Briefing on Mid- to Long-Term Vision
POWER

FOR

ALL beyond 2030

November 9, 2023

Summary of Mid- to Long-Term Vision
We have formulated a new mid- to long-term vision that meets the business cycle in order to address the situation where the Company has been
undervalued by the market for a long time.
We will conduct regular reporting and reviewing through the new system and engage in ROE improvement and investment for growth aimed at realizing
the Mid- to Long-Term Vision.

The Mid- to Long-Term Vision

Recognition of market valuation
Trend in PBR (from January 2019)

(x)
1.0
0.8

0.58
(End of October)

0.6
0.4

0.2
0.0
19/1
◼

◼

2050

2030

1

We aim to expand business domains
through efforts such as M&A for sustainablegrowth while driving the two initiatives of
R&D to respond to next-generation fuels
and establishing a system for theservitization business.

We aim to contribute to net zero emissions andbecome a core company in the marine
equipment industry. We will do this by offering
new solutions including servitization and expanding
business domains while striving to increase salesof engines compatible with next-generation fuels.

We have started considering a company name change in light of the Mid- to Long-Term Vision.

20/1

21/1

22/1

23/1

Financial Objectives and Capital Allocation

PBR has remained below 1 for a long time.
The situation in which there has been insufficient
costs of capital to meet market expectations
Under the system built on the new organization
CVIC,*we will strive to raise market valuation
through (1) enhancing corporate value based on
mid- to long-term strategy, (2) regularly reporting
and reviewing and (3) promoting constructive
dialogue with investors.

* Corporate Value Improvement Committee

Million yen◼

By FY2028

FY2031 targets

Net sales

78,00080,000100,000

Operating income

3,600

5,000

7,000

7.6% (5.2%*)

6.5% or more

9.5% or moreROE◼

FY2024 (forecast)*Figures excluding gain on sale of stocks

We plan to make investments in R&D to respond to next-generation fuels and reinforcementof systems such as for servitization in the years to 2030.
Although we have set a payout ratio of 30% as the standard currently, we will consider
aiming to “avoid a dividend decrease and ensure an upward trend of dividends.”2

1Company Profile and Market
Environment

P.5~

2

The Mid- to Long-Term Vision P.13~

3

Medium-Term Management
Strategy

P.18~

4

Appendix

P.28~

1

Company Profile and Market
Environment

P.5~

2

The Mid- to Long-Term Vision P.13~

3

Medium-Term Management
Strategy

P.18~

4

Appendix

P.28~

Company Profile
We provide engines and a maintenance service along with high fuel efficiency, environmental
performance and safety as a “power supply company” that leads to the future.
For marine-use

Parts sales and maintenanceSupply engines with high fuel efficiency, environmental
performance and others that generate electricity and propulsion
power for vessels.

Provide a maintenance service and sell repair parts tomaintain the performance and safety of already sold finishedgoods, globally and in a timely manner.

A power supply
company that leads
to the future

For land-use
Provide highly reliable engines fordriving lift and drain water pumps forcities and as a backup in times of
emergency.

Move

Protect
5

History
We have been supplying power and related services to various industries since our founding in 1907.
Released a variety of products and services to meet customer needs such as changes to environmental regulations
since the division was carved out and became a new company in 1966.
Our business infrastructure enhancement plan based on the Act on Strengthening Maritime
Industries was approved by the Ministry of Land, Infrastructure, Transport and Tourism.
Completed a lineup of duel-fuel engines (two-source internal combustion engines that use
LNG in addition to heavy oil).
Started operating the Himeji Factory, the first new production base in about 50 years
since the Moriyama Factory commenced operation in 1969.
Won the first order for a maintenance support service that used C-MAXS LCA, a next-generation system for monitoring the conditions of engines formarine auxiliary engines.
Shipped the first commercial-use unit of theenvironmentally friendly new diesel engines DE-33.

2023

2021

2018

2017

2016
the first in the world to obtain SOC certification for2013 Became
IMO NOx Tier III requirements.

the first units of the environmentally friendly new diesel engines
2011 Shipped
6DE-18 and 6DE-23.

1969 Moriyama Plant started operation.
Split the Osaka Division of Daihatsu Diesel Mfg. Co., Ltd., which had produced marine-use and general-purpose

1966 diesel engines.
1907

Established DAIHATSU DIESEL MFG. CO., LTD. anew.
Founded an engine manufacturing stock company against the background where engines were
expected to be domestically produced with the aim of modernizing the industry.

6

Business Overview
We engage in the manufacture and sale of marine-use internal combustion engines, especially auxiliary
engines for power generation, as the main business.
Internal combustion engines

Auxiliary power
generators (91%)

Net sales: 67.9 billion yen. Segment profit: 5.4 billion yen (FY2023)

Marine-use

Land-use

Segment net sales:
56.8 billion yen

Segment net sales:
10.9 billion yen

Manufacture and sales of marineuse engines with high reliability
and environmental performancethat have been broadly employedin all the seas of the world.

A group of products with a simple structure and highmaintainability that are widely employed in fields thatdemand reliability, such as a backup power source intimes of emergency.

Main propulsion
systems (9%)

Examples of customers and products
Power generation engines for remote islands

Other divisions
Sales: 4.2 billion yen
Industrial machinery-related

Engines that supply
electric power to drive
the engines of vessels

Engines that supply
electric power to move
vessels*% in parentheses indicates the ratio of products to marine-use sales.

Electric power generator for backup power source

Real estate leasing-relatedElectricity sales-related
Precision parts-related

7

Marine-Use Business Model
Maintenance is a long-term and stable revenue source since the business cycle from the sale of an engine itself to its maintenancewill last 30 years.
A highly long-term model in which a business plan, including a trend of how revenue of the maintenance business will be generated,
requires a perspective of over 10 years.
A long-term business cycle that lasts 30 years
from sale to maintenanceEngine sales
Enginedelivery

Vesseldelivery

Trends in Maintenance Business

DAIHATSU Demands concerning
performance and
DIESEL

Shipyard

pricesInstructions on
performance andparts to be used

Shipowner (shipping
companies, etc.)

Parts
Net sales

Sales activities (appeals of andproposals for performance, price, etc.)

10 to 20 years
later

Maintenance

Maintenance and parts sales tend to grow 10 to
20 years after the sale of an engine.

Parts sales and repair work

DAIHATSUDIESELYears after sale

Vessel managementcompany*

Shipowner* A business operator who is contracted by a shipowner to conduct maintenance and management of vessels,
operation management and crew management including employment and assignments to vessels

Business plans need to include aperspective of over 10 years.

8Land-Use Business Model
Provide Engines for Power Generation and Pumping to Keep Critical Infrastructure Operating Even in Times of Emergency
Expand long-term business through piling up maintenance revenue in a similar manner to marine-use.

Direct customer

Engine sales

End customer<Examples of products>
Gas turbine for emergency power generation

For pump
stations

Pump makers
Heavy electricmachinery
manufacturer

For airports, remote islands
and broadcasting stations

Local
government
Diesel engine for constant power generation

Airports and remote islands
Broadcasting stations, etc.

For data centers
Subcontra
ctors

Diesel engines for emergency pumps
Generalcontractors

Clients(Businesscompanies, etc.)

MaintenanceDirect transactions with end
customers in the case ofmaintenanceGas turbine for emergency pumps

9Marine Equipment Market - Market Trends
Maritime logistics is significantly advantageous in terms of transportation volume and costs, and ocean cargo volumes have
expanded as the global economy grows.
Accordingly, the global shipping capacity is in a stable upward trend.

千(Unit: billion tons)
15 Iron ore

Coal
Crude oilContainers
Other

Number of vessels with engines fromDAIHATSU DIESEL (estimates in some parts)

Global shipping capacity

Global ocean cargo volumes, by product
Grain
Petroleum products(Million DWT)
2,500

Tankers

Bulk carriersContainers

Other

2,000

(Number of vessels)
9,000
8,000
7,000

10

8,492
6,900

6,000

1,500

5,000
4,000

1,000

3,000

5

2,000

500

Share in Market of Auxiliary Engines forLarge Ocean-going Vessels*<Share in Japan> 48%<Share overseas> 27%

1,000
0

0

0

(estimate)*Number of vessels put into service from January to December 2022
*Estimates before 2011<Market Structure of Shipping, Shipbuilding and Marine Equipment >Maritime transport
The need for maritime transportation
is expected to increase steadily
due to low transportation costs,
transportation volumes, and low
environmental impact although theneed contracted temporarily due tothe COVID-19 pandemic.

Demand for shipbuilding
Vessels have increased steadily as
demand for ocean transportation rose.
(Average increase of 3.2% per year
since 2015)
Stable demand for shipbuilding was
generated.

Demand for marine equipment
Demand for marine equipment is also
generated in line with demand forshipbuilding.
An increase in the number of vessels
already in service in addition to newones is a reason for the expansion of
the market.

10Marine Equipment Market - Environmental Regulations
The industry is one that is largely influenced by global environmental regulations.
In the next 30 years, regulations and incentives are expected to be stepped up with the aim of reducing total GHG emissions by 2050.
Targets of Reducing Total GHG Emissions at IMO1 Marine Environment Protection Committee (MEPC) 80

2021

2008

Annual life cycle
GHG emissions

Recent results

798 million tons

2030

2040

-20% to 30%

2050-70% to 80%

730 million tons
2030 reduction
guidelines
Examples of impacts from regulations
From 2016
An 80% reduction of NOx in emission control areas2 (ECA)
became mandatory as a result of the adoption of IMO Tier
III regulations.
Dual-fuel engines (DF) that can use natural gas inaddition to diesel will become popular.

512 million to 585
million tons
2040 reduction guidelines

146 219 million tons

Achieve GHG net zero
emissions around2050

Currently measures are being studied, such as the adoption of charging for GHG emissions and otherfinancial methods and of mandatory zero emission operations for newly built vessels while the establishment
and spread of zero emission technology and fuels is advanced by giving support for first movers.

Notes) 1: International Maritime Organization 2: Areas where stricter regulations have been adopted, such as the North American and Canadian coasts, the Caribbean Sea, and the Baltic Sea,
the North Sea, and the Mediterranean Sea in Europe
Reference) International Maritime Organization, the Ministry of Land, Infrastructure, Transport and Tourism, and Nippon Kaiji Kyokai (ClassNK, Japan Maritime Association)11

1Company Profile and Market
Environment

P.5~

2

The Mid- to Long-Term Vision P.13~

3

Medium-Term Management
Strategy

P.18~

4

Appendix

P.28~

Daihatsu Diesel: The Mid- to Long-Term Vision

POWER

FOR

ALL beyond 2030

We create customer value through engines
and service as a power supply company.

Facing various social issues head-on, such as climatechange and the depletion of energy resources,

we support the safety and security of people’s lives
and protect the rich natural environment
We will strive to fulfill these two missions.

13

The Mid- to Long-Term Vision
We aim to contribute to net-zero emissions in the shipping and marine equipment industries and to
expand our business scale. We will do this by servitization and providing broader new solutions
primarily in response to next-generation fuels.

Strategic
policies
Individual
strategies

From the present to 2030

From 2030 to 2050

Build systems for long-term
growth and enhance
profitability.

Accelerate growth to realize
the vision based on the new
system.

1. Commercialize engines compatible with
next-generation fuels.
2. Reinforce the servitization business.
3. Extend business domains through M&A
and alliances.
Operating income

1. Increase sales of enginescompatible with next-generation
fuels.
2. Expand the servitization business.
3. Provide broader solutions.

EBITDA

Contribute to net
zero emissions.

Develop into one of
the core companies
in the marine
equipment industry.

Rough ideaof earnings
Depreciation squeezes profits due to theimplementation of investment for growth.
We strive to enhance ROE through initiatives
including the establishment of the servitization
businesses and disciplined M&As.

2050

Initiatives from the present to 2030 will start
making a full-scale contribution.
14

Mid- to Long-Term Business Plan
We aim to be involved in the electric power planning of an entire vessel by
expanding the domain through business tie-ups, etc.
Labor-saving

Conceptual presentation of the systems of a vessel that startfrom main and auxiliary engines

Livingenvironment
systemRemote vessel
operationAir
conditioning

Motor-driven
SafetysystemCommunication
systemCargohandling
systemPrevention ofmajor failure

We will become a player that is able to make proposals for
optimizing the electric power and reducing theenvironmental burden of vessels through expanding
business domains via alliances, etc.

Remotemonitoring

Cargo
handling
equipment

Environmental
response

Cargo
monitoring
Safety15

Started Discussing Company Name Change
We have started looking into a company name change, based on the transformation that we aim for in
the Mid- to Long-Term Vision and businesses that we will drive.

DAIHATSU DIESEL MFG. CO., LTD.

Started consideringa new company
name.

We plan to announce an upcoming schedule as appropriate.

161Company Profile and Market
Environment

P.5~

2

The Mid- to Long-Term Vision P.13~

3

Medium-Term Management
Strategy

P.18~

4

Appendix

P.28~

Medium-term financial targets
We commit to achieving an operating income of 5 billion yen and an ROE of 6.5% or more by the fiscal
year ending March 2028 and aim to achieve an operating income of 7 billion yen and an ROE of 9.5% ormore in the fiscal year ending March 2031.
(Million yen)

FY2022(result)

FY2023(result)

FY2024(forecast)

By FY2028

FY2031
Targets

Net sales

57,59972,11378,00080,000100,000

Operating income

2,092

3,601

3,600

5,000

7,000

Operating margin

3.6%

5.0%

4.6%

6.3%

7.0%

EBITDA

4,901

6,355

6,189

8,700

ー

EBITDA margin

8.5%

8.8%

7.9%

11%

ー

Net income

1,968

2,948

3,500
(2,400*)

3,500

5,000

ROIC

2.6%

4.3%

4.1%

5.1% ormore

6.5% or
more

ROE

4.7%

6.6%

7.6%
(5.2%*)

6.5% ormore

9.5% ormore*Figures excluding gain on sale of stocks

18

Recognition of Capital Costs and Target ROE and ROIC
Coming to grips with the current market valuation, we aim to realize an ROE that exceeds the cost ofshareholders’ equity and an ROIC that surpasses WACC.
ROE

9.5% or more

Cost ofshareholders’equity6.5% or more

6.6%
5.2%*

4.7%

Premises of the capital costs that we assume

About
9.5%

Risk-free rate

0.5%~

Beta

1.2~1.3

Market risk
premium

FY2022

FY2023

FY2024
Forecast

By FY2028

FY2031
Targets

ROIC
6.5% or more
4.3%

FY2022A formula based on CAPM is used as the calculation method.
Risk-free rates from information of government bond (JGB) yields by the Ministryof Finance Japan
Beta is calculated by Daihatsu Diesel, based on comparable companies.
Market risk premiums were calculated, based on information from the Japan
Securities Research Institute.

*Figures excluding gain on sale of stocks

5.1% or more
4.1%

WACC

2.6%

FY2023

FY2024
Forecast

By FY2028

FY2031
Targets

About 6.5%

About
6.5%

Cost ofshareholders’equity9.5%

Cost ofliabilities
before taxes

0.8~1.5%

Weighted Average Cost of Capital (WACC) was calculated through applying theweighted average method to the cost of shareholders’ equity and liabilities aftertaxes, based on total market value and interest-bearing debt.

19

Reinforce and Expand the Servitization Business.
We define Triple C Fusion as the concept of the servitization business.
We will realize Connect and Collaborate by 2030 and connect them to Co-Create from 2030 onwards.
Phase 1

Phase 2Phase 3Connect

Collaborate

Co-create

Connect

Work together

Co-create

Support operations in a waythat realizes customers’ peaceof mind.

Reduce administrative work
done by customers.

Offer smooth communicationand service based on theunderstanding of information.

Level out the sudden
maintenance cost of customers.

Realize these things by 2030.

Optimize and maximize
customers’ operation.
Create new value withcustomers.

Start a full-scale expansion
from 2030 onwards.

20

Reinforce and Expand the Servitization Business.
We strive to step up the servitization business and enhance LTV per engine by adding the opportunity
to provide value to customers through reinforcing data-based sales activity and shifting tocomprehensive maintenance contracts.

Vessels with DAIHATSUDIESEL’s engine mounted
8,500 vessels

Build a customer databaseand step up its use.

<Examples of provided services>
Demand forecast by AI
analysis of operational data,and proposal-based sales
activityComprehensive
maintenance contracts,
including maintenancesupport and crew training

We will more effectively
provide value to existingcustomers.

We will expand revenue foreach vessel that is equippedwith our engine.

Strengthening support for themonitoring of conditions andsupport for prevention of problems

21

Investment in Factories that Produce Engines Compatible
with Next-Generation Fuels
We will make additional investments in the Himeji Factory to develop it into a key base for assembling andcommissioning engines compatible with next-generation fuels as well as producing more existing engines.

We plan to make investments in a new factory at a level of 10 billion yen in total and aim to put it in operation in 2026.

Total investments:
A level of 10 billion yen
Site planned for
additional facility(1) Next-generation fuels(methanol, ammonia, and hydrogen)Engine assembly and commissioning
factory(2) Engines compatible with nextgeneration fuels (methanol)
Addition of facility(3) Plan for factories that ramp up
production of existing engines
Production capacity forecast at 1.5
times (when converted to existingmodels)Move up the operation start target from2027 to 2026.
22

Investment in Development of Engines Compatible with Next-Generation Fuels
We will proceed with the development of engines compatible with next-generation fuels, which are an essential
factor in achieving GHG zero in 2050, with all candidates for such engines put under development simultaneously.
Commercial-use engines for methanol and ammonia are scheduled to be shipped out at the end of 2025 and during
the latter half of the 2020s, respectively.

Roadmap for next-generation fuel development
Now

Methanolto 2030
End of 2025
Target for starting shipmentof commercial-use engines
Latter half of the 2020s
Target for starting
shipment of commercialuse engines

Ammonia

HydrogenBiofuelsBasicexperiment

to 2050
Sales expansion

Sales expansion

Test actual engines by 2030

We will strive to develop more efficient engines by 2030 (development can beadvanced with the existing engine technology).

3 units of 6DE28DF
Simultaneously, we will continue building solutions such as fuel cells, carbon capture, and renewable energy inpreparation for a future fuel source change.
23

Capital Allocation
Policy to allocate cash, deposits and cash flows in the order of (1) working capital, (2) investment for
growth, and (3) dividends
Basic policy on capital allocation for the five years from FY2024 to FY2028(100 million yen)

1 Secure working capital as necessary cash and deposits.
Our plan is focused on R&D and capital investment in

2 response to next-generation fuels as investment for
growth.

3

Regarding dividends, we aim to “avoid a dividend
decrease and ensure an upward trend of dividends.”
Currently, the dividend payout ratio is set at 30%, but weplan to consider reviewing it in the future.

4

Basically, capital will be allocated to (1) to (3). In addition,
however, we plan to flexibly accelerate the response tonext-generation fuels, conduct M&A to achieve theMid- to Long-Term Vision or ensure shareholder returns.

450

258

We plan to make strategic investment throughmethods including borrowing.
FY2023Operating CF(BeforeAs of the end
investment forof the period
growth)Cash anddeposits*

Working Investment forcapitalgrowthDividend

Strategic
investment

34(Capital investment
plus expenses)

1

2* Consolidated Statements of Cash Flows Cash and cash
equivalents at end of year

24Plan for Investment for Growth
We plan to invest 45 billion yen for growth to achieve the Mid- to Long-Term Vision.
We will decide on making investment in each case while paying attention to the cost of capital.

Response to next-generation fuels
10 billion yen

Technological development andproductivity improvement
15 billion yen

Development and production facilities of enginescompatible with next-generation fuels, such as methanol
and ammonia, aimed at expanding our presence in themarketWe assume that the fruits will be borne from 2030
onwards.

We plan to reduce costs of existing products and reorganize
production facilities.
We will boost competitiveness by improving costs andproduction efficiency andaim to increase sales and have the accompanying improvementof profitability.
We assume that fruits will be borne from FY2025.

Logistics reform
5 billion yen

Digital technology
3 billion yen

We will optimize logistics that accompanies the shift tomultiple production centers and carry out DX.
We will reduce logistics loss and achieve zero loss of sales
opportunities.
We assume that the fruits will be borne from 2028
onwards.

We endeavor to improve productivity and LTV throughthe digital transformation (DX) of business models.
We assume that the fruits will be borne from 2026
onwards.

Strengthening production infrastructure
8 billion yen
We will make capital investment and enhance added value
for the group and affiliated companies for the purpose ofcontrolling production costs.
We assume that the fruits will be borne from 2026
onwards.

Other
4 billion yen
We strive to realize net zero emissions at an early stage
and step up the initiative of corporate management of
human capital.
We assume that the fruits will be borne from 2030
onwards.

25

Dividend Policy
Currently, we set the dividend payout ratio at 30%.
Down the road, we will also look into aiming to “avoid a dividend decrease and ensure an upward trendof dividends.”
Annual dividends (total) and dividend policy

Set a dividend of a minimum of 15
yen per share in pursuit of aconsolidated payout ratio of 30%.
33
28

15

15

15

15

15

15

We will consider anappropriate
dividend policy.

158FY2015FY2016 FY2017

FY2018 FY2019

FY2020 FY2021

FY2022 FY2023*Figures after reflecting an upward revision at the time that the financial results were announced on October 26

FY
2024
Plan*
26

1

Company Profile and Market
Environment

P.5~

2

The Mid- to Long-Term Vision P.13~

3

Medium-Term Management
Strategy

P.18~

4

Appendix

P.28~

Reference: Next-Generation Engines Compatible with Next-Generation Fuels
The reality is that each fuel has advantages and disadvantages and issues to be solved, which makes the outlook
uncertain.
DAIHATSU DIESEL too continues omnidirectional R&D.
Fuel
Advantages
Issues and countermeasures◆ A decarbonized fuel that does not emit
CO2 during combustion◆ Can utilize existing infrastructure (has beenused as fertilizer historically).
◆ Lower energy cost for liquefaction andgasification, and cheaper than hydrogen.

◆ Toxicity and corrosion tendency◆ The calorific value per volume is small, and its tank capacity is three times that of heavy oil.
➢ Study of the materials and structure for storage and reduction of necessary space◆ Flame retardancy◆ Aftertreatment of N2O (the GHG effect is 265 times that of CO2), unburnt NH3
and NOx (regulated as a cause of acid rain, etc.) in the exhaust gas◆ The injection system needs to be improved for liquid direct injection since ammonia is a gas at
normal temperatures and pressures due to the effect of the evaporation of latent heat.
➢ Upgrading combustion control technology and fuel injection technology

Hydrogen◆ A decarbonized fuel that does not emit
CO2 during combustion◆ No toxicity◆ High flammability and fast combustion speed◆ An injection device that can inject the necessary volume in a short period of time is required
because of its low energy density per volume. Additionally, hydrogen requires a tank capacity
about 4.5 times that of heavy oil.
◆ Necessary to be stored at very low temperatures for storage in a liquid.
◆ Hydrogen lowers the tenacity of steel and makes it brittle (brittleness).
➢ Study of the materials and structure for storage and reduction of necessary space➢ Upgrading of combustion control technology and fuel injection technology◆ Expensive, and the infrastructure is not ready, compared to ammonia.

Methanol◆ Already applied to engines for practicaluse◆ Its application as an alternative fuel wasstarted earlier.

◆ Toxicity and low ignition point◆ Non-bio-derived methanol cannot reduce CO2 sufficiently.
(CO2 reduction by non-bio-derived methanol is only 10% from that by heavy oil.)◆ Bio-derived methanol is expensive, and there is the problem with scaling up the supply.

Biofuels◆ Applicable to existing diesel engines◆ IMO is studying carbon neutral effects when using biofuels.
◆ A wide variety of manufacturing methods of raw materials, mixing ratios and others◆ Supply volumes and producing regions are limited.

Ammonia28

Disclaimer
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