To Our Stakeholders
We successfully realized higher sales and income in FY2017. As well, we will continue to do our utmost on our main initiatives, aiming to achieve the final goals of our three-year plan.
Chairman of the Board and President,
Q：How would you assess the business environment and your financial results for the fiscal year ended March 31, 2018 (FY2017)?
A：In FY2017, sales and income rose, both against our plan and year on year.
Looking back at the global economy during FY2017,solid consumer spending kept the US economy on anexpansionary track. The European economy was on an uptick across the majority of region, led by Germany. China also maintained stable economic growth mainly supported by expanding private consumption, although the country is still in need of structural adjustment, including reduction of excess capacity. Southeast Asia and India also maintained moderate economic growth.
On the other hand, the later part of the fiscal year saw increasing uncertainty, including geopolitical risk in East Asia and dislocation in the financial markets in reaction to the recent inclination toward hardline policy in the United States.
As for the Japanese economy, corporate sector performance rose slowly, supported by an accommodative monetary policy, and there appeared more signs of gradual recovery in the real economy.
However, with the greater uncertainty in East Asia and wariness of protectionism, there was a shift to yen appreciation in the current exchange market that could have an adverse effect on corporate sector performance depending on its future movement.
Given this situation, the EKK Group started implementing its three-year medium-term management plan, entitled “Reinforcing Business Structure for Sustainable Growth ? Fly Sky High!,” the final year of which is FY2019, and carried out business energetically toward attainment of the plan’s goals.
As a result, we achieved higher sales and income, both against our plan and year on year. We decided to pay a year-end dividend of \30 per share, \5 higher than the previous year, which combined with our interim dividend of \20, amounted to an annual dividend of \50 per share.
Q：Please describe your results by segment.
A：Sales remained strong in each segment.
In the automotive and construction machinery industries segment, sales of automotive products remained mostly strong in the Japanese as well as Chinese, European, and US markets. Sales of construction machinery products were also high. Net sales increased against our plan and year on year as a result.
In terms of profit, however, we saw a decline in income against our plan and year on year, mainly attributable to a drop in sales prices of automotive products and an increase in sales of low-margin products?that is, the effect of product mix.
In the general industrial machinery industry segment, with crude oil prices staying relatively stable, products for oil refining and petrochemical plants led strong sales in Japan, India, and the Asia-Pacific (AP) region, resulting in higher sales and income, both against our plan and year on year.
In the marine industry segment, sales of products for new ships remained slow, although we see some hints in the market that demand is close to the bottom. Aftersales service and sales of parts, on the other hand, started to recover mainly in Europe and Southeast Asia, resulting in only a small decrease in net sales and a massive increase in operating income against our plan and year on year for this segment in total.
It should also be noted that sales of parts grew less than expected from the second quarter, due in part to the effect of postponement of enforcement of marine environmental regulations.
The aerospace industry segment recorded declines in sales and income against our plan and year on year as a result of withdrawal from the optoelectronics industry, which had been included in this segment in the previous fiscal year.
Q：Please describe some of your initiatives and successes as well as progress of the three-year plan.
A：We made steady progress on the plan’s main initiatives and are gradually producing results.
We continued to carry out “eternal zero” activities aimed at preventing even a single non-conforming product from entering the market, with the objective of ensuring product quality that earns the trust of our customers and guaranteeing the same quality level the world over, which are goals we have been working toward since the second half of FY2015. Specifically, throughout the Group we established a system to gather and analyze information from the market and identify product weak points, in order to improve manufacturing processes and feed the results obtained back into new product development.
With respect to technology development, we continued to develop products that leverage our unique technologies, targeting the next-generation mobility and energy markets. In particular, we focused on developing and promoting products that leverage surface texturing technology for mechanical seals. With this technology, it is possible to achieve high sealing performance even under a low-torque environment. It is expected that this
will help save power in equipment that installs seals and contribute to reducing environmental load. Specifically, we promoted sales for equipment that requires ultrahigh-
speed rotation, including automotive turbo chargers, gearboxes, and water pumps as well as drive motors for electric vehicles (EVs). Additionally, in the next-generation energy market, we delivered products that apply this technology in various types of next-generation power-generating equipment, including tidal and ocean current power generation.
EVs are expected to become more popular in the future. In order to meet this growing demand, we began establishment of R&D centers in China and Europe (Germany), where EV development is projected to advance at a faster pace and to capture more market share in the future. By enabling close relations with local research institutions, these new R&D centers will allow us to secure information and resources?regarding movements in leading policies and trends in the motor vehicle industry, etc.?needed to respond to the shift toward EVs. In addition to speeding up our research and development, we believe that the centers will also help spread the EKK brand and strengthen our sales capabilities. We expect the R&D centers in both China and Europe to start operations in the early part of the next fiscal year.
In addition, we also carried out initiatives to generate profit under the slogans of “total cost down (TCD)” and “waste removal activity,” to reinforce business continuity management (BCM) by putting in place structures at each business site that can ensure business continuity even in the event of large-scale disasters, to promote optimizing management of EagleBurgmann in the three regions of Japan, AP, and India, and to facilitate the ongoing implementation and smooth application of enterprise resource planning (ERP).
Furthermore, to fulfill our commitment toward management that respects human dignity / health and safety, we continued to put the securing of health and safety of employees first, including with activities aimed at eliminating work-related injuries, and also continued efforts to promote participation by female employees, to reduce overtime, and to encourage employees to actively take paid leave, in connection with work style reform.
We are also striving to create open workplaces where everyone can speak to each other frankly and voice their opinions freely, leading to true job satisfaction.
Q：Please describe new issues and initiative policies for FY2018 forward.
A：Profitability is a big issue. We will achieve reasonable prices by providing products and services that meet quality expectations and delivery times.
Going forward, we will continue to strengthen and expand our operating base and business foundation by steadily and actively implementing our three-year plan.As we do so, one concern is profitability. In FY2017, we were able to achieve higher sales and income against both our plan and year on year. Looking closely, however, we see that profit did not rise as much as net sales grew, for which there are several reasons. The major ones include a decline in the sales prices of products, an increase in sales of low-margin products, and an increase in the prices of raw materials such as steel sheet.
To enhance profitability going forward, we will strive to improve productivity and generate profit by continuing to focus on TCD and waste removal activity as always. At the same time, however, we consider it necessary to readjust our product pricing.
I believe that we can only achieve revisions in product pricing by delivering products with the expected quality in a timely manner. Recently, there has been a spate of quality-related wrongdoing announced in the industrial world. Once a report for non-conforming products is received, whether due to intentional dishonesty or not, customers and companies are certain to suffer big losses. While it is an extremely difficult challenge to constantly maintain a high level of quality and to prevent even a single non-conforming product from entering the market, progress in the “eternal zero” efforts being made group wide is gradually producing results. As well, we are beginning to see resolution of delivery time problems, which had been an issue with some products. Through these efforts, we are committed to providing products and services that will earn true customer satisfaction, which we will translate into revisions of product prices in order to achieve reasonable prices.
Q：What closing message do you have for shareholders?
A：We will steadily carry out our three-year plan, aiming to achieve big goals.
FY2018 is the middle year in our three-year plan. It is a critically important year to reach net sales of ¥180.0 billion and operating income of ¥18.0 billion in FY2019, the final year of our plan, and then the next goals of ¥202.0 billion in net sales and ¥20.2 billion in operating income in FY2020. To achieve these goals, and to ensure our perpetual growth under any circumstances in coming ages by building a stronger business structure, we will steadily implement the following seven main initiatives set out in our three-year plan.
- 1.Eternal zero
- 2.Development of next-generation products
- 3.Thorough and active implementation of TCD, waste removal activity
- 5.Optimizing management of EagleBurgmann 3-Region(Japan, AP, India)
- 6.Implementation and full utilization of ERP
- 7.Management that respects human dignity / health and safety
We look forward to the continuing support and understanding of our shareholders for all the management policies and initiatives of the EKK Group.