Review of Operations Commercial Building Materials Shutter Products Shutter-related Products Commercial Building Doors Partition Products 150,892 152,837 158,554 163,579 187,637 8,836 9,495 10,470 Stainless Steel Products Storefront Products 5,413 Goods Handling Systems 4,635 Japan: Natural disasters brought increased demand for lightweight shutters. Net sales of heavy-duty shutters also rose because of increased capital investment in shopping centers, factories, shipping storages and other facilities. These factors were reflected in substantially higher revenues. Despite the impact of higher steel prices, the increase in operating income was bigger than predicted. This was attributable to higher sales in a number of categories, including shutters and storefront products, as well as cost reductions resulting from the CR21 campaign and other measures. United States: Sales expansion efforts in a firm market environment resulted in increased sales of commercial doors and shutters. While revenues were higher, operating income declined year on year. This was because priority was given to strategically gaining market share by deliberately delaying the passing on of higher steel prices. Europe: Revenues were higher, despite negative factors that included the slow pace of economic recovery in Germany. Operating income was below the initial forecast, primarily due to rising steel prices and escalating price competition in the area of industrial doors. As a result, net sales in this segment increased by 14.7% to 187,637 million. Operating income increased by 10.3% to 10,470 million. Strategies for the next fiscal year Japan: We will strengthen our price competitiveness in the market for heavy-duty shutters by introducing low-cost fire shutters. We also plan to differentiate our products from those of our competitors by adding safety functions as standard features. These will include free-fall prevention systems and emergency stop device to prevent people from being caught in the shutters during evacuation from fire. In the area of doors for commercial buildings and condominiums, we have started to target large properties in the Tokyo metropolitan area as well as regional projects, and we plan to expand our orders by strengthening our proposal capabilities. We will establish our brand as the top brand in the storefront product market, by taking full advantage of the ability of Showa Front Co., Ltd. to respond flexibly to all customer needs. In the area of partition products, we have established a dedicated team in collabo- 18
Heavy-duty shutters (smoke-prevention shutters) These smoke-prevention shutters close automatically if their sensors detect toxic smoke emitted by fires. Condominium doors (X-DOOR range) These doors are available in around 50,000 different combinations of surface materials and designs. Sun-Silica Screens Made from light, thin, heat-resistant glass-cloth, these fireproof and smoke-prevention sheet shutters require minimal storage space and are designed for quiet opening and closing. ration with Venix Co., Ltd., a partition company newly added to the Group. We will work to expand our market share by integrating sales, design and installation, and by implementing an effective brand strategy. United States: We aim to attract new customers by strengthening our relationships with distributors of overhead doors and automatic doors. For cost reduction, one measure will be the import of electrical components for door operators from China. Another focus will be the pursuit of synergy by introducing Novoferm s door operators to the U.S. market. In the automatic door category, we will expand our activities to doors for transit facilities, such as subways and airports. Europe: We will strengthen profitability management. We also aim to build on the benefits of restructuring in Holland while working to expand sales in Eastern Europe and Russia with an enhanced product line-up. Topics The DF10 heavy-duty shutter developed by Sanwa Shutter became the first product to gain a 10-minute rating in penetration resistance tests conducted by the Japan Rolling Shutter and Door Association. Another important enhancement in the area of shutter products was the addition of free-fall prevention systems as a standard safety feature on heavy-duty shutters and oversliders. In the door category, Sanwa Shutter developed a customizable condominium door range that allows customers to order specific features, such as enhanced security performance. Sanwa Shutter became the first manufacturer in the Japanese door industry to develop a sliding door with a door case that can also function as a hinged door. Designed for use in medical and welfare facilities, this system allows the entire door and door case to be opened as a single unit to create a larger opening when required for large items or equipment, such as beds or gurneys. In the United States, Overhead Door Corporation (ODC) improved its commercial door operator range by integrating its products into three types: medium, standard and heavyduty. By reducing the number of platforms, it was able to cut costs and facilitate easier installation, maintenance and other tasks. 19
Residential Housing Materials Window Products Doors for Detached Houses Exterior Products Residential Garage Doors 91,612 3,531 3,792 4,218 63,724 66,459 65,236 67,680 956 (2,922) Japan: Sales of window shutters remained strong, but slow sales of exterior products and other items resulted in declines in both revenues and income. United States: Strong housing demand was reflected in increased sales in the key areas of residential garage doors and door operators. Both revenue and operating income were higher. Europe: Sales in Germany were boosted by a rise in the percentage of homes with electrically operated garage doors. Export growth also contributed. Sales trends in France were also buoyant. Net sales in this segment increased by 35.4% to 91,612 million. Operating income rose 11.2% to 4,218 million. Strategies for the next fiscal year Japan: The number of new housing starts and the number of ownership housing units are both expected to decline. However, we anticipate further growth in demand for window shutters. To ensure that this demand growth is linked to increased sales, we will use product differentiation and proposal marketing, based mainly on cost competitiveness and security features, to increase our share of sales to prefab manufacturers and major builders. Other goals include the expansion of sales of retrofitted window shutters, and the enhancement and expansion of our range of anti-burglary products, electrically operated products and design products. In the area of residential doors, we will focus our efforts on the development of high-end products with increased added value and superior product features. We also aim to increase our sales of doors for home improvement projects, including products with enhanced security specifications. In the exterior product category, we will target sales growth by enhancing the attractiveness of our products, including gate shutters, garage products and large entrance gates for condominiums. 20
Lightweight Garage Shutters (SEISEIDODO) Designed for quiet, quick opening and closing, these attractive lightweight garage shutters are designed to optimal ease of use. Entrance doors for detached houses (Potensia Range) These entrance doors are designed for use in detached houses. They offer enhanced features, including safety and security functions, to ensure comfort and safety in detached houses. Flying Gates for Carports (Larb) Flying gates are easy to open and close and can easily be coordinated with the carport design. United States: In the garage door category, we will strengthen our marketing to home centers and expand direct sales channels for builders. Our priorities in the area of garage doors and door operators include new product development and the reduction of costs through the use of Chinese parts and materials. Another focus will be marketing of Novoferm products in the United States. Europe: In the residential door and door frame category, we will enhance our range of products for home improvement. We plan to maintain our strong sales in Italy while expanding our exports to Eastern Europe. We will also target reductions in manufacturing and distribution costs. In the area of garage doors, we aim to increase our exports to Eastern Europe while also maintaining our strong sales performance in Germany and France. At the same time, we will continue to develop products that meet customer needs. There are also plans for the start of sales of door operators through ODC in the United States. Topics A joint government-private sector Group established to identify building products with high security performance announced that retrofitted window shutters with specifications exclusively developed by Sanwa Shutter had met the required standard. Sanwa Shutter also became the first manufacturer in the industry to develop a window shutter with an alarm buzzer. In the United States, ODC plans to implement a model change for its residential garage door operator line. Its aim is to win exclusive supply contracts, especially for large retailers. 21
Maintenance & Home Improvement Services Point-by-point inspection and repairs A 24-hour, 365-day service availability Home improvement services to meet the meticulous demands of customers 16,932 2,165 14,188 12,989 10,007 11,451 1,318 1,449 1,266 1,088 Japan: Revenues were higher because of increased repair work resulting from natural disasters. Europe: Novoferm expanded its service operations by acquiring the maintenance service company Tor System Technik GmbH (TST). Overall, net sales, including the contribution from TST, increased by 19.3% to 16,932 million. Revenue growth and cost cutting efforts were reflected in a huge increase in operating income, which grew by 71.0% to 2,165 million. Strategies for the next fiscal year, ending March 31, 2006 In the maintenance service category, a special demand marketing team will work to attract new regular maintenance contracts by targeting specific users. They will also pursue order entry in collaboration with the marketing team for commercial building materials. We also plan to introduce a repair order entry system, and to expand our window shutter repair order entry structure to support a wider range of services. Another focus will be the use of advertising media to strengthen our public relations activities. In Europe, we will work to expand our service activities in collaboration with TST, which we recently acquired. The Japanese home improvement market is expected to reach 6 trillion by 2015. We will use the total resources of the Sanwa Shutter Group to expand our orders in this promising market. We will also work to improve quality assurance and productivity by increasing the proportion of standardized items in our service line. We aim to expand our business operations through a combination of measures, including the 22
Retrofitted window shutters (ABS Sunpack Slim) These shutters are designed for retrofitting and are perfect for renovation projects. If an obstacle is encountered while a shutter is closing, the ABS system puts the motor into idle mode and stops the shutter from descending further. Home Elevators (Kibun Jojo) This retrofittable elevator is ideal for renovation projects. It enhances the quality of life for aged people by expanding their range of activity within the home. reinforcement of our marketing and project capabilities through the rapid creation of a network of areadominant stores based on our regionally focused project network, the improvement of project management precision, the maintenance of work systems that ensure high customer satisfaction, and an emphasis on quality. Topics In the maintenance service category, Sanwa Shutter is implementing campaigns to promote the replacement of automatic doors, the conversion of manually operated window shutters to electrical operation, and the adoption of shutter security plans. In the home improvement category, Sanwa Shutter has established a system based on total renovation packages. Because the packages have fixed prices, customers are able to place orders with confidence. Packages are available for detached houses and condominiums. FTS (Full-Time Service) After-sales service is available 24-hours, 365 days a year. Emergency repairs can be provided at all times, including holidays, nighttime and early morning. 23
Other Doors for trucks, trailers and other vehicles 8,795 364 7,244 118 5,687 5,005 5,045 (20) (351) (658) Our main activity in this segment is the supply of doors for trucks, trailers and other vehicles in the United States. On a local currency basis, performance in this segment followed a sustained recovery trend, reflecting the strengthening of the U.S. economy and our high market share. However, appreciation of the Japanese yen against the U.S. dollar resulted in only marginal yearon-year growth in sales on a yen basis, which were 0.8% higher at 5,045 million. Higher revenues and the restructuring of unprofitable operations resulted in a positive operating income result of 364 million, compared with an operating loss of 20 million in the previous year. Strategies for the next fiscal year, ending March 31, 2006 We expect further rapid growth in demand for truck and trailer doors. We aim to expand our sales in this segment by enhancing our product line-up. Vehicle sliders With TODCO products, the emphasis is on quality, innovation and service. Products are available for a wide range of applications, including both land and marine vehicles. Roll-up shutters These products have gained an excellent reputation for durability and functionality, and for the service provided by Sanwa Shutter. 24