BRIDGE REPORT
(6250)

東証1部

YAMABIKO CORPORATION (6250)
President Yoshiaki Nagao
President
Yoshiaki Nagao
Corporate Profile
Company
YAMABIKO CORPORATION
Code No.
6250
Exchange
TSE 1st Section
Industry
Machinery (Manufacturing)
President
Yoshiaki Nagao
Address
1-7-2, Suehiro-cho, Ome-shi, Tokyo, Japan
Year-end
End of March
URL
Stock Information
Share Price Number of shares issued Total market cap ROE (Actual) Trading Unit
¥820 44,108,428 shares ¥36,169 million 10.4% 100 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (Actual) PBR (Actual)
¥30.00 3.6% ¥116.16 7.1 times ¥1,113.95 0.7 times
* The share price is the closing price on June 23. The number of shares issued was taken from the latest brief financial report.
ROE and BPS are the actual values for the previous term.
 
Earnings Trends
Fiscal Year Net Sales Operating
Income
Ordinary
Income
Net
Income
EPS DPS
Mar. 2011 (Actual) 83,381 2,887 2,570 1,311 30.75 8.75
Mar. 2012 (Actual) 86,905 2,809 2,885 1,972 50.52 12.00
Mar. 2013 (Actual) 89,045 2,212 2,955 2,423 59.47 15.00
Mar. 2014 (Actual) 103,848 5,020 5,715 4,656 112.94 27.50
Mar. 2015 (Actual) 105,251 5,688 6,447 4,910 118.82 30.00
Mar. 2016 (Actual) 113,348 6,730 6,402 4,700 113.73 30.00
Mar. 2017 (Forecast) 114,000 7,000 7,000 4,800 116.16 30.00
* The forecast is from the company. It undertook a 1:4 stock split as of October 1, 2015. EPS and DPS have been retrospectively adjusted.
* From the FY 3/16, net income is profit attributable to owners of the parent. Hereinafter the same shall apply.

This report contains the profile of YAMABIKO CORPORATION, overview of the financial settlement for FY March 2016, progress of the 2017 Mid-term Management Plan, and an interview with President Nagao.
 
Key Points
 
 
 
Company Overview
 
Yamabiko develops, manufactures and sells outdoor power equipment (e.g. trimmer, chain saw), agricultural machinery (e.g. pest control equipment, sloop mower), industrial machinery (e.g. generator, welder) in Japan and overseas. The overseas sales occupy about 60% of their total sales. For outdoor power equipment, it has the top share in Japan and a large share in the US. Its strengths are unique production technology, a variety of product line-ups, and an excellent technical support system.
 
1-1 Corporate history
YAMABIKO CORPORATION started as a joint holding company established in December 2008 through a merger between KIORITZ CORPORATION (listed in the first section of the Tokyo, Osaka and Nagoya Stock Exchanges), which dealt with agricultural machines in Japan and outdoor power equipment overseas, and Shindaiwa Corporation (listed in the second section of the Tokyo Stock Exchange), which dealt with outdoor power equipment and industrial machinery globally. In October 2009, YAMABIKO CORPORATION established its current business entity by a merger through absorption of both Kioritz and Shindaiwa.

KIORITZ CORPORATION was established in 1947 in Tokyo and originally called KIORITZ AGRICULTURAL EQUIPMENT CORPORATION. It has been a leading company in both agricultural equipment business through which they developed "Japan's first speed sprayer" and outdoor power equipment business through which they developed "Japan's first motorized back pack trimmer" and "the world's first handheld power blower". Furthermore, since its establishment, it has been focusing on self-development of engines for outdoor power equipment. The accumulative number of engines produced in 2008, before the merger, was about 40 million.

Shindaiwa Corporation was established in 1952 in Hiroshima and was originally called Asamoto Precision Manufacturer. It developed "Japan's first electric chain saw" for the outdoor power equipment business, and manufactured and sold engine generators and engine welders for the industrial machinery business. Its strength was high technological development capabilities, as can be seen in the development of the world's first mixed fuel 4-cycle engine.

In the late 1990s, with growing concern about global warming caused by greenhouse effect gas, and as engine's emission gas control became stricter in the West, especially in the US, research and development expenses increased to comply with the new regulations. In the 2000s, the medium and small-sized companies that could not afford these expenses went through rapid industry restructuring on a global scale in the outdoor power equipment industry.
Moreover, the business environment became further uncertain due to a flood of cheaper products from newly emerging countries and diversification of customers' needs.

Under these circumstances, the two companies concluded a business and capital alliance agreement in May 2007 on the premise of future business integration in order to strengthen the vitality to survive and win the intensifying competition.
In December 2008, YAMABIKO CORPORATION was established as a joint holding company to achieve better efficiency and expansion for all its businesses including development, manufacturing, logistics, sales and management. In October 2009, YAMABIKO CORPORATION conducted an absorption-type merger of Kioritz and Shindaiwa and became the current business entity.

The company name "Yamabiko" derives from the mountain god, "Yamabiko". Its corporate philosophy is to "create the bridge that bonds people and nature with the future".This expresses the Company's willingness to contribute to the conservation and improvement of the nature and environment.
 
1-2 Corporate philosophy, etc.
 
Yamabiko Group's corporate philosophy is formed from three elements: "Essence","Purpose of Existence" and "Code of Conduct".
"Essence", which incorporates both "Purpose of Existence" and "Code of Conduct", expresses in a single word what Yamabiko Group aims to be as a company, and the essence of its corporate activities.
"Purpose of Existence" sets out the role and responsibilities of Yamabiko Group in society, and makes a commitment to this.
"Code of Conduct" defines the attitude of each Yamabiko Group employee in relation to their work.
 
 
 
In addition, the Company established 14 detailed measures that augment the Code of Conduct to facilitate implementation of business activities in accordance with the corporate philosophy.
President Nagao disseminates messages that are based on "Essence", "Purpose of Existence" and "Code of Conduct" at various occasions. They are also making daily efforts so that the corporate philosophy would lead to each employee's actual activities in each workplace.
 
* Profile of President Yoshiaki Nagao
President Yoshiaki Nagao was born in February 1953 (Age 63). Since his childhood, he enjoyed "creation" such as building plastic models. When he was in the middle school, his interest grew in automobiles, especially those made in the US. He majored in "combustion engineering" in graduate school, where he studied engines. He began working at KIORITZ CORPORATION in April 1978.
At KIORITZ, he worked at the research department. He was involved with research and development of various engines, especially chain saw engines, under the corporate culture that supported the employees' spirit to find and work on the issues of their interest. Instead of focusing on his research only in the lab, he went out to the mountains and interviewed woodsmen who were the users of their products to hear opinions and identify the demands in detail.

After working in the technology area for most of his time at KIORITZ, he was appointed as President and CEO of ECHO, Incorporated, an affiliate of KIORITZ in the US in February 2006. His focus at ECHO was to observe the actual situation of the emission gas control regulations in the US, to find measures to meet the regulations, and to enhance the users' satisfaction. During the merger process of KIORITZ and Shindaiwa, he facilitated fast and drastic organization of the local sales routes. He recalled, "It was an important step to diversify my work".
After establishment of YAMABIKO CORPORATION, he managed to implement smooth integration as a board director / managing officer / industrial machinery division officer in Hiroshima where the head office of Shindaiwa Corporation was located. In June 2011, he was appointed CEO and President of YAMABIKO CORPORATION.
 
1-3 Market environment
Although no detailed statistics about the outdoor power equipment market is available, it is known that the largest market is in North America including the US, followed by Europe. In Japan, about 1 million outdoor power equipment/tools are sold per year. The indicators that may impact the Company's trend in the earnings include "number of housing start", "crop price", and "crude oil price" for the overseas market and "rice price" for the Japanese market.

There are two global manufacturers of outdoor power equipment in Europe (Germany and Sweden).
 
1-4 Business contents
1. Segment
Yamabiko group operates businesses in three sectors: Outdoor power equipment, Agricultural machinery and Industrial machinery. It also manufactures and sells accessories and parts of the equipment that they sell. (The reporting segments are "Outdoor power equipment/Agricultural machinery", "Industrial machinery" and "Others". Disclosed sales data, however, are divided into four: Outdoor power equipment business, Agricultural machinery business, Industrial machinery business, and Others.)
 
 
"Outdoor power equipment business"
Yamabiko manufactures and sells handheld or backpack-style forestry and landscape maintenance machinery powered by small internal combustion engines. The main products include chain saws, trimmers, power blowers, hedge trimmers, etc.

Based on the accumulated experiences and know-how and excellent development capabilities that meet the customers' needs, Yamabiko continues to produce high performance, highly durable and high quality engines.
 
 
(Gasoline engine system)
The engines for outdoor power equipment such as chain saws and trimmers are mainly 2-stroke gasoline engines. As described later, the Company's excellent capability to develop engines is one of their most important features/strengths.
Brief information concerning the Company's engines is provided below because knowing the gasoline engine system and characteristics of each engine type helps to understand the business of the Company,

Basically, a gasoline engine generates power by moving the piston down with the combustion of gasoline through the following 4 steps.
 
 
Reciprocating motion of the piston is converted into revolution of a crankshaft. The rotating motion turns the rotating shaft of axel of a car or revolving shaft of a chain saw.
The gasoline engine is largely categorized in two types (2-stroke engine and 4-stroke engine), depending on the number of reciprocating motion by piston to complete "1 cycle" of the 4 steps.
 
"2-stroke engine"
One power cycle is completed by 2-stroke. In other words, a power is generated by "1 piston reciprocating motion, 1 crankshaft revolution".
First stroke (piston moving up): "Intake" and "compression" of air-fuel mixture occur.
Second stroke (piston moving down): Piston moves down due to "expansion" of air-fuel mixture and "exhaustion" occurs later.
 
 
"4-stroke engine"
One power cycle is completed by 4-stroke. A power is generated by "2 piston reciprocating motions, 2 crankshaft revolutions".
First stroke (piston moving down): "Intake" of air-fuel mixture occurs.
Second stroke (piston moving up): "Compression" of air-fuel mixture occurs.
Third stroke (piston moving down): Piston is rapidly moves down as a result of "expansion".
Forth stroke (piston moving up): Combusted gas is "exhausted".
 
 
The advantage of the 4-stroke engine is the easy control of intake and exhaustion. However, its structure is complicated compared with a 2-stroke engine, because the intake/exhaustion valves of a 4-stroke engine are installed at the cylinder head, while intake and exhaustion of a 2-stroke engine occur at the port that is located on the body of the cylinder. Because of this structure, the weight of a 4-stroke engine is heavier than a 2-stroke engine.

On the other hand, a 2-stroke engine has a larger ratio of burning engine oil and fuel in order to make smooth piston motion and blow-by of air-fuel mixture. This means it releases more harmful substances in the exhaust gas as compared with a 4-stroke engine. However, because of its simple structure and smaller number of parts, the 2-stroke engine can be smaller and lighter. The overhaul is also easier for the same reasons. Therefore, a 2-stroke engine is the most appropriate engine for outdoor power equipment.
 
"Agricultural machinery business"
Yamabiko manufactures and sells pest control equipment for Japan and agricultural harvesting equipment for North America.
Its major products include pest control equipment (speed sprayers, mounted equipment for cropland pest control management, boom sprayers), sloop mower, soy and potato harvesters, etc.
The Company purchased a Belgian venture company, "Belrobotics SA" in November 2014. It is specialized in development, manufacturing and sales of robot mower for business use.

Yamabiko's technological strengths in this business segment are KIORITZ's blowing, spraying, and pumping technology as well as technology to create small and light equipment. These technological capabilities have been built up over many years at KIORITZ.
 
 
"Industrial machinery business"
Yamabiko manufactures and sells equipment for construction, civil engineering and iron works.
Its major products include generators, welders, lighting equipment, cutting machines and high-pressure washers.

Technological strengths in this business segment are established by long years of R&D which began at the time when Yamabiko Corporation started business as Shindaiwa, and such strengths can be found in alternator designing capability improved by their efforts for alternative current motor development, as well as technologies for electronic control and noise prevention.
 
 
"Others"
The Company manufactures and sells accessories and the parts for after purchasing service for various machines and equipment.
As shown in the graph on Page 5, the profitability in this segment is the highest in all segments.
 
 
2. Brand
Yamabiko was established based on the integration of two companies. The products of both companies are well recognized both in Japan and overseas for many years. Therefore, Yamabiko maintains the brand names as KIORITZ, Shindaiwa, and ECHO.
Yamabiko is proactively investing in marketing as well as exploring new sales routes to enhance its brand values.
 
 
3. Development structure
Each business segment is working on development with a focus on the following priority issues.
 
 
The exhaust gas regulations are expected to be further tightened in the future. Therefore, addressing them is of paramount importance.
In addition, the Company is conducting research on control technology in the field of electronic control.
 
4. Production structure
The Company has 3 plants (Yokosuka, Morioka, and Hiroshima) and 4 production related subsidiaries in Japan and a total of 7 production related subsidiaries in the USA, Belgium, China and Vietnam.
 
5. Sales route and sales methods
The Company supplies its products in over 90 countries for about 28,000 stores.
More than 60% of the sales are from overseas sales.
 
 
<Domestic market>
7 sales subsidiaries sell the products to distributors, Zen-Noh (National Federation of Agricultural Cooperative Associations), home improvement retailers, and construction machinery rental companies, etc. Through them, the products are supplied to the end users including farmers/foresters, companies in the construction, civil engineering and iron industries and landscapers.

The Company presents their products in exhibitions in collaboration with distributors and dealers and facilitates sales through demonstration and test drive.
Furthermore, the Company accompanies dealers to visit end users to understand their needs and utilize the information for product development.
 
<North American market>
ECHO, Incorporated Group, one of the Company's subsidiaries, sells the products to The Home Depot (*) and other distributors, through which the products are supplied to the end users such as landscapers, home owners, farmers/foresters, and companies in the construction/civil engineering industry.

*The Home Depot
The Home Depot, Inc. is the world's largest home improvement retailer and construction products and services. It was established in 1978. Sales in 2015 were US$88,500 million (approx. ¥9.7 trillion) and net income was US$7,000 million (approx. ¥770 billion). It has 2,274 stores in the US, Canada and Mexico. It is listed on the New York Stock Exchange. (Excerpted from the company's website)

The Home Depot classifies their products into GOOD, BETTER and BEST in accordance with the quality. It is only Yamabiko that supplies the high quality BEST products to the Home Depot. This is one of the proofs that the Company's products are highly reputed in the North American market.

In the Central and South American market, ECHO, Incorporated, one of the Company's subsidiaries, sells the products to the distributors of each country, and then, the products are supplied to the end users through dealers.
In Europe, Asia and other areas, Yamabiko sells the products to the distributors in each country.

The overseas dealers display the products by brand, and salesperson conduct person-to-person sales while understanding the needs of the end users.
The home improvement retailer also display the products by type and price. The end users purchase the products based on the needs, budget and image they have from advertisement, etc.
 
1-5 Characteristics and strengths
(1) Unique production and technological capabilities and vertically integrated production capabilities
The most important characteristics and strengths of the Company are the "unique production and technological capabilities and vertically integrated production capabilities".
Their mainstay 2-stroke engines that are mounted to the outdoor power equipment are manufactured by an integrated production system solely by the Company from development, procurement of aluminum, molding, parts production, processing to assembly, which is said to be unique anywhere in the world. The power sources for the agricultural machinery and industrial machinery are also engines, but they are mostly procured externally.

The Company solves various issues with their unique technologies including iron plating and electric discharge processing. This is resulting in the quality improvement and production capacity improvement of the Company.
Specifically, the Company has established the following technologies.
 
<Example 1: Iron plating>
Plating is a surface covering method in which the surface of a metal is covered by a thin layer of another metal. For engine production, inside of the cylinder should be plated to avoid abrasion caused by friction with a piston.
The conventional method is to use chrome plating from durability and cost perspectives. However, chrome plating gives negative impact on the environment. Its production efficiency is also low. Therefore, there was an increasing demand for different materials for plating.

The Company has been working on "iron plating" since 1978 to reduce environmental load.
Initially they could produce only hundreds per day. However, as a result of improved productivity, enhanced plating precision, and reduction of environmental load, the Company now has the iron plating technology that does not require finish processing. Their technology has drastically smaller environmental load. Furthermore, their daily production capacity increased significantly, reaching thousands.
The Company holds patents related to iron plating.
 
<Example 2: Electric discharge processing>
As described above, a 2-stroke engine requires less number of parts and has simpler structure as compared to a 4-stroke engine. Therefore, it is most suitable for the "handheld" and "backpack-style" outdoor power equipment. However, it releases some fuel mixed gas. In order to respond to the increasingly strict exhaust gas regulations globally, the Company was faced with a challenge to control the flow of the fuel mixed gas for efficient burning.
In order to achieve it, the Company explored the production methods to modify the internal shape of the cylinder (by installing a wall between the fuel mixed gas passage and internal shape of the cylinder).

A "wall" can be created by die-casting (*), but it requires a horizontal hole to lead the fuel mixed gas to a combustion chamber. With die-casting, it was impossible to create a horizontal hole. It was also difficult to carry out machining due to small space in the chamber.

The Company came up with the idea of using "electric discharge processing (*)" to create a form while taking advantage of die-casting.

Although electric discharge processing enabled to create complicated forms, it was costly due to long processing time and high electrode consumption. The Company conducted research on processing conditions for a large volume production and developed designs of special electrode form. As a result, it succeeded in producing a large volume of products, by shortening processing time, saving personnel, lowering the cost of electrode and enhancing efficiency.
Having obtained three patents related to electrode processing, the Company has established the unique technology that cannot be imitated by other companies.
 
(*) Die-casting
Die-casting is one of the metal mold casting methods. By injecting melted metal in a metallic mold, a large amount of casting with high precision can be produced within a short period of time. It enables to create a thin product at low cost.

(*) Electric discharge processing
Electric discharge processing is a machine processing method to remove a part of the surface of a non-processed work piece through repeated electrode discharge at short cycles between electrode and the non-processed work piece. It enables to cut out complicated outline on extremely hard steel.
 
With "advanced capabilities for creation" such as the above-mentioned technologies, the Company not only complies with exhaust gas regulations but also responds to various needs including weight reduction, enhancing durability and cost reduction. It succeeded in developing and mass-producing "a light weight and highly durable 2-stroke engine that meets the exhaust gas regulations".
While many companies in the world are forced to leave the industry because they cannot address these issues, Yamabiko continues to make further development as a leading manufacturer.
 
(2) Unique research and development capabilities for each business segment
The Company's capability to address environmental issues is high. The Company possesses one of the highest number of US Environmental Protection Agency (EPA)-accredited engines in the world.
Furthermore, not only for outdoor power equipment, the Company also has unique research and development capabilities for the agricultural machinery and industrial machinery. Based on the technological capacities that have been accumulated by KIORITZ and Shindaiwa for many years, the Company is further brushing up the capabilities.
 
(3) Extensive product lineup and expansion of sales network
The Company has an extensive lineup of products that meet various needs of the customers in each of the three business segments.
It also currently supplies the products to about 28,000 stores in more than 90 countries across the world.
As a result of merging KIORITZ and Shindaiwa, Yamabiko's product lineup and sales network were further expanded.
 
(4) Excellent technical support system
The Company also provides excellent technical support in order to enhance credibility of the products and strengthen the relationships with distributors and dealers.
It has offered 128 service schools in 17 countries within 3 years from April 2013 to March 2016.
 
(5) High product share
By demonstrating the above-mentioned characteristics and strengths (1) to (4) in an integrated manner, the Company is becoming highly competitive at a global level. For the outdoor power equipment business, the Company has the top market share (more than 30%) in Japan and is ranked high in North America, the largest market.
 
 
Due to decrease in net income margin and leverage, ROE has been declining, but it still maintains 2 digits.
If the Company can achieve its aimed goal of "7% operating income margin" after the next FY, a further increase in ROE can be expected.
 
 
Fiscal Year March 2016 Earnings Results
 
 
Steady increase in North America. Increased sales and operating income partially due to depreciation of yen
Sales were 113,300 million yen, up 7.7% YoY. Sales of outdoor power equipment in North America and agricultural machinery in Japan increased, and also the weak yen supported sales growth.
Operating income was 6,700 million yen, up 18.3% YoY. Although gross margin ratio declined due to change in accounting method of advertisement collaboration cost and adjustment of sales price, profit increased double digit increase partially as a result of depreciation of yen.
Ordinary income and net income decreased by 0.7% and 4.3% respectively as a result of foreign exchange loss (as opposed to foreign exchange gain in the previous term) and application of impairment of goodwill of its subsidiary in Europe (Belrobotics).
 
 
◎ Outdoor power equipment
Sales were 65.3 billion yen, up 12.0% YoY.
Although the domestic sales of small pest control equipment decreased due to the fall in the price of rice 2 years ago, the new type of chain saws and trimmers at home improvement retailers continued to show steady growth.
In North America, the sales volume increased under favorable market environment because of positive growth of housing construction and good weather.
In Europe, despite positive impact of new chain saws, the Russian market remained stagnant, and sales of trimmers was sluggish due to heat wave in Western Europe.
In Central and South America, sales remained stagnant due to political and economic issues.
 
 
◎ Agricultural machinery
Sales were 18.4 billion yen, up 7.5% YoY.
In Japan, agricultural machinery shipments drastically decreased, while vehicle-type pest control sprayers were sold well because of special demand just before diesel engine exhaust emission regulations came into force.
In North America, sales of large harvesting machine were stagnant due to sluggish crop price.
 
 
◎ Industrial machinery
Sales were 9.9 billion yen, down 11.1% YoY.
Construction equipment shipments in Japan were about the same level as last year. Lighting equipment, etc. have decreased.
 
 
◎ Others
Sales were 19.5 billion yen, up 5.6% YoY.
Although the sales decreased in Japan, it showed steady growth in North America because of good weather.
 
 
 
Current assets were 61,947 million yen, down 2,982 million yen from the end of the previous year due to decrease in inventories, etc. Noncurrent assets were 29,492 million yen, down 1,808 million yen from the end of the previous year due to decrease in assets for retirement benefit.
Current liabilities were 33,937 million yen, down 6,164 million from the end of the previous year due to decrease in short-term debts. Noncurrent liabilities decreased by 226 million yen from the end of the previous year as a result of decrease in deferred tax liabilities, despite increase in long-term interest-bearing debts. Total liabilities were 45,357 million yen, down 6,391 million yen from the end of the previous year.
Net assets were 46,082 million yen, up 1,600 million yen as a result of increase in retained earnings. As a result, equity ratio became 50.3%, up 4.2% from the end of the previous year.
Interest-bearing debt was 21,826 million yen, down 2,751 million yen from the end of the previous year.
 
 
Because of decrease in inventories, etc., the range of increase of operating CF increased. The range of decline of investing CF decreased because there was no acquisition of subsidiary's shares unlike the previous term.
Financial CF became negative due to decrease in short-term debts.
Cash position decreased slightly.
 
 
Fiscal Year March 2017 Earnings Estimates
 
 
Although sales will be almost leveling out, profit will increase as a result of increase in sales volume
Sales of FY March 2017 are estimated to be 114,000 million yen, which is about the same level as the previous year. In Japan, the Company is expected the sales growth with expanded market share by introducing new products and strengthening the brand power, although there is a reactionary decrease in sales of agricultural machinery after rush demand by diesel engine exhaust emission regulations. As for overseas, sales in North America will decrease on a yen basis due to appreciation of yen, but it will increase on a dollar basis with steady sales of outdoor power equipment under favorable market environment. In Europe, it is estimated that introduction of new products will have positive effects and that sales in Russia will bottom out.
Operating income will be 7,000 million yen, up 4.0% YoY. Increased profit associated with increase in actual sales, and improvement in actual cost percentage as a result of increase in the number of sales will contribute to the increase in operating income.

Exchange rates are set at US$1=110 yen (as opposed to 121 yen in the previous term) and 1 euro=120 yen (as opposed to 132 yen in the previous term).
Dividends will be ¥30/share, the same as the previous term. Expected payout ratio will be 25.8%. The Company's goal of payout ratio is 25%. The Company is aiming at continuation of stable dividends.
 
 
Progress of the 2017 Mid-term Management Plan
 
The Company is currently undertaking the "2017 Mid-term Management Plan" (3 years from FY March 2015 to FY March 2017).

The previous Midterm Business Plan was positioned as the "period to establish systems for the next growth phase", meaning the "period to keep defense strong". The current Midterm Business Plan is aiming at "promoting further business expansion with earning capacity and strengthening structure to secure profit", meaning the "period to attack".
 
 
◎ Priority measures
The Company has designated four priority measures: "Strengthening selling capability", "Strengthening product competitiveness", "Enhancing product quality and improving production efficiency" and "Strengthening management foundation".
 
 
Based on the above priority measures, the Company has been carrying out various business activities in each major market.
 
◎ Business activities in major markets
The major activities in the overseas and domestic markets for the outdoor power equipment business are as follows.
 
(1) Overseas market
Under the theme "Expanding market share by 'strengthening strategic marketing'", the Company has been carrying out specific actions in each market.
 
<North American Market>
The Company focuses on identification and creation of new clientele and development and expansion of sales channels.
 
*Sales channels
The number of major sales channels including distributors and the Home Depot is continuously increasing.
New sales channels are also steadily increasing as a result of efforts by distributors and online and mail-order shopping of the Home Depot.
 
*Products
The market share of chain saw and trimmer, the Company's mainstay products, is increasing.
Sales of power blower "PB-580" that is mounted with global engine are off to a fast start. The sales are expected to increase in full year.
In addition to the existing distributors, the Home Depot began to sell tillers from January this year.
Sales of battery-powered products not using an engine for the distributors' route and the Home Depot online/mail-order route are intensified.
Sales of highly profitable accessory products by new sales program and campaigns are intensified.
 
*Strengthening promotion
The Company is strengthening advertisement activities to create new clientele. For example, corporate advertisement is placed on a billboard at a Major League Baseball stadium. The Company's web site has also been improved to enhance convenience.
The Company undertook a limited-time program for highly profitable mixed fuel to strengthen promotion through dealers.
 
<European market>
Thus far, the marketing department in Japan has been working alone for the European market. However, in order to enhance brand power in a more strategic manner, the Company decided to work with a marketing agency in the UK. This decision is welcomed by distributors in various countries in Europe.
 
*Marketing service
The Company makes efforts to strengthen relationships with distributors. The Company is also increasing outdoor advertisement to spread the brand image of "ECHO", whose specification is designed for professionals.
The Company organized a service seminar meeting for all distributors in Europe.
 
*Products
The Company launched a highly combustion efficiency trimmer "SRM-2620ES", which is mounted with global engine. Global engine is an integrated platform of various engines.
The Company is planning to launch three types of equipment as "Battery-powered product series for professional use" in July 2016. The products were developed using the technologies that have been nurtured through development of engine for professional use. The new tools are equipped with advanced motorized control technology. It will enable the users to carry out high volume of work that will satisfy professionals at low noise level.
 
 
*Russian market
Sales in the Russian market were drastically lower than the planned figures in the previous term and the year before due to depreciation of ruble and low price of crude oil. The figure for this term is expected to be around the same as the previous term.
 
(2) Domestic market
The Company is aiming to expand the market share while making efforts to increase sales through introduction of new products and expansion of the original equipment manufacturer (OEM) business.
 
"Try! Campaign" is in action to create new customers from April to August 2016.
A new warranty extension system up to 5 years (for home users) is introduced.
The Company expanded major home improvement retailer sales routes.
The Company is expanding the OEM business with a major electric tool manufacturer.
 
[Capital investment, research and development, depreciation]
Capital investment for FY March 2016 was 4.5 billion yen, which is 0.1 billion yen lower than the planned figure. During the current FY, it is expected to exceed the initially planned figure of 3.5 billion yen.
Research and development cost was 5.1 billion yen, exceeding the planned figure by 0.1 billion yen. The company will focus on product development. During the current FY, too, its R&D cost is expected to exceed the planned figure of 5.1 billion yen.
Depreciation cost was 3.5 billion yen, which is 0.2 billion yen lower than the planned figure. During the current FY, it is also expected to go below the planned figure of 3.7 billion yen.
 
[Enhancing profitability]
In order to achieve stronger profitability as a result of productivity enhancement and cost reduction, the Company is working on "automatization of production facility", "shortening of assembly lines", "implementation of production efficiency improvement measures", and "reduction of material costs".
 
◎ Numerical targets
The numerical targets for the FY March 2017, which is the last year of the Midterm Business Plan, are as follows.
 
 
 
 
Interview with President Nagao
 
We asked President Yoshiaki Nagao about the strengths of the Company, plans of the Company, his messages to the investors, among others.
 
"Management integration is progressing smoothly. It is my mission as the President to pursue more synergy effect."
Management integration is progressing smoothly. One of my strengths is to be able to communicate with anyone with an open mind. When I was assigned to work at the Head Office of Shindaiwa in Hiroshima during the process of integration, I believe I could develop good human relationship by opening my mind.
Of course, integration has not completed 100%. There still remain areas of reform. I will not change my mission of pursuing "maximizing synergy". I am not worried or concerned about it.
I will continuously make efforts to enhance the corporate value of "Yamabiko".
 
"Our biggest strengths are technological capabilities and production capabilities that allow us to carry out the entire process by ourselves"
Our biggest strengths are the high technological and production capabilities that allow us to conduct vertically integrated production of engines for the outdoor power equipment, which is our Company's main product.
There are no other outdoor power equipment companies with the production capabilities that begin with aluminum casting.
For example, plating for the inside of cylinder is indispensable for manufacturing cylinders. But, especially, the chrome plating companies are fading due to environmental concerns. Our Company managed to come up with the advanced "iron plating" technology, which allows us to address environmental issues as well as enhance cost competitiveness.
I believe that our global competitiveness will improve by further enhancing our strengths.
 
"We will focus on strengthening brand power and expanding market share by aggressive marketing. We will also work on robot technology."
This is the final year of the 2017 Mid-term Management Plan. Our focus is to utilize our excellent sales network. We will also make efforts to strengthen brand power and expand market share through marketing investment.
Our Company managed to gain a certain level of recognition, brand power and market share, because we were in the US market at a fairly early stage compared to our competitors in Japan. These efforts are also the reason why our ECHO brand products are sold in the BEST category at the Home Depot.
However, two of the competitors that are carrying out their businesses globally also have strong brand power. It is not easy to take their market share.
Our strategy is to carry out new marketing investment including TV commercials to enhance our visibility not only among the existing outdoor power equipment users but also the potential outdoor power equipment users. Furthermore, we will expand our sales channels to enhance our brand power and market share.
Meanwhile, development of new technologies and new products, too, is among our important tasks. We will make efforts to expand our sales channel for the robot lawnmower "Belrobotics SA", which is a Belgian company we acquired in 2014, in the areas outside of Europe. We will also try to apply the robot technology to the other products. Especially unmanned pest control equipment for agriculture will be socially useful.
We are also exploring the possibilities, among others, of building alliances for the future business development.
 
"Improving research and development structure is another important challenge."
It is true that our research and development capabilities are at the top rank in the industry. But we are not planning to be complacent about the current status.
In the research and development department, that has a long history, alteration of generations is occurring, and I feel that the number of research staff members who have "strong preference" is becoming smaller. In this sense, it is our challenge to find a way to hand down "expertise and skills" to younger generations.
Also from my point of view, relatively obedient employees are increasing. Although it is great that they are excellent at the jobs that they are assigned, I hope they will proactively take more innovative actions.
To achieve that, it is necessary to provide not only on-the-job training but also establish better systems to hand down expertise and skills and enhance development capabilities, including personnel system.
 
"We hope you support our Company that is aiming at steady growth continuously and stably."
Our business fields are at the mature stage. Although rapid expansion may be difficult, stable growth can be expected.
Our Company will aim at steady growth through expanding market share with our excellent development capabilities. We are working on the growth of the sales as well as improvement in profitability. Our goal for operating income margin is more than 7%.
At the same time, we will surely return the profit to the shareholders. The goal of payout ratio is 25%.
We hope that investors would support us from mid to long-term perspectives.
 
 
Conclusions
 
Unfortunately, the Company is unlikely to achieve the final year's goal of the "2017 Mid-term Management Plan". The breakdown of unreached (projected) amount of sales of 6.0 billion yen is a) 3.6 billion yen for Europe sales caused by the sluggish Russian market and b) 2.6 billion yen for domestic market. Meanwhile, the Americas, which is the largest market for the Company, has the promising future because of the plans for expansion of sales routes, introduction of new products and share increase of major products. The progress at each quarter in this fiscal year as well as the strategies for the next Midterm Business Plan based on the unmet goal of the current plan are the key points of interest.
Meanwhile, their price book-value ratio is less than 1. The Company needs to explain to the investors on the expansion of the sales and improvement in profitability from quantitative perspective and the Company's strengths, particularly its unique technological capacities from qualitative perspective, to seek their understanding.
 
 
 
<Reference:Concerning corporate governance>
 
 
 
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This report is intended solely for information purposes, and is not intended as a solicitation for investment. The information and opinions contained within this report are made by our company based on data made publicly available, and the information within this report comes from sources that we judge to be reliable. However we cannot wholly guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.

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