Mitsubishi Heavy Industries CEO acknowledged that the Japanese conglomerate may require a major overhaul and restructuring as industry groups seek to separate their businesses in an effort to prevent long-term decay.
Shares of MHI, whose businesses include coal-fired power stations, shipbuilding, car turbochargers, space rockets and fighter jets, have fallen more than 40 percent since Seiji Izumisawa took over in 2019.
“We believe that we need to change the organization based on strategy, without a [fixed form of] organization, ”Izumisawa said in a briefing with reporters.
While MHI manufactures a wide range of products, “does not mean that it is a good idea to have everything. . . We have to adapt to the times and social changes “, he said, adding that the group is considering exchanging assets” at the right time “.
Izumisawa’s remarks came when a number of companies separated their divisions in an effort to avoid the conglomerate discount problem for shareholders, in which a diversified group of businesses and assets are valued at less than the sum of its shares.
In November, General Electric set out a plan to break itself into three public companies focusing on aviation, healthcare and energy.
Toshiba also said this planning to divorce in three listed companies, which spun off its electronic devices, infrastructure and semiconductor businesses after a clash with activist shareholders.
However, according to advisers working with MHI, the Japanese conglomerate is unlikely to divide itself into several listed entities.
It’s profitable energy systems business, which is mostly composed of turbines for thermal power plants, is expected to account for more than 60 percent of the conglomerate’s overall profit in the fiscal year ending in March.
It is unclear whether splitting will create more than one company with strong attractiveness to investors, the adviser said. But they added that MHI is likely to consider selling some non-core units.
Among Japanese companies, Hitachi is considered a successful model of restructuring, especially compared to the misery of its local electronic competitors. After showing a record net loss in the wake of the global financial crisis, the company’s leadership streamlined its operations and its share price increased fivefold.
To increase MHI’s market value, Izumisawa is also trying to move the conglomerate away from dependence on fossil fuels. The group has the largest world market share of power plants that capture and store carbon dioxide, which is essential for renewable ammonia and hydrogen from fossil fuels. It has also developed a turbine that is specifically for low-cost hydrogen power generation.
MHI hopes that this technology will pave the way for a smoother transition to net zero emissions. The company said in November 2020 that it intends to increase its global revenue from green energy to ¥ 50 billion ($ 434m) in fiscal 2023 and ¥ 300 billion by fiscal 2030.
“Emissions cannot be reduced to zero or up to half within one day,” Izumisawa said. “We need to gradually reduce them to a target by using existing facilities.”