Dialogue between Inside and Outside Directors

Expectations for Further Improvement in Capital Efficiency
Aiming for Corporate Value Enhancement and Steady Execution of Growth Investments with a Long-Term Perspective

Director Osato and Outside Director Miyahara held a discussion on their views on the Groupʼs financial strategy, growth investments, governance, and organizational culture, all aimed at enhancing corporate value.

Miyahara : I was appointed as an outside director of the Company in March 2025. Drawing on the experience and insights I gained as a certified public accountant at an auditing firm, I am committed to contributing to the enhancement of our Group’s corporate value with passion.
When analyzing potential investments, I believe investors place great importance on whether a company is actively working to improve capital efficiency as a means of enhancing corporate value. Our Group has been proactive in improving capital efficiency. For the fiscal year 2024, our ROE improved by 0.9 points year on year to 9.6%. While our ROE target for the fiscal year 2025, is 10% and is nearly within reach, we view this as a milestone rather than a final goal, as this level is not particularly high in the IT solutions industry.

Osato : In the fiscal year 2024, we achieved the fourth consecutive year of revenue and profit growth with record-high profit, and we reached the initial targets of our Long-Term Management Objectives (2021–2025) one year ahead of schedule. In terms of the balance sheet, we worked to improve capital efficiency by repurchasing approximately 20 million shares of our stock from our parent company and others in July 2024 and subsequently cancelling them. In December, we also acquired approximately 750,000 shares from a company that held them as cross-shareholdings and converted them into treasury stock. These efforts led to improvements in both EPS and ROE, enhancing our return on capital. We will continue working to improve capital efficiency and raise our ROE while reducing our cost of capital, thereby striving to further expand our equity spread. Our Group has set net sales, operating income, and ROE as key financial targets. However, through dialogue with investors, we have received suggestions to consider adopting EBITDA as a metric that more accurately reflects our underlying performance, especially in light of increasing amortization costs stemming from goodwill and intangible assets acquired through M&A. As we refine our financial strategy, I look forward to receiving advice from Ms. Miyahara on how we are perceived from the outside and what kinds of disclosed management indicators would help reduce our cost of capital.

Miyahara : The cancellation of treasury stock has also contributed to improving the ratio of outstanding shares. While closely monitoring capital market conditions, I will continue to impartially and objectively assess the direction of our Group’s financial strategy and financial results, and provide recommendations accordingly.

Miyahara : The Group is working to create new value by leveraging our unique strengths, namely, the powerful Canon brand and exclusive access to high-quality products backed by advanced technological capabilities. Looking at each business, while it may be difficult to achieve major growth in the Canon products business amid the trend toward paperless offices, we expect steady demand to continue, positioning it as a stable source of revenues. In contrast, in the IT solutions business, as companies across industries accelerate their DX efforts to solve various issues, we see growing opportunities for our Group. By providing services that enhance customer satisfaction, we aim to expand sales while also improving profit margins.

Osato : The Canon products business, with its high ratio of recurring business revenue, is built on a business model that delivers consistent profits and forms a solid foundation for our Group. As Ms. Miyahara noted, document volumes are declining due to the paperless shift in offices, but our maintenance and consumables businesses remain strong and maintain high profitability. We see this as the right time to strategically reinvest the profits earned from the Canon products business into the IT solutions business to drive further expansion. Currently, the IT solutions business has lower profit margins than the Canon products business. However, we aim to improve profitability by steadily executing individual system development projects, advancing our transition toward service-based models, strengthening the maintenance, operations, and outsourcing services, and growing recurring revenue business.

Miyahara : We have announced a plan to invest at least ¥200.0 billion in growth by 2025, and by the end of 2024, approximately 70% of that has already been executed. With regard to business investments, we expect to generate synergies through M&A and capital participation. Iʼm particularly interested in the Canon Marketing Japan MIRAI Fund, a ¥10.0 billion-scale corporate venture capital fund launched in 2024, and hope it will lead to future business breakthroughs with significant long-term impact.

Osato : Investments through the CVC fund are designed to bear fruit over the next five to ten years. For example, investments in our data centers—core infrastructure supporting customer DX and cloud services—started in 2010, and it took a long time before they began delivering meaningful returns. We believe it is essential to balance investments between business with rapid launches aiming for near-term revenue and medium- to long-term businesses that require time to mature. Through such a balanced approach to growth investment, and by strengthening our service-based business model, we aim to establish a solid foundation for sustainable revenue growth.

Miyahara : Our Group generates approximately ¥40.0 billion in operating cash flow each year, providing us with ample financial resources. Rather than simply accumulating these funds, it is vital that we steadily carry out growth investments aimed at the future. I intend to continue monitoring our progress closely and offering advice from financial perspective.

Miyahara : As the Company is a listed subsidiary, I believe my first and foremost responsibility is to represent the interests of minority shareholders. With that in mind, I closely monitor the Group’s initiatives and regularly express my views on management matters. I also actively engage in discussions within the Special Committee to help deepen its deliberations.

Osato : Canon and our company maintain a clear separation of roles between manufacturing and sales. Without restrictions from Canon, we’ve been able to independently grow our business, improve our performance, and increase our dividend 2.3 times compared to 2020, before the launch of our current Long-Term Management Objectives. At last year’s Special Committee meeting, the primary topic was the acquisition and cancellation of treasury stock. We held discussions on the rationale for acquiring shares held by the parent company, as well as the fairness of the transaction terms. We ask our outside directors to continue monitoring the company to ensure transparency in management.

Miyahara : I also hope to see the development of a healthier, more open corporate culture that supports sustainable growth. Messages from top management have a significant impact on employee motivation and productivity. I encourage management to continue fostering an environment where employees feel empowered to take on challenges and find meaning in their work.

Osato : President Adachi leads by example, telling employees, “Let’s create an exciting future together—don’t be afraid of failure and take on bold challenges.” In reality, all our employees are given fair opportunities to take on challenges at all stages, and many are actively and independently engaged in their work. As for me, I’ve been encouraging each employee to recognize their own responsibilities and to aim for goals that are one level above their current targets—so they can experience a real sense of achievement.

Miyahara : When it comes to promoting DE&I, I’d like to contribute to accelerating the empowerment of women by leveraging my experience. While the percentage of female managers is on the rise, it was still just 6.5% across the Group as of the end of 2024, indicating there’s room for further improvement. To support the Group’s sustainable growth, I intend to provide appropriate advice from an independent standpoint, free from internal standard or constraints, by accurately assessing the evolving business environment through proper information gathering and guiding management in their risk-taking efforts.