Message from the President

Sales declined but net income rose sharply.

In the fiscal year ended March 2018, net sales declined 2.9% year on year to ¥512.0 billion and operating income rose 208.5% to ¥15.0 billion. We also posted net income attributable to owners of Nisshinbo Holdings Inc. of ¥26.3 billion, an increase of ¥22.8 billion from the previous fiscal year. There were several reasons for the lower sales and higher profits.
The main reason for the decline in sales was the transfer of the papers business to Daio Paper Corporation. The sale of the business is in line with our growth strategy, which is based on channeling management resources into businesses related to the automotive and super smart society fields. Established 70 years ago, our papers business generated sales of ¥32.6 billion and operating income of ¥2.6 billion in the fiscal year ended March 2017. However, we decided that the business would have more opportunities to develop and grow with Daio Paper, a leading company in paper products.
There are two reasons for the strong growth in operating income. First, Japan Radio Co., Ltd., part of the electronics business, moved back into profit with operating income of ¥693 million, compared with an operating loss of ¥5,486 million in the previous fiscal year. In its core marine systems business, Japan Radio launched new equipment for the aftermarket and the small and medium-size vessel market, leading to higher sales. In its solutions and specialized equipment business, sales of largescale disaster prevention systems declined, but companywide efforts to cut fixed costs helped to support profitability. Second, in the automobile brakes business, amortization of goodwill related to the acquisition of European company TMD ended in the previous fiscal year, completing the five-year schedule. That lifted profits by just under ¥6.0 billion.
Ordinary income increased year on year, in line with growth in operating income. The steep rise in net income attributable to owners of Nisshinbo Holdings Inc. reflected the booking of ¥11.7 billion in gain on sales of shares of subsidiaries and associates due to the transfer of the papers business, and ¥5.4 billion in gain on the sale of rental real estate.

Results Highlights

(millions of yen)

17/3 18/3 YoY
  Growth rate
Net Sales 527,274 512,047 -15,227 -2.9%
Operating Income 4,890 15,085 +10,195 +208.5%
Ordinary Income 10,556 19,700 +9,144 +86.6%
Net Income Attributable
to Owners of
Nisshinbo Holdings Inc.
3,574 26,352 +22,778 +637.2%

Long-term ROE goal of 9% achieved.

In 2009, we divided Nisshin Cotton Spinning Co., Ltd. into separate business segments and established Nisshinbo Holdings Inc. as the Group’s holding company. At the time, we set two long-term goals for the fiscal year ending March 2018: sales of ¥600 billion and ROE of 9%. This fiscal year, we achieved ROE of 10.6%, exceeding the target, but we missed our sales target due to the decision to prioritize capital efficiency. However, we should mention that one-off gains from the transfer of the papers business and the sale of rental real estate assets made a substantial contribution to ROE. The Group still needs to do more to increase operating income.
The current fiscal period is a transitional period due to a change in the Group’s fiscal year-end from March 31 to December 31. That makes year-on-year comparisons difficult, but in real terms, sales and profits are currently trending ahead of the pace in the fiscal year ended March 2018.

Allocating management resources to drive growth.

To support growth, we need to reinforce Group management and make our business more global, while also improving both offensive and defensive corporate governance. Since 2017 we have been successfully engaged in many issues relating to our businesses, corporate governance, and stakeholders. Accelerating our growth strategy, we have adopted a policy of promoting the priority shift of management resources to the automotive and super-smart society sectors.

Target quantitative and qualitative growth
with measures focused on ROE and ESG.

Create constructive dialogue with investors

We place great importance on communicating with investors. Currently, we invite institutional investors to results briefings twice each year, for interim results and full-year results. As President of Nisshinbo Holdings, I attend the briefings with my senior management team. I believe the briefings are a valuable opportunity to gain direct feedback from equity market participants.
Also, amid rising awareness of Japan's Stewardship Code, we are receiving a growing number of requests for engagement meetings. We are actively responding to those requests, taking on board opinions objectively and reflecting them in management.

Improve ROE

Based on Nisshinbo's cost of capital, we need to achieve ROE of 9% or higher. That long-term goal was finally attained in the fiscal year ended March 2018. However, there were substantial contributions from extraordinary income. To ensure ROE keeps improving, we have to increase operating income.
In our new long-term goals, we are aiming for ROE of 12% in 2025. That is the level we need to aim for as we grow our businesses globally. Our long-term sales goal is ¥1 trillion by 2025. Given that sales have risen at an annual rate of 9.8% (CAGR) since 2009, when Nisshinbo Holdings was established, that target is well within reach. However, we need to prioritize capital efficiency instead of simply chasing sales. While our primary goal is to achieve ROE of 12%, we have no plans to improve ROE using financial leverage. To reiterate, Nisshinbo must increase operating income. Below are our main balance sheet and operating income assumptions for 2025.

  1. To maintain the Group’s financial health and protect it from negative developments in the operating environment, we aim to maintain the shareholders’ equity ratio at between around 30% and 40%.
  2. Total assets currently stand at more than ¥650 billion, while sales are just over ¥500 billion. By 2025, we want to create a leaner company, with total assets roughly equivalent to sales.
  3. Based on those goals, shareholders’ equity in 2025 will be around ¥400 billion. To achieve ROE of 12%, that means we need to generate net income of about ¥50 billion. Taking into account our corporate tax rate, that equates to operating income of roughly ¥70-80 billion.

Based on the above assumptions, we need to increase the Group’s operating margin to more than 7-8%, taking into account variations in each business due to their specific characteristics.
However, we are likely to see distortions in our business if we focus too much on quantitative growth, undermining prospects for sustained growth. We will need to keep the Company on track with qualitative growth, or in other words, stay focused on ESG. Nisshinbo will only be able to grow and develop in a healthy way by balancing quantity and quality.

ESG and SDG initiatives

We regularly visit institutional investors overseas to exchange ideas. However, since 2017 in particular, we have noticed much greater interest in ESG investing. Nisshinbo is aiming to be an Environmental and Energy Company group, and Public Entity is a key principle in the Group’s Corporate Philosophy.
The Environmental component of ESG is now firmly entrenched at Nisshinbo through contributions we make to society through our business activities. One example is a project being run by Japan Radio in Brazil to promote wider use of rainfall radars in the state of Paraná. The radars are part of an early-warning system that accurately measures rainfall in areas at high risk of landslides due to localized heavy rain. Field testing of the system started in early 2018.

The Nisshinbo Group’s promotion of environmental management

In terms of the Social component of ESG, we have actively supported the training of junior tennis players for many years. In 2018, Nisshinbo also became the official sponsor of Japan’s table tennis team. Our aim is to support the development of young people through sport.
We are also putting in place the necessary systems to give seniors, women and other diverse groups in our workforce the opportunities to realize their full potential, as part of wider efforts to change the Group’s culture. As an initial step, we surveyed employees in the current fiscal period to gain an accurate picture of the situation in the Group. At the same time, all our business sites in countries and regions around the world are actively working to support their local communities.
We are also making progress with the Governance element of ESG. To ensure transparent and fair management and dynamic, bold decision-making, we are implementing offensive corporate governance measures to generate sustained growth and increase corporate value over the medium to long term.
One example is our decision to abolish the internal advisor and consultant system in 2017. In 2018, we overhauled the remuneration system for senior executives in order to provide greater incentives to directors to increase Nisshinbo’s corporate value. Specifically, we introduced a restricted stock compensation system to replace the existing stock option system.
Going forward, we plan to actively implement ESG measures as a Company that coexists with and contributes to society.
Nisshinbo is tackling issues related to the United Nation’s SDGs. We have set out several long-term financial performance goals to be achieved by 2025.
The SDGs, on the other hand, clearly define a number of priority global issues that need to be tackled by 2030 and envision the kind of world we should be working to create. The 17 SDGs contain many elements that coincide with our own development themes and existing technology portfolio. We are now looking into how the SDGs can be integrated into the Group’s management, starting with a project in the current fiscal period to map our value chain.
For more information about our ESG activities, please visit the Nisshinbo Group’s CSR website.

Our response to Japan’s Corporate Governance Code

The Corporate Governance Code was revised in June 2018. We carefully studied the changes and adjusted the Nisshinbo Corporate Governance Policy accordingly. Investors are particularly interested in companies' policies for cross-shareholdings. In the fiscal year ended March 2018, we took the following steps related to that type of shareholding.

Leveraging the strengths of our diversified business to promote diversity management.

The Nisshinbo Group encourages broad-based interaction between a large number of different businesses and divisions in areas from research and development through to personnel strategy. We are currently implementing nine projects using that collaborative approach, which is visualized in the diagram above.
For example, in automotive projects, we are reviewing existing technologies in all the Group’s businesses and bringing them together to generate new synergies in automotive-related businesses, aiming to spur innovation. One of those projects led to the creation of JRC Mobility Inc., which we spun off as an independent ADAS business in April 2018.

[Mobility] Nisshinbo’s goal of autonomous driving technology

Earnings are set to be driven by a number of emerging growth businesses.

In the near term, the automobile brakes business and the micro devices business are set to drive growth until results start to emerge from collaborative projects that harness the strengths of our diversified business.

Automobile brakes business

We are seeing strong orders for our copper-free friction materials*, which comply with environmental regulations throughout North America. To respond to that demand, we are investing to increase production capacity in North America, which should start feeding through to earnings from 2019.

* Brake friction materials that comply with new US regulations. The limit on copper content in friction materials will ultimately be reduced to 0.5%.

[Environment] Original technology to contribute to the solution of environmental problems

Micro devices business

Until the fiscal year ended March 2018, the electronics business covered both Japan Radio and New Japan Radio. However, due to the different characteristics of their operations and further growth in our electronics business after the acquisition of Ricoh Electronic Devices, we decided to separate the electronics business into two sub-segments — the wireless and communications business and the micro devices business.
New Japan Radio and Ricoh Electronic Devices are responsible for the micro devices business. Both companies manufacture and supply analog semiconductors. The global market for the type of analog chips they supply is worth around ¥1 trillion. US companies have the top three positions in the market, led by Texas Instruments Inc., but after adding Ricoh Electronic Devices to the Nisshinbo Group, sales have increased to ¥80 billion, giving us the momentum to challenge for third spot. We are looking forward to taking on our rivals in the global market by combining the respective strengths of New Japan Radio and Ricoh Electronic Devices in device design and manufacturing to increase competitiveness.

New Japan Radio’s microdevice business strategy