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5. Akebono Brake Industry Co., Ltd. Business Report FY ended Mar. 2018

Akebono Brake Industry Co., Ltd. Business Report FY ended Mar. 2018

Financial Overview

(in millions of JPY)

Factors and Recent Developments

-Increased sales but lower income. Higher costs for steel in line with huge cost surges in the market for materials. Higher bonus payments tied to performance-based results.

-The decrease in sales this past year in North America resulted from US OEMs’ ceasing production of wagon-type vehicles and a decrease in orders for friction materials in line with temporary inventory adjustments of after-market products.
The Company is making progress in normalizing its productivity in North America by implementing various initiatives to achieve a stable income through responding to the steady decrease in sales that started at its North American operations in 2015.

-The Company is still continuing to experience slow sales of after-market friction-materials in the USA. It is trying to curb the fall in sales of friction materials that have high profit margins. In addition, there is a labor shortage in the USA.

-There was a huge surge in the cost of materials such as steel (totaling JPY 1.0 billion). Costs incurred last year for external consulting (JPY 2.1 billion) and air-freight to ship products in an emergency (JPY 1.2 billion) ended. In addition, the Company improved its performance by reducing labor costs (JPY 1.4 billion) and rationalizing production and procurement operations (JPY 1.7 billion). Compared to the previous year’s operating profit of JPY -3.0 billion yen improved to JPY 1.8 billion.

-European operations posted higher sales, but lower profit.
Some of the reasons were a reduction in the highly profitable friction-materials business at the plant in France and various costs incurred at the plant in Slovakia for disk brakes designed for high-performance mass-market vehicles. Also, the operating profit margin in the 4th quarter significantly fell due to inventory adjustments.

-Higher sales and profits at the operations in China, Thailand, and Indonesia.
In Indonesia in particular, the ratio of production allocated to highly profitable motorcycle brakes helped the Company achieve an operating profit-margin in the 10% range.

Outlook for FY ending Mar. 31, 2019

>>>Outlook for next fiscal year’s sales, operating profit margins, etc.

Mid-term Management Plan

-Based on its long-term vision, the Company set growth targets under its “Global 30” plan for the 2020 fiscal year that ends in March 2021. It aims at capturing 30% of the global market share for factory-installed brake-disk pads and achieving an operating profit margin of 10%.

-In working to achieve the targets it set under Global 30, the Company set FY2018, which ends in March 2018 and is the final fiscal year of its akebono New Frontier 30 – 2016 mid-term management plan, as the first year of Global 30.

Targets for the fiscal year that ended in March 2018:
Sales: JPY 265.0 billion
Operating profit: JPY 8.0 billion
Current net profit: JPY 3.0 billion

Sales and operating profit targets were basically achieved, but current net profit was significantly lower than the target

Numerical Targets

(in 100 millions of JPY)

R&D Expenditure

(in millions of JPY)

R&D Structure

R&D Activities

-The Company is continuing R&D activities on new friction materials and next-generation brakes used in various transportation vehicles and industrial equipment.

Friction materials
-Developing friction materials that comply with environmental regulations on copper, which were enacted in various US states such as the state of Washington.
-Developing friction materials that maximize the characteristics of brakes, for electric vehicles (EVs), plug-in hybrid vehicles (PHVs), and hybrid vehicles (HVs)

Disk brakes/drum brakes
-Achieving commercialization of aluminum-alloy opposed-type brakes for high-performance vehicles.

Electrification technology
-Developing electric parking brakes in which the parking-brake function is operated by a compact electric motor

At AKEBONO Brake Research and Development Center, Ltd. , the Company conducts below works

1. Developing and optimizing a fiber for use as a friction material binder, which is made from a complex mixture derived from oils of plants with woody characteristics.
2. Developing an entirely new concept of next-generation brakes that make use of magneto rheological (MR) fluid, which have a very different mechanism from friction brakes
3. Developing compact and lighter weight products by using new structural designs and adopting low-use materials that reduce environmental impact and offer comfort as a result of introducing automation, eliminating friction dust, and controlling vibration squeak made possible by improving response and control.

-Developing friction materials that comply with environmental regulations on copper, which were enacted in various US states such as the state of Washington.
-Developing disk brakes using light-weight aluminum alloy.
-Mass-producing disk rotors and drum brakes.

-Developing friction materials that comply with Europe’s very strict environmental regulations.
-Locating R&D centers in Germany and the UK. In the UK, developing disk brakes for motorsports vehicles.

<China/Thailand>
Friction materials
-Developing products making use of the cost-effectiveness and performance characteristics prevailing in newly emerging countries by localizing procurement of parts and materials and applying methods appropriate to protecting the environment.

Disk brakes
-Developing low-priced products that offer needed functions and performance by researching and analyzing local needs and ways of doing things.

Product orders

-The Company announced that its brake calipers and brake pads will be equipped on the new-version Nissan Leaf. The products being equipped on the Leaf are single-action hydraulic brake calipers and brake pads. By controlling vehicle behavior by mounting devices such as those that prevent lateral sliding makes the pad movement smoother. The Company is improving materials that will lead to reducing vehicle weight, in order to extend the cruising distance of electric vehicles. (From a March 5, 2018 Nikkan Jidosha new article)

-The Company announced that its front 6-pot caliper brake pads will be equipped on the new-version Polestar 1 electric coupe, a model in Volvo’s high-performance car brand Polestar. Used together with high-performance pads, the 6-pot aluminum mono-block opposed piston-type calipers designed for luxury cars and high-performance cars achieve superior braking performance even at high speeds and high loads and during high-temperature braking, providing a significant level of comfort in luxury vehicles. (From an October 27, 2017 Nikkan Jidosha news article)

-The Company announced that its rear brake-pads will be equipped on the Toyota C-HR, while its front brake-pads will be equipped on the Prius PHV and Camry. The Company develops brake pads to suit the nature and weight of the vehicle models being equipped. For example, it gave the C-HR a special characteristic that takes into account its sporty driving nature. For the Camry, the Company focused on quietness and feel by controlling noise and squeaks. (From a September 28, 2017 Nikkan Jidosha news article)

Capital Expenditure

(in millions of JPY)

-Capital expenditure breakdown follows:

Japan: JPY 2,734 million

North America: JPY 4,088 million

Europe: JPY 2,202 million

Indonesia: JPY 670 million

China: JPY 1,660 million

Thailand: JPY 196 million

-Capital expenditure allocations:

• Japan: Improving quality and productivity at the Iwatsuki Plant; installing more equipment to respond to an increase in product orders for high-performance vehicles.
• North America: installing more equipment to respond to an increase in product orders for pickup trucks.
• Europe: installing more equipment to produce products for high-performance vehicles.
• China: Installing more equipment to increase production capacity to respond to an increase in product orders and to comply with environmental requirements.
• Indonesia/Thailand: Increasing production capacity

-Capital expenditure in fiscal year that ended in March 2018 was forecast to be JPY 15.0 billion.

-The Company is increasing the production capacity of brake calipers and brake pads at its plant in Glasgow, Kentucky (USA). The Company is renewing the plant layout by remodeling some production lines at the plant and adding two new production lines for brake calipers, adding one in October this year and the other one in February next year. The new lines are being added to meet the need for delivering more brake calipers to large-sized SUVs, of which the market in North America is growing. The expenditure will amount to several hundred million Japanese yen. Also, at the end of this year, the Company will increase the production capacity of after-market brake pads. To improve its financial situation, the Company had decided to keep capital expenditures below JPY 15.0, but changed its policy and will now concentrate its expenditures and effectively expand its operations at its plant in the USA, which is the largest market for the Company. (From an August 8, 2017 Nikkan Jidosha news article)

Planned Capital Investments

(As of Mar. 31, 2018)