Consolidated Financial Report for Fiscal Year Ended ... · Consolidated Financial Report for Fiscal...

© 2018 Nippon Denko Co., Ltd.

Consolidated Financial Report for

Fiscal Year Ended December 2017

February 9, 2018 Contact: Tadashi Ue, Executive Officer General Affairs Department Tel： 03-6860-6800 URL: http://www.nippondenko.co.jp

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1. Consolidated Financial Results for 2017

2. Consolidated Forecast for 2018

3. Overview of Operations

4. Medium-Term Business Plan (from 2018 to 2020)

1

CONTENTS

Note that the actual results for 2018 may differ from the forecasts, which are based on currently available information and are inherently susceptible to uncertainty.

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© 2018 Nippon Denko Co., Ltd. 2

Consolidated Financial Results 2017

1. Consolidated Financial Results for 2017

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1-1. Topics for 2017

1. Ferroalloys ・ The international ferroalloy’s market conditions are brisk. The yen weakened against the dollar more than our budget. ⇒ Income & profit increased dramatically.

2. Functional Materials ・ Profit grew despite some products sales volume decreased.

3. Electric Power ・ The No.2 power plant started the operation.

4. We integrated with Chuo Denki on Jan 1st 2018.

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4

FY2016 FY2017 FY2017 Forecast

Aug 9st 2017

vs FY2016 vs Forecast

YoY Rate of change

YoY Rate of change

Net sales 58.4 71.3 70.0 +12.9 +22% +1.3 +2%

Operating profit 1.7 9.6 8.0 +7.9 +461% +1.6 +20%

Operating profit on sales

2.9% 13.5% 11.4% +10.6 - +2.1 -

Ordinary profit 1.6 9.2 8.0 +7.6 +472% +1.2 +15%

Net income -0.1 8.0 6.5 +8.1 - +1.5 +23%

Net income per share / yen -0.8 54.6 44.4 55.4 - 10.2 +23%

Yen rate（¥/US$） 108.9 112.2 111.2 +3.3 - +1.0 -

Due to increasing market for ferroalloys and weak yen, Income & profit grew.

1-2. Financial Results for 2017

bil. yen

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5

Segment

FY2016 FY2017 vs FY2016

Net Sales

Operating profit

Net Sales

Operating profit

Year-over-Year Rate of change

Net sales Operating

Profit Net sales

Operating Profit

Ferroalloys 37.0 0.1 51.1 7.8 +14.1 +7.7 +38% +5,756%

Functional Materials

10.8 0.5 10.0 1.2 -0.8 +0.7 -8% +124%

Environmental Recycling Systems

2.3 0.8 1.8 0.4 -0.5 -0.4 -24% -42%

Other 8.3 0.3 8.4 0.2 +0.1 -0.1 +2% -17%

Total 58.4 1.7 71.3 9.6 +12.9 +7.9 +22% +461%

Ferroalloys segment contributed greatly to the results for the FY2017

1-3. Financial Results for 2017 by segment

bil. yen

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6

50.0

55.0

60.0

65.0

70.0

75.0

FY2016 Ferroalloys FunctionalMaterials

Other FY2017

+14.1 -0.5 +0.1

58.4

71.3 -0.8

+12.9

（+22%）


1-4. Net sales FY2016 vs FY2017

bil. Yen

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7

0.0

2.0

4.0

6.0

8.0

10.0

FY2016 Ferroalloys FunctionalMaterials

Other FY2017

1.7

+7.7 +0.7

-0.4 -0.1 9.6

+7.9 （+461%）

1-5. Operating profit FY2016 vs FY2017


bil. Yen

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1. Year ‐end dividend

8 yen/share (decided 8th February)

2. Annual dividend

13 yen/share (Interim dividend 5 yen/share)

-Dividend policy- While the basic policy is to distribute profits in keeping with the

consolidated results in each fiscal year, the final decision is made based on overall consideration of performance trends, while

maintaining the internal reserves necessary for future business expansion and strengthening of the corporate structure.

1-6. Division of profits

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Consolidated Forecast 2018

2. Consolidated Forecast for 2018

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10

FY2017 FY2018

Results Forecast vs FY2017


Net sales 71.3 79.0 +7.7 +11%

Operating profit 9.6 5.0 -4.6 -48%

Operating profit on sales 13.5% 6.3% -7.2 -

Ordinary profit 9.2 4.0 -5.2 -57%

Net income 8.0 5.0 -3.0 -37%

Net income per share / yen 54.6 34.2 -20.4 -37%

Yen rate（¥/US$） 112.2 110.0 -2.2 -

Income will increase, due to the continuing strong sales. Profit will decrease because of the climbing manufacturing cost and repair expenses.

※ Impact of Yen rate：±1yen / dollar ±260mil

※

2-1. Consolidated Forecast for 2018

bil. yen

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FY2017 Results

FY2018 Forecast

Year-over-Year

Operating profit 9.6 5.0 -4.6

Primary factors

・ Raw material price differential : decrease in ore price

・ Impact of starting inventory for raw materials, etc. : increase in inventory price

・ Return to employees Refitting/

Strengthening business platform

Total

Building stronger base for the future

2-2. Primary factors for decrease in profit

bil. yen

+1.5

-4.1

-2.0

-4.6

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Change in segments from FY2018

Ferroalloys1



Other Businesses2

Other

Electric Power

Environment


Ferroalloys

After

Notes: 1. Melting and solidification of incineration ash business recategorized to environment segment. 2. Businesses in the “Other Businesses” segment recategorized to the relevant businesses.

Before

2-3. Change of Segment

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13

Segment

FY2017 FY2018 vs FY2017

Net sales

Operating profit

Net sales

Operating profit


Net sales Operating

Profit Net sales

Operating Profit

Ferroalloys 48.4 6.8 52.9 2.0 +4.5 -4.8 +9% -71%


10.1 1.2 11.9 1.4 +1.8 +0.2 +18% +17%

Environment 5.1 1.3 6.5 1.2 +1.4 -0.1 +27% -8%

Electric Power

0.6 -0.0 0.7 0.2 +0.1 +0.2 +17% -

Other 7.1 0.3 7.0 0.2 -0.1 -0.1 -1% -33%

Total 71.3 9.6 79.0 5.0 +7.7 -4.6 +11% -48%

Lower operating profit in the ferroalloys business will impact on consolidated results.

Note: FY2017 results converted to segment categorizations used for FY2018 estimates. Melting and solidification of incineration ash business recategorized to environment segment.

2-4. Consolidated Forecast for 2018 by segment

bil. yen

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14

82.9

58.4

71.3

79.0

2.0 1.7

9.6

5.0

-14.1

-0.1

8.0

5.0

-15.0

0

4.0

6.0

8.0

10.0

0

50.0

70.0

90.0

FY2015 FY2016 FY2017 FY2018

Net sales Operating profit Net income

Net sales

Profit

2-5. Net sales / Profit

bil. yen

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■ Cash flow from investment activities

△3.5bil.yen

■ Cash flow from financing activities

0.1bil.yen

■ Interest-bearing liabilities

6.9bil.yen

■ Cash flow from operating activities

1.8bil.yen

15

Financial Plan

Capital Investment Plan ■ Strategic investment in processing

equipment for incinerated ash melting and

solidification and new facilities for in-house

production of electrode paste

■ Steady renovation of old facilities and

implementation of environmental safety

measures

bil. Yen

FY2017 FY2018

Income before income taxes 8.1 5.6

Depreciation and amortization 1.4 1.9

Increase (decrease) in other assets △ 10.8 △ 4.9

Income taxes △ 0.3 △ 0.8

Cash flow from operating activities △ 1.5 1.8

Investment △ 3.9 △ 7.8

Others △ 2.0 4.4

Cash flow from investment activities △ 5.9 △ 3.5

Cash flow from financing activities △ 4.2 0.1

Cash and cash equivalents 8.6 6.9

(2017VS △1.7)

4.9 6.9

(2017VS +2.0)

Interest-bearing liabilities

2-6. Capital Investment & Financial Plan

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Overview of Operations

３． Overview of Operations

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３-１． Ferroalloys Crude steel production

17

China： Following on from last year’s rise in production, a further increase is projected to make up for government-led removal of low-grade crude steel ingot production capacity. India ： Production exceeded 100 million tons for the first time in 2017, and is expected to remain robust in 2018.

High-carbon ferromanganese

Although production rebounded in 2017, conditions are expected to remain tight due to factors including rising demand for high-grade steel.

● 2016：3.6mil. ton ● 2017：4.1mil. ton

■ World production

（ 14% Y to Y up ）

● 2018

● 2018

■ Production in Japan

● 2016： 104.7mil. ton ● 2017： 104.6mil. ton

■ World production

● 2016：1,587.2mil. ton ● 2017：1,674.7mil. ton

（0.1% Y to Y down）

（ 5.5% Y to Y up ）

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■ Outlook for 2018 (fertilizer business included)

■ 2018 Business situation

●2018 ： 1. Demand for high-carbon ferromanganese will remain strong

Outlook for 201８

【Background】・Ongoing trend toward production of high-grade steel by all steelmakers

18

： 2. Increased costs anticipated due to price hikes for some raw materials

【 Background 】・Due to steep rise in prices for coke, electrodes, etc.

FY2017 FY2018 vs FY2017


Net sales 48.4 52.9 +4.5 +9%


bil. yen

３-１． Ferroalloys

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2

4

6

8

10

12

14

16

18

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017

($/t) Manganese Ore and High-Carbon Ferromanganese Quarterly Market （2005～）

High-carbon ferromanganese (Europe)($/t・left axis) Manganese Ore ($/Mn%・right axis)

($/Mn%)

672

1,423

1,287

1,323

2.05

9.5

4.5

6.5

7.15

2

3

4

5

6

7

8

9

10

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2016.1 2016.7 2017.1 2017.7 2018.1

($/Mn%) ($/t) 2016–2017 detailed view

・Manganese Ore Prices

Jan. 2016 ⇒ $2.05/Mn%

Jan. 2017 ⇒ $9.50/Mn%（ Approx. 4.5x YoY up）

Dec. 2017 ⇒ $6.5/Mn%（ Approx. 30% YoY down ）

Latest 2018 ⇒ $7.15/Mn%

・High-Carbon Ferromanganese price

Jan. 2016 ⇒ $672/ｔ

Jan. 2017 ⇒ $1,423/t（Approx. 2x YoY up）

Dec 2017 ⇒ $1,287/t（4% YoY down）

Latest 2018 ⇒ $1,323/t

Ferroalloys Market and Price Trends

－$2.0/DMTU －$1.0/DMTU ＋$1.0/DMTU ＋$2.0/DMTU

〇5,044 〇2,522 ×2,522 ×5,044

－$200/MT －$100/MT ＋$100/MT ＋$200/MT

×5,940 ×2,970 〇2,970 〇5,940

【 Reference 】 Market Sensitivity（Yen rate110 yen/$ ）

Sales price （Net Sales） Manganese Ore Prices （Cost）（mil. yen）（mil. yen）


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Other +0.1

Forex △0.5

6.8 2.0

Raw Material

cost △4.8

Sales price in $

△0.4

Volume diff +0.4

Cost improvement

+0.3

△1.0

Volume diff

△0.5

(bil. Yen) Sales price

in $ +15.1

Cost improvement

+0.1

Raw Material

cost △7.0

Forex +0.3

Other △0.2

◆ From 2016 to 2017

・Sales price rose due to market recovery.

・Production cost increased due to raw material prices up.

◆ From 2017 to 2018

+7.8bil. yen △4.8bil. yen

〔2016〕〔2017〕〔2018〕

Operating Profit Analysis

20

・Sales volume rose slightly year-on-year

・Production costs increased

※

Note: estimates based on new segment categorizations


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■ Malaysian Project Currently, ･ All six electric furnaces for

silicomanganese and ferrosilicon are operating, ⇒ Improvements are being made to further enhance stable operation

・ Began operating our own sintering facilities in October 2017

Aiming to start operating all eight electric furnaces, including the remaining two medium-low carbon ferromanganese electric furnaces, in the first half of 2018 and quickly achieve stable operation.

Steady production and sales are

expected to make us more earnings

Overseas Projects

21


Products (MT/Year) Electric Furnaces

SiMn 120,000 33MVA × 3units

FMnML 54,000 5MVA × 2units

FeSi 60,000 33MVA × 3units

Sinter Plant 200,000

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・Acquired manganese mining (Kudumane mining) interests in South Africa in June 2013 and began mining operations.

・Began full-scale shipping to China in August 2013.

・Our company expects to receive in 2017.

・Acquired manganese mining operation interests in Hotazel in November 2016.

Scheduled to start commercial production this year.

0

30

60

90

120

150

180

2014 2015 2016 2017 (F) 2018 (F)

Kudumane mine production and sales volume trends

Manganese Ore production（mil.t） Manganese Ore sales volume（mil.t）

⇒ Production and Sales are expected to be strong in 2017, and the same levels of production and sales are anticipated in 2018.

Manganese Mining Investment

22

⇒ The manganese ore market suffered a decline in early 2017, a period of adjustment, but firmed up in the second half.

2

3

4

5

6

7

8

9

10

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2015.12 2016.3 2016.6 2016.9 2016.12 2017.3 2017.6 2017.9 2017.12

($/Mn%) ($/t) 2016 – 2017 detailed view

High-carbon ferromanganese (Europe)

($/t・left axis)

Manganese Ore

($/Mn%・right axis)


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■ 2017 Business Climate and Initiatives

■ ２０１８年見通し

Business Climate

Global trend toward electric vehicles • Trend towards electrification is

accelerating as environmental regulations tighten

• Trend towards conversion from gasoline and diesel vehicles to electric vehicles

⇒ Expanding demand for the products we offer for electric vehicle applications

Initiatives

1. Proactive growth due to unified operations 2. Steady supply to the automotive industry in good condition 3. Customer satisfaction maintenance of high quality 4. Achievement of stable operation to fulfil Sumitomo Metal Mining Co., Ltd. production contract

23

Lithium-manganese oxide etc. Hydrogen storage alloys

Zirconia, Mn Chemicals Ferroboron

Motor

Lithium-ion batteries Nickel-hydrogen batteries

Cathode materials for lithium-ion batteries Anode material for nickel-hydrogen batteries

Ceramic capacitors , Catalyst

Outlook for 2018 ３-２． Functional Materials

FY2017 FY2018 vs FY2017


N e t s a l e s 10.1 11.9 +1.8 +18%

Operating profit 1.2 1.4 +0.2 +17%

bil. yen

■ Outlook for 2018

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Manufacture by Sumitomo Metal Mining Co.,Ltd. commissioning Manufacturing will start in June 2018

Contract contents

Contents Contract a part of manufacturing of cathode materials for lithium-ion batteries.

Client Sumitomo Metal Mining Co., Ltd.

Production center Takaoka Plant（Takaoka, Toyama pref.）

Amount of production

About 500MT /Monthly

・July 2017: Concluded manufacturing contract with Sumitomo Metal Mining Started upgrading production facilities at Takaoka plant ・June 2018: Full operation

３-２． Functional Materials

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● Demand for automotive component surface treatment is strong, but domestic automobile production in Japan

is forecast to decline

● Strong sales of pure water for hydrogen production in “Ene-Farm” home fuel cells, and sales to hydrogen

stations will grow along with plans for construction of new stations

■ Business Climate

■ 2018 Initiatives

● Focus sales efforts on tapping into latent demand relating to automotive components and growth sectors in

Japan (aircraft/hydrogen)

● Develop business overseas, where growth is anticipated

● Sales initiatives aimed at new contracts for large-scale facilities

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３-３． Environment

【Environmental Recycling Systems】

【Melting and Solidification of Incineration Ash in Electric Furnace】

● In 1995, Chuo Denki Kogyo became the first private company in Japan to begin treatment of incineration ash

generated from municipalities by melting in a ferroalloy furnace.

● Two dedicated furnaces were added in early 2000 and we have the largest process capacity in Japan. (73k tons of ash /year)

■ Overview and History of business

● Achieved dioxin breakdown and neutralization/stabilization of heavy metal through high-temperature

solidification

● The Slag (registered trademark ECOLAROCK )is sold for a wide range such as road bed material.

● Valuable metals (gold, silver, copper, etc.) contained in the molten metal are recovered.

■ Recycle

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0

20

40

60

80

100

'02 '04 '06 '08 '10 '12 '14 '16 '18

Processed volume

Processedvolume(1,000t)

■ Outlook for 2018

26

■ The New addicted furnace ● Growing needs for processing capacity ⇒ Construction of the third dedicated furnace (with processing capacity of 35,000 tons) is scheduled to start operation in April 2018. After completion in 2018, the annual processing capacity will boost above 100,000 tons. ⇒ Further expansion of processing volume

■ Trend in processed volume and processing capacity after adding the new dedicated furnace

■ The constructing new dedicated furnace(EM3)

FY2017 FY2018 vs FY2017


N e t s a l e s 5.1 6.5 +1.4 +27%


３-３． Environment

Pro

cessin

g cap

acity afte

r exp

ansio

n

bil. yen

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■ Hydropower business taking advantage of feed-in tariff system

Transform business to specialize in electricity sales

● Upgrade No. 2 and No.3 power plants ● The profit will be secured by complete startup from 2019. ● Future stable operative measures are examined by flood stocktaking in 2016.

27

No2. Power Plant

Horoman-dam

３-４． Electric Power

No2. Power Plant

4,406kW Started operation Nov. 2017

No3. Power Plant

6,222kW To start operation Dec. 2018

Net sales Operating

profit

FY2017 0.6 -0.0

FY2018 0.7 0.2

Hromangawa Power Plant

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bil. yen

(5)

0

5

10

15

2017 2018 2019

Net salesOperating profit


Medium-Term Business Plan (2018 to 2020)

４． Medium‐Term Business Plan (2018 to 2020)

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2014 2015 2016 2017 2018 2019 2020 ... 2025

M i l e s t o n e s o n t h e w a y t o o u r 1 0 0 t h a n n i v e r s a r y i n 2 0 2 5

New plan (from 2018 to 2020) Previous plan (from 2015 to 2017)

2018/1 Total integration

Merger

Concentrate on core

competencies

2014/7 Merger Changes Japanese name (English name unchanged)

1 0 0 t h a n n i v e r s a r y

2 Cores

4 Cores

4Cores +

Strengthening our business base

⇒Build complete business portfolio


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● Further develop the 4 core businesses: Ferroalloys, Functional

Materials, Environment, and Electric Power Build complete systems for stable consolidated earnings

● Fully unify and align management resources

Rapidly enable full leverage of synergies

● Build corporate platform

Become a group that earns community trust and reliance

“4 Cores” + building a platform for the company’s future existence

B a s i c p o l i c i e s o f n e w M e d i u m - Te rm B u s i n e s s P l a n


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Ferroalloys

Electric Power


31

Stable domestic customer base and sound international competitiveness. Secure medium- to long-term profitability as reliable income source.

Automotive electrification and automation is speeding up as global environmental regulations become stricter. “Star business” for responding to growing demand in the battery and automotive parts sector.

Build complete systems for stable consolidated earnings

Convert hydropower generation assets inherited from our forebears for use in a new format (feed-in tariffs). Achieve stable revenue through operation of two power plants.

Bus iness g rowth th rough the “4 Co res”

Rapidly enable full leverage of synergies

Become a group that earns community trust and reliance


Environment

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Recycling (wastewater treatment / incinerated ash treatment) and production of pure water for hydrogen applications provide unique business models with original technologies and expertise. Contribute to society and play a useful role in society.


Total planned investment over three years: ¥20 billion (25% increase from the ¥16 billion invested during the previous planning period)

¥13 billion investment in building a stronger business base (cost improvements, upgrading of old facilities, environmental safety) Other investments will focus on strategic investment in the four businesses

32

Building a platform for the company’s future existence

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Safety Strengthen organizational safety management capabilities, enhance safety training, introduce ISO 45001

Environ-ment Establish environmental management systems, gain ISO 14000 certification for all plants

Quality Gain ISO 9001 for plants and subsidiaries that do not yet have it

Establishing and Promoting “Denko Way” Activities • Comprehensive activities aimed at promoting continual

improvement (kaizen) and creating strong, autonomous worksites

• Establish Denko Way Committees at headquarters and in plants and promote ongoing kaizen as a company-wide activity

• Reorganize small-group activities, and invigorate as company-wide activity

• Enhance training on kaizen methods, etc. Concept for Denko Way activities

Re-search

Orient R&D towards results, with well-balanced efforts aligned to business strategy of each segment • Ferroalloys: enhance cost competitiveness, develop technologies in response to changes in the

business environment, use AI and IoT technologies to stabilize operations • Functional materials: develop zirconia products and battery materials, and conduct research to

seek out next-generation products

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Main Measures Main Goals and Specific Examples

Reform working styles Introduce back-to-work and telecommuting schemes

Promote participation and advancement of women

Gain Eruboshi and Kurumin certification

Enhance training and HR development

Build development systems capable of producing future management personnel

Enhance internal controls

Swiftly build effective internal control systems

Enhance value of consolidated companies

Implement measures to enhance corporate value from an ESG perspective Introduce stock compensation scheme for directors Reorganize domestic affiliates, etc.

Augment workforce Reinforce personnel dealing with internal controls, safety, environment, and disaster management ⇒Boost group employee numbers to 1,000

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＜2017＞ Net sales 71.3bil. yen Operating profit 9.6bil. yen Ordinary profit 9.2bil. yen ＲＯＥ 12%

Ferroalloys 40%

Other 3%

Medium-term target

Electric Power

9%

Environment 24%


24%

Ferroalloys 72%

Other 2%

Environment 14%


12%

Target in 2020

Operating profit

＜2020＞ Net sales 86.5bil. yen Operating profit 8.0bil. yen Ordinary profit 8.5bil. yen ＲＯＥ over 8% Payout ratio about 30%


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