Strategy

Last updated: Aug 26, 2016

Strategy

  • Performance Trends
  • Business Portfolio (Business Domains)
  • Business Models
  • Growth Strategy
  • Medium-term Management Plan SHINKA!-Advance 2016
  • Financial Strategies

Performance Trends

The Sekisui Chemical Group introduced a divisional company system and pivoted strategically toward expanding new businesses in order to break out of an earnings slump following the consumption tax hike in 1997. As a result, productivity improved and growth was reignited, allowing the Group to avoid posting losses during the 2008 financial crisis and the 2014 consumption tax hike. We have strengthened the business structure to the point of achieving record-setting profits over the past few years. In fiscal 2016, the Group has set its sights on posting record-high profits again for a fourth consecutive fiscal year.

Trends in Sales and Operating Income

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*Please see the presentation materials for the most recent business plan and results.

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Business Portfolio (Business Domains)

The Sekisui Chemical Group has created a business portfolio centered on the “Creation and Management of Housing and Social Infrastructure” and “Chemical Solutions.” We aim to realize sustained growth with business strategies aligned with the “Core,” “Growth,” and “Nurturing & Creation” stages* of development.

* Core Stage: business supporting company-wide profit; Growth Stage: business that drives company-wide growth; Nurturing and Creation Stage: en route to becoming a growth business and next-generation theme.

Business Portfolio (Business Domains)

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Business Models

The Sekisui Chemical Group is engaged in a broad range of businesses, from large items like houses to small items like LCD materials. One business model cannot encompass all of our products. Here, we explain our two primary business models.

Supply Chain Business Model for Interlayer Film

The Group’s products derive their competitiveness from prominence in technology. In the interlayer film business, we differentiate from the competition with our materials technologies, such as resin design. To maintain this competitive edge and sustain growth, we intend to further hone competitiveness through vigorous horizontal and vertical business development.

As a specific example of vertical business development, we have has acquired PVA resin operations, a starting material for interlayer films. In terms of horizontal business development, we are constantly reviewing its allocation of resources to achieve an optimal production system through a production network in the major regions of Japan, the U.S., Europe and Asia, in order to address specific needs in markets where demand is growing worldwide. In the interlayer film business, we have created higher value added with new and improved product performance, while at the same time rapidly and appropriately pursuing vertical and horizontal business development as well as building out a supply chain with zero gaps. These achievements have become sources of strength in the business.


Supply Chain Business Model (Interlayer Films))

Cyclical Business Model for Housing and Living Environment Businesses

Our modular housing is highly industrialized housing (in-factory production ratio of 80%) with excellent features stemming from our ability to design all of the homes to high standards for basic performance in terms of airtightness and heat insulation. The unit construction method is a method that separates the skeleton (structural frame) of the home from its infill (interiors, equipment, etc.). Based on modular units comprising robust structural frames that last many long years, interiors can be readily altered and converted, a major advantage of this construction method. In addition, the parts and materials used in the construction of the home and other relevant data is managed and stored for each residence, another advantage of factory production.

Based on these advantages, we have established a cyclical business model that begins in the new housing construction business, where we are able to provide closed-loop hardware and services (i.e., renovation and circulation of pre-owned homes) by addressing the age of the building and changes in family compositions, so that residents can live safely and comfortably in their homes for 60 years or longer.


Cyclical Business Model (Housing and Living Environment Businesses)

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Growth Strategy

The Sekisui Chemical Group has created a business portfolio with distinctive strengths in the fields of new housing construction, home renovation, water-related social infrastructure, building materials, automobiles and transportation, electronics and life science, centered on the two major concepts of “Creation and Management of Housing and Social Infrastructure” and “Chemical Solutions.”

We have classified each business in its portfolio into one of three stages of development, “Core,” “Growth,” and “Nurturing & Creation”, based on their relative strengths and potential for growth. We have created growth strategies using these classifications that combined together will enable us to realize sustained growth over the medium and long term.

For example, new home construction is the “Core” of the housing business, and home renovation is the “Growth” part of the business.

“Growth” businesses are businesses likely to see strong growth during the Medium-term Management Plan. To realize their growth, these businesses are prioritized in the allocation of budgets for R&D, capital investment, and M&A in relevant areas.

“Core” businesses are businesses in which we have already established a firm footing in markets, and are likely to have stable earnings. From a cash flow perspective, the cash generated by “Core” businesses is reinvested in “Growth” and “Nurturing & Creation” businesses in order to achieve growth as a Group over the medium and long terms.

We are advancing growth strategies that strike a balance between current earnings and future earnings potential. On occasion, “Growth” businesses have lost their growth potential due to recent technological advances or rapid changes in the market. Meanwhile, “Core” businesses are unlikely to generate earnings if we just sit around idly.

For these reasons, we are still focused on the future markets for “Growth” businesses (i.e., business growth potential), but are now paying more attention to “Core” businesses, constantly working to hone the businesses while looking for ways to delve deeper into new domains. We revise our growth strategies when the need arises.

Our Growth Strategy

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Medium-term Management Plan SHINKA!-Advance 2016

Basic Strategies

After reporting record high operating income for the first time in 19 years in fiscal 2013, Sekisui Chemical put in place the SHINKA!-Advance 2016 Medium-term Management Plan, which covers the three-year period from fiscal 2014 to fiscal 2016. Under this plan, the Company has outlined initiatives aimed at enhancing its corporate value from a long-term perspective with the ongoing goal of increasing earnings.

The SHINKA!-Advance 2016 comprises two basic strategies aimed at advancing the Company’s evolution: the three SHINKA business models for corporate operations and CSR SHINKA.

Three SHINKA business models

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Profit Plan

At the start of the SHINKA!-Advance 2016 Medium-term Management Plan, the Company set the operating income target of 100 billion yen for fiscal 2016, the final year of the plan. In working toward this target, the plan calls for 10% average annual growth in the Company’s Growth stage businesses. The plan has also set the target to raise the operating income ratio, which the Group uses as an earnings barometer, by 0.6 of percentage point from 7.4% in fiscal 2013 to 8.0% in fiscal 2016.

As we expand Growth stage businesses, we will also aim to raise ROE by a full percentage point from 9.0% in fiscal 2013 to 10.0% or higher in fiscal 2016. After achieving record-high operating income for the first time in 19 years in fiscal 2013, the new medium-term management plan calls for continuing to build income to new record levels.

*April 2014 announced

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*Please see the presentation materials for the most recent business plan and results.

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Cash Flow Strategy

Under the SHINKA!-Advance 2016, the Sekisui Chemical Group is continuing its policy to strengthen and enhance the Group’s financial position through expenditures centered on trategic investment within the limits of cash flow accumulated primarily from operating cash flow and to provide stable returns to shareholders.

Drawing on the cash flow accumulated over the three-year, fiscal 2014 to fiscal 2016, period of the plan, we are stepping up our strategic investment activities. In specific terms, we are primarily focusing on large-scale capital investments in Growth stage businesses as well as M&As aimed at developing new markets and business fields. We are also considering strategic investments in areas necessary to foster next growth businesses as well as major next-generation themes.

Our shareholder return policy will remain unchanged as we continue to provide a stable level of dividend payments while targeting a dividend payout ratio of 30% on a consolidated basis. Management will adopt a flexible and long-term approach toward repurchasing Company shares, taking into consideration share price trends, demand for investment-related funds, and the benefits of raising capital efficiency.

Use of Cash Flow

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Financial Strategies

The Sekisui Chemical Group is committed to promoting a financial strategy that balances efforts to improve its management efficient with the aim of securing sustainable growth and enhancing its corporate value with measure designed to actively return profits to shareholders.

Basic Stance toward Financial Strategies

Moritoshi Naganuma Executive Officer Head of Corporate Finance & Accounting Department

Moritoshi Naganuma
Executive Officer Head of Corporate Finance & Accounting Department

Sekisui Chemical has positioned efforts to enhance its corporate value as an important priority of management. In order to carry out this priority, the Company is committed to achieving the targets identified under its Medium-term Management Plan “SHINKA!- Advance 2016.” Guided by this plan, the Company is endeavoring to secure sustainable growth while building a robust business platform that is resilient to any deterioration in its operating environment by promoting the continued evolution of its business model and CSR management. Based on this understanding, every effort is being made to ensure that funds are applied from a finance perspective to thoroughly improve management efficiency and actively return profits to shareholders. Through these means, the Group is working to increase capital efficiency and improve its ROE.

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Interest-bearing Debt

In the process of carrying out successive medium-term management plans, Sekisui Chemical has continued to promote strategies designed to generate growth and worked diligently to fortify its financial position. As a result, the Company has maintained a negative interest-bearing debt balance on a net basis since March 31, 2014. In real terms, the Company remains debt free.

As of the end of March 2016, the balances of interest-bearing debt and cash on hand were 52.3 billion yen and 68.0 billion yen, respectively. Accordingly, the Company had a net interest-bearing debt balance of negative 15.7 billion yen as of the end of the fiscal year under review. Taking into account these factors, the Company continues to maintain a robust financial position.

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M&As

The Company recognizes the importance of pursuing M&A opportunities in order to secure further growth. With this in mind, the Company will actively engage in projects that align with its business strategies focusing mainly on growth fields.

From a business strategy perspective, each company and the designated divisions of the Company’s headquarters are each working to uncover M&A proposals. As a part of these efforts, the divisional companies and divisions constantly engage in the exchange of information. In order to increase the speed and precision at which each M&A proposal is pursued, the Company has prepared an in-house M&A manual. In this manner, the Company is endeavoring to share details of the execution process and know-how throughout its organization. In addition, investments are made in various funds with a view to sowing the seeds of future businesses.

In undertaking an M&A, the Company adopts the capital cost (the weighted average of equity and liability costs) attributable to each country as quantitative criteria in its decision-making process. Steps are taken to evaluate the value of each company together with potential synergy effects. In adopting this procedure, the Company is better positioned to make a flexible and informed investment decision while at the same time broadening the depth of its prime project selection pool.

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ROE

The Company recognized the importance that investors place on ROE as an index to measure the management efficiency of a company. As such, the Company has positioned ROE as one of its priority financial benchmarks.

Put simply, there are two broad methods to improve ROE (net income attributable to owners of parent/average shareholders’ equity). Based on this calculation, the first is to reduce the balance of the denominator of the equation, shareholders’ equity, and the second to increase the numerator, net income. For the most part, the Company focuses on effort to secure growth. Accordingly, the Company works diligently to increase the numerator, net income, in its bid to improve ROE.

In recent years, the Company has successfully implemented its growth strategies. Against the established ROE target of 10%, the Company has reported two consecutive fiscal years where its ROE has surpassed this 10% benchmark. In specific terms, ROE came in at 10.9% in both fiscal 2014 and fiscal 2015. Looking ahead, the Company will continue to make strategic investments in growth businesses and promote the effective application of assets. Through these means, the Company will actively target further improvements in ROE.

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Acquisition of Own Shares

The Company adopts a flexible approach toward the acquisition of its own shares. While taking into consideration the balance between stock price trends and the demand for investment funds, the Company believes that the acquisition of its own shares is a means to improve capital efficiency and to complement the payment of dividends thereby providing adequate returns to shareholders from a long-term perspective.

The Company does not have a fixed policy relating to the Company’s actions after the acquisition of its owns shares. Steps are taken, however, to retire treasury stock on a flexible basis taking into account operating conditions. With this in mind, the Company held roughly 21,890,000 shares of treasury stock as of March 31, 2016. During the fiscal year ending March 31, 2017, the Company plans to acquire its own shares to maximum limit of 15,000,000 shares.



  For more detail information, please refer to the Profit Distribution