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
¥821 221,895,715 shares ¥181,176 billion 8.6% 1,000 shares
DPS (Est.) Dividend Yield (Est.) EPS (Est.) PER (Est.) BPS (actual) PBR (actual)
¥16.00 1.9% ¥85.63 9.6x ¥949.91 0.9x
* Share price as of closing on April 28, 2016. 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 295,647 29,856 32,153 18,079 79.86 15.00
March 2017 Est. 280,000 28,000 28,000 19,000 85.63 16.00
* Estimates are those of the Company. Net income is net income attributed to parent shareholders.
This Bridge Report provides a review of ZEON CORPORATION's fiscal year March 2016 earnings results .
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.

In February 2015, Zeon enhanced optical film equipment for LCD in Himi City, Toyama prefecture.

In November 2015, Zeon started the world's first mass production of super growth carbon nanotube.
(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 device 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 and with Japan's first biliary covered stent "Zeostent Covered" in the area of gastroenterology products, and the world's smallest diameter "XEMEX IABP Balloon PLUS" as a device to aid the heartbeat at times of acute myocardial infarction in the area of cardiovascular 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, Extraction Balloon Catheter , and is aiming at 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 completed Tokuyama plant at Shunan-city, Yamaguchi Prefecture, Zeon started mass production, the first in the world in November 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.
(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 2016 Earnings Overview
Sales Fall on Lower Prices Offset by Higher Sales Volumes and Lower Materials Prices, Allowing Operating Income to Increase
Sales declined by ¥11.9 billion year-on-year to ¥295.6 billion. This decline is attributed to a drop in elastomer product pricing accompanying a decline in raw materials pricing and price reduction demands for optical films, which amounted to a decline in sales as large as ¥25.7 billion, despite positive factors including the full scales start of S-SBR production at the Singapore Plant, favorable exports of latex and increases in sales volumes of petroleum resins, small to medium sized film and exported electronics materials, and positive influence of foreign exchange (Favorable sales conditions and foreign exchange amounted to higher sales of ¥8.4 and ¥5.4 billion respectively).

Operating income rose by ¥1.6 billion year-on-year to ¥29.9 billion. The factors influencing this rise included higher sales volumes (up ¥1.0 billion), foreign exchange (up ¥5.4 billion), and raw material-related factors (up ¥23.8 billion), such as naphtha, butadiene and other raw materials price declines, which offset a decline in product pricing (down ¥25.7 billion). Ordinary income also rose by ¥1.1 billion year-on-year to ¥32.2 billion due in part to an increase in dividends received and despite the booking of foreign exchange translation losses, as opposed to foreign exchange translation gains in the previous term.
Net income declined by ¥1.0 billion year-on-year to ¥18.1 billion due to the booking of losses arising from liquidation of affiliated companies and impairment losses of ¥3.6 and ¥2.1 billion respectively, among other factors.
Sales declined but profits rose, allowing operating income margin to rise by a large 2.7% points from 8.9% in the previous term to 11.6% in the current term.
Tire use rubber sales volumes rose by 5% year-on-year, due in part to a large rise in export volumes of 33% year-on-year on the back of aggressive marketing efforts to maintain sales volume and despite a 16% year-on-year decline in sales volumes within Japan.
Specialty rubber sales volumes declined by 4% year-on-year due to weak demand recorded in both exports and domestic sales.
Specialty rubber sales composition declined by 2% points year-on-year on a volume basis to 33%, but increased by 1% point on a value basis to 58%.
While demand for latex in domestic paper applications remained weak, demand from domestic resin improvement applications and exports for glove use applications were favorable. Chemical products were adversely affected by a deterioration in market conditions despite the favorable trends in petroleum resins resulting from the establishment of two production lines at the Thailand Plant.
The full-scale launch of production at the Singapore Plant and favorable demand for glove applications of latex allowed operating income to rise by 23% year-on-year.
Sales rose by a small margin while profits declined. Also, operating income margin declined by 1.7% points from 13.3% in the previous term to 11.6% in the current term.
The decline in specialty chemicals sales is attributed to declines in synthetic fragrance exports, which led to a 3% year-on-year decline in chemical products and a 19% fall in toner products, and despite increases in electronic and battery materials of 8% and 18% respectively.
Strong demand for optical films within the specialty resins division allowed COP resin sales to rise by 2% year-on-year.
Sales volumes of optical films rose by 1% year-on-year. Also, the sales composition of small to medium sized applications rose from 34% in the previous term to 37% in the current term.
Sales declined but profits rose. Efforts to focus upon profitability within marketing efforts for the paint division contributed to this decline in sales, but allowed operating income margin to rise by 1.2% points from 4.0% in the previous term to 5.2% in the current term.
Both sales and profits declined year-on-year.
While a rise in sales volumes was a positive factor amounting to ¥0.6 billion, the negative influences of pricing and foreign exchange contributed to ¥1.3 and ¥0.6 billion losses of sales respectively.
Operating income also declined due to pricing, foreign exchange and headquarter related expenses.
The main capital investments made during the term included facilities for mass production of carbon nanotubes, second production line at the Singapore Plant, and production facilities for thermoplastic elastomer. At the same time, depreciation and research and development also increased.
While cash grew on the back of the issuance of a corporate bond in June 2015 and inventories rose, declines in accounts receivables caused current assets to decline by ¥3.7 billion from the end of the previous fiscal year. Capital investments contributed to a rise tangible assets, but a decline in investment securities contributed to a drop in noncurrent assets of ¥11.0 billion, and to a decline in total assets of ¥14.7 billion.
Declines in accounts payables and interest bearing liabilities caused total liabilities to fall by ¥14.7 billion. Net assets remained in line with the previous fiscal year end due to a decline in valuation gains of other marketable securities which offset an increase in shareholder capital derived from a rise in retained earnings. As a result of these changes, capital adequacy ratio rose by 1.9% year-on-year to 54.8%. At the same time, interest bearing liabilities fell by ¥3.8 billion.
A decline in accounts receivables and an increase in liquidation loss reserves for affiliated companies contributed to an expansion in the net inflow of operating cash flow.
At the same time, expansion in payments for acquisition of tangible assets and payment for paid-in capital contributed to an expansion in the net outflow of investing cash flow. However, the net inflow of free cash flow expanded by ¥5.5 to ¥12.7 billion. Income derived from the issuance of a corporate bond contributed to a contraction in the net outflow of financing cash flow, and cash position rose by ¥3.3 billion.
Fiscal Year March 2017 Earnings Estimates
Sales, Profits to Decline
Sales are projected to decline by 5.3% year-on-year or ¥15.6 billion to ¥280.0 billion. While efforts will be made to expand sales volumes of both the elastomer materials and specialty materials businesses, declines in pricing and the strengthening of the yen are expected to contribute to lower sales in value terms.
Operating income is expected to also fall by 6.2% year-on-year or ¥1.9 billion to ¥28.0 billion. Higher costs arising from the stronger yen (¥7.6 billion in lower profit), start of construction of the second line of the Singapore Plant, full contribution of the two lines of the Thailand Plant to sale, and completion of capacity expansion for thermoplastic elastomer (Scheduled for July) are expected to be offset to an extent by improvements in productivity and other cost reduction efforts.

Dividend payment is expected to be raised by ¥1 to ¥16.00 per share, for an anticipated dividend payout ratio of 18.7%.
Progress Conditions of the "New Medium Term Management Plan SZ-20 Phase II"
President Kimiaki Tanaka described the progress of the "New Medium Term Management Plan SZ-20 Phase II" (For fiscal years ending March 2015 to 2017).
◎ Positioning of the "New Medium Term Management Plan SZ-20 Phase II"
I believe we can go on to realize the vision of our Company in 2020 as "ZEON that turns today's dreams into tomorrow's reality through the strength of chemistry, with ¥500.0 billion in consolidated sales" by reviewing traditional methods and thinking, to achieve fundamental changes to our Company over the next three years.
◎ SZ-20 Phase II Basic Strategy
◎ Elastomer Material Business
S-SBR: Two Production Facility Structure Established
Dual manufacturing base structure with facilities in Tokuyama, in Yamaguchi Prefecture, and Singapore has been established
The Tokuyama Plant has been designated as a new product development center and as a production facility that manufactures differentiated products. Meanwhile, the second facility of the Singapore Plant began operations in April 2016 for mass produced products. This expansion increased the output capacity from 35,000 to 70,000 tons per year, and the plant can now meet the growing demand.
The product line will be shifted so that, in the oil extended product category, mainstay models will be those of which one can expect a dramatic improvement in fuel efficiency. In the non-oil extended product category, efforts will be made both to expand sales of existing products that have competitive performance, and to continue introducing new products.
Zetpol® High Heat Resistant Product Usage Being Expanded
Zetpol®, which is being commercially produced at new facilities within the Kawasaki Plant, has been selected for new usages in automobile applications including gaskets, seals and core line treatment for timing belts due to its high heat resistance properties and low pricing.
HyDrin® (HyDrin Biosynthetic Rubber) Market Launch
Supplies of HyDrin (HyDrin Biosynthetic rubber) automobile use materials, which leads to environmental load reduction, have started in April 2016 to Toyota Motor for use in vacuum sensing hoses.
Glove Use NBR Latex
The market for NBR latex used in gloves continues to grow by 7% per year. Also, sales of new products are growing.
C5 Chemical Division Expansion Strategy
Zeon's Mizushima Plant is the only factory in the world that can extract highly pure isoprene and petroleum resins derived from C5 intermediate distillate using its own original GPI method to manufacture raw materials used in synthetic fragrances. Zeon is the only company in the world able to do this because it does not share these technologies with any other companies.
As part of the pursuit of further growth, investments will be made to expand new businesses and respond to growing markets by leveraging this isoprene extraction technology.
Hot melt adhesive materials is expected to become a strong selling item as it targets the adhesive tape market, which is expected to grow by 5% to 6% per year, and the paper diaper market, which is also expected to grow by 6% per year.
Production capacity of thermoplastic elastomers (SIS) will be expanded to 60,000 tons in May 2016.
Aside from the two above mentioned applications, efforts will be made to expand usages of asymmetric SIS including applications in flexography, protective films, elastic films, and adhesive labels.
◎ Specialty Material Business
Basic Strategy
Based upon comprehensive uses of C5 intermediate distillates as differentiating materials, development of products in the three key realms of "information technology use materials," "energy use materials," and "medical devices" will be promoted.
Information Technology Materials (Opt Use): ZeonorFilm®
LCD panel demand is expected to recover during the second half of 2016. In addition, as television sets get bigger and more high-resolution, the share of 4K TVs among all the TVs over 50 inches is expected to reach 100% in 2017.
On the back of these trends, ZeonorFilm® demand is expected to recover. ZeonorFilm® will be leveraged for use in large high-resolution models, in which the features of this product are best represented, and small to medium sized model as well.
Energy Use Materials
The lithium ion battery market continues to exceed targets as the applications of this technology expand from personal computer applications to include automobile applications. Against this backdrop, battery material sales are growing at a faster than expected pace.
As for automobile applications, Zeon's business has been growing at a much faster pace than the market (Grew by 4 times from 2010 to 2015). In addition, sales to China rose by 9.3 times compared with 2010 (Market grew by 6.4 times over the same period) and to Korea by 4.2 times (Market grew by 3.3 times). And efforts will be made to continue to grow sales.
Medical Devices
In 2016, sales of the existing products of digestive tract products using offset balloon (Launched July 2014), Crusher Catheter M (Launched March 2015), thin bile duct stent (Launched February 2015), and the new product fractional flow reserve (FFR) devices will be expanded.
FFR is an indicator of reserve coronary blood flow, and is used to measure the obstruction of blood flow in patents with stenotic lesions of the coronary artery. FFR allows for more scientific measurement of the change in lesions through evaluation of the degree of actual blood flow obstruction
The compound annual growth rate (CAGR) of the Japanese FFR measurement equipment market from 2012 to 2019 is expected to be a relatively high 15.4%. Zeon's FFR device is the first guide wire type in the world to use an optical sensor. Zeon believes that, compared with competitors' devices, Zeon's FFR device has advantages of smaller margin of error for pressure measurement and superior lesion permeability.
Zeon seeks to capture a 30% market share by 2020 for this product, which was launched in March 2016.
Super Growth Method Carbon Nanotube
The Super Growth Method Carbon Nanotube (SGCNT) has many differentiating characteristics including "long length", "high purity", and "large specific surface area".
Construction of a mass production facility within the Tokuyama Plant was completed and production launched in October 2015.
Creation of higher functionality rubber parts, high heat resistant rubber, high heat conduction composite materials and other products for new applications is being promoted through fusion of existing businesses.
Carbon nanotube mass production technology has come to be highly valued for its contributions to improvement of science and technology and development of the industry. In April 2016, Zeon jointly with its development partner National Institute of Advanced Industrial Science and Technology received the "Special Committee Award of the 45th Japan Industrial Technology Award" and the "Minister of Education, Culture and Sports 2016 Award for Science Technology" (The "Minister of Education, Culture and Sports 2016 Award for Science Technology" was awarded to Senior Technical Executive Kohei Arakawa and CNT Laboratory Manager Mitsugu Uejima as individuals).
◎ Cost Competitiveness Improvements
Along with promotion of strategies in both business divisions, continued aggressive efforts will be made to increase the cost competitiveness of Zeon's businesses.
Top down approaches including intellectual production systems, operations standardization, and work load reductions outlined in the "Production Innovations the Daicel Way" will be implemented, along with bottom up approaches including cost reductions, circles (Small group activities), cost consciousness training, and other specific themes outlined in the "ZΣ Activities", which have been largely effective in each term until now.
Efforts will be made to achieve "change" with an emphasis on achieving essential changes in order to realize the targets of "consolidated sales of ¥500.0 billion and consolidated operating income margin of 10%" by 2020.
In addition, Zeon will continue to place a high priority upon the values of "speed", "communication", and "social contribution", while working with colleagues in harmony and trust and striving to achieve its targets.
While estimates at the start of the term called for increases in both sales and profits, both the elastomer material and specialty material businesses saw a slowing during the second half of the year which caused actual results to fall below initial estimates.
And while the operating environment for Zeon in the final year of its "SZ-20 Phase II" management plan of fiscal year March 2017 appears a bit difficult given the strengthening of the yen. A major determining factor for Zeon's performance in the current term is likely to be how effectively it can recover the delay of the first half by striving in the second half, with a tailwind such as the newly constructed second facility at the Singapore Plant.
Furthermore, another important determining factor will be the contributions of carbon nanotube products to earnings.
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<Reference: Fact Sheet>