MEL.L Regulatory News (MEL)

Mitsubishi Electric Announces Consolidated Financial Results for Fiscal 2019

TOKYO, April 26, 2019 - Mitsubishi Electric Corporation (TOKYO: 6503) announced today its consolidated financial results for fiscal 2019 (April 1, 2018- March 31, 2019).

Consolidated Financial Results

During the fiscal year ended March 31, 2019, the economy saw a buoyant expansion in the U.S. and a slight slowdown in the Chinese economy, while there were gradual trends of recovery in Japan and Europe despite a recent slowdown in some indicators such as export and production. In addition, the yen, compared to the previous fiscal year, was substantially unchanged against the U.S. dollar, and remained strong against the euro in and after August.

Under these circumstances, the Mitsubishi Electric Group has been working even harder than before to promote growth strategies rooted in its advantages, while continuously implementing initiatives to strengthen its competitiveness and business structure.

As a result, the Mitsubishi Electric Group has recorded a revenue of 4,519.9 billion yen for fiscal 2019, an increase of 2% compared to the previous fiscal year, with increased revenue mainly in the Energy and Electric Systems, Industrial Automation Systems and Home Appliances segments.

Consolidated operating profit decreased by 11% compared to the previous fiscal year to 290.4 billion yen, due to decreased profits in the Industrial Automation Systems and Electronic Devices segments.

Profit before income taxes decreased by 11% compared to the previous fiscal year to 315.9 billion yen, and net profit attributable to Mitsubishi Electric Corporation stockholders decreased by 11% compared to the previous fiscal year to 226.6 billion yen.

Consolidated Financial Results by Business Segment

Energy and Electric Systems

The social infrastructure systems business remained substantially unchanged in orders compared to the previous fiscal year, while revenue increased compared to the previous fiscal year due primarily to increases in the transportation systems business inside and outside Japan and the power systems business in Japan.

The building systems business remained substantially unchanged in both orders and revenue compared to the previous fiscal year, experiencing a decrease in the new installation of elevators and escalators in China and buoyant growth in the renewal business in Japan and other factors.

As a result, revenue for this segment increased by 3% from the previous fiscal year to 1,296.7 billion yen. Operating profit increased by 17.0 billion yen from the previous fiscal year to 82.5 billion yen due primarily to an increase in revenue.

Industrial Automation Systems

The factory automation systems business saw decreases in both orders and revenue from the previous fiscal year due primarily to a decrease in capital expenditures in the fields of organic light emitting diodes (OLED) and smartphones outside Japan, despite buoyant demand in Japan.

The automotive equipment business saw increases in both orders and revenue from the previous fiscal year due primarily to increases in Japan, Europe and other markets in Asia, as well as increased revenue in electric-vehicle related equipment in response to market growth worldwide.

As a result, revenue for this segment increased by 2% from the previous fiscal year to 1,467.6 billion yen. Operating profit decreased by 44.7 billion yen from the previous fiscal year to 142.5 billion yen due primarily to a shift in product mix, increases in material prices and upfront investment for growth drivers.

Information and Communication Systems

The telecommunications systems business saw decreases in both orders and revenue compared to the previous fiscal year due primarily to decreased demand in communications infrastructure equipment.

The information systems and service business remained substantially unchanged in orders, while revenue increased compared to the previous fiscal year owing to an increase in the system integrations business.

The electronic systems business saw a decrease in orders compared to the previous fiscal year mainly due to a decrease in the space systems business, while revenue experienced a decrease compared to the previous fiscal year due primarily to a decrease in the defense systems business.

As a result, revenue for this segment decreased by 3% from the previous fiscal year to 426.2 billion yen. Operating profit increased by 0.9 billion yen from the previous fiscal year to 12.2 billion yen due primarily to a shift in project portfolios.

Electronic Devices

The electronic devices business saw a decrease in orders and revenue fell by 1% from the previous fiscal year to 199.9 billion yen mainly due to decreased demand for optical communication devices.

Operating profit decreased by 12.7 billion yen from the previous fiscal year to 1.4 billion yen due primarily to a decrease in revenue and a shift in product mix.

Home Appliances

The home appliances business saw a 2% increase in revenue from the previous fiscal year to 1,074.0 billion yen due to increases in revenue of air conditioners for Japan, Europe and North America.

Operating profit increased by 3.9 billion yen compared to the previous fiscal year to 59.4 billion yen due primarily to an increase in revenue.

Others

Revenue increased by 3% compared to the previous fiscal year to 676.7 billion yen mainly due to an increase in revenue at affiliated companies involved in logistics.

Operating profit increased by 0.1 billion yen from the previous fiscal year to 24.1 billion yen due primarily to an increase in revenue.

Fundamental Dividend Distribution Policy and FY2019 Dividend

Fundamental dividend distribution policy

Mitsubishi Electric's fundamental policy is to comprehensively promote improvement in shareholder profit from the viewpoints of appropriate profit distribution commensurate with earnings performance of the respective fiscal year, as well as strengthening our financial standing through the company's internal reserves, with the ultimate goal of enhancing corporate value.

FY 2019 dividend

Considering the company's business performance and financial conditions in fiscal 2019, the company has decided to pay a year-end retained earnings dividend of 26 yen per share for fiscal 2019. Adding the interim dividend of 14 yen per share, the total annual dividend will be 40 yen per share. Payment is planned to begin on June 4, 2019.

The retained earnings dividend for fiscal 2020 is still undecided.

cf. In fiscal 2018, interim dividend was 14 yen and year-end dividend was 26 yen per share. (Annual dividend of 40 yen per share)

Financial Standing

An analysis on the status of assets, liabilities and equity on a consolidated basis

Total assets as of the end of this fiscal year increased from the end of the previous fiscal year by 50.6 billion yen to 4,356.2 billion yen. The change in the balance of total assets was mainly due to increases in the balance of inventories by 82.8 billion yen and in trade receivables and contract assets by 42.3 billion yen, while cash and cash equivalents decreased by 84.9 billion yen.

Total liabilities decreased from the end of the previous fiscal year by 63.3 billion yen to 1,845.0 billion yen. The outstanding balances of bonds and borrowings decreased by 13.5 billion yen from the end of the previous fiscal year to 298.4 billion yen, resulting in a decline in the ratio of bonds and borrowings to total assets to 6.9%, representing a 0.3 point decrease compared to the end of the previous fiscal year. Meanwhile, trade payables decreased by 19.9 billion yen, and other current liabilities decreased by 34.0 billion yen.

Mitsubishi Electric Corporation stockholders' equity increased by 105.7 billion yen compared to the end of the previous fiscal year to 2,399.9 billion yen. The stockholders' equity ratio was recorded at 55.1%, representing a 1.8 point increase compared to the end of the previous fiscal year. The changes referred to above primarily resulted from an increase from recording a net profit attributable to Mitsubishi Electric Corporation stockholders of 226.6 billion yen, despite a decrease due to dividend payment of 85.8 billion yen and a decrease in other comprehensive income of 45.6 billion yen reflecting a fall in stock prices and the stronger yen.

An analysis on the status of cash flow on a consolidated basis 

Cash flows from operating activities for this fiscal year decreased by 25.9 billion yen compared to the previous fiscal year to 239.8 billion yen (cash in) mainly due to a decrease in net profit. Cash flows from investing activities increased by 28.6 billion yen compared to the previous fiscal year to 210.6 billion yen (cash out), due primarily to a decrease in proceeds from sale of investment securities. As a result, free cash flow was 29.1 billion yen (cash in). Cash flows from financing activities were 112.0 billion yen (cash out) mainly due to dividend payments.

Current Forecast for Fiscal 2020

With uncertainty in the global economy due to factors such as U.S. trade policies and influences from Brexit, the global economy is expected to experience a slowdown in growth due to the U.S.-China trade friction making impact on exports and investments in various countries and regions, despite a gradual recovery trend in global business conditions.

Under these circumstances, the Mitsubishi Electric Group aims to achieve its management targets by uplifting its business performance and financial standings through initiatives such as promoting more strongly its global operations centered around its growth-driving businesses, continuously increasing and strengthening profitability in each business and continuously implementing various Group-wide business improvement measures.

The current financial performance forecast for fiscal 2020 follows below.

Current consolidated forecast for fiscal 2020

Exchange rates for this forecast is 105 yen to the US dollar, 125 yen to the euro and 16.0 yen to the Chinese yuan.

Policy Regarding Financial Reporting Standards

Mitsubishi Electric has voluntarily adopted International Financial Reporting Standards (IFRS) for its consolidated financial statements from the first quarter of the fiscal year ended March 31, 2019, in order to enhance international comparability of its financial information in the capital markets.

Consolidated Financial Results Summary

 (In billions of yen except where noted)

Notes:

1) Consolidated financial charts made in accordance with International Financial Reporting Standards (IFRS).

2) The company has 206 consolidated subsidiaries.

Consolidated Financial Statements

Consolidated Statements of Profit or Loss and Consolidated Statements of Comprehensive Income (Fiscal 2019)

(Consolidated Statements of Profit or Loss)

 (In millions of yen)

(Consolidated Statements of Comprehensive Income)

 (In millions of yen)

Consolidated Statements of Financial Position

(In millions of yen)

Consolidated Statements of Changes in Equity

FY '18 (Apr. 1, 2017 - Mar. 31, 2018)

(In millions of yen)

FY '19 (Apr. 1, 2018 - Mar. 31, 2019)

(In millions of yen)

Consolidated Statements of Cash Flows

(In millions of yen)

Consolidated Segment Information (Fiscal 2019)

1. Revenue and Operating Profit by Business Segment

(In millions of yen)

*Notes: Inter-segment revenue are included in the above chart.

2. Revenue by Location of Customers

(In millions of yen)

Notes to the Consolidated Financial Statements

(Matters regarding the scope of consolidation and application of the equity method: changes against the previous fiscal year end)

Number of subsidiaries: 206 (Added: 5; Excluded: 4)

Number of equity method associates: 37 (Added: 1; Excluded: 0)

(Per share information)

(Notes regarding the going concern assumption)

Not applicable

(Significant subsequent events)

Not applicable

Condensed Quarterly Consolidated Financial Statements

Condensed Quarterly Consolidated Statements of Profit or Loss and Condensed Quarterly Consolidated Statements of Comprehensive Income (Fourth Quarter, Fiscal 2019)

(Condensed Quarterly Consolidated Statements of Profit or Loss)

 (In millions of yen)

(Condensed Quarterly Consolidated Statements of Comprehensive Income)

 (In millions of yen)

Disclosures of Transition to IFRS

The Mitsubishi Electric Group has applied IFRS beginning with the consolidated financial statements for the first quarter of the current fiscal year. The most recent consolidated financial statements prepared in accordance with U.S. GAAP are for the year ended March 31, 2018. The date of transition to IFRS was April 1, 2017.

(1) Exemptions and exceptions in IFRS 1

IFRS 1 requires entities adopting IFRS for the first time to retrospectively apply IFRS in principle; however, with regard to certain items, it allows exemption from, or prohibits, retrospective application of IFRS.

The company and its consolidated subsidiaries use the following exemptions on retrospective application permitted by IFRS 1:

- Business combinations

The company and its consolidated subsidiaries elected not to apply IFRS 3 Business Combinations retrospectively to past business combinations that occurred on or before December 22, 2015. Consequently, the amount of goodwill that arose from business combinations that occurred on or before December 22, 2015 is recorded at the carrying amount in accordance with U.S. GAAP. Goodwill was tested for impairment at the transition date irrespective of whether there was any indication of impairment.

- Exchange differences on translating foreign operations

The company and its consolidated subsidiaries elected to deem the cumulative translation differences for foreign operations at the transition date to be zero. Consequently, the cumulative translation differences for foreign operations at the transition date were reclassified from accumulated other comprehensive income (loss) to retained earnings.

- Designation of financial instruments recognized before the date of transition to IFRS

The company and its consolidated subsidiaries elected to designate the classification of financial instruments on the basis of the facts and circumstances that existed at the date of transition to IFRS.

(2) Reconciliations

Reconciliations for which disclosures are required on first time adoption of IFRS are as follows:

Items that do not affect retained earnings and comprehensive income are presented in "Reclassification," and items that affect retained earnings and comprehensive income are presented in "Recognition and measurement differences."

Reconciliation of Equity as at the Date of Transition to IFRS (April 1, 2017)

(Consolidated Statements of Financial Position) (In millions of yen)

(In millions of yen)

Reconciliation of Equity as at the End of the Previous Fiscal Year (March 31, 2018)

(Consolidated Statements of Financial Position) (In millions of yen)

(In millions of yen)

Notes to reconciliation of equity

The principal effects of transition to IFRS in the reconciliation of equity above are as follows:

(1) Reclassification

The main elements of reclassification are as follows:

(a) In accordance with the presentation provisions under IFRS, other financial assets are presented separately.

(b) Part of trade receivables, prepaid expenses and other current assets and other assets are reclassified based on the definition and recognition criteria of IFRS.

(c) Part of trade payables, other current liabilities and other fixed liabilities are reclassified based on the definition and recognition criteria of IFRS.

(2) Recognition and measurement differences

The main elements of recognition and measurement differences are as follows:

(a) Employee benefits

Under U.S. GAAP, actuarial gains and losses and past service costs are deferred in accumulated other comprehensive income (loss), subsequently amortized for a specified future period and recognized in profit or loss. Current service costs, interest costs and expected return on plan assets are recognized in profit or loss for the consolidated fiscal year.

Under IFRS, defined benefit obligations and plan assets relating to defined benefit corporate pension plans and lump-sum payment plans are remeasured in accordance with IFRS requirements. Changes resulting from remeasurement are recognized in accumulated other comprehensive income (loss), and reclassified directly from accumulated other comprehensive income (loss) to retained earnings, not through profit or loss. Past service costs arising from plan amendments are fully recognized immediately in profit or loss. Current service costs are recognized in profit or loss. Interest costs are recognized in profit or loss at the amount determined by multiplying the net amount of the defined benefit obligation and plan assets by the discount rate used to determine the present value of the obligation.

(b) Equity instruments

Under U.S. GAAP, non-marketable equity instruments are recognized at their cost. If fair value of financial assets has decreased and the decrease is considered not to be temporary, impairment loss is recognized for the amount of the cost of the financial assets in excess of fair value. Gains or losses on the sale of these financial assets are recognized in profit or loss.

Under IFRS, all equity instruments are recognized at fair value irrespective of whether there is an active market. Since it is permitted to recognize changes in fair value in other comprehensive income (loss), the company and its consolidated subsidiaries have elected to recognize changes in fair value of equity instruments in other comprehensive income (loss). Accordingly, impairment losses and gains or losses on the sale of equity instruments recognized in profit or loss under U.S. GAAP are recognized in other comprehensive income as well.

(c) Income taxes

Under U.S. GAAP, tax expenses incurred by sellers are deferred using the deferred method for differences arising from unrealized profits and losses from intercompany transactions.

Under IFRS, a difference between the carrying amount and the sale price of an asset sold is recognized as a future deductible temporary difference based on the asset and liability method. A deferred tax asset is recognized for the future deductible temporary difference using purchaser's effective tax rate while taking its recoverability into consideration.

Under U.S. GAAP, deferred tax liabilities for temporary differences associated with investments in equity method investees are recognized using tax rates applicable on the premise that the temporary difference will be reversed at the time of sale of the equity method investees even if a company intends to continue to hold the investments. In principle, deferred tax liabilities are recognized for the undistributed earnings of subsidiaries.

Under IFRS, deferred tax liabilities are in principle recognized for all the taxable temporary differences using tax rates applied when the taxable temporary differences reverse, such as when receiving dividends or selling the investments. Deferred tax liabilities are recognized for the taxable temporary differences associated with investments in subsidiaries etc. which are probable to reverse in the foreseeable future.

(d) Exchange differences on translating foreign operations

Cumulative exchange differences on translating foreign operations are all deemed to be zero at the date of transition to IFRS. Consequently, exchange differences on translating foreign operations included in accumulated other comprehensive income as at the transition date were fully reclassified to retained earnings.

(e) Exclusion of equity method investees

Under U.S. GAAP, when an investee no longer qualifies as an equity method investee, the difference between the sale price and the carrying amount of the interest sold is recognized in profit or loss. If an investor retains a residual interest, gains or losses recognized in prior periods remain included in the carrying amount of the residual interest.

Under IFRS, when an investee no longer qualifies as an equity method investee, any residual interest is measured at fair value. The difference between the sum of the sales price and the fair value of the residual interest and the carrying amount of the interest at the point when an investee no longer qualifies as an equity method investee is recognized in profit or loss.

(f) Government grants

Under U.S. GAAP, government grants related to acquisition of assets are not reflected in the carrying amounts of assets because there are no accounting standards for such government grants.

Under IFRS, government grants related to assets are recognized as deducting the carrying amount of the asset by the government grants received.

(g) Impairment of non-financial assets

Under U.S. GAAP, if there is an indication that a non-current asset may be impaired, the carrying amount and the undiscounted estimated future cash flows of the asset is compared. If the carrying amount exceeds the estimated future cash flows, any excess of the carrying amount over the fair value is recognized as an impairment loss.

Under IFRS, if there is an indication that a non-current asset may be impaired, any excess of the carrying amount over the recoverable amount of the non-current asset (the higher of value in use or fair value less costs of disposal) is recognized as an impairment loss of the non-current asset.

(h) Business combinations

Under U.S. GAAP, in business combinations, the acquirer measures the acquiree as a whole (including non-controlling interests) at fair value and goodwill is recognized including the portion of goodwill attributable to the non-controlling interests.

Under IFRS, in business combinations, it is permitted to elect to apply either of two methods: the acquirer measures the acquiree as a whole (including non-controlling interests) at fair value and goodwill is recognized including the portion of goodwill attributable to the non-controlling interests; or non-controlling interests are measured as a proportional interest in the fair value of the acquiree's net identifiable assets and goodwill is recognized only for the acquirer's share. The company elected the method of measuring non-controlling interest as a proportional interest in the fair value of the acquiree's net identifiable assets and recognizing goodwill only for the acquirer's share. Capital surplus is recognized when non-controlling interests are additionally acquired after the date when control was obtained.

Reconciliation of Profit or Loss and Comprehensive Income for the Previous Fiscal Year (from April 1, 2017 to March 31, 2018)

(Consolidated Statements of Profit or Loss) (In millions of yen)

(Consolidated Statements of Comprehensive Income) (In millions of yen)

Notes to Reconciliation of Profit or Loss and Comprehensive Income

The principal effects of transition to IFRS in the reconciliation of profit or loss and comprehensive income above are as follows:

(1) Reclassification

The main elements of reclassification are as follows:

(a) In accordance with the presentation provisions under IFRS, financial income and financial expenses are presented separately.

(b) In accordance with the presentation provisions under IFRS, part of other income and other expenses, etc. is included and presented in operating profit.

(c) Unrealized gains (losses) on securities, pension liability adjustments, foreign currency translation adjustments and unrealized gains (losses) on derivative instruments in other comprehensive income that are attributable to equity investees are reclassified in accordance with the presentation provisions under IFRS.

(2) Recognition and measurement differences

The main elements of recognition and measurement differences are as follows:

(a) Reconciliation of revenue and cost of sales

Under U.S. GAAP, if progress of construction contracts cannot be reliably estimated, all construction costs and construction revenue are recognized when the construction is complete.

Under IFRS, revenue from a performance obligation satisfied over time is only recognized for costs incurred to the extent that it is probable that the cost will be recovered and costs are recognized as expenses in the period in which they are incurred if the progress cannot be reliably estimated.

(b) Equity instruments

Non-marketable equity instruments are recognized at their cost under U.S. GAAP. If fair value of financial assets has decreased and the decrease is considered not to be temporary, impairment loss is recognized for the amount of the cost of the financial assets in excess of fair value. Gains or losses on the sale of these financial assets are recognized in profit or loss.

Under IFRS, on the other hand, equity instruments are recognized at fair value irrespective of whether there is an active market. Because it is permitted to recognize changes in fair value in other comprehensive income, the company and its consolidated subsidiaries have elected to recognize changes in fair value of equity instruments in other comprehensive income. Accordingly, impairment losses and gains or losses on the sale of equity instruments recognized in profit or loss under U.S. GAAP are recognized in other comprehensive income as well.

Notes to Reconciliation of Cash Flows

There are no significant differences in the statement of cash flows resulting from transition from U.S. GAAP to IFRS.

Cautionary Statement

The Mitsubishi Electric Group (hereafter "the Group") is involved in development, manufacture and sales in a wide range of fields including Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices and Home Appliances, and these operations extend globally, not only inside Japan, but also in North America, Europe, Asia and other regions. While the statements herein are based on certain assumptions and premises that the Group trusts and considers to be reasonable under the circumstances on the date of announcement, actual financial standings and operating results are subject to change due to any of the factors as contemplated hereunder and/or any additional factor unforeseeable as of the date of this announcement. Such factors materially affecting the expectations expressed herein shall include but are not limited to the following:

(1) Important trends

The Group's operations may be affected by trends in the global economy, social conditions, laws, tax codes and regulations.

(2) Foreign currency exchange rates

Fluctuations in foreign currency markets may affect the Group's sales of exported products and purchases of imported materials that are denominated in U.S. dollars or euros, as well as its Asian production bases' sales of exported products and purchases of imported materials that are denominated in foreign currencies.

(3) Stock markets

A fall in stock market prices may cause a decline in value of the Group's marketable securities and pension assets.

(4) Supply/demand balance for products and procurement conditions for materials and components

A decline in prices and shipments due to changes in the supply/demand balance, as well as an increase in material prices due to a worsening of material and component procurement conditions, may adversely affect the Group's performance.

(5) Fund raising

An increase in interest rates, the yen interest rate in particular, would increase the Group's interest expenses.

(6) Significant patent matters

Important patent filings, licensing, copyrights and patent-related disputes may adversely affect related businesses.

(7) Environmental legislation or relevant issues

The Group may incur losses or expenses owing to changes in environmental legislation or the occurrence of environmental issues. Such changes in legislation or the occurrence of environmental issues may also impact manufacturing and all corporate activities of the Group.

(8) Flaws or defects in products or services

The Group may incur losses or expenses resulting out of flaws or defects in products or services, and the lowered reputation of the quality of all its products and services may affect the entire Group.

(9) Litigation and other legal proceedings

The Group's operations may be affected by lawsuits or other legal proceedings against Mitsubishi Electric, its subsidiaries and/or equity method associates.

(10) Disruptive changes

Disruptive changes in technology, development of products using new technology, timing of production and market introduction may adversely affect the Group's performance.

(11) Business restructuring

The Group may record losses due to restructuring measures.

(12) Information security

The performance of the Group may be affected by computer virus infections, unauthorized access and other unpredictable incidents that lead to the loss or leakage of personal information held by the Group or confidential information regarding the Group's business such as its technology, sales and other operations.

(13) Natural disasters

The Group's operations, particularly manufacturing activities, may be affected by the occurrence of earthquakes, typhoons, tsunami, fires and other large-scale disasters.

(14) Other significant factors

The Group's operations may be affected by the outbreak of social or political upheaval due to terrorism, war, pandemic by new strains of influenza and other diseases, or other factors.

 http://www.rns-pdf.londonstockexchange.com/rns/2117X_1-2019-4-26.pdf

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About Mitsubishi Electric Corporation

With nearly 100 years of experience in providing reliable, high-quality products, Mitsubishi Electric Corporation (TOKYO: 6503) is a recognized world leader in the manufacture, marketing and sales of electrical and electronic equipment used in information processing and communications, space development and satellite communications, consumer electronics, industrial technology, energy, transportation and building equipment. Embracing the spirit of its corporate statement, Changes for the Better, and its environmental statement, Eco Changes, Mitsubishi Electric endeavors to be a global, leading green company, enriching society with technology. The company recorded a revenue of 4,519.9 billion yen (US$ 40.7 billion*) in the fiscal year ended March 31, 2019. For more information visit:

www.MitsubishiElectric.com

*At an exchange rate of 111 yen to the US dollar, the rate given by the Tokyo Foreign Exchange Market on March 31, 2019