Last updated: July 23, 2012

* Please see the presentation materials for the most recent business results.

The High Performance Plastics (HPP) Company, under the banner “Chemistry for your Win,” adopts a business strategy of focusing management resources on the automotive materials (AT), IT-related materials (IT) and medical products (MD) fields. The company views these three fields as presenting significant growth potential and as areas where the company can fully apply Sekisui Chemical’s highly-differentiated products, leveraging its competitive advantages.

In fiscal year 2011, the HPP Company recorded an increase in net sales, which included contribution from the newly consolidated, U.S.-based diagnostic reagents business Sekisui Diagnostics, LLC. Despite the sales growth, the company posted its first decline in operating income in three years owing to impacts in the IT field from sluggish demand for digital TVs and computers, which are the primary destinations for the company’s components and materials, and in the AT field from the deteriorating business conditions caused by the decline in automobile production due to the European debt crisis as well as the lingering impacts from the Great East Japan Earthquake and the flooding in Thailand.

The HPP Company’s ongoing efforts to expand business in the strategic fields and overseas generated a 15.2 billion yen year-on-year increase in net sales to 296.9 billion yen. Net sales in the strategic business fields rose by 10.5 billion yen to 145.1 billion yen and for overseas businesses by 17.1 billion yen to 159.6 billion yen for the year, with both receiving substantial contributions from the newly consolidated Sekisui Diagnostics in the MD field.

The company’s operating income declined to 20.6 billion yen. The decrease was the net result of the year-on-year increases of 3.7 billion yen generated from the increased sales volume and an improved sales composition, 4.2 billion yen from product price increases, and 1.8 billion yen from cost reductions being more than offset by the combined effect of a 1.7 billion yen one-time cost associated with the newly consolidated subsidiary, a 2.9 billion yen foreign exchange impact from the ongoing strong yen, a 7.7 billion yen impact from rises in material costs, and a 1.2 billion yen increase in fixed costs associated with business expansion.

Marginal profit increased by 2.0 billion yen in real terms when excluding the one-time costs associated with the newly consolidated subsidiary and the foreign exchange impact. The Great East Japan Earthquake and flooding in Thailand had an 800 million yen negative impact on the profit base.

In the strategic business fields, fiscal year 2011 net sales in the AT field remained essentially flat year on year at 57.8 billion yen. Sales continued growing in emerging countries and other regions for the core interlayer film for automobiles, but overall sales declined from the sluggish demand owing to the economic crisis in Europe and the decline in domestic automobile production following the earthquake and floods. During the year under review, in August 2011, the company established the joint-venture vehicle components molding business Sekisui DLJM Molding Private Limited in India and began accepting orders from local customers, which are primarily Japanese manufacturers.

IT field operations centered on establishing the company’s presence in smartphones and tablet computers in preparation for future growth in the segment. With the intention of expanding demand for touch panel products used in smartphone and tablet computers, we acquired the touch panel component maker Suzutora Corporation (currently Sekisui Nano Coat Technology Co., Ltd.) in April 2011, sales of our ITO films continued to expand. Despite these initiatives, sluggish demand for digital TVs and computers, particularly in the second half, led to fiscal year 2011 sales in the IT field remaining essentially flat year on year at 37.3 billion yen.

In the MD field, the Company established Sekisui Diagnostics as a new consolidated subsidiary with the aim of expanding the diagnostic agent and diagnostic equipment businesses. Sekisui Diagnostics’ operations are based on the diagnostic agent business focused on the fields of biochemistry, diabetes, infectious diseases, and immunological testing acquired from Genzyme Corporation, of the United States. MD field sales increased by 11.5 billion yen year on year to 50.0 billion yen, largely due to the effect of the new consolidation.

The HPP Company is aiming to reestablish a business growth trajectory in fiscal year 2012 and is implementing measures aimed at achieving net sales of 360.0 billion yen and operating income of 36.0 yen billion, which are the current medium-term management plan’s goals for fiscal year 2013, the final year of the plan. The company will also advance strategies for growth, including strengthening the strategic businesses and expanding new products and businesses while also taking steps to fortify the business foundation.

Market Environment

The market environment forecast, which serves as the basis for the HPP Company’s business plan for fiscal year 2012, includes the regional outlooks for improving business conditions in the United States and an easing of the trends of a weakening dollar and strengthening yen during the year. In Europe, however, we expect the severe business conditions to continue.

The market environment forecast for the three strategic fields include, in the AT field, market recovery in the United States and Japan and continuing brisk demand in emerging countries, particularly in Asia. We anticipate strong demand for products in response to the increasing need for lighter-weight and energy-efficient vehicles.

In the IT field, we anticipate the fiscal year 2011 trend in demand for LCD-related products, primarily LCD TVs and computers, to extend into fiscal year 2012 and remain near the bottom level in the first half. In the second half, however, we expect depleting inventories and other factors to lead into a demand recovery. At the same time, we anticipate the brisk demand in fiscal year 2011 for smartphones, tablet computers, and other mobile devices to continue growing.

MD field operations are relatively unaffected by business conditions, and we anticipate ongoing steady business supported by advances in preventive medicine and other segments in the diagnostic agent field.

Sales and Income Targets

The HPP Company’s focus in fiscal year 2012 will be to strengthen the strategic businesses and expand new products and businesses. The company is aiming to raise total net sales in the three strategic business fields by 6.1 billion yen to 151.2 billion yen and net sales overseas by 7.4 billion yen to 167.0 billion yen in fiscal year 2012. As a result, the HPP Company is targeting overall net sales of 340.0 billion yen in fiscal year 2012.

The company anticipates market conditions recovering in the second half of the year and for the increasing sales volume and improving sales composition to boost operating income and raise marginal profit by 8.3 billion yen.

We plan to offset the majority of the projected 1.4 billion yen impact from rising material prices with 1.3 billion yen in cost cuts. We also anticipate a 1.0 billion yen impact from the revision to the fiscal year periods of overseas subsidiaries. We plan to offset other negative impacts on profit, such as an anticipated 3.4 billion yen rise in fixed costs, including increased labor costs from the newly consolidated subsidiary, and a 2.5 billion yen foreign exchange impact, and aim to raise operating income by 3.4 billion yen to 24.0 billion yen for the year.

The HPP Company will focus on three areas in fiscal year 2012: strengthening the strategic businesses, reforming the revenue structure, and developing new products and businesses.

The first initiative, strengthening the strategic businesses, will entail focusing efforts in the IT field on expanding sales of products for smartphones and tablet computers, for which demand is growing. We also plan to increase sales of ITO films used in touch panel devices by introducing new capacitive films to our existing lineup of resist films.

In the AT field, we plan to steadily increase sales of automotive interlayer films, centered on our high-performance interlayer films, in line with the anticipated recovery of automobile demand in Japan and the United States while also expanding sales in developing countries. In the MD field, we will activate the synergies between the Sekisui Diagnostics, which was newly consolidated in the previous fiscal year, and Sekisui Medical using Sekisui Diagnostics as a conduit to launch Sekisui Medical’s product sales and equipment businesses.

The second initiative, reforming the revenue structure, will be applied in the AT field by constructing the optimal material supply and production system for automotive interlayer films. We will endeavor to establish a strong profit structure that is resilient to demand fluctuations and foreign exchange risk by taking advantage of the alignment of our materials and film manufacturing business bases in our main operating regions to construct the optimal supply structure to meet demand.

Under the third initiative, developing new products and businesses, we will accelerate development of new products in fields expected to continue contributing to profit into the medium and long term, such as the energy and semiconductor-related segments.

Through the steady implementation of these initiatives, we aim to raise both sales and profit in fiscal year 2012 while establishing the foundation for medium and long-term growth.