Overview of the operating results(for the fiscal year from January 1, 2010 through December 31, 2010)

In the fiscal year ended December 31, 2010, although there were geographical pockets of strength and weakness, the world economy continued its gradual recovery trend from the end of the previous fiscal year. However, the impact of economic stimulus measures implemented in a number of countries began to weaken, and economic recovery in developed countries lost momentum in the second half of the year. On the other hand, the expansion trend in emerging countries continued, and overall the world economy showed underlying stability.
Although the gradual recovery trend in Japan continued as well, the second half of the year brought fears of an economic slowdown due to a decrease in exports accompanying the slowing of recovery in developed countries, appreciation of the Japanese yen and a slowdown in the recovery of domestic demand triggered by the discontinuation of economic stimulus measures. However, even though recovery came to a standstill, the economy showed underlying stability thanks to upside factors such as last-minute demand prior to the discontinuation of economic stimulus measures.
Under these business conditions, demand in the markets in which the Mabuchi Group operates showed a recovery trend on the whole. The automotive products market in particular saw a sharp increase in demand as a result of gradual demand recovery in developed countries coupled with continued market expansion and higher demand in emerging countries. Although demand increased in the Group’s other markets as well, because sales of many of the key products in these markets are dependent on demand in developed countries, recovery in demand was gradual due to the slow pace of economic recovery in these countries.
In these circumstances, the Mabuchi Group implemented measures to address the following issues: expansion of priority businesses (acceleration of the growth strategy), reorganization of production bases (reinforcement of manufacturing infrastructure), and rationalization of costs (transformation to earnings structure and strategic investment).
Specifically, the Group sought to increase sales and market share, ensure stable product supply and improve quality, increase profitability and productivity, and increase future Group management efficiency by actively devising measures including (1) sales promotions focused on motors for power window lifters and motors for power seats; (2) product line expansion and sales expansion for compact, high-output, lightweight motors; (3) transfer of production from China to Vietnam in accordance with the medium-term plan (production ratio optimization); (4) a rapid start of operations at MABUCHI MOTOR (YINGTAN) CO.,LTD., a low-cost production base established in Jiangxi Province, China; (5) conversion of MABUCHI MOTOR (JIANGSU) CO., LTD. into a dedicated plant for production of products for the automotive products market; and (6) strengthening of the budgeting system and focused investment in facilities to rationalize production.
As a result, consolidated net sales for the period amounted to 82,752 million yen (17.6% increase on a year-on-year basis). Sales of motors, which account for the majority of consolidated net sales, came to 82,658 million yen (17.6% increase on a year-on-year basis). Next, looking at operating income, despite such negative factors as the steep rise in labor costs and raw material costs, capacity utilization improved in the wake of a sharp year-on-year increase in sales volumes, and the profit margin improved as the collection of fixed costs per product unit increased. At the same time, profitability improvement activities continuing from the previous year bore fruit. As a result, operating income for the year amounted to 6,624 million yen (119.4% increase on a year-on-year basis). Ordinary income amounted to 7,587 million yen (39.9% increase on a year-on-year basis).
This was due to improvement in operating income, which offset deterioration in non-operating income and loss due to factors including a decrease in interest income on financial investments and the recording of a foreign exchange loss as a result of the strengthening of the yen.
Income before income taxes amounted to 7,291 million yen (142.0% increase on a year-on-year basis). This was due to the nonrecurrence this year of the loss on the closure of production bases that was the principal special loss recorded the previous year. Net income amounted to 5,260 million yen (3.5% decrease on a year-on-year basis). This was partly due to the elimination of a special factor, namely a non-recurring gain on the reversal of deferred tax liabilities recorded during the same period last year as a consequence of an amendment to the Corporation Tax Act, resulting in the return to the usual tax expense this year.

Outlook for fiscal 2011

The outlook for 2011 is for gradual overall improvement in business conditions. In emerging countries, economic growth is expected to continue and remain stable despite some concerns. In developed countries, on the other hand, economic recovery will remain anemic, and factors such as soaring resource prices and credit uncertainty in Europe give cause for concern. In general, it appears additional time will be required for full-scale recovery of the world economy as a whole.
The situation in the markets in which the Mabuchi Group’s products are sold is mixed as well. There are markets in which demand is increasing due to growth in emerging countries and markets that depend mainly on demand in developed countries in which recovery is only gradual.
Nevertheless, demand is trending up in the Automotive Products market, the Audio & Visual Equipment market, the Optical & Precision Instruments market, and the Home Appliances, Power Tools & Toys market.
We appreciate your ongoing understanding and encouragement.

March 2011
Takaichi Mabuchi, Chairman
Shinji Kamei, President