Message from the CEO
“ONE STEP AHEAD”
With the spirit of “Joy and Fun”
We will move “ONE STEP AHEAD” into the future in 2016, the first year of a new Mid-Long Term Management Plan. My role is to keep increasing corporate value for HORIBA. By continuously investing in human resources and technology, we will make our invisible values glow.
Sales and profits reached all-time highs in 2015
In 2015 (ended December 31, 2015), HORIBA posted its second consecutive year of record-high sales and profits, with consolidated net sales of 170.8 billion yen (up 11.7% year-on-year) and operating income of 19.3 billion yen (up 12.5% year-on-year). The Semiconductor Instruments & Systems segment was the main earnings driver, with its contribution driven by robust capital expenditure by the semiconductor industry in Asia and an increase in our global market share for mass flow controllers, our mainstay product (from 52% in 2014 to 55% in 2015). Meanwhile, the Automotive Test Systems segment recorded a decrease in operating income due to one off increases in expenses associated with a major acquisition and a move to a new base in Shiga Prefecture which is next to Kyoto Prefecture. The Scientific Instruments & Systems segment and the Medical-Diagnostic Instruments & Systems segment both recorded a year-on-year increase in operating income, but the Process & Environmental Instruments & Systems segment recorded a decrease in operating income.
Our previous business plan, through 2015, built a base for a major advance
In the previous plan (Mid-Long Term Management Plan [2011-2015]), our targets were 150 billion yen in sales, 20 billion yen in operating income and ROE of 11% or more. In 2015, partly due to the impact from the depreciation of the yen, sales significantly exceeded the target but the actual operating income and ROE (10.2%) fell slightly short. The major reason was concurrent investments: construction of a new facility, HORIBA BIWAKO E-HARBOR, and the acquisition of U.K.-based HORIBA MIRA, Ltd. By business segment, the Semiconductor Instruments & Systems segment significantly exceeded the plan and three segments - Automotive Test Systems, Process & Environmental Instruments & Systems, and Scientific Instruments & Systems largely achieved the targets. However, the Medical-Diagnostic Instruments & Systems segment recorded operating income of 2.4 billion yen in the final year, which was far behind the initial target of 6.0 billion yen.
I am also pleased to report that we have made satisfactory progress in the previous plan’s strategies: namely, full implementation of “One Company Matrix Management;” investment in highly profitable businesses; expansion of the business model so as to be better driven by customer viewpoints; and acceleration of global product development and production. However, profitability of the Medical-Diagnostic Instruments & Systems business and speedy improvement in profitability of the acquired businesses remain major challenges. In addition, a higher depreciation burden, caused by capital expenditure and business acquisitions, is emerging as a new challenge.
Launch of the new Mid-Long Term Management Plan MLMAP*2020, “ONE STEP AHEAD”
The MLMAP2020, which began in 2016 under the slogan "ONE STEP AHEAD,” incorporates our determination to move one step ahead of our existing business and to cross over a barrier by acquiring new perspectives. We have chosen a “drone” as our plan’s symbol, as the drone represents ability to flexibly control itself, break stereotypes, and add an entirely new dimension to the concept of flight. Even though one of five rotors (our five business segments) of the drone may temporarily decelerate, the remaining four rotors should enable the drone to keep flying. This resonates with the core of HORIBA’s well balanced management that aims for growth in all five business segments, and ensures growth even when one segment temporarily lags.
*MLMAP…Mid-Long Term Management Plan
The MLMAP2020 priority measures call for application of HORIBA technology in new business fields and new markets, for growth by a Super Dream Team based on balanced management, matrix organization and the HORIBA Stained Glass Project, and raising capital efficiency and maximizing corporate value. We have set numerical targets for 2020: sales of 250 billion yen, operating income of 30 billion yen, and ROE of 10% or more. The targets in operating income ratio are 20% for the Semiconductor Instruments & Systems segment and 10% for all other business segments.
In order to realize the MLMAP2020, it is critical that the Automotive Test Systems and Semiconductor Instruments & Systems segments, our two major businesses, remain earnings drivers. The Automotive Test Systems segment we plan to maintain its top share in emission gas analyzers and seek to generate return on the investments made in HORIBA BIWAKO E-HARBOR and HORIBA MIRA. The Semiconductor Instruments & Systems segment should also maintain its high share in mass flow controllers and at the same time expand in many aspects. In addition, we will apply HORIBA analysis and measurement technology to new fields, so that we can create a third business pillar.
We have made investments for the future
In July 2015, we acquired U.K.-based MIRA, Ltd. by investing 15.5 billion yen, a record-high amount for HORIBA. Having been in business since 1946, MIRA was a distinguished company hosting R&D bases of 30 automotive-related companies and employing about 500 engineers within its research facilities. HORIBA plans to transfer its cutting-edge analysis and measurement technology to MIRA so as to accelerate its business growth in development of next-generation mobility.
After investing approximately 10 billion yen, HORIBA BIWAKO E-HARBOR started full operation in May 2016. By means of consolidating gas measurement technology development, design, and production teams and launching an integrated production line with production partner companies, we aim to improve the time-to-market of new products and double our production volume. The SKY ATRIUM, a soaring staircase area in the middle of the building, is designed to help facilitate communication among employees'. When we eliminate the barriers between development, design and production teams and partner companies, and when each other’s work or know-how becomes more evident to others, I am confident that new value will emerge.
HORIBA BIWAKO E-HARBOR plays a role in the transfer of our core technology, diligently accumulated in Kyoto over a period of 70 years, into the hands of a new generation of engineers, who will spearhead the fostering of new development capabilities. This facility also has an R&D laboratory to be used to demonstrate the latest automotive measurement equipment and other experiments. Moreover, we are planning to enable customer training, demonstration and application development. We thus aim to create a place where we can create value together with our customers.
We will enhance our capital efficiency and cash flow management
We will emphasize capital efficiency and cash flow in the MLMAP2020. Historically we have emphasized ROA as one of our Key Performance Indicators (KPI), but this time we are setting capital efficiency targets for each group company and each business segment, and emphasizing cash flow management. In January 2016, we expanded our ERP (Enterprise Resource Planning) system worldwide. This will facilitate our close management of the balance sheet and cash flow for each business segment. We anticipate positive impacts to be generated in inventory management and reduction in time to recover return on our investments. At the same time the new system will enable us to quickly respond when a problem occurs. I believe establishing the system will eventually lead to quicker management judgments and more thorough implementation of efficient operations in all divisions, which include not only development, production, and other functional divisions but also administrative divisions. Ultimately we will improve our corporate value.
Our “Super Dream Team” will help accelerate corporate growth
We have promoted the “balanced management” of operating multi-businesses, which helps alleviate the impact from change in the economic cycle and enables us to make continuous investment, and “matrix organization,” which facilitates agile execution of strategies by using two axes of business segment and region. Moreover, quality and operating efficiency have been improved by introducing the “Blackjack Project”, which began in 1997 with the objective of changing the awareness and activities of employees. Then we began the “HORIBA Stained Glass Project” in 2014 so as to create an environment that values diversity. There is no doubt that implementing these initiatives have led to motivation of our employees to become more capable and more responsible team members. What I envision as ideal is an organization in which people with diversity can make the best of their strength and talents and exercise strength as a team. We have named it the “Super Dream Team.” HORIBA’s philosophy to respect each other, and our corporate culture of “Joy and Fun” , have inspired and been integrated into our overseas group companies. I think an accurate understanding of HORIBA’s corporate culture by our newly joined group companies is invaluable for their management and business development. I firmly believe that the “Super Dream Team,” when realized, will materialize significant potential for enhancing corporate value.
We are proud to be a company that supports many industries
None of HORIBA’s business segments, while generating sales of tens or hundreds of billion yen, are big in size. Nevertheless, we are proud that we are part of the foundation for global industrial development by providing cutting-edge analysis and measurement instruments, or “mother tools” that support, in particular, the automotive and semiconductor industries. I am convinced that we should never stop challenging ourselves by entering new markets or developing and applying new technology.
We must continue gaining market share and increasing profitability for each business, which inevitably result in expanding our corporate scale. I believe that will be HORIBA’s ideal path.
We will deepen our dialogue with all stakeholders
In its business activities HORIBA, since its origin, has been fully committed to owners (shareholders), customers, employees, and society, and has been engaged in dialogue with stakeholders in various ways. In 2011 we signed the United Nations Global Compact, a set of universally accepted principles in the areas of human rights, labor, environment, and anti-corruption. We ensure that when we conduct business we are rooted in each country and region, together with local employees, and understand the relevant diverse cultures, customs and values to ensure that we make a positive social contribution wherever we do business. I welcome opportunities to engage in constructive dialogue with stakeholders and explain our business strategies to them. This HORIBA Report and our website introduce not only our business and financial information, but also our “Invisible Values,” which are not shown in the financial statements, so that HORIBA’s corporate values are well understood.
Our basic policy on returning profits to owners (shareholders) is to target total returns to shareholders at 30% of HORIBA’s consolidated net income (the combination of dividend payments and share buybacks), allocating the remainder to reserves for capital and strategic investment in human resources and technology. In fiscal 2015, we paid a record-high annual dividend per share of 70 yen and bought back 218,000 shares (999 million yen; 0.5% of shares outstanding). For fiscal 2016, we are currently forecasting an increase of annual dividend per share to 75 yen.
I am proud that all of our business activities are contributing to the realization of a comfortable and sustainable society. This has not been changed as our company culture has been inherited from our very foundation to the present, and is consistent with our fundamental way of thinking regarding Corporate Social Responsibility. We are committed to working with a sense of challenge and the “Joy and Fun” spirit, raising the satisfaction of owners (shareholders), customers, suppliers, employees, and all other stakeholders, and contributing to society in order to improve our corporate value. I sincerely hope that you all agree with our management policy and will continue to support us for many years to come.
Chairman, President & CEO