To Investors

Hiroshi Yokota President & Executive Officer
Toward “Global Leader in Advanced Materials” and “Leader in Japan through Strengthening Competiveness in Traditional Business”

The second year since I took office as president, the fiscal year ended March 31, 2017 (fiscal 2016), was one blessed with good opportunities.

Looking back, my first year in office started with a posting of huge impairment loss related to our solar-grade polycrystalline silicon business. Thus regarding the rebuilding of our financial platform as a priority issue, we had taken decisive action by implementing various reforms to ensure the revitalization of the Tokuyama Group. In fiscal 2016, my second year in office, amid this difficult management situation, operating income greatly exceeded that forecast at the beginning of the fiscal year due to the ongoing positive flow-on effects of cutbacks in raw material and fuel costs as well as other factors, and we were able to complete the transfer of whole shares of the consolidated subsidiary engaged in the solar-grade polycrystalline silicon business that had been the cause of so much concern. Since we were therefore able to make progress with the regaining of shareholders’ equity at a greater speed than planned, on June 14, 2017, we also acquired and canceled a total of ¥20 billion of Class A shares issued in fiscal 2016 as a cash consideration.

A harsh assessment of fiscal 2016 would be that the results were better than Tokuyama merited, particularly in terms of the improvement from the profit standpoint. On the other hand, however, I recognize that it was our daily unwavering efforts that enabled us to follow a course that enabled us to take advantage of the favorable conditions.

With regard to cash dividends, we are continuing to forego any payments for the time being. However, since we are projecting that profit will progress in line with our Medium-Term Management Plan for the current fiscal year, we are planning both interim and year-end* dividends of ¥2 per share for the current fiscal year, ending March 31, 2018, thereby resuming the payment of cash dividends for the first time in four years.

(*) In the event that five shares are consolidated into one share, the year-end dividend will be 10 yen.

Foundation of Medium-Term Management Plan: “Change the Group’s Organizational Culture and Structure”

We launched the Medium-Term Management Plan in May 2016. In addition to reviewing, after an interval of 27 years, our corporate basic policy that had lost some of its substance and newly formulating the “Tokuyama Vision,” we decided on becoming a “global leader in advanced materials through unique technologies” in growth businesses, such as Specialty Products as well as Life & Amenity, and “a leader in Japan through strengthening competiveness” in our traditional Chemicals and Cement businesses as an ideal Tokuyama Group in fiscal 2025. For this Medium-Term Management Plan, we also formulated management numerical targets for fiscal 2020 hence to act as milestones and are addressing the priority issues toward achieving those targets.

In promoting the Medium-Term Management Plan, the most important theme is to change the Group’s organizational culture and structure. I have become aware of the factor that has contributed to the posting of enormous losses for two consecutive fiscal years and that has been hindering business growth; that factor is Tokuyama’s insular corporate culture. I believe that recapturing the all-important culture of “focusing on our customers” and an “outward-looking approach,” which Tokuyama had lost over a period of many years, will result in achieving our targets for fiscal 2020 and realizing an ideal Tokuyama Group in fiscal 2025.

On the other hand, it is not easy to change a culture and a mindset that have been entrenched for many years. It is my belief that division leaders and division staff members are greatly motivated by senior management themselves firstly taking bold action and playing a leading role.

For this reason, in the first half of fiscal 2016, the first year of the Medium-Term Management Plan, we conducted briefings to explain our intentions directly to employees of the Group so that the “Tokuyama Vision” becomes deeply ingrained in all Tokuyama Group employees. At roundtable discussions aimed at manager-level personnel in the second half of fiscal 2016, we worked to exchange opinions and offer on-site guidance covering a number of areas, including reforms of business functions, work and awareness, and collectively revised management personnel systems. Unless there is conscious reform on the part of management personnel, who are the key to any organization—particularly at the manager level that offers guidance directly to division staff—the vision will not become deeply ingrained, and the change in corporate culture underpinned by that vision will not be achieved. Going forward, I would like to continue this course of action, in tandem with progress management, on a yearly basis.

Enhanced Profitability by Restructuring of Business Strategies

In order to accomplish the Medium-Term Management Plan, we have to not only reform the underlying organizational culture but also change into a highly investment-efficient company. Rather than drawing up business plans based on huge amounts of investment that would compromise the continued existence of an enterprise were they to fail, from now on we will devise a style of management that will enable us to generate earnings more steadily even on a small scale. While building a slim yet robust business structure that is resilient against changes in the economic environment, we will work to strengthen profitability from the two pillars that underpin the Medium-Term Management Plan: “Growth Businesses” and “Traditional Businesses.”

Growth businesses are particularly those in which profit growth is expected in the future. In semiconductor-related products, which are an important business domain, we will further hone the high quality and high purity that are Tokuyama’s strengths amid burgeoning needs for miniaturization, and build a value chain that meets qualitative and quantitative requirements.

In fiscal 2016, we restarted operations at the plant producing semiconductor-grade polycrystalline silicon at our Tokuyama Factory, which had been inactive, and increased production capacity from 6,200 tonnes to 8,500 tonnes. At the same time, if we rack our brains, we should be able to bring about further improvements in production efficiency. Consequently, for the time being we will seek out new possibilities geared toward higher quality and greater productivity without conducting any large-scale investment.

In heat dissipation materials, we have decided to increase production of the fifth line of high-purity aluminum nitride powder at our Tokuyama Factory, and plan to build a 600-tonne system, representing an annual production increase of 120 tonnes, in April 2018. We will advance the expansion of our product lineup, including boron nitride, and upgrade our systems to enable us to respond on the basis of customer needs. In the case of heat dissipation demand, we predict that demand for heat dissipation materials will get into full swing from 2020 onward and are preparing a thorough framework in terms of R&D and capital investment.

In the healthcare domain, we will cultivate business as four pillars: plastic lens-related materials; diagnostic reagent and clinical systems; dental materials and equipment; and active pharmaceutical ingredients (API). Here, the key to monetization lies in marketing. Particularly with the aim of acquiring new sales channels overseas, we will build partner relationships with market experts regardless of our own resources. Firmly putting channels for sales for our healthcare-related materials in place, we will accelerate the growth of our market share.

In the traditional business segment of Cement, although the industries in Japan are mature, overseas represents a large market where robust demand continues unabated. A socially beneficial business in that it accepts a large amount of waste, I believe that maintaining business soundness remains in the national interest. In the years to come, we will proactively promote the creation of mechanisms designed to expand sales channels primarily in Asia.

For Realization of “Global Leader in Advanced Materials” and “Leader in Japan through Strengthening Competiveness in Traditional Business”

In fiscal 2017, we will robustly promote the changes on the Group’s organizational culture and structure and work to foster a vibrant corporate culture that conducts business with more of a sense of urgency. To fulfill my role in top management, I myself will work on building outside relationships and expanding business opportunities, such as by absorbing and passing back to our company new knowledge and insights gleaned from meeting people from outside.

We will work hard on a daily basis to achieve the fiscal 2020 targets of the Medium-Term Management Plan and to realize an ideal Tokuyama Group for fiscal 2025.

. As we move toward achieving those targets, we kindly request the continued support and understanding of all stakeholders, including our shareholders.

Hiroshi Yokota
Hiroshi Yokota
June 2017

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