GS Yuasa Corporation GS Yuasa Report 2020 For the fiscal year ended March 31, 2020

Introduction

Philosophy

Innovation and Growth

We are committed to people, society and the global environment through innovation and growth of our employees and business entities.

Management Vision

We are committed to delivering security and comfort to our customers around the globe through advanced technologies developed in the field of stored energy solutions.

Management Policy

  1. GS Yuasa will become the “first call” company based on our “customer first” policy.
  2. GS Yuasa considers quality and safety as most important, and supplies environmentally conscious products all over the world.
  3. GS Yuasa will comply with all laws and operate using clear and fair management.

Value Creation Process

We believe that the GS Yuasa Group’s products and business activities will contribute to the solution of various social issues, including achievement of the Sustainable Development Goals (SDGs), and that, by bringing value to society, the Group will enhance its own corporate value as well. Furthermore, in order to avoid the risk of damage to corporate value, we believe it is important to minimize any negative impact of business activities on society. On the basis of our corporate philosophy, by continuing our pursuit of cutting-edge and trailblazing technologies, the GS Yuasa Group aims to create value that contributes to the realization of a sustainable society. Through such efforts, we believe that we can achieve our Group’s own sustainable growth as well.

Development goal diagram

Opportunities

  • Image photo of diffusion of eco-friendly cars

    1. Diffusion of eco-friendly cars

    Amid the tightening of environmental controls on the more than 1.3 billion vehicles on the road worldwide, the diffusion of HEVs and EVs is progressing. And even in the case of conventional gasoline vehicles, the standardization of fuel-saving start-stop functions is advancing.

  • Image photo of expanding renewable energy

    2. Expanding renewable energy

    Since worldwide energy demand is increasing as a result of burgeoning populations and economic growth, it is necessary to expand the use of renewable energy to replace fossil fuels.

  • Image photo of Strengthening electric power and information infrastructure

    3. Strengthening electric power and
    information infrastructure

    If the supply of electricity were cut off, the activities of modern society would instantly come to a halt. Therefore, batteries and power-source devices for backup power supplies in times of disaster are becoming increasingly important.

Risks

  • Image photo of Raw material restriction Image photo of Raw material restriction

    1. Raw material restriction

    Lead is included as a restricted substance in the European Union’s RoHS Directive and ELV (End-of-Life Vehicles) Directive. This tightening of restrictions could have repercussions worldwide. Furthermore, there is concern that the increase of eco-compliant vehicles will lead to a rise in the price and supply shortages of such rare metals as lithium, nickel, cobalt, and manganese.

  • Image photo of Changes in the market environment Image photo of Changes in the market environment

    2. Changes in the market environment

    It is necessary for us to implement strategies that accurately grasp changes in the market, such as the rapid rise of eco-friendly vehicles as a result of the tightening of exhaust-gas emissions; the emergence of alternative, post-lithium-ion batteries; the drift of young people away from cars; and the diffusion of car-sharing services.

  • Image photo of Supply-chain fluctuations Image photo of Supply-chain fluctuations

    3. Supply-chain fluctuations

    Lead-acid batteries and automotive lithium-ion batteries, which are the mainstays of our Group, are both products that are easily impacted by the market conditions of raw material suppliers and customers. The cobalt required for lithium-ion batteries is a conflict mineral and also entails the risk of child labor.

  • Image photo of Retention of human resources Image photo of Retention of human resources

    4. Retention of human resources

    In Japan, the decline of the working-age population due to aging and the low birthrate is emerging as a common risk for companies.

Message from the President

Pursuing the potential of energy devices to
continue to create new value

Osamu Murao President
Osamu Murao President
Murao Murao

Post-merger trajectory

Since the 2004 corporate merger of Japan Storage Battery (GS) and Yuasa Corporation, the GS Yuasa Group has worked to increase corporate value under a philosophy of “Innovation and Growth.” Our results for fiscal 2019 indicate the extent to which our business has grown in scale compared to the time of the merger, with net sales increasing 1.7 times and operating income up 25 times.
     In the 16 years since the merger, we have also steadily enhanced our product portfolio and made significant progress in expanding our global business. Our core automotive and motorcycle lead-acid batteries hold the top share of the Japanese domestic market, and have established a leading market position globally. Sales of lithium-ion batteries for electric vehicles (EVs), which we were the first in the world to successfully mass-produce, have steadily grown, generating synergies with other businesses, and our ability to respond to a wide range of customer needs has ensured us of a competitive advantage in the market.
     We have continued to establish locations in regions outside of Asia; today the Group has 37 production and sales sites in 19 countries, and our after-sales service network has expanded worldwide.
     In line with our status as a global company, both in name and in fact, beginning in fiscal 2018 we embarked on a reorganization, rearranging and consolidating divisions centered around products. Those product divisions now serve as a vertical axis, with a horizontal axis running through each covering management areas such as CSR, health and safety, quality, and the environment, thus optimizing both operations and governance.

The challenge of creating new value

One thing I have been acutely aware of since becoming president is the need to build new pillars of business. The Group already has one major pillar in the form of lead-acid batteries, but to continue growing into the future, we need a follow-up to our mainstay products. This is clear if we consider the changes expected in the automotive industry and global issues such as environmental and energy problems.
     One such new pillar is lithium-ion batteries. The Group was quick to focus on the growth potential of this segment, with more than 10 years of ongoing R&D and investment. That persistent effort is now beginning to show results.
     In addition to our existing Mono Zukuri (product creation) effort, the Group is also promoting the Koto Zukuri (service creation) business set forth in our Fifth Mid-term Management Plan, a format which will enable us to ensure ongoing revenue through post-sales services and other offerings. By leveraging our overwhelming market share and customer base to develop and expand a new business model integrating Mono Zukuri and Koto Zukuri, GS Yuasa hopes to build an even stronger business base.

A future drawn against the great transformation of the century

The automotive industry, the Group’s largest customer base, is currently facing a major once-in-a-century transformation due to CASE.* The role energy and devices have to play has also grown increasingly important in addressing global-scale social issues such as seen in SDGs.
     In fiscal 2019 the Group established its long-term vision, laying out a goal circa 2030 of becoming an energy device company that continually creates new value.
     Regarding the future of automotive lead-acid batteries, we predicted that even as the electrification of automobiles gradually progresses in developed countries, combustion engine vehicles will, for the time being, remain in the mainstream in markets in new and emerging economies. Based on that, we expect demand for lead-acid batteries to hold up even 10 years from now. In automotive lead-acid batteries, we thus established further expansion of global share and the building of an optimal production structure as important issues going forward.
     In automotive lithium-ion batteries, selection and concentration is a major issue. To date, the Group has developed this business through an omnidirectional strategy targeting EV, plug-in hybrids (PHEV), and hybrids (HEV). As global competition continues to intensify, however, survival will require establishing clear targets on which to focus corporate resources. We decided on a policy of concentrating resources on HEVs. Seen in terms of cost performance, this assumes that, for the time being, HEVs will lead the shift to automobile electrification, and this field is one in which we can best leverage our technical expertise and existing supply chain. We are also focusing on 12V lithium-ion batteries used for automobile starters and other products, since lithium-ion batteries are forecast to begin replacing lead batteries, primarily in Europe where environmental regulation is progressing.

*CASE: An acronym combining Connected, Autonomous, Shared/Service, and Electric.

A stepping stone to the future

Our Fifth Mid-Term Management Plan began in fiscal 2019. In the lead-acid battery business, we are working to strengthen profitability in our main regions, and rolling out efforts to expand sales in important regions and sites. In the lithium-ion battery business, we are using strategic facilities investments and deployment of development funds in HEVs, 12V lithium-ion batteries, and industrial applications to establish a foothold for growth.
     In the automotive lithium-ion battery business in particular, the addition of Toyota Motor Corporation as a new client for HEVs led Blue Energy to decide to build a second plant. Operations also began at our new plant in Hungary, which produces 12V lithium-ion batteries.
     In the industrial battery and power supply business, the start of our project at a large-scale wind power facility in Hokkaido is based on a new business model that includes a 20-year deal for service and maintenance. This is truly the embodiment of the Koto Zukuri business. We will continue to expand proposals that integrate Mono Zukuri and Koto Zukuri, as we work to create a new business base.

Sowing and nurturing the seeds

Going into 2020, the novel coronavirus pandemic has had a serious impact on global economic activity. While that impact was limited with regard to the Group’s fiscal 2019 results, there is no question that the effects will be felt across the Group going forward. Given this situation, we will be revising the term of our Fifth Mid-Term Management Plan and will now extend it to four years, ending in fiscal 2022 (the fiscal year ending March 31, 2023).
     Over the next several years, particularly in the high-priority areas of lithium-ion batteries for HEVs and 12V lithium-ion batteries, we need to sow as many seeds as possible, including in R&D, customer development, and facility and human resource investments. While we may not see these seeds grow and be ready for harvesting until our Sixth Mid-Term Management Plan and beyond, gaining the fruits of that labor will require that, during this initial sowing phase, we bring to the task even greater speed and decisiveness, and an agile execution of strategy that unites development, production, and sales. It is for that reason that, as president, I have placed myself in direct charge of leading the lithium-ion battery business beginning in fiscal 2020.

“Creating the Future of Energy”

In May 2017, we established the GS Yuasa CSR Policy and Code of Conduct, and put in place a system for promoting CSR activities by also establishing a CSR Committee to oversee CSR across the Group as a whole. Under the Fifth Mid-Term Management Plan, we have also set forth “establishing business processes that incorporate CSR issues into our business strategy.” We have identified CSR issues with a particular emphasis on SDGs, which are an expression of future market needs. We intend to use the degree to which we can contribute to solving the issues in the SDGs as one guideline for assembling strategy as we pursue business growth.
     The Group is also working to enhance corporate value from the perspective of ESG. In terms of the environment, we are working to develop and sell eco-friendly products and build manufacturing systems that address issues of the global environment. From the social perspective, we give top priority to respecting human rights, and continue to focus on education and activities aimed at our employees and those involved in our supply chain. In governance, we are working to build a sound and highly transparent governance system while also ensuring compliance worldwide; we intend to promote business operations that respond to the demands of stakeholders in each part of the world.
     In fiscal 2019, the Group established a new corporate slogan, “Creating the Future of Energy.” That slogan incorporates our aspiration to grasp the needs of a constantly changing age, and by exploring a new vision for energy and new ways of using power storage technology, continue to create new value. We hope you will look forward to the future of the GS Yuasa Group as we take on the challenge of value creation toward the realization of an enriched society.

Message from the Director
in Charge of Finance

Aiming for sustainable growth by improving capital efficiency while maintaining financial soundness

Toshiyuki Nakagawa Chief Financial Officer/
Senior Managing Director and Representative Director
Toshiyuki Nakagawa Chief Financial Officer/
Senior Managing Director
and Representative Director
Nakagawa Nakagawa

Looking at reality calmly to achieve a dream

In my role as chief financial officer (CFO), there is something I think about constantly. If the company were an automobile, the chief executive officer (CEO) would be the accelerator and I, as CFO, would be the brake. The CEO sets out an expansive dream and leads the company’s employees while taking a certain amount of risk in working to achieve that dream. In order to make the dream a reality, the CFO identifies risks and takes accurate steps to minimize them. In corporate management, I think it is important to move forward while maintaining a balance between these two functions.
     Acting as the brake does not mean overriding everything, since slowing down more than necessary is a negative in terms of corporate growth. I would like to first share the major objective of sustainable growth for the Group, then pursue a rigorous examination of the merits and demerits of each case, and their risks and opportunities. We need to judge when and how much to apply the brakes after first visualizing everything that could possibly occur. This does not, of course, mean pushing through my own individual decisions; the process involves numerous discussions with the relevant departments based on information collection and analysis. For example, we also hold monthly meetings of our Facility Investment Committee, where capital investments of 30 million yen or more undergo debate by executive-class committee members based on their areas of expertise, ensuring the appropriateness of each proposal.

Internalizing ROIC management to boost earning power

Improving capital efficiency is one financial policy set out under the Fifth Mid-Term Management Plan. Our goal is to increase earning power by introducing return on invested capital (ROIC) as a KPI, and by strengthening management of revenue and efficiency at the individual business level. In fiscal 2022, the final year of the plan, that guide calls for ROIC of about 12% (about two times the operating income ratio). I think that is a reasonable standard considering the current state of our weighted average cost of capital (WACC).
     We have made considerable progress in raising awareness of ROIC management at the management level. Going forward, we intend to work at further internalizing the concept through in-house training, education, and day-to-day improvements, taking practical steps to establish ROIC management throughout the organization.
     I also emphasize the need to ensure the soundness of our financial base. That said, my approach is not simply to raise shareholders’ equity ratio to achieve debt-free management. We believe a shareholders’ equity ratio in the range of 40% to 50%, which will make it easier to make bold investments in areas of growth, is fine. Another indicator of the soundness of our financial base is the ratio of interest-bearing debt to cash flow. Our target calls for keeping the total amount of interest-bearing debt, including lease obligations, at no more than three times each fiscal year’s operating cash flow, a target we have cleared with interest-bearing debt in the near term at 2.2 times operating cash flow. I would like to see this happen within two years.

Continuing large-scale investments for the future, while working to minimize the risks brought on by the novel coronavirus

There are three major facility investment projects scheduled for fiscal 2020, and capital investments are expected to total about 22 billion yen. The first is to boost production capacity in lithium-ion batteries for HEVs; the second is the final round of investment in the automotive lead-acid battery plant in the Tianjin area of China; and the third is for a facility upgrade at our head office in Kyoto. Funds for these facility investments will basically come from operating cash flow.
     Note that in terms of short-term funding, we currently have a credit facility totaling nearly 100 billion yen, including the committed credit line of 30 billion yen we have maintained for contingencies. We believe this will be sufficient to address the novel coronavirus pandemic. A more urgent issue is ensuring long-term funding for growth investments. In May 2020, we worked with our main banks to secure long-term loans totaling 5 billion yen for a term of four years.
     With regard to the novel coronavirus pandemic, we need to continue monitoring the global spread of infections. As CFO, my mission is to minimize risk, and to ensure our countermeasures do not fall behind, I am more determined than ever to make swift decisions and take quick action. Looking forward, we are considering investing in automation, labor-saving measures, and remote work for production front lines where close contact is unavoidable. In the supply chain, I also feel the need to look at new BCP measures to address the risk of infections.
     While discussions of the novel coronavirus tend to emphasize the more negative elements, major changes will also generate new opportunities. We will move forward with a positive attitude, turning risk into chance and focusing on swift decision-making and action.

Aiming to further improve corporate value from an ESG perspective

Environmental, social and governance (ESG) perspectives are also important to sustainable corporate growth. This involves not only the Group, but partner companies and others responsible for our supply chains. We are working to explore the issues, including human rights, safety, the environment, and risk management, from a multi-dimensional perspective as we advance these efforts.
     In fiscal 2019, we expressed our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We have also conducted a survey targeting some of our sites in and outside Japan regarding climate change risks, and going forward, we will conduct further internal discussions and ensure our goals are aligned before presenting our objectives as a Group.
     We are also working on steps to strengthen governance. In fiscal 2019, we established a Nomination and Compensation Committee, and in fiscal 2020, our first female outside director was appointed; we also changed our accounting auditors. In addition, we have prepared governance training for all executives. As CFO, I will continue to engage in management from a perspective that integrates both financial and non-financial aspects as I work to further enhance corporate value.

Conditions by Business Sector

Automotive Batteries

Capturing changes in the market, we are ready to handle growing demand

Masahiro Shibutani Director
Business Unit Manager of
Automotive Batteries
GS Yuasa International Ltd.

GS Yuasa maintains a high market share both in Japan and globally in lead-acid batteries for starting automobiles and motorcycles.Our technological capabilities are in high demand, with customers increasingly asking for EN (European Norm) compliant batteries and batteries for vehicles with start-stop systems (ISS: idling stop systems).
     In fiscal 2019, GS Yuasa domestically executed carefully targeted sales efforts that generated steady results in both the new vehicle and aftermarket sectors, including heavy-duty vehicles. On the overseas stage, as a strategy for high market share regions, we aggressively promoted value-added batteries in the ASEAN region to improve profit margins. In addition, as a strategy for as yet untapped regions, we launched measures to target Latin American markets to expand sales.
     To achieve the goals of the Fifth Mid-Term Management Plan, we will restructure our marketing strategy in response to changes in the market and optimize our production systems.

Masahiro Shibutani
Masahiro Shibutani Director
Business Unit Manager of
Automotive Batteries
GS Yuasa International Ltd.

Japan

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Overseas

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Industrial Batteries and
Power Supplies

Accelerating expansion strategies for key markets

Masaru Sawada Managing Director
Business Unit Manager
of Industrial Batteries
and Power Supplies
GS Yuasa International Ltd.

Although some businesses have been affected by the novel coronavirus pandemic since April 2020, demand for communications infrastructure and data centers has continued to grow, driven by disaster prevention and 5G mobile communications systems.
     In fiscal 2019, we independently developed a system that utilizes the IoT as a tool for proposing replacements for products that have exceeded their lifespan. This is a manifestation of the Koto Zukuri (service creation) concept promoted in the Fifth Mid-Term Management Plan. In the field of renewable energy, we made a full-scale entry into the home energy storage device market.
     I believe that acceleration is the key to realizing the aims of the Fifth Mid-Term Management Plan. In particular, it is important to increase the speed of execution of our expansion strategy into the renewable energy market and the Asian, European, and American markets. Of course, this requires close collaboration with other business units, but we will also seek to maximize results with a view to external alliances.
     The future is of course difficult to predict, but we will pursue our expansion strategy based on rational risk-taking, aiming to achieve the plan as soon as possible.

Masaru Sawada
Masaru Sawada Managing Director
Business Unit Manager
of Industrial Batteries
and Power Supplies
GS Yuasa International Ltd.

Industrial Batteries and Power Supplies

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Automotive Lithium-ion Batteries

Devoting management resources to business expansion

Kenji Kohno Executive Officer
Business Unit Manager
of Lithium-ion Batteries
GS Yuasa International Ltd.

Against the backdrop of tighter corporate average fuel economy (CAFE) and CO2 emissions regulations, we increasingly receive inquiries from Japanese automakers about lithium-ion batteries for hybrid electric vehicles (HEVs). On the other hand, there are only a limited number of suppliers, and there is healthy competition on the market. In light of these trends, we will focus on investing in lithium-ion batteries for HEVs and swiftly implement various measures to take advantage of business chances.
     In fiscal 2019, we increased orders from existing customers for lithium-ion batteries for HEVs and added a major Japanese company to our roster of customers. Our Blue Energy subsidiary, a manufacturer of lithium-ion batteries for HEVs, decided to build a second plant. We will strengthen our business foundation by making capital investments and improving our earnings structure to achieve the goals of the Fifth Mid-Term Management Plan and subsequent growth.

Kenji Kohno
Kenji Kohno Executive Officer
Business Unit Manager
of Lithium-ion Batteries
GS Yuasa International Ltd.

Automotive Lithium-ion Batteries

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Notes:
  1. 1. Since fiscal 2016, operating income has been operating income before goodwill depreciation and the operating income ratio has been the operating income ratio before goodwill depreciation.
  2. 2. The “automotive batteries (overseas)” segment previously included a portion of transaction amounts for industrial batteries handled overseas, but as of fiscal 2018, the category was changed to “industrial batteries and power supplies.” Net sales and operating income for fiscal 2017 are indicated for the reporting segments after the change.
  3. 3. In fiscal 2019, some consolidated subsidiaries in the “automotive batteries (overseas)” segment were shifted to the “industrial batteries and power supplies” segment. Accordingly, the figures for fiscal 2018 have been reclassified to reflect the revised segment categories.
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