Review of OperationsAutomobile sales in the Unites States reached record levels, boosted by falling oil prices and aggressive sales financing. Akebono’s North American business also saw an increase in orders from major automakers, reflecting soaring demand, and with the impact of foreign currency translation contributing ¥20.1 billion, sales increased 19.0%, or ¥26.7 billion, year on year to ¥166.9 billion. On the other hand, operating loss, including Mexico, increased to a loss of ¥11.2 billion from an operating loss of ¥3.2 billion in the previous fiscal year, significantly below the initial plan, despite the implementation of a variety of measures, including productivity improvements and the transfer of production to other facilities in an effort to resolve production-related problems.While various effective measures have been undertaken to address production-related problems at ABE that began in 2014, including facilities maintenance support dispatched from Japan and the transfer of some production, due to a continuing high volume of orders, ABE was unable to completely eliminate the three-shift, 24h/7 days a week production schedule. This made it impossible to reduce labor costs, and forced ABE to post a loss for a second consecutive year. At ABG, a surge in orders at the end of 2014 also led to higher labor costs due to increased work hours, and the plant continued to generate expedited-shipment cost and other additional costs due to the production crunch. In response, production lines were added in May of last year, and a team of specialists in maintenance and production was dispatched from Japan to implement improvements in production efficiency. Measures also included the gradual transfer of some disk brake pad production to Japan and other global production facilities. However, ABG continued to require expedited-shipping in some cases, partly because productivity did not improve as expected. ABCS also experienced excessive production loads. In addition, to avoid delays in deliveries due to a drastic drop in plant operating rates caused by the failure of aluminum casting equipment, enormous expedited shipping costs were generated (air transportation and other transport fees), and ABCS posted significant losses as a result. The aluminum casting equipment was eventually repaired, and with the recovery in production capacity expedited-shipping cost dropped significantly; but orders continued to rise, generating additional overtime and other costs as winter holidays were cancelled to handle fourth quarter orders for certain automakers.Quickly returning its North American operations to stable profitability remains a top priority for Akebono management. To achieve this, the Company has revamped its local management structure, reviewed its product lines, and has begun working on reforms in its North American business, including changes to its production structure. While these efforts have begun to show solid results, to accelerate its reforms, at the end of fiscal 2015 the Company decided to implement impairment accounting on property, plant and equipment of ABE to about US$69 million. The Company also posted impairment losses against individual non-operational production facilities at ABCS and ABCT. At the same time, it posted ¥0.5 billion in extraordinary losses related to costs associated with structural management reforms in its North American business (provision for business structure improvement, including provision for retirement allowances.)While net sales are forecasted to decline with the transfer of some production from North America to other regions, on the earnings side, losses are expected to shrink. Efforts to prioritize order profitability, reduce production loads and improve productivity via transfer of some production, along with a significant reduction in expedited-shipping cost, will lead to smaller operating losses. In terms of management structure, Akebono has hired a new CEO with a track record in the United States, and subsequently also hired a new CFO. Together with additional consultant support, Akebono is accelerating its management reforms. While fiscal 2016 will not see the complete elimination of operating losses (estimated at ¥4.5 billion), by fiscal 2017 the effects of these and other measures will begin to appear in the operating results (operating profit of ¥1.2 billion), and Akebono aims for ¥3.5 billion in operating profit by fiscal 2018.Review of Fiscal 2015Fiscal 2016 Strategy and OutlookNorth AmericaAKEBONO REPORT 201623

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