Achieving the Objectives of Our Medium-Term Business Plan
The chemical industry is a process industry that requires massive capital investment and where profitability is greatly affected by raw material prices and product supply and demand. It is, moreover, a tremendously competitive industry globally. To ensure stable growth within the chemical industry over the medium to long term, the Tosoh Group has undertaken the reform of its business structure.
Fundamentally, our growth strategy is to achieve balance in the dual management of commodity products—for which demand is solid—and specialty products, which feature high added value. While securing cash flow and profit, the foundation of our Commodity business, we continuously invested in R&D to bolster our Specialty business. And this strategy, which leads to the creation of new growth drivers, has enabled us to make measurable progress in our transition to a business structure that is more resistant to external influences, such as the cyclical nature of commodities markets.
The result has been the expansion of our consolidated operating income from about ¥13 billion in fiscal year 2010 to more than ¥100 billion in fiscal year 2019, the year under review. We achieved all the targets we set in the three-year medium-term business plan that began in fiscal year 2017, for net sales, operating income, operating income ratio, and return on equity (ROE). In so doing, we considerably strengthened our financial position for the medium and long term. Our net debt-to-equity ratio is 0.01 as we head into fiscal 2020 and a new medium-term business plan.
The Medium-Term Business Plan for Fiscal Years 2017–2019
1. Enhanced dual operating strategy in line with medium-term policies
Commodities
- Strengthened operations with large-scale investments to increase efficiency
- Exceeded profit target by significant margin owing to favorable market conditions
Specialties
- Expanded production capacity of high-growth products
- Established system for acquiring advanced technologies
- Failed to achieve profit target because of worsening trade conditions and other factors
2. Laid solid financial foundation
- Equity ratio: 61.6%
- Interest-bearing debt: ¥101.1 billion
- Net debt-to-equity ratio: 0.01
- Rating: Raised to A+ in August 2018
3. Raised safety through positive response to safety reform initiatives
- Continued capital injections to strengthen preventive maintenance
- Reduced problems and abnormal events steadily throughout the year
- Gained high-pressure gas safety recertification of Nanyo Complex
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FY 2019
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Target
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Actual
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Variance
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Net sales
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750.0 billion yen
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861.5 billion yen
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111.5 billion yen
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Operating income
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85.0 billion yen
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105.7 billion yen
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20.7 billion yen
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Operating margin
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10% or better
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12.3%
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Achieved
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ROE
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10% or better
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15.1%
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Achieved
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Assumes exchange rates of ¥110/US$1 and ¥120/euro and a naphtha price of ¥40,000/kl
Note: Figures are as of the end of March 2019, unless otherwise indicated
Emphasizing Corporate Social Responsibility
Our aim is not solely to become a highly profitable company. We strive, more, to reflect our corporate philosophy: “Contribute to bettering society through the chemistry of innovation.” Earning and maintaining the trust and respect of our stakeholders and of the communities where we have facilities and being regarded by people in general as a valued member of society is our objective.
We believe, therefore, that corporate social responsibility (CSR) is central to sound corporate management. And in June 2018 we expressed that belief by unveiling the Tosoh Group CSR Basic Policy and positioning that policy as a core management tenet.
The Tosoh Group CSR Basic Policy serves as a statement, internally and externally, that the Tosoh Group is systematically undertaking CSR activities. Its complement is the materiality assessment that we devised in tandem with the policy of 18 issues, each with key performance indicators (KPI), set on a biaxial matrix. That matrix establishes our targets for the nonfinancial capital so vital to our sustainability.
In addition, we have formed the CSR Committee, which I chair. It cooperates with our CSR Advancement Liaison Committee and the CSR Advancement division, to lead the formulation and implementation of group-wide CSR initiatives.
The Sustainable Development Goals, or SDGs, adopted by the United Nations (UN) provide the guidelines for the CSR Committee’s development of CSR initiatives. To date, the committee has prioritized 8 of the 17 SDGs and integrated them into Tosoh’s R&D themes. Tosoh’s signing of the UN Global Compact in April 2019 further signals how committed the Tosoh Group is about CSR.
Bolstering Our Operational Safety Toward Sustainable Growth
For chemical manufacturers in particular, safe operations are a prerequisite for sustainable growth. Tosoh, in fact, views safety as among its most important corporate social responsibilities. Over the past five years, we have invested a cumulative ¥16 billion in preventive maintenance to enhance our operational safety. This has led to a clear decrease in process-related abnormal events. It has not, however, eliminated all issues.
In fiscal year 2019, we introduced the theme of strengthening our management of construction work. We are working with affiliated companies to ensure a unified safety system and educate our respective employees in the necessity of safety during on-site construction. We are also working to prevent other issues by incorporating artificial intelligence (AI) and the Internet of Things (IoT) into our operational support systems. By these efforts, we hope to become the world’s safest chemical manufacturer and to continue to maintain the confidence of society and shareholder alike.
Ensuring Good Personnel and Governance
Good personnel are crucial to corporate well-being. Attracting and retaining top-notch employees is why management at Tosoh is dedicated to ensuring a work environment conducive to employee happiness and motivation. We are establishing a workplace where employees can amply demonstrate their individual and collective capabilities.
What’s more, the Tosoh Group is undertaking initiatives that go beyond the workplace. We are reforming our entire approach to work style and improving the work-life balance of our employees.
We still have numerous areas to work on in regard to work style, but increasingly we are receiving positive evaluations, including from external sources. During the year under review, for example, we got our first-ever selection by Japan’s Ministry of Economy, Trade and Industry to the Certified Health & Productivity Management Organization “White 500” in the large enterprise category.
Sound corporate governance is a hallmark of good business management and equal in importance to a productive workforce. At Tosoh, we emphasize compliance—and more.
A spate of scandals at major Japanese manufacturers across industrial sectors demonstrates that merely complying with laws and regulations is insufficient. As with any member of society, it is essential that corporate entities conduct themselves sincerely and ethically. Tosoh has established its Compliance Committee and its Audit Office to oversee strict enforcement. But management at Tosoh knows that what underlies compliance is awareness on the part of each employee of the imperative for sincere, ethical behavior.
To this end, management stresses to all employees the importance of reviewing their every action, every business transaction, from the perspective of a third party. Management also encourages employees to have the courage to report anything out of the ordinary or that they find unreasonable and to change ways of doing things in alignment with compliance, ethics, and sincerity. I want, above all, for there to be a healthy and open corporate culture at Tosoh.
Targeting Carbon Dioxide
Dealing with environmental concerns is a challenge for chemical makers, Tosoh included. Tosoh has nonetheless for decades had in place initiatives to limit pollution, reduce waste, and save energy. Today, our emission of carbon dioxide (CO2) is our single most significant environmental challenge.
Our Nanyo and Yokkaichi Complexes depend on in-house thermal power generation for the electricity to manufacture their chemical products. The independent power plants at these facilities are, to be sure, a competitive advantage for Tosoh. They are, however, substantial emitters of CO2. And we are keenly aware of the global drive to a low-carbon society and of our responsibility to reduce our emissions. For Tosoh, CO2 reduction is a priority, for the betterment of society, for our corporate sustainability.
We are in addition looking at ways to reduce our energy consumption in our manufacturing processes and at converting to alternative fuels. But by far the greatest expectation that society and we have of our skills as a chemical maker is to devise a means to better utilize the CO2 we emit. We established the CO2 Reduction and Effective Use Promotion Committee in fiscal 2019 and are looking at measures from the perspectives of technology and cost.
Enhancing Corporate Value Based on More Resilient Business Structure
Fiscal year 2020 marks the start of our latest medium-term business plan. We will continue to promote our dual business strategy to establish a structure that generates stable profits, changes in our business environment notwithstanding.
Life science, the environment and energy, and electronic materials remain our three R&D emphases. We will further develop high-value-added products to drive the next wave of growth in these fields. We intend to invest aggressively in R&D and to participate in joint industry and academia research and in open innovation. Given the ongoing uncertainty over the global economy and the prospect of sudden shifts in our markets, our approach to our priority fields involves the inclusion of quantitative targets in our medium-term business plan that should be readily attainable.
To survive amid often tumultuous change and, indeed, to enhance our corporate value, it is vital that each of our employees approach work daily with a sense of ownership. I’m aware that it is my daily duty to ensure that we are in step with our plan. We will continue to take the Tosoh Spirit to heart and work together to build the Tosoh Group’s value, for society and for our sustainable growth.