What are the financial strategies that support the AISIN Group’s growth?

What are the financial strategies that support the AISIN Group’s growth?

After undertaking business restructuring in five areas from fiscal 2016 and implementing “problem-solving activities” in fiscal 2017, the AISIN Group introduced a Virtual Company (VC) System aimed at further raising competitiveness as it approaches an age of dramatic change.
To explain to shareholders and investors about the financial measures that will support the AISIN Group’s growth and evolution, we welcomed global automobile industry expert Takaki Nakanishi for a dialogue with Executive Vice President Makoto Mitsuya, who is in charge of finance. Here we introduce our basic stance, policies and strategies concerning finance as well as the valued insights of Mr. Nakanishi.

Improving Profitability by Enhancing the Efficiency of Business

Nakanishi:I have observed the AISIN Group’s growth pattern for 20-plus years and believe the Group has steadily achieved solid growth. What will be the key points for enabling the AISIN Group to maintain this growth?

Mitsuya:I believe that improving the profitability of our businesses will be the most important point for allowing the Company to continuously realize sustainable growth. As indicators of our profitability, we emphasize the operating profit margin, the breakeven point ratio and return on equity (ROE).
In recent years, we have promoted two important activities for improving the operating profit margin. One of these is problem-solving activities for quickly improving profit margins on any current products having poor profit margins, with efforts focused on improving manufacturing. For example, in fisca 2016 one of our products had a negative profit margin of 30%, but through problem-solving activities we turned this into a positive margin. The second activity is business restructuring. This restructuring aims at raising the Group’s competiveness by transforming our business structure with the involvement of other companies in five areas consisting of manual transmissions (MTs), brakes, seat frames, body parts and pistons.

Nakanishi:Could you discuss any numerical targets you hope to attain in the future through these improvement activities?

Mitsuya:Maintaining sustainable growth even in an age of dramatic change is important. We are working to improve our profit structure by trimming fixed costs and developing high-added-value products to maintain a corporate structure capable of withstanding events such as the so-called Lehman shock. Specifically, we aim to realize a break-even point ratio of 80% or lower even with an exchange rate of $1/¥100. Although we will reduce fixed costs, I should point out that we also need to actively invest for development in next-generation fields. For this reason, we must decisively eliminate wasteful areas to realize a balance in the way we allocate funds.

Nakanishi:The collaboration of the entire AISIN Group is crucial for promoting profit structure improvements. Carrying out business globally through numerous consolidated companies and sub-consolidated companies is certainly a strength of the AISIN Group. Alternatively, I believe that operations through 207 companies lead to a variety of issues in terms of optimization. What are your thoughts on this?

Mitsuya:Until now, the AISIN Group promoted sustainable growth by spinning off into separate companies any businesses that attained growth and then raised its expertise in these particular fields while achieving agile operations. However, this approach also had inefficient aspects. Because each company pursued its own growth, this led to a duplication of human resources, technologies and other resources among different companies. A prime example is that the same products were being produced by multiple Group companies.

Nakanishi:One benefit derived from the separatecompany system is mobility that is also one of the Group’s strengths. Nonetheless, I also began to sense that in many ways you faced issues concerning poor efficiencies because of this approach. How would you generally assess this point?

Mitsuya:Regarding the poor efficiencies you mention, we have agency costs (conflicting opinions among Group companies) and duplications in functions sectors and in managerial administration sectors. Let me give you an example. Our Group companies possess and independently operate the entire range of functions such as human resources, legal affairs and accounting functions. This has enabled each company to build systems and frameworks for optimal operations. On the downside, these individual systems and frameworks are not always optimal from the broader perspective of consolidated operations and collectively often hindered overall efficiency.
We are moving decisively to solve this problem of poor efficiencies. In April 2017, we newly launched the Group Head Office and are consolidating and standardizing the functions and managerial administration sectors. Moreover, to accelerate the reduction of fixed costs, we intend to proactively utilize robotics and artificial intelligence (AI). In the functions sector, we will undertake joint procurement, joint logistics and joint development in the field of the Internet of Things (IoT). In the managerial administration sector, we will unify human resources and accounting platforms and promote simplification and consolidation to further enhance efficiency.

Management indicators and future initiatives