TDK announced its Medium-Term Plan, "Value Creation 2023," that will cover the three years from FY2022 through FY2024, in order to actively pursue further expansion of corporate value through sustainable growth.
Value Creation 2023
In the new Medium-Term Plan, “Value Creation 2023,” the pursuit of “Social Value,” which aims at contributing to the realization of a sustainable society by solving social issues, is set as an objective of all business activities. We will implement a cycle of increasing “Commercial Value” and “Asset Value” as a result and further creating “Social Value.”
In addition, in order to realize 2CX (Customer Experience and Consumer Experience) by providing solutions that satisfy customers and consumers and providing experiences that exceed expectations, we aim to become an invaluable presence by contributing to solving two major social issues including Digital Transformation (DX) and Energy Transformation (EX). We will endeavor to capture business opportunities by providing valuable products to society and at the same time establish management systems with a focus on speed. It is our aim to make even greater contributions to society by ensuring corporate transparency and becoming a trusted presence in society.
In the next ten years, we believe that the fifth-generation mobile communication system (5G), artificial intelligence (AI) and renewable energy (RE) will bring about major changes in people's lives and industries. We are thinking about how the needs of our customers and the social structure will change as a result of these keys, and what we should do now, so that we can get a head start.
Management Targets in the Medium Term
As management targets in the medium term, we aim to achieve net sales of 2,000.0 billion yen, operating margin of 12% or more, and ROE of 14% or more in FY2024, the final year of the Medium-Term Plan. We are also planning capital expenditures of 750.0 billion yen for the three-year period.
Medium-Term Financial Strategy
In the previous Medium-Term Plan period, we worked toward the goal of improving our financial soundness by steadily recovering growth investments and achieving positive free cash flows while allocating capital in a balanced manner to growth investments, shareholder returns, and interest-bearing debt repayment. However, due to the tensions between the U.S. and China and the impact of the COVID-19 pandemic, among other factors, our earnings targets were not achieved. Excluding the cash inflow from the sale of the high-frequency components business, our free cash flow after shareholder returns turned negative.
In the current Medium-Term Plan period, too, we aim to strengthen our financial position while making growth investment. In order to expand revenues by taking full advantage of the accelerating DX/EX trend, we plan to make aggressive investment in core businesses. In addition, we will boost the capacity to generate cash flow by improving the profitability of the businesses with issues, with the aim of strengthening our financial base to support sustainable growth.
For that purpose, we have established three capital allocation policies to achieve our financial targets. First, we will improve our capacity to generate cash flow through the weighted distribution of capital expenditures to core businesses with high profitability in which growth can be expected. We recognize that the strengthening of our financial base was delayed as approximately 81% of EBITDA was allocated to reinvestment due to not having achieved our earnings targets during the previous Medium-Term Plan period. Under the current Medium-Term Plan, we restructured our business portfolio with a focus on profitability of invested capital and growth potential by business segment. As for capital expenditures, 750.0 billion yen, or approximately 65% of EBITDA, will be allocated out of operating cash flow of 900.0 billion yen for the three-year cumulative period. Second, we will implement stable shareholder returns based on profit growth. We aim to achieve a stable dividend distribution by increasing earnings per share with a target dividend payout ratio of 30%, which is roughly the same level as the previous Medium-Term Plan period. Third, we will maintain financial discipline while securing positive free cash flow (after shareholder returns) for the three-year cumulative period as a result of the above. We will also aim to boost our financial base with a target D/E ratio of approximately 40%.