SHIKOKU KASEI HOLDINGS CORPORATION Q & A Session
on Investor Briefing for the Fiscal Year ending December 2022
(February 15, 2023)
Q1. While “STAGE 2” has just begun, how does each operating company aim to achieve its goals?
And what are the underlying concepts including M&A?
A. As for inorganic chemical products, while the production of insoluble sulfur has declined recently
because of the reduced demand for tires, the demand for tires with high functions, including not only
safety but also riding comfort, fuel efficiency, and durability performance, has been increasing everyyear. The manufacturing of tires with high functions requires high quality insoluble sulfur as a rawmaterial. At the new plant, we intend to develop sophisticated production technologies to manufacturehigh-quality products that meet market requirements and stand out against our competitors. We plan
to establish a mass production system for sales expansion.
As for organic chemical products, we launched “WASHMANIA Washing Machine Tub Cleaner”
last year. In the future, we will promote full-fledged entry to Business to Customer (BtoC) and further
expand in the market under the company brand “WASHMANIA.”
As for fine chemical business, using high organic synthesis technology, the strength of our company,
we have propelled the process of developing new materials and connecting them to practicalapplications. We aim to continue to strengthen it and get tangible results.
In the housing material business, we will actively promote countermeasures against vacant houses
and the development of products in the public construction field, where our company’s strength lies.
In addition, we will make efforts to expand the business area despite how the market shows a tendency
to shrink owing to the business environment, such as a decrease in the construction of new housing
and population decline.
Although M&A activities are being continued as one of the measures to expand the core business,it has not yet been successful. Each operating company is also examining possible M&As to expand
their area to peripheral businesses.
Q2. You list in the forecast for the current term, “decrease in sales unit price” as a cause of thedecrease in profits in the chemical product business. Please explain the details.
A. In the previous term, we had significant growth in organic chemical products, largely due to theincrease in sales in North America, mainly in the U.S. market, where our main force is placed. The
supply demand balance became tight and significantly exceeded our expectations due to thesimultaneous increase in awareness of hygiene and the increase in demand for household pools, as
more people stayed home during the pandemic. A decrease in the sales unit price is anticipated becauseof the loosened supply demand balance. In addition, yen has appreciated compared to the previous
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term. As a result, a decrease in profits is expected in this term.
Q3. I hear that progress is made according to the long-term vision “Challenge 1000,” but there
has been a marked change in the business environment compared to 1 year ago. I would like to
ask about the changes in sales methods, prerequisites, and assumptions of each department.
A. Although the general landscape is viewed in various ways, automobile-related matters have thelargest impact on our company’s business environment. The impact occurs in insoluble sulfur, which
is a raw material for tires, and in the field of fine chemicals, which is a raw material for electronics.
While we expect to see growth based on the mid- to long-term perspectives, it is expected that thisterm will again be affected by production adjustments for automobiles due to the shortage ofsemiconductors and difficulty in procuring parts.
In addition, we suffered the impact of the rise in raw material prices by approximately 1.5 billion
yen during the previous term, and the raw material costs still remain high for both chemical products
and housing materials. It is expected that the increase in raw material prices will continue during thisperiod. In the previous term, the price shift was relatively smooth for each business, but it isnecessary to continue the response.
The chemical product business needs to tackle challenges in introducing products for BtoC andcultivate new business areas because the demand and supply saturation will move toward eliminationof organic chemical products in the future, and the sales unit price is expected to decrease. Although
there are concerns about the future of the semiconductor and electronics markets being unclear in finechemicals, we will continue to strengthen the activities that will lead to the evaluation and adoption of
newly developed products. The housing materials business is expected to remain unchanged in terms
of profits due to the increase in the prices of materials, even though the prices were revised in April
last year and again in January this year. We would like to proceed with our business not only from an
immediate perspective, but also from a mid- to long-term perspective.
Q4. What products will drive sales toward the target sales of 12 billion yen in “STAGE 2” for finechemicals? Is it even possible to achieve the sales target of 12 billion yen?
A. It is important for fine chemicals to develop materials that provide a novel performance. We consider
GliCAP to be a highly effective growth product because it is expected that measures that support thefrequency increase and 5th generation mobile communication system (5G), as well as those against
density increase on substrates, will become necessary in the future.
GliCAP is an agent that enhances the adhesion between the copper circuit of the printed circuit board andthe resin, and comprises a new processing system. Conventionally, there was an issue where losses in theelectric signal occurred as the copper surface became rougher owing to roughening, which was conducted toensure its adhesion to the resin. There was also an issue of fine wiring becoming too thin owing to roughening.
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However, GliCAP can ensure adhesion without roughening the copper surface. GliCAP is currently being
evaluated for two applications. The first is the substrate used in base stations and data centers for server
substrate applications, which has been adopted by multiple manufacturers. The second is for semiconductor
package substrate applications, which involves connecting the semiconductor chips and printed circuit boardson the circuit boards. We are in the process of promoting examinations for practical applications withcustomers.
Functional materials are broadly classified into semiconductor process materials and low-dielectricmaterials. Semiconductor processing materials are used as resist materials to form next-generation
semiconductor circuits. Currently, we are discussing with multiple partners for future mass production. Inaddition, the evaluation of low-dielectric materials is being conducted for 5G and Beyond 5G. While it istechnically very difficult to achieve both electrical properties and flame retardancy or heat resistance, ourcompany has developed materials that achieve both properties, and evaluation is in progress at various
manufacturers. Based on feedback from the market, further improvements will be made in the future.
Q5. When do you expect production adjustment for insoluble sulfur or sales recovery?
A. The recent drop in the sales volume of insoluble sulfur is due to a significant drop in export sales.
Large volumes of our company’s exports go to Asian countries, including China, and stagnation in tire
production in the Asian region is one of the factors that caused the significant decrease. However, it isgradually recovering. We believe that the factors that caused the decrease in demand wereinstantaneous and will be resolved.
Q6. What is the prospect of capital investment in the next term and later?
A. In the long-term vision “Challenge 1000” (FY 2020 to FY 2029), we plan to invest approximately
50 billion yen. Considering the scale of our company’s business, we have made relatively large
investments. We are, however, doing so intentionally to activate investments under “Challenge 1000.”
Therefore, this direction will continue for the remaining seven years of “Challenge 1000.”
In terms of investment, TAP-4 of the Tokushima Plant has the aspect of a pilot plant for researchand development in addition to production, and it can be considered an investment for research anddevelopment. In addition, “Challenge 1000” specifies focusing not only on capital but also on humaninvestments, etc., and we intend to make this more concrete.
Q7. While the new NEO-CHLOR plant has started its operation, will the full production and sales startin this term with the operation of the new plant?
A. NEO-CHLOR continues to move very actively and is in tight condition with full operation. The
chlorinated isocyanurates produced by our company are popularly used as sanitizing agents for pools.
3/4There are several different types of chlorinated isocyanurates, and we manufacture products withsuperior quality compared with those of our competitors. We consider that it will not be a difficult task
to achieve full production in the future by continuously increasing our competitiveness with utilizationof our strengths, and expanding the B to C field, including development of “WASHMANIA” products
as a series.
Q8. As the direction of M&A, I think that the size of the housing materials business is being increased
intentionally. What do you think about it?
A. Our company is in a different business category from the major exterior manufacturers, which deal
with sashes and housing equipment, and this is increasing our added value. In M&A, we consider not
only an increase in volume, but also M&A in terms of sales, such as reinforcing the areas where ourcompany lacks resources or skills without spending time and developing new sales routes.
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