreign currency. Consequently, at thetime of consolidation of financial statements, conversion into yen may affectthe results of overseas companies of the group. MARUWA uses foreign exchangeforward contracts if necessary to manage exposures resulting from fluctuationsin foreign currency exchange, but it is impossible to avoid all the influencesof foreign currency exchange. Therefore, our operating results may be affectedby the fluctuations of foreign currency exchange. 10. Political and economic situations in Malaysia Maruwa (Malaysia) Sdn.Bhd., a 100% owned consolidated subsidiary of MARUWA,produces and sells products of Circuit Ceramics and Machinery Ceramicsdivisions, consisting of 16.0% of total sales for the fiscal year ended in March2006. Since there are instability factors in Malaysian political situationbecause of being a multiethnic state, future political conditions and financialinstability may influence our operating results in case that there aredifficulty for the Malaysian subsidiary to continue its operations. 11. Dependence on public works The lighting equipment business largely depends on public projects. It is atrend for public works in Japan to be focused on efficient projects such as formajor/core cities, sightseeing cities matched with a national plan for promotingsightseeing, and development of central urban areas fit for an aging society,shifting from conventional pork-barrel projects. Compensating for this changeof public works, MARUWA has promoted sales expansion and product development;however, our business results may be affected in case that the proceeding ofpublic project delays due to various factors. Consolidated Balance Sheet JPY million USD thousand As of 31st March As of 31st March Change % As of 31st March 2006 2005 2006ASSETSCurrent assets:Cash & deposits 7,898 6,935 13.9% 69,638Notes and accounts 7,003 4,712 48.6% 61,746receivable, tradeInventories 2,869 2,554 12.3% 25,291Deferred income taxes 226 388 -41.8% 1,993Other current assets 609 245 148.6% 5,365Allowance for doubtful (17) (4) -- (150)accountsTotal current assets 18,588 14,830 25.3% 163,883 Fixed assets:(Property, plant & equipment)Land 3,412 2,957 15.4% 30,087Building & structures 3,969 3,703 7.2% 34,992Machinery & equipments 3,949 3,829 3.1% 34,819Construction in progress 152 242 -37.2% 1,337Other 605 577 4.9% 5,335Net property, plant & 12,087 11,308 6.9% 106,570equipment (Investment & other assets)Investment securities 784 701 11.8% 6,909Deferred income taxes 152 184 -17.4% 1,341Property & equipment for 960 977 -1.7% 8,463investmentsOther 478 469 1.9% 4,219Allowance for doubtful (5) (4) -- (47)accountsTotal investments & other 2,369 2,327 1.8% 20,885assets Total fixed assets 14,456 13,635 6.0% 127,455 Total assets 33,044 28,465 16.1% 291,338 LIABILITIES AND SHAREHOLDERS' EQUITY JPY million USD thousand As of 31st March As of 31st March Change % As of 31st March 2006 2005 2006Current liabilities:Notes & accounts 2,590 797 225.0% 22,838 payable, tradeCurrent portion of long-term 147 147 0.0% 1,300debtAccrued income taxes 210 65 223.1% 1,852Accrued bonus 334 195 71.3% 2,946Stock purchase warrants -- 11 -- --Equipment notes payable 532 339 56.9% 4,687Other current liabilities 1,168 857 36.3% 10,292Total current liabilities 4,981 2,411 106.6% 43,915 Long-term liabilities:Long-term debt 187 335 -44.2% 1,653Accrued pension & severance 300 858 -65.0% 2,646costsDeferred tax liabilities 62 7 -- 549Consolidation goodwill 579 448 29.2% 5,107Other 378 78 -- 3,323Total long-term liabilities 1,506 1,726 -12.7% 13,278 Total liabilities 6,487 4,137 56.8% 57,193 Shareholders' equity:Common stock, authorized: 6,710 6,683 0.4% 59,159 26,000,000 shares; issued & outstanding: 11,050,000 shares in 2005, 11,072,000 in 2006Additional paid-in capital 9,747 9,710 0.4% 85,935Retained earnings 10,522 9,577 9.9% 92,774Net unrealized gain (loss) 38 16 137.5% 334 on other securitiesForeign currency (206) (1,077) -- (1,817) translation adjustmentTreasury stock, at cost (254) (581) -- (2,242)Total shareholders' equity 26,557 24,328 9.2% 234,143 Total liabilities & 33,044 28,465 16.1% 291,336 shareholders' equity Consolidated Statements of Income JPY million USD thousand For year ended For year ended Change % For year ended 31st March 2006 31st March 2005 31st March 2006 Net sales 20,278 15,529 30.6% 178,788Cost of sales 14,494 11,187 29.6% 127,795Gross profit 5,784 4,342 33.2% 50,993Selling, general & 4,091 2,985 37.1% 36,063 administrative expensesOperating income 1,693 1,357 24.8% 14,930Other income (expenses):Interest & dividend income 35 20 75.0% 305Interest expenses (8) (10) -- (71)Foreign exchange gain (loss), (158) 19 -- (1,390)netOther, net 107 (206) -- 939Other income, net (24) (177) -- (217)Income before income taxes 1,669 1,180 41.4% 14,713 Income taxes:Current 299 170 75.9% 2,636Deferred 235 (215) -- 2,073 534 (45) -- 4,709 Net income 1,135 1,225 -7.3% 10,004 Consolidated Statement of Cash Flows JPY million USD thousand For year ended For year ended Change % For year ended 31st March 2006 31st March 2005 31st March 2006Operating activities:Income before income taxes 1,669 1,180 41.4% 14,713Adjustments for:Depreciation 1,614 1,481 9.0% 14,232Amortization of (214) (156) -37.2% (1,883) consolidation goodwillIncrease (decrease) in 7 1 -- 58 allowance for doubtful accountsIncrease (decrease) in (878) 108 -- (7,738)accrued pension & severance costsLoss (gain) on sales of (146) -- -- (1,289) investment securitiesLoss on write-down of -- 3 -- -- investment securitiesLoss on disposal of 140 122 14.8% 492 property, plant & equipmentInterest & dividends income (39) (22) -77.3% (340)Foreign exchange (gain) loss 159 (29) -- 1,399(Increase) decrease in (303) (331) 8.5% (2,671) notes & accounts receivable(Increase) decrease in (23) 1,089 -102.1% (204) inventoriesIncrease (decrease) in (250) (86) -190.7% (2,201) accounts payableOther 389 102 -- 3,752Sub total 2,125 3,462 -38.6% 18,320Interest & dividend income 38 22 72.7% 335 receivedInterest expenses paid (8) (10) -- (71)Income taxes paid (119) (155) -- (1,050)Net cash provided by 2,036 3,319 -38.7% 17,534 operating activities Investment activities:Payments for purchase of (1,452) (1,236) -17.5% (12,798) property, plant & equipmentProceeds from sales of 78 18 -- 690 property, plant & equipmentPayments for disposal of (47) -- -- (414) property, plant & equipmentPayments for purchase of (309) (59) -- (2,727) investment securitiesProceeds from sales of 163 1 -- 1,435 investment securitiesPayments for purchase of -- (774) -- -- stocks of subsidiariesProceeds from purchase of 358 -- -- 3,157 stocks of subsidiariesPayments for purchase of (23) -- -- (200) subsidiariesIncrease in intangible fixed (29) (6) -- (257)assetsOther 27 (6) -- 236Net cash used in investing (1,234) (2,062) 40.2% (10,878) activities JPY million USD thousand For year ended For year ended Change % For year ended 31st March 2006 31st March 2005 31st March 2006Financing activities:Payments of long-term debt (147) (147) 0.0% (1,300)Proceeds from issue of new 52 -- -- 459sharesCash dividends paid (180) (157) -14.6% (1,584)Sales of treasury stock 349 1 -- 3,081Purchase of treasury stock (23) (280) 91.8% (202)Net cash provided by 51 (583) 108.7% 454 (used in) financingactivities Effect of exchange rate 111 59 88.1% 975 changes on cash & cash equivalentsNet increase (decrease) in 964 733 31.5% 8,499 cash & cash equivalentsCash and cash equivalents 6,935 6,202 11.8% 61,143 at beginning of year Cash and cash equivalents 7,899 6,935 13.9% 69,642 at end of year Segment Information(1) Consolidated business segment information JPY million For year ended 2006 For year ended 2005Ceramic Components: Net sales 16,628 15,529 Operating expenses 14,394 13,621 Operating income 2,234 1,908 Total assets 31,870 29,355 Lighting Equipment: Net sales Operating expenses 3,650 - Operating income 3,677 - Total assets (27) - 2,755 - Total: Net sales 20,278 15,529 Operating expenses 18,071 13,621 Operating income 2,207 1,908 Total assets 34,625 29,355 Elimination: Net sales - - Operating expenses 514 551 Operating income (514) (551) Total assets (1,581) (890) Consolidated: Net sales 20,278 15,529 Operating expenses 18,585 14,172 Operating income 1,693 1,357 Total assets 33,044 28,465 (2) Consolidated geographic segment information JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2006 2005 2006JAPANNet sales:Unaffiliated customers 16,170 11,641 38.9% 142,570Intersegment 830 805 3.1% 7,318Total 17,000 12,446 36.6% 149,888Operating cost 15,354 11,132 37.9% 135,376Operating income (loss) 1,646 1,314 25.3% 14,512 ASIANet sales:Unaffiliated customers 3,528 3,384 4.3% 31,110Intersegment 1,349 1,068 26.3% 11,892Total 4,877 4,452 9.5% 43,002Operating cost 4,206 3,725 12.9% 37,082Operating income (loss) 671 727 -7.7% 5,920 EUROPE and AMERICANet sales:Unaffiliated customers 579 503 15.1% 5,108Intersegment 2 2 0.0% 18Total 581 505 15.0% 5,126Operating cost 617 583 5.8% 5,438Operating income (loss) (36) (78) -- (312) TOTALNet sales:Unaffiliated customers 20,278 15,529 30.6% 178,788Intersegment 2,181 1,875 16.3% 19,228Total 22,459 17,404 29.0% 198,016Operating cost 20,177 15,440 30.7% 177,896Operating income (loss) 2,282 1,964 16.2% 20,120 ELIMINATIONNet sales:Total (2,181) (1,875) -- 19,228Operating cost 1,592 1,268 25.6% 14,038Operating income (loss) (589) (607) -- 5,190 CONSOLIDATEDNet sales:Total 20,278 15,529 30.6% 178,788Operating cost 18,585 14,172 31.1% 163,858Operating income (loss) 1,693 1,357 24.8% 14,930 (3) Net overseas sales by customer's geographic location JPY million USD thousand For year ended For year ended Change % For year ended 31st March 31st March 31st March 2006 2005 2006Overseas sales:Asia 6,376 5,677 12.3% 56,219Europe 375 356 5.3% 3,308Others 495 430 15.1% 4,360Total 7,246 6,463 12.1% 63,887Consolidated net sales 20,278 15,529 30.6% 178,788 % of consolidated net sales:Asia 31.4% 36.6%Europe 1.8% 2.3%Others 2.4% 2.8%Total 35.7% 41.6% *Countries are divided in geographicalvicinity.*Main countries included in each are as indicated below;Asia - Malaysia, Taiwan, Korea, Hong KongEurope - Germany, EnglandOthers - United States*Overseas sales indicate net sales of the Company and its subsidiaries to customers outsideJapan. END. This information is provided by RNS The company news service from the London Stock Exchange