President's Message
Management Policy: Be a company that secures its own sustainability and plays a vital role in society
As expressed in its corporate philosophy, “Contribute to bettering society through the chemistry of innovation,” the Tosoh Group aims to enhance its corporate value through the development of businesses that contribute to the resolution of various social issues and continue to be a company that is trusted by all stakeholders as an important member of society.
I believe that the establishment of a solid management foundation is essential to achieving our aim. No matter how much we may wish to contribute to the realization of a sustainable society, if our own management foundation is unstable, we cannot expect the stable development of our business. As a result, we will not be able to gain the trust of our stakeholders, such as customers, shareholders, and employees. In this regard, I am convinced that the first and most important mission of a company's management is to strengthen its own sustainability by securing solid profitability.
The chemical industry is a sector that requires large-scale capital investment in facilities and equipment. At the same time, earnings are easily influenced by raw material prices and the supply and demand for products. To achieve sustainable growth in light of these business factors, the Group has positioned Commodities (Petrochemical and Chlor-alkali products), for which demand is stable, and Specialties (Specialty products), which feature high added value, as the two principal axes of its business. Dual management under which we strengthen the company in a balanced manner is the basis of our growth strategy. We are steadily transitioning to a business structure that is less susceptible to changes in the business environment by continuing our dual management approach of generating new growth drivers through continuous investment in development in specialty fields while securing cash flow and profits, the foundation of our Commodity business.
Fiscal Year 2021 Review: Maintaining a sound financial position Despite
Challenging conditions
In fiscal year 2021 (ended March 31, 2021), the spread of the COVID-19 pandemic, which has continued since the end of fiscal year 2020, has severely restricted social and economic activities in many countries, resulting in a rapid decline in demand. While there has been a gradual recovery in economic activities mainly in developed countries due to progress in vaccination in the second half of this fiscal year, the economic outlook remains uncertain.
Under these circumstances, the Tosoh Group has worked to stabilize and expand earnings through dual management of Commodity and Specialty businesses in the second year of its three-year medium-term business plan. Sales growth, however, remained sluggish in the Commodity business. This was attributable to shrinking demand caused by the effects of the COVID-19 pandemic and softening product prices resulting from the decline in the prices of naphtha and other raw materials and fuels. In our Specialty business, shipments decreased in two pillars of business which are diagnostic products and high-silica zeolite, the latter which is mainly for use in automobile exhaust cleaning catalysts. These conditions resulted in net sales for fiscal 2021 decreasing by ¥53.2 billion from the previous fiscal year to ¥732.9 billion (down 6.8% from fiscal year 2020).
Regarding profits, lower raw material prices enabled us to control variable costs, while overseas market prices of major products in the Chlor-alkali business increased in the second half of the fiscal year. As a result, operating income increased by 7.5% to ¥87.8 billion, ordinary income by 10.7% to ¥95.1 billion, and net income attributable to owners of the parent company by 13.9% to ¥63.3 billion. The operating income ratio improved to 12.0%, up from 10.4% in the previous fiscal year. And although we did take out loans in fiscal 2021 to prepare for unforeseeable circumstances related to the COVID-19 pandemic, we believe that we have maintained a sound financial position.
Prospects for Fiscal Year 2022: Responding quickly and flexibly to the changing business environment
Fiscal year 2022 (ending March 31, 2022) will be the final year of our medium-term business plan. With the progress of vaccination, the COVID-19 pandemic in many countries appears to be easing to an extent. The economic outlook remains uncertain, however, due to escalating tension between the United States and China, and turmoil in overheated financial markets.
Regarding the business environment surrounding the Group, we must continue to pay attention to raw material and fuel prices and overseas market conditions. These are influenced by various factors, including the status of the COVID-19 pandemic and the global political situation, as well as trends in foreign exchange rates and the status of the global supply chain disrupted by the pandemic. The basic policies we announced during the formulation of the medium-term business plan and the policies regarding investment, research and development (R&D), finance, and shareholder returns will remain essentially unchanged. We intend to implement various measures in line with the policies outlined in our medium-term business plan while monitoring the business environment as noted earlier.
For fiscal year 2022, we forecast net sales of ¥820 billion, operating income of ¥106 billion, ordinary income of ¥109 billion, and net income attributable to owners of the parent company of ¥71 billion. Although sales and profits will increase compared to fiscal 2021, we will still be short of the numerical targets of ¥890 billion in net sales and ¥110 billion in operating income set in the medium-term business plan. However, with renewed determination, we will continue striving to secure profits through the remainder of the term covered by the plan by responding quickly and flexibly to challenges in the business environment.
Financial results and medium-term business plan targets for FY2022
| |
FY2020 (Actual) |
FY2021 (Actual) |
FY2022 (Forecast)
Announced on August 3, 2021
|
FY2022 (Medium-term targets) |
| Net sales (billions of yen) |
786.1 |
732.9 |
820.0 |
890.0 |
| Operating income |
81.7 |
87.8 |
106.0 |
110.0 |
| Operating income ratio (%) |
10.4 |
12.0 |
12.9 |
10 or more |
| Return on equity (ROE) (%) |
10.0 |
10.7 |
|
10 or more |
Medium- to long-term vision and strategy: Promoting the creation of products for a sustainable society
We believe that the SDGs adopted by the UN will be an important guideline for companies as they strive for sustainable growth. Since long before the concept of SDGs was announced, the Tosoh Group has been developing its business with the aim of manufacturing products that are useful to society. The extensive range of products from the Tosoh Group is used in a variety of end products that contribute to people's lives, including social infrastructure and durable consumer goods. In this respect, we are proud that our business activities help promote the realization of a sustainable society.
From a medium- to long-term standpoint, however, we recognize that the demands of society change with the times. To best respond to these demands, we must continue to evolve and create value that is in accordance with the needs of society. With this in mind, the Group has designated Life Science, Environment and Energy, and Electronic Materials as the three priority fields to be fostered, and aims to create new, high value-added products that will drive the next stage of growth.
In each of the three fields, while incorporating SDGs into our R&D themes, we are actively utilizing digital technologies such as AI and materials informatics (MI) to streamline our R&D processes. Furthermore, we are actively engaged in joint industry-academia research with universities and in open collaboration with external research institutions.
In fiscal 2021, these efforts led to the launch of reagents that can detect SARS-CoV-2 and antibodies using specialized equipment developed by Tosoh Group. In addition, we made progress in the development of technologies for the disassembly and reuse of multilayer films. We will continue to expand our open collaboration with outside parties and accelerate the development of next-generation products and new technologies that will contribute to the achievement of the SDGs.
Prioritizing safety to strengthen management foundation
For a company to achieve sustainable growth, it must promote growth strategies and R&D in each of its businesses. In parallel with this, it must strengthen the foundations that underpin its business activities, such as safety, quality, human resource development, and finance. In particular, we at Tosoh recognize that safe plant operation is the greatest social responsibility required of a chemical manufacturer.
Based on the underlying premise that safety takes precedence over everything else, the Tosoh Group has continuously invested in renovation and undertaken preventive maintenance over the past several years. These efforts have led to a steady decline in the number of abnormalities caused by manufacturing processes.
For companies in the manufacturing industry, the pursuit of safety is an endless challenge. At Tosoh, we will continue to proactively utilize advanced technologies, such as AI and Internet of Things (IoT)-based driver assistance systems, to prevent problems before they occur. As a company striving to become the safest chemical manufacturer in the world, we aim to be a company that is trusted by everyone in the local community.
Addressing the reduction of carbon dioxide, the most important environmental issue
In strengthening our management base, we need to focus on nonfinancial activities such as ESG. As a chemical manufacturer, the Tosoh Group places particular emphasis on the environment. At the same time, we recognize that controlling and mitigating the environmental impact of its own business activities is an important responsibility of a company, and as such we have made continuous efforts related to pollution control, waste reduction, and energy conservation over the past several decades.
Carbon dioxide (CO2) reduction is currently the most important environmental issue facing the Tosoh Group. Amidst worsening climate change, "decarbonization" is becoming a global buzzword. The Japanese government issued a carbon neutral declaration in 2020. In this context, chemical manufacturers are required to make more thorough efforts to reduce CO2 emissions than ever before. In November 2019, we announced our endorsement of the recommendations of the Task Force on Climate-Related Financial Disclosure (TCFD), and are now working to develop technologies to reduce CO2 generated in our business activities while conducting analyses and assessments in line with the framework. One of our major aims is the reduction of CO2 emissions from in-house thermal power generation.
The Tosoh Group has thermal power generation facilities at its Nanyo and Yokkaichi Complexes to meet the considerable demand for electric power in the manufacture of chemical products. While these thermal in-house power generation facilities are a source of competitiveness in terms of production, they emit CO2 while they operate, hence the management of these emissions is a major concern. We have already established a CO2 Reduction and Effective Use Promotion Committee within the company, and this year we set up a CO2 Reduction and Effective Use Strategy team with full-time staff. In addition to saving energy in the production process and fuel conversion to liquefied natural gas, we are also laying down guidelines and specific goals to effectively utilize CO2 emitted in our operations by separating and recovering it in-house.
I believe that we have a tough road ahead to achieve our goals. But if we can develop technology that enables the effective utilization of CO2 emissions from coal-fired power generation, it will be a groundbreaking innovation that will attract the attention of the whole world. We believe that this is the best way for us to demonstrate our true prowess as a specialist in chemistry, which is unmatched by others in the industry. At the same time, we will continue to take on the challenge of creating innovation by pooling the collective wisdom and technologies that the Tosoh Group has cultivated.
Maintaining focus on society and corporate governance
We are developing a wide range of social initiatives, including respect for human rights, human resource development, promotion of diversity, and creating comfortable workplaces. The Group supports the aims of the United Nations (UN) Universal Declaration of Human Rights, the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work, and the UN Guiding Principles on Business and Human Rights. In April 2019, we became a signatory to the UN Global Compact and are presently promoting activities based on the Compact’s 10 principles in the four areas of human rights, labor, environment, and anti-corruption.
The Tosoh Group is also focusing on securing and developing human resources that will support sustainable growth. We are working to foster a work environment where all employees can fully develop their abilities and attain growth while maintaining high levels of motivation. In addition, we are in the process of reforming the way we work in order to improve work-life balance and productivity. Although there are still many issues to be addressed, we are gradually gaining recognition from outside the company. In fiscal 2021, we were recognized by the Ministry of Economy, Trade and Industry as a Certified Health & Productivity Management Outstanding Organization in the large enterprise category.
Following the establishment of the Nomination and Compensation Advisory Committee in 2019, in 2020 we increased the number of external directors from two to four, including one female director. The purpose of the increase was to ensure transparency in management and to enable the board of directors to exercise more timely and appropriate checking and monitoring. As a result, the proportion of external directors on the board of directors has risen to 44%. In addition, the Audit and Supervisory Board appointed three external auditors in 2021, one of whom will be a full-time auditor, to further strengthen the supervisory function over the directors in the execution of their duties.
With regard to compliance, we aim to be a sound corporate group that earns the trust of society by not only complying with laws and regulations in all countries where we carry out business, but also by thoroughly operating internal control systems, establishing a compliance consultation service, and strengthening and expanding compliance education.
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 freedom of association and 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 dissemination of environment-friendly technologies.
Anti-corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.
To our stakeholders: Enhancing corporate value guided by the “Tosoh Spirit”
As I mentioned earlier, I believe that a company cannot contribute to the sustainability of society unless it first ensures its own sustainability.
When the bubble economy in Japan collapsed about 30 years ago, our company fell into a very difficult situation. We were forced to carry out large-scale restructuring that entailed a great deal of pain, and to withdraw from many of the business areas we had planned to enter. We managed to emerge from these trying circumstances by sowing the seeds for a new business pillar in the field of Specialty products, making them sprout, and nurturing them over decades. Today, our Specialty products account for about 50% of our operating income.
In the process, we faced a host of challenges, including the 2008 financial crisis, but the Group's planned reconfiguration of its business portfolio was successfully carried out. Over the past few years, our financial base has finally stabilized, allowing us to make large-scale growth investments.
As the COVID-19 pandemic has shown, unpredictable crises may occur in the future. The five tenets of the Tosoh Spirit are our guiding principles for overcoming such crises as a team and developing our own sustainable future. I hope that future generations will carry on from the lessons I have learned from my experience during harsh times while bearing in mind the importance of maintaining a constant sense of purpose in the face of crisis and the passion to keep on challenging oneself without ever losing hope.
All of us at the Tosoh Group will continue to work together to enhance our corporate value, with all our executives and employees maintaining both a sense of urgency and a sense of ownership. I would like to ask for the continued invaluable understanding and support of all our stakeholders.
Toshinori Yamamoto
President