Business News

Epson Unveils Updated SE15 Second-Half Mid-Range Business Plan

Wednesday 13. March 2013 - Seiko Epson Corporation ("Epson," TSE: 6724) today unveiled its Updated SE15 Second-Half Mid-Range Business Plan (FY2013-2015).

1. Overview of the SE15 Mid-Range Business Plan (FY2009-2011/ FY2012 – 2014)
Under the first-half business plan, which ran three years from fiscal 2009, Epson pursued the growth strategies outlined in its SE15 Corporate Vision and restructured its devices and precision products businesses and its business portfolios. These actions caused income to rebound in fiscal 2009 and 2010. In fiscal 2011, however, the company missed its initial income target, largely due to the effects of the earthquake and tsunami in Japan and the flooding in Thailand. On the other hand, Epson assembled a lineup of competitive information-related equipment products in line with its growth strategy. These products underpinned the second-half plan, which began in fiscal 2012. The second-half plan upheld the same basic strategic direction but was an income growth plan predicated on net sales growth.
However, the business environment in fiscal 2012 was more severe than expected, and Epson was forced to downwardly revise its forecast. We realized the necessity of reviewing the validity of both the strategy and business targets expressed in our mid-range business plan.
2. Updated SE15 Second-Half Mid-Range Business Plan (three years starting fiscal 2013)
As a result of our review and the achievements of the first half of the plan from fiscal 2009 to 2012, we will readjust the product mix and adopt new business models in existing segments in the three years of the Updated Mid-Range Business Plan. In new business segments, we will aggressively develop markets. By doing this, Epson will in the subsequent business plan to be announced in fiscal 2016 steadily undergo a metamorphosis from a company focusing on printing and projection equipment for consumers to a company that once again posts strong growth by creating and providing new information tools and equipment for businesses and professionals, as well as consumers. We are positioning the three years of the updated mid-range business plan as a time for laying the foundations for this transformation, and steadily moving towards achieving our goals.
Although we are adjusting our business plan, we have decided to reiterate our SE15 Long-Range Corporate Vision.
Basic policies
Epson’s basic policy under the updated mid-range business plan is to manage its businesses to ensure it creates steady profit and avoids the single-minded pursuit of revenue growth. Under this policy, management is determined that the company’s results will bottom out in fiscal 2012, and will prioritize the generation of steady profits going forward. In addition to emphasizing cash generation and strengthening our financial structure, we will go all out to maintain fixed costs at their current level while improving the variable cost ratio as we seek to steadily improve profitability.
Financial performance targets
Epson is looking to increase net sales by 20 billion yen a year and operating income by 10 billion. While our previous plan was predicated on strong net sales growth, we are now focusing on the generation of steady profits by reconstructing existing business segments and developing new business segments.
With a plan in place to generate stable profits, we will at the earliest possible opportunity in the subsequent plan seek to achieve ROS and ROE of 10% or more on an ongoing basis.
Unit: billion yen
 FY2013FY2014FY2015Net sales890.0910.0930.0Operating income30.040.050.0Operating income margin3.4%4.4%5.4%Exchange rate assumptions
USD1
EUR1
¥85
¥115
¥85
¥115
¥85
¥115
* The business outlook expressed here is based on current information available. The actual figures may vary according to the situation going forward.
Basic policies and strategies in each business
Printing systems business (previously known as the printer business)
Basic policy
Create an innovative printing environment by leveraging inkjet technology.
Basic strategy
Boost inkjet printer competitiveness by reducing their size.
Improve the model mix in the home segment.
Accelerate the deployment of office inkjet printers.
Establish a high-margin business model in emerging markets.
Expand the commercial printer segment.
Steadily grow profits in business systems.
Inkjet printer growth will be flat over the next three years, with growing sales in emerging economies expected to be offset by reduced unit sales in developed economies. In the medium term, we will concentrate on improving the model mix and realigning our business model. In fiscal 2012, we completed the capital investment aimed at establishing volume production of our new piezo print head. We plan to improve competitiveness by launching printers with the new print head in fiscal 2013. At the same time, we will boost the level of our service and support, including IT solutions.
Visual communications business (previously known as the visual products business)
Basic policy
Create new forms of visual communication using microdisplay technology.
Basic strategy
Be No. 1 in all projector segments.
Create new value with HMDs as information tools that change the way we live and work.
Although the projector market will not expand at the rate we had previously expected, we still forecast growth based on expanding demand in emerging economies. Against this background, we will strengthen our position in existing product domains and in high-brightness projectors by presenting new solutions and boosting our sales network. This will lead to the growth of new business domains and profitability improvements. We believe that head-mounted displays (HMD) could one day change the way we live and work. Going forward, we will open up new applications and generate new customer value by unlocking the potential of these products as hands-free information tools.
Sensing systems business (new business segment)
Basic policy
Use high-precision sensors to create new value to improve people’s lives.
Basic strategy
Provide innovative tools and value in fields such as health, sports, and medicine by using accurate, precise sensors to capture and use data that has been converted into visual form.
In recent years, we have used our accumlated component and sensing systems technologies to develop new sensing products that have driven the growth of new business domains. These products have included a GPS running monitor, a wristwatch-type pulse monitor, and motion sensing equipment.
We see this segment as a driver for the future growth of the company. We are focusing on the sports, healthcare and medical fields, and are carrying out a structural reorganization as we continue to develop new products and incorporate them with cloud technologies. In the industrial domain, we are looking to areas such as facilities and infrastructure monitoring, and will propose completely new solutions that will convert raw data about the human body into a practical and visual format.
Industrial solutions business (new business segment)
Basic policy
Employ advanced mechatronics to create robots and production systems that dramatically increase productivity.
Basic strategy
Create new value in the areas of factory automation and industrial equipment by combining our precision mechatronics and inkjet technologies to pave the way for a migration toward digital industrial printing and high-performance robots.
Thanks to solid sales and a reputation for reliability, Epson’s SCARA and 6-axis robots have become firmly established in this segment with world-leading market share. In addition, Epson’s textile printing systems and label presses are steadily gaining traction in the market. Going forward, we will accelerate these efforts, and will nurture the products that will drive Epson’s future growth. Leveraging our advanced mechatronics technologies, such as our proprietary inkjet and intelligent robot technologies, we will offer industrial robots, production equipment and inkjet devices that will dramatically increase productivity.
Microdevices and precision products business (previously known as the electronic devices business and precision products business)
Basic policy
Use well-honed technology that rivals cannot replicate to continue creating unique products.
Basic strategy
Lead in the areas of miniaturization and performance by combining QMEMS and semiconductor technologies.
Use Epson’s unique precision processing technologies to create products that rivals cannot replicate.
Through measures such as reassigning staff, we have resized our microdevices business to a level comensurate with its sales. As a result, we now have a business that is capable of generating steady profits. In precision products, we have improved the profitability of our watch business by creating high-value-added products such as a GPS solar watch. We have carried out capital expenditures aimed at growing our small yet highly profitable metal powder and surface processing businesses.
Major management indicators
Epson plans capital expenditures of 120 billion yen over the next three years. The expenditures, which are aimed at ensuring future growth, will be largely focused on new business domains, and on printing systems and other information-related equipment.
Our cumulative free cash flow target for the next three years is 68 billion yen. We are prioritizing careful management of inventory and capital in addition to the steady generation of profit.
Epson has a policy of consistently maintaining stable dividend payments and aims to achieve a consistent consolidated dividend payout ratio of 30% in the medium term.
 FY2013 – FY2015 (cumulative)Capital expenditure120 billion yenFree cash flow68 billion yenShare dividendsStable dividend payments, and, in the medium term, a consistent consolidated dividend payout ratio of 30%