Financial Strategies
Capital structure looking to 2030

We will deliver
sustainable growthin corporate value
by improving
capital efficiency.
Atsushi Igaki

Director, Senior Managing Officer
Corporate Business Administration Division
Executive General Manager

Remaining issues and the 15th Medium-Term
Management Plan

The automobile industry is currently experiencing a once-ina-century period of major transformation, and the competitive environment that surrounds the TS TECH Group has
become even more challenging. In these circumstances, under the 14th Medium-Term Management Plan (fiscal 2021–2023), we steadily promote action for “evolution for businessgrowth,” which we set out as a priority measure, based on
the management policy of “corporate evolution through ESG
management.” Measures included: developing our production system and reviewing our organizational structure to
win new customers and new commercial rights in a way designed for “expansion of strategic commercial rights”; andrestructuring from various perspectives including production, development, and logistics designed for “optimizationof business operations structure.” However, the challenging
business environment has persisted with the impact of
COVID-19 and supply chain disruptions. As a result, the issues of profitability and capital efficiency have remained,
and ROE is currently at a low level. We recognize that, for theGroup to maintain sustainable growth, we must use capitaland assets more efficiently than ever before, based on thesolid financial foundation we have built so far, and then translate this into business growth and improved profitability.

18

TS TECH Integrated Report 2023

During the 15th Medium-Term Management Plan (fiscal
2024–2026), we will pursue the sustainable growth of corporate value by carrying out our management policy of “realizing ESG management,” seeking to reach the culmination of
our efforts to raise ESG performance, which we have been
pursuing since the 13th Medium-Term Management Plan. To
achieve this, it is essential to improve capital efficiency, which
has been an issue. In addition to the KPIs we used previously such as revenue and profit, we have set ROE as one of themost important indicators. We will allocate cash to assets
with high profitability by practicing proactive growth investment based on nine priority strategies, consisting of growthstrategies, regional strategies, and functional strategies. In
addition, we aim to achieve ROE of 8.5% or more, which is
the target for the end of the 15th Medium-Term Management Plan period (end of fiscal 2026) by providing and maintaining shareholder returns, based on sustained, stabledividends unaffected by business results, and flexible acquisition of treasury stock.

Performance targets forthe 15th Medium-Term Management Plan period
Revenue

480 billion yen

Operatingincome44 billion yen

Operatingmargin

9.2%

ROE

8.5%

The TS TECH Group has built a profit structure that cansteadily generate cash even under challenging business environments such as the global financial crisis, the Great East
Japan Earthquake, and the recent COVID-19 pandemic. As aresult, as of March 31, 2023, the Group as a whole held
132.9 billion yen in cash with a consolidated equity ratio of
78%, securing a very high level of financial security. However,in order to achieve the 2030 Vision and ensure we remain acompany sincerely appreciated by all, we must utilize capital
more efficiently than ever before and accelerate the speedof growth.
To improve capital efficiency, we will consider cash flowfrom the perspective of various risks and opportunities. While
ensuring the necessary safe funds for business operations,
we will allocate cash in excess of this to investment in growthand shareholder returns, thereby balancing improved capitalefficiency with financial security. During the 15th Medium-Term
Management Plan period, we will invest funds in the 80–100
billion yen range based on nine priority strategies in order toallocate this excess cash to assets with higher profitability.
We aim to achieve a positive cycle of sustainable growth andincreased returns by making these proactive investments toachieve further business growth and improved profitability.
This includes M&As done with a view to expanding sales innew businesses and strengthening cabin coordination capacity, capital investment and technological development related
to automation of production, and renewal of development
and production sites, with the transfer of cash generated tosubsequent investments and returns.
In addition to boosting profits through investment, we
will further reduce shareholders’ equity and improve capitalefficiency by increasing shareholder returns. The TS TECH
Group has always regarded shareholder returns as a key
management issue. During the 14th Medium-Term Management Plan period, we provided stable dividends in responseto the ongoing support of our shareholders, under the basic
policy of maintaining stable dividend payments based on acomprehensive consideration of consolidated business results, payout ratios, and other relevant factors. We also
worked to enhance shareholder returns even in the challenging business environment, implementing the first acquisition of treasury stock and other measures.

Present (As of March 31, 2023)

Target capital structure in 2030

Although our ability to generate cash is strong,issues in capital efficiency remain.

Improving the capital structure while maintaining risk assurance
Allocating cash to more profitable assets
Revenue: 700 billion yen

Liabilities
Approx. 200 billion yen

Revenue: 409.2 billion yen
Total assets

416.2 billion yen
Cash (included above)
132.9 billion yen[Initiatives to realize this vision]• Proactive growth investments
based on priority strategies
CapitalApprox. 400 billion yen • Upgrading policies on
Equity ratio
shareholder returns
70% or less• More dynamically acquiring andCash (included above)
Approx. 120 billion yen
retiring treasury stock

Total assets
Approx. 600 billion yen

Liabilities
92.7 billion yen
Capital323.4 billion yen
Equity ratio
78%

2030

15th Medium-Term Management Plan (Fiscal 2024–2026)

Cash anddeposits
132.9 billion yen

Cash flows
fromoperatingactivities
80–100billion yen

62.9 billion yen

Ordinary
investment• M&A activities targeting sales growth and enhancing cabinet coordination capacity• Capital investments and technology developments involving production automation• Upgrading development and production facilities, etc.

Investment ingrowth based onpriority strategies
80–100 billion yen

Approx.
50 billion

Surplus
70 billion yen

Ideal stable
funds level
FY2023end

Returns toshareholders

Cash inCash out

Approx.
100 billion yen

Toward an appropriate cash levelfor business growth
Approx. 120 billion yen

Approx.
20 billion yen
Approx.
80 billion yen

Ideal stable
funds level

Ideal stable
funds level

FY2026end

FY2030end

TS TECH Integrated Report 2023

19

Financial Strategies

On commencing the 15th Medium-Term Management
Plan period, we revised our policy on shareholder returns to
set out a basic policy of “implementing sustained, stable returns unaffected by business results.” We also formulated
concrete quantitative targets based on consideration of capital structure and cash flows over the medium to long term.
In terms of dividends, we plan stable growth in dividends
targeting a DOE* of 3.5% or more for the end of the 15th
Medium-Term Management Plan period (end of fiscal 2026)
by raising the dividend increase rate to a level higher than
before. In terms of the acquisition of treasury stock, we plan
flexible acquisition of a cumulative total of approximately 20
billion yen in treasury stock during the 15th Medium-Term
Management Plan period based on comprehensive consideration of growth investment, the level of dividends, cash on
hand, the level of the company’s share price, and other relevant factors. During the 15th Medium-Term Management
Plan period, we plan to support total shareholder returns ofapproximately 50 billion yen.
At present, the TS TECH Group’s consolidated revenue isaround 400 billion yen, but we are aiming to achieve consolidated revenue of 700 billion yen in fiscal 2030. When considerBasic policy for shareholder returns

Implementing sustained, stable returns unaffected by business results

Dividends

Treasury stock

End of 15th Medium-Term Management Plan: Stable increase% or morein dividend payments toward a DOE of

3.5

15th Medium-Term Management Plan—Cumulative: Flexible acquisition andbillion yen
appropriate retirement of cumulative total of approx.
in treasury stock20

ing the optimal capital structure, we will not take a short-term
perspective looking at the current scale of the company. Under the financial strategy formulated by envisioning the desired capital structure in 2030, we will strive to continuously
increase corporate value by achieving further business growththrough proactive investment, shifting toward an appropriate
cash level in line with such business growth, and streamlining
shareholders’ equity to improve capital efficiency.

The TS TECH Group’s P/B ratio remained at 0.72 (share price
1,679 yen) as of March 31, 2023, and we recognize that weare not adequately meeting expectations at present. We
think this is due to the fact that we have not been able torecover to our pre-pandemic high profitability, as well as adecline in capital efficiency.
To address this, we will work to solve the issue by creating a positive circle of “growth” and “returns” by investing in
growth based on priority strategies and enhancing shareholder returns utilizing the cash generated. At the sametime, we will strive for sustainable growth in corporate value
by realizing ESG management through training human resources to support priority strategies as well as strengthening the corporate foundation.
Through these efforts, we will not only aim to achieve a
P/B ratio of 1 or more as soon as possible, but will also keep
striving to be a company that is relied upon and sincerely
appreciated by all stakeholders, not just the capital markets.

152.4

Dividend trend
90.7

Dividends per share (Yen)DOE (%)

2.4

30

15/3

19.1

2.3

33

16/3

2.3

35

18.1

2.4

40

22.2

2.3

42

2.3

43

DOE 3.5%(Target consolidated payout ratio: 40%)

29.4

2.3
45

2.5
54

2.8
63

3.1

Continually increasing dividends tomove closer to the target

73+ Flexibly acquiringand retiring treasury stock
17/3

12th Medium-Term Management Plan

18/3

19/3

20/3

13th Medium-Term Management Plan

21/3

84.3%

Asia and Europe

9.2%

22/3

23/3

14th Medium-Term Management Plan

24/3

25/3

26/3

15th Medium-Term Management Plan

Japan

19.4 %The Americas

44.4 %

1.9%

Automobiles (other)
Automobiles (doors)

9.2%
Revenueby businessChina

27.0 %

Revenueby segment

Results by segment for fiscal 2023

Japan

This fiscal year, we commenced production of seats for
Honda’s new model Civic Type R and new model STEP WGN.
In the Hamamatsu area, a new plant began operations
to increase sales. We also worked to expand business andstrengthen the competitiveness of components, including
our decision to establish a new facility for the manufacture
and technical development of molds.

Honda Civic
Type R seat

Revenue (Million yen)
82,698 84,943

FY2022

FY2023Operating Income(Million yen)

6,261

FY20225,151

FY2023The Americas

This fiscal year, we commenced production of seats for
Honda’s new model Accord and new model CR-V among others.
We have been working on structural reform to ensureprofitability even in a challenging business environment, including the introduction of automated equipment for moreadvanced and highly efficient production in conjunction withthe launch of new models.

Honda Accord
seat

Revenue (Million yen)
144,527

FY2022

194,015

FY2023Operating Income(Million yen)(252)

(3,199)FY2022

FY2023China

FY2026 end

58.3

Targeting business growth and increased
capital efficiency to increase dividends further

18.1

24.3

Automobiles (seats)

Aiming for sustainable growth in corporate value

approx. 50 billion yen

38.8

Motorcycles

4.6%* Dividend on equity ratio (DOE) = Total dividends / Shareholders’ equity (Equity
attributable to owners of parent)

15th Medium-Term Management Plan—Cumulative: Implementing returns to shareholders ofConsolidated payout ratio (%)

Other businesses

This fiscal year, we commenced production of seats for
Honda’s new model CR-V and the new model BREEZE.
In the increasingly competitive Chinese market, we havebeen working to improve profitability by strengthening sales
activities to acquire new customers and expanding procurement of components that help to lower costs.

Honda CR-V seat

Revenue (Million yen)

Operating Income

115,236 117,800

20,000 18,227

FY2022

FY2023(Million yen)

FY2022

FY2023

Asia and Europe

This fiscal year, we commenced production of seats for
Honda’s new model WR-V and new model CR-V in Asia.
We worked to build a cost competitive product supply
structure through measures such as restructuring the motorcycle seat business in India and reorganizing production
sites in the European region.

Honda WR-V seat

Revenue (Million yen)
34,202

FY202240,164FY2023Operating Income(Million yen)

1,957

FY20222,175

FY2023TS TECH implemented a two-for-one stock split of its common shares, effective April 1, 2021.
Cash dividends were calculated on the assumption that the relevant stock split had been implemented at the beginning of fiscal 2015.

20

TS TECH Integrated Report 2023

TS TECH Integrated Report 2023

21