A Message from the CFO
The DIC Group works to maintain sound financial health while promoting determined business strategies. We aim to expedite business portfolio transformation by promoting significant M&A transactions and the creation of new businesses.
Our approach to financial management centers on ensuring a balance among three key priorities: maintaining sound financial health, promoting investments in growth to transform our business portfolio and ensuring stable returns to shareholders. As performance indicators, we have adopted debt-to-capital (D/C) ratio1 to gauge financial soundness, return on equity (ROE) to assess capital efficiency, payout ratio to evaluate returns to shareholders, and earnings before interest, taxes, depreciation and amortization (EBITDA)2 to judge our ability to generate cash and maximize shareholder value.
Sound Financial Health
Our goal for financial soundness is to maintain our D/C ratio at or below roughly 50%. As of December 31, 2020, our D/C ratio—which had
deteriorated to 73% as of the end of fiscal year 2011—was 43%, an improvement that reflected global efforts to enhance cash efficiency, as well
as robust net cash provided by operating activities and accumulated earnings. Owing to the acquisition of BASF’s Colors & Effects business,
interest-bearing debt as of December 31, 2021, is likely to be higher than a year earlier, but we expect our D/C ratio to remain in the area of
50%. We will also strive to maintain sound financial health by procuring ¥60 billion through a subordinated term loan—a type of hybrid financing
that while officially debt has characteristics similar to equity—as well as by divesting assets and reinforcing our management of working capital.
Having chosen ROE as an indicator of capital efficiency, we are working to increase the visibility of return on invested capital (ROIC) in each individual business and to enhance awareness of ROE Groupwide. To advance the transformation of our business portfolio and further bolster capital efficiency, we are promoting investments aimed at driving new growth and have established criteria for withdrawing from businesses, in line with which we are actively divesting assets and retreating from business with low growth potential and profitability.
We employ EBITDA and the cash conversion cycle (CCC) as metrics for our ability to generate cash flows. The addition of EBITDA to our conventional profitability-centered performance indicators and our efforts to shorten the CCC underscore our commitment to conducting management with a greater awareness of cash flow and the need to increase shareholder value.
Strategic Investments to Accelerate Growth
Our current medium-term management plan, DIC111, outlines two basic strategies for transforming our business portfolio: Value Transformation, which emphasizes
working to bolster the competitiveness of businesses and generate sustainable cash flow, and New Pillar Creation, which calls for creating new businesses that respond
to social changes and help address ESH-related issues. Previous investments that have contributed to Value Transformation include a capital and business alliance with
TAIYO HOLDINGS CO., LTD., which was concluded in 2017 under DIC111’s predecessor, DIC108, and positioned us well to develop and offer products for the electronics
sector. More recent such investments include our acquisition in fiscal year 2018 of a manufacturer of security inks, which are used in the printing of banknotes, and of
business engaged in the production of high-purity oxide pigments, which are used extensively in cosmetics.
We have also taken key steps under DIC111 to accelerate growth. In August 2019, we announced that we had reached an agreement to acquire the Colors & Effects business of BASF for an estimated €985 million (approximately ¥124.8 billion)3, our largest-ever acquisition. In 2020, the DIC Group acquired a subsidiary of Sensient Technologies Corporation of the United States engaged in the manufacture of jet inks for printing on textiles. These and other moves will contribute to the strengthening of our corporate structure by facilitating the qualitative reform of our businesses.
Under the New Pillar Creation banner, we have established the New Business Development Headquarters, and have identified four priority business areas, namely, electronics, automotive, next-generation packaging and healthcare. We continue to promote investment via corporate venture capital (CVC) and other efforts designed to expedite the creation of new businesses and gain access to advanced technologies to facilitate open innovation.
Promoting Sustainable Financing
We also continue to conclude loan agreements based on ESG assessments, enabling it to also contribute to the achievement of the SDGs through its financing activities. In September 2019, we entered into a loan agreement with Mizuho Bank, Ltd., under the Mizuho Environmentally Conscious Finance (“Mizuho Eco Finance”) scheme, developed by Mizuho Information & Research Institute, Inc. We were the first company in the chemicals industry approved under this scheme, an achievement that reflects the high marks given our global efforts to combat climate change. In September 2020, we concluded a Positive Impact Finance (PIF) (with unspecified use of funds) loan agreement with Sumitomo Mitsui Trust Bank, Limited. PIF is a financing framework designed to facilitate the comprehensive analysis and evaluation of the positive and negative environmental, social and economic impacts of corporate activities and the extension of loans to support these activities on an ongoing basis.
Stable Returns to Shareholders
We will continue to pay dividends that are in keeping with profit growth, in line with our commitment to ensuring stable returns to shareholders. DIC111 sets a target for our payout ratio of 30%, which will serve as a guideline for dividends over the medium term. We are proposing a year-end dividend for fiscal year 2020 of ¥50.00. As a consequence, our dividend for the full term, which includes an interim dividend of ¥50.00, will be ¥100.00. We also anticipate an annual dividend of ¥100.00 in fiscal year 2021.
- D/C ratio: Interest-bearing debt / (Interest-bearing debt + Net assets)
- EBITDA: Net income attributable to owners of the parent + Total income taxes + (Interest expenses – Interest income) + Depreciation and amortization
- The figure given for the cost of this acquisition is derived by adjusting the enterprise value of the target business (€1,150 million) to reflect cash and debt as of December 31, 2018. The exchange rate used to translate this amount into Japanese yen is €1.00 = ¥126.75.