English Top>News Releases>2005>SDK Maps Out New Business Plan “PASSION Project” --In Pursuit of “Unique Chemical Company with Individualized Products”--

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SDK Maps Out New Business Plan “PASSION Project” --In Pursuit of “Unique Chemical Company with Individualized Products”--

November 29, 2005

Showa Denko K.K. (SDK) has prepared a new medium-term consolidated business plan for the 2006-2008 period in which SDK will further increase its value and fulfill its social responsibility, contributing to the interests of all stakeholders.

During the period of the Sprout Project for the 2003-2005 period, SDK has been promoting its growth strategy by creating new businesses through the interconnections of inorganic/aluminum and organic chemical technologies. SDK has also continued restructuring efforts that started under the previous Cheetah Project for the 2000-2002 period. In the past six years, SDK has taken 47 restructuring measures, including alliances and withdrawal from operations.

As a result, we now expect that major financial goals under the Sprout Project will have been achieved by the end of this year.

  2005 forecast Sprout target Excess
Operating Income (billion yen) 56.0 50.0 112%
Profit Ratio 6.9% 7.0% or over -0.1 point
ROA 6.1% 5.1% ¡Ü1.0 point
Interest-bearing debt (billion yen) 450.0 520.0 70.0
D/E ratio (times) 2.28 3.00 Exceeded
Cost reduction (accumulated:2003-05) (billion yen) 21.1 20.0 106%

At the basis of the new Passion Project is an “image” of the Showa Denko Group in 2010. Specifically, we want to establish ourselves as a unique chemical compsany with competitive individualized products, and as provider of a wide range of materials and device/module technologies. We also want to substantially improve our financial strength by reducing interest-bearing debt and increasing the stockholders’ equity, and obtain high levels of trust and reputation from society and the market.

In financial terms, our goals in 2010 will be operating income of ¥100 billion, profit ratio of 10% (operating income basis), and D/E ratio of 1.0. To realize that “image,” we have mapped out the Passion Project as an action plan for the 2006-2008 period. The company has defined a set of values for its employees to encourage them to join forces and create a spiral of growth.

Under the new business plan, SDK will lay the groundwork for sustainable growth over the long term. Thus, the new plan will concentrate on measures to (a) accelerate the development of new growth businesses, (b) continually expand income, and (c) improve the financial strength. The financial goals under the Passion Project are shown in the following table:

  2005 2006 2007 2008
Net sales (billion yen) 810 800 870 940
Operating income (billion yen) 56 62 73 85
Profit ratio 6.9% 7.8% 8.4% 9.0%
ROA 6.1%     8.5%
Interest-bearing debt (billion yen) 450     400
D/E ratio (times) 2.28     1.4

Also, a breakdown of sales and operating income by segment is as follows:

  2005 forecast 2006 plan 2007 plan 2008 plan
  Sales O.I. Sales O.I. Sales O.I. Sales O.I.
Petrochemicals 304.0 22.0 253.0 15.0 274.0 17.0 277.0 18.0
Chemicals 71.0 4.5 74.0 6.0 78.0 7.0 84.0 8.0
Electronics 132.0 18.5 161.0 24.0 200.0 30.0 241.0 37.0
Inorganic Materials 61.0 8.5 67.0 11.0 68.0 11.0 70.0 12.0
Aluminum 242.0 9.0 245.0 11.0 250.0 14.0 268.0 17.0
HQ costs   -6.5   -5.0   -6.0   -7.0
Total 810.0 56.0 800.0 -62.0 870.0 73.0 940.0 85.0

Basic strategies under the Passion Project

SDK will classify its respective operations into two categories of “growth businesses” and “base businesses.” The growth businesses will consist of “growth drivers” and “businesses to be developed at an accelerated pace.” The base businesses will be positioned as “cash cows.” As of 2008, the base businesses and the growth businesses will account for 60% and 40%, respectively, of the total operating income.

Furthermore, SDK will establish six new SMU (strategic market unit) projects to create and develop next-generation businesses. By 2010, these new businesses will come to account for 10% of the total operating income. The business portfolio under the Passion Project is defined as in the table below:

  Growth businesses Base businesses
  Development to be accelerated Growth drivers Cash cows
Petrochemicals     Olefins
Organic chemicals
Specialty polymers
Chemicals Life science
Fine chemicals
  Ammonia
Industrial chemicals (Industrial gases, Inorganic industrial chemicals)
Electronics Ultra bright LEDs
Capacitors
Hard disks
Specialty gases for semiconductor processing
Existing compound semiconductors
Rare earth magnetic alloys
Inorganic
Materials
Fine carbons   Graphite electrodes
Commodity type ceramics
Aluminum and
others
    High purity foils for capacitors, Aluminum beer cans, Heat exchangers, Alloys, Commodity and functional aluminum parts

As for major businesses of respective categories, SDK will implement the following strategies:

1. Growth drivers

  • (a)Hard disk (HD) media
    We are already the world’s largest independent HD media supplier. We will further consolidate this position by launching advanced products based on our leading technologies while expanding our production capacity to meet growing demand.

    In 2005, SDK started the world’s first commercial production of HD media based on the perpendicular magnetic recording technology and of HD media with the smallest diameter of 0.85 inch. To enable the production of 0.85-inch media with storage capacity of 40 GB by 2010, we are building a new R&D facility for completion in April 2006.

    In addition, we will build our fourth HD media plant in Singapore for start-up in November 2006 to meet the market growth of more than 15% a year. As a result of the construction of the new plant and scheduled expansions at the three existing plants, our HD media production capacity will increase from 13.75 million disks per month as of March 2006 to 24 million disks per month in 2008.
  • (b)Semiconductor-processing materials
    In the areas of high-purity specialty gases for production of advanced semiconductors, we have a 30% market share in the world’s high-purity ammonia production. We will further strengthen our line-up of high-performance, high-value products, developing new materials and providing total solutions.

    Specifically, we will provide C4F6 advanced etching gas, innovative film-forming materials for a chemical vapor deposition process, and other new materials. We aim to increase sales of semiconductor-processing materials from ¥19 billion in 2005 to ¥30 billion in 2008.

2. Businesses to be developed at an accelerated pace through concentration of resources in selected areas and strengthening of marketing activities

  • (a) Ultra bright LEDs
    SDK this month succeeded in commercializing ultra bright LEDs that emit green and ultraviolet lights. SDK is now the only one company in the world that can provide ultra bright LEDs for all wavelengths from ultraviolet to infrared. Demand for these products is expected to grow for such applications as LCD backlighting, car headlights and general lighting. By expanding sales in these new market areas, we aim to sell ¥20 billion of ultra bright LEDs in 2008.

    High-performance capacitors
    Our conductive polymer aluminum capacitor represents the fruit of interconnections of our proprietary inorganic/aluminum and organic chemical technologies. We will improve the product by increasing its rated voltage and lowering its height. Furthermore, we will launch innovative high-capacitance capacitors using new materials. Thus, we aim to increase our capacitor sales from ¥2 billion in 2005 to ¥10 billion in 2008.

3. Establishment of new SMU projects

We will establish six new SMU projects for our three major target markets of electronics, automotive parts and personal care/environmental goods. We will preferentially allocate resources into these projects to create next-generation products, as follows:

  • Semiconductor devices (SiC power device, GaN/InP device, etc.)
  • Energy devices (fuel cells, electric double-layer capacitors, etc.)
  • Displays and lighting modules (Organic electroluminescent materials, backlighting, LED lighting, etc.)
  • IT chemicals (film-forming materials, photoresist, optical materials, etc.)
  • Automotive parts¡Êhigh-performance heat exchangers, components and materials that enable the production of lighter cars, etc.)
  • Environment and energy (CO2 utilization technology, catalyst technology, etc.)

4. Base businesses: Further strengthening their competitive positions to ensure their roles as “cash cows”

  • (1)Petrochemicals
    We will further improve our manufacturing processes and catalyst/operation technologies to diversify cracker feedstock and increase the value of cut. Thus, we aim to make our Oita Petrochemical Complex one of the most profitable complexes in Asia. We aim to achieve operating income of ¥18 billion in 2008 from the petrochemicals business.
  • (2)Inorganics
    We will further consolidate our position as a leader in the world’s graphite electrode industry in terms of quality and cost-competitiveness. We will strengthen our competitive position by ensuring mass-production of large-diameter electrodes. In the ceramics business, we will firmly establish our position as the leading abrasive supplier in Asia with production sites in Japan and China. Through these measures, we will achieve operating income of ¥12 billion in 2008 from the inorganics business.
  • (3)Aluminum
    While aggressively investing in such competitive product lines as high-purity aluminum foils, aluminum cylinders for laser printers and Shotic forgings, we will soon recover the profitability of our automotive heat exchangers business by introducing new types (NRT III, etc.) and expanding operations in China. Drastic cost reductions will also be implemented. To create individualized new products, the Aluminum sector will make investments of ¥22 billion during the Passion Project period. Through these measures, we will achieve operating income of ¥17 billion in 2008 from the aluminum business.

5. Capital investment and R&D program

SDK will make capital investments of approximately ¥200 billion in the three-year period, of which investments in growth businesses will account for 60%. The budget for research and development in the same period will total around ¥70 billion.