Message Chief Financial Officer
Recognition of the role and challenges of being Chief Financial Officer
I have been appointed Chief Financial Officer from fiscal year 2025. I will continue to serve as Head of Corporate Strategy, and while I realize that my responsibilities have increased, I view this as a positive challenge.
The most important issue for Group management is the steady implementation of the "Medium-Term Management Plan 2025," which will conclude in fiscal 2025, and the "Capital Efficiency Initiative 2027" Formulating the next medium-term management plan is also one of my important roles.
Of these, we believe we need to focus particularly on optimizing our business portfolio, which was set out as a growth strategy in our "Capital Efficiency Initiative 2027" While we feel that we have made some progress in improving asset efficiency in the two years since the initiative was launched, in terms of business operations, we have prioritized quickly and reliably passing on rising raw material and energy prices to sales prices in our domestic Packaging Business and other areas, which has resulted in some postponement of business portfolio optimization.
Furthermore, in our domestic Packaging Business, factories and production equipment are aging, and we would like to embark on a renewal plan for these as quickly as possible. While Packaging Business remains the core of our group's operating cash flow, the domestic market is shrinking due to the declining birthrate and aging population, and a further decrease in the workforce is inevitable. Rather than simply replacing equipment, we would like to formulate an extensive renewal plan that improves production efficiency by utilizing digital transformation and IoT and integrates multiple production lines.
FY2024 performance
Although domestic business was favorable due to progress in passing on sales prices, operating profit increased only slightly by 1.0% due to sluggish overseas business, mainly in North America.
Our Group's performance for fiscal year 2024 is expected to be a decrease in revenue but an increase in profit, with net sales of 922.5 billion yen (down 3.0% from the previous fiscal year) and operating profit of 34.2 billion yen (up 1.0% from the previous fiscal year). Ordinary profit is expected to be 37.5 billion yen (down 3.0% from the previous fiscal year), and net profit attributable to owners of parent is expected to be 22.3 billion yen (down 3.0% from the previous fiscal year).
In the domestic business, sales increased by 24.6 billion yen due to the increased sales price of raw materials in Packaging Business, and sales increased by 6.6 billion yen due to a market recovery in Functional Material Related Business, resulting in an overall increase of 31.3 billion yen. However, sales in the overseas business decreased by 59.4 billion yen due to the significant impact of the worsening market conditions in the North American engineering business, resulting in a decrease in consolidated net sales.
Operating profit increased slightly by 1.0%, as increased profits from domestic businesses offset decreased profits from overseas businesses. Although the domestic engineering business recorded bad debt losses due to the bankruptcy of a client, expenses were kept down by responding to rising raw material prices and reducing retirement benefit obligations, resulting in an increase in profits for the domestic business. On the other hand, the overseas business saw a decrease in profits, largely due to the impact of decreased sales in the North American engineering business.
Progress of growth strategies in "Capital Efficiency Initiative 2027"
Sales of materials for automotive secondary batteries are expanding steadily. New products for solar cells are also appearing.
"Capital Efficiency Initiative 2027" has two pillars: a "growth strategy" and a "capital and financial strategy." The growth strategy aims to optimize the business portfolio by optimizing sales prices in the domestic Packaging Business, streamlining and restructuring unprofitable business areas, and expanding high-growth business areas such as Engineering, Filling and Logistics Businesses, Steel Plate Related Business, and Functional Material Related Business.
As the passing on of sales prices in the domestic Packaging Business has progressed smoothly, the number of areas that were considered unprofitable has decreased, and the number of businesses that are subject to reorganization and restructuring has been significantly narrowed.
Meanwhile, progress has been made in growth areas where we are actively investing management resources, expecting them to drive the Group's future growth. In fiscal 2023, we made large-scale investments totaling 15.5 billion yen in the construction and expansion of manufacturing facilities for automotive secondary battery components, where demand continues to expand. In addition, in August 2024, we acquired PREMIER CENTRE GROUP SDN.BHD. (hereinafter "PCG"), a Malaysian company engaged in the filling business of home care and personal care products, as a subsidiary.
These investments are expected to contribute to a certain degree to the Group's profits in fiscal 2024. We will continue to concentrate management resources, such as capital and personnel, in business areas where we expect growth, in order to further solidify our foothold for the Group's growth.
Regarding the outlook for each business segment from fiscal 2025 onwards, in the domestic Packaging Business, we expect to complete the pass-through of rising raw material and energy prices through fiscal 2024 to sales prices within this fiscal year.
In the North American engineering business, while existing customers, major European and American can manufacturers, continue to restrain capital investment and there remains no notable movement, orders are increasing from emerging countries such as the Middle East, India, and South Africa, and performance is beginning to improve after bottoming out in the fourth quarter of 2024. We will strive to fully supplement this new demand and recover our performance.
In the filling business, we expect demand in Asia to continue growing, and are considering further strengthening our production capacity. PCG's performance was not included in the consolidated financial statements until the third quarter of fiscal 2024, but it has been generating sales and profits in line with our initial expectations, and we expect it to make a full-scale contribution from fiscal 2025.
In Steel Plate Related Business, sales of components for automotive secondary batteries (nickel-plated steel sheets) from Toyo Kohan Co., Ltd. remain strong and are expected to make a significant contribution to profits. Functional Material Related Business is also expected to be a high-growth field, and we will continue to improve the functionality and strengthen the competitiveness of our existing products, magnetic disk aluminum substrates, optical functional films, and pigments and frits.
Regarding M&A, which is important for accelerating growth, we will proactively pursue any M&A that is missing from the Group, without narrowing down the scope of the acquisition. In particular, we believe that M&A will be an effective means of quickly increasing production capacity in response to expanding demand in the filling and Functional Material Related Business.
Progress of capital and financial strategies in "Capital Efficiency Initiative 2027"
We expect to complete a cumulative total of 80 billion yen in share buybacks between fiscal 2023 and fiscal 2025. We are making steady progress toward our goal of "ROE of 8.0% or more."
Another pillar of "Capital Efficiency Initiative 2027" is the "Capital and Financial Strategy," which calls for the reduction of shareholders' equity as part of efforts to improve capital efficiency. Our goal is to reduce shareholders' equity from ¥643 billion in fiscal 2022 to ¥600 billion by fiscal 2027, and we have steadily repurchased treasury stock, amounting to ¥20 billion in fiscal 2023 and ¥30 billion in fiscal 2024. We believe that our goal of repurchasing a cumulative total of ¥100 billion of treasury stock by fiscal 2027 is an absolute goal for us.
Regarding dividends, there will be no change to the three policies outlined in the Medium-Term Management Plan 2025 until fiscal 2025, the final year of the plan: a total return ratio of 80%, a consolidated dividend payout ratio of at least 50%, and no dividends below the previous fiscal year's level. We will continue to strive to provide returns to shareholders.
Regarding ROE, the target of 8.0% or more by fiscal 2027, set out in "Capital Efficiency Initiative 2027," is a fairly high hurdle. However, in our forecast for fiscal 2025 *, we expect ROE to improve to 6.9%, or around 5.3% even excluding extraordinary gains, and we feel that we are making steady progress in strengthening our structure in terms of both capital efficiency and profitability. We intend to achieve our target of 8.0% ROE by accelerating our growth strategy and boldly streamlining and restructuring unprofitable businesses, leaving no stone unturned.
* Values announced on May 14, 2025
Cash Allocation in "Capital Efficiency Initiative 2027"
Secure cash inflows through sales of strategically held shares, etc. Effectively utilize cash through proactive investment in growth fields
In "Capital Efficiency Initiative 2027," the core of our cash allocation strategy is to strategically allocate cash from operating cash flow and cash from asset sales and fundraising to investments and shareholder returns. Specifically, between fiscal 2023 and fiscal 2027, we expect to generate cash inflows of more than 80 billion yen from asset sales and fundraising, and approximately 370 billion yen from operating cash flow, of which we plan to allocate approximately 270 billion yen to growth investments and strengthening our management foundation, and approximately 180 billion yen to shareholder returns.
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As part of asset sales and fundraising, the Mid-Term Management Plan 2025 targets sales of strategic shareholdings worth approximately 40 billion yen in consolidated balance sheet amounts, and Capital Efficiency Initiative 2027 targets an additional 20 billion yen in the same indicator, aiming for a total sale of approximately 60 billion yen on a consolidated balance sheet basis. Over the four years up to fiscal 2024, we have already sold 26.8 billion yen worth of shares, and plan to sell approximately 16 billion yen in fiscal 2025. We will continue to work toward completing the sales of the target amount by 2027.
To all stakeholders
To achieve our "Capital Efficiency Initiative 2027," we will continue to focus on improving profit margins and asset efficiency. Since announcing this initiative, I have consistently told everyone in the Group that we should focus on increasing profit margins, rather than sales, sales volume, or industry share. I feel that this awareness has taken root considerably over the past two years. We will continue to work hard to change awareness within the Group and continue to take on challenges toward our goals.