Setting medium-term targets by backcasting from Vision 2030

By backcasting from 2030, in our new Medium-term Business Plan we have set both financial and non-financial targets to be undertaken by the organization acting as one. To achieve sustainable growth, our Group will build a structure that performs conversion to a profit standard aimed at further strengthening our financial foundation and enhancing profitability. This means developing high added-value products in niche markets and solidly securing profit, rather than pursuing business scale. Under our new Medium-term Business Plan, I want to communicate this inside and outside the Company. For example, if we produce 100 tons of plastic and pay a carbon tax but fail to turn a profit, all we are doing is emitting CO₂. To avoid falling into that sort of business, we aspire to profitability-oriented management even if small in scale. We will concentrate our resources on product groups that offer high added value and will work unwaveringly toward attaining Vision 2030.
As non-financial targets, we have also set out “Material Issues” that will affect our future finances in terms of sustainability. The nature of society and the nature of our Group are always changing. As the material issues that we have addressed to date were set in 2015, it was natural that we took the formation of our new Medium-term Business Plan as an opportunity to reconsider those issues. To arrive at that goal, we held numerous discussions with the Sustainability Promotion Committee, Outside Directors, and relevant persons from various departments. Based on that process, we set 12 material issues including “Creation of Environmental and Social Values,” “Value creation accelerators,” and “Foundations for business continuity.”
I believe that contributing to the realization of a sustainable society through high-quality products and services with both financial and non-financial targets in mind is a shortcut to our becoming “a company that makes your dreams for the future a reality.”

Positive results despite the difficult business environment
- A look back at the previous Medium-term Business Plan -

Our previous Medium-term Business Plan began in fiscal 2021 amid the COVID-19 pandemic and ongoing business environment of geopolitical risks and other unpredictable factors. Despite this, in the plan's first year of fiscal 2021, stay-at-home demand under the pandemic helped us achieve the targets of 250 billion yen in sales revenue and 25 billion yen in business profit originally planned for fiscal 2023. Accordingly, we raised our fiscal 2023 target to 300 billion yen in sales revenue and 30 billion yen in business profit. Inflation and depreciation of the yen exerted significant effects on our business in fiscal 2023. In particular, inflation in Europe and North America spurred increases in labor costs and became a factor in slowing the recovery of automotive- and construction- related demand following the COVID-19 pandemic. At the same time, the depreciation of the yen boosted the profit earned by our Group overseas but also increased energy costs in Japan. The increases in raw materials costs continuing from 2021 eased slightly in fiscal 2023, further contributing to profit.
Looking at individual business segments, private-sector recovery in semiconductor materials was delayed, but our three strategic in-vehicle products remained strong. In China, domestic demand for smartphones and other products recovered. High-performance plastics faced greater difficulties than expected. Second quarter demand declined due to consumer applications inventory adjustment, but subsequently recovered after the adjustment had run its course. The aircraft interior components business achieved profitability as aircraft demand recovered from the COVID-19 pandemic. In quality of life products, the pharmaceutical packaging film and sheets business has remained robust. In industrial functional materials, sales of high-value-added products increased. This included increased sales of optical products for sunglasses and head-up display applications, as well as of insulating film for inverters and other applications. In the water proofing business, sales of solar anchors increased under increased demand for solar panels. In healthcare-related products, export sales of blood bags and blood collection kits were robust and remain promising.

Achievement of record sales revenue, business profit, and earnings in fiscal 2023

Despite a variety of external factors, performance was strong overall amid sales expansion in mobility materials, gradual recovery of aircraft demand and achievement of profitability, and, in healthcare, the expansion of the medical equipment business through the launch of SB-Kawasumi. We ended fiscal 2023, the final year of the previous Medium-term Business Plan, with record sales revenue, business profit, and earnings. While we did not reach our upwardly revised target of 30 billion yen in business profit, the 27.5 billion yen achieved marks a record high. I view this achievement as the outcome of employees and all concerned parties working as one to address customers through cross-functional marketing activities. In the area of labor costs, we raised base wages again in fiscal 2023 as in fiscal 2022, with the intent of returning some degree of profit to employees. I believe that my mission as president in the current fiscal year is to enhance profitability and to return profit earned through our businesses to our employees and many other stakeholders.

Determining our 12 material issues and fulfilling our mission to the environment and society

Under our new Medium-term Business Plan, we will advance management with a view toward our Vision 2030: We aim to be “a company providing dreams for the future” through creating value with our customers. To achieve this, we have set out 12 material issues.
The first of these is “Creation of Environmental and Social Values.” In terms of environmental value, we continue to view reducing greenhouse gas (GHG) emissions as a challenge. During the period of our previous Medium-term Business Plan, we achieved our CO₂ reduction target (46% reduction compared to fiscal 2013) significantly ahead of plan by undertaking measures at all of our plants and offices in Japan including installation of solar panels and conversion to electricity derived from renewable energy sources. In our new Medium-term Business Plan, under the 1.5°C target of the Paris Agreement we will continue working toward a higher target of a 48% reduction compared to fiscal 2021 in fiscal 2030.
In terms of social value, we have identified the expansion of SDG-contributing products as a material issues. Our Group has decided “6+1 targets” in the SDGs targets, toward which we can make particular contributions through our platform technologies and business areas. We are creating numerous products that make contributions, including lignin-modified phenolic resins made from non-edible plants instead of petroleum and minimally invasive medical equipment such as anti-reflux stents that ease burdens on patients and doctors. During the period of our previous Medium-term Business Plan, we achieved our target for ratio of sales revenue from SDG-contributing product ahead of schedule. From here on out, we will actively work toward our target of a 70% or higher ratio in fiscal 2030. It is important that we develop new products and applications with a strong awareness of what sort of social value we can provide. Customers buy our products because the products have some value. I tell employees every day to find value in the work they do as they actively tackle it.
Under “Value creation accelerators,” we set co-creation with customers, innovation, human capital, and digital transformation as material issues. The promotion of digital transformation will be vital in increasing productivity. We will continue undertaking initiatives including manufacturing that leverages AI, IoT, and robotics, promotion of research and development using materials informatics (MI), and work transformation through tools such as RPA. Under “Foundations for business continuity,” we will emphasize health and safety, cybersecurity, product liability, respect for human rights, compliance, sustainable procurement, and corporate governance. These elements may seem like givens today, but it is crucial that we have the ability to achieve these goals as a matter of course.

Advance market development through top share in niche markets, and solidify our footing for the future

An element that we want to emphasize in our Medium-term Policy is one we have long communicated, “Top share in niche markets.” Based on this, we will tackle portfolio reform that leads to value creation. As this is not a goal we can achieve in a single leap, we plan to solidly lay the necessary foundation for portfolio reform during the period of the new Medium-term Business Plan and undergo visible transformation over the next three years. To rigorously advance this policy, we have set out the following three medium-term strategies.

(1) Optimize product composition and strengthen the profitability of existing businesses

Based on markets that are set to expand and on business suitability, we will concentrate resources on ICT, mobility, and healthcare as priority areas. At the same time, low-profitability products exist in every segment. We will review the value of these products and examine ways to enhance profitability, including whether to continue the products. In high-performance plastics in particular, we will make strategic efforts that include investments focused on enhancing productivity, with the aim of achieving a 10% profit margin under the next Medium-term Business Plan. We will also make increased use of SB-ROIC, our in-house metric customized from ROIC indicators, while emphasizing capital efficiency.

(2) Create new products and new solutions offering environmental and social values in line with the SDGs

These are key points in boosting profit margin and achieving growth. Increasing profit will require that we engage in rationalization and sales expansion for existing products, as well as generate new products and new solutions. In doing so, we want to invest resources in products and solutions that offer high environmental and social value as well as value to our Group. We will launch temporary project teams of motivated employees and advance efforts to support such endeavors throughout the Company. In heat dissipation materials, optical circuit materials, and other materials, we have completed reviews of the materials in projects and elevated these to the business development department, and are now actively developing new products with high added value. We will accelerate activities for the creation of solutions that solve environmental and social issues in a short time frame.

(3) Enhance individual autonomy and organizational unity, and maximize Company-wide capabilities

For five years, I have repeatedly communicated to employees the importance of human ability enhancement, and I now feel that the concept has sufficiently taken root. From here on out, I will aim to enhance a sense of unity and enhance Company-wide capabilities. Cross-functional activities are what foster a sense of organizational unity within our Group. We will further advance our One Sumibe Activities by which we promote the invigoration of cross- organizational human exchanges and provide new value to our customers. One Sumibe Activities are activities that go beyond the boundaries of business segments to provide customers with solutions. Every year, we select a number of important customers to engage in focused activity. The larger the company, the greater the hidden needs outside of the fields in which business already exists. In response, our business lines unite to form teams that act autonomously to connect understanding of customers' needs to the provision of new value.

Creating new products through challenge and transforming our portfolio

Portfolio transformation, a Medium-term strategy with multiple goals, is essential for sustainable growth. Without the three elements of new products, new applications, and new customers, a company will not grow. Our new Medium-term Business Plan covers a period of three years over which we will steer a course toward high-value-added products aimed at product portfolio transformation. Crucial elements in this are new products and the promotion of research and development that contributes to those products.
For new products, I think it is first essential that we foster a corporate culture of recognizing those who take on challenges. Our Company has strengths in plastic material technologies, but continually generating groundbreaking new products is not easy. The creation of innovation demands human resources development and an environment that allows unceasing endeavors. Through a variety of measures, we will create an environment for generating numerous ideas from a bottom-up approach. I expect that through the involvement of leaders who are not afraid of failure, we will see the birth of new products that surprise and impress the world.
As it has become more difficult in recent years for companies to develop new products on their own, we are strengthening our collaborative relationships with parties outside the Company. Particularly in the fields of semiconductors and medical equipment, we are working to quickly build a development structure with partners including materials manufacturers, equipment manufacturers, universities, and academic research institutes in Japan and overseas. Our Group has open laboratories at our sites in Japan and elsewhere in Asia, in Europe, and in the United States, as locations where we can examine processes together with visiting customers. Co-creation in the field also forms a bridge to the creation of new products.
Our Group makes platform technologies a strength. I myself come from a research background, so I attach importance to new product development. We will explore research topics under a long-term view of potential for growth and environmental consideration, and will persistently undertake research and development.