Toyota Boshoku Corporation (3116) Earnings Call Transcript & Summary

Hello, everyone. I'm Takeshi Numa I would like to thank you for taking time out of your busy schedule to participate in today's briefing. I would like to start by thanking everyone involved in measures to prevent the spread of COVID-19 and all of your stakeholders working hard on a daily basis, mainly in the supply of materials, dealing with distribution issues and addressing changes in production plans. In FY 2022, our earnings results were severe, primarily due to storing materials prices and a breakdown in distribution, reflecting high crude oil prices globally as well as the surfacing of impact from global turmoil. However, we were somehow able to forecast an upturn in earnings when we announced our third quarter earnings results. I will now present a summary of our business operations. First, I would like to discuss business concepts and philosophy. We are undertaking measures in good faith to solve social issues for both people and society in general. It is our belief that we must become an ongoing concern that is needed by the world in accordance with the principles of Toyota created by founder Sakichi Toyota, Toyota Boshoku established the Toyota Boshoku Group's materiality in addition to realizing stakeholder return, owing to the results of social and economic value through our business activities. We also are systemizing our CSV management concept, which aims to improve corporate value through reinvestment in growth. Accordingly, in November 2021, we announced the sustainability policy, which is comprised of our corporate philosophy, materiality and management vision. In FY 2022, the external environment was harsh. However, as the first year of the 2025 midterm business plan, we executed the actions you see here. I will explain this from the next page onward. A, has actions to strengthen our capability to respond to fluctuations in demand. One, we flexibly addressed changes in the environment in the overall supply chain, including bridge product across regions and providing human support that utilized a skill map. In addition, two, in preparation for fluctuations in production, we implemented the development of user-friendly processes and the production environment and aim to realize a workplace that diverse personnel supporting our production activities will say is comfortable. Furthermore, we aim to tackle the expansion of diversity processes in the production front lines. B, as an example of a loss-free product launch, I will introduce actions aimed at the smooth launch of global automobile models. The 3 points in this action are: one, the formation of a MONOZUKURI team by a plant itself at the SE stage; two, the steady incorporation of MONOZUKURI requirement into product blueprints by integrating product simulations for duplicated production processes using digital tools and cardboard; and three, the parent plant in Japan becomes the main constituent that supports affiliates and overseas business sites to implement a gradual launch at 3 plants in Japan and overseas. Consequently, we achieved our marginal profit goal by reducing our reworking loss. Going forward, we aim to tackle even higher targets while expanding this action. C, I will now introduce examples of measures to convert to multiple sites for the localization of procurement globally and the stable supply of parts. One, this is an example of an action in the Tohoku region. We built a part supply system via collaborations with customers and suppliers from other industries in the Tohoku region. We also implemented the localization of procurement with parts manufacturers that have no experience in automobile parts. We also aim to realize carbon neutrality going forward. To this end, we plan to expand our discovery and training of competitive suppliers, taking into account LCA Scope 3 distribution. Two, the second example is the localization of procurement that aims at reducing supply risks in Southeast Asia. Supply concerns arose due to the COVID-19 lockdown regarding parts that were intensively produced at the Vietnam site. From the standpoint of risk reduction, we dispersed production to production sites in Vietnam, China and Japan. We aim to realize a stable production system by converting to multiple production sites for intensively produced parts. Regarding D, optimal production and supply through production restructuring. One, in Japan, we plan to complete the scale down of 6 sites, including affiliates, not only at Toyota Boshoku production sites and affiliates, but also distribution sites and also by expanding the framework to include customers. Going forward, we plan to tackle the overall supply chain, which includes business partners. Two, in the Americas, we completed the consolidation of processes in FY 2022 by implementing the planned integration of the seat welding and assembly process in the Indiana region, into Tennessee and the door production processes in Indiana into the Kentucky region. We are currently implementing the restructuring of processes in the Americas for completion in FY 2023. Once restructuring is completed in Japan and the U.S. in FY 2023, we plan to enhance the competitiveness of our MONOZUKURI, including the improvement of our breakeven points in each region and at each site going forward. Regarding one e, transfer sales rights for automobile seat frame mechanism parts, which was announced on March 1, 2022, we agreed with companies S, D and M of the Shiroki Corporation on the acquisition of sales rights. In addition, concerning to the transfer of production, we are considering direction of transfer of the Shiroki Nagoya Plant, a domestic production site of the Aisin Group that mainly manufactures seat frame mechanisms parts to Toyota Boshoku. Through these measures, we plan to enhance the efficiency of development and production by integrating and securing volume mechanism parts, which are possessed by each company, respectively. Regarding F, as an interior space creator, we implemented the second stage of our collaboration project with 6 Toyota Group companies. In addition to owned cars, which was a strategic domain thus far, we developed MX221 for the new ride share domain, in tandem with changes in values, and unveiled MX221 at Consumer Electric Show 2022. Reflecting the needs of ride share service providers, we plan to continually supply a comfortable travel time and space for customers by constantly maintaining the cleanliness of ride share vehicles with exchangeable interior systems and by providing new functions. We aim to expand our business in the mass market by simply equipping a single vehicle with several interior modules and changeable functions for grade management from economy to premium class and by updating modules and functions. Regarding the G. Provision of a service for new mobility experiences on the move, one action as an interior space creator, envisaging the mass market, we enhanced the value of experiences using MOOKS and in FY 2022, participated in demonstration tests for FCEV coasters and e-Pallets with a goal of verifying market receptivity. Consequently, we received high praise from more than 80% of customers for a degree of immersion into entertainment content from among the roughly 200 people that took a test ride, we estimate social implementation will finally be realized in FY 2023. We plan to embark on the development of software and hardware that is adapted for versatile use in vehicles. First, as actions to solve social issues, I will introduce the implementation of ESG activities. One, an environment, we revised our 2030 CO2 emissions reduction goal, which is a part of our challenge to realize zero CO2 emissions from a prior 38% to 50% to achieve our 2050 environmental vision. In addition, to strengthen our information disclosure based on recommendations by the Task Force on Climate-Related Financial Disclosures, TCFD, we released our scenario analysis for transition risk 1.5 to 2 degrees Celsius and physical risk 4 degree Celsius and introduced clean energy at 7 plants. Two, in society, we aim to plant 1.32 million trees by 2050 through reforestation activities. In 2021, we planted 50,000 trees. In addition, to optimize the performance of each employee, we undertook health challenge 8 and action that will contribute to the improvement of individual healthy actions and health awareness. For this, we were certified as an Excellent Enterprise of Health and Productivity Management 2022, White 500, Three, in governance, in December 2021, we announced basic policies for sustainability policy and business portfolio policy in tandem with revisions to the corporate governance code. Moreover, we implemented actions using digital technologies that will contribute to business transformation. We were thus certified as a company, DX certified company, capable of responding to the digital governance code and to implement CSV management, we revised our previous stakeholder and CSR KPIs. We plan to set and accelerate the use of 25 items as ESG KPIs. It will facilitate the measurement of materiality achievement by Toyota Boshoku. As a result of actions carried out thus far, we posted revenue of JPY 1.421.4 billion, a rise of JPY 149.3 billion year-on-year. Our operating profit totaled JPY 60.2 billion, a growth of JPY 3.1 billion. Profit before income taxes was JPY 64.5 billion, a rise of JPY 7.1 billion versus a year earlier. Net profit attributable to owners of the parent was JPY 39.2 billion, an improvement of JPY 8 billion, given the harsh external environment, which included a production decrease due to COVID-19, as the first year of the midterm business plan, we undertook an action plan. Accordingly, we improved our earning power and achieved a rise in revenue and profits year-on-year. This has given us the confidence needed to achieve goals going forward. In FY 2023, the second fiscal year of the midterm business plan, we continue to envisage a difficult external environment, including soaring materials and transport costs, the risk of a decline in production due to COVID-19 and conditions in Europe. Despite this, by flexibly addressing changes in the environment, we plan to set goals that exceed performance in FY 2022 and steadily undertake actions company-wide to achieve management goals in FY 2025 without fail. Also, in addition to financial goals, which represent economic value, the 25 items touched upon on Page 11, and will serve as ESG KPIs for nonfinancial goals, which represents social value, and we revised our previous stakeholders and CSR KPIs, which will serve as a yardstick to measure the degree of achievement of materiality at the Toyota Boshoku Group. For instance, in environment, we added the renewable energy introduction rate distribution CO2 emissions reduction rate and the sales ratio for electrification products as KPIs to measure the minimization of environmental impact for Materiality 3. In society, as an indicator to measure Materiality 1, we added the new product development rate that will contribute to interior space creator and the ratio of vehicle models scheduled to employ products that contribute to traffic safety as a yardstick to measure Materiality 2. In governance, we added a number of serious cybersecurity incidents, DX certifications and addressing human rights risks in the supply chain. From the next page onward, I will explain actions 1 to 5 shown here and which are to be taken to achieve plans. As an activity #1, one, order activities targeting customers other than Toyota, traditionally, we have mainly targeted automobile manufacturers that have alliance with Toyota. Their order activities are beginning to bear fruit and new orders are being approved. As for seat orders, a growth market is expected to expand going forward. We received new orders and commenced mass production in Indonesia as one example. In other regions in Asia as well, sales are growing step by step. Price competitiveness, owing to the effective use of existing resources and Toyota Boshoku technical development prowess contributed to orders. Another example is the seat orders for a new project in the South and activities to secure orders in the West through collaboration with local suppliers, we aim to expand to North India and other regions by taking advantage of high value-added products. Regarding 2, rolling seat fabric design and self-sufficiency, customers thus far developed the fabric and in combination with seat design development at Toyota Boshoku, we dispatched personnel to learn the fabric development for our current development process. In FY 2023, we plan to take on a portion of fabric development. We aim to further expand development by winning the trust of customers and fabric manufacturers by accruing our experience of simultaneous design and fabric development and by building up our track record. Further out to concurrently carry out fabric development and design, we aim to cut our development time by about 30%, and further plan and procure fabric on our own to offer appealing product recommendations that meet OEM needs. As for 3, addressing electrification, in the existing motor core business, we rolled out production for products to be used in SUVs in January 2022. Moreover, we plan to carry out orders activities that target strategic OEMs. In FY 2023, as a new activity, we will embark on the development of assembly products and system products and utilize technologies for the electrification of proprietary cores, which was nurtured as a unit components business, we aim to contribute to next-generation mobility and carbon neutrality. I will now explain 4, invest in startups. This has already been disclosed, but we plan to use the funds for corporate venture capital to conduct an investment to the scale of JPY 5 billion in the midterm targeting startups. We plan to aggressively invest in startups in 8 fields that possess advanced technologies. It is our goal as an interior space creator to create value, it will contribute to continuous growth, MONOZUKURI and future interior spaces for everyone outside the company. We are currently actively interacting with various start-up companies and plan to make specific investments in the near future. It will lead to the creation of future interior space value. As for activity #2, acquire MONOZUKURI competitiveness to address changes in the environment. One, as schemes for the pressing process, we will respond to the future labor shortage concerns by automating product transfer, maintenance, inspection and other operations that have traditionally relied on human labor and by centralizing global control through the use of IoT, we will respond to the labor shortage that is expected to occur in the future. In the future, we will also start working on future concepts for other processes and will combine process-technology innovation and shop-floor improvement to dramatically increase our competitiveness and take on the challenge of manufacturing high-quality, low-cost products. In activity #3, realize the Toyota Boshoku FY 2051 environmental vision. First, we will tackle cutting Scope 1, 2, CO2 emissions by half by 2030. One, we expect to switch to 100% renewable energy at all sites in Europe, excluding Africa. Two, we also plan to further analyze the TCFD scenario to dig deeper to integrate management strategies and environmental strategies. Two, we will further optimize the implementation of environmental measures and investments. Next, regarding 2, issues hindering the achievement of zero CO2 emissions during the product life cycle and LCA, we plan to accurately grasp, define and improve the prevision of information for Scope 3 emissions. In FY 2023, we will undertake measures that focus on these issues. Lastly, we aim to tackle, one, measures to reduce CO2 emissions from used materials, and two, measures targeting a circular economy. We will tackle the realization of carbon neutrality by FY 2051 by recycling product materials and using biomass. Regarding activity #4, speed up decision-making by strengthening monitoring of financial and nonfinancial KPIs, we will standardize KPI goals for FY 2026 and 2031 to facilitate management decisions using quantitative data and also plan to further enhance corporate management through the advancement of current systems. Concurrently, we aim to shorten the lead time for information visualization by using management information autonomously at each tier, quickly identifying issues and making improvements. I will now explain activity #5, improve operational quality that will contribute to the achievement of management goals after winning the Deming Prize for the unit components business. In FY 2022, improvements were made to the quality of operations by implementing TQM for the achievement of management goals. And the unit components business won the Deming Prize. In FY 2023, we plan to expand the scope of our activities to 4 areas throughout the company and shift to more challenging activities to solve emerging company-wide issues through Deming Prize-winning initiatives. Lastly, I would like to explain the FY 2031 vision. Our goals are to become a company that creates a prosperous society. It is filled with smiles, which cuts across generations and is environmentally friendly. In FY 2051, we aim to become a solutions company capable of creating true deepening, evolving, real value, corporate value. To this end, to become an interior space creator in FY 2031, we must: one, aim to achieve a 20% sales ratio to other companies by strengthening competitiveness and diversifying the provision of value; two, in addition, target a sales ratio of 5% from new businesses by implementing a business that deals with CASE and MaaS to create new value. One, in FY 2023, we aim to undertake the development of programs and systems to create new value by integrating internal and external knowledge to offer multidimensional value, expand business fields and create new businesses. Specifically, we will also undertake the cultivation of a workplace culture that nurtures personnel where each employee can work energetically and produce ideas by actively dispatching employees outside the company and by providing training for re-skilling. For new businesses, we embarked on verifications for, 2, the commercialization of technologies that use tide-generating force. With the goal of solving food issues, we are developing technology to improve productivity by incorporating the rhythm of the moon. At the laboratory level thus far, we confirmed the promotion of growth in lettuce and soft-shell turtles. We plan to conduct the verification of benefits at plant factories and farms in collaboration with other companies with a goal of realizing the FY 2031 vision. As a future business, we have commenced consideration of businesses such as the sale of lighting control modules, patent license provision and the production and sales of food products. This ends the FY 2022 business briefing. Toyota Boshoku aims to steadily carry out its 2025 midterm business plan to realize its vision, aim to become a company that continues to be needed by the world in FY 2031 and FY 2051 and will realize continual growth. We continue to ask for everyone's understanding and cooperation as we move forward.