• Japanese

ANNUAL REPORT 2015

  • Message from the President. Corporate Vision.
  • Special Feature
  • Dialogue 1
  • Dialogue 2
  • Dialogue 3
  • Dialogue 4
  • Dialogue 5

Dialogue 2 Interview with the President

Message from the CFO download PDF

The Mitsui Chemicals Group has made a steady start in the first year of its 2014 Mid-Term Business Plan The Mitsui Chemicals Group has identified “Creating New Customer Value through Innovation” as the principal theme of its 2014 Mid-Term Business Plan. In carrying out this plan, we will endeavor to resolve social challenges through our business activities and ensure the sustainable development of both society and the Group as a whole. In fiscal 2014, ended March 31, 2015, the first year of the 2014 Mid-Term Business Plan, we made steady progress in transitioning toward a growth strategy that is based on customer needs and values as well as in restructuring the basic materials business. Taking the lead, I am committed to harnessing the comprehensive strengths of the Group and to further enhancing our corporate value. Tsutomu Tannowa President & CEO

Q1.Could you reiterate the overall purpose and goals of the 2014 Mid-Term Business Plan Creating New Customer Value through Innovation?

A1.The 2014 Mid-Term Business Plan is designed to help us transition from a “product-oriented” to a “market-oriented” focus. Across its full lineup of technologies, products, and services, the Mitsui Chemicals Group is committed to providing optimal solutions that deliver wide-ranging value-in-use to the end consumer. Accordingly, we are looking to transform our business portfolio into one that is capable of generating sustainable earnings growth.

In delivering value-in-use, we must look to our existing client, of course. It is also important that we pursue value from the perspectives of future customers through to end users. In order to create new customer value through innovation, it is also vital that we uncover profound customer needs and utilize the abilities of the entire Group to deliver optimal solutions.

In specifying a target business portfolio that is capable of taking full advantage of the Group’s robust business platform, we have identified Mobility, Healthcare, and Food & Packaging as three targeted business domains that drive growth and Basic Materials as a business domain that supports society and industry.

While strategically promoting activities in each of these domains, we are also engaging in market-driven development activities as a part of our New Business and Product Creation Strategy. Moreover, we are working to create new businesses for the future that provide value in order to meet profound customer needs.

As the name suggests, the Basic Materials domain encompasses every possible industry platform. As a part of efforts to provide a wide range of materials and technologies within and outside the Group, we will look to drastically restructure our business.

It goes without saying that a robust management foundation that is capable of adapting flexibly to changes in the operating environment is vital to ensure sustainable growth both for society and the Group. Just as we have over an extended period in the past, we will continue to clarify the Basic Strategy required to strengthen our management foundation. Under the 2014 Mid-Term Business Plan, we will continue to pursue a Business Support Strategy that strives to reinforce our human resource, finance and performance management, information, and organizational platforms as well as a Production and Technology Strategy that is designed to secure competitive advantage against the backdrop of ensuring safety as a first priority.

Guided by this Basic Strategy, we will target operating income of ¥60 billion, profit attributable to owners of parent of ¥30 billion, ROA of 4%, and ROE of 8% over the three-year period of the 2014 Mid-Term Business Plan.

Looking further ahead, we plan to achieve operating income of ¥100 billion, profit attributable to owners of parent of ¥50 billion, ROA of 6%, and ROE of 10% around 2020. We will also transform our business portfolio into one in which 90% of the growth in operating income is derived from the Mobility, Healthcare, and Food & Packaging domains.

Medium- to Long-Term Performance Targets. Business Portfolio(Breakdown of Operating Income)

The 2014 Mid-Term Business Plan Creating New Customer Value through Innovation

The Mitsui Chemicals Group has identified specific targeted business domains as well as strategies that make the most of its robust platform. These initiatives are designed to help the Group contribute to society through its business activities and to resolve social challenges.

Across its full lineup of technologies, products, and services, the Group is committed to providing optimal solutions that deliver wide-ranging utility value to the end consumer.

Accordingly, we are looking to transform our business portfolio into one that is capable of generating sustainable earnings growth.

Targeted business domains that drive growth: work to expand earnings and develop next-generation new businesses

Business domains that support society and industry: provide a wide range of materials and technologies within and outside the Group

Create core businesses for the future that help expand sustainable earnings

Strengthen the business foundation in response to changes in the environment and the transformation of the business portfolio

Q2.What progress has been made in fiscal 2014, the first year of the 2014 Mid-Term Business Plan?

A2.We have made a strong start with operating income coming in at ¥42.0 billion, well above our initial target of ¥35.0 billion. This result demonstrates our strong commitment to implementing the strategies outlined, and also reflects our uncompromising stance toward maintaining our pace of expansion in targeted business domains that offer growth potential under the plan even as we strive to restructure the basic materials business.

Thanks largely to the positive effects from the growth in sales of major products, we have steadily increased operating income in targeted business domains that offer growth potential.

In addition to improvements in market conditions and the effect on operations of the weak yen in business materials domain, substantial earnings growth can be attributed to the steady progress made in business restructuring efforts announced in February 2014.

Progress in the Mobility Strategy

In fiscal 2014, we were successful in capturing a portion of the strong demand for automotive-related materials, which continued to expand mainly in North and Central America. As a result, earnings improved at a greater-than-expected pace.

Regarding the PP compounds used in such large automotive components as bumpers, we took steps to progressively boost production capacity in line with the growth in demand and successful efforts to expand our market share. Reflecting our efforts to increase production in North and Central America throughout fiscal 2014, our PP compound production capacity reached a world-class 1,000,000 tons per year. For products such as EPT, a highly functional synthetic rubber, ADMER™, an adhesive for layered structures used for plastic fuel tanks, and MILASTOMER™, which is used for automotive interiors, operations commenced at a new production facility in China.

In another major development in 2014, the Mitsui Chemicals Group acquired Kyowa Industrial Co., Ltd., a manufacturer of molds. Through this acquisition, we are looking to further enhance our ability to put forward solutions that draw on the Group’s wide range of materials and technologies and to accelerate the pace of development. We also executed an exclusive licensing agreement to manufacture and distribute STOBA™, the world’s only technology for preventing hazardous lithium-ion battery thermal runaway. By combining this with the Group’s technologies, we plan to be in position to quickly push forward commercial applications in the automotive sector.

Beginning with POLYMETAC™, a metal-resin molding technology that is supporting the trend toward increasingly lightweight components, significant progress is being made to develop applications for the Mobility domain that employ other existing products. Looking ahead, we will work diligently to recoup growth investments and to accelerate initiatives under the plan.

PP compound production facility expansion in the United States

Progress in the Healthcare Strategy

The Mitsui Chemicals Group made significant strides in expanding its businesses in the ophthalmic lens materials and nonwoven fabrics fields in fiscal 2014.

In the Ophthalmic Lens Materials business, we focused mainly on the acquisition of businesses that would bolster our lineup of value-added lens products while also bringing new products to market. Plans are also in place to expand sales when a large-scale facility that manufactures XDI, a raw material for high refractive index lens materials, begins commercial operations during fiscal 2015.

In nonwoven fabrics for high performance hygiene material use, an area in which we maintain a leading market share in Asia, we were successful in steadily expanding sales. The Mitsui Chemicals Group currently operates three production bases at full capacity in Asia, including a production facility in China that commenced commercial operations in December 2013. The decision has also been made to expand existing facilities in Japan.

After acquiring Heraeus Kulzer, a Dental Materials business, in fiscal 2013, the Mitsui Chemicals Group completed rationalization measures aimed at securing a competitive advantage. In order to upgrade and expand its ability to provide solutions in the digital dental materials field, the Group acquired Italy-based EGS Srl, a company that provides digital tools, including 3D scanners and CAD software. Energies are now being channeled toward introducing new products that make the most of synergies with the Mitsui Chemicals Group. Every effort is being made to reinforce strategies with the goal of expanding the Dental Materials Business into a third pillar of the Healthcare domain.

In another step to Create New Customer Value through Innovation, the Mitsui Chemicals Group set up and launched the new healthcare brand, Whole You™ in the United States in November 2014. This initiative is designed to push forward a new business model and to provide products and solutions to the end consumer.

Drawing on its ability to create new functions that draw on the underlying strengths of its proprietary organic synthesis and polymer science technologies, the Mitsui Chemicals Group will work to reinforce its three core businesses and establish the Whole You™ brand as a new growth platform as a part of efforts to achieve its targets for around 2020.

The first series of products released in May 2015 A mouthpiece to alleviate the discomfort of obstructive sleep apnea syndrome (OSAS)

Progress in the Food & Packaging Strategy

Earnings in the Food & Packaging domain increased substantially in fiscal 2014 mainly on the back of contributions from the Agrochemicals business. The Mitsui Chemicals Group has made steady progress in recouping the growth-oriented investment undertaken during the period of the previous Mid-Term Business Plan.

In our Agrochemicals business, we placed considerable emphasis on developing our overseas operations. As a result, agrochemical sales climbed from 27% of overseas sales in fiscal 2013 to 35% in fiscal 2014. At the same time, progress in the development of five next-generation active ingredients is proceeding as planned. These new active ingredients will be successively released to the market from 2016 onward.

In the Packaging business, production of T.U.X™, a highly functional sealant, began in Thailand last year. A new facility in Singapore that will produce EVOLUE™, a key raw material in the manufacture of T.U.X™, is also scheduled to come online in the second half of fiscal 2015. By employing an integrated production system, the Mitsui Chemicals Group is making the most of its competitive strengths. At the same time, we will promote cross-organizational marketing in line with the Group’s wide variety of products in Asia where packaging demand is projected to increase.

The Food & Packaging domain comprises a wide range of business divisions as well as subsidiaries and affiliates that handle related products. In order to secure synergies across the Group as a whole, and to build a business model that is capable of creating customer value from a fresh perspective as a part of efforts to create new businesses, we set up the Food & Packaging Business Promotion Division in April 2015. Drawing on each of these initiatives, we will focus our energies toward achieving the targets set for around 2020.

Progress in the Basic Materials Strategy and Business Restructuring

Trends in the Petrochemicals business in Japan were generally firm throughout fiscal 2014. Despite booking an inventory valuation loss on raw material naphtha due mainly to the drop in oil prices during the second half of the fiscal year, the overall business performance was stable thanks to high operating rates at production facilities.

In the Bulk and Commodity Product businesses, which include Polyurethane Raw Materials as well as such Basic Chemicals as phenols and purified terephthalic acid (PTA), business conditions remained difficult. Due to favorable effects of activities that are being implemented, profits improved steadily.

Certain business restructuring measures were brought forward and implemented ahead of plan. Looking ahead, we will maintain a firm commitment to carrying out reform measures while looking for new ways to further strengthen our competitive edge.

Petrochemicals Business

The Mitsui Chemicals Group has been working to terminate commodity product facilities, strengthen activities related to high-value-added derivatives, and implement thoroughgoing rationalization measures since before the launch of the 2011 Mid-Term Business Plan. As a result, the Petrochemicals business is enjoying increasing structural stability.

In fiscal 2014, we also terminated operations at a commodity polyethylene facility and completed steps to withdraw from Keiyo Ethylene Co., Ltd., a naphtha cracker joint venture in March 2015. Taking the aforementioned into consideration, the Group’s naphtha cracker operating rates are projected to improve. Moreover, we have successfully reinforced our competitive strengths by improving the supply chain balance between naphtha cracker operations and our robust derivative products lineup.

Basic Chemicals and Polyurethane Raw Materials Businesses

Conditions for the Basic Chemicals and Polyurethane Raw Materials businesses remain difficult due to the new construction and expansion of facilities, mainly in China and Asia, which has led to an oversupply of products, as well as a prolonged slump in demand.

In our phenol operations, we terminated a facility in Japan in line with original plans. Through a joint venture with China Petroleum & Chemical Corp. (Sinopec), commercial operations commenced at a state-of-the-art facility in December 2014. This facility is distinguished by its cost competitiveness within the region. This initiative is designed to put in place an optimal global structure that focuses on local production geared toward local consumption.

All other measures are proceeding according to plan. In this regard, the Mitsui Chemicals Group is working to further enhance its competitive strengths.

In the Polyurethane Raw Materials business, we decided to bring forward the closure of the Kashima Works and shutdown of the MDI plant at the Omuta Works to May 2016.

As a new initiative, the Mitsui Chemicals Group established Mitsui Chemicals ™ SKC Polyurethanes Inc. (MCNS), a joint venture with South Korea-based SKC Co., Ltd. The joint venture is the largest comprehensive manufacturer of polyurethane materials in Asia and boasts bases in Europe, the United States, and Asia. To further increase customer value, every effort will be made to become a global leader that provides high-quality products and services.

Operations at MCNS commenced on July 1, 2015

Q3.What are your thoughts on corporate governance?

A3.The Mitsui Chemicals Group recognizes that reinforcing corporate governance is a key priority of management and essential to garnering the trust of stakeholders, including shareholders, customers, and local communities as well as to fulfilling its corporate social responsibility (CSR).

The Mitsui Chemicals Group has put in place a structure and systems that are capable of ensuring the efficacy of its corporate governance as a part of efforts to enhance its corporate value on a continuous and sustainable basis. The Board of Directors is well positioned to engage in the spirited exchange of opinions with outside directors and outside auditors. Both business and operating methods are applied in a manner conducive to efficient and proper decision-making.

Working to reinforce its capabilities even further, the Mitsui Chemicals Group is putting in place a basic policy with respect to the Group’s activities in response to steps by the Tokyo Stock Exchange to introduce a Corporate Governance Code.

Q4.Please tell us about your management policies for fiscal 2015, your forecasts for operating results, and stance toward performance targets around 2020.

A4.We will work diligently to achieve operating income of ¥52.0 billion in fiscal 2015. Rather than wait until 2020, we will bring forward various measures in an effort to secure operating income of ¥100.0 billion as quickly as possible. Focusing especially on the targeted business domains that drive growth, we will place the utmost importance on growth that is commensurate with increases in our top-line revenue.

Under its 2014 Mid-Term Business Plan, the Mitsui Chemicals Group is placing the utmost priority on well considered and stable operations. In targeting operating income of ¥60.0 billion or more, the Group as a whole is united in its efforts to recoup growth investments and to realize the benefits of restructuring its business.

In this regard, fiscal 2015 is an important year as new and expanded production facilities come online. It is absolutely vital that the increase in production capacity translates to a definitive increase in earnings. In addition, we will of course continue to emphasize the need to rationalize our basic materials business and reduce costs.

Looking toward 2020, the Mitsui Chemicals Group must nurture new businesses and products as well as sow the seeds of future growth.

To Create New Customer Value through Innovation, we will actively promote discussion across the organization as a whole as a part of efforts to take full advantage of the Group’s inherent strengths. At the same time, we will aggressively pursue open innovation.

In similar fashion to the manner in which we address economic concerns, we will work to overcome a variety of issues from each of the environmental and social perspectives across the entire supply chain. By engaging in management that optimally balances economic, environmental, and social considerations, we will strive to generate increased corporate value.

Net Sales. Operating Income. (June 2015)
Message from the CFO