(2019 -2021) Taking on New Challenges...2019/02/13 · expected to show high growth, e.g., refrigeration lubricants and cosmetics A Leading Global Specialty Chemical Company 2 VISION2030

3rd Medium-term

Business Plan(2019 -2021)

Taking on

New Challenges

February 13, 2019

KH Neochem Co., Ltd.

Contents

1 Review of 2nd Medium-term Business Plan

2 VISION2030

3 Business Environment Perception（2019 - 2021）

4 The 3rd Medium-term Business Plan “Taking on New Challenges”

5 Capital Investment Plan

6 Financial & Capital Strategies

Strategy I Profit Increase by New Facilities

Active Investment for the Expansion of Performance Chemical Business

1

Improvement of Business Framework

７ Numerical Management Targets

Strategy II

Strategy III

(bn JPY)

2016 2017 2018

中期経営計画

実績

2016 2017 2018

(bn JPY)Medium-term Business Plan

Actual

76.180.2

76.6

94.7

80.5

101.2

7.5

9.0

7.0

11.5

8.0

10.9

Net Sales

By implementing our original strategy,

we exceeded the initial plan by a wide margin

1

Operating income

2

Review of 2nd Medium-term Business Plan

1

3

Key Strategy Ⅱ

Profit improvement of

basic chemicals

Key Strategy Ⅰ

Global expansion of sales of

performance chemicals

Key Strategy Ⅲ

Strengthen our foothold for

the future

Preparation for manufacturing

base in Taiwan planned to start

operating in 2019

Enhanced efforts to create new

business

Growth Stability Potential

Performance chemicals

Gross profit 14.8 bn JPY(48％ increase from 2015)

Raw materials for refrigeration

lubricants & cosmetics are

growing

Cost reduction target 2 bn JPY in

3years

[Actual]

3-year TTL 2.4 bn JPY (120%)

Expansion of refrigeration

lubricant raw materials’ production

capacity

Review of 2nd Medium-term Business Plan

Profitability increased over the last 3 years,

a new focus is needed to continue growth

Cancellation of new plant plan in

Taiwan

Implement further rationalization

and cost reductions to ensure

stable profit

Concentrate resources on areas

expected to show high growth,

e.g., refrigeration lubricants and

cosmetics

A Leading Global Specialty

Chemical Company

VISION20302

4

Providing specialty chemicals that

contribute to the reduction of global

warming and a better

quality of life

Expansion of products with the

largest global share and new

businesses in three strategic

domains

Ambitions Strategic domains

1

2

3 Top-class profitability in the chemical

industry

Environment

Work to capture changes

in global warming

and environmental

regulations

HealthcareCosmetic raw

materials

Skin care/home care

market to contribute

to improved

quality of life

ElectronicsHigh-purity

solvents

High performance

materials market

to support IoT and AI

Refrigeration lubricant

raw materials

VISION20302

A Leading Global Specialty

Chemical Company

2019 2030

2018 CY

Net Sales 101.2 bn JPY

Operating Income 10.9 bn JPY

4th medium-term plan 5th medium-term plan 6th medium-term plan3rd medium-term plan

To accomplish VISION2030

TTL Capital investment

100 bn JPY

2030 CY

Net Sales 180 bn JPY

Operating Income over

25 bn JPY

Environment

Healthcare ElectronicsTaking on

New Challenges

5

● Refrigeration lubricant

raw materials

● Cosmetic raw materials

● Electronics-related

materials

● Solvents & plasticizer

raw materials

Although there is a concern if world demand for semiconductors is levelling off,

the demand will grow due to the increasing popularity of IoT and AI.

Requirement for high quality products will increase as semiconductors get

smaller.

Demand will grow as population and average income increase in Asian

countries. The popularity of high-end products will also increase.

The growth of the Chinese market is slowing down a little, but demand will

continue to grow. Conversion to new type of refrigerant for air conditioners

will continue in Asian countries.

Although domestic demand has matured, Asian demand will continue to grow.

While the effect of Chinese environmental regulation is still unclear, the current

supply/demand balance will continue.

.

3

6

Performance Chemicals

Basic Chemicals

While uncertainty increases in the world's economy,

demand continues to grow

Business Environment Perception（2019 - 2021）

4

7

Strategy Ⅰ

Profit Increase

by New Facilities

Strategy II

Active Investment for the

Expansion of Performance

Chemical Business

Strategy III

Improvement of

business framework

Start up of new facilities for

refrigeration lubricant raw

materials and marketing of

new products

Operate new facilities for the

next generation

semiconductor materials

Further increase in

production capacity for


Creation of new business

through the new research

hub

Further introduction of facility

control system with latest

technologies (AI and IoT)

Improvement of work

environment and

encouragement of diverse

work styles

3rd Medium-term Biz. plan “Taking on New Challenges”

The 3 years of “Taking on New Challenges” towards

the accomplishment of VISION2030

4

8




8

Strategy Ⅰ

Profit Increase

by New Facilities

Strategy II



Chemical Business

Strategy III

Improvement of

business framework




new products


next generation


Further increase in





hub




Improvement of work

environment and


work styles

4

Refrigeration lubricant market For A/C

99%74%

99%70%

China

Other Asia（excl. Japan）

CAGR

+8%

2018 2025

90%

Environment

Expand sales thanks to new plant for refrigeration lubricant raw materials

Launch new raw materials for refrigeration lubricants for next generation HFC

Start up in 2020

X 1.5 capacity


*Source: estimates of the Company (2018 - 2025)

CAGR

+9%

For HCFC

For HFC/Next Gen. HFC/Next Gen.

*As a target product only 9


10

Operate facilities for the next generation


Electronics

4

Healthcare

Improve production capacity of 1,3BG

Improve quality by odor reduction, etc.

（Million $）

Semiconductor photoresist market

2017Actual

2018Est.

2019Est.

2020Est.

2021Est.

1,700

1,200

EUV resist

Cosmetics

Skincare market

（Asia）

CAGR 6%

• Increase population

• Increase global income

• Improved QOL

• High demand for

E-commerce


*Source: estimates of the Company based on

the materials of Euromonitor (2016 -2021)

*Source: estimates of the Company based on

the materials of Fuji-Keizai


2018 2021

22.0

25.4

4

Increase sales of


by 20%in 3 years

11

14.8

17.6

7.0 7.4


（bn JPY）

機能性材料

Gross profit

By product type

Performance chemicals

（solvents & plasticizer

raw materials）

Basic chemicals

(raw materials for refrigeration

lubricant, cosmetics etc.)


4

12




12

Strategy Ⅰ

Profit Increase

by New Facilities

Strategy II



Chemical Business

Strategy III

Improvement of

business framework




new products


next generation


Further increase in





hub




Improvement of work

environment and


work styles

3rd Medium-term Plan(2019 – 2021)

4th Medium-term Plan(2022 – 2024)

13Decision making for large-scale investment

4

・Refrigeration lubricant raw materials

・Semiconductor materials-related

・Utility-related

・Renew of material receiving facilities

・Introduce new ERP system

Large-scale investment of

Performance Chemical Business

Refrigeration lubricant raw materials

Cosmetic raw materials etc.

FS / Construction

Final investment decision

Strategic Investment

12.5 bn JPY over 3 years

Strategy II Active Investment for the Expansion of



Environment

Create new businesses for the accomplishment of VISION2030

Enhance development with open innovation

Creation of new businesses

Innovation

Strategies

Office

New

Healthcare Electronics

14

Environmental friendly raw

materials Electronic materials

4

Strategy II Active Investment for the Expansion of


Creation of new business through the new research hub

• Marketing of new refrigeration lubricant

raw materials and additives

• Products using natural resources

• Study for marine plastic reduction

Global warming prevention

Step up green chemical raw

materials

Worldwide QOL improvement

Mobility revolution

Spread IoT and AI

• Study to reduce odor & development of

applied products

• Expand related product line

Cosmetic raw materials

• Capital investment for new products

targeting the frontline


4

15




15

Strategy Ⅰ

Profit Increase

by New Facilities

Strategy II



Chemical Business

Strategy III

Improvement of

business framework




new products


next generation


Further increase in





hub




Improvement of work

environment and


work styles

4

16

Aggressive rationalization

Improve production efficiency with

facility control system utilizing latest

technologies (AI & IoT)

Optimization of company-wide

maintenance strategy

3rd Medium-Term Plan

Cost reduction by

procurement strategy

Reduction of logistic cost

Rationalization of system

investment

2nd Medium-Term Plan

Improve competitiveness

by structural reform

Decrease in cost

Strategy III Improvement of Business Framework

Promote the development of competitive facilities


17

4

Headquarters relocation

& plant work environment improvement

New research hub

Promotion of open innovation

Clarify missions to achieve VISION2030

Ensure comfortable work environment for diverse personnel

Promotion of diversity

Ensure risk management and business continuity in disaster

New Headquarters address :

2-3-1, Nihonbashi-Muromachi, Chuo-ku, Tokyo Japan

New research hub address :

7-1 Shin-Kawasaki, Saiwai-ku, Kawasaki, Kanagawa Japan

Human resources and corporate culture


Revitalization of organization and promotion of diverse work styles


18

4

Expansion of the diversity of the board

Apoint a female independent outside director(s)

Thorough risk management

Develop a business continuity plan (BCP)

Improve the business continuity management (BCM)

Active dialogue with shareholders

Develop and release an integrated report

Governance


Improvement of Transparency and Sustainability of Management


19

23.0bn JPY

Strategic

investmentFramework

improvement

& rationalization

Discussed and decided at investment

evaluation meeting attended mainly by

the management

Total investment

23.0 bn JPY

Investment decision:

We emphasize capital cost

Hurdle rate:

WACC*Coefficient 1* Coefficient 2

NPV>0 IRR> Hurdle rate

Coefficient 1: Taking into account market

risks such as rationalization and new business

Coefficient 2: Taking into account risks

in different countries/areas

Investment criteria (sample)

10.5bn JPY

46%

12.5bn JPY

54%

5 Capital Investment Plan

over 3 years

Financial & Capital Strategies

40~50%

5

20

40％

Increase shareholder

returns flexibly

Active investment

Expected dividend ratio: 30％

Investment within

depreciation amount

Stronger financial health management range

Equity ratio

50％

While securing financial health, we will work on investment for growth, capital efficiency

enhancement, and shareholder return improvement

Equity ratio: 38％ in 2018, 47％ in 2021 (planned)

Higher growth & capital efficiency

Active utilization of debtDebt reduction

For financial health and capital efficiency,

standard equity ratio is

37.0 bn JPYOperating cash flows（excl. R&D)

Net profit total of 26.0 bn JPY will be yielded

Total depreciation cost will be 13.0 bn JPY

Investment cash flows（incl. R&D) 26.0 bn JPY

12.5 bn JPY for growth investment (incl. 2.0 bn JPY for strategy investment)

10.5 bn JPY for framework improvement & rationalization

（incl. improvement of work environment）

3.0 bn JPY will be allocated for R&D

Utilize external debt while considering stability (as necessary)

Returns will be provided stably based on dividend ratio of around 30%,

consistent with profit growth

Shareholder returns

Financing

7.0 bn JPY

Finance with mobility

Financial & Capital Strategies6

21

Finance with mobility while investing within operating cash flows

Cash Flow Plan Summary

Numerical Management Targets

22

101.2 101.9

110.0

2018 2019 2021

10.9

12.0

13.5

100

105

110

115

120

125

130

135

140

145

2018 2019 2021

7

Net Sales

Operating income

Work for steady profit growth and stronger financial framework

2018 2021

Net Sales101.2

bn JPY

110.0

bn JPY

Operating income10.9

bn JPY

13.5

bn JPY

ROE 20% 18%

Equity ratio 38% 47%

Exchange rate110

JPY/$

110

JPY/$

Domestic naphtha50,900

JPY/KL

46,000

JPY/KL

Note:

The information presented herein is intended neither to solicit nor to induce investors to either purchase or

sell shares of KH Neochem.

The forward-looking statements in this document, such as those regarding the future prospects of the

business, include assumptions and forecasts based on the information available as of the date of this

document, and accordingly such statements do not constitute KH Neochem’s assurance or guarantee.

This document also contains figures for reference purposes that have not undergone an audit.

As such, please note that the actual results may vary materially from those expressed or implied herein

due to various future risks and uncertainties.

Please also be aware that neither KH Neochem nor the information providers shall be liable for any

damage incurred from the use of this data.

Contact

KH Neochem Co., Ltd.

https://www.khneochem.co.jp/contact

https://www.khneochem.co.jp/contact

Documents

(2019 -2021) Taking on New Challenges...2019/02/13 · expected to show high growth, e.g., refrigeration lubricants and cosmetics A Leading Global Specialty Chemical Company 2 VISION2030