Message from the President

President, Atsushi Hirochi President, Atsushi Hirochi

We will execute the second phase of "CAN20" with accelerate action.

Reviewing economic conditions during the fiscal year ended March 31, 2017, the Japanese economy as a whole showed signs of mild recovery, supported by the government’s economic policy package and an easy monetary policy. However, the management environment continued to face uncertainty due to several factors. These included substantial fluctuations in the stock and foreign exchange markets caused by the UK’s withdrawal from the EU and the US presidential election. Other factors that caused uncertainty included the economic slowdown in China and other emerging nations, which caused increasing uncertainty in overseas economies, as well as depressed consumer confidence resulting in sluggish personal consumption.

Faced with this situation, the GUNZE Group’s medium-term management plan, called “CAN 20 (fiscal 2014 through fiscal 2020),” has entered its third and final year of its first phase. With the key concept of “Focus and Concentration,” the GUNZE Group promoted the key measures: selection and focus for existing businesses based on the Strategic Business Unit (SBU) strategy; cultivation and creation of new high-growth businesses through the Cross-Functional Approach (CFA) initiatives; and reinforcement of the management foundation to support the company’s growth strategy.

In the functional solutions business, the plastic film category's mainstay shrink films enjoyed robust sales in Japan and Southeast Asia. The efforts to develop new markets in China by leveraging differentiating functions, and the increase in demand for industrial-use plastic film for Chinese smartphones, also contributed to firm overall sales of plastic films. In engineering plastics, tubes for industrial applications and semiconductor-related products both performed strongly, but this was not enough to offset the drop in sales caused by the sluggish office equipment market. In electronic components, GUNZE has been continuously working on structural reforms by restructuring and streamlining the GUNZE Group’s production facilities. This includes the shuttering of its Taiwanese manufacturing joint-venture company. Even so, increasingly intense competition in the touch screen and film markets resulted in poor performance of the electronic components business overall. Medical materials destined for North America continued to perform strongly, while sales were also solid in Japan and China.

In the apparel business, innerwear sales were robust due to expanded sales for differentiated products mainly in the women’s innerwear category, and expansion of high-growth channels. In leg wear, sales of the mainstay SABRINA brand performed impressively, driving overall category sales.

As for the lifestyle creations business, in the real estate category, the GUNZE Town Center TSUKASHiN experienced the negative impact of increasingly intense competition in the neighboring trade area. However, the master lease business and leasing of housing made a positive contribution to the category’s overall sales. The sports club business enjoyed an increase in sales mainly due to the opening of new clubs, but initial expenses incurred for the new clubs resulted in a mere marginal increase in profits.

Consequently, the GUNZE Group’s consolidated net sales for the fiscal year under review amounted to \136,579 million (a year-over-year decrease of 1.3%). Consolidated operating income amounted to \4,206 million (a year-over-year increase of 14.9%). Consolidated ordinary income was \4,671 million (a year-over-year increase of 490.5%). As a result, GUNZE posted a consolidated net income attributable to owners of the parent amounting to \3,102 million compared to a consolidated net loss attributable to owners of the parent of \1,201 million recorded in the previous fiscal year.

For the upcoming fiscal year, the Japanese economy is expected to experience increasing labor shortages in some industries and a stronger positive mindset among businesses, with expanding capital investment in equipment. Still, there are several risk factors that will cause the business environment surrounding the GUNZE Group to remain unpredictable. These include the potential for a downturn in the economy due to soaring raw material prices, unstable international situations, and a slowdown in growth rates in emerging economies. There is also anxiety about the future caused by the increasing burden of social insurance premiums, which caused consumers to remain strongly budget-minded.
Against this backdrop, fiscal 2017 marks the initial year of the second phase of GUNZE’s medium-term management plan, called “CAN 20.” Toward the goals specified by its medium-term management plan, GUNZE will clarify key strategic challenges for each business segment and strive to sustainably enhance its corporate value.
Presently, many of GUNZE’s business fields are facing a turn of the tide as they navigate through a transition period. With the medical business enjoying high growth, as well as the apparel business gaining upward momentum, GUNZE will aim to correctly anticipate this tidal change and promote business with a focus on growth potential.
As for the functional solutions business, in the category of plastic films GUNZE will promote the development of new markets and products as it faces radical changes in its business environment. In engineering plastics, efforts will be concentrated on taking measures against maturation of mainstay products for office equipment applications, while also expanding products employing GUNZE’s fiber technology, such as products related to semiconductors. In electronic components, GUNZE will take decisive action to downsize business, while pursuing synergy with other film-related business fields. In medical materials, GUNZE will proactively invest management resources on construction of new factories and other projects aimed at further growth. At the same time, GUNZE will seek to improve production and sales systems so as to effectively respond to business expansion.
In the apparel business, GUNZE will aim to further expand sales of its mainstay brands in the innerwear category by leveraging its proprietary technologies. Moreover, GUNZE will strengthen the high-growth direct sales route and sales outside Japan. In leg wear, GUNZE will strive to develop new markets and products by anticipating and meeting potential consumer needs and market trends. In doing so, the Company aims to conduct business operations in a way to minimize effects of exchange rate fluctuations.
In the lifestyle creations business, GUNZE will seek to improve the profitability of its real estate business by revising its commercial facility operation system. In the sports club category, GUNZE will also strive to expand sales through aggressive multi-club chain expansion inside and outside Japan.

For fiscal 2017 (April 1, 2017 to March 31, 2018), the GUNZE Group, through the implementation of these measures, is forecasting net sales of ¥138,000 million, with operating income of ¥4,300 million, ordinary income of ¥4,800 million, and net income attributable to owners of the parent of ¥2,500 million.

By implementing these plans with accelerated action, we aim to contribute to society, by becoming a company dedicated to offering the “Feeling of Comfort” to our customers. I would like to ask shareholders for their continued support and encouragement.

May 2017

President
GUNZE LIMITED
President, Atsushi Hirochi