Showa Denko 3Q Statement Shows Change in Net Sales

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The Group recorded consolidated net sales of ¥635,977 million in the first three quarters of 2020, down 8.6% from the same period of the previous year. Sales in the Showa Denko Materials segment increased due to consolidation which started at the beginning of the third quarter of 2020. However, sales in the Inorganics segment significantly decreased due to a decrease in shipment volumes and prices of graphite electrodes resulting from worldwide decrease in production of steel. The sales in the Petrochemicals segment decreased due to a drop in market prices of products resulting from a sharp fall in crude-oil prices. The sales in the Chemicals, Electronics, Aluminum, and others segments also decreased.

In the first three quarters of 2020, the Group recorded operating loss of ¥15,410 million, a significant deterioration of ¥124,723 million. In the Showa Denko Materials segment, operating income increased due to new consolidation. In the Electronics segment, operating income increased due to an increase in shipment volumes of HD media.

Materials segment recorded net sales of ¥144,840 million in the third quarter. Sales of 5 electronic materials including abrasives for chemical mechanical planarization of the surface of semiconductor chips (CMP slurry) and materials for circuit boards including copper clad laminates remained strong. However, sales of mobility components including molded resins and carbon anode materials for lithium ion batteries (LIBs) remained sluggish. As a result, the segment recorded operating income of ¥2,788 million. Operating income of this segment includes depreciation of the goodwill of the former Hitachi Chemical amounting to about ¥6,000 million.

With regard to the Japanese economy in the first three quarters of 2020 (January 1 –September 30), consumer spending deteriorated rapidly since February due to the influence of the coronavirus disease 2019 (COVID-19). Corporate earnings were greatly affected by a slowdown of the world economy caused by the pandemic of COVID-19, and there were also significant effects of a sudden slowdown in domestic consumer spending, a major reduction in export, a fast reduction in overseas production, and a sharp drop in crude-oil prices on corporate earnings. As a result, many companies showed serious deterioration in their business sentiment. As countermeasures against such an economic downturn, the major powers including Japan, the United States and the European Union are now taking stimulative monetary and fiscal policies, and there are signs of partial economic recovery.

Although business environment of the Showa Denko Group hit the bottom in the second quarter, harsh economic situation and very slow recovery continues due to many unclear factors including US-China trade friction and the second wave of the spread of COVID-19 in Europe, the United States and other regions.

Taking the current situation into consideration and giving the highest priority to the preservation of safety and health of our stakeholders including customers, business acquaintances and employees, the Showa Denko Group is implementing various measures to prevent further spread of the infectious disease. To be specific, we are taking various measures to give the highest priority to keeping our employees’ health and preventing the spread of COVID-19, including homeworking implemented by employees belonging to major plants, divisions and departments, and grant of special holidays. At the same time, in our production bases, we are making utmost efforts to fulfill our corporate social responsibility to continue providing our customers with products essential for infrastructural functions of society. Medium-term business plan “The TOP 2021”

The Showa Denko Group set up its long-term vision and has been promoting its medium-term consolidated business plan “The TOP 2021” since January 2019. It is very important for the Showa Denko Group to enhance the value of the Group and satisfy all stakeholders including shareholders, customers, suppliers, local communities and employees in order that the Group continuously grows and becomes trusted and acclaimed by society. The Showa Denko Group defines this idea as the Group’s business philosophy, thereby promoting management to maximize shareholders’, customers’ and social value.

In April 2020, the Showa Denko Group made then Hitachi Chemical Company, Ltd. a consolidated subsidiary through tender offer. World’s industrial structure and competitive environment have been changing greatly, and the recent worldwide pandemic of COVID-19 will accelerate this change. In particular, it is expected that the spread of digitalization of social activities will be accelerated, including the diffusion of telework and online businesses, acceleration of introduction of factory automation to production sites, and further strengthening of cyber security. To survive as a global-top-level functional chemical manufacturer while coping with such changes in business environment, the Showa Denko Group must evolve into the “One-stop Advanced Material Partner” for our customers that provides the customers with solutions beyond materials and components.

The Group will strengthen its earning power and reduce the range of fluctuation in income through steady implementation of “The TOP 2021,” enhance the value of the Group, realize 2 substantial business integration with Hitachi Chemical Company, Ltd. (changed its name into Showa Denko Materials Co., Ltd. on October 1, 2020) as soon as possible, and establish a stable business foundation which will continuously support the Group’s growth far into the future. Now the Group is formulating a long-term vision for the future after the integration, and will have a briefing session to explain its management policy in December 2020.

However, the Inorganics segment recorded a sharp decrease in operating income due to a drop in book value of inventory of graphite electrodes resulting from a decline in market prices of products and application of the lower of cost or market valuation accounting method, in addition to a decrease in shipment volumes of graphite electrodes. Operating income in the Petrochemicals segment also decreased due to a negative impact of the negative spread between purchase and shipment prices of raw naphtha inventory. Operating income in the

Chemicals, Aluminum, and Others segments also decreased due to a decrease in shipment volumes of products. The Group recorded ordinary loss of ¥36,776 million, a deterioration of ¥144,364 million from the same period of the previous year due not only to the recording of operating loss but also to the recording of non-operating loss of about ¥16,100 million incurred as temporary expenses pertaining to fund-raising for acquisition of shares in then Hitachi Chemical Company, Ltd.

The Group recorded net loss attributable to owners of the parent of ¥57,654 million in the first three quarters of 2020, a deterioration of ¥138,617 million from the same period of the previous year, due partly to the posting of extraordinary loss of ¥5,084 million to cover expenses related to closure of a graphite electrode plant in Germany.