February 6, 2009

Q1 2009: Drop in demand causes decline in sales and earnings

  • Sales: EUR 282 million; down 23 percent year on year; down 26 percent sequentially
  • EBIT: minus EUR 19 million (Q1 2008: plus EUR 28 million; Q4 2008: plus EUR 23 million)
  • Ongoing adjustment of resource planning and input factors

1. Q1 fiscal 2009


With the global economy experiencing a profound crisis, business development at EPCOS deteriorated increasingly in the first quarter of fiscal 2009 (October 1 to December 31, 2008). EPCOS’ customers reduced their production not only in response to weak demand, but also to run down inventories. Orders placed with EPCOS were thus delayed and canceled on a large scale.

As a result, sales declined to EUR 282 million, a double-digit percentage drop both year on year and sequentially. All industries served were affected. Mainly due to the significantly lower business volume, earnings before interest and tax (EBIT) fell to minus EUR 19 million.

2. Sales


2.1. Comparison with Q4 2008

EUR millionQ4 2008±Q1 2009
Sales382–26%282

Business development at EPCOS was hardest hit by the drop in sales in the automotive industry in Q1 2009.

Compared to the previous quarter, sales of products for automotive electronics applications dropped by about 45 percent. Sales to distributors were down by more than 30 percent, while sales both to manufacturers in the information and telecommunications industry and to the consumer electronics segment fell by about 20 percent. The fallout from the global economic crisis has now also hit EPCOS’ business with products for industrial electronics, for which sales were down 15 percent sequentially.

Regionally, the decline in demand was most pronounced in Germany, where sales fell by nearly 40 percent sequentially. Sales in other European countries were down 30 percent. In both Asia and the NAFTA region, sales declined by around 10 percent.

Sales by business segments

EUR millionQ4 2008±Q1 2009
Capacitors and Inductors156–15%132
Ceramic Components119–42%69
SAW Components107–25%81

In Q1 2009, all of EPCOS’ business segments experienced a double-digit sequential drop in sales.


Sales at Capacitors and Inductors were down 15 percent to EUR 132 million. At SAW Components, sales fell by 25 percent to EUR 81 million. The sharpest decline was at Ceramic Components, where sales fell 42 percent to EUR 69 million. The drop in this segment exceeded that of the other segments because it has the highest proportion of sales of products for the automotive electronics industry.

2.2. Comparison with Q1 2008

EUR millionQ1 2008±Q1 2009
Sales367–23%282

Sales to all industries served were also down year on year in Q1 2009. The steepest decline – more than 50 percent – was recorded in business with automotive electronics manufacturers. Sales to consumer electronics customers fell by about 20 percent, as did sales to distributors. Sales of information and communication technology products dropped by 15 percent. Business with components for industrial electronics applications remained comparatively stable, declining by 3 percent.

In the quarter under review, EPCOS’ year-on-year sales development varied from region to region. Sales fell by 40 percent in Germany and by nearly 30 percent in the rest o Europe. A single-digit drop in sales was recorded in the NAFTA region. By contrast, sales in Asia remained on a par with those of the same quarter a year ago; in this region EPCOS profited from the weakening of the euro against the US dollar.

Sales by business segment

EUR millionQ1 2008±Q1 2009
Capacitors and Inductors134

–1

%

132
Ceramic Components130–47%69
SAW Components103–21%81

Sales at the Capacitors and Inductors segment remained almost stable year on year, slipping by just 1 percent in the period under review. This is due to the fact that in the Capacitors and Inductors segment the share of sales is highest with industrial electronics customers.

Ceramic Components saw its sales fall by 47 percent, the sharpest decline of all three business segments. The downturn in the automotive industry was largely responsible for this drop.


In the SAW Components segment, sales were down 21 percent on the same period a year ago. All product groups in this segment were affected by weak demand.

3. Earnings


3.1. EBIT by business segment

EUR millionQ1 2008Q4 2008Q1 2009
Capacitors and Inductors+9.9+11.9+1.6
Ceramic Components+7.2+10.7–11.4
SAW Components+11.3+6.9–9.4

Earnings in all segments reflected the impact of the sharp decline in sales.

EBIT at Capacitors and Inductors fell to plus EUR 1.6 million in Q1 2009.

At Ceramic Components, EBIT was minus EUR 11.4 million.

At SAW Components, EBIT was minus EUR 9.4 million. Besides the lower sales volume, a less favorable product mix and restructuring expenses of around EUR 2 million contributed to the negative result.

3.2. Group earnings

EUR millionQ1 2008Q4 2008Q1 2009
EBIT+28.4+23.1–19.2
Net income+19.0+8.8–29.8
Earnings per share (in EUR, undiluted)+0.29+0.14–0.44

In Q1 2009, Group EBIT was negative at minus EUR 19.2 million.


Net income was minus EUR 29.8 million. Earnings per share were minus EUR 0.44.


Net cash flow was minus EUR 61 million. Net cash used in operating activities came to

EUR 36 million. In addition to the loss, an increase in net current assets also had a negative impact. This increase was attributable essentially to a decline in liabilities and an increase in inventories of finished products due to the weak demand. Net cash used in investing activities was EUR 25 million.

4. Ongoing adjustment of resource planning and input factors


In view of the extremely difficult economic conditions and the unpredictable nature of future demand, EPCOS is constantly reviewing its resource planning and input factors, and aligning them to changing circumstances.

Thus, EPCOS is implementing a series of personnel measures in order to adjust production capacity to the significant drop in customers’ demand for components. Employees are, for example, using up vacation entitlements carried over from the previous year, running down overtime hours and being put on short time. In Q1 2009, it also became unavoidable to reduce the number of people working for EPCOS worldwide by around 4,100. About half of these people were EPCOS’ own employees. The other half were temporary staff and the staff of subcontractors.


From a present perspective, capital spending of EUR 110 million this fiscal year will be sharply down on that of the previous year (EUR 155 million). However, to keep EPCOS competitive,

EUR 75 million (2008: EUR 81 million) will be invested in research and development.

5. Outlook


Economic researchers expect 2009 to bring sustained and severe burdens for the world economy. In light of this situation and of the very weak order intake, EPCOS expects sales to decline to about EUR 260 million in Q2 2009, which will likewise negatively impact earnings.

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 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 and is not audited.

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.