October 27, 2006 01:47 PM Matsushita Reports First Half Net Profit Increase - Sales and Earnings Exceed the Previous Forecast - (Note: Dollar amounts for the most recent period have been translated for convenience at the rate of U.S.$1.00 = 118 yen.) OSAKA, Japan--(BUSINESS WIRE)--Matsushita Electric Industrial Co., Ltd. (Matsushita [NYSE symbol: MC]) today reported its consolidated financial results for the second quarter and first half, and non-consolidated (parent company alone) results for the first half, ended September 30, 2006, of the current fiscal year, ending March 31, 2007 (fiscal 2007). Consolidated Second-quarter Results Consolidated group sales for the second quarter increased 2% to 2,252.6 billion yen (U.S.$19.09 billion), from 2,211.0 billion yen in the same three-month period a year ago. Explaining the second quarter results, the company cited sales gains in digital audiovisual (AV) products, Home Appliances, Components and Devices, and MEW and PanaHome. Of the consolidated group total, domestic sales increased 1% to 1,118.2 billion yen ($9.48 billion), from 1,109.0 billion yen a year ago. Overseas sales increased 3% to 1,134.4 billion yen ($9.61 billion), from 1,102.0 billion yen in the second quarter of fiscal 2006. During the second quarter, despite signs of a slowdown in the U.S. economy with weaker housing investment, the global economic situation as a whole remained steady due mainly to high economic growth in China and the recovery trend of the European economy. The Japanese economy also continued steady growth with favorable export and capital investment. Meanwhile, in the electronics industry, although there was shown partly a backlash of the FIFA World Cup boom, market conditions were favorable overall. However, there remains a severe business environment due primarily to rising raw materials prices and continuous price declines mainly in digital AV products caused by intensified global competition. Under these circumstances, Matsushita strives to implement growth strategies and strengthen management structures to ensure its future growth trend. As part of such efforts, the company aggressively launched and promoted a new series of V-products to capture leading market shares and make a significant contribution to overall business results. Aiming to reinforce its management structures, the company has made all-out efforts to reduce raw materials costs and eliminate redundancies throughout the Matsushita Group. Regarding earnings, negative factors such as intensified global price competition and increased raw materials prices were more than offset by comprehensive cost reduction efforts, successive launch of V-products and other positive factors. As a result, operating profit1 for the second quarter was up 14%, to 142.3 billion yen ($1.21 billion), from 125.1 billion yen in the same period a year ago. Pre-tax income totaled 157.1 billion yen ($1.33 billion), up 79% from 87.9 billion yen last year. This improvement was due mainly to a decrease in expenses associated with early retirement programs to 3.8 billion yen ($32 million), compared with 20.6 billion yen in the previous year’s second quarter. Net income increased 156% to 79.3 billion yen ($672 million), from 31.0 billion yen in the same quarter of the previous year. Consolidated First-half Results Combining the second quarter results with those of the first quarter, consolidated group sales for the first fiscal half ended September 30, 2006 increased 3% to 4,389.5 billion yen ($37.20 billion), compared with 4,259.2 billion yen in the same six-month period a year ago. Explaining the first half results, the company cited sales gains in digital AV products, such as flat-panel TVs. Domestic sales amounted to 2,180.1 billion yen ($18.48 billion), mostly unchanged from a year ago, while overseas sales increased 6% to 2,209.4 billion yen ($18.72 billion) from the previous year’s first half, caused by favorable sales overall, represented by a sharp sales increase in Europe mainly as a result of strong sales of flat-panel TVs. For reasons similar to those given for second quarter results, the company’s operating profit for the first fiscal half increased 21% to 207.4 billion yen ($1.76 billion), from 171.1 billion yen in the comparable period a year ago. Pre-tax Income for the six-month period increased 51% to 232.5 billion yen ($1.97 billion), compared with 154.1 billion yen a year ago. In other income (deductions), the company recorded gains on the sale of the investments and proceeds from tangible fixed assets, and incurred less expenses associated with the implementation of early retirement programs, compared with the previous year’s first half. Net income was also up 79% to 115.1 billion yen ($976 million), as compared with 64.4 billion yen in the first half of the previous year. The company’s net income per common share was 52.38 yen ($0.44) on a diluted basis, versus 28.82 yen in the first half of last year. Consolidated First-half Sales Breakdown by Product Category The company’s first-half consolidated sales by product category, as compared with prior year amounts, are summarized as follows: AVC Networks AVC Networks sales increased 1% to 1,770.3 billion yen ($15.00 billion), from 1,747.4 billion yen in last year’s first half. Sales of video and audio equipment increased 8% from the previous year’s first half, due mainly to favorable sales in digital AV products such as flat-panel TVs and digital cameras. In information and communications equipment, the company recorded strong sales of PCs and automotive electronics, but sales downturns of mobile phones in Japan and overseas and other products led to a 3% decrease overall. Home Appliances Sales of Home Appliances increased 4% to 603.6 billion yen ($5.12 billion), compared with 578.4 billion yen in last year’s first half, due mainly to favorable sales of air conditioners and compressors. Components and Devices Sales of Components and Devices were also up 5% to 558.4 billion yen ($4.73 billion), compared with 531.0 billion yen in the same period of the previous year. Favorable sales in general electronic components, batteries and electric motors led to overall increased sales in this category. MEW and PanaHome Sales of MEW and PanaHome increased 8% to 811.8 billion yen ($6.88 billion), from 752.4 billion yen last year. At Matsushita Electric Works, Ltd. (MEW) and its subsidiaries, sales gains were recorded in electrical construction materials and electronic and plastic materials. At PanaHome Corporation, sales gains were recorded in detached housing, contributing to overall increased sales. JVC Sales for JVC (Victor Company of Japan, Ltd. and its subsidiaries) totaled 321.6 billion yen ($2.73 billion), down 4% from 333.7 billion yen in the first half of the previous year. This result was due primarily to sluggish sales of AV equipment. Other Sales for Other totaled 323.8 billion yen ($2.74 billion), up 2% from 316.3 billion yen in the same period a year ago. Sales increases in factory automation equipment were recorded within this category. Non-Consolidated (Parent Company Alone) First-half Results2 First-half parent-alone sales increased 8% to 2,343.9 billion yen, from 2,176.1 billion yen in the same six-month period a year ago. Sales increases were recorded mainly in AVC Networks and Home Appliances, contributing to overall increased sales. Regarding parent-alone earnings, operating profit totaled 70.6 billion yen, up 18% from the previous year’s first half. This increase was realized mainly by sales gains and various comprehensive cost reduction initiatives, despite price declines. Recurring profit decreased 16% to 77.5 billion yen, from 92.5 billion yen in the previous first half. Despite an increase in operating profit, a decrease in dividend income from subsidiaries led to lower recurring profit, compared with the previous year’s first fiscal half. Parent-alone net income decreased 24% to 72.8 billion yen, from 95.7 billion yen in the first half of the previous year, including gains from the sale of securities of certain affiliated companies and the sale of tangible fixed assets. Consolidated Financial Condition Net cash provided by operating activities in the fiscal 2007 first half amounted to 197.7 billion yen ($1.68 billion). This was attributable to cash inflows from net income and depreciation, despite increased inventories caused by seasonal factors such as year-end sales. Net cash used in investing activities amounted to 343.1 billion yen ($2.91 billion). Capital expenditures for tangible fixed assets were 206.9 billion yen, mainly consisting of manufacturing facilities for priority business areas such as plasma display panels (PDPs) and semiconductors, while time deposits increased 170.1 billion yen from the end of fiscal 2006 (March 31, 2006). Net cash used in financing activities was 127.8 billion yen ($1.08 billion). Major factors included the repayments of long-term debt, the payment of cash dividends and the repurchase of the company’s common stock. All these activities resulted in cash and cash equivalents of 1,407.7 billion yen ($11.93 billion) at the end of the fiscal 2007 first half, down 259.7 billion yen compared with the end of the last fiscal year (March 31, 2006). The company’s consolidated total assets as of September 30, 2006 increased by 27.4 billion yen as compared with the end of the last fiscal year, to 7,992.0 billion yen ($67.73 billion). The increase was due mainly to the increased inventories caused by seasonal factors. Stockholders’ equity increased 68.6 billion yen, as compared with the end of the last fiscal year, to 3,856.3 billion yen ($32.68 billion) as of September 30, 2006. This was primarily attributable to increases in retained earnings, despite an increase in treasury stock on continued repurchases of the company’s own shares. Interim Dividend The Board of Directors of the company resolved today to distribute an interim (semiannual) cash dividend of 15 yen per common share to shareholders of record as of September 30, 2006, payable November 30, 2006. This is an increase from last year’s interim dividend (10 yen), based on a policy for profit distribution to shareholders (see pages 25-26). Year-end Dividend The company plans to distribute a year-end cash dividend of 15 yen per common share (payable to shareholders of record as of March 31, 2007). If implemented, total dividends for fiscal 2007, including the aforementioned interim dividend of 15 yen per common share, will be 30 yen per common share (see pages 25-26). Outlook for the Full Fiscal Year 2007 The company expects the future business environment to remain quite uncertain in the second half of fiscal 2007, with increasing raw materials prices and continuing price declines due to fierce global competition. Considering these conditions, the forecast for the full fiscal year 2007, ending March 31, 2007, remains unchanged from the forecast announced on April 28, 2006. Matsushita Electric Industrial Co., Ltd., best known for its Panasonic brand products, is one of the world's leading manufacturers of electronic and electric products for consumer, business and industrial use. Matsushita's shares are listed on the Tokyo, Osaka, Nagoya and New York stock exchanges.