| | (1) | Analysis of Business Results |
| | 1) | Consolidated Financial Results of FY2014 (April 1, 2014 through March 31, 2015) |
| | | | | | | | | (in billion yen) |
| | | FY2013 | | | FY2014 | | | As compared to the previous fiscal year increase (decrease) | |
| Orders received | | | 127.4 | | | | 176.3 | | | | 38.4 | % |
| Net sales | | | 111.9 | | | | 163.3 | | | | 46.0 | % |
| Operating income (loss) | | | (36.4 | ) | | | 14.6 | | | － | |
| Income (loss) before income taxes and equity in earnings (loss) of affiliated company | | | (35.5 | ) | | | 18.9 | | | － | |
| Net income (loss) | | | (35.5 | ) | | | 12.9 | | | － | |
During Advantest’s FY2014, the world economy decelerated more than initially expected, but sustained a gradual recovery overall, supported by the ongoing steady growth of the American economy.
The semiconductor industry saw active capital investment by manufacturers into expansions of their production capacities and for miniaturization of semiconductors, spurred by ongoing global adoption of smartphones and improvements in handset performance and growing demand for semiconductors from data centers.
Amid these conditions, Advantest strove to maximize profitability by engaging in sales promotions for non-memory test systems for which demand growth has been particularly strong, as well as by expanding its customer base across all business segments. As a result, both orders and sales increased in comparison to the previous fiscal year: orders received expanded to (Y) 176.3 billion (a 38.4% increase in comparison to the previous fiscal year) and net sales expanded to (Y) 163.3 billion (a 46.0% increase in comparison to the previous fiscal year). Advantest returned to profitability, with operating income of (Y) 14.6 billion, income before income taxes and equity in earnings of affiliated company of (Y) 18.9 billion and a net income of (Y) 12.9 billion, mainly due to higher year-over-year net sales, an improved mix of high-profitability products and successful cost-cutting measures undertaken across the entire Advantest Group. The percentage of net sales from overseas customers was 92.0% compared to 89.1% in the previous fiscal year.
Conditions of business segments are described below.
Advantest Corporation (FY2014)
<Semiconductor and Component Test System Segment>
| | | | | | | | | (in billion yen) |
| | | FY2013 | | | FY2014 | | | As compared to the previous fiscal year increase (decrease) | |
| Orders received | | | 82.2 | | | | 116.1 | | | | 41.3 | % |
| Net sales | | | 73.0 | | | | 108.3 | | | | 48.3 | % |
| Operating income (loss) | | | (26.7 | ) | | | 14.6 | | | － | |
In the Semiconductor and Component Test System segment, demand for non-memory test system was strong throughout the period, driven by robust sales of new high-end smartphones and by expansion of LTE base station infrastructure in China and the growth of the Chinese LTE smartphone market. Demand for memory test systems accelerated in the second half of FY2014 due to increasing functional speeds of DRAM and NAND flash memories.
As a result of the above, orders received were (Y) 116.1 billion (a 41.3% increase in comparison to the previous fiscal year), net sales were (Y) 108.3 billion (a 48.3% increase in comparison to the previous fiscal year), and operating income was (Y) 14.6 billion.
< Mechatronics System Segment＞
| | | | | | | | | (in billion yen) |
| | | FY2013 | | | FY2014 | | | As compared to the previous fiscal year increase (decrease) | |
| Orders received | | | 19.2 | | | | 31.2 | | | | 62.8 | % |
| Net sales | | | 15.0 | | | | 28.3 | | | | 89.2 | % |
| Operating income (loss) | | | (5.1 | ) | | | 3.8 | | | － | |
In the Mechatronics System segment, nanotechnology business generated higher profits and net sales by capturing increasing demand associated with miniaturization of semiconductors and 3D chip architectures. Demand for device interfaces and test handlers that is closely correlated with the tester market also grew in connection with increased demand for semiconductor test systems.
As a result of the above, orders received were (Y)31.2 billion (a 62.8% increase in comparison to the previous fiscal year), net sales were (Y) 28.3 billion (a 89.2% increase in comparison to the previous fiscal year), and operating income was (Y) 3.8 billion.
<Services, Support and Others Segment>
| | | | | | | | | (in billion yen) |
| | | FY2013 | | | FY2014 | | | As compared to the previous fiscal year increase (decrease) | |
| Orders received | | | 26.3 | | | | 29.1 | | | | 10.7 | % |
| Net sales | | | 24.2 | | | | 26.8 | | | | 10.8 | % |
| Operating income | | | 3.0 | | | | 3.3 | | | | 11.2 | % |
In the Services, Support and Others segment, efforts to improve the profitability of the field services business generated positive results, including an increased number of annual maintenance contracts. Advantest’s newly developed and launched SSD (solid state drive) test system, developed in anticipation of strong growth in the SSD market, also contributed to net sales starting FY2014.
Advantest Corporation (FY2014)
As a result of the above, orders received were (Y) 29.1 billion (a 10.7% increase in comparison to the previous fiscal year), net sales were (Y) 26.8 billion (a 10.8% increase in comparison to the previous fiscal year), and operating income was (Y) 3.3 billion (an 11.2% increase in comparison to the previous fiscal year).
| 2) | Non-consolidated Financial Results of FY2014 |
For non-consolidated financial results, mainly demand for non-memory test systems and related device interfaces that are correlated with the tester market continued to grow throughout the period. In addition, nanotechnology business has grown due to increasing demand associated with miniaturization of semiconductors and 3D chip architectures. As a result, net sales were (Y) 84.9 billion (a 72.4% increase in comparison to the previous fiscal year), and Advantest returned to profitability, recording ordinary income and net income.
| 3) | Prospects for the Upcoming Fiscal Year |
In the near term, gains in smartphone performance and global adoption are expected to continue. Additionally, Advantest foresees a trend towards higher functionality in semiconductor devices due to growth in demand for data centers. The computerization of automobiles is also expected to accelerate. Advantest expects that these trends for greater consumer safety and comfort will drive growth in the semiconductor industry in the near future.
The semiconductor test equipment market, where Advantest’s business is rooted, is expected to see a decline in demand for logic testers due to trends regarding end-products and miniaturization of semiconductors. However, Advantest foresees greater utilization of higher-speed DRAM and NAND flash memories for smartphones and data centers. Therefore, demand is expected not to fall significantly in FY2015.
Based on this outlook, Advantest will seek higher earnings by expanding its share in the semiconductor test equipment market, reinforcing semiconductor test peripheral products business and new business segments, and further streamlining its cost structure.
For FY2015, Advantest forecasts net sales of (Y) 165.0 billion, operating income of (Y) 15.0 billion and net income of (Y) 12.0 billion. These forecasts are based on foreign exchange rates of 115 Yen to the US dollar and 135 Yen to the Euro.
| (2) | Analysis of Financial Condition |
Total assets at the end of FY2014 amounted to (Y) 273.0 billion, an increase of (Y) 43.2 billion compared to the previous fiscal year, primarily due to an increase of (Y) 28.6 billion, (Y) 7.7 billion and (Y) 7.0 billion in cash and cash equivalents, goodwill and inventories, respectively. The amount of total liabilities was (Y) 132.1 billion, an increase of (Y) 18.5 billion compared to the previous fiscal year, due to an increase of (Y) 6.4 billion, (Y) 5.7 billion and (Y) 3.7 billion in accrued pension and severance costs, trade accounts payable and accrued expenses, respectively.
Stockholders’ equity was (Y) 140.9 billion. Equity to assets ratio was 51.6%, an increase of 1.0 percentage points from March 31, 2014.
(Cash Flow Condition)
Cash and cash equivalents at the end of FY2014 were (Y) 97.6 billion, an increase of (Y) 28.6 billion from the previous fiscal year.
Significant cash flows during this fiscal year and their causes are described below.
Net cash provided by operating activities was (Y) 24.5 billion (net cash outflow of (Y) 3.8 billion in FY2013). This amount was primarily attributable to an increase of (Y) 4.4 billion and (Y) 3.5 billion in trade accounts payable and accrued expenses and adjustments of non cash items such as depreciation and amortization in addition to the net income of (Y) 12.9 billion.
Net cash used in investing activities was (Y) 1.3 billion (net cash outflow of (Y) 4.7 billion in FY2013). This amount was primarily attributable to payments for acquisition of tangible fixed assets in the amount of (Y) 3.2 billion and offset by proceeds from sale of available-for-sale securities of (Y) 2.1 billion.
Advantest Corporation (FY2014)
Net cash used in financing activities was (Y) 1.3 billion (net cash inflow of (Y) 27.2 billion in FY2013). This amount was primarily attributable to proceeds from offset by dividends paid of (Y) 1.7 billion.
The following table illustrates the historical movements of certain cash flow indexes:
| | | FY2010 | | | FY2011 | | | FY2012 | | | FY2013 | | | FY2014 | |
| Stockholders’ equity ratio (%) | | | 76.6 | | | | 60.0 | | | | 62.6 | | | | 50.6 | | | | 51.6 | |
| Stockholders’ equity ratio based on market prices (%) | | | 144.0 | | | | 103.1 | | | | 103.7 | | | | 84.7 | | | | 97.1 | |
| Debt to annual cash flow ratio (%) | | － | | | | 203.2 | | | － | | | － | | | | 225.7 | |
| Interest coverage ratio (times) | | － | | | | 80.6 | | | － | | | － | | | | 178.7 | |
Stockholders’ equity ratio: stockholders’ equity / total assets
Stockholders’ equity ratio based on market prices: market capitalization / total assets
Debt to annual cash flow ratio: interest-bearing liabilities / operating cash flows
Interest coverage ratio: operating cash flows / interest payments
| (Notes) | 1. These indexes are calculated using U.S. GAAP figures. |
2. Market capitalization is calculated based on quoted market price as of fiscal year end, and issued and outstanding sharesexcluding treasury stock.
3. Operating cash flows are the cash flows provided by operating activities on the consolidated statements of cash flows.
4. Interest-bearing liabilities include all liabilities on the consolidated balance sheets that incur interest.
5. Debt to annual cash flow ratio and interest coverage ratio of FY2010, FY2012 and FY2013 are not presented because of the net cash outflow incurred for these years.
| (3) | Basic Policy on Distribution of Profits and Distribution for FY2014 and Distribution Forecast for FY2015 |
Based on the premise that long-term and continued growth in corporate value is fundamental to the creation of shareholder value, Advantest deems the consistent distribution of profits to be the most important management priority. Accordingly, Advantest engages in active distribution of profits based on consolidated business performance.
With respect to the distribution of retained earnings, Advantest makes payout decisions after taking into consideration consolidated business performance, financial conditions, as well as the need for strategic investment for mid-to-long-term business development. While aiming to make consistent distributions, because of the fluctuation of the market in which it operates, Advantest makes dividend payouts following a target payout ratio of 20% or more.
Retained earnings are devoted to research and development, streamlining efforts, overseas expansion, investments in new businesses and resources for M&A activities, with an aim to strengthen Advantest’s business position and enhance its corporate value.
In order to maintain capital strategies responsive to changes in the operating environment, Advantest plans to repurchase its own shares from time to time through taking into account factors such as trends in stock price, capital efficiency and cash flow.
In this fiscal year, Advantest decided to distribute a year-end dividend of (Y) 10 consistent with the FY2014 forecast which was announced on January 29, 2015 based on the above-mentioned basic policy on distribution of profits, with a payment date of June 2, 2015. Since Advantest paid an interim dividend of (Y) 5 on December 1, 2014, the total dividend per share for the fiscal year will be (Y) 15.
Advantest Corporation (FY2014)
Advantest plans to distribute an interim dividend of (Y) 10 per share and a year-end dividend of (Y) 10 per share for a total dividend of (Y) 20 per share.
| (1) | Advantest’s Basic Management Policy |
Advantest has established a corporate vision of “Technology Support on the Leading Edge”, and its corporate mission of “Quest for the Essence”. Guided by these principles, Advantest respects each of its stakeholders, strives to maintain harmony with society, and aims for the sustained development of the Company and the improvement of corporate value while contributing to the goal of a sustainable society.
| (2) | Target Financial Index |
Advantest applies the “AVA” (Advantest Value Added), a financial index incorporating the concept of EVA® (Economic Value Added) *, as a significant management indicator, along with profit margin, ROE and cash flows. Specifically, Advantest will set the minimum return-on-investment ratio (“hurdle rate”) for evaluating AVA at 8% and a mid-term target at 12% or more with an aim to further enhance corporate value and shareholder value.
*“EVA®” is a registered trademark of Stern Stewart & Co.
| (3) | Mid-to-Long-Term Business Strategy and Issues to be Addressed |
While maintaining the core competence in measurement technologies cultivated through decades of research and development, Advantest will strive to enhance its corporate value through two structural reforms that take into account its levels of profitability and losses over the last few years.
The first reform aims to sustain a cost structure that can stably generate profits even during periods of market decline. Specifically, Advantest will make an effort to contain the rise in break-even point, which has been lowering since the second half of FY2013, by optimizing payroll costs through flexible workforce deployment that is appropriate under business conditions, improving operation efficiencies and lowering material costs.
The second reform aims to develop a business structure that can achieve sustainable growth. Specifically, while maintaining and improving its competitiveness in the semiconductor test equipment market to secure stable profits, Advantest aims to expand profit from businesses in semiconductor test peripherals market and from markets outside the semiconductor test market. In order to accelerate these structural reforms, Advantest expects to further the flexible reallocation of management resources to growing markets and key sectors while taking into consideration its financial condition and efficiency .
3. Basic Approach to the Selection of Accounting Standards
Advantest is listed on the New York Stock Exchange for enhancement of creditworthiness, improvement of financial transparency and flexibility of raising capital overseas. As a result, it has adopted generally accepted accounting principle in the United States of America (“U.S. GAAP”). Advantest believes that U.S. GAAP enhances international comparability of its financial information in the capital markets.
Advantest Corporation (FY2014)
4. Consolidated Financial Statements and Other Information
| (1) | Consolidated Balance Sheets (Unaudited) |
| | | Yen (Millions) |
| Assets | | March 31, 2014 | | March 31, 2015 |
| | |
| | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | ¥ | 68,997 | | | | 97,574 | |
| Trade receivables, net | | | 20,404 | | | | 24,960 | |
| Inventories | | | 30,200 | | | | 37,210 | |
| Other current assets | | | 5,218 | | | | 5,057 | |
| | |
| Total current assets | | | 124,819 | | | | 164,801 | |
| | |
| | |
| Investment securities | | | 3,741 | | | | 2,249 | |
| Property, plant and equipment, net | | | 39,925 | | | | 38,480 | |
| Intangible assets, net | | | 3,545 | | | | 4,085 | |
| Goodwill | | | 46,846 | | | | 54,590 | |
| Other assets | | | 10,980 | | | | 8,836 | |
| | |
| Total assets | | ¥ | 229,856 | | | | 273,041 | |
