Message from the President

In 2024, the sale of an Automobile Brakes business subsidiary in the previous fiscal year among other factors led to a decline in net sales, while the impact of acquiring KOKUSAI DENKI Electric Group as a consolidated subsidiary caused operating income to increase. Net income also increased, but this was due to the absence of extraordinary losses related to the aforementioned Automobile Brakes business subsidiary sale recorded in the previous fiscal year. In my view, these results were quite disappointing. Although business performance fluctuates slightly each year due to factors such as changes in the external environment, we have failed to achieve our targets for the past few years and continue to fall short of market expectations, which adds to my strong sense of crisis. In particular, despite substantially higher sales and income in our core Wireless and Communications business due to the acquisition of the KOKUSAI DENKI Electric Group as a consolidated subsidiary, we fell short of plans for operating income, and recognize that there are many areas that require serious reflection.

As my primary goal is to improve business performance, we will first accelerate the restructuring of the Wireless and Communications business. We then plan to carefully determine future policies based on market trends and an industry-wide perspective for businesses where no growth is expected going forward.

Fiscal 2024 was also the first year of Medium-Term Management Plan 2026, which promotes priority measures that include to pursue a transformation of the business portfolio, build a business model that looks to future growth and invest management resources in a focused manner, and reduce management risk by further strengthening the management base. In fiscal 2026, the plan targets net sales of ¥580.0 billion, operating income of ¥38.0 billion, consolidated ROIC of 6%, and consolidated ROE of 10%.

At present, we have not made any major changes to the direction of the medium-term management plan, nor to its numerical targets. In the event the initial assumptions change, we will announce the relevant details as appropriate.

In terms of the priority measure to “pursue a transformation of the business portfolio,” we will continue to focus on the Wireless and Communications business and accelerate structural reforms. Regarding KOKUSAI DENKI Electric, which was acquired in 2023, management from KOKUSAI DENKI Electric and Japan Radio have participated in the development of business strategies for over a year, and the post-merger integration (PMI) is progressing smoothly.

As initial action is extremely important for smooth PMI, I personally visited KOKUSAI DENKI Electric from the outset of the M&A process to openly discuss all aspects of our company and build relationships of trust with its management and staff.

The Wireless and Communications business can be broadly divided into public-sector demand and privatesector demand. By creating synergistic effects through the mutually complementary technologies of KOKUSAI DENKI Electric and Japan Radio, we will further strengthen the public sector as our core business while expanding privatesector business as a growth business. We will establish a strong management foundation through structural reforms that streamline business and production structures. We will also leverage the strengths of both companies to invest in initiatives that include the creation of a platform for wireless communications infrastructure, thereby taking on the challenge of achieving growth in both public- and privatesector business.

Based on fiscal 2024 results, we recognize that a fundamental revision of the Micro Devices business is an urgent priority. The semiconductor industry structure involves large inventory cycles, and its business model is said to be easily affected by fluctuations in market conditions. However, looking at the global semiconductor industry today, we can also see unstable elements that could undermine conventional business theories; for example, Chinese companies are catching up with industry leaders in terms of technologies and equipment. While the term “semiconductors” encompasses a wide range of fields, we must revise our business portfolio in light of the positioning of micro devices, one of the Group’s focus areas.

Within Materials, I have been involved in the Automobile Brakes business for a considerable amount of time, and the carve-out of the European subsidiary has been completed, with future plans already in place. At the same time, to accelerate the transformation of our business portfolio for businesses other than Automobile Brakes, we will incorporate the business theories and marketability of each industry, and proceed with activities while making institutional decisions on future directions from 2025 onwards. Every industry experiences ups and downs, but if personnel have no conviction, they will not take action. Accordingly, we will ask management and employees to engage in research and consider the future growth potential and social contributions that can be expected from each business, then move forward with policy decisions.

With regard to management resources, we will continue to proactively invest in the electronics field. Under Medium- Term Management Plan 2026, we plan to allocate a total of approximately ¥40.0 billion to M&A and other strategic investments. Investment in local 5G, which uses wireless as its core technology, is already well underway, and we are also making inroads into the vast U.S. market while investing in human resources. The greatest feature of 5G is its ability to provide data in real time, and the combination of this data with the smart business approach to DX employed by the Nisshinbo Group will lead to the development of specific services.

That being said, the majority of future investments will be in R&D under the new R&D structure recently announced. On April 1, 2025, we reorganized and integrated our existing research organization to establish the new Future Innovation Division. Our aim is to shift the focus of R&D activities from technologies to businesses.

Up to now, R&D was conducted mainly by the R&D Center using a product-out approach (technological R&D). However, in light of upcoming trends, this approach has its limitations, and as demand shifts from physical objects to experiences, while promoting a more marketing-oriented approach to business R&D, it is important we focus on creating a platform that uses AI and software to bundle various communication methods into one.

For example, in public sector business, amid the increasing severity of natural disasters, we will develop businesses that utilize AI to quickly provide information on water and river conditions, thereby strengthening our competitive advantage in existing businesses while building a framework that utilizes digital technologies and AI to link these efforts to physical objects and services.

As someone with a technical background, I am personally committed to this R&D structure and will focus on working with researchers to quickly build new business models. Regarding the R&D personnel structure, we will improve agility by establishing a system in which pure technical researchers, software and AI engineers, and market researchers can exchange information with each other. This new research structure was not included when formulating the medium-term management plan, but we intend to provide specific details along with examples during 2025.

In terms of holding company governance, we will shift from the existing pyramid-shaped organizational structure headed by the Corporate Strategy Center Chief, to one in which each executive officer is granted decision-making authority, enabling us to swiftly make decisions and simultaneously promote priority efforts.

The third key management foundation is related to sustainability management. I recognize that environmental considerations and contributions to the SDGs are an essential aspect of corporate activities.

At the same time, having had many opportunities to work with people overseas, I believe that respect for human rights is the most complex and important aspect of sustainability management. This naturally includes promoting diversity and inclusion, and eradicating all forms of harassment. Once a person's heart has been hurt, it is not easy to restore to its original state. While it is important to establish an ethics reporting hotline and other systems, education is even more important. As a global company, management must take the lead in demonstrating a commitment to respect for human rights, taking into consideration the human rights background, including the cultural and historical contexts, of each country.

With regard to the environment, while the path to achieving carbon neutrality by 2050 will not be easy, we recognize this as a vital goal and will explore every possible option, including changes to our electricity contracts and, if necessary, relocating factories.

At the same time, we will focus on the development of fuel cell components and other technologies that contribute to reducing greenhouse gas emissions, conduct research aimed at reducing energy consumption in our core analog semiconductor field, and develop products that contribute to the environment. Strengthening the Electronics Manufacturing Service (EMS) business and promoting smart manufacturing will also contribute to the environment and society.

While promoting the R&D of products themselves, we will also continue working steadily to reduce water usage.

Employing human resources with diverse perspectives leads to innovation. Human resources are the most important aspect of promoting business portfolio transformation. Retaining software engineers and AI engineers essential for creating the future is an urgent issue, and we will promote a global human resource utilization strategy that includes the introduction of a job-based human resources system, with a view to utilizing personnel from Japan as well as the United States, India, and other countries.

At the same time, we will also repeatedly conduct communications training and other programs while focusing efforts on cultivating a corporate culture that embraces new ideas. As all corporate activities are conducted by humans, it is important to deepen mutual understanding through communication while respecting human rights as mentioned above.

Another important factor is safety. Having always worked on-site, I view safety as the basis of all our business activities. The improvement activities undertaken at each site are primarily aimed at reducing costs, but education is also an important aspect that must not be overlooked. Safety is our goal, and we must not allow even one accident to occur. To ensure zero accidents, a variety of ongoing education and training are important, and this applies to employees as well as the senior management team and other management personnel. We will also conduct regular reviews and implement safety measures, including audits and other checks, as part of our basic safety activities.

With regard to governance, we will focus on making operations more efficient and practical, centering on the Board of Directors. We conduct an annual Board of Directors effectiveness evaluation, and going forward, we will improve this process to enable more in-depth discussions on specific business strategies with the participation of outside directors. Opportunities to exchange opinions with outside directors will not be limited to monthly Board of Directors meetings, as they will also be invited as observers to attend Board of Management (business execution meetings) held prior to Board meetings so that outside directors can share detailed business trends and provide specific opinions and suggestions for improving business performance. Additionally, in terms of how the Board of Directors is operated, we will implement comprehensive revisions starting from agenda items to devise ways to reduce the time spent on reporting matters, and increase the time spent on business strategy discussions.

In fiscal 2025, our policy is to accelerate transformation and redouble efforts to promote structural reforms. While implementing structural reforms in the Wireless and Communications business, we will also fundamentally revise the Micro Devices business portfolio and determine policies for the Materials business.

In terms of business performance, we expect increased sales and profit driven by growth in the core Wireless and Communications business and a return to profitability in the Micro Devices business.

The Wireless and Communications business is expected to see an increase in orders for solutions and special equipment due to the increasing frequency of natural disasters, which has led to an uptick in water and river management budgets and demand for disaster prevention information systems, as well as the expansion of defense projects.

At the same time, with regard to the Micro Devices business, there are still uncertainties surrounding market conditions and other factors. Specifically, amid export restrictions between the United States and China, we view China's efforts to enhance its manufacturing capabilities in cutting-edge semiconductors as a major risk factor. Furthermore, we believe that U.S. tariff trends could potentially disrupt the way business has been conducted in the semiconductor industry up to now. We will continue working to reduce costs as we aim to return the Micro Devices business to profitability in anticipation of a market recovery from the second half of fiscal 2025 onwards.

We recognize that the low level of our PBR is a significant management issue. To resolve this situation, our most urgent priority is to improve business performance. To this end, it is important to first present a management blueprint, then act in accordance with it.

We are aware that the targets under our current medium-term management plan do not meet the expectations of capital markets, but as a first step, we must at the very least achieve these targets. It is essential that we clearly present a management blueprint, including structural reforms, and then demonstrate each individual result to validate the reliability of that blueprint.

If we can execute these measures properly and demonstrate their efficacy in financial results, I believe we will be able to meet the expectations of capital markets.

At the same time, I feel that we have not sufficiently communicated the social significance of our core Wireless and Communications business to the rest of the world. For example, ultrasound diagnostics used in medical settings would not be possible without wireless technology, and although the technologies we provide are invisible, they make significant contributions to society. We want to explain in an easily understandable manner how our business contributes to various areas of society. We also want to quickly present our blueprint for company management, including the research we will conduct under the new structure.

With regard to shareholder returns, there are no changes to our policy of providing shareholders with a minimum dividend of ¥36 per share, while aiming to achieve a dividend payout ratio of 40% through fiscal 2026. We plan to prioritize growth investments while flexibly conducting share buybacks, and also aim to increase dividend levels through profit growth.

The Nisshinbo Group is currently engaged in a period of self-transformation. The business portfolio transformations implemented under the leadership of former President Murakami have significantly changed our sales composition, but as these are not yet sufficient, further changes are necessary to strengthen profitability. I am convinced that the Group has the potential to achieve these changes.

The blueprint we will present going forward will involve major reforms. By acting in accordance with this blueprint, we will achieve transformation throughout the Group while maintaining profitability. We also aim to provide stakeholders with a clear picture of our business activities, future direction, and the changes we are implementing, accompanied by a recovery in performance.

I would like to thank all our stakeholders for their continued support.