This notice has been translated from the original notice in Japanese. In the event of any discrepancy, the original in Japanese shall prevail. Fiscal Year 2008 Results and Fiscal Year 2009 Plan April 30, 2009 Kunio Harimoto President, TOTO Ltd. 1 1 Contents 1. Fiscal 2008 Results 2. Plan for Fiscal 2009 3. Fiscal 2009 Management Policy 1) Consolidating our financial position 2) Growth strategies ① Remodeling business ② Overseas business 2 At today’s meeting, I would like to cover the topics shown here. 2 Summary of FY 2008 Financial Results Significant decrease in sales and profit resulted in deficit in net profit ・Sales for new housing fell significantly short of the year-ago result as demand for new housing was weaker than expected. ・Sales for the Remodeling business were slightly lower due to the rapidly deteriorating domestic economy starting last October. ・For overseas sales, sales in China remained firm, although sales in the United States were impacted by the economic deterioration since last October. Overseas sales on a yen basis fell below last year as the Japanese currency appreciated. ・Operating profit and recurring profit fell significantly on weaker sales. ・The Company posted a substantial net loss due to increases in extraordinary losses, including impairment loss, loss on valuation of inventory, the cost of inspecting and repairing water heaters, and a loss on valuation of securities, as well as a reversal of deferred tax assets. 3 First, let me provide a brief overview of our results for FY 2008. In FY2008 we posted a net loss, a very disappointing result, because of sharp declines in sales and profit. It was our first loss after nine consecutive years of profit. Sales for new housing in Japan fell significantly, as demand for new housing was weaker than anticipated. This is the major factor in the lower sales and profit. Sales from the Remodeling business were slightly lower than last year due to the rapid decline in the domestic economy seen since last October. For overseas sales, sales in China remained firm, although sales in the United States were impacted by the economic downturn starting last October. Overseas sales on a yen basis fell below last year, reflecting the strengthening of the yen. Operating profit and recurring profit fell significantly on weaker sales. We posted a substantial net loss for the year due to increases in extraordinary losses, including impairment loss, a loss on valuation of inventory, the cost of inspecting and repairing water heaters, and a loss on valuation of securities, as well as a reversal of deferred tax assets. 3 FY 2008 Financial Results ※Y billion, rounded down FY07 Result YoY Difference (%) FY08 Result -36.5 501.0 464.5 Operating Profit 22.7 6.5 Recurring Profit 19.2 5.9 Extraordinary Loss -3.3 -20.4 -17.0 Net Profit 13.2 -26.2 -39.5 Net Sales (-7%) %) -16.1 ( -71%) %) -13.3 ( -69%) %) Including Reversal of deferred tax assets (10 billion yen) Decreased in sales and profit. 4 Sales result for the FY 2008 is as shown in the chart Net sales dropped 7% year on year to 464.5 billion yen, Operating profit dropped 71% to 6.5 billion yen, Recurring profit dropped 69% to 5.9 billion yen, and posted net loss of -26.2 billion yen due to increase in extraordinary losses as well as a reversal of deferred tax assets. 4 Sales by Business Segment (¥ Billion) ) 600 (FY07 Result) 501.0 500 65.0 400 9.2 300 246.7 (FY 08 Result) ( )= 464.5 59.0 YoY difference (-7%) (-9%) (-16%) 7.7 Detached houses ±0% 245.8 (-0.3%) Condos Commercials 200 -5% +2% Overseas 100 180.2 152.0 (-16%) New Business and others Remodeling New Housing 0 FY07 Result FY08 Result New Housing Starts (Jan. - Dec) 1.06 million 1.09 million (+3%) ) (+ Demand based on delivery time 1.16 million 1.07 million (- 8 % ) New housing sales decreased sharply and Overseas sales fell below the previous year due to strong yen. 5 Looking at net sales by business field, the new housing field dropped 16% year on year to 152 billion yen on the back of the revised Building Standards Law as well as substantial demand decrease due to the rapid worsening of the economy. Remodeling sales edged down 0.3% year on year to 245.8 billion yen, impacted by the severe economic conditions. New business and others dropped 16% to 7.7 billion yen. Overseas sales also decreased, falling 9% to the Japanese yen equivalent of 59 billion yen due to the poor economic conditions and the impact of foreign currency exchange rates despite relatively healthy demand in China. 5 Sales per Products -YoY Growth FY08 Products YoY difference Sanitaryware Washlet Bathroom Products Fittings Modular Kitchen Lavatory Ceramics Products TOTAL -9% -2% -9% -4% -5% -10% -13% -7% All the products fell below the previous year 6 Sales per products are as shown in the chart. Sales for all the products decreased year on year, impacted by decrease in new housing sales and overseas sales. 6 Cause of Increase/Decrease of Recurring Profit ※Y billion, rounded down Cause of Increase/Decrease Positive Factors Negative Factors FY08 Result (YoY) Cost Reduction Decrease in SG&A Hold down sales activities +4.1 +2.3 +0.1 Decrease in New housing sales Decrease in Remodeling Sales Effects of stron yen on overseas sales Increase in material prices -8.9 -0.3 -1.5 -3.4 -2.0 -0.6 Increase i n general products/Decrease in sal es pri ce Depreciation institution change Cos t increase in allowance for retirement due to decrease in interest income -1.6 Others -1.5 Total -13.3 Worsen in loss from decrease of new housing sales 7 Refers to the cause of increase and decrease of recurring profit, positive factors were, 4.1 billion yen from cost reduction, 2.3 billion yen from decrease in SG&A, 0.1 billion yen from hold down in sales activities. Negative factors were, -8.9 billion yen from decrease in new housing sales, -3.4 billion yen from increase in material prices, and -2.0 billion yen from increase in general products and decrease in sales price. 7 Oversea Sales <Performance in local currency> > (Unit: Y billion, rounded down) North & Central America FY07 Results (Unit: $ million, rounded down) FY08 Results YoY difference FY07 Results FY 08 Results YoY difference for external customers 30.3 24.0 -21% 265 263 -1% Total sales including internal trades 30.5 2.1 24.0 1.8 -21% -16% 267 19 264 20 -1% +6% 114.15 91.03 Recurring Profit (Exchange rate JPY/US$) <Performance in local currency> > (Unit: Y billion, rounded down) China FY07 Results (Unit: Hundred Chinese yuan, rounded down) FY08 Results YoY difference FY07 Results FY08 Results YoY difference for external customers 22.6 21.9 -3% 14.5 16.6 +14% Total sales including internal trades 37.2 5.5 33.6 6.0 -10% +9% 23.8 3.6 25.4 4.6 +7% +28% 15.61 13.22 Recurring Profit (Exchange rate JPY/Chinese Yuan) (Unit: Y billion, rounded down) Others for external customers Total sales including internal trades Recurring Profit FY07 Results FY08 Results YoY difference 7.3 10.1 19.3 19.6 +37% +2% 1.4 1.2 -15% (Unit: Y billion, rounded down) TOTAL for external customers Total sales including internal trades Recurring Profit FY07 Results FY08 Results YoY difference 60.3 86.8 55.9 77.1 -7% -11% 9.2 9.0 -1% 8 North & Central America : Remained same as previous year in local currency base but fell below the previous year in Japanese Yen base due to strong yen. China: Increased significantly in local currency due to strong demand. But fell below the previous year in Japanese Yen base, affected by strong yen. Others (Asian Countries): :Increased in sales by growing in Taiwan & Middle East market, and consolidating new markets Others (Europe):500 million yen in red by investing for marketing etc. North & Central America : Remained same as previous year in local currency base but fell below the previous year in Japanese Yen base due to strong yen. China: Increased significantly in local currency due to strong demand. Fell below the previous year in Japanese Yen base, affected by strong yen, but increased in profit Others (Asian Countries): :Increased in sales by growing in Taiwan & Middle East market, and consolidating new markets Others (Europe): 500 million yen in red by investing for marketing etc. 8 Contents 1. Fiscal 2008 Results 2. Plan for Fiscal 2009 3. Fiscal 2009 Management Policy 1) Consolidating our financial position 2) Growth strategies ① Remodeling business ② Overseas business 9 9 Summary of FY 2009 Full-Year Plan Use cost cutting and other strategies to keep operating profit at the year-ago level, although sales will likely be lower than the previous year. ・Expect sales for new housing to be lower than the result of the previous year, with further declines in demand anticipated. ・Increase sales in the Remodeling business despite the difficult conditions by strengthening this business. ・Expect total overseas sales to hold firm from the previous year, with significant falls in sales in the United States offset by sales in China, Europe, etc. ・Achieve operating profit at the year-ago level, despite decreasing sales, by cutting costs and expenses for sales activities, etc. ・Substantially reduce inventory and cap capital spending, to ensure that we have a strong financial position. 10 We plan to keep operating profit for FY2009 at the year-ago level, using cost cutting and other strategies to offset an expected fall in sales. ・We expect sales for new housing to be lower than the result of the previous year, with further declines in demand anticipated. ・We plan to increase sales in the Remodeling business despite the difficult conditions by strengthening this business. ・We expect total overseas sales to hold firm from the previous year, with significant falls in sales in the United States offset by sales in China, Europe, etc. ・We plan to achieve operating profit at the year-ago level, despite decreasing sales, by cutting costs and expenses for sales activities. ・We will substantially reduce inventory and cap capital spending, to ensure that we have a strong financial position. 10 FY 2009 Financial Plan ※Y billion, rounded down FY08 Result Net Sales FY09 1H Plan 2H Plan YoY diffenrece Total -9.5 464.5 220.0 235.0 455.0 Operating Profit 6.5 -1.5 8.0 6.5 Remain Unchanged Recurring Profit 5.9 -2.0 8.0 6.0 Remain Unchanged Extraordinary Loss -20.4 - - - Net Profit -26.2 -4.0 6.0 2.0 (-2%) +28.3 Keep the operating profit same as previous year while the sales decrease 11 Here is our plan for FY2009. Net sales decrease -2% to 455.0 billion yen, Operating profit remain the same to 6.5 billion yen, Recurring profit remain the same to 6.0 billion yen, and Net profit is 2.0 billion yen. 11 Sales by Business Segment (¥ Billion) ) 600 (FY08 Result) (FY 09 Plan) 464.5 455.0 59.0 59.0 7.7 6.0 (-22%) 245.8 251.0 (+2%) 500 400 300 ( )= YoY difference (-2%) Remain unchanged 200 100 152.0 139.0 FY08 Result FU09 Plan (-8%) 0 New Housing Starts (Jan. - Dec) 1.09 million 0.95 million (-13%) Demand based on delivery time 1.07 million 1.01 million (-6%) Overseas New Business and others Remodeling New Housing Decrease in new housing sales, and increase in remodeling sales 12 Looking at net sales by business segment, we expect new housing sales to be -6% year on year, as a result of weak demand. For calendar year 2009, we envisage new housing starts to be 950 million and new housing demand in delivery base to be 1.01million. Plan for remodeling business is +2% year on year. TOTO will promote groupwide activities aimed at creating demand for remodeling. Plan for overseas business is to 59 billion yen, remain unchanged from previous year. 12 Sales per Products - YoY Growth FY09 Plan Products YoY difference +2% ±0% -2% -2% ±0% -2% -23% -2% Sanitaryware Washlet Bathroom Products Fittings Modular Kitchen Lavatory Ceramics Products TOTAL Increase 2% in sanitary ware sales by increasing “super water conservation toilet” in overseas market. 13 Here is the plan for sales per products. We expect sales for bathroom products and fittings to drop due to decrease in new housing sales. However, we expect sales for sanitarywares to increase as a result of sales enhancement for water saving (4.8LPF) toilet in overseas market. 13 Cause of Increase/Decrease of Recurring Profit ※Y billion, rounded down Cause of Increase /Decrease FY09 Result +1.8 +3.7 +3.4 +1.5 +1.0 ±0 Positive Increase in Remodeling Sales Factors Cost Reduction Decrease in SG&A Decrease in material price s Price Revision Hold down sales activities -4.1 -2.9 -2.0 Negative Decraese in New housing sales Factors Increase in general products/Decre ase in sale s prices Loss from decrease production due to furlough e tc. Cost increase in allowance for retirement due to decrease in interest income -1.2 -1.2 Others Remain Unchanged Total (±0%) Cover the profit decrease due to sales decrease by cost reduction and SG&A decrease 14 We expect the Recurring profit to remain same as former year. Major positive factors to increase profit are, 1.8 billion yen from increase in remodeling sales, 3.7 billion yen from cost reduction, 3.4 billion yen from holding down sales activities. Major negative factors to decrease profit are, -4.1 billion yen from decrease in new housing sales, -2.9 billion yen from increase in general products and decrease in sales prices, and -2.0 billion yen from impact from decrease production due to furlough and inventory reduction activities. 14 Oversea Sales <Performance in local currency> > (Unit: Y billion, rounded down) North & Central America FY08 Results (Unit: $ million, rounded down) FY09 Plan YoY difference FY08 Results FY09 Plan YoY difference for external customers 24.0 21.3 -11% 263 237 -10% Total sales including internal trades 24.0 1.8 21.3 1.8 -11% ±0% 264 20 237 20 -10% +1% 91.03 90.00 Recurring Profit (Exchange rate JPY/US$) <Performance in local currency> > (Unit: Y billion, rounded down) China FY08 Results (Unit: Hundred Chinese yuan, rounded down) FY09 Plan YoY difference FY08 Results FY09 Plan YoY difference for external customers 21.9 22.9 +4% 16.6 17.6 +6% Total sales including internal trades 33.5 6.0 32.7 6.0 -2% ±0% 25.4 4.6 25.2 4.6 -1% +1% 13.22 13.00 Recurring Profit (Exchange rate JPY/Chinese Yuan) North & Central America:Ensure a (Unit: Y billion, rounded down) Others FY08 Results FY09 Plan YoY difference for external customers 10.1 14.0 +40% Total sales including internal trades 19.5 23.8 +22% 1.3 0.9 -31% Recurring Profit (Unit: Y billion, rounded down) TOTAL for external customers Total sales including internal trades Recurring Profit FY08 Results FY09 Plan YoY difference 55.9 77.1 58.3 77.8 +4% +1% 9.0 8.7 -4% 15 profit while sales decrease by increasing production efficiency at Mexico plant. China:Domestic sales is firm but profit remains the same as previous year caused by decrease of exports. Others (Asian Countries):Increase in sales by growing in Middle East and Indian markets. Others (Europe): Increase in sales by starting actual business. (FY08 result:1.7 billion yen → FY09 plan: 3.5 billion yen) North & Central America:Ensure a profit while sales decrease by increasing production efficiency at Mexico plant. China:Domestic sales is firm but profit remains the same as previous year, caused by decrease of exports. Others (Asian Countries):Increase in sales by growing in Middle East and Indian markets. Others (Europe): Increase in sales by starting actual business. 15 Dividend FY08 Result FY09 Plan 1H ¥5.0 ¥5.0 2H ¥5.0 ¥5.0 Full Year ¥10.0 ¥10.0 16 Turning to the payment of dividends, our plan is 10.0 yen per share annually. 16 Contents 1. Fiscal 2008 Results 2. Plan for Fiscal 2009 3. Fiscal 2009 Management Policy 1) Consolidating our financial position 2) Growth strategies ① Remodeling business ② Overseas business 17 17 (1) Consolidating the Financial Position ◆ Improving profitability We forecast sales for fiscal 2009 to be 2% lower than the previous year due to sluggish demand in Japan for new housing and in the United States. Under the circumstances, TOTO will reinforce its cost reduction measures and reduce expenses for sales activities to achieve operating profit on a par with the previous year’s level. +: Profitability improved Unit: billion yen Cost Cost reduction reduction FY08 result +: Profitability improved Unit: billion yen FY09 plan Purchase cost reduction +3.3 +3.0 Porduction streamlining +0.5 +0.4 - +0.3 Business withdrawal (dishwasher, fan unit) Cost reduction by overseas group commanies +0.3 - Total +4.1 +3.7 SGA SGA expense expense reduction reduction (difference (difference from from previous previous year) year) FY08 res ult FY09 plan Expense for s ales activities Domestic total +1.6 Overseal total -1.5 +1.5 -1.5 Indirect cost reduction in Japan +2.3 +3.4 Total +2.4 +3.4 18 First, I would like to explain the consolidation of our financial position. We forecast that sales for fiscal 2009 will be lower than the previous year, due primarily to sluggish demand in Japan for new housing and in the United States following the worldwide economic downturn since last year. Under the circumstances, TOTO will strengthen its cost reduction measures and reduce expenses for sales activities to achieve operating profit on a par with the previous year’s level. Specifically, we will achieve a reduction of 3.7 billion yen by cutting purchase costs and streamlining production processes, and a reduction of 3.4 billion yen by cutting sales expenses in Japan, including advertising and other sales measures and indirect expenses. 18 (1) Consolidating the Financial Position ◆ Ensuring cash flow By reinforcing inventory reduction and ceasing capital investment, TOTO will ensure cash flow for stable business management where rapid recovery is unlikely. (Planning to increase cash flow for FY09 by 5.7 billion yen over the previous year, to 10.5 billon yen) Unit: billion yen FY07 result FY08 result FY09 plan Recurring profit Depreciation and amortization Increase/Decreas e in inventories Corpration tax. etc. Other Total operating revenue Capital inves tment (payment bas is ) Other Total investment expenditure Free cash flow 19.2 22.3 0.4 -5.5 -3.6 32.8 5.9 22.4 3.6 -3.5 -5.0 23.4 6.0 22.0 5.0 -2.5 -5.0 25.5 -20.7 -1.4 -22.1 -20.3 1.7 -18.6 -15.0 -15.0 10.7 4.8 10.5 19 In addition, by reinforcing inventory reduction and ceasing capital investment, TOTO will ensure cash flow for stable business management in a situation where rapid recovery is unlikely. We plan to increase cash flow for fiscal 2009 to 10.5 billion yen. 19 (1) Consolidating the Financial Position ◆ Inventory reduction measures We posted a 9.5 billion yen impairment loss on land and production facilities for fiscal 2008 due to the reduced profitability of bathroom products and modular kitchen products. For fiscal 2008, we posted a loss of 4.5 billion yen on valuation of inventories, mainly comprising restroom products and fitting products, using the lower-of-cost-or-market method. ⇒ To conduct drastic structural reforms ⇒ To build an inventory reduction system 15 200 10 100 5 0 0 -100 -5 '05 '0 6 '0 7 '08 Valuation loss: 4.5 billion yen Inventory reduction (domestic): 5.3 billion yen, etc. 70 Inventories (billion yen) 300 Oerating profit (billion yen) Sales (billion yen) ◆ Bath/Kitchen Products segment '0 9(planned) 65 67.2 Inventory reduction: 5.0 billion yen 66.7 60 55 55.9 50 50.9 45 40 '06 Working toward turning operating profit into the black in fiscal 2010 by changing designs and sharing components based on the revision of our product system '07 '08 '09 (plan) Working toward reducing inventories as at March 31, 2010 by 5 billion yen over March 31, 2009 mainly by reducing inventories linked with production and marketing and cutting the number of items 20 For fiscal 2008, we posted a 9.5 billion yen impairment loss on land and production facilities due to the reduced profitability of bathroom products and modular kitchen products stemming from sluggish demand. We will work to make significant reforms to these products in fiscal 2009. To this end, we will work toward making operating profit profitable by fiscal 2010 by revising product systems for design change and making common components. For fiscal 2008, we also posted a loss of 4.5 billion yen on valuation of inventories centered on restroom products and fitting products using the lower-of-cost-or-market method. The loss is mainly attributable to increased unmoving inventories and excessive inventories. We have begun to work on inventory reduction since fiscal 2008 to build an inventory reduction system at all levels of the Company. Specifically, we will work toward an inventory reduction as at March 31, 2010 of 5 billion yen compared with the inventory on March 31, 2009. We will do this by reducing production and sales-linked inventories and cutting the number of items. 20 (1) Consolidating the Financial Position We will withdraw from the dishwasher business to narrow down businesses by taking the opportunity provided by reduced customer inquiries. (Production to be ended: Countertop type: September 30 Built-in type: July 31) Countertop dishwasher Built-in dishwasher We have concluded that the fan unit business is unlikely to grow amid falling market prices and intensified competition and will withdraw from the business. (Order processing to discontinue: December 2010) Multi-blade radial fan: Used for projectors, etc. Forecasting a profit improvement of approx. 300 million yen over the previous year 21 In addition, we will narrow down some of our businesses to make an efficient investment of our corporate resources in growing business areas. Inquiries for dishwashers declined, particularly for countertop dishwashers. Taking this opportunity, we have decided to withdraw from the dishwasher business. We will also withdraw from fan unit business. We applied our precision tool technology to cooling fans for LC projectors and marketed these products. However, we have decided to withdraw from the business because it is unlikely to grow due to intensified competition. 21 (2) Growth Strategy: ① Remodeling business ■ Remodeling business environments (Unit: billion yen) 350 Year-on-Year Comparison of Sales for Remodeling 300 +6% +4% +2% +1% -0.3% 250 [Opportunity] [Opportunity] ◆ ◆ UD UD (Universal (Universal Design) Design) and and environmental environmental support support ◆ Long-term excellent ◆ Long-term excellent housing housing ◆ ◆ Preferential Preferential tax tax system system 200 150 100 [TOTO’s [TOTO’s strengths] strengths] ◆ ◆ Products Products ◆ ◆ Showrooms Showrooms ◆ ◆ Remodeling Remodeling club club stores stores 50 0 1 FY 2003 2 FY 2004 3 F Y 2005 4 FY 2006 5 FY 2007 6 FY 2008 7 8 9 Future Growth slowed (sales for fiscal 2008 fell somewhat below the previous year) Returning to growth by acting on business opportunities and exercising our strengths 22 Next, I would like to explain our domestic growth strategy. Our Remodeling business is important because it accounts for approx. 62% of domestic sales. We have continued to focus on this business. However, the growth rate slowed year by year, and eventually sales for fiscal 2008 fell below those of the previous year. TOTO is indeed facing a tough business environment under the recession. On the other hand, however, the Japanese government is working for UD and environmental support, long-term excellent housing, a preferential tax system, etc., offering new business opportunities. In addition, TOTO has strengths that its competitors lack, such as product merchantability, showrooms, and Remodeling club shops. We will continue to focus on our Remodeling business so we can resume steady growth when the economy recovers. 22 (2) Growth Strategy: ① Remodeling business Companywide efforts to create demand for remodeling Companywide efforts Production and indirect departments Expansion Visitors Publicizing the value Showroom Sales department Remodeling club stores Remodeling value ⇒ Covers not only the enhancement of product functions but also life changes or real value enhancement Directly publicizing the value to everyone with whom our employees are associated All TOTO employees understand Conveying the value of remodeling to visitors to TOTO showrooms and creating demand for remodeling at every opportunity, including customer contact at our showrooms 23 For this purpose, in addition to existing remodeling activities, we will engage in company-wide remodeling creation activities so that all employees working at TOTO Group companies understand and publicize our remodeling value. We assume that only employees working in the sales department have understood the true meaning of TOTO's remodeling value, although other employees working at plants and indirect departments may have understood some of our products and their functions. From now on, we will strive to create demand for remodeling by ensuring that all employees, including those working at plants and indirect departments, understand our remodeling value and directly convey this value to all stakeholders. 23 (2) Growth Strategy: ① Remodeling business ◆ Activities to create and win demand for remodeling centered on TOTO plants and group companies Local customers Remodeling club stores ・ Easier to seek advice on remodeling ・ Appealing to prospective customers ・ Strengthening ties with existing customers by inviting them to fairs ・ Getting closer to prospective customers (a nearby plant is better than a distant showroom) ・ Customers don't need to visit a distant showroom to see products. Remodeling fair Showroom Plant All employees ・ Able to give advice to relatives and acquaintances on (remodeling) ・ Able to build contacts with residents by holding fairs ・ Contributing to remodeling of own house ・ Creating demand to contribute to sales and profit ・ Enhancing TOTO brand value 24 To this end, in addition to traditional fairs in showrooms, we will hold remodeling fairs at plants and TOTO Group companies to create demand for remodeling. If all employees working at TOTO Group companies consistently undertake company-wide activities in remodeling creation for two years, the TOTO Group will be able to build on its strengths. This experience will surely become a driver for a breakthrough when a change in momentum emerges, as it certainly will in the near future. We believe that the experience will become a new vitality in all processes of creating ? selling ? introducing customer opinions to TOTO. 24 (2) Growth Strategy: ① Remodeling business (Continuation and Reinforcement) Activities to create demand for remodeling Remodeling club stores (contractors) Strengthening proposal capability to customers by enhancing the quality of our Remodeling club stores Capturing demand for remodeling and carrying out activities to create demand Sales partners TOTO (agencies and distributors) (TOTO, Daiken, YKK AP Alliance) Activating workshops and water-service workshops at fairs held by partners Holding Remodeling Fairs (on April 28 and 29 at Tokyo and Sapporo) 25 Meanwhile, we will continue activities to create demand for remodeling, and strengthen those that we have engaged in to date. Our Remodeling club shops will cooperate with each other to become safe and secure workshops in their local community and enhance customer satisfaction. We will activate workshops and water-service workshops by holding fairs jointly with sales partners. TOTO has held TDY Remodeling Fairs with Daiken and YKKAP at seven locations in Japan in the last six months. We held such fairs yesterday and the day before yesterday at Tokyo Big Sight and Sapporo. Despite the failing economy, visitor numbers were the same as they were at the fairs held two years ago. 25 (2) Growth Strategy: ② Overseas business Activities to strengthen efforts for overseas business Common strategy Toward a true global company Region-based strategy USA USA Giving Giving first first priority priority to to cash cash flow flow Seeking Seeking on-site on-site solutions solutions ① Environmental Strategy ⇒ Environmental consideration in all our activities China China ② Product and Brand Strategy ⇒ Supporting both environmental considerations and living proposals Asia Asia and and Oceania Oceania Reinforcing Reinforcing sales sales in in India India and and the the Middle Middle East East Tapping Tapping into into new new markets markets Europe Europe Substantial Substantial business business launch launch ③ Human Asset Strategy ⇒ Strengthening local human assets Reinforcing Reinforcing sales sales in in midland midland China China Reinforcing Reinforcing sales sales of of hydrotect hydrotect tiles tiles Seeking the early formation of a global quintuple system 26 Next, I would like to explain our overseas strategies. They are subdivided into the common strategy and the region-based strategy. Our common strategy includes: * "Environmental Strategy" that takes the environment into consideration in all our activities. * "Product and Brand Strategy" that supports environmental considerations and living proposals * "Human Asset Strategy" that aims to enhance local human assets We will be outlining our region-based strategy later. 26 (2) Growth Strategy: ② Overseas business ◆ Environmental Strategy ① Products ~ Reducing the environmental burden with TOTO technology ~ Water-saving toilet Self powergenerating products ③ Corporate activities ② Production bases Cutting CO2 Cleaning air Hydrotect Reusing discharged water Water Environment Fund Contribution to NGO bodies 27 First, our Environmental Strategy that is applied to all regions. Our customers can save water and energy and clean the air by using a 4.8-liter ultra water-saving toilet, fittings that generate electricity for sensors and valves on water flows, and hydrotect tiles that can clean the air using photocatalyst technology, all of which have been pioneered by TOTO. We will make proposals to customers using the keywords "Environmental Consideration." In addition, we will work to ensure the environmental consideration of production bases and corporate activities in local communities based on the concept of the environment. 27 (2) Growth Strategy: ② Overseas business ◆ Business in the United States ・ Surrounding economic environment Although new housing starts for February increased over the previous month for the first time in eight months, they declined again in March. The US government announced housing-related economic measures, including a reduced interest rate and moratorium for loan payments. However, no major impact has been observed. The economy has remained as weak as before. ・ Our policy for fiscal 2009 Since the market environment is tough, we will minimize investments and give first priority to profit and cash flow in our management by expanding environmentallyfriendly products to differentiate TOTO from its competitors and seek increasing orders of high-class on-site works. 28 Next, I would like to explain our region-based strategies. The business environments in the United States is very severe at present. Although new housing starts for February increased over the previous month for the first time in eight months, they declined again in March. The US government announced housing-related economic measures, including a reduced interest rate and a moratorium for loan payments. However, no major impact has been observed. The economy has remained weak. TOTO's investment in business in the United States will be minimized during fiscal 2009 while the economy remains uncertain. Instead, our management will focus on profit and cash flow. Meanwhile, our 4.8-liter ultra water-saving toilets and other environmentally-friendly products have won high acclaim from customers. TOTO will therefore work to increase the differentiation of its products from those of its competitors and seek increasing orders of high-end, on-site work. 28 (2) Growth Strategy: ② Overseas business ◆ Business in China ・ Surrounding economic environment GDP growth during January to March, announced by the National Bureau of Statistics of China, stood at a low 6.1%. Meanwhile, the Chinese government announced economic measures totaling 4 trillion yuan (52 trillion yen), leading to a slight upturn in consumer sentiment. Stock prices have remained steady. ・Policy for fiscal 2009 Sales are unlikely to increase due to the worldwide recession and the end of special demand resulting from the Olympic Games last year. To increase sales, TOTO is strengthening its efforts in midland China where economic growth is remarkable, expanding an assortment of ultra water-saving toilets, and implementing measures based on its strong environmental technology that differentiates TOTO products from those of its competitors. 29 GDP growth during January to March, announced by the National Statistics Bureau of China, stood at a low 6.1%. However, since the Chinese government announced economic measures totaling 4 trillion yuan (52 trillion yen), consumer sentiment seems to be improving. Stock prices have remained steady. Sales are unlikely to increase, compared with sales last year, due to the slowdown of GDP growth this year and the end of special demand for the Olympic Games. To increase sales, TOTO is strengthening its efforts in midland China, expanding an assortment of ultra water-saving toilets, and implementing measures based on its strong environmental technology that differentiates TOTO products from those of its competitors. 29 (2) Growth Strategy: ② Overseas business ◆ Other (business in Europe) In March 2009, TOTO participated in ISH, the largest housing facility exhibition in the world, and carried out a major launch of business in Europe Local responses ・ TOTO's exhibition was the center of attention at the ISH. ・ European companies in the industry generally welcomed TOTO's entry. ・ Existing overseas business partners (in China, USA, Asia, etc.) were reminded of TOTO's presence again. ・ A flood of inquiries for trade was received from dealers around the world. 30 Next, I would like to talk about our business in Europe. This March, TOTO participated in the ISH, the largest housing facility exhibition in the world, and carried out a major launch of business in Europe. TOTO achieved a very good local reputation at the ISH. · TOTO was the center of attention at the ISH. · European companies in the industry generally welcomed TOTO's entry. · Existing business partners (in China, USA, Asia, etc.) were reminded of TOTO's presence again. · TOTO received a large number of inquiries for trade from dealers around the world. 30 Medium- and Long-Term Directions The worldwide economic environment is uncertain and erratic, changing at an unprecedented speed. A drastic revision of our medium- and long-term strategies is required. TOTO Group Naissance M100 Plan (tentative title) To be announced in early July 31 In closing, I would like to explain the concept of TOTO's medium- and longterm strategies. We recognize that a drastic revision of our medium- and long-term based strategies is required because they are based on business environments that have changed significantly. TOTO has begun to discuss how to handle strategies based on medium- and long-term viewpoints, an appropriate image of corporate governance and business that seek to fulfill the strategies, how to handle numerical targets as their milestone, how to handle PDCA for the strategies, etc. The result of the discussions will be developed into the TOTO Group Naissance M100 Plan (tentative title) for the year 2017, eight years from now and TOTO's 100th anniversary (M100). TOTO will announce the plan in early July of 2009. 31 This presentation material contains forward-looking statements based on assumptions, estimates and plans as of April 30th, 2009. Actual performance may differ materially from these forward-looking statements due to risks and undermined factors arising from changes in the world economy, competition and foreign currency exchange rates. http://www.toto.co.jp/ 32