Video Message

Video (05'28)

The video explains SEKISUI CHEMICAL Group's strengths, businesses and goal.

Massage from the Integrated Report

What is the value that the SEKISUI CHEMICAL Group provides to society?

Put simply, it is “Peace of mind for Generations to Come.” Since our establishment, we have been consistently working on “solving problems that are at the root of life,” such as social issues that affect the safety and health of people around the world, or changes in the global environment that seriously affect the survival of society, such as climate change and natural disasters. At present, we are developing commercials with the slogan “We will not leave current social issues to future generations.” This message shows that we aim to ensure that people can continue to live with peace of mind, not only today, but also for the next generation and the future. It is our social role to deliver “peace of mind for generations to come” to society.

Our strengths to achieve this are Strategic Foresight, Processing and Value Transformation. Based on these strengths, we will implement the value creation process and create unique innovations with stakeholders. We will take advantage of getting the needs of the market and social issues in advance (Strategic Foresight), combine internal and external technologies to create unique solutions (Processing), and build new values and systems to transform (Value Transformation) society. The embodiment of this series of processes is the continuous creation of “Products to Enhance Sustainability.” I believe that solving social issues means adding value to products, and by increasing the number of Products to Enhance Sustainability, we will continue to strive to achieve a sustainable society with peace of mind for generations to come and improve corporate value.

What is the driving force behind implementing the value creation process?

The driving force that makes the value creation process effective is the challenges of each and every employee. It is important for each person to be unconstrained by traditional approaches, to maximize their own strength, and to continue to take on without fear. The improvements that employees make in their own departments to improve the quality of daily work are also worthy “challenges” in themselves, and provide an opportunity for personnel with a challenging spirit to play an active role. As a company, we value fostering a “culture of challenge.”

There is a growing demand from domestic and foreign investors for “management that is aware of capital costs and stock prices.”
How do you perceive the current situation of the SEKISUI CHEMICAL Group?

Our PBR has been stable at more than 1 over the past ten years, but we are not satisfied with this level. Except for the period when final profit declined due to the impact of the COVID-19 pandemic and the impairment at SEKISUI AEROSPACE in FY2020 and 2021 when prices soared, PER has remained at a level of more than x10, and I believe we must ensure that investors can expect growth in the medium- to long-term.

In addition, when we break down ROE and check each factor, we can see that the total assets turnover and financial leverage have maintained a certain efficiency and safety, while the decline in net profit margin was directly related to the decline in ROE. I believe that in order to strengthen profitability in the future, accelerating growth and improving asset efficiency are important management challenges.

Also, I am aware that our shareholder capital cost is 7 to 9%. Except for the COVID-19 pandemic in 2020-21, ROE is stable above this level, and the Medium-term Management Plan aims for 11% in 2025.

What is required to continuously improve corporate value?
What is the thinking and approach in the Medium-term Management Plan “Drive 2.0”?

In the Medium-term Management Plan, we are promoting three initiatives to improve sustainable corporate value: “Improve Capital Efficiency,” “Improve Confidence (reduce capital costs),” and “Foster Expectations for Growth (enhance preparations).”

I believe that the important thing for “improving capital efficiency” is to grow the existing businesses. In order to “foster expectations for growth,” “creation of new business areas” specified in the strategic area map is key, and we must aim for commercialization in innovation areas such as “perovskite solar cells” and “biorefineries” in particular. I believe it is important to interpret “reduce capital costs” in a slightly broader sense, to reduce the occurrence of incidents such as serious misconduct that will damage corporate value if they occur, to evolve “environmental management” and “human capital investment,” and to respect human rights throughout the supply chain.

In terms of reducing financial and non-financial capital costs in a broad sense, from the perspective of “strengthening the ESG management platform,” we have introduced the concept of “Sekisui Sustainable Spread (ROIC Spread)” from the previous Medium-term Management Plan, and we are also focusing on changing the mindset of each employee. By incorporating ROIC Spread into the performance evaluation of each department, in addition to increasing ROIC itself, we are working to reduce financial and non-financial capital costs in a broad sense and expand their spread.

From the perspective of “growth of existing businesses,” please tell us about your thinking on the business portfolio.

Business portfolios must always be transformed. In order to achieve steady profit growth, when formulating “Drive 2.0,” after analyzing and evaluating all 33 businesses from the perspective of “profitability, ROIC, and growth potential,” we classified them into four quadrants: “Growth-driving,” “Growth potential,” “Revenue base,” and “Improvement,” and clarified their strategic roles.

Capital shall be allocated in a rational manner, and more than 60% of the total capital shall be allocated to the businesses in the two quadrants of “Growth-driving” and “Growth potential.” We expect to earn more than 90% of the increase in profits (EBITDA) under the Medium-Term Management Plan from these two quadrants. On the other hand, in the “Revenue base” businesses, we will steadily create cash for investment in growth areas, and in the “Improvement” businesses, we will promote profitability improvement through bold structural reforms. This portfolio will be reviewed annually to focus our allocation of human resources and capital on the businesses in the top two quadrants.

Because of SEKISUI CHEMICAL’s diverse businesses, some domestic and foreign investors are concerned about the “conglomerate discount.”
What is your view of this?

The Group has a variety of businesses, but the strengths that are common to all are “Strategic Foresight, Processing and Value Transformation.” And because of the synergies between the businesses, it is possible to create value that could not be created by each business unit individually. In the Town and Community Development business, which can be said to be a symbol of inter-business synergy, we bring together not only high-quality housing but also the products and technologies of the High Performance Plastics and Urban Infrastructure & Environmental Products companies to create sustainable cities that are resilient to disasters. Some investors are concerned about the housing business, but we are currently implementing measures to strengthen profitability in order to restore it to a business that has a stable income of 35 billion to 40 billion yen, and we will focus on allocating the cash generated from this business to growth areas.

The Group is also rated as having a very strong resistance to downside risk, such as being able to use different businesses to maintain its financial performance when one business is underperforming. If people talk about a conglomerate discount, it would be because we have unprofitable businesses and companies, but I believe the most important thing is to return such businesses and companies to a certain level of profitability first.

When I was engaged in the interlayer film business in the past, the scale of the business was still small, so the Group used cash earned in the housing business for the development of interlayer films, and as a result, the business has become a profit driver in recent years. I believe that if we can further strengthen the “Growth-driving” and “Growth potential” businesses with the cash generated from the “Revenue base” housing business and piping business, and improve the overall profit margin of the Group, the evaluation from the market will eventually change.

Recently, “Perovskite solar cells” have attracted attention from the perspective of “Fostering Expectations for Growth.”
Please tell us about the competitive advantage of this business.

We use the “Strategic Area Map” as a compass to achieve our long-term vision. Among the innovation areas drawn in the “Strategic Area Map,” “Perovskite Solar Cells” are expected to be one of the businesses with the highest competitive advantage. In film-type perovskite solar cells, many sealing technologies and precision coatings, areas in which the Group has strengths from the electronics field, are used. Especially in sealing technology, which is an important factor for increasing durability, we are ahead of other companies. We are aiming to commercialize this business at the early stage while we have the technological advantages.

Attention from the Japanese government and local governments has also been high, and we have received various requests and initiatives. The growth of perovskite solar cells is desirable because, while the primary purpose is to increase the share of renewable energy, current silicon solar cells are almost all imported, so there are high hopes that perovskite solar cells can be a technology that does not rely on other countries. We are currently able to receive strong support from the Ministry of Economy, Trade and Industry and the Tokyo Metropolitan Government, so we will strive to achieve early commercialization.

In the Medium-term Management Plan, we have set an investment budget of 600 billion yen.
Please tell us about your thinking on capital allocation. In addition, as of the end of FY2023, it seems that the progress of investment is slow.
Please also tell us about the use of cash if the investment budget is not used up, including the status of M&A considerations.

First, the strategy of “leveraging debt as necessary while actively expanding strategic investments” remains unchanged. In addition to expanding operating cash flow through our businesses, we will continue to reduce cross-shareholdings, borrow as necessary, and secure the necessary cash. Our current R&I rating is AA-, but we do not aim to maintain the current rating, and we estimate that our D/E ratio will be 0.5 or less even if we borrow up to 400 billion yen. On the other hand, we will allocate capital rationally, and of the cash we have secured, 300 billion yen will be used as the investment budget for M&A, and more than 70% of the remaining 440 billion yen for capital investment and R&D expenses will be allocated to High Performance Plastics, Medical, and New Business, which are growth areas.

With regard to capital investment, due to the market environment in FY2023, some projects have been delayed, but finally, the semiconductor and automotive market conditions are improving. In addition to increasing the production capacity of polyvinyl acetal resins at the Shiga Mizuguchi Plant, we have also decided to increase the production capacity of high adhesion-easy removable UV tape “SELFA,” which is a process material for advanced semiconductor manufacturing, and high-performance interlayer films at the Thailand Plant. We expect to be almost back online by the end of FY2024.

Regarding shareholder dividends, the policy of being stable and proactive remains unchanged. We have been stepping up our returns to shareholders, and I believe that shareholders are relieved that we have committed to raising our dividend payout ratio to 40% or more in our current Medium-term Management Plan. On the other hand, since we did not use up the M&A investment budget in the last fiscal year of the previous Medium-term Management Plan, we acquired an additional 7 million treasury shares in the second half of the year. If the investment budget is ultimately not used up at the end of the current Medium-term Management Plan, we will consider our response flexibly, including additional shareholder returns, depending on the cash position and stock price level at that time.

In terms of “reducing capital costs,” you mentioned controlling serious incidents, but how will you manage this risk specifically?

The Sustainability Committee identifies risks and opportunities that the Group may face in the future, determines company-wide policies and KPIs, and formulates company-wide implementation plans. We define five areas for major incidents of “Safety, Quality, Legal/Ethical, Accounting, and Information Management,” and work to improve our ability to prevent, detect, and respond to such incidents at an early stage. Each subcommittee within the committee implements individual countermeasure planning and confirmation of effectiveness, and promotes improvements while managing the progress of KPIs. In addition, the Board of Directors receives the policies and strategies discussed by the committee and company-wide risk reports, deliberates and finalizes them, and supervises the initiatives taken on the executive side.

Regarding “quality,” we are particularly serious about the quality control issues that have become issues automotive and pharmaceutical industries recently, and we will move forward with a stronger sense of crisis than ever before regarding the DX of processes that do not involve any human intervention from measurement to shipment determination. For “Information Management,” we have been focusing on DX since the previous Medium-term Management Plan, and we will focus more on the prevention of leakage of technical information.

Also, in terms of “controlling capital costs,” you mentioned human capital, but what is your thinking on investing in human capital?

I believe that the growth of the company is the growth of each and every employee. Investment in human capital is essential for the realization of the long-term vision, and it is the driving force for the medium- to long-term growth of the Group. With the increasing mobility of human resources, it is also important to create an organization where talented human resources want to continue to work for a long time. It is important to cultivate human resources who can respond to the speed of growth and changes in the business, and not only put the right people in the right positions, but also create a culture that does not blame employees even if they fail, and to give people who have taken on challenges more responsibility so they can play an active role. We will create an environment that promotes a “challenging spirit” throughout the company, and aim to become a “an excellent and vibrant company where all employees thrive on challenges.” In addition, in terms of recruitment, we are planning commercials with a different image strategy than the past to promote awareness among as many excellent students as possible, and we are promoting new initiatives that will lead to increased awareness.

Based on the traditional idea that employees are precious assets bestowed on us by society, we will actively invest in training and reskilling and giving DX courses for improving employees’ productivity. In addition, we continued to raise wages by about 4-5% in FY2024, the same as the previous year.

I think that sponsorship of corporate sports can be seen as part of human capital investment if we consider it in a broad sense.
In FY2023, you decided to invest in “SEKISUI Challengers” American football team, but please tell us your thoughts on this.

In order to realize the long-term vision and achieve the Medium-term Plan, we must realize “an excellent and vibrant company where all employees thrive on challenges.” When we consider the meaning of the keyword “challenge,” I think that the most obvious example where “challenge” is condensed is sports. Since the “SEKISUI Challengers” is a club team, the players continue to “challenge” themselves to become strong as a team by practicing hard individually while also doing their main job. I don’t just want employees to focus on the results of the games, I want them to look at how individuals have grown compared to last year and how the team has become stronger as a result. Our result in the Women’s Ekiden road relay race, in which we achieved the best performance in Japan last year, was surely the result of each athlete “challenging” themselves.

When people hear the word “challenge,” they tend to think they have to do something difficult, but this is not the case. Our corporate sports sponsorship is based on a strong desire for stakeholders and Group employees to see and empathize with these “challenges.”

Please tell us about your efforts for the environment.
In addition, the legally binding CSRD came into force in Europe, but how will you respond?

The Group has been promoting “environmental management” from an early stage, and we are proud to be one of the leading Japanese companies in terms of environmental initiatives. We have also established a specialized department for CSRD, and are working on measures such as discussing it in the Sustainability Committee.

In response to the escalating problem of climate change, we have the record of being the first chemical manufacturer in the world to obtain SBT certification, and we are further raising our GHG emission reduction rate target and re-acquiring SBT certification towards 2030. To achieve this goal, we are switching the electricity we purchase to renewable energy, converting equipment that runs on fuel to electricity, switching to low-carbon fuels, and reducing our Scope 3 emissions.

In addition, we are enhancing measures such as resource recycling, expanding sales of products that contribute to resource conversion, and recycling waste. My understanding is that the advancement of these environmental management measures has been appreciated to a certain extent by ESG investors, mainly overseas.

With the progress of legislation and rules on human rights in Japan and overseas, the attention from society on human rights issues is increasing.
What is the background and reason for making respect for human rights the foundation of management, and what specific initiatives are you taking?

The Group, which operates globally, is responsible for respecting the human rights of all people affected by its business activities, as globalization is accelerating in the procurement of raw materials. In order to strengthen a sustainable management foundation, I believe that it is necessary to regard respect for human rights as the foundation of management and to work to respect human rights throughout the supply chain, including business partners, not only for employees of the Group. In order to address this issue with more sense of crisis than ever before, in FY2022, we established a new Human Rights Subcommittee under the Sustainability Committee, which I chair, and this subcommittee is responsible for formulating company-wide policies on human rights.

In addition, through the four working groups linked to the Human Rights Subcommittee, we have established mechanisms for human rights due diligence within the Group and for human rights due diligence of business partners, and we are working to identify and correct issues. We provide human rights education, and are also working to support multiple languages in the in-house whistleblower contact point and establish whistleblower contact points for foreign employees and overseas business partners in order to establish whistleblower and consultation contact points that are accessible to a wider range of stakeholders.

There are six years left until the Long-term Vision for 2030.
Please tell us about your understanding of the current situation and the management issues that must be addressed to achieve the vision.

In order to achieve sales of 2 trillion yen and an operating profit margin of 10% or more, as set forth in the Long-term Vision “Vision 2030,” in addition to the growth of existing businesses, it is essential to pursue M&A and create new businesses. Although I recognize that M&A, something that we could not implement in the previous Medium-term Management Plan, still faces a tough competitive environment, including factors such as the depreciation of the yen, the strengthening of the existing businesses is progressing steadily, and in addition to the certain level of organic growth that we expect, the goal is very much achievable by ensuring the commercialization of new businesses such as perovskite solar cells and biorefineries. I believe that stakeholders will be able to sense the feasibility of Vision 2030 when we demonstrate the development status of new businesses to be introduced in this Medium-term Management Plan and the possibilities ahead, along with the results of FY2025, which will be a turning point.

Finally, please tell us your thoughts on dialogue with shareholders.

Just as in the past, I take the opinions and suggestions received through dialogue with stakeholders, including shareholders and investors, very seriously and use them in management. Recently, we have received many questions and opinions from shareholders, especially those with long-term holdings, on issues such as capital policy, business portfolio, and ESG management that will become even more important in the future to improve the company’s corporate value, based on an understanding of the Group’s initiatives.

In the future, I will continue to listen to opinions and suggestions received through dialogue, and will link them to our efforts to increase corporate value.