Daifuku Report 2019

ROE and capital efficiencyWhile there are various perspectives toward the coefficients used to calculate capital cost, Daifuku does not disclose specific details. Suffice it to say, the Company’s basic approach is to ensure that its ROE is more than sufficient to cover capital costs in all cases. As a result, we are confident that our capital efficiency remains sound. At each monthly meeting, the Board of Directors assesses the status of the Group’s net operating assets. We believe that such stringent oversight is helping raise our operating margin and total asset turnover while improving ROE on an ongoing basis.Promoting global cash flow managementAs a Group that operates in 26 countries and regions, Daifuku recognizes the critical need to monitor opportunities and risks from a global perspective to engage in prudent financial management. With this in mind, we are optimizing cash flows on a global basis by minimizing net operating assets. Considering our operating environment, including changes in accounting standards worldwide, we also work to strengthen internal controls in connection with financial statements as an important element of our financial strategy.Investments for further growthDaifuku continues to exhibit a growth trajectory and as such is committed to forward-looking investment. In addition to our core factory, the Shiga Works, we are currently expanding production capabilities for systems for manufacturers and distributors in mainstay countries, such as the U.S. and China. While we remain confident in our production capability to achieve our net sales target of 500 billion yen in the final fiscal year of the medium-term business plan, we plan to undertake expenditures geared toward further growth based on a number of factors such as regional and business-specific demand. We recognize the importance of the role R&D will play in providing new solutions. Moreover, our efforts to pursue M&As in the future will be critical in our ability to quickly gain access to AI-based image processing, robotic arms, and other cutting-edge technologies. Certainly, a 10% operating margin is rather high for a “plant equipment supplier” such as ourselves. To pursue an even higher margin, we need to modify our business portfolio. Accordingly, we are placing considerable emphasis on cultivating and nurturing the devices business where lead times are short and margins are high despite limited sales volumes. This includes the electronic devices handled by Contec Co., Ltd., car wash machines, non-contact charging systems derived from cleanroom transport systems, and airport self-service baggage check-in systems.Strong operating results spur record dividends per shareIn addition to reporting unprecedented levels of net sales as well as operating, ordinary and net income, Daifuku set its annual dividend at a record high of 90 yen per share (interim dividend of 30 yen per share) for fiscal 2018 as a part of efforts to return profits to shareholders. With an annual dividend payout ratio target of 30%, the Company will continue to provide adequate returns to its shareholders while at the same time enhancing its corporate value through ongoing business growth. The balance of Daifuku’s cash on hand and in banks ballooned as of the end of fiscal 2018 (March 31, 2019), because the Company is yet to fully utilize the proceeds procured from the public offering conducted in fiscal 2017. We plan to undertake a record high 16.7 billion yen in capital expenditures during fiscal 2019.My aspirations as CFOAlthough temporary in nature, Daifuku’s market capitalization came in at 1 trillion yen in 2018. While totaling 9,857 as of the end of fiscal 2018, the Group’s workforce is projected to exceed 10,000 during fiscal 2019. Clearly, we are entering a new phase as a company. Cognizant of the current harsh employment environment and difficulties in attracting human resources, we recognize the importance of investment. In addition to establishing a comfortable workplace environment that allows diverse employees to excel, we will improve office productivity by introducing robotic process automation. We announced our assent to the recommendation of the Task Force on Climate-related Financial Disclosures (TCFD) in May 2019. In my concurrent roles as Chief Risk Officer (CRO), I will spearhead efforts to analyze the opportunities and risks that climate change provides and imposes on our global business and promote the disclosure of information in line with the TCFD recommendations framework. Daifuku will continue to strengthen its corporate governance and compliance functions, further reinforce engagement not only with investors and shareholders, but also with various stakeholders and work to enhance corporate value.15Daifuku Report 2019

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