About Sanoh

Mid-term Strategy and Target

About Sanoh Mid-term Strategy and Target

Updated May 30, 2024

 

 

Introduction

In fiscal 2021, Sanoh Industrial formulated its Mid-term Strategy and Target for fiscal 2030. We have recently reviewed the details of this plan and updated it accordingly.

 

Our primary market, the automotive industry, is forecast to continue growing, with global automobile production projected to reach approximately 100 million units per year by 2030. This growth will be driven by the Indian, Latin American, and Asian markets.

 

Amidst this environment, in the automotive tubing market, which is oligopolistic with few new entrants, Sanoh holds a leading global market share with its critical safety parts representing high barriers to entry. With automakers currently reevaluating their approach to vehicles equipped with internal combustion engines (ICE), such as hybrids and plug-in hybrids, Sanoh Industrial is aiming to achieve the No. 1 global market share through its unique “Sanoh Last Man Standing Strategy.”

 

One characteristic of the automotive industry is that once an order for a certain product has been won, top-line sales can be expected to continue throughout the model life of the car chassis or engine. With the global automotive market projected to continue growing to over 500 trillion yen in scale, maintaining a dominant position and transforming the current automotive parts business into a stable cash generator will be the cornerstone of our Mid-term Strategy and Target, which extends through to the year 2030.

 

However, in recent years, automotive powertrain needs have been diversifying in countries around the world. In addition to vehicles equipped with conventional internal combustion engines, such as gasoline-powered and hybrid vehicles, battery EVs powered by motors, biofuel vehicles, and vehicles powered by alternative fuels to petroleum, such as synthetic fuels, are also being developed.

 

We forecast that this diversification in automotive powertrains will continue over the next decade due to differing policies and consumer preferences in countries around the world. To prepare for all possible contingencies, in addition to our conventional brake and fuel tubing, Sanoh Industrial also plans to invest proactively in thermal solution products for battery EVs and plug-in hybrids in order to expand our market share.

 

In tandem with our efforts to further expand our share in the automotive market and generate stable cash flow from our current business, we will also focus on expanding our thermal solutions business and other new businesses in non-automotive markets, which represents another key pillar of our Mid-term Strategy and Target.

 

Specifically, we will apply the technology Sanoh Industrial has accumulated in its automotive tubing business to new markets to develop new businesses such as liquid-cooling tubing for data centers, liquid-cooling tubing for refrigerators and other home appliances in the “Global South,” including India, as well as expanding external sales of equipment.

 

Despite an uncertain outlook for the business environment, Sanoh Industrial’s diverse management team, composed of members from a variety of backgrounds, ages, genders, and nationalities, will continue striving to achieve sustainable growth for the company going forward.

 

 

Sanoh Industrial’s Unique Capabilities

 

Sanoh Industrial is a unique corporate group that values the business rules and spirit established at the time of its foundation, adopts a “market-in” approach that sets it apart from others in the manufacturing industry, upholds a thoroughly customer-oriented philosophy, and proactively pursues open innovation with an emphasis on diversity.

 

At Sanoh Industrial, we place particular emphasis on a thoroughly customer-oriented approach. At a time when our competitors are opting to make a major shift to vehicle electrification, we remain committed to understanding the challenges facing our customers and maintaining a flexible product portfolio and global production network to meet a diverse range of needs.

 

While working to streamline our operations, including consolidating and closing plants, we have remained in the United Kingdom and Brazilian markets, from which many companies have withdrawn, and continue to provide products and services at our customers’ doorstep. Our steady efforts to think from a customer perspective have allowed us to establish the foundation from which we can capture a significant amount of surviving supplier profits.

 

As a result, over the past four years since the onset of the global pandemic we have been able to accumulate sufficient cash to pursue growth investments. We have continued to invest in new products and businesses, and from this fiscal year we intend to shift up one gear further in our efforts.

 

In today’s uncertain business environment, we will once again turn to the spirit of serial entrepreneurship that marked our founding, and work to develop new customers and new businesses.

 

 

Global Automobile Production Forecast (by Powertrain)

 

Looking at the forecast for global automobile production and the powertrain mix, the ratio of battery EVs is significantly shaped by national policies and global supply chain constraints, and accordingly the forecast sales volume for the next several years also incorporates an uncertainty factor of 10 percent or more. At Sanoh Industrial, we estimate that the ratio of battery EVs among new car sales in 2030 will be around 30%.

 

What is important to note is that a wide range of market forecast data indicates that over the next 10 years there will be a well-balanced mix of battery EVs, plug-in hybrids, and hybrids sold, with no one particular powertrain dominating the market.

 

In anticipation of this era of diverse mobility needs, Sanoh Industrial has established a broad and diverse product lineup. Our brake tubes are installed in all types of vehicles, including both EVs or ICE-powered vehicles. We also have a range of cooling tubing products for battery EVs, while maintaining our development and production systems for existing fuel-related products in case of potential increases in the market share of vehicles with internal combustion engines, including hybrid vehicles.

 

 

Goals of New Mid-term Strategy and Target: Build a Resilient Multi-Product Portfolio

 

In our newly revised Mid-term Strategy and Target, we aim to build a resilient multi-product portfolio that allows us to continue to generate profits and achieve sustainable growth, even in an uncertain business environment.

 

In the automotive parts business, our sales target for 2030 is somewhat conservative due to uncertain factors such as foreign exchange rates. This represents the minimum line we can realistically achieve, and we will maintain the business as a stable cash generator.

 

Meanwhile, we will move away from our current emphasis on the automotive parts business and establish new businesses in new growth markets, in order to continue generating stable profits in any business environment.

 

 

Main Business Domains of Focus in New Mid-term Strategy and Target and Future Business Initiatives

 

With regards to the diversification of our business portfolio, we will leverage Sanoh Industrial’s proprietary technologies and proven track record to develop our business in a gradual manner.

 

Sanoh Industrial’s advantages include our thermal management technology, which has many proven track records in automobiles with internal combustion engines, our outstanding quality assurance capabilities, overseas production capacity extending to approximately 20 countries around the world, and our in-house manufacturing capabilities for production equipment.

 

In the automotive market, we will build on our track record thus far to expand our share of thermal solution products that help cool batteries, power control units, inverters, and other such components in EVs and hybrid vehicles.

 

In new businesses, we will focus on the following growth fields: cooling systems for data centers, wire condenser business for refrigerators, and the production solutions business, which packages production line solutions with equipment sales.

 

 

Roadmap to FY2030 (image)

 

During the first three years of the original Mid-term Strategy and Target that we announced in 2021, we restricted growth investments to a certain extent and worked to streamline and stabilize our management foundation. This enabled us to overcome the COVID-19 pandemic and disruptions in the global supply chain, including semiconductor shortages, and to post a record high profit in fiscal year 2023, providing us with a solid base of funding for our future growth.

 

In addition, this difficult operating environment provided many of our human resources with an opportunity to grow, and our Last Man Standing Strategy has proven successful in the market, greatly enhancing our reputation as a one-of-a-kind supplier.

 

From this fiscal year, we will enter a new phase. Looking ahead to fiscal 2030, we will make proactive growth investments in this fiscal year and the next, and although our ROE may temporarily level off, we plan to prioritize allocating cash generated from our core business to future investments in order to achieve significant growth in the years ahead.

 

 

Sanoh’s Cash Allocation Policy

 

To achieve this, Sanoh Industrial has set a five-year cash allocation policy from fiscal 2024 onward.

 

As I mentioned previously, the top priority in our cash allocation policy is investment in growth. We will make proactive capital investments in vehicle tubing and powertrain products in emerging countries, as well as investment in human resources, and investments, including M&As, in new business fields such as cooling tubing for data centers and the production solutions business.

 

Meanwhile, we will deliver stable returns to the shareholders and investors who continue to support Sanoh Industrial on a regular basis.

 

 

Aiming to Achieve No.1 Share of Global Automotive Tubing Market by FY2030

 

As described earlier, Sanoh Industrial forecasts that the annual production of vehicles with internal combustion engines, including plug-in hybrids, will remain in the range of 60 million to 70 million units per year even as of 2030.

 

Accordingly, although our competitors are withdrawing from products for vehicles with internal combustion engines, from 2020 we have adopted a “Sanoh Last Man Standing Strategy,” in which we will not withdraw from conventional automotive tubing products until the very end, as long as the automakers who are our users and customers still require these products.

 

Sanoh Industrial has already established a framework that enables it to be the exclusive supplier in local markets such as the South American market of Brazil and the United Kingdom, and as competitors withdraw from existing markets or shift their focus to battery EV products, we will remain in these existing markets as long as customers continue to require these products.

 

 

Strategy (1/2): Improve Profit Margins by Leveraging High Market Share/Switching Cost

 

This strategy of capturing surviving supplier profits has led to two major accomplishments.

 

The first is market share.

The automotive tubing market in which Sanoh Industrial operates is an oligopolistic market, with limited participation by new entrants. As the products we handle are large in size and therefore inefficient to transport, we have established sites located near the plants of our client automakers, and in some cases we process and deliver our products within automakers’ plants.

 

From the perspective of the automakers who comprise our customer base, there are currently many regions of the world in which Sanoh Industrial is the only company in close proximity to their plants with the ability to supply tubing products. For this reason, over the past year or so, we have seen a rapid increase in new business opportunities from European and U.S. automakers and megasuppliers, with whom we previously only had a limited volume of business.

 

Sanoh Industrial’s global market share is steadily rising towards our goal of achieving the number one position.

 

The second advantage is our ability to set sales prices.

As we have evolved into a one-of-a-kind presence in regions around the world, we are increasingly able to ask our customers to assume some of the region-specific financial and business risks, such as inflation and foreign exchange rate risks, and to pass on these risks to the price of our products. In Sanoh Industrial’s Mid-term Strategy and Target, we aim to achieve a 10% profit margin on sales in existing businesses, and are making steady progress toward realizing greater profitability in our business operations.

 

 

Strategy (2/2): Improve Local Production Functions and Productivity of Global Customer Production Framework

 

Another key strategy is to improve our local production functions and the productivity of our global production network.

 

Unfortunately, the world is becoming increasingly fragmented, with economic zones evolving into blocs composed of specific countries or regions.

 

In this environment, we will invest in its existing global local production network to localize the supply of our products and increase proximity to customers, which serves as a barrier to entry by competitors, as well as to improve the productivity of our operations.

 

 

Major Investment Regions and Initiatives

 

We will primarily focus our investments on increasing production capacity in Asia, including India, where growth potential is anticipated, and on enhancing productivity in Central America with a view to supplying the U.S. market, as well as in Japan as our main production center.

 

In the fast-growing Asian market, we will increase the production capacity of Sanoh Industrial’s mainstay vehicle tubing products, primarily in Thailand and India. Meanwhile, in India, we will work to strengthen the liquid-cooling wire condenser business for refrigerators, which represents one of the key pillars of our new business efforts.

 

Additionally, in the North and South America business segment, we will focus on improving the productivity of our U.S. business, including our operations in Mexico, and increasing business with the Big 3 U.S. automakers and Tier 1 megasuppliers.

 

Furthermore, in Japan we will focus on upgrading our system infrastructure, including our cost, production management, and procurement databases, automating our operations by employing generative AI, improving the productivity of our tubing production, and working to develop new businesses.

 

 

“Tier 1.5 Strategy” for Thermal Automotive Components

 

Thermal automotive components are a product group that contributes to optimizing thermal efficiency in the electric vehicle market, including battery EVs, by extending the driving range.

 

Going forward we will adopt a Tier 1.5 Strategy in which we supply thermal automotive components not only directly to automakers, as we have done thus far, but also to system and module suppliers who are handling the so-called CASE functions and transforming into megasuppliers, and who effectively hold the authority in determining product specifications.

 

 

Market Size for Data Centers (DC) and Sanoh’s Cooling Products/Strategies

 

I would now like to introduce our new businesses.

 

First is the data center business.

Several years ago, Sanoh Industrial’s tubing products were used in the Fugaku supercomputer. Building on this track record and outstanding reputation we gained through this project, we are currently focusing on developing cooling products for data centers as well as conducting sales and marketing activities.

 

In January this year we established New Business Development Headquarters, a new organization dedicated to these efforts, with an independent budget and personnel.

 

As the global market for data centers is expected to expand in the future, we will expand our business domain by proactively utilizing inorganic growth efforts, such as collaboration with other companies and M&A, in addition to our own proprietary products for both air- and liquid-cooling systems—the primary cooling methods for servers.

 

 

Developing a Business Model for Production Solutions

 

The second new business we are focusing on is the production solutions business.

Throughout our history, Sanoh Industrial has not only manufactured automotive tubing products, but has also conducted in-house development, design, and fabrication of the processing equipment used to bend these tubing products.

 

By leveraging this expertise in the in-house production of equipment and devices, we will aim to commercialize our production solutions in several phases while helping improve the productivity of both the Sanoh Group and our external customers through external sales of equipment, which is a market expected to grow in line with the increasing demand for automation.

 

Our ultimate goal is to help small and medium enterprises reduce their inventories and improve production lead times, in order to vitalize the global manufacturing industry. As a first step toward this goal, we have begun selling our own processing and transfer equipment.

 

 

Thermal x Production Solutions: Cross-domain Wire Condenser Business for Refrigerators

 

Our final new business is the wire condenser business for refrigerators.

 

Although Sanoh Industrial’s Indian branch has already been involved in the wire condenser business, in light of its strong growth potential we intend to place even greater focus on this business going forward.

 

The wire condensers business for refrigerators was once Sanoh Industrial’s overseas business, and as liquid-cooling, a field in which Sanoh Industrial specializes, is the main cooling method used in the local market, we believe that this is a promising business not only due to the demand for tubing products but also a likely need for production equipment for such products.

 

Going forward, we plan to further strengthen the value chain and invest in capacity expansion to increase our competitiveness in the local market and develop this business into a single, coordinated entity.

 

 

Identification of Materiality Issues

 

Finally, I would like to outline our approach to sustainability management.

 

Sanoh Industrial has identified four materiality issues designed to evaluate the impact of our business activities on society and the environment and to clarify the order of priority for taking action. These issues are productivity improvement with innovative technologies, contribution to reducing environmental impact, co-creation and growth with local communities, and achievement of work-life fulfillment.

 

In view of drastic changes in the environment surrounding the automotive industry, we will work to achieve sustainable management by focusing on how we can achieve sustainable growth with the following questions in mind: “Who are we?” “How can we contribute to society?” and “What should we look like in 10 and 20 years’ time?”