CFO Message (Financial Strategy)
While maintaining a strong and sound financial base, we aim to maximize sustainable corporate value by accelerating strategic investments for growth and further improving capital efficiency.
GLP2026, the new medium-term management plan, was launched in April 2024. We position GLP2026 as an important milestone for becoming a 200-billion-yen company in FY2030. We nearly achieved our planned results for fiscal year 2024, but further acceleration of growth is needed to meet our targets. We have already made several growth investments up to now, yet we continue to maintain a sound financial structure. We will continue to leverage this strength to achieve both growth investments and shareholder returns at a high level. We are also focusing efforts on building internal infrastructure with an eye toward 2030. For example, organizationally, we have placed the IR Department directly under the CFO, enabling the CFO to engage in direct one-on-one meetings with many shareholders and investors, actively seeking their opinions, sharing information, and promoting highly transparent management by leveraging these functions. We are also prioritizing the dissemination of ESG information, aiming for sustainable management. Utilizing our solid financial base and the comprehensive capabilities of the Group, we will accelerate our growth strategy through the generation of cash flow, continually evolving to become a company that meets the expectations of all stakeholders.
Review of the first year of GLP2026
Fiscal year 2024 was the first year of our medium-term management plan GLP2026 and proved to be an extremely important year for our Company. We began under a complex external environment, amid an unstable global economy, major exchange rate fluctuations, and rising geopolitical risks. Although fluctuations in supply and
demand for semiconductors and electronic components have stabilized, increased inventories resulting from past strategic investments became an issue, creating an uncertain management environment.
In response to these circumstances, we acted swiftly and flexibly. In particular, in our core segment of telecommunications measurement, the environment remained challenging as growth in 5G slowed and initial 6G investments had only just begun, with recovery in the mobile segment still awaited. However, by supplementing with data center-related solutions and other business domains, and leveraging the collective strengths of the Anritsu Group, we achieved increased revenues and profits, and improved ROE as planned.
Additionally, we promoted management through the review of our business portfolio, investments in growth areas, and shareholder return initiatives, all without compromising the stability of our financial base. As a result, by securing operating profit and cash flow as planned and providing stable dividends, we were able to maintain a strong and sound financial structure while balancing enhanced growth investment and shareholder returns.
Initiatives to enhance corporate value
(1) ROE as an indicator for improvement of corporate value
We have set ROE as a KPI for enhancing corporate value, with a long-term goal of achieving an ROE of 15%. The rate fell to 6.3% in fiscal year 2023 due to external environmental factors, but recovered to 7.4% in fiscal year 2024 thanks to the strong data center-related business and the effects of share buybacks. Under GLP2026, we plan to stably achieve ROE ≥ 10% and gradually raise the level to around 12%. We will continue to work toward achieving ROE ≥ 15% toward FY2030.
Of the three components of ROE: (1) For profitability, further improvement of profitability in businesses other than telecommunications; (2) For efficiency, sales scale expansion through growth investments such as M&A; (3) For leverage, capital procurement by leveraging our “A” corporate bond rating; and (4) Various capital efficiency measures will be key challenges for achieving sales of 200 billion yen in FY2030.
(2) Initiatives to improve cost structure
We have incorporated development ROI (return on investment) as a standard for the level of investment, and aim to improve the investment efficiency with a target development ROI (gross profit/amount of investments for development) of 4.0 or more.
We are also actively engaged in the improvement of cost structure to increase profitability. For example, we accurately manage cost per order (CPO) by sales region to promote improvement thereof and revise the cost structure of each business segment, and actively work to increase the efficiency of sales activities and improve operational
processes in the corporate department.
(3) Thorough cash flow management: Improvement of efficiency
To achieve both growth investments and shareholder returns while maintaining a sound financial structure, we place emphasis on strengthening our ability to generate
cash flow (CF). We are working to improve profitability and asset efficiency, targeting an operating CF margin of 13% or higher and a CCC of 121 days. CCC temporarily worsened in fiscal year 2024 due to the impact of component inventories, but returned to normal levels in 4Q. At present, we are minimizing procurement risks and optimizing inventory assets by strengthening collaboration with business partners and utilizing alternative components. We will continue to accurately capture demand trends in markets such as 5G, aiming to expand sales and shorten CCC.
* CCC: Cash conversion cycle
(4) Optimization of capital allocation
In GLP2026, we will place more than 50% of generated cash for growth investments and deploy agile financial measures.
We have established investments in 6G and new fields (Industrial measurement, EV/Battery, Medical/Pharmaceutical) as our fundamental policy, and from the first year, fiscal year 2024, we executed capital investments, M&A, and alliances.
We invested 18.3 billion yen in GLP2023, but plan to invest over 40 billion yen in GLP2026. We will also continue shareholder returns to enhance corporate value.
(5) Build an optimal business portfolio
For corporate value evaluation on a group consolidated basis, we emphasize ROE, a global standard, but are also introducing business-specific ROIC (return on invested capital) on a trial basis to build and assess an optimal business portfolio to enhance corporate value. By utilizing business ROIC for dynamic and proper allocation of group resources according to market environment and company circumstances, we believe it is an effective means to improve ROE.
GLP2026 aims to establish our own business division-level corporate value KPIs, which will serve as the basis for our efforts to improve ROE, and it aims to expand business and profitability through growth and raise overall productivity.
Strategic investments
Toward achieving our fiscal year 2030 targets, we will accelerate growth investments. Maintaining our “A” rating enables us to procure funds at a low capital cost, and we
will utilize this advantage effectively.
For ongoing investment and acquisition cases, we are actively promoting early PMI (post-merger integration) and the creation of synergies with existing businesses. Within
the organization under direct control of the CFO, we have reassigned human resources to strengthen M&A, PMI, and FP&A (financial planning & analysis) functions. This enables rapid execution of growth strategies and the early creation of synergies. Through strengthening analysis functions, we are also able to deepen our involvement in business and management strategies.
In addition, we are focusing on investments in non-financial areas such as promoting employee diversity and improving educational systems. Through these efforts, we aim to
improve productivity and competitiveness, contributing to enhanced corporate value.
Furthermore, by strengthening ESG (Environment, Social, and Governance) initiatives, we are working toward realizing sustainable management.
Shareholder returns
The basic financial policy of GLP2026 sets a consolidated dividend payout ratio of “50% or more.” This basic policy is to utilize the results of strengthening the financial characteristics for the next financial strategy and further clarifying shareholder returns, which is one of the pillars of the new financial strategy. In FY2021, our corporate bond rating reached its highest ever level of “A,” a distinction we continue to maintain to this day.
As a result of building such a strong and sound financial structure and entering a stage where we can further strengthen shareholder returns, we have revised our policy
to set the consolidated dividend payout ratio at 50% or higher, with the goal of improving the target DOE (Dividend on Equity) for the consolidated payout ratio. The target of
“50% or higher” for the consolidated dividend payout ratio is based on the following calculation formula.
Our Group regards ROE of 15% as one of its important management objectives. We recognize the cost of equity capital as 7%, and to achieve a DOE that exceeds the cost of
equity capital when ROE reaches 15%, a consolidated dividend payout ratio of at least 50% is essential.
We will flexibly conduct the acquisition of treasury stock, taking into consideration changes in the corporate environment, our own financial status, progress of our growth
strategy, and share price, as part of capital policies and increasing corporate value.
The total shareholder return (TSR) including dividends over the past 10 years is shown in the figure on the right. The fact that our consolidated earnings forecast for three years of GLP2026 fell short of the targets affected the share price, causing our TSR to fall below TOPIX. However, our TSR for one year exceeded TOPIX, so we believe that we were able to exert the capabilities of all of Anritsu during the first fiscal year of GLP2026. We will continue our efforts to achieve TSR that exceeds the shareholder capital costs of 7% by implementing a growth strategy and accurate financial strategy.
Specifically, in line with expansion of our existing businesses, which is a goal of GLP2026, we will focus efforts on growth in 6G as well as the three new business areas of EV/Battery, Industrial measurement, and Medical/Pharmaceutical.
