A Message from the President

A Message from the President

In February 2019, we celebrated DIC’s 111th anniversary. In addition to commanding the top share of the global market for printing inks, a core business since our establishment, we have succeeded in growing pigments and polymers, both derived from printing inks, into prosperous components. Today, we provide indispensable products and services to customers in a broad range of industries, including packaging, housing, automotive, cosmetics, electronics and healthcare.
The DIC Group comprises 174 companies in 64 countries and territories. Approximately 60% of our consolidated net sales are generated by, and over 70% of our more than 20,000 Group employees are located at, bases outside of Japan. Accordingly, a global perspective is crucial to any discussion of the Group.
In recent years, the rapid spread of advanced digital technologies, as represented by the increasing importance of artificial intelligence (AI) and the Internet of Things (IoT), have brought dramatic changes to lifestyles and society, as well as to the business environment. At the same time, social imperatives related to concerns such as climate change, food safety and marine plastics have become increasingly urgent. Amid such significant changes, how do materials manufacturers contribute to society going forward? Since taking the reins as CEO, I have seen this as my principal mission. Ensuring an accurate grasp of global, dynamic paradigm shifts is essential to our ability to achieve sustainable growth and also to enhance our intrinsic value. This recognition underpinned the formulation of our new medium-term management plan, DIC111, which kicked off in fiscal year 2019. Under this plan, we will work to strengthen our business, financial and human resources strategies while taking steps to improve management efficiency and strength.

A Look Back at DIC108 (Fiscal Years 2016–2018)

Our previous medium-term management plan, DIC108, was positioned as the first phase in a growth scenario developed to guide the DIC Group’s evolution through to fiscal year 2024. The plan centered on two core policies: Ensure the sustainability of businesses with stable earnings bases—e.g., printing inks, pigments and polymers—by responding to environmental concerns, promoting rationalization and making strategic investments, and create business models that address social imperatives in such areas as electronics, packaging, healthcare and decarbonization. In line with these policies, we focused on strengthening our technology development capabilities and business expansion efforts, as well as our financial base. As a consequence, both businesses with stable earnings bases and growth businesses reported steady results over the three years of the plan, underpinning record-high income in fiscal years 2016 and 2017. However, in fiscal year 2018 consolidated operating income declined 14.3%, to ¥48.4 billion, despite a 2.0% increase in consolidated net sales, to ¥805.5 billion. The principal factors behind this are the fact that efforts to revise product prices failed to keep pace with rising raw materials prices and the depreciation of currencies in European emerging economies. Consolidated ordinary income decreased 14.5%, to ¥48.7 billion, and consolidated net income attributable to owners of the parent fell 17.0%, to ¥32.0 billion. Nonetheless, we declared a full-term dividend of ¥125 per share, an increase of ¥5.0 from fiscal year 2017, as a consequence of which our dividend payout ratio exceeded 30.0% in the final year of DIC108.
As demonstrated by our performance in fiscal year 2018, our profitability relies heavily on existing core businesses, meaning that our business structure is vulnerable to macroenvironmental conditions, including rising prices for raw materials. This underscored our recognition of the urgency of transforming our business portfolio so that it’s able to withstand demand declines in mature markets and repositioning DIC on a growth trajectory by creating new businesses with the potential to become mainstays. It also clarified what we need to do as we move toward this new growth trajectory.
In fiscal year 2019, risks arising from economic trends in the People’s Republic of China (PRC) and worldwide—a consequence of trade friction between the PRC and the United States—and from financial market fluctuations attributable to the United Kingdom’s withdrawal from the European Union continue to warrant caution. Nonetheless, we will continue working to revamp our business structure, reinforcing its ability to withstand macroenvironmental changes and drive continuous, robust growth while at the same time applying our inherent talent for resolving issues to our efforts to implement the strategies of DIC111. Our forecasts for the period include consolidated net sales of ¥850.0 billion and consolidated operating income of ¥52.0 billion, up 5.5% and 7.5%, respectively, from fiscal year 2018.

Consolidated operating income reached record highs in two consecutive years (fiscal years 2016 and 2017), but was significantly below our original target in fiscal year 2018, owing to rising raw materials prices.

【Achievements】

  • Reorganized production system in line with demand trends in mature markets (publication inks and polymers)
  • Growth in functional pigments business exceeded target
  • Strengthened foundation of electronics business through capital and business alliance with Taiyo Holdings Co., Ltd.
  • Realized continuous growth in net sales and record-high income (fiscal year 2017)
  • Dividend payout ratio exceeded target, thanks to efforts to maintain/improve financial balance

【Challenges】

  • Reform business structure to offset further demand declines in mature markets (publication inks and general processed products)
  • Establish robust business foundation that is impervious to fluctuations in raw materials prices, taking into account the decline in profitability in fiscal year 2018, a consequence of rising raw materials prices
  • Create new mainstay businesses to compensate for shrinking demand for publication inks to reposition DIC on a growth trajectory
  • Steadily implement strategic investments

Promoting business portfolio transformation and an improved management infrastructure with the aim of achieving consolidated net sales of ¥1.0 trillion in fiscal year 2025

Realigning Businesses by Illuminating the Relationship Between Social Value and Economic Value

As a first step in formulating DIC111, we reconfirmed our vision for the DIC Group in the future.

Become a unique global company that is trusted by society by providing value (safety and peace of mind, color and comfort)

To ensure that we realize this vision, we established the Intrinsic Value Working Group, comprising mid-tier and young employees, through which we promoted extensive debate and discussion aimed at better defining the value that DIC provides to society, identifying the challenges we must address and determining how best we can contribute to further sustainability through our operations. This process led us to review existing businesses from the twin perspectives of “social value” and “economic value” and to advance business portfolio transformation in a manner that addresses key imperatives arising from social changes such as the spread of digitization and environment, safety and health (ESH)-related issues, including those affecting the global environment and food supplies.
Leveraging our position as a manufacturer of fine chemicals, we have sought consistently to provide functionality and added value to society in a multitude of forms, thereby helping make people’s lives more convenient. We have also always maintained an awareness of the negative aspects of our operations, including the impact of our production activities on the environment. Going forward, we will further advance this approach with the goal of becoming an organization capable of delivering increased functionality and other features that improve convenience and of providing social value, one facet of which is environmental value. We will bolster efforts to help address ESHrelated issues—including climate change, sustainable resource use and human health—through our operations to provide enhanced value that contributes to a richer, more vibrant society. Combining economic value with social value will enable us to realize sustainable growth for the DIC Group. A natural extension of this approach is the milestone performance targets we have set for fiscal year 2025, namely, consolidated net sales of ¥1.0 trillion, operating income of ¥100 billion and net assets of ¥500 billion. Recognizing the achievement of these targets as critical to becoming a unique global company that is trusted by society, over the three years of DIC111 we will emphasize advancing qualitative reforms in existing businesses and commercializing new businesses, and on accelerating disruptive growth through strategic mergers and acquisitions (M&As).

Reposition DIC on a growth trajectory through business portfolio transformation

01Reorganization of business segments

Effective from fiscal year 2019, we have reorganized our five existing business segments, shifting our focus to value provided, into three new segments: Packaging & Graphic, Color & Display and Functional Products. As a company that provides complex products to customers in a broad range of industries, we often hear from investors that they find it difficult to understand our corporate direction. In that sense, I believe that it’s important for us to have a business structure and message that are simple and easy for external stakeholders to understand and at the same time to ensure that all employees are on the same wavelength as we work together to confront challenges ahead.

Packaging & Graphic

To date, we have pursued independent strategies for printing inks, coextruded multilayer films and adhesives. Grouping these businesses together under the heading “packaging” will bring together common issues such as food safety and food loss. Looking ahead, we will capitalize on our ability to provide printing inks, films and adhesives to marshal technologies and know-how to offer packaging materials that bring safety and peace of mind and promote the expansion of our business while at the same time helping resolve social imperatives.

Color & Display

This segment focuses on pigments, liquid crystals (LCs) and natural colorants as businesses that make life more colorful. In the area of pigments, we see products for cosmetics as particularly promising. We also expect growth in the market for Linablue®, a natural blue food coloring derived from Spirulina, owing to increasing concerns worldwide regarding food safety. In the highly profitable area of LCs, we are promoting the joint development of inks for inkjet-printed quantum dot color filters (QDCFs) that use inkjet technology as next-generation display materials.

Functional Products

This segment centers on polymers and compounds. Guided by the concept of functional products that add comfort, we will leverage our specialized composite technologies to enhance our competitiveness in a variety of areas, including coatings and molded products, with the goal of adding comfort. This segment also includes products such as hollow-fiber membrane modules, which allow gases but not liquids to permeate.

We have also identified four priority areas for developing new businesses—Electronics, Automotive, Next-Generation Packaging and Healthcare—and have established the New Business Development Headquarters to oversee related efforts. The New Business Development Headquarters integrates three key functions—our R&D team, which encompasses medium- to long-term development; the Product Innovation Center, which is charged with bringing together core technologies; and our marketing team, which is responsible for enhancing popularity and market penetration—to seamlessly oversee all stages of new business development.

02Value Transformation: Strengthening our corporate structure through qualitative reforms of businesses

Having defined “qualitative reforms” as clarifying competitive advantages and shifting to products capable of withstanding macroenvironmental changes, we will encourage a shift to businesses with more of a focus on social value and sustainability. In the Packaging & Graphic segment, we will concentrate resources on packaging solutions and specialty inks. In the Color & Display segment, efforts will center on high-performance products, notably functional pigments, and naturally derived products. In the Functional Products segment, we will emphasize environment-friendly products and high-value-added products such as epoxy resins. Shifting to businesses with more of an emphasis on social value will also entail a review of general-purpose products and a bold revamping of business models, including those for core businesses. In some cases, this may necessitate moving resolutely to replace certain businesses. Accordingly, we established Groupwide criteria for withdrawing from a business, which calls for a three-pronged evaluation of any business from three perspectives, namely, growth potential, profitability and scale, and consideration for market standing when plotting exit strategies. The Board of Directors and senior management will have the final say, but establishing criteria will enable us to accelerate the decision-making process, which will in turn strengthen the entire Group.

03New Pillar Creation: Creating new businesses in response to ESH-related issues and social changes

The New Business Development Headquarters has identified four priority areas for developing new businesses: Electronics, Automotive, Next-Generation Packaging and Healthcare. In Electronics, we will seek to apply our ink dispersion technologies in such areas as flexible printed circuit boards (PCBs) and next-generation displays to develop functional materials that contribute to a digital society. Under the Automotive banner, we will foster businesses that make use of our composite technologies, including those used to produce carbon fiberreinforced plastic (CFRP), which helps reduce vehicle weight, thereby improving fuel efficiency. In Next-Generation Packaging, we will work to develop packaging materials that help address issues such as food safety and food loss. Recognizing the elimination of marine plastics, a result of inappropriately discarded used plastic products, as a critical challenge, we have also established a project team to promote a switch to viable alternatives and develop biodegradable materials. Our focus in Healthcare will be on developing products that leverage biotechnological processes accumulated in the cultivation of algae and contribute to health and longevity. We will also make strategic investments to expedite our entry into new markets. This will include investing in startups in related fields and seeking advantageous M&A opportunities.

04A financial strategy centered on cash flow management

DIC111 places top priority on optimizing cash flow management by working continuously to strengthen our financial health and investing in portfolio transformation. The plan budgets ¥250.0 billion for strategic investments aimed at accelerating growth. Through such investments, we will endeavor to maintain stable, appropriate dividends while at the same time ensuring sufficient risk management capabilities. We are confident that this will enable us to attain the ¥70.0 billion target we have set for consolidated operating income in fiscal year 2021, the final year of DIC111. We have adopted return on invested capital (ROIC) as an indicator of investment efficiency and earnings before interest, taxes, depreciation and amortization (EBIDTA)*, used globally as a measure of a company’s profitability.

  • Differences in interest rates and methods for calculating taxes and depreciation make it impossible to directly compare the profitability of companies in different countries and territories using simple income figures. Because it minimizes these differences, EBITDA is widely used around the world to assess the relative profitability of companies.

Ensuring the DIC Group is loved and respected worldwide by maintaining effective ESG and human resources management

Strengthening Our Management Foundation

Against a backdrop of rapid social change, promoting qualitative reforms in businesses and strengthening our management foundation will be crucial to our ability to respond appropriately and achieve sustainable growth. To this end, we will promote ambitious initiatives in line with three key themes.

01Using digital transformation to reengineer business processes

We are taking active steps to advance digitization, which we acknowledge will dramatically change our business processes. In production, we are using digital technologies to further automation and enhance the visibility of various data with the goal of improving quality and efficiency. In R&D, we are reengineering business processes by utilizing materials informatics (MI), which involves applying material properties databases and AI to materials science.
Guided by DIC111, we launched a project that employs two main approaches to this challenge. The first is using backcasting to formulate future predictions that take into account advances in IT and other external changes. The second involves exploring how to elevate current themes and what sort of future we can create by doing so. Such initiatives will focus on, among others, advancing factory automation, discovering new chemical materials and creating new business models.

02Human resources management

The success of our efforts to develop new business models is linked inextricably to our ability to bring together the expertise and energy of diverse human resources. To this end, we inaugurated WING, a program with four core themes that seeks to rally our diverse human resources to enhance our responsiveness to social change and drive diversity management, through which we will transform DIC’s fundamental identity. Of paramount importance is to reform work styles to capitalize on individual talents, particularly by shifting the focus of evaluation from quantity to quality. At the same time, we will establish a new global human resources system and a system for selecting our next management team to help us uncover new core human resources from among the more than 20,000 DIC Group employees in 64 countries and territories, as well as to ensure that we have the right people in the right places. To facilitate the efficient execution of these initiatives, in fiscal year 2019 we established the Human Resources Strategy Department.

03Promoting ESG management, including the setting of numerical targets

Recent years have reconfirmed our awareness of the fact that addressing environmental, social and governance (ESG)-related issues is crucial to realizing sustainable growth and that this is what ultimately determines corporate value over the long term. In fiscal year 2018, we established the ESG Unit to facilitate a more systematic approach to related initiatives. Group companies continue to work as one to promote a variety of efforts worldwide and have set a number of specific numerical targets.
In the area of environmental issues, we aim to reduce carbon dioxide (CO2) emissions across global DIC Group sites by 30% from the fiscal year 2013 level by fiscal year 2030. To this end, we encourage sites to introduce or switch entirely to energy from renewable sources, including solar power and biomass. In May 2019, we declared our support for the Task Force on Climaterelated Financial Disclosures (TCFD), pledging to disclose climate-related information in line with TCFD recommendations going forward. We also remain committed to effective stewardship of the products we provide and have stepped up efforts to develop products such as inks made with bio-derived materials and highly recyclable polystyrene. As an outgrowth of this, we introduced a proprietary sustainability index that evaluates businesses based on environmental impact and contribution to the aforementioned targets, underscoring our commitment to developing products and solutions that benefit both customers and markets. We have aligned this index to the United Nations’ Sustainable Development Goals (SDGs).

Promoting ESG management, including the setting of numerical targets

Under the “social” heading, we also remain committed to furthering the incorporation of diversity into management to create a corporate culture that allows a wide range of individuals to reach their full potential. In May 2018, we formulated the DIC Group Human Rights Policy, which conforms with global codes governing human rights to guide related initiatives in the years ahead.
Efforts to address governance-related issues include creating a system based on Japan’s Corporate Governance Code and establishing key performance indicators (KPIs) to measure diversity in management, including the percentage of foreign nationals and women in executive positions, both of which we intend to boost to 30% by fiscal year 2025.
In closing, as a manufacturer of fine chemicals we continue to recognize ensuring operational and occupational safety, reducing our impact on the environment and promoting the stringent management of chemical substances as fundamental to our business activities, and to see “doing the right thing and doing it right” as the true way forward. We pledge to continue working to ensure that DIC remains a company that is loved and respected worldwide.

Related Link