Showa Denko ("SDK"; TSE:4004) today held a conference in Tokyo
to explain its management conditions for 2017 and business strategy
for 2018. The essence of the briefing offered at the conference is
as follows:
1. Estimated business results for 2017
SDK announced today a revision of its earlier forecast of
consolidated business results for full-year 2017 in view of the
recent business trends. SDK expects that its operating income for
full year 2017 will exceed the earlier forecast announced on July
24, 2017, which was 50 billion yen, and it will also exceed the
target operating income for 2017 set in its medium-term business
plan "Project 2020+," which was 60 billion yen.
In SDK's Petrochemicals segment, the spreads (the differences
between the prices of products and raw naphtha as main material) of
ethylene, propylene, etc. hover above the earlier forecast,
reflecting the tight supply-demand situation in the East Asian
market throughout the year and high operating rate of domestic
ethylene plants.
In its hard disk (HD) media business, operating income is expected
to increase due to the year-round contribution of the streamlining
of production capacity and cost reduction both of which we
implemented in 2016, in addition to the increase in shipment
volumes of HD media from that in the previous year.
In its graphite electrode business, operating income is expected to
exceed the earlier forecast due to high operating rate of our
production facilities and the increase in shipment volumes, in
addition to the sudden increase in prices of graphite electrodes in
the Chinese market. (For further details, please refer to the news
release "Showa Denko Revises 2017 Performance Forecast" announced
today.)
As for SDK's performance forecast for 2018, SDK will announce it
simultaneously with the announcement of its 2017 financial results,
which is scheduled to be in February 2018, because SDK's
negotiation with customers for graphite electrodes concerning sales
prices for 2018 still continues and we cannot fix the forecast of
average sales prices of graphite electrodes, which will affect our
2018 performance forecast significantly. In addition, it takes time
for SDK to calculate the goodwill to be posted concerning the
acquisition of former SGL GE Holding GmbH and the new rate of
taxation after the acquisition.
2. Progress in 2016-2017 and tasks and strategies for 2018 under
"Project 2020+"
(1) Measures taken (2016-2017)
In Growth-accelerating and Advantage-establishing businesses, SDK
favorably expanded its businesses. In businesses of high-purity
gases for electronics, functional chemicals, and aluminum cans,
which are Growth-accelerating businesses, SDK decided and/or
executed establishment or expansion of its production/sales bases,
and accelerated expansion of its overseas business operations. As
for Base-shaping businesses, in HD media business, we streamlined
production capacity and implemented cost reduction measures. In
graphite electrode business, we implemented acquisition of SGL GE
Holding GmbH and, simultaneously, streamlined our domestic
production capacity and took cost reduction measures. In
petrochemicals business, we continued safe and stable operation of
plants throughout the year, improved and maintained profitability
through consolidation of polypropylene production subsidiary. As
for Rebuilding businesses, we promoted structural reform in order
to change earnings structure. Thus SDK steadily took measures to
improve profitability, and its profitability is continuously
improving. However, we are also aware that we need implementation
of further steps to expand our individualized businesses.
(2) Business strategies for 2018
In the five market domains on which we focus our efforts, namely
"Electronics," "Mobility," "Energy," "Infrastructure," and "Living
environment," expansions of markets are accelerating. In the market
domain of "Electronics," the spread of "Internet of things" (IoT)
and "artificial intelligence" (AI), substantial increase in
generated data, and progress in utilization of big data will lead
to the expansion of the market for semiconductors and storage
devices. Also in the market domain of "Mobility," the need for
weight reduction, downsizing, automation and electrification is
increasing. It is our mission to provide these market domains with
our products, technologies and services in an appropriate and
timely manner. SDK will promote establishment and strengthening of
individualized businesses, and execute strategic measures in each
business, aiming to improve its business portfolio and increase the
share of overseas sales in its net sales.
3. Measures to be taken for each business
(1) Establishment of individualized businesses
1) Graphite electrodes
The global market for graphite electrodes continues to be strong
due to a rise in operating rate of electric steel furnaces in the
United States, the increase in demand for special steel for
automotive parts, and the special procurement boom caused by the
2020 Olympic Games in Japan. Moreover, we expect that the
tightening of environmental regulation in China and the progress in
the reduction of graphite electrode production capacity in global
scale will make the tight supply-demand situation in the global
graphite electrode market continue throughout 2018. SDK's graphite
electrode production bases in Japan, the United States and China
maintain high operating rates. In addition, the new graphite
electrode production facility with annual production capacity of
30,000 tons established in the Showa Denko Group's production base
in the United States will start mass production at the beginning of
2018. Thus SDK will maintain stable supply of graphite electrodes
to its customers.
In November 2017, SDK completed integration of its graphite
electrode business with that of former SGL GE Holding GmbH. SDK
will realize the effect of this business integration as early as
possible, aiming to establish its position as the leading supplier
of graphite electrodes in terms of production capacity, product
quality and cost competitiveness. In this way, SDK will strive to
realize its medium-term image of a graphite electrode manufacturer
which constantly achieves operating income rate of 10% or more.
2) HD media
With regard to global shipment volumes of hard disk drives (HDDs),
SDK expects that those with large capacity for use in data centers
will remain strong, though those for use in PCs will decrease. Thus
coexistence of solid state drives (SSDs) and HDDs as storage media
will continue. SDK has been pioneering development and launch of
leading-edge HD media. For example, in September 2017, SDK launched
2.5-inch HD media with capacity of 1TB per platter, which is the
largest in this class. SDK will continue to launch large-capacity
HD media for use in data centers, develop next-generation HD media,
and improve productivity, thereby supplying leading-edge HD media
to the global market.
3) Lithium-ion battery (LIB) materials
The market for new-energy-driven cars including electric vehicles
(EVs) and plug-in hybrid vehicles (PHVs) is expected to expand
faster than the previous forecasts. In addition, the need for
advanced properties of LIBs including fast charging, long-range
cruising, and enhanced safety is increasing. SDK has been
developing and manufacturing LIB materials that provide LIBs with
such values as "high capacity, low resistance, and long life." In
2017, SDK expanded its production capacity for VGCF(TM): carbon
nanofiber added to cathodes and anodes of LIBs to improve
electrical conductivity. In the future, SDK will soon launch
Si-graphite hybrid anode additives, of which SDK is now evaluating
samples, and promote further expansion of its VGCF(TM) production
facilities, thereby responding to the need of customers.
4) SiC epitaxial wafer for power devices
SiC-based power devices are key devices for energy conservation,
and the demand for them is expected to continue increasing in
medium to long term. SDK has been producing SiC epitaxial wafer for
power devices with top-level quality in the world. In 2017, SDK
decided to acquire assets and intellectual properties concerning
SiC wafers from Nippon Steel & Sumitomo Metal Group, and also
decided to further expand its capacity to produce high-grade SiC
epitaxial wafer marketed under the trade name of "High-Grade Epi."
SDK will continue development of technologies that promote
practical use of full-SiC-based power modules, aiming to contribute
to full-swing spread of SiC-based power devices.
(2) Acceleration in expansion of global business operation
1) High-purity gases for electronics
The amount of high purity gases for electronics used in
manufacturing of semiconductors, LEDs, etc. is increasing due to
the take-off of the production of 3D-NANDs in 2017. Under these
circumstances, SDK newly established and/or expanded its facilities
to produce etching gases, its sales bases in North America and
China, and strengthened its administrative functions for logistics,
procurement, and marketing. In 2018, SDK will continue
implementation of measures including development and launch of
high-value-added new gases, investment in plant and equipment, and
formulation of alliances with other companies, aiming to achieve
the target concerning increase in sales set under the medium-term
business plan, which is 40% increase in sales by 2018 from those of
2015.
2) Aluminum cans
In the East Asian markets including that of Vietnam, the demand for
aluminum cans for beverages continues to increase. In 2017, SDK
decided to establish its Vietnamese subsidiary's second can
manufacturing plant in Da Nang City, Vietnam, and also decided to
establish a joint corporation and its new plant with a leading
beverage manufacturer in Thailand. In 2018, SDK will finish
construction of these new plants and start to provide customers
with our Group's high-quality aluminum cans. On the other hand, in
the domestic aluminum can market which has already matured, our
customers need further improvement in the quality of aluminum cans.
Therefore, SDK will strengthen its aluminum can production system
to make it further optimized for production of multiple models in
smaller lots.
4. Other topics
(1) Research and development strategy
Since the establishment of "Institute for Integrated Product
Development" in January 2016, SDK has been accelerating integration
and harmonization of R&D activities of the Group companies
under the leadership of the Institute, aiming to enhance
profitability and competitiveness of the Group's existing
businesses and expand the Group's business domain into promising
fields surrounding our existing businesses.
With regard to the enhancement of profitability and competitiveness
of existing businesses, SDK continues R&D activities which are
expected to contribute to the expansion of its "individualized
businesses." For example, SDK is promoting: development of
technologies for realization of ammonia-based hydrogen station,
which realizes easy production of hydrogen gas for fuel cell
vehicles from ammonia; development of aqueous binder for anodes of
LIBs; and development of repairing materials to be used in cold
districts. As for the expansion of the Group's business domain into
promising fields surrounding our existing businesses, for example,
our customers ask SDK to provide them with high performance
materials which help realization of heat solutions including
thermal resistance and heat radiation. Supply of these materials
for heat solutions is expected to enable our automotive industry
customers to promote electrification, miniaturization, and weight
reduction of cars. SDK will continue responding to our customers'
needs with proposals of hybrid materials developed through
combination of our aluminum, resin and ceramics products.
As for our strategic technology to produce fullerene, which is a
carbon material, we will promote expansion of the range of its use
and accelerate development of technologies to establish high-yield
production process.
(2) Financial strategy
Our performance concerning the financial targets we set in "Project
2020+," namely D/E ratio, free cash flow, ROA and ROE, favorably
continue to surpass these targets. In 2018, we will aim to surpass
our targets concerning management indexes through continuous
pursuit of improvement in profitability, efficient use of business
assets, inventory reduction, etc. As for the dividend payout ratio,
we will aim to achieve 30% in 2018.
(3) Next medium-term business plan
In order to contribute to sustainable growth of society, the Showa
Denko Group deals with social issues through its business
activities. Aiming to "contribute to the creation of society where
prosperity and sustainability are harmonized," the Group makes the
most of its business portfolio, appropriately grasps values that
society and customers desire, and adds peerless value to products.
When we provide products, technologies, and services, we give
thoughtful attention to environment and recycling of resources more
than ever. In addition, we will make the Group a "stage" where each
employee, who creates values mentioned above, can work lively, and
we will strive continuously to keep the Showa Denko Group
growing.
We plan to start formulation of our next medium-term business plan
from 2019. In the next medium-term business plan, we will focus on
numerical targets, aiming to promote management filled with a sense
of speed, in order to cope with rapidly changing business
environment, while maintaining medium- to long-term
perspective.
About Showa Denko K.K.
Showa Denko K.K. ("SDK"; TSE:4004, US:SHWDF) is a major
manufacturer and marketer of chemical products serving a wide range
of fields ranging from heavy industry to the electronic and
computer industries. The Petrochemicals Sector provides cracker
products such as ethylene and propylene, the Chemicals Sector
provides industrial and high-performance gases and chemicals and
high-purity gases and chemicals for the semiconductor industry, and
the Inorganics Sector provides ceramics products such as alumina,
abrasive, refractory and graphite electrodes and fine carbon
products. Today, the Aluminum Sector provides aluminum materials
and high-value-added fabricated aluminum, the Electronics Sector
provides HD media, compound semiconductors such as ultra
high-bright LEDs and rare earth magnetic alloys, and the Advanced
Battery Materials Department (ABM) provides lithium-ion battery
components. For more information, please visit
www.sdk.co.jp/english/.
Source: Showa Denko K.K.
Contact:
Public Relations Office
Phone: 81-3-5470-3235
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