The chemical industry, particularly the petrochemical sector, found itself facing a harsh business climate mainly because of a decline in the market, centering on the Asian region, and high cost of raw materials and of crude oil.
Against the backdrop of rising cost of raw materials and fuel, fierce global competition, and rapid changes in the demand structure, consolidated revenue and earnings of the Group in the fiscal year ended March 2006 decreased over the previous term. The Nippon Soda group posted net sales of ¥143.9 billion, and ordinary income* of ¥4.6 billion, 16% down year-on-year.
We booked impairment loss on industrial chemicals and the feed additive Methionine at the Nihongi Plant, and recorded expenses for structural reform as extraordinary loss. As a result, the group posted a consolidated net loss of ¥6.3 billion. Regrettably, we have had to make the hard decision to suspend payment of dividends for the term under review.
2.Progress of the medium-term business plan
a non-consolidated operating income of ¥5.0 billion, total assets of ¥135.0 billion, and a ratio of operating income to total assets of 4%.
With regard to measures in relating to Industrial Chemicals, the Group reviewed production system for potash electrolysis at the Nihongi Plant due to diminishing the demand for cathode-ray tubes (CRTs) by drastic change in the demand structure along with TV tube´s shifting from CRTs to crystal displays. In addition, we have decided to halt production of sodium metal from autumn 2006 effectively, given lowering of capacity utilization by diminishing the demands and aging progressed facility. From autumn, the Group will sell imported sodium metal, while continuing to run a derivatives business as usual.
Feed additive Methionine
The feed additive Methionine business is now in a harsh environment, due to a surge in raw materials and fuel costs caused by higher oil prices as well as a decline in the market amid the widening demand-supply gap caused by the worldwide outbreak of avian flu. This has resulted in the Nihongi Plant being less competitive in the manufacture of Methionine. Accordingly, we have decided to cease production of Methionine in the first half of 2006, and outsource such production to other domestic manufacturers.
Electric power, steam and other auxiliary sectors
In order to cope with drastic decrease in demand for power and steam by cessation of production of industrial chemicals and the feed additive Methionine at the Nihongi Plant on April 1, 2006. We transferred our thermal power generation facility to Joetsu Energy Service, a new electric power supplier, who has plans to sell our surplus power to outside companies.
From now on, we will purchase electricity, steam, etc. that we need from Joetsu Energy Service, which is expected to bring benefits in terms of costs, thanks to
an increase in the utilization rate of the plant. In addition the staff we sent to Joetsu Energy Service will undertake operating the facilities there.
In the mainstay agro products business, although the Company´s net sales amounted to about ¥37.0 billion on consolidated basis, we will pursue to raise both sales and profits by establishing an operational base targeting sales of ¥50.0 billion or so, in the future.
To this end, we will proactively promote the following measures:
Also, overseas, we are further developing our own network. Following establishment of Nippon Soda Trading (Shanghai) Co., Ltd. last year, Cerexagri-Nisso LLC, a U.S. joint venture for sale of agrochemicals, started its operations in January 2006. In this way, we developed and enhanced our sales networks.
IHARABRAS S/A of Brazil with which the Company is reinforcing its relationship as the largest shareholder, continues to serve as a good key base for the South American market. Through setting up our own sales network in the major overseas markets, the Company will be able to expand sales and enhance profitability.
Dye stuff chemicals
In the thermal-sensitive dye field, focusing on color developers, we are now developing D-100, following
D-8 and D-90. 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, we filed a new drug application for FAROPENEM MEDOXOMIL, a new penem disinfectant drug, in the U.S. at the end of 2005. In cooperation with our partners at home and abroad, we aim to start selling this substance by the end of the current fiscal year. Also we expect it to sell well after bringing it to the market.
Dechlorination treatment for PCBs
The treatment system by dechlorination for PCBs, which uses our proprietary SD method based on sodium metal, is being stably operated by Hokuriku Electric Power Company and JESCO (Japan Environmental Safety Corporation) in the first stage of its Kita-Kyushu project.
Tohoku Electric Power Co., Inc. has also decided to introduce this system. Based on actual results and mindful of the high appraise we earned from the end users, we will steadily expand the use of the system by proactively responding to demand from JESCO (for the second stage of its Kita-Kyushu project) and from private companies.
We will work for realization of our total assets to ¥135.0 billion, by reducing our fixed assets, inventories, and other items by a total of ¥22.0 billion from the levels seen at the end of March 2005.
In March 2006, we issued convertible bonds with stock acquisition rights work for ¥5.0 billion in order to raise the operating funds in line with implementation of the restructuring measures under the medium-term business plan. All these bonds were converted into stock by April 2006.
3.Outlook for the current fiscal year, and message to shareholders and investors
Despite such concerns in the 138th term (fiscal 2006), we have to implement various measures of the medium-term business plan, which was formulated in the previous term.
In the current fiscal term, we need to steadily carry out the restructuring steps we have been promoting since fiscal 2005, including a review of the existing businesses and a reduction in the number of staff and assets. We also need to establish lean and efficient management structures at which we aims. Fiscal 2006 will be a transitional year from the perspective of achieving the targeted operating results.
As for the consolidated business results for fiscal year ending March 2007, we forecast ¥144.0 billion for net sales, ¥6.3 billion for ordinary income*, and ¥3.2 billion for net income. We plan to pay dividends.
Meanwhile, we will strive to raise public confidence in the group by enhancing the timely disclosure of management information.
We sincerely ask for your understanding and support for our efforts.