"Leading the Way" Annual Report 2006

Index > A Message From the President
A Message From the President
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Results and Forecasts
Record Results and Dividend Raised
Operating Overview
Outlook for Fiscal 2007
Capital Expenditures and Investment in R&D
DENSO Vision 2015
The Kind of Company We Aspire to Be
Our Long-term Plan for 2010
Management That Exceeds the Expectations of Stakeholders
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Koichi Fukaya
President and CEO
 

Results and Forecasts

Record Results and Dividend Raised

In fiscal 2006, the year ended March 31, 2006, DENSO reported another year of record results. Consolidated net sales increased 13.9% year on year to ¥3,188.3 billion, exceeding ¥3 trillion for the first time. Operating income rose 24.6% to ¥266.6 billion, and net income jumped 27.9% to ¥169.6 billion. All were record figures for the Company. This strong performance reflected steady growth in sales to Japanese automakers, which boosted production at their overseas sites and in Japan to cater to growth in exports of assembled vehicles. Sales to foreign automakers also rose.

In light of these strong results, we decided to increase the full-year dividend to ¥38.00 per share, representing an increase of ¥6.00 per share compared to the previous year. Another way we are returning profits to shareholders is through our share buyback program. In the year under review, we purchased 5.1 million of our own shares at a cost of ¥20.1 billion. As a result, the total return ratio, which takes into account dividend payments and share buybacks, reached 30%.

   
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Operating Overview

During the year under review, we focused on two key policies: enhance the DENSO way of manufacturing to win even greater trust from customers, and drive forward efforts to become a truly global corporation.

In the first area, we took steps to embed even higher levels of quality in all phases of the manufacturing process, from the design and development stages to production. We also enhanced our capability to accurately verify whether these quality improvements were being realized in finished products. Overseas, where we are rapidly ramping up production, we are translating the DENSO way of manufacturing to our global sites. One initiative in this area was the establishment of a personnel training facility in Thailand to cultivate the technicians we need for our operations in the ASEAN region.

To make DENSO a truly global corporation, we worked on creating a global development framework, thereby strengthening our ability to create appealing products focused on the areas of the environment, safety, comfort and convenience. In the first of these areas, we created a new diesel common rail system with newly developed piezo injectors. Achieving a fuel injection pressure of 1,800-bar, the world's highest for a component of this type, our diesel common rail system is capable of performing up to five high-accuracy injections during each combustion stroke. In the areas of safety and convenience, we developed a remote security system to protect vehicles against unlawful entry. Anybody trying to break into a car equipped with this system has their photo taken, which is then automatically sent with a warning to the owner's mobile phone via a data center. In the area of convenience, we created a new car airconditioning system with a unique double-pipe internal heat exchanger that boosts cooling performance by up to 12%.

With the aim of further enhancing our product development capabilities in preparation for the challenges that lie ahead, we realigned the Group organization in January 2006, increasing our business groups from four to five. This reorganization included transferring operations related to hybrid electric vehicles (HEVs) from the Powertrain Control Systems Business Group to Electric Systems Business Group. This move consolidates all electrical-related components in a single business group, thereby reinforcing our position in the power electronics field for HEVs and other applications. Another step included combining informationand safety-related business divisions, previously dispersed throughout three business groups, under the newly established Information & Safety Systems Business Group to strengthen the development of systems from a “driver assistance” perspective.

In order to accurately respond to customer needs, we also upgraded and enhanced our product supply framework. In Japan, this involved expanding semiconductor wafer manufacturing facilities at our Kota Plant to boost output of IC devices. We also spun off our Kitakyushu Plant and boosted its capacity to produce components for diesel injection systems.

During the year, DENSO also established four new production sites in China, which respectively manufacture car navigation systems, instrument clusters, compressors for air conditioners and oil filters. In North America, we decided to increase capacity at DENSO Manufacturing Tennessee, Inc., which manufactures automotive electronic components.

   
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Outlook for Fiscal 2007

Despite uncertainties such as fluctuating exchange rates and the impact of surging prices for raw materials, domestic and overseas automobile production is expected to remain firm in fiscal 2007, ending March 31, 2007. Against this backdrop, the DENSO Group will further enhance the competitiveness of its products and roll out aggressive sales activities. Based on these and other initiatives, we are projecting consolidated net sales of ¥3,380 billion, up 6.0%, operating income of ¥282 billion, an increase of 5.8%, and net income of ¥173 billion, up 2.0% compared to the year under review. All would represent record figures for the Company.

Capital Expenditures and Investment in R&D

Capital expenditures rose 22.7% during fiscal 2006 to ¥288.7 billion. We are planning to increase capital expenditures to ¥327 billion in fiscal 2007 to respond to automakers' aggressive plans to increase output and to support their global business operations. Specifically, we will increase output of car air conditioners, diesel common rail systems and automotive electronics.

Investment in R&D totaled ¥256.3 billion, equivalent to 8.0% of consolidated net sales, in the year under review. We are budgeting for ¥272 billion in fiscal 2007, the same ratio to net sales, mainly for R&D related to HEVs and diesel components. R&D investment as a percentage of net sales is around 5.0% on average in the auto industry. We believe that maintaining a relatively high figure of 8.0% will preserve our competitiveness and ensure we continue to deliver sustained growth as an automotive components supplier.

   

DENSO Vision 2015

The Kind of Company We Aspire to Be

Buoyed by firm automobile production in Japan and overseas, we attained ahead of schedule the final-year targets of our medium-term management plan DENSO Vision 2005, which ended in the year under review. Based on this performance, in April 2004, we formulated DENSO Vision 2015, which sets our direction for the Group over the next ten years.

In DENSO Vision 2015, we spell out how we plan to realize management befitting an Excellent Global Company in four key ways:

  • Lead the development of the automotive society by proposing to automakers and then developing a whole host of world-first and global marketleading products; contribute to the development of society and the automotive industry through sustained growth.
  • Supply products that give satisfaction to customers worldwide to establish a firm presence in each global market; realize a globally balanced earnings structure.
  • Conduct corporate activities focused on environmental and social issues, as well as operating results, that earn the trust of all stakeholders.
  • Promote greater autonomy among the Group's 100,000 associates in each global operating region, and evolve into a Group that leverages their capabilities and their international knowledge.

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Our Long-term Plan for 2010

Guided by the aforementioned objectives, we also formulated a five-year plan to take us through to 2010, underpinned by the following six points:

  • Develop products based on research into the future of the automotive society
  • Create new businesses that generate dynamic thinking and approaches
  • Win even greater trust worldwide in our way of manufacturing
  • Conduct operations adapted to each market while adopting the best attributes of each region
  • Manage the Group in a way that encourages autonomy and captures synergies
  • Foster associates committed to innovation and creativity

Please turn to the Feature Section to read more about our thinking on these points.

Management That Exceeds the Expectations of Stakeholders

While improving operating results is important, the DENSO Group has also put the highest management priority on contributing to the sustained development of society in environmental and social contexts by realizing continued growth balanced with corporate social responsibility. Based on this thinking, and spearheaded by our Corporate Social Responsibility (CSR) Promotion Center established in January 2005, we are working to raise awareness among our 100,000-strong global workforce of three key areas for further emphasis—environmental protection, social contribution, and workforce diversity. We are also promoting compliance across the Group.

Aiming to go "Beyond All Expectations" of our shareholders, customers, business partners, regional communities and other stakeholders, the entire DENSO Group will work to make DENSO Vision 2015 a reality.


 

 

   
    koichi fukaya
Koichi Fukaya
President and CEO
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