Striking a Good Balance between Investment and Returns

 

The Tokyo Seimitsu Group conducts its semiconductor production equipment and precision measuring instrument business globally. As such, we are committed to developing leading-edge products and elemental technologies that covers advanced needs of our customers, despite the challenges of demand fluctuations, as well as macroeconomic and geopolitical risks.

 

As CFO, I believe it is important to strike a balance between maintaining the stability of our financial base (making decisions on investments necessary to enhance our future growth and corporate value) and returning profits to our shareholders, our employees, and suppliers, who support our business and who have been instrumental in our growth.

Strategic Decisions Based on Advanced Needs

 

The industry in which the Tokyo Seimitsu Group operates requires us to maintain our technological superiority through research and development and to anticipate the needs of our leading-edge customers. Accordingly, we regularly review R&D expenditures and the profit/loss of each product business to determine whether or not to continue development, taking into account future demand forecasts and customer trends. As an indicator for research and development, we aim to keep R&D expenses within 10% of net sales.

 

We keep capital expenditures to around 25% of EBITDA (operating profit before depreciation) normally, with 50% of EBITDA as our maximum level. We are making the expansion of production capacity an urgent priority, particularly in the semiconductor production equipment business, where long-term market growth is expected. We plan to complete the Hanno Factory (in the city of Hanno, Saitama Prefecture, Japan) during the period of our mid-term business plan for fiscal years 2022–2024. If the market continues to expand, we may need to consider further capacity expansion. We will make that call based on market trends.

 

To realize the Tokyo Seimitsu Group’s corporate philosophy, of “Growing together with partners and customers by collaborating technology, knowledge and information to create the world’s No. 1 products,” we consider M&A to be another effective means of utilizing retained earnings. We will consider making acquisitions within the scope that keeps free cash flow from turning negative.

 

In addition, beginning with the mid-term business plan for fiscal years 2022–2024, we apply Return on Invested Capital (ROIC) as an internal evaluation method. We will use this metric to determine whether return is commensurate with the capital invested for the growth of each business unit, and to utilize it in management, including in investment decisions. In fiscal year 2022, we will proceed with creating the framework necessary for calculating and managing these returns.

Approach to Shareholder Returns and the Equity Ratio

 

The Tokyo Seimitsu Group considers the consistent return of profits to shareholders to be one of its most important management tasks. From this perspective, we will pay dividends in accordance with profit distribution, with 40% as our target consolidated dividend payout ratio. The Company regards share buyback as a flexible profit return policy that complements the payment of dividends from retained earnings, while comprehensively taking into account cash flow, retained earnings, and other factors.

 

The Tokyo Seimitsu Group’s industry is subject to significant market volatility. Accordingly, we believe it is important to maintain a certain level of cash, deposits, and equity to absorb the impact of market fluctuations. We manage cash and deposits on the basis of fixed costs and working capital levels, including investment projects. We manage the equity ratio by taking into overall consideration the balance between profit trends and investor returns.

CFO’s Missions to Enhance Corporate Value

 

The global financial crisis of 2008 had a major impact on our management. We were forced to introduce painful structural reforms, such as withdrawing from unprofitable businesses. However, we realized that these structural reforms also provided the starting point for our regeneration.

 

The business environment remains uncertain. However, as CFO I am committed to fulfilling my mission to ensure the Company survives in the face of global economic uncertainty and to maintain our financial condition to facilitate smooth investments that contribute to growth. As a result, we will continue to provide the world’s No. 1 products, making full use of cutting-edge technologies, and thereby increase our corporate value.