content_image/291344.jpg content_image/291347.jpg content_image/291345.jpg content_image/291346.jpg
## Management Discussion and Analysis 

JS Group Corporation and Consolidated Subsidiaries 

## Summary 

Business Environment Net sales fell 6.1% to ¥982.6 billion due to a sharp drop in new housing starts. However, operating income increased 1.5% to ¥26.0 billion as a result of structural improvements in the Group. The operating income ratio was 2.6%. 

In the year ended March 31, 2010, Japan’s housing industry saw a sharp drop in new housing starts due to wors- ening employment and wage conditions; housing starts dropped 25.4% year on year from 1.04 million units to 0.78 million units. Putting this decline into perspective, housing starts dropped to the same level as 40 years ago. By type of housing, construction of owner-occu- pied detached houses and built–for-sale detached homes declined 7.6% and 10.6%, respectively, while there was a precipitous decrease of 59.1% in con- dominium construction. 

## Business Performance 

Under these conditions, consolidated net sales declined ¥64.2 billion, or 6.1%, to ¥982.6 billion. By segment, net sales decreased ¥29.1 billion in the Metal Building Material Business, ¥8.9 billion in the Plumbing Fixtures Business, ¥21.9 billion in the Other Building Materials and Equipment Business, and ¥4.0 billion in the Housing, Real Estate and Other Businesses. Meanwhile, the Distribution and Retail Business, the only segment to see growth, recorded a ¥0.9 billion increase on the back of steady new store openings. 

Gross profit declined ¥6.8 billion, or 2.2%, to ¥299.0 billion. This decline was largely the result of the lower sales. Although the ratio of gross profit to sales was affected by this and a drop in sales prices, it improved overall by 1.2 

<img src='content_image/291344.jpg'>

<img src='content_image/291347.jpg'>

* Company-provided housing is included in rental housing. Source: Survey on Dwelling Houses and Construction Started, Ministry of Land, Infrastructure and Transport 

percentage points to 30.4% thanks to various cost-cutting activities and the contribution from lower materials prices. 

Selling, general and administrative (SG&A) expenses declined ¥7.1 billion, the result of a ¥3.0 billion drop in freight costs accompanying the lower sales, and ¥3.5 billion decrease in provision of allowance for doubtful accounts, in addi- tion to ongoing efforts from the previous fiscal year to reduce expenses. 

Operating income edged up ¥0.4 billion, or 1.5%, to ¥26.0 billion, resulting in a 0.2 of a percentage point improve- ment in the operating income ratio from 2.4% to 2.6%. 

Net other expenses increased ¥3.1 billion, mainly on account of an ¥8.5 billion rise in loss on impairment of long- lived assets accompanying the 

<img src='content_image/291345.jpg'>

realignment of production systems, and a ¥3.4 billion increase in loss on factory restructurings. Offsetting these increases somewhat were a ¥3.5 billion improve- ment in foreign exchange loss and a ¥5.1 billion decrease in provision for doubtful accounts. 

As a result of the above, income before income taxes and minority inter- ests declined by ¥2.7 billion year on year to ¥3.9 billion. In combination with income taxes and minority interests, this resulted in a net loss of ¥5.3 billion, which was ¥5.8 billion worse than the ¥0.5 billion net income in the previous fiscal year. 

<img src='content_image/291346.jpg'>

