mitsubishi steel mfg. co., ltd. financial results for the first half … · 2019-12-24 · blast...
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Mitsubishi Steel Mfg. Co., Ltd.Financial Results for the First Half of the Fiscal Year Ending March 2020
November 22, 2019
1
I. Message
II. FY2019 1st Half Results
III. Full-year Forecasts for FY2019
IV.Future Initiatives
I. Message
2
MessageOverview:
As projected at the start of the fiscal year, we recorded operating income of zero for the first half of FY2019.
However, due to dramatic changes in the business environment and the murky future of the external environment, we recorded impairment losses in numerous regions totaling JPY14.8 billion.
Our full-year forecasts for FY2019 call for operating income of zero, a figure significantly below forecasts at the start of the fiscal year (JPY2 billion).
Despite our commitment to continuing dividend payments, due to expectations of ordinary and net losses, we have decided not to pay dividends for this period.
These results are due largely to internal factors, in addition to changes (worsening) in the business environment. The following topics will be addressed later in this presentation.
Business environment Business trends (at JATIM and North American MSSC, in particular) Impairment Reconsideration of businesses Toward a new Mid-term Business Plan Urgent measures
I. Message
Overview of results for this period and future outlook:
3
I. Message
II. FY2019 1st Half Results
III. Full-year Forecasts for FY2019
IV.Future Initiatives
II. FY2019 1st Half Results
4
Summary
(JPY100M)
Net sales fell, due mainly to lower sales in the domestic Special Steel Bars business amid slow demand from makers of construction machinery, industrial machinery, and machine tools; lower sales for automotive uses at overseas subsidiaries in North America and elsewhere in the Springs business; and foreign exchange effects.
Operating income fell due to lower sales and increased costs attributable to production problems with new products at North American subsidiaries in the Springs business, and the large impact of lower sales volumes in the domestic Special Steel Bars business despite improved selling prices and increased production to build up inventory in preparation for blast furnace renovations in the next fiscal year.
Lower operating income pushed ordinary income into negative territory. Due to impairment losses recorded as extraordinary losses, we posted a significant net loss this period.
FY2018 FY20191st Hresult
Full-yearresult
1st H forecast*
1st H result
vs. initial forecast
Year-on-yearchange
Net sales 631 1,294 650 602 △48 △29Operating
income 8 11 0 1 1 △7
Ordinary income 3 1 △5 △4 1 △7
Net income attributable to
owners of parent company
3 3 △7 △143 △136 △146
II. FY2019 1st Half Results
*Figures announced publicly with results on May 14, 2019
5
*4 Other
Decreased sales volumes
R&D expenses,
depreciation
△1△13+7 △5 +5 +1
+8 △9
Raw material prices*2
(extraordinary factors related
to Muroran)
*3 JATIM added to
consolidated subsidiaries
Raw material prices
(market conditions)
Selling prices
18
Effects of inventory buildup in
preparation for renewal of
blast furnace lining at Muroran
Factors contributing to changes in net sales and operating income (YoY comparison)
FY20191st Hresult
FY20181st Hresult
Operating income
631 Decreased sales
volumes
△76+7 +21 +6 △6 +19
Selling prices 602Consolidation adjustments,
etc.*1 Increased volume under
contract
JATIM Foreign exchange gains/losses
Net sales (JPY100M)
(JPY100M)
FY20181st Hresult
FY20191st Hresult
*3 All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.”
II. FY2019 1st Half Results
*2 Temporary expenses for coke oven repairs at Muroran in FY2018
*4 The “Other” category includes the following: △3 from production costs in the Special Steel Bars business; △2 from revaluation of product inventory; △2 from production costs in the Springs business; and △2 from startup costs for the mother plant in the Formed & Fabricated Products business.
*1 Volume of OEM products and rolling piecework (subcontracted rolling) under contract to Nippon Steel Corporation
6
Net sales fell in the Special Steel Bars, Springs, and Formed & Fabricated Products businesses. Operating income fell due to lower income in the Special Steel Bars business and increased losses in
the Springs business.(JPY100M)
Net sales/operating income by segment
FY2018 FY20191st H result 1st H result Year-on-year change
Special SteelBars
Net sales 317 297 △20Operating income 11 9 △2
SpringsNet sales 247 234 △13
Operating income △5 △10 △5Formed &FabricatedProducts
Net sales 58 47 △11Operating income 1 △0 △1
MachineryNet sales 37 46 9
Operating income 1 1 0Other
Net sales 20 20 0Operating income 1 1 0
Consolidatedadjustments
Net sales △48 △42 6Operating income △0 0 0
TotalNet sales 631 602 △29
Operating income 8 1 △7
II. FY2019 1st Half Results
7
△5+0.7
△0.9△1.60
△6
Sales volumes
Other
△0.6
Selling prices
+1.4
Product lineup
Production costs
Raw
materialprices
11
Revaluation of product
inventory
R&D
expenses, depreciation
Raw
material prices
(market conditions)
Product lineup
Raw
material prices
(extraordinary factors)
Production costs (excluding effects of inventory buildup)
Effects of inventory buildup in preparation for renew
al of blast furnace lining
△1
△9 +9 △9+5
+20
△3
△2△2
+8
Decreased sales
volumes
Other 9
Special Steel Bars businessFactors contributing to changes in operating income by segment
FY20181st H result
FY20191st H result
FY20181st H result
Sales297
Sales317
(JPY100M) Net sales fell by JPY2 billion because the first two of the following factors failed to offset the effects of the third:・ Improved selling prices prompted by measures
accompanying rising raw material prices (unit prices of iron ore and ferroalloys)
・ Effects of increased sales due to higher volumes of materials processed under contract and growth in sales volumes at overseas businesses (JATIM)
・ The impact of lower sales due to lower sales volumes, due in turn to decreased production at major domestic customers and the accompanying inventory adjustments
Operating income fell by JPY0.2 billion because the second and third of the following factors failed to offset the effects of the first:・ Decreases resulting from factors such as rising raw material
prices, lower sales volumes, and decreases from inventory revaluation
・ Effects of improved selling prices and cost improvements after cost increases accompanying coke oven repairs in the previous period (extraordinary factors affecting raw material prices)
・ Effects of production increases due to inventory buildup in preparation for blast furnace renovations in the next fiscal year
Selling prices
JATIM
(JPY100M)
Sales34Sales
28<JATIM>
Net sales grew by JPY0.6 billion YoY for the following reason:Higher selling prices of flat bars and sales growth resulting from customer approval of round bars
Operating income fell by JPY0.1 billion YoY due to the impact of advance procurement during the period of rising scrap prices from the latter half of 2018 and increased production costs due to increased problems associated with the start of mass production of new types of steel at the steel works.
JATIM
FY20191st H result
II. FY2019 1st Half Results
Special Steel Bars business
8
△5
Raw
material prices
△2
Decreased sales volum
es (N
. America)
Selling prices(m
arket conditions)
0
0 +1
Other
Selling prices
△3 +1
Tariff effects
+1
Production costs
△2 △1
Increased sales volumes
(other than N. Am
erica) △10
△5 Germ
any
Other
India
0
Japan
China
△10△5
+1 0
N. Am
erica
△2 0M
exico+1
FY20181st H result
FY20191st H result
Springs business
Sales247 Sales
234
R&D
expenses, depreciation
Sales247 Sales
234
Analysis of changes by region
FY20181st H result
FY20191st H result
II. FY2019 1st Half ResultsSprings businessFactors contributing to changes in operating income by segment ①
(JPY100M)
(JPY100M) <Analysis of changes by region> Income was down JPY0.5 billion in North America and down
JPY0.2 billion in Germany YoY. Income was up JPY0.1 billion in Japan and up JPY0.1 billion in other regions YoY.(See the next page for detailed information on the North American subsidiaries.)
In Germany, sales of brake springs for use in commercial vehicles slowed due to declining exports caused by an economic downturn in the European market and the slowing Chinese market. In addition, sales of aftermarket springs were weak due to the warm winter in 2018.
The increase in Japan was due to factors including an increase of JPY40 million resulting from the use of JATIM materials in leaf springs and an increase of JPY80 million attributable to revised selling prices for automotive coil springs.
Net sales declined due to lower sales for automotive uses in North America and foreign exchange effects, in addition to slow demand for use in construction machinery in Japan and internationally.
Operating income fell due to the significant impact made by North American subsidiaries, as described under <Analysis of changes by region>.(See the next page for detailed information on the North American subsidiaries.)
9
△3
Raw
material
prices
Tariff effects
Revaluation of product
inventory
0+1
△5decrease in
income
Production costs
Other
Decreased sales
volumes
△1
Selling prices(m
arket conditions)
Selling prices
0△2 +1 △2
Foreign exchange gains/losses
+1
FY20181st Hresult
FY20191st Hresult
II. FY2019 1st Half ResultsSprings businessFactors contributing to changes in operating income by segment ②
(JPY100M) <Analysis of changes at North American subsidiaries> The decrease in sales volume resulted from loss of orders
during transition to new models. Negotiations with customers concerning revised selling
prices continue in the second half after failure to reach agreement in the first half. (Agreements have been reached with some customers.)
Although selling prices (market conditions) fell, along with materials market prices, the decline in income is due to factors such as the effects of rising raw material prices (subcomponents).
An increase in production costs due to rising labor costs and expenses resulting from problems with production startup for new stabilizer products had negative effects on income.
Analysis of changes at North American MSSC
10
0.7
Quality and cost
improvem
ents
Decreased sales
volumes
Raw
material prices
Other
Startup costs for the m
other plant
△2.90
+2.9+0.6 +0.4
△1.5△0.5
R&D
expenses,depreciation
Selling prices
0.6
Increased sales volum
es
Product lineup
+1.01.4
△0.2
FY20181st H result
FY20191st H result
FY20181st H result
FY20191st H result
Sales46Sales
37
Sales47
Sales58
△0.3
(JPY100M)
(JPY100M) Declining demand resulting from a slowdown in the Chinese market for special alloy powders significantly reduced net sales, as did lower alloy surcharge sale prices attributable to falling pricing for alloy raw materials.
Lower sales of powders attributable to the slowing Chinese market and higher costs resulting from the startup of the mother plant* reduced operating income. The benefits of the falling prices of alloy raw materials and stronger selling prices for cast steel failed to offset the negative factors.
* This refers to a model plant intended to deploy, primarily to overseas plants, technical expertise and knowledge accumulated using equipment such as a vacuum induction melting furnace (VIM) and various testing and trial production lines at the Chiba Works.
Net sales increased due to higher sales of products related to the new field of offshore wind power generation.
Higher sales led to growth in operating income.
Formed & Fabricated Products business
Machinery business
II. FY2019 1st Half ResultsFormed & Fabricated Products and Machinery businessesFactors contributing to changes in operating income by segment
11
FY2018 FY20191st H result 1st H result Year-on-year change
Operating income 8 1 △7Non-operating income/loss △5 △5 0
Translation (exchange profit and loss) △3 △1 2Interest paid △5 △6 △1Share of loss of entities accounted for using the equity method △0 △0 △0
Ordinary income or ordinary loss 3 △4 △7Extraordinary income/loss 3 △154 △157
Impairment losses 0 △148 △148Gain/loss on disposal of fixed assets 2 *1 △3 △5Gain on sale of equities 2 0 △2Losses due to disasters △0 *2 △1 △1Revaluation losses on investment securities 0 △1 △1
Net income or net losses before income taxes and other adjustments 6 △158 △164
Tax expenses △8 △12 △4Net income or net losses attributable to non-controlling interests 4 *3 27 23
Net income or net losses attributable to owners of parent company 3 △143 △146
(JPY100M)
Impact of non-operating income/loss andextraordinary income/loss
*1 JATIM recorded equipment disposal costs following an electric furnace accident. Compensation from insurance proceeds is expected in the second half.
*2 Reserves for losses were recorded due to typhoon damage at the Chiba spring plant. Compensation from insurance proceeds is expected in the second half.
*3 Since JATIM and others recorded losses, final income or losses are adjusted for net losses attributable to non-controlling interests.
Growing stability in the exchange rate for the Indonesian rupiah reduced foreign exchange losses. Impairment losses at overseas subsidiaries led to significant net losses. Tax expenses include △JPY1.2 billion for transfers from deferred tax assets at the Indonesian subsidiary
(JATIM).
II. FY2019 1st Half Results
12
Impairment losses (by region) Overseas subsidiaries recorded as extraordinary losses impairment losses of JPY14.8 billion.
II. FY2019 1st Half Results
Business Region Loss
Special Steel Bars Indonesia PT. JATIM TAMAN STEEL MFG. △90
Springs
US MSSC US INC. △14
Canada MSSC CANADA INC. △7
Mexico MSSC MFG MEXICANA, S.A. DE C.V. △7
Germany MSSC Ahle GmbH △16
China MSM NINGBO SPRING CO., LTD. △7
India MSM SPRING INDIA PVT.LTD. △4
Springs subtotal △55Formed & Fabricated Products
Thailand MSM (THAILAND) CO., LTD. △4
Total △148
(JPY100M)Breakdown of impairment losses by region
13
American subsidiary MSSC US INC. (manufacture and sale of automotive coil springs and stabilizers)
Subject equipment Automotive coil spring and stabilizer production equipment
Background of impairment Contributing factors included uncertainty in future orders awarded, recent sales decline, and delays in progress with improvements.
CountermeasuresEnsuring recovery of increases in material prices from customers; shutting down the coil spring production line (during the fourth quarter of this fiscal year); resolving problems in production of new products *See below for detailed information.
Canadian subsidiary MSSC CANADA INC. (manufacture and sale of automotive coil springs, stabilizers, and torsion bars)
Subject equipment Automotive coil spring, stabilizer, and torsion bar production equipment
Background of impairment Contributing factors included uncertainty in future orders awarded, recent sales declines, and delays in introducing new equipment.
Countermeasures Improving filling factors through transfer of coil spring production from the US plant and ensuring recovery of costs associated with increases in material prices from customers *See below for detailed information.
Impairment losses (conditions by region) II. FY2019 1st Half Results
Indonesian subsidiary PT. JATIM TAMAN STEEL MFG. (manufacture and sale of flat bars and round bars)
Subject equipment Flat bars and round bar production equipment
Background of impairment
Contributing factors included uncertainty in future orders awarded due to the unexpectedly negative impact of the slowing Indonesian economy on volumes of orders awarded; rising production costs due to problems with production startup for new ordered products; recent failures to achieve sales and income targets; and recent unfavorable economic trends.
Countermeasures Improving costs, correcting procurement methods, and expanding sales *See below for detailed information.
14
II. FY2019 1st Half Results
German subsidiary MSSC Ahle GmbH (manufacture and sale of automotive and commercial vehicle coil springs)
Subject equipment Automotive and commercial vehicle coil spring production equipment
Background of impairmentContributing factors included difficulties in securing planned revenue from new businesses due to the effects of the contraction and closure of automakers’ European bases and low sales of existing products due to the impact of lower demand for commercial vehicles in Europe and China.
Countermeasures Freezing advances into new businesses and rebuilding existing businesses through cost cutting measures, such as staff reductions
Chinese subsidiary MSM NINGBO SPRING CO., LTD. (manufacture and sale of automotive coil springs and stabilizers and of springs for use in construction machinery)
Subject equipment Stabilizer and construction machinery spring production equipment
Background of impairmentContributing factors included a downward revision in the company’s sales plans for large coil springs and stabilizers due to lower demand for construction machinery and passenger vehicles accompanying the economic slowdown in China.
Countermeasures Promoting efforts to increase volumes of orders awarded for both large coil springs and stabilizers via the introduction of new technologies, improved plant utilization rates, and improved productivity
Impairment losses (conditions by region)Mexican subsidiary MSSC MFG MEXICANA, S.A. DE C.V. (manufacture and sale of automotive stabilizers)
Subject equipment Automotive stabilizer production equipment
Background of impairmentContributing factors included delays in new entry of automakers in light of Trump administration policies; lower than initially expected auto production in Mexico; and delays in receipt of product orders expected under sales expansion plans.
Countermeasures Switching to locally procured materials and improving production costs
15
II. FY2019 1st Half Results
Thai subsidiary MSM (THAILAND) CO., LTD. (manufacture and sale of precision cast products and machined products)
Subject equipment Production equipment for precision cast products used in turbocharger parts
Background of impairment This impairment is attributable to decreased orders awarded for diesel turbocharger parts and the resulting failure to achieve sales expansion plan targets.
Countermeasures Enhancing competitive strengths by utilizing the Chiba mother plant and focusing on expanding sales of parts for gasoline turbochargers
Impairment losses (conditions by region)Indian subsidiary MSM SPRING INDIA PVT.LTD.(manufacture and sale of springs for use in construction machinery)
Subject equipment Construction machinery spring production equipment
Background of impairmentContributing factors included lower sales due to discontinuation of orders and delays in switchover involving the company’s large coil springs, which the company had delivered to construction machinery makers, as a result of lower demand for construction machinery in India.
Countermeasures Enhancing efforts to expand export sales and thorough cost cutting measures: for example, switching to locally procured materials and cost containment
16
Business indicators and financial conditions
FY20171st H result
FY20181st H result
FY20191st H result
Total assets (JPY100M) 1,346 1,471 1,322
Net assets (JPY100M) 667 702 500
Equity capital ratio (%) 45.4 41.8 33.5
ROS (%) 2.7 0.5 -
ROE (%) 2.7 0.9 -
Net D/E ratio (Times) 0.0 0.4 0.6
The impairment losses recorded reduced total assets and net assets. The equity capital ratio fell to 33.5%.
II. FY2019 1st Half Results
17
I. Message
II. FY2019 1st Half Results
III. Full-year Forecasts for FY2019
IV.Future Initiatives
III. Full-year Forecasts for FY2019
18
Full-year performance forecasts III. Full-year Forecasts for FY2019
In light of the conditions described below, full-year forecasts of net sales and income were revised downward on November 12.
The decline in net sales is expected to accelerate in the third quarter and beyond due to a further decline in demand from the construction machinery industry.
Despite lower amortization costs following the recording of impairment losses, operating income is projected to break even over the full year, due to a further decline in sales volumes for steel materials in Japan and anticipated delays in recovery at the North American spring subsidiary and at the Indonesian special steel bar subsidiary, where performance had been expected to improve.
Due to the decrease in operating income, ordinary income is projected to be lower than initially forecast. Due to impairment losses recorded in the first half, net income is projected to fall well short of initial forecasts.
FY2018 FY2019
Result Initial forecast* Revised forecast vs. initial forecast Year-on-yearchange
Net sales 1,294 1,370 1,200 △170 △94Operating
income 11 20 0 △20 △11
Ordinary income 1 7 △13 △20 △14
Net income attributable to
owners of parent company
3 3 △160 △163 △163
*Figures announced publicly with results on May 14, 2019
(JPY100M)
19
11
+8
Raw materialprices *2
(extraordinary factors
related to Muroran)
Selling prices
+5+4 △2+1
+18△10
Decreased sales
volumes
R&D expenses,
depreciation△33
Raw material prices
(market conditions)
*3 JATIM added to
consolidated subsidiaries
*4 Other
0
△2Effects of
inventory buildup in preparation for renewal of blast furnace lining at
Muroran
Decreased amortization costs due to impairment
1,294 *1 Increased volume under
contract
Consolidation adjustments,
etc.
+33
+4+90
△212 △3 △6
Selling prices1,200Decreased
sales volumes
JATIM
Factors contributing to changes in net sales and operating income
FY2018result
FY2019forecast
(JPY100M)
(JPY100M)
FY2018result
FY2019forecast
III. Full-year Forecasts for FY2019
*3 All factors related to changes in profits/losses due to JATIM are included under “JATIM added to consolidated subsidiaries.”
Foreign exchange gains/losses
Operating income
Net sales
*2 Temporary expenses for coke oven repairs at Muroran in FY2018
*4 The “Other” category includes the following: △2 from revaluation of product inventory in the Special Steel Bars business; △3 from production costs in the Springs business; and △4 from startup costs for the mother plant in the Formed & Fabricated Products business.
*1 Volume of OEM products and rolling piecework (subcontracted rolling) under contract to Nippon Steel Corporation
20
(JPY100M)
Performance forecasts by segment
FY2018 FY2019
Result Initial forecast* Revised forecast vs. initial forecast
Year-on-yearchange
Special SteelBars
Net sales 648 700 560 △140 △88Operating
income 12 12 9 △3 △3Springs
Net sales 497 515 485 △30 △12Operating
income △9 0 △13 △13 △4Formed &FabricatedProducts
Net sales 114 115 100 △15 △14Operating
income 4 4 1 △3 △3Machinery
Net sales 93 100 100 0 7Operating
income 2 3 3 0 1Other
Net sales 42 38 35 △3 △7Operating
income 2 1 1 0 △1Consolidatedadjustments
Net sales △99 △98 △80 18 19Operating
income 0 0 0 0 0
TotalNet sales 1,294 1,370 1,200 △170 △94Operating
income 11 20 0 △20 △11
Net sales are projected to fall short of initial forecasts and to decline year on year in the Special Steel Bars, Springs, and Formed & Fabricated Products businesses.
Operating income had been projected to break even; losses in the Springs business are now expected to deepen.Operating income is projected to fall short of initial forecasts and decline year on year in the Special Steel Bars and Formed & Fabricated Products businesses.
III. Full-year Forecasts for FY2019
*Figures announced publicly with results on May 14, 2019
21
Effects of decrease in domestic sales volumes (△JPY19.6 billion)
Effects of increased earnings due to increased volume under contract
(JPY9.0 billion)
12
Revaluation of
product inventory
Raw
material prices
(extraordinary factors)
+4
12
△5
△7
0 △1△4△2
△4
Sales decrease
Other
+10
JATIM
Selling prices
+5
Product lineup
Production costs(excluding effects of inventory buildup)
R&D
expenses,depreciation
+4
Effects of inventory buildup in preparation
for renewal of blast
furnace lining
12
Revaluation of product
inventory
Raw
materialprices
(extraordinary factors)
+5
9
Raw
materialprices
(market conditions)
+18
△8
△28
+9△2△1△1
△4
Sales decrease
Other
+5
JATIM
Selling prices
+4
Product lineup
Production costs(excluding effects of inventory buildup)
R&D
expenses,depreciation
Effects of inventory buildup in preparation
for renewal of blast
furnace lining
(JPY100M)
FY2018result
FY2019forecast
III. Full-year Forecasts for FY2019
Sales560
Sales648
(JPY100M)
FY2018result
FY2019forecast
Sales700Sales
648
Effects of increased earnings from JATIM (JPY3.3 billion)Effects of increased earnings due to increased volume under
contract (JPY4.0 billion)[Initial forecasts] The following factors were expected to boost net sales:
• Increased volume under contract, despite reduced volumes of our products used by major customers due to inventory adjustments for construction machinery and industrial machinery in response to the slowing Chinese economy
• Growth in sales volumes at overseas businesses (JATIM) as the customer approval process advances
Operating income was projected to remain largely unchanged from last year for the following reasons:• Improvements at JATIM resulting from increased sales volume and
cost cutting• Increased amortization and other costs resulting from completion of
coke oven repairs (although the effects of such repairs would be ameliorated starting from the second half)
• Additional factors leading to reduced profits, such as lower sales volumes to manufacturers of construction machinery and industrial machinery
[Revised forecasts] Net sales are projected to decrease by JPY8.8 billion due mainly to the
following factors:・ Major reductions in sales volumes of our products due to decreased
production for construction machinery and industrial machinery at major customers and accompanying increase in inventory adjustments in the second half
・ Increased volume under contract due to production of materials for inventory prior to blast furnace renovations
・ Lower sales volumes at overseas businesses (JATIM) (see p. 23 for detailed information)
Operating income:・ Lower amortization costs due to impairment and other factors are
expected to boost operating income at JATIM by JPY0.5 billion.・ Operating income in domestic businesses in Japan is projected to
decrease by JPY0.8 billion due to/despite the following factors:- Significantly lower income due to a major decline in sales volumes of
our products- Compensation for rising raw material prices (unit prices of iron ore)
by increasing selling prices- Compensation for increased amortization costs by cost
improvements accompanying the completion of coke oven repairs (extraordinary factor affecting raw material prices)
- The presence of factors with positive effects on operating income, including the impact of increased production to build up inventory in preparation for blast furnace renovations next year
Initial forecast
Revised forecast
*Initial forecasts: Figures announced publicly with results on May 14, 2019
Special Steel Bars businessFactors contributing to changes in operating income by segment
Includes lower amortization costs due to impairment (+JPY0.4 billion)
Raw
materialprices
(market conditions)
22
Domestic sales volumes in the Special Steel Bars business●Sales volumes are expected to mark a sizable drop in the second half of FY2019, declining 54% from the
first half of FY2018.As for the three main fields of domestic and overseas sales, while sales volumes are projected to remain largely unchanged in the fields of construction machinery and industrial machinery/machine tools, sales volumes are projected to recover in the truck and automotive field after bottoming out in the first half.
●The scale of the decrease in sales volumes at MSM exceeds the decrease in numbers of units sold by the leading construction machinery makers due to the impact of user inventory. Normalization of inventory is expected around March 2020. Demand is projected to return to real demand levels from next fiscal year.
図2
III. Full-year Forecasts for FY2019Special Steel Bars business (reference)
図1Fig. 1 MSM sales volumes
2018 H1 2018 H2 2019 2019 H1 2019 H2 (actual) (actual) (planned) (actual) (projected)
Fig. 2 MSM sales volumes: industrial machinery/machine tools
2018 H1 2018 H2 2019 2019 H1 2019 H2 (actual) (actual) (planned) (actual) (projected)
図3Fig. 3 MSM sales volumes: construction machinery
2018 H1 2018 H2 2019 2019 H1 2019 H2 (actual) (actual) (planned) (actual) (projected)
図4Fig. 4 MSM sales volumes: trucks, automotive
2018 H1 2018 H2 2019 2019 H1 2019 H2 (actual) (actual) (planned) (actual) (projected)
図5Fig. 5
Com
pare
d to
uni
ts so
ld b
y co
nstru
ctio
n m
achi
nery
mak
ers
2018 H1 (actual) 2018 H2 (actual) 2019 H1 (actual) 2019 H2 (planned)
Company A
Company B
建機関連在庫 (在庫/受注)比率建機主要 2019年 2020年ユーザー 11月 12月 1月 2月 3月
① 5.9 5.1 4.3 3.5 2.7② 4.1 3.1 2.3 適正化③ 5.8 4.8 4.0 3.1 適正化④ 5.8 4.8 3.9 2.8 適正化⑤ 3.1 2.1 適正化⑥ 3.1 2.2 適正化⑦ 5.8 4.8 3.8 2.8 適正化平均 4.6 3.7 2.8 適正化
Table 1Construction machinery-related inventory Ratio (inventory/orders awarded)
Main construction
machinery users
Average
Nov. Dec. Jan. Feb. Mar.
NormalizedNormalizedNormalized
NormalizedNormalized
NormalizedNormalized
23
△12
Selling prices
Increased sales volum
es
Product lineup
△2
+7
0+1
0 +2
Production costs
Raw
material prices
△12
Selling prices
Decreased sales
volumes
Product lineup
△7
Lower am
ortization costs due to im
pairment
△1.6 △0.9+1.3 0 +4.3 △0.5 +2.4
Production costs
Raw
materialprices
Other (discontinuation of am
ortization of land)
III. Full-year Forecasts for FY2019
[Initial forecast] Net sales were projected to increase by JPY3.3 billion due
to transition to JATIM materials following customer approval of JATIM’s flat bars and sales expansion of round bars.
Operating income was projected to improve by JPY1 billion thanks to increased sales volumes and production cost improvements.
Including amortization of goodwill and other assets, consolidated results were projected to remain negative. While we planned to maintain a focus on cost improvements and sales expansion activities, concerns included the inflow of low-priced materials due to US-China trade friction and an economic downturn in South Korea.
FY2018result
FY2019forecast
Sales60
Sales63
FY2018result
FY2019forecast
Sales96Sales
63
(JPY100M)
[Revised forecast] Net sales are projected to decrease by JPY0.3 billion for
the following reasons:Lower sales of flat bars for leaf springs due to decreased domestic truck sales in Indonesia and lack of progress on sales expansion due to discontinuation of low-priced retail sales of round bars and production limited to types of steel for which stable manufacture can be assured. Progress as planned on switching to JATIM materials failed to offset these factors.
Operating income:Increased selling prices for flat bars, lower amortization costs due to impairment, and discontinuation of amortization of land are projected to increase operating income. However, due to factors such as the effects of lower sales volumes and worsening costs resulting from increased production problems at steel works, the increase in operating income will be no more than JPY0.5 billion.
Initial forecast
Revised forecast
(JPY100M)
Special Steel Bars business (JATIM)Factors contributing to changes in operating income by segment
*Initial forecasts: Figures announced publicly with results on May 14, 2019
24
Selling prices (discounts)
△2
Selling prices(m
arket conditions)
Lower am
ortization costs due to im
pairment
△2△1 △3
△13
Selling prices(price revisions)
Other△9
R&D
expenses, depreciation
Tariff effects△1
III. Full-year Forecasts for FY2019
FY2018result
FY2019forecast
Sales497 Sales
485
Raw
material prices
Decreased sales volum
es(N
. America)
+2 △2+2△2 +2 +3
Decreased sales volum
es(other than N
. America)
Selling prices (discounts)
0
Raw
material prices
△1
0
Selling prices (price revisions)
Other
△9
R&D
expenses, depreciation
Tariff effects
Sales497
Sales515
Production costs
Decreased sales volum
es(N
. America)
+2+1
△1
+3
+2+4
△1
Increased sales volumes
(other than N. Am
erica)
FY2018result
FY2019forecast
Initial forecast
Revised forecast
Springs businessFactors contributing to changes in operating income by segment
(JPY100M)
(JPY100M)
*Initial forecasts: Figures announced publicly with results on May 14, 2019
[Revised forecasts] Net sales are projected to decline due to lower sales for
automotive use in North America and foreign exchange effects, as well as low demand for construction machinery use in Japan and internationally.
Operating income is projected to fall dramatically due to the impact of lower sales and worsening production costs in North America. We do not expect lower amortization costs due to impairment to offset these factors.
Compared to initial forecasts, selling prices (price revisions) and production costs will fall far short of targets, resulting in increased losses.
[Initial forecasts] Net sales were projected to increase due to sales growth in
ASEAN and India. Operating income was projected to increase by
JPY0.9 billion due to/despite the following factors:(North America) Reflecting last year’s material price
increases in selling prices (+JPY0.3 billion); improved production costs (+JPY0.3 billion); other factors (△JPY0.3 billion)
(China) Increased sales and reduced production costs (+JPY0.1 billion)
Increased volumes in new markets (e.g., India, Mexico) (+JPY0.2 billion)Although we expected to be profitable, we did not expect to return to FY2017 levels.
Production costs
25
△9 Germ
any
OtherIndia
+1
Japan
China
△13
△6
0 0
N. Am
erica
△1 +1
Mexico
+1
Sales497 Sales
485
FY2018result
FY2019forecast
△9
Germ
any
OtherIndia
+2
Japan
China
0
+3+10
N. Am
erica
0+1
Mexico
+2
FY2018result
FY2019forecast
Sales497
Sales515
Initial forecast
Revised forecast
III. Full-year Forecasts for FY2019Springs business (by region)Factors contributing to changes in operating income by segment
*Initial forecasts: Figures announced publicly with results on May 14, 2019
(JPY100M)
(JPY100M)
[Revised forecast]
(North America) △JPY0.6 billion(See next page for detailed information.)
(Germany) Sales of brake springs for use in commercial vehicles are expected to slow due to declining exports caused by the economic downturn in the European market and the slowing Chinese market.In addition, despite reduced amortization costs due to impairment (+JPY0.1 billion), poor sales of aftermarket springs due to the warm winter in 2018 are expected to result in lower sales (△JPY0.2 billion).
[Initial forecast]We anticipated an improvement of a mere JPY0.3 billion
for North America, plus improvements of JPY0.6 billion in other regions, for a total improvement of JPY0.9 billion.
In Japan, we expected to cut costs in the face of rising procurement costs of leaf springs by switching to JATIM materials (approval already obtained).At the same time, we anticipated lower sales of large coil springs for use in construction machinery due to the slowing Chinese construction machinery market.
Effects of increased volumes were expected to appear gradually in newly entered regions.
26
△1
Decreased sales volum
es
Tariff effects
Inventory revaluation
△1+2
+3 increase in
income
Raw
materialprices
Other
Production costs
△1
Selling prices (price revisions)
Selling prices(m
arket conditions)
+3△1 0 +3
Foreign exchange gains/losses
△1
△2
Raw
material prices
Lower am
ortization costs due to im
pairment
+1
Tariff effects
Inventory revaluation
0+2
△6decrease in
income
Production costs Other
Decreased sales
volumes
△2
Selling prices(m
arket conditions)
+1 △3 +1△3
Foreign exchange gains/losses
△1
Selling prices(price revisions)
FY2018result
FY2019forecast
FY2018result
FY2019forecast
III. Full-year Forecasts for FY2019Springs business (North American MSSC)Factors contributing to changes in operating income by segment
*Initial forecasts: Figures announced publicly with results on May 14, 2019
(JPY100M)
(JPY100M)
Initial forecast
Revised forecast
[Revised forecast]We anticipate lower sales volumes due to orders lost
during the transition to new models.Regarding selling prices (price revisions), projections
incorporate as a risk the possibility that negotiations with customers on revised selling prices will fail to lead to agreement during this period. (Agreements have been reached with some customers.)
Although selling prices (market conditions) are projected to fall alongside market prices for materials, income is projected to decrease by JPY0.2 billion due to rising prices of raw materials (subcomponents).
Production costs are projected to worsen due to rising labor costs and expenses resulting from problems with production startup for new stabilizer products, delays in automating torsion bar processes, and other factors.
[Initial forecast]Materials prices had recently stabilized.We continued to negotiate with manufacturers to reflect
rising costs in prices paid by customers. However, we did not believe we would be able to offset 100% of cost increases (+JPY0.3 billion).
Discounts were at typical levels based on contracts with customers (△JPY0.1 billion).
We expected to resolve production problems by dispatching production improvement teams and to achieve the cost reduction effects targeted in our capital investment plans (+JPY0.3 billion).
27
4
Startup costs for the m
other plant
Decreased sales
volumes
Selling prices
Other
△2 0△4 +4
+1△4
+1+1
Quality and cost
improvem
ents
Raw
material prices
R&D
expenses, depreciation
1
Lower amortization costs due to impairment
4
Increased sales volumes
Selling prices
Other
Startup costs forthe m
other plant
+1+1
△5 +6
+2△5
0
Quality and cost
improvem
ents
Raw
material prices
R&D
expenses, depreciation
4
[Revised forecast] Net sales are projected to fall due to lower sales
volumes following a slowdown in the Chinese market for special alloy powders and lower sales resulting from lower alloy surcharge sale prices, as well as slowing growth in turbocharger-related components for the European market.
Operating income is projected to fall due to lower sales and higher costs resulting from the startup of the mother plant. We do not expect the positive effects of lower amortization costs due to impairment and quality and cost improvements to offset these factors.
(JPY100M)
III. Full-year Forecasts for FY2019
FY2018result
FY2019forecast
Sales100
Sales114
[Initial forecast] We projected higher net sales based on increased
sales volumes of defense-related ship hull products and turbocharger-related components. This was despite the negative effects of lower alloy surcharge sale prices on sales.
Due to increased sales volumes and cost improvements, we projected operating income would remain largely unchanged from last year, despite rising costs at the mother plant in Chiba.FY2018
resultFY2019forecast
Sales115Sales
114
Initial forecast
Revised forecast
(JPY100M)
Formed & Fabricated Products businessFactors contributing to changes in operating income by segment
*Initial forecasts: Figures announced publicly with results on May 14, 2019
28
Machinery businessFactors contributing to changes in operating income by segment
2
Increased sales volum
es
△1+1
Profitability of orders aw
arded
30
Electric power m
achinery inventory revaluation losses
△1
Product lineup
+2
Other
FY2018result
FY2019forecast
Sales93
Sales100
[Revised forecast] We project higher net sales due to orders received
for products for offshore wind power generation. Even amid harsh market conditions, we project
operating income to increase by JPY0.1 billion due to higher sales, the absence of the electric power machinery inventory revaluation losses recorded last year, and other factors. We expect these factors to more than offset decreased profitability and other negative factors.
III. Full-year Forecasts for FY2019
[Initial forecast] Despite harsh market conditions, we projected
higher net sales due to orders received for products for offshore wind power generation.
Due to higher sales of products for offshore wind power generation and other factors, we projected operating income to remain largely unchanged from the previous year.2
Increased sales volum
es
△1+1
Profitability of orders aw
arded
30
Electric power m
achinery inventory revaluation losses
△1
Product lineup
+2
Other
Sales100Sales
93
(JPY100M)
FY2018result
FY2019forecast
Initial forecast
Revised forecast
(JPY100M)
*Initial forecasts: Figures announced publicly with results on May 14, 2019
29
Full-year performance forecasts(impact of non-operating income/loss and extraordinary income/loss)
Despite improvement in foreign exchange losses with stabilizing Indonesian rupiah exchange rates, JATIM’s interest burden has increased.
Significant net losses are expected due to the impact of impairment losses recorded in the first half.
III. Full-year Forecasts for FY2019
(JPY100M)FY2018 FY2019
Result Initial forecast*1 Revised forecast vs. initial forecast Year-on-yearchange
Operating income 11 20 0 △20 △11Non-operating income/loss △10 △12 △13 △1 △3
Translation (exchange profit and loss) △4 0 △1 △1 3Interest paid △10 △12 △12 0 △2
Ordinary income or ordinary loss 1 7 △13 △20 △14Extraordinary income/loss 13 5 △152 △157 △165
Impairment losses 0 0 △148 △148 △148Gain/loss on disposal of fixed assets 2 0 0 0 △2Gain on sale of equities 20 5 0 △5 △20Losses due to disasters 0 0 0 0 0Revaluation losses on investment securities △8 0 △1 △1 7
Net income or net losses before income taxes and other adjustments 14 12 △165 △177 △179
Tax expenses △20 △11 △21 △10 △1Net income or net losses attributable to non-controlling interests 8 2 *2 26 24 18
Net income or net losses attributable to owners of parent company 3 3 △160 △163 △163
*1 Figures announced publicly with results on May 14, 2019*2 Since JATIM and others recorded losses, final income or losses are to be
adjusted for net losses attributable to non-controlling interests.
30
Business indicators and financial conditions
FY2017 FY2018 FY2019full-year result full-year result full-year forecast
Total assets (JPY100M) 1,534 1,533 1,444Net assets (JPY100M) 722 674 483
Equity capital ratio (%) 40.9 38.5 29.4ROS (%) 2.4 0.1 -
ROE (%) 4.7 0.5 -
Net D/E ratio (Times) 0.3 0.3 0.7
Forecasts of business performance for FY2019 call for ordinary losses and net losses attributable to owners of parent company. Thus, regrettably, we have revised interim and year-end dividends for this fiscal year to zero.We apologize to our shareholders for this result and ask for their continuing support as we strive to restore dividends as quickly as possible.
* We implemented a share consolidation (on the basis of 1 for every 10 shares) on October 1, 2017. Dividend figure for FY2017 above assumes the share consolidation took place at the start of the consolidated fiscal year.
III. Full-year Forecasts for FY2019
Dividends* (JPY) 60.0 60.0 0.0
Dividend payout ratio (%) 31.8 329.0 -
31
H121
H218
0
20
40
60
80
100
5233
39
減価償却費設備投資
4460
0
5
10
15
20
FY2016 result FY2017 result FY2018 result FY2019 forecast
1511
1516
H17
H28
R&D expenses, Capital investment, Depreciation
減価償却費
FY2017 resultFY2016 result FY2018 result FY2019 forecast
5336
(JPY100M)
*Includes R&D-related depreciation.
As an urgent measure to improve business results, R&D expenses and capital investment will be reduced to the necessary minimum. R&D expenses will be revised downward from the initial forecast of JPY2.0 billion to JPY1.5 billion, with a focus on projects that will help
strengthen sales and cut costs. We are formulating capital investment plans suited to a changing environment, including freezing expansion of facilities in Europe in
response to changing customer global strategies. We will pare capital investment from an initial forecast of JPY8.6 billion to JPY7.1 billion. Amortization costs are projected to decrease by JPY1.0 billion from the initial forecast of JPY4.9 billion. Amortization costs (excluding
goodwill) have been reduced JPY0.6 billion due to the recording of impairment losses, JPY0.2 billion due to reduced amortization of land by JATIM, and JPY0.2 billion due to a review of investments.
(JPY100M)
71
(JPY100M)
[R&D expenses]
[Capital investment, Depreciation]
III. Full-year Forecasts for FY2019
H142
H229
DepreciationCapital investment
32
I. Message
II. FY2019 1st Half Results
III. Full-year Forecasts for FY2019
IV.Future Initiatives
IV. Future Initiatives
33
Business environment
Business environment:
Low demand for construction machinery in Japan, Indonesia, and India <Muroran, JATIM, springs for construction machinery>
Low demand for commercial vehicles in Japan and Indonesia <JATIM, leaf springs> Inflows of low-priced materials into ASEAN markets due to low domestic steel demand in
China and South Korea <JATIM> Rising prices in the materials market in North America, spurred by the invocation of Section
232 <North American MSSC> Low automotive demand in the US and China
<North American MSSC, Ningbo/springs, stabilizers, Hirota/powders> Withdrawal of Japanese and American makers from Europe and the contraction of the North
American small car market <MSSC Ahle, North American MSSC>
Due to the impact of US-China trade frictions and the rise of protectionism, auto production volumes are declining not just in the North American and Chinese markets, but in Southeast Asia and Europe. Demand appears low in the construction machinery industry, due to reduced production and inventory adjustments at major customers in Japan and low demand in certain regions of Southeast Asia, including Indonesia.
[Impact on our businesses]
IV. Future Initiatives
34
Formed & Fabricated Products business:
Business trends
Difficulty in expanding sales in the powders business due to low demand in China.
Failure to grow sales due to delays in introducing new turbine wheels planned for diesel engines.
Withdrawal from the cast magnet business after positioning it as a non-core business.
Targeting installation in this second half and swift commercialization of equipment for creating added value from materials. (VIM, gas atomizer equipment)
Accelerating new product development, quality improvements, and cost improvements starting in the second half of this fiscal year based on mother plant startup.
Shifting toward expanding sales of gasoline turbocharger parts.
Continuing to advance efforts to make the Formed & Fabricated Products business into the third pillar of our businesses.
✓: Result ➢: Future initiative
IV. Future Initiatives
35
Special Steel Bars business:
Business trends
Despite recovery of materials supply volumes at the Muroran Works, low customer demand and inventory reductions are expected to reduce orders awarded by 26% YoY and 30% from the first half to the second.
Inventory buildup is underway in preparation for blast furnace renovations.
We expect to face difficulties associated with low operation rates due to blast furnace renovations in the next period. However, we anticipate results starting the following year.
Strengthening cooperation with Nippon Steel Corporation. (with results anticipated starting in 2022)
While the gap between planned and actual results at JATIM is due largely to internal factors, compounded by worsening external conditions, these factors are trending up.
Accelerating improvements at JATIM.
(See below concerning JATIM.)
IV. Future Initiatives
✓: Result ➢: Future initiative
36
Business trendsSprings business:
Construction of a production line for automotive springs at a European base has been frozen due to successive withdrawals and contractions by American and Japanese automakers from production in Europe.
The volume of orders awarded in Mexico has been low due to delays in bringing new vehicle models to market.
The volume of orders awarded in China has been low due to unfavorable conditions for small cars made by Japanese brands.
Orders awarded for springs for construction machinery use have declined due to the impact of a lower market share for Japanese construction machinery makers in China.
Decisions made on orders awarded in the new leaf spring business. (realized through synergies with JATIM)
Fundamental measures are needed at North American MSSC. The challenges there are largely due to internal factors, compounded by trade issues and other problems.
Top priority: Stopping the flow of red ink at North American MSSC.
(See below concerning North American MSSC.)
IV. Future Initiatives
✓: Result ➢: Future initiative
37
Business trendsSpecial Steel Bars business: Indonesian steel bars subsidiary (JATIM)
[Gaps vs. plans]
(Production) Cost increases exceeded expectations due to startup problems associated with rapid
sales expansion with lack of adequate mass production technologies when mass production of round bars began at the end of FY2018.
After we procured materials in advance based on the need to secure volumes as prices rose due to shortages of scrap and graphite electrodes, demand fell, resulting in excess inventory.
Factors such as defective electrodes and an electric furnace accident have had negative effects on operations.
(Sales) Flat bars: Poor sales by commercial vehicle makers (domestic sales in Indonesia,
sales to us) Round bars: Lower volumes due to worsening low-priced retail sales in competition
with Chinese materials and delays in obtaining the required customer approval
(Other) Recent sudden enactment of restrictions on scrap imports
IV. Future Initiatives
38
Business trends
State of quality improvements
Reducing low-priced retail sales Promoting quality and productivity improvements through structural reforms including large-scale
staff reductions and paring the steel types produced Customer approval is advancing faster than planned. Even with decreasing demand, addressing
local procurement needs has led to expanding sales. We expect swollen inventory (scrap, electrodes) attributable to a sudden drop in demand to return
to normal levels during this second half. Securing orders awarded for the new leaf springs business by promoting cost savings and
achieving synergies with the Springs businessTarget types of steel
Inventory trends
Achieving profitability rapidly through continuing improvements and sales expansion
IV. Future Initiatives
Jul. – Sept. Oct. – Dec. Jan. – Mar. Apr. – Jun. Jul. – Sept. Oct.
Flat bars
Yield
impr
ovem
ent (
%)
Jan. – Mar. Apr. – Jun. Jul. – Sept. Oct.
Round bars
High priced
Low priced
Japan-produced materials
Korea-produced materials
JATIM’s target
China-produced materials
Retail salesMotorcycles, construction machinery
AutomotiveLow quality High quality
Special Steel Bars business: Indonesian steel bars subsidiary (JATIM)
39
Business trendsSprings business: North American springs subsidiary (North American MSSC)
[Distinguishing features of North American MSSC]
Operates plants in Canada and in the US in the Great Lakes region; provides excellent access to various automaker plants.
Operates the only suspension springs plant in Canada.
North American MSSC specializes in manufacturing (using hot forming) suspension springs and stabilizers for use in mid-sized and large vehicles.
Many automaker plants in the Great Lakes region produce chiefly mid-sized and large vehicles: e.g., SUVs and pickup trucks.
Many small and mid-sized vehicles, sold in large numbers, are produced in the US South. Competing suspension spring makers also operate plants mainly in the South. Competition in the North is relatively low.
Amid stable gasoline prices thanks to a rapid increase in US oil production following the shale oil revolution, mid-sized and large vehicles have maintained their grip on the US market.
IV. Future Initiatives
40
Business trends
[Current state of North American MSSC]
✓ North American MSSC has already achieved contracts based on progress on developing lightweight springs. However, due to the timing of model changes, there will be lag of several years before these are adopted and delivered.
✓ Harsh conditions persist. The filling factor has declined dramatically due to the recent decrease in orders awarded.
✓ Problems in launching new products (already addressed) generated additional costs.
✓ Issues aside from issues related to production have also emerged, including high tariffs and high material costs due to trade issues and protectionism. (The issue of tariffs has already been addressed.)
✓ Shifting high material costs onto product prices has been problematic. While we have won the understanding of certain customers, negotiations continue.
IV. Future Initiatives
Springs business: North American springs subsidiary (North American MSSC)
41
Business trends
Despite worsening profits/losses in the first half of 2019, losses are expected to decrease in the second half.
The budget for the second half only incorporates JPY0.1 billion to reflect rising material costs in prices (base improvements) for portions already agreed upon by customers. In addition, we expect a JPY0.5 billion improvement in the second half with the resolution of problems with production startup for new products in the first half and problems with the negative effects of materials market conditions, resulting in a forecast for operating losses of JPY0.6 billion.
With one major customer, with whom negotiations have proven difficult, we are bolstering our approach by considering the idea of cancelling transactions. The results (equal to about JPY0.3 billion, including the retroactive portion) have not been incorporated into forecasts for the second half, due to the possibility that they could be delayed until next year.
2020H1 H2 H1 forecast
+JPY0.2 billion△JPY1.1 billion △JPY1.1 billion △JPY0.6 billion △JPY0.2-0.3 billion
Base Base Base
Tariffs on steel bars Problems with new products
201920182017
⇒Explained on next page
Materials market conditions
Materials market conditions
Trends in operating income
IV. Future Initiatives
Springs business: North American springs subsidiary (North American MSSC)
42
Business trends
Profits/losses are expected to improve in 2020, thanks to plant productivity improvements and other factors.
[Plant productivity improvements] Applies to both US and Canada plants: Roughly 50% operation for coil springs. (lost orders
and decreased customer demand)• Suspending the US coil spring line and concentrating production to achieve full capacity in
Canada. US plants: Investments to bring production in-house have failed to reduce costs.
• Prospect of boosting the filling factor in cold drawing; consideration of outsourcing painting processes.
Canada plant: Investments in productivity improvements• Adopting automated equipment in the upset forging process for torsion bars.
[Addressing high material prices] With one major customer, with whom negotiations have proven difficult, we are bolstering our
approach by considering the idea of cancelling transactions. A final decision will be made in first half of 2020 if no agreement is reached in this second half.
Resolving fluctuation risks in materials markets by making progress in negotiations to standardize reference indicators for purchases and sales. (minimizing fluctuation risks)
Completing plant productivity improvements and rectifying selling prices while considering structural reforms, including plant closures and consolidation.
IV. Future Initiatives
Springs business: North American springs subsidiary (North American MSSC)
43
Impairment
Worsening business performance at JATIM and North American MSSC led to impairment.In addition, based on a review of future business plans, including business plans for other regions in response to the worsening of the business environment referred to above, we carried out impairment in the amount of JPY14.8 billion with no prospects of achieving the profitability originally expected.
Details of impairment (all overseas bases)• Special Steel Bars business : JPY 9.0 billion• Springs business : JPY 5.5 billion• Formed & Fabricated Products business : JPY 0.4 billion
We take seriously and will duly reflect on the implications of this large-scale impairment.
Details of impairment in this period:
IV. Future Initiatives
44
Reconsideration of businesses
In light of worsening business results for this period, we established a Management Reforms Project in July 2019 under the direct supervision of the President. The project’s reconsideration of businesses is summarized below.In addition to the effects of changing and increasingly harsh environmental conditions, the following internal factors should be reconsidered: the failure to move forward with plant construction, stable procurement, and technical development (including process reforms) at the same time as accelerating operations at overseas bases, in addition to delays in resolving problems affecting stable procurement and technical development.The consequences of these internal factors are described below. Delays in production process reforms
• Lax management of cost cutting and new product startup activities due to the dispersal of engineers across multiple domestic and international bases. (North American MSSC, turbocharger components at the Thai subsidiary)
• The considerable time required to apply the knowledge of engineers dispatched from Japan overseas due to major differences between Japanese and local equipment specifications. (JATIM)
Exposed vulnerabilities in procurement strategies• Despite countermeasures to address risks related to rising raw materials market prices and
changes in supplier supply capacities, no fundamental reforms, including structural reforms in procurement, were carried out (JATIM, North American MSSC).
Delays in bringing new products to market through technical development• Despite accelerated R&D activities with the opening of the Research and Development Center,
overseas bases have lost a series of orders (springs in general) due to a lag of about one year behind the competition in the development of technologies that reduce spring and stabilizer weights.
Reconsideration of businesses:
IV. Future Initiatives
45
Reconsideration of businesses
[Business structural reforms already begun]
Review of procurement strategies• Adopting a structure whereby the Procurement Department at the Head Office
manages procurement at domestic and overseas bases as a whole; dispatching highly experienced senior procurement managers to certain overseas subsidiaries.
• Shifting to a procurement structure that draws on external organizations, like trading companies, rather than attempting to do everything in house.
Further development of technologies that reduce spring weights.• We are proposing a technology to reduce the weight of coil springs using general-
purpose materials. We have obtained approval from some customers for new stabilizer technologies.
Resolving the shortage of engineers through selection and concentration.• Reducing assemblies in the precision springs business; adding engineers for
automotive spring design and development.• Shifting engineers to the development of other products by withdrawing from the
cast magnet manufacture business at the Thai plant.
Responding to current conditions:
IV. Future Initiatives
46
Toward a new Mid-term Business PlanToward a new Mid-term Business Plan:
The current Mid-term Business Plan covers the five-year period from 2016 through 2020.
We recognize that we were late in implementing fundamental solutions to problems emerging in a rapidly changing business environment. Before the end of this fiscal year, we plan to formulate a new three-year Mid-term Business Plan to take effect in FY2020. This will be announced in May.
An overview of the new Mid-term Business Plan follows.• Plans for the coming three years, based on a vision 10 years into the future.• Starting by stopping losses (JATIM, North American MSSC) in the first year.• Implementing selection and concentration of businesses by advancing
withdrawals from and sales of non-core and low-income businesses.• Rather than opening new bases, prioritizing improvements in added value and
product capabilities based on technological development.• Implementing structural reforms in procurement of materials which account for
more than 50% of production costs.• Strengthening the organizational structure to enable rapid response to
environmental changes and to minimize risk.
IV. Future Initiatives
47
Urgent measures
Suspending coil spring production at the US plant for consolidation at the Canada plant. Freezing advancement into the automotive spring business in Europe. Withdrawal from the cast magnet business positioned as a non-core business and
contraction of the hinge business. Partial return of executive compensation. Reducing fixed costs and expenses.
• Staff reductions of approximately 1,000 (including temporary staff), primarily at JATIM, the Philippines, Thailand, and the US.
• Careful selection of, reductions in, and reviews of capital investment.• Reducing non-urgent testing, research, repair, and other costs.• Major reductions in Head Office costs.
Urgent measures in this period:
IV. Future Initiatives
48
Conclusions
1. The business environment is undeniably challenging.
2. We recognize that delays in addressing issues caused by internal factors are even more critical.
3. We will start by assigning top priority to stopping losses at JATIM and North American MSSC.
4. We are considering fundamental measures, including the closure and consolidation of bases and withdrawals from and the contraction and sale of businesses.
5. We will strengthen our advantages as a manufacturer by improving added value and product capabilities based on technological development.
6. We will formulate a new Mid-term Business Plan incorporating these measures before the end of the fiscal year. This Mid-term Business Plan will be announced in May.
IV. Future Initiatives
Note on forward-looking statementsThese materials are meant solely to provide investors with information and are not to be interpreted as solicitations. The forecasts provided in these materials are based on targets and projections and do not constitute promises or guarantees of future performance. Please refer to this information with the understanding that the Company’s future performance may differ from this business outlook. While these earnings materials were prepared based on data believed to be reliable, we cannot guarantee their accuracy or reliability. The Company assumes no liability for these materials, regardless of the purpose for which they are used by investors. We encourage all investors to make their final investment decisions based on their own judgment.
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