We base the rating action on our view that the company's overall profitabilityis improving because of its progress in restructuring unprofitable businessesand because it has grown profits from its globally recognized watch brandsthanks to advanced technology and well-managed marketing. We also expect Casioto maintain extremely sound key financial metrics through conservativefinancial management.
We believe Casio's progress in restructuring its unprofitable digital camerabusiness has lowered the risk that the business poses to company profits. Thebusiness is unlikely to post large losses for the time being, because Casiohas withdrawn from lower-priced commoditized products and has successfullydeveloped unique products, differentiated them from those of majormanufacturers, and garnered strong customer loyalty in specific markets. Casiomaintains strong sales in its main watch business, led by its globallyrecognized G-SHOCK brand. We believe its advanced technology and well-managedmarketing will help the company to further differentiate its products fromthose of its competitors, to strengthen its brand, and to boost its earningscapacity. Its education business (electronic calculators and electronicdictionaries for school use), while matured, earns stable profits that supportcompanywide profitability. As a result, Casio's EBITDA margin improved to 13%in fiscal 2014 (ended March 31, 2015) from 10.9% the previous fiscal year, andwe expect it to rise to about 15% in fiscal 2015.
Casio's profits are slightly concentrated in the watch business, which sells adiscretionary item, and we think it has a less-diversified product lineup thanits major competitors. However, we believe Casio has somewhat mitigatedconcentration risk arising from its dependence on the watch business by
lifting the business' competitiveness. Accordingly, we assess Casio's businessrisk profile as fair but at the higher end of this category because thecompany has large shares of global markets for specific products. Theassessment also incorporates as positive factors for the rating our views thatCasio's profitability has improved to the upper end of the industry averageand volatility risk has decreased thanks to the restructuring.
Casio has extremely sound financial standing. Its capital investment burdenhas shrunk as a result of conservative financial management combined with itsrestructuring of businesses requiring heavy development and capitalinvestments, such as the digital camera business. We expect Casio to generatefree operating cash flows exceeding ¥30 billion annually and to maintain asound cash position after dividend payments. Therefore, we continue to viewCasio's financial risk profile as minimal.