R Nisshinbo Holdings / 3105
COVERAGE INITIATED ON: 2015.08.06 LAST UPDATE: 2018.02.27
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: 2018.02.27 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 ------7 Quarterly trends and results ------7 Full-year company forecasts ------15 Long-term outlook ------20 Business ------23 Segments ------23 Strengths and weaknesses ------41 Historical performance ------42 Strategy ------54 Income statement ------57 Balance sheet ------59 Cash flow statement ------63 Other information ------64 History ------64 News and topics ------66 Major shareholders ------70 Shareholder returns------70 Top management ------71 Corporate philosophy ------71 Company name ------71 Company profile ------72
02/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Executive summary
Main segments: Electronics and Automobile Brakes; pursuing acquisition
Nisshinbo has six segments: Electronics, Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). In mainstay Electronics and Automobile Brakes segments, the company expects both sales and earnings to grow as markets expand. It positions Precision Instruments, Chemicals, and Textiles as earnings-improvement segments, where it plans to improve return on assets and profit margins. The Real Estate segment generates stable revenues.
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 return on investments. In the 2000s, however, President Yoshikazu Sashida began stressing return on assets, shifting management’s focus from subscription-type streams of revenue (stock) to recurring sales of products and services (flow). When earnings faltered in the Textiles segment, the company decided to use its real estate more efficiently, closing factories and offering employees early retirement.
From the late 2000s, the company began using acquisitions to build revenues. In 2006, Takashi Iwashita was appointed president. In April that year, he announced a three-year management plan through 2008. Under his leadership, the company consolidated factories in the Textiles segment and exited unprofitable businesses in the Chemicals segment—under a strategy of “selection and concentration”, complemented by friendly acquisitions.
Earnings slumped in FY03/09, following the global financial crisis. The situation was exacerbated by an extraordinary loss on benefits for early retirement, resulting in a net loss. In April 2009, Shizuka Uzawa was appointed president. Under his leadership Nisshinbo moved to a holding company structure, and a three-year plan, Challenge 2012, was announced in March 2010. Targets included sales of JPY285bn, operating profit of JPY18bn, and net income of JPY15bn by FY03/13, alongside a return to profitability in Textiles, Electronics, and Precision Instruments and profit growth in Automobile Brakes.
Nisshinbo acquired Japan Radio Company Co., Ltd. (JRC) in 2010 and TMD Friction Group S.A. in 2011. As a result of these and other acquisitions, sales topped the Challenge 2012 target, hitting JPY450.7bn in FY03/13 (1.9x FY03/10 sales). Yet operating profit fell short of the target at JPY13.4bn (about 3.8x FY03/10 OP), owing partly to the amortization of the considerable goodwill that accompanied these acquisitions.
Aiming to increase profits, mainly through growth in mainstay segments In June 2013, Masaya Kawata was appointed president. The company has been working to reform JRC in the Electronics segment, and respond to the need for copper-free materials and implement initiatives to enhance TMD’s competitiveness in the Automobile Brakes segment. Nisshinbo continues to pursue M&A aimed at complementing its businesses, such as the acquisition of Tokyo Shirts Group in 2015 and the conversion of Nanbu Plastics to a subsidiary.
Nisshinbo is aiming for sales of JPY1tn and ROE of over 12% by FY03/26 as stated in its long-term vision. The company aims to boost earnings through the expansion of existing businesses, creation of new businesses, and acquisitions.
03/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Earnings performance
In FY03/18, Nisshinbo forecasts sales of JPY520.0bn (-1.4% YoY), operating profit of JPY15.0bn (+206.7% YoY), recurring profit ◤ of JPY20.0bn (+89.5%), and net income attributable to parent company shareholders of JPY20.0bn (+459.6%).
Long-term, the company is aiming for sales of JPY1tn and ROE over 12% by FY03/26. 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. As part of this effort, in May 2017 Nisshinbo decided to convert Japan Radio Co., Ltd. (“JRC”; 61.8% of all shares issued owned by Nisshinbo) to a wholly owned subsidiary (effective October 2017) via a share exchange. Further, at the Automobile Brakes segment, a mainstay segment other than Electronics, Shared Research expects improved earnings at TMD and greater market share owing to demand for copper-free materials to lead to profit growth.
Strengths and weaknesses
Shared Research believes that Nisshinbo’s strengths include its current focus on structural reform with emphasis on assets 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 return on assets.
04/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Key financial data
Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est. Sales 322,411 286,166 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 520,000 YoY 3.1% -11.2% -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% -1.4% Electronics 76,475 60,549 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 YoY 0.5% -20.8% -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% Automobile Brakes 59,812 49,229 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 YoY 9.1% -17.7% -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% Real Estate 5,446 6,433 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 YoY 13.7% 18.1% -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% Precision Instruments, Chemicals, 155,496 145,651 115,971 127,028 124,631 113,967 120,498 116,190 130,521 158,658 Textiles, and Papers YoY 25.8% -6.3% -20.4% 9.5% -1.9% -8.6% 5.7% -3.6% 12.3% 21.6% Gross profit 56,386 42,309 40,783 63,487 61,806 91,229 99,266 108,149 114,587 106,664 YoY 2.2% -25.0% -3.6% 55.7% -2.6% 47.6% 8.8% 8.9% 6.0% -6.9% GPM 17.5% 14.8% 16.8% 19.5% 16.3% 20.2% 20.1% 20.6% 21.5% 20.2% Operating profit 12,033 407 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 15,000 YoY 4.2% -96.6% 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% 206.7% OPM 3.7% 0.1% 1.5% 6.1% 1.1% 3.0% 2.7% 2.6% 2.4% 0.9% 2.9% Electronics 1,103 -3,918 -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 YoY 6.0% - - - - - 20.1% 35.8% -34.5% - Automobile Brakes 8,501 3,467 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 YoY 24.1% -59.2% 11.9% 31.2% -16.4% - - - - - Real Estate 2,722 3,340 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 YoY 4.3% 22.7% 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% Precision Instruments, Chemicals, -268 -2,101 -1,551 1,171 405 1,269 1,774 727 3,591 6,737 Textiles, and Papers YoY - - - - -65.4% 213.3% 39.8% -59.0% 393.9% 87.6% Recurring profit 18,916 7,150 9,548 25,268 8,680 17,686 22,171 20,650 17,034 10,556 20,000 YoY 9.5% -62.2% 33.5% 164.6% -65.6% 103.8% 25.4% -6.9% -17.5% -38.0% 89.5% RPM 5.9% 2.5% 3.9% 7.8% 2.3% 3.9% 4.5% 3.9% 3.2% 2.0% 3.8% Ne t in c o me 12,289 -1,285 1,896 11,184 9,415 6,418 9,011 13,693 10,775 3,574 20,000 YoY -18.7% -110.5% -247.5% 489.9% -15.8% -31.8% 40.4% 52.0% -21.3% -66.8% 459.6% Net margin 3.8% -0.4% 0.8% 3.4% 2.5% 1.4% 1.8% 2.6% 2.0% 0.7% 3.8% Per share data (JPY) Shares issued (year end; '000) 198,698 184,098 184,098 178,798 178,798 178,798 178,798 178,798 178,798 178,798 - EPS 63.3 -7.1 10.4 63.3 53.8 36.7 51.6 80.3 67.9 22.5 126.0 EPS (fully diluted) 63.3 - - - - - 51.6 80.3 67.8 22.5 - Dividend per share 15.0 15.0 15.0 15.0 15.0 15.0 15.0 15.0 30.0 30.0 30.0 Book value per share 1,179 985 1,034 1,037 1,063 1,199 1,370 1,634 1,472 1,445 - Balance sheet (JPYmn) Cash and cash equivalents 25,766 32,404 20,181 29,374 20,897 20,200 28,033 45,687 45,921 47,691 Total current assets 163,287 149,866 130,606 241,676 239,600 239,318 272,444 310,469 304,395 314,800 Tangible fixed assets 127,194 118,178 114,725 149,939 162,824 165,552 174,246 184,885 191,768 185,484 Investments and other assets 130,815 95,674 108,341 82,958 84,135 101,767 118,473 147,216 124,993 125,332 Intangible fixed assets 3,407 3,139 4,435 5,278 47,068 44,762 46,146 35,914 30,636 20,670 Total assets 424,705 366,858 358,109 479,852 534,583 551,933 611,310 678,486 651,793 646,288 Accounts payable 33,595 22,299 25,562 54,998 59,228 58,708 66,557 63,593 62,690 59,974 Short-term debt 41,451 60,069 24,339 25,493 26,928 28,736 48,653 71,280 55,397 48,977 Total current liabilities 109,475 120,174 94,367 156,885 168,938 188,406 203,660 226,178 219,770 206,174 Long-term debt 3,948 4,467 14,226 24,481 47,607 26,560 28,888 38,162 48,757 69,294 Total fixed liabilities 69,323 52,985 70,104 111,409 151,894 120,903 130,785 145,370 147,551 164,360 Total liabilities 178,798 173,159 164,471 268,295 320,833 309,309 334,445 371,548 367,321 370,535 Net assets 245,906 193,698 193,638 211,557 213,750 242,623 276,865 306,937 284,471 275,753 Total interest-bearing debt 48,278 66,921 40,827 73,627 108,859 90,025 97,861 116,076 118,833 126,041 Cash flow statement (JPYmn) Cash flows from operating activities 24,778 11,938 27,537 16,529 12,973 34,095 26,075 37,120 39,566 26,768 Cash flows from investing activities -19,147 -14,393 -9,949 11,591 -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 Cash flows from financing activities -8,828 11,939 -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 Financial ratios ROA (RP-based) 4.2% 1.8% 2.6% 6.0% 1.7% 3.3% 3.8% 3.2% 2.6% 1.6% ROE 5.1% -0.6% 1.0% 6.1% 5.1% 3.2% 4.0% 5.5% 4.4% 1.5% Equity ratio 57.9% 52.8% 54.1% 44.1% 40.0% 44.0% 45.3% 45.2% 43.6% 42.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
05/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Recent updates
Highlights
On February 27, 2018, Shared Research updated the report following interviews with Nisshinbo Holdings Inc.
On February 8, 2018, the company announced earnings results for Q3 FY03/18; see the results section for details.
On November 29, 2017, the company announced a share buyback.
Details of the buyback Type of shares to be acquired: Ordinary shares of the company Number of shares to be acquired: 15mn shares (maximum, 8.59% of total shares outstanding excluding treasury shares) Total price: JPY20mn (maximum) Acquisition period: December 5, 2017 March 22, 2018 – Acquisition method: Purchase on the Tokyo Stock Exchange through a trust bank For corporate releases and developments more than three months old, please refer to the News and topics section.
06/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Trends and outlook
Quarterly trends and results
Cumulative FY03/17 FY03/18 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Es t . Sales 119,706 244,287 370,870 527,274 113,182 232,838 358,300 68.9% 520,000 YoY -0.8% -2.2% -2.3% -1.3% -5.5% -4.7% -3.4% -1.4% Gross profit 25,086 49,241 74,373 106,664 22,154 45,275 71,943 YoY -3.6% -7.0% -7.7% -6.9% -11.7% -8.1% -3.3% GPM 21.0% 20.2% 20.1% 20.2% 19.6% 19.4% 20.1% SG&A expenses 25,755 51,539 75,695 101,773 22,862 44,844 67,606 YoY 2.4% 1.3% -0.8% -0.2% -11.2% -13.0% -10.7% SG&A ratio 21.5% 21.1% 20.4% 19.3% 20.2% 19.3% 18.9% Operating profit -668 -2,298 -1,321 4,890 -708 431 4,336 28.9% 15,000 YoY - - - -61.2% - - - 206.7% OPM - - - 0.9% - 0.2% 1.2% 2.9% Recurring profit 929 563 3,991 10,556 1,250 2,982 8,093 40.5% 20,000 YoY -75.5% -89.7% -54.6% -38.0% 34.6% 429.7% 102.8% 89.5% RPM 0.8% 0.2% 1.1% 2.0% 1.1% 1.3% 2.3% 3.8% Net income 1,726 834 3,015 3,574 16,450 15,530 19,171 95.9% 20,000 YoY -8.4% -66.8% -46.9% -66.8% 853.1% - 535.9% 459.6% Net margin 1.4% 0.3% 0.8% 0.7% 14.5% 6.7% 5.4% 3.8% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 119,706 124,581 126,583 156,404 113,182 119,656 125,462 YoY -0.8% -3.5% -2.3% 1.2% -5.5% -4.0% -0.9% Gross profit 25,086 24,155 25,132 32,291 22,154 23,121 26,668 YoY -3.6% -10.4% -8.8% -5.2% -11.7% -4.3% 6.1% GPM 21.0% 19.4% 19.9% 20.6% 19.6% 19.3% 21.3% SG&A expenses 25,755 25,784 24,156 26,078 22,862 21,982 22,762 YoY 2.4% 0.3% -5.1% 1.7% -11.2% -14.7% -5.8% SG&A ratio 21.5% 20.7% 19.1% 16.7% 20.2% 18.4% 18.1% Operating profit -668 -1,630 977 6,211 -708 1,139 3,905 YoY - - -53.6% -26.1% - - 299.7% OPM - - 0.8% 4.0% - 1.0% 3.1% Recurring profit 929 -366 3,428 6,565 1,250 1,732 5,111 YoY -75.5% - 2.7% -20.3% 34.6% - 49.1% RPM 0.8% - 2.7% 4.2% 1.1% 1.4% 4.1% Net income 1,726 -892 2,181 559 16,450 -920 3,641 YoY -8.4% - -31.2% -89.0% 853.1% - 66.9% Net margin 1.4% - 1.7% 0.4% 14.5% - 2.9% Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
In the Electronics segment (mainly radio and telecoms equipment), most profits are booked in Q4 (January-March), meaning progress toward full-year targets is slow through Q3.
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Quarterly results by segment
Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 119,706 244,287 370,870 527,274 113,182 232,838 358,300 YoY -0.8% -2.2% -2.3% -1.3% -5.5% -4.7% -3.4% Electronics 35,398 76,017 118,983 190,851 35,763 77,058 122,283 YoY -12.5% -10.9% -9.5% -7.1% 1.0% 1.4% 2.8% Automobile Brakes 37,555 74,562 110,566 146,061 37,617 76,237 115,619 YoY -8.4% -11.3% -12.1% -11.5% 0.2% 2.2% 4.6% Precision Instruments 15,181 29,943 44,726 60,687 15,856 31,397 47,406 YoY 114.6% 99.5% 99.7% 105.5% 4.4% 4.9% 6.0% Chemicals 2,027 4,065 6,378 9,482 2,266 4,849 7,895 YoY 6.9% 2.5% 6.8% 14.4% 11.8% 19.3% 23.8% Textiles 13,745 26,979 41,887 55,842 13,450 27,351 40,903 YoY -3.7% -5.9% -6.2% -7.1% -2.1% 1.4% -2.3% Papers 7,629 15,400 24,401 32,647 - - - YoY 2.0% -0.4% 0.2% 0.2% - - - Real Estate 1,929 4,107 6,048 8,083 1,914 3,732 5,460 YoY -3.7% 0.1% -5.4% -3.3% -0.8% -9.1% -9.7% Operating profit -668 -2,298 -1,321 4,890 -708 431 4,336 YoY - - - -61.2% - - - Electronics -1,930 -5,565 -7,568 -3,240 -3,236 -4,497 -4,014 YoY ------Automobile Brakes -583 -499 123 -7 1,145 2,460 4,186 YoY ------Precision Instruments 187 435 731 1,048 345 414 1,004 YoY 503.2% 72.1% 205.9% 229.6% 84.5% -4.8% 37.3% Chemicals 304 581 931 1,309 267 746 1,395 YoY 201.0% 98.3% 100.2% 73.8% -12.2% 28.4% 49.8% Textiles 567 857 1,391 1,777 626 957 1,553 YoY 1.1% -3.6% 7.4% -0.1% 10.4% 11.7% 11.6% Papers 434 1,053 1,955 2,603 - - - YoY 342.9% 190.9% 362.2% 250.8% - - - Real Estate 1,403 2,917 4,373 5,811 1,355 2,666 3,706 YoY 11.4% 5.3% -0.4% 0.3% -3.4% -8.6% -15.3% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 119,706 124,581 126,583 156,404 113,182 119,656 125,462 YoY -0.8% -3.5% -2.3% 1.2% -5.5% -4.0% -0.9% Electronics 35,398 40,619 42,966 71,868 35,763 41,295 45,225 YoY -12.5% -9.6% -6.8% -2.8% 1.0% 1.7% 5.3% Automobile Brakes 37,555 37,007 36,004 35,495 37,617 38,620 39,382 YoY -8.4% -14.1% -13.7% -9.4% 0.2% 4.4% 9.4% Precision Instruments 15,181 14,762 14,783 15,961 15,856 15,541 16,009 YoY 114.6% 86.1% 100.2% 123.8% 4.4% 5.3% 8.3% Chemicals 2,027 2,038 2,313 3,104 2,266 2,583 3,046 YoY 6.9% -1.5% 15.4% 34.2% 11.8% 26.7% 31.7% Textiles 13,745 13,234 14,908 13,955 13,450 13,901 13,552 YoY -3.7% -8.2% -6.7% -9.8% -2.1% 5.0% -9.1% Papers 7,629 7,771 9,001 8,246 - - - YoY 2.0% -2.7% 1.2% 0.2% - - - Real Estate 1,929 2,178 1,941 2,035 1,914 1,818 1,728 YoY -3.7% 3.7% -15.2% 3.6% -0.8% -16.5% -11.0% Operating profit -668 -1,630 977 6,211 -708 1,139 3,905 YoY - - -53.6% -26.1% - - 299.7% Electronics -1,930 -3,635 -2,003 4,328 -3,236 -1,261 483 YoY - - - -41.8% - - - Automobile Brakes -583 84 622 -130 1,145 1,315 1,726 YoY ------177.5% Precision Instruments 187 248 296 317 345 69 590 YoY 503.2% 12.2% - 301.3% 84.5% -72.2% 99.3% Chemicals 304 277 350 378 267 479 649 YoY 201.0% 44.3% 103.5% 31.3% -12.2% 72.9% 85.4% Textiles 567 290 534 386 626 331 596 YoY 1.1% -11.6% 31.5% -20.1% 10.4% 14.1% 11.6% Papers 434 619 902 648 - - - YoY 342.9% 134.5% 1378.7% 103.1% - - - Real Estate 1,403 1,514 1,456 1,438 1,355 1,311 1,040 YoY 11.4% 0.2% -10.1% 2.3% -3.4% -13.4% -28.6% Source: Shared Research based on company materials. Note: Figures may differ from company materials due to differences in rounding methods. Note: In October 2016, consolidated subsidiaries Nisshin Toa and Iwao merged, and the merged entity became Nisshin Toa Iwao. In Q3 FY03/17, the company reviewed its business segment classification, and reported results from the clothing textiles business of Iwao, which had been included in the “Other” segment, in the Textiles segment. The figure shows segment information from Q1 FY03/17 under the new segment classifications. Note: The company sold the paper manufacturing business operated by Nisshinbo Paper Products at the start of Q1 FY03/18. As this is no longer consolidated, there is no longer a Papers segment.
08/73 Nisshinbo Holdings / 3105 R LAST UPDATE: 2018.02.27 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp Coverage
Electronics segment performance by subsidiary
Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 35,398 76,017 118,983 190,851 35,763 77,058 122,283 YoY -12.5% -10.9% -9.5% -7.1% 1.0% 1.4% 2.8% Japan Radio Co., Ltd. 23,930 52,341 83,496 142,909 23,765 52,099 84,432 YoY 12.2% 14.3% 14.7% 14.2% -0.7% -0.5% 1.1% New Japan Radio Co., Ltd. 11,672 24,058 36,057 48,865 12,123 25,270 38,359 YoY -0.6% 0.8% 0.9% 2.2% 3.9% 5.0% 6.4% Operating profit -1,930 -5,565 -7,568 -3,240 -3,236 -4,497 -4,014 YoY ------Japan Radio Co., Ltd. -2,612 -6,550 -8,813 -5,486 -3,457 -5,496 -5,675 YoY ------New Japan Radio Co., Ltd. 376 645 897 1,792 162 889 1,509 YoY -53.4% -66.0% -64.2% -42.7% -56.9% 37.8% 68.2% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 35,398 40,619 42,966 71,868 35,763 41,295 45,225 YoY -12.5% -9.6% -6.8% -2.8% 1.0% 1.7% 5.3% Japan Radio Co., Ltd. 23,930 28,411 31,155 59,413 23,765 28,334 32,333 YoY 12.2% 16.1% 15.3% 13.4% -0.7% -0.3% 3.8% New Japan Radio Co., Ltd. 11,672 12,386 11,999 12,808 12,123 13,147 13,089 YoY -0.6% 2.1% 1.2% 5.9% 3.9% 6.1% 9.1% Operating profit -1,930 -3,635 -2,003 4,328 -3,236 -1,261 483 YoY - - - -41.8% - - - Japan Radio Co., Ltd. -2,612 -3,938 -2,263 3,327 -3,457 -2,039 -179 YoY - - - -41.5% - - - New Japan Radio Co., Ltd. 376 269 252 895 162 727 620 YoY -53.4% -75.4% -58.3% 43.7% -56.9% 170.3% 146.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Nagano JRC has become a wholly owned subsidiary of JRC’s since March 2016.
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Performance for Japan Radio subsidiary by segment
Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 23,930 52,341 83,496 142,909 23,765 52,099 84,432 YoY 12.2% 14.3% 14.7% 14.2% -0.7% -0.5% 1.1% Marine systems 8,756 16,268 23,347 32,580 7,280 15,839 24,724 YoY -16.9% -27.0% -30.0% -28.2% -16.9% -2.6% 5.9% Communications products 2,755 6,484 10,345 14,923 3,607 7,701 11,680 YoY 7.7% 10.0% 12.0% 9.8% 30.9% 18.8% 12.9% Solutions and specialized equipment 6,560 16,430 29,525 67,367 7,077 16,983 29,828 YoY -15.5% -0.9% 2.8% 5.0% 7.9% 3.4% 1.0% Mechatronics and power supply 3,607 7,770 11,997 16,498 3,355 6,673 10,553 YoY - - - - -7.0% -14.1% -12.0% Medical equipment 1,845 4,127 6,615 9,288 1,870 3,728 5,927 YoY - - - - 1.4% -9.7% -10.4% Operating profit -2,612 -6,550 -8,813 -5,486 -3,457 -5,496 -5,675 YoY ------Marine systems -136 -1,494 -2,684 -4,836 -1,091 -1,547 -1,829 YoY ------Communications products -149 -104 147 572 125 465 953 YoY ------548.3% Solutions and specialized equipment -2,126 -4,977 -6,502 -1,976 -2,362 -4,195 -4,496 YoY ------Mechatronics and power supply -194 -251 -270 -351 -30 -158 -221 YoY ------Medical equipment 167 367 585 996 194 337 438 YoY - - - - 16.2% -8.2% -25.1% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 23,930 28,411 31,155 59,413 23,765 28,334 32,333 YoY 12.2% 16.1% 15.3% 13.4% -0.7% -0.3% 3.8% Marine systems 8,756 7,512 7,079 9,233 7,280 8,559 8,885 YoY -16.9% -36.2% -35.9% -23.2% -16.9% 13.9% 25.5% Communications products 2,755 3,729 3,861 4,578 3,607 4,094 3,979 YoY 7.7% 11.7% 15.5% 5.3% 30.9% 9.8% 3.1% Solutions and specialized equipment 6,560 9,870 13,095 37,842 7,077 9,906 12,845 YoY -15.5% 12.0% 7.9% 6.8% 7.9% 0.4% -1.9% Mechatronics and power supply 3,607 4,163 4,227 4,501 3,355 3,318 3,880 YoY - - - - -7.0% -20.3% -8.2% Medical equipment 1,845 2,282 2,488 2,673 1,870 1,858 2,199 YoY - - - - 1.4% -18.6% -11.6% Operating profit -2,612 -3,938 -2,263 3,327 -3,457 -2,039 -179 YoY - - - -41.5% - - - Marine systems -136 -1,358 -1,190 -2,152 -1,091 -456 -282 YoY ------Communications products -149 45 251 425 125 340 488 YoY - - - 459.2% - 655.6% 94.4% Solutions and specialized equipment -2,126 -2,851 -1,525 4,526 -2,362 -1,833 -301 YoY - - - -16.2% - - - Mechatronics and power supply -194 -57 -19 -81 -30 -128 -63 YoY ------Medical equipment 167 200 218 411 194 143 101 YoY - - - - 16.2% -28.5% -53.7% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: In Q1 FY03/17, JRC conducted a review of procedures for the management of consolidated results related to all of the businesses of Nagano JRC, which became a subsidiary in FY03/16, and its subsidiary Ueda Japan Radio Co., Ltd. The company added the mechatronics and power supply segment and the medical equipment segment.
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Earnings performance by automobile brake subsidiary
Cumulative FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 37,555 74,562 110,566 146,061 37,617 76,237 115,619 YoY -8.4% -11.3% -12.1% -11.5% 0.2% 2.2% 4.6% Nisshinbo Brake 5,983 12,268 18,835 25,058 6,204 12,320 18,973 YoY -7.0% -4.6% -2.0% -0.8% 3.7% 0.4% 0.7% Overseas 32,845 65,087 96,189 126,932 33,623 66,856 101,082 YoY -8.9% -12.3% -13.3% -12.8% 2.4% 2.7% 5.1% NISB group 10,483 20,391 29,912 40,509 11,466 21,220 31,569 YoY -10.2% -12.8% -12.9% -11.4% 9.4% 4.1% 5.5% TMD group 22,362 44,696 66,277 86,423 22,157 45,636 69,513 YoY -8.4% -12.1% -13.5% -13.4% -0.9% 2.1% 4.9% Eliminations -1,273 -2,793 -4,458 -5,929 -2,210 -2,939 -4,436 Operating profit -583 -499 123 -7 1,145 2,460 4,186 YoY ------Nisshinbo Brake 159 535 1,179 1,486 312 469 777 YoY 13.6% 16.8% 36.3% 30.1% 96.2% -12.3% -34.1% Overseas 901 2,549 3,266 5,663 808 2,197 3,955 YoY -34.1% -14.1% -29.8% -0.6% -10.3% -13.8% 21.1% NISB group 1,349 2,636 3,818 5,045 950 2,113 3,125 YoY -5.8% -6.4% -12.5% -11.8% -29.6% -19.8% -18.2% TMD group -448 -87 569 618 -142 84 830 YoY - - 0.975694 - - 0.458699 Eliminations -1,643 -3,583 -4,322 -7,156 25 -206 -546 Profit before TMD acquisition costs -87 593 1,563 2,068 62 625 1,616 YoY - -37.6% 3.0% 19.9% - 5.4% 3.4% Quarterly FY03/17 FY03/18 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Sales 37,555 37,007 36,004 35,495 37,617 38,620 39,382 YoY -8.4% -14.1% -13.7% -9.4% 0.2% 4.4% 9.4% Nisshinbo Brake 5,983 6,285 6,567 6,223 6,204 6,116 6,653 YoY -7.0% -2.3% 3.4% 2.7% 3.7% -2.7% 1.3% Overseas 32,845 32,242 31,102 30,743 33,623 33,233 34,226 YoY -8.9% -15.5% -15.4% -10.9% 2.4% 3.1% 10.0% NISB group 10,483 9,908 9,521 10,597 11,466 9,754 10,349 YoY -10.2% -15.4% -13.3% -6.6% 9.4% -1.6% 8.7% TMD group 22,362 22,334 21,581 20,146 22,157 23,479 23,877 YoY -8.4% -15.5% -16.4% -13.0% -0.9% 5.1% 10.6% Eliminations -1,273 -1,520 -1,665 -1,471 -2,210 -729 -1,497 Operating profit -583 84 622 -130 1,145 1,315 1,726 YoY ------177.5% Nisshinbo Brake 159 376 644 307 312 157 308 YoY 13.6% 18.2% 58.2% 10.8% 96.2% -58.2% -52.2% Overseas 901 1,648 717 2,397 808 1,389 1,758 YoY -34.1% 3.1% -57.5% 128.7% -10.3% -15.7% 145.2% NISB group 1,349 1,287 1,182 1,227 950 1,163 1,012 YoY -5.8% -7.0% -23.6% -9.6% -29.6% -9.6% -14.4% TMD group -448 361 656 49 -142 226 746 YoY - 68.7% 375.4% - - -37.4% 13.7% Eliminations -1,643 -1,940 -739 -2,834 25 -231 -340 Profit before TMD acquisition costs -87 680 970 505 62 563 991 YoY - 8.3% 71.1% 144.0% - -17.2% 2.2% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Q3 FY03/18 results Overview The following are the results of a reassessment of the company business portfolio and the achievements of major initiatives in new businesses (refer to News & Topics for details).
In April 2017, the company completed a sale of its paper product business and booked JPY11.8bn in gains from the sale of shares ▷ of an affiliate in Q1 FY03/18.
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In June 2017, the company sold a real estate asset for leasing (Apita Nagoya Minami) and booked JPY5.2bn in gains from the sale ▷ of a fixed asset in Q1. In August 2017, the company announced a sale of its drum brake business (to be completed in February 2018). Of the ▷ automotive brake business run by the subsidiary Nisshinbo Brake Co., Ltd., the company decided to sell the drum brake business (JPY14.9bn in sales in FY03/16; JPY484mn in operating profit, JPY12.1bn in assets) to the AISIN SEIKI Group. The company compared the book value of fixed assets held by the business to be transferred with the recoverable value from the sale of shares and subsequently booked an impairment loss of JPY3.1bn in Q2. 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. In December 2017, Ballard Power Systems (NASDAQ: BLDT) will begin sales of a fuel cell stack (generating high voltage by layering sheets of base materials called cells) which utilizes this technology. In October 2017, the company made consolidated subsidiary Japan Radio Co., Ltd. into a wholly-owned subsidiary through a ▷ stock swap. In October 2017, the company announced that it was making RICOH Electronic Devices Co., Ltd. a subsidiary (to be completed ▷ March 2018). FY03/17 sales of RICOH Electronic Devices were JPY23.1bn, while operating profit was JPY451mn and net assets were JPY9.2bn.
Q3 FY03/18 results Sales declined to JPY358.3bn (-3.4% YoY), following the exit of the Papers business.
The company booked an operating profit of JPY4.3bn (an operating loss of JPY1.3bn in Q3 FY03/17) owing to improved profit in the Electronics segment amid lower losses from Japan Radio and higher profits from New Japan Radio, and to higher profits in the Automobile Brakes business as the company completed the amortization of goodwill accompanying the purchase of TMD.
Recurring profit was JPY8.1bn (+102.8% YoY) as operating profit increased. Net income attributable to parent company shareholders was JPY19.2bn (+535.9%). Extraordinary gains came to JPY18.8bn (extraordinary gains of JPY5.5bn in Q3 FY03/17) as the company booked gains on the sale of shares in affiliated companies due to the sale of the Papers business as well as an increase in gains on fixed asset sales. Extraordinary losses were JPY3.8bn (extraordinary losses of JPY5.8bn in Q3 FY03/17) as the company booked an impairment loss of JPY3.2bn after comparing the book value of fixed assets held by the corresponding business subsequent to the divestment of the mainstay Automobile Brakes business and the recoverable amount through share transfer.
Electronics Sales: JPY122.3bn (+2.8% YoY) Segment loss: JPY4.0bn (loss of JPY7.6bn in the same period the previous year)
JRC performance JRC reported sales of JPY84.4bn (+1.1% YoY) and operating loss of JPY5.7bn (operating loss of JPY8.8bn in Q3 FY03/17). Operating loss in the marine systems business and the solutions and specialized equipment business narrowed. The company promoted measures to increase sales and orders and restrict expenses as it aimed to achieve its FY03/18 full-year company forecast of a JPY0mn operating loss.
In the marine systems business, sales were JPY24.7bn (+5.9% YoY) and segment loss was JPY1.8bn (segment loss of JPY2.7bn in ▷ Q3 FY03/17) due to higher sales of equipment for small/medium-sized ships and sales to the aftermarket, despite lower sales of
equipment for new merchant ships. In this business, products for large ships were central to segment sales in the past. However,
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the company is currently striving to expand its product lineup for small/medium-sized ships, which experience less fluctuation in demand. As a result, segment loss has been shrinking. In the communications products business, sales were JPY11.7bn (+12.9% YoY) and segment profit was JPY953mn (+548.3%). ▷ Sales for the car ITS (intelligent transportation systems) equipment rose.
In the solutions and specialized equipment business, sales were JPY29.8bn (+1.0% YoY) and segment loss was JPY4.5bn (segment ▷ loss of JPY6.5bn in Q3 FY03/17). Sales of simulator systems to automobile manufacturers increased. While sales were roughly even YoY, segment loss shrank YoY due to efforts to restrict expenses. In this business, orders are trending up as the company strengthened its sales structure and increased its bids.
New JRC performance New JRC reported sales of JPY38.4bn (+6.4% YoY) and operating profit of JPY1.5bn (+68.2 ). Among mainstay Electronic Device ％ products, sales rose on brisk sales of semiconductors for automotive and industrial equipment, which offset the negative impact of inventory adjustments in the smartphone market in China.
In the Electronics segment, JRC become a wholly owned subsidiary of the company in October 2017.
Automobile Brakes Sales: JPY115.6bn (+4.6% YoY) Segment profit: JPY4.2bn (JPY123mn in the same period the previous year)
Amortization of goodwill from the purchase of TMD was completed at end-FY03/17. As a result, amortization of goodwill was JPY0mn for Q3 FY03/18 (JPY4.5bn in amortization of goodwill for Q3 FY03/17). Domestically and overseas (NISB Group), sales rose and profits fell due to upfront expenses for R&D and capital spending to respond to the need to mass produce cars that use friction materials that conform to copper regulations. The company expects that friction materials that conform to copper regulations will contribute to sales from FY03/19.
In Japan, Nisshinbo Brake recorded sales of JPY19.0bn (+0.7% YoY) and operating profit of JPY777mn (-34.1%). Sales of small, ▷ low-displacement cars bounced back from the previous year’s decline that resulted from fuel economy test falsification problems, and new car sales were buoyant overall. The company’s Japanese business posted increased sales accompanying the rise in
domestic new car sales; however, changes in the product mix led to lower profits. Overseas, the NISB Group recorded sales of JPY31.6bn (+5.5% YoY) and operating profit of JPY3.1bn (-18.2%). The company’s ▷ US subsidiaries booked lower sales and profits as the North American car market peaked and the company changed its product
mix. The company’s Thai subsidiaries saw growth in sales and profits from launching new products, in addition to strong car sales. Sales and profits fell at the Korean subsidiaries due to changes in the product mix while the Chinese subsidiaries saw higher profits on increased sales. TMD recorded sales of JPY69.5bn (+4.9% YoY) and operating profit of JPY830mn (+45.9%). Operating profit before application ▷ of Japanese GAAP was JPY1.6bn (+3.4% YoY). Sales rose and losses shrank for TMD on increased sales of products for the aftermarket. The company is aiming to redesign its business structure in collaboration with Nisshinbo Brake in order to shift from a profit structure that relies on sales of products for the aftermarket to one which can secure a profit by selling to OEMs. The company completed amortization of goodwill arising from the TMD purchase at the end of FY03/17.
Precision Instruments Sales: JPY47.4bn (+6.0% YoY) Segment profit: JPY1.0bn (+37.3%)
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In automotive precision parts, sales were JPY11.0bn (+5.6% YoY) and operating profit was JPY619mn (+34.9%). Sales and profits ▷ of automotive precision parts were up due to buoyant orders as its Chinese subsidiaries expanded business. In the plastic molding and processing business, sales were JPY38.2bn (+4.7% YoY) and operating profit was JPY1.0bn (+8.5%). ▷ Sales and profits rose at the plastic molding and processing business on increased orders at the Chinese and Indian subsidiaries. In 1H, profits fell as consolidated subsidiary Nanbu Plastics Co., Ltd. incurred outsourcing expenses in order to handle an order load which exceeded its production capacity. In Q3, profit margin improved as the subsidiary raised its production capacity.
Chemicals Sales: JPY7.9bn (+23.8% YoY) Segment profit: JPY1.4bn (+49.8%)
In insulation materials, sales were JPY4.1bn (+34.4% YoY) and operating profit was JPY570mn (+9.4%). Sales rose for insulation ▷ materials as demand to LNG ships increased, but profit margin declined due to a change in the product mix. In functional chemicals, sales were JPY1.9bn (+12.2% YoY) and operating profit was JPY470mn (+15.5%). Sales and profits rose ▷ for functional chemicals on higher sales of water soluble cross-linking agents.
In bipolar plates for fuel cells, sales were JPY901mn (+17.8% YoY) and operating profit was JPY116mn (JPY126mn operating loss ▷ in Q3 FY03/17). Sales and profits of bipolar plates for fuel cells increased due to growth in sales of household fuel cells, cost reduction measures, and changes to the distribution method of R&D expenses.
Textiles Sales: JPY40.9bn (-2.3% YoY) Segment profit: JPY1.6bn (+11.6%)
In the domestic market, sales were JPY35.3bn (-6.7% YoY) and operating profit was JPY1.1bn (-25.6%). Sales of workers’ uniforms ▷ and spandex increased. However, sales of fabric for export shirts and denim were sluggish, and sales at consolidated subsidiary
Tokyo Shirts were poor. Overseas, sales were JPY15.9bn (+5.8% YoY) and operating profit was JPY621mn (+210.5%). The key Indonesian subsidiary saw ▷ sales and profits fall because of a decline in sales of fabric for the Japanese market. However, the Brazilian subsidiary posted an
increase in sales and profits because of a decline in domestic distribution inventory.
Real Estate Sales: JPY5.5bn (-9.7% YoY) Segment profit: JPY3.7bn (-15.3%)
The residential property lot business saw lower sales and profits as it had completed selling its Nagoya office site (Aichi ▷ Prefecture) at the end of Q3 FY03/17. The leasing business booked lower sales and profits under the impact of having sold large commercial facilities. ▷
For details on previous quarterly and annual results, see the Historical financial statements section.
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Full-year company forecasts
FY03/18 company forecasts FY03/18 forecasts FY03/17 FY03/18 (JPYmn) 1H Act. 2H Act. FY A ct . 1H Act. 2H Est. FY Est . Sales 244,287 282,987 527,274 232,838 287,162 520,000 CoGS 195,046 225,564 420,610 187,563 Gross profit 49,241 57,423 106,664 45,275 GPM 20.2% 20.3% 20.2% 19.4% SG&A expenses 51,539 50,234 101,773 44,844 SG&A-to-sales ratio 21.1% 17.8% 19.3% 19.3% Operating profit -2,298 7,188 4,890 431 14,569 15,000 OPM -0.9% 2.5% 0.9% 0.2% 5.1% 2.9% Recurring profit 563 9,993 10,556 2,982 17,018 20,000 RPM 0.2% 3.5% 2.0% 1.3% 5.9% 3.8% Net in co me 834 2,740 3,574 15,530 4,470 20,000 Net margin 0.3% 1.0% 0.7% 6.7% 1.6% 3.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY03/18 company forecasts (by segment)
Segment breakdown FY03/17 FY03/18 YoY (JPYmn) 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 244,287 282,987 527,274 232,838 287,162 520,000 -4.7% 1.5% -1.4% Electronics 76,017 114,834 190,851 77,058 126,942 204,000 1.4% 10.5% 6.9% Automobile Brakes 74,562 71,499 146,061 76,237 77,763 154,000 2.2% 8.8% 5.4% Precision Instruments 29,943 30,744 60,687 31,397 29,603 61,000 4.9% -3.7% 0.5% Chemicals 4,065 5,417 9,482 4,849 6,151 11,000 19.3% 13.5% 16.0% Textiles 28,263 27,579 55,842 27,351 30,649 58,000 -3.2% 11.1% 3.9% Papers 15,400 17,247 32,647 ------Real Estate 4,107 3,976 8,083 3,732 4,268 8,000 -9.1% 7.3% -1.0% Operating profit -2,298 7,188 4,890 431 14,569 15,000 - 102.7% 206.7% Electronics -5,565 2,325 -3,240 -4,497 7,197 2,700 - 209.5% - Automobile Brakes -499 492 -7 2,460 3,840 6,300 - 680.5% - Precision Instruments 435 613 1,048 414 1,386 1,800 -4.8% 126.1% 71.8% Chemicals 581 728 1,309 746 954 1,700 28.4% 31.0% 29.9% Textiles 930 847 1,777 957 1,443 2,400 2.9% 70.4% 35.1% Papers 1,053 1,550 2,603 ------Real Estate 2,917 2,894 5,811 2,666 1,834 4,500 -8.6% -36.6% -22.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY03/18 company forecasts (Electronics segment)
FY03/17 FY03/18 YoY (JPYmn) 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 76,017 114,834 190,851 77,058 126,942 204,000 1.4% 10.5% 6.9% JRC 52,341 90,568 142,909 52,099 100,901 153,000 -0.5% 11.4% 7.1% Marine electronics 16,268 16,312 32,580 15,839 22,261 38,100 -2.6% 36.5% 16.9% Communications products 6,484 8,439 14,923 7,701 7,299 15,000 18.8% -13.5% 0.5% Solutions and specialized equipment 16,430 50,937 67,367 16,983 55,617 72,600 3.4% 9.2% 7.8% New JRC 24,058 24,807 48,865 25,270 26,730 52,000 5.0% 7.8% 6.4% Eliminations -382 -541 -923 -311 -689 -1,000 - - - Operating profit -5,565 2,325 -3,240 -4,497 7,197 2,700 - 209.5% - JRC -6,550 1,064 -5,486 -5,496 5,496 - - 416.5% - Marine electronics -1,494 -3,342 -4,836 -1,547 -273 -1,820 - - - Communications products -104 676 572 465 5 470 - -99.3% -17.8% Solutions and specialized equipment -4,977 3,001 -1,976 -4,195 5,655 1,460 - 88.4% - New JRC 645 1,147 1,792 889 1,611 2,500 37.8% 40.5% 39.5% Eliminations 340 114 454 110 90 200 -67.6% -21.1% -55.9% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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FY03/18 company forecasts (Automobile Brakes segment)
FY03/17 FY03/18 YoY (JPYmn) 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 74,562 71,499 146,061 76,237 77,763 154,000 2.2% 8.8% 5.4% Nisshinbo Brake Inc. 12,268 12,790 25,058 12,320 13,780 26,100 0.4% 7.7% 4.2% Overseas 65,087 61,845 126,932 66,856 68,144 135,000 2.7% 10.2% 6.4% NISB group 20,391 20,118 40,509 21,220 22,080 43,300 4.1% 9.8% 6.9% TMD group 44,696 41,727 86,423 45,636 46,064 91,700 2.1% 10.4% 6.1% Eliminations -2,793 -3,136 -5,929 -2,939 -4,161 -7,100 - - - Operating profit -499 492 -7 2,460 3,840 6,300 - 680.5% - Nisshinbo Brake Inc. 535 951 1,486 469 1,331 1,800 -12.3% 40.0% 21.1% Overseas 2,549 3,114 5,663 2,197 3,803 6,000 -13.8% 22.1% 6.0% NISB group 2,636 2,409 5,045 2,113 2,187 4,300 -19.8% -9.2% -14.8% TMD group -87 705 618 84 1,616 1,700 - 129.2% 175.1% Eliminations -499 -6,657 -7,156 -206 -1,294 -1,500 - - - Earnings before goodwill amortization 2,553 3,361 5,914 2,460 3,840 6,300 -3.6% 14.3% 6.5% NISB (total of domestic and overseas) 3,171 3,360 6,531 2,582 3,518 6,100 -18.6% 4.7% -6.6% TMD group (before J-GAAP) 597 1,471 2,068 625 1,875 2,500 4.7% 27.5% 20.9% TMD group (adjustments to J-GAAP) -1,246 -1,439 -2,685 -1,288 -1,012 -2,300 - - - Goodwill amortization -3,052 -2,869 -5,921 ------Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Factors affected by TMD’s transition to Japanese GAAP include amortization of intangible assets, handling of R&D expenses, and handling of retirement benefit expenses.
FY03/18 company forecasts (Precision Instruments segment)
(JPYmn) FY03/17 FY03/18 YoY 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 29,943 30,744 60,687 31,397 29,603 61,000 4.9% -3.7% 0.5% Mechatronics 6,863 8,133 14,996 6,980 7,720 14,700 1.7% -5.1% -2.0% Plastic molding and processing 24,785 24,296 49,081 25,235 23,765 49,000 1.8% -2.2% -0.2% Eliminations -1,705 -1,685 -3,390 -818 -1,882 -2,700 - - - Operating profit 435 613 1,048 414 1,386 1,800 -4.8% 126.1% 71.8% Mechatronics 196 612 808 360 340 700 83.7% -44.4% -13.4% Plastic molding and processing 708 496 1,204 441 1,509 1,950 -37.7% 204.2% 62.0% Eliminations -469 -495 -964 -387 -463 -850 - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY03/18 company forecasts (Chemicals segment)
(JPYmn) FY03/17 FY03/18 YoY 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 4,065 5,417 9,482 4,849 6,151 11,000 19.3% 13.5% 16.0% Fuel cells 513 527 1,040 505 695 1,200 -1.6% 31.9% 15.4% Functional chemicals (carbodilite) 1,053 1,195 2,248 1,200 1,500 2,700 14.0% 25.5% 20.1% Insulation materials 1,927 3,055 4,982 2,493 3,507 6,000 29.4% 14.8% 20.4% Operating profit 581 728 1,309 746 954 1,700 28.4% 31.0% 29.9% Fuel cells -77 -92 -169 -30 -70 -100 - - - Functional chemicals (carbodilite) 243 335 578 287 463 750 18.1% 38.2% 29.8% Insulation materials 351 338 689 355 445 800 1.1% 31.7% 16.1% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
FY03/18 company forecasts (Textiles segment)
(JPYmn) FY03/17 FY03/18 YoY 1H A ct. 2H A ct. FY A c t . 1H A ct. 2H Est. FY Es t . 1H A ct. 2H Est. FY Es t . Sales 28,263 27,579 55,842 27,351 30,649 58,000 -3.2% 11.1% 3.9% Domestic 25,527 24,679 50,206 23,426 27,674 51,100 -8.2% 12.1% 1.8% Nisshinbo Textile Inc. 10,705 10,230 20,935 9,435 12,465 21,900 -11.9% 21.8% 4.6% Domestic subsidiaries 14,822 14,449 29,271 13,991 15,209 29,200 -5.6% 5.3% -0.2% Overseas 10,195 10,027 20,222 10,523 10,577 21,100 3.2% 5.5% 4.3% Brazil 2,090 2,398 4,488 2,759 1,941 4,700 32.0% -19.1% 4.7% Indonesia 7,056 6,553 13,609 6,625 7,575 14,200 -6.1% 15.6% 4.3% China 1,049 1,076 2,125 1,139 1,061 2,200 8.6% -1.4% 3.5% Eliminations -7,459 -7,127 -14,586 -6,598 -7,602 -14,200 - - - Operating profit 930 847 1,777 957 1,443 2,400 2.9% 70.4% 35.1% Domestic 905 885 1,790 657 1,443 2,100 -27.4% 63.1% 17.3% Nisshinbo Textile Inc. 275 194 469 69 631 700 -74.9% 225.3% 49.3% Domestic subsidiaries 630 691 1,321 588 812 1,400 -6.7% 17.5% 6.0% Overseas 164 187 351 374 226 600 128.0% 20.9% 70.9% Brazil -15 147 132 285 -85 200 - - 51.5% Indonesia 180 33 213 80 320 400 -55.6% 869.7% 87.8% China -1 7 6 9 -9 - - - - Eliminations -140 -224 -364 -74 -226 -300 - - - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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In FY03/18, Nisshinbo forecasts sales of JPY520.0bn (-1.4% YoY), operating profit of JPY15.0bn (+206.7% YoY), recurring profit of JPY20.0bn (+89.5%), and net income attributable to parent company shareholders of JPY20.0bn (+459.6%). The forecasts are based on full-year average forex assumptions of JPY110/USD and JPY120/EUR.
Nisshinbo expects each profit item to increase despite lower sales because of improved earnings at the Electronics business and the elimination of goodwill amortization expenses at the Automobile Brakes business.
Electronics The company expects sales of JPY204.0bn (+6.9% YoY) and operating profit of JPY2.7bn (operating loss of JPY3.2bn in FY03/17).
JRC’s forecast JRC expects sales of JPY153.0bn (+7.1% YoY) and operating profit of JPY0mn (operating loss of JPY5.5bn in FY03/17). By segment, it plans to generate higher sales and profits at the marine systems (formerly marine electronics) and the solution and specialized equipment businesses.
At the marine systems business, JRC anticipates sales of JPY38.1bn (+16.9% YoY) and an operating loss of JPY1.8bn (operating loss of JPY4.8bn in FY03/17). JRC is expecting new ship demand to remain stagnant, but as explained in the table below, it aims to increase sales by strengthening initiatives in the aftermarket and the medium and small-scale ship sector, and expanding the information services business. JRC aims to shrink the operating loss by JPY3.0bn YoY through increased sales of JPY1.3bn, cost reductions of JPY1.2bn (including merchandise, development costs, construction costs, and logistics costs), and the elimination of JPY500mn in redundancies.
Initiatives to encourage sales recovery at the Marine Systems business Policy Strategy Projected sales increase Strengthen aftermarket initiatives Gain customers by leveraging new shipbuilding share, JPY2.3bn Expansion of sales using a structure with four operating annual maintenance and information contents, and expand bases aftermarket sales Strengthen initiatives for medium and small-scale ships Expand market share for fishing vessels by increasing sales of JPY1.6bn Expand product lineup differentiated products; strengthen partnerships to develop Launch eight new types of equipment to the market market for coastal vessels and work boats Develop the information services business Expand businesses through value-added, such as JPY1.2bn Respond to increased need for marine broadband establishment of networks between ship and land, safe services navigation support and navigation assistance services Expand sales at subsidiaries Coordinate with JRC’s own activities to expand sales in the JPY2.4bn Global roll out of three policies above aftermarket, medium and small-scale ship market, and information services field Other (newly built ships, other) -JPY2.0bn
At the solution and specialized equipment business, JRC expects sales of JPY72.6bn (+7.8% YoY) and operating profit of JPY1.5bn (operating loss of JPY2.0bn in FY03/17). JRC assumes large-scale projects and facility replacement demand to have run their course. That said, as explained in the table below, it plans to boost sales through increased orders and sales recovery in the public sector, and by strengthening solutions business initiatives for the private sector and overseas. On the profit front, it aims to return to the black by generating JPY3.4bn; JPY1.7bn coming from sales increase and another JPY1.7bn through reducing equipment expenses, cutting costs (related to construction, purchased goods and outsourcing), and curbing loss on orders received.
Initiatives to encourage a sales recovery at the solution and specialized equipment business Projected Policy Strategy sales increase Expand orders from the domestic public sector and By leading the emergency response project, expand range of JPY2.3bn recover sales bids it competes for and handle more bids Strengthen solution business initiatives for the private Undertake initiatives for projects for electricity, gas and JPY2.2bn sector broadcasting companies Strengthen solution business initiatives for overseas Undertake initiatives for Southeast Asian countries JPY700mn
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Expand weather radar sales
New JRC’s forecast New JRC expects sales of JPY52.0bn (+6.4bn YoY) and operating profit of JPY2.5bn (+39.5% YoY). Sales of communication products and microwave products are expected to increase. Despite an increase in personnel expenses and other costs, New JRC expects profits to increase YoY owing to higher sales and differences from exchange rate fluctuations.
Automobile Brakes Nisshinbo expects sale of JPY154.0bn (+5.4% YoY) and operating profit of JPY6.3bn (operating loss of JPY7mn in FY03/17). In addition to higher sales and profits at TMD Group, it expects higher profits from the elimination of goodwill amortization expenses recorded when it acquired the TMD Group (goodwill amortization of JPY5.9bn in FY03/17).
In Japan, Nisshinbo Brake expects sales of JPY26.1bn (+4.2% YoY) and operating profit of JPY1.8bn (+21.1% YoY).
Overseas, Nisshinbo Brake anticipates sales of JPY43.3bn (+6.9% YoY) and operating profit of JPY4.3bn (-14.8% YoY). The company expects higher sales but lower profits due to anticipated expenses for R&D and capital spending to respond to the need to mass produce cars that use friction materials that conform to copper regulations.
TMD expects sales of JPY91.7bn (+6.1% YoY) and operating profit of JPY2.5bn (before application of Japanese GAAP; +20.9% YoY). While the impact of cost control efforts undertaken in partnership with Nisshinbo Brake started to appear in the previous period, this period TMD is expecting cost savings from the joint procurement of raw materials and efforts to reduce costs during production, development and distribution to boost profits.
TMD applied Japanese GAAP to the treatment of the amortization of intangible fixed assets, expensed R&D costs, and retirement benefit expenses.
Precision Instruments Nisshinbo expects sales of JPY61.0bn (+0.5% YoY) and operating profit of JPY1.8bn (+71.8% YoY).
Compared to the previous year, it expects benefits from cost controls at Nanbu Plastics to appear and profits from plastic molded components to increase.
Chemicals The company expects sales of JPY11.0bn (+16.0% YoY) and operating profit of JPY1.7bn (+29.9% YoY). Sales and profits are expected to rise mainly for functional chemicals (Carbodilite) and insulation materials.
For functional chemicals (Carbodilite), Nisshinbo expects sales of JPY2.7bn (+20.1% YoY) and operating profit of JPY750mn (+29.8% YoY). To reduce carbon dioxide emissions, the market is transitioning from petrochemical-based plastics to biodegradable plastics (plant-derived). The company thus expects demand for Carbodilite to increase.
For insulation materials, the company expects sales of JPY6.0bn (+20.4% YoY) and operating profit of JPY800mn (+16.1% YoY). Sales and profits are expected to rise thanks to expanded demand for LNG tankers.
Textiles Nisshinbo expects sales of JPY58.0bn (+3.9% YoY) and operating profit of JPY2.4bn (+35.1% YoY).
It forecasts sales of JPY21.9bn (+4.6 YoY) and operating profit of JPY700mn (+49.3% YoY) for domestic subsidiary, Nisshinbo Textile, and total overseas sales and profit of JPY21.1bn (+4.3% YoY) and JPY600mn (+7.9% YoY), respectively.
Real Estate The company expects sales of JPY8.0bn (-1.0% YoY) and operating profit of JPY4.5bn (-22.6% YoY).
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The Lease business expects operating profit of JPY3.0 to 3.5bn. Sales and profits from real estate for sale are expected to decrease.
Historical forecast accuracy
Results vs. Initial Est. FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial Est.) 315,000 325,000 262,000 256,000 405,000 475,000 480,000 530,000 550,000 570,000 Sales (Results) 322,411 286,166 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 Results vs. Initial Est. 2.4% -11.9% -7.5% 27.2% -6.3% -5.1% 3.0% -1.2% -2.9% -7.5% Operating profit (Initial Est.) 15,500 14,500 5,000 13,500 14,000 15,000 14,000 18,000 20,000 16,000 Operating profit (Results) 12,033 407 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 Results vs. Initial Est. -22.4% -97.2% -28.6% 47.0% -70.2% -10.7% -5.9% -23.6% -36.9% -69.4% Recurring profit (Initial Est.) 20,500 21,500 9,000 19,000 18,000 15,500 16,000 22,000 25,000 21,000 Recurring profit (Results) 18,916 7,150 9,548 25,268 8,680 17,686 22,171 20,650 17,034 10,556 Results vs. Initial Est. -7.7% -66.7% 6.1% 33.0% -51.8% 14.1% 38.6% -6.1% -31.9% -49.7% Net income (Initial Est.) 15,500 14,000 7,000 11,000 12,000 7,000 1,000 10,000 16,000 10,000 Net income (Results) 12,289 -1,285 1,896 11,184 9,415 6,418 9,011 13,693 10,775 3,574 Results vs. Initial Est. -20.7% -109.2% -72.9% 1.7% -21.5% -8.3% 801.1% 36.9% -32.7% -64.3% 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 sales of JPY1.0tn and ROE of at least 12% in FY03/26. 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 that the company will focus on revamping its mainstay Electronics segment. Further, at the Automobile Brakes segment, a mainstay segment other than Electronics, Shared Research expects improved earnings at TMD and greater market share owing to demand for copper-free materials to lead to profit growth.
Stronger earnings and growth in Electronics
JRC—the company’s mainstay subsidiary in the Electronics business—has been pushing forward to restructure its businesses since September 2012, but owing to the delayed implementation of its growth strategy, earnings declined in FY03/16 and FY03/17 for two consecutive years. As a result, Nisshinbo booked an operating loss in FY03/17.
In FY03/18, Nisshinbo is aiming to improve earnings, and intends to grow the company Group’s earnings over the medium term by converting JRC into a subsidiary.
JRC improved earnings for three consecutive fiscal years (from FY03/13 to FY03/15) JRC—the company’s mainstay subsidiary in Electronics—announced business restructuring plans in September 2012 with the aim of creating new growth, and implemented the following initiatives:
Eliminating and combining production facilities in Japan (transferring production operations from the Mitaka Plant); ▷ 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, sales grew from FY03/13 to FY03/15 and profitability 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 fiscal years (from FY03/16) However, sales and profits were down year-on-year 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 and JRC booked an operating loss of JPY5.5bn. Sales and profits at the marine electronics business decreased as equipment for new merchant ships posted lower sales due to a sluggish shipbuilding market. Further, profits fell from an increase in costs at the solution and specialized equipment business.
In FY03/18, the company aims to improve profits by turning around sales and cutting costs at the marine systems and the solution and specialized equipment businesses. (See the Full-year company forecasts sections.)
Convert JRC (effective October 2017) to a wholly owned subsidiary In May 2017, Nisshinbo decided to convert JRC (61.8% of all shares issued owned by Nisshinbo) to a wholly owned subsidiary via a share exchange (effective October 2017). According to the company, the conversion will bring forth the following benefits:
Growth through JRC’s wireless communications technology: Nisshinbo and JRC have been collaborating across the organizations ▷ in the area of Advanced Driving Assistant System (ADAS)* business. Making JRC a wholly owned subsidiary will allow Nisshinbo to make further use of JRC’s wireless communications technology, integrating it with the technologies and knowledge at the company’s non-electronics businesses such as in precision instruments and chemicals. Cost restructuring: Management costs for the entire group can be reduced through efficient use of business resources including ▷ mutual use of Nisshinbo and JRC’s logistics bases, reorganization, and sharing of overlapping administrative divisions.
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Enhanced corporate governance: Making JRC a wholly owned subsidiary enables Nisshinbo to comprehensively operate ▷ businesses between both companies. As a result, Nisshinbo will be able to enhance corporate governance relating to the group’s management , and accelerate growth strategy at the Electronics business group overall.
* 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.
Meanwhile, from JRC’s standpoint, Nisshinbo stated that by becoming a wholly owned subsidiary, JRC can leverage Nisshinbo’s creditworthiness and financial strength to push forward investments in IT and other growth areas, utilize the company’s mass production technologies and quality management expertise in the automotive field, and take advantage of the global network.
Automobile Brakes: building up
In the Automobile Brakes segment over the medium term, Shared Research thinks that profits will gradually increase, owing to factors such as the amortization of goodwill in TMD ending in FY03/17 and through other measures underway to improve profitability. The company also sees opportunities over the long term to increase market share due to changes in regulations for copper content in friction materials.
Lower expense from TMD acquisition to boost profit from FY03/18 This segment’s amortization costs came to JPY5.9bn in FY03/17 (mostly related to TMD acquisition). The expense associated with brining TMD in line with Japanese accounting standards was JPY2.7bn (amortization of intangible fixed assets, expensed R&D costs, and retirement benefits). The company booked this goodwill in FY03/12, and began amortizing in FY03/13. It will amortize over five years using the straight-line method. In FY03/17, the amortization of goodwill from the acquisition of TMD will end, boosting profits by about JPY5.9bn YoY in FY03/18 since expenses to amortize goodwill have been eliminated. As for the expense associated with bringing TMD in line with Japanese accounting standards, the amortization of intangible fixed assets will finish in FY03/20, and expensed R&D costs in FY03/19.
Measures that may bear fruit from FY03/18 onward Through consolidating TMD in September 2011, the company is working toward improving profitability. Operating profit (before amortization) at TMD improved from an operating loss of JPY941mn in FY03/13 to an operating profit of JPY2.1bn in FY03/17 (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). However, while OPM at the Nisshinbo Automobile Brakes Group was 10.0% in FY03/17, the figure was 2.4% at TMD (before application of Japanese GAAP).
According to the company, the full-scale implementation of joint continuous improvement activities between Nisshinbo Automobile Brakes and TMD began in FY03/16. As a result, OPM at TMD improved 0.7pp year-on-year during FY03/16 and another 0.7pp during FY3/17.
Additionally, restructuring of manufacturing structures at TMD will continue over the medium term, and Nisshinbo will seek further improvements in production capabilities and efficiency. Two production bases will be integrated at a German subsidiary by the end of CY2018, and production capabilities will be ramped up at a Brazilian subsidiary by the end of FY03/18 via construction of a new plant and transferring production duties. Shared Research thinks that these measures will begin to be reflected in TMD’s results from FY03/19 onward.
Responding to the copper-free movement Issues in Automobile Brakes As a long-term issue facing the Automobile Brakes segment, the company sees responding to copper regulations as a key hurdle, but also views this as an opportunity, working to respond ahead of its competitors. As of May 2017, TMD has successfully developed a friction material that uses raw steel and is free of copper, and began mass production in Europe. Nisshinbo Brakes
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has also been successful in developing a copper-free friction material, and began mass production of friction materials that conform to copper regulations from FY03/17; 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 regulations will peak between 2018 to 2019.
Copper regulations: the US state of California has passed a law, effective 2012, prohibiting 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.
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Business Segments
Nisshinbo has six segments: Electronics, Automobile Brakes, Precision Instruments, Chemicals, Textiles, and Real Estate (sold the Papers business in April 2017). Dividing them into mainstay businesses, earnings-improvement businesses, and Real Estate shows how they fit into the company’s strategy.
Mainstay: Electronics and Automobile Brakes. Promising outlook for market growth, sales growth through acquisitions, and ◤ profit growth through synergies. Strategically important businesses include automotive parts and devices, and wireless communications and electronics.
Earnings improvement: Precision Instruments, Chemicals, Textiles, and Papers. Limited potential for market growth, ◤ meaning stable or declining sales. In response, Nisshinbo aims to increase margins. Although they fall under the Chemicals segment, the company positions Carbodilite and bipolar plates for fuel cells as strategically important products, with scope for long-term market growth.
Real Estate: stable revenues and profits from the sale of land with a low book value. ◤
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Performance trends by segment
Segment breakdown FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 242,409 325,555 379,340 450,693 494,350 523,757 533,989 527,274 YoY -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% -1.3% Mainstay segments 92,744 158,938 217,356 294,156 336,441 371,001 370,404 336,912 YoY -15.5% 71.4% 36.8% 35.3% 14.4% 10.3% -0.2% -9.0% Electronics 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 YoY -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% Automobile Brakes 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% Earnings-improvement segments 115,971 127,028 124,631 113,967 120,498 116,190 130,521 158,658 YoY -20.4% 9.5% -1.9% -8.6% 5.7% -3.6% 12.3% 21.6% Precision Instruments 24,907 32,020 25,190 24,520 28,655 28,607 29,525 60,687 YoY -30.0% 28.6% -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% Chemicals 6,308 7,283 8,258 8,150 8,810 8,138 8,285 9,482 YoY - 15.5% 13.4% -1.3% 8.1% - 1.8% 14.4% Textiles 53,221 57,400 60,963 50,773 51,348 48,165 60,127 55,842 YoY -21.3% 7.9% 6.2% -16.7% 1.1% - 24.8% -7.1% Papers 31,535 30,325 30,220 30,524 31,685 31,280 32,584 32,647 YoY -7.8% -3.8% -0.3% 1.0% 3.8% -1.3% 4.2% 0.2% Real Estate 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 YoY -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% Operating profit 3,569 19,842 4,170 13,393 13,175 13,744 12,617 4,890 YoY 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% -61.2% Mainstay segments 1,225 11,273 143 3,487 7,538 10,635 7,432 -3,247 YoY -371.6% 820.2% -98.7% 2338.5% 116.2% 41.1% -30.1% -143.7% Electronics -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 YoY - - - - 20.1% 35.8% -34.5% - Automobile Brakes 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 YoY 11.9% 31.2% -16.4% - - - - - Earnings-improvement segments -1,551 1,171 405 1,269 1,774 727 3,591 6,737 YoY -26.2% -175.5% -65.4% 213.3% 39.8% -59.0% 393.9% 87.6% Precision Instruments -526 1,413 -1,069 -146 1,075 263 318 1,048 YoY ------75.5% 20.9% 229.6% Chemicals -512 -294 373 132 105 396 753 1,309 YoY - - - -64.6% -20.5% - 90.2% 73.8% Textiles -2,219 183 840 574 552 -357 1,778 1,777 YoY - - 359.0% -31.7% -3.8% - - -0.1% Papers 1,706 -131 261 709 42 425 742 2,603 YoY 118.7% - - 171.6% -94.1% 911.9% 74.6% 250.8% Real Estate 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 YoY 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% Others, company-wide, eliminations -2,088 -2,792 -3,120 -3,652 -3,917 -4,287 -4,201 -4,411 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.
Mainstay segments (66.9% of sales in FY03/17)
Sales and operating profit’s share of the total is based on the simple sum of each segment, before other revenues, company-wide revenues and expenses, and eliminations. The same format follows.
Electronics and Automobile Brakes segments. Promising outlook for market growth, with sales growth through acquisitions, and profit growth through synergies. Strategically important businesses include automotive parts and devices, and wireless communications and electronics.
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Electronics (37.9% of sales; operating loss of JPY3.2bn in FY03/17) While Electronics posted an operating loss in FY03/17, the segment made up over 40% of overall operating profit from FY03/13 through FY03/16.
The Electronics segment is composed primarily of consolidated subsidiary Japan Radio Co., Ltd. (JRC) and New Japan Radio Co., Ltd. (New JRC) (TSE1: 6911; 59.6% owned by Nisshinbo). Nisshinbo’s involvement with JRC began in the 1950s, when the company dispatched managers to JRC. The company also bought out New JRC in 2005, making it a consolidated subsidiary. In 2010, the company made JRC and Nagano Japan Radio Co., Ltd. (Nagano JRC; delisted in March 2016 via a share transfer) consolidated subsidiaries in a bid to strengthen the Electronics segment. In March 2016, JRC fully consolidated Nagano JRC and Ueda JRC in an effort to strengthen group synergies. Further, in May 2017, Nisshinbo decided to convert JRC to a wholly owned subsidiary via a share exchange (effective in October 2017).
Electronics segment performance by subsidiary
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 76,474 60,549 51,699 112,820 169,906 175,307 187,742 209,115 205,367 190,851 YoY 0.5% -20.8% -14.6% 118.2% 50.6% 3.2% 7.1% 11.4% -1.8% -7.1% JRC - - - 49,540 99,872 109,158 113,306 132,251 125,192 142,909 YoY - - - - 101.6% 9.3% 3.8% 16.7% -5.3% 14.2% New JRC 60,443 45,719 40,288 45,613 40,273 36,417 42,080 45,220 47,816 48,865 YoY -0.5% -24.4% -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% Nagano JRC - - - 8,881 28,624 28,971 30,995 32,203 32,481 - YoY - - - - 222.3% 1.2% 7.0% 3.9% 0.9% - Ueda JRC 16,107 14,926 11,485 13,521 12,502 11,861 14,055 17,253 16,808 - YoY 4.5% -7.3% -23.1% 17.7% -7.5% -5.1% 18.5% 22.8% -2.6% - Eliminations -76 -96 -74 -4,735 -11,365 -11,100 -12,694 -17,812 -16,931 -923 Operating profit 1,103 -3,918 -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 YoY 6.0% - - - - - 20.1% 35.8% -34.5% - JRC - - - 4,829 -2,791 3,919 7,281 7,713 3,183 -5,486 YoY ------85.8% 5.9% -58.7% - New JRC 1,542 -4,364 -2,755 761 -4,101 1,470 2,276 2,918 3,126 1,792 YoY -16.2% - - - - - 54.8% 28.2% 7.1% -42.7% Nagano JRC - - - 538 918 864 -1,813 217 586 - YoY - - - - 70.6% -5.9% - - 170.0% - Ueda JRC 471 442 82 340 556 330 437 974 743 - YoY 292.5% -6.2% -81.4% 314.6% 63.5% -40.6% 32.4% 122.9% -23.7% - Eliminations -910 4 19 -285 1,307 1,205 1,170 881 679 454 Segment assets 93,715 62,817 56,368 222,475 188,514 197,358 208,527 233,337 218,040 215,958 Segment ROA (operating profit basis) 1.2% -5.0% -4.5% 4.4% -2.0% 4.0% 4.6% 5.7% 3.7% -1.5% Employees 3,863 3,826 3,788 9,511 8,860 8,474 8,302 8,233 8,148 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: New JRC consolidated in 2H FY03/06. Note: Nagano JRC and Ueda JRC fully consolidated by JRC in March 2016.
JRC JRC 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.
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.
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Weak earnings for JRC persisted following the 2008 global financial crisis. In 2010, Nisshinbo bought out JRC, making it a consolidated subsidiary in a bid to boost margins through synergies in the Electronics segment.
Restructuring 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.
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, under leadership of Hiroshi Tsuchida, who was appointed president in June 2011. As with New JRC—which had already announced a plan to restructure—JRC consolidated domestic factories, cut headcount, set up factories overseas, and expanded overseas businesses. As stated above, 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. However, sales and profits were down year-on-year 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 profits at the marine electronics business, and worsening earnings at the solution and specialized equipment business.
JRC performance FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Act. Act. Sales 131,828 122,870 111,210 107,705 99,871 109,157 113,306 132,251 125,192 142,909 YoY 4.1% -6.8% -9.5% -3.2% -7.3% 9.3% 3.8% 16.7% -5.3% 14.2% Operating profit 4,030 2,864 2,999 1,551 -2,790 3,919 7,281 7,713 3,183 -5,486 YoY -6.7% -28.9% 4.7% -48.3% -279.9% -240.5% 85.8% 5.9% -58.7% -272.4% Net income 3,376 1,483 2,322 1,921 1,844 9,245 2,310 14,342 1,661 1,559 YoY -22.2% -56.1% 56.6% -17.3% -4.0% 401.4% -75.0% 520.9% -88.4% -6.1% Net assets 43,126 41,811 44,360 44,821 41,412 50,928 49,842 71,840 77,257 77,341 Equity ratio 35.2% 33.1% 37.5% 37.5% 43.2% 48.0% 42.6% 49.5% 47.0% 46.2% ROE 7.9% 3.5% 5.4% 4.3% -4.3% 20.2% 4.7% 24.1% 2.3% 2.0%
Source: Shared Research based on JRC data Note: Figures may differ from company materials due to differences in rounding methods. Note: JRC consolidated in Q4 FY03/11.
JRC sales and operating profit by segment
FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Act. Act. Act. Act. Act. Act. Act. Act. Sales 111,210 107,705 99,871 109,157 113,306 132,251 125,192 142,909 YoY - 9.3% 3.8% 16.7% -5.3% 14.2% Marine electronics 29,278 29,593 29,493 25,452 24,088 37,883 45,360 32,580 YoY 1.1% -0.3% -13.7% -5.4% 57.3% 19.7% -28.2% Communications products 19,304 17,332 15,020 18,056 16,151 17,241 13,587 14,923 YoY - 20.2% -10.6% 6.7% -21.2% 9.8% Solutions and specialized equipment 54,539 52,482 46,892 63,600 70,820 75,196 64,145 67,367 YoY -3.8% -10.7% 35.6% 11.4% 6.2% -14.7% 5.0% Other, adjustments 8,087 8,296 8,466 2,049 2,247 1,931 2,100 28,039 Operating profit 2,999 1,551 -2,790 3,919 7,281 7,713 3,183 -5,486 YoY - - 85.8% 5.9% -58.7% - Marine electronics 1,422 1,035 -483 -845 -1,440 979 2,297 -4,836 YoY - - - - 134.6% - Communications products -1,799 -1,515 -2,818 -492 141 28 -440 572 YoY - - - -80.1% - - Solutions and specialized equipment 3,347 2,102 -310 5,346 9,054 6,909 1,776 -1,976 YoY - - 69.4% -23.7% -74.3% - Other, adjustments -8 -86 821 -90 -474 -203 -450 754 Source: Shared Research based on JRC data Note: Figures may differ from company materials due to differences in rounding methods. Note: JRC consolidated in Q4 FY03//11.
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JRC has three segments: Marine electronics, Communications products, and Solutions and specialized equipment. Solutions and specialized equipment makes a significant contribution to both sales and operating profit.
Marine electronics: maritime satellite communications equipment, marine communications equipment, marine radars, ◤ 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 was consolidated in December 2013 (51% Nisshinbo ownership stake). 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. According to the company, the market size of marine electronics for merchant ships (new and retrofit) and work boats is around JPY163.0bn, and 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).
Communications products: commercial radios, intelligent transportation system (ITS) products, personal handy-phone ◤ system (PHS) devices, and GPS receivers. Commercial radios are a mainstay product, at 20–30% of parent-level segment sales in FY03/14. JRC reckons this market is valued at roughly JPY310bn. 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 are the second major revenue generator, making up roughly 20% of parent-level segment sales in FY03/14. According to JRC, this market is valued at roughly JPY10.0bn. 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: 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, Toshiba Corporation (TSE1: 6502), and Mitsubishi Electric, NEC Corporation (TSE1: 6701), and Panasonic.
JRC’s share of the solutions and specialized equipment market
(JPYbn) Market JRC sales Market share Major customers
Water and river management 50 18 30% to 40% MLIT, MAFF, Cabinet Office, local governments, electric power 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 JRC data Note: Market size based on JRC estimates; market share based on sales figures for FY03/14.
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Change in sales, operating profit at JRC
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Change in sales -11,660 -3,505 -7,834 9,286 4,149 18,945 -7,059 17,717 Marine electronics -5,300 1,600 1,100 -4,500 -3,300 12,500 6,500 -12,800 Communications products -4,900 -1,800 -2,200 2,800 -2,300 900 -3,700 1,300 Solutions and specialized equipment 200 -2,000 -5,500 10,000 7,100 4,400 -11,100 3,200 Forex impact -1,300 -1,700 -1,200 600 2,400 1,500 1,200 -1,000 Change in operating profit 135 -1,448 -4,341 6,709 3,362 432 -4,530 -8,669 Impact of change in sales -3,800 -900 -2,800 3,400 800 4,600 -4,900 -4,700 Marginal profit ratio (estimated) 38.0% 40.9% 42.4% 41.0% 53.3% 25.8% 59.0% 56.6% Change in variable costs 2,400 -700 -200 2,500 -700 -4,900 -2,200 -1,100 Change in fixed costs 1,700 500 -400 1,200 1,200 - 800 -2,600 Forex impact -1,100 -1,500 -1,000 500 2,100 800 1,000 -700 Others 1,000 1,300 -900 800 400 No. of employees Employees 3,760 3,766 3,758 3,671 3,294 3,366 5,575 Source: Shared Research based on JRC data Note: Marginal Profit Ratio = Impact of Change in Sales on Operating Profit / Change in Sales (Minus Forex Impact)
Sales: Although GPM is about 20%, we estimate JRC’s marginal profit ratio to be between 40% to 60%, based on changes ◤ seen in the analyses of factors that impact sales and operating profit.
Forex: The marine electronics business has a high proportion of overseas sales, and therefore JRC’s operating profit is affected ◤ by forex fluctuations. Considering that on the average the yen appreciated by about JPY12 against the US dollar in FY03/17 and the impact of forex fluctuations on JRC’s operating profit amounted to about JPY700mn, we assume that a JPY1 fluctuation would translate to about a JPY60mn impact on operating profit.
Variable expenses: affected by changes in the product mix and efforts to cut costs. ◤ Fixed costs: affected by personnel cuts, changes in R&D expenses, and write-downs in product/inventory value. ◤
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 owns 59.6% of New JRC as of May 2017, but according to the company, New JRC mostly acts independently from the group—it supplies some products to JRC, but not a significant amount.
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.
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, D&A, 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.
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New JRC performance
FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) 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 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% Operating profit -2,755 761 -4,101 1,469 2,276 2,918 3,126 1,792 YoY -39.2% -127.6% -638.9% -135.8% 54.9% 28.2% 7.1% -42.7% Net income -10,011 494 -9,098 1,721 2,561 4,580 2,496 616 YoY 260.0% -104.9% -1941.7% -118.9% 48.8% 78.8% -45.5% -75.3% Net assets 11,324 11,580 2,408 4,521 7,455 10,708 10,666 11,192 Equity ratio 27.3% 27.9% 7.2% 12.7% 20.1% 27.4% 26.5% 27.7% ROE -61.3% 4.3% -130.1% 49.7% 42.8% 58.8% 23.4% 5.6% Source: Shared Research based on New JRC data Note: Figures may differ from company materials due to differences in rounding methods.
New JRC sales and operating profit by segment
FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) 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 YoY -11.9% 13.2% -11.7% -9.6% 15.6% 7.5% 5.7% 2.2% Microwave products 5,702 6,271 6,099 5,727 6,209 5,814 6,342 6,066 YoY -24.0% 10.0% -2.7% -6.1% 8.4% -6.4% 9.1% -4.4% Electronic devices 34,585 39,341 34,172 30,688 35,870 39,406 41,474 42,798 YoY -9.5% 13.8% -13.1% -10.2% 16.9% 9.9% 5.2% 3.2% Operating profit -2,755 761 -4,101 1,469 2,276 2,918 3,126 1,792 YoY - - - - 54.9% 28.2% 7.1% -42.7% Microwave products 339 596 355 547 982 691 1,054 552 YoY - 75.8% -40.4% 54.1% 79.5% -29.6% 52.5% -47.6% Electronic devices 810 2,123 -2,705 2,360 2,768 3,745 3,637 2,972 YoY - 162.1% - - 17.3% 35.3% -2.9% -18.3% Other, adjustments -3,904 -1,958 -1,751 -1,438 -1,474 -1,518 -1,564 -1,732 Source: Shared Research based on New JRC data Note: Figures may differ from company materials due to differences in rounding methods.
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.
New JRC has two segments: Microwave products, and Electronic devices. Electronic devices segment makes a significant contribution to sales and operating profit.
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.
Sales to its main client, Mitsubishi Electric Corporation (TSE1: 6503), totaled JPY4.4bn in FY03/17 or +24.8% YoY, and accounted for 9.0% (7.4% in FY03/16) of sales.
Competitors include Rohm Co., Ltd. (TSE1: 6963), Ricoh Co., Ltd. (TSE1: 7752), Seiko Instruments Inc. (subsidiary of Seiko Holdings Corp. [TSE1: 8050]), Mitsumi Electric Co., Ltd. (TSE1: 6767), Texas Instruments Inc. (NASDAQ: TXN), and STMicroelectronics N.V. (BIT: STM). As of 2014, New JRC held about 0.5% of the global analog IC market (part of the semiconductor market), placing it 41st in the world (source: IHS Inc.).
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Change in sales, operating profit at New JRC
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Change in sales -5,432 5,326 -5,341 -3,855 5,663 3,140 2,596 1,049 Change in operating profit 1,776 3,516 -4,862 5,570 807 642 208 -1,334 Impact of change in sales -4,873 4,021 -5,423 -1,810 2,904 2,576 1,565 1,690 Reductions in fixed costs of manufacturing 3,738 -414 Change in personnel expenses 523 2,990 -704 -1,103 -1,165 -1,179 Change in depreciation -251 1,842 -354 -111 284 -78 Elimination of inventories 523 1,240 Forex changes -1,454 Others 2,221 -91 289 1,308 -1,039 -720 -476 -313 No. of employees Employees 3,163 3,116 2,798 2,635 2,684 2,659 2,667 Source: Shared Research based on New JRC data Note: Figures may differ from company materials due to differences in rounding methods.
Factors affecting sales and expenses at New JRC:
Sales: Although GPM is about 20%, New JRC’s marginal profit ratio may be about 50%, based on changes in sales and ◤ operating profit. In FY03/17, Shared Research estimated New JRC’s had a marginal profit ratio of 56% as actual changes in sales pushed up operating profit by JPY1.7bn and sales saw a net increase of JPY3.1bn (excluding forex translation differences).
Personnel expenses: headcount fell by 318 YoY in FY03/12 as New JRC introduced voluntary redundancy. Further cuts in FY03/13 also contributed to profits that year. Since FY03/14, an increase in personnel expenses in line with the rise in sales has resulted in lower profits.
New JRC market Performance in Electronic Devices is strongly correlated to the analog IC market (in yen). Following a 0.7% YoY decline in the analog IC market (in US dollars) in 2016, the World Semiconductor Trade Statistics (Autumn 2016) forecasts growth of 3.2% YoY in 2017, followed by 2.5% YoY growth in 2018.
New JRC electronic devices segment sales versus the analog IC market
(JPYmn) (JPYbn) 55,000 6,000
5,500 50,000
5,000 45,000
4,500 40,000
4,000
35,000 3,500
30,000 3,000
25,000 New JRC electronic devces segment sales Analog IC market (right axis) 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
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.
Automobile Brakes (29.0% of sales; operating loss of JPY7mn in FY03/17) This segment accounted for 58.4% of group operating profit in FY03/12, prior to the consolidation of TMD. Return on assets (operating profit basis) was 11.3% in FY03/11. But the consolidation of TMD caused this segment to continue posting operating
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losses from FY03/13 onward. Excluding expenses related to this acquisition, this segment generated Nisshinbo’s highest ROA (operating profit basis) at 5.5% in FY03/17. Automobile Brakes segment performance (JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% Operating profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 YoY 11.9% 31.2% -16.4% - - - - - Operating profit before goodwill amortization 3,879 5,090 4,403 2,949 7,378 8,230 8,589 8,599 YoY 11.9% 31.2% -13.5% -33.0% 150.2% 11.5% 4.4% 0.1% Segment assets 49,087 40,636 128,417 139,591 167,264 177,473 160,017 151,264 Segment ROA (OP basis) 8.5% 11.3% 5.0% -3.2% -1.2% -1.2% -0.5% 0.0% Segment ROA (OP basis) before goodwill amort. 8.5% 11.3% 5.0% 2.2% 4.8% 4.8% 5.1% 5.5% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. 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.
Products 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 automotive 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 breaking force with a self-applying effect and cost less, but they do not disperse heat well. 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.
Automobile Brakes segment products
Source: Company data
Nisshinbo’s entry into the brake business: Nisshinbo began producing friction materials for automotive 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.
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Competitors According to the company, the friction materials market for braking systems is worth about JPY690bn. Nisshinbo holds 17% of the market, making it the global market leader. Second is the Federal-Mogul Holdings Corporation (NASDAQ: FDML) with a share of 14% (together, Honeywell International Inc. [NYSE: HON] and Federal-Mogul hold about 18% of the market), then Akebono Brake Industry Co., Ltd. (TSE1: 7238) with about 8% of the market, and ITT Corporation (NYSE: ITT), with about 5% of the market.
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 Break 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.
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 (those that supply parts 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 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 (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 prices 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 around 95mn vehicles. Including TMD, Nisshinbo holds 17% of the market—meaning it supplies friction materials for roughly 16mn vehicles per year (Shared Research estimates).
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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 year-on-year, but the company protects margins by increasing yields and cutting its own costs.
Automobile Brakes Nisshinbo’s subsidiaries, Nisshinbo Brake, the NISB Group and TMD Group manufacture and sell the products. Earnings for each subsidiary are listed in the following table.
Automobile Brakes segment performance breakdown
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 41,045 46,118 47,450 118,849 148,699 161,886 165,037 146,061 YoY -16.6% 12.4% 2.9% 150.5% 25.1% 8.9% 1.9% -11.5% Nisshinbo Brake Inc. 23,965 26,856 27,680 27,434 27,991 28,008 25,272 25,058 YoY -12.7% 12.1% 3.1% -0.9% 2.0% 0.1% -9.8% -0.8% Overseas 18,559 23,591 23,804 95,794 125,956 139,932 145,486 126,932 YoY -27.6% 27.1% 0.9% 302.4% 31.5% 11.1% 4.0% -12.8% NISB group - 23,591 23,804 27,806 37,164 41,287 45,699 40,509 YoY - - 0.9% 16.8% 33.7% 11.1% 10.7% -11.4% TMD group - - - 67,988 88,792 98,645 99,787 86,423 YoY - - - - 30.6% 11.1% 1.2% -13.4% Eliminations -1,479 -4,329 -4,034 -4,379 -5,248 -6,054 -5,721 -5,929 Operating profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 YoY 11.9% 31.2% -16.4% - - - - - Nisshinbo Brake Inc. 2,738 2,751 2,615 1,732 1,836 1,950 1,142 1,486 YoY 165.3% 0.5% -4.9% -33.8% 6.0% 6.2% -41.4% 30.1% OPM 11.4% 10.2% 9.4% 6.3% 6.6% 7.0% 4.5% 5.9% Overseas 1,135 2,279 1,788 -1,329 3,815 4,605 5,700 5,663 YoY -52.8% 100.8% -21.5% - - 20.7% 23.8% -0.6% NISB group - 2,279 1,788 2,158 4,824 5,267 5,722 5,045 YoY - - -21.5% 20.7% 123.5% 9.2% 8.6% -11.8% TMD group - - - -3,487 -1,009 -662 -22 618 YoY ------Eliminations 6 61 -149 -4,704 -7,464 -8,623 -7,728 -7,156 Profit before goodwill amortization 3,879 5,090 4,403 2,949 7,378 8,230 8,589 8,599 YoY 11.9% 31.2% -13.5% -33.0% 150.2% 11.5% 4.4% 0.1% NISB (domestic and overseas) - 5,030 4,403 3,890 6,660 7,217 6,864 6,531 TMD - - - -941 718 1,013 1,725 2,068 Goodwill amortization - - 68 5,099 6,433 6,915 6,576 5,921 Employee 1,865 1,874 6,762 6,585 6,964 7,045 7,051 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. 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: In April 2010, Nisshinbo Brake merged with Nisshinbo Brake Sales. To ensure like-for-like comparison. Nisshinbo Brake Sales and operating have been excluded from domestic figures for FY03/10 and earlier.
Japan: Nisshinbo Brake Inc. 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.
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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
Source: Shared Research based on Japan Automobile Manufacturers Association, Inc.
Overseas: NISB (Nisshinbo Brake Inc.) Group The NISB Group comprises subsidiaries in South Korea, the US, Thailand, and China.
Overseas subsidiaries overview
Subsidiary Customers Contribution to NISB group overseas earnings
Saeron Automotive Corporation (South Korea) Hyundai Motor Co., Sales: about 50% (Nisshinbo stake: 65.0%) Kia Motors Corp. OP: about 50%
Saeron Automotive Beijing Co., Ltd. (China) Japanese, European and Korean auto manufactures (Nisshinbo stake: 65.0%) Japanese auto manufacturers Nisshinbo Automotive Manufacturing Inc. (US) Sales: about 20% Volkswagen (wholly owned) OP: about 20% Ford Motor
Nisshinbo Somboon Automotive Co., Ltd. (Thailand) Japanese auto manufacturers (passenger vehicles) Sales: about 20% (Nisshinbo stake: 97.1 ) ％ OP: about 20% Nisshinbo Commercial Vehicle Brake Ltd. (Thailand) Japanese auto manufacturers (commercial vehicles)
Nisshinbo Saeron Changshu Automotive Corporation (China) Sales: about 5% Japanese auto manufacturers (wholly owned) OP: about 10% Source: Shared Research based on company data
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 in September 2011. According to the company, TMD’s OPM was about 5% before earnings slumped in 2008.
According to the company, TMD is Europe’s largest manufacturer of friction materials for brakes, with 16 factories across 10 countries (three in UK, four in Germany, one in Romania, one in France, one in Spain, two in China, one in Mexico, one in Brazil, one in South Africa, and one in the US). 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 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. It also supplies the friction materials for Bugatti Veyron, the world’s fastest sports car, according to TMD. 30% of sales come from steel pipe components for new cars, 30% from components for repairs, and 40% from commercial products.
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Profit margins are higher for commercial 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 brake pads, as fewer car owner switch to snow tires. Consequently, the results of TMD are also affected negatively.
Global auto sales and production Global auto production grew 37.2% between 2006 and 2016 (avg. 100,000 annual growth 3.2%). It fell in 2008 and 2009 following the global Units produced financial crisis, but has risen since as demand in Asia and Africa has Units sold 90,000 grown.
80,000
70,000
60,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
Domestic auto production, sales Domestic auto sales fell 19.9% between 2006 and 2016 (avg. 12,000 annual growth of -1.4%). The downward trend is due to rising
10,000 populations in large cities with access to public transport, Japan's
8,000 aging society, and declining car ownership among young people.
6,000 Domestic auto production fell 19.9% between 2006 and 2016 (avg. 4,000 annual growth of -2.2%). In addition to declining domestic sales, Units produced 2,000 Units sold Japanese auto manufacturers are also moving production overseas, 0 resulting in lower exports. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
South Korean auto production, sales South Korean auto sales grew 54.9% between 2006 and 2016 (avg.
6,000 annual growth of 4.5%). Korean auto production grew 10.1% between 2006 and 2016 (avg. annual growth of 1.0%). Auto production in Korea significantly exceeds auto sales volume 4,000 because it includes exports to the US, Europe, India, and elsewhere.
Units produced
2,000 Units sold
0 ('000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: OICA
US auto production, sales US auto sales increased 4.8% between 2006 and 2016 (avg. annual 20,000 growth of 0.5%). Auto sales slumped in 2008 and 2009 following the global financial crisis, but are recovering as the economy picks 15,000 up. Long-term, auto sales are trending upward in line with a growing population. US auto production increased 8.3% between 10,000 2006 and 2016 (avg. annual growth of 0.8%). Imports account for about 30–40% of auto sales. 5,000 Units produced
Units sold 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
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Thai auto production, sales Thai auto sales grew by 13.9% between 2006 and 2016 (avg. 3,000 annual growth of 1.3%), while auto production increased 62.8% Units produced (avg. annual growth of 5.0%) over the same period. Auto sales Units sold 2,000 declined in 2014 following the military coup, and also decreased in 2015 and 2016. However, the market is trending upward overall, in line with economic growth and a lack of access to public 1,000 transportation. Growth in auto production has outstripped that of auto sales because Thailand exports cars to countries in the region.
0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
Chinese auto production, sales Sales in automobiles in China exceed that of the United States in 30,000 2009, making it the world’s largest market. The number of Units produced 25,000 automobiles sold in China during 2016 represents 30% of all global Units sold 20,000 sales.
15,000 Chinese auto sales grew 288.4% between 2006 and 2016 (avg. 10,000 annual growth of 14.5%), while auto production increased 291.2% 5,000 (avg. annual growth of 14.6%) over the same period. Economic 0 growth and rising auto sales have resulted in higher production. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
European auto production, sales European auto sales fell 7.9% (avg. annual growth of -0.8%) 30,000 between 2006 and 2016, while auto production fell 0.9% (avg. Units produced Units sold annual growth of -0.1%). Sluggish sales in the wake of the global 25,000 financial crisis and the economic crisis in Greece meant it was a long time before auto sales bottomed out. Production bottomed in 20,000 2012, while sales bottomed in 2013.
15,000
10,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ('000) Source: OICA
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Earnings-improvement (31.5% of sales; 72.4% of OP in FY03/17)
Precision Instruments, Chemicals, and Textiles (sold the Papers business in April 2017). Sales may rise and fall for individual products, but on the whole, there is limited scope for growth. Nisshinbo thus intends to increase margins as sales remain steady or decline.
Precision Instruments (12.0% of sales; 11.3% of operating profit in FY03/17)
Precision Instruments segment performance
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 24,907 32,020 25,190 24,520 28,655 28,607 29,525 60,687 YoY -30.0% 28.6% -21.3% -2.7% 16.9% -0.2% 3.2% 105.5% Precision instruments and systems 13,942 19,050 13,659 12,043 14,388 15,080 14,283 14,996 PV cell module manufacturing equipment 4,000 11,000 6,000 5,000 6,000 - - - Plastic molding and processing 13,469 15,777 15,489 15,678 18,078 18,167 18,464 49,081 Eliminations -2,504 -2,807 -3,958 -3,201 -3,811 -4,640 -3,222 -3,390 Operating profit -526 1,413 -1,069 -146 1,075 263 318 1,048 YoY ------75.5% 20.9% 229.6% Precision instruments and systems -563 718 -1,632 -790 218 -509 -88 808 PV cell module manufacturing equipment -1,000 - -2,000 -1,000 - - - - Plastic molding and processing 62 681 546 689 949 853 448 1,204 Eliminations -25 14 17 -46 -92 -81 -42 -964 Segment assets 21,788 23,956 24,088 26,091 29,857 36,648 72,294 72,135 Segment ROA (operating profit basis) -1.9% 6.2% -4.5% -0.6% 3.8% 0.8% 0.6% 1.5% Employees 1,872 1,887 1,904 1,783 1,719 1,862 3,093 - Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: PV cell manufacturing equipment sales and operating profit figures based on interviews with management.
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 23.4% and 76.6% of segment sales respectively in FY03/17. As the company converted Nanbu Plastics, a plastic parts manufacturer, to a subsidiary in October 2015, sales and profits in FY03/17 increased YoY.
Precision instruments and systems In the Precision instruments and systems business, the company mainly sells system devices (photovoltaic cell manufacturing equipment) and automotive precision components.
In FY03/11, sales of PV module manufacturing equipment peaked at over JPY8.5bn, before falling in FY03/12 as changes to feed-in tariffs (FIT) in Europe led to cuts in PV cell inventory and lower demand. That year, the company booked an operating loss of about JPY2bn in this business. In FY03/13, the company cut costs by downsizing domestic manufacturing and shifting production to China. It also cut its employee count by 70, from 500. Operating losses narrowed, breaking even in FY03/14.
In the automotive precision components business, Nisshinbo manufactures and supplies aluminum housing and other products mainly to Germany’s Continental Automotive Corp.
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.
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 of the shares of Nanbu Plastics and converted the company to a subsidiary.
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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. By expanding into the automotive field, which is expected to see growt h in demand, Nisshinbo hopes to make the plastic products business a growth driver for the Precision Instruments segment.
Chemicals (1.9% of sales; 14.1% of operating profit in FY03/17)
Chemicals segment performance
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 6,308 7,283 8,258 8,150 8,810 8,138 8,285 9,482 YoY - 15.5% 13.4% -1.3% 8.1% - 1.8% 14.4% Insulation materials - - - - 3,966 3,771 3,765 4,982 Fuel cells - - - 828 1,016 1,139 1,166 1,040 Functional chemicals (Carbodilite) - - - 1,520 1,702 1,716 1,834 2,248 Electric double-layer capacitors - - - 281 301 440 - - Operating profit -512 257 373 132 105 396 753 1,309 YoY - - 45.1% -64.6% -20.5% - 90.2% 73.8% Insulation Materials and Others - - - - 665 478 507 689 Insulation materials - - - -264 -290 -201 -107 -169 Functional chemicals (Carbodilite) - - - 181 126 180 236 578 Electric double-layer capacitors - - - -678 -621 -129 - - Segment assets 7,322 7,842 8,640 7,965 8,214 7,454 7,798 8,430 Segment ROA (operating profit basis) -7.0% 3.4% 4.5% 1.6% 1.3% 5.1% 9.9% 16.1% Employees 319 325 321 334 335 327 280 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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 52.5%, 11.0% and 23.7% of segment sales respectively in FY03/17.
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 The unit recorded sales of about JPY1.0bn (-10.8% YoY) and an operating loss of JPY169mn (operating loss of JPY107mn in FY03/16) in FY03/17. 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 May 2017, Nisshinbo’s bipolar plates 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.
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 bioplastic and as a cross-linking agent in water-soluble resins for paint.
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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FY03/17 sales were JPY2.2bn (+22.6% YoY) and operating profit was JPY578mn (+144.9% YoY). The company aims for JPY10bn in sales in 2020.
Textiles (11.1% of sales; 19.1% of operating profit in FY03/17)
Textiles segment performance
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 53,221 57,400 60,963 50,773 51,348 48,165 60,127 55,842 YoY -21.3% 7.9% 6.2% -16.7% 1.1% - - -7.1% Domestic 59,296 58,097 60,211 49,896 47,844 42,217 52,667 50,206 Nisshinbo Textile 25,619 26,934 28,163 22,293 22,360 22,552 23,410 20,935 CHOYA 8,370 7,019 7,114 6,394 6,067 2,822 - - Other domestic subsidiaries 25,307 24,684 24,934 21,209 19,417 16,843 29,271 20,935 Overseas 12,116 15,184 18,387 15,763 19,601 21,676 21,046 20,222 Brazil 4,939 4,647 3,929 4,600 4,870 3,886 4,488 Indonesia 7,509 10,888 9,500 12,016 14,038 14,701 13,609 China 2,736 2,852 2,334 2,985 2,768 2,459 2,125 Eliminations -14,657 -15,881 -17,635 -14,886 -16,097 -16,532 -16,210 -14,586 Operating profit -2,219 183 840 574 552 -357 1,778 1,777 YoY - - 359.0% -31.7% -3.8% - - -0.1% Domestic -2,516 -800 847 287 -41 -1,086 1,672 1,790 Nisshinbo Textile -2,011 -687 438 -11 237 -40 291 469 CHOYA -908 -611 30 -83 -489 -1,074 - - Other domestic subsidiaries 403 498 379 381 211 28 1,381 1,321 Overseas 302 822 76 126 689 606 423 351 Brazil 821 -578 284 371 299 105 132 Indonesia -23 610 -175 291 308 328 213 China 24 44 17 27 -1 -10 6 Eliminations 84 161 -83 161 -96 5 -317 -364 Segment assets 47,604 49,323 47,657 44,702 47,837 50,082 61,947 56,660 Segment ROA (operating profit basis) -4.3% 0.4% 1.7% 1.2% 1.2% -0.7% 3.2% 3.0% Employees 3,656 3,634 3,411 3,813 3,649 2,870 3,425 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Overview Nisshinbo has sold textiles since its founding. In FY03/17, this segment accounted for about 10% of total sales and about 20% of total operating profit.
In Japan, the company mostly sells—through subsidiaries or a trading house—products supplied by its Indonesian subsidiary. Products include shirt fabric (8.5% of segment sales in FY03/14) and uniform fabric (9.5% of segment sales in FY03/14). Main clients are manufacturers of shirts and uniforms, including subsidiaries. In Indonesia, Brazil, and China, subsidiaries produce products for the company’s Japanese operations, and sell textile products overseas.
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 FY03/11, the company once again restructured under its three-year plan, Challenge 2012. It consolidated two spinning factories into one, downsized its processing plants, and cut headcount by 150. Overseas, the company added to its
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spinning, dyeing, and shirt sewing capacity in Indonesia, Brazil, China, and India. As of May 2017, its main factory is at an Indonesian subsidiary.
Nisshinbo sold CHOYA Co., Ltd., which produces and sells shirts, in February 2015, and converted Tokyo Shirts Co., Ltd., which sells shirts at 190 direct stores in Japan (end of February 2017), to a subsidiary in May 2015. As a result, in FY03/16 the company improved YoY operating profit at the Textile segment.
Real Estate (1.6% of sales; 62.5% of OP in FY03/17)
Real Estate segment performance
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Sales 6,297 12,436 9,081 15,366 10,567 9,246 8,357 8,083 YoY -2.1% 97.5% -27.0% 69.2% -31.2% -12.5% -9.6% -3.3% Operating profit 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 YoY 79.1% 70.3% -33.8% 82.3% -36.7% -14.3% -13.1% 0.3% 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 about JPY3.5bn per year. Real estate held for leasing purposes amounted to JPY55.6bn in unrealized gains as of the end of FY03/16 (see Balance sheet section).
Sales The company sells individual properties. Much of the land is regional, often former factory sites. The company has alliances with Mitsubishi Estate Co., Ltd. (TSE1: 8802) and Toyota Housing Corporation (a Toyota Motor Corporation subsidiary). Its plots are the sites of former spinning factories, so 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.
Earnings depend on the size and timing of land sales. Major developments contributing to earnings include lots for residential properties on the former Hamamatsu factory site in FY03/11, the land of the former Harisaki factory site in the same year, and residential properties on the former Nagoya factory site in FY03/13.
According to the company, recording of profits in this segment varies depending upon when the sale of property is recorded. On an annual basis, operating profit is generally between JPY4.0bn and JPY5.0bn, comprised of JPY3.0bn from rental properties and JPY1.0-2.0bn from sale of individual properties. Although the sale of property will cause profits to shrink in property sales over the long term, redevelopment of the Miai Office (Okazaki City, Aichi Prefecture) will begin to contribute from FY03/20 onward, 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 moving from a ‘stock’ to a ‘flow’ model (i.e., focusing ◤ on recurring sales over subscription-type streams of revenue), 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 March 31, 2017, unrealized gains included JPY55.5bn on rental properties, as well as gains on ◤ land for redevelopment and investment securities. These unrealized gains may cover costs related to improving returns on capital through acquisitions, exiting unprofitable businesses, further structural reform, and rebuilding its 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 six 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 return on assets: in FY03/17, Nisshinbo’s ROE was lower than the average of TSE1-listed companies, at ◤ 1.5% (4.4% in FY03/16) against 8.6% (statistics for earnings results posted by TSE-listed firms for FY03/17; ROE in FY03/16 was 7.6%). This was partly because the Electronics segment booked an operating loss. Plus, in the Automobile Brakes segment, the company amortized goodwill of JPY5.9bn for TMD in FY03/17. The company intends to improve earnings at the Electronics segment, and decided to convert JRC (mainstay subsidiary of the Electronics segment) to a wholly owned subsidiary in June 2017. Further, the amortization of goodwill at the Automobile Brake segment ended in FY03/17.
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Historical performance 1H FY03/18 results Overview The following are the results of a reassessment of the company business portfolio and the achievements of major initiatives in new businesses (refer to News & Topics for details).
In April 2017, the company completed a sale of its paper product business and booked JPY11.8bn in gains from the sale of shares of an affiliate in Q1 FY03/18.
In June 2017, the company sold a real estate asset for leasing (Apita Nagoya Minami) and booked JPY5.2bn in gains from the sale ▷ of a fixed asset in Q1. In August 2017, the company announced a sale of its drum brake business (to be completed in February 2018). Of the ▷ automotive brake business run by the subsidiary Nisshinbo Brake Co., Ltd., the company decided to sell the drum brake business (JPY14.9bn in sales in FY03/16; JPY484mn in operating profit, JPY12.1bn in assets) to the AISIN SEIKI Group. The company compared the book value of fixed assets held by the business to be transferred with the recoverable value from the sale of shares and subsequently booked an impairment loss of JPY3.1bn in Q2. 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. In December 2017, Ballard Power Systems (NASDAQ: BLDT) will begin sales of a fuel cell stack (generating high voltage by layering sheets of base materials called cells) which utilizes this technology. In October 2017, the company made consolidated subsidiary Japan Radio Co., Ltd. into a wholly-owned subsidiary through a ▷ stock swap. In October 2017, the company announced that it was making RICOH Electronic Devices Co., Ltd. a subsidiary (to be completed ▷ March 2018). FY03/17 sales of RICOH Electronic Devices were JPY23.1bn, while operating profit was JPY451mn and net assets were JPY9.2bn.
1H FY03/18 results Sales declined 5.5% YoY to JPY232.8bn (-4.7 YoY), following the exit of the Papers business. ％
The company booked an operating profit of JPY431mn (an operating loss of JPY2.3bn during the same period the previous year) thanks to improved profit in the Electronics segment amid lower losses from Japan Radio and higher profits from New Japan Radio, and to higher profits in the Automobile Brakes business as the company completed the amortization of goodwill accompanying the purchase of TMD at the end of FY03/17.
Recurring profit was JPY3.0bn (+429.7% YoY) as operating profit increased. Net income attributable to parent company shareholders was JPY15.5bn (up from a quarterly net income of JPY834mn during the same period the previous year). Extraordinary gains came to JPY18.6bn (up from JPY3.1bn YoY) as the company booked gains on the sale of shares in affiliated companies due to the sale of the Papers business as well as an increase in gains on fixed asset sales. Extraordinary losses were JPY3.5bn (down from losses of JPY3.9bn YoY) as the company booked an impairment loss of JPY3.1bn after comparing the book value of fixed assets held by the corresponding business subsequent to the divestment of the mainstay Automobile Brakes business and the recoverable amount through share transfer.
Electronics Sales: JPY77.1bn (+1.4 YoY) ％ Segment loss: JPY4.5bn (loss of JPY5.6bn during the same period the previous year)
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Operating profit of consolidated subsidiary Japan Radio Co., Ltd. (JRC) improved.
JRC performance JRC reported sales of JPY52.1bn (-0.5% YoY) and operating loss of JPY5.5bn (operating loss of JPY6.6bn in the same period the previous year). The communications products business and the solutions and specialized equipment business recorded both higher sales and profits.
In the marine systems business, sales were JPY15.8bn (-2.6% YoY) and segment loss was JPY1.6bn (segment loss of JPY1.5bn in ▷ 1H FY03/17) as sales of equipment for new merchant ships shrank. In this business, products for large ships were central to segment sales in the past. However, the company is currently striving to expand its product lineup for small/medium-sized ships, which experience less fluctuation in demand. Orders for marine electronics were JPY15.6bn (+8.5% YoY). In the communications products business, sales were JPY7.7bn (+18.8% YoY) and segment profit was JPY495mn (JPY104 ▷ segment loss in 1H FY03/17). Sales for the car ITS (intelligent transportation systems) equipment rose, shrinking losses. Orders in communications products were JPY4.9bn (+12.2% YoY). In the solutions and specialized equipment business, sales were JPY17.0bn (+3.4% YoY) and segment loss was JPY4.2bn (segment ▷ loss of JPY5.0bn in 1H FY03/17). Sales of simulator systems to automobile manufacturers increased. In this business, the company
aims to improve orders by strengthening its sales structure. Solutions and specialized equipment orders were JPY18.4bn (+8.9% YoY).
New JRC performance New JRC reported sales of JPY25.3bn (+5.0% YoY) and operating profit of JPY889mn (+37.8 YoY). Among mainstay electronic ％ device products, sales rose on brisk sales of semiconductors for automotive and industrial equipment, which offset the negative impact of the slowdown in the smartphone market in China as well as the increase in upfront spending for launching new electronic device products. Sales and profits increased as a result.
In October 2017, JRC became a wholly owned subsidiary of the company.
Automobile Brakes Sales: JPY76.2bn (+2.2% YoY) Segment profit: JPY2.5bn (loss of JPY499mn in the same period the previous year)
Amortization of goodwill from the purchase of TMD was completed at end-FY03/17. As a result, amortization of goodwill was JPY0 for 1H FY03/18 (JPY3.1bn in amortization of goodwill for 1H FY03/17).
In Japan, Nisshinbo Brake recorded sales of JPY12.3bn (+0.4% YoY) and operating profit of JPY469mn (-12.3%). Sales of small, ▷ low-displacement cars bounced back from the previous year’s decline that resulted from fuel economy test falsification problems, and new car sales were buoyant overall. The company’s Japanese business posted increased sales accompanying the rise in domestic new car sales; however, changes in the product mix led to lower profits. Overseas, the NISB Group recorded sales of JPY21.2bn (+4.1%) and operating profit of JPY2.1bn (-13.8%). Profits fell due to ▷ upfront expenses for R&D and capital spending to respond to the need to mass produce cars that use friction materials that conform to copper regulations. The company expects that friction materials that conform to copper regulations will contribute to sales from FY03/19. The company’s US subsidiaries booked lower sales and profits as the North American car market peaked and the percentage of passenger vehicles, where the company shines, fell. The company’s Thai subsidiaries saw growth in sales and
profits from launching new products, in addition to strong car sales. Sales and profits fell at the Korean subsidiaries due to poor sales and higher materials costs while the Chinese subsidiaries saw higher sales and profits.
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TMD recorded sales of JPY45.6bn (+2.1%) and operating profit of 84mn (operating loss of JPY87mn in 1H FY03/17). Operating ▷ profit before application of Japanese GAAP was JPY625mn (+5.4% YoY). Sales rose and losses shrank for TMD on increased sales of products for the aftermarket. The company completed amortization of goodwill arising from the TMD purchase at the end of FY03/17.
Precision Instruments Sales: JPY31.4bn (+4.9 YoY) ％ Segment profit: JPY414mn (-4.8% YoY)
In automotive precision parts, sales were JPY7.0bn (+1.7% YoY) and operating profit was JPY360mn (+83.7%). Sales and profits of ▷ automotive precision parts were up due to buoyant orders as its Chinese subsidiaries expanded business. In the plastic molding and processing business, sales were JPY25.2bn (+1.8% YoY) and operating profit was JPY441mn (-37.7%). ▷ Sales rose at the plastic molding and processing business on increased orders at the Chinese subsidiaries. However, profits fell on increased outsourced processing costs at the consolidated subsidiary Nanbu Plastics as the company had to rely on outsourcing to handle the orders which exceeded production capacity. By increasing production capacity, the company plans to construct a structure capable of handling all production by March 2019.
Chemicals Sales: JPY4.8bn (+19.3% YoY) Segment profit: JPY746mn (+28.4% YoY)
In insulation materials, sales were JPY2.5bn (+29.4% YoY) and operating profit was JPY355mn (+1.1%). Sales rose for insulation ▷ materials, but profit rose only slightly due to higher raw materials costs and a change in the product mix. In functional chemicals, sales were JPY1.2bn (+14.0% YoY) and operating profit was JPY287mn (+18.1%). Sales and profits rose ▷ for functional chemicals on higher sales of water soluble cross-linking agents. In bipolar plates for fuel cells, sales were JPY505mn (-1.6% YoY) and operating loss was JPY30mn (JPY77mn operating loss in 1H ▷ FY03/17). Sales of bipolar plates for fuel cells decreased due to a decline in sales of household fuel cells; however, cost reduction measures led to smaller losses.
Textiles Sales: JPY27.4bn (+1.4 % YoY) ％ Segment profit: JPY957mn (+11.7 % YoY) ％ In the domestic market, sales were JPY23.4bn (-8.2% YoY) and operating profit was JPY657mn (-27.4%). Sales of fabric for ▷ APOLLOCOT shirts and workers’ uniforms were solid, and sales of elastomers and spandex increased. However, sales of fabric for export shirts and denim were sluggish, and sales of summer goods and women’s shirts at Tokyo Shirts were poor. Overseas, sales were JPY10.5bn (+3.2% YoY) and operating profit was JPY374mn (+128.0%). The key Indonesian subsidiary saw ▷ sales and profits fall because of a decline in sales of fabric for the Japanese market. However, the Brazilian subsidiary posted an increase in sales and profits because of a decline in domestic distribution inventory.
Real Estate Sales: JPY3.7bn (-9.1% YoY) Segment profit: JPY2.7bn (-8.6% YoY)
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The residential property lot business saw lower sales and profits as it had completed selling its Nagoya office site (Aichi ▷ Prefecture) at the end of FY03/17. The leasing business booked lower sales and profits under the impact of having sold large commercial facilities.
Q1 FY03/18 results
In Q1 FY03/18, sales declined 5.5% YoY to JPY113.2bn, following the exit of the Papers business. Sales at the Papers business the same period previous year were JPY7.6bn.
Operating profit increased in the Automobile Brakes business as the company completed the amortization of goodwill accompanying the purchase of TMD at the end of FY03/17. However, profit declined in the Electronics segment amid widening losses from Japan Radio, and there was an impact from the divestment of the Papers business (segment profit of JPY434mn at the Papers business in Q1 FY03/17), so there was an operating loss of JPY708mn (operating loss of JPY668mn in Q1 FY03/17).
Recurring profit was JPY1.3bn (+34.6% YoY) as currency translation losses shrank, despite the wider operating loss. Net income attributable to parent company shareholders was JPY16.5bn (+852.9%); the company booked gains of JPY11.7bn on the sale of shares in affiliated companies due to the divestment of the Papers business as well as an increase in gains on fixed asset sales.
Electronics Sales: JPY35.8bn (+1.0% YoY) Segment loss: JPY3.2bn (loss of JPY1.9bn in Q1 FY03/17)
Japan Radio’s lower profit was the main factor for the loss in this segment.
Japan Radio’s earnings Japan Radio Company (JRC) reported sales of JPY23.8bn (-0.7% YoY) and operating loss of JPY3.5bn (operating profit of JPY2.6bn in Q1 FY03/17). The main cause was lower sales and profits at the marine systems business.
At the marine systems business, the company posted sales of JPY7.3bn (-16.9% YoY) and segment loss of JPY1.1bn (segment loss ▷ of JPY136mn in Q1 FY03/17). Sales of equipment for merchant shipbuilding shrank amid a slump in the shipbuilding industry. At the solutions and specialized equipment business, the company posted sales of JPY7.1bn (+7.9%) and segment loss of ▷ JPY2.4bn (segment loss of JPY2.1bn in Q1 FY03/17). Sales of water and river management systems rose on higher demand from infrastructure projects, but losses expanded due to a change in the product mix, so profit fell.
New JRC’s earnings New JRC reported sales of JPY12.1bn (+3.9% YoY) and operating profit of JPY162mn (-56.9%). Among mainstay electronic device products, sales rose on brisk sales for automotive and industrial equipment, but profit fell due to the higher up-front cost of launching new electronic device products.
Automobile Brakes Sales: JPY37.6bn (+0.2% YoY) Segment profit: JPY1.1bn (loss of JPY583mn in Q1 FY03/17)
As amortization of goodwill arising from the acquisition of TMD was completed at year-end FY03/17, cost of amortization of goodwill in Q1 was JPY0mn (amortization cost of JPY1.6bn in Q1 FY03/17).
In Japan, Nisshinbo Brake posted sales of JPY6.2bn (+3.7% YoY) and operating profit of JPY312mn (+96.2%). Sales of small, ▷ low-displacement cars bounced back from the previous year’s decline that resulted from fuel economy test falsification problems,
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and new car sales were buoyant overall. The company saw increased sales accompanying the rise in domestic new car sales and also higher profits owing to efforts to reduce cost. Overseas, the NISB group posted sales of JPY11.5bn (+9.4% YoY) and operating profit of JPY950mn (-29.6%). This is attributable ▷ to lower sales and profits at the company’s US subsidiaries. The US subsidiaries booked lower sales and profits as the North American car market peaked. The company’s Thai subsidiaries saw growth in sales and profits from launching new products, in addition to strong car sales. Profits fell at the Chinese and Korean subsidiaries due to changes in the product mix. TMD posted sales of JPY22.2bn (-0.9% YoY) and operating loss of JPY142mn (operating loss of JPY448mn in Q1 FY03/17), which ▷ translates to an operating profit of JPY62mn (operating loss of JPY87mn in Q1 FY03/17) before adjustment based on Japanese GAAP. In local currency terms, sales rose on increased sales of products for the aftermarket. Losses shrank owing to higher sales and cost reduction. As stated above, the company completed amortization of goodwill arising from the TMD purchase at the end of FY03/17.
Precision Instruments Sales: JPY15.9bn (+4.4% YoY) Segment profit: JPY345mn (+84.5% YoY)
Sales and profits of automotive precision parts were up due to buoyant orders. ▷ Sales rose at the plastic molding and processing business on increased sales for Nanbu Plastics. However, profits fell on lower ▷ orders for consumer electronics-related products and increased outsourced processing costs.
Chemicals Sales: JPY2.3bn (+11.8% YoY) Segment profit: JPY267mn (-12.2% YoY)
Sales rose for insulation materials, but profit declined due to higher raw materials costs and a change in the product mix. ▷ Sales and profits rose for functional chemicals on higher sales of water soluble cross-linking agents. ▷ Sales of bipolar plates for fuel cells decreased due to a decline in sales of household fuel cells, which widened loss. ▷
Textiles Sales: JPY13.5bn (-2.1% YoY) Segment profit: JPY626mn (+10.4% YoY)
In the domestic market, sales and profit declined. Sales of fabric for APOLLOCOT shirts and workers’ uniforms were solid, and ▷ sales of elastomers and spandex increased. However, sales of fabric for export shirts and denim were sluggish, and sales of summer goods at Tokyo Shirts were poor. Overseas, the key Indonesian subsidiary saw sales and profits fall because of a decline in sales of fabric for the Japanese market. ▷ However, the Brazilian subsidiary posted an increase in sales and profits because of a decline in domestic distribution inventory.
Real Estate Sales: JPY1.9bn (-0.8% YoY) Segment profit: JPY1.4bn (-3.4% YoY)
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Leasing land and buildings such as office buildings and commercial facilities performed well, but in the residential property lot business, there were fewer units sold than in the previous year.
FY03/17 results
In full-year FY03/17, sales declined 1.3% YoY to JPY527.3bn. In the Precision Instruments business, segment sales increased as the company moved Nanbu Plastics to consolidated books. In the Electronics business, segment sales declined since sales fell for Japan Radio operations due to a stagnant shipbuilding industry, deteriorating conditions in the shipping market, and the end of shipments for large public works projects. In the Automobile Brakes business, segment sales also declined due to currency translation losses caused by a strong yen.
The company posted an operating profit of JPY4.9bn (-61.2% YoY) and operating profit before goodwill amortization of JPY12.3bn (-38.0% YoY). In the Electronics business, the operating loss at JRC widened, and New JRC booked lower profits due to the strong yen. Recurring profit was JPY10.6bn (-38.0% YoY) due to the operating profit erosion even as earnings from equity-method affiliates rose. Net income attributable to parent company shareholders was JPY3.6bn (-66.8% YoY), affected by impairment losses amounting to JPY4.1bn and a JPY2.0bn provision for contingent loss associated with the antimonopoly act and JRC’s delivery of fire and rescue digital radio systems.
Electronics Sales: JPY190.9bn (-7.1% YoY) Segment loss: JPY3.2bn (profit of JPY8.3bn in FY03/16)
JRC’s performance JRC reported sales of JPY142.9bn (+14.2% YoY) and operating loss of JPY5.5bn (operating profit of JPY3.2bn in FY03/16). Sales of the marine electronics business were JPY32.6bn (-28.2% YoY) and the operating loss was JPY4.8bn (operating profit of JPY2.3bn in FY03/16). Sales decreased for building merchant ships due to a stagnant shipbuilding industry and for devices for retrofitting merchant ships as deteriorating conditions in the shipping market caused ship owners to cut back capex for merchant ships. Sales in the solutions and specialized equipment business were JPY67.4bn (+5.0% YoY) and the operating loss was JPY2.0bn (operating profit of JPY1.8bn in FY03/16). The company booked lower segment sales and profits due to a slowdown in shipments for large-scale projects in the disaster prevention business.
*Consolidated sales of JRC increased as JRC consolidated Nagano JRC and Ueda Japan Radio Co., Ltd. at the end of FY03/16.
New JRC’s performance New JRC reported sales of JPY48.9bn (+2.2% YoY) and operating profit of JPY1.8bn (-42.7% YoY). In the company’s core electronic device business, even though the yen appreciated, orders of vehicle equipment––mostly from domestic clients–– underpinned the YoY sales upside. The drop in operating profit was from the stronger yen, which countered profit benefits from starting new businesses such as the foundry business (which handles post-processing of SAW filters).
Automobile Brakes Sales: JPY146.1bn (-11.5% YoY) Segment loss: JPY7mn (loss of JPY886mn in FY03/16)
Operating profit before goodwill amortization, excluding the booking of JPY5.9bn of amortization of goodwill regarding the purchase of TMD Friction Group S.A., also came in at JPY5.9bn (+3.9% YoY).
In Japan, Nisshinbo Brake reported sales of JPY25.1bn (-0.8% YoY) and operating profit of JPY1.5bn (+30.1% YoY). Automobile ▷ sales declined YoY due to the impact of fuel economy test falsification problems and increased vehicle taxes for small,
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low-displacement cars, but a gradual recovery trend appeared, which resulted in a YoY increase of total new car sales. The company’s domestic business also saw sales decline due to lower new small car sales, but profits rose owing to changes in the product composition. Overseas, the NISB Group posted sales of JPY40.5bn (-11.4% YoY) and operating profit of JPY5.0bn (-11.8% YoY). The North ▷ American market remained robust. The company’s US subsidiaries booked higher sales and profits in local currencies. Thai subsidiaries saw growth in sales and profits on a local currency basis from launching new products, despite stagnating car sales. Chinese subsidiaries also posted higher sales and profits on a local currency basis because China has provided tax benefits to small-engine vehicles. However, the strong yen caused sales and profits to decline after currency translation. Korean subsidiaries saw sales and profits fall from stagnating exports, despite earnings benefits from solid domestic car sales. TMD posted sales of JPY86.4bn (-13.4% YoY), operating profit of JPY618mn (operating loss of JPY22mn in FY03/16) and ▷ operating profit (before application of Japanese GAAP) of JPY2.1bn (+19.9% YoY). While the automobile market in Europe remained strong, TMD saw sales decline because sales for aftermarket products declined and a strong yen caused currency translation to dent earnings denominated in yen. Nevertheless, cost control efforts jointly undertaken with Nisshinbo Brake were a success and resulted in narrower losses.
Precision Instruments Sales: JPY60.7bn (+105.5% YoY) Segment profit: JPY1.0bn (+229.6% YoY)
Sales and profits of automotive precision parts were up due to an increase in orders brought about by Chinese subsidiaries’ ▷ business expansion. Sales at the plastic molding and processing business rose because Nanbu Plastics Co., Ltd., which was acquired in October 2015, ▷ was added to consolidated results. However, profits fell due to increased cost for an Indian subsidiary’s factory relocation.
Chemicals Sales: JPY9.5bn (+14.4% YoY) Segment profit: JPY1.3bn (+73.8% YoY)
Sales and profits rose for insulation materials, thanks to increased sales related to LNG transportation. ▷ Sales and profits rose for functional chemicals because of a sales increase in powder modifiers, oiliness modifiers, and water ▷ soluble cross-linking agents. Sales of bipolar plates for fuel cells decreased due to a decline in sales of household fuel cells, which widened loss. ▷
Textiles Sales: JPY55.8bn (-7.1% YoY) Segment profit: JPY1.8bn (-0.1% YoY)
Domestically, even though sales were brisk for value-added textiles for highly functional APOLLOCOT shirts and spandex fiber, ▷ export sales of fabric for shirts were sluggish and so were sales of fabric for workers’ uniforms and those of summer goods at Tokyo Shirts Co., Ltd. As a result, this segment posted lower sales and profits. Overseas, the Indonesian subsidiary saw sales and profits fall because of a decline in sales of fabric for T shirts aimed at the US ▷ market. However, the Brazilian subsidiary posted an increase in sales and profits because of a decline in domestic distribution inventory.
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Papers Sales: JPY32.6bn (+0.2% YoY) Segment profit: JPY2.6bn (+250.8% YoY)
Sales of household paper products were flat, but profits rose due to steady sales prices and cheaper raw materials because of the strengthened yen. Regarding specialty paper products, sales for products with high profit margins continued to be robust because of strong sales of fine paper related and other products. A decline in fuel prices also contributed to the profit increase.
In April 2017, the company had its consolidated subsidiary Nisshinbo Paper Products take over the Papers business assets in the form of a company split and sold all outstanding shares in Nisshinbo Paper Products to Daio Paper for JPY25bn.
Real Estate Sales: JPY8.1bn (-3.3% YoY) Segment profit: JPY5.8bn (+0.3% YoY)
The residential property lot business saw lower sales due to completion of sale in lots of the former Harisaki factory site (Aichi Prefecture). Still, the segment posted a profit because of a decline in costs at the company’s leasing operations.
FY03/16 results
In FY03/16, sales were up 2.0% YoY at JPY534.0bn, owing to a sharp rise in revenues from Tokyo Shirts Group’s Textile business following the Group’s recent consolidation.
Operating profit came in at JPY12.6bn (-8.2% YoY), as profit from Electronics business declined, impacted by sluggishness in the Solution business and the Communication Product business at JRC, despite profit growth at the Textile business. Before goodwill amortization, operating profit stood at JPY19.8bn (-6.0% YoY). Recurring profit was JPY17.0bn (-17.5% YoY), partly owing to the reduction in operating profit, as well as forex translation differences and lower equity earnings from affiliates. Net income attributable to parent company shareholders was JPY10.8bn (-21.3% YoY).
On April 1, 2015 Nisshinbo Chemical, Inc. integrated its Elastomer business with Nisshinbo Textile Inc.’s Mobilon business. As such, the Elastomer business that was under Chemical Products will be booked under Textiles from Q1 03/16. Note: FY03/15 segment information is categorized using the new classification.
Electronics
Sales: JPY205.4bn (-1.8% YoY) ▷ Segment profit: JPY8.3bn (-34.5% YoY) ▷ Both sales and profits were down as JRC recorded lower sales and profits.
JRC reported sales of JPY125.2bn (-5.3% YoY) and operating profit of JPY3.2bn (-58.7% YoY). Marine Electronics sales saw favorable trends on stronger demand for shipbuilding and retrofitting, and consolidated subsidiary Alphatron Marine Beheer B.V. also performed well. However, the company saw order reductions and delayed deliveries for water and river management systems and road information systems in the Solutions and Specialized Equipment business, which saw overall sales of JPY64.1bn (-14.7% YoY) and segment profit of JPY1.8bn (-74.3% YoY). As a result, the company booked lower segment sales and profits.
New JRC reported sales of JPY47.8bn (+5.7% YoY) and operating profit of JPY3.1bn (+7.1% YoY). Higher sales and profits were driven by ongoing brisk sales of the company’s core electronic device business as well as microwave products.
JRC, Nagano JRC and Ueda Japan Radio Co., Ltd. (Ueda JRC) had been undergoing restructuring moves. In March 2016, JRC made Nagano IRC and Ueda JRC wholly owned subsidiaries. By bringing these companies under one operating structure and strengthen corporate governance, the company plans to grow, such as in the automotive field.
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Automobile Brakes
Sales: JPY165.0bn (+1.9% YoY) ▷ Segment loss: JPY886mn (year earlier loss of JPY2.1bn). ▷
Operating profit before goodwill amortization, excluding the booking of JPY6.6bn of amortization of goodwill regarding the purchase of TMD Friction Group S.A. (“TMD”), came in JPY5.7bn (+17.4% YoY). Although the domestic Automobile Brakes business at Nisshinbo recorded lower sales and profits, sales and profits at the same operations overseas posted gains, while profitability improved at TMD.
The domestic Automobile Brakes business at Nisshinbo saw sales and profit decline (sales of JPY25.3bn [-9.8% YoY] and ◤ operating profit of JPY1.1bn [-41.4% YoY]) on a slowdown in domestic automobile sales due to the impact of the tax increase for small, low-displacement cars since April 2015.
In the overseas Automobile Brakes business at Nisshinbo, sales were JPY45.7bn (-10.7% YoY) and operating profit was ◤ JPY5.7bn (+8.6% YoY). Sales and profits at Korean subsidiaries benefited from a more favorable product mix and lower raw material costs. Meanwhile, sales and profits at Chinese and Thai subsidiaries were also up following costs cuts.
TMD found support from a moderate recovery in the automobile sales in Europe, and this helped to narrow losses. Sales were ◤ JPY99.8bn (+1.2% YoY), and operating profit was JPY1.7bn (+70.3% YoY; prior to application of Japanese GAAP) or an operating loss of JPY2.9bn (operating loss of JPY3.4bn in the previous term; after application of Japanese GAAP). According to the company, a moderate recovery in the European automotive market caused sales to rise 6% on a local currency basis, and ongoing improvement measures across all global production bases conducted jointly by Nisshinbo Brakes and TMD that began in FY03/16 began to yield results.
Factors affected by TMD’s transition to Japanese GAAP include amortization of intangible assets, handling of R&D expenses, and handling of retirement benefit expenses.
Precision Instruments
Sales: JPY29.5bn (+3.2% YoY) ▷ Segment profit: JPY318mn (+20.9% YoY) ▷
Sales and profits at the Precision Instruments unit rose due to the start of volume production at a new Chinese subsidiary. ◤ At the company’s mainstay Plastic product unit, sales were up from new consolidation of an India-based subsidiary, but price ◤ competition drove down profits.
Chemicals
Sales: JPY8.3bn (+1.8% YoY) ▷ Segment profit: JPY753mn (+90.2% YoY) ▷
Profits rose for insulation materials, thanks to orders related to LNG transportation. ◤ Despite sales declines in domestic household and installed units, sales of fuel cell separators grew on the back of order receipt ◤ of newly developed products, and losses narrowed.
Sales and profits were up for the functional chemicals unit on higher sales for water soluble cross-linking agents as well as ◤ powder modifiers.
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Textiles
Sales: JPY57.5bn (+19.4% YoY) ▷ Segment profit: JPY1.9bn (after year earlier loss of JPY357mn) ▷
Domestically, sales of spandex, elastomers, and non-woven fabrics remained firm. Impact following the consolidation of the ◤ Tokyo Shirts Group also contributed to higher segment sales and profit.
Overseas, sales and profits at the Brazil subsidiary declined on a domestic economic downturn. ◤
Papers
Sales: JPY32.6bn (+4.2% YoY) ▷ Segment profit: JPY742mn (+74.6% YoY). ▷
Weak yen brought negative impact on the cost of raw materials such as pulp, but it was offset by household and specialty ◤ paper products which saw recovery in market demand and favorable pricing, resulting in increase in sales and profit.
Real Estate
Sales: JPY8.4bn (-9.6% YoY) ▷ Segment profit: JPY5.8bn (-13.1% YoY). ▷
The company is steadily selling lots for residential properties on the sites of former factories in Kawagoe (Saitama Prefecture) ◤ and Nagoya (Aichi Prefecture), but sales and profits fell as the company completed the sale of lots at the site of the former Notogawa factory (Shiga Prefecture).
FY03/15 results
In FY03/15, sales were up 5.9% YoY at JPY523.8bn, owing to growth in Electronics and Automobile Brakes.
Operating profit was JPY13.7bn (+4.3% YoY). Before goodwill amortization, operating profit stood at JPY21.1bn (+6.1% YoY). Profits grew in Electronics as Japan Radio Co., Ltd. saw better earnings for its marine electronics segment, and New Japan Radio Co., Ltd. (New JRC) reported robust sales of mainstay electronic devices, Nagano Japan Radio Co., Ltd. (Nagano JRC) also moved back into the black on better margins, and Papers continued performing well.
Recurring profit was JPY20.7bn (-6.9% YoY). Equity in earnings of affiliates and forex gains on loans receivable in foreign currencies both declined. Net income was JPY13.7bn (+52.0% YoY). Fixed asset sales other than Japan Radio were booked as extraordinary gains. Extraordinary losses booked in FY03/14 (cost associated with restructuring Japan Radio, losses on redemption of TMD Corporate bonds) were smaller. Tax burdens were smaller on the booking of deferred tax assets owing to improved profitability for the Electronics segment’s domestic subsidiaries and the Brake Products segment’s overseas subsidiaries.
Electronics
Sales: JPY209.1bn (+11.4% YoY) ▷ Segment profit: JPY12.7bn (+35.8% YoY). ▷
JRC reported sales of JPY132.3bn (+16.7% YoY) and operating profit of JPY7.7bn (+5.9% YoY). In the marine electronics segment, sales were JPY37.9bn (+57.3% YoY) and segment profit was JPY979mn (JPY1.4bn loss in FY03/14). Orders were brisk on the shipbuilding market recovery, sales grew, and segment profit returned to the black. In the communications products segment,
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sales were JPY17.2bn (+6.7% YoY) and segment profit was JPY28mn (-80% YoY). Sales increased on better sales of car ITS (intelligent transportation systems) equipment, but profits declined on rising costs. In the solutions and specialized equipment segment , sales were JPY75.2bn (+6.2% YoY) and segment profit was JPY6.9bn (-23.7% YoY). Sales of wireless firefighting systems to prefectures and local municipalities increased, but profit declined on product mix changes and increased costs.
New JRC reported sales of JPY45.2bn (+7.5% YoY) and operating profit of JPY2.9bn (+28.2% YoY). Sales and profits increased owing to robust sales of electronic devices, the impact of restructuring efforts, and other factors.
Nagano JRC reported sales of JPY32.2bn (+3.9% YoY) and operating profit of JPY217mn (operating loss of JPY1.8bn in FY03/14). Sales increased for the information and communications devices segment and the mechatronics segment. The company also moved back into the black as high value-added products accounted for a larger portion of the product mix and because it reported write-downs on inventories in FY03/14, making for a strong year-on-year comparison this year.
In December 2014, JRC sold about 29,000sqm of land and buildings in line with its gradual sale of the site of a former factory in Mitaka, Tokyo, as part of restructuring efforts.
Automobile Brakes
Sales: JPY161.9bn (+8.9% YoY) ▷ Segment loss: JPY2.1bn (JPY255mn wider than FY03/14). ▷
Prior to goodwill amortization of JPY6.9bn related to the purchase of TMD, operating profit stood at JPY4.8bn (+4.9% YoY). Since April 2014, domestic automobile sales fell 15.5% YoY owing to a difficult comparison with the previous year, 2014, when sales were boosted by a rush of demand to beat the consumption tax hike. Still, Nisshinbo reported higher sales and profits at its domestic business, as exports increased in line with growth overseas and on weak-yen benefits.
Overseas operations overall reported higher sales and profits. Indeed, while sales and profits were lower at Thai subsidiaries, they were up for subsidiaries in the US and South Korea, in part to boosts from a weaker yen, while its Chinese subsidiary returned to the black.
TMD reported lower sales of aftermarket products due to the mild winter, but overall results were robust, in line with rising automobile sales in Europe. However, goodwill amortization and such costs were inflated by the weaker yen.
Precision Instruments
Sales: JPY28.6bn (-0.2% YoY) ▷ Segment profit: JPY263mn (-75.5% YoY) ▷
Sales and profits declined for the systems business on fewer orders for dedicated equipment for various industries and for the PV power system installation business, as well as smaller profit margins on PV cell manufacturing equipment. Profits declined in the plastic molding and processing unit as bigger sales on increased shipments of products to China and ASEAN could not offset deteriorating margins and declining shipments of air-conditioner parts. Sales of precision components for automobiles grew on increased sales of products produced in China, but profits declined due to expense for launching a new subsidiary in China.
Chemicals
Sales: JPY8.9bn (+1.5% YoY) ▷ Segment profit: JPY514mn (+387.3% YoY) ▷
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Sales and profits fell for both insulation materials and carbon products. Sales were hit by fewer new housing starts and rising materials costs. Lower sales of parts for semiconductor and LC manufacturing equipment impacted the latter. Sales and profits were up from elastomer products, the result of robust tape and sealing tape sales.
Sales of bipolar plates for fuel cells increased and the loss narrowed, owing to increased sales of household and installed units. Sales and profits were up for the functional chemicals unit on better sales for water-based bridge agents.
Textiles
Sales: JPY47.4bn (-7.8% YoY) ▷ Segment loss: JPY475mn (segment profit of JPY552mn in FY03/14). ▷
Despite a pickup in demand for uniform materials (e.g., for schools and companies) in Japan, sales and profits were down overall on sluggish sales of dress shirt materials and denim materials for mid/up-scale blue jeans, in addition to sales declines on the selling off of businesses held by unit CHOYA Co., Ltd. The strong yen also hurt profits by driving up procurement prices at factories overseas and increasing expense for outside manufacturing. Inventory liquidation associated with the transferring of businesses from CHOYA resulted in an operating loss of JPY1.1bn (operating loss of JPY489mn in FY03/14).
Overseas, the company’s subsidiary in Indonesia reported rising sales, but profits were up only slightly as high-grade cotton prices stayed high. At the company’s subsidiary in Brazil, sales increased, but profits fell as product demand dipped alongside the weak market for raw cotton.
Papers
Sales: JPY31.3bn (-1.3% YoY) ▷ Segment profit: JPY425mn (+905.5% YoY). ▷
By volume, sales of household paper products fell year-on-year, partly owing to the rush to beat the consumption tax hike in FY03/14. The weaker yen also pushed up the cost of raw materials. Overall, sales declined, but profits increased on higher sales prices.
Specialty paper sales increased on brisk sales of high-grade fine paper for printing and synthetic paper. But profits fell owing to higher materials costs caused by the weak yen. Sales increased and profits improved for processed paper on solid sales of packaging paper and printer-related products, while profit margins continue to improve at Chinese subsidiaries.
Real estate
Sales: JPY9.2bn (-12.5% YoY) ▷ Segment profit: JPY6.7bn (-14.3% YoY). ▷
Nisshinbo reported robust results from leasing land and buildings such as offices and commercial facilities. The company sold lots for residential properties on the sites of former factories in Harisaki (Okazaki, Aichi Prefecture), Kawagoe (Saitama Prefecture), and Notogawa (Higashiomi, Shiga Prefecture). But sales and profits fell as the company completed the sale of lots at the site of the former Hamamatsu factory at the end of last year, FY03/14, spelling a difficult comparison.
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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 where it plans to grow earnings: automotive parts and devices, wireless communications and electronics, lifestyle and materials, and new energy and smart society. In addition to sales growth, the company intends to increase profitability, capital efficiency, and ROE.
Nisshinbo’s operating targets include sales of over JPY600bn and an ROE of over 9% by FY03/18. Longer-term goals include sales of JPY1tn and ROE of at least 12% by FY03/26. The company plans to achieve these targets via growth in existing businesses, creating new businesses, and acquisitions—each of which it expects to account for about a third of the JPY400bn increase in sales between FY03/18 and FY03/26.
Strategic business domains
The following chart shows the strategic product categories and segments. We think performance in the wireless communications and electronics category and automotive parts and devices category will boost earnings.
Business segments and strategic business domains
Source: Shared Research based on company data
Automotive parts and devices The key product here is friction materials (Automobile Brakes). Nisshinbo also aims to grow sales of Advanced Driving Assistant System (ADAS) * (Electronics), precision processed products (Precision Instruments), Carbodilite, and bipolar plates for fuel cells (Chemicals).
*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.
Depending on the application and client, Carbodilite may also fall under the lifestyle and materials category. Bipolar plates for fuel cells may be included in new energy and smart society. (See the Long-term outlook and Business sections.)
Automotive parts and devices segment overview
Segment Subsidiaries Products Details
Electronics JRC Advanced Driving Assistant GPS receivers, VICS beacon receivers, ITS New JRC System (ADAS) spot-compliant on-board units, automotive communications equipment, millimeter wave radar
Automobile Brakes Nisshinbo Brake Brake friction materials for Disc pads, brake lining
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TMD automobiles
Precision Instruments Nisshinbo Mechatronics Precision components Electronic braking systems (EBS), diesel engine common rail system components
Nisshinbo Chemical Carbodilite Modifiers for biodegradable plastic resins, Chemicals water-based bridge agents
Bipolar plates for fuel cells Developing automotive applications Source: Shared Research based on company data
Wireless communications and electronics Electronics is key to this strategically important category of products. The company intends to increase sales of navigation devices and other marine electronics, and disaster prevention systems and other solutions. (See Long-term outlook.)
Wireless communications and electronics overview
Segment Subsidiaries Products Details
Electronics JRC Communications devices, navigation devices, wireless New JRC communications technology JRC Dam management systems Disaster prevention information systems Weather observation systems New JRC Electronic devices Consumer market, auto market Source: Shared Research based on company data
Capital efficiency
Up until the 2000s, Nisshinbo prioritized management security and high equity ratio over return on assets and investing capital. In the 2000s, however, President Yoshikazu Sashida began emphasizing return on assets, shifting focus from recurring revenues (stock) to streams of revenue relating to products and services (flow).
While maintaining an equity ratio of 30–40%, Nisshinbo intends to increase return on assets by cutting inventories, making more efficient investments, and thoroughly implementing cash flow management. The company may also offload struggling businesses.
Assuming a long-term equity ratio of 40% and an effective tax rate of 30%, ROE stands at circa 1.8x ROA (operating profit basis). So it will need to hit an ROA of 6–7% or so to achieve its long-term 12%-plus ROE goal.
In FY03/17, ROA (operating profit basis) in the Automobile Brakes and Electronics segments—together accounting for about 60% of total assets (simple aggregate of segment assets, excluding companywide assets; the same applies afterward). While ROA in the Automobile Brakes segment was 5.5% (before amortization of goodwill), the company booked an operating loss in the Electronics segment. Long term, we think the company can improve capital efficiency through sales growth and streamlining. Plus, expenses related to the acquisition of TMD will stop being an issue.
The importance of earnings-improvement segments—Precision Instruments, Chemicals and Textiles —to ROA is declining. Together they accounted for less than 20% of total assets. On an operating profit basis, ROA was 1.5% in the Precision Instruments segment, 16.1% in the Chemicals segment, and 5.7% in the Textiles segment. In particular, Shared Research believes that Nisshinbo will work to improve Precision Instruments business to enhance capital efficiency.
Real Estate reached 8.7% of total assets in FY03/16. On an operating profit basis, ROA was a high 12.0%. But we project that segment ROA will fall to about 8% as profits from the sale of residential properties decline.
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ROA breakdown by segment (operating profit basis)
(JPYmn) FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Total segment assets 358,109 479,852 534,583 551,933 611,310 678,486 622,009 617,096 ROA (OP basis) 1.0% 4.7% 0.8% 2.5% 2.3% 2.1% 1.9% 0.8% Automobile Brakes Segment assets 49,087 40,636 128,417 139,591 167,264 177,473 160,017 151,264 % of total assets 13.7% 8.5% 24.0% 25.3% 27.4% 26.2% 25.7% 24.5% Segment profit 3,879 5,090 4,254 -4,301 -1,813 -2,068 -886 -7 Segment ROA (OP basis) 8.5% 11.3% 5.0% -3.2% -1.2% -1.2% -0.5% 0.0% Segment profit (before goodwill amort.) 3,879 5,090 4,403 2,949 7,378 8,230 8,589 8,599 Segment ROA (before goodwill amort.) 8.5% 11.3% 5.2% 2.2% 4.8% 4.8% 5.1% 5.5% Electronics Segment assets 56,368 222,475 188,514 197,358 208,527 233,337 218,040 215,958 % of total assets 15.7% 46.4% 35.3% 35.8% 34.1% 34.4% 35.1% 35.0% Segment profit -2,654 6,183 -4,111 7,788 9,351 12,703 8,318 -3,240 Segment ROA (OP basis) -4.5% 4.4% -2.0% 4.0% 4.6% 5.7% 3.7% -1.5% Precision Instruments Segment assets 21,788 23,956 24,088 26,091 29,857 36,648 72,294 72,135 % of total assets 6.1% 5.0% 4.5% 4.7% 4.9% 5.4% 11.6% 11.7% Segment profit -526 1,413 -1,069 -146 1,075 263 318 1,048 Segment ROA (OP basis) -1.9% 6.2% -4.5% -0.6% 3.8% 0.8% 0.6% 1.5% Chemicals Segment assets 7,322 7,842 8,640 7,965 8,214 7,454 7,798 8,430 % of total assets 2.0% 1.6% 1.6% 1.4% 1.3% 1.1% 1.3% 1.4% Segment profit -512 -294 373 132 105 396 753 1,309 Segment ROA (OP basis) -5.6% -3.9% 4.5% 1.6% 1.3% 5.1% 9.9% 16.1% Textiles Segment assets 47,604 49,323 47,657 44,702 47,837 50,082 60,788 1,777 % of total assets 13.3% 10.3% 8.9% 8.1% 7.8% 7.4% 9.8% 0.3% Segment profit -2,219 183 840 574 552 -357 1,778 1,777 Segment ROA (OP basis) -4.3% 0.4% 1.7% 1.2% 1.2% -0.7% 3.2% 5.7% Real Estate Segment assets 52,905 52,029 50,394 49,608 47,273 44,368 43,280 53,761 % of total 14.8% 10.8% 9.4% 9.0% 7.7% 6.5% 7.0% 8.7% Segment profit 5,983 10,190 6,742 12,289 7,780 6,669 5,795 5,811 Segment ROA (OP basis) 15.9% 19.4% 13.2% 24.6% 16.1% 14.6% 13.2% 12.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Income statement
Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 322,411 286,166 242,409 325,555 379,340 450,693 494,350 523,757 533,989 YoY 3.1% -11.2% -15.3% 34.3% 16.5% 18.8% 9.7% 5.9% 2.0% CoGS 266,025 243,857 201,625 262,067 317,533 359,463 395,083 415,608 419,401 Gross profit 56,386 42,309 40,783 63,487 61,806 91,229 99,266 108,149 114,587 GPM 17.5% 14.8% 16.8% 19.5% 16.3% 20.2% 20.1% 20.6% 21.5% SG&A expenses 44,352 41,901 37,214 43,645 57,635 77,836 86,091 94,405 101,970 SG&A ratio 13.8% 14.6% 15.4% 13.4% 15.2% 17.3% 17.4% 18.0% 19.1% Operating profit 12,033 407 3,569 19,842 4,170 13,393 13,175 13,744 12,617 YoY 4.2% -96.6% 776.9% 456.0% -79.0% 221.2% -1.6% 4.3% -8.2% OPM 3.7% 0.1% 1.5% 6.1% 1.1% 3.0% 2.7% 2.6% 2.4% Non-operating income 9,695 9,233 7,578 6,799 7,021 8,002 12,030 9,315 8,010 Non-operating expenses 2,812 2,491 1,598 1,373 2,511 3,709 3,034 2,409 3,593 Recurring profit 18,916 7,150 9,548 25,268 8,680 17,686 22,171 20,650 17,034 YoY 9.5% -62.2% 33.5% 164.6% -65.6% 103.8% 25.4% -6.9% -17.5% RPM 5.9% 2.5% 3.9% 7.8% 2.3% 3.9% 4.5% 3.9% 3.2% Extraordinary gains 6,579 4,502 1,637 4,659 2,436 2,966 1,691 7,186 7,772 Extraordinary losses 5,612 14,220 5,850 9,392 8,084 3,767 9,345 9,877 2,626 Tax charges 6,525 -1,136 7,279 7,092 -3,319 6,290 3,643 -2,846 7,839 Implied tax rate 32.8% 44.2% 136.4% 34.5% -109.5% 37.3% 25.1% -15.8% 35.3% Minority interests 1,069 -145 -3,840 2,258 -3,064 4,177 1,861 7,111 3,564 Ne t in c o me 12,289 -1,285 1,896 11,184 9,415 6,418 9,011 13,693 10,775 YoY -18.7% -110.5% -247.5% 489.9% -15.8% -31.8% 40.4% 52.0% -21.3% Net margin 3.8% -0.4% 0.8% 3.4% 2.5% 1.4% 1.8% 2.6% 2.0% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Non-operating revenue Dividends received Dividend yield is around 2–3%, calculated by dividing dividends received by total investment securities held (excluding shares in listed and non-listed affiliates).
Dividends received and dividend yield
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Dividends received 2,128 2,229 1,364 1,144 1,308 1,239 1,756 2,116 2,368 2,142 Investment securities 122,581 85,479 98,925 67,624 68,858 86,046 98,234 119,460 97,880 100,514 Shares in affiliates 32,079 34,455 38,493 9,767 12,208 14,088 16,215 16,846 17,698 17,698 Investment securities ex. shares in affiliates 90,502 51,024 60,432 57,857 56,650 71,958 82,019 102,614 80,182 82,816 Dividend yield 1.8% 3.1% 2.4% 1.9% 2.3% 1.9% 2.3% 2.3% 2.6% 2.6% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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)
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Equity in earnings of affiliates 5,203 4,436 3,886 3,348 3,502 3,075 4,899 3,280 2,873 4,405 Continental Automotive Sales - 73,238 52,449 73,055 66,270 67,647 79,070 94,686 95,636 86,776 Net income - 3,952 2,796 5,670 5,909 5,642 8,926 6,330 5,250 6,789 Nisshinbo stake 49.0% 49.0% 49.0% 49.0% 40.0% 40.0% 35.0% 35.0% 35.0% 35.0% Equity in earnings of Continental Automotive - 1,936 1,370 2,778 2,364 2,257 3,124 2,216 1,838 2,376 Continental Automotive Corporation (LYG) Sales ------38,713 Net income ------3,621 Nisshinbo stake ------40.0% 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 1.0–2.0%. 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.
Interest paid and interest on interest-bearing debt
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Interest expenses 1,255 1,139 815 832 1,099 2,240 1,578 1,024 1,007 969 Interest rate on interest-bearing debt 2.5% 2.0% 1.5% 1.5% 1.2% 2.3% 1.7% 1.0% 0.9% 0.8% Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Income taxes and minority interests Net income attributable to non-controlling interests Mainly the profits of listed subsidiaries JRC and New JRC attributable to minority shareholders.
Net income attributable to non-controlling interests
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Net income attrib. to non-controlling interests 1,069 -145 -3,840 2,258 -3,064 4,177 1,861 7,111 3,564 -1,741 JRC net income 3,376 1,483 2,322 1,921 1,844 9,245 2,310 14,342 1,661 1,559 Stake 34.1% 34.1% 34.1% 64.3% 64.3% 64.3% 64.3% 64.3% 61.8% 61.8% JRC net income attrib. to non-controlling interests Non-cons. Non-cons. Non-cons. 686 658 3,301 825 5,122 634 595 New JRC net income 434 -2,781 -10,011 494 -9,098 1,721 2,561 4,580 2,496 616 Stake 59.6% 59.6% 59.6% 59.6% 59.6% 59.7% 59.7% 59.6% 59.6% 59.6% New JRC net income attrib. to non-controlling interests 175 -1,122 -4,040 199 -3,672 694 1,033 1,848 1,007 249 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Minority interests in income 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 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Assets Cash and deposits 25,766 32,404 20,181 29,374 20,897 20,200 28,033 45,687 45,921 47,691 Notes and accounts receivable–trade 77,263 58,910 60,204 112,527 124,541 130,124 144,690 146,800 137,956 135,261 Inventories 51,146 47,636 41,026 73,096 80,647 78,996 88,237 92,893 95,192 99,768 Deferred tax assets 2,852 1,665 3,982 3,057 5,296 2,831 3,019 7,758 7,215 6,000 Other current assets 6,260 9,251 5,213 23,622 8,219 7,167 8,465 17,331 18,111 26,080 Total current assets 163,287 149,866 130,606 241,676 239,600 239,318 272,444 310,469 304,395 314,800 Buildings and structures 54,610 50,798 50,453 55,685 58,505 58,623 60,020 67,725 69,088 73,179 Machinery and vehicles 38,599 33,208 31,806 31,362 39,300 44,910 49,332 57,123 55,093 51,796 Land 26,986 28,062 27,643 56,194 54,972 51,791 52,226 45,653 47,679 39,215 Construction in process 2,562 2,541 1,549 2,247 3,417 2,389 4,192 4,490 7,345 9,129 Other fixed assets 4,437 3,569 3,274 4,451 6,630 7,839 8,476 9,894 12,563 12,165 Total tangible fixed assets 127,194 118,178 114,725 149,939 162,824 165,552 174,246 184,885 191,768 185,484 Investment securities 122,581 85,479 98,925 67,624 68,858 86,046 98,234 119,460 97,880 100,514 Deferred tax assets 1,742 3,999 4,595 5,236 5,394 5,883 8,831 9,525 12,161 9,744 Other 6,492 6,196 4,821 10,098 9,883 9,838 11,408 18,231 14,952 15,074 Investment and other fixed assets 130,815 95,674 108,341 82,958 84,135 101,767 118,473 147,216 124,993 125,332 Goodwill 438 328 616 1,224 25,341 23,002 23,378 16,013 14,607 8,077 Other 2,968 2,811 3,819 4,053 21,727 21,760 22,768 19,900 16,029 12,593 Total intangible assets 3,407 3,139 4,435 5,278 47,068 44,762 46,146 35,914 30,636 20,670 Total fixed assets 261,417 216,992 227,503 238,175 294,028 312,081 338,866 368,016 347,398 331,487 Total assets 424,705 366,858 358,109 479,852 534,583 551,933 611,310 678,486 651,793 646,288 Liabilities Accounts and notes payable 33,595 22,299 25,562 54,998 59,228 58,708 66,557 63,593 62,690 59,974 Short-term debt 41,451 60,069 24,339 25,493 26,928 28,736 48,653 71,280 55,397 48,977 Commercial paper 10,000 18,000 22,000 25,000 27,000 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 2,879 2,385 2,262 23,653 18,211 23,596 20,320 6,634 14,679 7,770 Other current liabilities 21,550 17,421 20,204 27,741 35,552 36,233 38,130 54,671 57,004 59,453 Total current liabilities 109,475 120,174 94,367 156,885 168,938 188,406 203,660 226,178 219,770 206,174 Bonds payable - - - - 14,094 - - - - Long-term debt 3,948 4,467 14,226 24,481 47,607 26,560 28,888 38,162 48,757 69,294 Deferred tax liabilities 20,033 4,747 15,914 26,835 26,971 34,409 41,321 43,971 34,274 30,741 Retirement benefit liabilities 28,118 25,155 20,717 41,479 43,009 40,854 43,062 42,494 47,085 49,180 Other fixed liabilities 17,224 18,616 19,247 18,614 20,213 19,080 17,514 20,743 17,435 15,145 Total fixed liabilities 69,323 52,985 70,104 111,409 151,894 120,903 130,785 145,370 147,551 164,360 Total liabilities 178,798 173,159 164,471 268,295 320,833 309,309 334,445 371,548 367,321 370,535 Net assets Capital stock 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,587 27,587 Capital surplus 20,400 20,400 20,400 20,400 20,400 20,400 20,403 20,401 17,598 17,587 Retained earnings 153,745 130,520 129,583 133,229 140,213 143,955 150,346 161,791 168,824 167,598 Treasury stock -10,904 -1,018 -6,052 -2,591 -3,522 -3,533 -3,552 -23,478 -23,156 -23,089 Accumulated other comprehensive income 34,354 2,346 11,471 3,753 1,053 20,964 44,445 72,608 42,833 39,751 Subscription rights to shares 58 107 155 202 246 282 264 221 168 162 Non-controlling interests 20,663 13,753 10,491 28,973 27,771 32,966 37,369 47,805 50,613 46,155 Total net assets 245,906 193,698 193,638 211,557 213,750 242,623 276,865 306,937 284,471 275,753 Working capital 94,814 84,247 75,668 130,625 145,960 150,412 166,370 176,100 170,458 175,055 Total interest-bearing debt 48,278 66,921 40,827 73,627 108,859 90,025 97,861 116,076 118,833 126,041 Net debt (net cash) 22,512 34,517 20,646 44,253 87,962 69,825 69,828 70,389 72,912 78,350 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 receivables, inventories, tangible fixed assets, and investment securities.
Notes and accounts receivable Notes and accounts receivable have trended upward as sales have increased, accounting for 20.9% of total assets in FY03/17. Accounts receivable turnover has fallen from FY03/11 with the consolidation of JRC. In FY03/17, accounts receivable at JRC totaled JPY63.3bn—about 50% of the group total—and turnover was 2.3. This is significantly less than its consolidated turnover.
Receivables turnover
FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Accounts receivable turnover 4.1 4.2 4.1 3.8 3.2 3.5 3.6 3.6 3.8 3.9 Accounts receivable days 89.2 86.8 89.7 96.8 114.1 103.1 101.5 101.6 97.3 94.6 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
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Inventory assets Inventory assets have also trended upward as sales have increased, accounting for 15.4% of total assets in FY03/17. Inventory turnover is stable at around 5.0, although it temporarily dropped in FY03/12 with the consolidation of TMD. Inventory turnover
FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Inventory turnover 5.1 4.9 4.5 4.6 4.1 4.5 4.7 4.6 4.5 4.3 Days in inventory 71.2 73.9 80.3 79.5 88.4 81.1 77.2 79.5 81.8 84.6 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 JPY185.5bn in FY03/17, including HQ (book value of JPY30.0bn in FY03/16) manufacturing facilities at subsidiaries and leased real estate (book value of JPY19.2bn).
Of the total tangible fixed assets, depreciable assets stood at JPY137.1bn, about half of which was buildings and structures, and about 40% 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 FY03/17, depreciation costs totaled JPY22.3bn.
In FY03/16, leased real estate had a balance sheet value of JPY22.0bn (rental real estate in FY03/16 amounted JPY19.2bn), against a market value of JPY77.5bn at the end of the year (market value of JPY74.9bn at the end of FY03/16)—spelling unrealized gains of JPY55.5bn (unrealized gains in FY03/16 were JPY55.6bn). This real estate includes rental shopping centers and office buildings (and the land) in Tokyo and elsewhere.
Goodwill In FY03/17, goodwill amortization totaled JPY8.3bn, with the total outstanding at the end of the year at JPY8.1bn. The Automobile Brake segment accounted for most of that, with goodwill amortization in this segment alone at JPY5.9bn in the same year, and an amount outstanding of JPY0bn. In the Precision Instruments segment, end FY03/16 goodwill amounted to JPY5.1bn, since Nanbu Plastics Co., Ltd. and its nine subsidiaries became subsidiaries of the company.
Goodwill increased in FY03/12 owing to the acquisition of TMD in November 2011, resulting in goodwill of JPY23.1bn (EUR229mn). This goodwill amortized over five years using the straight-line method, starting in FY03/13 and the amortization of goodwill ended in FY03/17. The company also incurred goodwill of JPY1.7bn in FY03/14, with the acquisition of 51% of the voting rights in Alphatron Marine Beheer B.V. by JRC. This goodwill amortizes over seven years using the straight-line method. The amortization of goodwill and the amount outstanding is also affected by changes in forex rates (EUR/JPY), as the new subsidiaries are overseas.
Investment securities In FY03/17, Nisshinbo reported investment securities of JPY100.5bn, of which JPY67.6bn—80 of these names—was held for reasons other than pure investment. Trading securities, held-to-maturity investments, securities other than shares of related companies were JPY80.5bn (JPY78.1bn for those with market cap, JPY2.4bn for unlisted companies, etc.) For example, the company holds shares in Toyota Motor Corp., Shikoku Chemicals Corporation, and Hino Motors to create and strengthen relationships.
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Notable share holdings (as of FY03/17)
Stock Name FY03/17 FY03/16 Shares Balance sheet value Shares Balance sheet value
(shares) (JPYmn) (shares) (JPYmn) Toyota Motor Corp. 5,249,841 31,719 5,400,841 32,145
Shikoku Chemicals Corp. 5,580,752 6,702 5,580,752 5,446
Hino Motors Ltd. 4,209,250 5,669 4,209,250 5,122
Teijin Ltd. 1,953,258 4,099 9,766,292 3,828
The Japan Wool Textile Co., Ltd. 2,763,000 2,428 2,763,000 2,099
Nisshin Seifun Group Inc. 977,680 1,749 977,680 1,749
Mizuho Financial Group, Inc. 6,576,870 1,341 6,576,870 1,105
Aoyama Trading Co., Ltd. 344,000 1,487 344,000 1,487
Mitsubishi UFJ Financial Group, Inc. 1,809,150 1,265 2,259,150 1,178
Tokushu Tokai Paper Co., Ltd. 260,000 1,082 2,600,000 946
Source: Shared Research based on company data
Liabilities Notes and accounts payable Notes and accounts payable made up 16.2% of total liabilities in FY03/17. Accounts payable turnover dropped in FY03/11 with the consolidation of JRC. In FY03/17, accounts payable at JRC totaled JPY26.8bn—about 50% of all group notes and accounts receivable. Turnover was 5.2. This is significantly less than consolidated turnover.
Accounts payable turnover
FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Accounts payable turnover 7.6 8.7 8.4 6.5 5.6 6.1 6.3 6.4 6.6 6.9 Accounts payable days 48.3 41.8 43.3 56.1 65.7 59.9 57.9 57.2 55.0 53.2 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Although it rose in FY03/12 with TMD’s consolidation, the cash conversion cycle is stable at about 120 days.
Cash conversion cycle
FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Accounts receivable days 89.2 86.8 89.7 96.8 114.1 103.1 101.5 101.6 97.3 94.6 Days in inventory 71.2 73.9 80.3 79.5 88.4 81.1 77.2 79.5 81.8 84.6 Accounts payable days 48.3 41.8 43.3 56.1 65.7 59.9 57.9 57.2 55.0 53.2 Cash conversion cycle (days) 112.2 118.9 126.6 120.2 136.8 124.3 120.8 124.0 124.2 125.9 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
Interest-bearing debt In FY03/17, interest-bearing debt totaled JPY126.0bn. Subtracting interest-bearing debt from cash and deposits leaves net debt of JPY78.4bn.
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.
FY03/17 net debt to EBITDA: 2.2x. We understand the company can repay its debt, as it has investment securities of JPY100.5bn and unrealized gains on real estate for leasing.
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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. In FY03/11, retained earnings decreased by JPY5.4bn as the company cancelled treasury stock. Reserves declined in FY03/16 due to the transfer of shares in subsidiaries.
Total other comprehensive income In FY03/17, total other comprehensive income stood at JPY39.8bn. This mainly comprised other valuation differences on investment securities of JPY37.3bn (unrealized gains) and foreign currency translation adjustment of JPY7.7bn, from the translation into yen of the balance sheets of overseas subsidiaries.
Non-controlling interests Mainly non-controlling interests in listed subsidiaries such as JRC and New JRC.
Non-controlling interests
(JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Non-controlling interests 20,663 13,753 10,491 28,973 27,771 32,966 37,369 47,805 50,613 46,155 JRC net assets 43,126 41,811 44,360 44,821 41,412 50,928 49,842 71,840 77,257 77,257 Stake 34.1% 34.1% 34.1% 64.3% 64.3% 64.3% 64.3% 64.3% 61.8% 61.8% JRC non-controlling interests Non-cons. Non-cons. Non-cons. 16,006 14,788 18,186 17,799 25,654 29,504 29,504 New JRC net assets 25,522 21,316 11,324 11,580 2,408 4,521 7,455 10,708 10,666 10,666 Stake 59.6% 59.6% 59.6% 59.6% 59.6% 59.7% 59.7% 59.6% 59.6% 59.6% New JRC non-controlling interests 10,301 8,603 4,570 4,674 972 1,824 3,008 4,322 4,305 4,305 Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods. Note: Non-controlling interests in income for JRC and New JRC are each calculated by multiplying net assets X (1 – the company’s interest).
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Cash flow statement
Cash flow statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from operating activities (1) 24,778 11,938 27,537 16,529 12,973 34,095 26,075 37,120 39,566 26,768 Cash flows from investing activities (2) -19,147 -14,393 -9,949 11,591 -57,860 -10,973 -19,862 -21,271 -22,793 -31,429 Free cash flow (1+2) 5,631 -2,455 17,588 28,120 -44,887 23,122 6,213 15,849 16,773 -4,661 Cash flows from financing activities -8,828 11,939 -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 Depreciation and amortization (A) 20,101 19,304 12,719 13,024 14,589 23,893 28,070 30,434 29,759 30,526 Capital expenditures (B) -21,330 -17,669 -13,250 -10,391 -14,580 -19,488 -18,902 -32,508 -24,727 -29,218 Working capital changes (C) -1,484 -10,567 -8,579 54,957 15,335 4,452 15,958 9,730 -5,642 4,597 Simple FCF (NI + A + B - C) 12,544 10,917 9,944 -41,140 -5,911 6,371 2,221 1,889 21,449 285 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, D&A and goodwill amortization, and working capital. Operating cash flow has been rising from FY03/13 onward, as the consolidation of TMD meant depreciation in the Automobile Brake segment and the amortization of goodwill increased, driving D&A and goodwill amortization to over JPY20bn.
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 FY03/11 and FY03/12. In FY03/11, Nisshinbo acquired additional shares in JRC, turning this company from an equity-method affiliate to a consolidated subsidiary. As a result, the company received an inflow of JPY12.5bn from the acquisition of this subsidiary’s shares, resulting in an investment cash flow of JPY11.6bn. 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).
Cash flows from financing activities Significantly affected by acquisitions and changes in interest-bearing debt.
Changes in interest-bearing debt and dividends paid
Cash flows from financing activities FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cash flows from financing activities -8,828 11,939 -30,347 703 16,835 -24,072 -2,321 -6,238 -9,044 3,595 Change in interest-bearing debt (A) -4,787 18,643 -26,094 32,800 35,232 -18,834 7,836 18,215 2,757 7,208 Dividends paid (B) -3,479 -2,812 -2,755 -2,671 -2,629 -2,620 -2,619 -2,619 -3,568 -3,568 Total (A + B) -8,266 15,831 -28,849 30,129 32,603 -21,454 5,217 15,596 -811 3,640 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, periods with significant changes in interest-bearing debt and dividends paid were FY03/11, FY03/12, and FY03/15.
Interest-bearing debt rose in FY03/11 with the consolidation of JRC. Still, the company booked a positive financial cash flow (inflow) of JPY703mn overall, as overall change in cash flow from borrowing and the repayment of interest-bearing debt came to an inflow of JPY3.4bn. 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. Although there was in increase in interest-bearing debt in FY03/15, financial cash flow was JPY6.2bn due to an outflow for stock repurchases of JPY20.0bn.
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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 Brake 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 an 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: Electronics, Automobile Brakes become core businesses In 2010, Nisshinbo made JRC and Nagano JRC subsidiaries, meaning the Electronics segment accounted for almost 40% of group sales. In the Automobile Brake 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 June 2013, Masaya Kawata was appointed president. Nisshinbo will target sales of JPY600.0bn and ROE of over 9% for FY03/18, and sales of JPY1.0tn and ROE of over 12% for FY03/26.
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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)
Established Nisshinbo Textile Changzhou Co., Ltd. (China) 2010 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.
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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 convert JRC to a wholly owned subsidiary via a share exchange
News and topics October 2017 On October 30, 2017, the company announced the acquisition of shares (and conversion into a subsidiary) of Ricoh Electronic Devices Co., Ltd.
At a Board of Directors meeting held on October 30, 2017, the company resolved to acquire from Ricoh Company, Ltd. 160 shares of Ricoh’s subsidiary Ricoh Electronic Devices (80.0% ownership), converting the latter into a subsidiary. By acquiring a majority of the shares of Ricoh Electronic Devices, which mainly supplies analog power management integrated circuits (“PMICs”), and converting it into a subsidiary, Nisshinbo Holdings will strengthen its business foundation in the semiconductor and electronic devices fields, while accelerating the expansion and enhancement of its electronic devices business mainly in the automotive and IoT fields, two areas in which future growth is expected.
Nisshinbo Holdings Group company New Japan Radio Co., Ltd. specializes in low-noise amplifiers and PMICs used in audio equipment, vehicles, and industrial equipment, as well as in devices for wireless communications and IoT. Ricoh Electronic Devices, on the other hand, excels in small energy-saving, high-efficiency CMOS analog semiconductors with a focus on PMICs. Its PMICs boast top-class adoption rates in smartphones, and it is leveraging this technology to expand and enhance its business in the automotive and IoT fields.
The automotive field has witnessed an increase in the number of electronic devices installed in vehicles due to rising demand for advanced driving assistance systems (ADAS), connected cars, and electric power trains. This in turn has fueled growth in demand for analog integrated circuits such as low-noise amplifier integrated circuits, PMICs, communications integrated circuits, and power supply control integrated circuits. Mirroring the trend in the automotive field, the IoT field has also enjoyed growth in the market for analog integrated circuits, mainly because the latter are components of embedded computer systems.
By bringing together the bipolar technology of New Japan Radio and the CMOS technology of Ricoh Electronic Devices, the Nisshinbo Group will seek to strengthen its business by responding to a wide range of needs in the automotive and IoT fields. Further, it can be expected that Ricoh Electronic Devices and New Japan Radio will have a mutually cooperative and complementary relationship in respect of the various processes of semiconductor fabrication. In development and design processes, they will shift their overlapping resources in the PMIC field to the automotive and IoT fields, and accelerate the development, enhancement, and expansion of product lines in these fields. In addition, through cost reductions achieved by utilizing the fabrication bases of Ricoh Electronic Devices for fabrication of upstream processes and by utilizing New Japan Radio subsidiaries Saga Electronics Co., Ltd. and Thai NJR Co., Ltd. in the downstream processes, Ricoh Electronic Devices and New Japan Radio will enhance their price competitiveness and seek to strengthen their business foundation.
Ricoh plans to continue to hold 40 shares of Ricoh Electronic Devices (equal to 20.0% ownership) for the time being, and Ricoh Electronic Devices is expected to continue its current trade name and branding in the foreseeable future.
Overview of Ricoh Electronic Devices Company name: Ricoh Electronic Devices Co., Ltd. Business description: Development, manufacturing, and sales of electronic device products, and contracted electronic devices design and manufacturing services Capital: JPY100mn Date of establishment: June 2014
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Business performance and financial status in past three years (JPYmn) FY03/15 FY03/16 FY03/17 Net assets 10,265 10,319 9,155 Total assets 18,585 18,849 16,923 Sales 12,638 24,895 23,086 Operating income 482 631 451 Recurring profit 580 662 754
Timeline of the share acquisition Execution of agreement: October 30, 2017 Execution of share acquisition: March 1, 2018
August 2017 On August 30, 2017, the company announced Nisshinbo Brake Inc.’s absorption-type demerger and transfer of subsidiary shares for the purpose of selling the Foundation brake business.
The company announced it will sell the Foundation brake business part (FY03/16 sales of JPY14.9bn, operating profit JPY484mn, and assets JPY12.1bn) of the Automobile Brake business of its consolidated subsidiaries including Nisshinbo Brake Inc. to Hosei Brake Industry Co., Ltd., which is one of the mainstay subsidiaries of Aishin Seiki Group.
The transaction is scheduled to take place in several steps: the transfer of Foundation Brake business assets, liabilities, rights, and other obligations held by Nisshinbo Brake to a wholly-owned subsidiary (“successor company” established by Nisshinbo Brake) through a demerger, followed by the transfer of all outstanding shares of the successor company to Hosei Brake.
Establishment of new subsidiary (successor company) Date of establishment: September 25, 2017 (scheduled) Name: Nisshinbo Brake Demerger Preparatory Company (tentative) Total number of outstanding shares: 400 shares
Demerger Effective date of demerger: February 28, 2018 Details of stock allotment: successor company will issue 600 shares (scheduled) of common stock for allotment to Nisshinbo Brake.
Share transfer Effective date of share transfer: February 28, 2018 Purchaser: Hosei Brake Industry Co., Ltd. (Toyonaka, Aichi Prefecture) Number of shares transferred: 1,000 common shares (scheduled)
June 2017 On June 30, 2017, the company announced the sale of a fixed asset and the booking of an extraordinary gain.
After reassessing the company’s fixed assets and thoroughly considering the current real estate market and outlook on profitability, Nisshinbo has decided to place its real estate asset Apita Nagoya Minami (Nagoya, Aichi prefecture) into trust and sell the property in the form of trust beneficiary rights.
In Q1 FY03/18, the company expects to book around JPY5.0bn in extraordinary gain from the sale of the trust beneficiary rights. The transaction is already factored into the FY03/18 full-year forecasts.
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May 2017 On May 15, 2017, the company announced that it has entered into a share exchange agreement (simplified share exchange) with Japan Radio Co., Ltd. (JRC; TSE1: 6751) to make JRC its wholly-owned subsidiary.
Share exchange between the company and JRC The company and its consolidated subsidiary, JRC, at their respective board of directors meetings held on the same day, have decided to execute a share exchange, which will make the company the sole parent company of JRC and JRC a wholly-owned subsidiary of the company, and accordingly resolved to enter into a share exchange agreement.
For the company, the transaction will be a simplified share exchange, which does not require an approval process at its shareholders meeting. JRC expects to receive shareholder approval for the exchange agreement at its ordinary shareholder meeting scheduled for June 26, 2017. The effective date of the transaction is slated for October 2, 2017, and preceding this date, JRC shares will be delisted on September 27, 2017.
In this transaction, the company will be allocating ordinary shares to JRC shareholders at an exchange ratio of 1.28 ordinary shares of Nisshinbo Holdings per each ordinary share of JRC. The company plans to use its treasury stocks in the share exchange (20,013,820 shares as of March 31, 2017) and will not issue any new stocks.
February 2017 On February 10, 2017, the company announced a company split upon transfer of its paper product business (simple absorption-type split) and transfer of shares in its subsidiary.
The company has approved the transfer of the paper product business operated by consolidated subsidiary Nisshinbo Paper Products Inc. to Daio Paper Corporation (Daio Paper; TSE1: 3880).
In this transaction, Nisshinbo Paper Products will take over all assets held by Nisshinbo Holdings in relation to the paper product business (including real estate and facilities, intellectual property, and other assets associated with the paper product business, along with shares in the subsidiary conducting the paper product business) through a company split (absorption-type split). All issued shares in Nisshinbo Paper Products will be transferred to Daio Paper for JPY25.0bn.
Purpose of transaction Daio Paper approached the company with an offer to take over the paper product business. Nisshinbo Holdings comprehensively considered its growth strategy, the outlook of the paper product business within the group, and the reputation of Daio Paper, proceeded with discussions and negotiations, and approved the transfer of the business. The transaction is contingent upon completion of a business combination review by the Japan Fair Trade Commission.
Earnings and assets of business to be split (FY03/16)
(JPYmn) Paper product business (a) Consolidated totals (b) Ratio (a/b)
Segment sales 32,584 533,989 6.1%
Segment profit 742 16,695 4.4%
Segment assets 22,975 622,009 3.7%
Source: Shared Research based on company data Schedule for transfer of shares
Conclusion of share transfer contract: February 10, 2017 (planned) ▷ Execution of share transfer: April 3, 2017 (planned) ▷
Nisshinbo Holdings expects the execution of this transaction to result in the booking of extraordinary income in FY03/18. The impact on the company’s earnings of the transfer of the paper product business (including the extraordinary income to be derived) is being examined.
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On February 8, 2017, the company announced earnings results for Q3 FY03/17 and revision of the full-year earnings forecasts.
Revised forecasts for full-year FY03/17
Sales: JPY523.0bn (previous forecast JPY532.0bn) ▷ Operating profit: JPY4.0bn (operating profit of JPY7.0bn) ▷ Recurring profit: JPY9.0bn (recurring profit of JPY11.0bn) ▷ Net income attributable to parent company shareholders: JPY3.0bn (JPY5.0bn) ▷
Reasons for revisions As announced on February 3, 2017, consolidated subsidiary Japan Radio Co., Ltd., is expected to underperform the initial earnings forecasts in the Electronics business (see the February 3 announcement). In addition, another consolidated subsidiary, New Japan Radio Co., Ltd., is expected to post impairment loss for some of its fixed assets. As a result, Nisshinbo Holdings’ sales and profits are expected to underperform the previous forecasts.
The forex assumptions for earnings forecasts are JPY105/USD and JPY115/EUR for Q4 or later, unchanged from the previous forecasts.
On February 3, 2017, the company announced that its subsidiary Japan Radio Co., Ltd. had revised its full-year FY03/17 earnings forecasts.
Revised forecasts for full-year FY03/17
Sales: JPY141.0bn (previous forecast JPY150.0bn) ▷ Operating loss: JPY5.4bn (operating loss of JPY1.0bn) ▷ Recurring loss: JPY5.6bn (recurring loss of JPY1.6bn) ▷ Net income attributable to parent company shareholders: JPY1.5bn (JPY4.5bn) ▷
Reasons for revisions In the Solutions and Specialized Equipment segment, the company failed to win certain orders expected in Q3 amid increasing competition. The Marine Electronics segment saw a decline in demand for shipbuilding and retrofitting and had some orders cancelled as the marine transport market remained stagnant in Q3 and thereafter. Sales are expected to fall below previous forecast for these reasons. Profits are likely to miss the company’s earlier projection as a result of the sales decline and falling profitability due to deteriorating market conditions.
October 2016 On October 27, 2016, the company announced a revision of its earnings forecasts for 1H FY03/17 and full-year FY03/17.
1H forecasts for FY03/17
Sales: JPY244.0bn (JPY250.0bn before revision) ▷ Operating loss: JPY2.3bn (operating profit of JPY1.0bn before revision) ▷ Recurring profit: JPY500mn (JPY3.0bn before revision) ▷ Net income attributable to parent company shareholders: JPY800mn (JPY2.0bn before revision) ▷
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Full-year forecasts for FY03/17
Sales: JPY532.0bn (JPY570.0bn before revision) ▷ Operating profit: JPY7.0bn (JPY16.0bn before revision) ▷ Recurring profit: JPY11.0bn (JPY21.0bn before revision) ▷ Net income attributable to parent company shareholders: JPY5.0bn (JPY10.0bn before revision) ▷
Reasons for revisions In the Electronics segment, the company forecasts lower sales and profits at Japan Radio due to declining sales and profits in Marine Electronics, caused by a downturn in the shipbuilding market and deteriorating conditions in the shipping market, and also declining sales and profits in Solutions and Specialized Equipment as changes in the sales mix drive profitability down. Although New Japan Radio saw an increase in the number of units sold, the company forecasts lower sales and profits due to the impact of the stronger yen. As a result, the company expects its sales, operating profit, and recurring profit to be lower than its previous forecasts. It also expects net income attributable to parent company shareholders to fall short of its earlier forecast due to lower recurring profit and an increase in extraordinary losses due to a booking of provision for contingent loss at Japan Radio.
The average forex assumptions used in the initial forecasts were JPY/USD120 and JPY/EUR130, but these were revised to JPY/USD105 and JPY/EUR115 from Q3 onward.
April 2016 On April 1, 2016, the company announced the booking of a gain on the sale of investment securities (extraordinary profit).
Following a review by the company of its shareholdings, the company and its subsidiaries sold the shares of 11 listed companies, resulting in the booking of an extraordinary profit (JPY3.5bn gain on the sale of investment securities) in Q4 FY03/16. The gain has already been factored into the company’s FY03/16 full-year earnings forecasts. Combined with a JPY2.8bn gain from the sale of securities in the first nine months of FY03/16, the company will book a total gain on the sale of investment securities of JPY6.3bn in FY03/16.
Major shareholders
Amount Top shareholders held The Master Trust Bank of Japan, Ltd. (Trust account) 13.55% Japan Trustee Services Bank, Ltd. (Trust account) 10.88% Fukoku Mutual Life Insurance Company 6.71% Trust & Custody Services Bank, Ltd. 4.08% Teijin Ltd. 3.37% Shikoku Chemicals Corporation 1.45% Mizuho Bank, Ltd. 1.29% THE JAPAN WOOL TEXTILE.CO., LTD. 1.28% THE BANK OF NEW YORK MELLON 140044 1.22% Goldman Sachs Securities Japan 1.12% Source: Shared Research based on company data As of end-March, 2017
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.
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In FY03/18, the company plans to issue a full-year dividend per share of JPY30.0, equivalent to a payout ratio of 23.8%.
Top management President: Masaya Kawata Born April 1952 in Yamaguchi prefecture. Joined Nisshinbo in 1975. Seconded to Continental Teves AG & Co. oHG from 2004. Appointed executive officer and head of personnel in June 2006, deputy head of accounting in April 2007, executive officer and director in June 2007, and deputy head of the Business Support Center in April 2008. President of Nisshinbo Brake Inc. from April 2009. Managing executive officer from June 2010, and head of the Business Support Center, head of new business development, and president of Nisshinbo Chemical from June 2011. Senior managing executive officer and president of Nisshinbo Mechatronics from June 2012. Appointed president of Nisshinbo in June 2013.
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 March
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