Message from the President

Drawing a clear roadmap for the three years leading up to our 100th anniversary

Creativity for “Create the Future,” the subject of the new medium-term management plan

In the context of progressing toward FY2033, when we will celebrate our 100th anniversary, we defined our vision as, “Global Power Solution Partner— Continuing to be a partner that listens to customers and meets their expectations in the provision of solutions.” Under this vision, we formulated our purpose during the period of the previous medium-term management plan. Our purpose, which represents our significance, reads, “Moving society forward with power electronics and creativity.” In the new CF26 medium-term management plan that started in April 2024, we included the slogan, “Create the Future—With the Use of Creativity” based on our purpose. CF26 is the third medium-term management plan since I became President in 2018. In it there are no changes to our basic direction. At the same time, customers’ expectations of us and the number of inquiries regarding the new energy sector, which is part of our business area, are growing every day amid the accelerating transition to next-generation energy systems. This really brings home to me the significant roles that our power electronics technologies have in supporting the foundations of a better society in the future. We will make every effort to achieve continued business growth and to increase profitability.

Hoping for a market turnaround starting in the second half of FY2025

FY2024 was the initial fiscal year of the CF26. In that year, net sales stood at 25,440 million yen, down 5,565 million yen year on year, and operating profit was 1,073 million yen, down 2,334 million yen year on year. This is a major decrease in sales and profit. The reaction to the results in the previous fiscal year and the impact of external conditions were anticipated to some extent. It was the prolonged power semiconductor inventory adjustments that had a greater negative impact than expected. When the COVID-19 pandemic began five years ago, there was a global shortage of power semiconductors. We increased production of power semiconductors to fill the rush of orders. Now, there are some power semiconductors that were produced at that time that are still in the market as excess stock. Earlier, it was forecast that the situation would ease in FY2024. However, inventory adjustments have lasted longer than anticipated. In FY2025, we are finally seeing signs that demand is recovering in individual regions. Currently, I hope that the market will start to rally in the second half of FY2025. In the power supply business , there was a reactionary decrease following a large-scale special demand project worth around 3 billion yen in FY2023. In addition, sales of mainstay power supplies for surface treatment were weak. While inquiries and orders received were nearly as high as in usual years, we had multiple large power supply projects at the same time, and they were technically difficult. There was a case where the design process took longer than expected, which inconvenienced the customer in terms of delivery time. This also had a negative impact on our performance. In this situation, the power supply maintenance services department brought us very good news. The performance of repairs, inspections and other after-sales services was buoyant, and record-high sales and profit with a 13.5% sales increase from the previous fiscal year were achieved. We will vigorously work to strategically develop the service business as a stable source of revenue that is not susceptible to market conditions.

Steady progress in initiatives for increasing production efficiency and profitability

FY2024 was a difficult year in terms of our financial results. However, we did not stop our reforms that were already underway. They are steadily producing positive results. One example of this is that the strategy for receiving orders that is focused on added value has taken root in the sales department. From a medium-term perspective, the power supply business improved its profitability and maintained its upward trend. We will carefully examine projects that involve intense price competition and focus on high value-added projects that allow us to firmly display our technological strengths to increase our profit ratio. I feel that there is still room to enhance proposals in the power supply business. Another thing I have asserted for years is that we need to shift our organizational culture from being passive to being proposal oriented. We will firmly adhere to our attitude of continuing to propose solutions that anticipate future needs as well as the needs of the customer and to systematically manufacture and deliver products. The standardization of design is another area in which the positive results of the reform are emerging. In our power supply business, standard products account for 50% of sales and the remaining 50% are custom-made products. Many of the large power supplies are custom-made. Design and product development are necessary on a project-by-project basis. This is time consuming and costly. In addition, it is not easy to maintain the quality of non mass-produced custom-made items. I am fully aware that our responses to orders for custom-made products earn us praise from customers. However, we need to seek efficient design methods so that we will continue to be a genuine partner that meets their expectations as stated in our vision. Today, there are various standardization projects underway in the design department. There have already been some successful projects. There are many different approaches to standardization, and a detailed explanation would be rather complicated. Take a power semiconductor circuit module in an uninterruptible power supply for example. We previously designed every single product individually, and we had a large number of manufacturing drawings. Our recent standardization initiative organized and integrated these drawings. We succeeded in considerably reducing the kinds of drawings that we have. Standardization like this shortens design lead times significantly. That increases our cost competitiveness, the efficiency of inspection processes and product quality. It increases all aspects of our strengths. It allows sales personnel to understand the specifications before communicating with customers. It facilitates their proposal based sales activities. For example, general-purpose parts are used in areas of luxury vehicles that are not visible. Similarly, we will actively standardize designs and parts without decreasing customer satisfaction. This initiative is still incomplete, but it is making some difference.

Preparations for achieving the CF26 targets are steadily progressing

FY2024 was the first year of the medium term management plan. In that year our financial results were disappointing. However, we did soundly prepare for the future. This is why we slightly revised the business plan for the second year, FY2025. Even in adverse conditions, we will continue to lay a foundation for achieving the targets for the final fiscal year of the plan step by step. First, the introduction of new products that will support the next generation. In the semiconductor business, we finished developing a 1700V/300A SiC MOSFET module and a high-speed diode module. The MOSFET module is a silicon carbide (SiC) product. Demand for it is currently growing rapidly due to it being highly efficient at power conversion and its ability to reduce CO2 emissions. The high-speed diode module is a high-performance product that meets needs regarding smaller equipment. In the power supply business, we have developed the MRT power supply for surface treatment. We have the largest share of the surface treatment market in Japan. The performance of the MRT power supply is considerably enhanced while maintaining its compatibility with conventional equipment. With these products, we will seek to increase our market share and expand overseas. Another new product that I would like to draw your attention to is the S-Loop modular power supply for testing and evaluation of storage batteries. In line with the popularization of renewable energy, needs are rapidly increasing regarding the evaluation of storage batteries in the fast-growing storage battery market. The S-Loop is a revolutionary modular product that can be used in various evaluations. We have had great difficulty in the development process. Currently, no competitors provides any product that is similar. We see it as a product that displays our unique strengths. We have started proposing it in the Japanese market. I hope that these new products will make a substantial contribution to our net sales in the future. Next, our investment plan. We earmarked 6.4 billion yen for investments in the three-year period of CF26. Progress was as planned. We allocated 3 billion yen to growth fields, 2.4 billion yen to increasing productivity and 1 billion yen to reinforcing the foundation of our business. For FY2024, we intensively invested chiefly in semiconductor plants. Today, we continue to make capital investments. Through these efforts, we will increase our production capacity and accelerate automation. We are also planning to carry out product model changes in line with these investments. We aim not only to increase production of existing models but also to improve quality, cost and delivery (QCD). At the same time, regarding investments in power supply plants, we are planning to replace different kinds of equipment that we have used for a long time. We will start the full-scale replacement of this equipment in the current fiscal year. Regarding our investment in reinforcing the foundation of our business, we have replaced a mission-critical system. We will work on the groupwide optimization of work processes to increase their efficiency and to advance our management of our business. Despite all these things, the most important investment is in human capital. I have always felt that department and section head personnel, who play central roles at the working level, are the real strength of the company. To boost the potential of the organization as a whole, we will continue to actively invest in training executive candidates. We will also have to continue to increase our cultivation of engineering personnel, since they are the source of our competitiveness. In the field of power electronics, where advanced expertise like ours is necessary, it is difficult to obtain helpful skilled workers. Therefore, we will steadily develop human resources from a long-term perspective and endeavor to create an open and lively workplace environment to increase employee engagement.

Collaboration and co-creation with other companies create new opportunities

Our target for FY2033, which will be the 100th anniversary of our founding, is net sales of 50 billion yen. There are eight years left before our centenary. Let me split this period into three phases and liken them to a hop, step and a jump linked to three separate medium-term management plans. In the hop phase during CF26, it is important to draw a clear roadmap to being a 50-billion-yen business and to develop a realizable strategy. In particular, the overseas expansion of business is such an important issue that it cannot be ignored. In the power supply business, we emphasize the expansion of power supplies for surface treatment in Asia. We have a future plan to develop local models for Asia and to expand our sales presence in South Korea, Malaysia, Indonesia and other areas where we already have a track record. In the semiconductor business, we will fully promote SiC semiconductors in Europe and in China. They have earned high marks for their good performance. Starting with SiC and other semiconductor products, we will build relationships of trust with customers. We then aim to develop these relationships into comprehensive transactions that include power supply products. Meanwhile, in the power supply maintenance service sector that recorded record-high net sales, we will study measures to receive more orders for long-term repair contracts and to expand our repair services overseas. I expect that collaborative projects with other companies will gain momentum in the future. Our strength lies in a deep understanding of both power semiconductors and power supply equipment and in the offering of integrated solutions. Since we are a manufacturer specializing in these two technologies, we have a competitive advantage in terms of being able to quickly and flexibly respond to various requests. We have been praised by partner companies for this. Currently, each team is working as one to carry out joint development projects. One effect of our business activities is the reduction of our environmental impact. I feel that we need to collaborate and co-create with other companies to help solve more significant social issues with a view toward the realization of a decarbonized society. If collaboration and other projects like these move forward, new business segments comparable to the semiconductor business and the power supply business may emerge. They have the potential to develop into high value added and stable revenue bases. I look forward to exploring them. We will continue to strengthen corporate governance. We will appoint more female managers and push forward with diversity and inclusion. In addition, we are currently reviewing our internal meeting bodies. We will establish systems for operating these meeting bodies, ensuring that issues are sufficiently discussed and encouraging more diverse and active exchanges of opinions to achieve a decision-making process that is highly transparent and effective.

Continuing to achieve solid growth by fulfilling our mission to advance society

For the milestone of our 100th anniversary, we have set the target of a return on equity (ROE) of 10% or higher. For FY2024, ROE fell from the nearly 13% in the previous fiscal year. The price-to-book value ratio(PBR) also decreased from the FY2023 level of around 1. These figures make us feel that we have moved further away from our targets, even though in fact we have moved closer to them. It is unsurprising that financial results fluctuate on a single fiscal year basis. In my view, the point is that we should communicate the position of our company and our revenue so that everyone understands that we are growing steadily from the perspective of the three-year period of the medium-term management plan. As I mentioned with the expression “hop, step, and jump,” the first fiscal year of CF26 was a period when we crouched down in preparation for the next leap. I feel we made a solid step forward by preparing significantly for the future, even in difficult conditions, including the standardization of designs, the completion of new product development efforts and the systematic investment of capital. I hope that you will look forward to the positive effects that the foundation we have constructed through these efforts will have on the recovery and growth of our financial results in and after the current fiscal year, as well as to our evolution. In line with our purpose, “Moving society forward with power electronics and creativity,” the Sansha Electric Manufacturing Group will continue to develop as a unique entity that is trusted and regarded as necessary by all stakeholders.