R Nisshinbo Holdings / 3105
COVERAGE INITIATED ON: 2015.08.06 LAST UPDATE: 2021.06.17
Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an “owner’s manual” to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at [email protected] or find us on Bloomberg.
Research Coverage Report by Shared Research Inc. Nisshinbo Holdings / 3105 R LAST UPDATE: 2021.06.17 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
INDEX
How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent earnings. First-time readers should start at the business section later in the report.
Executive summary ------3 Key financial data ------5 Recent updates ------6 Highlights ------6 Trends and outlook ------8 Quarterly trends and results ------8 Full-year company forecast ------16 Long-term outlook ------23 Business ------29 Segments ------29 Strengths and weaknesses ------48 Historical performance ------49 Income statement ------67 Balance sheet ------69 Cash flow statement ------73 Other information ------74 History ------74 News and topics ------76 Major shareholders ------79 Shareholder returns------79 Top management ------79 Corporate philosophy ------80 Company name ------80 Company profile ------81
02/82 Nisshinbo Holdings / 3105 R LAST UPDATE: 2021.06.17 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Executive summary
Main segments: Wireless and Communications, Micro Devices, and Automobile Brakes
Nisshinbo has seven segments: Wireless and Communications, Micro Devices, Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate. In the mainstay Wireless and Communications, Micro Devices, and Automobile Brakes segments, the company expects both sales and earnings to grow as markets expand.
Roots in cotton, later diversified Nisshinbo was established in 1907 as a manufacturer of cotton thread, but is now a conglomerate with a diverse portfolio of businesses.
Takeshi Sakurada, Nisshinbo’s fourth president, maintained that a company’s core was its people, not its businesses. Guided by this philosophy, Nisshinbo has been diversifying since the 1940s, when cotton spinning was still a growth industry. As a result, it has stayed in business for over 100 years—despite the decline of the cotton spinning industry in Japan. Plus, the company benefits from sound management, in line with the separation of ownership and management, and the distribution of profits. Nisshinbo has never reported a group operating loss, even in the 1990s after the Japanese economic bubble burst. Until FY03/10, the equity ratio was over 50%, and it has significant unrealized gains on real estate and investment securities.
Pushing up margins; buying growth Until the 2000s, Nisshinbo’s strategy prioritized management security and equity ratio over asset turnover and ROIC. In the 2000s, however, President Yoshikazu Sashida began stressing asset turnover, shifting management’s focus from subscription-type streams of revenue to recurring sales of products and services. When earnings faltered in the Textiles segment, the company decided to use its real estate more efficiently, closing factories and offering employees early retirement. In addition, it followed a strategy of selection and concentration, for example by withdrawing from unprofitable business in its Chemicals segment.
From the late 2000s, Nisshinbo began using acquisitions to build revenue. Some of the major acquisitions it has made as of FY12/20 are Japan Radio Company Co., Ltd. (JRC; TSE1: 6751) in 2010 and TMD Friction Group S.A. in 2011.
In the 2010s, Nisshinbo pursued M&A aimed at complementing its businesses, such as the acquisition of Tokyo Shirts Group and Nanbu Plastics Co., Ltd. in 2015, and Ricoh Electronic Devices Co., Ltd. in 2018. Nisshinbo also tightened its grip on core subsidiaries, making JRC a wholly owned subsidiary in 2017 and making similar plans for New Japan Radio Co., Ltd. (New JRC) in 2018. At the same time, the company sold off non-core businesses, completing its exit from the papers business in 2017 and from the drum brake business in 2018.
Earnings performance
Nisshinbo Holdings revised its FY12/21 forecast in May 2021. The company now forecasts FY12/21 sales of JPY510.0bn ◤ (+11.6% YoY), operating profit of JPY10.0bn (+701.3% YoY), recurring profit of JPY13.5bn (+289.5% YoY), and net income attributable to owners of the parent of JPY7.0bn (-48.3% YoY). The company lifted its forecast for sales by JPY6.0bn, operating profit JPY3.2bn, recurring profit JPY3.5bn, and net income JPY3.0bn, factoring in the difference between the previous forecast and actual results as of Q1 (January-March 2021). The revised forecast reflects the company’s expectations for sales growth in the Automobile Brakes segment on a sharp recovery in global automobile sales and sales growth in the Real Estate segment on firm performance in the property sales business.
Long-term, the company is aiming for an ROE of over 12% by FY12/25. After the conclusion of the NEXT2015 management ◤ plan in FY03/16, the company has not announced a new medium-term plan. However, Shared Research believes that the company will focus on revamping its mainstay Electronics segment (now split into Wireless and Communications and Micro Devices) and improving performance at TMD in the Automobile Brakes segment.
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The Nisshinbo group sees itself as an environment and energy group. It aims to provide products and services that ◤ contribute to solving environmental problems such as environmental degradation and global warming and make people’s lives safer and more comfortable. Based on these policies, the company has set out strategic product categories in which it plans to grow earnings in the long term: mobility, infrastructure and safety, and life and healthcare.
Strengths and weaknesses
Shared Research believes that Nisshinbo’s strengths include its current focus on structural reform with emphasis on asset efficiency, unrealized gains on real estate and securities, and global reach of its Automobile Brakes segment. Weaknesses include loss of focus due to scattered personnel and management resources, slow speed of reforms, and businesses with a low asset turnover.
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Key financial data
Income statement FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 FY12/21 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 509,660 457,051 510,000 YoY 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - - -10.3% 11.6% Electronics 169,906 175,307 187,742 209,115 205,367 190,851 193,620 144,204 217,497 205,452 235,000 YoY 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% 1.5% - - -5.5% 14.4% Automobile Brakes 47,450 118,849 148,699 161,886 165,037 146,061 154,204 135,007 131,338 114,826 126,000 YoY 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - - -12.6% 9.7% Real Estate 9,081 15,366 10,567 9,246 8,357 8,083 8,405 4,236 11,655 20,279 15,000 YoY -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - - 74.0% -26.0% Precision Instruments, Chemicals, 124,631 113,967 120,498 116,190 130,521 158,658 130,842 114,051 124,323 94,953 111,000 Textiles, and Papers YoY -1.9% -8.6% 5.7% -3.6% 12.3% 21.6% -17.5% - - -23.6% 16.9% Gross profit 61,806 91,229 99,266 108,149 114,587 106,664 105,978 81,177 100,647 91,616 YoY -2.6% 47.6% 8.8% 8.9% 6.0% -6.9% -0.6% - - -9.0% GPM 16.3% 20.2% 20.1% 20.6% 21.5% 20.2% 20.7% 19.5% 19.7% 20.0% Operating profit 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 6,482 1,248 10,000 YoY -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - - -80.7% 701.3% OPM 1.1% 3.0% 2.7% 2.6% 2.4% 0.9% 2.9% - 1.3% 0.3% 2.0% Electronics -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 -4,904 4,356 -1,320 5,300 YoY - - 20.1% 35.8% -34.5% ------Automobile Brakes 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 -813 -3,340 -2,289 300 YoY -16.4% ------Real Estate 6,742 12,289 7,780 6,669 5,795 5,811 5,067 2,681 8,163 11,511 8,000 YoY -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - - 41.0% -30.5% Precision Instruments, Chemicals, 405 1,269 1,774 727 3,591 6,737 5,711 4,604 3,564 51 4,000 Textiles, and Papers YoY -65.4% 213.3% 39.8% -59.0% 393.9% 87.6% -15.2% - - -98.6% - Recurring profit 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 11,703 3,466 13,500 YoY -65.6% 103.8% 25.4% -6.9% -17.5% -38.0% 86.6% - - -70.4% 289.5% RPM 2.3% 3.9% 4.5% 3.9% 3.2% 2.0% 3.8% 0.4% 2.3% 0.8% 2.6% Ne t in c o me 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 -6,604 13,540 7,000 YoY -15.8% -31.8% 40.4% 52.0% -21.3% -66.8% 637.3% - - - -48.3% Net margin 2.5% 1.4% 1.8% 2.6% 2.0% 0.7% 5.1% - - 3.0% 1.4% Per share data (JPY) Shares issued (year-end; '000) 178,798 178,798 178,798 178,798 178,798 178,798 178,799 178,835 178,895 178,978 EPS 53.8 36.7 51.6 80.3 67.9 22.5 160.6 -43.3 -39.5 81.4 42.1 EPS (fully diluted) - - 51.6 80.3 67.8 22.5 160.4 - - - Dividend per share 15.0 15.0 15.0 15.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 Book value per share 1,063 1,199 1,370 1,634 1,472 1,445 1,659 1,457 1,431 1,375 Balance sheet (JPYmn) Cash and cash equivalents 20,897 20,200 28,033 45,687 45,921 47,691 43,046 42,434 37,550 50,547 Total current assets 239,600 239,318 272,444 310,469 304,395 314,800 311,096 298,087 299,929 292,258 Tangible fixed assets 162,824 165,552 174,246 184,885 191,768 185,484 186,017 184,689 174,863 168,924 Investments and other assets 84,135 101,767 118,473 147,216 124,993 125,332 135,637 124,479 130,531 106,311 Intangible assets 47,068 44,762 46,146 35,914 30,636 20,670 19,206 15,124 12,203 13,709 Total assets 534,583 551,933 611,310 678,486 651,793 646,288 651,958 622,381 617,527 581,204 Accounts payable 59,228 58,708 71,384 70,857 72,190 72,431 71,945 64,308 61,388 58,437 Short-term debt 74,158 93,465 98,973 107,914 100,076 86,747 83,988 103,448 116,366 93,237 Total current liabilities 168,938 188,406 203,660 226,178 219,770 206,174 208,949 218,089 231,023 202,852 Long-term debt 61,701 26,560 28,888 38,162 48,757 69,294 64,107 58,742 47,686 57,091 Total fixed liabilities 151,894 120,903 130,785 145,370 147,551 164,360 152,574 139,442 133,968 136,284 Total liabilities 320,833 309,309 334,445 371,548 367,321 370,535 361,524 357,531 364,992 339,136 Total net assets 213,750 242,623 276,865 306,937 284,471 275,753 290,434 264,849 252,535 242,067 Total interest-bearing debt 135,859 120,025 127,861 146,076 148,833 156,041 148,095 162,190 164,052 150,328 Cash flow statement (JPYmn) Cash flows from operating activities 12,973 34,095 26,075 37,120 39,566 26,768 32,414 15,495 26,249 42,590 Cash flows from investing activities -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 -1,797 -20,723 -21,759 -6,321 Cash flows from financing activities 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 -10,065 -24,230 Financial ratios ROA (RP-based) 1.7% 3.3% 3.8% 3.2% 2.6% 1.6% 3.0% 0.2% 1.9% 0.6% ROE 5.1% 3.2% 4.0% 5.5% 4.4% 1.5% 10.6% -2.8% -2.7% 5.8% Equity ratio 40.0% 44.0% 45.3% 45.2% 43.6% 42.7% 44.5% 42.6% 40.9% 41.6% Source: Shared Research, based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March 31 to December 31. For this reason, FY12/18 was an irregular accounting period covering April to December 2018 for consolidated companies whose financial year previously ended in March. Note: The company reorganized its reporting segments in FY12/19. The Electronics segment was split into the Wireless and Communications segment and Micro Devices segment. After the reorganization, the company operates seven total segments including existing Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate segments. Electronics segment results for FY12/19 are calculated as the total of results for the Wireless and Communication segment and Micro Devices segment.
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Recent updates
Highlights
On June 17, 2021, Shared Research updated the report following interviews with Nisshinbo Holdings Inc.
On May 13 2021, the company announced earnings results for Q1 FY12/21; see the results section for details.
On the same day, the company announced revisions to its FY12/21 forecast.
Revised full-year FY12/21 earnings forecast
Sales: JPY510.0bn (previous forecast was JPY504.0bn) ▷ Operating profit: JPY10.0bn (JPY6.8bn) ▷ Recurring profit: JPY13.5bn (JPY10.0bn) ▷ Net income*: JPY7.0bn (JPY4.0bn) ▷ EPS: JPY42.06 (JPY24.03) ▷ * Net income attributable to owners of the parent)
Reasons for revisions The upwardly revised forecast for sales reflects the company’s expectations for sales growth in the Automobile Brakes segment on a sharp recovery in global automobile sales and sales growth in the Real Estate segment on firm performance in the property sales business. The company lifted its forecasts for operating profit, recurring profit, and net income to reflect the impact from the expected improvement in sales.
The assumed forex rates of JPY105/USD and JPY120/EUR utilized in the revised forecast are unchanged from those used in the previous forecast.
On April 26, 2021, the company announced an update to the application for a suspension of debt payment obligation (PKPU) procedure in relation to its Indonesian subsidiary.
The company’s Indonesian subsidiary, PT. Nanbu Plastics Indonesia (“PT. Nanbu”), received a notice of commencement of bankruptcy proceedings from the Commercial Court at the District Court of Central Jakarta on the same day. As a result, PT. Nanbu will no longer be a specified subsidiary of the company.
The court’s decision puts PT. Nanbu into liquidation proceedings, and the company now intends to reorganize its businesses, which have been unprofitable since it started its molded product business in Indonesia. The company foresaw the possibility of moving from bankruptcy to liquidation when it applied for the suspension of debt payment obligations (PKPU) and made preparations for the transfer of production. Therefore, the court’s decision does not have a significant impact on the delivery of products to customers.
The company is looking to boost the profitability of Nanbu Plastics Co., Ltd., the direct parent company of PT. Nanbu, by exiting its unprofitable businesses and allocating management resources to its higher value-added businesses.
The PKPU procedure is a form of debt restructuring provided for by Indonesian local law. Under this procedure, the debtor is granted a certain period in which debt payment obligations are suspended. During this period, the debtor considers a settlement proposal with creditors, and investigates the possibility of company restructuring. The success or failure of the settlement proposal and the continuation of business for the company in question
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(based on such proposal) is determined by resolution at a creditors’ meeting and court approval. If the settlement proposal is rejected or not submitted within the debt payment obligation suspension period, the process moves to bankruptcy subject to the decision of the court.
Background As disclosed in February 2021, the company decided to apply for a suspension of debt payment obligation (PKPU) procedure, as stipulated by local law in Indonesia, in relation to its Indonesian consolidated subsidiary PT. Nanbu, and filed a petition with the Commercial Court at the District Court of Central Jakarta. The court granted a provisional suspension of debt payment obligations (PKPU) in March, and a supervisory judge and receiver were appointed. PT. Nanbu proceeded with restructuring its debt under the supervision of the court (supervisory judge) with the approval of the receiver. PT. Nanbu ceased operations following the transfer of production, and all employees have applied for voluntary redundancy. In April, the court decided to start bankruptcy proceedings against PT. Nanbu.
Overview of the subsidiary
Name: PT. Nanbu Plastics Indonesia ▷ Business: Manufacture and sale of synthetic resin molded products for automobiles ▷ Debt/credit relationship with subsidiary: There are no claims or debts between the parent company and the subsidiary. Nanbu ▷ Plastics Co., Ltd., a subsidiary of the company, holds approximately JPY2.5bn in loans and accounts receivable owed by PT.
Nanbu.
Total debt The total debt of PT. Nanbu is approximately JPY2.5bn.
Valuation of PT. Nanbu shares All of the shares of PT. Nanbu have been written down to JPY0.
Outlook Following this court decision, PT. Nanbu will proceed with liquidation procedures as required by local law under the supervision of the receiver. Nanbu Plastics holds JPY2.5bn in debt owed by PT. Nanbu, but has already provided for a loss of approximately JPY1.5bn by Q1 FY12/21. The balance of approximately JPY1.0bn is already covered in the internal budget for FY12/21.
For previous releases and developments, please refer to the News and topics section.
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Trends and outlook
Quarterly trends and results
Cumulative FY12/20 FY12/21 FY12/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of Es t . FY Es t . Sales 143,292 231,590 335,977 457,051 147,513 28.9% 510,000 YoY 1.3% -9.8% -10.5% -10.3% 2.9% 11.6% Gross profit 34,655 47,661 66,192 91,616 39,234 YoY 24.7% -1.2% -5.5% -9.0% 13.2% GPM 24.2% 20.6% 19.7% 20.0% 26.6% SG&A expenses 23,552 44,597 66,888 90,368 22,788 YoY 1.3% -5.8% -5.3% -4.0% -3.2% SG&A rat io 16.4% 19.3% 19.9% 19.8% 15.4% Operating profit 11,103 3,064 -696 1,248 16,445 164.5% 10,000 YoY 144.3% 229.8% - -80.7% 48.1% 701.3% OPM 7.7% 1.3% - 0.3% 11.1% 2.0% Recurring profit 9,989 3,285 368 3,466 18,147 134.4% 13,500 YoY 63.0% -11.6% -85.6% -70.4% 81.7% 289.5% RPM 7.0% 1.4% 0.1% 0.8% 12.3% 2.6% Net income 9,375 5,504 5,924 13,540 12,426 177.5% 7,000 YoY 88.7% 100.7% 45.2% - 32.5% -48.3% Net margin 6.5% 2.4% 1.8% 3.0% 8.4% 1.4% Quarterly FY12/20 FY12/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 143,292 88,298 104,387 121,074 147,513 YoY 1.3% -23.5% -11.9% -9.9% 2.9% Gross profit 34,655 13,006 18,531 25,424 39,234 YoY 24.7% - -14.9% - 13.2% GPM 24.2% 14.7% 17.8% 21.0% 26.6% SG&A expenses 23,552 21,045 22,291 23,480 22,788 YoY 1.3% - -4.3% - -3.2% SG&A rat io 16.4% 23.8% 21.4% 19.4% 15.4% Operating profit 11,103 -8,039 -3,760 1,944 16,445 YoY 144.3% - - -72.5% 48.1% OPM 7.7% - - 1.6% 11.1% Recurring profit 9,989 -6,704 -2,917 3,098 18,147 YoY 63.0% - - - 81.7% RPM 7.0% - - 2.6% 12.3% Net income 9,375 -3,871 420 7,616 12,426 YoY 88.7% - -68.6% - 32.5% Net margin 6.5% - 0.4% 6.3% 8.4% Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March to December. FY12/19 figures are compared YoY to adjusted FY12/18 figures (consolidated period from January to December 2018).
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Quarterly results by segment
Cumulative FY12/20 FY12/21 FY12/20 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of Es t . FY Es t . Sales 143,292 231,590 335,977 457,051 147,513 28.9% 510,000 YoY 1.3% -9.8% -10.5% -10.3% 2.9% 11.6% Wireless and Communications 51,316 78,236 108,009 144,312 53,331 33.1% 161,000 YoY -3.6% -4.3% -4.8% -5.2% 3.9% 11.6% Micro Devices 14,558 29,176 43,561 61,140 18,358 24.8% 74,000 YoY -5.2% -5.4% -8.4% -6.3% 26.1% 21.0% Automobile Brakes 30,999 50,640 81,767 114,826 34,332 27.2% 126,000 YoY -8.4% -23.5% -17.5% -12.6% 10.8% 9.7% Precision Instruments 13,827 24,102 36,649 51,419 14,471 26.3% 55,000 YoY -14.8% -25.8% -25.0% -21.4% 4.7% 7.0% Chemicals 2,031 4,343 6,440 9,577 2,490 19.2% 13,000 YoY -3.1% -0.8% 0.6% 2.0% 22.6% 35.7% Textiles 9,616 17,176 24,872 33,957 7,967 18.5% 43,000 YoY -27.0% -33.4% -33.2% -31.4% -17.1% 26.6% Real Estate 15,196 16,955 18,697 20,279 11,079 73.9% 15,000 YoY - 540.3% 355.9% 74.0% -27.1% -26.0% Operating profit 11,103 3,064 -696 1,248 16,445 164.5% 10,000 YoY 144.3% 229.8% - -80.7% 48.1% 701.3% Wireless and Communications 5,413 3,507 2,651 2,575 6,817 179.4% 3,800 YoY 2.6% -4.3% -12.0% -37.2% 25.9% 47.6% Micro Devices -718 -2,001 -3,509 -3,895 860 57.3% 1,500 YoY ------Automobile Brakes -245 -3,728 -4,212 -2,289 1,906 635.3% 300 YoY ------Precision Instruments -233 -1,145 -1,379 -948 546 182.0% 300 YoY ------Chemicals 268 703 1,057 1,811 381 15.2% 2,500 YoY -13.0% 5.6% 13.0% 9.8% 42.2% 38.0% Textiles -307 -471 -975 -812 -301 - 1,200 YoY ------Real Estate 8,697 9,630 10,612 11,511 7,286 91.1% 8,000 YoY 879.4% 511.4% 338.7% 41.0% -16.2% -30.5% Quarterly FY12/20 FY12/21 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 143,292 88,298 104,387 121,074 147,513 YoY 1.3% -23.5% -11.9% -9.9% 2.9% Wireless and Communications 51,316 26,920 29,773 36,303 53,331 YoY -3.6% -5.6% -6.0% -6.4% 3.9% Micro Devices 14,558 14,618 14,385 17,579 18,358 YoY -5.2% -5.5% -14.1% -0.8% 26.1% Automobile Brakes 30,999 19,641 31,127 33,059 34,332 YoY -8.4% -39.2% -5.4% 2.4% 10.8% Precision Instruments 13,827 10,275 12,547 14,770 14,471 YoY -14.8% -36.8% -23.4% -10.9% 4.7% Chemicals 2,031 2,312 2,097 3,137 2,490 YoY -3.1% 1.3% 3.7% 5.0% 22.6% Textiles 9,616 7,560 7,696 9,085 7,967 YoY -27.0% -40.0% -32.7% -26.1% -17.1% Real Estate 15,196 1,759 1,742 1,582 11,079 YoY - 33.1% 19.9% -79.1% -27.1% Operating profit 11,103 -8,039 -3,760 1,944 16,445 YoY 144.3% - - -72.5% 48.1% Wireless and Communications 5,413 -1,906 -856 -76 6,817 YoY 2.6% - - - 25.9% Micro Devices -718 -1,283 -1,508 -386 860 YoY - - - - - Automobile Brakes -245 -3,483 -484 1,923 1,906 YoY - - - - - Precision Instruments -233 -912 -234 431 546 YoY - - - 21.4% - Chemicals 268 435 354 754 381 YoY -13.0% 21.5% 31.6% 5.6% 42.2% Textiles -307 -164 -504 163 -301 YoY - - - -78.5% - Real Estate 8,697 933 982 899 7,286 YoY 879.4% 35.8% 16.4% -84.3% -16.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: “–” indicates YoY change of over 1,000%. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March to December. FY12/19 figures are compared YoY to adjusted FY12/18 figures (consolidated period from January to December 2018).
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Results by segment (detailed breakdown)
Wireless and communications FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. (cumulative) FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Marine systems 32,509 -303 33,500 500 8,062 -520 7,988 207 YoY change -2,407 868 991 803 -996 -169 -74 727 YoY -6.9% - 3.0% - -11.0% - -0.9% - Communications equipment 7,669 200 - - 1,797 147 - - YoY change -9,133 -1,672 -2,149 -114 -1,797 -147 YoY -54.4% -89.3% -54.5% -43.7% - - Solutions and specialized equipment 65,607 2,683 73,800 2,100 31,305 5,156 32,962 6,235 YoY change -3,208 596 8,193 -583 -1,764 274 1,657 1,079 YoY -4.7% 28.6% 12.5% -21.7% -5.3% 5.6% 5.3% 20.9% Mechatronics 20,708 -237 24,100 -200 5,528 -2 6,309 230 YoY change 877 -609 3,392 37 1,287 -178 781 232 YoY 4.4% - 16.4% - 30.3% - 14.1% - Medical equipment 8,064 456 9,800 700 1,830 225 1,971 -17 YoY change -1,106 -301 1,736 244 -428 19 141 -242 YoY -12.1% -39.8% 21.5% 53.5% -19.0% 9.2% 7.7% - Other 3,166 -7 5,300 400 825 179 1,103 283 YoY change 520 210 2,134 407 200 177 278 104 YoY 19.7% - 67.4% - 32.0% - 33.7% 58.1% JRC Mobility 7,857 -571 17,900 400 2,195 113 3,627 -77 YoY change 7,725 -174 10,043 971 2,138 183 1,432 -190 YoY - 127.8% - - - 65.2% - Eliminations -1,271 353 -2,400 -100 -226 115 -630 -44 Total 144,312 2,575 162,000 3,800 161,000 3,800 -1,000 - 51,316 5,413 53,331 6,817 YoY change -7,900 -1,525 17,688 1,225 16,688 1,225 -1,906 137 2,015 1,404 YoY -5.2% -37.2% 12.3% 47.6% 11.6% 47.6% -3.6% 2.6% 3.9% 25.9%
Micro Devices FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP New Japan Radio 41,931 -2,427 46,800 900 10,425 -273 12,408 794 YoY change -1,679 -2,571 4,869 3,327 -370 -530 1,983 1,067 YoY -3.9% - 11.6% - -3.4% - 19.0% - Ricoh Electronic Devices 20,515 -1,205 25,200 500 4,473 -375 6,384 144 YoY change -2,297 -1,580 4,685 1,705 -357 -314 1,911 519 YoY -10.1% - 22.8% - -7.4% - 42.7% - Eliminations, other -1,306 -263 -1,000 -300 -340 -70 -434 -78 Total 61,140 -3,895 71,000 1,100 74,000 1,500 3,000 400 14,558 -718 18,358 860 YoY change -4,145 -4,151 9,860 4,995 12,860 5,395 -800 -850 3,800 1,578 YoY -6.3% - 16.1% - 21.0% - -5.2% - 26.1% -
A utomobile Brakes FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Nisshinbo Brake Inc. 44,057 788 47,400 1,000 11,174 292 12,875 1,320 YoY change -6,797 -832 3,343 212 -1,852 -262 1,701 1,028 YoY -13.4% -51.4% 7.6% 26.9% -14.2% -47.3% 15.2% 352.1% TMD 75,106 -3,219 77,800 -3,000 20,868 -551 22,746 589 YoY change -10,744 933 2,694 219 -1,560 814 1,878 1,140 YoY -12.5% - 3.6% - -7.0% - 9.0% - Eliminations -4,337 142 -4,200 - -1,043 14 -1,289 -3 Total 114,826 -2,289 121,000 -2,000 126,000 300 5,000 2,300 30,999 -245 34,332 1,906 YoY change -16,512 1,051 6,174 289 11,174 2,589 -2,844 922 3,333 2,151 YoY -12.6% - 5.4% - 9.7% - -8.4% - 10.8% -
Precision Instruments FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Precision parts processing 14,387 -78 15,300 100 3,610 -72 3,819 73 YoY change -1,388 -460 913 178 -240 -118 209 145 YoY -8.8% - 6.3% - -6.2% - 5.8% - Plastic molding and processing 40,669 -38 43,500 1,000 11,141 29 11,729 677 YoY change -11,425 -1,324 2,831 1,038 -1,934 -346 588 648 YoY -21.9% - 7.0% - -14.8% -92.3% 5.3% - Eliminations -3,637 -832 -1,800 -800 -924 -190 -1,077 -204 Total 51,419 -948 57,000 300 55,000 300 -2,000 - 13,827 -233 14,471 546 YoY change -14,009 -1,827 5,581 1,248 3,581 1,248 -2,410 -455 644 779 YoY -21.4% - 10.9% - 7.0% - -14.8% - 4.7% - Source: Shared Research based on company data
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Chemicals FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Environment and energy products 8,271 1,630 10,700 2,000 1,718 223 2,171 311 YoY change 192 222 2,429 370 -14 10 453 88 YoY 2.4% 15.8% 29.4% 22.7% -0.8% 4.7% 26.4% 39.5% Other products 1,492 182 2,300 500 382 46 376 70 YoY change -61 -58 808 318 -43 -47 -6 24 YoY -3.9% -24.2% 54.2% 174.7% -10.1% -50.5% -1.6% 52.2% Eliminations -186 -1 - - -69 -1 -57 -1 Total 9,577 1,811 13,000 2,500 13,000 2,500 - - 2,031 268 2,490 381 YoY change 187 162 3,423 689 3,423 689 -66 -40 459 113 YoY 2.0% 9.8% 35.7% 38.0% 35.7% 38.0% -3.1% -13.0% 22.6% 42.2%
Textiles FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Japan 29,514 -842 38,800 1,000 8,037 -382 6,289 -365 YoY change -12,970 -1,368 9,286 1,842 -3,245 -435 -1,748 17 YoY -30.5% - 31.5% - -28.8% - -21.7% - Overseas 14,166 -31 19,200 500 4,072 61 3,796 8 YoY change -7,804 -801 5,034 531 -1,744 -92 -276 -53 YoY -35.5% - 35.5% - -30.0% -60.1% -6.8% -86.9% Eliminations -9,723 61 -14,000 - -2,493 14 -2,118 56 Total 33,957 -812 44,000 1,500 43,000 1,200 -1,000 -300 9,616 -307 7,967 -301 YoY change -15,548 -1,848 10,043 2,312 9,043 2,012 -3,561 -437 -1,649 6 YoY -31.4% - 29.6% - 26.6% - -27.0% - -17.1% -
Textiles FY12/20 Act. FY12/21 Est. FY12/21 Rev. Est. Difference FY12/20 Act. FY12/21 Act. FY (Jan–Dec) FY (Jan–Dec) FY (Jan–Dec) Q1 (Jan–Mar) Q1 (Jan–Mar) (JPYmn) Sales OP Sales OP Sales OP Sales OP Sales OP Sales OP Total 20,279 11,511 14,000 7,200 15,000 8,000 1,000 800 15,196 8,697 11,079 7,286 YoY change 8,624 3,348 -6,279 -4,311 -5,279 -3,511 13,870 7,809 -4,117 -1,411 YoY 74.0% 41.0% -31.0% -37.5% -26.0% -30.5% 1046.0% 879.4% -27.1% -16.2% Source: Shared Research based on company data
Reference: Domestic automakers’ vehicle production volume
2020 2021 ('000 units) Jan–Mar Apr–Jun Jul–Sep Oct–Dec Jan–Mar Apr–Jun Jul–Sep Oct–Dec No. of cars produced 6,144 3,602 6,436 7,263 6,683 YoY -16.7% -49.7% -8.2% 4.0% 8.8% Japan 2,360 1,260 2,075 2,372 2,262 YoY -7.6% -47.9% -13.6% 2.8% -4.2% Overseas 3,784 2,341 4,361 4,890 4,422 YoY -21.6% -50.7% -5.3% 4.6% 16.8% North America 985 391 1,089 1,034 934 YoY -13.2% -66.9% 2.4% 0.5% -5.2% Europe 395 127 313 402 403 YoY -14.9% -69.4% -11.3% -0.9% 2.1% Asia 1,954 1,711 2,517 2,988 2,625 YoY -27.5% -35.6% -7.3% 7.5% 34.3% Other 450 112 442 468 460
Source: Shared Research based on Japan Automobile Manufacturers Association (JAMA) data.
Q1 FY12/21 results
Sales: JPY147.5bn (+2.9% YoY) ▷ Operating profit: JPY16.4bn (+48.1% YoY) ▷ Recurring profit: JPY18.1bn (+81.7% YoY) ▷ Net income*: JPY12.4bn (+32.5% YoY) ▷ * Net income attributable to owners of the parent
Summary of Q1 FY12/21 Sales grew YoY in Q1 FY12/21. In addition to favorable performance in the Wireless and Communications segment, sales rose in the Micro Devices and Automobile Brakes segments, which are both recovering from the effects stemming from the spread of COVID-19.
Operating profit was up YoY in line with the increase in sales, while recurring profit increased YoY on an improvement in foreign exchange gains. Despite a decline in extraordinary gains from the sale of investment securities and fixed assets, net income attributable to owners of the parent rose YoY on the increase in recurring profit.
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Sales and profit at the company tend to be relatively subdued in Q2 through Q4, as sales to government agencies and municipalities in the Wireless and Communications segment, as well as sales in the Real Estate segment, tend to be heavily weighted toward Q1.
Progress against FY12/21 forecast Nisshinbo Holdings revised its FY12/21 forecast in May 2021. The company now forecasts FY12/21 sales of JPY510.0bn (+11.6% YoY), operating profit of JPY10.0bn (+701.3% YoY), recurring profit of JPY13.5bn (+289.5% YoY), and net income attributable to owners of the parent of JPY7.0bn (-48.3% YoY). The company lifted its forecast for sales by JPY6.0bn, operating profit JPY3.2bn, recurring profit JPY3.5bn, and net income JPY3.0bn, adjusting the difference from the previous forecast based on the Q1 (January-March 2021) results. It maintained the forecast from Q2 (April-June 2021) and beyond.
The company made an upward revision to its earnings forecast for the Automobile Brakes segment and Real Estate segment. As for the Automobile Brakes business, given a sharp recovery in global automobile sales, sales and operating profit are expected to increase by JPY5.0bn and JPY2.3bn respectively versus the previous forecast. In the Real Estate business, sales and operating profit are expected to rise by JPY1.0bn, and JPY800mn respectively compared to the previous forecast thanks to the strong performance of the property sales business. The company revised up its forecast in Micro Devices business for sales and operating income by JPY2.0bn and JPY400mn, respectively.
The progress rate of Q1 results against the revised forecast for FY12/21 was 28.9% for sales (in Q1 FY12/20, 31.4% against the full- year FY12/20 results), 164.5% for operating profit (889.7%), 134.4% for recurring profit (288.2%), and 177.5% for net income attributable to owners of the parent 69.2%). As mentioned above, the company's performance is heavily weighted toward Q1, and the profit progress rate in the first quarter often exceeds 100%.
Performance by segments Wireless and Communications
Sales: JPY53.3bn (+3.9% YoY) ▷ Operating profit: JPY6.8bn (+25.9% YoY) ▷ Profit increased in the solutions and specialized equipment and in the marine systems business.
In the solutions and specialized equipment business, the company posted sales of JPY33.0bn (up 5.3% YoY), and operating ▷ profit of JPY6.2bn (+20.9% YoY), thanks to firm performance in water and river management systems and in aviation and meteorological systems. In the marine systems business, sales were JPY8.0bn, (-0.9% YoY), operating profit was JPY207mn (versus an operating loss of ▷ JPY520mn in Q1 FY12/20). Sales were flat YoY as the downturn in equipment sales to commercial ship manufacturers due to falling new ship construction numbers was offset by strength in overseas sales of equipment for small and medium-sized vessels and equipment used in replacement work. Profit rose thanks to improved margins stemming from changes in the sales mix and reduced expenses, and lower goodwill amortization. In FY12/20 goodwill amortization related to the company’s acquisition of Alphatron Marine Beheer B.V. in FY12/13 was completed. As a result, goodwill amortization is expected to decrease by about JPY500mn in FY12/21. In the ICT and mechatronics business, sales were JPY6.3bn (+14.1% YoY) and operating profit increased to JPY230mn (versus ▷ an operating loss of JPY200mn in Q1 FY12/20) aided by firm performance in information and telecommunications equipment and an expansion in sales of power supply equipment and automotive products, where performance is rapidly recovering from
the effects of the COVID-19 pandemic. In the mobility business (JRC Mobility Inc.), sales were JPY3.6bn (+65.2% YoY) but operating profit fell to a loss of JPY77mn ▷ (from operating profit of JPY113mn in Q1 FY12/20) mainly on a decline in sales of commercial radios overseas.
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Micro Devices
Sales: JPY18.4bn (+26.1% YoY) ▷ Operating profit: JPY860mn (loss of JPY718mn in Q1 FY12/20) ▷
In the mainstay electronic devices business, sales and profit grew YoY. Orders (mainly for automotive, industrial machinery, ▷ and communications-related products) that were previously sluggish due to the effects from the COVID-19 pandemic showed a rapid recovery, while the increased prevalence of telecommuting contributed to a surge in demand for teleconferencing systems. Against this backdrop, performance was firm in power supply ICs for automotive applications and industrial equipment, power supply ICs for consumer products, lithium-ion battery protection ICs, and general-purpose products for consumer products. Stronger sales pushed the profit higher. In the microwave products business, sales were up YoY thanks to firm demand in the public sector for electron tubes and radar ▷ products, as well as strength in sensor products. Profit was flat YoY due to changes in the product mix. As for the performance of the subsidiaries, New Japan Radio posted sales of JPY12.4bn (-19.0% YoY), operating profit of ▷ JPY794mn, (versus loss of JPY273mn), and Ricoh Electronic Devices generated sales of JPY6.4bn (+42.7% YoY), and operating
profit of JPY144mn (versus a loss of JPY375mn in Q1 FY12/20).
Automobile Brakes
Sales: JPY34.3bn (+10.8% YoY) ▷ Operating profit: JPY1.9bn (loss of JPY245mn in Q1 FY12/20) ▷
Both Nisshinbo Brake and TMD posted higher sales and profits, with TMD achieving positive operating income for the second consecutive quarter.
Nisshinbo Brake Nisshinbo Brake posted sales of JPY12.9bn (+15.2% YoY) and operating profit of JPY1.3bn (+352.1% YoY). Sales and profit increased both domestically and overseas thanks to a global recovery in automobile production.
Global automobile sales declined in Q2 of the previous fiscal year (April-June 2020) due to the spread of COVID-19 in 2020, ▷ but started to recover from Q3 (July-September 2020), mainly in developed countries. In the US, a cold snap resulted in some
client companies suspending operations, but sales recovered to remain flat YoY thanks to the positive effects on consumer spending as a result of the government’s economic stimulus measures. Sales in China recovered sharply from the middle of 2020. On the other hand, supply chain issues included a shortage in semiconductors, rising raw material prices, and disruptions in logistics networks. In this environment, subsidiaries in Japan, the US, South Korea, and Thailand all showed sales and profit rising YoY. ▷ Sales and profit were up YoY in China, thanks mainly to subsidiary operations where the main customers are Japanese ▷ automakers with strong sales.
TMD TMD posted sales of JPY22.7bn (+9.0% YoY) and operating profit of JPY589mn (versus an operating loss of JPY551mn in Q1 FY12/20).
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The Euro region centered on the TMD business turned profitable, recording sales and profit growth on the back of successful ▷ efforts to reduce costs and a recovery from 2H FY12/20 (July–December 2020) in sales of friction materials for the aftermarket. TMD had been building up inventory of friction materials for the aftermarket in preparation for a post-market recovery from COVID-19. Since Q4 (October-December 2020), strong sales of aftermarket friction materials have allowed TMD to sell its inventory, resulting in higher profits YoY and maintaining a positive operating profit.
Precision Instruments
Sales: JPY14.5bn (+4.7% YoY) ▷ Operating profit: JPY546mn (loss of JPY233mn in Q1 FY12/20) ▷
In automotive precision products, sales were JPY 3.8bn (+5.8% YoY), and operating profit was JPY 73mn (versus an loss of JPY ▷ 72mn in Q1 FY12/20). Despite concerns over semiconductor shortages in the automobile-related industries, sales and profit increased due to strong performance by Chinese subsidiaries due to the recovery in Chinese automobile production.
Sales and profit grew YoY in the molding products business, which handles products for automotive and air-conditioner ▷ applications. Sales were JPY11.7bn (+5.3% YoY), and operating profit was JPY 677mn (29 million yen in Q1 FY12/20). In
addition to progress in the liquidation of unprofitable overseas operations at Nanbu Plastics (PT. Nanbu Plastics Indonesia, a
subsidiary in Indonesia), orders recovered from the downturn resulting from the spread of COVID-19.
Chemicals
Sales: JPY2.5bn (+22.6% YoY) ▷ Operating profit: JPY381mn (+42.2% YoY) ▷
Sales of the core products in the chemicals business—i.e., insulation materials, functional chemicals (Carbodilite), and environment and energy-related products such as fuel cell carbon separators, were JPY2.2bn (+26.4% YoY), and operating profit was JPY311mn (+39.5% YoY). In particular, fuel cell carbon separators contributed to the increase in sales and profit.
In insulation materials, sales and profit increased YoY on a recovery in orders for stock solution used in civil engineering as well ▷ as refrigeration and freezer applications.
In carbon separators for fuel cells, sales and profit grew on an increase in orders for automotive prototypes. ▷ Profit and sales also rose in functional chemicals, thanks to increased sales of aqueous cross-linking agents. ▷
Sales of carbon products and others were JPY376mn (-1.6% YoY), and operating profit was JPY70mn (+52.2% YoY).
Sales and profit rose for carbon products thanks to a recovery in the semiconductor market. ▷
Textiles
Sales: JPY8.0bn (-17.1% YoY) ▷ Operating loss: JPY301mn (loss of JPY307mn in Q1 FY12/20) ▷
In Japan, sales were JPY6.3bn (-21.7% YoY), with an operating loss of JPY365mn (versus an operating loss of JPY382mn in Q1 ▷ FY12/20). Sales declined on a delayed recovery in demand for business apparel, but losses narrowed on strong sales of Mobilon tape for medical masks in the US market. Sales at its subsidiary Tokyo Shirts continued to decline, causing losses to
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widen. Sales dropped mainly at brick-and-mortar outlets, as the resurgence in COVID-19 cases prompted the Japanese government to reinstate the state of emergency in January 2021. In overseas business, sales were JPY3.8bn (-6.8% YoY), operating profit was JPY8mn (-86.9% YoY). Despite signs of a recovery ▷ at subsidiaries in Brazil and China, sales and profit overseas declined on a drop in Indonesian subsidiary sales.
Real Estate
Sales: JPY11.1bn (-27.1% YoY) ▷ Operating profit: JPY7.3bn (-16.2% YoY) ▷
Sales and profit in the property sales business declined YoY due to the absence of large-scale condominium sales in Mitaka in ▷ Q1 FY12/20. The company secured a high level of earnings in Q1 on the sale of condominiums in Mitaka (Tokyo), as well as
land in Kitajima (Tokushima Prefecture), Higashiomi (Shiga Prefecture), and Okazaki (Aichi Prefecture).
The land leasing business and the building leasing business for office buildings and commercial facilities showed favorable ▷ performance.
For details on previous quarterly and annual results, see the Historical financial statements section.
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Full-year company forecast
FY12/21 forecasts FY12/19 FY12/20 FY12/21 (JPYmn) FY A c t . FY A c t . FY Es t . YoY change YoY Sales 509,660 457,051 510,000 52,949 11.6% CoGS 409,013 365,434 Gross profit 100,647 91,616 GPM 19.7% 20.0% SG&A expenses 94,164 90,368 SG&A ratio 18.5% 19.8% Operating profit 6,482 1,248 10,000 8,752 701.3% OPM 1.3% 0.3% 2.0% Recurring profit 11,703 3,466 13,500 10,034 289.5% RPM 2.3% 0.8% 2.6% Net income -6,604 13,540 7,000 -6,540 -48.3% Net margin - 3.0% 1.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY12/21 company forecast by segment
Business segments FY12/19 FY12/20 FY12/21 FY12/21 (JPYmn) Act. Act. Prev. Est. Revised Est. Difference YoY change YoY Sales 509,660 457,051 504,000 510,000 6,000 52,949 11.6% Wireless and Communications 152,212 144,312 162,000 161,000 -1,000 16,688 11.6% Micro Devices 65,285 61,140 71,000 74,000 3,000 12,860 21.0% Automobile Brakes 131,338 114,826 121,000 126,000 5,000 11,174 9.7% Precision Instruments 65,428 51,419 57,000 55,000 -2,000 3,581 7.0% Chemicals 9,390 9,577 13,000 13,000 - 3,423 35.7% Textiles 49,505 33,957 44,000 43,000 -1,000 9,043 26.6% Other 24,844 21,538 22,000 23,000 1,000 1,462 6.8% Real Estate 11,655 20,279 14,000 15,000 1,000 -5,279 -26.0% Operating profit 6,482 1,248 6,800 10,000 3,200 8,752 701.3% Wireless and Communications 4,100 2,575 3,800 3,800 - 1,225 47.6% Micro Devices 256 -3,895 1,100 1,500 400 5,395 - Automobile Brakes -3,340 -2,289 -2,000 300 2,300 2,589 - Precision Instruments 879 -948 300 300 - 1,248 - Chemicals 1,649 1,811 2,500 2,500 - 689 38.0% Textiles 1,036 -812 1,500 1,200 -300 2,012 - Other -187 248 100 100 - -148 -59.7% Real Estate 8,163 11,511 7,200 8,000 800 -3,511 -30.5% Company-wide expenses -6,075 -6,872 -7,700 -7,700 - -828 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Nisshinbo Holdings revised its FY12/21 forecast in May 2021. The company now forecasts FY12/21 sales of JPY510.0bn (+11.6% YoY), operating profit of JPY10.0bn (+701.3% YoY), recurring profit of JPY13.5bn (+289.5% YoY), and net income attributable to owners of the parent of JPY7.0bn (-48.3% YoY).
The company lifted its forecast for sales by JPY6.0bn, operating profit JPY3.2bn, recurring profit JPY3.5bn, and net income JPY3.0bn. In the revised company forecast, the difference between the previous forecast and actual results for Q1 (January-March 2021) has been revised, and the previous forecast for Q2 (April-June 2021) and thereafter was unchanged.
The company’s upward revision was mostly for the Automobile Brake business and the Real Estate business. In the Automobile Brake business, sales and operating profit are expected to increase by JPY5.0bn and JPY2.3bn respectively from the previous forecast due to sharp recovery in global automobile sales. In the Real Estate business, sales and operating profit are expected to increase by JPY1.0bn and by JPY800mn, respectively compared to the previous forecast thanks to the strong performance in the property sales business. In addition, sales and operating profit in the Micro Device business were raised by JPY2.0bn, and JPY400mn, respectively.
The assumed forex rates of JPY105/USD and JPY120/EUR utilized in the revised company forecast are unchanged from those used in the previous forecast.
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The following section reflects the company’s prior forecast before the revision which was announced in May 2021.
Nisshinbo expects the Real Estate segment, which posted higher sales and profit in FY12/20 on the start of condominium sales, to see lower sales and profit in FY12/21. On the other hand, the company expects recoveries in the Micro Devices, Precision Instruments, and Textiles segments, where sales and profit declined in FY12/20 due to the effects from the spread of COVID-19. Nisshinbo looks for higher sales in the Automobile Brakes segment on a recovery in global automobile production volume and enhanced sales in copper-reduced and cooper-free friction materials, but forecasts only a slight YoY improvement in profit. For TMD, the company forecasts expenses associated with plant reorganization in Germany and an increase in depreciation in connection with capital investment for copper-reduced and copper free friction materials.
FY12/21 company forecast (Wireless and Communications, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 152,212 144,312 162,000 17,688 12.3% Marine systems 34,916 32,509 33,500 991 3.0% Communications equipment 16,802 7,669 - -7,669 - Solutions and specialized equipme 68,815 65,607 73,800 8,193 12.5% ICT and Mechatronics 19,831 20,708 24,100 3,392 16.4% Medical equipment 9,170 8,064 9,800 1,736 21.5% Other 2,646 3,166 5,300 2,134 67.4% JRC Mobility 132 7,857 17,900 10,043 127.8% Eliminations -104 -1,271 -2,400 -1,129 - Operating profit 4,100 2,575 3,800 1,225 47.6% Marine systems -1,171 -303 500 803 - Communications equipment 1,872 200 - -200 - Solutions and specialized equipme 2,087 2,683 2,100 -583 -21.7% ICT and Mechatronics 372 -237 -200 37 - Medical equipment 757 456 700 244 53.5% Other -217 -7 400 407 - JRC Mobility -397 -571 400 971 - Eliminations 796 353 -100 -453 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY12/21 company forecast (Micro Devices, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 65,285 61,140 71,000 9,860 16.1% New Japan Radio 43,610 41,931 46,800 4,869 11.6% Ricoh Electronic Devices 22,812 20,515 25,200 4,685 22.8% Eliminations, other -1,137 -1,306 -1,000 306 - Operating profit 256 -3,895 1,100 4,995 - New Japan Radio 144 -2,427 900 3,327 - Ricoh Electronic Devices 375 -1,205 500 1,705 - Eliminations, other -263 -263 -300 -37 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY12/21 company forecast (Automobile Brakes, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 131,338 114,826 121,000 6,174 5.4% Nisshinbo Brake Inc. 50,854 44,057 47,400 3,343 7.6% TMD group 85,850 75,106 77,800 2,694 3.6% Eliminations -5,366 -4,337 -4,200 137 - Operating profit -3,340 -2,289 -2,000 289 - Nisshinbo Brake Inc. 1,620 788 1,000 212 26.9% TMD group -4,152 -3,219 -3,000 219 - Eliminations -808 142 - -142 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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FY12/21 company forecast (Precision Instruments, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 65,428 51,419 57,000 5,581 10.9% Precision parts 15,775 14,387 15,300 913 6.3% Plastic molding and processing 52,094 40,669 43,500 2,831 7.0% Eliminations -2,441 -3,637 -1,800 1,837 - Operating profit 879 -948 300 1,248 - Precision parts 382 -78 100 178 - Plastic molding and processing 1,286 -38 1,000 1,038 - Eliminations -789 -832 -800 32 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY12/21 company forecast (Chemicals, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 9,390 9,577 13,000 3,423 35.7% Environment and energy-related products 8,079 8,271 10,700 2,429 29.4% Carbon, other 1,553 1,492 2,300 808 54.2% Eliminations -186 - 186 - Operating profit 1,649 1,811 2,500 689 38.0% Environment and energy-related products 1,408 1,630 2,000 370 22.7% Carbon, other 240 182 500 318 174.7% Eliminations -1 - 1 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY12/21 company forecast (Textiles, based on the company’s prior forecast) FY12/19 FY12/20 FY12/21 (JPYmn) Act. Act. Est. YoY change YoY Sales 49,505 33,957 44,000 10,043 29.6% Domestic 42,484 29,514 38,800 9,286 31.5% Overseas 21,970 14,166 19,200 5,034 35.5% Eliminations -14,949 -9,723 -14,000 -4,277 - Operating profit 1,036 -812 1,500 2,312 - Domestic 526 -842 1,000 1,842 - Overseas 770 -31 500 531 - Eliminations -260 61 - -61 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Wireless and Communications segment
Sales: JPY162.0bn (+12.3% YoY) ▷ Operating profit: JPY3.8bn (+47.6% YoY) ▷
In the Wireless and Communications segment, Nisshinbo forecasts higher sales but lower profit in the solutions and specialized equipment business, but sales remaining flat YoY and profit rising in the marine systems business. In the communications equipment business, the company transferred the ITS business to the mobility business (JRC Mobility Inc.) in FY12/20. It also transferred the commercial radio business to the mobility business in FY12/21, so the company looks for the dissipation of sales and profit in the communications equipment business. On the other hand, the company expects the mobility business to see a growth in sales and profit on the transfer of the commercial radio business.
Marine systems business
Sales: JPY33.5bn (+3.0% YoY) ▷ Operating profit: JPY500mn (operating loss of JPY303mn in FY12/20) ▷
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In FY12/20, sales declined on reduced equipment sales to commercial ship manufacturers due to a reduction in ship construction volume, as well as lower sales of replacement equipment and equipment for small and medium-sized vessels overseas as the pandemic reduced the number of ships in operation. However, the business saw a narrower operating loss on lower expenses.
For FY12/21, Nisshinbo forecasts sales remaining flat YoY, but profit rising. The company expects goodwill amortization to decline about JPY500mn on the FY12/20 conclusion of goodwill amortization for Alphatron Marine Beheer B.V., which was made a subsidiary in December 2013. The company also targets an improvement in profit on reduced costs, including through its continued efforts to reallocate personnel.
Solutions and specialized equipment business
Sales: JPY73.8bn (+12.5% YoY) ▷ Operating profit: JPY2.1bn (-21.7% YoY) ▷
The company forecasts a double-digit YoY growth in sales in FY12/21, citing firm public demand in disaster prevention and mitigation. The company also expects progress in projects that were delayed from FY12/20 due to the COVID-19 pandemic. While profit margins are declining on a deteriorating product mix, Shared Research also understands that the company is taking a conservative stance in its profit forecast.
Mobility business (JRC Mobility Inc.)
Sales: JPY17.9bn (+127.8% YoY) ▷ Operating profit: JPY400mn (versus an operating loss of JPY571mn in FY12/20) ▷
The company transferred the ITS business to the mobility business in FY12/20, and with the transfer of the commercial radio business in FY12/21, it forecasts FY12/21 sales to grow in the business. While it transferred the ITS business in FY12/20, the mobility business saw sales of ETC devices decline in FY12/20 due to the COVID-19 pandemic. The company forecasts a recovery in ETC devices in FY12/21. In terms of profit, the company looks for a positive impact from increased sales in line with the transfer of the commercial radio business and a recovery in sales and profit in ETC devices.
Micro Devices
Sales: JPY71.0bn (+16.1% YoY) ▷ Operating profit: JPY1.1bn (versus an operating loss of JPY3.9bn in FY12/20) ▷
In FY12/20, supply chain issues arose due to customers suspending operations at factories in an effort to stem the spread of COVID-19, resulting in sales of automobile-related, consumer-related, and communications-related products declining and profit deteriorating. However, earnings bottomed in Q3 and moved into recovery amid a rebound in global automobile production, with Q4 sales recovering to a level flat YoY.
In FY12/21, demand is recovering for consumer-related, automobile-related, and industrial machinery-related products. The company also expects sales on newly ordered automobile-related parts. In terms of profit, the company looks for a contribution from a recovery in sales, and expects to see the fruits of the efforts undertaken in FY12/20 to reduce production costs and discontinue unprofitable products.
Automobile Brakes segment
Sales: JPY121.0bn (+5.4% YoY) ▷ Operating loss: JPY2.0bn (versus an operating loss of JPY2.3bn in FY12/20) ▷
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For the three-month (October–December 2020) period of Q4 FY12/20, the Automobile Brakes business produced operating profit of JPY1.9bn (versus an operating loss of JPY794mn in Q4 FY12/19). At Nisshinbo Brake, in addition to positive impact from the recovery in automobile production, sales of copper-reduced and copper-free brake friction materials were strong. At TMD, sales of friction materials for aftermarket grew.
The company forecasts higher sales in FY12/21 on a recovery in automobile production and an expansion in copper-reduced and cooper-free friction materials, but expects only a slight YoY improvement in profit. The company anticipates an increase in depreciation in connection with expenses associated with plant reorganization efforts in Germany and capital investment for copper-reduced and copper-free friction materials.
Nisshinbo Brake
Sales: JPY47.4bn (+7.6% YoY) ▷ Operating profit: JPY1.0bn (+26.9% YoY) ▷
Sales and profit declined in FY12/20 on a drop in global automobile production as the COVID-19 pandemic led to production suspensions and lockdowns around the world. However, quarterly earnings moved into recovery after bottoming in Q2 and sales and profit in Q4 improved substantially QoQ and YoY on a recovery in automobile production as well as firm sales of copper- reduced and copper-free friction materials. Earnings continued to recover from Q3, and the company expects higher sales and profit. However, it also expects an increase in depreciation in line with capital investment for copper-reduced and copper-less friction materials.
Shared Research understands that firm sales of copper-reduced and copper-free friction materials is attributable to the company leading its competitors in the mass production of friction materials that conform to copper usage regulations, with the company seeing an improved share in the global market for friction materials.
Copper usage regulations: The US state of California has passed a law prohibiting from 2011 the sale of new friction materials or vehicles fitted with friction materials that have a copper content of more than 5%. From 2025, the limit on copper content will be reduced to 0.5% or less.
TMD
Sales: JPY77.8bn (+3.6% YoY) ▷ Operating loss: JPY3.0bn (versus an operating loss of JPY3.2bn in FY12/20) ▷
TMD in FY12/20 saw sales decline YoY as friction materials used in new passenger car assembly and friction materials for aftermarket performed poorly. However, the recovery in friction materials for the aftermarket from 2H 2020, cost reductions, and improvement in raw material prices helped stem losses. After bottoming in Q2, operating losses narrowed from Q3 on a recovery trend in aftermarket friction materials. Backed by firm sales of aftermarket friction materials, earnings at the operating line in Q4 were up QoQ and YoY and moved into the black.
For FY12/21, the company forecasts a recovery in sales of friction materials used in new car assembly (approximately 40% sales share) on a recovery in automobile production, as well as a sustained recovery in sales of aftermarket fiction materials. On the profit front, the company looks to benefit from a reduction in losses by entrenching profitability management in assembly parts for new cars and improving the production defect ratio. On the other hand, the company expects the reduction in operating losses to be limited to JPY219mn given expectations for an increase in costs associated with the plant reorganization in Germany.
Precision Instruments segment
Sales: JPY57.0bn (+10.9% YoY) ▷ Operating profit: JPY300mn (operating profit of JPY948mn in FY12/20) ▷
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Automotive precision products and plastic molding and processing both saw sales and profit decline in FY12/20 as the COVID-19 pandemic led to customer shutdowns and production adjustments. However, the company expects a recovery in FY12/21. In the automotive precision products business, the company forecasts sales of JPY15.3bn (+6.3% YoY) and operating profit of ▷ JPY100mn (versus an operating loss of JPY78mn in FY12/20).
In the plastic molding and processing business, the company forecasts sales of JPY43.5bn (+7.0% YoY) and operating profit of ▷ JPY1.0bn (versus an operating loss of JPY38mn in FY12/20).
Chemicals segment
Sales: JPY13.0bn (+35.7% YoY) ▷ Operating profit: JPY2.5bn (+38.0% YoY) ▷
Amid the COVID-19 pandemic, the Chemicals segment recorded sales and profit growth in FY12/20. In FY12/21, the company forecasts sales of JPY10.7bn (+29.4% YoY) and operating profit of JPY2.0bn (+22.7% YoY) in mainstay products such as insulation materials, functional chemicals (Carbodilite), and environment and energy-related products (fuel cell carbon separators).
For fuel cell separators, the company forecasts a YoY rise in sales, but profit remaining flat YoY due to the investment burden ▷ for test products.
For insulation materials, sales declined in FY12/20 due to the COVID-19 pandemic, but the company forecasts a rebound in ▷ sales in FY12/21.
For functional chemicals, the company forecasts higher sales and profit on an increase in sales of powder modifiers that are ▷ effective in paint applications and in improving the durability of biodegradable plastics.
Outside of environment and energy-related products, the company looks for higher sales and profit in carbon products.
Textiles segment
Sales: JPY44.0bn (+29.6% YoY) ▷ Operating profit: JPY1.5bn (versus an operating loss of JPY812mn in FY12/20) ▷
Sales and profit declined in FY12/20 as sales of fabrics for non-iron shirts fell because of declining business apparel demand and the company temporarily closing or shortening business hours at Tokyo Shirts stores as a preventive measure against the pandemic. For FY12/21, the company looks for a YoY improvement as those factors fall by the wayside. However, Shared Research understands that the company tends to set ambitious initial earnings targets for the Textiles segment, and often fails to meet these targets.
Real Estate segment
Sales: JPY14.0bn (-31.0% YoY) ▷ Operating profit: JPY7.2bn (-37.5% YoY) ▷
In FY12/20, the segment recorded higher condominium sales and profit on the launch of condominium sales at the former site of JRC’s Mitaka factory in Tokyo and the sale of residential lots in Okazaki, Aichi Prefecture. For FY12/21, the company anticipates lower sales and profit in the property sales business.
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Companywide expenses The company forecasts companywide expenses at JPY7.7bn (JPY6.9bn in FY12/20).
Historical forecast accuracy
Results vs. Initial Est. FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 405,000 475,000 480,000 530,000 550,000 570,000 520,000 435,000 540,000 540,000 Sales (Results) 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 509,660 457,051 Results vs. Initial Est. -6.3% -5.1% 3.0% -1.2% -2.9% -7.5% -1.5% -4.3% -5.6% -15.4% Operating profit (Initial Est.) 14,000 15,000 14,000 18,000 20,000 16,000 15,000 3,500 8,000 14,000 Operating profit (Results) 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 6,482 1,248 Results vs. Initial Est. -70.2% -10.7% -5.9% -23.6% -36.9% -69.4% 0.6% -171.6% -19.0% -91.1% Recurring profit (Initial Est.) 18,000 15,500 16,000 22,000 25,000 21,000 20,000 7,500 12,000 18,000 Recurring profit (Results) 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 11,703 3,466 Results vs. Initial Est. -51.8% 14.1% 38.6% -6.1% -31.9% -49.7% -1.5% -79.1% -2.5% -80.7% Net income (Initial Est.) 12,000 7,000 1,000 10,000 16,000 10,000 20,000 5,000 7,400 13,000 Net income (Results) 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 -6,604 13,540 Results vs. Initial Est. -21.5% -8.3% 801.1% 36.9% -32.7% -64.3% 31.8% - - 4.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Long-term outlook
As a long-term vision, Nisshinbo is aiming to achieve ROE of at least 12% in FY12/25. Nisshinbo plans to boost earnings through the expansion of existing businesses, creation of new businesses, and M&A.
After the conclusion of the NEXT2015 management plan in FY03/16, the company has not announced a new medium-term plan. However, Shared Research believes the company will focus on revamping its mainstay Electronics segment (now split into Wireless and Communications and Micro Devices) and improving performance at TMD in the Automobile Brakes segment.
Stronger earnings and growth in Electronics (Wireless and Communications and Micro Devices)
In Wireless and Communications, the company sees earnings growth over the medium term (the three years starting in FY12/19) being driven primarily by improvements in the profitability of mainstay subsidiary JRC (Wireless and Communications business), with JRC ultimately moving into and staying in the black and even achieving a high profit level.
Over the longer term, the company plans to grow earnings by expanding sales of parts such as sensors, semiconductors, and lasers needed for the conversion to electrically powered automobiles, the networking of automobiles (connected automobiles), and Advanced Driving Assistance Systems (ADAS)* and other systems for self-driving automobiles. Outside of automotive applications, the company is also looking to expand sales in the mobility field by developing new products and services for ships, airplanes, railroads, industrial machinery, and drones.
*ADAS is a system that equips vehicles with various sensors such as radars, cameras and ultrasonic waves to provide functions such as emergency braking, autonomous cruise control (ACC), lane departure warning systems and parking assistance.
Improving performance at JRC
Performance in Wireless and Communications business
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 99,871 109,157 113,306 132,251 125,192 142,909 142,833 88,466 90,427 144,762 152,212 144,312 YoY -7.3% 9.3% 3.8% 16.7% -5.3% 14.2% -0.1% - 2.2% - 5.1% -5.2% Marine systems 29,493 25,452 24,088 37,883 45,360 32,580 33,523 28,345 28,323 33,210 34,916 32,509 YoY -0.3% -13.7% -5.4% 57.3% 19.7% -28.2% 2.9% - -0.1% - 5.1% -6.9% Communications equipment 15,020 18,056 16,151 17,241 13,587 14,923 16,028 11,680 12,180 16,528 16,802 7,669 YoY - 20.2% -10.6% 6.7% -21.2% 9.8% 7.4% - 4.3% - 1.7% -54.4% Solut ions and specialized equipment 46,892 63,600 70,820 75,196 64,145 67,367 66,116 29,839 28,252 64,529 68,815 65,607 YoY -10.7% 35.6% 11.4% 6.2% -14.7% 5.0% -1.9% - -5.3% - 6.6% -4.7% ICT and mechatronics - - - - - 16,498 15,839 10,965 13,454 18,328 19,831 20,708 YoY ------4.0% - 22.7% - 8.2% 4.4% JRC Mobility ------132 7,857 YoY ------Other, adjustments 8,466 2,049 2,247 1,931 2,100 11,541 11,327 7,637 8,218 12,167 11,716 9,962 Operating profit -2,790 3,919 7,281 7,713 3,183 -5,486 693 -5,133 -6,510 -493 4,100 2,575 YoY - - 85.8% 5.9% -58.7% ------37.2% OPM - 3.6% 6.4% 5.8% 2.5% - 0.5% - - - 2.7% 1.8% Marine systems -483 -845 -1,440 979 2,297 -4,836 -2,287 -1,408 -1,950 -2,727 -1,171 -303 YoY - - - - 134.6% ------OPM - - - 2.6% 5.1% ------Communications equipment -2,818 -492 141 28 -440 572 1,387 953 1,005 1,439 1,872 200 YoY - - - -80.1% - - - - 5.5% - 30.1% -89.3% OPM - - 0.9% 0.2% - 3.8% 8.7% 8.2% 8.3% 8.7% 11.1% 2.6% Solut ions and specialized equipment -310 5,346 9,054 6,909 1,776 -1,976 1,509 -4,497 -5,690 317 2,087 2,683 YoY - - 69.4% -23.7% -74.3% - - - - - 558.4% 28.6% OPM - 8.4% 12.8% 9.2% 2.8% - 2.3% - - 0.5% 3.0% 4.1% ICT and mechatronics ------351 -145 -245 168 268 372 -237 YoY ------38.8% - OPM ------1.2% 1.5% 1.9% - JRC Mobility ------289 -397 -571 YoY ------OPM ------Other, adjustments 821 -90 -474 -203 -450 1,105 229 64 -43 499 1,337 803 Source: Shared Research, based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 results include domestic subsidiaries’ April December 2018 earnings and overseas subsidiaries’ January December 2018 earnings. Adjusted FY03/18 – – results include domestic subsidiaries’ April December 2017 earnings and overseas subsidiaries’ January December 2017 earnings. – – Note: Adjusted FY12/18 results include domestic subsidiaries’ January December 2018 earnings and overseas subsidiaries’ January December 2018 earnings. – – Shared Research understands that between FY03/12 and FY12/20 JRC implemented earnings improvement strategies twice. As of March 2021, the company continues to implement the second such round and while profit has not reached the level shown in
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FY03/15 (operating profit of JPY7.7bn), stability in profits has improved, with FY12/20 operating profit reaching JPY2.6bn even amid the COVID-19 pandemic.
Performance at JRC from the early 2010s through FY03/17 JRC improved earnings for three consecutive financial years (from FY03/13 to FY03/15) JRC—one of the company’s mainstay subsidiaries in Electronics—was included in Nisshinbo’s consolidated results starting in FY03/11. It announced business restructuring plans in September 2012 and implemented the following initiatives:
Eliminating and combining production facilities in Japan (transferring production operations from the Mitaka factory); ▷ Slimming down personnel (voluntary retirement from 495 employees between June and December 2013); ▷ Establishing overseas production bases; ▷ Expanding business overseas (expanding the Chinese production subsidiary of Nagano JRC in March 2013). ▷ As a result of the above efforts, JRC’s sales grew from FY03/13 to FY03/15 and profit improved, resulting in sales of JPY132.3bn (an increase of JPY32.4bn versus FY03/12) and operating profit of JPY7.7bn (an increase of JPY10.5bn versus FY03/12) in FY03/15.
Earnings declined for two consecutive financial years (FY03/16–FY03/17) However, sales and profits were down YoY in FY03/16, owing to lower sales of disaster prevention systems and water and river management systems in the solutions and specialized equipment business. Profits were also down in FY03/17 due to lower sales in marine systems as a stagnant shipbuilding market reduced demand related to new merchant ships, and JRC booked an operating loss of JPY5.5bn.
JRC performance from FY03/18 JRC became a wholly owned subsidiary in October 2017, and finished FY03/18 in the black at the operating profit level but recorded an operating loss in adjusted FY12/18 In October 2017, Nisshinbo made JRC a wholly owned subsidiary through a share exchange to acquire the shares it did not already own (up until that time it owned 61.8% of JRC’s outstanding shares). Shared Research understands that making JRC a wholly owned subsidiary allowed the company to intensify efforts aimed at putting JRC back in the black.
As a result of the transition, JRC was able to log higher earnings in FY03/18 despite a decline in sales, reporting full-year sales of JPY142.8bn (-0.1% YoY) and operating profit of JPY693mn (versus year-earlier loss of JPY5.5bn) as losses at the marine systems business were reduced and the solutions and specialized equipment business was put back into the black. In the marine systems business, the company moved away from its previous dependence on products designed for large vessels to the less-volatile market for equipment for small and medium-sized vessels and narrow segment losses. At the solutions and specialized equipment business, sales were down owing to fewer sales of large-scale disaster information support systems, but earnings finished in the black thanks to companywide efforts to cut fixed costs.
However, in adjusted FY12/18 results (earnings for January December 2018), JRC recorded an operating loss of JPY493mn. The – operating loss in marine systems widened, and solutions and specialized equipment saw a decline in profit. Sluggish sales of aftermarket products contributed to the loss in marine systems, and a continued decline in sales of large-scale disaster information support systems held back profit in solutions and specialized equipment.
Sustained operating profit and higher profit level from FY12/19 Nisshinbo views JRC’s business structure for its core businesses as unstable and aims to improve the structure in the medium term. Of particular concern are the fact that marine systems earnings are susceptible to changes in large vessel demand and the fact that a high ratio of solutions and specialized equipment sales are derived from domestic public demand. In marine systems, the company aims to stabilize earnings by raising the ratio of sales related to small to medium-sized ships. In solutions and specialized equipment, it aims to reduce its reliance on domestic public demand and increase the ratio related to domestic private demand and overseas demand, including in Southeast Asia.
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In FY12/19, the Wireless and Communications business (comprises JRC, including JRC Mobility) generated sales of JPY152.2bn (+5.1% versus adjusted FY12/18) and operating profit of JPY4.1bn (operating loss of JPY493mn in adjusted FY12/18). In marine systems, equipment sales targeting new merchant ships and small and medium-sized vessels increased. In solutions and specialized equipment, sales of aviation and meteorological systems increased. The company also improved performance by keeping expenses under control.
Sales and profit declined in FY12/20 amid the COVID-19 pandemic. Sales were JPY144.3bn (-5.2% YoY) and operating profit was JPY2.6bn (-37.2% YoY). In the mainstay marine systems business, sales declined, but losses narrowed on cost reductions. In the solutions and specialized equipment business, sales declined, but profit rose, thanks again to cost reductions.
For FY12/21, the company targets Wireless and Communications segment sales of JPY162.0bn (+12.3% YoY) and operating profit of JPY3.8bn (+47.6% YoY). While expecting sales to expand but profit to decline in the solutions and specialized equipment business, the company looks for sales to remain flat YoY in the marine systems business, with profit improving on the back of reduced goodwill amortization. The company also expects a recovery in ETC devices in the mobility (JRC Mobility) business.
Medium- to long-term growth initiatives at the Electronics segment (Wireless and Communications and Micro Devices) Over the medium to long term (2020–2025), the company is planning to focus on growing sales of parts for Advanced Driving Assistance Systems (ADAS) and other systems and devices for self-driving cars, and build a business framework to handle demand from the electric and connected car markets.
Strengthening group cohesion: JRC and New JRC become wholly owned subsidiaries, Ricoh Electronic Devices becomes a subsidiary At the Electronics segment, the company made JRC a wholly owned subsidiary in October 2017 and plans to make New JRC a wholly owned subsidiary in September 2018. In March 2018 Nisshinbo acquired a majority stake in Ricoh Electronic Devices, a global supplier of analog power management integrated circuits, to strengthen its business structure in the fields of semiconductors and electronic devices. The company aims to expand sales of products aimed at the self-driving, electric, and connected car markets by applying the technologies of its various subsidiaries in sensors, semiconductors, radars, and other areas, and making use of the relationships it has established with car manufacturers in the course of its Automobile Brakes and Precision Instruments businesses and its relationships with major Tier 1 automotive parts suppliers.
JRC Mobility Inc. established in April 2018 In April 2018, the company also spun off the mobility division of JRC’s communications equipment business to form a separate company, JRC Mobility Inc. JRC Mobility will combine the company’s wireless communications technology with its electronic device technology with the aim of expanding its business reach from the automotive industry into the mobility field (ships, airplanes, railways, industrial machinery). JRC Mobility took over the intelligent transportation system (ITS) business from JRC in January 2020, and the commercial radio business in January 2021.
Strengthening the Automobile Brakes segment
In the Automobile Brakes segment, goodwill amortization for TMD ended in FY03/17 and amortization of intangible fixed assets accompanying correction to bring TMD in line with Japanese accounting standards ended in FY12/19. Since TMD has lower margins than the rest of Nisshinbo’s overseas subsidiaries, Shared Research believes entrenching profitability management and improving the production defect ratio at TMD under the lead of Nisshinbo Brake would help boost profit margins and bolster profits in the Automobile Brakes business as a whole.
The company also sees opportunities over the medium and long term to increase market share due to changes in regulations governing the copper content in friction materials.
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Improving profit at TMD Profit at TMD improved from September 2011, when it was made a subsidiary, to FY03/18 Since making TMD a consolidated subsidiary in September 2011, the company has been working to improve profitability. Operating profit before amortization at TMD improved from an operating loss of JPY941mn in FY03/13 to operating profit of JPY2.9bn in FY03/18 (values are before application of Japanese GAAP, which differs in aspects such as the amortization of intangible assets, handling of R&D expenses, and handling of retirement benefit expenses).
TMD recorded an operating loss in FY12/18 and enacted profit improvement strategies from FY12/19 In FY12/18, TMD had an operating loss of JPY4.1bn. Sales and profit were both down due to decreased sales of aftermarket products (caused by shipment delays accompanying the relocation of the company’s product warehouse in Germany) and increased personnel expenses.
In FY12/19, the operating loss widened to JPY4.2bn on an increase in expenses related to business restructuring and higher sales promotion spending to recover market share that had been lost due to aftermarket product shipment delays.
Initiatives to improve TMD performance Shared Research believes that from the time TMD became a consolidated subsidiary through FY03/18, it was conducting its own improvement efforts. Partly because it recorded no goodwill amortization, TMD recorded operating profit during FY03/18, but suffered an operating loss in FY12/18, indicating that TMD’s efforts to improve and stabilize performance were running behind.
At its FY12/18 results briefing in February 2019, Nisshinbo announced four priority initiatives regarding TMD to be conducted from FY12/19 onward: focus on profit over sales (growth), conduct unbiased restructuring, reform management structure with Nisshinbo in the lead, and restart strategic investment in growth areas once TMD has returned to a profit position.
With regard to TMD’s management structure, Nisshinbo assigned group employees from Japan to TMD’s management team in April 2018. Shared Research believes that, starting in FY12/19, Nisshinbo Brake will further strengthen its involvement in TMD’s management, working to ensure thorough profit management for the OEPC (products used in new passenger car assembly) business and reduce the production defect rate in order to improve TMD’s profit margins.
In addition, the company booked an impairment loss of JPY14.0bn on fixed assets in the OEPC business in FY12/19, and saw depreciation and amortization decline by about JPY1.0bn YoY in FY12/20. Furthermore, in FY12/19 it completed amortization of intangible fixed assets associated with the acquisition of TMD (these amortization expenses amounted to about JPY800mn in FY12/19), which had a favorable impact on profit in the Automobile Brakes segment.
Room for improvement in TMD’s OPM Estimated OPM at the Nisshinbo Brake group (domestic and overseas combined) was 7–10% over the last ten years except for FY12/19 (it fell to 3.2% in FY12/19 on the impact of expenses related to the startup of the new China plant and the launch of new copper-reduced and copper-free products). In contrast, the figure for TMD (before application of Japanese GAAP) was only 3.2% in FY03/18, when operating profit was at its highest since acquisition.
According to the company, the Nisshinbo Brake group is earning a profit from supplying parts for new cars. In contrast, margins on parts sales to the new car market are low at TMD and it depends on aftermarket sales for most of its earnings. Plans call for improving the margins on TMD parts sales to the new car market over the medium term. In this relation, the company noted that TMD operations have been primarily managed by local staff since it became a consolidated subsidiary in 2011 until FY03/18, but that starting in FY12/18 it intends to send in more managers from Japan and begin stepping up efforts to improve profit margins.
Additionally, restructuring of manufacturing structures at TMD will continue over the medium term, and Nisshinbo will seek further improvements in production capacity and efficiency. Two production bases will be integrated at the company’s German subsidiary, and production capacity was ramped up at its Brazilian subsidiary with the construction of a new plant in FY03/18 and
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the transfer of production from existing plants. Shared Research thinks that these measures will be reflected in TMD’s results over the medium term.
Responding to regulations restricting the use of copper in brakes As a long-term issue facing the Automobile Brakes segment, the company sees responding to copper usage regulations as a key hurdle, but also views this as an opportunity, working to respond ahead of its competitors. As of February 2021, TMD has successfully developed a friction material that uses raw steel and is free of copper, and is mass producing it in Europe. Nisshinbo Brake has also been successful in developing a copper-free friction material, and began mass production of friction materials that conform to copper usage regulations; the company is ahead of competitors in this field. According to the company, the start of mass production of cars that use friction materials that conform to copper usage regulations peaked around 2019, and Nisshinbo expects that TMD’s global share in the market for these materials will increase as it leads the way in terms of mass production of friction materials that are compliant with regulations.
Copper usage regulations: The US state of California has passed a law prohibiting from 2011 the sale of new friction materials or vehicles fitted with friction materials that have a copper content of more than 5%. From 2025, the limit on copper content will be reduced to 0.5% or less.
Strategy
The Nisshinbo group sees itself as an environment and energy group. It aims to provide products and services that contribute to solving environmental problems, and make people’s lives safer and more comfortable. The company has set out strategic product categories in which it plans to grow earnings in the long term: mobility, infrastructure and safety, and life and healthcare. In addition to sales growth, the company intends to increase profitability, capital efficiency, and ROE.
Mobility field Nisshinbo aims to expand the mobility field using its proprietary technology not only for automobiles, but also for marine vessels, aircraft, and drones—that is to say, for anything that moves by land, sea, or air. It will not limit itself to the manufacture of parts and components, but will also work to provide safety and energy efficiency support businesses using device-gathered data. Specifically, Shared Research understands that the Automobile Brakes segment’s brake friction materials for automobiles are a core component of this field and that other components include the Advanced Driving Assistance Systems (ADAS) of the Electronics segment (now split into the Wireless and Communications segment and Micro Devices segment).
*ADAS is a system that equips vehicles with various sensors such as radars, cameras and ultrasonic waves to provide functions such as emergency braking, autonomous cruise control (ACC), lane departure warning systems, and parking assistance.
Segments involved in mobility field
Segment Subsidiaries Products Details
Electronics JRC Advanced Driving Assistance System Communication equipment, navigation equipment, JRC Mobility (ADAS) wireless communication technology, GPS receivers, New JRC VICS beacon receivers, ITS spot-compliant on-board units, automotive communications equipment, millimeter wave radar
New JRC Electronic devices Devices for onboard market
Automobile Brakes Nisshinbo Brake Brake friction materials for automobiles Disc pads, brake lining TMD Note: The Electronics segment was split into the Wireless and Communications segment (JRC and JRC Mobility) and Micro Devices segment (New JRC and Ricoh Electronic Devices) in FY12/19.
Infrastructure and safety field In this field, Nisshinbo aims to promote contributions to disaster prevention and reduction (including water and river management systems and meteorological radar) and the realization of a society based on hydrogen energy (development of fuel cell components). Specifically, the solutions and specialized equipment business of the Electronics segment (Wireless and Communications) plays a primary role in this field. The company plans to expand sales of products such as navigation equipment
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and other marine electronics, along with disaster prevention systems and other solutions. In addition, the Chemicals segment’s fuel cell separators are also included in this field. Segments involved in the infrastructure and safety field Segment Subsidiaries Products Details
Electronics JRC Dam management systems Disaster prevention information systems Weather observation systems
Chemicals Fuel cell components Fuel cell carbon separators Carbon alloy catalysts Note: The Electronics segment was split into the Wireless and Communications segment (JRC and JRC Mobility) and Micro Devices segment (New JRC and Ricoh Electronic Devices) in FY12/19.
Life and healthcare field Nisshinbo aims to create new businesses in this field using its areas of expertise, including sensors, ultrasound, and radio.
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Business
Segments
Nisshinbo has seven segments: Wireless and Communications, Micro Devices, Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). Mainstay businesses are Wireless and Communications, Micro Devices, and Automobile Brakes. Segment Business detail Sales ratio Operating profit ratio
Wireless and Manufacture and sale of wireless communications equipment 33.1% 32.4% Communications Micro Devices Manufacture and sale of electronic components 14.0% Operating loss of JPY3.9bn Automobile Brakes Manufacture and sale of brake friction materials for automobiles 26.4% Operating loss of JPY2.3bn
Precision Manufacture and sale of automotive precision instruments, plastic molding 11.8% Operating loss of Instruments parts for air conditioner fans JPY948mn Chemicals Manufacture and sale of insulation materials, fuel cell-related products, 2.2% 22.8% functional chemicals (Carbodilite) Textiles Manufacture and sale of cotton cloth, chemical fiber cloth, spandex 7.8% Operating loss of products, and apparel JPY812mn Real Estate Leasing of office buildings and shopping centers, sale of detached housing 4.7% 144.7%
Performance trends by segment
Segment breakdown FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 379,340 450,693 494,350 523,757 533,989 527,274 512,047 413,335 416,221 514,933 509,660 457,051 YoY 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - 0.7% - -1.0% -10.3% Electronics 169,906 175,307 187,742 209,115 205,367 190,851 193,620 126,325 144,204 211,498 217,497 205,452 YoY 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% 1.5% - 14.2% - 2.8% -5.5% Wireless and communications - - - - - 142,909 142,833 88,466 90,427 144,762 152,212 144,312 YoY ------0.1% - 2.2% - 5.1% -5.2% Microdevices - - - - - 48,865 51,665 37,859 53,776 66,736 65,285 61,140 YoY ------5.7% - 42.0% -2.2% -6.3% Automobile Brakes 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 140,171 131,338 114,826 YoY 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -9.4% -6.3% -12.6% % of total 13.5% 28.1% 31.8% 32.6% 32.4% 29.0% 31.7% 37.8% 34.0% 28.6% 27.1% 26.4% Precision Instruments 25,190 24,520 28,655 28,607 29,525 60,687 64,918 61,215 62,219 65,921 65,428 51,419 YoY -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% 7.0% - 1.6% -0.7% -21.4% Chemicals 8,258 8,150 8,810 8,138 8,285 9,482 11,285 7,895 8,173 11,563 9,390 9,577 YoY 13.4% -1.3% 8.1% - 1.8% 14.4% 19.0% - 3.5% -18.8% 2.0% Textiles 60,963 50,773 51,348 48,165 60,127 55,842 54,639 44,646 43,659 53,653 49,505 33,957 YoY 6.2% -16.7% 1.1% - 24.8% -7.1% -2.2% - -2.2% - -7.7% -31.4% % of total 17.4% 12.0% 11.0% 9.7% 11.8% 11.1% 11.2% 11.3% 11.0% 10.9% 10.2% 7.8% Real Estate 9,081 15,366 10,567 9,246 8,357 8,083 8,405 5,460 4,236 7,182 11,655 20,279 YoY -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - -22.4% 62.3% 74.0% Operating profit 4,170 13,393 13,175 13,744 12,617 4,890 15,085 7,795 -2,505 4,784 6,482 8,201 YoY -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - - - 35.5% 26.5% OPM 1.1% 3.0% 2.7% 2.6% 2.4% 0.9% 2.9% 1.9% - 0.9% 1.3% 1.8% Electronics -4,111 7,788 9,351 12,703 8,318 -3,240 3,021 -3,623 -4,904 1,741 4,356 -1,320 YoY - - 20.1% 35.8% -34.5% - - - - 150.2% - OPM - 4.4% 5.0% 6.1% 4.1% - 1.6% - - 0.8% 2.0% - Wireless and communications ------5,486 693 -5,133 -6,510 -493 4,100 2,575 YoY ------37.2% OPM ------0.5% - - - 2.7% 1.8% Microdevices - - - - - 1,792 2,138 1,509 1,605 2,234 256 -3,895 YoY ------19.3% - 6.4% - -88.5% - OPM - - - - - 3.7% 4.1% 4.0% 3.0% 3.3% 0.4% - Automobile Brakes 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 -916 -3,340 -2,289 YoY -16.4% ------OPM 9.0% - - - - - 4.0% 4.2% - - - - Precision Instruments -1,069 -146 1,075 263 318 1,048 1,724 1,787 1,690 1,628 879 -948 YoY - - - -75.5% 20.9% 229.6% 64.5% - -5.4% - -46.0% - OPM - - 3.8% 0.9% 1.1% 1.7% 2.7% 2.9% 2.7% 2.5% 1.3% - Chemicals 373 132 105 396 753 1,309 2,112 1,395 1,664 2,381 1,649 1,811 YoY - -64.6% -20.5% - 90.2% 73.8% 61.3% - 19.3% - -30.7% 9.8% OPM 4.5% 1.6% 1.2% 4.9% 9.1% 13.8% 18.7% 17.7% 20.4% 20.6% 17.6% 18.9% Textiles 840 574 552 -357 1,778 1,777 1,875 1,819 1,250 1,306 1,036 -812 YoY 359.0% -31.7% -3.8% - - -0.1% 5.5% - -31.3% - -20.7% - OPM 1.4% 1.1% 1.1% - 3.0% 3.2% 3.4% 4.1% 2.9% 2.4% 2.1% - Real Estate 6,742 12,289 7,780 6,669 5,795 5,811 5,067 3,706 2,681 4,042 8,163 11,511 YoY -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - -27.7% - 102.0% 41.0% OPM 74.2% 80.0% 73.6% 72.1% 69.3% 71.9% 60.3% 67.9% 63.3% 56.3% 70.0% 56.8% Other, company-wide, eliminations -3,120 -3,652 -3,917 -4,287 -4,201 -4,411 -4,833 -3,510 -4,073 -5,398 -6,262 -6,704 Source: Shared Research based on company data Note: In FY03/16, the Elastomers business was changed from the Chemicals segment to the Textiles segment. Pursuant to this change, results for FY03/15 onward have been restated to reflect to post-change segments.
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Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
Wireless and Communications (JRC) (33.1% of sales, 32.4% of operating profit in FY12/20) This segment comprises mainly consolidated subsidiary JRC, which has a history of over 100 years, stretching back to the founding of the Nippon Radio Telegraph Manufacturer AA in 1915. It was placed in charge of manufacturing wireless communications equipment for Japan’s military, including developing the radio that Heihachiro Togo used when he spotted the Baltic fleet during the Russo–Japanese War of 1904–1905, according to the company.
In 1949, Nagano JRC, Ueda JRC, and Suwa Japan Radio Co., Ltd. (Suwa JRC) were spun off from JRC—in line with a corporate restructuring plan drawn up at the end of World War II. As part of efforts to repurpose military technology for civilian use, Takeshi Sakurada, then president of Nisshinbo, sent some of his executive contacts to assist JRC with its restructuring, thus initiating a relationship between the two companies.
JRC became a subsidiary in 2010 In FY03/06, JRC booked a net loss of JPY32.1bn owing to extraordinary losses of JPY36.2bn (including losses of about JPY6.4bn on the sale of shares in an affiliated company, a JPY5.6bn write-down in the value of inventory assets, and JPY23.1bn in refunds to the Ministry of Defense*).
*Refunds to the Ministry of Defense: in December 2004, the Ministry of Defense showed that JRC had overcharged for defense equipment. JRC refunded the MOD in March 2006.
Weak earnings for JRC persisted following the 2008 global financial crisis. In December 2010, Nisshinbo bought out JRC, making it a consolidated subsidiary in a bid to boost margins through synergies in the Electronics segment.
Revenue improved due to restructuring, followed by a period of stagnation, and JRC became a consolidated subsidiary in 2017 JRC has a high level of technical expertise. But while competitors have moved production overseas, it has been slow to adopt a global outlook and cut costs, meaning that sales and profits have continued to decrease.
After operating loss in FY03/12, performance improved from FY03/13 to FY03/15 thanks to restructuring Sales and profits have dropped since the 2008 global financial crisis, with JRC falling into an operating loss in FY03/12. In September 2012, it announced a plan to generate new growth by restructuring. JRC consolidated domestic factories, cut headcount, set up factories overseas, and expanded overseas businesses. In an effort to strengthen group synergies, JRC fully consolidated Nagano JRC and Ueda JRC in March 2016.
In addition to the effects of restructuring, sales growth in the solutions and specialized equipment business led the way for a recovery in results at JRC from FY03/13 to FY03/15.
Performance worsened starting in FY03/16, and JRC became a wholly owned subsidiary in October 2017 However, sales and profits were down YoY in FY03/16, owing to lower sales of disaster prevention systems and water and river management systems in the solutions and specialized equipment business. In FY03/17, the company posted an operating loss due to lower sales and profit at the marine systems business, and worsening earnings at the solutions and specialized equipment business.
In October 2017 the company made JRC a wholly owned subsidiary through a share exchange (previously, it had owned 61.8% of JRC).
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Wireless and Communications (JRC)
Wireless and Communications (JRC) sales and operating profit by segment
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 99,871 109,157 113,306 132,251 125,192 142,909 142,833 88,466 90,427 144,762 152,212 144,312 YoY -7.3% 9.3% 3.8% 16.7% -5.3% 14.2% -0.1% - 2.2% - 5.1% -5.2% Marine systems 29,493 25,452 24,088 37,883 45,360 32,580 33,523 28,345 28,323 33,210 34,916 32,509 YoY -0.3% -13.7% -5.4% 57.3% 19.7% -28.2% 2.9% - -0.1% - 5.1% -6.9% Communications equipment 15,020 18,056 16,151 17,241 13,587 14,923 16,028 11,680 12,180 16,528 16,802 7,669 YoY - 20.2% -10.6% 6.7% -21.2% 9.8% 7.4% - 4.3% - 1.7% -54.4% Solut ions and specialized equipment 46,892 63,600 70,820 75,196 64,145 67,367 66,116 29,839 28,252 64,529 68,815 65,607 YoY -10.7% 35.6% 11.4% 6.2% -14.7% 5.0% -1.9% - -5.3% - 6.6% -4.7% ICT and mechatronics - - - - - 16,498 15,839 10,965 13,454 18,328 19,831 20,708 YoY ------4.0% - 22.7% - 8.2% 4.4% JRC Mobility ------132 7,857 YoY ------Other, adjustments 8,466 2,049 2,247 1,931 2,100 11,541 11,327 7,637 8,218 12,167 11,716 9,962 Operating profit -2,790 3,919 7,281 7,713 3,183 -5,486 693 -5,133 -6,510 -493 4,100 2,575 YoY - - 85.8% 5.9% -58.7% ------37.2% OPM - 3.6% 6.4% 5.8% 2.5% - 0.5% - - - 2.7% 1.8% Marine systems -483 -845 -1,440 979 2,297 -4,836 -2,287 -1,408 -1,950 -2,727 -1,171 -303 YoY - - - - 134.6% ------OPM - - - 2.6% 5.1% ------Communications equipment -2,818 -492 141 28 -440 572 1,387 953 1,005 1,439 1,872 200 YoY - - - -80.1% - - - - 5.5% - 30.1% -89.3% OPM - - 0.9% 0.2% - 3.8% 8.7% 8.2% 8.3% 8.7% 11.1% 2.6% Solut ions and specialized equipment -310 5,346 9,054 6,909 1,776 -1,976 1,509 -4,497 -5,690 317 2,087 2,683 YoY - - 69.4% -23.7% -74.3% - - - - - 558.4% 28.6% OPM - 8.4% 12.8% 9.2% 2.8% - 2.3% - - 0.5% 3.0% 4.1% ICT and mechatronics ------351 -145 -245 168 268 372 -237 YoY ------38.8% - OPM ------1.2% 1.5% 1.9% - JRC Mobility ------289 -397 -571 YoY ------OPM ------Other, adjustments 821 -90 -474 -203 -450 1,105 229 64 -43 499 1,337 803 Source: Shared Research based on JRC data and Nisshinbo data Note: Figures may differ from company materials due to differences in rounding methods. Note: JRC consolidated in Q4 FY03//11. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
Wireless and Communications (JRC) comprises marine systems, communications equipment, solutions and specialized equipment, mechatronics and power supply, and others.
Marine systems (22.5% of segment sales, operating loss of JPY303mn in FY12/20) The marine systems business supplies maritime satellite communications equipment, marine communications equipment, navigation support products, fishing devices, electronic chart display systems, integrated bridge systems, and VHF radiotelephone equipment for merchant ships and fishing vessels. The segment includes Alphatron Marine Beheer B.V., which became a subsidiary in December 2013 (51% JRC ownership stake), and Norway’s ProNav AS, which became a wholly owned subsidiary in December 2018.
Sales to the new merchant shipbuilding market accounted for about 40% of segment sales (parent level) in FY03/14, with work boat* demand at about 30% and retrofit demand around 20% of sales in the same year. The main clients are shipyards and shipping companies. Competitors include Furuno Electric Co., Ltd. (TSE1: 6814) and SAM Electronics GmbH (under L-3 Marine Systems International [unlisted]).
*Work boats: Vessels that provide support operations and transport the people and materials needed for offshore oil development project work (drilling, production).
Previously, the bulk of sales were from products designed for large vessels, but from about FY03/18, Nisshinbo has been promoting the expansion of its line of products for small and medium-sized ships (where demand is less volatile than for large vessels), and sales of aftermarket products and equipment for small to medium-sized ships are trending upward.
Communications equipment (5.3% of segment sales, 7.8% of operating profit in FY12/20) Commercial radios, intelligent transportation system (ITS) products, personal handy-phone system (PHS) devices, and GPS receivers.
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In January 2020, JRC transferred the ITS business to Nisshinbo consolidated subsidiary JRC Mobility Inc. (established in April 2018 to spin off the mobility field from JRC s communications equipment business). From FY12/20, ITS product sales are booked under ’ the mobility subsegment of Wireless and Communications. The commercial radio business was also transferred to JRC Mobility in January 2021.
Commercial radios were a mainstay product, at 20–30% of parent-level segment sales prior to FY12/19. Clients of commercial radios are the operators of taxi services. Competitors include Panasonic Corporation (TSE1: 6752) and Fujitsu Ten Ltd. (owned by Fujitsu Ltd. [TSE1: 6702]).
ITS products were the second major revenue generator, making up roughly 20% of parent-level segment sales prior to FY12/19. Competitors for ITS products are auto manufacturers. Competitors include Mitsubasankowa Corporation (owned by Mitsuba Corporation [TSE1: 7280]), Panasonic, and Mitsubishi Electric Corporation (TSE1: 6503).
Solutions and specialized equipment (45.5% of segment sales, 104.2% of operating profit in FY12/20) Water and river management systems, broadcasting systems, regional and municipal disaster prevention systems, road information systems, and aviation and meteorological systems for government and municipal offices, and local authorities. Competitors include Fujitsu Ltd. (TSE1: 6702), Toshiba Corporation (TSE1: 6502), and Mitsubishi Electric Corporation (TSE1: 6503), NEC Corporation (TSE1: 6701), and Panasonic Corporation (TSE1: 6752).
JRC’s share of the solutions and specialized equipment market
(JPYbn) Market JRC sales Market share Major client
Water and river 50 18 30–40% MLIT, MAFF, Cabinet Office, local governments, electric power management systems suppliers
Broadcasting systems 20 7.5 about 30% MLIT, Cabinet Office, electric power suppliers
Regional and municipal 160 16 about 10% Local governments disaster prevention systems
Road information systems 30 5.9 about 20% MLIT, Cabinet Office, NPA, local governments Source: Shared Research based on company data Note: Market size based on company estimates; market share based on sales figures for FY03/14.
Key products in solutions and specialized equipment business
Doppler weather radar X-band compact weather radar Discharge warning system
Source: Company data Source: Company data Source: Company data
Weather radar used to track weather status or Weather radar providing multi-parameter System to warn downstream residents about forecast weather phenomena that may cause disaster functionality, integrating the functionality one would discharges from dams or weirs using sirens, by detecting rainfall/snowfall strength and speed in expect from a larger radar system into a compact warning lights, display boards, and speakers. three dimensions. form.
Medium- to long-term growth initiatives in Wireless and Communications Over the medium to long term (2020–2025), the company is planning to focus on growing sales of parts for Advanced Driving Assistance Systems (ADAS) and other systems and devices for self-driving cars, and build a business framework to handle demand from the electric and connected car markets.
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Strengthening group cohesion: JRC and New JRC become wholly owned subsidiaries, Ricoh Electronic Devices becomes a subsidiary At Wireless and Communications and Micro Devices (former Electronics segment), the company made JRC a wholly owned subsidiary in October 2017 and plans to make New JRC a wholly owned subsidiary in September 2018. In March 2018 Nisshinbo acquired a majority stake in Ricoh Electronic Devices, a global supplier of analog power management integrated circuits, to strengthen its business structure in the fields of semiconductors and electronic devices. The company aims to expand sales of products aimed at the self-driving, electric, and connected car markets by applying the technologies of its various subsidiaries in sensors, semiconductors, radars, and other areas, and making use of the relationships it has established with car manufacturers in the course of its Automobile Brakes and Precision Instruments businesses and its relationships with major Tier 1 automotive parts suppliers.
JRC Mobility Inc. established in April 2018 In April 2018, the company also spun off the mobility division of JRC’s communications equipment business to form a separate company, JRC Mobility Inc. JRC Mobility will combine the company’s wireless communications technology with its electronic device technology with the aim of expanding its business reach from the automotive industry into the mobility field (ships, airplanes, railways, industrial machinery). In FY12/20, JRC transferred the ITS business from its communications equipment business to JRC Mobility, taking the same action for the commercial radio business in January 2021.
Micro Devices (14.0% of sales, operating loss of JPY3.9bn in FY12/20)
Key subsidiaries in the Micro Devices business are New JRC and Ricoh Electronic Devices. The two companies are scheduled to merge in January 2022, with New JRC as the surviving company and Ricoh Electronic Devices as the dissolving company.
Micro Devices sales and operating profit by subsidiary
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. A djusted Act. A djusted Act. Act. Micro devices 40,273 36,417 42,080 45,220 47,816 48,865 51,665 37,859 53,776 66,736 65,285 61,140 YoY -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% - 42.0% - -2.2% -6.3% New JRC 40,273 36,417 42,080 45,220 47,816 48,865 51,665 38,359 36,776 50,081 43,610 41,931 YoY -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% - -4.1% - -12.9% -3.9% Ricoh Electronic Devices ------18,073 18,073 22,812 20,515 YoY ------26.2% -10.1% Eliminations ------500 -1,073 -1,418 -1,137 -1,306 Micro devices -4,101 1,470 2,276 2,918 3,126 1,792 2,138 1,509 1,605 2,234 256 -3,895 YoY - - 54.8% 28.2% 7.1% -42.7% 19.3% - 6.4% - -88.5% -1621.5% OPM - 4.0% 5.4% 6.5% 6.5% 3.7% 4.1% 4.0% 3.0% 3.3% 0.4% - New JRC -4,101 1,470 2,276 2,918 3,126 1,792 2,138 1,509 850 1,565 144 -2,427 YoY - - 54.8% 28.2% 7.1% -42.7% 19.3% - -43.7% - -90.8% -1785.4% OPM - 4.0% 5.4% 6.5% 6.5% 3.7% 4.1% 3.9% 2.3% 3.1% 0.3% - Ricoh Electronic Devices ------1,043 1,043 375 -1,205 YoY ------64.0% -421.3% OPM ------5.8% 5.8% 1.6% - Eliminations ------288 -374 -263 -263 Source: Shared Research based on JRC data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
New JRC New JRC was established in 1959 as a subsidiary of JRC. It mainly makes and sells electronic components (microwave tubes and radar components, microwave application products, and electronic devices).
In December 2005, Nisshinbo acquired 19.8mn shares in New JRC (50.49% of shares outstanding) held by JRC in a tender offer, making it a consolidated subsidiary. Nisshinbo made New JRC a wholly owned subsidiary in September 2018.
Earnings improved due to restructuring Formerly, most production was domestic, despite overseas sales making up about 50% of the total. As a result, costs were high and New JRC was vulnerable to exchange rates.
Post the 2008 global financial crisis, earnings dropped as domestic semiconductor demand stalled and New JRC faced fierce global development and price competition. In this context, it booked operating losses in FY03/09, FY03/10, and FY03/12.
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To combat weakening earnings, in August 2011, the company announced a restructuring plan—New JRC consolidated factories, cut unprofitable products, and streamlined its organization and personnel. With these restructuring efforts, New JRC built a framework for securing profits, albeit at a low growth rate. It consolidated domestic factories, moved production to a subsidiary in Thailand, and offered employees voluntary redundancy. Thus, fixed costs (personnel, depreciation and amortization, and overheads) fell by JPY5.4bn YoY in FY03/13, and New JRC moved into the black despite a decline in sales, and has remained in the black through FY12/19. Sales and profit declined in FY12/20 as a result of the COVID-19 pandemic, with the business slipping back into operating losses.
New JRC sales and operating profit by segment
FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 40,287 45,613 40,272 36,417 42,080 45,220 47,816 48,865 51,665 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% 5.7% Microwave products 5,702 6,271 6,099 5,727 6,209 5,814 6,342 6,066 7,499 YoY -24.0% 10.0% -2.7% -6.1% 8.4% -6.4% 9.1% -4.4% 23.6% Electronic devices 34,585 39,341 34,172 30,688 35,870 39,406 41,474 42,798 44,165 YoY -9.5% 13.8% -13.1% -10.2% 16.9% 9.9% 5.2% 3.2% 3.2% Operating profit -2,755 761 -4,101 1,469 2,276 2,918 3,126 1,792 2,138 YoY - - - - 54.9% 28.2% 7.1% -42.7% 19.3% Microwave products 339 596 355 547 982 691 1,054 552 1,382 YoY - 75.8% -40.4% 54.1% 79.5% -29.6% 52.5% -47.6% 150.4% Electronic devices 810 2,123 -2,705 2,360 2,768 3,745 3,637 2,972 2,525 YoY - 162.1% - - 17.3% 35.3% -2.9% -18.3% -15.0% Other, adjustments -3,904 -1,958 -1,751 -1,438 -1,474 -1,518 -1,564 -1,732 -1,769 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Since FY12/18, the company has not disclosed segment data for New JRC.
Nisshinbo is working to develop new business. Since 03/14, sales have grown for new businesses based on passive components previously not handled by the firm such as SAW (surface acoustic wave) and MEMS (micro electro mechanical systems). From 03/15, the name of this segment was changed from “Semiconductors” to “Electronic devices.” Further, in FY03/17, the company integrated the microwave tube and radar components segment and microwave application products segment into the microwave products segment.
Prior to becoming a wholly owned subsidiary, New JRC had two segments: Microwave products, and electronic devices.
Microwave products: Electron tubes for government and municipal offices and manufacturers, and satellite communications ▷ components for telecoms companies
Electronic devices: New JRC manufactures general-purpose semiconductors based on analog technology, including ▷ operational amplifiers and integrated circuits (ICs) for batteries. It sells to manufacturers of a range of products, including
audio systems, automobile devices, industrial equipment, and communications equipment. In addition to semiconductors,
the company is also selling passive components such as SAW and MEMS
The company’s main clients include Mitsubishi Electric Corporation (TSE1: 6503), and sales to that company totaled JPY4.3bn (- 2.6% versus FY03/17) in FY03/18 and accounted for 8.3% of sales (versus 9.0% in FY03/17).
Competitors include Rohm Co., Ltd. (TSE1: 6963), Seiko Instruments Inc. (subsidiary of Seiko Holdings Corp. [TSE1: 8050]), Mitsumi Electric Co., Ltd. (TSE1: 6767), the US-based Texas Instruments Inc. (NASDAQ: TXN), and Switzerland-based STMicroelectronics N.V. (BIT: STM).
New JRC market New JRC sales are strongly correlated to the analog IC market (in yen).
The World Semiconductor Trade Statistics (WSTS) Autumn 2020 forecast calls for growth in the analog IC market (in US dollars) of 0.0% YoY in 2020 and 8.6% YoY in 2021.
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New JRC electronic devices segment sales versus the analog IC market
(JPYmn) New JRC sales of electronic devices Analog IC market (JPY-based; right axis) (JPYbn) 65,000 7,000 60,000 6,500 6,000 55,000 5,500 50,000 5,000 45,000 4,500 40,000 4,000 35,000 3,500 30,000 3,000
25,000 2,500
20,000 2,000 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20
Source: Shared Research based on World Semiconductor Trade Statistics Note: New JRC data for the financial year ending in March; WSTS data for the calendar year. Note: New JRC’s FY12/18 figures have been adjusted for a December year-end. Note: 2020 figures for the analog IC market are forecasts.
Ricoh Electronic Devices In March 2018, Nisshinbo acquired an 80.0% stake (160 shares) in Ricoh Electronic Devices Co., Ltd. from Ricoh Company, Ltd., making Ricoh Electronic Devices a consolidated subsidiary.
In the Micro Devices business, in contrast to New JRC, which is strong in analog semiconductors for low-noise amplifiers and power management integrated circuits used in audio equipment, vehicles, and industrial equipment, as well as in devices for wireless communications and IoT, the strength of Ricoh Electronic Devices lies in power management integrated circuits, especially small, energy-saving, high-efficiency complementary metal-oxide-semiconductor (CMOS) analog semiconductors.
By bringing together the bipolar technology of New JRC and the CMOS technology of Ricoh Electronic Devices, the Nisshinbo group is seeking to strengthen its business by responding to a wider range of needs in the automotive and IoT fields. Ricoh Electronic Devices and New JRC can also be expected to have a cooperative and complementary relationship when it comes to the various processes of semiconductor fabrication. More specifically, for front-end processing the two companies will be able to make use of the manufacturing facility owned by Ricoh Electronic Devices, and for back-end processing they will be able to make use of the facilities operated by New JRC subsidiaries Saga Electronics Co., Ltd. and Thai NJR Co., Ltd.
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Automobile Brakes (26.4% of sales, operating loss of JPY2.3bn in FY12/20)
In the Automobile Brakes segment, the company supplies friction materials, a core component of automobile brake systems, as well as assembly products such as drum brakes and disc brakes to customers worldwide. The main players within this business are the Nisshinbo Brake group (38.4% of Automobile Brakes segment sales in FY12/20, with operating profit at JPY788mn, and the TMD group, which was made a subsidiary in November 2011 (65.4% of segment sales, operating loss of JPY3.2bn).
In FY03/13, prior to the consolidation of TMD, this segment accounted for 58.4% of group operating profit. Return on assets (operating profit basis) was 11.3% in FY03/11 (since only TMD assets were consolidated in FY03/12, FY03/11 earnings appear more appropriate in the assessment of asset efficiency prior to TMD consolidation). Then, due to the burden of goodwill amortization after the consolidation of TMD, the segment posted operating losses from FY03/13 through FY03/17. In FY03/18, the Automobile Brakes segment finally posted operating profit as goodwill amortization stemming from the TMD acquisition came to an end. However, the segment recorded operating losses from FY12/18 through FY12/20 as TMD’s performance deteriorated. TMD is working to improve earnings through the entrenchment of profitability management in new car assembly products and improvements in the production defect ratio.
Automobile Brakes segment performance
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 140,171 131,338 114,826 YoY 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -12.4% - -2.7% -12.6% Operating profit 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 -916 -3,340 -2,289 YoY -16.4% ------OPM 9.0% - - - - - 4.0% 4.2% - - - - OP before goodw ill amort izat ion and 4,254 2,982 7,358 8,229 8,589 8,454 8,845 - - - - - TMD adjustments for JGAAP YoY -16.4% -29.9% 146.7% 11.8% 4.4% -1.6% 4.6% - - - - - Segment assets 128,417 139,591 167,264 177,473 160,017 151,264 171,161 - 152,528 - 133,654 131,964 Segment ROA (OP-based) 5.0% -3.2% -1.2% -1.2% -0.5% 0.0% 3.8% - - - - - Segment ROA (OP-based) before 5.0% 2.2% 4.8% 4.8% 5.1% 5.4% 5.5% - - - - - goodwill amortization Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19. Note: In FY03/10, ABS systems were incorporated into the Mechatronics segment (formerly in the Automobile Brakes segment). To ensure like-for-like comparison, ABS sales and operating profit have been excluded from figures for FY03/09 and earlier. Note: Expenses incurred to bring TMD in conformance to Japanese accounting standards include amortization of intangible fixed assets, treatment of R&D expenditures, and treatment of retirement benefits.
Products As noted earlier, in the Automobile Brakes business, Nisshinbo is a global supplier of assembly products, including drum and disc brakes, and friction materials (a core component of braking systems). There are two types of automobile brake: disc and drum. Disc brakes stop car wheels by gripping a metal disc attached to the wheel between pads of friction material. Drum brakes press a brake lining made of friction material against the inside of a cylindrical drum attached to the wheel.
Disc brakes provide a stable braking force, with excellent heat dissipation. They are easy to clean and are particularly effective for high-speed braking. Drum brakes have more braking force with a self-applying effect and cost less, but they do not disperse heat well (weak heat dispersion can lead to reduced braking force [the brake fade phenomenon] in downhill situations, making it a key safety concern). As a result, many cars have disc brakes on the front wheels and drum brakes on the rear wheels, although high-end cars often have disc brakes on both the front and rear wheels.
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Automobile Brakes segment products
Source: Company data
Nisshinbo’s entry into the brake business: Nisshinbo began producing friction materials for automobile brakes after the end of World War II, as an alternative use for its textile spinning technology. Prewar Japan relied mainly on asbestos from Canada for braking plates for all types of machinery. Yet as its relations with the US and the UK worsened, Japan was forced to develop technology to process domestic asbestos, which was of lower quality. Nisshinbo thus entered the brake business because its technology for textile spinning—twisting and weaving fibers—could be utilized to process asbestos (the company no longer uses asbestos, owing to environmental and health concerns).
In the 1950s, Nisshinbo began supplying brake lining to Toyota Motor Corp. (TSE1: 7203). Its production of brake lining increased with growth in Japan’s automotive industry. As Japanese manufacturers adopted technology from US and European companies in the 1960s, Nisshinbo introduced friction materials technology from Small and Parks Limited (now the TMD Friction Group S.A.) to improve the quality and performance of its products. As a result, Nisshinbo began supplying friction materials to a range of major auto manufacturers, for everything from passenger vehicles to commercial vehicles.
In the 1990s, auto manufacturers moved production overseas. In response, Nisshinbo expanded outside Japan, establishing Nisshinbo Automotive Corporation (NAC) in Detroit in 1995 and Nisshinbo Automotive Manufacturing Inc. (NAMI) near Atlanta in 1997.
Nisshinbo became the global market leader in 2012, following its 2011 acquisition of TMD Friction Group S.A., Europe’s largest manufacturer of friction materials for automobile brakes.
Competitors According to the company, the friction materials market for braking systems is worth about JPY700bn. Nisshinbo holds about 20% of the market, making it the global market leader. Second is the Federal-Mogul Holdings Corporation (NASDAQ: FDML), then Akebono Brake Industry Co., Ltd. (TSE1: 7238) and ITT Corporation (NYSE: ITT).
Nisshinbo counts its independence from auto manufacturers a strength, in addition to its ability to supply a range of auto components and world-class development capabilities made possible by rich data and expertise on materials, and modern testing equipment.
According to the company, the acquisition of TMD has sharpened its competitive edge—namely its global reach and range of technology. Together, the factories of Nisshinbo Brake group and TMD now cover most major auto manufacturing countries. Since the late 1990s, Japanese auto manufacturers have produced and sold key global models in countries around the world, so when they choose suppliers, they consider candidates’ production and supply structures in the countries where the car is manufactured.
Friction materials are divided into three types, depending on the steel fiber content. The Nisshinbo Brake group specializes in the NAO (Non-Asbestos Organic) type, while TMD focuses on low steel friction material. The acquisition of TMD thus means Nisshinbo can meet a wider range of needs from its clients.
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Types of brake friction materials
Region Road conditions Required performance Main friction material Steel fiber content
Europe Expressways such as autobahns with Powerful braking capabilities Low-steel materials 5–10% no speed limits
Japan Expressways with speed limits of Smooth braking with no squealing NAO materials 0% US 100mph in the US; 100km/h in Japan or vibration durability Semi-metal materials 20-50% Source: Shared Research based on company data
Business model In addition to auto manufacturers, the disc pad and brake lining markets also include original equipment manufacturers (OEM) and replacement parts suppliers. Nisshinbo mostly supplies parts to auto manufacturers and tier one manufacturers (manufacturing and selling brakes and brake systems directly to auto manufacturers).
Clients Domestic clients include Toyota Motor Corp. (TSE1: 7203), Hino Motors, Ltd. (TSE1: 7205), Honda Motor Co., Ltd. (STSE1: 7267), Suzuki Motor Corp. (TSE1: 7269), Advics Co., Ltd. (unlisted), Nissin Kogyo Co., Ltd. (TSE1: 7230), and other Japanese auto manufacturers.
Overseas subsidiaries of Nisshinbo Automobile Brakes sell to the local production units of Japanese auto manufacturers, plus European and South Korean auto manufacturers. TMD’s clients are mostly European auto manufacturers, and Tier one manufacturers, including the Volkswagen Group (FWB: VOW), Audi AG (FWB: NSU), Daimler AG (FWB: DAI), TRW Automotive (NYSE: TRW), and Continental AG (FWB: CON).
Friction materials for brake systems differ according to vehicle type. About two or three years before new models and full model makeovers of existing models (about once every five years) are due to be sold, auto manufacturers select suppliers based on competing bids and needs. Once a supplier has won the contract, the auto manufacturer generally sticks with that supplier until the next model change or discontinuation.
Volumes and share As stated above, excluding sports cars, most cars have disc brakes on the front wheels and drum brakes on the rear. According to the company, global auto production is about 90mn vehicles per year. Including TMD, Nisshinbo holds about 20% of the market—meaning it supplies friction materials for roughly 18mn new vehicles per year (Shared Research estimates).
Materials costs, marginal profit ratio Raw materials make up the bulk of manufacturing costs for friction materials (the company does not release details). Marginal profit ratios differ depending on car type, but Shared Research assumes they are around 20–30%. Ongoing cost cutting by auto manufacturers means product prices for a given model will fall YoY, but the company protects margins by increasing yields and cutting its own costs.
Automobile Brakes segment earnings Nisshinbo’s subsidiaries, Nisshinbo Brake, the NISB Group (domestic and overseas), and TMD Group manufacture and sell the products. Earnings for each subsidiary are listed in the following table.
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Automobile Brakes segment performance breakdown
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 47,450 118,849 148,699 161,886 165,037 146,061 154,204 149,040 135,007 140,171 131,338 114,826 YoY 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% 5.6% - -9.4% - -6.3% -12.6% Nisshinbo Brake (total) 51,484 55,240 65,155 69,295 70,971 65,567 69,627 63,466 50,284 56,444 50,854 44,057 YoY 2.1% 7.3% 17.9% 6.4% 2.4% -7.6% 6.2% -20.8% - -9.9% -13.4% Nisshinbo Brake (Japan) 27,680 27,434 27,991 28,008 25,272 25,058 25,134 18,973 12,711 YoY 3.1% -0.9% 2.0% 0.1% -9.8% -0.8% 0.3% - -33.0% Nisshinbo Brake (Overseas) 23,804 27,806 37,164 41,287 45,699 40,509 44,493 44,493 37,573 YoY 0.9% 16.8% 33.7% 11.1% 10.7% -11.4% 9.8% - -15.6% TMD group - 67,988 88,792 98,645 99,787 86,423 92,518 92,518 90,593 90,593 85,850 75,106 YoY - - 30.6% 11.1% 1.2% -13.4% 7.1% - -2.1% - -5.2% -12.5% % of total 0.0% 57.2% 59.7% 60.9% 60.5% 59.2% 60.0% 62.1% 67.1% 64.6% 65.4% 65.4% Eliminations -4,034 -4,379 -5,248 -6,054 -5,721 -5,929 -7,941 -6,944 -5,870 -6,866 -5,366 -5,366 Operating profit 4,254 -4,301 -1,813 -2,068 -886 -7 6,119 6,221 -813 -916 -3,340 -2,289 YoY -16.4% ------OPM 9.0% - - - - - 4.0% 4.2% - - - - Nisshinbo Brake (total) 4,403 3,890 6,660 7,217 6,864 6,531 5,362 5,269 3,749 3,846 1,620 788 YoY -12.5% -11.7% 71.2% 8.4% -4.9% -4.9% -17.9% - -28.8% - -57.9% -51.4% OPM 8.6% 7.0% 10.2% 10.4% 9.7% 10.0% 7.7% 8.3% 7.5% 6.8% 3.2% 1.8% Nisshinbo Brake (Japan) 2,615 1,732 1,836 1,950 1,142 1,486 870 777 270 YoY -4.9% -33.8% 6.0% 6.2% -41.4% 30.1% -41.5% - -65.3% OPM 9.4% 6.3% 6.6% 7.0% 4.5% 5.9% 3.5% 4.1% 2.1% Nisshinbo Brake (Overseas) 1,788 2,158 4,824 5,267 5,722 5,045 4,492 4,492 3,479 YoY -21.5% 20.7% 123.5% 9.2% 8.6% -11.8% -11.0% - -22.6% OPM 7.5% 7.8% 13.0% 12.8% 12.5% 12.5% 10.1% 10.1% 9.3% TMD group - -3,487 -1,009 -662 -22 618 1,750 1,750 -4,055 -4,055 -4,152 -3,219 YoY ------183.2% - - - - - OPM - - - - - 0.7% 1.9% 1.9% - - - - Eliminations -149 -4,704 -7,464 -8,623 -7,728 -7,156 -993 -798 -507 -707 -808 142 OP before TMD acquisition expenses 4,254 2,982 7,358 8,229 8,589 8,454 8,845 YoY -16.4% -29.9% 146.7% 11.8% 4.4% -1.6% 4.6% OPM 9.0% 2.5% 4.9% 5.1% 5.2% 5.8% 5.7% TMD acquisition expenses - 7,283 9,171 10,297 9,475 8,461 2,726 Goodwill amortization - 4,737 5,978 6,915 6,576 5,921 - TMD adjustments (JGAAP) 2,546 3,193 3,382 2,899 2,540 2,726 No. of employees 6,762 6,585 6,964 7,045 7,051 7,004 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Nisshinbo Brake (domestic and overseas) figures for FY12/18 and earlier are simple totals for Nisshinbo Brake (Japan) and Nisshinbo Brake (Overseas). Note: Nisshinbo Brake’s sales declined YoY in FY12/18 and FY12/19 due to the sale of its foundation brake business in April 2018. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
Nisshinbo Brake (domestic) Nisshinbo Brake supplies friction materials mainly to domestic auto manufacturers and tier one automotive component manufacturers. In the domestic friction materials market for auto manufacturers, Nisshinbo Brake holds about 25% of the disc pad market, 65% of the brake lining market for passenger cars, and 35% of the brake lining market for commercial vehicles. Earnings are strongly correlated to domestic automobile production.
Nisshinbo Brake sales versus domestic auto production
(JPYmn) ('000)
32,000 Nisshinbo Brake sales 12,000
Domestic auto production units (right axis) 11,500 30,000 11,000 28,000 10,500
26,000 10,000
9,500 24,000 9,000 22,000 8,500
20,000 8,000 Mar. 2007 Mar. 2008 Mar. 2009 Mar. 2010 Mar. 2011 Mar. 2012 Mar. 2013 Mar. 2014 Mar. 2015 Mar. 2016 Mar. 2017 Mar. 2018
Source: Shared Research based on Japan Automobile Manufacturers Association, Inc.
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Nisshinbo Brake (overseas) The NISB Group comprises subsidiaries in South Korea, the US, Thailand, and China. Overseas subsidiaries overview Subsidiary Clients Contribution to Nisshinbo Brake earnings in FY12/20
Saeron Automotive Corporation (South Korea) Hyundai Motor Co., Sales: about 20% (Nisshinbo stake: 65.0%) Kia Motors Corp. OP: 0%
Japanese auto manufacturers Nisshinbo Automotive Manufacturing Inc. (US) Sales: about 20% Volkswagen (wholly owned) OP: about 10% Ford Motor
Nisshinbo Somboon Automotive Co., Ltd. (Thailand) Sales: about 10% Japanese auto manufacturers (passenger vehicles) (Nisshinbo stake: 97.1%) OP: about 30%
Saeron Automotive Beijing Co., Ltd. (China) Japanese, European, American, and South Korean (Nisshinbo stake: 65.0%) auto manufacturers Sales: about 20% OP: about 90% Nisshinbo Saeron Changshu Automotive Corporation (China) Japanese auto manufacturers (wholly owned)
TMD TMD has more than 135 years of experience as a manufacturer of brake friction materials. Earnings fell after the global financial crisis of 2008, leading Pamplona Capital Management to buy and restructure TMD in April 2009. Nisshinbo made TMD a consolidated subsidiary through a share acquisition in September 2011. The purchase price on the acquisition was JPY46.2bn, with goodwill at JPY23.1bn and intangible fixed assets at JPY9.4bn. According to the company, TMD’s OPM was about 5% before earnings slumped in 2008.
TMD is Europe’s largest manufacturer of friction materials for brakes, with 22 factories across 12 countries, including three in UK, seven in Germany, one in Romania, France, and Spain, three in China, and one in Mexico, Brazil, the US, Japan, Russia, and the UAE). It has a strong presence in Europe, China, and South America, and manufacturing only overlaps with Nisshinbo Brake group in China.
The Nisshinbo Brake group’s clients are mostly Japanese and South Korean auto manufacturers, while TMD’s main clients are European auto manufacturers and tier one component manufacturers, such as Volkswagen, Audi, Daimler, TRW Automotive, and Continental Automotive. About 60% of sales come from steel pipe components for new cars and about 40% from commercial replacement products. Profit margins are higher for commercial replacement products than for those used in new cars.
According to the company, car owners in Europe often replace brake pads when putting on snow tires for the winter, so mild winters hurt sales of commercial replacement brake pads, as fewer car owners switch to snow tires. Consequently, the results of TMD are also affected negatively.
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Automobile Brakes market data
Global auto sales and production Global auto production grew 29.8% between 2008 and 2019 (CAGR of 2.4%). It fell in 2008 and 2009 following the global (mn) 100 Units produced financial crisis, but has risen since as demand in Asia and Africa Units sold has grown. 90
80
70
60 200520062007200820092010201120122013201420152016201720182019 Source: Shared Research based on OICA
Domestic auto production, sales Domestic auto sales grew 2.2% between 2008 and 2019 (CAGR of 0.2%). The downward trend is due to rising populations in (mn) 12 large cities with access to public transport, Japan’s aging society,
10 and declining car ownership among young people.
8 Domestic auto production fell 16.3% between 2008 and 2019 6 (CAGR of -1.6%). Japanese auto manufacturers are moving 4 Units produced production overseas, resulting in lower exports. 2 Units sold 0 200520062007200820092010201120122013201420152016201720182019
Source: Shared Research based on OICA
South Korean auto production, sales South Korean auto sales grew 44.1% between 2008 and 2019 (CAGR of 3.4%). South Korean auto production grew 3.2% (mn) 6 between 2008 and 2019 (CAGR of 0.3%).
Auto production in South Korea significantly exceeds auto sales 4
Units produced volume because it includes exports to the US, Europe, India, and Units sold elsewhere. However, the gap between sales and production has 2 been narrowing since its peak in 2011.
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Shared Research based on OICA
US auto production, sales US auto sales increased 29.5% between 2008 and 2019 (CAGR
(mn) of 2.4%). Auto sales slumped in 2008 and 2009 following the 20 global financial crisis, but recovered as the economy picked up. Long-term, auto sales are trending upward in line with a growing 15 population. 10 US auto production increased 25.5% between 2008 and 2019 5 Units produced (CAGR of 2.1%). Imports account for about 30–40% of auto Units sold 0 sales. 200520062007200820092010201120122013201420152016201720182019
Source: Shared Research based on OICA
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Thai auto production, sales Thai auto sales grew by 63.8% between 2008 and 2019 (CAGR
(mn) of 4.6%), while auto production increased 44.5% (CAGR of 3 Units produced 3.4%) over the same period. Auto sales declined in 2014 Units sold following the military coup, and also decreased in 2015 and 2 2016, but have been recovering since 2017.
1 The market is trending upward overall, in line with economic growth and a lack of access to public transportation. Growth in
0 auto production has outstripped that of auto sales because 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Thailand exports cars to countries in the region. Source: Shared Research based on OICA
Chinese auto production, sales Sales of automobiles in China exceed that of the US in 2009,
(mn) making it the world’s largest market. The number of automobiles Units produced 30 sold in China during 2019 represents about 30% of all global Units sold sales.
20 Chinese auto sales grew 174.7% between 2008 and 2019 (CAGR
10 of 9.6%), while auto production increased 176.6% (CAGR of 9.7%) over the same period. Auto sales and production have
0 been slowing since 2017. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Shared Research based on OICA
European auto production, sales European auto sales account for more than 20% of global auto
(mn) sales. Auto sales in Europe fell 4.9% (CAGR of -0.5%) between 25 Units produced Units sold 2008 and 2019, while auto production fell 3.9% (CAGR of - 0.4%) over the same period.
20 Sales were sluggish in the wake of the global financial crisis of 2008, but production and sales have been on a gradual recovery track since.
15 200520062007200820092010201120122013201420152016201720182019
Source: Shared Research based on OICA
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Precision Instruments (11.8% of sales, operating loss of JPY948mn in FY12/20)
Precision Instruments segment performance FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 25,190 24,520 28,655 28,607 29,525 60,687 64,918 61,215 62,219 65,921 65,428 51,419 YoY -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% 7.0% - 1.6% - -0.7% -21.4% Precision instruments and systems 13,659 12,043 14,388 15,080 14,283 14,996 14,047 12,297 15,848 18,920 15,775 14,387 YoY -28.3% -11.8% 19.5% 4.8% -5.3% 5.0% -6.3% - 28.9% - -16.6% -8.8% Plastic molding and processing 15,489 15,678 18,078 18,167 18,464 49,081 53,526 50,817 51,287 52,672 52,094 40,669 YoY -1.8% 1.2% 15.3% 0.5% 1.6% 165.8% 9.1% - 0.9% - -1.1% -21.9% Eliminations -3,958 -3,201 -3,811 -4,640 -3,222 -3,390 -2,655 -1,899 -4,916 -5,671 -2,441 -3,637 Operating profit -1,069 -146 1,075 263 318 1,048 1,724 1,787 1,690 1,628 879 -948 YoY - - - -75.5% 20.9% 229.6% 64.5% - -5.4% - -46.0% - OPM - - 3.8% 0.9% 1.1% 1.7% 2.7% 2.9% 2.7% 2.5% 1.3% - Precision instruments and systems -1,632 -790 218 -509 -88 808 576 891 807 746 382 -78 YoY ------28.7% - -9.4% -48.8% - OPM - - 1.5% - - 5.4% 4.1% 7.2% 5.1% 3.9% 2.4% - Plastic molding and processing 546 689 949 853 448 1,204 2,039 1,665 1,811 1,931 1,286 -38 YoY -19.8% 26.2% 37.7% -10.1% -47.5% 168.8% 69.4% - 8.8% -33.4% - OPM 3.5% 4.4% 5.2% 4.7% 2.4% 2.5% 3.8% 3.3% 3.5% 3.7% 2.5% - Eliminations 17 -46 -92 -81 -42 -964 -891 -769 -928 -1,049 -789 -832 Segment assets 24,088 26,091 29,857 36,648 72,294 72,135 74,964 - 76,604 - 74,801 70,056 Segment ROA (OP-based) -4.5% -0.6% 3.8% 0.8% 0.6% 1.5% 2.3% - 2.2% - - - No. of employees 1,904 1,783 1,719 1,862 3,093 3,161 3,253 - 3,236 - 3,329 3,287 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
Nisshinbo entered this business in the 1940s, turning its core spinning machine technology to manufacturing machine tools to adapt to changing domestic conditions. The segment comprises the precision instruments and systems business and plastic molding and processing business, accounting for 26.1% and 73.9% of segment sales respectively in FY12/20. As the company made Nanbu Plastics, a plastic parts manufacturer, a subsidiary in October 2015, sales and profits in the plastic molding and processing business increased sharply in FY03/17.
Precision instruments and systems In the precision instruments and systems business, the company mainly sells automotive precision components. In the automotive precision components business, Nisshinbo manufactures and supplies aluminum housing and other products mainly to Germany’s Continental Automotive Corp.
Specific products include its EBS valve block for automobiles and diesel fuel injection control pump housing.
EBS valve block for automobiles Diesel fuel injection control pump housing
Source: Company data Source: Company data Electronic brake systems (EBS) are key components in anti-lock brake systems This diesel engine fuel injection device converts fuel (diesel fuel) into high- (ABS), which prevent wheel locking and skidding when the brakes are applied, pressure mist and completely burns the fuel, thereby decreasing harmful and electronic stability control (ESC), which uses sensors to monitor vehicle emissions, vibration, noise, and so on and boosting fuel efficiency. The pump driving status and controls stable driving and stopping. The electronic brake that controls the fuel injection must be able to withstand high-pressure system optimally applies braking force to the four wheels, contributing to operation. enhanced vehicle stability.
Plastic molding and processing In the plastic molding and processing business, the company manufactures and supplies plastic molded components for household air conditioner fans to Japanese air conditioner manufacturers such as Daikin Industries, Ltd. (TSE1: 6367). Margins are not high, but the business is growing.
Specific products include fans for residential and commercial air conditioners and fans for automobile use.
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Fans for residential and commercial air conditioners Fan for automobile use
Source: Company data Source: Company data Nisshinbo offers a variety of fans for use in residential and commercial air These fans are used in air conditioner blow units for automobile use. conditioners, as well as an extensive range of household appliances, such as refrigerators, air purifiers, bathroom heating equipment and exhaust fans, and water heaters.
Further, the company converted Nanbu Plastics, a plastic parts manufacturer, to a subsidiary in October 2015.
Nanbu Plastics In October 2015, the company acquired all shares of Nanbu Plastics and converted the company to a subsidiary. The acquisition price was JPY10.4bn, with goodwill at JPY5.9bn. Nanbu Plastics focuses on plastic parts for automobile wire harnesses and headlamps, and Nisshinbo aims to expand its automotive business by including Nanbu Plastics under its umbrella.
Products for automobiles Products for healthcare Products for housing
Source: Company data Source: Company data Source: Company data
Chemicals (2.2% of sales, 22.8% of operating profit in FY12/20)
Chemicals segment performance
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 142909 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 8,258 8,150 8,810 8,138 8,285 9,482 11,285 7,895 8,173 11,563 9,390 9,577 YoY 13.4% -1.3% 8.1% - 1.8% 14.4% 19.0% - 3.5% - -18.8% 2.0% Insulation materials - - 3,966 3,771 3,765 4,982 6,083 4,138 4,004 - - - YoY - - - -4.9% -0.2% 32.3% 22.1% - -3.2% - - - Fuel cells - 828 1,016 1,139 1,166 1,040 1,310 901 1,081 - - - YoY - - 22.7% 12.1% 2.4% -10.8% 26.0% - 20.0% - - - Functional chemicals (Carbodilite) - 1,520 1,702 1,716 1,834 2,248 2,466 1,851 1,896 - - - YoY - - 12.0% 0.8% 6.9% 22.6% 9.7% - 2.4% - - - Electric double-layer capacitors - 281 301 440 ------Operating profit 373 132 105 396 753 1,309 2,112 1,395 1,664 2,381 1,649 1,811 YoY 45.1% -64.6% -20.5% - 90.2% 73.8% 61.3% - 19.3% - -30.7% 9.8% OPM 4.5% 1.6% 1.2% 4.9% 9.1% 13.8% 18.7% 17.7% 20.4% 20.6% 17.6% 18.9% Insulation Materials and Others - - 665 478 507 689 845 570 645 - - - YoY - - - -28.1% 6.1% 35.9% 22.6% - 13.2% - - - OPM - - 16.8% 12.7% 13.5% 13.8% 13.9% 13.8% 16.1% - - - Insulation materials - -264 -290 -201 -107 -169 255 116 169 - - - YoY ------45.7% - - - OPM ------19.5% 12.9% 15.6% - - - Functional chemicals (Carbodilite) - 181 126 180 236 578 627 470 533 - - - YoY - - -30.4% 42.9% 31.1% 144.9% 8.5% - 13.4% - - - OPM - 11.9% 7.4% 10.5% 12.9% 25.7% 25.4% 25.4% 28.1% - - - Electric double-layer capacitors - -678 -621 -129 ------Segment assets 8,640 7,965 8,214 7,454 7,798 8,430 9,368 - 9,056 - 9,394 10,432 Segment ROA (OP-based) 4.5% 1.6% 1.3% 5.1% 9.9% 16.1% 23.7% - 18.1% - - - No. of employees 321 334 335 327 280 276 258 - 269 - 272 278 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19. Note: From FY12/19, the company does not disclose a breakdown for insulation materials, fuel cells, and functional chemicals.
This segment has its roots in the development of raw materials derived from the Automobile Brakes business. It primarily comprises the insulation materials unit, fuel cell unit, and functional chemicals unit, accounting for about 40%, 20% and 20% of segment sales respectively in FY12/20.
Insulation materials Insulation materials are supplied for LNG tanks, LNG tankers, and households. The company holds about 10% of the market. Nisshinbo does not project growth in the market, but it is a profitable business, with an OPM of over 10%.
Fuel cells Carbon separator Fuel cells generate electricity through a chemical reaction between hydrogen and the oxygen in the air. This is clean energy, and does not generate carbon dioxide. Nisshinbo manufactures and supplies carbon bipolar plates, a component in fuel cells. Carbon bipolar plates are light and can be produced for lower cost than metal ones in large quantities.
As of February 2021, Nisshinbo’s carbon separators are used in fuel cell cogeneration systems (ENE-FARM fuel cells for household use). Competitors include Hitachi Chemical Company, Ltd. (TSE1: 4217) and Kyocera Corporation (TSE1: 6971), but Nisshinbo enjoys about 90% market share. The company is conducting joint development with auto manufacturers into automotive applications for carbon bipolar plates. The long-term aim: to leverage the advantages offered by carbon bipolar plates in fuel cell vehicles. As part of its effort to break into the automotive market, in October 2015, Nisshinbo acquired a 2.5% stake for JPY600mn in Ballard Power Systems, a major Canadian fuel cell company.
Carbon alloy catalyst In fuel cell-related areas, in September 2017 the company announced that it had developed a carbon alloy catalyst for commercial use. The company is the first in the world to develop a commercial use for carbon alloy catalysts, a platinum-free catalyst used in polymer electrolyte fuel cells. This technology is able to match the power generation capabilities of platinum catalysts in portable fuel cells. Fuel cells extract electricity from hydrogen via electrochemical reactions, and electrodes having a catalytic role is used to accelerate the reaction. Platinum catalysts, because they require use of the rare metal platinum, are one of the reasons fuel cell costs are so expensive. Nisshinbo’s carbon alloy catalyst uses carbon as its key material. This facilitates a stable supply for industrial production and, because this carbon alloy catalyst can be used in place of a platinum catalyst, it will help to bring down the cost of fuel cells. Nisshinbo’s carbon alloy catalyst is currently being used in the portable fuel cells manufactured by Ballard Power Systems (NASDAQ: BLDP).
Functional chemicals (Carbodilite) Carbodilite refers to a group of products containing polycarbodiimides—a high-performance polymer. It is used as a modifier to increase the durability of biodegradable plastic and as a cross-linking agent (in polymer chemistry, this is a chemical substance that changes the physical and chemical properties of polymers by linking them together) in water-soluble resins for paint.
Biodegradable plastic has the functionality and physical properties of plastic, but it can be decomposed under certain conditions by microorganisms found in nature until nothing remains but carbon dioxide and water.
To reduce carbon dioxide emissions, the market is moving from petrochemical-based plastics to biodegradable plastics (plant- derived). The company thus expects demand for Carbodilite to increase, as it can increase the durability of biodegradable plastics. Competitors include BASF Polyurethanes GmbH (BASF subsidiary) and Rhein Chemie Additives (part of Lanxess AG [FWB: LXS]). Carbodilite, however, has a competitive edge because its toxicity is low.
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Textiles (7.8% of sales, operating loss of JPY812mn in FY12/20)
Textiles segment performance FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. ales 60,963 50,773 51,348 48,165 60,127 55,842 54,639 44,646 43,659 53,653 49,505 33,957 YoY 6.2% -16.7% 1.1% - - -7.1% -2.2% - -2.2% - -7.7% -31.4% Domestic 60,211 49,896 47,844 42,217 52,667 50,206 47,387 36,211 35,838 47,013 42,484 29,514 YoY 3.6% -17.1% -4.1% - - -4.7% -5.6% - -1.0% - -9.6% -30.5% Overseas 18,387 15,763 19,601 21,676 21,046 20,222 20,222 21,491 22,134 22,134 21,970 14,166 YoY 21.1% -14.3% 24.3% - - -3.9% 0.0% - 3.0% - -0.7% -35.5% Eliminations -17,635 -14,886 -16,097 -16,532 -16,210 -14,586 -14,239 -13,056 -14,313 -15,494 -14,949 -9,723 perating profit 840 574 552 -357 1,778 1,777 1,875 1,819 1,250 1,306 1,036 -812 YoY 359.0% -31.7% -3.8% - - -0.1% 5.5% - -31.3% - -20.7% - OPM 1.4% 1.1% 1.1% - 3.0% 3.2% 3.4% 4.1% 2.9% 2.4% 2.1% - Domestic 847 287 -41 -1,086 1,672 1,790 1,209 1,130 837 1,028 526 -842 YoY - -66.1% - - - 7.1% -32.5% - -25.9% - -48.8% - OPM 1.4% 0.6% - - 3.2% 3.6% 2.6% 3.1% 2.3% 2.2% 1.2% - Overseas 76 126 689 606 423 351 916 916 684 684 770 -31 YoY -90.8% 65.8% 446.8% -12.0% -30.2% -17.0% 161.0% - -25.3% - 12.6% - OPM 0.4% 0.8% 3.5% 2.8% 2.0% 1.7% 4.5% 4.3% 3.1% 3.1% 3.5% - Eliminations -83 161 -96 5 -317 -364 -250 -227 -271 -406 -260 61 egment assets 47,657 44,702 47,837 50,082 61,947 56,660 54,508 - 55,138 - - - egment ROA (OP-based) 1.7% 1.2% 1.2% -0.7% 3.2% 3.0% 3.4% - 2.3% - - - o. of employees 3,411 3,813 3,649 2,870 3,425 3,466 3,297 - 3,333 - 3,243 2,749 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: FY12/18 was an irregular accounting period caused by a change in the financial year end. For this reason, for the sake of reference, FY03/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/18, and FY12/18 (adjusted) figures have been adjusted to cover a period comparable to FY12/19.
Overview Nisshinbo has sold textiles since its founding. In Japan, the company mostly sells—through subsidiaries or a trading house— products supplied by its Indonesian subsidiary. Overseas subsidiaries in Indonesia, Brazil, and China manufacture products destined for Japan, while also selling textile products overseas.
Products include shirt fabric and uniform fabric. Main clients are manufacturers of shirts and uniforms, including consolidated subsidiaries.
It is focusing on its APOLLOCOT brand of non-iron shirts (FY03/14 sales: about JPY1.5bn), one of few 100% cotton, non-iron products on the market. This product has realized grade 4 wash & wear properties.
W&W (wash & wear properties): Ranking (1 to 5) of the degree of wrinkles on clothes after washing based on judgements using replicas of six types of post-washing wrinkle conditions. A higher ranking indicates fewer wrinkles.
Restructuring In the late 1990s, Nisshinbo restructured its domestic operations and shifted manufacturing overseas as the domestic textile industry shrunk. In the 2010s, the company again restructured, consolidating domestic spinning factories and downsizing its processing plants. Overseas, the company added to its spinning, dyeing, and shirt sewing capacity in Indonesia, Brazil, China, and India. As of February 2020, its main factory is at an Indonesian subsidiary.
Tokyo Shirts became a subsidiary in May 2015 Nisshinbo sold CHOYA Co., Ltd., which produces and sells shirts, in February 2015, and converted Tokyo Shirts Co., Ltd., which sells shirts at 163 direct stores in Japan (as of end of December 2020), to a subsidiary in May 2015 (FY02/18 sales of JPY10.8bn).
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Real Estate (4.7% of sales, 144.7% of operating profit in FY12/20)
Real Estate segment performance FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY12/18 FY12/18 FY12/19 FY12/20 (JPYmn) Act. Act. Act. Act. Act. Act. Act. A djusted Act. A djusted Act. Act. Sales 9,081 15,366 10,567 9,246 8,357 8,083 8,405 5,460 4,236 7,182 11,655 20,279 YoY -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% 4.0% - -22.4% - 62.3% 74.0% Operating profit 6,742 12,289 7,780 6,669 5,795 5,811 5,067 3,706 2,681 4,042 8,163 11,511 YoY -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% -12.8% - -27.7% - 102.0% 41.0% OPM 74.2% 80.0% 73.6% 72.1% 69.3% 71.9% 60.3% 67.9% 63.3% 56.3% 70.0% 56.8% Source: Shared Research based on company data Note: Operating profit in the leasing business based on leasing gains (losses) as reported under real estate for rent in the company’s securities filings. Note: Operating profit in the property sales business based on the difference between operating profit in the Real Estate segment and leasing operating profit.
In Real Estate, the company uses the sites of former spinning factories. The segment comprises leasing and sales units. The leasing business was the core, but since around FY03/10 Nisshinbo has focused on land sales.
Leasing The company leases shopping centers, offices, and other real estate. This business generates stable operating profit of JPY2.0 – 3.0bn per year. Real estate held for leasing purposes had a balance sheet value of JPY11.6bn at end-FY12/19 (JPY19.6bn at end- FY12/18), but a market value of JPY37.8bn (JPY74.1bn) (see Balance sheet section).
Property sales The company divides up and sells individual properties for detached housing, and much of the land is regional, including sites of former spinning factories. The company has alliances with Mitsubishi Estate Co., Ltd. (TSE1: 8802) and Toyota Housing Corporation (a Toyota Motor Corporation subsidiary). As the lots are former factory sites, they tend to be large, at over 10,000sqm. Added value is significant owing to their urban locations close to stations. Nisshinbo can sell these properties at a low price compared with other similar properties, because land book value is low.
According to the company, recording of profit in this segment varies depending upon when the sale of property is recorded, but it can generally expect JPY2.0–3.0bn from rental properties and JPY1.0–2.0bn from sale of individual properties. Although the sale of property will cause profit to shrink in property sales over the long term, redevelopment of the Miai Office (Okazaki, Aichi Prefecture) will begin to contribute from FY03/20, and the company can assume recording of property sales until at least CY2025.
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Strengths and weaknesses Strengths Efforts to improve returns: Since the late 2000s, Nisshinbo has been shifting management’s focus from subscription-type ◤ streams of revenue to recurring sales, and restructuring—exiting and streamlining unprofitable businesses, and making acquisitions to fortify growth businesses—in a bid to increase sales and improve asset efficiency. We think these efforts are set to continue as it works toward its long-term target of ROE of over 12%.
Big unrealized gains: As of end-FY12/19, unrealized gains on rental properties were JPY26.2bn, and the company also ◤ possessed JPY78.8bn in investment securities (including JPY67.5bn in shares of listed companies), not including stocks in affiliate companies. Shared Research believes that these unrealized gains could be used to cover costs associated with M&A for growth and exiting unprofitable businesses, and provide the capacity to improve asset efficiency through further structural reform and the rebuilding of the company’s business portfolio.
Global reach in Automobile Brakes segment: The acquisition of TMD in Sept. 2011 has sharpened Nisshinbo’s ◤ competitive edge in Automobile Brakes, giving it a longer global reach and more technology. Together, the factories of Nisshinbo Brake group and TMD cover most major auto manufacturing hubs (particularly Japan and Europe). As mentioned, suppliers’ production and supply structures in the countries where cars come off the production line are vital in winning component-supply contracts.
Weaknesses
Scattered personnel and management resources: Nisshinbo has seven segments, each with an array of products and ◤ divisions. Shared Research thinks that this diversifies risk but may mean that resources—personnel and cash—are spread thinly, crimping overall growth.
Slow structural reform: As with previous efforts to restructure in the Electronics, Textiles, and Precision Instrument ◤ segments, Nisshinbo only began cutting headcount and consolidating factories after sales fell and losses appeared, causing Shared Research to see a trend in which the company only tackles issues at later stages. It may need to accelerate reforms if it is to improve ROE enough to achieve the 12%-plus ROE target by 2025.
Businesses with low asset turnover: Nisshinbo’s FY12/20 adjusted ROE (as calculated by Shared Research based on ◤ recurring profit after deduction of dividends received and equity in earnings of affiliates, multiplied by an effective tax rate of 31%) was 1.6%. This was below the average ROE of 6.3% for TSE1-listed companies (statistics for earnings results posted by Japan Exchange Group for FY03/20). To achieve its long-term target for ROE of greater than 12%, Nisshinbo will need to improve segment profits across the board, including shrinking the segment loss for Automobile Brakes.
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Historical performance Full-year FY12/20 results (January–December 2020) Sales: JPY457.1bn (-10.3% YoY) ▷ Operating profit: JPY1.2bn (-80.7% YoY) ▷ Recurring profit: JPY3.5bn (-70.4% YoY) ▷ Net income*: JPY13.5bn (JPY6.6bn net loss* in FY12/19) ▷ * Net income attributable to owners of the parent
In FY12/20, sales declined YoY due to the impact of the COVID-19 pandemic. By segment, with the condominium business preforming well, the Real Estate business generated sales growth. However, Micro Devices, Automobile Brakes, Precision Instruments, and Textiles generated lower sales due to weak demand stemming from the pandemic.
Operating profit declined YoY in line with the drop in sales. Recurring profit also fell YoY due to a decrease in equity in earnings of affiliates and foreign exchange losses. Net income attributable to owners of the parent rose YoY on an increase in extraordinary gains to JPY22.9bn (JPY4.7bn in FY12/19) and a decline in extraordinary losses to JPY6.3bn (JPY18.7bn in FY12/19). Extraordinary gains included JPY19.2bn in gains on the sale of investment securities (JPY3.4bn in FY12/19) and JPY1.3bn in gains on the sale of fixed assets (JPY607mn in FY12/19), while extraordinary losses included impairment losses of JPY3.8bn (JPY16.2bn in FY12/19).
Quarterly earnings fluctuated due to seasonal factors in the Wireless and Communications segment and the timing at which real estate sales revenue was booked in the Real Estate segment. When excluding these factors, and noting that there were some differences in performance among the segments, sales and profit bottomed in Q2 (April–June 2020) in line with deterioration in automobile production volume amid the COVID-19 pandemic. However, earnings across the board recovered QoQ from Q3 FY12/20 (July–September 2020) as automobile production rebounded.
In Q1 FY12/20 (January–March 2020), sales were JPY143.3bn (+1.3% YoY) while operating profit was JPY11.1bn (+144.3% ▷ YoY). Public demand in the Wireless and Communications segment remained strong and the Real Estate segment generated
higher sales and profit on a YoY basis after the company began selling condominiums at the former site of JRC’s Mitaka factory
in Tokyo.
In Q2 FY12/20, sales were JPY88.3bn (-23.5% YoY) while the operating loss was JPY8.0bn (versus an operating loss of JPY3.6bn ▷ in Q2 FY12/19). Sales in the Micro Devices, Automobile Brakes, and Precision Instruments segments turned down amid the
global auto production slump, and the operating loss widened as a result.
In Q3 FY12/20, sales were JPY104.4bn (-11.9% YoY) while the operating loss was JPY3.8bn (versus an operating loss of ▷ JPY1.5bn in Q3 FY12/19). Auto production picked up, mainly among Japanese automakers, resulting in a QoQ earnings
recovery in the Automobile Brakes and Precision Instruments segments. In the Wireless and Communications segment, sales
and profit recovered QoQ in the solutions and specialized equipment business after work was delayed due to the COVID-19
pandemic in Q2. On a YoY basis, sales and profit fell.
In Q4 FY12/20 (October–December 2020), sales were JPY121.1bn (-9.9% YoY) while operating profit was JPY1.9bn (-72.5% ▷ YoY). Sales and profit improved QoQ in the Wireless and Communications segment (due in part to seasonal factors) and in
the Automobile Brakes segment, contributing to earnings at the operating line moving into the black. On a YoY basis, sales
and profit declined. In the Real Estate segment, sales and profit declined compared to Q4 FY12/19, when the business saw a
brief and sharp expansion in sales and profit on the sale of real estate.
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Earnings by segment Wireless and Communications
Sales: JPY144.3bn (-5.2% YoY) ▷ Operating profit: JPY2.6bn (-37.2% YoY) ▷
While the marine systems business and the solutions and specialized equipment business recorded lower sales but higher profit, the Wireless and Communications segment as a whole saw profit decline due to reduced profit in the communications equipment business and the ICT and mechatronics business.
In the solutions and specialized equipment business, sales were JPY65.6bn (-4.7% YoY) while operating profit was JPY2.7bn ▷ (+28.6% YoY). Despite the delay of overseas projects due to the pandemic and large orders of aviation and meteorological systems running their course, sales were flat YoY as public demand related to disaster prevention and reduction remained steady and waterways and river systems performed well. Profit rose YoY as expenses, including outsourced processing expenses, declined. In the marine systems business, sales were JPY32.5bn (-6.9% YoY) while the operating loss was JPY303mn (versus an operating ▷ loss of JPY1.2bn in FY12/19). Sales declined due to lower sales amid price competition caused by reduced equipment sales to
commercial ship manufacturers resulting from falling new ship construction numbers and lower sales of equipment for new merchant ships, as well as lower overseas sales of equipment for small and medium-sized vessels and replacement demand as the pandemic subdued economic activity and reduced the number of ships in operation. However, the operating loss narrowed on lower expenses. In the communications equipment business, sales were JPY7.7bn (-54.4% YoY) while operating profit was JPY200mn (-89.3% ▷ YoY). Sales and profit fell on a drop in sales of automobile-related products due to the pandemic. In January 2020, JRC transferred the ITS business, which handles GPS receivers, ETC devices, and other equipment, from its communications equipment business to JRC Mobility. The commercial radio business was also transferred to JRC Mobility in January 2021. In the ICT and mechatronics business (formerly the mechatronics and power supply business; name changed in January 2020), ▷ sales were JPY20.7bn (+4.4% YoY) while the operating loss was JPY273mn (operating profit of JPY372mn in FY12/19). Despite a sales contribution from NJ Components (which became a consolidated subsidiary in July 2019), the business saw lower sales of mechatronics equipment and automobile products in the Europe and US markets stemming from the pandemic. As a result,
sales rose, but profit declined. In the mobility business (JRC Mobility Inc.), sales were JPY7.9bn (JPY132mn in FY12/19) and the operating loss was JPY571mn ▷ (versus an operating loss of JPY397mn in FY12/19). As noted earlier, sales grew on the transfer of the ITS business from the communications equipment business, but sales in the mobility business did not grow by as much as sales in the communications equipment business declined, mainly on a decline in sales of ETC devices in the ITC business due to the pandemic. The operating loss widened due to a rise in R&D expenses and lower profit from onboard ETC devices alongside a downturn in sales.
In Q1, sales were JPY51.3bn (-3.6% YoY) and operating profit was JPY5.4bn (+2.6% YoY). In Q2, sales were JPY26.9bn (-5.6% YoY) while the operating loss was JPY1.9bn (versus an operating loss of JPY1.6bn in Q2 FY12/19). In Q3, sales were JPY29.8bn (- 6.0% YoY) while the operating loss was JPY856mn (versus an operating loss of JPY654mn in Q3 FY12/19). Finally, in Q4 sales were JPY36.3bn (-6.4% YoY) while the operating loss was JPY76mn (operating profit of JPY1.1bn in Q4 FY12/19). Sales declined, but profit rose in Q1, while sales and profit both declined from Q2, with earnings at the operating line in Q4 dropping JPY1.2bn YoY. The communications equipment business, which transferred the ITS business to the mobility business, saw sales and profit decline in all four quarters. Earnings at the operating line in Q4 were down JPY748mn YoY. The mobility business saw sales and profit grow in Q1, but from Q2 saw sales rise and profit decline.
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Micro Devices
Sales: JPY61.1bn (-6.3% YoY) ▷ Operating loss: JPY3.9bn (profit of JPY256mn in FY12/19) ▷
Among the key subsidiaries, New Japan Radio recorded sales of JPY41.9bn (-3.9% YoY) and an operating loss of JPY2.4bn ▷ (operating profit of JPY144mn in FY12/19), while Ricoh Electronic Devices recorded sales of JPY20.5bn (-10.1% YoY) and an operating loss of JPY1.2bn (operating profit of JPY375mn in FY12/19). In the mainstay electronic devices business, sales and profit both declined YoY. Sales of amusement-related devices such as ▷ home gaming devices and earphones increased as more people stayed home to avoid the pandemic. On the other hand, lockdowns in various countries resulted in customers suspending operations at factories, and there were issues with the supply chain, so sales of automobile-related, consumer-related, and communications-related products declined. In the microwave products business, sales and profit were both down YoY as, despite strong sales in marine radar-related parts ▷ and sensors, production under contract of satellite communications products ended.
On a quarterly basis, sales were JPY14.6bn (-5.2% YoY) and the operating loss was JPY718mn (JPY132mn profit in Q1 FY12/19) in Q1. Sales were JPY14.6bn (-5.5% YoY) and the operating loss was JPY1.3bn (JPY564mn loss in Q2 FY12/19) in Q2, and sales were JPY14.4bn (-14.1% YoY) and the operating loss was JPY1.5bn (JPY35mn loss in Q3 FY12/19) in Q3. In Q4, sales were JPY17.6bn (- 0.8% YoY) with an operating loss of JPY389mn (operating profit of JPY723mn in Q4 FY12/19). Operating loss expanded in Q2 due to lower sales of automotive products at New Japan Radio and an increase in expenses that were curtailed in Q2 FY12/19. Although auto production recovered in Q3 versus Q2, sales and profit recovery lagged the recovery in auto production, because the company’s automotive products are used in auto components. While Q4 sales and profit recovered on a QoQ basis, sales were flat and earnings at the operating line deteriorated by JPY1.1bn on a YoY basis, largely in reflection of losses on inventory disposal and a YoY increase in expenses.
Automobile Brakes
Sales: JPY114.8bn (-12.6% YoY) ▷ Operating loss: JPY2.3bn (loss of JPY3.3bn in FY12/19) ▷
Nisshinbo Brake Nisshinbo Brake recorded sales of JPY44.1bn (-13.4% YoY) and operating profit of JPY788mn (-51.4% YoY).
In the global automobile market, global automobile production plummeted due to the impact of the pandemic as countries ▷ across the world suspended operations and enacted lockdowns. There was improvement in the Chinese market from 2H 2020, but the state of recovery from the pandemic differs by country and region. The impact of the pandemic remains, and maintenance of the supply chain remains a major topic for the company. In this environment, subsidiaries in Japan, the US, South Korea, and Thailand all posted lower sales and profit YoY. ▷ A subsidiary in China that primarily serves Japanese auto manufacturers posted higher sales and profit thanks to early recovery ▷ from the pandemic, robust sales at customers, and new orders received for the new factory.
On a quarterly basis, sales were JPY11.2bn (-14.2% YoY) and operating profit was JPY292mn (-47.3% YoY) in Q1, sales were JPY7.0bn (-44.6% YoY) and the operating loss was JPY1.3bn (JPY90mn profit in Q2 FY12/19) in Q2, and sales were JPY12.0bn (- 3.0% YoY) and operating profit was JPY467mn (+104.8% YoY) in Q3. In Q4, sales were JPY13.9bn (+8.5% YoY), with operating profit at JPY1.3bn (+71.1% YoY). Sales and profit fell sharply in Q2 amid global auto production cuts, but sales and profit rose YoY
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from Q3 as auto production picked up. Profit expanded sharply QoQ and YoY in Q4 thanks to a recovery in automobile production as well as favorable sales of the company’s copper-reduced and copper-free friction materials.
TMD TMD recorded sales of JPY75.1bn (-12.5% YoY) and an operating loss of JPY3.2bn (operating loss of JPY4.2bn in FY12/19).
Primarily operating in the Euro region, TMD generated lower sales YoY as friction materials used in new passenger car assembly ▷ and friction materials for aftermarket performed poorly. However, the recovery in friction materials for the aftermarket from 2H 2020, cost reductions, and improvement in raw material prices helped stem losses.
The company is seeking to improve profitability of assembly parts for new cars (approximately 40% sales share) by rigorous ▷ profit management and improving defect rates. These initiatives have helped to reduce losses. Depreciation expenses were
also reduced, because the company booked a JPY14.0bn impairment loss on fixed assets including those for the assembly
parts for new passenger cars business at end-FY12/19.
Depreciation of intangible fixed assets accrued at the time of acquiring TMD ended in FY12/19, reducing segment profit ▷ eliminations by JPY1.0bn YoY.
On a quarterly basis, sales were JPY20.9bn (-7.0% YoY) and the operating loss was JPY551mn (JPY1.4bn loss in Q1 FY12/19) in Q1. Sales were JPY13.4bn (-36.8% YoY) and the operating loss was JPY2.4bn (JPY942mn loss in Q2 FY12/19) in Q2, and sales were JPY20.2bn (-7.1% YoY) and the operating loss was JPY946mn (JPY517mn loss in Q3 FY12/19) in Q3. In Q4, sales were JPY20.6bn (+0.7% YoY), with operating profit at JPY647mn (versus an operating loss of JPY1.3bn in Q4 FY12/19). TMD shrank its loss YoY in Q1 as a result of progress with business restructuring, increased orders for repair products, and expense cuts. Sales and profit turned down in Q2 amid a drop in auto production. Sales and profit rose QoQ from Q3, because friction materials for the aftermarket began to recover. During the pandemic, TMD focused on building up its inventory of aftermarket friction materials for the subsequent market recovery, and strong performance in friction materials for the aftermarket in Q4 led to the company selling its product inventories, resulting in profit rising QoQ and YoY and moving into the black for the quarter.
Precision Instruments
Sales: JPY51.4bn (-21.4% YoY) ▷ Operating loss: JPY948mn (profit of JPY879mn in FY12/19) ▷
In automotive precision products, sales were JPY14.4bn (-8.8% YoY) and the operating loss was JPY78mn (operating profit of ▷ JPY382mn in FY12/19). Sales and profit were down YoY as customers suspended operations or adjusted production in light of the pandemic. Sales and profit declined YoY in the molding products business, which handles products for air conditioners, with sales coming ▷ in at JPY40.7bn (-21.9% YoY) and the operating loss at JPY38mn (operating profit of JPY1.3bn in FY12/19). There was a falloff in demand after a temporary increase in FY12/19, a drop in orders from household appliance-related customers, and suspended operations or adjusted production by some customers in response to the pandemic.
On a quarterly basis, sales were JPY13.8bn (-14.8% YoY) and the operating loss was JPY233mn (JPY222mn profit in Q1 FY12/19) in Q1. Sales were JPY10.3bn (-36.8% YoY) and the operating loss was JPY912mn (JPY30mn loss in Q2 FY12/19) in Q2, and sales were JPY12.5bn (-23.4% YoY) and the operating loss was JPY234mn (JPY332mn profit in Q3 FY12/19) in Q3. In Q4, sales were JPY14.8bn (-10.9% YoY) and operating profit was JPY431mn (+21.4% YoY). The global auto production volume slump in Q2 hurt earnings. Auto production volume improved QoQ from Q3, which improved earnings of both automotive precision products and plastic molding products. On a YoY basis, sales declined in Q4, while profit rose.
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Chemicals
Sales: JPY9.6bn (+2.0% YoY) ▷ Operating profit: JPY1.8bn (+9.8% YoY) ▷
Sales of mainstay products such as insulation materials, functional chemicals (Carbodilite), and environment and energy-related products (fuel cell carbon separators) were JPY8.3bn (+2.4% YoY), with operating profit at JPY1.6bn (+15.8% YoY). Sales were JPY1.7bn (-0.8% YoY) and operating profit was JPY223mn (+4.7% YoY) in Q1, sales were JPY2.0bn (+1.8% YoY) and operating profit was JPY392mn (+29.8% YoY) in Q2, and sales were JPY1.8bn (+4.2% YoY) and operating profit was JPY316mn (+31.7% YoY) in Q3. In Q4, sales were JPY2.7bn (+3.7% YoY) and operating profit was JPY699mn (+7.0% YoY).
In insulation materials, sales fell but profit remained even YoY on higher sales of high profit margin products and cost ▷ reductions. Sales and profit rose YoY for functional chemicals on increased sales of powder modifiers. Earnings improved compared to ▷ FY12/19, when performance was impacted by customer inventory adjustments. In fuel cell carbon separators, profit and sales rose due to higher sales of overseas stationary units and automotive prototypes. ▷
Textiles
Sales: JPY34.0bn (-31.4% YoY) ▷ Operating loss: JPY812mn (profit of JPY1.0bn in FY12/19) ▷
Domestic sales were JPY29.5bn (-30.5% YoY) and the operating loss was JPY842mn (operating profit of JPY526mn in FY12/19). ▷ Although sales of Mobilon tape for medical masks increased, domestic sales and profit fell YoY due to a drop in sales of fabrics for non-iron shirts caused by declining business apparel demand and temporary closings or abbreviated business hours at Tokyo Shirts stores as a preventive measure against the pandemic. Even after reopening, sales were sluggish, primarily in the Tokyo metropolitan area. Overseas sales were JPY14.2bn (-35.5% YoY) and the operating loss was JPY31mn (operating profit of JPY770mn in FY12/19). ▷ Overseas sales and profit declined YoY due to a sales slump.
On a quarterly basis, sales were JPY9.6bn (-27.0% YoY) and the operating loss was JPY307mn (JPY130mn profit in Q1 FY12/19) in Q1. Sales were JPY7.6bn (-40.0% YoY) and the operating loss was JPY164mn (JPY390mn profit in Q2 FY12/19) in Q2, and sales were JPY7.7bn (-32.7% YoY) and the operating loss was JPY504mn (JPY243mn loss in Q2 FY12/19) in Q3. In Q4, sales were JPY9.1bn (-26.1% YoY) and operating profit was JPY163mn (-78.5% YoY). Tokyo Shirts sales were sluggish in 1H due to reduced operating hours and the temporary closure of stores in line with efforts to limit the spread of COVID-19. Although Tokyo Shirts stores reopened in 2H, sales continued to decline YoY, resulting in a downturn in profit.
Real Estate
Sales: JPY20.3bn (+74.0% YoY) ▷ Operating profit: JPY11.5bn (+41.0% YoY) ▷
The leasing business generated lower sales and profit YoY following the sale of a large commercial facility in Aichi in FY12/19 ▷ Sales and profit rose YoY in the property sales business with the start of condominium sales at the former site of JRC’s Mitaka ▷ factory in Tokyo and the sale of residential lots in Okazaki, Aichi.
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Cumulative Q3 FY12/20 results (January–September 2020)
Sales: JPY336.0bn (-10.5% YoY) ▷ Operating loss: JPY696mn (JPY589mn loss in cumulative Q3 FY12/19) ▷ Recurring profit: JPY368mn (-85.6% YoY) ▷ Net income*: JPY5.9bn (+45.2% YoY) ▷ * Net income attributable to owners of the parent
In cumulative Q3, sales declined YoY due to the impact of the COVID-19 pandemic. By segment, the Real Estate business generated higher sales YoY after the company began selling condominiums at the former site of JRC’s Mitaka factory (Tokyo), but Wireless and Communications, Micro Devices, Automobile Brakes, Precision Instruments, and Textiles generated lower sales due to weak demand stemming from the pandemic.
The company booked an operating loss as sales dropped in the Micro Devices, Automobile Brakes, and Precision Instruments segments. Recurring profit also fell YoY due to a decrease in equity in earnings of affiliates and foreign exchange losses. Net income attributable to owners of the parent rose YoY on an increase in extraordinary gains from the sale of investment securities and fixed assets, and from subsidies.
On a quarterly basis, the company posted sales of JPY143.3bn (+1.3% YoY) and operating profit of JPY11.1bn (+144.3% YoY) in Q1 (January–March 2020), sales of JPY88.3bn (-23.5% YoY) and operating loss of JPY8.0bn (versus JPY3.6bn loss in Q2 FY12/19) in Q2 (April–June 2020), and sales of JPY104.4bn (-11.9% YoY) and operating loss of JPY3.8bn (JPY1.5bn loss in Q3 FY12/19) in Q3 (July–September 2020). Auto production picked up mainly among Japanese automakers in Q3, resulting in an earnings recovery in Automobile Brakes and Precision Instruments. In Wireless and Communications, sales and profit recovered in Q3 versus Q2 in the solutions and specialized equipment business after work was delayed due to the COVID-19 pandemic in Q2.
Progress versus the full-year forecast in cumulative Q3 was 72.7% for sales, JPY696mn operating loss versus full-year forecast of a JPY4.0bn operating loss, JPY368mn recurring profit versus forecast of JPY3.0bn recurring loss, and net income of JPY5.9bn versus forecast of JPY1.0bn. The company revised its full-year earnings forecast in July 2020. The company forecast factors in the impact of reduced auto production and store closures among others due to the COVID-19 pandemic and assumes that economic conditions will improve in Q4 (October–December 2020) onward. Q3 earnings appear to have surpassed company forecasts in Automobile Brakes and Precision Instruments due to auto production recovering sooner than expected (mainly among Japanese automakers), whereas Micro Devices and Textiles have taken longer than expected to recover.
During FY12/20, the sale of condominiums in the Real Estate business was concentrated in Q1, so overall sales and profit were relatively high in Q1.
Wireless and Communications
Sales: JPY108.0bn (-4.8% YoY) ▷ Operating profit: JPY2.7bn (-12.0% YoY) ▷
Profit declined YoY. Higher profit in the marine systems and solutions and specialized equipment businesses despite lower sales could not offset the profit declines in the communications equipment and ICT and mechatronics businesses.
Sales were JPY51.0bn (-3.7% YoY) and operating profit was JPY2.9bn (+49.5% YoY) in the solutions and specialized equipment ▷ business. Despite large orders of aviation and meteorological systems running their course, sales were little changed YoY as public demand related to disaster prevention and reduction remained steady and waterways and river systems performed well. Profit rose YoY due to an improved sales mix (reduced sales from low-margin projects) and lower expenses, including outsourced processing expenses.
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In the marine systems business, sales were JPY23.5bn (-7.6% YoY) and the operating loss was JPY634mn (JPY1.5bn operating ▷ loss in cumulative Q3 FY12/19). Sales declined due to lower sales of equipment for new merchant ships, as well as lower overseas sales of equipment for small and medium-sized vessels as the pandemic dragged down marine transportation volume and demand for new shipbuilding. However, there was a narrower operating loss on lower expenses. In the communications equipment business, sales were JPY5.6bn (-54.0% YoY) and operating profit was JPY290mn (-76.1% ▷ YoY). Sales and profit both fell on a drop in sales of automobile-related products due to the pandemic. In January 2020, JRC transferred the ITS business, which handles GPS receivers, ETC devices, and other equipment, from its communications equipment business to JRC Mobility. In the ICT and mechatronics business (formerly the mechatronics and power supply business; name changed in January 2020), ▷ sales were JPY14.9bn (+4.1% YoY) and operating loss was JPY207mn (JPY257mn profit in cumulative Q3 FY12/19). Despite a sales contribution from NJ Components, (which became a consolidated subsidiary in July 2019), results fell due to lower sales of mechatronics equipment and automobile products in the Europe and US markets stemming from the pandemic. JRC Mobility posted sales of JPY5.6bn (JPY100mn in cumulative Q3 FY12/19) and operating loss of JPY368mn (JPY283mn loss). ▷ As noted above, sales increased due to transfer of the ITS business from the communications equipment business, but profit declined because of higher expenses.
On a quarterly basis, sales were JPY51.3bn (-3.6% YoY) and operating profit was JPY5.4bn (+2.6% YoY) in Q1, sales were JPY26.9bn (-5.6% YoY) and operating loss was JPY1.9bn (JPY1.6bn loss in Q2 FY12/19) in Q2, and sales were JPY29.8bn (-6.0% YoY) and operating loss JPY856mn (JPY654mn loss in Q3 FY12/19) in Q3. Losses narrowed in the solutions and specialized equipment business despite lower sales because of expense reduction (including outsourcing expenses). The marine systems business shrank its loss on expense cuts. The communications equipment business posted YoY profit decline. The ICT and mechatronics business recorded sales growth in Q1 due to the contribution of NJ Components (which became a consolidated subsidiary in July 2019), but profit continued to decline YoY. Sales increased at JRC Mobility due to transfer of the ITS business from the communications equipment business, but profit declined YoY from Q2 onward.
Micro Devices
Sales: JPY43.6bn (-8.4% YoY) ▷ Operating loss: JPY3.5bn (loss of JPY467mn in cumulative Q3 FY12/19) ▷
The Micro Devices segment comprises New Japan Radio and Ricoh Electronic Devices. New Japan Radio’s strengths are in analog semiconductors, mainly low-noise amps and power supply ICs for audio/automotive devices and industrial equipment, and devices for wireless communications and IoT. Ricoh Electronic Devices excels in small, power-saving, high-efficiency CMOS analog semiconductors (mainly power supply ICs).
Main subsidiaries’ earnings results were as follows. New Japan Radio posted sales of JPY30.4bn (-5.0% YoY) and operating loss ▷ of JPY2.1bn (JPY39mn loss in cumulative Q3 FY12/19). Ricoh Electronic Devices posted sales of JPY14.1bn (-13.8% YoY) and operating loss of JPY1.2bn (JPY232mn in cumulative Q3 FY12/19). In the mainstay electronic devices business, sales and profit both declined YoY. Sales of amusement-related devices such as ▷ home gaming devices and earphones increased as more people stayed home to avoid the pandemic. On the other hand, lockdowns in various countries resulted in customers suspending operations at factories, and there were issues with the supply chain, so sales of automobile-related, consumer-related, and communications-related products declined. In the microwave products business, sales and profit were both down YoY as sales of satellite communications products to the ▷ US stagnated and production under contract ended.
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On a quarterly basis, sales were JPY14.6bn (-5.2% YoY) and operating loss was JPY718mn (JPY132mn profit in Q1 FY12/19) in Q1. Sales were JPY14.6bn (-5.5% YoY) and operating loss was JPY1.3bn (JPY564mn loss in Q2 FY12/19) in Q2, and sales were JPY14.4bn (-14.1% YoY) and operating loss was JPY1.5bn (JPY35mn loss in Q3 FY12/19) in Q3. Operating loss expanded in Q2 due to lower sales of automotive products at New Japan Radio and reactionary increase in expenses after year-ago cuts. Although auto production recovered in Q3 versus Q2, sales and profit recovery lagged the recovery in auto production, because the company’s automotive products are used in auto components.
Automobile Brakes
Sales: JPY81.8bn (-17.5% YoY) ▷ Operating loss: JPY4.2bn (loss of JPY2.5bn in cumulative Q3 FY12/19) ▷
Nisshinbo Brake and TMD both posted sales and profit declines.
Nisshinbo Brake Nisshinbo Brake posted sales of JPY30.2bn (-20.7% YoY) and operating loss of JPY492mn (JPY872mn profit in cumulative Q3 FY12/19). On a quarterly basis, sales were JPY11.2bn (-14.2% YoY) and operating profit was JPY292mn (-47.3% YoY) in Q1, sales were JPY7.0bn (-44.6% YoY) and operating loss JPY1.3bn (JPY90mn profit in Q2 FY12/19) in Q2, and sales were JPY12.0bn (-3.0% YoY) and operating profit was JPY467mn (+104.8% YoY) in Q3. Sales and profit declined because of lower auto production volume. Sales and profit fell sharply in Q2 amid global auto production cuts, but sales and profit rose YoY in Q3 as auto production picked up.
In the global automobile market, global automobile production plummeted due to the impact of the pandemic as countries ▷ across the world suspended operations and enacted lockdowns. There were signs of improvement in the Chinese market, and the Japanese, North American, and European markets were on the path to recovery. With countries on the way to recovery from the impact of the market slump caused by the pandemic, subsidiaries in Japan, the ▷ US, South Korea, and Thailand all posted lower sales and profit YoY. A subsidiary in China that primarily serves Japanese auto manufacturers posted higher sales and profit owed to early recovery ▷ from the pandemic, robust sales at customers, and new orders received at the new factory.
TMD TMD posted sales of JPY54.5bn (-16.7% YoY) and operating loss of JPY3.9bn (JPY2.8bn loss in cumulative Q3 FY12/19). On a quarterly basis, sales were JPY20.9bn (-7.0% YoY) and operating loss was JPY551mn (JPY1.4bn loss in Q1 FY12/19) in Q1. Sales were JPY13.4bn (-36.8% YoY) and operating loss was JPY2.4bn (JPY942mn loss in Q2 FY12/19) in Q2, and sales were JPY20.2bn (- 7.1% YoY) and operating loss was JPY946mn (JPY517mn loss in Q3 FY12/19) in Q3. TMD shrank its loss YoY in Q1 as a result of progress with business restructuring, increased orders for repair products, and expense cuts. Sales and profit turned down in Q2 amid a drop in auto production. Sales and profit rose QoQ in Q3, because friction materials for the aftermarket began to recover.
TMD generated lower sales YoY as friction materials used in new passenger car assembly performed poorly. However, ▷ operating loss was flat YoY on lower depreciation and other expenses as well as the recovery for friction materials for the aftermarket, primarily in Europe. The company is seeking to improve profitability of assembly parts for new cars (approximately 40% sales share) by rigorous ▷ profit management and improving defect rates. These initiatives have helped to reduce losses. Depreciation expenses were also reduced, because the company booked a JPY14.0bn impairment loss on fixed assets including those for the assembly parts for new passenger cars business at end-FY12/19. Depreciation of intangible fixed assets accrued at the time of acquiring TMD ended in FY12/19, reducing segment profit ▷ eliminations by JPY740mn YoY.
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Precision Instruments
Sales: JPY36.6bn (-25.0% YoY) ▷ Operating loss: JPY1.4bn (profit of JPY524mn in cumulative Q3 FY12/19) ▷
Sales were JPY9.4bn (-17.0% YoY) and operating loss was JPY252mn (JPY118mn profit in cumulative Q3 FY12/19) in ▷ automotive precision products. Sales and profit were down YoY as customers suspended operations or adjusted production in light of the pandemic. Sales were JPY29.2bn (-25.2% YoY) and operating loss was JPY549mn (JPY994mn profit in cumulative FY12/19) in the plastic ▷ molding products business, which handles products for air conditioners. There was a falloff in demand after a temporary increase in Q3 FY12/19, a drop in orders from household appliance-related customers, and suspended operations or adjusted production by some customers in response to the pandemic.
On a quarterly basis, sales were JPY13.8bn (-14.8% YoY) and operating loss was JPY233mn (JPY222mn profit in Q1 FY12/19) in Q1. Sales were JPY10.3bn (-36.8% YoY) and operating loss was JPY912mn (JPY30mn loss in Q2 FY12/19) in Q2, and sales were JPY12.5bn (-23.4% YoY) and operating loss was JPY234mn (JPY332mn profit in Q3 FY12/19) in Q3. The global auto production volume slump in Q2 hurt earnings. Auto production volume improved QoQ in Q3, which improved earnings of both automotive precision products and plastic molding products.
Chemicals
Sales: JPY6.4bn (+0.6% YoY) ▷ Operating profit: JPY1.1bn (+13.0% YoY) ▷
Sales of mainstay products such as insulation materials, functional chemicals (Carbodilite), and environment and energy-related products (fuel cells separators) were JPY5.5bn (+1.7% YoY) and operating profit was JPY931mn (+23.3% YoY). Sales were JPY1.7bn (-0.8% YoY) and operating profit was JPY223mn (+4.7% YoY) in Q1, sales were JPY2.0bn (+1.8% YoY) and operating profit was JPY392mn (+29.8% YoY) in Q2, and sales were JPY1.8bn (+4.2% YoY) and operating profit was JPY316mn (+31.7% YoY) in Q3.
In insulation materials, sales fell but profit was even YoY. Due to the impact of the pandemic, sales of stock solution, rigid block ▷ products, and bio-carriers for wastewater treatment declined, but sales of high-margin products increased and costs were
reduced. Sales and profit rose YoY for functional chemicals on increased sales of powder modifiers. Earnings improved YoY in cumulative ▷ Q3 because of favorable comparison with cumulative Q3 FY12/19, which was affected by customers’ inventory adjustment. In fuel cell separators, sales rose due to higher sales of overseas stationary units and automotive prototypes. Profit was even ▷ YoY.
Textiles
Sales: JPY24.9bn (-33.2% YoY) ▷ Operating loss: JPY975mn (profit of JPY277mn in cumulative Q3 FY12/19) ▷
Domestic sales were JPY21.6bn (-32.5% YoY) and operating loss was JPY922mn (JPY100mn profit in cumulative Q3 FY12/19). ▷ Although sales of Mobilon tape for medical masks increased, sales of fabrics for non-iron shirts fell because of declining business apparel demand and the company temporarily closing or shortening business hours at Tokyo Shirts stores as a
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preventive measure against the pandemic. Even after reopening, menswear sales were sluggish, primarily in the Tokyo metropolitan area because of increased teleworking. Overseas sales were JPY10.3bn (-36.6% YoY) and operating loss was JPY136mn (JPY347mn profit in Q3 FY12/19). Sales and ▷ profit declined YoY due to sales slumps, despite signs of recovery at the Brazilian subsidiary.
On a quarterly basis, sales were JPY9.6bn (-27.0% YoY) and operating loss was JPY307mn (JPY130mn profit in Q1 FY12/19) in Q1. Sales were JPY7.6bn (-40.0% YoY) and operating loss was JPY164mn (JPY390mn profit in Q2 FY12/19) in Q2, and sales were JPY7.7bn (-32.7% YoY) and operating loss was JPY504mn (JPY243mn loss in Q2 FY12/19) in Q3. Although Tokyo Shirts stores reopened in Q3, losses grew QoQ because of sluggish sales.
Real Estate
Sales: JPY18.7bn (+355.9% YoY) ▷ Operating profit: JPY10.6bn (+338.7% YoY) ▷
The leasing business generated lower sales and profit YoY following the sale of a large commercial facility in Aichi in FY12/19 ▷ Sales and profit rose YoY in the property sales business with the start of condominium sales at the former site of JRC’s Mitaka ▷ factory in Tokyo and the sale of residential lots in Okazaki, Aichi.
1H FY12/20 results
Sales: JPY231.6bn (-9.8% YoY) ▷ Operating profit: JPY3.1bn (+229.8% YoY) ▷ Recurring profit: JPY3.3bn (-11.6% YoY) ▷ Net income*: JPY5.5bn (+100.7% YoY) ▷ * Net income attributable to owners of the parent
In 1H, sales declined YoY. The Real Estate business generated higher sales YoY after the company began selling condominiums at the former site of JRC’s Mitaka factory (Tokyo), but Wireless and Communications generated lower sales on a drop in demand in the marine systems business, and sales were also down in Micro Devices, Automobile Brakes, and Precision Instruments on a decline in global auto production. In addition, Textiles generated lower sales in light of temporary store closings as a preventive measure against the COVID-19 pandemic, along with a sales slump.
Operating profit rose YoY. Profit declined YoY in Micro Devices, Automobile Brakes, Precision Instruments, and Textiles on lower sales, but rose overall on higher sales in Real Estate. Recurring profit fell YoY due to a decrease in equity in earnings of affiliates and foreign exchange losses. Net income attributable to owners of the parent rose YoY on an increase in extraordinary gains from the sale of investment securities and fixed assets, and from subsidies.
In July 2020, the company revised its FY12/20 full-year earnings forecast, factoring in the effects of the COVID-19 pandemic such as the decline in global auto production and store closures. The revised forecast assumes that the economy will begin to recover in Q4 (October–December 2020). Compared with the previous company forecast, sales were lowered by JPY78bn, operating profit by JPY18bn, recurring profit by JPY21bn, and net income attributable to owners of the parent by JPY12bn. Progress toward revised full-year forecast in 1H was 50.1% for sales, while the company recorded operating profit and recurring profit versus forecast losses.
On a quarterly basis, sales were JPY143.3bn (+1.3% YoY) and operating profit was JPY11.1bn (+144.3% YoY) in Q1 (January– March 2020). The Real Estate segment, which began selling condominiums built on the former site of JRC’s Mitaka factory in
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Tokyo, posted sales and profit growth. However, Q2 sales were JPY88.3bn (-23.5% YoY) and the operating loss was JPY8.0bn (JPY3.6bn loss in Q2 FY12/19). Sales of the Micro Devices, Automobile Brakes, and Precision Instruments segments turned down amid the global auto production slump and operating losses widened as a result. The Textiles segment also posted lower sales and profit due to temporary store closures to prevent the spread of COVID-19 and weak sales.
Wireless and Communications
Sales: JPY78.2bn (-4.3% YoY) ▷ Segment profit: JPY3.5bn (-4.3% YoY) ▷
The solutions and specialized equipment business posted higher profit on lower sales, but profit was down for the segment as a whole due to declines in the communications equipment, ICT and mechatronics businesses.
The solutions and specialized equipment business posted sales of JPY39.5bn (-4.5% YoY) and operating profit of JPY3.7bn ▷ (+27.1% YoY). Sales were down YoY as large orders of aviation and meteorological systems ran their course and the COVID-19 pandemic caused construction delays, but profit rose YoY as public demand related to disaster prevention and reduction remained robust and expenses, including outsourced processing expenses, declined. The marine systems business posted sales of JPY15.9bn (-7.3% YoY) and operating loss of JPY751mn (JPY985mn loss in 1H ▷ FY12/19). Sales of equipment for small and medium-sized vessels declined overseas due to lockdowns and blunted economic activity caused by the pandemic, and sales of equipment for new merchant ships declined due to diminished activity at
shipyards. However, there was a narrower operating loss on lower expenses. The communications equipment business posted sales of JPY3.5bn (-58.0% YoY) and operating profit of JPY173mn (-74.6% ▷ YoY). Sales and profit both fell on a drop in sales of automobile-related products due to the pandemic. In January 2020, JRC transferred the ITS business, which handles GPS receivers, ETC devices, and other equipment, from its communications equipment business to JRC Mobility. The ICT and mechatronics business (formerly the mechatronics and power supply business; name changed in January 2020) ▷ posted sales of JPY10.4bn (+12.8% YoY) and operating loss of JPY95mn (JPY298mn profit in 1H FY12/19). Sales were up YoY due to the positive impact of a sales contribution from NJ Components (which became a consolidated subsidiary in July 2019), but this was largely canceled out by lower sales of mechatronics equipment due to a drop in demand in the Europe and US
markets. An increase in expenses caused a YoY drop in profit. JRC Mobility Inc. posted sales of JPY3.8bn (versus JPY60mn in 1H FY12/19) and operating loss of JPY79mn (JPY171mn loss in 1H ▷ FY12/19). As noted above, sales and operating profit increased (operating loss narrowed) due to the transfer of the intelligent transportation system (ITS) business from the communications equipment business.
In Q2 FY12/20, segment sales were JPY26.9bn (-5.6% YoY) and the operating loss was JPY1.9bn (JPY1.6bn loss in Q2 FY12/19). The solutions and specialized equipment business reduced its loss despite lower sales due to reducing expenses such as outsourced processing expenses. Losses also narrowed for the marine systems business on expense cuts. However, the communications equipment and the ICT and mechatronics businesses posted profit declines. Sales increased at JRC Mobility due to the transfer of the ITS business from the communications equipment business, but losses expanded YoY.
Micro Devices
Sales: JPY29.2bn (-5.4% YoY) ▷ Segment loss: JPY2.0bn (segment loss of JPY432mn in 1H FY12/19) ▷ The Micro Devices business comprises New JRC and Ricoh Electronic Devices. New JRC specializes in analog semiconductors, mainly in low-noise amplifiers and power management integrated circuits used in audio equipment, vehicles, and industrial equipment, as well as devices for wireless communications and IoT. Meanwhile, Ricoh Electronic Devices primarily specializes in
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small, energy-saving, high-efficiency complementary metal-oxide-semiconductor (CMOS) analog semiconductors with a focus on power management integrated circuits.
At key subsidiaries, New JRC generated sales of JPY20.9bn (-2.1% YoY) and operating loss of JPY1.1bn (operating profit of ▷ JPY202mn in 1H FY12/19), and Ricoh Electronic Devices posted sales of JPY8.9bn (-11.1% YoY) and operating loss of
JPY797mn (operating loss of JPY506mn in 1H FY12/19). New JRC reduced expenses in 1H FY12/19, but the effect wore off in
1H FY12/20, resulting in a profit decline that was greater than the sales decline.
In the mainstay electronic devices business, sales and profit both declined YoY. Sales of amusement-related devices such as ▷ home gaming devices and earphones increased as more people stayed home to avoid the pandemic, but lockdowns in various countries resulted in customers suspending operations at factories, and there were issues with the supply chain, so sales of automobile-related, consumer-related, and communications-related products declined. In the microwave products business, sales and profit were both down YoY as sales of satellite communications products to the ▷ US stagnated and production under contract ended.
On a quarterly basis, Q1 FY12/20 sales were JPY14.6bn (-5.2% YoY) and the operating loss was JPY718mn (JPY132mn profit in Q1 FY12/19), and Q2 sales were JPY14.6bn (-5.5% YoY) and the operating loss was JPY1.3bn (JPY564mn loss in Q2 FY12/19). The operating loss increased in Q2 due to the sales decline at New JRC and aforementioned reaction to expense cuts in 1H FY12/19.
Automobile Brakes
Sales: JPY50.6bn (-23.5% YoY) ▷ Segment loss: JPY3.7bn (segment loss of JPY2.2bn in 1H FY12/19) ▷
Nisshinbo Brake and TMD posted sales and profit declines.
Nisshinbo Brake Nisshinbo Brake posted sales of JPY18.2bn (-29.2% YoY) and an operating loss of JPY959mn (versus JPY644mn operating profit in 1H FY12/19). Sales and profits were down due to the decline in auto production volume. In Q2, as automakers worldwide cut production, sales and profits fell sharply. In Q1, sales were JPY11.2bn (-14.2% YoY) and operating profit was JPY292mn (-47.3% YoY). In Q2, sales were JPY7.0bn (-44.6% YoY) and the operating loss was JPY1.3bn (JPY90m profit in Q2 FY12/19).
In the global automobile market, the COVID-19 outbreak became apparent in China from about February 2020, and from ▷ March onward it spread to Japan, Europe, the US, and most other major regions around the globe. Global automobile production declined sharply with suspension of operations, lockdowns, and other measures taken in various countries. With the impact of the market slump caused by the pandemic, subsidiaries in Japan, the US, South Korea, and Thailand all posted lower sales and profit YoY. A subsidiary in China that primarily serves Japanese auto manufacturers posted higher sales and profit after achieving an early ▷ recovery as customers’ sales proved robust.
TMD TMD posted sales of JPY34.2bn (-21.4% YoY) and an operating loss of JPY2.9bn (JPY2.3bn operating loss in 1H FY12/19). On a quarterly basis, Q1 sales were JPY20.9bn (-7.0% YoY) and operating loss JPY551mn (JPY1.4bn operating loss in Q1 FY12/19), and Q2 sales were JPY13.4bn (-36.8% YoY) and operating loss was JPY2.4bn (JPY942mn operating loss in Q2 FY12/19). The operating loss narrowed YoY in Q1 on progress with business restructuring, increased orders for replacement parts, and expense cuts. Sales and profits were down in Q2 due to the drop in auto production.
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TMD generated substantially lower sales YoY as the COVID-19 pandemic had a noticeable impact on all of its bases and posted ▷ sales and profit declines. The company focused on improving profitability of assembly parts for new cars (approximately 40% sales share) by rigorous ▷ profit management of these product and efforts to improve defect rates in production. These measures had some effect in
reducing loss. Depreciation expenses were also reduced as a result of booking an impairment charge of JPY14.0bn for fixed
assets, etc., of the assembly parts for new cars business at the end of FY12/19.
Amortization of intangible fixed assets that arose at the time of acquiring TMD ended in FY12/19, decreasing eliminations of ▷ profit within the segment by JPY701mn YoY.
Precision Instruments
Sales: JPY24.1bn (-25.8% YoY) ▷ Segment loss: JPY1.1bn (segment profit of JPY192mn in 1H FY12/19) ▷
Automotive precision products sales were JPY6.1bn (-20.4% YoY) and the operating loss was JPY246mn (JPY17mn profit in 1H ▷ FY12/19). Sales and profit were down YoY as customers suspended operations or adjusted production in light of the pandemic.
Sales were JPY19.5bn (-25.0% YoY) and the operating loss was JPY506mn (JPY574mn profit in 1H FY12/19) in the plastic ▷ molding and processing business, which handles products for air conditioners. There was a falloff in demand after a temporary increase in 1H FY12/19, a drop in orders from household appliance-related customers, and suspended operations or adjusted production by some customers in response to the pandemic.
On a quarterly basis, Q1 sales were JPY13.8bn (-14.8% YoY) and the operating loss was JPY233mn (JPY222mn profit in Q1 FY12/19).
Q2 sales were JPY10.3bn (-36.8% YoY) and the operating loss was JPY912mn (JPY30mn loss in Q2 FY12/19). Sales and profits were down, mainly due to the impact of the decline in auto production on plastic molding products.
Chemicals
Sales: JPY4.3bn (-0.8% YoY) ▷ Segment profit: JPY703mn (+5.6% YoY) ▷
Sales of environment and energy products, including mainstay insulation materials, functional chemicals (Carbodilite), and fuel cell separators were JPY3.7bn (+0.6% YoY) and operating profit was JPY615mn (+19.4% YoY). Q1 sales were JPY1.7bn (-0.8% YoY) and operating profit was JPY223mn (+4.7% YoY). Q2 sales were JPY2.0bn (+1.8% YoY) and operating profit was JPY392mn (+29.8% YoY).
In insulation materials, sales of stock solution, rigid block products, and bio-carriers for wastewater treatment declined, but ▷ sales of high-margin products increased, so sales fell but profit rose YoY. Sales of functional chemicals were affected by customers’ inventory adjustment in 1H FY12/19. In 1H FY12/20, sales and profit ▷ rose YoY for functional chemicals on increased sales of powder modifiers. In fuel cell separators, sales rose but profit fell YoY due to changes in the sales mix. ▷
Textiles
Sales: JPY17.2bn (-33.4% YoY) ▷
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Segment loss: JPY471mn (segment profit of JPY520mn in 1H FY12/19) ▷
In Japan, sales were JPY15.0bn (-32.5% YoY) and the operating loss was JPY426mn (JPY400mn profit in 1H FY12/19). Although ▷ sales of Mobilon tape for medical masks increased, domestic sales and profit fell YoY due to a drop in sales of fabrics for non- iron shirts caused by declining business apparel demand and temporary closings or abbreviated business hours at some stores of consolidated subsidiary Tokyo Shirts as a preventive measure against the COVID-19 pandemic. The company booked the COVID-19 pandemic-related losses associated with store closures as an extraordinary loss. Overseas sales were JPY7.1bn (-36.4% YoY) and the operating loss was JPY99mn (JPY212mn profit in 1H FY12/19). Sales and ▷ profit declined YoY due to sales slumps at the Brazilian, Indonesian, and Chinese subsidiaries.
On a quarterly basis, Q1 sales were JPY9.6bn (-27.0% YoY) and the operating loss was JPY307mn (JPY130mn profit in Q1 FY12/19). Q2 sales were JPY7.6bn (-40.0% YoY) and the operating loss was JPY164mn (JPY390mn profit in Q2 FY12/19).
Real Estate
Sales: JPY17.0bn (+540.3% YoY) ▷ Segment profit: JPY9.6bn (+511.4% YoY) ▷
The leasing business generated lower sales and profit YoY following the sale of a large commercial facility in Aichi in FY12/19 ▷ Sales and profit rose YoY in the property sales business with the start of condominium sales at the former site of JRC’s Mitaka ▷ factory in Tokyo and the sale of residential lots in Okazaki, Aichi.
Q1 FY12/20 results
Sales: JPY143.3bn (+1.3% YoY) ▷ Operating profit: JPY11.1bn (+144.3% YoY) ▷ Recurring profit: JPY10.0bn (+63.0% YoY) ▷ Net income*: JPY9.4bn (+88.7% YoY) ▷ * Net income attributable to owners of the parent
In Q1, sales declined YoY in the Automobile Brakes, Precision Instruments, and Textiles businesses. However, public demand in the Wireless and Communications business remained strong and the Real Estate business generated higher sales YoY after the company began selling condominiums at the former site of JRC’s Mitaka factory (Tokyo).
Operating profit rose YoY, primarily on higher profit in the Wireless and Communications business and higher sales in the Real Estate business. Recurring profit was also up YoY due to the increase in operating profit, despite negative factors including a decrease in equity in earnings of affiliates and foreign exchange losses. Net income attributable to owners of the parent rose YoY on higher recurring profit and an increase in extraordinary gains from the sale of investment securities and fixed assets.
Progress versus full-year FY12/20 forecast was 26.5% for sales, 79.3% for operating profit, and 72.1% for net income attributable to owners of the parent. Since sales and profit of the Wireless and Communications business are weighted toward Q1 (January– March), when JRC books a large proportion of its equipment sales to national and local government agencies, the company’s sales and profit for the remaining months (Q2–Q4, April–December) tend to be lower. As such, Q1 progress versus full-year forecast tend to be high. Additionally, in FY12/20 the sale of condominiums in the Real Estate business was concentrated in Q1, so profits were relatively high in Q1.
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Regarding the impact of the COVID-19 pandemic, Nisshinbo believes sales volumes of automotive products automotive — component parts for the Precision Instruments and Automobile Brakes businesses in particular may decline due to lower — production volumes at auto manufacturers. For other businesses, the company expects minimal impact as it maintains a diversified customer base. The company’s initial full-year forecast remains unchanged as it did not have sufficient material to reasonably estimate the impact of the pandemic as of Q1 FY12/20 results announcement.
Wireless and Communications
Sales: JPY51.3bn (-3.6% YoY) ▷ Segment profit: JPY5.4bn (+2.6% YoY) ▷
Sales declined but profit grew for the solutions and specialized equipment business. Domestic public sector demand led to stable performance.
In the solutions and specialized equipment business, sales were JPY31.3bn (-5.3% YoY) and operating profit was JPY5.2bn ▷ (+5.6%). Sales were down YoY as large orders of aviation and meteorological systems ran their course, but profit rose YoY as public sector demand related to disaster prevention and reduction remained robust and expenses, including outsourced processing expenses, declined. Sales and profit for the solutions and specialized equipment business weigh toward Q1 (January–March), while sales and profit for the remaining months (April–December) tend to be lower. According to the company, the difference between Q1 and Q2–Q4 results is narrowing as it secures a greater variety of orders. The marine systems business generated sales of JPY8.1bn (-11.0% YoY) and operating loss of JPY520mn (versus operating loss ▷ of JPY351mn in Q1 FY12/19). Sales declined and operating loss widened YoY on a decline in sales of equipment for small and medium-sized vessels. This was despite robust demand for aftermarket products and higher sales of equipment for retrofitting
merchant ships. In the communications equipment business, sales were JPY1.8bn (-54.5% YoY) and operating profit was JPY147mn (-43.7% ▷ YoY). In January 2020, JRC transferred the ITS business, which handles GPS receivers, ETC devices, and other equipment, from its communications equipment business to JRC Mobility. The ICT and mechatronics business (formerly the mechatronics and power supply business; name changed in January 2020) ▷ booked sales of JPY5.5bn (+30.3% YoY) and operating loss of JPY2mn (versus operating profit of JPY176mn in Q1 FY12/19). Sales rose YoY on robust demand for communications equipment and a contribution to sales by NJ Components, which became a consolidated subsidiary in July 2019. However, an increase in expenses caused a YoY drop in profit. JRC Mobility Inc. booked sales of JPY2.2bn (versus JPY57mn in Q1 FY12/19) and operating profit of JPY113mn (versus operating ▷ loss of JPY70mn in Q1 FY12/19). As mentioned earlier, sales and profit grew YoY as the ITS business was transferred from the communications equipment business to JRC Mobility.
Micro Devices
Sales: JPY14.6bn (-5.2% YoY) ▷ Segment loss: JPY718mn (segment profit of JPY132mn in Q1 FY12/19) ▷
The Micro Devices business comprises New JRC and Ricoh Electronic Devices. New JRC specializes in analog semiconductors, mainly in low-noise amplifiers and power management integrated circuits used in audio equipment, vehicles, and industrial equipment, as well as devices for wireless communications and IoT. Meanwhile, Ricoh Electronic Devices primarily specializes in small, energy-saving, high-efficiency complementary metal-oxide-semiconductor (CMOS) analog semiconductors with a focus on power management integrated circuits.
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At key subsidiaries, New JRC generated sales of JPY10.4bn (-3.4% YoY) and operating loss of JPY273mn (versus operating ▷ profit of JPY257mn in Q1 FY12/19), and Ricoh Electronic Devices posted sales of JPY4.5bn (-7.4% YoY) and operating loss of JPY375 mn (versus operating loss of JPY61mn in Q1 FY12/19). As discussed below, sales in the electronic devices business declined. On the expense front, higher R&D spending related to miniaturization processes and increased overhead
expenses led to lower profits.
In the electronic devices business, sales and profit both declined YoY on lower sales of communications-related products, ▷ including products for smartphone application for the Chinese market, and of on-board products for automobiles and industrial machinery-related products. Products for smartphone application geared for the Chinese market were also affected by the COVID-19 outbreak in China. In the microwave products business, sales and profit were both down YoY as sales of satellite communications products to the ▷ US stagnated and production under contract ended.
Automobile Brakes
Sales: JPY31.0bn (-8.4% YoY) ▷ Segment loss: JPY245mn (segment loss of JPY1.2bn in Q1 FY12/19) ▷
The Automobile Brakes business comprises key subsidiaries Nisshinbo Brake (domestic and overseas) and TMD. In addition to the improved performance of TMD, lower amortization of the intangible assets incurred at the time of the TMD acquisition helped narrow the segment loss.
Nisshinbo Brake Nisshinbo Brake generated sales of JPY11.2bn (-14.2% YoY) and operating profit of JPY292mn (-47.3% YoY). In addition to the decline in auto sales, the launch costs of new copper-free products contributed to the decline in profit.
Domestic auto sales fell YoY, mostly due to the impact of the consumption tax hike. Although the company saw an uptick in ▷ orders in the domestic operation following the launch of new copper-free products, relevant spending such as R&D, equipment, and depreciation expenses increased. Moreover, with a drop in domestic auto sales, sales and profit declined.
Overseas, Chinese subsidiaries generated lower sales YoY due to a drop in automobile sales, but losses narrowed through ▷ cost-cutting measures. The US, South Korean, and Thai subsidiaries generated lower sales and profit YoY due primarily to
lower automobile sales.
TMD
At TMD, sales were JPY20.9bn (-7.0% YoY) and operating loss was JPY551mn (versus operating loss of JPY1.4bn in Q1 ▷ FY12/19). Sales fell YoY with the impact of lower sales in the Chinese and European markets, but the loss shrank by making progress on restructuring, receiving increased orders for replacement parts, and reducing expenses.
Seeking to improve the profitability of its assembly parts for new cars (which account for about 40% of its sales), TMD is ▷ pushing to thoroughly manage profitability and improve production defect rates. As a result, the operating loss narrowed.
Additionally, at end-FY12/19 the company booked an impairment loss of about JPY14.0bn on fixed assets in the OEPC
(products used in new passenger car assembly) business, which helped reduce depreciation expenses in Q1 FY12/20.
The intangible assets resulting from the company’s acquisition of TMD has been fully amortized in FY12/19, and segment ▷ profit eliminations were JPY370mn smaller YoY.
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Precision Instruments
Sales: JPY13.8bn (-14.8% YoY) ▷ Segment loss: JPY233mn (segment profit of JPY222mn in Q1 FY12/19) ▷
Profit declined for both automotive precision products and plastic molding and processing businesses due to a decline in auto sales in China.
The automotive precision products business booked sales of JPY3.6bn (-6.2% YoY) and operating loss of JPY72mn (versus ▷ operating profit of JPY46mn in Q1 FY12/19). Sales and profit were down YoY on a decline in orders as customers moved production in-house and on the impact of a drop in auto sales at Chinese subsidiaries. The plastic molding and processing business generated sales of JPY11.1bn (-14.8% YoY) and operating profit of JPY29mn (- ▷ 92.3% YoY). Consolidated subsidiary Nanbu Plastics received fewer orders from auto-related and housing equipment-related customers due to a sales slump. Sales also fell YoY at Japanese, Chinese, Thai, and Indian subsidiaries.
Chemicals
Sales: JPY2.0bn (-3.1% YoY) ▷ Segment profit: JPY268mn (-13.0% YoY) ▷
Environment and energy products, including mainstay insulation materials, functional chemicals (Carbodilite), and fuel cell separators generated sales of JPY1.7bn (-0.8% YoY) and operating profit of JPY223mn (+4.7% YoY).
Sales and profit fell YoY for insulation materials due to a sluggish market for stock solution and rigid block products, as well as ▷ lower sales from bio-carriers for wastewater treatment. Sales and profit rose YoY for functional chemicals thanks to increased sales of powder modifiers. While customer inventory ▷ adjustments impacted FY12/19 earnings, the company expects sales of chemicals for paints to increase in FY12/20, but the
sales recovery was slower than expected. In fuel cell separators, sales were flat YoY, but profit fell due to changes in sales mix. ▷
Textiles
Sales: JPY9.6bn (-27.0% YoY) ▷ Segment loss: JPY307mn (segment profit of JPY130mn in Q1 FY12/19) ▷
Domestic sales were JPY8.0bn (-28.8% YoY) and operating loss was JPY382mn (versus operating profit of JPY53mn in Q1 ▷ FY12/19). Sales and profit fell YoY due to a drop in sales of fabrics for non-iron shirts caused by stagnant apparel demand and abbreviated business hours at some stores of consolidated subsidiary Tokyo Shirts because of the COVID-19 outbreak. Overseas sales were JPY4.1bn (-30.0% YoY) and operating profit was JPY61mn (-60.1% YoY). Sales and profit declined YoY due ▷ to sales slumps at the Brazilian, Indonesian, and Chinese subsidiaries.
Real Estate
Sales: JPY15.2bn (segment sales of JPY1.3bn in Q1 FY12/19) ▷ Segment profit: JPY8.7bn (+879.4% YoY) ▷
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The leasing business generated lower sales and profit YoY following the sale of a large commercial facility in Aichi in FY12/19, ▷ but sales and profit rose YoY in the property sales business with the start of condominium sales at the former site of JRC’s Mitaka factory in Tokyo.
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Income statement
Income statement FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 (JPY mn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 379,340 450,693 494,350 523,757 533,989 527,274 512,047 416,221 509,660 457,051 YoY 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -2.9% - - -10.3% Cost of goods sold 317,533 359,463 395,083 415,608 419,401 420,609 406,069 335,043 409,013 365,434 Gross profit 61,806 91,229 99,266 108,149 114,587 106,664 105,978 81,177 100,647 91,616 GPM 16.3% 20.2% 20.1% 20.6% 21.5% 20.2% 20.7% 19.5% 19.7% 20.0% SG&A expenses 57,635 77,836 86,091 94,405 101,970 101,773 90,892 83,683 94,164 90,368 SG&A ratio 15.2% 17.3% 17.4% 18.0% 19.1% 19.3% 17.8% 20.1% 18.5% 19.8% Operating profit 4,170 13,393 13,175 13,744 12,617 4,890 15,085 -2,505 6,482 1,248 YoY -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 208.5% - - -80.7% OPM 1.1% 3.0% 2.7% 2.6% 2.4% 0.9% 2.9% - 1.3% 0.3% Non-operating income 7,021 8,002 12,030 9,315 8,010 9,741 8,965 7,855 7,937 6,936 Interest income 1,308 1,239 1,756 2,116 2,368 2,142 2,307 2,055 2,167 1,691 Equity in earnings of affiliates 3,502 3,075 4,899 3,280 2,873 4,405 4,375 3,942 3,654 2,574 Non-operating expenses 2,511 3,709 3,034 2,409 3,593 4,075 4,350 3,783 2,716 4,718 Interest expenses 1,099 2,240 1,578 1,024 1,007 969 862 888 1,132 1,137 Recurring profit 8,680 17,686 22,171 20,650 17,034 10,556 19,700 1,566 11,703 3,466 YoY -65.6% 103.8% 25.4% -6.9% -17.5% -38.0% 86.6% - - -70.4% RPM 2.3% 3.9% 4.5% 3.9% 3.2% 2.0% 3.8% 0.4% 2.3% 0.8% Extraordinary gains 2,436 2,966 1,691 7,186 7,772 6,143 20,808 2,016 4,700 22,898 Extraordinary losses 8,084 3,767 9,345 9,877 2,626 9,983 7,021 7,063 18,661 6,335 Pre-tax profit Income taxes -3,319 6,290 3,643 -2,846 7,839 4,883 6,900 2,075 4,612 7,368 Implied tax rate -109.5% 37.3% 25.1% -15.8% 35.3% 72.7% 20.6% - - 36.8% Net income attributable to non-controlling interests -3,064 4,177 1,861 7,111 3,564 -1,741 234 1,627 -266 -879 Net income attributable to owners of the parent 9,415 6,418 9,011 13,693 10,775 3,574 26,352 -7,182 -6,604 13,540 YoY -15.8% -31.8% 40.4% 52.0% -21.3% -66.8% 637.3% - - - Net margin 2.5% 1.4% 1.8% 2.6% 2.0% 0.7% 5.1% - - 3.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Starting with FY12/18, Nisshinbo changed its financial year end from March 31 to December 31. For this reason, FY12/18 was an irregular accounting period covering April to December 2018 for consolidated companies whose financial year previously ended in March.
Non-operating income Dividend income Dividend yield is 2–4%, calculated by dividing dividends received by total investment securities held (excluding shares in listed and non-listed affiliates).
Dividend income and dividend yield
(JPY mn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Dividend income 1,308 1,239 1,756 2,116 2,368 2,142 2,307 2,055 2,167 1,691 Investment securities 68,858 86,046 98,234 119,460 97,880 100,514 108,111 95,287 104,214 79,218 Shares in affiliates 12,208 14,088 16,215 16,846 17,698 20,038 22,293 23,979 25,376 23,618 Investment securities excluding shares in affiliates 56,650 71,958 82,019 102,614 80,182 80,476 85,818 71,308 78,838 55,600 Div idend y ield 2.3% 1.9% 2.3% 2.3% 2.6% 2.7% 2.8% 3.5% 3.8% 3.4% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: For FY12/18, nine-month dividend yield was adjusted on a twelve-month base.
Equity in earnings of affiliates Continental Automotive and Continental Automotive Corporation (LYG) make a significant contribution to equity in earnings of affiliates. They are joint ventures established by Continental AG (FWB: CON) and Nisshinbo to develop, design, manufacture, and sell automobile brake systems in Japan and China.
Equity in earnings of affiliates and results at Continental Automotive and Continental Automotive Corporation (LYG)
(JPY mn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Equity in earnings of affiliates 3,502 3,075 4,899 3,280 2,873 4,405 4,375 3,942 3,654 2,574 Continental Automotive Sales 66,270 67,647 79,070 94,686 95,636 86,776 103,571 119,940 117,895 94,662 Net income 5,909 5,642 8,926 6,330 5,250 6,789 7,062 6,916 6,300 3,873 Nisshinbo stake 40.0% 40.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% Equity in earnings of Continental Automotive 2,364 2,257 3,124 2,216 1,838 2,376 2,472 2,421 2,205 1,356 Continental Automotive Corporation (LYG) Sales - - - - - 38,713 - - - - Net income - - - - - 3,621 - - - - Nisshinbo stake - - - - - 40.0% 40.0% 35.0% 35.0% 35.0% Equity in earnings of Continental Automotive - - - - - 1,448 - - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Non-operating expenses Interest expenses Interest tends to be about 0.6–2.0%. It rose in FY03/13 with the consolidation of TMD, which increased interest on corporate bonds. In FY03/14, the company bought and retired bonds, resulting in lower interest rate on interest-bearing debt.
Interest expenses and interest rate on interest-bearing debt
(JPY mn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Interest expenses 1,099 2,240 1,578 1,024 1,007 969 862 888 1,132 1,137 Interest rate on interest-bearing debt 0.9% 1.8% 1.3% 0.7% 0.7% 0.6% 0.6% 0.8% 0.7% 0.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Income taxes and net income attributable to non-controlling interests Net income attributable to non-controlling interests In the past, net income attributable to non-controlling interests primarily reflected income attributable to minority shareholders of listed subsidiaries JRC and New JRC. However, with JRC having become a wholly owned subsidiary in FY03/18 and New JRC having become a wholly owned subsidiary in FY12/18, net income attributable to non-controlling interests will no longer reflect these values. Shared Research understands that in FY12/20, performance at Ricoh Electronic Devices (80% stake) and South Korean brake business subsidiary Saeron Automotive Corporation (65%) had an impact on net income attributable to non- controlling interests.
Net income attributable to non-controlling interests
(JPY mn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Net income attributable to non-controlling interests -3,064 4,177 1,861 7,111 3,564 -1,741 234 1,627 -266 -879 JRC net income 1,844 9,245 2,310 14,342 1,661 1,559 - - - Stake 64.3% 64.3% 64.3% 64.3% 61.8% 61.8% 100.0% 100.0% 100.0% 100.0% Net income attributable to non-controlling interests 658 3,301 825 5,122 634 595 - - - - New JRC net income -9,098 1,721 2,561 4,580 2,496 616 2,520 - - Stake 59.6% 59.7% 59.7% 59.6% 59.6% 59.6% 63.6% 100.0% 100.0% 100.0% Net income attributable to non-controlling interests -3,672 694 1,033 1,848 1,007 249 917 - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Net income attributable to non-controlling interests for JRC and New JRC are each calculated by multiplying net assets x (1 – the company’s interest).
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Balance sheet
Balance sheet FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 (JPY mn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. ASSETS Cash and deposits 20,897 20,200 28,033 45,687 45,921 47,691 43,046 42,434 37,550 50,547 Notes and accounts receivable–trade 124,541 130,124 144,690 146,800 137,956 135,261 136,348 106,403 111,601 100,453 Electronically recorded monetary claim - - 4,540 6,129 9,162 14,011 15,802 15,404 16,408 14,771 Inventories 80,647 78,996 88,237 92,893 95,192 99,768 105,367 118,990 121,846 116,344 Deferred tax assets 5,296 2,831 3,019 7,758 7,215 6,000 4,878 - - - Other 8,219 7,167 3,925 11,202 8,949 12,069 5,655 14,856 13,109 10,763 Total current assets 239,600 239,318 272,444 310,469 304,395 314,800 311,096 298,087 299,929 292,258 Buildings and structures 58,505 58,623 60,020 67,725 69,088 73,179 68,358 67,842 59,120 60,247 Machinery and vehicles 39,300 44,910 49,332 57,123 55,093 51,796 55,090 58,933 56,259 52,102 Land 54,972 51,791 52,226 45,653 47,679 39,215 37,811 36,890 35,158 34,297 Construction in progress 3,417 2,389 4,192 4,490 7,345 9,129 12,649 9,909 8,254 6,803 Other fixed assets 6,630 7,839 8,476 9,894 12,563 12,165 12,109 11,115 16,070 15,474 Total tangible fixed assets 162,824 165,552 174,246 184,885 191,768 185,484 186,017 184,689 174,863 168,924 Investment securities 68,858 86,046 98,234 119,460 97,880 100,514 108,111 95,287 104,214 79,218 Deferred tax assets 5,394 5,883 8,831 9,525 12,161 9,744 9,240 6,159 5,249 4,585 Other 9,883 9,838 11,408 18,231 14,952 15,074 18,286 23,031 21,066 22,507 Investments and other assets 84,135 101,767 118,473 147,216 124,993 125,332 135,637 124,479 130,531 106,311 Goodwill 25,341 23,002 23,378 16,013 14,607 8,077 8,945 7,130 5,101 4,595 Other 21,727 21,760 22,768 19,900 16,029 12,593 10,261 7,993 7,102 9,113 Total intangible assets 47,068 44,762 46,146 35,914 30,636 20,670 19,206 15,124 12,203 13,709 Total fixed assets 294,028 312,081 338,866 368,016 347,398 331,487 340,861 324,293 317,597 288,945 Total assets 534,583 551,933 611,310 678,486 651,793 646,288 651,958 622,381 617,527 581,204 LIABILITIES Accounts and notes payable 59,228 58,708 66,557 63,593 62,690 59,974 55,526 44,048 41,753 39,636 Electronically recorded obligations - - 4,827 7,264 9,500 12,457 16,419 20,260 19,635 18,801 Short-term debt 26,928 28,736 48,653 71,280 55,397 48,977 46,312 65,391 46,548 35,247 Commercial paper 27,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 Current portion of bonds payable 2,019 11,133 ------Current portion of long-term debt 18,211 23,596 20,320 6,634 14,679 7,770 7,676 8,057 39,818 27,990 Other 35,552 36,233 33,303 47,407 47,504 46,996 53,016 50,333 53,262 51,170 Total current liabilities 168,938 188,406 203,660 226,178 219,770 206,174 208,949 218,089 231,023 202,852 Bonds payable 14,094 ------Long-term debt 47,607 26,560 28,888 38,162 48,757 69,294 64,107 58,742 47,686 57,091 Deferred tax liabilities 26,971 34,409 41,321 43,971 34,274 30,741 25,246 16,825 18,874 12,136 Retirement benefit liabilities 43,009 40,854 43,062 42,494 47,085 49,180 48,031 50,269 51,773 52,770 Other 20,213 19,080 17,514 20,743 17,435 15,145 15,190 13,606 15,635 14,287 Total fixed liabilities 151,894 120,903 130,785 145,370 147,551 164,360 152,574 139,442 133,968 136,284 Total liabilities 320,833 309,309 334,445 371,548 367,321 370,535 361,524 357,531 364,992 339,136 NET ASSETS Capital stock 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,609 27,639 27,669 Capital surplus 20,400 20,400 20,403 20,401 17,598 17,587 26,719 20,396 20,421 20,450 Retained earnings 140,213 143,955 150,346 161,791 168,824 167,598 189,186 177,545 165,548 174,097 Treasury stock -3,522 -3,533 -3,552 -23,478 -23,156 -23,089 -24,610 -11,035 -15,947 -15,950 Accumulated other comprehensive income 1,053 20,964 44,445 72,608 42,833 39,751 49,888 35,100 40,441 22,605 Subscription rights to shares 246 282 264 221 168 162 151 160 167 150 Non-controlling interests 27,771 32,966 37,369 47,805 50,613 46,155 21,510 15,071 14,263 13,045 Total net assets 213,750 242,623 276,865 306,937 284,471 275,753 290,434 264,849 252,535 242,067 Working capital 145,960 150,412 166,370 176,100 170,458 175,055 186,189 181,345 191,694 177,161 Total interest-bearing debt 135,859 120,025 127,861 146,076 148,833 156,041 148,095 162,190 164,052 150,328 Net debt 114,962 99,825 99,828 100,389 102,912 108,350 105,049 119,756 126,502 99,781 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Assets Nisshinbo’s main assets are notes and accounts receivable, inventories, tangible fixed assets, and investment securities.
Notes and accounts receivable (including electronically recorded monetary claims) Notes and accounts receivable account for 19.8% of total assets in FY12/20 (20.7% in FY12/19). The turnover rate of accounts receivable has generally run between 3x and 4x. Accounts receivable turnover has fallen from FY03/11 with the consolidation of JRC. A change in the financial year end in FY12/19 caused increases in the amount and turnover rate of accounts receivable.
Accounts receivable turnover
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Accounts receivable turnover 3.2 3.5 3.5 3.5 3.6 3.6 3.4 - 4.1 3.8 Days in accounts receivable 114.1 103.1 103.1 105.3 102.5 102.6 107.4 - 89.5 97.1 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Inventories Inventories account for 20.0% of total assets in FY12/20 (19.7% in FY12/19). Inventory turnover is usually stable at around 4.0– 5.0x, but fell in FY12/19 due to the change in financial year end causing an increase in work in process. Inventory turnover declined in FY12/20 as sales deteriorated as a result of the spread of COVID-19.
Inventory turnover
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Inventory turnover 4.1 4.5 4.7 4.6 4.5 4.3 4.0 - 3.4 3.1 Days in inventory 88.4 81.1 77.2 79.5 81.8 84.6 92.2 - 107.5 119.0 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Tangible fixed assets Tangible fixed assets totaled JPY168.9bn at end-FY12/20 (29.1% of total assets, up from 28.3% of total assets at end-FY12/19). This includes headquarters (book value of JPY14.1bn in FY12/20), manufacturing facilities at subsidiaries, and leased real estate (book value of JPY10.5bn).
Of the total tangible fixed assets, depreciable assets stood at JPY127.8bn (JPY131.4bn at end-FY12/19), 47% of which was buildings and structures, and 41% of which was machinery, equipment, and vehicles. The straight-line method is used for depreciation of tangible fixed assets, with a useful life of 2–60 years for buildings and structures, and 2–20 years for machinery, equipment, and vehicles. In FY12/20, depreciation expenses totaled JPY22.1bn (JPY25.0bn in FY12/19).
At end-FY12/20, leased real estate had a balance sheet value of JPY10.5bn (JPY11.6bn at end-FY12/19), against a market value of JPY26.3bn (market value of JPY37.8bn at end-FY12/19). This real estate includes rental shopping centers and office buildings (and the land) in Tokyo and elsewhere.
Goodwill In FY12/20, goodwill amortization totaled JPY1.8bn (JPY2.0bn in FY12/19), with total goodwill outstanding at end-FY12/20 at JPY4.6bn (JPY5.1bn at end-FY12/19). With the Automobile Brakes segment having completed goodwill amortization in FY03/17, amortization charges came down in FY12/18.
As of end-FY12/20, unamortized goodwill totaled JPY1.4bn in Wireless and Communications, JPY1.6bn in Micro Devices, and JPY1.7bn in Precision Instruments, with these three segments together accounting for the vast majority of goodwill carried on Nisshinbo’s balance sheet.
The unamortized goodwill at Wireless and Communications reflects JRC’s acquisition of Alphatron Marine Beheer B.V. in ▷ FY03/17.
The unamortized goodwill at Micro Devices reflects the making of Ricoh Electronic Devices into a wholly owned subsidiary ▷ in FY03/18.
The unamortized goodwill at the Precision Instruments segment reflects its acquisition of Nanbu Plastics and its nine ▷ subsidiaries in FY03/16.
Investment securities As of end-FY12/20, investment securities stood at JPY79.2bn, including JPY55.6bn in trading securities, held-to-maturity investments, and securities other than shares of related companies (JPY53.7bn for those with fair market value, JPY1.9bn for unlisted companies, etc.)
The company held shares in 55 entities (63 in FY12/19) for purposes other than for pure investment; the total value of these shares as indicated in the balance sheet came to JPY47.0bn (JPY69.1bn in FY12/19). For example, the company holds shares in Toyota Motor Corp., BALLARD POWER SYSTEM INC., Shikoku Chemicals Corporation, and Teijin to create and strengthen relationships.
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Notable share holdings (as of FY12/20)
Stock Name FY12/20 FY12/19
Shares Balance sheet Shares Balance sheet value (JPYmn) value (JPYmn)
Toyota Motor Corp. 1,599,841 12,729 4,599,841 35,483
BALLARD POWER SYSTEMS INC. 3,322,479 8,046 3,322,479 2,613
Shikoku Chemicals Corp. 5,580,752 6,696 5,580,752 7,701
Teijin Ltd. 1,953,258 3,789 1,953,258 3,994
Hino Motors Ltd. 4,209,250 3,699 4,209,250 4,891
The Japan Wool Textile Co., Ltd. 2,763,000 2,757 2,763,000 3,119
Nisshin Seifun Group Inc. 977,680 1,604 977,680 1,863
Central Glass Co., Ltd. 424,800 954 424,800 1,138
Mizuho Financial Group, Inc. 657,687 859 6,576,870 1,106
Sumitomo Realty & Development Co., Ltd. 188,000 598 188,000 716
Gunze Ltd. 157,000 527 157,000 767 Source: Shared Research based on company data
Liabilities Notes and accounts payable (including electronically recorded obligations) Notes and accounts payable (including electronically recorded obligations) made up 17.2% of total liabilities in FY12/20 (16.8% in FY12/19). A change in the financial year end in FY12/19 caused a decrease in notes and accounts payable (including electronically recorded obligations) and improvement in accounts payable turnover.
Accounts payable turnover
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 Accounts payable turnover 5.6 6.1 6.1 5.8 5.9 5.8 5.6 - 6.5 6.1 Days in accounts payable 65.7 59.9 60.1 62.5 62.2 62.8 64.9 - 56.1 59.8 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Interest-bearing debt In FY12/20, interest-bearing debt totaled JPY150.3bn (JPY164.1bn in FY12/19). Subtracting interest-bearing debt from cash and deposits leaves net debt of JPY99.8bn (JPY126.5bn in FY12/19).
Interest-bearing debt increased in FY03/11 and FY03/12. In FY03/11, Nisshinbo made JRC a consolidated subsidiary, adding JPY21.4bn to the current portion of long-term loans payable, JPY3.0bn to commercial paper, and JPY10.3bn to long-term loans payable. In FY03/12, the company made TMD a consolidated subsidiary, adding JPY2.0bn to commercial paper, JPY16.1bn to corporate bonds, and JPY23.1bn to long-term loans payable.
FY12/20 net debt to EBITDA: 4.0x (3.8x in FY12/19). We understand the company can repay its debt, as it has investment securities and unrealized gains on real estate for leasing.
Net assets Shareholders’ equity Shareholders’ equity is impacted by changes in retained earnings because of net income and the distribution of surplus (dividends), as well as by the company repurchasing treasury shares. Historical changes in shareholders’ equity caused by factors other than net income and the distribution of surplus are as follows.
The capital surplus declined in FY03/16 due to the transfer of shares in subsidiaries. ▷ It increased in FY03/18 after JRC was made a wholly owned subsidiary through a share exchange. ▷
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Nisshinbo made New JRC a wholly owned subsidiary through a share exchange in FY12/18, causing a decline in capital ▷ surplus and treasury shares. In addition, retained earnings decreased with the payment of dividends and because of a net loss.
Total other comprehensive income In FY12/20, total other comprehensive income stood at JPY22.6bn. This mainly comprised other valuation differences on investment securities of JPY25.8bn (unrealized gains).
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Cash flow statement
Cash flow statement FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 (JPY mn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 12,973 34,095 26,075 37,120 39,566 26,768 32,414 15,495 26,249 42,590 Cash flows from investing activities (2) -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 -1,797 -20,723 -21,759 -6,321 Free cash flow (1+2) -44,887 23,122 6,213 15,849 16,773 -4,661 30,617 -5,228 4,490 36,269 Cash flows from financing activities 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 -10,065 -24,230 Depreciation and amortization (A) 14,589 23,893 28,070 30,434 29,759 30,526 23,871 21,705 26,552 23,956 Capital expenditures (B) -14,580 -19,488 -18,902 -32,508 -24,727 -29,218 -29,567 -26,992 -25,436 -24,601 Working capital changes (C) 15,335 4,452 15,958 9,730 -5,642 4,597 11,134 -4,844 10,349 -14,533 Simple FCF (NI + A + B - C) -5,911 6,371 2,221 1,889 21,449 285 9,522 -7,625 -15,837 27,428 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Cash flows from operating activities Impacted by changes in net income, depreciation, goodwill amortization, and working capital.
Operating cash flow rose from FY03/13 through FY03/17 as the consolidation of TMD pushed goodwill amortization above JPY5.0bn per annum, but the completion of goodwill amortization for TMD caused the figure to drop to JPY1.7bn in FY03/18.
Cash flows from investing activities Significantly affected by M&A and the acquisition of tangible fixed assets.
During the previous 10-year period, changes in this cash flow item from factors other than acquisition of tangible fixed assets were prominent in FY03/12 and FY03/18.
In FY03/12, the company acquired TMD. As a result, the company booked an outflow of JPY43.4bn from the acquisition of ▷ this subsidiary’s shares, resulting in an investment cash flow of minus JPY57.9bn (outflow).
In FY03/18, the company sold its Papers business, receiving JPY21.1bn from the sale of shares of related subsidiaries and ▷ affiliates. This led to a negative JPY1.8bn in cash flow from investing activities.
Cash flows from financing activities Significantly affected by acquisitions, changes in interest-bearing debt, dividend payments, and purchase of treasury shares.
Changes in interest-bearing debt and dividends paid
FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY12/18 FY12/19 FY12/20 (JPY mn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from financing activities 16,835 -24,072 -2,321 -6,238 -9,044 3,595 -34,784 11,935 -10,065 -24,230 A + B + C 34,592 -18,466 5,185 -4,435 -837 2,444 -32,720 9,091 -8,126 -18,718 Change in interest-bearing debt (A) 37,232 -15,834 7,836 18,215 2,757 7,208 -7,946 14,095 1,862 -13,724 Dividends paid (B) -2,629 -2,620 -2,619 -2,619 -3,568 -4,762 -4,764 -4,999 -5,064 -4,991 Purchase of treasury stock (C) -11 -12 -32 -20,031 -26 -2 -20,010 -5 -4,924 -3 Other -17,757 -5,606 -7,506 -1,803 -8,207 1,151 -2,064 2,844 -1,939 -5,512 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
For the past ten financial years, FY03/12 showed particularly significant changes in interest-bearing debt, dividends paid, and purchase of treasury shares.
In FY03/12, interest-bearing debt increased with the acquisition of TMD. Again, the company booked a positive financial ▷ cash flow (inflow) of JPY16.8bn overall, as cash flow from the repayment of interest-bearing debt and borrowing came to an
inflow of JPY20.8bn.
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Other information
History 1907: Nisshin Cotton Spinning founded to mass produce cotton thread In February 1907, 76 people, including leading figures from finance, established Nisshin Cotton Spinning Co., Ltd. One of those 72 founders was Momosuke Fukusawa, son-in-law of Yukichi Fukuzawa, the thinker and founder of Keio University. The new company used modern cotton spinning machinery to compete with quality cotton thread from overseas.
Yet the young company struggled to increase earnings compared with more established competitors. In 1914, Seijiro Miyajima was appointed managing director. He embarked upon a set of reforms, cutting costs, streamlining the workforce, optimizing procurement prices, and repairing production equipment. These efforts paid off with a recovery in earnings in 1915. In 1919, Seijiro Miyajima was appointed president, before stepping up to the role of chairman in 1940.
1940s–1960s: capitalizing on post-war demand for goods In 1945, Takeshi Sakurada was appointed president. Under his leadership and belief that a company’s resources lay in its people, the company began diversifying, entering non-textile businesses in 1946. As Japan recovered after the war and embarked on a period of rapid economic growth, non-textile businesses—Automobile Brakes, Paper, and Chemicals—expanded, accounting for over 10% of sales by 1960. The company ramped up efforts to diversify, expanding new, non-textile businesses and nurturing related businesses.
Late 1960s–1980s: growing brake business as car ownership spreads As cars became more popular, the Automobile Brakes segment grew, accounting for more than 10% of group sales by 1988. The company also invested in plant and equipment for other non-textile businesses such as Precision Instruments and Chemicals.
1990s: diversification; expansion overseas As the yen strengthened from 1985, Japan shifted from an export-led to an import-led textile industry. Apparel demand also fell as the economy weakened after the bubble burst and the company was pushed to restructure. It expanded overseas in both textile and non-textile operations, in a bid to further diversify and develop new businesses. In 1990, non-textile units accounted for more than 50% of total sales, for the first time.
2000s: focusing on electronics To increase corporate value, Nisshinbo accelerated its shift toward overseas manufacturing. As Japan became an information society, the company positioned the Electronics segment as its core strategic business. In 2006, it acquired New JRC, making it a consolidated subsidiary. As a result, non-textile businesses accounted for 73.5% of all sales by FY03/08.
As the economy slumped following the global financial crisis of 2008, Nisshinbo booked operating profit of JPY407mn in FY03/09 (-96.6% YoY) and a net loss of JPY1.3bn. In April 2009, Shizuka Uzawa became president. He reorganized the group into a holding company structure, with Textiles, Automobile Brakes, Papers, Precision Instruments, and Chemicals spun off into five separate units. The name was changed to Nisshinbo Group Holdings Inc.
2010s: Wireless and Communications, Micro Devices, Automobile Brakes become core businesses In 2010, Nisshinbo made JRC and Nagano JRC subsidiaries, meaning the Electronics segment (now Wireless and Communications and Micro Devices) accounted for almost 40% of group sales. In the Automobile Brakes segment, the company brought European friction materials manufacturer TMD Friction Group S.A. into the group in 2011, making Nisshinbo one of the world’s leading suppliers of friction materials. This segment now accounted for more than 30% of total sales.
In addition, the company has been actively moving toward focusing on core businesses and selling off non-core businesses. It sold its Papers business, a non-core business, in April 2017. In terms of core businesses, in October 2017, Nisshinbo made JRC a wholly owned subsidiary through a share exchange. In March 2018, it made Ricoh Electronic Devices a subsidiary through a
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share purchase (bringing its holding to 80.0%), and in September 2018, it made New JRC a wholly owned subsidiary through a share exchange. These measures aimed at improving group cohesion have largely focused on mainstays Wireless and Communications and Micro Devices.
In April 2018, Nisshinbo combined its wireless communications and electronic device technologies to expand from the automotive field to the broader mobility field (ships, airplanes, railroads, industrial machinery, and drones) and established JRC Mobility Inc. to spin off the mobility field from JRC s communications equipment business. ’
Corporate timeline 1907 Established Nisshin Cotton Spinning Co., Ltd. Established Toa Jitsugyo Co., Ltd. 1940 (name changed to Nisshin Toa Inc. in 1990)
Established Nihon Koubunshikan Co., Ltd. 1958 (name changed to Nippon Koubunshi Co., Ltd. in 1986) (acquired by Nisshinbo Mechatronics Inc. in 2010)
1962 English-language name of company changed to Nisshin Spinning Co., Ltd.
1972 Established Nisshinbo Do Brasil Industria Textil LTDA. (Brazil) Acquired Nissin Denim Inc. 1985 (acquired by Nisshinbo Textile Inc. in 2014)
1989 Established Kohbunshi (Thailand) Ltd. (Thailand) Established Pudong Kobunshi (Shanghai) Co., Ltd. (China) 1993 (name changed to Nisshinbo Mechatronics (Shanghai) Co., Ltd. in 2010)
Established Nisshinbo Automotive Corporation (US) 1995 (merged with Nisshinbo Automotive Manufacturing Inc. in 2009) Established Nisshinbo Urban Development Co., Ltd.
1996 Established Nisshinbo Somboon Automotive Co., Ltd. (Thailand)
1997 Established Nisshinbo Automotive Manufacturing Inc. (US) Established PT. Gistex Nisshinbo Indonesia (Indonesia) 1998 (name changed to PT. Nisshinbo Indonesia in 2010)
1999 Established Saeron Automotive Corporation (South Korea) Bought additional shares in PT. Nikawa Textile Industry (Indonesia) 2000 Established Continental Teves Co., Ltd. through merger with Continental Teves AG & Co. oHG (name changed to Continental Automotive Co., Ltd. in 2007)
Bought all shares in Iwao & Co., Ltd. 2002 Established Nisshinbo (Shanghai) Co., Ltd. (China)
2003 Established Saeron Automotive Beijing Corporation (China) Established Continental Teves Corporation (Lian Yun Gang) (China) 2004 (name changed to Continental Automotive Corporation (LYG) Co., Ltd. in 2013)
2005 Added New Japan Radio Co., Ltd. as consolidated subsidiary
2006 Acquired additional shares in Japan Radio Co., Ltd. and Nagano Japan Radio Co., Ltd. Acquired all shares of Nisshinbo Brake Sales Co., Ltd. (acquired by Nisshinbo Brake Inc. in 2010) 2008 Established Jiangsu Yawei Nisshinbo Precision Instruments & Machinery Co., Ltd. through merger with Jiangsu Yawei Machine-Tool Co., Ltd. (China) (name changed to Nisshinbo-Yawei Precision Instruments & Machinery (Jiangsu) Co., Ltd. in 2010)
Spun off five businesses—Textiles, Automobile Brakes, Papers, Mechatronics and Chemicals—and converted to holding company; corporate name changed to Nisshinbo Holdings Inc. 2009 Established Taiwan Nisshinbo Photovoltaic Co., Ltd. (Taiwan) Established US Nisshinbo Photovoltaic Co., Ltd. (US)
2010 Established Nisshinbo Textile Changzhou Co., Ltd. (China)
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Added Japan Radio Co., Ltd. and Nagano Japan Radio Co., Ltd. as consolidated subsidiaries
Established Nisshinbo Saeron (Changshu) Automotive Co., Ltd. (China) 2011 Established Nisshinbo Singapore Pte. Ltd. (Singapore) Acquired all shares of TMD Friction Group S.A. (Luxemburg) 2012 Established Nisshinbo Business Management (Shanghai) Co., Ltd. (China)
2013 Established Nisshinbo Commercial Vehicle Brake Ltd. (Thailand)
2014 Established Nisshinbo-Continental Precision Machining (Yangzhou) Co., Ltd (China) Acquired all shares of Tokyo Shirts Group 2015 Acquired all shares of Nanbu Plastics Co., Ltd.
2016 JRC fully consolidates Nagano JRC and Ueno JRC Sold the Papers business, operated by Nisshinbo Paper Products Inc., to Daio Paper Corporation 2017 Decided to make JRC a wholly owned subsidiary via a share exchange
Acquired shares in Ricoh Electronic Devices, subsequently making the company a subsidiary 2018 Established JRC Mobility Inc. Made New Japan Radio Co., Ltd. a wholly owned subsidiary through a share exchange
2019 Acquired all shares in NJ Components, subsequently making the company a wholly owned subsidiary
News and topics February 2021 On February 24, the company announced the application for a suspension of debt payment obligation (PKPU) procedure in relation to its Indonesian subsidiary.
The company decided to apply for a suspension of debt payment obligation (PKPU) procedure, as stipulated by local law in Indonesia, in relation to its Indonesian subsidiary PT. Nanbu Plastics Indonesia.*
*The PKPU procedure is a form of debt restructuring provided for by Indonesian local law. Under this procedure, the debtor is granted a certain period in which debt payment obligations are suspended. During this period, the debtor considers a settlement proposal with creditors, and investigates the possibility of company restructuring. The success or failure of the settlement proposal and the continuation of business for the company in question (based on such proposal) is determined by resolution at a creditors’ meeting and court approval.
Reason for the application PT. Nanbu was established in 2010 as an Indonesian subsidiary of Nanbu Plastics Co., Ltd., a consolidated subsidiary of the company. It manufactures and sells various resin molded products, predominantly to clients in the automotive and home appliance industries. Due to a deterioration in performance as a result of continuing difficult business environment, PT. Nanbu decided to file an application to commence PKPU proceedings at the Commercial Court at the District Court of Central Jakarta.
Total debt
PT. Nanbu’s total debt amounts to approximately JPY2.5bn.
Performance and financial position of PT. Nanbu over the last three fiscal years
Shared Research based on company data Note: Figures have been converted into JPY values, based on the exchange rate for each fiscal year.
Assessed value of PT. Nanbu shares The company is recording the entire value of PT. Nanbu shares as an impairment loss, and the current value is assessed as JPY0.
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Future outlook The competent court will rule on the application to commence PKPU proceedings within a period of several days. If the competent court decides to commence PKPU proceedings, PT. Nanbu will be granted a temporary period of time in which debt payment obligations are suspended, and a supervisory judge and receiver will be appointed. During the PKPU period, the board of directors of PT. Nanbu will continue to manage PT. Nanbu under the supervision of the court (the supervisory judge) and subject to the approval of the receiver.
The company does not expect this application to have a significant impact on the delivery of products to PT. Nanbu’s customers. The company will promptly disclose any matters that require disclosure if they arise in future, including any effect of this application on company performance.
January 2021 On January 28, 2021, the company announced revisions to its FY12/20 forecast.
Revised full-year FY12/20 earnings forecast
Sales: JPY457.0bn (previous forecast was JPY462.0bn) ▷ Operating profit: JPY1.2bn (operating loss of JPY4.0bn) ▷ Recurring profit: JPY3.4bn (recurring loss of JPY3.0bn) ▷ Net income*: JPY13.5bn (JPY1.0bn) ▷ EPS: JPY81.13 (JPY6.01) ▷ * Net income attributable to owners of the parent
Reasons for revisions
In Q4 FY12/20 (October–December 2020), sales rose in the Automobile Brakes and Precision Instruments businesses, due in ▷ part to recovery in global auto production. On the other hand, sales declined in the Wireless and Communications, Micro
Devices, and Textiles businesses, causing Nisshinbo to lower its sales target versus its previous forecast.
The company expects operating and recurring profits to exceed its earlier forecast due to progress on companywide ▷ measures to improve the cost of sales and reduce expenses, coupled with higher sales in the Automobile Brakes and
Precision Instruments businesses.
Despite an increase in impairment losses, it also expects net income attributable to owners of the parent to exceed its ▷ previous forecast due to the increase in recurring profit and an increase in gain on sale of investment securities.
On January 26, 2021, the company announced the recording of extraordinary gains (gain on sale of investment securities).
Reason for sale of investment securities The company conducted this sale of investment securities to improve asset efficiency by adjusting its cross-shareholdings in accordance with its corporate governance code and strengthen its financial position.
Details associated with sale of investment securities
Type of assets sold: Listed securities held in one company ▷ Gain on sale: JPY12.4bn ▷
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Impact on financial results The company expects to record gains from the sale of these investment securities as extraordinary gains in FY12/20. It is currently calculating financial figures for FY12/20 and will promptly disclose any revisions to its earnings forecast should they become necessary as a result of the sale.
July 2020 On July 30, 2020, the company announced the revision to its earnings forecast.
Revised FY12/20 company forecast
Sales: JPY462.0bn (previous forecast: JPY540.0bn) ▷ Operating loss: JPY4.0bn (operating profit of JPY14.0bn) ▷ Recurring loss: JPY3.0bn (recurring profit of JPY18.0bn) ▷ Net income*: JPY1.0bn (net income of JPY13.0bn) ▷ EPS: JPY6.01 (JPY78.15) ▷ * Net income attributable to owners of the parent
Reasons for revision The company expects FY12/20 sales to come in below its previous forecast as all of its businesses are being affected by the COVID-19 pandemic.
In the Wireless and Communications business, sales are declining due to falling demand for the marine systems business. ▷ Sales are falling in the Micro Devices, Automobile Brakes, and Precision Instruments businesses due to the global decline in ▷ automobile production.
Sales are declining in the Textiles business on an impact of measures such as store closures to prevent the spread of COVID- ▷ 19 and a slump in sales.
Operating profit, recurring profit, and net income are all likely to come in below the previous forecast due to the decline in sales. The company assumes a forex rate of JPY105/USD and JPY120/EUR in its forecasts.
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Major shareholders
Shares held Shareholding Top shareholders ('000) ratio The Master Trust Bank of Japan, Ltd. (Trust account) 28,217 17.0% Custody Bank of Japan, Ltd. (Trust account) 12,671 7.6% Teijin Ltd. 10,528 6.3% Fukoku Mutual Life Insurance Company 9,000 5.4% Shikoku Chemicals Corporation 2,600 1.6% Custody Bank of Japan, Ltd. (Securities investment trust account) 2,315 1.4% Japan Wool Textile Co., Ltd. 2,282 1.4% JP MORGAN CHASE BANK 385781 2,165 1.3% DFA INTL SMALL CAP VALUE PORTFOLIO 2,139 1.3% Custody Bank of Japan, Ltd. (Trust account 5) 1,939 1.2% SUM 73,856 44.5% Source: Shared Research based on company data As of end-December 2020
Shareholder returns
The company’s policy is to pay steady and continuous dividends. Specifically, it plans to pay both interim and annual dividends, targeting a consolidated payout ratio of around 30%. The company also has a policy of aggressively pursuing shareholder returns, including share buybacks, provided it has secured sufficient internal reserves needed to implement its future growth strategy, and while carefully considering management stability. Its stance, in principle, is to cancel repurchased shares, but is open to using such shares for share exchanges as part of M&A activities that could contribute to shareholder value.
In FY12/21, the company plans to pay an annual dividend per share of JPY30.0 (JPY15.0 interim dividend and JPY15.0 year-end dividend), equivalent to a payout ratio of 124.8%.
Top management
Chairman: Masaya Kawata
Apr 1952 Born ▷ 1975 Joined Nisshinbo ▷ Apr 2007 Deputy head of accounting ▷ Jun 2007 Executive officer and director ▷ Apr 2008 Deputy head of Business Support Center ▷ Apr 2009 President of Nisshinbo Brake Inc. ▷ Jun 2010 Managing executive officer ▷ Jun 2011 Head of Business Support Center, head of new business development, and president of Nisshinbo Chemical ▷ Jun 2012 Senior managing executive officer and president of Nisshinbo Mechatronics ▷ Jun 2013 Appointed president of Nisshinbo ▷ Mar 2019 Appointed chairman of Nisshinbo (effective upon passage of resolutions at the general meeting of ▷ shareholders to be held in late March 2019 and at a meeting of the board of directors held thereafter)
President: Masahiro Murakami
Sep 1958 Born ▷ 1982 Joined Nisshinbo ▷
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Jan 2007 Director of Secretarial Division of General Affairs Headquarters ▷ Apr 2008 Director, head of Corporate Governance Office of Corporate Strategy Center, head of Human Resources and ▷ General Affairs Office at Business Support Center (concurrent), director of Real Estate (concurrent) Apr 2009 Deputy head of Business Support Center, head of Corporate Strategy Office of Corporate Strategy Center ▷ (concurrent), head of Financial Information Office of Business Support Center (concurrent)
Jun 2010 Executive officer and director, head of Business Support Center ▷ Jan 2012 Head of Real Estate (present post) ▷ Jun 2012 Managing executive officer, deputy head of Corporate Strategy Center (concurrent) ▷ Jun 2014 Head of Corporate Strategy Center (present post) ▷ Jun 2015 Senior managing executive officer ▷ Jun 2016 Representative director and senior managing executive officer ▷ Jun 2018 Vice-president of Nisshinbo ▷ Mar 2019 Appointed president of Nisshinbo (effective upon passage of resolutions at the general meeting of ▷ shareholders to be held in late March 2019 and at a meeting of the board of directors held thereafter)
Corporate philosophy
Nisshinbo’s corporate philosophy centers on public entity, consistent integrity, and innovation.
Public entity: the company considers itself a public entity, and aims to create a sustainable society by offering products ◤ and services that address global environmental problems.
Consistent integrity: Nisshinbo intends to conduct fair and sincere business activities while carrying itself with pride as a ◤ corporate citizen and respecting the diverse cultures and customs of the world, and biodiversity.
Innovation: the company aims to create an affluent future with its stakeholders, while maintaining a spirit of challenge. ◤
Company name
The word nisshin was in widespread use at the time of Nisshinbo’s founding. In Japanese, it refers to both Japan and China, or Sino–Japanese (ni refers to Japan, shin to China, specifically the Qing dynasty). The word had a progressive image of maintaining friendly relations with China and mutual prosperity through trade.
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Company profile Company name Head office Nisshinbo Holdings Inc. 2–31–11, Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo 103–8650 Phone Listed on
Tokyo Stock Exchange First Section Established Exchange listing February 5, 1907 May 1949 Website Financial year end https://www.nisshinbo.co.jp/english/ir/index.html December
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