Page Link

Social Report

Engagement with Stakeholders

Date: May 29, 2014
Attendee : Takao Kanai Managing Director, Fundamental Analysis Citi Research Citigroup Global Markets Japan Inc.
Keisuke TakegaharaGeneral Manager, Environmental Initiative & Corporate Social Responsibility – Support Department Development Bank of Japan Inc.
Yoshihiro Nomura Senior Vice President and Executive Officer, Oversight of Automotive Products Business and Risk Management Hitachi Chemical Co., Ltd.
Shigeru Ito Vice President and Executive Officer, Oversight of Energy Devices & System Business Hitachi Chemical Co., Ltd

Contributing to Society by Resolving Social Issues with Integrating Business Strategies and CSR

Hitachi Chemical is taking a new approach to communicating with capital markets, from issuing its Annual Report in a format that integrates both annual and sustainability report components from Annual Report 2012, to announcing its Medium-term Management Plan from fiscal year 2013. Enterprise evaluation specialists and Hitachi Chemical Executive Officers participated in an exchange of opinions on how this new approach is being perceived.

Keisuke Takegahara General Manager, Environmental Initiative & Corporate Social Responsibility – Support Department Development Bank of Japan Inc.

Takao Kanai Managing Director, Fundamental Analysis Citi Research Citigroup Global Markets Japan Inc.

Shigeru Ito	Vice President and Executive Officer, Oversight of Energy Devices & System Business Hitachi Chemical Co., Ltd

Yoshihiro Nomura	Senior Vice President and Executive Officer, Oversight of Automotive Products Business and Risk Management Hitachi Chemical Co., Ltd.

Nomura:

Several years ago, we actively set about restructuring the Group’s businesses and investing overseas. As a result, I believe we were able to establish an integrated management system and a base for growing sales in the automotive products business. Going forward, we will further accelerate business expansion and will reap the benefits of upfront investments as we work toward achieving the targets of our Medium-term Management Plan. With product development based on the key principles of “environment, safety and comfort,” we will also work toward developing the materials and components that will contribute to resolving social issues within the automotive industry. We have already contributed to the lightweighting of automobiles by using plastic for the back door module and other automobile body components, in addition to which we are developing disc brake pads with less copper content ahead of the introduction of copper restrictions in the United States from 2021.

Kanai:

I believe the Medium-term Management Plan clearly details a growth strategy that improves profitability in a more targeted way. We are seeing results from past investment in the automotive products business, so market expectation is also increasing.

Takegahara:

Despite parts manufacturers and other B-to-B companies playing an enormous role in the outcomes of automobile manufacturers, it is difficult to visualize the value they contribute. As a result, these companies are not being properly evaluated in line with their true efforts. If the businesses with a significant impact on the industry are revealed, such as Hitachi Chemical’s efforts to convert materials to plastic and to support regulations ahead of implementation, then we will be able to see new value in these B-to-B companies.

Nomura:

As you say, that will be the result if we can respond to automotive industry issues as a parts manufacturer. That is why we have to provide distinctive products and materials, and value has to be recognized by our customers. For example, we are confident that our plastic molded products are second to none in performance but rather than leaving it at that, we recognize the necessity of asking ourselves the hard questions of whether we can produce value that other manufacturers cannot produce in order to further increase the value that Hitachi Chemical provides.

Ito:

Our energy storage devices business is divided into two areas: automotive and industrial. The direction for the energy storage devices business as indicated in the Medium-term Management Plan is to grow it into a core business for the Group. With our industrial business in particular, the market is expected to greatly expand from 2017, so our work takes a long-term approach.

Important issues for our existing automotive business are accelerated overseas expansion and support for batteries for the Idling Stop Systems (ISS*) that are forecast to be installed in 60% of automobiles by 2016. Our industrial business is achieving its mission in society, which is to provide a stable supply of energy to ensure backup power sources for power stations, hospitals and other places. Supporting renewable energy in particular is an important issue.

What differentiates Hitachi Chemical from others is that we have accumulated the highly confidential knowhow for manufacturing batteries with organic materials, we are able to develop social infrastructure businesses in cooperation with the Hitachi Group, and we are able to offer hybrid energy storage systems combining Hitachi Chemical’s four types of energy storage devices. We want to continue communicating these advantages, expand our business and contribute to society.

*
Idling stop systems prevent unnecessary idling by automatically stopping the engine when waiting at traffic signals and other places. This contributes to improved fuel efficiency and reduced CO2 emissions.

Takegahara:

So your business strengths lead to value creation for society. I think this is the story of how Hitachi Chemical is able to integrate its business strategies and CSR.

Nomura:

Life sciences businesses revolve around systems to quickly diagnose allergies and lifestyle-related diseases. We will expand these businesses with Hitachi Chemical’s unique strengths—diagnostics and medical instruments—and focus on the exploration of new business fields that can become future base businesses for us. As well as expanding the scope of diagnosis and investigating global business growth, I believe it is necessary for us to take diagnostics to the next level through M&As and other external tie-ups.

Takegahara:

The diagnosis-related business has clear Environmental, Social and Governance (ESG) outcomes, including meeting the early detection and early treatment requirements of the medical field and contributing to reductions in national medical expenses. We expect considerable expansion of the scope of this business in the future as well.

Nomura:

We have to increase the pace of technology and product development. Hitachi Chemical aims to accelerate the creation and commercialization of new technologies by promoting open innovation and conducting exchanges with customers, universities, research institutes and consortiums.

We are also taking a new open laboratory approach to introducing state-of-the-art semiconductor package evaluation equipment into our lab. Rather than just having our customers use this equipment, our engineers are conducting evaluation and analysis of packaging materials together with the customers, which I believe has benefits for customers, such as being able to reduce evaluation times, and for us, such as being able to more quickly develop next-generation packaging materials.

Takegahara:

The open laboratory approach is very interesting because it can offer customers suggestions for improving the efficiency of their own R&D activities. It should be effective in improving medium- to long-term enterprise evaluation.

Nomura:

We are also committed to reforming our cost structures and channeling part of those cost reductions into R&D. We already have businesses achieving success from such things as introducing robots, so going forward we will expand these initiatives across the entire Group to enhance our R&D capabilities.

Nomura:

Hitachi Chemical introduced the use of return on capital invested (ROIC) from fiscal year 2013 as an index for managing investment efficiency for each business division. ROIC enables easy comparison with past investment effects, so I think it carries enormous benefits for deciding investments.

On the other hand, upfront investment is quite high in the automotive products business, so those benefits will be reaped in the future. Recent ROIC does not look good but a company needs a certain level of upfront investment in this industry to survive, so not all businesses are evaluated equally using ROIC.

Ito:

ROIC is a useful index for determining the validity of an investment. However, businesses that require upfront investments, such as the lithium-ion battery business, sometimes require investment targeted five years into the future, so they can be a concern.

Kanai:

The introduction of ROIC is excellent from the perspective of the discipline of investment working well. But do you divide single business segments into those businesses looking for short-term benefits and those businesses where recovery of the investment is further down the track?

Ito:

We do not make any particular differentiation. Our approach in the energy business is for our existing businesses to absorb any upfront investment. If we were to divide them as you say, then it would be difficult to accept the low profitability of businesses that require upfront investment.

Kanai:

The idea of using ROIC to establish targets for each business division is quite innovative, so I am very interested to hear how that is being managed. Do you take a flexible approach to your management policy in regards to how to determine ROIC for businesses requiring upfront investment?

Takegahara:

Hitachi Chemical’s approach to utilize ROIC in each business segment as a metric for managing performance should evolve into one of its strengths. In an intensely competitive market, an ROIC indicator that outperforms the industry average implies the existence of a competitive advantage, including a non-financial edge. Conversely, in the event of a lower-than-average indicator, if the investment will largely contribute to solving a social issue, you can make an argument for its future potential by adopting a long-term outlook. This is an excellent approach as it provided a comprehensive evaluation of corporate performance while also serving as a purely financial indicator.

Nomura:

I frankly believe the current stock price reflects the recent performance of our company. What we have to do is to achieve our Medium-term Management Plan and put numbers to those outcomes. We also have to make efforts to clearly communicate directions and measures for management and business.

Kanai:

The Japanese stock market has been stagnant for a long time, so the climate is not suited to investor risk. Consequently, even with an attractive growth story, investors do not buy stocks without a strong recent performance, so we really do have to boost performance.

On the other hand, the stock price also factors in future growth so the growth story is important. Communicating to the market your strategies for achieving targets will ensure a fair stock price, and it may also have the effect of improving that stock price in anticipation of growth if the market moves upward. How you address issues such as safety and compliance is also important.

Takegahara:

There is definitely an increasing trend in enterprise evaluation to focus on the value of nonfinancial information. In addition to business delivering strong messages directly linked to resolving social issues, it should also enhance information delivery for improving productivity as it looks for the Hitachi Chemical Monozukuri Way. Investors focused on ESG and analysts busy analyzing supporting non-financial information will both welcome these responses.

Ito:

Our company also needs to take every opportunity to enhance communication in response to capital market needs, and make efforts to disclose information in the Hitachi Chemical way.

Nomura:

Hitachi Chemical’s vision of what it should be in 2023 is “a value creator that is ahead of the times in responding to consumer changes, improving the value of end products for the customer by delivering unparalleled materials and products.” We have already begun activities toward this vision of our company in 10 years’ time.

What we need to become a true value creator is the flexibility to be able to respond to any and all changes. That is part of the DNA of Hitachi Chemical, the Pioneering Spirit of the Hitachi Group, which is one of the Company’s Founding Spirits. I would like to build on this going forward.

Kanai:

Hitachi Chemical has a very broad base of technologies. You have avoided relying too much on any specific field or technology in the past, and are able to respond to changes in the business environment. I also believe you receive high market rates in respect to your ongoing sustainability.

Takegahara:

With the strength of flexibility, you are able to continue the cycle from quickly responding to signs of change, to developing new businesses, and helping resolve social issues while building your own business. Your current course of integrating CSR with business activities, typified by sustainable engineering, is a good model for sustainable management, so I look forward to Hitachi Chemical’s future activities.

  • Page Top