May 7, 2009

Q2 2009: Weak demand burdens sales and earnings

  • Sales: EUR 263 million; down 27 percent year on year; down 7 percent sequentially
  • EBIT: minus EUR 42 million (Q2 2008: plus EUR 26 million; Q1 2009: minus EUR 19 million)
  • Inventories reduced sharply

1. Q2 fiscal 2009


Due to the sustained global economic crisis, EPCOS’ business development weakened further both year on year and sequentially in the second quarter of fiscal 2009 (January 1 through March 31, 2009). Sales declined to EUR 263 million. All industries served and all regions were affected. Primarily because of the reduction in inventories and lower sales, earnings before interest and tax (EBIT) dropped to minus EUR 42 million.

2. Sales


2.1. Comparison with Q1 2009

EUR millionQ1 2009±Q2 2009
Sales282–7%263

The industrial electronics sector is now feeling the full impact of the worldwide recession. In the period under review, demand for electronic components thus declined among manufacturers of industrial machinery and systems, as well as manufacturers of energy technology. This development weighed heaviest on EPCOS’ business in Q2 2009.

Sequentially, sales of products for industrial electronics applications fell by 17 percent – the sharpest decline in any of the industries served. Sales to manufacturers of information and communication technology were down by more than 10 percent. Sales of products for use in automotive electronics systems were slightly below the low level of the previous quarter, as were sales to distributors of electronic components.

By contrast, sales of components for consumer electronics applications rose by more than 10 percent. The reason for this increase is that the Chinese joint venture EPCOS Feida went into operation in the quarter under review. EPCOS Feida develops and manufactures power capacitors primarily for use in home appliances.


In all regions, the decline in sales at EPCOS was in the mid-single-digit percentage range.

Sales by business segments

EUR millionQ1 2009±Q2 2009
Capacitors and Inductors132–12%116
Ceramic Components69+3%71
SAW Components81–6%76

Sales for the Capacitors and Inductors segment decreased by 12 percent to EUR 116 million. This drop essentially reflected the decline in sales to industrial electronics customers, which make up the largest share of this segment’s sales.


While the Ceramic Components segment increased its sales by 3 percent to EUR 71 million, business remained on a very low level. This was due primarily to the persistently weak sales to the automotive electronics industry.


Sales for the Surface Acoustic Wave (SAW) Components segment declined by 6 percent to EUR 76 million, mainly because of weak sales of products for mobile communication applications.

2.2. Comparison with Q2 2008

EUR millionQ2 2008±Q2 2009
Sales362–27%263

Year on year, EPCOS’ sales to all industries served posted a double-digit percentage decline.

Business with automotive electronics manufacturers was hardest hit. In this industry, sales were more than 50 percent lower than in Q2 2008. Sales to industrial electronics customers and sales to distributors were down by more than 20 percent. Sales to customers in the information and communication technology and consumer electronics industries were down by more than 10 percent.

The regional breakdown of sales primarily reflects the weak business with the automotive and industrial electronics industries. For this reason, sales declined by about 45 percent in Germany and by about 30 percent in the rest of Europe. A single-digit decline in sales was posted in the NAFTA region. By contrast, sales in Asia maintained the level reported in the same quarter a year ago. In this region EPCOS benefited somewhat from the weakening of the euro against the US dollar.

Sales by business segments

EUR millionQ2 2008±Q2 2009
Capacitors and Inductors143

–18

%

116
Ceramic Components128–45%71
SAW Components91–17%76

Year on year, all business segments experienced a double-digit percentage drop in sales in Q2 2009.


Against 2008 sales for the Capacitors and Inductors segment was also influenced by weak business with the industrial electronics sector. At the same time, demand for electronic components for use in automotive and consumer electronics applications was also significantly down year on year. As a result, sales for Capacitors and Inductors were down 18 percent.


The decline in sales was sharpest – a drop of 45 percent – for the Ceramic Components segment. As in Q1 2009, the main reason was very weak demand from the automotive electronics industry.


In the SAW Components segment, year-on-year sales were down 17 percent. While sales of filter products for mobile communication applications rose, this was not enough to compensate for weak sales of modules and multimedia filters.

3. Earnings


3.1. EBIT by business segments

EUR millionQ2 2008Q1 2009Q2 2009
Capacitors and Inductors+10.0+1.6–9.9
Ceramic Components+10.1−11.415.3
SAW Components+5.6−9.416.3

Because of the drop in sales for Capacitors and Inductors EBIT declined to minus EUR 9.9 million in Q2 2009.


EBIT declined to minus EUR 15.3 million for Ceramic Components and to minus EUR 16.3 million at SAW Components. Essentially, this was due to the reduction of inventories and the associated significant decline in production volumes in both segments.

3.2. Group earnings

EUR millionQ2 2008Q1 2009Q2 2009
EBIT+25.7−19.241.5
Net income+17.1−29.851.5

Earnings per share

(in EUR, undiluted)

+0.26−0.440.76

Group EBIT was minus EUR 41.5 million in Q2 2009.


Net income was minus EUR 51.5 million and was thus the major reason for the net cash flow of minus EUR 40 million. Earnings per share were minus EUR 0.76.

4. Headcount adjustments unavoidable


As the already very weak demand deteriorated further in Q2 2009, EPCOS also (like other companies) had to adjust its production capacity. To this end, short-time work in particular was initiated at the company’s locations in Germany. Headcount reductions too became unavoidable, and were effected almost exclusively at locations outside Germany.


In the quarter under review, the number of people who work for EPCOS worldwide was reduced by about 2,050 to 22,220. Temporary staff and the employees of subcontractors accounted for about three quarters of the staff reductions, while EPCOS’ own employees made up about one quarter. The number of own employees declined by 560 to 18,610.

5. First half of fiscal 2009

EUR millionFirst half of 2008±First half of 2009
Sales729−25%546
EBIT+54.1---60.7
Net income+36.2---81.4

Earnings per share

(in EUR, undiluted)

+0.55---1.20

Year on year, EPCOS’ sales declined 25 percent to EUR 546 million in the first half of fiscal 2009 (October 1, 2008, through March 31, 2009). Largely due to the lower business volume, EBIT was minus EUR 60.7 million.


Net income was down to minus EUR 81.4 million. Earnings per share dropped to minus EUR 1.20.


Net cash flow was minus EUR 104 million in the first half of fiscal 2009. A net loss of EUR 81 million and the decrease in trade liabilities due to the lower business volume were the main factors influencing cash used in operating activities of EUR 53 million. The decrease in trade receivables and depreciation/amortization of EUR 64 million were only able to compensate for part of this cash outflow. EUR 51 million was used in investing activities. This figure essentially comprised EUR 31 million for net additions to non-current assets and EUR 19 million for the acquisition of equity interests.

6. Outlook


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.


Sequentially, EPCOS therefore expects slightly increasing sales of EUR 270 to 280 million and improved EBIT in Q3 2009.

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.