| KITZ Corporation (6498) |
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Company |
KITZ Corporation |
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Code No. |
6498 |
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Exchange |
TSE 1st Section |
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Industry |
Machinery (Manufacturing) |
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HQ |
1-10-1 Nakase, Mihama-ku, Chiba, 261-8577, Japan |
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Year-end |
March |
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URL |
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* Share price as of closing on May 20, 2016. Number of shares outstanding as of most recent quarter end, does not include treasury shares.
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*Estimates are those of the Company. From fiscal year March 2016, the definition for net income has been changed to net income attributable to parent company shareholders (Abbreviated as parent company net income).
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| Key Points |
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| Company Overview |
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Corporate Philosophy - KITZ is Dedicated to Sustained Enrichment of Its Corporate Values by Offering Unique and High Quality Products and Services -
"Corporate value" is the "medium to long term shareholder value", and the improvement in "medium to long term shareholder value" requires that KITZ contributes to the sustained growth in profits through the acquisition of its customers' trust. And by improving corporate value, the Company can make various contributions to shareholders, customers, employees, business partners and to the establishment of a prosperous society. Based upon these assumptions of the "KITZ Mission Statement", KITZ seeks to attain new achievements.
Action Guide
Do it KITZ Way Do it True (Sincerity Honesty) Do it Now (Speedy Timely) Do it New (Creativity Challenge)
KITZ's Statement of Corporate Mission
To contribute to the global prosperity,KITZ is dedicated to continually enriching its corporate value by offering originality and quality in all products and services. In relationships between people, what must not be forgotten is to relate to them with sincerity. The pursuit of the essence of things, rather than superficial things. "Do it True" are words that are designed to remind employees of these basic principles when conducting corporate activities.
"Do it Now" expresses the image of dynamic employees who lose no time in obtaining information, making prompt decisions, and putting them into practice with certainty.
"Do it New" expresses the image of employees taking on new challenges in response to changes and leaving conventional ideas behind to express hidden creativity.
<Overview of KITZ's Business Segments>
KITZ's business is divided between the valve manufacturing, brass bar manufacturing, and others, including hotel and restaurant management, business segments. During fiscal year March 2016, each of these segments accounted for 79.8%, 17.5% and 2.7% of total sales respectively.
Valve Manufacturing Business
Valves are used to "pass," "stop," and "adjust the flow" of fluids and gases in various pipe systems (water, air, gas and other substances), and they are used in office and residential facilities, water works facilities, fresh and sewage water facilities, fire prevention facilities, machinery and industrial use manufacturing equipment, and chemical, medical, petrochemical product manufacturing facilities, semiconductor manufacturing facilities, petroleum refining and other industrial complexes, and other various applications. The corrosion resistant bronze and highly economical brass valves, and high value added ball, butterfly and industrial stainless steel valves are used particularly in the field of building residential and office facilities. In Japan, these valves are the main products with high market shares. KITZ customers operate within the building facilities, plant and engineering facilities, environment, energy, semiconductor, and other industries. The Company boasts of integrated manufacturing processes including the casting process, and it became the first company in Japan to acquire the "ISO9001 International Quality Standard Certification." The Company also pursues a strategy of increasing the global cost competitive characteristics of its products by fortifying its overseas manufacturing facilities.
 Brass Bar Manufacturing Business
In the brass bars business, KITZ combines copper with zinc to create brass, tin and phosphorous to create phosphor bronze, and nickel and zinc to create nickel silver. These materials are then used in the dissolution, casting, rolling, pulling, forging, heating, and forming processes to create sheets, strips, pipes, bars, wires and other forms. The KITZ Group's brass bar manufacturing business is the operating realm of KITZ Metal Works Corporation and Hokuto Giken Kogyo Co., Ltd., and it uses the raw material of brass to manufacture brass bars, which it also sells. (Brass bars are used not only as materials for valves, but also in the manufacture of water faucets, gas equipment, electrical appliances and other various products.)
Other Business
Resort hotel operations (Suwa City, Nagano Prefecture) are conducted through the subsidiary Hotel Beniya Co., Ltd. Hotel Beniya is located in a highly picturesque setting close to Suwa Lake (Kohan) with hot spring bathing facilities with views of the sunset and various sized banquet halls. This hotel also boasts of panoramic views from the large public bathing facilities, small to large dining facilities, and conference rooms capable of hosting international conferences and large conventions.
<KITZ Group (Valve Manufacturing Business)>
As a comprehensive valve manufacturer, KITZ maintains extensive nationwide sales coverage through its network of distributors and its own sales offices in the major cities throughout Japan. In overseas markets, KITZ has developed a global sales network with representative offices in India, U.A.E. and Korea, and marketing offices in China, Singapore, Thailand, United States, Brazil, Germany and Spain. In the area of manufacturing, KITZ boasts of seven facilities in Japan and 12 production facilities overseas (China, Taiwan, Thailand, India, Germany, Spain, Brazil), which strive for optimized manufacturing in strategic locations.
    * ROE is calculated by multiplying "Net Profit Margin (net profit divided by sales)", "Asset Turnover (sales divided by total assets)" and "financial leverage (total assets divided by equity, reciprocal number of equity ratio)".
ROE="Net Income Margin" x "Asset Turnover" x "Leverage" * The data in the table above is based upon figures taken from the official earnings announcement filings, and total assets and capital required to calculate the data above are averages for the term (Using the values at the end of the previous and current terms, and therefore the data listed in the official earnings announcement filings and the data above do not necessarily coincide because they use term end equity ratio). |
| Fiscal Year March 2016 Earnings Results |
 Sales, Operating Income Rise 0.2%, 5.2% Year-On-Year
Sales rose by 0.2% year-on-year to ¥117.278 billion. A decline in the brass bar manufacturing business sales due to a decline in copper market and drop of sales in other business sales due to the sale of the subsidiary which operated fitness clubs in the previous year were offset by an increase in sales of the valve manufacturing business. In the valve manufacturing business, overseas sales rose by 5.9% year-on-year due to strong demand in Asia, especially in ASEAN and China, recovery in the North America, and the depreciation of the yen against the US dollar. Domestic sales also rose by 2.5% year-on-year due to strong sales for semiconductor manufacturing facilities and water works facilities despite inventory adjustment at distributor levels for the use in building facilities. Cost reduction and lower material cost in the valve manufacturing business improved the operating income ratio by 1.3% points. Operating profit increased by 5.2% year-on-year to ¥7.245 billion despite an increase in sales, general and administrative expenses such as M&A expenditure, R&D expense and SG&A expense from overseas subsidiaries due to the weaker yen. Net income decreased by 28.6% year-on-year to ¥4.915 billion due to lower foreign exchange translation gains (Decline from ¥401 to ¥82 million) and lower extraordinary income due to the disappearance of the profit recorded from sale of the subsidiary that operated fitness clubs (¥2.156 billion) in the previous year.   Valve Manufacturing Business
Sales rose by 3.8% year-on-year to ¥93.579 billion, on the back of domestic sales growth of 2.5% year-on-year to ¥57.424 billion. Sales for the main products for building facilities grew by 2.0% year-on-year. Growth was not as strong as initially anticipated due to inventory adjustments at the distributor level. However, the growth improved during the end of the fiscal year as inventory adjustments were made. Sales for water work facilities grew by 6% year-on-year. Although weak demand was seen during the fourth quarter due to seasonal factors, favorable trends continued for earthquake resistant products and sales for the full fiscal year exceeded the previous term. At the same time, sales trends of stainless steel industrial use valves used in machinery equipment, chemical, food, paper and other industry applications remained unchanged as there were no significant changes in market environment. Given the favorable first half, sales to the semiconductor industry grew year-on-year despite a slowing in the second half. Overseas sales rose by 5.9% year-on-year to ¥36.154 billion. Sales in Asia grew by 12% year-on-year with strong demand from ASEAN and China. The North America market also saw growth of 6% year-on-year. Depreciation of the yen against the US dollar also contributed to profits. On the other hand, sales in Europe and other regions declined by 17% year-on-year as capital expenditure of energy related companies decreased due to significant drop in crude oil price. Operating income rose by 9.2% year-on-year to ¥10.384 billion. Increases in sales, general and administrative expenses of overseas subsidiaries due to the weaker yen, and increases in M&A related and research and development expenses were absorbed by cost reduction, volume discounts and a fall in material costs. Brass Bar Manufacturing Business
In fiscal year 2015, the brass bar market in Japan decreased by 3.2% year-on-year to 14,866 tons per month. Electric copper prices continued to decline from May 2015 until the end of the year, although they recovered slightly at the beginning of 2016. Despite the consolidation of Hokuto Giken Kogyo Co., Ltd. in July 2015, sales declined by 2.2% year-on-year to ¥20.557 billion due to a drop in the selling price of brass rods and bars arising from copper market trends. The decline in selling price and increase in depreciation due to the expansion of processing plant led to an operating loss of ¥16 million (Compared to operating income of ¥248 million in the previous year).
Other Business
Sales and operating income declined by 46.4% and 67.6% year-on-year to ¥3.141 billion and ¥75 million respectively. The sale of KITZ Wellness in October 2014 was a major factor behind these declines (Influence of about ¥2.7 billion in sales). The hotel business saw a 1.9% year-on-year increase in sales to ¥3.050 billion and a 30.2% decline in operating income to ¥30 million.
   (4) Shareholder Returns
Year-end dividend of ¥7 per share is expected to be paid, for a combined full year dividend of ¥13 per share (consolidated dividend payout ratio of 28.6%), along with the interim dividends of ¥6. Comprehensive shareholder return totaled ¥1.909 billion including ¥509 million in stock buyback implemented during the term for a comprehensive payout ratio of 38.8%.
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| Fiscal Year March 2017 Earnings Estimates |
 Operating Income Expected to Rise 10.4% Year-on-Year despite a 4.9% Year-on-Year Decline in Sales
Estimates call for sales to decline by 4.9% year-on-year to ¥111.5 billion in fiscal year March 2017. This estimate is based on the assumption of weak overseas demand in the valve manufacturing segment, the negative impact of stronger yen, and a sales decline in the brass bar manufacturing segment caused by continuation of weak copper market. At the same time, estimates call for operating income to rise by 10.4% year-on-year to ¥8.0 billion. Profitability of the valve manufacturing segment is expected to recover through the stronger yen, declines in material costs and effective cost reductions. Productivity improvements and restructuring are expected to allow the brass bar manufacturing segment to absorb the negative influence from weak copper market.Foreign exchange rate assumptions are as follows: ¥/$=¥110 (¥121.04 in FY3/16), ¥/Euro=¥125 (¥133.66 in FY3/16)  The brass bar manufacturing segment expects a surplus despite a decline in sales due to weak copper market. (2) Shareholder Returns
A dividend of ¥6 per share in the first half, and ¥7 per share in the second half are expected to be paid, bringing the full year dividend payment to ¥13 per share. KITZ Corporation considers a dividend payout ratio target of 25% to be appropriate, and sought to achieve a comprehensive payout ratio of about 33% including direct payment and stock buybacks. However, it endeavors to further enhance the consolidated payout ratio through aggressive stock buybacks.
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| The Medium Term Business Plan |
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The global economic environment is changing rapidly due to an economic deceleration in China, its negative influences on other emerging economies, and capex restraints by energy-related companies from a drop in the crude oil prices. Domestic companies also restrained capital investments as uncertainty over the global economy lingers. However, a certain level of demand in building facilities is expected to be derived from the Tokyo Olympics and Paralympic games in 2020. In light of these difficult conditions, KITZ Corporation formulated the Third Medium Term Business Plan and revised its Long Term Business Plan.     
(2) Basic Policy
1. Aim for achieving 10 billion yen or more of the operating profit in the fiscal 2018 and the record-high profit in the fiscal 2020
FY2018 Consolidated Operating Profit : 10 billionYenFY2020 Consolidated Operating Profit : 12.5 billionYen (Top record FY2007 : 11.6 billionYen)2. Aim for thorough implementation of the profit/cash flow-oriented policy and 8% or more of ROE
Cost improvement by global procurement, self-manufacture, and improvement of productivityActively make capital expenditure which make profit3. Concentrate management resources in the focused market fields and areas where we can make use of our advantages
the focused market fields to building facility, petrochemistry and general chemistry, and clean energy (hydrogen and LNG)concentrate product development and investment of facilities into focused marketsBy enhancement of function and authority for organizational integration to thorough management of important strategy for existing organization and following PDCA cycle4. Increase shareholders' Value
target payout ratio 25%Proactively acquiring treasury stock to increase shareholders' value
Valve Manufacturing BusinessThree Strategic Pillars
Narrow down the focused market fields to building facility, petrochemistry and general chemistry, and clean energy (hydrogen and LNG) and move forward with the introduction of new specialized products to dig the market deeply and try to expand our market share. Also narrow down the focused areas to Japan + 3 Regional HQs (Europe/The Americas/ASEAN), two hub markets (China and India) and reinforce their multifunctionalization: Sales, Marketing, Engineering, Stock, Maintenance and Service. Especially, accelerate multifunctionalization in ASEAN and The Americas.
① Narrowing down of the focused market fields and focused areas ② The Matrix structure with vertical (organizations by functions) and horizontal (company-wide horizontally-based organization) by which we implement business strategy with enhancement of management of both "organization" and "product".
By enhancement of function and authority of Business Planning Dept. , try to thorough management of important measures for existing organization and following PDCA cycle.
Newly establish the Product Management Center, comprehensively introduce the product group based on the strategy in a timely/expeditious manner, and implement the product management. Try to expand the sales and share in the focused market fields and take responsibility for achievement (figures).
③ Realization of the cost to be able to compete globally by utilizing existing resources with economy and thoroughly to expand sales and profit.
Enhance the cost improvement promotion system as anchored by the Production Head Office. Put effort into global procurement, self-manufacture, and improvement of productivity. Newly establish the Engineering Center in which estimation/design work is aggregated within the Engineering Head Office and try to improve profitability of the special order products.
Brass Bar Manufacturing Business
KITZ Corporation aims to maximize profits by improvement of productivity and expansion of value added products by restructuring. In the former, KITZ Corporation intends to lower manufacturing cost by reorganization of production lines and decrease material costs by optimal blending of materials, while it aims to achieve the latter by integrating cutting and forging productions of KITZ group and business expansion by creating integration effect.
Water Business
KTIZ Corporation aims to cultivate KITZ Smart Aquaculture and water processing technology business. While KITZ Smart Aquaculture is a new business that responds to demands of fisheries business that are experiencing declining natural recourses, the water processing technology business responds to strong global demand for clean water and higher environmental awareness through collaboration of Group companies Toyo Valve, Shimizu Alloy Manufacturing, KITZ Micro Filter Corporation and others.
 (3) Strengthening Business Foundation
Human Resources Management
Promotion of active participation by women; introduction and formulation of evaluation systems that respond to diversified talents; and introduction of consolidated database that enables the Company to assign the right people in the right position.
Environments
Strengthening of environmental management systems; decreasing environmental stress; and responding to environmental laws.
Quality Control
Ensuring the quality of products continues to satisfy customers.
Corporate Governance and Internal Control
Implementing solid and transparent management in accordance with the Corporate Governance Code,
Accounting, Finance
Building a structure that supports appropriate investments in decision-making processes. Building an internal control system that evaluates newly added companies through M&A. Enhancement of capital for possible M&A deals; and improvement of ROE through dividend policy including stock buybacks.
Information Systems
Establishment of global information system that enables business optimization, and support business decisions.
Contribution to Society
As a part of CSR management, encourage engagement and continuous participation in social contributions activities.
  <"KITZ Global Vision 2020", Long-Term Business Plan>
For the reasons cited below, KITZ Corporation acknowledges the difficulties of realizing its optimistic earnings trends, and it has revised its "KITZ Global Vision 2020" Long-term Business Plan accordingly.(1). Economic deceleration in China since 2012 not only led to slower demand in China, but also led to stagnant economies around the world, price declines, intensified pricing competition as a result of cheap exports from China and surplus production capacity. (2). While energy related companies restrained capital investments due to the sudden drop in crude oil prices since the second half of 2014, they seek discounts on raw materials from suppliers to secure profits. (3). Domestic companies are refraining from making more capital investments due to lower expectations of their earnings caused by stagnant global economy. However, there is a certain level of demand expected from construction of facilities for the Tokyo Olympics and Paralympic games. Companies that have moved their factories outside of Japan are also finding it difficult to derive benefits from the depreciation of yen.  * In additions to the estimates above, KITZ included estimates of ordinary income (¥12.2 billion), net income attributable to parent company shareholders (¥8.0 billion), EPS (¥81.0 per share) and BPS (¥938.0 per share) in its revised Long Term Business Plan.
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| Conclusions |
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In February 2016, KITZ Corporation formed capital and business alliances with TOA Valve Engineering Inc. (TSE 2nd section), the leading valve manufacturer in the realm of electricity and power generation, on the back of cutting edge technologies of high temperature and high pressure service valves with high reliability. KITZ Corporation purchased all of the shares owned by Mitsubishi Corporation. The transaction made KITZ Corporation the largest shareholder with 11.28% of total shares outstanding (12.98% of voting right). The strength that TOA Valve Engineering Inc. has in the field of high temperature and high pressure service valves will be combined with KITZ Corporation's global network of procurement, production and sales to complement and benefit both companies. Along with the KTIZ Smart Aquaculture project in the water business, this business is expected to see strong growth. |
| <Reference: Corporate Governance> |
 ◎ Corporate Governance Report
KITZ Corporation has submitted a Corporate Governance Report on October 14, 2015 after the Corporate Governance Code came into effect (in June 2015).
  Disclaimer
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.Copyright(C) 2016, Investment Bridge Co., Ltd. All Rights Reserved. |
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