Overview of the Medium-Term Strategic Goal

Review of Vision 2020 and Road to Vision 2025

Consolidated net sales in FY2020 were 1,618.1 billion yen, and we failed to reach the consolidated sales target of two trillion yen, which we aimed to achieve in the medium-term strategic goal Vision 2020 covering the period FY2015 to FY2020. In Vision 2025, we aim to achieve consolidated net sales of four trillion yen by FY2025 after attaining consolidated net sales of two trillion yen, which was the target value in Vision 2020, by FY2022. The features of Vision 2025 are listed as follows.

1. ➊Incorporation of productivity improvement to the goal:
   We aim to increase sales and operating profit per employee by 30% by FY2022 and double them by FY2025.
2. ➋Incorporation of the ROIC target:
   In Vision 2020, ROE (return on equity) was used as a management index. In Vision 2025, an ROIC (return on invested capital) of over 15% has been set as the final target.
3. ➌Setting of ESG goals:
   ESG-related items are incorporated as new goals. Initiatives to achieve carbon neutrality and strengthen governance have been expressly adopted as ESG goals.

Framework for the New Medium-Term Strategic Goal 1
Achieving an Increase in Both Sales and Profits

To achieve consolidated net sales of four trillion yen (including one trillion yen expected to be gained through new M&A deals) by FY2025, we are required to attain a high growth rate. We are committed not only to increasing sales but also to achieving profitable growth. Accordingly, we have adopted ROIC (return on invested capital) as a management index in Vision 2025 instead of ROE (return on equity) in Vision 2020, and have set the ROIC target at 15% or more in FY2025.
　For existing businesses, we will seek growth opportunities through management in a business and geographic scope (visualizing business opportunities by creating a matrix of products by business and region), while pursuing optimization of capital efficiency by using ROIC as the evaluation axis. The main focus of new M&A deals is to complement our technologies and commercial distribution services required for our strategy to succeed. We place an emphasis on M&A deals that not only lead to an increase in sales but also have a synergistic effect with our management strategy and eventually contribute to improving the management indicators of the entire company.

Framework for the New Medium-Term Strategic Goal 2
Business Portfolio Management

Consolidated net sales for FY2020 were 1.6 trillion yen. To achieve the consolidated sales target of four trillion yen by FY2025 (including one trillion yen expected to be gained through new M&A deals), we will actively shift our focus to growth businesses.
　In the automotive business, we expect in FY2025 sales of approximately 3 million units of our EV traction motor system, E-Axle, whose market is expected to expand significantly in the future. We expect its sales to increase by several hundred billion yen by the same fiscal year. In addition, there are many product groups, such as electric power steering (EPS) motors, whose annual sales growth rate can be expected to exceed 10% on an order basis. The automotive business is expected to have high sales growth rate as a whole.
　In the small precision motor segment, we cannot expect significant sales growth for HDD motors, which have been the driving force behind our business performance for many years. We will shift management resources to the mobility field, such as motors for small EVs, for which business opportunities are expected to expand due to automotive electrification, and motors for electric two-wheeled vehicles. Thus, we hope that these products in the mobility field will contribute to sales growth together with heat management systems, which is another growth field.

Framework for the New Medium-Term Strategic Goal 3
Measures for Boosting Top-Line Growth

To achieve consolidated net sales of four trillion yen by FY2025 and consolidated net sales of 10 trillion yen by FY2030, it will be necessary to shift to a business field with a larger market size. By not only shifting our business to growth fields but also providing products with a high level of integration for customers, we will be able to access larger markets and increase product unit prices.
　Taking the automotive business as an example, it will be possible to access higher value-added markets as the product integration level increases from the provision of motors alone (device alone) to the provision of power packs for electric power steering (EPS) systems and electric oil pump modules (module), E-Axles (system), and EV platforms (solution).
　By advancing this transition process in each business department, we will secure the growth opportunities necessary to achieve consolidated net sales of 10 trillion yen by FY2030.

Framework for the New Medium-Term Strategic Goal 4
Basic Policy for EV Traction Motors

We anticipate a significant increase in the demand for EVs in 2025, marking a watershed year in the industry, mainly due to a decline in EV prices caused by a decrease in battery prices. China’s EV market has been showing rapid growth in recent years. In 2022, the number of NEVs (BEVs + PHEVs) sold in China reached 6.89 million vehicles (figure published by the China Association of Automobile Manufacturers), making it the world’s largest EV market. On the other hand, competition among automakers and suppliers is becoming fiercer, and the battle for market share is accelerating due to low price competition.
Even in this environment, we have already launched the 2nd generation E-Axle model, which has significantly reduced costs. Furthermore, with the launch of the 3rd generation model, which has further reduced costs, we believe that we will be able to survive the competition going forward. In addition to the shipments in China, a joint venture with Stellantis has already begun mass production of E-Axles in Europe, and we expect further volume increases from 2024 onwards.

Framework for the New Medium-Term Strategic Goal 5
ROIC Management

In Vision 2025, ROIC (return on invested capital) has been included as a new management index, and specific activities to improve ROIC will be implemented based on numerical targets in line with the strategy of each business department. For instance, since the small precision motor department and the automotive department have different customer bases and different business lead times, there is a difference in the measures required to improve ROIC and in the timeline until the measures produce results. It is important to implement improvement activities based on the characteristics of each department.
　To improve ROIC, it is necessary to increase profitability and optimize invested capital. Accordingly, we will take concrete measures for each business department. Specifically, we will improve the cost to sales ratio and the factory utilization ratio to increase profitability, and shorten the CCC (cash conversion cycle) and promote production automation to optimize invested capital.

Framework for the New Medium-Term Strategic Goal 6
Pathways to Carbon Neutrality

In Vision 2025, we have newly declared the goal of achieving carbon neutrality. Our declaration consists of two goals:
➊achieving carbon neutrality for business activities (Scope 1 and 2) by FY2040 and ➋laying out a plan to reduce CO₂ emissions in the supply chain (Scope 3) by FY2025.
　Energy consumption is expected to rise in proportion to an increase in sales. To address this, we plan to reduce net CO₂ emissions to zero by FY2040 (Scope 1 and 2) by ➊promoting energy saving, ➋shifting to renewable energy sources in the energy mix, and ➌investing in carbon offset projects.