Hitachi has announced its consolidated financial results for the third quarter of fiscal 2005, ended December 31, 2005.
Business results for the three months ended December 31, 2005
During the third quarter, the world economy was strong overall, despite the effect of much higher prices worldwide for crude oil and other raw materials. The healthy world economy reflected strength in the U.S. economy, which was underpinned by consumer spending and plant and equipment investment, the continuation of robust economic growth in China and recovery in European economies.
In Japan, the economy remained generally healthy, with higher corporate earnings fueling growth in plant and equipment investment. The Japanese economy was also supported by moderate growth in consumer spending.
In these circumstances, Hitachi's consolidated revenues increased 6%, to 2,258.8 billion yen. This was due to higher year-on-year revenues in a number of segments. Higher revenues were posted by the Information & Telecommunication Systems segment, which continues to see sales grow; the Power & Industrial Systems segment, which turned in a strong performance due to rebounding private-sector plant and equipment investment; the Digital Media & Consumer Products segment, thanks to higher sales of flat-panel TVs and other products; and the High Functional Materials & Components segment, mainly due to growth in sales of components and materials for electronics-related fields.
Overseas revenues rose 16%, to 947.3 billion yen due mainly to higher year-on-year sales in the Power & Industrial Systems, Digital Media & Consumer Products and High Functional Materials & Components segments. As a result, the ratio of overseas revenues to consolidated revenues rose by 4 percentage points to 42%.
Operating income rose 14% year on year, to 39.1 billion yen on higher earnings mainly in the Electronic Devices, Power & Industrial Systems and High Functional Materials & Components segments.
Other income dropped 39%, to 29.8 billion yen due to less year on year earnings from net gain on securities. Other deductions declined 26%, to 9.3 billion yen.
As a result, Hitachi recorded income before income taxes and minority interests of 59.6 billion yen, down 16% year on year. After income taxes of 35.4 billion yen, Hitachi posted income before minority interests of 24.2 billion yen. Net income was 5.4 billion yen, a 79% drop from the third quarter of fiscal 2004.
Revenues and Operating Income (Loss)Results by Segment as follows:
Information & Telecommunication Systems
Information & Telecommunication Systems revenues increased 6%, to 511.3 billion yen. This was attributable to firm sales by software and outsourcing businesses in software and services, and year-on-year growth in hardware revenues on higher sales of disk array subsystems and other products.
Operating income fell 75%, to 0.5 billion yen, despite healthy growth in earnings in services and a solid performance in disk array subsystems and other areas. Losses in HDD and PC operations brought down earnings. Another reason for the earnings decline is an effect of the return of the Substitutional Portion of Employee Pension Fund Liabilities booked by a subsidiary in the same period of the previous fiscal year.
Electronic Devices
Electronic Devices revenues were 296.6 billion yen, on a par with the previous fiscal year. Hitachi High-Technologies Corporation performed well on higher sales of LCD manufacturing equipment. Growth was also recorded in sales of displays, particularly small and medium-sized LCDs.
Operating income climbed 186% year on year, to 6.5 billion yen, due to a smaller loss in the display business.
Power & Industrial Systems
Power & Industrial Systems revenues rose 8%, to 605.7 billion yen. In addition to growth in sales at Hitachi Construction Machinery Co., Ltd., mainly outside Japan, this increase reflected healthy sales of air-conditioning systems and industrial machinery thanks to recovering private-sector plant and equipment investment. Sales of automotive systems products also posted healthy growth.
The segment posted a 117% increase in operating income, to 12.9 billion yen due to higher earnings at Hitachi Construction Machinery, as well as in industrial machinery and other businesses.
Digital Media & Consumer Products
Digital Media & Consumer Products revenues increased 11%, to 362.3 billion yen due to growth in sales of plasma TVs and other digital media products and higher sales at Hitachi Maxell, Ltd.
The segment posted an operating loss of 5.8 billion yen due to an operating loss at Fujitsu Hitachi Plasma Display Limited, which became a subsidiary in April 2005.
High Functional Materials & Components
Revenues rose 9%, to 414.2 billion yen due to strong growth in sales at Hitachi Chemical Co., Ltd. and Hitachi Metals, Ltd., principally in the electronics-related and automotive fields. Hitachi Cable, Ltd. also recorded sales growth.
Operating income rose 40%, to 30.9 billion yen due to strong earnings at Hitachi Chemical, Hitachi Metals and Hitachi Cable.
Logistics, Services & Others
In Logistics, Services & Others, revenues edged up 2%, to 317.1 billion yen due in part to higher sales at Hitachi Transport System.
The segment posted operating income of 1.1 billion yen, 54% lower year on year, mainly due to lower product prices, principally at overseas sales companies.
Financial Services
Segment revenues declined 3%, to 126.8 billion yen. However, operating income rose 20%, to 9.6 billion yen.
Revenues by Market
Revenues in Japan were 1,311.4 billion yen, on a par with the previous fiscal year. Overseas revenues rose 16%, to 947.3 billion yen due mainly to higher sales of flat-panel TVs, materials for electronics-related products and higher sales at Hitachi Construction Machinery.
As a result, the ratio of overseas revenues to consolidated revenues rose by 4 percentage points to 42%.
Financial Position
Total assets as of December 31, 2005 were 10,111.3 billion yen, 221.7 billion yen more than at September 30, 2005 due to increase of inventories and other factors. Debt increased 95.9 billion yen over the same period to 2,698.4 billion yen. Stockholders' equity rose 15.3 billion yen, to 2,351.2 billion yen. As a result, the stockholders' equity ratio fell 0.3 of a percentage point to 23.3%. The debt-to-equity ratio (including minority interests) was 0.81 times due to the increase in debt.
Cash Flows
Operating activities used net cash of 4.5 billion yen, a decrease of 40.6 billion yen from the same period a year ago.
Investing activities used net cash of 135.0 billion yen, 26.1 billion yen less than the same period a year ago due to efforts to collect investments in leases earlier and other factors.
Free cash flows, the sum of cash flows from operating and investing activities, were an outflow of 139.6 billion yen, 66.7 billion yen less than the same period a year ago.
Financing activities provided net cash of 43.6 billion yen, 80.3 billion yen less than in the same period a year ago, reflecting factors such as a year-on-year decline in issues of corporate debentures.
Business Results for the Nine Months Ended December 31, 2005
Revenues and Operating Income by Segment
The world economy in the nine months to December 31, 2005, a period including the third quarter of fiscal 2005, posted strong growth due to robust economic expansion in the U.S. and China as well as an economic recovery in Europe. This was despite the negative impact of sharply higher raw materials prices and other factors.
The Japanese economy posted healthy growth due to such factors as higher plant and equipment investment and consumer spending.
In these circumstances, Hitachi's consolidated revenues for the nine months to December 31, 2005 increased 3%, to 6,672.1 billion yen. The Power & Industrial Systems segment posted higher revenues on the back of recovering private-sector plant and equipment investment, as did the High Functional Materials & Components segment, mainly due to growth in sales of components and materials for electronics- and automotive-related fields.
Operating income declined 28%, to 116.8 billion yen due to lower earnings in the Information & Telecommunication Systems and Electronic Devices segments as well as an operating loss in the Digital Media & Consumer Products segment. On the other hand, the Power & Industrial Systems, High Functional Materials & Components and Financial Services segments recorded higher operating income.
Other income was 56.8 billion yen, down 29% on the same period a year ago, the result mainly of lower earnings from net gain on securities. Other deductions decreased 9%, to 31.9 billion yen.
As a result, Hitachi recorded income before income taxes and minority interests of 141.7 billion yen, down 31% year on year. After income taxes of 96.3 billion yen, Hitachi posted income before minority interests of 45.3 billion yen. Hitachi posted a net loss of 5.4 billion yen, compared with net income of 67.8 billion yen in the same period a year ago.
Revenues by Market
Revenues in Japan were 4,052.7 billion yen, on a par with the same period a year ago.
Overseas revenues increased 8%, to 2,619.4 billion yen due to growth in sales at Hitachi Construction Machinery, particularly in Europe and the U.S., as well as higher sales of HDDs and electronics-related components and materials, particularly in China.
As a result, the ratio of overseas revenues to consolidated revenues rose by 1 percentage point to 39%.
Cash Flows
Operating activities provided net cash of 216.5 billion yen, 111.2 billion yen more than in the same period a year ago.
Investing activities used net cash of 390.5 billion yen, an increase of 35.7 billion yen. This was the result mainly of an increase in capital investments.
Free cash flows, the sum of cash flows from operating and investing activities, were an outflow of 174.0 billion yen, 75.5 billion yen less than the same period a year ago.
Financing activities provided net cash of 5.8 billion yen, 6.8 billion yen less than the same period a year ago.
Cash and cash equivalents as of December 31, 2005 amounted to 557.4 billion yen, a decrease of 151.2 billion yen during the nine-month period, which includes the third quarter.
Outlook for Fiscal 2005 - Consolidated
Regarding trends in the world economy, Hitachi expects the U.S. economy to remain firm, supported by consumer spending and plant and equipment investment. In Asia, Hitachi expects that domestic demand will continue to support brisk economic growth in China. European economies, meanwhile, are forecasted to continue their moderate pace of recovery. Overall, therefore, the global economy is expected to continue expanding.
The forecast for the Japanese economy is firm growth, underpinned by continuing strength in exports to China and elsewhere in Asia and by rising consumer spending. There are, however, some concerns, such as the possibility of an upturn in long-term interest rates.
Under these circumstances, Hitachi is forecasting results shown above for fiscal 2005, the same as projections announced on October 31, 2005.
Hitachi will continue to make aggressive investments in targeted businesses while constantly executing business structural reforms. In this way, Hitachi will reinforce measures to become more competitive on a consolidated basis.
In particular, Hitachi will push forward with ongoing initiatives to improve the HDD, LCD and flat-panel TV businesses quickly.
In other fields, Hitachi will implement sweeping measures to achieve growth, particularly targeted businesses. For example, Hitachi will transfer parts of its Industrial Systems Group to Hitachi Plant Engineering & Construction Co., Ltd. on April 1, 2006. At the same time, Hitachi Plant Engineering & Construction, Hitachi Kiden Kogyo, and Hitachi Industries Company Limited will merge.
In another move, Hitachi plans to make Hitachi Mobile Co., Ltd. a wholly owned subsidiary on April 1, 2006 with the aim of strengthening Hitachi's automotive systems business.
The projections assume a fourth-quarter exchange rate of 115 yen to the U.S. dollar.
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