Shikoku Chemicals Corporation Financial Results Briefing for
FY2021–Q&A Session(Implemented on May 21, 2021)
Q1. Let us know the sales status of Glicoat-SMD in FY2021 and its mediumterm potential.
A.

Glicoat-SMD is a water-soluble antirust agent for printed wiring boards(PWBs). We mainly sell this product in China, where many PWBs aremanufactured.
PWB sales hit bottom in Q4 of the previous term (Jan.–Mar. 2020), when China
was most severely affected by the COVID-19 pandemic. As they were in arecovery trend since the beginning of FY2021, sales have been steady withlittle effect from COVID-19.
At times over the past 10 years, the market share has temporarily dipped
due to competitors’ products from China. However, in recent years, wehave secured a world market share of some 50%, based on our productquality and support systems, such as follow-up services.
Glicoat-SMD was originally used for relatively inexpensive wiring boards incomputers, industrial devices, consumer products, etc. However, recent years
have seen the expansion of the use of high value-added wiring boards insmartphones, IC package substrates, and in-vehicle boards around electric
control units (ECU).
Regarding medium- and long-term prospects, although there are metal
plating and other methods for the surface treatment of PWB, Glicoat-SMD
has achieved growth by responding to the requirements of environmental
performance with high soldering capability and the advantage of watersolubility. Also, our high market share enables us to quickly catch thetechnology trends of PWBs. Thus, we can develop products one step aheadof what customers want.

Q2. Let us know the progress and future prospects for the adoption of GliCAP.
A.

The 5th Generation Mobile Communication System (5G) will enable further
acceleration of communication and mass data transmission. We
conventionally roughened (etched) the surface of the PWB copper circuitand thus improved adhesion to resin through “physical binding.” However,with the roughening process, noises or transmission loss occur due to therough circuit surface. GliCAP enables transmission of larger volumes of1/9

accurate data by chemically binding the smooth surface copper circuit withresin. Since it is a completely new technology and affected by the materials
and the substrate design, we are jointly developing it with the material andsubstrate manufacturers.
Unfortunately, partly due to the trade friction between the US and China,
there has been a delay in responding to 5G globally, but we believe that 5G
and the subsequent 6G will be realized.
GliCAP has already entered the mass production stage with the certificate
with intended use of the server substrate. The sales in FY2022 arescheduled to surpass the 100-million-yen level for the first time. We think
the sales will greatly increase in the long term.
Q3. Let us know the results, future prospects, and business scale of glycoluril
derivatives in the medium term.
A.

Glycoluril derivatives are a new resin modifier. Although they aredescribed as “a newly developed product” in the summary of financial
results, they have already grown to the extent that they now occupy asignificant position among our functional materials. As a highly valueadded product, they have increased the profit margin of the entire
Advanced & Specialty Chemicals division. Though this product iscurrently used for limited purposes, it is expected to spur FY2022 sales
beyond those of the current term, and continued future growth isexpected.

Q4. The unit selling price of insoluble sulfur seems to be declining. Let us know thereason(s) and the strategy to beat the competition.
A.

The decline in the unit selling price of insoluble sulfur is caused by the trade
friction between the US and China. The price of insoluble sulfur has fallen
due to an imbalance between supply and demand in China and its sale toSoutheast Asia at low prices.
The price of sulfur, the main raw material of insoluble sulfur, has been
rising sharply in the world, except in Japan. Particularly in China, with its
high demand for agricultural use, sulfur prices have been approximately
three times higher than those of last year. In Japan, by contrast, sulfur is
not much used for agriculture. We manufacture insoluble sulfur byreusing desulfurized sulfur, which is generated as a by-product in theprocess of petroleum purification and regarded as an industrial waste.
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We have been at a competitive disadvantage against China in terms oflabor costs. However, we think that the rising price of sulfur, the main raw
material, has hit Chinese manufacturers of insoluble sulfur. Insoluble
sulfur is sold under a contract with tire manufacturers for sales quantity
over a fixed period. It seems that the Chinese manufacturers’ contracted
quantity has not been shipped. We, therefore, supply shortfalls to tire
manufacturers. Between May and July, we will be in a periodic repair
period. We are currently discussing how to shorten this period as muchas possible and increasing production. We will also revise the sales pricedownward after negotiation to improve profitability.
Q5. Let us know the growth potential of the Housing Materials operation bysegment.
A.

The profitability of the Housing Materials operation was considerably bettertwo years ago. However, it was low in FY2021 because of difficulties insecuring construction workers due to the COVID-19 pandemic and delayed
recovery of the capital investment. In particular, we sell our products mainly
for large decorative exteriors for public projects, capital investments offactories, etc. rather than for family homes. That entire market, of course,
was significantly affected by the COVID-19 pandemic.
Since family homes account for some 80% of the entire exterior market, weneed to acquire a share of this market in the medium and long term. We
will put effort into addressing severe natural disasters, such as typhoons
and floods, and try to increase our market share by improving the lineup of
high-strength products according to the Japanese Building Standards Act,
which is stricter than the industry standards. We think that our target of family
homes will be detached family homes in the suburbs instead of in urban
areas, considering the current stay-at-home trend. It is considered that
agricultural land will be transformed to housing land due to the so-called“agricultural land issue” in which the reduction of fixed asset taxes for thosein farming areas ends in 2022. There is also a “vacant house issue.” The
percentage of vacant houses in Japan is projected to be 30% by 2033. We
assume that the areas of single houses will be larger in the future. Taking
these elements into account, we can say that the exterior market has roomfor expansion in the medium and long terms. The number of houses to bebuilt is expected to decrease in the future. However, even in this decreasing
trend over the last 20 years, the exterior industry has expanded the size ofmarket. Thus, we consider the exterior market to be promising.
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Our exterior products division sales are ranked 4th in the industry, but
our operating profit margin at the top, and it is our strength.
Q6. Let us know the details of the sales transition of each business in the firstand second halves of FY2021.
A.

In the first half of the year, the sales of both the Chemicals and Housing
Materials operations were lower than those of the previous term due to theCOVID-19 pandemic. However, sales recovered in the second half of theyear and increased compared to the second half of the previous term.
In terms of business, the Inorganic Chemicals division of the Chemical
Products operations decreased by 1.5 billion yen compared to the firsthalf of the previous term; it increased by 100 million yen in the second
half because of the recovery of production in the automobile industry.
For the full year, sales decreased by 1.4 billion yen.
Regarding Organic Chemicals, the sales of swimming pool agentsdecreased due to the suspension of swimming classes in Japan while
public awareness of hygiene increased. At the same time, sales ofswimming pool agents increased in the US, thus raising company
revenue by 200 million yen in the first half of the year. Revenue also
increased by 300 million yen in the second half of the year. As a result,
the revenue increased by 500 million yen in the full year. Currently, thesupply has not kept up with the full operation of the plant. Therefore,
we are considering starting the operation of a new plant of chlorinatedisocyanurates as soon as possible, now scheduled for completion inJuly 2022.
Fine Chemicals revenue decreased by 100 million yen in the first half ofthe year compared to the previous term. In the second half, however,revenue increased by 700 million yen thanks to the rapid recovery of
automobile production and other circumstances. As a result, revenue
increased by 600 million yen over the full year.
On the other hand, Housing Materials operations revenue from exterior
products decreased by 700 million yen in the first half of the year
compared to the previous term and by 900 million yen in the second halfof the year. As a result, total revenue for the year decreased by 1.6 billion
yen. For Interior and Exterior Finishes and Paving Materials, revenue
decreased by 100 million yen in the first half compared to the previous
term and by 60 million yen in the second half of the year. As a result,revenue for the full year decreased by 1.6 billion yen. Construction work
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was delayed probably due to the outbreak of the COVID-19 pandemic onbuilding sites and difficulty in securing human resources. Ultimate
recovery time remains unclear. Nevertheless, we expect businessperformance to resume because sales of condominiums in Tokyo haveincreased compared to the previous year. There is also a rising trend in
the number of detached suburban houses. We will secure profits by selling
good products at proper prices.
In terms of the consolidated sales of FY2022, we aim for 51.5 billion yen
based on the recovery trend of the second half of the previous term.
Q7. Let us know the prospects for the company following the COVID-19
pandemic.
A.

It is generally said that business performance will recover when theCOVID-19 pandemic ends. We are accelerating the rationalization andstreamlining of business activities that we have been working on since
before the pandemic. We are strongly promoting work style reforms andstreamlining. Specifically, we provided mobile computers to all sales
representatives and project personnel, the non-territorial office wasintroduced due to progress in telework, and the use of online meetings
has been promoted. Through streamlining, three Housing Materials
sales offices in Tokyo, Yokohama, and Tsukuba were integrated into theMakuhari branch office owned by the company, thus reducing our costs.
To reduce the rate of commuting to the office, we have prepared anenvironment where employees can choose their workplace by investing
in infrastructure to ensure paperless operations such as internet fax.
Regarding sales management expenses, we have made the entire
company fully aware that we will consider post–COVID-19 conditions as
the new normal, not pre-COVID conditions. Thus, we will have a stronger
business structure to prepare for after the pandemic.
We expect that the demand for the business and other circumstances willbe the same as before once our life reaches that “new normal.”

Q8. Let us know the details of TAP-4, a manufacturing plant of fine chemicals
newly built on the site of the Tokushima Plant.
A.

TAP-4 (Tokushima Advanced Chemicals Plant-4) is the fourth advanced
chemical plant at our Tokushima Plant. It is equipped with mass production
facilities for semiconductor processing materials and also aims to speed-up
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research and development. Further acceleration of communication andmass data transmission will be realized in 5G in the future. In this system,
the circuit line width of semiconductors will need to be micronized and quality
controlled against all impurities, especially of metals. TAP-4 enables thestrictest control of low metal at the ppt (parts per trillion) level.
We assume that we will need to build TAP-5 and TAP-6 according to future
customer needs. Thus, we are considering restructuring the entire
Tokushima Plant. We will move the manufacturing facilities of wallmaterials on the premises to another plant and build manufacturing
facilities for chemicals on the vacated land according to the needs of themarket. We will proactively invest in equipment to provide products thatmeet customer requirements.
Q9. Let us know your idea about the market reform of the Tokyo Stock
Exchange.
A.

We will choose the prime market.
In the prime market, we have to meet some requirements, e.g., the numberof shareholders has to be 800, the market capitalization of the tradable
shares has to be 10 billion yen, and the number of tradable shares has tobe 35%. In our current situation, the number of shareholders exceeds
4,000, the market capitalization of the tradable shares exceeds 30 billion
yen (according to the current share price level), and the number of tradable
shares also exceeds 50%. Therefore, at present, we have decided that
there is no major obstacle against being listed in the prime market.

Q.10 On page 15 of the explanatory material, there is a description of sellinginvestment securities with regard to investment cash flow. Let us know yourintention.
A.

As described in the cash flow statement, about 1.6 billion yen of investment
securities were sold in FY2021. This is due to the sale of listed sharesassociated with the reduction of cross-shareholdings. We are strengthening
the response to the Corporate Governance Code required by the Tokyo
Stock Exchange. As part of this, we will verify the effect of crossshareholdings each year and, in principle, proceed with consideration toward
reduction.

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Q11. The figures by segment are shown in the forecast for the current term. Letus know the figures by business.
A.

Detailed performance forecasts for each business will not be disclosed. The
following increase/decrease in revenues are compared to FY2021.
The trends are as follows: Regarding Inorganic Chemicals, insoluble sulfur
has been on a recovery track since the second half of the previous term.
The production volume of automobiles has almost recovered to the preCOVID-19 level and the demand for tires is expected to be steady. Thus,
we expect that sales volume will increase, resulting in increased revenueand profits.
Regarding Organic Chemicals, the domestic demand for the antimicrobial
disinfectant NEO-CHLOR is expected to recover due to the resumption ofswimming classes at schools, resulting in increased revenue. However,exports are expected to decrease partly due to a reduction in production
volume caused by periodic repair of the manufacturing plant of relevant
products at the Tokushima Plant, resulting in decreased revenue. Thus, weexpect a decrease in revenue and profits in the entire Organic Chemicals
division.
Regarding fine chemicals, sales of Advanced & Specialty Chemicals areexpected to increase thanks to the anticipated positive performance of
newly developed products and the recovery of overall market conditionsof domestic demand. However, we expect a decrease in profits due togreater depreciation expenses caused by the operation of the new finechemical plant (TAP-4).
Regarding Electronic Chemicals, we expect increased revenue and profits
by boosting sales volume through sales expansion activities of GlicoatSMD and GliCAP.
Regarding Housing Materials operations, we plan to increase revenue andprofits by increasing sales of wall materials through sales expansion,
enhancement of the lineup of high-strength exterior products, and continuous
brisk demand for fences accompanied by the so-called “defective wall” issue.

Q12. Let us know the prospects of equipment investment and depreciation
expenses in and after the next term.
A.

Regarding capital investment, no new large-scale project is planned for
FY2022. After that, we will implement capital investment, M&A, etc. based on

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the business strategies, demands and other circumstances planned in“Challenge 1000.”
The depreciation will accrue around 400 million yen for the new fine chemicals
plant (TAP-4), which will start operations in FY2022. In FY2023, a new plant ofchlorinated isocyanurates will be completed, and its depreciation will accrue toapproximately 1 billion yen (Fixed rate depreciation for both facilities).
Q13. Let us know the impact of reduced production volume by automobile
manufacturers due to recent semiconductor shortages.
A.

It seems that the production volume of automobiles may be affected atsome manufacturers. However, all domestic tire manufacturers haverevised upward their forecasts for insoluble sulfur orders for the full year
2021. Thus, we expect an increase in sales.
Both Advanced & Specialty Chemicals and Electronic Chemicals handle
products related to automobiles. Therefore, if automobile production
volume decreases, our sales may be affected.

Q14. Let us know your idea about the impact of increased distribution costs in FY2022.
A.

We expect distribution costs to greatly increase compared to FY2021.
However, we will try to reduce overall costs to minimize the impact as muchas possible.

Q15. Let us know the background of the increase in exterior sales prices for thesecond half of the year. Is it caused by products mix? Or is it price passthrough due to increased aluminum prices?
A.

In FY2021, there was a strong tendency to refrain from investing due to theimpact of the COVID-19 pandemic. The sales of main products for family
homes with low unit prices and profit margins were stagnant due to a slump
in housing construction. As a result, the proportion of decorative exteriors
with high profitability increased relatively, as did average sales prices.
At present, we do not do pass-through prices due to higher aluminum prices.

Q16. Let us know the efforts in sales and marketing to provide the products andvalue one step ahead of what customers want.

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A.

As a long-term vision, we are the company of creatively “providing proposals
that are one step ahead.”To realize this vision, it is important for us to display a more aggressive
attitude than we have previously done.
For example, we are changing our style to “making a proposal from Shikoku
Chemicals” instead of our previous business style of “making a proposal
based on customer’s requests.”
We will also make active investments as needed, based on market anddemand trends from a medium- and long-term perspective, so as to not
lose sales opportunities and to proactively supply what customers want.
End

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