- Basic Management Policy (Released Document)
- Progress of Restructuring Efforts
Owing to an extremely harsh operating environment, the Teijin Group's performance has deteriorated sharply in recent months. As a consequence, we recorded considerably short of the targets of our "STEP UP 2006" medium-term management plan, which concluded in fiscal 2008, the year ended March 31, 2009. In light of this situation, we have identified a number of key challenges that we must address:
Key challenges
- Drastically restructure poorly performing businesses (polyester fibers, polyethylene terephthalate (PET) film, polycarbonate resin)
- Put aramid fibers and carbon fibers businesses back on a growth track
- Further expand our flourishing pharmaceuticals and home health care businesses
- Cultivate new businesses
- Improve financial structure
To address these challenges, we will execute short-term structural reforms aimed at repositioning the Teijin Group on a growth trajectory, after which we will implement measures aimed at ensuring sustainable, technology-driven growth over the medium to long term.
Urgent Short-Term Measures and Structural Reforms
1.Short-Term Objectives
In light of current economic conditions, we have set forth three short-term objectives:
- Transform Teijin back into an entity that yields profits (fiscal 2009);
- Return to profitability at the net income level (fiscal 2010); and,
- Secure a positive cash flow in excess of ¥10.0 billion (fiscal 2009).
2.Urgent Measures
In the second half of fiscal 2008, we began implementing a number of urgent measures, including reducing capital investment and inventories, lowering production and head office costs, implementing a partial return of remuneration for directors, and curtailing personnel costs by revamping our relevant systems and cutting back on overtime. We reduced capital investment for fiscal 2008 to ¥75.8 billion, down by ¥8.8 billion from our initial estimate for the period, while we reduced inventories to ¥135.0 billion, down by ¥50.0 billion from the level at the end of the fiscal 2008 third quarter.
3.Structural Reforms
We have outlined several key structural reforms to be implemented in fiscal 2009.
(1)Restructure poorly performing businesses
In the poorly performing polyester fibers, PET film and polycarbonate resin businesses, we will restructure loss-making businesses and create an optimal global production configuration by reorganizing production facilities and lines.
In polyester fibers, we have already begun taking steps to restructure the value chain. Initiatives include creating a vertically integrated organization for our automotive interior business.
(2)Restructure high-performance materials businesses
In our high-performance materials businesses—namely, aramid fibers and carbon fibers—we will endeavor to enhance cost competitiveness by lowering the breakeven point; and cultivate new markets worldwide by promoting ongoing efforts to develop new materials and products and establishing new midstream and downstream business models.
(3)Promote decisive measures to reduce fixed costs
We will implement sweeping measures Groupwide in our production, sales, R&D and administrative departments, including those urgent measures detailed above, with the aim of increasing efficiency in a bid to lower fixed costs—especially in our materials businesses—by a total of ¥40.0 billion. Of this total, ¥20.0 billion will be accounted for by curtailed personnel costs.
Measures for Reducing Personnel Costs
Normalize per-employee personnel costs by implementing another partial return of remuneration for directors, paring annual remuneration for management-level employees by maintaining a performance-based salary system, cutting back on overtime and reassessing fringe benefits. Optimize the labor force by promoting Groupwide cross-business employee reassignment, restraining hiring, and decreasing and pulling back in work subcontracted out or performed by temporary staff.
(4)Freeze major capital investment for two years and increase the efficiency of working capital
With the aim of boosting cash flow, we have declared a two-year moratorium on major capital investment and will endeavor to significantly increase the efficiency of working capital, primarily by slashing inventories. Capital investment in fiscal 2009 will be approximately ¥40.0 billion, down by ¥35.0 billion from fiscal 2008, or close to 50%. We are aiming for inventories in the area of ¥110.0 billion, down approximately ¥25.0 billion from fiscal 2008, a reduction of nearly 20%. Through such efforts, in fiscal 2009 we expect to secure a positive cash flow in excess of ¥10.0 billion.
(5)Revamp our corporate organization to facilitate structural reforms and the implementation of growth strategies
To facilitate swift and effective structural reforms, we have implemented a number of changes to our corporate organization.
- In a bid to accelerate decision making, we realigned the Management Committee. At the same time, we integrated and reorganized our business planning departments to reinforce corporate strategy development capabilities. We also established a Structural Reform Committee to promote cross-business structural reforms.
- On another front, we established two cross-divisional development and marketing entities that are overseen directly by the CEO. These are the Mobility Business Planning Department, which targets the automotive and aircraft markets, and the E&E Business Planning Department, which focuses on the electronics and energy markets.
- We appointed a director to oversee our efforts in the promising markets of the BRICs economies (Brazil, Russia, India and the People's Republic of China).
- With the aim of reinforcing our business foundation and ensuring a stronger, more flexible operating structure, we are conducting a review of our current holding company system.
4.Looking Ahead: Teijin in Fiscal 2011
Having accomplished the urgent short-term measures currently underway and the structural reforms for fiscal 2009 outlined above, in fiscal 2010 we will focus on completing restructuring efforts and realizing the benefits thereof. In fiscal 2011, we will aim to reposition the Teijin Group on a growth trajectory. The Teijin Group in fiscal 2011 will differ from the Group of today in a number of ways.
Outlook for Fiscal 2011
| FY08 | FY07 (Forecast) |
||
|---|---|---|---|
| Net sales | ¥ billions | ¥943.4 | ¥950.0 |
| Operating income | ¥ billions | ¥18.0 | ¥60.0 |
| Net (loss) income | ¥ billions | (43.0) | 30.0 |
| Net income per share | ¥ per share | - | 30.0 |
| ROE | % | (12.3) | ＞7% |
| ROA(*) | % | 1.9 | ＞6% |
| Debt-to-equity ratio | Times | 1.2 | ＜1.0 |
(*)Calculated using operating income
Medium- and Long-Term Management Policies
1.Focus: Provide Solutions in the Areas of Green Chemistry and Health Care through Technology-Driven Innovation
Over the medium to long term, through technology-driven innovation we will strive to ensure sustainable growth and attain global excellence by providing attractive solutions in two key areas. The first of these, green chemistry, encompasses advanced and compound materials, biomaterials and recycling systems, which support efforts to, among others, manufacture lighter, safer products and recycle energy. The second, heath care, focuses on major new drugs and next-generation pharmaceuticals, as well as innovative home health care services.
2.Looking Further Ahead: Teijin around Fiscal 2020
In a little over a decade, we expect Teijin to look something like this:
Strategies for Sustainable Growth
| FY98 | FY08 | FY11 (Forecast) |
Future target | ||
|---|---|---|---|---|---|
| ROE | % | 2.7 | (12.3) | ＞7% | ＞10% |
| ROA* | % | 3.5 | 1.9 | ＞6% | ＞10% |
| Debt-to-equity ratio | Times | 1.1 | 1.2 | ＜1.0 | ＜0.6 |
| Net income per share | ¥ | 8.8 | - | 30.0 | 100.0 |
*Calculated using operating income
3.Overhaul Business Portfolio
By around fiscal 2020, we expect to have further shifted the weighting of our business portfolio toward high-performance materials, new businesses and pharmaceuticals and home health care, and away from such commoditized materials as polyester fibers, PET film and polycarbonate resin. Commoditized materials will account for only about 25% of consolidated net sales, down from more than 50% at present, while pharmaceuticals and home health care will have increased by 1.3 times, to 20% of net sales, and high-performance materials and new businesses will have tripled, to 30% of net sales.
4.Revamp Regional Portfolio
We will seek to expand sales in high-growth markets, including those of the BRICs and other key emerging economies, many of which are in Asia. Overseas sales today account for approximately 40% of consolidated net sales, up from only 25% a decade ago. Moving forward, we will continue to promote the globalization of our operations with the aim of increasing sales in overseas markets to 60% of the total.
Sales in Key Businesses
Sales by Region
5.Enhance product development by reinforcing pipeline management
The most important factor in facilitating sustainable growth is technological prowess. Teijin's technologies include core technologies, which are instrumental in the growth of individual businesses and the restructuring of our business portfolio, and the underlying basic, or platform, technologies thereof. In addition to promoting ambitious efforts to provide technology-driven solutions, we will accelerate product development by introducing and thoroughly incorporating pipeline management—currently used in our pharmaceuticals business—throughout the Group.
Producing Results: Management's Clear Determination to Succeed and Ability to Act Boldly
We pledge to proceed forward with a clear determination to succeed and the ability to act boldly in promoting short-term, steady structural reforms and implementing appropriate and timely medium- and long-term measures to ensure these efforts yield meaningful results.
Note: All forecasts in this document are based on management's assumptions in light of information currently available and involve certain risks and uncertainties. Actual results may differ materially from these forecasts.
