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 10 consecutive years at a 14% CAGR. We will strive to increase our dividend steadily over time and target a dividend net income ratio in the 20–30% range. The payout ratio is expected to 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 FYE2025. 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, NSHD revenues for FYE2025 are expected to grow 3.6% compared to the previous fiscal year. Core Operating Income excluding currency is expected to grow 6.6%. 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

The adjusted net D/E ratio for FYE2025 is expected to be 0.67 times, as announced in our Full Term FYE2024 Earnings Presentation issued May 22, 2024, which represents an improvement of 7 basis points from the previous year. This means that we will achieve the financial soundness target (adjusted net debt-to-equity ratio of 0.7 times or less for FYE2026) outlined in our medium-term management plan, NS Vision 2026, one year ahead of schedule. This adjusted D/E excludes the impact of any opportunistic refinancing of hybrid debt. 

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 6.7% ROCE, an improvement of 130 bps over FYE2023. We have already achieved our MTP goal of >6% in FYE2026, however, 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 10 consecutive years at a 14% CAGR

The dividend was increased by ¥6 from the previous fiscal year to ¥44 for FYE2024 (payout ratio of 18.0%. Note that 19.6% excluding 4Q FYE2024 non-cash, non-recurring accounting gain of ¥8.8bn.). We plan to continue stable dividend increases and to target a dividend payout ratio in the 20-30% range, while balancing financial soundness, debt reduction, investment for growth, and shareholder return. 

Alan David Draper
Senior Executive Officer and CFO