Management Discussion and Analysis JS Group Corporation and Consolidated Subsidiaries Business Environment Net sales fell 6.1% to ¥982.6 billion due to a sharp drop in new housing starts. However, operating income  increased 1.5% to ¥26.0 billion as a result of structural improvements in the Group. The operating income ratio  was 2.6%. Summary * Company-provided housing is included in rental housing. Source: Survey on Dwelling Houses and Construction Started, Ministry of Land, Infrastructure and Transport In the year ended March 31, 2010,  Japan’s housing industry saw a sharp  drop in new housing starts due to wors- ening employment and wage conditions;  housing starts dropped 25.4% year on  year from 1.04 million units to 0.78  million units. Putting this decline into  perspective, housing starts dropped to  the same level as 40 years ago. By type  of housing, construction of owner-occu- pied detached houses and built–for-sale  detached homes declined 7.6% and  10.6%, respectively, while there was a  precipitous decrease of 59.1% in con- dominium construction. Under these conditions, consolidated net  sales declined ¥64.2 billion, or 6.1%, to  ¥982.6 billion. By segment, net sales  decreased ¥29.1 billion in the Metal  Building Material Business, ¥8.9 billion in  the Plumbing Fixtures Business, ¥21.9  billion in the Other Building Materials and  Equipment Business, and ¥4.0 billion in  the Housing, Real Estate and Other  Businesses. Meanwhile, the Distribution  and Retail Business, the only segment to  see growth, recorded a ¥0.9 billion  increase on the back of steady new  store openings. percentage points to 30.4% thanks to  various cost-cutting activities and the  contribution from lower materials prices. Selling, general and administrative  (SG&A) expenses declined ¥7.1 billion,  the result of a ¥3.0 billion drop in freight  costs accompanying the lower sales,  and ¥3.5 billion decrease in provision of  allowance for doubtful accounts, in addi- tion to ongoing efforts from the previous  fiscal year to reduce expenses. realignment of production systems, and  a ¥3.4 billion increase in loss on factory  restructurings. Offsetting these increases  somewhat were a ¥3.5 billion improve- ment in foreign exchange loss and a  ¥5.1 billion decrease in provision for  doubtful accounts. As a result of the above, income  before income taxes and minority inter- ests declined by ¥2.7 billion year on year  to ¥3.9 billion. In combination with  income taxes and minority interests, this  resulted in a net loss of ¥5.3 billion,  which was ¥5.8 billion worse than the  ¥0.5 billion net income in the previous  fiscal year. Operating income edged up ¥0.4  billion, or 1.5%, to ¥26.0 billion, resulting  in a 0.2 of a percentage point improve- ment in the operating income ratio from  2.4% to 2.6%. Net other expenses increased ¥3.1  billion, mainly on account of an ¥8.5  billion rise in loss on impairment of long- lived assets accompanying the  Gross profit declined ¥6.8 billion, or  2.2%, to ¥299.0 billion. This decline was  largely the result of the lower sales.  Although the ratio of gross profit to sales  was affected by this and a drop in sales  prices, it improved overall by 1.2  Business Performance JS Group Corporation Annual Report 2010 52 Net Sales  (¥ billion) 1,057.7 1,124.1 1,103.8 982.6 1,046.9 0 2008 2006 2007 2010 2009 1,200 900 600 300 43.8 57.0 35.7 26.0 25.6 0 0 2008 2006 2007 2010 2009 6.0 4.0 2.0 3.2 4.1 5.1 2.6 2.4 75 50 25 Operating Income and  Operating Income Ratio (¥ billion)  (%) ■  Operating income ■ Operating income ratio Net Income (Loss)  (¥ billion) 22.1 35.2 17.7 0.5 –5.3 2008 2006 2007 2010 2009 –10 0 10 20 30 40 2009 2006 2007 2008 2010 2004 2001 2002 2003 2005 1,500 1,000 500 0 Total New Housing Starts   (Thousand units) ■  Owner-occupied  ■ Rental housing*  ■ Subdivision