Reforming the Company-Wide Earnings Structure Through Business Model Innovation

「1) Strengthening the growth and earnings base through enhanced business portfolio management」

「Through this absorption-type company split, we will succeed to Kowa's network solutions business and other operations, which possess the software technologies sought by our company and the commercial rights relating to those technologies. This will enable us to secure an appropriate number of software engineers, expand our range of software-equipped products, participate in themes in our ongoing marketing activities and deploy the technologies in other businesses, including the optoelectronic fusion project. Through expansion of our Group's business domains and business model innovation, we aim to further enhance corporate value.」

「In the VCCS segment, we advanced cost-structure reform centered on standardizing and commonizing products and production processes, while working to achieve stable profitability and business expansion by increasing revenue in new application areas, including entry into the ADAS product market. In the CTC segment, we strengthened our ability to supply products addressing new testing needs, including semiconductors related to generative AI, while introducing new technologies through alliances and M&A and optimizing the manufacturing structure. We also continued technology development to address future semiconductor miniaturization and improve production efficiency.」

「Although labor costs and other expenses at the Chinese and Vietnamese production sites increased due to appreciation of local currencies, segment profit rose to ¥1,389 million, up 93.8% year on year, due to higher production efficiency resulting from a review of the manufacturing structure and stable orders.」

「●Establish a business structure capable of responding to global paradigm shifts and drastic changes in the business and competitive environments by layering the business structure across industries, customers, technologies and supply chains.」

「Operating profit was ¥747 million, down 85.3% year on year. Although the VCCS segment's earnings improved substantially, the FC・MD segment posted lower profit, the CTC segment posted an operating loss, and the Incubation Center segment, focused mainly on new businesses, also posted an operating loss.」

「For the cumulative second quarter, revenue was ¥36,794 million, down 8.5% year on year, as the VCCS segment posted higher revenue but both the CTC and FC・MD segments posted substantial revenue declines. Operating profit and loss was a loss of ¥120 million, compared with profit of ¥3,507 million in the same period of the previous year, as VCCS turned profitable, but CTC and FC・MD posted operating losses and the Incubation Center segment, focused mainly on new businesses, also posted an operating loss.」

「As a result, segment revenue increased year on year to ¥12,779 million, up 25.5%. Although labor costs and other expenses at the Chinese and Vietnamese production sites increased due to appreciation of local currencies, the segment posted profit of ¥155 million, compared with a loss of ¥1,102 million in the same period of the previous year, due to lower logistics costs as ocean freight rates eased and higher profit accompanying increased revenue.」

「Evolution toward “Layered Management 2.0”」

「Business structure improvement expenses　186 These were retirement allowances incurred in connection with workforce optimization at our Group company 東莞友華汽車配件有限公司.」

「As a result, segment revenue increased year on year to ¥22,162 million, up 17.6%. Although costs increased due to persistently high raw material prices and ocean freight rates, as well as higher labor costs at the Chinese and Vietnamese production sites resulting from appreciation of local currencies, the loss in the second quarter narrowed substantially due to partial recovery of higher costs and a decrease in deductions for unrealized profits related to inventory valuation. The segment posted a loss of ¥1,475 million, compared with a loss of ¥488 million in the same period of the previous year.」

「Operating profit was ¥1,087 million, down 10.9% year on year. Although the circuit-test connector segment posted a substantial increase in profit, the wireless communications equipment segment posted lower profit, while the automotive communications equipment segment posted a loss due to the impact of higher costs from persistently elevated logistics expenses, continued increases in raw material prices and yen depreciation.」

「To acquire and establish stronger positions in these major markets, we will vigorously advance the four innovation initiatives set out in our basic management policy while pursuing stable company-wide growth and a robust, highly profitable structure through a business model transition.」

「Operating profit was ¥3,752 million, down 0.5% year on year, as the automotive communications equipment segment posted a loss and the wireless communications equipment segment posted lower profit, despite a substantial increase in profit from the circuit-test connector segment.」

「Operating profit was ¥2,003 million, down 2.3% year on year, as the automotive communications equipment segment posted a loss and the wireless communications equipment segment posted lower profit, despite a substantial increase in profit from the circuit-test connector segment.」

「As a result, segment revenue rose substantially year on year to ¥10,184 million, up 89.7%. Although segment earnings improved significantly, higher ocean freight rates and increased logistics costs due to greater use of air freight amid difficulties procuring materials and production delays resulted in profit of ¥1 million, compared with a loss of ¥942 million in the same period of the previous year.」

「For the automotive communications equipment segment, we identified rebuilding its earnings structure as our highest-priority issue and worked on fundamental reform of the fixed-cost structure by substantially strengthening the business management system and raising cost awareness at production sites.」

「Although the first quarter resulted in a substantial loss of ¥942 million, earnings improved significantly from the second quarter onward due to a higher proportion of products with relatively high profit margins, lower manufacturing expenses resulting from the resolution of material defects in the same quarter of the previous year and the implementation of cost management, and a lower labor-cost ratio resulting from higher productivity. The segment posted profit of ¥136 million, up 9.2% year on year.」

「Although the first quarter resulted in a substantial loss of ¥942 million, earnings improved in the second quarter due to a higher proportion of products with relatively high profit margins, lower logistics costs resulting from the resolution of material defects in the same quarter of the previous year and improved loading efficiency, and a lower labor-cost ratio resulting from higher productivity. The segment posted a loss of ¥345 million, compared with profit of ¥109 million in the same quarter of the previous year.」

「Operating profit was ¥426 million, down 63.7% year on year, as the automotive communications equipment segment posted a loss despite a substantial increase in profit from the circuit-test connector segment.」

「The impact of COVID-19 has been extremely significant, and even in the target markets of our Group, visibility is limited beyond the next six months. Based on our recognition that a period of dramatic change in the global business and competitive environment is approaching, we are working toward formulating a new medium-term management plan for the period from the 83rd fiscal year (fiscal year ending March 2021) through the 85th fiscal year (fiscal year ending March 2023), including a fundamental review of our business strategy, with July 2020 as the target date for completion.」

「Operating income increased substantially to ¥3,905 million, up 66.9% year on year. Although operating income from the automotive communications equipment segment declined year on year, operating income from both the circuit-testing connectors and wireless communications equipment segments increased significantly.」

「Revenue for the second quarter of the current consolidated cumulative period increased year on year in every segment, reaching ¥29,933 million, up 12.3% year on year. Operating profit and loss declined year on year in the automotive communications equipment segment, but increased substantially in both the circuit inspection connector and wireless communications equipment segments, resulting in operating profit of ¥2,504 million, up 89.0% year on year.」

「Segment operating income was ¥482 million, up 459.1% from the previous fiscal year. Profit was weighed down by higher manufacturing labour costs in China, higher tariff rates on products exported to the United States and a change in the inventory valuation method, but the company reduced the cost of exporting components and products by improving production-control efficiency, among other measures.」

「Segment operating income was ¥406 million, up 565.2% year on year. Although manufacturing labour costs in China remained high and higher tariff rates on products exported to the United States weighed on profit, the company reduced the cost of exporting components and products by improving production-control efficiency, among other measures.」

「Operating income was ¥1,324 million, up 0.6% year on year. Although operating income from the circuit-testing connectors segment declined year on year, the automotive communications equipment segment returned to profitability and the wireless communications equipment segment posted a substantial increase in operating income.」

「The company will move quickly to rebuild its earnings structure by normalising operations at production sites in the automotive communications equipment segment, which became a key earnings-structure issue in the previous fiscal year, and, over the medium term, pursue stable company-wide growth and a robust, highly profitable earnings structure through a business model transformation.」

「However, to establish a structure capable of consistently achieving the basic medium-term management target of Minimum 8, the company will vigorously promote management innovation, meaning innovation in management and business operations, to accelerate the 3 innovations described above. At the same time, it will move quickly to rebuild its earnings structure by normalising operations at production sites in the automotive communications equipment segment, which became a key earnings-structure issue in the current fiscal year, and, over the medium term, pursue stable company-wide growth and a robust, highly profitable earnings structure through a business model transformation.」

「In this medium-term management plan, based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」

「In this medium-term management plan, based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」

「In this medium-term management plan, based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」

「In this medium-term management plan, based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」

「In this medium-term management plan, based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」

「Based on the view that transforming the company's overall earnings structure, including innovation in its business model, is essential, the company will review the structure of its core businesses from the perspectives of enhancing the business mix, fundamentally improving fixed-cost efficiency, establishing a global business operating structure and enhancing value creation.」