The Nisshinbo Group's Financial Strategy
To Achieve Our Long-Term Goals
Executive Managing Officer
Chief of Business Support Center
The Nisshinbo Group’s long-term goals are sales of ¥1 trillion and ROE of more than 12% in the fiscal year ending March 2026. To achieve those goals, we will use capital investment to grow existing businesses, invest in R&D to create new businesses and advance strategic M&A deals. We are implementing the following financial strategy to secure funds in support of those efforts.
Shareholder return policy
The Nisshinbo Group is targeting a consolidated dividend payout ratio of roughly 30% through stable and consistent dividends. For the fiscal year ended March 2017, we paid an annual dividend of ¥30 per share, the same as the previous fiscal year. Going forward, we are committed to paying a base-level dividend of ¥30 per share. When the Group has sufficient internal reserves to fund investment in growth, such as R&D, increased capital investment and M&A deals, we will endeavor to return profits to shareholders through dividend hikes and share buybacks after taking into account the Group’s financial stability.
Note: Total shareholder return ratio not shown for the fiscal year ended March 2009 due to losses in that year.
Promoting cash flow management
The Nisshinbo Group is using cash flow management to maximize funds from business earnings. Specifically, we have set working capital targets for each business and subsidiary, covering areas such as balance sheet inventories and receivables. Those targets are used to monitor operating results based on a PDCA cycle.
We have also introduced a cash management system (CMS). Domestic subsidiaries channel their funds to Nisshinbo Holdings Inc., which minimizes the amount of idle excess funds in the Group by transferring surplus cash to businesses with funding requirements.Our subsidiary in Shanghai carries out the same operations for local subsidiaries in China, while our subsidiary in Singapore is responsible for cash pooling for subsidiaries in the ASEAN region. In other regions, the Business Support Center at Nisshinbo Head Office carefully monitors the situation, using inter-company loans to balance cash surpluses and deficits.
Optimizing the business portfolio
Increasing return on sales (ROS) is the most important factor in improving return on equity (ROE).
In the fiscal year ended March 2017, we sold the Nisshinbo Group’s papers business. This move was in line with our policy of channeling management resources into promising growth areas, such as automotive and super smart society-related businesses. Going forward, we will continue to implement our growth strategy while also boosting capital efficiency, in line with our goal of optimizing the Group’s business portfolio.
The Nisshinbo Group closely monitors profitability at individual businesses in each business segment. When a business posts three successive fiscal years of losses, the management team begins discussions on whether to continue with the business. Potential new investment projects are analyzed by relevant business divisions and the Corporate Strategy Center, as well as by the Business Support Center, which develops feasibility studies examining the appropriate level of investment returns based on fund procurement strategy.
The Nisshinbo Group is currently considering whether to adopt December as a unified fiscal year-end for the whole Group, which would make it easier to monitor and compare the performance of businesses across the Group.
Procuring funds to achieve our long-term goals
To achieve our long-term goals, we envision sales growth of ¥250 billion from M&A deals and another ¥250 billion from growth in existing businesses and the creation of new businesses built on successes in R&D. During the period covered by our long-term goals, we plan to invest a total of roughly ¥400 billion to drive growth, including M&A deals, which are likely to require funding of approximately ¥250 billion. Over the whole period, capital investment should be fully offset by depreciation costs.
We intend to use cash generated by existing businesses to cover about 80% of the ¥250 billion in planned M&A spending. The Group’s real estate business is set to play a key role here by redeveloping former business sites, leasing large commercial facilities and selling housing lots in partnership with major real estate developers to generate stable cash flow. We plan to procure the remaining 20% of required funds through borrowings, while ensuring a stable and robust financial position for the Group.
The Nisshinbo Group has a number of strategic shareholdings. In line with the Group’s Corporate Governance Policy, we regularly assess the purpose and economic rationale for holding those shares. The results of the assessments are reported to the Board of Directors, which decides whether to retain or dispose the shares. Through this process, we have been steadily selling cross shareholdings and strategic shareholdings.
The shareholders’ equity ratio was 35.5% as of March 31, 2017 and the balance of interest-bearing debt stood at around ¥110 billion as of May 31, 2017. To achieve our ROE target of at least 12% in the fiscal year ending March 2026, we do not envisage increasing the Company’s financial leverage to an excessive level. We plan to maintain the shareholders’ equity ratio at around 30-40% while continuing to take into account the Group’s financial
stability. We may issue corporate bonds as needed, in line with that policy. We recognize that improving the Group’s earnings capabilities is also an important factor in reducing funding costs when bonds are issued.