Sumi chem 2010_results


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Sumi chem 2010_results

  1. 1. Financial Results Overview and Performance Outlook Masakazu Tokura, President May 2011
  2. 2. AgendaOverview of FY2010 Financial Results 3Outlook for FY2011 9Management Priority Issues and 17Strategies Review of the Last 10 YearsFY2010-2012 Corporate Business Plan and Priority Measures 21 ・ Enhance Financial Strength ・ Enhance Global ManagementDividend Policy 35 2
  3. 3. Overview of FY2010 Financial Results
  4. 4. FY2010 Financial Results (Billions of yen) FY2009 FY2010 ChangeSales 1,620.9 1,982.4 +361.5Operating Income 51.5 88.0 +36.5Equity in Earnings ofAffiliates -7.0 10.8 +17.8Ordinary Income 35.0 84.1 +49.1Extraordinary Gains/Losses 6.3 -8.4 -14.7Income Taxes -11.3 -34.8 -23.5Minority Interests -15.2 -16.4 -1.2Net Income 14.7 24.4 +9.7Naphtha Price ¥41,200/kl ¥47,500/klExchange Rate ¥92.89/US$ ¥85.74/US$Dividend per Share ¥6/share ¥9/share 4
  5. 5. FY2010 Sales by Segment (Billions of yen) Sales Price Shipping FY2009 FY2010 Change Variance Volume VarianceBasic Chemicals 203.3 248.5 +45.2 +28.0 +17.2Petrochemicals &Plastics 481.5 649.9 +168.4 +78.5 +89.9Fine Chemicals 86.7 88.9 +2.2 -0.5 +2.7IT-related Chemicals 265.2 322.3 +57.1 -25.0 +82.1Agricultural Chemicals 211.5 215.8 +4.2 -2.5 +6.7Pharmaceuticals 267.5 365.9 +98.4 -17.0 +115.4Others 105.1 91.2 -13.9 - -13.9Total 1,620.9 1,982.4 +361.5 +61.5 +300.0Sales Outside of Japan 728.9 1,056.7 +327.8Percentage of SalesOutside of Japan 45% 53% +8% 5
  6. 6. Change in Operating Income FY2009/FY2010FY2009 ¥51.5 billion → FY2010 ¥88.0 billion (+¥36.5 billion) (Billions of yen)125 Volumes & others100 +151.5 88.0 75 Rationalizations 51.5 +20.0 50 25 Margins 0 -23.5 -25 -50 -75 Fixed costs -111.5-100 FY2009 FY2010 6
  7. 7. FY2010 Operating Income by Segment (Billions of yen) FY2009 FY2010 Change Major Factors for Changes in Profit ・Improvement in marginsBasic Chemicals 1.3 21.3 +19.9 ・Increase in shipping volumesPetrochemicals& ・Improvement in marginsPlastics -0.2 11.1 +11.4 ・Increase in shipping volumesFine Chemicals 3.6 0.1 -3.5 ・Increase in depreciationIT-related ・Increase in shipping volumesChemicals 6.3 26.1 +19.8 ・Progress in rationalizationAgricultural ・Increase in depreciationChemicals 29.3 22.4 -6.9 ・Decrease in export sales in yen terms due to the appreciation of the yen ・Increase in amortization expenses ofPharmaceuticals 29.9 26.9 -3.0 patent rights following the acquisition ・Impact of NHI drug price revisionOthers -18.7 -20.0 -1.3Total 51.5 88.0 +36.5 7
  8. 8. FY2010 Financial Results (Billions of yen) FY2009 FY2010 ChangeSales 1,620.9 1,982.4 +361.5Operating Income 51.5 88.0 +36.5Equity in Earnings ofAffiliates -7.0 10.8 +17.8Ordinary Income 35.0 84.1 +49.1Extraordinary Gains/Losses 6.3 -8.4 -14.7Income Taxes -11.3 -34.8 -23.5Minority Interests -15.2 -16.4 -1.2Net Income 14.7 24.4 +9.7Naphtha Price ¥41,200/kl ¥47,500/klExchange Rate ¥92.89/US$ ¥85.74/US$Dividend per Share ¥6/share ¥9/share 8
  9. 9. Outlook for FY2011
  10. 10. Reorganization of Sectors Before April 2011 After April 2011Basic Chemicals Basic ChemicalsPetrochemicals & Plastics Petrochemicals & PlasticsFine Chemicals(Specialty Chemicals Division)(Pharmaceutical Chemicals Division)IT-related Chemicals IT-related ChemicalsAgricultural Chemicals Health & Crop SciencesPharmaceuticals PharmaceuticalsOthers Others 10
  11. 11. Outlook for FY2011 (Billions of yen) FY2010 FY2011 Change (Forecast)Sales 1,982.4 2,120.0 +137.6Operating Income 88.0 80.0 -8.0Equity in Earnings ofAffiliates 10.8 18.0 +7.2Ordinary Income 84.1 87.0 +2.9Extraordinary Gains/Losses -8.4 -2.0 +6.4Income Taxes -34.8 -25.0 +9.8Minority Interests -16.4 -10.0 +6.4Net Income 24.4 50.0 +25.6Naphtha Price ¥47,500/kl ¥61,000/klExchange Rate ¥85.74/US$ ¥82.50/US$Dividend per Share ¥9/share ¥12/share 11
  12. 12. FY2011 Sales by Segment (Billions of yen) Shipping FY2011 Sales Price FY2010 Change Variance Volume (Forecast) VarianceBasic Chemicals 302.3 300.0 -2.3 +5.0 -7.3Petrochemicals &Plastics 649.9 755.0 +105.1 +120.0 -14.9IT-related Chemicals 322.3 350.0 +27.7 -31.5 +59.2Health & Crop Sciences 250.8 275.0 +24.2 -3.0 +27.2Pharmaceuticals 410.6 390.0 -20.6 - -20.6Others 46.6 50.0 +3.4 - +3.4Total 1,982.4 2,120.0 +137.6 +90.5 +47.1Sales Outside of Japan 1,056.7 1,170.0 +113.3Percentage of SalesOutside of Japan 53% 55% +2% 12
  13. 13. Change in Operating Income FY2010/FY2011 FY2010 ¥88.0 billion → FY2011 ¥80.0 billion (-¥8.0 billion)(Billions of yen) 120 ・Decrease in sales prices of LCD ・Decrease in sales prices of LCD related materials ・Decrease in depreciation due to change ・Decrease in depreciation due to change in depreciation method related materials in depreciation method ・Decrease in export sales in yen terms ・Decrease in export sales in yen terms ・Increase in sales promotion expenses ・Increase in sales promotion expenses due to the appreciation of the yen due to the appreciation of the yen in pharmaceuticals in pharmaceuticals 88.0 8.0 Volumes & Others 90 +7.0 80. 80.0 Rationalizations +18.0 60 Fixed costs +9.5 ・Increase in shipments of LCD related ・Increase in shipments of LCD related Margins 30 -42.5 ・Procurement of low-cost ・Procurement of low-cost materials materials ・Decrease in licensing revenue in ・Decrease in licensing revenue in raw materials raw materials pharmaceuticals pharmaceuticals ・Improvement of ・Improvement of ・Decrease in income in yen terms due ・Decrease in income in yen terms due production efficiency production efficiency to appreciation of the yen to appreciation of the yen 0 FY2010 FY2011 (Forecast) 13
  14. 14. FY2011 Operating Income by Segment (Billions of yen) Decrease in Depreciation FY2011 Major Factors for FY2010 Change due to Change Changes in Profit (Forecast) in Depreciation Method ・Decrease in depreciation ・Decrease in export sales in yenBasic Chemicals 20.6 22.0 +1.4 6.0 terms due to appreciation of the yenPetrochemicals & ・Lower marginsplastics 11.1 9.0 -2.1 5.0 ・Decrease in depreciation • Decrease in sales prices of LCD-IT-related related materialsChemicals 26.1 26.0 -0.1 6.0 ・Lower margins due to appreciation of the yenHealth & Crop ・Increase in shipping volumesSciences 23.3 27.0 +3.7 5.0 ・Decrease in depreciation ・Increase in sales promotionPharmaceuticals 28.7 17.0 -11.7 0.0 expenses ・Decrease in licensing revenueOthers -21.9 -21.0 +0.9 3.0Total 88.0 80.0 -8.0 25.0 14
  15. 15. Outlook for FY2011 (Billions of yen) FY2010 FY2011 Change (Forecast)Sales 1,982.4 2,120.0 +137.6Operating Income 88.0 80.0 -8.0Equity in Earnings of Affiliates 10.8 18.0 +7.2Ordinary Income 84.1 87.0 +2.9Extraordinary Gains/Losses -8.4 -2.0 +6.4Income Taxes -34.8 -25.0 +9.8Minority Interests -16.4 -10.0 +6.4Net Income 24.4 50.0 +25.6Naphtha Price ¥47,500/kl ¥61,000/klExchange Rate ¥85.74/US$ ¥82.50/US$Dividend per Share ¥9/share ¥12/share 15
  16. 16. Trends in Performance Sales, Operating Income, Net Income(Billions of yen) Sales (left axis) Net Income (right axis) Operating Income (right axis) (Billions of yen)2,500 2,400 250 2,120 1,982 1902,000 1,790 1,897 1,788 200 1,621 1,557 1401,500 1,296 121 150 105 102 88 1401,000 80 100 91 94 52 500 65 63 50 2 50 0 15 24 0 -500 -50 -59-1,000 -100 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 (Forecast) (Target) 16
  17. 17. Management Priority Issues and Strategies Review of the Last 10 Years
  18. 18. Management Priority Issues for the Last 10 YearsStrengthen Fundamentals of Petrochemical Business Continuing oversupply of petrochemicals in Japan Increasingly tighter supply of naphtha and low prospects for increase in oil production → Increasing need to enhance competitive advantage by securing stable supply of cost-competitive feedstockGain Critical Mass in Pharma Business to Achieve Strong Growth Challenging business environment for Japan’s pharmaceutical industry (periodic cuts in national health insurance drug prices, increasing burden of R&D spending) Requirements for medium-sized pharmaceutical company to achieve stable growth: - Aggressive R&D investments in new drug research and development - Robust business that allows long-term, large-scale investments - Carefully-planned strategy and significant investments for global expansionDevelop New Core Business Need to develop another core business, in addition to the polyolefin and life sciences businesses, to drive future growth Need to consolidate and further expand businesses in the IT-related materials field, an area showing rapid growth worldwide 18
  19. 19. Strategies ImplementedStrengthen Fundamentals of Petrochemicals Business Rabigh Project (Decided in 2005 and operations started in 2009) - Achieving superior cost-competitiveness by using ethane gas feedstock with significant cost advantage - Pursuing economies of scale with world-scale production facilities - Maximizing synergies through integration of oil refining and petrochemical productionGain Critical Mass in Pharma Business to Achieve Strong Growth Launch of Dainippon Sumitomo Pharma through merger of subsidiary Sumitomo Pharmaceuticals and publicly-listed Dainippon Pharmaceutical (in 2005) Acquired US pharmaceutical company Sepracor (now Sunovion) to enter the US market, the world’s largest (in 2009)Develop New Core Business Established IT-related Chemicals Sector (in 2001) by consolidating various electronic-material businesses and technologies operated separately in the company with the aim of strengthening and expanding LCD-material and other IT- related chemical businesses 19
  20. 20. Investments and Results Achieved in Major Projects Results Project Investment (Increase in Sector Sales over 10 Years) Approx. ¥166.0 bn Petrochemicals & PlasticsStrengthen fundamentals of (equity investment Sectorpetrochemicals business and lending)• Implementation of Rabigh Project Total project cost Approx. 1.7 times $10.1 bn (¥375.5 bn → ¥649.9 bn)Gain critical mass in pharmabusiness to achieve strong growth Approx. ¥219.0 bn Pharmaceuticals Sector• Launch of Dainippon Sumitomo (increased shareholding Approx. 2.3 times Pharma and acquisition) (¥156.7 bn → ¥365.9 bn)• Acquisition of Sepracor in USDevelop new core business Approx. ¥355.0 bn IT-related Chemicals Sector• Establishment and expansion of (cumulative capital IT-related Chemicals Sector Approx. 5.4 times expenditures in 10 years since inception) (¥60.2 bn → ¥322.3 bn) 20
  21. 21. FY2010-2012 Corporate Business Plan and Priority Measures
  22. 22. Seven Priority Initiatives and Performance Targets1. 2. 3.Quickly maximize Enhance financial Strengthen cost Sevenprofits & cash flows strength competitiveness offrom major core & commodity Priorityinvestments businesses Initiatives4. 5. 6. 7.Accelerate business Implement Climate Strengthen global Ensure full & strictgrowth Change Strategy management system compliance; maintain safe & stable operations Performance Targets of the Corporate Business Plan FY2012 Performance Targets (consolidated) Sales ¥2.4 trillion Assumptions Ex. Rate: ¥90 /US$ Operating Income ¥190 billion Naphtha: ¥50,000/kl Ordinary Income ¥220 billion Crude Oil: US$85/bbl *Including equity in earnings of affiliates of ¥40 billion Net Income ¥140 billion 22
  23. 23. Priority Measures Pursue the seven priority initiatives in the Corporate Business Plan, with special emphasis on the following two measures:Enhance financial Enhance global strength management 23
  24. 24. Enhance Financial StrengthEnhance Performance Increase selectivity of investments Improve asset turnover Increase in net assets Shorten cash-conversion cycle Streamline property, plant, and equipment Enhance Financial Strength Secure greater strategic freedom to aggressively pursue growth opportunities 24
  25. 25. Enhance Financial Strength Cash Flows (Billions of yen) Corporate Corporate FY2011 Business Plan Business Plan FY2010 (Forecast) ・・・ FY2010 - FY2012 FY2007 - FY2009 (Target)Cash flows fromoperating activities 367.9 176.2 175.0 ・・・ 510.0Cash flows frominvesting activities -658.3 156.0 150.0 ・・・ 510.0Free cash flows -290.4 20.2 25.0 ・・・ 0 Interest-bearing Liabilities & D/E Ratio (Billions of yen) Interest-bearing Liabilities (left axis) D/E Ratio (right axis) (Times) 1,200 1,040 1,040 1,020 2.4 998 1,000 2.0 795 1.4 800 674 1.2 1.3 1.6 579 641 1.0 1.0 471 600 0.7 0.7 1.2 0.6 0.6 400 0.8 200 0.4 0 0.0 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 (Forecast) (Target) 25
  26. 26. Enhance Global Management What is “true globalization”?Cross the boundaries of nations and nationalities andachieve the optimum combination of the cost, thetechnology and the business environment for its ownbusiness Globally Integrated Management 26
  27. 27. Enhance Global Management: Major Projects and Performance Overseas Operations by Geography Asia North America Europe Middle East and Af rica Central and South America Oceania and Others(Billions of yen) Percentage of Sales Outside of Japan (%) 1,000 50.0 800 40.0 Formed comprehensive Formed comprehensive business tie-up and made business tie-up and made 600 Decided to Decided to strategic investment in strategic investment in 30.0 implement Rabigh implement Rabigh Nufarm Nufarm Project; Completed Project; Completed the 2nd phase the 2nd phase Completed the 3rd Completed the 3rd 400 expansion of MMA expansion of MMA phase expansion of phase expansion of 20.0 in Singapore in Singapore MMA in Singapore MMA in Singapore Started production Started production Started Started 200 of polarizing film in of polarizing film in production of production of Started production Started production 10.0 Acquired Acquired of Rabigh complex; of Rabigh complex; South Korea South Korea polarizing film polarizing film CDT CDT Acquired Sepracor Acquired Sepracor in Taiwan in Taiwan 0 0.0 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 27
  28. 28. Enhance Global Management: Global Expansion of Each Business Sector Global Expansion in Each Business Sector Basic Chemicals and Petrochemicals & Plastics: Shared global - Produce where cost-competitive feedstocks market information are available IT-related Chemicals: Shared regional - Build a customer-focused supply chain to strategies better serve global customers Health & Crop Sciences: Coordinated - Strengthen competitive advantage in management of R&D capabilities and the ability to roll production facilities out new technologies globally and human resources Pharmaceuticals: Shared brand value - Develop and globally roll out new products 28
  29. 29. Expanding Business as a Total Provider of LCD Materials Sumitomo’s base Customer’s baseSumika Huabei Electronic Materials (Beijing) Co., Ltd. Dongwoo Fine-Chem Co., Ltd. BOE (Beijing) Samsung LG Display CEC & Nanjing Panda (Nanjing) Samsung (Suzhou) Sumitomo Chemical Co., Ltd. -Sumika Electronic Materials (Wuxi) Co., Ltd. Ohe WorksSumika Electronic Materials (Hefei) Co., Ltd. Sharp BOE (Hefei)Sumika Electronic Materials (Shenzhen) Co., Ltd. Sumika Electronic Materials (Shanghai) Co., Ltd.LG Display (Guangzhou) Kunshan IFO Sumika Electronic Materials (Shanghai) CorporationTCL (Shenzhen) AU Optronics Sumika Technology Co., Ltd. Sumika Electronic Materials (Hong Kong) Co., Ltd. Chimei Innolux 29
  30. 30. Expand Dongwoo Fine-Chem’s Business(Billions of won) Sales Employees (Persons)4,000 4,000 Set up Second expansion period Third expansion period3,500 effective organization First 3,200 expansion period3,000 Introduced Sumitomo’s technology2,500 Started production Started production 2,400 of polarizing films of polarizing films Start production Start production2,000 Started production Started production of touch sensor of touch sensor of color filters of color filters panel panel 1,6001,500 Start production Start production of LED sapphire of LED sapphire substrates substrates1,000 Change in ownership Change in ownership (Sumitomo’s holdings (Sumitomo’s holdings Expanded into 800 Expanded into increased to 100%) increased to 100%) Started production China and energy- Started production China and energy- 500 of light-guide and of light-guide and related businesses related businesses light-diffusion panels light-diffusion panels 0 0 ’94 ’96 ’98 ’10 ’02 ’04 ’06 ’08 ’10 ’12(F) 30
  31. 31. Enhance Global Management: Bulk Chemicals Global expansion: Produce where cost-competitive feedstocks are available Recent Achievements Next Steps• Made Petro Rabigh profitable (fiscal • Improve profitability of Petro Rabigh 2010) • Complete the feasibility study of Rabigh• Decided to expand production facilities Phase II Project for MMA polymer in Singapore from 100 • Enhance global marketing for EVA to 150 thousand tons/yr—the new (ethylene-vinyl acetate), PP capacity scheduled to come on stream (polypropylene) compounds in Q3 2012 • Launch sales of DPF (diesel particulate• Decided to build in Singapore a plant for filter)—a filter to remove particulate S-SBR, a synthetic rubber used in fuel- matters from the exhaust gas from a efficient tires—the new capacity of 40 diesel engine—in Europe thousand tons/yr scheduled to come on stream in Q4 2013 31
  32. 32. Enhance Global Management: ICT Global expansion: Build a customer-focused supply chain to better serve global customers Recent Achievements Next Steps• Built supply chain in China • Enhance strategic marketing efforts in (Shanghai, Wuxi, Hong Kong, Hefei, China Beijing, Shenzhen) • Consider further expansion of• Decided to build new production polarizing film production capacity facilities for polarizing film in Taiwan— targeting the Chinese market the new capacity of 21 million m2 /yr scheduled to come online in July 2011 • Further improve key technologies in• Decided to strengthen and expand Korea and Taiwan new businesses - Decided to enter LED substrate business (Korea) - Decided to enter business of touch sensor panels for smart-phones and tablet PCs (Korea) 32
  33. 33. Enhance Global Management: Life Sciences Global expansion: Strengthen competitive advantage in R&D capabilities and the ability to roll out new technologies globally Recent Achievements Next Steps• Formed business alliances with Nufarm • Enhance business alliances with and Monsanto in crop protection chemicals Nufarm and Monsanto while enhancing position in Italy and India • Strengthen global sales channels• Decided to build a new plant for feed for crop protection chemicals, with additives in Dalian, China, with 20 operational bases in five major thousand tons/yr capacity scheduled to regions, including Latin America come online in Q4 2011 • Develop new products for controlling• Established annual production capacity of infectious tropical diseases 60 million nets for OLYSET Net, a long- • Maximize sales of Latuda lasting insecticidal mosquito net for control (Seek approval of new indications of malaria and expand into other countries)• Entered into the US pharmaceutical market through acquisition of Sepracor• Launched Latuda in US and partnered with Takeda Pharmaceutical for the commercialization of Latuda in Europe 33
  34. 34. Enhance Global Management: Management Support Achievements through FY2010 Next StepsManagement Established Group-wide operation Integrate administrative systemsInfrastructure standards • Information management on - Human resources, procurement, integrated platform logistics, accounting, IT systemsFrontline Support Established corporate support branches Provide shared services (US, Belgium, Singapore, Shanghai) • Human resources, accounting, - Provided guidance and support for IT systems, etc. local subsidiariesHuman Identified the Group’s core managerial Explore and develop the nextResources talent and established the system for generation of the Group’s core managing the human resources managerial talent ⇒ Match the right talent to the right job Group-wide Organized and convened meetings andCommunications conferencesChina Business Established China Strategy Group Establish a regional headquartersSupport company in China that manages and supports subsidiaries in China 34
  35. 35. Dividend Policy
  36. 36. Dividend PolicyWe consider shareholder return as one of our priority management issues and have madeit a policy to maintain stable dividend payment, giving due consideration to our businessperformance and a dividend payout ratio for each fiscal period, the level of retainedearnings necessary for future growth, and other relevant factors.(Yen) (Billions of yen) 16 210 Interim Dividend (left axis) Year-end Dividend (left axis) Net Income (right axis) 14 180 12 12 12 12 150 10 7 6 6 140 10 9 9 6 120 8 91 8 94 3 6 5 6 90 6 65 63 6 60 4 50 15 30 2 24 3 4 5 6 6 3 6 0 0 -2 -30 -4 -59 -60 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 (Forecast) (Target) 36
  37. 37. Creative Hybrid Chemistry 37
  38. 38. Forward-Looking StatementsStatements made in this material with respect to Sumitomo Chemical’s plans,projections, strategies, beliefs, and future performance that are not historical factsare forward-looking statements that are based on information available at the timeof the preparation of this material and include risks and uncertainties. Factors thatcould materially affect actual results of Sumitomo Chemical’s future performanceinclude, but are not limited to, economic conditions in the areas of SumitomoChemical’s business, demand for Sumitomo Chemical’s products in markets,downward price pressure on Sumitomo Chemical’s products resulting fromintensifying competition, Sumitomo Chemical’s ability to continue to provideproducts that are accepted by customers in highly-competitive markets, andmovements of currency exchange rates. 38