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Messages from Management

Status of Business

We would like to take this opportunity to express our heartfelt gratitude for your continued support and encouragement. In the following, we present a report of our performance results during the fiscal year 2016 (term ended March 2017).

Business developments and results

 Looking back on the global economy during the fiscal year under review, while the trend of the U.S. economic policy drew attention as the presidential election fell in this period, the U.S. economy itself was relatively stable, and interest rates were raised as well. In Europe, while the economy decelerated significantly in the first half of the fiscal year due to the Brexit shock, it recovered gradually in the second half of the year owing to rapid responses by central banks of major countries. There has still been a risk of an economic downturn, however, under the backdrop of the deterioration in public order due to terrorism and other states of affairs. In Asia, while a slowdown in growth of the Chinese economy is observed, the Asian economy has managed to avoid a downturn owing to supports by governmental programs.

 On the other hand, in Japan, while the profitability of export industries deteriorated due to the impact of the sharp appreciation of the yen from the beginning of the year, the yen turned around and started depreciating after the U.S. presidential election, resulting in an improvement in corporate earnings and the moderate recovery trend of the Japanese economy under the backdrop of improvements in employment and income environment.

 Under such conditions, with regard to the electronics industry, the mainstay area of business of the Hakuto Group (the “Group”), while the economic slowdown in China resulted in a decrease in demand for electronic components for housing-related products, such as household appliances, vehicle-mounted products for the automobile industry showed steady growth in demand. A recovery was observed in the demand for tablet PCs and LCD TVs in the second half of the fiscal year. On the other hand, with regard to industrial chemicals, while the shrinkage of the domestic market and the movement of industry reorganization continue both in the petroleum refining industry and the paper and pulp industry, our chemical business remained strong and grew in terms of earnings owing to a decrease in the purchasing cost of imported merchandise and raw materials thanks to the benefit of the yen appreciation primarily in the first half of the fiscal year.

 Under such circumstances, consolidated net sales for the fiscal year under review amounted to ¥127,599 million, a 9.7% year-on-year increase. Regarding profit and loss, gross profit decreased 4.2% to ¥16,495 million. Selling, general and administrative expenses increased 0.8% to ¥14,426 million, operating income decreased 28.8% to ¥2,069 million, ordinary profit decreased 30.8% to ¥1,989 million and net income attributable to owners of parent decreased 6.5% to ¥1,903 million.

 

 The following is a breakdown of business performance by segment for the fiscal year.

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Electronic Components Business

 In the electronic components segment, the sale of vehicle-mounted products remained robust as automotive sales itself also continued to be so in the U.S. and China from the beginning of the year. The demand for tablet PCs and LCD TVs also recovered in the second half of the year, and their sales remained favorable. On the other hand, the profitability of foreign currency denominated export transactions remained low due to the impact of the yen appreciation up to the first half of the fiscal year.

 As a result, sales in this segment for the fiscal year under review increased 11.9% year-on-year to ¥98,554 million, and segment income decreased 61.2% year-on-year to ¥447 million.

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Electronic and Electric Equipment Business

 In the electronic and electric equipment segment, while the sales of large accelerator grew in the domestic market, investment in semiconductor manufacturing equipment was low. In addition, investment in next-generation smartphones did not increase as expected, and the sales of PCB equipment remained sluggish. On the other hand, vacuum pumps for analysis markets showed steady growth, and the sales of coating and vapor deposition equipment for smartphones grew in the Chinese market.

 As a result, sales in this segment for the fiscal year under review increased 3.9% year-on-year to ¥19,191 million, and segment income decreased 21.0% year-on-year to ¥804 million.

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Industrial Chemicals Business

 In the industrial chemicals segment, while the amount of chemicals carried by Hakuto is on a declining trend due to the general decreasing trend in oil demand and the production reduction implemented by major paper manufacturers, the sales of catalysts for petroleum and petrochemicals, polymerization inhibitors, amines for acid gas adsorption, etc. remained steady. Furthermore, although the sales of colorants and fixative agents for paper somewhat decreased, the sales of cosmetics raw material stayed steady in the cosmetics subsegment.

 As a result, sales in this segment for the fiscal year under review increased 1.4% year-on-year to ¥9,828 million, and segment income increased 47.6% year-on-year to ¥867 million.

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Others Business

 Other business segment consists mainly of general operation and logistics management operations of Hakuto on a consignment basis, as well as agency business for insurance companies. Sales in this segment for the fiscal year under review decreased 4.3% year-on-year to ¥676 million, and segment income decreased 27.4% year-on-year to ¥19 million.

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Outlook of the Next Fiscal Year

 In the next fiscal year, while the world economy grows moderately driven by the steady U.S. economy, a basic recovery trend is expected to continue domestically against the backdrop of export rally, increasing capital investment, and rising corporate performance. On the other hand, however, policies by President Trump and a downturn in the Chinese economy are conceived as risk factors.

 In the electronic components business, the Group intends to achieve further growth in the area of vehicle-mounted products, where a significant progress is being made in self-driving and environment technologies. In the electronic and electric equipment business, the Group intends an early entry into a new market other than semiconductor and PCB markets while promoting the expansion of the sales of next-generation steppers for semiconductor packages. Furthermore, in the industrial chemicals business, the Group intends to focus on expanding the sales of its own products and launching house-brand cosmetics in overseas markets.

 In consideration of such business conditions, Hakuto forecasts consolidated results of operations for the fiscal year ending March 31, 2018 as follows: net sales to increase 5.0% year-on-year to ¥134,000 million, operating income to increase 54.6% to ¥3,200 million, ordinary profit to increase 65.9% to ¥3,300 million, and net income attributable to owners of parent to increase 26.1% to ¥2,400 million.

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Issues facing Hakuto

 The Group established the 5-year medium-term management plan “E&C +2020” in the beginning of FY2016 and started to address management issues such as the enhancement of earnings base and active challenges into new markets and new business opportunities in the first year of the medium-term plan, aiming to achieve sustainable growth and improvement of medium- to long-term corporate value. As a result, while the sales target planned in the beginning of the fiscal year under review was almost achieved, the profit decreased unavoidably due to the rapid progression of the yen appreciation in the first half of the fiscal year.

 Under such conditions, the Group intends to continue to address the issues stated below in FY2017, the second year of the medium-term plan, in order to realize both the sustained growth of the sales and the secure stability of the profit.

 

1) Strengthening sales strategies for each business segment

The Group will try to implement product strategies which enable securing stable profit even under the rapid fluctuation of exchange rates while promoting the balanced growth of all business segments, which is the strength of the Group.
Specifically, it is intended to expand and improve products for growth markets such as vehicle-mounted products markets in the electronic component business. At the same time, in the electronic and electric equipment business and industrial chemicals business, it is intended to make growth compatible with stability by focusing on expanding the sales of house brand products and in-house products which are less susceptible to exchange rate fluctuation.

 

2) Accelerating the development of new business

Against the backdrop of the overseas transfer of manufacturing bases and population decline, a slowing or shrinking trend in growth continued in the domestic markets. As a decline in profitability due to a further intensification of competition is expected in existing business areas, it has become imperative to develop new business.
Accordingly, it is intended to embark on business in new areas proactively without being constrained by existing business areas and aim at early commercialization, for instance, housing related areas such as smart house business and medical device areas in the electronics business and environment related areas such as cleaning of petroleum storage tank and cosmetics areas in the industrial chemicals business.

 

3) Strengthening overseas business

A slowdown in the economic growth rate of China, customers’ shift to Southeast Asia, moves for constructing a global supply chain in vehicle-mounted products and other areas, etc. have a great impact on the Group’s overseas business.
Accordingly, in Asia, it is intended to reinforce overseas operations further by implementing product strategies specific to growth areas in each region in Asia and constructing the support system responding to the globalization of customers in Europe and the U.S.

 

4) Promoting management that contributes to growth

With regard to business management, first of all, in terms of risk management, it is intended to promote visualizing management risks including inventory and exchange rate risks and making relevant responses faster on a consolidated basis by making use of the core system, which is in the final phase of construction at overseas operation bases.
In terms of the human resources policy, based on the recognition that the realization of work-life balance is indispensable for enhancing corporate vitality to enable sustained growth, the Group will endeavor to maintain the mental and physical health of employees and promote a work style reform, for instance, by introducing various working forms.

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