BRIDGE REPORT
(4205)

東証1部

ZEON CORPORATION (4205)
Kimiaki Tanaka, President
Kimiaki Tanaka,
President
Corporate Profile
Company
ZEON CORPORATION
Code No.
4205
Exchange
TSE 1st Section
Industry
Chemicals
President
Kimiaki Tanaka
HQ Address
Marunouchi 1-6-2, Chiyoda-ku, Tokyo
Year-end
March
URL
Stock Information
Share Price Shares Outstanding Market Cap. ROE (actual) Trading Unit
¥1,155 226,788,963 shares ¥261,941 billion 9.8% 1,000 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥15.00 1.3% ¥101.42 11.4x ¥931.34 1.2x
* Share price as of closing on May 26, 2015. Number of shares outstanding as of most recent quarter end and does not include treasury shares. ROE and BPS from the last year-end.
 
Consolidated Earnings Trends
Fiscal Year Net Sales Operating Income Ordinary Income Net Income EPS Dividend
March 2009 268,857 2,936 3,848 2,478 10.50 9.00
March 2010 225,878 9,319 9,448 5,020 21.26 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 296,427 29,901 32,561 19,650 85.15 13.00
March 2015 307,524 28,245 31,098 19,080 84.13 14.00
March 2016 Est. 320,000 32,000 32,000 23,000 101.42 15.00
* Estimates are those of the Company.
 
This Bridge Report provides a review of ZEON CORPORATION's fiscal year March 2015 earnings results and fiscal year March 2016 earnings estimates.
 
Key Points
 
 
 
Company Overview
 
ZEON CORPORATION is a petrochemical manufacturer that maintains numerous products with a large share of the global markets including synthetic rubber used in automobile parts and tires, synthetic latex used in surgery-use 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, 57 subsidiaries and 10 affiliated companies. 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 (then called B.F. Goodrich Company) in the United States, 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 B.F. Goodrich Chemicals Co. 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, which, in turn, started Japan's first mass production of synthetic rubber. Manufacturing facilities were also expanded to match the growing demand for tires and other automobile parts. 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 fraction was operational.

Goodrich transferred its specialty synthetic rubber business to Zeon along with the shift in its main business focus toward vinyl chloride resins. 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 fraction.

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 discontinued production of vinyl chloride resins at the Mizushima Plant, and thus withdrew from the Company's founding business.

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

Zeon Chemical Singapore Pte. Ltd. and Zeon Korea Co., Ltd. were founded, in 2010 and 2011 respectively, as part of the strategy to fortify Zeon's global production and sales structure.

In March 2013, a takeover bid of TOHPE CORPORATION was completed and TOHPE became a fully-owned subsidiary.

In September 2013, the plant for S-SBR in Singapore was completed and started commercial operation.
 
(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: carbon monoxide gas (C1), ethylene (C2), and propylene (C3) by heating naphtha.

Zeon uses butadiene extracted in the GPB method developed in-house from C4 fraction after extracting propylene (C3), isoprene monomer (IPM) extracted from C5 fraction 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 into three segments: 1) the "elastomer business," where manufactured basic materials are sold to customers; 2) the "specialty material business," where basic materials are submitted to primary processing for sale to customers as processed materials, and 3) the "other business."
 
 
<Elastomer Business>
Elastomers are "high molecular compounds that have rubber-like elastic properties," an example of which is synthetic rubber. 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 underlying all of Zeon's businesses. This business can now be divided into synthetic rubber, synthetic latex, and chemical products (petroleum resins, thermoplastic resins) businesses.
 
①Synthetic Rubber Business
<Example of 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 abrasion resistance, aging resistance 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 started operation in September 2013. Consequently, supply capacity rose during the first stage by 30,000 to 40,000 tons per year in September 2013, and is expected to rise in the second stage from the second half of 2016 by another 30,000 to 40,000 tons from September 2013's level of 55,000 tons per year.
 
 
Radiator hoses, fuel hoses, fan belts, oil seals, and various other car 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 15 degrees centigrade, thereby extending the life of seals and gaskets, and are in strong demand for use in next generation bio-fuel engines. The new version of Zetpol® is well suited to extrusion 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 more expensive competitive rubber in Japan, Asia, Europe and North America.
Commercial production of the new Zetpol® started in November 2012 at Zeon's Kawasaki Plant and reached 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 close to 90% share of latex used in cosmetic puffs.
 
③Chemical Products Business
Zeon uses its unique in-house GPI method to turn C5 fraction into adhesive tapes, hot melt adhesive use materials, traffic paint binder 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 materials produced by Zeon are used in "information materials," "energy materials," and "medical devices," which are targeted as three key business areas.
 
①Information Materials
Cyclo-olefin polymer resins extracted and synthesized from C5 fraction using GPI methods are thermoplastics 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 used in smartphones, tablet PCs, and is expected to be used in digital signage and a wide range of other products in the future.
 
 
In addition, Zeon develops and manufactures "diagonally-stretched optical 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. In contrast, 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 organic EL in reflective light-protective film 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 meters for diagonally-stretched optical film in total), the construction of a new plant 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 efforts for 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 binders 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 water related 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 material 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 healthcare 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 biliary 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 in the 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, Xemex Basket Catheter NT, Xemex Balloon Catheter Band 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 fraction, 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: 
Aggressive research and development activities have allowed Zeon to launch various new materials into the market, but particularly high expectations are placed in the development of "single-wall carbon nanotubes (CNT)".
 
①What is Single-Walled 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 "Carbon Nanotubes (CNTs)." CNTs can be divided largely into single-walled and multiple-walled CNTs. Multiple-walled CNT is relatively easy to manufacture and applied development is being promoted within Japan for commercial applications.
 
 
At the same time, single-walled 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-walled CNT is superior to multiple-walled 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 ultra-thin 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-walled CNT are being promoted in the area of electromagnetic wave absorbing materials for use in a wide range of fields including energy, electronics, structural materials, and specialty materials.
 
 
Currently, single-walled 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, the AIST and five companies, namely Zeon, NEC Corporation, Toray Industries, Teijin Limited, and Sumitomo Precision Products Co., Ltd., jointly established the "Technology Research Association for Single-Walled Carbon Nanotubes" technological consortium in May 2010. The consortium aims at establishing technologies that are necessary for the commercialization of new products using single-walled CNT developed in Japan with its numerous superior qualities in response to the worldwide social demands to realize a low-carbon society.

Using the synthesizing technology developed by Dr. Kenji Hata (Ph.D.) of the AIST as a base, the above-mentioned consortium has been conducting research and development for mass production and application development for compound materials at a validation plant that was established in December 2010 on the premises of the Tsukuba Center of the AIST. 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 Furukawa reflects the importance of Zeon in this project to realize commercial applications of single-walled CNT.
 
③Future Endeavors
Having established the technology necessary for mass production based on the method called "super growth", ZEON will start mass production, the first in the world, at its Tokuyama plant from the second half of 2015.

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.

At the same time, single-wall CNT is a type of nanomaterial 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.
 
<Other Business>
Large formation processing using the ingredient dicyclopentadiene (DCPD) is used to conduct reaction injection molding (RIM) and RIM compound fluid processes.
 
2.Characteristics and Strengths
 
1. World's Leading Creative Technology Development Capability
The GPB method used to manufacture butadiene from C4 fraction 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 fraction 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 fraction 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. Furthermore, Zeon bases its valuation on a positive point awarding system that places high priority -on 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.
 
 
Fiscal Year March 2015 Earnings Results Overview
 
 
Sales of Optical Films Favorable, Weaker Overseas Conditions Contribute to Lower Profits despite Higher Sales
Sales rose by ¥11.1 billion year-on-year to ¥307.5 billion. Positive factors include a sales volume factor in optical film of ¥15.6 billion and a foreign exchange factor of weaker yen by 9% trended favorably to contribute another ¥6.5 billion. At the same time, weakness in overseas market conditions for the elastomer business combined with downward pricing pressures upon optical film for television applications as a pricing factor caused decrease by ¥11.0 billion.

Operating income declined by ¥1.7 billion year-on-year to ¥28.2 billion. Increases in sales volumes, foreign exchange and a 5% price decline in domestically produced naphtha, causing raw material costs to lower, acted to boost profit by ¥0.7, ¥6.5 and ¥3.1 billion, respectively, but were then offset by the negative pricing factor of ¥11.0 billion. At the non-operating side, while subsidies boosted income by ¥0.8 billion, foreign exchange translation depressed profit by ¥1.5 billion and contributed to a ¥1.5 billion decline in ordinary income to ¥31.0 billion. At the same time, net income fell by ¥0.6 billion year-on-year to ¥19.1 billion.
 
 
Sales rose, while profits declined. Operating income margin declined by 1.6% points from 10.5% in the previous term to 8.9%.
Synthetic rubber sales volume remained in line with the previous year's level due to a strong domestic demand but a decline in exports of general-use rubber. At the same time, specialty rubber and exports rose by 3% and 8% year-on-year, respectively.
Specialty rubber comprised 33% of overall rubber sales on a volume basis, same as the previous term, and 57% (54% in the previous term) on a value basis.
Latex saw strong demand for use in gloves, but lower sales of ABS resins caused both sales volume and value to decline. Chemical products benefitted from strong demand for petroleum resins and both sales volume and value grew.
A deterioration in overseas market conditions, increases in depreciation amount from the Singapore plant and other factors contributed to a 13% year-on-year decline in operating income.
 
 
Both sales and profits grew. Operating income margin declined by 0.9% points from 14.2% in the previous term to 13.3%.
Specialty chemical division sales rose on the back of increases in synthetic aromas and lithium-ion battery use battery materials of 13% and 16% year-on-year, respectively. On the other hand, sales of electronic materials and toner declined by 13% and 11% year-on-year, respectively.
In the specialty resins division, optical film rose by 16% year-on-year and strong demand from medical applications allowed sale of COP resins to rise by 13% year-on-year. Optical film sales volume rose by 19% year-on-year on the back of favorable demand for small- to medium-sized television applications.
Operating income rose by 4% year-on-year due in part to economies of scale, but operating margin declined due to increases in depreciation and lower pricing on optical films.
 
 
Sales declined, but profits increased. Operating income margin rose by 1.1% point from 2.9% in the previous term to 4.0%.
 
 
Both sales and profits declined from the previous term.
Sales were positively influenced by foreign exchange factors amounting to ¥900 million and negatively influenced by downward pressure on pricing of ¥5.1 billion. Sales volume remained unchanged. The decline in operating income was larger than the estimates. The factors that influenced operating income included the positive factors of foreign exchange and cost of goods sold which amounted to ¥0.9 and ¥3.2 billion, respectively. At the same time, lower sales volumes and downward pressure on pricing negatively impacted operating income of ¥0.7 and ¥3.2 billion, respectively, and caused a 43% year-on-year decline in operating income. Elastomer materials were negatively impacted by use of inventories, which were booked when prices were high, and passing the peak of demand for high profitability optical films used in small- to medium-sized applications. In particular, the high functional materials volume had a significant impact.
 
 
Capital expenditure was focused upon expansion of television-use optical film capacity at the Himi Plant, facilitation of manufacturing equipment for extended optical film for use in small- to medium-sized applications at the Tsuruga Plant, and the second phase of construction at the Singapore plant.
Depreciation and amortization, and research and development expenses exceeded those of the previous term.
During the current term, capital investments are expected to exceed that of the previous term by a large margin due to projects including continuation of the second phase of construction at the Singapore plant, and investments to expand capacity of thermoplastic elastomer and CNT manufacturing facilities.
 
 
Current assets declined by ¥1.7 billion from the end of the previous term due in part to a decline in cash and equivalents. A capital investment in noncurrent fixed assets was ¥28.5 billion, but depreciation grew by ¥11.5 billion from the previous term to end in ¥19.4 billion. Total assets rose by ¥28.6 billion from the previous term, owing to increased valuation of investment securities due to soaring stock price causing investments and others to rise by ¥19.6 billion. Accounts payables and interest-bearing liabilities declined and contributed to a ¥5.5 billion decline in total liabilities. Net assets rose by ¥34.2 billion over the same period. As a result of these changes, equity ratio rose by 5.0% points from the end of the previous term to 52.9%. At the same time, interest-bearing liabilities declined by ¥6.6 billion.
 
 
Fiscal Year March 2016 Earnings Estimates
 
 
Favorable Conditions in Both Business Segments Expected to Allow Both Sales and Profits to Rise
Zeon earnings estimates call for sales to rise by 4.1% year-on-year to ¥320.0 billion.
In elastomer business, capacity utilization rates are expected to increase at the Singapore plant and others. Latex and chemical products sales are also expected to grow.
The specialty material business segment is expected to benefit from the capital investments to expand capacity of optical film for televisions. In the fourth quarter of the term just ended, a recovery in small- to medium-sized film applications was observed and is expected to remain unchanged.
Consequently, operating income is expected to rise by 13.3% year-on-year to ¥32.0 billion and operating margin to recover to 10%.Elastomer business is expected to benefit from an increase in capacity utilization rates in the form of cuts in fixed costs. Specialty material business is anticipated to see relatively low growth due to downward pressure on pricing and depreciation expense burden.
In addition, the weaker yen and lower raw material prices are also expected to contribute to growth in both sales and profits.
Dividend payment is expected to be raised by ¥1 per share to ¥15.00, for an expected dividend payout ratio of 14.8%.
 
 
Progress in Achievements of the Mid-term Business Plan
 
President Kimiaki Tanaka provides us with an explanation of achievements of the "New Mid-term Business Plan SZ-20 Phase II" (From FY3/15 to FY3/17).
We were mostly able to achieve both the sales and profit targets outlined in our Mid-term Business Plan SZ-20 Phase II in the fiscal year ended march 2015. And while we achieved our targets in our specialty material business segment, we fell slightly shy of our target for the elastomer business segment due to deterioration in market conditions for our products.
 
While achievement of the target numbers of our Mid-term Business Plan is important, I believe that we need to also reflect upon the current state of our Company and to focus upon how we can reform our prevailing thought processes and methodologies to realize fundamental changes in Zeon over the next three years.
 
By achieving this "change", we endeavor to realize our goals for 2020 of that "Zeon makes the future today through the power of chemistry" and the sales target of ¥500.0 billion. During the year under review - the first year of our Mid-term Business Plan - there were things we accomplished and things we didn't. We will continue to work hard to progress steadily.
 
 
◎Elastomer Business
◆Singapore Plant, Progress on S-SBR
Although it took quite some time, customer authentication in our four main grades has been completed and sales volumes are expected to expand on the back of shipments of "S-SBR" from our Singapore plant.
In addition, we have started construction on our second line for mass production at the plant in February 2015. We are expecting to have it completed in January 2016 and start its commercial production in the same year in April. This would mean that we will have a structure in place to supply our customers globally.
 
◆Zeptol® New Heat Resistant Products Seeing Applications
"Zeptol®", which is being produced on a commercial basis at new facilities within the Kawasaki Plant, has become highly regarded for its high heat-resistant properties, and has begun being used as core wire processing agents in gaskets, seals and timing belts for automobiles.
 
◆Progress in Business Restructuring
In response to the difficulty in sourcing of butadiene within Japan, Zeon seeks to create a globally optimized manufacturing structure to handle changes in the raw materials sourcing environment.
In that sense, the increase in synthetic rubber manufacturing capacity (an additional 35,000 tons) through the addition of a second line at the Singapore plant reflects an important development for our Company.
 
◆Glove Use NBR Latex
Sales of NBR latex used in next-generation thin membrane durable gloves have been launched in the market.
It has the advantage of having cleared the European tearing resistance standard of 6 new tons at only 0.05 mm membrane thickness, allowing for further thinness and thereby improved handling characteristics.
 
◆C5 Chemical, SIS Business Expansion
In April 2015, a decision has been made to expand an output capacity of thermoplastic elastomer "SIS" at the Mizushima Plant.
Construction is expected to be completed in May 2016 and will expand the output capacity from the current level of 42,000 tons per year to 60,000 tons.
The products have multiple applications in disposable diapers (growth of about 7% per year), adhesive labels (growth of about 6% per year) and others.
 
◆C5 Chemical Business Overseas Deployment
The GPI method, a method to manufacture high-purity isoprene, petroleum resin and basic ingredients for synthetic aroma chemicals from C5 fraction, is created by Zeon. The Mizushima Plant is the world's only plant conducting the extraction, and this is Zeon's proprietary technology that is not provided to other companies.
This isoprene extraction technology will be leveraged to expand our overseas business. This technology will be first used for adhesive tape applications to cultivate growing demand for it primarily in Asia, and later to be expanded to include hot melt adhesive materials and traffic paint applications.
 
◎Specialty Material Business
◆Basic Strategy
Differentiated products comprehensively using C5 distillate is a starting point for development of products in three key fields of "IT components," "energy components" and "medical devices."
 
◆IT Components (Optical use): ZeonorFilm®
Demand for ZeonorFilm® in LCD-TV panels and small- to medium-sized FPD applications are expected to continue expanding.
Demand is expected to grow following the introduction of 4K high resolution technology in nearly all televisions over 50 inches in size, along with the introduction of higher resolution and larger sized televisions accompanying 8K.
Furthermore, increases in size and resolution of smartphones and tablets are progressing at a rapid pace and the small- to medium-sized applications market is greatly expanding.
Sales volumes in the previous term exceeded that of the fiscal year ended March 2012 by nearly three times.
The fifth line at the Himi Plant started operation in February 2015, and boosted capacity to 95 million square meters.
 
◆Energy Components
The applications of lithium-ion batteries, which used to be adopted primarily for personal computers, are now expanding into automobile applications. Sales of our Company's battery-use materials are growing at a much faster pace than that of the overall market, which is growing at a pace of 10%.
We will expand businesses in response to market needs based upon technologies developed in the binder business.
 
◆Medical Devices
In keeping with our namesake of "gem hunting Zeon," new "guide wire assist type" products were introduced in the market in March 2015, an addition to the existing line of gallstone crusher devices.
Characteristics of this product include its smooth introduction to the bile tract and excellent handling.
 
◆Carbon Nanotubes
Carbon nanotubes (CNT) have many differentiating characteristics including "length," "high purity" and "large specific surface area."
Mass production will start at the Tokuyama Plant facilities in the second half of 2015.
In addition to "fusion of existing businesses" including boosting the high functionality of rubber materials, Zeon will promote "creation of new businesses" including power storage devices and electronic devices to contribute to its "SZ-20 Phase II" Mid-term Business Plan.
 
◎Improving Cost Competitiveness
In addition to promoting strategies for both business segments mentioned above, Zeon will continue to conduct proactive efforts to improve its cost competitiveness.
We will also pursue a top-down management approach including the promotion of the "Daicel manufacturing reform methodology", cultivated through our close relationship with Daicel Chemical Industries, Ltd. management, to further refine our manufacturing processes.
Another important activity is our promotion of a bottom-up approach of "ZΣ activity" that is expected to yield approximately ¥6.0 billion in effect every term.
 
 
As part of the vision that Zeon seeks to achieve by 2020, it has established targets of "sales of ¥500.0 billion and operating income margin of 10%" and is implementing fundamental reforms as part of its strategy of "change."
Moreover, the values of "speed," "communication," and "social contribution" have been and will continue to be upheld in Zeon's efforts to create credibility and trust with its stakeholders and to realize its various targets.
 
 
Conclusions
 
While the Company stumbled in the fourth quarter of the previous term, close attention will be paid to both business segments during the first quarter to ascertain whether or not those same conditions are continuing.
At the same time, the start of mass production of carbon nanotubes from the second half of the coming term is an important development for the medium to long term growth of Zeon. While specific uses of mass produced carbon nanotubes are unknown yet, we will keep an eye on updates on this new development.
 
 
<Reference: Fact Sheet>
 
 
 
 
 
 
 
 
 
PAGE TOP