Toyota Boshoku Corporation (3116) Earnings Call Transcript & Summary

I am Takeshi Numa, President of Toyota Boshoku. Thank you very much for attending our midyear business briefing for fiscal 2022. I would like to take this opportunity to express my heartfelt thanks to those who are engaged in measures against COVID-19 and our stakeholders who are working every day to ensure supply of materials, tackle logistics issues and respond to changes in production plans. First of all, I would like to explain about our measures against coronavirus infection prevention. At Toyota Boshoku, in order not to place any more burden on medical professionals as well as to make all our employees feel safe when working, we have made various efforts to prevent COVID-19 infection on a global scale. Specifically, for example, one, we offered workplace vaccinations globally as a measure to prevent infection. Two, to further promote telework, we established IT infrastructure, improved in-house systems and encouraged active introduction of remote meetings. As a result of these efforts, we were able to improve labor productivity while working to reduce the risk of COVID-19. Besides the measures against COVID-19 inside the company, we also developed and started sales of some products that will enable safe, free movement despite COVID-19. The anti-droplet partition has a fan with a filter to supply clean air, providing the driver with a safe environment. In order to provide a safe environment for vehicles used by many and unspecified people such as cars for car-share services, we are now developing an add-on UVC radiation device. Under the 2020 business plan, which began in fiscal 2017 for the enhancement of our corporate value, we work to: one, promote corporate growth in harmony with society; two, strengthen management foundation; three, strengthen competitive advantage; and four, offer multidimensional value and expand business fields. Meanwhile, to achieve the targets of the business plan, we have worked on the midterm business implementation plan. However, as you can see on this slide, some issues were left unaddressed. We will continue to make efforts to fulfill these matters of materiality identified from the current issues and future social needs to solve the issues. We have formulated the 2025 midterm business plan. As I explained at the previous business briefing, this year, the first year for the implementation of the plan, we have been promoting these 5 actions from #1 through #5 here. I am going to explain the progress of these actions. First, I would like to explain the development and manufacturing strategies for seat frame parts. In order to enhance alliances for seat frame parts, we began to consider transfer of commercial rights of Aisin and Shiroki for non-Toyota OEMS. We will also consider strengthening collaboration with Toyota Body Seiko for production of long slide rails and expanding the scope of entrustment of production and development for rear seat frame parts. For production, through these actions, we will consolidate production of similar products of our companies to concentrate production with the aim of establishing a highly efficient production system. For rear seat frame parts, we will standardize the processes, which have been separated between Toyota Body Seiko and Toyota Boshoku, so that the global resources of Toyota Body Seiko can be effectively utilized, thereby improving our competitiveness. Next, I would like to explain the business strategy for seat fabrics and covers. To achieve in-house supply of seat fabrics, whose development is currently conducted separately by the OEM and Toyota Boshoku, seat fabric development by the OEM and seat design development by us, we began to send our members to the OEM to participate in the initial development of seat fabrics. Our target for the future is to undertake development of seat fabrics by ourselves and conduct the development simultaneously with the design development so as to shorten the total development period by around 30%. We will also procure and propose seat fabrics for the OEMs. Along with the efforts in development, aiming to establish a next-generation seat cover, MONOZUKURI, we will integrate the processes of fabric control, cutting and piece sowing, which are currently conducted by each sewing company to promote concentrated production in phases from 2025. At the same time, we will incorporate process innovation technologies with the aim of increasing the effect of concentrated production. I would like to explain about true localization by presenting 2 cases. The first is in China. In preparation for the expected increase in production volume in China due to new orders to be received, we are promoting activities to enhance our price competitiveness by developing, introducing local suppliers. As you can see in the graph, in comparison with exporting from Japan at present, about 17% improvement in price competitiveness expected. The second is the case in Asia. With localization of bolts, which are a safety part, achieved, localization of parts in Asia is expected to be completed soon. We have employed a Japan-based manufacturer with know-how in Thailand and introduced a local manufacturer with experience for Japanese OEMs in India. However, in terms of raw materials, the localization rate is still a few percent lower. We will, therefore, continue to further promote localization to achieve local production for local consumption. To realize an optimal global production and supply system in Japan, we will expand the framework of streamlining from production to logistics and affiliates and complete streamlining of 6 sites by the end of this fiscal year. In addition to the scheduled streamlining of 7 Toyota Boshoku sites, we will work to complete the streamlining of nine sites, including affiliates by fiscal 2023. Moreover, we have merged 2 logistics companies to improve efficiency in transportation. In the Americas, we started from this fiscal year the integration of a part of the seat frame processes in the Illinois region to the Tennessee region and the door trim decoration and assembly processes in the Indiana region to the Kentucky region, aiming for the targets after restructuring. To realize optimal production and supply systems globally, we are advancing consolidation, concentration and streamlining of processes in phases. Since we announced the 2050 environmental vision in 2016, we have been promoting the zero CO2 emissions challenge. We have revised our CO2 emissions reduction target for 2030 from 38% to 50%, accelerating the initiative toward carbon neutrality. We are also proactively promoting the use of renewable energy. After achieving 100% renewable energy electricity at the global headquarters building, we will complete the shift to renewable energy at all sites in Europe by the end of fiscal 2023 and at the other region, where parts for next-generation automobiles are produced by the end of fiscal 2026. To achieve carbon neutrality in our life cycle, there are challenges that individual companies cannot solve. We will, therefore, enhance collaboration with OEMs, industry groups and the government. In particular, we will work to standardize the range of LCA and the CO2 calculation method, promote development of recyclable materials and collaboration with suppliers in energy conservation activities. Now I will talk about information sharing by promoting DX. The illustration on the right shows an outline of our DX-related activities as strategies. By conducting various activities, such as those to strengthen competitiveness, create new values and develop digital human resources, we believe we can achieve the 4 framework tasks of the 2025 midterm business plan and will thereby achieve our target for 2025. In particular, with the aim of expediting management actions and kaizen cycles, we have been working to build management information infrastructure and promote MONOZUKURI information sharing using IoT by concentrating and integrating financial and nonfinancial information from around the world in a timely manner and thereby achieving the reduction of lead time in accounting. We have enhanced our TQM activities since 2017. In 2018, we won the TQM Encouragement Award. And 3 years later, we were awarded the Deming Prize. Through this initiative, organizations for unit components manufacturing and production engineering have become able to systematically carry out activities based on TQM and have significantly improved their TQM levels, resulting in the improved work quality. We will deploy measures to improve work quality learned from the TQM practice by the Kariya plant and the unit components production engineering center to the entire company with the aim of achieving the 2025 midterm business plan. From now, I am going to explain our initiatives for achieving the targets of the 2025 midterm business plan. At present, we have positioned car manufacturers that are in alliance with Toyota Motor Corporation as strategic OEMs and have been working to receive orders from them. We aim to increase the share of non-Toyota sales to 20% or more by 2030. Specifically, for global OEMs, we aim to become one of their major suppliers by obtaining orders for global car models as a development supplier. We will enhance activities to increase sales to a level surpassing our competitors around the world. To increase sales to Japan-based OEMs, we will work to obtain orders by taking advantage of high value-added technologies in growing market areas. In carrying out activities, we take into consideration the possibility of collaboration with existing suppliers. As an interior space creator, besides the existing strategic field of personally owned vehicles, we add the MaaS vehicles as a new strategic field in response to changes in mobility society and automobile structure and will establish a new business model for the ridesharing market. We have developed MXnext, an advanced version of the MX191 exhibited at the Tokyo Motor Show, and plan to have it exhibited at CES at the beginning of the next year. Service providers are likely to periodically change interiors of their share-ride cars to continue to provide passengers with a better experience. We will respond to the needs of service providers in grade management from the basic to premium levels. Next, I would like to explain about the 2025 midterm business plan targets and the full year forecasts for the fiscal 2022. For the full year forecast of the current fiscal year, the first year of the 2025 midterm business plan, although with uncertainties such as material supply and soaring prices, we can return profits with support from our stakeholders to achieve the initially released targets of JPY 1.4 trillion for revenue and JPY 72 billion for operating profit. For items that are expected to exceed the targets, we will consider a review of the targets for the next IR in May based on the results of fiscal 2022. Regarding promotion of ESG activities in the field of, one, environment, we are promoting initiatives based on the 6 targets of the 2050 environment vision. In response to the escalating needs for carbon neutrality, we have set up a dedicated department and plan to invest approximately JPY 15 billion as an environmental investment, mainly in energy saving by 2030. Next, in the field of, two society, based on the United Nations Guiding Principles on Business and Human Rights, we implement human rights due diligence and are formulating the human rights policy, which is scheduled to be released to the public in December. Finally, for three, corporate governance, towards the revision of the Corporate Governance Code, we are working on the formulation of the sustainability basic policy and the business portfolio basic policy while advancing efforts to respond to TCFD. This will also be scheduled to be open to the public in December. We will promote these initiatives for the revision of the Corporate Governance Code to adapt ourselves to the transfer to the prime market in new market categories of the Tokyo Stock Exchange scheduled in April 2022. To enhance the ESG monitoring, we have also been working to update ESG KPIs. We will advance efforts so that they can be released at the next IR in May. Finally, I would like to explain our initiatives for achieving our desired status for 2030. In order to become a solution-based company capable of creating true corporate value in 2050, steps toward 2030 are as follows: one, we will achieve the 2025 midterm business plan targets and as an interior system supplier, become a company that serves as home and secures competitiveness that can surpass competitors. Two, we will create new value as an interior space creator by promoting businesses adopted to CASE and MaaS and seeking efficient ways to introduce technologies. Three, we will become a company that is continuously needed in society by offering quality time and space for all living and communication spaces and creating new businesses through collaboration with other companies. Toward becoming an interior space creator, we are promoting advanced research and development. For MaaS and Smart City, we are advancing development of human-centered systems to offer a valuable experience for customers by combining seats and interior hardware with software. In 2018, we recruited software development personnel in the Tokyo metropolitan area to form a dedicated team. The team is working to promote collaborations with companies in different fields, such as mobility and health care. We will expand investments in the growing strategic fields while also focusing efforts to obtain human resources for software development. To create the fourth and fifth pillars, we exchange human resources with universities and other research institutions in the Tokyo metropolitan area to accelerate research. Moreover, as an antenna function to quickly catch trends and information about ventures and cutting-edge technologies, we are working to strengthen our site in the Tokyo metropolitan area. In the future, we will accelerate open innovation, not only in Tokyo but also at overseas sites, such as China and Silicon Valley and promote measures to generate new seeds for growth. In order to realize our vision, Toyota Boshoku will steadily implement the 2025 midterm business plan aimed to become a company that will continue to be needed by society in 2030 and 2050 and achieve sustainable growth by enhancing corporate value. I would like to ask for your continued understanding and cooperation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]