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Placing environmental, social, and governance (ESG) concerns at the heart of management in a bid to help realize a sustainable society, we are working to solve social issues that impact the global community through our business activities.
SEKISUI CHEMICAL Group engages in business activities guided by the Corporate Philosophy (the 3S Principle) embodied in its Corporate Philosophy and is directed by its Group Vision “to contribute to improving the lives of the people of the world and the Earth’s environment.” To realize the Group Vision, we endeavor to solve social issues with our prominent technology and quality while working to reach the Sustainable Development Goals (SDGs) adopted by all United Nations member states aimed at realizing a sustainable society. We have positioned ESG concerns at the heart of our management strategies so that we may continue to give back significantly to stakeholders by creating meaningful social and economic value while maintaining our strong corporate presence.
SEKISUI CHEMICAL Group draws on our prominent processing technologies which have been honed over the years as the driving force to achieve our management strategies. The Group’s business activities cover a diverse range of areas encompassing 25 technological platforms. Categorized into the two broad domains of “residential and social infrastructure creation” and “chemical solutions”, these technological platforms include energy systems, infrastructure construction, and housing production construction technology as well as green chemistry, plastic molding, and polyvinyl chloride materials. Each of these platforms act as a source for the Group’s value creation. The prominence in technology of SEKISUI CHEMICAL Group enables us to engage in a wide range of global business activities in fields such as plastics materials, healthcare, urban infrastructure, and modular housing. The organizational structure of SEKISUI CHEMICAL Group is made up of a corporate headquarters which governs the activities of three Divisional Companies. Looking ahead, we will work to create new value and accelerate the pace of growth through fusion of our technologies and business opportunities with external resources through timely decision-making that allows us to leverage the benefits of the Divisional Company Structure.
SEKISUI CHEMICAL Group is working toward a “new phase of growth.” We aim to achieve net sales of 2 trillion yen and operating income of 200 billion yen during the 2020s. In 2017, the first year of the Medium-term Management Plan, we directed our efforts toward securing “quantitative growth,” which means maintaining increased profitability proportionate with increasing sales and “qualitative transition.” We are also targeting operating income ratio of over 10%, and “sustainable growth that comes hand in hand with social responsibility.” When naming the Medium-term Management Plan, we decided on “SHIFT 2019 -Fusion-.” This embodies our desire to change the quality of growth from both a business results scale and a corporate attitude perspective. As a key word, we chose “Fusion,” which is central to promoting and achieving the plan. First, we asked ourselves what fusion opportunities we want to pursue. We are exploring the boundaries of our existing operations and promoting technology, opportunity and resource fusion across our entire SEKISUI CHEMICAL Group. We will then work to accelerate the pace of growth and the creation of new value while also proactively considering fusion opportunities with external resources.
SEKISUI CHEMICAL Group has identified certain financial targets under the Medium-term Management Plan. Our goal is to achieve net sales of 1.2 trillion yen, operating income of 120 billion yen, an operating income ratio of 10%, net income attributable to owners of the parent of 75 billion yen, and an ROE of 12% in fiscal 2019, the final year of the plan.
In fiscal 2018, the second year of the Medium-term Management Plan “SHIFT 2019 -Fusion-,” the Housing Company experienced substantial increases in the number of houses sold. The UIEP Company products also experienced increases thanks to the growth in houses sold. Earnings also increased on the back of growth in high-value-added products. Despite these positive factors, the High Performance Plastics (HPP) Company suffered a decrease in profit for the first time in seven periods. This was mainly due to the sudden and sharp deterioration in smartphone and automobile market conditions, coupled with an increase in raw material costs.
Looking at the Group’s performance in the fiscal year under review, net sales came to 1,142.7 billion yen while operating income totaled 95.7 billion yen. Based on these results, SEKISUI CHEMICAL Group fell short of its initial plans and incurred a downturn in operating income for the first time in 10 periods. Thanks largely to a decrease in non-operating expenses, net income attributable to owners of the parent amounted to 66.1 billion yen. This represented a record high for a sixth consecutive fiscal year.
Profit in the first half of fiscal 2018 declined by 3.8 billion yen. Despite a deterioration in global market conditions, the three divisional companies secured an increase in earnings. Profit on a second half stand-alone basis reached a record high, rising 0.3 billion yen to 53.5 billion yen. While the business environment is projected to remain harsh in fiscal 2019, SEKISUI CHEMICAL Group will strive for a substantial increase in sales and record highs at each major level of profit.
Although buffeted by a slump in the operating conditions of its smartphone and automobile markets, the HPP Company worked diligently to secure a boost in sales from its various strategic investments. In addition to the complete operational start of a new interlayer film line in Mexico, results are expected to benefit from a new interlayer film line that is scheduled to launch in Europe in the second half of fiscal 2019. Focusing on efforts to expand sales of prioritized products in Japan while improving the product mix through a shift to such high-value-added products as aircraft sheets overseas, the UIEP Company reported record high profits. The Housing Company posted increases in both sales and profit for a third consecutive fiscal year. This was mainly due to increases in the numbers of orders and houses sold through concerted efforts in the volume zone market focusing on first time buyers. The Housing Company also placed considerable emphasis on increasing the efficiency of indirect functions in its housing renovation business as a means to strengthen earning power.
SEKISUI CHEMICAL Group has identified “Fusion” as a group-wide theme that traverses all three divisional companies under its Medium-term Management Plan. Through “Fusion,” the Group is targeting a cumulative increase of 50 billion yen in net sales over the three-year period from fiscal 2017 to fiscal 2019. In fiscal 2018, the effects of various measures began to emerge. This included successful efforts to cultivate the Vietnam market by acquiring an equity interest in TP Group, a major pipe manufacturer in Vietnam, pioneer markets in the car electronics field, and strengthen kitchen, bathroom, and laundry renovation proposals through collaboration between the Housing and UIEP companies. From analyzing the cumulative effects of our “Fusion” efforts, results are largely in line with initial plans. Net sales have grown by more than 30 billion yen in the period up to fiscal 2018. In the current fiscal year, SEKISUI CHEMICAL Group is pushing forward various initiatives in a bid to crystallize additional benefits in the future. In addition to Corporate Headquarters working with the three divisional companies to initiate subdivision housing activities at the ASAKA Leadtown (Town and Community Development project) located within its old Tokyo Plant site, onstruction will begin on a onetenth scale demonstration plant to showcase the Group’s biorefinery (BR) technologies that convert waste into ethanol, to help achieve a circular economy.
While anticipating a harsh business environment throughout the first half of fiscal 2019, the Housing Company is expected to spearhead an increase in profit. Projecting a partial recovery in market conditions in the second half, we will work to realize the benefits of strategic investments. Through these means, we will endeavor to return the Group to an earnings growth trajectory. Taking into account the aforementioned, SEKISUI CHEMICAL Group is forecasting net sales of 1.175 trillion yen in fiscal 2019. From a profit perspective, operating income and net income attributable to owners of the parent are estimated to come in at 103 billion yen and 69 billion yen, respectively.
SEKISUI CHEMICAL Group adopted a divisional company organization system in 2001. We strongly believe that our divisional company organization system enables timely decision-making for both customers and employees while addressing sudden dramatic changes in the market. We have also delegated broad and considerable authority to each divisional company across a wide range of areas including business execution and the setting of budgets. Moreover, each divisional company has its own R&D function. Responsible for a comprehensive range of activities from development through production to sales, this divisional company organization structure is distinguished by its high degree of management accountability. We have also clarified responsibilities with respect to profitability and cash flows. As a result, each divisional company is implementing various measures to improve added value and consistently reduce costs as its awareness toward profit increases.
For the most part, SEKISUI CHEMICAL Group has enjoyed continuous growth in earnings over the past decade thanks largely to this divisional company organization system. During this period, we have identified and invested intensely in growth enhancement areas (strategic fields). This in turn has helped to drive earnings growth.
For example, the HPP Company, which serves as a primary driver of Group-wide earnings and growth, identified Electronics, Automobile and Transportation, Building and Infrastructure, and Life Science as four strategic fields. The Company helped to increase earning power by promoting growth strategies that allocate management resources on a priority basis. The company focused mainly on products where it maintains a global competitive advantage including automotive interlayer films in the Automobiles and Transportation field and diagnostic reagents in the Life Science field.
While pursuing growth on the back of a divisional company organization system, SEKISUI CHEMICAL Group has continued to strengthen its governance structure covering each divisional company. Spearheaded by internal directors, the Policy Committee provides a forum for not only deliberating on managerial indicators, but also for valuating rebuilding and/or exit strategies for underperforming businesses.
Meanwhile, control of the Medical Business, which was previously included in the HPP Company, has transferred to corporate headquarters from fiscal 2019. Recognizing the substantial potential of the Medical Business, this initiative is designed to help realize the “new phase of growth” identified under the Group’s long-term vision. Moving forward, we will work diligently to nurture the Medical Business, inject management resources as a new divisional company candidate, and accelerate the pace of expansion.
SEKISUI CHEMICAL Group recognizes that governance is the cornerstone of sound corporate management. Through governance, companies are better positioned to hone in on important themes that include the selection of and concentration on businesses where an improvement in capital efficiency is most likely to be achieved, the systems and processes required to properly carry out operations, the reduction of risks that could lead to a deterioration in corporate value, and the means and structure necessary to secure growth. As a key component of the decision-making process, governance is also a mechanism through which to fine tune and determine those strategies that will enable companies to put into effect the aforementioned themes.
In broad terms, governance is a discipline that provides a roadmap for sound and sustainable growth as well as the support required to build a structure that will help garner the confidence of society.
Based on this understanding, SEKISUI CHEMICAL Group has worked diligently to enhance corporate governance in a bid to increase the transparency and fairness of management and to ensure that decisions are made in a timely manner. In order to incorporate a broad range of perspectives, obtain the counsel of individuals with diverse backgrounds, and reinforce the supervisory function, we have appointed three highly independent outside directors to play a central role in the Company’s top management. With this initiative, the ratio of outside directors to the total number of directors has risen to one third.
SEKISUI CHEMICAL Group also established the Nomination and Remuneration Advisory Committee in fiscal 2016. Under the Company’s officers’ remuneration plan, bonuses are not only linked to the Group’s performance, but also the ratio of Environment-Contributing Products to total sales, each divisional company’s performance including such non-financial indicators as CS & Quality management, ROE, and other factors. Moreover, a share-based compensation plan was added to the Company’s officers’ remuneration plan. This incentive plan is designed to further raise the motivation of officers and is linked closely with shareholders’ value over the medium to long term.
Looking ahead, and in a bid to further strengthen the governance function of the Group’s overseas business, which continues to expand, SEKISUI CHEMICAL Group newly established a regional headquarters in Thailand to complement existing headquarters in the U.S., Europe, and China. In this manner, we have put in place a structure to cover the ASEAN and Oceania zones. Every effort is being made to bolster the governance function by unifying operations in Japan and overseas, minimizing latent risks, and incorporating the knowledge of local operation outside Japan.
The business environment is veiled in a cloud of uncertainty. This is mainly due to a slowdown in the growth of emerging countries, the frequent incidence of regional conflicts and acts of terrorism, high foreign currency exchange rate volatility, and the rise of protectionism. Under these circumstances, demand in the leadup to Japan’s consumption tax rate hike in 2019 is expected to change. At the same time, demand growth prior to the Tokyo 2020 Olympic and Paralympic Games and a subsequent negative correction is also anticipated. From our perspective, we believe that changes in population demographics typified by the declining birthrate in Japan, as well as shifts in the global environment attributable to climate change, climate devastation, and resource depletion issues represent megatrends that have the potential to considerably impact SEKISUI CHEMICAL Group. Initiatives aimed at addressing these two broad megatrends are critical to the durability of the Group’s business model.
SEKISUI CHEMICAL Group is working diligently to help solve these important issues through its business activities. As one example, and as a part of efforts to address the critical issues of climate change risk and the impact on the global environment attributable to resource depletion, we have developed and market several products that are attracting widespread attention. This includes the Group’s EsloHYPER Series of earthquake resistant, highly durable polyethylene leak-proof pipes and CROSS-WAVE, a plastic material used in rainwater storage systems. Both of these products are helping to resolve water issues in emerging countries. Looking also at countermeasures designed to address the issue of social infrastructure degradation, SEKISUI CHEMICAL Group has introduced the SPR Method, a trenchless sewage pipeline renewal method that facilitates the efficient application of backfill materials in the space between existing and rehabilitation pipes, as well as products in the InfraGuard Series to repair and strengthen degraded concrete and other structural surfaces and prevent peeling.
In this manner, we believe that our efforts to engage in a diverse range of business development activities will not only provide the conduit for seizing a variety of opportunities, but also allow us to help resolve a host of social issues going forward. There are currently many unprecedented global social problems such as climate change, deteriorating social infrastructure, raw resource/energy issues, and super aging societies. However, we remain confident in our ability to make a significant contribution to solving these issues through our business activities by leveraging our prominence in technology and quality.
As far as its ESG endeavors are concerned, SEKISUI CHEMICAL Group was the first in Japan’s chemical sector to acquire Science Based Targets (SBT) Initiative certification for greenhouse gas reduction targets. In addition, the Group expressed its support for the Task Force on Climate-related Financial Disclosures (TCFD) in January 2019. In specific terms, we announced our agreement to the TCFD’s recommendation that companies analyze the impact of climate change on their financial status and disclose information about their strategies to respond based on those impacts. Among a host of other initiatives, SEKISUI CHEMICAL Group is also working to increase the ratio of Environment-Contributing Products to total sales. This includes products that aim to achieve several of the SDGs. Coupled with efforts to promote health management, the Group revised its human rights policy.
Guided by the five core components of its Basic Capital Policy, SEKISUI CHEMICAL Group pursues optimal balance between investment for sustainable growth and the return of profits to shareholders while keeping in mind the optimal state of its balance sheet.
In conjunction with efforts to aggressively undertake growth investment activities totaling 300 billion yen as stipulated in its Medium-term Management Plan, the Group is utilizing borrowings in line with the demand for funds while maintaining a sound financial position. Turning to the Group’s policy on the return of profits to shareholders, we are guided by profit growth trends over the medium to long term as well as the ongoing need to engage in proactive business investment. On this basis, the return of profits to shareholders is carried out in accordance with financial results. Moving forward, we will continue to pursue the vigorous and stable return of profits to shareholders through the payment of dividends and flexible buy back of shares. Our goals are to secure a Dividend on Equity (DOE) Ratio of around 3% while targeting a dividend payout ratio of roughly 30%.
Through these initiatives, SEKISUI CHEMICAL Group will continue to create new value that will be shared with society, generate economic value, and accelerate the pace of sustainable growth. As we work to achieve these goals, we kindly request the continued support and understanding of all stakeholders.
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