CFO Message

Financial Strategy

Execution in line with our Medium-term management plan（MTP）; “NS Vision 2026”

We do not have plans, nor do we expect any material change in our capital structure. Our capital and human resource allocation remains consistent with the last several years. Capital projects are assessed and prioritized globally to ensure projects with the best returns are prioritized higher than lower financially returning projects. Human resources are allocated across the business based on growth, opportunities, strategic initiatives, and special needs. Our dividend increased 9 consecutive years at a 14% CAGR. We will continue to increase our dividend steadily over time and expect to maintain a dividend net income ratio in the 20–30% range. The payout ratio will trend higher as debt is reduced and our adjusted D/E ratio improves.

Business results

Stronger focus on margin expansion and quality of profit than revenues

Headwinds and challenges remain in FYE2024. Some of our larger concerns are volatile energy, trade and geopolitical tensions, electronics slowdown, recessionary pressures, elevated inflation, tight labor markets, and higher interest rates. Excluding the impact of currency and an accounting deconsolidation of a Japan entity (¥33B), NSHD revenues for FYE2024 are expected to grow approximately 3% compared to the previous fiscal year. COI excluding currency is expected to grow approximately 21%. Our target is for profits to grow faster than sales as it assists our margin expansion efforts.

Financial position

Systematic repayment of debt to improve financial soundness

At the end of Q2, our full year forecast ending March 31, 2024 anticipates us reporting an adjusted D/E ratio of 0.81 times. This is due to the expected conversion of a tranche of hybrid debt to clean debt during the year. Since hybrid debt has 50% characteristics of equity and 50% characteristics of debt, the refinancing has a negative impact on our D/E ratio. The impact of the conversion is about 11 bps using Mar 31, 2023 balance sheet, and therefore without the conversion, our adjusted D/E ratio would be down approximately 11 bps from FYE2023.

Cash flow

Appropriate allocation of operating cash flows generated by the business

Our target is to generate ¥730B of accumulated operating cash flows throughout the four years of our MTP NS Vision 2026. We expect 60% of operating cash flow generation to be reinvested into the business through capital investments and acquisitions. Capital investments will be split with approximately 45% on underlying base capital and the remaining 55% primarily on growth and strategic initiatives. The remaining 40% of operating cash flow generation will be used toward debt reduction and payment of dividends consistent with the approach of the last few years.

Capital efficiency

Steady progress toward the goals set forth in the MTP "NS Vision 2026”

Our ROCE after Tax has improved significantly over the past year. The year ended at 5.4% ROCE, an improvement of 60 bps over FYE2022. We are on track and approaching our MTP goal of >6% in FYE2026. Actions in process to further improve ROCE are: solid project pipeline with good financial and economic returns; strong pricing management; expanded productivity programs; globalization advancement; and a continued focus on improving low-profit businesses by either restructuring them to achieve improved profitability or exiting those which are neither profitable nor a strategic fit into the NSHD Group.

Shareholder return

Our dividend increased 9 consecutive years at a 14% CAGR

The dividend was increased by ¥4 from the previous fiscal year to ¥40 for FYE2023 (payout ratio of 22.5%). We plan to continue stable dividend increases and maintain a dividend payout ratio in the 20-30% range, while balancing financial soundness, investment for growth, and shareholder return. Total Shareholder Return (TSR) was 354.1% for the 10-year period from April 1, 2013 to March 31, 2023, exceeding the industry average of 251.7%, which includes peer companies.

Alan David Draper
Senior Executive Officer, Group Finance & Accounting Office, and CFO