Message from the President

President, Atsushi Hirochi President, Atsushi Hirochi

We will promote the second phase of the “CAN 20” medium-term management plan with utmost effort and speed.

Reviewing the economic conditions during the first six months of the current fiscal year (April 1 – September 30, 2018), the Japanese economy generally showed signs of mild recovery, with ongoing improvements in corporate performance and the employment situation. However, overall business prospects remained increasingly uncertain due to several factors. These include natural disasters such as earthquakes, and abnormal weather including large typhoons and intense heat in the summer. Other factors include rising resource prices and uncertainty regarding overseas economies.

Faced with this situation, the GUNZE Group’s medium-term management plan, called “CAN 20” has entered the second year of its second phase (fiscal 2017 through fiscal 2020). With the key concept of “Focus and Concentration,” the GUNZE Group promoted three pivotal strategies: implementation of segment-specific business strategies, creation of new businesses, and reinforcement of the management foundation.

The GUNZE Group’s functional solutions business enjoyed strong performance mainly in the areas of plastic films and engineering plastics. In the apparel business, while store sales were adversely affected by the earthquakes and large typhoons, stronger efforts were made for expanding sales of differentiated innerwear products and promoting high-growth sales channels. But legwear sales suffered sluggish performance.

Consequently, the GUNZE Group’s consolidated net sales for the first six months of the current fiscal year amounted to \68,566 million (a year-over-year increase of 1.1%). Consolidated operating income amounted to \3,256 million (a year-over-year decrease of 3.4%). Consolidated ordinary income amounted to \3,660 million (a year-over-year decrease of 8.6%). Although a loss on the sale of an overseas affiliate was posted, a gain on sale of fixed assets was recorded. As a result, GUNZE posted consolidated net income attributable to owners of the parent amounting to \2,546 million (a year-over-year increase of 0.4%).

Results by business segment are as follows:

In the functional solutions business, shrink films, which is our mainstay product line in the plastic film category, enjoyed robust sales mainly for beverage label applications thanks to the extremely hot summer, while nylon film sales also remained firm. Engineering plastics sales remained strong for semiconductor and industrial equipment applications. In electronic components, both touch screens and films recorded robust sales. However, the Chinese factory experienced a decline in productivity, which negatively impacted the overall electronic component business. In medical materials, a new domestic sales system for bioabsorbable reinforcement felt was launched smoothly, while sales of artificial dermis were also solid. However, the medical materials business was adversely affected by the increase in clinical trial costs.

Consequently, the functional solutions business posted net sales of \26,020 million (a year-over-year increase of 7.1%) and operating income of \3,161 million (a year-over-year increase of 16.9%).

In the apparel business, the new BODYWILD AIRZ line was launched for men's innerwear, while sales expanded for sports category products, as well as completely seamless and CUTOFF items. However, these were not enough to offset a declining sales trend of basic innerwear. The innerwear business also experienced the negative impact of increased selling costs and labor costs incurred for expanding new sales channels. Legwear sales remained sluggish mainly for high-value added products, with slow store sales due to a change in trends of fashion bottoms and the scorching heat of the summer. The threads and accessories business was adversely impacted by the decline in productivity caused by a change in the overseas business environment.

Consequently, the apparel business posted net sales of \35,409 million (a year-over-year decrease of 2.4%) and operating income of \1,142 million (a year-over-year decrease of 34.4%).

As for the lifestyle creation business, the shopping center business in the real estate category continued to perform well through local community-based operations. Revenues from new properties contributed to the strong performance of the rental property business. The sports club business remained slow due to increasingly intense competition and the effect of natural disasters, but declined sales were offset by the efforts of strengthening the company structure.

Consequently, the lifestyle creation business recorded net sales of \7,327 million (a year-over-year decrease of 1.1%), while operating income was \539 million (a year-over-year increase of 13.7%).

We will continue to implement our plans through speedy action until they reach fruition. Our aim is to become a company that contributes to society, with a firm determination to provide customers with a "feeling of comfort."

Your continued support and guidance will be greatly appreciated.

November 2018

President, Atsushi Hirochi
President
GUNZE LIMITED