Medium term Business Plan PEGASUS PhaseⅡ”（ and for 2015 · 2015-04-07 · Medium‐term Business Plan “PEGASUS PhaseⅡ”（2014～2015）: Tasks and Strategies for 2015

Medium‐term Business Plan“PEGASUS PhaseⅡ”（2014～2015）:Tasks and Strategies for 2015

Please refer ”Notes” on page 45.

March, 2015 (Corrected on March 26, 2015)

SHOWA DENKO K.K.Hideo Ichikawa President & CEO

【Contents】

1. PEGASUS PhaseⅡ (2014～2015)

2. Business strategies for 2015

3. Strategies for major businesses

4. Priority tasks

Appendix

2

1. PEGASUS PhaseⅡ(2014～2015)

3

PhaseⅠ(2011‐2013）

PhaseⅡ(2014‐2015)

Measures taken in PEGASUS

PEGASUS（2011‐2015）Post‐PEGASUS

PEGASUSStructural reform to cope with drastic changes in the business environment1) Strategy to accelerate growth2) Restructuring of business scheme3) R&D focusing on promising themes2015: Acceleration of structural reform

⇒ Improvement in earning power

Post‐PEGASUSFaster Growth

4

1. PEGASUS Phase Ⅱ(2014 ‐ 2015)

Business portfolio in PEGASUS PhaseⅡ

5

Rare earths

SiC epi-wafer for power devices

PetrochemicalsBasic chemicals / Industrial gases

Aluminum cans

LBP cylinders

Inorganic functional materials LEDs

LIB materials

Fuel cell catalysts

Growth

NewGrowth

Base (Stable)

Functional chemicals

Semiconductor-processing high-purity gases

High-purity aluminum foil

ShoticTM

Base(Growth)

HD media

Graphite electrodes

PhaseⅡ


Restructuring of business scheme

2011 2012 2013 2014

▼Aluminum heat exchanger for cars (Sold)

▼VGCFTM‐X (Terminated)▼GaN LED (Separated into a JV) ▼Power generation (New contract)

▼Ethyl acetate・Change in production method (Japan)・Closed a plant in Indonesia ▼Venalum (Wrote‐down, aluminum

smelter in Venezuela)

▼Alumina・Closed Yokohama Plant・Plant in Indonesia started operation

6

Acquisition of treasury stocks

To boost shareholders’ return:Acquired treasury stocks amount to

68.3 million shares (¥10 billion)

▼Ceramics・Integration of domestic plants

【Power generation plant in Kawasaki】


▼Aluminum panels(Sold)

▼Aluminum alloys(Sold)


7

World economy forecast

3.32.4

0.8

7.4

0.1

3.5 3.6

1.2

6.8

0.6

3.73.3

1.4

6.3

0.8

World U.S.A. Europe China Japan

2014 2015 2016

【IMF: World economy forecast (in real GDP growth rates)】

（January 2015）

8

Overseas

U.S.A.: Strong growthChina: Slower growth (New normal)Europe: Prolonged stagnant moodASEAN: Slower but steady growth

We watch impacts of plunges in crude‐oil prices on world economy

Japan

Mild recovery with uncertaintyPickup in consumer spendingBenefits of a weak yenBottoming out of crude‐oil pricesEnforcement of growth strategy by the government expected


200

220

240

260

280

300

320

340

Jan.2013

Apr. Jul. Oct. Jan.2014


forecast

Apr. Jul. Oct.

Changes in the business environment

（US$/t）

【Naphtha and crude‐oil prices】（US$/bbl.）

50

80

110

140

170

350

450

550

650

750

850

950

1050

Jan2013


Apr. Jul. Oct. Jan.2015 forecast

Apr. Jul. Oct.

Naphtha prices (left)

Crude oil prices（Brent）

9

（Thousand ¥/t）

【Aluminum ingot prices, domestic】

2014Naphtha and petrochemicals prices plummeted

Aluminum ingot prices soared

2015 forecastNaphtha price will rise somewhat in 2HAluminum ingot prices will fall back but yen‐based prices will remain high


“Growth”: Accelerate intensive business expansions overseas. Strengthen earning power.

“Base (Stable)”: Maintain stable operation and high operating rates of plants

“New Growth”: Monetize businesses through expansion

Priority tasks under PhaseⅡ business portfolio

“Base (Growth)”:HD media: Expand sales of media for near‐line serversGraphite electrodes: Expanded production facilities in the U.S.

will start operation

10


2014 financial results; Plans for 2015

2013Results

2014Results

2015Plan* b ‐ a

Net sales 848.1 876.6 900.0 +23.4

Operating income 26.0 20.9 40.0 +19.1

Net income 9.1 3.5 15.0 +11.5

Dividends ¥3 ¥3(planned) ¥3

【Assumptions for 2015】Exchange rate: 115 yen/US$Naphtha price: 1H: ¥45,000/kl 2H: ¥57,000/kl

11

a b (Billions of Yen)


* Announced on February 12, 2015

12

2013Results

2014 Results

2015Plan* b ‐ a

Petrochemicals Net Sales 286.7 281.4 262.0 ‐19.4O.I. ** 4.4 ‐4.9 7.0 11.9

Chemicals Net Sales 130.7 139.1 153.0 13.9O.I. 2.6 5.5 9.5 4.0

Electronics Net Sales 136.5 138.5 149.0 10.5O.I. 21.9 25.8 24.0 ‐1.8

Inorganics Net Sales 65.9 67.6 80.0 12.4O.I. ‐0.8 ‐0.3 4.0 4.3

Aluminum Net Sales 90.4 98.0 111.0 13.0O.I. 5.8 3.0 2.5 ‐0.5

Other Net Sales 176.5 195.0 182.0 ‐13.0O.I. ‐0.6 ‐0.7 1.0 1.7

Adjustments Net Sales ‐38.7 ‐43.0 ‐37.0 6.0O.I. ‐7.3 ‐7.4 ‐8.0 ‐0.6

Total Net Sales 848.1 876.6 900.0 23.4O.I. 26.0 20.9 40.0 19.1

(Billions of Yen)

Sales and operating income by segment

** O.I.: operating income * Announced on February 12, 2015


ba

6.7

14.812.4 13.4 12.5

20.5

‐0

4.4

‐1.9 ‐3.0 ‐2.5

9.5

‐5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Operating income

13

1H 2H2013

1H 2H2014

1H 2H2015 Plan

6.7

19.2

10.5 10.4 10.0

30.0(Billions of Yen)


No shutdown maintenance+3.0

2014 2015Plan

Petrochemicals

Price

Cost reductions

20.9

+8.0

‐8.0

+11.9

40.0

+6.0

Exchange rate

Factors for increases in operating income, 2014 vs. 2015

14

Price +5.0Cost reductions+2.0Inventory valuation +1.9

Segments other than petrochemicals

+7.1

Volume, etc.

+1.1

(Billions of Yen)


Vietnam Rare earths Aluminum cans

IndonesiaCeramics

MalaysiaShoticTM

U.S.A. Graphite electrodes

Taiwan Semiconductor-processing high-purity gases

15

Ongoing investment projects under PhaseⅡ

China Graphite electrodes High-purity aluminum foil Semiconductor-processing

high-purity gases BMC new plant

KoreaSemiconductor-processing

high-purity gases

Strategy to accelerate growth2. Business strategies for 2015

16

44.4 47.351.2

39.8 40.7 42.6

2013 2014 2015Plan*

Capital investment Depreciation expenses

(Billions of Yen)

Capital investment plan

Concentrating on carefully selected projectsStrategic investment: Overseas market, centering on Asia

* Announced on February 12, 2015


¥51.2billionfor 2015

Petrochemicals

Chemicals

ElectronicsInorganics

Aluminum

Others

【Capex by segment】

Cost reduction plans for 2015

17

【Cost reduction by segment】

¥10.0billion

for 2015

Petrochemicals

Chemicals

Electronics

Inorganics

Aluminum

Others


Cost reduction plan : ¥10.0 billionTake strategic measures


18

■ HDD (million units)

950 961 980 1010 1050

552 565 560 550 540

1.75 1.70

1.75 1.85

1.95

1

1

1

2

2

2

2

2

-100

100

300

500

700

900

1100

1300

1500

HD media ‐1

Leading the industry with “Best in Class” strategy

Important themes

Market: Demands for near‐line servers will further increase

Aluminum substrates:Supply and demand situation will be tighter

Strengthen integrated production of media and substrates, and expand sales of media for near‐line servers ⇒Ratio of aluminum media and D/D

ratio will rise

Base (Growth)

【HDD/HD media market forecast】

(TSR and SDK estimates.)19

D/D ratio■ HD media(millions)

2013 2014 2015 2016 2017


WesternDigital 28%

Seagate40%

Toshiba16%

HGST16%

2006786 mil.

units

19%

HGST

17%Seagate

29%

2014961 mil.

units

24%Western Digital

19%Fujitsu 3%Maxtor 5%HOYA 7%

Fuji Electric 5%

Western Digital

25%

Fuji Electric11%

Seagate 24%

HGST 12%

【HDD market by supplier】

2014 565 mil.

2014565 mil.

Enterprise 12%

Mobile* 52%

Desktop 36%

【HDD market by application】

【HD media market by company】

20(TrendFocus, TSR and SDK estimates.)


HD media ‐2Steadily increasing our market share, as our technical advantages are recognized

Base (Growth)

*Mobile: PC, external, auto, etc.

0

200

400

600

800

1000

1200

1400

2006 2008 2010 2012 2014 2016 2018 2020

HD media ‐3SDK continues displaying technology leadership2.5” Marketed 8th generation media (750GB) with PMR technology

⇒ Accelerate technology development to realize 1TB/pl.3.5” Started commercial production of 1.1 ‐ 1.3TB/pl. media

(SDK estimates.) 21

1TB

500GB 500GB

670GB750GB

1TB

(GB/pl)【Progress in media density and capacity】

1.5TB2TB

PMRPMR

SMRSMR

HAMRHAMR

2.5”pl.

3. Strategies for major businesses Base (Growth)

2013 2014 2015 PlanOmachi U.S.A. Sichuan

Graphite electrodes (GE) ‐1Returns to growth trackWorld’s EAF production: +3 ‐ 5%/y growth expected

Important themes

Improve profitabilityU.S.A.Increased capacity⇒More high‐end products

JapanFacility renewal⇒Raise productivity

ChinaStarts commercialproduction of UHP

22

【Sales of SDK’s graphite electrodes】

110120

100

（%）

3. Strategies for major businesses Base (Growth)

6572

77 79 80 83

2013 2014 2015 2016 2017 2018

N/C/S America Europe/CISAsia (excepting China) MENA

23Estimate

Supply & demand gap narrows thanks to reduction in global capacity and demand recovery in US.【GE Global Supply/Demand gap】

0

(SDK estimates.)

Sur

plus

Shor

tage

(Net S/D gap)


Graphite electrodes (GE) ‐2

2014UHP(GE)global supplier

Graftech23%

NCK,4%

TKC13%

Other3%

SGL21%

SEC,3%

India20%

13%

【GE production capacity by supplier】

Base (Growth)

Capacity utilization rate

0

50

100

150

2013 2014 2015

Sales in four “Growth” businesses

Semiconductor‐processing high‐purity gases

Functional chemicals

High‐purityaluminum foil

Aluminum cans

(Billions of yen)

Plan24

Accelerate business expansion centering on Asia

3. Strategies for major businessesGrowth

NH3 N2O HBｒ Cl2Othergases

Infrastructure

Appli‐cation

Material gas Etching

JapanIncrease(‘15)

Increase(‘15)

New/Increase(‘15)

ChinaIncrease(‘15)

New/Increase(‘15)

New site(‘15)

TaiwanIncrease(‘15)

Acquisition(‘14)

Expansion(‘14)

KoreaIncrease(‘15)

Singapore

Expansion(‘14)

Semiconductor/LCD processing high‐purity gasesAccelerate growth through Matrix Strategy

Growth

Showa Specialty Gas (Taiwan) Co., Ltd.

100

120

140

160

180

200

220

2013 2014 2015 2016(WSTS)

【Semiconductor market in Asia Pacific】

Important themes

($ billion)

25


■ Forecast in spring 2014■ Increased in autumn 2014

Functional chemicalsExpanding Chinese marketSDK locates Second Bulk Molding Compound Plant in China

Important themes

Composite materialsEstablish second BMC production

site in ChinaConsolidate a subsidiary in

Shanghai （1Q）Increase sales for infrastructure

use

BionolleTM (Biodegradable plastic)Europe & China: Stricter

environmental regulation⇒Aggressive marketing focusing

on expanding markets

26

BMC

BionolleTM

Europe

Zhuhai

China

BMC productionsite

3. Strategies for major businessesGrowth

0

5

10

15

20

25

30

35

40

'10 '13 '15 '18 '10 '13 '15 '18

Japan China

【Electrolytic foil (high voltage） market forecast】

High‐purity aluminum foilEstablished two production site formation, one in Japan and the other in China, to accelerate growth

Important themes

Nantong, ChinaCommercial operation startedImproved profitabilityCapacity 400⇒600t/month (March)Expand sales in China

JapanMore production of high-value-added

products⇒Increase domestic market share to

be more than 60%Improve profitability by thorough cost

reductionRevise role margin (processing fee)

27(SDK estimates.)

（thousand ton/year)


■ High‐end ■ Volume

Growth

Aluminum cansDevelop Vietnamese market in full‐scaleRecover earning power in Japanese market

Important themes

28

2013 2015 Plan

conventional for coffee Vietnam

【Sales of SDK’s aluminum cans】


Vietnam (Hanacans)Improve quality⇒Sales

expansionLid production starts (4Q)

JapanExpand sales of cans for coffee with milk

Continue negotiation to revise prices

Growth

0

200

400

600

800

1000

1200

1400

1600

'14/Jan. Apr. Jul. Oct. '15/Jan. Apr.

Steady supply-demand balance of olefin in East AsiaMarket prices： Recovery expected in

2H of 2015Ethylene: Full capacity operation

continuesAcetyls: Contribute to increasing

profitPromote regional cooperationNew production method for butadiene

⇒Commercial application in 2018

Petrochemicals

“Compact, Open, Well balanced”

Important themes

Base(Stable)

【Market prices of ethylene and naphtha】($/t)

29

Ethylene

Naphtha (3 months before)

Spread

Spread worsened(Naphtha price plummeted)


Chemicals

We will do our best to recover our revenue base

Important themes

NH₃: Increase the percentage of feedstock from used plastic to 65%

Acrylonitrile: Improve spread Chloroprene: Increase sales to

the U.S. A. marketCO2 gas, Dry ice: Tight supply‐

demand situationOpen up new market

Power generation business: Improve profitability

30

3. Strategies for major businesses Base(Stable)

R&D focusing on promising themes

【Strengthening】SiC epitaxial wafersPlant factory unitsFull lineup of nano‐carbons(CNT, Fullerene, Graphene)

Development in area related to growth sectors

Strengthenexisting businesses Projects

Growth & New growth sectors(Electronics / Energy & Environment)

Institute for Polymers &Chemicals

Institutefor Advanced and CoreTechnology

Developmentdepartmentsat plants

31

Focuses on supporting expansion of existing businesses

New Growth


【Carbon nanofiber (VGCFTM)】

Lithium ion battery materialsRespond to the emerging large‐scale LIB marketGo in to growth track

Important themes

32

Laminated filmAdded production lines started commercial operationImprove quality⇒Accelerate development of new

products

Anode material (SCMGTM)Expand sales of new grade products for car applicationsAccelerate development of large capacitance products

Carbon nanofiber (VGCFTM)Expand applicability to car use

3. Strategies for major businesses New Growth

Home appliancesInverter air conditionersPower control unit for solar panels

RailcarsApplied to commuting trains in 2015

Car applicationWidely applied by 2020

Smart grids

SiC epitaxial wafers for power devices

Improve our position in line with the market expansion

Important themes

Expanded production lines for 6” SiC epitaxial wafersCapacity has been tripledImproved productivity

Strengthen R&D powerAttain fewer surface defectsImprove uniformity

33

3. Strategies for major businesses New Growth

4. Priority tasks

34

Zero disaster, Zero accidentMore safe and stable operation of plants

Take measures considering the next medium term business planIdentify milestones to boost the competitiveness of the SDK

Group

SDK Group’s priority tasks

Commitment to achieving the targetsStrategies anticipating changes in the environment:

Promote globalization and diversityGrasp customer needs quickly and achieve the targets earlier

than planned

35

4. Priority tasks

Notes

Performance forecast and other statements pertaining to the future as contained in this presentation are based on the information available as of today and assumptions as of today regarding risk factors that could affect our future performance. Actual results may differ materially from the forecast due to a variety of risk factors, including, but not limited to, the economic conditions, costs of naphtha and other raw materials, demand for our products, market conditions, and foreign exchange rates. We undertake no obligation to update the forward‐looking statements unless required by law.

36

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Medium term Business Plan PEGASUS PhaseⅡ”（ and for 2015 · 2015-04-07 · Medium‐term Business Plan “PEGASUS PhaseⅡ”（2014～2015）: Tasks and Strategies for 2015