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Achieved Record Sales Revenues and Business Profit in FY2018

Masataka Yamaishi
President, Chairman of the Board
Masataka Yamaishi

Impairment loss led to lower net profit

The Japanese economy stayed on the recovery track in fiscal 2018. The global economy was somewhat mixed, with the US sustaining its recovery and Europe steadily rebounding while the Chinese economy slowed. Japan’s tire industry, meanwhile, faced the challenge of slight declines in shipments of both original equipment and replacement tires. In this market environment, Yokohama Rubber’s sales revenue increased 0.6% year on year to ¥650.2 billion and our business profit grew 1.7% to ¥59.3 billion, both figures representing all-time highs for the company. However, the booking of an ¥11.2 billion impairment loss on our US subsidiary Yokohama Tire Manufacturing Mississippi (YTMM) in the third quarter resulted in a 1.4% year-on-year drop in operating profit to ¥53.5 billion. Profit attributable to owners of the parent fell 10.9% to ¥35.6 billion. Nonetheless, we matched the interim dividend of ¥31 per share with another ¥31 at year’s end, bringing the total dividend for fiscal 2018 to ¥62. Looking ahead, in fiscal 2019 we are targeting sales revenue of ¥660 billion (+1.5% YoY), business profit of ¥57.5 billion (-3.0%), operating profit of ¥57.5 billion (+7.5%) and profit attributable to owners of the parent of ¥40.0 billion (+12.3%).

Initiatives under GD2020 medium-term management plan

In fiscal 2018 we launched a new three-year medium-term plan, Grand Design 2020, GD2020 for short. 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. With our businesses steadily deploying their growth strategies and strengthening their business foundations, we aim 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 OE fitment and tire lineup

The premium car tire strategy is one of the key growth strategies in our consumer tire business, and in fiscal 2018 we successfully won original equipment (OE) contracts from several makers of premium car models, including BMW and Mercedes AMG. Under our winter tire strategy, we expanded our product lineup, adding new sizes to our lineup for our popular studless tires and introducing new models, such as a run-flat model for our iceGUARD 6 tire. Overseas, we introduced the all-season BluEarth-4S AW21 to the European market, and the product has since enjoyed solid sales. Under our hobby tire strategy, we followed up the successful North American launch of the GEOLANDAR X-MT mud-terrain tires for SUVs in July by introducing the same tire in Japan in autumn. We also expanded the size lineups for three of our popular ADVAN sports tires. The consumer tire business also strengthened its communication with customers by staging numerous user-participation events, including a popular event in tie-ups with the other company and the opening of a limited-time collaboration café.

Strong OHT sales

Our commercial tire growth strategy positions off-highway tires (OHTs) as the core growth driver. The two key players here, our subsidiaries Alliance Tire Group (ATG) and Aichi Tire Industry, both turned in stellar performances, posting sales above the levels prior to our acquisitions of the companies. ATG’s sales revenue was 25.3% higher than when we bought it, and Aichi Tire posted record sales revenue for a single fiscal year. Against that backdrop, ATG plans a 1.6-fold expansion of production capacity at its Dahej Plant in India by end-2019. We also aim to increase sales of ATG tires in Japan, and from this February we began deliveries of ATG tires to a major Japanese maker of construction machinery. Meanwhile, our efforts to expand our presence in truck and bus tires by building on our North American business platform were fruitful, with the region’s three major truck makers all adopting our tires. This year, YTMM plans to secure the IATF16949 certification and start delivering original equipment tires to the three makers. In 2018, we began sales in Japan and North America of a new size for our ultra-wide base single tire 902L, and we plan to introduce a new tire to the North American market in 2019. Accordingly, we are expanding capacity at our Mie Plant in stages.

MB operations strengthening auto components and marine products businesses

Our MB operations are focusing on the automobile components business and the marine products business. In the automobile components business, we began delivering car battery coolant pipe to an automaker in North America. We also established a basic technology for high-strength, high-elasticity urethane-based adhesives that we will be using to develop adhesives for automobile body structures, an area expected to see strong growth in demand. In the marine products business, our Indonesian subsidiary has begun full-scale production and is expanding product shipments to domestic and overseas customers. The MB operation also strongly boosted its sales of its conveyor belts in Japan in 2018, achieving its highest-ever domestic market share. Meanwhile, its hydraulic hose plants in Japan and overseas are operating at full capacity.

Strengthening our management foundation

We are taking action in several areas to strengthen our management foundation. In particular, we have prioritized three key initiatives: (1) strengthening our financial condition by reducing interest-bearing debt and idle assets, (2) revitalizing our corporate culture, and (3) improving risk management. One way we are revitalizing our corporate culture is by emphasizing CSR. For example, we are implementing numerous initiatives aimed at achieving the UN’s Sustainable Development Goals. One concrete example in this area is our establishment of a “Procurement Policy for the Sustainable Natural Rubber.” Our CSR activities also include the YOKOHAMA Magokoro Fund, a social welfare fund operated by our employees. The Fund made donations to support relief efforts following several natural disasters in Japan last year while also continuing to support the activities of environmental and human rights organizations.

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.

March 2019