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Fujitsu Ld. (FUJ)

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Thursday 30 January, 2014

Fujitsu Ld.

3rd Quarter Results

RNS Number : 8643Y
Fujitsu Ld
30 January 2014
 



Fujitsu Limited

Consolidated Financial Results for the Nine Months Ended December 31, 2013

 

January 30, 2014

Fujitsu Limited

Stock exchange listings:

Tokyo, Nagoya

Code number:

6702

URL:

http://jp.fujitsu.com/

Representative:

Masami Yamamoto, President and Representative Director

Contact person:

Isamu Yamamori


Vice President, Public and Investor Relations Division


Tel. +81 3 6252 2175

Scheduled filling date of statutory financial report:

February 12, 2014

Scheduled dividend payment date:

-

Supplementary material:

No

Financial results meeting:

Yes (for media and analysts)

                                                                                                                                                                                     

                                                                                                                                                                                     

1. Consolidated Results for the Nine Months Ended December 31, 2013

                                                                                                                                                                                     

(Monetary amounts are rounded to the nearest million yen)

(1) Consolidated Financial Results

(The percentage figures represent the percentage of increase or decrease against the same period of the previous year.)

 

Yen (Millions)

 

 

9 Months FY 2013
(4/1/13-12/31/13)

3,352,337

7.4

37,009

2,396

9 Months FY 2012
(4/1/12-12/31/12)

3,120,064

-1.6

-1,527

-95,221

ReferenceComprehensive income :           9 Months FY2013              77,122 million yen       [ - %]

                                                                     9 Months FY2012          -81,863 million yen        [ - %]

 

Yen


9 Months FY 2013
(4/1/13-12/31/13)

1.16

1.16

9 Months FY 2012
(4/1/12-12/31/12)

-46.02

 

                                                                                                                                                                                       

(2) Consolidated Financial Position                          Yen (Millions)


December 31, 2013

3,200,563

824,872

21.7

March 31, 2013

2,920,326

752,438

21.4

ReferenceOwners' Equity:                          December 31, 2013           693,687 million yen

                                                                      March 31, 2013                624,045 million yen

 

2. Dividends per Share of Common Stock


FY 2012

-

5.00

-

0.00

5.00

FY 2013

-

0.00

-



FY 2013 (Forecast)




Note: Revisions to forecast of dividends in this quarter: None

 Year-end dividend amount for FY2013 (fiscal year ending March 31, 2014) has yet to be determined.

 

3. Consolidated Earnings Forecast for FY2013

(The percentage figures represent the percentage of increase or decrease against the same period of the previous year.)

Yen (Millions, except per share data)

FY 2013

4,680,000

6.8

140,000

58.6

45,000

-

21.75

Note; Revisions to forecast of financial results in this quarter: Yes

 

4. Other Information

                                                                                                                                                                                       

(1)  Significant Changes to Subsidiaries in the Current Reporting Period

      (Changes to specified subsidiaries resulting from changes in scope of consolidation): None

 

(2)  Application of accounting procedures specific to preparation of quarterly consolidated financial

statements: None                                                                                                                                                                                                                                                                                                                                                                             

(3)  Changes in accounting policies and accounting estimates, and restatements

1. Changes in accounting policies arising from revision of accounting standards: Yes

2. Changes arising from factors other than 1: None

3. Changes in accounting estimates: None

4. Restatements: None

                                                                                                                                                                                        

(4)  Number of Issued Shares (Common shares)

1. Number of issued shares at end of period

As of December 31, 2013

2,070,018,213

shares

As of March 31, 2013

2,070,018,213

shares

2. Treasury stock held at end of period

As of December 31, 2013

849,528

shares

As of March 31, 2013

723,691

shares

3. Average number of issued and outstanding shares during period

9 Months FY 2013

2,069,235,197

shares

9 Months FY 2012

2,069,339,455

shares

 

Notes:

1. Compliance with Quarterly Review Procedures

 

These materials fall outside the jurisdiction of the quarterly review procedures of the Financial Instruments and Exchange Act. Therefore, at the time of disclosure, a portion of the review has not yet been completed.

Upon completion of the review, a statutory quarterly report will be submitted on February 12, 2014.

 

2. Precautions on Usage of Earnings Projections

 

These materials may contain forward-looking statements that are based on management's current information, views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results may differ materially from those projected or implied in the forward-looking statements due to, without limitation, the following factors listed below.

 

- General economic and market conditions in key markets

             (Particularly in Japan, North America, Europe, and Asia, including China)

- Rapid changes in the high-technology market (particularly semiconductors, PCs, etc.)

- Fluctuations in exchange rates or interest rates

- Fluctuations in capital markets

- Intensifying price competition

- Changes in market positioning due to competition in R&D

- Changes in the environment for the procurement of parts and components

- Changes in competitive relationships relating to collaborations, alliances and technical provisions

- Risks related to public regulations, public policy and tax matters

- Risks related to product or services defects

- Potential emergence of unprofitable projects

- Risks related to R&D investments, capital expenditures, business acquisitions, business restructuring, etc.

- Risks related to natural disasters and unforeseen events

- Changes in accounting policies

 

1. Explanation of Financial Results

 

1-1. Overview

 

<Business Environment>

 

During the first nine months of fiscal 2013 (April 1, 2013 - December 31, 2013), the global economy continued to experience a moderate recovery. In Europe, there were signs of an economic recovery as concerns over sovereign debt receded and the value of the euro rose substantially due to the decreasing likelihood of additional monetary easing. In the US, the Federal Reserve's decision to taper its policy of quantitative easing has led to trends toward an economic recovery. There is also less uncertainty in regard to the future of the US government's fiscal policy.

 

There was also progress in Japan's economic recovery. In addition to heightened expectations for a recovery, there has also been a moderate increase in consumer spending. Monetary easing by the Bank of Japan, a recovery in corporate earnings, particularly among exporters who have benefited from the rapid weakening of the yen, and the rise in stock prices have all contributed to promote recovery.

 

Investment in information and communication technology (ICT) is gradually increasing on signs of a rebound in corporate capital investment.

 

FY2013 Third-Quarter Financial Results                                      (Billion Yen)


3Q FY2012

10/1/12-

12/31/12

3Q FY2013

10/1/13-

12/31/13

Change vs. 3Q FY2012


 

 

Change (%)


Net Sales

1,048.2

1,200.7

152.4

< 7 >   14.5


Cost of Sales

776.5

894.9

118.3

15.2


Gross Profit

271.7

305.8

34.1

12.6


[Gross Profit Margin]

[ 25.9%]   

[ 25.5%]   

[ -0.4%]



Selling, General and Administrative Expenses

277.5

279.6

2.0

0.7


Operating Income (Loss)

-5.8

26.1

32.0

-


[Operating Income Margin]

[ -0.6%]

[ 2.2%] 

[ 2.8%]



Other Income and Expenses

-80.4

-14.1

66.3

-


Income (Loss) Before Income Taxes and Minority Interests

-86.3

12.0

98.4

-


Income Taxes

-5.8

-1.2

4.5

-


Minority Interests

0.2

1.2

0.9

349.0


Net Income (Loss)

-80.8

12.0

92.8

-


< > Change (%) Constant Currency

 

FY2013 Nine-Month Financial Results                                        (Billion Yen)


FY2012

9 Months

4/1/12-

12/31/12

FY2013

9 Months

4/1/13-

12/31/13

Change vs. 9 Months FY2012


Change (%)

Net Sales

3,120.0

3,352.3

232.2

< 0 >

7.4

Operating Income (Loss)

-1.5

37.0

38.5

-

[Operating Income Margin]

    [ -0.0%]

[ 1.1%]

[ 1.1%]


Other Income and Expenses

-85.0

-14.8

70.1

-

Net Income (Loss)

-95.2

2.3

97.6

-

< > Change (%) Constant Currency

 

Quarterly Breakdown of Results                                                (Billion Yen)

 

 


FY2012


FY2013

1Q

2Q

3Q

4Q

1Q

2Q

3Q

Total

Sales

957.3

1,114.4

1,048.2

1,261.6


999.2

1,152.3

1,200.7

Operating Income

-26.7

31.0

-5.8

89.7


-22.8

33.6

26.1

[Operating Income Margin]

[-2.8%]

[2.8%]

[-0.6%]

[7.1%]


[-2.3%]

[2.9%]

[2.2%]

 

[Results by Business Segment]

Technology Solutions

Sales

627.1

713.3

700.6

901.3


677.5

785.3

786.3

Operating Income

-0.8

44.5

21.8

108.3


2.5

55.7

44.4

[Operating Income Margin]

[-0.1%]

[6.2%]

[3.1%]

[12.0%]


[0.4%]

[7.1%]

[5.7%]


Services

Sales

513.6

575.6

576.5

721.4


554.9

631.6

649.8

Operating Income

3.2

30.7

20.0

70.5


5.5

36.7

37.1

[Operating Income Margin]

[0.6%]

[5.3%]

[3.5%]

[9.8%]


[1.0%]

[5.8%]

[5.7%]


System Platforms

Sales

113.4

137.6

124.1

179.8


122.5

153.7

136.4

Operating Income

-4.0

13.7

1.8

37.8


-2.9

19.0

7.3

[Operating Income Margin]

[-3.6%]

[10.0%]

[1.5%]

[21.0%]


[-2.4%]

[12.4%]

[5.4%]











Device

Solutions

Sales

130.3

138.3

129.5

142.1


145.3

159.0

146.0

Operating Income

-3.6

-3.3

-9.3

2.1


7.6

10.4

4.2

[Operating Income Margin]

[-2.8%]

[-2.4%]

[-7.2%]

[1.5%]


[5.3%]

[6.5%]

[2.9%]











Ubiquitous Solutions

Sales

234.6

314.7

266.5

274.3


215.9

262.7

321.2

Operating Income

-2.0

12.4

-2.0

1.2


-17.1

-11.6

-5.4

[Operating Income Margin]

[-0.9%]

[4.0%]

[-0.8%]

[0.5%]


[-7.9%]

[-4.4%]

[-1.7%]

 

*In accordance with the amended IAS 19 Employee Benefits of the International Financial Reporting Standards (IFRS), which the Fujitsu Group's consolidated subsidiaries outside of Japan have adopted, the figures for fiscal 2012 have been retroactively revised. As a result, selling, general and administrative expenses have increased, and operating income has decreased, by 1.6 billion yen in the first quarter of fiscal 2012, by 1.6 billion yen in the second quarter, by 1.7 billion yen in the third quarter, and by 1.9 billion yen in the fourth quarter. In terms of the impact on segment results, all of these changes were in the Services sub-segment. Similarly, other income statement figures, including net income, have also been revised.

 

Net assets have been reduced due to the unrecognized obligation for retirement benefits of subsidiaries outside Japan as of the end of fiscal 2012, which amounted to 157.3 billion yen, being brought onto the consolidated balance sheet.

 

FY2013 Third-Quarter Major Items in Other Income and Expenses                       (Billion Yen)

Item

Amount

Major Items


3.8


Other

Income

Gain on Sales of Property, Plant and Equipment and Intangible Assets

  2.1

Income from sale of the Minami-Tama Plant site

Gain on Sales of Investment Securities

  1.6

Income from sale of Fujitsu General Limited shares


-22.4


Other

Expenses

Loss on Reversal of Foreign Currency Translation Adjustments

  -20.5

Loss on the reversal of the foreign currency translation adjustments because of the liquidation of the US subsidiary Fujitsu Management Services of America, Inc.

Restructuring Charges

 -1.8

Personnel-related expenses, primarily from businesses outside Japan, and structural reform expenses for the LSI device business

 

1-2. Third Quarter

 

Note: In these explanatory materials, the yen figures for net sales, operating income, and other figures are converted into US$ amounts, for reference purposes, at a rate of $1=105 yen, the approximate Tokyo foreign exchange market rate on December 31, 2013. Figures for and comparisons to prior reporting periods are provided only for reference. The impact of foreign exchange fluctuations has been calculated by using the average US dollar, euro, and British pound foreign exchange rates for the third quarter of fiscal 2012 to translate the current period's net sales outside Japan into yen.

 

<Profit and Loss>

 

Consolidated net sales for the third quarter of fiscal 2013 were 1,200.7 billion yen (US$11,435 million), an increase of 14.5% from the third quarter of fiscal 2012.

 

Net sales in Japan rose by 9.2%. Sales of system integration services increased, primarily to the public sector and financial services sector. Sales of PCs also increased, primarily to enterprise customers.

 

Sales outside of Japan rose by 24.6%. Excluding the impact of foreign exchange movements, however, sales increased by 2%. In North America, sales of car audio and navigation systems as well as sales of LSI devices increased.

 

For the third quarter of fiscal 2013, the average yen exchange rates against major currencies were 100 yen for the US dollar (representing yen depreciation of 19 yen), 137 yen for the euro (depreciation of 32 yen), and 163 yen for the British pound (depreciation of 33 yen) compared with the same period of the previous fiscal year. As a result, the impact of foreign exchange fluctuations for the period was to increase net sales by approximately 80.0 billion yen compared to the third quarter of fiscal 2012. Sales generated outside Japan as a percentage of total sales were 38.1%, an increase of 3.1 percentage points compared to the third quarter of the previous fiscal year.

 

Gross profit was 305.8 billion yen, up 34.1 billion yen from the third quarter of fiscal 2012 as a result of the increase in sales and the various reform measures implemented. The gross profit margin was 25.5%, a decline of 0.4 of a percentage point from the third quarter of the prior fiscal year, primarily as a result of deteriorating profitability in the mobile phone business.

 

Selling, general and administrative expenses were 279.6 billion yen, an increase of 2.0 billion yen from the third quarter of fiscal 2012, primarily the result of foreign exchange movements. Group-wide efforts to generate cost efficiencies are progressing, and, excluding the impact of foreign exchange fluctuations, on a constant-currency basis expenses are declining.

 

As a result of the above factors, Fujitsu recorded operating income of 26.1 billion yen (US$249 million), an improvement of 32.0 billion yen from the previous fiscal year's third quarter. In addition to improved results, particularly in the Technology Solutions segment, structural reforms in the LSI device business and in businesses outside Japan and workforce-related measures contributed to the rebound in operating income.

 

In other income and expenses, Fujitsu recorded a loss of 14.1 billion yen, representing an improvement of 66.3 billion yen from the previous fiscal year's third quarter, when large restructuring expenses and impairment losses were recorded. The company recorded a gain on the sale of investment securities of 1.6 billion yen, and a gain on the sale of property, plant and equipment of 2.1 billion yen. On the other hand, in accordance with the liquidation of the US subsidiary Fujitsu Management Services of America, Inc., the company recorded a loss of 20.5 billion yen on the reversal of foreign currency translation adjustments. 

 

Fujitsu reported consolidated net income of 12.0 billion yen (US$114 million), an improvement of 92.8 billion yen compared to the third quarter of fiscal 2012. In accordance with the liquidation of Fujitsu Management Services of America, Inc., the income tax burden declined. The improvement in net income is the result of improved operating income in this fiscal year's third quarter and the large extraordinary losses recorded in the prior fiscal year's third quarter.

 

<Results by Business Segment>

 

Information on fiscal 2013 third-quarter consolidated net sales (including intersegment sales) and operating income broken out by business segment is presented as follows.

 

Technology Solutions

(Billion Yen)

 

 

Third Quarter FY2013

Change vs.

3Q FY2012

Net Sales

786.3

12.2 %

Japan

  483.1

7.1 %

Outside Japan

  303.1

21.6 %

Operating Income

 44.4  

 22.6   

 

Consolidated net sales in the Technology Solutions segment amounted to 786.3 billion yen (US$7,489 million), up 12.2% from the third quarter of fiscal 2012. Sales in Japan increased 7.1%. In system integration services, sales increased, primarily in the public sector and financial services sector, as customers expanded their investment spending. In network products, while demand for 3G communications equipment to deal with the larger volume of communications traffic has passed its peak, overall sales increased as a result of spending by telecommunications carriers to raise LTE service area coverage and increase transmission speeds. Server-related sales increased due to the contribution of large-scale systems deals in the public sector. In infrastructure services, although sales of outsourcing services were stable, overall sales were essentially unchanged from the previous fiscal year's third quarter. This was due to an increase in demand related to network services in the third quarter of the previous fiscal year as telecommunications carriers sought to deal with a larger volume of communications traffic. Sales outside Japan increased 21.6% but were essentially unchanged on a constant-currency basis.

 

The segment posted operating income of 44.4 billion yen (US$423 million), up 22.6 billion yen compared to the third quarter of fiscal 2012. In Japan, despite lower sales of network products, operating income was significantly higher because of increased sales of system integration services and network products, in addition to the impact of workforce-related measures. Outside Japan, operating income benefited from the impact of structural reforms and lower amortization expenses for goodwill.

 

(a) Services

(Billion Yen)

 

 

Third Quarter FY2013

Change vs.

3Q FY2012

Net Sales

649.8

12.7 %

Japan

382.0

6.9 %

Outside Japan

267.8

22.3 %

Operating Income

37.1

    17.0  

 

Net sales in the Services sub-segment were 649.8 billion yen (US$6,189 million), up 12.7% from the same period a year earlier. In Japan, sales increased 6.9%. In system integration services, sales increased, primarily in the public sector and financial services sector. In infrastructure services, sales of outsourcing services were stable, but overall sales were essentially unchanged from the third quarter of fiscal 2012, when there was an increase in demand related to network services, as telecommunications carriers sought to deal with a larger volume of communications traffic. Sales outside Japan increased 22.3% but were essentially unchanged on a constant-currency basis.

 

Operating income for the Services sub-segment was 37.1 billion yen (US$353 million), up 17.0 billion yen compared to the same period of fiscal 2012. In Japan, despite lower sales of network products, operating income rose because of higher sales of system integration services, in addition to the impact of workforce-related measures. Outside Japan, operating income benefited from the impact of structural reforms and lower amortization expenses for goodwill.

 

(b) System Platforms

(Billion Yen)

 

 

Third Quarter FY2013

Change vs.

3Q FY2012

Net Sales

136.4

9.9 %

Japan

101.1

7.8 %

Outside Japan

35.2

16.6 %

Operating Income

7.3

5.5 

 

Net sales in the System Platforms sub-segment were 136.4 billion yen (US$1,299 million), an increase of 9.9% from the third quarter of fiscal 2012. Sales in Japan rose 7.8%. In network products, while demand for 3G communications equipment to deal with the larger volume of communications traffic has passed its peak, overall sales increased as a result of spending by telecommunications carriers to expand LTE service area coverage and increase transmission speeds. Server-related sales increased due to the contribution of large-scale systems deals in the public sector. Sales outside Japan increased 16.6%. Excluding the impact of foreign currency movements, however, sales fell by 5%. Sales of a new UNIX server model were sluggish.

 

The System Platforms sub-segment posted operating income of 7.3 billion yen (US$70 million), up 5.5 billion yen from the same period of the previous fiscal year. Despite increased upfront R&D spending on network products in Japan, operating income increased because of the impact of higher sales.

 

Ubiquitous Solutions

(Billion Yen)

 

 

Third Quarter FY2013

Change vs.

3Q FY2012

Net Sales

321.2

20.6 %

Japan

234.2

16.9 %

Outside Japan

87.0

31.7 %

Operating Income

-5.4

-3.3  

 

Net sales in the Ubiquitous Solutions segment were 321.2 billion yen (US$3,059 million), an increase of 20.6% from the third quarter of fiscal 2012. Sales in Japan rose by 16.9%. There was a significant increase in enterprise PC sales on higher demand for upgrades in accordance with the ending of support for an operating system product. Sales of consumer PCs fell as unit sales declined due to the shrinking market. Overall, sales of PCs increased. In mobile phones, sales in the first half of the fiscal year fell sharply, but rose in the third quarter because one of Fujitsu's smartphones was selected by a telecom carrier as a recommended model. Sales of the Mobilewear sub-segment's car audio and navigation systems had been sluggish in the wake of the conclusion of the government's subsidy program for eco-friendly vehicles, but increased in the third quarter after sales of new vehicles recovered. Sales outside Japan increased 31.7%. On a constant currency basis, sales increased 10%. Unit sales of PCs in Europe declined due to a shift in the sales strategy to emphasize profitability, but Mobilewear sales rose, primarily in North America.

 

The Ubiquitous Solutions segment posted an operating loss of 5.4 billion yen (US$51 million), a deterioration of 3.3 billion yen from the third quarter of fiscal 2012. Operating income in Japan was adversely impacted by higher costs due to functionality enhancements, yen depreciation, and price erosion, although sales of PCs increased. Sales in the Mobilewear sub-segment also increased, but it was adversely impacted by higher development expenses. Outside of Japan, in the third quarter of fiscal 2012, euro weakness against the dollar caused dollar-denominated parts procurement costs to rise in Europe. In addition, operating income outside Japan in the current fiscal year's third quarter benefitted from the rise in sales of the Mobilewear sub-segment.

 

In its mobile phone business, Fujitsu has decided to integrate the production facilities of two of its mobile phone manufacturing subsidiaries, Fujitsu Mobile-phone Products Limited (Tochigi prefecture) and Fujitsu Peripherals Limited (Hyogo prefecture). The target date for completion of the integration, which will consolidate mobile phone production at Fujitsu Peripherals, is April, 2014. Fujitsu aims to increase productivity and create a highly flexible production facility agile enough to withstand volume fluctuations. For product development, Fujitsu aims to streamline operations through a shared development model, enabling staff to be reallocated to new business areas, such as enterprise solutions and automotive-related businesses. Fujitsu is committed to continuing to offer superior mobile devices along with the services with which they can be used.

 

Device Solutions

(Billion Yen)

 

Third Quarter FY2013

Change vs.

3Q FY2012

Net Sales

146.0

12.8 %

Japan

73.3

0.4 %

Outside Japan

72.7

28.8 %

Operating Income

4.2

13.5 

 

Net sales in Device Solutions amounted to 146.0 billion yen (US$1,390 million), up 12.8% from the third quarter of fiscal 2012. Sales in Japan were essentially unchanged. Sales of LSI devices used in IT equipment and manufacturing equipment decreased, and sales of LSI devices used in smartphones, which had been strong in the first half of the fiscal year, were sluggish in the third quarter. On the other hand, in electronic components, while sales of semiconductor packages and batteries were essentially unchanged, sales of optical transceiver modules for telecommunications equipment increased. Sales outside Japan increased 28.8%. On a constant currency basis, sales increased 4%. Sales of LSI devices increased in the Americas and Asia.

 

The Device Solutions segment recorded operating income of 4.2 billion yen (US$40 million), representing an improvement of 13.5 billion yen from the third quarter of fiscal 2012. In Japan, operating income benefited from lower overhead expenses because of an early retirement incentive plan and other factors in the LSI device business, as well as from higher sales of electronic components. Outside Japan, results were bolstered by higher demand for LSI devices and electronic components as well as by the impact of the weaker yen.

 

1-3. Nine Months

 

Note: In these explanatory materials, the yen figures for net sales, operating income, and other figures are converted into US$ amounts, for reference purposes, at a rate of $1=105 yen, the approximate Tokyo foreign exchange market rate on December 31, 2013. Figures for and comparisons to prior reporting periods are provided only for reference. The impact of foreign exchange fluctuations has been calculated by using the average US dollar, euro, and British pound foreign exchange rates for the first nine months of fiscal 2012 to translate the current period's net sales outside Japan into yen.

 

<Profit and Loss>

 

Consolidated net sales for the first nine months of fiscal 2013 were 3,352.3 billion yen (US$31,927 million), an increase of 7.4% from the first nine months of fiscal 2012.

 

Net sales in Japan declined by 1.2%. Sales of system integration services increased, primarily in the public sector and financial services sector, and sales of PCs and car audio and navigation equipment also rose, but mobile phones sales fell sharply, primarily in the first half of the fiscal year. Sales outside of Japan rose by 24.2%. On a constant-currency basis, sales increased by 3%. Sales of PCs in Europe declined, as did sales of UNIX servers in the US, but sales of optical transmission systems and car audio and navigation systems in North America increased, and there were also higher sales of LSI devices and electronic components.

 

For the first nine months of fiscal 2013, the average yen exchange rates against major currencies were 99 yen for the US dollar (representing yen depreciation of 19 yen), 132 yen for the euro (depreciation of 30 yen), and 156 yen for the British pound (depreciation of 29 yen) compared with the same period of the previous fiscal year. As a result, the impact of foreign exchange fluctuations for the period was to increase net sales by approximately 230.0 billion yen compared to the first nine months of fiscal 2012. Sales generated outside Japan as a percentage of total sales were 39.3%, up 5.3 percentage points compared to the first nine months of the previous fiscal year.

 

Gross profit was 875.9 billion yen, up 44.0 billion yen from the same period in fiscal 2012. Despite the adverse impact from the decline in sales of mobile phones, gross profit increased because of foreign exchange movements and a variety of measures implemented to reduce costs. The gross profit margin was 26.1%, a decline of 0.6 of a percentage point from the first nine months of the previous fiscal year, primarily as a result of lower profitability in the company's mobile phone business.

 

Selling, general and administrative expenses were 838.9 billion yen, an increase of 5.5 billion yen from the same period of fiscal 2012, primarily the result of foreign exchange fluctuations. Group-wide efforts to generate cost efficiencies are progressing, and, excluding the impact of foreign exchange fluctuations, on a constant-currency basis expenses are declining.

 

As a result of the above factors, Fujitsu recorded operating income of 37.0 billion yen (US$352 million), an improvement of 38.5 billion yen from the same period in the previous fiscal year. Structural reforms in the LSI device business and businesses outside of Japan contributed approximately 21.0 billion yen to operating income, and workforce-related measure contributed approximately 19.0 billion yen.

 

In other income and expenses, Fujitsu recorded a loss of 14.8 billion yen, representing an improvement of 70.1 billion yen from the first nine months of the previous fiscal year, when large restructuring expenses and impairment losses were recorded. The company recorded a gain on the sale of investment securities of 3.5 billion yen, and a gain on the sale of property, plant and equipment of 2.1 billion yen. On the other hand, in accordance with the liquidation of the US subsidiary Fujitsu Management Services of America, Inc., the company recorded a loss of 20.5 billion yen on the reversal of foreign currency translation adjustments. 

 

Fujitsu reported consolidated net income of 2.3 billion yen (US$22 million), an improvement of 97.6 billion yen from the first nine months of fiscal 2012. The improvement in net income is the result of improved operating income in the first nine months of this fiscal year and the large extraordinary losses recorded in the first nine months of the prior fiscal year.

 

<Results by Business Segment>

 

Information on fiscal 2013 nine-month consolidated net sales (including intersegment sales) and operating income broken out by business segment is presented as follows.

 

Technology Solutions

(Billion Yen)

 

 

9 Months FY2013

Change vs.

9 Months  FY2012

Net Sales

2,249.3

10.2 %

Japan

1,387.5

4.2 %

Outside Japan

861.7

21.5 %

Operating Income

102.7

37.2 

 

Consolidated net sales in the Technology Solutions segment amounted to 2,249.3 billion yen (US$21,422 million), up 10.2% from the first nine months of fiscal 2012. In Japan, sales rose 4.2%. Sales of systems integration services increased, primarily in the public sector and financial services sector owing to expanded investments by customers. In network products, although demand for 3G communications equipment to handle increasing volumes of communications traffic has run its course, overall sales increased as a result of spending by telecommunications carriers to expand LTE coverage and increase transmission speeds. Server-related sales increased due to the contribution of large-scale systems deals in the public sector. In infrastructure services, outsourcing showed stable results, but overall sales fell on the impact of a shift away from packaged products that include connection fees to stand-alone products in the ISP business, and because there was increased demand related to network services in the same period of the previous fiscal year, as telecommunications carriers sought to deal with higher volumes of communications traffic. Sales outside Japan increased 21.5% compared to the first nine months of fiscal 2012, but they were essentially unchanged on a constant-currency basis.

 

The segment posted operating income of 102.7 billion yen (US$978 million), up 37.2 billion yen compared to the first nine months of fiscal 2012. In Japan, operating income rose as a result of the impact of workforce-related measures and the impact of increased sales of systems integration services and network products, despite a drop in sales of network services. Outside Japan, in addition to the impact of structural reforms and a reduction in amortization expenses for goodwill, operating income rose on higher sales of network products.

 

(a) Services

(Billion Yen)

 

 

9 Months FY2013

Change vs.

9 Months  FY2012

Net Sales

1,836.5

10.2 %

Japan

1,093.1

4.2 %

Outside Japan

743.3

20.6 %

Operating Income

79.3

    25.2  

 

Net sales in the Services sub-segment amounted to 1,836.5 billion yen (US$17,490 million), up 10.2% from the same period a year earlier. In Japan, sales rose 4.2%. Sales of systems integration services increased, primarily in the public sector and financial services sector. In infrastructure services, outsourcing showed stronger results, but overall sales fell on the impact of a shift away from packaged products that include connection fees to stand-alone products in the ISP business, and because there was increased demand related to network services in the same period of the previous fiscal year, as telecommunications carriers sought to deal with higher volumes of communications traffic. Sales outside Japan rose 20.6%. On a constant-currency basis, sales were essentially unchanged from the first nine months of the prior fiscal year.

 

Operating income for the Services sub-segment was 79.3 billion yen (US$755 million), an increase of 25.2 billion yen compared to the same period of fiscal 2012. In Japan, despite a decline in sales of network services, operating income as a whole increased on the impact of workforce-related measures and the positive impact of higher sales of system integration services. Outside Japan, operating income was bolstered by the impact of structural reforms and lower amortization expenses for goodwill.

 

(b) System Platforms

(Billion Yen)

 

 

9 Months FY2013

Change vs.

9 Months FY2012

Net Sales

412.7

10.0 %

Japan

294.3

4.2 %

Outside Japan

118.3

27.6 %

Operating Income

23.4

11.9 

 

Net sales in the System Platforms sub-segment were 412.7 billion yen (US$3,930 million), an increase of 10% compared to the first nine months of fiscal 2012. Sales in Japan rose 4.2%. In network products, although demand for 3G communications equipment to handle increasing volumes of communications traffic has run its course, overall sales increased as a result of spending by telecommunications carriers to expand LTE service area coverage and increase transmission speeds. Server-related sales increased due to the contribution of large-scale systems deals in the public sector. Sales outside Japan rose 27.6%. On a constant-currency basis, sales rose 3%. Sales of new UNIX server models were weak, but optical transmission system sales in North America increased on a recovery in spending by telecommunications carriers.

 

The System Platforms sub-segment posted operating income of 23.4 billion yen (US$223 million), up 11.9 billion yen compared to the first nine months of fiscal 2012. In Japan, operating income was positively impacted by higher sales, despite higher upfront R&D spending in network products. Outside Japan, operating income was positively impacted by higher sales of network products and a shift in the sales strategy to emphasize profitability for sales of PC servers.

 

Ubiquitous Solutions

(Billion Yen)

 

 

9 Months FY2013

Change vs.

9 Months FY2012

Net Sales

799.9

-1.9 %

Japan

562.8

-10.2 %

Outside Japan

237.1

25.2 %

Operating Income

-34.1

-42.5 

 

Net sales in the Ubiquitous Solutions segment were 799.9 billion yen (US$7,618 million), a decline of 1.9% from the first nine months of fiscal 2012. Sales in Japan were down 10.2%. There was a significant increase in enterprise PC sales on higher demand for upgrades in accordance with the ending of support for an operating system product. In consumer PCs, sales were down as unit sales fell due to the shrinking market. Still, PC sales overall increased. In mobile phones, sales were up in the third quarter, but were down for the nine-month period on account of shrinking market for feature phones and the impact of revisions in the smartphone sales strategies of telecommunications carriers. Also impacting comparisons were the record high shipments of mobile phones coinciding with the release of multiple new models in the second quarter of fiscal 2012. Sales of the Mobilewear sub-segment's car audio and navigation systems had been sluggish in the wake of the conclusion of the government's subsidy program for eco-friendly vehicles, but sales increased in the first nine months of fiscal 2013 with the rebound in new vehicle sales. Sales outside Japan increased 25.2%. On a constant-currency basis, sales increased 5%. Unit sales of PCs in Europe declined due to a shift in the sales strategy to emphasize profitability, but sales in the Mobilewear sub-segment rose, primarily in North America.

 

The Ubiquitous Solutions segment posted an operating loss of 34.1 billion yen (US$325 million), a deterioration of 42.5 billion yen from the same period of the previous fiscal year. Operating income in Japan was adversely impacted by the significant decline in unit sales of mobile phones and the erosion of unit prices, in addition to the impact of higher procurement costs due to yen depreciation and the cost of functionality enhancements. The depreciating yen also increased procurement costs for PCs, although this increase was passed along in the form of higher sales prices and there was also a favorable impact from higher unit sales. Operating income in the Mobilewear sub-segment was positively impacted by higher sales, but also faced higher development expenses. Outside Japan, operating income benefitted from a shift in the PC sales strategy to emphasize profitability. In addition, in the same period of the previous fiscal year, euro weakness against the dollar caused dollar-denominated parts procurement costs to rise in Europe. Moreover, operating income outside Japan in the first nine months of the current fiscal year benefitted from the rise in sales of the Mobilewear sub-segment.

 

Device Solutions

(Billion Yen)

 

 

9 Months FY2013

Change vs.

9 Months FY2012

Net Sales

450.5

13.1 %

Japan

214.9

-3.7 %

Outside Japan

235.5

34.6 %

Operating Income

22.2

38.6 

 

Net sales in Device Solutions amounted to 450.5 billion yen (US$4,290 million), an increase of 13.1% compared to the first nine months of fiscal 2012. Sales in Japan declined 3.7%. Sales of LSI devices used in smartphones increased, but sales of LSI devices used in digital audio-visual equipment and manufacturing equipment decreased. Sales of electronic components were essentially unchanged from the same period in the prior fiscal year. Sales of semiconductor packages and batteries decreased, but sales of optical transceiver modules for telecommunications equipment increased. Sales outside Japan increased 34.6%. On a constant-currency basis, sales increased 9%. Sales of LSI devices for smartphones increased. Sales of electronic components to the Americas and China increased.

 

The Device Solutions segment recorded operating income of 22.2 billion yen (US$211 million), an improvement of 38.6 billion yen compared to the first nine months of fiscal 2012. In Japan, operating income for LSI devices was adversely affected by lower sales, although an early retirement incentive plan and other factors had the effect of reducing fixed costs. Capacity utilization rates on the production lines for 300mm wafers remained high owing to an increase in demand for use in smartphones, primarily in the first half of the fiscal year, but capacity utilization rates on the production lines for standard logic devices remained low. Fujitsu is planning to consolidate the production lines for standard logic devices in the Aizu-Wakamatsu region so as to raise capacity utilization rates. Operating income outside of Japan improved on higher demand for LSI devices and electronic components. Another contributing factor was the impact the depreciating yen had in increasing sales.

 

Other/Elimination and Corporate

 

This segment recorded an operating loss of 53.8 billion yen (US$512 million), an improvement of 5.2 billion yen from the first nine months of fiscal 2012. This was a result of Group-wide progress in generating cost efficiencies.

 

<Geographic Information>

 

Sales and operating income for Fujitsu and its consolidated subsidiaries according to country and region are as follows.

 

Net Sales               (Billion Yen)


9 Months FY2013

Japan

2,415.8

[2.3%]

Outside Japan

1,358.0

[25.9%]


EMEA

672.8 

[21.9%]


The Americas

281.8

[49.1%]


APAC & China

403.2

[19.5%]

Note: Numbers inside brackets indicate % changes over same period in previous year.

 

Operating Income                   (Billion Yen)

 

 

Third Quarter

FY2013

Change vs. 3Q
FY2012


Nine Months
FY2013

Change

vs.

9 Months
FY2012

Japan

40.1

[4.6%]

26.2

[2.8%]


88.0

[3.6%]

11.8

[0.4%]

Outside

Japan

5.4

[1.2%]

4.7

[1.0%]


5.7

    [0.4%]

23.7

[2.1%]


EMEA

2.9

[1.2%]

3.7

[1.6%]


-5.8

[-0.9%]

14.2

[2.7%]


The Americas

-0.9

[-1.1%]

0.2

[0.9%]


3.3

[1.2%]

7.2

[3.3%]


APAC &

China

3.5

[2.6%]

0.7

[0.1%]


8.2

[2.0%]

2.2

[0.2%]

Note: Numbers inside brackets indicate operating income margin.

 

In accordance with the adoption of the amended IAS 19, the figures for the third quarter and first three quarters of fiscal 2012 have been retroactively revised. Accordingly, operating income outside Japan, primarily for the EMEA region, has decreased by 1.7 billion yen and 5.0 billion yen, respectively.

 

2. Explanation of Financial Condition

 

(1) Assets, Liabilities and Net Assets

 

Consolidated total assets at the end of the third quarter amounted to 3,200.5 billion yen (US$30,481 million), an increase of 280.2 billion yen from the end of fiscal 2012. The shift in the exchange rate to a weaker yen caused total assets to increase by approximately 140 billion yen. Current assets increased by 227.0 billion yen compared with the end of fiscal 2012, to 1,949.3 billion yen. On account of the weaker yen and in preparation for anticipated sales, particularly in the services business, inventories at the end of the third quarter increased to 414.7 billion yen, an increase of 91.6 billion yen from the ending balance of fiscal 2012. The monthly inventory turnover ratio, which is an indication of asset utilization efficiency, was 0.96 times, an improvement of 0.05 times from the end of the third quarter of fiscal 2012. In addition to more efficient inventory management primarily in PCs and electronic components, the improvement stemmed from the impact of the sale of the microcontroller and analog device business.

 

Non-current assets increased by 53.2 billion yen from the end of fiscal 2012, to 1,251.2 billion yen. Investments and other non-current assets increased by 42.2 billion yen, to 434.4 billion yen, as the rise in stock prices caused the value of investment securities to increase.

 

Consolidated total liabilities amounted to 2,375.6 billion yen (US$22,625 billion), an increase of 207.8 billion yen compared to the end of fiscal 2012. Although trade notes and accounts payable increased because of the impact of the weaker yen, the provision for restructuring charges decreased because of the payment of business structure improvement expenses for the LSI device business and businesses outside Japan. The balance of interest-bearing loans was 696.6 billion yen, an increase of 161.6 billion yen from the end of fiscal 2012. Fujitsu issued 80.0 billion yen in straight bonds to cover the redemption of straight bonds and short-term borrowings, and short-term borrowings increased to finance a portion of working capital. As a result, the D/E ratio was 1.00 times, an increase of 0.14 of a percentage point compared to the end of fiscal 2012, and the net D/E ratio was 0.49 times, a deterioration of 0.09 of a percentage point compared to the end of fiscal 2012.

 

Net assets were 824.8 billion yen (US$7,855 million), an increase of 72.4 billion yen from the end of fiscal 2012. The increase is primarily attributable to an increase in accumulated other comprehensive income as a result of yen depreciation and rising share prices. The owners' equity ratio was 21.7%, an increase of 0.3 of a percentage point from the end of fiscal 2012.

(Billion Yen)


FY2012

(March 31, 2013)

3Q FY2013

(Dec. 31, 2013)

Change


3Q FY2012

(Dec. 31, 2012)

Cash and Cash Equivalents at End of Period

286.6

356.9

70.3


292.9

Interest-bearing Loans

 534.9

696.6

161.6


546.7

Net Interest-bearing Loans

248.3

339.6

91.3


253.8

Owners' Equity

624.0

693.6

69.6


626.2

 

D/E Ratio (Times)

0.86

1.00

0.14


0.87

Net D/E Ratio (Times)

 0.40

0.49

0.09


0.41

Shareholders' Equity Ratio

28.3 %

25.9 %

-2.4 %


28.2 %

Owners' Equity Ratio

 21.4 %

21.7 %

0.3 %


21.8 %

1.   D/E ratio: Interest-bearing loans/Owners' equity

2.   Net D/E ratio: (Interest-bearing loans - Cash and cash equivalents at end of period)/Owner's equity 

3.   The figures for the third quarter of fiscal 2012 and full-year fiscal 2012 have been retroactively revised in accordance with the adoption of the amended IAS 19 Employee Benefits. Owners' equity for the third quarter of fiscal 2012 has been reduced by 113.1 billion yen, and it has been reduced by 157.3 billion yen for full-year fiscal 2012. D/E ratio and others are also revised.

 

(2) Cash Flows

 

Net cash provided by operating activities in the first nine months amounted to 7.1 billion yen (US$68 million). This represents a decrease in cash inflows of 13.4 billion yen compared to the first three quarters of fiscal 2012. Although there was an improvement in income before income taxes and minority interests because of the impact of structural reforms and workforce-related measures, operating cash flow declined because of the payment of business structural improvement expenses for the LSI device business and businesses outside Japan and because working capital increased.

 

Net cash used in investing activities was 86.5 billion yen (US$824 million). Outflows mainly consisted of the acquisition of property, plant and equipment amounting to 82.4 billion yen, primarily related to datacenters, and the acquisition of intangible assets, primarily software, amounting to 46.3 billion yen, primarily software. There was an inflow of cash from the sale of investment securities and an inflow of cash from the maturity of a time deposit that had been held for fund management purposes. Compared to the same period in fiscal 2012, net outflows decreased by 36.2 billion yen.

 

Free cash flow, the sum of cash flows from operating and investing activities, was negative 79.4 billion yen (US$756 million), representing a decrease in net cash outflows of 22.7 billion yen compared with the same period in the previous fiscal year.

 

Net cash provided by financing activities was 135.3 billion yen (US$1,289 million). A portion of working capital was financed through short-term borrowings. In addition, short-term borrowings in the previous fiscal year that were used to finance a special contribution to the pension fund of a UK subsidiary were repaid and replaced by straight bonds and other long-term borrowings. This represents an increase in net cash inflows of 10.9 billion yen compared to the first nine months of fiscal 2012.

 

As a result of the above factors, cash and cash equivalents at the end of the third quarter of fiscal 2013 were 356.9 billion yen (US$3,399 million), an increase of 72.3 billion yen compared to the end of fiscal 2012.

 

(3) Status of Retirement Benefit Plans

 

Of Fujitsu's unrecognized obligation for retirement benefits, 157.3 billion yen, representing the portion from the pension plans of subsidiaries outside Japan, was reflected on the consolidated balance sheets through other comprehensive income at the beginning of fiscal 2013. The portion from the pension plans of Fujitsu and its subsidiaries in Japan will be reflected on the consolidated balance sheets at the end of fiscal 2013. The amortization expenses stemming from the actuarial losses in the pension plans of subsidiaries outside Japan are transferred from other comprehensive income.

 

 (Billion Yen)


Unrecognized Obligation

for Retirement Benefits

(Off Balance Sheet)


Amortization Expenses


FY2012

(As of March 31, 2013)

Nine Months FY2013

(4/1/13-12/31/13)

(Before Revisions)

(After Revisions)


Amounts Transferred From Other Comprehensive Income

Total

466.1

308.7

32.8

13.0


In Japan

308.7

308.7

19.7

-

Outside Japan

157.3

-

13.0

13.0

Note: Amortization expenses exclude one-time amortization expenses of 4.5 billion yen stemming from a partial buyout in the retirement benefit plans at a European subsidiary.

 

3. FY2013 Earnings Projections

 

In the third quarter of fiscal 2013, Fujitsu recorded net sales of 1,200.7 billion yen, an increase of 152.4 billion yen from the same period in fiscal 2012, and operating income of 26.1 billion yen, an improvement of 32.0 billion yen over the same period of the previous fiscal year. Compared to the financial projections announced in October 2013, although results for mobile phones fell below projections, results in the Services sub-segment, which has a strong flow of current orders, exceeded projections. In addition, with the beneficial effect of the weaker yen on results in LSI devices, and with progress in generating company-wide cost efficiencies, overall consolidated results exceeded projections.

 

Moreover, net income in the third quarter was 12.0 billion yen, a significant improvement of 92.8 billion yen over the prior fiscal year's third quarter, despite recording a loss on the liquidation of a US subsidiary. This improvement was the result of increased operating income and because of the restructuring charges and other expenses, primarily stemming from the restructuring of the LSI device business, recorded in the third quarter of fiscal 2012.

 

In light of these circumstances, Fujitsu has revised its full-year projections for fiscal 2013 as outlined below. Exchange rate assumptions for the fourth quarter have also been revised, to 100 yen for the US dollar, 135 yen for the euro, and 160 yen for the British pound.

 

Net sales projections for the full fiscal year have been revised upward by 60 billion yen from the projections announced in October, to 4,680 billion yen. The Technology Solutions segment accounts for 40 billion yen of this upward revision, reflecting the impact of the revised exchange rate assumptions on results outside of Japan in the Services sub-segment. Projected sales in the Ubiquitous Solutions segment have been revised upward by 30 billion yen. Although mobile phone sales are lower because of lower unit sales, the upward revision reflects higher demand for PC upgrades among enterprise customers and the impact of higher new vehicle production on sales in the Mobilewear business. Projected sales in the Device Solutions segment have been revised upward by 5 billion yen because of higher anticipated sales of LSI devices. The upward revision is the result of changes in the exchange rate assumptions, but the impact of an anticipated fall in demand for electronic components has also been factored into this projection.

 

Fujitsu has left its full-year projection for operating income unchanged at 140 billion yen. Projected operating income for the Ubiquitous Solutions segment has been revised downward by 12 billion yen on the anticipation of lower unit sales of mobile phones and higher costs. In Technology Solutions, however, projections for operating income have been revised upward by 3 billion yen on better anticipated results in the Services sub-segment, which has a strong current flow of orders. In addition, projected operating income for Device Solutions has been revised upward by 2 billion yen on better anticipated results in LSI devices because of the revised exchange rate assumptions, and projections for the Other/Elimination and Corporate segment have been revised upward to reflect an anticipated improvement of 7 billion yen in generating company-wide cost efficiencies and other factors.

 

Fujitsu has left its full-year projection for net income unchanged at 45.0 billion yen. Improvements resulting from the foreign currency gains recorded in the third quarter and gains on the sale of property, plant and equipment are expected to be offset by temporary higher income tax expenses due to early termination of Special Reconstruction Corporation Tax in the fourth quarter. The loss stemming from the liquidation of a US subsidiary recognized as other expense in the third quarter and the effect on lowering income tax expenses had already been factored into the previous projections, so it has no impact on the revisions to the projections announced today.

 

FY2013 Full-Year Consolidated Forecast





 (Billion Yen)


FY2012

(Actual)


Previous Forecast*

FY2013

(Forecast)

Change vs.

Previous Forecast*


Change vs.

FY2012




Change (%)

Net Sales

4,381.7


4,620.0

4,680.0

60.0


298.2

6.8

Operating Income

88.2


140.0

140.0

-


51.7

58.6

[Operating Income Margin]

[ 2.0%]


[ 3.0%]

[ 3.0%]

[ -%]


[ 1.0%]


Other Income and Expenses

-140.3


-35.0

-45.0

-10.0


95.3

-

Net Income

-79.9


45.0

45.0

-


124.9

-

[Operating Income by Business Segment]






Technology Solutions

173.9


207.0

210.0

3.0


36.0

20.7


Services

124.6


150.0

153.0

3.0


28.3

22.8


System Platforms

49.3


57.0

57.0

-


7.6

15.6

Ubiquitous Solutions

9.6


-15.0

-27.0

-12.0


-36.6

-

Device Solutions

-14.2


25.0

27.0

2.0


41.2

-

Other/Elimination and Corporate

-81.0


-77.0

-70.0

7.0


11.0

-

*   Previous Forecast as of October 31, 2013.

**  In accordance with the adoption of the amended IAS 19, the figures for fiscal 2012 have been retroactively revised. As a result, operating income for Services has been reduced by 7.0 billion yen.

 

To view the full announcement of the FY 2013 Third-Quarter Financial Results, please paste the following link into your web browser;

http://www.fujitsu.com/global/about/ir/


This information is provided by RNS
The company news service from the London Stock Exchange
 
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