Declining demand and intensifying competition in China's sewing thread market

「[Dissolution of Subsidiary] FUJIX decided to dissolve and liquidate its sewing thread sales subsidiary in China and Hong Kong, 富士克國際.」

「In addition to the effects of efforts since last year to reduce procurement prices for raw materials and business improvement measures at the subsidiary in Thailand, factory utilization was maintained as production was shifted from Japan. As a result, segment profit was ¥5 million, compared with a loss of ¥36 million in the same period of the previous year.」

「In China, the segment's main market, the trend of shifting production of apparel for Japan to other Asian countries, including Vietnam, continued. In addition, because of the slowdown in the Chinese economy and the impact of U.S. tariff policies, apparel production for both the domestic and U.S. markets remained sluggish, and the Group's Chinese subsidiaries continued to face difficult sales conditions.」

「Although the effects of lower procurement prices for raw materials and business improvement measures at the subsidiary in Thailand gradually began to emerge, the segment loss was ¥30 million, compared with a loss of ¥42 million in the previous fiscal year, partly due to the decline in net sales.」

「During the interim period, the shift of apparel production for Japan from China to other Asian countries, including Vietnam, continued. In China, the economic slowdown weakened consumer sentiment toward apparel, making sales conditions for the Group's China business difficult. In Vietnam, orders remained firm, while in Thailand, despite efforts to reduce operating costs, difficult business conditions continued because of the economic slowdown and weaker consumption. In addition, the impact of fluctuations in foreign exchange translation rates resulted in segment revenue of ¥524 million, down 14.7% from the previous interim consolidated accounting period. On the earnings side, despite the decline in revenue, segment profit was ¥0 million, compared with a loss of ¥41 million in the previous interim consolidated accounting period, as the benefits of lower raw material procurement prices gradually began to emerge and factory operating rates in China continued to be maintained.」

「In China and Thailand, apparel production generally remained sluggish, not only for Japan, and there continued to be no sign of a recovery in orders for sewing thread in this segment. However, partly because of the impact of foreign exchange translation rates amid the yen's depreciation, segment revenue was ¥614 million, up 7.0% from the previous interim consolidated accounting period. On the earnings side, in addition to the difficulty of passing higher costs through to selling prices amid intensifying competition, lower sales volumes and factory operating rates in China and Thailand, as well as persistently high raw material prices, resulted in a segment loss of ¥41 million, compared with a loss of ¥19 million in the previous interim consolidated accounting period.」

「As a result, despite the impact of foreign exchange translation rates amid the yen's depreciation, segment revenue was ¥1,159 million, down 6.8% from the previous fiscal year. On the earnings side, in addition to difficult conditions across Asia that made it difficult to pass higher manufacturing costs through to selling prices, sluggish sales at the Chinese subsidiaries and lower factory utilization in China resulted in a segment loss of ¥91 million, compared with a loss of ¥49 million in the previous fiscal year.」

「In China, various aftereffects of the COVID-19 pandemic continued, including the relocation of production of apparel for Japan to Japan or nearby Asian countries, including Vietnam, as a hedge against uncertainty over the country's COVID-19 policies last year. Orders at the Chinese sales subsidiary, which is the segment's main sales base, showed no recovery.」

「In China, various aftereffects of the COVID-19 pandemic continue, including the relocation of production of apparel for Japan back to Japan or to nearby Asian countries, including Vietnam, following last year's lockdown in the Shanghai area and the rapid increase in infections after the shift away from the zero-COVID policy. As a result, orders at the Chinese sales subsidiary, which is the segment's main sales base, have not recovered, and despite the impact of foreign exchange translation rates amid the yen's depreciation, segment revenue was ¥278 million, down 10.2% year on year.」

「During the period, the suspension of operations at the Chinese subsidiaries for approximately 2 months from the end of March because of the lockdown in the Shanghai area forced the Chinese and Japanese businesses, as well as the Vietnamese and Thai subsidiaries in this segment, to forgo sales opportunities. After the lockdown was lifted, however, the Chinese production subsidiaries continued to operate at full capacity, supported by a recovery in orders for sewing thread for apparel for Japan and production to build inventory as a measure to mitigate future risks.」

「Demand for sewing thread for apparel for Japan, the main market of this segment, was trending upward as apparel consumption recovered. However, the suspension of operations at the Chinese subsidiaries for approximately 2 months from the end of March because of the lockdown in the Shanghai area affected sales not only at the Chinese subsidiaries but also at the subsidiaries in Vietnam and Thailand.」

「In China, infections remained contained during the period and the Group's consolidated subsidiaries generally operated under near-normal business conditions. However, at the production subsidiary whose main business is sewing-thread manufacturing, production of sewing thread for apparel for Japan remained sluggish. Immediately before the end of the quarter, a lockdown was imposed under the zero-COVID policy following a rapid increase in infections in the Shanghai area, making the outlook for business activities at the Chinese subsidiaries, including the production subsidiary located in the affected area, uncertain.」

「In China, the zero-COVID policy kept infections contained and did not result in restrictions on sales activities or factory operations. However, the recovery in production of apparel for Japan remained slow, and orders for the sewing thread used in such apparel continued to show no significant recovery.」

「On the earnings side, higher manufacturing costs and SG&A expenses at the Chinese production subsidiary resulted in a segment loss of ¥9 million, compared with segment profit of ¥30 million in the same period of the previous year.」

「Although revenue increased on a yen basis, declining production volumes, including for Japan, and higher manufacturing costs at the Chinese subsidiary lowered profit margins. As a result, segment profit was limited to ¥4 million, down 91.7% year on year.」

「In China, the core market of the Asia segment, the number of COVID-19 infections was contained and the overall economy showed signs of recovery. In Thailand, however, no recovery in consumption was seen, and difficult business conditions persisted across the textile industry, including the apparel and fashion industries.」

「In China, the core market of the Asia segment, the number of COVID-19 infections was contained and the overall economy showed signs of recovery. In Thailand, however, sluggish consumption continued, and difficult business conditions persisted across the textile industry, including the apparel and fashion industries.」

「In China, the core market of the Asia segment, business activities that had been severely restricted by the spread of COVID-19 were gradually relaxed from April as the number of infections declined. However, production of apparel for Japan came under increasing restraint, making sales conditions for the segment, which mainly sells industrial sewing thread for apparel produced for Japan, even more difficult, including at subsidiaries in Thailand and Vietnam. Revenue also declined because of fluctuations in foreign exchange translation rates. Revenue was ¥533 million, down 16.1% year on year, and segment profit was ¥50 million, down 21.0%.」

「During the period, the spread of COVID-19 became serious in China, the core market of the Asia segment. Business activities were severely restricted due to movement restrictions, including lockdowns, and an extended Lunar New Year holiday, as well as measures to prevent the spread of infection after the holiday. Logistics were also disrupted, resulting in major constraints on both production and sales. As a result, segment net sales were ¥281 million, down 16.4% year on year. Segment profit was ¥8 million, down 43.7% year on year, as lower profit at the Chinese subsidiaries weighed on results.」

「Although the timing of the fiscal year differs, making the conditions slightly different from those in the Japan segment, production of apparel for the Japanese market in Asia generally remained subdued during the period against a backdrop of cautious consumption in Japan, and orders for sewing thread, an apparel material, remained sluggish. In China in particular, the business environment for the garment industry and the Group's subsidiaries became more difficult due to trade friction and a slowdown in the domestic economy.」

「In China in particular, the business environment for the garment industry as a whole became more difficult than in other countries in Asia due to trade friction with the United States and a slowdown in the domestic economy.」

「In China in particular, the business environment for the garment industry was becoming increasingly difficult due to trade friction with the United States and a slowdown in the domestic economy. In this environment, the Chinese subsidiaries also revised sales prices, as in Japan, to absorb various cost increases, but order volumes remained sluggish as sales competition intensified further.」

「In China in particular, the business environment for the garment industry became increasingly uncertain due to concerns about US-China trade friction and an economic slowdown, and sales of sewing thread remained difficult. Partly due to fluctuations in translation exchange rates, segment net sales were ¥336 million, down 1.5% year on year. Segment profit was ¥14 million, down 64.5% year on year, as lower profit at the Chinese subsidiaries weighed on results.」

「During the period, production of apparel for the Japanese market in Asia remained generally cautious and subdued against a backdrop of domestic apparel sales conditions in Japan, orders for sewing thread, an apparel material, remained sluggish, and sales competition with other industry participants was intensifying further.」

「During the period, production of apparel for the Japanese market in Asia remained generally cautious and subdued against a backdrop of domestic apparel sales conditions in Japan, orders for sewing thread, an apparel material, remained sluggish, and sales competition with other industry participants was intensifying.」

「During the period, production of apparel for the Japanese market in Asia remained generally cautious and subdued against a backdrop of domestic apparel sales conditions in Japan, while orders for sewing thread, an apparel material, also remained sluggish.」

「Domestic sales in China, the main market for this segment, also showed signs of bottoming out. In addition, a new Chinese production subsidiary was added in June 2017, and together with higher sales in Thailand and Vietnam and the impact of translation exchange rates, this resulted in segment net sales of ¥341 million, up 23.4% year on year. Segment profit was ¥40 million, up 838.2% year on year, as higher sales, a recovery in production results and cost reductions led to a recovery in profitability.」

「Against this backdrop, domestic sales in China showed signs of bottoming out, while sales in Thailand and Vietnam also continued to increase. In addition, the yen depreciated against the currencies used for translation, resulting in segment net sales of ¥1,390 million, up 5.3% from the previous fiscal year. Meanwhile, segment profit was ¥88 million, up 252.5% from the previous fiscal year, as the continued recovery in the profitability of the Chinese production subsidiaries, higher sales in Vietnam and Thailand, and the effects of expense-reduction measures contributed.」

「Against this backdrop, sales of sewing thread in China showed signs of bottoming out, while increased sales in Vietnam and the impact of translation exchange rates also contributed to segment net sales of ¥1,015 million, up 3.4% year on year. Meanwhile, segment profit was ¥79 million, up 173.2% year on year, as the recovering profitability of the Chinese subsidiaries, higher sales in Vietnam and Thailand, and cost reductions, among other factors, contributed.」

「Against this backdrop, sales of sewing thread in China showed signs of bottoming out, but the segment's net sales were ¥619 million, down 5.8% year on year, partly due to the yen exchange rate used for translation being stronger than in the same quarter of the previous year. Meanwhile, segment profit was ¥38 million, up 668.2% year on year, as the profitability of the Chinese production subsidiaries showed signs of recovery and higher sales and cost reductions in Thailand and Vietnam contributed.」

「Although there were some signs that earnings power was recovering, factors reducing profit at the Chinese production subsidiaries were significant during the quarter, and segment profit was ¥4 million, down 44.5% year on year.」

「In China, which accounts for the largest share of this segment, domestic sales remained sluggish, partly due to the continued shift of the garment industry overseas.」

「In China in particular, the continued shift of garment production to Southeast Asian countries added to the difficulties, and the Group's China operations continued to face a challenging business environment, including sluggish orders and lower factory operating rates.」

「The sewing thread market in China remained difficult due to further declines in demand and intensifying competition.」