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Issues to be Addressed

Under the previous midterm business plan, "akebono New Frontier 30 - 2016," Akebono set out three goals of "Rebuilding North American operations," "Establishing global networks based on product-based business units," and "Expanding high performance brake business and recreating European operations" aimed at further strengthening its competitiveness and rebuilding its management foundation mainly through deploying product-based business units globally. Akebono has worked to achieve these goals to return to a sound financial structure.

In rebuilding North American operations, Akebono has implemented a drastic reform of its organization by strengthening the local-led management to shift priority from achieving sales targets to profit targets. Specifically, Akebono improved the profitability of unprofitable products with the cooperation of automakers, and made improvements in productivity by returning to the basics of "safety, quality and delivery", as well as improvements in indirect operations including selling, general and administrative expenses. As a result, Akebono succeeded in returning to profitability in 2017. However, in 2018, the final year of the midterm business plan, Akebono posted large-scale losses as the previous fiscal year's management system did not function, costs increased due to a spike in the raw material markets, and the cost reductions in response to the sales decline from the lack of orders of new-model vehicles did not proceed along with the plan.

In establishing global networks based on product-based business units, Akebono has established business unit (BU) structure that operates based on products and not restricted by region in order to further deepen collaboration between its regional businesses in Japan, North America, Europe, and Asia amid the progress of business diversification on a global level. Akebono launched five product-based business units: (i) Foundation BU, (ii) Friction Material BU, (iii) HP BU, (iv) Aftermarket BU, and (v) Infrastructure and Mobility BU. Akebono started to shift to the BU structure from its Japanese and Asian operations in 2016 and began to develop the BU structure in its North American operations in January 2019 toward establishing global networks. (The BU structure became a four-business-unit structure in April 2019 with the consolidation of HP BU into Foundation BU.)

In expanding high performance brake (high performance brakes for mass produced vehicles ) business and recreating European operations, Akebono has used high performance brake technologies cultivated in F1 for mass market products brakes to offer differentiated and high-value-added products. Akebono produces high performance 6-pot calipers at the Slovakia Plant, established in 2014, and produced approximately one million pieces annually in FY2018. For the Arras Plant in France, Akebono's other plant in Europe, Akebono has worked to enhance local management to improve competitiveness, organize our manufacturing system, and improve productivity, making efforts to achieve a prompt return to profitability and to secure orders for new models.

Akebono has worked to return to a sound financial structure through the aforementioned initiatives. However, Akebono's consolidated operating profit for the fiscal year ended March 31, 2019 was JPY0.2 billion. This was due primarily to the effects of a sharp rise in raw material prices mainly in Japan and North America, and a delay in optimizing production systems to respond to the decreased in orders and head office functions. Further, Akebono posted impairment losses in North America, Europe, and Thailand. As a result, Akebono posted net losses of JPY18.3 billion.

Under these circumstances, we and our six subsidiaries (Note), (hereinafter collectively referred to as "Our Group") resolved to seek a business turnaround in accordance with the Specified Certified Dispute Resolution Proceedings (hereinafter the "Business Turnaround ADR Proceedings") under the Industrial Competitiveness Enhancement Act of Japan. Our Group filed a formal application for Business Turnaround ADR with the Japanese Association of Turnaround Professionals (hereinafter referred to as the "JATP") on January 29, 2019, in order to establish a strong profit structure and thoroughly improve its financial structure to restore future business growth. On the same day, the application was accepted, and Our Group sent a notice of a standstill (temporary suspension of loan principal payment, etc.) to all the financial institutions concerned in the joint name of Our Group and the JATP. (Please see our press release "Formal Application for the Turnaround ADR and Acceptance of the Application" on January 30, 2019 for details)

At the Creditors' Meeting held for explaining the outline of a proposed business revitalization held on February 12, 2019, we received unanimous consent (ratifications) of all the financial institutions concerned to the above notice of standstill and extension of the standstill period until the end of the Creditors' Meeting for resolving the business revitalization plan to be held on June 11, 2019 (if continued or postponed, until the end of such continued or postponed meeting). At the Creditors' Meeting for discussing a proposed business revitalization plan held on April 8, 2019, we reported on the present status of formulating a proposed business revitalization plan and obtained consent from all the financial institutions concerned on convening a continuation of the said meeting on June 11, 2019.

Due to the change of schedule for the Business Turnaround ADR Proceedings, we will convene a continuation of the Creditors' Meeting for discussing a proposed business revitalization plan and the Creditors' Meeting for resolving a proposed business revitalization plan on the same day on June 11, 2019. We will then hold a continuation of the Creditors' Meeting for resolving a proposed business revitalization plan around September 2019.

While the Business Turnaround ADR Proceedings are ongoing, Our Group will move forward in discussions with the financial institutions, and with the examination, instruction, and advice from the Japanese Association of Turnaround Professionals, will strive to achieve a business turnaround upon agreement with the financial institutions.

Note: Six companies are Akebono Brake Corporation, Akebono Brake Mexico S.A. de C.V., Akebono Brake Slovakia s.r.o., Akebono Corporation (Guangzhou), Akebono Corporation (Suzhou), and A&M Casting (Thailand) Co., Ltd.