Message from the CFO
Improving Our Financial Structure after the
Acquisition of Blommer
Senior Executive Officer,
Chief Financial Officer (CFO)
The financial management policy of our mid-term management plan (Towards a Further Leap 2020) has four core strategies: (1) sustainable profit growth through the generation and allocation of cash flow (increasing earnings) and improvement in the cash conversion cycle (CCC); (2) maintain financial soundness based on balance sheet management commensurate with risks and returns; (3) improve capital efficiency by repositioning the business portfolio; and (4) enhance financial governance by standardizing business processes and increasing operating efficiency. In fiscal 2018, interest-bearing debt increased by ¥103.9 billion and total assets increased by ¥112.7 billion mainly due to the large-scale acquisition (share purchase) of Blommer, a leading industrial chocolate manufacturer in the United States.
We are now faced with the challenge of improving our financial structure through financial discipline that supports growth.
*CMS: Cash management system. Refers to an IT system for managing Group capital.
Work toward Mid-Term Target for Net D/E Ratio
Acquiring shares of Blommer for ¥64.6 billion increased interest-bearing debt to ¥160.5 billion as of March 31, 2019, and increased the net D/E ratio to 0.9 times from 0.3 times. In addition, the equity ratio decreased to 40.8% from 59.2%, and the ratio of goodwill to net assets rose to 38%. Under these circumstances, we financed a portion of the acquisition by issuing ¥35 billion in subordinated bonds on June 13, 2019 to ensure sound finances and maintain and improve capital efficiency. Over the next five years, we intend to generate cash flow and maximize capital efficiency to achieve our mid-term target for the net D/E ratio of 0.5 times or lower.
〈Capital Policy〉Improve Capital Efficiency to Increase Corporate Value over the Medium and Long Term
The Fuji Oil Group’s basic capital policy is to generate sustainable cash flow by maintaining financial discipline and improving financial soundness while making investments in growth that exceed the cost of capital. We are targeting ROE of 10% in 2020 while maintaining our shareholder return policy of a payout ratio at 30% to 40%, with the goal of increasing corporate value over the medium and long term by further enhancing capital efficiency.
〈Financial Priorities〉Emphasize Free Cash Flow
The financial strategy of the mid-term management plan includes generating operating cash flow of ¥100 billion over four years by increasing earnings and improving CCC, and maintaining financial discipline in appropriately allocating cash flow to capital investment and M&A. The acquisition of shares of Blommer significantly increased our net D/E ratio, so we need to enhance cash flow management.
We need to reduce interest-bearing debt to maintain and improve financial discipline. Reducing the net D/E ratio to the 0.5 times level over the next five years will require us to generate free cash flow of ¥10.0 billion annually over the next five years.
We introduced investment standards that emphasize the cost of capital in fiscal 2018, and in fiscal 2019 we have begun to review our operations based on new standards for withdrawing from businesses. Capital investment and business investment are essential for Group growth, but we will make investment decisions after carefully selecting and clarifying priorities.
〈Shareholder Returns〉Shareholder Returns Are a Management Priority
Shareholder returns and our dividend policy are management priorities. In keeping with our mid-term management plan target of a payout ratio of 30% to 40%, and we are delivering stable, consistent dividends.
We paid annual dividends of ¥50 per share for fiscal 2018, and plan to increase the total dividend for the eighth consecutive year to ¥56 per share for fiscal 2019.
Aiming to Improve Corporate Value through Dialogue
I have been energetically promoting IR activities since becoming CFO in 2015. We have enhanced our earnings conferences and small meetings through the participation of top management. We are also enhancing English language disclosure and have created opportunities for dialogue with overseas investors through international IR presentations and conferences. I also participate in individual interviews at which I have received many suggestions.
In particular, these initiatives have deepened our awareness of the importance of cash flow management, the factors that have driven our growth beyond organic growth, and Group management and governance mechanisms as we expand our businesses internationally. We will maintain our dialogue with investors and other stakeholders and reflect their opinions in management with the goal of improving it.
Fiscal 2018 results were unsatisfactory even considering non-recurring issues such as the expenses associated with the acquisition of shares of Blommer. In fiscal 2019, the third year of our mid-term management plan, we intend to increase corporate value by improving capital efficiency, generating cash flow by consolidating Blommer, and growing existing businesses. We will achieve sustainable growth for the Fuji Oil Group by steadily making improvements, and by meeting the expectations of stakeholders and fulfilling our responsibilities without slowing reform.