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We launched Grand Design 100 in 2006 as a roadmap for the 12 years to our centennial in 2017. The plan comprises four three-year phases. This year is the first year of the concluding three-year phase of Grand Design 100. We adopted Grand Design 100 as a framework for evoking a distinctive global identity in building corporate value and in building a strong market presence by our centennial in 2017. Our original targets as established in 2006 were to achieve annual net sales of ¥1 trillion and operating income of ¥100 billion by 2017 and thus achieve an operating profit margin of 10% by that year. To achieve those targets, we are working in the spirit of the Grand Design 100 basic policy. That is, we are dedicating ourselves to delivering the best products at competitive prices and on time, to asserting world-class strengths in technologies for protecting the environment, and to fostering a customer-oriented corporate culture that honors rigorous standards of corporate ethics.
Our earnings performance benefited during the three years of Phase III from a generally favorable business environment. The yen weakened during most of Phase III, starting in the latter half of 2012, and raw material prices trended downward.
We also exceeded our Phase III target for expanding our production capacity for tires. Our capacity increased by 8.20 million tires during the three years of Phase III, to 67.59 million tires at 2014 year-end. Accounting for most of the increase were plant-expansion projects in the Philippines and Thailand and plant-construction projects in China, India, and Russia.
Here is an overview of the expansion of our global operations during the three years of Phase III. We inaugurated the production of passenger car tires during Phase III at new plants in India and in Russia and at a new plant adjacent to our truck and bus tire plant in Suzhou, China. And as I have mentioned, we expanded capacity at our tire plants in the Philippines and in Thailand. In addition, we began work during Phase III on a plant in Mississippi for producing truck and bus tires. And we acquired a Japanese manufacturer of tire bead. We also moved to fortify our tire operations during Phase III by starting work on a winter tire test course in Hokkaido and by opening a winter tire test course in Sweden.
Here is a comparison of our financial targets and our financial performance in Phase III. We achieved record highs for net sales, operating income, and operating profit margin in 2012, 2013, and 2014. Our interest-bearing debt increased in reflection of our stepped-up investment. But it remained well below our specified ceiling at 2014 year-end. Our debt/equity ratio was also well below our specified ceiling at the end of Phase III.
Here are lists of our primary qualitative initiatives in Phase III of Grand Design 100 for upgrading our human resources management and for strengthening our operations by revamping our organization. In human resources, we continued an overseas training program launched in 2009 for new employees to foster globally competent personnel. We established Yokohama Business Association Corporation to provide work for employees after our mandatory retirement age until the age of 70. And we qualified to display the Japan Ministry of Health, Labor and Welfare’s mark for companies that offer systematic employee support for childcare. In organizational moves to strengthen our operations, we integrated our Japanese tire-retreading operations, we merged two of our industrial products companies in the United States, we consolidated our Japanese production of high-pressure hoses, and we transferred our Sports Business to our subsidiary PRGR Co., Ltd. Our chief financial targets in Phase IV are to increase our annual net sales to ¥770.0 billion and our operating income to ¥80.0 billion by 2017 and to thereby raise our operating profit margin to 10.4% by that year. We also aim in Phase IV to raise our net return on assets to at least 5% and our net return on equity to at least 12% by 2017 and to lower our debt/equity ratio to less than 0.8 by 2017 year-end. Grand Design 100 is the successor to our Grand Design10 management plan, which began in fiscal 2003 and renewed our focus on growth. And as you can see here, we plan to raise the pace of our growth in Phase IV of Grand Design 100. We adopted the themes of Profitable Growth for Phase I of Grand Design 100, Quality Growth for Phase II, and Robust and Responsive Growth for Phase III. Our work in those first three phases of Grand Design 100 fostered growth momentum and growth potential in individual units and in our organization overall. In Phase IV, we will work in the spirit of All for Growth—Focusing Our Energy on Growth to consolidate that momentum and potential. That will include working to resolve issues that have arisen during the first three phases, to culminate Grand Design 100 on a positive note, and to set the stage for new progress in our company’s second century.
We expect continued economic expansion in the United States in Phase IV, but we are concerned about the possibility of slowing economic growth in Europe and in China. And we contend with various risks in Russia, which is an important market for our company. Uncertainly clouds the economic outlook for the world’s emerging markets. Also uncertain is whether the prices for crude oil and natural rubber will remain low. And we will need to monitor closely the different approaches that nations are taking in financial policy and the results of those approaches.
An issue that arose in Phase III was that our sales grew somewhat less rapidly than our production capacity. In Phase IV, we need to reaffirm the basics of our business and offer new value through Yokohama-like products that will appeal to customers. That will mean becoming faster and more responsive in addressing changes in the market environment, becoming more customer oriented in every way, working in product planning and development to assert more Yokohama-like products, and fortifying our supply framework for fulfilling customer expectations and for keeping up with vigorous demand. Here is the basic approach that we will abide by in Phase IV. We will maximize customer value and expand our global scope with an eye to remaining a leader in the tire and rubber industry for another 100 years. That will include channeling all our activity companywide into maximizing customer satisfaction; offering distinctive, Yokohama-like products; and undertaking vigorous investment based on a strong financial position. I will now describe for you how we will apply this approach in our tire strategy, in our Multiple Business strategy, in technology strategy, and in common strategy for all operations.
We are working to provide fun and vitality through tires by serving the world through unexcelled technology. Our approach centers on allocating more resources to winning business with automakers worldwide; on strengthening our presence in our principal markets; and on working strategically to expand our business in truck and bus tires and in off-the-road tires.
In appealing to automakers, we will strive to assert leadership in fuel-saving technology and in other technologies to serve the automakers’ environmental, safety, and performance needs. We are counting on that effort to help us secure technological approvals from more automakers and to win fitments on more vehicles worldwide.
What we mean by “principal markets” is large markets, such as the United States, and markets where we have an especially strong position, such as Russia. Authoritative projections place global tire demand in 2017 at 1,987 million tires. The largest markets are North America, Europe, and China, and we are therefore working to expand our presence in all of those markets. We have an especially strong position, meanwhile, in the Japanese and Russian markets, and we are working to expand our presence further in those markets.
We have earmarked ¥120.0 billion for investment in expanding tire production capacity during the three years of Phase IV. That investment will increase our annual production capacity to 89 million tires by 2020 year-end, from the 74 million planned for 2017 year-end. Most of the expansion will be to serve demand locally in our principal markets. And a lot of the new capacity will come on line after the completion of Phase IV.
We established the Commercial Tire Division in spring 2015 to speed decision making in regard to truck and bus tires and in regard to off-the-road tires. And the completion of our truck and bus tire plant in Mississippi will further localize our production in a principal market.
Our strategy in our Multiple Business operations features a straightforward emphasis on deploying original technology to offer the world’s best products. That emphasis underlies our measures for expanding business globally in automotive components, for building on our market leadership in marine products, for strengthening our position in the construction and mining sectors worldwide, and for fostering growth in new ventures. We are counting on those and other measures to increase the Multiple Business share of our net sales to 25%.
Measures for expanding our business globally in automotive components will include building production and sales networks to serve automakers worldwide. Our global business in automotive components centers on hoses for air-conditioners, power steering systems, and other applications and automotive sealants for windows and other applications. We manufacture those products at plants in Japan, China, Taiwan, Thailand, the United States, and Mexico. Our plans call for expanding our production network and for applying high-value-added technologies in an expanded range of automotive applications.
Our Multiple Business presence in the construction and mining sectors consists of hydraulic hoses for construction and mining equipment and conveyor belts. The product quality of our hydraulic hoses has earned high regard among Japanese equipment manufacturers. We are moving to build on that reputation in cultivating business with construction equipment manufacturers worldwide. We are also moving to broaden our presence in overseas markets for replacement hoses, and we are building a global network of sales and service franchisees for that purpose.
Phase IV of Grand Design 100 will mark a new phase for Yokohama technology. We have established a tradition of developing and commercializing technologies for safeguarding the environment, as in our fuel-saving BluEarth tires. In Phase IV, we will deploy original materials and technologies for addressing environmental issues on a new and higher plane.
We will work in product development, in production, and in marketing to offer advances in product performance and in product quality that will earn the satisfaction of customers worldwide. With that goal in mind, we will unify tire specifications globally at a high level to allow for producing and supplying products of Yokohama quality anywhere at any time. In laying a next-generation technological foundation, we will be flexible in exploring new possibilities. Joint R&D with other companies and organizations will speed our progress in developing next-generation technologies. Meanwhile, we will create next-generation Nanopower rubber through original strengths in materials technology and in advanced analysis and simulation.
First of all, we will take a proactive approach in regard to M&A and alliances. Our corporate acquisitions during the three years of Phase III included a Japanese manufacturer of tire bead and an Italian manufacturer of marine hoses. Also in Phase III, we concluded an agreement to provide China’s Shandong Xingda Tyre with technological support in off-the-road tires. And we concluded the cooperative R&D agreement with Kumho Tire.
We have achieved huge cost savings on our cumulative basis through our mudadori cost-cutting activities, which we inaugurated in 2006. During the three years of Phase III, we reduced costs about ¥30 billion through ongoing mudadori activities and through new activities for tackling designated priority themes. And we will broaden our approach in Phase IV through companywide activities for achieving larger cost reductions. In addition, we will work to reduce manufacturing costs 5% annually through cross-sector activities.
Another important facet of our common strategy for all our operations is strengthening our footing for global growth. That begins with fostering human resources that can function globally. We will therefore adopt international job rotation, including the promotion of non-Japanese to management positions. We will continue our program for providing all newly hired employees at the parent company with two months of overseas training. And we will phase in English-competence requirements for managers.
Our management vision for fulfilling corporate social responsibility calls for building a trusted identity as a contributing member of the global community. We work to fulfill our corporate responsibility in accordance with that vision and with the basic policy of Grand Design 100.
One Phase IV priority in fulfilling our corporate social responsibility is protecting the environment. We aim to deploy environmentally attentive features in all our products, as we have done with the fuel-saving BluEarth tires. We are working to plant 500,000 trees by 2017 at production operations worldwide and elsewhere in the Yokohama Forever Forest project. And we are taking measures at plants worldwide to preserve biodiversity in the plant vicinities.
That concludes my summary of Phase IV of our Grand Design 100 medium-term management plan. I hope that you will see that Phase IV is a springboard to our next century of progress, as well the culmination of the plan we have tackled since 2006 as Grand Design 100. Thus are we mobilizing our entire organization in the spirit of All for Growth to achieve our Phase IV targets. Thank you. |