Basic Approach as Finance Director

Beginning my career as a banker in 1984, I’ve spent the last 30 years or so in international relations, including assignments overseas. Three years before joining Shindengen in April 2016, I worked for a banking subsidiary. In my time with the Company, I’ve served as an Officer in Charge of Accounting, Finance and Internal Audits, and upon my appointment to the position of Director and Executive Officer in June 2023, I was also entrusted with the responsibility of overseeing finance and risk management.

Japan in the 90s saw the burst of the bubble economy and the Asian currency crisis of 1997. In such an environment, many companies either went bankrupt or were forced to restructure. During my tenure as a banker, I was involved in the disposal of what is known as non-performing loans. From this experience, I learned that for a company to avoid bankruptcy and survive, its cash flow must be maintained. This is a matter of the utmost importance to me as Shindengen’s finance director.

As a company listed on the Prime Market of the Tokyo Stock Exchange, we have adopted a management strategy that is fully cognizant of the requirements of the Corporate Governance Code. Financial strategy plays an extremely important part in this. We are focusing on efforts to improve capital efficiency. On the other hand, the semiconductor business, one of our company’s core businesses, is highly volatile and requires a reasonable amount of equity capital to ensure stable financing. Therefore, we believe finding a way to strike a balance between the two, for the sustainable development of the Company’s business, is crucial.

Review of Financial Results for Fiscal 2023 under the 16th Medium Term Business Plan

On May 12, 2022, we announced Long-Term Vision 2030, which is based on our belief that building a product portfolio that meets evolving needs and contributes to solving social issues will help increase corporate value in this era that demands sustainability. At the same time, we also announced our 16th Medium Term Business Plan, which covers the three-year period from fiscal 2022 to fiscal 2024. The plan identifies the management policy, “Building a foundation aimed at the realization of the Long-Term Vision 2030,” and sets forth three themes: earnings structure construction, building a foundation for expansion of growth businesses, and focusing resources on product groups which can reduce greenhouse gas emissions. By doing so, we will promote the shift to a product portfolio that integrates business growth and sustainability toward the ideal vision of Long-Term Vision 2030. In the plan’s final fiscal year of 2024, we have set management targets of ¥118 billion in net sales, 6.6% in operating profit margin, 8.3% in ROE, and 3.5% in ROA.

Fiscal 2023, the interim year of the 16th Medium Term Business Plan, was supposed to be a year of breakthrough toward the plan’s final year, when we had targeted net sales of ¥112.2 billion, operating profit of ¥3.5 billion, ordinary profit of ¥3.5 billion, and profit attributable to owners of parent of ¥1.9 billion in order to build business operations that are resilient to change. Instead, the economic slowdown in China had a significant impact from the beginning of fiscal 2023, forcing us to twice revise our operating results forecast downward on August 8, 2023 and again on November 8, 2023.

The Electronic Devices segment saw significant decline stemming from the impact of the economic slowdown in China, where customers had built up inventories (in response to the semiconductor shortage caused by the COVID-19 pandemic) and adjustments were ongoing to distributer inventory. In addition, EV chargers failed to gain momentum due to the early exhaustion of government subsidies. The Car Electronics segment did well, supported by the strength of the motorcycle markets in India and Indonesia, but this was not enough to compensate for the loss, and unfortunately a net loss was recorded for the year.

Despite these conditions, the consolidated equity ratio remains above 40%, and net interest-bearing debt, which is interest-bearing debt after deducting cash and cash equivalents and other liabilities, is on a declining trend. We have also received full support from the financial institutions where we do business, which has enabled us to maintain stable cash flow, and we have secured a reasonable level of financial soundness.

There are two particular points I would like to emphasize regarding our efforts to improve balance sheet efficiency.

The first point is that we have begun monitoring return on invested capital (ROIC) by business, after separating the balance sheet by business. Our business environment is diverse, ranging from semiconductors and electrical parts to infrastructure. We pursue efficiency by analyzing and setting targets in accordance with the operating environment. Although still in their relative infancy, cost of capital and ROIC are now important indicators at Shindengen when making decisions on future investments.

The second point is that, more than ever, we are accelerating the disposal of noncurrent assets not used for business, or “idle assets.”