Issues to be Addressed
1) Progress of the Business Turnaround Plan and Future Initiatives
As announced in "Re: Submission of 'Business Turnaround Plan' to Tokyo Stock Exchange, Inc." on September 18, 2019, Akebono is implementing each business restructuring measure in accordance with the Business Turnaround Plan approved by relevant financial institutions in the specified certified dispute resolution proceedings under the Act on Strengthening Industrial Competitiveness (the "Business Turnaround ADR Proceedings"). In order to achieve profitability, Akebono will implement structural reforms with no areas exempted. The progress of structural reform in each region is as follows.
Japan
In Japan, Akebono is improving productivity, cost reductions including rationalization and reduction of expenses, downsizing and closing plants, closely reviewing the continuation of low-profit products and unprofitable transactions, and reestablishing strict processes for approval of expenditures such as capital expenditures, R&D expenses, and inter-company loans.
Akebono implemented an early retirement program for indirect employees of the corporate head office as planned. There were 154 persons who applied for the program and combined with 32 persons who resigned for personal reasons during the period, the personnel reduction target in the Business Turnaround Plan was mostly achieved. In addition, Akebono made a repayment of principal of 2,133 million yen, the source of which is the proceeds from selling Akebono's corporate head office building in Nihonbashi, Tokyo, at the end of March.
Regarding Akebono's domestic plants, Akebono initially planned to gradually downsize and close Akebono Brake Sanyo Manufacturing Co., Ltd. and downsize Akebono Brake Fukushima Manufacturing Co., Ltd. However, Akebono has revised this plan and now intends to downsize four plants in Japan and also changed the use of the funds procured and scheduled timing of the expenditure (as announced in "Re: Notice Regarding Changes in Business Restructuring Measures for Operations in Japan, and Changes in the Use of the Fund by the Issuance of Class A Shares through Third-Party Allotment, and the Scheduled Timing of Expenditure" on March 26, 2020). Akebono will downsize four plants in Japan in accordance with the revised plan.
North America
In North America, Akebono is closing and selling plants, ensuring compliance with processes for approval of fund management, and conducting other improvements in terms of costs. Akebono has decided to close two plants ? one in Tennessee and one in South Carolina ? as a result of a fall in sales. At the same time, Akebono is negotiating to accelerate the timing of discontinuing production at such plants and negotiations for an earlier replacement of contracting parties. The discontinuation of production and closures of the Tennessee Plant and South Carolina Plant are proceeding on schedule for August 2020 and September 2020, respectively.
Europe
In Europe, Akebono plans to implement structural reforms, including restructuring of businesses and facilities, and will either collaborate with or sell off Arras Plant (France) and Slovakia Plant in such a way that would not cause a loss for Akebono. If neither option is possible, Akebono will explore other options. Although negotiations with collaboration partners or buyers were temporarily halted due to the impact of COVID-19, negotiations have been resumed.
2) Akebono’s Response to the COVID-19 Pandemic
With the global outbreak of COVID-19, Akebono’s operations have been adversely affected, such as a temporary halt of operations at plants in all regions.
In Japan, following the government's declaration of a state of emergency, Akebono designated additional company holidays and days when employees are encouraged to take annual paid leave for indirect employees of the corporate head office. Akebono also implemented measures such as adopting working from home (telecommuting) in principle as work arrangements in order to reduce the number of employees coming to work by 80%. After the Japanese government's full lifting of the state of emergency, Akebono endeavors to introduce work style reforms by continuing to set additional designated company holidays and ensure measures for the prevention of infection while commuting (i.e. employees to avoid commuting to work during peak hours), as well as encouraging working from home (telecommuting). For Akebono's plants in Japan, Akebono will continue to take measures, such as setting dates when operations are to be suspended based on the operating circumstances of automakers.
For Akebono's overseas plants, Akebono is taking responses in accordance with the directives and guidance issued by the government and local governments of each country. For example, Akebono is closing offices, adopting working from home (telecommuting) for indirect employees, and suspending operations. Akebono will implement these measures based on the operating circumstances of automakers without negatively impacting our supply chain.
Regarding the status of cash flow, Akebono received a capital contribution from Japan Industrial Solutions Fund II on September 30, 2019 following the completion of the Business Turnaround ADR Proceedings. Therefore, Akebono has no problem with Akebono's current cash flow. As mentioned above, the implementation of a structural reform in the Business Turnaround Plan has been partially behind schedule in North America and Europe. However, there has been no change in the content of the structural reform and the use of funds at this time.
Akebono will continue to carry out structural reforms toward achieving the Business Turnaround Plan while paying close attention to the circumstances to minimize the impact of COVID-19.
