EVA Management

We use Economic Value Added (EVA^®) as principal management metric. Continuously increasing EVA leads to greater corporate value, and corresponds not only to long-term benefit for shareholders but also for all of our stakeholders. The concept of “maximum with minimum” that we present in the K27 in fact represents the approach of EVA management. EVA could also be described as a metric that calculates how much true economic benefit is produced from invested capital. Management is always aware of invested capital since priority is given to obtaining profit in amounts exceeding the expected profit from the capital. The approach of “maximum with minimum” encompasses increasing Net Operating Profit After Tax (NOPAT) without increasing invested capital, through higher sales and reducing costs, and lowering cost of capital by, for example, improving our capital structure. This produces higher EVA and leads to enhancing corporate value. Although we have managed our businesses individually using numerical methods, we have not set target EVA values for each business, and instead use the EVA metric as a company-wide target. Our business divisions employ matrix management, where various functions including R&D, production and sales are encouraged to dynamically interact, while we manage capital efficiency as a single entity, because we believe this encourages proactive investments by business divisions and allows for flexible capital allocation according to the business circumstances. In K27, we will continue to use EVA a principal management metric while also implementing financial measures in anticipation of where the times are headed and continuing to innovate.