Statement of Accounts of Leading Japanese Firms

Synthetic Fiber Producers

Leaping Non-Textile Renew All-Time High Profits

Out of seven firms, namely, Toray Industries, Inc., Teijin Limited, Toyobo Co., Ltd., Kuraray Co., Ltd., Asahi Kasei Corporation, Unitika Ltd. and Mitsubishi Rayon Co., Ltd., many firms generated high earnings and

Each firm except for Unitika and Asahi Kasei renewed all-time high sales, operating profits and ordinary profits. Most of these firms take a much sunnier view of the outlook that the performance will surpass the preceding year. The high earnings base of each firm has become definitely solid.

Supporting the buoyancy of each firm are the high-function material business in IT (Information Technology)-related, optical liquid crystal panels, aircraft and automobile segments. Aggressive investments which were started several years ago have finally borne much fruit. Items contributing to favorable results are color filters, PDP film and carbon fiber in the case of Toray, polycarbonate resin in the case of Teijin and acrylic resin (for optical applications) in the case of Mitsubishi Rayon.

As a result of the implementation of "selection and concentration," the impact of skyrocketing material and fuel prices hit the whole textile business directly.

In the past, firms operated diversified businesses including those unaffected by higher material and fuel prices which acted to neutralize such impact. For this term, however, the impact was directly noticeable because many firms became lean muscled with operations becoming highly specialized into the mainstay business. At Asahi Kasei, spandex and nonwovens were adversely affected by climbing material and fuel prices.

At Mitsubishi Rayon, there was a delay in shifting higher costs to product prices for acrylic fiber. At Teijin, polyester staple widened the range of deficit from the preceding year and posted the losses of 5 billion yen. Women's apparel applications were inactive and subsidiaries in Indonesia were hard hit by sharply rising material and fuel prices

At Toray, industrial materials such as carpets and tire cords were sluggish. Unitika posted lower sales and lower profits under the influence of stagnant women's apparel and the withdrawal from tire cords.

Asahi Kasei's performance surpassed the preceding term because the overseas marketing of cupro "Bemberg" moved firmly. Through the acquisition of business, Asahi Kasei has achieved a global production system at six strategic locations in Japan, China, Taiwan, Thailand, Germany and the U.S. Asahi Kasei will continue the expansion route in manufacturing and marketing spandex on a global basis.

Toray's overseas business registered higher sales as a whole by increasing sales from the spun woven fabric and filament woven fabric business in Thailand, the filament woven fabric business in China and the spun bond fabric business in Korea.

Cotton Textile Makers

Uncertainty Over Future of Textile Business

Six cotton textile makers, namely, Nisshinbo Industries, Unitika Ltd., Kurabo Industries Inc., Nittobo Co., Daiwabo Co., Ltd., Shikibo Ltd. and Fujibo Holdings show a tendency toward lower sales in the textile business for the fiscal year ending in March 2006. Three out of the six firms, namely, Kurabo, Daiwabo and Shikibo reported higher operating profits.

As for apparel consumption in Japan for the current term, sales expanded primarily at department stores under the influence of the "Cool Biz" effect (casual dress campaign in summertime for energy saving) for summer items and because of the cold wave for winter items, in addition to the recovery of global business condition. However, a considerable difference between favorable end unfavorable conditions was remarkable depending on the product segment.

Fujibo wiped out losses brought forward. Shikibo resumed dividend for the first time in 15 years. As shown here symbolically, the financial standing was improved. As far as the textile business is concerned, however, all these firms except for Nisshinbo reported lower sales and lower profits. To summarize, the future of the mainstay textile business is at stake.

In the apparel and living material segments, each firm implemented their programs to improve earnings by expanding sales of high-value-added trading materials, by effectively utilizing overseas production bases and by expanding the made-up business, amid an even more intensifying environment caused by the worsening of market conditions arising from increasing made-up imports and rising fuel costs resulting from skyrocketing crude oil prices. It appears, however, that the actual condition was even worse than anticipated.

The business performance of the yarn and fabric business has worsened because of the sagging demand for materials within Japan. The made-up business displays expansionary tendencies; however, the profitability suffered deterioration because of intensified competition and a weak yen against the US dollar.

At the start of this accounting term, signs of business recovery were felt in the textile business; nevertheless, looking backward after the end of the term, the business faces even more difficult situation. The domestic demand for yarn and fiber fell sharply and climbing fuel prices put a pressure on the profitability. Segments in which tough battle is noticeable are yarn, knit, bedding and spandex. Denim was buoyant a year earlier, but faltered. Each firm considers made-ups as the segment that will expand in the future as well.

Nisshinbo is carrying out efforts close its Toyama Plant by this fall. Kurabo is stream ling and optimizing plant operations at its Tsu Plant by reducing weaving looms by half. Shikibo is going to make reforms at its Indonesian factory, now operating at a loss.

Now take a look at overseas subsidiaries. In Indonesia, Nisshinbo's PT. Nikawa Textile Industry reports favorable business performance, but PT. Gistex Nisshinbo Indonesia is fighting a hard battle under the influence of soaring crude oil prices. Shikibo's Mertex Co., Ltd. continues to be in the red because of climbing crude oil prices and intensifying competition.

In Thailand, Thai Kurabo Co., Ltd. and Thai Shikibo Co., Ltd. are doing very well. In Thailand, a quiet business environment continued. In Indonesia, however,

climbing crude oil prices and a change in the labor system affected adversely and differences in financial results decided the outcome of the game between spinners.

Japan's Leading Trading Firms

Completed Dissolution of Low-Profit Business

Seven trading firms, namely, Itochu Corporation, Mitsui & Co., Marubeni Corporation, Mitsubishi Corporation, Toyota Tsusho (merged with Tomen Corporation), Sojitz Corporation and Sumitomo Corporation showed the basic tone of increased income, such as slightly higher sales and leveling-off despite adverse influences including the withdrawal from unprofitable business, structural reforms and the shrinking trend in the material segment. Profits turned to an upturn as a result of the drive to efficient management and special programs with particular emphasis on profits.

Reorganization has been under way at trading firms' textile divisions for the past several years.

In the announcement of financial results, an increasing number of firms do not disclose textile-only figures. Since these firms announce the results of the lifestyle division including foodstuffs, comparison with past textile sales and profits has become impracticable.

In this announcement of financial results, only four firms, namely, Itochu, Marubeni, Sojitz and Sumitomo shows the figures of the textile division. In the case of other trading firms, the figures of the lifestyle division include textiles.

The establishment of the earnings base and the dissolution of low-profit business are virtually completed. This year, an increasing number of firms anticipate higher sales and higher profits.

Itochu posted consolidated net profits of 14.99 billion yen and renewed all-time highs for five consecutive years. Contributing factors include men's apparel subsidiary which was newly included into group consolidated account as well as profits on securities sold. Sales were down 0.6% from the preceding term under the impact of the sluggishness in the material segment and the withdrawal from unprofitable business.

Mitsui announced the figures of the lifestyle division consisting of industrial materials and textiles. The addition of the tobacco business boosted sales 5.4%. Mitsui is going to strengthen the brand business and streamline the operation of apparel OEM (original equipment manufacturer) deals.

Marubeni's sales increased 0.8%. Operating profits were down because of higher expenses arising from advance investment in the apparel business. Marubeni posted extraordinary losses for the first time in five years as a result if the withdrawal from unprofitable business.

Mitsubishi enjoyed smooth business with SPA (Specialty Store Retailers of Private Label Apparel) for department stores and sports segment and sales were up 0.6%.