Steady Progress Implementing Our GD2020 Medium-term Plan’s Growth Strategies
Record first-half sales revenues but profits declined
In the first-half of fiscal 2019, the Japanese economy was largely stable, with a moderate increase in consumer spending countered by slower production activity amid a decline in exports. Overseas, the US economy remained on recovery track, but slowdowns were seen in some parts of Europe while the Chinese economy continued to slow. In this operating environment, Yokohama Rubber increased its sales revenues by 0.5% year on year to \311.1 billion, an all-time high for a first-half. Despite the record-high sales, profits fell across the board, with business profit down 27.5% to \17.2 billion, operating profit down 4.7% to \25.1 billion, and profit attributable to owners of the parent down 6.2% to \16.7 billion. Our full-year projections for fiscal 2019 are sales revenue of \660 billion (+1.5% YoY), business profit of \57.5 billion (-3.0%), operating profit of \65.0 billion (+21.5%), and profit attributable to owners of the parent of \46.0 billion (+29.1%). We distributed to shareholders an interim dividend of \31 per share and plan to match that with \31 per share at the end of the fiscal year.
Initiatives under GD2020 medium-term management plan
We are now midway through the middle year of our three-year medium-term management plan, the Grand Design 2020 (GD2020), which we launched in fiscal 2018. GD2020 is positioned as the framework through which we will fortify our business foundations by redefining our core strengths and deploying a growth strategy based on original approaches, which will enable us to make new strides forward in the next decade, the 2020s. The entire Yokohama Rubber Group is working together to achieve GD2020’s numerical targets for fiscal 2020?sales revenues of \700 billion, operating profit of \70 billion, an operating profit margin of 10%, a debt/equity ratio of 0.6, and ROE of 10%.
Expanding our consumer tire lineup, especially in the hobby tire segment
The premium car tire strategy is one of the key growth strategies in our consumer tire business, and in the first-half of fiscal 2019 we successfully won original equipment (OE) contracts for several premium car models by Japanese automakers, including Toyota’s RAV4 and Mazda’s MAZDA3. Meanwhile, our tire manufacturing and sales subsidiaries in the US and Russia won supplier awards from Subaru (US) and Nissan (Russia). Under our winter tire strategy, the BluEarth-4S AW21, our first all-season tire for the European market, has continued to enjoy solid sales since its market introduction in September 2018. We were particularly active with our hobby tire strategy. In Japan, we introduced the GEOLANDAR X-AT for SUVs and pickup trucks and expanded our size lineup for the ADVAN A08B street tire. In North America, we continued to launch new sports tires, including the ADVAN A052 and the ADVAN FLEVA V701. Of the nine new tires we plan to introduce to the North American market in fiscal 2019, four will be hobby tires. Meanwhile, for the classic car market in Japan, we revived two historic YOKOHAMA tires?the G.T.SPECIAL CLASSIC Y350 and A539. Our consumer tire business also continued to use the internet to strengthen its communications with customers. In addition to opening the ADVAN Club online membership fan club website, the business renewed its Japan passenger car tire website.
Strengthening OHT sales in Japan and OE fitment in North America
Under our commercial tire growth strategy, which positions off-highway tires (OHTs) as the core growth driver, we plan to expand sales in Japan using tire brands produced by two key recent additions to the Yokohama Group?the Alliance Tire Group (ATG) and Aichi Tire Industry, respectively acquired in 2016 and 2017. We began delivering ATG tires to a major Japanese construction machinery maker this past February, and ATG is now developing new sizes of its agricultural machinery tires specifically for the Japan market. Meanwhile, in March we added Aichi Tire’s forklift tires to the lineup of tires available through our domestic sales subsidiary. As part of our efforts to expand our presence in truck and bus tires by building on our North American business platform, Yokohama Tire Manufacturing Mississippi (YTMM) secured the IATF16949 certification this March and has begun delivering its tires to local Japanese makers of trucks for the US market. Since April, YTMM has introduced seven sizes of our 712L deep-groove, drive-axle truck tire particularly suited to the long hauls common in North America. In Japan we also expanded our product lineup and launched sales of new tires for dump trucks and buses. Meanwhile, the MB business continued to pursue its strategy to be the world’s unrivaled leader in marine products and this June began delivering the world’s largest pneumatic floating fender.
Promoting ESG activities
Our efforts to strengthen our management foundation include environmental, social and governance (ESG) related initiatives as well as work-style reforms. Our ESG initiatives include our “Procurement Policy for Sustainable Natural Rubber,” which we formulated in 2018 as part of our efforts to achieve the UN’s Sustainable Development Goals (SDGs). A specific action undertaken in line with this policy in the first half of 2019 was the start of surveys of worker conditions at natural rubber plantations. Other ESG initiatives undertaken thus far in 2019 included the installation of a solar power system at our Yokohama Tire Philippines’s plant, part of our promotion of reusable energy. Meanwhile, our efforts to strengthen corporate governance included reducing the number of internal directors and increasing the ratio of external directors. Work-style reforms included the establishment of a Diversity Promotion Task Force in July. We are also developing measures to create an environment where all employees can work comfortably, focusing on support for rearing children, caring for elderly and disabled family members, and continuing ones’ career.
The Yokohama Rubber Group will continue to steadily implement its GD2020 strategies and initiatives while striving to be an indispensable partner to customers around the world. We look forward to the continued understanding and support of our shareholders as we work toward achieving these goals.