Tsuzuki Denki Co., Ltd

Financial Results for the Year Ended March 31, 2023

May 12, 2023

Tsuzuki Denki Co., Ltd
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Table of Contents

1

FY03/23 Results2

FY03/24 Consolidated Earnings Forecast

３ Shareholder Return1

Copyright © 2023 Tsuzuki Denki Co., Ltd.

1

FY03/23 Results2

FY03/24 Consolidated Earnings Forecast

３ Shareholder Return2

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Highlights

Net sales: JPY123,899mn, an increase of JPY4,582mn (+3.8% YoY)
Operating income: JPY5,118mn, an increase of JPY1,105mn (+27.6% YoY)

Achieved a record profit
Information Network Solutions (INS)- Customer ICT capital investment became even stronger from 2H onward- Impact of delivery delays caused by semiconductor shortages were resolved- Accelerated shift to cloud service (growth in service business)

Electronic Devices- Sales were strong despite an absence of advanced orders following an improvement in the
supply-demand balance of semiconductors
In particular, sales of electronic parts for decarbonization and energy saving products grew3

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Statement of Income(Millions of yen)

FY03/22

FY03/23

Change (amount)

Change (YoY)

Net sales

119,316

123,899

4,582

+3.8%

Gross profit

22,511

24,178

1,667

+7.4%

(Cost ratio)(81.1%)（80.5%）（-0.6pp）－

SG&A expenses

18,49819,060561+3.0%Operating income

4,012

5,118

1,105

+27.6%(Operating margin)(3.4%)(4.1%)（0.7pp）－

Profit attributable toowners of parent

2,798

3,521

723

+25.%

Orders130,559

134,6884,128+03.2%

Order backlog

33,71044,49910,789+32.0%

4

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Factors Affecting Sales++3.0(Billions of yen)

123.8
++3.0

YoY
+4.5

-1.5

(+3.8%)

119.3

FY03/22
Sales

Growth in service
business*1 and equipment
sales*2

Special demand forElectronic Devices

・Decrease in Development &Construction(accelerated shift to cloudservices)
・LCM service expiration forsome customers

FY03/23
Sales(*1) Boost in cloud service use (cloud computing for PBX and contact centers, increased use of cloudservices as system infrastructure, etc.)(*2) Resolution of delivery delays caused by semiconductor shortages
5

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Factors Affecting Operating Income(Millions of yen)

+ 802
5,118

+

FY03/22
OperatingincomeEffects of sales
increase-

Improvement in costratio(+0.6pp YoY)

Positive factors
Effects of sales increase: JPY865mn
・ Electronic devices business and service
business
Improvement in cost ratio: JPY802mn
・ Electronic devices business and equipment
business

Unprofitable projects*

Higher SG&A
expenses

YoY+1,105(+27.6%)

FY03/23
OperatingincomeNegative factors
Higher SG&A expenses: JPY561mn- Increase in expenses associated with activation of pre-orderactivities in INS- Increase in personnel expenses related to headcount expansion in
the Electronic Devices business*There were no unprofitable projects in FY03/22 and FY03/23
6

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Results by Segment(Millions of yen)

Net sales
FY03/22

FY03/23

Operating income(amount)

Change(YoY)

ChangeFY03/22

FY03/23(amount)

Change(YoY)

ChangeInformation
Network
Solutions

92,31993,905

1,586

+1.7%

3,400

4,155

754

+22.2%

Electronic
Devices

26,99629,9932,996+11.1%

592

954

361

+61.1%

Consolidated
Total

119,316

123,899

4,582

+3.8%

4,012

5,118

1,105

+27.6%*Operating income adjustments are excluded
7

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Results by Business Model (Net sales)
YoY

Equipment
Development&
Construction

123,899+3.8%

44,207

37,12737,943+2.2%

13,840-4.6%

42,121+3.5%

29,993+11.1%（36.8%）

14,518（12.1%）（32.6%）

Electronic
DevicesDevelopment &Construction

119,316

39,122ServiceEquipment

120,004

22,155（31.1%）

14,501（12.2%）

40,690（34.1%）

26,996（30.6%）（11.2%）（34.0%）（18.5%）（22.6%）（24.2%）

FY03/21

FY03/22

FY03/23(Millions of yen)
Ratios in parentheses

Delivery delays caused by semiconductor shortages were resolved. Sales of PCs and network equipment to the
public sector, distribution/retail, and transportation industries rose

Sales fell owing to an accelerated shift toward cloud services (transfer to service business), despite strong demand
for network enhancement and system development projects

Service

Various cloud services including cloud-based contact center systems grew

Electronic
Devices

Supply-demand balance of semiconductors improved. In particular, sales of power
semiconductors for decarbonization and energy-saving products increased
8

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Results by Business Model (Orders/Order backlog)
OrdersOrder backlog(Millions of yen)

134,688
130,559(+3.2% YoY)

44,499(+32.0% YoY)

121,655
38,620Equipment
Development&
Construction
ServiceElectronic
Devices

45,06833,71043,733
15,342

14,03910,31822,467

14,296
41,04643,382

39,104

24,521
FY03/2121/3期

35,55032,198

FY03/22
22/3期

FY03/23
23/3期

17,442

4,670

8,825

4,472
2,484

3,744

3,630
2,128

16,436

18,641

FY03/22
22/3期

FY03/23
23/3期

7,882
FY03/21
21/3期
9Copyright © 2023 Tsuzuki Denki Co., Ltd.

Table of Contents

1

FY03/23 Results2

FY03/24 Consolidated Earnings Forecast

３ Shareholder Return

10

Copyright © 2023 Tsuzuki Denki Co., Ltd.

FY03/24 Consolidated Earnings Forecast
Projecting higher sales and profits driven by high order backlogs in addition to anticipatedexpansion of ICT investment by customers in line with the normalization of economic activities(Millions of yen)

FY03/23
results

Change(amount)

FY03/24
Forecast

Change (YoY)

Net sales

123,899

126,500

2,601

+2.1%

Operating income

5,118

5,300

182

+3.6%

(Operating margin)(4.1%)(4.2%)(+0.1pp)－

Profit attributable toowners of parent

3,521

4,450*

929+26.4%*Includes extraordinary gains recorded from the sale of fixed
assets at a consolidated subsidiary11

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Table of Contents

1

FY03/23 Results2

FY03/24 Consolidated Earnings Forecast

３ Shareholder Return

12

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Shareholder Return
Dividend yield

FY03/23 dividend at JPY61; Payout ratio at 30.9%
FY03/24 dividend at JPY76 (provisional)

Year-end
price
JPY1,100

Planning to raise the dividend payout ratio to 40% toensure stable dividends and substantially boost dividend
payouts (Minimum dividend payout ratio of 3.5% DOE)

5.0%

4.6%

Year-end
price
JPY1,657

Year-end
price
JPY1,563

2.8%

3.2%

FY03/21
21/3期

FY03/22
22/3期

3.9%

Dividend per share
120

45.0%

40.4%
FY03/19
19/3期

40.0%

34.3%
35.0%

100

30.3%

30.2%

30.9%
JPY76

30.0%

JPY55

60

JPY46

20.0%

FY03/23
23/3期*Dividend yield = Dividend per share / Share price at theend of the period (final record date)

80

JPY61

25.0%

FY03/20
20/3期

Shareholder benefits

JPY48
40

15.0%

Number of shares held

Products

Donation

100 shares to less than 1,000
shares

JPY1,000 worth of food items

JPY1,000

1,000 shares or more

JPY3,000 worth of food items

JPY3,000

10.0%

20

5.0%

0

0.0%

FY03/20

FY03/21

FY03/22

FY03/23

FY03/24(provisional)

13

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Bring to society “yohaku”
filled with possibilities,
through people, insight,
and technology, together.

Medium-term Management Plan
“Transformation 2026”
The 1st stage toward achieving our long-term vision

May 12, 2023

Tsuzuki Denki Co., Ltd.
Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”

Table of Contents

02 Long-term Vision
03 New Medium-term Management Plan
"Transformation 2026"

16

Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”

Table of Contents

02 Long-term Vision
03 New Medium-term Management Plan
"Transformation 2026"

17

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Review of Innovation 2023
High achievement across all targets except sales thanks to proactive efforts to promote key
priorities
Management targets

FY03/20
Results

FY03/23
Revised target

Initial target

Results(announced May 13, 2022)

Initial target
achievement rate

Net sales

JPY125.3bn

JPY126.0bn

JPY120.0bn

JPY123.8bn

98.3%

OperatingincomeOperatingmarginJPY4.4bn

JPY4.6bn

JPY4.0bn

JPY5.1bn

110.9%

3.6%

3.7%

3.9%

4.1%

（+0.4pp）

10.8%

9%

-%

10.2%

（+1.2pp）

ROE

Key priorities

1

Reforming ourbusiness structureby expanding theservice we offer

2

Promoting datadriven businesses

18

3

Reinforcing ourmanagement base

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Results of Key Priorities and Key Points for the Next Medium-Term Management Plan
Significant achievements at both the business and corporate level. Steady progress in service and DX business sales expansion andhuman resource development

Key priority

Results

1. Reforming ourbusiness structure by
expanding the service
we offer⚫ Information Network Solutions: Strengthen service lineup with a focus on co-creation. We missed the 40%
consolidated service sales composition target, but profitability improved as service sales composition for
Information Network Solutions rose
FY03/20: 37％ → FY03/23: 45％＊Total SolutionService Framework- Organized each core service under TSF*
- Promoted co-creation, including making ComDesign Inc. a subsidiary and forming a capital and business tie-up with
Nextgen, Inc.
- Invested JPY2.4bn in total, including 10 new service releases and other R&D⚫ Electronic Devices: Results expanded substantially thanks to management reforms through spin-offs and favorable
market conditions

2. Promoting datadriven businesses⚫ DX talent development progressed at a faster pace than planned. Sales of data-driven businesses also grewsteadilyDX associate＊：FY03/20 14 people → FY03/23 162 people
DX sales (innovation/modernization) ：FY03/20 JPY1.8bn → FY03/23 JPY9.2bn
Product sales (software business) ：FY03/20 JPY3.3bn → FY03/23 JPY10.0bn

Key points for next mediumterm plan

Furtherstrengthen theestablishedfoundation andboost profits*DX associate: In-house certification that assesses skills by having employees take the DX Certification test and a written exam

- Conducted many PoC projects in the AI and IoT businesses, mainly in the distribution industry, and ensured that theseprojects led to business negotiations- Engaged in co-creation with other companies and strengthened internal systems

3. Reinforcing ourmanagement base

⚫ Strengthened overall management base, leveraging the listing on the First Section/Prime Section of theTokyo Stock Exchange⚫ Further enhanced governance and support systems for group companies⚫ Implemented various measures to enhance human capital, such as setting up a telework environment andother work style reforms, promoting health management, renovating offices, and investing in training. Also
implemented cost reductions- Total investment in office renovation and human resource development (training, etc.): JPY1bn- Cost reduction: JPY300mn
19

Reorganize groupcompany functions
Further enhance humancapitalCopyright © 2023 Tsuzuki Denki Co., Ltd.

Understanding of Current Situation to Enhance Corporate Value
Three years of efforts have been successful and return on capital has steadily improved,
but there are still issues with market valuation
ROE

Marketvaluation

As of March 31, 2023

10.2%
10.4%
8.8%

P/E

7.7%

ROE

P/B

7.9x × 10.4% ＝ 0.8x
21/3期

22/3期
FY03/22

FY03/21

23/3期

FY03/23

Despite higher return on capital, P/B ratio remains below 1.0x. P/E ratio is below industry average

✓
✓
✓
✓

Growth with improved profitability is needed to enhance market valuation
Promote portfolio review while advancing and reforming business models
Allocate capital with a focus on growth and capital efficiency
Work to lower the cost of shareholders' equity by engaging in dialogue
with investors
20

Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”
02 Long-term Vision
03 New Medium-term Management Plan
"Transformation 2026"

21

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Long-term Performance
JPY31.5bn

Corporate value has grown substantiallyover the past two medium-term management plans
10.8%

105,619

105,149

3.6%

2.8%

2.3%

2.0%

1.7%

7.7%

5.9%

5.9%
3.4%

105,339

8.7%

7.9%

Market
JPY12.4bn
capitalization
2.3%
ー ROE
ー Operating margin
1.4%

10.4%

118,872

111,973

2.7%

125,366

4.1%

3.4%

120,004

119,316

123,899

5,118
4,457

■ Net sales■ Operating income

1,439

1,773

2,142

4,012
3,202

3,318
2,538

(Millions of yen)
15/3期
FY03/15

16/3期
FY03/16

17/3期
FY03/17

18/3期
FY03/18

19/3期
FY03/19

20/3期
FY03/20Make New Value 2020
22

21/3期
FY03/21

22/3期
FY03/22

23/3期
FY03/23

Innovation 2023
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Understanding of the Environment
Social and business environments have changed drastically in the wake of the COVID-19 pandemic
We will strive to engage in corporate activities that create a sustainable society while keeping up with changes in ICT needs

Changes in the Social Environment

Changes in the Business Environment- Changing lifestyles- Acceleration of corporate DX- Urgent need to improve labor productivity amid declining population- Rise of the digital native generation- Acceleration of technology cycle- Emergence of new challenges such as security risksSocial issues such as division, disparity,and environmental and energy problems became apparent
with the spread of COVID-19

Worldwide movement accelerated
to create a new framework (Great Reset) in view ofthe post-COVID world

Expectations for ICT have shifted towardbusiness reform and resolving social issues

Growing sustainability awarenessTaking on the challenge of developing cutting-edge
technologies and identifying growth areas will be
key as demand grows

Companies may not be able to get social approval
without fulfilling their social responsibilities

23

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Long-term Vision
Become the preferred corporate group that drives customer growth
Bring to society “yohaku”
filled with possibilities,
through people, insight, andtechnology, together.

Growth Navigator

10-year Vision

An organization that navigates growthand grows together with stakeholders

PurposeLong-term
VisionMedium-termManagement PlanThree core activities

Ideal position❶ Create new value

Shift from standing alongsidecustomers to becoming a partner that
leads growth❷ Build connections with diverse
customers❸ Continue leading growth24

Targets
Operating income: JPY10.0bn
Net sales: JPY150.0bn

Copyright © 2023 Tsuzuki Denki Co., Ltd.

To Enhance Corporate Value
We aim to achieve a P/B ratio of over 1.0x quickly,
while continuing to further enhance corporate value

Business
growthImprove
capitalefficiency

Strengthen
management
capitalOperating income: JPY10.0bn
EPS growth rate: 7%

ROE 15%Enhance non-financial value✓ Proactive information disclosure centered on growth businesses✓ Enhance constructive dialogue with investors with a proactive
approach✓ Strengthen governance to support strategy execution

25

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Basic Approach to Business Growth
Actively cultivate growth areas/new business areas by drastically changing ourapproach to management resources
Maintain profitability in existing areas by closely monitoring market trends
Past

Customer

Investment

By function
Sales/Technical/
Administration

Cultivate existingcustomers
Individual customer
supportDefensive
investments

Value Creation
Focus on creating value for customers as "oneteam" by overcoming boundaries between
sales, technical, and other functions

Grow loyal customers and newcustomers
Further strengthen customer base by approachingthem through digital transformation (DX)Social issue
driven

New techdrivenCreate mainstay
business throughactive investment
Social issues

Industry(Customers)

Based on customer
needs and wants

Technology

Growth areas

Offensive investment

Cloud-based services,
cybersecurity products,
DX products, etc.

Active allocation of human and intellectual capital
Promote M&A and capital/business tie-ups
Keep pace with new technologies

Existing areas
Businessapproach

Expand Information Network Solutions businessby incorporating cutting-edge technologies suchas Generative AI

New areas

Growth potential

Organization &Personnel

FutureIndividual equipment
sales, infrastructure
construction,
traditional SI, etc.

Add a social angle
Pursue business from an ESG perspective

・Improveprofitability
・Downsize

Profitability
26

Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”
02 Long-term Vision
Table of Contents

03 New Medium-term Management Plan
"Transformation 2026"❶ Business Strategies❷ Financial Strategies❸ Management Base Reinforcement27

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Positioning of the Medium-Term Management PlanFirst stage: Shift resources and put growing businesses on track to achieve our long-term vision
100th Anniversary
Growth Navigator
Operating income: JPY10.0bn

1st Stage

2nd Stage

3rd Stage

Shift resources to growth areas

Scale growth areas
Develop new business
areas

Make growth areas into
core businesses andexpand into new areas

Transformation 2026

New areas(including M&A)
Growthareas
Information
Network
Solutions
Existing
areas

23/3期
FY03/23

26/3期
FY03/26

29/3期
FY03/2928

33/3期
FY03/33

Electronic
Devices
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Overview of New Medium-term Management Plan
Transformation 2026 ～ Shift resources to growth areas

FY03/23
results

FY03/26 targets
1. Business
Strategies

2. Financial
Strategies

Operate finances while being mindful of the cost ofcapitalSecure growth funds through optimizing the balance
sheet
Optimize capital allocation

ROE
10.4%
CO2 emissions
Scope1+2

719t-CO2（vs. FY03/23）

Net sales
JPY130.0bn（+5.0%）

Net sales
JPY123.8bn
OperatingincomeJPY5.1bn

Expand growth areas
Increase profitability of existing businesses
Restructure business portfolio and group companies

3. Management
Base
Reinforcement

Actively invest in personnel capital (organizational
and personnel development)
Make further advancements in governance
Strengthen sustainability activities

29

Operating income
JPY6.5bn（+27.5%）
ROEOver 10%

CO2 emissions
Scope1+2

591t-CO2（-17.8%）

Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”
02 Long-term Vision
Table of Contents

03 New Medium-term Management Plan
"Transformation 2026"❶Business Strategies❷ Financial Strategies❸ Management Base Reinforcement30

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Basic Policies by Segment
Achieve profitable growth mainly in the Information Network Solutions (INS) business
FY03/26 Targets

Policies

Key priorities

Sales(vs. FY03/23)

Operating income(vs. FY03/23)
Operating margin

Information Network
Solutions(1) Promote collaboration with other companies by leveraging core technologies

1. Strengthen six growthareas(2) Strengthen technical, marketing, and product development capabilities throughhuman resource development

JPY102.2bn

Electronic Devices(3) Expand service lineup（109％）

2. Improve profitability inexisting areas(1) Strengthen product portfolio management under the concept of TSF

6 growth areas(2) Ensure thorough pricing management

JPY16.0bn（178%）

1. Improve gross profit
margin in existing devices
and systems business(1) Expand sales of overseas products, power supply modules, and other productswith expected growth and profitability

2. Expand business bycreating new solutions(1) Expand solutions by co-creating with partners(3) Reorganize business formation

JPY5.5bn（131％）

5.4%(2) Enhance outreach to existing small and medium-sized customers(3) Thoroughly implement low-cost operations

JPY27.8bn（93％）

JPY1.0bn(105％)
3.6%(2) Take on the challenge of entering new areas(3) Strengthen digital marketing and inside sales
31

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Information
Network Solutions

Strengthen Six Growth Areas: 1

Become the market leader by leveraging our strength in voice platform technology to expand our two
communication businesses
２．Cloud Communication

1. Contact Center System

Market•••Growing trend toward using services rather than owning them as assets. The shift to cloud services will progress further
Demand for additional services, such as AI and data analysis, are becoming more sophisticated
The market remains robust, especially among small and medium-sized customers•

Respond to diverse demands by expanding the productlineup covering on-premise and cloud services
Maintain competitiveness as an industry leader byincorporating AI technology and collaborating with othercompanies to further advance Ct-e1*1
Improve usability to streamline operations, while reinforcing
integration with CRM and other peripheral systems toenhance CX (customer experience) and improve customer
satisfaction•
Measures

•

•
•
•
•

Enhance TCV (TCloud for Voice) CPaaS*3 functionality
Implement a channel strategy focused on partner sales
Strengthen customization features to reduce installation costs
for customers and improve ease-of-use for sales partners
Step up branding and promotional activities

JPY6.1bn
JPY4.5bn CAGR

Salestarget11%

AVAYA

FY03/23

Market CAGR*2
5%
FY03/26

1 ... CT-e1 is a cloud contact center system offered by consolidated subsidiary
ComDesign Inc.
*2 ... IDC Japan Exhibit
32

JPY3.0bn
JPY1.1bn

CAGR
41%

FY03/23

FY03/26＊3 … Communications Platform as a service
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Information
Network Solutions

Strengthen Six Growth Areas: 2
Expand sales in our four strong areas by leveling up our technological capabilities through humanresource development and expanding our service lineup

MarketMeasures3. Security

4. DX Consulting• Cybersecurity risks are becoming more serious• Technology standards are constantly changing and growing, while options
are confusing•• Proactively develop a security service lineup under the Zero Trust Security
concept (already established ahead of competitors). Launch diagnostic services• Expand business in the NI area by investing in human resources and stepping up
outreach from the upstream (cyber security management support services:
consulting).

Sales
targetMarketCyber Security
Solutions

FY03/23

FY03/26

JPY300mn

JPY1.5bn

•
•
•
•
•

Continued strong demand for DX, with companies taking a wait-and-see
approach for full-scale implementation
Disparity in competitiveness likely to emerge due to the high level of difficultyin this area
Expand lineup of DX upstream services under the D-VUE®* Service
Train and recruit more consultants* Service of construction of AI
Enhance outreach to client business divisions
system and data analytics by us
Expand business tying into peripheral SI and NI businesses
FY03/23

CAGR：71%

D-VUE®

Market：6%

JPY200mn

FY03/26

JPY1.0bn

5. Managed Services

6. Market-specific DX Services•

Demand for help desk and other outsourcing services is growing due to theincreasing shortage of IT personnel in the corporate sector

Sector-specific IT implementation demand remains strong•

Expand TManaged Service* lineup (not only for outsourcing, but also forhigh-value-added services that enable customers to streamline operations
through data analysis, etc.)* Generic name of managed
Enhance sales promotion system for the service
service and outsourcing•

Measures••

CAGR：82%
Market：9%

Capture migration demand by converting backbone systems into cloudsystems for specific industries (fruit and vegetable markets, logistics, realestate, etc.) that we excel in
Lower implementation hurdle and expand target base through cloud services

service by us

Salestarget* TManaged Service is…

FY03/23

FY03/26

JPY2.8bn

JPY3.8bn

CAGR：11%
Market：3%
33

FY03/23

JPY100mn

FY03/26

JPY600mn CAGR：81%
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Information
Network Solutions

Improve Profitability in Existing Areas
Pursue fair profit with a multifaceted approach
1. Strengthen product portfolio management under
the concept of TSF
Market growth
rate

Improve profitability(Introduce high value-added
services and expand resources)

3. Reorganize business formation
Pursue overall optimization by reviewing functional
responsibilities among group companies and reallocating
human resources
Sales (FY03/23)

Six growth areas

Tsuzuki Info-Techno East Japan

Tsuzuki Info-Techno West Japan

JPY2.3bn

JPY1.1bn

Cloud services, data analytics, etc.

Existing areas

Review of small, lowprofit businesses
Individual equipment
sales, etc.

Pursue residual profit and improve
profitability(Thoroughly streamline by leveraging
digital technology and group company
strategies)
On-premises PBX/construction, etc.

25%

２．Ensure thorough pricing management

Grossmargin(1) Set strategic prices by combining high-value-added services (cloud strategy
consulting, data science, etc.) and high-growth services(2) Strengthen outreach to prime customers (optimize customer portfolio)
34

Merge
New company: Tsuzuki Cross Support Co., Ltd.
(Effective date: October 2023)

Offices

Employees

Appx. 160

Business

Installation and maintenance of information andcommunication systems and environmental systems

Purposeof merger

Expand earnings by strengthening group synergies andstreamlining operations

Appx. 15

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Electronic
Devices

Electronic Devices Business Strategy

Improve profitability by focusing on small and medium-sized customers, creating new products, andtransforming our sales approach
1. Improve gross profit margin for existing devices and systems business•

Market••••Measures•

2. Expand business by creating new solutions

Market growth slows in the near term as semiconductor supply-demandbalance improves
Increasing number of customers looking for new suppliers in preparation forparts shortages
Demand for power supply modules for the industrial machinery market is on
the rise•

Expand sales of products with expected growth and profitability (overseas
products, power supply modules, etc.)
Enhance outreach to existing small and medium-sized customers andexpand earnings through cross-selling
Thoroughly implement low-cost operations

•

•

•
•

Sales

JPY27.6bn

Advancements in AI have made it easier to identify differences in images,
etc., and demand for image analysis has expanded
Non-face-to-face sales activities became the norm following the COVID-19
pandemic

Expand solutions by co-creating with partners
Strengthen IoT solutions (image analysis and sensing)Take on the challenge of entering new areas
Expand business areas to include creating product specifications andselecting contract manufacturing partners
Strengthen digital marketing and inside sales

JPY23.8bn

SalestargetSales
Gross profit 12.1%
margin13.4%

FY03/23

FY03/26

17.5%

Gross profit
margin 12.5%
JPY2.4bn

FY03/2335

JPY4.0bn
CAGR
19%

FY03/26
Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”
02 Long-term Vision
Table of Contents

03 New Medium-term Management Plan
"Transformation 2026"❶ Business Strategies❷ Financial Strategies❸ Management Base Reinforcement
36

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Basic Policy
Maintain financial soundness while ensuring ROE of 10% or more through appropriate capital controls
Key priorities

Details

1. Cost of capital

Cost of shareholders’ equity is estimated at around 9%• Set based on figures from multiple prediction models andour share price

Change hurdle rate/tighten investment discipline• Hurdle rate set at 7% with WACC around 6%

2. Capital
structure

3. Capital
allocation

Maintain current financial soundness• Establish and apply specific capital/liability structure targets
Asset review/group-wide fund generation• Continued reduction of policy shareholdings, asset reduction,
CCC improvement activities, etc.
Enhance investment and boost shareholder returns• Focus investment in personnel, product and service
development, and internal DX• Strategic investment in M&A, etc.
• Raise dividend payout ratio to 40% (Minimum dividend
payout ratio of 3.5% DOE)

Capital allocation
Operating CF*
JPY10.0bn

Shareholder
returns(FY03/24-FY03/26)
Disposal of nonoperating assets
CCC
improvement

Cash on hand
JPY20.8bn(FY03/23 est.)

Growthinvestment

Ensuresoundness*Operating CF of JPY10.0bn is calculated net of repayments of leaseobligations of JPY3.0bn (financing CF)
37

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Strategic Investments
Proactively invest in growth with a focus on capital efficiency and profitability
Category

AmountR&D investment (implementation of advanced technology, advancement of development
technology)
Service product development
Boosting the added value of existing services

Technology

Personnel

Details

JPY8.0bn

Training investment to develop ideal talent portfolio
Recruit external expert talent

ERP system update
Business process transformation and advancement

Internal DX

M&A
Strategic
investments

JPY10.0bn(with the aim to expand business/technical areas, as well as quickly acquire business capabilities
to take on the challenge of entering new ICT areas, and establish businesses that address social
issues)Capital and business tie-ups

38

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Shareholder Return
Achieve stable dividends and large dividend increases by raising the dividend payout ratio andintroducing a dividend on equity (DOE) metric
Dividend per share
Until FY03/23

From FY03/24
Raise dividend payout ratio to 40%*
(Minimum dividend payout ratio of
3.5% DOE)

Payout ratio of about 30%
IPO commemorative
dividend of JPY5 per share
45.0%

40.0%

40.0%

40.0%

130

40.0%

(Reference)
Dividend
payout ratio
35.0%

34.3%
30.2%

30.3%

30.3%

30.2%

150

30.9%

110

30.0%

90

JPY 76

25.0%

JPY55

20.0%

15.0%

JPY29

JPY39

JPY61
JPY46

70

JPY48

50

30

10.0%

10

5.0%

-10

0.0%

18/3期
FY03/18

19/3期
FY03/19

20/3期
FY03/20

21/3期
FY03/21

22/3期
FY03/22

23/3期
FY03/23

24/3期
FY03/24

25/3期
FY03/25

26/3期
FY03/26*Applies to earnings per share excluding
extraordinary gains/losses, etc.
39

Copyright © 2023 Tsuzuki Denki Co., Ltd.

01 Review of Medium-term Management Plan
“Innovation 2023”
02 Long-term Vision
Table of Contents

03 New Medium-term Management Plan
"Transformation 2026"❶ Business Strategies❷ Financial Strategies❸ Management Base Reinforcement40

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Initiatives to Enhance Human Capital
Double the investment from previous medium-term plan to approx. JPY1.0bn and promote measures toenhance performance and engagement of personnel, our source of growth
Basic policy

Key priorities⚫ Three pillars
1. Develop leadership talent
2. Develop diverse professional talent
3. Build teams that work autonomously and engage both internally and externally

Personnel
development⚫ Develop professional talent and enhance organizational
capabilities needed to execute our growth strategy→Enhance ability to meet a wide range of needs from bothorganizational and individual perspectives•••

Promote individual initiative by reviewing training programs to be voluntary andrecruitment-based
Recruit highly specialized talent
Improve in-house talent mobility⚫ Two pillars
1. Create a foundation that enables employees to take on challenges on their own
2. Establish an environment that supports the success of diverse talent

Prepareinternal
environment⚫ Further develop and enhance frameworks established during theprevious medium-term management plan
→Foster a culture that enables diverse talent to take on challenges
and play an active role at their own initiative••

Develop empathy through a fundamental review of the personnel system and achange in awareness and culture
Improve autonomy by promoting intrinsic motivation

Key measures throughFY03/26

TargetLeadership talent：
TLF*1 participants: 65
Professional talent (in• Enhance referral recruitment house certified):• Actively recruit women
Advanced DX talent*2: 10
DX associates*3: 240

AmountRecruitment for growing
business

Develop diverse talent• Launch in-house university(Carry-out reskilling program)

Performance-driven system• Assign work posts• Introduce remuneration
system that motivates young
employees• Eliminate job classifications
Open corporate culture reform•
Introduce external
exchange, second job, andmentoring programs

Diversity:
Female ratio:
Full-time: 15％
Career-track: 12％
Managerial: 5％

JPY900mn

Engagement:Group average
3.20/6.00

JPY100mn*1 TLF: Next generation management talent development training *2 Advanced DX talent: In-house certification (requires employees to have an external certification designated by the Company anda passing score on the DX Certification test) *3 DX associate: In-house certification that assesses skills by having employees take the DX Certification test and a written exam
41
Copyright © 2023 Tsuzuki Denki Co., Ltd.

Strengthen Governance
Steadily implement measures to enhance the effectiveness of the medium-term plan
Key priorities

Basic policyGroupgovernance⚫ Establish group infrastructure to execute business strategies (group reorganization)⚫ Build an effective group management system for rapid decision-making and integrated management• Assess and visualize risks of each group company, and provide parent-driven support• Unify group financial base

Board ofDirectors⚫ Implement consistent reforms in line with the Board of Directors' effectiveness survey• Further invigorate the Nomination and Remuneration Committee• Enhance monitoring function⚫ Executive remuneration system that enhances corporate value• Increase ratio of stock compensation (planned change of cash: stock ratio from thecurrent 9:1 to 8:2)
• Also considering further reviews

Shareholder
dialogue⚫ Implement measures to increase frequency of dialogue• Regularly identify and approach actual shareholders and increase exposure byleveraging IT platforms⚫ Implement initiatives based on investor demographics• Select presenters based on themes and make use of analyst reports⚫ Share and discuss value creation stories through the integrated report scheduled tobe published⚫ Expand opportunities for appropriate and effective feedback from shareholders andinvestors
42

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Dialogue with Shareholders in FY03/23
Take a proactive approach to deepen the dialogue, both in terms of frequency and substance
Overview

CategoryMaincorrespondents

President, Managing Executive Officer of Management Planning (IR), and IR Manager

Overview ofshareholders● Investment style: Domestic active investors, overseas active investors● Respondents: Fund managers, analysts● Key themes

Key themes
andshareholderinterests•••

Business model (discussion designed to promote understanding of business) and growth drivers
Market trends, current performance trends, and full-year forecasts
Medium-term outlook and initiatives••

Market evaluation, execution progress of measures
Capital policy, M&A and other growth investments, and shareholder returns● Interests

Feedback● Frequency: Report on general IR activities at the annual meeting of the Board of Directors, and other reports as appropriate forrelevant topics● Content: Trends in market capitalization, trading volume, and shareholder composition; opinions received during one-on-one
meetings with investors and measures taken in response; capital market trends and specific activities; etc.

Incorporated
items● Implementation and disclosure of management practices focused on cost of capital and return on capital(incorporated into the current medium-term management plan as one of the key themes)

43

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Strengthen Sustainability Activities
Further strengthen efforts to improve sustainability through our business
Basic Sustainability Policy
We will create a sustainable society by embodying our purpose
1. We will develop an environment that fosters "people, insight, and technology" and strive to provide value to society
2. We will create a “yohaku” filled with possibilities by solving social issues
3. We will contribute to society together with our stakeholders through responsible corporate behavior

Three-year activity theme
1. Develop an environment that nurtures people(strengthen human capital)

2. Development of an environment that
fosters insights/technology

3. Promote responsible corporate behavior – Reduce environmental impact
Environmental Management: Initiatives to achieve the target of reducing greenhouse gas emissions by 50% in FY03/31 compared to FY03/14[Ongoing measures]
Reduce company-owned vehicles (2.4% reduction)[Target (Scope 1+2)](Unit: t-CO2)

Results[Planned measures]• Replace air conditioning equipment at some locations(3.3% reduction)• Office renewal and efficiency improvement (8.9% reduction)

FY03/14
1,113*Red figures in parentheses indicate projected annual reductions in
GHG emissions

Targets

FY03/23

FY03/26719

591(-35.3% vs.
FY03/14)(-46.9% vs.
FY03/14)

FY03/31

FY03/51536

0Total of Tsuzuki Denki + TES
44Copyright © 2023 Tsuzuki Denki Co., Ltd.

In Conclusion

We will pursue growth by transforming our business model

We will strive to improve return on capital through strategic capital control
We will continue to invest in our people, the source of our growth, andenhance our human capital
We will strive to further enhance our corporate value through dialogue with
our stakeholders

45

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Contact

Contact

Tsuzuki Denki Co., Ltd.
Management Planning Office

Address

6-19-15 Shinbashi, Minato-ku, Tokyo 105-8665, Japan (Tokyo Art Club Building)
Phone: 050-3684-7780

ir-tantou@tsuzuki.co.jp
https://www.tsuzuki.co.jp/

Disclaimer
The forward-looking statements, including earnings forecasts, contained in this document are based on information
available to the company at the time of this document's release and are subject to a number of uncertainties. Please notethat actual results may differ significantly due to various factors. Although every effort has been made to ensure theaccuracy of the information contained in this document, please note that the accuracy and certainty of its content is notguaranteed. The names of companies, products, and services mentioned in this document are registered trademarks ortrademarks of their respective owners.
46

Copyright © 2023 Tsuzuki Denki Co., Ltd.

Bring to society “yohaku”
filled with possibilities,
through people, insight,
and technology, together.