Management Policy: Be a Company That Is Vital to Society
The Tosoh Group works assiduously to fulfill Tosoh’s corporate philosophy, “Contribute to bettering society through the chemistry of innovation.” We seek at every turn to improve our corporate value to better help resolve various social issues through our business activities. Our goal is to be not just highly profitable but an essential part of society.
I maintain that our greatest corporate social responsibility (CSR) is to use the technologies that we’ve developed over our proud history as a chemical manufacturer to this end. We must create value that contributes to the development of our company and our industry, to the enrichment of people’s lives and society, and to our profitability.
CSR is core to management at Tosoh. We aim for our sustainable growth as a corporate entity while building trust with and fostering the well-being of our wide-ranging stakeholders, including investors, customers, business partners, and employees. Our business activities are guided by the United Nations (UN) Sustainable Development Goals (SDGs), which encompass issues common to all humanity, and by the UN Global Compact, a nonbinding, 10-principle pact encouraging businesses to adopt sustainable, socially responsible policies and to report on their implementation that we signed in April 2019. By promoting activities within this framework of global standards, we aim to take our CSR management to the highest-possible level.
Fiscal Year 2020 Review: Progress in Strengthening Our Financial Base Despite Decreased Profits
We are amid a three-year medium-term business plan that ends in fiscal year 2022. A look at our consolidated results for fiscal year 2020, which ended March 31, 2020, and was the first year of the plan, shows that net sales were ¥786.1 billion (down 8.7% from the previous fiscal year); operating income was ¥81.7 billion (down 22.8%); and net income attributable to shareholders of the parent company was ¥55.6 billion (down 28.9%). All three of these significant financial markers, moreover, also fell short of our medium-term plan’s targets for fiscal year 2020.
The main reason for the decline in sales was a decrease in overseas product prices caused by declining overseas market conditions. In addition, demand for our bio- and semiconductor-related products was sluggish because of a global economic slowdown, and that led to a decline in sales volume. Our drop in profitability, meanwhile, owes itself to a deterioration in trade conditions, with the decline in sales prices exceeding the impact of falling raw material and fuel prices.
Our earnings struggle notwithstanding, we did strengthen our financial base. At fiscal 2020 year-end, our equity ratio was 64%, compared with 61.6% at the end of fiscal 2019. Interest-bearing debt was ¥95.9 billion (¥101.1 billion in fiscal 2019) and cash and cash equivalents were ¥98.8 billion (¥92 billion in fiscal 2019). As a result, our net debt-to-equity ratio improved to -0.01, meaning that Tosoh is virtually debt free.
We were, of course, affected somewhat by the coronavirus (COVID-19) in the fourth quarter of fiscal 2020. This included the temporary shutdown of our Chinese subsidiaries. The effect on our overall results for fiscal 2020, however, was limited.
Prospects for Fiscal Year 2021: Promoting the Medium-Term Business Plan Amid Challenging Conditions
COVID-19 presents the global economy with an unprecedented crisis. The Tosoh Group is being affected in numerous ways beyond lower demand for its products. We face volatile raw material and fuel prices and overseas market conditions, dramatic exchange rate fluctuations, and severe global supply chain disruptions. Management is assessing the situation as accurately as possible and working to minimize the impact on Tosoh’s business. But as of this writing (September 30, 2020), it is difficult to reasonably estimate our fiscal year 2021 results. As such, we are not yet issuing a financial forecast.
We intend nevertheless to continue to make steady progress with regard to our medium-term business plan. We will review the timing for implementing various of its measures in response to global economic trends. But we will make no major changes to our basic policy, investment and financing plans, and research and development (R&D) aims. Our sound financial position enables us to proceed with capital investment and mergers and acquisitions (M&A) as planned despite the prevailing uncertainty.
Many of the issues emerging as a result of COVID-19 are things we’ve faced in the past. And we will overcome them as always. We will pursue the targets of our medium-term business plan as intended. The business environment may make it difficult to achieve those targets for fiscal year 2022, the final year of the plan. But we view being able to compare those targets against actual results as an opportunity to review what went wrong and what went right and to then move on.
Medium- to Long-Term Vision and Strategy: Deepening Our Dual Management Strategy for Further Growth
I am convinced that we can achieve our greatest growth over the medium to long term by deepening our dual management strategy. While securing basic cash flow and profits in the commodity sector, where demand is traditionally solid, we will continue to invest in developing high-value-added specialty fields and growth drivers. Our aim is to construct a business portfolio that is resilient to changes in the business environment and capable of generating stable profits. As such, we will work in the fiscal year ahead to raise the proportion of profits accounted for by our specialty business from 40% to about 50%.
Technological development is vital. Technologies are the source of a manufacturer’s value creation. From the perspective of CSR, which is foundational to Tosoh’s management, it is essential that we develop groundbreaking technological products that meet society’s needs. We will pursue high-value-added products that satisfy those needs and ensure our sustainable growth by incorporating the UN’s SDGs into our R&D themes in three priority fields: life sciences, environment and energy, and electronic materials.
To those ends, we are involved in industry-academic joint research and open innovation with a number of universities. This includes the establishment in July 2020 of a collaborative course on zirconia ceramics at the University of Tokyo. We will continue to expand our cooperation with external parties to accelerate the development of next-generation technologies and other products.
Reducing Carbon Dioxide and Engaging in Other Environmental Initiatives
To further our growth, we are also emphasizing nonfinancial initiatives, such as environmental, social, and governance (ESG) pursuits. We have worked for several decades to counter such environmental issues as pollution, waste reduction, and energy conservation.
Today, reducing carbon dioxide (CO2) emissions is our highest priority. Our in-house thermal power generation plants at the Nanyo and Yokkaichi Complexes are a source of manufacturing competitiveness. Yet, we recognize that lowering the CO2 emissions from these plants is crucial. In addition to looking into energy-saving production processes and fuel conversion, we are investigating how best to utilize CO2 emissions. Our CO2 Reduction and Effective Use Promotion Committee is playing a central role.
The Ten Principles of the UN Global Compact
Human Rights
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.
Labor
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labor;
Principle 5: the effective abolition of child labor; and
Principle 6: the elimination of discrimination in respect of employment and occupation.
Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly technologies.
Anti-corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.
In November 2019, meanwhile, Tosoh announced its endorsement of recommendations from Japan’s Task Force on Climate-Related Financial Disclosures (TCFD). In line with the TCFD framework, we will analyze the risks and opportunities to our business activities caused by climate change and disclose information thereon.
Focusing on Human Resources and Safety in Support of Our Future
A company’s greatest asset is its people. To maintain sustainable value, it is important that a company be a rewarding place to work. We at Tosoh strive to foster a work environment where employees can remain highly motivated and demonstrate their full abilities and grow. Simultaneously, we are reforming the way we work to improve employees’ work-life balance and productivity. Our reputation among people outside the company is rising to new heights as a result.
For chemical manufacturers in particular, reputation and growth hinge on safety. The past five years have seen Tosoh invest approximately ¥16 billion to strengthen its preventive maintenance. This has led to a steady decrease in the number of process-related abnormalities. We will continue to utilize digital technologies, such as artificial intelligence (AI) and information and communication technologies (ICT), to mitigate the occurrence of problems in our objective of becoming the world’s safest chemical manufacturer. We especially want to earn and retain the trust of the people in the communities where we operate.
To Our Stakeholders: Ensuring Our Future with the “Tosoh Spirit” at Heart and in Mind
The COVID-19 pandemic has dealt a serious blow to the global economy. And so the outlook for Tosoh’s business and operating environment is impossible to predict. We need, though, only to look back to see that our corporate development from founding to the present has not been smooth sailing.
Just within the 40 years since I joined the company, I have experienced many crises. I witnessed the collapse of Japan’s bubble economy and the Lehman shock. We overcame those challenges to post excellent results, aided by a favorable business environment and the soundness of an earlier medium-term business plan. Those tailwinds, to be sure, are no longer behind us. The added burden of the unprecedented crisis of COVID-19 will truly test my abilities as a manager.
It is said within the chemical industry that it takes 10 years for an idea to take shape and 20 years for that idea to yield fruit. Going the distance requires tenacity and conviction. This applies as much to the management team that continues to invest money and the employees who search for applications and make proposals as it does to R&D. Among the tenets of what we call the Tosoh Spirit, two in particular reflect the perseverance required of these times: “eager acceptance of challenges” and “firm resolve.” The specialty products that are driving our profits have been developed over many years based on this tough mindset. And it is this mindset that will get us through the challenges in front of us.
We will continue, meanwhile, to cherish our relationships with our stakeholders as we work to build the future with the Tosoh Spirit in our hearts and minds. On behalf of the Tosoh Group, I humbly ask for your continued understanding and support.
Toshinori Yamamoto
President