We will respond swiftly to changes
in the economic environment and
enhance our corporate value
by seizing growth opportunities.
I would like to express our sincerest gratitude to all our customers, business partners, shareholders, and the local communities for their support and cooperation.
In FY2020, the entire international community has faced the unprecedented challenge of the COVID-19 pandemic. This resulted in constraints on economic activities on a global scale. We have been striving for steady growth by placing our top priority on the health and safety of our employees as well as by ensuring thorough risk management. We have also been working to achieve steady growth through a stable supply of high quality products based on close communication with customers. One of our management mottos has long been “Never forget a crisis in the midst of a favorable wind, and plan ahead for growth when faced with a headwind.” This time, we have been able again to achieve solid performance by sticking to this policy and responding quickly to the changes in market conditions.
We continued to invest steadily for growth in FY2020 with the aim of increasing our corporate value. This year, at Shintech in the U.S., an integrated PVC production plant under construction in Louisiana is scheduled to start operations. Also, we have started the next PVC expansion project at the same site. Upon completion of the expansion by the end of 2023, Shintech will have a production capacity of 3.62 million tons per year, further strengthening our position as the world’s largest PVC manufacturer. In the semiconductor silicon business, the whole company is working as one to promote research and development, innovate the production process, and ensure stable supply to satisfy the customer demands for high quality products. In all our businesses, such as the silicones and the electronics & functional materials, we are actively investing resources, including human resources and capital, into R&D and the enhancement of facilities for future growth.
Achieving a sustainable society and curbing the environmental impact is a challenge for the entire world. Contributing to the SDGs is one of our management principles. We are developing and launching materials that will help solve SDG-related issues, and working to curb the environmental impact and reduce greenhouse gas emissions. Up to now, we have produced many products that serve to prevent global warming. PVC products contribute to the effective use of resources, energy savings, as well as to the reduction of waste through recycling. In addition, semiconductor silicon, rare earth magnets, and silicone resins are essential materials for electric vehicles and information and communication devices. These products contribute to energy conservation and the advancement of digital transformation (DX) in society as a whole. We are tackling the effective use of resources and the reduction of greenhouse gas emissions by way of promoting further innovation in production technologies. We will continue to achieve a sustainable society by focusing on the development and stable supply of high quality materials and products, and on the advancement of production technologies.
Our aim is to further enhance our corporate value by working together with you to achieve growth. We would like to thank all of you for your continued understanding and support.
As an essential supplier to human life and
industries in the world, we will continue
to contribute to the realization of sustainable
growth of society.
The past year or so has got us a fair amount of learning and thinking. It began with the declaration of a pandemic, which triggered restrictions and lockdowns. As the world has been grappling with the infection, there have been changes and developments in the societies, economies and markets. Some of them may not last but some others may be here to stay even after the pandemic comes to end. Throughout this period, our company not only fared well but also demonstrated its resilience. I am very proud of our people. They kept the focus, carrying out their work and duties with unprecedented circumstances and challenges unfolding. They are truly essential.
While our business portfolio proved adaptable enough to keep working well, we will not take it for granted. We will strengthen it and make it fitter and more viable. We take changes as opportunities for growth. As more changes will come, we will work with our customers more closely than ever. We are determined to be a most reliable supplier to all our customers with best in class quality, technology and practice. We will develop numerous products which help solve issues faced by our customers.
Lately, major countries have set goals for reduction in greenhouse gas emissions and begun to move forward to achieving carbon neutrality. Our business is all in all aligned to helping reduce greenhouse gas emissions. We will commit to further aligning our business to this goal. It is imperative to maximize efficiency throughout the economies in this day and age, when human beings pursue sustainable growth and prosperity while reducing the burden on environment. We can play a key role to that end. We will develop our product offerings with this focus and make contributions in such manner that the more of our products are used, the better the industries and human societies become. In addition, we will adopt technologies that are effective in reducing greenhouse gas emissions as many of them and as soon as we can. We are determined to do our part as an essential supplier to human life and industries in the world.
Globalization may be reevaluated and modified or revised if a potential decoupling of the global economy arises from the U.S.-China confrontation. Regardless of how all that may unfold, we will be flexible and swift enough to continue to play a key role as an essential supplier.
Let me give you a summary of where we are with our business segments.
Growth in PVC demand is expected to continue in major markets thanks to the rising demand for housing and infrastructures and because of elevated public awareness of the environment. PVC is a material of choice not only from engineering point of view but also from an environmental point of view. Our capacity expansion by Shintech in North America should be completed for start-up in the middle of this year. In the meantime, we have begun construction of the next capacity expansion there.
For the silicones business, we are enhancing the downstream capabilities and enriching our product offerings for customers everywhere in the world. We will continue to develop products and their applications in order to provide solutions to our customers.
As for the cellulose business, in addition to pharmaceutical excipients and industrial additives, which have been our focus, we are meeting the increasing demand for food applications. To help yield a good crop, we will increase the lineup of pheromone products. We are also adding pheromone products for forest preservation. For other products such as polyvinyl alcohol, we are working on new applications.
Demand for semiconductor devices is so strong in all directions that there is a persistent shortage of semiconductors. As semiconductors are regarded as strategic materials, we as a pivot in the supply chain provide the ultimate quality and reliable supply that will support further scale down and integration. We contribute to the advance of digitization toward the so-called “de-materialization” of the economy.
With regard to the lithographical areas, we stay tuned with and support further shrinkage and integration, multi-layering resist system and advanced packaging by speeding up development. We accelerate capacity plans to meet the quality and supply required by customers in a timely manner. The use of rare earth magnets in automotive applications (especially environmentally friendly automobiles which use rare earth magnets about ten times more than conventional automobiles), factory automation, data centers and wind power turbines continues to grow. We apply our technologies to all fields and applications of electric motors and drives. We also make wise use of our rare earth separation and purification technology.
We will expedite commercial production and development of 5G related products. We will launch micro LED materials, lithium-ion battery performance enhancer, and heterogeneous semiconductor substrate products.
In sum, we are setting our growth on three currents, that is to say an upward trajectory of semiconductor demand, development for carbon neutrality and increasing needs for better infrastructure and housing.
We pay great attention to shareholders return. In this regard, we declared an annual dividend of \250 per share, which is the highest mark in the company’s dividend history.
In order to continue to do what we have been able to do for our customers, our shareholders and the communities where we are in, it is essential that the company continues to grow. We are working on various initiatives to broaden our business portfolio and expand our footprints. We will remain focused on our customers and their needs to be relevant to them, will remain committed to governance to be relevant to our shareholders and will remain responsible to be relevant to our communities.
I sincerely thank our shareholders for your confidence, our customers for their partnership and our entire Shin-Etsu team for their dedication to our operations.
Business and Other Risks
Among the matters relating to the status of business and accounting, etc. described in the Annual Securities Report, the major risks that management recognizes may have a significant impact on the financial position, business results, and cash flow status of the consolidated companies are as follows.
The Group (the Company and its consolidated subsidiaries and affiliates which are accounted for using the equity method, hereinafter referred to as “the Group”) strives to prevent, disperse, and hedge potential risks and thereby mitigates risks. However, there is a possibility that the operating performance of the Group may be impacted significantly should any unforeseeable circumstances arise.
Indicated are principal matters that are considered to likely be risk factors based on the Group’s judgment as of March 31, 2020, and do not cover all risks related to the Group.
1. Risks related to Economic Situation and Market Conditions
The economic situation in the countries and regions where the principal markets of the products handled by the Group are located may significantly impact the operating performance of the Group. Further, some of the main products handled by the Group may be subject to significant price fluctuations due to changes in global supply and demand conditions. The Group hedges potential risks by promoting diversification and globalization of businesses. However, a decrease in demand or an intensified price competition related to a Group’s product may have a significant impact on the operating performance of the Group.
2. Risks related to Foreign Exchange Market Fluctuations
In the fiscal year ended March 31, 2020, overseas sales accounted for 73% of consolidated net sales of the Group. The Company expects the ratio to remain at a high level going forward. Significant exchange rate fluctuations may affect the results when converting overseas group companies’ business results on financial statements into Japanese yen and consequently have a significant impact on the operating performance of the Group. Significant exchange rate fluctuations may similarly affect foreign currency-denominated transactions and there is no guarantee that such risks can be completely avoided, although the Group takes risk-mitigating measures such as making use of foreign exchange contracts.
3. Risks related to Natural Disasters and Unpredictable Events
The Group strengthens countermeasures to ensure damage from any unforeseen interruption in production activities is kept to a minimum, and this includes regularly conducting inspections and maintenance activities for disaster prevention, and making capital investments to ensure safety. The Group also strives to operate at multiple production sites. However, unpredictable events and natural disasters may cause physical damage to the Group’s production facilities and other properties, or the occurrence of supply chain disruptions, and these may have a significant impact on the operating performance of the Group.
4. Risks related to Laws and Public Regulations
Countries and regions in which the Group conducts its business activities are subject to various laws and regulations, including investment permits, import and export, commercial trade, labor, patent, taxation and foreign exchange. Modifications to such laws and regulations may have a significant impact on the operating performance of the Group.
5. Risks related to Procurement
The Group’s production activities depend on various raw materials and the Group strives to ensure stable procurement of raw materials by avoiding being dependent on specific sources for such. However, a lack of or delay in the supply of raw materials, changes in trade policies in the supplying countries, or a price hike caused by such circumstances, can have a significant impact on the operating performance of the Group.
6. Risks related to Rapid Technological Innovation
Technological advances are remarkable in the electronics market, which is one of the main industries to which the Group distributes its products. As such, the Group makes ongoing efforts to develop cutting-edge materials that can readily respond to technological innovation. However, if the Group faces difficulty in appropriately responding to changes in the industry and related markets, this may have a significant impact on the operating performance of the Group. In addition, the emergence of competitive substitute products may have a similar impact on products for industries other than the above.
7. Risks related to Environmental Issues
As a business entity that handles various chemical substances, the Group complies with various laws and regulations relating to the environment, as well as proactively implementing energy-saving measures to prevent global warming and taking steps to curb the emission of substances that affect the environment by maximizing efficiency. However, if it is technically difficult to respond to environmental regulations or a need arises to newly pursue a major capital investment due to the strengthening of environmental regulations beyond what the Group had assumed, this may have a significant impact on the operating performance of the Group.
8. Risks related to Product Liability
The Group is fully committed to ensuring optimal product quality in accordance with the characteristics of each product. However, should an unforeseeable quality issue arise, such may significantly impact the operating performance of the Group.
9. Impact of the New Coronavirus (COVID-19)
In order to minimize the impact of COVID-19, the Group’s business sites are implementing thorough safety and health measures. However, if the spread of the virus in the future and the policy of curbing economic activity in each country in the aftermath of it significantly reduces demand for the Company’s products and damages the supply chain, including the Company’s business sites, this may significantly impact the operating performance of the Group.
Shin-Etsu Chemical Co., Ltd. conducts IR activities to provide all stakeholders with a better understanding of the Company’s business and management. The Company listens to the views of shareholders and investors through dialogue and make use of their views to management.
Information Disclosure Policy
1. Basic Policy
We ensure fair and transparent disclosure to our shareholders and investors in accordance with Financial Instruments and Exchange Act and the Securities Listing Regulations stipulated by the Stock Exchange on which our stocks are listed. This is based on our understanding that timely and accurate disclosure of the Company’s corporate information to the shareholders and investors facilitates the understanding of the Company and brings appropriate evaluation from the market.
2. Information Disclosure Policy
The Company discloses information corresponding to material facts prescribed under the Securities Listing Regulations via the Timely Disclosure Network (TDnet) system of the Tokyo Stock Exchange, the Company’s website, and announcements made at relevant press clubs.
In addition to the aforesaid disclosure, the Company strives to disclose information that is considered to have a substantial impact on the investment decisions of shareholders and investors, and information that is likely to be useful for shareholders and investors to deepen their understanding of the Company via the corporate website in a fair and timely manner.
3. Matters Concerning Operating Performance Forecast
The information disclosed by the Company may contain forward-looking statements. These statements, such as operating performance forecasts, include risks and uncertainties since they are based on management’s judgment and assumptions in light of the information available at the time of disclosure of such information. The reader, therefore, should be aware that actual results may differ from any forecasts expressed due to various factors. Material factors affecting actual results may include overall economic conditions in which the businesses of the Company and its group companies are involved, the relevant market trends and fluctuations in foreign exchange rates. However, factors that may affect operating performance are not limited to those enumerated above.
4. Quiet Period
The Company observes a quiet period from the day following the financial closing date of each quarter until the day of announcement of financial results in order to prevent leakage of financial information and ensure fair disclosure. During this period, the Company refrains from making comments or answering questions regarding its financial results. However, if any event requiring disclosure under the Securities Listing Regulations arises during the quiet period, the Company will disclose information in a prompt and appropriate manner.