As a result, the company has posted a one-off charge for this “clean-up of negative legacies” of JPY 13 billion (£100 million) in the current financial year.
First, the integration. In August, Japan-headquartered DMG Mori Co’s “Domination, Profit and Loss Transfer Agreement” with German firm DMG Mori AG became effective, after the former amassed a 76.03% stake in the AG. The reason for this action, less than two years after the Co had acquired 50% voting rights in the AG through a 52% stake, was control. A third-quarter 2016 consolidated financial results Q&A document from early November explained that the former deal proved impractical for the Japanese Co: “It was still difficult for our company to directly control AG, both operationally and financially, under the German governance regulations, which delayed optimisation of management resources.”
Second, the actions. The document continues: “We have decided to reorganise our global production capacity, following the exit from our middle-class product ecoLine series, and in order to respond more flexibly to the fluctuation of foreign exchanges.”
The days are numbered for the DMG Mori’s ecoLine budget range. At worldwide exhibitions in the latter half of 2016 (IMTS, Chicago; AMB, Stuttgart; JIMTOF, Japan) the company has launched models of the successors to the ecoLine series: modular, configurable CMX milling machines and CLX lathes.
The changes take place in Asia and Europe, in machine tools and other businesses. The Chiba, greater Tokyo, Japan factory opened in 2003 that made ecoLine machines has been closed, and its production has been merged into the main factory at Iga, Mie prefecture. Second, DMG Mori AG has decided to shut its Shanghai, China, factory, its first Asian production plant, established in 2003, that also made ecoLine lathes and machining centres, and subsequently added DMU 50 production in 2013. (That same year, DMG Mori also established a Mori Seiki factory in Tianjin, northern China, initially making NHX 4000 and 5000 horizontal machining centres. That operation continues.)
In Europe, the company has decided to close the Le Locle, Switzerland, factory of subsidiary Dixi Machines, acquired in 2007 by Mori Seiki (two years before the first formal cooperation agreement with DMG parent Gildemeister AG started). In November, DMG Mori Co explained it bought Dixi “in order to obtain high precision technology” and decided to close its factory “as we thought its role [has] already ended.”
Also, it has decided to sell Tobler SAS of Louvres, France. Bought by Mori Seiki in 2007 from Sandvik Group, the firm produces precision mandrels and workholding solutions.
Finally, DMG Mori has decided to sell DMG Mori AG’s energy solutions business, Gildemeister Energy Solutions. Begun in 2006, the business marketed solar photovoltaic panels (including the SunCarrier product) and chemical energy storage systems (such as the CellCube product) to go with them. It set up an energy solution park at its Bielefeld, Germany, factory in 2012.
The November document says that the decision was made “to concentrate our management resources”, adding that AG’s solar panel business has “struggled to make a profit in that business for years.”
No buyers, terms or timescales of either the closures or the disposals were disclosed, although the costs to the company in 2016 (which is expected to include all of the costs) were revealed. They were broken down by type: JPY 5 billion (£38 million) for factory closures; JPY 4.7 billion (£36 million) for the energy solutions exit; JPY 2.4 billion (£18.6 million) for another effort to optimise excess marketing expenses that are redundant with DMG Mori AG; JPY 0.9 billion (£7 million) of excess middle management and closing redundant subsidiaries, another initiative also announced at the same time. DMG Mori also pointed out that only a third of the JPY 13 billion (£100 million) expense of these actions is cash outflow; the remaining value comes from non-cash items.
These initiatives, the switch from ecoLine to CMX machines and appreciation of the Japanese yen against the dollar and the euro have pushed down DMG Mori’s sales revenue expectations for its full 2016 fiscal year (which runs January to December) to JPY 370 billion (£2.87 billion), against a previous forecast of JPY 410 billion (£3.18 billion), and profits are down to JPY 2 billion (£15.5 million) from a forecast of JPY 25 billion (£194 million).
THE FUTURE
So much for the past and present. In an open letter to customers published on its website, DMG Mori says that, in future, it will be “extending the regional strengths of production sites”: Pfronten and Seebach, Germany, are to be “training factories”, especially in 5-axis technology. Those at Bielefeld, Germany, and Iga, Japan, are for universal turning and turn-mill products. Its Bergamo, Italy, factory will become ‘in future’ a centre for production and automatic turning machines. In addition, its Nara, Japan, site will be a centre of excellence for automotive technologies, with Pfronten the same for aerospace.
The investor documents also lay out the company’s future aim. There is a growing demand, it says, to improve DMG Mori’s ability to offer productivity-enhancing solutions as well as improving hardware quality. To respond to the former demand, it recognises the importance of developing an easy to use human-machine interface, automation systems and technology cycles (application software), as well as shifting to digital factory developments “where we collect and analyse information on manufacturing and utilise it for improving productivity.”
In this new world, improving customers’ manufacturing process efficiency requires of DMG Mori a “wide range of operational resources”: establishment of a value chain, including peripherals; development of software to link these systems; design of human-machine interface; collection, analysis and protection of data.
So to develop these capabilities, DMG Mori says it is doing four things: strengthening direct sales in Europe and the USA (continuing a process that started by breaking the link with nationwide distributor Ellison Technologies in 2015); recruiting more application engineers worldwide; partnering with peripheral equipment makers and promoting technical collaboration with Microsoft Japan.
That latter agreement, from September, was about smart factory implementation and security of machine tool control systems. A press release at the time stated: “Behind the advancement of technologies … some factories and infrastructure such as power plants have been cyber-attacked, and security of control systems has become one of the most urgent issues today.”
To sum up its vision of the future, DMG Mori says: “We believe we are well advanced in the industry, compared to the competition, whereby a wider range of operational resources will be required to support the customers’ productivity. Until 2020, we will put increased efforts into strengthening these operational resources, rather than seeking sales revenue growth and hence focus on employee education and the improvement of operational efficiency.”
