Kyosan Electric Manufacturing : CORPORATE REPORT 2022 (3MB）

CORPORATE

REPORT 2022

Kyosan Electric Manufacturing Co., Ltd.

VISION

KYOSAN VISION

Continuously ensuring safety and peace of mind for the future

Corporate Philosophy

Based on the themes of "Safety and Reliability" and "Global Environment Conservation,"

we will contribute to "the development of society and a better quality of life"

with our advanced technologies and high-quality assurance.

Management Objectives

Perpetual growth of the Kyosan Group

Kyosan Corporate Code of Conduct / Action Guideline

Kyosan Electric Mfg. Co. and its affiliates aim to become a reliable company that creates and improves safety and security for the people. Toward this end, we will contribute in the improvement of social comfort through constant dedication to the development of new technologies, and attain traffic and lifeline safety through providing products and services that match the needs of our customers.

As good corporate citizens, we will always maintain "honesty, high ethics," and a "strong sense of responsibility and involvement" in all of our business dealings, and we will act proactively with the awareness for "innovative ideas meeting challenge" and "speed and consistency." We shall execute the practice of this corporate code of conducts by leading by example as one of our most important responsibilities, and will promulgate these principles to all employees, thereby infusing a spirit of cooperation and harmony throughout the organization. We will strive to build a corporate foundation that is flexible in its response to various management crises through full internal control, while exerting the utmost effort toward the permanent ongoing development of the enterprise, making positive contributions to the community and maintaining the confidence of our customers.

We shall therefore

1. Put our customers first We shall do everything in our power to provide products and implement services that will achieve a high degree of customer satisfaction. All of our business activities shall be constantly steeped in the concept of 'put our customers first'.

Happiness of all the people who work hand in hand with us

Appropriate returns to stakeholders

Corporate Vision

Envisioned corporate image:

First and Foremost in Reliability - KYOSAN

Leading company that provides safety and peace of mind

Global corporation that respects the cultures of all countries

1. Constantly Innovate
2. Comply to Law
3. Engage in Fair Business Practices
4. Provide Proactive Disclosure

We shall constantly strive to develop and advance leading edge technologies that will help to make products that are highly functional, of the highest quality, and that are friendly to the environment and people, while protecting and enhancing our intellectual properties.

We shall engage only in business activities that are fair, sound, legal and ethical, and fully compliant with the applicant laws and regulations and the highest principles of ethics and social mores.

We shall endeavor to follow sound business practices in all of our business areas, to be fair and transparent at all times, and to conduct appropriate business dealings. We shall maintain sound and normal relationships with politicians and government administrations and take a firm stand against antisocial forces.

We shall provide proactive disclosure of all our business activities to our shareholders and to everyone affiliated with our company in a timely manner, in order to be an "open and trustworthy company."

Effective corporate governance

Honesty and

6. Respect Individual	We shall endeavor to ensure that all employees are respected as individuals and, by so
Employee	doing, create a rich, abundant, workplace that provides satisfaction and a deep sense of
	fulfillment for all employees.

high ethical	Speed
standards

Code of			Action
Conduct			Guidelines
Strong sense of
responsibility and	Diversity	Challenge	Innovation
involvement

1. Be a Good Corporate Citizen
2. Manage Risk
3. Protect the Environment and the Planet

We shall contribute to society through first and foremost being a good corporate citizen in all of our business undertakings.

In regard to significant management risks including catastrophic disasters and accidents, we shall endeavor to take preventive and predictive measures; and at the same time, to build a structure to prevent the occurrence and expansion of loss.

We shall endeavor to implement eco-friendly policies that will help bring about a society that is gentle to the earth and to the people living in it.

VISION

1

Growth Strategy

3

Sustainability

15

23

Kyosan Group's Initiatives for

Governance

35

Data Section

45

Scope of Report

SDGs

In principle, this report covers Kyosan Electric Manufacturing Co., Ltd. and its affiliates.

1 KYOSAN VISION

3

Top Message

15

Basic Approach to Sustainability/

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35

Executive Members

45

Financial Highlights

Examples of SDG Initiatives

Period Covered by Report

2 Kyosan Corporate Code of

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Medium-Term Management

16

Business Portfolio

25

Social Engagement Initiatives

39

Corporate Governance

46

Non-Financial Highlights

This report covers the fiscal year ended March 31, 2022 (April 2021 to March 2022), but

Conduct / Action Guideline

Plan 2025

Initiatives to Improve Quality and

43

Risk Management

47

Financial Data and

also includes some information from before and after that period.

11

Financial Strategies

Reduce Environmental Load

19

Corporate Profile

27

44

Dialogue with Shareholders

Non-Financial Data

Caution Regarding Forward-looking Statements

13

R&D/Intellectual Property

Material Procurement

49

Corporate Data

Forecasts regarding future performance contained in this report are based on judgments

14

Message from the General

20

Ensuring Diversity

27

Kyosan's Business Areas

50

Stock Information

and assumptions using information currently available to the Company.

Accordingly, please be advised that actual performance may differ substantially from

21

Initiatives for Utilization and

Managers

29

History of Kyosan

51

Offices/Group Companies

stated forecasts, due to uncertainty inherent in such judgments and assumptions, as well

Development of Human Resources

31

Kyosan in Daily Life

as changes in business operations and internal or external circumstances.

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Further Expansion of Overseas Business

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Top Message

Top Message

Aiming for corporate value that continues to receive the endorsement of

"Kyosan Electric Manufacturing as expected"

Focusing on the Overseas Business Expansion and the Entry into New Fields to Implement

the Medium-Term

Management Plan with a View to

My name is Ryoji Kunisawa, and I have been appointed as Representative Director, President, CEO as of April 1, 2022. I take over the helm from former president Tokodai, who has provided leadership over many years to expand the corporate value of the Group. I will strive for the further development of our business.

The Group has experienced a fire at its head factory in January 2021, which caused a great deal of inconvenience and concern to stakeholders. In the fiscal year ended March 31, 2022, under the theme of "innovation and reconstruction," the entire company worked together to rebuild our factories and restore product supply. As a result of our efforts to regain trust, we were able to largely achieve "reconstruction" and restore our performance and financial stability to the levels prior to the fire.

Going forward, we intend to accelerate "innovation," another theme that will lead to perpetual growth of the Group. Our business plays a role in protecting the safety and security of transportation infrastructure and supporting industry with a stable

power supply, and our strength has been the high reliability of our technologies and products. And, while continuing to protect these strengths, we must respond to societal and market evolution and technological innovations to more suitably meet customer needs and deliver additional value. We will emphasize "speed," "challenge," and "innovation" as stated in the action guidelines of our corporate vision, and will utilize more mobility to swiftly produce results.

Since assuming the position of president, I have been calling on our employees to strive to become a company that continues to receive the endorsement of "Kyosan Electric Manufacturing as expected." I believe that being recognized for delivering quality befitting that reputation by our customers and all other people in society who use the Group's technologies and products will lead to higher corporate value. To realize this goal, I am determined to bring the new management system together as a team and break through the vertical divisions in the organization so that we are better equipped to deal with interdepartmental management issues.

the Next 10 Years

Summary of the fiscal year ended March 31, 2022 and

the previous medium-term management plan

KUNISAWA Ryoji

Representative Director, President, CEO

The previous medium-term management plan, which began in the fiscal year ended March 31, 2019, initially covered a three-year period through the fiscal year ended March 31, 2021. In light of the impact of the COVID-19 pandemic, however, we extended the period by one year, and set the fiscal year ended March 31, 2022 as the final fiscal year.

In the fiscal year ended March 31, 2022, net sales were significantly higher than the previous fiscal year and recovered to the same level as the fiscal year ended March 31, 2020, prior to the fire as the Signaling Solutions Business secured the same level of orders received as the previous fiscal year, while shipping some products that were postponed from the previous fiscal year due to the factory fire. Orders received were robust in the Power Electronics Business as well.

In the Signaling Solutions Business, the number of CBM (Condition Based Maintenance) projects for signaling equipment increased in response to the

need for higher efficiency in railroad maintenance, and the installation of platform doors also expanded. Overseas, our achievements include an order for an electronic interlocking system for Indian Railways and the completion of 500 stations. In the Power Electronics Business, sales of power supplies for semiconductor manufacturing equipment and flat panel display manufacturing equipment increased.

Operating income and ordinary income increased due to the effect of increased revenue as well as successful cost reduction measures, and profit attributable to owners of parent increased significantly owing to extraordinary income. This included insurance claim income related to the fire.

However, from the fall of 2021 onward, the supply shortage of parts has been felt, impacting product shipments in both the Signaling Solutions Business and Power Electronics Business. Currently, we are coordinating with suppliers to secure parts, and we

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(Millions of yen)

Top Message

are also asking for cooperation from our customers to cooperate in accelerating order placement timing.

Although the previous medium-term management plan, which has now ended, achieved results in terms of strategy, including the reorganization of domestic consolidated subsidiaries to enhance management efficiency and the expansion of overseas business by reinforcing cooperation with partner companies, we fell short of our targets for orders received, net sales, and operating income. This was partly due to the impact of the COVID-19 pandemic and the damage resulting from the factory fire. Internally, however, we regret that the process of implementing and following through on the plan was not executed with sufficient strength.

Profit plan of the previous medium-term management plan (consolidated)

	Target value	FY2021 Results
Orders received	90,000
75,441
Net sales	90,000	72,916
Operating	7,200	2,969
income
Operating	8.0%	4.1%
income margin
ROE	10%	29.5%*

*Insurance claim income of ¥12,774 million related to the fire at the head factory was recorded as extraordinary income.

(3) challenge to new businesses. We will strive to

improve profitability, strengthen our financial

foundation, and develop and strengthen our human

resources required to achieve these goals. At the

same time, we will simultaneously promote

sustainability initiatives that are essential to the

company's continued existence.

As for the overseas business expansion of signaling

solutions, we will continue to concentrate on India where

we foresee expansion of electronic interlocking

equipment as a priority target for railway signaling

solutions and win new orders. In Poland, where we

established a local subsidiary in 2020, we will begin to

market our products using the results of our market

research. In traffic management solutions, we intend to

further expand the autonomous distributed control traffic

signal systems that have been successful in many

Challenge to new businesses is a major challenge for the Group. In April 2022, the existing Development Center was renamed and revamped as the R&D Center, and we have invited outside advisors to examine various aspects of the center. This includes the business potential and marketing through the acquisition of new elemental technologies and the use of existing elemental technologies.

The fiscal year ending March 31, 2023, the first fiscal year of the plan, will be important to establish a business foundation. We intend to implement fundamental manufacturing reforms to clear manufacturing cost reductions and shorten delivery times, and to accelerate development. We also recognize the urgent need to reform our personnel system and develop and strengthen our human resources. We will focus on the formation of career

Results for the previous medium-term management plan period

Reorganization of domestic consolidated subsidiaries to improve management efficiency

Appropriate and fair governance through consultation with the Nomination and Remuneration Committee

Promotion of work style reform through introduction of working from home and flexible working hours

Expansion of overseas business by strengthening collaboration with partner companies, etc.

Expansion of radio frequency power supply lineup to meet customer needs

Launch of demonstration tests applying the latest technologies such as AI, IoT, and satellite positioning technology

countries, as well as acquire advanced technologies and

develop new products for the mobility transformation.

In the Power Electronics Business, we will focus on

new development and deployment of products for

semiconductor manufacturing equipment, while

aiming to expand the domain through research and

development of next-generation technologies.

paths and skill development with the aim of fostering an internal culture in which each employee can work with conviction and grow while playing an active role. In line with this, we will encourage human resource mobility through job rotation, overseas assignments, and ensuring diversity, etc., and stimulate a change in the awareness of our employees.

Factors in failure to achieve targets of profit plan

Restrained investment by customers due to the COVID-19 pandemic in the Signaling Solutions Business

Grow perpetually and contribute to the creation of a sustainable future

Impact of the 2019 semiconductor market stagnation on the Power Electronics Business

Damage caused by fire at the head factory

Disruptions in the global supply chain (parts supply shortages)

New medium-term management plan launched with a ten-year perspective

Under the Medium-Term Management Plan 2025, we will promote sustainability initiatives in parallel with our growth strategy toward resolving societal and environmental issues through our business activities. Moreover, we will realize coexistence with society by contributing to decarbonization, addressing risks associated with climate change, participating in the sustainable growth of society, and strengthening governance as part of our ESG management practices.

initiatives based on the Basic Approach to Sustainability established in June.

In terms of governance, the Nomination and Remuneration Committee is chaired by an outside director to enhance transparency and expand the nomination function, and we have established a system to implement a succession plan to develop the next management team.

By solving social and environmental issues through our business activities, and by promoting the ESG

The Group has launched Medium-Term Management Plan 2025, which covers the three-year period from the fiscal year ending March 31, 2023 to the fiscal year ending March 31, 2025. This plan constitutes a long-term vision for the lasting development of the Group, and is based on a back casting approach for the first three years, from the perspective of "our vision for 10 years from now" into the future and what kind of growth we should achieve to bring this vision to fruition.

Ten years from now, we wish to expand our business on a global scale and into new areas, and continue to exist as a company that contributes to safety and reliability, global environmental conservation, and the development of society and a better quality of life. Founded on this long-term outlook, our basic policies for the three years of Medium-Term Management Plan 2025 are to (1) overseas business expansion of signaling solutions,

(2) expansion of the Power Electronics Business, and

In April 2022, we established a new Corporate Strategy Council, which I chair, as a forum for deliberating important management issues, and established the Corporate Strategy Office which is responsible for the actual operation of the Council. The Corporate Strategy Council and Corporate Strategy Office will also function as a mechanism to promote sustainability, and will play a central role in identifying materiality, determining measures, monitoring progress, and future TCFD disclosure

management practices described here, we will grow perpetually and contribute to the creation of a sustainable future. As a manufacturer, we are committed to providing products and services that enhance customer value, thereby building corporate value that is widely recognized by society and appreciated by shareholders, investors, and all other stakeholders as "Kyosan Electric Manufacturing as expected."

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Medium-Term Management Plan

Medium-Term Management Plan 2025

Overview of New Medium-Term Management Plan for FY2022 -2024

Kyosan has formulated a new medium-term management plan covering the three-year period from the fiscal year ending March 31, 2023 to the fiscal year ending March 31, 2025.

Having ascertained the business environment surrounding our company, we have determined the Group's vision of for 10 years from now, and formulated a plan based on this long-term vision. The basic policies of this plan are "growth

Growth strategies

Overseas business expansion of signaling solutions

Improvement of profitability

strategy" and "sustainability strategy," and to achieve this, we will focus on each issue of "new businesses," "R&D and intellectual property," "human resources," "IT and digital," and "finance."

Recognition of business environment

With the domestic market for the Signaling Solutions Business, our largest business segment, trending toward contraction and the changing nature of the railway business in this post-COVID-19 pandemic world, if we are to achieve our management objective of "perpetual growth of the Kyosan Group," we must focus on:

Expanding the Signaling Solutions Business overseas and develop new related products and services

Expanding the fields and areas in the Power Electronics Business where our products can contribute by developing new technologies and products that are not limited to the existing areas of existing customers, but and meet the timelines demanded by the market and customers.

It is also essential to take on the challenge of new businesses that will become new pillars.

Strengthening of cooperation with overseas offices, engineering companies, and trading companies

Development of products compliant with overseas standards

Strengthening of human resources adapted to globalization

Expansion of Power Electronics Business

Strengthening of development capabilities; establishment and deployment of new technologies to expand areas of business

Business expansion and enhancement of systems and quality to meet semiconductor industry requirements; restructuring of supply chain management and production efficiency

Implementation of enterprise resource planning (ERP) and overall optimization of business processes

Improvement of production efficiency through manufacturing reforms

Development of a digital infrastructure for business growth and productivity enhancement

Strengthening of financial foundation

Improvement of cash flow by shortening production lead time

Conducting of financing while achieving a balance between interest-bearing debt and net assets

Vision for 10 years from now

Through overseas expansion of the Signaling Solutions Business, expansion of the Power Electronics Business, and businesses that become new pillars, we are achieving sustainable growth by contributing to "safety and reliability," "global environmental conservation," and "the development of society and a better quality of life."

We are able to achieve profitability and financial strength to sustain appropriate returns to stakeholders (dividends, salaries, community contributions, etc.) after sufficient investment in the development of technology, human resources, and IT for business growth and global environmental conservation.

Diverse employees with a variety of characteristics grow, work with diverse people in a wide world, and play active roles.

Basic policies of Medium-Term Management Plan 2025

Challenge to new businesses		Developing and strengthening human resources
Challenge to new business areas for sustainable		Establishment and operation of a flexible personnel
growth		system responsive to job duties and skills
		Securing of human capital to realize Medium-Term
		Management Plan 2025
		Improvement of engagement that contributes to
		maximizing human capital

Sustainable strategies

Measures toward growth	Measures supporting growth	Sustainability
Overseas business expansion	Improvement of profitability	initiatives
of signaling solutions	Strengthening of financial

Environ-

ment

Contribute to decarbonization and respond appropriately to risks related to climate change

Reduction of greenhouse gas emissions in business activities

Promotion of development of products with low environmental load

Society

Participation in the sustainable growth of society

Contribution to society by providing safety and security

Strengthening governance

Expansion of Power Electronics	foundation
Business	Developing and strengthening
Challenge to new businesses	of human resources

Identification of risks and opportunities and necessary actions based on the TCFD (Task force on Climate-related Financial Disclosures) framework

Governance

Strengthening of group governance Formulation of Basic Approach to Sustainability

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