Message from the Officer in Charge of Finance

With a focus on key management indicators, we will practice management that enables us to be highly valued financially as well

Director, Member of the Board
Managing Executive Officer
General Manager of Finance & & Accounting Department

Toshiki Kume

Operating profit declined in our main segments due to procurement difficulties and soaring raw material prices, but orders set a new record high, and final profit increased

The fiscal year ended March 31, 2023 was the middle year in our Medium-term management plan SG-2023 (hereinafter, “SG-2023”). In the fiscal year ended March 31, 2022, the first year of the plan, we were affected by the COVID-19 pandemic, and last fiscal year, the military invasion of Ukraine by Russia in February 2022 impacted business activities in various ways, creating a situation that led to profit deterioration in our main businesses.
Specifically, the Special Purpose Truck segment, which had posted operating profit of over 5.0 billion yen in recent years, suffered a substantial decline in profit as two factors combined to put downward pressure on earnings. The first factor was an inability to secure the necessary number of chassis, which are indispensable to production, because of a semiconductor shortage and other factors. Segment orders fared well, but there was not enough supply to meet them, so revenue fell compared to the previous year. The second factor is soaring raw material prices. Special purpose trucks use a lot of steel. Steel prices have been rising in recent years, but last fiscal year there was a substantial increase helped by the increase in energy costs and the price remained high, which was a factor that worsened earnings.
In addition, the Parking Systems segment, which posted the next highest sales after the Special Purpose Truck segment, was hit by shortages of electric and electronic components, which are used for maintenance and renovations, a revenue source, and there were many cases of having to postpone plans. This business also uses a lot of iron, so the increase in steel prices was an additional blow.
While at the same time, in the Industrial Machinery & Environmental Systems segment and Fluid segment, orders were strong and there were increased overseas sales as a result of M&A. Moreover, the Aircraft segment returned to the black for the first time in three years owing to cost decreases and yen depreciation.

As a result of the above, orders received set a new record high while operating profit came in below the previous year. Final profit was above the previous year thanks to improvement in extraordinary income (losses) and a decrease in tax expense.
I stated this in the report published last year as well, but this year too I perceive the strength of having multiple segments centered on social infrastructure. In addition, in the overseas business as well, which we are focused on, thanks to the effects of M&A we achieved the target of SG-2023 (overseas sales of 45.0 billion yen in the fiscal year ending March 31, 2024) a year ahead of the plan (generating sales of 46.3 billion yen in the fiscal year ended March 31, 2023).

At the same time, on the financial front, interestbearing debt was flat and equity rose slightly while operating profit declined, so return on equity (ROE) and return on invested capital (ROIC) both worsened compared to the previous fiscal year. This fiscal year, the final year of SG-2023, we will not meet the initial target level, but to come as close as possible we will work to improve capital efficiency while keeping a close eye on profit increases and the appropriate capital structure (interest-bearing debt + equity). On the other hand, because of an increasing need to improve the efficiency of our main business sites and make investments to address aging facilities, even if target indicators worsen temporarily, we will make planned capital investments with consideration given to investment value and the recovery period while eliciting the understanding of shareholders and investors.

Summary of financial results for the fiscal year ended March 31, 2023 (consolidated)
(Million yen)
  Fiscal year ended March 31, 2023[A] Fiscal year ended March 31, 2022[B] Difference[A]-[B]
Orders 267,159 263,163 3,995
Net Sales 225,175 216,823 8,351
Operating Profit 9,293 10,569 -1,276
Ordinary Profit 9,902 11,821 -1,919
Profit attributable to owners of parent 7,313 6,907 406
Overseas sales 46,382 31,022 15,359
Order backlog 255,859 210,338 45,521
ROE 7.6(%) 7.7% -0.1(pt)
ROIC 4.4(%) 5.1% -0.7(pt)
Segment Net Sales Operating Profit
Fiscal year ending March 2023 Fiscal year ending March 2022 Fiscal year ending March 2023 Fiscal year ending March 2022
Special Purpose Truck 91,311 97,190 707 5,354
Parking Systems 38,627 38,099 2,686 3,066
Industrial Machinery & Environmental Systems 33,425 25,560 2,923 1,724
Fluid 24,485 20,787 3,916 3,151
Aircraft 23,136 19,137 1,397 -875
Others 14,188 16,047 739 955
Adjustment -3,078 -2,808
Total 225,175 216,823 9,293 10,569

Themes of interest to institutional investors institutional investors 
ー Valuing opinions received in interviews ー

A total of 80 interviews were held with institutional investors in FY2022. President Isogawa has attended an increasing number of these interviews with the intention to hear directly from investors.
Individual interviews account for the majority, but last fiscal year in one business there were several opportunities to present information to multiple investors.

The questions were mainly related to the following:

  • Trends in the Special Purpose Truck segment (forecasts for the fiscal year ending March 31, 2024 and beyond)
  • Trends in the Aircraft segment (the status of the recovery in commercial aircraft parts manufacturing and forecasts for the defense-related business)
  • The scale of sales, profitability, strengths, and market outlook, etc. for a merged and acquired company KOREA VACUUM LIMITED (hereinafter “Korea Vacuum”), which is driving growth in the Industrial Machinery & Environmental Systems segment
  • The scale of sales, strengths, and profitability, etc. of TurboMAX Co., Ltd. (hereinafter, “TurboMAX”), which is in the Fluid segment
  • Future business portfolio
  • Thoughts on shareholder returns
  • Review and discussion of the disclosure of CSR information through the Company’s website and Integrated Reports, etc.

We have presented our Long-term management plan SG-Vision 2030 (hereinafter, “SG-Vision 2030”), which has a target year of 2030, but attaining our goals through three Medium-term management plans is still a way off in the future, so everyone seems to be interested in whether we can achieve our immediate goals in the first phase.
I will now touch on the outlook for the fiscal year ending March 31, 2024. While their markets differ, both the Special Purpose Truck segment and Parking Systems segment are coming out of the worst of procurement difficulties, and in the Aircraft segment as well, production volume for commercial aircraft is returning. At the same time, in the Industrial Machinery & Environmental Systems segment, growth is expected centering on Korea Vacuum, which joined the Group in 2018, and in the Fluid segment, which was recently separated off, the addition of TurboMAX, which joined the Group in FY2021, is adding firmness to the segment’s traditional stability, and overall the outlook is positive.This trend is present in orders and the order backlog as well. Although procurement difficulties and high material and energy costs will remain, for necessary costs we are taking measures such as revising prices with the understanding of customers and are working to restore profit figures in absolute terms and profitability.
The Group’s five businesses mainly involve dedicated companies, and we have received opinions and advice from investors on narrowing down the allocation targets for management resources. To express the view of the company on this, as of last year we have begun considering how we want the business portfolio to be from a long-term standpoint. To have investors truly perceive the “expansion” that is the theme of the second phase Medium-term management plan, we will rigorously select targets for management resource allocation and express a stance on making considerable investment in the development of new businesses with future potential.
On shareholder returns, divided broadly, we have received two opinions. The first opinion would have us maintain the dividend payout ratio we have targeted and avoid lowering the dividend. The second opinion values the dividend payout ratio but sees the importance of growth investment and calls on us to execute shareholder returns while maintaining a balance between the two. Both opinions are valid, and while keeping both in mind, we will not simply go by an indicator; we will value the process of expressing our thinking on shareholder returns each time and eliciting understanding.
Investors have also advised us to take initiatives to raise recognition of the Group and appeal more to the market regarding businesses that have changed or grown in recent years. To therefore increase opportunities for overseas investors, with whom we have little contact, to learn about the Group, we contracted Shared Research Inc., a research company that communicates corporate information to a global audience, and disclosed reports in Japanese and English that summarize basic information on the Group and our recent business results. Going forward, we will disclose the reports quarterly and increase opportunities to become aware of the Group.

Promotion of ROIC management

In SG-Vision 2030, ROE and ROIC are included in the targets, so the plan takes into account both profit and capital efficiency. Both indicators fell short of the previous year in the fiscal year ended March 31, 2023, the middle year of the Medium-term management plan, but ROIC has room to improve and increase with the steady efforts of direct and indirect divisions, so last year we calculated ROIC by business and product to grasp the current situation. Going forward, we will discuss the future potential and strengths of each market based on this and visualize the Group’s future business portfolio.
In addition, ROIC is affected by improvements and innovations in daily work so we will have employees understand that they are involved in this indicator. To do this, we put a feature on ROIC in our internal newsletter explaining the concept and showing it with an inverted tree structure. We are working to raise awareness internally through these activities.


The ShinMaywa Group’s capital policy

Cash allocation under SG-2023 is as follows.

Cash allocation SG-2023 Target level
Growth investment (capital investment, M&A) 30.0–40.0 billion yen (cumulative)
Dividend payout ratio 40–50%
Acquisition of treasury shares Implement flexibly depending on stock price levels

We have made growth investment thus far of around 14.0 billion yen, and partly because operating cash flow, the source of these funds, has been decreasing, the rate of progress against the target is a little slow, but with the second and third phase Medium-term management plans to come, we will rigorously select necessary investment targets and make investments to generate sustainable growth and create value into the future while also considering the assumptions, such as the COVID-19 pandemic and surging materials costs.

As for our investment policy going forward, we expect it to be centered on the following three items:

  • Conduct M&A to expand the scale of sales in promising markets
  • Create new businesses that bring real increases in revenue and profit distinguished from existing businesses
  • Upgrade production bases in the main businesses that support the Group’s management foundation (addressing the aging of facilities and raising production efficiency)

At the same time, regarding management initiatives that are aware of capital costs and the stock price, which are strongly required by the Tokyo Stock Exchange, the Group’s price to book ratio (PBR) and ROE are below the levels required by the exchange (1x and 8%, respectively). Exceeding the dissolution value and achieving the level that overseas investors are interested in is a necessity for companies listed on the Prime Market, and alongside this, we will present measures for raising corporate value oriented to the long term and work to gain an understanding of the Group’s vision.

Financial management in management with a Long-term orientation

Under SG-Vision 2030, we are targeting net sales of over 400.0 billion yen, and this includes major growth in overseas sales. As working capital will increase with the expansion in business scale, we are focused on cash flow more than before.
In addition, with the increase in overseas transactions, foreign exchange rates in various countries will have an increased impact on earnings, and debt recovery risk will also increase, so we will work to rein in such financial risks before they can materialize.

Formulating the next Medium-term management plan

Under the next medium-term management plan, which is the core of SG-Vision 2030, we will take various measures derived from backcasting from the final targets. In business activities, which tend to emphasize profit and loss, we will focus on incorporating measures to improve and raise ROE and ROIC.
Also, when drawing up the future business portfolio, we will work to ensure it is structured to convey to investors investment returns and sustainable growth.

It has been one year since we issued the Integrated Report 2022. Since the COVID-19 pandemic, negative factors from the perspective of corporate management have emerged in succession, including geopolitical risks and soaring prices for energy and materials, and there have been many situations that make one perceive the difficulty of managing from a long-term perspective. While at the same time, it was also a year of reaffirming the significance of the Long-term vision, which puts into words what we aspire to be, while engaging for the first time in a Long-term management plan that spans ten years.

We will continue to practice management oriented to the long term while responding to the various changes in society. It would be highly appreciated if you could take an interest in the disclosures of the ShinMaywa Group and share your opinions. Thank you very much for your continuing support.