TO OUR SHAREHOLDERS AND INVESTORS
Sekisui Chemical utilizes the prominent technology and quality it has refined over many years to develop various frontiers and, through its pioneering efforts, aims to contribute to people’s lives around the world and the global environment and realize growth for the company.
We are currently advancing the GS21-SHINKA! five-year medium-term management plan (fiscal years 2009 to 2013) designed to fulfill our Group vision of establishing Sekisui Chemical as a “Prominent & Profitable Premium Company.” GS21-SHINKA! is divided into two phases, the initial Stage 1, covering fiscal years 2009 and 2010, and Stage 2, starting in fiscal year 2011 and ending in 2013, with the objective of attaining overall operating income of 80.0 billion yen in the plan’s final year primarily by expanding the “Frontier 7” businesses* that we believe have promise for future growth.
Fiscal year 2012 is the second year of Stage 2 of the plan (fiscal years 2011 to 2013). After achieving more progress than we had initially planned in Stage 1, our growth pace slowed in fiscal year 2011, the first year of Stage 2, largely owing to unpredictable natural disasters, notably the Great East Japan Earthquake and flooding in Thailand. Despite the slower growth, we achieved operating profit growth of 10.7% year on year to 54.6 billion yen. During the year, we continued steadily conducting M&A and other strategies to expand the strategic businesses and implementing measures to fortify the core businesses.
* “Frontier 7” Businesses: HPP’s automotive materials (AT), IT-related materials (IT), and medical products (MD); UIEP’s pipeline renewal business, water infrastructure business (overseas), and performance materials business; and the Housing Company’s living environment business.
* Please see the presentation materials for the most recent business results.
The Sekisui Chemical Group’s fiscal year 2011 was a critical period for Japan for the restoration and reconstruction after the Great East Japan Earthquake. The Company exerted its established presence in its core domestic housing and water infrastructure businesses to contribute to the restoration effort in the stricken region and ultimately recorded a substantial rise in sales.
In overseas operations, the Company’s global strategic businesses, centering on the designated Frontier 7 growth businesses, were hindered by the economic slump in Europe and other conditions that held demand growth below our original expectations. The result was that the growth in sales was not enough to fulfill our plan of covering the factors that would negatively influence operating income in comparison to the previous fiscal year, specifically the strong yen and one-time costs arising from strategic new affiliations.
In these conditions, we sought to reinforce our earning power by raising our product prices and cutting costs to offset the increases in material and component prices, and responded to the sluggish market demand conditions by holding fixed costs other than those associated with growth investment below our initial plan.
As a result, Sekisui Chemical recorded a 5.4% year-on-year rise in net sales to 965.1 billion yen and 10.7% growth in operating income 54.6 billion yen in fiscal year 2011.
In fiscal year 2011, we continued steadily advancing measures to sustain our annual growth track and reinforce the earnings base.
In the strategic IT business field, we entered the ITO film business providing film used in touch panels on smartphones and other devices, and expanded our production capacity for products targeting mobile terminals. In addition, we began full-fledged development of the diagnostic agent business in Europe and the United States in the MD field and took steps to fortify the value chain structure of the pipeline renewal business in Eastern Europe.
We also took steps to fortify the domestic core businesses. In the housing business, we completed the transition to an integrated production and sales operating structure, which enabled us to strengthen our strategies catered to specific regions, and also continued preparations for the market launch of the next-generation of solar-powered housing equipped with storage batteries under the situation of the increasing concern about electricity shortage. The UIEP Company entered into a wide-ranging business alliance with Swing Corporation in the water supply and sewerage treatment field and enhanced its structural ability to attract combined-package orders.
Through these initiatives, we laid the foundation for earnings growth for fiscal year 2011 as well as the future.
As I mentioned above, fiscal year 2011 marked the start of Stage 2 of our GS21-SHINKA! medium-term management plan. The objective of Stage 2 is to accelerate new business growth by realizing the growth potential established through the Stage 1 measures of structural reform to strengthen the earnings structure and focusing on fields and regions promising solid demand growth.
We made steady progress toward our objectives in fiscal year 2011, the first year of Stage 2, as we successfully fortified the Housing Company’s earnings strength and differentiated its products while recording growth in both sales and profits. The Housing Company launched key products for future strategies, including its next-generation housing with built-in storage batteries, and the company’s living environment business also expanded. These measures have placed the Housing Company on track to achieve the plan’s fiscal year 2013 targets one year ahead of schedule.
The UIEP Company broke out of its sales slump caused by the prolonged demand stagnation, deteriorating market conditions, and other conditions and reformulated its business model to place it firmly in recovery mode with sufficient momentum to anticipate steady earnings going forward. The UIEP Company is steadily advancing toward achieving the medium-term management plan targets using a new value chain business-driven business model.
The HPP Company’s results have declined temporarily as it has been inevitably affected by the stagnating market conditions. However, even amid the severe conditions, the company is making inroads to new markets, such as products for smartphones and table computers in the IT field, and is positioned for sufficient growth after the market bottoms out.
Several unanticipated external environmental factors impacted our performance in fiscal year 2011, including the deepening fiscal crisis in Europe, the Great East Japan Earthquake, and the flooding in Thailand. Nevertheless, the strenuous efforts of all of the companies have enabled us to overcome the adverse conditions and even to bring us within range of the 80.0 billion yen operating income for Stage 2 of the GS21-SHINKA! medium-term management plan.
Our outlook for the market environment in fiscal year 2012 is for improving conditions and steady growth in Japan, the United States, Asia, and emerging countries amid ongoing concern about the escalating debt problem and stagnant business conditions in Europe. In our business domain, we anticipate year-on-year improving conditions in the domestic housing and water infrastructure fields and the global automobile and pipeline renewal fields, and we expect these markets to support overall growth in demand for our products.
Based on this outlook, we expect to secure growth in both sales and profit in fiscal year 2012 and are targeting a record-high 64.0 billion yen in operating income, which would surpass the previous high of 60.8 billion yen attained in fiscal year 1994.
We are anticipating a period of expanding demand for our domestic core businesses fueled by the full emergence of post-disaster reconstruction demand and growing demand for anti-seismic products. During this period, we plan to expand earnings by strengthening our presence in each field. In our global businesses, which inevitably struggled in fiscal year 2011 due to the challenging business conditions and other factors, we will seek to secure profit growth by implementing measures to strengthen the bottom line while responding to the demand recovery. We will also continue our efforts to enhance our cost competitiveness and fortify our business base to further strengthen the business structure.
In this way, in fiscal year 2012 we plan to continue steadily applying initiatives to advance our growth strategies and strengthen our core businesses for core operations in Japan and our strategic businesses around the world.
To facilitate better disclosure and governance of the Group’s performance, we are revising the fiscal year ends of our overseas subsidiaries from December 31 to March 31 commencing in fiscal year 2012. Due to this revision, the 2012 fiscal year for our overseas subsidiaries represents the 15-month period beginning on January 1, 2012, and ending on March 31, 2013.
Our financial strategy is based on the key management policies of increasing corporate value and ensuring a return of profit to shareholders. In line with these policies, we have set a target of providing a stable dividend payout ratio of 30% on a consolidated basis to be returned to shareholders in each fiscal term. In the fiscal year under review, we increased the interim dividend payment by 2yen from the previous fiscal year to 7 yen per share and provided a year-end payment of 8 yen per share for a total annual dividend payment of 15 yen per share in fiscal year 2011. We will retain internal cash reserves of an amount sufficient for covering R&D expenses, capital expenditures, strategic investment, financing activities, and other activities that we consider vital to assuring further improvement in corporate value into the future.
Cash flow during the year will be utilized for capital investment, financial structure reinforcement, and shareholder return. Investment will focus on strategic investment to fortify our strategic businesses, specifically for capital expenditures, M&As, and the construction of our overseas business structure, which will be essential for the Company’s future growth.
In addition, as part of our policy to raise shareholder value, we determined to eliminate a portion of our treasury stock effective on May 25, 2012. The Company eliminated seven million shares equating to 1.30% of total shares outstanding.
Since its founding, Sekisui Chemical has worked to develop products that meet the needs of society, including those which are useful to the daily lives of individuals, and contribute to the protection of the global environment. As Japan progresses with the restoration and reconstruction following the unprecedented disaster caused by the Great East Japan Earthquake, we are even more committed to contributing to resolving social issues through our products and businesses and to guiding the Group to fulfill the expectations and hopes of our shareholders and stakeholders.
In fiscal year 2012, as in the previous fiscal year, we will continue showing a strong presence for the housing and water infrastructure businesses, which will play a direct role in the post-disaster reconstruction, while diligently implementing measures to strengthen our global strategic businesses. Our objectives for this year are to position the company to ensure we achieve the GS21-SHINKA! medium-term management plan targets and to vigorously press forward for future growth.
We thank you for your continued understanding and support of the Sekisui Chemical Group.
Naofumi Negishi, President
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