Annual Report 2007

anniversary in March 2007. Since the Company's establishment in 1907, we have been fervently involved in manufacturing motor vehicles and engines.<br><br> In view of the inevitably intensifying global competition in the future, we cannot just sit back and celebrate the 100-year anniversary. We are aware that our growth and expansion as the Daihatsu Group over the next hundred years will hinge on our own efforts at innovation. Everyone in the Daihatsu Group should become a pioneer in innovation, and through taking up the challenge of building innovative cars that are ahead of their time, the Daihatsu Group aims to establish itself as ca global brand loved around the world d and as ca corporate group with confidence and pride. d This is the resolution that the Daihatsu Group has made on its centenary.<br><br> With this idea in mind, we established the DAIHATSU Group Slogan Profile 1 With the launch of the new mini passenger car Sonica , and full model changes for the mini passenger cars Move and Mira, among other developments, the total unit sales of our new mini vehicles (with an engine displacement of 660cc or less): had another record high in fiscal 2007 of 616,000 units* (an increase of 4.1% over the previous fiscal year). As a result, Daihatsu 9s share in the mini vehicle market was 30.3%, surpassing 30% for three consecutive years. *Data from Japan Mini Vehicles Association After signing a technical license agreement with FAW Jilin Automobile Co., Ltd.<br><br> (FAW Jilin Auto) of China, we have worked on getting ready to introduce Daihatsu brand vehicles to the Chinese market for the first time. In June 2007, Daihatsu launched the new multi-purpose passenger car Xenia, which is based on a global strategic model jointly developed with Toyota Motor Corporation (Toyota). Highlights in Fiscal 2007 Move Custom <660cc> Mira <660cc> 03040506 07 2,000 1,500 1,000 500 0 (Billions of yen) 969.5 993.6 1,176.2 1,347.9 1,637.1 03040506 07 60 40 20 0 (Billions of yen) 20.6 28.3 40.1 48.6 54.3 03040506 07 40 30 20 10 0 (Billions of yen) 14.7 17.2 25.8 33.5 34.7 Net Sales Operating Income Net Income For the fiscal year ended on March 31, 2007 (fiscal 2007), the Daihatsu Group recorded increases in both sales and income for the fifth consecutive fiscal year.<br><br> Consolidated net sales increased 21.5% year on year to ¥1,637.1 billion, operating income went up 11.8%, to ¥54.3 billion, and net income totaled ¥34.7 billion, representing a year-on-year gain of 3.6%. All of these accounts were at the highest amount ever recorded. Xenia (China) <1,500cc/1,300cc> 2 Management Message Innovation of corporate culture is essential for globalization Reinforcing our base in Japan is one of the most critical issues for the future global development of the Company.<br><br> For this purpose, during the fiscal year under review, we firstly promoted thorough innovation of our corporate culture in Japan. As a result, we broke a record in the total unit sales of mini vehicles, our core products, and our market share exceeded 30% for the third year in a row. Daihatsu took first place in the mini vehicle market share for the first time in fiscal 2007.<br><br> In addition, we also marked the highest record in terms of overall unit sales of mini vehicles plus compact cars in Japan. In this extremely successful year, we were able to post our highest records both for sales and income. However, the world 9s automobile industry continues to be extremely competitive.<br><br> In ten or twenty years 9 time, we may be hard-pressed to survive if we neglect wide-ranging and continuous corporate reformation. Though Daihatsu celebrated its 100-year anniversary in March 2007, it is essential that we grow into a truly global corporation if we are to celebrate another hundred years in business. In the fiscal year under review, we saw the first results of our efforts for innovation of our corporate culture in the form of favorable sales results in Japan.<br><br> c d on the principle of cGenchi Genbutsu d On the occasion of our centennial celebration in March 2007, in the spirit of gratitude to all who have assisted us and on the theme of new resolutions with which to face the next 100 years, we established the DAIHATSU Group Philosophy and Slogan as well as DAIHATSU Group 9s Basic CSR Principles. TheDAIHATSU Group slogan is c. d This slogan With Innovation as a key word, we aim for global expansion. Chairman (Left) Kousuke Shiramizu President (Right) Teruyuki Minoura 3 represents the Daihatsu 9s corporate philosophy that aims to innovate itself to produce innovative cars for the future.<br><br> The slogan expresses the strong determination of all Daihatsu Group members and also makes it clear that the Company will not survive unless the whole Group is committed to work on innovation. c d does not end with a simple declaration of intent. It is imperative that every one of us becomes a leader in innovation in order to change the corporate culture of the entire Daihatsu Group.<br><br> One important facet of this innovation is the Genchi Genbutsu (go and see for yourself) principle. This principle is one of Daihatsu Group Action Guidelines and means that we must actually go to the place where problems actually occur, and solve them at the actual site. Everyone is urged to adopt this attitude and put it into action without delay.<br><br> Under the slogan, during the fiscal year ending March 2008 (fiscal 2008), we will strive to generate more revenue by building a production and sales organization that is more highly efficient than the one in fiscal 2007, and we intend to use these resources for global expansion. Furthermore, we intend to promote action geared to the further development of new technologies and products and lowering costs, while always keeping the viewpoint of innovation in mind throughout fiscal 2008. Of course, we will not terminate this plan after one or two years; rather, we shall sustain and work on it for as long as the Company exists.<br><br> Starting from fiscal 2008, we must speed up this innovation process in order to make our presence firm in the global car industry. We believe that this will determine whether or not Daihatsu can succeed in turning into a truly global business. Returning profits to our shareholders is part of innovation As regards to dividends paid in the fiscal year under review, we increased dividend payment by ¥1 per share to a total dividend payment of ¥13 per share.<br><br> We also added a further centennial year dividend of ¥2 per share, which resulted in the total dividend payment per share of ¥15. We would like our shareholders and investors to inspect and assess both our steadfast activities towards achieving major expansion over the next hundred years and the year-by-year results that come out of those efforts. Daihatsu intends to continue returning profits to our shareholders.<br><br> We thank you for your continued understanding and support for the Company 9s undertakings. August 2007 Chairman Kousuke Shiramizu President Teruyuki Minoura 4 Q Could you review the fiscal 2007 forus and tell us about future prospects? A During fiscal 2007, the market for the mini vehicles, which are our core products, grew by 4.2% from the previous fiscal year to 20.3 billion units, and renewed the highest ever unit sales for two years running.<br><br> Some of the reasons for these exceptional unit sales were ascribable to rising gasoline prices and increased awareness of environmental issues among customers. In this context, year by year more people are turning to compact cars including mini vehicles because oftheir excellent fuel efficiency. In addition, automobile manufacturers aggressively introduced new mini vehicle models, and this caused the market to expand.<br><br> For the fiscal year under review, Daihatsu has continued to record highest ever unit sales of new mini vehicles. As a result, we have marked ourhighest record both for sales and income, and increased both revenue and profit over the last five consecutive years. During fiscal 2008, however, we expect the mini vehicle market to be 19.8 billion units, which is 97.5% of the units sold in the fiscal 2007.<br><br> We think that, in fiscal 2008, there will be a slackening off of the new model effect which was launched in fiscal 2007, and the rise in price of gasoline will quiet down, which will mean that there will not be as much of a trend towards customers downsizing to mini cars as we have seen during the fiscal year under review. Also, in addition to the continuing high cost of raw materials, due to the effect of tax reform in fiscal 2007 and an increase in depreciation, our consolidated performance in fiscal 2008 is expected to show an increase in revenue but a drop in profit. However, after excluding the effect of tax reform, operating income is expected to increase.<br><br> Q What do you mean by the Genchi Genbutsu principle mentioned in the Management Message? A It means going to the actual place where a problem has occurred and checking on it with your own eyes to discover a concrete way of solving it. Once you have solved a problem this way, you are certain to see another new issue arise.<br><br> Repeating this process creates a virtuous cycle in which reform or innovation becomes an ongoing process. During the period under review, by thoroughly implementing the Genchi Genbutsu principle, particularly in the manufacturing department, we have made an outstanding improvement in productivity. The Oita (Nakatsu) plant operated by Daihatsu Motor Kyushu Co., Ltd.<br><br> (Daihatsu Kyushu), which had began operation in December 2004, turned around into the black in the second half of the fiscal year. Doing things this way, I believe we can get results in the shape of further profit increases for our core mini vehicle products. By sustaining innovation and thoroughly implementing the Genchi Genbutsu principle, we aim to further increase income.<br><br> Even if the severe business climate continues in the future, I believe that Daihatsu can strengthen its competitiveness needed to withstand the global market competition by making steady efforts of continuing with the innovation and spreading the results elicited in each period throughout the entire Daihatsu Group. Interview with the President 5 Q What are the future issues you face as a member of the Toyota Group? A Daihatsu is a specialist in compact car technologies.<br><br> We need to continue to innovate, particularly in the fields of technology development and production systems. As regards to organizational reforms implemented in the fiscal year under review, by clearly dividing the develop- ment department into one in charge of mini vehicles and another in charge of compact cars, we have made a system where development of mini vehicles and compact cars can be pursued from the viewpoint of suitable aims for each vehicle class. It is a system that is conducive to building up specialized technologies, particularly for the mini vehicle.<br><br> As you can see from this, we will implement innovation that also involves our organizational structure, in order to reinforce our competence in technological development. We started construction of the Daihatsu Kyushu No.2 Plant with the aim of going into operation in December 2007. This will be a simple plant that achieves mini vehicle production with much greater efficiency.<br><br> As a model plant that manufactures low-cost and high-quality cars that are attractive in the global market place, Daihatsu Kyushu No. 2 Plant will have a major role to play in our future. Moreover, transfers of personnel from the technology department to the procurement and sales departments and other interdepartmental personnel transfers will be effective in generating new ideas.<br><br> By building a robust company-wide corporate structure through continually providing stimuli and promoting awareness reform as well as adopting an attitude that strives for innovation, we will strive to raise our standing within the Toyota Group. Q Could you tell us about your first entry to the Chinese market under the Daihatsu brand? A The Xenia was launched in China in June 2007.<br><br> This project, which was advanced under the technical license agreement with FAW Jilin Auto is viewed as a key test to measure the success or failure of our future overseas business. To survive in the fiercely competitive environment of the Chinese market, we have to build cars that are attractive and acceptable to our Chinese customers, and also put ourselves at an advantage in terms of cost and quality. For this reason, Daihatsu challenged to procure 80% of materials locally, which was unprecedented for an overseas business operation.<br><br> Needless to say, we also made sure to maintain a high level of quality worthy of the Daihatsu brand. We dispatched many of our engineers and buyers to our partner, FAW Jilin Auto in order to ensure the quality. First we have to establish the Daihatsu brand in the dynamically changing Chinese market, and then we will be able to launch subsequent products with competitive edge by fully utilizing the know-how cultivated in this project.<br><br> The valuable experience gained in this China/Jilin project should become a driving force behind our next overseas business developments. I am already looking to other BRICs nations besides China as well as Asian and other emerging markets for future development. 6 Daihatsu established a new group philosophy and group slogan.<br><br> On the occasion of our 100-year anniversary, we have established a new Group philosophy and slogan. We do not perceive being in business for one hundred years with nostalgia. We look back on those hundred years to reaffirm our gratitude for the past 100 years, and see this centenary achievement as an opportunity to renew our resolutions to achieve even higher standards over the next hundred years.<br><br> In order to make a positive advancement as a global business, the entire Daihatsu Group needs to strive harder as a team. The new philosophy and slogan are the sense of values and visions shared by the Group members. They are a key to our successful progress in the severely competitive global market.<br><br> For this purpose, everyone in the Daihatsu Group must become a leader in innovation, and push forward towards our goal with a sense of urgency and an awareness of the gap between our current conditions and what we need to be. With these efforts of the whole Group, we intend to establish the Daihatsu brand as a cglobal brand, d as stated in our philosophy. The slogan was established with this in mind.<br><br> It indicates that innovation is the source of Daihatsu 9s growth, and it is an absolutely necessary condition for our survival. We at the Daihatsu Group will continue to take up the challenge of developing world-class creative technologies and building the best compact cars in the world. Moreover, we will endeavor to contribute to environmental protection and society.<br><br> We will continue to make every effort to meet the expecta- tions of all our stakeholders and earn their trust. Daihatsu Group 9s renewed philosophy and slogan for the next hundred years <Close-up> Innovation for Tomorrow DAIHATSU Group Philosophy Main Statement The DAIHATSU Group aims to establish itself as ca global brand loved around the world d and as ca corporate group with confidence and pride d by challenging innovative automobile manufacturing at the forefront of our era. Sub-statements 1.<br><br> The pleasure of customers worldwide is our reward. a Customer Orientation 2. Mutual respect and a sense of fairness are our bonds.<br><br> a Respect for Individuals & Fairness 3. Harmonious coexistence with the earth and society is our responsibility. a CSR(Corporate Social Responsibility) 4.<br><br> Speed, breakthroughs & leadership are our basic concerns. a Corporate Constitutional Reform 5. Making the world 9s finest small cars is our challenge.<br><br> a Technological & Product Capabilities DAIHATSU Group Slogan 7 Revolutionary CVT, developed by Daihatsu for mini vehicles <Close-up> Technology Development 1 2 3 4 3 1 2 Conventional CVT 4 shafts Newly Developed CVT 3 shafts Reverse and speed reduction gear (added to forward-reverse change structure) Reverse and speed reduction gear Structure of CVT Mira <660cc> Implementing advanced powertrain technology to achieve even better fuel efficiency. Combining the KF-VE engine and CVT with the DAIHATSU IDLE STOP SYSTEM achieves top fuel efficiency* for gasoline powered cars of 27.0 km/L. *As of November 2006.<br><br> Excludes hybrid vehicles. 10-15 mode fuel efficiency (Ministry of Land, Infrastructure and Transport data). Daihatsu data.<br><br> Achieves top fuel efficiency for gasoline engine car X Limited cSMART DRIVE Package d 27.0 km/L (2WD-CVT)10-15 mode fuel efficiency (Ministry of Land, Infrastructure and Transport data) New CVT Standards Achieved through a Unique Approach <1> Excellent fuel efficiency A CVT has a basic structure in which two pulleys with adjustable diameters are connected using a metal belt. When a conventional CVT is installed in vehicles that routinely run their engines at high rpm, such as mini vehicles, the centrifugal force that is applied to the metal belt connecting the pulleys creates an unnecessarily large degree of tension in the belt, causing a loss in driving force. In contrast, placing reverse and speed reduction gears in front of the pulleys improves the power transmission efficiency.<br><br> As a result, the new CVT improves fuel efficiency by at least 15%* 1 over conventional automatic transmissions. <2> Smooth acceleration Because the diameter of the pulleys on which the smooth acceleration belt rides can be varied continuously and smoothly, CVTs can achieve optimum gear ratios without gear change shock. In addition to this excellent characteristic, the newly developed CVT significantly reduces the equivalent inertia mass converted on input shaft by reducing the speed before the pulleys and employing the world 9s smallest size belt.<br><br> As a result, the new CVT offers superb response that reaches the necessary reduction ratio smoothly, improving acceleration performance by at least 10%* 1 . Thus, this CVT enables the vehicle to powerfully and smoothly accelerate from low to high speeds while achieving high fuel efficiency. <3> Light weight/compactness The new CVT is an evolution from the previous four-shaft to a three- shaft structure.<br><br> By simplifying the CVT 9s structure, Daihatsu succeeded in decreasing its size and parts count, and achieved the world 9s most lightweight unit.* 2 * 1 : Compared with current Daihatsu AT, measured by Daihatsu * 2 : Compared with a commercially available metal belt CVT Measurements reported by Daihatsu, as of May 2006 Achieved a simple three-shaft structure by adding a reverse and speed reduction function to the forward-reverse change structure Breaking away from conventional systems Manual and automatic transmissions are the mainstream of car transmissions, but recently the CVT (Continuously Variable Transmission) is attracting attention as a third form of transmission system. The CVT provides fuel efficiency and smooth acceleration. The conventional four-shaft structure CVT, however, has not necessarily been the transmission choice for mini vehicles.<br><br> That is why Daihatsu set about developing a new CVT of its own. The use of the reverse and speed Reduction System with a three-shaft gear train structure for the first time in the world achieved the light weight and compact CVT optimized for the characteristics of the mini vehicle engine. Instead of relying on commonly accepted notions about the CVT, we re-examined the problems from our own viewpoint as a compact car specialist.<br><br> This attitude helped us complete the new CVT for mini vehicles that realizes the three ideals of <1> excellent fuel efficiency, <2> smooth acceleration, and <3> light weight/compactness. CVT is certainly expected to resolve the conflicting demands of environmental efficiency and driving performance. For this reason we believe it is a suitable transmission for the age in which we live.<br><br> The new CVT is installed in the Sonica launched in fiscal 2007 and the full model changed Move and Mira . Daihatsu is determined to develop new technologies to the future. 8 Vehicles with the Daihatsu brand newly entered the Chinese market Daihatsu launched the first vehicle under the Daihatsu brand in the Chinese market 4the Xenia 4 in June 2007.<br><br> The Company has had a lengthy relationship with the Chinese market. We entered a technical license agreement with Tianjin Automotive Xiali Co.,Ltd. in 1984, and manufactured and sold the Hijet in China under the Tianjin Auto brand.<br><br> The Charade , built and sold under a technical license agreement of 1986, was a hit with sales totalling 1.25 million units. The Charade became the first popular family car in China. In 2002, Daihatsu decided to participate in the compact car field of a comprehensive alliance entered between Toyota and the China FAW Group Corporation.<br><br> In October 2005, we agreed to produce compact multi-purpose vehicles (MPV) under the Daihatsu brand at the FAW plant in Jilin and sell the vehicles nationwide in China. The Xenia is based on a global strategic model jointly developed with Toyota, and we modified the model to suit the preferences of customers in China. The Xenia is a compact MPV that seats five to seven passengers.<br><br> There is still not much demand for this vehicle category in China. On the other hand, there is a trend towards an increasing number of customers who are thinking of buying a compact MPV that is practical, fuel efficient, and at a reasonable price. The introduction of the Xenia to the Chinese market is expected to elicit this potential demand.<br><br> Developing business with FAW Jilin Auto as a partner Our partner in Jilin, FAW Jilin Auto, who is a member of the China FAW Group, annually produces 60,000 commercial vehicles. We introduced new equipment to the existing FAW Jilin Auto 9s plant and have been assisting them in press, painting, assembly, inspection and other manufacturing processes. FAW Daihatsu (Jilin) Body Parts Co., Ltd.<br><br> (FDJB), our joint venture company with FAW Jilin Auto, is in charge of manufacturing vehicle bodies that are critical for the strength and safety of the vehicles. Sales of the Daihatsu brand vehicles are handled by Daihatsu dealers mainly selected from the sales network of FAW Jilin Auto that extends throughout China. Now is a good time to be entering theChinese market where people are turning to compact cars With the number of unit sales in China having exceeded 7 million units in 2006, China has become the largest car market in the world next to the U.S.<br><br> In addition, the demand structure of the vehicle market in China changes more rapidly than anywhere in the world. For instance, until a few years ago the hatchback model had not established itself in the Chinese market as a passenger car, but it is now selling at a comparable rate to the sedan. Environmental concerns and sharp gasoline price increases are causing a year-by-year increase in customers who prefer compact cars with good fuel efficiency.<br><br> The Chinese government is backing this trend by reducing consumption tax on vehicles with engine displacements of 1,500cc or less, which started in April 2006. From now on, it looks like the vehicle market in China is seriously entering the era of compact cars. China/Jilin project is a model for our overseas expansion The kind of changes we have described so far may take place in other BRICs nations besides China as well as Asian and other emerging markets.<br><br> By succeeding in the China/Jilin project, it should <Close-up> Global Operation Xenia (China) <1,500cc/1,300cc> Started China/Jilin Project, a key test of Daihatsu's move towards becoming a truly global corporation 9 In fiscal 2007, the automobile market in Indonesia totaled 324,000 units* (a decrease of 31.0% compared with the previous fiscal year). The sharp rises in gasoline price and interest rate hike in the second half of 2005 resulted in a sluggish market, but a turnaround to recovery has been evident since the summer of 2006. Favorable transitions were seen in the sales of the Xenia (Daihatsu 9s Xenia /Toyota 9s Avanza ) , a vehicle jointly developed with Toyota with minor changes launched in July 2006, the Terios , of which we started local production in December, and itsOEM vehicle, the Rush, supplied to Toyota.<br><br> Our joint venture company in Indonesia, P. T. Astra Daihatsu Motor (ADM) is responsible for production, and cars are sold through each company 9s sales channel.<br><br> Among other developments, a new engine plant went into operation in December 2006, and our production system is getting refined. Indonesia is the most important overseas base for Daihatsu. * Data from Association of Indonesian Automotive Industries (GAIKINDO) IndonesiaMalaysia In fiscal 2007, the automobile market in Malaysia amounted to 472,000 units* (a year-on-year decrease of 13.8%).<br><br> The introduction of a new tax law, rising interest rates and higher gasoline prices had adverse effects on the car market. The Malaysian market features a large share by government- approved National Cars. Perodua Manufacturing Sdn.<br><br> Bhd. a company in which Daihatsu has invested, has received government approval as a National Car manufacturer. In fiscal 2007, with sales of the Myvi launched in May 2005 continuing to boom as well as other favorable developments, Perodua 9s market share was the top at 32.7%.<br><br> In May 2007, the new Viva was launched, giving a further strength to our product lineup. Furthermore, in order to win in the increasingly competitive open market in the future, we intend to further promote local parts procurement and press forward with innovation towards becoming a low-cost organization. * Data from Malaysian Automotive Association become a model case that will enable us to expand our business in any country.<br><br> This is the first time that FAW Jilin Auto has formed a business alliance with an overseas company and collaborated in passenger car production. This is also the first time that Daihatsu has attempted such an extensive collaborative venture with a foreign partner. Aiming for 80% local parts procurement, which was unheard of for a starting project, we searched all over China for local suppliers.<br><br> For more than a few parts suppliers, this was the first time that they had dealt with an overseas corporation. We overcame the obstacles presented by cultural and language differences and pressed on with a fierce determination to bring out high quality cars at a low price. The China/Jilin project is an important test for Daihatsu to become a truly global corporation.<br><br> Director Hiroaki Iwabe Terios (Indonesia) <1,500cc> Viva <1,000cc/850cc/660cc> 10 Corporate Governance Basic approach On the celebration of the company 9s 100-year anniversary in March 2007, Daihatsu established a new Group Philosophy and cDAIHATSU Group 9s Basic CSR Principles d for the further pursuit of cmaking compact cars loved around the world d and achieving true globalization. At the same time, we encapsulated these objectives in the new Group Slogan , setting Daihatsu on track for the next hundred years. We have also formulated cDAIHATSU Group Action Guidelines d as well.<br><br> In accordance with these philosophy, policy, and guidelines, we will enhance our corporate governance in a manner that satisfies all stakeholders including our customers. Company organizations At the end of the fiscal year under review (as of March 31, 2007), Daihatsu had nine directors, and the Company 9s board of directors held 19 meetings in fiscal 2007 to make a decision on the Company 9s business operations and supervise the directors forexecution of their duties. In addition, other important management issues were determined at the vice-presidents 9 meetings.<br><br> The Company 9s article of incorporation states that the number of directors shall be fifteen or less. Furthermore, the Company introduced an executive officer system and a head office system on June 29, 2006. The Company currently has eleven Directors as of June 28, 2007.<br><br> The Company has four corporate auditors, two of whom are outside auditors. An audit committee meeting, as a rule, is held once every three months. Based on the auditing policy and auditing plan, the corporate auditors audit the directors 9 execution of duties by attending the board of directors meetings and other important meetings, examining important documents, receiving information from the internal auditing department, visiting business locations, and examining subsidiaries.<br><br> As of June 28, 2007, the Company 9s outside auditors are former members of our parent company, Toyota. Current status of internal control system and risk management system Daihatsu 9s internal control system is set on the axis of a company organization that has adopted a corporate auditing system, which involves the supervision and decision-making on business execution by the board of directors as well as the auditing by the corporate auditors and auditing committee, as mentioned above. In addition, Daihatsu carries out auditing by the internal auditing department on a regular basis as well as examines and evaluates the Company 9s business Daihatsu Internal Control System Board of Directors meeting Monitor PolicyReport Report Audit Committee meeting Various committees Export, Environmental, etc.<br><br> Internal Control Committee " Chairman: Executive Vice President " Regular committee meetings are held twice a year. An additional meeting can be held if needed. " All matters related to internal control are covered.<br><br> Each division of the Company Employees 9 Voice Helpline System InstructReport Report Corporate Auditors audit Audit Division InstructReport Hearing Investigate Cooperate Report Affiliated companies Control center (department responsible for control of each affiliated company) InstructReport Hearing Inform Report 11 activities and various systems according to the Company 9s management policies from a fair and just position. The Company is also audited by independent auditors, and our corporate auditors exchange opinions with them as needed. Additionally, in September 2003, with the aim of improving business value, assuring reliability of financial reports and compliance with laws and regulation, we established the Internal Control Committee with the executive vice-president as chairman and officers in charge of each department as committee members.<br><br> The Internal Control Committee is responsible for developing an internal control system in compliance with the U.S. Sarbanes-Oxley Act, as a member of the Toyota Group. The Committee is also responsible for enhancing the Group-wide internal control system such as confidentiality and information manage- ment including management of personal information.<br><br> For the fields that require control, risk manage- ment, and compliance in each division, in addition to the control activities that are carried out as a part of regular operations of each department, we ensure thorough control by means of various activities by the Export Management Committee, Daihatsu Safety and Health Committee, and Daihatsu Environmental Committee as well as Joint Labor-Management Conference and Functional Labor-Management Coordinating Committee. Furthermore, for the Company 9s subsidiaries and other Group companies, we foster an internal control environment through the affiliated-company management system. Daihatsu has published its cEmployee Action Guidelines d summarizing the appropriate conduct as a corporation, and the basic attitude and conduct policies of employees concerning their relationship with society, business partners and affiliate companies.<br><br> On the occasion of establishing the new Group Philosophy, etc., in March 2007, we formulated cDAIHATSU Group Action Guidelines d in order to thoroughly implement compliance throughout the Company and the Group. Also, in2002 we established the cEmployees 9 Voice d Helpline system whereby an employee can offer pertinent information in anonymity, in the event of a threat of conduct contrary to the law, social ethics, human rights, or internal company regulations, etc., may take place in the workplace, or when such conduct has already taken place. The system enables the Company to take actions early to prevent such occurrences or in the event of an emergency.<br><br> The various arrangements outlined in the above are positioned as means of achieving the cSystem for Assuring Appropriate Operations d stipulated under the Corporate Law of Japan. In May 2006, based on the requirements of the Corporate Law of Japan, the Company 9s board ofdirectors reached a resolution that includes the current status of these arrangements. DAIHATSU Group 9s Basic CSR Principles The DAIHATSU Group 9s Basic CSR Principles serve as essential guidelines for the activities of everyone employed by the DAIHATSU Group aimed at achieving the satisfaction of all our stakeholders (everyone related to the DAIHATSU Group), including our customers.<br><br> 1 . Our Customers and Ourselves We achieve customer safety, satisfaction and confidence by providing safe, high-quality, eco-friendly products and services at reasonable prices based on the perspective of cmeeting every customer need d. 2 .<br><br> Society and Ourselves We value communication with the local community and the global community from the perspective of charmonious coexistence with society d. 3 . Our Business Partners and Ourselves We exert every effort to establish enduring and mutually respectful partnership with our business partners based on a vision of copen and fair trade d.<br><br> 4 . Our Shareholders and Ourselves We consistently maintain a long-term perspective and strive to improve our corporate value based on the concept of chealthy management through dialogue d. 5 .<br><br> We Are the cImplementers d Each of us strives to grow as a good citizen of society while conducting actions that contribute to society, based on a commitment to upholding these cBasic CSR Principles d. We immediately disclose all occurrences that contradict these basic principles and respond to them faithfully. 12 Recent Topics Coo <1,500cc/1,300cc> Tanto Sloper <660cc> Domestic Sales 2005 MayIntroduces full model change for Atrai Wagon , mini passenger car.<br><br> Sept.Starts a nationwide deployment of the DAIHATSU Café PROJECT, designed with the aim of building sales outlets appealing to female customers as a part of Daihatsu 9s customer satisfaction (CS) improvement initiative. Nov.Launches the Mira Selfmatic , a self-operatable welfare vehicle, which is the first mini vehicle of its kind to allow the boarding of a wheelchair into the driver 9s seat position. Dec.Launches the new mini passenger car Esse .<br><br> 2006 Jan.Daihatsu and Toyota launch a new compact SUV (Daihatsu 9s Be-go and Toyota 9s Rush ). Daihatsu begins supplying Toyota 9s Rush on an OEM basis. MayLaunches the new compact passenger car Coo .<br><br> Jun.Launches the new mini passenger car Sonica . Aug.Launches the new welfare vehicle Tanto Sloper . Oct.Introduces a full model change for the mini passenger car Move .<br><br> Dec.Introduces a full model change for the mini passenger car Mira. 2007 Mar.Records highest unit sales of new mini vehicles of 616,000 units* in fiscal 2007. Takes first place in the mini vehicle market share for the first time, at 30.3%.<br><br> *Data from Japan Mini Vehicles Association Overseas Operations 2005 Apr.ADM announces a plan to increase the production capacity to 114 thousand units annually in Indonesia. MayPerodua launches the Myvi as National Car in Malaysia. Oct.Signs a technical license agreement for compact multi-purpose vehicles with FAW Jilin Auto of China.<br><br> Dec.ADM completes the increase of production capacity to 114 thousand units annually. 2006 Feb.Starts exporting the Terios (called the Be-go in Japan). Apr.Establishes a new joint venture company in China known as FAW Daihatsu (Jilin) Body Parts Co., Ltd.<br><br> (FDJB). JulyIntroduces a minor model change for the MPV Xenia in Indonesia. Oct.Starts exporting the new compact passenger car Materia (called the Coo in Japan).<br><br> Dec.Announces the new Terios in Indonesia. OEM supply to Toyota also starts in Indonesia. Dec.New engine plant starts operation in Indonesia.<br><br> 2007 MayAnnounces the new model Viva in Malaysia. Jun.Launches the new MPV Xenia under the Daihatsu brand for the first time in China. 13 Xenia (Indonesia) <1,300cc/1,000cc> Sonica <660cc> Establishment of a museum to exhibit historical materials: cHumobility World d (left) Environment, Technology, Plant 2005 Apr.In the fiscal 2005 automobile safety assessment report, MiraGino * becomes the first mini vehicle to win a Level 4 rating for the pedestrian head protection features test.<br><br> *The trial model that Daihatsu proposed Aug.Launches the Hijet Cargo Hybrid , the first hybrid mini commercial vehicle. Oct.Successfully develops the cSuper Intelligent Catalyst d with self-regeneration of all three kinds of precious metals. Nov.Successfully develops the new KF engine for mini vehicles with improvements in all areas of environmental efficiency, power and quietness.<br><br> Dec.Starts deployment of the cIntelligent Catalyst d that regenerates the precious metal palladium, in the pharmaceutical manufacturing field. 2006 Jun.Successfully develops new CVT for mini vehicles. Jun.Changes the company name of a wholly-owned subsidiary, Daihatsu Auto Body Co., Ltd., to Daihatsu Motor Kyushu Co., Ltd.<br><br> Dec.Daihatsu Kyushu announces the commencement of construction of No.2 Plant within the plant grounds (production is scheduled to begin by the end of 2007). 2007 Jan.The mini passenger car Sonica wins the Director General Prize of Agency of Natural Resources and Energy in the 2006 Energy Conservation Grand Prize. Jan.Announces construction of an engine plant in Kurume City, Fukuoka Prefecture (production is scheduled to begin in August 2008).<br><br> MayEstablishment of a museum, cHumobility World d, to exhibit historical materials as part of Daihatsu 9s centenary celebration. 14 Consolidated Six-Year Summary Years ended March 31 Consolidated Unit Sales Thousands of Millions of yenU.S. dollars 2007 20062005200420032002 2007 For the year: Net sales ¥1,637,124 ¥1,347,972¥1,176,245¥993,613 ¥969,574 ¥943,938 $13,868,062 Cost of sales 1,351,571 1,092,159917,915759,644 760,176 729,672 11,449,141 Selling, general and administrative expenses 230,647 206,758217,633205,509 188,992 195,097 1,953,813 Operating income 54,373 48,63840,11628,358 20,694 18,599 460,596 Net income 34,730 33,52325,87117,280 14,776 9,310 294,205 Capital investment 77,590 * 2 114,039* 2 101,79573,350 65,070 69,087 657,266 Depreciation 65,143 * 2 60,77351,48646,237 49,199 40,507 551,832 R&D expenses 46,724 47,80340,35433,843 33,259 35,023 395,800 Amounts per share (in yen and U.S.<br><br> dollars) : Net income 4 Basic ¥81.38 ¥78.14¥60.26¥40.16¥34.40 ¥21.80 $0.68 Net income 4 Fully diluted 4 4 438.8732.28 20.49 4 Cash dividends 15.00 * 4 12.009.00 7.00 6.00 7.00 0.12 At year-end: Total assets ¥1,124,762 ¥1,027,228¥884,937¥795,273 ¥755,307 ¥759,501 $9,527,847 Total net assets 369,599 * 3 303,306240,545221,644 187,483 184,265 3,130,868 Common stock 28,404 28,40428,40428,404 28,404 28,404 240,612 Number of employees 36,043 33,01129,56227,543 27,566 25,804 Ratios (%): Return on assets 3.2 3.53.1 2.2 2.0 1.2 Return on equity 11.1 12.311.2 8.4 7.9 4.9 Equity ratio 28.5 29.527.2 27.9 24.8 24.3 Notes: *1. U.S. dollar amounts are translated from yen at the rate of ¥118.05=U.S.$1, the approximate exchange rate prevailing on the Tokyo Foreign Exchange Market at the end of fiscal 2007.<br><br> *2. Excluding assets for lease. *3.<br><br> The Company adopted the cAccounting Standard for Presentation of Net Assets in the Balance Sheets d (Accounting Standards Bo ard of Japan (ASBJ) Statement No.5, issued on December 9, 2005) and the cImplementation Guidance for Accounting Standard for Presentation of Net As sets in the Balance Sheets d (ASBJ Guidline No.8, issued on December 9, 2005) from the fiscal year ended March 31, 2007. *4. Including commemorative dividends of ¥2 ($0.01).<br><br> Units 2007 20062005200420032002 Daihatsu Vehicles Domestic Mini Vehicles* 567,301 550,738532,695504,720466,336 477,334 Compact Vehicles 18,939 13,03917,9988,21912,106 20,892 Subtotal 586,240 563,777550,693512,939478,442 498,226 Overseas 342,423 286,708267,823230,893214,758 71,907 Total 928,663 850,485818,516743,832693,200 570,133 Toyota Vehicles Consigned Domestic 262,512 187,372177,63577,43378,986 93,603 Vehicles Overseas 97,090 95,45263,8657,038 4 4 OEM Vehicles 27,801 9,1842,47413,38019,875 33,756 Total 387,403 292,008243,97497,85198,861 127,359 Total 1,316,066 1,142,4931,062,490841,683792,061 697,492 Parts for Overseas Production (sets) 5,890 8,2209,4009,58021,550 136,850 Consigned Engines 385,026 368,616256,631184,240197,244 272,525 Note: Vehicles that one 3.4m or less in length, 1.48m or less in breadth, 2.0m or less in height and engine displacement of 660 cc or less are categorized as mini vehicles. * 1 15 0304050607 1,500 1,000 500 0 (Thousands of units) Domestic Consigned vehicles (domestic) Consigned vehicles (overseas) Overseas OEM vehicles (FY) 0304050607 2,000 1,500 1,000 500 0 (Billions of yen) (Billions of yen) 60 40 20 0 (FY) Net sales(left scale) Operating income(right scale) 0304050607 40 30 20 10 0 3 2 1 0 (Billions of yen) (%) (FY) Net income(left scale) Net income to net sales ratio(right scale) Consolidated Unit Sales Net Sales & Operating Income Net Income & Net Income to Net Sales Ratio Net Sales ¥1,637.1 billion (Billions of yen) (FY 2007) Japan ¥1,169.7 (71.4%) Europe ¥85.4 (5.2%) Others ¥49.1 (3.0%) Asia ¥332.8 (20.4%) 0304050607 100 60 80 40 20 0 20 15 10 5 0 Net income per share (Basic)(left scale) Cash dividends(right scale) (FY) (Yen)(Yen) 0304050607 1,200 1,000 800 600 400 200 0 (FY) (Billions of yen) Consolidated Net Sales by Region Net Income per Share (Basic) & Cash Dividends per Share Total Assets 0304050607 15 10 5 0 (FY) (%) ROE ROA 0304050607 400 300 200 100 0 30 25 20 15 (Billions of yen) (%) (FY) Total net assets (left scale) Equity ratio(right scale) 0304050607 120 80 100 60 40 20 0 (Billions of yen) (FY) Capital investment Depreciation Return on Assets & Return on Equity Total Net Assets & Equity Ratio Capital Investment & Depreciation 16 Scope of Consolidation and Application of Equity Method In the fiscal year ended March 31, 2007, Daihatsu Motor Co., Ltd., had a total of 59 consolidated subsidiaries, comprised of 35 domestic sales subsidiaries, 6 domestic manufacturing subsidiaries, 8 other domestic subsidiaries and 10 overseas subsidiaries. The Company accounted for 25 companies by the equity method, including 9 domestic sales companies, 10 other domestic companies and 6 overseas companies.<br><br> Overview of Consolidated Performance During the fiscal year under review, despite unstable factors such as a sharp rise in prices of raw materials and crude oil, the Japanese economy continued to recover due to a moderate increase in consumer spending, corporate earnings recovery, and increased capital investment. In the automobile industry, the total unit sales in Japan decreased to 95.9% of those in the previous fiscal year. In such a business climate, however, the mini vehicle market increased for the fourth consecutive year thanks to the effects of model changes and introduction of new models by each automobile manufacturer.<br><br> The number of units sold on a fiscal year basis exceeded two million for the first time. In regards to overseas markets, Indonesian and Malaysian markets, both are major markets for the Daihatsu Group, experienced downturns, although the market remained firm in Europe and continued to show high growth in China. Under these circumstances, in addition to introducing the mini passenger car Sonica to our lineup in June 2006, sales of our main mini passenger cars Move and Mira launched in October and December of 2006, after full model change, as well as the mini passenger cars Tanto and Esse, which continued to be well received, were strong in fiscal 2007.<br><br> As a result, in the mini vehicle market for the full fiscal year, the Daihatsu Group posted the highest unit sales record, and our market share exceeded 30% for three years in a row, placing Daihatsu at the top of the mini vehicle market for the first time in fiscal 2007. Also, our total domestic unit sales were the highest even after adding the sales of compact vehicles. In overseas markets, the minor changed Xenia launched in Indonesia in July 2006 gained a good reputation, and the new Terios SUV, specially designed for the Indonesian market, launched in December 2006.<br><br> Thanks to good performance of these models, both our unit sales and sales topped the previous fiscal year. In Malaysia, the Myvi continued to sell well and Daihatsu took the top share in the Malaysian market for the first time. Sales of the new Terios, which we began exporting last spring, expanded in almost the entire regions of the country and export of CBU (completely-built- up) units increased over the previous fiscal year.<br><br> Our consignment businesses increased over theprevious fiscal year. We began consigned production of Toyota 9s compact passenger car Sienta in Japan in May 2006, and we also started OEM production of the Rush (Daihatsu 9s Terios ) in Indonesia. The consigned production of the Avanza in Indonesia progressed favorably.<br><br> As mentioned in the above, as a result of our efforts to enhance our product lineup and expand sales, the Daihatsu Group 9s domestic unit sales increased by 22,463 units (4.0%), compared to the previous fiscal year, to 586,240 units. Overseas unit sales increased by 55,715 units year-on-year (19.4%) to 342,423 units. Shipments of consigned cars grew 76,778 units (27.1%) to 359,602 units while OEM vehicles produced for Toyota and others jumped 18,617 units (202.7%) to 27,801 units.<br><br> Combining all these unit sales, the total number of vehicles sold increased by 173,573 units (15.2%) compared with the previous fiscal year to 1,316,066 units. Shipments of consigned engines rose 16,410 units (4.5%), to 385,026 units. The total number of unit production amounted to 1,373,819 units, increasing 188,236 units (15.9%) from fiscal 2006.<br><br> As for the business performance for fiscal 2007, consolidated net sales increased by ¥289.1 billion (21.5%) to ¥1,637.1 billion; operating income went up by ¥5.7 billion (11.8%) to ¥54.3 billion; and net income resulted in ¥34.7 billion, a year-on- year increase of ¥1.2 billion (3.6%). Business Risks Among the business performance and financial situation items stated in this annual report, the following are risks that could have an important influence on the decision of investors. Further, although the report includes statements pertaining to the future, these are based on the Group 9s judgments as of the end of the fiscal year that ended on March 31, 2007.<br><br> Risks concerning changes in the economic climate Political and social disturbances in Japan and major overseas markets of the Group, such as Indonesia and Malaysia, bring about changes in the economic climate which in turn can affect the Review of Operations 17 Group 9s business performance. Further, the Daihatsu Group, whose management strategy is to continue concentrating its management resources on the compact car business with the mini vehicle as the mainstay of the business, can be adversely affected in terms of business performance in the event of a trend in demand away from the compact car in our major markets. Risks concerning changes in product price and market evaluation In the automobile industry, business performance can be temporarily affected when a drop in production price and other adverse situations are caused by an oversupply situation and intensified price competition due to the introduction of comparable models at lower prices from other companies.<br><br> Moreover, although new models are introduced responding to the demand trends of consumers, the Group 9s business performance can be adversely affected if the market 9s evaluation of our new model is lower than expected or when evaluation of our current model undergoes a sharp decline. Risks concerning a change in product cost We purchase large volumes of raw materials and parts to manufacture our products, and these are subject to fluctuations in supply and demand in world markets, changes in the economic climate of the producing countries, increases in distribution costs and other factors that result in purchase price increases. This, in turn, raises the Group 9s cost of production, which may adversely affect the Group 9s business performance.<br><br> Risks concerning fluctuations in exchange rates Fluctuations in exchange rates vary the yen equivalents of the Group 9s foreign currency sales to overseas markets as well as the yen equivalents of the foreign currency purchase amount and other figures in the foreign currency financial statements of overseas subsidiaries, which can adversely affect the Group 9s business performance. Risks concerning changes in legal requirements We conduct business based on laws and regulations related to environmental matters, such as emissions control and automobile recycling, as well as on laws and regulations for business transactions and taxes in the countries where we are developing our business. Revisions of these laws and regulations may adversely affect the Group 9s business performance.<br><br> Moreover, the risks other than those stated in the above, such as natural disasters, are also possibilities that seriously affect the decisions of investors. Research and Development Activities The Daihatsu Group is promoting research and development (R&D) activities focused on the development of new technologies and products oriented towards fuel-efficiency, low pollution, safety, and ITS compliance that are ahead of society 9s demands while reflecting the socio- environmental and technological trends of the automobile industry in the 21st century. We have introduced to the marketplace products with Daihatsu 9s original technologies that accurately respond to the social demands in Japan and abroad as well as the diversifying user requirements.<br><br> With regards to the company structure, over the last few years, we have been working on building a streamlined and efficient development schematic and system suitable for a compact car manufacturer by introducing the latest digital development processes and other measures while at the same time reinforcing our R&D system with a view to implementing in automobiles the advanced technologies, centering on anti-pollution and energy saving measures that are the critical issues as global environmental protection technology and improvement in safety performance as well as the use of electronics and new materials. Daihatsu spent a total of ¥46.7 billion in research and development during fiscal 2007. Financial Position and Performance Analysis This annual report contains statements pertaining to the future.<br><br> These statements are judgments as of the end of the fiscal year under review (March 31, 2007). The Daihatsu Group 9s segments by business category include the automobile related business and other businesses. The percentages of the automobile related business to all segments were 99.3% of net sales and 98.4% of operating income.<br><br> In regards to sales of each segment by geographical area, the percentage of Japan is the highest, and in the fiscal year under review, the percentages of Japan to all geographical segments came to 79.9% of net sales and 78.0% of operating income (excluding inter-area sales and transfer). 18 Financial Position of fiscal 2007 Comparing the financial position of the Daihatsu Group as of the end of fiscal 2007 with that of fiscal 2006, total assets increased by ¥97.5 billion to ¥1,124.7 billion; total liabilities amounted to ¥755.1 billion, up ¥72.0 billion, and net assets came to ¥369.5 billion, a gain of ¥25.4 billion. An analysis of the changes in major accounting items is stated below.<br><br> "Cash and Cash Equivalents Net cash provided by operating activities amounted to ¥107.3 billion mainly thanks to income before income taxes and minority interests of ¥62.8 billion. Net cash used in investing activities amounted to ¥101.6 billion including payments for acquisition of property, plant and equipment of ¥99.9 billion. Net cash provided by financing activities amounted to ¥17.7 billion mainly due to a ¥23.5 billion increase in loans and debts, etc.<br><br> despite ¥5.5 billion in dividends paid. As a result of the above, cash and cash equivalents increased by ¥24.0 billion to ¥92.2 billion. "Trade Notes and Accounts Receivable Reflecting the expansion in unit sales in line with sales growth, notes and accounts receivable advanced ¥33.4 billion, to ¥284.6 billion.<br><br> "Property, Plant and Equipment While we made a capital investment of ¥77.5 billion (excluding lease assets), depreciation amounted to ¥65.1 billion, which resulted in total property, plant and equipment of ¥453.2 billion, a year-on-year increase of ¥17.0 billion. "Investments in Securities Investment in securities decreased by ¥12.6 billion to ¥111.0 billion, mainly due to a decrease in variance of the estimate of ¥22.6 billion. "Trade Notes and Accounts Payable An increase in procurement due to increased production units resulted in a notes and accounts payable increase of ¥49.7 billion to ¥331.9 billion.<br><br> "Loans and Debts Although short-term bank loans declined by ¥26.8 billion, a ¥35.3 billion increase in long-term debt resulted in total loans and debts of ¥158.3 billion, up ¥8.5 billion over the previous fiscal year. The Group is seeking to enhance the capital performance within the Group and reduce the interest-bearing debts through a cash pooling system that include the Company and its 42 domestic consolidated subsidiaries. "Net Assets Net income for fiscal 2007 amounted to ¥34.7 billion, while net unrealized holding gains on securities decreased by ¥13.4 billion, to ¥40.7 billion.<br><br> Consequently, total net assets increased by ¥25.4 billion, to ¥369.5 billion. Business Performance in Fiscal 2007 In comparison with the previous fiscal year, net sales, operating income, and net income all increased in fiscal 2007 as follows; net sales increased 21.5% to ¥1,637.1 billion, operating income rose 11.8% to ¥54.3 billion, and net income grew 3.6% to ¥34.7 billion. Comparing operating income with fiscal 2006, positive factors contributing to an increase in operating income totaled ¥53.1 billion.<br><br> Of that amount, sales increase and changes in sales mix contributed ¥32.7 billion, while a reduction in cost of sales added ¥10.7 billion and the favorable exchange rate ¥9.7 billion. On the other hand, negative factors including an increase in various expenses totaled ¥47.4 billion. As a result, operating income increased by ¥5.7 billion year-on-year.<br><br> "Net Sales In Japan, we made a full model change and launched our main mini passenger cars Move and Mira in October and December 2006, the mini passenger cars Tanto and Esse continued to perform well, and we added the mini passenger car Sonica (launched in June 2006) to our lineup of mini passenger cars. In the overseas markets, in addition to a good reception for the minor changed Xenia launched in Indonesia in July 2006, we introduced the new Terios SUV, specially designed for the Indonesian market, in December 2006. In Malaysia, sales of the Myvi continued to record high sales.<br><br> For the consigned car business, we began consigned production of the Sienta for Toyota in Japan in May 2006 and OEM production of the Rush (Daihatsu 9s Terios ) for Toyota in Indonesia. Consigned production of the Avanza in Indonesia also progressed favorably. As a result of these developments, net sales for fiscal 2007 amounted to ¥289.1 billion, an increase of 21.5% over the previous fiscal period.<br><br> "Operating Expenses Cost of sales rose by ¥259.4 billion, or 23.8%, to ¥1,351.5 billion along with the growth in net sales. The cost of sales to net sales ratio increased 1.6-percentage points year on year, to 82.6%. Selling, general and administrative expenses increased by ¥23.8 billion, or 11.6%, to ¥230.6 billion mainly due to an increase in selling and other expenses.<br><br> "Other Income and Expenses In addition to an increase in equity in earnings of affiliates of ¥2.2 billion, or 81.5%, thanks to 19 factors such as revenue gain by Perusahaan Otomobil Kedua Sdn. Bhd., a company accounted for by the equity method, dividend income increased ¥0.4 billion, or 101.3%, which resulted in a gain of ¥4.1 billion in other income (expenses) compared with the previous fiscal year. " Income Taxes (Current and Deferred) Income taxes increased by ¥1.1 billion, or 5.9 %, compared with the previous fiscal year, to ¥20.8 billion, mainly due to increase of income before income taxes by ¥4.1 billion year-on-year.<br><br> "Minority Interests in net income of consolidated subsidiaries An increase in net income compared with the previous fiscal year by Perodua Auto Corporation, Malaysia, and other subsidiaries resulted in an increase in minority interests in net income of consolidated subsidiaries, which has a negative effect for income for the fiscal year under review, of ¥1.8 billion year-on-year, or 33.8%, to ¥7.1 billion. Management 9s Recognition of Current Status and Future Policy Domestic Sales Due to a projected decline in the effect of new models introduced in fiscal 2007 as well as a steep rise in the price of gasoline quieting down, we anticipate that the mini vehicle market for fiscal year 2008 will be 1.98 million units, as opposed to 2.03 million units sold in fiscal 2007. We expect our domestic unit sales to be 630,000 units, of which 620,000 units will be mini vehicles, our main vehicles.<br><br> In this increasingly competitive environment, Daihatsu and its distributors aim to further boost sales and earning power, raise the level of customer satisfaction and build an efficient sales organization. In regards to vehicles, the Move and Mira 4 which use a new platform that creates a roomy interior, and equipped with the new KF engine and newly developed CVT to achieve high fuel efficiency 4have been highly appraised by customers. In future, too, we will continue to satisfy customers 9 demands as we advance the development of attractive new products.<br><br> On the sales front, we will strive to enhance our overall store capability in both facilities and services, while at the same time expanding sales by fully maximizing our rich product lineup along with the selling power of the Move and Mira. We plan to enhance our software by focusing on the DAIHATSU Café Project. In the first step of the DAIHATSU Café Project, we are conducting hospitality improvement activities.<br><br> Step two expands to the services provided by customer service staff, and in step three we will promote bonding with customers through proactive customer follow-up activities. As for our facilities, we are converting Company-owned retail outlets to café-style showrooms designed to attract customers and promoting a changeover of our partner dealers 9 outlets to semi-Company owned stores. In the medium-term, we aim to increase the number of outlets from the current 700 to 1, 000 with Company-owned retail outlets and our partner dealers 9 outlets combined.<br><br> Overseas Business As the most important overseas base for the Daihatsu Group, we plan to further strengthen our competitiveness in Indonesia by upgrading our production system and establish our Indonesian operation as an export base in the future. In Malaysia, our sales continue to be strong, particularly for the Myvi, and Perodua Manufacturing Sdn. Bhd.<br><br> took the top share of the market over Proton Holdings Berhad in fiscal 2007. By taking advantage of this opportunity, we will aggressively strive to strengthen our products, as in Indonesia. In June 2007, we launched a compact multi-purpose passenger vehicle (MPV) under the Daihatsu brand for the first time in China.<br><br> This model is based on Daihatsu 9s Xenia and Toyota 9s Avanza, models jointly developed with Toyota, and modified to suit the Chinese market. We plan to sell this model nationwide by utilizing the sales network of FAW Jilin Auto that extends throughout China. Production Daihatsu Kyushu No.2 Plant will go into operation at the end of 2007, and our new engine plant in Kurume City, Fukuoka Prefecture, is scheduled to start up in August 2008.<br><br> Both of these plants will be specialized in production ofmini vehicles in order to optimize the operations at our heavily loaded existing plants in Japan. We have positioned these plants as model plants to realize the low-cost production of automobiles that will perform well in the global marketplace. We believe that deploying the accomplishments at these plants to our overseas business will be a major step in transforming ourselves into becoming a global company.<br><br> 20 Thousands of Millions of yenU.S. dollars ASSETS 2007 2006 2007 Current assets: Cash on hand and in banks (Note 11) ¥30,792 ¥17,478 $260,842 Deposits (Notes 11 and 14) 61,570 51,046 521,562 Trade notes and accounts receivable (Notes 3 and 14) 284,620 251,184 2,411,013 Inventories 94,138 69,464 797,449 Deferred tax assets (Note 17) 28,688 23,601 243,024 Other current assets (Notes 3 and 14) 50,399 46,479 426,933 Less allowance for doubtful accounts (2,420) (2,037) (20,506) Total current assets 547,789 457,219 4,640,318 Fixed assets: Property, plant and equipment, at cost: Buildings and structures (Notes 3 and 5) 260,283 243,509 2,204,861 Machinery, equipment and vehicles (Notes 3 and 5) 572,579 535,945 4,850,310 Land (Notes 3 and 5) 113,658 109,227 962,800 Construction in progress 15,584 15,757 132,015 Other (Note 5) 149,732 148,003 1,268,379 Total property, plant and equipment, at cost 1,111,838 1,052,442 9,418,366 Less accumulated depreciation (658,540) (616,204) (5,578,491) Net property, plant and equipment 453,297 436,238 3,839,875 Intangible fixed assets 1,263 1,290 10,705 Investments and other assets: Investments in securities (Notes 4 and 13) 111,975 124,619 948,544 Long-term loans receivable 2,755 2,277 23,338 Deferred tax assets (Note 17) 3,737 1,886 31,661 Other assets (Note 4) 4,378 4,060 37,087 Less allowance for doubtful accounts (434) (364) (3,682) Total investments and other assets 122,411 132,480 1,036,948 Total fixed assets 576,972 570,008 4,887,529 Total assets¥1,124,762 ¥1,027,228 $9,527,847 The accompanying notes are an integral part of these consolidated financial statements. Consolidated Balance Sheets March 31, 2007 and 2006 21 Thousands of Millions of yenU.S.<br><br> dollars LIABILITIES 2007 2006 2007 Current liabilities: Trade notes and accounts payable (Note 14) ¥331,920 ¥282,126 $2,811,692 Short-term bank loans and current portion of long-term debt (Note 3) 105,319 132,121 892,162 Accrued income taxes 17,952 7,773 152,074 Accrued expenses (Note 14) 72,012 69,750 610,017 Accrued bonuses for directors and corporate auditors 276 4 2,344 Accrued product warranty 8,475 7,667 71,797 Other current liabilities (Note 14) 87,719 89,047 743,074 Total current liabilities 623,677 588,487 5,283,164 Long-term liabilities: Long-term debt (Note 3) 52,982 17,584 448,815 Deferred tax liablities (Note 17) 15,017 18,918 127,209 Accrued retirement benefits for employees (Note 16) 59,179 53,714 501,305 Accrued retirement benefits for directors and corporate auditors 1,958 1,988 16,593 Other long-term liabilities 2,348 2,435 19,891 Total long-term liabilities 131,485 94,640 1,113,

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