Results Presentationof FY2023 3Q(The 9 Months of the Fiscal Year Ending March 2024)

Securities code: 4061
Denka Co., Ltd
February 7, 2024

Analysis of Underlying Causes and Preventive Measures Related to Safety
and Quality Issues▮ Analysis of underlying causes and preventive measures related to safety and quality issues(Press release) ・December11, 2023: Announcement Concerning the Report of an External Investigation Committee Regarding Improprieties
Related to Third-Party Certification of Resin Products of Denka and Toyo Styrene, an Equity-Method Affiliate
https://www.denka.co.jp/storage/news/pdf/1185/20231211_denka_report_measures.pdf

・January 11, 2024: Final Report on the Investigation of the Chloroprene Monomer Production Equipment Accident at the Omi Plant
https://www.denka.co.jp/storage/news/pdf/1193/20240111_denka_omi_finalreport.pdf

Analysis of Underlying Causes and Preventive Measures
Proximate Cause

Preventive
Measures・ Insufficient security risk assessment and lack of regard for quality compliance・ Insufficient corporate functions related to safety and quality
・ Insufficient mechanisms (systems) related to safety and quality
GovernanceManagement

Processes
Human
Resources
Development

・ Provide ongoing messages and communication from top management regarding
safety and quality
・ Establish a stronger corporate organization for safety and quality; pursuit of grouprisk management
・ Implement stronger group internal controls and support systems for groupcompanies
・ Implement group compliance activities
・ Review and strengthen management systems for safety and quality
・ Review safety and quality policies
・ Establish and enhance audit/monitoring functions
・ Review management systems for safety and quality
・ Review safety and quality risks overall・ Conduct safety, security, and quality training (non-technical skills, compliance)
1

Contents(Introduction) Analysis of Underlying Causes and Preventive Measures Related to Safety and Quality Issues

1

2

3

01

FY2023 3Q Resultsa) Summary(Year on Year)

04b) Operating Income Change Factors

(

“

)

05

c) By Segment

(

“

)

06

d) Change Factors by Segment

(

“

)

07-10

FY2023 Earnings Forecasta) Summary(vs Forecast as of November, Year on Year)12b) By Segment(vs Forecast as of November)13c) Main Reasons for Earnings Forecast Revisions

14d) Investment, Depreciation, R&D by Segment

15e) Shareholder Returns, ROE

16

Earnings Improvement Measures

17-23(Reference) Forecast (By Segment) (Year on Year)

24(Reference) Quarterly Trends (By Segment)25
2

FY2023 3Q Results

3

FY2023 3Q Resultsa) Summary (Year on Year)
Operating income decreased year on year while net income was impacted by the posting of a 2 billion▮ yen gain on the sale of strategic cross-shareholdings and a 6.8 billion yen impairment loss due to thetermination of norovirus vaccine development(¥ billions)

FY2022
3Q Cumulative(Apr-Dec)
ActualFY2023
3Q Cumulative(Apr-Dec)
Actual(Year on
Year)

308.7

292.8

- 15.9Operating Income

26.1

12.6

- 13.5

OperatingMargin

8.4%

4.3%

-

Ordinary Income

23.7

8.5

- 15.3Net Income
Attributable to
Owners of Parent

8.8

Sales

Forex
(¥/$)
Japan Naphtha(¥/Kl)

135.7
79,900*1*2
3.6 *3142.9
68,100

-

4.1%

5.3

*1 Extraordinary losses due to withdrawal from
cement business-17 billion yen (3Q cumulative)*2 Gain on sale of strategic cross-shareholdings+2.0 billion yen (3Q cumulative)*3 Impairment loss on goodwill, etc., related to Icon
Genetics due to termination of norovirus vaccine
development-6.8 billion yen(Reference)
See Notice Concerning Termination of Norovirus

Vaccine Development and Recording of Extraordinary
Loss Related to an Overseas Consolidated Subsidiarypublished today (February 7, 2024) for more
information.

4

FY2023 3Q Resultsb) Operating Income Change Factors (Year on Year)▮

Profit declined significantly due to the significant negative impact of volume difference
due to lower demand
Operating
Income12.6 billion yen Year on Year

1. Volume:

Operating Income Variance Analysis(Year on Year)(Minus)Chloroprene rubber: Lower demand for applications in industry and adhesives;
ongoing adjustments to market inventories in automobiles despite recovery in demand
Spherical alumina, spherical fused silica, and high-performance film: Declining demandfor consumer electronics (smartphones, PCs, home appliances)
Acetylene black: Demand continued to decline due to construction delays on highvoltage cables(Plus)(¥ billions)

26.1

1.
-11.5

FY2022 Volume
3Q
Cumulative(Apr-Dec)
Actual2.
+6.6

Pricing3.
-3.1

Variablecost
difference-13.5 billion yen

Increase in demand for simultaneous test kits for COVID-19 and influenza due to the
spread of influenza

4.
-5.4

12.6

Costs

FY2023
3Q
Cumulative(Apr-Dec)
Actual2. Pricing: (Includes effect of currency fluctuations +7.4)(Plus)
Chloroprene rubber: Benefits of price increases implemented in stages over the last
fiscal year
(Minus)Styrene-related products: Price revision due to decline in raw materials and fuel prices
3. Variable cost difference: (Includes effect of currency fluctuations -4.6)
Despite decrease in raw materials and fuel prices, negative difference due to currency
fluctuations
4. Cost variances
Increased costs for building a system to increase production and for strengthening
sales systems in Electronics & Innovative Products
Increase in repair, labor, and other costs at DPE in the U.S.
Write-down of chloroprene rubber inventory* DPE: Denka Performance Elastomer LLC, a U.S. chloroprene rubber manufacturingsubsidiary5

FY2023 3Q Resultsc) By Segment (Year on Year)▮ Profit declined significantly year on year for Electronics & Innovative Products, as well as

Elastomers & Infrastructure Solutions
Sales (¥billions)

FY2022
FY2023
3Q Cumulative 3Q Cumulative(Apr-Dec) Actual (Apr-Dec) Actual

Incr.
Decr

VolumePricing

Electronics & Innovative
Products

69.8

63.3

- 6.5

- 9.4

+ 2.9

Life Innovation

38.8

38.0

- 0.7

- 0.9

+ 0.2

Elastomers & Infrastructure
Solutions

94.5

85.8

- 8.7

- 15.7+ 7.0

Polymer Solutions

93.9

92.4

- 1.5

+ 2.0

- 3.6

Others

11.7

13.3

+ 1.6

+ 1.6

-

Total

308.7

292.8

-15.9

- 22.4

+ 6.6

Incr.
Decr

VolumePricing

Cost&
OthersOperating Income(¥ billions)

FY2022
FY2023
3Q Cumulative 3Q Cumulative(Apr-Dec) Actual (Apr-Dec) Actual

Electronics & Innovative
Products

13.8

6.7

-

7.1

- 4.5

+ 2.9

- 5.5

Life Innovation

11.5

9.7

-

1.8

- 0.4

+ 0.2

- 1.6

Elastomers & Infrastructure
Solutions

- 0.0

-5.6

-

5.5

- 5.9

+ 7.0

- 6.6

Polymer Solutions

-1.1

0.3

+

1.4

- 0.3

- 3.6

+ 5.3

Others

1.9

1.4

-

0.5

- 0.4

-

- 0.1

Total

26.1

12.6

- 13.5- 11.5

+ 6.6

- 8.5

6

FY2023 3Q Resultsd) Electronics & Innovative Products (Year on Year)▮ Profit declined significantly due to major decrease in demand for consumer electronics (smartphones, PCs, home
appliances) beginning in 3Q of the previous fiscal year, and continued weak demand of high-voltage cables
Operating Income Variance Analysis(Year on Year)

Operating Income by Quarter

13.8-7.1 billion yen

5.6
4.1

4.1

2.1
FY2022
1Q

13.8
-4.5

6.7

4.2

(¥ billions)

+2.9
-5.5

4.
1

6.7

2.8

1.8

FY2023
2Q

3Q

4Q

Sales Trends by Product

1Q

2Q

3Q

Costs: Increase in costs for systems to raise production
and costs to strengthen sales systems

Spherical alumina• Demand for xEVs is recovering; however, demand for consumer electronics plunged in 3Q of last fiscal year andcontinued downward this fiscal year; shipments overall were significantly lower than the previous year

Spherical fused silica
High-performance
film• Demand for consumer electronics, which had plummeted in 3Q of the previous year, continued to decline during thecurrent fiscal year, with shipments falling below the previous year
• Shipments were lower year on year as sales for films used in semiconductors were sluggish, despite the consumptionof market inventories for electrical components during the current fiscal year leading to a gradual recovery indemand for consumer electronics, which had plummeted in 3Q of the previous year
• Despite a recovery in demand for xEVs, demand for high-voltage cables, which had been growing steadily, saw lower
overall shipments than the previous year due to a decline in Europe stemming from construction delays, as well as
sluggish demand in China

Acetylene black

Ceramic substrates(silicon nitride, aluminum
nitride)• Shipments for electric railways were on par with the previous year and shipments of xEVs recovered gradually;
shipments overall were higher than the previous year
7

FY2023 3Q Resultsd) Life Innovation (Year on Year)
Profit decreased, despite an increase in demand for simultaneous test kits for COVID-19 and influenza▮(combo kits) due to the spread of influenza, as we incurred costs for systems to raise production and costs
to strengthen sales systems
Operating Income Variance Analysis(Year on Year)

Operating Income by Quarter

11.5
6.0

-1.8 billion yen

9.7

-0.4

+0.2

-1.6

9.7

5.7

5.0

3.1

2.8
0.5

0.9

FY2022
1Q
2Q

FY2023
1Q
2Q

3Q

11.5

(¥ billions)

4Q

Sales Trends by Product3Q

Costs: Soaring prices of raw materials for influenza
vaccines (chicken eggs), etc.

Influenza vaccine• Assuming that the number of vaccinations would return to normal, we manufactured 10 million
vaccines, an increase from the previous year, but the vaccination rate did not increase as much as
expected and remained at the same level as the previous year

Rapid antigen test kit• Profit increased, as shipments of simultaneous test kits for COVID 19 and influenza (combo kits) werehigher than the previous year due to the spread of influenza• Maintaining the price after downgrading COVID-19 to a Class 5 infectious disease

IVD reagents(Inflammation
markers, etc.)• Shipments largely unchanged from the previous year
8

FY2023 3Q Resultsd) Elastomers & Infrastructure Solutions (Year on Year)▮ Profit decreased significantly with weak demand for chloroprene rubber, cost increases, including repairs

and labor costs at DPE in the U.S., and inventory valuation write-downs

Operating Income Variance Analysis(Year on Year)

Operating Income by Quarter-5.5 billion yen

-0.0

-0.2
FY2022
1Q
2Q

+7.0

-0.0

-5.6

1.5
-1.3

-1.1

-0.7

-0.9

-3.9

3Q

4Q

FY2023
1Q

2Q

3Q

Sales Trends by Product
Chloroprene •rubber
•-5.9

Shipments falling below the previous year due to lower demand from 3Q ofthe previous fiscal year for applications in industry and adhesives, as well as
ongoing adjustments to market inventories in automobiles despite recovery
in demand
Despite intensifying competition with the products of other companies andlower sale price, sale price increases implemented in stages over the last
fiscal year made a positive contribution•

Largely unchanged from last year

Cement•Completed 2,300 yen/ton price increase (as of September 30 2022)
Despite delays, 3,000 yen/ton price increase almost complete (as of July 31,
2023)
Coal prices fell
(FY2022 3Q Cumulative: $392/t ⇒ FY2023 3Q Cumulative: $148/t)

-6.6

-5.6

Costs: Increase in repair, labor, and other costs at DPE in the
U.S., write-down on valuation of chloroprene rubber
inventory*Specialcementadditives•(¥ billions)*Posted write-down due to lower utilization capacity caused by adecrease in demand, as well as higher costs at DPE in the U.S.

[Customs Statistics] Chloroprene rubber (dry + latex) export unit price（US$/t）

5600
5400
5200
5000
4800
4600
4400
4200
4000

2021年

2022年

2023年

Jan
1 Mar
3 May
5 Jul
7 Sep
9 Nov
11 Jan
1 Mar
3 May
5 Jul
7 Sep
9 Nov
11 Jan
1 Mar
3 May
5 Jul
7 Sep
9 Nov
11

月月月月月月月月月月月月月月月月月月

9

FY2023 3Q Resultsd) Polymer Solutions (Year on Year)▮ Profit increased, despite weak demand, since we maintained spreads and fixed costs decreased due to anon-scheduled maintenance year for the styrene monomer plantOperating Income Variance Analysis(Year on Year)

Operating Income by Quarter+1.4 billion yen

-1.1

0.3
-1.1

+5.3

(¥ billions)

0.3

-0.3

0.6
-3.6

-0.1

-0.0

FY2022
1Q
2Q

-0.9
3Q

-0.1

-0.0

4Q

FY2023
1Q
2Q

Sales Trends by ProductMS resin-0.2
3Q

Spreads maintained and fixed costs decreased
due to a non-scheduled maintenance year forthe styrene monomer plant• Shipments for LGP applications for PC monitors, which had been weak since the beginning of the previous
fiscal year, bottomed out in 3Q, with the recovery trend continuing into the current fiscal year, resulting inshipments exceeding the previous year

AS, ABS,• Demand for consumer electronics, cosmetics containers, general merchandise, etc., which began weakening
transparent resins,in 3Q of the previous year, continued to decline in the current fiscal year due to overall sluggishness in theetc.
global economy, and shipments fell below the previous year overall
Food wrapping• Shipments underperformed the previous year due to consumer reluctance stemming from food price hikes
sheets andcontainers
Toyokalon• Shipments were largely unchanged from the previous year stemming from continuing weakness inpurchasing power in Africa and the U.S. due to inflation, which began in the previous fiscal year10

FY2023 Earnings Forecast

11

FY2023 Earnings Forecasta) Summary (vs Forecast as of November, Year on Year)

Revised operating income downward compared with November forecast; left forecast for net income unchanged in▮ consideration of an impairment loss on the termination of norovirus vaccine development and sales of strategic crossshareholdings[Temporary negative impact] -11.1 billion yen
Estimated impact of the Noto Peninsula earthquake: -4.3 billion yen (sales: -1.1 billion yen; costs -2.3 billion yen; extraordinary losses: -1.0 billion yen)
Impairment loss on goodwill, etc.:-6.8 billion (impairment loss on goodwill, etc., related to Icon Genetics due to termination of norovirus vaccine development)

vs Forecast
as ofNovember

FY2022
Actual- 20.0

407.6

-

27.6

11.0

-

8.0

32.3

-

21.3

4.8%

2.9%

-

1.9%

7.9%

-

5.0%

Ordinary Income

12.0

3.0

-

9.0

28.0

-

25.0

Net Income
Attributable to
Owners of Parent

11.0

11.0 *

±

0.0

12.8

-

1.8

FY2023
Forecast as ofNovember

FY2023
Revised Forecast

400.0

380.0

Operating Income

19.0

Operating Margin(¥ billions)

Sales

Forex
(¥/$)
Japan Naphtha(¥/Kl)

143.0
70,300

142.8

135.1

68,50076,500

1H:139.9
2H:145.7

1H65,450
1H71,500

Year on Year

*Impairment loss on goodwill, etc., of -6.8 billion yen related to Icon Genetics due to termination of norovirus vaccine development*Restoration costs for facilities, etc., due to the earthquake (estimated): -1.0 billion yen*Sale of strategic cross-shareholdings

12

FY2023 Earnings Forecastb) By Segment (vs Forecast as of November)▮ Forecast significant profit decline for Electronics & Innovative Products, Elastomers &Infrastructure Solutions

Sales (¥billions)

FY2023
Forecast as ofNovember

FY2023
Revised
Forecast

Incr.
Decr

VolumePricing

Electronics & Innovative Products

90.0

85.0

- 5.0

- 4.5

- 0.5

Life Innovation

45.0

45.0

± 0.0

- 0.5

+ 0.5

Elastomers & Infrastructure
Solutions

120.0

110.0

-10.0

- 10.3+ 0.3

Polymer Solutions

130.0

125.0

- 5.0

- 3.6

- 1.4

Others

15.0

15.0

± 0.0

± 0.0

-

Total

400.0

380.0

-20.0

- 18.9- 1.1

FY2023
Revised
Forecast

Incr.
Decr

VolumePricing

Cost&
OthersOperating Income(¥ billions)

FY2023
Forecast as ofNovemberElectronics & Innovative Products

11.5

8.5

-

3.0

- 1.6

- 0.5

- 0.9

Life Innovation

12.5

12.0

-

0.5

- 1.3

+ 0.5

+ 0.3

Elastomers & Infrastructure
Solutions

-7.5

-10.5

-

3.0

- 1.5

+ 0.3

- 1.7

Polymer Solutions

1.0

-0.5

-

1.5

- 1.1

- 1.4

+ 1.0

Others

1.5

1.5

±

0.0

+ 0.0

-

- 0.0

Total

19.0

11.0

-

8.0

- 5.5

- 1.1

- 1.4
13

FY2023 Earnings Forecastc) Main Reasons for Earnings Forecast Revisions
FY2023 Operating Income Forecast
11.0 billion yen (-8.0 billion yen vs forecast as of November)Operating income(¥ billions)Electronics &Innovative
Products

Forecast
as ofNovember

11.5

Revised
Forecast

8.5

Vs.
Forecast
as ofNovember-3.0

Main Reasons for Earnings Forecast Revisions[Volume -1.6 billion yen]
Acetylene black
・We expect demand to be lower than projected and shipments of high-voltage cables to be lower thanforecast initially due to greater-than-expected construction delays for Europe and lower-than-expecteddemand for xEVs stemming from reduced EV subsidies etc., in Europe
Ceramic substrates (silicon nitride, aluminum nitride)・We expect shipments to be significantly lower due to design changes among major users[Costs -0.9 billion yen]
Cost increase due to lower utilization capacity stemming from lower sales volume, etc.

Life Innovation

12.5

12.0

-0.5

[Volume -1.3 billion yen]
Influenza vaccine
・Vaccine production was 10 million vaccines based on our assumption that numbers would return tonormal; however, vaccination rates did not increase as much as expected, and we forecast lower
performance[Pricing +0.5 billion yen]
COVID-19 rapid antigen test kit
・Sales price expected to remain unchanged, even factoring in the risk of a partial market price decline

Elastomers &Infrastructure
Solutions

-7.5

-10.5

-3.0

[Total -3.3 billion yen estimated impact of the Noto Peninsula earthquake]
Production cutbacks for chloroprene rubber
Sales impact of -1.1 billion yen: Shipment decrease due to production cutback as operations weresuspended through the end of January
Cost impact of -2.3 billion yen: Inventory write-down due to lower production volume, other

Polymer Solutions

1.0

-0.5

-1.5

[Volume -1.1 billion yen]・We forecast a downward swing in response to lower-than-expected demand for the segment as a whole

Others

1.5

1.5

±0.0

Total

19.0

11.0

-8.0
14

FY2023 Earnings Forecastd) Investment, Depreciation, R&D by Segment▮ 3Q cumulative results unchanged from previous year and full year forecast revisions compared with Novenber announcemet,
however the eight-year strategic investment framework of 360 billion yen (Mission2030 target) unchanged
3Q Cumulative(Year on Year)

Investment

Depreciation

R&D

FY2022

FY2023

FY2022

FY2023

FY2022

FY2023

3Q Cumulative(Apr-Dec)
Actual3Q Cumulative(Apr-Dec)
Actual3Q Cumulative(Apr-Dec)
Actual3Q Cumulative(Apr-Dec)
Actual3Q Cumulative(Apr-Dec)
Actual3Q Cumulative(Apr-Dec)
ActualElectronics & Innovative Products

12.2

11.4

6.1

6.6

3.7

4.1

Life Innovation

1.6

3.5

3.1

2.9

3.1

3.5

Elastomers & Infrastructure
Solutions

8.8

9.4

7.3

6.7

2.6

2.1

Polymer Solutions

5.6

3.4

3.5

3.7

2.0

1.8

-

-

0.3

0.2

-

-

28.1

27.6

20.2

20.1

11.3

11.5

(¥ billions)

OthersTotal

Full-Year(vs. Forecast as of November )Investment

Depreciation

R&D

FY2023

FY2023

FY2023

FY2023

FY2023

FY2023

Forecast as ofNovember

Revised
Forecast

Forecast as ofNovember

Revised
Forecast

Forecast as ofNovember

Revised
Forecast

Electronics & Innovative Products

20.0

20.0

9.0

9.0

5.0

5.5

Life Innovation

7.0

5.0

4.0

4.0

6.0

5.0

Elastomers & Infrastructure
Solutions

13.0

13.0

9.0

9.0

3.0

3.0

Polymer Solutions

7.0

5.0

5.0

5.0

2.0

2.5

-

-

0.5

0.5

-

-

47.0

43.0

27.5

27.5

16.0

16.0

Others
Total

15

FY2023 Earnings Forecaste) Shareholder Returns, ROE▮ No revisions to net income forecast compared with November announcement;

dividend forecast remains at 100 yen per share
FY2018ActualNet Income
Dividends per Share*

FY2019ActualFY2020
ActualFY2021
ActualFY2022
ActualFY2023
Forecast(¥ billions)

25.0

22.7

22.8

26.0

12.8

11.0

(¥/share)

120.0

125.0

125.0

145.0

100.0

100.0
Mid-term 60.0
End 40.0

Dividend

10.5

10.8

10.8

12.5

8.6

8.6

42%

48%

47%

48%

68%

78%

(¥ billions)

2.1

-

-

-

-

-

(¥ billions)

12.6

10.8

10.8

12.5

8.6

8.6

50%

48%

47%

48%

68%

78%

(¥ billions)Shareholders Return
Stock PurchaseTotal Return
Total Return Ratio
Depreciation(¥ billions)

22.9

22.5

22.9

23.9

27.0

27.5

Investment & Lending(¥ billions)

32.8

36.9

42.3

35.6

39.4

43.0

Interest Bearing Debt(¥ billions)

112.1

134.3

138.2

137.0

169.7

186.0

Net D/E Ratio

0.40

0.42

0.42

0.40

0.50

0.51

ROIC

7.8%

6.6%

6.8%

7.3%

6.7%

2.0%

ROE

10.3%

9.1%

8.8%

9.4%

4.4%

3.7%
16

Earnings Improvement Measures

17

Earnings Improvement Measures

Strengthen business value creation, including focused short-term measures with clearly defined time
▮ frames and amounts, to meet our promise of short-term performance improvements. Aim to put profit
levels back on a growth trajectory beginning in the second half of FY2024.
Respond to Recovery in Demand

Focused ShortTerm Measures
Business Expansion

Business Value Creation+(1) Drastic measures for the chloroprene rubber business

P19

Make decisions from among improvement measures by the end of 2024

(2) Launch company-wide cost reduction project

P20

Operating income improvement: 3 billion yen per year in FY2025; 5 billion yen per year in FY2026

P21(3) Expand businesses in connection with strategic investments
conducted under the previous management plan, Denka Value-Up
・ICT & Energy xEV-related: Spherical alumina, Thermally conductive sheets, silicon nitride powder,
acetylene black
Semiconductor-related: Spherical fused silica, emitters
・Healthcare diagnosis field: Antigen test kits, IVD reagents(4) Expand new businesses

P22

・New businesses: LDM
Bring to market in second half of FY2024 (sales of 10 billion yen by FY2030)
LCP film Bring to market in FY2025 (sales of 3 billion by FY2030)
TBM
Bring to market in FY2024
New grades: Spherical fused silica, spherical alumina for generative AI+

Human Resource Value Creation, Management Value Creation
18

Earnings Improvement Measures Short-Term Measures(1) Drastic Measures for the Chloroprene Rubber Business▮ Measures to improve the profit of the chloroprene rubber business as the most important management

issue and under consideration after various scrutiny, drastic measures will be decided by the end of 2024.

Details to Study (1): Chloroprene rubber demand trends

・We expect demand to recover to 250,000 tons in FY2024; however, we intend to examine demand trends for signs of recovery to thepre-COVID-19 level of 270,000 tons to 290,000 tons
Global Chloroprene Rubber Demand (Internal Estimates)

30.0(Unit: 10,000 tons)

Global economic
deceleration
25.0

Stable at 270,000-290,000 tons
through FY2019 (pre-COVID-19)
COVID-19

20.0
2014

2016

2018

2020

2022

2024

Details to Study (2): Optimal production capacity

・ The Denka Group intends to study the optimal production capacity for chloroprene rubber at the Omi Plant and DPE (U.S.) from various
perspectives, including exchange rate trends, raw material market conditions, and BCP measures, and based on certain future demand
assumptions

19

Earnings Improvement Measures Short-Term Measures(2) Launch Company-Wide Cost Reduction Project
We expect to achieve results of at least 3 billion yen per year by FY2025 and 5 billion yen per year by▮ FY2026, playing an important role in achieving the operating income targets under our Mission2030
management plan

Cost Reduction Project Initiatives•••

Receive the full commitment of the president
Utilize data analysis and benchmarks from external consulting firms
Increase employee motivation by visualizing results and using incentives

Major Expenses
Direct raw materials costs, sub-materials costs, distribution costs, repair costs, general expenses, etc.

Pursue Best Practices

5 billion yen
3 billion yen
FY2023

FY2024FY2025

FY202620

Earnings Improvement Measures

Business Expansion(3) Expand businesses in connection with strategic investments conducted under the previous
management plan, Denka Value-Up

As our growth strategy under the previous management plan (Denka Value-Up) progresses, we continue to pursue▮ portfolio transformation under the Mission2030 management plan, focusing management resources on our ThreeStar Businesses

ICT＆Energy xEV-Related

ICT＆Energy Semiconductor-Related

Increase Spherical Alumina

Increase Spherical Fused Silica

・Application: Thermal interface materials for LiB cooling mechanisms, OBC (on board chargers)
・In April 2022, we began operations in Singapore to meet the growing demand for spherical alumina inconnection with increasing needs for thermal support for LiBs (key components for EVs) and othercontrol devices (key components of EVs)
・Increase production capacity by 5 times compared to FY2018

・Application: Semiconductor sealants

Launch: April 2022

・Applications: Surface observation application for
semiconductor materials and devices, circuit patterning
application in semiconductor manufacturing lithography
processes, etc.
・Due to miniaturization in semiconductors, demand isincreasing for emitters capable of inspecting and patterning
circuit widths of only a few nanometers; decision toincrease in response to demand

https://www.denka.co.jp/eng/storage/news/pdf/433/20220511_denka_alumina_en.pdf

Relocate to New Facility for Thermally Conductive Sheets・Application: Thermal interface materials for automotive electrical equipment
・Install new production equipment at the Shibukawa Plant; double production capacity

Launch: First half FY2024 (scheduled)https://www.denka.co.jp/eng/storage/news/pdf/376/20211125_denka_shibukawa_en.pdf

Increase Silicon Nitride Powder・Applications: Insulating substrates for xEV inverters in power modules, bearing balls for traction motors
・Reliable quality and cost-effective performance that meet requirements in the xEV (automotive) market:
heat dissipation, light weight, high rigidity, and long useful life
・Expand further to meet the strong xEV market demand

Launch: First half FY2025 (scheduled)

Acetylene Black: New Manufacturing Base in Thailand
・Applications: LiBs for xEVs, high voltage transmission line cables for offshore wind power generation
・In response to the rapidly growing demand, we established a joint venture with SCG Chemicals PublicCompany for the manufacturing and sale of acetylene black
・Decided to construct a plant with an annual production capacity of 11,000 tons

Launch: Second half FY2026 (scheduled)https://www.denka.co.jp/eng/storage/news/pdf/463/20231010_denka_abjv_en.pdf

Launch: First half FY2024 (scheduled)

Increase Emitters

Launch: Second half FY2024 (scheduled)

Healthcare Diagnosis field
Increase Antigen Test Kits, IVD Reagents
Antigen Test Kits

・Full operation underway in response to various infectious
diseases
・Increased production capacity 2.5 times

IVD reagents・Responding to growing global demand through OEM and bulk
supply to major platformers in Europe, the U.S., and China
・Increased production capacity of test reagents by two times

Launch: Second half FY2024 (scheduled)https://www.denka.co.jp/eng/storage/news/pdf/409/20220414_denka_gosen_en.pdf

21

Earnings Improvement Measures Business Expansion(4) Expand New Businesses
Making steady progress in upfront investments; new businesses and new grades should contribute to▮profits beginning in FY2024
Further increases in communications speed and capacity with the spread of 5G, 6G, generative AI, etc.
ProfitBeginning of profit contributions by products that reduce transmission loss
Contribution

and thermal countermeasure with high frequencies
High Frequency Adaptation

Thermal Adaptation(Issue)Responding to increased heat generation associated withhigh frequencies requires materials combining low
thermal expansion, high thermal conductive, and highheat resistance(Issue)Reducing transmission loss associated with high frequencies requires materials
combining low dielectric constant and low dielectric loss tangent

SNECTON (Low Dielectric Macromonomer/LDM)

Spherical fused silica

Market schedule: Second half of FY2024

dielectric loss
tangent

・Applications: Substrates for copper clad laminates (CCL) and Dielectric properties of resins for rigid substrates
Highinterlayer dielectric materials
Epoxy
・Low dielectric constant and low dielectric loss tangent
comparable to PTFE
BMI・Laminate processability and heat resistance superior to PTFE
Modified
・Adaptable to products featuring optimal recipe combining
PPE
SNECTON (LDM) and low dielectric tangent silica

LCP Film (Liquid Crystal Polymer Film)・Applications: Substrates for flexible copper cladlaminates (FCCL)・LCP is a material offering a low dielectric constant andlow dielectric loss tangent
・Film deposition using the T-die method, which issuperior for mass production and film thickness control

Market schedule: FY2025(Sales of 3.0 billion yen in FY2030)

Denka features: (Silica) low thermal expansion,(alumina) high thermal conductive(Standard) High filling property stemming from highsphericity and a wide range of particle sizes
from large to ultra-fine
Expanding demand for silica: Semiconductor sealant applications, etc.

→ Resin substrates for generative AI
Increased adoption of new grades

Hydrocarbons

PTEE≒ SNECTON(LDM)(Sales of 10.0 billion yen in FY2030)
Low

Dielectric Constant

Spherical alumina

Expanding demand for alumina: Thermal interface materials, etc.

High

→ Semiconductor sealants for generative AI
Increased adoption of new grades

TBM (Temporary Bonding Material for Use in
Semiconductor Manufacturing Processes)
・Applications: Temporary fixing heat-resistant adhesive used in backgrinding process to thin wafers in the power device and other nextgeneration semiconductor manufacturing processes
・Adhesive offering peelability with high heat resistanceMarket schedule: FY2024

Pursuing research utilizing proprietary Denka technologies related to high frequencies and thermal, aiming to grow into a new pillar of business

22

Earnings Improvement Measures
Human Resource Value Creation, Management Value Creation
Human Resource Value Creation

Management Value Creation

Diversity, Equity, and Inclusion

Company-Wide Reform Campaign

・Stepped up recruitment to achieve 50% in FY2030 of total manager-level
positions filled by female/foreign national/experienced hire employees

・Identified the causes of past issues, such as wasteful and inefficient work
practices in each workplace; design improvement response measures(Reference) Total ratio of female/foreign national/experienced hires incareer-track employment

FY2021 47% ⇒ FY2022 64% ⇒ FY2023 65%
・Obtained Kurumin certification

Establishment of an Internal Recruitment System

Appointment of Outside Director as Chairperson of
the Nomination and Remuneration Advisory
Committee to Improve Effectiveness・New system established to match the needs of the organization and theindividual, as well as to increase motivation through opportunities to takeon challenging positions voluntarily
・Implemented in FY2023

・Established in 2017, consisting of all outside directors, chairperson, andpresident as a means for the board of directors to receive diverse opinions
and advice from outside directors on important management issues, leading
to transparency and objective management decisions
・Outside director appointed chairperson of the committee beginning thisfiscal year

Established Career Planning Committee

Review of Executive Remuneration System

・Selected human resources candidates for management positions; began
career planning for selected employees and began training.

(1) Increased the ratio of short-term incentives to total compensation toensure that each executive officer is more conscious of achieving
management plan profit targets and acts accordingly(2) Adopted an individual target management and evaluation system as acomponent of compensation to encourage directors and executive
officers in their commitment to achieving the financial and non-financial
targets of the divisions under their purview(3) Introduced a new stock-based compensation plan for executive officers
and directors

Job-Based Employment System
・We intend to introduce a job-based human resources system with clearly
defined duties in FY2024 for greater fairness, transparency, and objectivity.

23

(Reference) Forecast (By Segment) (Year on Year)Sales (¥billions)

FY2022
ActualFY2023
Revised
Forecast

Incr.
Decr

VolumePricing

Electronics & Innovative
Products

93.5

85.0

- 8.5

- 11.8+ 3.2Life Innovation

47.5

45.0

- 2.5

- 2.8

+ 0.2

Elastomers & Infrastructure
Solutions

123.8

110.0

-13.8

- 19.9+ 6.1

Polymer Solutions

127.6

125.0

- 2.6

+ 0.4

- 3.0

Others

15.1

15.0

- 0.1

- 0.1

-

Total

407.6

380.0

-27.6

- 34.2+ 6.6

FY2023
Revised
Forecast

Incr.
Decr

Operating Income(¥ billions)

FY2022
ActualVolumePricing

Cost&
OthersElectronics & Innovative
Products

18.0

8.5

-

9.5

- 5.0

+ 3.2

- 7.7

Life Innovation

14.4

12.0

-

2.4

- 0.1

+ 0.2

- 2.5

Elastomers & Infrastructure
Solutions

- 1.1

-10.5

-

9.4

- 6.9

+ 6.1

- 8.7

Polymer Solutions

-1.2

-0.5

+

0.7

- 0.9

- 3.0

+ 4.7

Others

2.3

1.5

-

0.8

- 0.9

-

+ 0.1

Total

32.3

11.0

- 21.3- 13.8+ 6.6- 14.124

(Reference) Quarterly Trends (By Segment)

Sales (¥billions)

FY2021

FY2022

FY2023

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q
Forecast

Electronics & Innovative
Products

21.0

22.8

22.3

24.0

21.9

25.6

22.3

23.8

19.2

22.5

21.7

21.7

Life Innovation

6.0

19.3

10.9

9.9

6.4

15.5

16.9

8.8

7.2

15.0

15.8

7.0

Elastomers &Infrastructure Solutions

24.6

26.8

26.1

29.3

30.4

32.5

31.6

29.3

28.0

29.2

28.6

24.2

Polymer Solutions

31.8

31.5

29.5

33.9

31.6

32.0

30.3

33.7

29.8

31.7

30.9

32.6

Others

3.5

4.0

4.0

3.7

4.1

2.9

4.7

3.4

3.7

5.1

4.5

1.7

Total

86.7

104.4

92.8

100.9

94.4

108.6

105.8

98.8

87.8

103.5

101.5

87.2

Operating Income(¥ billions)

FY2021

FY2022

FY2023

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q
Forecast

Electronics & Innovative
Products

4.4

4.8

4.6

4.9

4.1

5.6

4.1

4.2

2.1

2.8

1.8

1.8

Life Innovation

0.3

10.4

1.2

3.6

0.5

6.0

5.0

2.8

0.9

5.7

3.1

2.3

Elastomers &Infrastructure Solutions

0.1

-0.0

-1.2

-2.3

-0.2

1.5

-1.3

-1.1

-0.7

-0.9

-3.9

-4.9

Polymer Solutions

2.6

1.8

1.9

1.6

-0.1

-0.0

-0.9

-0.1

-0.0

-0.2

0.6

-0.8

Others

0.4

0.5

0.4

0.2

0.6

0.4

0.9

0.4

0.5

0.5

0.4

0.1

Total

7.7

17.5

7.0

7.9

4.9

13.4

7.8

6.3

2.8

7.7

2.0

-1.6
25

Cautionary statement regarding forward-looking information

業績予想の適切な利用に関する説明（将来に関する記述等についてのご注意）

Target figures in this material are not forecasts of business results.
In addition, any description relating to the future in this material is subject toknown or unknown risks and uncertainties, although it is based on management's
current assumptions and beliefs in light of the information currently available to it.
Please be cautioned that a number of important factors could cause actual results
本資料に掲載されている業績の見通し等の将来に関する記述は、
to differsignificantly from the description in the material.
Such risks and uncertainties include adverse economic conditions, currency
当社が現在入手している情報および合理的であると判断する一定
exchange rate fluctuations, adverse legislative and regulatory developments,
delaysin new product launch, pricing, and product initiatives of competitors,の前提に基づいており、実際の業績等は様々な要因により大きく
the inability of the Company to market existing and new products effectively,interruptionsin production, infringements of the company's intellectual property
異なる可能性があります。
rights and the adverse outcome of material litigation.

26

Inquiries regarding this material

Corporate Communications Dept,
Denka Co., Ltd.
TEL
ＵＲＬ

03-5290-5511
https://www.denka.co.jp/eng/