Financial and Capital Strategies for Supporting Transformations
Promoting management that emphasizes capital efficiency while maintaining financial soundness
To achieve the NGK Group Vision, we will aim to improve our corporate value by increasing profitability and contributing to resolving social issues through optimal capital allocation and the transformation of our business portfolio.
Progress relative to the NGK Group Vision

In the NGK Group Vision we announced in April 2021, based on assumed exchange rates of 1 US dollar = 100 yen and 1 euro = 120 yen, we set targets of 600 billion yen in net sales and 90 billion yen in operating income for FY2025.
In FY2021, net sales increased by 12.9% year-on-year to 510.4 billion yen and operating income increased 64.3% year-on-year to 83.5 billion yen. In addition to a significant increase in demand for automotive-related products and products for semiconductor manufacturing equipment, there was also the impact of the yen depreciation. As a result, we set new record highs for both net sales and operating income.
Based on the same exchange rate assumptions as in the Group Vision, net sales would have been approximately 487 billion yen with operating income of approximately 73 billion yen. We are making steady progress in the first year of initiatives related to our Group Vision, and we will continue to take steps to achieve targets without allowing increased performance due to foreign currency rates to distract us from our goals.
In FY2022, although profits from automobile-related products will be sluggish due to increased costs associated with the situation in Ukraine, we are forecasting an increase in net sales and operating income, with net sales of 580 billion yen and operating income of 90 billion yen. This reflects increased demand for products for semiconductor manufacturing equipment and yen depreciation. We will appropriately allocate management resources with the goal of achieving our performance targets for FY2025 ahead of schedule.
Medium-term business portfolio approach
The NGK Group Vision positions carbon neutrality and a digital society as future growth domains, and we are transforming our business structure so that products related to these domains will account for 50% of sales in 2030, and 80% of sales in 2050. Looking at the Environment Business, which is currently a core driver of earnings, we expect a gradual decline in the internal combustion engine business moving forward due to the dissemination of electrified vehicles. However, we will work to maximize profits by ensuring a stable global supply structure to respond to demand growth related to a recovery in the global automotive market and the tightening of exhaust restrictions in various countries. In addition to using secured profits towards further expanding the Digital Society Business, which we position as a growth domain, we will first work to improve the short-term profitability of the Energy & Industry Business while also looking to expand products related to carbon neutrality products over the long term. By maintaining and improving the profitability of each business, we plan to increase medium- and long-term sales and profits.
Priority investment in the fields of carbon neutrality and digital society to achieve the NGK Group Vision
Regarding cash allocation, we anticipate continuous returns from capital investments conducted over the past five years, and our policy is to maintain a balance between input into growth areas and returns to stakeholders.
On the subject of input to growth areas, we will focus on capital investments and R&D in the carbon neutrality and digital society domains, which we position as the cornerstone of the NGK Group Vision. We will aim for sales of 100 billion yen from newly launched businesses by 2030 as we work to achieve New Value 1000. We are planning on capital investments for FY2022 totaling 59 billion yen. This is mainly represented by renewal investments in the Environment Business and increased production in the Digital Society Business. Over the next several years, we are anticipating roughly 60 billion yen per year in investments, mainly in the Digital Society Business. Additionally, we are gradually expanding our environmental investments aimed at achieving net-zero CO2 emissions. We will advance these initiatives efficiently by reflecting economic perspectives based on internal carbon pricing into our investment decisions.
Regarding R&D expenses, in the NGK Group Vision we outline 300 billion yen in investments for research and development over 10 years. We plan to invest 26 billion yen in FY2022, of which approximately 60% will be invested in themes related to a digital society and carbon neutrality.
Looking to promote future growth, we will also proactively consider M&A. We are focused on two main directions for M&A. One is to consider targets that will lead to further strengthening and new growth expansion in the peripheral domains of existing businesses. The other direction is to consider investments in companies with which we can collaborate towards creating new products and new businesses. We will actively pursue opportunities based on these two criteria.


*1 NGK ROIC = Operating income ÷ (Accounts receivable + Inventories + Fixed assets)
Instead of “capital” and “liabilities”, this is calculated based on business assets (accounts receivable, inventories, fixed assets) that can be managed by business divisions
Improving profitability by promoting the NGK ROIC
On the subject of capital policy, we are focused on ensuring profitability that exceeds the cost of capital while maintaining financial soundness, profit margins, capital turnover, and financial leverage at sound levels consistent with our business strategy. Using return on equity (ROE) as a key management indicator, we will promote management that emphasizes capital efficiency. We also use return on invested capital (NGK ROIC: operating income ÷ business assets), which is closely related to ROE, as a management indicator.
Instead of invested capital and profit after tax, we are adopting business assets (accounts receivable, inventories, fixed assets) and business unit operating income. This will allow business units to manage their own targets. Since adopting this indicator in FY2016, the concept of ROIC management has been adopted widely throughout the company. Since FY2021, we have been using an ROIC tree to improve our business by incorporating figures such as cost of sales ratio, SG&A ratio, inventory and accounts receivable holding months for each business division. With a medium- and long-term perspective on maintaining an ROE of 10% or higher, we have set an ROIC of 10% or higher as a company-wide standard, with each business setting targets to improve profitability, prioritize investments, and be conscious of the appropriate inventory levels. These efforts will work towards improving ROIC.
In FY2021, we secured an ROE of 12.9% thanks to improved performance and other factors. Regarding our debt/equity structure, we aim for a Debt Equity ratio of around 0.4 to ensure we can at least maintain our current bond rating of A+ (R&I), while also remaining focused on the effective use of debt. For capital procurement, our principle basic policy is to procure interest-bearing debt and reduce risks by diversifying debt into long-term and short-term loans.
Policy on profit returns
We prioritize the interests of our shareholders, and position sustainable improvements to corporate value and profit returns as one of our most important management policies. We will maintain a good balance between securing appropriate investment funds for growth and returning profits with a focus on capital efficiency.
Regarding dividends, we aim to maintain a dividend on equity ratio of 3% and a consolidated dividend payout ratio of around 30% over the medium and long term, while giving consideration to the link between net asset management in line with changes in business risks and our three-year return on equity (ROE).
We also give consideration to cash flow forecasts and other factors when determining allocation. Based on this approach, we have decided to implement a shareholder dividend of 63 yen per share for FY2021.
We have also been conducting share buybacks to improve capital efficiency and enhance shareholder returns. Last fiscal year, we repurchased and canceled five million shares (9.7 billion yen). Going forward, we will continue to flexibly implement these measures while comprehensively considering factors such as growth investments, dividend levels, cash on hand, and share price.
ESG management and financial strategy

The NGK Group promotes management from an ESG perspective. We are also working to strengthen our ESG initiatives and enhance our financial information disclosure. Recent major initiatives are as follows.
Promoting sustainable finance
In December 2021, we issued the Group’s first green bond (unsecured corporate bond). We will use the capital to provide environmentally effective products and services, and to promote carbon neutrality in our business and production activities. We will also promote initiatives aimed at realizing the NGK Group Vision and the NGK Group Environmental Vision. Going forward, we will continue to consider the use of green bonds as a strategic means of raising capital.
Information disclosure based on TCFD recommendations
In February 2020, the NGK Group announced its endorsement of the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). In April 2022, we provide disclosure of information related to scenario analysis conducted based on the four categories recommended by the TCFD: governance, strategy, risk management, and indicators and targets. Moving forward, we will continue to enhance our disclosure of climate change-related information and continue to engage in environmentally friendly business activities as we strive to contribute to the realization of a sustainable society and improve our corporate value.
Adopting NGK Value-Added as a new management indicator
We have introduced NGK Value-Added as a new management indicator. NGK Value-Added incorporates CO2 emissions costs, labor costs, R&D costs, and ESG target achievement rates into operating income. The aim is to visualize invisible value, such as human and intellectual capital, the source of future competitiveness. This also aims to promote efforts that reduce our environmental impact and ensures human rights accountability. In addition to financial value, such as short-term profits and medium- and long-term growth potential, we intend to increase our non-financial value, which is not reflected in financial indicators, as part of efforts to increase our corporate value.
Engaging in IR activities focused on dialogue with investors and shareholders
Since the 1990s, the NGK Group has been conducting IR activities with the goal of improving ROE. In addition to holding earnings briefings for investors twice a year, we also conduct forums for overseas investors run by our lead underwriter, as well as overseas IR and IR for individual investors. Recently, due to the impact of COVID-19, we are also using online communication. We conducted roughly 130 activities through methods including telephone interviews and individual visits to institutional investors last fiscal year.
We believe that feedback from our stakeholders is extremely beneficial in improving the quality of our management. Proactive IR activities that promote such dialogue will also lead to a reduction in capital costs.
To improve our corporate value, we will continue to focus on ESG perspectives and strive to enhance opportunities for dialogue to deepen mutual trust with all stakeholders.
NGK Value-Added

*1 CO2 emission costs: Calculated based on ICP ($130/t-CO2) introduced in FY2022

Note: This interview was conducted in June 2022.