Michihisa Shinagawa
President and Chief Executive Officer
Sumitomo Corporation of America
2006 Annual Report President's Message
As the new President & CEO of Sumitomo Corporation of America, I am pleased to say that during 2006, the company continued its strong growth and again achieved record earnings. I understand the commitment and the efforts that were made to prudently execute business and organizational initiatives, focusing on steady expansion of our core business areas, and capitalizing on investment opportunities with strong growth potential.
As a result, consolidated net income for our fiscal year ended March 31, 2007 of approximately $200 million improved by 70% from the year before.
Many of our businesses benefited from the strong economic environment in the United States, but last year's excellent performance is not a market anomaly, or the result of a one-time spike. It is the result of this company relentlessly taking steps to improve itself, even when times are great.
By continuing to place great emphasis on achieving financial targets that are based not just on profits, but on an overall rate of Risk Adjusted Return, we have carefully enacted reforms throughout all our business areas that have positioned us well for maintaining expansion and good value for our customers and business partners.
SCOA maintained a steady growth track in 2006, and we now have a solid financial base that will allow us to continue our broad range of investments going forward.
We had very good performance from business groups such as Tubular Products Business, Steel & Non-Ferrous Metal Business, Machinery, Power & Electronics and Living-Related Business.
In particular, our Tubular Products Business group not only benefited from strong market circumstances, but we also saw their strategic expansion in their value-chain was a big factor in their excellent performance. Our Steel & Non-Ferrous Metal Business group drove strong results from increased profitability in three of our major portfolios, Summit Stainless Steel, distributor of stainless steel products, Arkansas Steel, a mini-mill and a manufacturer of railroad tie plate and other products, and Leavitt Tube, a structural steel tubing manufacturer.
Our real estate activities continued to bring good returns, leveraging the shifts in demographics and growth patterns in the U.S. Last year the group made notable investments in new development projects, such as a large master- planned residential community in the suburbs of Houston, Texas.
The Machinery, Power & Electronics group made good contributions to our results, with subsidiaries such as Perennial Power and Auto Summit Commercial Service performing extremely well. The group recently invested in Sumitronics USA, a venture in Tijuana, Mexico for electronics boards for flat panel TVs.
Subsidiaries, such as our largest acquisition, TBC Corporation, a tire retailer and wholesale marketer made positive contributions to our consolidated results. Last year, we merged Treadways Corporation, a distributor of after-market replacement tires into TBC, establishing an even greater force in the tire wholesale and retail industry, giving us over 10 percent market share in the replacement tires business.
Towards the end of 2006, we also made new investments in companies such as Forgings, Flanges & Fittings (FFF), a master distributor of carbon alloy fittings and flanges for the oil & gas industry, and in Howco Group, a distributor and processor of raw materials for downhole/wellhead equipment used in oil and gas exploration and drilling.
Further more, other subsidiaries such as Cantex, a manufacturer of PVC pipe and conduit, invested in expanding its operations and is building a new facility in Arizona, which will enable the company to capture more of the increasing market demands in sales and distribution in the Southwest.
Meanwhile, The Hartz Mountain Corporation, our subsidiary in the pet care supply market has made major improvements to drive greater growth in the future. With a new leadership team in place, the company is well positioned to energize product research and innovation, and last year introduced over 200 new products. The company is also leveraging the Sumitomo global network for sourcing and is starting international expansion initiatives.
Over the years, SCOA has managed to carefully diversify its investments portfolio, improving our market value and our earning power by placing greater emphasis on the profitability and return on our investments. We not only concentrated on recycling lesser-performing assets for those with better growth potential, but we also focused on value-realization, selling real estate, and various passive investments for maximum gain. This has significantly strengthened our assets base.
However, now the question is, "How do we sustain this growth?" To stay ahead of the curve it is imperative that we are quick and have the flexibility to take advantage of today's opportunities, wherever they may be geographically, while also being skilled at minimizing risk.
We will continue to place emphasis on ensuring that our people and processes are able to meet these challenges. I cannot emphasize more strongly the need for good people, and that it is because of our dedicated employees, and their hard work and commitment to achieve their goals, that we were able to achieve these excellent results.
As I begin my new era as SCOA President and CEO, I look forward to building upon the success of my predecessors and continuing the strategic direction that has been set as we start the next phase of our new management plan the "GG Plan", which stands for "Great and Growing" Company. We will work hard to achieve our commitments as we implement this plan and continue to balance and optimize our business portfolio. It is our aim to continue to strengthen and raise the value of our core businesses by establishing clear strategies and executing these plans accordingly. We also will continue to improve our management quality by further strengthening our human resources, risk management, internal controls and legal compliance.
I encourage our people to make it their mission to be more innovative as they look for new business opportunities and ways to expand our role in our customers' businesses. Deepening these strong relationships continues to be one of our most important opportunities for growth, and our business teams continue to excel in this area.
I am confident that in 2007 this company will maintain the momentum of a high-performance company that delivers sustainable and profitable growth.
Michihisa Shinagawa
Sumitomo Corporation of America
President and Chief Executive Officer
