KYOWA LEATHER CLOTH CO., LTD. Business Report FY2006

Business Highlights

Financial overview
In million JPY FY2006 FY2005 Rate of Change (%) Factors
Sales 37,967 36,618 3.7% Sales increased by 12.9% to 20.319 billion JPY compared to the previous half of 17.997 billion JPY. This was mainly due to increased sales of TPO (thermoplastic olefin) covering materials that are highly recyclable; and also to a lightweight synthetic leather material called "Le-Karl".  
Ordinary income 1,659 873 89.8% Ordinary income increased due to increased sales and the Company's effective internal improvement initiatives. However materials price increases and other factors negatively impacted the results.
Current net income 308 395 (22.0)%

The Company posted an extraordinary loss connected with the bankruptcy of Sandusky Athol International Holdings Limited headquartered in Ohio, U.S.A. which filed for Chapter 11 under the US  Bankruptcy Code in November 2006. The Company's subsidiary, Kyowa Leather Cloth U.S.A., Inc., had invested in the bankrupt company.

Dissolution of subsidiary
The Company decided at the Board of Directors meeting held on Mar. 29, 2007 to dissolve Kyowa Leather Cloth U.S.A., INC, its subsidiary in Ohio, U.S.A. Kyowa Leather Cloth U.S.A., INC, which currently sells leather and synthetic leather for automobiles, was originally established in February 1997 as an equity firm for a joint venture, Sandusky Athol International Holdings Limited ("SAI"). Kyowa opted for the dissolution of Kyowa Leather Cloth U.S.A., INC as the subsidiary incurred a significant amount of debts and continued to struggle financially without a positive future outlook since SAI had filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in November 2006. The company confirmed that they will utilize outside channels available for future handling and exporting products manufactured in Japan through major trading firms specializing in the distribution of automotive interior parts. (From a press release on Mar. 30 2007)


R&D Activities
R&D expenses were 365 million yen in FY2006.
Development agendas of the automotive interior business were:
- To improve and develop technologies for products that take into consideration factors such as environmental protection, recycling,  and  weight reduction.
- To develop new synthetic leather materials that contribute to making higher quality vehicles. 
- To develop low-cost interior materials

Investment Activities

Capital Investment
Capital investment in FY2006 totaled 1,639 million yen.
It was mainly used to expand thermoplastic polyolefin elastomer (TPO) production facilities at Shinshiro, as well as to improve production efficiencies and cut costs. 

Enhancement of manufacturing structure
The Company will launch an activity to improve efficiency of its domestic plants. The company will introduce a new system at its automotive interior parts production lines of Tenryu No.1 and No.2 plants in Shizuoka prefecture in order to expand production capacities without adding workforce, and aims at further improvement of production efficiency through a reduction of work-in-progress inventory. The new production system will formulate one-week to three-day production plans based on its two-month sales forecast, so that products may be produced in the most efficient way. In addition, the Company will introduce a new inventory control system "Location System" that controls and indicates locations and numbers of all items including work-in-progress in a plant, covering all production processes from the initial input into the line to final assembly and delivery. Replacing its traditional scheme depending on rough instructions as well as individual employees'' technical intuition and expertise by the new system depending on a computer, which provides detailed instructions on which parts and how many parts are to be produced, will help the company set up a more efficient production system. In 2006, the Company has introduced the new production system to its seat and other automotive interior parts manufacturing plant in Shinshiro, Aichi prefecture, when it installed the No.4 line there. As the company saw an increase in production capacity as well as enormous improvement of production efficiency, such as a reduction of work-in-progress inventory, it decided to introduce the new system to other automotive parts production lines at other domestic plants.(From a story in the Nikkan Jidosha Shimbun on Jul. 13 2006)

New Facility (abstract)
Main Products Total Amount Invested
(millions of yen)
Started Expected to Complete in: Increased Capacity after Completion
Shinshiro Plant
Composites for molding, and other products (for automotive use) 363 Apr., 2007 Mar., 2008 No increase (initiated for rationalization purposes only)
1st Tenryu Plant
Leather (for cars, furniture, shoes and general merchandise) 253 Apr., 2007 Mar., 2008 No increase (initiated for rationalization purposes only)
2nd Tenryu Plant
Composites for molding and synthetic leather (for vehicles, furniture, shoes and general merchandise) 341 Apr., 2007 Mar., 2008 No increase (initiated for rationalization purposes only)
Head Office
R&D facilities 512 Apr., 2007 Mar., 2008 No increase because they are R&D facilities.