May 20, 2009
Annual General Meeting 2009
Report on fiscal 2008
- Sales up: plus 3 percent
- Improvement in EBIT: plus 22 percent
- Combination of EPCOS with TDK’s electronic components business successfully driven forward
Report on first half of fiscal 2009
- Economic crisis a heavy burden: Sales down 25 percent year on year;
net loss of EUR 81 million
- Continual adjustment of resource planning and input factors
- Combination with TDK’s components business proceeding according to plan
- Dividend of EUR 0.30
- Domination agreement between TDK and EPCOS
- Transfer of minority interest shares in EPCOS to TDK
Successful overall performance
In fiscal 2008 (October 1, 2007, through September 30, 2008), EPCOS maintained the pattern of growth experienced since 2006. Sales increased and earnings improved again.
“Although an increasingly adverse economic climate made it more and more difficult for us to hit our sales and earnings targets, we still reached the goals we had set ourselves in 2008,” President and Chief Executive Officer Gerhard Pegam told today’s Annual General Meeting in Munich. “We were also able to successfully drive forward the combination of EPCOS with TDK’s electronic components business.”
Sales were up 3 percent to about EUR 1.48 billion (previous year: EUR 1.44 billion). EBIT rose 22 percent to plus EUR 105 million (previous year: plus EUR 86 million). The EBIT margin improved by one percentage point to 7 percent. Net income increased by 25 percent to EUR 64 million (previous year: EUR 51 million). Earnings per share were up 27 percent to EUR 0.99 (previous year: EUR 0.78).
Net cash flow improved by 39 percent to plus EUR 43 million (previous year: EUR 31 million).
First half of fiscal 2009
Economic crisis a heavy burden
EPCOS felt the full force of the global economic crisis in the first half of fiscal 2009 (October 1, 2008, through March 31, 2009).
All the major industries served by EPCOS suffered from weak demand and as a result significantly cut back production. Worst affected was the automotive electronics industry, which accounted for about 27 percent of EPCOS’ total sales in 2008. Customers in the information and communication technology, consumer electronics and – after a short time-lag – industrial electronics industries likewise scaled back production, substantially in some cases.
Customers’ sales problems triggered a huge decline in demand for electronic components. As a result, EPCOS’ sales dropped 25 percent to EUR 546 million in the period under review (previous year: EUR 729 million). We also posted a net income of minus EUR 81 million (previous year: net income of plus EUR 36 million).
Continual adjustment of resource planning and input factors
In all the industries we serve there is still no sign of an end to the recession, which is affecting EPCOS primarily in Germany – and here especially in the automotive and industrial electronics industries. At the present time, it is therefore not possible to forecast when demand will return to normal levels. It is assumed that, by now, many customers have reduced their inventories of components to a minimum. This, at least, could lead to a moderate improvement in EPCOS’ sales in the second half of fiscal 2009.
EPCOS has therefore prepared itself for an extremely difficult year. EPCOS is constantly reviewing our resource planning and adjusting input factors to changing conditions whenever and wherever this is possible. One change EPCOS has made is that, from a present perspective, it will invest only about EUR 110 million in property, plant and equipment in fiscal 2009 – considerably less than in the previous year (EUR 155 million). About EUR 75 million has been set aside for research and development, slightly less than in the previous year (EUR 81 million). In the first half of fiscal 2009, it was also unavoidable to reduce the number of people who work for EPCOS worldwide by about 6,100 to 22,200. Temporary staff and subcontractors comprised about 60 percent of this reduction, while EPCOS’ own employees accounted for the remaining 40 percent.
Combination with TDK’s components business proceeding according to plan
TDK and EPCOS are on schedule and making good progress as they move toward a joint future within the framework of a new company yet to be founded. Working groups comprising representatives of both companies are being guided by a steering committee with equal representation. These working groups are driving the integration process forward and have already achieved positive results.
Going forward, the time frame remains unchanged. Not least in view of the difficult economic climate, both companies are doing everything in their power to maintain the pace of the combination effort. Everyone involved remains convinced that TDK’s Annual General Meeting in June 2009 will approve the carve-out of the relevant components business from the TDK Group. The founding of the new company, which will then also hold TDK’s stake in EPCOS, is to take place on October 1, 2009.
The combination of EPCOS with TDK’s electronic components business will create a global leading manufacturer of electronic components, modules and systems with a strong competitive position in all key markets. The outlook for the new company is very promising indeed as the components business activities of TDK and EPCOS complement each other very well, both in terms of technologies and products and with regard to sales market and customer coverage. EPCOS thus has every chance of enlarging the foundation for our future growth and tapping new business opportunities together.
Agenda for the Annual General Meeting/ excerpts
Dividend of EUR 0.30
EPCOS wants its shareholders to participate in the company’s positive business development in fiscal 2008. The company will therefore propose to the Annual General Meeting that a dividend of EUR 0.30 be paid out on all dividend-bearing shares. EPCOS paid dividends of EUR 0.20 per share in 2006 and EUR 0.30 per share in 2007. The proposed dividend amount adds up to a total payout of EUR 19.9 million for the past fiscal year. Remaining net income of EUR 69.7 million (out of EPCOS AG’s total net income of EUR 89.6 million) will be carried forward to the current fiscal year.
Domination agreement between TDK and EPCOS
TDK Germany GmbH and EPCOS AG signed a domination agreement on March 24, 2009. The Annual General Meeting will be asked to approve this agreement, which presents crucial benefits regarding the ongoing combination of EPCOS with TDK’s electronic components business. It would, for example, simplify and accelerate the process of adapting and optimizing Group structures.
The domination agreement would enable TDK to issue business management directives to the Management Board of EPCOS. In return, TDK would carry any possible losses incurred by EPCOS AG, although the latter would not be obliged to transfer its profits to TDK.
The interests of minority shareholders in EPCOS AG will be protected by granting these shareholders an option in their own favor. Minority interests will be able either to receive a guaranteed adequate annual dividend of EUR 1.09 per share or to transfer their shares to TDK in return for a cash compensation of EUR 18.14 per share.
Transfer of minority interests from EPCOS to TDK
Currently TDK, our major shareholder, holds nearly 96 percent of EPCOS’ shares. Within the framework of a transfer of these minority interests (squeeze-out), TDK also aims to acquire all remaining minority interest shares. The Annual General Meeting will be asked to approve the squeeze-out.
Following the squeeze-out, EPCOS will, above all, save the cost and effort involved in holding public General Meetings and for its status as a listed company. Given that approximately 4 percent of EPCOS AG’s share capital is now held in free float, these costs would otherwise be inordinately high.
As in the case of the domination agreement, shares would be transferred in return for a cash compensation of EUR 18.14 per share.
Confirmation that guaranteed dividend and cash compensation are adequate
Expert appraisals prepared by two respected auditors, Pricewaterhouse Coopers and Warth & Klein, have confirmed that both the guaranteed dividend and the cash compensation are adequate. The Munich Civic Court appointed Warth & Klein as an independent auditor with relevant expertise.
EPCOS AG is a leading manufacturer of electronic components, modules and systems headquartered in Munich. With its broad portfolio EPCOS offers a comprehensive range of products from a single source and focuses on fast-growing and technologically demanding markets, in particular in the areas of information and communication technology, automotive electronics, industrial electronics and consumer electronics. The EPCOS Group has design and manufacturing locations and sales offices in Europe, Asia, and in North and South America.
Electronic components are found in every electrical and electronic product and are indispensable for their flawless operation. Products from EPCOS store electrical energy, filter frequencies, and protect against overvoltage and overcurrent.
In fiscal 2008 (October 1, 2007, to September 30, 2008), EPCOS posted sales of EUR 1.48 billion. At the end of the fiscal year, the company employed about 21,200 people worldwide.
N. B. All financial data has been compiled to IFRS.
This document may contain forward-looking statements with respect to EPCOS’ financial condition, results of operations, business, strategy and plans. In particular, statements using the words “expects”, “anticipates” and similar expressions, and statements with regard to management goals and objectives, expected or targeted revenue and expense data, or trends in results of operations or margins are forward looking in nature. Such statements are based on a number of assumptions that could ultimately prove inaccurate, and are subject to a number of risk factors, including changes in our customers’ industries, slower growth in significant markets, changes in our relationships with our principal shareholders, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, currency fluctuations, unforeseen environmental obligations, and general economic and business conditions. EPCOS does not assume any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.