Amid an ever-changing environment,
we will steadily work to transform
the Mitsui Chemicals Group to realize VISION 2030.
President & CEO
Review of market environment and performance in fiscal 2021
Building on record profits achieved in fiscal 2021 we will continue pushing forward with our transformation, targeting further growth.
The external environment has shifted dramatically since we announced our VISION 2030 in 2021, including developments in countries and regions across the world in response to the COVID-19 pandemic, and Russia's invasion of Ukraine. In such an environment, I feel that dealing with uncertainty is becoming an increasingly important management task. However, despite these circumstances, our policy remains unchanged: we will continue pushing forward with our transformation by carefully discerning where to focus our major investments while trialing a range of new initiatives across the Group, based on our understanding that growing environmental awareness is a long-term trend that will continue in the future.
Looking back on our performance in fiscal 2021, while some products benefited from a tailwind in terms of market conditions, I feel that one of our major achievements was the growth of our operating income before special items in the growth domains, which had remained flat at around 70 billion yen through to fiscal 2020, to a level where we are positioned to target 100 billion yen. Going forward, we expect further growth as the facilities in which we have been investing aggressively commence operation, and the anticipated benefits of the mergers and acquisitions (M&A) we have made start to be realized.
Realizing a new management system
We aim to increase our corporate value by monitoring performance from both a financial and non-financial perspective.
We revised our material topics in fiscal 2020 as the foundation of our VISION 2030, and I believe that the understanding of their importance is growing within the Group. In fiscal 2021, we formulated non-financial key performance indicators (KPIs) corresponding to these material topics, and are promoting a management style that integrates both financial and non-financial perspectives. I often use a sporting analogy to explain management using financial and non-financial KPIs. For example, if a runner's target time represents a financial KPI, then non-financial KPIs can be thought of as the elements that form the foundation for achieving this goal, such as physical conditioning, nutrition management, post-training recovery, and mental conditioning. By breaking down the necessary elements required to run a certain time into smaller pieces, and by meeting each of these targets, an athlete is able to achieve their overall goal, and I believe that the same principle applies to the activities we undertake across the Group. Organically linking our activities to achieve non-financial KPI targets, such as the degree of employee engagement, the ratios of Blue Value™ and Rose Value™ products sales revenue to total sales revenue, and our GHG emissions reductions will strengthen our business foundation, laying the way for us to realize VISION 2030 and achieve our profit targets. Of course, each KPI must constantly be verified against the vision we are striving to achieve, and also be reviewed and revised periodically in light of changes in the external environment.
In the past, our discussions focused heavily on whether or not profit targets could be achieved, but by defining the process for reaching these targets — or applying a scientific approach to management, so to speak — we will also be better positioned to evaluate the growth of the Group from a more sustainable perspective. Rather than simply aiming to be a strong company with outstanding financial KPIs, we aim to be a strong and good company that also achieves the non-financial KPIs that measure our purpose as a company existing to contribute to society. By monitoring our management from both financial and non-financial perspectives, our management team will review not only the achievement status but also all aspects of KPIs including their appropriateness, in order to increase the corporate value of the Mitsui Chemicals Group. Our KPIs span not only environmental consideration and respect for human rights, but also human resources/organization, logistics/quality management, procurement, and other metrics, and for each KPI, an executive officer has been assigned responsibility for achievement. The establishment of the new positions of chief strategy officer (CSO) and chief human resources officer (CHRO) aims to clarify the roles of each division and strengthen awareness of their respective responsibilities. I believe that this type of framework will help the entire Group regardless of business or functional division — including each and every employee working at our sites — to move forward toward a common goal while maintaining an awareness of the challenges in their respective fields.
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Transforming our business models through our VISION 2030 strategy
Striving to transform our business models to create new value.
The first point of our Basic Strategy set out in VISION 2030, Pursuing business portfolio transformation, is the most important strategy that we have carried over from VISION 2025. For materializing this, Building solutions-based business models, which is another pillar of our Basic Strategy, centers on how we can enhance the added value of our business. Instead of simply providing materials, we will identify social challenges and also provide ideas and business models that will contribute to their resolution. In order to realize this goal, we will actively collaborate with other companies, academic institutions, local governments, and other external organizations.
One such example is the touchless aerial display point-of-sale cash register for which field trials began in January 2022 at convenience stores operated by Seven-Eleven Japan Co., Ltd. This solution, jointly developed with five other companies including Asukanet Co., Ltd., responds to the need for space saving, as well as touchless technology due to the COVID-19 pandemic. In addition to supplying our adhesive product for use in the display, we are also assisting in the planning and management of the joint development project, as well as providing technological support.
Another example is in the dental materials business, where in addition to providing 3D printers for use in dentistry, we offer a lineup of inks for diverse applications. We have established a multi-faceted software and hardware business, proposing solutions based on our clinical dental knowledge, which specialized printer manufacturers cannot offer.
Although we have only just begun building this solution-based business model and have experienced both successes and setbacks thus far, I believe it is important that we continue working to build on our cumulative efforts. Going forward, I look forward to seeing employees at our worksites further transform the business via a flexible mindset and repeated challenges employing a variety of approaches.
Bolstering circular economy initiatives, another point in our Basic Strategy, also aims to advance the transformation of our business models. By establishing the Green Sustainable Chemicals Division within the Basic & Green Materials Business Sector, we aim to further accelerate the development of circular economy-based business models. I view the development of environmental initiatives as not only our duty as a chemical company, but also a prime opportunity to transform our Group and drive our future growth. For example, our ongoing effort to expand use of bio-based hydrocarbons will help drive our shift to biomass-derived raw materials upstream in the chemical product value chain, which in turn adds new value to our derivatives downstream. We view this as both an advantage and a business opportunity for the Mitsui Chemicals Group, as we own naphtha crackers and possess an integrated value chain that extends to the production of derivatives. Going forward, we intend to utilize this advantage in new initiatives that contribute to solving social challenges.
Meanwhile, we are pushing forward with a variety of initiatives to achieve carbon neutrality by 2050. Although we expect to achieve an approximate 70 to 80% reduction in CO2 emissions from the Group's manufacturing by utilizing current technologies and resources, in order to reduce CO2 emissions beyond this level, we believe it will be essential to develop new technologies. Accordingly, we have established the Mitsui Chemicals, Inc. – Carbon Neutral Research Center in collaboration with the International Institute for Carbon-Neutral Energy Research, Kyushu University to accelerate the development of carbon neutral technologies and promote their rapid social implementation. We are also developing fuel conversion technology for naphtha crackers utilizing the Green Innovation Fund, aiming to contribute to the reduction of CO2 emissions across the petrochemical industry through the social implementation of entirely ammonia-fired crackers.
We also see it as our important duty as a chemical company to contribute to the reduction of CO2 emissions throughout the value chain via our products and services. To this end, we are actively working with other companies to establish mechanical and chemical recycling technologies and implement them in society.
The Group's unique Blue Value™ and Rose Value™ initiatives are aligned with the business model transformation we are pursuing, including building solutions-based and circular economy-based business models, with the aim of resolving social challenges. Our Blue Value™ products and services, which help reduce environmental impact including CO2 emissions throughout the entire product life cycle, and Rose Value™ products and services, which help improve the quality of life (QOL) from such perspectives as health and livelihood, highly livable communities, and food security, represent the types of solutions that we aim to provide to our ideal future society. As part of our non-financial KPIs for VISION 2030, we have set the targets of achieving sales revenue ratios of 40% each for Blue Value™ and Rose Value™ products, and have also established KPIs for our business sectors to promote growth of these products in order to achieve these goals. Currently, approximately 80% of our Blue Value™ and Rose Value™ certified products are positioned in the highly profitable growth domains. I therefore believe that developing new businesses and products with a focus on Blue Value™ and Rose Value™ starting from the technology development and product design stages will contribute to profits in the future.
Creating a culture of change and innovation
Working to create a foundation to support our transformation.
Although fostering our corporate culture is essential in order to promote change, simply saying, “Let's change our corporate culture,” in an authoritative manner will not result in any meaningful progress. As we work toward VISION 2030 from both a financial and non-financial perspective, an area I touched on earlier, I feel that the ideal scenario is one in which each and every employee shares a sense of ownership regarding the challenges facing us, thereby transforming our collective mindset, actions, and as a result, our corporate culture. It is therefore important that we communicate and share our vision thoroughly and monitor our progress.
At the same time, in order to transform ourselves it is essential above all that each and every employee has a flexible mindset and a willingness to take on new challenges without fear of failure, and for this to happen, we need to put systems in place to support our employees in their endeavors. In addition to relaxing our dress code in August 2020, we established our Guidelines for Side Jobs in January 2021. This step was taken in the hope that personnel with more specialized skills will gain experience, expanding their perspectives and further developing their abilities across a broader network, including outside the Group, and bring back and apply the knowledge and experience they have gained to their work at the Group. From fiscal 2022, we also introduced a new performance evaluation system for recognizing efforts to take on new challenges. The system is designed to allow employees to engage in trial and error based on a solid understanding of issues, even if the endeavor in question does not ultimately result in success. We are also currently studying how to upgrade our IT infrastructure and office layout to accommodate changing work styles, such as remote work, in preparation for the accompanying relocation of our Head Office. I believe that the combined effect of these interlinked measures will help transform the mindset across our employee base and further accelerate the implementation of the VISION 2030 Basic Strategy.
At the Mitsui Chemicals Group, we have conducted regular employee engagement surveys since 2018, and have set the improvement of our engagement score as one of our non-financial KPIs. John Rawls, a well-known American scholar of political philosophy, lists “the principle of fair equality of opportunity” and the right to “equal liberty” as two important social principles. I believe that the same applies to companies, with employees seeking “fair equality of growth opportunities” and the “liberty to think and act freely.” With these principles in mind, we will continue pushing forward with a range of initiatives to promote greater engagement and provide growth opportunities.
We have also established successor coverage rate for critical positions as one of our human resources-related KPIs. While there are a wide range of personal attributes required for critical positions, if I had to pick just one, it would be selflessness. I believe that only by freeing ourselves from our egos can we create a corporate culture that allows free and multi-dimensional ideas to emerge organically and provides fair and equal opportunities for our employees. With this attribute as a baseline for future executives, we are seeking people with competencies appropriate for the given era and business environment.
From a management perspective, a sound foundation of corporate governance is also important. We must fulfill our accountability as a public entity by ensuring that we are transparent and fair to our diverse stakeholders. We have thus far made ongoing reforms to improve the effectiveness of our corporate governance, and going forward we will further refine our efforts, including introducing metrics for executive compensation that are aligned with the non-financial KPIs for VISION 2030.
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Looking beyond VISION 2030
A good relationship with all of our stakeholders will lead to sustainable growth.
From the perspective of increasing corporate value, we believe it is important to ensure the sustainability of both the Group and society.
I believe that a company and its employees should work together as equals, rather than one being superior to the other. For employees, a company is a place where they can both earn a living and achieve personal growth, and the relationship between the company and its employees is one in which each employee performs to the best of their ability in order to maximize profits, which can then be redistributed to employees. Ideally, both grow in synergy with one another.
I also believe that the relationship between companies and society is similar. A company can exist only if it is able to contribute to solving social challenges, while also generating solid profits. As I outlined earlier regarding a management style that integrates both financial and non-financial perspectives, in order to achieve this goal we must create an environment in which our employees, as stakeholders, can work with vitality, while continuing to deliver value to all stakeholders through the Group's business. Combining these efforts will help solve social challenges and ultimately enhance our corporate value, leading to sustainable growth for both the company and society.
Going forward, we will continue to pursue a range of transformations to achieve our Corporate Target and ideal future society set out in VISION 2030.