The chemical industry as a whole was robust, supported by firm demand in amid of a harsh business climate reflecting rising prices of raw materials and fuels while the price of naphtha, a material, was temporarily depressed.
The Group pushed forward with various measures, in the term under review as a year for implementation of structural reform, a pillar of our medium-term business plan for the fiscal years of 2005 and 2006. We revised our earnings projections upward, because it became clear from the middle of the term that our earnings would recover for a number of reasons. There were sales increases in the agro products business for overseas, and growth of the Non-ferrous Metal category resulting from skyrocketing quotations. Results of structural reforms are also reflected in our earnings.
As a result, the Nippon Soda group posted net sales of ¥145.3 billion, operating income of ¥8.9 billion, ordinary income of ¥8.4 billion and net income of ¥3.4 billion, with both sales and profits posting sharp year-on-year increases.
Since we achieved our consolidated operating income target of ¥8.0 billion for fiscal 2007 one year ahead of schedule, we have decided to propose resuming dividend payments (at this ordinary general meeting of shareholders).
2.Summary of the medium-term business plan
I think we have attained the structural reform measures almost as planned through our united efforts. For example, we have achieved earnings targets one year ahead of schedule. However, the goals themselves were modest, and we have only just caught up with the rear of our rivals. With some issues left to be carried over to the next medium-term business plan, we would like to further brace ourselves and work harder.
1) Drastic review of production system
* Downsizing the production system for potash electrolysis-related products following rapid changes in the demand structure.
* Halting production of sodium metal, given the reduced capacity utilization, sharp rises in costs of materials and fuel, and our aging facilities.
(We will continue to sell imported sodium metal and run the derivatives business.)
* Halting production of the feed additive Methionine, which has become less competitive, and shifted to outsourcing its production.
2) Measures to cope with drastic decreases in demand for power and steam by stopping production of industrial chemicals and Methionine
* We transferred our thermal power generation facility to a new electric power supplier under the scheme to sell surplus power to outside companies.
3) After reviewing the production system, we spun off the industrial chemicals business of the Nihongi Plant to create Joetsu Nisso Chemical Co., Ltd. in December 2006, with a view to further enhancing our cost competitiveness. We fully transferred production in April 2007 to provide against future changes in the business environment.
The mainstay agro products business is facing a harsh business environment in Japan, including the introduction of the positive list system for agro chemicals by a revision of the Food Sanitation Law, unseasonable weather conditions and intensified competition resulting from industrial realignment.
Just as we have been doing up until now, we will basically focus on the in-house creation of promising agents and continue to advance them to new phases of development. Specifically, we are pushing forward with development, aimed at early registration of new acaricides, while the development of the themes transferred from Dainippon Ink and Chemicals, Incorporated is advancing and commercialization is on the horizon.
We will strive to secure profitability even under a difficult business environment and build a foundation for further expansion by proactively promoting joint development and business alliances with other companies.
In the agro products business, we will strive to steadily raise both sales and profits by establishing an operational base aimed at boosting consolidated net sales to ¥50.0 billion or so from about ¥36.0 billion at present. The two major driving forces to achieve this will be the enhancement of our product lineups and the improvement of the sales system.
2) Dye stuff chemicals
In the dye field, we focused on color developers. We were able to establish D-8 and D-90 as leading color developer brands in the world. We enhanced the production system of D-90 last year. We will endeavor to develop new chemicals, with an eye to creating new dyes that have good characteristics and economic efficiency.
In the pharmaceuticals sector, development of FAROPENEM MEDOXOMIL, a new penem disinfectant drug, in the U.S. is lagging behind. We are discussing measures to cope with the situation with domestic and overseas tie-up partners.
4) Treatment System by Dechlorination for PCBs
Hokuriku Electric Power Company and JESCO (Japan Environmental Safety Corporation) are stably operating a system to treat PCBs by dechlorination, in the first stage of the Kita-Kyushu project, and the system has been highly evaluated. Tohoku Electric Power Co., Inc. will also start operating this system in fiscal 2007. Construction is under way for Hokuriku Electric Power Company (second stage) and the second stage of JESCO´s Kita-Kyushu project. Based on these actual results, we will steadily work to expand the use of the system by proactively responding to demand from private companies.
We have several materials and themes other than SAM, which we aim to commercialize at early stages in this sector, and we expect to start selling them in one or two years. We will focus on future development, so that this sector expands sufficiently to be recognized as an independent business.
We were able to reduce our total assets to less than ¥140.0 billion (excluding the effect of holidays) on a non-consolidated basis at the end of March 2007, with return of assets of 4.2%. We will continue to work toward our goal of reducing total assets to ¥135.0 billion at the end of March 2008 by reducing our fixed assets, inventories, and other items.
We issued convertible bonds with stock acquisition rights (MSCB) worth ¥5.0 billion in 2006 as a measure to deal with impaired net assets by impairment accounting. Since all these bonds had been converted into stock by April 2006, we have attained our anticipated objective.
3.Outlook for the next fiscal year, and message to shareholders and investors
Under such circumstances, fiscal 2007 is also a year for verifying that we reached the targets of the previous medium-term business plan, such as operating income of ¥5.0 billion on a non-consolidated basis and ¥8.0 billion on a consolidated basis, and non-consolidated total assets of ¥135.0 billion, and establishment lean and efficient management structures.
As for the consolidated business results for fiscal year ending March 2008, we forecast ¥157.0 billion for net sales, ¥9.2 billion for operating income, ¥8.8 billion for ordinary income, and ¥4.1 billion for net income. We believe it possible to attain targets of the medium-term business plan both on a consolidated and non-consolidated basis.
Meanwhile, we are formulating a new three-year medium-term plan, starting from fiscal 2007. We think the greatest challenge under the new plan is how to establish a foundation that can expand and develop on the basis of the lean and efficient management structure realized by structural reform.
We will do our utmost to transform the Group to a new Nippon Soda group over the new three-year period.
This move is aimed at preventing an abrupt and improper corporate takeover by an inappropriate party and protecting the interests of shareholders in consideration of recent moves in the Japanese capital market, and it conforms to guidelines and other regulations issued by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange. Since we anticipate to follow these measures when purchasers actually appear, we will secure enough time for shareholders to fully compare and study the takeover plans of the purchasers and the business plan of the current management, which enables them to select a plan which they think will improve corporate value.
We sincerely ask for your understanding and support for our efforts.