Showa Denko Group's Business Model

Transcription

1 Showa Denko Group's Business Model Aiming to Contribute toward Creating a Society Where Affluence and Sustainability Are Harmonized The Showa Denko Group aims to contribute toward creating a society where affluence and sustainability are harmonized by turning more of the collective hopes and dreams of society into reality through the power of chemistry. Specifically, to this end, we input a variety of s that support development of various products and technologies including production technologies, and output high value-added products, technologies and services through six business segments. We will press forward with a strategy to provide customers with highly attractive products and services to increase our competitiveness and take a top share in global markets or competitive markets of a certain size. We will in particular focus on the five market domains: Infrastructure, Energy, Mobility, Living Environment, and Electronics to become an entity that can provide satisfaction to all stakeholders. Social changes and issues Investment Showa Denko Group s business activities Financial Consolidated total assets billion (As of December31,2016) Multi-polarity of world economy Changes in the composition of population Progress of urbanization Dramatic development of technologies Changes in the environment surrounding raw materials and fuels Climate change and depletion of resources Instrumental Worldwide of production bases Intellectual R&D budget 60 billion ( total) Human The number of Group employees 10,146 (As of December31,2016) Social & relationship Cooperation with business partners Others Aluminum Petrochemicals Medium-term business plan Project Solidify revenue bases Expand individualized businesses R&D strategy P.22 Inorganics Important CSR issue 14 Materiality Issues Chemicals Electronics Natural Energy (crude oil equivalent) 1.19million kl (2016, Group total)) 6segments P SHOWA DENKO REPORT 2017

2 boutshowadenkohihlgightsofcsractivitiesfinancialhighlightvalues to be created Showa Denko Group s medium- to long-term goals Expand individualized businesses and increase profitability to build a business structure with minimal revenue fluctuations Infrastructure Energy Mobility Living Environment Electronics Financial Values to be created in the five market domains Mitigating environmental burden Improving resource efficiency Diversifying energy sources Safety/Security Enhanced durability Safety/Security Net sales Operating income Ratio of Operating income to sales Return on equity (ROE) Debt/equity ratio Payout ratio Return on assets (ROA) Non-Financial Participation in community activities Prevention of pollution/ Use of sustainable resources Equipment safety Consumer safety and health protection Occupational health and safety/ Human rights and labor practice Resource recycling Efficient use of electricity Emission control Improving fuel efficiency Intensive accumulation and dispatch of information Values created in business activities 930billion 70billion 7.5% 9% more 1.0 times or less 30% 6% more Industrialization of agriculture Aluminum can recycling: participation rate 100% Zero serious environment problems Maintain zero emissions Zero serious equipment incidents (Image for 2020) Reducing the number of complaints received by half in 2020 relative to Rate of lost-time injuries as the group: 0.1 or less Number of female managers and its ratio :At the end of 2020 as 40 female managers ( 5% of all managers) Ratio of handicapped employees : 2.3 or more of social issues Contributes toward creating a society where affluence and sustainability are ssolution harmonized. Become a company contributing to the sound growth of society 21 SHOWA DENKO REPORT 2017 A

3 Medium-term business plan: Project Medium-term business plan: Project Individualized businesses 30% Domestic sales Overseas sales 40% The Showa Denko Group launched the five-year medium-term business plan, Project 2020+, in In line with this plan, we will implement innovative measures with a focus on stability in addition to growth potential and profitability, including: (1) improving the profitability of existing businesses through renewal of business models; (2) making the best use of M&A and business partnerships; and (3) accelerating overseas business expansion, thereby solidifying the revenue bases and expanding individualized businesses for sustainable growth. *Individualized business: Refers to a business that is exceeding a certain scale, generating a certain level of profit, and offering highly competitive technologies and/or business models. Showa Denko Group s contribution to society We are operating businesses targeting the five market domains that we set when we formulated the medium-term business plan: Infrastructure, Energy, Mobility, Living Environment, and Electronics. We will supply high value-added products, technologies, and services to customers by making use of our Group s materials, components, technologies, and human resources. We offer high value-adding products technology services to 5 market domains Mitigating environmental burden Resource recycling Improving resource efficiency Utilizing alternative energy Efficient use of electricity Diversifying energy sources Energy Mobility Safety/Security Enhanced durability Emission control Improving fuel efficiency Electronics Living environment Intensive accumulation and dispatch of information Safety/Security Industrialization of agriculture Target image of the Showa Denko Group in 2025 We will take a market-oriented approach to our products, which are developed through a product-oriented approach in the aforementioned five market domains, with an eye to establishing a business structure that is not easily impacted by market conditions and where revenue fluctuations are minimized. We will increase the share of the individualized businesses in the Group's total sales from the present 30% to 50%. Also, with a focus on the growth businesses, we will expand our overseas sales ratio from 40% to 60%, thereby increasing our profitability and suppressing revenue fluctuations. 50% Aiming to make individualized businesses* occupy 50 % of net sales Operating income margin (Return) High Portfolio For each business, we are speeding up the measures based on the missions defined for each category of the business portfolio. We will produce stable profit and cash flow from the Baseshaping businesses, while proactively expanding the three Growthaccelerating businesses in line with the growth of overseas markets. In the lithium-ion battery materials business, which we have included in the Advantage-establishing businesses, we will expand our supply capacity in response to the rapid expansion of the automotive components market. Also, for SiC epitaxial wafers for power devices, we are fostering technological development ahead of the full-scale launch of the market while proactively searching for opportunities in the market. For our individual businesses, we are making reexaminations in consideration of the business environment, profitability, and business models with a view to restructuring them, including by means of consolidation and withdrawal. Mission of each business Showa Denko in 2025 Expand individualized businesses Stabilize income Low Rate of change (Risk) To cope with prospective market growth, establish business model with competitive advantage in terms of business and technical development. LIB materials SiC epi-wafer for power devices Rare earths Ceramics Aluminum specialty components Increase profit and cash flow through rebuilding of business environment, profitability and business model. Growthaccelerating Advantageestablishing Rebuilding Baseshaping Infrastructure 60% Aiming to make overseas sales occupy 60 % of net sales Improve profitability Showa Denko in 2015 High Actively take strategic measures. Realize rapid expansion of business by preempting market growth. High-purity gases for electronics Functional chemicals Aluminum cans HD Graphite electrodes Petrochemicals Industrial gases Shotic TM High-purity aluminum foil Market and business have certain scale. Have more power to resist market fluctuation, and make stable profit and cash flow. 22 SHOWA DENKO REPORT 2017

4 Here we introduce our progress with the medium-term business plan, Project The following shows some of the measures we implemented in Making SunAllomer Ltd. a consolidated subsidiary Showa Denko K.K. (SDK) and JXTG Nippon Oil & Energy Corporation (JXTG) jointly purchased LyondellBasell Group's 50% stake in SunAllomer Ltd., which had been a joint venture company among the three parties for production and sale of polypropylene. Showa Denko made SunAllomer Ltd., a manufacturer of polypropylene (a major petrochemical derivative), a consolidated subsidiary as a means of enhancing the competitiveness of its Oita Complex. SunAllomer has strength in the field of automotive components such as bumpers, and we will accelerate the expansion of our Mobility-related business through this subsidiary. Oita plant of SunAllomer Deciding to purchase SGL GE s graphite electrode business Showa Denko K.K. agreed with SGL Carbon SE, a carbon and graphite product manufacturer headquartered in Wiesbaden, Germany ( SGL Carbon ), that SDK will acquire SGL GE Holding GmbH ( SGL GE ), which engages in the graphite electrode business, from SGL Carbon group ( SGL Group ) By making SGL GE its subsidiary, the Company will enhance its efficiency in a highly competitive market, which will enable it to pursue a higher level of growth by promoting cost-competitiveness and increasing business durability. With the acquisition of SGL GE, SDK can cover all areas around the world, including Europe, and becomes the global leading supplier of graphite electrodes. Based on the new platform, SDK plans to revitalize the graphite electrode business into a major profit source. Graphite electrodes SDK to Integrate Southeast Asian Bases for Aluminum Automotive Parts Showa Denko has decided to integrate the aluminum forging plant of SHOTIC Singapore Pte. Ltd. (STS), located in Singapore, with the aluminum casting plant of SHOTIC Malaysia Sdn. Bhd. (STM), located in Johor, Malaysia, aiming to strengthen competitiveness of its SHOTIC business. We decided to transfer the forging facilities of STS to STM to establish an integrated production system including both casting and forging processes. We aim to improve our product quality and productivity and manage our bases more efficiently, thereby enhancing our global competitiveness and appropriately meeting the needs of customers in the ASEAN, Chinese, and Indian markets. SHOTIC Malaysia Sdn. Bhd. About Showa Denko CSR Financial SHOWA DENKO REPORT

5 Medium-term business plan, "Project 2020+" We will introduce how the Showa Denko Group is creating corporate value through the strategies implemented by each of the Divisions. Functional Chemicals Division Create customer value for the growth and expansion of the business General Manager, Functional Chemicals Division Mitsuhiro Yada The Functional Chemicals Division upholds the slogan of pursuing the creation of customer value. Based on the belief that we can achieve the growth and expansion of our business by creating customer value, the Division has been working to provide the market and customers with value through cooperation with customers. Market needs are constantly changing and are becoming increasingly diversified. We must therefore pay more attention to the market and customers to deliver true value to customers for coexistence and co-prosperity with them. The Showa Denko Group has targeted five market domains in its medium-term business plan, Project 2020+, and the Division is dealing with a range of products and conducting business activities across the five domains. For example, in the Infrastructure market, businesses related to maintenance services, including repair and improvement, are flourishing in Japan while the establishment of social infrastructure is in progress mainly in emerging market countries such as China and India. For the maintenance and building of infrastructure, our products, specifically, resin materials, are used, and demand for these materials remains robust. In the Mobility market, resin materials are used in railroad tracks for high-speed trains, such as the Shinkansen in Japan. If the use of high-speed trains expands in India and Southeast Asia, business opportunities will substantially increase for our products. From the viewpoint of environmental protection, regulations are becoming tighter, particularly in China. Accordingly, coating materials that contain no organic solvents are in need and will be popularized further, and exhaust gas desulfurization equipment, which can remove SOx and NOx, will be more widely used at thermal power generation plants. Resin materials are used in this equipment and, moreover, we have long been supplying columns necessary for environmental analysis, and our columns are highly evaluated by users. In the Electronics market, we can deliver a range of functional materials for energy conservation and power storage. I often make business trips across Japan, Asia, and around the world, and even during these trips I am constantly thinking about how to foster our functional chemicals business, which has a broad product lineup. When I see more infrastructure being built in other countries, I get a strong sense of how we are fulfilling an important role in society. The functional chemicals business is positioned as one of the Growth-accelerating businesses that will produce greater sales and profit. To meet this expectation, we will accelerate the growth and expansion of the business by providing all stakeholders with true value and making contributions to them. 24 SHOWA DENKO REPORT 2017

6 HD Division Contributing to an advanced information society by using a range of technologies The HD Division is conducting R&D into hard disk (HD) media, and manufacturing and selling the media to be used in hard disk drives (HDDs), which are recording devices for computers, external hard disks, game machines, servers, and others. The amount of information created across the world is increasing at an explosive rate due to the advancement of information technology and changes in society. Such changes include the trend of posting images taken with a smartphone camera on social media; the spread of e-commerce, electronic money, and IC cards; the progress of logistics management by radio frequency identification (RFID); and the acquisition of data generated by security cameras on the streets and sensors at factories connected via Internet of Things (IoT) technology. HDDs, SSDs, tapes, and optical disks will be used for different applications as recording devices to store this exponentially expanding data. While the shipment of HDDs for use in personal computers will gradually decrease due to a decline in demand for computers and to the replacement of HDDs with SSDs, demand for HDDs will continue to expand for use in servers supporting cloud computing as well as servers installed at data centers that store and manage vast amounts of data. HDDs will continue to prevail as large-capacity recording devices with high cost competitiveness regarding quality and unit Senior Managing Corporate Officer General Manager, HD Division Jiro Ishikawa capacity, and we therefore still have great business opportunities in the HD business. The HD Division has been maintaining the Best in Class position by making daily improvements to the electromagnetic features and reliability of its best-in-the-industry products. For HDDs for data centers, the demand for which will continue to expand, we will develop 3.5-inch aluminum substrates and media in an integrated manner to continuously meet market needs. Showa Denko has technologies that encompass the inorganic and organic materials markets, and will utilize these versatile materials technologies to release unique, leading-edge media. Moreover, we will increase the efficiency of the development systems of our bases and build a production system appropriate for the size of market demand to enhance our cost competitiveness and ability to respond to customers. Showa Denko will continue to supply Best in Class HD media with high economic rationality to contribute to the advanced information society as a key component manufacturer for devices that are indispensable to record the explosively expanding volume of data. About Showa Denko CSR Financial SHOWA DENKO REPORT

7 R&D of the Showa Denko Group Message from CTO Create new value by forging, polishing, and linking diverse individualized technologies Managing Corporate Officers & CTO Jun Tanaka In January 2016, the Showa Denko Group started its new medium-term consolidated business plan Project Under this new business plan, the Group will strengthen revenue bases of its diverse businesses and expand its individualized businesses, aiming to contribute to the solution of social issues in global scale by providing high-value-added products and services to five market domains, namely, Infrastructure, Energy, Mobility, Living environment, and Electronics. In recent years, customers requests to materials and parts are diversified so much that it is necessary for us to reconcile diverse technologies with products in order to secure our competitiveness. We think we can take advantage of this diversity in customers needs by making the most of our wide-ranging chemical technologies that covers inorganic, aluminum and organic chemicals, and our diverse human resources that support these technologies. Therefore, we made it our basic policy on R&D to Create new value by forging, polishing, and linking diverse individualized technologies. Under this basic policy, we will deepen and fuse our diverse business domains, our core technologies that consist of elemental technologies with competitive advantage, and our strategic technologies that consist of the world-top-level technologies we cultivated over many years. Thus we will promote R&D in a way of our own. At the beginning of 2016, in order to conduct this individualized R&D, we established the Institute for Integrated Product Development, which we organized by adding research facilities of six locations, centering on aluminum and inorganics technologies, to the former Institute for Polymers and Chemicals. On the initiative of this new R&D organization, we will enhance cooperation among Divisions and Plants, develop our retained materials into multi-material components, and quickly respond to our customers needs in a creative way. The Institute for Advanced and Core Technology will deepen our strategic technologies consisting of carbon, thin-film, and catalyst technologies, and focus on development of next-generation businesses. On the other hand, in order to realize and maximize the fruits of R&D as early as possible while making our original businesses and technologies as the pivot of our R&D activities, we will positively utilize open innovation and M&A, and strengthen cooperation with our partners. The Showa Denko Group will make its R&D progress vigorously at world level by providing customers with original solutions, deepening and fusing its individualized technologies which are expected to become sprouts of next-generation growth businesses. Create new value by forging, polishing, and linking diverse individualized technologies Material design Organics, Inorganics, Aluminum Diverse business domains Infrastructure, Living environment, Mobility, Energy, Electronics Synthesis and Reaction Processing Analysis support Core technologies Elemental technologies with competitive advantage Diverse needs: Weight-saving, Heat management, High integration, High durability Deepening and fusion of retained materials/technologies Develop multi-material components Power module, Resin composite materials Strategic technologies (Nano-carbon/ Thin-film/Catalyst) World-top-level technologies we cultivated over many years 26 SHOWA DENKO REPORT 2017

8 Plan for R&D The Showa Denko Group is planning to invest 60 billion yen in R&D over three years, starting in 2016, under the new medium-term business plan, Project About 70% of the investment funds will be directed toward the Energy market domain (LIB materials, SiC epitaxial wafers for power semiconductors, etc.) and the Electronics market domain (electronic material gases and solvents, optical films, and resins for use as electronic materials) to accelerate the development of new technologies and products.the remaining 30% will be spent on the newly added market domains of Infrastructure, Living environment, and Mobility for the purpose of expanding individualized businesses. Through these R&D investments and activities, we will offer high value-added products and services in the five market domains while creating individualized businesses to promote social contribution on a global scale. The R&D projects introduced below have the potential to become our next growing businesses. 1. Power modules Our power modules offer an example of how we combine the Group s technologies, materials and solutions. A power module is made of various materials such as aluminum, resin and ceramics. We will meet customer needs for thermal solutions for high output and downsized power control units, optimum material mix, and multi-materialization (joining of different materials, etc.) by combining the Group s power device, heat sink/insulating panel, cooling device, heat-resistant sealing resin, and other proprietary technologies so as to pioneer the power module market. 2. Resins for use as electronic materials Resins for use as electronic materials have a range of applications related to chip-on-film (COF) substrates for smartphones and color filter substrates for flat panel displays. In order to meet the demand for smaller smartphones with higher performance and for flat panel displays with higher resolution, we are required to increase the performance of our products, including reliability, flexibility, and heat resistance. The Showa Denko Group has been speedily meeting the needs of customers engaged in rapidly changing markets by developing and honing the polymer design technology for diverse resins such as acrylic resin, modified epoxy resin, and urethane resin, the technology to mix additives, and the technology to evaluate physical properties. 3. Nano-carbon materials Having put commercial production of VGCF TM carbon nanotubes on track, the Showa Denko Group is currently developing new carbon materials such as fullerene and graphene. Our R&D targets include derivatization of fullerenes, development of new functions for nano thin film materials, and establishment of assessment techniques, and About Showa Denko CSR Financial we will promote the use of the materials for composites, batteries, electrical wiring, recording devices, and other applications. SHOWA DENKO REPORT

9 R&D of the Showa Denko Group Protection of intellectual property Acquisition of intellectual property rights and establishment of patent networks As the majority of Showa Denko's businesses are operated globally, we aggressively apply for patents in foreign countries with the aim of supporting those businesses from the intellectual property side. The chart shown below is a composition of data shown in "Japan Patent Office Annual Report 2016" and SDK's own data on the number of applications for patents. It illustrates that the Showa Denko's global application ratios were about 10% higher than those by all applicants. We also make every effort to secure our superiority based on intellectual property rights, especially in the principal businesses and newly developed important products by establishing patent networks. In Our Code of Conduct and Its Practical Guide, we uphold Respect for other parties intellectual property rights as one of our rules. To this end, we built a patent monitoring system to keep track of trends in the intellectual property rights of others, including patents held outside Japan. In-house awarding system to commend employee inventions In order to promote the filing of more valuable patent applications, we commend our top three employees in terms of number of patent applications filed in the previous year and also the top three employees in terms of the number of patents registered in the previous year. In 2016 we established the Patent Hall of Fame, and two employees, whose patent filings and inventions each totaled 300 or more, entered the Patent Hall of Fame. Trend of patent application ratio in Japan and abroad Number of application in Japan (Showa Denko) Global application ratio (Showa Denko) Number of global application (Showa Denko) Global application ratio (all applicants) (Number of application) (%) 1, , (YEAR) Ceremony held to commend the internal inventors ranked in the top three (2016) SDK Receives 2016 Top 100 Global Innovators Award, 2 Years in a Row Showa Denko has received The Clarivate Analytics 2016 Top 100 Global Innovators award. It is two years in a row that SDK is listed in the annual Top 100 Global Innovators which is produced by Clarivate Analytics, formerly the Intellectual Property & Science business of Thomson Reuters. Clarivate Analytics presented a trophy to SDK. Clarivate Analytics selected 2016 Top 100 Global Innovators by utilizing strict and objective data compiled from its value-added patent citation database Derwent World Patents Index (DWPI), which is the world s largest one in this category, its intellectual property intelligence platform Thomson Innovation, and the company s original basis for evaluation. In the screening process of the award, Clarivate Analytics uses scientific and objective methodology involving four main criteria of patent volume, application-to-grant success, globalization and citation influence. This time, Clarivate Analytics commended SDK s high performance in globalization and citation influence, and rated the latter especially high. * In the screening process, Clarivate Analytics analyzed various organizations patent activity records for the last five years. As for globalization, meanwhile, records for the past three years were analyzed. SDK President Morikawa (left) receiving the trophy 28 SHOWA DENKO REPORT 2017