Post on 19-Sep-2020
Medium-term Business Plan“Project 2020+”
Progress in 2016; Tasks and Strategies for 2017
December 13, 2016SHOWA DENKO K.K.
Hideo Ichikawa, President & CEOKohei Morikawa, Managing Corporate Officer & CTO
11
I. ”Project 2020+“ Progress in 2016i. Cost reduction and financial resultsii. Measures taken for each businessiii. M&A, R&D
II. ”Project 2020+“ Tasks and strategies for 2017i. Business environment forecastii. Image of 2017 results, cost reduction, capital
investment, and financial strategyiii. Message from new CEO
2
Revised performance forecast for 2016I. ”Project 2020+“ Progress in 2016
3
2015actualresults
2016forecast(August)
2016revised forecast
Increase from Aug. forecast
2016 “Project2020+”
Net sales 781.0 670.0 670.0 0.0 810.0
Operating income 33.7 30.0 36.0 +6.0 36.0
Ordinary income 32.2 23.0 30.0 +7.0 ─
Profit attributable to owners of parent
1.0 9.0 12.0 +3.0 20.0
*Announced on August 9, 2016
(Billions of yen)
**Announced onDecember 13, 2016
***
Operating income (2011-2016)I. ”Project 2020+“ Progress in 2016
Carried out structural reforms ⇒ 2016 operating income will be ¥36 billion
4
47.4
28.1 26.0 20.9 33.7 36.0
0.0
10.0
20.0
30.0
40.0
50.0
2011 2012 2013 2014 2015 2016Forecast*
*Announced on December 13, 2016
(Billions of yen)
Actual results
Cost reduction resultsI. ”Project 2020+“ Progress in 2016
5
2016 revised target: ¥13 billion. Added ¥6 billion mainly in Base-shaping
2016-2018 total: ¥20 billion ⇒ ¥30 billion
Base-shaping
75%
Rebuilding5%
Growth-Accelerating
15%
Advantage-establishing
5%
2016-2018total cost reduction
¥20 billion*
Additional reduction¥10 billion
*Announced on Dec. 11, 2015
HD media: Streamlined production capacity(30→20M/month), Integrated operation of media section and substrate section
Graphite electrodes: Streamlined Omachi’s capacity, Reduced fuel & material cost
Petrochemicals: Improved unit energy consumption
Basic chemicals: Increased ratio of used plastics as raw material to produce ammonia
Aluminum: Reduced variable costs. Improved unit raw material consumption
2016 cost reduction measuresBase-shaping
Quarterly operating income (2015-2016)I. ”Project 2020+“ Progress in 2016
Effect of cost reduction efforts became apparent in and after 3Q 2016→We expect increase in operating income
6
3.9
12.39.4 8.2
2.9
8.7
13.910.5
0.0
2.5
5.0
7.5
10.0
12.5
15.0
CQ1 CQ2 CQ3 CQ4 CQ1 CQ2 CQ3 CQ4
(Billions of yen)
2015 2016 (Forecast)
3.5
18.0 2.0
13.0 30.2
13.0 9.6
-6.0
6.2 4.0
1.9 2.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0Petrochemicals Chemicals Electronics Inorganics Aluminum Others
Operating income by segment (2011-2016)I. ”Project 2020+“ Progress in 2016
Earnings structure is improved to be well balanced
7*Announced on December 13, 2016. **The total does not match consolidated operating income since Adjustment is not included.
(Billions of yen)
2011 2012 2013 2014 2015 2016 forecast*
“Project 2020+” Overall strategy
Push up profitability of existing businesses through renewal of business models Maximize operating income and cash flows
Expansion and creation of individualized businesses Expansion of the scales of individualized businesses Early manifestation of research results Make the best use of M&A and partnership with other companies Find growth opportunities overseas
R&D strategy Concentrate management resources on R&D to strengthen
existing businesses and their peripheral fields Create next-generation businesses/themes by making
best use of open innovation and M&A
I. ”Project 2020+“ Progress in 2016
Strengthen the Group strategically to achieve sustainable growth
8
Strategy for each business portfolioI. ”Project 2020+“ Progress in 2016
Accelerate improvement of business portfolios
9
Market and business have certain scale. Have more power to resist market fluctuation, and make stable profit and cash flow.
Increase profit and cash flow through rebuilding of business environment, profitability and business model.
Actively take strategic measures.Realize rapid expansion of business by preempting market growth.
To cope with prospective market growth, establish business model with competitive advantage in terms of business and technical development. High‐purity gases
for electronicsFunctional chemicalsAluminum cans
LIB materialsSiC epi‐wafer forpower devices
CeramicsAluminum specialty components
Rare earths
Industrial gases
Graphite electrodes
Basic chemicalsPetrochemicalsRebuilding Base‐
shapingAccelerate
business reformShoticTM
Growth‐accelerating
HD
Advantage‐establishing
Concentrate management resources
High‐purity aluminum foil
Measures taken in 2016
Base-shaping: Executed structural reforms HD media: Streamlined production capacity. Thorough cost reduction GE: Self-help cost reduction effort. Replaced hydropower plants
Decided to acquire SGL GE Petrochemicals: Consolidated polypropylene business ShoticTM: Decided to integrate bases in Malaysia and Singapore
Growth-accelerating: Deployed globally, centering on Asia High-purity gases for electronics: Capital investment at home and abroad Functional chemicals: Expanded business for infrastructure and cars Aluminum cans: Have been deeply cultivating Vietnamese market
Advantage-establishing: Expanded capacities to meet market growth LIB materials: Expanded production capacity SiC epitaxial wafer for power devices: Started mass production of 6 inch
wafers and high-quality wafers
I. ”Project 2020+“ Progress in 2016
Additional measures were taken in order to increase earning power of the Group
10
70
90
110
130
1Q 2Q 3Q 4Q
2015 2016
Western Digital
42%
Seagate 34%
Toshiba24%
HD media (1) I. ”Project 2020+“ Progress in 2016
11
Demand for HDD stabilized, Shipment for data center use increasedIn 2H, HDD market is stronger than August forecast TAM of HDD in 2H 2016: up12% from 1H Sharp decline in PC shipment was stemmed Demand for external HDDs and game machines
increased Market for data center use is rapidly expanding
⇒Demand for HDDs for near-line servers in 2016 will increase 15% from 2015
Changes in HDD makers’ market shares⇒Toshiba increased its share
964870 800 820 825
567 470 410 400 3751.70 1.85 1.95 2.05 2.20
【Shipment of HDD/HD media】
2014 2015 2016 2017 2018
■HDD ■HD media ■D/D ratio(million) (million)
(million)4Q 2016 data is a forecast
【Quarterly shipment of HDDs】
(TSR)
2015
Western Digital
29%
Seagate 40%
Toshiba16%
HGST15%
【HDD market share by company】
2015 20163Q
(TSR)
Base-shaping
(SDK’s estimate)
HD media (2)
Executed major cost reduction. 2016: Reduced ¥7 billion Streamlined production capacity (30M⇒20M/month) Reduced clean room floor space and
concentrated production into highly efficient lines
Reduced work force andimproved efficiency of R&D
Integration of operation of substrate section and media section completed in all bases
Developed leading-edge media for near-lineHDDs→Increased ratio of aluminum media
Developed leading-edge media 2.5-inch media 1TB/platter 3.5-inch media 1.5TB/platter
I. ”Project 2020+“ Progress in 2016
Streamlined production capacity, Pursue “Best-in-Class”
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Data center
Near-line HDD
Base-shaping
Graphite electrodes (1)
Optimized production system Omachi: 60kt/year→Reduced to 42kt/year
Replaced hydropower plants →Omachi and US base will operate at
full capacity Executed thorough cost reduction to acquire
cost competitiveness In “Project 2020+”, cost reduction target
is ¥6 billion (2015 vs 2018)⇒We added cost reduction of ¥2 billion
Additional measure: Decided to acquire SGL GE*(Acquisition is planned to be completed by mid 2017)*SDKʼs acquisition of the shares of SGL GE is subject to the approval of the relevant authorities under the applicable competition laws of the relevant countries and other preconditions.
I. ”Project 2020+“ Progress in 2016
We maintain top quality in the world and technical advantage, and pursue cost competitiveness
13
Base-shaping
Graphite electrodes (2)I. ”Project 2020+“ Progress in 2016
Graphite electrodes: We will pursue synergy effect of integrated operation of production bases in Japan, US and Europe
14
Head Office(SDK) Plant(SDK)Head Office(SGL) Plant(SGL)
North/Central/South America
Japan/China/Asia Pacific
Hickman/Ozark
Ridgeville
Europe/CIS/Middle East/Africa
TokyoOmachi
Banting
La Coruna
MeitingenSteeg
Wiesbaden
Sichuan
We will realize a leading graphite electrode company with the top scale, quality and cost competitiveness in the world
【Production bases of SDK and SGL GE】
Base-shaping
Graphite electrodes (3)
Measures to realize synergy effect after acquisition of SGL GE Improve cost competitiveness by adopting best practices Reduce fixed costs through integration of administrative sections Establish optimum global supply chain Establish powerful brand with superior product quality through
integration of technologies Optimize the whole process of graphite electrode production,
from procurement of materials to shipment of graphite electrodes as final products
I. ”Project 2020+“ Progress in 2016
We will integrate graphite electrode business assets of SDK and SGL GE, and realize synergy effect
15
Cost reduction in SDK’s GE business: ¥8 billion (2015 vs 2018)
Cost reduction through integration of GE businesses of SDK and SGL:¥6 billion
+
Base-shaping
Petrochemicals
Tight supply-demand situation in ethylene market continues Through improvement in productivity with advanced catalysts, organic
chemicals business achieved stable profit Reinforced derivatives business + Consolidated polypropylene business Promoted intraregional cooperation with other companies (oil refining
companies, iron manufacturing companies)
I. ”Project 2020+“ Progress in 2016
Continued safe and stable operation→Stable profit
16
【China: Production, import & self-sufficiency of ethylene】
60%
70%
80%
90%
100%
0
50
100
150
200
2010 2012 2014 2016 2018 2020Capacity Demand Operating rate
(Million t) 【Global ethylene market】
Operating rate (right)
0%
10%
20%
30%
40%
50%
60%
70%
0
10
20
30
40
50
2010 2012 2014 2016 2018 2020Import net Production Self-sufficiency
(Million t)
Self-sufficiency (right)
(IHS) (IHS)
Base-shaping
High-purity gases for electronics
Establishing global SCM system Started sales in the US
Decided to establish sales basesand warehouses in the US
Expanding production capacity Expanded BCl3, Cl2 production Considering M&A
Developed super-high-purity solvent
I. ”Project 2020+“ Progress in 2016
Accelerated business expansion in global scale
17
【エリア・製品別 マトリックス戦略】
High purity gases for electronics
Product Use 2015 2016 2017
NH3
Film form
ing
Expansion(China, Taiwan)
N2OExpansion(Japan)
New (Korea)
HBrEtching
Expansion(Japan)
Cl2Expansion(Japan)
New (Taiwan)
Expansion(Japan)
Fluorine-basedgas
New (Japan, Singapore)
Expansion(Japan)
Infra-structure
Expansion(Taiwan, Singapore)
New (Japan, US)
Expansion(Korea)
Demand shifts fromfilm forming gas⇒
etching gas
Increasing demand
for 3D NAND
Growth-accelerating
Aluminum cans
Vietnam: Started to mass produce sleek cans, Considering re-expansion of can and can end production lines
Japan: Developed printing technology for small-lot multiple-design can labels with photogravure quality
I. ”Project 2020+“ Progress in 2016
Stable domestic market+Growing Vietnamese marketWe are taking new measures in both markets
18
Sleek cans
Sample cans with ink-jet printing
Growth-accelerating
0
1
2
3
4
5
0
5
10
15
20
25
2013 2014 2015 2016 2017
【Aluminum can market (left)・Production by SDK Group (right)】(Billion cans)
(SDK’s estimate)
■SDK(Japan) ■SDK(Vietnam) (Billion cans)
Japanese market
Vietnamese marketgrows 10%/year
Functional chemicals
Strengthened businesses in growing fields Established the Group’s second BMC
production base in China Started OEM production for
manufacturers in ASEAN region Developed new product for
infrastructure (non-styrene vinylesterresin aqueous emulsion)
Cosmetic materials: Formed businessalliance with a leading specialty chemicals distributor in Europe
Promoted business structure reform Decided to terminate production and
sale of BionolleTM
I. ”Project 2020+“ Progress in 2016
Strengthened businesses in growing fields and promoted business structure reform
19Showa Denko New Material (Zhuhai) Co., Ltd.
【 BMC products and SDK Group’s bases】
TatsunoShanghai
Zhuhai
Thailand
Growth-accelerating
0
50
100
150
200
2015 2016 2017 2018 2019 2020
(GWh)
ESS/UPS
ISS
China Bus
xEV
Mobile
(Research by B3 Corp., SDK’s estimate)
Lithium ion battery (LIB) materials
Strengthening organizationAdvanced Battery Materials Division (’17~)
Expanding capacity, R&D SCMGTM(anode material):
Expanded Omachi (→1500t/y)Started outsourcing production in ChinaDeveloping Si-Graphite composite anode materials
VGCFTM (conductivity enhancer):Expanding Kawasaki (→300t/y in 2017)
SPALFTM (aluminum laminate film):Improving productivityDeveloping thinner film ahead of markets
SDXTM (carbon-coated Al foil):Steadily outsource production in China
I. ”Project 2020+“ Progress in 2016
We are increasing market shares in materials for large-capacity high-quality LIBs, and accelerating commercialization of R&D results
20
【LIB market trend by size】
LargeLIBs
SmallLIBs
Advantage-establishing
EV market:Rapid expansion in ChinaExpansion expected in Europe
SiC epitaxial wafer for power devices
Market: Diode (SBD): Market rapidly expands. Applied to Railway cars, EV charger, etc. Transistor (MOSFET): Improvement in reliability of epi-wafer accelerates
practical implementation. Adoption of 6-inch wafer rapidly expands. SDK: Establishing overwhelming quality superiority
⇒Our market share continues to expand
I. ”Project 2020+“ Progress in 2016
We are accelerating supply of high-grade SiC epitaxial wafer to contribute to practical implementation of all SiC power devices
21
Automotive application goes
into full swing
Multi-use accelerates
Automotive application
starts
(Edited by SDK, based on “Power SiC 2016” by Yole Développement)
■Transistor■Diode
【Types of power devices】【SiC power device market】($ million/year)
Advantage-establishing
($ million/year)
Strengthening business through M&A
Improve profitability of existing businesses Expand business domain: Explore new business opportunities in 5
target market domains
I. ”Project 2020+“ Progress in 2016
22
We reform business portfolio
Showa Denko in 2025
Rate of change(Risk)
ProfitabilityHigh
LowHighLow
Expand business domainGMM Group
(Non-stick coatings)
Improve profitabilitySGL GE (Graphite electrodes)SunAllomer (Polypropylene)
Establish business platform that maximizes synergy faster than ever
R&D results (1)I. ”Project 2020+“ Progress in 2016
23
Fuse various needs into cross-divisional themes, deepen them, and offer new value
Core technologies
Strategictechnologies
(Nano-carbon/Thin-film/Catalyst)
Diverse business domains
Infrastructure, Living environment, Mobility, Energy, Electronics
Organics Inorganics Aluminum
Elemental technologies with competitive advantage
World-top-level technologieswe cultivated over many years
Deepening and fusion of retainedmaterials/technologies
Institute for Integrated Product Development
Strengthen existing businesses
Expand business in peripheral growth
fields
+
R&D results (2) (Strengthening existing business)
Technical requirements for repairing materialsWorkability and durability in cold area (low-temperature curing) and on wet surface (wet curing),Short construction period, Emergency repair, Easy application,Contribution to reduction of total construction cost⇒We market our vinylester resin to the field of public works
I. ”Project 2020+“ Progress in 2016
24
Progress in development of infrastructure repairing materials →Realization of profit is expected in 2018
Images of applications: Dam, road, bridge for the Shinkansen, etc.
R&D results (3) (Cultivating peripheral growth fields)I. ”Project 2020+“ Progress in 2016
25
We not only develop materials but also offer solutions We improve performance of materials in pursuit of better heat-
radiating solution We offer solutions utilizing multi materials including aluminum,
resins, and ceramics We develop high-performance heat-radiator
→We successfully developed heat radiation structure for power devices in a joint project with Osaka University
Power element: Enhanced heat resistance(Si ⇒ SiC)
Cooling device with enhanced heat-conductivity (Made of aluminum with special structure)
Heat-radiating panel with enhanced heat conductivity(Composite material)
Sealing resin with enhanced heat-resistance
Insulating sheet with enhanced heat-conductivity (Inorganic filler)
I. ”Project 2020+“ Progress in 2016i. Cost reduction and financial resultsii. Measures taken for each businessiii. M&A, R&D
II. ”Project 2020+“ Tasks and strategies for 2017i. Business environment forecastii. Image of 2017 results, cost reduction,
capital investment, and financial strategyiii.Message from new CEO
26
Global business environment
Japan: Mild growthCorporations cultivate markets for high-value-added goods and services
US: Promotes stimulative measuresReduction in corporate tax rateProtects and strengthens domestic industries
Europe: Mild growthSchedule, conditions and impact of Brexit will be gradually clarified Risk of political turmoil
China: Stable growth, 5-6%/yearExpansion of EV & PHEV markets
ASEAN: Returns to growth of 5%/year
II. ”Project 2020+“ Tasks and strategies for 2017
27
Political uncertainty increases → into the “VUCA” world
Exchange rate: ¥100/$Crude-oil prices: $40〜60/bbl.
3.22.6
2.0
6.9
0.5
3.1
1.6 1.7
6.6
0.5
3.4
2.21.5
6.2
0.6
World US Europe China Japan
2015 2016 2017
【Real GDP growth rate】
(IMF: World Economic Outlook, October 2016)
Tasks and strategies for 2017
Achieve further progress in Growth-accelerating and Advantage-establishing businesses
High purity gases for electronics:Establish supply system to cope with expansion of semiconductor and flat display marketsSupply individualized products that take advantage of our strong pointsExpand business through “discontinuous” measures and enter the North American market
Functional chemicals: Expand business in China, ASEAN and India Aluminum cans: Strengthen business in the Vietnamese market LIB materials: Expand business by utilizing stepped-up facilities SiC epitaxial wafer for power devices: Re-expand production capacity
Early integration of graphite electrode business with SGL GE
II. ”Project 2020+“ Tasks and strategies for 2017
28
Accelerate overseas business expansion(in Asia, Europe, and North America)
Image of 2017 results and cost reductionII. ”Project 2020+“ Tasks and strategies for 2017
(Billions of yen)
2016revised forecast
2017image*
2017 Project 2020+
Net sales 670 700 850
Operating income 36 37 50Profit attributable to owners of parent 12 19 -
Exchange rate (¥/$) ¥108/$ ¥100/$ ¥115/$Japan-made naphtha (¥/kl) ¥32,600/kl ¥35,300/kl 52,000/kl
29
Cost reduction planCost reduction of ¥10 billion in 2017, centering on Base-shaping businesses
*Effect of acquisition of SGL GE is not taken into account
2017 capital investment planII. ”Project 2020+“ Tasks and strategies for 2017
’16-’18 capital investment: ¥130 billion→ Careful program selection
30
2016 2017 2018中計0
20
40
60
Rebuilding B.S. G.A.+A.E.
【Capital investment plan(2016-2018) 】
Major capital investments in Growth-accelerating and Advantage-establishing businesses
High-purity gases for electronics:・ Expand etching gas production capacity・ Newly establish super-high-purity
solvent plant Functional chemicals:
Considering establishment of new plants in ASEAN and India
Aluminum cans: Re-expand facilities in Vietnam
LIB materials: Expand VGCFTM plants SiC epitaxial wafer for power devices:
Expand production capacity
(Billions of yen)
Invest aggressively to strengthen Growth-accelerating businesses
2016 2017 2018Project 2020+
2017 financial strategyII. ”Project 2020+“ Tasks and strategies for 2017
Cover expenditure resulting from acquisition of SGL GE by efficient use of assets, etc. Reduce inventory through
management of cash conversion cycle
Careful selection of capital investment through management of return on invested capital
⇒Achieve D/E ratio of 1.0 by the end of 2018
Promote constructive dialogue with shareholders
To achieve D/E ratio of 1.0, promote efficient use of assets
31
0.6
0.8
1
1.2
1.4
0
200
400
2015 2016 2017 2018
Interest bearing debt D/E ratio
(Billions of yen)【Interest bearing debt and D/E ratio】
Target image of the Showa Denko Group in 2025II. ”Project 2020+“ Tasks and strategies for 2017
We aim to have business structure with less rate of change in profitability through expansion of individualized businesses and profitability improvement
Aiming to make individualizedbusinesses* occupy 50% of net sales
Aiming to make overseas sales occupy 60% of net sales
Individualized businesses30%
Overseas sales40%
*Businesses with sustainable high-level profitability and stability
Operating income margin(Return)
Rate of change(Risk)
High
Low High
Low
2025
20154.3%
Expand individualized businessesStabilize income
Improve profitability
Domestic sales
32
5%20175.3%
20165.4%
Social contribution of the Showa Denko GroupII. ”Project 2020+“ Tasks and strategies for 2017
We offer high value-adding “products × technology ×services” to 5 market domains
Energy
Mobility
Infra-structure
Living environment
Electronics
Improvingresource efficiency
Utilizing alternative energyEfficient use of electricityDiversifying energy sources
Mitigating environmental burden
Resource recycling
Intensive accumulation and dispatch of information
Safety/SecurityIndustrialization of agriculture
Safety/SecurityEnhanced durabilityEmission controlImproving fuel efficiency
33
Message from new CEOII. ”Project 2020+“ Tasks and strategies for 2017
34
+Let’s have Steady Desire for Knowledge, and
+Let’s start the game with Speedy Daring Kickoff!
SHOWA DENKO K.K.
35
Toward 2020and beyond,Let each of us addnew value.
36
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. We will announce our consolidated performance forecast for 2017 when we disclose 2016 consolidated financial results.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.