Toyo targeting double-digit earnings growth in 5-year business plan

HYOGO, Japan — Toyo Tire Corp. is eyeing a double-digit improvement in its consolidated operating income within the next five years, through a mix of investments in new products, manufacturing and market development.

According to the company's mid-term business plan, covering 2021-25, Toyo's goal is to improve its operating income by 65% by 2025 over fiscal 2020 to nearly $555 million, while generating sales growth of over 10% a year versus 2020.

Over the period, Toyo plans to make capital investments of roughly $1.75 billion in growth and equipment, according to Toyo President Takashi Shimizui, who presented the business plan to the shareholders and the investment community recently.

Toyo published the business plan shortly after reporting its fiscal 2020 results, which revealed an operating income drop of 5.5%, to $343.7 million, on 8.9% lower sales of $3.22 billion.

As part of the strategy, Toyo said it will target North America as a key market where it expects to generate 58% of total global sales by 2025, up from 57% currently. Over the same time period, production in the U.S. will grow to 41% of Toyo's global total from 38% in 2020.

In a Feb. 25 presentation, Toyo said it intended to improve its ranking in North America from seventh last year to fifth by 2025 by expanding production capacity in the U.S. and increasing exports from factories in Japan and the plant under construction in Serbia.

Under the plan, Toyo will shift production at its Japanese factories to "high-value-added products" as the key production base of the group with the aim to increase supply to the North American market. This strategy includes increased production of truck/bus tires at Toyo's plant in Kuwana, Japan, for export to the U.S.

Toyo is projecting that its plant in Serbia — due to open in April 2022 — will be its most cost-competitive production center, with manufacturing costs up to 30% lower than its factory in Sendai, Japan. As such, Toyo anticipates exporting 2 million tires a year from that facility to North America, while supplying 3 million units to European markets.

Toyo's plan also includes exports to North America from Malaysia, where it's closing one of its two factories and consolidating much of the capacity at the remaining plant.

In addition, the business plan calls for increasing focus on research and development and introducing "differentiated products" that will have "enhanced strengths," Toyo noted.

This initiative will draw on Toyo's advanced designing assets to meet "multiple performance requirements," developing applicable technologies for next-generation mobility such as electronic vehicles (EVs) and eco-friendly technologies.

Furthermore, the group said it will look to optimize its logistics systems, digitize sales and introduce new technologies aimed at expanding sales networks and catering for each of its key markets.

Toyo noted that it expects its partnership with Mitsubishi Corp. to generate upwards of $90 million in earnings improvements during the five-year stretch through reduced operating expenses and increased sales through Mitsubishi's distribution network and functions.

Japanese conglomerate Mitsubishi and Toyo established a wide-ranging strategic partnership in 2018 designed to enhance Toyo's global distribution assets, help it compete more effectively in the evolving mobility sector and fund capacity expansions.

As part of the partnership, Tokyo-based Mitsubishi — which has partnered with Toyo in distribution since 1974 — raised its ownership stake in Toyo to 20% from 3.05% with a $452.5 million investment for the purchase of 26.9 million newly issued shares.