January 31, 2008

First quarter fiscal 2008: Sales and earnings rise again significantly year on year

  • Reporting according to IFRS for the first time
  • Sales: EUR 367 million; up 10 percent year on year; down 2 percent sequentially
  • EBIT: plus EUR 28 million (Q1 2007: plus EUR 21 million; Q4 2007: plus EUR 11 million)

1. Conversion of accounting to IFRS

With the beginning of fiscal 2008 (October 1, 2007, to September 30, 2008), EPCOS has converted its financial reporting to comply with International Financial Reporting Standards (IFRS).

IFRS accounting has thus replaced US GAAP accounting at EPCOS. The transition to IFRS affects both reported earnings and balance sheet figures. EPCOS published detailed information in a press release dated January 23, 2008. Further information about the conversion to IFRS is also posted at www.epcos.com/ir. In this press release, which covers the first quarter of fiscal 2008 (October 1 to December 31, 2007), the figures for fiscal 2007 are presented in accordance with IFRS to ensure comparable data.

2. Q1 fiscal 2008

The good demand experienced in preceding quarters continued in the first quarter of fiscal 2008. Double-digit sales growth was recorded year on year. The slight sequential decline in sales was due to a very large extent to the still weaker US dollar.


Earnings before interest and tax (EBIT) were up significantly both year on year and sequentially.

3. Sales

3.1. Comparison with Q4 2007

EUR millionQ4 2007± in %Q1 2008
Sales376–2367

After a strong previous quarter, sales dropped 2 percent to EUR 367 million in Q1 2008.

Due to seasonal influences, sales of products to industrial and automotive electronics customers and to distributors were somewhat lower than in Q4 of fiscal 2007. Slightly higher sales of products to the telecommunications industry were not enough to fully offset this decline. Sales of components for consumer electronics applications remained more or less stable.

Regionally, sales declined in Germany. By contrast, sales remained constant at the previous quarter’s levels in other European countries, Asia and the NAFTA region.

Sales by business segment

EUR millionQ4 2007± in %Q1 2008
Capacitors and Inductors137–2134
Ceramic Components136–4130
SAW Components1030103

In the Capacitors and Inductors segment, sales of aluminum electrolytic capacitors and inductors remained stable. Sales of film capacitors and ferrite cores declined, primarily because of weaker demand from industrial electronics customers and distributors.

In the Ceramic Components segment, the sequential drop in sales was attributable to weaker seasonal business with products for the automotive electronics industry, which account for more than half of this segment’s sales. Although sales of sensors and sensor systems rose, the increase was not enough to completely offset the decline in the sales of piezo actuators and multilayer ceramic components, among others.

Sales in the Surface Acoustic Wave (SAW) Components segment remained unchanged despite negative effects from exchange rates and above-average price erosion. The trend in demand for RF modules for mobile phones and wireless LAN applications was especially positive, as was demand for modules for automotive electronics applications. Sales of SAW filter products for UMTS mobile phones were likewise up sequentially. This sales growth was sufficient to make up for lower sales of filters to the entertainment electronics industry.

3.2. Comparison with Q1 2007

EUR millionQ1 2007± in %Q1 2008
Sales334+10367

Year on year, sales rose by 10 percent in Q1 2008.

Almost all industries served contributed to this increase. The sales growth of more than 20 percent for products for automotive electronics is particularly remarkable. Sales to distributors increased by more than 10 percent. Single-digit sales growth was realized for products for telecommunications and industrial electronics applications. Sales of components for consumer electronics applications remained stable overall.

Sales were up in all regions. Because of greatly increased demand from the automotive electronics industry, growth was strongest in Germany, at around 15 percent. Growth of around 10 percent was recorded in other European countries and in the NAFTA region. In Asia, negative exchange rate effects could be offset only to a limited degree. As a result, sales in this region were only slightly up on the figure for the previous year.

Sales by business segment

EUR millionQ1 2007± in %Q1 2008
Capacitors and Inductors121+10134
Ceramic Components111+17130
SAW Components102+1103

Sales in all business segments rose year on year in Q1 2008.

At 17 percent, growth was strongest at Ceramic Components. All product groups contributed to the increase in sales to EUR 130 million. Double-digit sales growth was recorded for piezo actuators and for sensors and sensor systems for applications in the automotive industry. Surge arresters, which are used mainly to protect telecom equipment against overvoltage, also achieved double-digit sales growth.

Sales at Capacitors and Inductors grew by 10 percent to EUR 134 million. All product groups contributed to this growth, which was strongest for aluminum electrolytic and film capacitors for industrial electronics applications and for inductors for automotive electronics applications.

In the SAW Components segment, sales increased slightly by 1 percent to EUR 103 million. Adjusted for exchange rate effects, growth would in fact have been close to 10 percent. Business with RF modules for mobile phones was the mainstay of sales growth in the period under review. Sales of SAW filters for multimedia applications declined, partly because flat-screen TVs are increasing their market share. As a rule, these TVs use smaller and lower-cost multimedia filters than their conventional cathode-ray tube counterparts.

4. Earnings

4.1. EBIT by business segment

EUR millionQ1 2007Q4 2007Q1 2008
Capacitors and Inductors+3.7–5.0+9.9
Ceramic Components+0.6+5.0+7.2
SAW Components+16.6+11.3+11.3

The Capacitors and Inductors segment posted earnings before interest and tax (EBIT) of plus EUR 9.9 million in Q1 2008. This figure includes extraordinary proceeds of EUR 2 million related to the sales contract of the Málaga site in Spain.

When comparing EBIT for Q1 2008 with EBIT for the previous quarter, one should remember that the figures in the IFRS accounts for Q4 2007 included restructuring costs totaling EUR 17 million, mostly relating to headcount adjustments already announced for the Málaga site. Proceeds of EUR 5 million from the sale of the Heidenheim site in Germany offset part of this burden. Adjusted for these extraordinary effects, EBIT for Q4 2007 stood at about plus EUR 7 million under IFRS.

Sequentially, operating EBIT therefore improved by about EUR 1 million in Q1 2008 in spite of a slight decline in sales.

At Ceramic Components, EBIT improved to EUR 7.2 million. This development reflects both a further gain in production yields and positive effects from the segment’s withdrawal from in-house production of ceramic capacitors.

The SAW Components segment posted EBIT of EUR 11.3 million and, thus, a double-digit EBIT margin. This achievement was all the more remarkable given that the segment was once again forced to cope with above-average price erosion as a result of the strong euro. This factor was also largely responsible for the year-on-year decline in EBIT.

4.2. Group earnings

EUR millionQ1 2007Q4 2007Q1 2008
EBIT+20.9+11.3*+ 28.4
Net income+5.9+6.7+ 19.0
Earnings per share (in EUR)+0.09+0.10+0.29

* Including restructuring expenses of about EUR 17 million

Group EBIT was about EUR 28 million in Q1 2008, an improvement both year on year and sequentially. It should be noted that EBIT for the Capacitors and Inductors segment included one-time effects (see section 4.1).

Net income was EUR 19 million. Earnings per share were EUR 0.29.

Net cash flow was slightly negative at minus EUR 2 million in the quarter under review.

Both net income and depreciation had a positive impact on net cash of EUR 24 million provided by operating activities. On the other hand, the build-up of inventories drove an increase in net current assets.

Net cash of EUR 26 million was used in investing activities.

This figure includes investments to increase capacity especially at the SAW Components segment. It also includes payments made to Xindeco relating to the expansion of our Chinese joint venture, EPCOS Xiamen. In addition to its minority interest in Becromal Norway, EPCOS has extended its interest to include the parent company, which is headquartered in Milan, Italy. The move reinforces our cooperation with this important supplier for aluminum electrolytic capacitors. Above-average investments in Q1 2008 were offset to some extent by the proceeds from the sale of the Heidenheim site in Germany.

5. Outlook

In Q2 2008, EPCOS expects sequential sales to remain stable on the whole. In particular, however, sales of products for mobile communication devices and consumer electronics applications will likely decline somewhat due to seasonal influences. However, it is expected that this reduction will be compensated by stronger sales primarily to manufacturers of automotive and industrial electronics and to distributors. EPCOS expects EBIT to reach the same operating level as in the quarter just ended.


Although macroeconomic conditions have deteriorated somewhat in recent months, EPCOS expects sales growth for fiscal 2008 in the mid single-digit range. We also expect the EBIT figure under IFRS to improve to about EUR 110 million.

About EPCOS


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 virtually every electrical and electronic product and are indispensable for their flawless operation. Products from EPCOS store electrical energy, select frequencies, and protect against overvoltage and overcurrent.


In fiscal 2007 (October 1, 2006, to September 30, 2007), EPCOS posted sales of EUR 1.44 billion. At the end of the fiscal year, the company employed about 18,300 people worldwide.

N.B. All financial data has been compiled to IFRS and is not audited.

 

Live transmission of conference call

On January 31, 2008, the Management Board of EPCOS will inform analysts and investors of business performance in the first quarter of fiscal 2008 at a conference call starting at 12 noon, Central European Time, 6 a.m., US Eastern Standard Time. This conference can be followed live at the EPCOS corporate website (www.epcos.com/conferencecall). A transcript of the speeches will be available for downloading after the end of the conference call.

 

Further dates

 

The Annual General Meeting will be held on February 13, 2008, at the International Congress Center in Munich. Results for the second quarter of fiscal 2008 will be published on May 5, 2008.

 

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.