To Daifuku’s Shareholders and Investors

To Daifuku's Shareholders and Investors

We would like to begin this message by expressing gratitude to our shareholders and investors for their ongoing support.

1. Operating and financial review

During the fiscal year ended March 31, 2017 (the period from April 1, 2016 to March 31, 2017), the global economy faced stagnant business confidence in emerging countries in the wake of the slowdown in economic growth in China. Benefited from a moderate recovery in developed nations, turmoil in stock and foreign exchange markets triggered by the Brexit decision in Great Britain remained limited. Following the U.S. presidential election, an increase in public spending within the nation is expected, however, future trade policy is emerging as a variable factor with potential repercussions for the global economy. The Japanese economy maintained a moderate recovery with some positive factors, including the underlying strength of capital investment and exports.

Daifuku Group's mainstay material handling systems have growth potential, since logistics-related investments from the e-commerce sector are expanding globally, demand for automation and larger facilities is increasing, and capital investment is being used to resolve labor shortages and increase productivity. Taking note of this growth potential, entries from different industries and M&A within the industry have been increasing in recent years.

Amid these conditions, operating results of the Group made steady progress. Operating income, ordinary income and net income attributable to shareholders of the parent company all reached record highs. At the same time, the Group achieved an operating margin of 7%, which was the medium-term management target.

Orders were robust, topping 100 billion yen in the fourth quarter, as in the third quarter. Orders were strong in all major areas due to a worldwide increase in demand for material handling systems from manufacturers and distributors, buoyant business conditions in the flat-panel display and semiconductor sectors, and an increase in capital investment by U.S. automakers.

Sales made steady progress against a backdrop of an abundant order backlog but contracted with the appreciation of the yen.

Specifically, the Group received orders of 356,518 million yen, down 0.8% from a year earlier, and recorded net sales of 320,825 million yen, down 4.6%.

Income surpassed the year-ago figure, reflecting the significantly increased profitability at U.S. subsidiaries, stable profitability by the parent company, Daifuku Co., Ltd., and the return to profitability of a European subsidiary, which sells systems used in airports.

Consequently, the Group posted operating income of 23,099 million yen, up 10.6% from a year earlier, and ordinary income of 23,760 million yen, up 8.0%. Net income attributable to shareholders of the parent company was 16,746 million yen, up 22.7%, mainly due to a decline of extraordinary loss related to subsidiaries.

The Group has been promoting Value Innovation 2017, a four-year medium-term business plan with the fiscal year ended March 31, 2017 as the final year, in step with the 80th anniversary of its founding on May 20, 2017. The main management targets were net sales of 340 billion yen, operating income of 21 billion yen and ROE of 10% or higher. The Group achieved all the targets except for net sales that were affected by the stronger yen.

Based on these achievements, the Group developed a new medium-term business plan, Value Innovation 2020, which applies for the four-year period from April 1, 2017 to March 31, 2021, with management targets for the final year including consolidated sales of 420 billion yen and operating income of 8.0%. The Group will make a concerted effort to further enhance corporate value.

2. Outlook for the fiscal year ending March 31, 2018

Given the initiatives above, Daifuku has made the following earnings forecasts for the fiscal year ending March 31, 2018, with the expectation of sustainable growth.

The earnings forecast for the fiscal year ending March 31, 2018 (April 1, 2017 - March 31, 2018)

The earnings forecast for the fiscal year ending March 31, 2018 (April 1, 2017 - March 31, 2018)
Orders 390,000 million yen (up 9.4% year on year)
Net sales 380,000 million yen (up 18.4% year on year)
Operating income 26,600 million yen (up 15.2% year on year)
Ordinary income 27,400 million yen (up 15.3% year on year)
Net income attributable to shareholders of the parent company 19,000 million yen (up 13.5% year on year)

*Disclaimer

This forecast represents the judgment of the Company based on information presently available. Actual results may differ materially from forecasts due to various uncertainties, including economic and competitive conditions worldwide as well as various risk factors.

3. Basic policy for dividends

Daifuku regards the return of profits to shareholders as its most important management task and adopts a performance-based policy for dividends from surpluses based on consolidated net income, with the aim of achieving additional profit distribution to shareholders. We appropriate the remaining surplus to internal reserves for future growth.

Under its four-year business plan, Value Innovation 2020, Daifuku aims to achieve a dividend payout ratio of 30% and increase its corporate value through investment in growth.

For the fiscal year ended March 31, 2017, Daifuku paid an interim dividend of 12 yen per share, and the Board of Directors passed a resolution to pay a year-end dividend of 30 yen per share at a meeting held on May 11, 2017, making the annual dividend 42 yen per share. The year-end dividend includes a commemorative dividend of 5 yen per share, taking into account that the Company will celebrate the 80th anniversary of its founding in May 2017.

With respect to dividends for the fiscal year ending March 31, 2018, the Company plans to pay an annual dividend of 47 yen per share (an interim dividend of 15 yen per share and a year-end dividend of 32 yen), taking into consideration the earnings forecast for the fiscal year ending March 31, 2018 and the basic policy described above.

We respectfully ask our shareholders and investors for their continued support.

May 2017
Masaki Hojo, President and CEO
Daifuku Co., Ltd.