■Changes in Wacom's performance so far

Looking at sales trends up to the fiscal year ending 2020/3 before the COVID-19 pandemic, the reason for the sharp drop in the fiscal year ending 2017/3 is that in addition to the appreciation of the yen, the effects of excessive internal IT infrastructure investment, product cycle transitions, etc. overlapped. After that, although it recovered along with the growth of the “technology solution business,” the “brand product business” followed a shrinking trend, and the structure of covering the negative aspects of the “brand product business” with positive “technology solution business” continued. When the “brand product business” rapidly expanded in the 2021/3 fiscal year, centering on nesting demand, etc., including for online education, in the 2022/3 fiscal year, when demand for nesting went round, it also hit record high sales for 2 consecutive terms due to growth in professional display products and the “technology solution business.” Since the fiscal year ending 2023/3, although the “brand product business” (especially the medium to low price range model) has fallen drastically due to a rapid decline in consumer sentiment due to the deterioration of the global economic environment and the calm of COVID-19 special demand, etc., an increase in sales has been secured due to growth in the “technology solution business.”

In terms of profit and loss, after the fiscal year ended 2017/3, when there was an operating deficit, the operating profit margin gradually improved from the 4% range to the 6% range while actively carrying out research and development of new products. In the fiscal year ending March 31, 2021 and the fiscal year ending 2022/3, high profit margins were secured for 2 consecutive terms due to revenue increases, product mix improvements, optimization of sales and administration expenses, etc., but after the fiscal year ending 2023/3, the “brand product business” recorded segment losses for 2 consecutive terms, and overall profit margins also declined significantly.

On the financial side, the capital adequacy ratio declined once in the fiscal year ended 2017/3, which was a significant final loss due to the recording of impairment losses on IT assets, but thereafter, there was an improvement trend due to the accumulation of internal reserves, and it came close to 60%. However, since the fiscal year ending 2023/3, there has been a downward trend due to treasury stock acquisitions, etc. ROE, which indicates capital efficiency, and ROIC, which indicates the efficiency of business activities, have also remained at a high level. Although the fiscal year ending 2023/3 declined drastically along with the drop in profit levels, the fiscal year ending 2024/3 is moving towards improvement, and cash flow has also improved due to progress in reducing surplus inventory. Against the backdrop of an increase in the robustness of the growth base of the technology solutions business, the idea is to proceed with business operations conscious of capital efficiency by utilizing debt leverage of up to 0.3 to 0.5 times the debt-to-equity ratio (D/E ratio) from the fiscal year ending 2024/3 to the fiscal year ending 2024/3 on the premise of ensuring financial soundness, based on the judgment that it is now possible to keep an eye on optimal rebalancing of capital and liabilities on balance sheets It has been disclosed, and since it is less than 0.4 times as of the end of the 2024/3 fiscal year, the balance is in place. In the future, it will be an important financial indicator to measure whether soundness has not been damaged by proper management of working capital centered on inventory and allocation of cash flows generated from the creation of business profits to investments and shareholder returns, so it is necessary to keep a close eye on them as well.

(Written by FISCO Visiting Analyst Ikuo Shibata)