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Message from the President & CEO

President and Representative Director Teiji Koge

As one of the “3S principles” embodied in its Corporate Philosophy, the Sekisui Chemical Group has endeavored since its founding in 1947 to create value for society through business activities by providing various products and services that help solve problems that arise in people’s daily lives and throughout society.

By putting its Corporate Philosophy into practice, the group has been able to expand economic value while being a valuable contributor to society. Our Group Vision, which embodies our aims as a group over the medium and long terms, supports the realization of our Group mission. Detailed management strategies (i.e., the Medium-term Management
Plan) bring us closer to making our Group Vision a reality.

Under the current Medium-term Management Plan, SHINKA!-Advance 2016 (fiscal 2014-2016), we aim to continue providing both economic and social value through business activities that pursue corporate value and CSR activities that create social value.

In fiscal 2015, the group posted record-high profits as a result of business activities based on this concept. We have allocated the cash generated from our business activities in future growth investments as well as in shareholder returns. At the same time, the group made progress on CSR management, advancing its business foundation with corporate
activities that enhance value over the medium and long terms. We also implemented measures to reinforce corporate governance, the basis of our future business activities.

  • Record-High Operating Income for a Third Year
  • Firm Progress in Strengthening Business Foundations
  • Aiming for Record-High Profits in Fiscal 2016
  • Virtuous Cycle of Earnings and Evolution,
  • Strong Corporate Governance Indispensable to Continued 
Value Creation
  • Aiming to Enhance Corporate Value and Provide More Value to Society

Record-High Operating Income for a Third Year

Fiscal 2015 started out with tailwinds provided by a moderate recovery undertone in advanced economies. However, the business environment deteriorated amid a slowdown in the Chinese economy and weakness in the economies of resource-rich nations and emerging countries. At the outset of 2016 in particular, the operating environment worsened
even further from the sharp appreciation of the yen and rekindled concerns about financial instability in Europe and economic growth in the U.S.

In fiscal 2015, sales and profits decreased in the Housing Company, owing to an insufficient order backlog at the start of the fiscal year because domestic orders for smart houses in 2014 were dulled by the rise of excessive concerns about the future of the feed-in tariff (FIT) system. This decline, however, was offset by profit growth that resulted from steady expansion in global strategic fields, such as the Automobiles and Transportation field, which has positioned “eco-friendly materials for a comfortable ride” as a growth domain, in the High Performance Plastics Company, as well as the Life Sciences field, where the focus has been on growth in diagnostic reagent systems that help in the early detection of diseases. Steady improvement in earnings at the Urban Infrastructure & Environmental Products Company, which has been reorganizing its portfolio, also contributed to profit growth. As a result, consolidated operating income grew 4.1 billion yen compared with the previous fiscal year to 89.8 billion yen, setting a new record high. Ordinary income was adversely affected by losses on foreign currency translation adjustments due to sharp exchange rate fluctuations. Nonetheless, net income reached a new record high of 56.7 billion yen.

Sekisui Chemical proactively allocates profits for investments to sustain growth and for shareholder returns. Based on its dividend policy of emphasizing stable dividends that reflect performance, the Company distributed an annual dividend of 30 yen per share, an increase of 3 yen per share compared with the previous year, in fiscal 2015, a record-setting year for performance.

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Firm Progress in Strengthening Business Foundations

While attaining record-high profits in fiscal 2015, the group also implemented measures to secure personnel and intellectual property that will support growth over the longer term, and took steps to preserve the environment. We advanced specific measures and initiatives related to human resources, intellectual property and the environment in line with our CSR Medium-Term Plan (fiscal 2014-2016). In fiscal 2015, the second year of this plan, we saw measureable progress on the human resources front in terms of fostering global personnel and promoting diversity.

In the environment field, the group focused efforts on reducing environmental impact by expanding products that contribute to the environment, while also working to reduce our burden on the environment and preserve the natural environment. In fiscal 2015, the Company completed the development of a high-capacity film-type lithium ion battery that achieves both safety and long operating life, as a product that should contribute to the environment and help reduce greenhouse gases. We aim to start shipping this product infiscal 2016.

Moreover, we encouraged our business partners throughout the supply chain to pay more attention to issues related to human rights, labor and the environment. In fiscal2015, through CSR procurement, we made sure that our business partners are properly addressing the environment, human rights, compliance and occupational safety and hygiene. While winding down this effort in Japan, we launched similar initiatives overseas, beginning with North America and Central America.

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Aiming for Record-High Profits in Fiscal 2016

Fiscal 2016 is the last year of the current Medium-term Management Plan. The Company has already achieved its medium-term targets for an operating income ratio of 8% and ROE of 10%. As of the end of 2015, we had thought that one more target was within reach, for consolidated operating income of 100 billion yen in the final year. At the outset of fiscal 2016, however, we set our sights on growth of 5% in operating income to 94 billion yen, still a record high, based on conservative macro assumptions for foreign exchange rates and the domestic housing market share that reflected changes in the business environment since the start of 2016, such as yen appreciation and uncertainties about whether the consumption tax would be raised as planned.

In the High Performance Plastics Company, profits increased in line with our forecast, despite the adverse impact of foreign exchange rates, on account of global improvement in both volume and the sales mix for the strategic field of high-performance products, in continuation from the previous year. In the Housing Company, profits expanded on a tailwind of negative interest rates, which firmed up orders for smart houses and led to year-on-year growth in the second half of fiscal 2015. In the Urban Infrastructure & Environmental Products Company, the bulk of profit growth was attributable to overseas operations seeing benefits from restructuring implemented in the previous fiscal year. In addition to its profit targets, for key management benchmarks the Company aims to achieve an operating income ratio of 8.6% (up 0.4 percentage point) and ROE of 11.0% (up 0.1 percentage point).

In fiscal 2016, the Group aims to attain record-high profits again as benefits steadily emerge from measures implemented to date, including investments and restructuring, despite the chaotic business environment. The group is in position to sustain profit growth by focusing efforts on accelerating the solidification of a foundation for future growth through the three policies that we have strongly pursued since I became president, namely strengthen earning power (business selection and concentration, management efficiency), forge new frontiers (create new markets), and foster innovation (create new products and businesses).

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Virtuous Cycle of Earnings and Evolution, the Basics of Sustained Value Creation

In fiscal 2015, the group attained record-high profits despite tough business conditions, and we aim to break this record again in fiscal 2016. We attribute this constant achievement of new record highs in profits to the smooth building out and reshuffling of our business portfolios so that volatility in one product does not have an outsized impact on overall performance.

Our current business portfolio is the result of a major strategic transformation we decided to undertake after posting losses for two consecutive years in fiscal 2000 and 2001, owing to earnings volatility in the housing business, which had generated the bulk of profits, following the consumption tax hike in fiscal 1997.

In this strategic transformation, we aimed to create a virtuous cycle, where cash generated by strong-performing businesses in tune with market needs is invested to evolve businesses by creating products that address emerging needs and reforming business models, setting the stage for these businesses to generate cash in the future. By divisional company, we were able to create this virtuous cycle from an early stage at the Housing Company and the High Performance Plastics Company, and this drove the steady growth in profits over the past decade. In the Urban Infrastructure & Environmental Products Company, however, our overseas growth strategy, which aimed to leverage our leading domestic technologies, faltered and fell slightly behind other divisional companies, but a rapid pivot in strategy and sweeping restructuring in fiscal 2015 has put the Company on a path towards earnings growth.

Our emphasis is on sustained and reliable growth in earnings, not a windfall of profits in a single fiscal year. We therefore aim to create a series of hit products, instead of a single runaway hit product, like a home run. To achieve this goal, the Company has taken a hard and calculated look at whether it can create competitive advantages using its unique “prominences,” and whether it can enter markets with genuine growth potential. This process of trial and error has led to our current business portfolio.

However, we will not let our success today impede our progress in the future. As the outlook for the domestic market is certainly not optimistic after the end of the 2020 Tokyo Olympics, we must keep moving and forge new paths of growth. The group must constantly refresh the virtuous cycle of reinvesting profits to evolve its businesses in order to maintain sustainable growth in profits. With this objective in mind, the entire group is concentrating efforts along the three key concepts of strengthening earning power (business selection and concentration, management efficiency), forging new frontiers (create new markets), and fostering innovation (create new products and businesses).

In a position to supervise the three divisional companies, I will periodically assess the reshuffling of business portfolios at each divisional company while making final decisions on M&A deals and business divestures within the context of building an optimal business portfolio for the entire group.

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Strong Corporate Governance Indispensable to Continued Value Creation

These initiatives to provide value, our growth strategies and restructuring, as well as the rapid decision-making of top management would not be possible without a corporate governance structure that strikes a balance between offensive and defensive postures.

In June 2015, the Corporate Governance Code came into effect for companies listed on the Tokyo Stock Exchange. As this Code aligns with the direction of our own corporate governance, we have taken this event as an opportunity to reinforce corporate governance at the Company via the implementation of necessary measures to comply with the Code.

The Group has formulated and published the Corporate Governance Principles for the purpose of guiding its capital policy, including for strategic shareholdings and the execution of voting rights, enhancing two-way communications based on constructive dialog with shareholders, as well as deciding on a corporate governance system with basic policies that ensure transparency and fairness in management while rapidly addressing changes in the business environment.

As the debate about corporate governance continues, we have introduced a new system for determining the compensation of directors and other levels of management. Under this new system, instead of stock options, we have introduced a stock-swap incentive system based on employee stock ownership plan (ESOP) trusts with stock grants. We believe this incentive system will further motivate management to increase the earnings of the group over the medium and long term, contribute more to corporate activities, and focus more on shareholders.

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Aiming to Enhance Corporate Value and Provide More Value to Society

In fiscal 2016, the group will continue to pursue its growth strategies while restructuring operations with the aim of posting record-high profits for a fourth consecutive year. From the perspective of enhancing corporate value over the longer term, the group will continue to focus efforts on fostering personnel (Prominence in Human Resources), improving customer satisfaction (Prominence in CS & Quality), and returning natural capital (Prominence in the Environment).

The entire group is in position to enhance corporate value and provide more value to society.

We are thankful for the continued understanding and support of our stakeholders.

August 2016

Teiji Koge

Teiji Koge
President and Representative Director