Denka Report 2019
Denka Report 2019

Denka
DenkaReport
ReportIntegrated
IntegratedReport
ReportDenka
Denka
Company
Company
LimitedLimitedDenka Company Limited
Denka Company Limited
0002ⓢ0010
0002ⓢ0010
SM SM
PrintedPrintedin Japanin JapanPublished
Publishedin Octoberin October
20192019
by Denka
by DenkaCompany
Company
LimitedLimitedCONTENTS

Our Corporate Philosophy

Our Management Resources

Editorial Policy

Following the celebration of its centennial in 2015, Denka established The Denka Value in2016. This corporate philosophy is serving as the foundation for all of our business activities as
we move forward over the next 100 years. The Denka Value consists of the Denka Mission,
which identifies our highest mission, and the Denka Principles, a set of precepts aimed at
guiding the actions of all Denka Group employees.

The Denka Report 2019 printed brochure is aimed at providing our stakeholders,
including shareholders and investors, with a robust communication tool that focuses on
conveying what we have been doing to create new value over the medium to long termfrom the viewpoint of addressing environmental, social and governance (ESG) issues.
In addition, we strive to maintain the comprehensive and timely disclosure of our
CSR-related corporate information by updating relevant sections of our website.

Coverage
Fiscal 2018 (April 1 2018 through March 31, 2019) in principle; this report includes
additional information on some initiatives undertaken subsequent to the fiscal 2018
year-end while presenting data on numerical targets for and performance statistics fromthe past several fiscal years.
Date of publication: October 15, 2019

Corporate Philosophy

The Denka Value

Scope
In general, this report encompasses topics on the Denka Group’s business sites within
the scope of consolidation. However, some articles are based on data gleaned outside
the scope of consolidation. These articles individually specify the organizations subject
to reporting.

• The GRI Standards of the Global Reporting Initiative (GRI)• The Environmental Reporting Guidelines 2018 of Japan’s Ministry of the Environment• The International Integrated Reporting Framework of the International Integrated
Reporting Council (IIRC)

create new value and contribute to sound social development.”

Denka Principles

CSR & Corporate Communications Dept., Denka Company Limited
TEL. +81-3-5290-5511
FAX. +81-3-5290-5149
Nihonbashi Mitsui Tower, 1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo
103-8338, Japan
http://www.denka.co.jp/eng/

Overview of the Denka Report 2019 and Other Supplementary
Reporting Tools

We:

Financial information

Non-financial information

Taking on the Challenge of Expanding the
Possibilities of Chemistry via the Specializationof Our Key Operations
Manabu Yamamoto,
Representative Director, President & CEO

Special Feature 1:
Dialogue with the President
Our Contribution to United Nations SDGs

Business Strategies

https://www.denka.co.jp/eng/sustainability/「Sustainability」
disclosure of
2 Web-based
CSR-information• Contribute to a better society, whilst taking pride in being a trusted
corporate citizen.
* Japanese-style craftsmanship(website)

CSR Management
Corporate GovernanceInitiatives to Preserve and Protect the Environment

Social Contribution Activities
Quality Management

2

The printed brochure is aimed at providing our stakeholders, including shareholders
and investors, with a robust communication tool that focuses on conveying what wehave been doing to create new value over the medium to long term from the viewpointof addressing ESG issues.

13
17
23

27
31

41
43
51
55
57
59
60

Financial Information
Consolidated Financial Statements

1

09

Denka’s Approach to
ESG-Oriented Management• Think and take action today with the future in mind.
• Respect the environment and create a cheerful workplace that prioritizes
safety.

07

Special Feature 2:
Denka’s Growth Strategies in the Automotive Field 25

Human Resource Development

Denka Report 2019 printed brochure(integrated report)

05

Denka Value-Up Growth Strategy

Prioritization of Safety

1

03

A Message from the President• Boldly confront challenges with determination and sincerity.
• Deliver new values, and inspire customers through innovative monozukuri.*01

Financial and Non-Financial Highlights

An Employee Round-Table Talk

Inquiries“Taking on the challenge of expanding the possibilities of chemistry to

Our Value Creation Process

Progress in the Denka Value-Up Management Plan

Guidelines

Denka Mission

Trajectory of Denka’s Growth

Corporate Information

61
66

We update reporting on relevant activities and detailed data that has not been
included in the aforementioned editions, to this end maintaining the timely andcomprehensive disclosure of our CSR-related corporate information via our website.

02

Trajectory of Denka’s Growth

Taking on the Challenge of Expanding the Possibilities of Chemistry for More than a Century
Made an entry into the pharmaceutical field

Ever since its founding, Denka has created a wealth of products via theapplication of calcium carbide production technologies and pursued theultimate in Monozukuri (Japanese-style craftsmanship) while changing its
output in response to the needs of the times.

Having acquired shares in the Research Institute for Biology, Physics and Chemistry,
which was established in 1950 (subsequently renamed Toshiba Kagaku Kogyo in
1951 and, currently, Denka Seiken Co., Ltd.), the Company made an entry into
pharmaceutical-related fields, including vaccines and diagnostic reagents.

1979

Made an entry into the fineceramics field

Dr. Tsuneichi Fujiyama, the pioneer of the
carbide industry in Japan

Healthcare
Antigen andantibody
reactiontechnologies

In 1971, the Company initiated the marketing of
fused silica and boron nitrate (BN) and developed
various fine ceramics materials thereafter.

In 1902, at a plant in Sankyozawa, near Sendai city, Dr.
Fujiyama became the first in Japan to successfully
manufacture calcium carbide. This was only about ten
years after the world’s first trial production of calcium
carbide by a Canadian chemist. He also introduced
technology for the manufacture of calcium cyanamide(nitrogenous limestone) from calcium carbide to Japan.
Moreover, he himself developed a steady stream of newtechnologies and opened the Hokkai Carbide Plant in thecity of Tomakomai, Hokkaido, in 1912. His achievements
greatly influenced the subsequent growth of Japan’s
chemical industry.

1985

1986

Diagnostic Immunochemistry
reagents
diagnostic reagents

1996

2000

Macromolecular sodium
hyaluronate preparation

Influenza antigen
detection test kits

Biotechnology
research

Point-of-Care Testing(POCT)

Leveraging its arsenal of unique technologies, which are backed by a long trackrecord spanning nearly 70 years, Denka Seiken has created epoch-making
pharmaceutical products, such as vaccines and diagnostic reagents. Looking
ahead, the Denka Group will strive to help enhance people’s quality of life and,to this end, deliver solutions to counter infectious diseases and lifestyle diseases
while providing cancer drugs and cancer remedy information services.

The environment and energy

1971
1976

Adhesiontechnologies

HARDLOChigh-performance adhesive

Technologies
to combine
multipledifferentmaterials

1981

1985

1989

1998

2004

2009

Thermally
conductive
sheetsHITTPLATE

Spherical
fused silica
filler

DENKA SN
Plate

Spherical
alumina

Launched the
ALONBRIGHT
phosphor

Our research into high-temperature control and nitride technologies led to thecreation of fine ceramics that, in turn, helped us develop an array of uniquesolutions in the field of electronic materials, including insulation as well as
thermally and electrically conductive and heat-resistant materials. Today, ourproducts are used for a broad range of applications, such as automobiles, railcars,
displays and mobile devices, to help achieve technological innovation in terms ofenergy saving, miniaturization, weight reduction and functional upgrading.

Application of synthesis, calcining andsintering technologies

Technological pursuit aimed atfunctionally upgrading concrete

1915
Launched the manufacture of calcium
carbide and calcium cyanamide
In 1915, Denki Kagaku Kogyo Kabushiki Kaisha(now Denka Company Limited) was establishedas the successor to the Hokkai Carbide Plant. It
started off producing calcium carbide and a
calcium cyanamide fertilizer derived from
calcium carbide, with hydroelectric power
plants providing the production facilities withelectricity to sinter limestone and coke.

High-value-added infrastructure

1954

1963

1967

1977

1980

1993

Entered the cementbusiness on afull-scale basis

AZUMIN

Launched CSA production as well as
the special cement additive business

Σ1000

NATOMICTechnologies toenhance concrete
strength

Quick-setting agent
technologies

Denka
TORETARO SUQCEMTECHNOCRETE
SystemTechnologies for repairing andenhancing the durability of buildings

Cracking prevention technologies(e.g., nonshrink grouting materials)

Entered the field ofacetylene chemistry

1962

Successfully initiated thedomestic production ofchloroprene rubber

1942

1965

Entered the petrochemicals field
Styrene monomer andpolystyrene1970

ABS resin

Organic polymer-related
technologies, including precise
synthesis, polymerization andcomposite techniques

1985
DENKA ER

1987

Maleimide-modified
resin

2001

1997

Launched polystyrene
production in Singapore

The Company entered the acetylene chemicals field
via the application of proprietary technologies that
produce acetylene from calcium carbide. After the
release of acetylene black in 1942, the Company
succeeded in commercializing such products asacetic acid, vinyl acetate and vinyl chloride.

1915-1944

1949

1951

1955

1967

1970

1983

TOYO
KAGAKU
Co., Ltd.
established

VINI-TAPE

Rain gutters

Corrugated pipes

TOYOKALON

BOPS sheet

1945-1974

Initial Period
Launched the calcium
cyanamide businessNet sales(left axis)

Operating income(right axis)
Net income
Note: Figures for the period leading up to fiscal
1976 represent the Company’s operating
results on a non-consolidated basis.
Figures for fiscal 1977 and later represent
consolidated operating results.

Our special cement additive business began with the release of DENKA CSA in
1967. Since then, we have been serving markets at home and abroad to meet

2012

Commercialized
needs for expansive additives, quick-setting agents, high-strength materials and
CO2-SUICOM

other cutting-edge solutions in construction and civil engineering fields. In addition
to helping reduce environmental burdens, we are taking on a number of projects,
such as the development of infrastructure, the repair of aged concrete structures
and the lengthening of building durability, in Asia and elsewhere in the world.

2007

2015

Became the world’s biggest
chloroprene rubber producer

Established Denka Performance
Elastomer LLC

The specialization of key operations

Commercialized acetylene black

Trend in Operating Results

2006

400
350

2003

1994 DENKA DX Film

We are increasing the “specialty grade” ratio in our product lineup to secureresilience in the face of changes in external conditions as we shift our focus
to the solution business.

Polymer design andprocessing technologies

Having merged with TOYO KAGAKU Co., Ltd., the Company
launched the Living & Environment Products Business, introducing
a lineup of unique products designed to help enhance people’s
well-being and preserve the global environment.

1975-2006

2007-2017

Toward the next 100 years
2015

Rebranded to“Denka Company Limited”

Period of Expanding Core Businesses

Period of Expanding Specialty Businesses

Denka100

Entered the field of acetylene chemistry

Created a series of leading-edge products via a combination oforganic and inorganic chemistry

Developed a robust foundation for the next 100 years while
focusing management resources on growth fields

Net sales(Billions of yen)

Denka Value-Up

To become a specialty-fusion company capableof achieving sound and sustained growth50

Profit(Billions of yen)

40

300
250

30

200
20

150
100

10

50
0

0

1950
03

2018-

Centennial of Denka’s founding

1960

1970

1980

1990

2000

2010

2018
04

Our Value Creation Process

The Denka Value (corporate philosophy)
Denka Mission
Denka Principles

Social Issues

The Denka Value-Up (Management Plan)

Six types of capital

Contribute to soundsocial development(fiscal 2018 – fiscal 2022)
Intellectual capital

Healthcare

The graying of society andresulting surges in medical
expenses in addition to growing
risks of infectious disease
pandemics due to global
warming and the formation of aninternational traffic network

High-temperature calcining
technologies developed through ourinorganic chemistry-related
endeavors in addition to organic andinorganic material composite
technologies, polymer synthesis
and resin processing technologies
and antigen and antibody reaction
technologies for advancing
infectious disease countermeasures

Natural capitalCompany-owned power
generation facilities,
including hydroelectric
power plants

Manufacturing capital

The environment
and energy

Manufacturing facilities boastingsuperior energy efficiency, suchas cement production facilities
that contribute to a
recycling-oriented society

Healthcare

Pursuing growth Strategies
Business portfolio shift

Growing calls forcountermeasures against global
warming, soil, air and marine
pollution and resource depletion
as well as the safety oftransportation systems

Social capital

High-value-added
infrastructure

Across-the-board involvement inopen innovation that aims to help
resolve issues society isconfronting via
industry-academia-government
collaboration

SpecialtyFusion
Company

Help people aroundthe world enhancetheir quality of life

Become a Specialty-Fusion
Company with a Strong
Global Presence

Introduction of innovative
processes

The environment
and energy

Nurturing and better utilizing
human resources

We employ such core technologies as cutting-edge inorganic
materials in product development, with the aim of better
satisfying the latest needs for solutions that help achieve
zero emissions and support autonomous driving systems.

Our Threefold
Growth Vision

Human capital
A corporate culture thatsincerely addresses
customer needs and seeks
to propose solutions
through manufacturing

In addition to illness prevention and early diagnosis
via the provision of vaccines and diagnostic
reagents, we are expanding into cancer remedies andgene alteration analysis.

Placing the utmost
priority on safety
Giving due
consideration toenvironmental
concerns

Fulfilling our social
responsibilities

Sustained
GrowthSound
GrowthMaintain Sustained Growthby Significantly Enhancing
Productivity throughInnovative Processes

Secure Sound Growththrough Work Style
Reforms

Create a clean andsafe future society

High-value-added
infrastructure
Addressing needs for such products as expansive additives,
quick-setting agents and high-strength materials, we provide
cutting-edge materials and solutions for infrastructuredevelopment while aiding in efforts to repair aged facilities
and lengthen building life.

Financial capital
Need for countermeasuresagainst aging infrastructure andnew infrastructure development
as well as the need to secure
the sustainability of agriculture
and a safe and nutritious foodsupply05

Ability to execute strategic
investment and securerobust shareholder returns
in a well-balanced mannerSupportinfrastructuredevelopment andimprove
accessibility

06

Financial and Non-Financial Highlights

Fiscal 2018 Financial Highlights
Net sales

Overseas sales /overseas sales ratio

413.1

Overseassales

Billionyen

Billion yen

383.9

395.6

176.1
42.6%

Billionyen

Overseas
sales ratio

Net sales

Overseas sales

413.1

Operating income /operating income ratio
OperatingincomeOperatingincome ratio

Overseas sales ratio

Billion yen

168.7

176.1

%

36.3

37.5

ROE

Billion yen

33.7

34.2

%

30.6
42.6

Net income
attributable toowners ofthe parent

Operating income

139.5 138.7 141.5

369.8 362.6

34.2
8.3%

Billion
yen

8.5

39.0

Net income attributable toowners of the parent
Billion yen

19.0

25.8

24.0

42.6

23.0

19.4

10.0
9.6

Total
assets

ROA

483.8
6.9%

ROE

25.0

%

Billion yen

445.5 443.8 454.9

Investment CF

Financial CF

473.8 483.8%

Million yen

44,01435,557

6.8

10.3

2017

2018

FY2014 2015

2016

2017

2018

9.3

7.1

FY2014 2015

2016

2018

32,6606.9-7,437

5.5

8.3

2017

Millionyen

48,77639,557-7,348

5.1-19,319-22,258

FY2014 2015

2016

2017

2018

FY2014 2015

2016

2017

2018

FY2014 2015

-8,408-15,858-29,298-34,979

2016

Millionyen

6.1-27,449

FY2014 2015

Millionyen

Operating CF
Investment CF
Financial CF

ROA

Total assets

32,660- 26,176- 8,408

Operating CF

Billion
yen

18.1

8.3

8.2
6.2

25.0
10.3%

Billionyen

Cash flow (CF)Total assets / ROA

Net income attributable toowners of the parent / ROE

2016

2017

-26,1762018

Fiscal 2018 Non-Financial Highlights
Promoting open innovation, we are developing new
products and technologies that contribute to asustainable society.

To produce clean energy, we are employing a total of
15 hydroelectric power plants.

Powergeneration

Development

Production
and sale

Offices

Change fromthe FY2005 level

Y-o-YchangeY-o-YchangeBillion yen

Thousand kW+5%+50kg/tR&D expenses

07

Giving due consideration to our environmental
footprint, we pursue sustainable manufacturing
operations to deliver safe and reliable products.

Y-o-Ychange+0.7

14.6

We maintain a total of 28 domestic facilities serving as
key business bases while boasting a global network
encompassing 32 bases in Asia, Europe, the UnitedStates, the Near and Middle East and other regions.

Billionyen+8

Maximum output fromhydroelectric and otherpower generation facilities

125

Thousand kW

Ratio offemale employees(non-consolidated basis)

14%

Volume of recycled
waste and industrial
byproducts used to
produce one ton of
cement572kg/tY-o-YchangeY-o-YchangeMillion tons

-39 tons-0.15
Volume of CO2
emissions(from energy sources
and non-energy
sources)

2.3

Milliontons

Final disposal
amount of waste

49

tons

08

A Message from the President

1. Our Social Mission

Taking on the Challengeof Expanding the
Possibilities ofChemistry via theSpecialization of Our
Key Operations

Having started out as a calcium carbide and calcium

that we have a social mission to take full advantage ofcyanamide producer in 1915, Denka has delivered a

Denka’s accumulated expertise in these fields in order tovariety of products that have contributed to social

advance its technologies that focus on environmental

development while furthering high-temperature control andconcerns.

other technologies. For example, Denka’s latest productfive-year plan launched in April 2018, we have identified afunctional elastomer used for such applications as

threefold growth vision of becoming a “Specialty-Fusion

automobile parts. In 1962, Denka became the first in

Company” capable of achieving “Sustained Growth” andJapan to produce this material. Since then, we have been“Sound Growth.” We have also specified CSR materiality

ceaselessly striving to improve our CR technologies andissues that Denka must address in addition to practicing

develop product applications. We continue to successfully

an ESG-oriented management approach with strong

command a position as a leading CR supplier andemphasis on “placing the utmost priority on safety,” “giving

currently boast a 40% share in the global market.

due consideration to environmental concerns,” “nurturing

Today, society is being affected by drastic
technological advancement, a growing shift indemographic structure, rapid urbanization and other major

Representative Director,
President & CEO

and better utilizing human resources” and “making social
contributions.”
At the same time, we are promoting two growthchanges taking place in countries around the globe,

strategies aimed at ensuring significant businessincluding Japan. As the possibility of disruptive change

expansion on a global basis.

lies latent in every corner of society, a number ofManabu Yamamoto

In line with the Denka Value-Up management plan, alineup includes chloroprene rubber (CR), a highlyFirst, we are promoting a business portfolio shift. The

corporations will face the growing need for unconventional

purpose of this is to accelerate our corporate growth bybusiness models in order to adapt to the creative

keeping the focus of our management resources on

destruction of markets. I believe that, in the midst of suchspecialty businesses. We have defined a “specialty”

disruption, Denka will be expected to fulfill even importantbusiness as one that meets or has the potential to meet theroles as a chemical material manufacturer.

following conditions in the near future: 1) being consistent

In 2015, we changed our company name from DENKI
KAGAKU KOGYO KABUSHIKI KAISHA to Denka Company

with our commitment to addressing ESG issues;2) boasting distinctive strengths and product value;

Limited in conjunction with the celebration of ourcentennial. In the next year, we established The Denka
Value, a corporate philosophy, while renewing ourcommitment to fulfilling our mission of “Taking on thechallenge of expanding the possibilities of chemistry tocreate new value and contribute to sound social(Corporate philosophy)

development.”
Our former company name represents our origins inelectrochemistry, a type of manufacturing virtually
unknown at the time of launch as the use of electricity was
not yet widespread in Japan. Our founders therefore
needed to somehow secure a quantity of power fromin-house sources. Thus, they proceeded to construct arobust network of hydroelectric power plants andendeavored to improve their power generation capacity
while ceaselessly improving the energy efficiency of
production systems. Considering that the reduction ofenergy consumption and the use of renewable energy areamong the most pressing social issues today, we believe

09

10

A Message from the President

3) possessing resilience to changes in external factors;

to specialize our key operations, we made a full-scale

and 4) commanding an industry-leading market share.

entry into the biostimulant* market. Biostimulants are

Having identified healthcare, the environment and energy

expected to help resolve pressing global food issues,and high-value-added infrastructure as three priority fields,

including food supply shortages and the negative impact

we are striving to raise the ratio of specialty businesses toof global warming and other climate change phenomena

our entire business portfolio from 54% in fiscal 2018 tothat cause farmers to experience serious crop damage.

90% by the end of fiscal 2022 (based on operating income

Drawing on our longstanding accumulation ofratio). To that end, top management is strongly committed

technological expertise in agricultural products, we will

As a chemical manufacturer, we consider securing

growth and spontaneous career development through theto promoting a thoroughgoing transition to specialty

develop and deliver advanced solutions to the market.

operational safety to be a matter of the utmost importance.

revision of staff evaluation systems and the enhancement

We have therefore made prioritization of safetyof human resource development programs. We will also

businesses. In this light, I am determined to do my best to

Second, we are engaged in the introduction of

2. Securing More Robust Foundations for Fulfilling
Our Social Mission

raise employee awareness through my leadership andinnovative processes, another important growth strategy

foundational to all business activities. Accordingly, we

continue to push ahead with work style reforms aimed at

encourage all Group members to focus on the continuous

under Denka Value-Up, with a newly establishedpromote a comprehensive set of initiatives aimed ataccommodating diverse human resources and working

creation of specialty businesses.

department charged with accelerating digitization and big

preventing the occurrence of accidents at all workplaces.

styles.

data utilization spearheading the production, R&D and

These initiatives include unifying the risk assessment

facility for manufacturing liquid influenza vaccine on theoperational process reforms currently under way atstandards to be applied at production frontlines, investingtransitioned from a “Company with an Audit & Supervisorypremises of Denka Seiken’s Niigata Plant to boost its

business units across the Group. For example, an

capital to advance safety measures, enhancing safety

Board” to a “Company with an Audit & Supervisory

supply capacity. Our plans also call for merging with

AI-driven production management system was brought

education training facilities and cultivating those who are

Committee” in January 2019. We have, to date,

Denka Seiken in April 2020 with the aim of expanding ouronline at the Chiba Plant and at a plant run by a Groupcharged with providing such education.

endeavored to develop a robust governance structure

healthcare-related operations.

subsidiary in Singapore. Meanwhile, the Omi Plant

In the healthcare field, we decided to establish a new

In addition, Denka formulated its environmental

To enhance corporate governance, we havecapable of ensuring fair and transparent management by,(Itoigawa City) completed the “Omi Innovation Hub,” a newpolicies to ensure that it contributes to the realization offor example, separating supervisory and execution

augment our capacity to produce Denka’s unique thermal

multi-purpose facility boasting a futuristic layout. This

Japan’s national targets, which are based on goals

functions via the introduction of an executive officer

solution products, such as silicon nitride ceramic

facility has already begun contributing to integrated, more

specified by the Paris Agreement, a framework for guiding

system and appointing three outside directors and two

substrates and spherical alumina. These offerings arefunctional plant operations. Over the course of a five-year

international efforts aimed at addressing climate change

outside members of the Audit & Supervisory Committee.

expected to contribute to the popularization of electric

period wrapping up at the end of fiscal 2022, we areissues in 2020 and beyond. As we handle energy-intensive

In the face of recent rapid changes in the market

vehicles and other eco-friendly cars as well as thedetermined to invest ¥15 billion in process reforms via theoperations, we will fully take advantage of our power

environment, we believe that Denka must have a structureadvance of autonomous driving technologies.

introduction of cutting-edge ICT and other solutions togeneration network supported by 15 hydroelectric power

for enabling swifter decision making. With this in mind, thedevelop a working environment that helps employees toplants to help realize a carbon-free society. Simultaneously,

aforementioned transition entailed appointing individuals

create a constant stream of innovation.

we are considering participation in TCFD, SBT and otherwho serve as Audit & Supervisory Committee members

additives, which are essential to the construction ofinternational climate change-related initiatives. Moreover,

and are allowed to cast a vote at Board of Directors

tunnels and other high-strength infrastructure. We are also

we will engage in R&D focused on carbon dioxide

meetings. We are confident that this move will help usutilization, applying a unique perspective with the aim ofstrengthen the Board of Directors’ supervisory functions

contributing to the accomplishment of the Parisand thereby enhance our corporate value.

In the environment and energy field, we decided to

In the high-value-added infrastructure field, we areengaged in the global marketing of special cement

promoting solutions aimed at addressing the aging ofbuildings and other structures.
As such, our endeavors are making steady progressin these three priority fields. Furthermore, as part of efforts* According to the website of the Japan Biostimulant Association, biostimulants
are a new technology that controls abiotic stresses imposed on plants andthereby reduce damage inflicted on them due to climate or soil conditions to
help cultivate healthy crops.

Agreement’s goal of keeping the global temperature rise

In fiscal 2018, our consolidated operating incomein this century to less than 2°C. Furthermore, in the coursewas ¥34.2 billion, falling short of the estimate of ¥36.0

of cement production, we are accepting an even broader

billion announced at the beginning of the fiscal year due torange of waste from communities in which operate tosuch factors as U.S-China trade tensions. However, thispromote collective efforts to reduce environmental

figure still represents a record high for us and we also

footprints while upgrading our waste recycling facilities.

recorded our highest-ever consolidated net sales. Taking

We are also developing styrene-based food packaging

these operating results into account, we believe that, inmaterials that can be processed using a relatively smaller

the first year of Denka Value-Up, we were able to makevolume of resources. Moreover, we are addressing thesteady progress in our efforts to create an even stronger

problem of marine plastic pollution. Fulfilling our social

company that is resilient against changes in the external

responsibilities through these actions, we are helping

environment.

create a recycling-oriented society.

Through the implementation of Denka Value-Up, we

We are promoting specialization in all aspects of ourwill create new value and make significant contributions tooperations, including our business structure, technologicalthe development of society as a whole. That’s how we aredevelopment and cultivation of human resource. We

becoming a specialty-fusion company with a strong global

believe that, among these, human resources are the mostpresence.

important component of the foundation supporting ourconstant creation of specialty businesses. Accordingly, we

We sincerely ask for your ongoing support for ourGroup operations.

are striving to assist employees in their autonomous
The Omi Innovation Hub, a new multi-purpose facility completed on the Omi Plant’s premises on October 25, 201811

12

Special
Feature1

Dialogue with the President

standards and bring greater value to them. I think thiscoincides with the concepts underlying the SDGs.

SDGs Serve asa Compass
Yamamoto: I think that the SDGs are a set ofwell-thought-out goals serving as a compass forbusinesses seeking to contribute to sustainability. Japan’s
chemical industry has a number of corporations that are
similar in size to Denka, each boasting unique andpromising technologies that could constitute a significant
social contribution. However, such corporations might find
it difficult identifying how to best utilize their technologies
in the context of sustainability. I believe that the SDGs will
greatly assist them in this identification.
Kanie: Exactly. As the pursuit of the SDGs helps
corporations determine their direction, the SDGs can belikened to a compass. The most important point about theSDGs is that these future goals have been agreed uponby all UN member countries around the globe.
Accordingly, I think the SDGs effectively represent what
our society will be like in the future.

President Yamamoto (at left) and Professor Kanie at Denka’s Head Office in June 2019

Yamamoto: I believe that in order for Denka to achieve
growth, it must pursue specialization. We are therefore
specializing our businesses in a way that addresses
needs of people around the world, aiming to delivertechnologies and products that improve their living

Denka’s Manufacturing Operations:

Creating Value for the Future
Professor

Norichika Kanie

Graduate School of Media and Governance,
Keio University

Manabu Yamamoto
Representative Director, President & CEO,
Denka Company Limited

The Denka Value, Denka’s corporate philosophy, is in accord withthe spirit of the United Nations Sustainable Development Goals(SDGs) that were set for 2030 to guide international efforts aimed
at achieving a sustainable society. In this dialogue, we invited
Professor Kanie, who is Japan’s leading SDG researcher, to share
his insights with regard to what sustainability initiatives
businesses should take on.

13

Taking Full Advantageof the Period Leading up
to 2030
Kanie: What is good about the SDGs is that they represent
long-term goals for 2030. We can take advantage of time.
Even though the SDGs will not be realized right away,businesses can still spend decades working toward thebetterment of society. It is only to be expected that they
will face some criticism about what has not been done orwhat is lacking. Nevertheless, it is important forbusinesses to clarify their commitment to taking on
forward-looking initiatives aimed at realizing the SDGs.
Yamamoto: Indeed, we can rely on the SDGs to identify
our future ideals as they are supported by theinternational consensus. This is quite helpful as we can be
confident about our conclusions on Denka’s long-term
visions.

Kanie: That’s right. Also, the SDGs can be utilized to
expand the scope of fields in which Denka can contributeto society in the way you discussed. For example, acombination of highly functional infrastructure andenergy-saving solutions may give rise to unconventional
ideas and businesses. The SDGs consist of a total of 17
goals encompassing a broad range of fields. These goals
allow businesses to choose from a variety of options withregard to their approaches to sustainability. The pursuit of
the SDGs can also involve supply chains. In this light, I
praise Denka’s process reforms undertaken as part of an
overarching strategy.
Yamamoto: Currently, we are developing a biostimulant*
technology that is expected to simultaneously help
increase food production volume and reduce
environmental burdens. I believe this is exactly the kind oftechnology supporting the realization of the SDGs. In
Japan, a number of chemical companies boast
considerable accumulated technologies backed by longtrack records spanning more than 100 years. Although I
suspect that some of their technologies have not yet
realized their full potential, I expect the SDGs to provide
businesses with insights into how to utilize suchtechnologies.
* According to the website of the Japan Biostimulant Association, biostimulants area new technology that controls abiotic stresses imposed on plants and thereby
reduce damage inflicted on them due to climate or soil conditions to help cultivate
healthy crops.

Kanie: Today, ESG-oriented investment is attracting
growing public interest. Because of this, stakeholders’attention is being directed to the long-term visions
businesses are now pursuing. I also believe thatbusinesses taking a forward-looking stance towardsustainability will attract the support of a growing numberof stakeholders.
Yamamoto: In 2016, we established The Denka Value,
clarifying our corporate philosophy aimed at ensuring that
all of our activities will eventually help us improve our trackrecord in environmental, social and governance (ESG)
aspects. Currently, we are striving to ensure that thisphilosophy is embraced by all employees. Although wehave previously struggled with finding correlations
between our initiatives associated with CSR, materiality
issues and ESG issues, I think the SDGs have helped ussmoothly coordinate these initiatives.
Kanie: While the SDGs encompass matters associatedwith ESG, they are focused on identifying universal goals
in addition to meticulously specifying fields in whichbusinesses can make contribution. I find it encouraging
that Denka utilizes the SDGs in the course of putting its

14

Dialogue with President

Achieving Growthin Tandem with Stakeholders
corporate philosophy into practice. However, it is quite
challenging to ensure that such a philosophy is embraced
throughout the organization. I understand this kind ofchallenge, and believe that both businesses andresearchers, including myself, must play their part incollective efforts aimed at communicating the importanceof sustainability not only to a circle of major corporations
but also a broader business community, including small
and medium-sized corporations. Once employees
understand the significance of their duties in terms ofcontribution to society, however, I think they will be more
motivated than ever before.
Yamamoto: I have sometimes seen frontline workers who
are only minimally informed about how their products are
actually used. To facilitate their understanding, I haveasked managers to provide their staff with robust
information about how their products contribute to society.
Kanie: I have heard that researchers engaged intechnological development often tend to get lost in thedetails and lose the bigger picture of what they are doing.
Management should help them incorporate a long-term
perspective so that they clearly understand what they arecontributing through their duties. This type of input affects
working styles and, of course, helps to motivate themeven more.
Yamamoto: Denka formerly maintained a more traditional
focus, looking simply to achieve growth in terms of sizeand cost reductions. However, this approach has provenineffective in the face of global competition. Denka has
thus positioned specialization as an essential strategy thatwill empower it to thrive well into the future. However, any
success due to specialization can quickly become moot if

we fail to keep on working on said specialization.
Therefore, we also need to nurture human resources
capable of taking on this endeavor. To this end, we arepushing ahead with thoroughgoing process reforms andwork style reforms by employing AI, IoT and otheradvanced technologies. In particular, our process reforms,
which aim to standardize procedures and make it easier
to check operational status, are also expected to greatly
help us promote diversity.
Kanie: In short, Denka began placing stronger focus on
quality to compete against quantity. Incidentally, a growing
number of consumers have been shifting their focus fromquantity to quality. Furthermore, although MDGs, theprecursors of the SDGs, placed relatively stronger
emphasis on quantity, the SDGs are obviously focused on
quality. Although it is well understood that superior quality
lends a manufacturer competitive advantages, Denka’s
pursuit of specialty goes in tandem with its policy of
employing a combination of diverse technologies. While
the fear with specialization is that excessive focus may
result in a lack of flexibility, Denka is avoiding this pitfall as
it strives to simultaneously acquire strength and realize thepotential of its technologies via specialization.
Yamamoto: Denka had previously adopted a silo-basedorganizational structure and was almost unable to employ
synergies arising from intersectional collaboration. Someof our technologies thus remained underutilized. Today,
however, Denka is focused on boosting synergetic effects
under keywords “collaboration” and “reform.”
Kanie: Great. This is exactly the approach needed tofacilitate organizational chemistry.

Norichika Kanie

Professor, Graduate School of Media and Governance, Keio University
Concurrently serving as a Senior Research Fellow at United Nations University
Institute for the Advanced Study of Sustainability, Professor Kanie previously served
as a lecturer and assistant professor at the University of Kitakyushu. He was also an
associate professor at Tokyo Institute of Technology’s Graduate School of Scienceand Engineering prior to assuming his current position. He has been appointed to anumber of public positions, including as a member of the Japanese government’s
SDG Promotion Roundtable Meeting, the Cabinet Office’s Council for Evaluating,Researching and Discussing Local Government SDG Promotion Initiatives, and theMinistry of the Environment’s SDG Stakeholders Meeting.

15

Kanie: The SDGs have an important underlying policy ofleaving no one behind. Although Denka has positioned
healthcare as a priority field, its operations in this field
represent a typical example of social contribution throughbusiness activities, considering that pharmaceuticals
become more available in step with market growth. This
will save an expanding number of human lives.
Yamamoto: In line with the Denka Value-Up management
plan, we aim to become a specialty-fusion company
capable of achieving sustained and sound growth.
Specifically, “sound growth” means achieving corporate
growth without sacrificing the happiness of any
stakeholders. Moreover, we aim to achieve corporate
growth while helping stakeholders thrive. This is ourultimate goal.
Kanie: The SDGs do not necessarily represent abusiness’s performance targets. However, the SDGs serve
as benchmarks that guide businesses concerned with

Creating the Future of Denka

Yamamoto: Denka recognizes an imminent threat arisingfrom environmental problems. Among these, Denka
considers marine plastics to be a pressing issue that must
be addressed. In addition, Denka operates cement
production facilities. Although these facilities emit a
volume of greenhouse gases, they also produce cement
via the effective utilization of industrial waste. For every 1
million plus tons of cement manufactured, these facilities
process 500,000 tons of industrial waste. We areconsidering how to better utilize their capabilities. Also,
Denka’s hydroelectric power generation facilities, which
produce clean energy, supply nearly half the electricity
consumed by its manufacturing operations. However,dependence on these energy sources may also expose
Denka to an existential threat if the volume of rainfall
fluctuates significantly due to climate change.

sustainability to accurately reach their genuine goals. The
SDGs are just like a series of triangles painted halfway
down a bowling lane to help players accurately aim for thepins. We have seen the increasing deterioration of the
global environment along with a growing fear of resource
depletion as well as global warming and other climatechange phenomena. Taking these factors into account,the success of international efforts to be undertaken in 10
years from now will be extremely crucial to human society.
I rate Denka highly as it aims to achieve sustained andsound growth via a variety of process reform initiatives
while giving an eye to these circumstances.

Kanie: The problems Mr. Yamamoto has mentioned, suchas marine plastics and climate change, cannot be
resolved by a single corporation. The SDGs alsoemphasize partnership. I would like to encourage Denka
to act as part of cross-sector partnerships involving avariety of entities, such as governments and NGOs. Suchpartnerships will better position Denka to resolve theseissues. Furthermore, I expect the new technologies orsolutions that Denka creates in the course of said pursuits
to become global standards. Generally, Japanese
corporations are not good at establishing global
standards compared with their peers in Europe and theUnited States. I hope that one day Denka plays a leadingrole in the worldwide popularization of innovative solutions
that help resolve global problems.
Yamamoto: Ideally, I would like our stakeholders aroundthe world to be proud of having a relationship with Denka.
This dialogue has bolstered my confidence that the SDGs
will serve as a helpful tool guiding us toward this ideal.
Looking ahead, we will utilize the SDGs to become a
global company leading the way to the betterment ofsociety.
(Held in June 2019 at Denka’s Head Office)16

Progress in the Denka Value-Up Management Plan

Numerical Targets under Denka Value-Up

Our Management Plan

Denka Value-Up
2018-2022

In line with this management plan, we aim to achieve consolidated operating income of ¥42 billion and an operating income
ratio of 10% or more in fiscal 2020. We also strive to raise the ratio of specialty businesses to 75% or more in the same fiscal
year (based on operating income ratio).
In fiscal 2018, the first year of the management plan, our operating income stood at ¥34.2 billion, achieving a record highfor the second consecutive year. Looking ahead, we will push ahead with specialization of our operations via the practice ofDenka Value-Up growth strategies while expecting to make steady progress toward achieving our targets for fiscal 2020.
Operating income ¥42.0 billion

Specialty businesses

Operating income ¥33.7 billion
Operating income ratio 8.5%

Become a company that boasts outstanding
global competitiveness backed by a robust
portfolio of specialty businesses and products
along with its technological strengths andhuman resource capabilities

Specialty-Fusion
Company
Become a Specialty-Fusion
Company with a Strong
Global Presence

Strive to achieve a drastic improvement inproductivity and, to this end, focus on truly
essential operations and introduce innovative
processes through the utilization of IoT, AI andother cutting-edge digital technologies, thereby
securing the ability to secure sustained growth
regardless of external conditions

Operating income ¥34.2 billion
Operating income ratio 8.3%

Operating income ¥38.0 billion
Operating income ratio 9.2%

Operating income from
specialty businesses
Operating income from
specialty businesses

Develop a working environment that isinclusive of diverse working styles, withthe aim of better collaborating with
employees to pursue stakeholder
happiness and to ensure soundcorporate growth

Our Threefold
Growth Vision

Sustained
GrowthSound
GrowthMaintain Sustained Growthby Significantly Enhancing
Productivity throughInnovative Processes

Secure Sound Growththrough Work Style
Reforms¥16.7 billion
Ratio of specialty
businesses

50%

FY2017 (results)

55%

54%

FY2018 (results)

FY2019 (forecasts)

Investment Plan
• We will invest a total of ¥200 billion
over a five-year period.

• We will expend a total of ¥90 billion in
R&D over a five-year period.

PolicyBreakdown• Strategic investment:¥75 billion (¥15 billion/year)
Of which, investment in specialty
businesses: ¥60 billion
Process reforms: ¥15 billion• Regular investment:¥125 billion (¥25 billion/year)

Shareholder Retur ns• We will remain committed to a targeted
total shareholder return ratio of 50%.

Introduction of Innovative Processes
Policy17

Production
process reforms

R&D
process reforms

FY2020 (targets)

R&D Plan

Results and Forecasts for R&D Expenses(Billion yen)

Healthcare
The environment and energy

20

17.0

18
16

13.9

12

5.2

Operational
process reforms
Work style reforms/
Diversity promotion

In addition to prioritizing cash dividends, we will
flexibly execute share repurchases by giving due
consideration to stock prices and other factors.
Note: Total payout ratio = (Dividends paid + treasury stock
purchased) / consolidated net income

8
6

1.9
3.2

5.6

0

17.4

18.2

1.5

1.5
1.1

19.0
5.2

4.9

1.3

5.8

4.2

4.3

1.7

4.4

4.4

3.7

4
2

High-value-added infrastructure
Key operations

5.0

14.6

10

Specialize
our key
operations

75%

Ratio of specialty
businesses

Executing strategic investment centered on specialty businesses, we are striving to realize “Sustained Growth” and “Sound Growth.”
With regard to shareholder returns, we remain committed to a targeted total shareholder return ratio of 50%.
Simultaneously, we are placing ever stronger focus on cash dividends while flexibly carrying out share repurchases by giving
due consideration to such factors as trends in stock prices.

Two Growth Strategies

Redefine thepositioning of
the commodity
businesses

Ratio of specialty
businesses¥21.0 billion¥18.5 billion
Ratio of specialty
businesses

14

Accelerate
Growth ofSpecialty
Businesses¥31.5 billion

Operating income from
specialty businesses

Operating income from
specialty businesses

Resource Allocations

PolicyBusiness Portfolio Shift

Operating income ratio 10.0%

3.6

4.0

FY2017(Results)

FY2018(Results)

5.6

FY2019

7.0

7.4

7.8

FY2020

FY2021

FY2022

Fiscal 2018 Achievements

Fiscal 2018 Results

In fiscal 2018, we paid an interim dividend of ¥60 per shareand a year-end dividend of ¥60 per share. With full-year
dividends totaling ¥120 per share, the dividend payout ratio
stood at 42%.

In fiscal 2018, R&D expenses for the entire Group totaled¥14.6 billion.

18

Progress in the Denka Value-Up Management Plan

Business Portfolio Shift

Specialize Our Key Operations
We will work to increase the “specialty grade” ratio in our product lineup to secure resilience to changes in external
conditions as we shift our focus to the solution business, with the aim of specializing our commodity businesses.

A Full-Scale Entry into the Biostimulant Market
We have been marketing AZUMIN fertilizer for more than a half century. This humic acid fertilizer, which falls into the definition of abiostimulant, boasts the ability to improve soil, invigorate the roots of plants and enhance overall crop growth and has proven effective
even when used on dry or low-temperature farmland. Taking full advantage of our technological expertise in this field, we will develop
biostimulants with even superior functionalities, thereby contributing to the expansion of crop yields.

Accelerate Growth of Specialty Businesses*
We will reinforce the focus of our management resources on three priority fields (healthcare, the environment
and energy, and high-value-added infrastructure) and engage in proactive strategic investments with the aim ofachieving numerical targets by the timeframe defined under Denka Value-Up.
Healthcare

In addition to illness prevention and early diagnosis, we are expanding into cancer remedies and gene alteration
analysis to help enhance people’s quality of life.

The environment
and energy

We employ such core technologies as cutting-edge inorganic materials in product development, with the aim ofbetter satisfying the latest needs for solutions that help achieve zero emissions, support autonomous driving systems
and assist in other technological pursuits aimed at creating a clean and safe future society.

High-value-added
infrastructure

We strive to meet high-profile infrastructure development needs in countries around the world through the provision of
cutting-edge materials and solutions.

Strategic Investment Aimed at Expanding Our Operations Related to Thermally Conductive
Materials for Automotive Applications
We will undertake capital investment totaling approximately ¥8 billion to boost our capacity to produce silicon nitride ceramic substrates
and spherical alumina in order to swiftly accommodate growing demand resulting from a switchover to electric vehicles (EVs) inautomotive industries worldwide, aiming to play a pivotal role in the market for thermally conductive materials.

Expansion of the Vaccine BusinessDespite our efforts to increase our influenza vaccine production capacity and maintain a stable supply as one of Japan’s major vaccine
manufacturers, in recent years we have not been able to provide a sufficient volume of products to meet customer expectations. We will
therefore invest approximately ¥16 billion in the construction of a new liquid vaccine production facility to expand our supply capacity.

Merger with Denka SeikenWith the merger of Denka Company Limited and Denka Seiken scheduled for April 1, 2020, we will rally the entire strength of the Denka
Group to accelerate the development and expansion of its healthcare-related operations.

Acceleration of Infectious Disease Diagnostic Testing System Development via Investment in Taiwan-Based PlexBio
Currently, we are striving to accelerate the co-development of an infectious disease diagnostic testing system in tandem with PlexBio Co., Ltd.,a strategic partner headquartered in Taiwan. This system is expected to shorten the time needed to detect pathogenic microorganisms
and identify drug-resistant bacteria genes. Through this partnership, we will develop epoch-making products that contribute to the earlyamelioration of and the prevention of death attributable to infectious diseases, such as sepsis, while advancing drug resistant bacteria
countermeasures that facilitate the prudent use of antibiotics.

Optimization of Our Calcium Carbide Chain
With the establishment of a dedicated working group for restructuring our calcium carbide chain, discussion is now under way to identify
ideals for the overall calcium carbide chain supporting our commodity businesses. We will also accept an even broader range of waste in
the course of cement production and thereby step up resource recycling. Simultaneously, we will enhance profitability via the logistics
alliance with Sumitomo Osaka Cement Co., Ltd.

Optimization of Our Styrene Chain
We are ever more focused on pushing ahead with cost reductions in the styrene monomer business, an integral component of our styrene
chain. Stepping up collaboration with Maruzen Petrochemical Co., Ltd. in terms of our use of utilities, we will strive to improve our costcompetitiveness.

Optimization of the Group’s Trading Functions (merger of Akros Trading Co., Ltd. and YK Inoas Co., Ltd.)The trading companies Akros Trading and YK Inoas, both of which are consolidated subsidiaries of Denka, handle various chemicals,particularly products manufactured by other Denka Group companies. In addition to ensuring the effective use of the two companies’
management resources and improved management efficiency, this merger is expected to maximize synergies in the marketing ofelectronic materials, special cement additives and other offerings. In this way, we will boost the Group’s sales and service capabilities.

Redefine the Positioning of Commodity Businesses
As part of our initiatives to facilitate the transformation of our business portfolio, we will redefine the positioning ofcommodity businesses that are intrinsically unsuitable for specialization.

Withdrawal from FIRELEN and β Silicon Nitride
FIRELEN was released in 1967 and has been serving mainly as a filler material for the tapholes of blast furnaces, while β silicon nitride,since its release in 1983, has been contributing to the field of fire-resistant materials. However, we decided to withdraw from theproduction of these offerings in the course of the business portfolio shift, giving due consideration to changes in the market environment
and the aging of our production facilities.
The Omuta Plant, which has been manufacturing the aforementioned offerings, is now transitioning to a production base for
specialty products, especially such electronic materials as electro-conductive substrates and fillers for use in high-temperature
conditions. Upon this withdrawal, relevant staff will be transferred to growth fields. The plant will thereby accelerate the specialization of
its operations.

*Denka’s definition of a specialty business: A business that meets or has the potential to meet the following conditions in the near future: 1) being consistent
with the Company’s commitment to addressing ESG issues; 2) boasting distinctive strengths and product value; 3) possessing resilience to changes inexternal factors; and 4) commanding an industry-leading market share

19

20

Progress in the Denka Value-Up Management Plan

Introduction of Innovative Processes

Growth Strategy

Examples of Initiatives

Production Process Reforms
As part of our threefold growth vision under the Denka Value-Up management
plan, we aim to significantly enhance productivity through innovative processes, tothis end promoting production process reforms with the goal of doubling laborproductivity compared with the fiscal 2017 level.

Policies• Restructure our production facilities into ICT-basednext-generation smart factories• Build a robust, overarching information platform capableof managing all data on a real-time basis• Realize manufacturing operations with greater
productivity and superior stability

R&D Process Reforms
With the aim of creating new businesses and products for future generations, weare promoting open innovation by participating in industry-government-academia
partnership at home and abroad and by facilitating close in-house collaboration.
Our R&D also focuses on incorporating ESG perspectives while applying materials
informatics as part of initiatives to utilize data science in material development.
Furthermore, we helped a number of our researchers obtain diplomas at domestic
and overseas educational institutions, promoting the development of capable
human resources.

Policies• Clearly identify R&D visions for specialization• Develop and utilize R&D assistance systems• Strategically nurture and allocate researchers while
assisting in their career development

Operational Process Reforms
Work style reforms / Diversity promotion

Having installed a wireless LAN network at the Head Office in conjunction with amassive facility renovation in July 2018, efforts are currently under way to install
similar systems at domestic branches, sales offices and plants as well as at our
offices in Singapore. At the same time, we are developing a location-free working
environment by introducing mobile devices (PCs and smartphones) as well as
various external services, including groupware.

Policies

21• Establish an organization charged with promoting
digitization to support the introduction of innovative
processes (the Digital Promotion Dept.)• Introduce next-generation groupware• Deploy an electronic approval system

Restructure our production facilities into ICT-basednext-generation smart factories

Realize manufacturing operations with greater
productivity and superior stability

Anticipate malfunctions and smoothly maintain rotating equipment by
employing vibration sensors with wireless communication systems

Stabilize operations and improve manufacturing safety andfacility security via big data analysis

Although the prediction of rotating equipment malfunction is largely dependent
on vibration measurements, advances in wireless data communication
technologies are making it easier to carry out such measurements and are
expected to reduce burdens on workers while improving operational efficiency.
With this in mind, we are verifying the results of trial introduction of suchtechnologies while rolling them out at a broader range of manufacturing sites.

The Chiba Plant has been facing some issues associated with
its styrene monomer production facilities’ reliability in terms ofcontinuous operations. Addressing these issues, the plantbegan using a system for detecting signs of operational
abnormalities and is developing a prediction model that takes
into account seasonal differences in operational conditions,such as external temperature, to enhance detection accuracy.

Cloud

Predicted value determined via machinelearning into normal operational data

Deterioration diagnosis
Trend monitoring andemploying machine
alarm issuance based onlearning
prescribed thresholds

Long-distance, energy-saving
data communications

SensorPlug & Play

IIoT-driven sensor capable ofoperating in the harsh environment

Actual value

Clearly identify R&D visions for specialization
Having designed the “value-shift diagram,”* we are engaged in across-the-board efforts to promote specialization via the use of thisdiagram designed for each product and technology.
Copyright ©2016 Hitachi High-Tech Solutions Corporation All Rights Reserved.
Specifically, we are striving to clarify our R&D vision for specialization in line with a policy of (a) creating seeds via open innovation
based on close in-house collaboration; (b) disseminating the utilization of the value-shift diagram; and (c) facilitating collaboration
between R&D and business divisions to accurately assess customer needs and develop a framework for matching needs and seeds.

13* With the vertical axis and horizontal axis representing social issues/needs and advances in our technological development, respectively, the value-shiftdiagram indicates the characteristics of each product and solution as well as how they will contribute to future value creation.

Develop and utilize R&D assistance systems
We are engaged in system development projects to better utilize our “data lake” aimed at collectively managing information on all
research activities across the board. We are also introducing a “text-mining” technology to identify useful information from the large
volume of text data in our possession. Furthermore, efforts are under way to digitize and collectively manage all research records byencouraging the use of “electronic laboratory notes” by frontline researchers.

Strategically nurture and allocate researchers while assisting in their career development
To achieve the Denka Value-Up management plan, we are systematically nurturing researchers while strategically determining their allocation in a
way that gives due consideration to individual aptitude. To this end, each business unit is mandated to clarify desired traits for human resources. We
are also reforming human resource systems by, for example, stepping up career development assistance that helps researchers to obtain diplomas.
As part of recruitment activities, we are engaged in PR activities targeting various academic circles to facilitate the understanding of our operations.

Establish an organization charged with promoting digitization to support the introduction of
innovative processes (the Digital Promotion Dept.)
In April 2019, we established the Digital Promotion Department, a business unit charged with strategically developing and managing the Group’s overall
information system. This department is also expected to facilitate the utilization of data, the introduction of sophisticated systems and strengthen cybersecurity
measures. Under the initiative of this department, we will promote digitization to establish a foundation supporting the introduction of innovative processes.

Introduce next-generation groupware
We are striving to enhance operational efficiency via the introduction of Office 365, a next-generation groupware expected to achieve the following.
1. Help employees unify their ID/password used in groupware and e-mail software through integration of these two systems
2. Improve operational efficiency via the sharing of schedulers for individuals and teams
3. Facilitate real-time information sharing with the introduction of a group chat app
4. Support the full-scale launch of Denka’s intranet web portal and the development of each business base’s portal site

Deploy an electronic approval system
In February 2018, we introduced an electronic approval system that takes over our previous approval procedure,
which involved circulating a paper application form and requiring seals to be placed on it by managers. Thissystem began with the submission of a handling application requesting approval for overseas business trips,
budgets for purchasing fixtures and equipment and the initiation or continuation of transactions. Plans call for
expanding the scope of procedures handled by the system to include contract screening, management andother procedures involving the Legal Department. In this way, we will go paperless and speed up approval
procedures.

22

Progress in Incorporating the SDGs into Our Management Approach1

Our Contribution toUnited Nations SDGs

Confirm relationship of
the SDGs and businessactivities

We believe the Denka Mission, “Taking on the challenge of expanding the possibilities of chemistry to create new value andcontribute to sound social development,” to be in accord with the spirit of the United Nations SDGs, which aim to facilitate thesustainable development of society.
With the SDGs as the compass guiding our efforts to create unique product technologies and solutions, we will support
the ongoing advancement of society around the globe.

Using the “value-shift diagram,” weconfirmed the relationship between
products manufactured, technologies
possessed and R&D projects undertaken
by our five business divisions and the SDGs.
(See also pages 31 to 40 for descriptions ofbusiness strategies executed by fivebusiness divisions.)

3

Specify priority issues
and identify targets

Honing and refining priorities and targets,
discussions are under way in fiscal 2019
aimed at aligning issues Denka isaddressing, such as CSR materiality issues
and those specified under the Denka
Value-Up management plan, with the SDGs.
(See also pages 41 and 42 for a section
titled “CSR Management”.)

P32▶

Ultrahigh-strength fiber-reinforced
concrete (SUQCEM)

Plans call for announcing conclusions
reached in the course of theaforementioned activities by the end of
fiscal 2019.

Influenza vaccines

Diagnostic reagents formeasuring small, dense
LDL-C, a marker forvarious critical diseases

P34▶
Lithium ion secondary
battery material(acetylene black)Eco-friendly concrete(CO2-SUICOM)High-value-added
infrastructureHigh-heat conductive
ceramic substrates

Bioplastics (PLAPS)

P26▶
P26▶

P36▶

The New Business Planning &Development Dept. is presently discussing
the areas we should focus our new
business creation efforts on.

Filler for thermallyconductive materials(spherical alumina filler)

Healthcare
Farmland irrigation system(RaRaSui)

4

Create new businesses
and expand the scopeof markets in which
Denka operates

Announce conclusions
via internal andexternal reporting andcommunications

Diagnostic reagents formeasuring C-reactive
protein (CRP)

Influenza rapid
diagnostic test kits

Panel examination method
for identifying
cancer-associatedgenes（CANCERPLEX®）

2

Three Priority
Fields

The environment
and energy

P54▶

Hydroelectric power plants

Systematic resource recycling via
cement production

P52▶

Product and Technological Development
Aimed at Addressing Global Warming
We manufacture chemical products through the operation of electrical furnaces andchemical plants, which require the stable supply of reasonably-priced energy. In thecourse of a history spanning more than 100 years, Denka has grappled with andovercome a number of hardships that might have otherwise put an end to its operations.
Drawing on lessons learned from this experience, Denka is expanding capacities
of its facilities that generate renewable energy while endeavoring to reduce energy
consumptions at each manufacturing base. Moreover, Denka is striving to counter
global warming via the provision of products and services.
Today, researchers are scrutinizing the proactive use of CO2 to facilitate organic
compound synthesis, accelerate photonic synthesis in microalgae and support thegrowth of agricultural crops. Based on the results of this research, we hope to establish
unique carbon capture & utilization (CCU) technologies that help improve our products’
CO2 utilization and thus cut the amount released into the atmosphere.
Thermally conductive materials
Materials used as thermal solutions in a variety of devices, such as vehicle-mounted electricalcomponents, digital home appliances, power modules, switched-mode power supplies, LED lights, flat
panel displays and solar cells, helping reduce their energy consumption and lengthen product life

Food packaging materials
Striving to reduce the thickness and overall bulk of food containers and thereby helping cut the volumeof plastics used while promoting the use of bioplastics

Phosphor
Contributing to the popularization of LED and a switchover to energy-saving lighting equipment

23

CO2-SUICOM, an Eco-Friendly
Concrete That Completely
Offsets CO2 Emissions
Denka has developed CO2-SUICOM, a pioneering productin the CCU technologies field, which manufacturers
worldwide are now seeking to develop. This concrete
product was co-developed by Denka, the Chugoku
Electric Power Co., Inc., Kajima Corporation and LANDES
Co., Ltd., utilizing a carbonization agent dubbed “LEAF.”
Developed by Denka, this cement additive increases
concrete’s absorption of CO2 in the course of curing andhardening. Thanks to this unique property, CO2-SUICOM
production yields a net CO2 emissions volume of zero or
less. Also, because CO2-SUICOM completes hardening
via deliberate carbonization, the finished product isvirtually pH neutral and has little negative effects on plants
or other organisms.
With a solid reputation as an innovative CCU solution,
CO2-SUICOM won Denka the 2014 Environment Minister’sAward for Global Warming Prevention Activity and the
Chairperson’s Award under the 13th Eco-ProductsAwards program sponsored by Eco-Products Awards
Steering Committee.

P53▶

Systematic Resource Recycling via
Cement Production

Company-Run HydroelectricPower Plants

Denka’s Omi Plant accepts waste emitted by communities acrossJapan as materials and fuels for cement production. Specifically,
we accept sludge from water supply and sewage treatment
systems, debris from disaster-hit areas and waste soil fromconstruction sites as well as waste oil, plastics and tires recovered
via automobile disassembly in addition to automobile shredder
residue. Furthermore, we accept coal ash, plaster, slag and otherbyproducts from thermal power stations and steelworks. Most ofthese byproducts are otherwise destined to be disposed of via
landfill. The resources we accept vary largely in shape andcomposition, and include a number of items that are unstable.
Accordingly, we pay close attention to the safe handling of thesematerials and maintain the quality of the cement while leveraging
sophisticated facility management techniques.
In these ways, our cement business is playing a critical role incollective efforts to protect the environment of and promoteresource recycling in local communities. Thus, this businessexemplifies an excellent “creating shared value” (CSV) initiative as it
helps improve business profitability while at the same time makingsocial contributions.

Since its founding in 1915, Denka has been engaged in the construction andoperation of hydroelectric power plants. Currently, Denka owns 10 power
plants and is a co-owner of five more, securing a robust network of power
plants spanning Niigata and Nagano prefectures. All of these facilities arelocated in steep mountain ranges where they employ a natural inflow typehydroelectric power generation system, a water intake method that takes fulladvantage of height differences attributable to the surrounding landscape toefficiently drive turbine runners. These facilities are thus designed to minimize
environmental footprints attributable to their operations.
Among these, our Kotakigawa Power Plant boasts a history spanningnearly 100 years. While cherishing this historical facility, which has been in
operation since 1921, we are also promoting facility upgrades aimed at
improving power generation efficiency and the construction of newhydroelectric power plants. The construction of new hydroelectric power
plants entails a number of major challenges due to the lengthy period of timenecessary for construction and considerable costs. However, we aredetermined to promote the use of renewable energy by taking advantage ofthe longstanding accumulation of our know-how in this field. To this end, we
will facilitate the understanding of and win the support of local communities
while utilizing government subsidy programs. In this way, we contribute tosustainable social development and thereby fulfill our social responsibilities.
24Special
Feature2

D e n k a ’s St re n g t h s in t h e A u t o mo t iv e F ie ld

High-heat conductive
ceramic substrates

Denka’s
Growth Strategies
in the Automotive Field

Inverter modules

High-heat
conductive circuit
substrates

Popularization of EVs (the environment)

Denka’s ceramics-based electronic circuit substrates are made using nitride ceramic powder
manufactured in a high-temperature environment at 2,000ºC and boast such features as high-heatconductivity, electric insulation, smaller thermal expansion and superior toughness. These
substrates are used in automobile, railcar and industrial instrument power modules that are
increasingly expected to achieve higher output and to be compact in size.
1 Denka is the only manufacturer handling both nitride aluminum and silicon nitride→ Capable of supplying module materials whether emphasis is placed on thermal

Strengths

conductivity or reliability

2 Denka is the only manufacturer with an integrated production system

encompassing products from raw material powder to circuit substrates→ Capable of flexibly accommodating customer requests for higher product performance
while boasting cost competitiveness

LatestTrendsin theAutomotive
MarketSocialIssuesToday, the automotive industry is undergoing a “once-in-a-century
revolutionary change.” These changes are often referred by the acronym
CASE, standing for Connected, Autonomous, Shared & Services andElectric. While trends on these four fronts promise improved userconvenience, they are expected to pose major challenges to theindustry, prompting automotive and related businesses to undertake
thoroughgoing restructuring. In other words, right now industry
conditions are conducive to the creation of new businesses that may
eventually achieve significant growth.
Under the Denka Value-Up management plan, we are placingstrong focus on automotive-related operations as part of theenvironment and energy, which we have positioned as a priority field. We
will provide essential materials and solutions supporting the
aforementioned trends, thereby expanding these operations.

Connected

Electric

Autonomous

Establish de facto
standard

Shared/ServiceAmong the issues confronting the automotive industry, the reduction of its environmental footprint and the preventionof traffic accidents are paramount. In the face of growing public concerns about the environment, regulatory
standards enforced by EU members and other major countries to limit CO2 emissions from vehicles are becoming
ever more stringent due to the looming threats of air pollution, global warming and other detrimental phenomena
affecting countries worldwide. If automakers are to be able to meet these standards, it is essential that the use ofelectric vehicles (EVs) gains popularity and vehicle weights are reduced.
In Japan, the growing number of car accidents involving elderly drivers is a public concern. On a global basis,
approximately 1.3 million people die in car accidents every year. Against this backdrop, automakers are called upon
to realize a safe, reliable and fully autonomous driving system so that one day the occurrence of such accidents canbe reduced to zero. This technology is also expected to help resolve such issues as how to improve mobility forpeople with disabilities and how to compensate for the shortage in human drivers.

In itia tive s to H elp Resolve Social Issues

Negative
electrodematerial

Separator
Positive
electrode material

De facto standard

Acetylene black

1 Power Control Units
Inverter materials: High-heat conductive
ceramic substrates•Nitride aluminum plates•Silicon nitride plates

2 Lithium ion secondary
batteries (LiBs)
Acetylene black
Thermally conductive
materials

25

1 Switchover from conventional lights andblinkers to LED fixtures
Phosphor: ALONBRIGHT
Metal circuit substrates: HITTPLATE

2 Weight reduction via the development ofthin bundling tapes for wire harnesses
Bundling tapes for wire harnesses: VINI-TAPE

3 Development of lightweight materials (resins)with smaller environmental footprints
Fluorine-based films: DENKA DX Film
A film that gives a smooth tactile impression
akin to a napped fabric: Noble Tact(now under development)

FY2022targetAcetylene blackMaterials for high-frequency devices:
Fillers that reduce transmission loss
Materials for electromagnetic wave absorption
and insulation

FY2025target¥19.0 billion

Popularization of EVs (the environment)

Carbon black is one of our specialty products. It is manufactured by decomposing acetylene via
high-temperature combustion and is known for ultra-high purity. Thanks to its unique, chain-likestructure consisting of a string of colloidal micro particles of carbon, this product boasts electro andthermal conductivity as well as liquid absorbency, among other features. Since the 1942 launch of its
production, Denka has supplied acetylene black for use as a conductive aid for batteries, a material forthe semiconductor layers of ultrahigh-voltage cables and other applications requiring high reliability.

Strengths

content is less than one tenth of competitor products)→ Capable of supporting the creation of high-performance and highly reliable batteries
for automobiles

Conductive aid:
Acetylene black• Step up penetration into the Chinese market and seize business
opportunities arising from burgeoning market growthSalestargets

FY2022target¥5.5 billion

Spherical alumina filler
Thermally conductive
material packed withspherical alumina filler

Cooling device

Futurestrategy

De facto standard

FY2025target¥7.5 billion

Popularization of EVs (the environment)This product is used as an additive that gives resins and elastomers superior heat conductivity. The
application of Denka’s unique high-temperature fusing technologies gives the filler superior purity,
liquidity and sphericity and it is used as a key thermal solution material capable of supporting thecreation of miniaturized electronic devices with greater capacity.
1 A product lineup encompassing a range of particle diameters and sophisti-

Strengths

cated particle design techniques supporting this lineup→ Capable of helping various thermal solution materials significantly enhance their
thermal conductivity via the realization of higher filling density

2 The world’s largest spherical alumina filler production capacity supported bysophisticated manufacturing process with superior productivity

2 Vehicle to vehiclecommunication
Vehicle to roadside
infrastructurecommunication¥13.0 billion

accommodating fast-growing demand

Autonomous driving systems(safety)
1 Millimeter-wave radars

Sales
targets

2 The world’s largest acetylene black production capacity, fully capable of

LiB cellReduction of vehicle weight(the environment)• Transition from labor-intensive production process to automated, smart
factories employing AI and IoT

1 Ultra-high purity of acetylene-based ingredients (metal and other impurity

LiB module (aggregation)

Popularization of EVs(the environment)

Futurestrategy

Futurestrategy• Boost our production capacity in a timely manner in response to rapidly
growing demandSalestargets

FY2022target¥7.0 billion

FY2025target¥8.5 billion
26

Special
Feature2

Denka’s Growth Strategies in the Automotive Field

Hiroshi Murata (facilitator)

Hideki Hirotsuru

Takuya Okada

General Manager, AMS Dept.

General Manager, Specialty Ceramics Research Dept.,
Advanced Technologies Research Institute,Denka Innovation Center

General Manager, Advanced Materials Research Dept.,
Advanced Technologies Research Institute,Denka Innovation Center

Spearheading the Denka Group’s efforts to
expand automobile-related operations to meetneeds of future generations

An Employee Round-Table Talk

Date: June 21, 2019; location: The Denka Innovation Center (Machida City, Tokyo)
Note: Titles of participants are as of the date of the round-table talk.

Theme

R&D Aimed at Supporting
Technological Innovationin the Automotive Field

The Denka Group boasts a broad range of chemical technologies supporting technological innovation in theautomotive field. In fact, the creation of innovative chemical materials is essential to realizing breakthroughs inautomotive technologies, such as the installation of advanced car electronics and the creation of autonomous driving
systems. We invited managers responsible for R&D in the areas of ceramics, acetylene black and other cutting-edge
materials to participate in this round-table talk and share their enthusiasm for creating new value for the future.

01

Plant has led the advance of ceramic sintering technologies
while developing composite technologies that combine
ceramics with different kinds of materials, such as metal.
These endeavors have resulted in the creation of a great
number of products, among them DENKA SN Plate, asilicon nitride-based electronic circuit substrate, used in
automobile inverters, an area in which expectations arefor ever higher output capacity and ever more compact
units. Meanwhile, our spherical alumina filler boasts a
meticulously controlled particle shape and diameter thanks
to the use of the flame fusing method while containing
fewer impurities, such as metal.
Hirotsuru: Although the R&D departments at Denka’s plants
are charged with upgrading the functions, enhancing thecost competitiveness and improving other features ofexisting products, the Innovation Center itself is taking on
the creation of unconventional materials and systems. In
fact, the facility is focused solely on realizing innovation, in
contrast to the aforementioned R&D departments charged
with enhancement. Specifically, our duties include
participation in a national project centering on anext-generation heat-dissipation mechanism and theco-development of novel materials in tandem withcustomers, including automobile parts makers withsignificant potential.

Taking on R&D of new materials fornext-generation vehicles

Murata: I see. Whether we aim to realize innovation orenhancement, an accurate assessment of the latest needs
is key to directing our R&D activities. In this regard, theAutomotive Materials & Solutions (AMS) Department isplaying the important role of directly engaging withcustomers and acquiring valuable insights into their needs.
Just like ceramics handled by Mr. Taniguchi and Mr.
Hirotsuru, Denka’s acetylene black boasts a significant
share of the global market and is becoming increasingsought-after as a conductivity enhancer for automotive LiBs.
To meet growing demand, production is currently under
way at full capacity. Mr. Uchida, could you explain thefeatures of this product?
Uchida: The manufacture of a battery conductivity
enhancer requires the stringent management of impurities.
This is essential to achieving higher quality in terms of
product safety and product life. Acetylene black’s
distinctive strengths lie in its extremely high electro
conductivity and ultra-high purity thanks to a manufacturingmethod employing the high-temperature heatdecomposition of acetylene. In addition to taking advantageof the material’s strengths, we are focused on providing
customers with technical services, for example, jointly
planning an optimal particle shape tailored in line with thecustomer’s intention.

Denka’s Automotive Products and Technologies

Murata (facilitator): The automotive industry is undergoinga once-in-a-century revolutionary change. Today, we haveinvited managers charged with the development of
automobile-related products to join this round-table talk andshare their views on the contributions Denka technologies
will make and how the Company aims to achievesustainable growth in the face of such a pivotal change.
First, could you begin by explaining the roles your products
are fulfilling in society?
Taniguchi: The Omuta Plant’s Ceramic Research
Department is focused on the R&D of ceramics-based
electronic circuit substrates and spherical alumina filler. The
former is an essential component of electronic circuits
installed in inverters for motor drivers and DC-DC

27

Taking on R&D aimed at realizing innovation via
the creation of unconventional materials andsystems

converters for powering electronic equipment. The latter isa functional ceramic powder being used as a resin
encapsulant for semiconductors and a filler for thermallyconductive materials.
Murata: Denka commands a considerable 60% share of the
global ceramics-based electronic circuit substrate market
while commanding a 70% share of the global sphericalalumina filler market. Furthermore, demand for theseofferings is ever growing. Could you elaborate on thefundamental technologies used to create them?
Taniguchi: Denka boasts an accumulation ofhigh-temperature control technologies backed by a longtrack record in calcium carbide production that dates backto its founding. Building on these technologies, the Omuta

02

Product Development Supporting the Automotive Industry’s
Adaptation to Radical Changes

Murata: The current trends affecting the automotive
industry worldwide are often referred to using the acronym
CASE, or Connected, Autonomous, Shared & Services andElectric, four areas of emerging automotive technologies
and functions that are attracting growing public interest.
Denka boasts a wealth of technologies that will
support the intensive use of car electronics. In addition, theAdvanced Materials Research Department is engaged inresearch into connected cars and autonomous driving
systems. Furthermore, the AMS department is studying thefeasibility of Mobility as a Service (MaaS), an innovativetransportation service exemplifying the “Shared & Services”
aspect of these trends.
Now, I would like to ask you to tell us about the status
of initiatives you are undertaking to achieve technologicalinnovation in terms of CASE as part of the pursuit of Denka
Value-Up management plan targets.
Okada: The Advanced Materials Research Department ischarged with developing next-generation materials that will
help achieve innovation for automobiles. To support the
popularization of EVs, we are engaged in research intonext-generation batteries, such as all-solid-state lithium ion

28

Special
Feature2

Denka’s Growth Strategies in the Automotive Field

03

Sales Targets for
Automobile-Related Products
In fiscal 2018, sales of Denka’s
automobile-related products
amounted to ¥37 billion. In line with
the Denka Value-Up management
plan, Denka is striving to raise salesof these products to ¥70 billion by theend of fiscal 2020, almost doubling its
performance. By the end of fiscal
2025, Denka aims to achieve sales of¥100 billion from these products.

Yoshitaka Taniguchi

Yasutaka Uchida

General Manager, Ceramic Research Dept.,
Omuta Plant

General Manager, Battery& Conductive Material
Development Dept., Chiba Plant

Taking on R&D of ceramics-based electronic
circuit substrates, spherical alumina, etc.

batteries. To help realize connected cars and autonomous
driving systems, we are developing electromagnetic wave
absorption and insulation materials supporting 5G
communication infrastructure. Our projects also include thedevelopment of sound absorption materials employing a
wealth of Denka know-how ranging from precision
polymerization to resin processing technologies, with aneye to meeting the growing call for solutions of this kinddue to the tightening of noise regulations.
Murata: Mr. Okada is taking on a broad range of research
themes. For example, millimeter-wave radars represent oneof the promising technologies supporting autonomous
driving systems. These radars use a millimeter-wave
bandwidth and are capable of detecting a road blockage at
a distance of 100 meters to 200 meters via themeasurement of wave echoes. The 5G communication
technology likewise utilizes a millimeter-wave bandwidthand is expected to support the creation of connected cars
with more sophisticated communication functions while
helping realize “vehicle-to-vehicle” and“vehicle-to-roadside-infrastructure” communications, which
are essential to autonomous driving systems. These
technologies are attracting growing public interest. A broad
range of research projects themed on these technologies
are currently under way. Mr. Okada, what is the status of thedevelopment of materials that absorb or insulate radio
waves other than the millimeter-wave bandwidths necessary
for these radar and communication systems?
Okada: As 5G relies on high frequency radio waves, wehave to take on the issue of transmission loss. We must also
prevent malfunctions due to the unintended scattering ofradio waves. To fulfill these requirements, we are striving tocontrol the dielectric properties of the materials themselves.
In this light, Denka’s ceramics materials boast uniquecharacteristics that may help us resolve a variety of issues
we are now confronting. Sharpening our focus on realizing
the possibilities of these materials, we are considering thedevelopment of new materials via, for example, acombination of ceramics and organic materials.

29

Taking on R&D associated with acetylene black

Taniguchi: The Omuta Plant’s Ceramic Research Department
is paying close attention to the recent trend in materials usedin ceramics-based electronic circuits and other substrates as
we have seen a growing shift toward the intensive use of car
electronics in automobile markets around the world. In
addition, requirements for vehicle-mounted power modules
vary largely by customer. Therefore, these modules may one
day undergo substantial changes in their structure and otheraspects. Denka’s technologies in this field encompass
ceramics, metal and resin. Because of this, researchers arecalled to take full advantage of the Company’s arsenal oftechnologies to realize comprehensive R&D strengths. Also,
we are seeking a new functional filler that will fulfill customer
requirements for even higher thermal conductivity and takeover from spherical fused silica and spherical alumina andare, to this end developing such candidates as sphericalmagnesium oxide.
Hirotsuru: Once CASE technologies are commercialized,
our products will be expected to adapt to new conditions,such as different temperatures and electronic frequencies.
These changes may cause Denka to face even more
stringent customer requirements—in terms of, for example,
strain release and dielectric properties—that cannot besatisfied by merely enhancing the performance of existingmaterials. In short, CASE will significantly affect expected
product performance and specifications. With this in mind,
we must rally all Denka’s strengths to deliver products that
accurately achieve targeted performance goals, employing
such technologies as those combining organic andinorganic materials, as needed.
Uchida: I expect that in step with the switchover to EVs, LiBs
will become more sought after as the mainstream driving
batteries for these vehicles and for HEVs and PHEVs. There
will also be a growing need for batteries with higher
capacities as automakers seek to create EVs capable ofhandling longer driving distances. We will have to develop a
new conductivity enhancer that functions well even whenless is used.

R&D Aimed at Contributing to Social Development

Hirotsuru: In recent years, material developers have beencalled to be ever faster in accommodating changes incustomer requirements. We are sometimes asked to provide
a new material or deliver products with totally different
specifications. In order for Denka to become a leading
company amid the revolutionary change affecting theindustry, the Company must remain responsive to customer
requests of this kind.
For example, if future technological advancementsallow EVs to receive non-contact power feeding without
stopping, their batteries will undergo a growing number ofdischarging and charging cycles in the course of productlifetime and be expected to accommodate even faster
power charging. We also expect that the popularization ofcar sharing services will cause batteries to be used atsignificantly higher frequency. We must be attentive to new04

developments in these factors and capable of quickly
acting on latest intelligence.
Taniguchi: Researchers at Denka plants are generally
tasked with R&D aimed at accommodating customer needs.
However, we are also expected to go farther than that. It is
important for us to constantly engage with customers andexchange the latest information so that we can anticipate
their future needs and make timely proposals.
Hirotsuru: When we are approached by a customer with aclear development policy to fill a specific need, this meansthat we will have to compete against other suppliers before
winning the project. However, when we work together withthe customer to identify its latent needs, we are ahead ofother suppliers and better positioned to take advantage of
our unique technologies. That’s exactly what we aim toachieve through our involvement in open innovation.

Researchers’ Commitment to Helping Advance Social Development

Murata: With regard to fulfilling customer needs, Denka isincreasing the allocation of R&D expenses to SDG-related
projects that collectively address wide-ranging needs forsolutions capable of advancing sustainable social
development.
Lastly, I would like each one of you to share yourcommitment to helping resolve issues society is now
confronting, including those specified by the SDGs.
Okada: LiBs are deemed a promising technology that isenvironmentally friendly. However, these LiBs might also be
fed with electric power that has been generated via the
combustion of a volume of oil or coal. I therefore believethat an optimal combination of various systems andtechnologies is essential in light of our mission to help
advance genuinely sustainable social development. The
incorporation of the SDGs into Denka’s strategies helped us
broaden our perspective when considering how to optimallyreconcile various systems in society as a whole andaccurately assess what is currently needed. This isdefinitely helpful to identify seeds for new products.
Uchida: Acetylene black, a conductivity enhancer for LiBs,
is produced via the heat decomposition of acetylene. This
acetylene is made from limestone and naphtha. As a
researcher charged with technologicaldevelopment, I have identified thecreation of a highly efficient andenvironment-friendly production method
as my foremost mission.
Taniguchi: Denka offers a great variety of
products, and numbers itself among only
a handful of chemical companies inJapan with such an extensive productlineup. This attests to Denka’s distinctive
strengths in manufacturing. With a large
number of technologies, including those

associated with ceramics and resins, at our command, weare called to strive to best utilize them in our R&D activities.
This is how we will make social contributions in a way that
only Denka is capable of doing. I would also like younger
colleagues to be confident that researcher positions at
Denka will give them abundant career opportunities toexperience a variety of fields and allow them to freely
pursue their ambitions and dreams.
Murata: Thank you for sharing your enthusiastic
commitment as researchers. This round-table talk was alsoa success in terms of showcasing what Denka aims toachieve via manufacturing. Under the Denka Value-Upmanagement plan, Denka is striving to raise the ratio of
specialty businesses to 90% of its entire business portfolio
by the end of fiscal 2022 based on the operating income
ratio while aiming to double sales of automobile-related
products in the same time frame. Denka’s success in thesepursuits hinges on researches’ development of new
products. Lastly, I would encourage all colleagues to bring
together Denka’s unique specialty technologies in theautomotive field and contribute to sustainable social
development in countries around the world.

30

Business Strategies

Life Innovation

Creating New Value via a Combination ofTechnologies Accumulated over Many Years
Hideki Takahashi
Executive Officer,
Life Innovation Division
Representative Director
and President,
Denka Seiken Co., Ltd.

Thanks to drastic advances in medical technologies, Japanese people are expected
to enjoy an even longer life expectancy with an unprecedented number reaching 100
years. Because of this trend, life-long health maintenance has become a matter ofgrowing public concern. With this in mind, the Life Innovation Division, which upholds
a policy of “respecting the dignity of life” and “protecting people’s health,” isstrengthening its key operations backed by decades of accumulated technologies. At
the same time, the division is accelerating the development of new businesses.
Through these pursuits, we aim to expand the scope of our operations to include
cancer remedies and gene-based diagnostics, building on the core antigen andantibody reaction technologies that helped us secure a robust track record,
particularly in the field of infectious disease countermeasures. Furthermore, we will
create new value and contribute to society by taking advantage of a combination of
the material and processing technologies Denka has developed over the course of its
operations as a chemical manufacturer.

Five-Year Divisional Performance Summary■ Operating income(Billions of yen)

The division handles vaccines and diagnostic reagents produced by
Denka Seiken, a Group subsidiary boasting a history spanningnearly 70 years, and a macromolecular sodium hyaluronate
preparation manufactured employing Denka’s biotechnologies. With
these products serving as the core, the division is also engaged in
the development of vaccines via the application of plant-based
gene modification technologies possessed by Germany-based Icon
Genetics GmbH while providing panel examination aimed at
identifying cancer-associated genes. In short, the division isdeveloping specialty businesses in fields of disease prevention,
diagnosis and treatment.

Business Strategies under Denka Value-Up

1. The Market

Environment

2. Strategies

50

9

45

8

40

7

35

6

30

5

25

4

20

3

15

2

10

1

5

0

(FY)

2015

2016

2017

2018

2019

0

Forecast

Step up key operations (influenza vaccines, diagnostic reagents, macromolecularsodium hyaluronate preparation, etc.)
Get new businesses smoothly on track (anticancer virus and panel examination aimed
at identifying cancer-associated genes, etc.)
Promote open innovation to create products and technologies for future generations(Denka Innovation Center, Icon, Denka Life Innovation Research, etc.)

Denka Seiken decided to construct a new
production facility for manufacturing
influenza vaccines, with the aim ofsignificantly boosting its influenza vaccine
supply capacity (July 2018)
Denka Seiken donated Ebola virus rapid
diagnostic test kits to the Democratic
Republic of Congo (May 2018)
Denka Seiken released a dedicateddensitometry analyzer (optical density meter)
for in-vitro diagnostic testing using its
influenza virus antigen detection test kits
(October 2018)

Diagnostic reagents
Note: With the vertical axis and horizontal axis representing social issues/needs and advances in our technologicaldevelopment, respectively, the value-shift diagram indicates the characteristics of each product and solution as
well as how they will contribute to future value creation.

Outlook for Fiscal 2019
We will place particular focus on commercializing a panel
examination service for identifying cancer-associated genes.
Building on the Denka Group’ strong presence in the field of
diagnostic test kits employing antigen and antibody reaction, we
will expand into such businesses as gene-based diagnostic
services. By doing so, we aim to provide an even broader range ofsolutions that transcend our traditional scope of operations
focused on helping identify causes of disease.

Medium- to Long-Term Strategies
Denka Company Limited will merge with Denka Seiken, the latter of which has been
charged with vaccines and diagnostic reagents—the Group’s mainstay offerings
supporting its life innovation business. This move is expected to facilitate the businessportfolio shift aimed at specializing our operations while supporting the realization of
speedier decision making and stronger corporate governance. In this way, we will
accelerate the expansion and development of our healthcare-related operations.
We will also strive to expand the scope of operations via the promotion of open
innovation, which involves partners from academia as well as those from within andoutside of the chemical industry, in addition to pushing ahead with our ongoing efforts tostrengthen our key operations and launch new businesses.

Relevant
SDGs

Business development in the clinical diagnosis field
Present

Comprehensive examination
employing gene-based
diagnostic technologies

FutureLiquid biopsy

Providesolutions
Next-generation
sequencer
analysis program

CANCERPLEX®

Lateral flow
technologies

Single-item examination
employing antigen
and antibody reaction
Antiserum manufacturing
technologies
Antiserums optimized forbacterial types andresulting diagnostic reagents

Identify
causesof diseases
EIA technologies
Virus antibody
titer examination(e.g., rubella and measles)(e.g., O-157)

Released in 1950

Epidemiologicalsurveys(panel examination
service for identifying
cancer-associated genes)

Assistance for
optimal drug
selection(genome-based
cancer treatment)

The immunochromato-method
POCT

Latex technologies(e.g., influenza)

Reagents for
Rapid diagnosis ofuse in automatedinfectious diseases byanalyzers(e.g., CRP and AFP)

frontline medical staff

Automation
Health checkups
Disease diagnosis

Note: The Life Innovation Division was established in April 2017 and is in theprocess of forward-looking investment aimed at expanding its operations.

Growth in healthcare expenses due to the progressive aging of society and thesophistication of medical technologies
Increasing risk of infectious disease pandemics, reflecting the formation of a global
traffic network on the back of economic growth in developing countries
Solutions for illness prevention and early diagnosis have become ever more important

Main Achievements in Fiscal 201831

Operating income ratio （%）

10

VaccinesValue-Shift Diagram

Material / Process Innovation

Characteristics of the Business Division

Macromolecular sodium
hyaluronate preparation

Value Shift
Over time, the need for diagnostic solutions has burgeoned and diversified. The Denka Group has mainly provided diagnostic
reagents and diagnostic test kits employing antigen and antibody reaction technologies to meet such needs.
Looking ahead, we will strive to contribute to the enhancement of people’s quality of life (QOL) by expanding into the field ofgene-based diagnosis.
EIA

Enzyme immunoassay

POCT

Point Of Care Testing: Instead of requiring separate medical examination rooms for performing diagnostic tests, POCT reagents
enable medical staff to quickly perform on-site diagnoses at their medical practices without the need for massive equipment.

Liquid biopsy

A biopsy technology that uses blood, urine or other bodily fluids rather than living tissue samples for examination purposes.
This technology is less invasive than a conventional biopsy.

Development
ExampleCRP

CANCERPLEXⓇ

Social issues

High cancer
mortality

C-reactive protein(panel examination service for identifying
cancer-associated genes and delivering
cancer remedy information)

Source of value
Applied technologies thathave been cultivated throughthe involvement in the
diagnostic reagent business

CANCERPLEX® is a comprehensive examination system for identifying cancer-associated genes via the combination of a next-generation
sequencer*1 and bioinformatics technology.*2 This system is capable of detecting more than 400 cancer-associated genes by carrying out theaccurate and detailed analysis of gene alteration attributable to a solid tumor. To contribute to the enhancement of people’s QOL, we will assist
each patient in the optimal selection of treatment methods through the commercialization of CANCERPLEX®.
*1 Examination equipment that reads genome sequences at an extremely high speed*2 A type of informatics technology that analyzes such data as genome sequences identified by the sequencer to overcome the complexities of genomic information andacquire useful insights in the life science and medical fields

32

Business Strategies

Electronics & Innovative Products

Taking Advantage of Denka’s Unique Technologies
to Support the Development of Innovative Products

Phosphor

DENKA THERMALLYCONDUCTIVE SHEET

Packaging materials for transporting
electronic components(Applications: Carrier tapes, etc.)

Value-Shift Diagram
Ikuo Ishida
Executive Officer,
Electronics &Innovative Products

Employing a variety of essential technologies, the Electronics & Innovative Products
Division offers a robust lineup ranging from functional fillers, thermal solution
components and electronic packaging materials to structural adhesives. In short, thedivision is delivering products that are essential to the field of electronic materials. To
contribute to society in the environment and energy field, we are pushing ahead withthe specialization of our operations, to this end accommodating the latest needs
arising from the popularization of EVs and other eco-friendly vehicles while delivering
products that help promote the miniaturization of electronics devices and enhancetheir performance, safety and reliability. Furthermore, we are engaged in thedevelopment of new products by taking advantage of Denka’s unique technologies.

Technologies

Products

Business development centered on spherical filler
Present

Five-Year Divisional Performance Summary■ Operating income(Billions of yen)

Ceramics sintering and calcining, particle manufacturing, nitride
synthesis, precision processing and machining, material composite,
sheet and film lamination, thermal conductive, heat and light curing,static electricity control, coating and painting and adhesive
technologies as well as optical property control technologies,
including those associated with controlling the refractive index

Operating income ratio （%）

20

20

15

Ceramics, inorganic fillers, resin sheets and films, electronic circuit
substrates, adhesives, electron guns for electron microscopes, etc.

15

10

10

Business fields

5

5

0

0

(FY)

2015

2016

2017

Business Strategies under Denka Value-Up
Market1. TheEnvironment

2. Strategies

2018

2019

2004

Expand our operations targeting the vehicle-mounted device market
Supply materials for an even broader range of vehicle-mounted devices to secure a stable profit structurethat is resilient against economic conditions

Launch new businesses at the earliest possible date(superior dielectric
property)Fire-resistant materials

1989

Spherical fused silica
・Mix of particles withdifferent diameters
・Smaller diameters

Combustion
Synthesis

2003

Improved abrasion
resistanceSpherical fused silica
・Ultra-fine powder

Spherical fused silica
Minimized foreign content

Minimized steel
content

Semiconductor
encapsulant

Released in 1971

New material
Spherical barium titanate

Spherical alumina Combustion
Synthesis
・Smaller diameters

Precise separation andgrouping of particles

Fingerprint authorization
sensor for smartphone

New material
Spherical
cristobalite(thermal expansion
control aid)

Chip Size
Package
Vehicle-mounted devices(autonomous driving systems)

Products indevelopment process

Value ShiftDue to the growing trend toward the miniaturized, lightweight and low-profile electronic devices, ceramics powder suppliers are being
called to manufacture products with even smaller particle diameters. Denka offers a lineup of spherical alumina and silica that boast
superior sphericity and a great size variety encompassing coarse powder to ultra-fine powder while also engaging in product design
aimed at accurately satisfying customer needs. In these ways, we are contributing to the creation of electronic devices with evenmore superior functions.
Spherical magnesium oxide

Twice as thermally conductive as alumina, this material is expected to achieve growing sales as a next-generation thermal
dissipation filler for use in 5G high-speed communication devices.

Spherical barium titanate

Employing its superior dielectric property, this material is expected to serve as a promising semiconductor encapsulant for use
in fingerprint authorization sensors (components that read fingerprints via capacitance change detection) for smartphones.

Spherical cristobalite

Boost production capacity to meet needs of growth markets
Execute timely capital investment to enhance our ability to serve growth markets as we expect demand insemiconductor and communication fields to grow robustly(highly heat conductive)

Spherical alumina
・Ultra-fine powder

2005

Spherical alumina
・Mix of particles withdifferent diameters

Forecast

Formation of new markets due to the popularization of EVs, HEVs and othereco-friendly vehicles
Changes in people’s lifestyles due to the commercialization of autonomous driving
technologies and the widespread use of high-speed communications
Possible emergence of a game-changing material that may pose a threat to Denka

Spherical magnesium oxide

2006

Crushed silica
Automobiles, electric and electronic devices, aircraft and spacecraft,rolling stock, marine vessels, the environment and energy,
communication, power, etc.

FutureNew material

Next-generation filler with superior heat dissipation property
for use in 5G high-speed communication devices
Thermally conductive sheets
Vehicle-mounted batteries

Material / Process Innovation

Characteristics of the Business Division

Relevant
SDGs

Product
ExampleCreated via the crystallization of spherical fused silica (amorphous), this material boasts a greater thermal expansion
property compared with spherical fused silica and is expected to help low-profile semiconductors better withstand thestress-induced strain that occurs at the time of packaging.

Spherical alumina

Swiftly commercialize new specialty products

Main Achievements in Fiscal 2018
Released a high-heat conductive metal circuit
substrate designed as a substitute for
ceramics-based substrates
Released a highly reliable circuit substrate made using
a metal material boasting an ultra-low stress-strain
curve for use in headlamps
Expanded sales of spherical alumina for use as athermally conductive material for EV
components
Expanded sales of acetylene black for use inhigh-capacity LiBs for EVs and high-voltage powertransmission cables for wind power stations in Europe

33

Outlook for Fiscal 2019
Further expand sales in the vehicle-mounted device
marketProactively consider and execute capital investment
as we expect growth in demand for such products assilicon nitride-based ceramic substrates, sphericalalumina and acetylene black

Social issues

Source of value

Need for solutions capable ofcontributing to the popularization of
hybrid vehicles and EVs and theenhancement of their driving energy
efficiency as part of across-the-board
efforts to promote global warming
countermeasures

Denka’s uniqueproduction
technologies

In the face of the increasing popularization of EVs and the advancement of autonomous driving systems, there is a growing call for new
technologies to control the heat emitted by LiBs and other car electronics components. Such technologies are seen as key to satisfying everhigher performance requirements for car electronics components with regard to various aspects, including capacity, energy efficiency, productlife and safety, and are expected to facilitate the creation of more compact and even lighter devices.
Denka’s spherical alumina is widely used in high-molecular thermal materials to improve their thermal conductivity. In particular,
THERMALLY CONDUCTIVE SPACER, consisting of a mix of spherical alumina and silicon resin, is serving as an essential material supporting
LiB cooling devices. Today, Denka’s technological capabilities in this field, including those backed by unique production techniques associatedwith the maintenance of sphericity and the mix of particles with different diameters, are attracting growing attention and are expected to help
promote the popularization of hybrid vehicles and EVs.

34

Business Strategies

Infrastructure & Social Solutions

Delivering Even Better Solutions toSatisfy the Needs of the Times
Toyoki Yokoyama
Executive Officer,
Infrastructure &Social Solutions

DENKA CSA
(expansive additive for concrete)

The Infrastructure & Social Solutions Division is pursuing the specialization of its
operations via structural reforms of the commodity businesses, which have supported
Denka for 100 years, and the creation of high-value-added products and businesses
that yield solutions that meet the needs of the times. The latter pursuit focuses on
employing Denka’s unique technologies to address environmental concerns, promotelabor saving and deliver people-friendly products, with the aim of contributing to therealization of the United Nations SDGs and other universal goals related to ESG
issues. In addition, we are developing a working environment that facilitates employee
creativity via work style reforms. By doing so, we are becoming an organization thatencourages all employees to take on challenging goals and help them work vibrantly
and achieve success.

AZUMIN(humic acid fertilizer)

Value-Shift Diagram

Present

Products

Business fields

In-house power generation, mining, concrete hardening, expansion
and contraction, material design, construction and repair
technologies and soil improvement and fertilization technologies aswell as high-temperature calcining technologies for inorganic
materials and polymer processing technologies(Billions of yen)

Cement (made using recycled resources), special cement additives,
functional fertilizers, alumina fiber, underground drainpipes andunderground irrigation system-related products

Civil engineering, construction, agriculture, automobiles,
iron-making, ceramics, etc.

■ Operating income

2.0

4

1.5

3

1.0

2

0.5

1

0

0

Farmlandmanagement

2015

Business Strategies under Denka Value-Up

2. Strategies

Cement: Upgraded resource recycling facilities and expanded
the scope of waste accepted
Special cement additives: Promoted the use of the clear shot
method employing shotcrete with low dust generation fortunnel construction
Agri-products: Achieved growth in sales of humic acid liquid
fertilizers
Inorganic materials: Launched the full-scale provision ofalumina fiber for automotive applications
Environmental materials: Made a full-scale entry into theirrigation system market with the release of the RaRaSui
underground irrigation system

35

2016

2017

2018

TOYODRAIN(underground drainpipes)

Gate valve stand

Soil erosion
prevention agent

Drainpipe (TOYODRAIN)

Functional
fertilizers

A pipeline for drainage

Drain outlet

・Prevent soil erosion on farmland・Prevent inflow of soil into
the marine environment

Water supply basin

AZU Liquid 413

AZUMIN

Agricultural
solution business
Farmland diagnostics
and cultivation
management

Strategic
products for
global expansion

Biostimulants(humic acid
Released in 2017 liquid fertilizer)(humic acidliquid fertilizer)(humic acid fertilizer)

Released in 1963

・Facilitate plant growth・Improve resilience against
abiotic stresses

2019

Forecast

Growing demand for solutions supporting infrastructure development, maintenance and upgrading(related to post-disaster reconstruction, publicly funded investment in new facilities andcountermeasures to the aging of facilities)
Burgeoning infrastructure development needs in China and Southeast Asia and growing demandfor high-performance specialty products in Europe and the United States
In farming, trends are toward labor saving and large-scale operations to shore up Japan’s
agricultural sector
Growing need for ecological solutions
Develop products that support infrastructure maintenance and cultivate relevant markets
Facilitate the utilization of recycled waste and thereby help develop a recycling-oriented society
Step up overseas expansion by developing our local network for special cement additives in Asia
Maximize profitability by optimizing our production system
Promote the development of novel farming materials, thereby reinforcing our solution businesstargeting the agricultural sector
Propose and implement solutions to help create energy-saving, environment-friendly steel andindustrial furnaces

Main Achievements in Fiscal 2018

Weed prevention/
greenery cultivation
sheets

-1

-0.5
(FY)

Market1. TheEnvironment

Operating income ratio （%）

FutureUnderground irrigation systems RaRaSui

Material / Process Innovation

Technologies

Five-Year Divisional Performance Summary

Relevant
SDGs

Agricultural solutions

Released in 1967

Characteristics of the Business Division

TOYODRAIN(underground drainpipes for
agriculture and construction use)

Outlook for Fiscal 2019
Cement: Reduce the external emission of in-house industrial waste
to zero via the effective utilization of resource recycling facilities
Special cement additives: Seize opportunities arising from growing
demand associated with natural energy development projects (e.g.,
supply products for hydroelectric power station conduits) while
making a full-scale entry into the overseas road repair business andthe European market for tunnel construction solutions
Agri-products: Make entries into biostimulant markets worldwide
Inorganic materials: Augment production facilities to meet growing
demand for automobile-related products while expanding sales ofsuch products
Environmental materials: Initiate expansion into overseas markets
for agricultural irrigation systems

TORETARO(fused silicate
Calcium cyanamide
phosphate fertilizer)
Released in 1915
Released in 2001

Value ShiftWith the aim of developing biostimulant-related
products, we will take full advantage of our solution
capabilities backed by Denka’s robust track record infunctional fertilizer production spanning 100 years
since its founding. Simultaneously, we will create avariety of agricultural solutions associated withfarmland diagnostics and cultivation management.
Product
ExampleCalcium cyanamide
TOYODRAINRaRaSuiThis product is known to serve as a pesticide before
decomposing into fertilizer in the soil.
The first resin-based helical corrugated pipe marketed in Japan.
Thanks to its ability to adjust underground water levels, thissystem enables farmers to switch the use of fields between
irrigated paddy rice cultivation and upland crop cultivation. The
system also helps farmers maintain an optimal watering regime
tailored for the type of crop being cultivated.

Biostimulants
Social issues
A looming threat of global
warming and other climatechange-related phenomenathat cause farmers to experience
serious crop damage

A: Applied

B: Not applied

Source of value
Fertilizer technologies Denka
has accumulated in the courseof AZUMIN production to help
invigorate roots of plants andimprove crop growth

Biostimulant impact on
strawberry roots

Denka’s humic acid liquid fertilizer is a biostimulant that invigorates the growth of roots and facilitates nutrient absorption, thereby contributing
to higher crop quality and larger crop yields. Furthermore, this fertilizer enhances plants’ resilience against abiotic stress. Thanks to thesefeatures, the humic acid liquid fertilizer is expected to help resolve global food issues arising from food supply shortages due to population
growth and serious crop damage attributable to the impact of global warming and other climate change-related phenomena.

36

Business Strategies

Elastomers & Performance Plastics
Contributing to Technological Innovation andSocial Development by Employing a Variety ofTechnologies and a Wealth of Know-How
Koki Tabuchi
Managing Executive
Officer, Elastomers &Performance Plastics

The Elastomers & Performance Plastic Division is in charge of three businesscategories: the elastomer business, which includes our flagship global market-leading
chloroprene rubber (CR) operations; the performance plastics business, which boasts
highly functional styrene-based products in an array of grades; and the styrene andchemicals business, which centers on styrene monomer and acetyl chemicals and isbacked by Denka production facilities that boast the largest capacity in the Kanto
area. Currently, the division’s overseas sales ratio is holding stable at over 60%. In
addition to our production bases in Japan, we operate overseas plants in the UnitedStates and Singapore to meet global market needs. Acutely aware of our mission to
support Denka’s largest, flagship business segment in terms of sales and profit, we
will strive to maintain stable operations while promoting specialization, with the aim ofachieving goals of the Denka Value-Up management plan.

Technologies

Products

Business fields

Polymer structure design and control technologies, polymer
composite technologies and material compounding technologies
that aid in the creation of products for a variety of applications inline with customer intentions

Synthetic rubber, styrene-based synthetic resins, styrene
monomer, acetyl chemicals, etc.

Automobile parts, transmission belts, adhesives, civil engineering(soil erosion prevention agents), home appliances, officeequipment, food packaging materials, household goods for dailyuse, etc.

Five-Year Divisional Performance Summary■ Operating income(Billions of yen)

Operating income ratio （%）

20

12

15

9

10

6

5

3

0

(FY)

2015

2016

2017

Business Strategies under Denka Value-Up

2018

2019

Forecast

Fear of supply chain disruptions due to the emergence of nationalism
Signs of changes in the automotive industry with regard to its needs for materials in the face ofthe radical shift to eco-friendly vehicles
Stably growing needs for solutions in the environment and healthcare fields

2. Strategies

Establish a business portfolio that is capable of securing stable profit and resilient againstchanges in trade conditions by stepping up technical services, developing highly functional
grades that help Denka focus on non-price competition, and maintaining a sales mix consisting
mainly of high-value-added products
Maximize synergies by taking full advantage of domestic and overseas production bases
Upgrade our quality management functions as part of efforts to enhance chemical content
management and quality assurance systems

Released Evolmer, the third functional elastomer introduced by
Denka after DENKA Chloroprene and DENKA ER (Evolmer boasts
excellent mechanical strength, oil resistance and abrasion resistanceas well as well-balanced properties that set it apart from any previous
elastomer)
Reinforced DENKA ER production facilities (to supply materials forhoses for automobile turbo engines)
Released AN-modified IP (IPX), which boasts the lower VOC content
as well as superior heat and chemical resistance in addition tocoating retention property
Developed a high-value-added variation of DENKA POVAL (for use asa high-performance polyvinyl chloride dispersion agent, a cement
additive for oil well construction, etc.)

37

A slope that has been sprayedwith DENKA COAT soil erosion
prevention agent

Relevant
SDGs

Chloroprene rubber (CR)

Present

Aqueous adhesives
for polypropylene

Evolmer®

Compatibility accelerator
technologies

Latex

Solvent-based
adhesives
For cloth andwooden materials

Compatibility accelerator
technologies

Lighter weight andimproved sound insulation

CR-based compound material
for infrastructure
Bridge supporting
Technologies to compoundmaterials
different materials

Improved ozone resistance
Alternative material
and durability
for automobile engine mounts (natural rubber substitute)

Industrial rubber

Elastomer with

Precision polymerization technologies
hollow structure
Superior oil resistanceand improved durability Technologies to control particle shape

Aqueous adhesives
for gloves

Solvent-based adhesives
for polypropylene

FutureImproved heat resistanceand durability(natural rubber substitute)

Concrete adhesives

Heat-resistance improver
DHM-III®
Special composite technologies
Improved heat resistance

For automobiles,
industrial machinery
and wet suits

Released in 1962

Market1. TheEnvironment

Main Achievements in Fiscal 2018

0

Examples of products made using
DENKA TRANSPARENT POLYMER(styrene-based functional resin)

Value-Shift Diagram

Material / Process Innovation

Characteristics of the Business Division

Examples of CR-based
automobile parts

Outlook for Fiscal 2019
There has been a downturn in macroeconomic
trends due to the deceleration of China’s economic
growth reflecting U.S.-China trade tension, alooming sense of anxiety about Brexit issues andthe overall future outlook of the European
economies, and the slowdown of Japan’s economic
recovery. Nevertheless, we will remain attentive tosigns of changes and agilely take necessary action
to accelerate the aforementioned strategies andachieve the goals of the Denka Value-Up management plan.

Value Shift
Having developed CR via the application of unique technologies,
Denka was the first in Japan to commercialize this synthetic
rubber. Today, the Denka Group boasts the world’s largest CR
production capacity. As CR is an excellent oil- and heat-resistantmaterial, it has become sought after for a variety of applications,
including automobile parts, construction and civil engineeringmachinery components, medical gloves and adhesive
ingredients. In addition, efforts are also under way to create newelastomer materials via, for example, the combination of CR andprecision polymerization technologies.
Product
ExampleCR-based compound material
for infrastructure
Compatibility accelerator
technologies

Technologies tocontrol particle shape

A new compound material made using CR
to prevent the age-related deterioration of
concrete structures and lengthen theirlifespans
Technologies to improve adhesion force byfacilitating the osmosis effect between theadhesion layer and the surface of theadhered material
Technologies to alter particle shapes toreduce the elastomer’s weight and give itsound insulation properties

Evolmer®

Social issues
Growing need for moresophisticatedtechnologies tosupport driving safety

Source of value
The combination of elastomer
technologies and precision
polymerization technologies

Evlomer is a new elastomer material created via the combination of elastomer technologies Denka has long accumulated over the course of the
manufacture of DENKA Chloroprene and DENKA ER and its sophisticated precision polymerization technologies that have been cultivated in
the course of the development of highly functional styrene-based resin. Evolmer boasts superior oil resistance and robust resilience against
bending fatigue in dynamic environments. Accordingly, this product is expected to contribute to the advance of automobile technologies aimed
at supporting driving safety and lengthen the lifespans of vehicles.

38

Business Strategies

Living & Environment Products

Pursuing Value Creation while Delivering
Products Designed to Meet Market Needs
Jinichi Osuga
Executive Officer,
Living & Environment
Products

The Living & Environment Products Division will take on the pursuit of new value without
insisting on limiting the search to a particular material or field and, to this end, fully takeadvantage of its strengths in the areas of technology and quality, with the aim ofsupporting the entire Group in its role as a chemical engineering division. In these ways,
we will create and deliver products that satisfy market needs to in-house and external
partners. Currently, the division is engaged in a range of operations associated withchemical engineering products aimed at supporting people’s lifestyles and improving
living environments. In line with the Denka Value-Up management plan, we will accelerate
global expansion via the development of unique products designed to satisfy market
needs. At the same time, we will develop and deliver solutions aimed at helping reduce
environmental burdens. In these ways, we will create shared value toward resolving
issues society is confronting.

Five-Year Divisional Performance Summary■ Operating income(Billions of yen)Technologies

Products

Business fields

Sheet film manufacturing technologies, adhesive manufacturing
and adhesion coating technologies, resin compounding
technologies, plastic ejection processing technologies, etc.

Rain gutters and other construction materials, food packaging
materials, industrial tapes, synthetic fiber for hairpieces,
fluorine-based films, etc.

Automobiles, electric and electronics equipment, civil engineeringand construction, food, aircraft and aerospace, rolling stock,
medical and nursing care, the environment and energy,
agriculture, logistics, etc.

6

2.5

5

2.0

4

1.5

3

1.0

2

0.5

1

0

0

(FY)

2015

2016

Business Strategies under Denka Value-Up
Market1. TheEnvironment

2. Strategies

2017

2018

2019

Forecast

The maturation of the domestic market and intensifying competition
Growth in market potential reflecting the burgeoning purchasing power of emerging economies
Growing public need for environmental load reduction
Growing interest in food safety
Expand the lineup of specialty products in the commodity businesses while promoting thedevelopment of specialty businesses
Seek new applications of fluorine-based films in the fields of mobility, infrastructure andcommercial graphics
Promote the global marketing of industrial tapes and synthetic fiber for hairpieces while
enhancing their profitability
Develop products that give due consideration to environmental concerns arising from plastics
Strengthen our marketing capabilities to create new markets and new value

Main Achievements in Fiscal 2018
Engaged in development activities to create an environment-friendly food packaging material and thin adhesive tapewith an eye to addressing plastic-induced environmental
problems that have become the subject of international debate
Promoted the development of fluorine-based films targeting theautomotive field
Improved the profitability of synthetic fiber for hairpieces by
scrutinizing every cost element, with Luxeena, a strategic
product, achieving greater sales in the U.S. market
Launched a dedicated team charged with creating products that
accurately satisfy market needs

39

Operating income ratio （%）

3.0

Outlook for Fiscal 2019
Promote the development of specialty products in thecommodity businesses
Push ahead with marketing activities aimed at getting
our specialty products on track as materials chosen bymajor manufacturers
Step up other sales and marketing activities in a waythat fully takes advantage of our strengths in the areasof technology and quality
Proactively address plastic-induced environmental
problems via involvement in Reduce, Recycle, Reuse
and Renew

TOYOKALON(synthetic fiber for
wigs and hairpieces)

Examples of finished products made using
DENKA THERMOSHEET(packaging materials for food containers)

Value-Shift Diagram
Relevant
SDGs

Business development centered on adhesive tapes

Present

FutureReduced thickness(film production andadhesion coating)Abrasion resistance andflame retardant property

Functional upgrading for automotive
bundling tape application

Functional upgrading of
substrate tapes Improvement inadhesion coating methods

Highly functional
harnesses
Eco-friendliness

Material / Process Innovation

Characteristics of the Business Division

An example of housing made using
TOYO GUTTERS(hard polyvinyl chloride rain gutters)

Lighter weight

Substrate tape design

Non-solvent adhesive

Innovation
Value

Flame-retardant thin tapes

Automotive
bundling tape forwire harnesses

Substrate film production
Adhesive design andadhesion coating

Eco-friendlinessCompatible with EVs
Bundling tape for
EV motor, battery
and engine wiringproperty, heat resistanceand lighter weightNon-solvent
adhesives

Eco-friendliness ②

Lower VOC content

Easy to tearby hands

Eco-friendliness
Help improve automobile
fuel efficiency
Flame retardant

Improved heat
resistance

Even superior
functions

Lower VOC content

Plasticizer design

Eco-friendliness ①

Substrate film design

Adhesive tape
VINI-TAPE

Easier to handle
Easy to tear by hands

Released in 1951

Flame retardant property
and heat resistance(Bundling tape for wire harnesses)

Functional upgrading forelectric wiring application

Value ShiftIn 1951, Denka became the first in Japan to commercialize a vinyl
chloride-based insulated adhesive tape via the release of VINI-TAPE.
Since then, we have long endeavored to improve our technologies,
securing a robust product lineup for automobile bundling tape and electric
wiring applications. Looking ahead, we will create tapes with even more
superior functions and lighter weight while improving adhesives and otherelements to deliver products with even smaller environmental footprints.
Product
ExampleWire harness

Non-solvent adhesive

An electrical wiring assembly for use
in equipment like automobiles andhome appliances to transmit
electronic signals and power
Aqueous adhesive designed withdue consideration given toenvironmental concerns

Cold-resistant thin harness tapeSocial issues
・Popularization of
eco-friendly vehicles
・Needs for solutions
enhancing driving
safetySource of value
Technologies that
achieve superior cold
resistance while realizing
the thinnest, lightest tapein the industry

The thinnest and lightest tape in the industry, this product is used as an adhesive tape for bundling automobile wire harnesses—essential carcomponents that transmit electronic signals and power—designed for vehicles operating in harsh environments, such as those in cold regions.
Denka is the first Japanese company to commercialize a vinyl chloride-based tape of this kind. Building on its accumulated technologicalcapabilities and expertise, Denka is currently striving to meet customer requests for solutions that help reduce the weight of automobile parts
while enhancing their safety and reliability in the face of the ever greater popularity of EVs and the emergence of autonomous driving systems.

40

Denka’s Approach to ESG-Oriented Management
Determination and Review of CSR Materiality Issues

CSR Management

In line with its corporate philosophy, the Denka Group identified priority CSR materiality issues that, on April 24, 2017, its Management Committee

A Message from the Officer in Charge of CSR

narrowed down to 13 items, each of which is a matter of critical importance for a chemical manufacturer committed to fulfilling its social responsibilities.
Many of the United Nations SDGs, which set targets for 2030, have strong similarities with Denka’s initiatives in priority fields (healthcare, theenvironment and energy and high-value-added infrastructure). In line with the Denka Value-Up management plan growth strategies, the Company has

Toshio Imai
Director,
Managing
Executive Officer

Fulfilling Our Social Responsibility and Living up to
Stakeholder Expectations as a Trustworthy Corporate
Group True to The Denka Value, Our Corporate Philosophy
The Denka Group has defined “Taking on the challenge of expanding the possibilities of chemistry tocreate new value and contribute to sound social development” as the Denka Mission while specifying CSR
materiality issues that have to be prioritized. The Denka Value-Up management plan is designed to help us
place strong focus on these pursuits.
Moreover, we are determined to pull our weight in international efforts aimed at realizing the United
Nations Sustainable Development Goals (SDGs), a set of universal targets encompassing such matters as
infectious disease prevention, climate change countermeasures and high-strength infrastructuredevelopment. Believing that we can contribute to these fields in unique ways, we have placed strongemphasis on the SDGs in corporate management while reviewing our priorities with regard to CSR
materiality issues to strengthen our foundation in environmental, social and governance (ESG) aspects, withthe aim of living up to stakeholder trust and expectations.

been focusing management resources on these initiatives; however, in fiscal 2019, Denka is stepping up its commitment to pursuing the SDGs as an
aspect of that plan, prompting a review of CSR materiality issues.
Going forward, we will push ahead with efforts to help realize the SDGs in line with the Denka Value-Up management plan. Simultaneously, we will
engage in in-depth dialogue with stakeholders, thereby improving our CSR activities on an ongoing basis.

Relationship between Denka’s Materiality Issues and the SDGs
Category

Prioritization of safety

41

Fulfill manufacturers’ responsibilities

Provide solutions

Maintain occupational safety and healthwhile creating a vibrant and comfortableworkplace environment

Create new products and technologies that
contribute to sound social development

Products and technologies

Ensure product safety

Corporate governanceCorporate activities
deserving stakeholder
trust

Ensure that our corporate philosophy isembraced by every employee and transform
our corporate culture

E Environmental

Environmental
preservationand protection

We will proactively facilitate the use of clean energy, take on the development of eco-friendly products
and technologies, and promote energy-saving and resource-recycling measures. By doing so, we will
help preserve and protect the global environment.

S Social

Value creation via
manufacturing

Through the pursuit of innovation, we will deliver products, services and solutions capable ofsupporting sustainable economic growth and helping resolve issues society is now confronting.

Maintain strict compliance with laws,
regulations and corporate ethics

Prioritization ofsafetyWe will steadfastly abide by our policy of placing the utmost priority on occupational safety, employee
health, facility security and disaster prevention in all aspects of our business activities. In this way, we
will create a workplace free of accidents and disasters.

Nurture human resources

Relationships oftrust withcustomers

We will commit ourselves to delivering products with superior quality while providing sufficient productinformation to ensure customer satisfaction. We will also remain sincere in customer relations, thereby
maintaining relationships of trust with customers.

Embrace diversity and offer equal
opportunities

Diversity andwork-life balance

Respecting the diversity, personalities and unique qualities of all those working for the Denka Group, we will
strive to help them determine optimal working styles to ensure they realize their full potential. At the same time,
we will create a vibrant workplace, promote employee health and realize a safety-oriented corporate culture.

Respect forhuman rights

We respect the human rights of all people while striving to raise human rights awareness and helping
to eradicate all kinds of human rights infringement.

Information
disclosure andstakeholder dialogue

We will disclose corporate information in a proactive, effective and fair manner, thereby maintaining
constructive dialogue with a wide range of stakeholders.

Social contribution

As a good corporate citizen, we will proactively play a positive role in society to contribute to soundand sustainable social development.

Fair businessconduct

We will engage in fair and free competition, appropriate dealings and responsible procurement while
maintaining sound relationships with political bodies and administrative agencies.

Risk Management

In addition to remaining apprised of risks that may affect our corporate activities, we will implement
thoroughgoing and organized crisis management measures to secure resilience against natural
disasters, terrorism, cyberattacks and other events that cause serious threats to our operations.

G GovernanceRelevant SDGs

Reinforce security and disaster prevention
measures

Denka Group CSR Basic Policies
Denka established the Denka Group CSR Basic Policies, which are designed to provide underlying principles with regard to the practice of The Denka
Value, a corporate philosophy serving as a cornerstone for all of its business activities from the perspective of addressing ESG issues.
We believe that contributing to a sustainable society is an integral part of our corporate activities and is essential to fulfilling our corporate social
responsibilities. With this in mind, we have identified CSR materiality issues through stakeholder dialogue, specifying areas of focus in terms of CSR
activities for all Group members. Taking a forward-looking approach, we are also working in tandem with our business partners to contribute to SDGs andother initiatives aimed at addressing issues the whole of humanity is now confronting.
Furthermore, we recognize that strict compliance is a prerequisite for continued business operations. Accordingly, we will strive to develop an
effective governance system, strictly complying with laws, regulations and international rules in the course of operations while maintaining a strong moral
compass. Taking the aforementioned factors into account, we will practice the ten principles described below in furtherance of our efforts to fulfill our
responsibilities as a corporate citizen.
(Established on August 27, 2018)

CSR Materiality Issues (13 items)

Improve corporate governance

Employee happiness
Help strike a work-life balance and promote
employee healthPrevent air, water, soil and otherenvironmental pollution
Environmental preservation

Dialogue with society
Partnership

Promote climate change countermeasures(curb global warming, reduce GHG
emissions and adapt to climate changes)

Maintain appropriate and timely disclosureof corporate information and establish
bidirectional communications

42

G

Denka’s Approach to ESG-Oriented Management

Corporate Governance

A Strategy and R&D Policy Presentation Meeting

A Message from an Outside Director

Denka’s Strength inGovernance, Backed bySincerity, Helps the Company
Navigate a Fast-Changing
Business Environment
Akio Yamamoto
Outside Director

Today, Denka is undergoing the most drastic change in its
history, which spans more than 100 years.
Specifically, the Company is developing functional
materials for use in IoT and 5G communication devices aswell as materials for EVs and other emerging mobility
infrastructure. Denka is also engaged in proactive investmentin the life science business, such as infectious disease andlifestyle-related disease countermeasures. Thus, Denka’sbusiness portfolio is in the process of radical transition.
Furthermore, Denka is now serving markets worldwide, with its
R&D and production network becoming ever more globalized.
These changes necessarily entail a number of new challenges
that have to be overcome. Accordingly, Denka must redevelop
its organizational structure and management system whileraising the awareness of each employee.
In recent years, a string of corporate mishaps have been
exposed in a range of business sectors, causing the generalpublic to severely scrutinize their governance models andquestion whether these models are truly effective. First andforemost, businesses are being called to contribute to society
via the creation of new products and new value. This kind of
pursuit requires forward-looking conceptualization capabilities
that help blaze a new trail into the future and a pioneering
spirit that encourages frontline employees to engage indynamic action and risk-taking to achieve higher goals.
However, this pursuit must also be supported by soundcorporate governance, an essential component of any
business’s efforts to achieve medium- to long-term growthin corporate value.

43

With these factors in mind, I will explain the status of
Denka’s corporate governance from the perspective ofoutside director.
Denka’s Board of Directors consists of 12 directors, fiveof whom are outside directors, with members of the Audit
Committee being appointed from both in-house directors andoutside directors. Prior to assuming office as one of Denka’s
outside directors, I had been an expatriate for 15 years as partof my experience in a trading company in addition to being
deeply involved in human resource development and legal
compliance. The other four outside directors, appointed from adiverse range of business fields, also boast abundant
experience and extensive expertise in their areas of specialty.
Notable features of the Board of Directors’ operations include
a significant volume of information being offered to outside
directors to help them understand Denka’s operations as wellas active interaction between board members. For example,
Denka holds periodic “Strategy and R&D Policy Presentation
Meetings” in which outside directors are briefed on strategies
and R&D policies being implemented by each businessdivision as well as the Company’s financial strategies, humanresource management policies and other key information
regarding its overall operations from a medium- to long-term
perspective. By encouraging attendees to actively deliberate
on important management matters, these meetings have
proven effective. Also, presentations are given to outside
directors prior to monthly Board of Directors meetings, withthe aim of ensuring that they are well-informed about allagenda items to be submitted to Board of Directors meetings.
These presentations are followed by Q&A sessions as well as
the serious and unreserved exchange of opinions, whichsometimes include harsh objections. In the course of thesesessions, outside directors often contribute valuable insights
regarding the positioning of agenda items in the context of
medium- to long-term business strategies while furnishing
advice as specialists with regard to the management ofvarious risk factors in the face of business and geopoliticalsituations, the handling of legal affairs associated withdomestic and overseas operations, the preparation offinancial statements and Denka’s approach to ESG issues andthe United Nations SDGs. In short, all agenda items arecarefully examined before they are discussed and finalized by
the Board of Directors. In addition, tablet terminals furnished
to all directors provide comprehensive updates on topics tobe addressed by the Board of Directors. So, prior to eachmeeting, they are expected to intensively review a large
volume of information.
Moreover, the monthly “D&A Round Table” meetings

provide directors with opportunities to engage in the frankexchange of opinions on Denka’s corporate philosophy,
growth strategies, corporate governance and otherfoundational issues affecting the Company’s business
operations. Denka also maintains such bodies as the Audit
Committee, the Nomination and Remuneration Advisory
Committee and the Outside Director Liaison Meetings in an
appropriate manner. As such, Denka’s efforts to improve its
corporate governance have been supported by a number ofdiscussions at the Board of Directors and other key meetings.
Over the course of this process, outside directors andin-house directors, the latter of whom are charged with theexecution of day-to-day operations, seriously engage one
another, prioritizing improving the effectiveness of Denka’s
governance framework and management approach.
On a day-to-day basis, it is often hard to immediately
determine whether our business judgments will succeed or
fail. Also, there is a lingering sense of uncertainty regarding
future global megatrends. Predictably, Denka will face various
challenges and changes in its business environment.
However, its robust corporate culture, which values sincerity
and steadfastness and has been nurtured over the course of
100 years, is being steadily passed down to younger
generations despite drastic changes in its business portfolio.
As I expect Denka to engage in a variety of ongoing initiatives
to achieve its future ideals via the implementation of effective
growth strategies and corporate governance measures, I am
determined to fulfill my duties as an outside director and help
the Company realize sound corporate growth and improve its
corporate value.

Profile of Akio Yamamoto
April 1974
April 1999
April 2004
April 2007
April 2009

June 2014
June 2015

Joined Mitsui & Co., Ltd.
President of Mitsui & Co. Benelux S. A./N. V.
Deputy General Manager, Synthetic Resin &Inorganic Chemicals Division, Mitsui & Co., Ltd.
Executive Officer of Mitsui & Co., Ltd. (until March
2010), President of Mitsui & Co. (Thailand) Ltd.
President and CEO of Mitsui Bussan Plastics Trade
Co., Ltd. (Currently Mitsui & Co. Plastics Ltd.)(until June 2014)
Advisor of Mitsui & Co. Plastics Ltd. (until June2015)
Outside Director of Denka Company Limited(current position)

44

Denka’s Approach to ESG-Oriented Management
Corporate Governance

Basic Approach to Corporate GovernanceEvaluation of the Effectiveness of the Board of Directors

In order to fulfill the expectations and trust of its many stakeholders, including shareholders, customers, local society and employees,
based on “The Denka Value” (corporate philosophy), which serves as the cornerstone for all the corporate activities undertaken by the
Denka Group, the Company strives to strengthen its business foundation by improving its earnings power and expanding the scope ofoperations while also working to improve corporate value by making every effort to continue being a company that can win the trustand support of society.
The Company considers corporate governance to be the bedrock on which the above rests, and so we have striven to strengthen
governance, in order to fulfill the responsibilities we owe to all our stakeholders and ensure the transparency and soundness of ourmanagement.

(1) Method of Evaluation
As it did in the previous fiscal year, the Company analyzed and evaluated the effectiveness of the Board of Directors by having
individual directors and Audit & Supervisory Board members complete the “Self Evaluation Questionnaire,” which covers items related
to the effectiveness of the Board of Directors, such as scale, composition, operation and 20 other items, and discussing thequestionnaire results at Board of Directors meetings.

Transition to a Company with an Audit Committee
Acutely aware of the importance of securing solid corporate governance, Denka has introduced an executive officer system aimed atensuring functional separation between personnel charged with supervision and decision making and those charged with businessexecution. Moreover, Denka appointed three outside directors and two outside members of the Audit & Supervisory Board. As such,
Denka has strengthened functions of the Board of Directors and the Audit & Supervisory Board in terms of supervision and auditing,respectively, with the aim of establishing a robust foundation for fair and transparent business management.
In June 2019, Denka’s decision to transition to a Company with an Audit Committee was approved at the 160th Ordinary General
Meeting of Shareholders. This transition entails appointing individuals who serve as Audit Committee members and are allowed tocast a vote at Board of Directors meetings in addition to being expected to help enhance the latter’s supervisory functions and secure
an even more solid management structure.

Purposes of Transition to a Company with an Audit Committee■ Step up separation between supervisory and execution functions(2) Summary of Evaluation Results and Future Efforts
The Company confirmed that discussion at the Board of Directors was invigorated thanks to appropriate Board size and composition(in terms of getting the right balance of expertise, experience, competency and diversity) and that meetings were of an appropriate
frequency and duration, as well as the provision of prior explanation of agenda items and other initiatives aimed at helping outside
directors and outside members of the Audit & Supervisory Board better understand Denka’s operations and make proactive
contributions at the Board of Directors meetings.
With regard to issues identified in the course of the previous
round of evaluation in the area of the Denka Group’s overall
and individual business strategies, it was suggested that theBoard of Directors should review the allocation of time tofurther discuss these issues and strive to ensure that all
in-house and outside directors and in-house and outside
members of the Audit & Supervisory Board share theunderstanding of Denka’s short-, medium- and long-termbusiness strategies.

In conjunction with transition to a Company with an Audit &Supervisory Committee, it was suggested that the Board of
Directors review its criteria for agenda items to be discussed
by and matters to be reported to it, with the aim of
optimizing its operations.

2007■ Promote diversity

Ensure that the composition of Board members is diverse and well-balanced in terms of their expertise, experience, competency,
gender and nationality

Increase the number of outside directors

Promote diversity

2008

Three

Five

(including one female)
General Meeting of Shareholders

Appointment/Dismissal

Appointment/Dismissal

Audit Committee
Board of Directors
Directors
Directors(Excluding Directors who are Audit Committee Members) （Directors who are Audit Committee Members）
Operation

Supervision

Audit
Consult
AdviseElection/Dismissal

AssistRepresentative Directors

Audit
Committee
Dept.

Executive Directors
Appointment/
Dismissal

Business Units
Affiliates

Cooperation

Executive Officers

ReportNomination &Remuneration
Advisory
ComitteeAppointment/Dismissal

ReportReport

A

C

2015

2016

Full-time
staff ofthe Audit
Committee
Department

2017

Internal Audits●Halved the number of directors

Ensure that all directors who supervise and monitor business execution engage with
their peers on equal footing at Board of Directors meetings●Abolished senior managing and managing director positions●Introduced an executive officer system

Secure clear functional separation between those charged with business execution andthose charged with monitoring and supervision●Delegated executive authorities and positions from directors to executive

Flexibly assess the adequacy of each director●Shortened the term of office for directors to one year

Ensure stringent supervision of the Company’s operations by incorporating external
perspectives●Appointed two outside directors, securing a total of four external individuals,

Provide robust opportunities to interact with each other outside Board of Directors
meetings to develop a structure enabling directors to contribute meaningful insights●Made it a rule to hold periodic meetings in which outside directors exchange

Improve authorization process to realize faster decision making by facilitating in-depth
discussion focused on important management matters●Established the Management Committee, consisting of in-house directors andEnhance the governance structure to improve management transparency andsoundness●Increased the number of outside directors from two to three while decreasing

Create opportunities for in-house and outside directors and in-house and outside membersof the Audit & Supervisory Board to engage in constructive discussion, help them freely
exchange frank opinions and facilitate information sharing and closer collaboration●Decided to hold monthly exchange meetings for all directors and Audit &Optimize corporate governance aimed at securing sustainable growth and a medium- tolong-term improvement in corporate value●Established the Denka Corporate Governance Guidelines

Facilitate the understanding of Denka’s operations and invigorate discussion at Board of
Directors meetings●Enhanced the content of prior briefings on individual agenda items requiring closer

Help outside directors and outside Audit & Supervisory Board members exchange theirinsights and share their understanding of the status of Denka’s operations●Decided to hold the Outside Director Liaison Meetings on a quarterly basis

Facilitate the understanding of Denka’s short-, medium- and long-term policies on
business operations and R&D●Decided to hold the biannual Strategy and R&D Policy Presentation Meetings

Help the Board of Directors ensure robust auditing of and supervision over business
operations being executed by executive officers●Clarified the content of meeting handouts on agenda items and reporting

Enhance the effectiveness of the Board of Directors●Instituted the annual evaluation of the Board of Directors’ operations to assess

officers

including the mandatory two outside Audit & Supervisory Board members, foroverseeing Denka’s management
opinions with top management
in-house members of the Audit & Supervisory Board as well as some
executive officers
the prescribed number of overall directors by two
Supervisory Board members, stepping up the previous practice of holding
biannual exchange meetings for these individuals

explanation for outside directors and outside Audit & Supervisory Board members

for outside directors and outside Audit & Supervisory Board members
materials distributed at Board of Directors meetings
their effectiveness with the involvement of all directors and all Audit &Supervisory Board members while making it a rule to disclose its findings via
the Corporate Governance Report

Ensure that outside directors and outside Audit & Supervisory Board members contributediverse opinions and advice to the Board of Directors with regard to such governance issues
as director nomination and remuneration as well as other important management matters,with the aim of securing the fairness and objectivity of management judgment●Established the Management Advisory Committee attended by all outside

directors, all outside Audit & Supervisory Board members, the Chairman and
the President & CEO●Monthly exchange meetings for all directors and Audit & Supervisory Board

members were formally named the D&A Round Table meetings

Audits within Business Units(Including Administrative Dept., Legal Dept., Environment and Safety Dept., and Quality Assurance Dept.)

45

Initiatives

Speed up decision making

Internal Auditing Dept.

Compliance Hotline System

It was confirmed that discussion at Board of Directors
meetings was invigorated thanks to the aforementioned
efforts to facilitate the understanding of Denka’s businessstrategies.

Purposes

The number of outside directors grew from three to five, one of whom is female

2019

D

■Initiatives Being Undertaken Thus Far to Improve Corporate GovernanceImprove the transparency and fairness of management while realizing speedier and dynamic decision making■ Increase the number of outside directors

2018

P

All directors and Audit & Supervisory Board members
engaged in constructive and in-depth discussions at the“D&A Round Table” meetings, freely exchanging unreserved
opinions with regard to management matters that requireparticular attention. “Strategy and R&D Policy Presentation
Meetings” were also held, and featured presentations withenhanced content aimed at facilitating the understanding of
Denka’s short-, medium- and long-term policies on business
operations and R&D among outside directors and outside
members of the Audit & Supervisory Board.

2019
Audit

Accounting Auditor

Appoint directors with concurrent membership in the Audit Committee to speed up decision
making while strengthening the Board of Directors’ supervisory functions, with the aim of
improving corporate governance and achieving growth in corporate value●Transitioned from a Company with an Audit & Supervisory Board to a Company

with an Audit Committee●The Management Advisory Committee was renamed the Nomination andRemuneration Advisory Committee

46

Denka’s Approach to ESG-Oriented Management
Corporate GovernanceRisk Management

With the aim of practicing The Denka Value, our corporate philosophy, we are promoting the Denka Value-Up management plan, to this end
strengthening our management structure supported by directors and executive officers while upgrading our governance systems andsupervisory functions.
Director candidates are nominated from among individuals who have abundant experience and a strong track record in Denka’s businessdivisions and are equipped with sufficient knowledge and specialist expertise for the position. Outside director candidates are nominated fromamong those who boast extensive knowledge backed by abundant business experience as well as distinctive strengths in their area ofspecialty so that they can bring their insights on how to achieve sustainable growth and enhance corporate value. With regard to the overallcomposition of board members, we focus on maintaining a diverse and well-balanced composition in terms of expertise, experience,competency, gender and nationality. We also aim to maintain a sufficient number of independent outside directors to ensure that they accountfor at least one third of director membership. Currently, the Company’s Board of Directors achieves this targeted composition.

An essential part of corporate governance isunderstanding the diverse and numerous risks
inherent in corporate activities and exerting properrisk control. In general, each business unit is
responsible for identifying and managing specificrisks. For environmental, safety, product liability andexport control issues that affect the entire Company,
we have in place special sections and permanentcommittees to handle matters.

We have set remuneration for each director based on their roles and responsibilities within the limit of the total amount approved by the General
Meeting of Shareholders. The representative directors draft the remuneration plan and the Board of Directors decides on the content of
remuneration after receiving advice and recommendations from the Nomination and Remuneration Advisory Committee.
Remuneration for directors consists of monthly basic compensation set at a fixed amount (paid to all directors) as well as
performance-based compensation and share-based compensation (neither of which are paid to outside directors or in-house directors withconcurrent membership in the Audit Committee).
The value of the performance-based compensation is determined in step with consolidated operating income for each fiscal year. However,this portion may be decreased or fully withheld in cases where consolidated operating income did not reach a certain amount or the Company
was found to be involved in compliance violations and other significant misconduct.
Share-based compensation is intended to ensure that directors share shareholders’ interests and risks regarding stock price fluctuations.
By doing so, we aim to instill a strong sense of purposefulness toward achieving medium- to long-term growth in corporate performance andcorporate value in our directors.
In addition, remuneration paid to directors with concurrent membership in the Audit Committee consists only of monthly basic
compensation with fixed amount. Total remuneration paid to such directors is determined within the upper limit approved by the General
Meeting of Shareholders.

○Director Remuneration Paid in Fiscal 2018¥377 million in total

Basic compensation¥307 million

Variable
portion¥44 million(Five in-house directors)

Eight directors(including ¥36 million paid
for three outside directors)

Performance-based
compensation

Fixed portion

Share-based
compensation¥25 million(Five in-house directors)

Internal Auditing Dept.
Ethics Committee(Secretariat for the Ethics Committee)

Audit Committee Dept.
Legal Dept.

HR Dept.
Environment and Safety Dept.
Quality Assurance Dept.

Other risks

Major crises

Board ofDirectors

CrisisMeasures
Headquarters

Risk Management Committee
Proxy organizations according
to case
Ethics Committee
Safety Measures Headquarters
Responsible Care (RC)Committee
Product Liability (PL)Committee

ReportInstruct/monitor

Instruct/monitor

ReportPrime oversightBusinesses (including Sales and Manufacturing divisions)
Administration (including Internal Auditing, Environment and Safety,
Legal and Accounting & Finance departments)

Compliance Hotline System
Aiming to create a more robust system capable of accepting and properly handling a broad range of compliance-related reports within theGroup from employees around the globe, in October 2018 Denka established new rules on whistleblowing based on the latest guidelines
formulated by the Consumer Affairs Agency. In line with these rules, we have thus upgraded our conventional compliance hotline system into the
Denka Group Helpline. Among the changes, we expanded the scope of eligibility for individuals making reports and began accepting reportingfrom cohabiting families of officers and employees while establishing external contacts capable of receiving reporting in multiple languages.
Aiming to encourage the proactive use of this helpline, we sent out a message from the Company president to all Denka Group officers andemployees while distributing a handbook and card featuring instructions about how to contact and use the helpline.
Although the number of reports received annually via the former compliance hotline system ranged from one to four, the number of reports
received in fiscal 2018 increased to seven, reflecting the October 2018 upgrading of said system. In response to these reports, efforts are now
under way to swiftly yet prudently investigate in detail the problems brought to our attention. Specifically, dedicated teams were launched toaddress each whistleblowing case and are acting in collaboration with external lawyers to ensure that necessary correction measures are
implemented in a way that protects whistleblowers’ privacy.

Fiscal year

2014

2015

2016

2017

2018

Number

2

1

4

4

7

Denka Group Helpline System Diagram❶Whistleblowing

Eligible individuals
Officers and employees(including temporary
workers) serving Denka
Group companies inJapan and overseas andtheir cohabiting families❶Whistleblowing❼FeedbackExternal contacts
Helpline

Compliance is essential for sustainable growth. We accordingly adhere to internal rules and government legislation and refrain from acts that
violate moral and ethical norms. The Denka Group Ethics Policy was established to codify Groupwide standards of conduct, while the Ethics
Committee oversees the overall compliance structure and reports to management, thereby ensuring adherence to this policy.
Moreover, the Audit Committee Department, and other key business units, including the Legal, Internal Auditing, HR, Environment and
Safety, Quality Assurance and Intellectual Property departments, ensure thorough legal compliance in their respective areas of specialty.
In addition, we have identified more than dozen basic legal fields that we are focused on maintaining Group operations in strict compliancewith. To this end, we have prepared a “legal hazard map” aimed at analyzing legal and regulatory risk that may affect each Group company.
Employing this map, we are developing and reviewing in-house rules for securing compliance in each legal field while formulating complianceeducation plans. This approach enables us to enhance the efficiency and effectiveness of our initiatives aimed at accurately assessing thecompliance status of and ensuring strict legal compliance by business units throughout the Denka Group.
Also, Denka’s Legal Department and Career Value-Up Center are spearheading efforts to provide robust compliance education for
employees at each Denka Group company. For example, employees at Denka’s local subsidiary in Malaysia underwent comprehensive
compliance training in December 2018. With the aid of a local law firm, they studied how to prevent insider trading and other employee
misconduct as well as anti-monopoly laws, information security and other compliance topics.

Risk-specific committees

Order HQ set up

Security Export Control
Committee

Number of reports

Compliance

ReportReportReportPolicies on Director Remuneration

President

Report on emergencies

Concepts on the Appointment of Directors○External law firms○Specialist organization
for handling harassment
incidents

Internal contacts○Audit Committee Dept.
and Legal Dept.
○Administrative
departments at eachproduction bases○Labor union❷Report(the whistleblower’s
identity is kept secret)❻Feedback

Secretariat for
the Ethics
Committee❸Report(the whistleblower’s
identity is kept secret)

EthicsCommittee❹Instruction❺Investigation and correction

Business units andindividuals subject toinvestigation

Intellectual Property Dept.

47

48

Denka’s Approach to ESG-Oriented Management
Corporate GovernanceDirectors

Shinsuke Yoshitaka
Chairman

Akio Yamamoto

Manabu Yamamoto(Born February 1, 1951)

Representative Director, President & CEO(Born March 31, 1956)

Outside Director(Born December 2, 1951)(Born November 23, 1952)

Under the corporate philosophy, “The Denka Value,” asIn order to meet the expectations and trust of all stakeholders, I

Amid major changes in the global market environment,

I will always approach matters from a fair perspective,

Chairman of the Board of Directors I will make every effort

will steadily promote the management plan, “Denka Value-Up,”

I intend to contribute to the Company’s sound operationand intend to contribute to the growth of the Company

to boost the corporate value of the Company with goodwhich is now in its second year, and pursue sustainable growthand increasing corporate value while prioritizing anin the true sense, not simply business performance infaith and determination while constantly endeavoring toeven in rapidly changing markets, through the further special-awareness of circumstances at business sites andterms of numbers.

realize management that is sound and transparent fromization of our business structure and productivity improvement

remaining committed to a medium- to long-term

the perspective of our stakeholders.

while aiming to ensure Denka is a sound company that fulfills

perspective and a strong stance of fairness.

its social responsibility.

Norihiro Shimizu

Masaharu Suzuki

Toshio Imai

Director

Director

Director(Born October 2, 1955)(Born December 11, 1955)(Born January 25, 1959)

Through continuous innovation

I will endeavor to boost the corporate

I will focus on achieving the targets inleveraging the comprehensive

value of the Company by promoting

the management plan, “Denka

capabilities of the Group, I am

ESG-oriented management from a

Value-Up,” based on the corporate

committed to ensuring sustainableglobal perspective.

philosophy, “The Denka Value,” thus

growth and improving corporate value

achieving “sustained growth” andby implementing business strategies at“sound growth,” as I endeavor to boost

individual businesses in a way thatthe corporate value of the Company.

strikes a balance between profitability
and sustainability.

Junichi Kimura

Mitsukuni Ayabe

Norihiro Shimizu

Masaharu Suzuki
Toshio Imai

Yasuo Sato

Tatsutsugu Fujihara
Toshio Kinoshita

49

Outside Director

Tatsutsugu Fujihara

Hiroko Yamamoto

Shinsuke Yoshitaka

Manabu Yamamoto

Mitsukuni Ayabe
Director(Audit Committee Member)

Junichi Kimura(Born September 23, 1952)

Director(Audit Committee Member)(Born August 12, 1958)

I am committed to improving corporate value andAs an Audit Committee Member, I intend to contribute tocreating a company more trusted by society, throughthe Company becoming a highly sustainable company

audits of the legality and validity of the execution of

by approaching audits and other duties in a fair andbusiness duties, etc.

transparent manner, in order to satisfy all stakeholders.

Yasuo Sato

Toshio Kinoshita

Hiroko Yamamoto(Born September 30, 1942)
Outside Director(Audit Committee Member)(Born April 12, 1949)
Outside Director(Audit Committee Member)(Born February 16, 1956)
Outside Director(Audit Committee Member)

In a spirit of rationality and fairness, I am

I shall exert every effort to strengthen

Drawing on my experience and knowledge

determined to contribute to the medium-corporate governance and build a

as a lawyer, I intend to perform myto long-term growth of the Company andmanagement environment that can

responsibilities as a Director who is an Audit

to boost corporate value while aiming for

accurately implement corporate

Committee Member, while focusing on thethe steady implementation and further

governance, in order to boost corporate

fullest compliance and the effectiveness ofdevelopment of corporate governance.

value and shareholder value.

corporate governance in a spirit of diversity.

Akio Yamamoto

50

E

Denka’s Approach to ESG-Oriented Management

Denka’s Reduction Targets for GHG Emissions■

Reduce GHG emissions 26% in fiscal 2030 from the fiscal 2013 level(Reduction volume: 610,000t-CO2)❶ Reduce emissions from energy sources 20% (11% of overall emissions)

Medium-termtargets(Fiscal 2030)

Initiatives to Preserve andProtect the Environment(reduction volume: 260,000t-CO2)❷ Reduce emissions from non-energy sources 9% (4% of overall emissions)(reduction volume: 90,000t-CO2)❸ Reduce overall emissions a further 11% by employing new technologies andpromoting process reforms (reduction volume: 260,000t-CO2)

Long-term targets(Fiscal 2050)■

Reduce net GHG emissions* 85% by the end of fiscal 2050
(reduction volume: 2,000,000t-CO2)*Net GHG emissions: Volume of GHG emissions less the volume of GHG absorption

Initiatives Aimed at Curbing GHG Emissions

A Message from the Officer in Charge of Environmental Measures

Doing Our Best as a Chemical Product Manufacturer to Live up to Society’s Expectations
and Trust by Preserving and Protecting the Environment

Hideki Hirano
Managing Executive Officer,
Supervisor of Environmental Measures Promotion

Amid fears engendered by the growing impact of climate change attributable to global
warming, international efforts are currently under way to achieve the Paris Agreement’s
goal of keeping the average global temperature rise to less than 2°C above pre-industrial
levels. As a company engaged in the development and manufacture of chemical
products, Denka is responsible for and is determined to play significant roles in these
efforts.
I am charged with spearheading particularly important environmental measures
aimed at countering greenhouse gas (GHG) emissions, waste disposal and otherenvironmental footprints attributable to Group operations in addition to developing climate
scenarios to this end. Under the defined numerical targets, we are thus striving to ensurethat measures being undertaken by Denka Group companies are truly effective.
Specifically, we are promoting the use of clean energy via the construction ofcompany-owned hydroelectric power plants while reducing GHG gas emissions
throughout the life cycles of our products. At the same time, each production base isendeavoring to curb the emissions of environmental load substances or to achievezero-emissions status. In addition, ambitious projects are now under way to develop novel
technologies for recycling plastic and other waste as well as innovative solutions forcountering global warming. In these ways, we will live up to society’s expectations andtrust.

Risks

2

3

51

Legal Regulations

Physical impact

OthersCat. 2: Capital goods

Medium- to Long-Term Reduction Targets for GHG Emissions(Scope 1 and 2)
（%）

100

80

100%

(Unit: thousand t-CO2/year)

2,350

89%

86%

2,030

2,090

80,000t-CO /year

130,000t-CO /year
274%

Growth in business opportunities arising fromdemand for Denka’s energy-saving
technologies

Frequent operational disruption at
manufacturing bases and other business sites
due to an increase in flooding, rainstorms andmega typhoons

Growing need for ultrahigh-strength concretethat enhances the resilience of concrete
structures and infrastructure components(such as expressways) as well as forquick-hardening and setting concrete that
supports the timely restoration of such
facilities following natural disasters

Growing uncertainty regarding stock prices
and our corporate reputation due to everharsher scrutiny of the Company’s climatechange countermeasures as shareholders andinvestors began to place stronger focus on
ESG investment

Growing need for Denka products capable ofhelping reduce CO2 emissions on the back ofan overall shift to low-carbon operations
among supply chain constituents2

Scope 3emissionsCat. 1: Purchased goods
and services

670,000t-CO /year

Fiscal 2018

60

40

Denka Value-Up

Cat. 12: End-of-life
treatment of soldproducts

1,740
15%

350
FY2013

FY2018FY20222

1,310,000
t-CO2/year

380,000t-CO /year
2

20

0

50,000t-CO /year

Cat. 3: Fuel- andenergy-related activities

FY2030FY2050Note: GHG emissions associated with “Category 10: Processing of sold products” and “Category 11:
Use of sold products” have been excluded due to difficulties in performing accurate and reliable calculation.
* GHG emissions attributable to waste emissions associated with business operations as well as those
attributable to transportation, distribution and employees’ business trips and commuting

Long-Term Outlook for Denka’s Renewable Energy(Power Generation Capacity)
Maximum output (thousand kW)

200

Opportunities

A surge in fossil fuel and energy costs due tothe enforcement of tightened CO2 emission
regulations based on the Paris Agreement

Other*

2

Promoting the Use of Clean Energy

Climate Change: Risks and Opportunities

1

Having set reduction targets for total GHG emissions as well as for the CO2 emissions intensity index attributable to energy sources,
we are systematically implementing global warming countermeasures by engaging in energy-saving initiatives and promoting the useof renewable energy. The Company has also formulated medium- to long-term targets (for fiscal 2030 and 2050) in light of the “2°Ctarget” proposed in the Paris Agreement.

A stable power supply and efficient energy usage are essential to the manufacture of industrial
chemical products. Since its founding, Denka has proactively developed a network of hydroelectric
power plants. Today, this network consists of 15 power plants, including those owned by
Kurobegawa Electric Power Company, a joint venture established by Denka and a local powercompany, and is supplying energy equivalent to approximately 30% of Denka’s overall energy
consumption. Meanwhile, at our thermal power plants, which are being converted to run on natural
gas instead of heavy oil, we are working to introduce high-efficiency gas turbine generators. We
also utilize heat from cement production for power generation while employing biomass boilers forthe same purpose with the aim of reducing CO2 emissions attributable to energy use. Goingforward, we will engage in corporate activities that give due consideration to environmental
concerns, thereby contributing to the creation of a low-carbon society.

150■Solar117

125

FY2005FY2018■Biomass■Hydroelectric

153

100
50
0

FY2030Note: The calculation of the figures presented above incorporated 50% of
annual output from power plants run by Kurobegawa Electric Power Company(jointly owned with Hokuriku Electric Power Company).

A Hydroelectric Power Plant under Construction, Aiming toReduce CO2 Emissions even Further
The New Omigawa Power Plant (maximum output: approximately 8,100 kW; planned operational
kickoff: December 2020) is under construction upstream of the Omigawa Power Plant. Thus far, thegroundwork for the plant building is under way along with the development of sites around thefacility premises. Moreover, Kurobegawa Electric Power Company is currently constructing the New
Himekawa Power Plant No. 6 (maximum output: approximately 28,000kW; planned operational
kickoff: April 2022). These facilities are expected to contribute to a total reduction in CO2 emissionsof approximately 35,000 tons per year once operations are under way.

52

Denka’s Approach to ESG-Oriented Management
Environmental

Contribution to the Development of a Recycling-Oriented Society (resource recycling in cement production)

Initiatives to Reduce Marine Plastics

We are promoting a switchover of raw materials and fuels used by cement production facilities at Denka’s Omi Plant (Itoigawa, Niigata
Prefecture), replacing a portion of the natural minerals usually used with waste in an effort to step up resource recycling.
In addition, these facilities also accept byproducts from other production facilities within the Omi Plant’s premises and effectively
utilize them as cement materials. By doing so, we are striving to help preserve the environment.
Looking ahead, we will take full advantage of a variety of technological elements suited for the processing of waste andbyproducts. Ceaselessly pushing ahead with resource recycling, we will help develop a recycling-oriented society and thereby
contribute to local communities.
Breakdown of Waste Accepted in Fiscal 2018

In September 2018, Denka co-founded the Japan Initiative for Marine Environment(JaIME) in tandem with other 21 companies, with the aim of fulfilling its
responsibilities as a manufacturer and seller of plastic products. JaIME is currently
engaged in the promotion of “3Rs” to help raise public awareness in countries andregions that emit a volume of waste plastics.
With the aim of addressing this problem via new product development, Denka
Polymer Co., Ltd., a Group subsidiary that manufactures plastic-based foodcontainers, released PLAPS, the industry’s first bioplastic combining polylactic acidand polystyrene, as well as CLEALEAD, which is 35% lighter than amorphouspolyethylene terephthalate (A-PET).
The Denka Group is thus striving to deliver innovative solutions aimed atpromoting the efficient use of plastics and reducing burdens placed on the global
environment, to this end taking full advantage of its comprehensive technologicalstrengths ranging from resin material synthesis to polymer processing and molding.

12%

Recycling of Urban Garbage Incinerator Ash

SludgeOther

Our recycling operations also accept and utilize urban
garbage incinerator ash as cement materials. Throughthese operations, we recycle a volume of incinerator
ash, which is regularly emitted from incineration
facilities in urban communities. In addition tocontributing to the creation of a recycling-oriented
society, this practice gives these communities moreleeway before their final waste disposal sites are filled
to capacity.

31%

Waste oil and plastic andwood chips

5%

Accepted

Construction soil

844,000tons

8%

Slag andfoundry sandFly ash24%

20%

Waste accepted
per unit of production

External sources

Waste accepted per unit ofproduction (kg/t)

In-house sources

578

1,200

600
500

1,000

262

800

400

Biodiversity

300

600

582

400

200

200

100

0

0

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

In recent years, the general public has voiced growing concerns with regard to environmental issues that significantly affectbiodiversity. These issues range widely from the pollution of rivers and oceans, including the micro-plastic contamination of marine
environments, and coral bleaching to the extinction of wildlife species and the equitable distribution of the benefits of biologicalgenetic resources.
With the Convention on Biological Diversity coming into effect in 1993, a growing number of businesses are striving to help realize
the United Nations SDGs and supporting other international initiatives related to biodiversity. With this in mind, Denka is constantly
endeavoring to reduce environmental burdens attributable to its production activities by working in collaboration with the entities thatcomprise its supply chains. At the same time, the Company gives due consideration to the preservation of biodiversity and the naturalenvironment when it is engaged in the construction of hydroelectric power generation facilities and the development of mines.
Moreover, Denka is focusing on the sustainable use of resources throughout the course of the development and provision of its
products and services. In addition, the Company provides environmental education on a regular basis to ensure that every Group
employee is acutely aware of the significance of biodiversity. In these ways, we will step up corporate activities aimed at contributing
to a sustainable society.

2018 (FY)

Recycling Process Flowchart

Organic sludge

Waste and byproducts

Limestone

Inorganic sludge

Clay

Incinerator ash

Waste plastic Waste oil

Fly ashGypsumbyproducts

Blast furnace slag

Examples of concrete initiatives:①Conducting periodic surveys aimed at assessing the impact oflimestone mine development on ecosystems in neighboring areas

Construction soil

Raw materials
SilicaFoundry sandIron materials

Slag

CementDryer andraw materials
grinder

Note: Inorganic sludge, incinerator ash andconstruction soil are used in place of clay

53

The Denka Group’s Policies on the Prevention of Air, Water, Soil and Other Environmental Pollution
Denka is properly managing the volume of environmental load substances emitted from production facilities and R&D bases run by its
Group companies while continuously working to reduce the emission of such substances. In addition to managing its GHG emissions,
the Group is striving to control emissions of SOx and NOx from boilers and heating furnaces as well as soot and dust and PRTR
substances from production lines.
We are committed to complying with relevant laws and national and municipal regulations and standards as well as upholding
pollution control agreements with local authorities. Having installed wastewater treatment facilities, bag filters and other equipment toremove harmful substances, we are enforcing voluntary emission standards that are even more stringent than those mentioned abovein the course of facility operations and maintenance.

Volume of Waste Accepted (total and per unit of production)
Amount processed(1,000 tons)

A food container made of PLAPS, a combination ofpolylactic acid (PLA; a plastic material derived fromstarch and other plant products) and polystyrene (PS)

Rotary kiln

Biomass boiler for
in-house power
generation

Finishing mill

Wood chips②Engaging in the planting of Japanese evergreen oak and pin oak trees
to restore areas that have undergone mining to their original state③Preserving Cephalanthera erecta and Cephalanthera falcata, both ofwhich are facing a growing threat of extinction and have been
designated as class II endangered species by the Tokyo Metropolitan
Government, on the premises of the Denka Innovation Center (Machida,
Tokyo) and adjoining areas

Cephalanthera erecta and Cephalanthera falcata
preserved by the Denka Innovation Center④Developing a water treatment business via Group company Denka
Consultant & Engineering Co., Ltd. by employing its microorganism
handling technologies

54

S

Denka’s Approach to ESG-Oriented Management

Initiatives to Mitigate Intrinsic Dangers Associated with Our Operations“Prioritizing safety to help realize Denka Value Up and build a brighter future!”
We are upgrading risk assessment activities to prevent facility-related accidents through the implementation of measures that address intrinsic
dangers in accordance with the scale of each risk. To ensure that all facilities are equipped with proper safety measures, we also developed
safety design standard documents that incorporate the latest safety standards, with the aim of mitigating intrinsic dangers associated with ouroperations. Moreover, we clearly set aside budgets for capital investment in safety measures, expending approximately ¥2 billion every year forthis purpose to ensure that all necessary measures are implemented. In addition, initiatives to prevent accidents attributable to unintended
human action include the following.

Prioritization of Safety

Enhance training facilities thatsimulate dangerous situations

Introduce virtual reality (VR)-based
accident simulator

Confirm operator action via video
recording

Each business base ensures that all of
their workers can undergo safety training
employing such facilities

Let employees experience VR-based
simulations of accidents in which they
are pinned down or caught in machineryor fall from a high place

Correct unsafe behavior that had been
unnoticed by the operator himself via theverification of video-recording by multiple
peers

Basic Policy for Workplace Safety, Health, Security and Disaster Prevention

We put the utmost priority on worksite safety and health, facility security
and disaster prevention in all aspects of our business activities.
To fulfill our social responsibilities as a chemical company, we put the utmost priority on safety as our basic
stance for operations, thereby working together to create a lively and sound workplace and becoming acompany capable of eliminating accidents and disasters and worthy of society’s trust.

Securing Transportation Safety

Chair of the Safety Measures Headquarters (President & CEO)

Safety Management Structure
Annual Safety
Promotion Meeting

Safety Management Structure Overview
Heads of business bases(plant managers)

President

Heads of relevant head
office departments(Chair of the Safety
Measures Headquarters)

Officer in Charge of theEnvironment and Safety(Chair of the RC Committee)

Safety Measures
Headquarters(Secretariat: the Environment and Safety Dept.)

Heads of HR and
Administrative departments
Heads of Business Promoting
departments at each business division

An annual one-day event aimed atpromoting the inspection of andfacilitating discussion about priority
safety initiatives undertaken at eachbusiness site

Safety management
conferences
Conferences aimed at identifying
potential dangers related to
explosion, fire and leakage posedby each manufacturing process andformulating countermeasures

Fiscal 2018 Initiatives
Companywide Targets

Priority Initiatives
Facilitate communication to create a lively and sound workplace while promoting safetyassurance activities in which each worker is able to grasp the worth of their efforts

Reduce the number of
1 major accidents anddisasters to zero2

Continually improve theoccupational safety record

1 Initiatives to reduce the

2 Initiatives to continually

3 Initiatives to ensure safety

・Develop a system for
identifying any signs of serious
risks and mitigate intrinsic
danger associated with ouroperations
・Thoroughly control residual
risks after the implementationof countermeasures as well as
newly emerging risks, with theaim of preventing disasters

・Take full advantage of hazard
prediction systems to spot
workplace danger
・Create a workplace in which
everyone is capable ofconducting on-site hazard
prediction activities before
operations begin

・Promote the exchange ofcourtesies (saying “Goanzen-ni!”or “Stay safe!”), encouraging the
avoidance of unsafe behavior
and discouraging others fromengaging in such behavior
・Thoroughly practice the
3Ss—Seiri (sort), Seiton (set inorder) and Seiso (shine) tofacilitate efforts to identify
workplace danger

number of major accidents
and disasters to zero

improve the occupationalsafety record

for everyone working at
Denka business sites

Follow-Up Report on Initiatives Being Undertaken Since the Major Accident in March 2018
On March 3, 2018, a fatal accident occurred at the Omuta Plant due to the collapse of a bulk bag pile. In response, the plant implemented
measures to prevent the recurrences of accidents of this kind by, for example, reviewing the allocation of cargo stored in warehouses andrevising operational rules with the guidance of the labor standards inspection office. Building on these measures, in fiscal 2018 the plant set
up racks at its warehouses while introducing an IoT-based operational safety management system. In short, the Omuta Plant is enhancing its
safety measures from the aspects of operational rules, facilities and technologies.
Moreover, initiatives are now under way to upgrade risk assessment activities, in particular, enhancing the content of safety education
provided by external specialists and improving risk diagnosis methods, with the involvement of all business units throughout the plant to
identify and remove or reduce risk of major accidents. In addition, initiatives undertaken by the Omuta Plant are being rolled out at otherproduction bases.

55

In fiscal 2018, our initiatives included safety patrols undertaken by staff from the logistics
departments of Denka’s Omi and Omuta plants. We also organized facility tours of otherchemical manufacturer’s production sites to gain new input from external perspectives.
Furthermore, we invited our transportation subcontractors to take part in periodic drills inwhich they practice emergency responses to logistics accidents by employing theinformation on “yellow cards” as well as training sessions aimed at preventing oil leaks.
This both raised their safety awareness and provided an opportunity to exchange opinions
on logistics safety.
In fiscal 2019, we will continue to implement safety patrols in addition to reviewing ourlogistics operations to prevent logistics accidents and enhance our ability to take proper
action at the occurrence of such accidents.

Production Process-Related Incidents and Occupational Accidents
Fiscal 2018 incidents related to our production process included three leaks and two fires.
All these incidents were attributable to the loosening of pipe joints. In response, we
stepped up daily inspections while carrying out the reinforcement of leak detection
equipment and the review of in-house standards for handling leakage. None of theseincidents involved human injury or environmental damage.
As a result, the number of incidents increased by two compared with fiscal 2017, with
the number of accidents involving absence, including those attributable to heatstroke,
failing to decrease.
Furthermore, the number of accidents involving construction workers has notdecreased. We stepped up the practice of on-site patrols by safety staff to address
this issue.

TOPICSA training session aimed at preventing oil leaks

A “Yellow Card” drill

Total Number of Occupational Accidents(Directly managed sites and subcontractors)

22
19

No absence

15
13

3
(FY) 2014

2
2015

Absence

15
9

14
9

6

4

2016

2017

Death

16
10

1

6
2018

Initiatives to Reduce the Number of Occupational Accidents■Trend in the number of accidents in which a worker
is pinned down or caught by machinery
Having upgraded our facilities to enhancesafety measures, the number of such accidents
decreased. Ongoing efforts are now under way
to make further improvements.

137(FY) 2014

2015

10

2016

7

2017

3
2018

■Trend in the number of accidents in which a worker falls
Despite a decrease in the number of accidentsof this kind, we recognize the need to
implement more robust measures to address
the aging of workers and other changes in theworking environment. We will therefore continue
to upgrade our safety measures, including those
aimed at correcting individuals’ unsafe behavior.

5(FY) 2014

6

2015

8

2016

6

2017

4
2018

56

Denka’s Approach to ESG-Oriented Management
SocialRevision of the Personnel System

Human Resource Development

Our Strategic Focus on Nurturing Human Resources with Specialized Skills
In line with its strategy aimed at promoting specialization, Denka has positioned human resources as an essential component that has
to be specialized along with businesses, products and technologies. Accordingly, we are focused on nurturing human resources withspecialized skills. To this end, we are helping employees take full advantage of their innate competencies while encouraging them toacquire unique skills.
In conjunction with the April 2018 launch of the Denka Value-Up management plan, we established the Career Value-Up Center,a dedicated body charged with human resource development under the HR Department. We are also providing the Specialty Human
Resource Development Program, which consists of 200 types of training sessions, including job-level based training and specialist
courses.
Through these initiatives, we are striving to develop human resources capable of gaining a significant presence on the global
stage. In this way, we will achieve goals of Denka Value-Up and realize The Denka Value, our corporate philosophy.

Ideal Traits for Denka Employees ̶ Human Resources with Specialized Skills

Human resources who pursue success on the global stage in theirarea of specialty and are capable of gaining a significant presence

Having revised our conventional job categories, wereclassified specialists as “G-category” employees,with the idea of evoking such words as general andglobal. At the same time, we established“M-category,” which takes its name from the word
middle and collectively encompasses engineers andgeneral staff, while removing clear distinctions
between those in these two conventional categories
so that individuals may take on a broader range oftasks. We also clarified the job roles employees ineach category are expected to fulfill.
Furthermore, we revised our evaluation system,
which constitutes the foundation of our personnel
system, improving it from the perspective oftransparency, fairness and persuasiveness. We also
made it rule to provide appropriate feedback to
employees to help them acquire insights into careerdevelopment and better motivate them.

Specialty

Specialty

Innate competencies

Missions

G-category

Specialists

Engineers

General staff

Evaluation system
・Duties・Competencies
・Performance

Spontaneous
improvement

Evaluation items

Fair evaluation

Appropriate feedback

・Reforms,
integration andaccomplishments
・Mindset, skills,
expertise,
professional
literacy andpersonality

・Provideevaluators withproper training
・Incorporate
multifaceted
perspectives

・Utilize a“feedback sheet”
・Help employees
achieve future
growth via
evaluation

Status of Workforce Diversity(consolidated basis)

FY 2016

FY 2017

FY 2018

Number of employees

5,816

5,944

6,133

912

933

900

4,859

4,978

5,206

Elsewhere in Asia

670

682

657

The Americas

257

256

239

Europe30

28

31

Number of women in managerial
positions (managers or above)

---

---

43

A cover of the DVDfrom the Diversity
Promotion Section
Prepared an instruction
video and distributed it to all
workplaces.

Note: Data on the number of women in managerial positions (managers or above; consolidated basis)
had not been collected until fiscal 2018.

“Denka DNA”

M-category

Reforms

Having established the Diversity Promotion Section in October 2017, we are developing a sound workplace environment in which
every employee can stay healthy and work vibrantly under the slogan “Your value is Denka’s value,” with the aim of helping themrealize their full potential.
In the first year of the Denka Value-Up management plan, we prepared an instruction video aimed at facilitating employee
understanding of diversity. We also strove to help raise employee awareness of autonomous career development by, for example,
providing training sessions for this purpose. Moreover, we incorporated the diversity perspective into the revised personnel system
discussed above. In these ways, we endeavor to maximize motivation for all employees and enhance their sense of fulfillment while
helping each individual achieve personal growth, believing that the success of Denka’s pursuit of corporate growth hinges on them.
As part of efforts to promote diversity, we will also execute operational process reforms, including the introduction of AI and IoT tostandardize our operations and facility improvements aimed at reducing burdens on workers.

Regions Japan
Specialty

Revised system

Promoting Diversity(Foreign nationals)

Specialty

Conventional system(changes in job categories and evaluation system)

A poster for the 2018
“Denka Relay”
Implemented a campaign aimed
at facilitating intersectional
collaboration

Helping Employees Strike Work-Life Balance

TOPICS

Our Employee Education Programs

As part of job-level based training, we provide younger employees with unique training
programs, including a presentation of Denka’s history, which dates back to 100 years ago
and participation in volunteer activities in Minami Sanriku-cho to support ongoing efforts thatbegan in 2011 to restore disaster-stricken communities. By doing so, we are helping themdevelop their mindset, skills, expertise, professional literacy and personality.
Meanwhile, specialist courses include workshops themed on how to realize innovationand create new value as well as training programs designed to help acquire marketing skills
for creating unconventional businesses and those aimed at instilling methods for formulating
business strategies. These programs are intended to nurture managerial candidates and help
enhance their skills in their areas of specialty.

57

Denka staff taking part in volunteer activities in Minami
Sanriku-cho as part of training programs for new recruits

Opening the Health Insurance Society Web Portal

Enhancing the Content of Annual Health
Checkups●We upgraded an in-house program aimed at subsidizing
influenza vaccination expenses (expanding the scope of eligible
persons to include all insured persons and resignees wishing tomaintain their insured status as well as the dependent families
of insured persons).

●To help prevent lifestyle-related diseases, we added themeasurement of sd LDL-C to the list of optional items
for annual employee health checkups (employees aged
40 or older are eligible to receive full subsidization forthis option).

●Having enhanced our cancer checkup subsidy program, we
have seen 20% growth in the number of female employees who
undergo checkups aimed at detecting female-specific diseases.

¥

Introducing E-Pay Slip(full-time employees only)58

Denka’s Approach to ESG-Oriented Management
SocialSocial Contribution Activities

Quality Management

Denka Group Social Contribution Policies
Denka aims to proactively play a positive role in society as a good corporate citizen. With this in mind, the Company hereby
establishes its basic policies with regard to social contribution, clarifying the roles and responsibilities all Denka Group members must
fulfill in terms of efforts to facilitate the sound and sustainable development of society.
Since its founding in 1915, the Denka Group has been pursuing the possibilities of chemical technologies. Through this pursuit,
the Group has endeavored to fulfill its unchanging mission as a manufacturer in an effort to contribute to the advancement of humancivilization and the development of society. For more than a century, the Group has accumulated strengths in such fields as thegeneration of clean energy and the development of energy-saving technologies. The Group also boasts an array of products, services
and solutions capable of contributing to social development and environmental preservation. The Group is committed to fulfilling its
social responsibilities by employing these strengths.
To this end, the Group will leverage its business network around the globe as a platform for social contribution. At the same time,
the Group will focus on developing an environment that better encourages Group employees to take part in the following three
initiatives while raising their social contribution awareness.

To achieve the goals of the Denka Value-Up management plan, all employees must maintain acute quality awareness and strictly
comply with quality, safety and other standards while engaging in ongoing quality improvement activities, with the aim of delivering
products and services that live up to the trust placed in them by customers and society as a whole.

Our Concepts
behind the
Quality Policy

The Denka Group handles a broad range of operations, including various organic and inorganic
materials, electronic materials and pharmaceuticals. In line with the quality policy aimed at supporting
the implementation of the management plan, we have placed the greatest emphasis on delivering
products and services that live up to customer trust. To this end, we are engaging in quality assurance
activities by giving due consideration to customer requirements in each business field and the latest
conditions in the social environment.

１ Educational, academic and cultural development

Our Approach to Chemical Substance Management

The Group will nurture young people, among whom the manufacturing industry’s future leaders may be found, while
proactively providing assistance to forward-looking academic pursuits and research activities. Simultaneously, the Groupwill contribute to cultural development.

Based on in-house guidelines for the management of chemical substances used in our products, we are properly managing substancesthat are potentially hazardous to human health and the environment in accordance with relevant legal regulations and industry
standards. In particular, we confirm with suppliers the content of legally regulated substances before adopting a new raw material. We
also inform users of the content of regulated chemical substances in our products, including molded products, by issuing safety data
sheets (SDS) and employing the chemSHERPA scheme designed to communicate chemical substance content information.

2

Community contribution and the preservation of the global environment

Paying respect to diverse cultures and customs in countries around the world, the Group will take a community-rooted
approach in its efforts to promote the sound development of local societies in which it operates. Moreover, the Group will
voluntarily implement initiatives aimed at preserving the global environment while sparing no effort to enhance theefficiency of its use of limited resources, with the aim of contributing to the realization of a sustainable society.

3

Assistance to health promotion, contribution to people’s well-being and facilitation of sports activities

The Group will facilitate sports activities, provide assistance to people’s health promotion efforts and contribute to theirwell-being. By doing so, the Group will help improve people’s quality of life in a way that leverages its core business
functions associated with healthcare and the living environment.

Examples of Fiscal 2018 Initiatives
Donation of Ebola Virus Rapid Diagnostic Test Kits to the Democratic Republic of Congo (DRC)
On May 25, 2018, Denka Seiken donated prototypes of Ebola virus rapid diagnostic test kits (QuickNaviTM series) to the DRC. These
test kits were co-developed by Denka Seiken and Professor Ayato Takada (Hokkaido University’s Division of Global Epidemiology,
Research Center for Zoonosis Control) and are capable of confirming Ebola infection within approximately 15 minutes without using
any specific medical facilities. Therefore, these test kits can be used by healthcare practitioners operating in regions with poor medical
infrastructure. Looking ahead, we will promote solutions aimed at delivering the early diagnosis of infectious diseases and preventing
pandemics.

Holding the DENKA BIG SWAN Junior Soccer Festival
On August 19, 2018, we held the fourth round of the DENKA BIG
SWAN Junior Soccer Festival at DENKA BIG SWAN STADIUM(former Niigata Stadium; renamed upon the acquisition of namingrights by Denka) in collaboration with Itoigawa City’s Board of
Education, Sports Association and Soccer Association. With theattendance of approximately 400 people, including children who
are members of local junior soccer teams and their parents fromregions across Niigata Prefecture, we organized exchange games
as well as a soccer clinic by players from ALBIREX NIIGATA, aprofessional soccer team listed in the J2 League. Going forward,
we will take advantage of DENKA BIG SWAN STADIUM as a venue
for assisting in the development of regional communities and thepromotion of sports activities.

59

The Denka Group’s Fiscal 2019 Quality Policy

Quality Management System
Establishing Quality Assurance Departments at
Each Business Division
With the aim of enhancing the Denka Group’s quality assurance
systems, in April 2019 we established Quality Assurance
departments directly managed by heads of the Elastomers &Performance Plastics, Infrastructure & Social Solutions andLiving & Environment Products divisions. Equipping these threedivisions with functions equivalent to similar existing
departments in the Electronics & Innovative Products and Life
Innovation divisions, this move is expected to help us develop a
structure capable of accommodating customer requests in an
accurate and timely manner and better position Denka to deliverproducts that live up to customer trust.

Elastomers &Performance Plastics
Infrastructure &Social Solutions
Electronics &Innovative Products
Living &Environment ProductsLife Innovation

Each department
Quality Assurance Dept.
Each department
Quality Assurance Dept.
Each department
Quality Assurance Dept.
Each department
Quality Assurance Dept.
Each department
Product Reliability Assurance Dept.

Status of ISO and Other Quality Management Certification
Denka and its key subsidiaries have maintained the ISO 9001 and other quality management system certification for their mainstay
products to continuously improve quality management. Although ISO 9001 standards and ISO13485 medical device quality
management system standards underwent revisions in 2015 and 2016, respectively, we completed updating our quality management
systems in accordance with the revised standards.

Quality Education

Opening ceremony

We provide new recruits with basic education on quality management while
upgrading their knowledge via intermediate quality management education.
Moreover, we provide various training sessions designed to meet the needsof employees in each job level and based on products they handle.
Specifically, these training sessions address quality-related laws, regulations
and rules, statistical quality management methods, reliability and quality
function deployment methods, quality management system operations andother relevant topics, with the aid of external specialist organizations. In theseways, we are helping employees raise their quality assurance awareness andacquire quality management techniques.
60

Financial Information
Consolidated Financial Statements

Denka’s 11 Year-Financial Summary
Fiscal 2008

Fiscal 2009

Fiscal 2010

Fiscal 2011

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2017

Fiscal 2018

Net sales

334,130

323,875

357,893364,712

341,645376,809

383,978

369,853

362,647

395,629

413,128

Operating income

10,302

21,655

24,61820,713

18,817

21,23024,04730,63425,84433,652

34,228

Ordinary profit

3,094

16,88823,052

18,996

17,82420,60424,28727,022

23,15831,49932,811

Profit attributable to owners of parent

1,439

10,474

14,355

11,330

11,255

13,57319,021

19,472

18,14523,03525,046Equity in earnings (losses) of affiliates

314

223

1,189

966

530

550

950

1,097

568

1,105

1,384

Current assets

122,862

138,360

143,352

153,637

158,595

164,747

170,497

161,876

168,902

184,129

190,730

Total assets

377,912400,407402,046

402,552

415,356

431,347445,569

443,864

454,944473,799483,827

Current liabilities

137,034

150,689

153,410

160,676

170,752

163,645

160,101

147,537

144,190

158,043

154,047

Net assets

150,142

160,316

168,182

172,737

180,709

189,516

210,798

216,071

227,487242,780

250,481Interest-bearing debt

135,764

120,576

114,562

118,049

114,241

120,669

122,536

124,596

113,748

108,269

112,134

Cash flows from operating activities

5,794

46,41833,78028,521

40,21527,24535,55744,01439,557

48,776

Cash flows from investing activities(33,876)(28,377)(23,763)(22,363)(25,864)(26,693)(27,449)(34,979)(22,258)(29,298)

32,660Cash flows from financing activities

31,096(17,262)(10,554)(4,050)(12,784)(3,327)(7,437)(7,348)(19,319)(15,858)(8,408)Cash and cash equivalents at end of year

6,077

6,815

6,160

8,207

10,680

8,244

9,157

11,813

10,174

14,101

13,88914.44

106.67146.20116.11

118.13145.16207.40214.71205.05261.80286.181,503.01

1,607.32

1,686.73

1,768.20

1,884.96

2,013.84

2,279.70

2,366.74

2,526.42

2,727.94

2,839.16

Operating income ratio

3.1

6.7

6.9

5.7

5.5

5.6

6.3

8.3

7.1

8.5

8.3

ROE

1.0

6.9

8.9

6.7

6.4

7.4

9.6

9.3

8.3

10.0

10.3

ROA

0.8

4.3

5.8

4.7

4.4

4.9

5.5

6.1

5.2

6.8

6.9

Shareholders’ equity ratio

39.1

39.4

41.2

42.3

43.1

43.5

46.9

47.7

49.1

50.5

51.0

Capital investment (millions of yen)

34,99626,92821,32522,87826,96425,73521,30021,19625,731

22,71032,745

Depreciation and amortization (millions of yen)

19,39020,932

22,292

23,192

21,58522,25423,032

23,242

24,35924,59922,946R&D expenses (millions of yen)

10,285

9,615

9,819

10,63910,605

10,828

11,127

11,787

13,026

13,86814,562

Number of employees at end of year

4,783

4,742

4,768

4,921

5,206

5,249

5,309

5,788

5,816

5,944

6,133

Summary Statement of Income (Millions of yen)

Financial Position (Millions of yen)

Cash Flows (Millions of yen)
(26,176)

Per share information (Yen)Profit per share
Net assets per share

Financial Indices (%)

Other

Note: Figures for fiscal 2017 and later are modified in accordance with the Partial Amendments to Accounting Standard for Tax Effect Accounting (Accounting Standards Board ofJapan (ASBJ) Statement No. 28 issued in February 2018).

61

62

Financial Information(Millions of yen)

Consolidated Balance Sheets(Millions of yen)

Fiscal 2017 Fiscal 2018

Liabilities

Fiscal 2017 Fiscal 2018

184,129

190,730

Current liabilities

Cash and deposits

14,115

13,902

Notes and accounts receivable̶trade95,583

95,780

Merchandise and finished goods

43,76147,455Work in process

3,669

4,389

Raw materials and supplies

18,87019,911

Other

8,595

9,802

Allowance for doubtful accounts

(466)

(511)

AssetsCurrent assets

Noncurrent assets
Property, plant and equipment
Buildings

289,670

293,097

209,761

218,677

39,42440,497Structures

22,111

21,895

Machinery and equipment

66,94770,359488

796

Tools, furniture and fixtures

3,249

3,820

Land

63,32363,366

VehiclesLease assets
Construction in progress

248

307

13,96817,634

158,043

154,047

Notes and accounts payable̶trade53,62552,924

Short-term loans payable

41,10043,101

-

2,000

634

5,062

Current portion of bonds

15,0005,000

Accounts payable̶other

14,67718,504

Income taxes payable

5,855

3,010

Accrued consumption taxes

1,081

487

Accrued expenses

10,746

10,881

Provision for bonuses

3,002

3,122

Other

12,321

9,953

Noncurrent liabilities

72,97579,298

Bonds payable

12,00022,000Long-term loans payable

39,53534,969Commercial paper
Current portion of long-term loans payable

Deferred tax liabilities

5,318

4,961

Deferred tax liabilities for land revaluation

8,403

8,403

Net defined benefit liability

6,002

7,269

Provision for stock benefits

18

44

1,696

1,650

231,019

233,346

Other
Total liabilities

13,88012,415

Software

1,148

978

Goodwill

9,315

8,312

Right of using patent

Investments and other assets

66,027

3,124

62,004

58,17855,028Long-term loans receivable

552

236

Long-term prepaid expenses

2,122

Deferred tax assets

Investment securities

1,681
1,105
702

Interest expenses
Other
Ordinary income
Extraordinary income

707
4,933

36,998

Capital surplus

49,39149,353

Change in ownership interest of parent due to transactions with
non-controlling interests

Accumulated other comprehensive
incomeValuation difference on available-for-salesecurities

Deferred gains or losses on hedges(3,189)(5,492)

26,584

21,362

17,44815,182

Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders’ equity
Total changes of items during the fiscal year
Balance at end of the fiscal year

10,26010,2601,699

Foreign currency translation adjustment

1,241

(120)

2,534

2,736

Remeasurements of defined benefit plans(2,170)(3,614)

Other

2,779

2,422

3,717

3,620

Allowance for doubtful accounts

(139)

(118)

Total net assets

242,780

250,481

Change in ownership interest of parent due to transactions with
non-controlling interests

473,799483,827

Total

473,799483,827

Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders’ equity
Total changes of items during the fiscal year
Balance at end of the fiscal year

At the beginning of fiscal 2018, Denka adopted “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, dated February 16, 2018).
In line with this standard, the Company revised relevant disclosure methods, with deferred tax assets being classified under investments and other assets, and deferred tax
liabilities being classified under noncurrent liabilities.
The adoption of these amendments resulted in changes in consolidated balance sheet items for the previous fiscal year, namely, a ¥2,338 million decrease in deferred
tax assets classified under current assets, a ¥1,052 million increase in deferred tax assets classified under investments and other assets and a ¥1,286 million decrease indeferred tax liabilities classified under noncurrent liabilities.
Moreover, Denka has offset its deferred tax assets and liabilities as a single taxable entity. This resulted in a ¥1,286 million decrease in total assets as of March 31, 2018.

389
718

1,108
32,392

6,480
978

6,347
23,224
188
23,035

7,459
24,933(112)
25,046(Millions of yen)

Shareholders’ equity
Capital surplus

Retained earnings

49,391

129,278

36,998Treasury stock

Total shareholders’ equity(3,189)212,479(2,311)
9(10,082)
25,046396(43)(2,311)
15(10,082)
25,046396(43)
5−36,998(37)
49,353

15,359144,638−
13,019225,498(2,302)(5,492)

From April 1, 2018 to March 31, 2019

Revaluation reserve for land

Changes in
Disclosure
Methods

689(Millions of yen)

Accumulated other comprehensive income(345)

Non-controlling interests

5,611
32,811

689

From April 1, 2018 to March 31, 2019
Capital stock

36,998Treasury stock

7,280
(933)

Consolidated Statement of
Changes in Net Assets

Capital stock

-

1,928
29,571

Income taxes̶deferred
ProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent

4,193

762
4,849

5,641
31,4991,928

Loss on liquidation of business
Loss on disaster
Income before income taxes
Income taxes̶current

Dividends from surplus
Profit attributable to owners of parent
Change of scope of consolidation

2,313
1,384
495

3,488

-

Loss on sales of investment securities
Extraordinary loss

(195)

Total assets

63

3,417

413,128
310,839102,289
68,06034,228Interest and dividend income
Equity in earnings of affiliates
Other
Non-operating expenses

225,498

144,638

395,629295,583
100,046
66,39433,652

Operating income
Non-operating income

212,479

129,278

Fiscal 2018
(From April 1, 2018 to March 31, 2019)

Gross profit
Selling, general, and administrative expenses

Shareholders’ equity

Retained earnings

Fiscal 2017
(From April 1, 2017 to March 31, 2018)

Net sales
Cost of sales

Balance at beginning of the fiscal year
Changes of items during the fiscal year

Net assets
Intangible assets

Consolidated Statements of Income

Valuation difference Deferred gains
on available-for-sale or losses on
securities
hedgesBalance at beginning of the fiscal year
Changes of items during the fiscal year

17,448(195)

Revaluation
reserve forland

10,260Foreign currency Remeasurements Total valuation Non-controllingtranslationof defined
and translation interests
adjustment
benefit plansadjustments

1,241(2,170)26,584(1,443)(1,443)(3,614)

−
−
−
−
−
−
(5,221)(5,221)
21,362

Dividends from surplus
Quarterly profit attributable to owners of parent
Change of scope of consolidation(2,265)(2,265)
15,182

(149)
(149)
(345)

−
10,260(1,362)(1,362)(120)

Total net
assets

3,717

242,780

(96)
(96)
3,620

(10,082)
25,046396(43)(2,311)15(5,318)7,701
250,48164

Financial Information

Consolidated Statements of Cash Flows

Corporate Information(Millions of yen)

Fiscal 2017

Fiscal 2018

(From April 1, 2017 to March 31, 2018)(From April 1, 2018 to March 31, 2019)

Cash flows from operating activities
Income before income taxes

29,571

32,392

Depreciation

23,86022,434

Amortization of goodwill

738

511

Increase (decrease) in provision for bonuses

120

123

Increase (decrease) in net defined benefit liabilities

(722)

(814)

Increase (decrease) in allowance for doubtful accounts

(680)

28

(1,681)(2,313)

Interest and dividend income
Interest expenses(Gains) losses on equity in affiliates

707

762

(1,105)(1,384)(Gains) losses on valuation of investment securities

394

211

(Gains) losses on sales of investments in securities

(79)

(689)

(Gains) losses on sales and disposals of property, plant and equipment

176

412

Losses on business restructuring

1,928

389

(Increase) decrease in notes and accounts receivable(10,485)(3,036)(Increase) decrease in inventories(3,424)(5,501)

Increase (decrease) in notes and accounts payable

8,010(2,132)

Other

5,175

(1,674)

Subtotal

52,50439,720Interest and dividends received

2,068

3,128

Interest paid

(633)

(767)

Income taxes (paid) refunded(5,163)(9,420)Net cash provided by (used in) operating activities

48,776

32,660Company Overview

Proceeds from sale of property, plant and equipment
Purchase of intangible assets(24,981)(27,273)

7

50

(388)

(185)

Purchase of investment securities

(34)

(58)

Proceeds from sale of investment securities

166

946

Purchase of investments in subsidiaries
Other
Net cash provided by (used in) investing activities(4,296)

Name

228

342
(26,176)

Number of shares
Percentage ofheld (thousand shares) shares held (%)

Denka Company Limited
The Master Trust Bank of Japan, Ltd.

103,461

11.89

78,1048.98

32,158

3.70

Agricultural Cooperatives

29,007

3.33

MITSUI LIFE INSURANCE COMPANY LIMITED

23,816

2.74

STATE STREET BANK AND TRUST

17,0501.96(Trust Account 5)

15,092

1.74

Mitsui Sumitomo Insurance Company, Limited

13,832

1.59

SSBTC CLIENT OMNIBUS ACCOUNT

13,819

1.59

JP MORGAN CHASE BANK 385151

13,766

1.58(Trust Account)

Head
OfficeNihonbashi Mitsui Tower, 1-1,

Japan Trustee Service Bank, Ltd.

Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo(Trust Account)103-8338, JAPANFAX: +81-3-5290-5059

Trust & Custody Services Bank, Ltd.
(Mizuho Corporate Bank, Ltd. Retirement
Benefit Trust Account re-entrusted by
Mizuho Trust & Banking Co., Ltd.)May 1, 1915

National Mutual Insurance Federation of

TEL: +81-3-5290-5055

Established
Paid-in
Capital¥36,998 million (as of March 31, 2019)

Main
business•Elastomers & Performance Plastics(Chloroprene rubber, styrene-based synthetic
resins, styrene monomer and acetyl chemicals)

COMPANY 505001
Japan Trustee Service Bank, Ltd.

•Infrastructure & Social Solutions(Cement, special cement additives for concrete,
fertilizers and inorganic materials as well as
polymer processing products for civil engineeringand agriculture use)
•Electronics & Innovative Products(Electronic packaging materials, functional
ceramics, electronic circuit substrates, thermalmaterials, adhesives, acetylene black, etc.)

Note: Percentage of shares held is calculated after excluding treasury stock.

Composition of shareholders by category•Living & Environment Products(Polymer processing products for construction andindustrial use, food packaging materials, etc.)

Other domestic
corporations

Employees

Securities
firms

2.0%

6.8%

•Life Innovation(Pharmaceutical products, etc.)

Individual andother shareholders

Financial
institutions

15.5%

6,133 (consolidated basis);
3,250 (non-consolidated basis)(as of March 31, 2019)

47.1%

Foreignshareholders

28.6%

―

(29,298)(as of March 31, 2019)

Shareholder nameCash flows from investing activities
Purchases of property, plant and equipment

Stock Information

Global Network (as of March 31, 2019)

Cash flows from financing activities
Increase (decrease) in short-term loans payable(2,206)―

4,148

Proceeds from long-term loans payable
Repayment of long-term loans payable

(86)

(616)

Cash dividends paid by the Company(7,481)(10,082)

Proceeds from issuance of bonds

7,000

15,000

Payment for redemption of bonds(10,000)(15,000)

(25)

(44)

(3,053)(2,311)

Cash dividends paid to non-controlling interests
Payment for purchase of treasury stock
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents(4)2(15,858)(8,408)57(252)

Net increase (decrease) in cash and cash equivalents

3,676(2,176)

Cash and cash equivalents at beginning of year

10,174

14,101250

1,964

14,101

13,889

Increase (decrease) in cash and cash equivalents from newly consolidated subsidiaries
Cash and cash equivalents at end of year

65496
13 business sites

Denka Chemicals(Düsseldorf, Germany)

28 business sites

Icon Genetics (Halle, Germany)Japan
East Asia
Denka Middle East
and Africa FZCO (Dubai)

Denka Corporation(California)

Denka Corporation
Denka Performance
Elastomer LLC
Denka Corporation(Louisiana)

SoutheastAsia

12 business sites

66