HOME > IR Information > Message from Top Management
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Please provide your operating performance for the first half of the fiscal year ending March 31, 2012. |
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Both sales and profits face an uphill battle, weighed down by the global economic downturn and the surging yen. |
The global economy in the first half of the current fiscal year saw U.S. employment numbers worsen and the debt problem in Europe loom large, causing an overall uncertain economic outlook. Against this backdrop, in the knit industry, the amount of orders to the producing regions received from European and U.S. apparel companies substantially declined in the second quarter. Particularly in China, a major market for the Company, capital spending was scaled back by the adoption of a tightening monetary policy. The Company saw strong sales of SSR® computerized flat knitting machines in the first quarter, but sales remained sluggish from the second quarter, reflecting the sharply worsening market environment.
As a result of the above, during the first half of the fiscal year ended March 31, 2012, net sales came to ¥23,446 million, down 6.9% from the same period of the previous fiscal year. On the earnings front, although efforts were made to cut costs and operating expenses, operating income dropped 53.2%, to ¥2,264 million, affected by the decline in sales prices due to the surging yen and tough price competition, leading to a fall in the gross profit ratio. Moreover, the Company booked an exchange loss stemming from the yen's appreciation as a non-operating expense. This culminated in net loss of ¥791 million, compared with net income of ¥749 million for the previous year.
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Please outline the current state of the knit industry. |
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A new business model is being explored, shifting from overconcentration on China to diversification on a global basis. |
A change in the structural tide of the global knit industry is taking place, shifting from a high concentration in China to the emerging diversification of needs by country and region. Surging labor and material costs, and problems such as the lack of a young labor force, are forcing businesses to think twice about volume production in China, prompting production to shift to neighboring Asian countries, East Europe, Turley, etc. By the same token, the European knit industry began searching for a new business model in the middle of a consumption market, and the appetite for capital spending is gradually rebounding.
These changes for diversification would benefit the Company, which offers a large variety of products and know-how which respond to a wide range of needs. Further accelerating to meet individualized needs, the Company hopes to contribute to revitalizing the global knit and apparel sector as the leader in this industry.
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Please describe your offerings to markets in the advanced countries. |
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Supporting clients in reforming their business toward the goal of establishing a proposal-based business. |
Attractive product-making oriented toward the consuming regions is sought in the knit industries of developed countries, which have been passive in the face of the export offensive from China. To that end, the Company is actively encouraging the industry to employ a business model based on the planning and proposal-type approach.
In determining the knit product planning comprising the materials, color, silhouette, sewing, etc., the development of many samples is essential and a great deal of time and costs have to be spent to make them. The SDS®-ONE APEX3 design system we offer is a fundamental solution for such a time-consuming process. It can make virtual samples in an incomparably short time, reproducing the texture of yarns and gravitational effect of when products are worn. The system can run simulations and make studies on screens, making it possible to work out product planning and propose attractive products that meet consumer preferences without extra cost.
I am personally involved in sales activities as a member of top management. In September 2011, I made a visit to our client businesses in Europe, during which time I presented the concept of product-making based on the proposal-based approach directly to clients, winning their understanding and agreement.
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Please explain the future initiatives in markets in emerging countries. |
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Analyzing the characteristics of the individual regional markets and making the optimal proposal-based sales efforts. |
While the market structure is undergoing a change from a narrow focus on China, many markets in emerging countries that may yet be smaller than China have high potential for further growth. The Company will keep applying the proposal-based sales approach to the individualized regional markets and countries. For example, Brazil, which is particularly notable among the BRICs, is domestic-demand oriented and the knit demand there is increasing along with the growing economic growth and fashion preferences. It is a location where we will make sales efforts on technologically advanced product lines such as WHOLEGAEMENT® flat knitting machines. The Eastern European countries are building a presence as production bases of knit products for Europe, where we will strengthen our abilities to respond to the market by re-establishing service organization.
In the Asian region, we are looking to Cambodia, Bangladesh, Indonesia, etc., as a new priority market, as production is shifted from China. China remains as an important market as before, and we will expand our share there by promoting our strategic model of SSR®, which accommodates market needs. We will use our product competitiveness, as well as the brand equity that we gained at ShanghaiTex, to market our forthcoming high-valued added models.
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What will be the Company's future programs? |
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Leading the initiatives developed in the first half to the steady achievement of results. |
Taking advantage of the high acclaim won from visitors at ShanghaiTex and ITMA exhibition, follow-up sales activities are being implemented as the equipment demand builds up after December. In markets in advanced countries, we are holding our own product shows in different parts of Italy from October to November, and will apply the inquiries we have received at ITMA exhibition to the closing of sales by enhancing a proposal-based business approach. In markets in emerging countries, some companies trying to pursue the plan-driven proposal-type approach are emerging by breaking away from the conventional OEM-centered model. We will offer them the high-value added models of our product lineup. In addition, we will endeavor to promote SSR® as the global standard model, and make focused efforts to offering the SDS®-ONE APEX3 design system not only to the knit industry, but also to other industries as well.
For the full-year consolidated earnings, we expect sales of ¥46.0 billion, operating income of ¥4.5 million and net income of ¥1.0 billion after revising the initial plan. Our assumed exchange rates are ¥77 to the U.S. dollar and ¥103 to the euro. We will distribute annual dividends of ¥40 per share as initially planned (including ¥17.50 for the interim and ¥22.50 for the fiscal year-end).
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Lastly, please tell us about your views about product-making. |
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Revitalizing Japan by creative craftsmanship, thus eying sustainable economic growth. |
The remarkable growth of the Japanese economy after the war has been supported by quality product-making thanks to people with a high level of creativity. The Company also aims at becoming such a product-making concern full of creativity. Critics ask why the Company is sticking to domestic production amid the yen's strengthening against other currencies, but we believe there are large benefits by doing so when viewed over the long-term. Overseas production or outsourcing brings the risk that technological expertise we have built up on our own may leak out. Our flat knitting machines comprise hundreds of types, if the different models, gauges and number of cams are included, to respond to market needs. Multi-product production is made possible only because operations are integrated all the way from R&D and parts production to assembly in Japan.
Upholding our corporate philosophy of "Ever Onward," we will pursue further growth as a product-making company based on proprietary research and development. Accordingly, I ask you to focus on the Group's success from a medium- to long-term perspective.
*The above-stated performance outlook is as of October 27, 2011. Actual results may vary from projections, owing to changes in economic conditions, as well as other factors.
*On January 27, 2012, the Company revised its operating performance forecast to consolidated net sales of ¥38.5 billion, operating income of ¥1.5 billion and net loss of ¥1.7 billion. The assumed exchange rates for the year are ¥77 to the U.S. dollar and ¥100 to the euro.
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