ANNUAL REPORT

2020

Profile

Our Mission
We will satisfy all
stakeholders
We at the Showa Denko
Group will provide products
and services that are usefuland safe and exceed ourcustomers’ expectations,
thereby enhancing the valueof the Group, giving
satisfaction to ourshareholders, andcontributing to the soundgrowth of internationalsociety as a responsible
corporate citizen.

Showa Denko K.K. (SDK) was founded in 1939. Ranked as one of Japan’s leading chemicalcompanies, SDK operates in seven major segments: petrochemicals, chemicals, electronics,
inorganics, aluminum, Showa Denko Materials, and others.
The Showa Denko Group noticed high potential for abundant hydro power, a major resource
in Japan. The Group began by focusing on the promising future of the electrochemical industry,
which can make the most of hydroelectric power, and expanded business domains to cover
inorganic chemicals, organic chemicals, and metallic materials. Today, the Group is a uniquechemical manufacturer that supplies petrochemicals, chemicals, electronics, inorganics, andaluminum.
The Group will strengthen earning power and reduce fluctuations in income by promoting
The TOP 2021 medium-term business plan, which was launched in January 2019, by enhancing
the value of the Group, and by establishing a stable foundation that will always support theGroup’s growth. In 2020, we brought Hitachi Chemical Company, Ltd. (currently Showa Denko
Materials Co., Ltd.) into our Group. As a unified group of companies, we intend to contribute to asustainable society by realizing breakthroughs brought about by the integration of midstream
and downstream technologies.
The Group is also committed to the principles of Responsible Care and is vigorously carryingout an action plan to protect the environment as well as health and safety.

Showa Denko at a Glance
Net sales 2020

¥973.7 billion

29.7%

15.3%
7.9% 8.1%

9.5%

Petrochemicals
Olefins (ethylene and propylene), organic
chemicals (vinyl acetate monomer, ethyl acetate,
and allyl alcohol), and polymer (polypropylene)

ChemicalsElectronics
Forward-Looking Statements:

19.0%

Note: ‌The ratios of respective segments have been calculated after adding the amountof adjustments to net sales.

Functional chemicals (polymer emulsion andunsaturated polyester resin), industrial gases(liquefied carbon dioxide, dry ice, oxygen,nitrogen, and hydrogen), basic chemicals(liquefied ammonia, acrylonitrile, and chloroprenerubber), electronic chemicals (high-purity gases
for electronics), and coating materials

This annual report contains statements relating tomanagement’s projections of future profits, the possible
achievement of the Company’s financial goals andobjectives, and management’s expectations for theCompany’s product development program. The
Company cannot guarantee that these expectations andprojections will be realized or correct. Actual results may
differ materially from the results anticipated in thestatements included herein due to a variety of factors,
including, but not limited to, the effect of the pandemicof COVID-19 on the world economy, the economic
conditions, costs of naphtha and other raw materials,
demand for our products such as graphite electrodes
and other commodities, market conditions, and foreignexchange rates. The timely commercialization of
products under development by the Company may be
disrupted or delayed by a variety of factors, including
market acceptance, the introduction of new products bycompetitors, and changes in regulations or laws. The
foregoing list of factors is not inclusive. We undertakeno obligation to update the forward-looking statements
unless required by law.

10.5%

Hard disks (HDs), SiC epitaxial wafers for powerdevices, compound semiconductors (LED chips),and lithium-ion battery (LIB) materials

Inorganics
Graphite electrodes and ceramics (alumina andabrasives)

Aluminum
Rolled products (high-purity foils for capacitors),
specialty components (cylinders for laser beam
printers [LBPs], extrusions, forged products, andheat exchangers), and beverage cans

Showa Denko Materials
Electronics materials (epoxy molding compounds,
die bonding materials, CMP slurries, anisotropic
conductive films), printed wiring board materials(copper-clad laminates, photosensitive dry films),
mobility components (plastic molded products,
friction materials, powder metal products, carbon
anode materials for LIBs), energy storage devices
and systems (automotive and industrial batteries),
and life sciences (diagnostics, contracted
manufacturing of regenerative medicine products)

OthersBuilding materials and general trading

See pages 12-13 for Business Segments.

About Annual Report 2020
This report mainly covers the Showa Denko Group’s financial
information such as business strategies, outline of businesses,
and financial results.
PDF and online versions of this report are available on the Web.
https://www.sdk.co.jp/english/ir/library/annual.html
In addition, various materials which help you understand theGroup are available on our website. The latest information is
also available.
IR Information https://www.sdk.co.jp/english/ir.html
Financial statements (annual, quarterly), corporate
performance (performance forecasts and performancetrends), and stock price information are available at this site.
Taking advantage of the latest technology, we offer
interactive charts enabling you to see charts of indicatorsthat you choose.
ESG Information https://www.sdk.co.jp/english/csr.html
At this site, you can see our measures and performance data
for environment (E), social (S), and governance (G).
We issue the integrated report SHOWA DENKO REPORT
covering the general outline of the Showa Denko Group andannual major topics. PDF and HTML versions of the above areavailable on the Web.

Our Strengths

Aluminum laminated film for LIB
packaging: SPALFTM

Showa Denko has many products maintaining high world
market shares.
Some of our high-priority products in our business segments
are shown here.

The second largest manufacturer in the world
We provide packaging materials for pouch
lithium-ion batteries (LIBs) used in smartphones
and tablet PCs. Demand for pouch LIBs is growingNo
due to their advantages, such as high levels of heatdissipation and flexibility in molding. In 2020,
Showa Denko Packaging Co., Ltd. developed a new, specialized product for large LIBs
that are mainly used for cars and will be added to the SPALFTM lineup. We also decided
to install equipment to mass-produce the new product, and started operations inMarch 2021.

2

Chemicals
High-purity gases for electronics
The world’s largest manufacturer of
specialty gases such as C4F6, HBr, Cl2, NH3
High-purity gases for electronics are used as
etching and cleaning gases as well as materials forNomaking the membranes necessary for producing
electronic devices, including semiconductors, LCD
panels, and solar batteries.
We have taken the initiative to expand our high-purity gas business in China, where
demand for semiconductors has been growing rapidly due to the government’s policy
to nurture the electronics industry. In 2020, we decided to build up operations to
produce high-purity nitrous oxide (N2O) and high-purity octafluorocyclobutane (C4F8)
in Shanghai, set up a joint corporation in Sichuan, and also established a business basein Xi’an to sell and distribute high-purity gases.
In addition, we built a new production line in Taiwan to produce high-purity C4F8
with annual production capacity of 150 metric tons and began operations in May 2020.

Inorganics
Graphite electrodes

1

The world’s largest manufacturer
Graphite electrodes are used in electric arc furnaces
for steel production. We have production bases inJapan, Asia, the United States, as well as Europe
and have the leading market share for global
Noultrahigh power (UHP) graphite electrodes.
We will continue taking the initiative to achieve
No. 1 Value in Use for customers, to improve their experience, as well as to further
increase our competitiveness and profitability.

1

Showa Denko Materials

Electronics

Chemical mechanical polishing(CMP) slurries

HD media
The world’s largest independent
manufacturer

The second largest manufacturer

HD media, one of the major parts of HD drives(HDDs), are used in notebook PCs and consumer
Noelectronics. Demand is expected to continue
growing for use in largescale data centers. We aredeveloping next-generation recording
technologies for HDDs, including microwave-assisted magnetic recording (MAMR)
technology and heat-assisted magnetic recording (HAMR) technology. We started
shipments of 3.5-inch MAMR HD media in 2019 and developed technology to
manufacture HAMR HD media in 2020. HD media have a significant effect on HDD
storage capacity. We will continue contributing to the expansion of storage capacities
of HDDs using our motto “Best in Class.”

1

No

2

Copper-clad laminates
The second largest manufacturer ofsemiconductor package substrates

SiC epitaxial wafers for powerdevices

No

2

The second largest independent
manufacturer in the world
We have been contributing to thecommercialization and market expansion of “fullSiC” power modules through production ofhigh-grade SiC epi-wafers for power transistors since 2015, in addition to those fordiodes. SiC-based power devices are attracting attention due to their features thatenable production of smaller, lighter, and more energy-efficient next-generation
power control modules. In 2020, our SiC epitaxial wafers with a diameter of six inches
were adopted by DENSO Corporation as parts for next-generation boosting power
modules for fuel cell electric vehicles.
No2

CMP slurries are polishing materials used to polishand smooth out interlayer dielectrics, and are usedin metal lines formed in the characterization
process. In addition to ceria slurry that minimizes
polishing damage for shallow trench isolation, we
also offer a lineup of slurries for forming copper
wiring.

These materials are made by impregnating glass
cloth with epoxy resin and then laminating copper
foil on both sides. They have high heat resistance,high elasticity, as well as a low coefficient for
expansion, and are used for printed wiring boards
and semiconductor package substrates.

In 2020, Showa Denko Materials Co., Ltd. chose to boost production capacity for CMP
slurries, laminate materials for printed wiring boards (prepreg), and photosensitive
solder resists in Taiwan, and to build a new factory for CMP slurries in South Korea.
The new factory in South Korea is scheduled to start operating in October 2021,
while in Taiwan, we will begin expanding our production capacity for CMP slurries inJanuary 2022 and mass-producing prepregs and photosensitive solder resists inJanuary 2023. With these actions, we will be able to respond to the ever-increasing
demand for these materials in the future.
Note: The worldwide or global market positions shown on this page are SDK’s estimates.

Contents

1

Our Strengths

12 Business Segments

22 Risk Factors

2

Consolidated 11-Year Summary

14 Management Team

24 Financial Data

4

Message from the Management

16 Corporate Governance

51 Corporate Data

7

Research and Development

18 Corporate Social Responsibility

8Long-Term Vision for Newly
Integrated Company (2021-2030)

19 Management’s Discussion
and Analysis

1Consolidated 11-Year Summary
Financial Highlights
Showa Denko K.K. and Consolidated Subsidiaries
December 31

For the year
Net sales
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Operating income (loss)
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Net income (loss) attributable to owners of the parent
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Free cash flow
R&D expenditures
Capital expenditures
Depreciation and amortization
At year-end
Total assets
Total net assets
Interest-bearing debt
D/E ratio (to FY2018, gross; from FY2019, net) (times) (Note 5)

Millions of yen

2010 (Note 2)2011 (Note 2)

2012

2013

2014

2015

¥797,189
199,590
133,578
147,988
77,958130,084—
154,084(46,093)
38,723
2,278
5,618
14,90910,085
8,543
—
2,041
(4,752)
12,706
66,293(49,074)
17,21820,67058,03550,678¥854,158
250,396130,203
165,01177,564
124,280—
150,583(43,879)
47,3573,484
2,035
30,242
9,640
6,212
—
1,860
(6,116)
16,98069,437(38,671)
30,766
21,59738,79449,413¥739,675
190,939
127,252
163,306
65,57392,194—135,280(34,870)
28,108(977)(875)
32,311
2,954
1,581
—
89
(6,975)
9,368
53,310(41,741)
11,56920,63342,503
46,232¥847,803
286,732
130,402
136,548
65,91990,369—176,516(38,684)
25,953
4,398
2,559
21,940
(838)
5,845
—
(626)
(7,324)
9,065
63,565(55,203)
8,362
20,43544,37039,779¥ 872,785
281,400
138,695
138,537
67,557
97,946—
191,610(42,959)
20,551(4,930)5,460
25,770
(300)
2,999
—
(1,041)(7,406)2,929
66,996(46,876)
20,12020,36247,31840,673¥775,732
231,288
142,292
131,492
63,476
100,756—
147,233(40,805)
33,508
10,543
10,707
17,472(1,249)
2,563
—
1,329
(7,857)921
61,170(42,497)
18,674
20,28944,05942,137924,484
284,965
351,034
1.23

941,303295,745
347,308
1.17

933,162
314,966
342,262
1.09

985,771
345,811353,686
1.02

1,009,843
319,087
383,124
1.20

940,494308,142368,835
1.20¥ 6.06—201.27
3.00
10,234¥ 1.99—209.76
3.00
10,577Yen

Per share (Note 6)
Net income (loss)—primary (Note 7)
Net income—fully diluted (Note 7)
Net assets
Cash dividends (applicable to the period) (Note 8)
Number of employees at year-end¥ 8.49—161.47
3.00
11,597¥ 11.35
11.20
168.33
3.00
11,542¥ 6.26—182.24
3.00
9,890

¥

6.45
—
2,076.05
3.00
10,561

Notes: 1. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥103.50 to US$1.00, the approximate rate of exchange at December 31, 2020.
2. ‌Changing the segmentation
Effective from the year ended December 31, 2011, the Companies have applied “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (Accounting Standards
Board of Japan (ASBJ) Statement No.17, issued on June 30, 2010) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No.
20, issued on March 21, 2008). The segment information for the year ended December 31, 2010, which is restated under the accounting standard, is disclosed for comparison purposes.
LIB materials was transferred from “Others” to “Electronics” from the year ended December 31, 2017. The segment information for the year ended December 2016 in the above table is based on the new
segmentation. SiC epitaxial wafers for power devices was also transferred from “Others” to “ “Electronics” from the year ended December 31, 2019. The segment information for the year ended December
2018 in the above table is based on the new segmentation.
3. ‌The tentative accounting policy applied to calculation of 2017 financial results due to consolidation of former SGL GE Holding GmbH was finalized when the Company settled accounts for the third quarterof 2018. Accordingly, the amounts for depreciation and amortization and some other costs for the year ended December 2017 were changed. The amount in the above table includes those retroactively
changed numbers for the year ended December 2017.
4. ‌Showa Denko K.K. started on July 1, 2020 to incorporate Showa Denko Materials’ sales figures and incomes/losses into its financial statements as the “Showa Denko Materials segment.”

Net Sales by Segment

Operating Income by Segment

Net Income Attributable to
Owners of the Parent(Billions of yen)
1,250(Billions of yen)
200

(Billions of yen)
120

1,000

150

750

0

0

0

2016

Petrochemicals
Chemicals

2

40

50

250

-250

80

100

500

2017

2018

Electronics
Inorganics

SHOWA DENKO K.K.

2019

AluminumShowa Denko
Materials

2020
OthersAdjustments

ANNUAL REPORT 2020

-50

2016

Petrochemicals
Chemicals

2017

2018

Electronics
Inorganics

2019

AluminumShowa Denko
Materials

2020
OthersAdjustments

-80

2016

2017

2018

2019

2020

Showa Denko K.K. and Consolidated Subsidiaries

December 31
For the year
Net sales
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Operating income (loss)
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Net income (loss) attributable to owners of the parent
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Free cash flow
R&D expenditures
Capital expenditures
Depreciation and amortization
At year-end
Total assets
Total net assets
Interest-bearing debt
D/E ratio (to FY2018, gross; from FY2019, net) (times) (Note 5)

Thousands of
U.S. dollars (Note 1)

Millions of yen

20202016 (Note 2)2017 (Note 3)2018 (Note 2)

2019¥671,159
185,783
134,529
120,461
50,87098,575—
128,740(47,800)
42,053
20,69013,82415,015(5,758)4,416—
623(6,758)12,30568,949(53,754)
15,195
17,31339,276
38,761¥ 780,387
251,128
148,758
123,064
73,442
105,439—
133,624(55,067)
77,70833,357
16,47421,925
6,979
6,697
—
633
(8,357)37,404
67,235(29,866)
37,36918,53941,78738,565¥ 992,136
268,879
156,541
111,912266,149
108,254—
137,324(56,922)180,003
20,333
17,393
13,557
132,445
4,942
—
1,734
(10,400)
111,503
149,785(49,338)
100,447
19,73541,72739,459¥ 906,454
250,678
157,480
96,445230,135
97,542—
126,163(51,989)
120,798
17,201
13,656
4,880
89,256
1,746
—
1,819
(7,759)73,08878,554(48,156)
30,397
20,60550,21637,704¥ 973,700
193,385
155,769
97,41582,89980,185
302,742
107,301(45,996)(19,449)
4,927
13,481
9,133(32,300)
421(6,303)
1,199(10,006)(76,304)
109,286(930,047)(820,761)
34,37969,05260,592$ 9,407,728
1,868,456
1,505,012
941,208
800,953774,737
2,925,043
1,036,725(444,405)(187,914)
47,603130,249
88,239(312,080)
4,065(60,897)
11,587(96,680)(737,237)
1,055,905(8,985,966)(7,930,060)
332,161
667,172
585,430

932,698
311,231359,929
1.16

1,026,999
368,994
346,726
0.94

1,074,983
465,340
287,968
0.62

1,076,381
519,433
298,5240.36

2,203,606
718,080
1,060,146
1.84

21,290,877
6,937,973
10,242,956

Yen

Per share (Note 6)
Net income (loss)—primary (Note 7)
Net income—fully diluted (Note 7)
Net assets
Cash dividends (applicable to the period) (Note 8)
Number of employees at year-end

¥

86.27
—
2,080.85—
10,146¥ 262.44—
2,473.06
80.00
10,864¥ 758.15—
3,057.16
120.0010,476

U.S. dollars (Note 1)¥ (523.06)—
2,782.79
65.00
33,684¥ 501.03—
3,423.25
130.0010,813$ (5.05)
26.89
0.63

5. ‌In accordance with the consolidation of Showa Denko Materials Co., Ltd., SDK calculated the D/E ratio with an assumption as follows, starting from the third quarter of the fiscal year ended December 31, 2020.
Regarding preferred shares issued by HC Holdings K.K., which is a subsidiary of SDK, we added the amount equivalent to 50% of the value of issued preferred shares to interest-bearing debts and the remaining
50% of it to the equity capital of SDK. SDK also added lease liability to the equity capital of SDK, and use net interest-bearing debt (interest-bearing debt minus cash and deposits) in calculation of D/E ratio. The
assumption that we consider 50% of the total value of issued preferred stocks as equity capital is based on the credit rating given by Japan Credit Rating Agency, Ltd. on April 21, 2020. Futhermore, D/E ratio for2019 was adjusted in the same way.
6. ‌SDK consolidated every ten shares of common stock into one share on July 1, 2016. “Per share” indicators for 2015 and 2016 (except for cash dividends) are calculated on the basis of the number of outstanding
shares after this consolidation.
7. ‌Net income (loss) per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year. Fully diluted net income per share additionally assumes theconversion of the convertible bonds. Diluted net income per share for 2015 and 2014 was not disclosed because there were no dilutive shares. Diluted net income per share for 2013 was not disclosed because theCompany had no securities with dilutive effects.
8. ‌SDK resolved payment of dividends of ¥30.00 per share based on the record date of May 11, 2017 at the extraordinary general meeting of shareholders held in June 2017. Cash dividends applicable to 2017
includes this amount.

Interest-Bearing Debt
Debt/Equity Ratio

Capital Expenditures
Depreciation and Amortization(Billions of yen)
1,200

Cash Flows(Billions of yen)(Billions of yen)

80

150

1.5

60

100

600

1.0

40

50

300

0.5

20

0

0

0

(Times)
2.0

900

0

2016

2017

2018

2019

Interest-bearing debt (left axis)
Debt/Equity ratio (right axis, gross)
Debt/Equity ratio (right axis, net)

2020

2016

2017

2018

Capital expenditures
Depreciation and amortization

2019

2020

-1,000

2016

2017

2018

2019

Cash flows from operating activities
Cash flows from investing activities

2020

Free cash flow3

Message from the Management

In 2020, the Showa Denko Group completed acquisitionof shares in the former Hitachi Chemical Company, Ltd.
(now Showa Denko Materials Co., Ltd.) through TOB,
and made the company a consolidated subsidiary. In
recent years, the industrial structure and competitiveenvironment have been changing greatly. As anadvanced material partner, the Showa Denko Groupaims to create functions responding to the needs of thetimes and contribute to the sustainable developmentof the global society. We have defined the purpose of
the newly integrated company as “change society
through the power of chemistry.”

Kohei Morikawa
Representative Director,
President and CEO

4

SHOWA DENKO K.K.

ANNUAL REPORT 2020

About Showa Denko Materials
Showa Denko Materials has a long and celebrated history, mainlyin the information and communication business sectors, mostly
providing semiconductor-related products. Showa Denko
Materials’ products include CMP slurries and copper-cladlaminates, which have high global market shares; resin molded
products for mobility applications that contribute to weight
reduction in cars; carbon anode materials for lithium-ion batteries
used in EVs and HVs; and, in our life sciences business domain,
regenerative medicines and diagnostic agents, a market expected
to show remarkable growth over the medium to long term.

2020 Performance
In 2020, there was a business slowdown in many industries,
including the automotive industry, due to the spread of thecoronavirus, COVID-19. Under this difficult businessenvironment, the Showa Denko Group recorded consolidated
net sales of ¥973,700 million (US$9,435 million), up ¥67,246
million from the previous year, due mainly to the recent
consolidation of Showa Denko Materials. However, our operating
income decreased ¥140,247 million, to an operating loss of¥19,449 million (US$188 million). We also recorded net loss
attributable to owners of the parent of ¥76,304 million (US$737
million), a decline of ¥149,392 million from the previous year.
The Group’s shipment volumes for a range of products fellsignificantly in 2020 from the previous year due to the weakmarkets resulting from the spread of COVID-19.
Most of all, shipment volumes for graphite electrodes
dropped sharply and their profitability fell significantly. To copewith this situation, we took action to improve our profitability,
including closing our graphite electrode plant in Meitingen,Germany, and reducing the book value of graphite electrodeinventories.
On the other hand, our electronics-related operations
recorded steady growth, despite the spread of COVID-19, due
mainly to higher demand for electronic devices resulting fromthe wide adoption of teleworking.
The net debt-equity ratio (D/E ratio), a financial indicator,
increased from 0.36 times at the end of 2019 to 1.84 times at theend of 2020 due mainly to an increase in interest bearing debt
resulting from the acquisition of shares in the former Hitachi
Chemical Company, Ltd. Total dividends per share for fiscal 2020
fell to ¥65, down ¥65 from the previous year.
(Since the third quarter of 2020, preferred shares issued by
HC Holdings K.K., a subsidiary of SDK, have been added to an
amount equivalent to 50% of the value of issued preferredshares to interest-bearing debt and the remaining 50% has been

added to the equity capital of SDK. We have also calculated ournet D/E ratio excluding cash and deposits since the third quarterof 2020. We applied these changes retrospectively to ourfinancial results for 2019.)

Long-Term Vision for Newly Integrated
Company
In December 2020, the Showa Denko Group announced theLong-Term Vision (2021–2030) for the Newly Integrated
Company, establishing the basis for business growth far into the
future through the integration of Showa Denko and Showa
Denko Materials.
The purpose of the new company is to “change society
through the power of chemistry.” In addition, we will strive to
become “a company that can win the global competition” and “acompany that contributes to a sustainable global society,” thetwo goals that the Company aims to achieve for an ideal state tofulfill our purpose.
In recent years, society has been requiring private enterprises
to contribute to resolving environmental as well as social issues
and to achieve the UN’s sustainable development goals (SDGs).
To respond to the needs of society, private enterprises are
required to contribute to the renewal of a wide array of social
infrastructure developments, including those related to digitalplatforms, mobility equipment, and energy. For these reasons,society has growing expectations for innovations to be made bymaterials manufacturers.
As we stated in the Long-Term Vision for the Newly Integrated
Company, we will accelerate the growth of the Group throughportfolio management that creates sustainable growth. We willrealize a high growth rate and improve our corporate value
through business portfolio management with a high degree ofcomplementarity that includes specific business domains: core
growth to invest growth for the entire Group; life sciences fordevelopments in the next generation; fundamental technologies/
materials to support core growth and life sciences innovations;and stable earnings to generate the cash flows for companywide
investment from stable profits. (For the details of the Long-Term
Vision, please see pages 8 to 11.)

Business Structure Reforms
The Showa Denko Group has implemented a range of initiatives
to restructure business operations:• ‌For graphite electrode operations, we decided to close theMeitingen Plant in Germany; production had fallen

5Message from the Management
significantly due to a business recession in Europe. On theother hand, to improve operating efficiencies, we acquired
50% of the shares of AMI Automation, a provider of fully
integrated automation and control solutions to a wide range
of industries, including electrode regulation systems andelectric arc furnace (EAF) optimization services. We can now
provide customers with a broad spectrum of solution services
that improve graphite electrode performance, and we canprovide more solution-based services that boost EAF
steelmaking efficiency, energy conservation, and lower
greenhouse gas (GHG) emissions.

• ‌For functional chemicals, we ended the operation of
production lines to synthesize unsaturated polyester (UP) andvinyl ester (VE) resins at the Isesaki Plant in Gunma Prefecture,and decided to concentrate domestic production of UP and VE
at the Tatsuno Plant in Hyogo Prefecture. The goal is to improve
profitability of UP and VE operations in the shrinking domestic
market.

• ‌To achieve more growth in our rolled aluminum and aluminumcans operations, we decided to execute a master agreement totransfer these businesses to Apollo Global Management Inc.,
one of the world’s leading alternative investment managers
with a wealth of experience supporting aluminum-relatedindustries for more than 20 years.

• ‌SDK has decided to apply for a tender offer made by iSigma
Capital Corporation, which is a subsidiary of Marubeni
Corporation, against SHOKO CO., LTD., which is a consolidated
subsidiary of SDK listed in the First Section of the Tokyo Stock
Exchange, with a part of shares in SHOKO held by SDK. The
reason for our application to the tender offer is that wereached the conclusion that SHOKO could further accelerate
growth and increase corporate value by enabling thedevelopment of customers and sales channels, as well as
expand our product lineup, improve profitability by taking
advantage of economies of scale, and boost management
efficiency, among other benefits. These goals will be reachedby capitalizing on the domestic and overseas networks plus
the management know-how of iSigma Capital and its parent
company, Marubeni Corporation, as well as others in theirgroup of companies.
For the complete integration of Showa Denko and Showa
Denko Materials (SDMC), the Showa Denko Group will continue
implementing bold business structure reforms, including thesale of some businesses. Regarding the post-merger integration

6

SHOWA DENKO K.K.

ANNUAL REPORT 2020of SDK and SDMC, the two companies have been accelerating
unification, aiming to achieve substantial integration by July
2021 and full integration of the legal entities by January 2023.
To satisfy all stakeholders—including shareholders, customer
industries, business associates, and employees—the Showa
Denko Group will operate with an eye on the medium to longterm. The overall goals are to contribute to achieving the UN’s
SDGs by making the most of the newly integrated company’s
technologies and business operations and to strengthen ESGoriented operations. By working toward these goals, we are
becoming a social contribution company that helps create asociety where prosperity and sustainability are in harmony.
Going forward, the Showa Denko Group will change
significantly in pursuit of this evolution. Our management teamand employees will work as one to realize these revolutionary
internal changes. As we push ahead, we ask for your continuing
support of the Showa Denko Group.
Finally, we sincerely appreciate and look forward to thecontinued understanding, support, and encouragement of all
our shareholders.
March 30, 2021

Research and Development
With The TOP 2021, our medium-term business plan, the Showa Denko Groupaims to become a top-level global functional chemical manufacturer. Basedon the key concepts of deepening, fusion, and introduction, the R&D strategy
focuses on creating “pipelines” for products that will contribute to the next
generation, while continuing to strengthen existing operations with the aimof creating Koseiha businesses.
Our intent is to maximize the customer experience (CX) by providing ourcustomers with first-class engineering, products, and services.
To strengthen the creation of these “pipelines,” we will fundamentally
reinforce our marketing programs to get a firmer grasp on market andtechnology trends when identifying targets for R&D, and to invest our R&D
resources intensively in 10 technical fields, including those that are
multi-material or that promote bonding of different materials and forprocesses that produce next-generation semiconductors. These 10 targets
correspond to our seven business domains: Transportation, Energy, Lifestyle,
Electronics, Construction/Infrastructure, Industrial Equipment, and Life
Science & Healthcare.

2

Four institutions prove AI speeds up
development of flexible transparent film

SDK, the National Institute of Advanced Industrial Science and Technology (AIST),
the New Energy and Industrial Technology Development Organization (NEDO),
and the Research Association of High-Throughput Design and Development for
Advanced Functional Materials (ADMAT) have cooperatively introduced artificial
intelligence (AI) into the process of developing flexible transparent film. This
AI-based process reduces the numbers of times required for an experiment toproduce film that satisfies the required properties to one-twenty-fifth (1/25) or
less compared with conventional development methods.

3

SDK develops wet-resistant heat-conductive
aluminum nitride filler

SDK’s KarenzTM isocyanate monomer
development team received the Technical Awardat the 42nd Conference of the Adhesion Societyof Japan

SDK has developed a wet-resistant, heat-conductive aluminum nitride filler to be
used as a heat radiation filler for semiconductor devices. We have started tooffer samples of the aluminum nitride filler to prospective customers. SDK
successfully developed a technology to treat the surface of aluminum nitride
with ultra-thin film that drastically reduces the amount of corrosive ammonia
produced as hydrolysate of the material to ten-thousandth that of aluminum
nitride without a surface treatment. This new surface treatment does not reduce
the thermal conductivity of the aluminum nitride filler injected into resins. With
this innovative surface treatment technology, SDK has successfully developed afiller with outstanding wet resistance and high thermal conductivity. By offering
samples to potential customers, we will develop a new market for this aluminum
nitride filler, and we plan to start mass production in 2023.

In June 2020, the R&D team that developed the KarenzTM isocyanate monomer
received the Technical Award at the 42nd Conference of the Adhesion Societyof Japan. This award was given to the team in recognition of theirdevelopment of the KarenzTM isocyanate monomer, which is applicable toadhesives and paints, because this material contributes to improvements indesign and functionality of the resins used in the adhesives and paints
industry. The KarenzTM isocyanate monomer molecule contains not only an
isocyanato group, which easily binds to other materials, but also an acrylic
group that promotes copolymerization and photo/thermo-curing. The
KarenzTM isocyanate monomer is a proprietary SDK product, and when it isadded to or reacts with polymers, it can make photo curing more efficient ina short time. When it is used as a monomer to be incorporated into an acrylic
copolymer, it can perform isocyanate curing at relatively low temperatures.

Creating synergies for our R&D will enable us to work together with companies
in many industries when we combine our material and application technologies.
This drive to develop synergies is taking place in many fields, including reaction
control, precision polishing, lithium-ion batteries, and resin materials.
We will also accelerate the pace and improve the quality of our R&D by using
our computational science and structure analysis technologies within Showa
Denko Materials. As well, we will use Showa Denko Materials’ evaluation andsimulation technologies within our entire group of companies. In addition, we
are integrating the two company’s online systems to manage intellectual
property (IR) to merge the advantages of IR for both Showa Denko and Showa
Denko Materials.
Through these R&D activities, the Showa Denko Group will provide products
and services that touch people’s hearts, and offer solutions that change society.

R&D Topics

1

Priority Domains

R&D: 10 Notable Technical Fields

7 Business Domains

5 Growth Drivers

Transportation

Weight reduction of cars andapplication of composite materials

EnergyElectronics

Industrial Equipment
Life Science & Healthcare(Millions of yen)xEVMulti-material / Adhesion between different materials
Heat management
Process to produce next-generation semiconductors
Next-generation wide-bandgap semiconductors

Spread of specialty
semiconductors

Construction / Infrastructure

New fields

Next-generation electricity storage devices

Digitization

Lifestyle

R&D
Expenditures

Surrounding fields (inter-business cooperation)

Energy conservation / Renewable energy
Sensors / IoT / 5G

Improvement in QOL

Smart testing / diagnostic techniques

Shift from goods toexperiences / XaaS

Infrastructure maintenancePetrochemicals

ChemicalsElectronics

Inorganics

AluminumShowa Denko
Materials

Others

Total

1,193

2,916

5,530

617

1,587

15,101

7,434

34,3797

Long-Term Vision for Newly Integrated Company (2021-2030)
Long-Term Vision for
Newly Integrated Company (2021-2030)
With the integration of Showa Denko and Showa Denko Materials, we intend to create a hybrid advanced material
company that has both midstream materials technologies and downstream application technologies. With this goalin mind, we announced our long-term vision for the newly integrated company on December 10, 2020.

Understanding of external
environment and significance ofintegration

Amid demand for materials innovation, contribute to a sustainable society
by integrating midstream and downstream technologies
Demand for social
infrastructure reform andtechnological innovation tosolve environmental/social
issues and pursue SDGs

Society
Here we would like to discuss the significance of thisintegration for the realization of our long-term vision.
In recent years, there has been an increasing need toresolve environmental and social issues, as well as topursue SDGs. To help resolve these issues, there has
been growing demand for various kinds of social
infrastructure improvements, such as improvements indigital platforms, mobility, and energy. As well, there
are increasing expectations for innovations frommaterials manufacturers.
We aim to make technological breakthroughs by
combining Showa Denko’s midstream materials
technologies, Showa Denko Materials’ downstream
application technologies, and evaluation/analysis
technologies from both companies, and we will meetcustomers’ expectations for innovative materials.
Further, as a top-level functional chemical
manufacturer, we will contribute to a sustainableglobal society as a whole company by providing new
functions that meet the needs of our customers.

Portfolio management to realize
sustainable growth

Expectations for materials
innovation that support
technological innovation

CustomersSolveissuesProvidenewfunctions

Realization of the Ideal state
Contribute to asustainable society as awhole by providing new
functions to customers

Provide one-stop
solutions as a "global
top-level functional
chemical manufacturer"

Realize a breakthrough by integrating
midstream and downstream technologies

Showa
Denko
Group

Achieve high growth with a highly complementary business portfolio of"Core Growth", "Next-Generation", "Stable Earnings" and"Fundamental Technologies/Materials" businesses
Business acquisitions in new areas through M&A etc.

The key to realizing our goals is our unique and robust
business portfolio that we have built by integrating thetwo companies.
Our four business categories—each with different
roles—will contribute with strong competitiveness, inthis way enabling us to continue to provide our markets
with new functionality and to achieve sustainablegrowth.
Specifically, these are our core growth businesses,
which will underpin most of our growth; our nextgeneration businesses, which will sustain the
Company’s future growth; our stable earnings
businesses, which will generate stable profits; andfinally, our fundamental technologies/materials
businesses, which will provide technological platforms
to the three other business categories.

"Stable Earnings" business"Next-Generation" business"Core Growth" business

Revenue base that earns a stable profit
and generates investment capital theentire company as a whole

Promote investment while
verifying businessfeasibility to develop it intoa next-generation pillar

Aggressively invest in
businesses for significant
future growth

DeviceSolutions (harddisc media)

CarbonIndustrial
Gases

Petrochemicals

Basic
Chemicals

Aluminum
RolledProducts

AluminumCan

Coating
Materials

Energy(battery-related
products, etc.)

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Electronics

Mobility"Fundamental Technologies/Materials" businessTechnology platform business to support innovation of"Core Growth" and "Next-Generation" businesses
Ceramics

Functional
Chemicals(resins, etc.)

AluminumSpecialty
Components

Carve out businesses that don't/no longer fit into any of the above 4 business categories: Mainly Showa Denko

8Electronics
Materials

Life Sciences: Mainly Showa Denko Materials

Post-integration
business portfolio
It is important that both business groups include
top-class business categories with strong competitive
advantages.
Our core growth business category includes
businesses in the number one and number two global
positions,* such as semiconductor materials andmobility resin molded automotive modules. Our
regenerative medicine segment, which represents our
next-generation business category, also has the second
highest number of orders in the world*. In the stableearnings category, we also have businesses, such asgraphite electrodes and HD media, that have a highglobal share in a market where the competitiveenvironment is now settling down. As well, ourfundamental technologies/materials business category
provides a technology platform to support innovationsin the other business categories. This category works
with three materials and technologies: inorganic
chemicals, organic chemicals, and aluminum.
In particular, technologies and materials provided by
our fundamental technologies/materials businesscategory will strengthen the competitiveness of theother business categories. Moreover, technology andmaterials from our fundamental technologies/materials
business category will be used in a wide range of ourbusinesses. The unique feature of this portfolio is avirtuous cycle that strengthens businesses andtechnologies, and that enables the highly competitive
business categories to reinforce one another.

Market assessment and strategy
for core growth and nextgeneration businesses
Among our business portfolio, the core growth andnext-generation business categories will drive thegrowth of the Company.
Although the electronics business will continue tomeet intense competition in a growing market, as theplayers and the direction of technological development
are solidifying, the Showa Denko Group will win ingrowth markets by leveraging our top position andenhanced technological strengths.
In the mobility segment, we will expand into both
uncertain and highly certain areas with our businessportfolio. Finally, in the life sciences segment, with themarket expected to expand in the future, we will drive
growth by leveraging our first-mover advantage.

Each of the 4 business categories possesses a competitive advantage
commensurate with their respective roles and generates synergies mainly
using technologies and materials from the "Fundamental Technologies/
Materials" business to provide functions to the market"Stable Earnings"
business"Next-Generation"business"Core Growth"business

Competitiveness/high share inmarket with stable competitive
landscapeAdvantageous position thatcan lead to future growth inpromising markets

Overwhelming scale/top-shareproducts in growing market

Graphiteelectrodes

Hard discmedia

Regenerative
medicine

Semiconductor-relatedmaterials

Resinmoldedautomotive
moduleWorld No.1 withhigh quality
and cost
competitivenessWorld No.1
independent
manufacturer with
cutting-edge
technology

World No.2
in terms of orders

No.1 manufacturer
with many of theworld's best-selling
products

World No.2
in resin moldedback door
module"Fundamental Technologies/Materials" business
Wide variety of technologies/materials that support competitivenessenhancement of 3 other business categories (Inorganics/organics/aluminum)

Petrochemicals
High presence in East Asia Highshare derivatives

Inorganics

Organics

Aluminum

Highly universal business portfolio that can be deployed in promising markets in the
future by continuously refining technologies and materials of "Fundamental
Technologies/Materials" business in a wide range of businesses*Source: Researched by Showa Denko

Compete with good understanding of differences inmarket stages and our position in each growth businessElectronics

MobilityLife Sciences

MarketoutlookWithin a certain technologicaldevelopment direction,
probability of continued
technological innovation andmarket growth is highBoth areas of high certainty
and areas of uncertainty
co-exist in changing market
situation

Market expansion is certain, butthere is range of market viewsin terms of expansion timelinesand growing segments

Competitiveenvironment

As player's positions are
solidified, rapid structurechanges and new entries in
the industry are unlikely tooccur, although future industry
restructuring is still possible

Several materials manufacturers There are first movers
including us, but more newexist and competition for theplayers are likely to enter the
top position just beginningmarketWin in growing market byleveraging our top positionand enhanced
technological capabilities

Manage certainty anduncertainty with portfolio
Develop businesses thatcater to trends of weight
reduction and electrification

Quickly recoup investment
by leveraging current
competitive advantage

Continue to develop
cutting-edge products andprovide one-stop solutions

As for trend ofelectrification, prepare
for uncertainty in market
share by powertrain type

Grasp changes andidentify segments wherecompetitive advantage
can be establishedOur
positionandstrategy(Regenerative medicine)

Drive growth by leveraging
first mover advantages

9Long-Term Vision for Newly Integrated Company (2021-2030) (cont.)
Projected impact of innovation

Expand growth businesses to a scale of ¥600 billion
by 2030 through innovations including technological synergies resulting
from integration of the two companies

Among the core growth and next-generation businesscategories, we will focus on five specific businesses aspillars for medium- to long-term growth: for electronics,
the focus will be on semiconductor wafer andpackaging processes; in mobility, our multi-materials/
resin molded automotive module and our thermal
management segments will be centered around power
modules; and the life sciences will focus on
regenerative medicine.
The cumulative sales for these five growth businesscategories in 2020 totaled approximately ¥230 billion,
and we will expand this to a scale of ¥600 billion by
2030, while achieving CAGR of 10% throughinnovations, including synergy among technologies.
Through innovations in these five pillar businesses,
including the earlier mentioned technological synergy,
we expect to generate additional operating income of¥18 billion and ¥48 billion, in 2025 and 2030,
respectively, which will ensure that we achieve a returnon our investment through this integration.

Projected sales and operating income in growthbusinesses (estimated)

Growth businesses

Electronics

Semiconductor
Packagingprocess¥100 mil.
7,000
6,000

Mobility¥100 mil.
500

480

6,000

CAGR
+10%

400

5,000

Multi materials/
resin molded
automotive
module

4,100

4,000
3,000

Heat
management(Power module)

300

180

200

2,300

2,000
100

1,000
0

Life
Sciences

Profit increase (operating
income basis)1 frominnovations (incl. synergy)

Sales outlook for all
growth businesses

Semiconductor
Wafer process

2020

2025

0

2030

0
2020

2025

2030

Innovation (incl. synergy)
Expansion of competitive existing products/refined products

Regenerative
medicine

1. Does not include operating income based on sales of non-innovations

Integration of technologies of the two companies
Our vision of a hybrid advanced materials company that combines midstream materials technologies with downstream application technologies is
illustrated by comparing ourselves to “soil” and the “trees” that grow from it.
Our chemical materials technology includes Showa Denko’s midstream materials; application technology includes Showa Denko Materials’ downstream
applications; and analytics technology includes both companies’ evaluation/simulation technologies, structure analysis, and computational science. These
three technologies and the fundamental technologies/materials business category are the nutrients in the rich soil. In other words, fundamental
technologies/materials make it possible to produce and nurture quality “trees”: the core growth, next-generation and stable earnings business categories.
Of course, we can also bring in “saplings” from other sources and grow them in the rich soil. In the process, the “soil” of technologies will also be continuallyrefined through business operations and this will lead to the development of businesses with new functions. This cycle of business strengthening andtechnological improvement will allow us to achieve a self-directed portfolio transformation and sustained high growth.

Continuously provide the market with a wide range of functions by integrating and enhancing technologies,
and enable the creation and development of new businesses through "self-directed portfolio reform"
Business creation/
development

Life Sciences
Realizationof functions

Offering of
new functions
throughtechnology
integration

Electronics

Mobility

Microfabrication

Chemistry to
formulate
Chemistry tosynthesize

10

SHOWA DENKO K.K.

Lowdielectric

FunctionsHeatmanagement

Weightreduction

Thinning

Cell
culturing/
Formulation

Interface/surfacecontrol

Application
technology

Kneading/
dispersion

Materials
processing

Formulation

Inorganic

Materials
technology

Polymer

Aluminumalloy

Evaluation/
simulation
technology

Computational
scienceMolecular
dynamics
calculation: Showa Denko driven: Showa Denko Materials driven
1. AI = Artificial Intelligence 2. MI = Materials Informatics

ANNUAL REPORT 2020

Petrochemicals

High-speed
polishing/low
scratchLead mainly by"Fundamental
Technologies/
Materials" business

Chemistry to
think

Device Solutions

Organics/
polymers
analysis

Structure
analysis

Quantumchemistry
calculation

Molecular
dynamics
calculation

CarbonTechnology
enhancement
throughbusinesses

AI1)

MI2)

Examples of contributions to
SDGs through diverse
technologies and businesses

As long-term numerical targets for 2025, set EBITDA margin of 20%,
ROE of 15%, and net D/E ratio close to 1.0 times
Long-term numerical targets
2020 results(Annualized basis)*First, for specific numerical targets over the medium tolong term we intend to rank among the top 25% ofcompanies in the chemicals industry for TSR (total
shareholder return). In addition, in 2025 we are aimingfor ¥1.6 trillion in sales, an EBITDA margin on sales of
20%, an ROE of 15%, and a net D/E ratio of close to 1.0
times. When it comes to sales and EBITDA, these targets
will likely change as a result of future portfolio
restructuring. However, we have set the EBITDA margin,
ROE, and net D/E ratio as targets to achieve regardlessof how our portfolio is restructured.

2021
forecast

2025

2030

Aim to be among Top 25%
in chemicals industry over the Medium- to long-term

TSR (%)**
Sales (Trillion yen)

1.25

1.28

1.6

1.8~1.9

EBITDA (Billion yen)

89.7

165.1

320.0

—

EBITDA margin (%)

7.2%

12.9%

20%

—

-20.3%- 3.7%

15%

—

1.84

1.96

Close to 1.0—

ROE (%)Net D/E ratio (Times)* Annualized figures are the combined figures of actual results and Showa Denko Materials’ institutional accounting figures
for Jan. 2020-Jun. 2020, including amortization of goodwill and other assets equivalent to that in the second half of 2020.
** TSR: Total Shareholders Return

Long-term numerical targets
We aim to be “a company that can win the global competition” and “a company that contributes to a sustainable global society.”
To achieve these goals, we will meet the expectations of our customers through innovations that combine technologies, and we will contribute to asustainable society as a whole through business operations. When operating our businesses, we will go after business activities that address the UN’s 17
Sustainable Development Goals (SDGs). As a newly integrated company, we will contribute to SDGs through various technologies and businesses, andfurther strengthen our ESG initiatives.

As a newly integrated company, contribute to SDGs through various technologies and businesses,
and further strengthen ESG efforts

Contribute to CO2-freeenergy creation
through hydropower
generation
Increase resources
efficiently/reducegreenhouse gases
through chemical
recycling of usedplastics

Promote effective use ofiron resources bysupplying graphite
electrodes for electric
furnaces

Thoroughly embrace responsible
consumption and production
across the company

Optimize electric-power/
resource consumption byoffering next-generation
semiconductor materials, etc.

Reduce greenhouse gases
through mobility weight
reduction/electrification

Improve QOL
through Life
Sciencesbusiness

11

Business Segments
19.0%

Petrochemicals
Consolidated BusinessResults (Millions of yen)

Sales
Operating Income

2020

2019

Increase/decrease

Rate ofchange193,385

250,678-57,293-22.9%

4,927

17,201-12,274-71.4%The Oita Complex is the main manufacturing base of thePetrochemicals Division and is equipped with a naphtha cracker.
The Complex produces olefins, including ethylene and propylene.
As its feature, the Complex has a well-balanced demand structure.
The basic raw materials manufactured within the Complex aresupplied not only to Showa Denko’s plants producing organic
chemicals, including vinyl acetate, ethyl acetate and other acetylic
derivatives, but also to other companies’ plants in and around the
Oita Complex producing plastics, synthetic rubber, and styrene
monomer, including a plant producing polypropylene that is
operated by SunAllomer Ltd., a subsidiary of Showa Denko.
Showa Denko is expanding business to produce acetylic
derivatives by taking advantage of the Company’s advanced
catalyst technology.

15.3%

Chemicals
Consolidated BusinessResults (Millions of yen)

Increase/decrease

Rate ofchange

2020

2019

Sales

155,769

157,480-1,711-1.1%

Operating Income

13,481

13,656

-175

-1.3%

The Electronic Chemicals Division supplies semiconductor
manufacturers in Japan and overseas with more than 20 kinds ofhigh-purity gases, including fluorinated etching gases, ammonia
and chlorine gases, chemicals, and equipment for use in the LCP,
LED, and solar cell manufacturing processes.
The Industrial Gases Division supplies oxygen, nitrogen, andargon separated from air as well as compressed hydrogen, carbonicacid, dry ice, and other industrial gases to wide-ranging industries.
The Division especially contributes to a stable supply of food andfood safety by providing carbonic acid gas, mainly used forcarbonated drinks and dry ice to keep food cool.
The Basic Chemicals Division supplies ammonia, acrylonitrile,
caustic soda, hydrochloric acid, and other industrial chemicals. The
Division also supplies amino acids, as well as elastomer products,
such as chloroprene rubber. ECOANN™ ammonia, which utilizes
used plastics as a raw material, is a product that contributes to thecreation of a recycling-oriented society and is mainly used as adenitration agent at thermal power plants.
The Functional Chemicals Division consists of the Functional
Polymers Department and the Specialty Chemicals Department.
The Functional Polymers Department provides various types ofplastics, including unsaturated polyester resin, which is light, strong
and corrosion-resisting, and molding compounds made by using
the plastics. The Specialty Chemicals Department offers innovative
and unique products, such as raw materials for cosmetics, resins foruse as electronic materials, and columns for high performanceliquid chromatography (HPLC). We have decided to concentrate
domestic production bases to streamline our capacity to produce
unsaturated polyester and vinyl ester resins.
12

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Coating Materials Department was organized in July 2019
following our acquisition of Industrielack AG (ILAG), a nonstickcoating chemicals manufacturer, of Switzerland. The
Department provides nonstick coating chemicals, which arematerials applicable to surfaces of cookware, home appliances,cars and industrial equipment in order to prevent burning on
and staining.

9.5%

Electronics
Consolidated BusinessResults (Millions of yen)

2020

2019

Sales

97,41596,445970

1.0%Operating Income

9,133

4,880

4,253

87.2%

Increase/decrease

Rate ofchangeThe Device Solutions Division provides data-recording media for
hard disk drives and SiC epitaxial wafers for power devices. The
Showa Denko Group is the largest independent HD media supplierin the world, and the Device Solutions Division conducts HD media
business with production bases in Japan, Taiwan, Singapore, andMalaysia. This division provides world-class high-quality HD media
for use in PCs and other consumer electronic products as well as foruse in data centers and other fields, where demand is expected to
grow due to the spread of cloud computing.
SiC epitaxial wafers are used as materials for next generation
power semiconductors, which are expected to contribute to energy
conservation. The wafers are being increasingly used in quickchargers for EVs, photovoltaic generation, and servers. We are
expanding our capacity to produce SiC epi-wafers and improving
their quality in order to respond to quick expansion of the market
for power control units for EVs.
The Electronics Materials Division (now Electronics Materials
Project) supplies compound semiconductor materials and rare earthmagnetic alloys. For compound semiconductor materials, theDivision has a wide lineup of high-output LEDs with industrial
applications, including use in displays and sensors. In our Long-Term
Vision for the Newly Integrated Company, we positioned Electronics
Materials as a “stable earnings” business. To strengthen this business’s
competitiveness and adaptability to changes in the market, weestablished Showa Denko Photonics Co., Ltd. which succeeded SDK’s
rare earth magnetic alloy and LED operations in January 2021.
The Advanced Battery Materials Division is promoting production
and sales of various materials for lithium-ion batteries, including
VGCF™-H unique anode and cathode additive which prolongs life ofbatteries, and SPALF™ aluminum laminated film for LIBs installed insmartphones, tablets and EVs.

8.1%

Inorganics
Consolidated BusinessResults (Millions of yen)

2020

2019

Increase/decrease

Rate ofchangeSales

82,899230,135 -147,236-64.0%

Operating Income-32,300

89,256 -121,556—

The Carbon Division supplies graphite electrodes for electric
steelmaking furnaces. These electrodes are indispensable forthe recycling of iron and steel. Showa Denko’s graphite
electrodes are highly acclaimed by customers around the world.
The Division integrated the graphite electrode business ofGerman company SGL GE GmbH in 2017 to become the world’s
number one manufacturer in this field. In February 2021, SDK
acquired shares in AMI Automation, which provides electroderegulation systems and operation optimization software to
improve efficiencies of electric arc furnaces. AMI also provides
fully integrated automation and plant control systems for a wide
range of industries. Through these investments, the Division
now has operating synergies through the integration with AMI,
and profitability of the graphite electrode business has
improved. The Division will continue developing and producing
high-end graphite electrodes and supplying them to advanced
countries, and we will sell products for the mass-market sector
in emerging countries that are growing very rapidly.
Capitalizing on long-accumulated high-temperature fusion
technology, high-temperature sintering technology, and thepulverization/classification technology, the Ceramics Division
manufactures and sells polishing materials, abrasives, andrefractories where fused alumina, silicon carbide, and boron
nitride are used. For ultrafine titanium oxide, used as the mainmaterial to manufacture multilayer ceramic capacitors (MLCCs)
that are mounted on a range of electronic devices, the Division
is expanding sales for use in high-end products.

7.9%

Aluminum
Consolidated BusinessResults (Millions of yen)

2020

2019

Increase/decrease

Rate ofchangeSales

80,18597,542-17,357-17.8%

421

1,746-1,326-75.9%

Operating Income

The Aluminum Specialty Components Division provides aluminummaterials and processed products. The Division supplies thefollowing products not only in Japan but also in Europe, the UnitedStates, and Southeast Asia: large/complexly shaped extruded
products, continuously cast rods of aluminum alloys (SHOTIC™)
made using Showa Denko’s proprietary technologies, and forgedproducts for automobile parts including compressors for car air
conditioners.
The Division also supplies a range of heat exchangers for homeelectric appliances and industrial equipment worldwide and isdeveloping and manufacturing power semiconductor coolingdevices used in hybrid cars, electric vehicles, and solar power
generation equipment.
The Aluminum Rolled Products Division provides high-purity
aluminum foils for use in electrolytic capacitors, which require highpurity aluminum and precision control in foil manufacturing
process. Aluminum electrolytic capacitors are widely used in arange of products, including home electric appliances andautomotive equipment.
The Showa Denko Group became the first company to
manufacture aluminum beverage cans in Japan in 1971. Since then,the Aluminum Can Division has been supplying high-quality
aluminum cans for beverages through integrated production,
including pressing can bodies and can ends and printing labels.
In January 2021, after carefully weighing the options, wereached the conclusion that the expansion of the aluminum canand aluminum rolled products operations would be best achieved

through business partners that have specialized knowledge andmanagement resources to enable business growth, so we decided
to transfer these operations to a subsidiary of Apollo Global
Management, Inc. in mid-2021.

Showa Denko
Materials
Consolidated BusinessResults (Millions of yen)

Sales
Operating Income

2020

29.7%

Increase/decrease

2019

Rate ofchange302,742———-6,303———In April 2020, this segment was established by making Showa
Denko Materials Co., Ltd. a consolidated subsidiary. Showa Denko
Materials Group concentrates management resources on fourbusiness domains: information and communications, mobility,
energy, and life sciences. The information and communications
domain contributes to the evolution of information andcommunication equipment through the development of leadingedge technologies for semiconductor materials. These materials
include polishing materials for semiconductor circuits; materials fordisplays, including films for connecting circuits for display panels;
and materials for circuit boards, including copper-clad laminates.
The mobility domain contributes to the development of nextgeneration automobiles through the production and sales of a wide
range of products, including plastic components, tribology
materials, powder metal products, carbon anode materials forlithium-ion batteries, and heat-resistant coating materials. Theenergy domain offers products that contribute to realizing idealenergy management, including lead storage batteries for industrialuse, lithium-ion batteries, and car batteries. The life sciencesbusiness domain produces and sells diagnostic agents; develops
manufacturing methods for regenerative medicines; and conducts
commissioned production for these agents and technologies.

10.5%

OthersConsolidated BusinessResults (Millions of yen)

Sales
Operating Income

2020

2019

Increase/decrease

Rate ofchange107,301

126,163-18,862-15.0%

1,199

1,819

-620

-34.1%

Included in this segment are themes for future businesses as well as
the manufacture and sale of various chemical products, light metals,
and building and civil engineering materials.

For details of business results, please see the Management’s Discussion and Analysis (p. 19).

13

Management Team

as of March 30, 2021

Back row: Noriko Morikawa, Kiyoshi Nishioka, Masaharu Oshima, Kozo Isshiki Middle row: Hiroshi Sakai, Hideo Ichikawa, Hisashi Maruyama Front row: Motohiro Takeuchi, Kohei Morikawa, Hidehito Takahashi

Directors
KOHEI MORIKAWA Representative Director, President

HIROSHI SAKAI

April 1982
January 2013
January 2016
March 2016
January 2017

April 1986
January 2015

Joined the Company
Corporate Officer; General Manager, Electronic Chemicals Division
Managing Corporate Officer; Chief Technology Officer (CTO)
Director; Managing Corporate Officer; Chief Technology Officer (CTO)
Director; President and Chief Executive Officer (CEO) (incumbent)

HIDEHITO TAKAHASHI Representative Director
April 1986
October 2004
October 2008
January 2013
October 2015
January 2016
January 2017
March 2017
July 2017
January 2020

Joined The Mitsubishi Bank, Ltd. (currently MUFG Bank, Ltd.)
Asia Pacific President, GE Sensing & Inspection Technologies, GE Japan Holding Corporation
President & CEO, Silicones Business, Momentive Performance Materials Japan Inc.
President and CEO, GKN Driveline Japan plc
Joined the Company, Senior Corporate Fellow, Assistant to President
Corporate Officer; General Manager, Corporate Strategy Department
Managing Corporate Officer
Director; Managing Corporate Officer
Director; Managing Corporate Officer, General Manager, Carbon Division
Director; Managing Corporate Officer, in charge of Carbon and Ceramics
divisions, Coating materials Department, Yokohama and Shiojiri plants, andCorporate Strategy Department; Chief Strategy Officer (CSO) (incumbent)

MOTOHIRO TAKEUCHI Representative Director
April 1983
January 2015
January 2017
January 2019
March 2019
January 2020

Joined the Company
Corporate Officer; General Manager, Ceramics DivisionCorporate Officer; General Manager, Corporate Strategy Department
Corporate Officer; Chief Financial Officer (CFO)
Director; Corporate Officer; General Manager, Finance & Accounting Department;
Chief Financial Officer (CFO)
Director; Managing Corporate Officer, in charge of Finance & Accounting andInformation Systems departments; Chief Financial Officer (CFO) (incumbent)

HIDEO ICHIKAWA Chairman of the Board
April 1975
January 2006
March 2008
September 2008
January 2010
January 2011
January 2017

Joined the Company
Corporate Officer; General Manager, Corporate Strategy OfficeDirector; Corporate Officer; General Manager, Corporate Strategy OfficeDirector; Corporate Officer; Executive Officer, HD Sector
Director; Managing Corporate Officer; Executive Officer, HD Sector
Director; President and Chief Executive Officer (CEO)Director; Chairman of the Board (incumbent)

HISASHI MARUYAMA
April 1983
April 2016
June 2016
June 2020
January 2021
March 2021

14

Joined Hitachi Chemical Company, Ltd. (currently Showa Denko Materials Co., Ltd.)
President, Hitachi Chemical Company, Ltd.
Director; President, Hitachi Chemical Company, Ltd.
Director; President, Chief Executive Officer (CEO) and Chief Quality Officer (CQO),
Hitachi Chemical Company, Ltd.
Director; President and Chief Executive Officer (CEO), Showa Denko Materials Co.,
Ltd. (incumbent)
Director of the Company (incumbent)

SHOWA DENKO K.K.

ANNUAL REPORT 2020

January 2019
January 2020
March 2020
January 2021

Joined the Company
Senior Corporate Fellow; General Manager, Technology Development Control
Department, HD DivisionCorporate Fellow; General Manager, Technology Development Control
Department, Device Solutions DivisionCorporate Officer, Chief Technology Officer (CTO)
Director; Corporate Officer, Chief Technology Officer (CTO)
Director; Corporate Officer, in charge of Advanced Battery Materials Division,
Institute for Integrated Product Development, and Corporate R&D and Intellectual
Property departments; Chief Technology and Officer (CTO) (incumbent)

MASAHARU OSHIMA Outside Director
April 1974
November 1995
April 2006
October 2009
April 2013
May 2013
June 2013
April 2014
March 2015
April 2015
July 2016
December 2016

Joined Nippon Telegraph and Telephone Public Corporation(currently Nippon Telegraph and Telephone Corporation)
Professor, Applied Chemistry Department,
Graduate School of Engineering, The University of Tokyo
Director, Synchrotron Radiation Research Organization, The University of Tokyo
Chairman, The Japanese Society for Synchrotron Radiation Research
Project Professor, Synchrotron Radiation Research Organization, The University of Tokyo
Chairman, The Surface Science Society of Japan
Emeritus Professor, The University of Tokyo (incumbent)
Project Researcher, Synchrotron Radiation Research Organization, The University of Tokyo
Director of the Company (incumbent)Special Professor, Tokyo City University (incumbent)
Project Researcher, School of Engineering, The University of Tokyo
Project Researcher, Institute for Solid State Physics, The University of Tokyo (incumbent)

KIYOSHI NISHIOKA Outside Director
April 1977
June 2005
June 2009
November 2012
April 2017
April 2017
March 2018
July 2019

Joined Nippon Steel Corporation
Director; General Manager, Technology Development Planning Department,
Technology Development Headquarters, Nippon Steel CorporationCounselor, Nippon Steel Corporation
Special Professor, Research Center for Advanced Science and Technology,
The University of Tokyo
Adviser, Research Center for Advanced Science and Technology,
The University of Tokyo (incumbent)
Visiting Professor, Ehime University (incumbent)
Director of the Company (incumbent)
Director, VCRI Co., Ltd. (incumbent)

KOZO ISSHIKI Outside Director

NORIKO MORIKAWA Outside Director

July 1969
June 2001
May 2005
June 2015
March 2019

April 1981
August 1988
September 1991
March 1995
March 2005

Joined Japan Development Bank (currently Development Bank of Japan Inc.)
Executive Director, Development Bank of Japan Inc.
Chairman of the Board, Technology Alliance Investment, Ltd.
Director, Medical System Network Co., Ltd. (Outside Director) (incumbent)
Director of the Company (incumbent)

June 2009
August 2010
June 2018
March 2020
June 2020

Joined CHORI CO., LTD.
Joined Daiwa Securities America Inc.
Joined Arthur Andersen
Joined Motorola Inc.
Director, in charge of accounting and finance; General Manager, Accounting and
Finance Headquarters in Japan, Motorola Inc.
Joined Bosch Corporation
Director; Vice President, in charge of Administrative Headquarters, Bosch Corporation
Outside Director, CHORI CO., LTD. (incumbent)
Director of the Company (incumbent)
Outside Director, Mitsubishi Heavy Industries, Ltd. (incumbent)

Audit & Supervisory Board Members
TOSHIHARU KATO

KIYOMI SAITO Outside Member

April 1981
January 2016

Joined Showa Aluminum Corporation (currently Showa Denko K.K.)
Corporate Officer; General Manager, Finance & Accounting Department

January 2017

Corporate Officer; General Manager, Finance & Accounting Department;
Chief Financial Officer (CFO)

March 2017

Director; Corporate Officer, General Manager,
Finance & Accounting Department; Chief Financial Officer (CFO)

January 2018

Director; Corporate Officer, in charge of Finance & Accounting and Information
Systems departments; Chief Financial Officer (CFO)

April 1973
September 1975
August 1984
January 1990
April 2000
April 2011
March 2012
June 2015

January 2019
March 2019

Director, Assistant to President
Audit & Supervisory Board Member (incumbent)

SETSU ONISHI Outside Member

JUN TANAKA
April 1982
January 2013
January 2017
March 2017

Joined the Company
Corporate Officer; General Manager, Advanced Battery Materials Department
Managing Corporate Officer; Chief Technology Officer (CTO)
Director; Managing Corporate Officer; Chief Technology Officer (CTO)

January 2019

Director; Managing Corporate Officer, in charge of Advanced Battery Materials
Division, Institute for Integrated Product Development,
Advanced Technology Laboratory, Corporate R&D and Intellectual Property
departments; Chief Technology Officer (CTO) (incumbent)

January 2020
March 2020

Joined Nikkei Inc.
Joined Sony Corporation
Joined Morgan Stanley Investment Bank
Executive Director, Morgan Stanley Investment Bank
Director; President, JBond Co., Ltd. (currently JBond Totan Securities Co., Ltd.) (incumbent)
Director; President, The Totan Information Technology Co., Ltd.
Audit & Supervisory Board Member of the Company (incumbent)
Outside Director, Kajima Corporation (incumbent)

Director, Assistant to President
Audit & Supervisory Board Member (incumbent)

April 1978

Joined The Industrial Bank of Japan, Ltd. (currently Mizuho Bank, Ltd.)

April 2005

Corporate Officer; General Manager, 14th Marketing Department,
Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.)

April 2007

Managing Corporate Officer, in charge of Global Syndication Unit and Global
Products Unit

April 2010

Vice President; Corporate Officer; General Manager, Internal Audit Division,
Mizuho Financial Group, Ltd.

June 2010

Director; Vice President; Corporate Officer; General Manager,
Internal Audit Division, Mizuho Financial Group, Ltd.

April 2011
June 2011
April 2013
June 2016
April 2017
June 2017
March 2018

Director; Mizuho Financial Group, Ltd.
Director; Vice President, IBJ Leasing Company, Limited
Director; President, IBJ Leasing Company, Limited
Councilor, Mizuho Financial Group, Ltd.
Senior Counselor, Nippon Commercial Development Co., Ltd. (incumbent)
Director, NS United Kaiun Kaisha, Ltd. (incumbent)
Audit & Supervisory Board Member of the Company (incumbent)

MASAKO YAJIMA Outside Member
April 1994

Registered at Dai-Ichi Tokyo Bar Association Joined
Nishimura Law Office (currently Nishimura & Asahi)

March 2001
April 2004
January 2006
April 2007
March 2020

Registered as a lawyer in the State of New York
Assistant Professor, Law School, Keio University
Partner, Nishimura & Tokiwa (currently Nishimura & Asahi) (incumbent)
Professor, Law School, Keio University (incumbent)
Audit & Supervisory Board Member of the Company (incumbent)

Back row: Masako Yajima, Kiyomi Saito, Setsu Onishi Front row: Toshiharu Kato, Jun Tanaka

Corporate Officers
Chief Executive Officer

Corporate Officers

KOHEI MORIKAWA

YOUICHI TAKEUCHIKENJIRO YAMAMASU

Plant Manager, Kawasaki Plant

General Manager, Electronic Chemicals Division; Officer incharge of Tokuyama Plant

Senior Managing Corporate Officer

JIRO ISHIKAWA
General Manager, Device Solutions Division; Officer in charge ofElectronics Materials Project and Chichibu Plant

Managing Corporate Officers

HIDEHITO TAKAHASHI
Chief Strategy Officer (CSO); Officer in charge of Carbon andCeramics divisions, Coating materials Department, Yokohama
and Shiojiri plants, and Corporate Strategy Department

MOTOHIRO TAKEUCHI
Chief Financial Officer (CFO); Officer in charge of Finance &Accounting and Information Systems departments

KEIICHI KAMIGUCHI
Chief Risk Management Officer (CRO); Officer in charge ofInternal Audit, Legal, CSR & General Affairs, Human Resources,and Purchasing & SCM departments

TAICHI NAGAI
Oita Complex Representative

MASUNORI KAIHO
Officer in charge of Kawasaki, Higashinagahara, Isesaki, andTatsuno plants, Production Technology, Energy & Electricity, SPS
Innovation, and Responsible Care departments

TESTUO WADA
General Manager, Institute for Integrated Product Development

HIROTSUGU FUKUDA
General Manager, Petrochemicals Division; Officer in charge ofOita Complex

EISHI WAKUTSU
General Manager, Corporate Strategy Department

HIROSHI SAKAI
Chief Technical Officer (CTO); Officer in charge of Advanced
Battery Materials Division, Institute for Integrated ProductDevelopment, and Corporate R&D and Intellectual Property
departments

KAZUO HIRAKURA
General Manager, Industrial Gases Division; Officer in Charge of
Basic Chemicals, Electronic Chemicals, and Functional
Chemicals divisions

HIROYUKI EDA
Officer in charge of Aluminum Rolled Products,
Aluminum Specialty Components, and Aluminum Can divisions
and Oyama and Kitakata plants

MAKOTO TAKEDA
General Manager, Carbon Division

15

Corporate Governance
Message from Hideo Ichikawa,
Chairman of the Board
The Showa Denko Group views the further strengthening of corporate
governance as a top management priority. In December 2015, theCompany established Corporate Governance Basic Policies, aiming tomeet stakeholders’ expectations by increasing corporate value andshareholders’ common interests. Guided by the Basic Principles, weupdated our Corporate Governance Report, and we are now promoting
constructive dialogues with investors and shareholders.
In 2020, we increased the number of outside directors from three
to four, out of the nine members of the Board of Directors. For the
Audit & Supervisory Board, three out of the five members are outside
members. Those outside board members are experts from the financial
and manufacturing industries, academia, and the legal profession.
Further, the number of women among the 14 board members
increased from one to three, contributing to greater diversity. Bothboards have very high attendance rates, with free and vigorous
exchanges of views.
In 2020, the Company made a tender offer for shares of Hitachi
Chemical Company, Ltd.—the largest M&A in our history—and madeit a consolidated subsidiary: Showa Denko Materials Co., Ltd. As the
Chairman of the Board, I would like to steer the Company toward asmooth integration by 2023, aiming for the new Showa Denko Groupto have a promising future. In preparation for the integration and tostrengthen corporate governance in growth areas, Mr. Hisashi
Maruyama, President of Showa Denko Materials, was appointed as a
new director of the Company. Therefore, the total number of directors
has been increased to 10.
From fiscal year 2020, I have concentrated my attention on my workas the Chairman of the Board. I would like to stimulate discussions at
the Board of Directors’ meetings and take the leadership to have deep
discussions at our meetings on the medium- to long-term course of
the management of the Company.
In view of the full integration with Showa Denko Materials(scheduled for January 2023), the Board of Directors will discuss
important management policies of the Showa Denko Group, including
our management philosophy, business strategy, and business portfolio
as well as policies on capital investment, structural reform, andshareholders’ returns.
We still have many social issues to be resolved by the power ofchemistry, including global warming, marine plastic waste, effective
use of limited oil and mineral resources, and improvements in thequality of life for people around the world. To contribute toward
resolving these social issues, the whole Showa Denko Group willcontinue to work based on Our Code of Conduct, which includes ourpledge to “maintain and improve the global environment.” We will also
take up the challenge of carbon neutrality, with the target year of
2050. The Group will actively develop, produce, and sell products aswell as supply services that
contribute to theachievement of SDGs, inthis way enhancing ourvalue as a “company
contributing to the soundgrowth of society.”
We look forward to thecontinued support ofinvestors and shareholders.

1. ‌Basic Concept of Corporate Governance
We will promote corporate governance to ensure the soundness,
effectiveness, and transparency of management, and to continue enhancing
our corporate value, thereby contributing to the sound growth of society
and earning its full trust and confidence. To that end, it is essential for us
to strengthen relations with our stakeholders, including shareholders,customers, suppliers, community residents, and employees. Based on
the above, we have clarified our mission in the form of the Group’s vision,
as stated below, and we are working hard to realize this vision.

VISIONWe at the Showa Denko Group will provide products and services
that are useful and safe and exceed our customers’ expectations,
thereby enhancing the value of the Group, giving satisfaction to
our shareholders, and contributing to the sound growth ofinternational society as a responsible corporate citizen.

*‌‌Please visit our website (URL: https://www.sdk.co.jp/english/about/governance.html) for
our Corporate Governance Basic Policies.

2. ‌Supervisory and Decision-Making Functions
We have adopted the Audit & Supervisory Board system to enhance thefairness and transparency of management, ensuring efficient managementof the Company. To clearly separate management supervision frombusiness execution, we have introduced a corporate officer system. The
top management team, consisting of the President and corporate officers
in charge of their respective operations, is working to increase the speed ofdecision-making and to vitalize operations. At the same time, the Company
has substantially reduced the number of directors.
In addition, we have strengthened supervisory functions by appointing
outside directors. To reinforce the independence and objectivity of theBoard of Directors, and accountability of the Board of Directors, theCompany has established the Nomination Advisory Committee and theRemuneration Advisory Committee as advisory bodies to the Board of
Directors. The majority of each committee consists of independent
outside directors and outside members of the Audit & Supervisory Board.
At board meetings held once or twice a month, the Board of Directors
decides on the Company’s basic policy and decides, after full deliberation,
on matters provided for in the Companies Act and the Company’s Articles ofIncorporation as well as important matters for the execution of the Company’s
operations, ensuring a speedy and vigorous decision-making process.
We appoint directors from the viewpoint of strengthening corporate
governance, aiming to strengthen the Board of Directors’ supervisory
functions and to ensure the propriety of the decision-making process.
We make sure that corporate officers whose duties are primarily
business execution will not concurrently serve as directors, in principle.
Furthermore, we have abolished the positions of managing directors andsenior managing directors to put all directors (except for the Chairman,
and the President) on an equal footing, while strengthening thesupervision by Audit & Supervisory Board members (including outside
members) and mutual supervision among directors. The term of office of
directors has been shortened to one year to ensure a quick response tochanges in the business environment and to clarify the management
responsibility of directors. At the Company’s ordinary general meeting ofshareholders held on March 30, 2021, ten directors, including four outside
directors were appointed. One of outside directors is a female director.

3. Business Execution
The Management Committee, which meets once a week in principle andis chaired by the President, deliberates and decides on matters to bereferred to the Board of Directors’ meetings and important matters for

Hideo Ichikawa
Chairman of the Board

16

SHOWA DENKO K.K.

ANNUAL REPORT 2020

the overall management of the Company. The decisions are made after
deliberations on two occasions. For investment plans, their risks are
examined by task teams before referral to the Management Committee,
and their progress is monitored after authorization.
The Company’s medium-term business plans are decided not only by
the Management Committee but also by the participation of all corporate
officers. The Company considers that responsible execution forms the basisof corporate activities. The Company evaluates the performances of businesssegments to ensure the effective implementation of the performance-based
evaluation system. The Company has Security Export Control and Safety
Measures committees under the direct supervision of the President. The
Company also has Sustainability, Responsible Care, and IR promotion
councils under the Management Committee chaired by the President.
These committees and councils investigate, study, and deliberate on specificmatters important for the execution of business.

4. Audit & Supervisory Functions
The Company’s Audit & Supervisory Board has five members, including
three outside members. The members attend the Board of Directors’
meetings and other important internal meetings, offering opinions asnecessary. They audit and supervise the execution of operations throughfield investigations, by hearing sessions, and by reading important
documents, making proposals and providing advice andrecommendations to ensure the sound management of the Company.
They are working to strengthen the consolidated audit & supervisoryboard system in cooperation with auditors of major associated companies.
The Internal Audit Department reports directly to the President andinvestigates the overall execution of business, checking for accuracy,
propriety, and efficiency. It also investigates management policies aswell as business plans and their execution, checking for consistency andsoundness. The results of internal auditing are reported to the membersof the Audit & Supervisory Board to ensure consistency with their audits.
For matters relating to the environment and safety, the divisions incharge conduct Responsible Care audits. KPMG AZSA LLC audits theCompany based on an auditing contract and an annual plan agreed uponwith the Audit & Supervisory Board, and provides the board with audit
results. The auditing corporation and the Audit & Supervisory Board exchange
information and views from time to time to strengthen cooperation.

Remuneration, etc., for Board Members
Remuneration,
etc.
(Millions of yen)

Directors

258

56

48

11

Outside members
included in above

53

53

—

—

4

Audit & Supervisory
Board Members

96

96

—

—

7

Outside members
included in above

35

35

—

—

4

¥48 million is filed as Stock Compensation for Directors, not including outside Directors,
based on the performance-linked stock compensation plan resolved at the 107th ordinary
general meeting of shareholders held on March 30, 2016.

Remuneration for Auditing Corporation
Paid amount

Name of accounting auditor: KPMG AZSA LLC
Remuneration for issuing an auditing certification basedon the auditing contract¥185 million

7. ‌Personal/Financial Relations and Interests among
the Company and Outside Board Members
The Company has four outside members in the Board of Directors andthree outside members in the Audit & Supervisory Board. None of themhas special interests in the Company. An outline of the Company’s
corporate governance system is shown below.

Shareholders’ Meeting
Auditing

Decision-Making
and Supervision

Board ofDirectors

Audit &
Supervisory
Board

Job
AuditsNomination
Advisory
Committee

Advisory/
ReportAudit &
Supervisory
Board
Members

Remuneration
Advisory
Committee

Accounting
AuditorAccounting Audits

Execution of Duties
Top Management
President
Corporate Officers in Charge

Links

Internal Audit Department

Management Committee
Sustainability Promotion Council
Responsible Care Promotion Council
IR Promotion Council
R&D Committee

6. ‌Other Items
Remuneration, etc., to the members of the Board of Directors and the
Audit & Supervisory Board as well as the auditing corporation (for the period
from January 1 through December 31, 2020) is as follows:

Number ofapplicable
persons

Short-term
Stock
PerformanceCompensation
linkedCompensation

Basic
Compensation362

5. Sustainability Promotion Council
The Sustainability Promotion Council examines the Showa Denko Group’s
important CSR issues in general, with a focus on compliance and risk
management. Specifically for compliance, the Council reviews mediumto long-term action plans and significant issues, then formulates measures
based on the action plans and evaluates the status of their implementation.
In addition, the Council regularly aggregates and evaluates risks, formulates
plans to mitigate critical risks that could affect the Group, and confirms
how risk mitigation procedures are being implemented.
For the details of our policies on compliance and risk management, please
visit our website: https://www.sdk.co.jp/english/csr/governance/risk_
management.html

Total Amount by Type of Remuneration, etc.
(Millions of yen)Internal
AuditsSecurity Export Control Committee
Safety Measures Committee
Business Divisions
Staff Sections

17

Corporate Social Responsibility
We place environment, social, and governance (ESG) at the center of our management philosophy, and we willcontribute to the creation of a sustainable society by capitalizing on our Group’s strengths.

CSR Policy

CSR Promotion Framework

For the Showa Denko Group, sustainability means being a sustainable
company that can bring satisfaction to stakeholders by providing themwith products and services that are useful for society and unique to theGroup with a focus on the environment, social, and governance (ESG). In
this way, we create both economic as well as social value as we contributeto the sustainability of the international community.
To make contributions to sustainability, we have developed the Showa
Denko Group’s CSR Policy, which we use as a guide for our CSR activities.

Policies and plans related to CSR initiatives are determined by theManagement Committee, which includes the president, corporate officers,
and Audit & Supervisory Board members. The policies and plans are thenfinalized by the Board of Directors.
For CSR-related issues, we have the Sustainability Promotion Council,
the Responsible Care Promotion Council, and the IR Promotion Council asadvisory bodies to the Management Committee. Through these councils,
we discuss individual issues related to CSR, such as risk management,compliance, our progress in contributing to the achievement of the SDGs,
as well as initiatives to mitigate climate change and other environmental
issues. We then incorporate the results of these discussions into our CSR
plans and activities.
Moreover, our divisions and plants follow Responsible Care Action
Guidelines, receiving support from the Responsible Care, CSR & General
Affairs, Human Resources, and other departments to manage risk, protect
human rights, and to comply with regulations.
We are also working cross-functionally when contributing to the SDGs
and disclosing climate change-related information in response to theactivities of the TCFD and other issues tackled across the organization.

Showa Denko Group’s CSR Policy (May 2019)
We at the Showa Denko Group will aim to make ourselves a social
contribution company that satisfies all stakeholders by contributing tosolving issues concerning SDGs through our business activities, andensuring all employees’ conduct conforming to Our Code of Conduct.

Main
Theme

Creation of economic and social value through deepeningof risk management on the basis of safety and compliance,
and through creation of business opportunities on thebasis of CSR communication

Contribution to creation of society
where affluence and sustainability
are harmonized through effective
use of technologies, products andservices

Tackling environmental issues
in order to realize sustainable
society and as a mission of
manufacturer

Development of humanresources that contribute tosustainable growth ofinternational society and theShowa Denko Group

Safety and compliance are the foundations forbusiness continuity
For the Group, CSR means making social contributions through business
operations, with all employees taking actions in line with Our Vision and
Our Code of Conduct. In Our Vision, we are committed, as the Group’s
basic approach, to contributing to the sound growth of the international
community. We believe that working to achieve the SDGs through ourbusiness operations will help us bring satisfaction to all stakeholders,which is our mission.
The main theme for our CSR Policy is the “creation of economic andsocial value by managing risk based on safety and compliance as well as
through the creation of business opportunities based on communicating
our CSR message.” We need to ensure safety to be qualified as amanufacturer and to ensure compliance to be qualified to compete. The
Showa Denko Group, having these qualifications, will contribute to
reducing risks for society
and increasing
associated value
through risk
Sustainability
management andSocial contribution
company
communication withstakeholders. At thesame time, we will
Creating economic and social value
improve corporate
governance and takethe initiative to create
Koseiha businesses, inthis way creating
economic and social
value to become asustainable social
contribution company.

Please visit
our websites
18

SHOWA DENKO K.K.

Risk Management
Communication

Corporate
Governance

Means for realization

Process for realization

SafetyCompliance

Qualified
as amanufacturer

Qualified toparticipate incompetition

CSR sitehttps://www.sdk.co.jp/english/csr.html
ANNUAL REPORT 2020

Responsible Care Action Guidelines
Showa Denko established the Responsible Care Action Guidelines in March
1995. These guidelines specify management policies related to theenvironment, safety, and health. Our Group promotes initiatives based onthese action guidelines.
In addition, we also signed the Responsible Care Global Charter in 2005,
pledging our support for and implementation of the charter.
When the RC Charter was amended in 2014, we re-signed, making clear
our willingness to promote RC activities through global collaboration.
The Showa Denko Group works continually to improve Responsible
Care activities using the plan-do-check-act (PDCA) cycle when weformulate Responsible Care activity plans (plan), implement them (do),audit and evaluate the results (check), and reflect these in management
reviews for the next round of objectives and activity plans (act). In addition,
we continue to improve our management system by receiving andmaintaining certificates of conformity to management system standards,
including those for the environment, quality, and industrial health andsafety.

Relationships with local communities and authorities
To become a social contribution company, as stated in the Group’s CSR
Policy, we proactively participate in local community initiatives and havefrank, open discussions with local residents to help deepen mutual
understanding, and will collaborate with them to solve local issues for thesustainable development of their communities. We are also working hardto earn the trust of local communities and officials through the Group’s
safe and steady operations.

The Showa Denko Group’s activities and the SDGs
We believe that one of our social responsibilities is to contribute to theachievement of the SDGs through business. To this end, we have started
selecting products that are innovative and that help us make social
contributions (according to our own criteria) as “products and services
contributing to the SDGs.”
Also, the Showa Denko Group’s Code of Conduct and material issues arealigned with the SDGs.

Integrated reports

https://www.sdk.co.jp/english/csr/report/csr_report.html

Management’s Discussion and Analysis
Results of Operations

segment recorded operating income of ¥4,927 million (US$48 million),
down 71.4% from the previous year, due mainly to the remaining impactof the negative spread between purchase and shipment prices of raw
naphtha inventory caused by a fall in raw naphtha prices.

The Group recorded consolidated net sales of ¥973,700 million (US$9,408
million) in 2020, up 7.4% from the previous year. Sales in the Inorganics
segment fell significantly due to a decrease in shipment volumes and lower
prices for graphite electrodes resulting from lower worldwide productionof steel. Sales in the Petrochemicals, Chemicals, Aluminum, and Others
segments also fell. However, sales in the Showa Denko Materials segment
increased due to consolidation that started at the beginning of the third
quarter of 2020. Sales in the Electronics segment rose slightly.
The cost of sales increased ¥143,221 million, or 21.3%, to ¥814,378
million (US$7,868 million), due mainly to the new consolidation of Showa
Denko Materials.
Selling, general and administrative expenses increased ¥64,272 million,
or 56.1%, to ¥178,771 million (US$1,727 million), due mainly to the newconsolidation.
R&D expenditures increased ¥13,774 million, or 66.8%, to ¥34,379
million (US$332 million), due mainly to the new consolidation.
Operating income of the Group in 2020 fell significantly, and the Group
recorded an operating loss of ¥19,449 million (US$188 million), a
deterioration of ¥140,247 million from the previous year. In the Electronics
segment, operating income went up due to an increase in shipment
volumes of hard disk (HD) media and lithium-ion battery (LIB) materials.
However, the Inorganics segment recorded a sharp decrease in operating
income due to lower shipment volumes for graphite electrodes and a drop
in book value of the inventory of graphite electrodes resulting from adecline in market prices of products and application of the lower of cost or
market valuation accounting method. Operating income in the
Petrochemicals segment also decreased due to the impact of the negative
spread between purchase and shipment prices of raw naphtha inventory.
Operating income in the Showa Denko Materials segment, which wasrecently consolidated, also decreased due to lower demand for cars
resulting from the spread of COVID-19 and recording of other losses thatamounted to about ¥28,000 million, including amortization of goodwill.
The Chemicals, Aluminum and Others segments also recorded falls in profit
due to a reduction in shipment volumes of products.

Chemicals Segment
In the Chemicals segment, sales decreased 1.1% from the previous year, to¥155,769 million (US$1,505 million). Sales of electronic chemicals rose due
to higher shipment volumes resulting from a recovery of production in thesemiconductor industry. Sales of coating materials, which was consolidated
in the second half of 2019, also increased. However, sales of basic chemicals
decreased. Sales of liquefied ammonia and acrylonitrile fell due to lower
shipment volumes caused by a decline in domestic demand resulting fromthe spread of COVID-19. Sales of chloroprene rubber decreased due to a
decline in exports. Sales of functional chemicals declined due mainly to afall in sales volumes in Japan and China. Sales of industrial gases decreased
due to a decline in shipment volumes of carbonic acid gas for use in the
production of beverages. Operating income for the segment fell 1.3% fromthe previous year, to ¥13,481 million (US$130 million).

Electronics Segment
In the Electronics segment, sales rose 1.0% over the previous year, to¥97,415 million (US$941 million). Sales of lithium-ion battery (LIB) materials
increased due to higher shipment volumes of Showa Denko Packaging’s
aluminum laminate film (SPALFTM) used as packaging material for LIBs. Salesof compound semiconductors increased due to higher exports. Sales of
HD media fell due to lower shipment volumes of media for PCs, despite anincrease in shipment volumes of media for use in data centers. For SiC
epitaxial wafers, sales increased due mainly to steady shipment volumes ofwafers for use in railcars. Operating income for the segment increased
87.2% over the previous year, to ¥9,133 million (US$88 million).

Inorganics Segment
In the Inorganics segment, sales decreased 64.0% from the previous year, to¥82,899 million (US$801 million). Sales of graphite electrodes dropped
significantly due to a further reduction in the Company’s production andsales volumes of graphite electrodes aiming to respond to the weakening
supply-demand situation for graphite electrodes in the market resulting
from a global slowdown in steel production and the partial clearance of ourcustomers’ graphite electrode inventory. Sales of ceramics decreased due toa fall in sales volumes of abrasives and other products resulting from lower
production of automobiles and steel. Operating income for the segment
recorded a decrease due to a drop in book value for the inventory ofgraphite electrodes resulting from a decline in market prices of products
and application of the lower of cost or market valuation accounting method.
As a result, the segment recorded an operating loss of ¥32,300 million(US$312 million), a deterioration of ¥121,556 million from the previous year.

Information by Business Segment
A breakdown of net sales and operating income by business segment
follows.

Petrochemicals Segment
In the Petrochemicals segment, sales dropped by 22.9% from the previous
year, to ¥193,385 million (US$1,868 million). In our olefin business, sales
decreased due to lower market prices for products including ethylene andpropylene resulting from a fall in prices of crude oil and raw naphtha and asoftening supply-demand balance in East Asia in the first quarter caused
by a slowdown in the Chinese economy. Sales of organic chemicals
decreased due to lower shipment volumes for ethyl acetate and vinyl
acetate resulting from the periodic shut down for maintenance of theplants that produce these products, in addition to the effect of a drop in
market prices of organic chemicals. The demand for olefin products in East
Asia has been recovering since the second quarter. The Petrochemicals

Aluminum Segment
In the Aluminum segment, sales decreased 17.8% from the previous year,to ¥80,185 million (US$775 million). Sales of rolled products decreased due
to a decline in shipment volumes of high-purity aluminum foil for

Net Sales by Segment

Operating Income by Segment(Billions of yen)
1,250(Billions of yen)
200

1,000

150

750

100

500

50

250
0

0

-250

-50

2016

Petrochemicals
Chemicals

2017

2018

Electronics
Inorganics

2019

AluminumShowa Denko
Materials

2020
OthersAdjustments

2016

Petrochemicals
Chemicals

2017

2018

Electronics
Inorganics

2019

AluminumShowa Denko
Materials

2020
OthersAdjustments

19

Management’s Discussion and Analysis (cont.)
capacitors resulting from adjustments in production in customer industries
for capacitors, including the industrial equipment industry and theonboard equipment industry. Sales of aluminum specialty components fell
due mainly to a decline in sales volumes of those for use in the car industry
resulting from lower production of cars worldwide and those for use in
office automation equipment and machine tools. Sales of aluminum cans
dropped due to a reduction in the Group’s domestic production capacity
and, in the Vietnamese market, a significant fall in production of beer
resulting from restrictions on going outside as a countermeasure against
COVID-19. The segment recorded operating income of ¥421 million (US$4
million), down 75.9% from the previous year.

components also decreased due to lower shipment volumes of products foruse as automotive parts. Sales of aluminum cans fell due mainly to lower
production capacity. In the Showa Denko Materials segment, sales increased
due to the new consolidation. In the Others segment, sales fell due to a
decline in sales figures for SHOKO CO., LTD. resulting from a decline inmarket prices of products and a decrease in demand.
As a result, consolidated sales from operations in Japan increased¥22,132 million, or 4.4%, to ¥530,804 million (US$5,129 million).

Sales in China
Sales in China rose substantially due to the new consolidation of Showa
Denko Materials Co., Ltd., despite a significant decrease in shipment
volumes of graphite electrodes.
As a result, consolidated sales from operations in China increased¥41,679 million, or 53.7% over the previous year, to ¥119,360 million(US$1,153 million).

Showa Denko Materials Segment
We started to consolidate Showa Denko Materials Co., Ltd. and its
subsidiaries in the second quarter of 2020, and therefore we created a new
segment for reporting. We started to incorporate sales figures and operating
income of the new segment into SDK’s consolidated financial statements atthe beginning of the third quarter. The Showa Denko Materials segment
recorded net sales of ¥302,742 million (US$2,925 million) in 2020. Sales ofelectronic materials remained strong, including abrasives for chemicalmechanical planarization of the surface of semiconductor chips (CMP slurry)
and materials for circuit boards including copper-clad laminates. However,sales of mobility components, including molded resins, remained sluggish.
As a result, the segment recorded an operating loss of ¥6,303 million (US$61
million). The operating loss for this segment includes amortization of the
goodwill of the former Hitachi Chemical, which was calculated as a result of
the acquisition of shares in the former Hitachi Chemical and other losses
amounting to about ¥28,000 million (US$271 million).

Sales in Asia (excluding Japan and China)
Sales in the Petrochemicals segment in Asia decreased due to a fall inmarket prices of olefin products, despite higher export volumes for olefin
products.
In the Chemicals segment, sales of electronic chemicals rose due to anincrease in shipment volumes of high-purity gases for electronics resulting
from a recovery of production in the semiconductor and display industries
in East Asia. Sales of coating materials also increased due to higher
shipment volumes.
In the Electronics segment, sales of HD media fell due to lower
shipment volumes of media for PCs.
In the Inorganics segment, sales of graphite electrodes decreased due
to lower demand.
In the Showa Denko Materials segment, sales increased due to the newconsolidation.
As a result, consolidated sales from operations in Asia (excluding Japanand China) increased ¥63,685 million, or 43.0% over the previous year, to¥211,674 million (US$2,045 million).

Others Segment
In the Others segment, sales fell 15.0% from the previous year, to ¥107,301
million (US$1,037 million). SHOKO CO., LTD.’s sales decreased due to a fall inmarket prices of products and reduced demand. Operating income for thesegment decreased 34.1%, to ¥1,199 million (US$12 million).

Information by Geographic Area

Sales in the Rest of the World

Sales in Japan

Sales in the rest of the world fell. This was mainly due to a decrease in sales
in the Inorganics segment. Sales of graphite electrodes dropped
significantly due to a weakening supply-demand situation in Europe andthe United States resulting from a decrease in production of steel and thepartial clearance of our customers’ graphite electrode inventory. However,new consolidation of the Showa Denko Materials segment significantly
increased sales in the rest of the world.
As a result, consolidated sales from operations in the rest of the world
decreased ¥60,249 million, or 35%, to ¥111,862 million (US$1,081 million).

Sales in the Petrochemicals segment decreased due to a decline in market
prices of petrochemical products resulting from lower raw naphtha prices.
Sales in the Chemicals segment fell mainly due to the spread of COVID-19. In
the basic chemicals area, sales decreased due partly to lower sales ofacrylonitrile and liquefied ammonia resulting from a decline in domestic
demand. Sales of industrial gases also decreased due partly to a fall in
shipment volumes of carbonic acid gas for beverages and other gases. In
the Electronics segment, sales increased due mainly to steady shipment
volumes of SiC epitaxial wafers for use in electric trains. In the Inorganics
segment, sales of graphite electrodes decreased due to a fall in market
prices and a decrease in shipment volumes. Sales of ceramics also dropped
due partly to lower shipment volumes of abrasives resulting from a decreasein the production of automobiles and steel. In the Aluminum segment, salesof high-purity aluminum foil for capacitors decreased due partly to a
reduction in shipment volumes resulting from production adjustments byindustrial equipment manufacturers. Sales of aluminum specialty

Other Income (Expenses) and Net Incomes
The gap between interest expenses and interest and dividend income
deteriorated ¥4,893 million owing to the expenditure of ¥4,580 million(US$44 million), due mainly to an increase in interest expenses.
We recorded a gain on the equity in earnings of unconsolidated
subsidiaries and affiliates to which the equity method is applied of ¥1,245

Net Income Attributable to Owners of the Parent

Total Assets

Total Net Assets(Billions of yen)
120

(Billions of yen)
2,000(Billions of yen)
750

80

1,500

40

1,000

0

500

600
450
300

-80

20

2016

2017

SHOWA DENKO K.K.

2018

2019

2020

ANNUAL REPORT 2020

0

150

2016

2017

2018

2019

2020

0

2016

2017

2018

2019

2020

million (US$12 million), an increase of ¥497 million due mainly to the additionof Showa Denko Materials’ unconsolidated subsidiaries and affiliates towhich the equity method is applied, despite a lower dividend from asynthetic resin production company resulting from a sluggish market.
For foreign exchange gain (losses), the Group recorded foreignexchange losses of ¥2,979 million (US$29 million), an increase in losses of¥2,251 from the previous year, due to the recording of foreign exchange
losses at an HD media manufacturing subsidiary in Taiwan, as a result of
the depreciation of US dollar against the New Taiwan dollar.
We recorded a gain of ¥18 million (US$0.2 million), net, on retirement
and sales of noncurrent assets, an improvement of ¥4,473 million from theprevious year, due mainly to the recording of a gain of ¥2,645 million, net,
resulting from sales of land by SHOKO CO., LTD. and Showa Denko
Materials Co., Ltd. This gain was despite the recording of retirement lossesof ¥2,627 million resulting from removal of old plants that belonged to the
Inorganics and Chemicals segments, which are significantly smaller thanthose in the previous year.
Gain on sales of investment securities (net) increased ¥1,191 million
over the previous year, to ¥2,934 million (US$28 million).
We recorded impairment losses of ¥16,602 million (US$160 million)
mainly for ceramics and aluminum, up ¥940 million from the previous year.
We also posted business restructuring expenses of ¥5,908 million(US$57 million), up ¥4,222 million from the previous year, due mainly tothe decision to close a graphite electrode plant in Meitingen, Germany.
Overall, the total of other income (expenses), net, i.e., the total of nonoperating income (expenses) and extraordinary income (expenses), net,deteriorated by ¥25,896 million, to a loss of ¥48,811 million (US$472 million).
As a result, the Company recorded a net loss before income taxes andnon-controlling interests of ¥68,260 million (US$660 million), a
deterioration of ¥166,143 million from the previous year.
Consequently, the Company recorded a net loss attributable to ownersof the parent of ¥76,304 million (US$737 million), down ¥149,392 million
from the previous year.

Total investments and other assets increased ¥291,833 million to¥394,643 million (US$3,813 million). Goodwill increased ¥355,854 million
to ¥359,200 million (US$3,471 million).

Liabilities
Total liabilities increased ¥928,577 million to ¥1,485,526 million (US$14,353
million), due mainly to the increase in accounts payable–trade, and theincrease in interest-bearing debt resulting from acquisition of shares in theformer Hitachi Chemical Company, Ltd. Interest-bearing debt increased by¥756,954 million to ¥1,060,146 million (US$10,243 million).

Net Assets
Net assets at the end of the year amounted to ¥718,080 million (US$6,938
million), up ¥198,647 million from the end of the previous year, due mainly
to an increase in non-controlling interests resulting from the issuance ofpreferred shares accompanying the acquisition of shares in the former
Hitachi Chemical Company, Ltd., despite a decrease in retained earnings
resulting from posting of net loss attributable to owners of the parent andthe payment of dividends for 2019.
Note: ‌We started to include lease liabilities in interest-bearing debts in the third quarter of 2020,
and retrospectively adjusted the balance of interest-bearing debts as of the end of 2019 in
the same way. SDK made the former Hitachi Chemical Company, Ltd. a consolidated
subsidiary through a tender offer, considered June 30, 2020 as the acquisition date, andconsolidated the former Hitachi Chemical’s financial results into SDK’s consolidated
financial statements. For the impact of this consolidation on SDK’s consolidated balance
sheet, please refer to SDK’s consolidated financial statements for the first half of 2020.

Capital Expenditures
Capital expenditures increased ¥18,836 million to ¥69,052 million (US$667
million) because we conducted a careful selection of investment projects
and significantly reduced capital expenditures. These actions were taken tocope with a sharp decrease in demand for graphite electrodes and otherproducts resulting from the spread of COVID-19 and despite an increase incapital expenditure amounting to about ¥23,000 million resulting from the
new consolidation of the Sowa Denko Materials segment.

Note: ‌Expenses for integration with Showa Denko Materials Co., Ltd. for full year 2020 was ¥38.9
billion, including advisory fees, PMI expenses, expenses related to fund raising, interest on
borrowing related to share acquisition, and preferred stock dividends.
Expenses for amortization and stepping up of assets belonging to the Showa Denko
Materials segment (which was considered to be consolidated on June 30, 2020) was ¥29.1
billion in total for the second half of 2020: amortization of goodwill and intangible fixed
assets ¥17.2 billion; expenses for stepping up inventories (to fair value) ¥10.9 billion;
expenses for stepping up investments and other assets ¥1.1 billion.

Cash FlowsNet cash provided by operating activities increased ¥30,733 million fromthe previous year, to ¥109,286 million (US$1,056 million), due partly to adecrease in inventories.
Net cash used in investing activities increased ¥881,891 million, to an
expenditure of ¥930,047 million (US$8,986 million), due partly to theexpenditure resulting from the acquisition of shares in a subsidiary
accompanying an expansion of the scope of consolidation.
As a result, free cash flow ended in an expenditure of ¥820,761 million(US$7,930), a decrease in proceeds of ¥851,159 million.
Net cash provided by financial activities rose ¥915,067 million over theprevious year, to proceeds of ¥896,521 million (US$8,662 million), due partly
to an upsurge in proceeds resulting from an increase in long-term debt.
As a result, cash and cash equivalents at December 31, 2020 increased¥76,194 million from the end of the previous year, to ¥197,928 million(US$1,912 million), including the effect of exchange rate fluctuations.

Financial Position
Total Assets
Total assets at the end of the year amounted to ¥2,203,606 million(US$21,291 million), an increase of ¥1,127,224 million from the level at
December 31, 2019, due mainly to the increase in cash, deposits, accounts
receivable-trade, inventories, tangible fixed assets, and intangible fixed assets
resulting from the consolidation of the former Hitachi Chemical Company,
Ltd. (currently Showa Denko Materials Co., Ltd.) and its subsidiaries.
Cash and deposits increased ¥76,896 million from the end of theprevious year, to ¥198,982 million (US$1,923 million).
Net property, plant and equipment rose ¥253,951 million, to ¥727,119
million (US$7,025 million).

Interest-Bearing Debt

Cash Flows from Operating Activities(Billions of yen)
1,200(Billions of yen)
160

900

120

600

80

300

40

0

2016

2017

2018

2019

2020

0

2016

2017

2018

2019

2020

21

Risk Factors
The Showa Denko Group faces risks, as explained below, that could adversely
affect our future performance, financial position, and cash flows, and we areworking to put in place an improved risk management system to minimize
these risks.
The following covers those risks considered material as of March 30, 2021.
This list is not exhaustive.
The Group will continue to monitor the impact of the novel coronavirus(COVID-19) on our operation.

1

Substantial fluctuations in the performancesof individual businesses

The Group is manufacturing and selling a wide variety of products, such as
petrochemicals, chemicals, electronics, inorganics, and aluminum. The following
risks are expected in major business fields, but those are not limited to thebusinesses mentioned below.

(1) Petrochemicals

The Group purchases and imports a large amount of feedstock, including
naphtha. When the price of naphtha or other types of feedstock fluctuates due
to a change in crude oil prices, a change in the supply-demand balance, or acurrency fluctuation, and when we cannot secure sufficient spreads between
the manufacturing cost and selling prices of products, the Group’s performanceand financial position can be affected. Furthermore, earnings frompetrochemicals largely depend on the supply-demand balance. Construction oflarge plants by competitors and the resultant oversupply as well as a sharp
decrease in demand due to unfavorable changes in the Japanese or world
economies can affect the Group’s performance and financial position.
To deal with these risks, the Group is stabilizing revenue, including byreviewing sales methods and by working to reduce costs.

(2) HD media

In the Group’s HD media business, the sales volume is largely influenced bydemand for IT devices and electric appliances. This business requires
innovations at a rapid pace and involves fierce international competition.
Fluctuations in demand and intensification of competition will cause
fluctuations in selling prices. The Group is prepared to develop and provide
products meeting the market requirements and has established a global
production/marketing setup. However, when market requirements change
more quickly than we expected, when supply-demand balance changes
substantially, and when exchange rates sharply fluctuate, the Group’s
performance and financial conditions can be affected.

(3) Inorganics

The Group produces graphite electrodes in Asia, North America, and Europe,and sells those products globally. When the demand for graphite electrodes
suddenly decreases due to unfavorable changes in the Japanese or world
economies, deterioration in supply-demand balance may not allow us to securesufficient spreads between the manufacturing cost and selling prices of
products, and can affect the Group’s performance and financial position.
In response to these risks, the Group is working to strengthen the revenue
base through such initiatives as maintaining inventory at levels appropriate tomarket conditions and by further reducing costs.

(4) Aluminum

The Group imports a large amount of aluminum metal from overseas sources.
When the aluminum ingot price rises due to a rise in LME prices, a rise in thepremiums on aluminum, or a weaker yen, and when we cannot absorb the
manufacturing cost increase in the form of higher product prices, the Group’s
performance and financial position can be affected. Furthermore, most of our
products are sold as materials and components for the automobile, electric
appliance, and electronics sectors. Trends in those industries, which are beyond
our control, can substantially affect our businesses.
In response, the Group hedges against the risk of fluctuations in aluminum
raw material prices by hedging on the LME and other currency exchanges, andwe are working to build a more stable revenue structure by reducing costs andby taking other steps.

(5) Overseas operations

The Group is producing and selling in Asia, North America, and Europe.
Operations overseas involve such special risks as unexpected changes in laws
and regulations, deterioration in political/economic situations, and social
disorder due to war and terrorism. Such risks can become real and affect our
22

SHOWA DENKO K.K.

ANNUAL REPORT 2020

overseas operations, resulting in an adverse impact on the Group’s performanceand financial position.

(6) ‌Mergers, acquisitions, capital tie-ups, businessreorganization and restructuring

The Group implements mergers, acquisitions, capital tie-ups, businessreorganization and restructuring at home and overseas to expand the scope ofbusinesses and improve profitability. The Group undertakes careful due
diligence for companies being considered as acquisition targets, andscrupulously verifies post-merger plans to mitigate risk. However, if changes inthe business environment for the Group or companies that the Group invests ineffectively prevent the desired results from being achieved, this could have anegative impact on the Group’s performance and financial position. The Group’s
performance and financial position could also be affected if the Group
restructures businesses, such as withdrawing from unprofitable businesses orreorganizing affiliated companies.

2

Unexpected fluctuations in financial positionand cash flows(1) Substantial fluctuations in exchange rates

For foreign-currency-based transactions centering on exports/imports, theGroup makes best efforts to minimize exchange rate fluctuation risks, mainly
through exchange contracts. However, substantial fluctuations in exchange
rates can affect the Group’s performance and financial position. In particular, a
sharp appreciation of the yen against other currencies can affect the Group’s
performance. Exchange rate fluctuations can also affect the Group’s
performance and financial position through the conversion of overseas
subsidiaries’ financial statements into Japanese yen.

(2) ‌Trends in financial markets and changes in thefund-raising environment

The trends in the financial markets and deterioration in the Group’s financial
indexes can affect the Group’s fund-raising and interest expenses: for example,
in the form of prompt repayment of a loan owing to the terms of financial
covenants. In that event, the Group’s performance and financial position could
be affected.
In the event that the financial results, financial position, and financial
indicators, etc. originally expected are not achieved, credit ratings may be
reduced, which could in turn negatively affect the refinancing of existing debt
and the terms for new borrowing.
In response to these risks, we are working to strengthen the Group’s
financial standing, as well as to secure liquidity through commitment lines andother agreements with financial institutions, to smooth out fluctuations in
repayments and redemptions, and to take an effective approach to fundraisingthat balances fixed and variable interest rates, among other factors.

(3) Employees’ severance indemnities

The Group’s employees’ severance indemnities and expenses are calculated
based on various basic rates and the yield of pension assets used in pension
calculations. Fluctuations in the current price of pension assets, trends ininterest rates, and changes in the retirement benefit/pension systems can affect
the Group’s performance and financial position.

(4) Securities

As the Group owns securities with current prices, fluctuations in stock prices canresult in valuation losses, affecting the Group’s performance and financial
position.

(5) Accounting for impairment of fixed assets

The Group may incur additional losses from the impairment of fixed assets
including goodwill, intangible assets, and land, due to deterioration in
profitability resulting from aggravation in the business environment, due to aconsiderable reduction in the current prices of land and other fixed assets.
These losses can affect the Group’s performance and financial position.
Further, the takeover of Hitachi Chemical Company, Ltd. (now Showa Denko
Materials Co., Ltd.) led to an increase in the amount of goodwill and intangible
assets. A deterioration in the financial results of the Showa Denko Materials
group, could result in the Company incurring impairment losses that could inturn negatively affect the business performance and financial position of the
Showa Denko Group.
Looking at the impact of COVID-19, in the event that the spread of infection
is prolonged, some businesses could incur impairment losses, which could

negatively affect the business performance and financial position of the Showa
Denko Group.

(6) Deferred tax assets

The Group’s financial statements include deferred tax assets in relation totemporary differences (differences between the assets/liabilities on the
consolidated financial statements and the assets/liabilities in calculation of
taxable income). The calculation of deferred tax assets is based on various
projections for future taxable income. Thus, when actual taxable income differsfrom the projections or in case of a revision of the taxation system (including tax
rates), it becomes necessary to revise deferred tax assets. That situation could
affect the Group’s performance and financial position.
Also, regarding the impact of COVID-19, in the event that the spread of
infection is prolonged, some businesses may need to revise their assumptions inrelation to the recoverability of these deferred tax assets, which could negatively
affect the business performance and financial position of the Showa Denko Group.

3

Specific regulations

The Group’s businesses are subject to various restrictions as stipulated by laws
and regulations. The restrictions relate to industrial safety (such as the Law for
Prevention of Disasters at Petroleum Complexes, Etc.; the Fire Service Law; andthe High Pressure Gas Safety Law) and the environment and chemical
substances (such as the Basic Environment Law; the Air Pollution Control Law;
and the Law concerning the Examination and Regulation of Manufacture, Etc. of
Chemical Substances). The Group observes these laws and regulations when
conducting business. The Group shares information on laws and regulations
that relate to manufacturing plants, and confirms the state of compliance when
updating existing plants or building new ones. Nevertheless, in the event that
the Group fails to observe any of the laws and regulations, the Group’s activities
could be restricted. In case stricter regulations are introduced, resulting inhigher costs, the Group’s performance and financial position can be affected.

4

Important lawsuits

While the Group makes best efforts to observe laws and agreements, the Groupmay be sued when conducting a wide range of businesses.

5

Others(1) R&D

As a hybrid advanced material company combining midstream materials
technology and downstream application technology, the Showa Denko Groupfocuses on achieving innovation through integration. the Group will continue
to provide a broad range of solutions to the market, while focusing on researchand development that strengthens existing businesses and creates new
businesses. This will be accomplished by integrating three specific technologies:
chemistry to synthesize for midstream materials, chemistry to formulate fordownstream applications, and chemistry to think for evaluation/simulation,
structural analysis, and computational science.
However, in case the actual results materially differ from original plans, theGroup’s performance and financial position could be affected.

(2) Intellectual property

The Group is making best efforts to obtain, use, and protect intellectual
property, such as industrial property rights and know-how, in recognition of theability to make the Group’s businesses more competitive. The Group also
respects other companies’ rights. However, in the event of failure to duly obtainor use the rights, infringement by a third party, or if the Group is considered tohave infringed a third party’s intellectual property, or in the event thatknow-how, etc. owned by the Group is leaked unlawfully to a third party, theGroup’s operations can be hindered and the Group’s performance and financial
position could be affected.

(3) Quality assurance and product liability

The Group has established internal rules on quality assurance and quality
control, as well as organizations for managing and promoting quality assurance.
Furthermore, the Group has obtained certification under ISO 9001 standards toensure strict quality control. However, in the event of a serious quality defect orbeing sued for product liability, the Group’s reputation could be damaged andthe Group may be forced to pay compensation to customers. This could affect
the Group’s performance and financial position.
In response to these risks, the Group implements procedures, such as
maintaining facilities for reliable process management, installing measuring
equipment, providing operating manuals, and training employees. In addition
to building a system to prevent defective goods from being shipped, the Group
maintains manufactured goods liability insurance policies both in Japan andoverseas.

(4) Accidents and disasters

The Group is committed to securing steady and safe operations. The Group
conducts regular inspections of all manufacturing facilities in an effort tominimize any risk factors pertaining to the suspension of operations or
accidents due to problems with manufacturing facilities. In the event of injury or
damage to property due to an accident, a large-scale natural disaster, acyberattack, etc., the Group’s reputation could be damaged. The Group may
incur substantial costs in dealing with the situation and may lose business
opportunities due to the suspension of production. This could affect the Group’s
performance and financial position.
In response to these risks, the Group has analyzed both internal and external
accidents and disasters, created checklists of the lessons learned, and usedthem to identify risks and to compile educational materials. In addition to taking
steps aimed at preventing accidents and minimizing damage when accidents
do occur, the Group has prepared for cyberattacks by adopting comprehensive
information management practices and by devising countermeasures to reducethe impact, if any incidents occur.
Furthermore, even when the Group’s manufacturing facilities are notdirectly influenced, the Group’s production activities may be restricted bytrouble with procurement or disruption of supply chains due to accidents at
suppliers’ sites, a natural disaster, or a pandemic of infectious disease, or by ashortage of power supply. These factors could affect the Group’s performanceand financial position.
To minimize the impact of this type of damage at suppliers, the Purchasing
Department has prepared a manual for gathering information for emergencies
and for assessing the impact on the Group’s production, and we hold BCP
training sessions.

(5) Impact on the environment

The Group is committed to the principles of Responsible Care, which means that
we are working to ensure the health and safety of everyone and to protect theenvironment from harm caused by chemical substances throughout their life
cycles, namely, the development, production, distribution, use, and disposal. In
the event of causing impact on the environment, the Group’s reputation can bedamaged. The Group may incur costs, including compensation, lose business
opportunities due to the suspension of production, and/or pay compensation
to customers. These factors can affect the Group’s performance and financial
position.
In response to these risks, the Group has implemented environmental risk
evaluations after performing exhaustive risk assessments at every businesslocation, and we are promoting safety at environmental sites. In addition, we
have implemented a systematic program of inspections and repairs to prevent
environmental pollution caused by age-related deterioration.
Moreover, the need to respond to the demands of society in relation toenvironmental issues, which have been increasing steadily in recent years, aswell as strengthened environmental laws and regulations could have a negative
impact on the Group’s results of operations and financial position.

(6) Infectious disease pandemics

If another global pandemic occurs, such as the one caused by the novel
coronavirus, the operating results and financial position of the Group could be
affected by suspended production at manufacturing plants and suspended
activity at sales offices, etc.
In response to the spread of COVID-19, the Group has established a COVID-19
Countermeasures Headquarters to review information from Japan and overseas,deliver regular alerts to employees, and provide instruction on ways to counter
infection. The Group CEO sent this message to all Group employees: (1) We haveassigned the highest priority to the health of employees and of all employees atcooperating companies; (2) We will fulfill our social responsibility to provide
goods that are indispensable to life in society; and (3) We are preparing for thegrowth of the Showa Denko Group after we have conquered COVID-19.
In addition, a business continuity plan (BCP) has been drawn up, andmeasures are being taken to minimize the impact of risks on our business
operations.
23

Consolidated Balance Sheets
Showa Denko K.K. and Consolidated Subsidiaries
As at December 31, 2020 and 2019

Thousands of
U.S. dollars (Note 5)

Millions of yen

ASSETS

2020

2019

2020

¥ 198,982¥ 122,086$ 1,922,535

287,900

184,425

2,781,647

Current assets
Cash and deposits (Notes 6, 7, and 11)
Notes and accounts receivable (Notes 7, 10, and 11)
Allowance for doubtful accounts
Inventories (Note 11)(1,092)(754)(10,546)

190,208

173,667

1,837,757

46,645

17,632450,675

722,644497,057

6,982,068

Land (Note 19)

264,589

223,9972,556,419

Buildings and structures

351,987

284,225

3,400,845

1,016,307

893,001

9,819,396

34,026

7,759

328,753

Other current assets (Notes 7 and 9)
Total current assets

Property, plant and equipment (Notes 11 and 14)

Machinery, equipment and vehicles
Leased assets (Note 16)
Construction in progress
Less : Accumulated depreciation
Net property, plant and equipment

38,98018,794

376,619

1,705,890

1,427,777

16,482,032(978,771)(954,608)(9,456,728)

727,119

473,168

7,025,305

Investments and other assets
Customer related assets

152,564

1,631

1,474,053

Investment securities (Notes 7, 8, and 11)

106,408

71,786

1,028,101

741

334

7,158

21,184244

204,676

Long-term loans
Net defined benefit asset (Note 12)
Deferred tax assets (Note 13)

15,883

3,381

153,458

Other (Notes 7 and 9)

105,60933,5601,020,381

Allowance for doubtful accounts
Total investments and other assets

Goodwill

Total assets
See notes to financial statements.

24

SHOWA DENKO K.K.

ANNUAL REPORT 2020

(7,747)(8,125)(74,851)394,643

102,810

3,812,976

359,200

3,346

3,470,529¥2,203,606¥1,076,381$21,290,877

Thousands of
U.S. dollars (Note 5)

Millions of yen

2020

LIABILITIES AND NET ASSETS

2020

2019

Current liabilities
Short-term debt (Notes 7 and 11)¥

72,645¥52,720$701,885

Current portion of long-term debt (Notes 7 and 11)

56,387

31,943544,803

Notes and accounts payable (Notes 7, 10, and 11)

191,067

133,730

1,846,058

6,041

6,864

58,363

Income taxes payable
Provision for repairs

28

644

271

Provision for bonuses

8,815

3,050

85,171

Provision for stock payments (Note 3)
Provision for business structure improvement
Other current liabilities (Notes 7, 9, and 11)
Total current liabilities

13

—

129

1,748

1,686

16,88775,32732,238727,795

412,071

262,875

3,981,361

Noncurrent liabilities
Long-term debt less current portion (Notes 7 and 11)

906,365

213,861

8,757,150

Deferred tax liabilities (Note 13)

63,372

7,950

612,287

Provision for repairs

3,168

2,021

30,612

Provision for stock payments (Note 3)

204

200

1,967

Provision for business structure improvement

654

824

6,318

Net defined benefit liability (Note 12)24,7509,969

239,129

Deferred tax liabilities for land revaluation (Note 19)

30,241

32,150292,185

Other noncurrent liabilities (Notes 7 and 9)

44,701

27,099431,895

1,073,455

294,074

10,371,543

Total noncurrent liabilities
Contingent liabilities (Note 17)
Net assets (Note 18)
Shareholders' equity
Capital stock
Authorized, 330,000,000 shares
Issued (2020): 149,711,292 shares

140,564—

1,358,102

Issued (2019): 149,711,292 shares—

140,564—

Capital surplus

78,19078,912755,455

Retained earnings

165,572

249,246

1,599,733

Less: Treasury stock at cost (2020): 3,828,732 shares(11,657)—(112,626)

Less: Treasury stock at cost (2019): 3,836,329 shares—(11,664)—

372,669

457,057

3,600,664
36,024

Total shareholders' equity
Accumulated other comprehensive income

3,728

9,789

Deferred gains or losses on hedges

908

433

8,773

Revaluation reserve for land (Note 19)

29,03433,060280,524(4,892)

Valuation difference on available-for-sale securities

Foreign currency translation adjustments

(506)

4,140

Remeasurements of defined benefit plans (Note 12)128(5,114)

1,236

Total accumulated other comprehensive income

33,29242,309321,665

Non-controlling interests

312,119

20,0673,015,644

Total net assets

718,080

519,433

6,937,973¥2,203,606¥1,076,381$21,290,877

Total liabilities and net assets

25Consolidated Statements of Operations
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2020 and 2019

Thousands of
U.S. dollars (Note 5)

Millions of yen

2020

2019

2020

Net sales¥973,700¥906,454$9,407,728

Cost of sales (Notes 21 and 22)

814,378

671,157

7,868,386

159,322235,297

1,539,342

178,771

114,499

1,727,256(19,449)

120,798(187,914)

Interest and dividends income

2,405

2,568

23,237

Equity in earnings of unconsolidated subsidiaries and affiliates

1,245

748

12,029Gain on sales of investment securities, net (Note 8)

2,934

1,743

28,350Loss on valuation of investment securities (Note 8)

(315)

(9)

(3,045)Gross profit
Selling, general and administrative expenses (Notes 20 and 21)
Operating income (loss)
Other income (expenses)

Foreign exchange losses(2,979)(728)(28,778)

Rent income on noncurrent assets

1,522

1,351

14,702Gain on sales of noncurrent assets, net

2,645

615

25,554

Interest expenses(6,986)(2,255)(67,493)

Loss on retirement of noncurrent assets(2,627)(5,070)(25,380)

Impairment loss (Note 14)(16,602)(15,662)(160,410)

1,388

65

13,413Business structuring expenses (Notes 14 and 24)(5,908)(1,686)(57,081)

Financing expenses (Note 23)(16,075)—(155,314)

Subsidy income

Other, net(9,459)(4,594)(91,390)

Total(48,811)(22,915)(471,607)(68,260)

97,883(659,521)

Current

6,891

22,196

66,581

Deferred(10,051)386(97,108)(65,101)

75,300(628,994)

Income (loss) before income taxes
Income taxes (Note 13)

Net income (loss)
Net income attributable to non-controlling interests

11,203

2,212

108,243

Net income (loss) attributable to owners of the parent¥ (76,304)¥ 73,088$ (737,237)

Yen

U.S. dollars (Note 5)

Per share amounts
Net income (loss) attributable to owners of the parent : Basic
Cash dividends (applicable to the period)¥(523.06)¥ 501.03$(5.05)65.00

130.000.63

Note: Net income per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year.
See notes to financial statements.

26

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Consolidated Statements of Comprehensive Income
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2020 and 2019

Thousands of
U.S. dollars (Note 5)

Millions of yen

Net income (loss)

2020

2019

2020

¥(65,101)¥75,300$(628,994)(6,101)

2,333(58,950)

Other comprehensive income:
Valuation difference on available-for-sale securities

474

(406)

4,581

Foreign currency translation adjustments(4,770)(2,992)(46,090)

Remeasurements of defined benefit plans, net of tax

5,257

3,131

50,792

54

(59)

518

Deferred gains or losses on hedges

Share of other comprehensive income of unconsolidated subsidiaries
and affiliates accounted for using equity method¥ (5,087)¥ 2,007$ (49,150)¥(70,188)¥77,308$(678,143)

Owners of the parent(81,294)

75,187(785,454)

Non-controlling interests

11,107

2,121

107,311

Total other comprehensive income (loss) (Note 15)
Comprehensive income
Comprehensive income attributable to:

See notes to financial statements.

27

Consolidated Statements of Changes in Net Assets
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2020 and 2019

Thousands

Balance as at December 31, 2018

Millions of yen

Number ofshares ofcapital stock

Capitalstock

CapitalsurplusRetainedearnings

Valuation
Foreign
RemeasureDeferred
Nondifference
Revaluation
currency
ments
Treasury
gains
controllingon availablereserve fortranslationof definedstock
or losses
interests
for-salelandadjustments benefit planson hedges
securities

149,711¥ 140,564¥ 78,911¥ 197,717¥ (11,659)¥ 836¥ 33,281¥ 7,069¥(8,244)¥ 19,377¥ 465,340

Dividends from surplus

—

—

—

(21,924)

—

—

—

—

—

—

—

(21,924)

Net income (loss) attributable to owners of the parent

—

—

—

73,088

—

—

—

—

—

—

—

73,088Purchase of treasury stock

—

—

—

—

(8)

—

—

—

—

—

—

(8)

Disposal of treasury stock

—

—

0

—

3

—

—

—

—

—

—

3

Increase by increase of consolidated subsidiaries

—

—

—

448

—

—

—

—

—

—

—

448

Decrease by increase of consolidated subsidiaries

—

—

—

(367)

—

—

—

—

—

—

—

(367)

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders

—

—

1

—

—

—

—

—

—

—

—

1

Changes in liabilities for written put options overnon-controlling interests

—

—

—

—

—

—

—

—

—

—

—

—

Change due to merger

—

—

—

—

—

—

—

—

—

—

—

—

Reversal of revaluation reserve for land

—

—

—

285

—

—

—

—

—

—

—

285

Net changes of items other than shareholders' equity

—

—

—

—

—

2,301

(404)

(221)

(2,929)

3,130

690

2,568

149,711¥ 140,564¥ 78,912¥ 249,246¥ (11,664)¥ 9,789¥ 433¥ 33,060¥ 4,140¥(5,114)¥ 20,067¥ 519,433

Balance as at December 31, 2019
Dividends from surplus

—

—

—

(11,693)

—

—

—

—

—

—

—

(11,693)

Net income (loss) attributable to owners of the parent

—

—

—

(76,304)

—

—

—

—

—

—

—

(76,304)

Purchase of treasury stock

—

—

—

—

(3)

—

—

—

—

—

—

(3)

Disposal of treasury stock

—

—

(0)

—

11

—

—

—

—

—

—

11

Increase by increase of consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Decrease by increase of consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders——(1,392)

—

—

—

—

—

—

—

—

(1,392)

Changes in liabilities for written put options overnon-controlling interests

—

—

660

—

—

—

—

—

—

—

—

660

Change due to merger

—

—

10

—

—

—

—

—

—

—

—

10

Reversal of revaluation reserve for land

—

—

—

4,323

—

—

—

—

—

—

—

4,323

Net changes of items other than shareholders' equity

—

—

—

—

—

(6,061)475(4,026)(4,646)

5,241

292,052

283,036

149,711¥140,564¥78,190¥165,572¥(11,657)¥ 3,728¥908¥29,034¥ (506)¥ 128¥312,119¥718,080

Retainedearnings

Valuation
Foreign
RemeasureDeferred
Nondifference
Revaluation
currency
ments
Treasury
gains
controllingon availablereserve fortranslationof definedstock
or losses
interests
for-salelandadjustments benefit planson hedges
securities

Total
net assets

Balance as at December 31, 2020

Thousands
Number ofshares ofcapital stock
Balance as at December 31, 2019

Thousands of U.S. dollars (Note 5)

Capitalstock

149,711 $ 1,358,102

Capitalsurplus$ 762,435 $ 2,408,175 $ (112,699)$ 94,584$ 4,182$ 319,424$ 39,998$(49,406) $193,881 $ 5,018,675

Dividends from surplus

—

—

—

(112,975)

—

—

—

—

—

—

—

(112,975)

Net income (loss) attributable to owners of the parent

—

—

—

(737,237)

—

—

—

—

—

—

—

(737,237)

Purchase of treasury stock

—

—

—

—

(32)

—

—

—

—

—

—

(32)

Disposal of treasury stock

—

—

(4)

—

106

—

—

—

—

—

—

102

Increase by increase of consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Decrease by increase of consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders——(13,449)

—

—

—

—

—

—

—

—

(13,449)

Changes in liabilities for written put options overnon-controlling interests

—

—

6,377

—

—

—

—

—

—

—

—

6,377

Change due to merger

—

—

97

—

—

—

—

—

—

—

—

97

Reversal of revaluation reserve for land

—

—

—

41,770

—

—

—

—

—

—

—

41,770Net changes of items other than shareholders' equity

—

—

—

—

—

(58,560)

4,592(38,901)(44,890)

50,6422,821,763

2,734,646$755,455 $1,599,733 $(112,626)$ 36,024$8,773$280,524$ (4,892)$ 1,236 $3,015,644 $6,937,973

Balance as at December 31, 2020

149,711 $1,358,102

See notes to financial statements.

28¥ 7,489Total
net assets

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Consolidated Statements of Cash Flows
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2020 and 2019

Thousands of
U.S. dollars (Note 5)

Millions of yen

2020

2019

2020

¥ (68,260)¥ 97,883$ (659,521)

68,643
16,602
9,322
(791)
(179)
2,431
(2,405)
6,986
16,075(1,245)(2,619)2,627(2,645)
14,87970,713(22,744)
20,150127,540
6,546(5,371)(19,429)
109,286

37,704
15,662
98
(700)
(494)
(11,757)(2,568)
2,255
—
(748)
(1,735)5,070(615)
33,489(21,585)(21,898)(25,591)
104,472
3,431(2,326)(27,022)78,554

663,218
160,41090,064(7,646)(1,730)23,488(23,237)
67,493
155,314(12,029)(25,305)
25,380(25,554)
143,754683,218(219,748)
194,700
1,232,270
63,248(51,893)(187,719)
1,055,905

Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of investments in subsidiaries resulting in change in the scope of consolidation (Note 6)
Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation
Net decrease (increase) in short-term loans receivable
Payments of long-term loans receivableCollection of long-term loans receivable
Other, net
Net cash provided by (used in) investing activities

(885)
1,144
(64,500)
7,723
(286)
22,697(890,230)
—
67
(630)
275
(5,425)(930,047)(53)
53(40,708)
1,251
(864)
5,677
(4,851)
529
450
(558)
289
(9,369)(48,156)(8,553)
11,058(623,184)
74,623(2,761)
219,298(8,601,256)—
650(6,084)
2,658(52,414)(8,985,966)

Cash flows from financing activities
Net increase (decrease) in short-term debt
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from share issuance of bonds
Proceeds from issuance of preferred stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling shareholders
Purchase of investments in subsidiaries without change in scope of consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Increase in cash and cash equivalents resulting from newly consolidated subsidiaries
Decrease in cash and cash equivalents resulting from change in scope of consolidation
Cash and cash equivalents at the end of the year (Note 6)(9,226)702,163(44,134)—
268,503(3)
18(11,674)(1,397)(1,987)(5,740)896,521434
76,194
121,734——¥197,928(29,545)
64,396(47,206)
20,000—(9)
0(21,861)(1,329)—(2,992)(18,546)(2,388)9,464
112,835
310(875)¥121,734(89,140)
6,784,181(426,418)—
2,594,227(32)
172(112,794)(13,501)(19,200)(55,459)
8,662,036
4,194
736,169
1,176,175——$1,912,344

Cash flows from operating activities
Income (loss) before income taxes
Adjustments for:
Depreciation and amortization
Impairment loss
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for business structure improvement
Increase (decrease) in net defined benefit liability
Interest and dividends income
Interest expenses
Financing expenses
Equity in (earnings) losses of unconsolidated subsidiaries and affiliates
Loss (gain) on sales and valuation of investment securities
Loss on retirement of noncurrent assets
Loss (gain) on sales of noncurrent assets
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities

See notes to financial statements.
29

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

1. BASIS‌OF REPORTING AND FINANCIAL
STATEMENTS
The accompanying consolidated financial statements have been preparedin accordance with accounting principles and practices generally acceptedin Japan, which are different in certain respects as to the application anddisclosure requirements from International Financial Reporting Standards("IFRS"), and restructured and translated into English from the consolidated
financial statements which have been filed with the Kanto Local Finance
Bureau as required by the Financial Instruments and Exchange Law of Japan.

2. SUMMARY‌
OF SIGNIFICANT ACCOUNTINGPOLICIES(a) Principles of Consolidation
The consolidated financial statements for the years ended December 31,
2020 and 2019 include the accounts of Showa Denko K.K. (“theCompany”) and its 151 and 61 significant subsidiaries, respectively(collectively “the Companies”).
For the purposes of the consolidated financial statements, allsignificant intercompany transactions, account balances and unrealized
profits among the Companies are entirely eliminated and the portions
thereof attributable to non-controlling interests are credited or charged
to non-controlling interests.
The Company applies the “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries, etc. for
Consolidated Financial Statements” (ASBJ Practical Issues Task Force[PITF] No. 18, June 28, 2019) and makes necessary adjustments for the
consolidated settlement of accounts of its foreign subsidiaries, etc.
Showa Denko Singapore (Pte.) Ltd. is consolidated using its financial
statement as of its fiscal year end, which falls on September 30, andnecessary adjustments are made to its financial statement to reflect any
significant transactions.
Of the consolidated subsidiaries, GMM Coatings Private Limited and49 subsidiaries of Showa Denko Materials Co., Ltd. have business year
ends of March 31. For these companies, financial statements based on
the provisional settlement of accounts implemented on the date of
consolidated settlement of accounts are used in the preparation of theconsolidated financial statements.
The business year ends of all other consolidated subsidiaries are on
December 31. From the fiscal year ended December 31, 2020, thebusiness year ends of Showa Denko Materials Co., Ltd., which became aconsolidated subsidiary in April 2020, and 12 of its subsidiaries, havebeen changed from March 31 to December 31, the same date as thedate of consolidated settlement of accounts. Accordingly, theperformance for the six-month period from July 1, 2020 to December 31,
2020 for these companies has been included in the consolidated
financial statements for the fiscal year ended December 31, 2020.
In the initial consolidation, assets and liabilities of subsidiaries
including those attributable to minority stockholders are recorded basedon fair value in the accompanying consolidated financial statements.
Goodwill is amortized on a straight-line basis over a period during
which the effect of such goodwill lasts but does not exceed 20 years
from booking. In addition, negative goodwill arising from businesscombinations prior to April 1, 2010 is amortized on a straight-line basis
over a period during which the effect of such negative goodwill lasts but
does not exceed 20 years from booking.
(b) Investments in Unconsolidated Subsidiaries and Affiliates
The Company applied the equity method of accounting for investments
in 2 unconsolidated subsidiaries in 2020 and 2 that of in 2019, as well as
11 affiliates in 2020 and 9 that of in 2019.
All underlying intercompany profits obtained from transactions
among the Companies and unconsolidated subsidiaries and affiliates towhich the equity method is applied are eliminated in the consolidated
financial statements.
30

SHOWA DENKO K.K.

ANNUAL REPORT 2020(c) Translation of Foreign Currency Accounts
All receivables and payables denominated in foreign currencies at thebalance sheet date are translated into Japanese yen at the current
exchange rates.
The resulting exchange gains or losses are credited or charged toincome.
The financial statements of certain consolidated foreign subsidiaries
are translated into Japanese yen at the year-end rate for assets andliabilities, at historical rates for the other balance sheet accounts
exclusive of the current year’s net income, and at the average annual
rate for revenue and expense accounts and net income.
Translation adjustments resulting from the process of translating thefinancial statements of foreign subsidiaries into Japanese yen are
accumulated and reported as a component of net assets on the
consolidated balance sheets.
(d) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows
are composed of cash on hand, bank deposits available for withdrawal
on demand, and short-term investments with original maturities of threemonths or less and minor risk of value fluctuation.
(e) Securities
Debt securities that are intended to be held to maturity (“held-tomaturity debt securities”) are stated at amortized cost on the balance
sheets. Available-for-sale securities with available fair market values arestated at fair market values. Unrealized gains and unrealized losses onthese available-for-sale securities are reported, net of applicable income
taxes, as a separate component of the net assets.
Realized gains or losses on the sale of the available-for-sale securities
are computed using primarily the moving-average cost.
Available-for-sale securities with no available fair market values arestated primarily at the moving-average cost.
(f) Allowance for Doubtful Accounts
To provide for losses from bad debts, the allowance is provided
according to the actual rate of default for ordinary receivables and inview of the probability of recovery for specific doubtful receivables.
(g) Inventories
Inventories are stated at the lower of cost or market, using principally
the gross-average cost method. The carrying value on the consolidatedbalance sheets is stated by the devaluation method based on declines in
profitability.
(h) Property, Plant and Equipment
Property, plant and equipment is stated at cost, in principle.
Depreciation of property, plant and equipment is computed by thestraight-line method.
(i) Intangible Assets
The Company and some of the consolidated subsidiaries principally
apply the straight-line method over 5 years to amortize intangible assets.
(j) Leased Assets
Leased assets in finance lease transactions that do not transfer
ownership to the lessee are depreciated using the straight-line methodon the assumption that the useful life is equal to the lease term and theresidual value is equal to zero. For leases with a residual value guarantee,
the contracted residual value is considered to be the residual value forfinancial accounting purposes.
Subsidiaries that have adopted IFRS have applied IFRS 16 “Leases.”
With the application of IFRS 16, lessees record all leases as assets andliabilities on their balance sheets, in principle. Capitalized right-of-use
assets are depreciated using the straight-line method.

(k) Provision for Business Structure Improvement
The Company and some of the consolidated subsidiaries record theprovision for business structure improvement on an accrual basis toprovide for expenses and losses resulting from their restructuring
programs.
(l) Provision for Bonuses
A provision for bonuses is provided at an amount estimated based on
the bonus to be paid subsequent to the balance sheet date.
(m) Provision for Repairs
The Company and some of the consolidated subsidiaries provide a
provision for repairs in an amount estimated to be necessary for thescheduled maintenance for certain production equipment.
(n) Provision for Stock Payments
To provide for the Company’s share payment to its Directors (excluding
outside Directors), Corporate Officers, and Councilors, the provision isprovided based on the Director Share Payment Regulations.
(o) Accounting Policy for Retirement Benefits(1) Method of attributing expected benefits to periods
The attribution of expected benefits to periods up to the current
consolidated fiscal year, upon calculating the retirement benefit
obligations, is done on the benefit formula basis.
(2) ‌Method of amortization of actuarial gain or loss and past service
costs
The actuarial gain or loss is amortized starting from the year after suchan actuarial loss is determined on a straight-line basis over certain
periods (mainly 12 years) within the average remaining service periods.
Past service costs are amortized on a straight-line basis over certain
periods (mainly 12 years) within the average remaining service periods.
(3) Application of a simplified method to small businesses
For the calculation of liabilities concerning retirement benefits andretirement benefit expenses, some consolidated subsidiaries have adopted
a simplified method, which deems term-end amounts payable for voluntary
retirement related to retirement benefits as retirement benefit obligations.
(p) Significant Revenue and Expense Recognition Standards
Subsidiaries that have adopted IFRS have applied IFRS 15 “Revenue fromContracts with Customers,” and recognize revenue in an amount thatreflects the consideration which they expect to receive in exchange forgoods or services at the time the control of the promised goods orservices is transferred to the customer.
(q) Income Taxes
Income taxes consist of taxes on corporations, enterprises, andinhabitants. The provision for income taxes is computed based on thepretax income of the Company and each of its consolidated subsidiaries
with certain adjustments required for consolidation and tax purposes.
The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets
and liabilities. (Valuation allowances are recorded to reduce deferred tax
assets based on the assessment of the realizability of the tax benefits.)
Application of the Consolidated Taxation System
The Company and certain domestic subsidiaries adopt theconsolidated taxation system.
Application of Tax Effect Accounting for the Transition from theConsolidated Taxation System to the Group Tax Sharing System
With regard to the items subject to the transition to the group tax

sharing system created under the “Act on Partial Revision of the
Income Tax Act, etc.” (Act No. 8 of 2020) and a review of the nonconsolidated taxation system in line with the transition to the grouptax sharing system, the Company and certain domestic subsidiaries
have not applied the provisions of Paragraph 44 of the“Implementation Guidance on Tax Effect Accounting” (ASBJ
Guidance No. 28, February 16, 2018) and have recorded the amountsof deferred tax assets and deferred tax liabilities based on theprovisions of the tax laws before the revision, as allowed in thetreatment of Paragraph 3 of the“Treatment of Tax Effect Accounting
for the Transition from the Consolidated Taxation System to theGroup Tax Sharing System” (ASBJ PITF No. 39, March 31, 2020).
(r) Derivative Financial Instruments and Hedge Accounting
The Company and certain subsidiaries state all derivative financial
instruments at fair value and recognize changes in fair value as gains orlosses unless the derivative financial instruments are used for hedging
purposes.
If the derivative financial instruments meet certain hedging criteria,
the Company and certain subsidiaries defer the recognition of gains orlosses resulting from changes in the fair value of derivative financial
instruments until the related gains or losses on hedged items arerecognized.
However, when forward exchange contracts meet certain hedging
criteria, the hedged items are stated by the forward exchange contract
rate. If interest rate swap contracts meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contracts isadded to or deducted from the interest on the assets or liabilities forwhich the interest rate swap contracts were executed.
Subsidiaries that have adopted IFRS use fair value hedges and cash
flow hedges.
(s) Reclassifications
Certain reclassifications have been made in the 2019 financial
statements to conform to the presentation of 2020.

3. A‌ DDITIONAL INFORMATION(a) Board Benefit Trust (BBT)
Based on the resolution at the 107th ordinary general meeting ofshareholders held on March 30, 2016, the Company introduced a new
stock compensation plan called the Board Benefit Trust (BBT) (“theScheme”) for Directors and Corporate Officers on May 11, 2016.
Following the resolution of the Board of Directors on March 5, 2019,
the Company decided to include its Councilors into the targets of the
Scheme and revised the maximum amount of funds the Company willcontribute to the trust, which are to be used by the trust to acquire
shares in the company.
(1) Outline of the transaction
In the Scheme, the shares of the Company are granted to its Directors(excluding outside Directors), Corporate Officers, and Councilors pursuant
to the Director Share Grant Regulations set forth by the Company.
The Company grants performance-linked points to its Directors,
Corporate Officers, and Councilors every year, and grants shares of theCompany to them based on the number of points granted when they
resign from the Company. Provided that, however, with regard to acertain portion of the points, an amount of money corresponding to theprevailing market price of the Company’s shares will be paid to any
Director, Corporate Officer, or Councilor meeting the relevant
requirements set forth in the Director Share Grant Regulations. The
Company’s shares that are granted to Directors, Corporate Officers, andCouncilors including those to be granted in the future, shall be acquiredby the trust using the entrusted funds and separately managed astrusted assets.
31

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

For accounting treatment concerning this trust agreement, theCompany applied the gross method in which the assets and liabilities of
the trust are recorded as assets and liabilities in the balance sheet byreferring to the Practical Solution on Transactions of Delivering theCompany’s Own Stock to Employees etc. through Trusts (ASBJ PITF No.
30, issued on March 26, 2015).
(2) Residual shares of the company in the trust
Residual shares of the Company in the trust have been recorded as treasury
stock under net assets at the book value in the trust (excluding the amountof ancillary expenses). The book value and the number of such treasury stock
were ¥312 million (US$3,011 thousand) and 277,300 shares at the end of the
fiscal year ended December 31, 2020, and ¥321 million and 286,000 shares atthe end of the fiscal year ended December 31, 2019, respectively.
(b) Issuing of New Shares and Borrowing of Funds
HC Holdings K.K., a consolidated subsidiary of the Company, carried out
a tender offer for common shares in Hitachi Chemical Company, Ltd.
(current Showa Denko Materials Co., Ltd.), to make Hitachi Chemical
Company, Ltd. a wholly owned subsidiary. With regard to the fractional
shares resulting from the share consolidation implemented by Hitachi
Chemical Company, Ltd. effective June 23, 2020, HC Holdings K.K.
obtained permission from the court pursuant to the provisions of Article
234, Paragraph 2 of the Companies Act as applied mutatis mutandis
under Article 235, Paragraph 2 of the same Act, and acquired thefractional shares on October 15, 2020.
To procure funds for this transaction, HC Holdings K.K. decided toissue 275 billion shares of preferred shares (at an issuance value of ¥1 pershare) by means of a third-party share allotment, which was subscribedby Mizuho Bank, Ltd. and Development Bank of Japan Inc., and to issue
295 billion shares of common shares (at an issuance value of ¥1 per share)by means of a third-party share allotment, which was subscribed by theCompany, and received these payments on April 27, 2020. In addition, theCompany decided to take a loan of ¥295 billion (US$2,850 million) (at avariable interest rate based on JBA Japanese Yen TIBOR, with a term ofseven years, repayment in a batch at the due date) from Mizuho Bank,
Ltd., in order to raise the funds necessary to subscribe for the 295 billion
shares of common shares. The loan was executed on April 27, 2020.
Furthermore, to procure funds for this transaction, HC Holdings K.K.
executed a term loan agreement for a total of ¥400 billion (US$3,865
million) (at a variable interest rate based on JBA Japanese Yen TIBOR, witha term of five years, of which ¥50 billion (US$483 million) will be repaid ininstallments and ¥350 billion (US$3,382 million) will be repaid in a batchat the due date) and a commitment line agreement of ¥90 billion (US$870
million) (at a variable interest rate based on JBA Japanese Yen TIBOR,
which will be repaid in a batch at the due date after one week to six
months from the implementation of the individual loan) with Mizuho
Bank, Ltd., and executed the term loan of ¥280.5 billion (US$2,710 million)
on April 27, 2020, ¥0.5 billion (US$5 million) on September 25, 2020, and¥119 billion (US$1,150 million) on October 9, 2020. The agreements
contain certain financial covenants, mainly the maintenance of net assets
and the maintenance of profits, and certain assets including the commonshares of Hitachi Chemical Company, Ltd. were pledged as collateral.
(c) ‌Accounting Estimates in Conjunction with the Spread of the
COVID-19 pandemic
During the fiscal year ended December 31, 2020, the worldwide COVID-19
pandemic has caused our customers in certain businesses, specifically the
manufacturers, to suspend production or to reduce production volume. This,in turn, has affected the Group’s performance and financial conditions. The
Company assumes that the Group’s performance and financial conditions
will begin to gradually recover toward the end of the following fiscal year,
and will recover to the levels prior to the pandemic in two to three years,
and accordingly makes accounting estimates on the valuation of noncurrent
assets including goodwill and the recoverability of deferred tax assets, etc.
32

SHOWA DENKO K.K.

ANNUAL REPORT 2020

4. ‌‌CHANGES IN ACCOUNTING POLICIESNew Accounting Standards Not Yet Applied(a) ‌“Accounting Standard for Revenue Recognition” (ASBJ
Statement No. 29, March 31, 2020. Accounting Standards Boardof Japan), “Implementation Guidance on Accounting Standard
for Revenue Recognition” (ASBJ Guidance No. 30, March 31,
2020. Accounting Standards Board of Japan), and“Implementation Guidance on Disclosures about Fair Value of
Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020.
Accounting Standards Board of Japan)(1) Overview
The International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) jointly developed a comprehensive
accounting standard for revenue recognition, and published “Revenue
from Contracts with Customers” (IFRS 15 at IASB, Topic 606 at FASB) in
May 2014. Given that IFRS 15 will be applied to fiscal years starting on orafter January 1, 2018 and Topic 606 will be applied to fiscal years startingon or after December 15, 2017, the Accounting Standards Board of Japandeveloped a comprehensive accounting standard for revenue recognitionand published them together with implementation guidance. The basic
policy of the Accounting Standards Board of Japan in developing theaccounting standard for revenue recognition is to establish an accounting
standard with the incorporation of the basic principles of IFRS 15 as astarting point from the perspective of comparability between financial
statements, which is one of the benefits of seeking consistency with IFRS
15, and to add alternative treatments if there are any matters in Japanesepractices as far as the comparability is not hindered.
(2) Scheduled date of application
The standard will be applied from the beginning of the fiscal year 2022.
(3) Impact of application
The impact of the application of the accounting standard andimplementation guidance for revenue recognition on the consolidated
financial statements is currently under review.
(b) ‌“Accounting Standard for Fair Value Measurement” (ASBJ
Statement No. 30, July 4, 2019), “Implementation Guidance on
Accounting Standard for Fair Value Measurement” (ASBJ
Guidance No. 31, July 4, 2019), “Accounting Standard for
Measurement of Inventories” (ASBJ Statement No. 9, July 4,2019), “Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10, July 4, 2019) and “Implementation Guidanceon Disclosures about Fair Value of Financial Instruments” (ASBJ
Guidance No. 19, March 31, 2020)(1) Overview“Accounting Standard for Fair Value Measurement” and “Implementation
Guidance on Accounting Standard for Fair Value Measurement” (hereinafterreferred to as “Fair Value Measurement Accounting Standards, etc.”) weredeveloped to increase the comparability with international accounting
standards, and guidance and other rules were established with regard to themethod for fair value measurement. Fair Value Measurement AccountingStandards, etc., will be applicable for fair values of the following items:• ‌Financial instruments included in “Accounting Standard for Financial
Instruments”• ‌Inventories held for trading purposes included in “Accounting Standard
for Measurement of Inventories”
In addition, “Implementation Guidance on Disclosures about Fair
Value of Financial Instruments” was revised to include notes regarding
the breakdown by level of fair values of financial instruments.
(2) Scheduled date of application
The standard will be applied from the beginning of the fiscal year 2022.

(3) Impact of application
The impact of the application on the consolidated financial statements
is currently under review.
(c) ‌“Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections” (ASBJ Statement No.
24, March 31, 2020)(1) Overview
The purpose of this accounting standard is to clarify the principles andoverview of procedures of the adopted accounting treatment, in cases
where the provisions of relevant accounting standards, etc., are unclear.

(d) ‌“Accounting Standard for Disclosure of Accounting Estimates”(ASBJ Statement No. 31, March 31, 2020)(1) Overview
The purpose of this accounting standard is to disclose information thatwill facilitate the understanding of the users of financial statements,
regarding items of accounting estimates for the amounts recorded in
the financial statements for the current fiscal year that have the risk ofsignificant impact on the financial statements for the following fiscal
year.
(2) Scheduled date of application
The standard will be applied from the end of the fiscal year 2021.

5. JAPANESE‌YEN AND TRANSLATION INTO
U.S. DOLLARSThe Companies’ accounting records are maintained in yen. Yen amounts
included in the financial statements are rounded to the nearest one
million unit. Therefore, the total and subtotal amounts presented in thefinancial statements may not equal the exact sum of the individual
balances. The U.S. dollar amounts appearing in the accompanying
financial statements and notes thereto represent the arithmetical resultsof translating yen into U.S. dollars at the rate of ¥103.50 to US$1.00, theapproximate rate of exchange as at December 31, 2020. The inclusion ofsuch U.S. dollar amounts is solely for the convenience of readers; it does
not carry with it any implication that yen amounts have been or could
be converted into U.S. dollars at that rate.

6. CASH FLOW STATEMENTS(a) Cash and Cash Equivalents
Cash and deposits as of December 31, 2020 and 2019 on the
consolidated balance sheets and cash equivalents as at December 31,
2020 and 2019 on the consolidated statements of cash flows werereconciled as follows:
Thousands of
U.S. dollars

Cash and deposits
Original maturities more than three months
Cash and cash equivalents

2020

2019

2020

¥198,982¥122,086$1,922,535(1,055)(352)(10,191)¥197,928¥121,734$1,912,344(b) ‌Assets and Liabilities of Newly Consolidated Subsidiaries
through the Acquisition of Shares Breakdown of the major assets
and liabilities of the Company’s newly consolidated subsidiaryobtained through a share acquisition as of December 31, 2020

Millions of yen

Thousands of
U.S. dollars$ 3,048,357

Current assets¥315,505

Noncurrent assets

604,006

5,835,807

Goodwill

365,123

3,527,763

Current liabilities(159,969)(1,545,594)

Noncurrent liabilities(152,292)(1,471,425)(8,333)(80,512)Acquisition value of shares of the acquired company¥964,040$ 9,314,397

Cash and cash equivalents of the acquired company

73,809713,130¥890,230$ 8,601,261

Non-controlling interests(2) Scheduled date of application
The standard will be applied from the end of the fiscal year 2021.

Millions of yen

A breakdown of the major assets and liabilities at the time of the initialconsolidation of Showa Denko Materials Co., Ltd. and its 90 subsidiaries,
obtained through a share acquisition, as well as the acquisition values
and expenditures for the acquisition (net amount) were as follows:

Less: Expenditures for the acquisition

7. FINANCIAL INSTRUMENTS(a) Overview(1) Management policy relating to financial instruments
The Companies finance necessary long-term funds by bank loans andbond issues following the capital investment plans and finance shortterm operating funds by bank loans and commercial paper. Temporary
excess funds are invested exclusively in financial instruments which have
fixed returns and low risk of falling below par values. The Companies
use derivative transactions to hedge the following risks and do not enter
into derivative transactions for speculative purposes.
(2) Types of financial instruments and related risks
Operating receivables, such as notes and accounts receivable, are exposedto credit risk. Foreign-currency-denominated accounts receivable
incurred through exports are exposed to foreign currency fluctuation risk.
However, the Companies hedge the risk by utilizing forward exchange
contracts, currency options, and currency swaps based on internal rulesthat set out foreign currency risk management principles.
Marketable securities and investment securities mainly consist of thestocks of partner companies to maintain and strengthen their business
relationships and are exposed to market fluctuation risk.
Operating payables, such as notes and accounts payable-trade andother, are due within one year. Foreign-currency-denominated accounts
payable incurred through imports of raw materials are exposed toforeign currency fluctuation risk. The Companies hedge the risk by
utilizing forward exchange contracts following internal rules that set out
the foreign currency risk management principles. Short-term debt andcommercial paper are mainly used to finance short-term operating
funds, and long-term debts and bonds are mainly used to financeequipment funds. Since some loans have financial covenants attached,
they may affect liquidity risk related to financing. Variable interest rateloans are exposed to interest rate fluctuation risk. However, certain loans
use interest rate swaps to hedge the risk.
The Companies utilize derivative transactions, such as forward
exchange contracts, currency options, and currency swaps, to hedge theforeign currency fluctuation risk of operating receivables and payables
denominated in foreign currencies and financing transactions
denominated in foreign currencies. Interest rate swaps are utilized tohedge the interest rate fluctuation risk, and forward contracts andcommodity swaps, etc. are utilized to hedge the market fluctuation risk.
(3) Risk management relating to financial instruments(i) ‌Credit risk management (risk of default by the counterparties)
The Company follows internal rules that set out accounts receivable
management principles. The compliance department works with thesales division in each sector and monitors the customers’ credit
33

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

conditions periodically and reviews the sales policy checking the sales
volume and balances. The Company takes measures to obtain
information on and minimize the credit risk that may arise due to thedeterioration in the financial condition of their customers. Consolidated
subsidiaries monitor their customers’ financial and credit conditions
based on their internal rules.
The held-to-maturity debts are limited to only highly rated securities.
The Companies utilize derivative transactions only with creditworthy
financial institutions and trading companies to minimize credit risk.
The maximum credit risk as of December 31, 2020 is disclosed as thebalance sheet amount of financial instruments exposed to credit risk.
(ii) ‌Market risk management (risk of fluctuations in foreign currency
and interest rates)
For operating receivables and payables and loans denominated inforeign currencies, the Company and certain consolidated subsidiaries
utilize forward exchange contracts, currency options, and currency
swaps to hedge some of the foreign currency fluctuation risk, which iscategorized by currency and maturity date. The Company and certain
consolidated subsidiaries utilize currency swaps to hedge the interest
rate fluctuation risk of loans.
For marketable securities and investment securities, the Companies
regularly review the fair value and issuers’ financial conditions, andreview the Companies’ portfolio on an ongoing basis, except for held-tomaturity debt securities, according to market conditions and thebusiness relationships with counterparties.
The Company has internal management rules that set out theapproval authorities and procedures of the derivative transactions.
The derivative transactions are carried out based on the appropriate
approver set out in the internal rules. For currency-related derivativetransactions, each division and the treasury department perform andmanage transactions and report to the director in charge periodically. Forinterest-related derivative transactions, the treasury department performs
and manages the transactions and reports to the director in charge
periodically. For commodity-related derivative transactions, each divisionperforms and manages the transactions, and reports to the director in
charge periodically. Consolidated subsidiaries perform and manage
derivative transactions based on their internal management standards.
(iii) ‌Liquidity risk management (risk of default on payment due
dates)The Company manages liquidity risk by requiring the treasury
department to prepare and update cash plans, based on the schedule
for cash inflows and disbursements in each division. In addition, theCompany signs commitment line contracts and makes otherarrangements with financial institutions to secure the necessary
liquidity. Consolidated subsidiaries manage their liquidity risk throughsimilar procedures.
(4) ‌Supplemental explanation on fair value of financial instruments
Along with the values being based on market prices, the fair value offinancial instruments includes values that are reasonably calculated incase market prices do not exist. As the calculation of those values uses
certain assumptions, those values may vary in the case of different
assumptions being applied. Also, for the contract amount and others
regarding derivative transactions described in Note 9. DERIVATIVEFINANCIAL INSTRUMENTS, the contract amount itself does not indicate
market risk related to derivative transactions.
(b) Fair Value of Financial Instruments
As at December 31, 2020 and 2019, book value, fair value, and difference
were as follows.
The financial instruments whose fair value is extremely difficult todetermine are not included below.

34

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Year ended December 31, 2020

Millions of yen

Book value(1) Cash and deposits

Fair value

Difference¥ 198,982 ¥ 198,982¥ —(2) Notes and accounts receivable-trade271,628

271,628(3) Marketable securities and investment securities

27,576

27,576—¥ 498,187 ¥ 498,187¥ —¥ 164,356 ¥ 164,356¥ —Total assets(1) Notes and accounts payable-trade—(2) Short-term debt

72,64572,645—(3) Current portion of long-term debt

56,38756,41932(4) Accounts payable-other

43,253

43,253—(5) Long-term debt less current portion

906,365

906,666

301

Total liabilities¥1,243,006 ¥1,243,339¥333

Derivative transactions*¥¥ —1,218 ¥

1,218

Millions of yen

Year ended December 31, 2019

Book value

Fair value

Difference(1) Cash and deposits¥122,086¥122,086¥ —(2) Notes and accounts receivable-trade170,293

170,293—(3) Investment securities

46,81346,813—¥339,192¥339,192¥ —¥117,510¥117,510¥ —(2) Short-term debt

52,72052,720—(3) Current portion of long-term debt

31,943

31,952

8(4) Accounts payable-other

30,59730,597—

Total assets(1) Notes and accounts payable-trade(5) Long-term debt less current portion

213,861

213,424(436)

Total liabilities¥446,631¥446,203¥(428)

Derivative transactions*

¥

¥

¥ —

608

Year ended December 31, 2020

Thousands of U.S. dollars

Book value(1) Cash and deposits(3) Marketable securities and investment securities(1) Notes and accounts payable-trade

Fair value

Difference$ 1,922,535 $ 1,922,535(2) Notes and accounts receivable-trade
Total assets

608

2,624,429

2,624,429

266,438

266,438$———$ 4,813,402 $ 4,813,402$$ 1,587,982 $ 1,587,982$——(2) Short-term debt

701,885

701,885—(3) Current portion of long-term debt

544,803545,115312(4) Accounts payable-other417,904

417,904—

8,757,150

8,760,055

2,905

Total liabilities$12,009,724 $12,012,941$3,217

Derivative transactions*$$(5) Long-term debt less current portion

11,772 $

11,772—*Derivative assets and liabilities are on a net basis.
Notes: 1. ‌Valuation method for financial instruments and information onmarketable securities and derivative transactions
AssetsCash and deposits and Notes and accounts receivable-trade
The book value is deemed to approximate the fair value since theseare scheduled to be settled in a short period of time.
Marketable securities and investment securities
The fair value of these securities is based on the price on stock
exchanges. Refer to Note 8. SECURITIES regarding the securities
categorized by holding purposes.
Liabilities
Notes and accounts payable-trade, Short-term debt, Commercial paper(included in the above Short-term debt), and Accounts payable-other
The book value is deemed to approximate the fair value since theseare scheduled to be settled in a short period of time.
Current portion of long-term debt and Long-term debt (included in theabove Long-term debt less current portion)
The fair value is measured as the net present value of the estimatedDerivative transactions
Refer to Note 9. DERIVATIVE FINANCIAL INSTRUMENTS.

cash flows by discounting the principal and interest value using theinterest rate applied to the new loans. Parts of the long-term loans arevariable rate loans, and they are subject to special treatment of interest
rate swaps (refer to Note 9. DERIVATIVE FINANCIAL INSTRUMENTS); thefair value is measured as the net present value of the estimated cash
flows by discounting the total amount of principal and interest
processed as interest rate swaps using the interest rate applied to the
new loans.
Current portion of bonds (included in the above Current portion of
long-term debt) and Bonds (included in the above Long-term debt lesscurrent portion)
The fair value is based on the market prices.

Notes: 2. ‌Financial instruments for which fair value is extremely difficult todetermine
Thousands of
U.S. dollars

Millions of yen

Non-listed equity securities

2020

2019

2020

¥ 78,856¥ 24,973$ 761,895

These securities are not included in the above Marketable securities andinvestment securities, as it is extremely difficult to determine the fair value. As
there was no quoted market value, estimating the future cash flows is deemed to
be practically impossible.

Notes: 3. ‌Redemption schedule for financial assets and securities with maturities
Year ended December 31, 2020

Millions of yen

Cash and deposits¥198,982

Due after 1 year
through 5 years¥—

Notes and accounts receivable-trade271,628—

Due in 1 year or lessDue after 5 years
through 10 years¥——

Due after 10 years¥——

Marketable securities and investment securities:
Held-to-maturity debt securities
Government and local bonds and others
Total

20

—

—

—

¥470,631

¥—

¥—

¥—

Millions of yen

Year ended December 31, 2019

Cash and deposits¥122,086

Due after 1 year
through 5 years¥—

Notes and accounts receivable-trade170,293———¥292,379

¥—

¥—

¥—

Due in 1 year or less

Total
Year ended December 31, 2020

Due after 5 years
through 10 years¥—

Due after 10 years¥—

Thousands of U.S. dollars

Cash and deposits$1,922,535

Due after 1 year
through 5 years$—

Notes and accounts receivable-trade2,624,429—

Due in 1 year or lessDue after 5 years
through 10 years$——

Due after 10 years$——

Marketable securities and investment securities:
Held-to-maturity debt securities
Government and local bonds and others
Total

193

—

—

—

$4,547,157

$—

$—

$—

Notes: 4. Scheduled maturities of bonds and long-term debt after December 31, 2020 and 2019Year ended December 31, 2020

Millions of yen

Due in 1 year or lessDue after 1 year
through 2 years¥—

Due after 2 years
through 3 years¥—

Due after 3 years
through 4 years¥—

Due after 4 years
through 5 years¥—

Due after 5 years(1) Short-term debt

¥ 72,645(2) Long-term debt

56,38775,33855,76549,186355,825

370,323¥129,032¥75,338¥55,765¥49,186¥355,825¥370,323

Due after 1 year
through 2 years¥—

Due after 2 years
through 3 years¥—

Due after 3 years
through 4 years¥—

Due after 4 years
through 5 years
¥
—

Total

¥

—

Millions of yen

Year ended December 31, 2019

Due in 1 year or lessDue after 5 years(1) Short-term debt

¥52,720(2) Long-term debt

31,94353,191

48,87032,30924,291

55,200¥84,663¥53,191¥48,870¥32,309¥24,291¥55,200

Total
Year ended December 31, 2020¥—

Thousands of U.S. dollars(1) Short-term debt

$ 701,885

Due after 1 year
through 2 years$—(2) Long-term debt

544,803

727,901

538,793475,226

3,437,926

3,577,997$1,246,688$727,901$538,793$475,226$3,437,926$3,577,997

Due in 1 year or lessTotal

Due after 2 years
through 3 years$—

Due after 3 years
through 4 years$—

Due after 4 years
through 5 years$—

Due after 5 years
$

—

35

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

8. SECURITIES(b) ‌Available-for-sale Securities Sold in the Years Ended December
31, 2020 and 2019:(a) Available-for-sale Securities
Year ended December 31, 2020

Millions of yen

Book value

Acquisition
costYear ended December 31, 2020

Millions of yen

Sales

Difference
Equity securities

Available-for-sale securities whose bookvalue exceeds their acquisition cost

Total

Equity securities
Other¥20,549¥11,951¥ 8,599

183

159

24

Gross gain
¥4,959¥(2,004)¥22,866¥4,959¥(2,004)

Millions of yen

Year ended December 31, 2019

Sales

Available-for-sale securities whose bookvalue is less than their acquisition cost

Equity securities

Equity securities
Total

6,824

8,986

(2,162)¥27,556¥21,096¥ 6,460

Total

Book value

Acquisition
cost

Difference

Equity securities¥39,905¥23,089¥ 16,817

Other

176

154

22

Total

¥(5)

¥4,922¥1,669¥(5)

Total
Year ended December 31, 2020

6,732

8,542

(1,810)¥46,813¥31,784¥ 15,029

Thousands of U.S. dollars

Book value

Acquisition
cost

Difference$198,546$115,466$ 83,080

1,766

1,537

229

Sales

Gross gain

$220,927$47,917Gross loss$(19,361)$220,927$47,917$(19,361)(c) Impairment of securities
For the years ended December 31, 2020 and 2019, the Companies
recorded an impairment loss of ¥315 million (US¥3,045 thousand) on
available-for-sale securities and ¥3 million on available-for-sale securities
with fair market values, respectively.
Securities are deemed to be “substantially declined” when their fairvalues have declined 30% or more. When their fair values have declined
50% or more, the impairment losses are recorded on those securities.
When their fair values have declined between 30% and 50%, theimpairment losses are recorded on those securities unless such values
are considered to be recoverable on an individual basis.

Available-for-sale securities whose bookvalue is less than their acquisition cost
Equity securities

Gross loss

¥1,669Thousands of U.S. dollars

Equity securities

Available-for-sale securities whose bookvalue exceeds their acquisition cost

Gross gain

¥4,922

Year ended December 31, 2020
Millions of yen

Year ended December 31, 2019

Gross loss

¥22,866

Available-for-sale securities whose bookvalue exceeds their acquisition cost
Equity securities
Other
Available-for-sale securities whose bookvalue is less than their acquisition cost
Equity securities
Total

65,93386,825(20,892)$266,245$203,827$ 62,418

9. DERIVATIVE FINANCIAL INSTRUMENTS(a) Derivative Transactions to Which Hedge Accounting is Not Applied
Millions of yen

Currency related:
Forward exchange contracts:
BuyingU.S. Dollar
Euro
Selling
U.S. Dollar
Euro
Swiss Franc
Currency options:
Buying and selling
U.S. Dollar

Thousands of U.S. dollars

2020
Contract
Contract amount Fair value Valuation
amount over 1 year
gain (loss)

2019
Contract
Contract amount Fair value Valuation
amount over 1 year
gain (loss)

2020
Contract
Contract amount Fair value Valuation
amount over 1 year
gain (loss)

¥

$

—
—

¥—
—

¥ —
—

¥ —
—

¥ 184
2

¥—
—

¥ 1
0

¥ 1
0

939
9,540
1,506

—
—
—

11
(13)
(1)

11
(13)
(1)

198
—
1,369

—
—
—

(1)
—
(16)

¥16,013

¥—

¥ 98

¥ 98

—

¥—

¥—

¥

—
—

$—
—

$

—
—

(1)
—
(16)

9,074
92,173
14,549

—
—
—

104
(127)
(10)

104
(127)
(10)

¥—

$154,715

$—

$ 947

$ 947

Notes: ‌Fair value calculation method:
1. Fair values of forward exchange contracts are stated by the forward exchange rates.
2. Fair values of currency options are measured at the quoted price obtained from the financial institutions.
3. Currency options are zero-cost option contracts, and call options and put options are shown as a lump sum because they are included in integrated contract.
36

SHOWA DENKO K.K.

ANNUAL REPORT 2020$——

(b) Derivative Transactions to Which Hedge Accounting is Applied
Millions of yen(1) Currency related:
Principle method
Forward exchange contracts:
BuyingU.S. Dollar
Euro
Canadian Dollar
Australian Dollar
Selling
U.S. Dollar
Euro
Allocation method
Forward exchange contracts:
BuyingU.S. Dollar
Euro
Selling
U.S. Dollar
Euro
Yuan Renminbi
Currency swaps:
Receipt U.S. Dollar
Payment Yen
Cash flow hedge
Forward exchange contracts:
Selling
U.S. Dollar
Fair value hedge
Forward exchange contracts:
Selling
U.S. Dollar
Mexican Peso(2) Interest rate related:
Special method
Interest rate swaps:
Receipt-variable rate/Payment-fixed rate(3) Commodity related:
Principle method
Aluminum forward contracts:
BuyingSelling
Cash flow hedge
Commodity swaps:
BuyingCommodity future contracts:
BuyingSelling

Contract
amount2020
Contract
amountover 1 year

¥10,5819——¥1,454
—
—
—

2,638
5

—
—

¥9,951
42

¥

—
—

¥

Fair value

Contract
amount2020
Contract
amountover 1 year

¥3,109
—
—
—

¥240
0
0
(0)

$102,23182——$14,051
—
—
—

—
—

(19)
(2)

25,485
45

—
—

—
—

¥ —
—

$ 96,149
410

6,073
332
701

—
—
—

—
—
—

28,327
4,133
13,585———Contract
amount31
0——¥ 8,682
19
3
1

6
(0)

5,594
201

—
—

¥ 1,62347———

Fair value¥

Thousands of U.S. dollars

2019
Contract
amountover 1 year

¥

$

—
—

Fair value

$

300
0
—
—
60
(0)

$

—
—

2,932
428
1,406

—
—
—

¥2,000¥2,000¥—¥ 2,900¥2,000¥ —$ 19,324$19,324$—¥1,051

¥

—

¥

22

¥

—

¥

—

¥ —

$ 10,155

$

—

$

213

¥1,578
1,787

¥

—
—

¥

33
(162)

¥

—
—

¥

—
—

¥ —
—

$ 15,246
17,266

$

—
—

$

319
(1,565)¥2,600¥2,600¥—¥ 5,433¥2,600¥ —$ 25,121$25,121$—¥9,998857¥1,971—¥1,172(10)¥15,649
1,538¥5,993
—

¥428
(22)

$ 96,597
8,284$19,040—$11,328(95)¥2,067

¥

—

¥

9

¥

—

¥

—

¥ —

$ 19,971

$

—

$

87

¥ 689
225

¥

21
—

¥

19
4

¥

—
—

¥

—
—

¥ —
—

$

$

203
—

$

184
39

6,657
2,174

—
—
—

Notes: 1. ‌The main items hedged by forward exchange contracts are accounts payable for buying, accounts receivable for selling and long-term debt by interest rate swaps. The
main items hedged by aluminum forward transactions are aluminum metal transactions. The main items hedged by commodity swaps and commodity futurecontracts are copper and lead purchase transactions.
2. ‌Fair value calculation method:
The fair values of forward exchange contracts are stated by the forward exchange rates. The fair values of currency swaps are measured at the quoted price obtained
from the financial institutions. The fair values of aluminum forward transactions are stated by forward quotations of the London Metal Exchange. The fair values ofcommodity swaps and commodity future contracts are measured at the quoted price obtained from the financial institutions.
3. ‌The fair values of forward exchange contracts and currency swaps that meet the allocation method criteria are reflected in the fair values of accounts receivable,accounts payable and debts of their hedged items.
4. The fair values of interest rate swaps that meet the special treatment criteria are reflected in the fair values of long-term debt of their hedged item.

37

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

10. EFFECT‌
OF YEAR-END DATE ON FINANCIAL
STATEMENTS
The year-end date of 2020, namely, December 31, 2020, was a bankholiday. Although notes receivable and payable maturing on this datewere accordingly settled on January 4, 2021, the Companies accounted
for those notes in their financial statements as if they had been settled
on the maturity date.
Notes outstanding as at December 31, 2020 and 2019 dealt with in
the above-mentioned manner were as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Notes receivable¥1,068¥1,524$10,321

Notes payable

608

1,074

5,873

11. SHORT-TERM DEBT AND LONG-TERM DEBTAs at December 31, 2020 and 2019, the short-term debt of theCompanies consisted of the following:Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Bank loans at the average interest rateof 0.56%¥62,645¥52,720$605,267

Commercial paper

10,000—96,618¥72,645¥52,720$701,885

Total

As at December 31, 2020 and 2019, the long-term debt of theCompanies consisted of the following:—$ 101,913

1,486

—

14,362Inventories

3,146

—

30,393

134

408

1,295
1,233,930

127,712

136,697

Total¥143,026¥137,105 $1,381,893

In addition to the above, investments in subsidiaries of ¥977,437
million (US$9,443,836 thousand) and loans receivable from subsidiaries
and affiliates of ¥57,041 million (US$551,121 thousand), which were
eliminated as intercompany transactions, were pledged as collateral forthe current year.
As at December 31, 2020 and 2019, the liabilities with collateral were as
follows:

2020

Short-term debt

¥

577

¥ 92

$

Long-term debt

392,917160

3,796,296

143

14,068

Total

2020

0.200% bonds due 2021 (*1)

10,00010,00096,6180.734% bonds due 2022 (*1)

10,00010,00096,6180.190% bonds due 2024 (*1)

10,00010,00096,6180.500% bonds due 2026 (*1)

7,000

7,000

67,6330.430% bonds due 2029 (*1)

10,00010,00096,6181.191% bonds due 2022 (*2)

9,994

—

96,560Long-term debt

0.375% bonds due 2027 (*2)

19,935—

192,609

Other debt

9,301,953(31,943)(544,803)(56,387)¥906,365

TotalofMillions of yen Thousands
U.S. dollars

2022¥ 75,338 $ 727,901

2023

55,7652024

49,186475,2262025

355,825

3,437,926

370,323

3,577,997

2026 and thereafter

SHOWA DENKO K.K.

538,793¥906,437 $8,757,842

ANNUAL REPORT 2020

Thousands of
U.S. dollars

2020

2019

¥392,400¥—$3,791,304

1,404

—

13,565¥393,804¥—$3,804,870

As at December 31, 2020 and 2019, the assets corresponding to the
non-recourse liabilities were as follows:
Thousands of
U.S. dollars

Millions of yen

2020

Years ending December 31

Total

2020

Cash and deposits

The aggregate annual maturities of the noncurrent portion of long-term
debt were as follows:¥395 $3,815,943

Millions of yen¥213,861 $8,757,150*1 Showa Denko K.K.
*2 Showa Denko Materials Co., Ltd.

1,456
¥394,950

5,580

As at December 31, 2020 and 2019, the non-recourse liabilities were as
follows.
The following amounts are included in the amounts stated ascollateral assets and secured liabilities above:

Total
8,413,750

2020

2019

Secured short-term debt and longterm debt

$ 144,928

183,804

Thousands of
U.S. dollars

Millions of yen

2019

245,804¥

Property, plant and equipment, lessaccumulated depreciation¥ 15,000

870,823¥ 10,548

Investment securities¥ 15,000

962,752

2020

2019

Notes and accounts receivable-trade

Cash and deposits

0.630% bonds due 2021 (*1)

Less: current portion

38

2020
Assets pledged as collateral

2020

Loans principally from banks andinsurance companies due 2022 to 2028
at the average interest rate of 1.09%

Thousands of
U.S. dollars

Millions of yen

Other debt
Thousands of
U.S. dollars

Millions of yen

As at December 31, 2020 and 2019, the assets pledged as collateral for
long-term debt were as follows:¥10,548

2019
¥—

2020
$101,913

In addition to the above, investments in subsidiaries of ¥977,437
million (US$9,443,836 thousand) and loans receivable from subsidiaries
and affiliates of ¥57,041 million (US$551,121 thousand), which were
eliminated as intercompany transactions, were pledged as collateral forthe current year.

12. RETIREMENT BENEFITS(a) ‌Defined benefit pension plan, including the plans using thesimplified method(1) ‌Reconciliation of opening and closing balance of retirement
benefit obligation for the years ended December 31, 2020 and2019 was as follows:
Thousands of
U.S. dollars

Millions of yen

2020
Balance of retirement benefit obligation
at the beginning of the year
¥102,553
Service cost
Interest cost
Actuarial gain and loss
Retirement benefits paid
Past service cost
Increase from changes in scope of
consolidation
Decrease from changes in scope of
consolidation
Other
Balance of the retirement benefit
obligation at the end of the year

2019

2020

¥100,324 $ 990,854

4,971
574
393
(9,134)
138

2,677
487
3,646
(5,035)30

48,033
5,543
3,793(88,248)
1,331

92,888

1,630

897,469

(163)
(121)

(885)
(321)

(1,575)(1,172)¥192,099¥102,553 $1,856,026(2) ‌Reconciliation of opening and closing balance of plan assets forthe years ended December 31, 2020 and 2019 was as follows:
Thousands of
U.S. dollars

Millions of yen

Balance of plan assets
at the beginning of the year
Expected return on plan assets
Actuarial gain and loss
Contribution from employer
Retirement benefits paid
Increase from changes in scope of
consolidation
Decrease from changes in scope of
consolidation
Other
Balance of plan assets
at the end of the year

2020

2019

¥ 92,827¥78,554 $ 896,881

1,822
5,780
5,201
(7,597)

1,523
5,101
11,799(4,507)2020

17,60655,84750,250(73,403)

90,303

1,338

872,493

—
197

(989)
9

—
1,902

¥188,533¥92,827 $1,821,576

Thousands of
U.S. dollars

Millions of yen

2020

2019

2020

Funded retirement benefit obligations¥ 179,789¥ 99,208 $1,737,095

Plan assets(188,533)(92,827) (1,821,576)(8,744)

6,381(84,481)

Unfunded retirement benefit obligations

12,3093,344

118,931

Net amount of relevant liabilities and assets
on the consolidated balance sheets

3,566

9,725

34,453Net defined benefit liability

24,7509,969

239,129

Net defined benefit asset(21,184)(244)(204,676)

3,566

9,725

34,453Thousands of
U.S. dollars

Millions of yen

Service cost

2020

2019

2020

¥4,971¥ 2,677$ 48,033

574

487

5,543

Expected return on plan assets(1,822)(1,523)(17,606)

Amortization of actuarial gain and loss

2,131

2,234

20,592

134

30

1,294

¥5,988¥ 3,906$ 57,856Interest cost

Amortization of past service cost
Retirement benefit expenses related tothe defined benefit pension plan(5) Remeasurements of defined benefit plans
The components of items (before tax) reported under remeasurementsof defined benefit plans for the years ended December 31, 2020 and2019 were as follows:
Thousands of
U.S. dollars

Millions of yen

2020

2020

2019

Past service cost¥

Actuarial gain and loss

(7,522)(4,442)(72,677)¥(7,517)¥(4,443)$(72,630)

Total

5

¥

$

(0)

46

(6) Accumulated remeasurements of defined benefit plans
The components of items (before tax) reported under accumulated
remeasurements of defined benefit plans for the years ended December
31, 2020 and 2019 were as follows:
Thousands of
U.S. dollars

Millions of yen

2020
Unrecognized past service cost
Unrecognized actuarial gain and loss(3) ‌Reconciliation of the ending balance of retirement benefit
obligations and plan assets, and the net defined benefit liability
and the net defined benefit asset for the years ended December
31, 2020 and 2019 was as follows:

Net amount of relevant liabilities and assets
on the consolidated balance sheets(4) ‌Retirement benefit expenses and the components of theamounts thereof for the years ended December 31, 2020 and2019 were as follows:

Total

¥(15)

2019

2020

¥

$ (145)

(20)

46

7,568

443

¥ 31

¥7,548$ 298(7) Matters regarding plan assets(i) Major content of the plan assets
The percentages of major asset types that account for the total plan
assets as of December 31, 2020 and 2019 were as follows:
Ratio

2020

2019

Bonds

50 %

41 %

Stocks27

37

General accounts of life insurance company

919Cash and deposits

7

1

Other

7

2

100 %

100 %

Total

(ii) ‌Method for setting the long-term rate of expected return on plan
assetsTo determine the long-term rate of expected return on plan assets, thecurrent and anticipated long-term yield rates of various assets that
constitute the plan assets as well as the current and projecteddistribution of plan assets, have been taken into account.

39

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(8) ‌Matters regarding the assumptions for actuarial calculations
Key assumptions for actuarial calculations as of December 31, 2020 and2019 were as follows:

13. INCOME TAXES(a) ‌As at December 31, 2020 and 2019, significant components ofdeferred tax assets and liabilities were as follows:

Ratio

2020

Thousands of
U.S. dollars

Millions of yen

2019

Discount rate

Mainly 0.5% Mainly 0.2%

Long-term rate of expected return on plan assets

Mainly 1.8% Mainly 1.8%(b) Defined contribution pension plan
The amounts required to be contributed by consolidated subsidiaries forthe years ended December 31, 2020 and 2019 were ¥1,697 million(US$16,395 thousand), and ¥738 million, respectively.

2020
Deferred tax assets:
Impairment loss
¥ 22,110Tax loss carryforwards (Note 2)
21,366
Write-down of marketable and16,184
investment securities
Net defined benefit liability
9,610
Depreciation and amortization
5,492
Allowance for doubtful accounts
4,053
Provision for bonuses
2,046
Undetermined accrued liabilities
1,983
Loss on valuation of inventories
1,519
Provision for repairs
975
Unrealized earnings from the sale of431
fixed assets
Write-down of golf club memberships
428
Other
15,935
Subtotal of deferred tax assets
102,133
Valuation allowance related to tax loss
(11,711)
carryforwards (Note 2)
Valuation allowance related to the total(48,431)of deductible temporary differences
Total valuation allowance (Note 1)(60,143)
Total deferred tax assets
41,990
Deferred tax liabilities:
Amount of revaluation from the book value(66,543)
Special depreciation reserve(7,175)Net defined benefit asset(6,388)Foreign subsidiaries' undistributed retained(5,520)earnings
Valuation difference on available-for(1,853)
sale securities
Reserve for advanced depreciation of(542)
fixed assets
Deferred gains or losses on hedges
(384)
Other
(1,074)
Total deferred tax liabilities(89,478)
Net deferred tax assets (liabilities)¥ (47,488)

2019

2020

¥ 21,335 $ 213,624
3,898
206,434
14,560156,364

3,717
2,696
3,380
747
1,227
2,241
814

92,85353,065
39,162
19,771
19,155
14,677
9,423

487

4,164

211
4,333
59,645

4,137
153,960
986,790(2,752)(113,154)(39,423)(467,935)(42,175)
17,470(581,089)
405,701(4,585)(4,990)—(642,929)(69,320)(61,720)(4,054)(53,329)(4,675)(17,905)(240)(5,235)(192)(3,710)(3,303)(10,375)(22,040)(864,523)¥ (4,569) $ (458,821)

Notes: 1. ‌Valuation allowance increased by ¥17,968 million (US$173,605 thousand).
The main reason for this increase was the increase in the valuation
allowance for tax loss carryforwards as a result of making Hitachi Chemical
Company, Ltd. (current Showa Denko Materials Co., Ltd.) a consolidated
subsidiary through tender offer.
2. ‌A breakdown of tax loss carryforwards and valuation allowance by expiry
date as of December 31, 2020 are as follows.

Year ended December 31, 2020

Tax loss carryforwards*
Valuation allowance
Deferred tax assets

1

Millions of yen

Due in 1
year or less
¥ 95
(72)
23

Due after 1 year
through 2 years¥2,095(213)
1,882

Due after 2 years
through 3 years¥2,450(975)
1,476

Due in 1
year or less
$ 915
(696)
219

Due after 1 year
through 2 years$20,242(2,060)18,182

Due after 2 years
through 3 years$23,673(9,417)
14,256

Year ended December 31, 2020

Tax loss carryforwards*
Valuation allowance
Deferred tax assets

1

Due after 3 years
through 4 years
¥ 489
(489)
—

Due after 4 years
through 5 years
¥ 278
(138)
140

Due after
5 years¥15,959(9,825)
6,134¥ 21,366(11,711)9,655 *2

Due after 4 years
through 5 years$ 2,687(1,331)
1,356

Due after
5 years$154,193(94,923)
59,270$ 206,437(113,151)
93,285 *2

Total

Thousands of U.S. dollars

Due after 3 years
through 4 years$ 4,728(4,728)—Total*1. Tax loss carryforwards are multiplied by the statutory effective tax rate.
*2. ‌For the tax loss carryforwards of ¥21,366 million (US$206,437 thousand), the amount obtained by multiplying by the statutory tax rate, ¥9,655 million (US$93,285 thousand)was booked as deferred tax assets. The Company does not recognize valuation allowances for the portion of the tax loss carryforwards deemed to be recoverable due to theprospect of future taxable income.

40

SHOWA DENKO K.K.

ANNUAL REPORT 2020

(b) ‌Significant items in the reconciliation of the statutory tax ratewith the effective tax rate as at December 31, 2020 and 2019were as follows:
2020

2019

Statutory tax rate—%

30.6 %

Differences of statutory tax rate in subsidiaries

—

(5.5)

Effect on the reexamination of recoverability

—

(2.4)

Deferred taxes on undistributed earnings of foreignsubsidiaries—

0.6

Consolidated adjustment for loss on valuation of
investments in capital of subsidiaries and associates,
etc.

—

(0.1)

Unrealized earnings from the sale of fixed assets

—

0.0

Other
Effective tax rate

—

(0.2)

—%

23.1 %

Due to the recording of a loss before income taxes, significant items in thereconciliation of the statutory tax rate with the effective tax rate as at December
31, 2020 has been omitted.

14. IMPAIRMENT LOSS

Major use

Sakai City, Osaka
Prefecture

Production
facilities foraluminum
sheets, foils,
etc.

Shiojiri City, Nagano
Prefecture

Meitingen, Germany

Omachi City, Nagano
Prefecture
Other
Total

Asset category

Reclassification adjustments and tax effects for components of othercomprehensive income (loss) for the year ended December 31, 2020,
were as follows:ofMillions of yen Thousands
U.S. dollars

Valuation difference on available-for-sale securities¥ (6,733)$(65,056)

Reclassification adjustments(3,358)(32,442)

Amount before income tax effect(10,091)(97,497)

Increase during the year

Total

Production
facilities for
Land, etc.
ceramics, etc.
Production facilities
for connecting pins
Leased asset,
used for connectingetc.
rods of graphite
electrodes
WelfareLand, etc.
facilities, etc.

$(58,950)¥ 762$ 7,366

Reclassification adjustments

(24)

(237)

Adjustments of acquisition cost of assets

(38)

(364)

Amount before income tax effect

700

6,766

Income tax effect(226)(2,185)¥ 474$ 4,581¥ (4,770)$(46,090)

Increase during the year

Foreign currency translation adjustmentsofMillions of yen Thousands
U.S. dollars¥ 8,789

38,548¥ (6,101)

Deferred gains or losses on hedges

Increase during the year

$ 84,921——(4,770)(46,090)

Reclassification adjustments
Amount before income tax effectLand, etc.

3,990

Income tax effect

Total

As at December 31, 2020, major impairment losses on fixed assets
were as follows:
Location

15. CONSOLIDATED‌STATEMENTS OFCOMPREHENSIVE INCOME (LOSS)——¥ (4,770)$(46,090)

Income tax effectTotal
Remeasurements of defined benefit plans, net of tax

6,179

1,942

59,70018,766¥ 5,252$ 50,744

Reclassification adjustments

2,265

21,886

Amount before income tax effect

7,517

72,630

Income tax effect(2,260)(21,839)¥ 5,257$ 50,792

¥ 54

$ 518

Increase during the year

Total
663

6,404

971

9,385

¥18,545$179,177

The amount in the above table included ¥1,942 million (US$18,766
thousand) which were reported as business structuring expenses on the
consolidated statements of operations.

Share of other comprehensive income ofunconsolidated subsidiaries and affiliates
accounted for using the equity method
Increase during the year

—

—

¥ 54

$ 518

¥ (5,087)$(49,150)

Reclassification adjustments
Total
Total other comprehensive income

16. LEASES(a) Finance Leases as a Lessee
Finance lease transactions other than those involving transfer ofownership to the lessee and right-of-use assets of subsidiaries that haveapplied IFRS 16(1) Type of leased assetsa) ‌Tangible fixed assets: Principally office buildingsb) Intangible fixed assets: Principally software(2) Method of depreciation
The depreciation method of leased assets is described in Note 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (j) Leased Assets.

41

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(b) Operating Leases as a Lessee
As at December 31, 2020 and 2019, assets leased under non-capitalized
operating leases were as follows:
Future minimum lease payments for the remaining lease periods:
Thousands of
U.S. dollars

Millions of yen

Due within 1 year

2020

2019

2020

¥ 272

¥ 341

$ 2,629

2,582

1,271

24,946¥2,854¥1,612$27,575

Due over 1 year
Total(c) Operating Leases as a Lessor
As at December 31, 2020 and 2019, non-cancelable operating leasereceivables for the remaining lease periods were as follows:
Future minimum lease receivables for the remaining lease periods:
Thousands of
U.S. dollars

Millions of yen

2020

2019
¥1

¥ 80

$6

—

364

—

¥1

¥445

$6

17. CONTINGENT LIABILITIESAs at December 31, 2020 and 2019, the Companies were guarantors forthe borrowings below. The guarantees were principally for
unconsolidated subsidiaries, affiliates and others.

2020

Thousands of
U.S. dollars

Guarantees

¥758

2019
¥867

2020
$7,321As the amounts include joint and several guarantors' portions as wellas the Companies', the actual amounts that the Companies were
contingently liable to pay were smaller than the above.

The Corporation Law of Japan (the "Law") provides that the entire
amount paid for new shares may be credited to the stated capital, withthe provision that, by resolution of the Board of Directors, up to one-halfof such amount paid for new shares may be credited to additional
paid-in capital, which is included in capital surplus.
The Law provides that an amount equal to 10% of cash
appropriations of retained earnings shall be set aside as additional
paid-in capital or a legal earnings reserve until the total of such reserve
and additional paid-in capital equals 25% of the stated capital.
Additional paid-in capital and the legal earnings reserve may be used toeliminate or reduce a deficit, if any, or be capitalized by resolution at theordinary general meeting of shareholders. All additional paid-in capitaland the legal earnings reserve may be transferred to other capitalsurplus and retained earnings, respectively, which are potentiallyavailable for dividends. Additional paid-in capital and the legal earnings
reserve are included in capital surplus and retained earnings,
respectively.
The Law does not have a definition about the classification of paid-in
capital between common stock and preferred stock. Accordingly, theCompany states its capital in the total amount paid by issuing common
stock and preferred stock.
The maximum amount that the Company can distribute as dividends
is calculated based on the unconsolidated financial statements of theCompany in accordance with Japanese laws and regulations.
SHOWA DENKO K.K.

Freight
Employees' compensation
Experiment and research expenses
Other
Total

2020
¥ 34,585
38,461
18,15487,571¥178,771

Thousands of
U.S. dollars

2019
2020
¥ 27,446 $ 334,154
26,550371,606
8,976
175,397
51,527
846,099¥114,499 $1,727,256

Research and development expenses included in selling, general andadministrative expenses for the years ended December 31, 2020 and2019 were ¥28,307 million (US$273,494 thousand) and ¥20,591 million,
respectively.

21. RESEARCH AND DEVELOPMENT
Research and development costs included in manufacturing costs,
selling, general and administrative expenses for the years ended
December 31, 2020 and 2019 were ¥34,379 million (US$332,161
thousand) and ¥20,605 million, respectively.

22. INVENTORY WRITE DOWNS

18. NET ASSETS

42

Selling, general and administrative expenses for the years ended
December 31, 2020 and 2019 were summarized as follows:
Millions of yen

Due within 1 year

Millions of yen

20. SELLING,‌GENERAL AND ADMINISTRATIVE
EXPENSES2020

Due over 1 year
Total

19. REVALUATION RESERVE FOR LANDThe Company and some of its consolidated subsidiaries revalued theland they own for business in accordance with the Law concerning the
Revaluation of Land. The difference between the revalued amount andthe book value, after the deduction of applicable tax, is stated as a land
revaluation reserve. The revaluation was conducted using methods
stipulated in the ordinance for enforcement of the law, specifically, themethod in Item 4 of Article 2 (Reasonable Adjustment of the Appraised
Value Relating to Land Price Tax), and the method in Item 5 of Article 2(Estimation by Experts). The excess of the carrying amount of therevalued land over the market value as at December 31, 2020 was¥53,703 million (US$518,871 thousand).

ANNUAL REPORT 2020

As at December 31, 2020 and 2019, inventory write-downs of ¥17,790
million (US$171,888 thousand) and ¥1,808 million, respectively, basedon the lower of the cost or market method, were deducted from thecarrying value of inventories.

23. FINANCING EXPENSES
Financing expenses include one-time expenses, etc., paid to financial
institutions relating to the share acquisition of Hitachi Chemical
Company, Ltd. (current Showa Denko Materials Co., Ltd.).

24. BUSINESS STRUCTURING EXPENSES
Business structuring expenses are expenses and losses expected inconjunction with the closing, etc., of manufacturing bases. The main
component includes retirement-related expenses.

25. BUSINESS COMBINATION(a) Overview of the Business Combination(1) Name and scope of the business of the acquired company
Name of the acquired company: Hitachi Chemical Company, Ltd.
(current Showa Denko Materials Co., Ltd.)
Scope of the main business: Manufacturing, processing, and selling
functional materials, advanced components, and systems

(2) Main reason for the business combination
By pursuing synergies between the Company’s strengths in a wide rangeof “material design technology,” “material analysis technology,” and“adhesion technology between different materials” which connects
multiple materials, and the target company’s strengths in “material design
technology utilizing characteristics of raw materials,” “ability to evaluate
functions” for customer marketing, and “ability to design functions
leading to process technology, including module segmentation” thatrealizes functions demanded by customers, the Company will solidify its
position as a “one-stop, advanced materials partner.”(f) ‌Amount of Goodwill Incurred, Reason for its Recognition,
Amortization Method, and Amortization Period(1) Amount of goodwill incurred¥365,123 million (US$3,527,763 thousand)As of the end of the second quarter ended June 30, 2020, and the end of
the third quarter ended September 30, 2020, the Company conducted
provisional accounting with regard to the determination and allocationof the acquisition cost based on information available at that time. As of
December 31, 2020, the determination and allocation of the acquisition
cost have been completed.

(3) Date of business combination
Date of acquisition of control: April 28, 2020 (assumed date of acquisition:
June 30, 2020)
Date of additional share acquisition: October 15, 2020

(2) Reason for the recognition of goodwill
Because the acquisition cost exceeded the net amount allocated to theassets acquired and the liabilities assumed, the excess amount wasrecorded as goodwill.

(4) Legal form of business combination
Share acquisition in exchange for cash(3) Amortization method and amortization period
Straight-line method over 20 years(5) ‌Name of the acquired company subsequent to the businesscombination
Showa Denko Materials Co., Ltd.
(Effective October 1, 2020, Hitachi Chemical Company, Ltd. changed its
trade name to “Showa Denko Materials Co., Ltd.”)(g) ‌Assets Acquired and Liabilities Assumed on the Date of theBusiness Combination and their Breakdown(6) Percentage of voting rights after acquisition(i) Percentage of voting rights held prior to the share acquisition: —%(ii) ‌Percentage of voting rights acquired on the day of acquisition ofcontrol: 100%(iii) ‌Percentage of voting rights acquired additionally subsequent to theacquisition of control: —%(iv) Percentage‌of voting rights held after additional share acquisition: 100%(7) M‌ ain grounds leading to the determination of the acquired company
The Company obtained 100% of the voting rights through the cash
acquisition of shares.
(b) ‌Overview of Accounting Treatments
The additional share acquisition is treated as a single transaction together
with the share acquisition by means of the tender offer on April 28, 2020,
and the goodwill related to the interest acquired in the additional shareacquisition subsequent to the acquisition of control is calculated as goodwill
recorded at the time of the acquisition of control, in accordance with the“Accounting Standard for Business Combinations” (ASBJ Statement No. 21,
January 16, 2019) and “Implementation Guidance on Accounting Standard
for Business Combinations and Accounting Standard for Business
Divestitures” (ASBJ Guidance No. 10, January 16, 2019).
(c) ‌The Accounting Period of the Financial Results of the Acquired
Company Included in the Consolidated Financial Statements
From July 1, 2020 to December 31, 2020(d) ‌Acquisition Cost of the Acquired Company and Breakdown by
Type of Consideration
Millions ofyen

Thousands of
U.S. dollars

Cash¥964,040$9,314,396

Acquisition cost

¥964,040$9,314,396(e) ‌Details and Amount of Main Acquisition-related Expenses

Advisory fees, etc.

Millions ofyen

Thousands of
U.S. dollars¥5,030$48,597

Millions ofyen

Thousands of
U.S. dollars

Current assets¥315,505$3,048,357

Noncurrent assets

604,006

5,835,807

Total assets¥919,511$8,884,164

Current liabilities¥159,969$1,545,594

Noncurrent liabilities

152,292

1,471,425

Total liabilities¥312,261$3,017,019(h) ‌Amount of Acquisition Cost which was Allocated to Intangible
Assets Other than Goodwill and its Breakdown by Major Typeand their Weighted-average Amortization Periods
Amount allocated to intangible assets other than goodwill: ¥215,918
million (US$2,086,164 thousand)(including customer-related assets of ¥154,917 million (US$1,496,783
thousand), amortization period: 20 years)(including technology-related assets of ¥57,138 million (US$552,058
thousand), amortization period: 7 years)(including trademark right of ¥3,863 million (US$37,324 thousand),amortization period: 20 years)(i) ‌Estimated Amount of the Effect on the Consolidated Statementsof Operations for the Fiscal Year Ended December 31, 2020
Assuming that the Business Combination Was Completed at the
Beginning of the Fiscal Year, and its Calculation Method
Millions ofyen

Thousands of
U.S. dollars¥278,231$2,688,222

Operating income (loss)(6,572)(63,496)

Ordinary income (loss)(7,760)(74,974)

Net income (loss) attributable to owners of the parent(15,624)(150,959)

Net sales(Calculation method of the estimated amount)
The estimated amount of effect indicates the differences between net sales
and the income and loss information calculated under the assumption thatthe business combination was completed at the beginning of the fiscal
year, and net sales and the income and loss information on the
consolidated statements of operations of the acquired company. These
differences include adjustments for amortization of goodwill, etc.,
assuming that the goodwill, etc., which was incurred at the time ofacquisition of control, had been incurred at the beginning of the fiscal year.
This note has not received audit certification.

43

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

26. SEGMENT INFORMATION(a) Information about sales, operating income, assets, and other items by reportable segment
Year ended December 31, 2020

Millions of yen

Petrochemicals Chemicals

Showa Denko
Materials

Electronics

Inorganics

Aluminum¥ 96,296¥ 77,158¥ 73,559 ¥ 302,687

OthersAdjustments Consolidated

Total

Sales
¥184,173

Outside customers
Inter-segment
Total¥139,517¥100,310 ¥ 973,700¥— ¥ 973,700

9,213

16,251

1,119

5,741

6,626

55

6,991

45,996(45,996)—

193,385

155,769

97,41582,89980,185

302,742

107,301

1,019,696(45,996)

973,700¥(10,006) ¥(19,449)

Operating income (loss)

¥

4,927

¥ 13,481¥

9,133¥ (32,300)¥

Assets¥122,760¥230,846¥138,788¥199,410¥113,935 ¥1,241,782

4,186

9,489

9,371

8,252

4,539

29,592

2,504

67,933710

68,643

Depreciation and amortization

421 ¥(6,303)¥

1,199 ¥

(9,443)¥150,011 ¥2,197,530¥ 6,076 ¥2,203,606

—

(60)

12

8

211

9,128

23

9,322

—

9,322

Investments in unconsolidated
subsidiaries and affiliates

9,827

3,854

—

1,677

—

50,966249

66,574—

66,574

Increase in property, plant andequipment and intangible assets

5,088

11,397

8,305

8,074

9,666

267,087

2,694

312,312700

313,011

Amortization of goodwill

Notes: 1. Adjustments are as follows:(1) ‌Elimination of inter-segment transactions of ¥198 million (US$1,914 thousand) and total corporate expenses of ¥(10,204) million (US$(98,594) thousand) that were
not allocated to any reportable segment were included in “Adjustments” for “Operating income” of ¥(10,006) million (US$(96,680) thousand). The total corporate
expenses consist of the expenses relating to the share acquisition of Hitachi Chemical Company, Ltd. (current Showa Denko Materials Co., Ltd.) of ¥(3,546) million(US$(34,260) thousand) and the total corporate common research expenses that are not attributable to any reportable segment of ¥6,659 million (US$64,334
thousand).
(2) ‌Elimination of inter-segment receivables and payables and assets of ¥(54,890) million (US$(530,336) thousand) and total corporate assets of ¥60,966 million(US$589,039 thousand) that were not allocated to any reportable segment were included in “Adjustments” for “Assets” of ¥6,076 million (US$58,703 thousand). The
total corporate assets principally consist of surplus funds of the Companies under management (in the form of cash and deposits), deferred tax assets and assets
related to the total corporate common research and development expenses.
2. Amortization of negative goodwill was included in “Amortization of goodwill.”

Millions of yen

Year ended December 31, 2019

Petrochemicals Chemicals

Electronics

Inorganics

Aluminum

Others

Total

Adjustments Consolidated

Sales
Outside customers
Inter-segment
Total¥240,923¥140,158¥ 95,702¥221,453¥ 90,500¥117,717¥ 906,454

9,755

17,322

743

8,682

7,042

8,446

51,989250,678

157,480

Operating income (loss)¥ 17,201¥ 13,656¥

96,445230,135

4,880¥ 89,256¥

Assets¥137,504
4,136¥230,932¥142,511¥281,757

9,267

9,274

8,091

—

(163)

12

Investments in unconsolidated
subsidiaries and affiliates

10,5703,457

Increase in property, plant andequipment and intangible assets

4,404

11,412

Depreciation and amortization
Amortization of goodwill

97,542¥—¥ 906,454(51,989)—(51,989)

906,454

126,163

958,443

1,819¥ 128,557¥ (7,759) ¥ 120,798¥135,072¥160,063¥1,087,839¥(11,458) ¥1,076,381

4,826

1,526

37,120584

37,704

8

217

24

98

—

98

—

1,754

—

487

16,268—16,268

10,474

11,685

8,464

2,889

49,328888

50,216

1,746¥

Notes: 1. Adjustments are as follows:(1) ‌Elimination of inter-segment transactions of ¥302 million and total corporate expenses of ¥(8,061) million that were not allocated to any reportable segment were
included in “Adjustments” for “Operating income” of ¥(7,759) million. The total corporate expenses principally consist of the total corporate common researchexpenses that are not attributable to any reportable segment.
(2) ‌Elimination of inter-segment receivables and payables and assets of ¥(46,101) million and total corporate assets of ¥34,644 million that were not allocated to any
reportable segment were included in “Adjustments” for “Assets” of ¥(11,458) million. The total corporate assets principally consist of surplus funds of the Companies
under management (in the form of cash and deposits), deferred tax assets and assets related to the total corporate common research and development expenses.
2. Amortization of negative goodwill was included in “Amortization of goodwill.”

44

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Year ended December 31, 2020

Thousands of U.S. dollars

Petrochemicals Chemicals

Electronics

Inorganics

AluminumShowa Denko
Materials

OthersTotal$1,779,446$1,347,994$ 930,396$ 745,485$ 710,718$ 2,924,512$ 969,176$ 9,407,728

89,010157,017

10,812

55,46764,019531

67,548444,405

941,208

800,953774,737

2,925,043

1,036,725

88,239$ (312,080) $4,065

Adjustments Consolidated

Sales
Outside customers
Inter-segment—$ 9,407,728(444,405)—(444,405)

9,407,728

1,868,456

1,505,012

47,603$ 130,249$$1,186,083$2,230,391$1,340,950$1,926,662$1,100,820$21,232,174$ 58,703$21,290,877

40,44991,682

90,53879,72543,858285,911

24,190656,3546,864

663,218

—

(582)

114

81

2,038

88,194219

90,064—90,064

Investments in unconsolidated
subsidiaries and affiliates

94,952

37,235—

16,206—492,4252,404

643,223—

643,223

Increase in property, plant andequipment and intangible assets

49,156110,120

80,24378,01393,3912,580,551

26,031

3,017,505

6,759

3,024,264

Total
Operating income (loss)$

AssetsDepreciation and amortization
Amortization of goodwill$(60,897) $11,587$11,997,890 $1,449,378

9,852,133$$(91,234)$ (96,680) $ (187,914)(b) Information about geographical areas
Year ended December 31, 2020

Sales

Millions of yen

Japan

China

Asia
(exc. China)

OthersTotal¥530,804¥119,360¥211,674¥111,862¥973,700

Millions of yen

Year ended December 31, 2019

Sales

Japan

China

Asia
(exc. China)

OthersTotal¥508,672¥77,681¥147,989¥172,111¥906,454

Year ended December 31, 2020

Sales

Thousands of U.S. dollars

Japan

China

Asia
(exc. China)

OthersTotal$5,128,538$1,153,240$2,045,162$1,080,788$9,407,728

Japan

Asia

OthersTotal¥495,516¥143,439¥88,164¥727,119Year ended December 31, 2020

Property, plant and equipment

Millions of yen

Millions of yen

Year ended December 31, 2019

Property, plant and equipment

Japan

Asia

OthersTotal¥366,375¥37,980¥68,813¥473,168

Year ended December 31, 2020

Property, plant and equipment

Thousands of U.S. dollars

Japan

Asia

OthersTotal$4,787,596$1,385,880$851,829$7,025,305

45

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(c) Information about impairment loss on property, plant and equipment by reportable segment
Year ended December 31, 2020

Millions of yen

Petrochemicals

ChemicalsElectronics

Inorganics

Aluminum¥2¥244¥9,049¥8,802¥93

Impairment loss on assets

Showa Denko
Materials¥288

OthersElimination

¥66

¥—

Total
¥18,545

Millions of yen

Year ended December 31, 2019

Petrochemicals
Impairment loss on assets¥2

ChemicalsElectronics

Inorganics

Aluminum

OthersElimination¥2,871¥272¥179¥11,447¥892¥—

OthersElimination

$638

$—

OthersElimination

Year ended December 31, 2020

¥15,662

Thousands of U.S. dollars

Petrochemicals

ChemicalsElectronics

Inorganics

AluminumShowa Denko
Materials$22$2,355$87,433$85,044$2,783$902

Impairment loss on assets

Total

Total
$179,177(d) Information about amortization of goodwill and unamortized balance by reportable segment
Year ended December 31, 2020

Millions of yen

Petrochemicals
Amortization
Unamortized balance

Showa Denko
Materials

ChemicalsElectronics

Inorganics

Aluminum

¥—

¥ 248

¥ 44

¥ 8

¥ 265

¥

9,128

¥26

¥—

—

3,123

155

21

1,618

355,995

68—

ChemicalsElectronics

Inorganics

Aluminum

OthersElimination

¥—

¥ 145

¥ 44

¥ 8

¥ 270

¥27

¥—

¥ 496

—

3,241

199

29

1,960

94

—

5,524

OthersElimination

Total
¥

9,719

360,980

Millions of yen

Year ended December 31, 2019

Petrochemicals
Amortization
Unamortized balanceYear ended December 31, 2020

Thousands of U.S. dollars

Petrochemicals
Amortization
Unamortized balance

Total

Showa Denko
Materials

ChemicalsElectronics

Inorganics

Aluminum$—$ 2,393

$ 428

$ 81

$ 2,556$

88,194

$254

$—

—

30,1691,498

203

15,6283,439,569

659

—

Total
$

93,906

3,487,727

Amortization of negative goodwill arose from business combinations prior to April 1, 2010 and its unamortized balance are as follows:Year ended December 31, 2020

Millions of yen

Petrochemicals
Amortization
Unamortized balance

ChemicalsElectronics

Inorganics

Aluminum

¥—

¥ 308

¥ 33

¥—

¥ 54

—

1,164

228

—

379

ChemicalsElectronics

Inorganics

¥—

¥ 308

¥ 33

—

1,472

260

OthersElimination

¥—

¥ 4

¥—

¥ 398

—

10

—

1,780

Petrochemicals
Amortization
Unamortized balance

Aluminum

OthersElimination

¥—

¥ 54

¥ 4

¥—

¥ 398

—

432

13

—

2,178

OthersElimination

Year ended December 31, 2020

46

SHOWA DENKO K.K.

Total

Thousands of U.S. dollars

Petrochemicals

Unamortized balance

Total

Millions of yen

Year ended December 31, 2019

Amortization

Showa Denko
Materials

Showa Denko
Materials

ChemicalsElectronics

Inorganics

Aluminum$—$ 2,975

$ 314

$—

$ 518

$—

$35

$—

$ 3,842—

11,248

2,199

—

3,658

—

92

—

17,198ANNUAL REPORT 2020

Total

27. SIGNIFICANT SUBSEQUENT EVENTS(a) ‌Execution of Master Agreement regarding Series of Transactions
to Effect, among other matters, the Succession of the Aluminum
Can and Aluminum Rolling Businesses
On January 28, 2021, the Company has decided to execute a masteragreement (hereinafter referred to as the “Master Agreement”) with a
special-purpose company formed by funds managed by Apollo Global
Management, Inc. and its affiliates (collectively, hereinafter referred to as“Apollo”), regarding a series of transactions, including the succession of
the aluminum can business of the Company to Showa Aluminum Can
Corp., which is a wholly owned consolidated subsidiary of the Company(hereinafter referred to as “Showa Aluminum Can”), and the successionof the aluminum rolling business to Showa Denko Sakai Aluminum
Corp., which is a wholly owned non-consolidated subsidiary of theCompany, by company splits (absorption-type company split), withtentative effective dates of June 1, 2021 and August 2, 2021, respectively.
Following the completion of the series of transactions under the Master
Agreement, Showa Aluminum Can is expected to no longer be aconsolidated subsidiary of the Company, and be succeeded by Apollo as
an independent company.
(1) Objectives of the series of transactions
In light of the rapidly changing business environment, the Company has
been examining the optimal allocation of management resources andportfolio management to realize sustainable growth. After carefulconsideration of all available options, the Company reached theconclusion that the expansion of the aluminum can business and thealuminum rolling business would be best achieved through business
partners that have specialized knowledge and management resources
to enable future growth of these businesses together with theemployees engaged in the respective business. Taking these factors into
consideration, the Company decided to execute the transactions set
forth in the Master Agreement with Apollo, which is one of the world’s
leading alternative investment managers and has a wealth of experience
supporting aluminum-related industries for more than 20 years.
(2) Schedule for the company split and series of transactions
Master Agreement Execution Date

January 28, 2021

Shares”), that will commence on March 5, 2021, with such tender offer
being made by SKT Holdings Ltd., (hereinafter referred to as “SKTHD”), a
wholly owned subsidiary of iSigma Business Advancement Fund III
Investment LLP (hereinafter referred to as “iSigma Business
Advancement Fund III”) managed and operated by iSigma Capital
Corporation (hereinafter referred to as “iSigma Capital”); and (ii) a
shareholder agreement (hereinafter referred to as the “Shareholder
Agreement”) with iSigma Business Advancement Fund III that governs
the handling of the SHOKO Shares owned by the Company and SKTHD.
(1) Reasoning behind applying for this tender offer
The Company has been considering measures to improve corporate
value by resolving reform issues in mid-term business plans at SHOKO
under a rapidly changing business environment. Under thesecircumstances, the Company received a proposal from iSigma Capital to
improve corporate value at SHOKO. Upon careful consideration of the
proposal, the Company has come to the conclusion that SHOKO canfurther accelerate growth and increase its corporate value throughfacilitating the development of customers and sales channels, expanding
its product lineup, improving profitability by taking advantage of
economies of scale, improving management efficiency, and so on, by
utilizing the domestic and overseas networks and management
know-how of iSigma Capital and its parent company, Marubeni
Corporation, as well as its group companies. Therefore, the Company has
determined to enter into the Basic Agreement with SKTHD.
Furthermore, the Shareholder Agreement has also been executedwith iSigma Business Advancement Fund III in view of the fact that theCompany will continue to hold a part of the SHOKO Shares after thetender offer. The Company has agreed on the business operations of
SHOKO after this transaction, such as the appointment of certain
candidates to become directors of SHOKO, and the handling of the
SHOKO Shares after this transaction.
If the tender offer is successful, SHOKO will cease to be one of theCompany's consolidated subsidiaries due to the application made by theCompany for the tender offer. However, the Company plans to continue thebusiness relationship with SHOKO even after the tender offer is executed.
(2) Overview of SHOKO CO., LTD. (as of December 31, 2020)Name

SHOKO CO., LTD.

Absorption Split Agreement Execution Date (aluminum rolling business) June 24, 2021 (Expected)

Address

4-1, Shiba Koen 2-Chome, Minato-ku, Tokyo

Absorption Split Effective Date (aluminum can business)

June 1, 2021 (Expected)

Absorption Split Effective Date (aluminum rolling business)

August 2, 2021 (Expected)

Title and name of Representative Director & President
the representative Junichi Inaizumi

Absorption Split Agreement Execution Date (aluminum can business) April 21, 2021 (Expected)

Business description Sale of chemicals, resins, metals and other industrial materials

Note: ‌As the Company Split corresponds to a simplified company split (kanikyushu-bunkatsu) under Article 784 Paragraph 2 of the Companies Act, it isplanned to be performed without the passing of a resolution at a generalshareholders’ meeting of the Company.

Capital amount(3) Description of business of departments to be split

Name

SKT Holdings Ltd.,

Address

5-1, Otemachi 1-Chome, Chiyoda-ku, Tokyo¥8,021 million (US$77,498 thousand)(3) Outline of SKT Holdings Ltd., (as of December 31, 2020)

Aluminum can business

The manufacture and sale of aluminum cans, etc., forbeverages of the Company

Title and name of CEO and Representative Director
the representative Akihiko Watanabe

Aluminum rolling business

The manufacture and sale of high-purity aluminum
foil, etc., mainly to be used for electrolytic capacitorsof the Company(i) Acquisition, holding, administration and disposition of sharesBusiness description (ii)
Providing services ancillary to the above(b) ‌Execution of Basic Agreement regarding Tender Offer overSubsidiary
On March 4, 2021, the Company entered into: (i) a basic agreement(hereinafter referred to as the “Basic Agreement”) setting forth theapplication for 3,160,306 shares of SHOKO CO., LTD. (hereinafter referred
to as “SHOKO”), the Company's consolidated subsidiary, among theshares of SHOKO owned by the Company, in a tender offer for thecommon shares issued by SHOKO (hereinafter referred to as the “SHOKO(4) ‌Number of shares, transfer price, status of owned shares prior toand after transfer to apply for this tender offer

Capital amount¥10,000 (US$97)

Number of shares owned prior to application

4,790,153 shares

Number of shares planned for subscription

3,160,306 shares

Transfer price¥2,515,603,576 (¥796 per share)

Number of shares owned after this tender offer

1,629,847 shares(US$24,305,349 (US$7.69 per share))47

Report of Independent Certified Public Accountants

Independent auditor’s report
To the Board of Directors of Showa Denko K.K.:
OpinionWe have audited the accompanying consolidated financial statements of Showa Denko K.K. (“theCompany”) and its consolidated subsidiaries (collectively referred to as “the Group"), which comprisethe consolidated balance sheets as at December 31, 2020 and 2019, the consolidated statements ofoperations, statements of comprehensive income, statements of changes in net assets and statements ofcash flows for the years then ended, and notes, comprising a summary of significant accounting
policies, other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at December 31, 2020 and 2019, and its
consolidated financial performance and cash flows for the years then ended in accordance withaccounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Responsibilities of Management and Corporate auditors and the Audit and Supervisory board
for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Corporate auditors and the Audit and Supervisory board are responsible for overseeing the directors’
performance of their duties including the design, implementation and maintenance of the Group’s
financial reporting process.

48

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.



Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with corporate auditors and the Audit and Supervisory board regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the Audit and Supervisory board with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.

49

Report of Independent Certified Public Accountants

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended December 31, 2020 are presented solely for convenience. Our audit also included the translationof yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on thebasis described in Note 5 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

Michitaka Shishido
Designated Engagement Partner
Certified Public Accountant
Noriaki Sakurai
Designated Engagement Partner
Certified Public Accountant
Daio Aida
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Yokohama Office, Japan
April 8, 2021
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

50

SHOWA DENKO K.K.

ANNUAL REPORT 2020

Corporate Data
Investor Information
Number of Shares Outstanding

Head Office
Showa Denko K.K.

149,711,292 as of December 31, 2020

13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo 105-8518, Japan
URL: https://www.sdk.co.jp/english
Phone: +81-3-5470-3235
E-mail: sdk_prir@showadenko.com

Number of Shareholders
86,395 as of December 31, 2020

Classification of Stock

Ordinary General Meeting

All stock issued by Showa Denko is common stock.

The Ordinary General Meeting of Shareholders was held on
March 30, 2021.

Shareholders (Top 10) 

Stock Transfer Agent
Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, Japan(As of December 31, 2020)
Rate of
Number of
Shares Held Shareholding(%)(in thousands)

Shareholder

The Master Trust Bank of Japan, Ltd. (T)13,2289.05

KOREA SECURITIES DEPOSITORY - SAMSUNG

7,018

4.80

Custody Bank of Japan, Ltd. (T)

6,589

4.51

Fukoku Mutual Life Insurance Company

4,517

3.09

Mizuho Securities Co., Ltd.

3,629

2.48

The Dai-ichi Life Insurance Company, Limited

2,700

1.85

Custody Bank of Japan, Ltd. (T7)

2,671

1.83

Meiji Yasuda Life Insurance Company

2,645

1.81

Custody Bank of Japan, Ltd. (T5)

2,360

1.61

Custody Bank of Japan, Ltd. (T6)2,131Shareholders by Sector (As of December 31, 2020)

Japanese corporate
entities

Treasury shares
3,551 thousand

2.37%

6,578 thousand

4.39%

Security
firms

Overseas
corporate
entities, etc.
30,300 thousand

20.24%

1.46

13,064 thousand

8.73%
Total numberof shares held

149,711thousandIndividuals

Financial
firms

38,666 thousand

57,553 thousand

38.44%

25.83%

Note: ‌Each rate of shareholding was calculated after deducting the number of treasury
shares (3,551 thousand) from the number of shares outstanding.

Stock Price and Trading Volume
Stock Price (JPY)
7,000

3,500
Volume(Shares)
120,000,000

60,000,000

2018
Jan

2018
Apr

2018
Jul

2018
Oct

2019
Jan

2019
Apr

2019
Jul

2019
Oct

2020
Jan

2020
Apr

2020
Jul

2020
Oct

0

51

SHOWA DENKO K.K.
13-9, Shiba Daimon 1-chome,
Minato-ku, Tokyo 105-8518, Japan
https://www.sdk.co.jp/english
Printed in Japan