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Showa Denko K.K. (SDK) Announces Third Quarter 2008 Results.

Tokyo, Nov 6, 2008 - (JCN Newswire) - Showa Denko K.K. (SDK) today announced its business results for the third quarter (July 1 through September 30) of 2008, in which the Company recorded an 8.8% increase in net sales over the same period of 2007, to JPY 281,663 million. However, operating income dropped 38.4%, to JPY 10,758 million, due mainly to the influence of the economic slowdown on the performance of the Electronics and Aluminum segments and the rise in depreciation expenses.

Ordinary income decreased 38.5%, to JPY 7,417 million. Net income of the quarter rose 22.8%, to JPY 7,289 million, due partly to the gain on the sale of investment securities.

As for the first nine months of 2008 (January 1 - September 30), the Company posted a 6.5% increase in net sales over the same period of 2007, to JPY 792,452 million. However, operating income fell 32.5%, to JPY 35,385 million, due mainly to the influence of the economic slowdown on the performance of the Electronics, Aluminum, and Petrochemicals segments and the rise in raw material costs and depreciation expenses. Ordinary income fell 34.9%, to JPY 25,464 million, and net income of the quarter was down 9.5%, to JPY 19,019 million.

SDK and its Group companies are carrying out the Passion Project, a consolidated business plan that runs from 2006 through 2008, with the aim of establishing the groundwork for long-term sustainable growth. Under the project, we are developing "new growth driver" businesses while promoting structural reforms and cost reduction efforts.

A breakdown of net sales and operating income by segment is as follows:


Sales in the third quarter rose 22.8%, to JPY 122,923 million. Sales of olefins increased, reflecting the rise in raw material costs. Sales of organic chemicals decreased due to the decline in exports, reflecting the fall of acetic acid prices on overseas markets. Operating income in the third quarter rose 8.4%, to JPY 3,639 million. As for the first nine months of 2008, the Petrochemicals segment's sales were up 12.1%, to JPY 327,575 million. However, operating income fell 32.1%, to JPY 9,670 million, due to the fall in acetic acid exports and the rise in raw material costs.


Sales in the third quarter rose 39.7%, to JPY 25,889 million, due to the steady shipment volumes of ammonia and other basic chemicals, the rise in selling prices of amino acids, and the consolidation of Showa Tansan Co., Ltd. Operating income rose 0.9%, to JPY 1,661 million. As for the first nine months of 2008, the Chemicals segment's sales were up 15.6%, to JPY 66,659 million, and operating income increased 8.3%, to JPY 5,326 million.


Sales in the third quarter fell 9.5%, to JPY 49,965 million. Sales of hard disk (HD) media were down, reflecting stagnant demand for aluminum-based media for desktop PC applications. Sales of compound semiconductors increased due partly to the start of sales of ultrabright LED chips, while sales of semiconductor-processing specialty gases decreased owing to stagnant demand for semiconductors. Meanwhile, sales of rare earth magnetic alloys were up owing to higher shipment volumes and selling prices. Operating income dropped 64.8%, to JPY 2,469 million, due to lower shipment volumes of aluminum-based HD media and the rise in depreciation expenses. As for the first nine months, the Electronics segment's sales rose 7.1%, to JPY 151,026 million. However, the segment's operating income for the period fell 40.7%, to JPY 9,942 million.


Sales in the third quarter rose 5.4%, to JPY 21,994 million. Sales of ceramics rose, reflecting the rise in raw material costs, and sales of graphite electrodes increased owing to continued steady demand at home and abroad. Operating income fell 15.7%, to JPY 4,299 million, due to soaring raw material/fuel costs in the ceramics business and the negative impact of the appreciation of the yen against the U.S. dollar on the performance of the graphite electrode business in the United States. As for the first nine months, sales were up 8.7%, to JPY 65,498 million, but operating income fell 3.7%, to JPY 14,116 million.


Sales in the third quarter fell 5.1%, to JPY 60,893 million. Sales from ingot marketing fell due to lower shipment volumes. Sales of rolled products fell slightly, while sales of extrusions/specialty products decreased as a result of lower shipment volumes for construction material applications. Sales of heat exchangers rose in Japan, Europe and Asia, while sales in the U.S.A. fell. Sales of Shotic forged aluminum products fell as a result of lower shipment volumes for automotive parts applications. Sales of aluminum cans were down slightly owing to the fall in shipment volumes. Operating income dropped 92.8%, to JPY 133 million, due to the sharp rise in fuel costs for the power generation business as an independent power provider, and lower demand in the construction/automobile/beer breweries industries. As for the first nine months, sales fell 5.7%, to JPY 181,694 million, and operating income dropped 85.7%, toJPY 849 million.

Financial conditions at September 30, 2008 (as compared with the conditions at June 30, 2008)

Total assets at the end of the third quarter amounted to JPY 1,027,519 million, an increase of JPY 10,776 million from the level at June 30, 2008. Despite continued efforts toward reduction, total assets increased owing partly to the rise in notes and accounts receivable. Interest-bearing debt increased JPY 12,142 million, to JPY 416,224 million. Total equity at the end of the quarter dropped JPY 2,886 million, to JPY 303,750 million, despite the addition of the quarterly net income. The drop was attributable to decreases in securities valuation surplus (due to the fall in share prices) and in foreign currency translation adjustments (due to the appreciation of the yen).

Forecast of full-year business results

As for our performance forecast for full-year 2008, please refer to the separate news release issued today entitled "SDK Revises Forecast for 2008 Performance and Dividend."

Major steps taken after the announcement of the half-year results:


- Manufacture of n-propyl acetate

In October, we decided to manufacture n-propyl acetate for use in solvents for ink for special gravure printing. Commercial shipments will start in early 2010. Compared with existing organic-compounds-based solvents, n-propyl acetate contributes to better working environment. Thus, demand for n-propyl acetate is expected to grow in the future.


- Waste anesthetic gas disposal system provided to Swedish firm

We provided our waste anesthetic gas disposal system technology AnescleanSW(TM) to Qmt tech ab, a medical equipment engineering company in Sweden. The AnescleanSW(TM) system decomposes nitrous oxide, a greenhouse gas used as inhalation anesthetic at hospitals. We granted Qmt the right to sell the system to hospitals in North European countries.

- Acquisition of shares in F2 Chemicals of U.K.

We reached agreement with Asahi Glass Co., Ltd., Mitsubishi Corporation, and Mitsubishi's Italian subsidiary MITENI S.p.A. to purchase all the shares of their joint venture F2 Chemicals Limited of the United Kingdom. By combining F2 Chemicals' fluorine technologies with our own technologies, we aim to expand the lineup of our fluorine compounds.

- Establishment of analytical equipment marketing JV in China

We decided to establish a joint venture in December in China, with our consolidated subsidiary Shoko Co., Ltd., to strengthen customer support regarding our high-performance liquid chromatography columns. The columns are used in analyzing chemical substances in food, pharmaceuticals and agrochemicals as well as the quality of water.


- Consolidation of HD media operations with HOYA

We reached basic agreement with Hoya Corporation to consolidate the two companies' HD media operations by establishing a joint venture in January 2009. The joint venture will be owned about 75% by Showa Denko and about 25% by HOYA. By combining their respective technical strengths, Showa Denko and HOYA will strengthen R&D to develop new HD media products with higher storage capacity. At the same time, the two companies will increase the efficiency of their operation sites to ensure sustainable competitive power.

- Shipments of HD media with the world's highest storage capacity

In August, we began commercial shipments of 1.89-inch HD media with storage capacity of 120 gigabytes per disk. To the best of our knowledge, this represented the world's highest storage capacity for 1.89-inch HD media available on the market as of September 11, 2008. In September, we began commercial shipments of 2.5-inch HD media with storage capacity of 250 gigabytes per disk. To the best of our knowledge, this represented the world's highest storage capacity for 2.5-inch HD media available on the market as of September 17, 2008. 1.89-inch HD media are used in mobile music players, high-definition camcorders, and small-sized notebook PCs. Meanwhile, 2.5-inch HD media are used mainly in notebook PCs. Demand for high-capacity HD media is expected to grow.

- Establishment of rare earth metal subsidiary in Vietnam

In October, we established Showa Denko Rare-Earth Vietnam Co., Ltd. in Ha Nam Province, Vietnam, as our 90%-owned subsidiary. In April 2010, the new company will begin producing 800 tons a year in total of didymium and dysprosium, which will be used as raw material for neodymium-based high-performance magnetic alloys. We are producing rare earth magnetic alloys at three plants?one in Japan and two in China?with combined capacity of 8,000 tons a year. With the establishment of the new company in Vietnam, we will be able to ensure stable procurement of raw materials for our neodymium-based high-performance magnetic alloy production and further strengthen the business.

- Establishment of electronics materials sales firm in Taiwan

In September, we established a wholly owned subsidiary Taiwan Showa Denko Electronics Co., Ltd. to strengthen sales of LED chips.

About Showa Denko

Showa Denko K.K. ('SDK'; TSE: 4004, US: SHWDF) is a major manufacturer and marketer of chemical products serving a wide range of fields ranging from heavy industry to the electronic and computer industries. SDK makes petrochemicals (ethylene, propylene), aluminum products (ingots, rods), electronic equipment (hard disks for computers) and inorganic materials (ceramics, carbons). The company has overseas operations and a joint venture with Netherlands-based Montell and Nippon Petrochemicals to make and market polypropylenes. In March 2001, SDK merged with Showa Denko Aluminum Corporation to strengthen the high-value-added fabricated aluminum products operations, and is today developing next-generation optical communications-use wafers. For more information, please visit .

Source: Showa Denko

Showa Denko K.K.
Nobuhiro Kato

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Publication:JCN Newswires
Article Type:Financial report
Date:Nov 6, 2008
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