English TopNews Releases2002SDK Maps Out New Medium-Term Business Plan "SPROUT Project" --Growth-Oriented Strategy Anticipating Market Needs--

January 29, 2002

Showa Denko K.K. (SDK) has prepared a new medium-term consolidated business plan for the 2003-2005 period in which SDK will shift its focus from restructuring to expansion in strategically selected market areas of high growth potential. Under the plan named the "SPROUT Project," SDK will introduce individualized, competitive and value-added product lines based on leading-edge technologies developed through interconnection between inorganic/aluminum and organic chemical technologies. SDK will target the three major growing markets of electronics, automotive and personal care/environment, while identifying 12 specific segments named "strategic market units (SMUs)."
The new plan is to follow the ongoing "Cheetah Project" for the 2000-2002 period, during which SDK is renovating its operations to pave the way for future growth through strategic reduction of the scope of operations.
Specifically, SDK has been making strenuous efforts to reduce fixed costs and improve the balance sheet by selling businesses and affiliates outside the target portfolio as well as by reducing debt and personnel. Although the profit targets will not be reached due to the drastic changes in the economic environment, most of the goals defined in the "Cheetah Project" are either achieved already or will have been achieved by the end of 2002.

The newly prepared "SPROUT Project" is outlined below:

1. Identification of the corporate vision

SDK will provide products and services that are useful and safe and meet the customer requirements, thereby enhancing the Company's value, giving satisfaction to our shareholders, and contributing to the sound growth of international society.

2. Basic concept of growth strategy

*Pursuit of technological synergies

We are transforming ourselves from a diversified chemical company (operating many businesses with little synergy) into a focused and individualized chemical company by pursuing synergies through interconnection between inorganic/ aluminum and organic chemical technologies.

*Change to market-oriented way of thinking

We are changing our way of thinking from the one based on the production (only offering the product we produce) to a market-oriented concept. This means that we determine our business domains in view of the target markets (SMUs) and our individualized technology base.

3. Target markets and business domains

• 1)Background for our business portfolio
  We first examined our existing extensive businesses and technical seeds and analyzed our three major target markets, namely, electronics, automotive and personal care/environment. Then we identified the areas where we can expect high growth by fully utilizing our core technologies. Based on the specific market segments thus identified (SMUs), we have classified all our businesses into the following three categories:
  
  • (1)"Strategic growth businesses" that are directly linked to SMUs and will serve as a growth engine for SDK and its Group companies
  • (2)"Base businesses" that will, despite their relatively low growth potential, support the strategic growth businesses
  • (3)Businesses that need restructuring regardless of current earning power
• 2)Business portfolio

4. SDK's core technologies

SDK possesses the following core technologies that will help the Company in expanding operations in SMUs belonging to the three major target markets. By further developing and interconnecting each of these core technologies, SDK will provide customers with individualized products meeting their requirements. Organic electronic materials;
Battery/capacitor/recording media materials; Inorganic electronic materials; Crystal growth/thin film deposition processes; Precision fabricating process; Micro-system process; Functional gases; Ultimate conditions process; Heat transfer system; Forging process; Plasticity processing; Bonding; Functional metallic materials; Functional molecular design; Controlled reaction design; High-performance catalysts; Specialty polymer design; Fine particles; Biochemistry; Organic chemicals manufacturing process; Surface and interface chemistry; Structural analysis; Chemical analysis; and Computational science

5. Strategic market units (SMUs)

SMUs are key factors for us in determining our business portfolio. The following 12 SMUs have been identified in view of SDK's competitive edges and market growth potential:

Electronics

Communications devices; Displays and their materials; Semiconductor processing materials; Capacitors and their materials; Battery materials; Magnetic materials

Automotive

Parts/components that facilitate the production of lighter cars; Heat exchangers

Personal care/Environment

Raw material for cosmetics; Life science products; Energy-saving systems; Printer parts

6. Approach to SMUs: Specific examples

• 1)Displays and their materials (Businesses based on individualized technologies developed through interconnection of inorganic/aluminum and organic chemical technologies)
  
  • * Compound semiconductors Wide-ranging LEDs (polycrystal, epitaxial wafers and chips)
  • * Polishing materials for liquid crystal displays (LCDs)
    Ceria-based material to be used for polishing plate glass for LCDs
  • * Aluminum material for heat sinks
    Aluminum alloy having thermal conductivity comparable to that of pure aluminum for use in heat sinks of plasma display panels (PDPs)
  • * Organic electroluminescent material
    New type of organic electroluminescent material that ensures highly efficient emission of light and saving of energy
• 2)Battery materials (Based on high-temperature graphitization technology)
  
  • * Vapor-grown carbon nanofiber
    Carbon nanofiber has been developed as an extension of the current business of VGCF (vapor-grown carbon fiber) for lithium-ion batteries.
  • * Components of fuel cells
    In addition to the existing phosphoric acid fuel cell (PAFC) components business, we are developing components of the next-generation polymer electrolyte fuel cell (PEFC).
  • * Conductive polymer
    We are developing new battery materials based on our proprietary solid polymer electrolyte technology.
• 3)Semiconductor processing materials (Providing total solutions by combining inorganic chemical technology and organic synthesis technology)
  
  • * High-purity gases
    Etching and cleaning gases centering on fluorine gas; Waste gas treatment; Materials resistant to corrosion and abrasion
  • * High-purity solvents
    Providing solutions for IC/LCD manufacturing processes based on high-purity solvents for electronics
  • * Chemical mechanical polishing (CMP) materials
    Ceria-based slurries for shallow trench isolation (STI) devices; Cleaning agents; Recycling
  • * Photoresist materials
    Solder inks; Photoresist inks; Photo polymerization initiators: Dry film coverlays
• 4)Parts/components that facilitate the production of lighter cars (Proprietary Shotic aluminum casting/forging technology combined with precision fabricating technology)
  
  • * Car air-conditioner compressor parts
    Production of Shotic forged parts at four production sites in the world
  • * Suspension arms
    Using sophisticated bonding technology
  • * Sub frames
    Lightweight structural components based on castings and forgings
• 5)Raw materials for cosmetics (High-performance base materials for cosmetics using inorganic/organic synthesis technologies)
  
  • * Stabilized vitamin C derivatives
    Further promotion of the APM and APS businesses
  • * Biosurfactant
    High-performance surfactant based on biosynthetic technology
  • * Nano particles
    Ultraviolet shield using nano particles of metal oxides
• 6)Life science products (Specialty chemicals based on individualized technologies)
  
  • * Pharmaceutical/agrochemical intermediates Providing derivatives based on raw materials of our own
  • * Amino acids
    Alpha-amino acids; Hydantoin; Chelating agents
  • * Photo catalysts
    Value-added titania nano particles based on surface treatment technology
  • * Environment protection and analytical systems
    Ultraviolet shield using nano particles of metal oxides

7. Approach to SMUs

Prior to implementation of the SPROUT Project, SDK will start taking the following measures to facilitate its approach to SMUs:

• * Initiation of cross-functional projects to deal with SMUs that relate to more than one business sectors
• * Establishment of Technology Consortium
  Through systematic combination of 27 technology platforms, SDK will strengthen its technology strategy focusing on SMUs.

8. Base businesses; Businesses that need restructuring

• 1)Base businesses (Businesses that support the strategic growth businesses although their own growth potential is relatively low)
  
  • * Ensuring stable profits and cash flows
    Basic chemicals; Agrochemicals/fumigant
  • * Possessing core technologies that provide the basis for the strategic growth businesses
    Example: Development of fine carbon technology based on the graphite electrode technology
  • * Closely related to the strategic growth businesses in terms of the material flow
    Example: Development of specialty chemicals based on the basic chemicals business
• 2)Businesses that need restructuring regardless of current earning power (in view of the market structure and because of the lack of sufficient technical synergies with the strategic growth businesses)
  
  • * For businesses in this category, we will pursue optimum management environment and consider the possibility of alliances and sale.
    Examples: Petrochemicals; Commodity aluminum materials; HD and MD

9. Capital investment

SDK will make capital investments, centering on the strategic growth businesses, in excess of the total depreciation expenses. The aggregate amount of capital investments over the three-year period will be ¥114 billion compared with the total depreciation expenses of ¥106.5 billion over the same period.

10. Research and development

Reform of the R&D setup (Technology-related organizations will be reformed in March 2002 to facilitate the implementation of the growth strategy.)

• * Interconnection of technologies
  Technology platforms will be fully utilized to further strengthen our core technologies and to encourage interconnection among respective elements.
• * Technology management (Commercialization of technologies; Concentration of resources on selected research themes)
  "Stage gate system" will be introduced to ensure higher levels of technology management

R&D expenses
Approximately ¥40 billion will be spent for R&D over the three-year period centering on research themes that will encourage expansion of businesses in SMUs.

11. Small head office

The administrative expenses will be reduced in line with the progress of restructuring in relevant businesses.

• * Administrative expenses will be reduced from estimated ¥13 billion for 2002 by around ¥3.5 billion, to approximately ¥9.5 billion.
• * The number of administrative staff will be reduced from around 400 at the end of 2001 by 150, to approximately 250 by the end of 2003.

12. Target sales and operating profits by business categories

13. Reduction of interest-bearing debt

Target amount of debt reduction: ¥80 billion over the three-year period
The amount of debt, which is estimated at ¥600 billion as of the end of 2002, will be reduced to ¥520 billion by the end of 2005.

14. Target consolidated ROA figures (Unit: billions of yen)

15. Target sales and operating profits by sector

Attachment : SDK Maps Out New Medium-Term Business Plan "SPROUT Project"( PDF 29KB )

To view a PDF file, you need Adobe Reader, which is available at no charge from the website of Adobe Systems Incorporated.
Note: Adobe Reader is a trademark of Adobe Systems Incorporated.