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Medium-term Management Plan (2020-2022)
May 14, 2019
Tekka Kuba
Revisions to the medium-term management plan
1
2019 2020 2021
Million yen Plan Actual VS. Plan Previous
Plan Revised
Plan
VS. Previous
Plan
Previous Plan
Revised Plan
VS. Previous
Plan
Net Sales 55,316 57,828 + 2,511 58,056 63,070 + 5,013 58,674 65,010 + 6,335
Operating income
3,733 3,907 + 174 4,013 4,010 △ 3 4,089 4,180 + 90
Ordinary income
3,833 4,023 + 190 4,112 4,080 △ 32 4,191 4,240 + 48
Profit attributable to owners of parent
2,626 2,748 + 121 2,818 2,760 △ 58 2,873 2,840 △ 33
The revised targets reflect Kondotec’s expectation that the industry will be challenged by rising prices of steel materials and higher procurement costs, especially for imported materials. On the positive side, it expects continuing strong demand related to urban redevelopment projects and strong corporate capex supported by solid corporate earnings.
Overview of the 2019
2
Million yen 2018 2019 YoY Overview Topics
Industrial Materials
Net Sales 30,262 32,459 + 2,197 Achieved sales growth due to steady demand. But, decreased profit due to declining gross profit ratio and the increased expenses.
・Acquired business from Mechatro Engineering Co., Ltd. ・Acquired shares of TECBUILD CO., LTD.
Operating income
2,030 1,954 △ 75
Structural Steel Materials
Net Sales 14,410 16,756 + 2,346 Achieved sales and profit due to the big demand
・Opened the Okayama office Operating
income 1,338 1,717 + 379
Electrical Equipment
Net Sales 8,138 8,612 + 473 Achieved sales and profit due to steady demand and improvement gross profit ratio
・Acquisition of Real Estate Brokerage license Operating
income 183 262 + 078
Total (Consolidated)
Net Sales 52,811 57,828 + 5,016 ・Completed the second factory in Shiga Factory
・Shiga Factory acquired certification of ISO 14001: 2015
Operating income
3,537 3,907 + 369
The segment of Structural Steel Materials were solid by big demand. As a result, KONDOTEC’s earnings were expanded. We were promoted the organic growth strategies, such as cultivation of distribution routes / adoption of flexible sales methods, in addition to the increasing presence in foreign markets / M&A.
Recognition of the Business Environment
3
Future Present
The company’s business environment is expected to remain favorable in the foreseeable future thanks to support from inbound demand and urban redevelopment projects. However, it also expects changes, such as a gradual decline in demand from domestic construction spending (a key driver of its existing core businesses) and higher demand for maintenance and repairs.
Decrease in construction investment demand and increase in maintenance / repair demand
Robust construction investment demand
Robust demand in the private capital investment ・Capital investment related to inbound demand ・Urban redevelopment projects
Solid social infrastructure investment ・Prevention / mitigation measures for natural disaster ・Construction work related to the Linear Chuo Shinkansen and projected Shinkansen lines
Working environment and production form ・Labor-intensive
Changes in demand area for capital investment ・Shrinkage of domestic markets due to population decrease ・Increased investment in ASEAN countries
Changes in the content of social infrastructure investment ・Restraint in public investment due to fiscal constraint ・Increase in maintenance/repair construction work
Working environment and production form ・Increase in capital investment related to labor-saving
the aging of social infrastructure
a declining birthrate and an aging population
labor shortages
Domestic market stagnation
Basic Policy
4
In order to respond to the changing opportunities and risks associated with changes in the business environment, we will strive for sustainable growth and improvement in long term corporate value by through investment in areas expected to grow going forward (overseas, maintenance and repair, and labor-saving) in addition to enhancement our earnings capability in the existing core business.
2019
Net sales 57 billion yen
ROE 10.7%
DOE 2.7%
Growth strategy
Reinforcement of management base
Establishment of target indicators
Appropriate allocation of funds
・Maintain and expand the current earnings, which have been breaking past profit records ・Growth investment with conscious of capital costs
Net sales 100 billion yen (during 2020s)
Growth Strategy
5
We will strengthen areas expected to grow going forward (overseas, maintenance and repair, and labor-saving) by execution of non-core growth strategies and M&A strategy in addition to enhancement our earnings capability in the existing core business.
Non-core growth strategies
・Increasing presence in foreign markets
・Entry into the neighboring industry
・Expansion of the online business
etc.
Organic growth strategies
・Four growth strategies
・Expansion of operating sites
・Response to natural disasters
etc.
M&A Strategy Strategies to accelerate organic and non-core growth
1 Neighboring industry Pursue M&A with companies associated with industries other than the construction industry 2 Deepening the business Pursue M&A with material manufacturers, etc. 3 Expansion of business area Pursue M&A with companies that maintain overseas sites 4 Amplifying sales patterns Pursue M&A with companies that operates different sales patterns from those of KONDOTEC
Expansion of distribution channels Entry into the online business
Full-scale deployment in ASEAN countries (e.g. Thailand, Indonesia) Amplifying sales patterns
Deepening the business Reinforcement of
materials that support buildings and structures
Shipbuilding, transport, land and sea cargo handling, manufacturing & production facilities, fisheries, cultivation, agriculture, etc.
Four perspectives
Neighboring industry
Expansion of business area
Business areas
Design and manufacture of labor-saving and image processing equipment
Color identification inspection
Sort out the different colors mixed in the high-quality goods flowing at high speed.
< Example >
Visual inspection
Inspect the external dimensions and the presence or absence of dirt and scratches, and sort out non-defective products and defective products.
Mechatro Laboratory Design and manufacture of labor-saving
and image processing equipment
Collaboration
CHUOH GIKEN Co., Ltd.
Design and manufacture of various
types of machines equipment,
including labor-saving equipment, etc.
Provide high value-added products
Examples of strengthening areas expected to grow
< Example >
Factory new construction Bridge construction
Business areas
Sale and rental of scaffolding for civil engineering and architecture
◆Acquired TECBUILD CO., LTD. in February 2019 to strengthen the field of maintenance and repair.
◆Acquired labor-saving and image processing equipment business from Mechatro Engineering Co., Ltd. in December 2018 to strengthen the field of labor-saving.
【System after business acquired】 【Latest performance】
2019
Net sales 2,620 million yen
Operating income △ 37 million yen
Ord inary income △ 51 million yen
EBITDA 190 million yen
6
Target Indicators
Capital efficiency target
ROE is a major management indicator for KONDOTEC. We aim for an ROE of 10% or higher by striving to improve capital efficiency as well as working to strengthen our financial position and take other steps to enhance our earnings capability in pursuing strategic investment by M&A and other means, as well as actively expanding business investment aimed at growth.
Shareholder return target
In terms of dividends, while fully taking into account both consolidated operating results and the dividend payout ratio, we have the basic policy of distributing dividends to shareholders continuously and stably, targeting a dividend on equity (DOE) of 2.5% or higher.
Capital efficiency target ROE 10%以上
Shareholder return target DOE 2.5%以上
DOE is an indicator that takes into account both a dividend payout ratio, which is appropriation for shareholders and ROE, which is capital efficiency. That is an indicator that contributes to the creation of shareholder value we set.
7
We set “capital efficiency target” and “shareholder return target”.
Financial Target
Consolidated target (million yen)
2019 (Actual)
2020 (Plan)
2021 (Plan)
2022 (Plan)
Net sales 57,828 63,070 65,010 66,570
Operating income 3,907 4,010 4,180 4,300
Ordinary income 4,023 4,080 4,240 4,370
Profit attributable to owners of parent
2,748 2,760 2,840 2,920
The Medium-term Management Plan adopts the rolling method which responds to changes in the business environment while verifying the outcome and issues every year in an effort to realize the mid-to-long vision.
8
We will aim to achieve increase in net sales and income by financial target based on the Existing sales structure
《Medium-term Target》
《Long-term target》
During 2020s Net sales(Consolidated) 100 billion yen
Allocation of funds
9
Operating CF 8,700
million yen (*)
Funds on hand 10,133
million yen
We maintain high capital efficiency through growth investment with conscious of capital costs and stable shareholder returns
Stable and continuous dividends Dividends DOE
2.5% or more
Execution of M&A Strategic
investment
4,000 million
yen
Equipment replacement, Relocation and rebuilding of sites etc.
Capital investment
6,300 million
yen
Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan
Investment in people
800 million
yen
Investment for growth
Shareholder return
(*) Temporary increase in contributions due to the transformation of lump-sum retirement allowance to defined-benefit corporate pension plan is not included.
Operating income 4,300
million yen
ROE 10%以上
2022 (Plan)
Actual of Investment for growth and Shareholder return
10
◆The results have generally progressed well against the previous plan(2019~2021)
Item Contents 2019~2021
(Plan)
2019 Residual funds
Actual Progress rate
Investment in people
Transformation of lump-sum retirement allowance to defined-benefit corporate pension plan
1,200 million yen
400 million yen
33.1% 800
million yen
Capital investment
Equipment replacement, introduction of new equipment to factories, etc.
2,800 million yen
981 million yen
35.1% 1,818
million yen
Strategic investment
Execution of M&A 3,600
million yen 1,015
million yen 28.2%
2,584 million yen
Dividends Stable and continuous dividends 2,300
million yen 696
million yen 30.3%
1,603 million yen
Item Residual funds
① 2022 (Plan)
②
Previous Plan base total (①+②)
Revised Plan 2020~2022
(Plan) Revised factor
Investment in people
800 million yen
― 800
million yen 800
million yen No revised
Capital investment
1,818 million yen
508 million yen
2,326 million yen
6,300 million yen
Increased investment in sites to enhance our earnings capability in the existing business
Strategic investment
2,584 million yen
― 2,584
million yen 4,000
million yen Increased investment to execute of M&A strategy actively in the future
◆We revised the fund allocation plan to sustainable growth and improvement in long term corporate value
Reinforcement of management base
11
We fulfill our social responsibility through business activities while taking the initiatives which are conscious of SDGs and ESG. Moreover, we will strive for sustainable growth and improvement in long term corporate value.
・Improvement of quality control ability, productivity and product development technology ・Response to natural disasters ・Promoting constructive dialogues with shareholders and investors ・Creating a platform on which diverse human resources can keep working free from anxiety
Social
・Expansion of the handling of environment-related products and merchandise ・Environmental protection and Energy-saving initiatives ・Management of emissions
Environment
・Reinforcement of corporate governance ・Investment with conscious of capital costs ・Thorough compliance
Governance
Specific initiatives Relevant SDGs
【 Supplement 】 Transition in dividends (Plan to increase dividends for the 9th consecutive period)
◆ Transition in dividends
12
0Yen
5Yen
10Yen
15Yen
20Yen
25Yen
30Yen
35Yen
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Commemorative dividendIncrease in ordinary dividendsOrdinary dividend
Since the initial listing: No decrease in dividends We have the basic policy of distributing dividends to shareholders continuously and stably. Moreover, we are targeting dividend on equity(DOE) 2.5% or more.
We executed a 2-for-1 stock split of common stock on January 1, 2012. Dividend per share is all figures taking into consideration the impact of stock split.
5.5 Yen
6.0 Yen
10.0 Yen
5.0 Yen
11.0 Yen
13.0 Yen
13.5 Yen
14.0 Yen
15.5 Yen
20.0 Yen
22.0 Yen
23.0 Yen
26.0 Yen
(Plan) 24.0 Yen
29.0 Yen
(Plan)
◆ Notes on forward-looking statements
This document contains forward-looking statements including operating forecasts and business plans. Future operating performance projections that the Company releases are based on data available at the time of making the release. Actual results may differ considerably from projections due to various factors and changes.