Shin Etsu Chemical : Annual Report 2022 Financial Section

Shin‐Etsu Chemical Co., Ltd.

Annual Report 2022

Financial Section

Ten‐Year Summary

SHIN‐ETSU CHEMICAL CO., LTD. AND SUBSIDIARIES

For the fiscal years ended March 31, 2013 through 2022

		Millions of yen
	2013	2014	2015	2016
For the year:
Net sales	¥1,025,409	¥1,165,819	¥1,255,543	¥1,279,807
Cost of sales	769,427	873,879	940,399	930,019
Selling, general and administrative expenses	98,938	118,130	129,814	141,262
Operating income	157,043	173,809	185,329	208,525
Ordinary income	170,207	180,605	198,025	220,005
Net income attributable to owners of parent	105,714	113,617	128,606	148,840
Capital expenditures	86,841	83,155	109,903	134,753
R&D costs	37,671	43,546	47,165	53,165
Depreciation and amortization	80,961	91,445	96,918	100,466
At year‐end:
Total assets	¥1,920,903	¥2,198,912	¥2,452,306	¥2,510,085
Working capital (Current assets ‐ Current liabilities)	832,878	981,667	1,100,999	1,170,679
Common stock	119,419	119,419	119,419	119,419
Net assets	1,623,176	1,822,135	2,012,711	2,080,465
Interest‐bearing debt	13,929	15,638	14,328	13,470
Per share (Yen and U.S. dollars):
Net income per share-basic	¥248.94	¥267.20	¥302.05	¥349.46
Net income per share-fully diluted (Note 2)	248.92	267.07	301.98	349.42
Cash dividends	100.00	100.00	100.00	110.00
Payout ratio (%)	40.2	37.4	33.1	31.5
Net assets	3,709.19	4,165.28	4,602.80	4,761.48
General:
Operating income to net sales ratio (%)	15.3	14.9	14.8	16.3
Net income attributable to owners of parent	10.3	9.7	10.2	11.6
to net sales ratio (%)
ROIC (%)	8.9	9.4	9.9	11.4
ROE (%)	7.0	6.8	6.9	7.5
ROA (%)	9.1	8.8	8.5	8.9
Equity ratio (%)	82.0	80.6	79.9	80.8
PBR (times)	1.7	1.4	1.7	1.2
PER (times)	25.1	22.1	26.0	16.7
Number of employees	17,712	17,892	18,276	18,407
Number of shares issued (Thousands)	432,106	432,106	432,106	432,106

Notes: 1. The U.S. dollar amounts represent conversion of yen, for convenience only, at the rate of ¥122 = US$1, the approximate rate of exchange on March 31, 2022.

1. The "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and other standards were applied from the beginning of the fiscal year ended March 31, 2022. Accordingly, the main management indicators, etc., for the current fiscal year are those after application of said Accounting Standard, etc.
2. " Partial Amendments to 'Accounting Standard for Tax‐Effect Accounting'", etc. (ASBJ Statement No. 28, February 16, 2018) were applied from the beginning of the fiscal year ended March 31, 2019. Accordingly, the main management indicators, etc., for the previous fiscal year are those after retroactive application of said Accounting Standard, etc.

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							Thousands of U.S.
		Millions of yen					dollars (Note 3)
2017	2018	2019	2020	2021	2022		2022
¥1,237,405	¥1,441,432	¥1,594,036	¥1,543,525	¥1,496,906	¥2,074,428		$17,003,511
868,404	963,008	1,039,979	987,782	953,203	1,206,425		9,888,735
130,383	141,601	150,352	149,702	151,489	191,680		1,571,151
238,617	336,822	403,705	406,041	392,213	676,322		5,543,623
242,133	340,308	415,311	418,242	405,101	694,434		5,692,082
175,912	266,235	309,125	314,027	293,732	500,117		4,099,325
145,647	176,283	240,618	265,018	228,801	213,918		1,753,427
49,020	51,768	56,436	48,536	51,264	62,455		511,930
93,087	112,016	137,570	131,172	143,807	168,788		1,383,511
¥2,655,636	¥2,903,137	¥3,038,717	¥3,230,485	¥3,380,615	¥4,053,412		$33,224,689
1,232,607	1,324,495	1,358,614	1,446,724	1,551,662	1,960,216		16,067,350
119,419	119,419	119,419	119,419	119,419	119,419		978,849
2,190,082	2,413,025	2,532,556	2,723,141	2,886,625	3,429,208		28,108,262
14,642	15,814	14,920	30,383	34,456	38,957		319,322
¥412.86	¥624.28	¥725.99	¥755.17	¥706.76	¥1,203.80		$9.867
412.83	624.10	725.92	755.01	706.26	1,202.75		9.859
120.00	140.00	200.00	220.00	250.00	400.00		3.279
29.1	22.4	27.5	29.1	35.4	33.2		33.2
5,002.16	5,511.98	5,915.47	6,377.93	6,769.72	8,007.24		65.633
19.3	23.4	25.3	26.3	26.2	32.6		32.6
14.2	18.5	19.4	20.3	19.6	24.1		24.1
14.0	18.2	21.5	19.4	17.2	27.2		27.2
8.5	11.9	12.8	12.3	10.7	16.3		16.3
9.4	12.2	14.0	13.3	12.3	18.7		18.7
80.3	81.0	81.1	82.1	83.2	82.1		82.1
1.9	2.0	1.6	1.7	2.7	2.3		2.3
23.4	17.6	12.8	14.2	26.3	15.6		15.6
19,206	20,155	21,735	22,783	24,069	24,954		24,954
432,106	432,106	427,606	416,662	416,662	416,662		416,662

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Management's Discussion and Analysis

SHIN-ETSU CHEMICAL CO., LTD. AND SUBSIDIARIES

Net Sales

(Billions of yen) 2,500

Operating Income

(Billions of yen) 800

Overview of the Shin-Etsu Group

The Shin-Etsu Group (the "Group") comprises Shin-Etsu Chemical Co., Ltd. (the "Company"), 132 subsidiaries, and 12 affiliates (as of March 31, 2022). The Group is engaged

2,000

1,500

1,000

2,074

1,441 1,594 1,544 1,497

700			676
600
500
404	406	392
400
337
300
200

in the manufacture and sales of PVC and caustic soda as the core of the Infrastructure Materials business, the manufacture and sales of semiconductor silicon, rare earth magnets, photoresists, photomask blanks, and synthetic quartz products as the core of the Electronics Materials business, the manufacture and sales of silicones, cellulose

500

0

2017 2018 2019 2020 2021

Net Income Attributable to Owners of Parent

(Billions of yen) 550

500500

450

400

1. 309 314 294

1. 266

0

2017 2018 2019 2020 2021

Total Net Assets

(Billions of yen) 4,000

3,429

3,500
	2,533 2,723 2,887
3,000	2,413
2,500
2,000
1,500
1,000
500
0
2017	2018	2019	2020	2021

100
0
2017	2018	2019	2020	2021

Net Sales by Business Segment

(Billions of yen) 2,500

							2,074
2,000
1,497
1,500
1,000
500
0
2020			2021
		Infrastructure Materials
		Electronics Materials
		Functional Materials
		Processing & Specialized Services
Total Assets
(Billions of yen)
4,800
							4,053
4,200
					3,230 3,381
3,600	2,903	3,039
3,000
2,400
1,800
1,200
600
0
2017	2018	2019	2020	2021

derivatives, and silicon metals as the core of the Functional Materials business, and the Processing & Specialized Services business which conducts Shin-Etsu Polymer Group business and engages in construction, repairs, and the provision of various other services. The Group conducts business activities including manufacturing and sales through mutual cooperation among all Group companies.

Consolidated Operating Performance

During FY2021 (from April 1, 2021 to March 31, 2022), the world economy continued to grow steadily, as indicated by the economic growth rate (GDP growth rate) of over 5%. On the other hand, Russia invaded Ukraine in February 2022, while the major economic zones continued to grapple with the COVID-19 pandemic, supply turmoil, price pressures, and other challenges. This world-shattering situation is still going on. We will continue to respond with alacrity and without prejudgment to changing circumstances. Going forward, we will continue to give the utmost priority to the health and safety of our employees, focus on business requirements such as maintaining high operations, ensuring a stable supply, and protecting accounts receivables, and maintain communication with our customers. We will promote the development of valuable products and provide a stable supply of products of unwavering quality.

As a result, net sales in FY2021 increased 38.6% (¥577,522 million) compared to the previous fiscal year, amounting to ¥2,074,428 million. Operating income was ¥676,322 million, an increase of 72.4% (¥284,109 million) from the previous fiscal year. Ordinary income increased 71.4% (¥289,333 million) to ¥694,434 million over the previous fiscal year. Net income attributable to owners of parent was ¥500,117 million, an increase of 70.3% (¥206,385 million) compared with the previous fiscal year.

Capital Expenditures

(Billions of yen)

300
	265
250	241	229	214

200 176

150

100

50

0

2017 2018 2019 2020 2021

Net Cash Flow*

(Billions of yen) 800

700	669

600

1. 447 445 438

1. 378

300

200

100

0

2017 2018 2019 2020 2021

* Net cash flow =

Net income attributable to owners of parent + Depreciation and amortization

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Business Segment Overview

Infrastructure Materials

The demand for both PVC and caustic soda remained strong, and we worked to raise product prices in light of the raw material situation that occurred earlier this year. We continued full operation at all bases, including Shintech, Inc. in the United States, except for the scheduled maintenance period of each plant.

Consequently, segment sales rose 76.4% (¥371,322 million) compared to the previous fiscal year, amounting to ¥857,189 million. Segment operating income was ¥317,792 million, up 219.1% (¥218,191 million) year on year.

Electronics Materials

The global supply shortage of semiconductor devices has not been resolved yet. To meet the strong demand from customers, we shipped the maximum number of semiconductor materials such as silicon wafers, photoresists, and photomask blanks. Even with respect to rare earth magnets, despite the restrictions on operations in production bases in Asia due to coronavirus infections and natural disasters, we operated as much as possible in order to meet the vigorous demands in all areas such as automobiles, industrial equipment, and hard disks.

Consequently, segment sales increased to ¥708,979 million, up 19.0% (¥113,303 million) compared to the previous fiscal year. Segment operating income amounted to ¥244,778 million, up 18.8% (¥38,693 million) year on year.

Functional Materials

Amid the continuing global logistics turmoil, we made efforts to maximize shipments and worked on price adjustments in response to high raw material prices. At the same time, we launched a lot of distinctive products to increase sales. We have also started raising prices for cellulose derivatives products.

Segment sales consequently increased to ¥395,626 million, up 25.9% (¥81,354 million) compared to the previous fiscal year. Segment operating income was ¥94,774 million, grew 34.0% (¥24,063 million) year on year.

Processing & Specialized Services

Shipments of semiconductor wafer-related containers were strong for both transporting use and manufacturing process use, and sales of input devices for automobiles were also robust. Sales of PVC wrapping film for food packaging increased due to business acquisition. We have raised prices for silicone-related products and PVC-related products.

As a result, segment sales increased to ¥112,632 million, up 11.4% (¥11,542 million) compared to the previous fiscal year. Segment operating income amounted to ¥20,910 million, up 28.1% (¥4,590 million) year on year.

Analysis of Financial Position

At the end of FY2021 (March 31, 2022), total assets increased by ¥672,797 million compared with the end of the previous fiscal year to ¥4,053,412 million. It was mainly due to increases in cash and time deposits, trade receivables, and property, plant and equipment.

Total liabilities increased by ¥130,214 million from the end of the previous fiscal year to ¥624,204 million.

As of March 31, 2022, total net assets amounted to ¥3,429,208 million, rising year on year as ¥500,117 million in net income attributable to owners of parent offset impact from ¥120,481 million in cash dividends.

As a result, the equity ratio came to 82.1%, down 1.1 percentage points from its previous level of 83.2%, and net assets per share increased by ¥1,237.52 compared with the previous fiscal year, to ¥8,007.24.

Return on invested capital (ROIC) was 27.2%, up 10.0 percentage points from its previous level of 17.2%, and return on equity (ROE) was 16.3%, rose 5.6 percentage points from its previous level of 10.7%. The full-year dividend per share was increased by ¥150 compared to the previous fiscal year, to ¥400 per share.

Cash Flows

The balance of cash and cash equivalents (net cash) at the end of FY2021 increased by 25.9% (¥207,329 million) compared with the end of the previous fiscal year to ¥1,008,925 million.

Cash Flows from Operating Activities

Net cash provided by operating activities amounted to

¥553,528 million, an increase of ¥152,352 million from the previous fiscal year. This consisted mainly of ¥696,137 million in income before income taxes and non-controlling interests, ¥168,788 million in depreciation and amortization, and ¥147,448 million for the payment of income taxes.

Cash Flows from Investing Activities

Net cash used in investing activities increased by ¥3,004 million from the previous fiscal year to ¥253,723 million. This was mainly due to ¥195,775 million for purchases of property, plant and equipment and ¥40,783 million for net increase in time deposits.

Cash Flows from Financing Activities

Net cash used in financing activities increased by ¥31,381 million from the previous fiscal year to ¥122,504 million. This was mainly due to a cash dividend payment of ¥120,481 million and ¥5,954 million for purchases of treasury stock.

As of March 31, 2022, cash, deposits, and available-for- sale securities (current assets) including negotiable deposits totaled ¥1,436,081 million (including instruments with periods longer than three months), ensuring sufficient liquidity. In addition, the Company maintains stable cash flows through its operating activities. As a result, our own funds will satisfy working capital and capital expenditure requirements for the foreseeable future.

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