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Declining prices for raw materials and internal cost cutting drive 67.5% increase in operating income
We posted net earnings of ¥11.5 billion in the fiscal year ended March 31, 2010. That gain compares with a net loss of ¥5.7 billion in the previous fiscal year, and it reflects a 67.5% increase in operating profitability, to ¥21.5 billion.
The surge in profits occurred despite a 9.8% decline in net sales, to ¥466.4 billion, and reflected a downturn in raw material costs and our progress in reducing selling and administrative expenses and other costs. Net income benefited, too, from a large decline in nonoperating losses on foreign currency translation adjustments.
We paid an interim dividend of ¥4 per share, and we are recommending a year-end dividend of ¥6 per share. The annual dividends would thus total ¥10 per share, the same amount as in the previous fiscal year.
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Outlook for renewed sales growth but lower profitability in fiscal year to March 31, 2011
Improving economic conditions are generating growth in demand, and we project that net sales will rise 11.5% in the fiscal year to March 31, 2011, to ¥520.0 billion. Resurgent demand appears likely to occasion an upturn in raw material prices, however, and we expect the yen to strengthen during the year. In view of those factors, we project that net income will decline 30.4%, to ¥8.0 billion, on a 16.1% decline in operating income, to ¥18.0 billion.
Sales momentum in tires and in high-pressure hoses has increased strengthened gradually since reaching a low point in the fiscal first quarter (April to June 2009). We therefore expect sales to decline less in the fiscal second half (October 2009 to March 2010), than they did in the first half. Profitability will benefit, meanwhile, from our continuing progress in trimming costs and from other internal efforts.
We plan to maintain the aggregate annual dividend at ¥10 per share. That would comprise an interim dividend of ¥4 and a year-end dividend of ¥6, as in the latest fiscal year.
Targets: sales of ¥550 billion and operating income of ¥38.5 billion in fiscal year to March 2012
We unveiled our medium-term management plan, Grand Design 100, in 2006. That plan covers the period up to our corporate centennial in 2017. Our chief financial targets for our centennial are net sales of ¥1 trillion and operating income of ¥100 billion, which would mean an operating profit margin of 10%.
Grand Design 100 consists of four phases of three years each. We completed the first phase in March 2009, and we are now in Phase II, which covers the three years to March 31, 2012. Our core emphasis in Phase II of Grand Design 100 is on quality growth. Our main quantitative targets in Phase II are to achieve operating profitability of 7% by increasing operating income to ¥38.5 billion while raising net sales to ¥550 billion and to generate aggregate free cash flow of more than ¥30 billion during Phase II's three-year span.
Growth strategy: Tire Group
Our strategy in the Tire Group centers on (1) building a higher-profile presence in overseas markets, (2) expanding and upgrading supply capacity to respond flexibly to demand in each nation, and (3) integrating operations locally in principal regions. Our measures for raising our profile in overseas markets have centered on introducing fuel-saving tires. That emphasis will continue in the fiscal year to March 31, 2011, with launches of our fuel-saving DNA Earth-1 tires in Asian markets. We will also use new products to bolster our market presence in Japan. Advances in environmental performance distinguish an important new line of tires that we will launch in Japan in July 2010
We are even highlighting our environmentally friendly technologies in racing tires. Yokohama is the sole supplier of tires for Federation Internationale de l'Automobile (FIA) World Touring Car Championship competition. And we are adopting "eco" features in our tires for that racing series.
As for fortifying our supply capacity, we are moving ahead with a fourth phase of expansion at Hangzhou Yokohama Tire Co., Ltd., in China; we are building a tire plant in Russia; and we are expanding capacity at our Shinshiro-Minami Plant, in Japan. Those and other measures will increase our annual production capacity to 58,590,000 tires by the fiscal year to March 31, 2012, from 54,490,000 presently.
Growth strategy: MB Group
In the Multiple Business Group, our growth strategy centers on (1) globalizing operations further in growth sectors, including high-pressure hoses, conveyor belts, marine hoses, and marine fenders, and on (2) developing business in new sectors, especially in connection with environmental protection. Growth-sector globalization included expanding production capacity in the past fiscal year at our subsidiary, YH America, Inc., which produces power steering hoses. That company has become the largest supplier of power steering hoses in the United States. We have strengthened our European marketing for diversified products by establishing a marketing company in Germany in April 2009, and we are considering establishing similar marketing platforms in other regions.
We are augmenting our growing presence in new product sectors with a high-pressure hose for filling fuel-cell vehicles with liquid hydrogen. Announced in April 2010, that hose accommodates storage pressures of up to 70 megapascals. Another product in our development pipeline is a line of cushions for preventing wheelchair pressure sores. We plan to begin marketing those cushions in summer 2010.
Technology strategy
Our technology strategy focuses on deploying products for reducing environmental impact and on helping to fulfill the Yokohama commitment to delivering the best products at competitive prices and on time. A recent product highlight is our progress in deploying our AIRTEX Advanced Liner in a growing range of tires. That liner improves air retention and thus helps prevent the deterioration of fuel economy that results from underinflated tires.
We have improved our responsiveness to demand, meanwhile, with the May 2010 completion of a Thai plant for processing natural rubber. That plant improves our access to reliable supplies of natural rubber of high and consistent quality. It positions us to pursue further quality gains in tires.
Measures for reinforcing our corporate foundation
Our measures for reinforcing our corporate foundation center on reshaping our Japanese operations, strengthening our cost competitiveness, and redoubling our commitment to fulfilling our corporate social responsibility. Restructuring measures in Japan include merging our Multiple Business operations at the parent company with eight Multiple Business sales companies. The merged operations will become Yokohama Industrial Products Japan Co., Ltd., which we will establish in October 2010. We are counting on the integration of our Multiple Business operations to raise efficiency in those operations and to fortify our competitiveness in diversified business.
Measures for strengthening our cost competitiveness include our continuing program of Muda-dori activities. In those activities, employees take the initiative in identifying opportunities for cutting costs and in implementing the cost-cutting improvements. The Muda-dori activities have yielded cost savings of some ¥34 billion over four years.
At the heart of our commitment to fulfilling our corporate social responsibility are diverse measures for protecting the natural environment. We are planting 500,000 trees at 18 plants worldwide, for example, in the Yokohama Forever Forest project. And we continue to promote fuel-saving tires, especially under our DNA brand. Those and other environmental initiatives earned us a prestigious environmental-protection award from a leading publishing-and-broadcasting conglomerate in Japan.
June 2010
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Tadanobu Nagumo
President and Representative Director |
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