Kimiaki Tanaka, President
Kimiaki Tanaka,
Corporate Profile
Code No.
TSE 1st Section
Kimiaki Tanaka
HQ Address
Marunouchi 1-6-2, Chiyoda-ku, Tokyo
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,175 231,670,636 shares ¥272.212 billion 10.1% 1,000 share
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥13.00 1.1% ¥73.54 16.0x ¥685.64 1.7x
* Share price as of closing on November 15, 2013. Number of shares outstanding as of most recent quarter end; does not include treasury shares. ROE and BPS based on previous term results.
Consolidated Earnings Trends
Fiscal Year Net Sales Operating Income Current Income Net Income EPS (¥) Dividend (¥)
March 2009 268,857 2,936 3,848 2,478 10.49 9.00
March 2010 225,878 9,319 9,448 5,020 21.24 6.00
March 2011 270,383 35,295 33,623 18,303 78.77 10.00
March 2012 262,842 32,123 31,487 19,127 82.75 11.00
March 2013 250,763 23,696 25,212 14,750 63.81 12.00
March 2014 Est. 293,000 28,000 30,000 17,500 73.54 13.00
* Estimates are those of the Company.
This Bridge Report provides a review of ZEON CORPORATION's first half fiscal year March 2014 earnings results and fiscal year March 2014 earnings estimates.
Key Points
Company Overview
ZEON CORPORATION is a petrochemical manufacturer that boasts of numerous products with large share of the global markets including synthetic rubber used in automobile parts and tires, synthetic latex used in medical gloves, and other products. The Company's strengths include its creative technology development function, research and development structure, and high earnings generation capability. Many of the products and materials manufactured by ZEON are used in a wide variety of products including automobile parts and tires, rubber gloves, disposable diapers, cellular telephones, liquid crystal televisions, perfumes and other products commonly used in everyday life. The ZEON Group is comprised of the parent company, 58 subsidiaries and 11 affiliated companies. The Company operates manufacturing facilities in five locations in Japan and eight overseas. ZEON also has manufacturing and marketing facilities in 17 countries around the world.
(Company Name and Management Vision)
The company name "ZEON" is derived from the Greek word for earth "geo" (phonetically pronounced "zeo" in Japanese) and the English word reflecting eternity "eon", and reflects the Company's principle of "deriving ingredients from the earth and perpetually contributing to human prosperity" through the development and application of creative technologies. (ZEON's original name "Geon," used at the time of its establishment, was derived from the trademark acquired for the vinyl chloride resin "Geon" from the Goodrich Corporation, with which it had capital and collaborative technological agreements. The company name was changed to "ZEON" when the capital agreement was dissolved in 1970.)
(Corporate History)
ZEON was established as a joint venture company formed by the Furukawa Group companies Nippon Light Metal Co., Ltd., Furukawa Electric Co., Ltd., and Yokohama Rubber Co., Ltd. in April 1950 to acquire and use the vinyl chloride resin technology from Goodrich Corporation. In 1951, Goodrich acquired 35% of the shares of ZEON for full-scale technological and capital partnership, and in 1952 mass production of vinyl chloride resin began in Japan for the first time. In 1959, Goodrich transferred synthetic rubber manufacturing technologies to ZEON for mass production of synthetic rubber in Japan for the first time. Manufacturing facilities were also expanded to match the growing demand for tires and other products for use in automobiles. In 1965, use of the Company's unique technology called Geon Process of Butadiene (GPB) for the efficient manufacture of butadiene (main ingredient in synthetic rubber) from C4 distillate was begun.

Goodrich transferred its specialty synthetic rubber business to ZEON along with the shift in its main business focus toward vinyl chloride resins, and capital ties were dissolved in 1970. Along with these changes, the Company name was changed from Geon to Zeon in 1971.

Also in 1971, ZEON developed a unique technology called Geon Process of Isoprene (GPI) and began using it to manufacture ingredients including high-purity isoprene, petroleum resins, and synthetic perfume ingredients from C5 distillates.

After entering the 1980s, ZEON aggressively launched new businesses in various fields including photoresists and other information materials, and medical related applications in addition to its main synthetic rubber business.

In 1984, production of hydrogenated nitrile rubber Zetpol®, which currently has top share of the worldwide market, began at the Takaoka Plant.

In 1990, manufacture of synthetic cyclo-olefin polymer resin (COP) ZEONEX®, which is the main product of the specialty material business using the GPI method to extract and synthesize products, was started at the Mizushima Plant.

In 1993, ZEON entered China with its electronics materials business.

In 1999, ZEON Chemicals L.P. (Consolidated subsidiary in the United States) acquired the special rubber business of Goodyear Tire & Rubber Company of the United States to become the world's top manufacturer of specialty rubber.

In 2000, ZEON withdrew from its founding business of vinyl chloride resins and discontinued production at the Mizushima Plant.

In 2002, ZeonorFilm®was launched as a liquid crystal display (LCD) use optical film.

In 2010, ZEON Chemical Singapore Pte. Ltd. was founded as part of the strategy to fortify ZEON's production and sales structure.

In March 2013, a takeover bid of TOHPE CORPORATION was completed and it is expected to become a fully owned subsidiary.
(Business Description)
ZEON's main products use different forms of carbon heat extracted from naphtha, which is extracted by distillation of crude oil. The following substances are extracted in the order of carbon monoxide gas (C1), ethylene (C2), propylene (C3) by heating naphtha.
ZEON uses butadiene extracted in the GPB method developed in-house from C4 distillate after extracting propylene (C3), isoprene monomer (IPM) extracted from C5 distillate using the GPI method, high-boil monomer (HB), dicyclopentadiene (DCPD), and 2-butyne as raw materials to be processed into synthetic rubber, synthetic latex and various other materials.
ZEON's business can be divided between the "elastomer business", where manufactured basic materials are sold to customers, and the "specialty material business," where basic materials are submitted to primary processing for sale to customers as processed materials, and the "other business" segments.
<Elastomer Business>
Synthetic rubber is one example of products with "high molecular compounds that have rubber-like elastic properties" in the "elastomer business." As described in the corporate history section of this report, in 1959 ZEON became the first company in Japan to mass produce synthetic rubber, which became the foundation supporting all of ZEON's overall businesses. This business can now be divided into the synthetic rubber, synthetic latex, and chemical products (Petroleum resins, thermoplastic resins) businesses.
①Synthetic Rubber Business
<Product: Tires>
ZEON provides the world's leading tire manufacturers with the world's highest-quality synthetic rubber for use in tires. Among the various types of synthetic rubber manufactured are styrene butadiene rubber (SBR), which promotes superior wear, aging and mechanical strength properties, butadiene rubber (BR), which includes a superior balance between elasticity, wear and low-temperature properties, and isoprene rubber (IR), which features similar high levels of quality, consistency and other properties as natural rubber.

In the future, the characteristics of SBR will be further refined for use in low-fuel-consumption S-SBR as demand is expected to rapidly expand, and capacity is expected to be increased along with the Singapore plant, which is currently being constructed and expected to be completed in September 2013. Consequently, supply capacity is expected to rise during the first stage by 30,000 to 40,000 tons per year after completion in September 2013, and in the second stage from the second half of 2016 by another 30,000 to 40,000 tons from the current level of 55,000 tons per year.
Radiator hoses, fuel hoses, fan belts, oil seals, and various other engine parts use specialty synthetic rubber that has superior oil resistance and heat deterioration resistant qualities. ZEON is the world's number one manufacturer of specialty synthetic rubber and features high quality levels and high market share of specialty synthetic rubber automobile parts. In particular, ZEON's Zetpol® hydrogenated nitrile rubber timing belts display superior heat and oil resistance and claims approximately 70% share of the worldwide fan belts market.

Furthermore, a new version of Zetpol® has vastly improved the performance of products using the original versions of Zetpol®.
Products using the new version of Zetpol® are heat resistant at temperatures that exceed the limits for the original version of Zetpol® by 20 degrees centigrade, thereby extending the life of seals and gaskets, and are in strong demand for use in next generation bio-fuel engines. Furthermore, the new version of Zetpol® is well suited to extruded processing which is being leveraged to expand its usage in various hoses. Products using Zetpol® have also been well received by customers, and are being used increasingly as a replacement material for expensive rubber within Japan, Asia, Europe and North America.
Commercial production of the new Zetpol® was started in November 2012 at ZEON's Kawasaki Plant and expected to reach full scale production in 2013.
②Synthetic Latex Business
Synthetic latex is basically synthetic rubber dispersed in water to form liquid rubber and is used to manufacture gloves, processed paper, textile processing, adhesives, paints, cosmetic puffs and other products. ZEON has about 15% share of the worldwide market for latex gloves, and close to 90% share of latex used in cosmetic puffs.
③Chemical Products Business
ZEON uses its unique in-house GPI method to turn C5 distillate into adhesive tapes, hot melt adhesive use materials, traffic use paint binder, concrete admixture and a wide variety of other products.
<Specialty Material Business>
Research and development activities are being promoted for the "realization of an advanced information society", "conservation, storage, and creation of energy", and "improvements in quality of life." Furthermore, specialty material produced by ZEON are used in "information materials", "energy materials", and "medical devices", which are targeted as three key business realms.
①Information Materials
Cyclo-olefin polymer resins extracted and synthesized from C5 distillate using GPI methods are thermoplastic plastics developed using ZEON's own unique technologies and include the commercial products ZEONEX® and ZEONOR®.

ZEONEX® leverages its superior optical properties for use in compact lenses for cameras used in cellular telephones, and as optical parts used in printers, optical pickups, and mirrors. ZEONOR® leverages its high transparency, transfer capabilities, and heat resistance to be made into transparent general use engineering plastics for use in lighted panels, automobile parts, containers, discs and a wide range of applications.

ZeonorFilm® optical film is made from cyclo-olefin polymer resin using the world's first melt extrusion manufacturing process for applications in LCD televisions, and is expected to be used in smartphones, tablet PCs, digital signage and a wide range of other products in the future.
In addition, ZEON develops and manufactures "skewed extended phase differentiated film." Conventional three dimensional television screens allow viewers to see images in three dimensions when both eyes are horizontally aligned, but when their eyes are not aligned the screen appears dark and the images are unclear. Compared with this, the new film allows viewers a much wider range of viewing positions with clarity of the three-dimensional images being maintained even when the viewers' eyes are not horizontally aligned.

The use of reflective light protective film in organic EL applications is progressing, and demand for small-to medium-sized flat panel display applications is expected to grow in the future. In addition to the current plants in Takaoka and Himi (an annual output of 15 million square meter for skewed extended phase differentiated film in total), a new plant construction in Tsuruga, Fukui Prefecture was completed in October 2013.

ZEOCOAT® applied organic insulation film is also used in cellular telephones, smartphones, and LCD televisions. ZEOCOAT® was successful in improving both the picture quality and reliability of displays because of its high transparency, extremely low water absorption and low gas generation properties. In the future, ZEON will aggressively expand its marketing to organic EL displays because they can be made thinner than LCD displays, and to thin membrane transistors using new semiconductors and insulating materials for flexible displays.
②Energy Materials
Materials will be provided for use as positive and negative terminal materials in lithium ion batteries, functional layer (heat-resistant separator), binders, and sealing agents.

Currently, lithium ion batteries are used in cellular telephones, laptop PCs, and as energy sources for other mobile equipment. In addition, the rapid diffusion of smartphones is creating demand for large-capacity applications. Furthermore, lithium ion batteries are being used in hybrid cars, plug-in hybrid cars, electric vehicles, smart grid and other industrial applications because of their lightweight, compact size and large energy storage capacity. At the same time, deterioration in battery life when used in high-ambient-temperature conditions is a major issue.

ZEON is conducting efforts to advance the function of lithium ion battery binders, and has been successful in developing a functional binder that contributes to greatly extending the life span of positive terminal use binders. Positive and negative binders, functional layer (heat-resistant separators), and sealing agents are important in ensuring the "safety", extending the "life span", and "increasing the battery capacity" so that batteries can be used more widely in hybrid cars.

Focused upon the future potential of lithium ion batteries, ZEON has implemented various measures at an early stage including the creation of a strategy to realize the energy materials business vision in 2020 that entails goals of "acquiring the top share of the lithium ion battery binder market", contributing to the diffusion and expansion of new functions for rapid charging automobile use applications, and proposing specialty materials that can be used to realize next generation batteries.
③Medical Device
The medical device market is relatively well insulated from fluctuations in the economy, and is anticipated to grow with the aging society in Japan and expansion in developing countries. Furthermore, medical equipment and sales companies are subject to strict laws and regulations, and they need to submit approval applications to regulatory bodies. In addition, the need to develop relationships with health care professionals is critical and the subsequent high barriers to entry make this a highly attractive market.

Along with the start of development of artificial kidneys in 1974, ZEON aggressively promoted its medical device business. In 1989, a subsidiary called ZEON Medical Inc. was established to conduct development, manufacturing, sales and all other functions of the medical field for the ZEON Group. ZEON has shown bountiful development track record with "offset balloon catheter" as a means of differentiation in the gallstone removal process with Japan's first bile duct covered stent "Zeostent Covered" in the area of digestive system products, and the world's smallest diameter "XEMEX IABP Balloon PLUS" as a device to aid the heartbeat at times of cardiac infarction in the area of circulatory products.
Currently ZEON is focusing efforts upon development of devices that eliminate gallstone pain by removal of gallstones. ZEON has a lineup of products that can remove gallstones ranging from extremely large stones to sludge and sand with products such as Xemex Crusher Catheter, Basket Catheter NT Balloon Catheter, and others and has a 50% share of the gallstone removal market.
④Petrochemical Products Business
ZEON deals in specialty chemicals including synthesized fragrances used in foods, fragrances and cosmetics that use ingredients derived from C5 distillates, and solvents and vegetation conditioning agents. The Company also holds the world's top share of the ecological synthesized fragrances, and provides a wide range of specialty products including ingredients for intermediary bodies used in medical and agricultural chemicals, fluorocarbon replacement solvents, cleaning agents, urethane expanding agent, and functional ether agents.
 New Specialty Materials Development: Carbon Nanotubes (CNT) 
Aggressive research and development activities have allowed ZEON to launch various new materials into the market, but particularly high expectations are placed upon "single wall carbon nanotubes (CNT)".
①What is Single Wall CNT?
In 1993, Sumio Iijima, Ph.D., head of the Applied Nanotube Research Center of the National Institute of Advanced Industrial Science and Technology (AIST), discovered a roll shaped molecular structure that was able to form a beehive lattice of carbon atoms for the first time in the world, which he named "Single Wall CNT." The acronym CNT is derived from the words carbon, nano, and tube. CNTs can be divided largely into single wall and multiple wall CNTs. Multiple wall CNT is relatively easy to manufacture and applied development is being promoted within Japan for commercial applications.
At the same time, single wall CNT exhibits the following properties:
-  20 times stronger than steel
-  10 times more heat conductive than copper
-  Half as dense as aluminum
-  10 times the electron mobility of silicon
Consequently single wall CNT is superior to multiple wall CNT because it is "lightweight but highly flexible" and has "extremely high electric and heat conductivity" properties. CNT is believed to have applications as an electrical conductivity assistance agent in lithium ion batteries, as transparent conductive film used in electronic paper and ultrathin touch panel because of its high elasticity and strength, and as a heat dissipating material. And because of its ability to absorb a wide spectrum of light, practical applications of single wall CNT are being promoted in the realm of electromagnetic wave absorbing materials for use in a wide range of fields including energy, electronics, structural materials, and specialty materials.
Currently, single wall CNT has several major issues including high levels of impurities, low levels of productivity and high manufacturing costs, which are about several tens of thousands to hundreds of thousands of yen per gram.
②ZEON's Efforts and Position
Against this backdrop, ZEON and the National Institute of Advanced Industrial Science and Technology, NEC Corporation, Toray Industries, Teijin Limited, and Sumitomo Precision Products Co., Ltd. have jointly established the "Technology Research Association for Single Wall Carbon Nanotubes" technological consortium in May 2010. The aim of the consortium is for the commercialization of applications of single wall CNT developed in Japan with its numerous superior qualities as new products in response to the worldwide social demands to realize a low-carbon society.

Using the synthesizing technology developed by Dr. Hata (Ph.D.) of the National Institute of Advanced Industrial Science and Technology as a base, the Tsukuba Center of the AIST was established in December 2010 as a validation plant where research and development for mass production and application development for compound materials can be conducted by the above-mentioned consortium. Among the main reasons that the AIST Nanotube Applied Research Center selected ZEON to become its partner were the impressive track record and results obtained by ZEON's Managing Director Kohei Arakawa, as a researcher in CNT research and development. Furthermore, the fact that the consortium director is ZEON President Naozumi Furukawa reflects the importance of ZEON in this project to realize commercial applications of single wall CNT.
③Future Endeavors
The technology necessary for mass production called super growth process is close to being established. Currently, the Tsukuba validation plant is able to produce 600 grams per day, and this volume can be increased considerably if production is transferred to ZEON's own manufacturing facilities. ZEON is the only company in the world that has established mass production technologies for single wall CNT, and requests for product samples have been received from about 100 Japanese and foreign companies in addition to those within the consortium mentioned above. Consequently, shipments of samples have already begun. Moreover, ZEON has already begun to propose practical applications of this product and is targeting full-scale commercialization to begin in 2014. At the same time, single wall CNT is a type of nano-material that is extremely small in size and takes the form of textile. Therefore, there are some fears that it may have some impact upon biological processes depending upon its size and shape. Currently, the AIST is conducting standardization of the evaluation process, and activities for the OECD endpoint measurement are being conducted, with global standardization and legal and regulatory aspects being considered.s size and shape. Currently, the AIST is conducting standardization of the evaluation process, and activities for the OECD endpoint measurement are being conducted, with global standardization and legal and regulatory aspects being considered.
<Other Business>
Large formation processing using the ingredient dicyclopentadiene (DCPD) is used to conduct reaction injection molding (RIM) and RIM compound fluid processes.
Characteristics and Strengths
1. World's Leading Creative Technology Development Capability
The GPB method used to manufacture butadiene from C4 distillate is the most important development in Japan's postwar history of chemicals, and is provided to 49 plants in 19 different countries around the world including America and Korea.
In addition, the Mizushima Plant is the world's only plant extracting high-purity isoprene and petroleum resin from C5 distillate and basic ingredients used in synthesized fragrances manufactured using the GPI method created by ZEON, and is a completely unique technology which is not provided to other companies.

These two technologies represent the creative technological capabilities that are among the strengths of ZEON. They also are highly regarded by customers around the world and have received numerous awards within Japan and in overseas markets. With regard to technologies, ZEON has received 48 awards since 1960 for its GPB and GPI methods, in addition to 26 awards since 1982 for its environment conservation and safety efforts.
2. High Profit Margins
While ZEON ranks below other chemical manufacturers as shown in the graph below in terms of sales, it enjoys one of the highest operating income margins within the industry.
ZEON seeks to develop and provide products in niche markets that can be differentiated and avoids general-use products. Furthermore, the Company can manufacture products such as synthetic rubber that match the needs of customers at the molecular structure level because of their superior extraction and synthesizing technologies. In particular, the GPI method is ZEON's own unique technology and allows it to manufacture materials from C5 distillate that are unique and cannot be duplicated by other companies. This ability to differentiate its products allows ZEON to achieve high levels of profitability.
3. High Worldwide Share
Zetpol®, ZEONEX®, and ZEONOR® are representative of the products born from ZEON's highly creative technologies, which have allowed it to acquire high shares of worldwide markets. In addition to these products, ZEON also maintains the world's top share in "leaf alcohol" used in cosmetics and food flavorings, "polymerization method toner" printer toner manufactured using suspension polymerization method, and "ZEORORA®" used in semiconductor etching gas.
4. Research and Development Structure that Continues to Yield Creative Technologies
ZEON seeks to conduct research and development activities based upon its basic corporate philosophy of "developing creative technologies in special fields of strength that enables ZEON to contribute to society by generating the world's leading businesses."

The "Comprehensive Research Center," the Company's main research facility, is located in Kawasaki City, Kanagawa Prefecture. But because of the potential for more efficient research and development activities to be conducted closer to the manufacturing sites, ZEON has also established the Precision Optical Research Center and Medical Research Center at the Takaoka Plant, and the Chemical Product Research Facility at the Yonezawa Plant. In addition, research groups have been established in overseas markets including the United States and United Kingdom.

Researchers must never be satisfied with current conditions, and should always be reminded of the threat that their competitors pose in their research activities. uFrthermore, ZEON bases its valuation on a positive point awarding system that places high priority upon speed and creativity. R&D expenses were formerly measured as a percentage of sales, but for the future it has established an annual value amount of ¥12.0 billion as an investment budget to ensure that stable research and development activities can be maintained in the future.
First Half Fiscal Year March 2014 Earnings Results
Weak Overseas Market Conditions Overcome by Sales Volume Growth and Weaker Yen, Double Digit Sales, Profit Growth Expected
Net sales grew by ¥21.1 billion from the previous first half to ¥148.3 billion in the first half of the current fiscal year March 2014. Growth in sales volumes of optical film and the impact of the weaker yen led to increases in sales of ¥20.5 and ¥6.6 billion respectively, but weak business conditions in Asia and other overseas markets contributed to a ¥5.9 billion reduction in sales.
Operating income rose by ¥5.2 billion from the previous first half to ¥16.7 billion during the first half. Weaker product pricing in overseas markets contributed to a ¥5.9 billion reduction in profits, but increases in sales volumes, the positive impact of foreign exchange, and increased capacity utilization rates resulting from increased demand for optical film and lower prices of the raw material butadiene in Asia contributed to ¥2.1, ¥6.6 and ¥3.2 billion increases in profits respectively.
In addition to the improvement in non-operating income resulting from the weaker yen, higher share prices helped to reduce marketable securities valuation losses and allowed ordinary and net incomes to rise by large margins from the previous first half.
Within the category of rubber products, general-use rubber and specialty rubber rose by 14% and 1% year-over-year respectively, with domestic demand remaining weak while exports trended strongly. In volume terms, rubber used for gloves trended in line with the previous year's levels, but reformulated ABS resin latex grew. Chemical products fell in volume terms but pricing remained firm. Weak overall conditions in overseas markets and the subsequent weaker growth in sales value than volumes contributed to the lower profits despite the rise in sales value.
The large increase in sales contributed to the recovery to profit during the current first half from the loss incurred during the previous first half.
With regards to specialty chemicals, electronics and battery material sales declined by 2% while synthetic fragrance sales rose by 10%.
Specialty resins recorded close to a doubling of sales due to a close to tripling of optical film sales to smart phones, tablets and other types of small PDAs in addition to large screen televisions manufactured in 2013. Furthermore, a double digit increase in operating expenses was absorbed, allowing for a recovery to an operating income from the loss in the previous first half.
The other business includes paints of Tohpe Corporation, which was turned into a subsidiary, and recorded mixed results with growth in sales and a decline in operating income.
Accounts receivables and inventories grew along with the increase in sales. Tangible fixed assets rose by ¥5.6 billion, including ¥3.0 billion for a plant in Singapore. Total assets increased by ¥4.4 billion, while total liabilities declined by ¥9.5 billion due in part to a ¥3.3 billion reduction in interest bearing liabilities. At the same time, capital rose by ¥13.7 billion, and equity ratio rose by 3.3% points to 48.5% at end September from 45.2% at end March. The debt to equity ratio also improved from 0.42 to 0.37 over the same period.
Fiscal Year March 2014 Earnings Estimates
First Increases in Sales, Profits Expected in Three Years despite Uncertainties
ZEON revised its earnings estimates on September 26 as a result of the progressive weakening of the yen.
While sales and profits of the Elastomer Business was revised downwards due to weakness in overseas markets, sales and profits of the specialty material business were revised upwards due to the continued favorable trends in demand for optical films. Consequently, ZEON estimates now call for both consolidated sales and profits to rise by double digits.
Despite lingering uncertainties surrounding the elastomer material market amidst a gradual recovery in automobile production within Japan, ZEON is endeavoring to further increase its profits.
The full year dividend of ¥13 per share, including ¥7 paid at the end of the interim and ¥6 expected to be paid at the end of the full year, expected to be paid during the current term represents a ¥1 increase from the previous term and the fourth consecutive year of higher dividends.
Mid-term Management Plan "SZ-20"
ZEON seeks to become a company in 2020 that "creates the future today through the power of chemistry" and "contributes to the realization of our customers' dreams and a hospitable society." As a plan of action to realize this vision for 2020, ZEON released its Mid-term Management Plan "SZ-20" in May 2011 covering the period from fiscal years 2011 to 2013. As part of the strategy to achieve this vision in 2020, ZEON has come up with the "3-S" strategy that includes the principles of "Speed," "Sincerity," and "Social contribution."

ZEON has established earnings targets of "¥500.0 Billion in Consolidated Net Sales in 2020".
In order to achieve consolidated net sales of ¥500.0 billion, ZEON needs to create a "global business structure" by speedily and steadfastly establishing research and development, manufacturing, and sales structures in high-growth overseas markets. Furthermore, the Company seeks to raise its offshore production ratio from its current level of 20% to 50% by 2020. Because user information is critical in expanding sales of specialty materials products, ZEON has identified the need to facilitate sales offices and increase its sales staff. Plans call for capital investments totaling ¥320.0 billion to be spent over the next 10 years, including spending for the construction of an S-SBR plant in Singapore for the manufacture of high-value-added products. Furthermore, various top-down and bottom-up "reform and improvement activities" will continue to be implemented to raise cost competitiveness despite the contribution that is already being seen from the weakening of the yen.
We provide details of major progress in the Mid-term Management Plan "SZ-20" below.
<Elastomer Business>
Construction of a plant in Singapore was completed in March 2013 and production began in September. ZEON is currently confirming the quality and stability of sample products manufactured at the new plant as part of its preparations to begin full capacity production. These product samples have been favorably received by clients.
The transportation use container plant in Vietnam began full scale production from June 2013, with products to be provided to the new S-SBR plant in Singapore and to other general engineering use applications.
A C5 petroleum plant was built in Thailand to supply products to resin adhesive tape, for which the global demand is strong, and traffic use paint applications. This plant began full scale operation in September 2013.
The production capacity for powder slush compound in China was increased with the completion of the second production line in November 2013.
Expansion of production facilities for hydrogenated NBR (Zetpol®), that responds to the needs of the aging population and increased number of automobiles manufactured globally, acrylic rubber manufactured at the plant in Texas (Zetpol®), and at the acrylic rubber plant in Kentucky have been completed. In addition, a new plant in Kawasaki, Japan (Zetpol®) also began production.
The acrylic rubber business, which saw its share of the global market rise to 30% through the acquisition of Tohpe Corporation, consolidated the sales, research, logistics, and purchasing functions of both ZEON and Tohpe from November 1, 2013. Consequently, ZEON will accelerate its new product development function to provide new value addition to the market.
With regards to polyisoprene rubber emulsion, first stage efforts to fortify manufacturing facilities were completed in October 2013. In 2014, sales are expected to be expanded, with further expansion of manufacturing capacity and the construction of a new plant being considered thereafter. The market for surgical gloves, which is the main usage of this material, is growing by over 10% per year.
<Specialty Material Business>
In October 2013, a new plant for skewed stretched phase difference film was completed in Tsuruga City, Fukui Prefecture. The combined production of this new facility with existing skewed extending facilities is 25 million square meters per year. This increased capacity is taken as a response to expectations of growing small-to medium-sized flat panel display demand from smartphones and tablet PDAs applications.
The energy materials business, which includes products used in lithium ion batteries, has been able to exceed its annual sales targets by expanding its product application range and is steadily growing.
While ZEON has developed a strong reputation for its calculus removal devices that is behind the nickname "Quarrying ZEON" given to ZEON by customers, stone crushing balloon catheter and other improved products are expected to be introduced to achieve the Company's goal of 50% market share.
With regards to the medical device realm, a marketing function was established in Guangzhou, China. Sales are expected to be expanded within China by gradually expanding the number of officially approved medical products.
As described in previous reports, ZEON's leading position is being leveraged to accelerate the development of various usages of carbon nanotube (CNT) products, and samples have begun to be provided to firmly establish the foundation of the CNT operations.
While the impact of weak conditions in overseas market for the elastomer business during the first half are expected to continue during the remainder of the year and to cause profits during the full year to decline, overall near term business conditions remain favorable and sales of elastomer, specialty material, and other business segments are all expected to grow. Against this backdrop, final preparations for full capacity production at the Singapore plant for S-SBR, which is a core product for ZEON, have begun. Furthermore, samples have been favorably received by clients and the question of whether full scale shipments can begin from the current or next term is likely to be an important factor influencing future earnings.
This report is intended solely for information purposes, and is not intended as a solicitation to invest in the shares of this company. The information and opinions contained within this report are based on data made publicly available by the Company, and comes from sources that we judge to be reliable. However we cannot guarantee the accuracy or completeness of the data. This report is not a guarantee of the accuracy, completeness or validity of said information and/or opinions, nor do we bear any responsibility for the same. All rights pertaining to this report belong to Investment Bridge Co., Ltd., which may change the contents thereof at any time without prior notice. All investment decisions are the responsibility of the individual and should be made only after proper consideration.

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<Reference: Fact Sheet>
<Major Shareholders>