Integrated Report 2018 For the year ended March 31, 2018 the year ended March 31, For
Integrated Report 2018 For the year ended March 31, 2018
1-1, Showa-cho, Kariya, Aichi 448-8661, Japan Tel: +81-566-25-5511 (Information Center) www.denso.com/global/en/
Printed in Japan WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 Crafting the Core WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 Providing a better future for the next generation
Look at the world with a brighter vision for the future.
Cherish nature and learn to live together in harmony.
Welcome changes and meet challenges unafraid.
Embrace diversity and cooperate to enhance technologies.
Mor e than ever before, we will value the DENSO tradition of Monozukuri as we pursue new value and create new “Cores” for years to come.
After all, everything we do is to provide a better future for the next generation. WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
The NIPPONDENSO Spirit “Be trustworthy and responsible.” “Cherish modesty, sincerity, and cooperation.” “Be pioneering, innovative, and creative.” “Provide quality products and services.”
2 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
DENSO Philosophy
Contributing to a better world by creating value together with a vision for the future
DENSO Spirit
A spirit of foresight, credibility and collaboration
The DENSO Spirit expresses values and beliefs shared by our employees around the world that have driven us to contribute to the automotive industry and society as a whole since our establishment in 1949.
Foresight Credibility Collaboration
Providing surprises and Providing quality and Achieving the highest impressions in a way reliability beyond results by working that only DENSO can customer expectations as a team
Vision Quality First Communication
Creativity On-site Verification Teamwork
Challenge Kaizen, Human Development Continuous Improvement
3 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
CONTENTS
COVER CEO STORY MESSAGE 6 DENSO’s History of Innovation 14 To Our Stakeholders and Creation 8 Major Points for Understanding DENSO 10 DENSO’s Six Core Businesses 12 DENSO’s Value Creation Process
2 REINFORCING THE STRENGTHS AND FOUNDATION THAT SUPPORT GROWTH 34 Strengths That the Company Has Nurtured 50 Dialogue with Outside Since Its Founding Directors 34 Research and Development 54 Directors and Audit & 36 Monozukuri Supervisory Board Members 38 Hitozukuri 58 Compliance 40 Special Feature: The Origin of DENSOʼs 59 Risk Management Technology and Craftsmanship—Winding 60 Intellectual Property 42 Strengths We Will Reinforce Going Forward 61 Engagement with Society 45 Corporate Governance
4 5 OVERVIEW BY CORPORATE DATA PRODUCT 96 Financial Strategy 78 Business Highlights 97 Overview by Geographical Segment 80 Thermal Systems 98 Facts & Figures 82 Powertrain Systems 100 10-Year Data 84 Electrification Systems 102 C ompany Overview and Stock Information 86 Mobility Systems 88 Electronic Systems 90 Non-Automotive Businesses (Factory Automation and Agriculture)
4 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
1 GROWTH STRATEGY 22 Awareness of Business Environment 25 Outline of Management Policies 26 Long-term Policy 27 Long-term Plan 31 Mid-term Plan
3 SUSTAINABILITY MANAGEMENT 66 Sustainability Management 66 Materiality 68 The Environment 72 Peace of Mind 74 Inspiring (Corporate Foundation)
Positioning of Integrated Report Editorial Policy In addition to providing financial information, such as results and sales overviews as well as management strategy, DENSO Financial Non-Financial Integrated Report 2018 is edited as an integrated report that reports, in an easily understood manner, on what value DENSO is providing Information Information society and on the process of improving that corporate value. This we achieved by introducing, in an integrated manner, information of a DENSO Website DENSO Website non-financial nature on intangible assets, including on the environment, (Investors) Integrated (Sustainability Information) society and governance (ESG) that are seen as the foundation under- pinning growth. • Financial Results Report • Report on Social DENSO creates long-term corporate value for all of its stakeholders, • Securities Report, etc. Responsibility including shareholders and other investors, and would appreciate their • Environmental Report understanding for the efforts the Company is making in aiming to realize • Corporate a sustainable society. Governance, etc. In compiling this report, references have been made to the “interna- tional integrated reporting framework” that is proposed by the International Integrated Reporting Council (IIRC). In addition, with regard to social reporting and the environment, please refer to the Please see DENSO’s corporate website for PDF format Company’s website as it contains detailed sustainability information. https://www.denso.com/global/en/investors/library/annual_report/ Cautionary Note: Forward-Looking Statements Of the content published in this report, what is not historical fact com- prises future predictions based on expectations or on plans for the future. As they include contributory factors, such as risks and uncertain elements, the possibility exists that actual achievements and results may differ materially from this report.
5 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
DENSO Cover Story 1 HISTORY DENSO’s History of Innovation and Creation
Growth Achieved Amid the Nixon Shock, Oil Crisis, and Economic Recession Establishment of In-House DENSO began promoting three major IC Development Structure strategies: Cultivating a market for car in Anticipation of Trends air-conditioners, developing new elec- in Car Electronics tronic products, and improving domestic Major Advancements as a sales and services and implementing With the aim of realizing the complete bolder, more aggressive sales initiatives. Comprehensive Manufacturer in-house production of ICs that corre- As a result, the Company was able to spond with automobiles, which did not of Automotive Parts raise its net sales by 2.4 times in a five- exist at the time, DENSO established a To keep pace with global companies, year period. This rapid growth defied the comprehensive system that conducts DENSO entered into a technical coop- conventional thought that the growth everything from development to pro- eration agreement with Robert Bosch of automotive part manufacturers duction in-house. As a result, DENSO GmbH, Europe’s leading electrical should be proportionate to growth was able to promptly realize the practi- equipment manufacturer. Through this in the number of cars produced. cal application of technologies that alliance, DENSO made major advance- could respond to the strengthening ments as a comprehensive manufac- of regulations on gas emissions. turer of automotive parts from both a technical and managerial perspective.
1950s 1960s 1970s
¥536.5 billion ¥93.0 billion ¥0.5 billion ¥11.0 billion 1949 1960 1970 1980 1990 2000 2010 2017
6 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
Further Creation of a Culture of Innovation and Self-Challenge Full-Scale Development Amid a global economic recession caused Aimed at Becoming by the financial crisis, DENSO recorded an operating loss for the first time since its a Global Company founding. In response to this, the Company To respond to not only the trend toward formulated a three-year policy for struc- localization in the automotive industry but tural reforms, making efforts to streamline also the rapid fluctuations in exchange its business and establish a structure for rates, DENSO commenced local production future growth. Based on the idea “if we overseas ahead of many Japanese automo- change as individuals, then we can change bile manufacturers. The Company com- as a company,” DENSO was successful in menced full-scale overseas production in spurring various innovations, thereby 1986, starting with production in the United returning to profitability in a short period States. Guided by the strategy of securing a of time. stable business foundation in a wide range of international markets, DENSO moved forward with its global development.
1980s 2000s
¥5.1 trillion Revenue*1
¥3.1 trillion
¥2.0 trillion
¥1.5 trillion
1949 1960 1970 1980 1990 2000 2010 2017 *2
*1 Fiscal 1951 to fiscal 1978 show non-consolidated revenue, while fiscal 1979 and after show consolidated revenue. In addition, from fiscal 2014, the financial statements have been prepared based on International Financial Reporting Standards (IFRS). (Japanese accounting standards were employed up to and including fiscal 2013.) *2 Due to the change in DENSO’s fiscal year in 1995, fiscal 2000, 2010, and 2017 represent the fiscal years ended March 31, 2001, 2011, and 2018, respectively.
7 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
DENSO Cover Story 2 FOUNDATION Major Points for Understanding DENSO
DENSO Spirit P. 3 Boldly Taking on New Challenges No Matter What the Circumstances
A spirit of foresight, credibility and collaboration are the values and beliefs expressed in the DENSO Spirit, which was established in 1949. The DENSO Spirit permeates the actions of all DENSO employees around the world. Guided by this spirit, we are using the passion and ambition of all our employees as the driving force for accelerating innovation amid this period of dramatic change.
Number of DENSO Employees Practicing the DENSO Spirit 170,000
Research and Development, Monozukuri, and Hitozukuri P. 34–41 Leveraging DENSO’s Greatest Strengths Number of Patents Held Globally That Remain Thoroughly Committed to Creating the Best Possible Product
DENSO’s three greatest strengths are its R&D, Monozukuri (the art of making things), and Hitozukuri (human resource development). By having these strengths complement each 38,000 other, DENSO is able to push forward with its business Number of Medals Won at World Skills Competitions activities and provide new value to society. 63
8 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
Expansive Business Domains P. 10–11, 77–93 Clearing the Way for Future Automobiles through Business Domains That Create Green Value and Provide Peace of Mind
Since its founding, DENSO has promoted the development of advanced technologies related to automobiles. At the same time, the Company has expanded its business domains by applying these technologies in various fields. While leveraging the strengths it possesses in these business domains, DENSO will actively pursue external collaboration. By doing so, DENSO will strengthen its developmental capabilities and accelerate development speed with the aim of creating green value and offering peace of mind.
Consolidated Revenue
¥ trillion 5.1 Global Business Foundation P. 97 Leveraging Our Global Foundation to Bring Happiness to People Around the World and Create a Better Tomorrow
Aiming to be a company that can meet the needs of its various customers around the world and earn their trust, DENSO has expanded its business with 220 consolidated subsidiaries in 35 countries and regions across the globe. With a firm belief in that the world is waiting for more technological developments from DENSO, the Company will tackle the issues facing global society head on.
Ratio of Overseas Revenue to Total Revenue
Overseas 58% Ratio of Overseas Employees*
Overseas 56% * Ratio of employees at overseas subsidiaries to total employees
9 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
DENSO Cover Story 3 BUSINESS DOMAINS DENSO’s Six Core Businesses
THERMAL SYSTEMS P. 80 Providing safe, comfortable systems that use the %
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● least amount of energy possible in consideration ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● 28.4 ● ● ● ● ● ● ● ● ● ● ● ● ● ●
● ● ● ● ● ● ● ●
●
●
● ●
● ● ● ●
●
●
●
●
●
●
●
● ● ●
of the environment ●
●
●
● ●
●
●
●
●
●
●
●
● ●
●
● ●
● ●
● ●
● ●
●
●
● ●
● ●
●
●
● ●
●
● ● ●
● ●
● ●
●
●
●
●
●
● ●
● ●
●
●
●
●
● ● ●
● ● ●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
● ● ●
●
●
● ● ●
●
●
●
● ● ● ●
● ● ●
●
● ●
●
●
● ●
●
●
●
● ● ●
●
●
●
●
●
● ●
● ●
● ● ● ●
●
● ●
● ● ● ●
●
●
● ● ●
●
● ● ●
● ●
●
1 ● ● ●
●
●
● ●
● ● ● ● Main Products ● • Air-conditioning systems for cars and buses • Truck refrigeration units • Radiators and cooling systems
POWERTRAIN SYSTEMS P. 82 Providing solutions that help overcome the seemingly contradictive task of balancing the joy of life with vehicles with superior environmental 2 performance Main Products • Gasoline and diesel engine management systems • Engine-related products • Products for drive systems
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
●
● ●
● ● ● ●
●
●
●
● ●
● ●
● ●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
● ●
●
● ●
●
●
●
●
●
●
● ● ● ●
P. 84 ●
●
● ● ● ●
24.7 ●
●
●
●
●
● ● ● ●
●
●
●
● ● ●
●
● ● ●
● ●
ELECTRIFICATION SYSTEMS ● ●
● ●
● ●
●
●
●
●
●
●
●
●
●
● ● ● ●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
● ● ● ●
● ● ●
●
●
●
●
● ● ● ●
●
●
● ●
● ● ●
●
●
●
● ●
●
● ● ● ● ●
●
● ●
● ● ● ●
●
●
●
● ●
●
● ●
● ●
Supporting electrification in all areas of mobility to ● ● ●
● ●
●
●
● ●
● ● ● ● ● realize an enriched environment and the joy of driving %
Main Products 3 • Hybrid and electric car drive systems, power supply, and related products • Power supply and starting system parts • Small motor systems for automobiles
10 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
MOBILITY SYSTEMS P. 86 Aiming to realize Quality of Mobility by achieving a three-way harmony between 4 people, vehicles, and society as a whole Main Products • Electronic systems, services, and platforms that support all aspects of mobility • Advanced safety and automated driving products • Connected cockpit products
P. 88
● ● ● ● ● ● ● ● ● ● ELECTRONIC SYSTEMS ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Driving the industry with electronic technologies ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
● ● ● ● 14.4 ● ● ● ●
●
●
● ●
● ● ● ●
●
●
●
●
●
●
●
● ●
●
●
●
●
● ●
●
●
●
●
●
●
●
● ●
●
● ●
● ●
● ●
● ●
●
●
● ●
● ●
●
●
● ●
●
● ● ●
● ●
● ●
●
●
●
●
●
● ●
● ●
● ●
● to promote the widespread use of electric vehicles
●
● ● ●
● ● ●
●
●
●
●
●
●
●
● ●
●
●
●
●
●
●
● ● ●
●
●
● ● ●
●
●
●
● ● ● ●
● ● ●
●
● ●
●
●
● ●
●
●
●
● ● ●
●
●
●
●
●
● ●
● ●
● ● ● ●
●
● ●
● ● ● ●
●
●
● ● ●
●
● ●
● ●
●
● ●
● ●
●
●
● ●
● ● ● ● ● % 5 and automated driving Main Products • Powertrain control computers and other electronic devices • In-car semiconductor sensors and microelectronic devices such as ICs
NON-AUTOMOTIVE BUSINESSES FA P. 90
% Enhancing the productivity of the manufacturing 6 industry and contributing to an improved quality of life with a commitment to our long-cultivated
12.0 technologies
Main Products • Industrial equipment best exemplified by our automated
● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● equipment, modules, and industrial-use robots ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● • Equipment for use by society, including handy terminals ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● and QR solutions, and provision of services
●
● ●
● ● ● ● ●
● %
●
● ●
● ●
● ●
●
●
●
●
●
●
●
●
●
● ●
●
●
●
●
● ●
●
● ●
●
●
●
●
●
●
● ●
● ● ●
●
●
●
● ● ●
●
●
●
●
● ● ● ●
●
●
●
● ● ●
●
● ● ●
● ●
●
●
● ●
● ●
●
●
●
●
●
●
●
●
●
● ● ● ●
●
●
●
●
●
● ●
●
●
●
●
●
●
●
●
●
●
● ● ● ●
● ● ●
●
●
●
●
● ● ● ●
●
●
● ●
● ● ●
●
● ●
● ●
● 3.1
● ● ● ● ●
●
● ●
● ● ● ●
●
●
● ● ●
●
● ●
● ●
●
● ●
● ●
●
●
● ●
● ● ● ● ● AGRICULTURE P. 92 Combining technologies and ideas to contribute to an enriched society where all people can live safely and with peace of mind
% Main Products 15.9 • Agricultural production equipment and cloud services, in addition to the provision of after-sale services
Note: This graph indicates ratio of revenue by business.
11 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 - WorldReginfo 220 170,000 ees esources well-versed in the well-versed esources Products and Products peace of mind peace of green value and value green . At the . At services providing services providing ersity of human resources ersity onsolidated subsidiaries onsolidated Global human r fields of R&D, and sales manufacturing, Div C Number of employ Human Capital • • • • Hitozukuri 42 43
P. P.
Agile , and going forward going forward
DENSO Spirit Soft Domain Soft development Human resources Human resources in the soft domain in the soft （2018年3月末） y Systems utomotive Businesses utomotive Monozukuri Strengths we will reinforce will reinforce we Strengths owertrain Systems owertrain 34 38 44
acturing technologies acturing technologies ▪P ▪Mobilit ▪Non-A P. P. P. R&D billion xpenditures xpenditures 12 Hitozukuri External collaboration collaboration External (technology and personnel) (technology Long-term Plan Long-term
347.2 Expert manuf with and a global supply structure quality and safety to a commitment Capital e ¥ Manufactured Capital Manufactured • •
DENSO Integrated Report 2018 Report Integrated DENSO
DENSO Cover Story 4 Story DENSO Cover
36
P. tion Systems M&A Monozukuri billion onic Systems 20 Customers, suppliers, and industry–government–academia partners and industry–government–academia suppliers, Customers, Strength that the Company has nurtured has nurtured Company the that Strength since its founding Hard Domain Hard billion 447.4 ▪Thermal Systems ▪Electrifica ▪Electr Global business foundation Global business 120.0 DENSO’s Value Creation Process Creation Value DENSO’s Business Domains Business xpenses ¥ cceleration of external of external cceleration totaling ¥ totaling C to with a commitment field tive products world-first creating R&D e A Approx. collaboration Intellectual Capital Intellectual • intheautomo- technologies ore • Long-term Policy • same time, DENSO will reinforce its efforts in the soft domain, where the potential to offer added to potential the domain, where in the soft its efforts reinforce will DENSO same time, activities in all swift business promote will DENSO By doing so, going forward. increase will value domains. of its business To continue to be a company that is inspiring to society amid a business environment that is that environment amid a business society is inspiring to that be a company to continue To and activities its business through social issues resolve will changes, DENSO dramatic undergoing strengths the evolve will this end, DENSO To Policy. under its Long-term the vision adopted realize R&D, domain, which entails in the hard it has long cultivated
VALUE CREATION VALUE Social Issues DENSO Integrated Report 2018
The Value DENSO Offers Society
• Reduce the amount of energy used by our products
• Reduce CO2 emissions from our products 1 Green • Ra tio of in-house power generation through cogeneration* within energy consumed in our business activities: 48% (non-consolidated) 2 • CO2 emissions per unit* related to our business activities (compared with fiscal 2013): 75% (non-consolidated), 68% (Group companies) • MSCI ESG rating: A
• Prevention of traffic accidents through our products • Realization of comfortable and open vehicle interiors through our products Peace • Guarantee of safety through our rigorous quality control activities of Mind • Decrease in accidents related to our business activities (compared with target for 100% elimination): 48% reduction on a global basis
Economic Value Becoming a company that Revenue: ¥5.1 trillion / Second-highest revenue in the global contributes to an enriched automotive component industry Market capitalization: ¥4.6 trillion and safe society and is inspiring Operating cash flow: ¥558.0 billion Dividend payments / Dividend payout ratio: ¥101.4 billion / 31.7% to all of its stakeholders Bond rating: AA+ (Rating & Investment Information, Inc.)
Resolving social issues through our business
Strengthening input
Sustainability Management P. 65 Corporate Governance
Financial Capital Social and Relationship Capital Natural Capital • Capital ¥3.6 trillion • Trust from external organizations and a • Optimal energy utilization • Interest-bearing debt reliable brand • Energy input 36,251 TJ ¥473.9 billion • Relationship with all global automobile • Cash on hand manufacturers ¥918.3 billion *1 Energy-saving system that utilizes municipal gas, which produces only a small
amount of CO2 emissions, as fuel for power generation and makes use of waste heat
*2 P er unit = CO2 emissions / Revenue (indexed to fiscal 2013 as 100%) (The figures for provided value and each capital are from fiscal 2018.)
13 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
14 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
CEO MESSAGE To Our Stakeholders
DENSO will transform itself into a company that is truly inspiring to society.
Koji Arima President & CEO
15 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 CEO MESSAGE
I would like to sincerely thank our shareholders for their continued support.
Changes in the Amid global population increases, aging societies, and advancing urbanization, Business Environment the progression of global warming due to CO2 emissions and the increase in traffic accidents are becoming serious social issues. In addition, people’s value systems and consumption behavior are diversifying due to the rapid digitization of society and advancements in robotics. Furthermore, in the field of mobility the evolution of IoT and AI and the entry of companies from other industries have accelerated electrification, automated driving, connected cars, and car sharing, among other developments. In these ways, DENSO’s business environment is approaching a par- adigm shift. Under these circumstances, we maintain a sense of crisis based on an understanding that we cannot survive by simply emulating what we have done in the past. DENSO has refined its technologies centered on the hard domain, which entails the basic automobile functions of running, turning, and stopping, thereby realizing substantial growth. However, as a result of the paradigm shift that is occurring in the automotive industry, the value that vehicles need to provide is changing signifi- cantly, and value offered through the soft domain, which utilizes IT, is becoming increasingly more important. Accordingly, a large number of IT companies, which excel in promptly adapting to the changes occurring around the world, have entered the automotive industry, which has further sped up the pace of change. As we find ourselves in an extremely competitive environment, we need to take decisive action in implementing reforms that will allow us to realize sustainable growth well into the future. To this end, we believe our mission is to transform into a highly competitive organization by enhancing our strengths and capabilities.
The Intentions Behind To realize sustainable growth within this paradigm shift, we formulated our Our Long-term Policy Long-term Policy, which focuses on 2030, in October 2017. We also established our and Long-term Plan Long-term Plan, which provides the path for us to realize our Long-term Policy.
Long-term Policy The three key concepts underpinning our Long-term Policy are “green,” “peace of mind,” and “inspiring.” In addition to maximizing value provided through “green” and “peace of mind,” we will bring happiness to society by offering new value through efforts to make us “inspiring” to society. To conduct our business activities at the pace required in these times of change, it is essential that we form alliances. To this end, we will hold repeated dialogues to communicate our dreams and aspirations to the outside world. In these ways, we will make allies who share our passion and move forward with the creation of a society in which all people can achieve happiness. Furthermore, we will transform into a company that can be truly inspiring to our customers, business partners, and society as a whole. To do so, we will always place the customer first, making con- certed efforts to improve customer satisfaction and giving constant consideration
16 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 CEO MESSAGE
to what is truly needed by society. Going forward, we will place emphasis on this kind of approach.
Long-term Plan Under our Long-term Plan, which aims to realize our Long-term Policy, we determined the Five Pillars of Management Reform. At the same time, we established electrifi- cation, advanced safety/automated driving, connected cars, and non-automotive businesses (factory automation and agriculture) as four fields on which we will focus. By accelerating initiatives within these fields, we will reach our targets for fiscal 2026 of ¥7.0 trillion in revenue and an operating margin of 10%. To ensure that we are able to do so, we will enhance our organizational capabili- ties to a level higher than ever before in an effort to transform into a highly com- petitive organization even amid an environment of fierce and rapid change. With this aim in mind, we adopted “enhancement of vehicle perspective and streamlining of technological development,” “advanced R&D function to realize agile develop- ment globally,” “business unit evolution and smaller but stronger headquarters,” “global management with optimal use of Group and regional power,” and “way of working with tremendous speed and efficiency” as the Five Pillars of Management Reform. Through these pillars, we will push forward with reforms to our organiza- tion. Management reform essentially boils down to significantly enhancing the dynamism of our front-line operations and rapidly accelerating the speed of our business execution. Accordingly, it is essential that our 170,000 global employees go about their daily work with a strong devotion to the following ideas: working with pride and taking on challenges without fear of failure, immediately responding and adapting to change, and putting the utmost passion into their work. I believe we will be able to change the awareness of all our employees through these man- agement reforms.
What We Value in Commitment to Earning Power Our Efforts to Overcome The growth targets adopted under our Long-term Plan of ¥7.0 trillion in revenue the Paradigm Shift and and an operating margin of 10% are not targets that can be achieved by simply Realize Further Growth adhering to the approach we have taken thus far. To reach these targets, we need to give thorough consideration to what aspects of our operations we need to change and where and how we can generate profits. In May 2018, we held a global conference in which approximately 250 managers from our offices around the world participated. At this conference, we engaged in discussion on how we can enhance our earning power, with a particular focus on the changes we should make in our operations. Our manufacturing capabilities, which give birth to new technologies and prod- ucts, represent the source of our competitiveness alongside our technological development capabilities. These highly sophisticated manufacturing capabilities, which we have cultivated since our establishment, are grounded in our front-line expertise and know-how. By further evolving these capabilities through factory IoT, we will boost our earning power to even higher levels.
17 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 CEO MESSAGE
Three Capabilities To overcome this paradigm shift, which is bringing about unprecedented change, and realize further growth, all of our employees must be keen on anticipating change and taking on new challenges under the strong conviction of “delivering new value to the world.” We view this period of change as the era of our second found- ing, and I believe that each of our employees must take action by carrying out their duties in a highly energetic manner if we are to accomplish this second founding. Guided by this belief, I ask that all our employees place value on three capabilities: realization capability, motivational capability, and communication capability. By doing so, I feel that we can overcome this paradigm shift and realize growth.
Realization Capability Realization capability refers to recognizing positive aspects and making whole- hearted efforts to tie such aspects into your daily actions. Not constraining them- selves to the framework of individual responsibilities, Company products, the working environment, and the Company itself, our employees need to think posi- tively about what they can accomplish on their own initiative. This will allow them to make new realizations in their interactions with other people and in their sur- rounding environment. If each and every employee can make realizations on their own and pursue efforts that they alone can accomplish, then I believe that DENSO can realize a genuine transformation as an organization.
Motivational Capability Motivation is energy, and motivational capability means engaging in your work with the highest levels of passion and dedication and with a sense of urgency. Our employees will look deep inside themselves to establish the dreams and goals they wish to accomplish. By doing so, they will devote themselves to their work and approach any task with their very best effort.
Communication Capability Communication capability involves putting your dreams into words to inspire and motivate those around you. I believe that if our employees can work together with a shared sense of passion to overcome the challenges and difficulties in achieving their grandest of dreams, then we should certainly be able to overcome this period of major change. By bringing together an even larger group of people who share the same devotion and are able to communicate their individual dreams to each other, we will evolve into a highly energetic and invigorated organization.
Our 170,000 global employees will share a sense of urgency and combine their strengths under the same vision as they fully devote themselves to realizing unrivaled levels of success.
18 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 CEO MESSAGE
Becoming a Company In following the Sustainable Development Goals (SDGs),* which were adopted by That Is Inspiring the United Nations in 2015, and in complying with the Paris Agreement, which to Society went into effect in 2016, there has been a higher level of expectations and greater need for corporations to address the social issues facing global society. We need to understand the kind of impact that the value we offer as a company has on various
* The Sustainable Development Goals: social issues. We also need to take steps to contribute to the sustainable develop- The United Nations Sustainable Development Summit 2015 was held in ment of society at large. September 2015, with leaders from over Since our founding, we have constantly given consideration to the sustainability 150 countries participating. “Transforming our world: the 2030 Agenda for of society through the NIPPONDENSO Spirit, our creed, as well as our basic man- Sustainable Development” was a docu- ment that was adopted as a result of agement philosophies and long-term plans. Under our Long-term Policy for 2030, this summit. Within this document, vari- we will contribute to a sustainable society by providing new value in the fields of ous declarations and goals were adopted as an action plan for realizing “green” and “peace of mind.” To this end, we determined issues toward which we prosperity for people and the earth. Specifically, the document declared the must give the utmost priority in July 2018. Sustainable Development Goals (SDGs), In the field of “green,” we will develop and promote products that help reduce which comprise 17 goals and 169 tar- gets. The SDGs have been positioned as environmental burden, such as products for electric vehicles, thereby aiming to a mutual language around the world for 2 considering issues related to decrease CO emissions. In the field of “peace of mind,” we will accelerate the sustainability. development and promotion of products related to advanced safety and auto- mated driving technologies. In doing so, we will strive to reduce the number of traffic accidents. Also, we have determined a total of 15 material issues, including respecting human rights within our entire supply chain and strengthening gover- nance, and will put these issues into practice to enhance the effectiveness of our business activities. We currently find ourselves in an extremely challenging situation, similar to embarking on a world voyage without a map of the sea. We understand the many difficulties we will face going forward. However, based on a strong devotion to cre- ating better products and realizing a better society, we will make constant efforts to pursue new challenges.
With passion and devotion, we will realize an enriched mobile society and con- tribute to sustainable social development. In these ways, we will deliver an even brighter future to the next generation. I would like to ask our stakeholders for their continued support as we pursue these endeavors going forward.
19 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
/ DENSO at Work /
Welcoming new technologies and ideas to deliver new value to the mobile society
Technological innovation that ensures the sustainability of the human race
20 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
1 GROWTH STRATEGY
22 Awareness of Business Environment
25 Outline of Management Policies
26 Long-term Policy
27 Long-term Plan
31 Mid-term Plan
21 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Awareness of Business Environment
Against the backdrop of global population increases, aging societies, and advancing urbanization, the progression of global warming due to CO2 emissions and the increase in traffic accidents are becoming serious social issues. In addition, people’s value systems and consumption behavior are undergoing changes due to the rapid digitization of society and advancements in AI. In the field of mobility, the evolution of IoT and AI and the entry of companies from other industries have accelerated electrification, automated driving, con- nected cars, car sharing, and other trends. Based on forecasts of future society, we have analyzed current trends in the automotive society with a particular focus on the kinds of social changes that will occur by 2030. In the table below, we have identified the following trends as potential growth opportunities for the Company. On the next page, we provide the results of our examinations regarding the keywords identified based on forecasts of future society and the relationship of those keywords to the automotive society.
Developing Areas in the Automotive Society Based on Analysis of the Business Environment
Forecasts of Keywords for Developing Areas Future Society Social Changes by 2030 in the Automotive Society
Shift of power to emerging countries
Shift toward a recycling-oriented, Electrification low-carbon society (stemming from environmental and energy-related needs) Politics Automated Driving Economy Changes in business models (stemming from safety and Society security-related needs) Technology Connected Cars Diversification of people’s values and (stemming from IoT) consumption behavior
Emphasis on quality of life Hard Soft Domain × Domain
Growth Opportunities Hard Domain: A domain in which DENSO will further evolve for DENSO Traditionally, the automotive industry 1. Integrated systems from the perspective of the vehicle has focused on the hard domain, which • Providing thermal, energy, and information management systems from comprises the basic vehicle functions the perspective of the vehicle of running, turning, and stopping. 2. High-speed, large-scale control systems that are highly reliable However, based on the kind of social • Strengthening the key devices of ECUs, semiconductors, sensors, changes described above, there has and motors been a growing need for added value provided through the soft domain, which leverages IT technologies, as Soft Domain: A domain in which DENSO can acquire new strengths well as domains that combine the hard 1. IT, cloud, and communication technologies and soft domains. By leveraging the • Upgrading software installed in automobiles that uses wireless signals hard domain, where we have existing • Incr easing the efficiency of transportation through communication between strengths, and enhancing our competi- vehicles and infrastructure tiveness in the soft domain, we will • Enhancing security to protect automobiles from cyberattacks capitalize on the growth opportunities 2. Connected services mentioned on the right. Leveraging data (vehicle location, driving conditions, etc.) to • Provide effective and safe vehicle operation management • Turn data into useful information and offer it as a product to companies that engage in mobility services (data business)
22 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Analysis of Business Environment Keywords for Social Changes by 2030
Shift toward Diversification Shift of power a recycling- Changes in of people’s Emphasis on Forecasts of Future Society to emerging oriented, business values and quality of life countries low-carbon models consumption Politics society behavior Diversification of energy sources by region, expanding demand for natural gas in the Middle East and China Energy Tightening supply and demand of energy due to increased demand from sources emerging countries Necessity of renewable energy and hydrogen storage in realizing a low- carbon society Acceleration of international cooperation to respond to climate change Global in light of the urgent need to address global warming environmental regulations Business opportunities presented by the shift to a low-carbon society but also risks to existing businesses due to this shift Corporate strategies with an awareness of social and environmental Social issues burden throughout the entire supply chain
Economy
Rise of emerging countries and global multi-polarization
Global Deepening and expansion of economic collaboration, shift to borderless economy capital transactions Obstructions to the borderless trend due to increasing disparity gaps and the rise of protectionism
Society Population Threat to the sustainability of society due to the rapid increase in popula- tion, with the global population exceeding 8.0 billion trends Aging populations around the world, declining workforce, acceleration of Aging growth in life expectancies populations Urbanization in emerging countries, acceleration of urban regeneration Urbanization due to the shift to smart and compact devices Consumption behavior becoming more ethical and experience-based with the shift to the sharing economy Values Progression in the transition to labor offered by AI and robotics, changes in work ethic and available free time
Technology Integration of digital and physical domains due to the progression of IoT and wearable devices Productivity enhancement and value chain integration through the use of Technologies big data Transition to the phase of AI utilization and the versatile implementation of AI in manufacturing, finance, and services
Shift toward Diversification Shift of power a recycling- Changes in of people’s Emphasis on to emerging oriented, business values and Forecasts of Future Society and Developing Areas quality of life countries low-carbon models consumption in the Automotive Society society behavior Progression of environmental regulations and electrification P. 24 in accordance with conditions in each country and region Electrification Introduction of transportation systems that respond to urban conditions and issues Realization of completely automated driving on specialized roads and effective use of traveling time Continued rise in the number of deaths from traffic P. 24 Automated accidents in emerging countries Driving Heightened expectations for the reduction of accidents P. 24 through automated driving Increase in efforts and enhanced approach toward addressing accidents by elderly drivers Widespread use of car and ride sharing primarily in urban areas, shift from owning an automobile to using one Connections between people, transportation methods, and Connected Cars infrastructure, and transition of automobiles to a “transpor- P. 24 tation service” Increase in mobility limited to targeted groups, regions, and uses, including ultra-compact mobility
23 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Forecasts for the Future Automotive Society
Electrification Increasing Percentage of Vehicles That Utilize Electrification Sales volume of passenger vehicles (millions of vehicles) Progression of Environmental Regulations and Electrification in Accordance with Conditions 150 Electric vehicles Electric vehicles 51% in Each Country and Region 32% Regulations on exhaust gas and fuel efficiency are becoming more Electric vehicles robust in an effort to address global warming. Each country and 15% 100 region is establishing its own regulations regarding CO2 emissions and fuel efficiency, and these regulations are expected to become more stringent going forward. Automobile manufacturers are
stepping up their development of eco-friendly vehicles in accor- 50 dance with trends in the introduction of regulations. As a result, the number of gasoline, diesel, and other vehicles with internal combustion engines, which are currently mainstream, will decline 0 and the percentage of vehicles that utilize electrification, such as 2020 2030 2040 2050 (CY) hybrid and electric vehicles, will increase. With that said, as Fuel-cell vehicles (FCV) Electric vehicles (EV) 2050 (CY) engines are becoming more efficient, it is expected that a certain Plug-in hybrid vehicles (PHV) Hybrid vehicles (HV) Natural gas vehicles (CNG/LPG) Clean diesel vehicles (D) percentage of vehicles with engines will remain going forward. Gasoline vehicles (G) Source: Documents from the 1st Strategic Commission for the New Automotive Era, Ministry of Economy, Trade and Industry
Advanced Safety and Automated Driving Development Status of Automated Driving Technologies
Continued Rise in the Number of Deaths from Traffic Current (practical Outlook for Period not Accidents in Emerging Countries / Heightened Expectations Until 2020 application 2025 determined for the Reduction of Accidents through Automated Driving completed) The number of deaths from traffic accidents continues to rise, primarily in emerging countries. Accordingly, there is a need to Level 1
reduce deaths from traffic accidents through laws (such as those Level 2 requiring the use of seat belts and helmets) and education and, after successfully achieving a reduction, promote the widespread Level 3 use of vehicles with advanced driving technologies and accelerate Level 4 the establishment of infrastructure. In developed countries, there has been advancements in technologies that sense surrounding Level 5
environments and control vehicle operation. These countries are Source: Reference materials from the “Action Plan for Realizing Automated also incorporating information and communication technologies Driving,” Ministry of Land, Infrastructure, Transport and Tourism (cloud, V2X), maps with advanced functions, and information security technologies. Accordingly, automated driving is expected to become more sophisticated by around 2025.
Connected Cars Connections between People, Transportation Methods, and Infrastructure, and Transition of Automobiles to a “Transportation Service” The rapid utilization of data has brought about changes to the framework for existing goods and services and to the way trans- actions are carried out. In the automotive field, data platforms are being offered through the disclosure and linkage of registered vehicle information as well as the transmission and collection of information by individual vehicles. By around 2030, transportation is expected to become a social system that links people, move- ment methods, and facilities with cyber systems to enable com- fortable and optimized travel.
24 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Outline of Management Policies
In light of the aforementioned changes in the business environment, DENSO has formulated its Long-term Policy, which focuses on 2030. The Company also established its Long-term Plan, which provides the path for realizing the Long-term Policy. Under this policy and plan, the Company has adopted growth targets for fiscal 2026 of reaching ¥7.0 trillion in revenue and an operating margin of 10%. To this end, DENSO will strive to achieve growth in new mobility fields in accordance with the realization of electrification, automated driving, and other technologies, and promote reforms to its management. Please see the relevant pages for details on the Long-term Policy and Long-term Plan.
DENSO Philosophy Contributing to a better world by creating value together with a vision for the future
Long-term Policy P.26 Bringing hope for the future for our planet, society and all people
Long-term Plan
Organizational Basic Strategies Growth Profitability Differentiation P. 27 Capabilities
Specific Measures The Five Pillars of Management Reform
(Organizations that Enhancement of Business unit Global Sustainability Management Advanced R&D Way of working vehicle perspective evolution and management underpin our businesses) function to realize with tremendous and streamlining smaller but with optimal use agile development speed and P. 28 The Five Pillars of of technological stronger of Group and globally efficiency Management Reform development headquarters regional power
Four Focus Fields
Non-Automotive Advanced Safety and Businesses Electrification Connected Cars Automated Driving (Factory Automation and Agriculture)
Thermal Systems Specific Measures Powertrain Systems P.
(Business) 65 P. 30 Four Focus Fields Electrification Systems Mobility Systems
Electronic Systems
FA
Agriculture
Existing Businesses
Numerical Targets (Trillions of yen) 10% (%) 7.5 10 2026 (FY) 7.0
Revenue 6.0 9 5.1 ¥ trillion 4.5 4.5 7.0 4.5 8.1% 8
Operating Margin 7.3% 3.0 7.0% 7 10% 1.5 6 Revenue Operating margin 0 16 17 18 26 (target) (FY) 0
18（予想）
25 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Long-term Policy
DENSO has formulated the Long-term Policy, which serves as a vision for what the Company aims to be by 2030. In addition to maxi- mizing the value we provide through “green” and “peace of mind,” two of our conventional areas of focus, we have adopted the new theme of “inspiring.” Guided by these three themes, we will strive to gain the understanding of our shareholders regarding the various efforts we pursue. By combining the strengths we possess under each theme, we will generate new value for society.
Slogan
Bringing hope for the future for our planet, society and all people
Our Goal for 2030 A company that continuously generates value to enrich mobility that achieves sustainability, happiness and peace of mind for everyone
Green Lasting vitality for the environment Contribute to sustainability by increasing efficiency and reducing environmental impact Peace Green of mind Peace of mind Providing a sense of well-being Contribute to future mobility that is safer, more comfortable and convenient for everyone
Inspiring Making a difference Contribute to happiness for everyone through inspiring value-added offerings Inspiring
Principles Approach and attitude for achievement of goals
Open Fair Reliable
Work hand in hand with diverse Deliver value for all people Earn people’s confidence by partners to enrich society worldwide offering value that transcends - Contribute to an enriched - Take the initiative in environmental expectations mobile society stewardship - Generate value that addresses - Cultivate relationships to address - Provide mobility for all people latent needs shared goals - Make smart functionality the - Mobilize comprehensive technological - Explore new business fields standard capabilities - Assert a commanding edge in manufacturing
Passion & Initiative A proactive sense of commitment to challenge for a bright future
26 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Long-term Plan
DENSO has established its Long-term Plan for 2025, which acts as a pathway for realizing its Long-term Policy. Under this plan, DENSO has established four focus fields based on social changes. In addition to these fields, DENSO has adopted the Five Pillars of Management Reform to enhance organizational capabilities and reflect its ambition to transition to an organization that can compete even under a challenging business environment. By promoting these reforms, DENSO will realize its growth targets of revenue totaling ¥7.0 trillion and an operating margin of 10%.
Basic Strategies
Organizational Growth Profitability Differentiation Capabilities
By pursuing value from the perspective of the vehicle, we will accelerate the commercialization Growth of new mobility fields, thereby driving growth.
New customers and value creation Driving new growth Advanced Safety / Electrification Connected Cars Organizational Automated Driving Reform 1 Pursuing value from the perspective of the vehicle Transitioning to an organization that can Accelerating growth accelerate growth P. 29
We will enhance the profitability of our existing businesses and further solidify our earnings Profitability base to support future growth.
Pursuit of value through Thermal Energy Information subsystems management management management + subsystems subsystems subsystems Strong components Improving profitability Components Components Components
As part of our strategy to realize overwhelming high levels of differentiation for our components Differentiation and systems, we are strengthening technological development related to ECUs, semiconductors, sensors, and motors. We are also working to improve the profitability of our existing in-vehicle technology business and enhance our competitive edge in new mobility fields.
Organizational Refining competitiveness by Reform 2 streamlining technology Transitioning to an development ECUs Semiconductors Sensors Motors organization that can Working to achieve accelerate differentiation differentiation P. 29
To realize the above initiatives, we will draw on our management reforms to accelerate the Organizational speed of business execution, invigorate the workplace, and strengthen our organizational Capabilities capabilities.
The Five Pillars of Accelerating our business execution and invigorating the workplace as we transition to Management Reform an organization that can compete in an era of rapid changes P. 28
27 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
The Five Pillars of Management Reform
To reach the growth targets adopted in its Long-term Plan, DENSO must transition to an organization that acts with unprecedented levels of speed and can invigorate the workplace. To that end, DENSO has adopted the Five Pillars of Management Reform and is working to realize significant change in its management structure to enhance its organizational capabilities and compete in a challeng- ing business environment.
Speed Invigorating the Workplace
Speed of Business Speed of Decision-Making Execution and Response Make thorough use of Drawing on the Power of Streamline responsibility Investing in Human Capital global knowledge Individuals
Group together functions and Change workstyles enhance their speed and strength
1. Enhancement of Vehicle Perspective and Streamlining of Technological Development P. 29 To effectively develop complex systems for automated driving and other technologies, we need to opti- mize our development from the perspective of vehicle-based systems. We are therefore reorganizing our businesses to accomplish just that. Also, as part of our strategy to achieve overwhelmingly high levels of differentiation in terms of components and systems, we are streamlining the technological development of our four key devices: ECUs, semiconductors, sensors, and motors, so that we can realize growth in new business domains and enhance the profitability of existing businesses.
2. Advanced R&D Function to Realize Agile Development Globally We have established satellite R&D teams in Finland, Israel, and other epicenters of innovation in order to promote the development of highly competitive products that meet the needs of customers. Through these teams, we will collaborate with various local partners, such as universities, research institutions, and start-up companies, as we form alliances under shared goals. We will also promote new technologi- cal development that leverages the unique characteristics of local regions.
3. Business Unit Evolution and Smaller but Stronger Headquarters We will increase the responsibility and authority of each business unit in an effort to increase the speed of our management and bolster our competitiveness. We will also streamline our head office by revising our personnel allocation from a “zero-based” perspective. At the same time, we will aim to transition to an organization that can create new value at unprecedented speeds.
4. Global Management with Optimal Use of Group and Regional Power Our regional supervisors, who are responsible for achieving regional business targets, make proactive efforts through regionally independent management at a speed that best fits their individual region. Their efforts will help us transform into an organization that can realize faster decision-making and business execution on a global scale.
5. Way of Working with Tremendous Speed and Efficiency We will establish an environment in which employees can work without being bound by the constraints of location and time while working to reform our various business processes, thereby ensuring produc- tivity and realizing a work-life balance for our employees. In these ways, we aim to become a company with incomparable front-line capabilities and where employees can work with passion and a smile.
28 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Organizational Reform 1 Conventional Organization Enhancing a Vehicle-Based Perspective Powertrain Systems Subsystems In the past, DENSO has provided subsystems in a manner that was optimized for each of its Electrification Systems Subsystems Individual response individual businesses. However, going forward, Thermal Systems Subsystems the Company needs to pursue development Clients that is optimized from the perspective of Electronic Systems Subsystems vehicle-based systems. Under the management Information & Safety Systems Subsystems reforms it is currently pursuing, DENSO estab- Basic Electronic lished the new Mobility Systems Business In-car platforms Technology Unit Technology Unit. Through this business unit, the Company Development Mobility IoT Center Out-car platforms will develop integrated systems that achieve overall optimization, accelerate development of in-car and out-car electronic platforms, and offer proposals that best fit its customers. New Organization
Powertrain Systems Subsystems (accelerated development) Electrification Systems Subsystems (overall optimization) Electronic platforms Integrated systems
Thermal Systems Subsystems Clients
Electronic Systems Subsystems
Mobility Systems In Car プラットフォームSubsystems Mobility Systems Business Unit Out Car プラットフォーム Connected & Cockpit Business Unit AD&ADAS Business Unit
Organizational Reform 2 Streamlining the ECU Functions in Each Business Strengthening Competitiveness Powertrain Systems ECUs by Streamlining the Technological Development of Our Four Key Devices Electrification Systems ECUs To further enhance the competitiveness of the Thermal Systems ECUs key devices of ECUs, sensors, semiconductors, Electronics Business Unit and motors, and realize overwhelming levels of Electronic Systems ECUs differentiation for our systems, we streamlined the technological development of ECUs into Mobility Systems ECUs the Electronics Business Unit and the techno- logical development of sensors and semicon- ductors into the Sensor & Semiconductor Streamlining the Sensor and Semiconductor Functions in Each Business Business Unit. In the past, such development Sensors Mobility Systems was conducted by each individual business Semiconductors unit. In addition, with the aim of becoming a Sensors Sensor & Semiconductor world leader in terms of motors, we integrated Electronic Systems Semiconductors Business Unit our small motor business with the large high- power motor business of ASMO Co., Ltd., a Production Innovation Sensors Center consolidated subsidiary, and reorganized rel- Semiconductors evant internal divisions to create the Motor Business Unit. Integrating ASMO with DENSO
Electrification Systems Motors Motor Business Unit ASMO Small motors
29 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Four Focus Fields
To realize the growth targets adopted in our Long-term Plan, we are focusing on the fields of electrification, advanced safety and auto- mated driving, and connected driving. In addition, we are working to provide new mobility value and establish factory automation and agriculture as our non-automotive businesses. In these ways, we are contributing to the improvement of industrial and social productivity.
Electrification Provided Value Reducing Environmental Burden and Realizing Highly Efficient Mobility DENSO has been engaged in the development of electric vehicle systems that are eco- friendly and enable even more comfortable travel. As a result, DENSO has realized high- functioning, compact, and fuel-efficient products that are essential for hybrid vehicles and is producing these products around the world. Going forward, we will leverage our expan- sive business domains to form linkages between various in-vehicle systems and products in an effort to efficiently manage energy within vehicles. In this manner, we will further improve fuel efficiency and contribute to the conservation of energy.
Advanced Safety and Automated Driving Provided Value Realizing a Safe Society without Accidents, and Free and Comfortable Mobility DENSO aims to create a mobile society without accidents and in which all people can move safely and with peace of mind. Guided by this aim, DENSO has developed reliable, high-quality safety technologies. By enhancing our long-cultivated sensing technologies as well as our AI and information technologies, we will further contribute to the development of automated driving. Maintaining our firm commitment to quality, which we have adopted since our founding, we will deliver genuine peace of mind for the future of the mobile society.
Connected Cars Provided Value Realizing a New Mobile Society That Connects Vehicles, People, and Goods Amid the major transition from the trend of owning a vehicle to the trend of using a vehicle as a service, DENSO is pursuing efforts in the Mobility-as-a-Service (MaaS) business, which involves providing mobility services that move people and goods. Going forward, we aim to provide convenient, safe, and secure transportation methods for people with vehicles and for those without, thereby contributing to the realization of a new mobile society.
Non-Automotive Businesses (FA and Agriculture) Provided Value Contributing to Improved Social and Industrial Productivity DENSO has a solid track record of introducing factory automation (FA) systems in 130 factories. Leveraging this record, we will propose and provide FA systems that can meet the diverse needs of our customers, thereby making extensive contributions to the devel- opment of the manufacturing industry. Also, with the aim of delivering happiness to all people through agriculture we will draw on the expertise and know-how we have cultivated in the automotive field to offer new value in agricultural fields.
30 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Growth Strategy
Mid-term Plan
Under its Long-term Plan, DENSO has adopted growth targets for fiscal 2026 of reaching revenue of ¥7.0 trillion and an operating margin of 10%. As a checkpoint within that process, we have set a target for fiscal 2022 of achieving revenue of ¥5.6 trillion and an operating margin of over 8%. To steadily accomplish these targets, we have formulated specific action plans from the following perspectives: “taking on the challenge of creating new value,” “strengthening profitability to support future growth,” and “reforming our management foundation.”
1 Taking on the Challenge of Creating New Value • Establish de facto standards in integrated vehicle systems and lead the way in electrification and automated driving • Cr eate new value and business models for mobility services • Position FA and agriculture as new business pillars • Flexibly create new products in epicenters of innovation around the world
2 Strengthening Profitability to Support Future Growth • Implement speedy business management through a smaller head office and headquarters and enhance Group companies in Japan and overseas • Establish a source for competitiveness by creating innovative technologies using our key devices and establishing industry standards • R ealize unrivaled front-line capabilities through DANTOTSU plants and factory IoT • Significantly accelerate development and bolster profitability through co-creation with business partners and business process innovation
3 Reforming Our Management Foundation • Inherit the NIPPONDENSO Spirit and establish a solid foundation for quality and safety in new domains, such as robotics and digitization • Draw on the power of individuals and maximize speed and front-line vitality by developing motivated human resources and utilizing cutting-edge IT • Establish lean production systems throughout the supply chain and enhance the competitiveness of our manufacturing • Develop businesses with an awareness of the SDGs and ESG in order to create a sustainable society
Looking Back on the Previous Mid-term Plan Mid-term Plan 2018 (fiscal 2016 to fiscal 2018) Vision • Develop products that maximize vehicle value and promote them in global markets ⇒ Strengthen the foundation for taking on new • Remain committed to reducing environmental burden and traffic accidents challenges and realize steady growth • Realize an enriched society in which everyone can live safely and securely Policy Outline Business Fields to Focus on Functions to Reinforce • Contribute to society focusing on the environment, security, • Develop world-first and regional innovation products and safety • Improve manufacturing potential and expand DANTOTSU • Expand aftermarket and new businesses on a global basis • Strengthen global markets by forming trust-based relation- • Accelerate management speed through global collaboration ships with customers and enhancing our local presence Overview Through activities to expand sales in overseas markets and sales of new products to customers, we continued to achieve record-high revenue in each fiscal year. Meanwhile, we carried out investments geared toward future growth and worked to launch new products. As a result, operating profit remained relatively unchanged in fiscal 2016 and fiscal 2017. However, we continued to enhance our product lineup in the environment, safety, and security fields and expand ourDANTOTSU plants. We also promoted a shift toward local overseas production to establish a foundation resilient to fluctuations in foreign exchange rates, thereby further streamlining our operations. Through these efforts, we were able to realize significant growth, as highlighted by the recording of record-high revenue and operating profit in fiscal 2018. At the same time, we were able to establish concrete goals for achieving growth over the medium to long term going forward. Results • Introduced products that support highly sophisticated driving and developed and promoted compact products • Strengthened development structure for SiC and exhaust subsystems • Accelerated development through the extensive utilization of open innovation • Formulated and promoted growth scenarios with a focus on establishing FA and agriculture as new business pillars • Set targets for rolling out DANTOTSU plants in Japan and overseas • In troduced shared global personnel system and reinforced global management education Issues • Strengthening of system proposal capabilities, including for electrification, automated driving, and MaaS, to respond to the rapidly changing mobile society • Establishing a business model for mobility services • Expanding current and establishing new DANTOTSU plants and factory IoT overseas
31 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
/ DENSO at Work /
Bringing together our knowledge and skills under a shared belief and remaining committed to the highest level of quality
The strength of skills that are enhanced through discipline and tradition
32 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
2 REINFORCING THE STRENGTHS AND FOUNDATION THAT SUPPORT GROWTH
34 Strengths That the Company Has Nurtured Since Its Founding
34 Research and Development
36 Monozukuri
38 Hitozukuri
40 Special Feature: The Origin of DENSOʼs Technology and Craftsmanship—Winding
42 Strengths We Will Reinforce Going Forward
45 Corporate Governance
50 Dialogue with Outside Directors
54 Directors and Audit & Supervisory Board Members
58 Compliance
59 Risk Management
60 Intellectual Property
61 Engagement with Society
33 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Strengths That the Company Has Nurtured Since Its Founding
Research and Development
In research and development—the starting point for new value creation—we are taking steps to further strengthen planning and R&D in order to accurately perceive society’s needs and produce competitive products. DENSO is promoting roadmaps that show the path for advancing relative to each successive period: short term (five years), medium term (10 years), and long term (11 years or more). The roadmaps will incorporate changes in regulations and the needs of the global community. Using these roadmaps, divisions responsible for product commercialization will take the lead in deciding the R&D themes to be started and terminated after they are shared with each division, the Engineering Research & Development Center, and the Production Innovation Center. In addition, to strengthen the global development network, we maintain technical centers in seven regions throughout the world and incorporate technical proposals tailored to local needs. DENSO considers R&D expenditure at around 9% of revenue to be an appropriate level, and in fiscal 2018, the year ended March 31, 2018, R&D expenditure came to ¥447.4 billion and is expected to be ¥495.0 billion in fiscal 2019.
The Key to Advanced Research Focused on the Future → TOPIC Our Strength The Advanced Technology Research Laboratories were established in 1991. These laboratories are responsible for long-term R&D and are equipped with state-of- the-art facilities. At these laboratories, we conduct research and development of future technologies looking five to 20 years ahead. We perform advanced technol- ogy research in a wide range of fields, from power semiconductors such as silicon carbide (SiC) to key AI technologies for automated driving, which has led to com- mercialization over the near term.
Commitment to World-Firsts Based on its mission of “contributing to people’s well-being through new value creation,” DENSO is committed to creating world-first products that take into account the environment, security, and safety. DENSO has created various world- first products including stereo cameras, millimeter-wave radars, and control ECUs that help detect pedestrians and support pedestrian-avoidance steer assist sys- tems as well as WLP-type* pressure sensors with world-leading accuracy and built-in temperature sensors.
* WLP: Wafer level package
Global R&D Structure With technical centers based throughout the world (Japan, the United States, Germany, China, Thailand, India, and Brazil), DENSO transcends the internal and external boundaries of the Company and collaborates with automakers, research institutions, universities, and other organizations to develop advanced technolo- gies and products that meet the needs of each region.
Partnerships That Support Advanced Automaking DENSO provides technologies and products to the world’s automakers. As the best partner with the best solutions, DENSO collaborates with automakers to meet a wide range of end-user needs with technologies and know-how accumu- lated through the development of new technologies in every field.
34 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
TOPIC Advanced Research Focused on the Future
Pursuing Technological Innovation Observing, Understanding, and Changing People to Nurture Dreams and Ensure the Sustainability to Realize a New Generation of Safety of the Human Race The era in which people and vehicles communicate has begun, In March 1991, we established the Fundamental Research Center reflected by automated driving and connected vehicle technolo- to carry out long-term research and development with a focus gies. In our research on human nature, we make full use of the on the future. At this center, we pursue R&D activities centered latest driving simulators to sense the physical and mental condi- on the semiconductor, materials, human machine interface (HMI), tions of drivers (observation and understanding) and research AI, and biotechnology domains. driver actions (change) that occur in accordance with those con- The aim of our research at this center is to comprehensively ditions. For example, for sensing physical and mental conditions, establish and promote technologies that will be useful in the we observe various physical information on drivers, including not future. To realize an even safer, more sustainable society while only sweating and eye movement but also muscle movement protecting the limited resources available on our planet, and to and blood flow in the brain. This physical information is then deliver new value to the mobile society, we are repeatedly carry- used to observe the level of drivers’ nervousness, sleepiness, ing out trial-and-error experiments on a daily basis to discover and relaxation as well as changes in their emotional behavior. new technologies and ideas. We ascertain the data we collect through these activities as In July 2017, we changed the name of the Fundamental driver behavior and leverage this data to develop technologies Research Center to the Advanced Technology Research that deeply connect to people and support safe and comfort- Laboratories with the goal of further accelerating our research able movement by such means as providing warnings to drivers on advanced technologies. and offering them peace of mind. Also, in recent years we have been focusing our efforts on the Promoting the Development of SiC Wafers research and development of AI. Drawing on our algorithms, under the Theme of Applying Incomparable calculations, and data, as well as the commitment to quality and Quality to In-Vehicle Technologies semiconductor technologies that we have developed in the in- SiC semiconductors are an essential component for improving vehicle technology domain, we are pursuing research aimed at the performance of electric and hybrid vehicles. Since more than realizing the practical application of AI technologies within in- 20 years ago, we have been engaged in R&D activities pertaining vehicle equipment. AI is also an essential element in the environ- to SiC wafers, which function as the circuit board of semiconduc- mental recognition required in automated driving. Based on tor devices, and have been working to commercialize these information acquired through cameras and sensors, we are wafers. If SiC wafers have even the slightest crystal deficiency, taking steps to develop technologies that accurately assess the they can cause severe damage within the inner workings of a position and conditions of physical objects in the surrounding vehicle. Accordingly, it is absolutely necessary to eliminate these area. Also, we use such information in our research on AI tech- deficiencies to the greatest extent possible. To this end, we make nologies that can select optimal actions after estimating various meticulous efforts to control temperature and pressure within risks. In these ways, we are pursuing the development of AI that the sublimation and recrystallization process for SiC, which is can observe people’s behavior, analyze the surrounding environ- conducted in a growth furnace at temperatures of over 2,300 ment, and take appropriate action on its own, thereby benefiting degrees Celsius. In addition, we use unique RAF technology* that and supporting the safety of people. involves isolating the small areas on the developed crystal that are relatively unexposed to crystal deficiencies and subsequently growing these areas. Through the repeated implementation of this process, we create high-quality wafers. Furthermore, we conduct SiC wafer processing in our rigor- ously managed cleanrooms, where even the slightest impurity is unacceptable. With the aim of commercializing these wafers, we are promoting research to enhance the efficiency of these pro- cesses and further develop relevant technologies.
* RAF technology: Repeated A-Face growth technology
35 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Monozukuri
Since its inception, DENSO’s Monozukuri has thoroughly integrated in-house technologies. Through Monozukuri positive steps are taken to design and manufacture equipment, production lines, materials, and processing methods. This enables us to provide society with the world’s most advanced groundbreaking technologies and products conceived by our R&D. We have striven to develop speedy and efficient production lines and compact unique facilities, as well as streamline distribution and inspection with our own production technology, and we have built a DANTOTSU * plant that performs Monozukuri at a DANTOTSU price. This has enabled us to also ensure high efficiency and high quality and offer competitiveness and added value to our products.
* DANTOTSU : A DANTOTSU plant is one that undertakes Monozukuri at a DANTOTSU (outstanding) cost. A DANTOTSU plant is at such a high level that it cannot be compared to other plants.
The Key to Materials Technology That Creates Things That Don’t Exist Our Strength To pursue product performance and quality, if we don’t have suitable general purpose materials, we create them. This is part of our commitment to DENSO’s Monozukuri. DENSO’s materials engineers are active on a global scale and collabo- rate with materials manufacturers to develop materials that help us achieve world- first products and world-best performance.
Production Technology That Gives Shape to World-First Ideas DENSO leverages world-class micro-processing and an assembly line that improves production efficiency and quality. DENSO also supports world-first products and the world’s highest level of product performance and quality from a Monozukuri per- spective by designing and manufacturing its own equipment and production lines.
DENSO’s First-Class Factory IoT That Leverages the Knowledge of People We take our abundance of data on people, products, and facilities and convert it into valuable information, such as information on signs of equipment flaws and information that contributes to expert know-how. We offer such information to people that desire it at the times they need it and in a format that they prefer. By doing so, we are accelerating activities aimed at making improvements and contributing to the growth of people. By 2020, we aim to form global linkages between our 130 plants in an effort to improve productivity on a Groupwide basis.
Quality Assurance That Helps Protect Precious Lives → TOPIC In order to make automobiles that can be driven with peace of mind, DENSO, as a parts manufacturer, has owned a test course from early on. Having evaluation equipment comparable to that of automakers, such as a high- and low- temperature wind tunnel testing room, an electromagnetic wave dark room, and equipment for conducting rain tests, DENSO repeatedly runs tests that simulate the driving environments of any part of the world and strives to maintain high quality and trust in its products.
36 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
R&D × Monozukuri Concurrent Engineering
At DENSO, we believe that new product development com- prises both R&D and Monozukuri. As with any new technology, The DENSO-style of Concurrent Engineering if it cannot be turned into reality it cannot be developed into Customers a product. Because R&D and Monozukuri jointly contribute knowledge and provide a positive influence, we can produce Improvement Production new products of a higher dimension. Facility development
Process development
Product design
Plan / Idea
Customer and societal needs
The Key to The Two Prongs of R&D and Monozukuri Our Strength We have been working on concurrent engineering to closely coordinate between the product development department, which is engaged in everything from development to mass production, and the manufacturing technology department. Thus, by thinking about the technology and process that achieves new products, we can develop products with a higher degree of perfection in a shorter period of time. To turn this into reality, engineers and technicians will work together to achieve commercialization. Concurrent engineering is now becoming mainstream in the world of Monozukuri, but at DENSO, since the 1970s we have engaged in concurrent engineering as next-generation product research. This is a method that DENSO has continued with great commitment.
TOPIC Quality Assurance That Protects Lives
Pursuing Value for the New Age of Automobiles conditions in locations around the world, such as northern coun- from the Lands of the North tries with heavy snow, European cities with stone paving, urban To protect product quality and ensure people’s safety, DENSO areas with high traffic, and highways. Leveraging these courses, has been conducting cold-climate testing in various locations in we conduct in-vehicle evaluations. Hokkaido. In 1998, we began tests for brake-related products on The Abashiri Testing Center has helped us strictly maintain Lake Abashiri in the winter, when it freezes over. Since the rise in the high levels of quality—represented by the slogan “Quality expectations regarding safety performance in the 1990s, we DENSO”—that we have offered since our founding. No matter have been working to anticipate the needs of changing genera- what kind of changes occurred in terms of technologies and tions. To this end, we established the Abashiri Testing Center, vehicles, the guarantee of reliability has always provided us with which enables in-vehicle tests on the completely different road our foundation. While continuing to adhere to the idea of offer- conditions that exist during winter (January to February) and ing products to the world that can truly be used with peace of summer (May to November). With the aim of offering the world mind, we will actively contribute to the development of tech- safe products that can handle any environment, we have estab- nologies related to electrification and automated driving as well lished testing courses that anticipate the various road as new technologies that will lead us into the future.
37 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Hitozukuri
“The best products are made by the best human resources.” DENSO has positioned human resources as its most important management resource. Accordingly, the Company has focused on the training and skill development of employees based on the idea that human resource development supports R&D and Monozukuri.
The Key to Introducing a Global Common Personnel Management Our Strength System to Promote the Active Role of a Diverse Group of Employees In January 2016, DENSO introduced a global common personnel management system targeting the nearly 2,300 members of senior management at its head- quarters and at each Group company. This system incorporates a “Global Individual Grade” that focuses on the indi- vidual capabilities of senior management members. By using a common grading tool to evaluate and promote its senior staff, DENSO allows its personnel around the world to develop their careers on a global scale. Through this system, DENSO aims to further develop its global business by recruiting employees with a diverse range of values and abilities.
Developing Young Employees Who Will Play Global Roles DENSO implements an overseas training program with the purpose of having employees in their 20s to early 30s experience different value systems, cultures, and business practices and acquire the necessary experience and knowledge to be active on a global scale. Every year, nearly 100 employees enter this program and are dispatched to an overseas location to work for a maximum of two years. Additionally, we are actively increasing the number of opportunities for over- seas employees to work at our headquarters in Japan. In doing so, we are encouraging our young employees to develop themselves from a global per- spective through friendly competition.
Nurturing Young Technicians Believing that the development of advanced engineers and technicians who Accumulated Medals Won at All enable innovative product development and production is the key to corporate World Skills Competitions growth, DENSO operates the DENSO Industrial School (offering industrial high school and specialized vocational high school courses), which carries on the tra- dition of the technical training schools established in 1954. In addition to Total number of acquisitions domestic Group companies, this school supports the development of techni- cians from certain suppliers. Also, we are providing support to develop techni- cians at our overseas locations in such ways as establishing training facilities, 63 introducing educational tools, dispatching lecturers from Japan, and accepting overseas employees as trainees at the DENSO Industrial School. GOLD SILVER BRONZE Many young technicians who have participated in our educational systems have gone on to become World Skills Competition medalists who compete at 32 16 15 the world’s highest level. At the 44th World Skills Competition, held in Abu Dhabi, United Arab Emirates, in October 2017, 17 of our technicians from Japan, Thailand, Indonesia, Vietnam, and Mexico competed in eight categories, winning gold and bronze medals.
38 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
TOPIC Employees That Support DENSO’s Product Development and Monozukuri
Winning a Total of Four Gold Medals Establishing the “Master Meeting” at the 55th National Skills Competition That Brings Together Plant Managers and the 37th National Abilympics In May 2018, we established the “Master Meeting (Kiwami no Kai),” At the 55th National Skills Competition held in November 2017 an event that brings together DENSO plant managers, who in Tochigi Prefecture, 34 DENSO participants competed in 10 oversee employees on the front lines of our Monozukuri efforts, categories. Of these categories, our participants won gold to encourage self-improvement. medals in “mechanism assembly,” “punching dies,” and “ambula- The name “Master Meeting” reflects President Koji Arima’s tory robots.” In addition, two DENSO participants competed in strong desire to have our plant managers “master their skills and the 37th National Abilympics, winning a gold and silver medal in teamwork capabilities.” The meeting works to establish trust- the “electronic device assembly” category. based relationships that extend horizontally beyond the existing In addition to achieving an outstanding performance, our goal organization to create a culture in which people help each other. for participating in the Skills Competition and Abilympics is to At the same time, the meeting aims to help plant managers refine the mentality, techniques, and constitution of our young improve themselves by making new realizations and pursuing technicians, who will become experts in the future through new studies. It also aims to develop successors and supports training, and to pass the necessary skills on to them. the passing down of essential skills. Going forward, we will continue to cultivate and pass on skills Moving forward, we will continue efforts such as these to to our young technicians through efforts in the Skills strengthen mutual trust and enhance our Competition and Abilympics. execution speed and front-line dynamism under a shared sense of unity. In this way, we will overcome the significant changes we face during the paradigm shift.
39 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Special Feature
Always Ahead of the Times, Always Evolving The Origin of DENSOʼs Technology and Craftsmanship—The Winding Dynamometers, Alternators, and Motor Generators
The winding is an essential element for generating power and supplying it to electrical components; it is the key to power generation performance. Amid its long history, DENSO has continuously created, evolved, and improved winding technologies. These technologies are currently being used to make advancements in electrification, one of DENSO’s key areas of focus. This section provides an over- view of the evolution of DENSO’s winding technologies and introduces the efforts the Company has continued to pursue to meet the needs of the times while leveraging its unique strengths.
What Are Dynamometers, Alternators, and Motor Generators? Dynamometers, alternators, and motor generators (MGs) are electrical generators that convert a certain amount of mechani- cal energy from the engine to electrical energy. In addition to providing the neces- sary energy for starters to initiate the engine’s operation and charging the vehi- cle’s battery, these devices supply energy to the electrical components located throughout the vehicle. Specifically, dyna- 2 mometers are commutator generators that generate direct currents, while alternators are commutators that generate alternating currents. Meanwhile, MGs are power gen- erators used in hybrid vehicles.
3 1 History of DENSO’s Technological Evolution 1949 Dynamometer 1 Commenced the manufacture of dynamometers at the time of the Company’s founding. Realized high levels of productivity and improved quality by promoting automated wind- Aiming to Realize More Compact, Promoting Teamwork That ing component development. Lighter Products with Higher Transcends Borders to Create 1962 Type-I Alternator 2 Commenced development and realized Output Unprecedented Products mass production of Japan’s first alter- nator. Remarkably improved reliability of alternators. Since its founding in 1949, DENSO has Since the first oil crisis in 1973, there has 1982 Type-III Alternator continued to make improvements to its been a significant social need for the fuel De veloped compact alternator with overwhelmingly high output (30% winding technologies, developing dyna- efficiency of vehicles. This social need higher output and 20% reduced mometers that boast high levels of pro- puts us on the path to developing more weight), thereby realizing a No. 1 global share. ductivity and quality and realizing the compact, lighter alternators that realize 2000 SC Alternator development, manufacture, and mass significantly improved performance. In A chieved significant improvement in production of Japan’s first alternator. 1979, to respond to demands from auto- power generation efficiency and weight reduction. Produced a cumula- Motor generators are an essential com- mobile manufacturers, we formulated tive total of 100 million units in 2012. ponent in making vehicles move and Companywide targets of improving the 2011 MG Starter allowing them to continue to run. To fuel efficiency of alternators by 35% while De veloped MG starter in collaboration with Toyota Motor Corporation amid answer the need for compact vehicles reducing their weight by 20%. In addition, the emergence of hybrid compact cars. and enhance fuel efficiency, we have we also aimed to boost their output by 2016 MG Starter 3 steadily evolved our technologies with 30%. Guided by these targets, we began De veloped MG starter that is 35% smaller than conventional models. the aim of realizing more compact, lighter to take steps toward the development of Also, succeeded in reducing power loss while improving quietness. motor generators with higher output. type-III alternators, which would play a key role in the next generation.
40 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
First, to resolve the seemingly contra- promote honest efforts over and over dictory issue of reducing weight and again. Through such efforts we developed boosting output, we examined the devel- our type-III alternators, representing a opment of high-speed, high-load bearings groundbreaking product that was more that allow for 1.5 times the number of compact, lighter, and achieved a higher revolutions. While initially the business output. Garnering high levels of praise partners we asked to help us develop both domestically and overseas, these such bearings refused, stating that they alternators secured the top share believed it was impossible, we were per- in the global market. sistent in our efforts to communicate the cumulative total of 100 million SC kind of mobile future that could be real- alternators. Now, we continue to maintain ized through the development of next- Gathering Together Skills and a high level of competitiveness for these generation alternators as well as the Technologies to Realize New alternators on a global scale. importance of the bearings in developing World-Leading Products such alternators. Thanks to this persis- tence, we were able to form a collabora- Without being content with the results Pursuing the New Era of tive development team and commence we had thus far achieved, we developed Powertrains with Our Long- the development process. In addition, to the SC alternator in 2000 as a new prod- Cultivated Winding Technologies reduce internal power losses, we devel- uct that realizes dramatically improved oped high-density winding technology performance. This SC alternator signifi- To respond to the era of automotive that made it possible to integrate prod- cantly surpassed our type-III alternator in electrification, we are working to further uct, production, and equipment designs. terms of enhanced output and reduced evolve our MGs. In 2011, we developed Furthermore, we realized various innova- weight. It also achieved high electromag- our first MG. Together with Toyota, we tions in terms of both design and produc- netic compatibility (EMC), which inhibits worked tirelessly to realize the practical tion. These included improving the the generation of electromagnetic waves application of this product in compact, cooling performance of the alternator and (i.e., noise), and realized minimal electro- hybrid vehicles. Compared with similar reducing the noise it makes, sharing pro- magnetic noise. products, our first MG achieved signifi- duction lines that are able to handle When developing the SC alternator we cantly higher output and enhanced dura- products of different sizes and specifica- adopted concurrent engineering, which bility against high voltages. In 2016, for tions, and making advanced progress further evolved the development process original hybrid vehicles, we jointly devel- with production technologies, such as we employed for the type-III alternator. oped a new MG that made use of SC those that automatically detect abnormal We also formed a new project team, winding technology. To develop this MG, noises. All of these accomplishments called the Manufacturing Laboratory, we made use of rectangular conducting were made under the shared goal of real- which combined production and equip- wire in the same manner as we did with izing the world’s best products through ment design and brought together engi- our SC alternators, thereby improving the the world’s best production systems. neers and technicians to undertake winding space factor in the generator’s These accomplishments also reflect everything from procurement and process core, where conducting wire is inserted, DENSO’s unique style of combining tech- design to the development of processing by over 10%. Furthermore, to cut down nologies, skills, and expertise to steadily technologies. Also, by using rectangular on the overlapping of wires that wind conducting wire (segment conductors) as around the starter, we leveraged a unique opposed to conventional round-shaped manufacturing technology that involves wire, we succeeded in making weld joints layering U-shaped conducting wire one by that uniformly aligned wires without gaps one in a straight line. Through this design, by having them form a U-shape instead this MG not only realizes eco-friendly, of continuously winding them. Through highly efficient power generation and the strength of concurrent engineering, driving, it also achieves high levels of we were able to overcome this extremely quality and productivity. difficult technological hurdle. With our Amid the growing need for the automo- type-III alternators, the limit on coil den- tive industry to resolve safety and environ- sity was around 42% to 43%. However, mental issues, the role that the rotating with our initial SC alternators we increased electrical machine field plays is becoming that limit to 65%, and as of 2018, we even more significant. Moving forward, we have raised that limit even further, to aim to further develop this field by lever- 70%. As a result, we have created an aging the winding technologies that we alternator that is even more compact and have accumulated since our foundation. realizes significant improvements in power generation efficiency with less noise. By 2012, we had manufactured a
41 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Strengths We Will Reinforce Going Forward
Enhancing Our Product Development Capabilities in the Soft Domain As mentioned previously, DENSO’s strengths have traditionally referred to its existing businesses, which have centered on the hard domain. Amid the accelerated integration of automobiles and IT, reflected by such technologies as automated driving and connected vehicles, the presence of the soft domain within the automotive industry is increasing, and added value is being created in domains that meld the hard with the soft. To further enhance our competitiveness during this period of significant change, we are cultivating human resources within the Company that specialize in the soft domain and introducing advanced development techniques (agile development). In addition, by actively pursuing external collaboration, we are working to strengthen our development capabilities within the soft domain and accelerate our overall development speed.
Cultivating Human Resources in the Soft Domain focusing its efforts on advancing the human resources within the Company that specialize in the soft domain and on realizing opti- With technologies such as automated driving and connected vehi- mal personnel allocation. Through the software engineer verifica- cles, the integration of automobiles and IT is occurring at an even tion system, which helps visualize the capabilities of engineers in faster pace. Under these circumstances, the value of the soft the soft domain, we are working to grow the individual capabilities domain in terms of automobiles is rising, and competition to of our employees and place them in the best possible locations. In acquire outstanding human resources that specialize in this domain doing so, we aim to strengthen our competitiveness in the soft is becoming more intense. As productivity in the soft domain domain going forward. depends greatly on the capabilities of the individual, DENSO is
Software Engineer Verification System Activities • Certify those who fulfill all the designated requirements in terms of the knowledge, skills, and work experience necessary for becoming a software engineer • Work to grow the capabilities of individual software engineers by having them receive the necessary education and training for receiving certification
Individual Organization Aim • Promote the skill development of individuals by using the • Showcase the software engineers who belong to the organi- certification to clearly identify the personnel who aim to zation through the certification and utilize these engineers in work as software engineers the establishment of structures and the allocation of person- nel when projects commence Effect • Improve software development capabilities • Visualize risks related to human factors within projects and • Enhance motivation thanks to the clear incentive clearly identify personnel in need of support of becoming certified • Systematically cultivate human resources that the Company is lacking or that will become essential in the future
Systematically Cultivating and Certifying Human Resources in the Soft Domain, and Allocating the Best Personnel for Each Project
Current Human Resources Necessary Human Resources Cultivating and Certifying Few Development Development support support Certification Cultivation Method Measures Planning and Number of employees Planning and External research research Knowledge certification • In-house education In-house exams • Self-study Systems • Ex ternal seminars Systems In-house development and information development certification Skills gathering Completion of training Software Software development development Work • On-the-job training Work experience • R otation Mass Mass production production Many
42 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Introduction of Advanced Development Method To incorporate this development method and enhance our com- petitiveness in the soft domain, we established the Digital In agile development, it is assumed that changes will occur to Innovation Department in April 2017. This department aims to specifications and design from the early stages of development. establish a Companywide ICT* foundation and promote agile Instead of strictly determining requirements from the beginning, development geared toward fields that require large-scale systems, agile development starts by breaking development work into small including connected vehicles and automated driving. This depart- increments based on a flexible set of requirements and gradually ment was established in only a year’s time since we came up with moving forward with development by repeating a process that the idea for creating such an organization, and, at the moment, the involves frequent installation and test execution. department is already promoting five projects. Under an approach For example, mobility services, which involve providing transpor- of “creating together with the end-users,” the department will tation methods to people as a service, represent a new domain for share the progress of project development with end-users once a both DENSO and its customers, who are automobile manufactur- week. Through this kind of close communication, the department ers. The needs of end-users change rapidly and are becoming more will rapidly set a cycle of improvement in the development process diverse, which means that we can no longer adopt a conventional into motion. approach to development in which requirements are rigorously Currently, 40 employees belong to the Digital Innovation determined before actual development begins. Rather than waiting Department. However, as this department is receiving a large until requirements are determined to commence the development number of requests from both inside and outside the Company, process, we will adopt an agile development approach in which we we intend to increase this number as we expand the department join together with automobile manufacturers to expand functions to cover not only Japan but also overseas locations. while constantly receiving feedback from the end-users. * Information and communications technologies such as IoT, cloud, AI, and big data
Difference between Agile Development and Conventional Development
Agile development is an optimal development method for meeting the needs of end-users in this era of rapid change.
Conventional Development (Waterfall System Development)
Define conditions Estimations / Orders Development Testing Quality control Service in Response to defects
Determining requirements Develop things that at the initial stages are only operable at the final stage
Agile Development
Development Development and in-house and in-house production production Defect New function New function Defect New function Design Testing Service in Testing repair design service in repair design IT IT infrastructure infrastructure
Only the least amount of Expand functions functions necessary while receiving Develop things that are feedback operable and can be from end-users adapted throughout the development process
43 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Strengthen External Collaboration medium term. We also aim to secure future technologies and new (Technologies and Human Resources) business models over the medium to long term. Guided by these aims, we are making active efforts to form business alliances. In the automated driving and other new domains, response tech- Additionally, to acquire outstanding human resources in the soft nologies that focus on the soft domain are becoming more com- domain, we established a branch office in Tokyo in 2016. Building plex and sophisticated, and the speed of technological innovation on this expansion in Tokyo, we established a new R&D office in the is increasing. Accordingly, there is a limit on what can be done Tokyo neighborhood of Shinagawa in April 2018. In these ways, we using only the currently available technologies. Through collabora- have been making efforts to establish an environment in which a tion with optimal business partners, we are working to strengthen greater number of personnel can gather. Over half of the employ- our technological capabilities and accelerate our development ees at our Tokyo branch office are mid-career hires. Going forward, speed by acquiring new technologies and personnel. we plan on expanding the scope of our operations in Tokyo by When pursuing this kind of collaboration, we aim to acquire acquiring not only software engineers but also personnel that can resources and technologies that are essential in the short and play a key role in product planning and business model creation.
DENSO’s Business Alliance Strategy
• Morpho , Inc. (investment) • Son y Semiconductor • Toyota Research Institute- • Metawave Corporation • T oshiba Corporation Solutions Corporation Advanced Development, Inc. (investment) (collaboration) (collaboration) (new company) • De velopment of integrated Advanced • T riLumina Corporation • Imagina tion Technologies • Pr ofessor Takeo Kanade ECU software Safety / (investment) Group plc (collaboration) (technological advisor contract) (new company) Automated • ThinCI Inc. (collaboration) • R enesas Electronics • JOLED (investment) • KOTEI Driving Corporation (investment) (new company) • F otoNation Limited • Global Positioning (collaboration) • NE C Corporation Augmentation Service (collaboration) Corporation (new company) • DENSO TEN Limited (subsidiary)
• AUBASS CO., LTD. • Ibiden Co., Ltd. (new company) (investment) • Toyota Tsusho Denso • FL OSFIA INC. Electronics (Thailand) Co., Ltd. (investment) (new company) Software • India Battery Pack Project • T oshiba Information Systems Development / Electrification (new company) (Japan) Corporation Development • EV C.A. Spirit Corporation (investment) Resource (new company) • NTT DATA MSE Corporation Reinforcement • Development and sale of MSE (investment) drive modules • Oscar Technology Corporation (new company) (investment) • NE C Platforms, Ltd. (new company) • TD Mobile Corporation • C REATIONLINE, INC. • BlackBerry Limited • T akuya Oikawa (subsidiary) (investment) (collaboration) (technological advisor contract) • DellF er, Inc. • RideCell, Inc. • NTT DOCOMO, INC. • e SOL Co., Ltd. (investment) (investment) (investment) (collaboration) Connected • On The Road Corporation • MaaS Global Ltd. • Peloton Technology Vehicles (investment) (investment) (investment) • Iw asaki Co., Ltd. (investment) • InfiniteKey, Inc. • ActiveScaler, Inc. • Asai Nursery (new company) (acquisition) (investment) Non- • Tohoku Pioneer EG Automotive • NRI SecureTechnologies, Ltd. • Global Mobility Service, Inc. Corporation (acquisition) (new company) (investment)
TOPIC Establishment of Global R&D Tokyo
Employees: 200 In April 2018, we opened a new office in Minato Ward, Tokyo (near Shinagawa Station, a major railway hub), to serve as a base for conducting R&D on advanced driver assistance, automated driving, and connected vehicles. We will transfer a certain number of R&D functions located at our head office in Aichi Prefecture, as well as at our branch office in Tokyo, to this new office. In addition, we will make proactive efforts to hire soft- ware engineers and work to strengthen R&D functions throughout the early 2020s.
44 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Corporate Governance
Basic Stance DENSO believes that establishing a corporate governance system designed to strengthen Group competitiveness is the key to maintaining and improving long-term corporate perfor- mance in a quickly changing global marketplace. Specifically, DENSO CORPORATION has adopted a corporate auditor system. In addition to statutory bodies such as the General Meeting of Shareholders, Board of Directors, Audit & Supervisory Board, and Accounting Auditor, DENSO CORPORATION has developed various governance mechanisms. We are implementing highly sound, efficient, and transparent management by continuously providing shareholders and investors with information on the state of our business. In June 2015, DENSO formulated the Basic Policies on Corporate Governance based on the Corporate Governance Code that aims for transparent and efficient corporate management.
Corporate Governance System
General Meeting of Shareholders
Appoint, Supervise
Senior Executive Director Meeting Audit & Supervisory Board Audit (Majority: Outside Audit Board of Directors • Risk Management Meeting & Supervisory Board (including Outside Directors) • Information Strategy Committee Members) • Customer Satisfaction Improvement Committee • Officer Nomination and Compensation Advisory Council • Environment Committee • Import-Export Management Committee • Central Safety & Health Committee • Internal Information Committee
Senior Executive Other Accounting Audits Directors Accounting (Management Officers) Auditor
Audit Internal Audit Department
Strengthening In line with its Basic Policies on Corporate Governance, DENSO is focusing on strengthening Relationship with its relationship with its shareholders. Shareholders Securing the Rights and Equal Treatment of Shareholders DENSO provides timely and accurate information needed for shareholders to exercise their rights. At the same time, the Company strives to establish an environment in which sharehold- ers can exercise their voting rights and gives due attention to assuring the rights and equal treatment of various substantial shareholders, including foreign and minority shareholders.
Dialogue with Shareholders DENSO will endeavor to realize good communication with its shareholders and investors by providing enhanced information that encompasses management strategies and financial information as well as by actively holding dialogues with the participation of Board members, senior executive directors, and executive directors in charge. The results of the dialogues are reported to the Board of Directors and the opinions of shareholders are utilized in the Company’s management.
45 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Corporate Governance Reason for Selecting Our Current Corporate Governance System System In addition to performing management decision-making that emphasizes genchi genbutsu (on- site verification), DENSO believes that it is important to build a system that can verify whether management decision-making has met shareholder expectations and whether there is a prob- lem from the point of view of governance. Accordingly, we believe that the current system to supervise and audit the execution of business duties by the Board of Directors including out- side directors, as well as Audit & Supervisory Board members including outside Audit & Supervisory Board members, is most suitable.
System Overview The Company has established a management system that performs accurate decision- making and rapid business execution, while enabling proper oversight and monitoring. As a system of decision-making for business execution, DENSO has established the Officer Meeting comprising the Board of Directors (which convenes once a month, in principle) as a “decision-making body” that resolves legal matters and important issues, as well as the Senior Executive Director Meeting (which convenes once a week, in principle) as a “delibera- tive body” that deliberates on matters from a Companywide perspective and submits motions to the Board of Directors. Through a corporate officer system that separates and clarifies the roles between mem- bers of the Board, who are responsible for management (decision-making and supervision), and senior executive directors and executive directors, who are responsible for the execution of business operations, DENSO CORPORATION is streamlining the number of members of the Board and is realizing swift decision-making and business operations. Under this system, depending on the circumstances, members of the Board serve concurrently as senior execu- tive directors and executive directors to ensure that the Board maintains an overall balance of knowledge, experience, and ability. DENSO CORPORATION sets the term of office for members of the Board at one year, with the aim of building a flexible management structure that responds to changes in the management environment and further clarifying manage- ment responsibility during the business year. Moreover, we have strengthened our corporate governance system by establishing the Officer Nomination and Compensation Advisory Council as an ad-hoc committee that cor- responds to the Nomination Committee or Compensation Committee in appointing directors and auditors and determining their compensation.
Overview of Corporate Governance System (As of June 20, 2018)
Format Audit & Supervisory Board system
Number of directors 7
Chairman of the Board President
Number of outside directors 2
Term of directors 1 year
Number of Audit & Supervisory Board members 5
Number of outside Audit & Supervisory Board members 3
Number of meetings of the Board of Directors* 15
Number of independent officers 4
* Total for the period from April 2017 to March 2018
46 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Policy and Procedures for the Appointment of Directors and Audit & Supervisory Board Members Policy Nominate directors and Audit & Supervisory Board members from the viewpoint of striking a balance between diversity, experience, skills, and expertise so as to promote accurate and swift decision-making. Procedures 1 • The president listens to the opinions of all parties, and taking into overall account performance, character, insight and other factors, he selects people who are suit- able for those responsibilities and decides who to nominate in that fiscal year after consulting with the Officer Nomination and Compensation Advisory Council. 2 • Directors are selected based on an informal resolution by the Board of Directors and deliberation at the General Meeting of Shareholders. • A udit & Supervisory Board members are selected based on an informal resolution by the Board of Directors and deliberation at the General Meeting of Shareholders, with the consent of the Audit & Supervisory Board.
Approach to Director Diversity and Size At the Company, seven directors have been appointed, which is considered the appropriate number or size for promoting continued swift decision-making. The breakdown is of people who are familiar with the management of each business and its pressing issues and the composition strikes a strong balance between expertise, experi- ence, skills, and global perspective, including of outside directors.
Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole Once a year, DENSO interviews all directors and Audit & Supervisory Board members about the effectiveness of the Board of Directors. The challenges and improvement plans extracted from these interviews are then reported to the Board of Directors and steps are taken to improve the Board’s effectiveness.
Fiscal 2018 Evaluation of the Effectiveness of the Board of Directors (Held in March 2018) Results of Through the interviews carried out in fiscal 2018, the Company is able to confirm the fol- Interviews lowing accomplishments: Increase in the number of statements from each director and more engaging discussion due to the reduction in the number of directors; proactive use of lunch meetings as opportunities to exchange opinions between inside and outside direc- tors; increase in reports on current affairs from inside directors at the close of meetings; and overall improvement in the effectiveness of the Board of Directors thanks to the lack of any significant issues concerning management, proposal, and decision-making processes. Issues While there were invigorated strategic discussions related to investments, it was deter- mined that there is room for improvement in terms of revising the scope and number of discussions. Measures for Based on interview results, DENSO’s Board of Directors will implement the following Improvement improvement measures after giving them sufficient consideration. • Hold discussions at off-site meetings and Senior Executive Director Meetings centered on themes submitted by participants in order to strengthen strategic discussion • Create an annual schedule and report the results of strategic discussions to the Board of Directors on a regular basis
Audit System As an audit system, in addition to Audit & Supervisory Board members, who have a legal func- tion, we have established a specialized department for internal audits in our major domestic and overseas companies. In addition to a voluntary inspection system whereby each department of the Company and domestic and overseas subsidiaries inspect their own internal control status, we conduct ongoing site audits that include not only legal compliance but also the adequacy of management and business procedures. Audit & Supervisory Board members attend important meetings including meetings of the Board of Directors and Senior Executive Director Meetings and audit directors’ execution of their business duties through the exchange of information with directors, the Internal Audit Department and internal control-related departments, and Accounting Auditors, thereby fulfilling their management oversight function.
47 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Outside Directors and The Company has appointed two outside directors. So that the Company can make better Outside Audit & Supervisory management decisions to improve performance and raise corporate value, it appoints people Board Members who have extensive knowledge about company management to be outside directors; they provide decision-making and oversight based on their knowledge. In addition, the Company has appointed three outside Audit & Supervisory Board members. In order to ensure the effectiveness of audits, we appoint people who are familiar with the trends in our industries and who are experts in the fields of law, finance, and accounting to be outside Audit & Supervisory Board members. These outside Audit & Supervisory Board members audit the execution of business duties from a standpoint that is professional, neu- tral, and fair.
Attendance at Meetings Outside Directors Reason for Appointment of the Board of Directors (fiscal 2018)
George Olcott* George Olcott has managerial experience in foreign-capital companies, including his tenure as the head of a U.K.-based investment advisory company’s Tokyo branch office. He also is a specialist in human resource development and corporate governance within global business management. The 15/15 Company has appointed him as an outside director in the expectation that he will leverage his wealth of experience and considerable knowledge in academia and corporate management in the Company’s management. Takashi Nawa* Takashi Nawa worked at McKinsey & Company, Inc., a strategic consulting firm, and served as senior advisor of Boston Consulting Group. In addition, he is a specialist in international corporate strategy, currently serving as a professor at Hitotsubashi University. The Company has appointed him as an 14/15 outside director in the expectation that he will reflect his wealth of experience and considerable knowledge in the field of strategic corporate management in the Company’s management.
Outside Audit & Attendance at Meetings Supervisory Board Reason for Appointment (fiscal 2018) Members
Board of Audit & Directors Supervisory Board Moritaka Yoshida Moritaka Yoshida joined Toyota Motor Co., Ltd. in 1980 and currently serves as the company’s vice president. The Company has appointed him as an outside Audit & Supervisory Board member in the expectation that he will reflect his wealth of man- 14/15 15/15 agement experience working at a leading manufacturer in the automotive industry and deep insight related to corporate activities in the Company’s auditing activities. Toshimichi Kondo* Toshimichi Kondo established Kondo Accounting Office after working at Marunouchi Audit Firm (now Deloitte Touche Tohmatsu). He has been involved in accounting work for many years as a certified public accountant. The Company has appointed him as an outside Audit & Supervisory Board member in the expectation that he will reflect 15/15 15/15 his high level of knowledge related to finance and accounting as well as the experi- ence he cultivated through the analysis of corporate management in the Company’s auditing activities. Noriyuki Noriyuki Matsushima currently serves as chief research advisor of the equity research Matsushima* division of Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. after working as an ana- lyst primarily for the automotive industry at SMBC Nikko Securities Inc. The Company 11/11 10/10 has appointed him as an outside Audit & Supervisory Board member in the expecta- tion that he will reflect his expertise as an analyst for the automotive industry as well (appointed in June 2017) as the abundance of experience he has cultivated over many years through the inves- tigation and analysis of corporate management in the Company’s auditing activities. * Independent officers
Criteria for Judging the Independence of Outside Directors and Outside Audit & Supervisory Board Members With respect to the independence of outside directors and outside Audit & Supervisory Board members, assuming that they fulfill the independence criteria stipulated by the Financial Instruments and Exchange Act, the Company possesses a wealth of experience and knowl- edge in specialized areas such as corporate management, law, and accounting and is required to be able to proactively make proposals, suggestions, and give opinions about management issues. The Company declares that four outside officers who meet the qualifications for inde- pendent director and Audit & Supervisory Board member are independent officers.
48 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Executive Compensation Policies • Compensation for Company directors comprises fixed monthly compensation and a variable bonus based on Company performance. Compensation for outside directors and Audit & Supervisory Board members comprises solely fixed monthly compensation in order to ensure independence from management. • The level of compensation is deemed appropriate for the Company based on economic and social conditions and trends at other companies. • In particular, bonuses are decided based on operating profit after taking into overall account dividends, employee bonus levels, trends at other companies, medium- to long-term perfor- mance, and the record of past payments. • Stock options and retirement benefits are not paid.
Procedures Directors Monthly Monthly compensation is decided by a resolution of the Board of Compensation Directors after consulting with the Officer Nomination and Compensation Advisory Council, and is an amount within a range established by a resolution of the General Meeting of Shareholders (total amount for directors: ¥80 million/month). Bonuses Bonuses to each director are decided by a resolution of the Board of Directors after consulting with the Officer Nomination and Compensation Advisory Council and receiving approval of the resolutions of the Board of Directors and General Meeting of Shareholders concerning total payment to the directors. Audit & Compensation Compensation is decided by consultation with Audit & Supervisory Supervisory Amount Board members after consulting with the Officer Nomination and Board Compensation Advisory Council and is an amount within a range Members established by a resolution of the General Meeting of Shareholders (total amount for Audit & Supervisory Board members: ¥15 million/ month).
Compensation of Directors and Audit & Supervisory Board Members Position Total Total Compensation by Type Directors / Audit Compensation (¥ million) & Supervisory (¥ million) Board Base Stock Options Bonuses Retirement Members Benefits Directors 722 427 — 295 — 11 (excluding outside directors) Audit & Supervisory Board members (excluding outside 92 92 — — — 2 Audit & Supervisory Board members) Outside directors 68 68 — — — 6
Internal Controls With the aim of fair and efficient business operations, the Company formulated the DENSO Basic Policies for Internal Control. We have stipulated basic policies for control, various rules and systems in areas that form the basis of our management such as the code of conduct, management systems, risk management, and compliance. We make revisions and changes when necessary after undertaking regularly scheduled annual verifications of the status of implementation.
49 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Dialogue with Outside Directors
Ideal State of Management for Overcoming the Period of Change and Further Improving Corporate Value
Outside Director Outside Director George Olcott Takashi Nawa
Mr. Olcott has been serving as an outside Mr. Nawa has been serving as an outside director with the Company since 2014. director with the Company since 2014. He also teaches as a guest professor at He is also a professor at the Graduate Keio University, Faculty of Business and School of International Corporate Commerce. Strategy, Hitotsubashi University.
50 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
As the automotive industry approaches a paradigm shift, which is said to occur once every 100 years, DENSO has formu- lated its new Long-term Policy and is working to accelerate initiatives toward further growth. In this section, DENSO’s two outside directors offer their candid evaluation and opinion regarding the Company’s newly established vision and strategies as well as the direction the Company should head.
Please give us your opinion on the new Long-term Olcott I certainly agree with Nawa-san. My feeling is Policy that DENSO has recently announced. that President Arima has a sense of crisis regarding DENSO’s approach to promoting the Long-term Policy, Olcott As the automotive industry faces up to a and he has mentioned the need for the Company to time of dramatic change, an urgent issue for DENSO is undergo a “Second Founding.” When he talks about a to evolve its organization so that it can meet the wide Second Founding, I believe it sends a clear message to range of challenges that are coming. Taking into the Company’s employees about the need for aban- account this kind of business environment, I believe doning their conventional ideas and past successes that the Long-term Policy is logical and that it points and act as if they are creating the Company from to a new organizational direction for DENSO which scratch. However, it is important to transmit the will enable the Company to respond to the significant message clearly and forcefully, providing a proper changes ahead. vision of our destination and how to get there. Speed is an important element of responding to change and I believe that we need a flexible but Nawa DENSO is already burdened with a great deal disciplined approach to exiting existing businesses of responsibilities, and one of which is its highly stable and entering new ones. In particular, DENSO needs to cash cow businesses. For DENSO employees, nurturing promote the transfer of authority to overseas subsid- these cash cow businesses often becomes the top pri- iaries so that they can act more autonomously in a ority task, and it is extremely difficult to perform this speedier and more decisive manner, as this will task while also responding to the significant changes increase DENSO’s overall organizational flexibility. If that are occurring. As a result, DENSO’s management DENSO can transform itself in line with the various needs to further clarify the path the Company needs measures laid out in the Long-term Policy, the organi- to take to realize the Long-term Policy. In addition, zation will be strengthened and enable these issues management needs to make appropriate preparations to be tackled. for taking on the challenge of not only changing the mind-set of each employee but also changing the very Nawa In a positive sense, the Long-term Policy rep- way that employees engage in their work. resents a new challenge for DENSO as it resembles policies of companies in Silicon Valley. While my first impression was that DENSO was aiming too high with What do you feel is the most important task for this policy, that impression allowed me to recognize DENSO to undertake in order to achieve its Long- that DENSO has changed from the Company that it term Policy? was before. Accordingly, there are many aspects of the policy that I look forward to with great anticipation. Growth in the Soft Business Domain Rather than being a simple extension of previous poli- Olcott I have stated this at DENSO numerous times, cies, the new policy clearly conveys DENSO’s desire to but speed and scale remain extremely important truly transform itself. It is now crucial that DENSO aspects to address. Over the last 10 to 15 years, address the way in which it will accomplish the tasks DENSO has significantly reduced the size of its Board of this policy and illustrate the path it must take to of Directors, and in the past two years, the number of realize this transformation. If DENSO can explain directors has been lowered to seven. Through actions those aspects more clearly going forward, then my such as these, DENSO has been working to accelerate level of expectations for the Long-term Policy will rise the pace of decision-making and streamline the even higher. organization. In addition, DENSO has adopted “global
51 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
management with optimal use of Group and regional more open and flexible organizational architecture power” as one of the pillars of its management which will enable it to absorb, utilize, and mobilize reforms. To this end, the Company has been working external resources more effectively. to delegate authority to its overseas subsidiaries, which is a crucial step in order to capture innovations Global External Alliances and Utilization that are occurring within the automotive industry. of Human Resources Much of this change and innovation is taking place Nawa Giving consideration to the further develop- outside of Japan and DENSO needs to act much more ment of the DENSO Group, there are currently too quickly to capture these opportunities, and delegating few resources available to accomplish this goal. more authority to local companies is the key to do so. Furthermore, DENSO is beginning to experience the In particular, in the soft business domain and areas of limitations of simply using the knowledge of Japanese connectedness, not just DENSO but Japanese compa- people alone. It is therefore essential that the nies in general are behind. It is therefore more impor- Company embrace diversity and inclusion going tant than ever that DENSO establish an effective forward. Gathering together a pool of talent from out- framework for global information gathering by side sources is not effective if the Company does not strengthening the quality of our global networks. have the capability to properly “include” this talent. “Inspiring” is a key word underscored in the Long-term Nawa DENSO has been accelerating its efforts to Policy. To move forward with external collaboration on combine soft and hard business domains, and I believe a global basis, I feel the significance of this key word this is an area with an abundance of potential. will become even greater. Companies such as Google, Apple, and Tesla are also focusing their efforts on this task with the aim of cre- Olcott Through efforts to build up its brand and ating new value. DENSO possesses a wide range image, the Company has created the powerful slogan: of strengths, speaking in physical terms. However, to “Crafting the Core.” By strengthening its brand, realize further growth in the soft business domain, the DENSO can better communicate its attractiveness Company must adopt a much more proactive approach. both inside and outside the Group, and through this DENSO can increase its appeal as a potential partner Olcott That is exactly right. When it comes to hard- or as a company for promising graduates to join. ware, DENSO has unparalleled strengths. DENSO also From the perspective of utilizing global human enjoys a very robust financial foundation. To expand resources, I feel it still takes far too long for employees its business in the soft business domain, DENSO must from overseas to reach management positions and strengthen its capabilities in software by adopting a there are still cases where we rely on Japanese expa- triates to fill these positions. To realize organizational evolution and globalize the managerial ranks, there needs to be a much stronger push from the top to encourage the active utilization of global personnel. In addition, those who are involved in the Company’s important cash cow businesses may feel little incentive to changing the way they do business. I feel there is a particularly high number of these people in the middle ranks of the Company. DENSO’s top management needs to send a firm message to them to reiterate the necessity of adopting a new approach to work.
Nawa As Olcott-san stated, in Japan, those in the position of section manager or assistant director bear significant responsibilities both at their job and in their family life. Accordingly, it is quite difficult for these people to pursue new challenges. However, as people in these positions provide the driving force
52 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
behind the Company’s business activities, DENSO will be unable to realize a genuine transformation if it does not establish a foundation that enables employees in the middle ranks to take on new challenges with a high level of motivation. To that end, DENSO must strive to realize one of its key reform pillars, “transforming the way we work.” For example, in Japan DENSO needs to extend its view beyond the city of Kariya, where its head office is located, and form connections with the outside world so that it can absorb all kinds of new information and ideas. Accordingly, a framework must be established that allows the Company to accomplish this feat. It is imperative that DENSO mobilize its human resources to an even greater extent in order to further enhance its strengths and foster a corporate culture that is conducive to new value creation.
As an outside director, what kinds of contribu- tions do you want to make to help realize the Nawa I also believe that the direction of DENSO’s Long-term Policy? strategies is excellent, and this is precisely why the Company must indicate a concrete path for realizing Olcott One aspect about the Long-term Policy that these strategies. In addition, the Company must take I evaluate highly is that it outlines a direction for on challenges that it has yet to pursue thus far. These knowing what businesses to exit. With large organiza- include relocating its offices, promoting overseas per- tions such as DENSO, once you start something it sonnel to management positions, and promoting often tends to stay in the organization forever, even if M&A. All of these efforts represent ways that DENSO no results are being produced or value created. To be can make an entrance into new domains. able to devote resources to areas with the potential I recognize that my role as an outside director is to to contribute to our bottom line in five to 10 years’ continue to offer sound criticism, pointing out areas time, deciding on a policy for pulling out of businesses that I believe the Company needs to improve upon is extremely effective. Also, in terms of devolving without reserve. DENSO is an excellent company, and responsibilities, we should not just focus on the rela- I believe that is why there is a tendency among many tionship between headquarters and the subsidiaries. employees to refrain from being critical or calling I firmly believe that promoting a global operation attention to an issue when necessary. I will therefore where there are linkages not just between the head remain confident in my role and continue to challenge office and the subsidiary, but also between the sub- myself to maintain a critical eye. I am grateful for the sidiaries themselves, will allow DENSO to achieve fur- fact that the management of DENSO makes active ther globalization. The Long-term Policy lays this out efforts to incorporate the feedback I provide them. In clearly as an objective but what DENSO needs to do light of this, I will continue to be candid in offering my now is to make sure that its top management is fully advice, even if that advice involves topics that the behind this plan and executes it accordingly. Company does not necessarily want to hear. As for diversity, it is important for DENSO to mobi- Through my work, I obtain a great deal of informa- lize its global human resources more effectively. This tion on other industries and companies. I have also is a crucial task for DENSO as it aims to promote fur- witnessed companies who have succeeded and failed ther globalization. To ensure that the Company is able in their “second foundation” efforts. While introducing to realize its Long-term Policy, I will strive to transform these examples to the Company, I will continue to DENSO into a truly diverse organization in which all encourage DENSO to pursue challenges without fear, employees are able to contribute to business perfor- even in areas it has thus far yet to explore. mance under fair conditions.
53 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Directors and Audit & Supervisory Board Members (As of June 20, 2018)
George Olcott Outside Director
Shoji Tsuzuki Member of the Board, Senior Executive Director Takashi Nawa Hiroyuki Wakabayashi Outside Director Executive Vice President
Yasushi Yamanaka Executive Vice President
Koji Arima President & CEO
54 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Moritaka Yoshida Toshimichi Kondo Noriyuki Matsushima Outside Audit & Supervisory Outside Audit & Supervisory Outside Audit & Supervisory Board Member Board Member Board Member
Atsuhiko Shimmura Motomi Niwa Standing Audit & Standing Audit & Supervisory Board Member Supervisory Board Member Haruya Maruyama Executive Vice President
55 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Directors President & CEO Executive Vice President Koji Arima Haruya Maruyama (Date of birth: February 23, 1958) In Charge of Overseas Business 1981 Joined DENSO CORPORATION (Date of birth: November 29, 1954) 2008 Executive Director, 1978 Joined DENSO CORPORATION DENSO CORPORATION 2004 Executive Director, 2014 Senior Executive Director, DENSO CORPORATION DENSO CORPORATION 2010 Senior Executive Director, Member of 2015 President & CEO, the Board, DENSO CORPORATION DENSO CORPORATION (current position) 2014 Executive Vice President, DENSO CORPORATION (current position)
Executive Vice President Executive Vice President Yasushi Yamanaka Hiroyuki Wakabayashi Safety, Quality, Production, Corporate R&D Strategy, CISO,* Purchasing Foundation Center (Date of birth: January 15, 1956) (Date of birth: March 10, 1957) 1979 Joined DENSO CORPORATION 1979 Joined DENSO CORPORATION 2006 Executive Director, DENSO CORPORATION 2005 Executive Director, DENSO CORPORATION 2013 Senior Executive Director, Member of the 2014 Senior Executive Director, Board, DENSO CORPORATION DENSO CORPORATION 2014 Director, Member of the Board, Senior 2015 Executive Vice President, Executive Director, DENSO CORPORATION DENSO CORPORATION (current position) 2015 Senior Executive Director, DENSO CORPORATION 2016 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION 2017 Executive Vice President, DENSO CORPORATION (current position) Member of the Board, * Chief Information Security Officer Senior Executive Director Shoji Tsuzuki Corporate Center, Audit Department (Date of birth: April 29, 1959) 1983 Joined DENSO CORPORATION 2010 Executive Director, DENSO CORPORATION 2016 Senior Executive Director, DENSO CORPORATION 2018 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION (current position)
Outside Director Independent Officer George Olcott (Date of birth: May 7, 1955) 2010 Outside Director, NKSJ Holdings, Inc. 1986 Joined S.G. Warburg & Co., Ltd. 2010 Pr oject Professor, Research Center for Advanced Science 1991 Director, S.G. Warburg & Co., Ltd. and Technology, The University of Tokyo 1993 Ex ecutive Director, Equity Capital Market Group, S.G. 2014 Guest Professor, Keio University Faculty of Business and Warburg Securities London Commerce (current position) 1997 Head of Tokyo Branch, SBC Warburg 2014 Outside Director, Hitachi Chemical Company, Ltd. 1998 Vice President, LTCB-UBS-Brinson Asset Management (current position) 1999 President, UBS Asset Management (Japan) President, 2014 Dir ector, Member of the Board, DENSO CORPORATION Japan UBS Brinson (current position) 2000 Managing Director, Equity Capital Market, 2015 Outside Director, The Dai-ichi Life Insurance Company, UBS Warburg Tokyo Limited (currently Dai-ichi Life Holdings, Inc.) 2001 Judge Business School, University of Cambridge (current position) 2005 FME Teaching Fellow, Judge Business School, 2016 Outside Director, BlueOptima Limited (current position) University of Cambridge 2016 Outside Director, JP Morgan Japanese Investment Trust plc 2008 Senior Fellow, Judge Business School, (current position) University of Cambridge 2008 Outside Director, Nippon Sheet Glass Co., Ltd.
Outside Director Independent Officer Takashi Nawa (Date of birth: June 8, 1957) 1980 Joined Mitsubishi Corporation 1991 Joined McKinsey & Company, Inc. 2010 Pr ofessor, Graduate School of International Corporate Strategy, Hitotsubashi University (current position) 2010 Pr esident, Genesis Partners (current position) 2010 Senior Advisor, Boston Consulting Group 2011 Outside Director, NEC Capital Solutions Limited (current position) 2012 Outside Director, FAST RETAILING CO., LTD. (current position) 2014 Director, Member of the Board, DENSO CORPORATION (current position) 2015 Outside Director, Ajinomoto Co., Inc. (current position)
56 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Audit & Standing Audit & Supervisory Board Member Standing Audit & Supervisory Board Member Supervisory Atsuhiko Shimmura Motomi Niwa (Date of birth: June 28, 1957) (Date of birth: November 3, 1962) Board 1980 Joined DENSO CORPORATION 1985 Joined DENSO CORPORATION Members 2011 Executive Vice President, 2007 Head of Function Products Planning Division DENSO International America, Inc. (currently Powertrain Systems Business Planning 2014 Director, Corporate Planning Division, Department, Powertrain Components Business DENSO CORPORATION Unit), DENSO CORPORATION 2014 Standing Audit & Supervisory Board Member, 2013 Director, Human Resources Division, DENSO CORPORATION (current position) DENSO CORPORATION 2014 Vice President, DENSO Manufacturing Athens Tennessee, Inc. 2018 Standing Audit & Supervisory Board Member, DENSO CORPORATION (current position)
Outside Audit & Supervisory Board Member Outside Audit & Supervisory Board Member Moritaka Yoshida Independent Officer (Date of birth: July 12, 1957) Toshimichi Kondo 1980 Joined Toyota Motor Corporation (Date of birth: February 3, 1955) 2009 Managing Officer, Toyota Co., Ltd. 1979 Joined the Audit Corporation Marunouchi Accounting Firm 2014 Senior Managing Officer, Toyota Motor Corporation 1983 Registered Certified Public Accountant 2015 Outside Audit & Supervisory Board Member, 1985 Director, Kondo Accounting Office DENSO CORPORATION (current position) (current position) 2018 Vice President, Toyota Motor Corporation 2011 Outside Audit & Supervisory Board Member, (current position) DENSO CORPORATION (current position)
Outside Audit & Supervisory Board Member Independent Officer Noriyuki Matsushima (Date of birth: May 3, 1956) 1982 Joined Nikko Securities Co., Ltd. 1982 Seconded to Nikko Research Center, Inc. 1999 Transferred to Nikko Salomon Smith Barney Limited (currently Citigroup Global Markets Japan Inc.) 2000 Managing Director, Nikko Salomon Smith Barney Limited 2013 Chief Research Advisor, Equity Research Division, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. 2017 Outside Audit & Supervisory Board Member, DENSO CORPORATION (current position) 2018 Chief Advisor, Consulting Business Division, Mitsubishi UFJ Research and Consulting Co., Ltd. (current position)
Expertise and Abilities That Can Be Leveraged in the Management of the Board of Directors and Audit & Supervisory Board Koji Arima Excellent management prowess and leadership
Haruya Maruyama Considerable marketing experience and leadership in establishing long-term relationships with domestic and overseas customers
Yasushi Yamanaka Expertise and experience in leading technology departments
Hiroyuki Wakabayashi Managerial experience in production and operating departments as well as knowledge in advanced fields such as automated driving
Shoji Tsuzuki Knowledge obtained through experience in a broad range of business reforms conducted in sales and marketing departments as well as functional departments
George Olcott Relevant expertise as well as abundant experience and deep insight related to corporate management
Takashi Nawa Experience and expertise in strategic corporate management fields
Atsuhiko Shimmura Management experience at the North American headquarters, in addition to extensive knowledge and experience within Company business divisions
Motomi Niwa Managerial experience at overseas subsidiary and extensive expertise in functional and operating departments
Moritaka Yoshida Management experience at leading manufacturer in the automotive industry and deep insight related to corporate activities
Toshimichi Kondo Expertise as a certified public accountant and experience cultivated through the analysis of corporate management
Noriyuki Matsushima Expert knowledge as an analyst for the automotive industry and extensive insight cultivated over many years through the investigation and analysis of corporate management
57 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Compliance
Basic Stance We believe that key actions to earn the trust and understanding of society pertain to the DENSO Group’s observance of all applicable national and regional laws and all Group employees’ fair and faithful conduct that embodies the highest ethical standards. Based on this recognition, in 2006 we adopted the Code of Conduct for DENSO Group Associates, which clearly indicates the standards of conduct for each and every employee. In training and at workplace conferences, we utilize the Code for raising employees’ awareness of corporate social responsibility (CSR), which includes all domestic Group companies. Overseas Group companies use a regional version of the Code of Conduct for DENSO Group Associates, formulated by their regional headquarters in accordance with national and regional laws and customs.
Promotion Structure The DENSO Group has created a global structure for promoting compliance while keeping its orga- nizational structure sensitive to the characteristics of each region, introducing and administering a reporting system, and training employees. In 1997, the DENSO Group established the Corporate Ethics Committee (now a part of the Top Management Meeting), headed by the director in charge of compliance, and created the Compliance Committee and other committees to coordinate regional and global compliance activities, while putting Compliance Leaders and other managers in charge of promoting compliance. On a regular basis, our legal departments in Japan, North America, Europe, China, Southeast Asia, India, and South Korea share and discuss information and issues related to compliance.
Specific Initiatives Internal Reporting System The DENSO Group has set up internal reporting systems at its Japanese and overseas headquar- ters, as well as at each business site. These systems allow employees to report their concerns and receive consultation on matters related to legal and regulatory violations, via email, telephone, writ- ten correspondence, or face-to-face interaction. (Number of consultations and incidents reported: 71 in fiscal 2018)
Inspection and Improvement of Activities The DENSO Group conducts inspections to ascertain whether its compliance activities have suf- ficiently taken hold and to look for any potential compliance issues. If an issue is discovered, reports are made to top management, and steps are taken to prevent a recurrence of the issue (activities include audits by the Internal Audit Department, self-check sheets, among others). For example, DENSO holds a CSR survey every year in order to gain an understanding on the extent to which compliance-related measures have taken hold and on potential compliance risks.
Response to Antimonopoly Act U.S. subsidiary DENSO International America, Inc. was investigated by the U.S. Department of Justice in February 2010. Recognizing the gravity of the situation, the DENSO Group has since then created the Antimonopoly Act Compliance Committee, chaired by the representative director, to ensure strict compliance with the Antimonopoly Act. Under the guidance and supervision of this committee, we have endeavored to reinstitute strict compliance with the Antimonopoly Act across the entire DENSO Group by enhancing awareness and education about relevant rules and ensuring strict adherence to laws and regulations. As a result, we are now in full compliance with laws and regulations. The DENSO Group is keen to restore confidence while further strengthening its com- pliance structure in accordance with the Antimonopoly Act.
Response to Anti-Bribery Laws DENSO has formulated the “Global Anti-Bribery Policy” to serve as its basic approach to preventing bribery. At the same time, the Company has set up the Compliance and Anti-Bribery Committee, Please see the “Sustainability which is chaired by a relevant Company director. Guided by the instruction and supervision of this Information” section of DENSO’s cor- committee, DENSO has established anti-bribery rules and is implementing educational and aware- porate website for more information. ness-raising initiatives via e-learning programs. For its suppliers, DENSO promotes bribery preven- Compliance: https://www.denso.com/global/en/csr/ tion between suppliers and third parties through the Supplier CSR Guidelines. In these ways, governance/compliance/ DENSO makes thorough efforts to prevent bribery on a Groupwide basis.
58 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Risk Management
Basic Stance In keeping with the global expansion of business, the DENSO Group is striving to strengthen risk manage- ment to help minimize risk. Specifically, the emergence of circumstances with the potential to cause damage to corporate manage- ment are classified as risks (situations in which risks have not yet been realized) and crises (emergency sit- uations in which risks have already been realized). For the former, efforts focus on thwarting risks before they have the chance to manifest themselves; for the latter, DENSO strives to make an initial response as well as a response for restoring business operations in a prompt and appropriate manner.
Promotion Structure DENSO regularly confirms the improvements made to its risk management structure and framework via the Risk Management Meeting. Taking into consideration the conditions of the Company and trends in the external environment, DENSO discusses and determines the direction of important activities to compre- hensively manage Groupwide risks and crises. In addition, DENSO has created the Crisis Communication Manual in order to respond promptly and accurately in the event of a crisis. In these ways, the Company is able to flexibly address crises and minimize the damage they may cause.
Specific Initiatives Ascertaining Risks and Clarifying Response DENSO makes efforts to constantly ascertain the risks it faces and manage these risks from the perspec- tives of damage mitigation and business continuity. The Company has selected 42 risk items related to life, credit, business activities, and property based on frequency of occurrence and level of impact. The Company designates responsible departments for each risk item and clarifies various factors pertaining to these items, including level of impact, reason for occurrence, preventive measures, initial response, and recovery efforts. The Company also strives to enhance its preventive measures, initial response, and recovery efforts. DENSO revises its risk items appropriately, giving consideration to the issues currently facing society as well as the frequency of risks occurring at DENSO and the level of impact they have on the Company.
Risk Management Items (Excerpts) Reason Risk Items Internal Factors Environmental pollution and abnormalities, disasters (work-related accidents, fires, and (Accidents and explosions), recalls, production obstacles (difficulties with energy supply, etc.), information Mistakes) security-related accidents, personnel and work-related incidents (human rights issues, labor issues, and overseas offices), mental health issues, traffic accidents, errors in internal management of information, etc. Internal Reasons Violations of the Antimonopoly Act, tax evasion, inappropriate employee dispatch or use of (Legal Violations) contract work, violation of product laws and regulations, violation of anti-bribery laws, etc. External Factors Product liability lawsuits, exchange rate fluctuations, natural disasters, supplier-related issues, confrontations and incidents (such as war, terrorist attacks, abductions, disease outbreaks), etc.
Strengthening Earthquake Disaster Risk Response (Formulating Business Continuity Plans) In Japan, a major earthquake is expected to occur in the near future. As such, DENSO is working to strengthen earthquake disaster risk response measures (i.e., formulating business continuity plans [BCPs]) for the entire DENSO Group from the perspective of business continuity management. The Company is also preparing an emergency situation manual and establishing measures for disaster reduction.
Establishing a Safety, Health, and Environmental Management Structure to Minimize Work-Related Accidents, Fires, and Other Risks Based on the premise that creating safe and ideal working conditions is the best way to realize both human dignity and high productivity—a premise stipulated in the fundamental principles of safety, health, and environmental management that DENSO formulated in 1969—DENSO has been working continuously to improve workplace safety. At the same time, DENSO has been taking steps to establish a world-leading safety, health, and environmental management structure to minimize such risks as work-related accidents, explosions, and fires. These efforts include the practice of the PDCA (Plan, Do, Check, Act) cycle based on domestic and international occupational safety and health management system (OSHMS) standards.
Strengthening Information Security Structure Following the Change toward a “Connected Society” Following the advancement of such technologies as automated driving and IoT, cyber security risks related to vehicles and production facilities have become a serious issue. To ensure that vehicles can be used safely and with peace of mind, DENSO is developing technologies that Please see the “Sustainability protect in-vehicle products, such as advanced driver assistance systems and automated driving, from cyber- Information” section of DENSO’s cor- attacks. The Company is also moving forward with the establishment of unique frameworks for steadily porate website for more information. Risk Management: installing these technologies in vehicles. Also, DENSO is setting up security measures for its internal net- https://www.denso.com/global/en/csr/ works, production lines, and other facilities and is working to secure its information assets and realize a governance/riskmanage/ steady supply of products to its customers.
59 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Intellectual Property
Basic Stance To realize the vision adopted in its Long-term Policy 2030, DENSO is working to unify its business unit strategies with its intellectual property (IP) strategies. In particular, DENSO is giving priority toward building a patent portfolio in the four core fields of electrification, automated driving, con- nected vehicles, and non-automotive businesses (factory automation and agriculture), which were established under Long-term Plan 2025. In addition, the Company is conducting IP activities related to open innovation and utilizing its acquired patents in a strategic manner. By doing so, DENSO is supporting efforts to expand its business and achieve sustainable growth.
Respect for Other Companies’ IP Rights In addition to its own IP rights, DENSO has the utmost respect for the IP rights of other companies. To this end, from the development stage, the Company examines and analyzes the IP rights of other companies and has established clear internal rules to ensure that it handles the valuable IP rights of other companies in an appropriate manner.
Measures Against Counterfeit Products DENSO takes active measures against counterfeit products (in particular, those with imitation trademarks). There are many quality problems with counterfeit products, and there is the possibil- ity that purchasing such a product in the belief that it was manufactured by DENSO could be detri- mental to the purchaser. Since 2005, the Company has been engaging in activities to detect counterfeit products in cooperation with government and customs agencies as well as its overseas locations in North America, Europe, China, and in other countries.
Promotion Structure Global IP System To support overseas development and design, we have set up IP organizations at our development and design bases in North America, Europe, and China, thereby strengthening our efforts to acquire IP rights for local inventions and ideas and to examine other companies’ IP rights. Furthermore, at our locations in North America and Europe, we deploy patent attorneys to provide support in patent disputes. In China, we protect the DENSO brand by taking measures against counterfeit products and copyright infringements. At overseas locations where we have yet to set up an IP organization, we have established systems to reward inventions and provide education on intellec- tual properties. In doing so, we are working to encourage local IP activities. In addition, as part of our efforts in global IP collaboration, we hold the Global IP Conference. This conference brings together the members of IP organizations at our locations around the world with the aim of engaging in debate related to global and local IP issues and to invigorate and further expand our IP activities in each region.
Number of Patents Held and Patent Applications Filed Ratio of Patent Applications in Foreign Countries in Japan and Overseas (%) (Number) (Number) 25,000 10,000 Italy 0.4% Other Asian countries 4.8%
United Kingdom Other countries 20,000 8,000 0.6% 1.4%
France 1.8% 15,000 6,000
China 20.9% 10,000 4,000 FY2018 United States 43.7%
5,000 2,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY) 0
Germany 26.2% No. of patents held in Japan (left scale) No. of patents held in foreign countries (left scale) No. of patent applications filed in Japan and overseas (right scale) Note: The number of patent applications filed shows the total number of filings in Japan and overseas. This figure includes patents filed during DENSO’s fiscal year under view. The number of patent applications filed in Japan includes withdrawn items for priority claim based on Japanese patent applications and divisional applications. The number of patent applications filed in foreign countries includes continuing and divisional applications.
60 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Engagement with Society
Basic Stance DENSO advances its business activities while interacting with various stakeholders. DENSO believes that establishing good relationships with its stakeholders is an essential part of improving corporate value. To create a better society, DENSO clarifies its responsibility to stakeholders in its business activities, and continues to engage in dialogue with stakeholders as a helpful means of avoiding self-satisfying activities that are biased by its own logic and preconceptions. DENSO fulfills its social responsibility while reflecting stakeholder opinions and the needs of society in its corporate activities.
Examples of Engagement with Stakeholders (fiscal 2018)
Customer Consultation Center To engage in Monozukuri from the customer’s perspective, we Customers provide the feedback we receive from customers via the Customer Approx. 5,500 inquiries Consultation Center to relevant departments, which we then use to related to products offer even better products and services.
Global Conference At the Global Conference held in 2018, directors and members Approx. 80 Group companies of management from our locations around the world gathered to Employees participated from discuss innovation and action geared toward realizing the Long-term around the world Policy and implementing long-term plans.
General Meeting of Suppliers As a measure to deepen interactions with our suppliers, we provide Approx. 360 suppliers Suppliers information to major suppliers inside and outside Japan about our participated from procurement policy and the initiatives of each business division. around the world
Ordinary General Meeting of Shareholders At the Ordinary General Meeting of Shareholders held in 2018, the chairman of the Board provided a report on the Company’s Approx. 1,400 people future initiatives and answered questions from the shareholders. participated Also, a tour of the Company’s factories was held.
Shareholders Approx. and Investors 750 Dialogue with Investors Dialogue with institutional investors Through briefings on results and future strategies, individual interviews (total number of companies) and teleconferences, overseas road shows, and other means, we actively hold dialogues with investors both in Japan and overseas. In Approx. 550 addition, we hold briefings for individual investors several times a year. Dialogue with individual investors (total number of participants)
Community Service Day DENSO has designated a day (“Community Service Day”) for employees Approx. 57,000 employees to give back to their local communities. DENSO aims to contribute to participated from society in ways that reflects its unique position and role in society. around the world Local Communities Corporate Sports P. 62 TOPICS Sports Activities of the DENSO Group We offer encouragement to our employees through sports activities. At the same time, we value the connections we make with local communities through sports and contribute to the development of the sports industry in Japan.
61 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
TOPICS
Sports Activities of the DENSO Group
DENSO established athletic clubs in the 1950s, soon after its founding, with the aim of bringing vitality to the workplace. Through Groupwide efforts, DENSO currently supports teams and athletes in a wide variety of sports.
Teams and Athletes Representing DENSO
Softball DENSO Brightpegasus Basketball DENSO Iris
Volleyball DENSO Airybees Table tennis Women’s Table Tennis Club Long-distance running DENSO Fleetserows
Boating DENSO Boating Club Deaf soccer Haruka Otani Deaf curling Hisho Aratani
©NWHL
Nine-member volleyball Short-distance running Short-distance running Alpine skiing Konatsu Hasumi Ice hockey Nana Fujimoto DENSO TEN Red Phoenix Mariko Nagano Miki Sugiyama
62 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Reinforcing the Strengths and Foundation That Support Growth
Reasons Why We Make Efforts in Sports Creating Connections with Local Communities We wish to deepen our interaction with local communities by offering excitement to people living near Company offices and sharing with them our dreams and energy.
Encouraging Our Employees Through the emotions, excitement, and inspiration that come from sports, we aim to increase the vitality of the workplace.
Making Progress Together with the Sports Industry We hope to realize people’s dreams by supporting teams and athletes that are active on a global stage. Through sports, we will show our gratitude toward society.
Passionately Enhancing Our Technological Capabilities We develop and provide products to the teams we sponsor. Through the support we have continued to offer to motorsports since the 1960s, we have been pursuing outstanding levels of quality and world-leading advanced technologies.
63 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
/ DENSO at Work /
Aiming to improve corporate value by realizing the sustainable growth of society
A diverse workplace that offers new realizations and enhances teamwork
64 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
3 SUSTAINABILITY MANAGEMENT
66 Sustainability Management
66 Materiality
68 The Environment
72 Peace of Mind
74 Inspiring (Corporate Foundation)
65 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Sustainability Management
Sustainability management at DENSO involves incorporating the perspective of social sustainability within our management strategies. Through the implementation of sustainability management, we aim to improve our corporate value. Since our foundation, the perspective of sustainability has been part of the management thinking that flows through the core of our business. It is a perspective that has provided the foundation for creating the NIPPONDENSO Spirit, our creed as a company, as well as our Basic Philosophy and Long-term Policy. It is also a perspective that we have inherited over many years. To enhance the transparency of our sustainability management and accelerate related initiatives, we have determined new material issues (materiality). Going forward, we will gain the understanding of a wide range of stakeholders through the implementation of sustainability management. At the same time, by helping to realize the sustainable growth of society, we will aim to improve our corporate value.
Materiality From the various issues that society faces, we determined the material issues (materiality) toward which we should give priority. By working to resolve these issues through our business activities, we will steadily implement sustainability management.
Process for Determining Materiality
Step 0: Reflect on DENSO’s past sustainability activities Summarize and self-evaluate activities carried out in the past that centered on CSR, and assess issues that are relevant to sustainability management
Step 1: Identify social issues by referencing the SDGs and ESG trends (FTSE, MSCI, etc.) Reference the SDGs, which have gained the consensus of international society, and the themes that ESG investors are paying attention to in order to identify economic, environmental, and social issues
Step 2: Set priorities and determine targets by analyzing the degree of importance to the Company and to society as a whole In addition to the social issues we are already addressing, determine targets based on the level of recent social interest and DENSO’s management vision and policies
Step 3: Discuss with external experts (stakeholder engagement) Exchange opinions with external experts, such as various investors, research institutions and NPOs, and outside directors regarding materiality proposals
Step 4: Discuss and approve at the management level At Senior Executive Director Meetings (chaired by the president and attended by the senior executive directors), discuss and approve the materiality proposals that have been revised based on the opinions of external experts
Plotting of Social Issues DENSO’s Materiality (through 2025)
Perspective of society (experts, etc.) The Environment Peace of Mind • Prevention of global warming • Provision of safe and secure products
Degree of importance to society • Prevention of air pollution / → Provision of free and comfortable High Reduction of environmental burden movement • Reduction of traffic accidents Medium • Effective utilization of resources • Conservation of water resources • Response to decrease in birthrate and aging population
Inspiring (Corporate Foundation) • Compliance • Occupational health and safety • Strengthening of information • Workstyle reforms security Medium High • Protection of human rights • Promotion of the active role of human • Sustainable procurement Degree of importance to the Company resources (diversity promotion) (Level of impact business activities have on social issues) • Governance structure
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. DENSO‘s Sustainability: https://www.denso.com/global/en/csr/csr-policy/policy/
66 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Relationship of Materiality to the SDGs Related SDGs Materiality theme Vision (Large icons: direct contribution; Small icons: indirect contribution)
• Prevention of global warming By reducing environmental burden and realizing highly • Prevention of air pollution / efficient mobility, we will contribute to an eco-friendly and Reduction of environmental burden sustainable society. The Environment • Effective utilization of resources ◦Contribute to maintaining the sustainability of the global environment through the use of technologies to solve • Conservation of water resources global warming issues and issues related to energy and resources ◦Continue to be a company that rigorously adheres to laws and realizes growth together with society through the constant pursuit of improvements ◦Realize a society that shares the wisdom and blessings of nature through corporate activities that aim for a peaceful coexistence with the planet Peace of Mind • Provision of safe and secure products ◦Provide safe and secure products that are of high quality → Pr ovision of free and comfortable in order to gain the trust and satisfaction of our customers movement ◦C ontribute to the creation of a society in which all people • Reduction of traffic accidents can live with peace of mind by eliminating traffic accidents • Response to decrease in birthrate and and realizing free and comfortable mobility aging population
• Compliance ◦In addition to adhering to the laws and regulations in each • Strengthening of information security country and region, ensure that all employees act in a fair, honest, and ethical manner ◦Prepare for the information security-related risks facing the Inspiring (Corporate Foundation) “connected society” and offer customers safe and highly reliable products. At the same time, thoroughly improve efforts to protect information assets
• Promotion of the active role of human ◦Promote the development of “people, organizations, and resources (diversity promotion) environments” so that all employees utilize their • Occupational health and safety capabilities to the greatest extent possible and work in a • Workstyle reforms lively manner with peace of mind ◦Promote business activities that respect the human rights • Protection of human rights of our stakeholders, starting with our employees, throughout the entire supply chain
• Sustainable procurement ◦Pursue business activities that give consideration to • Other environmental issues, human rights issues, and compliance together with our suppliers
Future Initiatives We have shared the materiality we will address by 2025 with the entire Company. To link material- ity-related efforts with our business activities and continuously control the progress of these efforts, we have determined long-term targets and KPIs in accordance with each materiality theme. With our KPIs, we will examine methods for improving employee motivation by visualizing the level of achievement we have made toward our targets. This level of achievement will be reported to the executive officers on a regular basis. In turn, these reports will help us make improvements to future initiatives based on the issues we face in achieving our targets. In these ways, we will carry out sustainability management in an even more effective way.
TOPIC Efforts toward Sustainability Management Long-term Policy: “Inspiring” Workshop We believe that by having our employees take on new challenges with the aim of realizing Long-term Policy 2030, we will help realize the sustainable development of society. Guided by this belief, we held a workshop that gathered together employees that will lead the Company into the next generation from 2030 and beyond. Focusing on “inspiring,” a keyword that has been newly added to our Long-term Policy, we held discussions on how we can inspire people and the kind of value we need to create to do so.
67 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
The Environment Materiality theme • Prevention of global warming • Prevention of air pollution / Reduction of environmental burden • Effective utilization of resources • Conservation of water resources
Overview of Initiatives We have formulated the Eco Vision (updated every 10 years) Following the adoption of the Paris Agreement in 2015, the to serve as a long-term environmental policy to help us pro- world embarked on a new path toward a low-carbon society. mote our environmental management. At the same time, we Accordingly, expectations of efforts by the automotive industry, have determined the Environmental Action Plan (updated every in particular, are higher than ever before, as automobiles have a five years) to embody the commitment and environmental significant impact on the global environment. Under such a busi- policy set out in our Eco Vision. ness environment, we face risks related to the tightening of emission standards and other regulations. At the same time, we Major Action believe this environment gives us an opportunity to create new DENSO Eco Vision 2025 businesses using our environmental technology and know-how. DENSO has formulated the new DENSO Eco Vision as an action To realize a sustainable mobile society that is eco-friendly plan toward realizing sustainable regions and societies in 2050. and in which all people can achieve happiness and peace of This latest Eco Vision sets three targets (Target 3) to be mind, we aim to be a company that can continue to create new achieved in 2025: ENERGY 1/2; CLEAN × 2; and GREEN × 2. The value. To that end, we are working to reduce the environmental Company will also promote 10 specific actions (Action 10) to impact of our business activities. At the same time, we are realize these three targets in the respective categories of prod- engaging in environmental management that creates economic ucts, production (factories), associates (employees), and value through the pursuit of world-leading environmental perfor- management. mance and high resource productivity.
Three Targets (Target 3) Action 10
Aim to halve CO2 emissions by technologies that resolve Ultimate Eco materials & New green global warming as well as fuel efficiency low emissions technologies Products energy and resource issues
Minimum CO2 Minimum Nature rich Aim to halve the amount of Monozukuri impact workplace
Production production environmentally hazardous substances, discharge, and waste through the continuous
promotion of improvements Low carbon Earth Environmental lifestyle & trans- consciousness, volunteer action port knowledge & skills Aim to create environment- friendly communities through business activities that realize Environmental value efficient a harmonious coexistence management Management Associates with nature
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. Eco Vision: https://www.denso.com/global/en/csr/environment-report/ecovision/
68 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
The Environment Related SDGs
Promotion Structure DENSO established its Environment Committee in December 1992. Chaired by the vice president and attended by senior management—those in charge at overseas regional headquarters and those responsible for matters concerning environmental management at Group companies—the Environment Committee meets twice a year to formulate policy, verify the status of progress made on activities, and undertake examinations of issues and solutions.
Environment Committee Business Group / Committee Chair: Vice President Sector Environment Committees
Eco Management Unit Committee (Action 10) DENSO Group (Japan) / Safety Meetings
Environment Committees by Overseas Region Eco Products Eco Factory Eco-Friendly Promoted under a global six-pronged structure Subcommittee Subcommittee Subcommittee
Fuel Economy Plant CO2 Unit Eco Life Unit Product Unit Committee Committee Committee (Action 02) (Action 03) (Action 01)
Environmental Clean Product Unit Plant Environmental Education Unit Committee Unit Committee Committee (Action 04) (Action 05) (Action 06)
Green Product Unit Plant Greening Unit Social Contribution Committee Committee Unit Committee (Action 07) (Action 08) (Action 09)
TOPIC External Evaluation Through the active disclosure of environmental information, DENSO is promoting environmental communication with its stakeholders. In fiscal 2018, DENSO received a “B” ranking in the CDP* Climate Change Survey.
DISCLOSURE INSIGHT ACTION * The Climate Disclosure Project (CDP) is an international NPO that implements projects together with institutional investors that encourage companies around the world to disclose their strategies to address climate change as well as their greenhouse gas emission volumes.
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. Environmental Report: https://www.denso.com/global/en/csr/environment-report/
69 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Specific Initiatives DENSO is developing new technologies and products that improve fuel consumption and are compatible with various kinds of fuel. In addition, the Company is promoting energy conservation activities that respond to production fluctuations while improving logistics. Through these efforts,
we aim to halve the CO2 emissions that accompany automobile use and our business activities by leveraging the vast know-how we possess in resolving issues pertaining to global warming, energy, and resources.
Action 01: Developing Products for Fuel-Cell Vehicles, the Next Generation of Eco Cars DENSO is moving forward with the development of technologies that contribute to the promotion of fuel-cell vehicles (FCVs), which use Hydrogen hydrogen to generate electricity. Air Hydrogen
The FCV-related products that DENSO has developed thus far, Electric Hydrogen current tank including high-voltage power system components, such as a power Motor Fuel cell control unit and fuel cell boost converters, and cooling system units, Water such as radiators and cooling pumps that greatly improve cooling per- formance, have been installed on the MIRAI, an FCV manufactured by Toyota Motor Corporation.
Cooling FC monitoring Pressure Hydrogen- pump unit sensor charged ECU
Action 02: Energy JIT (Just-in-Time)—Aiming for Supply side Production side Minimum CO2 Monozukuri Based on the idea that “energy for production is Supply energy only Connect with Use energy only when required and in the production when required and in the not fixed infrastructure but another component amount required information amount required to be controlled,” DENSO is working to establish Production Information a system for the utilization and supply of just the information system right amount of energy at the necessary time. Purchase Electricity energy Air Power The Company is working to optimize energy from facilities Gas Production equipment the perspective of both energy supply and Production information energy consumption. Current activities Current activities • Expand JIT air- and air-conditioner- • Turn off main power source related activities at lunchtime • Trial JIT water- and steam- • Automatic idling stop control related activities
Action 02: Introduction of Leading Low-Carbon Technologies at Overseas Group Companies in Emerging Nations As a participant in the Joint Crediting Mechanism (JCM),* we are accelerating the widespread use of leading low-carbon technologies at DENSO Group companies in emerging nations. Through this program, we have introduced cogeneration systems at companies in
Thailand and Indonesia. These systems utilize municipal gas, which produces only a small amount of CO2 emissions, as fuel for power generation and make use of waste heat. By doing so, these systems have contributed to a reduction of roughly 14,000 tons of CO2 a year.
* Joint Crediting Mechanism: A mechanism that contributes to measures to mitigate global warming on a worldwide basis by facilitating the widespread use of low- carbon technologies in emerging nations. These contributions are evaluated appropriately and subsequently applied to Japan’s targets for reducing greenhouse gas emissions.
70 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
To offer all of its stakeholders peace of mind, DENSO aims to continuously promote improvements to halve the amount of environmentally hazardous substances, discharge, and waste it generates. For example, we are making efforts to improve the air quality in the regions where we operate through the development of technology that reduces vehicle exhaust emissions. We are also work- ing to reduce the amount of waste generated and water consumed at our factories and throughout our logistics cycle.
Action 04: Using Plant-Based Resins in Our Products DENSO has been engaging in the research and development of resin materials that utilize the molecular structures of plants. We have also applied starch-based bio-polycarbonates and castor oil-based urethane resins in certain products. Plant-based resins do not make use of fossil fuels, making them a renewable resource. In addition, these resins are garnering attention due to the fact that they do not increase total CO2 volumes in the atmosphere even if they undergo thermal recycling. For many years, we have pursued the devel- opment of plant-based resins, and in 2009, we developed a castor oil-based radiator tank together with E. I. du Pont de Nemours and Company. We are currently working to commercialize these radia- tor tanks and expand their installation in vehicles.
Action 05: JIT Water Management—Addressing Global Risks Related to Water Recently, a wide variety of water-related issues have started to become more serious, such as water pollution, water shortages, and floods. As such, there has been a heightened need for initiatives aimed at addressing risks involving water. DENSO has identified the water-related risks it is exposed to on a Groupwide basis and has evaluated these risks while taking into account regional factors. By strengthening measures to address these risks and sharing successful examples of such measures across the entire Group, DENSO is promoting the reduction of water-related risks.
To pass down a rich natural environment to the next generation, DENSO is promoting new environ- mental businesses such as biofuel research and agricultural support as well as enhancing factory greening. In these ways, we are carrying out our activities that aim to realize a harmonious coexis- tence with nature. Furthermore, in each of our operating regions and offices, we are implementing social contribution activities and holding events under environment-related themes, thereby aiming to create environment-friendly communities.
Action 07: Utilization of CO2 Absorbing Technologies and Microalgae Since April 2008, DENSO has been pursuing collaborative research with the Institute for Advanced Biosciences of Keio University on a new type of algae, for which the Company has patents, that can absorb CO2 and be used to produce biofuel. This research has focused on Pseudochoricystis, an extremely small microalga that is only five μm (micrometers, equivalent to one two-hundredth of a millimeter). In addition to absorbing CO2 and producing starch through photosynthesis, this microalga is unique for producing an oil containing a diesel component that can be used in diesel engines. Pseudochoricystis also grows quickly and absorbs CO2 more efficiently than trees. In fact, a cultivation area of Pseudochoricystis can absorb up to 10 times more CO2 than a forest of equal size. If the practical application of
Pseudochoricystis can be realized, CO2 emissions from factories could be greatly reduced, as could risks related to the rising price of grain, which is a main component of biofuel. Accordingly, Pseudochoricystis has the potential to significantly contribute to the resolution of energy-related issues and global warming mitigation efforts.
71 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Peace of Mind Materiality theme • Provision of safe and secure products → Provision of free and comfortable movement • R eduction of traffic accidents • R esponse to decrease in birthrate and aging population
Overview of Initiatives of production and the promotion of quality control with full DENSO is stepping up its efforts in the fields of FA and AI. In employee participation as basic quality assurance policies, and addition to quality control activities that ensure the delivery of we are committed to carrying out a Customer First principle in safe and secure products to customers, these fields contribute creating products. to the provision of products that realize open and convenient Additionally, based on information collected by sales and mobility, which in turn offers peace of mind in people’s lives. technology departments from customers, we are continu- These fields also promote technological development that helps ously making efforts to enhance customer satisfaction in reduce traffic accidents and respond to the issue of the declin- terms of quality, cost, and delivery. ing workforce amid Japan’s declining population. Promotion Structure Primary Activities In order to provide customers worldwide with optimum prod- Quality Assurance ucts matched to the characteristics of each region, we have Since its founding, the DENSO Group has been dedicated to established Technical Centers (T/Cs) in Japan, the United States, providing safe, reliable, and high-quality services that will satisfy Germany, Thailand, China, India, and Brazil. This global structure customers and earn their trust based on a commitment under allows us to conduct product development, quality testing, and the DENSO Group Declaration of Corporate Behavior. We have evaluation in accordance with local characteristics. In addition, designated the thorough implementation of the Quality First the DENSO Group has completed the acquisition of principle, the practice of quality assurance from the beginning ISO/TS16949 certification.
Quality Assurance Policies and Systems
(1) Thoroughly implementing the Quality First principle Basic policies on (2) Practicing quality assurance from the start of production quality assurance (3) Participation of all employees in quality control activities
Early stage production control Policies on quality improvement activities Rules regarding items to implement to ensure top quality in processes from new product planning through design to production as well as for the departments to implement these actions Business groups Functional departments
Functions from design to production are con- These departments support and reinforce Critical item control centrated within each product group with the business groups from a functional perspective aim of generating efficient and flexible pro- to ensure smooth operations. In particular, Products with key functions are categorized and duction operations. there is a department dedicated to quality targeted for special management. The following assurance that audits and enhances product four classifications have been designated as Product planning quality and quality systems. priority areas. (1) Products concerned with security: Product Product design Quality Product features related to safety technology (2) Products concerned with exhaust emissions: Trial Product features related to purification of Production preparations Procurement exhaust gas production (3) Products concerned with driving functions: Training and Product features related to driving Manufacturing Automotive education (4) Other important items: assessment Product features related to important (technical, specialized) functions aside from the above Sales and service Preventive quality control
We implement preventive measures for quality issues that have arisen to avoid problems in next- generation products. Customers
72 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Peace of Mind Related SDGs
Specific Initiatives We establish various methods for our products related to 1 Assuring the Quality of New Products—Monozukuri advanced driver assistance systems (ADAS), including methods That Places the Utmost Priority on Ensuring Safety to assess malfunctions in collision avoidance braking systems. To assure the quality of new products, specialized departments At the same time, we have in place evaluation equipment that including quality control and production technology work in responds to the next-generation New Car Assessment 2 unison to strictly check quality by visualizing the degree of Programme* (nighttime product completion and product risks. and bicycles). Additionally, Our design departments thoroughly conduct both safety on our test course, we rec- designs, such as fail-safe designs,*1 and safety evaluations and reate conditions respon- work to promote system and product design pursuant to ISO sible for malfunctions 26262 certification for functional safety. Particularly, in the design discovered during vehicle A nighttime pedestrian model used in our test driving in an effort to stage, we conduct in-vehicle testing on the Company’s test assessment of collision avoidance braking course under a range of conditions such as high-speed driving, thoroughly ensure safety. systems
rough roads, low temperatures, and icing, as well as various tests *1 A design philosophy requiring products to be controlled in a safe manner in our environmental testing room. By repeatedly carrying out in the event of an accident or erroneous operation *2 New Car Assessment Programme: An automobile safety test these tests, we rigorously confirm the quality of our products. Additionally, our functional departments clearly specify oper- ational procedures, from product planning to production and 2 Education, Training, and Awareness-Raising Activities shipment, and designate responsible departments for these DENSO is focusing on Hitozukuri to provide a foundation for procedures. At the same time, the functional departments realizing high-quality Monozukuri. In addition to systematically strictly monitor compliance with applicable laws and regula- and continuously developing engineers and technicians, DENSO tions at each stage. When launching new products, in particular, is working to pass on first-class Monozukuri techniques through the responsible departments are required to conduct safety practical education and training in which employees can gain evaluations based on internal regulations and to report on the hands-on experience. results of legal compliance checks.
TOPIC Aiming to Realize a Society without Traffic Accidents Global Traffic Safety Project The main causes for the occurrence of traffic accidents are vehicles, infrastructure, and people. Under the aim of realizing a society without traffic accidents, DENSO not only offers products that ensure safety, it also implements traffic safety educational activities, which are carried out by employees, for members of local communities around the world. These activities focus on the “people” aspect of traffic accidents and aim to offer peace of mind to those most vulnerable to accidents, including children and the elderly (educational activities commenced in fiscal 2016 and, as of fiscal 2018, have been carried out by 63 Group companies, including DENSO CORPORATION, in Japan and 19 other countries and regions around the world). Our employees act as models for practicing traffic safety and work to form connections with local communities. By doing so, we believe we can encourage people around the world to give consideration to the perspective of sustainability.
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. Quality Control: https://www.denso.com/global/en/csr/sociality-report/customers/quality-control/
73 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Inspiring Materiality theme • Compliance • Occupa tional health and safety (Corporate Foundation) • Strengthening of information • W orkstyle reforms security • Pr otection of human rights • Promotion of the active role of human • Sustainable procurement resources (diversity promotion) • Go vernance structure
Overview of Initiatives Specific Initiatives To conduct sound and stable business activities and realize 1 Promoting the Active Role of Female Employees sustainable growth amid the rapidly changing business environ- We have been engaging in efforts to provide career-building ment, a solid corporate foundation is essential. To this end, support and reform workstyles so that women can advance DENSO is engaged in efforts to promote the active role of its their careers throughout each major life event. For example, we personnel and to enhance the motivation of its employees have introduced various support programs that far surpass the through health management and other measures to ensure legal requirements, such as childcare leave, shortened work they are able to utilize their abilities to the greatest extent pos- hours, and mobile working, thereby enhancing the flexibility of sible. DENSO is also working to strengthen information security our female employees in terms of working location and work and compliance. Efforts such as these help ensure that the hours. In addition, we are making efforts to raise Companywide Company does not damage its corporate value. awareness of the issues facing women in the workplace by con- ducting training that provides opportunities for women to con- Primary Activities sider their careers and approach to work (trend in the number Promoting Diversity & Inclusion of female managers P. 99 ）. We value new ideas that are created by our employees with diverse backgrounds, and we believe that nurturing kindhearted, 2 Promoting the Employment of People with Disabilities thoughtful employees who respect each other’s individuality is Since starting the regular employment of persons with disabili- essential for realizing sustainable growth. To this end, we are pro- ties in 1978, DENSO has actively worked to expand employment moting diversity and inclusion, which involves making full use of and occupational opportunities for people with disabilities. the skills and perspectives of our employees around the world in In 1984, we established DENSO Taiyo Co., Ltd., a special- order to realize an organizational environment and culture that purpose subsidiary that primarily hires people with physical embraces all individuals, regardless of personal attributes such disabilities. This company is engaged in the production of such as gender, age, nationality, disability, sexual orientation, career products as vehicle instrument clusters and smart keys. In 2016, history, and value systems, thereby allowing a diverse group of we established the new special-purpose subsidiary DENSO employees to work with enthusiasm and energy. Blossom Co., Ltd. This company offers employment opportunities to people with mental and intellectual Promotion Structure disabilities and is engaged primarily in In order to clarify global policies, share initiatives and policy clerical work. progress in each region, and debate common challenges, At the moment, we employ over DENSO is pursuing activities such as establishing a Global 700 people with disabilities on a Diversity Committee made up of executives, representatives of Groupwide basis that includes our each region, and other members, in addition to a promotion head office and these two meeting committee system in each region. subsidiaries. DENSO Blossom Co., Ltd.
As cultures and economic conditions vary by country, we face various diversity- related issues. However, I believe the nature of our diversity-related efforts, which involve understanding those around you, embracing differences, and considering the perspective of others, is the same across the globe. Through our activities to promote diversity and inclusion, I hope we can transform DENSO into a company Keiko Shimokata that believes in the individual potential of employees with diverse personal attri- Officer in Charge of Diversity & butes and allows all employees to leverage the abilities they possess to the Inclusion Promotion greatest extent possible. Executive Director
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. Encouraging Diversity and Promoting a Work-Life Balance: https://www.denso.com/global/ja/csr/sociality-report/employees/diversity/
74 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Sustainability Management
Inspiring Related SDGs (Corporate Foundation)
Health and Productivity Management*1 *4 The Superior Health & Productivity Companies (the White 500) Program is Good physical and mental health is essential for ensuring the not restricted to listed companies and recognizes corporations that imple- ment superior health and productivity management in collaboration with happiness of our employees and their families, and provides the insurers such as health insurance associations. This program commenced source for working in a lively and energetic manner. in 2017. DENSO positions promoting the health of its employees as *5 Including ASMO Co., Ltd., with which DENSO integrated in April 2018 an important management task, and announced its Health Declaration*2 in September 2016. At the same time, to encour- Promotion Structure age activities that promote employee health and raise the level DENSO has established the Health Care Committee as an orga- of health awareness in the workplace, DENSO is working to nization affiliated with the Health Care Promotion Division and enhance its health-related initiatives from the perspective of other divisions. In doing so, we are promoting health-related ini- both physical and mental health. tiatives on a Companywide basis. Furthermore, since 2016 we For the second year in a row, DENSO was included in the have set up “health care leaders” at each office who engage in Health & Productivity Stock Selection,*3 a activities that promote employee health. Together with these joint initiative carried out by the Ministry of health care leaders, we make efforts to encourage healthy Economy, Trade and Industry (METI) and the habits among our employees in accordance with annual plans Tokyo Stock Exchange (TSE), as well as the (health care action plans) drafted for each individual office. Superior Health & Productivity Companies (the White 500) Program,*4 which is pro- Specific Initiatives moted by the TSE and the Nippon Kenko Promoting “Health Day” Training Kaigi (Japan Health Council). In addition, To improve the health awareness of our employees, it is impor- eight domestic Group companies*5 have tant to have them understand and thoroughly reflect on the con- also been included in the White 500 ditions of their physical and mental health. For employees who Program. are approaching 39 years of age, we conduct a one-day training
*1 “Health and productivity management” is a regis- session called “Health Day.” In this training, employees undergo a tered trademark of the NPO Kenko Keiei Kenkyukai. health examination, measure *2 To read the entire DENSO Health Declaration, please refer to the their physical strength, “Sustainability Information” section of the Company’s corporate website. *3 The Health & Productivity Stock Selection selects listed companies on the receive instruction on health TSE that strategically consider and implement health and productivity man- maintenance and healthy agement for their employees as a top management priority. The Health & eating habits, and participate Productivity Stock Selection introduces the selected corporations as an attractive investment option for investors who prioritize the improvement of in educational activities. corporate value from a long-term perspective. Through this effort, METI and Employees also set health- the TSE aim to encourage corporations to further pursue efforts for “health related goals for their 40s. and productivity management.” Lecture on health
TOPIC Strengthening Partnerships for Sustainable Procurement Health Lectures and Other Efforts at the General Meeting of Suppliers Sustainable growth for DENSO can only be realized through growth across the entire supply chain. Accordingly, DENSO places the same amount of value on having the employees of its suppliers work in a lively and energetic manner as it does with its own employees. At the General Meeting of Suppliers in the previous fiscal year, we offered health lectures given by our industrial physicians and provided opportunities for our suppliers to receive health-related measurements. In this way, we have been supporting the health and livelihood of our suppliers.
Please see the “Sustainability Information” section of DENSO’s corporate website for more information. Promoting Employee Health: https://www.denso.com/global/en/csr/sociality-report/employees/health/
75 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
/ DENSO at Work /
Promoting front-line operations, where products are created, as the foundation of DENSO
Products created with uncompromising passion that brings together people, skills, knowledge, and experience while inheriting traditions
76 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
4 OVERVIEW BY PRODUCT
78 Business Highlights
80 Thermal Systems
82 Powertrain Systems
84 Electrification Systems
86 Mobility Systems
88 Electronic Systems
90 Non-Automotive Businesses (Factory Automation and Agriculture)
77 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Business Highlights
DENSO is organized around business groups and engages in a wide range of businesses, centered on fields related to automobiles. These business groups collaborate with one another, leveraging their respective strengths to accommodate systemization and modularization. With the aim of reaching its long-term strategic growth target of generating ¥7.0 trillion in revenue, DENSO is devel- oping and investing in products that meet the needs of its customers in every region and working to expand its businesses into new domains geared toward future growth.
Fiscal 2026 Target Thermal Systems Drawing on our No. 1 share of clients around the world and our (formulated in the fiscal year ended March 31, 2017) regional development capabilities, we will develop and introduce products that offer new value (with reduced fuel consumption, Consolidated Revenue comfort and comprehensive heat management) and work to expand sales of core products in emerging countries. By doing so, we will steadily realize stable growth that capitalizes on the ¥7.0 trillion annual growth of the global automotive market. (Billions of yen) Powertrain Systems 7,000 In developed countries, we will promote efforts aimed at New consolidated businesses enhancing the efficiency of internal combustion engines in the age of electrification and developing new products that contrib- ute to electric vehicles and automated driving. At the same time, in emerging countries we will realize optimized specifica- tions using existing products and work to reduce costs, which 6,000 in turn will contribute to compact, inexpensive vehicles that are 1.3 times Thermal Systems eco-friendly. In these ways, we will realize stable growth.
Electrification Systems As the leading supplier of energy management systems for 5,000 electric vehicles and electric drive systems that allow for supe- rior control over driving, turning, and stopping, we will achieve sales growth in electric vehicle-related products at a rate that exceeds the pace of growth in the global electric vehicle market. 1.2 times Powertrain Systems
4,000 Mobility Systems We will boost sales through the introduction of highly competi- tive, next-generation products with the aim of capitalizing on growth in the automated driving and connected car markets. In addition, to reach the next stage of growth, we will expand
3,000 our business in the out-car domain and in new domains that 2.0 times Electrification Systems connect the in-car and out-car domains. Through these efforts, we will realize growth that surpasses our Companywide sales growth targets.
2,000 Electronic Systems We will strive to enhance the competitiveness of our ECUs, semiconductors, and sensors, which are the products that pro- 1.7 times Mobility Systems vide us with a source for realizing differentiation. In this way, we will achieve sustainable growth and establish a favorable posi- tion in the on-board electronics field.
1,000
1.7 times Electronic Systems Non-Automotive Businesses (Factory Automation and Agriculture) In the factory automation (FA) field, we will endeavor to com- Non-Automotive Businesses 3.0 times (Factory Automation and Agriculture) mercialize lean automation. In the agricultural field, we will work
0 17 26 (FY) to industrialize agriculture itself. By doing so, we will establish (results) (target) these fields as new pillars in our non-automotive businesses.
78 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Non-Automotive Businesses Others 1.5% Performance in Fiscal 2018 (FA and Agriculture) 3.1% Consolidated Revenue Electronic Systems 12.0% Thermal Systems 28.4%
¥ trillion Mobility Systems Overview by 5.1 14.4% Product
Electrification Systems Powertrain Systems 15.9% 24.7%
Thermal Systems (Billions of yen) Powertrain Systems (Billions of yen)
In fiscal 2018, revenue for thermal In fiscal 2018, revenue for powertrain systems was up 7.0%, or 3.6% on an systems saw an increase of 8.6%, 1,260.6 actual basis, to ¥1,452.2 billion, due 1,452.2 or 5.2% on an actual basis, to 1,409.9 1,356.6 1,174.0 to an increase in vehicle production in ¥1,260.6 billion, owing to an 1,160.6 Japan and China and expanded sales increase in vehicle production in of air-conditioners in China. Asia and growth in common rail system sales in North America.
16 17 18 （FY） 16 17 18 （FY）
Electrification Systems (Billions of yen) Mobility Systems (Billions of yen)
In fiscal 2018, revenue for electrifica- In fiscal 2018, revenue for mobility tion systems was up 8.0%, or 6.9% systems grew 32.1%, or 31.7% on an 735.7 815.9 on an actual basis, to ¥815.9 billion. actual basis, to ¥735.7 billion, as a 755.6 This increase was due primarily to result of increased vehicle production the increase in sales of products for in Japan, the impact of making 557.0 hybrid vehicles in Japan, including DENSO TEN Limited a consolidated power control units and motor gen- subsidiary, and the increased rate of erators, as well as to expanded sales installment of accident prevention of starters in China. and safety products.
17* 18 （FY） 17* 18 （FY）
Electronic Systems (Billions of yen) Non-Automotive Businesses (Billions of yen) (FA and Agriculture) In fiscal 2018, revenue for electronic systems rose 6.5%, or 3.6% on an In fiscal 2018, revenue in our non- 610.6 155.9
actual basis, to ¥610.6 billion, follow- 573.2 automotive businesses came to ing increased vehicle production in ¥155.9 billion. This result reflected Japan and China. increased sales due to the impact of making TD Mobile Corporation a con- solidated subsidiary. It also reflected the strong sales performance in Japan 64.5
of barcode handy terminals and indus- 62.4 trial-use robots as well as the robust sales of products in lifestyle-related fields, such as air-conditioning sys-
17* 18 （FY） tems for entire buildings. 16 17 18 （FY）
* As DENSO reorganized its business group structure in fiscal 2018, figures for fiscal 2017 have been provided for reference purposes only.
79 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
THERMAL SYSTEMS
Providing safe, comfortable systems that use the least amount of energy possible in consideration of the environment
Business Activities Rapid Development of Advanced Safety ■ Development and production of air-conditioning systems for cars and Automated Driving Technologies and buses, truck refrigeration units, air purifiers and related air- Due to such factors as requirements to wear seat belts and upgrade conditioning products, radiators, and cooling systems other safety equipment, deaths caused by excessive speed are declin- ing. In contrast, the proportion of deaths due to human error, includ- Strengths ing day-dreaming, inattention, and a lack of due diligence, is greater. ■ Leading share of the global market Also, as automated driving technologies become more widespread, ■ Outstanding proposal and development capabilities that link vehicle interiors are becoming spaces where people can spend time closely to a wide range of products from engine-related control doing something other than driving. Accordingly, there is systems to meters that convey information to drivers a growing need to enhance the comfort these spaces offer.
Main Products Trends in Fatal Accidents by Cause* Increase in percentage (1,000 incidents per year) of accidents due to
2 human error
17% 1 12%
10% 0 90 95 00 05 10 15 (CY) HVAC Unit Radiator Speed violations Day-dreaming (2016) Day-dreaming Inattention Lack of due diligence Inattention * Gr aph created by DENSO based on data from Business Environment Lack of due diligence the Tokyo Metropolitan Police Department Others Increase in the Electrification of Vehicles In conjunction with the trend in countries around the world of intro- ducing progressively stringent regulations regarding CO2 emissions Risks The budgets of car manufacturers are expected to be and fuel performance, car manufacturers have been stepping up directed more toward electric vehicles and automated driving their efforts to develop electric vehicles. However, as these vehicles technologies. In addition, new competitors are likely to make an produce almost no engine waste heat, they lack a sufficient source entrance into the market. Due to these factors and others, the for providing heating inside the vehicle, making it necessary to Company anticipates that price competition will intensify especially develop heat pump systems that efficiently pump in heat from in terms of products for which differentiation is difficult to achieve. outside air. It is also important to use the little waste heat these vehicles do produce as efficiently as possible. In addition, heat man- Opportunities As DENSO boasts strengths in reducing thermal agement needs for these vehicles are beginning to emerge, including damage and promoting the recovery and use of waste heat for vehi- during times of rapid battery charging and when the battery needs cles as a whole, the widespread use of electric vehicles presents to be heated, cooled, or maintained at a certain temperature opportunities for the Company to achieve differentiation and sus- depending on the conditions of the vehicle. tainably expand its business. Also, due to the widespread use of automated driving technologies, there is an opportunity for DENSO Distance Electric Vehicles Can Drive When Using to create and expand a new market for “comfortable cabins” in light In-Vehicle Heating Driving of the fact that vehicle interiors are becoming more than just a distance space for driving. At the same time, the Company finds itself with an Instances when driving distance is 100 nearly halved due to energy opportunity to contribute to the reduction of accidents by creating Driving consumption Nearly distance environments that allow drivers to focus more on driving. halved 56 The Value We Aim to Offer Society We will incorporate and create heat value, which is expanding and diversifying, and contribute to the future of society as a leading Catalog value When using in- vehicle heating company that works to reduce fuel consumption to earn the trust (electric heater) of its customers while offering comfortable heat management systems and components.
80 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets Drawing on our No. 1 share of clients around the Development of Energy-Saving, Highly Comfortable Products world and our regional development capabilities, we will develop and With the aim of improving fuel economy, we developed a heat pump introduce products that offer new value (with reduced fuel con- system for use in plug-in hybrid and electric vehicles, which was sumption, comfort, and comprehensive heat management) and work installed in the Toyota Prius PHV. In addition, we developed a small, to expand sales of core products in emerging countries, including high-performance water-cooled condenser that can be fitted in car air-conditioning systems and radiators. By doing so, we will vehicles in replacement of water heating heat pumps and air-cooled steadily realize stable growth of 3% per year, which is in line with the condensers. This condenser has been installed in the Renault Kangoo. annual growth of the global automotive market. We also developed a thin, water-cooled intercooler. While conven- tional intercoolers involve two parts that have to be installed sepa- Profitability Through rigorous efforts to reduce costs, we will rately in front of the engine, our newly developed intercooler integrates strengthen the cost competitiveness of our core product lineups, these two parts into one unit and utilizes a high-performance core which provide the foundation of our overall business. We will also and right-angle-bent water pipes. In addition, to realize “hospitable introduce world-first technologies and market-first products that air-conditioning,” we developed a four-seat temperature sensor that, offer new value, thereby creating unique value for vehicles and by itself, is able to detect the temperature of all four seats in a vehicle enhancing our profitability. and control the air-conditioning at a level that best suits each pas- senger. Both of these products have been installed in the all-new Differentiation We will work to achieve differentiation by using our Lexus LS. unique energy-conserving technologies to resolve internal combus- tion issues related to regulations on fuel economy and exhaust gas Passenger Temperature Detection via the Newly emissions. We will also pursue increased comfort focusing mainly on Developed Wide-Viewing-Angle Sensor the five human senses and human biology research and work to sys- temize our air-conditioning products—for which we boast the No. 1 IR Sensor global share. In these ways, we will promote efforts to differentiate our existing products. Furthermore, in the field of electric vehicles, we will steadily capitalize on growth in the market going forward by promptly introducing comprehensive heat management products.
Organizational Capabilities We will carry out a full-scale shift from our core product fields to fields for products that offer new value. Viewing angle: We will also undertake structural reforms to help us achieve our 123° Comfortable temperatures for both strategies through such means as strengthening collaboration on a people who get cold easily and people who are sensitive to heat global basis and utilizing business alliances. Improves safety by helping drivers concentrate on driving
Making your vehicle the most comfortable place to be
Yasuhiro Iida Head of Thermal Systems Business Group
81 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
POWERTRAIN SYSTEMS
Providing solutions that help overcome the seemingly contradictive task of balancing the joy of life with vehicles with superior environmental performance
Business Activities Business Environment ■ Development and manufacture of gasoline and diesel engine The Electrification of Powertrains and Enhanced Efficiency management systems, which cover everything from combustion of Internal Combustion Engines to intake and exhaust Risks and Opportunities In developed countries, the electrification ■ Development and manufacture of engine-related products, such as of powertrains has been advancing alongside the trend of introduc- variable cam timing (VCT) systems and exhaust gas sensors; and ing regulations on fuel consumption. At the moment, it is antici- products for drive systems, such as oil pressure control valves. pated that, among electric vehicles, hybrid vehicles equipped with internal combustion engines will become mainstream. Meanwhile, in Strengths emerging nations, there is expected to be a continued need for ■ From the perspective of systems, we maintain and comprehen- internal combustion engines in inexpensive eco-friendly vehicles, and sively develop a wide variety of technologies and are active it is therefore necessary to make these engines more efficient and across a broad range of business domains related to powertrains, reduce their environmental burden. extending from gasoline and diesel vehicles to hybrid and electric For diesel engines, there is a need in commercial and construction vehicles. We are also able to manufacture products in these fields to develop engines with common rail direct fuel injection sys- domains using highly advanced production techniques. tems and high-performance engines. In light of this, it is expected that from 2025 gasoline and diesel engines will continue to be Main Products needed in fields deemed necessary by customers and society at large.
Forecast for Vehicles Equipped with Internal Combustion Engines Sales volume of passenger vehicles (millions of vehicles) 150
100 Gasoline Direct Injector High Pressure Pump engines internal combustion Vehicles with engines internal combustion Vehicles with engines internal combustion Vehicles with 95 91 84 %
50 % %
0 2020 2030 2040 2050 (CY)
Fuel-cell vehicles (FCV) Electric vehicles (EV) 2050（年） Plug-in hybrid vehicles (PHV) Hybrid vehicles (HV) VCT Exhaust Gas Sensor Natural gas vehicles (CNG/LPG) Clean diesel vehicles (D) Gasoline vehicles (G) Source: Documen ts from the 1st Strategic Commission for the New Automotive Era, Ministry of Economy, Trade and Industry
The Value We Aim to Offer Society In order to reduce the environmental burden of vehicles to the greatest extent possible and offer the joy of driving well into the future, we will support the development of internal combustion engines needed by society through the pursuit of both environmen- Common Rail Systems Spark Plug tal and driving performance. While continuing to provide systems and components, we will strive to create and deliver new value in order to contribute to society as a whole.
82 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets In developed countries, we will promote efforts Development of Multi-Flow Control Valve—A Strategic aimed at enhancing the efficiency of internal combustion engines in Product That Contributes to Improved Fuel Economy the age of electrification and developing new products that contrib- We have developed a multi-flow control valve (MCV), which func- ute to electric vehicles and automated driving. Meanwhile, in emerg- tions as a key component of technologies that improve fuel econ- ing countries we will realize optimized specifications using existing omy through engine heat management. In September 2017, we products and work to reduce costs. These efforts will in turn con- commenced the mass production of these valves. tribute to compact, inexpensive vehicles that are eco-friendly. MCV is a control valve that realizes the ideal temperature for cool- Furthermore, by 2021 we will complete the development of tech- ing water in accordance with the operating status of the engine. MCV nologies we originally intended to complete by 2025. By expanding is a strategic product that is expected to be increasingly adopted our business in emerging markets and entering into new electrifica- in vehicles primarily in developed countries. At the same time, MCV tion domains, we aim to achieve a stable annual growth rate of 3%. is a product that can contribute to realizing optimal temperature adjustments and enhanced efficiency of electric drive systems and Profitability We will realize unbeatable levels of cost competitive- battery devices in hybrid and electric vehicles. By 2025, we aim to ness in the expanding markets of emerging countries. have this product achieve the No. 1 share in the global market.
Differentiation We will achieve superior environmental perfor- Realizing a performance that surpasses other companies mance (reduced fuel consumption, emission control components) in terms of low valve leakage, first-class response, and through innovative technologies. Leveraging our core technologies, low pressure damage we will allocate resources to the development of subsystems in new electrification domains. DENSO’s unique, highly Organizational Capabilities We will pursue innovation in our devel- sophisticated spherical opment process, starting with model-based development that is resin valves and water able to conduct beforehand assessments via a simulation model pressure cancellation rather than a trial product. We will also make full use of factory IoT mechanisms to spur innovation in our production process. In these ways, we will enhance our system development capabilities and production tech- nology capabilities, which are both Company strengths. By investing the resources we generate through these efforts in our core busi- ness fields, we will further improve the efficiency and speed of our management with the aim of achieving our business strategies.
Delivering the joy of life with vehicles to the world
Katsuhisa Shimokawa Head of Powertrain Systems Business Group
83 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
ELECTRIFICATION SYSTEMS
Supporting electrification in all areas of mobility to realize an enriched environment and the joy of driving
Business Activities Business Environment ■ Development and production of hybrid and electric car drive Increase in Electric Vehicles
systems, power supply and related products, and power supply Risks and Opportunities To respond to the CO2 emissions and fuel and starting system parts such as alternators and starters consumption regulations in each country, it is expected that there will ■ Development and production of small motor systems for automo- be an increase in various kinds of vehicles, including idle-stop vehicles, biles, such as wiper systems, power windows, power seats, power hybrid vehicles, electric vehicles, fuel-cell vehicles, and vehicles equipped steering, engine control motors, blowers, and cleaning fans with various electric drive systems and products. Meanwhile, in coun- tries that are highly dependent on coal-fired thermal power, there are Strengths significant CO2 emissions related to the generation of electricity and, as ■ We maintain a wide variety of technologies and are active across a result, the environmental value that electric vehicles offer is not being a broad range of business domains that extend from internal sufficiently realized. Accordingly, there will likely be differences in the combustion engine starting systems and power charging prod- pace at which electric vehicles become widespread depending on the ucts to products powered by electricity such as hybrid cars, elec- energy mix in each country. Additionally, the driving distance of electric tric automobiles, and fuel-cell vehicles. Drawing on these vehicles and the affordability of batteries are becoming widespread technologies and extensive business domains related to electrifi- issues. Amid these circumstances, DENSO is leveraging the strengths of cation, we engage in comprehensive, system-based development. its global production and supply structure in countries such as Japan, ■ We boast a solid production track record and global share of core the United States, and China, where the Company is already producing products for electric vehicles, including motor generators and a variety of parts related to vehicle electrification that realize a high per- inverters. formance. Accordingly, DENSO is able to respond to the expansion of the electric vehicle market in accordance with the needs of each region. Main Products
Increasing the Number of Electric Vehicles in Regions Where Environmental Burden Can Be Reduced through Well-to-Wheel Analysis
Well to Wheel Tank to Wheel
CO2 EV/PHEV
Power Control Unit Motor Stator CO2 Power generation Tank Wheel
CO2 Internal CO2 Well combustion
Refining Tank Wheel
Battery ECU Lithium-ion Battery Pack The Value We Aim to Offer Society To offer systems for electric vehicles that make driving more eco- friendly and fun, we have been engaged in the development of elec- trification technologies for many years. Through these efforts, we have amassed a solid production track record around the world, enhancing the performance and reducing the size of key products that are essential for hybrid vehicles while also realizing reduced fuel consumption. Moving forward, we will leverage the wide range of Windshield Wiper System Power Window Regulator Motor business fields in which we are involved to form linkages between various in-vehicle systems and products and thoroughly manage energy efficiency. In these ways, we will further enhance fuel perfor- mance and contribute to the conservation of energy.
84 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets DENSO is the leading supplier of energy manage- Development of Silicon Carbide Power Device That Makes ment systems for electric vehicles and electric drive systems that Inverters More Efficient allow for superior control over driving, turning, and stopping. As The electric power it takes to move an electric vehicle emits heat such a company, we aim to achieve sales growth in electric vehicle- when it is converted by the inverter from a direct current to an alter- related products at an annual rate of over 20%, which exceeds the nating current. To curtail this loss of energy, we developed a power pace of growth in the global market. device that uses silicon carbide (SiC), a material that generates very little heat. This SiC power device reduces energy loss by one-third. In Profitability We will extend the technologies we have cultivated addition, we established a special formation technology that makes for hybrid vehicles to electric vehicles and fuel-cell vehicles in order it possible to grow high-quality SiC crystals, thereby making it easier to enhance our product lineup. Additionally, in anticipation of the to apply SiC in automobiles. continued global increase in the number of electric vehicles, we have established five production bases around the world, thereby further Quality Comparison promoting the shift toward the electrification of vehicles. (dislocation density) 2 27,000 （Unit: pcs/cm ） Differentiation DENSO has extremely thorough knowledge of the Low level of loss characteristics of automobiles. Using the technologies we possess, 3,000 we will develop small, high-performance inverters and motors that DENSO’s Products of product other companies help improve the fuel economy of vehicles. We will also work to enhance the competitiveness of our products. In these ways, we Enlarged SiC device wafer image will improve the value of vehicles as a whole, from components to systems. Establishment of New Company to Collaboratively Develop Organizational Capabilities To strengthen the competitiveness of Technologies with Mazda and Toyota our products and expand our product lineup, we will increase the In October 2017, we concluded a contract with Mazda Motor number of personnel well-versed in electronic technologies both in Corporation and Toyota Motor Corporation for the joint develop- Japan and overseas. Through the integration of the small motor ment of structural technologies and established a new company, EV business (formerly ASMO Co., Ltd.), we will promote the develop- C.A. Spirit. Through highly efficient collaborative technological devel- ment of sophisticated system products that offer high added value. opment, each company will invest resources in pursuing the true In addition, we will strengthen our operations on a global basis value that vehicles have to offer. By doing so, we will promote the through alliances and partnerships with other companies. development of vehicles that provide the added value of each com- pany’s brand while also strengthening the development of technolo- gies related to electric vehicles.
Realizing electrification that brings happiness to people and is friendly to our planet
Yukihiro Shinohara Head of Electrification Systems Business Group
85 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
MOBILITY SYSTEMS
Aiming to realize Quality of Mobility* by achieving a three-way harmony between people, vehicles, and society as a whole
* Refers to enhancing the quality of a mobile society and offering the joy of driving to people all over the world
Business Activities Business Environment ■ Development and provision of electronic systems, services, and Expansion of the Automated Driving and Connected Car Markets platforms that support all aspects of mobility Risks and Opportunities Due to the changes in the mobile society, ■ Development and manufacture of advanced safety and auto- including connectedness, automation, sharing, and electrification mated driving products, such as millimeter-wave radar sensors, (CASE) as well as Mobility-as-a-Service (MaaS), the automated driv- vision sensors, driver status monitors, airbag systems, and elec- ing and connected car markets are rapidly expanding. In addition, as tric power steering; and connected cockpit products, such as connected technologies become more advanced, vehicles are telematics control units, vehicle-to-vehicle and road-to-vehicle becoming more like smartphones, and it is anticipated that new communication devices, head-up displays, meters, and cockpit added value can be created in not only the in-car domain but also systems the out-car domain and domains that connect in-car and out-car. Meanwhile, in addition to conventional automotive parts manu- Strengths facturers, companies from the IT and other industries are making an ■ We are active in four key areas that are essential to realizing entry into these new kinds of domains, giving rise to an increase in advanced driver assistance systems (ADAS) and automated driv- technological alliances between OEMs and companies from other ing (AD). These areas are road environment recognition, human industries. As a result, the competitive environment is expected to machine interface (HMI), information and communications, and become even more intense going forward. vehicle motion control technology. We are able to undertake the development of products that draw on our comprehensive The CASE Megatrend strengths in these four areas.
■ By melding the unique value and performance of in-vehicle prod- Delivering application Automated Operation Failure ucts with IT products, we are able to earn a level of trust with driving management prognostics OTA our customers that encourages them to continue to use our products with peace of mind. We are also able to develop prod- ucts with outstanding levels of security to ensure the safety of Cloud Analyze big data our customers. Data base
Main Products
Train New mobility Bus Truck Taxi Rental car Sharing car Vehicle system
Stereo Vision Sensors Millimeter-Wave Radar Sensor
The Value We Aim to Offer Society ■ We will promote efforts from the perspective of comprehensive systems, including sensors, semiconductors, engine control units (ECUs), and platforms. In this way, we will contribute to the real- ization of a safe, secure, and comfortable mobile society without Instrument Cluster Telematics Control Unit (TCU) accidents and where people can move freely. ■ W e will undertake initiatives with a comprehensive focus on the in-car and out-car domains. By doing so, we will realize a new mobile society where vehicles, people, and things are linked.
86 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets We will expand sales through the introduction New Development of Vision Sensors and Millimeter-Wave of highly competitive, next-generation products with the aim of Radar Sensors Aimed at Promoting Safety Products capitalizing on the growth in the automated driving and connected We developed a new vision sensor and millimeter-wave radar sensor car markets. Also, to reach the next stage of growth, we will expand geared toward widespread use. These products sense other vehicles our business in the out-car domain and in new domains that connect and nighttime pedestrians, and various obstacles, thereby enhancing the in-car and out-car domains. Through these efforts, we will achieve vehicle safety performance. These sensors have been installed in the growth that surpasses our Companywide sales growth targets. all-new Toyota Alphard and Vellfire.
Profitability To address the increase in the number of man- Vision hours to develop software brought about by the increase in the sensor 40% more size of systems, we will work to enhance the efficiency of our compact platform development, thereby boosting our profitability. Millimeter- Differentiation We will offer new products that leverage such wave radar sensor strengths as our collaborative development in the technological 60% more fields of road environment recognition, HMI, information and com- compact munications, and vehicle motion control, as well as the unique qual- ity and performance of our in-vehicle products, which we cultivated over many years in various domains, including the out-car domain. Development of the World’s Largest Automotive In addition, with the establishment of Global R&D Tokyo, we will Head-Up Display accelerate the development of differentiated technologies by We developed an all-new thin-film strengthening industry–government–academia alliances. transistor (TFT), liquid-crystal head- up display (HUD), which functions as Organizational Capabilities To assess all aspects of vehicle sys- an HMI product that projects critical tems, including the in-car and out-car domains, propose optimal information onto the windshield for solutions from the perspective of comprehensive systems, and drivers to view. This product is fea- All-new HUD accelerate development aimed at realizing such solutions, we tured in the all-new Lexus LS. established the Mobility Systems Business Group in April 2018, a This new HUD is able to realize a new business group that integrates the former Information & 24-inch projection approximately Safety Systems Business Group. three meters ahead of the driver, making it the world’s largest* HUD for automobiles. Display image * As of October 2017, based on in-house research
Creating a brand-new future unlike anything ever before
Yukihiro Kato Head of Mobility Systems Business Group
87 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
ELECTRONIC SYSTEMS
Driving the industry with electronic technologies to promote the widespread use of electric vehicles and automated driving
Business Activities Business Environment ■ Development and manufacturing of powertrain control computers Accelerated Electrification of Cars and other electronic devices When manufacturing powertrains, car manufacturers must focus on ■ Development and manufacturing of in-car semiconductor sensors both the shift toward electrification and enhanced fuel efficiency. In and microelectronic devices such as ICs addition, these manufacturers are stepping up the pace of develop- ment aimed at realizing automated driving. This accelerated devel- Strengths opment of car electronics and automated driving systems has led to ■ Extensive product lineup in the field of in-car electronics and greater electrification of automobiles. In accordance with this trend, elemental technologies there has been increased technological sophistication leading to ■ Advanced technological strengths capable of in-house semicon- improvements in durability, reliability and precision/responsiveness, ductor manufacturing and accelerated development and commercialization. ■ Development capabilities in vertical integration of semiconductors* that satisfy individual product needs Risks Amid a drastic paradigm shift toward a new mobile society, we are enhancing the development of our core technologies to meet * DENSO proprietary integrated semiconductor development, from semiconduc- tors to ECUs and actuators the multi-faceted demands of a diverse set of customers. At the same time, we must accelerate our rate of development and com- Main Products mercialization, or risk being thrust into a highly competitive business environment when entering a new compe ting market.
Opportunities Making use of a wealth of car-related expertise gained over many years, we are able to create highly reliable system components that can withstand harsh environments. Providing these items to the world is a major business opportunity to lead the industry. Powertrain Electronic Control Unit In-Car Semiconductor Sensor The Value We Aim to Offer Society We will thoroughly enhance our cross-organizational development of ECUs (head), semiconductors (brain), and sensors (eyes) in an effort to support innovation in automobiles (see P. 29). In addi- tion, through the development of electronic elemental technologies that offer value optimized for the new mobile society, we will reduce environmental burden and contribute to the realization of a society in which people can move safely and with peace of mind.
88 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets In addition to our combustion-based businesses, Establishment of a New Company for Semiconductor IP we will promote businesses related to electrification, advanced In September 2017, we established NSITEXE, Inc., a new company safety, and automated driving. To support such businesses, we will that develops and designs semiconductor intellectual property (IP)— develop products that anticipate the needs of the automobile man- an essential technology for semiconductors used in automated driv- ufacturing market. Also, for our global customers, we will provide a ing. In the age of automated driving, there is a need for structure that allows for the development of apps to be completed energy-efficient semiconductors that can process a large amount of on a local basis. We will also make concerted efforts to enhance the information at high speeds and make decisions necessary for auto- competitiveness of our ECUs, semiconductors, and sensors, which mated driving functions. NSITEXE is currently engaged in the devel- provide us with a source for realizing differentiation. In these ways, opment of a next-generation processor (DFP), which provides the we will realize sustainable growth and establish a competitive posi- core for semiconductor IP that realizes highly efficient data process- tion in the in-car electronics field. ing. While simultaneously engaging in multiple processing proce- dures, this process is able to suspend unnecessary processing Profitability Rather than develop software for each vehicle on an operations and use the newly available capacity to conduct new individual basis, we will establish a function-specific software devel- processing. opment structure and work to standardize this structure. By doing so, we will enhance the efficiency of our development efforts. Enabling Rapid, Highly Efficient Processing through DFP
Differentiation We will enhance highly differentiated technologies Amount of work through a diverse range of partnerships, including with manufactur- IP Dynamic changes in ers of consumer products, research institutions, and universities, boundaries in addition to forming business alliances and establishing industry
standards, thereby speeding up the pace of our development. Also, Flow of time by further fleshing out our current development themes, we will Addition 16x16 create world-first and regional-based technologies.
Organizational Capabilities We will bring together our ECU, sensor Amount of work design, and quality assurance functions, which are currently dispersed 32x64 √ throughout the Company, and create specialized organizations to oversee these functions, thereby making our development more Long variations in calculation efficient and accelerating the pace of our management execution. Enables calculation Flow of time that differs by specified region Created capacity
Striving to realize an intelligent and ideal automobile
Hiroyuki Ina Head of Electronic Systems Business Group
89 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
NON-AUTOMOTIVE BUSINESSES: FA
Enhancing the productivity of the manufacturing industry and contributing to an improved quality of life with a commitment to our long-cultivated technologies
Business Activities Business Environment ■ Development and manufacture of industrial equipment best Acceleration of Industrial Innovation exemplified by our automated equipment, modules, and Risks and Opportunities The industry in which DENSO is involved industrial-use robots is approaching a paradigm shift on a global scale due in part to the ■ Development and manufacture of equipment for use by soci- declining global workforce and the rise in labor costs in emerging ety, including handy terminals and QR solutions, and provision countries. The manufacturing industry in Japan is no exception to of services such trends, and the rising age of and decline in workers to support the industry is becoming a serious issue. In addition, the entire man- Strengths ufacturing industry is facing other significant changes as a result of ■ Integration of technologies accumulated in the automotive field reforms to working styles in Japan, epitomized by the increasing and unique technologies created in non-automotive fields importance of achieving a work-life balance. There has been an acceleration in the government policies of Main Products countries around the world to promote industrial innovation. Some major examples of such policies are the Connected Industries Initiative in Japan, INDUSTRIE 4.0 in Germany, and Made in China 2025 in China. In these ways, there has been stronger support for activities to realize a new society in which people, machines, and systems live in harmony. We view these kinds of changes as a promising business opportu- nity and will leverage our long-cultivated experience and technolo- Automated Modules Vertical Articulated gies in manufacturing to provide new solutions to society to an even Robot greater extent.
The Value We Aim to Offer Society Leveraging our solid track record of introducing factory automation (FA) at 130 factories around the world, we will propose and provide FA systems that are able to meet the needs of our customers. In our lean automation packages, which incorporate the process design and on-site management know-how we have cultivated over many IoT Data Servers Barcode and 2D Code years of manufacturing automobile components, we offer auto- Handy Terminals mated processes that leverage robots, QR and barcodes, and radio frequency identification (RFID).* We also offer support for making improvements via IoT. Through these packages and other products, we will make significant contributions to the advancement of the automotive industry.
* RFID is a system that uses electromagnetic waves to simultaneously scan multiple sales tags without making contact.
QR Solution Services
90 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Progress Growth Targets We will commercialize lean automation in an effort Demonstration on Lean Automation to Develop to establish it as a business pillar in the non-mobility field. System Integrators For many years, we have been working to incorporate lean automa- Profitability We held an exhibit at the 2017 International Robot tion in our production processes. Lean automation is a system that Exhibition, which took place at the end of November 2017 at Tokyo thoroughly eliminates waste by enabling highly efficient automated Big Sight. Through this exhibit, we introduced our lean automation production. Leveraging our know-how on lean automation, we have packages, which meet the on-site needs of our customers in a flex- commenced a demonstration project in Thailand that aims to develop ible manner and help eliminate waste. Going forward, through pro- system integrators that handle production and FA equipment. posing and enhancing automation by process and module rather Through this demonstration experiment, we have established a than by individual equipment, we will move forward with the com- consortium under the support of the Ministry of Industry in Thailand mercialization of solutions packages that can be easily introduced in that includes the National Innovation Agency of the Ministry of any location. We will also promote the development and mass pro- Science and Technology of Thailand; five universities and one educa- duction of these solutions in collaboration with a wide range of tional facility in Thailand; seven local system integration companies, internal and external partners as we work to realize the full-scale as well as several Japanese partner companies. Together with this commencement of these solutions as a business during fiscal 2019. organization, we have established a showcase production line within a Ministry of Industry facility. This showcase production line offers Differentiation By melding our automated technologies and an opportunity for people to gain a hands-on learning experience in improvement know-how with the core technologies of Denso Wave the latest systems in an open setting. By developing practical system Inc., including its robots, sensors, verification systems, and QR integrators on a local basis, we will strengthen the competitiveness codes, we aim to develop high-level FA systems that can be intro- of the automated domain in the Thai manufacturing industry and duced easily in any location. accelerate the promotion of automated processes in local production.
Organizational Capabilities In May 2018, we established the inter- nal Denso Wave Kariya Office, thereby strengthening collaborative development between DENSO’s FA Business Unit and Denso Wave’s Robot Business Unit. Going forward, we will deepen our collabora- tion with external partners who share the same desire to promote the widespread use of lean automation as we work to spur indus- trial innovation.
Thai engineers gaining knowledge from the showcase production line
Offering new value to society through lean automation
Katsuhiko Sugito Head of FA Business Unit
91 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
NON-AUTOMOTIVE BUSINESSES: AGRICULTURE
Combining technologies and ideas to contribute to an enriched society where all people can live safely and with peace of mind
Business Activities Business Environment ■ Development, manufacture, and sale of agricultural production Advancement of Technologies in Food and Agricultural Fields equipment and cloud services, in addition to the provision of Risks and Opportunities Following increases in the global popula- after-sale services tion and growth of economies around the world, it is expected that demand for food resources will continue to expand going forward. Strengths Meanwhile, in Japan, the rising age and declining number of agricul- ■ Highly sophisticated control and sensing technologies cultivated tural workers is becoming a serious issue, and there is also an in the automotive field increasing concern over the safety of food. Furthermore, due to changes in dietary habits, the market for processed foods such as Main Products prepared deli foods and boxed lunches is expanding. As a result of such factors, the agricultural industry is undergoing significant changes. In addition, with the aim of realizing the sustainable development of agriculture, the Japanese government is implementing policies that ramp up support for the widespread use of smart agriculture, which uses robotic technologies and ICT to conserve energy and realize improvements to food quality, as well as support for efforts Environmental Control Equipment for Maintaining to conserve the environment and secure workplace safety. Systems for Greenhouse Freshness, futecc Viewing these kinds of changes as a positive business opportu- Cultivation, Profarm nity, we will provide new solutions leveraging our long-cultivated industrial technologies.
The Value We Aim to Offer Society In addition to our accumulated technologies to control the environ- ment for greenhouse cultivation, we will leverage the industrial tech- nologies we have cultivated in the automotive field to accurately assess the food supply chain, enhance the efficiency of agricultural production, and realize a safe and stable supply of food.
Connections (Commercialization + IoT integration)
92 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Overview by Product
Long-term Policy SDGs
Green Peace of Mind
DENSO’s Focus Fields
Advanced Safety and Non-Automotive Electrification Connected Cars Automated Driving Businesses
Business Strategy Operational Capabilities In April 2018, we established the AgTech Growth Targets Through the commercialization of agriculture, we Promotion Division. By strengthening our in-house development will establish our agriculture business as a pillar in the non-automotive structure through this division and forming alliances with external field. We have currently launchedProfarm Monitor, Profarm-Controller, partners who aim to commercialize agriculture, we will lead the way and futecc and are providing useful services for enhancing the effi- for innovation in the agricultural industry. ciency of agricultural production and maintaining the freshness of fruits and vegetables. In addition to our sensing and control tech- Progress nologies, we will further leverage our manufacturing expertise we Business Alliance to Commercialize the Next-Generation have gained in the automotive field to develop robots for green- Agricultural Greenhouse Domain house cultivation and introduce automated technologies in factories By leveraging air control technology provided by Profarm-Controller, that grow plants using artificial lighting, which are expected to a system for controlling the environment for greenhouse cultivation, increase in number going forward with the aim of enhancing cul we pursued the joint development of next-generation agricultural tivation quality. By doing so, we will further enhance production greenhouses, which achieve enhanced agricultural productivity, efficiency andealize r a savings in labor. Furthermore, we will provide together with the major greenhouse manufacturer Daisen Co., Ltd. solutions that comprehensively take into account the entire food and Japan’s leading seed and seedling company Toyotane Co., Ltd. supply chain through such means as leveraging our expansive pro- By introducing the Active Ventilation System* for the air-conditioning duction know-how to improve quality and safety levels in the pro- of greenhouses, we will realize a stable cultivation environment and cessing of fresh vegetables. Going forward, we will form partnerships contribute higher yields and improved quality. with agricultural production corporations that possess advanced In addition, with the aim of establishing a total support structure technologies, combining our strengths with such corporations to for greenhouses that covers everything from environmental control realize new value in terms of food safety. to cultivation and maintenance, we reached a basic agreement with Daisen and Toyotane to establish a joint venture. Profitability Agricultural production is increasing in scale and new Through this collaboration, we will provide useful services for fur- companies are getting involved in such production one after another. ther enhancing the efficiency, stability, and added value of agricul- In addition, there has been an uptick in efforts to further improve tural production. sanitation management and enhance productivity. By accurately * An automated system that controls the necessary air levels through an artifi- assessing these kinds of changes in the food production industry, cial ventilation system that uses a ventilation fan we will provide industrial solutions for the entire supply chain as we aim to further expand our businesses.
Differentiation We will draw on our technologies (sensor, control, robotic, and improvement technologies as well as management know-how, etc.) to the greatest extent possible. In this way, we will aim to develop practical agricultural technologies together with agricultural producers.
Providing new value for the future
Masahiko Ito Head of New Business Unit
93 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
/ DENSO at Work /
Pursuing a clean and pristine manufacturing environment as the source of achieving high levels of reliability
Balance between productivity improvements and high levels of quality that combines the strength of people and robots
94 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018
5 CORPORATE DATA
96 Financial Strategy
97 Overview by Geographical Segment
98 Facts & Figures
100 10-Year Data
102 Company Overview and Stock Information
95 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Financial Strategy
With the aim of realizing sustainable growth and further improvement in corporate value, DENSO leverages the cash flow generated through its operating activities primarily in capital expenditures, R&D, shareholder returns, and M&A.
Capital Expenditures / Depreciation R&D Expenditure
While working to control our ratio of depreciation to revenue, In terms of R&D, which represents the source of our future we will continue to invest in rationalization with the aim of growth, we will work to enhance development efficiency to reaching our targets for revenue of ¥7 trillion and an operating continue to carry out R&D investment while maintaining a 9% margin of 10%, which we adopted under our Long-term Plan ratio of R&D expenditure to revenue. By doing so, we will con- 2025. In addition, we will accelerate investments in new fields tinue to develop and provide even more appealing products. such as electrification, advanced safety, and automated driving, which we believe will be competitive in the future.
Capital Expenditures / Depreciation / R&D Expenditure / Ratio of R&D Expenditure to Revenue Ratio of Depreciation to Revenue (Billions of yen) (%) (Billions of yen) (%) 400 5.5 500 10 5.3 447.4 347.2 8.8 400 8 300 5.0 268.6 300 6
200 4.5
200 4
100 4.0 100 2
0 14 15 16 17 18 (FY) 0 0 14 15 16 17 18 (FY) 0
Capital expenditures (left scale) Depreciation (left scale) R&D expenditure (left scale) Ratio of depreciation to revenue (right scale) Ratio of R&D expenditure to revenue (right scale)
Shareholder Returns
Continuing to provide stable dividends over the long term helps offer our shareholders peace of mind. Adhering to the belief of doing everything we can to avoid lowering dividends after we have raised them, we strive to maintain and improve a payout ratio for each period of around 30% to 40%. Also, taking into consideration the state of financing and market conditions, we will work to further enhance shareholder returns through the flexible acquisition of treasury stock.
EPS / Cash Dividends per Share / Dividend Payout Ratio Amount of Treasury Stock Acquired / Total Dividend Amount / Total Return Ratio (Yen) (%) (Billions of yen) (%) 500 50 120 60
101.4 400 410.45 40 90 45 31.7 39.9 300 30
60 30
200 20
130 30 26.5 15 100 10
0 14 15 16 17 18 (FY) 0 0 14 15 16 17 18 (FY) 0
EPS (left scale) Cash dividends per share (left scale) Amount of treasury stock acquired (left scale) Dividend payout ratio (right scale) Total dividend amount (left scale) Total return ratio (right scale)
96 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
M&A and Business Alliances
Over the past few years, the number of M&A projects has been Fiscal 2014–Fiscal 2017 Fiscal 2018 relatively small, as were investment amounts. However, in fiscal (Four Years) 2018 we began to further accelerate our M&A efforts. To respond Number of Approx. 20 Approx. 20 to the dramatically changing business environment, we will actively projects Investment pursue M&A-related investment with the aim of securing essential Approx. ¥10.0 billion Approx. ¥120.0 billion resources and technologies and acquiring new business models. amount
Overview by Geographical Segment
Europe Japan North America
No. of bases 35 No. of bases 73 No. of bases 31
No. of employees 17,071 No. of employees 74,604 No. of employees 24,330 662.3 3,083.8 1,156.3 20.1 200.7 42.5
16 17 18 (FY) 16 17 18 (FY) 16 17 18 (FY)
Asia Others
No. of bases 76 No. of bases 6
No. of employees 49,740 No. of employees 3,068 79.0 1,322.8 13.4 136.7
16 17 18 (FY)
16 17 18 (FY) Revenue (Billions of yen) Operating profit (loss) (Billions of yen) Notes: 1. The number of employees excludes personnel dispatched to consolidated companies but includes personnel on loan from consolidated companies. Temporary staff are also excluded from the number of employees. 2. The figures for revenue and operating profit (loss) include adjustments between segments.
97 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Facts & Figures
Financial Highlights
Revenue Operating Profit / Operating Margin
5.1trillion 412.7billion / 8.1% (Billions of yen) (Billions of yen) (%)
6,000 500 15
5,000 5,108.3 412.7 400 12
4,000 300 8.1% 9 3,000
200 6 2,000
100 3 1,000
0 14 15 16 17 18 (FY) 0 14 15 16 17 18 (FY) 0
Operating profit (left scale) Operating margin (right scale)
Profit Attributable to Owners of the Parent Company Total Assets / Equity Attributable to Owners of the Parent Company
320.6billion 5.8trillion / 3.6trillion (Billions of yen) (Billions of yen) 400 6,000 5,764.4
320.6 300
4,000 3,598.3
200
2,000
100
0 14 15 16 17 18 (FY) 0 14 15 16 17 18 (FY)
Total assets Equity attributable to owners of the parent company
98 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Non-Financial Highlights
CO2 Emissions per Unit* (Non-Consolidated) In-house Power Generation Ratio (Non-Consolidated)
75(indexed to fiscal 2013 as 100%) 45.5% (Index) (%) 120 50 45.5%
40 100
30
80 75 20
60 10
0 14 15 16 17 18 (FY) 0 14 15 16 17 18 (FY)
* Per unit = CO2 emissions / Revenue (indexed to fiscal 2013 as 100%)
Ratio of Local Employees in Leadership Roles at Overseas Bases Number and Ratio of Female Employees in Managerial Positions
28% 61 / 0.9% (%) (Persons) (%) 40 80 1.00 0.9%
61 30 28% 60 0.75
20 40 0.50
10 20 0.25
0 14 15 16 17 18 (FY) 0 14 15 16 17 18 (FY) 0
Number of female employees in managerial positions (left scale) Ratio of female employees in managerial positions (right scale)
Please find more details on financial information via the link below. https://www.denso.com/common/confidential-published/global/en/ investors/library/annual_report/documents/2018_annual_report.pdf
99 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
10-Year Data
Japanese GAAP IFRS (FY) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Financial Data Revenue Total 3,142.7 2,976.7 3,131.5 3,154.6 3,580.9 4,095.0 4,309.8 4,524.5 4,527.1 5,108.3 By Region*1 Japan 1,668.0 1,553.5 1,548.2 1,640.0 1,808.9 1,895.5 1,838.4 1,801.5 1,871.8 2,140.7 North America 554.2 526.7 528.9 504.1 625.0 799.4 942.3 1,081.1 1,050.5 1,122.8 Europe 451.6 402.0 389.6 373.2 348.8 470.5 524.8 568.2 550.2 620.2 Asia 468.8 494.6 604.7 579.8 734.5 855.4 930.8 1,014.7 989.5 1,146.0 Others — — 60.2 57.6 63.8 74.1 73.5 59.0 65.1 78.5 By Customer OEM 2,776.5 2,673.1 2,813.9 2,813.5 3,220.0 3,639.5 3,830.7 4,048.2 4,061.8 4,521.4 Toyota Group 1,528.0 1,558.6 1,548.5 1,549.4 1,832.0 1,995.8 2,007.1 2,047.5 2,075.0 2,300.6 Ratio of revenue from Toyota Group transactions to total revenue 48.6% 52.4% 49.4% 49.1% 51.2% 48.7% 46.6% 45.3% 45.8% 45.0% After market and non-automotive 366.2 303.6 317.6 341.1 360.9 455.5 479.1 476.3 465.3 586.9 Operating Profit (Loss) (37.3) 136.6 188.3 160.7 262.4 371.4 331.4 315.7 330.6 412.7 Operating Margin — 4.6% 6.0% 5.1% 7.3% 9.1% 7.7% 7.0% 7.3% 8.1% Profit (Loss) Attributable to Owners of the Parent Company (84.1) 73.4 143.0 89.3 181.7 277.2 258.4 244.3 257.6 320.6 Return on Equity (ROE) — 4.0% 7.4% 4.5% 8.4 % 11.5% 8.4% 7.6% 8.0% 9.3% Capital Expenditures 314.4 114.4 145.1 179.4 230.6 324.1 354.2 334.1 337.4 347.2 Depreciation 276.6 237.9 193.1 180.6 181.1 197.2 220.1 236.8 241.1 268.6 Ratio of Depreciation to Revenue 8.8% 8.0% 6.2% 5.7% 5.1% 4.8% 5.1% 5.2% 5.3% 5.3% R&D Expenditure 297.1 270.1 290.1 298.4 335.5 368.7 396.4 399.3 409.2 447.4 Ratio of R&D Expenditure to Revenue 9.5% 9.1% 9.3% 9.5% 9.4% 9.0% 9.2% 8.8% 9.0% 8.8% Total Dividend Amount 32.2 21.8 37.1 37.1 51.2 83.7 87.7 95.3 94.6 101.4 Amount of Treasury Stock Acquired 8.4 — — — 27.5 — — 27.7 30.0 26.5 Earnings per Share (EPS) (yen) (104.13) 91.11 177.49 110.81 226.59 348.05 324.01 307.19 326.32 410.45 Cash Dividends per Share (yen) 40 27 46 46 64 105 110 120 120 130 Dividend Payout Ratio — 29.6% 25.9% 41.5% 28.2% 30.2% 34.0% 39.1% 36.8% 31.7% Total Return Ratio — 29.6% 25.9% 41.5% 43.3% 30.2% 34.0% 50.4% 48.4% 39.9% Stock Price (yen) 1,952 2,785 2,760 2,765 3,985 4,948 5,483 4,524 4,897 5,820 Dividend Yield 2.0% 1.0% 1.7% 1.7% 1.6% 2.1% 2.0% 2.7% 2.5% 2.2% Price Earnings Ratio (PER) (times) 42.3 30.6 15.5 25.0 17.6 14.2 16.9 14.7 15.0 14.2 Price Book-Value Ratio (PBR) (times) 0.9 1.2 1.1 1.1 1.4 1.5 1.3 1.1 1.2 1.3 Net Cash Provided by Operating Activities (A) 209.9 357.1 395.5 176.7 374.8 471.2 383.2 552.9 467.8 558.0 Net Cash Used in Investing Activities (B) (234.3) (155.1) (327.9) (271.2) (269.2) (376.0) (111.5) (544.8) (108.0) (529.1) Free Cash Flow (A+B) (24.4) 202.0 67.6 (94.6) 105.6 95.2 271.7 8.0 359.7 28.9 Net Cash Used in Financing Activities 90.3 29.2 (44.8) 78.8 (98.5) (176.0) (135.7) (104.7) (240.5) (40.3) Cash and Cash Equivalents at End of Year 450.5 6,81.7 688.6 665.4 707.3 641.7 792.4 672.5 793.6 783.3 Cash on Hand 494.0 783.0 933.6 1,022.1 1,095.2 1,034.1 944.0 876.7 858.4 918.3 Interest-Bearing Debt 356.6 409.5 399.6 523.1 507.5 435.7 447.2 476.6 350.3 473.9 Equity Attributable to Owners of the Parent Company 1,789.7 1,916.6 1,962.4 2,009.0 2,300.1 2,799.9 3,327.9 3,123.6 3,312.7 3,598.3 Total Assets 3,018.4 3,364.1 3,380.4 3,607.7 3,979.1 4,642.1 5,283.3 5,042.9 5,150.8 5,764.4 Ratio of Equity Attributable to Owners of the Parent Company to Total Assets 59.3% 57.0% 58.1% 55.7% 57.8% 60.3% 63.0% 61.9% 64.3% 62.4%
Non-Financial Data Number of Employees 119,919 120,812 123,165 126,036 132,276 139,842 146,714 151,775 154,493 168,813 Local 58,280 57,083 59,549 62,100 67,525 74,289 81,060 85,464 86,892 94,209 Non-Consolidated 36,768 38,597 38,318 38,323 38,385 38,581 38,493 38,489 38,914 39,315 Ratio of Female Employees (Non-Consolidated) — — — — 11.4% 11.6% 11.9% 12.3% 12.7% 13.1% Number of Female Employees in Managerial Positions — — — — 30 33 40 46 53 61 Ratio of Female Employees in Managerial Positions — — — — 0.5% 0.5% 0.6% 0.7% 0.8% 0.9% Ratio of Local Employees in Leadership Roles at Overseas Bases — — — 26% 30% 31% 33% 33% 33% 28% 2 CO2 Emissions per Unit* (Non-Consolidated) — — — — 100 99 97 88 80 75 2 CO2 Emissions per Unit* (Domestic and Overseas Group) — — — — 100 85 80 76 73 68 In-house Power Generation Ratio (Non-Consolidated) 37.4% 41.4% 40.9% 40.7% 37.5% 34.3% 32.9% 38.0% 43.9% 45.5% Exchange Rate USD (yen) 101 91 86 79 83 100 110 120 108 111 (during FY) EUR (yen) 146 129 113 109 107 134 139 133 119 130
*1 The countries and regions included in “by region” have changed as follows. Fiscal 2009–fiscal 2010: Japan, North, Central, and South America, Europe, and Australia; fiscal 2011–fiscal 2015: Japan, North America, Europe, Australia, and Other; fiscal 2016 and onward: Japan, North America, Europe, Asia, and Others
100 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Billions of yen Japanese GAAP IFRS (FY) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Financial Data Revenue Total 3,142.7 2,976.7 3,131.5 3,154.6 3,580.9 4,095.0 4,309.8 4,524.5 4,527.1 5,108.3 By Region*1 Japan 1,668.0 1,553.5 1,548.2 1,640.0 1,808.9 1,895.5 1,838.4 1,801.5 1,871.8 2,140.7 North America 554.2 526.7 528.9 504.1 625.0 799.4 942.3 1,081.1 1,050.5 1,122.8 Europe 451.6 402.0 389.6 373.2 348.8 470.5 524.8 568.2 550.2 620.2 Asia 468.8 494.6 604.7 579.8 734.5 855.4 930.8 1,014.7 989.5 1,146.0 Others — — 60.2 57.6 63.8 74.1 73.5 59.0 65.1 78.5 By Customer OEM 2,776.5 2,673.1 2,813.9 2,813.5 3,220.0 3,639.5 3,830.7 4,048.2 4,061.8 4,521.4 Toyota Group 1,528.0 1,558.6 1,548.5 1,549.4 1,832.0 1,995.8 2,007.1 2,047.5 2,075.0 2,300.6 Ratio of revenue from Toyota Group transactions to total revenue 48.6% 52.4% 49.4% 49.1% 51.2% 48.7% 46.6% 45.3% 45.8% 45.0% After market and non-automotive 366.2 303.6 317.6 341.1 360.9 455.5 479.1 476.3 465.3 586.9 Operating Profit (Loss) (37.3) 136.6 188.3 160.7 262.4 371.4 331.4 315.7 330.6 412.7 Operating Margin — 4.6% 6.0% 5.1% 7.3% 9.1% 7.7% 7.0% 7.3% 8.1% Profit (Loss) Attributable to Owners of the Parent Company (84.1) 73.4 143.0 89.3 181.7 277.2 258.4 244.3 257.6 320.6 Return on Equity (ROE) — 4.0% 7.4% 4.5% 8.4 % 11.5% 8.4% 7.6% 8.0% 9.3% Capital Expenditures 314.4 114.4 145.1 179.4 230.6 324.1 354.2 334.1 337.4 347.2 Depreciation 276.6 237.9 193.1 180.6 181.1 197.2 220.1 236.8 241.1 268.6 Ratio of Depreciation to Revenue 8.8% 8.0% 6.2% 5.7% 5.1% 4.8% 5.1% 5.2% 5.3% 5.3% R&D Expenditure 297.1 270.1 290.1 298.4 335.5 368.7 396.4 399.3 409.2 447.4 Ratio of R&D Expenditure to Revenue 9.5% 9.1% 9.3% 9.5% 9.4% 9.0% 9.2% 8.8% 9.0% 8.8% Total Dividend Amount 32.2 21.8 37.1 37.1 51.2 83.7 87.7 95.3 94.6 101.4 Amount of Treasury Stock Acquired 8.4 — — — 27.5 — — 27.7 30.0 26.5 Earnings per Share (EPS) (yen) (104.13) 91.11 177.49 110.81 226.59 348.05 324.01 307.19 326.32 410.45 Cash Dividends per Share (yen) 40 27 46 46 64 105 110 120 120 130 Dividend Payout Ratio — 29.6% 25.9% 41.5% 28.2% 30.2% 34.0% 39.1% 36.8% 31.7% Total Return Ratio — 29.6% 25.9% 41.5% 43.3% 30.2% 34.0% 50.4% 48.4% 39.9% Stock Price (yen) 1,952 2,785 2,760 2,765 3,985 4,948 5,483 4,524 4,897 5,820 Dividend Yield 2.0% 1.0% 1.7% 1.7% 1.6% 2.1% 2.0% 2.7% 2.5% 2.2% Price Earnings Ratio (PER) (times) 42.3 30.6 15.5 25.0 17.6 14.2 16.9 14.7 15.0 14.2 Price Book-Value Ratio (PBR) (times) 0.9 1.2 1.1 1.1 1.4 1.5 1.3 1.1 1.2 1.3 Net Cash Provided by Operating Activities (A) 209.9 357.1 395.5 176.7 374.8 471.2 383.2 552.9 467.8 558.0 Net Cash Used in Investing Activities (B) (234.3) (155.1) (327.9) (271.2) (269.2) (376.0) (111.5) (544.8) (108.0) (529.1) Free Cash Flow (A+B) (24.4) 202.0 67.6 (94.6) 105.6 95.2 271.7 8.0 359.7 28.9 Net Cash Used in Financing Activities 90.3 29.2 (44.8) 78.8 (98.5) (176.0) (135.7) (104.7) (240.5) (40.3) Cash and Cash Equivalents at End of Year 450.5 6,81.7 688.6 665.4 707.3 641.7 792.4 672.5 793.6 783.3 Cash on Hand 494.0 783.0 933.6 1,022.1 1,095.2 1,034.1 944.0 876.7 858.4 918.3 Interest-Bearing Debt 356.6 409.5 399.6 523.1 507.5 435.7 447.2 476.6 350.3 473.9 Equity Attributable to Owners of the Parent Company 1,789.7 1,916.6 1,962.4 2,009.0 2,300.1 2,799.9 3,327.9 3,123.6 3,312.7 3,598.3 Total Assets 3,018.4 3,364.1 3,380.4 3,607.7 3,979.1 4,642.1 5,283.3 5,042.9 5,150.8 5,764.4 Ratio of Equity Attributable to Owners of the Parent Company to Total Assets 59.3% 57.0% 58.1% 55.7% 57.8% 60.3% 63.0% 61.9% 64.3% 62.4%
Persons Non-Financial Data Number of Employees 119,919 120,812 123,165 126,036 132,276 139,842 146,714 151,775 154,493 168,813 Local 58,280 57,083 59,549 62,100 67,525 74,289 81,060 85,464 86,892 94,209 Non-Consolidated 36,768 38,597 38,318 38,323 38,385 38,581 38,493 38,489 38,914 39,315 Ratio of Female Employees (Non-Consolidated) — — — — 11.4% 11.6% 11.9% 12.3% 12.7% 13.1% Number of Female Employees in Managerial Positions — — — — 30 33 40 46 53 61 Ratio of Female Employees in Managerial Positions — — — — 0.5% 0.5% 0.6% 0.7% 0.8% 0.9% Ratio of Local Employees in Leadership Roles at Overseas Bases — — — 26% 30% 31% 33% 33% 33% 28% 2 CO2 Emissions per Unit* (Non-Consolidated) — — — — 100 99 97 88 80 75 2 CO2 Emissions per Unit* (Domestic and Overseas Group) — — — — 100 85 80 76 73 68 In-house Power Generation Ratio (Non-Consolidated) 37.4% 41.4% 40.9% 40.7% 37.5% 34.3% 32.9% 38.0% 43.9% 45.5% Exchange Rate USD (yen) 101 91 86 79 83 100 110 120 108 111 (during FY) EUR (yen) 146 129 113 109 107 134 139 133 119 130
*1 The countries and regions included in “by region” have changed as follows. *2 Per unit = CO2 emissions / Revenue (indexed to fiscal 2013 as 100%) Fiscal 2009–fiscal 2010: Japan, North, Central, and South America, Europe, and Australia; fiscal 2011–fiscal 2015: Japan, North America, Europe, Australia, and Other; fiscal 2016 and onward: Japan, North America, Europe, Asia, and Others
101 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Company Overview and Stock Information (As of March 31, 2018)
Company Profile Company Name DENSO CORPORATION
Established December 16, 1949
Capital ¥187.5 billion
Head Office 1-1, Showa-cho, Kariya, Aichi 448-8661, Japan
Employees Consolidated basis: 168,813 Non-consolidated basis: 39,315
Consolidated Subsidiaries 220 (Japan 72, North America 31, Europe 35, Asia 76, South America/Others 6)
Companies Accounted for 38 (Japan 14, North America 4, Europe 4, Asia 14, by the Equity Method South America/Others 2)
Fiscal Year From April 1 to March 31
Ordinary General Meeting June of Shareholders
Share Trading Unit 100 shares
Number of Shares Issued 779,754,625 shares (including DENSO CORPORATION owning 14,314,088 shares of treasury stock)
Number of Shareholders 66,101 (including DENSO CORPORATION owning treasury stock)
Securities Identification Code 6902
Stock Exchange Listings Tokyo, Nagoya
Principal Shareholders Number of shares Holding ratio (%) held (thousands) (Leading 10 Principal Shareholders) Toyota Motor Corporation 188,949 24.23
Toyota Industries Corporation 69,373 8.89
The Master Trust Bank of Japan, Ltd. (Trust Account) 40,948 5.25
Japan Trustee Services Bank, Ltd. (Trust Account) 34,195 4.38
Towa Real Estate Co., Ltd. 33,309 4.27
Nippon Life Insurance Company 19,481 2.49
Aisin Seiki Co., Ltd. 12,518 1.60
DENSO Employees’ Shareholding Association 11,977 1.53
Mitsui Sumitomo Insurance Co., Ltd. 9,544 1.22
Japan Trustee Services Bank, Ltd. (Trust Account 5) 8,878 1.13
102 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 DENSO Integrated Report 2018 Corporate Data
Breakdown of Individuals and Others Treasury Stock 6.9% 1.8% Shareholders
Foreign Corporations, etc. Domestic Corporations, etc. 24.7% 39.9%
Financial Institutions and Securities Companies 26.7%
Trend in TSR* TSR (Cumulative / Annual Rate) 1 year 3 years 5 years 10 years Investment period Cumulative / Cumulative Annual rate Cumulative Annual rate Cumulative Annual rate Annual rate DENSO 21.5% 12.9% 4.1% 60.7% 10.0% 105.8% 7.5% TOPIX 15.9% 18.5% 5.8% 83.6% 12.9% 73.9% 5.7% TOPIX 11.7% –2.4% –0.8% 58.8% 9.7% 84.2% 6.3% (Transportation equipment) Note: Created in-house based on market data
250 DENSO TOPIX TOPIX (Transportation equipment) 200
150 Trend in stock index including dividends based on fiscal 2008 year-end data, indexed at 100
100
50
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY) * Total shareholder return: Total return on investment that combines capital gains and dividends
Stock Price Range and Trading Volume (Tokyo Stock Exchange) (Yen) (Yen) 7,500 ■ Stock price (left scale) 25,000 Nikkei stock average (right scale)
6,500 20,000
5,500 15,000
4,500 10,000
3,500 5,000
(Millions of shares)
60 ■ Trading volume
40
20
0 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 Fiscal 2016 Fiscal 2017 Fiscal 2018
103 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 Integrated Report 2018 For the year ended March 31, 2018 the year ended March 31, For
Integrated Report 2018 For the year ended March 31, 2018
1-1, Showa-cho, Kariya, Aichi 448-8661, Japan Tel: +81-566-25-5511 (Information Center) www.denso.com/global/en/
Printed in Japan WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 Integrated Report 2018 Financial Section
DENSO CORPORATION
Contents
Financial Review 1 Management's Discussion and Analysis 5 Consolidated Statement of Financial Position 16 Consolidated Statement of Income 18 Consolidated Statement of Comprehensive Income 19 Consolidated Statement of Changes in Equity 20 Consolidated Statement of Cash Flows 22 Notes to Consolidated Financial Statements 23 Independent Auditor's Report 85
WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Financial Review
Financial Summary DENSO CORPORATION and its Consolidated Subsidiaries
< IFRS > 2014 2015 2016 2017 2018 Revenue (Millions of yen) 4,094,960 4,309,787 4,524,522 4,527,148 5,108,291 Operating profit (Millions of yen) 371,440 331,376 315,728 330,551 412,676 Profit for the year (Millions of yen) 295,056 276,709 260,565 273,895 343,444 Profit for the year: attributable to owners of the parent 277,196 258,382 244,251 257,619 320,561 company (Millions of yen) Comprehensive income (Millions of yen) 486,381 634,988 (75,245) 329,248 435,494 Equity: attributable to owners of 2,799,915 3,327,938 3,123,578 3,312,724 3,598,321 the parent company (Millions of yen) Total assets (Millions of yen) 4,642,053 5,283,257 5,042,896 5,150,762 5,764,417 Equity per share: attributable to owners of the parent 3,512.06 4,171.93 3,939.97 4,215.46 4,614.87 company (Yen) Basic profit per share (Yen) 348.05 324.01 307.19 326.32 410.45 Diluted profit per share (Yen) 347.81 323.93 307.18 － － Equity ratio attributable to owners of the parent (%) 60.32 62.99 61.94 64.32 62.42 Return on equity attributable to owners of the parent 10.66 8.43 7.57 8.01 9.28 company (%) Price-to-earnings ratio (Times) 14.22 16.92 14.73 15.01 14.18 Net cash provided by operating activities (Millions of 471,167 383,156 552,862 467,779 558,001 yen) Net cash used in investing activities (Millions of yen) (376,002) (111,504) (544,834) (108,037) (529,053) Net cash used in financing activities (Millions of yen) (175,970) (135,686) (104,663) (240,526) (40,312) Cash and cash equivalents at end of year (Millions of 641,694 792,414 672,482 793,550 783,338 yen) Number of employees 139,842 146,714 151,775 154,493 168,813
(Note) DENSO CORPORATION and its subsidiaries in Japan and overseas (collectively referred to as the "Group") have adopted International Financial Reporting Standards ("IFRS") for the consolidated financial statements of the annual report from the fiscal year ending March 31, 2015.
1 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
< JGAAP > 2014 2015 Net Sales (Millions of yen) 4,095,925 4,308,754 Ordinary income (Millions of yen) 419,571 397,431 Income before income taxes (Millions of yen) 418,637 427,238 Net income: attributable to owners of the parent company 287,388 293,099 (Millions of yen) (Note) Comprehensive income (Millions of yen) 464,855 615,611 Equity (Millions of yen) 2,823,346 3,341,439 Total assets (Millions of yen) 4,442,507 5,032,742 Equity per share (Yen) 3,376.06 4,006.62 Basic net income per share (Yen) 360.85 367.54 Diluted net income per share (Yen) 360.60 367.45 Equity-to-total capital ratio (%) 60.59 63.51 Return on equity (%) 11.51 9.96 Price-to-earnings ratio (Times) 13.71 14.92 Net cash provided by operating activities 462,799 374,181 (Millions of yen) Net cash used in investing activities (390,318) (112,618) (Millions of yen) Net cash used in financing activities (Millions of yen) (154,976) (125,606) Cash and cash equivalents at end of year (Millions of yen) 641,694 792,414 Number of employees 139,842 146,714
(Note) In accordance with the adoption of the Accounting Standard for Business Combinations (Accounting Standards Board of Japan Statement No. 21, September 13, 2013) under Generally Accepted Accounting Principles in Japan ("JGAAP"), "Net income" is changed to "Net income: attributable to owners of the parent company" as of March 31, 2016.
2 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Revenue by Segment DENSO CORPORATION and Its Consolidated Subsidiaries For the Years ended March 31, 2014 to 2018 (Unit: Millions of yen) 2014 2015 2016 2017 2018
(JGAAP) (IFRS) (IFRS) (IFRS) (IFRS) Japan Customers 1,895,482 1,838,448 1,801,547 1,871,838 2,140,729 Intersegment 821,182 826,077 845,023 814,166 943,073 Total 2,716,664 2,664,525 2,646,570 2,686,004 3,083,802 North America Customers 799,423 942,251 1,081,058 1,050,460 1,122,847 Intersegment 17,179 24,206 31,625 26,743 33,405 Total 816,602 966,457 1,112,683 1,077,203 1,156,252 Europe Customers 470,515 524,754 568,183 550,244 620,193 Intersegment 28,386 29,999 25,394 27,025 42,139 Total 498,901 554,753 593,577 577,269 662,332 Asia Customers 855,448 930,792 1,014,708 989,505 1,146,037 Intersegment 87,674 118,933 146,525 149,770 176,786 Total 943,122 1,049,725 1,161,233 1,139,275 1,322,823 Total Customers 4,020,868 4,236,245 4,465,496 4,462,047 5,029,806 Intersegment 954,421 999,215 1,048,567 1,017,704 1,195,403 Total 4,975,289 5,235,460 5,514,063 5,479,751 6,225,209 Others Customers 74,092 73,542 59,026 65,101 78,485 Intersegment 255 261 474 715 513 Total 74,347 73,803 59,500 65,816 78,998 Consolidated 4,094,960 4,309,787 4,524,522 4,527,148 5,108,291
(Note) The Group has reported "Japan," "North America," "Europe," and "Asia" as the Group's reportable segments. The Group has been manufacturing and selling mainly automotive products in each reportable segment. "Others" is an operating segment that contains businesses not included in the reportable segments, such as activities of subsidiaries in South America.
3 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Financial Highlights
4 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Management's Discussion and Analysis
1. Business overview During the fiscal year ended March 31, 2018, whereas uncertainty increased in view of the emergence of the protectionist trade policy by the United States government, the world economy continued to show steady growth on the whole, backed by favorable personal consumption driven by improved employment and income environments mainly in the U.S. and China. The Japanese economy also remained firm with an increase in exports that benefited from the favorable U.S. and Chinese economies. The global automobile industry sustained growth overall. However, the growth rate showed a trend toward overall slowing, as seen by sales in the United States, which were a record- high for the previous fiscal year but showed a downturn for the first time since 2009. In Japan, sales continued to exceed those of the previous year due to the sales recovery of light vehicles and other factors.
The automobile industry is entering an era of a once-in-a-century paradigm shift represented by accelerating technological developments associated with electrification, automated driving, and connected cars, as well as with the emerging trend of car sharing. We therefore believe that it is necessary for us to anticipate and respond to customer and societal needs ahead of others to be at the forefront of trends and ensure sustainable growth.
2. Management strategy In such a business climate, last autumn DENSO CORPORATION (hereinafter referred to as the "Company") formulated the DENSO Long-term Policy 2030 together with the slogan "Bringing hope for the future for our planet, society, and all people." Supported by the three core axioms of "Green," "Peace of Mind," and the newly added "Inspiring," the Company and its subsidiaries in Japan and overseas (collectively referred to as the "Group") will endeavor to create new value and contribute to ensuring a society filled with smiling faces.
In addition, as a road map to realizing the above policy, the Company formulated the Long-term Plan 2025. With the intent to reform our corporate organization into one that can fully compete with competitors in a radically changing business environment, the Company has established Fields of Focus―Electrification, Advanced Safety and Automated Driving, Connected, and Non-automotive Businesses (FA* and agriculture, etc.)―and Management Reform: Five Pillars to enhance our organizational power.
*FA: Factory automation: Automation of production lines through mechanization
5 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
2) A new company for joint technological development on electric vehicles (EVs) with Mazda and Toyota has been established In October 2017, Mazda Motor Corporation, Toyota Motor Corporation, and the Company signed a contract to jointly develop basic structural technologies for EVs and established a new company (EV C.A. Spirit) to ensure the efficient implementation of the joint technological development projects. The three companies intend to focus their resources on fundamental vehicle value to enable the creation of appealing EVs that embody the unique identities of each brand by leveraging this joint development efficiently, as well as reinforcing their respective EV-related technology developments.
(2) Advanced Safety & Automated Driving 1) Development of a new vision sensor and millimeter-wave radar to improve perception at night and mountability in vehicles The new type of vision sensor enables drivers to perceive bicycles and pedestrians walking at night, etc. that would previously have been difficult to see. Combined with the use of a new type of millimeter-wave radar, it prompts an automated braking response in the case of an emergency during the day or at night. In addition to increasing the types of objects perceived mountability has been improved by downsizing the new vision sensor and millimeter- wave radar by approximately 40% and 60%, respectively, compared to the conventional models.
2) Participating in the establishment of TRI-AD for sophisticated perception using AI The Company has jointly participated with Aisin Seiki Co., Ltd. in the establishment of Toyota Research Institute- Advanced Development (TRI-AD), a new company through which Toyota Motor Corporation will accelerate technological development in the advanced development field for automated driving. The Company also has set up an office specializing in research & development in Shinagawa (Minato-ku), Tokyo. The new office will be in charge of developing state-of-the-art technologies such as AI and enhancing recruitment of human resources specialized in software and AI. In the future, the Company will further collaborate with a variety of global corporations to strengthen the development of automated-driving-related technologies.
(3) Connected (connected car) 1) Strengthening software development capability in collaboration with IT ventures The Company is actively recruiting mid-career IT professionals. Moreover, the Company has keenly addressed developing cloud technology, as well as software development using advanced open-source and agile software development methods. The Company will strengthen our software development capabilities in collaboration with IT ventures that are specialized in these software development fields.
2) Investing in forward-thinking MaaS ventures To anticipate capture market needs and search for new business domains in the MaaS market, the Company has also invested in venture companies within and outside Japan. These ventures are developing MaaS systems powered by AI. The Company thus intends to be a leader in mobility services through the integration of its leading- edge technologies in the automotive field and the expertise of these ventures in the MaaS field.
6 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(4) Non-automotive businesses (FA* and agriculture, etc.) 1) Offering lean automation packages in FA In late November 2017, the Company made a presentation of its flexible and economical LEAN AUTOMATION PACKAGES, which are compatible with onsite needs, at the INTERNATIONAL ROBOT EXHIBITION 2017 held at TOKYO BIG SIGHT. Its solution packages benefit from the know-how on process design and field management that has been long nurtured in automotive part manufacturing, including supportive measures for Kaizen (continuous improvement) utilizing IoT. Effective from the fiscal year ending March 31, 2019, the Company plans to start the lean automation package business on a full-fledged basis by proceeding with development and mass-production in collaboration with a broad range of in-house and external partners.
2) Expanding its agricultural business to provide innovation in food value chain The Company newly established the AgTech Promotion Division intended for developing business by introducing its technology into the agriculture field. The Company will fully utilize its environmental control technology to grow vegetables in greenhouses and various technologies and know-how from the automotive field which the company has cultivated. Setting up partnerships with agricultural production corporations that possess advanced technologies, the Company will create new value via integration with partners' strengths. The Company thus intends to contribute to further efficiency improvements in the food value chain as a whole and providing a stable food supply while looking ahead to the future of the entire agricultural food field.
7 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(2) Advanced R&D function to realize agile development globally To promote the development of competitive products that meet customer needs, satellite facilities for advanced R&D functions will be established around the world. The Group is active in collaborating with various types of partners, such as universities, research institutes, and startup companies, to extend and reinforce our business partnerships. Technological development projects will be advanced in Finland, Israel, and elsewhere by leveraging the respective regional characteristics.
(3) Business Unit evolution and smaller but stronger headquarters More discretion and autonomy will be given to business units to promote speedy business management and reinforce competitiveness so that sustainable growth can be accomplished in an era of rapid changes. The head office will be streamlined via zero-based thinking to pursue the formation of a team that can create new value at an extraordinarily high speed.
(4) Global management with optimal use of group and regional power Directors of respective regional headquarters, who assume responsibility for achieving the earnings goals of their respective regions, operate businesses based on quick decision-making by taking regional characteristics into account to achieve truly independent management by region. With this initiative, earlier decision-making will be achieved globally, and our determination to be an early executing and agile organization will be realized.
(5) Way of working with tremendous speed and efficiency The Group will put an optimum workplace environment in place for everyone to promote a culture of speed and efficiency and will also enhance information systems with measures such as the digitization of its paper-based approval process. The Group will enhance business processes for higher productivity and a better work-life balance in the pursuit of a corporation filled with smiling faces and extraordinary field capabilities.
8 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
3. Results of operations (1) Revenue and profit Revenue for the consolidated fiscal year ended March 31, 2018 increased by ¥581.1 billion, or 12.8% year over year, to ¥5,108.3 billion, supported by the increase in production volume, sales expansion, and the effects of newly consolidated subsidiaries of the Company. Operating profit increased by ¥82.1 billion, or 24.8%, to ¥412.7 billion, due to production volume increase associated with sales growth and the rationalization effects of cost reduction. Profit before income taxes increased by ¥89.0 billion, or 24.7%, to ¥449.9 billion. Profit for the year attributable to owners of the parent company increased by ¥62.9 billion, or 24.4%, to ¥320.6 billion.
(2) Policy on allocation of earnings Dividends As for dividends from surplus, the Company intends to stably improve the dividends level on an ongoing basis by comprehensively taking into account the consolidated operating results, the payout ratio, and the amount of dividends.
Moreover, the Company intends to allocate retained earnings not only to the capital investment and R&D investment required to maintain long-term business development, but also to the acquisition of treasury stock in the pursuit of distributing profits to shareholders while paying attention to the status of funds.
The Company stipulates in its Articles of Incorporation that it may distribute dividends from surplus upon resolution of the Board of Directors in accordance with Article 459 of the Companies Act.
Accordingly, the Company, at its Board of Directors meeting held on April 27, 2018 resolved that the fiscal year- end dividends for the fiscal year ended March 31, 2018 be ¥65 per share of the Company's common stock (for a total of ¥50.7 billion) and the date of commencement of the dividends payment thereof be May 28, 2018. The annual dividends for the fiscal year ended March 31, 2018, including the interim dividends, is ¥130 per share.
Acquisition of treasury stock The Company stipulates in its Articles of Incorporation that it may acquire treasury stock upon resolution of the Board of Directors in accordance with Article 165, Paragraph 3 of the Companies Act.
In the future, while giving consideration to cash flows, the Company will maintain this share repurchasing policy as an important tool in improving ROE and increasing shareholder value.
Source of funds and liquidity risk management The Group's fundamental financial policy is designed to ensure efficient funding and management of funds for the operational activities of the entire Group, secure an optimum level of funds and liquidity, and maintain a sound financial position.
9 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Capital expenditures/depreciation The Group applies a number of benchmarks to ensure appropriate decisions are made with regard to capital expenditures. These benchmarks include projected cash flows, return on assets (ROA), the number of years to recover investments, and forecasts of profitability. As part of the drive to reduce medium-term fixed costs, the Group is minimizing the scale of its production lines, standardizing components, and using global procurement to reduce facilities costs.
Capital expenditures and depreciation during the fiscal year ended March 31, 2018 were ¥347.2 billion and ¥268.6 billion, respectively.
Capital expenditures/depreciation by segment In regard to capital expenditures by geographic segment, the Group focused its investment on all regions to increase production, and mainly invests in new products and rationalization measures. As a result, capital expenditures spent in Japan were ¥217.7 billion.
In regions outside Japan, capital expenditures in North America, Europe, Asia, and other areas were ¥43.8 billion, ¥30.8 billion, ¥52.7 billion, and ¥2.2 billion, respectively.
Research and Development (R&D) activities The Company formulated the DENSO Group Long-term Policy 2030 together with the slogan "Bringing hope for the future for our planet, society, and all people." Supported by the three core axioms of "Green," "Peace of Mind," and "Inspiring," which was added recently, the Company and its subsidiaries in Japan and overseas will endeavor to create new value and contribute to ensuring a society filled with smiling faces.
The Group's R&D expenses, including the amount recognized as assets for the fiscal year ended March 31, 2018, totaled ¥447.4 billion.
R&D expenses by segment By geographic segment, R&D expenses in Japan were ¥395.1 billion.
In regions outside Japan, R&D expenses in North America, Europe, Asia, and other areas were ¥26.8 billion, ¥12.3 billion, ¥12.1 billion, and ¥1.1 billion, respectively.
Approximately 88% of total R&D expenses arose in Japan. The Group continues to aim for the achievement of a society with global-advanced-mobility through the reinforcement of research function in other areas.
10 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
4. Risk management Economic risk Demand for auto parts, which account for the majority of the Group's operating revenue around the world, is easily affected by the economic situation in the countries and regions where the Group makes sales. Accordingly, an economic downturn and a resulting decrease in demand for auto parts in the Group's major markets, including Japan, North America, Europe, and Asia, may have an adverse effect on the Group's operating results and financial condition. Further, Group operations can be indirectly affected by the economic situation in regions where competitors have their manufacturing bases. For example, if a competitor is able to employ local labor at a lower cost and provide equivalent products at prices below those of the Group, this may adversely affect sales. Further, if the local currency of regions where parts and raw materials are sourced falls, there is a chance that the manufacturing cost not only for the Group, but also for other manufacturers, will fall. As a result of these trends, export and price wars may intensify and have an adverse effect on the Group's operating results and financial condition.
Exchange rate risk Operations within the Group include the sale and manufacture of products around the world. All regional items in local currency, including sales, costs, and assets are converted to yen for the purpose of preparing consolidated financial statements. Based on the exchange rate used in conversion, even though the value of items has not changed as denominated in local currency, there is a possibility that the amount expressed in yen after the conversion could change. In general, a strong yen (in particular against the U.S. dollar and euro, which constitute a major part of the Group's sales) has an adverse effect on the Group's operations, and a weak yen has a positive effect on the Group's operations.
For Group operations involving manufacturing in Japan for export, a strong yen against other currencies decreases the worldwide price competitiveness of its products and can have an adverse effect on operating results. The Group performs currency hedging, and makes efforts to minimize the adverse effect of short-term fluctuations in the exchange rates of major currencies, including the U.S. dollar, euro, and yen. However, as a result of medium- and long-term movements in exchange rates, there are cases where procurement, manufacturing, distribution, and sales cannot be performed exactly as planned and, as a result, exchange rate movements may have an adverse effect on the Group's operating results and financial condition.
Raw materials and component supply risk The Group procures raw materials and components used to manufacture its products from numerous external vendors. Although basic business contracts have been executed with these external vendors, and transactions are generally stable, there is no guarantee that there will not be shortages or increased prices for raw materials and components due to fluctuations in market conditions, unforeseen accidents at vendors, or other such events. In such cases, the Group could incur higher manufacturing costs or be forced to halt production, which may in turn have an adverse effect on the Group's operating results and financial condition.
New product development risk While the Group believes that it can continue to develop original and appealing new products, the product development and sales process is, by its nature, complex and uncertain, and is subject to the following risks: ・There is no guarantee of acquiring sufficient funds and resources for investments in new products and new technologies. ・There is no guarantee that the long-term investments and allocation of large amounts of resources will lead to the development of successful new products and the creation of new technologies. ・It is not certain that the Group will be able to correctly predict which new products and new technologies will earn the support of the Group's customers, and there is no guarantee that the sales of these products will be successful.
11 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
・As a result of fast-paced technological advances and changes in market needs, there is a possibility that the Group's products will become outdated. ・As a result of delays in the commercialization of new technologies under development, there is a possibility that market demands might not be met.
Beginning with the risks outlined above, if the Group is unable to fully anticipate industry and market changes, and is unable to develop attractive new products, this may result in a drop in future growth and profitability and may have an adverse effect on the Group's operating results and financial condition.
Pricing risk Price competition in the automotive industry is fierce. In particular, demands for price reductions by automakers have increased in recent years.
Further, the Group expects that it will face intensified competition in the component fields and regional markets that it operates in. Competitors include other component manufacturers, some of which are providing products at lower prices than the Group. Also, in line with the evolution of the automotive electronics business, there has been a rise in new competitors, such as consumer-electronics manufacturers and tie-ups between existing competitors, therefore there is a chance that they will quickly gain a large share of the market.
While we believe that the Group is the leading component manufacturer in the world and continues to develop automotive parts that are technically advanced, of high quality, and high added value, there is no guarantee that the Group will be able to compete effectively in the future. There is always a possibility that pricing pressure and ineffectively competitive practices on the Group's part will lead to a decrease in customers, which may have an adverse effect on the Group's operating results and financial condition.
Potential risks of international activities and overseas expansion The proportion of manufacturing and sales activities carried out in North America and Europe, as well as in developing and emerging markets in Asia, has been increasing in recent years. Expansion into these overseas markets has the following inherent risks, which, if they materialize, may have an adverse effect on the Group's operating results and financial condition. ・Unforeseen changes in laws or regulations. ・Unfavorable political or economic conditions. ・Difficulties in employing and retaining personnel. ・Inadequate social infrastructure that may adversely affect the Group's business activities. ・The potentially adverse impact of tax regulations. ・Social or economic turmoil caused by terrorist incidents, military conflict, epidemics, and other events.
Intellectual property risk The Group has accumulated technology and expertise that allows it to differentiate its products from those of its competitors. However, legal restrictions in certain regions and countries are inadequate to fully protect these technologies and expertise as intellectual property. Consequently, the Group may not be able to effectively prevent third parties from using its intellectual property to manufacture similar products. Additionally, because the Group's products employ a broad range of technologies, there is a possibility that these products may be judged to have infringed upon third-party intellectual property rights in the future.
12 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
OEM (Original Equipment Manufacturer) customer risk The OEM business, which constitutes the majority of the Group's business, serves automobile manufacturers around the world and supplies a wide range of products, including air conditioning, engines, driving controls and safety equipment, and information and communication products. Sales to OEM customers may be affected by factors that the Group cannot control, such as the operating results of OEM customers. In addition, demands for reduced prices from OEM customers may reduce the Group's profit margins. Further, there is a possibility that OEM customers' business downturns, unforeseen contract cancellations, changes in OEM customers procurement policies, and price cuts to satisfy large customers may have an adverse effect on the Group's operating results and financial condition.
Sales to the Toyota Motor Corporation and its subsidiaries account for roughly half of the Group's sales. Such sales made to a specific client group can be significantly impacted by the operating results of the customer.
Product defect risk The Group manufactures a variety of products to meet internationally recognized quality control standards at factories around the world. However, there is no guarantee that all of the Group's products are defect-free and that there will be no product recalls in the future. Also, while the Group does have product liability insurance coverage, there is no guarantee that this insurance will completely cover any compensation that the Group may be forced to pay. Further, the Group may not be able to continue to subscribe to this insurance under conditions acceptable to the Group. Product defects that lead to large-scale product recalls or product liability compensation could have a significant cost and large impact on the Group's reputation, and this may lead to a decrease in sales and adversely affect the Group's operating results and financial condition.
Risks of natural disasters and power outages In order to minimize the potential negative impact of manufacturing lines being shut down, the Group carries out disaster-prevention inspections and equipment checks on a regular basis.
However, there is no guarantee that the Group can totally prevent or reduce the impact of natural disasters, power outages, or other stoppages of the Group's manufacturing lines and those of the Group's corporate customers and suppliers. For example, many of the Group's places of the business are in the Tokai region of Japan, and if a disastrous earthquake were to hit this region, there is a possibility that the Group's production and delivery activities would be suspended.
Pension liability risk Costs and liabilities for employees' retirement benefits are calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension assets. When actual results differ from the assumptions used for calculation, or when changes are made to the assumptions, the effect is accumulated and brought forward into future calculations, generally resulting in an impact on reported future costs and liabilities.
Legal proceedings The Group endeavors to ensure continual legal compliance in the course of its business activities. Nevertheless, it is possible that the Group may become party to legal proceedings due to judicial action or the actions of a regulating authority. Accordingly, such an event may have an adverse effect on the Group's operating results and financial condition.
13 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Results of Operations
1. Overview The Group has adopted International Financial Reporting Standards ("IFRS") for preparing its consolidated financial statements in the annual report since the fiscal year ended March 31, 2015. In addition, the following items are reported based on the consolidated financial statements prepared in accordance with IFRS.
(1) Results of operations 1) Revenue and profit Revenue for the consolidated fiscal year ended March 31, 2018 increased by ¥581.1 billion, or 12.8% year over year, to ¥5,108.3 billion, supported by the increase in production volume, sales expansion, and the effects of newly consolidated subsidiaries of the Company. Operating profit increased by ¥82.1 billion, or 24.8%, to ¥412.7 billion, due to production volume increase associated with sales growth and the rationalization effects of cost reduction. Profit before income taxes increased by ¥89.0 billion, or 24.7%, to ¥449.9 billion. Profit for the year attributable to owners of the parent company increased by ¥62.9 billion, or 24.4%, to ¥320.6 billion.
Revenue and profit by segment By geographical segment, revenue in Japan increased by ¥397.8 billion, or 14.8% year over year, to ¥3,083.8 billion, supported by the increase in production of vehicles. Operating profit increased by ¥70.5 billion, or 54.2% year over year, to ¥200.7 billion, mainly due to production volume increase and the rationalization effects of cost reduction.
Revenue in North America increased by ¥79.0 billion, or 7.3% year over year, to ¥1,156.3 billion, mainly due to sales expansion. Operating profit decreased by ¥17.4 billion, or 29.1% year over year, to ¥42.5 billion, mainly due to depreciation increase.
Revenue in Europe increased by ¥85.1 billion, or 14.7% year over year, to ¥662.3 billion due to increase in vehicle production volume and sales expansion. Operating profit decreased by ¥0.1 billion, or 0.5% year over year, to ¥20.1 billion, mainly due to depreciation increase.
Revenue in Asia increased by ¥183.5 billion, or 16.1% year over year, to ¥1,322.8 billion, supported by vehicle production volume increase and sales expansion. Operating profit increased by ¥24.0 billion, or 21.3% year over year, to ¥136.7 billion, mainly due to production volume increase associated with sales growth and the rationalization effects of cost reduction.
Revenue in other regions increased by ¥13.2 billion, or 20.0% year over year, to ¥79.0 billion. Operating profit increased by ¥6.5 billion, or 94.7% year over year, to ¥13.4 billion.
2) Financial position Total assets as of March 31, 2018, stood at ¥5,764.4 billion 11.9% or ¥613.7 billion more than at the previous fiscal year-end.
Current assets increased by ¥231.8 billion, or 9.9% , to ¥2,563.8 billion due to trade and other receivable increases. Non-current assets increased by ¥381.9 billion, or 13.5% , to ¥3,200.6 billion, primarily reflecting increases in other financial assets.
The total for current and non-current liabilities increased by ¥286.4 billion, or 16.8%, to ¥1,990.1 billion due to increases of bonds and borrowings. Equity increased by ¥327.2 billion, or 9%, to ¥3,774.3 billion, primarily reflecting increases in retained earnings and an increase in mark-to-market of investment securities.
14 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
3) Cash flows In terms of cash flows for the fiscal year ended March 31, 2018, net cash provided by operating activities increased by ¥558.0 billion, net cash used in investing activities decreased by ¥529.1 billion, and net cash used in financing activities decreased by ¥40.3 billion. As a result, cash and cash equivalents decreased by ¥10.2 billion, to ¥783.3 billion.
Net cash provided by operating activities for the fiscal year ended March 31, 2018 totaled ¥558.0 billion, ¥90.2 billion more than in the previous year. This mainly reflected an increase of profit before income taxes to ¥449.9 billion, an increase of ¥89.0 billion over the previous fiscal year.
Investing activities used cash of ¥529.1 billion, ¥421.0 billion more than in the previous fiscal year. This mainly reflected decreased proceeds from sales and a redemption of debt instruments of ¥74.1 billion, a decrease of ¥139.5 billion, and increased time deposits of ¥199.2 billion compared to the previous fiscal year.
Net cash used in financing activities was ¥40.3 billion, a decrease of ¥200.2 billion from the previous fiscal year. This decrease mainly reflected repayments of borrowings, a decrease of ¥91.9 billion, and redemption of bonds, a decrease of ¥50.0 billion compared to the previous fiscal year.
(2) Parallel disclosure information The consolidated financial statements have not been prepared in accordance with the Ordinance on Consolidated Financial Statements (excluding Chapters 7 and 8; hereinafter "Japanese GAAP" or "JGAAP"). The major items in the consolidated financial statements prepared in accordance with IFRS, which are different from the consolidated financial statements prepared in accordance with JGAAP, are as follows. The estimated increasing/decreasing amounts were calculated to the extent that they can be recognized under certain assumptions.
1) Depreciation of property, plant and equipment With regard to the depreciation method of property, plant and equipment, the Company and its subsidiaries in Japan have mainly adopted the declining-balance method under JGAAP; however, the Group has adopted the straight-line method under IFRS.
This resulted in an increase in operating profit for the fiscal year ended March 31, 2018 by ¥31.9 billion compared to the operating profit under JGAAP.
2) Defined benefit plans Under JGAAP, actuarial gains or losses and past service costs were reported in equity through other comprehensive income, and are amortized over a certain period that is shorter than the average remaining service period of employees; however, under IFRS, actuarial gains or losses are recognized in shareholders' equity through other comprehensive income then immediately transferred to retained earnings, and past service costs are recognized as other income or other expenses. Net interest relevant to the defined benefit plans (i.e., expected return on assets and interest expense under JGAAP) is presented as part of cost of revenue or selling, general and administrative expenses; however, it is reported as finance costs under IFRS.
As a result, operating profit and finance costs increased by ¥6.6 billion and ¥1.3 billion, respectively, and other comprehensive income decreased by ¥16.5 billion in the fiscal year ended March 31, 2018 compared to under JGAAP.
15 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Consolidated Statement of Financial Position March 31, 2018 (Unit: Millions of yen)
Note 2017 2018
Assets Current assets Cash and cash equivalents 7 793,550 783,338 Trade and other receivables 8 876,454 993,549 Inventories 9 485,867 550,291 Other financial assets 10 93,781 151,122 Other current assets 82,398 85,533 Total current assets 2,332,050 2,563,833 Non-current assets Property, plant and equipment 11 1,490,531 1,591,207 Intangible assets 12 22,451 76,968 Other financial assets 10 1,111,945 1,330,820 Investments accounted for using the equity method 31 92,198 88,718 Retirement benefit assets 17 43,868 53,864 Deferred tax assets 13 30,266 35,020 Other non-current assets 27,453 23,987 Total non-current assets 2,818,712 3,200,584 Total assets 5,150,762 5,764,417
16 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
Note 2017 2018
Liabilities and equity Current liabilities Bonds and borrowings 14 84,139 170,003 Trade and other payables 15 861,161 923,272 Other financial liabilities 14,484 16,483 Income tax payables 24,890 53,609 Provisions 16 70,549 69,295 Other current liabilities 48,588 57,674 Total current liabilities 1,103,811 1,290,336 Non-current liabilities Bonds and borrowings 14 266,116 303,847 Other financial liabilities 9,819 10,119 Retirement benefit liabilities 17 228,576 245,387 Provisions 16 1,529 1,515 Deferred tax liabilities 13 78,243 121,272 Other non-current liabilities 15,586 17,648 Total non-current liabilities 599,869 699,788 Total liabilities 1,703,680 1,990,124 Equity Capital stock 18 187,457 187,457 Capital surplus 18 265,985 265,985 Treasury stock 18 (31,191) (57,677) Other components of equity 18 454,445 528,418 Retained earnings 18 2,436,028 2,674,138 Equity attributable to owners of 3,312,724 3,598,321 the parent company Non-controlling interests 134,358 175,972 Total equity 3,447,082 3,774,293 Total liabilities and equity 5,150,762 5,764,417
17 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Consolidated Statement of Income Year ended March 31, 2018 (Unit: Millions of yen)
Note 2017 2018
Revenue 5 4,527,148 5,108,291 Cost of revenue 9, 11, 12 (3,769,532) (4,254,598) Gross profit 757,616 853,693 Selling, general and administrative expenses 11, 12, 21 (431,192) (447,732) Other income 20 27,721 34,275 Other expenses 21 (23,594) (27,560) Operating profit 5 330,551 412,676 Finance income 22 35,487 40,532 Finance costs 22 (9,883) (9,495) Foreign exchange losses (3,733) (328) Share of the profit of associates and joint ventures accounted for 8,436 6,518 using the equity method Profit before income taxes 360,858 449,903 Income tax expenses 13 (86,963) (106,459) Profit for the year 273,895 343,444 Attributable to: Owners of the parent company 257,619 320,561 Non-controlling interests 16,276 22,883
(Unit: Yen)
Earnings per share Basic 23 326.32 410.45 Diluted 23 － －
18 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Consolidated Statement of Comprehensive Income Year ended March 31, 2018 (Unit: Millions of yen)
Note 2017 2018
Profit for the year 273,895 343,444 Other comprehensive income Items that will not be reclassified subsequently to profit or loss Net fair value gain on equity instruments designated as FVTOCI 24, 26 59,994 84,164 Remeasurements of defined benefit pension plans 17, 24 21,660 13,035 Share of other comprehensive income of investments accounted for 24 (12) 10 using the equity method Total 81,642 97,209 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 24 (24,987) (4,346) Cash flow hedges 24 477 199 Share of other comprehensive income of investments accounted for 24 (1,779) (1,012) using the equity method Total (26,289) (5,159) Total other comprehensive income 55,353 92,050 Comprehensive income for the year 329,248 435,494 Attributable to: Owners of the parent company 314,074 410,231 Non-controlling interests 15,174 25,263
19 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Consolidated Statement of Changes in Equity Year ended March 31, 2018 (Unit: Millions of yen)
Equity attributable to owners of the parent company Other components of equity Net fair Remeasure- Note Capital Capital Treasury value gain ments of stock surplus stock on equity defined instruments benefit designated pension as FVTOCI plans As of April 1, 2016 187,457 267,640 (246,486) 361,376 － Profit for the year －－－－ － Other comprehensive income －－－ 59,970 21,206 Comprehensive income for the －－－ 59,970 21,206 year Acquisition of treasury stock 18 －－ (30,020) － －
Disposal of treasury stock 18 － 14 65 － －
Retirement of treasury stock 18 － (1,683) 245,250 － － Dividends 19 －－－－ － Changes in the ownership interest in subsidiaries without － 14 －－ － a loss of control Changes by business －－－－ － combinations Transfer to retained earnings －－－ (3,009) (21,206) Other －－－－ － Total transactions with the owners － (1,655) 215,295 (3,009) (21,206) As of March 31, 2017 187,457 265,985 (31,191) 418,337 －
As of April 1, 2017 187,457 265,985 (31,191) 418,337 － Profit for the year －－－－ － Other comprehensive income －－－ 84,195 12,895 Comprehensive income for the －－－ 84,195 12,895 year Acquisition of treasury stock 18 －－ (26,486) － －
Disposal of treasury stock 18 － 0 0 － －
Retirement of treasury stock －－－－ － Dividends 19 －－－－ － Changes in the ownership interest in subsidiaries without －－－－ － a loss of control Changes by business －－－－ － combinations Transfer to retained earnings －－－ (2,802) (12,895) Other －－－－ － Total transactions with the owners － 0 (26,486) (2,802) (12,895) As of March 31, 2018 187,457 265,985 (57,677) 499,730 －
20 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
Equity attributable to owners of the parent company
Other components of equity Non- Total Note Exchange controlling differences Retained equity Cash Total interests on earnings flow Total translating hedges foreign operations As of April 1, 2016 61,351 (522) 422,205 2,492,762 3,123,578 131,457 3,255,035 Profit for the year －－－ 257,619 257,619 16,276 273,895 Other comprehensive income (25,198) 477 56,455 － 56,455 (1,102) 55,353 Comprehensive income for the (25,198) 477 56,455 257,619 314,074 15,174 329,248 year Acquisition of treasury stock 18 －－－－ (30,020) － (30,020)
Disposal of treasury stock 18 －－－－ 79 － 79
Retirement of treasury stock 18 －－－ (243,567) － －－ Dividends 19 －－－ (95,001) (95,001) (12,262) (107,263) Changes in the ownership interest in subsidiaries without －－－－ 14 11 25 a loss of control Changes by business －－－－－ －－ combinations Transfer to retained earnings －－ (24,215) 24,215 － －－ Other －－－－－ (22) (22) Total transactions with the －－ (24,215) (314,353) (124,928) (12,273) (137,201) owners As of March 31, 2017 36,153 (45) 454,445 2,436,028 3,312,724 134,358 3,447,082
As of April 1, 2017 36,153 (45) 454,445 2,436,028 3,312,724 134,358 3,447,082 Profit for the year －－－ 320,561 320,561 22,883 343,444 Other comprehensive income (7,619) 199 89,670 － 89,670 2,380 92,050 Comprehensive income for the (7,619) 199 89,670 320,561 410,231 25,263 435,494 year Acquisition of treasury stock 18 －－－－ (26,486) － (26,486)
Disposal of treasury stock 18 －－－－ 0 － 0
Retirement of treasury stock －－－－－ －－ Dividends 19 －－－ (97,837) (97,837) (11,569) (109,406) Changes in the ownership interest in subsidiaries without －－－－－ (3,557) (3,557) a loss of control Changes by business －－－－－ 31,638 31,638 combinations Transfer to retained earnings －－ (15,697) 15,697 － －－ Other －－－ (311) (311) (161) (472) Total transactions with the －－ (15,697) (82,451) (124,634) 16,351 (108,283) owners As of March 31, 2018 28,534 154 528,418 2,674,138 3,598,321 175,972 3,774,293
21 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Consolidated Statement of Cash Flows Year ended March 31, 2018 (Unit: Millions of yen)
Note 2017 2018 Cash flows from operating activities Profit before income taxes 360,858 449,903 Depreciation 241,123 268,626 Impairment losses － 1,547 Increase in retirement benefit liabilities 3,494 4,372 Decrease in retirement benefit assets 6,787 11,167 Interest and dividend income (35,281) (39,944) Interest expenses 7,337 7,042 Foreign exchange gains (2,153) (734) Share of the profit of associates and joint ventures accounted for (8,436) (6,518) using the equity method Losses on sales or disposal of property, plant and equipment 6,477 3,762 Increase in trade receivables (70,541) (4,167) Increase in inventories (17,507) (31,257) Increase (Decrease) in trade payables 48,747 (80,417) Decrease in provisions (16,607) (4,785) Other 21,406 13,223 Subtotal 545,704 591,820 Interest received 7,654 9,779 Dividends received 30,390 33,691 Interest paid (7,557) (7,259) Income taxes paid (108,412) (70,030) Net cash provided by operating activities 467,779 558,001 Cash flows from investing activities Decrease (Increase) in time deposits 126,464 (72,714) Purchases of property, plant and equipment (334,978) (347,973) Proceeds from sales of property, plant and equipment 6,693 8,686 Purchases of intangible assets (9,437) (20,017) Purchases of equity instruments (18,830) (116,706) Purchases of debt instruments (92,542) (52,264) Proceeds from sales and redemption of equity instruments 1,312 395 Proceeds from sales and redemption of debt instruments 213,597 74,119 Payments from acquisitions of control over subsidiaries － (5,756) Proceeds from losses of control of subsidiaries － 674 Other (316) 2,503 Net cash used in investing activities (108,037) (529,053) Cash flows from financing activities Net increase (decrease) in short-term borrowings 28 5,312 (998) Proceeds from borrowings 28 76,744 113,280 Repayments of long-term borrowings 28 (163,643) (71,721) Repayments of finance lease obligations 28 (11,924) (12,636) Issuance of bonds 28 30,000 70,000 Redemption of bonds 28 (50,000) － Dividends paid 19 (95,001) (97,837) Dividends paid to non-controlling interests (12,262) (11,569) Purchase of treasury stock (30,020) (26,486) Other 28 10,268 (2,345) Net cash used in financing activities (240,526) (40,312) Foreign currency translation adjustments on cash and cash equivalents 1,852 1,152 Net increase (decrease) in cash and cash equivalents 121,068 (10,212) Cash and cash equivalents at beginning of year 672,482 793,550 Cash and cash equivalents at end of year 7 793,550 783,338
22 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Notes to Consolidated Financial Statements Year ended March 31, 2018
1. Reporting entity DENSO CORPORATION (hereinafter referred to as the "Company") is a business corporation located in Japan. The Company and its subsidiaries in Japan and overseas (collectively referred to as the "Group") manufacture and sell mainly automotive parts in each segment of Japan, North America, Europe, Asia, and Others. The automotive parts are related to Powertrain Control systems, Electrification systems, Electronic systems, Thermal systems, and Mobility systems, as well as Industrial products and Consumer products. Please refer to the Appendix for a list of subsidiaries.
2. Basis of preparation (1) Compliance with IFRS The Group meets all of the requirements for a "Specified Company for the designated IFRS" to prepare its consolidated financial statements by applying the designated IFRSs as stipulated under Article 1-2 of the "Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements" (Ministry of Finance of Japan Regulation No. 28, 1976, hereafter "the Regulation"). Hence, in accordance with Article 93 of the Regulation, the Group's consolidated financial statements have been prepared in accordance with IFRS.
The Group's consolidated financial statements for the year ended March 31, 2018 were approved on June 20, 2018 by Koji Arima, President of the Company.
(2) Basis of measurement Except for the financial instruments that are measured at fair value stated in Note 3 "Significant accounting policies," the Group's consolidated financial statements have been prepared on the historical cost basis.
(3) Functional currency and presentation currency The Group's consolidated financial statements are presented in Japanese yen, which is the functional currency of the Company. The units are in millions of yen, and figures less than one million yen are rounded to the nearest million yen.
23 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(4) Significant accounting judgments and estimates In preparing the consolidated financial statements in accordance with IFRS, management established judgments, estimates, and assumptions that have an effect on the application of accounting policies, as well as the reported amounts of assets, liabilities, revenues, and expenses. Actual operating results may differ from these estimates.
The estimates and the underlying assumptions are reviewed on an ongoing basis. The effects of revisions to the accounting estimates are recognized in the fiscal period in which such estimates are revised and in future fiscal periods.
Of the items subject to the estimates and judgments, the following have a significant impact on the amounts stated in the consolidated financial statements for the fiscal year under review and subsequent fiscal years: ・ Scope of consolidation: Note 3 "Significant accounting policies" (1) Basis of consolidation ・ Revenue: Note 3 "Significant accounting policies" (16) Revenue ・ Fair value measurements of assets acquired and liabilities assumed by business combinations: Note 6 "Business Combinations" ・ Impairment loss on non-financial assets: Note 11 "Property, plant and equipment" and Note 12 "Intangible assets" ・ Recoverability of deferred tax assets: Note 13 "Income taxes" ・ Reserve for warranty: Note 16 "Provisions" ・ Measurement of defined benefit obligation: Note 17 "Post-employment benefits" ・ Measurement of fair value of financial instruments: Note 26 "Financial instruments"
(5) Changes in accounting policies The Group adopted the standards and interpretations which were mandatorily effective from the year ended March 31, 2018. The adoption of the standards and interpretations had no significant impact on the consolidated financial statements for the fiscal year ended March 31, 2018.
24 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
3. Significant accounting policies (1) Basis of consolidation 1) Subsidiaries A subsidiary is an entity that is controlled by the Company and whose financial statements are included in the consolidated financial statements of the Group from the date of acquisition of the control to the date of loss of the control by the Group. In cases where the accounting policies applied by subsidiaries are different from those applied by the Group, adjustments are made to the subsidiary's financial statements, if necessary. All intragroup balances, transactions, and unrealized gains have been eliminated on consolidation. Comprehensive income is attributed to owners of the parent company and non-controlling interests even if this results in the non-controlling interests having a deficit balance.
The consolidated financial statements include the financial statements of subsidiaries whose fiscal year-end is different from that of the parent company and unification is impracticable as required by the local legal systems under which they are governed. The difference between the fiscal year-end date of the subsidiaries and that of the parent company does not exceed three months.
In cases where the financial statements of subsidiaries are used for preparing the consolidated financial statements which have different fiscal year-ends, necessary adjustments are made for the effects of significant transactions or events occurring between the fiscal year-end of the subsidiaries and that of the Company.
2) Associates and joint ventures An associate is an entity which the Group does not control but has significant influence over its financial and operating policies. Investments in associates are accounted for using the equity method from the date on which the Group has significant influence until the date on which it ceases to have significant influence.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of parties sharing control. Investments in joint ventures are accounted for using the equity method.
The accounting policies for associates and joint ventures are adjusted as required, in order to comply with the accounting policies adopted by the Group.
The consolidated financial statements include investments in associates and joint ventures with different fiscal year-ends from that of the Company as, primarily due to the involvement of other shareholders, it is impracticable to unify the fiscal year-ends. Necessary adjustments are made for the effects of significant transactions or events occurring between the fiscal year-ends of the associates and joint ventures and that of the Company.
Under the equity method, investments in an associate or a joint venture are initially recognized at acquisition cost and the carrying amount is increased or decreased to recognize the Group's share of the net assets of the associate or the joint venture after the date of acquisition. The Group's share of the net income of the associates or the joint ventures is recognized in the Group's profit or loss. Also, the Group's share of the other comprehensive income of the associates or the joint ventures is recognized in the Group's other comprehensive income. When the Group's share of losses of an associate or a joint venture equals or exceeds its investments in the associate or the joint venture, which include any long-term investments that, in substance, form part of the Group's net investment in the associate or the joint venture, the Group discontinues recognizing its share of further losses unless the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the joint venture. All significant intercompany profits have been eliminated in proportion to interests in the associate and the joint venture.
Any excess of consideration of acquisition over interests in the net fair value of assets, liabilities, and contingent liabilities of associated companies and joint ventures has been recognized as the amount corresponding to goodwill, and has been included in the carrying amount of investments without any amortization.
25 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
3) Joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the contractual arrangement. For investments in joint operations, only the Group's share of assets, liabilities, revenues, and expenses arising from its operating activities are recognized. All significant intercompany balances and transactions have been eliminated in proportion to its interests.
(2) Business combination and goodwill Business combinations are accounted for using the acquisition method. Consideration transferred in a business combination is measured as the sum of the acquisition-date fair value of the assets transferred, the liabilities assumed, and equity instruments issued by the Group in exchange for control over an acquiree. Acquisition-related costs incurred are recognized as expenses.
Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are initially measured either at fair value or at the non-controlling interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.
The identifiable assets acquired and the liabilities assumed are measured at their fair values at the acquisition date, except that: ・ Deferred tax assets (or liabilities) and liabilities (or assets) related to employee benefit arrangements are recognized and measured in accordance with International Accounting Standard ("IAS") 12, "Income Taxes," and IAS 19, "Employee Benefits," respectively; ・ Assets or disposal groups that are classified as held for sale in accordance with IFRS 5, "Non-current Assets Held for Sale and Discontinued Operations," are recognized and measured in accordance with the standard; and ・ Liabilities or equity instruments related to share-based remuneration of the acquiree or share-based remuneration of the Company entered into to replace such arrangements of the acquiree are measured in accordance with IFRS 2, "Share-based Payment."
Any excess of the consideration of acquisition over the fair value of identifiable assets and liabilities is recognized as goodwill in the consolidated statement of financial position. If the consideration of acquisition is lower than the fair value of the identifiable assets and liabilities, the difference is immediately recognized as a gain in the consolidated statement of income. The additional acquisition of non-controlling interests after obtaining control is accounted for as an equity transaction without recognition of goodwill.
Goodwill has been measured as the initially recognized value at the date of the business combination less accumulated impairment losses and included in "Intangible assets" in the consolidated statement of financial position. Goodwill is not amortized, but instead tested for impairment annually or whenever there is any indication of impairment. Impairment losses on goodwill are recognized in the consolidated statement of income and no subsequent reversal is made.
If the initial accounting of a business combination has not been completed by the end of the reporting period in which the business combination occurs, the Group reports provisional amounts for uncompleted accounting items. The Group will revise the provisional amounts during the measurement period (not exceeding one year) or recognize additional assets or liabilities in order to reflect new information obtained regarding the facts and circumstances that existed as of the date of acquisition and would have affected the amounts recognized on the date of acquisition, if such amounts have been ascertained.
26 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(3) Foreign currency translation Each company in the Group specifies its own functional currency, the currency of the primary economic environment in which the entity operates, and measures transactions based on the functional currency. The foreign currency transactions are translated into the functional currency at the rates of exchange prevailing at the dates of the transactions, or an approximation of the rate.
Monetary items denominated in foreign currencies are retranslated into each company's functional currency at the current exchange rates at the end of the reporting period. Non-monetary items denominated in foreign currencies that are measured at the acquisition cost are not retranslated. Other items denominated in foreign currencies that are measured at the fair value are translated at the rates prevailing at the date when the fair value was determined.
Differences arising from the translation and settlement are recognized in profit or loss during the period, as presented in "Foreign exchange gain or loss" in the consolidated statement of income.
The consolidated financial statements of the Group are presented in Japanese yen, which is the presentation currency of the Company. In order to present the consolidated financial statements, the assets and liabilities of foreign operations are translated into Japanese yen at the rates of exchange prevailing at the fiscal year-end, while revenue and expenses of foreign operations are translated into Japanese yen at the average exchange rates for the period, unless exchange rates significantly fluctuate during the period. The translation differences are recognized as "Exchange differences on translating foreign operations" in the other comprehensive income and its cumulative amount is classified as "Other components of equity." In the event of a loss of control due to the disposal of foreign operations, the relevant cumulative amount of translation differences is recognized in profit or loss during the period.
Goodwill and fair value adjustments resulting from the acquisition of foreign operations are retranslated as assets and liabilities of such foreign operations as at the end of the reporting period, and exchange differences are recognized in "Other components of equity."
(4) Financial instruments The Group has early-applied IFRS 9, "Financial Instruments," (revised in October 2010) for the accounting treatment of financial instruments.
1) Financial assets i) Initial recognition and measurement Financial assets are classified into financial assets measured at amortized cost and financial assets measured at fair value based on their nature and holding purposes. The Group determines the classification at initial recognition. The sale or purchase of financial assets that occurred in the normal course of business are recognized or derecognized at the transaction date.
a) Financial assets measured at the amortized cost Financial assets are classified as financial assets measured at amortized cost if both of the following conditions are met: ・ The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and ・ The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The financial assets measured at the amortized cost are measured initially at fair value plus transaction costs directly attributable to the acquisition.
27 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
b) Financial assets measured at fair value If the financial assets do not meet the above conditions, they are classified as financial assets measured at fair value through profit or loss or other comprehensive income.
Equity instruments are measured at fair value. By its irrevocable designation, the financial assets held for trading are measured through profit or loss, meanwhile the other assets are measured through other comprehensive income. The designation has been applied continuously.
Financial assets other than equity instruments that do not meet the conditions in relation to the measurement of amortized cost are measured at fair value through profit or loss.
Financial assets measured at fair value through profit or loss are initially measured at fair value and transaction costs are recognized in profit or loss when they occur. Financial assets measured at fair value through other comprehensive income are initially measured at fair value plus transaction costs directly attributable to the acquisition. ii) Subsequent measurement After initial recognition, financial assets are measured based on the following classifications:
a) Financial assets measured at amortized cost Financial assets measured at amortized cost are measured using the effective interest method. The effective interest rate is the rate that discounts estimated future cash receipts through the expected life of financial assets. Interest income is recognized in profit or loss, and included in "Finance income" in the consolidated statement of income. In cases where a financial asset measured at amortized cost is derecognized, the difference between the carrying amount and the consideration received or receivable is recognized in profit or loss.
b) Financial assets measured at fair value Changes in the fair value of financial assets measured at fair value are recognized in profit or loss.
However, gains or losses occurring from the disposal or remeasurement of fair value of the equity instruments measured at fair value through other comprehensive income are recognized in other comprehensive income and accumulated within "Other components of equity," and are not recognized in profit or loss. The amount is transferred to retained earnings when the equity instruments are derecognized. Dividends for equity instruments are recognized in profit or loss for the period when the right to receive dividends is established and included in "Finance income" in the consolidated statement of income. Net gains or losses arising from equity instruments measured at fair value through profit or loss are recognized as "Finance income" or "Finance expenses" in the consolidated statement of income (Note 26 "Financial instruments"). The interest income from the debt instruments is also included in profit or loss above. iii) Impairment of financial assets measured at amortized cost The Group assesses, at the end of each reporting period, whether there is any objective evidence that financial assets measured at amortized cost are impaired. Objective evidence of impairment includes a default or delinquency of the borrower, granting the borrower a concession that the companies in the Group would not otherwise consider, indications of bankruptcy of the issuer or obligor, and the disappearance of active markets.
If there is any objective evidence that impairment losses on financial assets measured at amortized cost have been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows.
When impairment is recognized, the carrying amount of the financial asset measured at amortized cost is reduced by an allowance for doubtful accounts, and impairment losses are recognized as "Other expenses" in the consolidated statement of income. The carrying amount of financial assets is directly reduced for the impairment when they are expected to become uncollectible in the future and all collateral is implemented or transferred to the companies in the Group. If, in a subsequent period, the amount of the impairment loss provided changes due to an event occurring after the impairment was recognized, the previously recognized impairment losses are adjusted through the allowance for doubtful accounts.
28 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
iv) Derecognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when the Group transfers the contractual right to receive cash flows from financial assets in transactions in which substantially all the risks and rewards of ownership of the asset are transferred to another entity. If the Group neither transfers nor holds substantially all the risks and rewards of ownership of the asset and continues to control the transferred asset, the Group recognizes the retained interest on the assets and the relevant liabilities that might possibly be paid in association therewith.
2) Financial liabilities i) Initial recognition and measurement Financial liabilities are classified into financial liabilities measured at amortized cost or financial liabilities measured at fair value through profit or loss. The Group determines the classification at initial recognition, and all financial liabilities are measured at fair value at initial recognition. However, financial liabilities measured at amortized cost are measured at fair value after deducting transaction costs that are directly attributable to the issuance of financial liabilities.
ii) Subsequent measurement After initial recognition, financial liabilities are measured based on the following classifications:
a) Financial liabilities measured at amortized cost Financial liabilities held neither for trading nor measured at fair value through profit or loss are measured at amortized cost using the effective interest method. The interest cost is included in "Finance costs" in the consolidated statement of income. Amortization under the effective interest method and gains or losses on derecognition are recognized as "Finance income" or "Finance costs" in the consolidated statement of income.
b) Financial liabilities measured at fair value through profit or loss Financial liabilities held for trading and those designated as measured at fair value through profit or loss at initial recognition are measured at fair value through profit or loss.
iii) Derecognition of financial liabilities The Group derecognizes financial liabilities when they are extinguished, for example, when the obligation specified in the contract is discharged, cancelled, or expired.
3) Derivatives and hedge accounting The Group utilizes derivatives, including currency swaps, interest rate swaps, and foreign exchange forward contracts to hedge foreign exchange and interest rate risks. These derivatives are initially measured at fair value when the contract is entered into, and are subsequently remeasured at fair value at each reporting period.
The Group has derivatives that are held for hedging purposes but that do not qualify for hedge accounting. The fluctuation of the fair value of these derivatives is recognized in profit or loss immediately.
At the inception of the hedge, the Group formally designates and documents the hedging relationship between the hedging instruments and the hedged items by following the objectives of risk management and the strategies for undertaking the hedge. In addition, these hedges are expected to be highly effective in offsetting changes in cash flows. They are assessed on a quarterly basis to determine whether they have been highly effective throughout the reporting periods for which the hedges were designated. To qualify as a cash flow hedge of a forecast transaction, the transaction must be highly probable.
29 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Cash flow hedge The Group adopts only cash flow hedges as part of its hedge accounting.
The effective portion of gains or losses on hedging instruments is recognized as other comprehensive income in the consolidated statement of comprehensive income, while the ineffective portion is recognized immediately in profit or loss in the consolidated statement of income.
The amounts of hedging instruments recognized in other comprehensive income are reclassified to profit or loss when the transactions of the hedged items affect profit or loss.
Hedge accounting is discontinued prospectively when the hedge no longer qualifies for hedge accounting, or when the hedging instrument expires or is sold, terminated, or exercised, or when the designation is revoked.
When hedge accounting is discontinued, the balances of other comprehensive income related to cash flow hedges remain until the forecast transaction affects profit or loss. When a forecast transaction is no longer expected to occur, the balance is recognized immediately in profit or loss.
4) Offsetting financial assets and financial liabilities Financial assets are offset against financial liabilities and the net amounts are presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize assets and settle liabilities simultaneously.
(5) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits, and short-term investments that are readily convertible to known amounts of cash and subject to insignificant risk of change in value and due within three months from the date of acquisition.
(6) Inventories Inventories are measured at the lower of acquisition cost and net realizable value. The cost of inventories includes all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition and the cost is determined mainly using the periodic average method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and estimated applicable variable selling expenses.
30 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(7) Property, plant and equipment Property, plant, and equipment is measured by using the "Cost model" and is stated at acquisition cost less accumulated depreciation and impairment losses.
Except for assets that are not subject to depreciation such as land and construction in progress, property, plant, and equipment is mainly depreciated using the straight-line method over their estimated useful lives, as follows. The estimated useful lives and depreciation method are reviewed at the end of each reporting period. ・ Buildings and structures: 6 to 50 years ・ Machinery and vehicles: 3 to 10 years ・ Other: 2 to 10 years
Property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of property, plant and equipment is recognized in profit or loss when the item is derecognized.
(8) Investment property Investment property is measured by using the "Cost model," in which the depreciation method and useful lives are used for the property, plant and equipment for the Group.
(9) Intangible assets 1) Separately acquired intangible assets Separately acquired intangible assets with finite useful lives are stated at acquisition cost less accumulated amortization and impairment losses. They are amortized using the straight-line method over their estimated useful lives.
The estimated useful lives and amortization method of intangible assets with finite useful lives are reviewed at the end of each reporting period, and the effects of any changes in estimates are accounted prospectively.
Separately acquired intangible assets with indefinite useful live are not amortized, but tested for impairment, and are stated at acquisition cost less accumulated impairment losses. The impairment tests are performed individually or by cash-generating unit annually or whenever there is any indication of impairment.
2) Internally generated intangible assets Expenditures related to research activities are recognized as expenses as incurred. The cost arising from development (or from the development phase of an internal project) shall be recognized if, and only if, the Group can demonstrate all of the following: i) the technical feasibility of completing the intangible asset so that it will be available for use or sale; ii) its intention to complete the intangible asset and use or sell it; iii) its ability to use or sell the intangible asset; iv) how the intangible asset will generate probable future economic benefits; v) the availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development.
31 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Initial recognition of internally generated intangible assets comprises the total expenditure incurred from the date when all the preceding conditions have been satisfied to the date when the developments are finished. Development costs are recognized as an expense as incurred if the internally generated intangible assets are not recognized.
After initial recognition, internally generated intangible assets are measured at cost, net of accumulated amortization and impairment losses.
3) Intangible assets acquired in business combinations Intangible assets acquired in business combinations are initially recognized at fair value at the acquisition date. Subsequently, intangible assets acquired in business combinations are measured at cost less any accumulated amortization and impairment losses.
4) Amortization of intangible assets Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. Estimated useful lives are as follows: ・ Software: 3 to 5 years ・ Development costs: 3 years ・ Customer-related assets: 8 years ・ Technology-based assets: 10 years
5) Derecognition of intangible assets Intangible assets are derecognized on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss arising from the derecognition of intangible assets is included in profit or loss when the item is derecognized.
(10) Leases Leases are classified as finance leases whenever substantially all the risks and rewards incidental to ownership are transferred to the lessee. All other leases are classified as operating leases.
Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement in accordance with IFRIC 4, "Determining Whether an Arrangement Contains a Lease," even if the arrangement does not take the legal form of a lease.
1) As lessee In finance lease transactions, leased assets and lease obligations are recognized in the consolidated statement of financial position at the lower of the fair value of the leased property or the present value of the minimum lease payments, each determined at the inception of the lease. Leased assets are depreciated using the straight-line method over their estimated useful lives based on the accounting policies applied to the assets.
In operating lease transactions, lease payments are recognized as an expense using the straight-line method over the lease terms in the consolidated statement of income.
2) As lessor As for lease receivables arising from finance lease transactions, net uncollected amounts of the investments in the relevant lease transactions are recognized as receivables.
32 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(11) Borrowing costs Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, which are assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
(12) Impairment of non-financial assets The Group assesses, for each fiscal year, whether there is any indication that an asset may be impaired. If any such indication exists, or in cases where the impairment test is required to be performed each year, the recoverable amount of the asset is estimated. In cases where the recoverable amount cannot be estimated for each asset, it is estimated by the cash-generating unit to which the asset belongs. The grouping of assets in applying impairment accounting is determined by business group, which is the unit used in management accounting to understand profits and losses on an ongoing basis. In addition, assets are grouped into a rented property group and an idle property group, with each property as a minimum unit. Meanwhile, the headquarters and welfare facilities are categorized as corporate assets because they do not generate cash flows independently.
Impairment losses are included in "Other expenses" in the consolidated statement of income. Assessment for impairment is performed with respect to each asset, cash-generating unit, or group of cash-generating units. The recoverable amount of an asset or a cash-generating unit is determined at the higher of its fair value less disposition costs or its value in use. If the carrying amount of the asset or cash-generating unit exceeds the recoverable amount, impairment losses are recognized and the carrying amount is reduced to the recoverable amount. In determining the fair value less disposition costs, the Group uses an appropriate valuation model supported by available fair value indicators. In determining the value in use, estimated future cash flows are calculated using discount rates that reflect current market assessments of the time value of money and the risks specific to the asset.
The Group assesses whether there is any indication that an impairment loss recognized in prior years for an asset other than goodwill may no longer exist or may have decreased, such as any changes in assumptions used for the determination of the recoverable amount. If any such indication exists, the recoverable amount of the asset or cash- generating unit is estimated. In cases that the recoverable amount exceeds the carrying amount of the asset or cash- generating unit, impairment losses are reversed up to the lower of the estimated recoverable amount or the carrying amount (net of depreciation) that would have been determined if no impairment losses had been recognized in prior years.
(13) Non-current assets held for sale An asset or asset group for which the value is expected to be recovered through a sale transaction rather than through continuing use is classified as a held-for-sale non-current asset or disposal group when the following conditions are met: it is highly probable that the asset or asset group will be sold within one year, the asset or asset group is available for immediate sale in its present condition, and the Group management commits to the sale plan. In such cases, the non-current asset is not depreciated or amortized and is measured at the lower of its carrying amount or its fair value less costs to sell.
33 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(14) Provisions Provisions are recognized when the Group has present legal or constructive obligations as a result of past events, it is probable that outflows of resources embodying economic benefits will be required to settle the obligations, and reliable estimates can be made of the amount of the obligations.
Provisions are measured at the present value by the estimated future cash flow that is discounted by a pre-tax rate that reflects the time value of money and the risks specific to the liability. The unwinding of the discount due to the passage of time is recognized as "Finance costs" in the consolidated statement of income.
Main provisions are recorded as follows.
Reserve for warranty The reserve for warranty is recognized based on the estimated amount of warranty expenses, taking into account the timing of economic benefit outflows based on past experiences for after-sales service expenses incurred.
Provision for loss on antitrust issues Provision for loss on antitrust issues is recognized at an estimated amount of potential future losses to prepare for payments of litigation settlements, etc., which the Company has accepted with regard to allegations of antitrust law infractions for past transactions of specific automotive parts.
(15) Employee benefits 1) Post-employment benefits i) Defined benefit plans The Group has defined benefit pension plans and lump-sum benefit plans.
Defined benefit plans are post-employment benefit plans other than defined contribution plans (refer to ii) below). The Group's net defined benefit obligations are calculated respectively for each plan by estimating the future amount of benefits that employees have earned in exchange for their service over the previous years and the current year. The benefits are discounted to determine the present value. These calculations are performed annually by qualified actuaries using the projected unit credit method. The fair values of plan assets are deducted from the result of calculations.
The discount rates are equivalent to the market yields of AA credit-rated corporate bonds at the end of each reporting period that have maturity terms approximating those of the Group's obligations. Increase/decrease in benefit obligations for employees' past service due to revisions to the plan are recognized in profit or loss. The Group recognizes the increase/decrease in obligations due to remeasurements of benefit obligations and plan assets of defined benefit plans in other comprehensive income and then immediately reclassifies them from other comprehensive income to retained earnings.
ii) Defined contribution plans Defined contribution plans are post-employment benefit plans in which the employer pays fixed contributions into separate entities and will have no legal or constructive obligation to make further contributions. The obligations for contributions to defined contribution plan are recognized as an expense during the period when the service is rendered.
34 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
2) Other long-term employee benefits Long-term employee benefits, such as long-service employee awards, are recognized as a liability when the Group has present legal or constructive obligations to pay as a result of past employee service, and when reliable estimates of the obligation can be made. The Group's long-term employee benefits are calculated by discounting the estimated future amount of benefits to the present value.
The discount rates are equivalent to the market yields of AA credit-rated corporate bonds at the end of each reporting period that have maturity terms approximating those of the Group's obligations.
3) Short-term employee benefits Short-term employee benefits are measured on an undiscounted basis and are expensed during the period when the service is rendered.
Bonus accrual is recognized as a liability when the Group has present legal or constructive obligations to pay as a result of past employee service, and when reliable estimates of the obligation can be made.
(16) Revenue Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods transfer to the buyers, the Group retains neither continuing managerial involvement nor effective control over the goods sold, it is probable that the future economic benefits will flow to the Group, and the amount of revenue and the corresponding costs can be measured reliably.
Sales-related tax, rebates, and similar items are excluded from revenue as amounts of economic benefit inflows.
In the sales of products and merchandise, if the Group has sold them as the principal obligor of a contract by assuming the general risk of inventory before receiving purchase orders from customers, the relevant revenue is recognized in a gross amount in the consolidated statement of income.
(17) Government grants Government grants are recognized at fair value when there is a reasonable assurance that the Group will receive the grants subject to the conditions attached to them. In cases where the government grants are compensation for expenses, they are recognized in profit or loss in the period in which the related costs for which the grants are intended to compensate are recognized. With regard to government grants that are compensation for assets, the amount of the grants is deducted from the acquisition cost of the assets to measure the carrying amounts of the assets.
(18) Income taxes Income taxes in the consolidated statement of income are presented as the total of current income taxes and deferred income taxes. The current income taxes are recognized in profit or loss, except for taxes arising from items that are recognized in other comprehensive income or directly in equity and those arising from business combinations.
Current income taxes are measured at the amount that is expected to be paid to or refunded from the taxation authorities. For the calculation of the tax amount, the Group uses the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred income taxes are calculated based on the temporary differences between the tax base for assets and liabilities and the carrying amounts at the end of each reporting period. Deferred tax assets are recognized for deductible temporary differences, unused tax credits, and unused tax losses to the extent that it is probable that future taxable profit will be available against which they can be utilized. Deferred tax liabilities are recognized for taxable temporary differences.
35 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Deferred tax assets and liabilities are not recognized for the following temporary differences: ・ the initial recognition of goodwill; ・ the initial recognition of assets or liabilities in transactions that are not business combinations and at the time of the transaction affect neither accounting profit nor taxable profit or tax loss; ・ deductible temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures to the extent that it is not probable that the reversal of the temporary difference in the foreseeable future will occur or it is not probable that future taxable profits will be available against which they can be utilized; or ・ taxable temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures to the extent that the timing of the reversal of the temporary difference is controlled and that it is not probable the temporary difference will reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the fiscal year when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is not probable that there will be sufficient taxable profit against which all or part of the deferred tax assets can be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and recognized only to the extent that it is probable that the deferred tax assets can be recovered by future taxable profits.
The Group recognizes an asset or liability for the effect of uncertainty in income taxes which is measured at the amount of the reasonable estimate for uncertain tax positions when it is possible, based on the Group's interpretation of tax laws, in which the tax positions will be sustained.
An entity shall offset deferred tax assets and deferred tax liabilities, if and only if, the entity has a legally enforceable right to set off the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.
The Company and its wholly owned subsidiaries in Japan have adopted the consolidated taxation system starting the fiscal year ended March 31, 2018.
(19) Equity Common stock The amount of equity instruments issued by the Company is recognized in "Common stock" and "Capital surplus," and direct issue costs (net of tax) are deducted from "Capital surplus."
Treasury stock When the Company acquires treasury stock, the consideration paid, net of direct transaction costs and tax, is recognized as a deduction from equity. When the Company disposes treasury stock, gains or losses on disposal, including the exercise of stock options, are recognized in "Capital surplus."
36 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(20) Fair value measurements Certain assets and liabilities are required to be recognized at fair value. The estimated fair values of those assets and liabilities have been determined using market information such as quoted market prices and valuation methodologies such as the market approach, income approach, and cost approach. There are three levels of inputs that may be used to measure fair value.
1) Level 1 Quoted prices (unadjusted) in active markets in which transactions take place with sufficient frequency and transaction volume on an ongoing basis for identical assets or liabilities that the Group can access at the measurement date.
2) Level 2 Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities, and market-corroborated inputs in which all significant inputs and significant value drivers are observable.
3) Level 3 Unobservable inputs for the assets or liabilities which reflect the assumptions that market participants would use when pricing the assets or liabilities. The Group develops unobservable inputs using the best information available in the circumstances, which might include the Group's own data. The fair value is measured at the financial and accounting division by following the Company's measurement policy and procedure, and the measurement is executed based on the valuation models which reflect nature, feature, and risks of each financial instrument most appropriately. In addition, transitions of important indexes which impact on the changes of fair value are examined on an ongoing basis. In cases where the changes in the fair value of financial instruments are found to be significant as a result of examination, it is reported to the executive of finance and accounting division to obtain approval.
(21) Levies The Group recognizes estimated payable amount as a liability when it is required to pay a levy.
(22) Earnings per share Basic earnings per share is calculated by dividing profit or loss attributable to ordinary shareholders of the parent company by the weighted-average number of ordinary shares outstanding during the year, adjusted by the number of treasury shares. Diluted earnings per share are calculated by adjusting the effects of dilutive potential ordinary shares.
(23) Dividends Dividends to the shareholders of the Company are recognized as liabilities in the period in which each year-end dividend and interim dividend was resolved.
37 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
4. New accounting standards not yet adopted by the Group New or revised major standards and interpretations that were issued by the date of approval of the consolidated financial statement but were not yet adopted by the Group as of March 31, 2018, are as follows.
Date of mandatory adoption Reporting periods of Description of new standards Standards Title (Fiscal year of application by the and amendments commencement Group thereafter) Classification and measurement Financial Fiscal year ending of debt instruments, IFRS 9 January 1, 2018 Instruments March 31, 2019 Implementation of model of expected credit loss Revenue from Accounting and disclosure Fiscal year ending IFRS 15 Contracts January 1, 2018 requirements for revenue March 31, 2019 with Customers recognition Fiscal year ending Accounting and disclosure IFRS 16 Leases January 1, 2019 March 31, 2020 requirements for leases
The effect of adopting of IFRS 9, "Financial Instruments," for the financial statements is expected to be immaterial .
The main changes in relation to the adoption of IFRS 15, "Revenue from Contracts with Customers," are accounting procedures of consideration payable to a customer and customer supplied parts with charge. In relation to the accounting procedures of consideration payable to a customer certain expenses previously recognized in "Cost of revenue" will be recognized as a reduction of "Revenue." Consolidated revenue is expected to decrease by approximately ¥50,000 million for the year ending March 31, 2019. Additionally, with regard to certain transactions of customer supplied parts with charge under the repurchase agreement, inventories will continue to be recognized as financial transactions, and the year-end inventories of supplied parts that remain with the receivers will be recognized as financial liabilities. As such, total assets and total liabilities in the consolidated statement of financial position for the first applicable fiscal year will increase. The total assets and total liabilities are expected to increase by approximately ¥20,000 million in the consolidated statement of financial position as of March 31, 2019. There will be immaterial impact on operating profit from these changes.
The Group is currently assessing the possible impacts of the application of IFRS 16, and "Leases," is not able to estimate reasonably at this moment.
5. Segment information (1) Outline of reportable segments The Group's reportable segments are operating segments, or aggregations of operating segments, which are components of an entity for which separate financial information is available. Such information is evaluated regularly by the president of the Company for the purposes of making decisions on how to allocate resources and assessing performance.
The Group mainly manufactures and sells automotive parts and has directors in charge in Japan, North America, Europe, and Asia. As independent management units, subsidiaries in each region have developed business activities, as exemplified by establishment or expansion of manufacturing companies, aiming for optimum production and supply for orders received through operating activities to regional customers.
The Company is in charge of business activities in Japan. Meanwhile, DENSO INTERNATIONAL AMERICA, INC. and DENSO INTERNATIONAL EUROPE B.V. are in charge in the North America and Europe regions, respectively. In Asia, DENSO INTERNATIONAL ASIA CO., LTD (Thailand), DENSO INTERNATIONAL ASIA PTE. LTD. (Singapore), and DENSO (CHINA) INVESTMENT CO., LTD have been cooperating together as a management unit.
Since the Group is composed of regional segments based on manufacturing and selling systems, the Group determined that "Japan," "North America," "Europe," and "Asia" are its reportable segments. The Group has been manufacturing and selling mainly automotive parts in each reportable segment.
Accounting procedures are the same as those stated in Note 3 "Significant accounting policies." Intersegment transactions are priced with reference to those applicable to transactions with external parties.
38 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767 Reportable segment profit is measured on the basis of operating profit in the consolidated statement of income. Finance income, finance costs, foreign exchange gains/losses, share of profit/loss of associates and joint ventures accounted for using the equity method, and income tax expenses are excluded from the reportable segment profit, since they are not included in the financial information evaluated by the president of the Company.
(2) Revenue, profit/loss, and other material items for each reportable segment
For the year ended March 31, 2017 (Unit: Millions of yen)
Reportable segment North Others Eliminations Consolidated Japan Europe Asia Total America (Note) Revenue Customers 1,871,838 1,050,460 550,244 989,505 4,462,047 65,101 － 4,527,148 Intersegment 814,166 26,74327,025 149,770 1,017,704 715 (1,018,419) － Total 2,686,004 1,077,203 577,269 1,139,275 5,479,751 65,816 (1,018,419) 4,527,148 Segment profit or losses 130,154 59,959 20,168 112,740 323,021 6,893 637 330,551 Finance income 35,487 Finance costs (9,883) Foreign exchange gains (3,733) Share of the profit of associates and joint ventures accounted for using the equity method 8,436 Profit before income taxes 360,858
(Note) "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America.
Other material items (Unit: Millions of yen) Reportable segment North Others Eliminations Consolidated Japan Europe Asia Total America (Note 1) Depreciation and 144,727 27,061 20,003 52,614 244,405 2,857 － 247,262 amortization Impairment losses － －－－－－ － － Reversal of impairment － －－－－－ － － losses Investments accounted for 68,640 7,464 376 15,906 92,386 － (188) 92,198 using the equity method Increase in non-current 222,802 52,090 24,156 44,501 343,549 2,176 － 345,725 assets (Note 2)
(Note 1) "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America. (Note 2) Non-current assets are a total of property, plant and equipment and intangible assets.
39 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
For the year ended March 31, 2018 (Unit: Millions of yen)
Reportable segment North Others Eliminations Consolidated Japan Europe Asia Total America (Note) Revenue Customers 2,140,729 1,122,847 620,193 1,146,037 5,029,806 78,485 － 5,108,291 Intersegment 943,073 33,40542,139 176,786 1,195,403 513 (1,195,916) － Total 3,083,802 1,156,252 662,332 1,322,823 6,225,209 78,998 (1,195,916) 5,108,291 Segment profit or losses 200,666 42,512 20,061 136,728 399,967 13,420 (711) 412,676 Finance income 40,532 Finance costs (9,495) Foreign exchange gains (328) Share of the profit of associates and joint ventures accounted for using the equity method 6,518 Profit before income taxes 449,903
(Note) "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America.
Other material items (Unit: Millions of yen) Reportable segment North Others Eliminations Consolidated Japan Europe Asia Total America (Note 1) Depreciation and 167,692 33,143 23,169 57,887 281,891 2,835 － 284,726 amortization Impairment losses 393 542 612 － 1,547 － － 1,547 Reversal of impairment losses － － － － － － － － Investments accounted for 64,309 6,790 474 17,324 88,897 － (179) 88,718 using the equity method Increase in non-current 250,088 44,663 31,466 53,564 379,781 2,196 － 381,977 assets (Note 2)
(Note 1) "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America. (Note 2) Non-current assets are a total of property, plant and equipment and intangible assets.
(3) Assets for each reportable segment (Unit: Millions of yen)
2017 2018 Japan 3,021,943 3,519,068 North America 510,048 577,623 Europe 379,381 432,620 Asia 904,414 1,045,022 Others (Note 1) 58,365 56,465 Corporate assets (Note 2) 276,611 133,619 Consolidated 5,150,762 5,764,417
(Note 1) "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America. (Note 2) Corporate assets mainly consist of funds which are not attributable to the reportable segments.
40 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(4) Information about products and services For the years ended March 31, 2017 and 2018 Revenue by products and services are not presented since the revenue of automotive products represented the majority of total revenue.
(5) Geographic information 1) Revenue (Unit: Millions of yen)
2017 2018 Japan 1,817,838 2,061,429 The United States 899,640 958,247 Others 1,809,670 2,088,615 Total 4,527,148 5,108,291
(Note) 1. Countries which have significant impact on the consolidated financial statements are individually presented. 2. Revenue is attributed to geographic areas based on customer locations.
2) Non-current assets (Unit: Millions of yen)
2017 2018 Japan 895,813 1,020,555 Others 617,168 647,620 Total 1,512,981 1,668,175
(Note) 1. Countries which have significant impact on the consolidated financial statements are individually presented. 2. Non-current assets, a total of property, plant and equipment and intangible assets, are attributed to geographic areas based on locations of assets.
(6) Information about major customers The major customer is Toyota Motor Corporation and its subsidiaries. Revenue from the major customer is recorded in all segments, such as Japan, North America, Europe, and Asia. (Unit: Millions of yen)
2017 2018 2,128,244 2,341,657
41 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
6. Business Combinations (1) TD MOBILE CORPORATION The Company acquired TD MOBILE CORPORATION (hereinafter, "TD MOBILE") as a consolidated subsidiary as of July 1, 2017.
1) Description of business combination TD MOBILE, an associate of the Company, which primarily conducts dealership operations for mobile phones, became the Company's subsidiary on July 1, 2017 as a result of TD MOBILE's acquisition of its own treasury stock. As a result of TD MOBILE acquiring its own treasury stock, the ownership ratio of TD MOBILE's voting rights held by the Company rose from 49% (as of June 30, 2017) to 51% (as of July 1, 2017), giving the Company the majority of TD MOBILE voting rights.
2) Reason for the business combination In order to further expand the Company's business scale by collaborating with TD MOBILE in the key areas of automotive communications products and services, and non-automotive information distribution systems for local communities
3) Summary of the acquiree Name TD MOBILE CORPORATION Business description Dealership operations for mobile phones, development and distribution of content for mobile phones, etc.
4) Acquisition date July 1, 2017
5) Consideration transferred and its components (Unit: Millions of yen) 2018 Fair value of equity interest in TD MOBILE already held at the time of the acquisition 16,656 Total of the consideration transferred 16,656
As a result of the remeasurement of equity interest already held at the time of the acquisition of control by the Company of TD MOBILE at fair value on the acquisition date, the Company recognized a gain on the acquisition of ¥11,646 million for the fiscal year ended March 31, 2018. This gain is included in "Other income" in the consolidated statement of income.
42 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
6) Fair values of assets, liabilities, non-controlling interests, and goodwill on the acquisition date (Unit: Millions of yen) 2018 Total of the consideration transferred for the acquired shares (A) 16,656 Assets Trade and other receivables 5,501 Other current assets 3,403 Intangible assets 14,549 Other non-current assets 2,900 Total assets 26,353 Liabilities Current liabilities 3,881 Non-current liabilities 5,086 Total liabilities 8,967 Equity (B) 17,386 Non-controlling interests (Note 1) (C) 8,519 Goodwill (Note 2) (A-(B-C)) 7,789
(Note 1) Non-controlling interests Non-controlling interests in an acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured based on the proportionate interests at the acquisition date in the identifiable net assets of the acquiree at the acquisition date. (Note 2) Goodwill Goodwill reflects excess earning power expected from future business development and the synergy between the Company and the acquiree.
7) Proceeds from acquisition of control over the subsidiary (Unit: Millions of yen) 2018 Cash and cash equivalents held by the acquiree at the time of the acquisition 87 Proceeds in cash from acquisition of control over the subsidiary 87
8) Revenue and profit of the acquiree The acquiree's revenue and loss for the year before elimination of inter-company transactions after the acquisition date, which are recorded in the consolidated statement of income for the fiscal year ended March 31, 2018, were ¥82,713 million and ¥763 million, respectively.
The loss for the year referred to above includes amortization of intangible assets recognized at the acquisition date.
43 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(2) FUJITSU TEN LIMITED The Company acquired FUJITSU TEN LIMITED (hereinafter, "FUJITSU TEN") as a consolidated subsidiary as of November 1, 2017.
1) Description of business combination FUJITSU TEN, an investee of the Company, became the Company's subsidiary on November 1, 2017 as a result of the Company obtaining a portion of shares from FUJITSU LIMITED (hereinafter, "FUJITSU"), its previous parent company. As a result of obtaining the portion of shares, the ownership ratio of FUJITSU TEN's voting rights held by the Company rose from 10% (as of October 31, 2017) to 51% (as of November 1, 2017), giving the Company the majority of FUJITSU TEN voting rights.
2) Reason for the business combination FUJITSU TEN was established in 1972 as a spinoff of FUJITSU's radio division. Since Toyota Motor Corporation and the Company purchased stakes in 1973, FUJITSU TEN has offered various products and services as a manufacturer of automotive electronics products, including audio and multimedia. Recently, FUJITSU TEN has strengthened its Vehicle-ICT business to create new value, while accelerating collaboration with FUJITSU and its group companies to transform itself from a supplier of standalone products to a system manufacturer that proposes and provides connected in-vehicle information equipment and services.
In the automotive field, the interface between the driver and vehicle is becoming increasingly important due to remarkable technological innovations. Against this backdrop, the Company has made FUJITSU TEN a Group company to enhance cooperation between the two companies in developing in-vehicle ECUs, millimeter-wave radar, advanced driver assistance/automated driving technologies, and basic electronic technologies and to improve corporate value together.
3) Summary of the acquiree Name FUJITSU TEN LIMITED (Renamed DENSO TEN LIMITED) Business description Development, manufacture, and sales of infotainment equipment and automotive electronics equipment
4) Acquisition date November 1, 2017
5) Consideration transferred and its components (Unit: Millions of yen) 2018 Payment by cash 16,511 Fair value of equity interest in FUJITSU TEN already held at the time of the acquisition 4,027 Total of the consideration transferred 20,538
Acquisition-related costs incurred from the business combination and recognized in "Selling, general and administrative expenses" in the consolidated statement of income for the years ended March 31, 2017 and 2018 were ¥228 million and ¥132 million, respectively.
44 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
6) Fair values of assets, liabilities, non-controlling interests, and goodwill on the acquisition date (Unit: Millions of yen) 2018 Total of the consideration transferred for the acquired shares (A) 20,538 Assets Trade and other receivables 59,514 Other current assets 48,182 Intangible assets 27,813 Other non-current assets 41,003 Total assets 176,512 Liabilities Current liabilities 115,843 Non-current liabilities 18,950 Total liabilities 134,793 Equity (B) 41,719 Non-controlling interests (C) 23,119 Goodwill (A-(B-C)) 1,938
(Note) 1. Adjustment to the provisional amount Consideration transferred is allocated to acquired assets and assumed liabilities based on the fair value on the acquisition date. Allocation of the consideration transferred was completed during the three-month period ended March 31, 2018. In terms of adjustments from the initial provisional amounts, after additional analysis on the fair value of FUJITSU TEN, other current assets, intangible assets, non-current liabilities, and non-controlling interests increased by ¥294 million, ¥13,662 million, ¥3,966 million, and ¥3,491 million, respectively, and other non-current assets decreased by ¥2,177 million. As a result, goodwill decreased by ¥4,322 million. 2. Non-controlling interests Non-controlling interests in an acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation are measured based on the proportionate interests at the acquisition date in the identifiable net assets of the acquiree at the acquisition date. 3. Goodwill Goodwill reflects excess earning power expected from future business development and the synergy between the Company and the acquiree.
7) Payment for acquisition of control over the subsidiary (Unit: Millions of yen) 2018 Payment by cash 16,511 Cash and cash equivalent held by the acquiree at the time of the acquisition 10,668 Total of the consideration transferred 5,843
8) Revenue and profit of the acquiree The acquiree's revenue and loss for the year before elimination of inter-company transactions after the acquisition date, which are recorded in the consolidated statement of income for the fiscal year ended March 31, 2018, were ¥161,783 million and ¥2,837 million, respectively.
The loss for the year referred to above includes amortization of intangible assets recognized at the acquisition date.
45 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(3) Consolidated revenue and profit assuming that the business combinations were completed at the beginning of the fiscal year The following is pro forma information (unaudited) of consolidated performance of the Group for the fiscal year ended March 31, 2018, assuming that the business combinations of TD MOBILE and FUJITSU TEN were completed and controls were acquired as of April 1, 2017. (Unit: Millions of yen) 2018 Revenue (pro forma) 5,349,081 Profit for the year (pro forma) 348,780
7. Cash and cash equivalents The breakdown of "Cash and cash equivalents" at each fiscal year-end is as follows: (Unit: Millions of yen)
2017 2018 Cash and deposits 682,077 754,290 Short-term investments 111,473 29,048 Total 793,550 783,338
46 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
8. Trade and other receivables The breakdown of "Trade and other receivables" at each fiscal year-end is as follows: (Unit: Millions of yen)
2017 2018 Notes and accounts receivable 740,048 822,963 Other 138,242 172,740 Less: Allowance for doubtful accounts (1,836) (2,154) Total 876,454 993,549
(Note) "Trade and other receivables" are classified as financial assets which are measured at amortized cost.
When impairment of accounts receivable and other financial assets are recognized, the carrying amount of the financial asset is not directly reduced, but reduced by an allowance for doubtful accounts. The increases and decreases of the allowance for doubtful accounts for each fiscal year were as follows. (Unit: Millions of yen)
2017 2018 Balance, beginning of year 1,770 1,836 Increase 862 1,461 Decrease—used (58) (108) Decrease—reversed (758) (946) Foreign exchange differences 20 (89) Balance, end of year 1,836 2,154
Where recoverability is uncertain, the Group conducts ongoing monitoring of the credit status of customers, including receivables whose maturity date has been extended. Based on the credit facts covered by this monitoring, the Group assesses the recoverability of trade and other receivables, and recognizes allowances for doubtful accounts accordingly. In addition, it is not overly reliant on any specific counterparty and therefore faces minimal exposure to the impact of chain-reaction credit risk. Consequently, the Company has not recognized additional allowances for doubtful accounts due to credit risk concentration.
The age of trade and other receivables that are past due but not impaired as of each fiscal year-end was as follows.
Receivables disclosed below include amounts considered recoverable through credit insurance and collateral. It was determined that there was no impairment loss as of each fiscal year-end. (Unit: Millions of yen)
2017 2018 Past due within 90 days 23,843 25,230 Past due over 90 days through one year 3,200 5,303 Past due over one year 111 1,443 Total 27,154 31,976
9. Inventories The breakdown of "Inventories" at each fiscal year-end is as follows: (Unit: Millions of yen)
2017 2018 Merchandise and finished products 160,054 176,971 Work in process 189,079 218,706 Raw materials and supplies 136,734 154,614 Total (Note) 485,867 550,291
(Note) The amounts of write-down of inventories to net realizable value recognized as "Cost of revenue" for the years ended March 31, 2017 and 2018 were ¥6,422 million and ¥14,259 million, respectively.
47 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
10. Other financial assets (1) The breakdown of "Other financial assets" as of each fiscal year-end is as follows: (Unit: Millions of yen)
2017 2018 Bank deposits (Note 1) 64,864 135,003 Certificates of deposit (Note 1) － － Debt securities (Note 1) 35,934 14,503 Equity securities (Note 2) 1,079,124 1,310,718 Derivative assets (Note 3) 10,357 4,550 Other 15,447 17,168 Total 1,205,726 1,481,942
Current assets 93,781 151,122 Non-current assets 1,111,945 1,330,820 Total 1,205,726 1,481,942
(Note 1) Bank deposits, certificates of deposit, and debt securities are classified as financial assets measured at amortized cost. (Note 2) Equity securities are classified as financial assets measured at fair value through other comprehensive income. (Note 3) Derivative assets, excluding those to which hedge accounting is applied, are classified as financial assets measured at fair value through profit or loss.
(2) Names of major securities held as financial assets measured at fair value through other comprehensive income and their fair values as of each fiscal year-end were as follows: (Unit: Millions of yen)
Security name 2017 2018 Toyota Motor Corporation 527,079 617,560 TOYOTA INDUSTRIES CORPORATION 163,953 190,932 Renesas Electronics Corporation 9,725 89,195 Towa Real Estate Co., Ltd. 71,605 78,899 Aisin Seiki Co., Ltd. 70,918 74,937 KOITO MANUFACTURING CO., LTD. 38,869 49,543 JTEKT CORPORATION 31,764 28,953 SUZUKI MOTOR COPORATION 18,082 22,537 TOYOTA BOSHOKU CORPORATION 26,326 22,260 TOKAI RIKA CO., LTD. 19,942 19,373
Equity securities are held mainly for strengthening business relationships with investees. Therefore, they are designated as financial assets measured at fair value through other comprehensive income.
Dividend income related to financial assets measured at fair value through other comprehensive income that the Group held through the years ended March 31, 2017 and 2018 were ¥27,670 million and ¥29,894 million, respectively.
In order to pursue the efficiency of assets held and to use them effectively, the Group has disposed of (derecognized) financial assets measured at fair value through other comprehensive income.
The fair value at the derecognition, cumulative gains and losses that have been previously recognized in equity as other comprehensive income, and dividend income were as follows: (Unit: Millions of yen)
2017 2018 Fair value 3,487 3,233 Cumulative losses that have been previously recognized in equity as 3,009 2,802 other comprehensive income—pre-tax (Note 4) Dividend income 60 12
(Note 4) The cumulative gains and losses recognized in equity as other comprehensive income were transferred to retained earnings when equity instruments were disposed of. The amounts of transfers to retained earnings were net of tax.
48 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
11. Property, plant and equipment (1) The breakdown and movement of acquisition cost, accumulated depreciation and accumulated impairment losses, and carrying amount of "Property, plant and equipment" are as follows: (Unit: Millions of yen)
Machinery Construction Buildings and Acquisition cost and Land in progress Other Total structures equipment (Note 1) Balance, April 1, 2016 875,504 2,668,076 179,930 118,938 672,026 4,514,474 Acquisition 22,714 129,345 3,878 148,866 32,339 337,142 Business combinations － － － － － － Disposals (4,477) (102,024) (1,633) (874) (34,740) (143,748) Foreign exchange differences (7,028) (23,533) (526) (2,423) (7,005) (40,515) Other (Note 2) 14,224 99,239 423 (138,434) 26,440 1,892 Balance, March 31, 2017 900,937 2,771,103 182,072 126,073 689,060 4,669,245 Acquisition 21,301 126,639 670 169,988 34,675 353,273 Business combinations 10,177 8,235 6,838 737 9,324 35,311 (Note 3) Disposals (9,805) (105,899) (58) (446) (31,552) (147,760) Foreign exchange differences 678 3,788 80 (661) 1,859 5,744 Other (Note 2) 14,769 95,062 272 (140,175) 23,299 (6,773) Balance, March 31, 2018 938,057 2,898,928 189,874 155,516 726,665 4,909,040
(Note 1) Construction in progress includes expenditures related to property, plant and equipment under construction. (Note 2) Other includes transfers from construction in progress to each item. (Note 3) The increase in "Business combinations" is due to the acquisition of TD MOBILE and FUJITSU TEN (See Note 6 "Business combinations").
(Unit: Millions of yen)
Accumulated depreciation Machinery Buildings and Construction and accumulated impairment and Land Other Total structures in progress losses equipment Balance, April 1, 2016 542,032 1,982,907 1,013 1,055 561,900 3,088,907 Depreciation (Note) 26,799 164,950 － － 49,374 241,123 Impairment losses － － － － － － Disposals (3,735) (92,404) － － (32,539) (128,678) Foreign exchange differences (2,551) (13,334) 19 － (4,795) (20,661) Other (235) (1,395) － － (347) (1,977) Balance, March 31, 2017 562,310 2,040,724 1,032 1,055 573,593 3,178,714 Depreciation (Note) 28,677 185,935 － － 54,014 268,626 Impairment losses － 969 － 77 108 1,154 Disposals (8,248) (97,585) － － (28,777) (134,610) Foreign exchange differences 232 4,647 80 － 1,335 6,294 Other (66) (1,716) － － (563) (2,345) Balance, March 31, 2018 582,905 2,132,974 1,112 1,132 599,710 3,317,833
(Note) Depreciation on "Property, plant and equipment" is included in "Cost of revenue" and "Selling, general and administrative expenses" in the consolidated statement of income.
49 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
Machinery Buildings and Construction Carrying amount and Land Other Total structures in progress equipment Balance, April 1, 2016 333,472 685,169 178,917 117,883 110,126 1,425,567 Balance, March 31, 2017 338,627 730,379 181,040 125,018 115,467 1,490,531 Balance, March 31, 2018 355,152 765,954 188,762 154,384 126,955 1,591,207
(2) Carrying amount of assets pledged as collateral Carrying amounts of assets pledged as collateral are not presented as they are immaterial.
(3) Commitments Commitments for the acquisition of property, plant, and equipment are as follows: (Unit: Millions of yen)
2017 2018 Contractual commitments for the acquisition of property, plant and 91,768 105,754 equipment
(4) Impairment losses The impairment losses the Group recognized for each fiscal year are as follows: For the year ended March 31, 2017 No items to report.
For the year ended March 31, 2018 Amount Business group Segment Types of assets Class (Millions of yen) Electrification Production facility for Machinery and North America 542 systems small motor products equipment, etc.
Production facility for Machinery and Electronics systems Europe 612 electronics products equipment
The Group wrote down the undepreciated balances of its production facilities to their recoverable amounts and recognized ¥542 million in impairment losses for relevant assets because the expected profit was not foreseen due to deterioration of a part of the business environment in certain regions. The recoverable amounts of the asset group were measured at fair value less costs of disposition. Fair value is calculated based on valuation techniques which include inputs that are not based on observable market data and the fair value hierarchy is level 3.
For the year ended March 31, 2018, the Group recognized ¥612 million in impairment losses for unused machinery and equipment as a result of a change in the Group's initial capital investment plan.
The impairment losses were included in "Other expenses" in the consolidated statement of income.
50 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
12. Intangible assets (1) The breakdown and movement of acquisition cost, accumulated amortization and accumulated impairment losses, and carrying amount of "Intangible assets" were as follows: (Unit: Millions of yen)
Development Customer- Technology- Acquisition cost Software Goodwill costs related assets based assets Balance, April 1, 2016 47,372 1,308 3,528 － － Acquisition 5,049 － － － － Internally generated 309 1,726 － － － Business combinations － － － － － Disposal (1,107) － (1,502) － － Foreign exchange differences (368) － (171) － － Other (406) － － － － Balance, March 31, 2017 50,849 3,034 1,855 － － Acquisition 8,501 － － － － Internally generated 3,139 1,516 － － － Business combinations (Note) 9,510 － 9,727 21,745 6,445 Disposal (674) (1) － － － Foreign exchange differences (17,285) － (24) － － Other 16,513 － － － － Balance, March 31, 2018 70,553 4,549 11,558 21,745 6,445
(Unit: Millions of yen)
Acquisition cost Other Total
Balance, April 1, 2016 7,354 59,562 Acquisition 1,678 6,727 Internally generated 675 2,710 Business combinations － － Disposal (13) (2,622) Foreign exchange differences (142) (681) Other (1,370) (1,776) Balance, March 31, 2017 8,182 63,920 Acquisition 4,065 12,566 Internally generated 2,474 7,129 Business combinations (Note) 5,012 52,439 Disposal (616) (1,291) Foreign exchange differences (11,446) (28,755) Other 11,283 27,796 Balance, March 31, 2018 18,954 133,804
(Note) The increase in "Business combinations" is due to the acquisition of TD MOBILE and FUJITSU TEN (See Note 6 "Business combinations").
51 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
Accumulated amortization and Development Customer- Technology- Software Goodwill Accumulated impairment losses costs related assets based assets Balance, April 1, 2016 33,958 304 1,502 － － Amortization (Note) 4,967 610 － － － Impairment losses － － － － － Disposal (1,087) － (1,502) － － Foreign exchange differences (181) － － － － Other (225) － － － － Balance, March 31, 2017 37,432 914 － － － Amortization (Note) 10,436 1,075 － 2,797 269 Impairment losses － － 393 － － Disposal (602) － － － － Foreign exchange differences 261 － － － － Other (619) － － － － Balance, March 31, 2018 46,908 1,989 393 2,797 269
(Unit: Millions of yen)
Accumulated amortization and Other Total Accumulated impairment losses Balance, April 1, 2016 2,642 38,406 Amortization (Note) 561 6,138 Impairment losses － － Disposal (2) (2,591) Foreign exchange differences (78) (259) Other － (225) Balance, March 31, 2017 3,123 41,469 Amortization (Note) 1,523 16,100 Impairment losses － 393 Disposal (269) (871) Foreign exchange differences 131 392 Other (28) (647) Balance, March 31, 2018 4,480 56,836
(Note) Amortization of intangible assets is included in "Cost of revenue" and "Selling, general and administrative expenses" in the consolidated statement of income.
52 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
Development Customer- Technology- Carrying amount Software Goodwill costs related assets based assets Balance, April 1, 2016 13,414 1,004 2,026 － － Balance, March 31, 2017 13,417 2,120 1,855 － － Balance, March 31, 2018 23,645 2,560 11,165 18,948 6,176
(Unit: Millions of yen)
Carrying amount Other Total
Balance, April 1, 2016 4,712 21,156 Balance, March 31, 2017 5,059 22,451 Balance, March 31, 2018 14,474 76,968
The research and development expenditures recognized in profit or loss for the years ended March 31, 2017 and 2018 were ¥407,497 million and ¥445,862 million, respectively. These amounts were included in "Cost of revenue" and "Selling, general and administrative expenses" in the consolidated statement of income.
(2) Impairment losses The Group recognized impairment losses for the following assets: For the year ended March 31, 2017 No items to report.
For the year ended March 31, 2018 Impairment losses on goodwill recognized along with the decrease in profit or the disposal, etc. of TD MOBILE's directly managed stores were ¥393 million.
(3) Material intangible assets The material intangible assets recognized in the Consolidated Statement of Financial Position were as follows: For the year ended March 31, 2017 No items to report.
For the year ended March 31, 2018 Average remaining Carrying amount amortization periods (Millions of yen) (Years) Customer-related assets 18,948 7.4 Technology-based assets 6,176 9.6
Additions on material intangible assets for the year ended March 31, 2018 include customer-related assets for which the carrying amount is ¥12,103 million and the average remaining amortization periods are 7.3 years due to the acquisition of TD MOBILE. Material intangible assets also include customer-related assets for which the carrying amount is ¥6,845 million and the average remaining amortization periods are 7.6 years, as well as technology-based assets for which the carrying amount is ¥6,176 million and the average remaining amortization periods are 9.6 years due to the acquisition of FUJITSU TEN.
53 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(4) Impairment test for goodwill Goodwill is allocated to cash-generating units, or groups of cash-generating units, and tested for impairment annually or whenever there is any indication of impairment.
Goodwill acquired in business combinations is allocated to each of the cash-generating units or groups of cash- generating units that are expected to benefit from excess earning powers in the future from synergies resulting from the business combination. Allocations to each of the cash-generating units or groups of cash-generating units were as follows: (Unit: Millions of yen) 2017 2018 TD MOBILE (Note 1) - 7,397 DENSO TEN group (Note 2) - 1,938 Other 1,855 1,830 Total 1,855 11,165
(Note 1) Goodwill allocated to TD MOBILE was allocated to 122 directly managed stores run by TD MOBILE. (Note 2) Goodwill allocated to the DENSO TEN group was allocated to DENSO TEN and its key subsidiaries.
Goodwill allocated to TD MOBILE is recognized as impairment losses when there is a decrease in profit or disposal, etc., of its directly managed stores.
DENSO TEN's recoverable amounts for each cash-generating unit or group of cash-generating units are calculated using the maximum value in use based on the five-year business plan prepared by reflecting past experiences and external evidence and approved by management. Cash flow projectons beyond the five-year period are extrapolated by using a steady or declining growth rate. They were discounted using the weighted-average cost of capital 6.70%- 11.22% of cash-generating units or groups of cash-generating units. While the recoverable amounts exceeded carrying amounts for the year ended March 31, 2018, an increase in the discount rate of 1.4% would result in impairment losses.
54 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
13. Income taxes (1) Income tax expenses "Income tax expenses" for each fiscal year were as follows: (Unit: Millions of yen)
2017 2018 Current income tax expenses Current year 88,543 114,228 Prior years (1,046) 754 Total 87,497 114,982 Deferred income tax expenses Occurrence and reversal of temporary (415) (5,426) differences Change in tax rates － (3,450) Recognition of previously unrecognized (213) (564) deferred tax assets Reversal of deferred tax assets 94 917 recognized in the prior year Total (534) (8,523) Total of income tax expenses 86,963 106,459 Income taxes recognized in other (33,876) 41,021 comprehensive income
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in an applicable tax rate of 30.29% for the year ended March 31, 2017 and 30.29% for the year ended March 31, 2018.
The current income tax charges outside of Japan are calculated on the basis of the tax laws enacted or substantively enacted in the jurisdictions where the Company and its subsidiaries operate and generate taxable income.
The reconciliation between the applicable tax rates and the average effective tax rates reflected in the accompanying consolidated statements of income for each fiscal year was as follows: (Unit: %)
2017 2018 Applicable statutory tax rate 30.29 30.29 Lower income tax rates applicable to (2.27) (2.95) income in certain foreign subsidiaries Tax credit for R&D expenses (2.31) (3.18) Recognition of previously (0.06) (0.13) unrecognized deferred tax assets Reversal of deferred tax liabilities due － (0.77) to change in applicable tax rates Other (1.55) 0.40 Actual effective tax rate 24.10 23.66
55 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(2) Deferred tax assets and liabilities Changes in "Deferred tax assets" and "Deferred tax liabilities" for each fiscal year were as follows: For the year ended March 31, 2017 (Unit: Millions of yen)
Exchange Recognized differences Balance, Recognized in other Business on Balance, beginning of in comprehensive combinations translating end of year year profit or loss income foreign operations
Deferred tax assets (Note 1) Accrued bonuses to employees 19,673 101 － － 16 19,790 Reserve for warranty 9,277 5,326 － － (17) 14,586 Retirement benefit liabilities 62,165 13,735 (11,780) － (33) 64,087 Provision for accrued vacations 18,550 74 － － (3) 18,621 paid Other 104,580 (10,125) (711) － (897) 92,847 Total deferred tax assets 214,245 9,111 (12,491) － (934) 209,931 Deferred tax liabilities Investment in equity instruments 158,148 － 23,794 － － 181,942 Depreciation 28,799 7,586 － － (187) 36,198 Retirement benefit assets 33,761 8,085 (2,617) － － 39,229 Other 7,490 (7,094) 208 － (65) 539 Total deferred tax liabilities 228,198 8,577 21,385 － (252) 257,908 Net (13,953) 534 (33,876) － (682) (47,977)
For the year ended March 31, 2018 (Unit: Millions of yen)
Exchange Recognized differences Balance, Recognized Business in other on Balance, beginning of in combinations comprehensive translating end of year year profit or loss (Note 2) income foreign operations
Deferred tax assets (Note 1) Accrued bonuses to employees 19,790 508 － 341 (55) 20,584 Reserve for warranty 14,586 (5,211) － 309 21 9,705 Retirement benefit liabilities 64,087 2,276 (203) 602 80 66,842 Provision for accrued vacations 18,621 625 － 92 (19) 19,319 paid Other 92,847 17,235 (644) 2,479 (3) 111,914 Total deferred tax assets 209,931 15,433 (847) 3,823 24 228,364 Deferred tax liabilities Investment in equity instruments 181,942 － 34,134 609 － 216,685 Depreciation 36,198 8,136 － 10 (596) 43,748 Retirement benefit assets 39,229 12,966 (6,360) － (8) 45,827 Other 539 2,854 86 5,130 (253) 8,356 Total deferred tax liabilities 257,908 23,956 27,860 5,749 (857) 314,616 Net (47,977) (8,523) (28,707) (1,926) 881 (86,252)
(Note 1) The recoverability of deferred tax assets was assessed based on sufficient amounts of taxable temporary differences and future taxable income, and feasibility of tax planning. (Note 2) The increase in "Business combinations" is due to acquisition of TD MOBILE and FUJITSU TEN (See Note 6 "Business combinations").
56 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
"Deferred tax assets" and "Deferred tax liabilities" reported in the consolidated statement of financial position as of each fiscal year-end were as follows: (Unit: Millions of yen)
2017 2018 Deferred tax assets 30,266 35,020 Deferred tax liabilities 78,243 121,272 Net deferred tax assets (liabilities) (47,977) (86,252)
The deductible temporary differences in which deferred tax assets were not recognized as of each fiscal year-end were as follows: (Unit: Millions of yen)
2017 2018 Deductible temporary differences 9,119 27,377
The unused tax losses for which deferred tax assets were not recognized as of each fiscal year-end were as follows: (Unit: Millions of yen)
2017 2018 Within 1st year 298 1,089 2nd year 374 1,608 3rd year 87 16,816 4th year 1,579 4,109 5th year and thereafter 20,382 33,415 Total 22,720 57,037
As of March 31, 2017 and 2018, deferred tax liabilities were not recognized for taxable temporary differences associated with investments in subsidiaries, except for undistributed profits which are determined to be distributed. This was because the Company was able to control the timing of the reversal of the temporary differences and it was certain that the temporary differences would not reverse in the foreseeable future. The taxable temporary differences associated with investments in subsidiaries in which deferred tax liabilities were not recognized as of March 31, 2017 and 2018 were ¥790,024 million and ¥884,488 million, respectively.
57 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
14. Bonds and borrowings The breakdown of "Bonds and borrowings" at each fiscal year-end is as follows:
The Company is subject to financial covenants with respect to a portion of its borrowings from financial institutions and has complied with such covenants for the years ended March 31, 2017 and 2018. In addition, the Company monitors each compliance status to maintain the level required by such financial covenants.
Average interest 2017 2018 rate (%) Maturity date (Millions of yen) (Millions of yen) (Note 1) With collateral
Short-term borrowings － － － －
Current portion of long-term borrowings － － － －
Long-term borrowings － － － －
Without collateral Short-term borrowings 81,594 64,845 1.92 －
Current portion of bonds (Note 2) － 30,000 － －
Current portion of long-term borrowings 2,545 75,158 0.82 －
Bonds (Note 2) 110,000 150,000 － －
Long-term borrowings 156,116 153,847 0.22 From 2019 to 2024
Total 350,255 473,850 － －
(Note 1) Average interest rate indicates the weighted-average interest rates applicable to borrowings at each fiscal year- end. (Note 2) Bonds at each fiscal year end consisted of the following:
58 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
2017 2018 Interest Name of Date of Redemption Issuer (Millions of (Millions of rate Collateral bond Issuance period yen) yen) (%)
The 8th DENSO 30,000 July 24, 2013 30,000 0.35 None June 20, 2018 Corporation unsecured (30,000) bonds The 9th unsecured July 16, 2014 20,000 20,000 0.20 None June 20, 2019 bonds The 10th September 8, September 18, 20,000 20,000 0.18 None unsecured 2015 2020 bonds The 11th September 8, September 20, unsecured 10,000 10,000 0.27 None 2015 2022 bonds The 12th September 8, September 17, unsecured 10,000 10,000 0.01 None 2016 2021 bonds The 13th September 8, September 18, unsecured 20,000 20,000 0.14 None 2016 2026 bonds The 14th unsecured June 8, 2017 － 30,000 0.04 None June 20, 2022 bonds The 15th unsecured June 8, 2017 － 40,000 0.25 None June 18, 2027 bonds 180,000 Total － － 110,000 －－ － (30,000)
(Note) The amounts in parentheses under "2018 (Millions of yen)" indicate current portion of bonds.
59 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
15. Trade and other payables The breakdown of "Trade and other payables" at each fiscal year-end is as follows: (Unit: Millions of yen)
2017 2018 Notes and accounts payable (Note 1) 562,580 584,189 Other (Note 2) 298,581 339,083 Total 861,161 923,272
(Note 1) "Trade and other payables" are classified as financial liabilities measured at amortized cost. (Note 2) Other includes mainly accrued expenses and notes/accounts payable for equipment.
16. Provisions "Provisions" were included in current liabilities and non-current liabilities in the consolidated statement of financial position.
The breakdown and movements in provisions for each fiscal year are as follows: (Unit: Millions of yen)
Reserve for Provision for loss on warranties antitrust issues Other Total (Note 1) (Note 2) Balance, April 1, 2016 34,541 45,930 8,431 88,902 Provisions made 25,395 15,169 1,480 42,044 Provisions used (6,868) (43,573) (1,057) (51,498) Provisions reversed (1,214) (6,004) (201) (7,419) Foreign exchange differences (29) － 78 49 Balance, March 31, 2017 51,825 11,522 8,731 72,078 Provisions made 18,681 10,494 4,717 33,892 Provisions used (6,986) (284) (3,011) (10,281) Provisions reversed (23,006) (596) (1,100) (24,702) Foreign exchange differences (252) － 74 (178) Balance, March 31, 2018 40,262 21,136 9,411 70,809
(Note 1) A portion of the reserve for warranties is expected to be reimbursed by mutual agreement with the Group's suppliers. The estimated amounts of reimbursements were ¥3,414 million and ¥2,281 million as of March 31, 2017 and 2018, respectively. The amounts were included in "Trade and other receivables" in the consolidated statement of financial position. (Note 2) Please see Note 30 "Contingencies."
60 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
17. Post-employment benefits The Group has funded or unfunded defined benefit plans and defined contribution plans as employee retirement benefit plans. The benefits for defined benefit plans are provided based on conditions, such as points that employees acquired in compensation for each year of service, years of service, and others. The pension amounts that are actuarially calculated using certain ratios of relevant wages and salaries are accumulated as funds to prepare for the payment of future benefits. In addition, the Group may pay additional retirement grants for employees which do not meet the definition of defined benefit plans under IFRS.
The funded defined benefit plans are managed by a fund that is legally segregated from the Group in accordance with statutory requirements. The board of the pension fund and the trustees of the plan are required by law to act in the best interests of the plan participants and are responsible for managing the plan assets in accordance with the designated investment strategy.
(1) Defined benefit plans The balance and changes in the present value of the defined benefit obligation and fair value of plan assets were as follows: 1) Changes in the defined benefit obligation (Unit: Millions of yen)
2017 2018 Balance, beginning of year 819,977 814,759 Service cost 37,263 37,407 Interest cost on obligation 5,792 7,164 Plan amendments (317) (210) Actuarial gains (Demographic) (1,867) 367 Actuarial losses (Financial) (20,618) (3,501) Benefits paid (25,124) (24,641) Business combinations (Note) － 46,416 Foreign exchange differences (347) (645) Balance, end of year 814,759 877,116
(Note) The increase in "Business combinations" is due to the acquisition of TD MOBILE and FUJITSU TEN (See Note 6 "Business combinations").
2) Changes in the plan assets (Unit: Millions of yen)
2017 2018 Balance, beginning of year 614,648 630,051 Interest income on plan assets 4,176 5,420 Plan amendments (45) 18 Income from plan assets other than interest 8,338 16,058 Employer contributions 18,613 15,597 Benefits paid (15,615) (16,462) Business combinations (Note) － 36,227 Foreign exchange differences (64) (1,316) Balance, end of year 630,051 685,593
(Note) The increase in "Business combinations" is due to the acquisition of TD MOBILE and FUJITSU TEN (See Note 6 "Business combinations").
61 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
3) Reconciliation of balances of defined benefit obligations and plan assets (Unit: Millions of yen)
2017 2018 Defined benefit obligation, end of year 814,759 877,116 Plan assets, end of year 630,051 685,593 Net amount of defined benefit obligation and plan assets 184,708 191,523 Retirement benefit liabilities 228,576 245,387 Retirement benefit assets 43,868 53,864 Net amount of liabilities and assets recognized in the consolidated 184,708 191,523 statement of financial position
Investment policy The Group's investment policy for the plan assets of its defined benefit pension plans is to procure an adequate return to provide future payments of pension benefits over the long term by optimizing risk tolerance and formulating a well- diversified portfolio including investments such as equity instruments, debt instruments, and insurance contracts.
Considering the funded status of the pension plans and surrounding economic environment for investments, the Group's investment strategy may be revised as needed.
Moreover, the Group continuously monitors and pays extra attention to the diversification of risks relevant to strategies and investment managers for the purpose of risk control and, thereby, pursues efficient risk management.
Major components of plan assets The fair values of plan assets for the years ended March 31, 2017 and 2018 were as follows:
As of March 31, 2017 (Unit: Millions of yen)
Plan assets that have a Plan assets that do not have Category quoted market price in an a quoted market price in an Total active market active market Equity instruments Japanese equity securities 47,359 25 47,384 Global equity securities 82 － 82 Commingled funds— － 45,301 45,301 Japanese equity securities Commingled funds— － 59,867 59,867 global equity securities Total—Equity instruments 47,441 105,193 152,634 Debt instruments Japanese debt securities 3,797 － 3,797 Global debt securities 23,145 26 23,171 Commingled funds— － 30,845 30,845 Japanese debt securities Commingled funds— － 118,892 118,892 global equity securities Other 156 677 833 Total—Debt instruments 27,098 150,440 177,538 Insurance contracts (Note 1) － 121,467 121,467 Other (Note 2) 142,039 36,373 178,412 Total 216,578 413,473 630,051
(Note 1) Insurance contracts includes investments in life insurance company general accounts, which are guaranteed for the principal amount and interest rate by life insurance companies. (Note 2) Other includes mainly cash and cash equivalents.
62 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
As of March 31, 2018 (Unit: Millions of yen)
Plan assets that have a Plan assets that do not have Category quoted market price in an a quoted market price in an Total active market active market Equity instruments Japanese equity securities 45,488 25 45,513 Global equity securities 392 － 392 Commingled funds— － 65,071 65,071 Japanese equity securities Commingled funds— － 46,775 46,775 global equity securities Total—Equity instruments 45,880 111,871 157,751 Debt instruments Japanese debt securities 14,519 1,859 16,378 Global debt securities 92,837 24 92,861 Commingled funds— － 67,138 67,138 Japanese debt securities Commingled funds— － 81,167 81,167 global equity securities Other 152 1,685 1,837 Total—Debt instruments 107,508 151,873 259,381 Insurance contracts (Note 1) － 135,407 135,407 Other (Note 2) 92,760 40,294 133,054 Total 246,148 439,445 685,593
(Note 1) Insurance contracts includes investments in life insurance company general accounts, which are guaranteed for the principal amount and interest rate by life insurance companies. (Note 2) Other includes mainly cash and cash equivalents.
The major items of actuarial assumptions as of each fiscal year-end were as follows: (Unit: %)
2017 2018 Discount rate 0.67 0.70
Changes in the key assumptions may affect the measurement of defined benefit obligations as follows. In addition, this analysis shows the sensitivity to the key assumptions without taking into account all information of projected cash flow. (Unit: Millions of yen)
Increase (decrease) of defined benefit obligations
as of March 31, 2018 Discount rate: Decreased by 0.5% 70,887 Discount rate: Increased by 0.5% (62,419)
The Group expects ¥23,625 million of the contribution to be paid from April 1, 2018 to March 31, 2019.
The weighted-average durations of the defined benefit obligations were 16 years and 19 years for the years ended March 31, 2017 and 2018, respectively.
(2) Defined contribution plans The amounts recognized as expenses related to the defined contribution plans for the years ended March 31, 2017 and 2018 were ¥10,365 million and ¥11,420 million, respectively.
63 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
18. Equity and other equity items (1) Capital stock and Capital surplus Under the Companies Act of Japan (the "Companies Act"), at least 50% of the proceeds of certain issues of common shares shall be credited to "Capital stock." The remainder of the proceeds shall be credited to "Capital surplus." The Companies Act permits, upon approval at the general meeting of shareholders, the transfer of amounts from "Capital surplus" to "Capital stock."
The number of authorized shares as of each fiscal year end was 1,500 million shares.
The number of fully paid issued shares and the increase/decrease in each fiscal year-end were as follows: Number of shares Capital stock Capital surplus (Shares) (Millions of yen) (Millions of yen) 2017 794,068,713 187,457 265,985 Decrease － － 0 2018 794,068,713 187,457 265,985
The shares issued by the Company are non-par value ordinary shares that have no restriction on any content of rights.
(2) Retained earnings The Companies Act provides that a 10% dividend of retained earnings shall be appropriated as "Capital surplus" or as a legal reserve until the aggregate amount of the "Capital surplus" and the legal reserve equals 25% of "Capital stock." The legal reserve may be used to eliminate or reduce a deficit or be transferred to "Retained earnings" upon approval at the general meeting of shareholders.
(3) Treasury stock The Companies Act allows Japanese companies to purchase and hold treasury stock. Japanese companies are allowed to decide the number, amount, and other aspects of the treasury stock to be acquired, not exceeding the amount available for distribution, upon resolution at the shareholders' meeting. The Companies Act also allows Japanese companies to purchase treasury stock through market transactions or tender offer by resolution of the board of directors, as long as it is allowed under the articles of incorporation, subject to limitations imposed by the Companies Act.
The increase/decrease of treasury stock as of each fiscal year-end was as follows: Number of shares Amount (Shares) (Millions of yen) 2017 8,217,171 31,191 Decrease 6,128,693 26,486 2018 14,345,864 57,677
(4) Other components of equity 1) Net fair value gain on equity instruments designated as FVTOCI Net fair value gain on equity instruments designated as FVTOCI is the accumulated gains and losses related to financial instruments measured at the fair value through other comprehensive income.
2) Remeasurements of defined benefit pension plans Remeasurements of defined benefit pension plans are the amount affected by the difference between the actuarial assumption and actual result and by the change of the actuarial assumption. The amount is recognized through other comprehensive income as incurred, then immediately transferred from other components of equity to retained earnings.
3) Exchange differences on translating foreign operations Exchange differences on translating foreign operations are the foreign exchange differences which are recognized when translating the results and financial position of a foreign operation of the Group into a presentation currency of the Group.
4) Cash flow hedges Cash flow hedges are the accumulated amounts of the effective portion of gains and losses, arising from changes in the fair value of hedging instruments for cash flow hedges.
64 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
19. Dividends Total annual dividends for each fiscal year were as follows: Class of Total dividends Dividends per Resolution Record date Effective date shares (Millions of yen) share (Yen) Board of Directors' meeting Ordinary 47,569 60 March 31, 2016 May 30, 2016 held on April 28, 2016 shares Board of Directors' meeting Ordinary September 30, November 25, 47,432 60 held on October 28, 2016 shares 2016 2016 Board of Directors' meeting Ordinary 47,153 60 March 31, 2017 May 29, 2017 held on April 28, 2017 shares Board of Directors' meeting Ordinary September 30, November 27, 50,684 65 held on October 31, 2017 shares 2017 2017
Dividends for which the record date is in the current fiscal year, yet the effective date is in the following fiscal year, are as follows: Class of Source of Total dividends Dividends per Resolution Record date Effective date shares dividends (Millions of yen) share (Yen) Board of Directors' meeting Ordinary Retained March 31, 50,684 65 May 28, 2018 held on April 27, 2018 shares earnings 2018
20. Other income The breakdown of "Other income" for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Rental income—property, plant and equipment 2,335 2,261 Gain on sales—property, plant and equipment 3,577 5,146 Other (Note) 21,809 26,868 Total 27,721 34,275
(Note) Other for the year ended March 31, 2017 included insurance income of ¥12,868 million which was related to plant shut-downs by the Company and its subsidiaries in Japan. Other for the year ended March 31, 2018 included a gain of ¥11,646 million as a result of the remeasurement of equity interest previously held at the time of the acquisition of control by the Company of TD MOBILE at fair value on the acquisition date (See Note 6 "Business combinations").
21. Selling, general and administrative expenses and other expenses The breakdown of "Selling, general and administrative expenses" for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Freight expenses 39,747 42,712 Employee benefit expenses 174,201 196,599 Provision (Reversal) for warranty reserve 20,041 (12,506) Depreciation 20,354 25,798 Welfare expenses 27,656 31,552 Other 149,193 163,577 Total 431,192 447,732
The breakdown of "Other expenses" for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Loss on sales or disposal—property, plant and equipment 8,054 8,908 Impairment losses － 1,547 Other (Note) 15,540 17,105 Total 23,594 27,560
(Note) Other for the years ended March 31, 2017 and 2018 included losses on antitrust issues, which were settlement amounts, etc., with regard to the alleged violation of antitrust law or competition law in connection with certain past transactions regarding specific auto parts in the amount of ¥9,508 million and ¥10,424 million, respectively (See Note 30 "Contingencies").
65 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
22. Income and expenses pertaining to financial instruments The breakdown of "Finance income" for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Interest income Financial assets measured at amortized cost (i.e., deposits and other) 7,611 10,050 Financial assets measured at fair value through profit or loss (i.e., interest － － rate derivatives) Dividend income Financial assets measured at fair value through other comprehensive 27,670 29,894 income (Note) Other 206 588 Total 35,487 40,532
(Note) Dividend income from the financial assets measured at fair value through other comprehensive income, which was recognized in each fiscal year included the dividend income from the financial assets measured at fair value through other comprehensive income which were derecognized in each fiscal year (See Note 10 "Other financial assets").
The breakdown of "Finance costs" for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Interest expenses Financial liabilities measured at amortized cost (i.e., bonds, borrowings, 6,020 6,330 and other) Financial liabilities measured at fair value through profit or loss (i.e., 1,317 712 interest rate derivatives) Interest on defined benefit liabilities, net 1,616 1,744 Other 930 709 Total 9,883 9,495
23. Earnings per share (1) Basis of calculating basic earnings per share 1) Profit for the year attributable to owners of the parent company (Unit: Millions of yen)
2017 2018 Profit attributable to owners of the parent company 257,619 320,561
2) Average number of shares—basic (Unit: Thousands of shares)
2017 2018 Average number of shares—basic 789,465 781,002
(2) Basis of determination of profit used to determine diluted earnings per share Earnings per share-diluted is not presented since shares with a dilutive effect do not exist.
66 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
24. Other comprehensive income The breakdown of "Other comprehensive income," including that attributable to non-controlling interests, for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Other comprehensive income Items that will not be reclassified subsequently to profit or loss Net fair value gain on equity instruments designated as FVTOCI Arising during the year 84,499 118,942 Income taxes (24,505) (34,778) Total 59,994 84,164 Remeasurements of defined benefit pension plans Arising during the year 30,823 19,192 Income taxes (9,163) (6,157) Total 21,660 13,035 Share of other comprehensive income of investments accounted for using the equity method Arising during the year (12) 10 Total (12) 10 Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations Arising during the year (24,987) (4,044) Reclassification to profit or loss － (302) Total (24,987) (4,346) Cash flow hedges Arising during the year 1,343 1,271 Reclassification to profit or loss (658) (986) Before income taxes 685 285 Income taxes (208) (86) Total 477 199 Share of other comprehensive income of investments accounted for using the equity method Arising during the year (1,779) (1,012) Total (1,779) (1,012) Total other comprehensive income 55,353 92,050
The breakdown of other comprehensive income attributable to non-controlling interests (net of tax) for each fiscal year is as follows: (Unit: Millions of yen)
2017 2018 Net fair value gain (loss) on equity instruments designated as FVTOCI 12 (21) Remeasurements of net defined benefit pension plans 454 140 Exchange differencies on translating foreign operations (1,568) 2,261 Cash flow hedges － － Total (1,102) 2,380
67 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
25. Non-financial transactions that are material Details of non-financial transactions that are material Assets and liabilities related to finance lease transactions were as follows: (Unit: Millions of yen)
2017 2018 The amounts of assets and liabilities related to finance lease 13,355 11,307 transactions
In addition to the above, the Company made TD MOBILE a subsidiary in the fiscal year ended March 31, 2018. The business combination was conducted through TD MOBILE acquiring its own treasury stock and is therefore regarded as a non-cash transaction (See Note 6 "Business combinations").
68 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
26. Financial instruments (1) Capital management To achieve sustainable growth, the Group aims to ensure financial health while continuing stable and lasting returns to shareholders by managing its resources through activities such as facility investment in business, research and development, and mergers and acquisitions. Generally, the operating cash flows cover such funding by maintaining and strengthening the Group's profitability and cash-generating ability, with additional interest-bearing debt, such as debts and borrowings, if necessary. In addition, the Group secures funds to maintain stable financial health in the long term. The Group is not exposed to capital restrictions by external parties as of March 31, 2018.
(2) Description and extent of financial risks 1) Financial risk management policy In the course of its business activities, the Group is exposed to financial risks, such as credit risks, market risks, and liquidity risks, and performs risk management activities in accordance with certain policies to avoid or reduce these risks. The policy of funding, including derivative transactions at the Company, is approved by the Board of Directors at the beginning of each fiscal year and governs internal regulations, which stipulate the internal control for derivative transactions and relevant risk management.
The Group policy limits derivative transactions for the purpose of mitigating risks arising from transactions on actual demand. Therefore, the Group does not enter into derivative transactions for speculation purposes.
i) Credit risk Receivables, such as notes and account receivables, acquired from the operating activities of the Group are exposed to customer credit risk. The Group manages its credit risks from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of each customer to identify the default risk of customers at an early stage. Of total receivables 29% are from the Toyota Motor Corporation group as of March 31, 2018.
The Group utilizes financial instruments in accordance with internal credit management regulations to minimize its risk on short-term investment trusts on debt securities, bonds, and debentures. In line with the internal asset management regulations, the Group transacts with highly rated financial institutions, securities, and issuing entities, therefore credit risk is deemed immaterial.
The counterparties to derivative transactions are limited to highly rated financial institutions to minimize credit risks arising from counterparties.
The carrying amount of financial assets, net of accumulated impairment loss, presented in the consolidated statement of financial position represents the maximum exposure of the Group's financial assets to credit risks without taking account of any collateral obtained.
69 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
ii) Market risk Foreign exchange risk The Group operates globally and is exposed to foreign currency risks related to transactions in currencies other than the local currencies in which the Group operates. Such foreign exchange risk is economically hedged principally by forward foreign currency contracts related to foreign currency trade receivables and payables. Currency swaps are used for borrowings in foreign currency as derivative transactions. Risk management is performed by the Company's accounting division based on the internal guidelines which prescribe the authority and limits for each transaction. The actual results of such transactions are reported monthly to the executive supervising the accounting division. The subsidiaries manage their derivative transactions based on similar guidelines.
The details of currency derivatives are as follows: Derivative transactions to which hedge accounting is not applied (Unit: Millions of yen)
2017 2018 Contractual or Contractual or Contractual or Contractual or notional notional amounts Fair value notional notional amounts Fair value amounts due after one year amounts due after one year Forward exchange contracts Buying 5,367 － (136) 46,018 － 502 Selling 78,744 － 451 83,511 － 610 Currency swaps Buying 112,221 61,8933,578 109,363 64,137 (5,808) Selling 12,859 3,687(288) 5,282 4,132 (73) Total 209,191 65,580 3,605 244,174 68,269 (4,769)
Derivative transactions to which hedge accounting is applied (Unit: Millions of yen)
2017 2018 Contractual or Contractual or Contractual or Contractual or notional notional amounts Fair value notional notional amounts Fair value amounts due after one year amounts due after one year Forward exchange contracts Buying － － － 7,385 1,507 (203) Total － －－ 7,385 1,507 (203)
Foreign exchange sensitivity analysis Foreign exchange sensitivity analysis shows the effect on profit or loss and equity of 1% changes in the Japanese yen to the Company's balances of foreign currency as of the end of each fiscal year. This analysis is calculated by adjusting fluctuation by 1% on foreign exchange rates at the end of each reporting period. Also, the analysis is based on the assumption that other factors, such as balance and interest rate, are constant. (Unit: Millions of yen)
2017 2018 Net profit or loss 839 512 Equity 839 512
70 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Interest-rate risks Since the Group borrows funds at both fixed interest rates and variable interest rates, the Group's borrowings and bonds are exposed to interest rate fluctuation risk. The Group's interest-bearing borrowings mainly consist of bonds and borrowings with fixed interest rates, and the borrowings at the variable interest rate are essentially equivalent to fixed interest rate borrowings by using corresponding interest-rate swap agreements.
In accordance with the Group's internal policy for derivative transactions which prescribes the authorities and limited amounts, the Company's accounting department conducts its financial management activities and reports the actual results of such transactions monthly to the executive supervising the accounting division. The subsidiaries manage their derivative transactions based on similar guidelines.
The details of Interest derivatives were as follows: Derivative transactions to which hedge accounting is not applied (Unit: Millions of yen)
2017 2018 Contractual or Contractual or Contractual or Contractual or notional notional amounts Fair value notional notional amounts Fair value amounts due after one year amounts due after one year Interest rate swap Floating rate receipt, 47,199 46,950 (383) 50,614 46,803 (229) fixed rate payment Floating rate receipt, 15,000 15,000 468 15,000 15,000 274 floating rate payment Cross currency swap Floating rate receipt, － － － － － － fixed rate payment Fixed rate receipt, fixed 47,650 13,421 (3,105) 40,119 11,916 (564) rate payment Total 109,849 75,371(3,020) 105,733 73,719 (519)
Derivative transactions to which hedge accounting is applied (Unit: Millions of yen)
2017 2018 Contractual or Contractual or Contractual or Contractual or notional notional amounts Fair value notional notional amounts Fair value amounts due after one year amounts due after one year Cross currency swap Floating rate receipt, 47,001 47,001 2,567 54,001 54,001 (151) fixed rate payment Total 47,001 47,0012,567 54,001 54,001 (151)
The cross currency swap, a contract which changes its floating rate to a fixed rate, is designated as a hedging instrument for cash flow hedges because it reduces the fluctuation of cash flows of floating rate borrowings. The payment/receipt terms of the interest swap are agreed with those of the relevant borrowings designated as hedged items. The accumulated amounts in equity are reclassified to profit or loss in the period or periods during which the payment of floating rates affects profit or loss.
71 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Interest rate sensitivity analysis The table below shows the effect on the Group's profit or loss and equity arising from financial instruments affected by interest rate fluctuations, assuming the interest rate increases by 1% at the end of each fiscal year. This analysis is calculated by multiplying the net balance of floating-rate financial instruments held by the Group as of the fiscal year-end by 1% with neither future changes in the balances nor effects of foreign exchange fluctuations taken into account. The analysis assumes that all other variables remain constant. (Unit: Millions of yen)
2017 2018 Net profit or loss 5,016 5,517 Equity 6,034 6,370
iii) Liquidity risk The Group raises funds through borrowings and bonds; however, such liabilities are exposed to the liquidity risk that the Group would not be able to repay liabilities on the due date due to the deterioration of the financing environment. The Group manages its liquidity risk by holding adequate volumes of assets with liquidity to cover the amounts of one month's consolidated revenue of the Group, along with adequate financial planning developed and revised by the Group's accounting department based on reports from each business unit.
The Group's remaining contractual maturities for financial liabilities as of each fiscal year-end were as follows:
(Unit: Millions of yen)
Due after one Due in one Due after five 2017 year through Total year or less years five years Non-derivative financial liabilities Bonds and borrowings 84,139 228,309 37,807 350,255 Trade and other payables 629,418 5,774 627 635,819 Derivative financial liabilities Derivatives 4,038 3,222 203 7,463
(Unit: Millions of yen)
Due after one Due in one Due after five 2018 year through Total year or less years five years Non-derivative financial liabilities Bonds and borrowings 170,003 176,023 127,824 473,850 Trade and other payables 655,286 6,039 786 662,111 Derivative financial liabilities Derivatives 6,940 3,277 24 10,241
72 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
iv) Price risks of equity instruments The Group is exposed to equity price risks arising from equity instruments. These investments are held mainly for strengthening business relationships with investees, not for trading purpose. The Group does not sell these investments frequently and the Group periodically reviews the fair value of these instruments as well as the financial condition and relationships with investees.
Assuming that the share price rose or fell by 1% at each fiscal year-end, the increase or decrease in total equity would have amounted to approximately ¥6,921 million and ¥8,473 million for the years ended March 31 2017 and 2018, respectively. As most marketable securities held by the Group are classified as financial assets measured at FVTOCI, a 1% rise or fall in share price would result in an immaterial impact on profit or loss.
The significant unobservable input used in measuring the fair value of non-marketable shares and other equity securities is the non-liquid discount rate. Substantial increase or decrease in such inputs causes material increase or decrease to the fair value.
(3) Fair value of financial instruments The fair value hierarchy of financial instruments is categorized within the following three levels.
Level 1: Fair value measured via market prices in active markets. Level 2: Fair value measured via observable prices, either directly or indirectly, other than those categorized within Level 1. Level 3: Fair value measured via inputs not based on observable market data.
Transfers between fair value hierarchy levels are deemed to have occurred at the beginning of the fiscal year ended March 31, 2018.
There were no significant transfers between Level 1 and Level 2 for 12 months of the years ended March 31, 2017 and 2018.
1) Financial instruments measured at amortized cost The fair value hierarchy of financial instruments measured at amortized cost is shown as follows: (Unit: Millions of yen)
Carrying Fair value 2017 amount Level 1 Level 2 Level 3 Total Financial assets Debt securities 59,183 59,312 － － 59,312 Financial liabilities Long-term borrowing (Note) 158,661 － － 159,830 159,830 Bonds 110,000 109,961 － － 109,961
(Note) The amounts to be paid or redeemed within a year are included.
(Unit: Millions of yen)
Carrying Fair value 2018 amount Level 1 Level 2 Level 3 Total Financial assets Debt securities 13,440 13,478 － － 13,478 Financial liabilities Long-term borrowing (Note) 229,005 － － 227,775 227,775 Bonds 180,000 179,723 － － 179,723
(Note) The amounts to be paid or redeemed within a year are included.
The fair value of short-term financial assets and short-term financial liabilities, which are measured by amortized cost, approximates carrying amount, and is not disclosed above.
The fair value of long-term borrowings is calculated based on the present value, which is obtained by discounting the sum of the principal and interest by the interest rate assumed in a case where the same loan would be newly made.
73 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
2) Fair value of financial assets and liabilities that are measured at fair value on a recurring basis The fair value hierarchy of financial instruments measured at fair value is as follows: (Unit: Millions of yen)
2017 Level 1 Level 2 Level 3 Total Derivative assets － 10,357 － 10,357 Shares Listed shares 989,641 － － 989,641 Unlisted shares － － 89,482 89,482 Other equity securities － － 2,438 2,438 Total 989,641 10,357 91,920 1,091,918 Derivative liabilities － 7,454 － 7,454 Total － 7,454 － 7,454
(Unit: Millions of yen)
2018 Level 1 Level 2 Level 3 Total Derivative assets － 4,550 － 4,550 Shares Listed shares 1,211,703 － － 1,211,703 Unlisted shares － － 99,014 99,014 Other equity securities － － 2,516 2,516 Total 1,211,703 4,550 101,530 1,317,783 Derivative liabilities － 10,232 － 10,232 Total － 10,232 － 10,232
Derivatives used by the Group primarily consist of foreign exchange forward contracts, interest rate swaps, and currency swaps.
The fair values of foreign exchange forward contracts are determined based on quoted market prices for similar contracts with similar terms. With respect to interest rate swaps and currency swaps, the fair values are determined by reference to prices offered by financial institutions.
74 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
The fair values of unlisted shares and other equity securities are determined by using the adjusted market value method with adjustments to the market value using the PBR, price book-value ratio, if necessary. In addition, immaterial items are measured at book value of net assets.
The significant unobservable input used in measuring the fair value of unlisted shares and other equity securities is the non-liquid discount of 30%.
The increase or decrease of financial instruments that are classified in Level 3 is as follows: (Unit: Millions of yen)
2017 2018 Balance, beginning of year 83,738 91,920 Total recognized gains and losses (Losses) Gains recognized in profit or loss (Note 1) (26) 318 Gains recognized in other comprehensive income (Note 2) 7,311 9,906 Purchases 897 3,945 Sales or Disposal － (364) Transfers to Level 1 due to listing － (168) Transfers due to acquisition of control over the subsidiary － (4,027) Balance, end of year 91,920 101,530
(Note 1) Losses recognized in profit or loss for the year ended March 31, 2018 are related to financial assets measured at fair value through profit or loss as of the fiscal year-end. These losses are included in "Other income" and "Other expenses" in the consolidated statement of income. (Note 2) Gains and losses recognized in other comprehensive income are related to financial assets measured at fair value through other comprehensive income as of the fiscal year-end. These gains and losses are included in "Net fair value gain on equity instruments designated as FVTOCI" in the statement of comprehensive income.
(4) Offsetting of financial assets and financial liabilities A part of the Group's financial assets and financial liabilities were offset in accordance with the requirements for offsetting financial assets and financial liabilities and the net amounts were presented in the consolidated statement of financial position. In addition, the Group has financial derivative transactions under master netting arrangements or similar arrangements. These arrangements provide the Group, in the event of default by the counterparty, the right to offset receivables and payables with the same counterparty. The offsetting information of financial assets and financial liabilities with the same counterparty as of each fiscal year-end were as follows: (Unit: Millions of yen)
2017 2018 Total financial assets 10,357 24,850 Offsetting amount of financial assets and financial liabilities in － (15,943) accordance with the requirements Financial assets presented in the consolidated statement of financial 10,357 8,907 position (Note1) The amount to be offset under master netting arrangement or similar (2,694) (2,461) arrangements Cash collateral received － － Net (Note 2) 7,663 6,446
(Note 1) Derivative assets recognized in "Financial assets presented in the consolidated statement of financial position" for the years ended March 31, 2017 and 2018 were ¥10,357 million and ¥4,550 million, respectively. (Note 2) Derivative assets recognized in "Net" amount presented in the consolidated statement of financial position for the years ended March 31, 2017 and 2018 were ¥7,663 million and ¥2,089 million, respectively.
75 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(Unit: Millions of yen)
2017 2018 Total financial liabilities 7,454 29,648 Offsetting amount of financial assets and financial liabilities in － (15,943) accordance with the requirements Financial liabilities presented in the statement of financial position 7,454 13,705 (Note 3) The amount to be offset under master netting arrangement or similar (2,694) (2,461) arrangements Cash collateral paid － － Net (Note 4) 4,760 11,244
(Note 3) Derivative assets recognized in "Financial assets presented in the consolidated statement of financial position" for the years ended March 31, 2017 and 2018 were ¥7,454 million and ¥10,232 million, respectively. (Note 4) Derivative assets recognized in "Net" amount presented in the consolidated statement of financial position for the years ended March 31, 2017 and 2018 were ¥4,760 million and ¥7,771 million, respectively.
76 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
27. Leases (1) As Lessee 1) Finance lease obligations The breakdown of finance lease obligations at each fiscal year-end is as follows: (Unit: Millions of yen)
Minimum lease payments 2017 2018 Due within one year 10,891 11,442 Due after one year through five years 5,774 6,039 After five years 627 786 Total 17,292 18,267
The balance of lease obligations was included in "Trade and other payables" and "Other financial liabilities" in the consolidated statement of financial position. The lease obligation refers mainly to molds and its payment period is mainly two years. Sublease contracts are conducted for such mold-related transactions, and the total minimum lease payments under such sublease contracts are equal to the balance of finance lease receivables as lessor, disclosed in the table in (2) As lessor.
The Group does not have lease contracts which contain a renewal or purchase option, contingent lease, escalation clauses, or further restrictions imposed by the lease contracts such as those for dividends, additional debt, or leases.
2) Non-cancellable operating lease transactions Future minimum lease payments under non-cancellable operating leases were as follows: (Unit: Millions of yen)
Minimum lease payments 2017 2018 Due within one year 1,955 2,166 Due after one year through five years 3,037 4,088 After five years 641 982 Total 5,633 7,236
The Group mainly leases as lessee cars and information equipment. Certain lease contracts contain a renewal option. The Group does not have any purchase options, sublease contracts, escalation clauses which prescribe the increase of the amount of lease contract, nor further restrictions imposed by the lease contracts such as those for dividends, additional debt, or leases.
3) Lease payments recognized as expenses under operating leases Lease payments recognized as expenses under operating leases for each fiscal year were as follows: (Unit: Millions of yen)
2017 2018 8,901 9,753
77 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
(2) As lessor Finance lease receivables The breakdown of finance lease receivables at each fiscal year-end is as follows: (Unit: Millions of yen)
Minimum lease payments receivable 2017 2018 Due within one year 9,127 10,453 Due after one year through five years 4,430 3,640 After five years － － Total 13,557 14,093
The balance of lease receivables was included in "Trade and other receivables" and "Other financial assets" in the consolidated statement of financial position. The Group leases, as lessor, mainly tools and molds and receipt periods are mainly two years. There is no residual value after the end of the lease period. Also, there is neither unearned finance income, unguaranteed residual value which is recognized as profit for a lessor, accumulated allowance for uncollectible minimum lease payments receivable, nor contingent rent recognized as income in the reporting periods.
28. Reconciliation of liabilities arising from financing activities The changes in liabilities arising from financing activities were as follows: (Unit: Millions of yen) Non-cash changes Foreign Business 2017 Cash flows Fair value New lease 2018 exchange combi- changes contracts differences nations Short-term borrowings 81,595 (35,266) (4,808) －－ 23,324 64,845 Long-term borrowings 158,660 75,827 (5,551) －－ 69 229,005 Lease obligation 17,292 (12,636) － － 11,307 2,304 18,267 Bonds 110,000 70,000 － － － － 180,000 Derivatives (Note) 7,454 (1,767) － 4,533 － 12 10,232 Total 375,001 96,158 (10,359) 4,533 11,307 25,709 502,349
(Note) Derivatives are included in "Other financial liabilities" in the consolidated statement of financial position and "Other" in "Cash flows from financing activities" in the consolidated statement of cash flows.
78 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
29. Related parties (1) Related-party transactions For the year ended March 31, 2017 (Unit: Millions of yen)
Category Name Main transactions Transaction amounts
Associated company which has Toyota Motor Sale of automotive components 2,128,244 significant influence over the Group Corporation group Purchase of automotive components 35,692
For the year ended March 31, 2018 (Unit: Millions of yen)
Category Name Main transactions Transaction amounts Associated company which has Toyota Motor Sale of automotive components 2,341,657 significant influence over the Group Corporation group Purchase of automotive components 43,250
Outstanding balance and allowance for doubtful accounts of the above transactions as of each fiscal year-end were as follows: (Unit: Millions of yen)
2017 2018 Trade accounts receivable 171,050 208,046 Electronically recorded monetary claims 39,845 50,584 Accounts receivable - others 42 331 Allowance for doubtful accounts － － Accounts payable 4,055 6,153 Accrued expenses 357 545
(2) Remuneration of key managing officers For the year ended March 31, 2017 (Unit: Millions of yen)
Breakdown of remuneration Total remuneration Basic remuneration Stock option Bonuses Key managing officers 913 564 － 349
For the year ended March 31, 2018 (Unit: Millions of yen)
Breakdown of remuneration Total remuneration Basic remuneration Stock option Bonuses Key managing officers 722 427 － 295
79 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
30. Contingencies The details of contingent liabilities for the year ended March 31, 2018 are as follows:
Concerning the Antitrust Law (1) Investigations by Countries and Competition Authorities The Company is responding to the authorities' investigations in certain jurisdictions.
(2) Civil Lawsuits The Company and certain subsidiaries of the Group are among the defendants named in several lawsuits in the United States and Canada wherein damages are claimed on suspicion of violation of antitrust law or competition law in connection with certain past transactions regarding specific auto parts.
In the United States, depending upon the particular auto part, putative class action lawsuits have been filed against the Company and certain subsidiaries of the Group on behalf of putative classes of direct purchasers (e.g., tier-one suppliers, RV manufacturers and aftermarket parts distributors). Lawsuits also have been filed by several state attorneys general on behalf of their state's government entities and/or citizens within their states, by an automotive insurance company, and by certain automobile dealerships.
Progress in these cases may differ depending on the procedural nature of the suit and the products involved. In the putative class action lawsuits, each case will be subject to the process known as discovery (a procedure where the parties to the litigation mutually disclose evidence, such as documents, relating to the subject matter of the litigation prior to trial). After discovery concludes and followed by defendants' motion practices, if any, plaintiffs may bring motions for class certification, to allow them to assert the claims of all members of their putative classes. Only after such motions are decided will the cases proceed to any trial on the merits. In the lawsuits filed by the state attorneys general, the automotive insurance company and automobile dealerships, however, there is no such process for considering class certification, and any trial on the merits will commence after discovery concludes.
In Canada, a number of putative class actions have been filed in several provinces against the Company and certain subsidiaries of the Group on behalf of both direct purchasers (e.g., automobile manufacturers) and indirect purchasers (e.g., automobile dealerships and vehicle purchasers). Class certification in Canada occurs at an earlier stage of the process than in the U.S., prior to any discovery.
In each of these cases mentioned above both in the United States and Canada, the company could commence settlement discussions with the plaintiffs at any time in the proceedings and reach a settlement.
(3) Individual Settlement Negotiations The Company has been engaged in negotiations with the Company's major customers (certain automobile manufacturers), individually concerning the alleged violation of antitrust law or competition law in connection with certain past transactions regarding specific auto parts.
In relation to certain of these matters, the Company has estimated its potential payable amounts and has reserved such amounts in the "Other expenses" category (see Note 16 "Provisions" and Note 21 "Selling, general and administrative expenses, and other expenses").
Please note that pursuant to IAS 37, the Company has not disclosed the overall content of these disputes because the disclosure of such information could be expected to prejudice the position of the Company.
80 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
31. Subsidiaries, associates, and others Please refer to the Appendix for a list of the major consolidated subsidiaries.
There are no subsidiaries that have material non-controlling interests, associates, or joint ventures at the end of fiscal years ended March 31, 2017 and 2018.
The effects on capital surplus of changes in the ownership interest in subsidiaries without a loss of control were as follows: (Unit: Millions of yen)
2017 2018 Increase in capital surplus 14 －
There were no gains (losses) associated with a loss of control of subsidiaries for the year ended March 31, 2017. Gains (losses) associated with a loss of control of subsidiaries for the year ended March 31, 2018 were not material.
32. Subsequent events The Group has evaluated subsequent events through June 20, 2018.
The Company issued unsecured bonds with the inter-bond pari passu clause per resolution at a meeting of the Board of Directors on March 9, 2018.
(1) Name of bond: The 16th unsecured bonds Total amount of issuance: 30.0 billion yen Interest rate: 0.080% Issuance price: 100 yen per 100 yen par value Redemption period: March 20, 2023 Due date of payment: April 26, 2018 Application of funds: Portion of funds for redemption of bonds and working capital
(2) Name of bond: The 17th unsecured bonds Total amount of issuance: 20.0 billion yen Interest rate: 0.180% Issuance price: 100 yen per 100 yen par value Redemption period: March 19, 2025 Due date of payment: April 26, 2018 Application of funds: Portion of funds for redemption of bonds and working capital
(3) Name of bond: The 18th unsecured bonds Total amount of issuance: 40.0 billion yen Interest rate: 0.315% Issuance price: 100 yen per 100 yen par value Redemption period: March 17, 2028 Due date of payment: April 26, 2018 Application of funds: Portion of funds for redemption of bonds and working capital
81 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Appendix
List of subsidiaries The Company's subsidiaries as of March 31, 2018 were as follows.
Segment Company name Voting rights (%) Japan KYOSAN DENKI CO., LTD. 62.9 ANDEN CO., LTD. 100.0 HAMANAKODENSO CO., LTD. 76.7 DENSO DAISHIN CORPORATION 100.0 DENSO AIRCOOL CORPORATION 100.0 DENSO AIR SYSTEMS CORPORATION 100.0 DENSO SALES JAPAN CORPORATION 100.0 ASMO CO., LTD. 92.4 DENSO WAVE INC. 75.2 DENSO TECHNO CO., LTD. 100.0 DENSO FINANCE&ACCOUNTING CENTER CO., LTD. 100.0 DENSOTRIM CO., LTD. 80.0 DENSO KYUSHU CORPORATION 100.0 DENSO HOKKAIDO CORPORATION 100.0 DENSO TEN LIMITED 51.0 DENSO TEN MANUFACTURING LIMITED 100.0 (100.0) TD MOBILE CORPORATION 51.0 55 Other companies － North America DENSO INTERNATIONAL AMERICA, INC. 100.0 DENSO PRODUCTS AND SERVICES AMERICAS, INC. 100.0 (100.0) DENSO MANUFACTURING MICHIGAN, INC. 100.0 (100.0) DENSO MANUFACTURING TENNESSEE, INC. 100.0 (100.0) DENSO MANUFACTURING ATHENS TENNESSEE, INC. 100.0 (100.0) ASMO NORTH AMERICA, LLC. 100.0 (100.0) ASMO NORTH CAROLINA, INC. 100.0 (100.0) ASMO GREENVILLE OF NORTH CAROLINA, INC. 100.0 (100.0) DENSO MANUFACTURING ARKANSAS, INC. 100.0 (100.0) DENSO TEN AMERICA LIMITED 100.0 (100.0) DENSO SALES CANADA, INC. 100.0 DENSO MANUFACTURING CANADA, INC. 100.0 DENSO MEXICO S.A. DE C.V. 95.0 (95.0) 18 Other companies －
82 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Segment Company name Voting rights (%) Europe DENSO INTERNATIONAL EUROPE B.V. 100.0 DENSO EUROPE B.V. 100.0 (100.0) DENSO INTERNATIONAL UK, LTD. 100.0 (100.0) DENSO MANUFACTURING UK, LTD. 100.0 (100.0) DENSO BARCELONA S.A. 100.0 (100.0) DENSO MANUFACTURING ITALIA S.p.A. 100.0 (100.0) DENSO THERMAL SYSTEMS S.p.A. 100.0 (100.0) DENSO MANUFACTURING HUNGARY, LTD. 100.0 (100.0) DENSO MANUFACTURING CZECH s.r.o. 100.0 (100.0) DENSO THERMAL SYSTEMS POLSKA Sp.zo.o. 100.0 (100.0) 25 Other companies － Asia DENSO INTERNATIONAL ASIA PTE., LTD. 100.0 DENSO SALES (THAILAND) CO., LTD. 100.0 (100.0) DENSO (THAILAND) CO., LTD. 51.3 (51.3) DENSO INTERNATIONAL ASIA CO., LTD. 100.0 (100.0) SIAM DENSO MANUFACTURING CO., LTD. 90.0 (90.0) SIAM KYOSAN DENSO CO., LTD. 100.0 (100.0) PT. DENSO INDONESIA 68.3 (68.3) PT. DENSO SALES INDONESIA 100.0 (100.0) PT. ASMO INDONESIA 100.0 (100.0) DENSO (MALAYSIA) SDN. BHD. 72.7 (72.7) DENSO MANUFACTURING VIETNAM CO., LTD. 95.0 (95.0) DENSO HARYANA PVT., LTD. 100.0 DENSO (CHINA) INVESTMENT CO., LTD. 100.0 TIANJIN DENSO ELECTRONICS CO., LTD. 93.5 (93.5) TIANJIN FAWER DENSO AIR-CONDITIONER CO., LTD. 60.0 (60.0) TIANJIN DENSO ENGINE ELECTRICAL PRODUCTS CO., LTD. 95.0 (95.0) TIANJIN ASMO AUTOMOTIVE SMALL MOTOR CO., LTD. 60.5 (60.5) GUANGZHOU DENSO CO., LTD. 60.0 (60.0) DENSO (GUANGZHOU NANSHA) CO., LTD. 100.0 (74.9) DENSO (TIANJIN) THERMAL PRODUCTS CO., LTD. 100.0 (100.0) DENSO (CHANGZHOU) FUEL INJECTION SYSTEM CO.,LTD. 100.0 (30.6)
83 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Segment Company name Voting rights (%) Asia DENSO KOREA AUTOMOTIVE CORPORATION 100.0 (29.2) DENSO KOREA ELECTRONICS CORPORATION 100.0 53 Other companies － Others DENSO DO BRASIL LTDA. 90.6 5 Other companies －
(Notes) 1. The percentages in parentheses under "Voting rights (%)" indicate indirect ownership out of the total ownership noted above. 2. The Group has reported "Japan," "North America," "Europe," and "Asia" as its reportable segments. "Others" is an operating segment that is not included in the reportable segments, such as business activities of subsidiaries in South America.
84 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Deloitte Touche Tohmatsu LLC JP TOWER NAGOYA 1-1-1, Meieki, Nakamura-ku Nagoya, Aichi 450-8530 Japan INDEPENDENT AUDITOR'S REPORT Tel:+81(52)565 5511 Fax:+81(52)569 1394 www.deloitte.com/jp/en
To the Board of Directors of DENSO CORPORATION:
We have audited the accompanying consolidated financial statements of DENSO CORPORATION and its subsidiaries, which comprise the consolidated statement of financial position as of March 31, 2018, and the consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Member of
Deloitte Touche Tohmatsu Limited
85 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DENSO CORPORATION and its subsidiaries as of March 31, 2018, and the consolidated results of their operations and their cash flows for the year then ended in accordance with International Financial Reporting Standards.
June 20, 2018
86 WorldReginfo - aa95fef1-ee8f-4b57-bd75-7addbb0c8767