Implementation of business structural reform aimed at renewed growth

Tokyo, Japan—At the meeting of September 20, 2012, the Board of Directors of Japan Radio Co., Ltd. (JRC) approved a resolution to implement “business structural reform aimed at renewed growth.” Such reforms are not merely measures for improving earnings over the near term; rather, they are strategic and drastic reforms that will become the foundation for renewed growth in the future. In order to achieve major progress going forward, we will implement the reforms over the next three years until the 100th anniversary of the Company’s founding.

I. Overview of Business Structural Reforms
In the fiscal year ended March 31, 2012, the Company posted financial losses. On the surface, these could be blamed on delays in public works projects due to natural disasters and the progressive appreciation of the yen. However, the fundamental and critical issue is that we have been slow to address various dramatic socio-economic changes, characterized by such factors as the ongoing globalization of business, contraction of the Japanese economy, and expansion of newly emerging markets, centered on Asia. Our revenues are on a long-term downtrend as a result. To achieve major steps forward in such an operating environment, we must undertake reforms of our global business structure covering all aspects of our operations—marketing, product development, and production—targeting emerging nations, especially in Southeast Asia where growth has been remarkable. Not limited to JRC, the aforementioned reforms are based on a growth strategy shared by the three electronics companies under the umbrella of Nisshinbo Holdings Inc.: JRC, Nagano Japan Radio Co., Ltd., and Ueda Japan Radio Co., Ltd. Through business reorganization and other measures, we plan to strengthen the operational foundation of the entire JRC Group.

II. Summary of Business Structural Reforms
The business structural reforms will encompass two initiatives; the implementation of growth strategy and the cost structure reform on a global level.

Implementation of growth strategy
By implementing the strategies described below, we are targeting consolidated net sales of ¥140 billion and an operating margin of 8% or higher by the year ending March 2018.

(1) Basic policies of growth strategy
(a) Expand overseas business: Newly emerging economies, especially in Southeast Asia, continue to enjoy high levels of growth, but maintaining the momentum will require establishment of social infrastructure. One aspect common to Southeast Asian countries is the advent of numerous natural disasters, and establishing disaster-prevention infrastructure is particularly urgent. Moreover, those nations have very long coastlines relative to their geographical areas, which highlights the importance of harbor and coastal surveillance systems. The JRC Group’s solutions business, which is its largest segment, has mainly targeted Japan’s public sector. By forming cooperative ties with local Southeast Asian companies, however, we plan to extensively globalize this business — by expanding and upgrading our sales and service network, for example—so that its overseas sales reach parity with domestic sales. In the marine electronics equipment segment as well, we will discard conventional norms and complement our local production activities by forming capital and technical alliances with overseas manufacturers and agents. Through such collaborations, we will seek to strengthen our competitive edge and broaden our overseas business.
(b) Expand "smart" businesses: As a pioneer of radio communications in Japan, JRC is committed to helping realize the “smart” society that is needed in these times. To this end, we will deploy innovative information and communications technologies, sensor technologies, and other strengths to build various infrastructure, such as energy saving marine and terrestrial communications and safe passage support equipment and systems, “smart” disaster-prevention systems that are resilient to major disasters, and systems that improve the energy efficiency of electric power. In these ways, we will facilitate the transformation into a “smart” society and achieve business growth for our company.

(2) Growth strategy implementation details
(a) Focusing on growth markets, especially in Asia, we will pursue rigorous globalization of production and sales. In the area of sales, we will strengthen competitiveness by expanding our network of overseas agents and forming alliances with new partners.
(b) In the domains of environment and energy, we will develop technologies aimed particularly at realizing a smart society and concentrating managerial resources on business cultivation.
(c) Instead of relying solely on our own technologies, we will expedite business growth through M&As and technical alliances.
(d) Demonstrating technological synergies with Nisshinbo Holdings and its subsidiaries, we will work to swiftly foster new growth businesses.

Cost structure reform on a global level
There is significant duplication of production facilities and personnel across the aforementioned three electronics companies (JRC, Nagano Japan Radio, and Ueda Japan Radio). This, compounded with duplication in purchasing and a complex distribution system, is the major reason for our increasing costs. The Mitaka Plant (Mitaka City, Tokyo), for example, has excessive production management personnel and an aging workforce. Moreover, its equipment is deteriorating and its cost structure is high. By implementing the measures described below, we plan to reform the cost structure not only of production but also of product design, procurement, and distribution. In addition to reforming the cost structure, we will target major cost reductions by creating a framework in which products are made and sold in optical locations at the global level.

(a) Transfer business from Mitaka Plant: We will shift the functions of the Mitaka Plant to Nagano Japan Radio, Ueda Japan Radio, and overseas subsidiaries. We will also shift technological and peripheral functions to new regions based on considerations of appropriate new production and sales sites, and we will build a technological center offering a state-of-the-art product development environment. In these and other ways, we will reinforce our technological development capabilities in order to win against global competition. The Mitaka Plant will ultimately be closed.
(b) Establishment of overseas production bases: We will significantly boost our production capacity by forming a capital alliance with Nagano Japan Radio’s overseas subsidiary (based in Shenzhen City, Guangdong Province, China). We will also begin establishing new production bases in Southeast Asia.
(c) Purchasing centralization and distribution reforms: We will pursue cost reductions by centralizing the purchasing function of the three electronics companies, expanding and upgrading overseas parts procurement, and reassessing the distribution system.
(d) Reduction of workforce: In order to build an optimal personnel system in line with our structural reforms, we will reduce the number of JRC employees by around 650 through a voluntary retirement incentive scheme (current workforce is around 2,900).
(e) Sale of Mitaka Plant and Saitama Plant properties: The relocation of the production, technological, and peripheral functions will cause the Mitaka Plant property to become vacant. We will consider selling that property and making effective use of the funds thus generated to implement business structural reforms and foster new businesses. We will also consider selling the Saitama Plant property, which will become vacant following the relocation of the SAW* device business to New Japan Radio Co., Ltd.

III. Future Outlook
Specific details about the reorganization of production bases and the voluntary retirement incentive system, as well as timeframes, are still being formulated. We will make announcements when such details are confirmed. The expected impact of the aforementioned reforms on our business performance in the current fiscal year (ending March 31, 2013) is still being assessed. We will announce details as they are clarified.

For inquiries, please contact JRC Corporate Planning Group, tel +81 422 45 9774.

* SAW (surface acoustic wave) device: A filter that picks up electric signals at specified frequencies; used extensively in portable communications equipment (such as mobile phones and smartphones) and automobile equipment (such as GPS).