New 3-Year Plan (2005-2007) May 19, 2005 President and CEO: Naozumi Furukawa
Agenda Summary of PZ-2 (Plan 2003-2005) PZ-3 New 3-Year Plan PZ-3 Concept Industrial Forecast for 2010 Market Size for Target Industries PZ-3 Basic Policy PZ-3 Target Basic Strategies by Segment Basic Strategies by Function PZ-3 Conclusion Table of Contents 1
Summary of PZ-2 Summary PZ-2 2
PZ-2 2 Performance Summary Consolidated for Target Profits PZ-2 for FY2003 FY 2003 PZ-2 for FY 2004 FY 2004 PZ-2 for FY 2005 ZVA -3 B 2.3 B 0 B 500 M 3 B Net Sales 215 B 213.3 B 17.6 B 231.4 B More than 23 B Operating Income 14.5 B 17.9 B 19 B 19.3 B More than 26 B Interestbearing Debt 60.5 B 56.3 B 53.6 B 60.0 B or less D/E Ratio 0.80 0.79 0.70 0.70 or less PZ-2 3
Growth in Consolidated Income (Unit: million) 250,000 25,000 200,000 20,000 150,000 15,000 100,000 50,000 0 Net Sales Ordinary income Operating Income FY 00 FY 01 FY 02 FY 03 PZ-2 Plan for FY 04 FY 04 PZ-3 Plan for FY 05 Increase in ordinary profits achieved for 5 fiscal years in a row 10,000 0 5,000 PZ-2 Summary 4
Changes in Profit Index (Consolidated) 100 million Net Sales Achieved 1 year earlier 100 million Operating Income FY 01 FY 02 FY 03 FY 04 FY 05 Target FY 01 FY 02 FY 03 FY 04 FY 05 Target 100 million FY 01 Balance of Interest-bearing Debt, D/E Ratio FY 02 Interest-bearing debt FY 03 D/E ratio Achieved 1 year earlier FY 04 FY 05 Target 100 million FY 01 FY 02 ZVA FY 03 FY 04 FY 05 Target PZ-2 Summary 5
Progress by Segment (Consolidated) 100 million 2,500 2,000 1,500 1,000 500 0 Net Sales 2,109 2,150 2,133 2,176 FY 02 FY 03 PZ-2 FY 03 FY 04 PZ-2 2,314 FY 04 Others Elastomers Specialty Materials 100 million 200 150 100 50 0 129 FY 02 Operating Income 145 FY 03 PZ-2 179 FY 03 190 193 FY 04 PZ-2 FY 04 Others Elastomers Specialty Materials For the Specialty Materials Business, results were mostly in line with the PZ-2 plan, however, because results for the Elastomer Business exceeded PZ-2, the ratio of the Specialty Materials Business in operating income did not overtake Elastomers. PZ-2 Summary 6
New 3-year Plan (2005-2007) 7
PZ-3 Concept PZ-2 2003-2005 Secure a foothold for the future Reinforce corporate conditions PZ-3 2005-2007 Realize dramatic progress Improve corporate value Decrease in interest-bearing debt Lowering of D/E ratio With an eye on the business environment in 2010, PZ-3 lays down the targets for 2007, the midway point. Aggressive investment Renovation of production Emphasis on CSR CSR:Company Social Responsibility Reinforcement of R&D PZ-3 8
Industrial Forecast for 2010 Market Size for Each Industry and Growth Rate Market Size Log trillion Target Industry -5 Agriculture, forestry, and fisheries Textiles Industrial electric machinery Transportation 0 Wholesale and Retail 100 Construction Real Estate Other manufacturing Food Petroleum, coal 10 Ceramics and cement Water works and waste disposal Public services Services for Individuals Automobiles General machinery Communications Chemicals Electrical appliances, gas, heat Iron and steel Metal products Pulp, paper Household electric machinery Other transportation 5 10 Others Non-ferrous metal Precision machinery Finance and Insurance Services for offices Electronic and Telecommunication Devices Growth Rate % Mining 1 Growth Rate 2% Market Size: 10 trillion PZ-3 9
PZ-3 Basic Policy Renewing awareness of CSR and striving to establish a company that is trusted by society and a source of pride for employees through Speed, Communication, and Contributions to Society. Management strategy is consistent with R&D Strategy; Create new businesses with world-leading technologies that are original and beyond comparison; Continue to grow and expand businesses. PZ-3 10
PZ-3 Target (Consolidated) FY 2004 FY 2005 PZ-3 Plan FY 2007 PZ-3 Plan Net Sales 231.4 B 241.5 B 270 B Operating Income Component ratio of Specialty Materials in operating income 19.3 B 23.0 B 33 B 45 49 55 ROE 10.5 13 16 Reference Index below ZVA 0.5 B D/E ratio 0.70 2 B 0.64 4.8 B 0.49 (Preconditions) 1. Exchange rate 100/USD; 135/EUR 2. Naphtha: 35,000/kl PZ-311
PZ-3 Target Consolidated Consolidated ( 100 million) 300 2,500 2,000 1,500 1,000 500 0 2,314 FY 04 Net Sales 2,415 FY 05PZ-3 2,700 FY 07 PZ-3 Other Elastomers Specialty Materials ( 100 million) 350 300 250 200 150 100 50 0 193 FY 04 Operating Income 230 FY 05PZ-3 330 FY 07PZ-3 Other Elastomers Specialty Materials PZ-3 12
Elastomer Business Automobile parts Tires C 4 Fraction GPB C 5 Fraction GPI World-leading Extraction Technology Traffic paint Gloves PZ-3 Basic strategy by segment 13
Basic Strategy World-leading Quality World-leading Cost Competitiveness Securing Stable Profit Optimizing a Global Supply System PZ-3 Elastomer Business 14
Key Measures for Achieving PZ-3 Renovation of Production Thorough stabilization of processes Pursuit of 100% of yield World-leading quality World-leading cost Optimizing a global supply system Production at optimum locations Global optimization Streamlining in brand and name packaging Specialization Developing new uses to generate high-added value Streamlining and conversion of production facilities PZ-3 Elastomer Business 15
PZ-3 Elastomer Business Net Sales ( 100 million) 1,600 1,426 1,477 1,384 1,400 1,238 1,261 1,200 1000 800 600 400 ( 100 million) 140 Operating Income 120 108 102 100 94 80 73 60 40 121 200 0 FY 02 FY 03 FY 04 FY 05 PZ-3 FY 07 PZ-3 Target for FY 2007 Net Sales 147.7 B 20 0 FY 02 FY 03 FY 04 FY 05 PZ-3 FY 07 PZ-3 Operating Income: 12.1 B PZ-3 Elastomer Business 16
Specialty Materials Business DVD players ZEONORFILM Mobile phones Disks Light guide plates Chemicals for semiconductor manufacturing Lenses LCD televisions Light diffusion panels Digital cameras Prisms and lenses Laser beam printers Perfumes PZ-3 Basic Strategy by Segment 17
Basic Strategy Strengthen technology platforms based on original, world-leading technology Dramatic expansion of business Strengthen precision processing technology that makes the most of ZEON s own materials User-oriented Marketing PZ-3 Specialty Materials Business 18
Key Measures for Achieving PZ-3 Customer-oriented Sharing the development road map Proposal-type sales and development Striving for 5 targeted fields De facto standard Establishing a supply system for only one product Priority investments in production facilities Continuous release of new products Strengthening technology platforms Priority on placement of research personnel PZ-3 Specialty Materials Business 19
PZ-3 Specialty Materials Business Net Sales ( 100 million) ( 100 million) 700 200 641 600 Operating Income 181 500 451 150 400 369 112 300 255 313 100 75 86 200 100 50 45 0 FY 02 FY 03 FY 04 FY 05 PZ-3 FY 07 PZ-3 Target for FY 2007 0 FY 02 FY 03 FY 04 FY 05 PZ-3 Net Sales: 64.1 B Operating Income: 18.1 B FY 07 PZ-3 PZ-3 Specialty Materials Business 20
Basic Strategy by Function R&D Strategy Production Strategy Investment Strategy Financial Strategy CSR Strategy CSR:Company Social responsibility PZ-3 21
R&D Strategy 1. Integrating management strategy with R&D strategy Speed Monthly President s Hearing 3 Patterns of R&D Themes Experiment on request type Use of a triangle network Road map type Close relationship with users Solution Proposal type Creating markets with original technology Creating more business with Hit SBU 2 Increasing R&D speed and improving success rate Communication Continuous release of new products Contributions to society Round the clock development Industry-Government-Academic Cooperation Use of simulation 3 Strategic strengthening of technology platforms PZ-3 Basic Strategy by Function 22
Shift in R&D Expenses ( Million) 10,000 Increase in R&D expenses due to priority distributions to Specialty Materials Business 9,000 8,000 7,000 6,000 5,000 4,000 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 PZ-3 PZ-3 R&D Strategy 23
Production Strategy Thorough pursuit of safe, stable production by renovation of production Pursuit of thorough stabilization of processes Investment in facilities that are error-free and where mistakes do not result in injury Measures to stimulate plants Moving forward with unification and streamline of brand name packaging Aiming to Realize Advanced Control All out effort of the Group for cost reduction Target amounts Totals for 2005-2007: 12 B Co-existence with the Community Society s Trust PZ-3 Basic Strategy by Function 24
Investment Strategy With an eye on 2010, strategic investment for new businesses 5 fields Displays (flat-panel displays) Computers (semi-conductors) Recording (storage including DVDs) Communications optical fiber, insulation materials Energy (materials for batteries) Investment for strengthening capabilities of work sites ( 100 million) Shift in capital investment FY 2003 FY 2004 PZ-3 Average PZ-3 Basic Strategy by Function 25
Financial Strategy Establishing firm financial conditions aimed at stable expansion of corporate value 2005-2007 Operating cash flow Investment Over 80 billion Over 65 billion Investment Aggressively carrying out strategic investment for expanding new businesses with an eye on 2010. Current income 40 B Depreciation expenses 42 B Dividend policy Increase/decrease In working capital - 2 B Dividends Purchase of Treasury stock Continuing a stable dividend policy for shareholders Strategic Investment Strategic investment Undertaking swift steps for M&A and other activities PZ-3 Basic Strategy by Function 26
CSR Strategy A company that is trusted by society with employees proud to work for ZEON Implementation of compliance education Preparing for a risk prevention system Reacquisition of voluntary safety certification Investing in environmental and safety measures Raising awareness at plants Associating with local communities Messages in local newspapers, advertising inserts A company is a public institution for society PZ-3 Basic Strategy by Function 27
PZ-3 Conclusion Marketing Strategy R&D Strategy Creating technology Elastomer Business Specialty Materials Business Business Mission Selective priority allotment of management resources Maintaining continuous increases in income and profits Securing stable profits Dramatic expansion of business Improving Corporate Value Renovation of production Production Strategy PZ-3 Proud Zeon-3 PZ-3 Conclusion 28
Speed Communication Contributing to society 29
Forward-Looking Statement ZEON s plans, forecasts, and others data appearing in this presentation were calculated based on information which was currently available and therefore includes risks and uncertainties. Actual results may differ depending on various factors. Public Relations Department, ZEON Corporation Shin Marunouchi Center Building, 1-6-2 Marunouchi, Chiyoda-ku, Tokyo 100-8246, Japan Tel: +81-3-3216-2747 Fax: +81-3-3216-0501 30