Financial/Capital Strategies

Summary of Previous Medium-Term Management Plan, Recognition of Environment

Financial Strategy in New Medium-Term Management Plan (Cash Allocation Concept)

The Group receives orders for production equipmentfrom manufacturers of products in a wide range of fields,such as EVs and other automotive-related products,
semiconductors, and other automatic labor-saving
equipment. Therefore, due to changes in the economic
conditions in Japan and overseas, changes in economic
trends due to COVID-19, changes in the life cycles ofcustomer products and other factors, fluctuations incapital investment by business partners may affect theperformance of the Group.
Under this business model, in the previous mediumterm management plan (FY2018–2020), consolidated net
sales were in the ¥60 billion to ¥70 billion range, and theoperating margin was in the 4% to 8% range, and thus we

While effectively investing generated operating cash flow as growth capital for capital investment and M&A, targeting
existing businesses and businesses in which future expansion is expected, we will also work to strengthen our finances by
repaying interest-bearing debt and increasing cash on hand.

fell short of our targets of consolidated net sales of ¥100billion and an operating margin of 10% or more.
Showing how efficiently profits are earned relative
to the amount invested by shareholders, the Company’s
return on equity (ROE) has been on a downward trend
since 10.1% in FY2018 and reached 5.1% in FY2021. In
contrast, the equity ratio, which indicates financial stability,
improved by 3.9 percentage points, from 50.9% in FY2018
to 54.8% in FY2021.
Given this financial situation, recognizing the needto work to improve efficiency, we are concentrating onbusinesses with high cash-generating capacity, whilekeeping in mind profitability indicators, such as operating
income, operating margin, and ROE.

Basic Financial Policy
The Medium-Term Management Plan covering fromFY2022 to FY2024 has been positioned as a three-year
period in which to, as a Group, establish management
bases and work to expand business in growth markets
while securing profit from existing businesses. We haveadopted numerical targets of ¥100 billion in net sales, ¥10billion in operating profit, 10% operating profit margin, and
11% ROE for the fiscal year ending March 31, 2025. To
improve capital efficiency, we will work to secure ROIC
that exceeds the weighted average cost of capital (WACC).
A major issue for the period of the new Mediumterm Management Plan is to strengthen profitability ingrowth markets such as EVs and semiconductors. As
the number of orders received is expected to increaseamid brisk capital investment by customers in EVs andsemiconductors, we will further strengthen the profitability
management of projects and put in place a system tofurther strengthen our financial base.
Specifically, we will promote front-loading such as
cooperation between departments at the inquiry and sales
stages, resource management, 3D design, and preliminary
verification utilizing an emulator. Through these measures,

FY2024 Plan

¥67.0 billion¥100 billion

Operating profit¥3.8 billion¥10.0 billion

Operating profit ratio

5.7%

10.0%

ROE

5.1%

11.0%

Capital Investment Plan in Medium-Term Management Plan

28

Investment
Capital investment into strengthen
biogenetic resource
production/R&D
development capacity

IT system-related
investment¥6.0 billion¥1.0 billion ¥11.0 billion¥4.0 billion

Hirata Integrated Report 2022

We will implement capital investments (enhancement of production/development capacity, research and development ofplant genetic resources, information system related) and investments to realize the measures, such as M&A, stipulated in
the Medium-Term Management Plan, while maintaining an awareness of the ROIC-WACC spread.

Financialstrengthening

Disciplined D/E ratio level, repayment of interest-bearing debt, and cash increases based on trends in earnings ﬂuctuations

Shareholderreturn

Dividend payout ratio of 20% or more

The Group considers the return of profits to shareholders
to be one of the most important management issues.
While working to strengthen our financial position,
as a general guideline we are aiming to maintain aconsolidated payout ratio of 20% or more, while taking
into consideration consolidated performance and futurebusiness development, and striving to achieve returns in astable and continuous manner.

For the fiscal year ended March 31, 2022, theconsolidated dividend payout ratio was 25.2%, and thedividend per share ¥65. Going forward, we will discussshareholder return policies while paying close attention
to various changes, such as feedback from shareholders
and investors with regard to shareholder returns andthe business environment, without being bound by theconventional shareholder return policy.

Changes in Dividend per Share and Consolidated Dividend Payout Ratio
(Yen)
150

46.1

(%)
50

Dividends
Payout ratio

100

12.0%
ROIC

10.0%

Growthinvestments

Shareholder Return Policy

ROIC-WACC Spread

40
32.2

28.4

WACC

15.5

508.0%

16.4

17.5

16.0

23.8

19.5
125.0

6.0%

125.0

100.0
0

4.0%
FY2020Results

FY2021Results

FY2022Plan

FY2023Plan

FY2024
Plan

15.0

12.5

12.5

15.0

2011

2012

2013

2014

30
2065.0

65.0

2020

2021

1040.0

30.0
2015

25.2
16.60
2016

20172018

2019

(FY)

Policy for Dialogue with Shareholders and Investors

Equity Spread
ROE

Net sales

Total over threeyears of Plan

Net cashprovided byoperating
activities

12.0%

Management Index Targets in Medium-Term
Management Plan
FY2021 Results

we will curb the occurrence of irregular expenses andimprove the efficiency of assets such as accounts
receivable and inventories.
In terms of the strengthening of our finances, we willcontinue working to reduce interest-bearing debt, reduce
interest costs, and hedge risks through forward exchange
contracts and other measures, as we have been doing,
while maintaining a disciplined D/E ratio level based on
fluctuations in performance.

Distribution of Net Cash Provided by Operating Activities

Total

10.0%

Cost of equity

8.0%
6.0%
4.0%
FY2020Results

FY2021Results

FY2022Plan

FY2023Plan

FY2024
Plan

Note: Plans for WACC and cost of equity capital from FY2022 to FY2024
are left unchanged due to unpredictability. ROIC and ROE from the FY2022
plan to the FY2024 plan are planned values based on the management index
targets and capital investment plans in the Medium-Term Management Plan.

We disclose information appropriately on the basis of
the relevant laws and regulations. Even if the information
does not fall under disclosure items based on laws andregulations, to gain the correct understanding and trustof our shareholders and investors, we strive to disclose
corporate information that we judge to have a significant
impact on investment decisions in a timely, accurate andfair manner.
Specifically, with regard to our business environment,management plans, business strategies, etc., we areworking to strengthen our responses to the gathering of

media material and interviews using web conferences,to enhance the content disclosed at financial results
briefings, etc., and strengthen information dissemination
via our website.
In addition to reflecting the content of our communications
with shareholders and investors in the enhancement of ourdaily IR activities, such content is reported to the Board of
Directors on a quarterly basis and utilized in managementactivities aimed at further improving corporate value.
https://www.hirata.co.jp/en/ir/

Hirata Integrated Report 2022

29