The JVC Kenwood Group has been pushing forward with structural reforms in various fields since steps were taken in October 2008 to complete management integration due to the deterioration of financial results that resulted from the global economic crisis. In the fiscal year ended March 31, 2010, the Group completed major measures, having applied the Action Plan for Business Structural Reform. This plan mainly aims to secure a drastic improvement in profits at such unprofitable businesses as the Home & Mobile Electronics Business and the Business Solution segment of the Professional Systems Business. This has been driven by businesses in which sales and profits have recovered, such as the Car Electronics Business and the Land Mobile Radio segment of the Professional Systems Business. As a result, and as announced on May 14, 2010 in the flash earnings report for the fiscal year ended March 31, 2010, in the fourth quarter of the fiscal year ended March 31, 2010 we recorded the Company’s first profit since the third quarter of the previous fiscal year. We expect to be in the black on an operating level for the full year in the fiscal year ending March 31, 2011.
Notwithstanding this positive trend, we decided to step up efforts through an additional action plan aimed at reconstructing our corporate base (hereinafter referred to as the “Action Plan for Reconstructing the Corporate Base”) by implementing further measures that are considered necessary to promote the move from a structural reform stage for survival to a growth stage. We will also do this by reconstructing our corporate base so that its scale better matched our reduced corporate size, resulting from previously implemented structural reforms, as well as our current sales level, taking into consideration the recent changes in economic environments and fluctuations in exchange rates. Through the successful completion of this Action Plan for Reconstructing the Corporate Base we will reconstruct our corporate base to realize new growth. And based on this corporate base, the Company will focus on its Mid-term business plan, scheduled to end in the fiscal year ending March 31, 2013, while aiming to recreate and enhance corporate values and again distribute dividends at an early stage.
To establish a new position as a specialty manufacturer of audio visual equipment and to realize new growth, amidst increasingly intense global competition, we will strive to select and concentrate our business and alter our business model.
Up to now, we have tried to optimize the effects of integration with the focus on businesses common to JVC and Kenwood (the Car Electronics and Home Audio businesses). But from now on, the Company will try to create and enhance synergy effects, promote new businesses and development new products. It will do this by optimizing the integrated management of the Group as well as businesses that are not common to them.
1. Action Plan for Reconstructing the Corporate Base
We projected an increase of about eight billion yen in the fiscal year ending March 31, 2011 as an improvement in profits resulting from the Action Plan for Business Structural Reform implemented in the fiscal year ended March 31, 2010, with underperforming operations being substantially improved. In addition, the Company will take measures aimed at making all businesses profitable, posting ordinary income for the fiscal year ending March 31, 2011, as set forth below:
We expect the effects of those measures to become apparent sometime in the fiscal year ending March 31, 2011 and we project they will result in an improvement in profit of about ten billion yen after the fiscal year ending March 31, 2012.
(1) Reform of unprofitable operations — Returning all businesses to the black
1) Display segment — Conversion of the business model (Splitting up of the business and promoting a partnership strategy)
- Transform itself to a new fabless business model.
- In line with this strategy, the functions of the business headquarters will be vested and transferred to the JVC’s main plant in Thailand, namely the display manufacturing center, by splitting off the headquarters function. A new strategy will be promoted by fully utilizing the Company’s strengths in branding, marketing, merchandizing and development, as well as its sales network.
At the same time, we will further pursue partnership strategies, after reinforcing competitiveness.
2) Camcorder segment — Reform of competitiveness (Shifting to overseas production and outsourcing)
- The Company will accelerate production reform by increasing the level of production by third parties, while reorganizing its production system by completely the transfer of production bases from Japan to overseas.
- We will proceed with reforms to reinforce sales and reduce sales cost by reorganizing sales companies mainly in Europe; to acquire new sales routes by exploring new markets; and to expand sales.
- Regarding the product strategy, the Company will take measures to strengthen cost competitiveness and product competitiveness while developing a new platform. It will also reinforce our position, ranking second in the world market, by developing a new category of products.
3) Business Solutions segment — Integrating operations with the Land Mobile Radio segment of Kenwood
- By integrating operations between the Land Mobile Radio segment of Kenwood, which boasts a dominant presence overseas, ranking second in the world, and the Business Solution segment of JVC which has strengths in Japan, the Company will drive the development of new multimedia solutions. This will be achieved by integrating technologies of the two companies, combining sales activities, mutually using sales networks and bases, jointly purchasing materials and conducting other activities to create businesses in growing markets. These include the public security markets and security markets. At the same time, we will open the door to emerging markets by developing products destined for Asia, including China and India.
- Furthermore, we will strive to expand sales and improve the cost structure by raising the self-manufacturing ratio in the solution business field including software and services, while reorganizing the production structure.
(2) Reconstructing the global operation system
In the fiscal year ending March 31, 2011 we will reconstruct a new global operating structure, while deliberating possible changes to the business composition (business portfolio) as well as integrated group operations. We will proceed with efforts to restructure the head office, production system and sales system from a global point of view, and dispose of assets that may consequently become unnecessary.
1) Sellout and reallocation of the head office
The premises of the head office of the Company and JVC are to be sold in June 2010 with the functions of the head office to be relocated. In this way, we will generate maximum synergy effects to further promote the integration of operations and cut costs.
2) Reorganizing the production system
- The Yokosuka Plant of JVC — Plant mainly for business solution products
Taking into consideration the termination of a portion of the production of camcorders destined for domestic markets at JVC’s Yokosuka Plant, this Plant will be repositioned as a production plant for business solution-related products and projectors. - The Thai plant of JVC — Display business head office and exclusive display plant
Production of business solution products (monitors, recorders, video cameras, etc.) manufactured at JVC’s Thai Plant is to be outsourced or transferred to JVC’s plant in Malaysia, and the plant in Thailand will serve as the display business head office as well as a plant that is exclusively for displays - The Malaysian plant of JVC — Plant exclusively for cameras
Production of home audio products at the Malaysia plant will be terminated. Regarding home audio products, the Company will become fabless, and the JVC’s plant in Malaysia will be repositioned as a plant exclusively for cameras including camcorders and security cameras.
Reorganizing the production system
3) Reviewing the human resource framework
In connection with efforts to restructure the head office, production system and sales system as well as the integrated management of the Group, the Company plans to redeploy, transfer to third parties and reduce employees by between one and two thousand across the entire Group which includes Japanese and overseas offices and plants.
(3) Increasing cash flows and reducing total assets
Responding to the restructure of the global operation system, cash will be increased and total assets reduced through the disposal of fixed assets.
Action Plan for Reconstructing Corporate Base
2. Mid-term business plan
(1) Strategies — Reconstruction of the profit base and early resumption of the distribution of dividends
1) Focusing efforts on businesses with a competitive advantage in order to generate integration effects and profitable growth in emerging markets — Expanding the ratio to sales from 40 % at the time of management integration to 60 % or more (see note) for the Car Electronics and Professional Systems businesses.
- To focus on the Car Electronics and Professional Systems businesses where the Company can exercise the strengths of the Group, aiming at profitable growth.
Note: The figure is the target for the fiscal year ending March 31, 2013 (the last year of the Mid-term business plan)
Converting the business portfolio (sales composition)
2) Converting the business models of the Consumer Electronics and Software businesses to make the businesses profitable — Leveraging the effect of the Action Plan for Business Structural Reform that was completed in the first half of the current year (eight billion yen annually) and the effect of the Action Plan for Reconstructing the Corporate Base set forth above, the Company aims to secure a turnaround in operating income (see note) for the combined total of the Home & Mobile Electronics and Entertainment businesses.
- As for the Home & Mobile Electronics Business, to implement a new business model by concentrating resources on marketing, merchandizing, development and sales through the promotion of the fabless strategy by outsourcing to third parties in order to return to the black at an early stage as well as promoting the partnership strategy.
- Regarding the Entertainment Business, we will try to realize Total Entertainment in response to the diversification of media due to music distribution and such like.
- We will promote new development while introducing new products that realize our corporate vision “To Materialize Off Beat.”
- To focus on the Car Electronics and Professional Systems businesses where the Company can exercise the strengths of the Group, aiming at profitable growth.
Note: Data is the target for the fiscal year ending March 31, 2013 (the last year of the Mid-term business plan)
(2) Target
- For the fiscal year ending March 31, 2013: Post sales of 450 billion yen (at a 9% annual growth rate); operating income of 14.5 billion yen and current net income of 4.5 billion yen
- In addition, another target is to resume the payment of dividends during the period of the Mid-term business plan.
Action Plan for Reconstructing Corporate Base
Converting the business portfolio(New segmentation)
(3) Financial and capital strategies — Improvement of interest bearing debt and increase of capital
- Measures will be taken and pursued to improve profitability resulting from a recovery in the business as well as reinforcement, to improve the current account balance by reducing interest bearing debt and to retain the special loss in connection with the completion of the structural reform to a minimum level.
In addition, cash flow will be improved by reducing inventory and reducing accounts receivable. - We will strive to enhance corporate values and bases for the future and increase capital through share appreciation resulting from the consolidation of shares.
(4) Dividend policy — Early resumption of the distribution of dividends
We will aim to post net income and resume the distribution of dividends at an early stage of the Mid-term business plan.
(5) Management reform — Consolidation of operating companies and the integrated group
We will have discussions aiming for the early consolidation of business companies so that the management of the Group and the effects of integration may be optimized, flexibly responding to changes in the business portfolio.
Target by segment
| Segment | (Reference) FYE 3/’10 (New segmentation) |
(Reference) FYE 3/’11 (Initial forecast) |
FYE 3/’13 Target |
Change | |
|---|---|---|---|---|---|
| Car Electronics + Professional Systems |
Net sales | 200.3 | 200.0～210.0 | 280.0 | Annual growth approx. 16% |
| Operating income | 1.7 | 3.0 | 13.0 | +10 | |
| Home & Mobile Electronics + Entertainment |
Net sales | 186.7 | 160.0~170.0 | 160.0 | 0~100 |
| Operating income | (8.5) | 1.0 | 1.5 | +0.5 | |
| New operation/Other | Net sales | 11.7 | 3.0~5.0 | 10.0 | +5.0~7.0 |
| Operating income | 0.5 | 0.0 | 0.0 | — | |
| Total | Net sales | 398.7 | 380.0 | 450.0 | Annual growth approx. 9% |
| Operating income | (6.5) | 4.0 | 14.5 | +10.5 | |
| Ordinary income | (14.8) | (3.5) | 7.5 | +11.0 | |
| Net income | (27.8) | (13.0) | 4.5 | +17.5 | |
Note: For the fiscal year ended March 2010, patent revenue and profit/loss related to the business incubation business were included in the “Other” segment. However, for the fiscal year ended March 2010 (new segmentation). Patent revenue was allocated to each business and profit/loss related to the business incubation business was transferred to the “Professional Systems Business” segment. For the fiscal year ending March 2011 and thereafter, they are classified in the same manner.
