New Medium-Term Management Plan（FY2023-2025）
PASSION FOR YOUR SUCCESS

In recent years, the world has seen megatrends such as the advance of digitalization and automation, changes in social structure and environment due to demographic changes and climate change, and the shift to a more complex society that is highly volatile and difficult to predict, known as VUCA (Volatility, Uncertainty, Complexity, and Ambiguity). In addition, an aging society in many countries, the increase of the world population, global warming and the rapid progress of technological innovation are becoming societal challenges that global companies have to address.
Back in 2017, the IDEC Group announced a medium-term management plan. However, the outbreak of the COVID-19 infections and other factors significantly changed the business environment, and we reviewed the plan based on the current megatrends and societal challenges. Then in May 2022, we announced a new medium-term management plan which set FY2025 as the final year. Under a new slogan “PASSION FOR YOUR SUCCESS,” we will promote initiatives that address key areas such as needs for automation, and unmanned and labor-saving operations, as well as the enhanced awareness of safety, ANSHIN, and well-being, based
on the control technology we have cultivated over the years. We are thereby aiming to contribute to solving societal challenges and to achieve sustainable growth and customer success.

Enhanced industry-specific market strategies

　In light of the megatrends, the new medium-term management plan focuses, among the eight highlighted industries, on AGVs and AMRs and robotics— two industries with high growth potentials in global—and automotive and machine tools markets. We are expecting compound annual growth rates of 20-30% for AGVs and AMRs, despite the market not yet being very large, and 6-7% for robots.
In order to expand sales in these markets, it is essential not only to sell existing components, but also to develop new products based on industry needs, and to strengthen sales of solutions. In the mature
markets such as Japan, the Americas, and EMEA, we plan to enhance our competitiveness particularly by making challenge-solving proposals, including packaging of best-suited products for each industry.
In Japan, we will also seek to restructure and strengthen sales channels and to establish a system for expanding APEM products. Our focus in the Americas is to strengthen automation products such as programmable logic controllers, and in EMEA, our plan is to expand sales of IDEC products utilizing APEM’s network. In growth markets such as China and India, we will promote business expansion by further enhancing our presence. In China, where significant growth is expected, we will make organizational reform and will work to develop a solution sales organization that enables high-efficiency sales by accelerating local production for local consumption through product development based on local needs.

By promoting the new concept “HMI-X”, IDEC will provide products and solutions to address customer challenges, helping them to create the optimal environment for humans and machines.

Expansion of business area: From “Interface” to “Interaction” and leading to “the Realization of Optimal Environment”

As a leading company in Human-Machine Interface (HMI) business, IDEC has expanded over a wide geographic range. Together with changing times, IDEC’s business area has expanded from “Interface”,
which connects humans with machines in various aspects of manufacturing and living, such as industrial switches and operator interfaces, to “Interaction” where a network connects humans with machines, or a machine with another machine, increasingly due to development of the Internet of Things (IoT) and other changes in technology and society. The next step will be the “Optimal Environment” which includes the space in which humans and machines coexist, in addition to networked mechanical devices. In this context we anticipate growing demand for realizing safety, ANSHIN and well-being for people.
In light of this background, we are promoting human-centered “HMI-X [Transformation]” as a new concept for the IDEC Group, which further evolves the thinking of HMI by utilizing the safety DNA we have cultivated so far. By promoting HMI-X, we aim to realize our Purpose—to create the optimum environment for humans and machines, and to achieve safety, ANSHIN, and well-being for people around the world.

Strengthen the highly-profitable industrial switches business and the safety business with its global growth potential

As a manufacturer of diverse HMI products and other control devices, IDEC has the top market share in Japan and the third largest worldwide in industrial switches, which account for about 50% of its sales.
IDEC has also always focused on safety-related products since its foundation. In order to achieve the management plan for FY2025, we will continue to strengthen the highly-profitable industrial switches business and the safety business with its global growth potential.
In the industrial switches business, our strategy is to expand our product line-up and develop NEW HMI products that incorporate new functions, in order to strengthen our global competitiveness and expand our global market share. In the safety business, we will accelerate the overseas development where market expansion is expected by expanding our product portfolio to meet regional needs. We will also work on creating innovative products that feature ANSHIN in addition to high safety.

Driving HMI-X [Transformation] through solution deployment

In order to respond to extremely diverse customer needs and challenges, driven by recently emerging megatrends and market changes, we have to deploy various solutions, which combine not only our existing industrial switches and other components but also NEW HMI products, which are being developed based on the unique needs of each industry, such as makers of machine tools and robots; various sensors of IDEC ALPS Technologies CORPORATION (established in 2021); and new software that we intend to strengthen development by promoting human resource investment. In addition to thus utilizing IDEC’s core technologies, we are working with our partners to achieve solutions that meet the anticipated demand of our customers.
Specific examples include solutions that utilize products from ez-Wheel (France), which concluded a partnership agreement with IDEC in 2022. ez-Wheel is a manufacturer of safety wheel drive for AGVs and AMRs with the drive control and safety features required for autonomous driving. Going forward, beyond sales of wheels, we can now offer a wider range of proposals tailored to the needs of customers by combining ez-Wheel products and IDEC products as a business alliance partner. By enhancing such solutions, we will help advance HMI-X [Transformation] and create new value.

Outline of the medium-term management plan with FY2025 as the final year

The new medium term management plan’s minimum targets are sales of over 80 billion yen, operating income of over 13 billion yen, and an operating income margin of over 16% in FY2025, with the ultimate aim of realizing an operating income margin of 20% in the long term. We have also created a new slogan, “PASSION FOR YOUR SUCCESS” and will create an environment that enables us to realize customer success, by providing advanced products, solutions and exemplary services.

Our financial goal is to improve profitability and efficiency in order to achieve sustainable and highly profitable growth.

Improve profitability: Promote selection and concentration to achieve a higher operating income margin.

In order to improve profitability, we make continuous efforts to eliminate or consolidate materials and products, and accelerate cost reduction and enhance production efficiency.
We will also consolidate sites in the world, to make our supply structure more efficient, and we introduce digital marketing to improve sales efficiency.

Improve capital efficiency: Increase capital efficiency and secure ROE/ROIC of 10% or higher.

We believe we have done well in managing inventories and fixed assets while expanding sales, and have improved asset turnover, which resulted in the most recent ROE of 17.2% (approximately 15% excluding the impact from extraordinary income, etc.) and ROIC of 9.2%.
Going forward, our focus will be to improve the efficiency of fixed assets, such as working capital and production facilities, in order to increase capital efficiency so as to exceed the expected capital cost (6%).

Cash flow and dividend policy: Increase operating cash flow, aggressively make new investments, and give return to shareholders.

Operating cash flow has been steadily increasing due to sales growth driven by robust control demand, and business efficiency improvement. We will continue to strive to increase operating cash flow, promote DX to improve efficiency, and make growth
investments to expand business areas.
We also pay dividends in a stable and constructive manner. In FY2022 we increased the dividend from 50 yen to 100 yen per share.

We will strengthen ESG efforts with the aim of contributing to realization of a sustainable society.

Contributing to the realization of a low-carbon, circulating society

In conjunction with the formulation of the new medium-term management plan, we have identified three Materiality initiatives. One is to “respond to climate change,” a growing societal challenge on a global base. We tackle this challenge as an important management issue.
Toward 2030, we aim to help realize a sustainable society by helping reduce the environmental impact of our customers and society through use of the IDEC Group’s technology and products.

Expansion of human capital initiatives

As part of strengthening our business foundation, we conducted an employee engagement survey, extracted issues from the survey results, and have promoted measures to address these issues. They include strengthening of human resource management systems, promotion of diversity and inclusion, and workstyle innovation. A second survey will be conducted in 2022 and a global survey is also scheduled in the future.
Through the resolution of the issues that reflected the opinions of our employees, we will strengthen investment in human capital and seek to raise employee engagement.

Further enhancement of governance

In order to improve management transparency and efficiency, the appointment of outside directors has been promoted, and independent outside directors now represent a majority of directors.
In 2022, based on the expertise analysis of directors using a skills matrix, two directors have newly joined who are knowledgeable about the areas that we want to strengthen in relation to management issues. By continuing efforts to enhance the effectiveness of directors, we are striving to enhance our corporate credibility and corporate value in a stable and long-term manner.