Previous Management Plans

Management Plans and Business Results
FY2011-2013 Medium-Term Management Plan

FY2014-2016 Medium-Term Management Plan

FY2017-2019 Medium-Term Management Plan

Sowing Seeds andStrengthening Our Foundation

From Strengthening Our
Foundation to GrowthInnovation for
Sustainable Growth• Established technology development facilities
including the Developmental Experiment Centerand the Machine Tools Center• Consolidated and eliminated bases for construction
machinery products in Japan and China (CADAC/YS
integration in Japan, KIMZ1 integration in China)• Initiatives for “the first year of KYB’s recovery”(quality management, measures to prevent
recurrence of improper acts)• Established regional headquarters in China, theAmericas and Europe, and a procurement center
in ASEAN to build a global management network• Started plan for high-value-added products
and innovative manufacturing for automobiles(high-performance SA, integrated valve line concept)• Business reorganization (small businessdepartment system introduced)• Established domestic production system forconstruction machinery products (established
Gifu East Plant/New CADAC Plant (currently
Ueda Plant of KYB-YS Co., Ltd.))• Expanded overseas production bases (SA at
KMEX2 in Mexico, motorcycles at KMSI3 in India,
construction machinery at KHMI4 in Indonesia)(Billions of yen)

412.2

393.7

370.3

352.7

337.2

• Started transfer of production and business(PS business division incorporation at KYB
Trondule Co., Ltd., layout change of small
motorcycle production in ASEAN)

355.3

381.6

355.3

305.8
22.9

21.5
18.2

17.6

15.5

22.0

18.6

17.6

10.5

2011

2012

2013

2014

2015

2016

JGAAP

2017

2018

2019

(FY)

IFRS

■ Net sales (left scale) ■ Operating proﬁt/Segment proﬁt 5 (right scale)Notes: 1. KIMZ: KYB Industrial Machinery (Zhenjiang) Ltd.
2. KMEX: KYB Mexico S.A. de C.V.
3. KMSI: KYB Motorcycle Suspension India Pvt. Ltd.
4. KHMI: PT. KYB Hydraulics Manufacturing Indonesia
5. Operating profit up to FY2013, segment profit in FY2014 and thereafter (calculated by deducting cost of sales and selling, general and administrative expenses from net sales)

Review of the FY2017-2019 Medium-Term Management Plan
The FY2017-2019 Medium-Term Management Plan started as our
final medium-term management plan in our aim for annual Groupnet sales of ¥500 billion, a target we conceived in 2010 as part ofour vision for 2020. The development of high-value-added
products and the implementation of measures to ensure theprofitability of our bases had been issues since the FY2014-2016
Medium-Term Management Plan. By introducing small businessdepartments under the control of the operational headquarters,
we ensured flexibility and made shared responsibilities clearer,which enabled us to launch high-value-added products forautomobiles and set a tentative timetable for transferring andconsolidating production of construction machinery products.

On the other hand, matters for further reflection include thenonconforming acts associated with seismic isolation/mitigation oil
dampers announced in October 2018 and the improper claims to
the Ministry of Defense announced in January 2019. These matterscaused particularly great inconvenience to all those involved andmade us realize our lack of an awareness of compliance, whichshould be at the core of the Company’s operations.
Under these circumstances, we made FY2019 “the first year of
KYB’s recovery.” As the Company’s foremost task, we worked tothoroughly establish a corporate culture that gives the highest
priority to compliance and safety, and added awareness ofcompliance to our Corporate Spirit in October 2019, with a focus
on promptly bringing nonconforming seismic isolation/mitigation
oil dampers into conformity.

Future Direction
The various measures we implemented during “the first year
of KYB’s recovery” in FY2019 enabled us to pave the way forpracticing thorough compliance and preventing a recurrence of
our improper acts related to seismic isolation/mitigation oil dampers
and the Ministry of Defense. Using this as a foundation, we will bringevery last damper into conformity during the period of the FY20202022 Medium-Term Management Plan. We will also implement
each measure of the plan while strengthening compliance.

14

KYB Group Report 2020

In addition, we have changed our Company policy and aremaking a clear shift in emphasis from net sales to high profitability.
In the current situation, where the COVID-19 pandemic has madeforecasts impossible, we intend to begin by increasing profitability
with a focus on our current businesses.
▶ For details, see the Investor Relations section of the Company website.

http://www.kyb.co.jp/english/ir/index.html

FY2019 Performance
Analysis of Losses in FY2019

In FY2019, net sales were ¥381.6 billion, a decrease of ¥30.6
billion from ¥412.2 billion in the previous year, segment profit was¥17.6 billion, a decrease of ¥4.4 billion from ¥22.0 billion in theprevious year, and loss attributable to owners of the parent was¥61.9 billion, an increase of ¥37.1 billion from a loss of ¥24.8
billion in the previous year, for a second consecutive fiscal yearwith a net loss. The decreases in net sales and segment profit weremainly caused by weakening economic growth in China due totrade friction with the United States and a decline in sales volume
due to the COVID-19 pandemic in the fourth quarter. The main
reasons for the net loss were ¥12.2 billion in expenses incurred
during the fiscal year to bring seismic isolation/mitigation oil
dampers into conformity, ¥22.5 billion in provision for estimatedfuture expenses under product warranties for such oil dampers,¥17.4 billion in impairment losses at multiple plants, ¥20.4 billion
in income tax expenses for the partial reversal of deferred tax
assets, and ¥7.0 billion in foreign exchange and other losses. Of
these expenses, the only items entailing actual or expected cash
outflows are ¥12.2 billion in expenses for product warranty
measures to bring seismic isolation/mitigation oil dampers into
conformity and ¥22.5 billion in provision for product warranties;
the other items are all evaluation losses.

(Billions of yen)

(12.2)(22.5)

17.6(17.4)(7.0)(61.9)(20.4)

Proﬁt
Segment Expenses Provision Impairment Foreign Income tax
for productforlossesexchange expenses attributable
proﬁtwarranty
product
and otherto owners
measures warranties
lossesof theparentMost negative factors are non-cash items

Overseas Expansion
Since 2000, we have expanded our global supply system aswell as our provision of products, technologies and services toemerging countries. Since 2013, our overseas sales ratio has
exceeded 50%, and we are working to create high-quality
products tailored to the needs of each region. Going forward,
we will conduct optimal procurement through local production
for local consumption that is able to respond to risks fromuncertainties such as exchange rate fluctuations, and aim to
improve profitability by establishing a production system that
responds to changes in customer demand.

KYB’s aspirations for overseas expansion began at an earlystage, when it established a long-term management visionin 1966 to become a global player as a comprehensive
manufacturer of hydraulic equipment. In 1973, we accelerated
our activities outside Japan by establishing an Overseas
Business Division to accommodate our customers’ overseas
expansion and increase our product export ratio. As a result,
the KYB brand spread widely outside Japan, centering on
shock absorbers, and in 1981 our export ratio reached 10.1%
with a value exceeding ¥10 billion.

Sales by Region and Overseas Sales Ratio(%)(Billions of yen)

60

500

52.0
400

46.0
337.2

300

51.9

54.9

54.6

53.5

46.9
352.7

370.4

393.7
355.3

55.2
412.2

355.3

55.2
50

381.5
40

305.8
30

200
20
100

10

0

0

2011

2012
JGAAP

■ Japan (left scale) ■ Europe (left scale)
Overseas sales ratio (right scale)

2013

2014

2015

2016

2017

2018

2019

(FY)

IFRS

■ Americas (left scale) ■ China (left scale) ■ Southeast Asia (left scale) ■ Other (left scale)KYB Group Report 202015

Overview by Segment

Automotive Components Operations
Strategy under the
FY2017-2019 Medium-Term
Management Plan

For long-term growth, map out plan for consolidating bases
and companies to match geographical shifts in customer
demand, and for developing and promoting sales ofhigh-value-added products.

Review of the FY2017-2019 Medium-Term Management Plan
Under the FY2017-2019 Medium-Term Management Plan,
Automotive Components Operations aimed to optimize
production by consolidating bases and focused on developing
and expanding sales of high-value-added products to provide afoothold for sustainable growth.
Over the three years of the medium-term management plan,we achieved some success in restructuring unprofitable products
and bases. In the electric power steering (EPS) systems business,where profitability has become an issue, we leveraged theknowledge we have accumulated in Japan to establish a joint
venture in China, and we are rolling out sales activities. We alsodecided to close our production base in Spain for hydraulic power
steering systems, which is a shrinking market. On the other hand,

we laid the foundation for building a production system for
automobile and motorcycle shock absorbers that is optimized fortransferring products among bases, but faster setup is necessary.
While bolstering this foundation, we have worked to extend thebusiness into high-value-added products and fields where we
expect demand to increase, with the aim of future growth.
High-value-added products and products for future growth fields
such as SUVs, electric vehicles and pickup trucks are already being
installed in some mass-produced vehicles, and we expect morewidespread use going forward. We also established the Europe
Technical Center in Germany to strengthen our technologicalcapabilities and cultivate new customers.

FY2019 Overview
In FY2019, despite increased sales volume of automobile
shock absorbers in North America and the Middle East, net
sales decreased 5.6% year on year due to the impact of theappreciation of the yen, the chilling effect of a consumption
tax rate hike on the domestic market and a decrease in sales
volume of electric power steering and hydraulic equipment for
automobiles, mainly electric power steering products and vane

pumps for the continuously variable transmission (CVT). On theother hand, segment profit increased year on year due to growthin sales volume of highly profitable products. Our shift over the
past few years to highly profitable products and the expansion ofsales of high-value-added products are generating results. We
have now established a structure that can secure profits evenwhen sales decline.

Net Sales1

Segment Profit2(Millions of yen)

(Millions of yen)

300,000

20,000240,903

231,025

243,725

245,807

232,101

15,00015,504200,000
10,00011,043

10,6182016

2017

11,696
9,806

100,000
5,000

0

0
2015

2016

2017

2018

2019

(FY)

2015

2018

2019

(FY)

■ Shock absorbers for automobiles ■ Shock absorbers for motorcycles■ Hydraulic equipment for automobiles ■ Others
Notes: 1. As of FY2017, “Royalty income” and “Revenue related to mold compensation,” which were previously recorded in “Other income” in the Consolidated Statementsof Income, are included in “Net sales.”
2. Segment profit is calculated by deducting cost of sales and selling, general and administrative expenses from net sales.

16

KYB Group Report 2020

Hydraulic Components Operations
Ensure stable sales and profit that are unaffected by market
fluctuations, and maintain foundation in hydraulic excavators
while promoting sales in growth markets in which we were
not fully active.

Strategy under the
FY2017-2019 Medium-Term
Management Plan

Review of the FY2017-2019 Medium-Term Management Plan
Under the FY2017-2019 Medium-Term Management Plan, in order
to secure stable sales and profits resilient to market fluctuations, theHydraulic Components Operations segment bolstered its foundationin mainstay products for hydraulic excavators and worked to expand
sales in growth markets for products other than excavators where
we were not fully active. We have been transferring production of
products for hydraulic excavators in Japan, as well as reorganizing
production of control valves over the past three years to create an
integrated line. In addition, we aim to shorten the development
period and enhance product capabilities by integrating development
and production bases, and we are working to improve production
efficiency by consolidating production of hydraulic motors at asingle base. In the mini and ultra-large excavator markets, where
demand is expected to remain stable, we have maintained highmarket share by expanding production capacity.
As for growth markets other than hydraulic excavators, we also
worked to expand sales of products for agricultural machinery,skid-steel loaders (SSL) and compact track loaders (CTL). The
SSL/CTL and small construction machinery and agricultural
machinery markets are expected to grow, mainly in emerging
countries, and we introduced new products to the market,
establishing a foothold for future sales expansion.
Despite this progress in bolstering our foundations, conditions
were severe in FY2019 as cost reductions were not enough tocompensate for the decrease in sales volume due to a decline indemand and the occurrence of large-scale disasters. Securing
stable sales and profits will require faster implementation of
structural improvements.

FY2019 Overview
Net sales in FY2019 decreased 10.9% year on year due to a
decline in demand caused by weakening economic growth inChina, worsening market conditions in Europe and the Americas,
natural disasters in Japan and the slump in economic activity as aresult of the COVID-19 pandemic. Cost reductions were notenough to compensate for the rapid decline in demand, resulting
in a year-on-year decrease in segment profit. It was a challenging

year for the Hydraulic Components Operations segment, with aseries of unforeseen events. On the other hand, we have madesteady progress in transferring production of control valves andconcentrating production of motor products. By working to makeproduction lines more flexible, we are creating a structure that isresilient to fluctuations in volume.

Net Sales1

Segment Profit2(Millions of yen)

(Millions of yen)

150,000

15,000140,625

125,321

122,787

11,304
100,000

88,024

11,907

10,00096,327

6,634
50,000

5,000

0

0
2015

2016

2017

2018

2019

(FY)

5,534

451
2015

2016

2017

2018

2019

(FY)

■ Hydraulic equipment for industrial use ■ Others
Notes: 1. As of FY2017, “Royalty income” and “Revenue related to mold compensation,” which were previously recorded in “Other income” in the Consolidated Statementsof Income, are included in “Net sales.”
2. Segment profit is calculated by deducting cost of sales and selling, general and administrative expenses from net sales.

KYB Group Report 202017

Overview by Segment

Other businesses (system products, aircraft components, special-purpose vehicles, electronic components, etc.)

FY2019 Overview
Other businesses include system products, aircraft components,
special-purpose vehicles and electronic components. Sales
decreased in each business, resulting in a 6.3% year-on-year
decrease in net sales for the segment. On the other hand,segment profit increased and the profit margin improved.
As announced in October 2018, the system products
business was involved in nonconforming acts in the inspection
process for seismic isolation/mitigation oil dampers, causing
great inconvenience for all those involved. We are currently
working to bring all nonconforming dampers into conformity,
aiming for completion by March 31, 2021. In the aircraftcomponents business, we completed payment of refunds forovercharges associated with improper claims regarding working
hours for defense equipment announced in January 2019.
In the special-purpose vehicles business, we are working tosecure sales and market share by steadily capturing domestic
demand in fields including public works and urban development,
and our mainstay concrete mixer trucks maintain stable sales witha market share around 80% in Japan. We are working to establish
a network that can respond promptly to fluctuations in demandand strengthen after-sales service in Japan, as well as to establish a
global network for special-purpose vehicles.

e-Mixer Computer Controlled Concrete Mixer Truck
The e-Mixer is an environmentally friendly concrete mixer that achieves low noise, low exhaustand energy efficiency through computer controlled operation. Optimal computer control of theflow rate of the hydraulic transmission system according to the level of load capacity reduces
engine speed to about half that of a manual mixer. In addition, eliminating the operating lever
and replacing it with a hand-held rear controller substantially improves operability. Use of theradio controller enables minute adjustments during concrete discharge. Other functions thatmeet the needs of users include programmed auto-clean and auto-mixing functions, automatic
stirring during running, and a function to prevent reverse rotation.
The initial model e-Mixer that was launched in 2004 was upgraded to the e-Mixer II in 2011.
We are currently incorporating further advances to develop the e-Mixer III.

Net Sales1

Segment Profit2(Millions of yen)

(Millions of yen)

30,000

Remote control operation near thedischarge chute

2,000

26,39427,964

27,23125,782

1,633

24,1631,500

20,000
1,000

947

1,028

10,000
500

0

297

346

2018

2019

0
2015

2016

2017

2018

2019

(FY)

2015

2016

2017

(FY)

Notes: 1. As of FY2017, “Royalty income” and “Revenue related to mold compensation,” which were previously recorded in “Other income” in the Consolidated Statementsof Income, are included in “Net sales.”
2. Segment profit is calculated by deducting cost of sales and selling, general and administrative expenses from net sales.

18

KYB Group Report 2020

Contributing to Social Issues through Our BusinessApproaches to ICT and IoT in Hydraulic Equipment
Support for ICT and IoT in Hydraulic Equipment
In recent years, computerized operation using information and communication technology (ICT) and monitoring functions using the Internet ofThings (IoT) have increased in the construction industry. Combining traditional hydraulic equipment with advanced electronic equipment
requires overcoming challenges in terms of cost, durability and systemization, but we are continuing our development initiatives, mainly insensing technology.

Launch of Hydraulic Cylinder Compatible with ICT (Stroke Sensing Cylinders for ICT
Construction Equipment)
We have launched a cylinder with a stroke sensing function as a productfor computerized construction equipment. In the case of an externalsensor, there is a risk of damage due to contact with soil or othersubstances. However, a built-in sensor that is interchangeable withstandard cylinders can prevent damage. For ease of use and high accuracy,
the stroke sensing cylinders support controller area network (CAN)
communication and utilize absolute output (absolute position detection).

Development of Monitoring System for Hydraulic Cylinders and Other Equipment
We are developing a cylinder failure detection system as a product formonitoring systems utilizing IoT. A fully wireless sensor mounted on thecylinder monitors the inside of the cylinder and reports malfunctions. KYB
has continued to make advances in its hydraulic cylinders to improve their
durability. Moreover, by providing advance notice of the inevitable
deterioration of consumable items or accidental failures, this systemminimizes the effect on theoperation of construction
Relief valve
machines, thus contributing to
the maintenance operationsof construction machine
manufacturers. The product isWireless
sensorin the evaluation stage of theSeal housingdevelopment process as a
subsystem that provides data
Sensor holder
to the construction machines.

Wireless sensor(for cylinder
mounting)

CAN communication(SAE J1939)
Terminals used aspressure andtemperature
sensors

Internal
communication

Receiver• Judgment
function• Communication
function

Personal area
network (PAN)
communication

System developed by KYBConstruction
machineECU

Construction
machine network
communicationequipmentLine for CAN
communication(SAE J1939)

Construction
machine system

Joint Development of a Next-Generation Modular EV Platform
KYB has entered into a strategic partnership with REE Automotive of
Israel, a company with advanced electric vehicle (EV) platform
technologies, to develop suspension capabilities for future EV
platforms. Our suspension technologies will contribute significantly
to improving the performance of REE Automotive’s next-generation
EV platform, providing cost-effective, scalable solutions in e-mobility.
The new platform features a high degree of design freedom andis expected to enable innovations in EV design, with all drivetrain
components, including steering, braking, suspension and e-motor,
integrated into the wheel. Through this partnership, we will promote
the development of a suspension subsystem that supports the needsof tomorrow’s mobility ecosystem to revolutionize methods oftransporting people, goods and services.

KYB Group Report 202019