We apologize for the concern caused our shareholders by the fire that broke out on May 14, 2017 at Yokohama Tire Philippines, Inc. And we assure you that we are taking measures throughout our organization to prevent a recurrence of such an event.
Record Sales in 2017, Earnings Up Too
Our profit attributable to owners of parent climbed 87.5% in fiscal 2017 (January to December 2017), to ¥35.2 billion, on gains of 22.7% in operating income, to ¥51.9 billion, and 12.1% in net sales, to ¥668.0 billion. The annual net sales total was our highest ever and resulted mainly from growth in our tire business.
A positive factor in our fiscal performance in 2017 was gradual economic recovery in Japan. That recovery included notable improvement in employment, in consumer spending, and in corporate earnings. The rise in corporate profitability resulted partly from expanding exports amid recovery in the global economy overall. Outside Japan, the US economy expanded as consumer spending remained strong and as stock prices rose. Economic recovery gained momentum in Europe, partly on the strength of export growth. Another bright spot on the global economic landscape was China, which reasserted its economic resilience.
We adopted the International Financial Reporting Standards (IFRS) when we issued our Yukashoken hokokusho (“Yuho,” securities report) for 2017. Our IFRS-based fiscal projections for 2018 call for profit attributable to owners of parent to total ¥40 billion on operating profit of ¥60 billion, business profit (revenue less cost of sales and selling, general and administrative expenses) of ¥63 billion, and revenue of ¥670 billion. The Yokohama dividend for 2017 totaled ¥62 per share. That comprises an interim dividend of ¥31 and a year-end dividend of the same amount, each including a commemorative centennial dividend of ¥5.
Solid Gains Under Grand Design 100
We carried out our Grand Design 100 (GD100) medium-term management plan over the 12 years to 2017. Under that plan, we achieved steady progress in globalizing our operations, in advancing our environmental technologies, and in expanding our business portfolio.
Our globalization has included expanding our networks of platforms for manufacturing, for marketing, and for research and development. It has also included expanding our business in supplying tires to automakers outside Japan. In addition, we have raised the visibility of the Yokohama brand worldwide. Our increased visibility has benefited from the partnership agreement that we concluded in 2015 with the English Premier League’s Chelsea Football Club.
Meanwhile, we have increased the percentage of newly developed products that qualify as environmentally friendly under in-house criteria to 100%. And we have begun offering tires developed to offer superior fuel-saving performance in markets worldwide.
Expanding our business portfolio has included acquiring Alliance Tire Group B.V., which manufactures tires for agricultural and forestry machinery, in 2016, and Aichi Tire Industry Co., Ltd., which manufactures tires for industrial machinery, in 2017. Those acquisitions have lent valuable momentum to our ongoing efforts to increase the weighting of commercial tires in our sales portfolio.
Our net sales in 2017 were up 48% in 2017 over 2005, the year before we launched GD100. Our operating income was up ¥30 billion, and our operating profit margin was up three points.
Grand Design 2020 Positioning
We have launched a new medium-term management plan in 2018 as Grand Design 2020 (GD2020). Underlying GD2020 are the assumptions that (1) global vehicle production will continue to grow and that global tire demand will grow even faster and (2) competition in the tire industry will escalate as manufacturers in emerging economies expand production.
GD2020 is a framework for fortifying our business foundation by redefining our strengths and by deploying a growth strategy based on original approaches. We are counting on that framework to support new strides for our company into the decade of the 2020s.
GD2020 Challenges and Strategy
Under GD2020, we will tackle three main challenges: improve our product mix by concentrating on high-value-added products, secure sound returns on the capital spending and acquisitions already undertaken, and strengthen our financial position. Our growth strategy under GD2020 centers on (1) expanding our presence in the market for premium-grade consumer tires, (2) making commercial tires a pillar of revenue driven by off-highway tires in our second century, and (3) allocating resources in MB operations to sectors of strength.
GD2020 also details technology strategy and branding strategy for making the most of our strengths. Measures for fortifying our business foundation under GD2020 will address issues in corporate social responsibility, human resources, corporate governance, risk management, and finance. In finance, GD2020 calls for using the robust cash flow to be generated through growth stratagems and the efficiencies generated through consolidated cash management to reduce interest-bearing debt and otherwise strengthen our financial foundation while ensuring sound returns for shareholders.
Targets of ¥700 Billion for Revenue and ¥70 Billion for Operating Profit
Our chief financial targets under GD2020 are to increase our revenue to ¥700 billion, to increase our operating profit to ¥70 billion, and, thus, to raise our operating profit margin to 10%. We will also work under GD2020 to keep our debt/equity ratio at no more than 0.6 and to achieve return on equity of at least 10%.
All of us at Yokohama are working to implement our growth strategy and strengthen our business foundation as described here. We aim to achieve lasting growth for Yokohama by earning the confidence of customers worldwide. And we invite your careful attention to our progress.
Chairman and Representative Member of the Board
President and Representative Member of the Board