Social impact

Achieve breakthroughs in cutting-edge fields

Since its foundation as a fine chemical manufacturer in 1940, TOK achieved sustainable growth and enhanced its corporate worth by creating new value that contributes to the resolution of the social issues of each era as an R&D-driven company specializing in niche cutting-edge fields. In FY 2022/12, especially large progress was made in the development of materials for cutting-edge processes in the miniaturization of semiconductors. By upgrading the manufacturing process with state-of-the-art equipment at the Sagami Operation Center, TOK made significant advances toward the realization of a 2 nm semiconductor, in addition to the further performance improvement of EUV photoresists for the 5 nm line width. TOK has continuously increased its market share of EUV photoresists for 5 nm semiconductors, which are in mass production and currently in the dissemination phase. Compared to 7 nm, 5 nm semiconductors reduce power consumption by 30%, which contributes to global CO2 emissions reduction. In addition, 2 nm semiconductors will increase operating speed by about 45% from 7 nm and reduce power consumption by about 75%, thereby likely to generate a distinctive social impact, including energy savings by data centers that are considered to account for about 1% to 2% of global energy consumption, further high-speed laptop PCs, and the expected detection of objects by autonomous vehicles combined with reduced reaction times. Under the TOK Purpose of contributing to a sustainable future through chemistry, the Group will further invigorate its unfading startup spirit, which has taken root in its corporate culture, and thereby contribute to the generation of a social impact as a long-running R&D-driven company. 

Continuously enhance social and economic value even when market growth slows or is in an adjustment phase

As a core component of the value creation at TOK, I would like to emphasize that TOK’s microprocessing technology and high-purity processing technology, which have been continuously upgraded since the foundation of the company, have led to substantial contributions to the quality improve­ment of world leading cutting-edge semiconductor devices.

In the ongoing effort to miniaturize semiconductors, reducing defects to ultimately minimize impurities is the key, in addition to advances in exposure sensitivity and etching performance. In particular, the current type of EUV lithography system costs about 15 billion yen per unit and the next-generation type costs about 45 billion yen. To establish one plant for 2 nm semiconductors, a capital investment of about two trillion yen must be considered.

Under these circumstances, two key points are required to have TOK EUV photoresists selected. One is to improve the sensitivity of photoresists so that more high-cost lithog­raphy systems operate and more semiconductors can be produced with less power consumption. For doing so, TOK microprocessing technology plays a significant role. The second point is to achieve defect reduction by minimizing impurities in photoresists and other materials, as well as in the manufacturing processes.

The semiconductor market growth in FY 2022/12 was only 3.3% year-over-year. However, TOK achieved an increase in consolidated net sales by 25.3% by expanding its market share for EUV/ArF photoresists through the attainment of these two key points by upgrading the manufacturing process as mentioned above. At the same time, customers achieved yield improvement and cost reductions. As a result of this, TOK delivered convenient, comfortable, safe, secure, and environment-friendly living based on cutting-edge semiconductors to more end users at lower prices. The improved sensitivity of photoresists and defect reductions minimize the negative outcomes, such as power consumption, water consumption, and resource disposal, in semiconductor manufacturing processes. Needless to say, this led to the sustainability of the global environment.

The semiconductor market is expected to grow on a medium- to long-term basis by about 1.5-fold to become a one-trillion-yen market by 2030.* On the other hand, uncertain conditions remain with regard to the short-term future. TOK continues to advance toward its overarching aspiration for 2030 by consistently win­ning the competition in cutting-edge fields and contributing to the generation of a social impact, thereby continuously enhancing social value and economic value, even when market growth slows or is in an adjustment phase.

* Source: German Electrical and Electronic Manufacturers Association (ZVEI) (March 2023)

Management resources

Shed light on all internal and external management resources and enhance the happiness of stakeholders

The growth forecast for the semiconductor market until 2030 as mentioned above and TOK’s road map toward its overarching aspiration incorporate not only the growth of cutting-edge semiconductors, such as logic and memory but also the growth of the legacy fields in microprocessing, such as sensors and power semiconductors. The Group has newly specified four fields as target fields for contributing to the generation of a social impact toward the attainment of a communication revolution and TOK’s overarching aspi­ration for 2030: sensing & IoT and green energy in legacy fields as well as information terminals and cloud computing in the cutting edge fields.

A substantial impact is generated not only by cutting-edge semiconductors but also by legacy semicon­ductors toward the resolution of a variety of social and environmental issues that face humans and improvements in living quality. As mentioned earlier, immediate public interest tends to focus on 2 nm semiconductors and other cutting-edge fields. However, TOK also supplies photoresists for IoT and sensors that support the safe, secure lives of people. TOK also has the largest global market share of g/i-Line photoresists for power semiconductors which greatly contribute to decarbonization, and owns substantial human capital, manufactured capital, social and relationship capital, and intellectual capital pertaining to these photoresists. As mentioned at the beginning of this document, TOK aims to initially pursue the happiness of employees and to enhance the happiness of external stakeholders and the global community, and further of human kind. Toward these goals, the Group sheds light on all these management resources afresh and focuses on the four fields as the means to enhance the happiness of stakeholders. By fully utilizing internal and external management resources in all fields, TOK will pursue contributions for a further social impact.

By maximizing interaction and synergy among the capitals, create larger economic value and social value

 

Within these initiatives, the most important step is to strengthen interaction and synergy among the capital fund components. I have defined the four earning powers of the TOK Group: technology (intellectual capital and manu­factured capital), human resources (human capital), human connections (social and relationship capital), and finance (financial capital). The value chain of the TOK Group consists of the advanced technology that has been accumulated since the foundation of the company and the human connec­tions with our customers and suppliers. Human resources are the source of these powers. Bold challenges need to be made in certain cases to strengthen these three powers, which are enabled by robust financial power. TOK will continue to achieve sustainable growth and corporate value enhancement by strengthening these capital components.

As the issues that face humans become increasingly more difficult and complex and the VUCA tendencies inten­sify, TOK will continue to be a company with an unfading startup spirit while rolling out business models for consis­tently beating competitors that are larger than TOK and that have different cash generation structures and business portfolios from TOK. In addition to further strengthening each capital component, TOK will further enhance its collaborative creation among the capital components and maximize the synergy, thereby creating greater economic value and social value in order to achieve higher competitive advantages and more contributions to its social impact.

Recognition of business environment

Medium- to long-term business opportunities
are being maximized to an unprecedented scale

 

FY 2022/12 was the first year of the tok Medium-Term Plan 2024, which was backcast from the tok Vision 2030 aiming at achieving net sales of 200 billion yen by 2030. For this year, TOK expanded its market share of EUV/ArF photoresists as mentioned above and increased the sales of high-purity chemicals for cutting-edge fields, thereby sub­stantially exceeding the market growth rate and achieving record-high performance for three consecutive years.

In 2023, the semiconductor market is expected to remain in an adjustment phase and decrease by 10.3% year-over-year. However, TOK believes the market will increase to the record largest scale again in 2024, triggered by the expansion of the generative AI market.*1 As men­tioned earlier, the market is also expected to grow to a one-trillion-yen scale by 2030.*2 Therefore, we can state that medium- to long-term business opportunities that surround TOK are being maximized on an unprecedented scale. To steadily grasp these opportunities, TOK will additionally allocate cash of 15 billion yen to the initial medium-term plan and make the largest capital investment ever of 60 billion yen over the next three years in Japan and overseas.

*1 Source: World Semiconductor Trade Statistics (published in June 2023)

*2 Source: German Electrical and Electronic Manufacturers Association (ZVEI) (March 2023)

Take precautions against complacency
to continue handling maximized risks

On the other hand, the risks that surround the TOK Group continue to increase in proportion to the maximized opportunities. The Group will take the utmost precautions in handling the risks while never becoming complacent about the favorable performance over the past three years.

Concerning the largest capital investment ever that was mentioned earlier, we remind ourselves of our principle based on the lessons learned from the 2008 financial crisis when we reported the first operating loss since our listing—to be ambitious in earnings, a coward in spending, but brave in implementing determined investments. Based on this principle, we will maintain robust business manage­ment by promoting ROIC activities while maximizing cash generation capability based on a strong financial foundation.

In the meantime, there are price-raising pressures and tightening of the supply of raw materials due to reduced investments in fossil fuels resulting from the acceleration of global decarbonization, recovery of the global economy following the COVID-19 pandemic, and the Ukraine crisis. In FY 2022/12, TOK achieved appropriate profits by sub­stantially expanding the scope of application of the selling price adjustment measures (passing material price rise on to selling prices and introducing formulas linked to material prices). The Group also endeavored to achieve a stable supply to customers and maintain the supply chain through rapid decision-making at monthly supply chain meetings. In the coming years, we will proactively promote strategic investments in preparation for another tightening of supply and demand while having an overview of the entire supply chain in Japan and overseas, thereby rolling out ambitious supply chain strategies with greater resilience.

Hope for the spread of a social impact
by leveraging a centralized production model
and a local production and local consumption model

Geopolitical risks are increasingly escalating because of the international momentum of regarding semiconductors as strategic supplies, combined with the U.S.-China confron­tation and the Ukraine crisis. TOK will continue to flexibly respond to shift by customers to multiple global sites and reshoring. TOK will also fully utilize its global network of the five regions (Japan, the United States, China, the Republic of Korea, and Taiwan) while optimally combining its busi­ness portfolios and regional portfolios to achieve a flexible response, such as producing photoresists in a centralized production model and high-purity chemicals in a local production and local consumption model. As mentioned at the beginning of this document, the TOK Group aims to achieve a sustainable future filled with happiness. TOK hopes that the social impact that is generated by providing high value-added products that contribute to innovation through technological advancement will spread to people around the world. Our hope at the TOK Group is that the gaps widening around the world will be reduced and society becomes filled with happiness. We believe that this is also what society expects from TOK.

Self-reformation

Introduce a new M&E strategy by transferring the equipment business

In FY 2022/12, TOK decided to promote two self-reformations as steppingstones in responding to the maximized risks and opportunities as the TOK Group and continuing sustainable growth and corporate value enhancement.

The first self-reformation was the introduction of a new M&E strategy by transferring the equipment business. Since the development of the plasma ashing system in 1971, TOK has focused on Materials and Equipment (M&E) strategies and established a thick customer base through unique product portfolios specializing in niche areas, such as developing machines, coating machines, and process equipment for LCD panels, as well as UV curing machines and wafer handling system Zero Newton®. The process equipment for LCD panels especially defined a generation in the 2000s. TOK also received repeat orders for the plasma ashing system for use with power semiconductors and for Zero Newton® for use with 2.5D to 3D semicon­ductors. We are confident that the unique M&E strategies of TOK have resulted in certain achievements by providing clear added value and social value. On the other hand, the business scale decreased through the restructuring of the LCD panel market and the 2008 financial crisis combined with the difficulty in maximizing the strengths of the fabless operation specializing in R&D, which resulted in the recent weak performance reporting deficit for seven consecutive fiscal years.

In the semiconductor industry which requires to provide advanced solutions, what would be the optimal way to recover earning power in this business while continuously upgrading the M&E strategies for integrating properties in the three aspects of materials, equipment, and processes? —Our conclusion through deliberation of several plans in Japan and overseas was to transfer the business to and execute a partnership contract with AIMECHATECH, which has substantial strengths as a dedicated equipment man­ufacturer. While consigning the operation of the hardware equipment business to AIMECHATECH, TOK concluded the basic partnership contract based on the M&E strategies and acquired nearly 20% of the company’s shares. In this way, TOK established a solid relationship with the company with a certain influence on its management and thereby pursuing the further development of its M&E strategies to enhance TOK corporate value as a material manufacturer.

Shift to a company with an Audit and Supervisory Committee
for advanced governance

The second self-reformation is the shift from a company with a Board of Auditors to a company with an Audit and Supervisory Committee as a part of the corporate governance structure. TOK shifted to the new structure because of the need to upgrade corporate governance and establish a resilient organization in line with the expansion of the business scale toward the objectives announced in tok Vision 2030 (net sales of 200 billion yen or more and EBITDA of 45 billion yen or more), while continuously handing over TOK’s unfading startup spirit as part of its cor­porate culture. A part of the important executive decision-making authority of the Board of Directors is delegated to the representative director, and we will have deeper essential discussions concerning future growth strategies, a desirable business portfolio, and sustainability that includes risk management and human capital strategies. As the Audit and Supervisory Committee, the majority of which consists of outside directors with voting rights, monitors the various executive operations of the TOK Group from diverse viewpoints, TOK will achieve more transparent management with a smaller distance between the Board of Directors and field employees.

tok medium-term plan 2024
and initiatives for material issues

Substantially progress in contribution to innovation
and the creation of social value as a material issue

In the tok Medium-Term Plan 2024, which started in the last fiscal year, we promoted the PDCA cycle to become “The e-Material Global Company^TM” of contributing to a sustainable future through chemistry under the management vision announced in the tok Vision 2030 by closely linking the five key strategies and material issues together. In FY 2022/12, through initiatives for the material issue of the contribution to innovation and the creation of social value, TOK’s net sales of EUV/ArF photoresists increased through technological advancement based on defect reductions as earlier stated. As a result, we made substantial progress in TOK’s key strategies to increase the global market shares of cutting-edge photoresists and to establish an optimal production system for the Group.

Pursue heat-control materials toward the generation of the next impact

Under the key strategy of acquiring and creating the core technologies for electronic materials and new fields, we are focusing on the development a new business that will par­allel photoresists and high-purity chemicals with the goal of becoming a 100-year company by 2040. In FY 2022/12, the cell sequencing chip SIEVEWELLTM, marketed with the TOK brand in the life science materials, started to substantially disseminate into the settings of drug discovery screening and cancer treatment. Materials for biochip production for the next-generation DNA sequence, which increased the efficiency in clinical sites, have also gained acceptance.
TOK promoted the development of light-control materials, heat-control materials, and surface-control materials as a new business or existing businesses. In particular, heat-control materials include many remaining requirements that humans need to pursue toward reducing climate change risks. We consider these to be a major prerequisite to the achievement of a sustainable future and society filled with happiness, as well as green energy selected as the focused field. In FY 2022/12, as the development of a new product under this theme, we promoted the development of radiating heat-dissipation materials that emit the heat generated by semiconductors and electronic parts without needing a cooling fan. The radiating heat-dissipation materials implement the cooling effect through heat dissipation from the heat source of electronic parts. The materials achieve sustainability both in functionality and in composition with the heat-emission sheet design that would achieve downsizing and space-saving, combined with the use of environment-friendly materials. The potential market for the materials is expected to become a several-billion-yen scale, including automotive devices. By expanding the scope of application, the materials may generate greater economic value and social value in the future. We will continue to promote long-term R&D concerning heat-control materials toward the contribution to the next social impact.

Endeavor to improve employee engagement
as a key strategy in the medium-term plan

 

As I have said, the TOK Group started from the pursuit of happiness for employees and pursued the contribution to a social impact. TOK promotes the pursuit of the happiness of personnel as a new material issue and improves employee engagement and promotes people-oriented management as the fourth key strategy in the medium-term plan. In addition, we introduced an employee engagement index in FY 2022/12 as one of the evaluation parameters for the remuneration of directors. In this way, TOK accelerates initiatives for improving employee engagement through the strong commitment of management executives.

As specific initiatives, we designed and introduced detailed systems while operating the new personnel system based on the mission grade system, which was introduced at the beginning of this year. In September 2022, TOK joined the Human Capital Management Consortium, which was established by Mr. Kunio Ito, director of the Hitotsubashi CFO Education and Research Center, and other initiators, where TOK shares advanced cases in the practice of human capital management, discusses inter-corporation cooperation, and examines effective information disclosure. While doing so, I promoted research on the formulation of a balance sheet for human resources, a balance sheet for technology, and a balance sheet for human connections, which I mentioned in the Integrated Report last year in cooperation with the department manager of the Accounting and Finance Department. We pursue the enhancement of corporate value by quantitatively measuring the value of nonfinancial capital, accumulating and utilizing the capital, and maximizing synergy among the capital components.

Pursue the material issue of global environmental conservation
in consideration of future generations
as a prerequisite for a sustainable future

As a prerequisite for a sustainable future and a society filled with the happiness that we pursue, we also promote initia­tives for global environmental conservation in consideration of future generations, a material issue closely linked to the con­tribution that has a social impact. In FY 2022/12, we made par­ticular progress in the initiatives for carbon neutrality, including the contribution to lower power consumption through the miniaturization of semiconductors, combined with the steady sales of i-Line photoresists for power semiconductors and of materials for next-generation power semiconductors, such as SiC (silicon carbide) / GaN (gallium nitride). Furthermore, TOK funded the UMI3 Fund, a venture capital firm featuring support for decarbonization startups, since October 2022 as engagement in more advanced decarbonization initiatives.

As an initiative for attaining the long-term environmental objectives of TOK toward 2030, the company shifted more than 70% of purchased electricity to renewable energy sources at all key sites in Japan in September 2021 and 100% in February 2023. Compared to before the introduc­tion of electricity from renewable energy sources, TOK reduced CO2 emissions by about 20,000 tons annually.

In the coming years, we will grasp and disclose the financial outcomes of these initiatives related to the risks and opportunities of decarbonization within the framework of TCFD, thereby further refining our growth strategies. In particular, based on the keen recognition of the emerging water risk in Taiwan, which has become one of our key production bases, we implement local countermeasures and risk reduction measures using our global network.

Establish a Council of Directors as a unique meeting body
that also functions as the core of sustainability governance

 

TOK endeavors to strengthen the effectiveness of gover­nance under the material issue establishment of a resilient organization. As stated earlier, TOK shifted to a company with an Audit and Supervisory Committee in March of this year. In addition, the company also implemented a Council of Directors as TOK’s unique meeting body as the first step in achieving more transparent management with a smaller distance between the Board of Directors and direct labor force. The Council comprises Board members, executive officers, the heads of related departments, and persons in charge. Through frank and open-minded discussions, Council members will exchange differing opinions concern­ing management issues and provide the resulting inputs to the Board of Directors and the Committee of Officers. The Council has also started functioning as a core organization for sustainability and governance. The identification of issues and constructive investments in human capital, risk management, and carbon neutrality initiatives at the Council lead to discussions and resolutions at the Board of Directors concerning ESG and sustainability issues and initiatives on material issues.

The TOK Group will continue contributing to the social impact toward a sustainable future. Employees and the Board of Directors are engaged in the initiatives concerning the material issues described above. Through these initiatives, TOK will reduce short-term, medium-term, and long-term growth inhibitors, thereby reducing capital costs and enhancing sustainable corporate value. As specific initiatives, management and under, and the Board of Directors cooper­atively maintain effective sustainability governance based on discussions by the Council of Directors as mentioned above. At the same time, I will take the leadership role in pursuit of corporate value enhancement through sustainability activities.

We request your continued expectations for purpose-driven value creation and contribution to a social impact by TOK.