Strategic business alliance of UV-LED business and establishment of joint venture between Nikkiso and Formosa Petrochemical Corporation

Nikkiso Co., Ltd. (“NIKKISO”) hereby announces the resolution of its Board of Directors dated of December 18th that Nikkiso Giken Co., Ltd. (“GIKEN”) (collectively “NKS”), the wholly owned subsidiary of NIKKISO, and Taiwan based Formosa Petrochemical Corporation (“FPCC”) will enter into the memorandum of understanding (“MOU”) as basic agreement on the strategic business alliance of UV-LED business and the establishment of joint venture company (“JVC”) as a core company of the global alliance to manufacture and sell deep UV-LED products.

1. Objectives of the strategic business alliance

Deep UV-LED is expected to be used for a variety of applications as a light source for water sterilization, air disinfection and deodorization, medical sterilization and treatment, surface modification and resin/ink curing, analytical and measurement instrument. Expansion in the deep UV -LED global market is anticipated by capturing unmet needs of UV mercury lamp as well as substitution for the existing demands for UV mercury lamp. Global requirements for environmentally friendly instrument/equipment and demands for applications generated with the improvement of living standard in the emerging countries will be satisfied by advancing downsizing, high efficiency, long lifetime and decline of market price of deep UV-LED products.

Until now, NKS has carried out research and development and application development of deep UV-LEDs as new business, and started commercial production at the factory in Hakusan-shi, Ishikawa prefecture specialized for UV-LED since May, 2015. Furthermore, NKS succeeded in development of the world’s highest power (50mW) of deep UV-LEDs and water sterilizer module featuring compact and low power consumption using deep UV-LEDs on this October. Expansion of our UV-LED business will be expected in accordance with above-mentioned global growth of deep UV -LED market and NKS’s Board of Directors resolves that GIKEN and FPCC will enter into the MOU as a basic agreement on the strategic business alliance of UV-LED business and the establishment of JVC as a core company of the global alliance, in order to not only bolster global manufacturing and sale of deep UV-LED components and modules, but also provide deep UV-LED solution globally. This joint venture combines the strengths of the two companies and allows for more rapid expansion in the deep UV-LED global market – by combining NKS’s strengths of application development, technology and manufacturing know-how including medical devices with strengths of Formosa Plastic Group (“FPG”) which FPCC is affiliated with in low cost production, manufacturing of visible light LED components and global network, especially Asia.

2. Outline of the strategic business alliance

1. Global sale of deep UV-LED components manufactured by NKS, instrument and equipment which UV-LED component is used for.
2. Manufacturing and global sale of deep UV-LED originated from development, technology and manufacturing know-how of NKS, and instrument and equipment which UV-LED component is used for.

After the establishment of JVC in 2016, JVC will start selling deep UV-LED products manufactured by NKS in the first phase and will start manufacturing module, package and wafer in order. GIKEN and FPCC will discuss the detailed terms of the strategic business alliance to structure the global manufacturing and sale, including UV -LED solution provision and to aim at the sales of 30 billion JPY in 2020. GIKEN will strive to maintain and increase the technology advantage of the UV-LED business, concentrating on application development and research and development to achieve high output and improve the yield of deep UV-LED components.

3. Outline of the JVC

4. Outline of GIKEN

5. Outline of the other party of the strategic business alliance

6. Schedule

7. Future outlook

Since current fiscal year is preparation period of establishment of JVC, there will be no significant effect on the consolidated financial results of current fiscal year and outlook of the consolidated financial results of current fiscal year is not to be changed. In conjunction with the increase of sales revenue of UV-LED business, the increase of sales and general administration expenses to establish the global sales organization structure in the following fiscal year, and the increase of cost of goods sold, mainly due to the increase of depreciation cost by constructing the manufacturing lines from FY2017, will make effect on the consolidated financial results to decrease of operating income until FY2017. Since FY2018, further increase of sales revenue of UV-LED business is anticipated to cause the positive operating income and to increase the operating income of consolidated financial results.

Note about FPCC
FPCC is listed on the Taiwan Stock Exchange and is focused on crude oil refining, manufacturing and sale of petroleum products, worldwide as a core company of FPG. This group has the affiliate Taiwanese listed companies of Nan Ya Photonics Incorporation and Formosa Advanced Technologies Co., Ltd. which manufacture and sell visible light LED products.