Action to Implement Management that is Conscious of Cost of Capital and Stock Price (Update on Jul. 24, 2024)
Analysis of Current Situation
- Through the implementation of the measures set out in the previous medium-term management plan "SHIFT 2023" (April 2021 to March 2024), the Company has improved its basic profitability, withdrawn from low-profit businesses, and completed loss recognition for struggling businesses, thus strengthened its resilience. Through these efforts, the average ROE during the previous medium-term management plan period was approximately 14%.
- We believe that if we can consistently achieve an ROE of 12% or more, our profitability will exceed the cost of capital and create Economic Value Added (EVA), while there are various methods for calculating the cost of capital.
- Our stock price had kept an upward trend throughout FY2023, with the PBR for the first quarter of FY2024 remaining at over 1.
Initiatives
- By accelerating business portfolio transformation as outlined in our Medium-Term Management Plan 2026 (April 2024 - March 2027), we aim to maintain an ROE of 12% or more and strive to achieve sustainable improvements in our corporate value, which will also lead to further improvements in our PBR.
- Specifically, we will increase profitability by prioritizing the allocation of management resources to growth businesses with strengths and competitive advantages while utilizing business specific ROIC and WACC*. In addition, we will promote restructuring businesses, including replacing low-profit businesses and steadily improve the stability of our profits.
- To smoothly carry out these initiatives, we have reorganized around Strategic Business Units (SBUs) and revised our Management Council structure to ensure timely and accurate decision-making.
- After comprehensively considering the improvement of basic profitability through SHIFT 2023, continuous strengthening of our financial position and securing funds for investments for sustainable growth, we revised our shareholder return policy. New policy includes progressive dividends and share repurchase in a flexible and agile manner with a total payout ratio of 40% or higher from FY2024. We will continue to allocate management resources appropriately to shareholder returns and growth investments from the perspective of sustainable enhancement of corporate value, while maintaining financial soundness.
- Furthermore, we will enhance disclosure and strive to engage in constructive dialogue with market participants so that the track record and details of these initiatives can be fully understood.
* ROIC: Return on Invested Capital, WACC: Weighted Average Capital Cost
