Production Cuts After Earthquake Lead to Decreased Revenue and Earnings
Continued Progress Through Persistent Structural Reform
During the second quarter, the Japanese economy has started to recover from the effects of the Great East Japan Earthquake. Nevertheless, Japanese corporations continue to face uncertain, harsh conditions, ranging from chronically high prices for raw materials and fuel to a long-term appreciation of the yen, which began immediately after the earthquake. Other concerns include financial instability in Europe and the sluggish American economy.
Our domestic supply chain was disrupted by the aftermath of the earthquake, greatly impacting our automotive business, the flagship of our Group. As a result, our Group registered decreased revenue and earnings during the second quarter. At the same time, however, we quickly managed to restore our supply chain and increase production in order to compensate for the decrease following the earthquake. This intensified production has invigorated our automotive business. Our other business activities have shown solid performance thanks to the introduction of new products, effective streamlining of manufacturing processes, and cost-cutting strategies.
With the motto “Become an Excellent Company for the 21st Century,” our Group has been promoting a “Special Project” since the 2008 fiscal year to create new business activities that respond to changing times. As we focus on the future, we are endeavoring to strengthen our corporate structure by developing new business areas, expanding our global business activities through structural reorganization, emphasizing human resources development, and undertaking a strategic shift in our affiliates.
On a consolidated basis, net sales for the second quarter were ¥40,832 million (down 5.0% from the same period of the previous year), operating income was ¥1,407 million (down 36.0%), ordinary income was ¥1,523 million (down 38.8%), and net income stood at ¥911 million (down 23.3%).
Accounting of amortization of negative goodwill at KB Seiren, Ltd., ended in the first quarter, and the amortization of negative goodwill in non-operating income decreased ¥276 million from the previous year.
Harsh conditions are expected to continue, including chronically high prices for raw materials and fuel, the uninterrupted appreciation of the yen, financial uncertainty in Europe, and the troubled American economy.
The flooding in Thailand in October has also disrupted our manufacturing supply chain. Fortunately, our Group member in Thailand, Saha Seiren, has not been directly impacted. We will need to keep a close watch on the situation, however, for possible indirect effects of the flooding.
Our earnings forecast for the full year remains at the figures we released on July 29, 2011: net sales of ¥86,500 million (up 0.2% from the same period of the previous year), operating income of ¥4,100 million (up 8.5%), ordinary income of ¥4,100 million (up 2.3%), and net income of ¥2,400 million (up 10.5%).
With the motto “the time for change is now,” we will persistently implement structural reform to overcome challenges and strive to be a company that “adds value to people’s lives.
Tatsuo Kawada
Chairman, President and C.E.O.
November, 2011
