Tokyo, Feb 9, 2009 - (JCN Newswire) - Showa Denko K.K. (SDK) today announced its business results for 2008. Consolidated net sales for the year decreased 1.9%, to JPY 1,003,876 million, and operating income fell 65.1%, to JPY 26,792 million. The drop in operating income was mainly due to the fall in shipments of petrochemicals and the influence of the sharp fluctuations in naphtha costs; the effect of higher yen and increased depreciation expenses in the Electronics segment; and low demand for aluminum from the construction and automobile industries. Ordinary income was down 83.7%, to JPY 9,793 million, due mainly to the fall in operating income, and net income decreased 92.6%, to JPY 2,451 million.
The global financial crisis - triggered by the U.S. subprime mortgage problem - resulted in sharp appreciation of the yen and steep declines in crude oil prices and stock markets. As a result, the Japanese economy was deeply affected in the second half of 2008, with drastic falls in production and capital investment by corporations.
Under the circumstances, the Showa Denko Group implemented its consolidated business plan, the Passion Project, with a view to laying the groundwork for long-term sustainable growth. The Group took various steps to expand growth businesses, while continuing its structural reform and cost reduction efforts.
Nevertheless, the business environment for the chemical and nonferrous metals industries was very difficult, reflecting volatile naphtha and aluminum metal prices that soared in the first half of the year and sharply declined in the second half. The situation in the electronic parts/materials industry was also very difficult due to substantial inventory adjustments by customer industries in the second half of the year.
Petrochemicals
Production of ethylene and propylene in 2008 decreased, reflecting production cuts in the second half of the year. Sales of olefins rose owing to higher selling prices until the middle of the year, reflecting soaring raw material costs, notwithstanding lower shipment volumes in the second half owing to stagnant demand. Sales of organic chemicals were down due partly to substantially decreased shipment volume of acetic acid, notwithstanding higher prices, reflecting the rise in feedstock costs.
As a result, the Petrochemicals segment's sales rose 1.3%, to JPY 400,173 million. However, the segment recorded operating loss of JPY 1,281 million, compared with operating income of JPY 19,574 million for the previous year. The fall in the segment's operating income was due to lower demand in the second half; the fall in selling prices, reflecting the sharp drop in naphtha prices; and the influence of high-priced stock of naphtha.
Chemicals
Production of liquid ammonia was maintained at the previous year's level. Sales of acrylonitrile were up owing to higher shipment volumes, and sales of caustic soda, ammonia and amino acids increased due to the rise in selling prices. Sales of chloroprene rubber decreased slightly as a result of the fall in demand for automobile applications in the second half.
The Chemicals segment's sales rose 10.2%, to JPY 93,319 million, due partly to the consolidation of Showa Tansan Co., Ltd. However, operating income fell 28.3%, to JPY 5,329 million, due mainly to sharp declines in the acrylonitrile market prices.
Electronics
Production of hard disk (HD) media fell slightly, reflecting slower demand for PCs in the second half of the year. Sales of HD media decreased owing to lower shipment volumes in the second half of the year, centering on aluminum-based HD media, notwithstanding the rise in sales in the first half. Sales of compound semiconductors were up, reflecting the rise in shipment volumes of ultrabright LED chips. Sales of semiconductor-processing specialty gases decreased, reflecting the fall in demand for semiconductors. Meanwhile, sales of rare earth magnetic alloys rose due to the rise in shipment volumes and selling prices.
As a result, the Electronics segment's sales decreased 6.1%, to JPY 188,778 million. Operating income decreased 64.2%, to JPY 9,259 million, owing to the fall in shipment volumes of aluminum-based HD media in the second half of the year, the rise in depreciation expenses, and the influence of the appreciation of the yen.
Inorganics
Production of graphite electrodes decreased slightly owing to the fall in demand in the second half of the year, notwithstanding steady results in the first half. Sales of graphite electrodes increased due to the rise in selling prices, reflecting higher raw material costs, notwithstanding lower demand in the second half. Sales of ceramics increased slightly.
As a result, the Inorganics segment's sales increased 5.0%, to JPY 88,797 million. However, operating income fell 7.9%, to JPY 19,244 million. The decrease in operating income was due to the adverse effect of the appreciation of the yen on the profit from the graphite electrode business in the U.S. as well as the influence of higher raw material costs on the ceramics business.
Aluminum
Production of rolled products decreased, reflecting lower shipments of high-purity aluminum foils for capacitors in the second half of the year. Production of extrusions fell due to the stagnant construction market. Production of ShoticTM forged products also fell due to lower demand from the automobile industry.
Sales from ingot marketing decreased owing to the fall in shipment volumes. Sales of rolled products were down as a result of our withdrawal from the commodity foils business in the previous year and lower shipment volumes of high-purity foils for capacitors in the second half of 2008. Sales of extrusions/specialty products fell mainly due to decreases in shipment volumes of extrusions for building materials.
In the heat exchanger business, sales rose in Asia and Europe, although sales in Japan and the United States fell. Sales of ShoticTM forged products decreased because of the sharp drop in shipments to the automobile industry in the second half of the year. Sales of aluminum cans also decreased, reflecting lower shipment volumes.
As a result, the Aluminum segment's sales fell 9.7%, to JPY 232,809 million. The segment recorded operating loss of JPY 212 million, compared with operating income of JPY 8,042 million for the previous year. The fall in the segment's operating income was due to lower demand from the construction and automobile industries as well as the influence of higher fuel cost on our power generation business as an independent power provider.
Major Steps Taken in 2008
Petrochemicals
- Expansion of allyl alcohol production capacity at Oita
In May, SDK completed the expansion of its allyl alcohol production capacity at Oita Petrochemical Complex, raising the capacity from 56,000 tons a year to 70,000 tons a year. Allyl alcohol is used as raw material for allyl ester resin, whose demand is growing for many applications, including spectacle lenses.
- Manufacture of n-propyl acetate
In October, SDK decided to build a plant for n-propyl acetate that will be used in solvents for ink for special gravure printing. The plant will be completed by the end of 2009 and commercial shipments will start in early 2010. Demand for n-propyl acetate is expected to grow as it is safer to use than conventional solvents.
Chemicals
- Sale of shares in Kokusai Eisei
In March, SDK sold 90% of the shares it owned in its wholly owned consolidated subsidiary Kokusai Eisei Co., Ltd., to Iwatani International Corporation.
- Installation of GHG decomposition unit
In June, SDK decided to install a greenhouse gas (GHG) decomposition unit at its Kawasaki site for start-up in March 2009. The installation of the unit will enable the Showa Denko Group to reduce GHG emissions by 6% in compliance with the Kyoto Protocol without relying on emission trading.
- Tender offer for Showa Tansan's common stock
In June, SDK changed the status of Showa Tansan Co., Ltd. from an affiliate, to which the equity method was applied, to a consolidated subsidiary by increasing its ownership of Showa Tansan's shares through a tender offer.
- Expansion of chloroprene rubber production capacity
In September, SDK expanded its chloroprene rubber production capacity at its Kawasaki site from 20,000 tons a year to 23,000 tons a year. Demand for chloroprene rubber is steadily increasing for use in automotive parts and many other applications owing to the material's high resistance to oils, heat and weather as well as its high flame retardance.
- Waste anesthetic gas disposal system provided to Swedish firm
SDK provided its waste anesthetic gas disposal system technology (AnescleanSW(TM)) to Qmt tech ab, a medical equipment engineering company in Sweden. The AnescleanSW system decomposes nitrous oxide, a greenhouse gas used as inhalation anesthetic at hospitals. SDK granted Qmt the right to sell the system to hospitals in North European countries.
- Acquisition of shares in F2 Chemicals of U.K.
In September, SDK reached agreement with Asahi Glass Co., Ltd., Mitsubishi Corporation, and Mitsubishi's Italian subsidiary MITENI S.p.A. to purchase all the shares of their joint venture F2 Chemicals Limited of the United Kingdom. By combining F2 Chemicals' fluorine technologies with our own technologies, we aim to expand the lineup of our fluorine compounds.
- Completion of new plant for high-performance insulating ink
In November, our subsidiary Nippon Polytech Corporation (NPC) completed its new plant for high-performance electrical insulating ink for use in the manufacture of chip-on-film - technology-based electronic parts in LCD panels for TVs, PCs and mobile phones. The ink, in which SDK's newly developed urethane-based thermoset resin is used, improves image quality and extends life of LCD panels.
- New distribution base for EcoannTM liquid ammonia in the Tohoku region
In November, SDK decided to build a new distribution base for EcoannTM liquid ammonia in Fukushima Prefecture, northeastern Japan. The distribution base will start up in August 2009. Demand for EcoannTM liquid ammonia is steadily growing in the Tohoku region mainly for use in removal of NOx at thermoelectric power plants.
Electronics
- Launch of 80 lm/W AlGaInP ultrabright red LED chips
In May, SDK started commercial shipment of AlGaInP ultrabright red LED chips with luminous efficiency of 80 lumen per watt. To the best of our knowledge, the product had the world's highest luminous efficiency for this type available on the market as of May 2008. AlGaInP ultrabright LED chips are now used mainly in outdoor displays. However, new applications are being developed, including automotive parts (rear lights, interior lighting) and LCD backlight for flat-panel TVs.
- Consolidation of HD media operations with HOYA
In September, SDK reached basic agreement with Hoya Corporation to consolidate the two companies' HD media operations by establishing a joint venture in 2009. By combining their respective technical strengths, SDK and HOYA will step up R&D to develop new HD media products with higher storage capacity. At the same time, the two companies will increase the efficiency of their operation sites to ensure sustainable competitive power.
- Shipments of HD media with the world's highest storage capacity
In August, SDK began commercial shipments of 1.89-inch HD media with storage capacity of 120 gigabytes per disk. And in September, SDK began commercial shipments of 2.5-inch HD media with storage capacity of 250 gigabytes per disk. To the best of our knowledge, both products had the world's highest storage capacity for HD media of these sizes available on the market as of January 8, 2009. 1.89-inch HD media are used in mobile music players, high-definition camcorders, and small-sized notebook PCs. Meanwhile, 2.5-inch HD media are used mainly in notebook PCs. Demand for high-capacity HD media is expected to grow.
- Establishment of rare earth metal subsidiary in Vietnam
In October, SDK established Showa Denko Rare-Earth Vietnam Co., Ltd. in Ha Nam Province, Vietnam, as its 90%-owned subsidiary. In April 2010, the new company will begin producing 800 tons a year in total of didymium and dysprosium, which will be used as raw material for neodymium-based high-performance magnetic alloys. The Showa Denko Group is producing rare earth magnetic alloys at three plants - one in Japan and two in China - with combined capacity of 8,000 tons a year. With the establishment of the new company in Vietnam, the Group will be able to ensure stable procurement of raw materials for its neodymium-based high-performance magnetic alloy production and further strengthen the business.
- Establishment of electronics materials sales firm in Taiwan
In September, SDK established a wholly owned subsidiary Taiwan Showa Denko Electronics Co., Ltd. to strengthen sales of LED chips.
- Expanding high-purity ammonia business for electronics
In November, SDK established a joint venture in Quzhou, Zhejiang Province, China to produce high-purity ammonia for the electronics industry. The joint venture, Zhejiang Quzhou Juhua Showa Electronic Chemical Materials Co., Ltd., owned 51% by SDK, is now building a 500-ton-a-year high-purity ammonia plant for start-up in June 2009. Fully utilizing the new plant in China and existing production sites in Japan (Kawasaki) and Taiwan, SDK will strengthen its supply of high-purity ammonia to the growing East Asian market.
- Taking over SiC epitaxial wafers business
In December, SDK took over ESICAT Japan, LLP's business in silicon carbide (SiC) epitaxial wafers for power device applications. Owing to their superior electricity-saving properties, SiC-based semiconductors are expected to be increasingly used in power conversion devices and inverter modules for electric power/automobile/railroad/electric appliance industries.
- Expanding C4F6 etching gas business
SDK will start up a new production facility for high-purity C4F6 gas in Kawasaki in the first half of 2009 in cooperation with Air Products and Chemicals, Inc. Demand for C4F6 is expected to grow due to its improved processability and selectivity and very low environmental impact.
- Commercialization of new grade carbon nanotube
SDK has decided to build a commercial production facility for VGCF(TM)-X, a new grade of SDK carbon nanotube with an optimized design for resin composite applications. Production will begin in the first half of 2010 within the premises of Oita Petrochemical Complex. A small added amount of VGCF-X can give stable conductivity to resins. Thus it will find applications in static-free plastic cases for the carriage of semiconductor/hard disk media parts in a clean room, contributing to better quality of these parts. SDK has concluded a patent cross-license agreement with Hyperion Catalysis International, Inc., which owns many key patents pertaining to materials and applications in the area of carbon nanotube, including for resin composites.
Inorganics
- Graphite electrode production capacity expansion
In the graphite electrode business, the Showa Denko Group has maximized production/distribution efficiency at the two production bases - one each in Japan and the United States. The Group has established technical advantages, as demonstrated by its position as a world leader in the production of large-diameter graphite electrodes. Our U.S. subsidiary Showa Denko Carbon, Inc. (SDKC) has completed a series of debottlenecking, expanding its capacity to 45,000 tons a year (up 5,000 tons a year). As a result, the Group's total graphite electrode production capacity has reached 105,000 tons a year.
Aluminum and other
- High-purity aluminum foil production capacity expansion
In January, our subsidiary Showa Denko Sakai Aluminum K.K. (SSK) completed a new line for refining aluminum slabs. With the completion, SSK's high-purity foil production capacity was expanded from 1,500 tons a month to more than 1,800 tons a month. High-purity aluminum foils are used in the production of electrolytic capacitors, whose demand has increased substantially in recent years for use in high-performance electric appliances, such as flat-panel TVs, and automotive parts. We are the leading supplier of high-purity aluminum foils in Japan and overseas markets. We will continue to meet customer expectations through further capacity expansion in a timely manner and the provision of high-quality products.
- Environment-friendly pipes made from recycled PET bottles
In June, Showa EcopipeTM, a drainage/ventilation pipe produced and marketed by our subsidiary Showa Denko Kenzai K.K. using recycled PET bottles, was adopted commercially for the first time in a condominium. Compared with existing hard PVC pipes, Showa Ecopipe(TM) needs only one-third energy-input for production, contributing to the reduction in CO2 emissions. Also, Showa Ecopipe does not emit chlorine-based toxic gases at the time of incineration. Thus, Showa Ecopipe has been certified as "Eco Mark product" by the Japan Environment Association.
- New aluminum melting furnace at Oyama
In June, SDK completed the modernization work of aluminum casting facilities at its Oyama Plant, installing new melting furnaces with the capacity of producing 60,000 tons of billets a year. The modernization is intended as a measure to ensure the delivery of high-quality fabricated aluminum products to customers.
Projections for 2009
In 2009, the business environment is forecast to remain severe, reflecting the impact of the global recession on Japan's export, production and capital investment. Under the circumstances, the Showa Denko Group will continue its efforts to lay the groundwork for long-term sustainable growth, reduce costs, increase competitiveness, and enhance profitability. The Showa Denko Group's performance forecast for 2009 is as follows:
Results Forecast
12/31/08 12/31/09 Difference Change
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Net sales 1,003,876 800,000 -203,876 -20.3%
Operating income 26,792 17,000 -9,792 -36.5%
Ordinary income 9,793 8,000 -1,793 -18.3%
Net income 2,451 2,000 -451 -18.4%
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Net sales, operating income, ordinary income and net income will decrease from the 2008 results to JPY 800 billion, JPY 17 billion, JPY 8 billion, and JPY 2 billion, respectively. The above forecast is based on the assumption that the exchange rate will be JPY 90 in the first half and JPY 95 in the second half, respectively, to the U.S. dollar. The naphtha price is assumed to be JPY 32,000/KL in the first half and JPY 40,000/KL in the second half, respectively.
Financial Conditions
(1) Assets, liabilities and total equity at December 31, 2008
We continued our efforts to reduce total assets, including the sale of investment securities. As a result, total assets decreased JPY 67,619 million, to JPY 962,010 million. Interest-bearing debt further decreased JPY 2,731 million, to JPY 392,914 million, as a result of continued reduction efforts. Total liabilities decreased JPY 34,419 million, to JPY 696,551 million.
Total equity decreased JPY 33,200 million, to JPY 265,459 million, due to the payment of dividends for the previous year and the fall in securities valuation surplus.
(2) Cash flows in 2008
Net cash provided by operating activities decreased JPY 6,223 million from the previous year, to JPY 61,099 million, due mainly to the fall in operating income. Net cash used in investing activities decreased JPY 25,618 million, to JPY 44,035 million, due mainly to the fall in payments for capital investment.
Thus, free cash flow ended up in the proceeds of JPY 17,065 million, compared with the payment of JPY 2,331 million in the previous year. Net cash used in financing activities decreased JPY 16,733 million, to JPY 3,818 million, despite reductions in interest-bearing debt, as liquidity in hand was increased in anticipation of a deterioration in fund-raising environment. As a result, cash and cash equivalents at December 31, 2008 increased JPY 9,062 million, to JPY 40,949 million.
(3) Projections for 2009
While cash flows from operating activities will decrease, net cash used in investing activities will be maintained at the level of 2008. Thus, free cash flow for 2009 is expected to decrease around JPY 7,100 million, to the proceeds of JPY 10,000 million. Interest-bearing debt at the end of the year will be around JPY 385,000 million, down JPY 8 billion.
Trends in Cash Flow Indexes
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2005 2006 2007 2008
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Equity ratio 21.0% 22.7% 26.9% 25.0%
Equity ratio on
market value basis 53.3% 51.6% 48.5% 16.5%
Debt maturity (years) 5.8 4.7 5.9 6.4
Interest coverage ratio 8.9 12.5 8.0 7.8
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Basic Policy Regarding Appropriation of the Company's Profits; Dividends for 2008
The Company considers the payment of dividends as an important obligation to its shareholders. The Company's basic policy is to decide on dividends after consideration of the profit level for the term and the need for internal reserve for use in future business expansions. As to appropriation of profits for 2008, the Company is planning to pay dividends of JPY 5 per share, the same as those in the previous year. The Company has not yet decided on dividends for 2009.
Medium to Long-term Business Strategy
(1) Promotion of "Passion Extension"
The Showa Denko Group has promoted the Passion Project, a three-year (2006-2008) action plan under which the Group has aimed to contribute to the sound growth of international society based on its "image" in 2010. In response to the drastic changes in the business environment, we have reviewed the Passion Project and worked out "Passion Extension" for the two-year period of 2009 and 2010, while maintaining the basic concepts of the Passion Project. Under the "Passion Extension," we will focus our attention on the flowing six items in an effort to promote structural reform and lay the groundwork for sustainable growth over the long term:
1. Improve business portfolio by promoting growth strategies and structural reform
2. Allocate managerial resources efficiently by very carefully selecting investments
3. Carry out drastic cost reductions
4. Secure sufficient cash flows
5. Improve financial strength
6. Strengthen R&D to ensure future growth
(2) The "image" of the Showa Denko Group
Through the provision of products and services, the Group aims to increase its corporate value and fulfill the expectations of all stakeholders, including its shareholders and customers. By doing so, the Group aims to earn the full trust and confidence of the market and society.
(i) Pursuit of the "unique chemical company with individualized products" based on advanced technologies
The Group aims to develop individualized businesses with competitive edges by deepening and merging a wide range of material technologies while acquiring new device/module technologies.
(ii) Improving financial strength
The Group will improve its financial strength by reducing the interest-bearing debt and expanding stockholders' equity.
(iii) Corporate social responsibility (CSR)
The Group aims to earn the full trust and confidence of the market and society, always managing operations based on the principles of CSR.
(3) Tasks to be accomplished
The Showa Denko Group will aim to lay the groundwork for long-term sustainable growth as well as enhance competitiveness and profitability by achieving the above-mentioned goals under the "Passion Extension." Furthermore, we will aim to earn the full trust and confidence of the market and society, always managing operations based on the principles of CSR.
The Group attaches great importance to corporate governance, compliance and risk management, taking various measures in these areas in order to ensure sustainable growth and higher corporate value over the long term. The Group is contributing to the sound growth of society by developing and providing useful and safe technologies, products and services. We will ensure safety, conserve resources and energy, and reduce the volume of industrial waste to be discharged and chemical substances to be emitted, thereby contributing to the protection of the global environment.
About Showa Denko
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. SDK makes petrochemicals (ethylene, propylene), aluminum products (ingots, rods), electronic equipment (hard disks for computers) and inorganic materials (ceramics, carbons). The company has overseas operations and a joint venture with Netherlands-based Montell and Nippon Petrochemicals to make and market polypropylenes. In March 2001, SDK merged with Showa Denko Aluminum Corporation to strengthen the high-value-added fabricated aluminum products operations, and is today developing next-generation optical communications-use wafers. For more information, please visit www.sdk.co.jp .
Contact:
Showa Denko
Nobuhiro Kato
nobuhiro_kato@sdk.co.jp
+81-3-5470-3235
Feb 9, 2009
Source: Showa Denko
Showa Denko (TSE: 4004) (U.S: SHWDF)
From the Japan Corporate News Network
http://www.japancorp.net
Topic: Press release summary
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