FY2018–FY2022 Management Plan

Denka Value-Up

Interim Review and FY2022
Numerical Targets

Table of Contents

3

Changes in Business Environment and Our Vision

4

Review of the First Three Years of Denka Value-Up

7

Revision of Numerical Targets

8

Initiatives for the Next Two Years

12

Profit Distribution

2

“Denka Value-Up” Changes in Business Environment and Our Vision

Changes in Business
Environment

Basic Policy
Threefold Growth Vision
Specialty-Fusion
Company
Become a SpecialtyFusion Companywith a Strong Global
Presence

Sustained
GrowthMaintain Sustained
Growth by Significantly
Enhancing Productivity
through Innovative
Processes50Sound
GrowthSecure Sound
Growth throughWork Style
Reforms

Two Growth Strategies
Business
Portfolio Shift

Innovative
Processes

Changes in the social structurecaused by COVID-19 pandemic
Initiatives toward realizing
carbon neutrality gaining
momentum worldwide

VisionTo be a company that is truly
needed by society and isindispensable for the world
and that Denka’s employees
and stakeholders can beproud of3

Review of the First Three Years of Denka Value-Up: Progress of Numerical Plan

Operating income, Operating income ratio, Ratioof specialty business
Operating income ofspecialty business

Ratio of specialty business

97%

64%

73%

49%
Initial plan

¥42 billion

Operatingincome(Operatingincome ratio)

ResultResultResultResult

FY2017FY2018FY2019FY2020¥33.7 billion¥34.2 billion¥31.6 billion(8.5%)(8.3%)(8.3%)(10% or greater)¥34.7 billion(9.8%)

Record-high income*Denka’s definition of specialty business
A business that is consistent with ESG initiatives and 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.

4

Review of the First Three Years of Denka Value-Up: Achievements and Issues

Business Portfolio Shift
1. Accelerate growth of specialty businesses

Healthcare
The environment
and energy

Achievements

IssuesCOVID-19 Testing Kits
Decision to strengthen facility
capacity for supplying influenza
vaccineDelay in earnings and overseas
deployment of new businesses
Dependence on the spread ofinfluenza

Enhanced capabilities ofelectronic materials for xEV and5G

Accurate and rapid response tothe constantly changing markets
Slow growth due to delay inoverseas deployment

High-value-added
infrastructure

2. Specialize our key
operations

Reinforcement of MS polymer
Entry into the biostimulant
marketDelay in the development ofspecialty-grade polymer

3. Redefine thepositioning of thecommodity businesses

Suspension of production ofcalcium carbide at the Omuta
Plant

Acceleration of drastic measuresin unprofitable business

5

Review of the First Three Years of Denka Value-Up: Achievements and Issues

Innovative Processes
1. Achievements
Production
process reforms

Digitalization and automation of production processes

R&D processreforms

Development of R&D support system, strategic
development of research staff

Operationalprocess reforms,
work style reforms

Computerization of approval, adoption of online
meetings and reduction of meeting hours

2. Issues(1) DX (digital transformation)(2) Human resources strategy

Business model and organizational
reforms using DX

Enhancement of operational productivity withflexible work styles

Securing DX specialists

Securing talented human resources without beingbound by gender, mother tongue and age
6

Revision of Numerical Targets

Numerical Targets (Operating income, Operating income
ratio, Ratio of specialty business)
Operating income ofspecialty business

Ratio of specialty business

83%
89%
97%

64%

73%

49%

Initial plan

¥50 to 60billion

Operatingincome(Operatingincome ratio)

Revised plan

ResultResultResultResultEstimate

FY2017FY2018FY2019FY2020

FY2021

FY2022(11.5%) *(13.0%) *¥33.7 billion ¥34.2 billion ¥31.6 billion ¥34.7 billion(8.5%)(8.3%)(8.3%)(9.8%)¥42 billion ¥50.0 billion
Record-high income*Prior to the revision of the Accounting Standard for Revenue
Recognition, etc.: FY2021 10.6%, FY2022 12.0%

7Initiatives for the Next Two YearsThreefold Value-Up
Realization of threefold Value-Up to be a company “indispensable for society”(1) Business Value-Up
Business portfolio shift through “concentration in businesses in which

we outperform others”(2) Environment Value-Up

Reduction of greenhouse gas emissions by 50% by 2030,
Realization of carbon neutrality by 2050
(3) Human Resources Value-Up
Be a company in which workers can feel growththrough job satisfaction and work8

Initiatives for the Next Two Years(1) Business Value-Up
1. Business Portfolio ShiftAccelerate growth of specialty businesses

Theenvironmentand energy

Expand sales to markets
related to xEV, 5G,semiconductors and renewable energy
Focus on developing product lineups thatare ahead of time

Healthcare

Actively contribute to measures for novel& re-emerging infectious
diseases
Respond to diagnosis using genetic
detection and digitalization in the clinicalfield

High-valueadded
infrastructure

Accelerate overseas development,
new product development anddrastic reforms of unprofitable products
Pursue a new growth track as the fieldcontinues to be an area of priority

2. Innovative Processes
Merge processes using DX and pursue
business model and organizational reforms
Production
processreforms

Automate visual inspection,
introduce robots,
focus on enhancing sensors, etc.

R&D process
reforms

Pursue full-fledged use of R&D support
system, materials informatics

Operationalprocess
reforms,
work stylereforms

Adoption of online meetings, computerizationof documents and approval
Remove 3D (dangerous, dirty,demanding) workplaces

Specialize our key operations, Redefine thepositioning of the commodity businesses
For businesses that require reconstruction,
generally achieve the portfolio shift in two years

9Initiatives for the Next Two Years(2) Environment Value-Up
Environmental management (Initiatives toward carbon neutrality)
With environmental load reduction at the base of management, aim toreduce greenhouse gas emissions by 50% by 2030
(compared to the 2013 level), and achieve carbon
neutrality by 2050

Business Portfolio Shift
Greater use of clean energy and introduction of highly efficient gas
turbineEnvironmentally friendly products and environmental load reduction
technologies
Development and practical implementation of Carbon dioxide Capture,
Utilization and Storage (CCUS)
Chemical recycling technology
Reduction of greenhouse gas emissions throughout the product lifecycle (life-cycle assessment or LCA)

10

Initiatives for the Next Two Years(3) Human Resources Value-Up
Toward becoming a company in which workers can feel growth through job
satisfaction and work

Set KPIs for “securing specialists,” “diversity promotion” and “work stylereforms”
Implement system reforms on evaluation, hiring, development, labor
environment, etc.
Provide staff education for early development of senior management
candidates, pursue bold organizational and human resources restructuring
Promote sound management by putting in place an environment in whichemployees can fully demonstrate their skills

11Profit Distribution

2018 to2020

Investment
We expect to exceed the plan by
actively implementing strategic
investments (specialty businesses and processreforms)

3-yearresultKeep committed to the targeted total
shareholder return ratio of 50% set
in the plan

5-year plan:

5-yearestimate:

Strategic
investment

¥51.8

¥75.0

¥85.0

Regularinvestment¥75.8¥125.0¥125.0¥127.6¥200.0¥210.0FY2018resultFY2019
resultFY2020
resultTotal

Shareholder returns

2018 to 2022

Net income
attributableto owners ofthe parentbillion

billionbillionbillionbillionbillionbillionbillionbillion

¥25.0

¥22.7

¥22.8

Total cash
dividends

¥10.5

¥10.8

¥10.8

Amount ofsharesrepurchased
Total
shareholder
return ratio

¥2.1

¥0.0

¥0.0

50%

48%

47%

billionbillionbillionbillionbillionbillionbillionbillionbillion12