Investor Meeting

Profit Improvement PlanKazuhisa Kogo, President

February 28, 2013

Disclaimer
This material is supplied to provide information of Tokuyama and its Group
companies, and is not intended as a solicitation for investment or other actions.
This material has been prepared based on the information currently available andinvolves uncertainties. Tokuyama and its Group companies accept no liability inrelation to the accuracy and completeness of the information contained in thismaterial.
Tokuyama and its Group companies assume no responsibility whatever for anylosses or deficits resulting from investment decisions based entirely on projections,numerical targets and other information contained in this material.

1CONTENTS
1

Current Status and Targets

2

4

Polycrystalline Silicon Business Reconstruction
Other Business Profit Improvement
Companywide Profit Improvement

5

Profit and Funding Plans

32

1

Current Status and Targets
1. Revisions of Performance and Year-end
Dividend Forecasts for FY2012
2. Performance Trends
3. Current Three-Year Management Planand Comparison with Performance
Forecast for FY2012
4. Numerical Targets ofthe Profit Improvement Plan
3

1

Current Status and Targets

1. Revisions of Performance and Year-end Dividend Forecasts
for FY2012(Billions of yen)
Consolidated results

Net sales
Operating income
Ordinary income
Net income (loss)

Newly revised forecast(Feb 27, 2013)

Previous forecast(Feb 5, 2013)

258.5
4.00.0(41.0)

258.5
4.00.0(11.5)

Difference
Amount%0.0
0.00.0(29.5)000-

Loss on the impairment of polysilicon and fumed silica manufacturing facilities: approx. ¥27.5 billion
Valuation loss on polysilicon raw materials: approx. ¥2.0 billion

Dividends per share (yen)InterimYear-endTotal

FY2012 Forecast

0.00 (result)

3.00

3.00

FY2011 Results

3.00

3.00

6.00

4

1

Current Status and Targets

2. Performance Trends
Consolidated
Net Sales

Operating Income

Operating Margin(Billions of yen)

300.9

289.7

8% 273.1

22.76%■Earnings are projected to substantially decline

282.3

in FY2012. This is largely attributable to thedownturn in polycrystalline silicon businessprofits as a result of the rapidly deteriorating
market environment

258.5

7%

20.1
16.4

Current Status

5%■Urgent need for the polycrystalline silicon

13.7
2%

business together with the Group as a whole
to implement robust structural reform
measures and improve profit

4.0

FY2008FY2009FY2010FY2011FY2012(Forecast)51Current Status and Targets

3. Current Three-Year Management Plan and Comparison
with Performance Forecast for FY2012
Tokuyama is expected to fall well short of the numerical targets identified under the Company’s current
Three-Year Management Plan. This is primarily due to the downturn in polysilicon earnings.
Consolidated

Operating Income

Net Sales(Billions of yen)

286.0
90.0
67.5
67.0

258.5

Chemicals

76.5

Specialty
Products

54.0

51.5

39.5
(33.0)

40.0(33.0)

5.0Cement

4.5

Aadvanced
Components

2.5
3.0
2.0

69.5

55.0

12.0

Others(5.0)

FY2012(Forecast)

0.0
4.0
4.5
3.0
2.5
(4.0)
(2.0)

Adjustment
FY2012(Current Three‐Year Plan)(Chemicals: 0.0)

FY2012(Current Three‐Year Plan)

FY2012(Forecast)6

1

Current Status and Targets

4. Numerical Targets of the Profit Improvement Plan
Tokuyama is targeting a substantial improvement in earnings by implementing the Profit Improvement
Plan that focuses on reconstructing its polycrystalline silicon business, boosting profits in both existingand new businesses, and adhering strictly to a Companywide policy of expenditure reduction.
Consolidated

Net Sales

Operating Income

Operating Margin(Billions of yen)

358.0
320.5
258.5

7%
6%

25.0

18.0
2%

(Assumption)
Exchange rate:¥90/$
Domestic naphtha:¥60,000/kl

4.0
FY2012(Forecast)

FY2015(Target)

FY2017(Target)72Polycrystalline Silicon Business Reconstruction
1. Polycrystalline Silicon Business Environment
2. Business Reconstruction
3. Summary82Polycrystalline Silicon Business Reconstruction

1. Polycrystalline Silicon Business Environment
Rapid deterioration in market conditions due to the impact of such negative factors as the supply glut ofsemiconductor- and solar cell-grade polysilicon. Market conditions are projected to remain weak for theforeseeable future.
The supply-demand gap is expected to gradually narrow over the medium to long term owing mainly to suchfactors as expanding demand and moves by uncompetitive manufacturers to discontinue production. Demandand the supply capacity of major producers are anticipated to strike a balance around 2015.
Supply capacity/Demand (tonnes)*Tokuyama estimate

550,000
500,000
450,000

Demand (Polycrystalline solar cells)

400,000
350,000

Demand (Single crystal solar cells)

300,000

Demand (Semiconductors)

250,000

Supply capacity of other producers

200,000
150,000

Supply capacity of major producers

100,000
50,000020122013201420152016

2017(Note 1) Major producers mean Tier1 manufactures in the classification by Solarbuzz.
(Note 2) Demand is estimated by Tokuyama based on iSuppli and Solarbuzz.

92

Polycrystalline Silicon Business Reconstruction

1. Polycrystalline Silicon Business Environment
Forecast of semiconductor-grade polysilicon demand

Forecast of solar cell-grade polysilicon demand(Unit: tonnes)(Unit: tonnes)

35,000400,000

30,000350,000
300,000

25,000250,000

20,000200,000

15,000150,000

10,000100,000

5,000

50,000002012 2013 2014 2015 2016 20172012 2013 2014 2015 2016 2017

(Note) Tokuyama estimate based on SEMI announcements(Note) Tokuyama estimate based on iSuppli and Solarbuzz

Demand for semiconductor-grade polysilicon is estimatedto remain firm increasing at an annual rate of around 4%.
This is largely attributable to such factors as the upswing
in demand for mobile devices in newly developing
countries.

Installed photovoltaic (PV) capacity is forecast to grow at
an annual rate of between 10 to 20%. Demand for solar
cell-grade polysilicon is projected to increase by 100,000
tonnes and 200,000 tonnes in 2015 and 2017,
respectively, compared with the level recorded in 2012.

102

Polycrystalline Silicon Business Reconstruction

2. Business Reconstruction(1) Outline
OutlineSales Strategy■Focus on profits as opposed to volume for the foreseeable future■FY2017:
Semiconductor-grade: Secure the world’s market share of 25% or more
Solar cell-grade: Ensure the complete sale of product volumes
manufactured by Tokuyama Malaysia

Production Strategy■Build an optimal polysilicon production structure at
Tokuyama Malaysia Sdn. Bhd. and Tokuyama Factory■Ensure an optimal production balance between polysilicon and suchconcurrent products as silica and silane gas at Tokuyama Factory

Manufacturing Costs■Tokuyama Malaysia Sdn. Bhd.: Reduce cash costs by 30% or more
■Tokuyama Factory: Minimize manufacturing costs by ensuring
optimal balance in production together with silica and silane gas

Impairment Lossand Valuation Loss

■Loss on the impairment of Tokuyama Factory’s polysilicon manufacturing
facilities■Valuation loss on polysilicon raw materials
Note: The polycrystalline silicon business identified under this Plan refers tothe Tokuyama Group’s polysilicon, silica, and silane gas activities.

112Polycrystalline Silicon Business Reconstruction

2. Business Reconstruction(2) Sales Strategy

Sales Qty (tonnes)
20,00015,000Measures aimed at strengthening
semiconductor-grade polysilicon sales
Solar cell-grade polysilicon・Strengthen relationships with major customers
・Capture new customers

10,000Measures aimed at strengthening solar
cell-grade polysilicon sales

5,000Semi-grade polysilicon
02012

2013

2014

2015

2016

2017

・Expand transactions with existing customers
・Increase sales volume by coordinating withdownstream businesses
・Strengthen solution proposal marketing
capabilities

Fiscal Year

122Polycrystalline Silicon Business Reconstruction

2. Business Reconstruction
Base / Plant
Tokuyama Malaysia
PS-1

Production Grade
Produce mainly
semiconductor-grade(3) Production Strategy
Production Strategy■Operations to commence in June 2013
■Work toward the early acquisition of semiconductor-grade
production certification

Tokuyama Malaysia
PS-2

Solar cell-grade■Operations to commence in April 2015 (Note)■Work toward achieving full-scale production at an early stage■Gradually reduce production volumes in line with the status of

Tokuyama Factory

Produce mainly
semiconductor-grade

semiconductor-grade production certification acquisition by
Tokuyama Malaysia■Ensure an optimal production balance between polysilicon andsuch concurrent products as silica and silane gas

Note : While adopting a flexible approach that takes into consideration
changes in the market environment, an underlying assumption ofthis Plan is the commencement of operations in April 2015.

132Polycrystalline Silicon Business Reconstruction

2. Business Reconstruction (4) Manufacturing Cost Reduction
BaseTokuyama Malaysia

Manufacturing Cost Reduction■Diversify raw materials procurement sources■Further improve productivity■Promote the localization of management⇒ Reduce cash costs by 30% or more(compared with level estimated at the time the Malaysia Project was formulated)

Tokuyama Factory■Ensure an optimal production balance between polysilicon and such concurrent
products as silica and silane gas■Diversify raw materials procurement sources■Record losses on the impairment of equipment and facilities■Downsize the manufacturing staff⇒ Minimize manufacturing costs

14

2

Polycrystalline Silicon Business Reconstruction

2. Business Reconstruction(5) Loss on the Impairment of Equipment
and Facilities / Valuation loss on raw materials

Impairment Loss and Valuation Loss

AmountLoss on the impairment of Tokuyama Factory’s
polysilicon manufacturing facilities(including fumed silica manufacturing facilities)

Approximately ¥27.5 billion

Valuation loss on polysilicon raw materials(plan to record as ofthe end of FY2012)
Approximately ¥2.0 billion(plan to record as ofthe end of FY2012)15

2Polycrystalline Silicon Business Reconstruction

3. Summary
Specialty Products

Net Sales

Operating Income(Billions of yen)

93.0
7.5
67.0
54.0

■The operating environment of polysilicon is forecast
to enter a recovery trend from 2015 and beyond■FY2017:・ Tokuyama Malaysia: Full-scale production and sale・ Tokuyama Factory: Ensure an optimal production
balance between polysilicon and such concurrent
products as silica and silane gas
・ Bring new silica products to the market

3.5
Position as an earnings pillar by putting in place abusiness structure that is capable of generating acontinuous stream of profits and entering atrajectory of renewed growth in global markets(2.0)

FY2012(Forecast)

FY2015(Target)

FY2017(Target)(Assumption)
Exchange rate: ¥90/$
Method of depreciation of Tokuyama Malaysia facilities:
15 years, straight line method16

3

Other Business Profit Improvement
1. New Businesses and Structural Reforms
2. Priority Issues for Consideration17

3

Other Business Profit Improvement

1. New Businesses and Structural Reforms
Establish new businesses while implementing structural reforms that contribute to earnings growth by FY2017
Segment

New Businesses and Structural ReformsChemicals■Ensure the successful launch of the liquid hydrogen business(scheduled to commence operations in June 2013)

Cement■Ensure the successful launch of the waste gypsum board recycling business(scheduled to commence operations in March 2013)

AdvancedComponents■NF Business
Establish a supply and sales structure that accurately addresses the increase indemand for disposable diapers(second phase construction of production facilities at Tianjin Tokuyama Plastics:
scheduled to commence operations in October 2013)■Excel Shanon Corporation
Promote a resurgence and growth through a process of business reconstruction18

3

Other Business Profit Improvement

2. Priority Issues for Consideration
Priority issues for consideration in endeavoring to further increase profits
Segment

Priority Issues for Consideration

Chemicals■Review the chlorine derivatives portfolio■Conduct a feasibility study on chlor-alkari business activities in Malaysia

Cement■Consider developing businesses overseas■Strengthen infrastructure

R&D■Start the fuel cell materials business■Start the aluminum nitride single crystal business19

4Companywide Profit Improvement

Cost-reduction measures from FY2013 to 2017
Item

Amount of Reduction(Compared with Levels Recorded in FY2012)

Overhead expenses

FY2013:¥0.3 billion
From FY2014 onward: ¥0.5 billion

Purchasing costs

FY2013:¥1.7 billion
From FY2014 onward: ¥2.0 billion

Distribution costs

From FY2013 onward: ¥0.5 billion

Repair expenses

From FY2013 onward: ¥0.5 billion (average amount from FY2013 to 2017)

Personnel expenses

FY2013:¥2.0 billion
Reduction in compensation paid to executives and cuts in employee salaries;
temporary release from work; early retirement system expansion; otherFY2014 onward:¥3.5 billion (average amount from FY2014 to 2017)Cutbacks in recruiting activities / new hires (Group companies included);
review of various allowances and employee benefits programs; otherItem

TargetR&D expenses
CAPEX

Stringent selection of R&D themes
FY2013 onward: Total investment less than 75% of total deprecation expenses(on a non-consolidated basis)

20

5Profit and Funding Plans
1. Profit Improvement Roadmap
2. Cash Flow Plan
3. Interest-Bearing Debt

21

5

Profit and Funding Plans

1. Profit Improvement Roadmap
Taking steps to reconstruct the polycrystalline siliconbusiness and to improve Companywide profitability

Bringing to a successful conclusion
polycrystalline silicon business reconstruction

Operating Income (Billions of yen)

25.0
+4.0

•Semiconductor-grade
production in Malaysia•Further cost reduction•Impairment of Tokuyama
Factory’s facilities•Profitability improvement insilica business

4.0

+3.0

+7.0

+8.5

(12.0)FY2012(Forecast)

18.0

Deterioration inpolysilicon businessprofitability(pre-reconstruction)+10.5

Reconstructionof polysiliconbusiness

Profitability
improvements inother businesses

Companywide
profitability
improvement

FY2015(Target)Reconstructionof polysiliconbusinessProfitability
improvements inother businesses

FY2017(Target)225Profit and Funding Plans

2. Cash Flow PlanThrough FY2014

From FY2015 onward

Non-Consolidated

Continued negative free cash flows owing mainly to investments inTokuyama Malaysia

Secure free cash flows of about ¥20 billion stably through Companywide
structural reforms, successful efforts to curtail expenditure,and investment recovery from Tokuyama Malaysia

23

5Profit and Funding Plans

3. Interest-Bearing Debt
(Billions of yen)
250

Short-term debt / CP

Non-Consolidated(D/E ratio)
1.25Bonds

200Long-term debt
D/E ratio

1.00

Net D/E ratio

1500.75

1000.50500.2500.00

FY2014 (Plan)
Interestbearing debt

¥228.0 billion

D/E ratio

1.2

FY2017 (Plan)
Interestbearing debt

¥178.0 billion

D/E ratio

0.8

Secure free cash flows through improvements in the profitability of each business including thepolycrystalline silicon business, successful efforts to reduce Companywide overhead expenses, andinvestment recovery from Tokuyama Malaysia; undertake the repayment of interest-bearing debt
24

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