Business Results

Analysis of Business Results

1. Overview of Operating Results

In the fiscal year under review (from April 1, 2009, to March 31, 2010), conditions remained tough in Japan’s economy because deterioration in the employment market and slumping personal income counteracted signs of economic recovery, such as increased demand for durable goods resulted from economic stimulus measures employed and an upturn in exports centered on Asia in the latter half of the year. Accordingly, the effects of the recovery seen throughout the year were relatively insignificant.

The Group continued to face a harsh operating environment. Although automobile-related sectors showed signs of improvement—with automobile sales moving toward recovery thanks to the introduction of automobile sales promotional measures such as tax reductions for environment-friendly vehicles—difficult operating conditions persisted due to such factors as curbed capital investment.

Accordingly, consolidated orders in the year under review decreased 16.7% year on year, to ¥112,163 million, and net sales decreased 20.3% year on year, to ¥112,759 million. As a result of the significant decrease in net sales, which offset the Group’s concerted efforts to reduce production costs and management expenses, such as fixed costs, the Group recorded year-on-year decreases of 47.9% in operating income, to ¥4,737 million; 46.5% in ordinary income, to ¥4,990 million; and 48.7% in net income, to ¥3,175 million.

Segment results are summarized as follows.

Power Transmission Products

In Chain operations and Power Transmission Units and Components operations, revenues decreased year on year because the continued curbing of capital investment offset recovery trends in the liquid crystal display (LCD) IT-related industries and the automotive industry that were seen latter half of the year.

In Automotive Parts operations, revenues decreased year on year due to lower automobile production from the worldwide recession, which offset increased production of some vehicles in Japan and overseas, such as environment-friendly vehicles.

Given these factors, orders declined 15.0% to ¥92,517 million, sales decreased 18.9% to ¥91,858million, and operating income decreased 34.7% to ¥7,291 million in the Power Transmissions Products Segment.

Materials Handling Systems

In Materials Handling Systems operations, revenues were down because slumping demand for conveyance systems for the automotive industry and the machine tool industry, which continued to see curbed capital investment, cancelled the benefit of relatively solid sales of sorting systems for the distribution industry, conveyance systems for the steel industry, and bulk conveyance systems.

Consequently, orders decreased 23.9% to ¥19,645 million, sales declined 26.2% to ¥20,434 million and operating income decreased 88.5% to ¥200 million in the Materials Handling Systems Segment.

2. Outlook for the Current Fiscal Year

Operating conditions in the current fiscal year are expected to continue to remain harsh due to the persistence of high unemployment and low consumer spending, as well as the sluggish recovery of capital investment. While the current fiscal year will bring an upturn in exports centered on emerging nations in Asia, such as China, which will contribute recovery of economic conditions in Japan, this will not offset the difficult operating conditions and the future of the economy will remain highly opaque.

Under these challenging conditions, the Tsubaki Group will continue to focus on improving profitability by cutting production costs and increasing management efficiency.

Additionally, we will work to strengthen our operating foundation in order to ensure the continued stability of our operations by enhancing the manufacturing and product technologies that we possess as a manufacturing company, and optimizing the entire group through the implementation of the global best management strategy.

As one facet of these efforts, in April 2010 we purchased the German company KabelSchlepp GmbH, and made it into a subsidiary. KabelSchlepp GmbH possesses superior product development and production capabilities related to cable and hose protection and guidance products (cableveyors), as well as a global sales network. We are working to fully leverage the synergies created by this acquisition by using KabelSchlepp’s capabilities to enhance the product development and sales capabilities of our own cableveyor operations, developing new products in cooperation with KabelSchlepp, and constructing systems geared toward global production and provision.

Our projections for the fiscal year ending March 31, 2011 are as follows:

For the fiscal year ending March 31, 2011, we assume a foreign exchange rate of ¥85/US$ and 1€=¥115.

The above forecasts are based on the information currently available to the Tsubaki Group and assumptions which we deem to be reasonable. The information and assumptions contain known and unknown risks, uncertainties, and other variables. Actual operating results may differ from our forecasts due to factors such as changes in the operating environment, market trends, and fluctuations in exchange rates. Factors which may impact on the operating results are not limited to those noted here.

3. Basic policies for profit allocation and dividends in the fiscal year under review

The Tsubaki Group views returning profits to its shareholders as one of the highest priorities of management. Our fundamental policy regarding shareholder returns is to focus our attention on meeting the interests of our shareholders through the provision of steady dividend payments, while also adjusting dividend payments based on such factors as our consolidated results.

In concrete terms, we intend to maintain a stable dividend of ¥6.0 per share as a low-end threshold and distribute profits as our consolidated results, funding conditions, finances, and other overall criteria dictate.

We plan to utilize retained cash for strengthening our underlying financial standing, promoting future business expansion, and other purposes.

Dividend payments in the year under review will be ¥3.00 per share, as previously determined. As a result, total dividends for the fiscal year will ¥6.00 per share, a decrease of ¥2.00 per share when compared to the previous fiscal year.