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JAPAN DISPLAY INC.

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Japan Display : Announces Structural Reforms and the Recording of an Extraordinary Loss on Structural Reforms

03/16/2016 | 01:22am EST

9402c52c-5a5a-4076-81d7-7293dbff039c.pdf



Japan Display Announces Structural Reforms and

the Recording of an Extraordinary Loss on Structural Reforms


TOKYO, Japan, March 16, 2016 - Japan Display Inc. ("JDI") today announced that it will implement a program of structural reforms that was approved at a meeting of the Board of Directors held on March 16. An extraordinary loss based on these reforms will be recorded in the FY 2015 (April 1, 2015 to March 31, 2016) consolidated financial accounting period.


* * *


  1. Reasons for structural reform


    JDI operates in the small-medium display industry. This industry, in particular the market for the company's leading product area, displays for smartphones, is becoming increasingly competitive. In addition this market is characterized by seasonal demand, which leads to extreme earnings volatility on a financial quarterly basis.


    Given this situation JDI is working to transition to a business structure that can achieve earnings that are less influenced by conditions in the business environment. Since July 2015 the company's new management leadership team has been focused on reducing manufacturing costs and fixed costs and on lowering the break-even point. However, in light of the expected business environment, JDI's capital investment strategy

    and other factors the company has determined that further strengthening of its business structure is necessary. By implementing structural reforms to reduce fixed costs and achieve more efficient use of resources JDI believes it can further lower its manufacturing costs and increase its earnings power.

    At the same time JDI is making changes to its business structure, including a redesign of its business portfolio.


  2. Overview of structural reform


  1. Partial closure of front-end production (small-medium size liquid crystal panel manufacturing) lines in Japan


    Among its four manufacturing sites in Japan JDI operates liquid crystal panel production lines that use mother glass substrates ranging from a relatively small G3.5 glass (size: 600mm x 720mm) up to a G6 glass (size: 1,500mm x 1,850mm), which is the largest glass in the industry used for LTPS TFT technology. As part of the structural reforms JDI will terminate production at two economically unproductive older generation manufacturing lines while retaining related property and equipment facilities.


    Closure of front-end production lines:

  2. Mobara Plant: G4.5 line (a-Si and LTPS technology) Location: Mobara City, Chiba Prefecture Closure date: December 2016 (planned)

  3. Higashiura Plant: A partial section of the G3.5 line (LTPS technology) Location: Higashiura, Chita District, Aichi Prefecture,

    Closure date: April 2016 (planned)

  4. Restructuring of back-end production lines overseas


    In order to streamline its China-based back-end manufacturing operations JDI has been exploring the possibility of consolidating (including partial sale of) its China manufacturing subsidiaries. For the present an impairment loss will be recorded concerning assets that have been in operation at a low utilization rate. JDI will continue to explore options for consolidating its back-end production lines.


  5. Introduction of an early retirement support program


  6. In order to achieve an optimized company age structure and revitalize the organization JDI will introduce an early retirement support program aimed at Japan-based company employees age 45 and above who meet certain conditions.


    Employees who select early retirement using this program will receive a special retirement payment in addition to a retirement package under the company's regulations for retirement. Also re-employment assistance will be provided to those employees who request it.


    1. Outlook


      JDI estimates that the cost of the above-described discontinuance of front-end production lines and the recording of an impairment loss on back-end production assets will amount to approximately 14 billion yen, to be taken as an extraordinary loss in FY 2016. On the other hand these structural reforms are at present anticipated to deliver fixed-cost savings of around 17 billion yen annually (about 8 billion yen in FY 2016). These financial sums are based on information JDI currently has in hand but actual amounts may differ in accordance with continued careful inspection of cost issues.


      JDI provides financial forecasts only for consolidated net sales and operating income for the full financial year because large foreign exchange losses or gains which may be generated by the evaluation of JDI's monetary assets and liabilities denominated in foreign currencies as of the last day of each financial period may preclude accurate financial predictions. When consolidated ordinary income and net income estimates for FY 2015 that include the impact of the above mentioned extraordinary loss become available the company will disclose that information as soon as possible.


      By undertaking the above-described structural reforms JDI is aiming to lower fixed costs and is continuing without interruption operating cost reductions already underway. The company is also pressing forward with business restructuring measures as early as possible and making additional efforts to create a strong earnings structure.


      Financial forecast for FY 2015

      12 mo. ending

      March 31, 2016 (Million yen)

      YoY Change (%)

      Net Sales

      1,003,000

      +30.4

      Operating income

      22,000

      +327.4


      ###


      JDIʼs Structural Reform


      March 16, 2016 Japan Display Inc.


      Stable Operating Base(Growth Strategy)~from 3Q-FY15 earnings data~

      Jul 2015 Apr 20162018



      1st

      Management reform project

      Lower BE fab utilization rate

      ・Sound cash flow

      Goals: OP 10%

      EBITDA 20%

      phase

      ・Change mindset

      Continuous improvement

      ROE >10%


      Mar 16 Announcement

      2nd phase

      Structural reform project

      Fundamental fixed costs cuts


      OP 3%

      EBITDA 10%

      ROE 1%


      3rd

      Business restructure project
    2. Mobile :Competitive products faster to mkt

    3. Auto :a-Si→accelerate LTPS

    4. 3rd pillar:Grow reflective LCD, med size 4K2K

      (3Q15 Act)

      phase

    5. OLED : Putting resources into 2018 mass mfg start


    6. Copyright © 2016 Japan Display Inc. All Rights Reserved. 2

      Reasons for Structural Reform


      Mobile business environment



      Market

  • Expansion of high-res display mkt continues

  • Growing mkt for mid-price smartphones

    (significant emerging mkt growth)

  • Price decline trend continues Structural reform enables cuts in total fixed costs & greater resource efficiency

Custo-

mers


Competi- tion


JDI

  • High seasonal demand volatility

  • Growing interest in OLED


  • Intensifying competition (in-cell, OLED)

  • Start of China/Taiwan LTPS G6 mass mfg


  • China mkt share down

  • Hakusan fab fixed costs to accrue

    (June 2016: Start of mass mfg)

  • Greater investment in new technology

  • Better profitability/B-E line operating rate

    (Biz reform project result)

    so as to further reduce mfg costs & increase earnings


    • Result: Thus more investment capabilities for new products & technology and development strength


Copyright © 2016 Japan Display Inc. All Rights Reserved. 3


Structural Reform Overview


Action

Description

FY 2016

extraordinary loss (est)

Fixed-cost benefit



Front- end produc- tion

Highashiura Fab 1 closure



Back- end produc- tion

Mobara V3 Line closure


Write-down


Line consolida- tion


General

Early retirement support

Fab 1 operations discontinued → Apr 2016 closure


Operating shutdown in Dec. 2016 after building inventories for particular products


Partial asset write-down


Continue to explore consolidation (incl. sell-off & closure)

Intro of early-retirement support program for employees age 45+


≈¥14bn


≈¥17bn/yr (FY2016:

≈¥8bn)


*Exploring consolida- tion of back-end production lines and # of employees applying for early-retirement package may affect estimated amounts.


Copyright © 2016 Japan Display Inc. All Rights Reserved. 4

Japan Display Inc. issued this content on 16 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 16 March 2016 06:21:28 UTC

Original Document: http://v4.eir-parts.net/v4Contents/View.aspx?cat=tdnet&sid=1337403


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Scott Anderberg Callon Chairman & Chief Executive Officer
Akihito Okochi CFO & Representative Executive Officer
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Ryosuke Kuwada Independent Non-Executive Outside Director
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