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5. Akebono Brake Industry Co., Ltd. Business Report FY ended Mar. 2020

Akebono Brake Industry Co., Ltd. Business Report FY ended Mar. 2020

Business Results by Region

<Japan>
-Sales were JPY 72.1 billion ( a 6.6% year-on-year (y/y) decrease, due to sluggish unit sales of new-vehicles and lower sales of spare parts by the aftermarket business. Operating profit was JPY 2.7 billion (a JPY 600 million loss in the previous year). Although the number of new orders fell, the profit was achieved through reorganization initiatives such as reducing labor and operating expenses, and reducing fixed costs that resulted from the benefits of selectively narrowing down R&D themes. In addition, in the second half of the fiscal year, market prices of materials fell, productivity improved, the percentage of scrap material used in production rose, and procurement was streamlined.

<North America>
-Sales were JPY 78.3 billion (a 34.5% y/y decrease) because of sluggish new-vehicle sales by OEMs and the huge impact that resulted from the Company’s missing out on winning new-product orders for new-vehicle models that were launched. An operating loss of JPY 3.5 billion was recorded. (The operating loss in the previous year was of JPY 4.0 billion.) Although new orders significantly decreased, market prices for materials fell. In addition, the amount of depreciation expenses was reduced because the Company posted an impairment loss for fixed assets in the previous fiscal year. Also, the work force was optimized and productivity was improved.

<Europe>
-Sales were JPY 14.2 billion (a 10.3% y/y decrease). New orders for high-performance mass-market vehicles increased. New orders for friction materials and for vehicles marketed globally decreased. Expenses for waste materials were significantly reduced through improving productivity and quality at the Slovakian plant. Operating profit was JPY 100 million (a JPY 700 million loss the previous year), thanks to effective initiatives to reduce purchasing costs of materials by migrating to local procurement in Europe of major parts.

<China>
-Sales were JPY 16.2 billion, a 26.0% y/y decrease. The US-China trade friction and reductions in subsidies for new-energy vehicles negatively impacted sales, so both unit sales and unit production fell in the country. In addition, new orders fell and production volumes of products destined for export fell. Operating profit was JPY 1.1 billion, a 53.0% y/y decrease. This is the result of effective rationalization initiatives to increase productivity and the benefits of cost-cutting measures. In addition to the volume of new orders falling, negative changes were made to the product lineup because of the negative impact of fewer orders for products with high profit margins.

<Thailand>
-Sales were JPY 7.5% billion, a 5.5% y/y decrease. Although sales of cast products  destined for export increased, the Company had to do away with some products because of redesigned models. Operating profit was JPY 600 million, a 3.4% y/y increase, thanks to the benefits of streamlining operations through productivity improvements and lower depreciations costs.

<Indonesia>
-Sales were JPY 20.5 billion, a 0.6% y/y increase, thanks to a high number of orders for new products for automatic motorcycles, and strong orders for products delivered to multi-purpose vehicles (MPVs) launched in the previous fiscal year. Operating profit was JPY 2.4 billion, a y/y 0.2% increase, thanks to rationalization measures such as improvements to production operations and procuring parts by switching to in-house production.

R&D Activities

-R&D expenses were JPY 2,991 million in the fiscal year that ended in March 2020. In addition, JPY 4,981 million in expenses were incurred for R&D activities in line with every-day improvements. R&D activities by region are outlined below.

<Japan>
1) Brake Friction Materials
-Development of copper-free friction materials to meet global needs and be compliant with environmental regulations against the use of cooper in the state of Washington and other states in the USA. Conducting R&D activities on high quality products that use environmentally friendly friction materials that are superior in terms of noise and vibration performance, while challenging the issue of wheel dust that was the focus last year. At the same time, while working to lower costs, keep performance and the environment in mind in developing friction materials that suit the special characteristics of brakes for xEVs.

2) Disk Brakes
-Focusing on the development of environmentally friendly brakes for self-driving and high-performance vehicles, which have new designs.

3) Development of Environmentally Friendly Products
-Focus on drastically reducing vehicle weight and drag from the perspective of improving fuel efficiency. Development of technologies on electric parking-brakes and service brakes in responding to self-driving. Advancing preparations for launching a business division to mass-produce electric parking-brakes.

4) New Design Brakes
-Developing new fundamental designs and architecture for brakes. Brakes need to be designed to improve stability, compared to conventional brakes, and in addition they need to be made much lighter in weight. With this as the focus of development activities, working to improve fuel efficiency and migrating to respond to the market growth in electric vehicles.

5) Development of Next-generation Concept Brakes
-Development of a whole new concept for brakes that is based on magneto rheological fluid, which have a totally different architecture that is much different from conventional friction brakes. As one of the strategic R&D strategies, the Company is working to develop smaller, lighter brakes based on a new architecture/design and lighter weight materials so that they can offer improved response and control, reduce environmental impact by not generating any friction dust, control vibration squeaks, and offer a more comfortable ride.

<North America>
-Conducting R&D activities on developing products that meet the needs of not only OEMs in North America but the world. Developing materials that offer high performance in terms of noise and vibration, from passenger cars to pickup trucks, which respond to environmental regulations that were enacted in Washington and other states. In the area of structural designs for brakes, the North American R&D team will work together with the Japan-based R&D team to develop new brake-architectures and electric-power brakes.

<Europe>
-Mainly the French R&D function is in charge of developing friction materials that take into consideration the characteristic features of brakes in terms of (1) braking response and responding to judder when the vehicle is traveling at high speed, (2) noise and vibration, and (3) compliance with strict environmental regulations in Europe. It is conducting R&D activities that meet a wide variety of customer needs, from R&D on friction materials that comply with strict, European environmental regulations, up to friction materials provided on  European-built vehicles exported to Japan and North America.

<China>
-In the area of friction materials, the Company is developing products that are cost-effective in merging countries and which have particular performance parameters, by procuring parts and materials locally and by using production methods that meet local, environmental regulations. In the area of disk brakes, developing and proposing products that can meet the requirements by OEMS in China, researching and analyzing uses, and providing needed functions and performance at lower cost.

<Thailand>
-With the brake production-plant in Thailand serving as the base of operations, the Company’s main R&D activities are focused on conducting brake evaluations in order to perfectly meet the needs of the remarkably fast-growing countries in the ASEAN region.
 

R&D Structure

Capital Expenditure

-The Company spent JPY 9,746 million on capital investments in the fiscal year that ended in March 2020, broken down as follows by region.

• Japan: JPY 4,807 million
• North America: JPY 2,190 million
• Europe: JPY 142 million
• China: JPY 341 million
• Thailand: JPY 537 million
• Indonesia: JPY 1,729 million

-The capital investments were for the following:

• Japan: To launch new operations at Akebono Brake Iwatsuki Manufacturing Co., Ltd., and invest in infrastructure at Akebono Brake Fukushima Manufacturing Co., Ltd. and Akebono Brake Yamagata Manufacturing Co., Ltd.
• North America: to launch new operations.
• China: to launch new operations at the company established with Chinese capital.
• Thailand: to increase production capacity at the forged-products plant.
• Indonesia: to acquire vacant land on which the production plant will be relocated.  

(Note: Due to the spread of the coronavirus pandemic, the Company has not announced a budget for capital investments in the fiscal year ending in March 2021.)

Operations Outside Japan

<USA>
-In December 2019, Akebono Brake Corporation announced that it will downsize its operations by closing four of its production plants. The plants to be closed are Akebono Brake, Clarksville Plant (ABCT) in Tennessee (in August 2020) and Akebono Brake, Columbia Plant (ABCS) in South Carolina (in September 2020). The closure announcements are in line with the announcement that the Company made in September 2019 about reorganizing its business operations.