Message from the CFO
Exercising Discipline and Dynamism to Build a Robust Financial Structure Capable of Adapting to Rapid Change
Director and Managing Executive Officer and CFO
General Administrative Manager, Management Control Division
FY2018 Financial Results
In FY2018, the final year under the Epson 25 Phase 1 Mid-Range Business Plan (FY2016-2018), we recorded ￥1,089.6 billion in revenue (down 1.1% year on year) and ￥70.4 billion in business profit (down 5.7% year on year). We achieved revenue growth in high-capacity ink tank inkjet printers and in 3LCD projectors. However, this growth was more than offset by a decline in crystal device and robotics solutions revenues. Our revenue and business profit ended lower than last year chiefly due to slower sales in the wake of Chinese economic deceleration, aggressive strategic investment in future growth, and negative foreign exchange effects resulting from plummeting currencies in Latin America and some other emerging nations. Still, given that revenue and profit increased on a constant currency basis and that sales of strategic products expanded, I feel we are heading in the right direction.
Phase 2 Mid-Range Business Plan Strategies
We aggressively invested as planned during Phase 1 to put us on track toward achieving the Epson 25 vision, but these investments have not yielded adequate business and financial returns. Consequently, we fell short of our revenue, business profit, and cash flow targets.
The one financial target we did succeed in attaining was ROE (10.2%). In Phase 2, we will not use financial leverage to superficially improve our financials. Instead, once we have improved the company’s financial condition, we will strive to meet our mid-term target of sustaining an ROE of 10% or more while bearing in mind the cost of capital.
Improving Financial Operations
Free cash flow was negative in FY2018. Increased inventories were the main reason. Period-end inventories were higher than expected, a result of sluggish sales in Latin America and control issues in manufacturing. We will restore inventories to appropriate levels and improve free cash flow by tightening communication between manufacturing and sales organizations and by improving inventory management.
We have recently launched a Global Business Infrastructure Innovation Project. The aim is to increase efficiency and strengthen governance by standardizing IT systems throughout the Epson Group. In the past, our systems have been divided by function. We will consolidate these into a single unified system database to standardize global operations. This will provide real-time visibility into the business situation and speed up management decision-making. In turn, this will enable us to build global consensus under Head Office leadership while achieving disciplined and dynamic operations, with individuals able to independently make decisions and take action.
Free Cash Flow
Focusing Management Resources on Priorities
Capital is a precious and limited management resource. In Phase 1, we tried to extend our businesses in all directions. As a result, investment and spending by senior management and the Head Office were not focused tightly enough on priorities. In Phase 2, therefore, we will provide senior management with clear decision-making criteria and, with senior management and the Head Office exercising control, focus management resources on two core Epson 25 growth strategies: the replacement of laser printers with inkjet printers, and the transition from B2C to B2B.
Accordingly, a key mission of Finance will be to clarify the management resources to be invested in each business, establish fair decision-making criteria, and enforce global financial discipline during execution. This will allow us to focus on priority areas, rebuild the product portfolio, and switch to a budget process that reflects longer-term business decisions based on economic conditions and strategy effectiveness.