Mitsubishi Chemical HoldingsKAITEKI Value for Tomorrow

Message from the CFO

Toward strengthening“return control” in addition to“risk control”

Under the current phase of our medium-term management plan, APTSIS 20, we recognize the challenges we face as acceleration of growth, improvement of profitability and strengthening of our financial foundation. Since embarking on APTSIS 20 in FY2016, right after completing significant structural reforms, we have seen stabilization of return on equity of 10% or above. Our next steps are to maintain these strong performance and reduce capital costs as well, with a view to enhance our corporate value.

Maintain ROE of 10% or above

In April 2017, three of MCHC Group’s chemical operating companies were integrated into one company, Mitsubishi Chemical Corporation. With the purpose of measuring the positive effects from this integration, we set targets for achieving ¥35 billion from the synergy created between the businesses and ¥15 billion from operational efficiency, both of which we passed in two years. We attained approximately ¥13 billion against the former target, and ¥14 billion for the latter.

While we completed large-scale acquisitions of industrial gas businesses in Europe and the U.S. in FY2018, we are continually reviewing our business portfolio. Our total revenue generated by the businesses under the reshaped portfolio, which includes both withdrawals from and newly established alliances with other companies, amounted to approximately ¥120 billion through FY2017 and FY2018 in aggregate. We are making steady progress towards increasing profitability.

Efforts for increased efficiency in strategic asset allocation are also progressing. Our approaches are: shortened our cash conversion cycle (CCC), establishment of a cash management system (CMS) in four regions (Europe, North America, Japan, and Asia), and divestitures of assets that do not meet certain threshold levels. Consequently, we attained ¥450 billion in terms of asset efficiency in the first three years since the 2016 start of APTSIS 20, outperforming the initial five-year target of ¥300 billion.

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Capital cost reduction that bolsters KAITEKI value

We started focusing on achieving signifi cant progress in the context of KAITEKI Management in FY2011, and now, based on our efforts to increase KAITEKI value as a corporate group, we can present the results through means such as integrated report. We are glad that MCHC’s efforts have been positively acknowledged, for instance, we were selected as a constituent of Dow Jones Sustainability World Index, a globally prominent socially responsible investment (SRI) index, for the second consecutive year. In the future, we continue our dialog with our stakeholders to communicate our story guided by our ESG-focused approach for KAITEKI value creation.

In terms to Investor Relations information distribution, we have improved with our stakeholders service for international investors and analysts by introducing online streaming audio of fi nancial result presentations for English-language speakers in FY2018. As part of investor engagements, we are committed to support in-depth discussions on our business developments by organizing an IR Day event, and to offer interactive communication including individual dialogs to institutional investors over the world. I am confident in the outcome of our initiatives that contribute to reducing corporate risks and capital costs, and will ultimately improve corporate value.

Results for FY2018 and outlook for FY2019

In FY2018, although the markets were favorable in the first half of the year, supply and demand for goods slowed down due to a lower demand in the latter half. However, while the business environment was generally harsh, MCHC achieved record sales revenue as well as its second highest core operating income and net income attributable to owners of the parent since FY2017. We implemented large-scale acquisitions in Europe and the U.S. in the Industrial Gases segment and faced temporary deterioration in the net D/E ratio and a decrease in the ratio of equity attributable to owners of the parent. We will strive to improve earnings as well as stabilize the financial position with the aim of making improvements as soon as possible.

Although the business environment is expected to remain uncertain in FY2019, we aim to improve financial performance to meet the target of net D/E ratio of 1.0 or below at the end of FY2020, the final year of APTSIS 20, expecting free cash flow to be ¥190 billion, ROS 7%, ROE 12% and a net D/E ratio 1.21.

Policy on shareholder returns

MCHC is striving to improve shareholder’s value by increasing our corporate value — KAITEKI value. With regard to shareholder returns, we plan to achieve a consolidated dividend payout ratio of 30% based on the financial performance over a medium-term time horizon, while maintaining an appropriate balance between investments in growing businesses and efforts to strengthen the financial structure. We will also implement dividend payments in consideration of stability. Concerning dividends per share for FY2018, we paid an interim dividend of ¥20 per share and a year-end of ¥20 per share, or a full year of ¥40 per share, up ¥8 year on year. We expect to maintain the dividend for 2019 at the same level.

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Hidefumi Date
Managing Corporate Executive Officer
Chief Financial Officer
Sep.2019

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