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Message from President & CEOLast Update : Sep 21, 2018

Sekisui Chemical is working to help solve social issues that impact the global community focusing mainly on the Sustainable Development Goals (SDGs). Incorporating environmental, social, and governance (ESG) concerns in every facet of our business activities, we are contributing to the realization of a sustainable society.

The Sekisui Chemical Group is engaged in a wide range of global business activities that encompass such fields as plastic materials, based on the Group’s prominence in processing technologies, healthcare, urban infrastructure, and unit housing. Guided by the “3S principles” embodied in our Corporate Philosophy, we are fusing the Group’s technologies and strengths under a structure comprised of three division companies and a corporate headquarters. In this manner, every effort is being made to resolve social issues that impact the global community and in particular to achieve SDGs adopted by world leaders at a meeting of the United Nations from an ESG perspective.
The Sekisui Chemical Group’s business activities cover a diverse range of areas that encompass 25 technological platforms. Categorized into the two broad “residential and social infrastructure creation” and “chemical solutions” domains, 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 provide the wellspring for each division company’s value creation. Moving forward, we will continue to provide unique products and services while fine-tuning each of these technological platforms and promoting a process of internal and external fusion. In addition to the creation of new value that will be shared with society, we anticipate the fruits of these endeavors will also emerge in the form of economic value.

Medium-term Management Plan “SHIFT 2019 -Fusion-”

Under our Medium-term Management Plan, launched in fiscal 2017, we are taking steps toward a new phase of growth in order to realize sustainable growth of the Group’s corporate value. When naming the Medium-term Management Plan, we decided on “SHIFT 2019 -Fusion-.” This embodies our heartfelt desire to change the quality of growth from both a business results scale perspective and in terms of our corporate attitude. As a single key word, we settled on “Fusion,” which forms the bedrock of efforts aimed at promoting the plan.
As a first step, we must ask ourselves what we plan to fuse. First, we will look beyond the boundaries of existing operations, and fuse the technologies, opportunities as well as human and other resources of each division company across the Group as a whole. 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.
The Sekisui Chemical Group has identified certain financial targets under the Medium-term Management Plan. Our goal is to achieve net sales of ¥1,200 billion, operating income of ¥120 billion, an operating income ratio of 10%, net income attributable to owners of the parent of ¥75 billion, and an ROE of 12% in fiscal 2019, the final fiscal year of the plan.

Record-high Operating Income and Bottom Line Profit for a Fifth Consecutive Fiscal Year

All three division companies achieved sales and profit growth in fiscal 2017 the first fiscal year of the Medium-term Management Plan “SHIFT 2019 -Fusion-.” For the Company as a whole, operating income came in at ¥99.2 billion and net income attributable to owners of the parent at ¥63.5 billion. As a result, we were able to report record-high operating income and bottom line profit for a fifth consecutive fiscal year. On an individual division company basis, the High Performance Plastics (HPP) Company and Urban Infrastructure & Environmental Products (UIEP) Company both secured record-high profits. Based on these results, we have gotten off to a steady start in the first fiscal year of the Medium-term Management Plan.
The HPP Company undertook various measures including vigorous investment to expand production capacity and efforts to realize synergies through M&As. As a result, successful steps were taken to increase sales volumes and improve the product mix. The UIEP Company hit a milestone in its structural reform measures up to the previous fiscal year. In the fiscal year under review, the company focused on expanding sales of prioritized products while increasing sales volumes and improving the product mix mainly in Japan. Thanks to these endeavors, profit in this division company grew. While the Housing Company encountered a harsh market environment with the number of housing starts dropping for the first time in three fiscal years, the release of new products designed to secure a share of the volume zone market helped boost the number of orders and houses sold.
We are pushing forward a number of initiatives that traverse all three division companies based on the Group-wide “Fusion” theme. In addition to such factors as the synergy effects attributable to the acquisition of Polymatech Japan Co., Ltd., which contributed to profits in fiscal 2017, these initiatives which include the Urban Development Project located at the Company’s former Tokyo plant site and the acquisition of an equity interest in TP Group, a major pipe manufacturer in Vietnam are expected to bear fruit from fiscal 2018 and beyond. Turning to efforts aimed at generating future profit and the Group’s initiatives based its “Nurturing & Creation” theme, several instances of success have begun to emerge including development of the world’s first production technology that transforms waste into ethanol.
Despite a difficult operating environment at the start of fiscal 2018, each division company is working to expand sales of high-value-added products and to pursue a variety of initiatives including the reduction of fixed costs in a bid to address changing market conditions. Through these and other means, every effort is being made to again secure sales and profit growth. Taking these factors into consideration, we are forecasting net sales of ¥1,168 billion, operating income of ¥102 billion, and net income attributable to owners of the parent of ¥67 billion. On this basis, we are targeting a sixth consecutive fiscal year of record-high operating income and bottom line profit.

Earnings Structure and Tailwind Factor (Growth and Profit Drivers)

While the Sekisui Chemical Group is made up of three division companies, the HPP Company is currently serving as the primary driver of earnings and growth. In addition to bolstering the earnings power of its mainstay operations, the HPP Company boasts a division company-high operating income ratio of 15%. Sales of the HPP Company also account for around 35% of Sekisui Chemical’s total sales.
The Housing Company is a source of stable sales and profit. Accounting for roughly 45% of total sales, this core business maintains an operating income ratio of 7.7%. Looking at the housing market in Japan as a whole, net-zero-energy homes (ZEH) are projected to make up the majority of newly built housing by 2030. Against this backdrop, we have identified the growing demand for smart houses and other factors including the increased circulation of existing properties as opportunities for growth. Taking into consideration megatrends, we will work to expand overseas activities and cultivate frontier businesses in an effort to secure long-term growth.
Sales of the UIEP Company account for about 22% of Sekisui Chemical’s total sales. While the company maintains an operating income ratio of 6.2%, energies are being channeled toward strengthening the structure of the company’s earnings in order to secure stable profit. Looking at a variety of fields including metal substitutes, the UIEP Company is shifting its resources to R&D. In this manner, the company is endeavoring to uncover high-value-added products in growth fields.

Strengthening the Management Foundation (Corporate Governance and the Effects and Challenges Facing Division Companies)

We strongly believe that our divisional company system enable 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 division company across a wide range of areas including business execution and the setting of budgets. Moreover, each division company has its own R&D facility. Responsible for a comprehensive range of activities from development through production to sales, this divisional company 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 division company is implementing various measures to improve added value and consistently reduce costs as its awareness toward profit increases. As far as the headquarter function is concerned, Sekisui Chemical has put in place a governance structure covering each division company. The Policy Committee is a meeting which has been established where internal directors can deeply discuss issues. This committee deliberates on managerial indicators as well as such wide-ranging issues as reestablishment and/or exit strategies for underperforming businesses.
The divisional company structure was introduced in 2001. Thereafter, each division company has continued to evolve to the point where we reported record-high profit in the fiscal year under review. However, amid changes in the environment in which this company operates, instances are beginning to emerge where the creation of added value is better served by looking beyond existing company boundaries.
For example, while the UIEP Company provides functional PVC sheets to aircraft manufacturers, successful steps have been taken to develop a high-performance interior material that is distinguished by its outstanding flexibility and heat insulation properties by incorporating the foam technologies that underpin the HPP Company’s track record in such areas as the interior materials used in automobiles.
Taking the aforementioned into consideration, strengthening the process of fusion across all of the division companies’ technologies, opportunities, and resources has been identified as a key theme under the current Medium-term Management Plan. Looking at the challenges that lie ahead, we must therefore ascertain the best way to expand beyond existing boundaries and leverage this fusion of technologies, opportunities, and resources as a platform to create high value added while harnessing the merits of the divisional company structure.
Governance is the cornerstone of corporate management. In its proper form, corporate governance serves as a mechanism that is crucial to the shaping and implementation of strategies. Through corporate governance, companies can determine those businesses where a process of selection and concentration will most likely improve capital efficiency, the systems and processes require to carry out operations in an appropriate and equitable manner, risks that will lead to a deterioration in corporate value, risks that in fact should be embraced, and the initiatives that should be taken. At the same time, governance is a discipline that provides the roadmap for sound and continuous growth and development as well as support required to build a structure that will help garner the confident of society.

Strengthening the Management Foundation (Corporate Governance and the Effects and Challenges Facing Division Companies)

For its part, Sekisui Chemical 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 and obtain the counsel of individuals with diverse backgrounds, we have appointed three independent senior executives as outside directors. We also established the Nomination and Remuneration Advisory Committee in fiscal 2016.
Sekisui Chemical’s officers’ remuneration plan contains a bonus component that is linked to the Company’s performance. In addition to the Company’s performance as a whole, this bonus component is based on a variety of factors including the ratio of Environment-Contributing Products to total sales, each division company’s performance including such non-financial indicators as CS & Quality management, and ROE. In fiscal 2016, 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.
Turning to the Group’s activities outside Japan, we newly established a regional headquarters in Thailand in fiscal 2017 to complement existing headquarters in the U.S., Europe, and China. This system of regional headquarters is designed to reinforce Group governance encompassing overseas businesses, which are projected to expand in the future. At the same time, we established a group to oversee overseas operations within the Corporate Business Strategy Department. This initiative is designed to unify the governance functions both in Japan and overseas, minimize latent risks, and incorporate the knowledge of local operation outside Japan.

Risks and Growth Opportunities

Amid the uncertainty surrounding operating conditions in the short term, due mainly to a slowdown in the growth of emerging countries, frequent incidence of regional conflicts and acts of terrorism, increasingly wide fluctuations in foreign currency exchange rates, and the rise of protectionism, we are projecting a change in demand in the leadup to Japan’s consumption tax rate hike in 2019 as well as demand growth prior to the Tokyo 2020 Olympic and Paralympic Games and a subsequent negative correction.
Under these circumstances, changes in population demographics typified by the declining birthrate in Japan, as well as the global environment attributable to climate change, climate devastation, and resource issues have been positioned as megatrends that considerably impact the Sekisui Chemical Group. Initiatives aimed at addressing these two broad megatrends are critical to the durability of our business model.
While these megatrends pose considerable risks, we believe they also provide opportunities for growth. For example, some have argued that investments of between US$5 and US$7 trillion are required each year to achieve SDGs. Looking at this argument from a different angle, the potential exists for new markets to emerge of a comparable scale.
Turning first to changes in Japan’s population demographic, the Housing Business is projected to weather the heaviest impact within the next 10 years. There is an obvious risk that the market for newly built houses will shrink. Put another way, and despite the inevitable downward pressure placed on the supply of houses due to the shortage in homes and facilities for the elderly as well as a drop in the number of carpenters and tradespersons as a result of such factors as aging, changes in Japan’s population demographic can be seen as an opportunity to stimulate increased demand for unit housing, which is distinguished by its high quality and stable construction. Looking at the residential market in a broad sense, opportunities exist within the sustainable urban development field for the Group to assist in solving a host of issues.
In specific terms, we are actively promoting the “SEKISUI Safe & Sound Project.” This urban development initiative calls for the construction of 130 “SEKISUI HEIM” brand houses for sale as well as commercial facilities and an apartment complex on the Company’s former Tokyo plant site. In addition to vigorously introducing Environment-Contributing Products, we are analyzing a wide range of data relating to local residents, housing, and surrounding city collected through the use of IoT and sensing devices while incorporating efforts to collaborate with other firms in the development of new services. Through these means, we are working diligently to build safe and secure as well as environmentally friendly, comfortable, and leading-edge urban areas.
As far as such critical global environment issues as climate change, devastation, and the depletion of resources are concerned, we believe that the scope of contributions is quite broad. For example, the Group’s EsloHYPER Series of polyethylene leak-proof pipes and CROSS-WAVE, a plastic material used in rainwater storage systems are attracting wide acclaim for their contributions to resolving water issues in emerging countries.
Looking also at countermeasures designed to address the issue of social infrastructure degradation, the Sekisui Chemical Group boasts a wide product lineup. In addition to 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, the Group offers such products as the InfraGuard Series to repair and strengthen degraded concrete and other structural surfaces and prevent peeling.
As far as its technologies are concerned, the Group continues to attract expectation. This is especially true following the development of the world’s first production technology that transforms waste into ethanol in 2017.
In this manner, we remain confident in our ability to seize on a variety of opportunities through the ongoing development of a wide range of businesses and future efforts to resolve social issues.

Capital Policy and Return to Shareholders

Guided by its five basic capital policies, the 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 investment activities totaling ¥300 billion 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 Ratio of around 3% while targets a dividend payout ratio of roughly 30%.
Through these initiatives, the Sekisui Chemical Group will continue to create new value that will be shared with society, generate economic value, and accelerate the pace of sustained growth. As we work to achieve these goals, we kindly request the continued support and understanding of all stakeholders.

Capital Policy and Return to Shareholders

Basic Capital Policy

  1. 1. The Company recognizes its capital policy as one of the most important tasks in corporate governance.
  2. 2. The Company avoids implementing any capital policies that is not considered supportive to the creation of long-term shareholder value. Any capital policy involving a change in control or a substantial dilution will be subject to the deliberation of the Board of Directors for careful examination of its purpose and necessity/reasonableness and other due processes so that the shareholders will be provided with sufficient and clear explanation of it.
  3. 3. The Company sets and discloses in its Medium-term Management Plan its targets for various indicators of capital productivity such as return on equity (ROE).
  4. 4. By always keeping in mind the optimal state of the balance sheet, we will pursue an optimal balance between investment for sustainable growth of the Company and shareholder return.
  5. 5. The return of profits to shareholders will be carried out in accordance with financial results and in consideration of ROE and the Dividend-On-Equity Ratio as well as optimal balance between the policy for stable dividend payments and the ability to flexibly buy back shares. Our aim is to secure a DOE Ratio of around 3% while targets a dividend payout ratio of roughly 30%.