Message from the CEO
Progress on our Long-Term Business PlanAs we flexibly respond to changes in society,
I can sense we are making steady progress under our Long-Term Business Plan
Guided by the formulation of our 2025 Long-Term Business Plan, the Mitsui Chemicals Group continues to implement initiatives aimed at solving the challenges faced by society. Fiscal 2018 was the second year of this plan. In looking back on that 12-month period, the environment surrounding the global economy changed significantly mainly because of trade friction involving the US, a Chinese economic slowdown, and heightened geopolitical risks. And the pace of this change continues to accelerate. At the same time, it is becoming increasingly clear what issues the chemical industry and society at large must address; namely, climate change and problems pertaining to plastic waste.
That said, looking at the megatrends from a higher perspective, I feel there to be no major differences compared to our outlook as of the time we put together our long-term plan. We originally formulated it in order to swiftly respond to these kinds of changes in the business environment and we initially assumed that would involve taking such changes in our stride and moving forward by flexibly responding on a rolling basis.
Fiscal 2018 operating income regrettably declined year on year owing partly to one-off negative factors, but net income reached a record high. We have implemented structural reforms and other measures thus far and they are starting to yield results. I can sense that we are making steady progress under our Long-Term Business Plan.
Initiatives in three targeted business domainsExpansion in Mobility and Health Care domains drove YoY growth in operating income in the three targeted business domains
Aiming to strengthen ability to propose solutions
We continue to see solid growth in the Mobility domain despite a slight slowdown in the pace of increase in global automobile production volume. The automotive industry is currently in the midst of a major once-in-a-century period of transformation, as symbolized by the key acronyms CASE and MaaS.
Regardless of how this transformation proceeds, the need for lighter weight, safety, and greater comfort will only continue to increase up ahead. In line with this trend, I think the fields in which we can leverage our strengths—namely, our broad lineup of functional polymeric materials, advanced technological capabilities, and product quality—will further expand.
Moreover, the ability to propose solutions to our customers even in the area of manufacturing will be crucial in the future. In 2017 we incorporated ARRK Corporation into the Group through an M&A deal and integrated their design, prototyping, and analytical functions. Furthermore, in March 2019 we set up a Design & Solution Center with the aim of strengthening our product development capabilities and we are continuing to beef up our ability to propose total solutions to customers with a view to utilizing it in the three targeted business domains.
In the Health Care domain, sales are increasing steadily for vision care materials, an area in which we possess considerable expertise in terms of technological capabilities and customer base. Going forward, we will step up our efforts in developing materials that offer added value not only in terms of performance, but also functionality. While our TouchFocus™ next-generation eyewear is a BtoC product, a field that we have little experience in, market recognition is growing steadily, so I think there are prospects for taking this product to overseas markets.
In addition to premium disposable diapers, for which we have boosted sales thus far, we continue to expand applications for our high-performance nonwovens in automotive, healthcare, and other industrial materials fields. In April 2019 we established our Industrial Materials Development Division for the purpose of advancing such developments. And even though reorganizing our dental materials business presented a challenge, we continue to put in place a platform for expanding sales by wasting no time in implementing initiatives such as bolstering our sales framework and launching digital-related products.
In the Food & Packaging domain, sales of industrial films are currently at somewhat of a standstill largely as a result of the downturn in the semiconductor market caused by the impact of the US-China trade conflict. From a longer-term perspective, however, we expect demand to be driven mainly by further developments in AI and IoT and the rollout of 5G networks, and we are continuing to push ahead with strategies such as strengthening our operations in Taiwan. We also expect demand for packaging film for food products to increase in line with the need to reduce food loss, which is why we intend to work hard on developing products that offer new features.
In our agrochemicals business, we are making steady progress on developing new pipelines. We have concluded a global license agreement with an influential agrochemical manufacturer in Europe for our new mainstay insecticide as we aim to expand into global markets.
Next Generation Business and Basic Materials domainsThe Next Generation Business steadily coming to fruition
Structural reforms in the Basic Materials domain to continue
We are currently addressing the Next Generation Business domain in order to create new solution businesses with an eye to the next 10 or 20 years. In the energy field, we are making progress in our power generation and solar power diagnosis businesses. In the latter, we plan to launch a certification business in India in fiscal 2019. In the medical field, our rapid bacteriological identification system has reached the clinical trial stage. Given that this system helps to quickly diagnose sepsis, an infectious disease with a particularly high mortality rate, I think the technology is quite valuable from the viewpoint of solving social challenges.
We are also aggressively pursuing open innovation and corporate venture capital projects through partnerships with start-up firms and pushing ahead with the development of models for physicians to practice surgery on and improve their skill sets.
All of these businesses will play a part in solving the challenges faced by society, and although we still have hurdles to overcome before they can start contributing to profits, we hope to steadily nurture them one by one going forward.
In the Basic Materials domain, we will continue to implement the structural reforms we have carried out thus far. I believe structural reforms to be a never-ending topic. As its name suggests, the basic materials business is the cornerstone of our Company’s growth domains and underpins the foundation of our society. In order to shore up our long-term competitiveness as a chemical corporation, we will constantly endeavor to streamline our production activities and work even harder to improve quality.
Linking greater investments to business resultsEarmarking ¥430 billion for investment over next three years
Carefully selecting projects that deliver ample returns
Under our Long-Term Business Plan, we intend to actively pump managerial resources into growth investments.
It is important that these investments are linked steadily to growth and our basic policy is to ensure enough production capacity to meet demand. Accordingly, we will carefully select projects from which we expect to generate ample returns on investment.
Another key strategy for expanding business is the use of M&As. However, M&As with the simple aim of expansion do not lead to sustained growth. As a general rule, I believe we should avoid engaging in M&As in business domains isolated from our own. In other words, we should target areas in which there is potential for synergies with our existing businesses. The incorporation into the Group of technologies and know-how we currently do not possess should serve as new powers for further growth.
In undertaking these growth investments, we give due consideration to the cost of capital and endeavor to strike the right balance between return on investment and growth taking ROIC as an indicator. We will continue to concentrate our investments in the three targeted business domains and at the same time aim to steadily improve ROIC in the future.
Sustainability managementIncorporating sustainability into management,
dealing with risks, and aptly seizing growth opportunities
As symbolized by the spread of the SDGs, sustainability has taken hold as a keyword and calls for companies to address ESG issues are mounting. In looking back on fiscal 2018, I think this trend gained even more momentum. Stakeholders are increasingly focusing on the business strategies of companies with regard to how they accurately gauge risks and opportunities and incorporate them into management, as well as how quickly they can transform their business models. From now on, creating social value will be crucial to enhancing corporate value.
As such, we established our Corporate Sustainability Division in 2018 in order to engage in sustainability management with ESG elements at its core. More than a year has passed since then and sustainability continues to steadily take root in our Company’s management. It is already an inseparable point of view when management considers an investment or puts together a budget. Sustainability topics are even routinely discussed at Company-wide Strategy Committee meetings and Board of Directors meetings and we are making every effort to sensitively reflect the needs of society.
The disclosure of ESG-related information is also a critical component for management, hence our proactive efforts to engage in dialogue with investors and various other stakeholders. Unlike results shown in financial statements and the like, ESG initiatives are much harder to express on paper because they are conceptual and not easily represented with figures. In this regard, our Blue Value™ and Rose Value™ have been well received as unique indices to help visualize our Company’s initiatives to address social challenges. We intend to steadily expand our Blue Value™ and Rose Value™ product lineups going forward.
For our employees too, identifying the value of addressing sustainability issues in day-to-day operations is not easy. That is why I am creating more opportunities to speak directly with employees. I use my own choice of words to ensure that they gain an easy understanding of the significance of our sustainability management. By continuing to implement these kinds of activities step-by-step, we are fostering a climate conducive to tackling sustainability issues on a Group-wide basis and leveraging that momentum to keep moving forward.
Plastic waste and climate changePromoting a circular economy model for the entire value chain and advancing global partnerships
Of the challenges facing society today, the problems of plastics and how to tackle climate change are gaining prominent attention. The Mitsui Chemicals Group is deeply implicated in these issues as a chemical company that emits large volumes of greenhouse gases and manufactures plastics. Although these issues pose risks, they also afford us business opportunities. From a long-term perspective, I believe the execution of appropriate and swift business decisions will be key.
We cannot prescind the two issues of plastics and climate change. The Group’s basic approach is to implement initiatives from both perspectives to encourage a switch to a circular economy across the entire value chain.
The three Rs (reuse, reduce, and recycle) for plastics is an initiative that Japan has continued to pioneer. The Group intends to promote a circular economy model by expanding the use of biomass plastics as well as strengthening its recycling initiatives. Marine plastic waste is a problem concerning trash that has escaped this cycle and cooperation on a global level will be essential if a solution is to be found. As such, we are addressing this issue by participating in the Alliance to End Plastic Waste (AEPW) and other global alliances.
As for climate change, we formulated a long-term policy with a view to the year 2050. In addition, we support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and we are striving to actively disclose information about how climate change affects our businesses.
Global human resource developmentCreating an environment where a diverse workforce can thrive is key to also accelerating our global strategy
At any point in history, human resources will always be one of our most important management resources. We are proceeding with the creation of a workplace environment where employees of all walks of life can thrive irrespective of gender, nationality, or other factors.
Globalization is the major keyword when it comes to human resources. The Mitsui Chemicals Group currently has 170 business sites in 30 countries and regions, while 43% of all our employees are based overseas. I think entrusting management to employees who best understand local issues will be essential to further business expansion up ahead. To that end, hiring and nurturing local employees is a challenge we must concentrate our efforts on going forward. In April 2019 we established our Global Human Resources Division in order to strengthen global human resources management and governance. The acceleration of our global expansion is also a key strategy in our Long-Term Business Plan. We therefore intend to keep strengthening the platform on which this strategy is based.
Safety initiatives“Safety is our top priority”
All employees recognize anew this uncompromising policy and ensure safety
I believe that safety is, more than anything else, the most important commitment for management to make. Whenever I get the chance, I tell our employees that safety is our top priority. And one of the stated goals in our Long-Term Business Plan is to pursue thorough safety, high quality, and fairness across the entire supply chain.
To ensure safety in our operations, we must never forget the explosion and fire that occurred in 2012 at our resorcinol production facility at the Iwakuni-Ohtake Works. We have been extremely diligent about safety and repeatedly made improvements by working together with production sites. Nevertheless, a fire broke out again at the Osaka Works in fiscal 2018. I took this matter very seriously to heart and personally talked with employees at the worksite to check whether the safety initiatives there might have turned into mere formalities and whether or not each and every employee was facing up to the situation earnestly.
We hope to continue steadily implementing activities aimed at thoroughly ensuring a Group-wide safety awareness once again. At the same time, we will look to establish a framework and introduce technology aimed at making our prevention measures more sophisticated and fulfill our social responsibilities by seeking guaranteed safety across all processes of the supply chain.
To our stakeholdersChanneling the collective strengths of all employees to achieve sustainable growth
We will continue to forge ahead towards our 2025 goals in our Long-Term Business Plan by flexibly responding to changes on a rolling basis. Our activities will mainly revolve around the expansion of the three targeted business domains, but we also intend to keep securing stable earnings in the Basic Materials domain.
In fiscal 2019 we are forecasting growth in both sales and profit; our operating income target is ¥105 billion. As we shift to a stage of steadily recovering investments made thus far, we expect an increase in operating income to ¥120 billion in fiscal 2020 and ¥140 billion in fiscal 2021.
Recently, in order to convey to employees our Group’s approach to sustainability in an easy-to-understand way, I have been using the words “strong company” and “good company.” A strong company is one that has earnings power, which materializes in its financial results. I believe that a good company, on the other hand, is one whose management platform is based on the intangible value like a vibrant corporate culture.
Companies that are not strong cannot survive, but companies that are not good have no point in surviving. By channeling the collective strengths of all employees, we will aim to be a sustainable corporate group that takes pride in being a “company not merely strong but also good.”
Chemistry underpins the foundation of society and is an industry that harbors considerable potential—so much so that it may well be the source of innovation in various forms in the future. In meeting the expectations of all our stakeholders, we will continue to generate new value and aim to achieve sustainable growth for both society and the Mitsui Chemicals Group.