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Showa Denko announces long-term strategy following Hitachi acquisition

December 23/2020

MOSCOW (MRC) -- Showa Denko has announced a long-term strategy covering 2021-30 following the company’s acquisition of Hitachi Chemical, renamed Showa Denko Materials, earlier this year, reported Chemweek.

The acquired company became a consolidated subsidiary of Showa Denko in April. A “long-term vision” is needed to “integrate the two companies as soon as possible and establish a foundation for future growth” in the face of intensifying worldwide competition and expected changes in market structure, Showa Denko says. The strategy includes sales and earnings targets as well as restructuring measures such as divestments and job cuts.

Showa Denko has split the two companies' portfolios into four business categories: core-growth businesses, next-generation businesses, stable-earnings businesses, and fundamental technologies/materials businesses. Each will have “a competitive advantage commensurate with their respective roles,” Showa Denko says.

The core-growth and next-generation businesses will drive the Showa Denko group’s future growth, the company says. Core-growth businesses consist of electronics and mobility, including advanced materials, which possess “overwhelming scale/top-share products in growing markets and which will sustain the group’s future growth,” Showa Denko says. The next-generation businesses are life sciences, which are “in an advantageous position that can lead to future growth in promising markets, and that will be developed into a next-generation pillar,” Showa Denko says.

The stable-earnings businesses include carbon, petrochemicals, device solutions, industrial gases, basic chemicals, coating materials, electronics materials, energy. These activities “earn a stable profit and generate investment capital with competitiveness and a high share in markets where the competitive landscape is stabilizing,” Showa Denko says.

The fundamental technologies and materials business include ceramics and functional chemicals, “with a wide range of inorganics, organics, and aluminum technologies that support the competitiveness of the other three business categories,” Showa Denko says.

Showa Denko expects the electronics market to “remain fiercely competitive,” but says the “direction of technological development is set and rapid structural changes and new entries in the industry are less likely to occur.” The company highlights its position as the world’s biggest manufacturer of semiconductor materials with annual sales of about ?200.0 billion ($1.9 billion). “The Showa Denko group is in the top position, far ahead of all other players in terms of business scale and offers a broad product portfolio that boasts global top-level competitiveness and share in both wafer and packaging processes,” the company says.

In mobility, Showa Denko envisages that competition for the top position among multiple manufacturers of advanced materials will continue. The group “will manage certainty and uncertainty with its portfolio of businesses, by leveraging global top-share products and its product line-up, enhanced through integration,” it says. These include meeting demand from the trend toward vehicle-weight reduction and the shift to vehicle electrification.

Showa Denko expects the life sciences business to grow “significantly.” The company plans to leverage its contracting business, based on a worldwide production structure that includes three sites across Europe, Asia, and North America.

Cumulative sales for the core-growth and next-generation businesses totaled approximately Yen 230 billion in 2020, and the group will seek to expand this to Yen 600 billion by 2030, achieving a compound annual growth rate of 10% mainly through innovation. Together they will generate an additional Yen 18 billion and ?48 billion in operating income in 2025 and 2030, respectively, Showa Denko says.

Showa Denko says the integrated company will aim to be in the worldwide chemical industry’s top quartile over the medium- and long term, in terms of sales and profit. It is targeting an increase in overall sales from Yen 1.2 trillion in 2020 to Yen 1.6 trillion in 2025 and ?1.8-1.9 trillion in 2030. The company is aiming for an increase in EBITDA from Yen 900 million in 2020 to Yen 3.2 billion in 2025 and an increase in its EBITDA margin from 8% this year to 20% in 2025.

Showa Denko plans to restructure its portfolio steadily through 2023. The company says it is “considering and negotiating” the sell-off of multiple business. It envisages divestment proceeds totaling ?200 billion on an enterprise value basis.

The company is also planning profit-improvement and asset-streamlining measures. This includes synergies arising from the integration of Showa Denko and Showa Denko Materials. The company is considering six initiatives including reducing procurement and logistics costs, improving productivity, and cutting about 1,500 jobs. The aim is to boost annual profit by ?28 billion by the end of 2023.

Showa Denko, meanwhile, will consolidate its operating sites and says that these measures are not included in the profit-improvement initiatives. The company forecasts that asset streamlining will yield Yen 50 billion in additional profit through 2021.

Other measures include reducing working capital, which the company expects to yield about Yen 25 billion in additional profit and selling marketable securities, which is expected to generate about Yen 20 billion.

The group is due to complete construction of a worldwide R&D hub at Kanagawa in Yokohama, Japan, in spring 2022. It envisages an ESG-oriented R&D focus at the new facility based on the expertise of Showa Denko and Showa Denko Materials.

Showa Denko expects to complete the integration of the two companies into a single entity in January 2023, following “substantive integration” through July 2021 and the integration of head offices in October 2021.

As MRC informed earlier, Japanese firm Hitachi Chemical Company changed name to Showa Denko Materials on 1 October 2020.

MRC also wrote before that Showa Denko (SDK) expanded production lines to produce vinyl ester resin (VE) and synthetic resin emulsion (EM) in the premises of Shanghai Showa Highpolymer Co., Ltd. (SSHP), a Chinese subsidiary of SDK, and has increased production of VE and EM there, aiming to expand the Showa Denko Group’s functional resin business in China.

According to MRC's ScanPlast report, October total production of unmixed PVC grew to 86,600 tonnes from 86,000 tonnes a month earlier, SayanskKhimPlast and Bashkir Soda Company increased their capacity utilisation. Overall output of polymer was 805,100 tonnes in the first ten months of 2020, which virtually corresponds to the last year's figure. Two producers increased their production, whereas two other manufacturers reduced their output.

Showa Denko K.K. Mainly engaged in the petrochemical business. The company's petrochemical division produces and markets industrial gases, olefins, organic chemicals, and others.

Hitachi Chemical is a consolidated subsidiary of Showa Denko and is involved in the manufacturing, processing and sales of functional materials and advanced components and systems.
Author:Margaret Volkova
Tags:PVC, SPVC, propylene, ethylene, coatings, petrochemistry, adhesives, electrical goods, Showa Denko, sustainable development, Russia, Japan.
Category:General News
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