Yokogawa Electric of Japan is back on a growth track, after the first half results for 2011, with the business totally focussed on Industrial Automation and Control. Shuzo Kaihori, president and ceo of Yokogawa Electric, has released a new business plan, detailing the Yokogawa aims and objectives through to the end of fiscal year 2015, and restating their long term vision and objective of becoming the global “Number 1 company in industrial automation and control”. This was a Yokogawa ambition that was first expressed as a ten year Yokogawa objective in the year 2000, but this was put on hold after their financial problems in 2008.
The plan presented by Kaihori is called “Evolution 2015”: he describes it as a ‘mid-term’ business plan, and with the parallel announcement of their financial results for the first half of 2011/12 it signals the emergence of Yokogawa from their period of “Consolidation and Structural Reform”, which followed the financial losses made during the years 2008/09 and 2009/10. This period has involved pruning and cut-backs in the Test and Measurement Division plus withdrawal from some T+M business areas, and a concentration of activities onto Industrial Automation and Control.
Harry Hauptmeijer, president of Yokogawa Europe, explained much of this background at a user group meeting in Holland, which also launched their ISA100 wireless transmitters, back in June 2010 (INSIDER, July 2010, page 4). The 2009/10 results announced then had shown that total group sales had dropped 16% to 316Bn Yen (around $3.4Bn). For the last full financial year, ie 2010/11, group sales recovered by 2.8% to reach 326Bn Yen (stronger exchange rates made this equivalent to $3.9Bn), but the Yokogawa group had still made a nett loss, arising largely from some of the then remaining Test and Measurement business areas.
In the six months from April through to end September 2011, the first half of the financial year that Yokogawa refer to as FY2011, trading was at orders, sales and income levels above budget, and better than the equivalent period in 2010: they even achieved a positive nett income ($9m) for the period, despite the strong Yen/Dollar exchange rate [Over the last five years the Yen has increased by 60% in value compared to the US Dollar]. Industrial Automation and Control (IAC) represented 85% of the order intake, and 65% of this business was obtained outside Japan. Yokogawa has had to face a significant annual decline in the value of their home market sales, ever since FY2004, which has made their overall sales growth record all the more remarkable. The budget for FY2011 (to March 2012) suggests a total annual sales value of 336Bn Yen ($4.4Bn), and operating income of 15Bn Yen, i.e 4.5% of sales.
A plan for the IAC business to become “Number 1” in the world from this start point is fairly ambitious, particularly when taking the annual reports from just two competitors – Rockwell reported $6Bn sales, and Emerson Process Management $7Bn sales, for their years ending 30th September 2011. Consulting the 2010 charts derived from the ControlGlobal rankings, even for the “Rest of the world” market – i.e excluding sales made in the USA – Yokogawa was ranked at 6th place (INSIDER January 2012, page 5). So how will Yokogawa achieve that Number 1 slot?
The master plan
The plan for the mid-term period to the end of fiscal year 2015/16 envisages annual sales by then of 400Bn Yen ($5Bn), a growth of [only] 20% from the budget level for 2011/12 [which is a growth rate of 4.7% pa for these four years] – plus an operating income improvement to 10% of sales. So these financial figures look easily achievable, and this is not too arduous a forecast, when compared to the published ABB plan for the next five years, which anticipates process automation growth of 6-9% per annum.
Recently reported results show that over the last year Rockwell increased sales by 24%, and Emerson Process Management increased 16% (the latter admittedly from 2010 sales that were marginally down on 2009), and Invensys Operations Management reported 21% growth in the period April to September 2011 (note that IOM is less than half the size of Yokogawa in terms of sales). So Yokogawa will have to accelerate a little more to catch up with their competitors – and it looks like it will be an extended, multi-year journey to achieve that Number 1 slot, unless they can add a few notable acquisitions. Significantly, Kaihori does say that Evolution 2015 is the first step in this plan, and he has not announced a target date for reaching the final objective.
Initial steps by segments
For the Industrial Automation and Control (IAC) business over the next four years, their regional targets will be the BRIC countries, Middle East, Southeast Asia and Oceania: new frontiers and sales channels will be opened in Africa, Central Asia and South America. Their strong Japanese home market position will be defended by offering services that enhance productivity, safety, energy saving and environmental conservation, plus using their system integration capabilities, including third party products, for production management and control systems. An expansion into the new market of high performance materials for secondary batteries is also planned.
The industry focus will be on their target industries of oil and gas field development and production (upstream), electric power and speciality chemicals: Yokogawa plan to set up centres of excellence in Japan, Singapore, the USA and Europe, to bring together industry-specific control expertise. This will include energy saving and plant energy management in Japan, gas drilling in the United States and Europe, oil drilling in the Middle East, fine chemicals in Germany, and electric power in Australia. They also plan to actively enter the renewable energy market including biomass, geothermal, wind, and solar heat power generation.
The most competitive Yokogawa sensor products are seen as the pressure/DP transmitters and the process gas analysers: rather than in-house developments, Yokogawa say they will consider expanding the sensor product line via alliances and acquisitions.
Business structural reform
A theme throughout the presentation is an emphasis on globalization of the business, and also of avoiding the previous problems with the exchange rate, which made the Japanese operations expensive. More of the production, engineering, R&D and administration will be transferred to group operations outside Japan, and international procurement expanded. The system for “recruiting and utilizing human resources from other countries” will be strengthened, and the human resources development system improved, to allow the dynamic transfer of personnel between group companies, including the Japan HQ.
This article was first published in the INSIDER newsletter for February 2012: for subscription information please see http://www.iainsider.co.uk
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