Introduction

Financial Capital
The foundation for sustainable growth
For further information, pleaserefer to the Investor relationsof the IDEC website.

The IDEC Group generates approximately 7 billion yen of cash through its operating
activities. Cash created through global business activities is mainly used forinvesting in equipment/facilities, R&D, and human capital, and for providing returns
to shareholders—all with the aim of achieving sustainable growth and increasing ourcorporate value.

Productivity improvement

Value Creation Story

Related materialities

https://us.idec.com/idec-us/en/
USD/ir-en

Business foundation

Business Strategy

 ontribute to improving the productivity and efficiency of our customers and society around the world byC
providing the IDEC Group’s long-cultivated control technology, products, and system solutions that have beendeveloped ever since its foundation.
Promote decent work, as well as diversity & inclusion, to strengthen the company’s human capital, in order tocultivate employees who will be able to innovate and create new value.

Implementing a financial strategy aimed at improving profitability and capital efficiency
Boost operating income margin evenhigher through diverse reforms

Improve capitalefficiency

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

sales while also taking action to improve our operating income
margin—a KPI of the medium-term management plan—by
optimizing selling prices, lower our cost ratio by automating andstreamlining production processes, and strengthen the quality of
our management by appropriately controlling SG&A expenses.
Recognizing that further increases in ROE and ROIC
required improvement of not only our profitability, but also ourcapital efficiency, we consolidated certain product offerings,
identified unprofitable products, optimized fixed assets related
to the global realignment of our operating sites, proactivelyexpanded investments that set the stage for future reforms,

We have defined ROE and ROIC as indicators for actions aimed
at increasing our corporate value through the creation of returns
exceeding capital costs. Our goal is to consistently maintainboth at 10% or higher. In FY2023, we globally increased ourNet sales (billion yen)

Net income and ROE

Operating income margin (%)

Net income (billion yen)

83.9
62.817.2

18.9

ROE

ROIC

NOPAT*IDEC Report 2023

Operating income

70.8
58.4

8.1

54.0

13.7

8.2
3.7

7.5

Effective tax rate

10.1

16.8
6.8

6.5

3.0

2.8

2020

2021

Invested capital

7.9

Capital cost 6%

2020

2021

2022

2023 (FY)2019

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

Financial leverage
Equity capital* Net operating income after tax

2019

Activity drivers

Data

9.1

Consistently maintain 10% or higher

ROE(%)

GovernanceNet sales and operating income margin

and aggressively managed our cash flows. As a result of theseand other actions, we achieved ROE of 18.9% and ROIC of
12.5% in FY2023.
Going forward, we will continue working to improve thecapital efficiency of working capital, production facilities, andso on to consistently exceed the expected capital cost (6%). We
will also strive to further improve our profitability by reforming
our global organization and creating an environment thatenables us to radically cut costs.

Foundation For ValueCreationImprove
profitability2022Optimization of D/E ratio(Optimum capital structure)
Reduction in capital costs

2023 (FY)

Financial Capital

34

Financial Capital
Introduction

Our operating cash flow has been trending upward over the longrun, buoyed by sales growth in a robust operating environmentand by improved business efficiency. We have been providing
our shareholders with stable returns while securing the funds
for the capex and R&D needed to strengthen our global
competitiveness. Our payout ratio has remained at a high levelof 30% to 50%, and was 37.3% for FY2023. We have also been
agilely buying back shares depending on the going share price;
in FY2022 we repurchased 1,000,000 of our shares, totaling
2.5 billion yen.
Looking ahead, we will continue to aggressively pursue thevarious investments needed to drive our medium- to long-range
growth, while seeking to increase shareholder value by returningbusiness profits to our shareholders.

The IDEC Group is increasing growth investments to accelerate
its future global business expansion. We are also exploring
M&A and alliance opportunities in mainly domains and regions
where we can achieve synergies with our existing businesses:
HMI and safety, where we can make the most of our strengths;
the high growth potential AGV/AMR industry; and software andengineering for supporting the strengthening of our solutions
business. We will also invest in human capital by recruiting andtraining DX talent for leading our transformation and people
with the high-level specialized knowledge needed to develop
the optimal solutions for each customer’s challenges, and byincreasing our spending on training for all employees. As forinvestments in sustainability, we will consider possibilities for
installing solar generators at our offices and factories around

Annual dividend per share and payout ratio
Dividends (yen)13050Issues

Strengthen partnerships in China and India

200

37.9

100

Growthinvestments

0
2019

2020

2021

2022

2023 (FY)2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (FY)

6.1

6.9
3.5

4.9

7.4

8.3

4.3

(3.1)

(2.7)

(3.6)
(2.0)

2019

2020

2021

IDEC Report 2023

Utilization of borrowed capital

9.7(3.7)

7.0Capex(incl. DX investments)

3.9(1.4)
(8.6)
2022

Sales Cash flow

(3.1)
(4.4)
2023 (FY)

Growth investments

Shareholder returns
Strengthening offinancial base, etc.

Cash inCapex

Cash outSites and equipment
Increase manufacturing sites and introduce automation and laborsaving systems, optimize sites
Investment in DX
Upgrade ERP, introduce global SCP system, and develop talentmanagement system
Data(2.9)(billion yen)

Investment CF
FCF

Investment in human resources
Investment in expanded training spending and global talent development

GovernanceOperating CF
Financial CF

Investment in new products
Proactively invest in the New HMI and safety businesses

Investment in sustainability
Consider installing solar generators, replacing air conditioning
equipment with energy-saving models, developing eco-friendly
products, and pursuing applied research on environmentallysound materials

Capital allocation (FY2025)

Cash flows

Medium-term management plan
Investment in M&A and alliances
M&A and alliances for enhancing the safety business, AGV
industries, software, and engineering field

300

37.3

50

Aggressive investment aimed for medium to long-term growth

Dividend-included TOPIX (%)

400100Commemorative dividend(20 yen)

IDEC(%)

Foundation For Value
Creation

52.5

500

53.9

44.450Total shareholder return

Payout ratio (%)

the world, increasing the portfolio share of eco-friendly productsthat help to reduce environmental impact, and pursuing appliedresearch on environmentally sound materials.
As for capex, we will continue to invest in ongoing initiatives
for optimizing our global sites, introducing automation/laborsaving equipment, developing IT infrastructure, and making otherimprovements. In addition, we will advance our DX, including by
globally deploying the ERP and SCP systems that are essential
for improving efficiency across our Group and realizing globally
integrated supply chain management.
By expanding growth investments and shareholder returns
from a long-range perspective, we will meet the expectationsof our stakeholders.

Business Strategy

Investment strategy for further growth

Value Creation Story

Shareholder return policy

Shareholder
returns

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

Financial Capital

35