Financial Strategy
CFO Message

In fiscal 2021, operating income before special items and net income attributable to owners of the parent reached record highs of 161.8 billion yen and 110.0 billion yen, respectively, despite the prolonged impact of factors including the COVID-19 pandemic and a sharp rise in raw material prices. Although we estimate that around 40 billion yen in additional profit was generated due to rising market prices, I believe that the fact that even without this boost we were able to achieve operating income before special items of approximately 120 billion yen, markedly higher than in fiscal 2020, represents a significant accomplishment for the Group.

Looking back over the past 10 years, we have persevered in our efforts to restructure our business following the global financial crisis of 2008, and resumed capital investment in target domains in earnest from around 2014. However, from fiscal 2019 through to fiscal 2020, just as the results of these efforts were beginning to emerge, the impact of the COVID-19 pandemic and other factors weighed on profits, resulting in somewhat sluggish financial performance. However, I feel that with our results in fiscal 2021, we have finally reached a stage in which we can realize significant growth.

We are unique in that we possess the facilities — starting with naphtha crackers — as well as products and technologies across the entire chemical product manufacturing chain. It is essential that we continue actively promoting our strength in flexibly meeting the needs of our customers utilizing this array of capabilities.

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As we work toward the realization of VISION 2030, we will allocate a total of 1.8 trillion yen to growth investments, while simultaneously setting a net D/E target of 0.8 or lower with a view to maintaining our credit rating as a metric of financial discipline, and a ROIC target of 8.0% or higher as a metric for measuring profitability. We will, however, adopt a flexible approach to capital investment and financing as required to implement our VISION 2030 strategy. For example, in order to transform ourselves into a solutions-based business that is mindful of social challenges, we will need to explore options such as alliances or mergers and acquisitions (M&A) with other companies that possess leading expertise. We will study such options on the assumption that investments will be funded within cash flow and short-term liquidity, but for projects that are expected to generate sufficient returns, we will proactively consider investing capital even if our net D/E ratio temporarily exceeds 0.8 as a result. Furthermore, from a financing perspective we believe that sustainable finance, such as green bonds, is a promising means of raising funds. We will therefore strengthen our systems for monitoring cash flow management as well as the progress of Group-wide sustainability initiatives, both of which are prerequisites for utilizing such financing options.

With respect to ROIC, we will not manage it as a single-year target, but rather as a medium- to long-term target that is to be achieved after implementing necessary strategies and resource investments through a rolling medium-term strategy based on our overall long-term strategy.

We will invest proactively, particularly in the Life & Healthcare Solutions business segment, and will supplement areas where we lack the necessary resources through M&As and alliances. In addition, in the Mobility Solutions business segment we will ensure that we recoup the proactive investments we have continued to make since 2016, while further improving profitability through a shift to high-performance products and to solutions businesses. In the ICT Solutions business segment, although ROIC is expected to decline temporarily due to proactive investments through to around 2025, we plan to increase the profitability of the segment towards 2030.

Meanwhile, to set single-year milestones on the path to reaching our ROIC target, we have established a system in which we monitor not only profit items but also components of ROIC such as the cash conversion cycle (CCC) as part of annual performance targets for each division, to encourage each employee to approach their work with a constant awareness of return on investment. Furthermore, as we pursue business portfolio transformation as part of our VISION 2030 Basic Strategy, we are monitoring our performance on the twin axes of ROIC and growth in operating income before special items. For businesses that do not meet our criteria, we are operating on a policy of swiftly implementing structural reforms or withdrawing from them.

On the investment front, in addition to expanding existing production capacity in line with our growth strategy, M&As are also an option. Due to the fact that some of our past M&A projects required time for their anticipated benefits to be realized, we are placing a keen focus on evaluating post-merger integration from the investment decision-making stage. Specifically, in addition to the internal review process conducted when making regular investments, we have established an M&A review meeting to discuss strategies for achieving anticipated benefits as swiftly as possible.

In addition, to ensure the steady implementation of efforts to bolster circular economy initiatives, from this fiscal year we have introduced c-IRR, an internal rate of return metric that incorporates internal carbon pricing (ICP). Taking into account increases and decreases in GHG emissions converted into monetary values has enabled us to make holistic investment decisions that are not biased toward the conventional concept of profit.

With regard to shareholder returns, we will continue to place emphasis on stable and continuous dividend payment, with a DOE^* of 3.0% or more and a total return ratio of 30% or more as targets, based on the premise of securing a solid capital base in conformity with an optimal capital structure. We will endeavor to acquire treasury stock in a timely and appropriate manner and increase dividends in line with the growth in our corporate value, while striking a balance with the growth and maintenance investments necessary to advance our VISION 2030 strategy.

* DOE: Dividends on equity

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Of the 1.8 trillion yen in growth investments set out in VISION 2030, we expect to invest around 140 billion yen toward our carbon neutral strategy to bolster circular economy initiatives. We believe that investments in non-financial fields will translate into financial value over the long term as society's values continue to change.

We anticipate that a shift in financial and non-financial value will occur in the future, and are currently working to integrate the financial and non-financial aspects of our management. However, it will likely be some time before we see tangible results in the form of increased corporate value for the Group. The expansion of Blue Value™ and Rose Value™ products and services can also be considered an initiative to convert the provision of non-financial value into financial value, and it has taken us about 10 years since the inception of the concept in 2011 to reach our current standing. In order to accelerate these efforts, under VISION 2030 we have set ourselves the goal of increasing the sales revenue ratio in each of the two categories to 40% or more. To achieve this goal, we will also strengthen our branding to communicate to the market the value that the Group provides to customers and society. We are also examining ways to express value and its connection to profit growth, as well as how to manage and disclose this value in a more easily understandable manner.

The Basic & Green Materials business segment is currently working to promote the commercialization of green chemicals, including the introduction of bio-based hydrocarbons and the social implementation of chemical recycling technology, with the aim of increasing future corporate value by helping to solve social challenges. Although this endeavor is possible only because the Group possesses naphtha crackers, we are also aware that there are a range of opinions, particularly among investors, regarding the positioning of the Basic & Green Materials business which owns these crackers, from viewpoints such as the volume of CO₂ emissions and the inherent volatility of the business. However, we believe that by investing capital in green chemicals initiatives ahead of our competitors in parallel with our ongoing efforts to swiftly restructure the Basic & Green Materials business, the Group's overall chemical product value chain will produce significant added value, which will lead to a significant increase in our corporate value, when the time comes for society's values to shift in a major way. To add my personal view, I believe that improving the profitability of the Basic & Green Materials business, which can be regarded as the foundation of domestic chemical product manufacturing, and putting the profits earned through this business back into the realization of green chemicals and environmental initiatives, are essential steps in order to realize a sustainable chemical industry of the future.

At the same time, one of the important roles of a company working to further expand its global business activities is to observe the tax systems of each country and region. The Mitsui Chemicals Group has established a tax policy^* to properly fulfill this role and will promote a tax strategy based on fair and appropriate tax planning.

As CFO, in addition to strengthening cash flow management and maintaining a sound financial position, I intend to make business decisions with an eye on the future while giving full consideration to non-financial value as well. Together with our CEO and CSO, I will work to achieve the transformations and increase in corporate value that we are striving for in VISION 2030. We will continue to enhance dialogue with our stakeholders by such means as disclosing both financial and non-financial information and holding explanatory meetings in order to provide our stakeholders with a deeper insight into the Group's vision and strategies.

* Tax Policy
https://jp.mitsuichemicals.com/en/sustainability/risk_compliance/tax.htm