presentation material for investors · 2018. 10. 26. · investment amount : ¥7.5 billion...

Copyright (C) KH Neochem Co., Ltd. all rights reserved.

KH Neochem Co., Ltd.

Presentation Material for Investors

June , 2018

President and CEO Keiichi Asai

Contents

1

I. Company Outline

II. Medium-Term Business Plan (2016－2018)

III. Development in Results 2018 1Q


I. Company Outline

Company Outline

3

Paid in Capital

¥8,772 million (December 2017)

Business

Manufacture and sales of various chemical products

Employees

739 (consolidated, December 2017)

Number of issued shares

36,849,400 shares (December 2017)

3

KH Neochem

Americas, Inc.

Shanghai Seika Trading Co., Ltd.

Taiwan-Japan

Oxo Chemical Industries Inc.

Taiwan Representative Office

Yokkaichi Plant

Yokkaichi research laboratory

Primary products: Solvents, plasticizer raw materials, refrigeration lubricants raw

materials, cosmetic raw materials, and electronic materials

Head Office (Tokyo)

Osaka Branch

Office

Sakai Logistics

Center

Chiba Plant

Primary products: Plasticizer raw materials and refrigeration lubricants raw materials

History

4

Business Development

Organizational Transformation

1948

Kyowa Sangyo Co., Ltd. began

Japan’s first mass production

of acetone and butyl alcohol

from syrup

1988

Established Japan Oxocol Co., Ltd.

Switched to two plant systems, consisting of the Chiba and

Yokkaichi Plants.

2004

Name changed to Kyowa Hakko Chemical Co., Ltd. through

the merger of the Chemical Department of Kyowa Hakko

Kogyo Co., Ltd. and Kyowa Yuka Co., Ltd.

2011

Spun off from Kyowa Hakko Kirin Group

Name changed to KH Neochem Co., Ltd. in

the following year

1949

Established Kyowa Hakko Kogyo Co., Ltd.

1963

Completion of the Yokkaichi Plant

Umaokoshi section

2016

Listed on the 1st Section of

the Tokyo Stock Exchange

1970

Completion of the Yokkaichi Plant

Kasumigaura section

1966

Established Kyowa Yuka Co., Ltd. as a

subsidiary chemical manufacturer of

Kyowa Hakko Kogyo Co., Ltd.

1993

Development of

Refrigeration lubricants raw materials

Our Technologies

5

Raw materials

コア技術Oxo reactions

Other synthesis technologies

Distillation technologies

Quality control technologies

Various consumer goods

Alcohols Acids

OxidationReduction

Synthesis technologies using oxo gas

consisting of carbon monoxide and

hydrogen

Aldehydes

KH Neochem products

Basic chemicals

Performance chemicals

Oxo + α

Technologies

Our Business

6

Basic Chemicals Business

Plasticizer

raw materials

Performance Chemicals Business

Luxury cosmetics

Skin care products

Photoresists

High-purity

solvents

Semiconductors

LCD panelsAir conditioners

Automobiles

Housing

Sofa fabric

Wallpapers

Flooring

Plastic

wraps/films

Solvents

PlasticizersPaints

Cosmetic

raw materialsRefrigeration lubricants

raw materials

Refrigeration

lubricants

30%

54%

15%

1%

Business Segments (Net sales/Gross profit)

7

The percentage of profit from Performance Chemicals

(Performance Materials/Electronic Materials) is about 70%

Basic Chemicals(plasticizer raw materials,

solvents, etc.)

Performance Materials(refrigeration lubricants raw materials,

cosmetic raw materials, etc.)

Electronic Materials(high-purity solvents, etc.)

Net sales ¥97.0 billion

(forecast for 2018)

Basic

Chemicals

¥46.7 billion

Other

¥0.7 billion

48%

40%

11%

1%Electronic

Materials

¥11.1 billion

Performance

Materials

¥38.5 billion

Gross profit ¥21.5 billion

(forecast for 2018)

Basic

Chemicals

¥6.5 billion

Electronic

Materials

¥3.1 billion

Other

¥0.3 billion

Performance

Materials

¥11.6 billion

Perfomance

Chemicals

Perfomance

Chemicals

Our Business (Refrigeration lubricants raw materials)

8

Shift to alternative Refrigeration lubricants raw materials

following the changes in refrigerants

Refrigeration lubricants

raw materials

If the refrigerant that co-exists within the

system is changed, a change in the

Refrigeration lubricants is also required.

Cold air

Path of refrigerant Heat emission

Transition involving refrigerants and

Refrigeration lubricants

Global warming

reduction

Refrigerants Refrigeration lubricants

(Raw materials)

Next-generation

refrigerant

Current refrigerant: R410A

(GWP 2,090)

Former refrigerant: R22

（GWP 1,810)

Ozone layer

protection

Petroleum

based

New refrigerant: R32

(GWP 675)

Synthetic

Under

development

Refrigeration

lubricants

Refrigeration

lubricants

raw materials

Synthetic

Note: “GWP” stands for “Global Warming Potential”

Our Business (Refrigeration lubricants raw materials)

9

Growth market in line with the change of refrigerants and

our company’s advantageous position

Position of KH Neochem

Refrigeration

lubricants

Compressors/

Air conditioners

Base oils

Raw materials

Refrigerant for residential and commercial

air conditioning units: forecast

2-ethylhexanoic acid

Source: Our estimate(2018)

(New unit sales globally: millions of units per year)

Isononanoic acid

New/Current refrigerants CAGR 9.1%

New/Current

refrigerants

Former

refrigerants

Global production capacity

(Our estimate)

2710

82127

2016 2021

109

137

Our Business (Cosmetic raw materials)

10

Functionality of 1,3-butylene glycol

High

Low

1,3-butylene glycol (BG)

Dipropylene glycol (DPG)

Propylene glycol (PG)

Skin care product moisturizers

High moisture retention

Hypoallergenic

Antibacterial

Low odor

Outstanding performance

Grade

Excellent functionality and huge potential demand

130 123

19 20

61

日本韓国中国ﾏﾚｰｼｱｲﾝﾄﾞﾈｼｱｲﾝﾄﾞ

Potential demand in Asian nations

Potential demand

Japan Korea IndonesiaMalaysiaChina India

Source: Our estimate(2017)

Increase in demand due to rising income levels and

high-end needs

Increased production capacity by 20% (2016)

Amount spent on skin care products per capita

Units: US dollar

11

Electronic materials that support the latest semiconductors and

basic chemicals that secure stable profit

Stable basic chemicals business

Ownership of multiple products that

are top of the line in Japan

Isononyl alcohol(plasticizer raw material)

2-ethylhexyl alcohol(plasticizer raw material)

Butyl acetate(solvent)

Butyl alcohol(solvent)

Production capacity in Japan (Our estimate)

High-purity solvent quality improvement

20 nm 14 nm 10 nm 7 nm

ppt (parts per trillion)

ppb(parts per billion)

ppm

(parts per million)Microfabriation of semiconductor circuit

Circuit formation

High-purity

solvent

Photoresist raw materials

that form semiconductor circuits

Photoresist Semiconductor

Control level of impurity of

high-purity solvent

Advancement of microfabrication and

high-purity solvents with higher quality

CAGR 4.6%

Source: Semiconductor CAGR (2016-2019) from Japan Electronics

and Information Technology Industries Association

Our Business (Electronic materials/Basic chemicals)

Respond to demand for plasticizer raw materials INA

with our company’s technology and stable and competitive supplies of raw materials

兆豊国際商業銀行

Taiwan-Japan Oxo Chemical Industries Inc.

Location Kaohsiung City, Taiwan

Production capacity Plasticizer raw material INA 180,000

ton/year (planned)

Commercial start-up 2020 (planned)

Total investment About ¥50.0 billion(planned)

47%47% 6%

Project overview

12

Southeast Asia

India

China Technology/Know-How

Stable and competitive

supplies of raw materials

Japan

investment income

Combination of technology and raw materials

Taiwan

CAGR 6.6%

Source: CAGR（2014-2019） from IHS Markit,Ltd. “Chemical Economics

Handbook 2015”INA (Iso Nonyl Alcohol): Plasticizer raw materials DINP with excellent heat

resistance and electrical insulation property

Our Business (Taiwan project)


II. Medium-Term Business Plan (2016－2018)

Medium-Term Business Plan Basic Policy

14

With both growth and stability, make the 3-year term a leap for further growth

Achieve results with further

streamlining and cost

cutting efforts, and secure

stable profits

Strategic objective II

Enhance profitability of

basic chemicals

Strategic objective I

Globally expand

performance

chemical sales

Focus resource allocations to

the refrigeration lubricants

and cosmetics fields and

other sectors poised for high

growth

Strategic objective III

Establish a base

for the future

Prepare Taiwanese

manufacturing site, work

more swiftly to create new

businesses

Growth Stability Potential

Summary of Medium-Term Business Plan

15

Note: On the assumption that the exchange rate is 121 yen/$ for 2015 and 103 yen/$ for 2018 and that the rate of naphtha produced in

Japan is 46,000 yen/KL for 2015 and 33,000 yen/KL for 2018

Net sales and operating income in 2015 exclude the results of a subsidiary sold.

Op

era

ting in

co

me

Laying the foundations for growth, stability, and

a leap for further growthNext Medium-Term

Business Plan

Expansion of growth products

Streamlining/comprehensive cost reduction

Implementation of Taiwan project, creation of

new business

December 2015 period

Net sales: ¥89.2 billion

Operating income: ¥6.1 billion

Making our dream

a reality

Operating income

increase 30%

December 2018 period

Net sales: ¥80.5 billion

Operating income: ¥8.0 billionStarting point

Final fiscal year

Expansion of performance

chemicals

Operation of Taiwan plant

New products/business

New overseas deployment

M&A

Medium-Term Business Plan (2016-2018) （2019-2021）

Progress in the Medium-Term Business Plan

16

Steady progress in the Medium-Term Business Plan.

89.2

76.1 80.2

76.6

94.7

80.5

97.0

2015 2016 2017 2018

Net sales

6.1

7.5

9.0

7.0

11.5

8.0

10.5

2015 2016 2017 2018

Operating income

2016 20182017 2016 20182017

Medium-Term Business Plan Medium-Term Business Plan

(Billions of yen) (Billions of yen)Results

Medium-Term Business Plan

Forecasts (announced Feb. 2018)

Note: In 2015, both net sales and operating income exclude the figures for sold subsidiaries.

2015 2016 2017 2018

Results Results Results ForecastsMedium-Term

Business Plan

Interest-bearing

debt¥34.1 billion ¥31.3 billion ¥24.7 billion ¥24.7 billion ¥25.0 billion

Equity ratio 20% 28% 33% 37% 30% or more

ROE 38% 28% 29% 22% 20%

Progress in strengthening the financial base for growth investments in the future

Interest-bearing debt is reduced in a planned manner.

The equity ratio is rising steadily.

ROE is at the highest level in the industry.

Medium-Term Business Plan

17

Progress in the Medium-Term Business Plan

Investment to support growth potential and contribution to global environmental protection

Decision to expand capacity for refrigeration lubricant raw materials

Refrigeration lubricant is a special

lubricant oil used inside air-conditioners.

Date of operation : 2020 (planned)

Investment amount : ¥7.5 billion (planned)

New construction and capacity expansion of 50%

Date of operation : 2018 1Q

Investment amount : Less than ¥100 million

Capacity expansion with multiple plants

Refrigeration lubricant

raw materials

Overview

Growing

demand for air-

conditioners

Protection

of the

ozone layer

Reduction of

global

warming

Medium-Term Business Plan Initiatives

18

Air-conditionersAreas of use

Yokkaichi Plant

Chiba Plant

Medium-Term Business Plan Initiatives

Strengthening and rationalization of management structure and various initiatives

19

Increased one independent outside director to two.

Evaluation of the effectiveness of the Board of

Directors by a third party organization

2.Rationalization and increased

efficiency of the Group

Made a subsidiary in Singapore dormant

Acquisition of a credit rating, issued CP, and

refinancing

3.Improvement of financial strategies

1.Improvement of corporate governance

Briefing session for individual investors, plant tour,

overseas IR

Efforts for social contribution activities

5.Active dialogue with stakeholders

4. Accomplishment of active large-scale

periodic maintenance

Establishment of a plant management office and

stronger management

Active preventive maintenance

Handing down of technologies to the next generation

and the cultivation of human resources

Shareholder Return

2016 2017 2017 2018

ResultsForecast as of

AugustResults Plan

Interim dividend － ¥25.0 ¥25.0 ¥27.0

Year-end dividend ¥50.0 ¥25.0 ¥29.0 ¥27.0

Annual dividend ¥50.0 ¥50.0 ¥54.0 ¥54.0

Increased dividends in 2017 and plan to maintain the same amount in 2018

Note: Dividends in 2016 include the commemorative dividend for listing of ¥3.5.

2017: Increase dividends from ¥50 to ¥54.

2018: Plan to maintain the same amount, despite an expected

income decline.

Investments for growth in the future are also taken into account.

20


III. Development in Results 2018 1Q

Results 2018 1Q

(Billions of yen)

2017 2018 Changes Progress

1Q 1Q Amount %Full-year

forecast%

Net sales 22.3 22.7 0.4 2% 97.0 23%

Gross profit 5.6 5.6 0.0 1% 21.5 26%

Operating income 3.0 2.9 -0.1 -2% 10.5 27%

Operating income margin 13.2% 12.7% - -1% 10.8% -

Ordinary income 3.0 2.9 -0.1 -2% 10.8 27%

Profit attributable to

owners of parent2.1 1.9 -0.1 -6% 7.4 26%

Exchange rate (¥/$) 114 108 -6 -5% 113 -

Domestic naphtha (¥/KL) 41,900 47,900 6,000 14% 48,000 -

22Note: The values in “Full-year forecast” were published in February 2018.

Revenue increased and income decreased year on year.

Operating income was ¥2.9 billion.

Variance Analysis of Operating Income 2018 1Q

23

Income declined ¥0.1 billion due to a fall in sales volume affected by periodic maintenance.

3.0 2.9

0.1

-0.3

0.1

-0.1

0.0 0.1

Volume and

mix

Price

differences2017

1Q

OtherSG&A

expenses

Affiliates and

elimination2018

1Q

-¥0.1 billion

(Billions of yen)

Price differences: The increase in raw material prices

was reflected in sales prices

Volume and mix: Sales were held down by large-scale

maintenance

SG&A expenses: Larger logistics expenses

Fixed

manufacturing

costs

Results 2018 1Q (Trend by Segment)

24

Net sales ¥10.8 billion (up 2%)

Gross profit ¥1.8 billion (up 6%)

Increase in

net sales and profit

Firm demand in the automobile

field in Japan and overseas

Appropriate price policy

Net sales ¥8.8 billion (down 1%)

Gross profit ¥3.0 billion (up 0%)

Decrease in net sales and

steady amount of profit

Net sales ¥2.9 billion (up 12%)

Gross profit ¥0.8 billion (down 7%)

Increase in net sales and

decrease in profit

Strong demand for refrigeration

lubricants raw materials

Sales were held down by periodic

maintenance

Strong demand in the

semiconductor field

Increase in depreciation at

subsidiaries

Strong demand environment continued.

On the other hand it was affected by periodic maintenance and a rise in raw material prices.

Basic Chemicals Performance Materials Electronic Materials

CosmeticsAir conditioners Semiconductors LCD panels

Areas of use Areas of use Areas of use

(plasticizer raw materials,

solvents, etc.)(refrigeration lubricants raw materials,

cosmetic raw materials, etc.)(high-purity solvents, etc.)

Paints Wire harnesses

Note: The figures in parentheses represent YoY changes.

47%

39%

13%

1%

47%40%

12%

1%

Breakdown of Net Sales 2018 1Q

2017 1Q: ¥22.3 billion 2018 1Q: ¥22.7 billion

Each segment remained steady year on year thanks to a rise in sales prices that

made up for the influence of periodic maintenance.

25

(冷凍機油原料・化粧品原料等)

機能性材料Basic Chemicals(plasticizer raw materials,

solvents, etc.)




Basic

Chemicals

¥10.6 billion

Electronic

Materials

¥2.6 billion

Other

¥0.2 billion

Basic

Chemicals

¥10.8 billion

Electronic

Materials

¥2.9 billion

Other

¥0.2 billion

Performance

Materials

¥8.9 billion

Performance

Materials

¥8.8 billion

33%

53%

14%

0%

31%

53%

15%

1%

Breakdown of Gross Profit 2018 1Q

26

Secured the same amount as the same term last year,

when large-scale maintenance was not performed.



solvents, etc.)




2017 1Q: ¥5.6 billion 2018 1Q: ¥5.6 billion

Basic

Chemicals

¥1.7 billion

Electronic

Materials

¥0.8 billion

Other

¥0.1 billion

Basic

Chemicals

¥1.8 billion

Electronic

Materials

¥0.8 billion

Other

¥0.0 billion

Performance

Materials

¥3.0 billion

Performance

Materials

¥3.0 billion

Development in Results by Segment (Quarterly)

27

Both net sales and gross profit remained firm in each segment.

10.6 10.8 11.7 12.6 10.8

8.9 9.6 9.4 9.3 8.8

2.6 2.6 2.9 2.9 2.9

0.2 0.2 0.2 0.2

0.2

17/1Q 2Q 3Q 4Q 18/1Q

1.7 1.6 1.9 1.7 1.8

3.0 3.1 3.4

3.0 3.0

0.8 0.6

0.9

0.8 0.8

0.1 0.1

0.1

0.1 0.0

17/1Q 2Q 3Q 4Q 18/1Q

Net sales Gross profit

5.55.6 5.4 6.224.922.3 23.2 24.2 22.7 5.6



solvents, etc.)




(Billions of yen)

Basic Chemicals

Electronic Materials

Performance Materials

Other

Balance Sheet 2018 1Q

28

Financial stability increased due to strong financial performance.

(Billions of yen) 2017/12 2018/3 Changes (Billions of yen) 2017/12 2018/3 Changes

Current assets 52.2 48.3 -3.9 Current and non-

current liabilities60.8 56.0 -4.8

Cash and deposits 12.9 9.1 -3.8 Accounts payable - trade 21.3 16.9 -4.4

Accounts receivable -

trade24.6 24.1 -0.5 Interest-bearing debt 24.8 26.1 1.3

Inventories 11.1 12.3 1.2 Other 14.7 12.9 -1.8

Other 3.6 2.8 -0.8 Shareholders’ equity 30.1 31.5 1.4

Non-current assets 43.1 42.6 -0.5 Capital stock and capital

surplus14.0 14.6 0.6

Property, plant and

equipment30.4 30.4 0.0 Retained earnings 16.1 16.9 0.8

Intangible assets 1.8 1.8 0.0 Accumulated other

comprehensive income0.9 0.7 -0.2

Other 10.9 10.4 -0.5 Non-controlling interests 3.5 2.7 -0.8

Total assets 95.2 90.9 -4.3 Liabilities and net

assets95.2 90.9 -4.3


Appendix

Development in Results (Quarterly)

30

22.323.2

24.2 24.922.7

1Q 2Q 3Q 4Q 1Q

Net sales

3.0

2.7

3.5

2.3

2.9

1Q 2Q 3Q 4Q 1Q

2.1 2.0

2.5

1.61.9

1Q 2Q 3Q 4Q 1Q

Net income

2017 2018 2017 2018 2017 2018

Income remained firm despite the start of periodic maintenance in 2018 1Q.

Operating income

(Billions of yen)(Billions of yen)(Billions of yen)

CAPEX, Depreciation and R&D Expenses (Quarterly)

31

CAPEX was mainly for maintenance and renewal.

0.2

0.6

0.3

0.5

0.6

1Q 2Q 3Q 4Q 1Q

CAPEX

0.8 0.80.9 0.9

0.7

1Q 2Q 3Q 4Q 1Q

Depreciation

0.2

0.3

0.2

0.3

0.2

1Q 2Q 3Q 4Q 1Q

R&D expenses

2017 2018 2017 2018 2017 2018

(Billions of yen)(Billions of yen)(Billions of yen)

Note: 2018 Plan_ CAPEX 3.6billions of yen, Depreciation 3.4billions of yen, R&D expenses 0.9billions of yen

Inventories, Interest-bearing Debt and

Shareholders’ Equity ratio (Quarterly)

32

Inventories were secured for periodic maintenance.

Progress was made in strengthening the financial base.

10.09.2 8.9

11.1

12.3

1Q 2Q 3Q 4Q 1Q

Inventories

31.2 30.2 29.3 24.7 26.1

1Q 2Q 3Q 4Q 1Q

Interest-bearing debt

29.5 31.0

31.7 32.6

35.4

1Q 2Q 3Q 4Q 1Q

Equity ratio

2017 2018 2017 2018 2017 2018

(Billions of yen)(Billions of yen) (%)

Note: 2018 plan_ Inventories 12.1billions of yen, Interest-bearing debt 24.7billions of yen, Equity ratio 37%

Results of Consolidated Subsidiaries 2018 1Q

33

2017 2018Changes

(billions of yen)1Q 1Q

Kurogane Kasei

Co., Ltd.

Net sales 1.21 1.40 0.19

Operating income 0.16 0.13 -0.03

Kurogane Fines

Inc.

Net sales 0.35 0.31 -0.04

Operating income 0.02 0.01 -0.01

KH Neochem

Americas

Net sales 0.82 0.80 -0.02

Operating income 0.05 0.05 0.00

Results of subsidiaries remained almost the same year on year.

Summary of Results 2018 1Q

34

Net sales increased ¥0.4 billion year on year (+2%)

Revision of sales prices

Strong demand environment continued in each segment

Sales were held down by periodic maintenance

In 2018 1Q, sales increased and income declined year on year.

Operating income decreased ¥0.1 billion year on year (-2%)

Revision of sales prices

Rise in raw material prices and strong yen

Decrease in sales volume and increase in logistics expenses

Rise in investment ratio to subsidiary (Kurogane Kasei Co., Ltd.)

65% as of the end of March 2018 (+11%)

[+]

[‒]

[+]

[+]

[‒]

[‒]

Presenters

President and CEO

Keiichi Asai

1978 Joined Mitsubishi Corporation

2009 Executive Officer of Mitsubishi Corporation

2013 Executive Officer of Mitsubishi Corporation, Executive

Vice President of Lithium Energy Japan

2014 Board Director, Executive Officer of KH Neochem

2014 President and CEO of KH Neochem

Managing Director and CFO

Kenichi Hirai

1978 Joined Nissan Diesel Motor (now UD Trucks Corporation)

2008 Vice President of Nissan Diesel Motor,Volvo Powertrain JAPAN, CFO

2012 Vice President of UD Trucks,Volvo Group Trucks Operations Japan

Controlling Coordination

2016 Board Director and CFO of KH Neochem

2018 Managing Director and CFO of KH Neochem

35


Note:

The information presented herein is intended neither to solicit nor induce investors to either purchase or sell

shares of KH Neochem.

The forward-looking statements in this document such as those regarding future prospects of the business

include assumptions and forecasts based on information available as of the date of this document, and

accordingly such statements do not constitute KH Neochem’s assurance or guarantee. This document also

contains figures for reference purposes that have not undergone audit.

As such, please note that actual results may materially vary from those expressed or implied herein, due to

various future risks and uncertainties.

Also, please be aware that neither KH Neochem nor the information providers shall bear liability for any

damages incurred from use of this data.

Contact

KH Neochem Co., Ltd.

https://www.khneochem.co.jp/en/contact

https://www.khneochem.co.jp/contact

presentation material for investors · 2018. 10. 26. · investment amount : ¥7.5 billion...

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