■Performance Trends of Wacom <6727>

Looking at the revenue trend until the fiscal year ending March 2020 before the COVID-19 pandemic, the significant decline in the fiscal year ending March 2017 was due to the appreciation of the yen, combined with the impact of excessive internal IT infrastructure investment, and the transition of product cycles. Subsequently, recovery took place along with the growth of the "Technology Solutions Business," but the "Brand Product Business" followed a shrinking trend. The structure where the negatives of the "Brand Product Business" were covered by the positives of the "Technology Solutions Business" continued. In the fiscal year ending March 2021, triggered by the COVID-19 pandemic, there was a rapid expansion in the "Brand Product Business" (especially in the mid to low price range models), focusing on stay-at-home demand including online education, and even in the fiscal year ending March 2022, after the stay-at-home demand peaked in sales, high revenues were achieved due to the growth of the "Professional Display Products" in the "Brand Product Business" and the growth in the "Technology Solutions Business," marking the highest revenue for two consecutive periods. However, from the fiscal year ending March 2023 onwards, due to the rapid decline in consumer sentiment globally caused by factors like inflation, stabilization of COVID-19 demand, etc., the "Brand Product Business" (especially in the mid to low price range models) declined significantly, while an increase in revenue was maintained through the growth of the "Technology Solutions Business."

On the profit and loss front, since incurring operating losses in the fiscal year ending March 2017, the operating profit margin has gradually improved from the 4% range to the 6% range while actively managing research and development and new product development. In the fiscal years ending March 2021 and March 2022, high profit margins were secured for two consecutive periods due to increasing revenue, enhanced profitability, and optimization of selling and administrative expenses. However, from the fiscal year ending March 2023 onwards, the "Brand Product Business" reported segment losses for two consecutive periods, leading to a significant overall decrease in profit margins.

On the financial front, the company's equity ratio temporarily decreased in the fiscal year ending March 2017 due to substantial net losses caused by recognizing impairment losses on IT assets. Since then, there has been a trend of improvement driven by internal reserve accumulation, approaching 60%. However, from the fiscal year ending March 2023 onwards, there is a declining trend due to factors like share buybacks. Key financial indicators such as ROE demonstrating capital efficiency and ROIC illustrating operational efficiency have maintained high levels. Although there was a significant decrease in profit levels in the fiscal year ending March 2023, towards improvement in the fiscal year ending March 2024, cash flow was enhanced by progress in reducing excess inventory. Against the backdrop of the robustness in the growth foundation of the "Technology Solutions Business," the optimal rebalancing of capital and debt in the balance sheet has become possible. With the aim of advancing business operations focusing on capital efficiency under the premise of ensuring financial soundness, a debt leverage of around 0.3 to 0.5 times the debt-to-equity ratio was disclosed as the policy as of May 2023. As of the end of the fiscal year ending March 2024, with a debt-to-equity ratio of slightly less than 0.4 times, a balanced state has been achieved. It will be essential to keep a close eye on whether the appropriate management of working capital focusing on inventory and the allocation of cash flow generated from profit generation towards investment and shareholder returns are maintaining financial soundness.

■Initiatives for Society

Embracing a Sustainable Society through the Offering of 'Life-long Ink'

The company values ESG and its commitment to a sustainable society, disclosing its fundamental philosophy and specific activities related to its 'Initiatives for Society' on its company website. A distinguishing feature is the association of the company's technology with the vision of 'Life-long Ink.' The company recognizes that its mission and value creation source lie in supporting the 'writing/drawing' experiences that people accumulate throughout their lives and passing them on to the future, thus embracing a sustainable society. By pursuing the wide-ranging possibilities of 'Life-long Ink,' ranging from people's daily lives to creativity, business, and the field of education, with various community partners, the company can contribute not only to its own sustainable growth but also to the sustainable growth of its users.

For example, in the field of education, they are developing 'Education-focused AI Ink' with partners to analyze students' learning characteristics based on the movements of the pen during study, and provide a learning environment tailored to individual needs.

In addition, the company values ​​the relationship between individual employees living in various locations around the world and local communities, and also focuses on environmentally friendly operations and product development. Regarding the future vision of society, proposals will continue to be made not only by the company but also with communities such as Ars Electronica*. Furthermore, there is a policy to implement technical services for STEAM education*2 and inquiry-based learning*3 in society.

*1 Ars Electronica, a global creative institution based in Austria, has been making proposals on "new creativity and the future vision of society brought about by advanced technology" for over 40 years.

*2 Art, which is part of STEAM (Science, Technology, Engineering, Arts, Mathematics) education becoming a social trend, makes it possible to connect creative activities to learning by visualizing creators' creative activities using AI technology.

*3 For example, through collaboration with Z-Kai Group, services are provided to nurture logical thinking skills by combining online education with digital pens and analyzing individual students' ink data traces using AI technology.

Addressing climate change is also seen as an important issue in environmental management. By participating in the Climate Change Initiative (JCI) and reducing CO2 emissions by 4% annually (base year: fiscal year 2014), the company has announced the CO2 emission reduction target to be achieved by fiscal year 2030. Within that, efforts are made towards reducing greenhouse gas emissions and disclosing environmental performance information such as CO2 emissions (Scope 1, 2, 3), as well as conducting business activities based on the analysis of risks and opportunities posed by climate change to the business environment. Furthermore, actions to reduce CO2 emissions across the entire supply chain are being pursued by requesting suppliers to adhere to the "Wacom Supplier Code of Conduct". In response to the increasing risks of natural disasters such as floods, the company has formulated Business Continuity Plans (BCP). Considering these factors, on April 13, 2023, the company announced its support for the Task Force on Climate-related Financial Disclosures (TCFD). Additionally, in August 2024, with the aim of improving the reliability of greenhouse gas emission data (Scope 1, 2, 3) for the fiscal year ending March 2024, a third-party assurance report based on international standards was obtained. By the end of October of the same year, an evaluation confirmed alignment with the scientific basis for the global greenhouse gas emission reduction targets being pursued up to 2030, in accordance with the goals of the Paris Agreement (reducing global temperature rise to 1.5°C from pre-industrial levels). The company received recognition for achieving SBTi Short-term Targets certification in the international climate change initiative, Science Based Targets initiative (SBTi).

The company also publishes the 'Wacom Story Book' as a booklet that partially covers elements of the integrated report focusing on ESG, conveying a series of stories such as the company's philosophy, employees' thoughts, and user feedback (the inaugural issue was released in May 2023).

* Starting with an introduction to the values ​​that the company cherishes, the booklet features team members discussing the company's product planning and technological development trajectories, as well as including various voices, works, and case studies of community partners and artists.

(Written by Fisco Guest Analyst Ikuo Shibata)