General Machinery Trading Company NANYO

NANYO CORPORATION

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Corporate Strategies

The Japanese economy continues to recover from the global economy including the United States of America and China, and although corporate production activities are performing well for the first half, supply and demand of some production parts is tight for the second half By doing so, orders are being made in anticipation of demand, and overheating is also emerging, so it is in an uncertain situation. Also, we are concerned about geopolitical risks rising at a stroke due to unpredictable policies of the US administration, so we need to keep an eye on future trends. Against this backdrop, the Company will implement the following measures to solidify the foundation for the next growth.

Management

Enhancement of Corporate Governance

In recent years, the importance of corporate governance has increased, the Corporate Law requires the establishment of an internal control system for the entire group of companies, and the establishment of a corporate governance code at the stock exchanges has made it possible for corporate sustainable growth and medium term Autonomous response to improve corporate value has become required. We listed on the Tokyo Stock Exchange Second Section in December 2017, but at the time of listing, we reviewed the establishment and operation of various regulations, manuals, etc., and improved the internal control system was carried out. In June 2016, we moved to a company with an audit committee, and since June 2017 we appointed three external directors who are members of the audit committee, and from the independent objective standpoint, effective audit supervision we have set up a system that can do. Regarding the future, while striving to further enhance corporate governance, we strive to build a structure that can realize sustainable growth and medium-term corporate value improvement while improving the quality while appropriately reviewing the internal control system we will also strive.

Enhancement of Credit Management

Introduction of negative interest and implementation of monetary easing by the Bank of Japan have led to historically low rates. With installment sales marketing of construction machinery business, we face intensifying competition between financial institutions and leasing companies. Under these circumstances, we will strengthen sales by not competing with interest rates by relaxing our credit line but instead will underscore the benefit that is gained from doing business with NANYO. Furthermore, we must enhance the management of credit obligations by setting up risk categories to classify each obligator. We plan to take appropriate measures for each category and secure our credit obligations.

Acquiring and Fostering of Human Resources

We believe expanding the cycle of acquiring and fostering skilled employees is the source of NANYO's stable growth. In recent years, the baby boom generation has reached retirement age. At the same time, the birthrate is falling rapidly. We predict for the mid to long-term that obtaining skilled employees will get tougher.
We built a new headquarter building and relocated to it on October 2011 in an attempt to obtain excellent employees. To recruit employees who will become NANYO's core members in 5 to 10 years, we must boost the company's recognition and create an attractive work environment. We will also improve the quality of the existing employees through in-house or outside training and education programs.

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Marketing

Expanding Sales of Expendables and Production Parts

During a recession period, even if manufacturers know the investment in facilities is necessary for the future, they refrain from making big expenditures. Since we sell machineries, we are in some way influenced by their manufacturing decisions. To avoid the damage, we plan to offer expendable production parts since they are consumed no matter what, as long as production lines are open. Also, we will provide the overseas products that are inexpensive but have technological capabilities to help customers cut their production costs. That way we can stabilize our business platform.

Expanding into Robotics Industry and New Business Lines

Manufacturing industry players in Japan are implementing factory automation to enhance productivity and labor-saving measures. The players in China are accelerating moves to automation due to increased labor costs. We will endeavor to strengthen the proposal for equipment and production parts related to the robot field for factory automation. And since the automation of the inspection process has become a big theme, we have newly established the inspection system department. We will also work to expand sales of equipment machines used in the inspection process. Regarding IoT fields where market expansion is expected in the future, we will grasp the technical trends of suppliers as soon as possible and will be involved from the development stage. Our company aims for sustainable development by proposing products and accessory parts leading to mass production investment.

Exploration in Chinese and Southeast Asian Markets

At one time, China led the world economy, but excessive production capacity and excess debt problems have surfaced and China is now going through a correction period. Investments in modernization in the agricultural industry and for automatization (due to increased labor costs) are expected to hover at high levels. Starting with NANYO International Trading (Shanghai) Co., Ltd. established in September 2003, we have grown in the Chinese market with three sales offices. To strengthen the market development in Southeast Asia including Malaysia and Thailand, NANYO ENGINEERING (MALAYSIA) SDN.BHD, our affiliate, has increased their presence in regional operations. Through these affiliates, we will explore and expand the Chinese and Southeast Asian markets where needs are growing across industrial robots and various machines.

Enhancement of Niche Market

In the construction machinery business, construction is expected to continue due to the aging of social infrastructure. We manufacture and sell the "NANYO Mall" drilling robot which repairs the sewer pipe of the original product. Excellent functionality has gained a very high reputation. In the future, there is a possibility that sales may increase as social infrastructure restoration work progresses. Okinawa Prefecture also has a rapid development of social capital thanks to the national budget. The region of Okinawa is booming. We will strengthen our approach to niche markets. And we will pioneer new niche market and promote business stabilization.

Expanding Management Base

At our Industrial Machinery Business Division, robot filed is growing up rapidly as well as smart phone field and onboard semiconductor filed; latest technology regarding IoT is going to realize gradually.
As considered above situation in our society, we recognize that expansion of the network for sales and purchase is an urgent task.
Kyoei Tsushin Kogyo became our one of subsidiaries in April 2013; moreover, TODAKA Corporation, which manufactures precision mechanical parts, FA mechatronics and Ship related equipment at Oita City, became a group company in March 2017.
We will examine advance to existing business and field which would generate synergy effect also consider effective use of M&A as an important management policy to expand our business infrastructure.

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Accounting

Implementation of System Coordination

In recent years, the information systems at our affiliates have been rebuilt to share information within the group. To avoid loss of any sales opportunities, merchandise data has been centralized. Furthermore, trade information is now shared to intensify the coordination among group companies. We plan on constructing a consolidated accounting system and a system that will meet the IFRS requirements.

Compliance with International Financial Reporting Standards (IFRS)

More and more businesses are globalized and stock markets are becoming borderless. Investors are now more eager to invest in foreign companies. Accordingly, over 100 countries are already or planning on using IFRS as their domestic accounting standards. In Japan, the government has postponed the start of the IFRS application due to the Great Eastern Japan Earthquake of March 2011. However, the adaptation of IFRS in the future is unavoidable to do business worldwide.
The IFRS is much different from the standards currently used by listed companies including NANYO. Therefore we believe it will take time and effort to comply. We will pay attention to the decisions made by the Financial Services Agency to prepare for IFRS application.

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Finance

Improvement of Balance Sheet

We have proposed cash flow management since FY 2000. To improve the balance sheet, we invested in the range of operating cash flows. As a result, the capital adequacy ratio in the fiscal year ended March 2018 reached almost 50%. Compression of interest-bearing debt also progressed, and the financial content also improved drastically. In the future, we will strive to enhance future capital base and pursue management that takes balance sheet into account. We will establish a structure that can smoothly respond to unexpected financial needs accompanying M & A, while striving for stable funding while taking fund cost into consideration, and ensuring soundness and stability.

Enhancement of Fund Management

NANYO raises funds from financial institutions in a lump sum and lends out to its affiliates. Our finance department monitors the affiliates' funding status. At the monthly board meetings, their financial statements are reviewed to make sure the funds are used effectively.
The affiliates' information system has been upgraded to allow for highly accurate control. We will utilize and manage funds more effectively by re-examining the asset allocation and reducing unnecessary assets.

Shareholder incentives / Shareholder returns

Hereby, based on review our dividend policy in March 2016, we keep the payout ratio at around 25% of consolidated net profit and a dividend as JPY30 per stock( in case the consolidated net profit is lower than all amount of the dividend, given dividend to be range of the profit).
Also, we have practiced interim dividends and dividends of surplus twice a year to enhance passing on of profits to our shareholders since 2015. However, to reinforce further return to the shareholders, we finally introduced shareholder incentives plan and gifted JPY1,000 QUO card( more than 3 years tenure will give you JPY1,500 QUO card) to our shareholders who have more than 100 stocks in end of March.
NANYO will try to have active return to all shareholders as securing of safety and soundness in management continuously.

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