Medium-Term Business Plan

Showa Denko Maps Out Medium-term Business Plan “Project 2020+” --Shaping the Future--

Dec. 11, 2015

Showa Denko (SDK) (TOKYO: 4004) has prepared a new medium-term consolidated business plan “Project 2020+” for the 2016-2020 period in which SDK will aim to solidify the revenue bases of its diversified businesses, expand its individualized businesses, and make the Showa Denko Group become a corporate group that continuously leads the market under fierce global competition.

During the five years from 2011 through 2015, SDK promoted its medium-term consolidated business plan “PEGASUS” and its latter half “PEGASUS Phase II.” Since the start of PEGASUS, SDK has steadily implemented management measures including active business expansion in China and ASEAN, strengthening of competitiveness of its domestic businesses, and intensive input of management resources to its core businesses, though there were drastic changes in the surrounding business environment such as the Great East Japan Earthquake in March 2011, the following steep rises in electricity and energy prices, substantial rises and falls in prices of naphtha and aluminum metal, and oversupply of steel in China. Thus, SDK has decided to launch a new consolidated business plan for 2016 and after.

1.Project 2020+: Concept and basic strategy


Under the global megatrends such as climate change, depletion of natural resources, urbanization, multipolarization in world economy, technological breakthroughs, and drastic changes in feedstock/energy-resources market, SDK will aim to contribute to the solution of these social issues in global scale by providing high-value-added products, technology and services to five market domains, namely, “Infrastructure,” “Energy,” “Mobility,” “Living environment,” and “Electronics.”

SDK will also aim to become “a company contributing to the sound growth of society” that contributes toward creating a society where affluence and sustainability are harmonized, by realizing dreams and wishes of the people and society as many as possible with the power of chemistry.

b.Basic strategy

In the global market, SDK will expand its “individualized businesses” which maintain high-level profitability and stability.  We will enhance our capability to resist market fluctuations and raise our corporate value by providing customers with attractive products and services and holding many businesses that have top shares in the competitive markets of global or certain scale.

As in the target image of the Showa Denko Group for 2025, we will aim to increase shares of our individualized businesses in net sales from 30% to 50%, and also increase shares of overseas sales in net sales from 40% to 60%, in order to reduce the range of fluctuation in our profitability.

For the five year period from 2016 to 2020, we will set four business categories in our business portfolio, and define missions for each business category in order to strengthen our existing businesses. We will further strengthen earning power of our existing businesses by reforming business models, and also promote M&A and business alliances, aiming to introduce new growth businesses from outside entities.  In addition, aiming to promote globalization of our business activities and expand our “individualized businesses” further, we will implement strategic capital investment in growing Asian/ASEAN market, and also pursue growth opportunities in developed countries in Europe and North America.  The four business categories in our business portfolio mentioned above are as follows:

1)Growth-accelerating businesses
This business category includes high-purity gases for electronics, functional chemicals and aluminum cans businesses.  In this category, we will positively carry out strategic measures to take advantage of growing overseas markets including Asian and ASEAN markets, and achieve fast expansion of these businesses.

2)Advantage-establishing businesses
This business category includes lithium-ion-battery (LIB) materials and SiC epitaxial-wafer for power devices businesses.  In this category, we will establish business models with competitive advantages in terms of business operation and technology development, since the markets for these two businesses are expected to have rapid growth in the near future.

3)Base-shaping businesses
This business category includes hard disk (HD) media, graphite electrodes, petrochemicals, and some other businesses.  These businesses are expected to keep certain scales in terms of market and business operation.  Therefore, we will make these businesses have more power to resist market fluctuations, and earn stable profit and cash flow.

As for Rebuilding businesses, we will increase profit and cash flow earned by these businesses by rebuilding their competitive environment, profitability and business models.

Through expansion of Growth-accelerating businesses including high-purity gases for electronics and full-scale commercialization of Advantage-establishing businesses, SDK will increase combined sales in these two business categories by 30% from the current level, and double their combined operating income, both by 2018.

[Advantage-establishing] To cope with prospective market growth, establish business model with competitive advantage in terms of business and technical development. LIB materials SiC epi-wafer for power devices  [Growth-accelerating] Actively take strategic measures. Realize rapid expansion of business by preemepting market growth. High-purity gases for electronics Functional chemicals Aluminum cans [Base-shaping] Market and business have certain scale. Have more power to resist market fluctuation, and make stable profit and cash flow. HD Graphite electrodes Petrochemicals Baslc chemicals Industrial gases Shotic™ High-purity aluminum foll [Rebuilding] Increase profit and cash flow through rebuilding of business environment, profitability and business model.

Business portfolio in Project 2020+

2.Business strategy in priority areas

1)High-purity gases for electronics

We expect that the demand for electronic materials will continue to be lively, centering on use in mobile devices including smart phones and tablets.  The market for semiconductors continues to expand, and the enhancement of microscopic and multi-layer structure in microchips is in progress.  Therefore, consumption of high-purity gases in production of semiconductors has been continuously increasing.  Moreover, production of LCDs in China is rapidly increasing.  The range of LEDs’ use is also expanding to cover such fields as on-board use in automobiles.  We will aim to be a leading company in the high-purity gas industry by taking measures such as strengthening logistics and marketing functions of our high-purity gas business which are necessary for global expansion of our operation, and increasing capacities of existing supply bases and establishing new sales bases in North America and China.

2)Functional chemicals

We expect that demand for functional chemicals will continue to increase due to special boom caused by Tokyo Olympics and renewal of aging infrastructure.  In addition, we anticipate that the demand for functional resins and monomers in China and ASEAN region will steadily increase, centering on use in infrastructure building and automobile manufacturing.  We will aim to enhance our market share and earning power by strengthening sales and development capability in domestic market.  We will also pursue early start of thermosetting bulk molding compound plant in in Zhuhai, China, and increase sales of functional monomers.  Thus, we will continue to capture market trends, and expand our functional chemicals business.

3)Aluminum cans

We expect that there will be rapid expansion of the market for aluminum cans to contain beer in rising ASEAN region market, especially in Vietnam, due to population increase and the rise in standard of living.  We will expand our sales of aluminum cans not only to existing customers but also to new customers in overseas markets by increasing cost competitiveness of the aluminum can manufacturing subsidiary in Vietnam, which we acquired in 2014, through strengthening of its printing and manufacturing technologies.  On the other hand, in Japan, we will aim to stabilize our business income by strengthening our position in the market.

4)Hard disk (HD) media

Demand for HD media in total is expected to increase steadily due to gradual increase in demand for near-line servers for data centers, though demand for mobile PCs is gradually decreasing.  While storage density of HD media continues to increase 20% a year, we expect that HD media featuring next-generation technology will be launched in or after 2018.  We have been producing HD media with top-level quality and performance by developing leading-edge technology ahead of other HD media manufacturers.  We will further improve quality and performance of our 3.5-inch HD media, the demand for which is expected to increase due to expansion in use in servers for data centers, and establish flexible production system to meet changes in demand.  Thus we will enhance earning power of our HD media business.

5)Graphite electrodes

Global demand for steel will continue low growth rate of about 1% a year in the future, and it will take time to have solution of overcapacity problem in the Chinese steel industry.  On the other hand, the graphite electrode industry is now experiencing development in reorganization including production capacity reduction in global scale.  SDK will review its production system of graphite electrodes with three production bases located in the U.S., Japan and China, and rebuild optimum production system that corresponds to the scale contents of demand.  We will also steadily promote structural reform including cost reduction and productivity improvement, aiming to increase earning power of our graphite electrode business.

3.Performance targets

1)Overall targets

(Unit: Billion yen)2015*2016 Plan2017 Plan2018 Plan
Net sales 785 810 850 855
Operating income 34 36 50 57
Net income 7 20   30
FCF 15 68(Cumulative: 2016-2018)
ROA(%) 3%     6%
ROE(%) 2%     9%

2020 Image

  • Net sales : 930
  • Operating income : 70

*Announced on December 4, 2015

2)Breakdown by segment

(Unit: Billion yen)2015*2018
Petrochemicals 231 10.5 225 8.0
Chemicals 145 11.0 170 17.0
Electronics 130 17.5 130 18.0
Inorganics 65 0.0 85 10.5
Aluminum 102 2.5 120 7.5
Others 154 0.5 175 4.0
Adjustment -42 -8.0 -50 -8.0
Total 785 34.0 855 57.0

3)Capital investment plan

We will carry out capital investment amounting to 130 billion during three years from 2016 through 2018.  We will implement strategic investments especially in Growth-accelerating and Advantage-establishing businesses, including investment to expand facilities in the aluminum-can subsidiary in Vietnam, investment to expand production capacity and establish sales bases for high-purity gases for electronics at home and abroad, and investment to expand production facilities for LIB materials and SiC epi-wafer for power devices.  Moreover, in the market domains of Energy and Living environment, we will invest in the businesses to promote use of recycled plastics, countermeasures against global warming including energy/electricity-saving, and introduction of latest-type hydropower generation facilities, aiming to reduce GHG emission and strengthen resource-recycling businesses.

4)Cost reduction strategy

We will implement measures to reduce cost for 20 billion in total during the three year period from 2016 through 2018, centering on Base-shaping businesses.

5)Financial strategy and improvement in return to shareholders

We will strive to improve our financial standing by increasing net income, carefully selecting capital investments, adequately controlling inventories, and improving efficiency in use of assets.  We will improve our D/E ratio to be 1.0 by the end of 2018, from the current level of 1.2.  In addition, we set our new target payout ratio at 30%, in order to improve return to shareholders.

4.R&D strategy

In order to solve social issues and create new value concerning the five market domains of “Infrastructure,” “Energy,” “Mobility,” “Living environment,” and “Electronics,” we will promote our original R&D programs by deepening and fusing various elements including our diverse business domains, “Core technologies” which are elemental technologies with competitive advantages, and “Strategic technologies” which are world-top-level technologies we cultivated over many years.  During the three year period from 2016 to 2018, we will invest 60 billion in our R&D activities.  Thus we will intensively input our business resources into R&D activities related to strengthening of our core businesses and expansion of businesses in their surrounding fields.  We will also promote utilization of open innovation and M&A, aiming to create next-generation business themes that lead to the prosperity of the Showa Denko Group in the future.

Medium-Term Consolidated Business Plan:Presentation Materials

2017(December 12, 2017)

2016(December 13, 2016)

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