Building Resilient Corporate Constitution without Complacency from Record Results
Financial results for FY 2020 were significantly impacted by changes in business conditions caused by the COVID-19 pandemic. Fortunately, due to the success of various measures implemented by the entire company, the Shimadzu Group was able to achieve record results in terms of net sales, operating income, and operating margin. In particular, novel coronavirus detection kits and fully automatic PCR testing systems that were developed and released to market very quickly and mobile X-ray systems used to diagnose pneumonia contributed to results by helping to fight the COVID-19 pandemic, which has become an urgent challenge for society. Furthermore, sales grew for key models of the Analytical & Measuring Instruments segment, which represent core Shimadzu businesses, especially in the healthcare-related markets, and sales of Industrial Machinery segment turbomolecular pumps expanded due to background circumstances of increasing demand for semiconductors.
Furthermore, expense-reduction measures also helped achieve record business results. In addition to eliminating unnecessary and non-urgent expenses, expense-reduction measures implemented throughout the Shimadzu Group also resulted in a lower breakeven point by establishing financially healthier business operations that can get back on a growth track after making it through the current emergency circumstances.
Nevertheless, though the overall Group achieved record results, a breakdown by business indicates a mixture of some businesses that were able to expand sales despite the pandemic and some businesses that struggled. Given our renewed awareness of the need build a resilient corporate constitution by operating businesses based on new approaches, rather than being confined to previous ways of doing things, we are now discussing measures out to 2025.
Both Investing in Growth and Continuing to Increase Dividends
Our capitalization policy is based on both investing in growth in anticipation of expanding corporate value in the future and ensuring stable shareholder returns.
To invest in growth, we will not only invest in R&D and capital equipment, but also consider M&A and capital participation, and search for investments that can generate corporate value more efficiently.
In terms of R&D, we plan to invest 53.0 billion yen during the three-year medium-term management plan period, with 15.7 billion yen invested in the first year and 18.5 billion yen in the second year (FY 2021). Investments will be prioritized for important topics, such as infectious disease countermeasures, advanced healthcare, and carbonneutrality, and for liquid chromatograph and mass spectrometer system products.
In terms of capital equipment, we invested 15.7 billion yen during the first year, which is behind schedule for reaching the planned 53.0 billion yen during the three years, but we plan to invest 18.5 billion yen during the second year. During the previous medium-term management plan, we invested in improving/expanding R&D facilities, including within Japan. During the current medium-term management plan, we will strengthen the business base outside Japan by investing in Innovation Centers and improving/expanding application development and service networks there. We will also invest in increasing/strengthening production capacity and implementing digital transformations. In terms of M&A, we intend to actively utilize M&A in order to expand business operations and will also consider using partnerships involving capital participation.
In terms of shareholder returns, we have continued to increase dividends for the last seven years, with plans to increase dividends for the eighth consecutive year in FY 2021 as well. We intend to continue increasing dividends and payout ratios, while also considering additional shareholder returns.
Improving Financial Health and Efficiency
Our financial health is currently improving, with an equity ratio close to 70%. We estimate that at least 30.0 billion yen in free cash flow can be generated and plan to cover capital equipment investments with our own funds.
In terms of efficiency, an ROE of 11.3% was achieved for FY 2020, compared to the target ROE of at least 10% specified in the current medium-term management plan. Though the target value has already been achieved, we will continue striving to improve the operating margin in an effort to further increase the ROE value. We are considering introducing ROIC as an indicator for investment decisions. That would involve calculating an ROIC value for each business division and using the values to increase efficiency by reducing unutilized resources, to make investment decisions, and to reassess business portfolios.
Achieving Business Growth through Sustainability Management
As the CFO, I intend to promote progress toward achieving ESG goals, such as carbon-neutrality and infectious disease countermeasures, and communicate Shimadzu’s own sustainability management measures to shareholders and investors in an easy-to-understand way. In addition, I intend to actively disclose non-financial information in an effort to improve our ESG rating and thereby significantly strengthen our initiatives, resulting in a cycle of growth. I myself will actively maintain a dialogue with shareholders and investors about ESGs.
Developing Accounting Human Resources and Also Increasing Accounting Literacy Levels
It is the strength of our human resources that enables Shimadzu’s financial strategies. Therefore, the Finance and Accounting Department, which is in charge of Shimadzu Group finance and accounting functions, is spearheading a system for fostering and improving such human resources by developing accounting human resources that have systematically acquired accounting expertise. Furthermore, the department is preparing to station those accounting human resources in divisional departments or at major Group companies around the world. By appropriately distributing such accounting personnel, we intend to sustainably maintain organizations with effectively functioning governance practices.
The department is also implementing measures to improve accounting literacy by conducting ongoing basic accounting and tax training for all Group employees.
Actively Communicating wi th Shareholders and Investors
As the director in charge of investor relations, I communicate with shareholders and investors nearly 100 times per year. Though I am sometimes unsure of how to respond to opinions expressed, I take all opinions seriously and report them to top divisional management by means of the Executive Committee. Even after becoming the CFO this year, I have tried to maintain a dialogue with shareholders and investors, to the extent time allows, in an effort to build relationships of mutual trust.
I intend to help Shimadzu “Become a Company That Solves Challenges in Society in Collaboration with Partners All Around the World” by building the trust of not only shareholders and investors, but also of customers and society in general, and also by achieving sustained growth and increased medium- and long-term corporate value.
Biography of Yasunori Yamamoto,Director, Senior Managing Executive Officer,CFO
|Apr. 1983||Joined Shimadzu Corporation|
|Oct. 2003||Coordination Manager, Testing Machines Business Unit,
Analytical & Measuring Instruments Divisions
|Jun. 2013||President, Shimadzu Europa GmbH(Germany)|
|Jun. 2014||Corporate Officer|
|Jun. 2017||Managing Executive Officer|
|Jun. 2017||In charge of manufacturing, informationsystem, and CS|
|Jun. 2017||Deputy director in charge of technology research|
|Apr. 2020||In charge of corporate strategy planning and corporate communications(current)|
|Jun. 2020||Director, Member of the Board(current)|
Senior Managing Executive Officer(current)
|Apr. 2021||CFO (current)|