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Regarding the crystal device market, market segments related to smartphones and other mobile phones, digital equipment, and automobiles recovered, particularly during the first half of the year. Because much of the rise in demand centered on emerging countries where customers emphasize price factors, however, selling prices decreased despite a rise in market volume.
In addition, the Great East Japan Earthquake that occurred on March 11, 2011, damaged a portion of the structures and facilities of one of the NDK Group's manufacturing bases-Furukawa NDK Co., Ltd., based in Osaki City, Miyagi Prefecture-although that company was able to progressively resume its mass manufacturing operations from March 21. As the NDK Group has built a system of multiple manufacturing bases that are geographically dispersed, no Group manufacturing facilities, other than Furukawa NDK, were directly impacted by the earthquake. Moreover, having established systems for procuring materials and components from multiple suppliers and developing its manufacturing equipment in-house, the Group was able to quickly restore its capabilities and resume its operations. In addition, while accidents at the Fukushima Daiichi Nuclear Power Station led to the dispersal of radioactive substances, the NDK Group's manufacturing bases are all well outside the affected regions, so the accidents did not have an impact on the Company's products or the materials used by the Company.
Amid these conditions, the NDK Group emphasized measures to develop new products and promote greater sales and the expansion of market shares while also sustaining such ongoing efforts as those aimed at reducing cost of sales and rebuilding manufacturing systems. Despite the negative impact of such factors as selling price decreases and the impact of the earthquake, the increase achieved in sales volume boosted net sales, which rose to ¥54,934 million, up 4.5% from the previous fiscal year.
With respect to profitability, performance for fiscal 2011 did not benefit from certain factors that had the effect of increasing profitability in the previous fiscal year, such as a decline in loss on the valuation of inventory (estimated to have increased profitability in the previous fiscal year by approximately ¥3.1 billion). Moreover, the Great East Japan Earthquake and related situations led to the recording of losses amounting to ¥259 million for the fiscal year under review. As a result, the Group generated ¥2,094 million in operating income in the fiscal year, down 47.4% from the previous fiscal year; ¥1,695 million in income before income tax, down 60.6%; and ¥1,738 million in net income, down 59.9%. In addition, other comprehensive income, net of income tax, amounted to negative ¥886 million, reflecting the progressive appreciation of the yen, and after accounting for this, the Group's total comprehensive income for the fiscal year was ¥852 million.
Looking at our management performance indexes, our ratio of operating income to net sales was 3.8%, and the return on equity (ROE) ratio was 7.1%.
Although such emerging countries as China and India are sustaining high rates of economic growth, such factors as concerns regarding the economic and public finance situations of industrialized countries have led to projections that overall growth in the global economy will continue to be slow during fiscal 2012. In Japan, it is forecasted that the impact of such post-earthquake factors as supply-chain interruptions and electric power shortages will depress the economy during the first half of the fiscal year, but that the subsequent restoration of supply chains, recovery of demand, and other factors will lead to improvement in economic conditions.
The crystal device market is undergoing a major transformation as the "high-performance/high-quality/high-priced product" focus of mainstream demand in industrialized countries is being supplemented by new demand from emerging countries that is focused on volume-zone products that offer only the requisite levels of functionality and quality at lower prices. To meet the needs of customers in emerging countries going forward, we intend to employ new engineering methods to maintain high quality while keeping ahead of our competitors in launching products that offer both high quality and advantageous prices. At the same time, we plan to leverage our strong technological capabilities to meet needs for the speedy development and provision of new high-precision products in new growth markets generated by the information society's increasing technological sophistication.
In this way, the NDK Group is endeavoring to be an enterprise that is quicker than its competitors in providing optimal solutions for overcoming customers' challenges. Seeking to attain 100% customer satisfaction, we are proactively developing new technologies and products designed to meet future needs, and we anticipate that this approach will enable us to realize our business performance objectives.
Priority Policies
• Providing New Products that Meet Polarized Needs for Volume-Zone Products and High-Precision Products
Increased demand is projected for such increasingly commoditized audiovisual/office-automation products as flat-panel televisions, personal computers, and computer peripherals. In providing volume-zone components for those products, our objective is to take measures to reduce the cost of sales for existing products while also using nonconventional materials and manufacturing technologies to launch new kinds of products characterized by a combination of high quality and low cost of sales. In this way, we will be seeking to promote sales increases by pioneering new markets and cultivating business with new customers.
Regarding smartphones, which require high-precision components, rising demand is projected for global positioning system related devices and for other applications, and we are proactively working to meet customers' expectations for stable supplies of associated components. With respect to rising demand related to such communications infrastructure equipment as mobile phone base stations and optical communications devices, medical equipment, and environmental protection equipment, we are striving to speedily develop new products by leveraging our powerful technological capabilities for combining such technologies as micro electromechanical system (MEMS) technologies and circuit technologies and to use those products to pioneer new markets and promote greater sales.
To respond to changes in the global demand structure and thereby realize sustained corporate growth, we are planning to invest ¥2.5 billion in R&D programs and make ¥9.8 billion in capital investments during fiscal 2012.
• Building on the "Quality First" Philosophy to Generate Stable Profits and Improve and Strengthen Our Financial Base
As a manufacturer, NDK has a fundamental commitment to the "Quality First" philosophy. By rigorously maintaining this commitment, we are positioning ourselves to provide high quality that promotes greater customer satisfaction as we develop new products characterized by low cost of sales levels and launch those products into promising new markets going forward. Moreover, through comprehensive efforts to root out defective goods detected during manufacturing processes, we conduct root-cause analyses to prevent the recurrence of problems. Through these efforts and relentless measures to reduce the cost of sales, we intend to generate stable profits and improve and strengthen our financial base.
• Developing New Technologies and Products that Promote a New Surge of Corporate Growth
Crystal devices are often referred to as the "salt of electronics," and many people consider crystal device consumption volume to be a barometer of culture and civilization. Over time, it is unquestionable that new crystal device applications will continue to emerge and grow in importance. So long as NDK pioneers new applications, leverages new technologies, continually develops leading-edge products featuring top quality, and continuously launches such products in advance of its competitors, we are completely confident that the Company will thereby generate stable profits.
As our R&D investments are a key to promoting a new surge of corporate growth, we are committed to sustaining stable R&D investments irrespective of conditions in the business environment so that we can realize additional advances in the application of the outstanding characteristics of crystals to develop new products and so that we can develop the core technologies needed for the development of next-generation frequency control and selection devices. To sustain our position as a leader in the crystal device industry, we will maintain a thoroughly future-oriented perspective as we proactively work to develop new technologies and products going forward.
Although we are anticipating positive results from these priority policies, we are seeking to be prudently conservative in our performance forecast for fiscal 2012 in light of various factors that are difficult to predict, such as the possibility that customers' production volumes may contract. We are therefore forecasting performance roughly similar to our performance in fiscal 2011. Our consolidated performance forecast is for ¥55,000 million in net sales, up 0.1% from the previous year; ¥2,500 million in operating income, up 19.4%; ¥2,200 million in income before income tax, up 29.7%; and ¥2,000 million in net income, up 15.0%.
During the two years since the global financial crisis triggered by the collapse of Lehman Brothers, the NDK Group has restrained its capital investments and worked to increase the productivity of its existing facilities while concurrently emphasizing the development of new products. In fiscal 2012, we intend to implement capital investment plans drafted based on a detailed examination of market trends and, as a means of beginning the momentum of a surge in corporate development during fiscal 2012 and subsequent years, we will be launching new products and doing our utmost to pioneer new markets and promote greater sales.
To ensure that NDK can maintain its position as a company that is trusted and needed by all of its stakeholders going forward, we are positioning corporate governance as a top management priority. Besides augmenting management efficiency and thereby increasing our corporate value, we are endeavoring to take such measures as those to strengthen management oversight functions, maintain rigorous legal compliance, and upgrade our disclosure and accountability performance.
In accordance with its business philosophy of "contributing to the prosperity of society and world peace through our service to customers," NDK will continue actively working to help promote a recovery from Japan's recent earthquake disaster. In addition to making financial donations, we believe it to be our responsibility as a member of the crystal device industry to provide customers with alternative supplies of crystal devices to alleviate problems stemming from the interruption of other crystal device manufacturers' operations owing to the disaster. By proactively undertaking the manufacture of such alternative supply items and in other ways, we are striving to realize a recovery from the disaster as quickly as possible.
Going forward, NDK is determined to meet its stakeholders' expectations by being the "No. 1 brand and No. 1 supplier" in the global crystal manufacturing industry and evolving as a true global player with limitless potential.
We would like to thank all our shareholders for their understanding and express our hope that you will offer continued support in the future.
| July 2011 |
| Toshiaki Takeuchi Chairman, CEO, and Representative Director |
| Hiroshi Takeuchi President and Representative Director |