Investors Relations-Message from the Top Management

  • Kiyoshi Otsubo Representative Director, Chairman, President and Chief Executive Officer

    General Packaging Industry (GPI) Rengo Supports Sustainable Economic and Social Development and Enriching Lifestyles

    The Rengo Group, which in 2019 will mark 110 years since its foundation, is building solid business foundations with a view towards the next 100 years. As General Packaging Industry (GPI) Rengo, we propose comprehensive solutions to all packaging needs in every industry and are developing a hexagonal business structure centered on six core business fields: paperboard, corrugated packaging, folding cartons, flexible packaging, heavy duty packaging, and overseas business. With “Less is more.” as our key concept, we are generating greater value from fewer resources and creating innovative packaging that is peopleand environment-friendly.

    Summary of Financial Results for Fiscal 2017

    Strong Packaging Demand and Expansion of Group Business Lead to Higher Earnings Measures to Create Reproducible Pricing Structures

    The Rengo Group’s consolidated financial results for fiscal 2017 (the year ended March 31, 2018) were as follows: net sales were \605,712 million, a year on year increase of 11.0%; operating income was \17,082 million, a decrease of 27.7%; ordinary income was \23,168 million, a decrease of 8.1%; and profit attributable to owners of the parent was \16,622 million, an increase of 19.8%. Thus, earnings were up for the second consecutive year since fiscal 2016.

    In the Paperboard and Packaging-Related Business, sales increased and measures were taken to adjust product prices, but the rising price of recovered paper, higher energy prices, and other factors resulted in an increase in net sales but a decrease in profit. The Group made efforts to maintain product prices by countering the rising price of recovered paper, the primary raw material of containerboard, as well as higher costs for fuel, chemicals, and logistics through comprehensive cost-cutting measures, but it was difficult to overcome this situation through internal efforts alone. Consequently, the Group implemented price adjustments starting with August 2017 shipments for containerboard and other paperboard and as of October shipments for corrugated packaging, and these adjustments produced a certain level of results. The strong demand for corrugated boxes in Japan and overseas has a major influence on the price of recovered paper, and we will closely monitor trends of demand and energy prices in the future.

    In the Flexible Packaging-Related Business, demand from convenience stores increased, but higher material costs and fixed costs resulted in higher sales but lower profit. In the Heavy Duty Packaging-Related Business, demand for container bags (flexible bulk containers) used for decontamination decreased, and as a result, both sales and profit were down. In Overseas Business, Tri-Wall Holdings Limited, which became a consolidated subsidiary, contributed to the Group’s results and the corrugated packaging business was strong, resulting in substantial increases in sales and profit.

    Domestic Strategies and Initiatives - Part 1

    Building Production Systems to Capture Expanding Demand

    In 2017, domestic corrugated board production volume was 14.2 billion square meters, an increase of 1.7% year on year. It is projected that the production volume in 2018 will increase by 1.2% to 14.4 billion square meters, the third consecutive annual increase and a record high. Demand for corrugated packaging is expected to grow at a steady pace, in part due to the expansion of e-commerce, and the Group has taken measures to develop production systems and enhance competitiveness through active capital investment and M&A.

    The conversion of a paperboard machine that produces corrugating medium so it can also produce linerboard at the Kanazu Mill (Awara-shi, Fukui Prefecture), undertaken as a part of our initiative to restructure the containerboard production systems, was completed and operations began in October 2017. Also, production at the Yodogawa Mill (Fukushimaku, Osaka) was suspended in December, and the Group consolidated its six containerboard mills in Japan to five mills. The result has been higher overall mill operating rates, an improvement in the balance of supply of corrugating medium and linerboard, and increased earnings capacity.

    In addition, as a part of our efforts to reinforce supply capacity in the Kanto region, where demand for corrugated packaging is increasing rapidly, Asahi Shiko Co., Ltd. (Konosu-shi, Saitama Prefecture) completed construction of a corrugator plant building, extension of an office warehouse building, and renovation of the corrugator at its head office plant in January 2018. As a result, quality has improved and production capacity increased, and moreover, the plant can also produce heavy duty corrugated board. Furthermore, in March, we signed an agreement to make Toppan Containers Co., Ltd. (Taito-ku, Tokyo), then a subsidiary of Toppan Printing Co., Ltd., into a subsidiary of Rengo Co., Ltd. Toppan Containers has three corrugated plants in Japan (Kawaguchi- shi, Saitama Prefecture; Sano-shi, Tochigi Prefecture; and Ishinomaki-shi, Miyagi Prefecture). Rengo is considering making forward-looking capital investments in Toppan Containers plants and will organize systems to more fully satisfy customer needs by enhancing corrugated packaging production capacity and further improving quality.

    In the Flexible Packaging-Related Business, against a backdrop of strong demand for film packaging including demand from convenience stores, Howa Sango Co., Ltd. (Funabashi-shi, Chiba Prefecture) is constructing a new plant building at its Narashino Plant (also located in Funabashishi), and the printing film production capacity of the plant will increase by about 30% in the autumn of 2018. In the Heavy Duty Packaging-Related Business, Nihon Matai Co., Ltd. (Taito-ku, Tokyo) is focusing on the diversification of business, and its efforts have made significant contributions to the Group's results through increase of added value of products including top/bottom tape for paper carriers, the sales volumes of which is at the world's highest level. In April 2017, Howa Sangyo and Nihon Matai established Howa Matai Packaging (Thailand) Co., Ltd., a joint venture in Thailand. The new company is operating as a sales base to respond accurately to growing local demand in Thailand and Southeast Asia.

    Domestic Strategies and Initiatives - Part 2

    Providing Responses that Fulfill Societal Needs

    As labor shortages become an increasingly serious social problem in conjunction with a low birth rate and aging population, interest is rising in Rengo Smart Display Packaging (RSDP), part of the Retail Mate series of products that contributes to work efficiency in distribution sites. RSDP greatly reduces the time needed for opening, unpacking and displaying products, achieves low-cost operations in retail sites, and contributes to display functions and excellent instore sales promotion. RSDP is a new-concept corrugated box developed with comprehensive capabilities in the design and marketing, packaging technology, and packaging systems, as well as manufacturing, sales operation, research and development. The lineup is now continuously evolving.

    In the e-commerce field, reducing the burdens of packaging and shipping operations at logistics centers is an urgent issue. The Gemini Packaging System was originally developed by Rengo as an innovative packaging system that measures products and automatically assembles boxes according to the height of each product. This system can substantially automate and raise the efficiency of packaging processes, and we have received numerous inquiries. We also developed Gemini S, which simplifies some functions, to meet an even broader range of needs.

    Going forward, we will continue to meet various customer needs through packaging innovation while keeping solutions to social problems in mind.

    Overseas Strategies and Initiatives

    Expanding Tri-Wall Group Business and Enhancing Existing Business

    In overseas business, the results of Tri-Wall Holdings Limited became subject to consolidation as of the 2017 fiscal year, and the corrugated packaging business also performed well. As a result, both sales and segment profit were up substantially from the previous fiscal year.

    The Tri-Wall Group owns Tri-Wall Pak® and Bi-Wall Pak®, global brands of heavy-duty corrugated packaging, and conducts business globally from its headquarters in Hong Kong. Tri-Wall established a joint venture heavy-duty packaging material manufacturing and sales company in the United States in April 2017 and engaged in active M&A to bring heavy duty packaging material manufacturers in Poland and the United Kingdom into the Group in June and July, respectively. In January 2018, the company expanded production capacity in Thailand and established structures to respond to growing demand for heavy duty packaging.

    In the overseas corrugated packaging business, the Group has nine plants located in China, Malaysia, and the United States (Hawaii). The Group reinforced its supply chain and took measures to secure appropriate profit by adjusting product prices in line with raw material costs, and as a result, achieved higher sales and profit.

    In ASEAN countries, the Group operates 15 corrugated plants in Thailand through Thai Containers Group Co., Ltd., a joint venture with Siam Cement Group, and is also focusing on the flexible packaging business centered on TC Flexible Packaging Co., Ltd., a subsidiary of Thai Containers Group. We are building structures that can provide a broader range of packaging services.

    Including the above, the Group operates 138 plants in 17 countries and regions around the world (including unconsolidated affiliates, as of the end of March 2018), and we will continue to enhance the overall capabilities of the Group and strengthen global business foundations.

    Corporate Social Responsibility

    Initiatives to Improve Total Factor Productivity through Work Style Reform

    For Japan to overcome the problem of a shrinking labor force and maintain growth in the future, it will be essential to improve productivity, and in particular total factor productivity (TFP), by implementing work style reform. The corrugated packaging industry turned its attention towards raising TFP at an early stage, and the Japan Corrugated Case Association established the TFP Committee in 2014. As a leading manufacturer, Rengo took the initiative in addressing long working hours and increasing rates of employees taking paid leave. These issues are closely related to the driver shortage, a serious problem in the corrugated packaging industry. By engaging in earnest dialogue with consignee customers, we are making improvements on the causes of long working hours such as manual loading, short delivery times, and small lots.

    From the perspective of a shipper, we are collaborating and cooperating with transportation companies to raise logistics efficiency with reform of driver work styles in mind. At the Kanazu Mill, in order to reduce long transport distances for containerboard, our various innovations in logistics including establishment of transit warehouses at intermediate locations are improving long driver working hours, and achieving higher product delivery efficiency. These initiatives have been commended by the local labor office as models for others.

    In terms of creating workplaces where diverse human resources can work with passion, Rengo has made efforts to diversify human resources and work styles through reinforcement of systems that support the empowerment of women such as promoting hiring and expanding job type eligibility in accordance with the Action Plan for Empowering Female Workers, as well as formulation of the Work Style Reform Declaration with a focus on encouraging male employees to take childcare leave. We adopted the Work Style Reform Action Plan in March 2018 and are working diligently to set quantitative targets, deadlines for achieving those targets, and specific actions from the following three perspectives: (1) address long working hours, (2) encourage taking of paid annual leave, and (3) promote flexible work styles.

    True productivity increases are not achieved through manufacturing alone. In addition to technological innovation, it is also important to raise the total factor productivity involving how people work and how they feel. This is why work style reform is needed. We will continue to make improvements in productivity with sympathy.

    SDGs Management

    Seeking Sustainable Corporate Management and a Sustainable Society

    "Vision110," our vision for the future adopted to mark the 110th anniversary of the Company's foundation, a major milestone, sets becoming the world's number one General Packaging Industry as a target to be pursued. To achieve this, it will be essential for us to reinforce our hexagonal management earnings bases through establishment of structures that can propose advanced packaging solutions to fulfill all packaging needs in Japan and overseas, as well as supply chains that integrate all processes from procurement of packaging materials to logistics and packing.

    In addition, in light of the Sustainable Development Goals (SDGs), which are international uniform objectives for achieving a sustainable society, we will respect the value of each employee as a source of the creativity and innovation that will be a major driver towards achieving those goals. We will accelerate work style reform to create environments where diverse human resources can demonstrate their maximum capabilities while we focus on raising total factor productivity and actively work to preserve the natural environment such as curtailing greenhouse gas emissions. The sustainability of society and the environment is the very foundation of a company’s business, and the Rengo Group remains committed to contributing to achieving the SDGs through its “Less is more.” packaging innovation.

    There is no ultimate form of the world’s number one General Packaging Industry. It is none other than devoting the world’s highest level of passion to creating even higher added-value packaging and continuously taking on new challenges based on high ethical standards and a fair management stance. The Rengo Group will continue to actively address social issues in all of our business activities and make tireless efforts to support logistics and lifestyles through packaging while seeking to create a better, sustainable society.

    I request the continued understanding and support of our shareholders, investors, and other stakeholders.