Performance
Q1With market environment in mind, please describe your operating performance in fiscal 2023, the second year of the 16th Medium Term Business Plan (Fiscal 2022-2024).
Under the 16th Medium Term Business Plan, we designated the management policy of “Building a foundation aimed at the realization of Long-Term Vision 2030” and formulated measures based on three key themes. In fiscal 2023, the plan’s second year, net sales were ¥102.3 billion and operating profit was ¥1.3 billion, a decrease in profit despite an increase in sales. The main reason for the significant decrease in profit was a decline in sales in the Electronic Device Business stemming from the economic slowdown in China. On the other hand, however, the Car Electronics Business saw a significant increase in sales, creating a clear contrast between the two segments, which can be said to be a distinctive feature of fiscal 2023’s operating performance.
Looking back segment by segment, in the Electronic Device Business, operating performance for bridge diodes with large package sizes, one of our main products, fell sharply as a result of the economic slowdown in China, with a corresponding drop in production capacity utilization. Industrial machinery was one area in which sales were sluggish and did not progress as expected in terms of capital investment by our customers. Home appliances was the other such area, as demand for air conditioners remained weak and inventory adjustments continued. On the other hand, the automobile field made a gradual recovery from the second quarter of fiscal 2023 onward and, to a certain extent, helped stem the large revenue decline.
Next, in the Car Electronics Business, the driving force behind our operating performance, factors including the depreciation of the yen resulted in a significant increase in sales in both the motorcycle and automobile markets. In motorcycles, sales in India and Indonesia were strong, and in India, in particular, the trend toward EVs among local manufacturers is becoming clear as the outlines of a major business opportunity begin to emerge. DC/DC converters for automobiles also saw a considerable volume of product shipments compared to the previous fiscal year, which also contributed to the positive results. Okabe Shindengen Co., Ltd. is currently in charge of the production of DC/DC converters for automobiles, with facilities operating at nearly full capacity.
In the Energy Systems & Solutions Business, whose main areas of business are rectifiers for communication equipment and EV chargers, revenue declined due to a drop in sales of power conditioners, which were discontinued in 2022, but profitability improved. Net sales of EV chargers are on the rise, and we will continue to expand sales in anticipation of EVs becoming more widely used in the future.
What were the reasons behind the revision of the operating performance targets for fiscal 2024?
For fiscal 2024, the 16th Medium Term Business Plan’s final year, our initial operating performance targets were net sales of ¥118 billion and an operating margin of 6.6%. However, as previously mentioned, the Chinese market is expected to remain sluggish for some time, making a quick recovery difficult, and it will be difficult to secure profits simply by passing on higher energy, labor, and transportation costs. In light of these changes in the business environment, we have revised downward our targets for net sales for fiscal 2024 to ¥106.6 billion and operating profit to ¥2.5 billion.
Were the structural reforms implemented in 2020 insufficient?
Although the previous structural reforms implemented for the COVID-19 pandemic naturally included optimizing fixed costs, the main focus of the reforms was on creating price competitive products. To give an example, in the Electronic Device Business, this included increasing the diameter of wafers, specifically, improving productivity by increasing the size of wafers from 4 to 5, or even 6 inches. Results have already been achieved to a certain extent. However, due to the sluggish Chinese market, we will improve the profitability of the Electronic Device Business by reorganizing our “production, logistics, and sales” structure.
For more information about
- Achievements by segment, please refer to Value Creation
- Operating performance by segment, please refer to Management’s Discussion and Analysis
Strategy
Q2Please describe the progress of key initiatives in the Medium Term Business Plan.
Key theme 1: Earnings structure construction
In pursuit of this theme, we very actively promoted cost reduction activities in each of our businesses in fiscal 2023. Specifically, based on the rule of thumb that significant results are difficult to achieve if implementation is limited to a single business, we have achieved a certain level of success by horizontally expanding the best practices of each business across the entire Group. Furthermore, the aforementioned reorganization of the production, logistics, and sales structure is also expected to increase profitability.
In the current fiscal year, in order to accelerate diode development and enhance competitiveness in the Electronic Device Business, we centralized some of our development units to Akita Shindengen Co., Ltd. from April 2024 and reformed the development system to integrate it with the manufacturing site.
Key theme 2: Building a foundation for expansion of growth businesses
Efforts to expand our business domain, especially in growth businesses, are extremely important in view of the sluggish Chinese market. The market in India is of particular importance to the Company, as it has large potential for growth in terms of population growth and economic development.
In Car Electronics, Shindengen India Pvt. Ltd. already manufactures and sells power control units (PCUs) for motorcycles to local manufacturers. Leveraging its track record, the Company has formed a project team that combines the Car Electronics and Electronic Device businesses, and is currently in the process of formulating a strategy for expansion in the Indian market. One of the strategy’s concepts is to sell device products directly to local manufacturers in India as well. This strategy is only possible thanks to Shindengen’s circuit and device products, and it will enable us to target not only Japanese manufacturers but also local manufacturers in India to expand sales.
The Indian market, with its large growth potential, has adopted “Make in India” as its national policy. To do business successfully in India, it is essential to have a development and manufacturing system in place in the country. Within one to two years, the Company intends to establish a system in India that will allow us to carry out everything from device development to unit development in a single integrated manner. Increasing visibility is also a very important factor. For several years now, the Company has been participating in mobility-related exhibitions held annually in India. According to a survey conducted at the most recent trade show, Shindengen’s name recognition was approximately 50%, so we plan to invest management resources to raise our name recognition even further.
Key theme 3: Focusing resources on product groups that can reduce greenhouse gas emissions
The third key theme has a strong relationship with the Company’s business and is universally applicable to the Electronic Device, Car Electronics and Energy Systems & Solutions businesses. Under this theme, we will contribute to solving social issues by creating eco-friendly products and reducing environmental burdens associated with our business activities.
For more information about
- The 16th Medium Term Business Plan, please refer to Medium Term Business Plans
- Environmental initiatives, please refer to Environment
Governance
Q3Please describe your efforts toward establishing an effective governance system.
The Company’s Board of Directors consists of six directors, two of whom are outside directors, and the Audit & Supervisory Board consists of three Audit & Supervisory Board members, two of whom are outside Audit & Supervisory Board members. In past years, we have conducted a survey to evaluate the effectiveness of the Board of Directors and disclosed the results in our Corporate Governance Report. The points received in the 2024 survey were significantly improved over the 2023 survey, and we perceive this as a positive sign indicating that discussions have grown more constructive. Moreover, discussions are becoming even more active, including those with outside directors. I feel that we are beginning to establish a forum in which mutual ideas can be frankly asserted.
Perhaps this is attributable to the two “Off-Site Meetings” held in the previous fiscal year to hear directly from outside directors and outside Audit & Supervisory Board members regarding the current state of the Board of Directors. To implement the various ideas expressed at the meetings, we have assigned each to in-house directors and tasked them with refining it. In addition, I paid a visit to some of our domestic and overseas Group companies. While the purpose of the above visits was to strengthen Groupwide governance, these initiatives enabled us to not only confirm management control conditions at each site, but also to experience the strength and enthusiasm of activities at each individual site. I intend to continue to be mindful of and act in a manner that will further invigorate communication in an increasingly open and lively environment.
For more information about
- The governance system, please refer to Corporate Governance
- The views of the independent outside directors, please refer to Message from Independent Outside Directors
Q4Please tell us your thoughts on how to improve Shindengen’s PBR, currently below 1, and returning profits to shareholders.
The Company considers the issue of our price-to-book ratio (PBR), which is below 1, to be an extremely important issue. As indicated by the Group’s current income statement, operating results in each profit category have been declining, suggesting the overall weakening of our earnings power itself. We consider strengthening our earning power to be the most essential element toward maximizing corporate value, and will therefore concentrate on making the Electronic Device Business profitable as well as the Companywide promotion of the India market strategy in fiscal 2024, paving the way for the next medium term business plan, which will begin in fiscal 2025.
For fiscal 2024, we forecast net sales of ¥106.6 billion and operating profit of ¥2.5 billion. Furthermore, the plan calls for a significant increase in capital investment in fiscal 2024 to ¥7.9 billion, compared to ¥4.6 billion in fiscal 2023. This represents focused investment in growth areas, such as new package manufacturing facilities in the Electronic Device Business and expansion investment in anticipation of demand for PCUs and market size in Car Electronics. In fact, the Board of Directors has endorsed our commitment to invest aggressively in strengthening our earning power. We also consider it essential to manage our business with an awareness of the cost of capital and stock prices, and from fiscal 2025 on, we plan to set ROIC indicators for each business and transition to business management through KPIs.
As previously mentioned, we plan to enhance corporate value through strengthening our earning power and ROIC management to improve PBR and pay a dividend of ¥130 per share in fiscal 2024, as we did in fiscal 2023. We will continue to regard the return of earnings to shareholders as one of the most important management issues, and will continue to pay stable dividends.
Human Capital & Innovation
Q5What are your thoughts regarding human capital and innovation?
The Shindengen Group’s basic approach to human capital management is based on the recognition that we have a diverse workforce, combining “individual job satisfaction,” “voluntary skill development and demonstration,” and “integration of individual knowledge and wisdom,” each of which is organically linked to generate innovation. This, in turn, creates new value and leads to sustainable growth. In this sense, it is essential for the Company’s human capital strategy to support personal growth for individual employees and achieve organizational revitalization in accordance with our goals.
The Company’s basic structure of human capital management consists of the following components. First, “respect for human rights” and “safety and health” together serve as a foundation for all else. Then, based on this foundation, we pursue key human capital strategy issues, namely, “human resource development,” “empowerment of a diverse range of human resources” and “expansion of flexible working styles.” As communication was waning as a result of the COVID-19 pandemic, we intend to control and promote these five frameworks by revitalizing communication.
In order to monitor our progress, we have conducted an annual employee survey since 2022, and through the indexing of the survey, we will identify overall trends and share the results with the Board of Directors for further refinement.
For more information about
- Social initiatives, please refer to Social
Vision & Message
Q6Do you have any closing message for shareholders and investors?
The Shindengen Group’s Long-Term Vision 2030 advocates being a power electronics company needed by stakeholders. To realize this goal, we consider achieving profitability in the Electronic Device Business and executing our expansion strategy for the mobility area and EV area, including the Indian market, in one fell swoop to be our most important theme for 2030.
One example is the MITUS brand of quick chargers for EVs. With sales scheduled to begin in 2025, it is important to steadily expand sales accordingly as EVs become more popular in the future. In addition, as a member of the EV Wireless Power Charging Council, the Company is participating in the development of contactless wireless chargers as part of its EV charger business, and is working toward the creation of a new business model. In any case, “environment,” “mobility” and “EVs” are keywords in our growth areas, and we will strive to build our future business portfolio while continuously communicating what kind of value we can create from our proprietary technologies.
Finally, from the perspective of corporate management, we believe that the most important factor in value creation is the fostering of smooth communication and the resulting revitalization of the organization. Since the previous fiscal year, we have been emphasizing the word “harmony” when it comes to enhancing our organizational strength. If we compare the Shindengen Group to a single orchestra, even to perform a certain piece of music, a single performer facing in a different direction will result in a far cry from the perfection that we seek. As the president, I am exclusively responsible for the harmonious management of the organization, and will strive to ensure that the fruits of our endeavors will be shared with all our stakeholders, including shareholders, investors, employees, their families, and local communities.
I hope that our shareholders and investors will consider the Shindengen Group’s corporate value from a medium- to long-term perspective and ask for your continued support and feedback.
For more information about
- Long-Term Vision 2030, please refer to Long-Term Vision
