Summary of Fiscal 2012

Transcription

1 Summary of Fiscal 2012 (The Fiscal Year ended March 31, 2013) April 30, 2013 Tokyuama Corporation 1. Consolidation Classification Fiscal 2012 Fiscal 2011 Changes The number of consolidated subsidiaries The number of subsidiaries and affiliates by the equity method Summary of performance & other corporate data (consolidated) (Unit: Billions of yen, except number of employees) Fiscal 2012 Fiscal 2011 Changes Net sales Operating income Ordinary income Net income/loss Net income per share (Unit: yen) Capital expenditures Depreciation and amortization R&D expenses Financial income and expenses As of March 31, As of March 31, Changes Interest-bearing debt Number of employees 5,651 5, Net sales and operating income/loss by business segment (year on year) Net sales (Unit: Billions of yen) FY2012 FY2011 Changes Operating income/loss Net sales Operating income/loss Net sales Operating income/loss Chemicals Specialty Products Cement Advanced Components Others Total Inter-segment eliminations and corporate-wide expenses Consolidated results

2 In the Chemicals segment, profitability of vinyl chloride resin declined, because the selling prices moved downward due to violent fluctuations of naphtha prices. In addition, profitability of sodium silicate deteriorated owing to the major repairs performed to the plant. Due mainly to these factors, earnings in this segment decreased compared with the previous year. In the Specialty Products segment, sales volume and selling prices of polycrystalline silicon decreased due to the supply glut of solar cell-related components and inventory adjustments of semiconductor-related components. In addition, owing to the higher ratio of fixed costs arising from the lower operating rate of the plant, the polycrystalline silicon business experienced a considerable drop in earnings. In the Cement segment, earnings grew due largely to increased sales volume. This was attributable to the recovery in demand in Japan on the back of firm public- and private-sector demand. In the Advanced Components segment, earnings increased owing chiefly to the business reconstruction of plastic window sashes. (Note 1) From fiscal 2012, some products, which were previously accounted for in the Specialty Products segment, have been shifted to the Advanced Components segment. (Note 2) In fiscal 2012, the Company changed its accounting method of allocating costs to each segment. Net sales and operating income for fiscal 2011 have been recalculated reflecting the above-mentioned changes. 4. Net sales and operating income by business segment (forecasts) (1) Net sales and operating income by business segment (full year comparison) (Unit: Billions of yen) FY2013 Forecast FY2012 Results Changes Net sales Operating income Net sales Operating income Net sales Operating income Chemicals Specialty Products Cement Life & Amenity Others Total Inter-segment eliminations and corporate-wide expenses Consolidated results (Note 1) From fiscal 2013, the Advanced Components segment has been renamed the Life & Amenity segment. 2

3 (Note 2) From fiscal 2013, the Company has changed its accounting method of allocating costs to each segment. Net sales and operating income for fiscal 2012 have been recalculated reflecting this change. (2) Assumptions of performance forecasts for fiscal 2013 Fiscal 2013 Oct 2012-Mar 2013 Apr-Sep 2012 Domestic Naphtha Price ( /kl) 60,500 59,800 55,200 Exchange Rate ( /$) Despite such negative factors as price hikes of ethylene and propylene, we forecast an increase in earnings owing largely to a decrease in depreciation expenses of polycrystalline silicon and cutbacks in overhead expenses. In the Chemicals segment, price revisions of petrochemicals are taken into account. In the Specialty Products segment, a decrease in polycrystalline silicon sales volume is taken into account. In the Cement segment, an increase in sales volume is taken into account. In the Life & Amenity segment, sales volume growth achieved by tapping new markets is taken into account. 3

4 Summary of Consolidated Financial Statements for Fiscal 2012 (JP GAAP) (The Fiscal Year ended March 31, 2013) April 30, 2013 Tokuyama Corporation Stock exchange listings: Tokyo (URL Code number: 4043 Representative: Kazuhisa Kogo President and Representative Director Contact: Yoshifumi Matsumoto General Manager, Corporate Communications & Investor Relations Dept Scheduled date for the Ordinary General Meeting of Shareholders: June 25, 2013 Scheduled date of year-end dividends payout: June 26, 2013 Scheduled date for the filing of the consolidated financial statements: June 26, 2013 Preparation of supplementary explanatory materials: Yes Business results IR briefing to be held: Yes 1. Consolidated results for fiscal year ended March 31, 2013 (April 1, 2012 March 31, 2013) (1) Performance Note: All amounts are rounded down to the nearest million yen. % indicates year-on-year changes. Net sales Operating income Ordinary income Net income (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] Fiscal ,632 (8.4) 6,772 (50.6) 3,232 (72.0) (37,916) - Fiscal ,381 (2.6) 13,720 (31.9) 11,524 (33.5) 9,351 (4.2) (Note) Comprehensive income: FY12: (30,243) million yen [-%] FY11: 10,954 million yen [72.7%] Net income per share Diluted net income per share Net income to Ordinary income to shareholders equity total assets Operating income to net sales (yen) (yen) [%] [%] [%] Fiscal 2012 (108.98) - (16.2) Fiscal (Reference) Equity in earnings of unconsolidated subsidiaries and affiliates: FY12: 433 million yen FY11: 287 million yen (2) Financial position Total assets Net assets Shareholders equity ratio Net assets per share (millions of yen) (millions of yen) [%] (yen) Mar 31, , , Mar 31, , , (Reference) Shareholders' equity: FY12: 217,554 million yen FY11: 249,262 million yen (3) Cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at the end of the year (millions of yen) (millions of yen) (millions of yen) (millions of yen) Fiscal ,071 (60,673) 36,465 52,431 Fiscal ,060 (57,666) 20,791 58, Dividends (Period) Fiscal 2011 Fiscal 2012 Fiscal 2013 (Forecast) Annual dividens Total dividends Dividend Dividend on net 1st 2nd 3rd Yearend (Total) (Consolidated) (Consolidated) paid payout ratio assets ratio Total quarter quarter quarter (yen) (yen) (yen) (yen) (yen) (millions of yen) [%] [%] , ,

5 3. Consolidated performance forecast for Fiscal 2013 (April 1, 2013 March 31, 2014) (% indicates the rate of change over the corresponding previous periods respectively) Net sales Operating income Ordinary income Net income Net income per share (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] (yen) First Half Fiscal , , ,000-2, Fiscal , , , , * Cautions pertaining to the appropriate use of performance forecasts and other particular items The performance forecast and other forward-looking statements contained in this material have been prepared on the basis of information available at this point and certain assumptions which are judged to be rational, and may be substantially different from the actual performance etc. because of various factors that may arise from now on. *Notes (1) Changes of significant subsidiaries in the scope of consolidation during this period : No Addition to the scope of consolidation: - Reduction from the scope of consolidation: - (2) Changes of accounting policies, changes in accounting estimates, and retrospective restatements i. Changes of accounting policies by revision of accounting standards: Yes ii. Changes of accounting policies other than the above: No iii. Changes in accounting estimates: Yes iv. Retrospective restatements: No (3) Number of shares issued (in common stock) i. Number of shares issued at end of period (including treasury stock): FY12: 349,671,876 FY11: 349,671,876 ii. Number of treasury stock at end of period: FY12: 1,742,749 FY11: 1,729,017 iii. Average number of shares over period: FY12: 347,937,571 FY11: 347,949,031 (Reference) Summary of Non-Consolidated Operating Results 1. Non-consolidated results for fiscal year ended March 31, 2013 (April 1, 2012 March 31, 2013) (1) Performance Note: All amounts are rounded down to the nearest million yen. % indicates year-on-year changes. Net sales Operating income Ordinary income Net income (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] Fiscal ,207 (11.3) 4,859 (53.1) (13) - (38,215) - Fiscal ,099 (6.4) 10,352 (35.1) 8,538 (37.4) 8, Net income per share (yen) Diluted net income per share (yen) Fiscal 2012 (109.84) - Fiscal (2) Financial position Total assets Net assets Shareholders equity ratio Net assets per share (millions of yen) (millions of yen) [%] (yen) Mar 31, , , Mar 31, , , (Reference) Shareholders' equity: FY12: 195,243 million yen FY11: 229,214 million yen 5

6 2. Non-consolidated performance forecast for Fiscal 2013 (April 1, 2013 March 31, 2014) (% indicates the rate of change over the corresponding previous periods respectively) Net sales Ordinary income Net income Net income per share (millions of yen) [%] (millions of yen) [%] (millions of yen) [%] (yen) First Half Fiscal , ,500-2, Fiscal , ,000-6, (Note) Notice on the implementation of audit procedures This Summary of Consolidated Financial Statements is not subject to audit procedures of the consolidated financial statements based on the Financial Instruments and Exchange Act. At the point of disclosure of this Summary of Consolidated Financial Statements, audit procedures of the consolidated financial statements based on the Financial Instruments and Exchange Act are underway. * Cautions pertaining to the appropriate use of performance forecasts and other particular items The performance forecast and other forward-looking statements contained in this material have been prepared on the basis of information available at this point and certain assumptions which are judged to be rational, and may be substantially different from the actual performance etc. because of various factors that may arise from now on. 6

7 1. Analysis of Operating Results and Financial Position (1) Analysis of Operating Results 1. Operating results for the fiscal year under review [1] Overview of performance for the fiscal year under review During the fiscal year under review (April 1, 2012 to March 31, 2013), the global economy confronted a sense of slowdown due mainly to global financial instability arising from the European sovereign debt crisis and deceleration in economic growth of China and other emerging countries. On the other hand, with regard to the Japanese economy, in addition to signs of economic recovery on the back of the post-quake reconstruction demand, expectations for the new Adminstration s financial policy that focuses on getting out of deflation led to the yen s depreciation and the stock price recovery after a change of government at the end of Despite such positive factors, the prospect of the Japanese economy remained uncertain. Under these circumstances, the Tokuyama Group reported lower operating income on lower sales compared with the previous fiscal year. This was largely attributable to weak market conditions of the mainstay polycrystalline silicon business. (Unit: Billions of yen) Net sales Operating income Ordinary income Net income (loss) Fiscal (37.9) Fiscal Rate of change (%) (8.4) (50.6) (72.0) - Net sales Despite higher cement sales owing mainly to increased sales volume in Japan, consolidated net sales decreased 8.4%, or 23.7 billion compared with the previous year, to billion, due to a decrease in sales volume and selling prices of polycrystalline silicon, lower sales volume of vinyl chloride monomer (VCM) arising from difficulties at our VCM plant, and other factors. 7

8 Cost of sales Cost of sales decreased 6.0%, or 12.2 billion compared with the previous year, to billion, due chiefly to decreased sales volumes of polycrystalline silicon and vinyl chloride monomer. SG&A expenses SG&A expenses decreased 7.0%, or 4.5 billion compared with the previous year, to 60.3 billion, due to lower distribution costs as a result of sluggish sales of caustic soda and other products, a decrease in expenses related to the new information line of business (LOB) system, which started operations in the previous fiscal year, and other factors. Operating income Operating income decreased 50.6%, or 6.9 billion compared with the previous year, to 6.7 billion, due chiefly to the decrease in sales volume and selling prices of polycrystalline silicon. Non-operating income/expenses, Ordinary income Non-operating income/expenses deteriorated by 1.3 billion compared with the previous year due chiefly to an increase in costs of idle operations related to the polycrystalline silicon plant and VCM plant. As a result of the above, ordinary income decreased 72.0%, or 8.2 billion compared with the previous year, to 3.2 billion. Extraordinary gains/losses, Income/loss before income taxes, Income/loss before minority interests, Net income/loss Extraordinary gains/losses deteriorated by 34.5 billion compared with the previous year, due mainly to the posting of impairment loss on polycrystalline silicon and concurrent fumed silica manufacturing facilities and loss from inventory revaluation. As a result of the above, income/loss before income taxes deteriorated by 42.8 billion compared with the previous year, to a loss of 28.0 billion. Based on a careful reassessment of the realizability of deferred tax assets, the Company posted a reversal of deferred tax assets. Because of this, income taxes increased by 4.6 billion compared with the previous year. 8

9 As a result of these factors, income/loss before minority interests deteriorated by 47.5 billion from the previous year, to a loss of 37.5 billion. After deducting minority interests, the Company recorded a net loss of 37.9 billion. Consequently, net income/loss deteriorated by 47.2 billion from the previous year. [2] Operating performance by business segment (Operating results by segment) Sales (Unit: Millions of yen) Chemicals Reportable segment Specialty Products Cement Advanced Components Others Total Adjustment Figures in consolidated income statement Fiscal ,352 52,844 69,961 51,009 40, ,324 (32,691) 258,632 Fiscal ,273 72,416 68,421 50,196 40, ,646 (34,265) 282,381 Rate of change (%) (9.3) (27.0) (0.5) (8.0) - (8.4) Operating income (loss) (Unit: Millions of yen) Chemicals Reportable segment Specialty Products Cement Advanced Components Others Total Adjustment Figures in consolidated income statement Fiscal 2012 (31) (224) 5,306 2,900 2,615 10,564 (3,792) 6,772 Fiscal ,824 8,731 2,925 2,446 2,033 17,961 (4,240) 13,720 Rate of change (%) (41.2) - (50.6) (Note 1) Sales and operating income (loss) in each segment include inter-segment transactions. (Note 2) From fiscal 2012, some products, which were previously accounted for in the Specialty Products segment, have been shifted to the Advanced Components segment in accordance with the Company s organizational change made on April 1, Also, with the aim of implementing more proper management of operating results, the Company changed the accounting treatment method for expenses in Adjustment. By this change, the Company directly imposed expenses clearly related to specific segments, which had been previously included in Adjustment, on specific segments. Net sales and operating income for fiscal 2011 have been recalculated reflecting the above-mentioned changes. Chemicals With regard to vinyl chloride monomer (VCM), a tough business situation continued due to such factors as a decline in export prices and the suspention of operations caused by difficulties at our VCM plant. 9

10 With regard to caustic soda, sales volume decreased owing to such factors as the lower operating rate of our electrolysis facilities caused by the above-mentioned VCM plant s difficulties and sluggish demand. However, earnings increased owing to selling price revisions. Profitability of vinyl chloride resin deteriorated, because the selling prices moved downward due to violent fluctuations of naphtha prices. Profitability of sodium silicate deteriorated due to the major repairs performed to the plant despite selling price revisions. As a result of the above, the segment recorded sales of 77.3 billion, down 9.3% compared with the previous year, and an operating loss of 30 million, down from operating income of 1.8 billion during the previous year. Specialty Products With regard to polycrystalline silicon, sales volume and selling prices decreased due to the supply glut of solar cell-related components and inventory adjustments of semiconductor-related components. In addition, owing to the higher ratio of fixed costs arising from the lower operating rate of the plant, sales and earnings decreased significantly. Profitability of fumed silica improved owing to our efforts to revise selling prices. With regard to aluminum nitride, a severe business situation continued deu to the slumping semiconductor market. Profitability of high-purity chemicals for electronics manufacturing deteriorated due to the slumping semiconductor and LCD markets. As a result of the above, sales in this segment were 52.8 billion, a decrease of 27.0% compared with the previous year, and an operating loss was 0.2 billion, down from operating income of 8.7 billion during the previous year.. 10

11 Cement In the cement business, sales volume increased due to the recovery in demand in Japan. This was attributable to firm public- and private-sector demand. In the recycling and environment-related business, the Company accepted a larger volume of waste as a result of its increased cement production volume. As a result of the above, this segment s sales were 69.9 billion, an increase of 2.3% from the previous year, and operating income was 5.3 billion, an 81.4% year-on-year increase. Both sales and earnings increased over the previous year. Advanced Components Sales and earnings of plastic lens-related materials decreased due to slow recovery from damage to supply chains caused by Thailand floods that occurred in fiscal Sales of microporous film increased owing to strong demand for use in disposable diapers in Japanese and Chinese markets. Earnings of polyolefin film declined due to price increases in raw materials. Profitability of plastic window sashes significantly improved owing to business reconstruction. As a result of the above, this segment recorded sales of 51.0 billion, up 1.6% compared with the previous year, and operating income of 2.9 billion, an increase of 18.6% year on year. The segment reported higher earnings on higher sales. 2. Outlook for fiscal 2013 [1] Outlook for operating results The prospect of the Japanese economy, in spite of government-initiated economic measures and export expansion arising from changes in exchange rates, is expected to remain uncertain because of a rise in energy costs and concern over an unstable global economy. Under such situations, the Tokuyama Group will implement its Profit Improvement Plan 11

12 steadily in order to rebuild and bolster a corporate structure that is capable of generating profits. Based on the current information, we forecast net sales of billion, an increase of 6.5% ( 16.8 billion) compared with the fiscal year under review, operating income of 14.0 billion, a gain of 106.7% ( 7.2 billion), ordinary income of 10.0 billion, up 209.4% ( 6.7 billion) and net income of 7.5 billion, an increase of 45.4 billion. (Unit: Billions of yen) Net sales Operating income Ordinary income Net income (loss) Fiscal Fiscal (37.9) Rate of change (%) These forecasts are calculated based on an exchange rate of 95/$ and a domestic naphtha price of 60,500/kl. [2] Outlook for segment results for fiscal 2013 Chemicals The Chemicals segment is anticipated to confront a persistently harsh operating environment. This is largely attributable to sluggish demand for caustic soda. Under these circumstances, we will look to improve profits through price revisions of petrochemicals and other products as well as cost reductions, while we aim to successfully launch the liquid hydrogen business. Specialty Products The polycrystalline silicon business is forecast to confront a persistently harsh operating environment in both semiconductor and solar cell fields. Under such environments, as for solar-cell grade polycrystalline silicon, we will adopt a sales strategy that focuses on profits. With regard to our manufacturing structure, we will successfully commence the operation of the first plant (PS-1) at Tokuyama Malaysia, thereby ensuring optimal production at Tokuyama Factory and our plant in Malaysia in order to minimize 12

13 manufacturing costs. With regard to such products as fumed silica and aluminum nitride, we will work to improve profitability through sales expansion of high-value-added products and cost reductions. Cement Public- and private-sector demad for cement is anticipated to remain robust. We will work to secure profits by taking thoroughgoing cost-cutting measures including the review of our sales and logistics structure. Life & Amenity With regard to microporous film, we will work to increase sales volume by capturing growing demand in the Chinese market. With regard to polyolefin film, we will work to expand sales and revise selling prices to meet raw material and fuel price hikes. In the medical diagnosis system business, we will continue to acquire new customers and capture replacement demand of existing customers. Turning to the plastic window sash business, we will continue to channel our energies toward business reconstruction and sales expansion, thereby bolstering profitability. From fiscal 2013, the Advanced Components segment has been renamed the Life & Amenity segment. Others The Others segment includes businesses which are responsible for the Group s sales, logistics and other functions. The segment will work to increase Group-wide earnings by continuing to reduce costs. 13

14 (2) Analysis of Financial Position 1. Analysis of assets, liabilities and net assets As of March 31, 2013, total assets amounted to billion, an increase of 17.0 billion compared with those as of March 31, This was primarily due to an increase in property, plant and equipment, mainly because construction of polycrystalline silicon manufacturing facilities progressed in Malaysia. On the other hand, securities in which funds we raised were invested and money in trust for funds necessary for construction decreased, because they were allocated for payment of the construction expenses. Total liabilities amounted to billion, an increase of 48.6 billion compared with those as of March 31, This was largely attributable to fund-raising through long-term borrowings. Net assets totaled billion, a decrease of 31.5 billion compared with those as of March 31, This was due to a decrease in retained earnings as a result of the posting of an impairment loss. 2. Analysis of cash flows (Unit: Billions of yen) Fiscal 2011 Fiscal 2012 Cash flows from operating activities Cash flows from investing activities (57.6) (60.6) Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents (0.2) 0.6 Net increase (decrease) in cash and cash equivalents (10.0) (6.4) Increase (decrease) in cash and cash equivalents due to changes of scope of (0.0) 0.4 consolidation Cash and cash equivalents at end of year [Cash and cash equivalents at end of previous year ] 58.4 [68.6] 52.4 [58.4] As of March 31, 2013, cash and cash equivalents were 52.4 billion, a decrease of 6.0 billion compared with those as of April 1,

15 (Cash flows from operating activities) Net cash provided by operating activities totaled 17.0 billion, a decrease of 9.9 billion compared with the previous year. Principal items included depreciation expenses of 23.0 billion and a decrease in other long-term liabilities of 6.0 billion. (Cash flows from investing activities) Net cash used in investing activities totaled 60.6 billion, an increase of 3.0 billion compared with the previous year. Major contributory factors were payments for purchases of property, plant and equipment of 33.9 billion, which were largely attributable to construction of polycrystalline silicon manufacturing facilities in Malaysia, and net expenditure for money in trust of 24.9 billion. (Cash flows from financing activities) Net cash provided by financing activities amounted to 36.4 billion, an increase of 15.6 billion compared with the previous year. This was primarily attributed to proceeds from long-term borrowings of 50.7 billion and repayments of long-term borrowings of 12.5 billion. (3) Basic Policy for Profit Distribution and Dividends for Fiscal 2012 and 2013 Tokuyama maintains the basic policy for profit distribution of providing continuous, stable dividends to its shareholders while taking into consideration its performance trends and the medium- and long-term business plans. In fiscal 2012, the Company recorded a net loss of 38.2 billion on a non-consolidated basis. This was largely attributable to such factors as the posting of extraordinary losses arising from the impairment of polycrystalline silicon and concurrent fumed silica manufacturing facilities and the reversal of deferred tax assets. On the other hand, the 15

16 Company s earnings are expected to rebound from fiscal 2013 and beyond by implementing its Profit Improvement Plan. Therefore, we expect to pay out a year-end dividend of 3 per share in line with our basic policy mentioned above. In the fiscal year under review, the Company did not pay any interim dividends. Accordingly, the total annual dividend for fiscal 2012 will become 3 per share, a decrease of 3 year on year. With regard to fiscal 2013 onward, we plan to pay dividends twice a year based on the record dates at the end of the second quarter and at the end of the fiscal year. 16

17 2. Management Policy (1) Basic Management Policy The Tokuyama Group works diligently to increase its corporate value by adhering to a strict code of corporate ethics and ensuring thoroughgoing compliance. At the same time, the Group has identified the basic management policy of remaining the preferred choice of customers, while attracting wide-ranging acclaim from all stakeholders including shareholders, customers, employees, and local communities. To this end, the Tokuyama Group engages in corporate management that is responsive to society, and makes every effort to fulfill its corporate social responsibility (CSR). We also acknowledge the critical importance of carrying out business activities that take into consideration environmental concerns. In pursuing environmental management, we recognize that by aggressively tackling such environmental issues as global warming and helping solve them, we are better positioned to promote sustainable growth and development while bolstering competitive advantage. In particular, we have positioned our long-standing ties of trust with customers, together with our comprehensive manufacturing capabilities as the cornerstones of efforts to increase our corporate value. Fully aware that changes in our business environment offer the opportunity to create new businesses, we are committed to proactive business innovation. (2) Medium- to Long-Term Management Strategies and Performance Targets February 16, 2008 marked Tokuyama s 90th founding anniversary. As we work toward our 100th anniversary, we have put in place a Centennial Vision that identified the ideal scenario for the Group. Under this Vision, we aspire to become a prominent manufacturer that continues to be responsive to society and help create a better future through the vitality of its human resources and the creativity of chemistry. We also set several numerical targets under the Vision including net sales of 500 billion or higher, an operating margin of 15% or higher, and an overseas net sales ratio of 30% or higher. 17

18 Against this backdrop and despite commencing the new Three-Year Management Plan, which is positioned as the second step to achieve our Centennial Vision, in April 2012, the polycrystalline silicon business, a core earnings pillar, has confronted the rapid deterioration in market conditions. Under these circumstances, the Group has incurred impairment losses on polycrystalline silicon manufacturing facilities as well as the reversal of deferred tax assets. Accounting for each of these factors, we have recorded a consolidated net loss of 37.9 billion for the fiscal year under review. In order to break free from this negative spiral and rebuild a profitable platform, we decided to pull together measures aimed at improving profits including efforts to reconstruct the polycrystalline silicon business, and adopt plans that closely reexamine targets and initiatives on a constant rolling three-year cycle from April Extending well beyond the scope of emergency countermeasures, we will push forward structural reforms that increase the productivity of not only business departments, but also back-office and functional divisions and our affiliated companies, and work to improve our financial condition as a part of efforts to secure enduring profits. While our ideal Centennial Vision for the Group remains unchanged, we have revised our numerical targets for net sales and operating margin to 358 billion and 7%, respectively. (3) Pending Issues As economic globalization continues to take hold, the real economy lies increasingly at the mercy of massive financial markets. At the same time, trends in speculative funds are significantly unsettling resource prices and foreign currency exchange rates on an ongoing basis. Meanwhile, conditions in Japan are also showing signs of increasing uncertainty. This is attributable to a variety of mounting risks and factors including the hollowing out of industry and the decline in the workforce, which is causing the market to shrink, the increased burden of addressing environmental issues, and a weakening of the energy supply platform due to the suspension of operations at nuclear power plants. Under these circumstances, the Tokuyama Group will carry out its rolling three-year plan 18

19 with the aim of rebuilding its profit structure and ultimately realizing its Centennial Vision. 1. Carry Out a Profit Improvement Plan [1] Reconstruct the polycrystalline silicon business Tokuyama incurred an extraordinary loss of 26.6 billion in its polycrystalline silicon business, which exhibited a marked deterioration in profit due to the downturn in market conditions. This loss was largely due to the impairment of Tokuyama Factory s manufacturing facilities for polycrystalline silicon and concurrent fumed silica for the fiscal year ended March 31, Meanwhile, the Company also recorded an extraordinary loss of 2.4 billion. This represented the write-down of the book value of metallic silicon procured as a raw material, based on its replacement market price, as of the end of the fiscal year under review. In addition to the accounting treatment of specific items at Tokuyama Factory mentioned above, particular emphasis will be placed on securing an optimal production balance between polycrystalline silicon, fumed silica, and silane gas as a part of efforts to maximize profits. At the Group s Tokuyama Malaysia PS-1 Plant, scheduled to come online in September 2013, we will shift from the initially planned production of solar cell-grade polycrystalline silicon to high-specification semiconductor-grade polycrystalline silicon. At the same time, we will accelerate efforts to acquire semiconductor-grade production certification from customers. Turning to the Tokuyama Malaysia PS-2 Plant, we will adopt a flexible approach toward the commencement of operations after carefully evaluating solar cell-grade polycrystalline silicon market trends. In an effort to reduce cash costs by 30% or more compared with initially planned, we will diversify the procurement of raw materials, further improve productivity, and increase the percentage of local management staff. While promoting these and other measures, energies will also be channeled toward strengthening competitiveness. 19

20 [2] Improve profit in other businesses In the Chemicals segment, we will ensure the successful launch of the liquid hydrogen business and conduct a review of the chlorine derivatives portfolio. In the Cement segment, we will take steps to position the waste gypsum board recycling business, which commenced operations this spring, on a solid growth trajectory, while strengthening our infrastructure at Tokuyama Factory. Complementing the aforementioned initiatives, we will assess opportunities to develop our business overseas in each segment. In our advanced component activities, we changed the name of the business segment to Life & Amenity in April 2013 to better reflect the market attributes of this business group. Moving forward, we will accelerate growth by placing the utmost emphasis on customer-oriented solution proposals and developing products that resolve customers problems. Focusing on research and development themes, we will look to commercialize materials for fuel cell use and aluminum nitride single crystals. [3] Improve Companywide profit Looking ahead, steps will be taken to cut back on recruiting activities as well as new hires across the Group as a whole, thereby downsizing the staff. In addition to streamlining back-office and functional divisions at the headquarters level in line with the reduction of business, we will promote optimal staff redeployment both within and outside the Group. After reviewing the makeup of personnel and overhead expenses, we will adhere strictly to a policy of reduction. We will also endeavor to entrench reductions in unit purchasing and distribution costs. From an R&D perspective, we will strive to curtail expenses by ensuring the stringent selection of themes. We will hold capital expenditure to less than 75% of depreciation expenses, while making thoroughgoing efforts to control inventories. Through these means, we will focus on improving cash flows. 20

21 2. Bolster International Competitiveness We will position Tokuyama Factory at the heart of efforts to bolster international competitiveness. On this basis, we will pursue innovation of the Factory s process and engineering technologies, reinforce the logistics function, formulate and enhance a long-term vision for the Factory s infrastructure, and promote the utilization of alternative fuels that replace coal. In this manner, we will strengthen Tokuyama Factory as a supply base for technologies, human resources, and systems. Energies will also be channeled toward reforming the Factory from a dominant manufacturing base to a technological base (hub). At Tokuyama Malaysia, we will focus on the manufacture of polycrystalline silicon as a part of comprehensive measures aimed at increasing our competitiveness in terms of costs. Our goal is to establish Tokuyama Malaysia as a production base that is capable of manufacturing products that can excel in global markets and particularly in such growth regions as Asia. By utilizing the most appropriate local method to manufacture products that match the needs of the local market, we will build highly competitive production bases in China. 3. Establish a Structure that Supports Growth Strategies [1] Reinforce the business execution and supervisory functions Tokuyama is working diligently to reinforce corporate governance. Among a host of initiatives, the Company will increase the number of outside directors. We are also taking steps to ensure that the executive officer system is firmly entrenched within the Company s management structure and system. In addition to both separating and boosting the business execution and supervisory functions, we are implementing a new management structure for faster decision making. [2] Strengthen overall functions by incorporating a cross-divisional approach Moving forward, we will promote Venture Spirit & Innovation Project activities while 21

22 endeavoring to reform our corporate culture and strengthen organizational functions. With the Management of Technology Division taking the lead, we will evaluate and bolster individual technologies across the Company as a whole. At the same time, the newly established Business Promotion Division will look to increase the pace of development theme commercialization. [3] Introduce measures to address globalization of the Group s organization, personnel affairs, and accounting In order to develop into a globally competitive company, we will overhaul every facet of our operations including our organization, personnel systems, and accounting mechanisms and work to globalize our business operations. [4] Fully utilize the new Line of Business (LOB) system The Tokuyama Group will make every effort to expedite its decision making and improve business efficiency. In specific terms, we will fully utilize the various functions of our new LOB system and promote its use as the standard system across Group companies both in Japan and overseas. [5] Establish a structure that can fully utilize diverse human resources The Tokuyama Group is promoting Diversity & Inclusion Management (DIM) with the aim of enhancing employee motivation and developing a workplace environment that encourages employees to realize their full potential. These efforts are designed to bolster the Group s human resource-based management. Moreover, the Group is engaging in health management as a part of efforts to nurture the minds and bodies of its employees required to support dynamic activity. * Diversity & Inclusion Management (DIM) Diversity & Inclusion Management entails efforts to provide a workplace environment in 22

23 which diverse human resources are able to develop and excel irrespective of gender, nationality or existence of disability. DIM involves the evaluation of human resources based on their individual levels of contribution toward enhancing corporate value. Promoting human resource diversity and incorporating DIM into business activities reflects efforts to increase the vitality and creativity of the organization. 4. Address the Plastic Window Sash Problem Since we announced the mislabeling of fireproof specifications on plastic window sashes in January 2009, we have rallied the strength of the entire Group with the aim of regaining the trust of our customers. To this end, we have stepped up prevention measures and efforts to complete the repair of customers houses and other buildings to ensure legal compliance. [1] Actions to prevent a recurrence: The Group has completed the formulation and implementation of urgent, short- and medium-term measures aimed at preventing a recurrence. Energies are now being channeled to ensure the efficacy of these measures. Moreover, for the purpose of preventing our employees from forgetting this problem, we made a monument for internal education and set it within the Company. [2] Actions to repair customers houses and other buildings and ensure legal compliance: The Group has installed a test furnace at Excel Shanon s Kuriyama Factory, established repair technologies, and acquired authorization for fireproof and fire-resistant specifications as a part of wide-ranging efforts to undertake repairs from fiscal 2010 in earnest. As a result, the Group had completed repair and replacement work for 95% of affected customers by March 31, Moving forward, we will strive to complete the remaining work, providing detailed repair services tailored to each house or building in need of repair. 23

24 Segment information 1. Summary of reportable segments The reportable segments of the Touyama Group are defined as individual units, where separate financial information is available and which are subject to regular review by the Board of Directors of the Company to evaluate their results and decide the allocation of management resources. The Company has business divisions by product group, and the Tokuyama Group conducts business operations through each business division devising its comprehensive product strategy for domestic and overseas markets. The Tokuyama Group is, therefore, composed of segments by product group based on business divisions, and has four reportable segments, Chemicals, Specialty Products, Cement, and Advanced Components. Main products and services of each reportable segment are as follows: Reportable segment Chemicals Specialty Products Cement Advanced Components Main products and services Caustic soda, soda ash, calcium chloride, sodium silicate, vinyl chloride monomer, polyvinyl chloride resin, propylene oxide, isopropyl alcohol and methylene chloride Polycrystalline silicon, fumed silica, aluminum nitride, metal washing solvent, high-purity chemicals for electronics manufacturing, and environment-related equipment Ordinary Portland cement, high early-strength Portland cement, Portland blast-furnace slag cement, ready-mixed concrete, cement-type stabilizer and waste treatment Polyolefin film, plastic window sashes, medical diagnosis systems, dental materials and equipment, gas sensors, ion exchange membranes, pharmaceutical ingredients and intermediates, plastic lens-related materials for glasses, and microporous film From the fiscal year under review, some products, which were previously accounted for in the Specialty Products segment, have been shifted to the Advanced Components segment in accordance with the Company s organizational change made on April 1, Also, with the aim of implementing more proper management of operating results, the Company changed the accounting treatment method for expenses in Adjustment. By this change, the Company directly imposed expenses clearly related to specific segments, which had been previously included in Adjustment, on specific segments. Information on sales, income (loss) and assets for fiscal 2011 by reportable segment, which have been recalculated reflecting the above-mentioned changes, is presented in Fiscal 2011 (April 1, 2011 March 31, 2012) below. 24

25 2. Information on sales, income (loss), assets and other items by reportable segment Fiscal 2011 (April 1, 2011 March 31, 2012) Chemicals Reportable segments Specialty Products Cement Advanced Components (Millions of yen) Others*1 Total Adjustment*2 Figures in consolidated financial statements*3 Sales Sales to customers 84,336 61,998 68,044 48,412 19, , ,381 Inter-segment sales/transfer , ,784 20,748 34,265 (34,265) - Total 85,273 72,416 68,421 50,196 40, ,646 (34,265) 282,381 Segment income 1,824 8,731 2,925 2,446 2,033 17,961 (4,240) 13,720 Segment assets 55, ,158 47,195 40,306 26, , , ,181 Other items Depreciation expenses Increase in tangible and intangible fixed assets 4,226 2,683 10,306 63,962 3,114 2,371 1,903 1,225 1,056 4,707 20,607 74,950 7,772 3,330 *1 Others segment comprises businesses other than those of the reportable segments. Concretely, the segment includes overseas sales companies, a distribution company, a real estate business, etc. *2 Adjustment is as follows: (1) The segment income adjustment amount consists mainly of basic R&D expenses that are not related to specific reportable segments. (2) Included in the segment assets adjustment amount are corporate assets that are not allocated to specific reportable segments ( 187,921 million). *3 With regard to segment income, operating income in the consolidated financial statements has been calculated by adjusting the sum total of the reportable segments income and income in the Others segment. 28,379 78,280 Fiscal 2012 (April 1, 2012 March 31, 2013) Chemicals Reportable segments Specialty Cement Products Advanced Components (Millions of yen) Others*1 Total Adjustment*2 Figures in consolidated financial statements*3 Sales Sales to customers 76,384 44,235 69,776 49,267 18, , ,632 Inter-segment sales/transfer 968 8, ,742 21,187 32,691 (32,691) - Total 77,352 52,844 69,961 51,009 40, ,324 (32,691) 258,632 Segment income (loss) (31) (224) 5,306 2,900 2,615 10,564 (3,792) 6,772 Segment assets 52, ,008 48,797 44,887 26, , , ,251 Other items Depreciation expenses Increase in tangible and intangible fixed assets 3,498 2,234 7,176 86,582 2,628 3,013 1,795 3,601 1, ,358 96,256 6,741 2,652 *1 Others segment comprises businesses other than those of the reportable segments. Concretely, the segment includes overseas sales companies, a distribution company, a real estate business, etc. *2 Adjustment is as follows: (1) The segment income (loss) adjustment amount consists mainly of basic R&D expenses that are not related to specific reportable segments. (2) Included in the segment assets adjustment amount are corporate assets that are not allocated to specific reportable segments ( 150,319 million). *3 With regard to segment income (loss), operating income in the consolidated financial statements has been calculated by adjusting the sum total of the reportable segments income and income in the Others segment. 23,099 98,908 25

26 Millions of yen Consolidated balance sheets FY2011 FY2012 Assets Current assets Cash and deposits 33,662 44,897 Notes and accounts receivable-trade 69,455 65,371 Securities 25,800 8,310 Merchandise and finished goods 21,561 20,275 Work in process 13,502 13,277 Raw materials and supplies 13,328 17,110 Income taxes receivable Money held in trust Deferred tax assets 1, Other 35,991 16,528 Allowance for doubtful accounts (239) (205) Total current assets 214, ,114 Noncurrent assets Property, plant and equipment Buildings and structures 106, ,129 Accumulated depreciation (65,965) (68,452) Buildings and structures, net 40,602 31,676 Machinery, equipment and vehicles 455, ,758 Accumulated depreciation (388,963) (401,103) Machinery, equipment and vehicles, net 66,995 50,655 Tools, furniture and fixtures 22,986 23,044 Accumulated depreciation (20,685) (21,086) Tools, furniture and fixtures, net 2,301 1,958 Land 34,537 32,895 Lease assets 1,330 1,482 Accumulated depreciation (549) (685) Lease assets, net Construction in progress 81, ,388 Total property, plant and equipment 226, ,370 Intangible assets Goodwill Lease assets Other 8,258 7,757 Total intangible assets 8,506 7,955 Investments and other assets Investment securities 25,219 31,476 Long-term loans receivable 3,906 4,017 Deferred tax assets 3, Other 19,503 13,710 Allowance for investment loss (21) (21) Allowance for doubtful accounts (432) (337) Total investments and other assets 51,561 49,811 Total noncurrent assets 286, ,137 Total assets 501, ,251

27 Millions of yen Consolidated balance sheets FY2011 FY2012 Liabilities Current liabilities Notes and accounts payable-trade 41,118 38,152 Short-term loans payable 8,474 8,912 Commercial papers 4,000 4,000 Current portion of long-term loans payable 12,191 22,144 Current portion of bonds Lease obligations Accounts payable-other 14,477 26,028 Income taxes payable 1, Deferred tax liabilities 15 1,377 Provision for bonuses 2,391 1,949 Provision for repairs 1,500 1,755 Provision for product warranties Provision for loss on disaster 6 - Provision For Restructuring - 29 Other 17,071 15,063 Total current liabilities 102, ,795 Noncurrent liabilities Bonds payable 50,000 50,000 Long-term loans payable 73, ,796 Lease obligations Deferred tax liabilities 255 5,993 Provision for retirement benefits 1, Provision for directors' retirement benefits Provision for repairs 3,751 2,687 Allowance for loss on compensation for building materials 2,443 1,276 Provision for environmental measures Asset retirement obligations 4 5 Other 11,331 9,969 Total noncurrent liabilities 142, ,584 Total liabilities 245, ,380 Net assets Shareholders' equity Capital stock 53,458 53,458 Capital surplus 57,670 57,670 Retained earnings 138,040 99,058 Treasury stock (1,416) (1,414) Total shareholders' equity 247, ,773 Accumulated other comprehensive income Valuation difference on available-for-sale securities 3,965 7,566 Deferred gains or losses on hedges 510 2,238 Foreign currency translation adjustment (2,966) (1,023) Total accumulated other comprehensive income 1,509 8,781 Minority interests 6,198 6,316 Total net assets 255, ,871 Total liabilities and net assets 501, ,251