FY2018 2Q Financial Results Presentation:
Summary and Q&A（held on November 7, 2018）(1)

Progress in the “Denka Value-Up” Management Plan
Having got off to a strong start, we forecast that full-year fiscal 2018 operating income will
total \36.0 billion and intend to steadily pursue the planʼs numerical targets for fiscal 2020,
namely, consolidated operating income of \42.0 billion and an operating income to sales of
10% or more, while striving to raise the ratio of operating income by specialty businesses to
75% or more.
Reference: Operating income breakdown(Billions of yen)
Operating income

Consolidated

Operating income

from specialty

operating income

ratiobusinesses(2)

FY2017 results

16.7

33.7

8.5%

FY2018 forecasts

19.5

36.0

8.8%

FY2020 targets

31.5

42.0

10.0% or more

Overview of Financial Results for FY2018 First Half (year-on-year changes)(Billions of yen)

198.3 (+10.5)
Growth in sales volume (+1.5)
Differences in sales prices (+9.0)② Operating income:
14.6(+0.3)
Growth in sales volume (+2.0): Electronics & Innovative Products, etc.
Improvement in spread (+2.6):
Sales prices (+10.9)
Rises in raw material and fuel prices (-8.2)
Effect of foreign exchange (-0.1)
Sales prices (-1.8)
Raw material prices, etc. (+1.7)
Other cost elements
Periodic shutdown maintenance (SDM) of styrene
monomer (SM) production facilities (-1.4)
Damage incurred by Denka Performance Elastomer (DPE)in the United States due to cold wave (-1.0)
Decrease in the Omi Plantʼs hydroelectric power generation
due to water depletion (-0.3)
Other manufacturing costs (-0.4): Labor costs, etc.
Forward-looking investments, etc. (-1.0): Rise in R&D expenses--------------------------------------------------------------------------------Net increase due to factors listed above: (+0.3)① Net sales:

Denka Co., Ltd.

Net sales increased thanks to sales volume growth in Electronics & Innovative Products andupward revisions in petrochemical product prices in step with rises in raw material and fuelpricesOperating income increased due to sales volume growth and improved trade conditions
together offsetting such negative factors as costs for the periodic SDM of SM production facilities,
the impact of a cold wave that hit State of Louisiana in the U.S., a decline in the Omi Plantʼshydroelectric power generation due to water depletion and rising expenses for R&D and
forward-looking investments.

(3)

Full-Year Operating Results Forecasts for FY2018 (year-on-year changes)(Billions of yen)
① Net sales:

410.0 (+14.4)
Growth in sales volume (+2.0)
Differences in sales prices (+12.4)② Operating income:

36.0(+2.3)

Growth in sales volume (+7.6): Electronics & Innovative Products, etc.
Improvement in spread (+2.6):
Sales prices (+15.4)
Rises in raw material and fuel prices (-12.7)
Effect of foreign exchange (-0.4)
Sales prices (-2.9)
Raw material prices, etc. (+2.5)
Other cost elements
Periodic repair of SM production facilities (-1.4)
Damage incurred by DPE in the United States due to cold
wave (-1.0)
Decrease in the Omi Plantʼs hydroelectric power generation
capacity due to water depletion (-0.3)
Other manufacturing costs (-3.6): Labor costs, etc.
Forward-looking investments, etc. (-1.1): Rise in R&D expenses--------------------------------------------------------------------------------Net increase due to factors listed above: (+2.3)
Net sales are expected to grow due to a significant increase in the volume of shipments of items
produced by the Electronics & Innovative Products Div. for automotive-related applications andupward revisions in the sales prices of chloroprene rubber (CR) and styrene-based products instep with rises in raw material and fuel prices
Operating income is expected to increase due to sales volume growth and improved tradeconditions together offsetting such negative factors as costs for the periodic SDM of SM
production facilities, the impact of the cold wave that hit the United States, a decline in the Omi
Plantʼs hydroelectric power generation due to water depletion and rising expenses for R&D and
forward-looking investments

Denka Co., Ltd.

(4) Shareholder Returns
Policies under the Denka Value-Up management plan: Remain committed to a targeted total
shareholder return to net income of 50%; prioritize cash dividends; flexibly execute share
repurchases
Forecasts for dividends per share for fiscal 2018:
Interim: \60; year-end: \60; full-year: \120; (dividend payout to net income: 42%)

(5) Topics: Current Status of and Future Outlook for Denkaʼs Growth Strategies in
the Automotive Field
Ceramics-based electronic circuit substrates
For use in invertors controlling large driving motors
The lineup comprises two key offerings: aluminum nitride (boasting thermal conductivity) andsilicon nitride (boasting toughness and reliability)
Denka is the unique company equipped with an end-to-end system encompassing every
process ranging from the production of raw material powder to the manufacture of circuit
substrates
Sales plan: \13.0 billion in fiscal 2020; \19.0 billion in fiscal 2025
Acetylene black
For use in cathode materials for LiBs to provide active materials with electro-conductivity
Helping create high-performance, highly reliable batteries for automobiles thanks to Denka
technologies that realize ultra-high purity from raw material acetylene
Denka boasts the worldʼs largest acetylene black production capacity and is capable ofmeeting sudden demand surges
Sales plan: \5.5 billion in fiscal 2020; \7.5 billion in fiscal 2025
Spherical alumina filler
For use in thermal solutions for LiBs (i.e., fillers for the manufacture of sheets and greases)
The lineup boasts a range of particle diameters and is backed by sophisticated particle design
technologies, contributing to the creation of various materials with improved thermal
conductivity
Denka is equipped with highly productive manufacturing processes and the worldʼs largest
production capacity
Sales plan: \7.0 billion in fiscal 2020; \8.5 billion in fiscal 2025
Solutions associated with lightweight vehicles, autonomous driving systems andconnected cars
Weight reduction of vehicles: ALONBRIGHT, a phosphor for use in LEDs for lighting devices
and blinkers; HITTPLATE, a metal circuit substrate for use in LED-based automobile
headlamps
Autonomous driving systems and connected cars: Development of fillers that reducetransmission loss for use in automobile millimeter-wave radars, OLED sealants, and adhesives
for LCDs
Forecast of demand for Denka products on the back of trend toward the intensive useof car electronics
Despite an anticipated decline in demand for elastomer-based products due to the growing
popularity of EVs, the current trend toward the intensive use of car electronics is expected tohelp Denka achieve business expansion in automobile-related fields, thanks to a significant
surge in demand for ceramics-based electronic circuit substrates, acetylene black andspherical alumina fillers.
Denka Co., Ltd.

Sales targets (automobile-related products)(Billions of yen)
Net sales

Operating income

Operating income
ratio

FY2018

37.0

6.0

16%

FY2020

50.0

9.0

18%

FY2022

70.0

15.0

21%

(6) Summary of Q&A Sessions
1. About overview of fiscal 2018 first-half operating results and full-year performance
forecasts
1-1

Performance forecasts for Elastomers & Performance Plastics
Aiming to counter a surge in prices of raw material butadiene, DPE intends to push ahead
with ongoing negotiations with clients that the company has signed long-term priceformula contracts with, in an effort to upwardly revise product prices and reclaim
profitability. In addition, prices for the raw materials of calcium carbide for acetylene-based
CR are also rising. Taking this into account, we have decided not to downwardly revise
product prices despite a fall in butadiene price since October. We will also upwardly revise
prices of CR produced by the Omi Plant.
For fiscal 2019, we expect the completion of expanded CR production facilities inGermany to yield a 7,000 ton increase in overall annual production capacity. Nevertheless,we believe that burgeoning demand will soon catch up to growth in our supply capacity andforce us to operate amid a tight supply-demand balance.
DPE also aims to achieve growth in profit from its CR business in fiscal 2019 byresolving issues attributable to the impact of a cold wave and by raising profitability.

1-2

Performance forecasts for Infrastructure & Social Solutions in the second half
We will strive to ensure customersʼ understanding of the rationale behind higher cement
prices while resolving issues attributable to the impact of natural disasters that caused
sales volumes to decline in the first half.

1-3

Full-year performance forecasts for influenza vaccines and diagnostic reagents andprogress in operations related to the reagent for measuring sd-LDL-C
We faced challenges in cultivating the influenza virus strains produced for vaccines.
However, this was anticipated at the beginning of the fiscal year. Thanks to our efforts tostabilize production volume, we are now shipping a steady stream of vaccines, with noproduct units being rejected by national control tests.
Diagnostic reagents contributed to growth in sales in the first half due to an outbreakof measles in spring and an increase in exports of diagnostic reagents for inflammation
marker to China.
Our reagent for measuring sd LDL-C, a risk marker for various critical diseases, wasofficially released on the U.S. market in July 2018 and is being used by major medical
inspection facilities. Currently, procedures are under way to include this reagent among
items covered by medical insurance. In China, we have signed a supply agreement withanother local company, thus securing two clients. Domestically, all major inspection
facilities have decided to use this reagent in health checkups, and procedures are under
way to apply for approval from relevant authorities for its use as an in-vitro diagnostic
reagent. Moreover, we will strive to facilitate public awareness of its usefulness by stepping
up involvement in academic circles in countries around the world. In these ways, we willraise the number of health checkups in which this reagent is used.
Denka Co., Ltd.

2. Current status of and future outlook for Denkaʼs growth strategies in the automotive
field
2-1

Performance requirements for ceramics-based electronic circuit substrates
The driving components of EVs and PHEVs get even hotter than those of conventional
vehicles because their motors are so large. Accordingly, automakers are in need of
ceramics-based electronic circuit substrates made of silicon nitride or aluminum nitride toensure superior thermal conductivity. Although these materials had previously been
deemed not optimal for automotive applications as their properties are far in excess ofrequirements for conventional vehicles, they are now considered more appropriate thanmetal substrates like HITTPLATE.
With this in mind, Denka has launched a co-development project with Mitsubishi
Material, as announced via a press release. Bringing together Mitsubishi Materialsʼ circuit
formation technologies and Denkaʼs ceramic sintering technologies, plans call for creating
ceramics-based electronic circuit substrates with superior thermal conductivity andworld-leading competitiveness.

2-2

An increase in acetylene black production volume
With the expectation of growth in acetylene black demand, discussions incorporating a
global perspective about how to increase our production volume are now under way. Ourpossible options include increasing the volume of acetylene gas procurement at the Chiba
Plant, appropriating raw materials originally earmarked by Singaporean production sites
for use in manganese batteries and establishing a third manufacturing base.

2-3

Demand for spherical alumina filler
Not only have we delivered our products to U.S. automakers for use in their EVs, we havealso served European automakers. Although the number of EV makers is expected toincrease going forward, we believe that spherical alumina will remain an essential
component of sealant for automotive-use thermal materials due to its thermal
conductivity.

2-4

Capital investment in the automotive field
As part of a \60 billion budget earmarked for strategic investment under the Denka
Value-Up management plan, plans call for undertaking capital investment inceramics-based electronic circuit substrates, acetylene black and spherical alumina
production facilities.
From a BCP perspective, we will also secure multiple manufacturing bases. For
example, our spherical alumina is produced by the Omuta Plant and another facility in
Singapore, while acetylene black will be manufactured at a total of three sites, namely, theChiba Plant, the aforementioned facility in Singapore and a third facility we expect toconstruct. By doing so, we will maintain high market share. We believe that before long,these investments will be recovered and the resulting profit will offset fixed costs.

Denka Co., Ltd.