Denka Report 2018

Denka Report

2018
Integrated Report

Denka Company Limited
www.denka.co.jp/eng/

100% vegetable oil inks that contain no volatileorganic compounds (VOC) were used in theprinting of this report.
0001ⓢ0010 SS

This report was printed using the waterlessprinting method, which produces lesswastewater containing organic compounds.
Printed in Japan

Published in November 2018 by Denka Company Limited

Denka Company Limited

Printed on paper made with wood from forest
thinning. “Morino Chonai-kai” (Forest Neighborhood
Association)̶Supporting sound forest management.

CONTENTS

CONTENTS
Editorial Policy

Taking Action to Achieve Our Mission

performance statistics from the past several fiscal years.

The Denka Report 2018 printed brochure is the first

Denka’s Corporate Philosophy and Value
Creation Process

P3

A Message from the Chairman

P4

The issuance of this report is intended to provide our

Trajectory of Denka’s Growth

P5

stakeholders, including shareholders and investors, with

Denka’s Latest Products and Solutions

P7

a robust communication tool that focuses on conveying

Our Strategies for Securing Sustained Growth
A Message from the President

P9Special Feature 1: Dialogue—What Denka
Must Do to Create New Value over the
Medium to Long Term

P13

E

Special Feature 2:
Denka’s Hydroelectric Power Plants

P19

S

Human Resource Development

P21

S

Prioritization of Safety

P23

S

Social Contribution Activities

P25

G

Corporate Governance

P27

G

Directors and Audit &Supervisory Board Members

P31

Outline of the “Denka Value-Up”
Management Plan (fiscal 2018 – 2022)

P33

Business Portfolio Shift

P35

Introduction of Innovative Processes

P37

Business Strategies

P39

Special Feature 3: Dialogue between Staff in
Charge of Life Science

P50

Resource Allocations

P53

subject to reporting.

have also compiled the Denka Report 2018 PDF edition,

status of CSR activities undertaken by individual business

Guidelines◯ The GRI Standards of the Global Reporting Initiative (GRI)◯T he Environmental Reporting Guidelines 2012 ofJapan’s Ministry of the Environment◯T he International Integrated Reporting Frameworkof the International Integrated Reporting Council

sites by creating dedicated pages on our corporate(IIRC)

website (http://www.denka.co.jp/eng/sustainability/)

Note: The GRI Content Index is posted on the CSR

in place of the former Site Reports. This move is aimed

Section of Denka’s corporate website.

at enhancing the quantity and quality of relevant
information being communicated to our stakeholders.

Inquiries
CSR & Corporate Communications Dept.

Coverage

Denka Company Limited

Fiscal 2017 (April 1 2017 through March 31, 2018) inprinciple; this report includes additional information onsome initiatives undertaken subsequent to the fiscal 2017

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

Overview of the Denka Report 2018 and Other Supplementary Reporting Tools

Financial information

Non-ﬁnancial information

Targeting a broad range of stakeholders, this edition comprehensively features updates on
typical CSR-related topics and the performance data of Denka s ESG-related initiatives tosupplement the Denka Report 2018 printed brochure (integrated report).

Denka Report 2018 PDF edition (expanded version)

Denka Report 2018 printed brochure (integrated report)
The printed brochure is aimed at providing our stakeholders, including shareholders
and investors, with a robust communication tool that focuses on conveying what wehave been doing to create new value over the medium to long term from theviewpoint of addressing ESG issues.

Corporate Information
Company Overview/Stock Information/
Global Network

P54

Consolidated Financial Statements(Summary)

P55

1 Denka Report 2018environmental, social and governance (ESG) issues.

year-end while presenting data on numerical targets for and“Denka Value-Up” Management Plan

consolidation. However, some articles are based on
These articles individually specify the organizations

performance. We have also decided to update the

P17

Denka Group’s business sites within the scope ofdata gleaned outside the scope of consolidation.

typical CSR-related topics and Denka’s environmental

Initiatives to Preserve and Protect
the Environment

E

In general, this report encompasses topics on themedium to long term from the viewpoint of addressing

an expanded version encompassing various updates on

P15

Scope

what we have been doing to create new value over theAlong with the aforementioned printed brochure, weDenka’s Approach to ESG-Oriented
Management
CSR Management

integrated report issued by Denka Company Limited.

Date of publication: November 8, 2018

We update reporting on relevant
activities and detailed data that has notbeen included in the aforementioned
editions.

Website : http://www.denka.co.jp/eng/
Information on CSR activities (website)

Denka Report 20182

Denka’s Corporate Philosophy and Value Creation Process

A Message from the Chairman

The Denka Value, a Corporate Philosophy Reflected
in Denka’s Future-Thinking Business Approach

The Denka Value
STRENGTH

Technologies to createchemical materials

INPUTS（Corporate philosophy）

Six types of capital

OUTCOMES
Contribute to soundsocial development

Denka Mission

Financial capital- Stable ﬁnancial
base

Denka Principles

Manufacturing capital

Technologies to create chemical materials- 14 manufacturingbases serving
growth markets athome and abroadIntellectual capital

Growth Vision
SUSTAINEDGROWTH
Maintain Sustained Growthby Signiﬁcantly Enhancing
Productivity throughInnovative Processes“Taking on the challenge of expanding the
SOUND
GROWTH
Secure Sound Growththrough Work Style
Reforms

The environment
and energy
Create a clean andsafe future society- Company-owned
limestone mines- 10 company-ownedhydroelectric
power plants thatgenerate clean
energySocial capital

High-value-added
infrastructure- Involvement in open
innovation andindustry-academia
initiatives- Community
development andsocial contribution
activities

Satisfy high-proﬁleinfrastructure development
needs in countries
around the world

The「Denka Value-Up」Management Plan
Pursuing growth strategies

3 Denka Report 2018

Shinsuke Yoshitaka

Representative Director, Chairman
Denka Company Limited

The Denka Principles

The Denka Mission

Our Threefold

Human capital

Natural capital

Help people around theworld enhance their
quality of life

Become a Specialty-Fusion
Company with a Strong
Global Presence- Combination oforganic andinorganic
chemistry- 6,000 Group
employees, sincere
and earnest
professionals
operating in regions
around the globe

Healthcare

SPECIALTYFUSION COMPANY

Marking the celebration of its centennial in 2015,
Denka established The Denka Value, a new corporate
philosophy that serves as the foundation for all of its
business activities. I have always believed that theultimate goal of a corporation must be something
nobler than the pursuit of numerical targets andperformance. No corporate citizen is exempt fromits social responsibilities, responsibilities related toenvironmental preservation and the well-being of
the communities in which it operates. Fulfilling these
responsibilities is as essential as accomplishing robust
corporate performance. A corporation’s businessand social missions are equally important and are
inextricably linked. The Denka Value, our new
corporate philosophy, is designed to encapsulate thethoughts described above.
Guided by this philosophy, we are striving to always
be sincere in our dealings while decisively taking on
the challenges that come our way in the course ofbusiness activities. At the same time, we constantly
strive to understand the stakeholder perspective inorder to secure the soundness and transparency of
our corporate management.

Fulﬁlling our social responsibilities

possibilities of chemistry to create new value
and contribute to sound social development.”
For 100 years, the Denka Group has been in thevanguard of the chemical industry’s development
while simultaneously expanding its network
into regions around the world. Throughout thecourse of its history, Denka has maintained a
corporate culture that encourages the pursuitof challenging goals. Such pursuit is our raisond’être. Denka believes that its corporate activities
centered on manufacturing must help facilitate
the sound development of society. The Denka
Mission has thus been identified to summarize
these long-cherished concepts that underlie ourmanufacturing operations, which can be traced
back to Dr. Tsuneichi Fujiyama, one of Denka’sfounders (see also page 5) and have been passed
down by successive predecessors to the present
generation. Over the passage of time, we may shift
the area of our focus or grow into a significantly
larger company. However, our commitment tocreating new value via manufacturing will remainunchanged. That is why we recognize a futurethinking business approach as Denka’s core value.
We will thus remain courageous as we seek
to tap into new business fields while steadfastly
focusing on enhancing our strengths in our area ofspecialty.

To ensure that a sense of purposefulness toward
the betterment of society is shared throughout
our organization, we have established the Denka
Principles, a set of precepts aimed at guiding theactions of all Denka Group employees to fulfill our
corporate responsibilities.
We also intend to foster a corporate culturethat encourages employees to think freely andact autonomously rather than wait for instructions
from management or supervisors. Furthermore,
we embrace a bottom-up approach and work toproactively incorporate employee suggestions. To
that end, a card bearing the Denka Principles isissued to all employees.
Looking ahead, the Denka Group will strive tolive up to the trust and expectations of all of its
stakeholders via the pursuit of ongoing initiatives
aimed at realizing The Denka Value.
We:• Boldly confront challenges with determination andsincerity.
• Think and take action today with the future in mind.
• Deliver new values, and inspire customers throughinnovative monozukuri .*• Respect the environment and create a cheerful
workplace that prioritizes safety.
• Contribute to a better society, whilst taking pride inbeing a trusted corporate citizen.
* Japanese-style craftsmanship

Denka Report 2018

4

Taking Action to Achieve Our Mission
Trajectory of Denka’s Growth

Trajectory of Denka’s Growth—Taking on the Challenge of Expanding the Possibilities of Chemistry for More than a Century
Ever since its founding, Denka has created a wealth of products via the application of calcium carbide
production technologies and pursued the ultimate in Monozukuri (Japanese-style craftsmanship) whilechanging its output in response to the needs of the times.
Dr. Tsuneichi Fujiyama,
the pioneer of the carbide
industry in Japan

Made an entry into
the pharmaceutical ﬁeld

In 1902, Dr. Fujiyama became the ﬁrst inJapan to successfully
manufacture calcium carbide,at a plant in Sankyozawa,
outside the city of Sendai. Thiswas only about ten years after
the worldʼs ﬁrst trial productionof calcium carbide by a Canadian chemist. He
was also the ﬁrst to introduce technology forthe manufacture of calcium cyanamide(nitrogenous limestone) from calcium carbide
into Japan. He developed a steady stream ofcreative new technologies, and opened the
Hokkai Carbide Plant in the city ofTomakomai, Hokkaido, in 1912. His
achievements had a tremendous inﬂuence on
the subsequent growth of Japanʼs chemicalindustry.

1971
Application ofhigh-temperature
control
technologies aswell as ﬁndings
from nitride
research

2003

1983

1996

Launched BOPS
sheet production

Launched the production ofmacromolecular sodium
hyaluronate preparation

2017
Polymer design andprocessing technologies

Technologies to combine
multiple diﬀerent materials

1976

1981

1989

2009

Launched the productionof high-performances adhesives

Launched the productionof thermally conductive sheets

Launched sphericalfused silica ﬁller production

Entered the phosphor businessElectronics& Innovative
Products

Made an entry into the ﬁne ceramics ﬁeld
The Company initiated the production and sale of boron nitrate (BN) by
applying the sintering technology it had accumulated through calcium carbide
and calcium cyanamide manufacturing. The Company also developed various
ﬁne ceramics materials thereafter.

Utilizationof acetylene

Launched CSA production
as well as the special
cement additive business
Cracking prevention technologies(e.g., nonshrink grouting materials)

Launched Σ1000 production
Technologies to enhance
concrete strength

Launched NATOMIC
production
Quick-setting agent
technologies

Made an entry into the ﬁeld of
concrete repair services
Technologies to enhance
concrete durability

Commercialized CO₂-SUICOMTechnologies to reduce CO2
emissions to zeroIn 1915, Denki Kagaku Kogyo
Kabushiki Kaisha (now Denka
Company Limited) wasestablished as the successor to
the Hokkai Carbide Plant. It
started oﬀ producing calcium
carbide and a calcium
cyanamide fertilizer derived
from calcium carbide, withhydroelectric power plants
providing the production
facilities with electricity tosinter limestone and coke.

Organic polymer-related technologies,

Launched ABS resin
including precise synthesis,
production as well as thepolymerization andmanufacture of DENKA
composite techniques
EVA TEX

Launched the calcium cyanamide business

19451974

Period of Expanding Core Businesses
Entered the ﬁeld of acetylene chemistry

1987

1997

2010

Launched the production Launched polystyreneof DENKA MALECCA,
production
an ultra-heat resistantin Singapore
ABS resin

Became the worldʼsbiggest chloroprenerubber producer

Infrastructure& Social
Solutions2015

The environment and energy

High-value-added infrastructure

We have been active in the biotechnology
ﬁeld for nearly 70 years, leveraging Denka
Seikenʼs forward-looking R&D approachand unique technologies, including those
associated with antigen and antibody
reaction. These strengths, in turn, havehelped us create epoch-making
pharmaceutical products, such as vaccinesand diagnostic reagents.

Our research into high-temperature
control and nitride technologies led to thecreation of ﬁne ceramics that, in turn,helped us develop an array of uniquesolutions in the ﬁeld of electronicmaterials, including insulation as well as
thermally and electrically conductive andheat-resistant materials.

Our special cement additive businessbegan with the release of DENKA CSA in
1967. Since then, we have been serving
markets at home and abroad to meetneeds for expansive additives,
quick-setting agents, high-strength
materials and other cutting-edge solutions
in construction and civil engineering ﬁelds.

Looking ahead, we will strive to help enhancepeopleʼs quality of life and, to this end, deliver
solutions to counter infectious diseases andlifestyle diseases while providing cancer drugs
and cancer remedy information services.

Today, our products are used for a broad
range of applications, such as automobiles,
railcars, displays and mobile devices, to help
achieve innovation in terms of energy saving,miniaturization, weight reduction andfunctional upgrading.

In addition to helping reduce environmental
burdens, we are taking on a number ofprojects, such as the development of
infrastructure, the repair of aged concrete
structures and the lengthening of building
durability, in Asia and elsewhere in the world.

Period of Expanding
Specialty Businesses

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

Fine ceramics
Acetylene black
Electronic circuit substrates

20072017

Denka100Developed a robust foundation for the
next 100 years while focusing
management resources on growth ﬁelds

Special cement additives
Fertilizers
Calcium carbide
Fire-resistant materials
Underground drainpipes

Rain gutters

Established Denka
Performance
Elastomer LLC

Healthcare

19752006

Fused silica

We are pursuing technological breakthroughs in suchﬁelds as inorganic chemistry to deliver solutions that help
improve urban infrastructure and enhance peopleʼs living
conditions.

Living& Environment
Products

Three Specialty Businesses

Entered the ﬁeld of acetylene chemistry
The Company entered the acetylene chemicals ﬁeld via theapplication of proprietary technologies that produce
acetylene from calcium carbide. After the release ofacetylene black in 1942, the Company succeeded incommercializing such products as acetic acid, vinyl acetate
and vinyl chloride.

Joint function improvers

Cement2012

1970

Diagnostic reagents

We are supporting the advancement of electronics bybringing together our ﬁne ceramics technologies andorganic ﬁne material technologies.

1991

1962

Vaccines

Electronic packaging materials

1980Entered the petrochemicals
ﬁeld/successfully initiatedthe domestic production ofchloroprene rubber

Antigen andantibody reaction
technologies

Life Innovation
Products

Building on our strength in disease prevention andearly diagnosis, we are striving to tap into newﬁelds, such as cancer drugs and cancer remedy
information services.

1978

Launched the manufactureof calcium carbide andcalcium cyanamide

5 Denka Report 2018

Rebranded to “Denka Company Limited”

1967

1942

Initial Period

2015

Centennial of Denkaʼs founding

1954

Entered the cement businesson a full-scale basis

19151944

Having absorbed TOYO KAGAKU Co., Ltd., which wasestablished in 1949, the Company has introduced a lineup
of unique products designed to help enhance peopleʼswell-being and preserve the global environment.

Application of ﬁndings fromorganic ﬁne material researchin the biotechnology ﬁeld

Adhesiontechnologies

Technological pursuit to enhancefunctionalities of concrete

1915

1979

Having acquired shares in Toshiba
Kagaku Kogyo, which was establishedin 1950 as the Research Institute for
Biology, Physics and Chemistry, theCompany made an entry into
pharmaceutical-related ﬁelds, including
vaccines and diagnostic reagents. In
1982, Toshiba Kagaku Kogyo was
rebranded Denka Seiken Co., Ltd.

Launched the Living& Environment Products Business

Vinyl tapes
Packaging tapes
DENKA DX Film
Food packaging materials

We are leveraging highly sophisticated resin processing
technologies to provide a variety of products that
support increasingly diverse lifestyles and help people
enjoy aﬄuent living.

Chloroprene rubber

Elastomers& Performance
Plastics

Styrene monomer
Poval
Polystyrene resin
ABS resin
Heat-resistant andtransparent resin
SBC resin

We are striving to meet product needs in a variety ofﬁelds, ranging from automobiles to food industries,
while enhancing our strength in polymer chemistry, thearea of our specialty.

2018-

Denka Value-Up

To become a specialty-fusion company

Denka Report 2018

6

Taking Action to Achieve Our Mission
Denka’s Latest Products and Solutions

Denka’s Latest Products and Solutions
Our products are used in various ways to support day-to-day living while
contributing to the sound development of society.

Parentheses indicate relevant business segment.

Healthcare (Life Innovation Products)

Medical inspection
and healthcare
institutions

High-Value-Added Infrastructure (Infrastructure & Social Solutions)Concrete and otherstructures

Hospitals and clinics◯ DENKA PRETASCON
nonshrink grouting◯ Influenza HAvaccines◯ Virological diagnostic
reagents

materials◯ Reagents for measuring
sd LDL-C to determine
heart disease risk

Rubber hoses, belts
and air suspension
systems

Airport runways◯ SUQCEM ultrahighstrength fiberreinforced concrete◯ DENKA HITTPLATE
thermally conductive
insulated metal
substrates◯ Synthetic rubber(chloroprene rubberand DENKA ER)◯ HARDLOC structural
adhesives◯ HARDLOC II adhesive
used for the repair ofconcrete cracking

Hydroelectric power
plant conduits◯ DENKA Σ80N
ultrahigh-strength
concrete◯ Thermally conductive
sheetsSpeakers and motors

Tunnels◯ DENKA NATMIC
quick-setting agent for
shotcrete

LED lights andtelevisions◯ Ultra-pure acetylene
black◯ EIEN prolonging the
lives of concretebuildings◯ TEFKA fluorine-based
films for membrane
structure construction

The Environment and Energy (Electronics & Innovative Products, etc.)
Lithium ion
secondary batteries◯ CO2-SUICOM ecofriendly concrete◯ The Denka Rising
Method used forthe repair of steelreinforced concrete◯ Joint function
improvers(Macromolecularsodium hyaluronate
preparation)◯ Lifestyle diseasediagnostic reagents

Buildings andcondominiums◯ Phosphors◯ Synthetic rubber

Other Key Operations

PCs andsmartphones◯ Semiconductor
encapsulant fillers◯ Thermally conductive
sheets and spacers◯ Dicing tapes andelectronic packaging
materials

Elastomers
Railcars◯D ENKA AN and
SN Plates ceramics
substrates for invertors◯ DENKA ALSINK
aluminum and MMC
compound materials

Styrene monomer
Polymer processing products (rain gutters andindustrial tapes)
CementCalcium carbide-related products
Fertilizers
The above featured exemplars of Denka’s lineup provide a glimpseof the variety of its products and their breadth of application.

7 Denka Report 2018

Denka Report 20188

Our Strategies for Securing Sustained Growth

A Message from the President
Pursuing “Denka ValueUp,” a Management

Plan Aimed at Creatinga Specialty-Fusion
Company

A Message from the President

ahead with work style reforms to improve the well-beingof employees, our most important stakeholder group. To
this end, we will endeavor to help each strike an optimal
work-life balance while promoting diversity.

2. Outline of Denka Value-Up
To address these issues, in April 2018 we launched“Denka Value-Up,” a new management plan that aims
to help us become a “Specialty-Fusion Company”
backed by a robust portfolio of businesses andproducts along with technological strengths andhuman resource capabilities.

ManabuYamamoto(Corporate philosophy)

Representative Director,
President & CEO
Denka Company Limited

innovation and M&A while incorporating cuttingedge facilities. Above all, we are acutely aware of
the importance of human resource development. We
will pursue the specialization of businesses, products,
technologies and human resources. Under the Denka
Value-Up management plan, we aim to raise the ratioof specialty businesses to 90% of our entire businessportfolio by the end of fiscal 2022 (based on theoperating income ratio).
Second, we will strive to enhance our capabilities
to achieve “Sustained Growth.” This requires theenhancement of productivity via the introduction of
innovative processes. Therefore, we will carry out process
reforms in every aspect of our operations ranging from
R&D, production to sales and administrative operations.
Third, we will endeavor to realize “Sound Growth.”
We will focus on securing corporate growth inharmony with stakeholder interests, believing that the
pursuit of stakeholder happiness is a prerequisite forthe survival of the Company.
Our fiscal 2022 target for the ratio of specialty
businesses (based on the operating income ratio)
Commodity

Specialty

10%

90%

Healthcare

25%

Key operations(specialized)

In April 2018, Denka launched “Denka Value-Up,” a new management plan spanning a five-year
period. This plan is intended to help us acquire outstanding competitiveness in the global market
and enhance our resilience to changes in the operating environment. Through the implementationof this plan, we also aim to become an even stronger company backed by a robust portfolioof specialty businesses* and products along with technological strengths and human resource
capabilities. In these ways, we will realize The Denka Value, our corporate philosophy.
Here, I will review the outcomes of Denka100, our previous management plan, while also
providing an outline of the new management plan.

* Denka’s definition of a specialty business: A business that meets or has the potential to meet the following conditions in the near future: 1) boasting
distinctive strengths and product value; 2) possessing resilience to changes in external factors; and 3) commanding an industry-leading market share

1. Review of the Outcomes ofDenka100
1

Major accomplishments

We have assiduously engaged in initiatives centeredon three growth strategies designed to “Create themost optimal production system”; “Scrutinize every costelement”; and “Focus management resources on new
growth drivers and develop next-generation products.”
To create the most optimal production system, we
have expanded our network of overseas production
and R&D bases while increasing the number of overseas
production items. This move was also intended to aid
us in securing greater market share outside Japan.
Thanks to these efforts, we were able to raise theratio of overseas sales to net sales. We also strove toscrutinize every cost element, an effort that allowed us
to achieve our fiscal 2017 cost reduction target of ￥100
billion well ahead of schedule in 2016. Having focused
our management resources on new growth drivers
and the development of next-generation products, wehave succeeded in increasing operating income from
9 Denka Report 2018

our operations in growth fields, namely, healthcare, theenvironment and energy, and infrastructure, from ¥12.9
billion in fiscal 2013 to ¥16.7 billion in fiscal 2017. Today,
operating income from these operations accounts foraround half of Denka’s consolidated operating income.
As a result, the Company’s EBITDA over the course of
five years from fiscal 2013 to 2017 topped ¥250 billion.
This represents an increase of approximately ¥50 billion
compared with EBITDA in the preceding five years,
attesting to the success of our efforts to improve cashgenerating capabilities.
2

 hallenges that must be addressedCgoing forward

Although Denka has been steadily expanding its
operations in growth fields, the pace of expansion
is still lagging behind expectations. Moreover, theprofitability of our key operations is vulnerable toexternal conditions. Accordingly, we need to enhancethe value of these operations via specialization andthe provision of even more sophisticated solutions.
In addition, Denka has much to do to enhance its
operational productivity. We are therefore aware of theimportance of process reforms. Moreover, we must push25%

The environment and energy30%High-value-added
infrastructure

1

Our Threefold Growth Vision

We have established a new growth vision that takes
over our previous strategies under the Denka100
management plan.
First, this vision specifies a “Specialty-Fusion
Company” as our foremost ideal, reflecting our belief
that the pursuit of specialization is an essentialcondition for the survival.

10%2Denka Value-Up Numerical Targets

In line with this management plan, we have identified
numerical targets for the three years from fiscal 2018
through 2020. Specifically, we aim to achieve consolidated
operating income of ¥42 billion and an operating income
ratio of 10% or more in fiscal 2020 while raising the ratio
to sales of specialty businesses to 75% or more in thesame fiscal year (based on the operating income ratio).
Operating income¥42.0 billion

SPECIALTYFUSION COMPANY

Operating income ratio
Operating income

Become aSpecialty-Fusion
Company with a Strong
Global Presence¥36.0 billion
Operating income¥33.7 billion
SUSTAINEDGROWTH
Maintain Sustained
Growth by Signiﬁcantly
Enhancing Productivity
through Innovative
Processes

Our Threefold
Growth Vision

10.0%

Operating income ratio

8.8%

Operating income ratio

SOUND
GROWTH

8.5%

Secure Sound Growththrough Work Style
Reforms

Of course, we also know that needs reflect thetimes and are always evolving. Accordingly, we muststay ahead of trends and deliver a constant streamof new specialty products, rather than rely on a fixed
portfolio of products that only temporarily meetneeds. To this end, we are determined to engage inongoing efforts to create new technologies via open

3

Operating income
from specialty businesses

Operating income
from specialty businesses

Operating income
from specialty businesses¥16.7 billion¥19.5 billion¥31.5 billion

FY2017 results

FY2018 targets

FY2020 targets

Our Growth Strategies

In line with the Denka Value-Up management plan,
we are pursuing two growth strategies.
Denka Report 201810

Our Strategies for Securing Sustained Growth
A Message from the President

Two Growth Strategies
Business Portfolio ShiftA

Introductionof Innovative Processes

Accelerate Growth ofSpecialty Businesses

Production process
reforms

Specialize our key
operations

R&D process reforms

Redeﬁne thepositioning of thecommodity businesses

Operational process
reforms
Work style reforms/Diversity promotion

Business Portfolio Shift

Under the Denka Value-Up management plan, weare striving to transform our business portfolio andaccelerate the specialization of our operations. To thisend, we focus our management resources on threefields with significant growth potential.
Healthcare
We have positioned healthcare as one of the priority
fields that bolster our specialty businesses. With theaim of helping enhance people’s quality of life, weare striving to create and deliver solutions associatedwith disease prevention, early diagnosis, cancer
remedies and genome-based medication. In 2017,
we established the Life Innovation Division to oversee
healthcare-related operations across the Group. We
have also engaged in external collaborations and M&As
in such areas as vaccines and diagnostic reagents.
Moreover, efforts are now under way to expand into
new business fields, including cancer treatment.
Denka Seiken Co., Ltd., a core Group subsidiary
backed by a solid track record spanning nearly
70 years, provides influenza vaccines, a variety ofdiagnostic reagents and other healthcare-related
products. Denka Seiken maintains one of Japan’slargest privately-funded libraries of infectious bacteria
and viruses. In the area of diagnostic reagents, thesubsidiary has developed a reagent to measure
sdLDL-C, which is used as a marker to diagnose thepotential of developing critical diseases. Via its partnercompany in China, Denka Seiken has secured approval
for the production and sale of this reagent from the
Beijing Food and Drug Administration. The subsidiaryalso acquired 510k clearance for this reagent fromthe U.S. Food and Drug Administration. To meetburgeoning demand in the area of heart disease, we will
accelerate the implementation our marketing strategies
targeting regions around the globe.
In the area of cancer treatment, we establishedDenka-KEW Genomics LLC, a cancer remedy
information service provider leveraging gene alteration
analysis technologies, in 2017. Furthermore, we arelooking to secure a contract manufacturer agreement
for G47Δ oncolytic virus. In terms of R&D, we focus onsuch themes as norovirus vaccine development thatutilizes magnICON, a technological platform created by
Icon Genetics GmbH, while undertaking research into
diagnostic reagents for detecting tropical infectious
diseases, including dengue fever and Zika fever, at
Denka Life Innovation Research Private Limited, a key
life science research base in Singapore.
*SBC, MS and IP

11 Denka Report 2018

The environment and energy
In the priority environment and energy field, weare striving to help realize a clean and safe futuresociety and to this end are focusing on developing
new solutions for the automotive industry. Currently,
the Automotive Materials & Solutions Department
is spearheading R&D initiatives being undertaken
throughout the organization to create materials andsolutions that will meet emerging needs for zeroemission vehicles and autonomous driving systems. In
this way, we aim to remain at the vanguard of mediumto long-term trends in the automotive industry.
For example, our ultra-high purity carbon black is
widely used as a cathode conductive agent for lithium
ion secondary batteries(LiBs). We are engaged in an
ongoing effort to create carbon black with even higher
purity while enhancing our technologies to control
particle diameters. Also, we command the world’s
leading market share of silicon nitride. This ceramicmaterial is increasingly sought after for use in power
modules due to its superior thermal conductivity andstrength. Leveraging our sophisticated nitride, molding
and calcining technologies, we are striving to enhance
the reliability of our products while differentiating themfrom competitors in terms of performance. Applying
a cluster strategy, Denka is assiduously introducing
a number of products with competitiveness andpotential in such promising fields as automobiles.
The specialization of key operations
The specialization of key operations is essential toraising the ratio of specialty businesses
Chloroprene rubber accounts for less than 1%of the overall annual production volume of rubbermaterials including natural rubber available on themarket. Although chloroprene rubber is grouped withofferings supporting our key operations, this productdiffers from other rubber materials suited for general
purpose uses as it also has particular suitability forspecific applications. In 2015, we acquired operations
from the U.S.-based DuPont related to Neoprene,that company’s chloroprene rubber. Thanks to thismove, we were able to secure a chloroprene rubber
production facility operating in the United States thatutilizes manufacturing methods different from those
employed by the Omi Plant (Niigata Prefecture),
another key chloroprene rubber production facility.
By coordinating the operations of these two facilities,
we have optimized our production and sales structure
while enhancing resilience against fluctuations in suchexternal factors as raw material prices and foreignexchange rates. We are also proactively developing
specialty-grade chloroprene rubber products in addition
to releasing a novel elastomer (Evolmer) with superior
functions and other new offerings, to increase thenumber of high-value-added items on offer and promote
the specialization of our elastomer business as a whole.
Also, our SBC, MS and IP* have higher value among
other products based on polystyrene and othersynthetic resins, which are typically positioned ascommodities. These products boast unique featuresthat are suited for highly specialized fields, including
light guiding substrates for displays and heatresistance improvers for resins. Focusing on thesefields, we will expand our lineup of highly functional
products, thereby specializing our operations.

SBC: Styrene-butadiene copolymer, also known as CLEAREN
M S: Methyl methacrylate styrene copolymer transparent resin
I P: Styrene-N-phenylmaleimide-maleic anhydride copolymer used as an ingredient for a maleimide-based heat-resistance agent

We are restructuring commodity businesses that are
intrinsically unsuitable for specialization among key
operations
In line with the Denka Value-Up management
plan, we have redefined the positioning of our two
commodity businesses, namely, the calcium carbide
chain and styrene chain.
As for the calcium carbide chain, we have decided
to terminate calcium carbide production at the
Omuta Plant (Fukuoka Prefecture) and consolidated
calcium carbide production at the Omi Plant withthe aim of securing a more efficient, streamlined
production structure with higher profitability. We will
also consolidate the production of acetylene black, aderivative of calcium carbide, at the Chiba Plant (Chiba
Prefecture) and Denka Singapore Pte. Ltd.
With regard to our styrene chain, thoroughgoing cost
reduction efforts are now under way, for example, we
are working in tandem with Maruzen Petrochemical Co.,
Ltd. to optimize steam supply and other utilities. We
have also downsized our ABS resin production facilities
while reviewing the sales portfolio for this product.
This, in turn, has helped us improve profitability.
To create new businesses, we will utilize our technologicalassets backed by a track record spanning a century whileleveraging a robust pool of human resources
Over the course of a long history extending morethan 100 years, Denka has accumulated a variety oftechnologies in addition to developing a robust pool ofhuman resources. Thanks to this, our special cement
additive business, for example, is positioned to utilize
our robust cement sales network while benefittingfrom raw material calcining technologies that havebeen accumulated via kiln operations and used to
produce a broad range of cement-related products.
Moreover, our involvement in the cement business hashelped us reinforce our human resource base. We areaware of the need to better utilize our assets, including
the technologies and human resources that support
each business. We believe that doing so is essential tocreating new businesses that serve future generations.
B

Introduction of Innovative Processes

Achieving production process reforms while realizing
higher product quality
To enhance productivity, we will introduce
automation and robotics technologies at all of our
production facilities and streamline our production
processes. In particular, our plans call for promoting
the utilization of AI and IoT by designating model
production sites. We will then roll out best practices
proven at these sites to other facilities. Currently,
initiatives to create a “smart factory” are under way at
our resin plant in Singapore under the auspices of theSingaporean government. These initiatives include big
data analysis employing operational data from steam
traps as well as electrical current data associatedwith electrical machinery. This analysis is expected toreduce energy loss and help predict abnormalities.
Of course, we must also spare no effort in ensuringthat we deserve the trust customers place in us withregard to product quality and safety. In recent years, anumber of quality-related incidents have been exposedat major Japanese corporations. As a manufacturer,
Denka is determined to not let any such incident
happen and is striving to enhance the level of its quality
assurance on various fronts.

Nurturing employees equipped with specializedskills via the pursuit of work style reforms, workforce
diversity and human resource development
In addition to improving operational productivity,
we will nurture human resources equipped withspecialized skills and, to this end, pursue such initiatives
as work style reforms, workforce diversity and humanresource development. These initiatives are intended
to enhance employee happiness, shift our focus from“quantity” to “quality” in terms of working hours andfacilitate innovation.
4

Our Resource Allocation Plan

We aim to steadily return profits yielded by our
five-year initiatives executed under the “Denka ValueUp” management plan to shareholders. Specifically,
we remain committed to attaining the targeted total
shareholder return ratio of 50%. We have also set
aside a total of ¥200 billion to undertake investment
for securing further growth over the course of five
years. (Of this, ¥75 billion will be appropriated forstrategic investment, such as M&A.)
In these ways, we will work to ensure our financial
soundness while maximizing shareholder returns
and the resources available for forward-looking
strategic investments. By doing so, we will realize theobjectives of the Denka Value-Up management plan.
5

In Closing

We have defined “Taking on the challenge of
expanding the possibilities of chemistry to create newvalue and contribute to sound social development”
as the Denka Mission. As a chemical manufacturer,
we are acutely aware of the role we must fulfill tohelp resolve issues society is now confronting in
the furtherance of such international initiatives as
the United Nations Sustainable Development Goals(SDGs). Moreover, we are determined to fully assume
our social responsibilities in terms of the prioritizationof safety, the preservation of the environment, thedevelopment of human resources and contribution
to communities in which we operate. We will thus
become a specialty-fusion company capable ofachieving sound and sustained growth.
We sincerely ask for your ongoing support for ourGroup operations.
On Saturday, March 3, 2018, an accident occurred at
the Omuta Plant involving the collapse of raw materialbulk bags that resulted in the death of an employee.
Following a major accident in 2013 at the Omi Plant,
we vowed to prevent the recurrence of such incidents.
Since then, we have positioned the prioritization of safety
as the foundation of all our business activities and havepushed forward safety countermeasures. Although we
believed that these efforts were steadily progressing, weare now sobered by the knowledge that another major
accident could occur and deeply grieve the loss of ourvalued colleague.
As president, I am committed to spearheading thethoroughgoing implementation of measures to prevent
accidents of this kind. Accordingly, we have rallied theCompany’s overall strengths to implement said measures.
Denka believes that placing the utmost priority on safety
is a definite prerequisite for the survival of a company
within society. With every employee taking safety toheart, we will humbly go back to the basics and review
our routine actions in the course of day-to-day operations
as part of efforts that prioritize safety in every aspect ofour corporate activities.
Denka Report 201812

Our Strategies for Securing Sustained Growth

Special Feature 1： Dialogue—What Denka Must Do to Create New
Value over the Medium to Long Term
Satisfying Stakeholder Expectations via the Pursuit of Denka Value-Up
Mr. Atsushi Ikeda from Citigroup and Denka President Manabu
Yamamoto engaged in the following dialogue, which provides aninsight into Yamamoto’s thoughts regarding the implementation of
the plan while revealing Mr. Ikeda’s assessment of Denka’s efforts toenhance its corporate value.

Director, Stock Research
Dept., Citigroup Global
Markets Japan Inc.

Atsushi
Ikeda

Representative Director,
President & CEO
Denka Company Limited

ManabuYamamoto

2005 Graduated Keio University’s Graduate
School of Science and Technology, Schoolof Science for Open and Environmental Systems
Jointed Citigroup Global Markets Japan,
charged with serving 22 clients in chemicaland synthetic fiber sectors

Although the Denka100 management
plan yielded robust outcomes, fromthis point forward we need to exert
more control. (Yamamoto)
Yamamoto： In fiscal 2017, we could see that the
Denka100 growth strategies launched in 2013 had
gradually picked up momentum and were yielding
positive outcomes. Moreover, we began implementing
some Denka Value-Up initiatives aimed at promoting
specialization ahead of their scheduled fiscal 2018
launch. This also affected our business results positively.
However, we must note that the favorable market
environment served as a tailwind. Taking this factor into
account, we really need to exert a bit more control andbe vigilant as we implement initiatives through the courseof fiscal 2018 and later.
Ikeda： Denka has certainly succeeded in securing
greater market presence by maximizing the positiveeffect of its 2015 acquisition of DuPont’s chloroprenerubber business. The Company was also successful in
its acquisition of Icon Genetics GmbH, striking a pivotal
M&A deal that, in turn, helped it develop a robust
foundation for promoting specialization.
Yamamoto： Although we clearly distinguish “specialty
businesses” from “key operations,” we also aim to
specialize some “keyoperations,” especiallythose associated withchloroprene rubber andhighly functional styrenebased resin. Simultaneously,
we intend to promote thedownsizing and streamliningof “commodity businesses”
that are intrinsicallyunsuitable for specialization.
Ikeda： Taking a look at Denka’s specialty businesses,
the Company boasts technological strength in thehealthcare field backed by a track record spanning
13 Denka Report 2018nearly 70 years. This track record is a testament to thehigh reliability of Denka products in this field. In the last
two years, Denka also achieved solid growth in salesof electronic materials, a field in which the Company
already commands significant market share. With regard
to key operations, Denka has seized a 40% share of thechloroprene rubber market. This has fed the expectationsof a growing number of buyers that Denka will become
the chloroprene rubber specialist. I think that this statuswill positively affect Denka’s stock prices.

There are few corporations capableof placing the utmost priority on the
pursuit of vision. (Ikeda)
Yamamoto： Our threefold growth vision serves as acornerstone for the Denka Value-Up management planand is intended as a shared vision for all employees. We
encourage employees to inspire each other to act torealize the ideals defined by this vision. By doing so, we
ultimately aim to garner worldwide recognition, creating
a company that all workers can be proud of.
Ikeda：Denka’s management places significant emphasis
on sharing its vision with employees in the course of
the implementation of its management plan. I find thisapproach to be highly compelling as it indicates theCompany has well-thought-out policies with regard to
recruiting and nurturing competent and spirited humanresources. While the majority of corporations tend toprioritize quantitative targets, Denka places its utmost
priority on the pursuit of its vision. I don’t think many
corporations can say the same. The other day, I toured
Denka’s plant in Singapore and was able to take a close
look at its production frontlines. Having seen a number ofoperators working enthusiastically, I was convinced that
the Company’s vision is shared by all.
Yamamoto： I believe that it is essential to ensurethat management and employees share a common
understanding about the future direction of initiatives
while they are under way. Accordingly, I try to visit
business sites and production frontlines as often as

Dialoguepossible to directly interact with employees. Not only
do I visit Denka’s business sites, I also tour affiliates andoverseas subsidiaries and endeavor to foster a senseof unity among their frontline employees. Throughthese efforts, I intend to provide employees with thedirect and accurate explanation of the Denka ValueUp management plan. Furthermore, I am involved in the
production of video messages aimed at ensuring that thegoals of this management plan
are known by all employees.
Ikeda：It is essential for frontline
workers to understand where
the Company is heading, its
strengths and how it is goingto enhance these strengths.
Moreover, they need tounderstand how their tasks
relate to the Company’s overall
strategies. Once they areaware of what they actually can and should do to help theCompany achieve its goals, their mindset will change andno longer be hindered by the barriers defining sections.
I expect that this will, in turn, foster willingness to lend
generous assistance to initiatives undertaken by otherbusiness units within the Group.

Securing staff equipped with specialized skills
is the key to the success of the Denka ValueUp management plan. (Ikeda & Yamamoto)

Yamamoto： Denka’s businesses must be supported
by employees with a strong sense of ownershipabout specialization. When the organization is lacking
such employees, its business can quickly become
obsolete no matter how special it might have been.
Conversely, a group of employees who have highawareness of specialization is capable of developing
specialty businesses even from “commodity
businesses.”
Ikeda： Preventing a brain drain and protecting
proprietary technologies are also important tospecialization. Therefore, it is particularly essential
to help those engaged in engineering and R&D toenhance their motivation. In addition, the accuracyof market intelligence is ever more crucial when
specialized businesses have come to account for asignificant portion of a corporation’s business portfolio.
Such a corporation must remain on-trend with sectorspecific business conditions while staying vigilant
against changes under way in the industry. Also, a newtechnology emerging from a totally different businesssector may grow into the game changer. I therefore
believe that Denka should pay close attention totechnological trends in other sectors.
Yamamoto： I agree. To this end, we need todevelop a structure supported by employees whoare committed to proactively collecting market
intelligence. This also relates to the importance ofwork style reforms to enhance employee motivation.
I expect that the success of the Denka Value-Upmanagement plan will largely hinge on our initiatives
regarding these matters.

We seek to become a specialty
chemical company capable of achieving
long-term growth. (Yamamoto)
Yamamoto： From the viewpoint of securing long-term
growth, we recognize that addressing environmental,social and governance (ESG) issues is an integral partof our corporate activities. With this mind, we aim toincrease the proportion of clean energy in overall energy
consumption associated with our business activities.
This is an example of initiatives we are undertaking
to mitigate the potential negative social impact of ouroperations. We are also endeavoring to positively impact
society by, for example, donating Ebola virus rapid
diagnostic test kits to the Democratic Republic of Congo.
In these ways, we are actively delivering our solutions topeople around the world to help resolve issues society is
now confronting in the healthcare and other fields.
Ikeda：Denka is one of few domestic corporations thatcan boast its own extensive network of hydroelectric
power plants. The Company also delivers a broad
range of materials designed to facilitate energy saving.
I think that Denka should be able to attract investment
by letting investors know these factors.
In addition, Denka boasts such unique products as
Ebola virus rapid diagnostic test kits while providing
vaccines for influenza and other products. No otherchemical company can claim a product lineup of
this kind. Because of this, I believe that Denka hasan advantage over competitors in terms of providing
solutions for social issues.
Yamamoto：With regard to governance, three outside
directors attend Denka’s Board of Directors meetings,
proactively contributing their insight to management
and helping all other board members engage in active
discussions.
We remain committed to a targeted total
shareholder return ratio of 50% as well as a targeted
dividend payout ratio of 40%. The value of full-year
dividends for fiscal 2017 has been set in line with this
dividend payout ratio. For fiscal 2018, our plans call for
maintaining the same level of dividends.
Ikeda： I think that Denka’s approach to shareholder
returns is well-balanced. Aiming for a total shareholder
return ratio of 50% is plausible in light of the compositionof the Company’s free cash flows and its investment
fields. Furthermore, Denka’s commitment to a dividend
payout ratio of 40% would help the Company win theconfidence of investors, especially those overseas. I
therefore suppose that Denka’s commitment to thistarget will help it win investor
confidence.
Y a m a m o t o： I n t e r m s o fgarnering global recognition,
Denka has a long way to go.
Over the long term, we will
strive to become a specialty
chemical company known
for its unparalleled strength
in markets around the world.
(Held in June 2018 at Denka’sHead Office)Denka Report 201814

Denka’s Approach to ESG-Oriented Management

CSR Management

CSR Management

Denka Group CSR Basic Policies

We will remain committed

to fulfilling our social
responsibilities with the aim ofliving up to The Denka Value,

our corporate philosophy, as
well as society’s expectations
and trust.

Denka Group CSR Basic Policies

Addressing CSR Materiality Issues

Denka hereby establishes the Denka GroupCSR Basic Policies, which are designed to provide
underlying principles with regard to the practiceof The Denka Value, a corporate philosophy, fromthe perspective of addressing environmental,social and governance (ESG) issues.
As the cornerstone of all business activities,
The Denka Value consists of the Denka Mission
and the Denka Principles, both of which highlight
our aspiration to contribute to the sounddevelopment and betterment of society. We arethus striving to embody these precepts, believingthat contributing to a sustainable society is an
integral part of our corporate activities andis essential to fulfilling our corporate social
responsibilities.
With this in mind, we have identified CSR
materiality issues through stakeholder dialogue,
specifying the areas in which all Group members
must focus their efforts in terms of CSR activities.
Taking a future-thinking approach, we are also
working in tandem with our business partners
to contribute to the United Nations Sustainable
Development Goals (SDGs) and other initiatives
aimed at addressing issues the whole of humanity
is now confronting.
Furthermore, we recognize that strict
compliance is a prerequisite for continued
business operations. Accordingly, we will strive todevelop an effective governance system, strictly
complying with laws, regulations and internationalrules in the course of operations while maintaining
a strong moral compass.
Taking the aforementioned factors into account,
we will practice the ten principles described on
page 16 in furtherance of our efforts to fulfill our
responsibilities as a corporate citizen.

Denka has carefully selected its materiality
issues based on pressing challenges society is
now facing and in reference to external inputs,
including United Nations SDGs; guidelines
compiled by the GRI; the ISO 26000 and otherinternational standards; as well as prevailing ESG
investment criteria and insights the Company has
gained through its involvement in the CDP and
CSR procurement. Moreover, these items were
examined and evaluated with due consideration
given to stakeholders’ expectations and theirimpact on our operations.
The status of and action plans involving theCompany’s initiatives to address CSR materiality
issues are reported to the Management
Committee biannually. Looking ahead, we will
also review these materiality issues as necessary.

SDGs Relevant to Our Materiality
Issues
While Denka classifies its CSR materiality
issues into six categories and 13 items that are
critical in its role as a chemical manufacturer
committed to fulfilling its social responsibilities,
the United Nations SDGs also have relevancewhen considering these issues. The relationshipbetween Denka’s CSR materiality issues and theSDGs is presented in the chart on page 16. Denka
is thus determined to contribute to SDGs in thecourse of addressing its materiality issues.

E

Environmental preservationand protection

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

S

Value creation via manufacturing

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

S

Prioritization of safety

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

S

Relationships of trustwith customers

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

S

Diversity and work-life balance

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

S

Respect for human rights

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

S

Information disclosureand stakeholder dialogue

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

S

Social contribution

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

G Fair business conduct

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

G Risk Management

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

Relationship between Denka’s Materiality Issues and SDGs
Relevant SDGs
Category

Prioritization of safety

Products andFulfill manufacturers’
responsibilities

Provide solutions

Reinforce security and disaster prevention
measures
Maintain occupational safety and health while creating
a vibrant and comfortable workplace environment
Create new products and technologies
that contribute to sound social
development

technologies
Ensure product safety

Corporate governanceCorporate conduct
deserving stakeholder
trust

Ensure that our corporate philosophy
is embraced by every employee andtransform our corporate culture
Improve corporate governance
Maintain strict compliance with laws,
regulations and corporate ethics
Nurture human resources

Employee happiness

Embrace diversity and offer equal
opportunities
Help strike a work-life balance andpromote employee healthPrevent air, water, soil and otherenvironmental pollution

Environmental
preservation

Dialogue with society
Partnership

15 Denka Report 2018

CSR Materiality Issues (13 items)

Promote climate change countermeasures(curb global warming, reduce GHG
emissions and adapt to climate changes)
Maintain appropriate and timely disclosureof corporate information and establish
bidirectional communications

Denka Report 201816

Denka’s Approach to ESG-Oriented Management

E

E Initiatives to Preserve and Protect the Environment●

Initiatives to Preserve and Protect the Environment❷Developing Eco-Friendly Products

Taking a proactive stance toward the preventionof global warming and the preservation of the

global environment, we strive to promote theuse of clean energy as well as the developmentof eco-friendly products, thereby contributing to
the sustainable development of society.

The New Omigawa Power Plant under construction

The Denka Group is proactively engaging ininitiatives to help preserve the global environment.
In this section, we introduce initiatives in thefollowing three areas.
❶Promoting the use of clean energy❷Developing eco-friendly products❸Curbing greenhouse gas (GHG) emissions❶Promoting the Use of Clean Energy

Output ■Solar(1,000kW)
200■Biomass

150■Hydroelectric

153

125

117

❸Curbing Greenhouse GHG Emissions

100
50
0

FY2005FY2018FY2030Note: The calculation of the figures presented above incorporated 50%of annual output from power plants run by Kurobegawa Electric Power
Company (jointly owned with Hokuriku Electric Power Company).

Hydroelectric Power Plants around the
Omi Plant and Their Maximum Output
Itoigawa

Omigawa
Omi

Oyashirazu

Kajiyashiki

Hayakawa

Umikawamaaw
ek

17 Denka Report 2018

Long-Term Outlook for Our Renewable Energy
Generation Capacities

Hi

Since its founding, Denka has promoted the greateruse of clean energy and to this end has continually
expanded its network of hydroelectric power plants.
Today, the Company owns hydroelectric power plants at
10 locations near its Omi Plant in Itoigawa City, Niigata
Prefecture. In addition, Kurobegawa Electric Power
Company, a joint venture owned by Denka and Hokuriku
Electric Power Company, maintains hydroelectricfacilities in five locations in the region. Together, themaximum output of these 15 plants totals approximately
120,000kW, enough to power approximately 200,000
regular households on an annual basis. The extent of its
power generation capacity sets Denka apart from otherdomestic private chemical companies.
Meanwhile, at our thermal power plants, which arebeing converted to run on natural gas instead of heavy oil,
we are working to introduce high-efficiency gas turbine
generators. We also utilize heat from cement production
for power generation while employing biomass boilers
fed by scrap wood for the same purpose. These efforts
have helped us reduce CO2 emissions attributable toenergy use. Also, the Shibukawa and Isesaki plants(both in Gunma Prefecture) have been selling electricity
generated by their mega solar power generation facilities
to an electric power company.
Hydroelectric Power Plant Construction Ongoing in
Two Locations
We are presently in the midst of constructing two newhydroelectric power plants. One, the New Omigawa
Power Plant (maximum output: approximately 8,000kW), is under construction upstream of the Omigawa
Power Plant. Thus far, conduit tunnels have been installed
and work is ongoing on such facilities as water intake
facilities and power plant buildings. The second project,
the New Himekawa Power Plant No. 6 (maximum output:
approximately 27,500kW), is being constructed by
Kurobegawa Electric Power Company. We expect that thecompletion of these power plants and the impact of ourinitiatives to improve power generation efficiency will yielda 40,000 ton reduction in our annual CO2 emissions.
Denka intends to step up the use of clean energy,
aiming to raise the ratio of renewable energy to overall
in-house energy consumption (including electricity soldexternally) to 50% by the end of fiscal 2030.

Omi (Tomi)Omi Plant
Plant
1

Kubiki-Ono

2
12

14

9

Nechi
16

10
10
8
7

Kotaki
11
17

13

4
Hiraiwa3

In line with the Denka Value-Up management plan, ourinitiatives aimed at specializing our operations include
the development of products and technologies that help
promote energy saving and the use of renewable energy.
To this end, we employ our expertise in chemistry
and manufacturing, with the aim of addressing global
warming, a universal issue society is now confronting.
For example, our thermal control technologies areused in such electric vehicle (EV) components as driving
parts, while our electro-conductive materials are used in
the batteries of such vehicles. As such, we are providing
essential technologies supporting EVs, a type of vehicle
that is expected to become increasingly popular incountries around the globe.
Other Denka offerings serving the automotive industry
include ceramics-based electronic circuit substrates(DENKA SNP and ANP) for power
control units and electro-conductive
materials for lithium ion secondary
batteries (acetylene black). Bothof these products are supporting
Ceramics-based
innovation in terms of creating ecoelectronic circuit
substratefriendly automotive technologies.

5
6

Having set reduction targets for total GHG emissions aswell as the CO2 emissions intensity index attributable toenergy sources, we are systematically implementing global
warming countermeasures by engaging in energy-saving
initiatives and promoting the use of renewable energy.
Thanks to these efforts, the London-based international
non-profit organization CDP granted Denka an “A-” rating
in its Climate Change Report 2017, the highest such rating
given to Japanese chemical companies. Looking forward,
the Company has begun discussing the formulation of
medium- to long-term targets (for 2030 and 2050) in lightof the “2°C target” proposed in the Paris Agreement.
Our fiscal 2017 GHG emissions, which encompass
Scope 1, 2 and 3 emissions, totaled 3,530 thousand
t-CO 2 (graph 1). Our efforts to reduce our GHG
emissions, especially Scope 2 emissions through thesteady promotion of hydroelectric power generationand stepped up energy-saving measures will continue.
Climate Change: Risks and Opportunities

15

Hydroelectric
1 Omigawa

Opportunities①LegalRegulations

A surge in fossil fuel andenergy costs due to theenforcement of tightened CO2
emission regulations based on
the Paris Agreement

Growth in business
opportunities arising fromdemand for Denka’s energysaving technologies②PhysicalimpactFrequent operational
disruption at manufacturingbases and other businesssites due to an increase inflooding, rainstorms andmega typhoons

Growing need for ultrahighstrength concrete that enhances
the resilience of concrete
structures and infrastructurecomponents (such as
expressways) as well as forquick-hardening and setting
concrete that supports the timely
restoration of such facilities
following natural disasters③Others

Growing uncertainty regarding
stock prices and our corporate
reputation due to ever harsher
scrutiny of the Company’s
climate change countermeasures
as shareholders and investors
began to place stronger focus
on ESG investment

Growing need for Denka
products capable of helping
reduce CO 2 emissions on
the back of an overall shift
to low-carbon operations
among supply chain
constituents

Kita-Otari

3,300kW

9 Umikawa No. 3

2 Kotakigawa

5,200kW

10 Umikawa No. 4990kW

3 Oami28,400kW

11 HImekawa No. 6※

26,000kW

4 Otokorogawa

9,800kW

12 Takigami※

15,000kW

5 Yokokawa No. 1

10,000kW

13 Nagatoga※

5,000kW

6 Yokokawa No. 2

16,000kW

14 Sasakura No. 2※

10,200kW

7 Umikawa No. 1

3,800kW

15 Kita-otari※

10,700kW

8 Umikawa No. 2

2,600kW

4,700kWNew Omigawa
16(Completion scheduled for 2019)（8,000kW）

New Himekawa No. 6(Completion scheduled for 2022)（27,500kW）

17

Risks

※

The total maximum output of hydroelectric power generation:* Jointly owned with Hokuriku Electric Power Company(via Kurobegawa Electric Power Company)

118,240kW

Note: Figures represent the amount of electricity that Denka is entitled to based on its
proportion of facility ownership. In other words, the total maximum output figure includes
50% of annual output from the facilities numbered 11 through 15 while excluding expectedannual output from those numbered 16 and 17.

In addition, we intend to strategically reduce our Scope 1
emissions, which consist of direct emissions and accountfor 52% of total GHG emissions, still further. To this end,
we will promote the specialization of products associatedwith cement and calcium carbide as GHG emissions
attributable to these products account for more than 60%
of Scope 1 emissions.
Graph 1: Our Fiscal 2017 GHG Emissions

1,102

31%

■Scope1： Direct emissions from Denka facilities
Total emissions

1,821

3,530 52%
thousands
t-CO2■Scope2： Attributable to energy sources,
such as electricity purchases■Scope3： Other indirect emissions

607

17%

Graph 2 presented below outlines our future outlook forreduction in Scope 1 and 2 emissions. Identifying ideals forthe Denka Group, this outlook takes into account 2030
and 2050 targets defined by the Paris Agreement, aninternational framework for countering global warming.
Graph 2: Future Outlook for GHG Reduction(Scope 1 and 2 emissions)
（%）

100

100%

98%

94%

80

88%
74%

60
50%

40

Denka Value-Up

20
0

2013

2017

2018

2020

2030

2050

(FY)

Reduction Targets
・ Total GHG emissions:
Reduce 12% by 2020 compared with the 2013 level・ CO２ emissions intensity index attributable to energy
sources (per unit of production):
Reduce 10% by 2020 compared with the 2013 level

Our Initiatives to Promote Energy Saving

As part of production process reforms, the Omi Plant
is renewing its electrolytic bath facilities with the aim of
reducing energy consumption while pushing ahead withenergy-saving efforts focused on improving calcium carbide
raw materials production. Efforts are also under way tointroduce high-efficiency gas turbines to the plant’s thermal
power generation facilities with the aim of reducing energy
consumption and CO2 emissions.
Meanwhile, the Chiba Plant suspended the operation of
one boiler and its attendant power generation system andhas since then been receiving steam from adjoining facilities
run by Maruzen Petrochemical. This move was one exampleof the plant’s initiatives to optimize its utility supply structure
through the strengthening of collaboration between
corporations operating in the same industrial complex.
Looking ahead, Denka will promote energy-saving
measures to maintain its “S Class” grading, which indicates
the Company’s standing as an excellent business operator,in accordance with a government-sponsored system forclassifying business operators under the Law Concerning the
Rational Use of Energy.

Denka Report 201818

Denka’s Approach to ESG-Oriented Management

E

Special Feature 2│Denka’s Hydroelectric Power Plants

Denka utilizes a network of 15 natural inflow type hydroelectric power plants. For
more than a century, we have maintained this unique power source that harmoniously
coexists with the natural environment and generates electricity in a sustainable manner.
A view of the Oami Power Plant’s facilities near the water intake
How a natural inflow type hydroelectric power plant works

Dam
Conduit

Cistern
Hydraulicsteel pipes
Generator

Water
discharge

In 1931, Oyodogawa Power Plant No. 2,
boasting a maximum output of 30,000kW,
was completed in Miyazaki Prefecture to feed
power to Denka’s Omuta Plant

A long conduit guides upstream water separated from the river by the dam to a
generator placed in a downstream location. Unlike reservoir type power plants,
this mechanism is able to utilize the momentum of water attributable to verticaldifference without significantly interrupting the natural flow of the river.

A stable power supply and efficient energy usage
are essential to the manufacture of industrial
chemical products. Over the years, the Omi Plant
has utilized a robust network of power generation,transmission and distribution facilities while
accumulating technological expertise with regard
to the construction and operation of power plants.
These facilities and expertise have been importantmanagement resources for the more than a century
since the Company’s founding.
There are 15 natural inflow type hydroelectric
power plants, including co-owned facilities, in areas
around the Omi Plant. This type of hydroelectric
power plant places a relatively smaller burden on
the natural environment due to the use of natural
inflow of river water for power generation. There isno need to create a reservoir, and water used for
power generation is returned to the river as soon
as it leaves the generator. Moreover, hydroelectric
power plants generate virtually no greenhouse gases
while serving as a renewable energy source withsuperior energy efficiency. Thus, these power plants
are capable of harmoniously coexisting with thenatural environment while generating electricity in asustainable manner.

19 Denka Report 2018

Working to Secure Electricity via HydroelectricPower Generation for More than a Century
Itoigawa City, Niigata Prefecture, is located in a region
that faces the Sea of Japan and is surrounded by steep
mountain ranges leading to the northern Alps. Thisregion boasts abundant water resources, with a numberof rivers flowing down steep slopes. Because of this,the development of hydroelectric power generation
facilities has been under way in the region since the late
Meiji period. In 1921, Denka established the Omi Plant
in Itoigawa via the merger of two power companies(Hokuriku Suiden K.K. and Takasago Suiryoku Denki K.K.)
that had held mining rights to limestone mines alongwith water rights. The Kotakigawa Power Plant, which
the latter was in the midst of constructing at the timeof merger, is still in operation. Due to the merger, thispower plant became a Denka facility once completed
and began supplying electricity to calcium carbide
and calcium cyanamide production facilities that theCompany had newly established for the launch of the
Omi Plant.
In 1923, the Otokorogawa Power Plant wasestablished and this was followed later by the
Umikawa, Oami, Omigawa, Yokokawa and other power
plants. Today, Denka utilizes a total of 15 hydroelectric
power plants, including co-owned facilities.

E Denka's Hydroelectric Power Plants●

1. Water Intake from Rivers and Harmonious
Coexistence with Nature
Water Intake Dam for the Oami Power Plant
The Oami Power Plant, located on the Himekawa
river system, is equipped with automated dam
gates that operate based on data on weather andriver conditions gleaned by its observation system.
Automatically keeping the volume of water intake
within the upper limit granted by local authorities, theplant operates in a way that has little impact on flow
volume or water level.
Although the steepness of the terrain that ishome to the Himekawa river system offers inherent
advantages to hydroelectric power generation, rivers
in these areas are prone to becoming choked withsoil, sand and logjams after rainfalls because of fragile
ground conditions. Sediment and floating detritus
can drift into dam intakes, hindering power plant
operations. Accordingly, whenever the region is hit
by heavy rainfalls, typhoons or other stormy weather,administrators have staff on standby at stations near
the dams to address any problems.
Water is diverted from the main body of the river by
the water intake dam and guided to a grit chamberwhere soil and sand are settled out. At this point,
smaller floating objects like driftwood are removed
using a screen as well as manually. This can be adangerous job so staff are extremely vigilant. The
water then flows through a conduit to a cistern andfinally to the generator via hydraulic steel pipe.
To minimize the impact of power plant operations
on the natural environment, we have installed afishway alongside the dam, thereby demonstrating
our commitment to pursuing a harmonious
coexistence with nature.

2. P ursuing Ever Higher Power Generation Efficiency
Umikawa and Kotakigawa Power Plants
Like the facilities discussed above, the four power
plants located on the Umikawa river system boast
a long history, with the Umikawa Power Plant No. 3
having initiated operations in 1925. The No. 1, 2 and4 plants were launched in 1930.
Among these, the Umikawa Power Plant No. 2 issituated in a steep mountain range. Accordingly, thedevelopment of mountain forests and trails has been
key to operating the plant. Moreover, because wintersnowfalls often render the mountain trails around theplant impassable, we constructed dedicated tunnels
for operators.
The Kotakigawa Power Plant initiated operations in
1921 and is the oldest among Denka’s hydroelectric
power plants. For nearly a century since its
completion to the present day, the plant’s building
has been in continuous use. Made of wood, thishistorical building boasts superior durability thanks
to a unique structure comprising two separate
frames, with one frame supporting a built-in craneinstalled to carry heavy objects and the other frame
supporting the building’s roof. A Francis turbine
runner manufactured by Switzerland-based Escher
Wyss and installed at the time of its completion,is still preserved at the site and is labeled the “No.
1 turbine runner.” In 2017, we launched the No 3.
turbine runner, a cutting-edge Francis turbine runnerand generator.

The Kotakigawa Power
Plant main building

Water intake dam for the
Oami Power Plant

A fishway installed
alongside the dam

The Umikawa Power Plant No. 2’s
hydraulic steel pipes are installed
on a steep mountain slope

One of the entrances to thetunnel leading to the power plant

A closer look at the hydraulicsteel pipes

The Kotakigawa Power Plant’s
cutting-edge Francis turbine runner

3. The Hydroelectric Power Museum
In May 2018, we opened the Hydroelectric Power
Museum. Along with a century of historical records,
the museum exhibits a cross-sectional sample from thehydraulic steel pipe that was used at the Kotakigawa
Power Plant in its earliest days as well as a precise
miniature duplicate of the plant and surrounding
land created by a staff member at the Electric Power
Department. Our hydroelectric power plants are a
proud legacy and remain one of our key management
assets. Moreover, since these facilities produce
renewable energy, they have become ever more
important given growing expectations regarding clean
energy due to the looming threat of global warming.
The museum is serving as a venue for communication
with visitors, helping them learn about the passions
driving Denka staff, who have maintained hydroelectric
power plant operations since the Company’s founding
to the present. At the same time, the facility helps us
pass along our long-cherished commitment to these
operations to future generations.
Denka Report 201820

Denka’s Approach to ESG-Oriented Management

S

Human Resource Development

Strategically focusing on nurturing human resources with specializedskills, we will promote diversity, push ahead with work style reforms andthereby create an even more attractive company.

Nurturing Human Resources andPassing Down Our Technologies
to Future Generations
Denka’s Strategies Aimed at
Nurturing Human Resources with
Specialized Skills

Denka sees its employees as invaluable assets supporting
its foundation. The Company also believes that truly
successful corporate growth hinges on employees’ efforts toachieve personal growth and enhance their skills. With thisin mind, we are taking a strategic approach toward humanresource development.
Our aim is to promote the specialization of our businesses,
products, technologies and all other aspects of operations. Inline with this, we also intend to equip our human resources
with specialized skills. Accordingly, we are striving to help
each employee build robust careers rooted in their intrinsic
strengths (i. e., mindset, competency and personality) while
assisting them in their efforts to enhance their skills in thearea of their specialty. In these ways, we are endeavoring tohelp each employee realize their full potential and become aprofessional with unparalleled presence in their business field.
In April 2018, we launched the Career Value-Up Center,a dedicated body charged with equipping human resources
with the features described above, while upgrading
the content of the ongoing Specialty Human Resource
Development Program. These moves are expected to better
position the Company to provide assistance to employees
who are willing to autonomously pursue personal growth andproactively build robust careers. By doing so, we are stepping
up our across-the-board efforts aimed at achieving targets
under Denka Value-Up, our medium-term management plan.

The Specialty Human Resource
Development Program

Having thoroughly upgraded the content of this humanresource development program, we have renewed safety
training sessions that simulate dangerous situations and aredesigned specifically for those working at production sites
and R&D bases. We have also enhanced the curriculum
associated with production processes for engineers. The
upgraded program consists of 200 types of training sessions,
including job-level based training tailored for a broad rangeof employees encompassing not only managers but younger
employees who will someday become the Company’s leaders.
21 Denka Report 2018

The program also includes a number of specialist courses.
In fiscal 2017, we also introduced executive officer training
as well as manager training for selected candidates with theaim of enhancing their management and leadership skills
as part of job-level based training. Furthermore, specialist
courses now include a number designed to instill specializedskills in such fields as marketing, M&A and businessstrategies, with stronger focus placed on nurturing business
innovators.
Also, in response to the rapid globalization of Denka’sbusiness operations, the Company focuses on recruiting
and nurturing human resources capable of succeeding on
the global stage from the earliest stages of their careers.
In particular, we are proactively hiring new graduates who
have studied overseas. Moreover, we dispatch administrative
specialists in their second year and technological specialists
in their fifth year to the Group’s business base in Singapore
to participate in two-week overseas missions as part oftraining aimed at helping them acquire a global perspective.
In these ways, we are working to secure personnel capableof leading Denka’s global operations in the future.
Denka’s Strategies Aimed at Nurturing Human Resources
with Specialized Skills

S Human Resource Development●

Helping Employees Strike an
Optimal Work-Life Balanceand Stay in Good Healthattributes as gender, age, nationality, disability or family
composition.
We are undertaking a variety of initiatives aimed at raising
employee’s diversity awareness, including seminars andworkshops. Also, lecture sessions are held for executive
officers and plant managers. In addition, we distribute a
wealth of information via such mediums as our dedicatedintranet portal to support employees’ self-directededucation efforts. We intend to acquire employee feedback
and utilize it in the course of organizing and planning future
initiatives.
We aim to maintain the proportion of women among
newly hired specialists at 20% or more. In April 2018, wewelcomed 14 newly hired female specialists. This was 33%of those taken on as specialists in this hiring session andwas well in excess of the targeted minimum.
In the face of globalization on the business front, we are
striving to develop a more flexible workforce supported
by young employees equipped with leadership skills.
Accordingly, we focus on securing promising new graduates
regardless of nationality. As a result, in April 2018 four
foreign nationals joined the Company to become specialists.
Taking into account the diversified composition of ourhuman resources, we began providing career education
aimed at raising employee awareness of what they
themselves can do to develop their careers. Moreover, weare now considering establishing an in-house job posting
system as well as a free agent (FA) system to encourage
employees to take on more challenging missions.
Looking ahead, we will engage in ongoing initiatives toraise diversity awareness while reviewing our personnel
systems, including evaluation and wage systems. We will
also develop more flexible working shifts. Furthermore,
we will strive to nurture human resources equipped withspecialized skills and capable of leading the implementationof the medium-term management plan. Simultaneously,
we will pursue operational process reforms, such as theintroduction of AI and IoT to standardize operational
procedures along with facility upgrades aimed at realizing
labor-saving processes. We will thus accelerate our efforts
to promote diversity.

Employee Happiness
Optimal Work-Life Balance and
Health Promotion

We are endeavoring to create an inclusive workplaceenvironment, with the aim of helping every employee
strike a balance between their duties and family life.
These efforts are intended to assist employees in realizing
their potential and pursuing career success in evenbroader fields. Denka Company Limited in particularplaces strong emphasis on efficient time management andthe reduction of excessive overtime hours, based on arecognition that the betterment of working environments
is strategically important. With this in mind, the Company
introduced a new working hour management system
to precisely assess actual working hours and practicemore robust control. Through the implementation ofoperational process reforms, we are creating an evenmore inclusive workplace and eradicating the logging ofexcessive overtime hours while facilitating the utilizationof annual paid leave.
During fiscal 2017, we introduced staggered work shifts
at the Head Office and branches, with the aim of helping
employees embrace flexible working styles that are suited
to individual lifestyles and duties. We also designated two
dates (May 1 and December 29) on which all employees
are encouraged to take annual paid leave. This move wasintended to promote the utilization of annual paid leaveand help employees refresh mentally and physically.
Going forward, we will consider rolling out staggered
working shifts at production sites and introducing flextime
as we aim to help employees adopt more flexible
working styles.
Furthermore, our initiatives to help realize an optimal
work-life balance include providing employees withassistance in their health promotion efforts, helping themto secure a sound residential environment and expanding
annual health check items. We will also subsidize expenses
for influenza vaccination for employees’ families andare rebuilding dormitories for singles located near eachbusiness sites. Our goal is to help employees stay in good
health, mentally and physically and thereby ensure that theCompany enjoys sound growth well into the future.

Each Denka employee
Human Resource Development
Program

Human Resources with Specialized Skills
MindsetCompetency

Personality

Ensuring Respect for Diversity andHelping Women Achieve Success
Promoting Diversity
Your value is Denka's value,
In October 2017, Denka established the Diversity
Promotion Section to step up its diversity initiatives aimed
at realizing sustained and sound growth. Under the slogan“Your value is Denka's value” we are proactively striving tocreate a workplace environment in which everyone canstay healthy and work vibrantly regardless of such personal

Employment Status and Diversity Data (non-consolidated basis)
Number of employees
GenderAverage age
Average year of service
New recruits
Specialists(hired from new graduates)
Female managers
Retiree reemployment rate(%)
Ratio of people with disabilities(%)
Resignees
Number of people who resigned
within three years of recruitment

Fiscal 2014
2,934
Male：2,718 Female：216
39.7
18.0
100
Male：36

Fiscal 2015
2,974
Male：2,743 Female：231
39.9
18.0
75

Female：9

Male：34

Female：7

Fiscal 2016
2,960
Male：2,716 Female：244
40.1
17.7
84
Male：32

Fiscal 2017
3,011
Male：2,749 Female：262
40.5
18.2
115

Female：7

Male：29

Female：14

1
89
2.14
40

2
93
2.06
39

2
93
2.06
41

2
95
2.17
44

3

3

3

6

7.3

6.7

6.7

6.0

Ratio of people who resigned within
three years of recruitment

Employment Status and Diversity Data (consolidated basis)
Number of employees
Foreign nationals

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Fiscal 2017

5,206
347

5,249
365

5,309
389

5,788
826

5,816
912

5,944
933

Denka Report 201822

Denka’s Approach to ESG-Oriented Management

S

Prioritization of Safety

We will steadfastly abide by the policy of placing the

S Prioritization of Safety●

Breakdown of Number of Occupational Accidents
Directly managed sites

utmost priority on safety in all of our business activities
and decisively promote initiatives aimed at the creationof a lively and sound workplace.

Companywide Targets❶Reduce the number of major
accidents and disasters to zero❷Continually improve the occupationalsafety record

Fiscal 2017 Safety Record
Major accidents:
One occupational safety accident
On March 3, 2018, an accident resulting in thedeath of an employee occurred at the Omuta
Plant. The accident involved the collapse of abulk bag pile. In response, we have thoroughly
investigated the causes of the accident andimplemented measures to prevent recurrencesin addition to inspecting all business sites in aneffort to spot points of potential danger. We havethus improved our methods for piling and storing
our products at warehouses while installing morerobust measures to secure operator safety even if
the storage method fails. Looking ahead, we will
strive to mitigate intrinsic danger associated withthe loading and unloading of cargo via process
reform initiatives.
We remain committed to providing our
stakeholders with updates on these initiatives insuch disclosure materials as subsequent editionsof the Denka Report.

23 Denka Report 2018

Facility-related incidents:
Four incidents (one leak, one fire andtwo breakages)

There was a leak attributable to a mistake inthe selection of raw materials for components
of a facility handling corrosive gas. There wasa fire attributable to a failure to execute therequired thoroughgoing inspection of flammablematerials at a construction site where fire is used.
There were two breakages, the first involving the
bursting of a resin container due to excessive
pressure attributable to an abnormal chemical
reaction and the second involving the breakage
of a blower. The first incident was the resultof operational error and the second was theresult of flaws in our in-house rules for managing
changes in operational processes.
Although none of these incidents involved
human injury or environmental damage, we will
implement stringent process risk assessments toensure that no critical risk is left unaddressed.

Other occupational accidents:
Five accidents involving absence fromwork; 14 accidents in total
In fiscal 2016, we recorded six incidents,
including accidents in which a worker’s hand
was caught or a worker’s body part was pinchedby machinery in operation. Drawing lessons
from these accidents, we rallied the Company’s
overall strengths to mitigate risks associated withmachinery and equipment as well as to ensurethat our basic rules on safety are observed by all
workers.
As a result, the number of similar accidents
decreased in fiscal 2017 to two. Going forward,
we will update our facilities to mitigate theintrinsic danger of machine operations. In addition
to reducing facility risks, we will undertake
functional upgrading aimed at better safeguarding
our operators. Furthermore, we will implement
appropriate measures to thoroughly control
residual risks.

Subcontractors

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

Total

No
No
No
Minor
AbsMinor
AbsMinorabsTotal Death
absTotal Death
absTotalinjuryence
injuryence
injury
ence
ence
ence

Death

Absence

Fiscal
2010

0

2

8

3

13

0

3

6

4

13

0

5

14

7

26

Fiscal
2011

0

5

17

5

27

0

5

9

1

15

0

10

26

6

42

Fiscal
2012

0

3

17

4

24

0

4

4

6

14

0

7

21

10

38

Fiscal
2013

0

1

8

3

12

1

5

3

2

11

1

6

11

5

23

Fiscal
2014

0

2

10

2

14

0

1

7

0

8

0

3

17

2

22

Fiscal
2015

0

1

6

1

8

0

1

5

1

7

0

2

11

2

15

Fiscal
2016

0

2

4

1

7

0

4

3

1

8

0

6

7

2

15

Fiscal
2017

1

2

3

1

7

0

2

3

2

7

1

4

6

3

14

■Minor injury ■No absence■Absence■Death
50

40

30

20

10

0

2010

2011

2012

2013

2014

2015

2016

2017（FY）

Fiscal 2018 Priority Initiatives❶Prevent major

accidents by performing
thoroughgoing risk
identification and by
mitigating intrinsic danger❷Eliminate accidents

attributable to operator
action and ensure theongoing reduction ofoccupational accidents・ Fully leverage findings from near-❸Create a lively and soundworkplace・ Promote robust worksite

communications about points ofpotential danger

miss reporting・ Conduct robust hazard prediction
activities at production sites

Points of Attention for Frontline
Operators at All Denka Group
Business Sites❶Nurture a sense of unity by proactively
exchanging courtesies, telling one another“goanzen ni!” (keep safe!) and wishingcolleagues a safe day❷Practice the 3Ss—Seiri (sort), Seiton (setin order) and Seiso (shine)—as these are
the basics of safety❸Pursue the PDCA cycle to promote priority
initiatives and share the outcome of such
pursuits in an easily visible manner

The greeting of “goanzen ni!” is being localized and used bystaff at overseas business sites; Chinese staff have translated
it into Chinese, while Singaporean staff modified it into “GO!
ANZEN-NI!”

Production Process Reforms That Improved Our Safety Assurance Measures(best practices at the Chiba and Isesaki plants)
The Chiba Plant has installed fences around certain machinery to prevent accidents in which workers are pinned
down by or caught in it. These fences are equipped with a mechanism that prevents access to machinery while itis running. The plant formed a dedicated project team aimed at reclaiming productivity without compromising thisnew safety measure. The team has succeeded in reclaiming and achieving further improvements in productivity.
Having identified a variety of major risks in loading and unloading operations employing forklifts, the Isesaki Plant
has been promoting the automation of on-premises logistics and the installation of automated storage systems.
Ultimately, the plant aims to ensure that forklifts never cross pathways used by plant staff who are on foot.
Conducted as a part of production process reforms aimed achieving drastic improvement.

Denka Report 201824

Denka’s Approach to ESG-Oriented Management

S

Social Contribution Activities

Remaining true to our founders’ spirit,

we will contribute to social development via value creation.

Denka Group Social Contribution Policies
Denka aims to proactively play a positive role insociety as a good corporate citizen. With this in mind,
the Company hereby establishes its basic policies withregard to social contribution, clarifying the roles andresponsibilities all Denka Group members must fulfill interms of efforts to facilitate the sound and sustainable
development of society.
Since its founding in 1915, the Denka Group has
been pursuing the possibilities of chemical technologies.
Through this pursuit, the Group has endeavored to fulfill
its unchanging mission as a manufacturer in an effort tocontribute to the advancement of human civilization and thedevelopment of society.
For more than a century, the Group has accumulated
strengths in such fields as the generation of clean
energy and the development of energy-saving
technologies. The Group also boasts an arrayof products, services and solutions capable ofcontributing to social development and environmental
preservation. The Group is committed to fulfilling its
Examples of Fiscal 2017 Initiatives

1. Educational, academic and cultural development
Hosted plant tours and experimental chemical classes and participatedin Summer Holiday Chemical Experiment Show forChildren
Provided internship programs and maintained a scholarship system
Provided assistance to on-demand concerts presented by the Fureai Trio
2. Community contribution and the preservation of the global
environment
Engaged in ongoing initiatives aimed at supporting the reconstruction ofareas affected by the Great East Japan Earthquake and operated “Denka
Farm” (Minami Sanriku-cho) ❺Provided assistance to the reconstruction of areas affected by the
extraordinarily heavy rainfalls in northern Kyushu and the massive firethat engulfed streets north of Itoigawa City’s main train station ❹Participated in various local events and activities, including cleanup
campaigns, held in areas near business sites
Renewed our naming rights agreement pertaining to the DENKA BIG
SWAN STADIUM
Sponsored J-WAVE Green Casting Day aimed at facilitating the use ofenvironment-friendly energy sources
Co-sponsored the Satoyama Forum, a community event themed on
discussing natural farming methods and held by “Noranbo Mura,” an
NPO aimed at promoting self-contained cooperative farming
3. Assistance to health promotion, contribution to people’s well-being
and facilitation of sports activities
Donated Ebola virus rapid diagnostic test kits to the Democratic Republicof Congo (2017 and 2018) ❶Co-hosted Toyokalon Wigs for Wonderful Women (Washington, U.S.A.)「Offered a venue for RELAY FOR LIFE Japan 2017 ❷Provided assistance to facilities for people with disabilities (Ecomira Koto,a recycling facility operated by the NPO Chikyu-Sen Club)
Became an official sponsor of the Japan Association of Athletics
Federations
Supported the NIIGATA Albirex (female basketball team and malefootball team)Offered a venue for the 3rd round of the junior football festiva
Assisted the ALBIREX NIIGATA Singapore in its CSR activities involving
visits to a home for the elderly and childcare centers ❸25 Denka Report 2018social responsibilities by employing these strengths.
To this end, the Group will leverage its businessnetwork around the globe as a platform for social
contribution. At the same time, the Group will focus
on developing an environment that better encourages
Group employees to take part in the following
three initiatives while raising their social contribution
awareness.
1. Educational, academic and cultural development
The Group will nurture young people, amongwhom the manufacturing industry’s future leaders
may be found, while proactively providing assistanceto forward-looking academic pursuits and research
activities. Simultaneously, the Group will contribute tocultural development
2. Community contribution and the preservation of the
global environment
Paying respect to diverse cultures and customs incountries around the world, the Group will take acommunity-rooted approach in its efforts to promote
the sound development of local societies in which
it operates. Moreover, the Group will voluntarily
implement initiatives aimed at preserving the global
environment while sparing no effort to enhance theefficiency of its use of limited resources, with the aim ofcontributing to the realization of a sustainable society.
3. Assistance to health promotion, contribution topeople’s well-being and facilitation of sports activities
The Group will facilitate sports activities, provide
assistance to people’s health promotion efforts andcontribute to their well-being. By doing so, the Groupwill help improve people’s quality of life in a way thatleverages its core business functions associated withhealthcare and the living environment.

Denka Seiken’s Ebola Virus Rapid
Diagnostic Test Kits Donated to the
Democratic Republic of Congo❶
Denka Seiken Co., Ltd. donated Ebola virus rapid
diagnostic test kits to the Democratic Republic ofCongo (DRC) immediately after the Ebola virus outbreakemerged in that country on May 11, 2017. This move
was intended to meet a request that was made by the
DRC’s Ministry of Public Health and relayed via the Japan
International Cooperation Agency (JICA) to Dr. Ayato
Takada, a professor at Hokkaido University’s Divisionof Global Epidemiology, Research Center for Zoonosis
Control, who is acting as Denka Seiken’s research partner.
Co-developed by Dr. Takada and Denka Seiken, these

S Social Contribution Activities●

diagnostic test kits are capable of confirming Ebola
infection within approximately 15 minutes without using
any specific medical facilities.
On May 8, 2018, Denka Seiken received a similar
request from the ministry and donated these products
again. Looking ahead, we will strive to prevent the
epidemic of infectious diseases, a universal issue theinternational community is now confronting.

Providing a Venue for RELAY FOR LIFE
Japan 2017 Niigata, a Charity Event
Aimed at Promoting a Remedy to
Cancer and Encouraging Patients ❷On August 26 and 27, 2017, RELAY FOR LIFE
Japan 2017 Niigata was held at DENKA BIG SWAN
STADIUM in Niigata City. As part of the nationwide
RELAY FOR LIFE Japan campaign, this event was
aimed at promoting a remedy to cancer andencouraging cancer patients through a 24-hourwalking relay race undertaken by teams consistingof patients themselves, their families and supporters.
Similar events were held in approximately 50 locations
across Japan in 2017, and Denka, fully agreeing withthe campaign’s objective, made the stadium available
as a venue for one such event held in Niigata.
The event also provided attendees with a variety
of programs aimed at raising their awareness of theimportance of cancer checkups and showcasing cuttingedge treatment methods. Finally, all attendees walked
shoulder to shoulder
the full length of the
400-meter track of thestadium, demonstrating
their determination
to someday create asociety in which nobody
RELAY FOR LIFE Japan 2017 Niigata
held at DENKA BIG SWAN STADIUM
will succumb to cancer.

Supporting CSR Activities Undertaken
by ALBIREX NIIGATA Singapore ❸In 2015, Denka Chemicals Holdings Asia Pacific Pte.
Ltd. signed a CSR partnership agreement with ALBIREXNIIGATA Singapore, a professional football team, and sincethen has provided assistance to the team’s CSR activities.
The ALBIREX NIIGATA Singapore cheerleaders pay
visits to local childcare centers and junior high schools
to host cheer dance clinics, thereby interacting withchildren and youth. On December 22, 2017, they
paid a first visit to “Gift of Love Home,” a home forthe elderly, and conducted a cheer dance session
specifically designed to enable elderly people, eventhose using wheelchairs, to participate and enjoy
dancing.

The ALBIREX NIIGATA Singapore cheerleaders performing acheer at a home for the elderly in Singapore

Supporting the Restoration ofAreas Affected by Major Disasters
Initiatives to Support the Reconstruction of Streets
North of Itoigawa City’s Main Station ❹On December 22, 2017, a symposium was held at
the Itoigawa Civic Hall to discuss the reconstructionof streets affected by a massive fire that engulfed a
block north of Itoigawa City’s main station. Attending
the event, a representative from Denka was honored
to receive a commendation certificate from the mayorof Itoigawa City in recognition of the Company’scontribution to reconstruction efforts.
After the massive fire devastated the block on
December 22, 2016, the Company was one of thelocal corporations that immediately took action toassist in reconstruction efforts, dispatching a totalof 70 volunteer employees from its Omi Plant inaddition to providing aid supplies and donations. The
Company also raised funds for further donations via acharity concert while accepting debris from affectedsites as part of its resource recycling operations.
Going forward, we will help the local government
promote town development planning aimed at
restoring and vitalizing affected streets as we aim
to remain a contributor to
the reconstruction of thecommunity.
A representative from Denka
attending a symposium andreceiving a commendation
certificate from the mayor of
Itoigawa City

“Denka Farm” Initiative in Minami
Sanriku-cho, Miyagi Prefecture ❺On October 21, 2017, we hosted a harvest
celebration at “Denka Farm,” inviting representatives
from a local farmers’ association in Minami Sanrikucho, Miyagi Prefecture.
Denka Farm consists of testing farmland andwas established based on suggestions incidentally
proposed by staff at Denka’s Tohoku Branch in thecourse of ongoing discussion aimed at soliciting ideas
for initiatives to support the reconstruction of areas
affected by the Great East Japan Earthquake. Having
assisted in the restoration of farmland that sufferedsalt damage due to tsunami via the donation of
Denka’s underground drainpipes and fertilizers, thebranch has cultivated close ties with members of the
farmers’ association. Borrowing a portion of farmland
owned by the association, we opened Denka Farm.
In June 2017, we planted 600 sweet potato
seedlings at the farm. Since then, we have weeded,sprayed herbicides and done other farm work incollaboration with the association members.
After celebrating the harvest with us, some local
farmers remarked “We’ll be looking forward tomeeting you again next year.” Going forward, we willcontinue to operate Denka Farm while remaining
committed to giving back to the people in the Tohoku
area by providing assistance in the restoration of
once-devastated farmland and local farmers’ efforts toreinstate their operations.
Denka Report 201826

Denka’s Approach to ESG-Oriented Management

G

Corporate Governance

Strengthening Corporate
Governance
Basic Approach to Corporate GovernanceTo maintain the trust of society,we will seek greater transparency andensure integrity in all our endeavors.

A Message from an Outside Director

Outside Directors’ Roles Are Ever More
Important in the Face of Rising Calls for Robust
Growth Strategies and Sophisticated Governance
Currently, Denka’s Board of Directors includes
three outside directors, each of whom boasts
extensive business experience in various fields.
I have long served at a French-capital chemicalcompany myself in addition to holding the officeof outside member of the Audit & Supervisor
Board at a pharmaceutical company. In the latter
position, I have engaged in the onsite auditingof subsidiaries in Europe, the United States andAsia. This exposure made me acutely aware of
the importance of winning the understandingof increasingly diverse stakeholder groups,
including shareholders, via the establishment ofa management structure that is transparent andrational and based on a global perspective.

Advances in Denka’s Efforts to
Ensure More Robust Governance

27 Denka Report 2018

operations that range from the production of
traditional fertilizers to the manufacture of vaccines,
which support the Company’s Life Innovation
Division, while expanding into such regions as Asia,
the United States and Europe as well as Africa.
Accordingly, Denka is focused on pushing ahead withthe development of a management system capableof exercising robust governance over its business
units in regions around the globe. I believe that aspart of these efforts, Denka should welcome diverse
human resources as management members to boost
corporate growth. Looking ahead, the Company also
needs to take on the challenge of incorporating aneven broader range of opinions voiced by people
with different thinking and cultural backgrounds
regardless of their gender, race and nationality. I
expect that, of course, Denka will steadily work to
introduce various measures to this end.

Helping Achieve Growth in both
Corporate Value and Profitability

In April 2018, Denka launched a new management
plan. I anticipate that this ambitious plan will help
Denka achieve growth and enhance its corporate
value over the medium to long term. I also believe thatin order for Denka to accomplish the plan’s objectives
in a rational manner, the Company must promotereforms in terms of its corporate culture and employee
awareness. I think that outside directors can provide
Denka with useful input in this regard because they
have a variety of experience outside the Company.
Along with developing sophisticated governancesystems, properly addressing environmental andsocial issues is essential. This will also lend support toDenka’s drive toward long-term corporate growth. I
am therefore determined to fulfill my role as an outside
director in terms of helping the Company pursue an
ESG-oriented management approach that contributes
to the creation of a sustainable society. To this end, I
will engage in the robust supervision of management
rather than staying quiet to preserve the status quo. I
ask all stakeholders, including shareholders, for theircontinued support of our endeavors.

Board of Directors(met on 13 occasions in fiscal 2017)

To realize the Company’s corporate philosophy, “TheDenka Value,” the Board of Directors monitors andsupervises major operational decision making andthe execution of business duties by executive officers,
based on strategic and management planning. The
Board of Directors as a whole appoints candidates for
director in line with the standards for the appointmentof both internal and outside directors, based on the
belief that it is important to maintain a balanced
composition via the incorporation of people with avariety of expertise, experiences, and skills.
In October 2015, we began holding exchange
meetings for all directors and Audit & Supervisory
Board members. This move was aimed at facilitating
open, lively and constructive discussion, the exchangeof opinions, robust information sharing and close
collaboration between directors, outside directors
and Audit & Supervisory Board members. In October
2017, moreover, we rebranded these meetings as the“D&A Round Table” in line with initiatives to facilitate
open and constructive discussion while placingstronger focus on making ongoing progress over thelong term.
We have also established the Management Advisory

Committee, with all outside directors and all outside
members of the Audit & Supervisory Board as well
as Chairman and President serving as committee
members. Having positioned governance over thenomination of and remuneration for key personnel
as an essential component of Denka’s governancefunctions, the establishment of this body is intended
to provide a place for discussing such matters asimportant management challenges and incorporating
diverse opinions and advice from outside directors
and outside members of the Audit & Supervisory
Board, with the aim of ensuring the transparency andobjectivity of management decisions.
In addition, we have abolished the positions ofsenior managing and managing director so thatall directors who supervise and monitor businessexecution engage with their peers on equal footing
at Board of Directors meetings. By limiting the termof office for directors to one year, we also intend toensure the flexibility to assess the adequacy of eachdirector at every General Meeting of Shareholders.

Concepts on the Appointment of Directors

To promote Denka Value-Up, a management plan
aimed at practicing The Denka Value, our corporate
philosophy, we are strengthening our management
structure supported by directors and executive officers
in addition to upgrading our governance systems andsupervisory functions.
Director candidates are nominated from those whohave abundant experience and a strong track record
in Denka’s business divisions and are equipped with
sufficient knowledge and specialist expertise forthe director position. Outside director candidates
are nominated from those who boast extensive
knowledge backed by abundant business experience
as well as distinctive strengths in their area of specialty
so that they can bring their insights on how to achievesustainable growth and enhance corporate value.
With regard to the overall composition of board
members, we believe that maintaining the balanced
composition via the incorporation of people withdiverse knowledge, experience and competencies isimportant.
We also aim to maintain the sufficient number of
independent outside directors to ensure that theyaccount for at least one third of director membership.
Currently, the Company’s Board of Directors achieves
this targeted composition.

General Meeting of Shareholders
Appointment/Dismissal
ReportConsult

Directors (Board of Directors)
Operation

Supervision

Election/Dismissal

Representative Directors

AdviseAppointment/Dismissal
Audit

Executive Directors
Executive Officers

ReportManagement Advisory
Committee
ReportAppointment/Dismissal

Over the last several years, Denka has seen
significant advances in its efforts to upgrade
corporate governance functions. Also, theCompany’s Board of Directors meetings boast
an open atmosphere. Outside directors are given
sufficient explanations about agenda items to besubmitted to the board prior to the meetings, while
all directors and Audit & Supervisory Board members
attend the monthly “D&A Round Table” meetings to
discuss management issues of particular importance.
Moreover, the Company recently established theManagement Advisory Committee. These are but
few examples of Denka’s efforts to provide outside
directors with greater opportunities to engage
in constructive discussion and contribute theirinsights, which the Company values and proactively
incorporates. In addition to these noteworthy
developments, Denka began holding separate
meetings exclusively for outside directors andoutside members of the Audit & Supervisory Board
on a quarterly basis. This move helps facilitate theexchange of opinions among these directors while
ensuring that their feedback is accurately relayed to
top management.
I also expect that, going forward, Denka will moveon to develop even more sophisticated governancefunctions. The Denka Group boasts a variety of

Yasuo Sato

Outside Director

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

G Corporate Governance●Appointment/Dismissal

Audit &
Supervisory Board Members(Audit & Supervisory Board)

Various Business sectors
AssistAffiliates
Internal Audits

Audit &
Supervisory
Board Members Dept.
監査役室専任スタッフ

Internal Auditing Dept.

Full-time staff of the Auditor's office

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

Financial Auditor (Auditing Firm)

Denka Report 201828

Denka’s Approach to ESG-Oriented Management

Audit & Supervisory Board (met on 15
occasions in fiscal 2017)

The Audit & Supervisory Board aims to act inaccordance with their fiduciary responsibilities toshareholders. To this end, the Audit & Supervisory
Board members work with the support of the fulltime staff at the Audit & Supervisory Board Members
Department, whose independence from management
is ensured, to conduct audits of the execution of
directors’ duties, internal control, business operations
and accounting by exercising statutory rights that
include requesting reports on the Company’s business,investigating the status of business operations andaccounting, and proposing the appointment anddismissal of and revisions in remuneration for an
external auditing firm.
In addition, in light of the roles and responsibilities of
the Audit & Supervisory Board, the Company appoints
candidates for Audit & Supervisory Board members
based on the decision that at least one candidate
should be equipped with expertise in finance andaccounting.

Outside Directors and Outside Membersof the Audit & Supervisory Board

We aim to secure the transparency and objectivityof management decisions by ensuring that the Boardof Directors is exposed to diverse opinions andadvice from outside directors and outside membersof the Audit & Supervisory Board with regard to suchimportant management matters as governance issues,
including nomination and remuneration. To that end,in October 2017 we established the Management
Advisory Committee, with all five outside directors
and outside members of the Audit & Supervisory
Board as well as Chairman and President serving ascommittee members.
In fiscal 2017, the committee was consulted by andgave advice to the Board of Directors with regard tomatters associated with remuneration for directors
and executive officers and changes in the positions ofthese individuals as well as initiatives under the Denka
Value-Up management plan.

29 Denka Report 2018

Outside Director Liaison Meetings (meton three occasions in fiscal 2017)

Attended only by outside directors and outside
members of the Audit & Supervisory Board, these liaison
meetings are aimed at ensuring that these individuals
engage in the active exchange of opinions on and share
their understanding of the status of the Company’s
corporate governance and business operations.

Director Remuneration

We have set remuneration for each director basedon their roles and responsibilities within the limit of
the total amount approved by the General Meetingof Shareholders. The representative directors draft
the remuneration plan and the Board of Directors
decides on the content of remuneration after receiving
advice and recommendations from the Management
Advisory Committee.
Remuneration for directors consists of a monthly
fixed portion (paid to all directors) as well as aperformance-based portion and a share-based portion(both of which are not paid to outside directors).
The value of the performance-based portion isdetermined in step with consolidated operating
income for each fiscal year. However, this portion
may not be paid or be decreased in cases whereconsolidated operating income did not reach acertain amount or the Company was found to be
involved in compliance violations and other significant
misconduct.
A share-based portion was newly introduced in June
2017. This move is intended to ensure that directors
share interests and risks associated with stock pricefluctuations with the Company’s shareholders. By
doing so, we aim to help directors have a strong
sense of purposefulness toward achieving mediumto long-term growth in corporate performance andcorporate value.

Maintaining a Strict Stance on Compliancewith Laws and Corporate Ethics
Compliance

Compliance is essential for sustainable growth. We
accordingly adhere to internal rules and government
legislation and refrain from acts that violate moral
and ethical norms. The Denka Group Ethics Policy
was established to codify Groupwide standards ofconduct, while the Ethics Committee, chaired by thepresident, oversees the overall compliance structure
and reports to management, thereby ensuring
adherence to this policy.
Moreover, the Internal Auditing, Legal, Environment

and Safety, Quality Assurance, Intellectual Property
and other departments ensure thorough compliancein their respective areas of specialty. In addition,
we have been conducting compliance surveys andoperational audits for Group companies since fiscal
2011. Expanding the scope of entities subject tosuch surveys and audits, Denka’s staff at specialist
departments conducts on-site auditing to accurately
assess the status of compliance and help maintainstrict compliance. We also focus on providing
employees with compliance education under an
initiative promoted by the Career Value-Up Center.

Risk Management

An essential part of corporate governance isunderstanding the diverse and numerous risks
inherent in corporate activities and exerting properrisk control. In general, each business unit is
responsible for identifying and managing specific risks.
For environmental, safety, product liability and export
control issues that affect the entire Company, we havein place special sections and permanent committees
to handle matters.
President
ReportReportRisk-speciﬁc committees

Order HQ
set upOther risks

Major crises

Board of

Crisis Measures

Directors

Headquarters

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

ReportInstruct/monitor

ReportManagement Advisory Committee (meton three occasions in fiscal 2017)

In order to facilitate in-depth discussions regarding
management matters that are of particularimportance, the D&A Round Table is organized
every month as a forum for bringing together alloutside directors and outside Audit & Supervisory
Board members and all internal directors andAudit & Supervisory Board members, to encourage
engagement in free, open-minded, constructive
discussions, exchange of opinions and information,and strengthening of cooperation.

G Corporate Governance●

Report on emergencies

Regarding outside directors and outside members of
the Audit & Supervisory Board, the Company selects
candidates based mainly on practical considerations,such as whether we can expect the candidate tocontribute to an increase in the corporate value of theCompany as an independent outside director or outside
member of the Audit & Supervisory Board. With this inmind, the Company has also defined its own standardsof independence, in accordance with the requirements
for independence stipulated in the Companies Act, in
addition to the standards for independence defined by
the Tokyo Stock Exchange and other prevailing criteria.
We strive to offer a supportive environment tooutside directors and outside members of the Audit& Supervisory Board to help them enhance theirunderstanding of Denka’s operations and better fulfill
their roles in the Company’s pursuit of sustainablegrowth and greater corporate value. Specifically, we
invite them to join facility and plant tours while holding
presentation meetings twice a year for them to help
them understand Denka’s short-, medium- and long-term
policies on its business operations and R&D activities.

D&A Round Table (met on 12 occasions
in fiscal 2017)

Reportreports, accepting reporting from temporary workers
and cohabiting families of officers and employees
serving Group companies in Japan and overseas.
Moreover, we have appointed external contacts,
including law firms, capable of accepting reports
made in Japanese, English and Chinese, with theaim of removing barriers that may prevent overseas
incidents from being quickly reported. In addition, we
have appointed an external specialist organization asa contact for handling harassment incidents.
Whenever a whistleblower brings tips revealing
the violation of the Denka Group Ethics Policy by
Denka Group officers and employees, a secretariat
for the Ethics Committee will register and investigate
the incident based on the aforementioned rules in
addition to carefully ensuring that the whistleblower
is not treated detrimentally and that the content ofwhistleblowing is kept secret. The secretariat willthus take corrective action and implement measures
to prevent recurrences in a swift and proper manner
while giving feedback to the whistleblower.
We are striving to let all Denka Group officers andemployees and their families know the existence ofthe helpline and help them raise their complianceawareness. To this end, the Ethics Committee hasposted a message themed on whistleblowing written
by top management on the intranet portal and inhouse newsletters. The committee has also preparedposters as well as handbooks and cards to be carriedby these officers and employees to ensure that they
are informed about how to contact and use thehelpline.

Instruct/monitor
I’m so glad
I reached out.

Prime oversight Businesses (including Sales and Manufacturing divisions)

TROUBLE HAS

ALREADY BEGUN

Administration (including Internal Auditing, Environment
and Safety, Legal and Accounting & Finance departments)

Your pathway to reporting:Denka Group-Help Line.

Denka Group-Help Line
for Whistle Blowers

Please let us know before it’s too late.

In-house Contact Point

If you see any of the followings, speak up!

Compliance Hotline System

Previously, the Company had in place a compliancehotline system based on the Denka Group Ethics
Policy. However, this system was found to be
insufficient in terms of its capacity for accepting tips
from non-Japanese speakers and handling workplaceharassment incidents, which often place excessive
psychological burdens on whistleblowers. Becauseof this, the number of reports registered with thesystem has been low. Aiming to create a more robust
system capable of accepting and properly handling abroad range of compliance-related reports within theGroup from employees around the globe, Denka hasestablished new rules on whistleblowing. These rules
were drafted based on Principle 2-5 (Whistleblowing)of Japan’s Corporate Governance Code and theDecember 2016 guidelines formulated by theConsumer Affairs Agency and discussed at both theManagement Committee and the Board of Directors
before finalization. In line with these rules, we havethus upgraded our conventional compliance hotline
system into the Denka Group Helpline for all Group
members. In general, these rules mandate the helpline
to expand the scope of eligibility for individuals making

An informative poster andhandbook telling employees about
the helpline and how to use it

1. Secretariat of Compliance Committee,
Denka Company Limited

1) An action which may constitute company’s violation of laws and bring Denka group’s credibility or name brandE-mailcontrol, accounting fraud, etc.

XX@denka.co.jp

2. General Affairs Section ofeach company of the Denka groupquid pro quo sexual harassment, violent action, etc.

Outside Contact Point
Fairlinks Consulting,inc.

5) An action which may cause company public announcement in terms of compliance: intentional deviation fromE-mailWeb・

XX＠fairlinks.co.jp
https://xxxxxxx/denka/

・Please note that the role of Outside Contact Point is not
to give you any legal view or investigate facts but to listen
to your report and share it with the company. Unless you
agree, your identity will NOT be reported by the Outside
Contact Point to the company.

members living with them within the Second degree of Relationship.

・
as such. Thank you for your assistance.

00_コンプラポスター_B2-En.indd 1

2018/09/12 14:44

Individuals eligible to make reports

Denka Group officers and employees(including temporary workers) and their cohabiting families❶Whistleblowing❶Whistleblowing❻FeedbackHelpline
External contacts

Internal contacts

External law倫理委員会
ﬁrms
Specialist organization for handlingharassment incidents

Audit & Supervisory Board Members
Dept., Legal Dept., administrative
departments at each production
bases and the labor union❷Report (the whistleblower s identity is kept secret)Business units and individuals
subject to investigation❺Investigationand correction❻Feedback

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

Ethics Committee
Note: This is the process at the Group's companies in Japan.

Denka Report 201830

Denka’s Approach to ESG-Oriented Management

Directors and Audit & Supervisory Board MembersG(as of June 2018)1

Shinsuke Yoshitaka(Born February 1, 1951)

9
7

1

2

12

11

3

Representative Director, Chairman

6

Representative Director, President & CEO

Manabu Yamamoto(Born March 31, 1956)

8

3

10
2

Director

Mitsukuni Ayabe(Born September 23, 1952)

A Message to Shareholders
With good faith and determination, as laidout in the Company’s corporate philosophy
as well as in the Denka Principles, I will
make every effort to boost corporate value.
In addition, as Chairman of the Boardof Directors, I will endeavor to lead theBoard of Directors in a way that is soundand transparent, taking into account theperspective of shareholders and investors.

A Message to Shareholders
Under the corporate philosophy, “TheDenka Value,” in order to meet the
expectations and trust of all stakeholders,
I aim for the Company to achievesustainable growth through the further
specialization of its business structure
and productivity innovations in addition
to being a sound company that fulfills its
social responsibilities.

A Message to Shareholders
Promoting the new “Denka Value-Up”
management plan to all employees, I
will “create a more trusted company” byensuring thorough awareness of social
contribution and compliance as well as byworking toward our targets.

Reasons for Appointment
Subsequent to taking on responsibility
for management strategy, the medical
business, accounting and finance,
and investor relations and corporate
communications, Mr. Shinsuke Yoshitaka
promoted the “Denka100” management
plan as Representative Director, President.
In addition to boasting a wealth ofexperience and results as a manager,
he serves as the Chairman of the Boardof Directors and as the Company’s
Representative Director drawing on his
deep knowledge and understanding of theGroup. Because he was thus consideredcapable of handling decision-making onimportant business issues and supervising
the business execution of directors andexecutive officers, the Company selected
him as a director candidate and obtained
approval for his appointment at the 159th
Ordinary General Meeting of Shareholders.

Reasons for Appointment
Through work experience at overseas
subsidiaries and many years of
responsibility for the electronics materials
business division, Mr. Manabu Yamamoto
possesses an international viewpoint andrelevant operational experience. Having
integrated new business strategies andaccounting and finance strategies acrossthe entire Denka Group as the executive
responsible for management strategy
as well as the Accounting & Finance,
Investor Relations and CSR & Corporate
Communications depts., Mr. Yamamoto
currently serves as Representative Director
and President & CEO. He boasts richexperience and impressive track recordin company administration. Because he
was thus considered capable of handlingdecision-making on important businessissues and supervising the businessexecution of directors and executive
officers, the Company selected him as adirector candidate and obtained approvalfor his appointment at the 159th Ordinary
General Meeting of Shareholders.

Reasons for Appointment
Subsequent to taking on the managementof research and development a n doverseas subsidiaries and responsibility
for medical business, accounting
and finance, and investor relations andcorporate communications, Mr. Mitsukuni
Ayabe directed the overall technicaldivisions as the general executive forplanning and development while assisting
the President as Executive Vice President
and Chief Operating Officer. Currently, Mr.
Ayabe is in charge of the Life Innovation
Division and supports strategies in thegrowing healthcare field. Because he
was thus considered capable of handlingdecision-making on important businessissues and supervising the businessexecution of directors and executive
officers, the Company selected him as adirector candidate and obtained approvalfor his appointment at the 159th Ordinary
General Meeting of Shareholders.

31 Denka Report 20184

Director

5

Norihiro Shimizu(Born October 2, 1955)

4

5

G Directors and Audit & Supervisory Board Members (as of June 2018)●

Director

6

Kenji Nakano(Born November 17, 1955)

Outside Director

Yasuo Sato

(Born September 30, 1942)

A Message to Shareholders
Through continuous innovation
leveraging the comprehensive capabilitiesof the Group and by implementing abusiness strategy that targets individual
businesses in a way that strikes a balance
between profitability and sustainability,
I am committed to ensuring sustainablegrowth and improving corporate value.

A Message to Shareholders
I realize that achieving the threevisions in “Denka Value-Up” will lead tocorporate growth and development, and,as I work toward this goal, I will divide
our tasks into those we can execute
immediately, those that require time to
implement, and those where we must lay
the foundations for future implementation.

A Message to Shareholders
In a spirit of rationality and fairness,
I am determined to contribute to
the sustainable, sound growth of theCompany and boost corporate value
from a global, medium- to long-term
perspective.

Reasons for Appointment
Mr. Norihiro Shimizu has ample
practical experience, including oversightof research and development activities
for many years in the fields of polymers
and electronic materials. Currently, as
Chief Scientific Officer and Chief R&D
Officer, he is responsible for all researchand development operations, and forbusiness strategy, including developmentof next-generation products and of
new businesses. He thus boasts deep
expertise and experience in research anddevelopment operations. Because he
was thus judged as capable of handlingdecision-making on important businessissues and supervising the businessexecution of directors and executive
officers, the Company selected him as adirector candidate and obtained approvalfor his appointment at the 159th Ordinary
General Meeting of Shareholders.

Reasons for Appointment
Through work experience at plants
and subsidiaries, and many years of
responsibility for management divisions
such as general affairs, legal, and HR
divisions, and as the Representative in
China, Mr. Kenji Nakano has amassed anabundance of operational experience.
Currently, Mr. Nakano is continuing topromote strengthening risk management
and compliance systems as the executive
responsible for compliance, as well as
overseeing general affairs, legal matters,
personnel affairs, internal auditing andother areas, in addition to being in chargeof the Infrastructure Social Solutions
Division. Because he was thus judged ascapable of handling decision-making onimportant business issues and supervising
the business execution of directors
and executive officers, the Company
selected him as a director candidate andobtained approval for his appointment at
the 159th Ordinary General Meeting of
Shareholders.

Reasons for Appointment
Mr. Yasuo Sato has gained richexperience and great insight as amanager through his many years of
involvement in corporate management.
His career included serving as the
President of Air Liquide Japan Ltd. He
also has rich international experience,
including serving as a vice president at
global enterprises. Expecting that Mr. Sato
will employ his expertise and contributevaluable insights into a broad range ofmanagement issues, including Denka’s
global expansion strategies, the Company
has thus selected him as an outside
director candidate and obtained approvalfor his appointment at the 159th Ordinary
General Meeting of Shareholders.

7

Outside Director

8

Akio Yamamoto(Born December 2, 1951)

Outside Director

Tatsutsugu Fujihara(Born November 23, 1952)

A Message to Shareholders
Viewing the Company’s businesses from a historical perspectiveof our industry and a global perspective, I am committed tomaintaining a strong stance of fairness, and contributing tocorporate operations and increasing corporate value.

A Message to Shareholders
While aiming to “boost corporate value in the true sense,” I
am determined to contribute to the creation of an organizational
culture that can properly demonstrate the “ability to keep itself
pure.”

Reasons for Appointment
Mr. Akio Yamamoto has rich experience and great insight asa manager in Japan and overseas through his involvement incorporate management for many years. His career has included
serving as an Executive Officer of Mitsui & Co., Ltd. and theRepresentative Director and President of Mitsui & Co. Plastics Ltd.
He also has rich international experience, including serving as avice president at global enterprises. Expecting that Mr. Yamamoto
will employ his expertise and contribute valuable insights
into a broad range of management issues, including Denka’s
global expansion strategies, the Company has thus selected
him as an outside director candidate and obtained approvalon his appointment at the 159th Ordinary General Meeting of
Shareholders.

Reasons for Appointment
Having worked in corporate management at financial
institutions for many years, Mr. Tatsutsugu Fujihara has richexperience and great insight as a manager and possesses
advanced insights regarding corporate finance. Expecting that
Mr. Fujihara will employ his expertise and contribute valuable
insights into a broad range of management issues, the Company
has thus selected him as an outside director candidate andobtained approval on his appointment at the 159th Ordinary
General Meeting of Shareholders.

9

Audit & Supervisory Board Member

Audit & Supervisory Board Member

Shohei Tamaki

10 Masanori Sakamoto

A Message to Shareholders
In addition to the obligationof legality of executionof business duties by the
Board of Directors under theCompanies Act, I aim to focus
auditing activities on ensuring
reasonable and effective (valid)
execution of business duties
under the “Denka Value-Up”
concept.

A Message to Shareholders
In order to gain the trustof all stakeholders, I aim tomonitor the legality and validityof the day-to-day executionof business duties based on
the Companies Act and theprecepts of the corporate
governance code.

(Born June 18, 1952)(Born September 24, 1956)

11

Outside Audit &Supervisory Board Member

Tsunehiro Sasanami(Born January 28, 1952)

A Message to Shareholders
Drawing on my experience
as a lawyer, I audit theexecution of business duties
and operations of the Boardof Directors by asking whether
thorough compliance isachieved and whether the
corporate governance system
is working.

1２

Outside Audit &Supervisory Board Member

Toshio Kinoshita(Born April 12, 1949)

A Message to Shareholders
As one of the outside Audit& Supervisory Board members,
with the perspective of a
Certified Public Accountant
specialized in accounting, I
help to ensure that standardsof corporate governance at theCompany are properly upheld,
and that strict compliance ismaintained.
Denka Report 201832

“Denka Value-Up” Management Plan

Outline of the “Denka Value-Up”
Management Plan(fiscal 2018 – 2022)

Outline of the “Denka Value-Up” Management Plan (fiscal 2018–2022)

Growth Strategies
1

To Become a Specialty-Fusion Company
Having formulated Denka Value Up, we have re-adjusted our focus to the following factors essential
to sustainable corporate growth: “placing the utmost priority on safety”; “giving due consideration toenvironmental concerns”; “nurturing and better utilizing human resources”; and “making social contributions.”
Having positioned these creeds as fundamental components of its corporate philosophy, Denka now aims toachieve significant growth at home and abroad and, to this end, execute its new growth strategies designed
to help it to become a “Specialty-Fusion Company” capable of securing both “Sustained Growth” and “Sound
Growth.” For more details, please also refer to the following materials.
http://www.denka.co.jp/eng/news/pdf/20171108_valueup_e.pdf
http://www.denka.co.jp/eng/corporate/plan/pdf/valueup.pdf

Growth Vision1

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

Become a company that boasts outstanding global competitiveness backed by a robust portfolio of specialty
businesses and products along with its technological strengths and human resource capabilities
2

Maintain Sustained Growth by Significantly Enhancing Productivity through Innovative Processes

Strive to achieve a drastic improvement in productivity and, to this end, focus on truly essential operations andintroduce innovative processes through the utilization of IoT, AI and other cutting-edge digital technologies, thereby
securing the ability to secure sustained growth regardless of external conditions
3

Secure Sound Growth through Work Style Reforms

Develop a working environment that is inclusive of diverse working styles, with the aim of better collaborating with
employees to pursue stakeholder happiness and to ensure sound corporate growth

Disseminating Concepts behind Denka Value-Up to Unify All Denka Group Members toward the Plan’s Goal
The Denka Value-Up Promotion Department is striving to ensure that the growth vision and strategies under the “Denka Value-Up”
management plan are well understood by all employees, who range from back office workers to operators at production frontlines. To thisend, the department is engaged in the following initiatives.
- Preparing videos
In January 2018, we prepared and released a video announcing the launch of Denka Value-Up in an attempt to enhance corporate
communications targeting both in-house and external audiences. A first for us, the video is crafted to best disseminate the underlying conceptsof the management plan and features President Yamamoto delivering a message of strong determination regarding achieving the plan’s goals.
Looking ahead, plans call for preparing another video for an exclusively in-house audience twice a year over the course of the plan’s five-year
period.
- Value-Up Sessions (round-table dialogue)
We host round-table dialogue sessions, inviting managers from production bases and various departments to voice their opinions on present
issues that must be addressed if we are to realize the growth vision, propose initiatives to this end and explain their vision of the ideal
Denka once all goals have been met. In addition to featuring a summary of each dialogue session in an in-house wall-mounted newspaper,
we compile the content of these sessions into a special booklet to be distributed to all business units as we aim to help employees better
understand Denka Value-Up and foster a sense of ownership toward the realization of the plan.
- Posters featuring departmental targets
As part of our efforts aimed at ensuring that the growth vision is embraced by all business units, we have prepared posters for eachdepartment. These posters feature both the Company’s growth vision and department-specific targets being set in aid of accomplishing saidvision.
- Process reform initiatives and Denka Value-Up presentation meetings
Aiming to facilitate the introduction of innovative processes, one of our two growth strategies, we hold presentation meetings to draw
attention to business units that earned success in this endeavor. Horizontally rolling out best practices to each business site, we are striving toultimately realize overarching innovation in the Company’s operational processes.
- In-house intranet portal
We disseminate information about the status of process reforms by updating topics on relevant initiatives on our in-house intranet portal.

Business Portfolio Shift① Accelerate growth of specialty businesses
We will focus our management resources on thefollowing three priority fields, with the aim of achieving
numerical targets through proactive strategic
investments (e.g., execution of M&A and businessalliances, reinforcement of our R&D structure andreallocation of human resources).

Healthcare (EBITDA ratio: 30%)
Policy:In addition to illness prevention and early
diagnosis, we are expanding into cancer remedy
and gene alteration analysis to help enhancepeople’s quality of life.
Primary themes:

Diagnostic reagents to measure lipoprotein
subclasses, services aimed at facilitating genomebased cancer treatment (particularly the selectionof candidate drugs for molecular-targeted
therapy), methods for mass-producing oncolytic
viruses, and technologies to manufacture proteinsusing the tobacco plant
The environment and energy (EBITDA ratio: 20%)
Policy:We employ such core technologies as cuttingedge inorganic materials in product development,with the aim of better satisfying the latest needs
for solutions that help achieve zero emissions,
support autonomous driving systems and assist inother technological pursuits aimed at creating aclean and safe future society.
Primary themes:

Lithium ion secondary battery materials, films asalternatives for coatings and materials for surface
decoration of interiors
High-value-added infrastructure (EBITDA ratio: 10%)
Policy:We strive to meet high-profile infrastructuredevelopment needs in countries around the world
through the provision of cutting-edge materials
and solutions.
Primary themes:

Promote global expansion via M&A, the marketingof products tailored to meet region-specific needs
and cutting-edge infrastructure diagnosis services
employing ICT technologies
Note: EBITDA ratio = (operating income + depreciation and amortization) / net sales

33 Denka Report 2018

② Specialize our key operations
To secure resilience to changes in external conditions,
we will work to increase the “specialty grade” ratio
in the product lineup while shifting our focus to thesolution business.
③ Redefine the positioning of the commodity businesses
We are redefining the positioning of our commodity
businesses that are intrinsically unsuitable for
specialization, to this end restructuring strategies forthese businesses.
2

Introduction of Innovative Processes

Rather than adhering to precedent, we proactively
work to introduce cutting-edge ICT technologies; focus
on truly essential operations and the standardizationof our processes to achieve drastic improvements in
productivity; create new businesses; execute work
style reforms; and promote workforce diversity.
1. Production process reforms
・ Restructure our production facilities into ICTbased next-generation smart factories
・ Build a robust, overarching information platform
capable of managing all data on a real-timebasis
・ Realize manufacturing operations with greater
productivity and superior stability
2. R&D process reforms
・ Identify R&D themes oriented towardspecialization・D evelop R&D assistance systems employing ICT・N urture diverse human resources by providingthem with strategically designed career paths
Operational process reforms
・ Facilitate active in-house collaboration
through the introduction of futuristic office
functions・ Enhance operational productivity (streamline
routine work, improve the efficiency of
meetings, etc.)
・ Develop a location-free working environment
Work style reforms/Diversity promotion・ Shift our focus from “quantity” to “quality” interms of working hours
・ Help employees enhance their quality of life・ Create an innovation-oriented organization
by welcoming diverse human resources andhelping them achieve success

Denka Report 201834

“Denka Value-Up” Management Plan

Business Portfolio Shift
In line with our growth vision,“Specialty-Fusion Company” and,

Policiesto this end, accelerating the・ Work to increase “specialty grade” ratio in
product lineup to secure resilience to changes
in external conditions

growth of our specialty

businesses while promoting› P l a c e g r e a t e r e m p h a s i s o n p r o d u c tfunctionalities to promote the specialization of
our chloroprene rubber (CR) businessthe specialization of・ Shift our focus to the solution businessour key operations.

Policies:・H ealthcare› In addition to illness prevention and early
diagnosis, we are expanding into cancer
remedy and gene alteration analysis to help
enhance people’s quality of life.
・T he environment and energy› W e employ such core technologies as
cutting-edge inorganic materials in productdevelopment, with the aim of better satisfying
the latest needs for solutions that help achieve
zero emissions, support autonomous driving
systems and assist in other technologicalpursuits aimed at creating a clean and safe
future society.
・ High-value-added infrastructure› We strive to meet high-profile infrastructuredevelopment needs in countries around theworld through the provision of cutting-edge
materials and solutions.

Healthcare

In the healthcare field, we aim to step up ourexisting operations related to vaccines and diagnostic
reagents while expanding into new business fields,
including cancer treatment.
To enhance our capabilities in the vaccine business,
we made Icon Genetics GmbH, a Germany-based
company specializing in biopharmaceutical R&D,
a wholly owned subsidiary. Development projects
utilizing magnICON, a technological platform createdby Icon Genetics, are now under way with the aimof delivering a norovirus vaccine that has yet to becommercialized.
With regard to the diagnostic reagents business,
we have developed a reagent to measure sd LDL-C,
which is used as a risk marker to diagnose thepotential of developing critical diseases. Prior tolaunching the full-scale marketing of this reagent inJuly 2018, our business partner secured approval
for its production and sale from China’s Beijing Food

35 Denka Report 2018

growth in these regions, we will proactively seize
growing infrastructure demand associated with thedevelopment of traffic and power networks.

Specialize Our Key Operations

we are striving to become a

Accelerate the Growth ofSpecialty Businesses

Business Portfolio Shiftand Drug Administration in March 2016. Moreover,Denka Seiken obtained 510k clearance for thisproduct from the U.S. Food and Drug Administrationin August 2017. Looking ahead, we will accelerate
the implementation our marketing strategies for thisreagent, targeting regions around the globe.
In an effort to enter the cancer treatment business,
we launched a new service that provides optimal
remedy information via the use of big data-driven genealteration analysis technologies. We are also looking
to secure a contract manufacturer agreement for G47
Δ oncolytic virus, an epoch-making cancer drug basedon a genetically modified herpes virus that selectively
destroys cancer cells.

The Environment and Energy
In the field of the environment and energy, Denka’s
ultra-high purity acetylene black is widely used as acathode conductive agent for lithium ion secondary
batteries (LiBs). Currently, we are striving to createcarbon black with even higher purity while enhancing
our technologies to control particle diameters, with theaim of helping enhance LiB performance. Having long
been engaged in the development of sophisticatednitriding technologies, we are presently manufacturing
silicon nitride ceramic powder and are finding
applications for our superior molding and calcining
technologies. Thanks to our strengths in the field, oursilicon nitride-based products
have become increasingly
sought after as a material forthermally conductive substrates
for power modules used in
automobiles and railcars. We Denka representatives attending
the EV Tech Expo, an electric
are currently striving to enhanceand hybrid vehicle technology
their thermal conductivity andexhibition held in Detroit,
Michigan, the United States, instrength to differentiate them
September 2017from competitors in terms of performance.

High-Value-Added Infrastructure
In the field of high-value-added infrastructure, weare endeavoring to expand our operations related
to special cement additives that help enhance thequality of concrete and mortar. To this end, we arestrengthening our production and sales structure
in China and Southeast Asia. Taking advantage ofburgeoning economic expansion and population› Apply our special cement additive technologies
to develop such products as weed-preventing
soil solidifiers, thereby stepping up the provisionof comprehensive solutions in our agri-products
business
We have acquired chloroprene rubber-related
operations from the U.S.-based DuPont, thereby
establishing Denka Performance Elastomer LLC (DPE)in the United States. While the chloroprene rubber
production facility formally run by DuPont employs
the butadiene–based manufacturing method, Denka’s
Omi Plant in Japan manufactures this material by using
the acetylene-based method. Employing production
facilities that use different manufacturing methods
for the same purpose has allowed us to make major
progress toward creating a truly optimal production
system while capturing greater market share. In turn,this structure has helped Denka significantly increase
its global presence as a chloroprene rubber supplier.
We have also made CRK Corporation, which handles
the manufacture, processing and sale of industrial
rubber products, a wholly owned subsidiary as partof our ongoing efforts to accelerate the specializationof our businesses. This move is specifically intended
to enhance synergies between Group companies
charged with material development and productdevelopment.
Furthermore, we have developed Evolmer, a novelelastomer boasting superior oil and heat resistanceas well as high amenability via a combination ofelastomer technologies that have been developed

over many years, and precision polymerization
technologies that reflect a long track record in polymer
development. Going forward, we will strive to expand
the lineup of high-value-added products, thereby
promoting the specialization of the elastomer businessas a whole.

Redefine the Positioning of
the Commodity Businesses
Policies・ Facilitate the transformation of our portfolio tosupport our future strategies
・ Redefine the positioning of commodity businesses
that are intrinsically unsuitable for specialization
The Denka Value-Up Promotion Department,a body charged with spearheading Groupwide
initiatives under the Denka Value-Up management
plan, is pushing ahead with the transformation of
our portfolio. Looking ahead, the department will
also take the lead in redefining the positioning ofcommodity businesses that are intrinsically unsuitable
for specialization.
Calcium carbide and styrene monomer are
representative of our commodity products while
also functioning as raw materials for chloroprenerubber and performance plastics. With this in mind,
we will review their overall value chains to achieve
the optimization of related operations, including
production systems.

Optimization of value chains for calcium
carbide and styrene-based products› Decided to terminate the production of
calcium carbide at the Omuta Plant, decisively
overhauled operations boasting a century-longtrack record since Denka’s founding› E ntered an alliance with Sumitomo Osaka
Cement Co., Ltd. to launch a joint logistics
scheme› S tepped up collaboration with external
companies housed in the same industrial
complex in Chiba to streamline utilities

Initiatives to Develop New Businesses to Help Create Next-Generation Automobiles

Automotive Materials & Solutions (AMS) Dept.
Today, the automotive industry is undergoing significant change worldwide in the face of looming issues
associated with global climate change and the depletion of natural resources, as well as the emergence ofautonomous driving systems and other new technologies now being commercialized. Since its establishment
in July 2016, the AMS Department has been engaged in proposing solutions that aim to address issues theindustry is now confronting, employing resources across the Denka Group.
Specifically, the department is focused on responding to two major trends, namely, the growing popularity ofelectric vehicles (EVs) and the acceptance of autonomous driving systems. Looking at the future of automobiles
from the four aspects of the “environment and energy,” “safety,” “convenience” and “comfortableness,” we arethus engaged in research aimed at commercializing new business seeds that utilize our core technologies.
Boasting a solid track record in the automotive field, the Denka Group has been supplying an array of
products, including elastomers for use in hoses and air suspension systems, raw materials for heat-resistant ABS
resin used in car interior and exterior components, electronic circuit substrates for car electronics, carbon blackfor LiBs, bundling tapes for wire harnesses and structural adhesives. In addition to endeavoring to expand thesales of these offerings, we will strive to nurture new businesses in this field.

Denka Report 201836

“Denka Value-Up” Management Plan

Introduction of Innovative Processes
Focusing on truly essential operations,
we will promote the introduction of
cutting-edge ICT technologies andthe standardization of our processes inan effort to achieve drastic

improvements in productivity,

create new businesses and execute work style reforms.

Production Process Reforms
Policies・ Restructure our production facilities into ICT-basednext-generation smart factories
・ B uild a robust, overarching information platform
capable of managing all data on a real-time basis
・ R ealize manufacturing operations with greater
productivity and superior stability

Our Accomplishments as of the
Fiscal 2017 Year-End

The AI & IoT Promotion Section, which wasestablished in October 2017 to promote theutilization of IoT, AI and other cutting-edge
technologies, is currently working in collaboration
with manufacturing sites at home and abroad andother relevant departments to promote production
process reforms and operational process reforms withthe goal of doubling labor productivity. In addition,
projects now under way at the Group’s four plants
in Singapore to create a “smart factory” have been
qualified by the Singaporean government as eligible
あthe country’s innovation-driven growth strategies.
Thus, under the auspices of Singapore’s Economic
Development Board, these plants have been engaged
in five-year initiatives since November 2017 (examples
outlined below).
Meanwhile, our domestic production bases havecontinued to introduce AI-based automated inspection
systems, transportation systems using automatic
guided vehicles (AGVs) and other automation androbotics solutions. We are also engaged in the trial
operation of a “smarter” production process thatutilizes advanced sensing technologies and employs
big data analysis. The process is expected to better
position us to detect signs of facility failure andachieve more stable operations.

the Open Innovation Management System (OIMS) asa flagship tool for promoting R&D process reforms, weare engaged in the real-time management of progress
in R&D activities on each research theme.
Also, we have positioned our human resources
as a key driving force promoting the Denka ValueUp management plan. With this in mind, we initiateddiscussion on how help them achieve a “Value-Shift”
and determined the outline of our strategies fornurturing and allocating researchers. Moreover, in fiscal
2017 we dispatched a growing number of researchers
to study abroad and encouraged them to acquire
diplomas at leading academic institutions, with the aimof nurturing them into Denka’s next-generation leaders
in terms of R&D.

Operational Process Reforms
Policies・ Facilitate active in-house collaboration through theintroduction of futuristic office functions
・ Enhance operational productivity・ Develop a location-free working environment

R&D Process Reforms
Policies・ Identify R&D themes oriented toward specialization
・ Develop R&D assistance systems employing ICT・ Nurture diverse human resources by providing themwith strategically designed career paths

Our Accomplishments as of the Fiscal
2017 Year-End

In fiscal 2017, we promoted collaborative R&D withexternal corporations, with our younger researchers
who have not been at Denka more than 10 years
taking leading roles. The purpose of this exercise
was to incorporate unconventional ideas and trigger
flexible thinking. Simultaneously, we solicited employee
proposals on R&D themes that are expected to help
create new businesses. By doing so, we strove toengender R&D activities that transcend the scope ofmaterials development.
In the face of a growing trend toward technologicaldevelopment aimed at realizing “Industry 4.0,” we also
set up and began utilizing a “data lake” on a server thatcan be accessed from all business units, with the aimof upgrading our R&D assistance structure. Employing“Smart Factory” Initiatives Being Undertaken in Singapore（1）U pgrading of network and other infrastructure to boost the plant’s big data collection andconsolidation capabilities and to perform the advanced analysis of such data（2）Installation of an automated system for constantly monitoring and analyzing vibrations produced byrotating machinery as well as electric waveform and other information to detect signs of possible
facility failure and stabilize operations（3）Realization of a quicker product quality inspection process by predicting quality based on processdata and performing in-line quality analysis（4）Optimization of production plans to maximize profitability (using simulations and applying theresults)
Note: Discussions about the installation of a system to determine the whereabouts and safety of operators are now under way.

37 Denka Report 2018

Introduction of Innovative Processes

Our Initiatives in Fiscal 2017
through the First Half of Fiscal 2018

We renovated our Head Office in the aforementioned
period. This project was intended to realize a“futuristic office” that fully employs ICT solutions. Morespecifically, we entirely revamped the facility’s working
spaces while massively replacing ICT equipment, sothat employees are able to embrace more flexible
working styles supported by a paperless platform anda location-free office environment.
Having intensively discussed how to facilitate inhouse collaboration and enhance operational
productivity, we have revised our Head Office floor
plans and realigned working spaces, with emphasisbeing placed on the following three points.
①Facilitate collaboration between sales andadministrative departments②Maximize synergies between all Denka business
units③Strengthen the Denka Group’s communication
capabilities targeting external audiences
We have thus consolidated four out of five sales
departments on the eighth floor and all administrative
departments on the 10th floor. Furthermore, we
relocated reception and meeting rooms to the ninth
floor while newly establishing a manned reception
desk on the same floor as part of our efforts to ensurethat visitors to the Head Office feel welcome.

A renovated Head Office working space designed to facilitate in-housecollaboration

Developing an IT-Driven OfficeEnvironment Supporting Operational
Process Reforms

1. Creating a “Paperless Office”
In December 2016, we stopped distributing paperbased handout materials at our Board of Directors
meetings. This was thanks to the introduction of apaperless meeting platform, with tablet terminals
being furnished to each meeting attendee. We arealso rolling out the use of this platform to other key
meetings.
In February 2018, we introduced an electronic
approval system designed to take over from theformer conventional application and approval
procedures requiring the use of personal seals of
relevant individuals on paper documents. We are thus
striving to create swifter operational procedures bygoing paperless.
2. Upgrading our ICT Environment①As part of the aforementioned renovation of
Head Office facilities in July 2018, we have madesecured wireless LAN connection available fromanywhere in the building. Thanks to this move, all
Head Office employees are now able to accessthe Company’s intranet system via laptop andengage in tasks whether at a desk or in a meetingroom.
②We have installed projectors and monitors inall meeting rooms and spaces, with the aim ofeliminating the need for paper-based handout
materials. This move is expected to improve theefficiency of meeting preparation by freeing up
resources that had been used for printing, copying
and distributing presentation materials.

3. Future Initiatives①We will introduce a document management
system to expand the scope of paperless inhouse operational procedures. We will also makeit a rule to store important meeting materials in
the form of electronic data rather than paper
document. This will be not only labor saving but
space saving as the need for massive storage
space is eliminated.
②With the aim of facilitating in-house communication,
we will engage in such initiatives as the additional
installation of teleconferencing systems, theintroduction of a next-generation groupware andthe expansion of intranet portal content.

Denka Report 201838

“Denka Value-Up” Management Plan

Business Strategies│Life Innovation
Looking to improve the quality of life for people worldwide, the Denka Group is steadily

implementing a variety of initiatives in the healthcare field, which boasts significant growthpotential. These initiatives include promoting illness prevention and early diagnosis in addition
to expanding into cancer remedy and gene alteration analysis.

Looking ahead, by focusing our management resources on the priority healthcare field andspeeding up the development of next-generation products, we will contribute to the entire
Denka Group’s efforts to accelerate the growth of its specialty businesses.

Life Innovation

Characteristics of the Business Division
Technologies: Bacterial and virological cultivation and refinement technologies, antigen and antibody
reaction control technologies, monoclonal antibody production technologies, etc.
Products: Vaccines, diagnostic reagents, joint function improvers, etc.
Business fields: Healthcare (diagnosis, treatment and prevention)
Denka Seiken Co., Ltd., a core subsidiary supporting the Life Innovation Division, is striving to enrich the Group’s
lineup of products associated with disease prevention, health checkups and diagnosis and has established amanufacturing facility for cancer drugs in October 2017. This new facility supports the cancer remedy business,
which Denka Seiken is working to establish as its third business pillar next to vaccines and diagnostic reagents in abid toward achieving significant growth.
Also, Germany-based Icon Genetics GmbH became a wholly owned subsidiary with the completion of anadditional acquisition of shares in August 2017. Employing magnICON, a technological platform created by Icon,
we are developing norovirus vaccines, creating new technologies that will replace conventional technologies for
producing seasonal influenza vaccines, and manufacturing antigens for use in diagnostic reagents.

Main Achievements in Fiscal 2017
Macromolecular sodium
hyaluronate preparation

Vaccines

Business Strategies underDenka Value-Up

Review of the Denka100
Management Plan
1

Denka100 Initiatives

1

2015

Developed prototype Ebola virus rapid diagnostic test kits

2016

Completed a new manufacturing facility at Denka Seiken’s
Kagamida Plan

2016

Our business partner obtained Beijing FDA approval
for the production and sale of a reagent for measuring
sd LDL-C

2016

Established an R&D base in Singapore

2016Entered a business alliance with the Taiwan-based
PlexBio Co., Ltd.

2017

Established Denka-KEW Genomics LLC

2017

Acquired U.S. FDA 510k clearance for the reagent formeasuring sd LDL-C

2017

Released QuickNaviTM-Flu 2 rapid diagnostic test kit

2017

Made Icon Genetics a wholly owned subsidiary

2017

Completed a facility for manufacturing G47Δ oncolytic
virus

Five-Year Divisional Performance Summary■ Net sales(Billions of yen)

■Operating income

Diagnostic reagents

Operating income ratio

40

The Market Environment・ G rowth in healthcare expenses due to theprogressive aging of society and the sophistication of
medical technologies

40

reflecting the formation of a global traffic networkon the back of economic growth in developing
countries・ Solutions for illness prevention and early diagnosis
have become ever more important
2

Strategies

・ S tep up key operations (influenza vaccines,
hyaluronate preparation, etc.)
・ Get new businesses smoothly on track (anticancer

35

35

30

30

25

25

・ P romote open innovation to create products

20

20

and technologies for future generations (Denka

15

15

10

10

Innovation Center, Icon, Denka Life Innovation

5

5

0

FY 201339 Denka Report 2018

FY 2014

FY 2015

FY 2016

FY 2017

Product
examplevirus and Denka-KEW Genomics, etc.)

Research, etc.)* 510k clearance: Approval granted by U.S. FDA for the sale of Class I and II
medical equipment and in-vitro diagnostic reagents. The U.S. FDA applies athree-tiered risk-based classification system that designates such items as
Class I, II or III.

Challenge
・Expand the scope of operations by accurately
assessing the latest market trends
Good Health and Well-Being

Reagent for measuring sd LDL-C・ Increasing risk of infectious disease pandemics,

diagnostic reagents, macromolecular sodium（%）

・Denka Seiken Co., Ltd. acquired 510k clearance*
for a reagent that measures small, dense LDLcholesterol (sd LDL-C) from the U.S. Food and Drug
Administration (FDA). Also, the company expanded
its lineup of QuickNaviTM series rapid diagnostic test
kits for detecting infectious diseases with the releaseof a new test kit for detecting mycoplasma antigen
and introduction of an improved influenza virus
antigen test kit.
・We entered a basic agreement with PlexBio, astrategic partner headquartered in Taiwan, withregard to the joint development of an infectious

disease diagnostic testing system comprising a
new set of equipment and reagents, with the aimof reducing the time required to detect pathogenic
microorganisms and drug resistant bacteria genes. In
this way, we aim to address a major issue medical
practitioners are now confronting in the field of
infectious diseases.

Social issue

・ High mortality rate of heart disease patients

Source ofvalue

Applied technologies deriving from lipoprotein
subclass detection technologies that havebeen cultivated through the involvement in
the diagnostic reagent businessThis reagent is used to measure the density of sd LDL in theoverall cholesterol count. To date, the measurement of LDL
cholesterol has proved insufficient as a risk indicator for heartdisease and coronary heart disease; however, the measurementof sd LDL-C promises to serve as an accurate risk indicator.
A special method had to be devised so that sd LDL-C, oneof a number of the lipoprotein subclasses that comprise LDLcholesterol, could be measured. Moreover, Denka Seiken had to
apply its highly sophisticated diagnostic reagent technologies todevelop the reagent so that it could be employed in commonlyused automated clinical chemistry analyzers. We are convincedthat the creation of a simple, quick and low-cost diagnostic
solution for assessing heart disease risk will promote themaintenance of good health, help prevent disease and reduce
medical expenses.
Having acquired U.S. FDA 510k clearance for this reagent inAugust 2017, we have thus initiated full-scale marketing in thatcountry in July 2018.

0Denka Report 201840

“Denka Value-Up” Management Plan

Business Strategies│
Electronics & Innovative Products
We are aware of the ever-more stringent customer requirements regarding productminiaturization, performance, safety and reliability that are being required of electronics
device makers on the back of advances in ICT and the emergence of such technologies

as autonomous driving systems. With this in mind, we will deliver optimal materials to
our customers by fully leveraging a variety of key in-house technologies that enable us

to meet constantly evolving needs. In these ways, we will contribute to the bettermentof society.

DENKA THERMALLYCONDUCTIVE SHEET(Applications: Semiconductor sealant fillers, etc.)

Review of the Denka100
Management Plan
Denka100 Initiatives

1

Stepped up our capital alliance with SEI Corporation
and accelerated technological development aimed atincreasing the conductivity of LiB electrode materials

2013

Initiated the construction of an ultra-high purity acetylene
black production facility

2013

Established the NIMS-DENKA Center of Excellence for
Next-Generation Materials

2013

TEMPLOC temporary coupling agent was chosen to
receive an Award from the Society of Polymer Science,Japan
Commenced the construction of a new facility in Vietnam
to produce Denka Thermo Film for use as an embossed
carrier tape for electronic components

2015

Completed a new production base in Dalian, China,
for the manufacture of ALSINK, a highly-reliable thermal
conductive plate

2016

Established the Automotive Materials & Solutions Dept.

Five-Year Divisional Performance Summary■Net sales■Operating income

Operating income ratio(Billions of yen)

（%）

60

20

50
15
40
10

30
20

5
10
0

FY 201341 Denka Report 2018

FY 2014

FY 2015

FY 2016

FY 2017

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

Business Strategies underDenka Value-Up

2013

2014

Characteristics of the Business Division
Technologies: Ceramics sintering and calcining, particle manufacturing, nitride synthesis, precision		 processing and machining, material composite, sheet and film lamination, thermal		 conductive, heat and light curing, static electricity control, coating and painting and		 adhesive technologies as well as optical property control technologies, including those		 associated with controlling the refractive index
Products: Ceramics, inorganic fillers, sheets and films, electronic circuit substrates, adhesives,
		 electron guns for electron microscopes, etc.
Business fields: Automobiles, electric and electronic devices, aircraft and spacecraft, rolling stock, marine		 vessels, the environment and energy, communication, power, etc.
The Electronics & Innovative Products Division boasts an array of products that are essential to thefield of electronic materials. Its offerings include electronic parts materials, thermal solution components,
packaging materials for transporting electronic components, and structural adhesives. Moreover, in April
2018 the division took over the production of acetylene black, a key offering used as a conductive agent
for lithium ion secondary batteries (LiBs), from the Elastomers & Performance Plastics Division.
With the aim of addressing growing demand for materials for use in such eco-friendly vehicles as EVs,
we will facilitate robust information sharing, a move that will enable us to respond quickly to customer
requests and expand sales while developing new on-trend products.

Spherical alumina

1Electronics & Innovative Products

The Market Environment

・ F o r m a t i o n o f n e w m a r k e t s d u e t o t h epopularization of EVs, HEVs and other ecofriendly vehicles
・ Changes in market needs in the face of growing
needs for the combination of automotive
technologies and ICT・ G r o w i n g p r e s e n c e o f n e w t e c h n o l o g i e s ,reflecting breakthroughs in IT and displays
2

Strategies

１． Accelerate specialization
・ P romote the specialization of our businesses
targeting the semiconductor, electronic
component and vehicle-mounted device markets
２． B oost our production capabilities to better
serve growth markets
・ C onduct timely capital investment to secure
responsiveness to a rapid surge in demand
３． Expand new businesses・ P ush ahead with development projects torealize earlier commercialization

Main Achievements in Fiscal 2017

Challenges

・ E nhanced the color reproduction property ofthe β SiAlON Phosphor
・ R eleased silicon nitride ceramics plate (SNP)
backed by a thick copper substrate for use inlarge-current power modules
・ Expanded the sales of metal circuit substrates
for use in LED-based automobile headlamps
・ Expanded sales of thermally conductive spacers
and particle-grade acetylene black for use inautomotive-use LiBs・ Expanded sales of spherical alumina for use as
thermal solutions used in communication andvehicle-mounted devices

・ E mploy our production and development
technologies in a lasting and strategic manner・ E xecute production and operational process
reforms while taking a flexible stance in humanresource management
・ S tep up initiatives to secure product quality,
pursue environment friendliness and mitigate
risk in the face of business expansion

The β SiAlON Phosphor

Product
exampleAcetylene black

Social issue

Affordable and Clean Energy• Promote the use of clean energy• Promote the use of eco-friendly vehicles

Source ofvalue

Technologies for enhancing the purity ofelectro-conductive materials

Our acetylene black, made using acetylene gas, boasts
minimal foreign matter content (such as sulfur or metal).
Thanks to its purity, this product has become an essential
material for LiBs and the internal and external semiconductor
layers of cables. Acetylene black has a unique structure
capable of mitigating changes in the cubic volume of LiB active
materials that occurs during electric charge and discharge.
This, in turn, helps prevent the deformation of electrodes andthus prolongs the product life of LiBs.

0

Denka Report 201842

“Denka Value-Up” Management Plan

Business Strategies│
Infrastructure & Social Solutions
The source of the division’s competitive advantages lies in in-house hydroelectric power

generation capabilities backed by access to abundant water resources as well as companyowned limestone mines. Leveraging these strengths, we are endeavoring to provide solutions

that accurately satisfy the latest customer needs in agricultural and social infrastructuredevelopment industries while focusing on advancing energy and resource saving as well as
global warming countermeasures.

Infrastructure & Social Solutions

Characteristics of the Business Division
Technologies: In-house power generation, mining, concrete hardening, expansion and contraction,		material design, construction and repair technologies and soil improvement and		

fertilization technologies as well as high-temperature calcining technologies for inorganic		materials and polymer processing technologies

Products: Cement, cement additives, fertilizers, inorganic chemicals and plastics
Business fields: Civil engineering, construction, iron-making, ceramics, energy, agriculture, automobiles, etc.
The Infrastructure & Social Solutions Division handles cement and special cement additives, both of which areessential for infrastructure development; corrugated pipes for water catchment and discharge systems used to
manage ground and river water; calcium carbide and calcium cyanamide fertilizers— key offerings Denka has been
manufacturing for more than a century; fire resistant materials; desulfurizing agents; and other materials for use atsuch facilities as steelworks.
Among these, our special cement additive business is aimed at serving markets in China and Southeast Asia,
where rapid infrastructure development is under way. To that end, the division’s manufacturing, sales and R&D
sections are working together as one to deliver a range of related offerings and services, from novel materials andinnovative construction and repair methods to structural diagnosis.

CementProactively accepted waste and byproducts forresource recycling
Special cement additives
Initiated the supply of quick-setting agent for use intunnel construction for the Liner Chuo Shinkansen(bullet train line)Commercialized DENKA POWER CSA expansive
additive for flooring materials used in factories andlogistics facilities
Agri-products
Promoted the production of fertilizers employing
combustion ash from chicken droppings used to feedbiomass power generation facilities
Inorganic products
Developed high-value-added products boastingsuperior heat insulation
Environmental materials
Supplied materials for underground drainage being
installed as part of the reconstruction of disasterstricken rice paddies in Miyagi PrefecturePromoted the use of underground irrigation systems
designed to facilitate multi-functional rice paddies

CementDevelop new recycling technologies
Special cement additives
Propose even better solutions for large projects tosecure greater market presenceProactively expand overseas operations to securesustainable growth
Agri-products
Expand sales of products made of naturally-derived
ingredients, such as humic acid and chicken droppings
Inorganic chemicals
Develop fire-resistant materials and thermal insulation
products to meet individual customer needs
Environmental materials
Promote the adoption of a farmland development
model that fully leverages Denka’s unique strengths.

1

CO 2-SUICOM, environment-friendly concrete, waschosen to receive the Environment Minister’s Award
for Global Warming Prevention Activity

2015

Made the Malaysia-based POSCO Venture Sdn. Bhd.
a Group subsidiary2015

C O 2- S U I C O M w a s c h o s e n t o r e c e i v e t h e
Chairperson’s Award under the Eco-Products Awards
program sponsored by Eco-Products Awards Steering
Committee

2016

Made PT ESTOP Indonesia, an Indonesia-based
construction material maker, a Group subsidiary

2017

Established a subsidiary aimed at streamlining
cement-related logistics operations

Five-Year Divisional Performance Summary■ Net sales ■Operating income

Operating income ratio（%）(Billions of yen)

60

12

50

10

40

8

30

6

20

4

10

2

0

43 Denka Report 2018

FY 2013

FY 2014

FY 2015

FY 2016

FY 201702Strategies

・ D evelop products that support infrastructure
maintenance and cultivate relevant markets
・ Facilitate the utilization of recycled waste andthereby help develop a recycling-oriented society・ Step up overseas expansion by augmenting our local
network for special cement additives in Asia・ Maximize profitability by optimizing our production
system・ Promote the development of novel farming materials,
thereby reinforcing our solution business targetingthe agricultural sector・ Propose and implement solutions to help create
energy-saving, environment-friendly steel andindustrial furnaces

▲

2014

・ G rowing demand for solutions supporting
infrastructure development, maintenance andupgrading (related to post-disaster reconstruction,
publicly funded investment in new facilities andcountermeasures to the aging of facilities)
・ Burgeoning infrastructure development needs in
China and Southeast Asia and growing demand forhigh-performance specialty products in Europe andthe United State・ In farming, trends are toward labor saving and largescale operations to shore up Japan’s agricultural
sector・ Growing need for ecological solutions▲

Launched a full-scale expansion into markets overseas
with special cement additives, announcing marketingstrategies for China and Southeast Asia

▲

2013

The Market Environment▲

Denka100 Initiatives▲

1

Business Strategies underDenka Value-Up▲

Review of the Denka100
Management Plan

TOYODRAIN(underground drainpipes for
agriculture and construction use)▲

AZUMIN(humic acid fertilizer)▲

DENKA CSA

(expansive additive for concrete)▲

Challenges▲

Main Achievements in Fiscal 2017

Product
example

DENKA ALCEN

Social issue

Sustainable Cities and Communities• Energy saving• Purification of automobile exhaust gas• Need for reduced environmental burdens

Source ofvalue

Fabric spinning and material calcining
technologies to produce protective
materials

This product is used as a raw material for automotive components
designed to hold ceramic catalysts and filters that purify exhaust gas
thanks to its superior resistance to high heat and vibration, both ofwhich are inherent to the functioning of automobiles. It is also used asa thermal insulator for industrial furnaces. Boasting lower density, lighter
weight and lower thermal conductivity than firebricks, which have been
traditionally used for the same purposes, this product helps reduce theoverall weight of furnaces while curbing energy consumption.

Example of usage as support mat
for catalyst carrier

Denka Report 201844

“Denka Value-Up” Management Plan

Business Strategies│
Living & Environment Products

Living & Environment Products

Characteristics of the Business Division
Technologies: Sheet film manufacturing technologies, adhesive manufacturing and adhesion coating technologies,		We will take on the pursuit of new value without insisting on limiting the search to aparticular material or field and, to this end, fully take advantage of our strengths in the areas oftechnology and quality, with the aim of supporting the entire Group in our role as a chemicalengineering division. In these ways, we will create and deliver products that satisfy market
needs to in-house and external partners.

resin compounding technologies, plastic ejection processing technologies, etc.

Products: Resins, elastomers, molded metal products, films, sheets synthetic fibers, etc.
Business fields: Architectural materials, wigs and hairpieces, and food packaging
The Living & Environment Products Division in engaged in wide-ranging businesses that directly affect people’s lifestyles andliving environments. For example, it handles materials for construction use, such as rain gutters, as well as industrial tapes andfood packaging materials. Moreover, in anticipation of future growth in demand in markets abroad, the division is promoting
the overseas production of TOYOKALON, a synthetic fiber for wigs and hairpieces, VINI-TAPE for such applications as electricalinsulation and automotive wire harnesses, and multilayer food packaging sheets.
Employing the Company’s strength in fluorine-based films, the division is pushing beyond the scope of its traditional areasof operations related to solar cell back sheets as it seeks to expand into interior decorating materials through the provision of
surface decorating films. In addition, we are promoting TEFKA film, which has superior fire retardant properties and transparency,with an eye to launching full-scale marketing to supply materials for membrane structures. Going forward, we will push forwardwith global expansion targeting such regions as Asia, Europe, the United States and Africa.

Main Achievements in Fiscal 2017
Better serving overseas markets❶ Launched full-scale production and marketingof harness tapes at Denka Advanced Materials
Vietnam❷ Launched full-scale production of TOYOKALON
at the Tuas South Plant of Denka Advantech Pte.,
Ltd. in Singapore❸ Studied the feasibility of new businesses
Developing new products
Developed the industry’s thinnest and lightest
PVC adhesive tape for use in automotive
bundling tapes for wire harness▲

An example of housing made using
TOYO GUTTERSTOYOKALON(synthetic fiber for wigs and hairpieces)(hard polyvinyl chloride rain gutters)(packaging materials for food containers)

Business Strategies underDenka Value-Up

Denka100 Initiatives

1

2013

Completed a new TOYOKALON production base in
Singapore

2013

Commenced the construction of a new food packaging
sheet manufacturing facility in China

2013

Established a new subsidiary in Vietnam and decided toconstruct a new VINI-TAPE production facility

2014

Established a local subsidiary in Dubai

2015

Completed the new VINI-TAPE production facility in
Vietnam2016

Developed Mighty Guard, a heat- and oil-resistant sheet• T he maturation of the domestic market andintensifying competition• Growth in market potential reflecting the burgeoning
purchasing power of emerging economies• G rowing public awareness of the need forenvironmental load reduction• Growing interest in food safety

Five-Year Divisional Performance Summary■ Net sales■Operating income

Operating income ratio（%）(Billions of yen)

The Market Environment

60

6

50

5

40

4

30

3

20

2

10

1

0

0

2

Strategies• Enhance facility utilization at home and abroad andestablish an optimally-balanced production structure• Scrutinize every cost element to secure an evenstronger business structure• Strategically allocate resources to growth drivers▲

Review of the Denka100
Management Plan
1

Examples of finishedproducts made suing DENKA
THERMOSHEET

Product
exampleCold-resistant thin harness tapeSocial issue• Popularization of eco-friendly vehicles• Needs for solutions enhancing driving safety

Challenges•P romote the optimization of our production
system while reorganizing the current businessstructure•Create next-generation businesses and cultivate
markets for new offerings•Allocate greater resources to and step up thedevelopment of products aimed at helping
reduce environmental burdens•Make cities and human settlements inclusive, safe,
resilient and sustainable

Source ofvalue

Technologies to realize the smallest
thickness and weight while retaining cold
resistanceThis product is used as an adhesive tape for bundling automobile wire
harnesses.* The thinnest and lightest tape in the industry, the productcontributes to the creation of light-weight automotive components while
also contributing to the maintenance of driving safety in cold regions as
it can be used at temperatures as low as minus 30°
C. In addition, we
employed environment-friendly ingredients to produce the adhesive
used in this product.
In the face of EV popularization and the emergence of autonomous
driving systems, car electronics makers are expected to face even stricter
customer requirements in terms of product reliability. We will help satisfy
such requirements by employing proprietary Denka technologies.
*Wire harness: An electrical wiring assembly for use in equipment like automobiles and home appliances to transmit electronic signals and power

FY 201345 Denka Report 2018

FY 2014

FY 2015

FY 2016

FY 2017

Denka Report 201846

“Denka Value-Up” Management Plan

Business Strategies│
Elastomers & Performance Plastics
Leveraging a broad range of techniques and experience in synthesizing,

Elastomers & Performance Plastics

Characteristics of the Business Division
Technologies: Polymer structure design and polymer composite technologies, material composite andcompounding and molding polymers, we are bolstering technological innovation in		compounding technologies, high-purity technologies, particle diameter control technologies,		

emulsification control technologies, etc.

doing so, we are contributing to the sound development of society.

Business fields: Automobiles, electric and electronic devices, food packaging, household goods for daily use, etc.

such manufacturing fields as automobiles, home appliances and food packaging. By
Currently, the division’s overseas sales ratio is holding stable at over 60%. In

Products: Resins, elastomers and acetyl chemicals

addition to our production bases in Japan, we operate overseas plants in the

United States and Singapore. We will fully employ these facilities to meet the evergrowing needs of the global market while developing specialty businesses withoutstanding competitiveness and presence.

Examples of CR-based automobile parts

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

Business Strategies underDenka Value-Up

Review of the Denka100
Management Plan
1

Denka100 Initiatives

1

2014

Withdrew from the vinyl acetate monomer business

2014

Overhauled ABS resin and special functional resin
production processes to enhance manufacturing
competitiveness2014

Signed an agreement with the U.S.-based DuPont
with regard to the transfer of its operations related to
NeopreneTM

2015

Completed the transfer of the NeopreneTM business from
DuPont2015

Co-developed rubber bearings for bridges based on a newmaterial boasting significantly improved ozone resistance

2016

Optimized utilities for the Chiba Plant to enhance
manufacturing competitivenessFive-Year Divisional Performance Summary■ Net sales ■Operating income

Operating income ratio（%）(Billions of yen)

200

10

180

9

160

8

140

7

120

6

100

5

80

4

60

3

40

2

20

1

0

FY 201347 Denka Report 2018

FY 2014

FY 2015

FY 2016

FY 2017

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

The Market Environment•Burgeoning demand for ecological solutions andgrowing public awareness of safety and healthcare•Increasing market presence of commodity
manufacturers based in emerging economies•A shift to overseas production in electronics,
automotive and other related markets on theback of demand growth in emerging economies•G rowing trend toward protectionism in someregions2

Strategies•D e v e l o p h i g h - v a l u e a d d e d b u s i n e s s e s t osecure resilience against changes in the trading
environment, thereby achieving sustainablegrowth•Focus resources to growth fields and promotecollaboration with external companies with theaim of developing new businesses•O ptimize all processes from production tosales while developing a more robust structure
capable of better serving the global market•U pgrade the functions of the Product Safety
Management Section to ensure the stricter
management of chemical content and morerobust quality assurance

The Elastomers & Performance Plastic Division is in charge of three business categories: theelastomer business, which includes our flagship global market leading chloroprene rubber (CR)
operations; the performance plastics business, which boasts highly functional styrene-based products
in an array of grades; and the styrene and chemicals business, which centers on styrene monomer andacetyl chemicals.

Main Achievements in Fiscal 2017

Challenges•D enka Performance Elastomer LLC achieved
profitability in its second year of operations,which date back to the 2015 acquisition of
DuPont’s CR-related operations•M ade CRK Corporation, a company engaged
in the production, processing and marketingof synthetic rubber products, a wholly owned
subsidiary•Augmented the structure for chemical content
management and quality assurance via theallocation of additional staff to the Product Safety
Management Section•R educed the workload for routine tasks byapproximately 20% thanks to the success of
streamlining via operational process reforms•Increase profits from the elastomer business by
expanding the production volume of CR and DENKA
ER, enhancing CR functions and maximizing synergies
between two CR production bases in Japan andthe United States in addition to the introduction ofEvolmer, a novel elastomer•Step up strategic involvement in technical services
which will, in turn, enable us to quickly acquire tips
from users with regard to their latest needs anddevelop new products and grades to meet suchneeds•Capture burgeoning demand in the optical field to
expand sales of resin products•Promote the overall specialization of our businesses
in the fields of resins and chemicals via thedevelopment of highly functional products•U tilize AI and IoT to renovate our production
and supply chain processes and enhance ourcompetitiveness•Introduce customer management and businessassistance tools to achieve further improvementin operational productivity

Product
example

DENKA ER

Social issue

Affordable and Clean Energy• Global warming• Popularization of eco-friendly vehicles

Source ofvalue

Our capabilities to develop optimal materials
for turbo charger hoses and meet user needs
via the proposal of composite technologies

DENKA ER, consisting of ethylene, vinyl
acetate and acrylic acid ester, boasts
superior heat resistance that allows it towithstand a temperature as high as 175°C
as well as durability against corrosion
attributable to simultaneous exposure
to heat and oil. This special acryl-based
rubber is used in the peripheral hoses ofautomobile turbo chargers. In this way,
DENKA ER is contributing to automobile fuel efficiency and thereby helping to counter global warming.

0

Denka Report 201848

“Denka Value-Up” Management Plan

Product Safety
Initiatives to Ensure Product Safety

In fiscal 2017, we strove to maintain strict compliancewith laws, regulations and corporate ethics with regard
to product safety and, to this end, engaged in theacquisition of information, surveys and communicationin line with guidelines we established in 2016 for the
management of chemical substances used in our
products while reviewing the status of such activities.
As part of our initiatives to strengthen our corporate
governance, we also worked to upgrade quality andenvironmental management systems in place at eachbusiness site and affiliate to secure conformity with the2015 version of ISO 9001 and 14001 standards. At thesame time, we updated in-house quality management
rules and guidelines and stepped up education for
managers with regard to quality management.
We will continue to implement measures tostrengthen our corporate governance in fiscal 2018 andbeyond. Employing our product safety management
system, we will also engage in product stewardshipinitiatives aimed at ensuring that throughout their entire
life cycles our products have no harmful impact onhuman health and minimal environmental footprints.
As part of these initiatives, we will continue to provide
our stakeholders with sufficient product information
through the preparation of Safety Data Sheets whilefurther developing our organizational structure and inhouse rules to secure compliance with ever stringent
legal regulations.

Initiatives to Enhance Product Quality

By the end of fiscal 2017, some 80% of Denka’s
domestic production sites completed the upgrade of
their quality and environmental management systems,
bringing them into conformity with the 2015 versionof ISO 9001 and 14001. With 70% of Group facilities
having upgraded their quality and environmental
management systems, plans now call for completingthe upgrade process for all remaining Group facilities
by September 2018. Upgraded systems now inplace include procedures aimed at addressing
possible emergencies (e.g., lack of labor force,
infrastructure disruption and supplier problems) andthe standardized utilization of Failure Mode and EffectAnalysis (FMEA) in product design and development.
These additional elements are expected to help us
enhance the level of quality assurance.
Going forward, we will continue striving to boost
our quality assurance capabilities by, for example,
acquiring IATF 16949 automotive quality management
system standard certification and conducting morerobust design reviews at the R&D stage.

Major Quality Issues and the Number of Complaints

Since April 2016, we have experienced no productliability-related problems or major quality issues, suchas serious client complaints or product recalls due
to critical product defects. Moreover, the numberof complaints registered in fiscal 2017 was down
approximately 8% year on year, a continuation of thedeclining trend we have seen over the last several
years (359 in fiscal 2015; 326 in fiscal 2016; and 298
in fiscal 2017).

49 Denka Report 2018

Creating New Products andTechnologies That Contributeto Social Sustainability

Special Feature 3│
Dialogue between Staff in Charge of Life Science

Initiatives Undertaken by the New
Business Planning & Development
Department❶Dedicated Team and Task Forces in Operation
The New Business Creation Team, a dedicatedbody charged with spearheading across-the-board
initiatives aimed at creating new businesses, iscurrently engaged in theme exploration, scenario
planning and feasibility studies* to help acceleratecommercialization. In fiscal 2017, three taskforceswere launched under the team to this end. With the
New Business Planning & Development Department
acting as a coordinator, efforts are also under way toraise employee awareness of new business creationand help them crystallize the specifics of their businessblueprints.
❷Acquiring “Missing Parts” to Smoothly Launch New
Businesses
To speed up our business creation initiatives,
we are striving to shorten the development period
by acquiring “missing parts,” namely, essential
technological elements that can only be acquired fromexternal sources. For example, Denka is a memberof the Industrial Liaison Program sponsored by the
Massachusetts Institute of Technology in the UnitedStates. This program is intended to help members
collaborate with venture startups, and Denka isbenefitting from it in terms of acquiring missing partsand discovering cutting-edge technologies applicable
to its operations. Denka also utilizes J-GoodTech,an online business matching platform run by theOrganization for Small & Medium Enterprises andRegional Innovation, JAPAN.
❸Scenario Planning Aimed at Creating New
Businesses
As part of initiatives to promote open innovation,
young researchers at Denka interact with their peers
at several partner companies. This encourages thegeneration of ideas for new businesses and facilitates
scenario planning. Of countless theme candidates thathave been identified via this interaction, more than
300 have been dropped from discussion due to theunlikelihood of the candidates benefiting either Denka
or a partner. However, we have re-examined evendiscarded candidates on our own based on threeperspectives, namely, core competence, scalability
and practicality. As a result, we reassigned one theme
candidate in fiscal 2017 to a feasibility study subject.
* Feasibility study: A process in which the possible commercializationof a new business is examined from the standpoint of
securing ongoing profitability and other factors

To Achieve Further Growth for
the Life Innovation Business
Remaining true to its founders’ spirit, namely,“respecting the dignity of life,”
Denka Seiken has been contributing to society by helping protect people’s health.
Here, frontline employees at Denka Seiken have been invited to join in a dialogue centeredon the concept of “protecting people’s health,” a cornerstone of the company’s business activities.
Participants were encouraged to voice their opinions about the path Denka should take in the future.

Committed to fulfilling our fundamental
mission of maintaining a stable supplyof pharmaceutical products

Yamazaki：The very purpose of our products, such as
diagnostic reagents, is to benefit patients. Therefore,
looking at it as a patient, I believe that we are playing
an essential role by delivering these products in atimely manner and enabling medical practitioners to
conduct swift diagnostic testing that ensures optimaltreatment and correct prescriptions. I believe all
Denka Seiken employees, including me serving as asales representative, are well aware of the importanceof maintaining stable product supply.
Arai： The company consolidated diagnostic
reagent production facilities at its Kagamida Plant
in 2016. Thanks to this move, staff at production
departments are now able to engage in more robust
communication, which, in turn, helps strengthen ourability to maintain stable supply.

are called to maintain supply capabilities to secure
responsiveness to emergencies of this kind and weare confident about our capabilities to address such asituation.
Shao： During the most recent winter season—late2017 through early 2018—there were influenza
outbreaks in South Korea, China and Thailand. Amidthese outbreaks, Denka Seiken did not fail to meet
any single shipping request. I also think that ourimportant role as a maker is to ensure that local
diagnostic reagent distributors in outbreak regions canfill patient needs without a fear of product shortfalls.

Striving to increase value delivered topatients through quality management

Muramatsu： I agree. For example, staff in charge ofeach production process often discuss methods
for stabilizing diagnostic reagent production andincreasing its output. In-house collaboration is now
smoother than ever before.

Arai： We are called to maintain not only a stablemass-production capability but also high quality
standards. Accordingly, we take a thoroughgoingapproach to the review and management of
production records. At the same time, we regularlyreconfirm the quality management efforts undertakenby the entire department.

Yamazaki： Demandfor influenza rapid
diagnostic test kits
(POCT* reagents) can
rapidly surge once an
influenza outbreakemerges. Producersof these rapid test kits

Shao： In recent years, a number of non-Japanesemakers in China and elsewhere in emerging
economies have enhanced their product quality.
Despite these circumstances, Denka Seiken products
retain a strong market position. This, I believe, attests
to the success of our quality management and otherinitiatives that have helped us to earn customer
confidence in Japan and abroad.

Denka Report 201850

“Denka Value-Up” Management Plan
Dialogue between Staff in Charge of Life Science

Shujiro Yamazaki
Manager, Reagents Sales
Department
Service years: 22
I will help Denka Seiken
become a leading company
through further growth.

Yara：In terms of gaining customer trust, I recognizethat taking a mindful and meticulous approach tocustomer service is as important as maintaining
quality that lives up to customer expectations.
Thanks to this approach, which happens to be an
inherent strength of many Japanese makers, wehave succeeded in differentiating ourselves fromcompetitors. Although we offer an array of products
made using raw materials of biological origin, we
engage in tireless efforts to provide customers withaccurate information and robust after-sales services
that address their concerns. This is how we are
winning their trust.

Tsugihiko Yara
Assistant Manager, Global
Business Development,
Sales & Marketing Div.

Shao Rongbing
Supervisor, Asia Business
Development,
Sales & Marketing Div.
Service years: 10
I would like to raise Denka
Seiken’s brand strength inChina and other countries
abroad.

Shino MuramatsuGroup Leader, R&D Center,
Kagamida Plant
Service years: 10
I would like to develop
products that help people
lead a happier life.

Daichi Arai
Bacterial & Viral
Diagnostics Dept.,
Kagamida Plant
Service years: 5
I aim to develop a robust
manufacturing environment thathelps us respond to emerging
needs for new products.

51 Denka Report 2018

Yara：As a sales representative, I strive to coordinate
relevant in-house business units so that our products
are smoothly delivered to customers who seek toimprove their QOL. I am also aware of the importanceof always paying attention to the latest customer
needs.
Yamazaki：The earliest version of influenza diagnostic
test kits required complicated procedures consistingof some 10 steps to yield testing results. To meetcustomer requests, Denka Seiken has developed
a diagnostic reagent capable of obtaining results
in a single step. Thanks to this invention, the POCT
reagents have become fairly popular. I believe thisis yet another instance in which Denka Seiken has
contributed to enhanced QOL.

Our corporate value hinges on taking
on the challenge of expanding thepossibilities of chemistry

Service years: 8
In addition to the B to B
business, I consider the
possibility of the company
entering a B to C business.

our products are being used, it really brings it home tome that my job is helping people.

Yamazaki： I often discover valuable customer
opinions and requests from daily sales reports
submitted by sales offices and branches around
Japan. These inputs help us upgrade our quality
management capabilities.
Arai： We are also called to meet regulatory
mandates in terms of product and substanceregistration. However, regulations are constantly
changing. So, I organize study sessions to keep our
staff updated while utilizing new findings in quality
management.

Endeavoring to help as many people
as possible enhance their quality oflife (QOL)
Shao： I am in charge of diagnostic reagents formeasuring lipoprotein subclasses, which serve as
early indicators of possible deterioration in patient
health. Thanks to these products, patients can beadvised about what measures they should take to
avoid serious symptoms even before they recognize
they are ill. This contributes to their QOL in addition
to reducing the burden of medical expenses for thewhole nation.
Arai：As a member of the manufacturing staff, I believethat a stable product supply is also a factor enhancing
QOL. In the face of a rapid increase in the number of
new products being released, I am striving to optimize
our schedules of operations, covering procurement
to manufacturing, with an eye to better serving themarket.
Muramatsu：The Ebola virus rapid diagnostic test kit
is the kind of product that really makes my work on
the R&D staff rewarding. It exemplifies the success of
our efforts to help people around the world maintaintheir QOL. If I were to cite a more familiar example,
I would say that when I attend clinical trials and see

Yara：For Denka to increase its corporate value, it isimportant to flexibly accommodate customer requests
and deliver products exactly when customers want us
to deliver. I also feel that a B to C business approach
has significant earnings potential. Once the company
incorporates this approach, accelerating the pace ofdevelopment will be essential.
Shao： To date, Japanese industry has been in
the industrial vanguard around the world thanks
to its proactive stance toward the introductionof new technologies. I think that, as a Japanese
corporation, Denka should take a leading role inthe development of novel business fields that areas yet virtually unexplored by any of our overseas
counterparts. To this end, Denka should espousea more unconventional approach, for example,
developing a plant-based reagent via the applicationof Icon Genetics’ technologies, in line with its efforts toenhance corporate value.
Muramatsu： About two years ago, the R&D Center
underwent a reorganization
and adopted a more “flat”
staffing structure. This
helped us speed up ourdevelopment as this structure
enables us to swiftly allocate
staff to business units in need.
In addition, we must satisfy
different reagent needs bycountry. Diagnostic reagentsneeded by countries withsophisticated infrastructure,such as Europe, the UnitedStates and Japan, andthose needed by emerging
nations with underdeveloped
infrastructure, are totallydifferent. Furthermore, I am
keeping my eye on the future
possibility of reagents tailoredfor individual patients, an area where pursuing unique
technologies will equip us with strength in a particulararea of specialty. To that end, we need to step up thecoordination of a variety of technologies possessed bybusiness units across the Denka Group.
Arai： Going forward, the company will push ahead
with the development of new products. In step withthis move, manufacturing departments are expected
to enhance their production technologies. In orderfor us to get new businesses on a track and improve
corporate value, it is important to take a proactive
approach to the introduction of cutting-edge
technologies and search for alternative materials sothat we can make our production processes as highly
efficient and cost-competitive as possible.
Yamazaki： When I began acting as a sales
representative, the name of Denka Seiken was
hardly known in the market. Since then however, thecompany has gradually garnered market recognition
by, for example, releasing reagents made throughthe application of latex technologies. Today, when
I visit hospitals, most of the people I meet there say
they have heard the name Denka. Looking ahead,
I would like to see Denka Seiken recognized by aneven broader range of people as a reagent maker. I
also hope that we will someday be seen as a leading
company with distinctive strength in a specific field.
*Point of Care Testing：Instead of requiring separate medical examination rooms for performing
diagnostic tests, POCT reagents enable medical staff to quickly perform
diagnoses at the frontline of their medical practices without the need for
massive equipment. Denka Seiken’s lineup of POCT reagents include rapid
diagnostic test kits for detecting influenza virus and norovirus.

Denka Report 201852

“Denka Value-Up” Management Plan

Corporate Information

Resource Allocations

Resource Allocations

To realize the Denka Value-Up management plan,
we are engaged in the strategic allocation

Corporate Information
Company Overview

of our resources.

Name
Head Office

Stock Information (as of March 31, 2018)

Nihonbashi Mitsui Tower, 1-1,
Chuo-ku,Tokyo 103-8338, JAPANTEL: +81-3-5290-5055
FAX: +81-3-5290-5059

realize “Sustained Growth” and “Sound Growth.”
With regard to shareholder returns, we remain committed to a targeted
total shareholder return ratio of 50%. Simultaneously, we are placing ever stronger
focus on cash dividends while flexibly carrying out share repurchases by giving due

EstablishedMay 1, 1915

Paid-in Capital¥36,998 million (As of March 31, 2018)

Main
business

Investment Plan・ Electronics & Innovative Products(Electronic packaging materials, functional
ceramics, electronic circuit substrates, thermalmaterials, adhesives, acetylene black, etc.)

Policy・ We will invest a total of ¥200 billion overa five-year period.

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

・ Living & Environment Products(Polymer processing products for construction andindustrial use, food packaging materials, etc.)

Breakdown・ S trategic investment: ¥75 billion (¥15
billion/year) f which, investment in specialty
Obusinesses (M&A, etc.): ¥60 billion
Process reform: ¥15 billion・ Regular investment: ¥125 billion (¥25
billion/year)

Shareholder Returns
Policy・ We will remain committed to a targeted
total shareholder return ratio of 50%.
› In addition to prioritizing cash dividends,
we will flexibly execute share repurchasesby giving due consideration to stock prices
and other factors.
Note: Total payout ratio = (Dividends paid + treasury stock purchased)/ consolidated net income

Fiscal 2017 Achievements

In fiscal 2017, we paid an interim dividend of ¥50
per share and a year-end dividend of ¥55 per share.
With full-year dividends totaling ¥105 per share, thedividend payout ratio stood at 40%.

53 Denka Report 2018

(Chloroprene rubber, styrene-based synthetic
resins, styrene monomer and acetyl chemicals)(Cement, special cement additives for concrete,
fertilizers and inorganic materials as well as
polymer processing products for civil engineeringand agriculture use)

R&D Plan

Policy・ Elastomers & Performance Plastics

・ Infrastructure & Social Solutions

consideration to such factors as trends in stock prices.

Employees

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

8,518

9.72

Japan Trustee Service Bank, Ltd. (Trust
Account)

6,344

7.24

Trust & Custody Services Bank, Ltd.
(Mizuho Corporate Bank, Ltd.
Retirement Benefit Trust Account reentrusted by Mizuho Trust & Banking
Co., Ltd.)

3,215

3.67

National Mutual Insurance Federationof Agricultural Cooperatives

2,759

3.15

MITSUI LIFE INSURANCE COMPANY
LIMITED

2,381

2.72

STATE STREET BANK AND TRUSTCOMPANY 505001

2,043

2.33

Japan Trustee Service Bank, Ltd.
(Trust Account 5)

1,470

1.68

Mitsui Sumitomo Insurance Company,
Limited

1,383

1.58

STATE STREET BANK AND TRUSTCOMPANY 505103

1,290

1.47

JP MORGAN CHASE BANK 385151

1,192

1.36

Composition of shareholders by category (thousand shares)(Pharmaceutical products, etc.)(Billions of yen) ■Healthcare ■The environment and energy■High-value-added infrastructure ■Key operations
20
19.0
18.2
18
17.4
16.6
16
15.0
13.9
14

Percentage ofshares held(%)

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

・ Life Innovation

Results and Forecasts for R&D Expenses

Number ofshares held
(thousandshares)Shareholder name

Denka Company Limited

Nihonbashi-Muromachi 2-chome,

Executing strategic investment centered on specialty businesses, we are striving to

資源配分

Securities ﬁrms

Other domestic
corporations

1.7%

6.8%

5,944 (consolidated basis); 3,011 (non-consolidated
basis) (As of March 31, 2018)

Financial
institutions

Foreignshareholders

41.4%

35.4%

Global Network (as of April 1, 2018)

Individual andother shareholders

14.6%

12
10
8

Denka Chemicals(Düsseldorf, Germany)

6
4

13 business sites

Icon Genetics (Halle, Germany)
Japan

2
0

28 business sites

East Asia
FY2017FY2018(Results) (Forecast)

FY2019Fiscal 2017 Results

FY2020

FY2021

FY2022

In fiscal 2017, R&D expenses for the entire Group
totaled ¥13,868 million.

Denka Middle East andAfrica FZCO (Dubai)

Denka Corporation
California OfficeDenka Corporation
Denka Performance
Elastomer LLC
Denka Corporation
Louisiana OfficeSoutheastAsia

12 business sites

Denka Report 201854

Corporate Information
Corporate Information

Consolidated Financial Statements
Consolidated Balance Sheet (As of March 31, 2018)

Consolidated Statement of Income (From April 1, 2017 to March 31, 2018)(Millions of yen)

(Millions of yen)

(Reference)
158th term

159th
term

Account item

Assets454,944475,086

Current assets

168,902

186,467

Cash and deposits

10,258

14,115

Notes and accounts receivable―trade

85,06995,583Merchandise and finished goods

42,532

43,761Work in process

3,745

3,669

Raw materials and supplies

16,907

18,870

Deferred tax assets

2,039

2,338

Other

8,809

8,595

Allowance for doubtful accounts

(460)

(466)

Noncurrent assets

286,041

288,618

Property, plant and equipment

213,456

209,761

Buildings

39,84939,424Structures

22,132

22,111

Machinery and equipment

73,761

66,947577

488

Tools, furniture and fixtures

2,895

Land

Account item

VehiclesLease assets
Construction in progress
Intangible assets
Software(Reference)
158th term

159th
term

Liabilities

227,456

232,305

Current liabilities

144,190

158,044

Notes and accounts payable―trade

46,811

53,625

Short-term loans payable

43,492

41,10072

634

Current portion of bonds

10,00015,000Accounts payable―other

14,22914,677

Income taxes payable

3,659

5,855

814

1,081

Accrued expenses

9,690

10,746

Provision for bonuses

2,880

3,002

Other

12,53912,322

Noncurrent liabilities

83,26674,261

Bonds payable

20,00012,000Long-term loans payable

40,18439,535

Deferred tax liabilities

5,895

6,604

Deferred tax liabilities for land revaluation

8,405

8,403

3,249

Net defined benefit liability

7,774

6,002

63,24763,323

Provision for stock benefits

-

18

312

248

Other

1,006

1,696

(Net assets)

227,487242,780

Shareholders’ equity

199,865

212,479

Capital stock

36,99836,998

Capital surplus

49,28449,391Retained earnings

123,752

129,278

Treasury stock(10,170)(3,189)

Accumulated other comprehensive income

23,70026,584

Valuation difference on available-for-sale securities

14,837

17,448-(195)

Revaluation reserve for land

10,265

10,260Foreign currency translation adjustment

1,496

1,241

Remeasurements of defined benefit plans(2,898)(2,170)

3,922

3,717

454,944475,086

10,67913,968

10,342

13,880

1,170

1,148

Goodwill

5,694

9,315

Right of using patent

3,477

3,417

62,24264,97554,604

58,178Long-term loans receivable

664

552

Long-term prepaid expenses

2,789

2,122

Deferred tax assets

1,608

1,482

Other

3,399

2,779

Allowance for doubtful accounts

(823)

(139)

454,944475,086

Investments and other assets
Investment securities

Total

Note: Amounts are rounded down to the nearest million yen.

55 Denka Report 2018

Current portion of long-term loans payable

Accrued consumption taxes

Deferred gains or losses on hedges

Non-controlling interests
Total(Millions of yen)Account item

(Reference)
158th term

159th term

Net sales

362,647

395,629

Cost of sales

273,263295,583

Gross profit

89,383100,046

63,53966,39425,84433,652

Selling, general, and administrative expenses
Operating income
Non-operating income
Interest and dividend income

1,428

1,681

Equity in earnings of affiliates

568

1,105

Other

640

2,637

702

3,488

Non-operating expenses
Interest expenses
Other

820
4,502

Ordinary income

707
5,322

4,933

23,1585,641
31,499Extraordinary income
Loss on sales of investment securities

683

683

-

-

1,356

1,356

1,928

1,928

Extraordinary loss
Loss on liquidation of business
Income before income taxes

22,486

Income taxes―current

5,133

Income taxes―deferred(464)

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

29,571
7,280

4,669

(933)

6,347

17,81623,224(329)

188

18,14523,035

Note: Amounts are rounded down to the nearest million yen.

Denka Report 201856

Corporate Information
Corporate Information

Consolidated Statement of Changes in Net Assets (From April 1, 2017 to March 31, 2018)(Millions of yen)

Consolidated Statements of Cash Flows

Shareholders’ equity
Capital surplus Retained earnings Treasury stock

Capital stock
Balance at beginning of the fiscal year

36,99849,284

123,752

Total
shareholders’ equity(10,170)

199,865

Changes of items during the fiscal year
Dividends from surplus(7,481)(7,481)

Profit attributable to owners of parent

23,03523,035(2)(2)

Change of scope of consolidation
Change in ownership interest of parent due totransactions with non-controlling interests

107

107

Purchase of treasury stock
Disposal of treasury stock0

Retirement of treasury stock(0)(10,033)

Reversal of revaluation reserve for land

(3,053)(3,053)1

1

10,033-7

7

Net changes of items other than shareholders’ equity-

Total changes of items during the fiscal year
Balance at end of the fiscal year

-

107

5,526

6,980

12,61436,99849,391

129,278(3,189)212,479(Millions of yen)

Accumulated other comprehensive income
Valuationdifference
on availablefor-salesecurities
Balance at beginning of the
fiscal year

Deferred
gains orlosses onhedges

14,837

Revaluation
reserve forland-

10,265

Foreign
Remeasurements
currencyof defined benefit
translationplans
adjustment
1,496(2,898)Total
valuationandtranslation
adjustments
23,700Noncontrollinginterests

22,486

29,571

Depreciation

24,04723,860

Amortization of goodwill

311

738

Increase (decrease) in provision for bonuses

138

120

(539)

(722)

Increase (decrease) in net defined benefit liabilities
Increase (decrease) in allowance for doubtful accounts
Interest and dividend income
Interest expenses(Gains) losses on equity in affiliates

227,487(7,481)

Profit attributable to ownersof parent-

23,035

Change of scope of
consolidation-(2)

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

107

Purchase of treasury stock-(3,053)

Disposal of treasury stock-1

Reversal of revaluation
reserve for land

-

2,611

(195)

(5)

(254)

728

2,883

7
(204)

2,678

Total changes of items during
the fiscal year

2,611

(195)

(5)

(254)

728

2,883

(204)

15,292

Balance at end of the fiscal year

17,448(195)

10,2601,241(2,170)26,584

3,717

242,780

Note: Amounts are rounded down to the nearest million yen.

820

707

(568)

(1,105)

18

394

(672)

(79)

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

1,083

176

Losses on business restructuring(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Other

-

1,928

(9,286)(10,485)781(3,424)

5,065

8,010

19

5,175

Subtotal

42,57852,504

Interest and dividends received

2,146

2,068

Interest paid

(820)

(633)

Income taxes (paid) refunded(4,346)(5,163)

Net cash provided by (used in) operating activities

39,557

48,776(22,037)(24,981)95

7

Proceeds from sale of property and equipment

-

-

(680)
(1,681)(Gains) losses on sales of investments in securities

Purchase of investment securities
Proceeds from sale of investment securities
Purchase of investments in subsidiaries

Retirement of treasury stock

298(1,428)(Gains) losses on valuation of investment securities

Purchases of property, plant and equipment

Total net
assetsDividends from surplus

57 Denka Report 2018

Income before income taxes

Cash flows from operating activities

Cash flows from investing activities

Changes of items during the
fiscal year

Net changes of items otherthan shareholders’ equity

Fiscal Year Ended March 31, 2018

Purchase of intangible assets
3,922(Millions of yen)

Fiscal Year Ended March 31, 2017

(546)

(388)

(1,083)

(34)

1,177

166

-

(4,296)

Purchase of investments in subsidiaries resulting inchange in scope of consolidation

(2)

-

Other

137

228

(22,258)(29,298)(4,489)(2,206)

Net cash provided by (used in) investing activities
Cash flows from financing activities
Increase (decrease) in short-term loans payable
Proceeds from long-term loans payable

11,975-

Repayment of long-term loans payable(18,330)(86)

Cash dividends paid by the Company(6,228)(7,481)

Proceeds from issuance of bonds

-

7,000

Payment for redemption of bonds-(10,000)

Cash dividends paid to non-controlling interests
Payment for purchase of treasury stock
Other
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents

(25)

(25)

(2,200)(3,053)(19)(4)(19,319)(15,858)(53)

57

Net increase (decrease) in cash and cash equivalents(2,073)

3,676

Cash and cash equivalents at beginning of year

11,813

10,174434

250

10,174

14,101

Increase (decrease) in cash and cash equivalents fromnewly consolidated subsidiaries
Cash and cash equivalents at end of year
Note: Amounts are rounded down to the nearest million yen.

Denka Report 201858