GS Yuasa Corporation GS Yuasa Report 2024 For the fiscal year ended March 31, 2024

  My name is Takashi Abe, and I have been appointed as President and Representative Director. I will try my best to fulfill the expectations of everyone who supports the Company.

  I joined Japan Storage Battery Co., Ltd. (currently GS Yuasa International Ltd.) in 1989 and have accumulated experiences in serving as the president of a U.S.-based subsidiary, developing management strategies, and working in the fields of industrial batteries and power supplies, automotive batteries, etc. During this period, I have always tried to see actual sites and communicate at actual sites.

  Our main products—lead-acid batteries, lithium-ion batteries, and power supplies—require us, because of their product characteristics, to produce products that deliver necessary performance when necessary as stated in the specification requirements. We have satisfied such requests through highly-reliable products and technical services, so that we have been able to accumulate trust of customers, who feel GS Yuasa products are reliable. Its foundations are employees’ steady efforts at their work sites such as for technology, manufacturing, and sales. To continue to protect trust, it is necessary to find small problems inherent in work sites and translate them into effective solutions. We can never identify such problems if we stay in an office. Communication on site is indispensable.

  While ensuring on-site perspectives as the president, I will continue to protect trust, which is the foundation of sustainable development that has been built up by our predecessors. For this, we regard the corporate philosophy of “Innovation and Growth” as what our all employees should inherit and practice properly.

  Our Group originates from Japan Storage Battery Co., Ltd., which was established by Genzo Shimadzu, who is counted as one of the ten greatest inventors in Japan and succeeded for the first time in manufacturing lead-acid batteries domestically; and Yuasa Storage Battery Co., Ltd., which was founded by Shichizaemon Yuasa, a gifted entrepreneur who opened new business fields one after another with farsighted vision. For about a century since their foundation, the two companies have met changing social demands as manufacturers specializing in storage batteries while inheriting their original spirit: the inventor spirit of Genzo Shimadzu and the entrepreneur spirit of Shichizaemon Yuasa, respectively. Such spirits of foundation are inscribed in the corporate philosophy “Innovation and Growth,” which was declared when the two companies merged their operations in 2004.

  Let us turn our eyes to the future society. Carbon neutrality will progress steadily on a global scale to solve global warming, a common problem of mankind. Renewable energy, which is regarded as an effective means to achieve it, has difficulty in stable supply because of its dependency on nature, therefore storage batteries are greatly expected to help solve such difficulty. The electrification of automobiles is expected to advance steadily, and technological innovation of storage batteries, which is the key to extending the range of automobiles, is expected. We have continued to polish our storage battery technology for over 100 years and have the power to contribute to the realization of a carbon-free society through various applications based on the themes of energy saving, energy creation, energy storage, and renewable energy.

  Meanwhile, the world is changing with unprecedented speed against the backdrop of rapid technological evolution. Tough times lie ahead, and it is clear, even without reading Darwin’s theory of evolution, that only companies that are sensitive to various changes in market conditions and can respond quickly can survive. We are not allowed to have irrational confidence, like “Our Company will continue to be OK,” because of the fact that the Company has a long history. From now on, we are required to have an unyielding spirit similar to that of our predecessors who began with a clean slate to think about non-existing technologies and businesses and leave tangible results. Such a sense of crisis is a reason why I am strongly aware of the importance of the corporate philosophy of “Innovation and Growth.” We will steadily implement “Innovation and Growth” based on the long-term vision “Vision 2035” while sharing the sense of crisis among the entire Group.

  When I was stationed in the United States, I had an opportunity to know the phrase “Be Prepared” as I accompanied a child of local staff on his Boy Scout activity. This is a famous motto in scout activities, meaning that you should prepare calmly assuming possible risks and situations. In doing work, while being aware of this word and always seeing things objectively, I have prepared various choices and strived not to miss future business chances and risk aversion opportunities. In the challenge to lithium-ion batteries for BEVs that involve large-scale investment, we will maintain high risk sensitivity while always seeing ourselves objectively, and make choices that increase the likelihood of success.

  In the global market of lithium-ion batteries for BEVs, there are strong players who are overwhelmingly superior in development strength, cost competitiveness, supplies, etc. As is the case with Blue Energy Co., Ltd. and former Lithium Energy Japan (LEJ) in the automotive lithium-ion battery business, the core of our strategy will be to cooperate with partners, mainly automobile manufacturers with rich resources such as know-how and technology.

  At the heart of the strategy is Honda · GS Yuasa EV Battery R&D Co., Ltd. (HGYB), a joint venture company established with Honda Motor Co., Ltd. in July 2023. HGYB promotes the research and development of high-capacity and high-power lithium-ion batteries that are highly competitive at the global level. We also plan to start the production of the batteries in a factory of a manufacturing company in FY2027 and expand production capacity for the GS Yuasa Group as a whole to over 20 GWh/year by FY2035. Immediately after the start of production, products will be sold mainly to customers who are mostly partners. First, the highest priority should be given to thoroughly polishing Quality, Cost, and Delivery to meet requests of domestic car manufacturers centering on Honda. After that, we will expand sales to other domestic new-car manufacturers. As for sales to overseas, we will focus on cooperation and promote sales carefully while seeing actual demand.

  ESS uses three types of storage batteries: storage batteries to be incorporated on the generator side of renewable energy such as solar and wind power; system storage batteries to be directly connected to a system; and a storage battery system to be incorporated on the end-user side for self-consumption, such as a factory.

  If the balance between the generator and consumer sides on an electrical power grid breaks down greatly, a massive blackout is caused. Unlike thermal power generation which allows demand and supply to be adjusted finely, renewable energy, which has large variations in power generation, requires variations in a system to be absorbed by storage batteries. Storage batteries are indispensable for Japan, poor in energy resources, to shift to renewable energy and use electricity efficiently with less waste. Against the backdrop of the experience of supply chains being disrupted due to the COVID-19 pandemic and growing geopolitical risks, the demand of domestically produced batteries is especially growing. In the medium- to long-term as well, stable demand expansion is expected, and the annual demand for storage batteries for ESS in 2030 is expected to be 4.5 to 5 GWh.

  Regarding lithium-ion batteries for ESS related to renewable energy, we are currently receiving inquiries that amount to more than three times our production capacity and are responding to the demand by increasing the production capacity of former LEJ. However, our response to the demand will continue to be tough for the time being. For this reason, we will also manufacture lithium-ion batteries for ESS from late 2027 by making use of the production lines and know-how for lithium-ion batteries for BEVs under joint development with Honda. In addition, we are currently developing and aiming to introduce a space-saving and highly efficient power conditioner-integrated system where storage batteries and a power conditioner are combined. The production of lithium-ion batteries for ESS is mainly based on orders received, unlike products for car manufacturers, which are based on planned production. We intend to win orders steadily by achieving cost competitiveness that cannot be realized by ourselves alone through the benefits of mass production based on the repurposing of lithium-ion batteries for BEVs.

  In order to promote business structure reforms steadily, we plan to reinforce personnel who are involved in lithium-ion batteries as we aim to expand their business scale. We intend to strengthen the development and recruitment of a wide variety of human resources who are engaged in not only engineering but also marketing and sales serving as a point of contact with customers. We think it is also important to strengthen IT personnel for promoting digital transformation, such as improving production efficiency using digital technology and developing new business, but digital transformation itself should not be a goal, and it is necessary to implement optimum IT tailored to our on-site problems. We plan to internally increase personnel who have the ability to make such plans. For some years, motivated employees have actively learned under a program for training personnel for digital transformation. To increase personnel who have the ability to make plans for introducing IT, we intend to consider the choice of hiring external resources. Consequently, we will also consider changing the overall framework of the Company; for example, personnel reward structures and evaluation systems.

  In addition, we will invest aggressively in autonomous-minded human resources personnel who have a high willingness for growth and exemplify the corporate philosophy of “Innovation and Growth” and make efforts to develop them. We are working on the project “Biz Challenge,” which recruits ideas for new business with our accumulated technology and know-how serving as seeds, and highly motivated employees have submitted a variety of ideas. This project is intended to blossom in the long term, or after 2035. We regard it as an important effort for inheriting the spirit of “Innovation and Growth” and plan to continue it.

  We also plan to prepare an education system that allows everyone to learn independently and introduce a personnel system that allows personnel to be assigned to important roles and work regardless of age and years of experience and evaluated according to performance. We intend to increase engagement by increasing the mobility of personnel between businesses and providing paths in which employees themselves select their carriers.

  The Group is now at a major turning point as we look ahead to the next 100 years. In Vision 2035, our long-term vision, announced in April 2023, we have designated Mobility and Public Infrastructure as our key focus areas. We outlined our strategy to transform our business structure, with a shift from our core lead-acid battery business, which has contributed to societal development for over 100 years, to lithium-ion batteries, primarily for BEVs. Large-scale investment is necessary to realize this business structure transformation. As CFO, I recognize my responsibility to guide the success of our business structure transformation by pursuing an optimal capital structure that balances growth investment, financial soundness, optimal financing method, and returns to shareholders.

  The Sixth Mid-Term Management Plan, which started in FY2023, is a three-year period to lay the foundation for achieving the vision we set for 2035 in our Vision 2035. At the time of announcing this plan, we set a target of 610.0 billion yen in net sales and 41.0 billion yen in operating profit before amortization of goodwill for the final year. During these three years, as investment for foundation-building will take precedence, we aim to strengthen the cash-generating power of existing businesses. We plan to invest the cash generated by these businesses and the funds raised externally into growth areas within Mobility and Public Infrastructure. If we determine that doing so has a high probability of enhancing future corporate value, we will carefully consider M&A as an option.

  In the first fiscal year of the plan, FY2023, we achieved record highs in both net sales and profits at each level. The increase in sales volume of lithium-ion batteries for HEVs and ESS, along with efforts to correct sales prices, results in a consolidated net sales increase of 8.7% year-on-year to 562.9 billion yen. Operating profit before amortization of goodwill increased by 31.7% year-on-year to 42.2 billion yen, surpassing the target set for the final fiscal year of the plan. Net profit for the period increased significantly from 13.9 billion yen in the previous fiscal year to 32.1 billion yen, due to factors such as the restructuring of our business in China and the impact of tax effect accounting related to making Lithium Energy Japan a wholly-owned subsidiary.

  This year, I feel that our “earning power” has been reliably strengthened. In particular, I consider it a significant achievement that we were able to correct prices amid rising raw material prices and various costs. Behind the price corrections, there are also businesses that have successfully transformed low-profitability business models that have persisted for many years. On the other hand, we had to revise our target upward three times in the previous fiscal year. We recognize the need to improve the accuracy of our budgeting and will strive to make improvements.

  For FY2024, we aim for net sales of 590.0 billion yen, operating profit of 44.0 billion yen, and operating profit before amortization of goodwill of 44.5 billion yen. In July 2024, we updated the target figures for the final year of the Sixth Mid-Term Management Plan, the fiscal year ending March 31, 2026. Taking into account changes in the external environment, such as rising raw material prices beyond expectations, inflation-related cost increases, shifts in the trend of automotive electrification, further strengthening of the earning power of existing businesses, and the continued promotion of strategy execution in growth areas, we revised the net sales target from the initial 610.0 billion yen to 600.0 billion yen, and operating profit before amortization of goodwill from 41.0 billion yen to 46.0 billion yen. As CFO, I intend to clearly guide and strengthen the direction of enhancing earning power and investing cash generated by existing businesses into growth areas.