Mitsubishi Electric : Announces Consolidated Financial Results for the First Half and Second Quarter of Fiscal 2017

Mitsubishi Electric Corporation (TOKYO: 6503) announced today its financial results for the first half and second quarter, ended September 30, 2016, of the current fiscal year ending March 31, 2017 (fiscal 2017).

The full document on Mitsubishi Electric’s financial results can be accessed at the following link: www.MitsubishiElectric.com/news

The business environment in the first half of fiscal 2017, from April through September 2016, experienced a continuing gradual slowdown in China and weak consumption in Japan, while the U.S. economy showed strong signs of expansion and European economy continued to recover gradually. In addition, the yen became stronger against foreign currencies compared to the same period of the previous year.

Under these circumstances, consolidated net sales in the first half of fiscal 2017 decreased by 4% compared to the same period of the previous fiscal year to 1,972.3 billion yen, owing to factors such as decreased sales in the Industrial Automation Systems, Electronic Devices and Information and Communication Systems segments. Consolidated operating income decreased by 4% compared to the same period of the previous fiscal year to 121.7 billion yen, due to decreased profits in the Industrial Automation Systems and Electronic Devices segments.

The social infrastructure systems business saw a decrease in orders compared to the same period of the previous fiscal year due primarily to a decrease in the transportation systems business outside Japan. Sales, meanwhile, increased compared to the same period of the previous fiscal year due mainly to increases in the power systems business and in the transportation systems business in Japan.

The building systems business experienced decreases in both orders and sales compared to the same period of the previous fiscal year, due primarily to negative influences caused by the stronger yen, despite the growth in the renewal business in Japan, as well as the installation business of new elevators and escalators outside Japan.

As a result, total sales for this segment remained substantially unchanged from the same period of the previous fiscal year. Operating income increased by 5.4 billion yen from the same period of the previous fiscal year due primarily to a shift in project portfolios.

The factory automation systems business saw an increase in orders from the same period of the previous fiscal year mainly due to growth in capital expenditures in the fields of smartphones and electrical automotives in China, while sales experienced a decrease from the same period of the previous fiscal year due to decreased capital expenditures of photovoltaic systems in Japan and the negative influences caused by the stronger yen.

The automotive equipment business saw decreases in both orders and sales from the same period of the previous fiscal year due primarily to stagnation in car sales in Japan and the negative influence of the stronger yen, despite growth in car sales mainly in Europe.

As a result, total sales for this segment decreased by 7% from the same period of the previous fiscal year. Operating income decreased by 21.8 billion yen from the same period of the previous fiscal year due primarily to a decrease in sales.

The telecommunications equipment business saw decreases in both orders and sales compared to the same period of the previous fiscal year due primarily to the sellout of an affiliated company in the beginning of the fiscal year and decreased sales of communications infrastructure equipment.

The information systems and service business saw a decrease in sales compared to the same period of the previous fiscal year, owing to a decrease in the IT infrastructure service business.

The electronic systems business saw a decrease in orders compared to the same period of the previous fiscal year due to a shift in the portfolio of large-scale projects in the space business, while sales experienced an increase compared to the same period of the previous fiscal year due primarily to the progress with large-scale projects in the defense systems business.

As a result, total sales for this segment decreased by 12% compared to the same period of the previous fiscal year. Operating income improved by 7.6 billion yen from the same period of the previous fiscal year, turning into profit, due primarily to a shift in project portfolios.

The electronic devices business saw an increase in orders from the same period of the previous fiscal year due to an increase in optical communication devices, while sales decreased by 30% compared to the same period of the previous fiscal year due to a decrease in demand for power modules, along with the negative influences of the 2016 Kumamoto earthquakes and the stronger yen.

As a result, operating income decreased by 14.5 billion yen compared to the same period of the previous fiscal year due primarily to a decrease in sales.

The home appliances business saw an increase in sales of 2% compared to the same period of the previous fiscal year due to increases in sales of air conditioners in the European and North American markets and sales of residential and industrial air conditioners in Japan, despite negative influences caused by the stronger yen.

Operating income increased by 15.4 billion yen compared to the same period of the previous fiscal year largely due to an increase in sales and the improvement in profitability of air conditioners outside Japan.

Sales decreased by 1% compared to the same period of the previous fiscal year mainly due to decreases in sales among affiliated companies involved in materials procurement.

Operating income increased by 2.0 billion yen from the same period of the previous fiscal year due primarily to cost reductions.

Consolidated net sales for this quarter, from July through September 2016, was 1,045.2 billion yen, a 3% decrease from the same period of the previous fiscal year, due primarily to decreased sales in the Industrial Automation Systems, Electronic Devices and Information and Communication Systems segments.

Consolidated operating income was 62.0 billion yen, a decrease of 14% from the same period of the previous fiscal year, with decreased profits in the Industrial Automation Systems, Energy and Electric Systems, and Electronic Devices segments.

The social infrastructure systems business saw increases in both orders and sales compared to the same period of the previous fiscal year mainly due to increases in the power systems business and the transportation systems business in Japan, despite a decrease in sales of the transportation systems business outside Japan.

The building systems business experienced decreases in both orders and sales compared to the same period of the previous fiscal year, owing to negative influences caused by the stronger yen, despite the growth in the renewal business in Japan and the installation business of new elevators and escalators outside Japan.

As a result, total sales for this segment were unchanged from the same period of the previous fiscal year. Operating income decreased by 5.1 billion yen from the same period of the previous fiscal year due primarily to a shift in project portfolios.

The factory automation systems business saw an increase in orders from the same period of the previous fiscal year mainly due to a growth in capital expenditures in the fields of smartphones and electrical automotives in China, while sales experienced a decrease from the same period of the previous fiscal year due to decreased capital expenditures of the power distribution products in Japan and the negative influences caused by the stronger yen.

The automotive equipment business saw decreases in both orders and sales from the same period of the previous fiscal year due primarily to stagnation in car sales in Japan and the negative influence of the stronger yen, despite growth in car sales mainly in Europe.

As a result, total sales for this segment decreased by 5% from the same period of the previous fiscal year. Operating income decreased by 11.3 billion yen from the same period of the previous fiscal year due primarily to a decrease in sales.

The telecommunications equipment business saw decreases in both orders and sales compared to the same period of the previous fiscal year due primarily to the sellout of an affiliated company in the beginning of the fiscal year and decreased sales of communications infrastructure equipment.

The information systems and service business saw a decrease in sales compared to the same period of the previous fiscal year, owing to a decrease in the IT infrastructure service business.

The electronic systems business saw a decrease in orders compared to the same period of the previous fiscal year due to a shift in the portfolio of large-scale projects in the space business, while sales experienced an increase compared to the same period of the previous fiscal year due primarily to the progress with large-scale projects in the defense systems business.

As a result, total sales for this segment decreased by 3% compared to the same period of the previous fiscal year. Operating income improved by 9.1 billion yen from the same period of the previous fiscal year, turning into profit, due primarily to a shift in project portfolios.

The electronic devices business saw an increase in orders from the same period of the previous fiscal year due to an increase in optical communication devices, while sales decreased by 17% compared to the same period of the previous fiscal year due to a decrease in demand for power modules, along with the negative influences of the 2016 Kumamoto earthquakes and the stronger yen.

As a result, operating income decreased by 3.2 billion yen compared to the same period of the previous fiscal year due primarily to a decrease in sales.

The home appliances business remained unchanged compared to the same period of the previous fiscal year, with an increase in sales of air conditioners in the European and North American markets, despite of the negative influence of the stronger yen.

Operating income remained unchanged compared to the same period of the previous fiscal year.

Sales increased by 3% compared to the same period of the previous fiscal year mainly due to increases among affiliated engineering companies.

Operating income increased by 0.2 billion yen from the same period of the previous fiscal year due primarily to an increase in sales.

Financial Standing

An Analysis on the Status of Assets, Liabilities, Equity and Cash Flow on a Consolidated Basis

The Company’s total assets as of the end of this fiscal quarter decreased from the end of the previous fiscal year by 243.2 billion yen to 3,816.6 billion yen. The change in the balance of total assets is mainly attributable to increases in the balances of cash and cash equivalents by 10.9 billion yen, and of inventories by 10.9 billion yen as a result of work-in-process as recorded in commensurate with progress in job orders under pertinent contracts, while trade receivables decreased by 190.2 billion yen primarily as a result of credit collection and investments decreased by 48.0 billion yen mainly due to falling stock prices.

Total liabilities decreased from the end of the previous fiscal year by 175.2 billion yen to 1,947.1 billion yen. The outstanding balances of debts and corporate bonds decreased by 33.2 billion yen from the end of the previous fiscal year to 370.7 billion yen, resulting in a decline in the ratio of interest bearing debt to total assets to 9.7%, representing a 0.3 point decrease compared to the end of the previous fiscal year. Retirement and severance benefits increased by 8.4 billion yen, mainly resulting from a decrease in pension assets following a fall in stock prices, while the outstanding balance of trade payables decreased by 107.5 billion yen and other current liabilities decreased by 39.0 billion yen.

Mitsubishi Electric Corporation shareholders’ equity decreased by 61.1 billion yen compared to the end of the previous fiscal year to 1,777.6 billion yen. The shareholders’ equity ratio was recorded at 46.6%, representing a 1.3 point increase compared to the end of the previous fiscal year. These changes referred to above primarily resulted from a dividend payment of 38.6 billion yen and a decrease in accumulated other comprehensive income by 109.9 billion yen caused by such factors as the stronger yen and falling stock prices, despite an increase from recording a net income attributable to Mitsubishi Electric Corporation of 88.3 billion yen.

Cash flows from operating activities decreased by 2.2 billion yen compared to the same period of the previous fiscal year to 177.5 billion yen (cash in). Cash flows from investing activities decreased by 36.0 billion yen compared to the same period of the previous fiscal year to 58.9 billion yen (cash out) due to increases in proceeds from the sale of short-term investments and investment securities and other factors. As a result, free cash flow was 118.6 billion yen (cash in). Cash flows from financing activities were 77.7 billion yen (cash out) mainly due to dividend payment.

Forecast for Fiscal 2017 (year ending March 31, 2017)

The consolidated earnings forecast for fiscal 2017, ending March 31, 2017, has been revised from the previous forecast announced on July 28, 2016. Net sales is expected to fall below the previous forecast, mainly as a result of the company’s revised terms of foreign currency rates in which it sees the yen stronger in and after the third quarter of fiscal 2017. Operating income and other figures, however, are expected to exceed the previous forecast owing mainly to the improved profitability of air conditioners outside Japan in the Home Appliances segment and the positive results of business improvement measures in the Information and Communication Systems segment.

Note: The results forecast above is based on assumptions deemed reasonable by the Company at the present time, and actual results may differ significantly from forecasts.

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