Mitsubishi Electric Corporation (6503) Earnings Call Transcript & Summary

So Oguro will now explain. Thank you very much.

I'm from Sustainability Innovation. My name is Oguro, responsible for sustainability of Mitsubishi Electric. Welcome to our sustainability briefing today. What I'd like to do is to share with you our initiatives in sustainability, including some case studies. I hope you will enjoy our briefing. I will be turning to Page 2. And this is my agenda today. I will go through these items in this sequence. First of all, I would like to discuss sustainability management of Mitsubishi Electric. Please turn to Page 4. This shows our basic stance for sustainability initiatives. This is a recap of what you have already been informed of. Realizing sustainability is at the core of our management, solving social challenges and business growth used to be regarded as trade-off in relationships. However, we decided to introduce trade-on concept for circular digital engineering-driven innovations. Please turn to Page 5. The key to accelerating trade-on activities would be the new innovations, which are born out of various initiatives from various domains. Especially, we are focusing on these 4 areas: Sustainability, digitalization, open innovation and business synergies. And of course, all of these are driven by our human capital. Together with our diverse human capital base, new innovations will be generated and trade-on activities will be accelerated. Now on Page 6. These are the 5 social challenges that we focus on. In order to resolve those social issues, we work on 2 directions: strengthening our foundation and generating value. In the first part, we reinforce various parts of the management foundation to realize trade on. In value creation, we continue to challenge ourselves to come up with further reinforcement of existing businesses as well as generating new business for social challenge resolutions. Page 7. Within our corporate management mission, we have made sure sustainability is at the core. In order to realize that, we have to continue solving social challenges through our business and reinforce our management basis for sustainable growth. And we have 5 focus areas as our materialities. Each of these items have different KPIs for us to work on PDCA cycles for continued improvement activities. You can see our KPIs on Page 18 of the appendix. Page 8, please. In order to accelerate sustainability activities, we established the Sustainability Innovation headquarters in April this year. This quarter -- headquarters is characterized by the activities for value generation, especially centering around new business creations as well as responses to environmental and regulatory changes. The same organization is responsible for value creation and reinforcing foundations. And this is a unique method that we have employed to create a virtuous cycle of both areas of activities. From next page on, I would like to delve into specific case studies of value creation and strengthening foundation. Page 9. The first example for value creation is GIST Project. GIST stands for Global Initiative for Sustainable Technologies. Within this project, various members from different LOBs within the group would get together to work on new business generation and reinforcement of such businesses from the global and sustainable perspectives. Nature positive frontline frontrunner is what we would like to become. So our topic currently is the ocean, which occupies 70% of the surface of this planet. We work with FTT, the Finland Technology Research Center for the direct ocean capture of CO2 capture from the oceanic waters. We will continue to work with other companies under the open innovation also involving the academia to accelerate new business generations. Under this GIST project, in order to accelerate our new business creation for resolving social challenges, we are now holding in-house sustainability workshops. Please turn to Page 10. In order to ensure the sustainable growth of our group, we are committed to strengthening our management foundation to fulfill our social responsibility as a business corporate. In particular, in our environmental promotion activities, we are promoting natural symbiosis initiatives that contribute to the reduction of greenhouse gas emissions from our factories and offices and the realization of nature positivity. The CDP, an international nonprofit organization has selected us as an A listed company in the 2 areas of climate change and water security. We will also continue to focus on other activities such as respecting human rights and strengthening corporate governance in line with the international norms. Please turn to Page 11. So from here, we would like to share some examples of the group's efforts to solve social issues through our businesses. Now please turn to Page 12. The first is a heat-related tool solution provided by infrastructure business area, which started offering the service in May of this year. The solution focuses on industrial energy, including heat, which is difficult to decarbonize and helps customers to reduce costs and promote decarbonization. This solution visualizes the issues faced by customers in the manufacturing business, building owners and heat supply businesses by analyzing their energy data and equipment operation data and provides a one-stop service from consultancy to efficient operation and support. The data analysis in this solution makes use of the digital platform “Serendie. We forecast customers' electrical and thermal energy demand and optimize operation plans and provide a combination of our group's hot water and industrial refrigeration equipment, building management systems and energy management system as part of our solutions, thereby contributing to the efficient use of electricity and thermal energy, which is indispensable for air conditioning and hot water supply systems. The solution contributes to the achievement of carbon neutral at [ CBFI ]. Now please turn to Page 13. This is also the data analysis service for railways, also provided by infrastructure business area. The service was launched in July of this year. By making use of digital platform, “Serendie, the service consolidates and analyzes data of electricity consumption and train operations of the rolling stock, electric power substations, EPS and stations owned by our customers, the railway operators. Such analysis enables us to propose optimal solutions such as energy flow visualization and consultancy for solving energy issues to railway operator aiming to decarbonize their rail transport from Birdseye viewpoint. For example, the system supports the optimal operation of railway assets by visualizing the surplus power from regenerative energy that are generated when rolling stock apply a break, et cetera, and propose suitable locations for station building auxiliary power supply equipment. These initiatives will not only help railway operators to save energy, but also allow us to aim for carbon neutrality through energy supply optimization in the area along the railway line. Please see Page 14. The last project we shared today that solves social issues through business is RaaS, a smart plastics sorting DX solution. So the project is currently being commercialized by the Sustainability Innovation division that is working on the project. Currently, regulations promoting the use of recycled plastics are being developed in Europe and other parts of the world, further increasing the importance of plastic recycling. We are promoting the development of solution service, the digitally transform information on the sorting process and operating know-how based on the advanced sorting technology for plastic that use static electricity, which we have cultivated in the field of electrical appliance recycling in September this year. In collaboration with Daisan, we started operating a plastic advanced sorting demonstration machine that uses our electrostatic sorting technology and are actively promoting proposals to customers through the commercialization of the solution to solve plastic recycle issues in diverse industries and fields and thereby contribute to the realization of the circular economy. Finally, I would like to summarize my presentation. So please turn to Page 16. Our group is committed to pursuing the realization of sustainability through trade-on, which simultaneously solve social problems and achieve business growth. To this end, we will strengthen our efforts in sustainability, digital, open innovation and business synergies, and we will continue to develop new innovations. Finally, the driving force behind these efforts is human capital. We will continue to take on the challenge of sustainability innovation by bringing the creativity of each and every one of our employees together. So this was my presentation on the group's basic policy on sustainability management and some major recent activities of the group. Next, our CHRO, Abe will explain our human capital management initiatives. Now over to Mr. Abe.

Thank you very much. I am Abe, CHRO at Mitsubishi Electric. Now I'd like to discuss our human capital management at Mitsubishi Electric. In the earlier sustainability part, we shared with you our initiatives to resolve social challenges through business. Now such initiatives will be driven by our human capital. Thus, I would like to discuss our initiatives to unleash their potential to the maximum and go through these topics. Please turn to Page 4. Mitsubishi Electric Group has the purpose and the corporate strategy as discussed on the left. But everything that we do is based on the human capital. Therefore, our human capital management policy is based on the concept of growing our people, growing our business and growing our society. Based on this policy, we endeavor realizing the ideal human capital and organizational culture for sustainable value creation. On Page 5, in order to enhance corporate value, we have key initiatives as described on this slide. The first is talent management that fosters mutual growth of people and organization; the second, development and expansion of human capital for future growth; and number three, strengthening the foundation of human capital. I will come back and discuss each of these later on in order to support these initiatives. For 3 years from fiscal year '24 to '26, we plan to make JPY 20 billion of investment for human capital, including workplace environment improvement, which is 70% growth from the previous 3 years between 2021 to 2023 for the sustainable growth based on human capital, and we will continue to make focused investment for human assets. Page 6. The first topic that I mentioned earlier is the fostering of mutual growth of people in the organization. We aim at promoting optimum allocation and development of talent from group-wide and global perspective and strengthening career ownership of employees. Through these initiatives, we aim at building a mechanism to link people's growth and organizational achievement to promote organizational and sustainable growth. The details will be described in the following slides. Page #8. We used to have the business groups and Japan-centric allocation of HR for local optimization. However, now, we are aiming at group-wide global optimization. To be more specifically, building global human talent pools and job grading systems and creating the global mobility guidelines as well as restructuring the overseas HR sections. On Page 9. We aim at selecting, developing and assessing management leadership candidates from around the world, because we would like to nurture global management leaders for the future. We have established L.E.A.D500, the group of candidates for the next-generation leaders. Our President and CEO as well as other top management members directly monitor their development status, not only from within overseas as well as outside the countries are being looked at to search for the candidates with diverse background so that they can support the future sustainable growth of the company. Page 10. We have the career ownership program for the employees. One of the initiatives is the in-house recruiting and job search systems. Such systems are constantly revisited and group common training program called MELCO seminars are constantly updated to meet the upskilling needs of employees. We also introduced EGG, the internal and external site job system this year. Please see Page 11. Now in order to support the self-directed career designs of employees, we established EGG. This will lead to new value creation going forward. Through this system, our employees are now given opportunities to gain new insight experience as well as relationships. The internal side job system, which we introduced in October this year, has already seen such an example of an engineer asking for a side job at accounting so that he can gain an understanding of product cost structures and improve proposal skills for profitability and decision-making abilities from a management perspective. We are now promoting such side jobs across LOBs and across different jobs. As for the external side job system, we just started it this December, enhancing well-being is a part of the benefit. And also, we expect the insight and experience garnered from our site to be fed up to the main job inside. Page 12. Job-based new system of HR as well as human development are now being focused on in our appraisal system. The global human capital information platform is now being built. We'd like to make sure that we have all the data related to human capital before 2031, so that the global allocation as well as optimization of development can take place based on this platform. Page 13. talks about development and expansion of human capital for future growth, especially for circular digital engineering company as well as DX human capital for the future of the group of Mitsubishi Electric. Mitsubishi Electric Group make use of “Serendie as a digital platform. And by integrating as well as analyzing in the digital space, the data that we have acquired from the customers so that we'll be able to generate with them and connect ourselves strongly within the group and thereby give to new values that would be -- that would allow us to solve the social issues. So promoting this is very much necessary in order to reinforce DX human capital, and we aim to achieve 20,000 DX human capital by 2031. At Mitsubishi Electric Group, there are 6,500 DX human capital right now. In order for us to achieve the goal by 2031, we would like to work on the fostering as well as recruiting and on a group-wide basis and make a multifaceted approach even through M&A in order to work through this -- apply this strategy of DX Capital. So please turn to Page 15. Firstly, I would like to talk about people development. We also made a news release today on the topic. In Japan, the labor market is limited and competition for DX talent is intensifying, even at other companies, so the main focus will be development as well as training of people. Under these circumstances, we will establish the DX Innovation Academy to promote the systematic development of DX Human Capital. This institution will make maximum use of Mitsubishi Electric's training resources to develop human capital with speed has been announced in the press release today, which will be opened in April. Now in addition, through collaboration with Waseda University, we provide learning opportunities for the acquisition of advanced DX skills and practical exchange opportunities. So we are reinforcing this collaboration with academia as well. Please turn to Page 16. As the labor market becomes more fluid in Japan, we are strengthening our competitiveness in attracting key human capital, including DX talent. By focusing, in particular, on the recruitment of experienced personnel and introducing multiple recruitment approaches such as referrals and alumni network, we are building a system to secure human capital with a diverse range of skills and experience. In this way, we aim to sustainably increase our corporate value. Please turn to Page 17. This page focuses on overseas. The group will accelerate its efforts to actively acquire, deploy and utilize DX human talent in overseas markets, even in advanced DX regions. For example, in the U.S., a system is being developed to efficiently utilize the resources of software-related companies across different locations, and the aim is to expand similar initiatives in Europe and Asia in the future. In line with the developments on the business side, we will expand virtual assignments as well. So talking about this expansion of virtual assignments, which will be in line with the developments on the business side, which includes online collaborations across countries to achieve borderless organizational operations across the regions. Now please turn to Page 18. Next is strengthening the foundation of human capital. In this section, I will explain the initiatives focusing on the culture and environment that form the foundation for implementing each of the human resources measures explained so far. Now please turn to Page 19. To enhance employee engagement, the company focuses on improving the work environment and improving corporate culture. Specifically, in addition to organizational climate reform improvement activities centered on Sousei Team Creation project, we are also working on developing a workplace environment that is employee-friendly from a well-being perspective. As a result of these efforts, the most recent employee awareness survey at Mitsubishi Electric achieved a 60%, a favorable employee engagement score and signs of improvement are beginning to emerge. This is surely a recovery from where we were. So please turn to Page 20. DE&I is an integral part of the group's sustainable growth. So it is one of the management challenge we believe. The DE&I statement announced this year has been disseminated throughout the group and efforts with strong intent are being made to develop a management team with diverse perspectives. This has led little by little to a steady increase in the proportion of women and foreigners in senior management positions. However, we do perceive this to be insufficient. So we want to make sure that we would achieve the KPI by FY 2031. So please turn to Page 21. Finally, KPIs and the road map. And please see Page 22. We have set the KPIs you see here to realize circular digital engineering company by FY 2031. One is talent management that fosters mutual growth of people and organization. Visualization of human capital across the globe and optimize talent allocation will be conducted. This will strengthen the selection and training of senior management candidates. And for key positions, we aim to achieve a situation where at least 2 such candidates are prepared. In addition, we will check progress in our employees' awareness survey to ensure that each employee feels a sense of growth and foster motivation to take on further challenges and that these challenges are properly assessed. The second is development and expansion of human capital for future growth. As mentioned earlier, the group has set a target of expanding the number of people responsible for promoting digital transformation to 20,000 by FY 2031. This progress will be monitored based on annual recruitment and training data and other data with the aim of achieving the target. Lastly, strengthening the foundation of human capital. The Mitsubishi Electric Group has set the rate of good responses to questions in its survey on so-called employee engagement and work-life balance as KPIs and plans to improve these figures by about 10 percentage points across the group by FY 2031. In terms of DE&I, we will also set KPIs for increasing diversity in management and the proportion of female senior managers and we will monitor the progress. Through these KPIs, we will maximize the potential of our human capital, thereby contributing not merely to the achievement of our financial targets, but also to our sustainability and fulfillment of our social responsibility as a business corporate. Now please turn to Page 23. Here, we share the overall road map towards FY 2031. Now towards FY 2031, we, Mitsubishi Electric, aim to create a global, diverse and high-performing workforce and organization. And to this end, as been shown on the left-hand side, as the group, we have been working on establishing the foundation and we have been on a company-wide basis, exiting much of the effort on the 3 topics that was mentioned today. And towards 2031, so we would like to give a finishing touch. It goes without saying we will continue to invest in human capital and also organization as well, which sees no end, I suppose. But we have set a light to be by FY 2031 so that we'll be able to maximize the value of human capital and thereby, it will become the source of sustainable growth and the foundation of business operation and Mitsubishi Electric Group. So sorry for repeating myself, but human capital is a source of sustainable growth and the foundation of business operation and Mitsubishi Electric Group. With this, we would like to provide -- the group will continue to provide the new values to society and build trust that continues to future generations and contribute to sustainable growth. Now with this, we would like to conclude the Mitsubishi Electric's Human Capital Management briefing. Thank you for your attention.