by Integrated Report 2024

Review of Fiscal 2023

Toward achieving the MEX26 targets

In the new medium-term management plan MEX26 (Maximum Excellence 2026), which began in fiscal 2024, we set targets for fiscal 2026, the final year, of 150.0 billion yen in net sales, 12.0 billion yen in operating profit, and ROE of 10.0％.
　In order to improve profits, we will continue steadily promoting ABC-XYZ operations (profit and loss control by business) and PIPJ (profit and loss improvement by model project) while brushing up on our management methods. ABCXYZ operations rank all business groups according to their sales growth rate and operating profit margin, and accelerate the business portfolio replacement by efficiently implementing business strategies according to the rank. In order to increase the ratio of our "resource concentration businesses (A, B)" with high growth and profitability, we will work on measures after determining which businesses are growth businesses and which businesses should be growth businesses but are not growing.
　In MEX23, the KPI for materiality was a sales ratio for A and B businesses of over 50％. However, despite maintaining high profitability, there were certain businesses that experienced slowdown in sales growth compared to last year due to a variety of factors, including external factors. As a result, the achievement for fiscal 2023 was 32％, falling short of the target.
Ranking based on short-term growth in this way carries the risk of misjudging profit-oriented portfolio reform, so in MEX26 we have decided to assess medium-term growth. Under this standard, the composition ratio for A and B businesses in fiscal 2023 would be 60％.
　Through PIPJ we had been working to achieve operating profit margins of 10％ or higher for each business division and affiliated company through profit and loss management for 5,000 to 6,000 models. However, in order to make it easier to understand at the operational level, we have transitioned to management based on gross profit margin with a target of 30％ or higher. We are also taking steps to further improve the profitability of profitable models while reducing unprofitable models, which is contributing to the accumulation of profits.
　We are working to improve ROIC (return on invested capital) from 5.0％ in fiscal 2023, and are aiming to achieve ROIC of 7.5％ in fiscal 2026, which would exceed our cost of invested capital (WACC: weighted average cost of capital) of 6％.
　For our balance sheets, we are continuing to work on improving working capital (CCC: cash conversion cycle) and monitoring investments to optimize inventories and fixed assets.
　In order to shorten our CCC, we will improve working capital by optimizing inventories. We have also been optimizing and streamlining our inventories, which we had been holding at a high level in preparation for unforeseen circumstances during the COVID-19 pandemic, and in the future, we will be improving cash flow by reducing inventories.
　In terms of investment monitoring, the Investment Committee examines the profitability of new investments of 100 million yen or more. Each person responsible for technology, marketing, procurement, environmental issues, finance, legal affairs, and intellectual property scrutinize proposals based on their own expertise to determine whether it contributes to the enhancement of corporate value. Cases that have passed this review process are then referred to the Management Committee and the Board of Directors for deliberations. After an investment is made, progress is monitored every quarter. In MEX23, we made focused investments in adhesive tapes and coated separators, as well as capital investments in the business for semiconductor manufacturing equipment. I believe that my mission is to clearly show the medium- to long-term growth strategies of these businesses and steadily link them to profits.
　The shareholders' equity ratio was 54.9％ at the end of fiscal 2023, but we are targeting a level of around 50％. Additionally, the debt-to-equity ratio is currently between 0.1 and 0.2, but we would like to aim for a level of between 0.2 and 0.5.

Cash allocation in MEX26

In terms of cash allocation in MEX26, we plan to allocate 40.0 billion yen (cumulative across the three years) in cash flows from operating activities, cash on hand, and interest-bearing debt based on the optimal capital structure toward growth investments and shareholder returns. Given that we have been able to draw up a specific business growth scenario in MEX26, we believe that we can accelerate our efforts by improving both profitability and capital efficiency.
　The growth investment that we are most focusing on is planned to be approx. 35.0 billion yen, more than double that of MEX23. While the investment amount in MEX23 did not reach the plan, in MEX26, we are primarily focusing on investments that directly contribute to sales from fiscal 2027. This includes approx. 20.0 billion yen in capital investment for growth businesses, approx. 10.0 billion yen in new business development and investments with an eye on alliances, and approx. 5.0 billion yen in strengthening our management foundation, such as strengthening human resources and digital transformation.
　We will achieve profit growth through aggressive growth investments, improve capital efficiency by strengthening shareholder returns, and aim to achieve a PBR of over 1.0. Our shareholder return policy in MEX26 is a "total payout ratio of 100％ or higher," and we will conduct share buybacks and pay stable dividends.

Toward strengthening our management foundation

In order to steadily promote efforts to grow profit and improve capital efficiency, we will also focus on strengthening our management foundation through initiatives such as enhancing human capital, digital transformation, and intellectual property, and promoting sustainability management.
　Of these, we position strengthening human capital as a top priority, and will foster an organizational culture in which each employee's individual capabilities are enhanced and in which they come together as a team to take on new challenges. We also will continue to work on developing and acquiring diverse talent, appropriately allocating human resources, and raising employees' awareness of participation in management.
　In addition, while we optimized our personnel through structural reforms implemented in fiscal 2020, we will focus on strengthening human resources in growth areas as an upfront investment.
　One of the KPIs related to human capital is the high goal of increasing the level of job satisfaction in employee awareness surveys to 90％ or higher, a goal which shows the strong desires of management after discussions on the matter at Board of Directors meetings. We hope to work on improvements based on the survey results and increase engagement.
　As for digital transformation efforts, in MEX23, we established the core systems for each business and company; built an environment where information on sales, procurement, production, accounting, etc. can be collected and managed in a centralized manner; and centralized information. In MEX26, we will realize innovations to solve a variety of issues in the areas of business, production, and decision-making, and will accelerate improvements to labor productivity, including consideration of work style reform and the use of AI.
　Intellectual property is handled by specialized departments, and many of them are linked to revenue. In MEX23 we strengthened the cycle of maximizing intellectual property value and began creating a system for building a next-generation patent group.

Key activities in MEX26 for each management foundation

Management foundation	Key activities in MEX26
Human capital	In order to strengthen human capital, prioritize investment and implementation of various initiatives aimed at "extending individual strengths," "working as a team," and "taking on challenges."
Intellectual property	Strengthen human resources and organizational capabilities while further evolving and deepening initiatives, aiming to build patent portfolios that can contribute to medium- to long-term profitability.
DX	Further evolve DX based on the core systems standardized in MEX23, realizing innovation for solving various issues in the areas of business, production, and decision-making, and accelerate workstyle reform and labor productivity improvement
Sustainability management	Aim to achieve sustainable growth by accelerating efforts toward carbon neutrality and by implementation of concrete actions based on materiality and KPIs while considering the balance between economic value and social value

(Japanese)

• IR Library
• Mid-Term Plan MEX26
• Directors