Message from the Finance Director

Managing Executive Officer General Manager, Corporate Planning Headquarters (as of September 2020)
Kazutaka Maeda

1. Improving corporate value through dialogue with stakeholders

Aichi Steel considers that the establishment of a solid financial foundation is critical for supporting stable and sustainable returns to stakeholders. We conduct our business with a deep awareness of the need to achieve an appropriate balance between shareholder returns, investments, and repayment of interest-bearing debt. We are also focused on maintaining financial health and sustainably improving earnings capacity (steady growth) across the company while keeping an eye on ROE and debt-equity ratio indexes.

With corporate value increasingly being evaluated from ESG and SDGs perspectives, we are focused on enhancing and disclosing information in a timely manner to investors and other stakeholders. By accurately explaining current business and financial status as above, as well as future issues, we aim to achieve appropriate evaluations from capital markets and society in general.

We will listen carefully to the opinions and advice we receive and reflect that in our management to continue improving corporate value.

2. Business performance for fiscal 2019

Consolidated net sales for fiscal 2019 declined by 15 billion yen to 242.2 billion yen compared to the previous fiscal year, while operating profits increased by 2.7 billion yen to 13.9 billion yen compared the previous fiscal year. Sales volumes decreased due to factors including an economic slowdown in China caused by trade friction between the U.S. and China and depreciation expenses increased which put downward pressure on profits. Despite this, we recorded increased profits from decreased income compared to the previous year through lower prices for scrap metal and ferroalloys, and companywide efforts to improve profits.

Operating cash flow was 36.3 billion yen, which was an increase of 22.7 billion yen compared to the previous fiscal year, mainly due to accumulated profits and improved working capital.

We are systematically and efficiently expanding our strategic capital expenditure to help build solid manufacturing infrastructure and achieve a stable profit base, which are two of the objectives established by our Medium-term Management Plan (FY2017–2020). During fiscal 2019, we made capital investments totaling 20 billion yen, mainly for the purposes of increasing production capacity on steel, forged and electro-magnetic product manufacturing equipment, and for streamlining, updating and functionally improving steel and forged product manufacturing equipment.

Aiming to develop and expand new applications and products for our existing businesses by leveraging the advantages of materials, and steadily fostering and strengthening next-generation businesses for the coming smart society, we proactively implemented R&D activities with R&D expenses of 3.7 billion yen in fiscal 2019.

Aichi Steel’s targets for fiscal 2020, the final year of our Medium-term Management Plan, are consolidated net sales of 250 billion yen or higher, consolidated operating profits of 20 billion yen or higher, and ROE of 8% or higher. However, the spread of the novel coronavirus disease (COVID-19) had had a severe negative impact on business, which makes it highly unlikely that we will achieve these targets.

On the other hand, we were financially healthy at the end of fiscal 2019, with a debt-equity ratio of 0.38, capital adequacy ratio of 55.16%, and an “A” rating from the Japan Credit Rating Agency, Ltd. Despite ROE for fiscal 2019 being 5.6%, which was higher than the previous year, it is still lower than our target for fiscal 2020, so we consider earnings capacity to be an important issue in the future.

Going forward, we will further improve our earnings capacity through efforts to strengthen our Groupwide management with Genryou Management, through business expansion and strategies that utilize our DNA as a materials manufacturer to drive component development in an integrated forging with steel making process, and through commercialization of new businesses.

3. Working to achieve growth strategies (Vision 2030)

This year, we formulated Vision 2030 (see pages 17–18) with a focus on CASE technologies and other elements of the major transition that the automotive industry is currently going through. We also clarified initiatives for our various internal functions to implement, and the resources that will be required to achieve those initiatives, in order to achieve our three management guidelines: Contribution to a sustainable global environment; Creation of a prosperous society through business reform; and Employee happiness and corporate development.

Going forward, we will make a range of investments in growth to dramatically reform our business model mix and contribute to the global environment and society. While increasing our ratio of expenditure on improvements in areas such as reengineering for 2030 and beyond, new business fields and capacity enhancement, our capital expenditure will actively target improvements to the global environment and employee workplaces, and enhancement of ESG management, including investing in reducing CO2 emissions and enriching tangible efforts to further expand the functions of our development divisions.

We will also focus our research and development activities on developing high value-added products by utilizing our potential as a materials manufacturer, actively creating new businesses, and expanding the potential of manufacturing. The key to the success of these growth investments is how appropriately we can distribute our limited resources, but we also have to proceed carefully after thorough examination of the effects on profitability, risk and financial health.

With Aichi Steel approaching a period of considerable turbulence, our role in the Corporate Planning Headquarters is to clarify milestones in future medium-term and annual management plans based on Vision 2030, and to secure and invest resources in a timely and effective manner while accurately monitoring the progress of each new project.

4. Financial management in COVID-19 times

As part of our response to the spread of COVID-19, we aim to ensure the health and safety of our employees while making every effort to avoid inconveniencing our customers’ operations.

We have no way of knowing how long the current tough business environment will continue, but to minimize any subsequent negative impact from the pandemic, we will respond little by little as the situation changes. This response will include creating more efficient operations through initiatives such as consolidating equipment and concentrating production, and getting ready for a smooth transition when production picks up again. We will also implement as many initiatives as possible to improve profits by reducing overtime expenses through workstyle reform and reducing other expenses through zero-based budgeting.

In terms of finances, we believe ensuring capital liquidity is our greatest challenge. For this reason, we are obtaining regular updates of our financial situation, including our subsidiaries, and ensuring the Group’s internal financing system is functioning properly. We are also implementing responses that include enhancing inventory management, obtaining early financing, and establishing flexible bank credit facilities.

5. Shareholder returns

Respect for shareholder profits is an important management policy at Aichi Steel. While striving to enrich and strengthen our corporate structures, we are working to increase corporate value and enhance our dividend policy by systematically expanding our businesses. Following this policy, we aim to achieve a consolidated payout ratio of 30% for our dividends while maintaining the internal reserves necessary for future business expansion and taking full consideration of our business performance, financial condition and payout ratios. In line with our policy detailed above, the annual dividend paid for the fiscal year ended March 31, 2020, was 130 yen per share.

To achieve Vision 2030, we will steadily implement these measures and meet the expectations of our stakeholders through appropriate and timely disclosure of financial information.