Introduction

Financial Strategy
The foundation for sustainable growth
Improve
profitability

Boost operating profit
margin even higher throughdiverse reforms

Improve
capitalefficiency

of automation and improved efficiency in production, andappropriately managing SG&A expenses. In addition, since it
is necessary to enhance both profitability and capital efficiency
to further improve ROE and ROIC, we have consolidated our
product line-up, revised unprofitable products, optimized fixed
assets through a global site reorganization, actively expanded
investments leading to future reforms, and engaged in cashmanagement. As a result, ROE and ROIC were 18.9% and12.5% respectively in FY2023.
However both net sales and profit declined due to aNet sales (billion yen)

Consistently maintain 10% or higher

Net profit and ROE

Operating profit margin (%)

Net profit (billion yen)

8.1

7.5

ROE

8.6

7.9

72.7

2023

2024(FY)

Effective tax rate

10.1
Invested capital

4.4

6.5

Financial leverage

7.1

3.0

2.8

2020

2021

Weighted average costof capital (WACC) 6%

Equity2022

2023

2024(FY)

Sales increase
Optimization of sales prices
Cost reduction
Reduction of SG&A expenses
Cash Conversion Cycle (CCC)
Production efficiency
Capacity utilization
Fixed assets turnover rate

Optimization of D/E ratio(Optimum capital structure)
Reduction in WACC

Data andCompany Overview

25 IDEC Report 2024

2022

Operating profit

Foundation for
Value Creation

83.9

54.0

2021

NOPAT*

17.2

6.8

2020

ROIC

18.9

70.8
58.4

Activity drivers* Net operating profit after tax

ROE (%)

16.8
13.7

Due to worsening business performance in FY2024, cash
flows from operating activities trended lower, but is on therise in the long-term. We have promoted stronger cash
management, secured funds for capital expenditures, R&D
and other areas needed to strengthen competitivenessglobally, while providing shareholders with stable andcontinuous dividends.
We target a payout ratio of 30-50% and the payout ratio
was 86.6%, with a dividend yield of 4.8% in FY2024.

Business Strategy

Net sales and operating profit margin

deterioration of market environment in FY2024, combinedwith increased global inventory that took longer than expected
to sell through. ROE and ROIC also declined, ending up at7.1% and 4.7% respectively.
To ensure that the cost of capital continues to stay
above 6%, we will drive improvements to capital efficiency
including working capital and production facilities, drive
drastic cost reductions to further improve profitability byaccelerating global site reorganization, business reforms,
DX and other innovations.

Initiatives for
Realization of Vision

The IDEC Group has set shareholders’ equity cost at 8%,
and based on that, set the weighted average cost of capital(WACC) at 6%. To generate returns exceeding this mark andboost corporate value, we have established Return on Equity(ROE) and Return on Invested Capital (ROIC) as metrics,
which we aim to continually maintain at levels of 10% or higher.
In our medium-term management plan, we havestrengthened our management structure by expanding net
sales globally, optimizing sales prices to improve operating
profit margins, reducing the cost ratio through the promotion

Cash management andshareholder return measures

Value Creation Story

Promoting financial strategy aimed at improving profitability and capital efficiency

Increase capital efficiency
and secure ROE and ROIC at
10% or higher

Message

The IDEC Group generates approximately 5.5 billion yen of cash through its operating activities.
Cash created through global business activities is mainly used for investing in equipment/facilities, R&D
and human capital, and for providing returns to shareholders—all with the aim of achieving sustainablegrowth and increasing our corporate value.

Introduction

Financial Strategy

Dividend (yen)Payout ratio (%)

130

Commemorative
dividend (20 yen)

130

86.6

100
53.9

50

5050

2019

2020

37.9

2021

37.3

2022

2023

Investment CF

9.7
8.37.46.9
4.9(billion yen)
Financial CF

7.0

4.3

3.9

FCF

Investment in M&A and alliances

3.7

Measures for returns
Proactively pay dividends at a dividend payout ratio of 30-50%, acquire treasury stock in a timely manner in view of theShareholder
returns

stock price level

Capital expenditures anddepreciation and amortization expense

R&D expense
R&D expense (billion yen)

Capital expenditures (billion yen)
Depreciation and amortization expense (billion yen)

4.1
3.6
3.0

3.3

3.0

3.9

4.0

3.5

Ratio of sales (%)

4.3

4.1
3.7

3.0

3.5
3.0

2.5
2.3

2.3

2020

2021

2.6

2.8

Foundation for
Value Creation

3.6

3.1

Increase manufacturing sites and introduce automation and labor-saving systems, optimize sites

Investment in DX

Upgrade ERP, introduce global SCP system, and develop talent management system

5.5

1.4

Sites and equipment

Capitalexpenditures

2.7

3.1

M&A and alliances for enhancing the safety business, AGV industries, software, and engineering field
Strengthen partnerships in China and India
Investment in new products
Proactively invest in the new HMI and safety businesses
Investment in human resources
Investment in expanded training spending and global talent development
Investment in sustainability
Install solar power generation equipment, replace air conditioning equipment with energy-saving models, develop ecofriendly products, and pursue applied research on eco-friendly materials

Growthinvestments

3.6

2.0

Medium-term management plan

Business Strategy

Cash flows
Operating CF(FY)

2024

IssuesAs global business expansion is essential for our continued
growth, we have expanded growth investments. We
established a joint venture company with Alps Alpine Co.,
Ltd. in 2021 and acquired the France-based ez-Wheel in
2023. In these ways, we have pursued M&A activities andalliances with a focus on fields and regions that hold promiseof synergies with our existing businesses.
In terms of human capital, we have been recruiting anddeveloping human resources capable of driving business
innovation as well as human resources who possess highly
specialized knowledge to propose solutions tailored to theissues that customers face. We have expanded our spendingon training and education on a per-employee basis. Oursustainability investments have also increased. These include
the installation of solar power generation equipment at ourdomestic and overseas sites, raising the percentage of ourenhanced eco-friendly products to reduce our environmental
impact, and conducting applied research into eco-friendlymaterials.
In terms of capital expenditures, in addition to ongoing
efforts to optimize global sites, introduce automation andlabor-saving equipment and strengthen IT infrastructure, wehave focused on the promotion of DX to achieve groupwide
efficiency improvements.
By expanding growth investments and shareholder
returns from a long-term perspective, we will meet theexpectations of our stakeholders.

Initiatives for
Realization of Vision

52.5
44.4

Aggressive investment aimed for medium to long-term growth

Value Creation Story

Annual dividend per share and payout ratio

Investment strategy

Message

We also acquire treasury stock in a flexible manner in viewof the stock price level.
Going forward, we will continue to actively pursue various
investments required for medium to long-term corporate
growth while maintaining improvements to profitability andstable dividends, and promote management and financial
strategies that exceed our WACC.

1.9
4.4

4.5

8.6
2020

2022

2023

2024

(FY)

2020

2021

2022

2023

2024

(FY)

2022

2023

2024

(FY)

Data andCompany Overview

26 IDEC Report 20242021