Tokai Rubber Industries, Ltd. Business Report FY ended Mar. 2014

Business Highlights

Financial Overview

(in million JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 Rate of Change (%) Factors
Overall
Sales 369,093 263,725 40.0 -
Operating income 13,577 9,204 47.5 -
Ordinary income 11,041 9,226 19.7 -
Net income 4,076 3,003 35.7 -
Automotive parts
Sales 312,439 210,267 48.6 -Sales and operating income increased year-on-year due to the following factors:
Vehicle production volume rose in Japan supported by a recovery in private spending and growth in demand before the consumption tax hike in April 2014. Overseas, sales were strong especially in the U.S. where the economy is recovering. Sales and income were also boosted by the addition of a European subsidiary, which the Company acquired in 2013, to the Group's consolidated financial statement.
Operating income 9,642 7,080 36.2


Mid-term Management Plan

-The Company is conducting its business based on its mid-term plan it formed in November 2011, the 2015 TRI-Group Vision, which is scheduled to end at the close of the 2015 fiscal year. The following figures are the targets set under the plan.
  • Operating revenue: 420 billion yen
  • Operating income: 34 billion yen
  • Profit margin: 8%
  • ROE: 10%
  • ROA: 8%
Activities and developments in fiscal year ended Mar. 2014:
1. The Company worked on establishing a highly profitable management structure by creating a worldwide supply network through corporate acquisitions and new plant projects. It also implemented measures to improve material procurement and to reduce cost:

Anti-vibration rubber business for Volkswagen
-The Company plans to start full-scale supply of anti-vibration rubber to Volkswagen at its global facilities from FY 2016 to FY 2018. The Company hopes to obtain orders by enhancing its development and sales structure around Germany. Development activities for Volkswagen will be taking place both at Tokai Rubber's subsidiary in Poland and Anvis Group GmbH in Germany that Tokai Rubber acquired in the spring of 2013. The two companies will combine their expertise to develop new products and aim to share information within the group by establishing a contact point to communicate with Volkswagen. The Company is also considering integrating its R&D functions into its Polish subsidiary. (From an article in the Nikkan Jidosha Shimbun on February 18, 2014)

Joint procurement with European suppliers
-The Company is developing a joint procurement system with Anvis Group GmbH of Germany and Dytech Dynamic Fluid Technologies S.p.A. of Italy to improve its anti-vibration rubber and fuel hose businesses. Having acquired these two suppliers in 2012, the Company will review the procurement routes of the three companies. It is intending to procure dozens of components and materials such as rubber, plastic, and metal parts in bulk from the most cost-competitive suppliers in the global market. Through such cost-saving initiatives, the Company is poised to boost its operating profit by approximately JPY 10 billion by the fiscal year ending March 2016. The Anvis Group manufactures anti-vibration rubber and Dytech supplies fuel hoses. (From an article in the Nikkan Jidosha Shimbun on July 22, 2013)

2. In order to improve its global operations, the Company initiated measures to create technological synergies with Dytech-Dynamic Fluid Technologies S.p.A., an Italian automotive hose supplier it acquired in February 2013. Further, it expanded its sales network in Germany and South America by acquiring both Germany-based Anvis Group GmbH in May 2013 and Brazil-based Tokai do Brasil Industria de Borrachas Ltda. in July 2013. It also expanded its production capacity in Europe by setting up a second plant at TRI (Poland) Sp. z o. o. in Poland.

Strengthening fuel supply system business
-The Company is spurring its efforts to become one of the top fuel parts suppliers, in the global market. At the end of last year, the Company acquired Dytech-Dynamic Fluid Technologies S.p.A., a fuel hose manufacturer based in Italy. The Company also fulfilled its mid-term goal of increasing its sales share in the global hose fuel market to 10% by FY2015 ahead of schedule. The Company is now trying to combine its own expertise in the area of fuel hose production with Dytech's fuel tank-related products and technology. This will enable the Company to propose fuel supply system solutions and expand fuel hose sales. The firm plans to increase its sales share to 14% by 2015 and establish a business scale comparable to other leading competitors. (From an article in the Nikkan Jidosha Shimbun on August 7, 2013)

3. In order to expand its sales and supply network in Asian emerging markets, the Company made an additional investment in Inoac Tokai (Thailand) Co., Ltd., a Thailand-based automotive hose manufacturer, in April 2013.

4. The Company began operations at its new automotive hose plants in Indonesia and Vietnam, while starting mass-production at its second anti-vibration rubber plant in India.

Plans for fiscal year ending March 2015
-The automotive parts division is poised to maximize the synergy effects of new acquisitions by sharing production, technical, sales and procurement resources with its new group companies. The Company thereby aims to become the world's "mega supplier" that can readily supply high-quality products globally.

Outlook for FY ending Mar. 31, 2015

(in million JPY)
  FY ending Mar. 31, 2015
(Forecast)
FY ended Mar. 31, 2014
(Actual Results)
Rate of Change
(%)
Sales 400,000 369,093 8.4
-Automotive parts 338,000 312,439 8.2
Operating income 16,000 13,577 17.8
Ordinary income 14,000 11,041 26.8
Net income 5,000 4,076 22.7

-Sales at the automotive parts division for the fiscal year ending March 2015 are forecast to increase 8.2 percent year-over-year. Although domestic sales are likely to decrease from the previous year when demand rose before the consumption tax hike in April 2014, overseas sales are expected to increase especially in the U.S. and China where vehicle production is projected to rise. The addition of two companies, which the Company acquired in 2013, to the Group's consolidated financial statements with 12 months performance is also expected to contribute to the sales increase.

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

R&D

R&D Expenditure

(in million JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 11,673 9,698 8,660
-Automotive parts 8,764 7,442 6,770

R&D Structure

-The Company's R&D activities are being conducted by its R&D center, called Technopia, which works together with the Materials R&D Center and New Business R&D Center. During the fiscal year ended March 2014, the Company worked on developing advanced products and technologies for the global market, while focusing on reducing product cost, improving environmentally friendliness and offering enhanced riding comfort.

Investment Activities

Capital Expenditure

(in million JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 31,334 25,295 20,191
-Automotive parts 26,348 19,240 17,237

-During the fiscal year ended March 2014, the automotive parts division invested mainly in production equipment to manufacture anti-vibration rubber and hoses at home and abroad.

Investment Outside Japan

<Indonesia>
-The Company announced that PT. Tokai Rubber Auto Hose Indonesia (TRHI) held an opening ceremony for its new plant. TRHI, which was established in August 2011, has been manufacturing plastic hoses for motorcycles at a leased facility. TRHI will move its production equipment to the new plant and will start producing plastic and rubber hoses for motorcycles and automobiles. The new facility has a land area of about 38,000 square meters and a floor area of about 11,000 square meters. Approximately 310 billion rupiah (2.8 billion yen) was invested in this project. (From a press release on December 20, 2013)

<Poland>
-The Company announced that TRI (Poland) Sp. z o. o., its subsidiary in Poland, has opened its second plant in the country. The new plant manufactures and sells anti-vibration rubber and noise insulating materials for automobiles. Approximately EUR 11 million (JPY 1.4 billion) was invested in the new plant. The plant, with a land area of 41,500 square meters and a floor area of 5,000 square meters, had already begun operations in August 2013. (From a press release on October 24, 2013)

<India>
-The Company will begin volume production of anti-vibration rubber at a new plant in northern India in November 2013. The rubber will be supplied to Japanese automakers' vehicle assembly plants in the region. The new plant is located in the Neemrana Industrial Park in the state of Rajasthan. The Company plans to achieve annual sales of JPY 1.1 billion at the second plant by the fiscal year ending March 2016. Tokai Rubber has invested approximately JPY 1.3 billion in the plant. The 3,600-square-meter plant is located on a 40,000-square-meter plot. The Company will have two plants for producing anti-vibration rubber in India. The Company's first plant started operations in the Bangalore suburbs in January 2012. (From an article in the Nikkan Jidosha Shimbun on October 18, 2013)