Integrated Report

SHOWA DENKO Report2021

In April 2020, Showa Denko K.K. made former Hitachi Chemical Co., Ltd. (currently Showa Denko Materials
Co. Ltd.) a consolidated subsidiary, and started on the path to integrate the two companies. We have beensteadily moving forward with integration processes, formulating the long-term vision for the newly integrated
company (announced in December 2020), facilitating substantive integration of management structures andsystems, and setting milestones to complete the integration as a legal corporate entity in January 2023.

Purpose of newly integrated company

Change society
through the powerof chemistry
Contribute to the sustainable development of global society
by creating functions required of the times
as an advanced material partner

Ideal state of newly integrated company

Company with a strong presence in the global market
Company that contributes to a sustainable global society

CONTENTS

Our Past and Future02	Dialogue between the Presidents
GOAL FOR OUR NEWLY INTEGRATED COMPANY
12

History Leading Up to Integration

14

Showa Denko Group’s Business Overview

16

Value Creation Process

18

Synergy for Newly Integrated Company

20

CTO Message

Long-Term Strategy to
Realize the Vision

Editorial policies
The Showa Denko Group restructured its CSR report and annual report in2017 to publish the Showa Denko Report as an integrated report. In the2021 report, we introduce the ongoing project of integrating Showa Denko
and Showa Denko Materials, focusing on visions, strategies and activities
underway.
As for disclosure items, we analyzed our stakeholders’ opinions andrequests and covered priority topics, focusing on action policies and­performance in 2020 and giving specific examples. On our website, theonline version of the report is also available with more details about theShowa Denko Group’s activities, including updated information and­environmental and social activity reports from each plant.

24

Top Message

28

Long-Term Vision for Newly Integrated Company

32	Feature Story 1
Challenges to Realize Carbon Neutrality
34	Feature Story 2
Tackling SDGs through Business Activities
38

CFO Message

42

DX Initiatives

45

Organizational Integration

Initiatives Supporting
Sustainable GrowthReport scope
Period covered by this report
This report covers information for the period from January 1 to December 31,
2020, with some information also provided for 2021.

48

Stakeholder Communications

49

Materiality

52

Measures against Climate Change(Disclosure in Line with TCFD)

Publication dateAugust 2021

54

Responsible Care (Quality Assurance,
Chemicals Management, Health and Safety,
Environmental Preservation)

56

Human Resource Development andDiversity & Inclusion

Guidelines/guidance referenced
ISO26000 2010
GRI Sustainability Reporting Standards 2016
Environmental Reporting Guidelines 2018 from the Ministry of theEnvironment of JapanThe International Integrated Reporting Framework from the International
Integrated Reporting Council (IIRC)
Guidance for Collaborative Value Creation from Ministry of Economy,
Trade and Industry of Japan
Final Report Recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) from Task Force on Climate-related
Financial Disclosures
SASB Standards from Sustainability Accounting Standards Board
Industries Chemicals
Third-party verification of sustainability-related data
Data disclosed by Showa Denko is subject to external verification every year.
WEB For details, please refer to the relevant webpage.
Web indicators
In this report, a number of items are accompanied by links to the related
website, indicated by
WEB . Click on this symbol to go to the specified
website.

58

Promotion of Sustainable Procurement

59

Respect for Human Rights /Initiatives on COVID-19

60

Risk Management

62

Corporate Governance

65

Message from the Chairman of the Board,an Outside Director and an Outside Member ofthe Audit & Supervisory Board

68

Directors / Audit & Supervisory Board Members /Corporate Officers

Basic Data
72

Consolidated 11-Year Summary

74

Management’s Discussion and Analysis

78

Consolidated Balance Sheets

84

Corporate Data / Stock Information

Our Past and Future

Dialogue
between the
Presidents

GOAL FOROUR NEWLY
INTEGRATEDCOMPANY
Kohei Morikawa
President and CEO
Showa Denko K.K.

Hisashi Maruyama
President and CEO
Showa Denko Materials Co., Ltd.

In this dialogue, President Morikawa of Showa Denko K.K. andPresident Maruyama of Showa Denko Materials talk about the significance ofintegrating the two companies, the purpose of the newly integrated company,
and their ideas for the integration.

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SHOWA DENKO Report 2021

Commitments incorporated into the purpose,“Change society through the power of chemistry”
MORIKAWA First of all, toward the integration, I thought it necessary to clarify the purpose of the newly
integrated company—why the company exists and why employees work for the company—and share
the purpose with employees and other stakeholders.
With the slogan, “Change society through the power of chemistry,” we are committed to creating
the functions needed in the current age as an advanced material partner of our customers and tocontributing to the sustainable development of global society.
When I was at senior high school, chemistry impressed me with its power to create something that
did not exist in nature. This was why I decided to specialize in chemistry. I wanted to incorporate thisidea about chemistry into the slogan to show the purpose.
In order to change society through the power of chemistry, our company needs to be large enoughto change society and capable of fulfilling the related responsibilities. Showa Denko was able toannounce the purpose with great confidence thanks to the integration of the former Hitachi Chemical(presently Showa Denko Materials).
At present, for the solution of environmental and social issues, there are calls to act for the achievementof the SDGs across the world. Accordingly, the need to renew digital infrastructure as well as mobility,
energy and other socially important infrastructure is also increasing. Under such circumstances, expectations for us to generate innovation as a manufacturer of materials are greater. We will work to meet suchsocial needs and the expectations of our customers in a straightforward manner through the integration.
MARUYAMA We are creating new functions that are needed by society. For example, semiconductors
and computers would not work without sufficient conductivity. Batteries will soon die unless highperformance anode materials are used in them. Also, automobiles would waste energy when their weight
is not reduced. The power of chemistry is thus indispensable to create the functions that people rely onin their everyday lives. We can contribute to providing functions that are useful to society by manufacturing materials and components that support the functionality of the finished products that use them.
We will create value that satisfies all our stakeholders, including not only customers but also shareholders,business partners, local communities and employees. We regard this as our mission. We will never be able
to fulfill our purpose unless we maintain our commitment to providing all our stakeholders with value.

Significance of the integration
For details, please see“Portfolio management forsustainable growth” on page 29.
Conglomerate premium
Means the enhancement ofcorporate value through synergy
effects generated by the management of multiple businesses by asingle company.
The Showa Denko Group has thelargest global market share forhigh-purity gases and ceria-basedslurries, which are indispensable
for wafer processing in the semiconductor front-end process.
Also, for materials used in thesemiconductor back-end process(packaging), the Group has thelargest global market share fordie-bonding films and photosensitive films and the second largest
for copper-clad laminate boards(for substrates) and for encapsulation materials. (Source:
Researched by Showa Denko)

MORIKAWA The new business portfolio created through the integration will enable us to enjoy aconglomerate premium. Whether or not a company can become an entity with a conglomerate premium
depends on the size of its growth businesses and also on the expansion of its fundamental businesses toinclude new business areas, which in turn enhances the comprehensive ability of the conglomerate group.
Generally, conglomerate management tends to be underestimated. One of the factors that contributeto such underestimation is the lack of a growth business that is big enough to lead the conglomerate to
conduct a range of businesses. For example, if a company posts sales of ¥50 billion and all of thosesales are attributable to one growth business, it can be said that the company has high growth potential.
However, if a company that conducts multiple businesses and posts sales of ¥1 trillion as a whole has a
growth business with sales of ¥50 billion, it would be impossible for the business to lead the entire entity.
In our case, through the integration, we were able to post sales of about ¥230 billion in the“Electronics,” “Mobility” and “Life Science” fields. We will further increase sales in these three growthbusinesses to the ¥600 billion level by 2030. In the electronics (semiconductor materials) business inparticular, products for which we are ranked in the top three in terms of global market share accountfor about 85% of total net sales, and we are thus a big player in the market.
In addition, unlike other businesses for which our target markets are clearly defined, in thefundamental businesses we can target a wider range of markets (for semiconductors, construction
materials, infrastructure, daily necessities, etc.) and so can make better use of the features of our products through market expansion. This will help enhance the Group’s comprehensive ability and help us
further develop our growth businesses.
MARUYAMA In the illustrative diagram that shows the synergies generated by the newly integrated
company, we depict soil and trees as metaphors for the new company that the Showa Denko Groupaims to create: a hybrid advanced material company combining midstream materials technology anddownstream application technology.
Some might pay attention first to the trees, for example, focusing on how large the trees are in the diagram.
However, what is notable here is the soil. It is essential to input nutrients into the soil so that the trees
emerging out of the ground will thrive and grow into the types of trees that meet the needs of today’s world.

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03

Integration of technologies of the two companies

Business creation/
development

Life Science

Electronics

Realization of
Functions

Offering of
new functions
throughtechnology
integration

Chemistry toSynthesize

DeviceSolutions

Petrochemicals

CarbonHigh-speed
Lowpolishing/dielectric
low scratch

FunctionsHeatmanagement

Weightreduction

Thinning

・・・Interface/surfacecontrol

Application
technology

Blending/
dispersion

Materials
processing

Formulation

・・・

Inorganic

Materials
technology

Polymer

Aluminum
alloy

・・・

Machine Organics/
Structure・・・ structure polymers analysis
analysis analysis

Evaluation/
simulation
technology

Quantum MolecularComputachemistry dynamics
tionalcalcula- calculascience
tion
tion

Microfabrication

Chemistry to
Formulate

Chemistry to
Think

Mainly Showa Denko

・・・

Mobility

・・・

Cell
culturing/
Formulation

Led mainly by“Fundamental
Technologies/
Materials” business

Mainly Showa Denko Materials

・・・

AI*1

Technology
enhancement
throughbusinesses

MI*2*1 AI = Artificial intelligence・・・*2 MI = Materials informatics

The fundamental (technologies/materials) businesses create tremendous value by making technological contributions to the development of “trees” (products including components for semiconductors), and inorganic, organic, aluminum and various other technologies support the trees as their“roots,” which need the “soil” to create innovation and new value. The soil provides us with a sourceof competitive advantages.
MORIKAWA Nutrients contained in the soil are not meant for human beings to eat, and we need tomake effective use of the nutrients to grow crops. By increasing the fertility of the soil, we can also
grow a wider variety of trees. We therefore attribute importance to basic chemistry, which for us is thesoil. It is also important to keep up the cycle of using fruit that has fallen from the trees as new nutrients.
MARUYAMA When the former Hitachi Chemical decided to leave the Hitachi Group, one of theoptions offered to the company was to integrate with a company conducting businesses similar toits own. However, integration with a company that had many businesses and technologies similar toours would not put us on the path to any great evolution. We therefore thought it necessary to integrate with a company with which we would be mutually complementary, which would in turn help us
expand our existing businesses and technologies.

Through the integration of the two companies,
a company engaging in chemistry to“synthesize, formulate and think” will beborn and, through its business portfolio,
the newly integrated company will be able tocreate tremendous added value.

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SHOWA DENKO Report 2021

Due diligence
Means to examine the value,risks and other elements ofcandidate investee companies
and organizations when making
investment decisions.

In light of the fact that the application technology that we have in the downstream section of thevalue chain is prone to market changes, we wanted to enhance our materials technology in the
upstream section of the value chain. Integration with Showa Denko meets this requirement and is quite
meaningful in regard to “Change society through the power of chemistry.”
MORIKAWA The two companies are indeed much aligned in terms of corporate direction andapproach. For example, when President Maruyama made a presentation in the due diligence process,I thought that I would have made the same presentation if I had been making a presentation on Showa
Denko and felt a strong sense of affinity. I was particularly impressed when President Maruyama said,“We are not a manufacturer of semiconductor materials. It is only an outcome. The materials that we
produce happen to be used in semiconductors.” Indeed, we are not aiming to become a manufacturerof materials for specific products. It is ideal that we grow various types of trees in the soil. The treesthat we are now growing might become unable to draw nutrients from the soil and as a result wither.
We therefore need to have soil that is fertile enough for new trees to spontaneously emerge from it.
MARUYAMA Investors with whom we have dialogues for the first time tend to evaluate our businesses
from the aspect of products. Some of them also make the point that we conduct too many different
kinds of businesses and should focus on just some of them. For us, however, products are just an
outcome of what we do in our business, which is to make, mix, coat and paste materials to create newfunctions. And at present, the materials that we produce happen to be used mainly as semiconductormaterials. I think that the products in which our materials are used will change with the times. I want
our company to continue to provide new functions through the provision of materials.
Showa Denko and Showa Denko Materials have nothing in common in terms of the products that
represent the outcomes of their business activities, and some might think that the integration will generate no synergy effects. However, the integration will help us expand our business operations in a
vertical and also in an effective manner. The two companies have technologies that fit together,enabling us to become a one-stop advanced material partner for customers. The companies share few
technological fields, and so the integration substantially enriches the “soil.”Contributing to the SDGs while increasing corporate value
MORIKAWA By defining our purpose, we can now more spontaneously link the creation of a sustainable
society with the growth of Showa Denko. The company can now contribute to a sustainable society andkeep itself sustainable in an even more compatible manner.
MARUYAMA

We used to relate our existing businesses to the specific goals of the SDGs, but it is

The two companies are well suited to eachother technologically. We will become aone-stop advanced material partner that cancontribute to customers and society.

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05

Our Past and Future

GOAL FOR OUR NEWLY INTEGRATED COMPANY

more important to understand that we can make social contributions through our businesses and ourcompany and to consider how to create value based on this recognition. Employees’ awareness of theSDGs is also changing.

Plastic chemical recycling
In the plastic chemical recycling
business, plastic waste is gasified
at a high temperature to beconverted into hydrogen andcarbon dioxide. The producedhydrogen is mainly used as amaterial to make ammonia andcarbon dioxide as a material fordry ice and carbonated drinks.

MORIKAWA Chemistry can help create a sustainable society. We are conducting activities to reduce theenvironmental impact of our products throughout their life cycles, including in the manufacturing, use
and disposal stages. In the disposal stage in particular, I think chemistry can make a great contribution.
For example, ammonia can be used as fertilizer, helping food production. It is also used to render
harmless nitrogen oxides (NOx), an air pollutant, at thermal power plants. Showa Denko is promoting
the plastic chemical recycling business to produce ammonia from used plastics. The recycling technology to generate ammonia from used plastics, the reduction of which is becoming a social challenge, isincreasing the value of the produced ammonia.
MARUYAMA Now, for the creation of a carbon-neutral society, we need to ask our customers andbusiness partners to cooperate with us for the reduction of CO2 emissions. We should discuss whatsociety can do as a whole to reduce CO2 emissions. We must reduce CO2 emissions even if it costs us.

For the newly integrated company
For details, please see“Initiatives for an Advanced
Recycling-Based Society” onpages 35 and 36.

MORIKAWA We will integrate the two companies as a corporate entity in 2023. In July 2021, we newly
established Preparation Offices for various business headquarters and CXOs of the newly integrated
company, with a view to promptly establishing a system for world-class business management. From
now on, the newly appointed heads of the Preparation Offices will lead the examinations about the
integration-related issues.
MARUYAMA Since 2021, while implementing all necessary preventive measures against COVID-19,
I have been visiting the sites of the two companies together with President Morikawa in order to brief
on-site employees on our long-term vision and have dialogues with them. At each site, employees
expressed their opinions proactively, and I feel that our employees are ready and willing for the integration to go ahead. Due to the state of emergency declarations made by the government, we had tocancel and reschedule the visits repeatedly, and I would like to have more opportunities to ­communicate
with employees.

I want employees to understand that their companies are in the process of becoming a
totally new company and that the integration of A and B should not lead to the birth of AB but of X. The
integration is giving us an opportunity to become a global top-level functional chemical manufacturer,and I want all employees to be equally committed to reaching the summit.
However, the burst of reinvigoration that is produced by the birth of a new company does not lastforever. Changes produced by a stimulus will help you achieve growth, but the timeframe is limited. We
will therefore work to achieve the growth within one year.
MORIKAWAMARUYAMA We have a very rare opportunity to create a new company. I want employees of the twocompanies to think about the best practices to be implemented to achieve our future vision, proactively
discuss them with one another, and enjoy the process of creating a new company. We have a bright
future! I want employees to cause creative frictions.
We are also conducting examinations about the identity of the newly integrated company together
with employees under the Future Design Project. Based on the purpose shown in the long-term vision,
employees are expressing their opinions about the value that we should maintain and further enhance.
MORIKAWA Based on the long-term vision, employees of the two companies are conducting
examinations and heading in the same direction. I want them to build up the new company with astrong sense of ownership, and not in a top-down manner but in a participatory one. This will help
them increase their understanding about the new company.
MARUYAMA It really is important that all employees understand the identity. We will carefully implement
the process to help employees understand what we have decided, in addition to implementing theprocesses to examine and document the identity.
MORIKAWA We will press forward with the integration process in a meticulous and also speedy fashionand present the results to our stakeholders in a tangible manner. We hope you will look forward to andprovide support for the future of the Showa Denko Group.

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SHOWA DENKO Report 2021

TOPICS: Building corporate culture
Ahead of the launch of the new company resulting from the integration of Showa Denko and Showa Denko
Materials that is scheduled for January 2023, employees from the two companies are jointly promoting various
preparation activities. This column reports on two ongoing projects aimed at building an organizational
culture befitting the new entity based on what has been established over many years at each company.

01

Future Design Project for newly integrated company

The Future Design Project was started in February 2021 with the intention of considering the concept of values and corporate mission to beshared within and outside the new company in the future. Many employees and members of the management team participate in the projectfrom around the world.
The relevant procedure consists of three steps: (1) individual interviews held with members of the management team to select an appropriate
volume of candidate elements to compose mission statements; (2) online workshops for employees to share views about future visions of thecompany and their aspirations; and (3) the management team’s workshops, which are based on results of the employee-led workshops and held
to lay out plans to establish the corporate mission, value system and other principles that will guide all activities of the new company.

Online workshops
Online workshops took place to enable employees from around the world to participate in discussions in order toclarify their attitudes regarding the values to be respected by employees of the new company and their views on
the new company’s long-term vision. Discussions were held in Japanese, English and Chinese, and on both anindividual and a group basis, to examine the following three questions: (1) What do you find most appealing orinteresting about the long-term vision? (2) What kind of values should be respected by the new company?
(3) What kinds of challenges are you looking for in the new company?

Summarizedcomments
given
byparticipants

02

Online workshop held in April 2021

• I am intrigued by the concept of integrating “Chemistry to Synthesize,” “Chemistry to Formulate” and “Chemistry to Think,” which will likely draw public attention.
• I believe that through integration Showa Denko and Showa Denko Materials will achieve greater synergy than would be obtained by a simple addition of the two entities.
• Sustainable development is a key to continuing to be a company that has a strong presence and is needed by society.
• The size of the resulting group is not very important. What is important is to offer products unique to the reorganized Showa Denko Group.
• I have been greatly inspired by the purpose statement: “Change society through the power of chemistry.” This is very uplifting.
• To achieve the purpose, embracing challenges is imperative. The company should encourage and acknowledge efforts to tackle challenges, including those which may
eventually fail.
• It will be a huge challenge to manage the integrated organization, which will be more than twice as big, while building capabilities to offer one-stop solutions. To address
this, we should work to build a strong sense of cooperation.

Becoming a solution partner that exceeds customers’ expectations and imagination

Showa Denko and Showa Denko Materials promote initiatives aimed at increasing customer satisfaction through providing solutions that exceed
their customers’ expectations and imagination. These initiatives, specifically, CX at Showa Denko and WOW-BB at Showa Denko Materials,
which were pursued independently in the past, will be integrated by 2023. Ahead of this, employees from the two companies have begun toparticipate in each other’s activities to understand and enhance the initiatives in preparation for the scheduled integration.
Objective of initiative

Common goalShowa Denko

CX

Endeavor to maximize “CUSTOMER Experience(CX*1) in an effort to become a KOSEIHA Company*1 Customer experience: Customer value based on emotional
responses to products and services available for purchase, suchas satisfaction and pleasure, which derive from a psychologicalexperience that is not necessarily related to prices, functions orother factual conditions.

Showa Denko Materials

WOW-BB

Cross-organizational company-wide efforts toprovide wowing solutions that surpass the
expectations of customers and society(Working On Wonders Beyond Boundaries [WOW-BB])

Providesolutions thatexceedcustomers’
expectations
andimagination

Details of activities

The Showa Denko Group’s vision (goal) is to become a KOSEIHA Company, or an
aggregate of KOSEIHA Businesses. In order to achieve this vision, we are working tomaximize CUSTOMER Experience (CX).
Starting from 2019, the Group runs programs through distributed videos and workplace
discussions to enhance internal understanding of the importance of maximizing CX.
In 2021, the Group announced the CX Maximization Declaration 2021 SMILE andlaunched the CX Global Award based on the declaration in order to move on to phase 2
to enhance the understanding of CX and related actions.

The Showa Denko Materials Group promotes the WOW-BB initiative to encourage
individuals and the Group as a whole to overcome limitations chiefly arising due tosectionalization (Beyond Boundaries) in order to work together and provide impressive
solutions that surpass the expectations of customers (Working On Wonders). This initiative
is driven by two major programs: the 10-Year Strategy directed at sustainable growth andthe WOW Global Award launched to foster a culture of embracing challenges. The award
calls for team entries for any one of the five specified challenges*2, and selected team
activities are evaluated based not only on achievement against goals set but also actions
for and contribution to changing the corporate culture.
*2 Five challenges: (1) Become able to identify customer needs; (2) Envision the future; (3) Create new coretechnologies; (4) Become a world-leading company; and (5) Invent workstyles encouraging cooperation.

SHOWA DENKO Report 2021

07

Our Past and Future

Aiming to become
a company with a “strong
presence in the global market”
that “contributes to a sustainableglobal society”
The global population is continuing to grow, and is expected to reach 10 billion
by 2050. Humans should therefore create an advanced society that can ensure
the well-being of all its members while utilizing energy and other resources in asustainable manner to support the growing population. We are committed toserving this objective.
We will work to meet our stakeholders’ expectations for innovation ofadvanced materials technologies by demonstrating the “power of chemistry” invarious ways to invent new functions in response to the needs of the times,
thereby helping solve many different challenges facing the world at large. Thus,
we will contribute to sustainable global development while aiming to achieve thesustainable growth of the Group.

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SHOWA DENKO Report 2021

Realization of the ideal stateSociety

Stakeholders,incl. customers

Emerging social
issuesincl.:
Climate change,
resource depletion,
demographic change

Expectations forsolutions to social
issues, and materials
innovation that
supports technological innovation

Solve issues

Expectations from society

Provide new functions

Expectations fromstakeholders

Contribute toa sustainable
society as a whole
by providing new
functions

Provide one-stop
solutions as a“global top-level
functional
chemicals
manufacturer”

Change society throughthe power of chemistry
Showa Denko
GroupShowa DenkoGroup

Adopt the backcasting method
to identify approaches to solving
issues, and promote businessactivities to respond to stakeholders’ expectations

For details on challenges torealize carbon neutrality and
SDGs initiatives,
please see pages 32 to 37.

Challenges to realize
carbon neutrality

Initiatives aimed at advanced
recycling-oriented society

Contribution to increasing
QOL

SHOWA DENKO Report 2021

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Our Past and Future

Corporate governance for
integrated company
In order to gain the trust of stakeholders in the Group that is to be reorganized inconjunction with the planned integration of Showa Denko and Showa Denko
Materials, we will establish an appropriate corporate governance system andimprove it as required.
To promote the integration project, each of the two companies have assigned
representatives to form a number of joint bodies, including two steering committees. The steering committees are engaged in ongoing deliberations on importantgroup management policies for the new organization (Steering Committee 1) andpractical plans to implement the integration (Steering Committee 2).
To continue to advance the integration project, deliberation functions have beendelegated to preparation offices set up in July 2021 to establish new businessheadquarters and CXO positions, and performed under the leadership of the
newly selected head of each preparation office.

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SHOWA DENKO Report 2021

Future (January 2023)

Newly
integrated
company
Re-establish corporate
governance systems forthe reorganized group
including the
new company

Integration project structure (as of July 2021)
Showa Denko Board of Directors
Supervision

Steering Committee 1

Composed of presidents and Board members from the two companies

Steering Committee 2

Composed of heads of business divisions from the two companies

Responsible for discussions and decisions on important group management policies for the new organization

Responsible for discussions and decisions on practical plans to implement the integration

Corporate working group

Life Science• Purchasing/logistics∙∙∙• Marketing•R isk management

Device solutions• Branding

Carbonment/safety• Production technologies

Mobility ersonnel affairs•P

Petrochemicals• Quality assurance/environ-•S trategy planning

Functional materials• IP/R&D• IT

Electronics• Finance/accounting

Business Divisions

The integration project structure for Showa Denko and Showa Denko Materials was reorganized, effective July 1, 2021, so that relevant deliberation functions would be
performed by preparation offices set up within the head office of Showa Denko to establish new business headquarters and CXO positions, under the leadership of the newly
selected head of each office.

Read messages concerning
corporate governance issues
from the chairman of the Board,an outside director and an
outside member of Audit &Supervisory Board, which areavailable on pages 65-67.

Hideo Ichikawa

Masaharu Oshima

Kiyomi Saito

Chairman of the Board

Outside Director

Outside Member of Audit & Supervisory Board

SHOWA DENKO Report 2021

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Our Past and Future

History Leading up to Integration
Through integration, Showa Denko and Showa Denko Materials (former Hitachi Chemical) will bring midstream
materials and downstream application technologies together within a single corporate group. As an integrated entity,
we will maximize the resultant synergetic effects in order to continuously create new functions in response to the needsof the times for advanced materials, thereby contributing to the sustainable development of society.

Showa Denko

WEB

Originating in the field of electrochemistry,
Showa Denko has developed its technologicalcapabilities over the course of years to expand
into the fields of inorganic chemistry, organic
chemistry and metal materials. Many of its past
technological achievements have been passed
down to serve the development of a wide variety
of products in use today, including materials
and components used for automobiles and IT
equipment as well as essential daily items.

1908
Established Sobo Marine
Products K.K. (later Nihon
Iodine K.K.) to manufactureand sell iodine

1939
Established Showa Denko
K.K. through the merger ofShowa Fertilizers and Nihon
Electrical Industries

1931
Started production ofammonium sulfate using
domestic technology(Showa Fertilizers K.K.)

1945
Resumed production ofammonium sulfate fertilizer

1934
Industrialized domestically
produced aluminum (Nihon
Iodine K.K.)

1953
Achieved domestic production of unsaturated polyester
resin (Showa Highpolymer
Co., Ltd.)
Successfully promoted the domestic
production of ammonium sulfate andaluminum, while working to facilitate“use of electricity as a material” and“development of domestic technologies”

Showa Denko
Materials
WEB(Former Hitachi Chemical Company, Ltd.)Showa Denko Materials’ core competence isgrounded in a wealth of technical knowledge
originating from the founding company’s four
major products (insulating varnish, laminate,electrical insulation, carbon brushes) and built
up to cover an extensive range of organicand inorganic chemicals. The knowledge has
been employed and processed in ingenious
ways to innovate a broad spectrum of materials
and products.

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SHOWA DENKO Report 2021

1951
Achieved domestic production of synthetic resin emulsion (Showa Highpolymer
Co., Ltd.)

1912
Started research into
electrical insulating varnishes aiming at domestic
production (origin of Showa
Denko Materials)

Started research into insulating varnish
for electrical motors aiming at domestic
production

1969
Oita Petrochemical
Complex started commercial operation

First in Group to be capable ofintegrated manufacturing of diverse
range of petrochemical products, suchas polyethylene, polypropylene andacetic acid

1986
Started production and saleof aluminum cylinders(Showa Aluminum
Corporation)

1965
Achieved domestic production of vinyl ester resin (Showa
Highpolymer Co., Ltd.)

1933
Started trial production ofcarbon brushes
1955
Started production ofcopper-clad laminates for
multilayer PWBs

1930
Started trial production ofphenol resin laminates

Developed technique to enable
complicated wiring on a single copperclad laminate board, which facilitatedmass production of electronic circuits,a key contributor to popularization ofcommercial television and radio system

1931
Started trial production of
porcelain insulators

1974
Started production ofpharmaceutical, MS-antigen

1978
Started sale of photosensitive film of alkali-based
solvents
1984
Started production of circuit
connecting film for displays

Developed anisotropically conductive
circuit connection films, an innovationthat enabled mass production ofhigh-definition LCD screens1988Entered the hard disk
business

2003
Started plastic chemicals
recycling business2010
Merged Showa
Highpolymer Co., Ltd.
2016
Established a joint venturein Korea for semiconductor
processing high-purity gas
production

Employed the sputtering (thin-film forming) method, a challenging technicaloption, to manufacture HD media,
anticipating future demand for larger
storage capacity

Processed used plastics to recovergas to use as material for hydrogen,ammonia, soda, dry ice and otherproducts, looking to contribute toa recycling-based economy

2001
Merged Showa Aluminum
Corporation

2009
Started production ofcooling devices for power
semiconductors

2017
Acquired SGL GE, a
German graphite electrodesupplier

Acquired the graphite electrode businessto promote global development

Developed cooling devices forsemiconductors applying Showa Denko’s
proprietary thermal design technology
and aluminum processing technique

1992
Started sale of reflowresistance epoxy molding
compounds

2001
Started production ofmolded plastic rear
modules

2017
Started contract development and manufacturingorganization for regenerative
medical products

2023
Full integration
as a corporate
entity1998
Started high-volume production of carbon anobe materials
for lithium-ion batteries
Started production of CMP
slurries for STI (shallow trench
isolation)

Succeeded in manufacturing molded
plastic rear door modules for the firsttime in Japan by the resin molding
technology nurtured over many years

2008
Started production of allergy
diagnostic reagents for
simultaneous measurementof 33 items

Built global supply systems to promotebusinesses for contract development
and manufacturing organization forregenerative medical products, thereby
contributing to increased availability ofregenerative medicine

Developed proprietary cerium oxide
particles to achieve high-speed
polishing (smoothing) in order toincrease productivity

SHOWA DENKO Report 2021

13

Our Past and Future

Showa Denko Group’s Business Overview(2020 results)
Showa Denko Materials Co., Ltd. and its subsidiaries were included in the scope of consolidation from the second
quarter of 2020. Accordingly, a new reporting segment was added and the relevant net sales and income/loss began tobe reflected in reporting from the third quarter of 2020.

Net sales ratio

Total assets

Consolidated net sales¥2,203.6

billion204.7% YoY¥973.7billion

54.5%
Outside Japan

45.5%

107.4% YoY

7 business segments

Figures for estimate, shares and order volume are based on surveys by Showa Denko.

Petrochemicals

Chemicals

Raw materials for plastics, synthetic rubber, etc.

Raw materials for chemicals; semiconductor-processing specialty gases;
raw materials for fibers, industrial gases, etc.

Sales

Operating income

Sales

Operating income¥193.4 billion¥4.9 billion¥155.8 billion¥13.5 billion

Ethylene
Japan’s No. 1 material diversification rate

High-purity gases for semiconductor processing(NH3, C4F6, HBr, etc.)
The world’s No. 1 market share

To produce ethylene, which is used as a material for various petrochemical products, we use
materials other than naphtha in order to makeeffective use of resources and achieve high costcompetitiveness.

We produce more than 20 types of high-purity
gases including ammonia, chlorine, fluorine andother substances for use in semiconductor,
LCD, LED and solar cell production.

Electronics

Inorganics

Hard disk media, lithium-ion battery materials, SiC epitaxial wafers, etc.

Graphite electrodes (for electric steelmaking), abrasives, etc.

Sales

Operating income

Sales

Operating income¥97.4 billion¥9.1 billion¥82.9 billion-¥32.3 billion

Hard disk media

Graphite electrodes

The world’s No. 1 manufacturer/seller
Our advanced technology for hard disk media(recording media for hard disk drives [HDDs]) is
able to increase the storage capacity of HD
media to meet expanding information loads andthe spread of cloud computing.

14

In Japan

SHOWA DENKO Report 2021

The world’s No. 1 for high-quality large-diameter electrodes
Graphite electrodes are used in electric furnaces in which iron scrap is melted down andrecycled into steel. Showa Denko’s graphite
electrodes offer the world’s highest-level electrode consumption rate and fracture resistance.

Europe30

East Asia

43
North America
Japan

AfricaOther
Asian regions

2

12

33

29
Latin America

Workforce composition (consolidated)

3

Global network

Number of employees (consolidated)

33,684

In Japan

45.4%
Outside Japan

54.6%

311.5% YoYShowa Denko Materials
Functional materials (electronics materials, printed wiring board materials, electronics components), advanced components/systems (mobility materials/components,
electricity storage devices/systems, life science-related products)

Sales

Operating income¥302.7 billion-¥6.3 billion

Note: Includes a total of ¥28 billion for amortization of goodwill posted at the time of acquiring
shares, etc., and inventory step-up.

Semiconductor materials

Molded plastic modules

The world’s No. 1, with a number of
products commanding the largest
market share

The world’s No. 2 market
share for molded plastic
automotive rear modules

Regenerative medicine
The world’s No. 2 order volume

We are developing businessin a broad range of areas,such as semiconductor anddisplay materials, copperclad laminates, photosensitive films, functional resins,
adhesive films and automotive-related products.

Aluminum

OthersCylinders for laser beam printers, etc.

Marketing of chemicals, resins, metals, electronic materials, etc., and supplyof building materials

Sales

Operating income

Sales

Operating income¥80.2 billion¥0.4 billion¥107.3 billion¥1.2 billion

Aluminum cylinders for laser beam printers
The world’s No. 1 market share
Our aluminum cylinders for laser beam printers
are processed using our proprietary non-cutting
mirror-finish method.

WEB Showa Denko

WEB Showa Denko Materials

SHOWA DENKO Report 2021

15

Our Past and Future

Value Creation Process

Purp

The Showa Denko Group is committed to satisfying all
stakeholders and thereby contributing to society. In responseto the requirements of customers and society for innovative
materials technologies, we will integrate midstream anddownstream technologies to offer required advanced materials functions in a timely manner. Thus, we will fulfill our role
as a socially aware advanced materials partner tocontribute to sustainable global development.

MissionWe will satisfy
all stakeholders
Financial capitalSocial issues

Consolidated total assets¥2,203.6 billion

Change societ
power of cContribute to the sustainable develo
functions required of the times a

Steadily provide the market w
aiming at the creation and develop“self-directed portfolio reform”

Stable Earnings business

Next-Generat

Earn a stable profit andgenerate investment capital forthe entire group

Promote investme
viability in ord
next-generation p[As of December 31, 2020]

Multi-polarity ofFundamental Technolog

world economy

Technology platform business to sup

Instrumental capital
Worldwide production bases

For more details, please refer to “Portf

Demographic
changeIntellectual capital
Climate changeIntellectual properties, fundamental
technologies and a wealth of expertise related to organic chemicals,
inorganic chemicals and aluminumShowa Denko’s strength

Resource
depletion

Human capital

Chemistry to Synthesize

Diversity as a driving force forinnovation and solution creation

Midstream materials technologies to promote
Fundamental Technologies/Materials business thatlead to various businesses

Respect forhuman rights
throughout
value chain

Distribution of wealth /social divide

Realization oSocial capital
Collaboration with various
stakeholders

Fundamental technologies shared by the two

Natural capital
Effective use of energy andresources; technologies that
contribute to solving
environmental issues

Corporate governance

Sustainability
16

SHOWA DENKO Report 2021

Ideal statepose

ty through thechemistry

opment of global society by creating
as an advanced materials partner

Company with astrong presence inthe global market

Company that
contributes to asustainable global
societywith a wide range of functions,pment of new businesses through” and sustainable high growthtion businessCore Growth business

Financial capital

Nonfinancial capitalent while verifying
der to develop
pillar businesses

Invest massively in businesses withhuge growth potential

Long-term vision
Long-term numericaltargets for 2025

Solving social issues

gies/Materials businesspport innovation of other businesses

folio management for sustainable growth” on page 29.

TSR
Aim to rank among the

Challenges to realize

chemical industry’s top

carbon neutrality

25% over the medium
to long termof functions

EBITDA margin

20%

Showa Denko Materials’ strength

Chemistry to Formulate

ROE

15%

Initiatives for an advanced
recycling-oriented
society

Contribution to QOL
improvement

Function design technologies to promote­downstream application business

Net D/E ratio
companies

Chemistry to Think

Close to1.0

For more details, please referto pages 32-37.

Safety and compliancemanagement
SHOWA DENKO Report 2021

17

Our Past and Future

Reasons for Integration

Synergy for Newly Integrated Company
In order to continue to compete in the materials industry, where the market is changing rapidly and customer needs are
becoming increasingly sophisticated, we need to generate innovations so as to be duly equipped to respond to adiverse range of customer requirements. We will integrate the two companies’ technologies to organize collaborative
domain structures and provide the right solutions to various needs of customers and society, demonstrating our commitment to becoming an “advanced materials partner for one-stop solutions.”

Material design

Processing technologies

Design / evaluation / consultation

Advanced materials partner for one-stop solutions
Showa Denko’s strength

Chemistry to Synthesize
Midstream materials technologies to promote
Fundamental Technologies/Materials business thatlead to various businesses

Showa Denko Materials’ strength

Chemistry to Formulate
Function design technologies to promote ­downstream ­application business

Fundamental technologies shared by the two companies

Enterprise integration fortechnology integration
Integrate and enhance technologies under the three
categories of “Chemistry to Synthesize,” “Chemistry to Formulate”
and “Chemistry to Think,” to be able to provide an extensive
range of functions to the market while creating/developing new
businesses and increasing technical capabilities, thereby
achieving sustainable growth.

Chemistry to
Formulate

Function design technologies developed byShowa Denko Materials to promote downstream
application business

Chemistry to Think

Technology integration plan (example)

Heat management business for power module
Offer heat management materials package
Leverage our unique product lineup and analysis/module
evaluation technologies to demonstrate functions resulting fromcombining materials to customers and solve technical challenges

Realization of functions

Chemistry to
Formulate

Sintered materials
Encapsulants
Aluminum specialty components

Chemistry toSynthesize

Chemistry to
Think

18

Midstream materials technologies related tovarious businesses developed by Showa Denko

Fundamental technologies shared by the two companies(computational science, structure analysis,
evaluation/simulation technology)

SHOWA DENKO Report 2021

Chemistry toSynthesize

Ceramics
SiC epitaxial wafers

Chemistryto Think

Analysis/module evaluation technology
Power Module Integration Center established in July 2021

Marketing

Realization of the
Ideal state

Applications / Services

Customers

Society

OEM/Tier 1

Contribute totechnology partnera sustainable• Digital• 5G• Next-generation
mobilitysociety as a whole
by providing new
functions

Achieve Innovations

Business creation/
development

Life Science

Electronics

Realization of
Functions

Offering new
functionsthroughtechnology
integration

Microfabrication

Chemistry to
Formulate

Chemistry toSynthesize

Chemistry to
Think

Mainly Showa Denko

・・・

Mobility

・・・

Petrochemicals

CarbonHigh-speed
Lowpolishing/dielectric
low scratch

FunctionsHeatmanagement

Weightreduction

Thinning

・・・Interface/surfacecontrol

Application
technology

Blending/
dispersion

Materials
processing

Formulation

・・・

Inorganics

Materials
technology

Polymers

Aluminum
alloy

・・・

Structure
analysis

Evaluation/
simulation
technology

Quantum MolecularComputachemistry dynamics
tionalcalcula- calculascience
tion
tion

Cell
culturing/
formulation

Led mainly by“Fundamental
Technologies/
Materials” business

・・・

Machine Organics/

・・・ structure polymers

Mainly Showa Denko Materials

DeviceSolutionsanalysisanalysis

AI**11

Technology
enhancement
throughbusinesses

MI**22*1 AI = Artificial intelligence・・・*2 MI = Materials informatics

SHOWA DENKO Report 2021

19

Our Past and Future

Reasons for Integration: Synergy for Newly Integrated Company
CTO Message“Chemistry to Think” to create synergy
Promote the sharing of fundamental R&D capabilities in order to shorten development cycle:
Allow Showa Denko’s computational science and AI technologies to be applied to “Formulate” processes and Showa
Denko Materials’ statistical analysis and evaluation technologies to “Synthesize” processes
Applied to “Chemistry to Formulate”

Computational science, AI

Statistical analysis, evaluation

to “synthesize” materials

to “formulate” components

Speed up!

Applied to “Chemistry to Synthesize”

Chemistry to Think
Computational science, structure analysis and evaluation/
simulation technology fall into the category of “Chemistry to Think,”
which represents fundamental technical capabilities to be sharedby Showa Denko and Showa Denko Materials. It will become
easier for the two companies to share their respective strengths inthis category by, for example, allowing Showa Denko’s strength incomputational science and structure analysis and Showa Denko
Materials’ in statistical analysis and evaluation technology to be
applied to processes performed by the other as needed. This isintended to increase the quality and speed of R&D activities.
Showa Denko’s
strengths in

Showa Denko Materials’
strengths in

Computational
science and AI

Statistical analysis

Technical personnel exchange and data scientists development
To implement DX strategies for 2021, we are carrying out
integration and implementation plans for Showa Denko’s AI technology and Showa Denko Materials’ statistical analysis technology,
which have begun to produce results, such as shorter materials
development periods and better catalyst performance. As ameasure to introduce these achievements across the Group, we
have launched internal programs to develop and certify data
scientist skills, looking to encourage materials engineers toundertake technical data processing tasks.
Also, the two companies are planning to integrate their
IP-related functions. Specifically, big data-based IP landscapeprograms and various AI-enabled tools will be adopted to improveresearch efficiency and reduce the risk of infringement on othercompanies’ rights in an effort to sharpen our competitive edge.

Design for “Chemistry to
Formulate” processes

Design for molecular
structures and catalysts

Effective
rights clearance
systemIntegration/cooperation
Joint development
Platform sharing
Personnel exchange

Strengths ofShowa Denko

IPL/AI
introduced to
management

Close cooperation
with legal affairs
department

Hiroshi Sakai

Rightsutilization
incentive
schemeStrengths of Showa
Denko Materials

Organizational
IPL
implementation

New design/
IP management
systemDirector & Corporate Officer
Chief Technology Officer (CTO)
Showa Denko

Outlook for the future
I am looking forward to seeing new types of innovation emerging from theinteractions among a diverse array of technologies and personnel from the twocompanies that are to be brought together. R&D personnel also have high expectations for the integration, as I perceive from their lively discussions on this topic.
We will work to produce synergetic effects as early as possible to be able tooffer technologies, products and services that will surpass customers’ expectations
and imagination.

20

SHOWA DENKO Report 2021

“Chemistry to Synthesize” and “Chemistry to Formulate”
collaborate for further advancement
Boost long-established strengths of the two companies to generate synergetic effects
Effectively combine Showa Denko’s materials technologies and Showa Denko Materials’ application technologies
High value-added products

Materials

Rawmaterial

Components

CreateFormulate

Evaluate

Higher-function
products
Optimized supply

Customers

Production optimization / High-quality materials

Combine “Chemistry to Synthesize” and “Chemistry to Formulate” to produce synergetic effects on business“Chemistry to Synthesize” and “Chemistry to Formulate” refer to Showa Denko’s midstream materials technologies and Showa Denko
Materials’ downstream application technologies, respectively.
CMP slurry
Chemical mechanical polishing (CMP) is a highly technical production
process, and is positioned as a strategic technology to fully bringout the synergetic effects from the integration of “Chemistry toSynthesize” and “Chemistry to Formulate.” One relevant plan is toenhance the performance of CMP slurry produced by Showa Denko
Materials for semiconductor device processing by leveraging
technologies for ceramics, microparticulation and high-purity
polymers from Showa Denko’s “Chemistry to Synthesize” in orderto support those for interface control, nanoparticles and water
dispersion, basic technologies employed from “Chemistry to
Formulate” to produce CMP slurry. Additionally, we plan to sharefacilities of the two companies to increase the technical capabilities
and production capacity of the entire Group.

Showa Denko

Showa Denko Materials

Ceramics/additives technology

Interface control technology

Polishing materials
Heat control
technology
Dust-free solutions
High-purity solvent
High-purity additive

Copper-clad laminates
Another major plan is to add high-performance properties tocopper-clad laminates produced by Showa Denko Materials by
utilizing organic molecules design and polymer-related technologies from Showa Denko’s “Chemistry to Synthesize” to enhancethe value of substrate resin processed by capabilities from“Chemistry to Formulate.”

Showa Denko

Showa Denko Materials

Organics/polymers design technology

Electronic components design
technology

Karenz™ (example)

Copper-clad laminates

Mitsuo Katayose
Additive for electronics

CMP slurry

Director & Corporate Officer
Chief Technology Officer (CTO)
Showa Denko Materials

Outlook for the future
In the “Fundamental Technologies/Materials” business, a leading driver of “Chemistry to Synthesize,”
the newly integrated company will use inorganics, organics, aluminum and many other materials andtechnologies possessed by the two companies in order to offer solutions to markets and customers, while working with R&D divisions to provide strong technical platforms that will support
innovations for the other three business categories of Core Growth, Next-Generation andStable Earnings to ensure effective integration synergy. Going forward, we will consolidate
materials-related businesses into functional materials business to undertake the abovetasks appropriately.

SHOWA DENKO Report 2021

21

Our Past and Future

TOPICS: IP landscape shows synergy for integrated Showa Denko and Showa Denko Materials
To identify technology domains where the newly integrated company can take full advantage of the synergy to be created, we have
performed IP landscape analyses. IP landscape analysis is a method to comprehensively clarify the situation of intellectual property rights
held by the company and its competitors as well as related market conditions. We will use the results to develop management strategies.
The analyses were conducted for the two companies. Specifically, this means performing overview mapping to clarify technology
domains, comparative mapping based on F-term patent classification, and landscape mapping to lay out product groups. The results
have revealed a substantial overlap in technology domains while much less in product groups. This finding supports the integration plan
aimed at enhanced technical knowledge and vertical integration for product development, particularly for the purpose of IP strategy,
which is expected to become a strong driver of synergy creation.

Technology domain analysis
The overview mapping has identified technology
domains where the newly integrated company cantake full advantage of the synergy produced.
Comparative analysis of patent portfolios of thetwo companies and competitors has indicated alarger overlap in technology domains between thetwo companies than between either company andany other company (for the purpose of calculation),giving support to the integration plan for effective
technology collaboration in a range of areas related
to materials and application.

Showa Denko
Materials

Showa Denko

Synergetic domains
LIB materials
Capacitors
Magnetic
recording media
SiC

Semiconductor
chips
Displays
Touch panels
Adhesives
Resists

Resin materials
Automotive
exterior/glass
Cosmetics
Heat exchangers

Semiconductor devices
Solar cells
Lead acid batteries
Laminated film

Technology domains with considerable overlap

Product group analysis
Results of product group analyses indicate overlap between the two companies in product groups being limited as compared with technology
domains, which have considerable overlap. This suggests substantial potential for a broader product lineup ranging from midstream to downstream, a key to strong solution business development. The results also show product groups favorably distributed on the value chain, indicating
a possibility of expanding the applicability of consolidated common technologies to product development.

Patents held by Showa Denko (red) and Showa Denko Materials (blue) from 2013
POINT 1

Many red-only and blue-only areas

POINT 2

POINT 3

Even in mixed areas,
few dots overlapping completely

Limited overlap in
product lineup

Created using Orbit Intelligence provided by Questel SAS

22

SHOWA DENKO Report 2021

Long-Term Strategy
to Realize the Vision
24 Top Message
28 Long-Term Vision for Newly Integrated Company
32 Feature Story 1 Challenges to Realize Carbon Neutrality
34 Feature Story 2 Tackling SDGs through Business Activities
38 CFO Message
42 DX Initiatives
45 Organizational Integration

SHOWA DENKO Report 2021

23

Long-Term Strategy to Realize the Vision

Kohei Morikawa
President and CEO
Showa Denko K.K.

Top Message

We will pursue more ways to help solve social issues,
thereby contributing to a sustainable society whileachieving growth as the Showa Denko Group.

24

SHOWA DENKO Report 2021

Important year for the company to show its true value

KOSEIHA Businesses specificallymean those that meet the following
three conditions: operating margin
ratio of 10% or more; operating
income of billions of yen or more; andstable profitability tolerant of environmental change. “The TOP 2021”
states that the number of KOSEIHA
Businesses will be increased to atleast half of all businesses by 2025.

In 2020, largely due to the market impacts of COVID-19, we faced a substantial decrease in shipment volumes for a range of our products. In particular, the outbreak of the disease led to a substantial decrease in our shipment of graphite electrodes, aggravating a situation in which ourcustomers had already been forced to adjust their inventories following a drop in the global production of crude steel that dated back to the latter half of 2019. As a result, we suffered a sharp dropin profits from graphite electrodes. However, demand expanded for electronic devices due to the
spread of teleworking, enabling us to achieve steady growth in the electronics field despite thecoronavirus crisis.
In 2021, against the backdrop of the recovery of automobile production, which started in thelatter half of 2020, as well as the recovery of demand for steel products, we will be able to improve
our performance markedly across all business fields. In 2021, we will thus work to recover ourbusiness performance, which dropped in 2020, as early as possible. Also, this year, we will be
evaluated for what we have implemented under the medium-term business plan, “The TOP 2021,”
which we launched in 2019 to make Showa Denko an aggregate of KOSEIHA Businesses.
When we formulated “The TOP 2021,” we had not yet planned to integrate Showa Denko
Materials. However, even with that decision, the heading that we aimed for in the plan has notchanged. Rather, the integration makes it possible for us to set far more ambitious targets and tobuild a system to achieve growth with greater speed. Accordingly, we need to adopt a new battle
plan for the market.

Advancement of our business portfolio management
For details, please see“Long-term vision and synergy forthe newly integrated company”
on pages 28 to 31.

For details, please see“Portfolio management forsustainable growth” on page 29.

Toward full integration, we announced the long-term vision for the newly integrated company inDecember 2020, in which we set the purpose of the new company as: to “Change society throughthe power of chemistry.” We also defined the ideal state of the company as follows: a “Company
that can win the global competition” and a “Company that contributes to a sustainable global
society.” We will pursue this ideal state by conducting operations in a responsible and competitive
manner in each of the “Core Growth,” “Next-Generation,” “Stable Earnings” and “Fundamental
Technologies/Materials” businesses.
Four business categories“Core Growth”
business that has tremendous growth potential“Next-Generation”
business expected to develop into a next-generation pillar“Stable Earnings”
business that serves as a revenue base through stable profit-making and the generation of
investment capital for the entire company“Fundamental Technologies/Materials”
business that provides the technology platform to support innovations

For “Core Growth” business, we set the target of an annual sales growth rate of 10% or more
and for “Next-Generation” business, we set the target of achieving business growth as planned in
the roadmap. Depending upon the target achievement level, we will change the investment priority
given to a specific business. For a business that can no longer be included in any of the four categories, the investment priority will be lowered. As a result, the business will not be able to receive
sufficient investment, which will in turn decrease its competitiveness. In such a case, I think it
would be better for the business division to be taken out of the Group and placed in a management environment in which it can receive more investment. We will therefore let the division leave
the Group to find a good fit for itself elsewhere, rather than just selling it. But unless we can devise
a scenario wherein the division will be able to achieve growth by receiving more investment in a
new environment outside the Group, we will not let it leave the Group and will instead just withdraw
from the business.

SHOWA DENKO Report 2021

25

Long-Term Strategy to Realize the Vision

Top Message

Among the businesses belonging to the “Core Growth” and “Next-Generation” categories, we
regard the following five as “growth businesses” that will lead the growth of the entire Showa
Denko Group on a medium- to long-term basis.

Electronics

Mobility

Semiconductor wafer
process business

Multi-materials/resin molded
automobile module business

Semiconductor packaging
process business

Heat management(power module) businessLife Science
Regenerative medicine
business

For the sustainable expansion of these growth businesses, we need to enhance technologies
for materials. In this regard Showa Denko already has highly competitive technologies, including
those to design and analyze materials. By integrating Showa Denko Materials, which has advanced
functional design technologies, it will become possible for us to create the materials that will help
ensure our business growth and then make even more effective use of those materials throughadvanced functional design for the further growth of the businesses. The integration has thus
provided us with the “soil” in which we can grow our growth businesses faster than the market
growth rate, rather than simply adding large growth businesses to the business scope of the
Showa Denko Group.
Total sales in the five growth businesses reached about ¥230 billion for 2020, and we aim to
expand these sales to the ¥600 billion level by 2030. Also, through innovations made in the businesses, including synergy effects generated by the integration, we will increase operating incomeby ¥18 billion for 2025 and by ¥48 billion for 2030.

Achieve further growth by promoting fundamental businesses
Fundamental businesses represent another important business category for us. In these businesses
we will fuse the technologies of the two companies to enhance the comprehensive strength of
the Showa Denko Group. Unlike the “Stable Earnings,” “Core Growth” and “Next-Generation”
businesses, for which our target markets are clearly defined, we can target and exert influence overa wider range of markets in the fundamental businesses, such as the ceramics, functional chemicals(resin and others) and aluminum specialty components businesses. For example, our highly functional
polymers are used not only as semiconductor and LCD materials but also as building materials.
By the integration, Showa Denko Materials’ businesses conducted in the downstream section of
the industry have been added to the Showa Denko Group, which has resulted in an increase inopportunities for business expansion in the fundamental businesses. With the two companies
inspiring each other, their development ability will be further enhanced in the downstream products
section and also in the midstream materials section. Moreover, when we face a challenge in the
manufacturing process of a certain material, we can now seek cooperation from within the Grouprather than outside it, which enables us to innovate faster. Also, within the Group we can disclose
everything and share know-how and technologies for both materials and applications. I expect thatsuch achievements will be made in the fundamental businesses.

Pursue more ways to help solve social issues

For details, please see“Feature Story 1: Challenges to
Realize Carbon Neutrality”
on page 32.

26

SHOWA DENKO Report 2021

Toward full integration between Showa Denko and Showa Denko Materials, we have reconfirmed
our purpose as “Change society through the power of chemistry,” thereby enhancing the linkage
between the growth of the Showa Denko Group and contribution to the solution of social challenges, as represented by the SDGs. SDGs- and ESG-oriented measures have a tremendous
impact on the value of companies and contributing to a sustainable society will enable us toachieve sustainable corporate growth.
In our efforts to solve climate change-related issues, we are committed to becoming carbon
neutral by 2050, for which we set the target of reducing our greenhouse gas emissions by 30%
relative to the 2013 level by 2030. Based on the recognition that we consume energy to produce
basic materials such as petrochemicals, we will implement measures for higher production

For details, please see“Dialogue between the Presidents”
on pages 2 to 6.

For details, please see“Feature Story 2: Tackling SDGs
through Business Activities/
Initiatives for an advanced
recycling-oriented society:
Graphite electrode-driven steel
recycling” on page 36.

efficiency and fuel conversion, thereby saving more energy and costs toward the achievement ofour greenhouse gas emissions reduction target.
Also, we need to pursue more ways to create a sustainable society through the power of chemistry. The products made by the Showa Denko Group have already made contributions to society
and to meeting social challenges including the SDGs. However, that is not enough. We need topursue more ways to help solve social problems. To meet this requirement, it is important to add
more SDGs- and ESG-oriented functions to our existing products, which will help the Group
achieve further growth and differentiate itself from competitors.
As I mentioned in the dialogue with President Maruyama, we are promoting plastic chemical
recycling to produce ammonia from used plastics. Ammonia is used as a denitrification agent
at thermal power plants and also as a fiber material and is indeed a useful material. Our recycling
technology to generate ammonia from used plastics is further increasing the value of the
produced ammonia.
In the graphite electrode business, we deliver customized electrodes to customers according to
the characteristics of their electric furnaces, thereby helping them promote iron recycling. In order
to contribute more to customers through the delivery of electrodes, the Showa Denko Groupacquired AMI Automation (“AMI”) headquartered in Mexico in February 2021. AMI provides anoperation optimization service for electric furnaces, and by linking this service with our own solution
services, we will become able to provide customers with higher-performance electrodes and help
them increase the operational efficiency of their electric furnaces, conserve more energy andreduce their greenhouse gas emissions. This will in turn help the Showa Denko Group make more
contributions to society.
In this way we will foster the creation of extra value across all our businesses.

Showing recovery from the fiscal 2020 performance
To stop the spread of COVID-19, we give first priority to ensuring the safety and protecting thehealth of our customers, business partners, employees and other stakeholders and have implemented a range of infection prevention measures. Employees of the Showa Denko Group and its
partner companies are continuously working to supply products that are essential to everyday life
while also protecting their own safety and health, which is something I am very proud of.
In April 2020, we made Showa Denko Materials a wholly owned subsidiary of Showa Denko
and in December of the same year announced the long-term vision for the newly integrated company. We are now making steady progress toward the full integration of the two companies as acorporate entity in 2023.
In 2021, we will continue to make efforts to show you how we are making a strong recovery
from the serious blow to our fiscal 2020 performance caused by COVID-19 and other factors.

President and CEO

SHOWA DENKO Report 2021

27

Long-Term Strategy to Realize the Vision

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

2030

Roadmap up to 2030

GrowthLong-Term vision

2025(2021–2030)

2021

Numerical targets
for 2025• EBITDA margin: 20%• ROE: 15%• Net D/E ratio: close to 1.0

2020

Company with astrong presence in the
global market
Company that contributes
to a sustainableglobal society
TSR
Aim to rank among thechemicals industry’s top 25%
over the medium to long term

Showa Denko Materials(former Hitachi Chemical)
joins the Showa Denko Group

Earning capacity

In December 2020, Showa Denko announced the long-term vision (2021–2030) for newly integrated company.
This is a result of reviews started in April 2020, when Showa Denko Materials (former Hitachi Chemical) joined theShowa Denko Group, and continued in order to integrate the two companies and establish a foundation for future
growth. As an integrated company, we are committed to providing new functions and values to the chemicals industry,where intensifying global competition and accelerating changes in market structure will likely continue, thereby contributing to the development of a sustainable society.

Long-term vision and synergy for the newly integrated company
Purpose and ideal state
The purpose of the newly integrated company is to “Change society through the power of chemistry,” as stated publicly by the Showa Denko
Group. This includes contributing to the development of a sustainable global society by creating functions required of the times as an advanced
materials partner. Also, the new company will aim to become a company that has a “strong presence in the global market” and “contributes toa sustainable global society,” two components of the Ideal state to be achieved in order to fulfill the Purpose.

PurposeChange society
through the powerof chemistry

Ideal state

Company
with a strong
presence inthe global
marketCompanythat contributes
to a sustainableglobal society

Objective of integration
Currently, global demand for solutions to environmental and social issues and contributions to SDGs is driving the need for the renewal of various social infrastructure, such as digital infrastructure as well as mobility and energy infrastructure. In this context, expectations for innovation bymaterials manufacturers are growing.
By integrating the two companies, we will meet these societal demands and expectations of our customers head on. We will provide one-stop
solutions and new functions to our customers and contribute to a sustainable society as a whole as a “global top-level functional chemical manufacturer” that will realize a breakthrough by fusing Showa Denko’s midstream materials technologies, Showa Denko Materials’ downstream
application technologies and both companies’ evaluation and analysis technologies.

28

SHOWA DENKO Report 2021

Portfolio management for sustainable growth
To realize the Ideal state, we will leverage the highly complementary business portfolio built through the integration of the two entities, which
consists of four categories: Core Growth business, Next-Generation business, Stable Earnings business and Fundamental Technologies/
Materials business. By bringing the four business domains fully into play, with each capitalizing on a competitive advantage commensurate with
their respective roles, we will continue to provide new functions to the market and realize continuous growth.
In particular, by deploying a wide range of technologies and materials from the Fundamental Technologies/Materials business domain to strengthen
the competitiveness of each of the business categories while continuing to refine such technologies and materials across a variety of businesses,
we will seek to expand our presence in new and promising future markets. Also, we will look at M&A and other opportunities for acquisitions in new
areas of Next-Generation business, and split off businesses unfit for any of the four categories as appropriate, as part of efforts to achieve high growth.
Business acquisitions in new areas through M&A etc.
Showa Denko

Showa Denko Materials

Stable Earnings business

Next-Generation businessCore Growth business

Earns a stable profit and generates investment capital,
maintaining competitiveness/high share in markets
where competitive landscape is stabilizing

Favorably positioned to aim for
future growth in promising markets
and will be developed into a nextgeneration pillar

Offers products with overwhelming
presence/top share in growing
markets, and will sustain the Group’s
future growth

Device Solutions

CarbonLife Science

Electronics

Hard disk media
The world’s No. 1 independent
manufacturer/seller with cutting-edge
technology

Graphite electrodes
The world’s No. 1 production capacity/
market share due to high quality andcost competitiveness

Regenerative medicine
The world’s No. 2 order volume

Semiconductor-related materials
The world’s No. 1 with a number of
products commanding the largest
market share

Industrial Gases

Petrochemicals

Mobility

Resin-molded automotive modules
The world’s No. 2 for resin-molded reardoor modules

Strong presence in East Asia
Derivatives with high market share

Basic Chemicals

Coating Materials

Fundamental Technologies/Materials business
Handles a wide range of inorganics, organics and aluminum technologies andmaterials and serves as a technology platform to support innovation and enhance
the competitiveness of the three other business categories
Ceramics

Functional Chemicals(resins, etc.)

Electronics Materials

Aluminum Specialty
Components

Shares and order volume are based on surveys by Showa Denko.

Split off businesses that do not/no longer fit into any of the four business categories
SHOWA DENKO Report 2021

29

Long-Term Strategy to Realize the Vision

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

Market assessment and strategy for Core Growth and Next-Generation businesses
The Core Growth and Next-Generation businesses will drive the Showa Denko Group’s future growth. We will pursue business development witha good understanding of differences in market stages and our position in each business. (Note: Figures for estimate, shares and order volume
are based on surveys by Showa Denko.)

Electronics

Marketoutlook

Growth business:

Semiconductor wafer process

Within a certain technological development direction, high probabilityof continued technological innovation and market growth

Our positionand strategy

With the position of major players solidified, drastic structuralCompetitivechanges and new entries in the industry are unlikely, althoughenvironment
future industry restructuring is still possible.

Global sales of key semiconductor-related materials suppliers*1(2020 forecast) *1 Does not include silicon wafers (Surveyed by Showa Denko)(¥100 mil.) 0

Showa Denko
Group

1,000

Showa Denko Materials
Approx. 80%

2,000Showa Denko
Approx. 20%

Key materials of each company
High-purity gases, solvents, polishingslurry, packaging process materials
Specialty gases, polishing slurry

Company B

Photoresist

Company C

Photoresist

Company D

Wet chemicals, package substrate materials

Company E

Photomask

Company F

Photomask

Company G

Polishing slurry

Company H

Wet chemicals

Company I

Photoresist, polishing slurry

Mobility

Marketoutlook

Key products of Showa Denko Group
Provides an extensive range of products both in wafer and packaging processes,with 85% of sales from products ranked among top three for market share

High-purity
gases

Packagingprocess

Changes with high certainty

Encapsulants

CMP
SlurryWorld No. 1

Ceria slurry
World No. 1

Die bonding
materials

Packaging
Copper-clad
Photosensitive
substrate
laminates World No. 1
films
materials
World No. 2

Growth business: Multi-materials/resin-molded automotive module

Current trends

Changes with uncertainty

World No. 2

High-purity
solvents

Our positionand strategy

Competitive Several materials manufacturers exist and competition
environment for the top position just beginning30

Showa Denko Materials

World No. 1

Wafer
process

Both areas of high certainty and areas of
uncertainty coexist in changing market situation

Heat management (power module)Manage certainty and uncertainty with portfolio• Develop businesses that cater to trends for weight
reduction and electrification• Particularly for electrification trend, prepare for
uncertainty about powertrain

Major target businesses for Showa Denko Group
The trend of vehicle body weight
reduction continues, aiming to
reduce greenhouse gases

Weightreduction

Shift to electrification driven
by government policies
Electrification*2 HV: Hybrid vehicle

Win in growing markets by capitalizing on
our top position and enhanced technological capabilities•C ontinue to develop cutting-edge
products and provide one-stop solutions

Showa Denko

Company A

Semiconductor packaging process• Uncertain outlook formarket penetration of eachpowertrain typeMulti-materials/resinmolded automotive module

Provide multi-materials solutions centering on
resin-molded rear door module

HV*2

Heat management for Si
power devices*5

Propose a combination of materials with exceptional heat
resistance and heat dissipation in one package, mainly for power
module manufacturers

FCV*3

Heat management for SiC
power devices*6

Propose heat management materials package that enhances performance of SiC power module at the time of SiC power module expansion

EV*4

Materials for lithium-ion batteries

In preparation for electrification, provide materials such as advanced anode materials*3 FCV: Fuel cell vehicle *4 EV: Electric vehicle

SHOWA DENKO Report 2021

*5 Si: Silicon *6 SiC: Silicon carbide

Life Science

Growth business:

Drive growth by leveraging first-mover advantages

Despite certainty about market expansion, wide disparity ofmarket views on expansion timelines and growing segments

Marketoutlook

Regenerative medicine

Our positionand strategy

Competitive Currently led by first movers including us, and will likely see
environment entry by new players in the near future•Q uickly recoup investment by leveraging current
competitive advantages
 rasp changes and identify segments where•G
competitive advantage can be established

Global top-class contractor and know-how

Global production structure

Development of pioneering
manufacturing technology

Global top-class range of cell types including for autologous,
allogeneic, clinical and commercial use

Global service structure established, with bases in North
America, Europe and Asia

Pursuing development and introduction of automation/
large-scale suspension culture technology ahead of competitors

Cumulative order volume (2019/no. of items)
EuropeMunichNorth
AmericaAsia

Yokohama
Mountain View,
CA

CompanyA

Our
Company

Company
B

CompanyC

CompanyD

Lead the market with accumulated know-how on use ofdiverse element technologies as a source of differentiationand competitive advantage over the medium to long term

Allendale, NJ

Get a start on expected future cost innovations ahead ofcompetitors to gain a sustainable competitive edge

Recoup investment quickly by using the three global
locations to full advantage to win orders

Projected innovation impact
Expand growth businesses to around ¥600 billion by 2030 through technologicalinnovations and synergies resulting from integration of the two companies
Projected sales and operating income in growth businesses (estimated)(¥100 mil.)Sales outlook for all growth businesses

7,000(¥100 mil.)
600

CAGR
+10%

6,000
5,000

Profit increase (operating income basis)*1
from innovations and synergies

6,000
480

500
400

4,100

4,000
300
3,000

2,300

180

200

2,000

100

1,000

0
0

2020

Innovations and synergies

2025

2030

Expansion of competitive existing products/improved products

0

2020

2025

2030

*7 Does not include operating income based on sales of non-innovations and non-synergies

Cumulative sales for the above five growth businesses totaled approximately ¥230 billion in 2020, and we will seek to scale up thesebusinesses to reach ¥600 billion by 2030, while achieving CAGR of 10%, through innovations and integration-related technologicalsynergies. Also, we will aim to generate an additional ¥18 billion and ¥48 billion in operating income genuinely related to innovations
and synergies in 2025 and 2030, respectively.

SHOWA DENKO Report 2021

31

Long-Term Strategy to Realize the Vision

FeatureStory

Challenges to Realize Carbon Neutrality

1

Climate change phenomena are occurring frequently and on a global scale. According to the science, greenhousegases are considered to be a major factor for such phenomena. Under the Paris Agreement, a leading international
initiative to tackle this issue, a goal was set to keep the rise in mean global temperature to less than two degrees
Celsius above pre-industrial levels (“two degree target”), and efforts to address this challenge are expected to beaccelerated over the coming years. In order to support such efforts, the Showa Denko Group will take up new challenges aimed at carbon neutrality, setting goals for 2050. This is one of our key approaches to becoming a “company
that contributes to a sustainable global society,” the ideal state defined in our Long-Term Vision.

Roadmap to carbon neutrality in 2050 
Present

2030 (30% reduction vs. 2013)

Implementation to achieve 2030 targets

2050 (carbon neutrality)
Net zero
Convert CO2 intoa raw material

Tackling carbon neutrality
Implement/expand chemical recycling

Emissions intandem with
proprietaryproduction
activities(Scope 1)

Fuel conversion(Gas fuels, renewableenergy)Electricity
steam• Reduce amount of use, including
energy conservation and therealization of high efficiency• Switch to renewable energy
power sources

CO2 separation,
capturing and use

Improve electrification rate
CO2 separation,
capturing and use

Fuel conversion and mixed combustion(Ammonia and hydrogen use)

Thermalpower
generation
facilities

Externalpurchasing
Energy(Scope 2)

Achieve energy conservation and highefficiency via innovative technologies• Raw materials/fuels conversion• Streamlining/high efficiency• Energy conservation

Processes

Consider switch to externally purchased energy• Switch to CO2-free power, including renewable energy•U se hydropower facilities• Up to 2030, promote initiatives for rigorous streamlining, increased efficiency, energy conservation, conversion to gas fuels (high-efficiency co-generation system)• Promote technology development for new GHG capture and utilization processes and sustainable plastic chemical recycling• From 2030 to 2050, promote in earnest initiatives for fuel conversion/mixed-combustion using ammonia and hydrogen, and electrification of production processes• Promote utilization of private hydroelectric power and shift to renewable energy power for use in production• Aiming to achieve carbon neutrality, promote the development of innovative GHG capture/utilization technologies, utilization of recycled GHG as chemical materials,
and implementation of sustainable plastic chemical recycling technologies

Previous goal
Scope
Showa Denko Group companies in Japan

Goals for newly integrated company
Scope
All Showa Denko/Showa Denko Materials Group companies

Down
30%

All Showa Denko Materials
Group companies

Down 11%from 2013

Showa Denko Group
companies outside Japan

from 2013• Energy conservation, increased
efficiency•U se of renewable energy•F uel conversion for in-house
power generation•P romotion of technology
development

Achievecarbonneutrality
by 2050

Showa Denko Group
companies in Japan

2013

32

2030

SHOWA DENKO Report 2021

2013

2020

2030

2050

Initiatives for carbon neutrality

High-efficiency co-generation system
Promotion/expansion of chemical recycling
High-efficiency co-generation system
The Showa Denko Group has installed in-house thermal power generation
systems with the boiler and the steam turbine designed so as to ensure
the efficient supply of electricity and heat (steam) energy sourced fromfossil fuels. This is to allow the energy to be used effectively for each of
the different production processes, such as heating and distillation, at
chemical plants. Also, this off-grid power supply function represents anessential BCP item at chemical plants in preparation for the contingencyof a power outage.
We will upgrade the above in-house thermal power generation systems
so as to serve our carbon neutrality initiatives. The plan consists of two
steps. In the first step, we will introduce a state-of-the-art high-efficiency
gas turbine co-generation system, among others, to improve overall energy
efficiency, and then switch to fuels with lower CO2 emissions per calorie inan effort to promote lower-emission operations. These measures involve
conversion from solid to liquid fuels, which will effect a significant reduction of CO2 emissions, thereby contributing to environmental conservation.
The second step is the planned adoption of co-firing systems based oncarbon-free ammonia and other fuels as well as of carbon capture utilization(CCU) and other carbon recycling processes, aiming for carbon neutrality.

Step 1

Step 2• Introduce high-efficiency co-generation system• Shift to fuels with lower CO2 emissions per calorie• A mmonia co-firing,etc.
• CCU, etc.

Steam

Ammonia, etc.
Fuel gas
Shift to fuelswith lower CO2
emissions

BoilerG

Compressor
GasturbineIntakegas

Powergenerator

Exhaust gas
treatment
CCU

Power

(Carbon capture andutilization)

High-efficiency gas turbine co-generation system

Promotion/expansion of chemical recycling
In order to facilitate carbon neutrality in the chemicals industry, it is imperative, along with increasing energy use efficiency, to reduce the use of fossil
resources, a leading raw material for many chemical products, as exemplified by plastics. In Japan, a reported 70% of used plastics are incinerated,
resulting in CO2 emissions, including for the purpose of heat recovery.
Among a number of proposed solutions to this issue, chemical recycling—referring to the reuse of plastic waste as a raw material for chemical products—is drawing broad attention.
The Showa Denko Group is already engaged in plastic chemical recycling for ammonia and hydrogen manufacturing. Based on the practicalknowledge on plastic waste utilization that has been cultivated throughpast operations, we are ramping up R&D activities to expand the application of chemical recycling capabilities. Specific plans are discussed for
adopting recycled plastics to manufacture ethylene, propylene and othersubstances used as raw materials for plastics and many other types oforganic chemical products in place of petroleum naphtha, a primary conventional option.
We are striving to raise the chemical recycling rate to the extent possible, overcoming limitations related to dirt and impurities, with the aim ofachieving fossil-free chemicals production, which represents a significant
stride toward a carbon neutral society. We will accelerate our efforts tointroduce the results of the above activities to the market as early as
possible to broaden the range of applicable products that support a
recycling-oriented, carbon neutral society, thus fulfilling our social responsibility as a chemicals manufacturer.

Incineration

Petroleum
naphthaPlastics(PE, PP, etc.)

Basic rawmaterial
Ethylene
Propylene
C4, C5
BTX, etc.

Ammonia

Plastic
waste

CO2

Other
chemicals

HydrogenCarbonatedproducts

KPR*
Plastic waste utilization know-how
Previous flow  Processes under discussion* KPR: Kawasaki Plastic Recycle, plastic recycling business operated at
the Kawasaki Plant

For more details, please refer to “Initiatives for an advanced recycling-oriented society: Plastic chemical recycling” on page 35.

SHOWA DENKO Report 2021

33

Long-Term Strategy to Realize the Vision

FeatureStory

2Tackling SDGs through Business Activities

The Showa Denko Group is committed to contributing to solving social issues, with a focus on the SDGs, through its
business activities. To demonstrate this commitment, we will first assess the current level and characteristics of thecontribution of our individual products and services to achieving the SDGs, and then map out specific plans to enhance
our future contribution.
As part of assessment programs, we have selected products/services to focus on to enhance our contribution
toward achieving the SDGs (“SDGs Contribution Products/Services”), based on our voluntary criteria.

Selection criteria and processes for SDGs Contribution Products/Services 
We started by charting the situation of products/services on two axes—one for the link between the goals or targets of the products/services
and the SDGs, and the other for the social sphere of influence—and defined a region for SDGs Contribution Products/Services.
The products/services identified in the above process were then discussed separately at the two companies. At Showa Denko, the identified
products/services were subject to screening to make a list of candidates at the SDGs Promotion Working Group consisting of representatives
from the head office’s staff divisions. The list was reviewed by the Sustainability Promotion Council composed of staff division heads from thehead office before being approved by the Management Committee.
At Showa Denko Materials, a list of candidates was created based on past results from efforts to address the SDGs as an issue of materiality,
and the list was reviewed by the Sustainability Promotion Council before being approved by the Management Committee, according to similar
procedures to those of Showa Denko.

Showa Denko Group’s 4 steps to tackle SDGs through business activities

STEP

STEP

STEP

STEP

Define criteria for selecting SDGs
Contribution Products/Services,and determine targets

Map out future contribution plans
up to 2030 for all major target
products/services in considerationof the value chain

Based on the mapped out plans andwith an eye to solving social issues,
set qualitative and quantitative goals
for reducing social and environmental impacts of individual businesses,
and formulate appropriate measures

Create or develop businesses toimprove value to be offered for
greater social and environmental
contribution

1

2

3

STEP 1

4

STEP 2A chart was created setting criteria and defining a region for SDGs

Model contribution plans up to 2030 were created for three target

Contribution Products/Services (see below). The same criteria were

products/services in consideration of the value chain. Following theseadopted by Showa Denko and Showa Denko Materials to identify

models, contribution plan development will be expanded to all thetarget products/services.

major target products/services.
Contribution to achieving SDGs

Initiatives for an advanced recycling-oriented society
High

SDGs Contribution Products/Services

Plastic chemical recycling (page 35)

Average

Initiatives for improved QOL
Contract development and manufacturing­organization for regenerative medical products

Low

Links to SDGs

Graphite electrode-driven steel recycling (page 36)(page 37)
Low

Average

Social sphere of influence

34

SHOWA DENKO Report 2021

High

WEB

For more details, please visit the related webpages.

Initiatives for an advanced recycling-oriented society

Plastic chemical recycling
Basic approach
We are engaged in plastic chemical recycling to process used plastics into raw materials for manufacturing ammonia, carbon dioxide gas and frozen
carbon dioxide. The related processes enable molecular level decomposition of plastic waste, which would otherwise be incinerated, to recover hydrogenfor use in manufacturing new products. Showa Denko, being the world’s only long-time commercial operator in gasification chemical recycling, will leverage its proven track record to meet mounting social expectations for addressing plastic waste recycling issues, particularly those associated with climatechange and marine plastic waste.
Social issues (plastic waste, etc.)
Ocean plastic pollution, GHG

Local governmentsCollection ofplastic waste

Showa Denko (chemical recycling)

Separate collection of plastic waste

Plastic waste
processing

emissions from incinerated plastics• Chemical recycling for plastic
gasification andutilization• Addressing
types of plastics

Fuel cell vehicle

Fuel cell power
generation

Hydrogen station

Providing hydrogen/
CO2 for an
air-conditioning coolantthat are hard torecycleChallenge toward 2030 and Showa Denko’s initiatives
In Japan, the recycling rate of plastic waste approximates 85%, out of which only
5% is related to chemical recycling with most of the remaining portion related tothermal recycling. Recently, international standards have begun to disallow thermal
recycling in order to promote proper plastic waste utilization, calling for governments
to raise the combined rate of chemical and material recycling to around 70% of thetotal, including the currently unrecycled portion. To address this situation, Showa
Denko will draw on its long-established track record in commercial chemical recycling
operations in order to raise the chemical recycling rate through innovating technologies
to accommodate types of plastics that are presently hard to recycle, while providing
technologies for stable production processes to operators inside and outside of Japan.

Challenges facing society• Raise chemical recycling rate of plastic resources
Raise Japan’s chemical recycling rate from the current 3% to 17%• Reduce ocean plastic pollution

Showa Denko’s initiatives• Address types of plastics that are hard to recycle to improve the recycling rate
• Provide stable production process technologies developed through yearsof commercial operations to operators inside and outside of JapanTARGET 14.1

TARGET 9.4

TARGET 12.4, 12.5

TARGET 13.3

Enable chlorine-based ocean
plastic recycling

Improve usage efficiency ofplastic resources

Reduce environmental impact throughplastic chemical recycling

Fossil-free production of hydrogenand ammonia, CO2 utilization

Receive from local governments

KPR*

Used plastics

CO2 products

CO2

Liquid CO2

Commercialize
CO2

Hydrogen energy used ineconomic activities

HydrogenDry ice* KPR: Kawasaki Plastic Recycle, plastic recycling
business operated at the Kawasaki Plant

Ammonia plant

Major use of ammonia

Supply to hydrogen stations/commercial facilities

De-NOxNitrogen fertilizer

Synthetic fiber

Adhesives, resins

Eco-friendly ammonia absorbs NOx emitted from thermal power plants
TARGET 7.1
TARGET 11.6

Hydrogen/ammonia, CO2-free fuels

Produce materials for products essential
to community development

Promote plastic chemical recycling to achieve zero emissions

SHOWA DENKO Report 2021

35

Long-Term Strategy to Realize the Vision

Feature Story 2: Tackling SDGs through Business Activities

Initiatives for an advanced recycling-oriented society

Graphite electrode-driven steel recycling
Basic approach
Graphite electrodes are best known as a key component of electric furnaces in which iron scrap is melted to be recycled into steel.
In the electric furnace system, electrodes are charged with a high current to cause an arc discharge, a heat source for melting iron scrap. The temperature of liquid steel can reach 1,600°C and that of the electrode tops 3,000°C. Graphite electrodes represent the only currently available industrial material
to be functional under such extreme high-temperature conditions. Compared with the conventional blast furnace system, the electric furnace system canreduce CO2 emissions per unit of crude steel output by 75%, giving rise to expectations for expanded usage of the system for steel production as acontributing factor to decarbonization endeavors. In this context, Showa Denko will work to ensure a stable supply of high-quality graphite electrodes
while providing AI-enabled technical support for upgraded electric furnace operation processes, thereby helping popularize steel recycling practices andreduce CO2 emissions attributable to steel production.
Social issues (GHG emissions reduction)• Reducing CO2 emissions related to steel production(blast furnace)• Building a sustainable, recycling-oriented society

Raising steel
recycling rate
Reducing CO2
emissions related tosteel production

Customers (electric furnace manufacturers)• Contribution to an advanced recycling-oriented
society through electric furnace steelmaking•C O2 emissions reduction through upgradedsteelmaking technology

Demand for shift
to electric furnace
crude steel
production

Providing products/
services that cancontribute to CO2emissions reduction

Providing high-quality
graphite electrodes
Providing support for
optimal operations

Showa Denko (supply of graphite electrodes,
technical support for electric furnace operation)• Stable supply of high-quality graphite electrodes
from six carbon neutral plants across the world• Providing AI-enabled technical support for
upgraded electric furnace
operation processes to lower
electrode consumption rate

Challenge toward 2030 and Showa Denko’s initiatives
Steel recycling represents a long-established, best practice resource recycling system.
Electric furnaces produce no more than 30% of the world’s total crude steel output at present,
but the rate is expected to rise in the future. This outlook is particularly gaining traction inlight of rising international calls for reducing GHG emissions to control climate change.
Against this backdrop, Showa Denko boasts the world’s largest graphite electrode production capacity. It manufactures the product at six plants across the world and delivers it tolocal markets (according to the local-production-for-local-consumption policy) in an effort to
reduce distribution-related CO2 emissions. The six plants, while working to achieve carbon
neutral operations, help users raise the rate of electric furnace steelmaking by supplying
graphite electrodes as well as providing support for upgraded steel recycling systems. Also,
through the joint venture with AMI Automation, we will provide technical support for upgradedelectric furnace operation processes, looking to lower the electrode consumption rate.
In pursuing the two major recycling projects described above, we seek to contribute tobuilding the kind of advanced recycling-oriented society that is aimed at by the global community.

Challenges facing society• Reduce CO2 emissions related to steel production• Build a sustainable, recycling-oriented society
Raise the world’s electric furnace-made steel rate from the current
30% to 35%• Upgrade electric furnace operation processes to reduce CO2
emissions related to steel production

Showa Denko’s initiatives• Ensure stable supply of high-quality graphite electrodes from six
carbon neutral plants across the world• Aim to go beyond carbon neutral and become carbon negative at
Omachi Plant (power consumptionhydropower output)• Provide AI-enabled technical support to upgraded electric furnace
operation processes to lower electrode consumption rate

TARGET 6.4

TARGET 13.2, 13.3

TARGET 7.2, TARGET 9.4

TARGET 17.16

Stable operation of Omachi
City’s water use systems

Reduce CO2 emissions related totransportation within the plant

Keep the plant’s power
consumption to below the levelof hydroelectric power output

Consulting, technicalservice

Switch the company fleet (forklift andother vehicle types) to HVs/EVs

TARGET 12.2

Propose operation plans for
reduced CO2 emissions

Effective use of resources
Fuel recycling, etc.

Reuse of excess raw
materials and oil residue,
green purchase

TARGET 13.2, 13.3

Reduce CO2 emissions
related to distribution
Higher transport efficiency

Steel
scrap

Supplier

Hydroelectric power
stationTARGET 13.2, 13.3

Supply consistent-quality electrodes
from six plants across the world
Deliver products to local customers, reducing
CO2 emissions related to transportation

36

SHOWA DENKO Report 2021

Omachi Plant

TARGET 11.6

Stable supply of high-quality electrodes
Improve the electrode consumption rate

Electric furnace
End
user

Initiatives for improved QOL

Contract development and manufacturing organization
for r­ egenerative medical products
Basic approach
Regenerative medicine represents an innovation-led business domain intended to present new treatment approaches for conditions that are difficult to cureusing conventional therapies. It should be noted, however, that participants in this sector need to be equipped with highly technical capabilities to address theformidable challenge of effectively handling living cells in order to ensure stable production of high-quality products. In this context, with the hope of contributing to the promotion and development of regenerative medicine, Showa Denko Materials has developed a skilled technical workforce in cell cultivation andquality inspection, and established production bases in Japan, the United States and Europe to provide contract development and manufacturing services tothe local pharmaceutical industries. The company’s products are delivered to countless patients through its primary customers, pharmaceutical companies.
Social issues (refractory and recurrent diseases)
Diseases, such as cancer and hereditarydisorders, that are difficult to treat withconventional approaches

Customers (pharmaceutical companies)
Providetreatment

Showa Denko Materials

Engage in R&D and clinical trial
operations to provide safe and effective
regenerative medicine products topatients

Outsource
operations

Offer innovative
treatment options

Provide contract development andmanufacturing services for regenerative
medicine, ensuring high quality

Provide contract
services

Challenge toward 2030 and Showa Denko Materials’ initiatives
Showa Denko Materials, having established production bases in Japan, the United Statesand Europe, globally provides contract manufacturing services for regenerative medicine
under the brand name of Minaris Regenerative Medicine, known for its stable supply ofhigh-quality products. We are equipped to handle a broad range of cell types, including T
cells*1, mesenchymal stem cells*2 and iPS cells*3, regardless of whether autologous*4 orallogeneic*5, and manufacture regenerative medicine products with quality levels equivalent to those of conventional pharmaceuticals. By supplying safe and effective regenerative medicine products to our pharmaceutical company customers, we contribute to them
directly as well as to patients indirectly. In pursuing the regenerative medicine business,
we aim to help build a society that can offer options to treat diseases, such as cancer andhereditary disorders, that are difficult to treat using conventional therapies.

Collect cells

Transport

Challenges facing society
Promote regenerative medicine to provide treatment for diseases, suchas cancer and hereditary disorders, that are difficult to treat with conventional approaches

Showa Denko Materials’ initiatives
As a partner of pharmaceutical companies, provide contract manufacturing services for regenerative medicine from production bases in Japan, theUnited States and Europe, ensuring a high level of quality. In doing so,
contribute to the promotion and development of regenerative medicine
and work to support the health and well-being of people around the world.

Cultivate cells (manufacture)

Cell division

Cell
processing

Cell culture

Harvest/refinement

Transport
Qualityinspection

Injection/IV

Pre-shipment inspection
Quality assurance(Example) Delivery time of autologous immune cell products: 19-22 days (average)
Customers (pharmaceutical companies)

Customers

Patients

Areas where Showa Denko Materials is committed
TARGET 16.3

TARGET 3.4

TARGET 17.6

Provide contract development and manufacturing services for regenerative medicine incompliance with laws and regulations

Provide contract development and manufacturing services for regenerative medicine topharmaceutical companies, and deliver
treatment to patients through those companies

Participate in global technical development
promotion mechanism to encourage knowledge sharing in the fields of science, technology and innovation

TARGET 9.2

TARGET 3.8

TARGET 17.16

Promote the comprehensive and sustainableindustrialization of the new regenerative
medicine sector

Develop skilled technical personnel to be able
to offer access to safe and high-quality
pharmaceuticals at the lowest possible prices

Promote multi-stakeholder partnership
activities to revitalize the global partnership*1 T cell: T-lymphocyte, a type of lymphocyte *2 Mesenchymal stem cell: Somatic stem cell that is derived from the mesoderm *3 iPS cell: Induced pluripotent stem cell
*4 Autologous: Derived from the same individual *5 Allogeneic: Derived from individuals of the same species that are sufficiently unlike genetically to interact antigenically

SHOWA DENKO Report 2021

37

Long-Term Strategy to Realize the Vision

CFO Message

We will increase our corporate
value by speedily improving
our financial structure andimplementing SDGs- and ESGoriented measures frommedium- to long-term viewpoints

Motohiro Takeuchi
Representative Director,
Managing Corporate Officer, andChief Financial Officer (CFO)

Our approach to setting numerical targets in the long-term vision 
The Showa Denko Group is committed to satisfying all stakeholders
as its business philosophy.
In order to satisfy all stakeholders, we will implement various
measures and foster the generation of synergy effects. To this end,
we set our numerical targets in the long-term vision announced in
December 2020, including the target for total shareholder return (TSR).
In consideration of the fact that TSR is influenced by stock market
trends, we have set the target of being ranked among the global top
25% in the chemical industry for TSR. One of the elements comprising a company’s TSR is its stock price. By dividing the company’s
stock price by its earnings per share (EPS), you can calculate theprice-to-earnings ratio (PER). EPS represents the present status of
the company and PER its growth potential.
SDGs- and environment, society and governance (ESG)-oriented
measures are also included among the factors that will drive thefuture growth of the company. It will therefore help the Group improve
its future financial performance to implement proactive measures tomeet social challenges from a long-term viewpoint for 2030 and
2050. Based on this recognition, we will work to solidify the foundation of our business and improve TSR on a medium- to long-termbasis, so that our stakeholders can have greater expectations for the
future of the Group, while also implementing the SDGs- and ESGoriented measures.

38

SHOWA DENKO Report 2021

Our business philosophy“Satisfy all stakeholders”
We at the Showa Denko Group will provide products and services
that are useful and safe and exceed our customers’ expectations,
thereby enhancing the value of the Group, giving satisfaction to
our shareholders, and contributing to the sound growth ofinternational society as a responsible corporate citizen.

Business
partners

Shareholder
value

Customervalue

Socialvalue

Greater value
creation

Provision ofunique value

Contribution toa sustainable
society

Employees
Core players for value creation

Approach to management indicators• Be committed to TSR as a comprehensive indicator for higher
corporate value•A s drivers to increase TSR (%), set EBITDA margin (%) as
a KPI for business strategy and net D/E ratio as a KPI for
financial strategy.

2020 results*1

2021 forecasts*2

2025

2030

Aim to be among the top 25% in the chemical industry on a medium- to long-term basis

TSR (%)Net sales (Trillion yen)

1.25

1.35

1.6

1.8–1.9

EBITDA (Billion yen)

89.7

188.1

320.0

—

EBITDA margin (%)

7.2%

14.0%

20%

—

–20. 3%

—

15%

—

1.84

—

Close to 1.0—

ROE (%)Net D/E ratio (Times)*1 Annualized figures calculated by including the following in the calculation target: January to June 2020 results recorded by Showa Denko Materials under the institutional accounting systemand the amount equivalent to that of goodwill amortization posted in the second half of 2020.
*2 Publicly announced on May 10, 2021

Remuneration system 
In order for directors and corporate officers to steadily commit themselves to the achievement of the Showa Denko Group’s targets andthe improvement of its corporate value, we will link part of their remuneration to the management indicators. We are now conducting
examinations to specify the indicators to which the remuneration will
be linked and will decide on the weights to be given to each of theitems. We include TSR, EBITDA margin, ROE and the net D/E ratio in
the examination target.

Approach to building the remuneration system• As stated in the business philosophy, require directors andcorporate officers to commit to satisfying all stakeholders.
•L ink remuneration for directors and corporate officers to the
management indicators to encourage a greater commitment byexecutives to making achievements as a management team.

Drivers for higher profitability toward 2025 
For fiscal 2020, we posted an EBITDA margin of 7.2% (on an annual basis). In and after fiscal 2021, we will work to increase the margin to
15% by achieving growth, mainly in the electronics and mobility fields, and by fostering innovation and structural reforms. We also aim to improveit to 20% by fiscal 2025, in anticipation of recovery from the impact of COVID-19 and in consideration of the changes to be made to the market.
Even if market conditions do not change as expected, we will still achieve the targeted 20% by further fostering business restructuring andstructural reforms.

Achieve an EBITDA margin of 20% by 2025 through business growth and innovation, mainly in the electronics
and mobility fields, and also through structural reforms and recovery from the impact of COVID-19
EBITDA margin (%)

2%
3%
2%
1%
4%

18%
15%

8%*3

2020
EBITDA margin (%)(On an annual basis)

Business growthInnovation

Structural reforms

2025
EBITDA margin (%)(Self-help)*3 The EBITDA margin for 2020 was announced as 8% on December 10, 2020 but wasrevised to 7.2% in the consolidated financial results announced on February 17, 2021.

Recovery from theimpact of COVID-19

2025
EBITDA margin (%)(Self-help)
Recovery from theimpact of COVID-19

If the market does
not change as
expected, further
foster businessrestructuring andstructural reforms
to achieve thetargetMarket change

20%

2025
EBITDA margin (%)(Target)SHOWA DENKO Report 2021

39

Long-Term Strategy to Realize the Vision

CFO Message

Synergies generated on a short- to medium-term basis 
For the Showa Denko Group to achieve sustainable growth, it is important for it to have a highly selective business portfolio and to maximize its
organizational productivity. To this end, on a short- to medium-term basis, specifically during the period leading up to fiscal 2023, we will sellsome businesses in the business portfolio restructuring*4 process and also implement measures to improve our profit structure and streamline
our assets, and work for the full integration of the two companies.
(1) Business portfolio restructuring
As a result of the integration between Showa Denko (positioned in the
midstream section of the value chain) and Showa Denko Materials(positioned in the downstream section of the value chain), we haveestablished a new portfolio comprising the “Core Growth,” “NextGeneration,” “Stable Earnings” and “Fundamental Technologies/
Materials” businesses. By clearly categorizing our businesses like this,we can now manage our business portfolio in a more strategic manner.
We are also conducting examinations and negotiations to sell someof our businesses as part of the business portfolio restructuring process.
As of July 2021, we have decided on the following plans: selling off
two of Showa Denko’s businesses (aluminum cans, aluminum rolled
products) and four of Showa Denko Materials’ businesses (food wrap
film, printed wiring boards, ceramics, energy storage devices/systems);
and accepting a public tender offer for our shares of SHOKO CO., LTD., aconsolidated subsidiary of Showa Denko. Through these, we have made acertain degree of progress in restructuring our business portfolio. We willcontinue to pursue appropriate business portfolio management toensure the Group’s sustainable growth and realize the Long-Term Vision.
 easures to improve the profit structure and(2) M
streamline the assets
1) Measures to improve the profit structure
As synergies to be generated through the integration of the twocompanies, we aim to reduce our costs by about ¥28 billion in total
relative to the fiscal 2019 level by the end of 2023, in addition toincreasing revenue from sales. We will achieve this cost reduction
specifically by reducing the materials and logistics cost, improving our
productivity, reducing rental charges and optimizing our operations.
Measures

Increase in revenue(2023, billion yen)

Improvement of revenue from sales

3.0

Reduction of purchasing and logistics cost

3.0

Improvement of productivity

2.0

Reduction of rental charges

1.0

Reduction of other expenses

7.0

Optimization of operations (structural reforms)

12.0

Total

28.0

In addition to these measures, we will earn more from the sale of
new products and through cross-selling, while also steadily implementing measures to reduce materials cost, consolidate our operation sites, and improve productivity to make even more achievements
through the integration.
2) Streamlining of assets
As part of measures to foster our financial soundness, we also implemented measures to streamline our assets by making improvements
to working capital as well as by selling off marketable securities,
including cross-shareholdings. For this, we had planned to achieve
the target of ¥50 billion by the end of 2021 but were able to achieve
it earlier than planned by reaching the level of ¥73 billion before theend of 2020.
We will conduct examinations to implement additional measures
on a medium- to long-term basis.
3) Integration as an organizational entity
Showa Denko and Showa Denko Materials will be integrated into asingle corporate entity in January 2023.
Preparation programs will get underway in July 2021, with the
integration of the head offices scheduled for August. This will effect a
substantial cost saving, chiefly due to the reduction of rental charges,
shared use of systems and joint procurement.
For 2021, despite some remaining impact of COVID-19, we will beable to recover our business performance thanks to demand forsemiconductors, which has been brisk, and also due to the fact thatthe supply of graphite electrodes and other products is becomingtight. We will further speed up our measures to grasp the opportunities provided by these favorable trends.
*4 For details, please see “Portfolio management for sustainable growth”
on page 29.

Summary of short- to medium-term targets
Business portfolio restructuring• Foster restructuring and sell businesses
at a total price of ¥200 billion on an
enterprise value (EV) basis

40

SHOWA DENKO Report 2021

Profit structure improvement /Asset streamlining• Reduce direct/indirect costs throughintegration• Make improvements to working capitaland sell off marketable securities, including cross-shareholdings

Organizational integration• Accelerate the date of substantive integration one year, from January 2023 toJanuary 2022
Preparations were started in 2021, withhead office integration in August 2021
• Corporate entity integration to be completed in January 2023

Shareholder return policy 
As for cash gained through future business growth and the sale ofbusinesses, in consideration of the post-integration situation, for thetime being we need to prioritize to some extent allocation to therepayment of loans and to growth investment to increase profit.
While improving our balance sheet by repaying loans and bringing
our net D/E ratio close to 1.0, we will make investments in growthbusinesses. After meeting these preconditions, we will pay a stabledividend to the extent possible. As for our medium- to long-term
shareholder return policy, we will again work to increase our total
payout ratio to 30%, after getting the net D/E ratio close to 1.0 andachieving a certain degree of business growth.

Priority for cash allocation

Cash

Shareholder
return(Dividend)

Repayment ofloans
Growthinvestment

In consideration of the post-integration situation, we need toprioritize to some extent the repayment of loans and growthinvestment to increase profits.

Toward the future 
To avoid missing any opportunities for the Showa Denko Group’s
growth, we need to improve our growth strategies and financial
structure, operate our risk management and corporate governancesystems in an appropriate manner, and embrace diversity in theworkplace. For the time being, we will focus on the enhancement ofour profit and financial structures, although we also regard shareholder returns as a priority.
As CFO, I regard it as my role to increase the Group’s corporate
value and promote constructive dialogue with shareholders andinvestors. I will work to communicate our future growth forecasts andfinancial performance to them to provide them with sufficient materials that they can use to determine the corporate value of the Group.
Also, for the SDGs and SDGs, we will show progress with themeasures that we are implementing to achieve the predefined targets. We will clearly set and state our scenarios to contribute tomeeting social challenges including the SDGs for each of our corebusinesses and products.
I also think it is necessary to implement measures for digital transformation (DX) in a systematic manner, and we plan to formulate a DX
strategy for the newly integrated company. We have already beenusing AI in some of our businesses and at some of our operationsites. For example, we are speeding up the development of materials
by the use of AI and big data (materials informatics) and are operating AI-based abnormality detection systems at our plants. We willconduct similar programs across the Group, and also collect data
sets from operating programs to be linked to various information
systems and IT infrastructure under redevelopment so as to boost
functions to satisfy customer needs. By carrying out these activities,
we will accelerate our company-wide business model transformation.

Through the integration of Showa Denko Materials, the Showa
Denko Group is making a fresh start. The purpose of the rebornGroup, to “Change society through the power of chemistry,” meansthat the Group will contribute to a sustainable global society from theviewpoint of the SDGs and ESG while also achieving its own growth
in an integrated manner. We will clearly show, both internally andexternally, that our basic management stance is aligned with theinternational trend for sustainability and will strive to demonstrate toour stakeholders that Showa Denko is becoming a corporate entitythat can fulfill its purpose.
I would ask that you continue to support the Showa Denko Group.

SHOWA DENKO Report 2021

41

Long-Term Strategy to Realize the Vision

Digital Transformation (DX) Initiatives

Putting together an extensive range of information related to product LCA and production processes,
so as to optimize overall value chain operations, thus contributing to an advanced recycling-oriented society
The Purpose of the Showa Denko Group is to “change society
through the power of chemistry,” and this includes contributing to
the development of a sustainable global society by creating functions
required of the times as an advanced materials partner. In order toaccomplish this Purpose, it is crucially important to implement digitaltransformation (DX) initiatives in every aspect of our business activities.
To the above end, we are presently focusing on “defense”
strategies—specifically for solidifying business foundations as well as
standardization and increased operational efficiency—which are aimed
at maximizing the synergetic effects resulting from the integration.
Major examples are related to IT infrastructure built to provide a moreconvenient and higher-security work environment. This has enabled
employees at each base both inside and outside of Japan to workfrom any place at any time, an essential condition for work style options
accommodating the New Normal standard. It has also helped
increase security for information sharing with customers and otherexternal parties, a key factor to facilitating open innovation activities.
At the same time, we will also be pursuing “offense” strategies totransform business models. A number of plans have been launched

to run AI and IoT-based programs to improve efficiency and yield inbusiness, production, and R&D operations, and some of them havebegun to produce results. In addition to implementing DX programsfor each business and product to enhance performance and energy
efficiency, we are planning to develop and market packaged
products or services based on these digital technologies. Additional
plans are under consideration to develop a database program related
to product life cycle assessment (LCA; pre-use [production], in-use[operation], post-use [disposal/reuse]) in order to provide relevant
sets of data to customers and suppliers, and with a view tocontributing to an advanced recycling-oriented society.
The above-described initiatives are implemented under theleadership of the Chief Digital Officer (CDO) Preparation Office, whichis also responsible for examining future DX strategies. In view of thewhole value chain for digital technologies, ranging from technicalexploration, development and procurement to operational reform,
implementation and operation, we will carry out DX initiatives toprepare ourselves to “change society through the power of chemistry.”

Change society through the power of chemistry
Company with a strong presence in the global market that contributes
to a sustainable global society• Visualization and maximized value ofcustomer experience• Business-to-business cooperation(digital supply chain)• Joint development of innovative materials• Digital marketing• Faster product/service life cycle• Enhanced Smart Factory operations(IoT, Cyber-Physical System)

Data-driven networking of humans, technologies,
equipment, products and services• Standardization and increased efficiency of
global operations• Flexible IT asset development/maintenance/
management systems (open platform building,agile software development)• Digital business platform• Business activities data integration and analysis• Increased security to support technologicalinnovation

Within Showa Denko Group

Offense strategies
Defense strategies

42

SHOWA DENKO Report 2021

New technologies

Existing technologies

Environment, industry, society

CDO-orchestrated
digitization initiatives

Case 1

Digitization for graphite electrode production and marketing

The Showa Denko Group has acquired a stake in AMI Automation (“AMI”), a Mexico-based industrial automation solution provider,effective February 2021. AMI ranks as the world’s best in EAF operation optimization software and electrode regulation systems. Our plan
is to combine AMI’s programs and systems with our electric furnace graphite electrodes so as to create a new business aimed at
maximizing customer value.
In addition, we have begun to introduce AMI’s digital technologies to sophisticate our production processes. One target site is located inSouth Carolina, where a couple of programs are underway, such as computer simulations conducted to analyze the effect and viability ofequipment performance enhancement plans, and layout design of data collection points to improve data collection efficiency.
Going forward, we will utilize the results of demonstrated programs for application to the Group’s various business and production
processes in order to accelerate our digitization initiatives.

Showa Denko(Carbon Division)

Manufacture/sale of graphite
electrodes

Improve throughput withenergy amount unchanged

Disseminate
results

Expand application areas

Upgrade business
operations• Plant operation data
• Financial indicators• Communication between
employees (previously email)

Conventional worksite improvement (hardware)
AMI＋

Software programs/algorithm

Case 2Centralized data
management

Disseminate bestpractices globally

Employ digital technologies to upgrade operation processes at plants

Digitizing engineering artisanal skills to improve production efficiency

Showa Denko Materials’ Yamazaki Works has introduced AI-based programs to major processes involved in the manufacture ofphotosensitive films used to form printed circuit boards for electronic devices.
One key challenge for producing high-quality films is the large number of numerical variables that must be set to meet the manydifferent detailed requirements for each product. In order to
Sensorproduce a wide variety of films in response to customer
needs, the task of setting variables is usually performed
several times a day, and requires “artisanal” skills based onlong experience.
Deciding to digitize these “artisanal” skills, Yamazaki
Works has adopted an AI-based machine learning algorithm
to comparatively process and analyze data for set variables
and resulting product qualities. This program has dramaticallyincreased production efficiency through a distinctively fastersetting process, and has also lowered the defect rate to a
Process data
Analyze data
Set variables
marginal level through eliminating the risk of human error.

SHOWA DENKO Report 2021

43

Long-Term Strategy to Realize the Vision

Digital Transformation (DX) Initiatives

Case 3

Demonstrating AI-enabled speed-up of flexible transparent film development

Showa Denko and Showa Denko Materials, along with 16 other materials manufacturers, are engaged in a joint research project known
as the Ultra High-Throughput Design and Prototyping Technology for Ultra Advanced Materials Development project (Ultra-Ultra PJ)
hosted by the New Energy and Industrial Technology Development Organization (NEDO). The aim is to create new technologies to significantly shorten the time for functional materials development by appropriately combining multiple technologies related to computational
science, process engineering and measurement.
In this project, Showa Denko has been working on the design of flexible transparent film, an essential component of mobile devices, since2016. The film needs to be equipped with various properties, which often trade off each other, making it difficult to achieve full compatibility among a large number of properties. To address this, Showa Denko has created an AI-based optimal design program, seeking tosignificantly cut down the number of tests and thus reduce the development time.
In 2020, the project team conducted an experiment to compare films designed by
the AI data learning program and those prepared by skilled researchers withAI
respect to performance levels and the number of tests required for improvement toachieve the required levels. The results proved the ability of the AI program to
reduce the number of tests to one twenty-fifth (1/25) or less of that required for
A huge variety
films designed by skilled researchers. The findings also suggested the possibility of
Designof materials
the AI program exhibiting better performance.
Also, Showa Denko Materials is working on AI-programmed resin composite
引張試験中materials design. Showa Denko and Showa Denko Materials have started to discuss joint efforts to promote the utilization of AI technologies. The two companies
Flexible transparent film designed based on AI
will refine these technologies and apply them across the Group, with the aim ofestimations (subject to tension test)
innovating R&D operations.
Note: This is a JPNP16010 project commissioned by the New Energy and Industrial Technology Development Organization (NEDO).

Case 4

Digitizing handwritten technical documents to facilitate data utilization andtransfer of technical knowledge

Showa Denko, together with Cinnamon Inc., developed an AI-based database program to facilitate the utilization of technical documents
and has begun to apply it for internal use.
The company retains large quantities of technical documents containing valuable knowledge accumulated over the course of years
from the time of its founding. However, most of these documents are on paper, a medium unsuitable for information search, thus lowering
efficiency in production operation and knowledge transfer.
To address this issue, we launched the above joint project in 2018, when it was selected to receive a research grant from NEDO, todevelop an AI-enabled program to read in text from paper documents, including handwritten characters, and digitize the read-in data withhigh levels of accuracy.
We worked to refine the machine learning function to improve data reading accuracy and establish effective fuzzy search* processes inorder to overcome the limitation of existing automatic OCR systems, which are incapable of accurately reading atypical forms of text,（山口記入）
including handwritten characters, a principal problem with many technical documents. In 2020, after two years of technology verification,
スペース的に厳しい場合は、ノート部分のみトリミングして
we began to run the program at some sites.
ください。
We will continue with this endeavor to improve the accuracy and performance of the program while introducing it to many other Groupbases, including those of Showa Denko Materials, seeking to retrieve valuable and as-yet untapped knowledge from past documentsburied deep within the Group to be utilized to hone our competitive edge.

** Fuzzy search: Technique of finding strings that match a pattern approximately rather than exactlyTechnical document retrieval program running (screenshot) in case of searching for “bauxite” by “particle size distribution”*“bauxite, particle-size distribution”

44（山口記入）
スペース的に厳しい場合は、ノート部分のみトリミングしてください。

“Standard search” “Advanced search”

SHOWA DENKO Report 2021

“Search”“This is a report on particle size distribution measurement results for accepted Comalco bauxite andGove bauxite. Our inspection function is not capable of measurement for the Bintan bauxite, as it contains
large masses.”Organizational Integration

Showa Denko K.K. and Showa Denko Materials Co., Ltd. are scheduled to be fully integrated as a legal corporate entity
in January 2023. The two companies are steadily moving forward with integration processes.
Cooperation between head office (R&D) functions
Showa Denko is constructing the “Stage for Fusion” in Yokohama City as a key facility to bring together a diverse range of otherwise geographically dispersed technologies belonging to Showa Denko and Showa Denko Materials and thereby create synergies. Also, at the Packaging
Solution Center opened by Showa Denko Materials in 2019, collaborative open innovation initiatives are being pursued in earnest in addition to
the proposal of solutions for advanced materials combination and comprehensive process designs.

Bring together a diverse array of technologies held by the Showa Denko Group to solve
various social issues, with the aim of helping the sustainable development of society
Overview of “Stage for Fusion” (Yokohama City, Kanagawa Prefecture)
Example themes

Development of materials and composites for next-generation
high-speed communication
Leverage Showa Denko’s ceramic andorganic synthesis technologies and Showa
Denko Materials’ composite technologies tocreate elemental technologies and newmaterials required in the 5G era
Scheduled to be completed in spring 2022

• Create and pursue R&D themes to contribute to the sustainable
development of society• Serve as a cross-organizational support center to provide cross-sectoraltechnical support to link technologies from a broad range of fields• Being open to the public locally and globally, provide an open
innovation platform and other functions to promote collaboration
with external partners

Creation of a platform from the perspective of
SDGs/ESG investment
Set and pursue R&D themes in pursuit ofsolutions to environmental and social issues
and SDGs challenges

Collaborative development center for cutting-edge semiconductor packaging innovation
looking to facilitate next-generation semiconductor development
Packaging Solution Center(Kawasaki City, Kanagawa Prefecture)

Example themes

Developmentof fan-out packaging materials for next-genera２．４つの先端パッケージ構造と材料構成
Consortium “ JOINT ”
tionmobile devices
Jisso Open Innovation of Tops

State of the art jisso technologies of material and equipment get together,which can provide the solution.

＊＊＊&38：&HQWUDO 3URFHVVLQJ 8QLW

３．&38*38用＊*38：*UDSKLF3URFHVVLQJ8QLW

In 2018, establish JOINT, a consortium of semiconductor device andmaterials manufacturers, in
Shinkawasaki. Encourage collaborations with partner companies topropose solutions to customers.

Developmentof 2.xD/3D
packagingmaterials for AI chip and&R:R6&KLS RQ :DIHU
RQ 6XEVWUDWH
other semiconductor elements• Promote collaborative open innovation, in addition to proposing
solutions for advanced materials combination and comprehensive
process designs• Organize a variety of activities to facilitate next-generation semiconductor packaging technology development

2.xD/3D package

Establish JOINT 2 by adding substrate
manufacturers to the former consortium. Build an evaluation platformusing government grants, accelerating
cooperative efforts to establish evaluation technologies and enhance materials development.

SHOWA DENKO Report 2021

45

Long-Term Strategy to Realize the Vision

Organizational Integration

Project progress, integration milestones
In April 2020, Showa Denko and Showa Denko Materials established steering committees to lead the integration project. The committees arecomposed of directors and employees from each of the two companies, who discuss issues related to organizational structures, design of head
office/business functions, and activities at the newly integrated company under the supervision of Showa Denko’s Board of Directors. Based on
the result of the discussions, preparation offices for establishing new business headquarters and CXO positions were set up within Showa
Denko’s head office in July 2021 coincident with the start of the substantive integration phase, which aims to unify management processes
related to important group management policies by January 2022. Each preparation office has been tasked with discussing integration issues
under the leadership of the newly selected head of each office, toward the milestone goal of completing the legal integration as a single corporate entity in January 2023. The cumulative total integration-related costs for the period from 2021 to 2023 are estimated at ¥16 billion.

Integration process has been accelerated by starting preparations in July 2021, with head office­integration in August 2021. Thus, substantive integration will be realized in January 2022, one year
ahead of legal corporate entity integration in January 2023.
Dec. 2020
Long-Term Vision announced

Substantive
integration
effective• Preparation offices
design organizations/processes

Set up preparation offices to establish
new business headquarters and GroupCXO positions

Jan. 2022

Management
structure/systemintegration

Jan. 2023• Unify decision-making chains, bring
operations under the control of businessdivision heads and Group CXOs

Corporate
entityintegration…

…

• Consider organizational structure• Design head office/business
functionsJul. 2021
Head office integrated

Prepare the management structure todemonstrate the world-class functionality
at an early stage

Complete integration of Showa Denko
and Showa Denko Materials intoa legal corporate entity

Substantive integration effective
Substantive integration became effective when preparation offices were set up within the head office of Showa Denko to establish new businessheadquarters and CXO positions to lead post-integration businesses. Based on the advances already made, we will accelerate the integration
process, preparing the management structure to demonstrate world-class functionality at an early stage, while implementing integration-related
programs, including joint operation of the management committee, as planned.

Preparation offices set up to establish new businessheadquarters and CXO positions

Joint operation of management committee

To accelerate the organizational integration process, preparation offices

tions, jointly operate the management committee of the two compa-

were set up within the head office of Showa Denko to establish new

In order to facilitate the early integration of decision-making funcnies, starting from July 26, 2021.

business headquarters and CXO positions, effective July 1, 2021. From
this time on, important issues concerning the integration will be discussed
under the leadership of the newly appointed head of each office.
• Preparation Office for Electronics Business Headquarters

System integration
Implement system integration in some areas, such as purchase,environment/safety, patent search, and marketing automation• Preparation Office for Mobility Business Headquarters• Preparation Office for Advanced Functional Materials
Business Headquarters

Head office integration• Group CFO (Chief Financial Officer) Preparation OfficeIntegrate the head offices of the two companies, effective July 19, 2021,• Group CSO (Chief Strategy Officer) Preparation Officelocating the head office of the new company in Shiba Daimon Minato-ku,• Group CRO (Chief Risk Management Officer) Preparation Office

Tokyo and the secondary head office in Marunouchi Chiyoda-ku, Tokyo.

• Group CHRO (Chief Human Resources Officer) Preparation Office• Group CTO (Chief Technology Officer) Preparation Office• Group CMEO/CQO (Chief Operations, Manufacturing andEngineering Officer/Chief Quality Officer) Preparation Office46

Launch of integrated intranet
Launch the integrated intranet of the two companies on July 1,• Group CDO (Chief Digital Officer) Preparation Office2021, starting with the posting of messages and updates to be• Group CMO (Chief Marketing Officer) Preparation Officeshared by employees of both companies

SHOWA DENKO Report 2021

Initiatives Supporting
Sustainable Growth
48 Stakeholder Communications
49 Materiality
52 Measures against Climate Change (Disclosure in Line with TCFD)
54 Responsible Care (Quality Assurance, Chemicals Management,
Health and Safety, Environmental Preservation)
56 Human Resource Development and Diversity & Inclusion
58 Promotion of Sustainable Procurement
59 Respect for Human Rights / Initiatives on COVID-19
60 Risk Management
62 Corporate Governance
65 Message from the Chairman of the Board,an Outside Director and an Outside Member of the Audit & Supervisory Board
68 Directors / Audit & Supervisory Board Members /Corporate Officers

SHOWA DENKO Report 2021

47

Initiatives Supporting Sustainable Growth

Stakeholder Communications

With the integration of Showa Denko and Showa Denko Materials, the scale of the Showa Denko Group’s business will significantly
expand. We recognize that this will create new value that neither company has achieved on its own, making no small impact on­stakeholders, society and the environment.
Active communication with all stakeholders, including customers, shareholders and investors, employees, local communities and suppliers, is essential for the Showa Denko Group to grasp their demands and expectations and to grow and develop together with society.
With the purpose of “change society through the power of chemistry,” we will identify issues of materiality that the newly integrated
company should focus on and address them through cooperation with stakeholders.

Ideas about Communications
with Stakeholders
WEB

Shareholders andinvestors

Employees

We are conducting IR activities todisclose the vision, strategies and corporate
information of the Showa Denko Group toshareholders and investors in an easy-tounderstand, timely and appropriate mannerso that they may deepen theirunderstanding of and trust in the Groupthrough active dialogue.

We aim to nurture a corporate culturethat allows employees as “core players forvalue creation” to work in good health,with vigor, with satisfaction, and with pride.
We are launching various programs tofoster unity among Group employees.

Customers

Local communities
We are collaborating with residents oflocal areas where we operate our businessto solve social issues for the sustainable
development of their communities byengaging in dialogue with them in goodfaith to deepen mutual understanding andby using the “power of chemistry.”

Besides ensuring a stable supply ofsafe and reliable products to customers,
we are providing products and services
that exceed the expectations and imaginationof customers by integrating diverse
technologies of Showa Denko andShowa Denko Materials and proposing
solutions across our supply chains.

Showa Denko Group48

SHOWA DENKO Report 2021

Suppliers
We are not only striving to earn trustfrom our suppliers but also working
together with them to solve environmental
and social issues across the supply chain
in order to achieve a sustainable society
and mutually increase our respective
corporate value.

Materiality

Current issues of materiality and toward the future

WEB Showa Denko

WEB Showa Denko Materials

Current issues of materiality

Showa Denko

Showa Denko Materials

Showa Denko first identified its issues of materiality in 2015.
In 2019, in order to clarify, both internally and externally, the social
tasks to be prioritized by the Group, Showa Denko has classified 14
material issues into three core task groups, and then set the mediumto long-term policy for each of the tasks. It has also set specific
KPIs for each of the material issues and implemented initiatives
based on the KPIs to make achievements in a steady manner.

Showa Denko Materials first identified its issues of materiality in 2013.
It has updated its issues of materiality in line with the Mediumterm Management Plan. Following the first update in 2015, thesecond update took place in 2018. It has used the materiality in its
review of the main policies of the 2021 Medium-term Management
Plan, and set key measures and KPIs for each of the material
issues to work toward sustainable growth. (Note: KPIs are internal
indicators and are not disclosed.)Core tasks

Materiality

Contribution to• Provision of products, technologies and services

Materiality

achievement of• Access to essential services• Strengthening ability to discern true needs• Consumer safety and health protection•S trengthening business designing ability to enhance business value-added• Participation in community activities•S trengthening technology platform

SDGs throughbusiness activities• Improving productivity globally

Tackling environ-• Prevention of pollution

mental issues• Measures against climate change•S trengthening financial standing•P romoting diversity & inclusion to strengthen corporate competitiveness• Use of sustainable resources
Establishment of•S trengthening group governance•T imely and appropriate communication with stakeholders• Development of human resources

sustainable methods • Creating a comfortable workplace
for human resource
development andimprovement in• Implementation of social responsibility in the entire value chain•P ursuing businesses that offer solutions to environmental and social issues• Equipment safety• Occupational health and safety

working• Thorough corporate ethics

environment• Protection of intellectual property• Decision-making process and structure

Toward the future
As a corporate group integrating Showa Denko and Showa Denko Materials, we will identify the issues of materiality of the newly integrated company in order to achieve sustainable growth together with society.
Considering the material issues of the two companies, as well as the strengths and the external environment that the integration will bringabout, we are identifying and analyzing the social and environmental issues that the newly integrated company should focus on.

New material issues analysis process

STEP 1
Identify issues (themes)• Pick up issues (themes) for evaluation from GRI, SASB, SDGs, etc.
• Grasp and analyze social andenvironmental issues that the
newly integrated company should
focus on.

STEP 2

STEP 3

STEP 4

Prioritize the issues

Prioritize the issues

Check appropriateness(Importance of stakeholders)(Importance of the company)• Identify important stakeholders.
• Evaluate and quantify stakeholders’ interests.

• Identify priorities for the company,
considering the key issues for
management of the newly integrated company.

• Hold dialogue with experts.
• Gain approval from the management team.

• Discuss with internal departments.

• Examine the axis for priority
evaluation.

SHOWA DENKO Report 2021

49

Initiatives Supporting Sustainable GrowthMateriality

Performance regarding material issues
In 2019 Showa Denko set KPIs, or indicators for achievements, for issues of materiality based on what the Showa Denko Group should look likein the lead-up to the SDGs target year of 2030. The results in 2019 and 2020 are provided below (the results of Showa Denko Materials are notincluded).
The issues of materiality and KPIs will be reviewed in light of the integration with Showa Denko Materials.
Note: Current issues of materiality and KPIs of Showa Denko Materials are internal indicators and are not disclosed.
Core tasks

Materiality

Results in 2019

Results in 2020

Provision of products, Create SDGs contribution stories for all maintechnologies andproducts and execute the PDCA cycle
services

Selected 2 products (graphite electrodes and
KPR) as products contributing to the SDGs

Certified 6 products (including graphite
electrodes and KPR) as products contributing
to the SDGs
Note: Showa Denko Materials also certified 7 products (see “Feature Story 2:
Tackling SDGs through Business Activities”
on page 34)

Access to essential
services

Ensure supply in response to customers’ needs

Stably supplied sodium hypochlorite used forsterilizing tap water (There was no water
system suspension caused by the product)

Same as at left

Reduce the number of complaints about quality(calculated based on Showa Denko’s criteria) to
40 or below by 2030 (Showa Denko [unconsolidated] and Group companies in Japan)

51 complaints

25 complaints Improved due to implementation of preventive measures against risks ofcomplaint occurrence at each site

Achieve 100% product risk assessment rateby 2030 (on the basis of SDS issuance)—(Aggregation started with results from 2020)

25%

Participation incommunity activities

At each site in Japan, plan activities to contributeto the local community according to the needs ofthe community and continue voluntary operation

Developed a policy for participation in community activities and developed activity plansaccording to local needs at each site

Contributed to local communities by donating
the proceeds from aluminum can recycling
activity, etc. despite reduction or suspension ofplant tours due to the COVID-19 pandemic

Materiality

Medium to long-term target (KPI)

Results in 2019

Results in 2020

0.35%

0.27%
Improved due to reduction in shutdown
maintenance

Increase the plastic waste effective utilization
rate to 75% or higher by 2030
(Showa Denko and Group companies in Japan)

68.6%

74.7%
Improved due to improvement in effective
utilization rate at each plant

Reduce the discharge of chemical substances to360 tons or below by 2030
(Showa Denko [unconsolidated] and Group
companies in Japan)

Discharge into airDischarge into water

628 tons
15 tons

Discharge into air
500 tons
Discharge into water
13 tons
Improved due to introduction of combustion
facilities at some plants

Measures against
climate change

Reduce GHG emissions by 11% relative to the2013 level by 2030
(Showa Denko [unconsolidated] and Group
companies in Japan)

Reduced by 6.9% relative to the 2013 level

Reduced by 10.7% relative to the 2013 level

Use of sustainable
resources

Continue to reduce the amount of water used at
all plants according to the reality of each plant

Promoted effective water use company-wide

Same as at left

Contribution
to achievementof SDGs
Consumer safety andthrough
health protection
business
activities

Core tasks

Medium to long-term target (KPI)

Prevention of pollution Maintain the final landfill rate of industrial
waste at 0.5% or lower by 2030
(Showa Denko [unconsolidated] and Group
companies in Japan)

Tackling
environmental
issues50

SHOWA DENKO Report 2021

Core tasks

Materiality

Medium to long-term target (KPI)

Results in 2019

Results in 2020

Development of
human resources

Continue to provide selective training courses
for next generation of leaders in Japan andselect at least 20 participants annually by 2030

Provided a selective training course for acting
section managers in which 20 employees
participated

Planned to provide a selective training
course for assistant departmental managers
and section managers in 2020 but cancelled
it due to the COVID-19 pandemic

Increase the percentage of non-Japanese in
the Group’s managerial human resource
development program to that equivalent to theGroup’s overseas sales ratio by 2030 (at least
200 people over the decade from 2020 to 2029)

Provided the Global Executive Development
Program for excellent global employees inwhich 4 among 13 participants were national
staff from overseas Showa Denko Group
companies

Cancelled in-person training due to the COVID-19
pandemic, but provided education for global
next-generation leaders, including interviews andtraining programs using IT, on a continuous basis

Achieve a proportion of female managers thatis 10% of the total number of managers(section managers and those in higher
positions) in Japan by 2030 (Showa Denko[unconsolidated])

4.9%

5.3%
Increased as the number of female employees
who passed the manager examination increased
and as employment of female managers for
mid-career recruitment continued

Continue to renovate aging employee facilities inJapan in a sequential manner to provide employees with safe and clean workplaces

Allocated a budget for the renovation of
employee facilities and did renovations (ofbachelors’ dormitory, etc.)

Same as at left

Continue to maintain employees’ annual paid
leave utilization rate at more than 70% by
2030 (Showa Denko [unconsolidated])

74.1%

71.6%

Increase the percentage of “vibrant employees*”in the triennial employee satisfaction survey
by 5% per survey

Held workshops for managers at major plants toimprove the issues in communication between
managers and their subordinates that wereidentified in the previous survey (in 2017)

Initially planned to conduct the employee
satisfaction survey in 2020 but postponed it
to 2021 in light of the integration withShowa Denko Materials

Achieve and maintain zero equipment-related
accidents by 2030
(Showa Denko [unconsolidated] and Group
companies in Japan)

10 accidents

4 accidents
Improved due to initiatives such as listing all
potential risks and crisis awareness education

Achieve and maintain zero lost-time incidents
by 2030
Showa Denko and Group companies, andpartner companies in Japan

15 lost-time incidents, 4 non-lost-time incidents

3 lost-time incidents and 8 non-lost-time incidents
Enhanced risk reduction activities and promoted
measures to improve the safety level

Continue to be named among the 500
Certified Health & Productivity Outstanding
Organizations under the Ministry of Economy,
Trade and Industry’s program* to recognize
companies with outstanding health andproductivity management

Certified as a company with outstanding healthand productivity management but not named
among the 500 Certified Health & Productivity
Outstanding Organizations

Same as at left
Promoted the development of systems andhuman resource development in light of legal
compliance and risk management as the basesof industrial healthCreating a comfortable workplace

Establishmentof sustainable
methods forhuman resource
development
andEquipment safety
improvement
in working
environment
Occupational healthand safety* Employees who have positive views on employee
engagement (commitment to the organization andvoluntary efforts) as well as on the working
environment (assignment of the right people to theright places and comfortable workplaces)* The top 500 companies among those recognized ascompanies with outstanding health and productivity
management are named among the 500 CertifiedHealth & Productivity Outstanding Organizations.

Thorough corporate
ethicsProvide Group employees with a total of 1.5
hours of training on corporate ethics and humanrights per employee per year on an ongoing basis

Achieved the target training hours per employee
in Japan (Corporate Ethics Month and humanrights education)

Same as at left

Protection of intellectual property

Achieve the target of new applications: from 342
in 2018 to 405 in 2022, and to 460 in 2025

More than 350 new applications

Same as at left

Disclosed internal effectiveness evaluation in
Corporate Governance Report and Integrated
ReportNote: For details in 2020, see “Corporate Governance”
on page 62.

Decision-making
Continue to evaluate the effectiveness of theprocess and structure Board of Directors and disclose information about
improvements made based on the results

Same as at left

SHOWA DENKO Report 2021

51

Initiatives Supporting Sustainable Growth

Measures against Climate Change (Disclosure in Line with TCFD)

Basic ideas and policies

WEB

Although it does use fossil raw materials and fuels in its product manufacturing processes and emits a considerable amount of greenhousegases (GHGs), the Showa Denko Group has many products contributing to energy conservation and the carbon cycle. We regard measures against climate change as a management priority in terms of both risks and opportunities.
In May 2019, we took part in the Task Force on Climate-related Financial Disclosures (TCFD) Consortium to evaluate the risks andopportunities provided by climate change to the Group, enhance our resilience through climate change scenario analysis and promotesound dialogue with our stakeholders.

Governance and risk management
At the Showa Denko Group, the Sustainability Promotion Council,
which is chaired by an officer in charge of CSR, makes assumptions
about climate change-related risks and opportunities, and theManagement Committee discusses those risks and opportunities.
Details of the decisions made by the Committee are regularly
reported to the Board of Directors.
A cross-organizational working group on TCFD is establishedunder the Sustainability Promotion Council to identify risks andopportunities based on the scenarios analyzed according to theframework of TCFD.
Meanwhile, a special working group on risk management (RiskManagement Working Group) is also managing climate change-relatedrisks with a company-wide risk evaluation system (“risk inventory” activity).
Strategy and scenario analysis
For impacts (risks and opportunities) of climate change on the Showa
Denko Group’s businesses, we assumed the following risks for 2050
based on the framework set by the TCFD and in light of the integration
with Showa Denko Materials: (1) risks related to a shift to a low-carbon
economy under the 1.5- and 2-degree scenarios, and (2) risks
related to the physical impact of climate change caused by the failure
to achieve the world’s CO2 emission reduction targets under the
4-degree scenario.
Possible shift-related risks that may have company-wide impacts
include an increase in operating costs due to rise in carbon pricing
and other energy taxes. GHG emissions after 2023, when Showa
Denko and Showa Denko Materials integrate, would be about 4.5
million tons/year. If GHG emissions in 2030 are constant and carbon
pricing is ¥10,000/t-CO2 based on the IEA’s*1 2-degree scenario(SDS)*2, the amount that the entire Showa Denko Group should pay
will increase by ¥45 billion/year. If the Group achieves a 30% reduction in emissions relative to the 2013 level by 2030, the Group should
pay about ¥35 billion/year, meaning the cost increase due to carbon
pricing would be restrained (see “Feature Story 1: Challenges to
Realize Carbon Neutrality” on page 32).
Meanwhile, physical risks that have an impact on the entire
company include increasing flood risk at manufacturing sites due tofrequent flooding. In 2020, Showa Denko Materials analyzed physicalrisks at its plants. The analysis results will be integrated into a newrisk management system, which is under discussion, for continued
management.
The Showa Denko Group assumes that climate change will have atremendous impact on the following business domains: (1) transportation, (2) information and communication, (3) energy and (4) construction and infrastructure. In 2020, as we did in the previous year,
we reviewed the impact of climate change in the transportation
domain in light of the integration with Showa Denko Materials.
Under the 1.5- and 2-degree scenarios, our operating cost will
increase due to the introduction of ICP*3. However, business opportunities will also expand, driven by the need for energy conservation andthe spread of electric vehicles (EVs) and fuel cell vehicles, which will
boost demand for the related components. Therefore, we have concluded
that we have sufficient resilience against the climate change-relatedrisks in the transportation domain. We will incorporate the examinedmatters into our strategy for our mobility business, which is positioned
as a Core Growth business in our long-term vision. We will conduct
scenario analysis on other business domains as well in a phased manner.
*1 IEA: International Energy Agency*2 2-degree scenario: Sustainable development scenario*3 ICP: Internal carbon pricing

TCFD disclosure (scenario analysis) procedure
A plan to review priorities in response to the Green Growth Strategy and analyze the information and communication domain after doing thetransportation domain
Disclosure in Integrated Report(1) Governance, (2) Strategy, (3) Risk management and (4) Indicators and targets
Grasp shift-related and physical risks and opportunities.
Start scenario analysis in the transportation domain.
• Grasp impact of flood risks and carbon pricing• Grasp risks and opportunities in the 2-degreeand 4-degree scenarios

2021

d into oE x p an2025ether busin

ss domains

Grasp shift-related and physical risks and opportunities,
and enhance scenario analysis in the transportation domain•G rasp financial impact of flood risks (at each plant)(Grasp impact of flood risk and carbon pricing at Showa Denko Materials)

2020

52

SHOWA DENKO Report 2021

•G rasp financial impact of opportunities(Expand into Showa Denko Materials’ business)

GOAL
Disclose resilienceagainst climatechangeClimate change-related risks and opportunities and major responses to them
For risks and opportunities in the transportation domain, we reviewed the 2-degree scenario implemented in 2020 and conducted analysis byadding the 1.5-degree scenario.
Impact of climate change on our company

Domain

Risk

Opportunity

Response to life cycle assessment (LCA) regulations• Improving/rebuilding internal systems based on LCA results and knowledge

Increase in tax (cost) due to the introduction of carbon
pricing (CP)• Energy conservation and equipment renewal at manufacturing sites• Increasing the introduction of renewable energy

Increase in cost for procurement of renewable energy• Use of hydroelectric power generation facilities• Considering procurement of renewable energy from outside

Demand for advanced recycling-based society• Initiatives for plastic chemical recycling and iron recycling(graphite electrodes)
All businessdomains

Risks andopportunities
related to the shift
to a low-carbon
economy(1.5- and 2-degree
scenarios)

Response

Promotion of R&D for carbon neutrality• Maximizing synergies of the integration of Showa Denko andShowa Denko Materials• Promotion of R&D at the stage of integration (new research laboratory)

Response in manufacturing process to carbon neutrality• Review of manufacturing processes and introduction of innovative technologies

Difficulty in financing associated with changes ininvestors’ behavior• Proactive information disclosure and communication in response to
the concerns of investors and the market

Increase/decrease in sales due to changes in
consumer behavior and awareness• Sales promotion and development of new products that meet the needs ofa low-carbon economy, and enhancement of product competitiveness

Increase in demand for materials and components
contributing to low-fuel and energy-saving vehicles
Promotion of R&D on battery-related materials
Transportation
domain• Maximizing synergies of the integration of Showa Denko andShowa Denko Materials

All businessdomains• Analysis of flood risks at each site
• Regular risk identification and reduction activities, and enhancement ofbusiness continuity planning (BCP)

Promotion of R&D on composite materials
Increase in demand for materials and components
related to EVs due to their widespread use
Physical risks andopportunities(4-degree scenario)

Suspended operation of manufacturing sites due toflooding, and decrease in profit caused by anincrease in the equipment repair cost

Indicators and targets
In light of the integration with Showa Denko Materials, we reviewed
the GHG emission reduction targets for 2030 in 2021 and set thetarget of a 30% reduction relative to the 2013 level. We will review
the medium- to long-term plans made for each of our sites toward
the creation of a low-carbon economy and set the medium-termtargets for our overseas Group companies. In order to achieve our
GHG emission reduction targets for 2030, we will further reduce our
GHG emissions and promote energy conservation.
For details, see “Feature Story 1: Challenges to Realize Carbon
Neutrality” on page 32.

GHG emissions (Showa Denko and Group companies in Japan;
excluding Showa Denko Materials)
(kt)
5,000
4,000
3,000

3,792

3,802

3,826

3,868

3,815

696

3,532

698

683

3,567

713

700

411

349

3,079

3,104

3,130

3,184

3,115

3,156

3,183

2013

2014

2015

2016

2017

2018

2019

3,388
286

2,000

3,102

1,000
0

Scope 1

2020

(FY)

Scope 2

Reference: Showa Denko Materials (unconsolidated) results in 2020: 224 kt
Note: Emission
amounts were calculated in line with the GHG Protocol.
The annual data are shown for the period from April 1 of the year to March 31 of
the next year.

SHOWA DENKO Report 2021

53

Initiatives Supporting Sustainable Growth

Responsible Care (Quality Assurance, Chemicals Management,
Health and Safety, Environmental Preservation)
Ideas about responsible careWEB

Responsible care is a voluntary management activity through which businesses that handle chemical substances improve the life cycle ofthose chemical substances, considering health, safety and the environment throughout the stages from development and manufacturing to
distribution, use, final consumption and disposal.
We promote activities based on the Responsible Care Action Guidelines to fulfill our responsibility as a chemical manufacturer and­contribute to a sustainable global society.
At Showa Denko, the Responsible Care (RC) Promotion Council isplaced under the Management Committee. Results of deliberation at
the RC Promotion Council are reported to the Management Committee
for discussion, and the results of that discussion are then reported to
the Board of Directors.
Regarding the responsible care policy of the new company
integrating Showa Denko and Showa Denko Materials, employees
from the two companies are examining a system and measures toachieve “the ideal.”
We work to make continuous improvement in our responsible care
activities through the plan-do-check-act (PDCA) cycle of formulating
responsible care activity plans (plan), implementing these (do), auditingand evaluating the results (check), and reflecting these via management
review in the next round of objectives and activity plans (act).

Quality assurance

Responsible care promotion system
Board of Directors
Oversight

Oversight

Management of the Showa Denko Group

Discussion on group management of
the newly integrated company

Management Committee

Steering Committee 1
Discussion/decision on key policies
Steering Committee 2
Discussions and decisions on practicalplans to implement the integration

RC Promotion Council
Formulation of plans and activities considering
health, safety and the environment in the life
cycle of chemical products

Quality Assurance & Environmental
Safety Subcommittee
Note: Discussion/operation through cooperation
between employees of the two companies

WEB

Ideas about quality assurance
We will ensure the safety and security of products and services toprovide world-class quality. We will integrate the two companies’
important measures for product safety, quality management, product compliance, handling of complaints and product incidents aswell as for quality education for employees.
Having no differences in the basic approach to quality, the twocompanies will envisage ideal quality activities through the integration project to achieve the ideals.
Aiming to provide value exceeding the expectations ofstakeholders, including customers, we will ensure product quality
through concerted efforts across the company and establish
quality-related policies, systems and mechanisms for the newly
integrated company.

Chemicals management

Quality complaints
Showa Denko and Group companies in Japan (excluding Showa Denko Materials)(Complaints)
200
172
150
117
100

2020 target:

46 or less

80
51

50

25
0
2016

2017

2018

2019

2020

(FY)

WEB

Ideas about chemicals management
We are identifying and reducing risks in consideration of various product-related situations in the product cycle from product design and development to manufacturing, sales and after-sale service, including checking the safety of chemicals and how customers use and dispose of or
recycle products. Believing that minimizing chemical risks will improve product value, we regard chemicals management as one of our key
themes and take actions accordingly.
Based on the risk-based ideas, we will make efforts for the proper evaluation and management of chemical risks and provision of information
to stakeholders while ensuring legal compliance so that customers can use our products with ease.

54

SHOWA DENKO Report 2021

Health and safety

WEB

Ideas about health and safety
To ensure workplace safety for all people working at the Showa
Denko Group as well as equipment safety, we provide group-widesafety education and carry out activities for risk evaluation
and reduction.
We will also build an appropriate industrial health and safety system
and implement measures to help individual employees be aware of
their health and promote their own physical and mental health.

Lost-time and non-lost-time incidents
Showa Denko and Group companies, and partner companies in Japan(excluding Showa Denko Materials)
2020 target:

0 lost-time/non-lost-time incidents
2016

2017

2018

2019

2020

Lost-time incidents

3

7

4

15

3

Non-lost-time incidents

5

1

5

4

8

Reference: Showa Denko Materials (unconsolidated) and Group companies in Japan
Results in 2020: 1 lost-time incident, 18 non-lost-time incidents

Indicators of employees’ health
In 2020 (2019 results in parentheses)% of employees who received
health checkups% of healthy BMIs (18.5–25)
found by health checkups% of employees who took
stress checks

Showa Denko and Group companies in Japan

100% (100%)

63.3% (64.1%)

92.0% (96.5%)

Showa Denko Materials and Group companies in Japan

100% (100%)56.5%

97.0% (92.6%)

Environmental preservation

WEB

Ideas about environmental preservation
To gain trust from all stakeholders, we not only ensure compliance related to the environment but also focus on specific environmental preservation activities, including in the areas of energy saving, reducing greenhouse gas (GHG) emissions, reducing and recycling industrial waste, water
resource management, and biodiversity.
Discharge of chemical substances (substances regulated by
the PRTR of the Japan Chemical Industry Association)

Final landfill rate of industrial waste

Showa Denko and Group companies in Japan (excluding Showa Denko Materials)(%)

Showa Denko and Group companies in Japan (excluding Showa Denko Materials)(t)2020 target:

2% reduction fromthe 2018 level (546 t)

800

2020 target:

643

600

400

1.00

577
16

558

15
16

0.75

513

406
16

13

Maintain at 0.5%
or lower

0.50

628
561

0.32

542

500

200

0.38

0.32

0.35

2018

2019

0.25

0.27

390
0

0
2016

Into air

2017

2018

2019

2020

Into water

Reference: Showa Denko Materials (unconsolidated) results in 2020: 28 t
Note: T he annual data are shown for the period from April 1 of the year to March 31 of
the next year.

(FY)

2016
Landfill rate of the Group

2017

2020

(FY)

Zero-emissions benchmark (based on Showa Denko’s criteria)

Reference: Showa Denko Materials (unconsolidated) results in 2020: 0.05%
Note: The annual data are shown for the period from April 1 of the year to March 31 of the next year.

Minamata disease in Niigata PrefectureWith regard to Niigata Minamata disease, which was officially recognized in 1965, we maintain an awareness of the significant scale atwhich substances emitted by Showa Denko have caused damage to the victims and residents of neighboring areas through contaminationof the Agano River, and are committed to collaborating with the Japanese government as well as local governments in order to cope withthis issue with sincerity, and provide solutions in accordance with the Act on Compensation, etc. for Pollution-related Health Damage andother relevant laws and regulations.

SHOWA DENKO Report 2021

55

Initiatives Supporting Sustainable Growth

Human Resource Development and Diversity & Inclusion

Ideas about human resources
Employees are core players for all the value creation related to the Showa Denko Group. With the purpose of “change society through thepower of chemistry,” the newly integrated company will aim to be an employer that chooses, and is chosen by, employees who can compete
on the global stage and contribute to a sustainable global society.
More specifically, with the goal of establishing a virtuous cycle inwhich the company and employees can develop together, the newcompany will provide opportunities as well as employment conditions
and mechanisms around the four axes below while employees will
improve their own value and play active roles:(1) Select and promote employees who can compete on the global stage(2) Encourage healthy competition with appropriate treatment
according to contribution(3) Make decisions promptly by establishing a lean organization* andclarifying responsibilities and authorities(4) Promote penetration of the Showa Denko Group’s values andspirit of challenge

Promotion system
Board of Directors
Oversight

Oversight

Management of
the Showa Denko Group

Discussion on group management of
the newly integrated company

Management Committee

Steering Committee 1
Discussion/decision on key policies

Human Resources Department
Steering Committee 2
Discussions and decisions on practicalplans to implement the integration

Divisions, plants
Human Resources Subcommittee

Group companies* Lean organization: Organization that is muscular and has no waste

Note: Discussion/operation through cooperation
between employees of the two companies

Human resources development and labor standards

WEB

Ideas about human resource development and labor standards
We are building mechanisms for human resource development and labor standards that are unified
between Showa Denko and Showa Denko Materials, with a view to introducing them in 2023.
What we keep in mind in building the mechanisms is the aim to embody the aforementioned
ideas about human resources to the fullest extent possible by using the best practices around thetreatment of employees of the two companies. Particularly in terms of human resource development, we will rebuild conventional level-specific training and selective training measures, possibly
from scratch. We are also examining an evaluation mechanism with a focus on human resource
development.
As for a system that supports the above, we are considering the introduction of a mechanismthat allows for effective operation with digital transformation (DX).

Matters related to human resources
and labor standards to be set by
the newly integrated company• Employment• Grading• Evaluation• Rewards• Development• Assignment

TOPICS

SurveyDevelopment of next-generation leadersand leadership competency
Showa Denko provides selective training courses to develop
individual employees who may be future candidates forsenior management positions, with a major focus on thedevelopment of MBA elements and leadership competency*.
For the competency development, we started to use
online programs in 2021 to increase the number of employees who can participate around the globe.
We will expand the scope of application of competency
development to leaders other than those selected, whileproviding more effective leadership development programs
to those who are selected.
* Competency: Possession of behavioral characteristics that allow one todemonstrate outstanding results in one’s work or role

56

SHOWA DENKO Report 2021

Interview withsupervisor

Interview withsupervisor

OJT (on-the-job
training)

Training

Interview withsupervisor
Cycle for competency education

1. Identify competency
to be developed• Survey
Evaluating demonstration/
importance ofcompetency• Interview with a supervisor

2. Formulate a plan toacquire and practicenecessary knowledge• Taking competency
training course• Interview with a supervisor
Agreeing on a plan,

Identifying competency tosupport and how to checkbe developed

progress

3. Put into practice theknowledge acquired atwork, and review
actions• OJT (at workplaces)
Implementing the plan
formulated in 2
• Interview with a supervisor
Review of the results

Promotion of diversity and inclusion

WEB

Ideas about diversity and inclusion
Diversity and inclusion is an important theme in integrating theformerly two separate companies of Showa Denko and Showa
Denko Materials, and can be a precondition for value creation.
We will implement various measures so that members of thediverse* workforces of the two companies can make use of theirunique features, value and ideas and collaborate to make the Groupand its employees an organization and individuals, respectively, thatcan continue making profit and creating new value.
* Diverse: Diversity in nationality, race, gender, age, disability, religion, background, sexual
orientation and other

Employee awareness survey
To quantitatively understand the situations of individual people andthe organization, Showa Denko and Showa Denko Materials haveregularly conducted employee awareness surveys and improved theorganizational culture based on the survey results.
In 2021, with a view to promoting organizational reform for thedevelopment of satisfying workplaces and future growth, the twocompanies will conduct a common employee survey for the following
purposes:(1) T o assess the situation of employee engagement and the workplace environment (whether or not it allows employees to fulfill
their potential) at the Showa Denko Group.
(2) T o use survey results as a basic reference in examining what
future management should look like to make the organization
more productive.
(3) T o reveal the frank views and opinions of employees regarding themanagement integration.

Empowerment of a diverse workforce
Showa Denko has proactively hired more women in order to increase
the proportion of women among career-track employees to 30% or
more, and has regularly held career support seminars for mid-level
career-track female employees. We have also improved the work
environment to enable female employees to balance work and life
events, such as marriage, childbirth and childcare.
Showa Denko Materials has also made efforts to build pipelines
for a stronger female workforce, including individual development
plans for career-track female employees and the dispatch of female
candidates for leadership positions to the J-Win NPO. Additionally,
the company has provided unconscious bias workshops to develop
a work environment where members of diverse teams can makemeaningful contributions.
Meanwhile, the two companies are proactively employing people
with physical, intellectual, mental and developmental disorders toward
the goal of disability inclusion. Having agreed on “The Valuable 500”
in September 2020, Showa Denko announced its commitment todeveloping an inclusive working environment where individual
employees with disabilities or medical conditions can make a meaningful contribution and live an enriched life as members of society.

Number of female managers and its ratio

Number of employees with disabilities and its ratio

Showa Denko [unconsolidated] (excluding Showa Denko Materials)

Showa Denko [unconsolidated] (excluding Showa Denko Materials)(Persons)(%)(Persons)(%)

2020 target:

5.00%

50

10

150

5.00

146
136

40
33

30

28

26
20

4.60
3.44

39

8

120

5.30

6

90

35
4.90

4

3.72

2.78

0
2016

2017

Number of female managers

2018

2019

2020

Proportion of female managers

Reference: Showa Denko Materials (unconsolidated) results in 2020: 4.2%

2

30

0

0

(Year)

126

2.28

2.29

2.20

2.20

4.00
3.00

2.64

2.39

60
2.00

10

125
114

2.00

2.20

2.00
1.00
0

2016

2017

Number of employees with disabilities

2018

2019

2020

(Year)

Employment rate of people with disabilities

Legal requirement

Reference: Showa Denko Materials (unconsolidated) results in 2020: 2.27%, 117 people

SHOWA DENKO Report 2021

57

Initiatives Supporting Sustainable Growth

Promotion of Sustainable Procurement

Toward sustainable procurement
WEB
Ideas about sustainable procurement
The Showa Denko Group is engaged in procurement activities basedon the Basic Procurement Policy with the aim of carrying out sociallyand environmentally friendly business activities throughout its supply
chain, from the procurement of raw materials to manufacturing, sales
and distribution.
To fulfill its social responsibilities, including for the environment,
human rights and compliance, across the supply chain from a global
perspective, the Group has established the Showa Denko Group’s
CSR Procurement Guidelines, which cover issues for which theGroup requests cooperation from its suppliers, with the aim of ensuring compliance through working together to mutually improve ourcorporate value.
The integration will expand the business of the Group as well as
the impact across the entire supply chain. Currently, the Purchasing
and Distribution Subcommittee, comprising representatives of bothShowa Denko and Showa Denko Materials, is discussing the procurement policies, initiatives and supplier evaluation criteria of the
newly integrated company. As of 2021, the two companies are jointly
holding important meetings and education programs.

Risk evaluation to promote sustainable procurement
Showa Denko requests all its suppliers to comply with the Showa
Denko Group’s CSR Procurement Guidelines. To raise suppliers’
awareness, we ask new suppliers to fill out the CSR self-assessment
questionnaires when starting business with us and major existing
suppliers to do so once every three years. Additionally, every year, wevisit around 40 suppliers to evaluate them from the perspectives ofPromotion system
Board of Directors
Oversight

Oversight

Management of
the Showa Denko Group

Discussion on group management of
the newly integrated company

Management Committee

Steering Committee 1
Discussion/decision on key policies

Purchasing & SCM Department
Steering Committee 2
Discussions and decisions on practicalplans to implement the integration

Divisions, plants
Group companies

Purchasing & Distribution Subcommittee
Note: Discussion/operation through cooperation
between employees of the two companies

the environment, human rights and compliance. We have aggregatedthe CSR initiatives of the suppliers who have responded to the CSR
self-assessment and those who received the CSR visit and sent
them feedback reports, which clarified their standing relative to theaverage of all and of their own business category, and provided advice
for making improvements. Considering these as pillars of our efforts toevaluate suppliers’ risks, we implement a three-year cycle for supplierrisk evaluation for all items and services we purchase, in principle.
Meanwhile, Showa Denko Materials distributes its Supply Chain
CSR Procurement Guidelines to new suppliers when starting business with them and asks them to submit a report on the completionof checking as well as conducting supplier audits.

Results of supplier CSR self-assessment in 2020
No. of respondents: 355 companies Average score: 67.3 (up 1.1% year on year)
Score

No. of companies (%)

50 or over

292 companies (82%)

30 to 50

56 companies (16%)

Below 30

7 companies (2%)

Improvement efforts

Requested to work on the matters that need improvement and to further enhance the high-scoring matters
Requested to work on the matters that need improvement and offered Showa Denko’s proposal on improvement measures
Note: Visit, as needed, to exchange opinions on efforts on both sides and check improvements with the next self-assessment

Requested to work on the matters that need improvement and offered Showa Denko’s proposal on improvement measures
Note: Visit, as needed, to discuss early improvement and check improvements with the next self-assessment

Ideas about conflict minerals
Showa Denko and Showa Denko Materials incorporate the issue of
conflict minerals related to inhuman acts by local armed groups in
the Democratic Republic of Congo and its neighboring countries intheir CSR Procurement Guidelines, and ask their suppliers to provide
them with related supply chain information to avoid the purchase anduse of these minerals.
We will continue to contribute to the international initiative forresponsible minerals sourcing, recognizing the role to be played by
the Group.
“White Logistics” movement“White Logistics” is a movement launched in March 2019 by theJapanese Ministry of Land, Infrastructure, Transport and Tourism,

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SHOWA DENKO Report 2021

Ministry of Economy, Trade and Industry, and Ministry of Agriculture,
Forestry and Fisheries to improve the work environment of the logistics industry. The purpose of this movement is to increase the productivity of truck transportation, enhance the efficiency of logistics
operations and create better “white” workplaces where women andpeople aged 60 and older can also work in comfort.
White Logistics can almost be considered a work style reformmovement in the logistics industry, and it is important for shippers toensure compliance to contribute to the reform. In support of the
movement, Showa Denko and Showa Denko Materials have made adeclaration to voluntarily take actions for sustainable logistics andhave been acting in accordance with the declaration.

Respect for Human Rights / Initiatives on COVID-19

Respect for human rights

WEB

Ideas about respect for human rights
In order for the Showa Denko Group as an entity contributing to asustainable global society to satisfy all stakeholders, we must understand the relationship between our business and human rights issues
and promote activities that promote respect for human rights while
taking appropriate actions considering all possible risks of humanrights violations.
By the end of 2021, we will show the newly integrated company’s
basic approach to human rights in line with the Ten Principles of the

Global Compact and the Guiding Principles on Business and Human
Rights (Ruggie Principles) of the United Nations. We will not only ask
all Group employees, including those working outside Japan, toabide by the rules but will also ask all our business partners, including suppliers, to incorporate the ideas.
Meanwhile, we will also establish a framework for human rights
due diligence by the end of 2021 to make it effective.

Phase 2
Build/operate human rights due diligence process
Phase 1Develop human rights policy

Analyze/
identify negative impacts

Develop measures/plans

Information disclosure*As needed

Monitoring/evaluation

Build/operate a complainthandling mechanism

Initiatives on COVID-19
Ideas about initiatives on COVID-19
The Showa Denko Group is taking initiatives for COVID-19 in its life
science business while making various efforts to respond to risks andfor business continuity.
The Group CEO shared a message promising employees that theGroup will: (1) give first priority to protecting the health of all Group

employees and employees of partner companies; (2) continue tosupply the products that are indispensable for society and daily life as
its social responsibility; and (3) make preparations to achieve further
growth for the Group after the pandemic ends. We are dealing withthe coronavirus crisis also in line with the BCPs.

Initiatives through businessInitiatives for responding to risks and business continuity

Launch of joint research with the National Cancer Center Japan on
the development of rapid cell-mediated immunity tests
Signed a joint research agreement with the National Cancer Center Japanon the development of rapid cell-mediated immunity tests for COVID-19 inMarch 2021 and started the joint research in April.

• Introducing teleworking at major plants and departments. The head
office, in particular, has continued to minimize the percentage of employees who work in the office (to around 20%) by drastically reviewing its
operations.
• Implementing, in a timely and appropriate manner, measures that prioritize securing employees’ safety and preventing the spread of infection,

WEB Showa Denko Materials

Release of diagnostic products that help determine infection with
COVID-19
Released COVID-19-related diagnostic products* (AccuPlex

TM

series forgenetic testing and ACCURUN® and AccuSetTM series for antibody testing)* Manufactured by U.S.-based SeraCare Life Sciences
Donation of protective gear to hospitals overwhelmed by the
COVID-19 pandemic
Donated protective clothing and surgical masks to medical frontlines via
the Japan Business Federation in response to the frontline shortage ofincluding providing special leave when there is a concern about infection
and asking employees to voluntarily refrain from group dining.
• Making efforts to maintain production activities while taking thoroughmeasures to prevent infection. Focusing on maintaining social infrastructure functions, including maintaining the supply of products tocustomers.
• The COVID-19 Headquarters is collecting information in and outside
Japan, and is regularly raising employee awareness and providing
instructions for preventing the spread of infection.

medical supplies.

SHOWA DENKO Report 2021

59

Initiatives Supporting Sustainable Growth

Risk Management

Risk management

WEB

Ideas about risk management
Upholding “deepening of risk management on the basis of safety andcompliance” as the main theme, the Showa Denko Group is striving
to improve its risk control for both ordinary times andemergencies and to reduce the detected risks.
To take actions before a risk occurs, we must build a mechanism
to manage and analyze risk-related information in an intensive andintegrated manner and another mechanism for the effective andefficient escalation of important information that supports the top
management team in making decisions on business strategy,
resource allocation and so on.
Currently, the Risk Management Subcommittee, comprising staff
in charge from Showa Denko and Showa Denko Materials, is working
on higher-level standardization, including common tools.

Implementation of risk assessment
Showa Denko has established an ISO 31000-compliant risk assessment, response and review process.
Once a year, the comprehensive identification of risks, including
potential risks associated with business activities, and evaluation ofrisks (risk inventory) are conducted at more than 140 frontline organizations, such as sections and groups.
Results of the risk inventory activity are reviewed, at the site level,by the top leadership of a division, plant or group company. For
serious risks identified, discussion at a company-wide meeting(Sustainability Promotion Council) takes place as to the direction andappropriateness of risk countermeasures. Results of the discussion
are then reported to the Management Committee and the Board of
Directors. The Sustainability Promotion Council discusses not only
serious risks but also important agendas of the entire company.
In 2020, risk managers and risk submanagers were appointed toeach site to further enhance and standardize the risk management
promotion system.
Meanwhile, Showa Denko Materials has established the Risk
Countermeasures Procedure to identify risks that the company

Promotion system
Board of Directors
Oversight

Oversight

Management of
the Showa Denko Group

Discussion on group management of
the newly integrated company

Management Committee

Steering Committee 1
Discussion/decision on key policies

Sustainability Promotion
CouncilSteering Committee 2
Discussions and decisions on practicalplans to implement the integration

Formulation of plans and activities based on
deepening of risk management and CSR
communication

Risk
identification

Risk analysis &evaluation

Risk Management Subcommittee
Note: Discussion/operation through cooperation
between employees of the two companies

Company-widesummary

Management Committee
Sustainability Promotion
Council

Divisions, plants,
group companies

Analysis

Risk Management
Working Group
Planning ofcountermeasures

Implementation ofcountermeasures
Policyshould address and to declare that its officers and employees haveroles related to preventing risks from occurring. In cases of emergencies, the procedure also clarifies criteria for setting up the risk
response headquarters as well as its members and activities, andcriteria for communications. Particularly with regard to risks that may
have a critical impact on management, the company identifies thetype of risk, department in charge of responding, scale of damage
and frequency of occurrence, and evaluates the impact on management and reports to the Management Committee.

Risk classification(1) Accidents and disasters

Facility accidents, fires and explosions, injuries or deaths, environmental accidents, natural disasters and climate change,
infrastructural accidents, traffic and distribution accidents, chemical handling accidents, accidents involving products(2) Risks related to violation of laws,
antisocial acts

Violation of industrial property rights, violation of antitrust laws, insider trading, violation of foreign exchange law,violation of subcontract law, violations of laws concerning environment, chemical substances, security and safety,
defamation, violation of privacy, crimes committed by employees, bribery(3) Risks related to human resources and labor

Outflow and security of human resources, evaluation, rewards and assignment, infectious diseases, work hours,
diversity of employment patterns, involvement as victim of crimes and terrorist acts(4) Information management

Information leaks, system failures, problems involving media, rumors, whistle blowing, commercial software,
management of login ID(5) Risks related to management and business

Stocks and corporate bonds, investments, finance and accounting(6) Risks related to supply chains

Inventory, assets, procurement, business(7) Risks related to external environment

Nation, region, community, industry

Note: Evaluate from the perspectives of loss of social credibility, loss of human resources, and loss of financial assets

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SHOWA DENKO Report 2021

Enhancement of business continuity plans (BCPs)
Ideas about BCPs
Showa Denko has been making BCPs based on the idea that we needto build a business system that is highly resistant to disasters andother crises both in Japan and overseas. We make specific BCPs in
consideration of the features of each of our businesses and products,
put in place measures and systems for our equipment oriented todisaster prevention and reduction, enhance stockpiling plans for possible disasters, and clarify and work on problems through the aforementioned continued and regular risk assessment (risk inventory
activity). We are thereby managing our business in a manner thatenables us to continue it while giving first priority to people’s lives.
Moreover, we regularly conduct drills to foster collaboration for BCPs
between the divisions, plants and affiliated companies, through which
participants can share the lessons learned, problems and best practices and incorporate them into the BCPs.

Corporate ethics and complianceShowa Denko Materials has also developed—and annually
improves—BCPs for large earthquakes and pandemics based on its
common group policy, while also conducting simulation drills basedon the assumptions of the BCPs. Issues recognized through the drills
are reported to the Management Committee to be shared amongcorporate officers and other top-level executives to improve thefollowing year’s BCPs.
With a view to integrating their head offices, the two companies will
review the head office emergency response headquarters in
Shibadaimon and Marunouchi as well as local emergency response
headquarters, which would respond to an inland earthquake hitting
the Tokyo metropolitan area, and discuss how to operate the headquarters on a remote basis in light of the increase in teleworking, withthe goal of making the crisis management system more effective.

WEB

Ideas about corporate ethics and compliance
The Showa Denko Group believes that corporate ethics andcompliance provide the basis of its business continuity and areessential for the achievement of its vision. Accordingly, we comply
with laws and regulations and the social norms of each country andregion. In addition, we are implementing a system and conducting
a range of activities to instill ethical values based on honesty, impartiality and integrity.
With the January 2023 integration of the legal entities of Showa
Denko and Showa Denko Materials serving as a milestone, we areconducting examinations to determine an ideal system for the newcompany and its operations so that we can establish awareness ofcorporate ethics and compliance among all Group employees in andoutside Japan and properly monitor compliance.
Thorough corporate ethics and complianceShowa Denko and Showa Denko Materials mark Corporate Ethics
Month annually, sharing the Group CEO’s message in multiple languages with all employees in and outside Japan. The two companies
also provide individual employees with opportunities to check theirpractice of corporate ethics and compliance, such as by reading
through the Code of Conduct and engaging in workplace discussions.
To prevent corruption, Showa Denko has formulated the Showa
Denko Group’s Global Anti-Bribery Policy to ensure compliance with
anti-corruption laws and regulations enforced in each country. As forcompliance with antimonopoly laws and regulations in each country,
we manage anti-cartel rules, raise awareness of guidelines, regularly
provide training taught by outside experts, carry out voluntarily audits
every year to check for illegal sales activities within the Group, andreport the audit results to the management team.
Meanwhile, Showa Denko Materials has introduced a global compliance program and is taking actions regarding compliance with

antimonopoly laws, prevention of bribery and prevention of transactions with antisocial forces as keys to compliance management.
Initiatives for compliance with antimonopoly laws include operationof the Compliance Information Notebook to record even minor casesof possible legal infringement, such as contacting a competitor, atGroup companies in and outside Japan. Departments in charge ofcompliance audit the records semiannually. In fiscal 2020, the audit
was conducted only once due to the COVID-19 pandemic. It was
confirmed that there were no problems.
As for anti-corruption, we prohibit all employees from engaging inbribery and set forth guidelines that ask them to take specific actions
to prevent, detect and respond to bribery.
System for consultation and reporting on corporate ethics andcomplianceShowa Denko and Showa Denko Materials have set up compliancehotlines that are available to all stakeholders wishing to seek consultation or report any issues regarding compliance. The two companies, moreover, make proper and prompt responses to such reports
with due consideration to confidentiality and the prevention of disadvantageous treatment of hotline users.
Reports are received internally or at external contact points. After
discussion with the company or site named in a report, a department
in charge of compliance will conduct a fact-checking exercise andinvestigation. If an illegal act is found, corrective measures will swiftly
be taken. As for serious cases, all matters, from reporting to investigation to corrective and preventive measures, are reported to theManagement Committee and the Board of Directors.
In 2020, Showa Denko and Showa Denko Materials received 54
and 81 reports (including requests for consultation), respectively, andproperly responded to the cases through cooperation with related
departments. There were no cases of serious compliance violations.

SHOWA DENKO Report 2021

61

Initiatives Supporting Sustainable Growth

Corporate GovernanceWEB

Basic policies
Showa Denko K.K. works to increase its corporate value and expand
profit for both the company and its shareholders by collaborating
appropriately with stakeholders including shareholders in line with its
Corporate Governance Basic Policies.
We are committed to promoting our corporate governance toensure the soundness, effectiveness and transparency of management and to continue enhancing our corporate value, thereby earning
more trust and receiving a higher rating from society. We describe
our efforts made to this end in our corporate governance report,
while also fostering constructive dialogue with investors andshareholders.
As a new corporate group established through the integration ofShowa Denko and Showa Denko Materials, we will make further
efforts to enhance and advance our corporate governance.

Looking back on fiscal 2020
In 2020, Showa Denko implemented its largest ever M&A project tomake Showa Denko Materials a consolidated subsidiary by acquiring
its shares through a takeover bid. Toward full integration as a corporate entity in 2023, we will enhance our measures to ensure andfurther advance our governance.
In order to enhance governance across our business areas, which
are expanding due to the integration, President Maruyama of Showa
Denko Materials joined Showa Denko’s Board of Directors as aninside director in March 2021, and as a result the Board is now
composed of 10 directors.
For the integration of Showa Denko Materials, a project team comprising
members from the two companies is conducting activities, and progresswith the activities is appropriately reported to the Board of Directors.
For details, please see “Corporate governance for integrated­company” on pages 10 and 11.

Corporate governance structure (As of June 30, 2021)
Governingbody

Shareholders’ Meeting

Decision-making and supervision

Board ofDirectors

Nomination
Advisory
Committee

Consultation/Report Remuneration

Advisory
Committee

Auditing

Operational
audits

Accounting
auditsAudit &
Supervisory
Board
Audit &
Supervisory
Board members

Audit &
Supervisory
Board

Responsible Care Promotion Council
IR Promotion Council
R&D Committee
Security Export Control Committee
Safety Measures Committee

Internal audits

Sustainability Promotion Council

Cooperation

Internal Audit Department

Management Committee

4 outside directors(One is female)
6 inside directors

Accounting
auditorExecution of duties
Top management
President
Corporate officers in charge

Board ofDirectors

Members

Nomination
Advisory
Committee

3 outside auditors(Two are female)2 inside (full-time)
auditors
4 outside directors(One is female)2 inside directors

Chairperson

Meeting
frequency

Inside director
not in chargeof businessexecution

Once ortwice
a monthInside full-time
auditorOnce ortwice
a monthOutsidedirector

3 or 4 times
a yearOutsidedirector

3 or 4 times
a yearPresident

Once a week
in principle

2 outside directors(One is female)Remuneration
Advisory
1 outside auditor
Committee
2 inside directors
President, corporate officers in charge, andManagement other corporate officers and heads of the staff
Committee departments whose presence on the committee
is deemed necessary by the president

Business Divisions
Staff departments

Cross-shareholding policy and method to check the appropriateness of cross-shareholding
Every year, the Board of Directors examines the economic rationality of cross-shareholding from medium- to long-term viewpoints and whether
each crossholding helps maintain and enhance the business relationships between the companies with a view to reducing the crossholding ofshares that will not contribute to increasing Showa Denko’s corporate value on a medium- to long-term basis.
At its meeting held in November 2020, the Board examined the appropriateness of each crossholding based on the results of evaluating its
contribution to the company’s profitability and business promotion. According to the examination results, we are now in the process of sellingsome of the shares.
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SHOWA DENKO Report 2021

Selection and dismissal of senior management and nomination of candidates for director and auditor positions
Showa Denko selects candidates to be its directors based on
the criteria for knowledge, insight, fair judgment, ability to takeactions, practical experience and others required of directors. For theselection of senior management, individual performance as well as
corporate performance are also taken into consideration. Candidate
Audit & Supervisory Board members must possess sufficient knowledge, experience and capabilities to fulfill their obligations as auditors, including an appropriate level of expertise in the areas of financeand accounting.
The Nomination Advisory Committee deliberates the nomination ofcandidates for the aforementioned positions and submits

recommendations to the Board of Directors. The Committee is anadvisory board to the Board of Directors, and more than half of its
members are independent outside directors.
Dismissal of the chief executive officer and others
In the event it is revealed that any of the directors, including the chief
executive officer, has substantially damaged the corporate value ordoes not meet the selection criteria for directors, the Nomination
Advisory Committee shall discuss whether the person is still suitable
for the position and report the results to the Board of Directors,
which will make the final decision.

Remuneration of directors and corporate officers
Policies on and breakdown of the remuneration
The remuneration of directors (excluding outside directors) and corporate officers shall be composed of base remuneration, short-term
performance-linked remuneration, and medium- to long-term performance-linked remuneration. The base remuneration shall be decided
according to the job title and others, while the short-term performance-linked remuneration shall be determined in consideration of
corporate and individual performance and others under the performance evaluation system. The medium- to long-term performancelinked remuneration shall be paid under the trust system, in line withthe stock ownership rules set for directors. Outside directors andAudit & Supervisory Board members shall only be paid the baseremuneration (fixed amount) on a monthly basis. The standard
amount of remuneration shall be determined in reference to thestandard amounts paid by other companies (in the same industry
and same business size) as revealed through surveys conducted byexternal professional organizations. Toward the future, we will review
the management indicators to which the remuneration for directors
and corporate officers will be linked to ensure that the management
team will be firmly committed to achieving the Group’s targets andincreasing its corporate value.
For details, please see “CFO Message” on pages 38 to 41.

Average breakdown of the remuneration of directors (excluding outside directors)
Average composition (%)

56%

30%

Remuneration type

Payment criteria

Payment method

Payment

Base remuneration(Fixed)Fixed remuneration
decided according to
job title and others

CashMonthly

Short-term performance-linked
remuneration

Performance indicators:
Sales, ordinary income
and ROA

Cash

Monthly

Medium- to longterm performancelinked remuneration

Stock-based
performance-linked
rewards paid under thetrust system

Total points given before resignation are
multiplied by the adjustment index forchanges in stock prices to calculate theamount of reward.

At the time ofresignation

67%

18%

14%

15%

FY2019FY2020

Procedures to decide the amount of remuneration
The upper limit of the total amount of remuneration to be paid to directors and Audit & Supervisory Board members shall be resolved at thegeneral meeting of shareholders. In line with this policy, the Remuneration Advisory Committee, with a majority of members being independent
outside directors and outside Audit & Supervisory Board members, shall conduct deliberations about the remuneration of directors and corporate officers, and the Board of Directors shall make the final decision. The amount of remuneration to be paid to Audit & Supervisory Board
members shall be determined through discussions at the meetings of the Audit & Supervisory Board.

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Initiatives Supporting Sustainable Growth

Corporate GovernanceTotal amount of remuneration paid to directors and Audit & Supervisory Board members (2020)
Total amount paid by remuneration type (millions of yen)
Base remuneration

Short-term performancelinked remuneration

Stock-based rewards

Number of persons
to whom payment
was made

362

258

56

48

11

Outside director

53

53

—

—

4

Audit & Supervisory
Board member

96

96

—

—

7

Outside member

35

35

—

—

4

Category

Total amount paid
(millions of yen)

Director

Note: For the stock-based rewards, the amount paid totaled ¥48 million under the stock-based performance-linked reward system for directors, which was approved by a resolution made at
the 107th session of the general meeting of shareholders held on March 30, 2016.

Evaluation of the Board of Directors’ effectiveness
Basic policies
Showa Denko aims to achieve sustainable corporate growth and toincrease its medium- to long-term corporate value. To this end, as its
responsibility and role, the Board of Directors is expected to build asystem to make decisions in a transparent, fair, prompt and resolutemanner and to supervise the management of the system. Showa Denko
conducts a questionnaire survey to check the effectiveness of theBoard of Directors as a whole, in which directors and Audit & Supervisory
Board members conduct a self-evaluation about whether they havefulfilled that responsibility and role. Based on the survey results,
issues to be solved are discussed by the Board of Directors.
Showa Denko includes “Decision-making process and structure”
in its material issues and regards continuing the evaluation of theBoard of Directors’ effectiveness and disclosing the results as a KPI
for materiality.
Evaluation method
Regarding the effectiveness of the Board of Directors in 2020, we
conducted a survey in December 2020 in which the directors andAudit & Supervisory Board members answered questions and madefree comments. Subsequently, in January 2021, we interviewed thefour outside directors individually.
Then, in March 2021, the Board of Directors held a meeting for all
directors and Audit & Supervisory Board members to discuss theself-evaluation results collected from the directors, create a summaryof the evaluation results for fiscal 2020, and formulate the action planfor fiscal 2021.
In order to ensure the objectivity of the survey and further increase
the effectiveness of the Board of Directors, the survey is conducted
and the results are tabulated by an external organization.
Evaluation results
Based on the survey, interview and discussion results, the Board of
Directors has confirmed as follows: members who have diverse
experience and expertise make the Board highly effective by taking
broad views and having diverse values, and proactive and constructive discussions have been conducted, with the Board taking sufficient time to deliberate the items, for which reference materials are
distributed and explanations are made in advance of the meetings.

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SHOWA DENKO Report 2021

For the effectiveness evaluation results for fiscal 2020, participantsin the Board meeting expressed the following opinions when comparing the results with those for fiscal 2019.
•W hereas sufficient discussions have been held regarding the concepts of the long-term vision set toward the integration of Showa
Denko Materials, it is also necessary to foster discussions for the
optimization of the business portfolio.
• It is important to continue deliberating the important items, such as
the establishment and enhancement of the governance and compliance systems, in consideration of a substantial increase in thenumber of Group companies and further globalization of thebusinesses.
•D ue to the business integration, the number of items included in
the Board of Directors’ meeting agenda is increasing. In order tosecure adequate time to conduct in-depth deliberations on future
management strategies, it is necessary to increase the efficiency ofthe meetings by, for example, reviewing the method used to selectitems to be included in the agenda.
Moreover, participants in the meeting agreed on the following: In
2021, they will foster in-depth deliberation on management strategies, the governance system and Group management at Board
meetings, promote the exchange of opinions on the issues among all
directors and corporate officers, and continue implementing measures to further enhance the effectiveness of the meetings in the faceof the coronavirus crisis.
(Free comments)•T he diversity of the Board of Directors has steadily been enhancedby the addition of female outside members and by the broadeningof viewpoints due to the diverse backgrounds of the Board members.
• Challenges related to the integration of Showa Denko Materials havebeen appropriately discussed at Board meetings, but more in-depth
discussions are needed as we strive to meet these challenges.
•D ue to COVID-19, we had to hold Board meetings online. We needto devise more measures to increase the effectiveness of the meetings in consideration of the situation regarding the pandemic.

Message from the Chairman of the Board

Hideo Ichikawa
Chairman of the Board

I will work for the appropriate management of Board meetings so thatthe Board can fulfill its functions in a sound manner, with its members being able todiscuss issues openly and proactively at the meetings.
In line with an increase in the importance of corporate governance,
there is a strong requirement for companies to ensure that their
Board of Directors will fulfill its functions and supervise the executionof business in a sound and careful manner. As chairman of the Board,
I regard it as my mission to serve as a bridge between the Board of
Directors (especially outside directors and Audit & Supervisory Board
members) and the CEO and other corporate officers.
Specifically, in order for participants in Board meetings to discuss
issues openly and proactively, I work to highlight the priority issues
for each agenda item and encourage participants, particularly outside
members, to express their opinions on the issues from external
viewpoints. At the same time, in order to separate the businessexecution functions from the business monitoring and supervisionfunctions, I work to maintain the independence of the Board and theneutrality of myself and to manage Board meetings from the viewpoint of all our stakeholders, including shareholders.
In 2020, we added one female outside director to the Board of
Directors and also invited a female legal professional to join the Audit
and Supervisory Board, thereby further increasing the diversity of theBoards. Now the Board of Directors conducts discussions even moreproactively with participants expressing a range of opinions at its
meetings, including pointing out challenges from viewpoints different
from those taken by members of the Management Committee more
frequently than before.
Since March 2020, we have been holding Board meetings online
due to COVID-19. Although we share visuals and audio in order to
conduct the meetings just like those held in person, it is still difficultfor participants to pick up nuances of meaning and exchange individually held information. It cannot be denied that online meetings
were not very effective at helping participants get a better sense of
one another. In response, I made special efforts to create an

atmosphere that encouraged participants, particularly newly appointed
outside members, to participate in discussions and to manage themeetings in a manner that would foster the sharing of ideas.
For the launch of the newly integrated company in 2023, I think it
is necessary for the two companies to mutually confirm the ideas andtargets for the corporate governance systems. Under the Companies
Act of Japan, Showa Denko is a “Company with a Board ofCompany Auditors” and this management style, I believe, is appropriate for its current structure and size. However, for the managementof the company after the full integration of Showa Denko Materials, itis necessary to consider the option of becoming a “Company with an
Audit and Supervisory Committee” or a “Company with a Nominating
Committee, etc.” and compare this option with the current management style to identify their advantages and disadvantages.
It is also important to help members of the Board of Directors(especially outside directors) to understand as early as possible theoutline of a wide range of businesses conducted by the newly integrated company, so that they can have constructive discussions at
Board meetings based on their understanding of actual operations.
To this end, I would like to proactively provide the members with
opportunities to visit our sites in addition to promoting desktop discussions on the integration plan.
The business integration is giving us an opportunity to greatly reform
our company toward the future of five and 10 years from now. However,
it is also a great challenge for us and naturally poses risks. As chairmanof the Board, I will continue to do my best to manage Board meetings
in a way that helps the Board to function in a sound manner and its
members to make constructive recommendations to corporate
officers, thereby maintaining the appropriate tensions between the
Board and corporate officers so that they can collaborate together toachieve their shared target of maximizing the corporate value.

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Initiatives Supporting Sustainable Growth

Message from an Outside Director

Masaharu Oshima
Outside Director of Showa Denko K.K.
Emeritus Professor, The University of Tokyo
Special Professor, Tokyo City University
Project Researcher, Institute for Solid State Physics,
The University of Tokyo

Having frank discussions with a sense of urgency to contributeto increasing corporate value.
Outside directors assume the responsibility of drawing upon theirrespective fields of expertise to share their thoughts and of monitoring
the management of the company from an independent standpoint. I
have been serving as outside director of Showa Denko since 2015
and am tasked mainly with two roles.
First, I am tasked with conducting checks in the R&D andtechnological domains. To fulfill this role, I need to have a grasp of
the on-site situations and therefore have visited a total of 30 operation sites belonging to the company both in Japan and abroad overthe six years since I assumed the position of outside director. I haveexchanged views with young engineers at the sites and have maderecommendations to the Board of Directors based on their opinions.
Second, I am tasked with conducting checks with a view tostrategically increasing the corporate value on a medium- to longterm basis. As an expert in electronics and chemistry, I express my
opinions mainly regarding digitization for higher productivity andenvironmental measures for greener business operations.
As for the atmosphere of Showa Denko’s Board of Directors meetings, discussions are now conducted with a greater sense of urgency
as the number of strategically important agenda items has been
increasing recently. I feel that the decision-making speed has
increased at the meetings, with more opinions also being expressedby inside directors. Moreover, the Board fostered a shift to aggressive
business management based on the profits made in the carbon
business and the decision to integrate Showa Denko Materials wasmade promptly.
I believe the decision to integrate the company is the best one forShowa Denko. With the industrial structure changing in such a big
way, I think it is riskier to simply maintain the status quo.

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SHOWA DENKO Report 2021

For the integration, in addition to Board meeting discussions
being conducted with a sense of urgency and in a proactive manner,on-site exchanges have already been made between workers fromthe two companies. Especially in the R&D and technologicaldomains, employees have been working to generate synergies andhave already achieved some results. I learned these reassuring facts
by attending some technological presentation meetings held jointly
by the two companies. Also, in the fall of 2020 I visited three sites ofShowa Denko Materials including a research institute and was
impressed with the fact that employees had very positive views about
the integration.
For Showa Denko and Showa Denko Materials to achievesustainable growth as an integrated company, I think it is importantto boldly adopt new and innovative ideas, especially from the following
four viewpoints: (1) “Diversity & Flexibility” (example: diversity ofhuman resources); (2) “Green” (example: reducing GHG emissions);(3) “Digital” (example: proactive digitization for higher production and
R&D efficiency); and (4) “Global” (example: formulation of resilientinternational strategies in consideration of country risks). Of these,(1) is particularly important, and the two companies need to develop
female executives, promote young employees, and embrace change
while regarding each other as equal partners.
The mission of outside directors is to increase the corporate value forall stakeholders. I will continue to frankly express my opinions, including criticisms, to top management and corporate officers and will
work for the company with a sense of urgency.

Message from an Outside Member ofthe Audit & Supervisory Board

Kiyomi Saito
Outside member of the Audit & Supervisory Board,
Showa Denko K.K.
President and CEO of JBond Totan Securities Co., Ltd.
Outside director of Kajima Corp.

I will support the growth of Showa Denko by checking
for any risks in the road ahead.
Amid a constantly changing social environment, what companies are
expected to do to ensure their corporate governance is also greatlychanging. These days, companies need to undertake substantial
monitoring for any instances of noncompliance in their business
management as well as for any risks posed to the soundness of theirfinancial and accounting activities, not only for their present situations
but also for their future.
The most important role of outside auditors is to make efforts to
identify any signs of such risks to contribute to the growth of thecompany. In order to fulfill this role, outside auditors are required toexpress their frank opinions from objective viewpoints.
At Showa Denko, issues discussed in depth by the Management
Committee are presented to the Board of Directors for discussion by
the members, and risk analyses are also made to the degree required.
As an outside member of the Audit & Supervisory Board, what I can
do to contribute to the company is to check whether or not thecompany has fallen victim to “groupthink*.” In relation to this, I thinkthat questions and comments on trivial issues should be asked andmade at preliminary briefings held before a meeting of the Board, sothat discussions can be conducted from a broader perspective at themeeting. I think there is room for improvement in this regard.
As for the integration of Showa Denko Materials, corporate officers
made very persuasive explanations about the need to complement
Showa Denko’s existing business portfolio strategy through the
integration. Although the integration poses a huge risk to thecompany, it is necessary to take the risk for discontinuous growth.
Toward full integration, steering committee meetings are frequently

held with the participation of the management teams of the twocompanies, and I highly appreciate their efforts to lead the two companies in the same direction.
In order to foster financial soundness, it would be necessary forthe company to further review the business portfolio, and I would liketo monitor the progress and check whether or not the process is
steadily implemented.
I expect that Showa Denko will make further contributions to a sustainable society. The SDGs were adopted by the United Nations in2015 as the goals to be achieved by 2030, and the halfway mark willsoon be upon us. A chemical manufacturer cannot help having some
negative impacts on the environment. However, it is possible forShowa Denko to make use of its technologies to have positive
impacts on the creation of a sustainable society. I regard this as themission of the company. I expect that the company will steadily fulfill
this mission, for which corporate governance is essential.
Showa Denko has long been engaged in the plastic recycling
business, and this fact convinces me that the company will be able
to make unique contributions that others cannot.
* The term “groupthink” refers to the idea that striving for consensus within a group can
result in the making and approval of irrational or dangerous decisions, as well as to themindset that can give rise to such a situation.

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Initiatives Supporting Sustainable Growth

Directors(As of June 30, 2021)

Directors

7

8

9

10
5
6

2

4
3

1

68

1

KOHEI MORIKAWA

2

HIDEHITO TAKAHASHI

3

MOTOHIRO TAKEUCHI

Frequency of participation in 2020
Board meetings: 14 times in 14 meetings

Frequency of participation in 2020
Board meetings: 14 times in 14 meetings

Frequency of participation in 2020
Board meetings: 14 times in 14 meetings

April 1982
Joined the Company
January 2013	Corporate Officer; General Manager, Electronic
Chemicals Division
January 2016	Managing Corporate Officer; Chief Technology
Officer (CTO)
March 2016	Director; Managing Corporate Officer; Chief
Technology Officer (CTO)
January 2017	Representative Director; President andChief Executive Officer (CEO) (incumbent)

April 1986	Joined The Mitsubishi Bank, Ltd. (currently MUFG
Bank, Ltd.)
February 2002	General Manager, Business Development
Department, GE Japan Holding Corporation
October 2004	Asia Pacific President, GE Sensing & Inspection
Technologies, GE Japan Holding Corporation
October 2008	President & CEO, Silicones Business, Momentive
Performance Materials Japan Inc.
January 2013	President and CEO, GKN Driveline Japan plc
October 2015	Joined the Company, Senior Corporate Fellow,
Assistant to President
January 2016	Corporate Officer; General Manager, Corporate
Strategy Department
January 2017	Managing Corporate Officer
March 2017	Director; Managing Corporate Officer
July 2017	Director; Managing Corporate Officer, General
Manager, Carbon Division
January 2020	Director; Managing Corporate Officer, in charge ofCarbon and Ceramics divisions, Coating materials
Department, Yokohama and Shiojiri plants, andCorporate Strategy Department; Chief Strategy
Officer (CSO)
March 2020
Representative Director; Managing Corporate Officer,
in charge of Carbon Division, Ceramics Division,
Coating Materials Department, Yokohama Plant,
Shiojiri Plant and Corporate Strategy Department;
Chief Strategy Officer (CSO) (incumbent)

April 1983	Joined the Company
January 2013	General Manager, Ceramics Division
January 2015	Corporate Officer; General Manager, Ceramics
DivisionJanuary 2017	Corporate Officer; General Manager, Corporate
Strategy Department
January 2019	Corporate Officer; Chief Financial Officer (CFO)
March 2019	Director; Corporate Officer; General Manager,
Finance & Accounting Department; Chief Financial
Officer (CFO)
January 2020	Director; Managing Corporate Officer, in charge ofFinance & Accounting and Information Systems
departments; Chief Financial Officer (CFO)
March 2020	Representative Director; Managing Corporate Officer,
in charge of Information Systems and Finance &Accounting departments; Chief Financial Officer(CFO) (incumbent)

SHOWA DENKO Report 2021

4

HIDEO ICHIKAWA

Frequency of participation in 2020
Board meetings: 14 times in 14 meetings
April 1975	Joined the Company
May 2003	General Manager, Corporate Strategy Office of theCompany
January 2006	Corporate Officer; General Manager, Corporate
Strategy Office
March 2008	Director; Corporate Officer; General Manager,
Corporate Strategy Office
September 2008	Director; Corporate Officer; Executive Officer,
HD Sector
January 2010	Director; Managing Corporate Officer; Executive
Officer, HD Sector
January 2011 Representative Director; President andChief Executive Officer (CEO)January 2017 Representative Director; Chairman of the Board
March 2020
Director; Chairman of the Board (incumbent)

5

HISASHI MARUYAMA

Newly appointed
April 1983	Joined Hitachi Chemical Company, Ltd. (currently
Showa Denko Materials Co., Ltd.)
April 2011	Executive Officer, Hitachi Chemical Company, Ltd.
April 2015	Vice President and Executive Officer, Hitachi
Chemical Company, Ltd.
April 2016	President, Hitachi Chemical Company, Ltd.
June 2020	Representative Director; President, Chief Executive
Officer (CEO) and Chief Quality Officer (CQO), Hitachi
Chemical Company, Ltd.
January 2021	Representative Director; President and Chief
Executive Officer (CEO), Showa Denko Materials Co.,
Ltd. (incumbent)
March 2021	Director of the Company (incumbent)

7

MASAHARU OSHIMA

9KOZO ISSHIKI

Outside Director
Frequency of participation in 2020
Board meetings: 14 times in 14 meetings

Outside Director
Frequency of participation in 2020
Board meetings: 14 times in 14 meetings

Based on his abundant expertise and experience
as a researcher in the field of electronics, hasprovided useful management advice in the fieldof R&D since becoming an outside director ofShowa Denko. Also, as outside director, supervises
the management of the Company’s business inanticipation of future technological trends.

Engaged in the financial industry for many years
and has abundant expertise across industries, inparticular in the chemical industry. As outside
director since 2019, has been supervising
Showa Denko’s business execution and contributing a deep understanding of and advice on its
businesses.

April 1974	Joined Nippon Telegraph and Telephone Public
Corporation	(currently Nippon Telegraph and Telephone
Corporation)
November 1995	Professor, Applied Chemistry Department, Graduate
School of Engineering, The University of Tokyo
April 2006	Director, Synchrotron Radiation Research
Organization, The University of Tokyo
October 2009	Chairman, The Japanese Society for Synchrotron
Radiation Research
April 2013	Project Professor, Synchrotron Radiation Research
Organization, The University of Tokyo
May 2013	Chairman, The Surface Science Society of Japan
June 2013	Emeritus Professor, The University of Tokyo(incumbent)
April 2014	Project Researcher, Synchrotron Radiation Research
Organization, The University of Tokyo
March 2015	Director of the Company (incumbent)
April 2015	Special Professor, Tokyo City University (incumbent)
July 2016	Project Researcher, School of Engineering, The
University of Tokyo
December 2016	Project Researcher, Institute for Solid State Physics,
The University of Tokyo (incumbent)

July 1969	Joined Japan Development Bank (currently
Development Bank of Japan Inc.)
April 1993	General manager, General Affairs Department, Japan
Development Bank
May 1994	Executive Secretary, Japan Development Bank
June 1996	General Manager, Industry & Technology
Department, Japan Development Bank
May 1998	General Manager, Human Resources Department,
Japan Development Bank
June 2001	Executive Director, Development Bank of Japan Inc.
May 2005	Chairman of the Board, Technology Alliance
Investment, Ltd.
June 2015	Director, Medical System Network Co., Ltd. (Outside
Director) (incumbent)
March 2019	Director of the Company (incumbent)

10 NORIKO MORIKAWA
Outside Director
Frequency of participation in 2020
Board meetings: 11 times in 11 meetings
Note: Frequency after assuming the position

8
6

HIROSHI SAKAI

Frequency of participation in 2020
Board meetings: 11 times in 11 meetings
Note: Frequency after assuming the position

April 1986	Joined the Company
January 2013	Corporate Fellow; General Manager, Technology
Development Control Department, HD Division
January 2015	Senior Corporate Fellow; General Manager,
Technology Development Control Department, HD
DivisionJanuary 2015	Senior Corporate Fellow; General Manager,
Technology Development Control Department, HD
DivisionJanuary 2019	Corporate Fellow; General Manager, Technology
Development Control Department, Device Solutions
DivisionJanuary 2020	Corporate Officer, Chief Technology Officer (CTO)
March 2020	Director; Corporate Officer, Chief Technology Officer(CTO)
January 2021	Director; Corporate Officer, in charge of Advanced
Battery Materials Division, Institute for Integrated
Product Development, and Corporate R&D andIntellectual Property departments; Chief Technology
Officer (CTO) (incumbent)

KIYOSHI NISHIOKA

Outside Director
Frequency of participation in 2020
Board meetings: 14 times in 14 meetings
Based on his experience at the research,
production and sales departments of a steelmakerand in the firm-wide management of technology
development, has broad expertise and knowledge.
Also conducts activities for technology-oriented
management and industry-academia collaboration as a university researcher. Since becoming
an outside director of Showa Denko, has been
providing objective and useful advice and appropriately supervising the management of theCompany’s business.
April 1977	Joined Nippon Steel Corporation
April 1997	Plant Manager, Thick Steel Plate Plant, Kimitsu
Works, Nippon Steel Corporation (General Manager)
April 2001	General Manager, Thick Steel Plate Sales
Department, Head Office, Nippon Steel Corporation
June 2005	Director; General Manager, Technology Development
Planning Department, Technology Development
Headquarters, Nippon Steel Corporation
June 2009	Counselor, Nippon Steel Corporation
November 2012	Special Professor, Research Center for Advanced
Science and Technology, The University of Tokyo
April 2017	Adviser, Research Center for Advanced Science andTechnology, The University of Tokyo (incumbent)
April 2017	Visiting Professor, Ehime University (incumbent)
March 2018	Director of the Company (incumbent)
July 2019	Director, VCRI Co., Ltd. (incumbent)

After working for a securities company and an
accounting firm, engaged in business management as an accounting/financial manager in theinformation & communication and automotive
component industries. Presently also serves as
an outside director for another company. Has a
range of knowledge in electronics, automobiles
and other key target markets for Showa Denko
and supervises the Company’s operations.
April 1981	Joined CHORI CO., LTD.
August 1988	Joined Daiwa Securities America Inc.
September 1991	Joined Arthur Andersen
March 1995	Joined Motorola Inc.
March 2005	Director, in charge of accounting and finance;
General Manager, Accounting and Finance
Headquarters in Japan, Motorola Inc.
June 2009	Joined Bosch Corporation
August 2010	Director; Vice President, in charge of Administrative
Headquarters, Bosch Corporation
June 2018	Outside Director, CHORI CO., LTD. (incumbent)
March 2020	Director of the Company (incumbent)
June 2020	Outside Director, Mitsubishi Heavy Industries, Ltd.
(incumbent)

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Initiatives Supporting Sustainable Growth

Audit & Supervisory Board Members / Corporate Officers(As of June 30, 2021)

Audit & Supervisory Board Members

3

4

5
1

1

2

TOSHIHARU KATO

Frequency of participation in 2020
Board meetings: 14 times in 14 meetings
Audit & Supervisory Board meetings: 13 times in 13 meetings
April 1981	Joined Showa Aluminum Corporation (currently Showa Denko K.K.)
August 2014 General Manager, Finance & Accounting of the Company
January 2016	Corporate Officer; General Manager, Finance & Accounting Department
January 2017	Corporate Officer; General Manager, Finance & Accounting Department;
Chief Financial Officer (CFO)
March 2017	Director; Corporate Officer, General Manager,
Finance & Accounting Department; Chief Financial Officer (CFO)
January 2018	Director; Corporate Officer, in charge of Finance & Accounting and Information
Systems departments; Chief Financial Officer (CFO)
January 2019	Director, Assistant to President
March 2019	Audit & Supervisory Board Member (incumbent)

2

JUN TANAKA

Frequency of participation in 2020
Board meetings: 11 times in 11 meetings
Audit & Supervisory Board meetings: 10 times in 10 meetings
Note: Frequency after assuming the position

April 1982	Joined the Company
January 2012 Corporate Fellow; Deputy General Manager, Advanced Battery Materials Department
January 2013	Corporate Officer; General Manager, Advanced Battery Materials Department
January 2017	Managing Corporate Officer; Chief Technology Officer (CTO)
March 2017	Director; Managing Corporate Officer; Chief Technology Officer (CTO)
January 2019	Director; Managing Corporate Officer, in charge of Advanced Battery Materials
Division, Institute for Integrated Product Development,	Advanced Technology Laboratory, Corporate R&D and Intellectual Property departments; Chief
Technology Officer (CTO) (incumbent)
January 2020	Director, Assistant to President
March 2020	Audit & Supervisory Board Member (incumbent)

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SHOWA DENKO Report 2021

3

KIYOMI SAITO

Outside Member
Frequency of participation in 2020
Board meetings: 14 times in 14 meetings
Audit & Supervisory Board meetings: 13 times in 13 meetings
Based on her experience of launching a business consulting company and asecurities company specializing in the online trading of bonds and the knowledge gained through operating these companies, has been appropriately
auditing Showa Denko’s business execution since becoming outside auditorof the Company in 2012.
April 1973	Joined Nikkei Inc.
September 1975	Joined Sony Corporation
August 1984	Joined Morgan Stanley Investment Bank
January 1990	Executive Director, Morgan Stanley Investment Bank
April 2000	Director; President, JBond Co., Ltd. (currently JBond Totan Securities Co., Ltd.) (incumbent)
April 2011	Director; President, The Totan Information Technology Co., Ltd.
March 2012	Audit & Supervisory Board Member of the Company (incumbent)
June 2015	Outside Director, Kajima Corporation (incumbent)

4

SETSU ONISHI

5

Outside Member
Frequency of participation in 2020
Board meetings: 14 times in 14 meetings
Audit & Supervisory Board meetings: 13 times in 13 meetings
Based on his experience of engaging in the management of a bank as adirector in charge of internal auditing and in the management of a leasing
company, has the ability, knowledge and experience necessary to audit theoperation of business in a fair and objective manner. Since becoming outside
auditor of Showa Denko in 2018, has been appropriately auditing theCompany’s business execution.
April 1978	Joined The Industrial Bank of Japan, Ltd. (currently Mizuho Bank, Ltd.)
April 2002
General Manager, 8th Marketing Department, Mizuho Corporate Bank, Ltd.
(currently Mizuho Bank, Ltd.)
April 2004
General Manager, 8th Marketing Department and 4th Marketing Department
April 2005	Corporate Officer; General Manager, 14th Marketing Department,
Mizuho Corporate Bank, Ltd. (currently Mizuho Bank, Ltd.)
April 2007	Managing Corporate Officer, in charge of Global Syndication Unit and Global
Products Unit
April 2010	Vice President; Corporate Officer; General Manager, Internal Audit Division,
Mizuho Financial Group, Ltd.
June 2010	Director; Vice President; Corporate Officer; General Manager,
Internal Audit Division, Mizuho Financial Group, Ltd.
April 2011	Director; Mizuho Financial Group, Ltd.
June 2011	Director; Vice President, IBJ Leasing Company, Limited
April 2013	Director; President, IBJ Leasing Company, Limited
June 2016	Councilor, Mizuho Financial Group, Ltd.
April 2017	Senior Counselor, Nippon Commercial Development Co., Ltd. (incumbent)
June 2017	Director, NS United Kaiun Kaisha, Ltd. (incumbent)
March 2018	Audit & Supervisory Board Member of the Company (incumbent)

MASAKO YAJIMA

Outside Member
Frequency of participation in 2020
Board meetings: 11 times in 11 meetings
Audit & Supervisory Board meetings: 10 times in 10 meetings
Note: Frequency after assuming the position
Based on her extensive international experience as a lawyer and advanced
expertise in corporate legal affairs, has served as an outside auditor of Showa
Denko since 2020. In particular, she undertakes reviews from a legal perspective for the purpose of ensuring the appropriateness and legality of theCompany’s business execution related to globalization and M&A projects.
April 1994	Registered at Dai-Ichi Tokyo Bar Association
Joined Nishimura Law Office (currently Nishimura & Asahi)
March 2001	Registered as a lawyer in the State of New York
April 2004	Assistant Professor, Law School, Keio University
January 2006	Partner, Nishimura & Tokiwa (currently Nishimura & Asahi) (incumbent)
April 2007	Professor, Law School, Keio University (incumbent)
March 2020	Audit & Supervisory Board Member of the Company (incumbent)

Corporate Officers (As of June 30, 2021)
Senior Managing Corporate Officer

JIRO ISHIKAWA

General Manager, Device Solutions Division; Officer in charge of Electronics Materials Project and Chichibu Plant

Managing Corporate Officer

KEIICHI KAMIGUCHI

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

Corporate Officers

YOUICHI TAKEUCHI

Plant Manager, Kawasaki Plant

TAICHI NAGAI

Oita Complex Representative

MASUNORI KAIHO

Officer in charge of Kawasaki, Higashinagahara,
Isesaki, and Tatsuno plants, Production Technology,
Energy & Electricity, SPS Innovation, andResponsible Care departments

TESTUO WADA

General Manager, Institute for Integrated ProductDevelopment

HIROTSUGU FUKUDA

General Manager, Petrochemicals Division; Officer incharge of Oita Complex

EISHI WAKUTSU

General Manager, Corporate Strategy Department

KENJIRO YAMAMASU

General Manager, Electronic Chemicals Division;
Officer in charge of Tokuyama Plant

KAZUO HIRAKURA

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

HIROYUKI EDA

Officer in charge of Aluminum Rolled Products,
Aluminum Specialty Components, and AluminumCan divisions and Oyama and Kitakata plants

MAKOTO TAKEDA

General Manager, Carbon Division

KATSUYUKI TSUJI

General Manager, Advanced Battery Materials Division;
President, Showa Denko Packaging Co., Ltd.

The above list does not include the following three corporate officers,
who concurrently serve as directors.
For more details, please refer to “Directors” (pages 68 and 69).
Chief Executive Officer: KOHEI MORIKAWA
Managing Corporate Officers: H
 IDEHITO TAKAHASHI
MOTOHIRO TAKEUCHI
Corporate Officer: HIROSHI SAKAISHOWA DENKO Report 2021

71

Basic Data

Consolidated 11-Year Summary
Showa Denko K.K. and Consolidated Subsidiaries
Each of the fiscal years ended on December 31 of the year

2010

2011

2012

Net sales

797,189

854,158

739,675

Operating income

38,72347,357

28,108

4.9

5.5

3.8

12,706

16,980

9,368

Financial Highlights (Consolidated)WEB

For the year

Ratio of operating income to sales (%)
Net income (loss) attributable to owners of the parent
Net cash provided by operating activities

66,29369,43753,310Net cash provided by (used in) investing activities(49,074)(38,671)(41,741)

Free cash flow

17,21830,766

11,569Net cash provided by (used in) financing activities(34,494)(17,295)(20,150)

R&D expenditures

20,67021,597

20,633

Capital expenditures

58,03538,79442,503

Depreciation and amortization

50,67849,413

46,232

Total assets

924,484

941,303

933,162

Total net assets

284,965

295,745

314,966

26.1

26.8

29.2

At year-end

Shareholders’ equity ratio
Return on equity (ROE)

5.2

6.9

3.6

Interest-bearing debt*2

351,034

347,308342,262

4.1

5.1

3.0

1.23

1.17

1.09

Return on assets (ROA)
Debt/equity ratio (gross, times)*2

Per share*3 (yen)Net income (loss)—primary*4
Net assets
Cash dividends (applicable to the period)
Demarcation of nonfinancial data varies by item due to the integration process currently underway
for Showa Denko and Showa Denko Materials.
Preparations are underway for relevant data integration and disclosure prior to completing corporate integration in 2023.

Nonfinancial data

11.35

6.26

168.33182.24

3.00

3.00

3.00

2013

2014

2015

Demarcation up to 2019 results

WEB

Number of employees (persons)

Consolidated

10,234

10,577

10,561

Ratio of employees working outside Japan (%)

Consolidated

42.3

43.9

44.4

Number of female managers (persons)Showa Denko

14

18

23

Ratio of female managers (%)

Showa Denko

1.76

2.28

2.99

Showa Denko

2.34

2.48

2.71

Ratio of employees with disabilities (%)
Discharged amounts of greenhouse gases* (kt-CO2)

Showa Denko Group companies in Japan

3,792

3,802

3,826

The amount of water used*4 (million m3)

Showa Denko Group companies in Japan

6,172

6,261

6,004

Final landfill rate of industrial waste*6 (%)

Showa Denko Group companies in Japan

1.30

1.10

0.95

Plastic waste utilization rate* (%)

Showa Denko Group companies in Japan

54.6

53.7

63.7

Release of PRTR-listed substances*6 (t)Showa Denko Group companies in Japan

399

410

461

Number of industrial accidents (including non-lost-time incidents) (cases)

Showa Denko Group companies in Japan*7

7

11

9

6,597

1,664

2,492

ー

ー

243

6

6

Environmental accounting

Showa Denko

Annual numbers of complaints about quality (calculated based on Showa Denko’s criteria) (cases)

Showa Denko Group companies in JapanNote:
The tentative accounting policy applied to calculation of 2017 financial results due toconsolidation of former SGL GE Holding GmbH was finalized when the Company settled
accounts for the third quarter of 2018. Accordingly, the amounts of depreciation andamortization and some other costs for the year ended December 2017 were changed.
The amount in the above table includes those retroactively changed numbers for the year
ended December 2017.

72

8.49
161.47

SHOWA DENKO Report 2021

*1 Excludes amortization of intangible assets resulting from purchase price allocation (PPA)for Showa Denko Materials Co., Ltd.
*2 Interest-bearing debt balance includes debt on lease from the third quarter of 2020, andvalues of the balance for 2019 and the second quarter of 2020 have been retroactively
adjusted accordingly. Also, from the third quarter of 2020, due to Showa Denko Materials
Co., Ltd. becoming a consolidated subsidiary, indication of D/E ratio reflects the following
situation: regarding preferred shares issued by HC Holdings K.K., a subsidiary, posted
under non-controlling interests on the consolidated balance sheets, the value equivalent

Showa Denko made Showa Denko Materials a consolidated subsidiary, andstarted on July 1, 2020 to incorporate Showa Denko Materials’ sales figures
and incomes/losses into its consolidated financial statements.
(Millions of yen)

2013

2014

2015

2016

2017

2018

2019

2020

847,803872,785775,732

671,159

780,387

992,136

906,454973,700

25,953

20,55133,50842,05377,708180,003

120,798(19,449)

3.1

2.4

4.3

6.3

10.0

18.1

13.3

(2.0)

9,065

2,929

921

12,30537,404

111,50373,088(76,304)

63,56566,996

61,17068,94967,235

149,785

78,554109,286(55,203)(46,876)(42,497)(53,754)(29,866)(49,338)(48,156)(930,047)

8,362

20,12018,674

15,19537,369100,447

30,397(820,761)(6,805)(24,856)(21,336)(13,220)(18,370)(61,061)(18,546)896,521

20,43520,362

20,28917,313

18,53919,73520,60534,37944,37047,31844,05939,276

41,787

41,72750,216

69,052

39,77940,67342,137

38,761

38,56539,45937,70460,592*1

985,771

1,009,843

940,494

932,698

1,026,999

1,074,983

1,076,381

2,203,606

345,811

319,087

308,142

311,231368,994

465,340

519,433

718,080

30.6

29.7

31.5

31.8

34.3

41.5

46.4

18.4

3.2

1.0

0.3

4.1

11.5

27.9

15.5

(16.9)

353,686

383,124

368,835

359,929

346,726

287,968

298,524

1,060,146

2.7

2.1

3.4

4.5

7.9

17.1

11.2

(1.2)

1.02

1.20

1.20

1.16

0.94

0.62

0.60

1.84

6.06

1.99

6.45

86.27

262.44758.15501.03(523.06)

201.27209.76

2,076.05

2,080.85

2,473.06

3,057.16

3,423.25

2,782.79

3.00

3.00

3.00

－

80.00*5120.00130.00

65.00

2016

2017

2018

2020

2019
Demarcation for 2020 results

10,146

10,864

10,476

10,813

Consolidated

33,684

40.1

44.0

44.2

45.0

Consolidated

54.6

26

28

33

35

Showa Denko + Showa Denko Materials

73

3.44

3.72

4.60

4.90

Showa Denko + Showa Denko Materials

4.71

2.78

2.64

2.39

2.28

Showa Denko + Showa Denko Materials

2.27

3,868

3,815

3,567

3,532

Showa Denko Group companies in Japan + Showa Denko Materials

3,612

5,872

5,947

5,775

5,884

Showa Denko Group companies in Japan + Showa Denko Materials

6,797

0.32

0.38

0.32

0.35

Showa Denko Group companies in Japan + Showa Denko Materials

0.16

63.6

65.7

65.7

68.6

Showa Denko Group companies in Japan

74.7

406

577

558

643

Showa Denko Group companies in Japan + Showa Denko Materials

542

8

8

9

19

Showa Denko Group companies in Japan + Showa Denko Materials Group companies in Japan*7

29

1,962

1,560

2,708

3,392

Showa Denko + Showa Denko Materials

3,391

172

117

80

51

Showa Denko Group companies in Japan25

to 50% is added to each of interest-bearing debt and shareholders’ equity, in consideration of characteristics of the capital. For interest-bearing debt, net value is indicatedafter excluding cash and deposits and adding debt on lease. Determination of the 50/50
allocation for preferred shares in light of the characteristics of the capital is based on therating of Japan Credit Rating Agency, dated April 21, 2020.
*3 Showa Denko consolidated every ten shares of common stock into one share on July 1,
2016. “Per share” indicators for 2015 and 2016 (except for cash dividends) arecalculated on the basis of the number of outstanding shares after this consolidation.

*4 N
 et income (loss) per share has been computed based on the average number ofshares of common stock outstanding during the respective fiscal year.
*5 S howa Denko resolved payment of dividends of ¥30.00 per share based on the record
date of May 11, 2017 at the extraordinary general meeting of shareholders held in June
2017.
Cash dividends applicable to 2017 include this amount.
*6 T he annual data are shown for the period from April 1 of the year to March 31 of
the next year.
*7 Includes the partner companies.

SHOWA DENKO Report 2021

73

Basic DataManagement’s Discussion and Analysis
Note: The U.S. dollar amounts appearing on the following pages represent the arithmetical results of translating yen into U.S. dollars at the rate of ¥103.50 to US$1.00, the approximate
rate of exchange as at December 31, 2020.

Results of operations

Information by business segment

The Group recorded consolidated net sales of ¥973,700 million(US$9,408 million) in 2020, up 7.4% from the previous year. Sales in
the Inorganics segment fell significantly due to a decrease in shipment volumes and lower prices for graphite electrodes resulting
from lower worldwide production of steel. Sales in the
Petrochemicals, Chemicals, Aluminum, and Others segments also
fell. However, sales in the Showa Denko Materials segment
increased due to consolidation that started at the beginning of thethird quarter of 2020. Sales in the Electronics segment rose slightly.
The cost of sales increased ¥143,221 million, or 21.3%, to¥814,378 million (US$7,868 million), reflecting an increase in sales.
Selling, general and administrative expenses increased ¥64,272
million, or 56.1%, to ¥178,771 million (US$1,727 million), due mainly
to the new consolidation.
R&D expenditures increased ¥13,774 million, or 66.8%, to¥34,379 million (US$332 million), due mainly to the new consolidation.
Operating income of the Group in 2020 fell significantly, and theGroup recorded an operating loss of ¥19,449 million (US$188 million), a deterioration of ¥140,247 million from the previous year. In
the Electronics segment, operating income went up due to anincrease in shipment volumes of hard disk (HD) media and lithiumion battery (LIB) materials.
However, the Inorganics segment recorded a sharp decrease inoperating income due to lower shipment volumes for graphite electrodes and a drop in book value of the inventory of graphite electrodes resulting from a decline in market prices of products andapplication of the lower of cost or market valuation accounting
method. Operating income in the Petrochemicals segment also
decreased due to the impact of the negative spread between purchase and shipment prices of raw naphtha inventory.

A breakdown of net sales and operating income by business segment follows.
Petrochemicals segment
In the Petrochemicals segment, sales dropped by 22.9% from theprevious year, to ¥193,385 million (US$1,868 million). In our olefin
business, sales decreased due to lower market prices for products
including ethylene and propylene resulting from a fall in prices of crude
oil and raw naphtha and a softening supply-demand balance in East
Asia in the first quarter caused by a slowdown in the Chinese economy.
Sales of organic chemicals decreased due to lower shipment volumes
for ethyl acetate and vinyl acetate resulting from the periodic shutdown for maintenance of the plants that produce these products, inaddition to the effect of a drop in market prices of organic chemicals.
The demand for olefin products in East Asia has been recovering
since the second quarter. The Petrochemicals segment recorded
operating income of ¥4,927 million (US$48 million),down 71.4%
from the previous year, due mainly to the remaining impact of thenegative spread between purchase and shipment prices of raw
naphtha inventory caused by a fall in raw naphtha prices.

The Chemicals, Aluminum and Others segments also recorded
falls in profit due to a reduction in shipment volumes of products.

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

Net sales by segment

Operating income (loss) by segment(Billions of yen)(Billions of yen)

Operating income in the Showa Denko Materials segment, which
was recently consolidated, also decreased due to lower demand forcars resulting from the spread of COVID-19 and recording of otherlosses that amounted to about ¥28,000 million, including amortization of goodwill.

1,200

200
150

900

100
600
50
300

0

0

–50
2015

Petrochemicals

2016

2017

ChemicalsElectronics

Showa Denko Materials

Others2018

2019

Inorganics

Aluminum

2020

2015
Petrochemicals

2016

2017

ChemicalsElectronics

Showa Denko Materials

2018

2019

Inorganics

Aluminum

2020

OthersChanging the segmentation: LIB materials was transferred from “Others” to “Electronics” from the year ended December 31, 2017. The segment information for the year ended December 2016 is based on the
new segmentation. SiC epitaxial wafers for power devices were also transferred from “Others” to “Electronics” from the year ended December 31, 2019. The segment information for the year ended December
2018 is based on the new segmentation. Showa Denko made Showa Denko Materials a consolidated subsidiary, and started on July 1, 2020 to incorporate Showa Denko Materials’ sales figures and incomes/
losses into its consolidated financial statements.

74

SHOWA DENKO Report 2021

Electronics segment
In the Electronics segment, sales rose 1.0% over the previous year,to ¥97,415 million (US$941 million). Sales of lithium-ion battery (LIB)
materials increased due to higher shipment volumes of Showa
Denko Packaging’s aluminum laminate film (SPALF™) used as packaging material for LIBs. Sales of compound semiconductors
increased due to higher exports. Sales of HD media fell due to lower
shipment volumes of media for PCs, despite an increase in shipment
volumes of media for use in data centers. For SiC epitaxial wafers,
sales increased due mainly to steady shipment volumes of wafers foruse in railcars. Operating income for the segment increased 87.2%
over the previous year, to ¥9,133 million (US$88 million).
Inorganics segment
In the Inorganics segment, sales decreased 64.0% from the previous year, to ¥82,899 million (US$801 million). Sales of graphite
electrodes dropped significantly due to a further reduction in the
Company’s production and sales volumes of graphite electrodes
aiming to respond to the weakening supply-demand situation forgraphite electrodes in the market resulting from a global slowdown
in steel production and the partial clearance of our customers’
graphite electrode inventory. Sales of ceramics decreased due to afall in sales volumes of abrasives and other products resulting fromlower production of automobiles and steel. Operating income for thesegment recorded a decrease due to a drop in book value for theinventory of graphite electrodes resulting from a decline in market
prices of products and application of the lower of cost or market
valuation accounting method.
As a result, the segment recorded an operating loss of ¥32,300
million (US$312 million), a deterioration of ¥121,556 million from theprevious year.
Aluminum segment
In the Aluminum segment, sales decreased 17.8% from the previous
year, to ¥80,185 million (US$775 million). Sales of rolled products
decreased due to a decline in shipment volumes of high-purity
aluminum foil for capacitors resulting from adjustments in production
in customer industries for capacitors, including the industrial equipment industry and the onboard equipment industry. Sales of aluminum specialty components fell due mainly to a decline in sales
volumes of those for use in the car industry resulting from lower
production of cars worldwide and those for use in office automationequipment and machine tools. Sales of aluminum cans dropped due
to a reduction in the Group’s domestic production capacity and, inthe Vietnamese market, a significant fall in production of beer resulting from restrictions on going outside as a countermeasure against
COVID-19. The segment recorded operating income of ¥421 million(US$4 million), down 75.9% from the previous year.
Showa Denko Materials segment
We started to consolidate Showa Denko Materials Co., Ltd. and its
subsidiaries in the second quarter of 2020, and therefore we createda new segment for reporting. We started to incorporate sales figuresand operating income of the new segment into Showa Denko’s
consolidated financial statements at the beginning of the third quarter. The Showa Denko Materials segment recorded sales of¥302,742 million (US$2,925 million) in 2020. Sales of electronicmaterials remained strong, including abrasives for chemicalmechanical planarization of the surface of semiconductor chips(CMP slurry) and materials for circuit boards including copper-cladlaminates. However, sales of mobility components, including molded
resins, remained sluggish.
As a result, the segment recorded an operating loss of ¥6,303
million (US$61 million). The operating loss for this segment included
amortization of the goodwill of the former Hitachi Chemical, which
was calculated as a result of the acquisition of shares in the former
Hitachi Chemical and other losses amounting to about ¥28,000
million (US$271 million).
Others segment
In the Others segment, sales fell 15.0% from the previous year, to¥107,301 million (US$1,037 million). SHOKO CO., LTD.’s sales
decreased due to a fall in market prices of products and reduced
demand. Operating income for the segment decreased 34.1%, to¥1,199 million (US$12 million).

Information by geographic area
Sales in Japan
Sales in the Petrochemicals segment decreased due to a decline inmarket prices of petrochemical products resulting from lower raw
naphtha prices. Sales in the Chemicals segment fell mainly due tothe spread of COVID-19. In the basic chemicals area, sales
decreased due partly to lower sales of acrylonitrile and liquefied
ammonia resulting from a decline in domestic demand. Sales ofindustrial gases also decreased due partly to a fall in shipment
volumes of carbonic acid gas for beverages and other gases. In theElectronics segment, sales increased due mainly to steady shipment
volumes of SiC epitaxial wafers for use in electric trains. In the
Inorganics segment, sales of graphite electrodes decreased due toa fall in market prices and a decrease in shipment volumes. Sales ofceramics also dropped due partly to lower shipment volumes ofabrasives resulting from a decrease in the production of automobiles
and steel. In the Aluminum segment, sales of high-purity aluminum
foil for capacitors decreased due partly to a reduction in shipment
volumes resulting from production adjustments by industrial equipment manufacturers. Sales of aluminum specialty components also
decreased due to lower shipment volumes of products for use as
automotive parts. Sales of aluminum cans fell due mainly to lower
production capacity. In the Showa Denko Materials segment, sales
increased due to the new consolidation. In the Others segment,
sales fell due to a decline in sales figures for SHOKO CO., LTD.
resulting from a decline in market prices of products and a decreasein demand.
As a result, consolidated sales from operations in Japan increased¥22,132 million, or 4.4%, to ¥530,804 million (US$5,129 million).

SHOWA DENKO Report 2021

75

Basic DataManagement’s Discussion and Analysis

Sales in China
Sales in China rose substantially due to the new consolidation ofShowa Denko Materials Co., Ltd., despite a significant decrease in
shipment volumes of graphite electrodes.
As a result, consolidated sales from operations in China
increased ¥41,679 million, or 53.7% over the previous year, to¥119,360 million (US$1,153 million).
Sales in Asia (excluding Japan and China)
Sales in the Petrochemicals segment in Asia decreased due to a fallin market prices of olefin products, despite higher export volumes
for olefin products. In the Chemicals segment, sales of electronic
chemicals rose due to an increase in shipment volumes of highpurity gases for electronics resulting from a recovery of production in
the semiconductor and display industries in East Asia. Sales of
coating materials also increased due to higher shipment volumes. In
the Electronics segment, sales of HD media fell due to lower shipment volumes of media for PCs. In the Inorganics segment, sales ofgraphite electrodes decreased due to lower demand. In the Showa
Denko Materials segment, sales increased due to the newconsolidation.
As a result, consolidated sales from operations in Asia (excluding
Japan and China) increased ¥63,685 million, or 43.0% over theprevious year, to ¥211,674 million (US$2,045 million).
Sales in the rest of the world
Sales in the rest of the world fell. This was mainly due to a decreasein sales in the Inorganics segment. Sales of graphite electrodes
dropped significantly due to a weakening supply-demand situationin Europe and the United States resulting from a decrease in production of steel and the partial clearance of our customers’ graphite
electrode inventory. However, new consolidation of the Showa
Denko Materials segment significantly increased sales in the rest of
the world.
As a result, consolidated sales from operations in the rest of theworld decreased ¥60,249 million, or 35.0%, to ¥111,862 million(US$1,081 million).

Other income (expenses) and net income
We recorded a non-operating loss of ¥24,522 million, a deteriorationof ¥23,017 million from the previous year. The gap between interest
expenses and interest and dividend income deteriorated ¥4,893
million owing to the expenditure of ¥4,580 million (US$44 million),
due mainly to an increase in interest expenses.
We recorded a gain on the equity in earnings of unconsolidated
subsidiaries and affiliates to which the equity method is applied of¥1,245 million (US$12 million), an increase of ¥497 million due
mainly to the addition of Showa Denko Materials’ unconsolidated

76

SHOWA DENKO Report 2021

subsidiaries and affiliates to which the equity method is applied,
despite a lower dividend from a synthetic resin production company
resulting from a sluggish market.
For foreign exchange gain (losses), the Group recorded foreignexchange losses of ¥2,979 million (US$29 million), an increase inlosses of ¥2,251 million from the previous year, due to the recordingof foreign exchange losses at an HD media manufacturing subsidiary in Taiwan, as a result of the depreciation of U.S. dollar against
the New Taiwan dollar.
In addition, we expended ¥16,100 million as integration-related
expenses, including temporary expenses related to fund raising.
As a result, we recorded an ordinary loss of ¥43,971 million, adeterioration of ¥163,264 million from the previous year. We
recorded an extraordinary loss of ¥24,289 million (net), a deterioration of ¥2,879 million from the previous year.
We recorded a gain of ¥18 million (US$0.2 million), net, on retirement and sales of noncurrent assets, an improvement of ¥4,473
million from the previous year, due mainly to the recording of a gainof ¥2,645 million, net, resulting from sales of land by SHOKO CO.,LTD. and Showa Denko Materials Co., Ltd. This gain was despite
the recording of retirement losses of ¥2,627 million resulting fromremoval of old plants that belonged to the Inorganics and Chemicals
segments, which are significantly smaller than those in the previous
year.
Gain on sales of investment securities (net) increased ¥3,216
million over the previous year, to ¥4,959 million.
We recorded impairment losses of ¥16,602 million (US$160
million) mainly for ceramics and aluminum, up ¥940 million from theprevious year.
We also posted business restructuring expenses of ¥5,908 million (US$57 million), up ¥4,222 million from the previous year, due
mainly to the decision to close a graphite electrode plant in
Meitingen, Germany.
As a result, the Company recorded a net loss before income
taxes and non-controlling interests of ¥68,260 million (US$660
million), a deterioration of ¥166,143 million from the previous year.
Consequently, the Company recorded a net loss attributable toowners of the parent of ¥76,304 million (US$737 million), down
¥149,392 million from the previous year.
Expenses for integration with Showa Denko Materials Co., Ltd.
for full year 2020 amounted to ¥38.9 billion, including advisory fees,
expenses related to fund raising, interest on borrowing related toshare acquisition, and preferred stock dividends.
Expenses for amortization and stepping up of assets belonging
to the Showa Denko Materials segment (which was considered tobe consolidated on June 30, 2020) totaled ¥29.1 billion for thesecond half of 2020: amortization of goodwill, etc. ¥17.2 billion;
adjustment in cost of sales relating to stepping up of inventories¥10.9 billion; and adjustment in non-operating expenses relating toinvestment in and stepping up of other assets ¥1.1 billion.

Financial position
Total assets
Total assets at the end of the year amounted to ¥2,203,606 million(US$21,291 million), an increase of ¥1,127,224 million from the levelat December 31, 2019, due mainly to the increase in cash, deposits,
accounts receivable-trade, inventories, tangible fixed assets, andintangible fixed assets resulting from the consolidation of Showa
Denko Materials Co., Ltd. and its subsidiaries.
Cash and deposits increased ¥76,896 million from the end of theprevious year, to ¥198,982 million (US$1,923 million).
Net property, plant and equipment rose ¥253,951 million, to¥727,119 million (US$7,025 million).
Total investments and other assets increased ¥71,893 million to¥155,399 million.
Liabilities
Total liabilities increased ¥928,577 million to ¥1,485,526 million(US$14,353 million), due mainly to the increase in accounts payabletrade, and the increase in interest-bearing debt resulting from acquisition of shares in the former Hitachi Chemical Company, Ltd.
Interest-bearing debt increased by ¥756,954 million to ¥1,060,146
million (US$10,243 million).

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

Note: We started to include lease liabilities in interest-bearing debts in the third quarter of
2020, and retrospectively adjusted the balance of interest-bearing debts as of theend of 2019 in the same way. Showa Denko made the former Hitachi Chemical
Company, Ltd. a consolidated subsidiary through a tender offer, considered June 30,
2020 as the acquisition date, and consolidated the former Hitachi Chemical’s
financial results into Showa Denko’s consolidated financial statements. For the
impact of this consolidation on Showa Denko’s consolidated balance sheet, pleaserefer to Showa Denko’s consolidated financial statements for the first half of 2020.

Net assets
Net assets at the end of the year amounted to ¥718,080 million(US$6,938 million), up ¥198,647 million from the end of the previous
year, due mainly to an increase in non-controlling interests resulting
from the issuance of preferred shares accompanying the acquisitionof shares in the former Hitachi Chemical Company, Ltd., despite adecrease in retained earnings resulting from posting of net loss
attributable to owners of the parent and the payment of dividends
for 2019.
Capital expenditures
Capital expenditures increased ¥18,836 million to ¥69,052 million(US$667 million) because we conducted a careful selection of
investment projects and significantly reduced capital expenditures.
These actions were taken to cope with a sharp decrease in demand
for graphite electrodes and other products resulting from the spreadof COVID-19 and despite an increase in capital expenditure amounting to ¥23,128 million resulting from the new consolidation of the
Showa Denko Materials segment.

SHOWA DENKO Report 2021

77

Basic Data

Consolidated Balance Sheets
Note: The U.S. dollar amounts appearing on the following pages represent the arithmetical results of translating yen into U.S. dollars at the rate of ¥103.50 to US$1.00,
the approximate rate of exchange as at December 31, 2020.

Thousands of
U.S. dollars

Millions of yen

ASSETS

2020

2019

2020

Current assets¥ 198,982¥ 122,086$ 1,922,535

Notes and accounts receivable

287,900

184,425

2,781,647

Allowance for doubtful accounts(1,092)(754)(10,546)
1,837,757

Cash and deposits

Inventories

190,208

173,667

Other current assets

46,645

17,632450,675

Total current assets

722,644497,057

6,982,068

264,589

223,9972,556,419

Property, plant and equipment
Land
Buildings and structures
Machinery, equipment and vehicles
Leased assets
Construction in progress
Less: Accumulated depreciation
Net property, plant and equipment

351,987

284,225

3,400,845

1,016,307

893,001

9,819,396

34,026

7,759

328,753

38,98018,794

376,619

1,705,890

1,427,777

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

727,119

473,168

7,025,305

Investments and other assets
Customer related assets

152,564

1,631

1,474,053

Investment securities

106,408

71,786

1,028,101

741

334

7,158

Net defined benefit asset

21,184244

204,676

Deferred tax assets

15,883

3,381

153,458

Other

105,60933,5601,020,381(7,747)(8,125)(74,851)394,643

102,810

3,812,976

359,200

3,346

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

Long-term loans

Allowance for doubtful accounts
Total investments and other assets

Goodwill

Total assets

78

SHOWA DENKO Report 2021

Thousands of
U.S. dollars

Millions of yen

LIABILITIES AND NET ASSETS

2020

2020

2019

Current liabilities
Short-term debt¥

72,645¥52,720$701,885

Current portion of long-term debt

56,387

31,943544,803

Notes and accounts payable

191,067

133,730

1,846,058
58,363

Income taxes payable

6,041

6,864

Provision for repairs

28

644

271

Provision for bonuses

8,815

3,050

85,171

Provision for stock payments
Provision for business structure improvement

13

—

129

1,748

1,686

16,887

Other current liabilities

75,32732,238727,795

Total current liabilities

412,071

262,875

3,981,361

Noncurrent liabilities
Long-term debt less current portion

906,365

213,861

8,757,150

Deferred tax liabilities

63,372

7,950

612,287

Provision for repairs

30,612

3,168

2,021

Provision for stock payments

204

200

1,967

Provision for business structure improvement

654

824

6,318

Net defined benefit liability

24,7509,969

239,129

Deferred tax liabilities for land revaluation

30,241

32,150292,185

Other noncurrent liabilities

44,701

27,099431,895

Total noncurrent liabilities

1,073,455

294,074

10,371,543

Contingent liabilities
Net assets
Shareholders’ equity
Capital stock
Authorized, 330,000,000 shares
Issued (2020): 149,711,292 shares

140,564—

1,358,102

Issued (2019): 149,711,292 shares—

140,564—

Capital surplus

78,19078,912755,455

Retained earnings

165,572

249,246

1,599,733

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

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

372,669

457,057

3,600,664

3,728

9,789

36,024

908

433

8,773

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

29,03433,060280,524

Foreign currency translation adjustments

(506)

4,140

(4,892)Remeasurements of defined benefit plans

128(5,114)

1,236

Revaluation reserve for land

Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

33,29242,309321,665

312,119

20,0673,015,644

718,080

519,433

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

SHOWA DENKO Report 2021

79

Basic Data

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

Thousands of
U.S. dollars

Millions of yen
2020

Net sales

2020

2019

¥973,700¥906,454$9,407,728

Cost of sales

814,378

671,157

7,868,386

Gross profit

159,322235,297

1,539,342

178,771

114,499

1,727,256(19,449)

120,798(187,914)

Selling, general and administrative expenses
Operating income (loss)
Other income (expenses)
Interest and dividends income

2,405

2,568

23,237

Equity in earnings of unconsolidated subsidiaries and affiliates

1,245

748

12,029Gain on sales of investment securities, net

2,934

1,743

28,350Loss on valuation of investment securities

(315)

(9)

(3,045)(2,979)(728)(28,778)

Foreign exchange losses
Rent income on noncurrent assets

1,522

1,351

14,702Gain on sales of noncurrent assets, net

2,645

615

25,554

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

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

Impairment loss

(16,602)(15,662)(160,410)

Subsidy income

1,388

65

13,413Business structuring expenses(5,908)(1,686)(57,081)

Financing expenses(16,075)—(155,314)

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

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

97,883(659,521)

Current

6,891

22,196

66,581

Deferred(10,051)386(97,108)(628,994)

Income (loss) before income taxes
Income taxes

Net income (loss)(65,101)

75,300Net income attributable to non-controlling interests

11,203

2,212

108,243

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

Yen
2020

U.S. dollars
2020

2019

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

130.000.63

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

80

SHOWA DENKO Report 2021

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

Thousands of
U.S. dollars

Millions of yen
2020

Net income (loss)

2020

2019

¥(65,101)¥75,300$(628,994)(6,101)

2,333(58,950)

474

(406)

4,581

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

Remeasurements of defined benefit plans, net of tax

5,257

3,131

50,792

54

(59)

518

Other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges

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

Owners of the parent(81,294)

75,187(785,454)

Non-controlling interests

11,107

2,121

107,311

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

SHOWA DENKO Report 2021

81

Basic Data

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

Thousands

Millions of yen

Number ofshares ofcapital stock

Capital stock

Valuation
Deferreddifference on
gains oravailable-for-sale losses on
securities
hedgesCapital surplus Retained earnings Treasury stock

149,711¥140,564¥78,911¥197,717¥(11,659)¥ 7,489¥ 836¥33,281¥ 7,069¥(8,244)¥ 19,377¥465,340

Dividends from surplus

—

—

—

(21,924)

—

—

—

—

—

—

—

(21,924)Net income (loss) attributable toowners of the parent

—

—

—

73,088

—

—

—

—

—

—

—

73,088Purchase of treasury stock

—

—

—

—

(8)

—

—

—

—

—

—

(8)

Disposal of treasury stock

—

—

0

—

3

—

—

—

—

—

—

3

Increase by increase of
consolidated subsidiaries

—

—

—

448

—

—

—

—

—

—

—

448

Decrease by increase ofc­ onsolidated subsidiaries

—

—

—

(367)

—

—

—

—

—

—

—

(367)

Change in treasury shares of theparent arising from transactions
with ­non-controlling shareholders

—

—

1

—

—

—

—

—

—

—

—

1

Changes in liabilities for written put
options over non-controlling interests

—

—

—

—

—

—

—

—

—

—

—

—

Change due to merger

—

—

—

—

—

—

—

—

—

—

—

—

Reversal of revaluation reserve
for land

—

—

—

285

—

—

—

—

—

—

—

285

Net changes of items other thans­ hareholders’ equity

—

—

—

—

—

2,301

(404)

(221)

(2,929)

3,130

690

2,568

Balance as at December 31, 2018

Foreigncurrency
Remeasurements
translationof defined
Noncontrollinginterests
adjustments
benefit plans

Total net assets

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

Dividends from surplus

—

—

—

(11,693)

—

—

—

—

—

—

—

(11,693)Net income (loss) attributable toowners of the parent

—

—

—

(76,304)

—

—

—

—

—

—

—

(76,304)

Balance as at December 31, 2019

Purchase of treasury stock

—

—

—

—

(3)

—

—

—

—

—

—

(3)

Disposal of treasury stock

—

—

(0)

—

11

—

—

—

—

—

—

11

Increase by increase of
consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Decrease by increase of
consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Change in treasury shares of theparent arising from transactions
with ­non-controlling shareholders——(1,392)

—

—

—

—

—

—

—

—

(1,392)Changes in liabilities for written put
options over non-controlling interests

—

—

660

—

—

—

—

—

—

—

—

660

Change due to merger

—

—

10

—

—

—

—

—

—

—

—

10

Reversal of revaluation reserve
for land

—

—

—

4,323

—

—

—

—

—

—

—

4,323

Net changes of items other thans­ hareholders’ equity
Balance as at December 31, 2020

—

—

—

—

—

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

5,241

292,052

283,036

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

Capital stock

Valuation
Deferreddifference on
gains oravailable-for-sale losses on
securities
hedgesCapital surplus Retained earnings Treasury stock

Foreigncurrency
Remeasurements
translationof defined
Noncontrollinginterests
adjustments
benefit plans

Total net assets

Thousands
Number ofshares ofcapital stock

Balance as at December 31, 2019

Thousands of U.S. dollars

Revaluation
reserve for land

149,711 $1,358,102 $762,435 $2,408,175 ¥(112,699) $ 94,584 $4,182 $319,424$ 39,998$(49,406) $  193,881 $5,018,675

Dividends from surplus

—

—

—

(112,975)

—

—

—

—

—

—

—

(112,975)Net income (loss) attributable toowners of the parent

—

—

—

(737,237)

—

—

—

—

—

—

—

(737,237)

Purchase of treasury stock

—

—

—

—

(32)

—

—

—

—

—

—

(32)

Disposal of treasury stock

—

—

(4)

—

106

—

—

—

—

—

—

102

Increase by increase of
consolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Decrease by increase ofc­ onsolidated subsidiaries

—

—

—

—

—

—

—

—

—

—

—

—

Change in treasury shares of theparent arising from transactions
with non-controlling shareholders——(13,449)

—

—

—

—

—

—

—

—

(13,449)

Changes in liabilities for written put
options over non-controlling interests

—

—

6,377

—

—

—

—

—

—

—

—

6,377

Change due to merger

—

—

97

—

—

—

—

—

—

—

—

97

Reversal of revaluation reserve
for land———

41,770

—

—

—

—

—

—

—

41,770Net changes of items other thans­ hareholders’ equity

—

—

—

—

—

(58,560)

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

50,6422,821,763

2,734,646

Balance as at December 31, 2020

82

Revaluation
reserve for land

149,711 $1,358,102 $755,455 $1,599,733 ¥(112,626) $ 36,024 $8,773 $280,524

SHOWA DENKO Report 2021

¥ (4,892) $  1,236$3,015,644 $6,937,973

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

Thousands of
U.S. dollars

Millions of yen
2020

Cash flows from operating activities
Income (loss) before income taxes
Adjustments for:
Depreciation and amortization
Impairment loss
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for business structure improvement
Increase (decrease) in net defined benefit liability
Interest and dividends income
Interest expenses
Financing expenses
Equity in (earnings) losses of unconsolidated subsidiaries and affiliates
Loss (gain) on sales and valuation of investment securities
Loss on retirement of noncurrent assets
Loss (gain) on sales of noncurrent assets
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of investments in subsidiaries resulting in change in the scopeof consolidationProceeds from sales of investments in subsidiaries resulting in change inscope of consolidation
Net decrease (increase) in short-term loans receivable
Payments of long-term loans receivableCollection of long-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term debt
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from share issuance of bonds
Proceeds from issuance of preferred stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling shareholders
Purchase of investments in subsidiaries without change inscope of consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Increase in cash and cash equivalents resulting from newly
consolidated subsidiaries
Decrease in cash and cash equivalents resulting from change inscope of consolidation
Cash and cash equivalents at the end of the year

2020

2019

¥ (68,260)¥ 97,883$ (659,521)

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

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

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

(885)
1,144
(64,500)
7,723
(286)
22,697(53)
53(40,708)
1,251
(864)
5,677

(8,553)
11,058(623,184)
74,623(2,761)
219,298(890,230)(4,851)(8,601,256)

—

529

—

67
(630)
275
(5,425)(930,047)

450
(558)
289
(9,369)(48,156)

650(6,084)
2,658(52,414)(8,985,966)(9,226)702,163(44,134)—
268,503(3)
18(11,674)(1,397)(29,545)
64,396(47,206)
20,000—(9)
0(21,861)(1,329)(89,140)
6,784,181(426,418)—
2,594,227(32)
172(112,794)(13,501)(1,987)—(19,200)(5,740)896,521434
76,194
121,734(2,992)(18,546)(2,388)9,464
112,835(55,459)
8,662,036
4,194
736,169
1,176,175

—

310

—

—

(875)

—

¥197,928¥121,734$ 1,912,344

SHOWA DENKO Report 2021

83

Basic Data

Corporate Data
(As of December 31, 2020)

Company name Showa Denko K.K.

Employees (consolidated)

33,684

Head office

FormedJune 1, 1939

Parent3,515

13-9, Shiba Daimon 1-chome,¥140,564 million

Consolidated subsidiaries

151

Minato-ku, Tokyo 105-8518, Japan

Equity method applied

13

CapitalStock Information(As of June 30, 2021)

Stock information
Authorized number of shares

330,000,000

Number of Shares Outstanding

149,711,292

Number of Shareholders

75,013

Note: Showa Denko consolidated every 10 shares of its common stock into one share on July 1, 2016.

Shareholders (top 10)

Shareholders by sector
Stake in Showa Denko

Shareholder

Number of shares held
(in thousands)

Rate of shareholding(%)

The Master Trust Bank of Japan Ltd. (Trust Account)

11,569

7.92

Custody Bank of Japan, Ltd. (Trust Account)

7,344

5.02

KOREA SECURITIES DEPOSITORY – SAMSUNG

7,016

4.80

GOVERNMENT OF NORWAY

5,221

3.57

Fukoku Mutual Life Insurance Company

4,517

3.09

STATE STREET BANK CLIENT OMNIBUS OM04

2,861

1.96

The Dai-ichi Life Insurance Company, Limited

2,700

1.85

Meiji Yasuda Life Insurance Company

2,512

1.72

Custody Bank of Japan, Ltd. (Trust Account 7)

2,507

1.72

J. P. MORGAN SECURITIES PLC

2,471

1.69

Financial firms............................ 55,349 thousand 36.97%
Foreign corporate entities, etc..... 52,410 thousand 35.01%
Individuals.................................. 29,673 thousand 19.82%
Japanese corporate entities.......... 5,589 thousand

3.73%

Securities firms............................ 3,553 thousand

2.37%

Treasury shares............................ 3,138 thousand

2.10%

Note: Each rate of shareholding was calculated after deducting the number of treasury shares (3,553 thousand)from the number of shares outstanding.

ESG indexes adopting Showa Denko

2021

Sompo Sustainability Index

84

SHOWA DENKO Report 2021

• FTSE Russell (the trading name of FTSE International Limited andFrank Russell Company) confirms that Showa Denko has been
independently assessed according to the FTSE4Good criteria, andhas satisfied the requirements to become a constituent of the
FTSE4Good Index Series. Created by the global index provider
FTSE Russell, the FTSE4Good Index Series is designed to measure
the performance of companies demonstrating strong Environmental,
Social and Governance (ESG) practices. The FTSE4Good indices
are used by a wide variety of market participants to create andassess responsible investment funds and other products.
• THE INCLUSION OF SHOWA DENKO K.K. IN ANY MSCI INDEX,AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICEMARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE ASPONSORSHIP, ENDORSEMENT OR PROMOTION OF SHOWADENKO K.K. BY MSCI OR ANY OF ITS AFFILIATES.
THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI.
MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE
TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES.

Information disclosure system

Business-related and financial information

Sustainability-related information

This report

SHOWA DENKO Report (Showa Denko Group Integrated Report)
Describes various activities of the Showa Denko Group so that its many stakeholders will better understandits efforts for creating value, while providing information concerning both the financial and nonfinancial
performance of the Group.
PDF format
https://www.sdk.co.jp/english/csr/report/csr_report.html

Annual Report
Introduces the Showa Denko Group’sbusiness strategies and financial
information (English only).
https://www.sdk.co.jp/english/ir/library/
annual.html

Showa Denko and Showa Denko Materials independently operate websites
to post details about ESG (environment, society and governance) activities.
The websites will be integrated in the process of corporate integration.
WebsiteSustainability information
Showa Denko
https://www.sdk.co.jp/english/
csr.html

WebsiteIR information
IR page primarily for investors andshareholders that provides updates of theperformance/financial summary, shareprices and other data in a timely manner.

Showa Denko Materials
https://www.mc.showadenko.com/
english/sustainability/index.html

https://www.sdk.co.jp/english/ir.html

Editorial note
Showa Denko and Showa Denko Materials, upholding the purpose of “Change society through the power of chemistry,” are moving forward with
the integration project, considering and implementing various initiatives to achieve the milestone goal of completing the integration as a legal
corporate entity in January 2023. Taking advantage of the highly complementary lineup of technologies to be held by the integrated company,
the two companies intend to create a new business portfolio that can achieve the ideal state of a company with a strong presence in the global
market that contributes to a sustainable global society.
In order to create a report to enable our many stakeholders to easily and appropriately understand our strategies and activities aimed atachieving the ideal state, the editorial team of the 2021 report was formed by assigning members from the two companies. We will work toenhance the content and transparency of the report for the future, addressing issues related to the transition phase toward integration.
We welcome the honest feedback of readers of this report.
August 31, 2021

SHOWA DENKO Report 2021

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Prepared by
CSR & Corporate Communication Office, Showa Denko K.K.
Tel: +81-3-5470-3235
Website: https://www.sdk.co.jp/english/
E-Mail: sdk_prir@showadenko.com