New Medium-term Consolidated Passion Project...New Medium-term Consolidated Business Plan...

New MediumNew Medium--term Consolidated term Consolidated Business Plan (2006Business Plan (2006--2008)2008)

Passion ProjectPassion Project

November 29, 2005November 29, 2005Showa Denko K.K.Showa Denko K.K.

P. 1

Unique Chemical Company Unique Chemical Company with Individualized Productswith Individualized Products

This presentation contains statements relating to management’s projections of future profits and expectations for the Company’s product development program. The Company cannot guarantee that these expectations and projections will be realized or correct. Please note that actual results may differ materially from the forecast due to a variety of factors, including changes in the market conditions. The timely commercialization of products under development by the Company may be disrupted or delayed by a variety of factors, including market acceptance, and the introduction of new products by competitors. The foregoing list of factors is not inclusive.

ContentsContentsContentsPart I Achievements of the Sprout ProjectPart I Achievements of the Sprout Project

Achievements of major strategic targets 41.Financial targets 5

Improved profitability 6Reduction of interest-bearing debt 7

2.Strengthened business portfolio through restructuring 8Improved business portfolio 9Additional structural reforms required 10

3.Developed growth businessesthrough SMU-TPF system 11

Part II Concept of the Passion ProjectPart II Concept of the Passion Project

Targets for 2010 13Passion Project (action plan for 2006-2008) 14Financial targets(1) Operating income and profit ratio 15Financial targets(2) interest-bearing debt and D/E ratio 16Passion Project :Basic strategies 17

1.Business portfolio 182.Sustainable growth by creating new businesses 19

2-1.Growth drivers 20(1)Hard disks

Strategically strengthen the HD business 21Strategy 1

Introduce advanced products basedon our world-leading technologies 22

Started mass production of the world'ssmallest HD disks (June,2005) 23

Strategy 2Expand production capacity

to meet the growing demand 24Capacity expansion to meet demand

in 2008 25(2)High-purity specialty materials

for semiconductor processing 26 P. 2

2-2. Development to be accelerated 27(1)Completed a full line of ultra-bright LEDs 28

To achieve further brightness 29(2)Conductive polymer capacitors

To become a growth driver 30(3)VGCFTM carbon nanofiber

New applications in composites 31(4)Life science, fin chemicals

individualized products 322-3. Creating new products for the future 33

Target markets for development of products 34New products to be developed

under new SMU projects 35(1)SiC Power device 36(2)Carbon/resin separator for fuel cells 37 (3)Organic EL: Long life high-performance 38

3.Base businesses = Cash cows 39Petrochemicals business strategy 40Inorganics business strategy 41Aluminum business strategy 42

improvement in performance 43

PPart IIIart III Financial targetsFinancial targets

Yearly Sales and Operating Income Plan 45Capital Expenditures 46R & D Expenditures 47Cash Flows 48

PassionPassion 49

Part I Achievements of the Sprout ProjectPart I Achievements of the Sprout Project

P. 3

1.Financial targets expected to exceed1.Financial targets expected to exceedSprout targets in 2005.Sprout targets in 2005.

2.Strengthened business structure as a result2.Strengthened business structure as a resultof restructuring efforts.of restructuring efforts.

3.Implemented growth strategies based on the 3.Implemented growth strategies based on the SMUSMU・・TPF system.TPF system.

P. 4

Part I Achievements of Sprout Project

Achievements of major strategic targetsPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

Achievements of major strategic targetsAchievements of major strategic targets

SMU : Strategic Market UnitTPF : Technology Platform

P. 5

106% 106% 20.0 20.0 21.1 21.1 Cost reductionCost reduction(accumulated: 2003(accumulated: 2003--05)05)

(billion yen)(billion yen)

exceeded exceeded 3.00 3.00 2.28 2.28 D/E ratio (times)D/E ratio (times)

70.0 70.0 520.0 520.0 450.0 450.0 InterestInterest--bearing debtbearing debt(billion yen)(billion yen)

+1.0 point+1.0 point5.1 % 5.1 % 6.1 %6.1 %ROAROA

(0.1point)(0.1point)7.0 % or over 7.0 % or over 6.9 %6.9 %Profit RatioProfit Ratio

112% 112% 50.0 50.0 56.056.0Operating IncomeOperating Income(billion yen)(billion yen)

ExcessExcessSprout targetsSprout targets2005 forecast2005 forecast

Expecting to exceed almost all financial targetsExpecting to exceed almost all financial targets


1.Financial targetsPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

1.Financial targets1.Financial targets

38.5

52.1

56.0

19.2

25.1

29.6 31.3

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004 2005

（billion yen）

P.6

Sprout Target 5.0 billion yen

Operating income increased by 30.0 billion yen in 6 years after Operating income increased by 30.0 billion yen in 6 years after the launch the launch of Cheetah Project in 2000. In particular, profits improved in Eof Cheetah Project in 2000. In particular, profits improved in Electronics, lectronics, Petrochemicals and Inorganic Materials.Petrochemicals and Inorganic Materials.

Bench markBench mark

Cheetah ProjectCheetah Project P r o j e c t S p r o u tP r o j e c t S p r o u t


1.Financial targets :Improved profitabilityPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

1.Financial targets :1.Financial targets :Improved profitabilityImproved profitability

527

502

450

622

673

645

581

400

450

500

550

600

650

700

1999 2000 2001.0 2002 2003 2004 2005

Interest bearing debt

（billion yen）

P.7

Approximately ¥220 billion reduction in 6 years

Sprout target 520 billion

Cheetah ProjectCheetah Project P r o j e c t S p r o u tP r o j e c t S p r o u t


1.Financial targets :Reduction of interest-bearing debtPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

1.Financial targets :1.Financial targets :Reduction of interestReduction of interest--bearing debtbearing debt

Debt reduction after implementation of the Cheetah ProjectDebt reduction after implementation of the Cheetah Project

P. 8

47 restructuring measures taken during 47 restructuring measures taken during the six years under Cheetah and Sprout Projectsthe six years under Cheetah and Sprout Projects

Polyethylene、Ethyl acetate, Industrial gases8Alliances

Hard disk operations: Singapore, Taiwan2Acquisitions

12

3

10

12

Number of restructurings

Rolled sheets production, Aluminum sheets sales, Aluminum foilsSpin-off

Production moved to China: 4 businessesProduction moved to overseas and others

Hard disks, Ethylene, Cylinders for laser beam printersCapacity expansions, production efficiency improvements

Agrichemicals, Tantalum powder, Carbon black businessesSold or withdrawn

Major items

【【Other improvementsOther improvements】】Introduction of a new HR systemIntroduction of a new HR systemHeadcount reductions (1,070) through early retirementHeadcount reductions (1,070) through early retirementIssued EuroIssued Euro--yen CB of 23.0 billion yenyen CB of 23.0 billion yenCost reductions of 21.1 billion yen , etc.Cost reductions of 21.1 billion yen , etc.


2.Strengthened business portfolio through restructuringPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

2.Strengthened business portfolio through restructuring2.Strengthened business portfolio through restructuring

Strategic growth Strategic growth businessesbusinesses Base businessesBase businesses Businesses that Businesses that

need restructuringneed restructuring

P. 9

Commodity Aluminum Commodity Aluminum materials/alloysmaterials/alloys

OlefinsOlefinsOrganic ChemicalsOrganic ChemicalsPolyolefinsPolyolefinsPlastic productsPlastic products

Hard disksHard disks

Commodity CeramicsCommodity Ceramics

Aluminum andAluminum andothersothers

InorganicInorganicMaterialsMaterials

ElectronicsElectronics

ChemicalsChemicals

PetrochemicalsPetrochemicals

Specialty Chemicals (Raw Specialty Chemicals (Raw material for cosmetics; material for cosmetics; Medical/agrochemical interme Medical/agrochemical interme --diatesdiates; Amino acids, etc.); Amino acids, etc.)

Specialty gases & chemicals for Specialty gases & chemicals for semiconductor processingsemiconductor processingCompound semiconductorsCompound semiconductorsRare earths, Solid conductiveRare earths, Solid conductivepolymer aluminum capacitorspolymer aluminum capacitorsHard disksHard disks

Fine carbonsFine carbonsAdvanced ceramicsAdvanced ceramics

HighHigh--performance aluminum performance aluminum components *components *HighHigh--purity aluminum foils for purity aluminum foils for capacitors,capacitors,Heat exchangers,Heat exchangers,EnvironmentEnvironment--related businessrelated business

OlefinsOlefinsOrganic ChemicalsOrganic ChemicalsSpecialty polymersSpecialty polymersPlastic productsPlastic products

Basic chemicalsBasic chemicals(ammonia, industrial gases, etc.),(ammonia, industrial gases, etc.),Agrochemicals, Agrochemicals, FumigantFumigant

Graphite electrodesGraphite electrodesCommodity CeramicsCommodity Ceramics

Aluminum cansAluminum cans

* Shotic®; highly heat-conductive aluminum alloy (ST60); aluminum cylinders for laser beam printers



2.Strengthened business portfolio through restructuring2.Strengthened business portfolio through restructuringImproved business portfolioImproved business portfolio

Commodity Aluminum Commodity Aluminum materials/alloysmaterials/alloys

1.Acceleration of the growth strategy1.Acceleration of the growth strategy

2.Chemicals: Expansion of specialty chemicals 2.Chemicals: Expansion of specialty chemicals (life science, fine chemicals, etc(life science, fine chemicals, etc

3.Aluminum: Recovery of profitability 3.Aluminum: Recovery of profitability in the heat exchangers business;in the heat exchangers business;Expansion of highExpansion of high--performance product linesperformance product lines

44..Further reduction in interestFurther reduction in interest--bearing debtbearing debt

P.10



2.Strengthened business portfolio through restructuring2.Strengthened business portfolio through restructuringAdditional structural reforms requiredAdditional structural reforms required

Growth businesses: Step-up from Sprout Project to Passion Project

Growth businesses: StepGrowth businesses: Step--up from up from Sprout Project to Passion ProjectSprout Project to Passion Project

Communication devicesCommunication devicesDisplays and their materialsDisplays and their materialsSemiconductor processing Semiconductor processing materialsmaterialsCapacitors and their materialsCapacitors and their materialsBattery materialsBattery materialsMagnetic materialsMagnetic materialsPrinter partsPrinter partsEnergyEnergy--saving systemssaving systemsLife science productsLife science productsRaw materials for cosmeticsRaw materials for cosmeticsHeat exchangersHeat exchangersParts/components that facilitate Parts/components that facilitate

the production of lighter carsthe production of lighter cars

Cash CowsCash CowsCash CowsRare earth magnetic alloys,Rare earth magnetic alloys,

Printer parts,Printer parts,Heat exchangers, Heat exchangers,

Parts/components that facilitate Parts/components that facilitate production ofproduction of

lighter cars, etc.lighter cars, etc.

Growth DriverGrowth DriverGrowth DriverSemiconductor processing Semiconductor processing

materialsmaterials

Development to be Development to be Development to be

acceleratedacceleratedacceleratedLEDsLEDs, Capacitors,, Capacitors,

VGCFVGCF®ss, life science,, life science,fine chemicals, etc.fine chemicals, etc.

Creating products Creating products Creating products

for the futurefor the futurefor the futureNew New SMUsSMUs

SMUsSMUs during Sprout periodduring Sprout period

Development under the Passion Project

Development under the Development under the Passion ProjectPassion Project

P.11


3.Developed growth businesses through SMU-TPF systemPart I Part I Achievements of Sprout ProjectAchievements of Sprout Project

3.Developed growth businesses through SMU3.Developed growth businesses through SMU--TPF systemTPF system

P. 12

Part II Concept of the Passion ProjectPart II Concept of the Passion Project

P.13

Contribute to the good of societyContribute to the good of society

Unique company with Unique company with individualized individualized productsproductsTechnologyTechnology--oriented oriented companycompanyFinancial strengthFinancial strengthCSRCSR

Newly establish individualized businesses with Newly establish individualized businesses with competitive advantages.competitive advantages.

To deepen and integrate core technologies covering To deepen and integrate core technologies covering wide range of materials and develop new technologies, wide range of materials and develop new technologies, including those for devices and modules.including those for devices and modules.Establish financial strength by lowering interestEstablish financial strength by lowering interest--bearing debt and increasing stockholdersbearing debt and increasing stockholders’’ equity.equity.

Obtain trust and high evaluation from society and Obtain trust and high evaluation from society and markets.markets.

By enhancing the company value, we will contribute to the intereBy enhancing the company value, we will contribute to the interests of all stakeholders.sts of all stakeholders.

Operating income 100.0 billion yenOperating income 100.0 billion yenProfit ratio 10%Profit ratio 10%D/E ratio 1.0 timesD/E ratio 1.0 times

Images of the Images of the financial targets financial targets

20102010

Part II Concept of the Passion Project

Targets for 2010Part II Part II Concept of the Passion ProjectConcept of the Passion Project

Targets for 2010Targets for 2010

CompanyCompanyimages images

Passion Project (2006Passion Project (2006--2008)2008)The threeThe three--year action plan to realize 2010 targets year action plan to realize 2010 targets

P. 14

Groundwork for longGroundwork for long--term sustainable growthterm sustainable growthDevelop and establish new growth driversDevelop and establish new growth driversSteadily improve profitability Steadily improve profitability Improve financial strengthImprove financial strength

2.28

450

6.1 %

6.9 %

56

810

2005

1.41.4D/E ratio (times)D/E ratio (times)

400400InterestInterest--bearing debtbearing debt(billion yen)(billion yen)

8.5 %8.5 %ROAROA

9.0 %9.0 %8.4 % 8.4 % 7.8 %7.8 %Profit ratioProfit ratio

858573736262Operating incomeOperating income(billion yen)(billion yen)

940 940 870 870 800800Net salesNet sales(billion yen)(billion yen)

200820082007200720062006Financial targetsFinancial targets


Passion Project (action plan for 2006-2008)Part II Part II Concept of the Passion ProjectConcept of the Passion Project

Passion Project (action plan for 2006Passion Project (action plan for 2006--2008)2008)

5256

62

73

100

39

19

30 31

85

4.6

5.6

2.7

4.0

7.0 6.9

7.8

8.49.0

10.0

0

10

20

30

40

50

60

70

80

90

100

110

2000 2001 2002 2003 2004 2005 2006 2007 2008 2010

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Operating income Profit ratio

P.15

10.0

11.0

（billion yen）

Aiming to ensure sustainable growth Profit ratio(%)


Financial targets(1) Operating income and profit ratioPart II Part II Concept of the Passion ProjectConcept of the Passion Project

Financial targets(1) Operating income and profit ratioFinancial targets(1) Operating income and profit ratio

502

400

435461

450

581

645622

527

2.8

1.01.3

1.6

2.12.2

4.5 4.5

3.2

3.9

350

400

450

500

550

600

650

2000 2001 2002.0 2003 2004 2005 2006 2007 2008 2010

0.0

1.0

2.0

3.0

4.0

5.0

6.0

debt D/E ratio

（billion yen)

P.16

Further reduction of interest-bearing debtD/E ratio


Financial targets(2) Interest-bearing debt and D/E ratioPart II Part II Concept of the Passion ProjectConcept of the Passion Project

Financial targets(2) InterestFinancial targets(2) Interest--bearing debt and D/E ratiobearing debt and D/E ratio

11．．Business portfolioBusiness portfolio

22．．Growth strategyGrowth strategy

33．．Strategy for base businessesStrategy for base businesses

P. 17


Passion Project : Basic business strategiesPart II Part II Concept of the Passion ProjectConcept of the Passion Project

Passion Project : Basic business strategiesPassion Project : Basic business strategies

Growth businessesGrowth businesses

P.18

Defined the mission of each business unitDefined the mission of each business unitIn 2008, growth businesses and base businesses will account for In 2008, growth businesses and base businesses will account for 40% and 40% and 60%, respectively, of total operating income. 60%, respectively, of total operating income.

Cash cowsGrowth driversDevelopment to be accelerated

PetrochemicalsPetrochemicals OlefinsOrganic chemicalsSpecialty polymers

ChemicalsChemicalsAmmoniaIndustrial chemicals（Industrial gases, Inorganic industrial chemicals, etc.）

ElectronicsElectronicsExisting compound semiconductors,Rare earth magnetic alloys

Inorganic Inorganic MaterialsMaterials

Graphite electrodesCommodity ceramics

Aluminum and Aluminum and othersothers

High purity foils for capacitorsAluminum cans, Heat exchangers, Alloys, Commodity and functional aluminum parts

Life scienceFine chemicals

Ultra bright LEDsCapacitors

Hard disksSpecialty gases for semiconductor processing

Fine carbons

Part II Concept of the Passion Project/Basic business strategies

1.Business portfolioPart II Part II Concept of the Passion Project/Basic business strategiesConcept of the Passion Project/Basic business strategies

1.Business portfolio1.Business portfolio

Base businessesBase businesses

P.19

Automotive Automotive PartsParts


Personal Care/ Personal Care/ Environmental Environmental GoodsGoods

DevelopmeDevelopment to be nt to be

accelerated accelerated Growth driversGrowth drivers

Target markets

Target markets

To achieve longTo achieve long--term sustainable growth through term sustainable growth through creating new growth businesses creating new growth businesses

BaseBasebusinessesbusinesses

== Cash cowsCash cows

Creating new products for the futureCreating new products for the future10 % of total operating income in 201010 % of total operating income in 2010

Growth businesses Growth businesses to account for 40% of total to account for 40% of total operating income in 2008operating income in 2008

Base businessesBase businessesto account for 60% of total to account for 60% of total operating income in 2008operating income in 2008

Creating newCreating newproducts forproducts for

the futurethe future


2.Growth strategyPart II Part II Concept of the Passion Project/Basic business strategiesConcept of the Passion Project/Basic business strategies

2.Growth strategy2.Growth strategy

Hard disk businessSemiconductor processing materials businesses

Hard disk businessHard disk businessSemiconductor processing Semiconductor processing materials businessesmaterials businesses

Growth drivers

Growth Growth driversdrivers

P.20

MissionTo drive the group’s growth through

established business models

MissionMissionTo drive the groupTo drive the group’’s growth through s growth through

established business modelsestablished business models

Part II Concept of the Passion Project/Basic business strategies/Growth strategy

2-1.Growth driversPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategystrategy

22--1.Growth drivers1.Growth drivers

Consolidating the position of the worldConsolidating the position of the world’’s largest s largest independent supplier of HD mediaindependent supplier of HD media

SDK 20%

KOMAG 17%

Fuji Electric 9%

HOYA 6%

SEAGATE 25%

HGST 9%

MMC 10%

Fujitsu 4%

Independent52%

Internal 48%

Strategy 1Strategy 1Introduce advanced products Introduce advanced products based on our worldbased on our world--leading leading technologies.technologies.

Strategy 2Strategy 2Expand production capacity Expand production capacity to meet the growing demandto meet the growing demand

Global HD media shipments, 1Global HD media shipments, 1stst half, 2005half, 2005（（293 million units293 million units））

Estimated by SDK

P.21

Part II Concept of the Passion Project/Basic business strategies/Growth strategy/Growth drivers

(1)Hard disks: Strategically strengthen the HD businessPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Growth driversstrategy/Growth drivers

(1)Hard disks: Strategically strengthen the HD business(1)Hard disks: Strategically strengthen the HD business

1

10

100

1000

2000 2002 2004 2006 2008 2010

P.22

GMR head

TMR head

PMR media

Discrete track media;DTR

SFF mediaAFC media

Year

AGR = 100% AGR = 40%

Arial density(Gbpsi)

Building a new laboratory at Chiba to develop nextBuilding a new laboratory at Chiba to develop next--generation generation hard disk technologies. (To be completed by the end of hard disk technologies. (To be completed by the end of April 2006)April 2006)

Improve the perpendicular magnetic recording technology to meet Improve the perpendicular magnetic recording technology to meet market market requirement for smaller and higherrequirement for smaller and higher--capacity disks.capacity disks.

Enhance recording density up to 1 Enhance recording density up to 1 TbpsiTbpsi from 133 Gbpsi by 2010.from 133 Gbpsi by 2010.

1. Started mass production of perpendicular recording HD media for the first time in the world. (1st half, 2005)2. Started mass production of world’s smallest HDs with 0.85 inch diameter (1st half, 2005)

Estimated by SDK


(1)Hard disks: Strategy 1Part II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Growth driversstrategy/Growth drivers

(1)Hard disks: Strategy 1(1)Hard disks: Strategy 1

Introduce advanced products based on our world-leading technologiesIntroduce advanced products based on our worldIntroduce advanced products based on our world--leading technologiesleading technologies

0.85 HDD0.85 HDD 0.85 inch0.85 inch

1.89 inch1.89 inch 2.5 inch2.5 inch 3.5 inch3.5 inch

P.23

1 inch1 inch

With this development, it is now possible to install With this development, it is now possible to install HDDsHDDs in highin high--end cell phones.end cell phones.




Line-up of HDs; 0.85 inch (world's smallest) - 3.5 inchLineLine--up of up of HDsHDs; 0.85 inch (world's smallest) ; 0.85 inch (world's smallest) -- 3.5 inch3.5 inch

Started mass production of the world's smallest HD disks (June,2005)Started mass production of the world's smallest HD disks (June,2Started mass production of the world's smallest HD disks (June,2005)005)

Production capacity to be expanded from 13.75 mil. units/mProduction capacity to be expanded from 13.75 mil. units/mto 24 million units. (To become the worldto 24 million units. (To become the world’’s largest capacity)s largest capacity)To invest approximately 90 billion yen in HD business by 2008.To invest approximately 90 billion yen in HD business by 2008.

0

100

200

300

400

500

600

700

800

900

1000

2003 2004 2005forcast

2006forecast

2007forcast

2008forcast

P.24

Estimated by SDKHD media demand forecastHD media demand forecastmillion unit/year

Expand production capacity to meet the growing demandExpand production capacity to meet the growing demandExpand production capacity to meet the growing demand

HDD demand growing for consumer electronics and in HDD demand growing for consumer electronics and in BRICsBRICs

Average growth rate: about 15%/Y after 2005

2008 24 mil./m2006

13.75mil. /m




SDK’s Production

capacity

P.25

Decided to build our 4Decided to build our 4thth HD factory in SingaporeHD factory in SingaporeSite : Pioneer Crescent areaSite : Pioneer Crescent areaOperation starts in November 2006Operation starts in November 2006Produce both aluminum and glass based HDs Produce both aluminum and glass based HDs

（（0.85 0.85 -- 3.5 inch diameters3.5 inch diameters））




Capacity expansion to meet demand in 2008Capacity expansion to meet demand in 2008Capacity expansion to meet demand in 2008

1.Further strengthening established growth businesses: NH3, N2O, etc.

3.Developing new environmental

2.Developing new high-purity gases & chemicals- C4F6: high-performance etching gas- Advanced CVD film-forming material- Advanced cleaning gases

Serving the Asian market with over 15 different grades

P.26


(2)High-purity specialty materials for semiconductor processingPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Growth driversstrategy/Growth drivers

(2)High(2)High--purity specialty materials for semiconductor processingpurity specialty materials for semiconductor processing

Total solutions: a wide variety of highTotal solutions: a wide variety of high--performance productsperformance products

Share in the worldShare in the world’’s s highhigh--purity NHpurity NH33

marketmarket

Share in the Share in the Japanese highJapanese high--purity purity

NN22O marketO market

（（Estimated by SDKEstimated by SDK））

2005 sales (estimate): 2005 sales (estimate): ¥¥19 billion19 billion2008 sales (target): 2008 sales (target): ¥¥30 billion30 billion

SDK 30 %SDK 30 %

SDK 50 %SDK 50 %

Sales in 2008:¥50 billion

Ultra bright LEDsCapacitorsUltra bright Ultra bright LEDsLEDsCapacitorsCapacitors

VGCF®-SFunctional monomersPharmaceutical/cosmetic intermediates

VGCFVGCF®®--SSFunctional monomersFunctional monomersPharmaceutical/cosmPharmaceutical/cosmetic intermediatesetic intermediates

Development to be accelerated

Development Development to be to be acceleratedaccelerated

P.27

MissionTo accelerate growth of new businesses by

establishing individualized business models.- Allocation of resources in selected areas- Strengthening marketing functions

MissionMissionTo accelerate growth of new businesses by To accelerate growth of new businesses by

establishing individualized business models.establishing individualized business models.-- Allocation of resources in selected areasAllocation of resources in selected areas-- Strengthening marketing functionsStrengthening marketing functions


2-2.Development to be acceleratedPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategystrategy

22--2.Development to be accelerated2.Development to be accelerated

400 500 600 700 800 900W.L.(nm)

UV IR

GaNGaN

AlGaAs

AlInGaP

GaP

Power/Power/BrightnessBrightness

HighHigh

LowLow

1970s 1980s 1990s 2000s1970 Ga metal (R&D)1972年 GaP epi-wafer(R&D)

1980 GaP single crystal1982 GaAs IR1986 AlGaAs Red

1996 AlInGaP 2003 AlInGaP UB2004 InGaN Blue2005 InGaN UV/G

P.28

Part II Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be accelerated

(1)Completed a full line of ultra-bright LEDsPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be acceleratedstrategy/Development to be accelerated

(1)Completed a full line of ultra(1)Completed a full line of ultra--bright bright LEDsLEDs

WorldWorld’’s first: Covering the whole wavelengths from UV to IRs first: Covering the whole wavelengths from UV to IR

Raise brightness of primary-color chipsIncrease power of near UV chips

2005 2006 2007 2008

100

200

300

400

(%)

P.29

SDK estimate

Into new markets of:Into new markets of:LCD backlightingLCD backlightingCar headlightCar headlightGeneral lighting General lighting

Relative output

Sales targets : Sales targets : ¥¥20 billion in 200820 billion in 2008

Development Development targetstargets

HP chips for HP chips for displaysdisplays

HP RGB chips for HP RGB chips for backlighting of large LCD backlighting of large LCD

panelspanels

HP blue chips for car HP blue chips for car headlightsheadlights

HP UV chips for general HP UV chips for general lighting lighting


(1)To achieve further brightnessPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be acceleratedstrategy/Development to be accelerated

(1)To achieve further brightness(1)To achieve further brightness

1 2 5 10 20 50 100

Capacitance (μF）

Rated voltage (V)

P.30

PC marketPC market

Automotive Automotive marketmarket

Conductive polymer Conductive polymer aluminum capacitoraluminum capacitor

104

103

102

10

1

0.1

0.01

Mobile phone Mobile phone marketmarket

Higher capacitance

Higher capacitance

Higher voltageHigher voltage

Smaller size

Smaller size


(2)Conductive polymer capacitors : To become a growth driverPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be acceleratedstrategy/Development to be accelerated

(2)Conductive polymer capacitors : To become a growth driver(2)Conductive polymer capacitors : To become a growth driver


Aiming to increase rated voltage and decrease height; New high-capacitance capacitor being developed using new materials

New capacitorNew capacitor

VGCFVGCFTMTM

LithiumLithium--ion battery for power tools; advanced LIB cathodesion battery for power tools; advanced LIB cathodes

VGCFVGCFTMTM--SSNew composites with resin, rubber, metal and ceramicsNew composites with resin, rubber, metal and ceramics

P.31

World leader in mass production of carbon nanofibers


(3)VGCFTM carbon nanofiber : New applications in compositesPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be acceleratedstrategy/Development to be accelerated

(3)VGCF(3)VGCFTM TM carbon carbon nanofibernanofiber : New applications in composites: New applications in composites

Sales targets : Sales targets : ¥¥3 billion in 20083 billion in 2008¥¥6 billion in 20106 billion in 2010

AutoprepAutoprepTMTM

Contributing to environmental Contributing to environmental protection and food safetyprotection and food safety

ApprecierApprecierTMTM

Stabilized vitamin C effective for Stabilized vitamin C effective for wrinkle care. Deeply permeates the wrinkle care. Deeply permeates the

skin.skin.

AnescleanAnescleanTMTM

A waste anesthetic gas disposal system A waste anesthetic gas disposal system Contributing to environmental protectionContributing to environmental protection

P.32

KarenzKarenzFunctional monomers; contribute to improve efficiency Functional monomers; contribute to improve efficiency

of production of displaysof production of displays


(3)Life science, fine chemicals : individualized productsPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Development to be acceleratedstrategy/Development to be accelerated

(3)Life science, fine chemicals : individualized products(3)Life science, fine chemicals : individualized products


To speed up growth of the individualized, value-added productsTo speed up growth of the individualized, valueTo speed up growth of the individualized, value--added productsadded products

Creating new products for the future

Creating Creating new products new products for the futurefor the future

Semiconductor devicesEnergy devicesDisplays, lighting modules

Semiconductor devicesSemiconductor devicesEnergy devicesEnergy devicesDisplays, lighting modulesDisplays, lighting modules

IT chemicals ･Environment/EnergyIT chemicalsIT chemicals ･Environment/EnergyEnvironment/Energy

Automotive parts

Automotive Automotive partsparts

P.33

Mission New projects based on

SMU approach

Mission Mission New projects based on New projects based on

SMU approachSMU approach


2-3.Creating new products for the futurePart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategystrategy

22--3.Creating new products for the future3.Creating new products for the future

P.34

Electronics

Automotive Parts Personal Care/Environmental

Goods

Electric appliances (information equipment) Electric appliances (information equipment) 2003 : 2003 : ¥¥10 trillion 2010 : 10 trillion 2010 : ¥¥18 trillion18 trillion

Market growth 2003-2010 estimated by METI

Transport machinery2003 : ¥43 trillion 2010 : ¥47 trillion

Environment/Energy Equipment & servicesEnvironment/Energy Equipment & services20032003：： ¥¥51.6 trillion 201051.6 trillion 2010：： ¥¥78.3trillion78.3trillion

Energy devicesSemiconductor

devices

IT chemicals

Displays, lighting, modules

Automotive parts Environment/Energy

New SMU strategyNew SMU strategyNew SMU strategy

Part II Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the future

Target markets for development of new productsPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the futurestrategy/Creating new products for the future

Target markets for development of new productsTarget markets for development of new products

Six SMU Projects concentrating on the following areas:Six SMU Projects concentrating on the following areas:

Semiconductor devices Semiconductor devices （（SiCSiC power device, power device, GaN/InPGaN/InP devicesdevices））

Energy devices Energy devices （（fuel cells, electric double layer capacitorsfuel cells, electric double layer capacitors））

Displays, lighting modules Displays, lighting modules (organic EL, backlighting, LED lighting)(organic EL, backlighting, LED lighting)

IT chemicals IT chemicals （（filmfilm--forming, forming, photoresistphotoresist, optical materials), optical materials)

Automotive parts Automotive parts (heat exchangers, parts for lighter cars)(heat exchangers, parts for lighter cars)

Environment/Energy Environment/Energy （（COCO22 utilization technology, catalystsutilization technology, catalysts））

P. 35


New products to be developed under new SMU projectsPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the futurestrategy/Creating new products for the future

New products to be developed under new SMU projectsNew products to be developed under new SMU projects

P.36

SDKSDK

Secure supply of Sic epi-wafers through partnership with public institutions

Power electronics industryCar, machinery, appliances

（Market size : ¥6 trillion）

Hybrid cars

Inverters

Consortium scheme

Technology transferTechnology transfer

Joint researchJoint research

CRIEPICRIEPINIAISTNIAIST

SiCSiC epiepi--wafer producerwafer producerESICAT Japan, LLPESICAT Japan, LLP

（（Limited liability partnershipLimited liability partnership））

Power electronics（Switching for heavy-current

communication devices）

Supply of Supply of epiepi--waferswafers


(1)SiC Power devicePart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the futurestrategy/Creating new products for the future

(1)SiC Power device(1)SiC Power device

2005 - 2010 -

P.37

Top-level performance and cost competitivenessTo be used at homes, in mobile devices and cars

Establishment of technology

Market introduction

Jointly with fuel cell makers

Commercial use

Commercialization

Highly conductive graphite powder developedGraphite powder/binder resin composite technology establishedHigh-speed forming technology developed (cost reduction)


(2)Carbon/resin separator for fuel cellsPart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the futurestrategy/Creating new products for the future

(2)Carbon/resin separator for fuel cells(2)Carbon/resin separator for fuel cells

NEDONEDO（（up to March 2005)up to March 2005)Basic technology developedBasic technology developed

New NEDONew NEDO（（2005 2005 -- 20072007））Technologies to ensure thin,Technologies to ensure thin,largelarge--area, lowarea, low--cost separatorscost separators

Planning to launch the product during the Passion Project periodLonger life （60,000@100cd/m2) and higher efficiency（8%）May enter panel business using new phosphorescent polymer

Incandescent lampIncandescent lamp

Mobile

watches

Advertisement

10,000 100,000

１０００

１００

１０

１

0.１

Fluorescent lampFluorescent lamp

PC Screen

TV Screen

P.38

SDK estimate

Levels achieved by SDK elements

Levels achieved by SDK elements

Durability (hrs)

¥2.5 trillion

Efficiency

（lm/W

)

¥1.5 trillionLighting

CamerasPDAGame machines

¥3 trillion

¥0.7trillion


(3)Organic EL: Long life, high-performancePart II Part II Concept of the Passion Project/Basic business strategies/Growth Concept of the Passion Project/Basic business strategies/Growth strategy/Creating new products for the futurestrategy/Creating new products for the future

(3)Organic EL: Long life, high(3)Organic EL: Long life, high--performanceperformance

Market size

P.39

MissionStrengthen the position as cash cow to support growth strategies

MissionMissionStrengthen the position as cash Strengthen the position as cash cow to support growth strategiescow to support growth strategies

Base businesses

= Cash cows

Base businesses Base businesses

= Cash cows= Cash cows

Operating income in 2008 from base Operating income in 2008 from base businesses targeted at businesses targeted at ¥¥50 billion50 billion

(60% of the total)(60% of the total)

In case competitive advantage is not ensured for a business,In case competitive advantage is not ensured for a business,an an ““exit strategyexit strategy”” will be implemented.will be implemented.

Define competitiveness using such indexes as KSF and KPI Define competitiveness using such indexes as KSF and KPI for monitoring and resource allocationfor monitoring and resource allocation


3.Base businesses = Cash cowsPart II Part II Concept of the Passion Project/Basic business strategiesConcept of the Passion Project/Basic business strategies

3.Base businesses = Cash cows3.Base businesses = Cash cows

1.To serve as cash cow in the Passion Project1.To serve as cash cow in the Passion Project2.Aiming to become one of the most profitable2.Aiming to become one of the most profitable

petrochemical complexes in Asia:petrochemical complexes in Asia:An An ““individualized petrochemical complexindividualized petrochemical complex””

Operating income in 2008: Operating income in 2008: ¥¥18 billion (20% of total)18 billion (20% of total)

““IndividualizedIndividualized”” manufacturing process, catalyst technology and operationmanufacturing process, catalyst technology and operationDiversification of cracker feedstock; Increases in the value of Diversification of cracker feedstock; Increases in the value of cutcutFurther improvement of proprietary catalysts for acetylsFurther improvement of proprietary catalysts for acetyls

P.40

Part II Concept of the Passion Project/Basic business strategies/Base businesses

Petrochemicals business strategyPart II Part II Concept of the Passion Project/Basic business strategies/Base buConcept of the Passion Project/Basic business strategies/Base businessessinesses

Petrochemicals business strategyPetrochemicals business strategy

1.To serve as cash cow in the Passion Project1.To serve as cash cow in the Passion Project2.Drastic cost reductions; tight supply2.Drastic cost reductions; tight supply

Demand growth Stable profitDemand growth Stable profit

Operating income in 2008: Operating income in 2008: ¥¥12 billion (15% of total)12 billion (15% of total)

Graphite electrodesGraphite electrodesTopTop--level qualitylevel qualityMass production of largeMass production of large--diameter electrodes (incl.32 inch)diameter electrodes (incl.32 inch)

CeramicsCeramicsAbrasives:Abrasives: Production in Japan and China, to be No.1 in AsiaProduction in Japan and China, to be No.1 in AsiaAlumina:Alumina: Tight supply; Ensure stable supply and profitTight supply; Ensure stable supply and profit

P. 41


Inorganics business strategyPart II Part II Concept of the Passion Project/Basic business strategies/Base buConcept of the Passion Project/Basic business strategies/Base businessessinesses

InorganicsInorganics business strategybusiness strategy

To aggressively pursue higher performance, creatingTo aggressively pursue higher performance, creatingindividualized fabricated aluminum productsindividualized fabricated aluminum products

Operating income in 2008: Operating income in 2008: ¥¥17 billion 17 billion (20% of total)(20% of total)

Investment in competitive product linesInvestment in competitive product linesHighHigh--purity foils, cylinders for laser beam printers, Shotic, etc.purity foils, cylinders for laser beam printers, Shotic, etc.

Early recovery of profitability in heat exchangers businessEarly recovery of profitability in heat exchangers businessLaunch of new products (NRTLaunch of new products (NRTⅢⅢ, etc.), Expansion in China, etc.), Expansion in China

Process improvement to eliminate product loss and wasteProcess improvement to eliminate product loss and waste

P. 42


Aluminum business strategyPart II Part II Concept of the Passion Project/Basic business strategies/Base buConcept of the Passion Project/Basic business strategies/Base businessessinesses

Aluminum business strategyAluminum business strategy

10

11

12

13

14

15

16

17

18

2005 2006 2007 2008

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

High-purity foils for capacitors, aluminum cylinders for LBPs, Shotic and others：

Sales increaseby 2008 12.0 bil.

Heat exchangers：Sales increase

by 2008 15.0 bil.

P.43

20062005 20082007

Recovery of profitability in heat exchangers businessRecovery of profitability in heat exchangers business

Process improvementProcess improvement

Growth in competitive product linesGrowth in competitive product lines

Profit ratio(%)CaPex in 3 years: 22 billion2Operating income (billion yen)


Aluminum business strategy: improvement in performancePart II Part II Concept of the Passion Project/Basic business strategies/Base buConcept of the Passion Project/Basic business strategies/Base businessessinesses

Aluminum business strategy: improvement in performanceAluminum business strategy: improvement in performance

Part III Financial targetsPart III Financial targets

P. 3

P.45

85.0940.0

73.0870.0

62.0800.0

56.0810.0

TotalTotal

( 7.0)( 6.0)( 5.0)( 6.5)HQ costsHQ costs

17.0268.0

14.0250.0

11.0245.0

9.0242.0

AluminumAluminum

12.070.0

11.068.0

11.067.0

8.561.0Inorganic Inorganic

MaterialsMaterials

37.0241.0

30.0200.0

24.0161.0

18.5132.0


8.084.0

7.078.0

6.074.0

4.571.0

ChemicalsChemicals

18.0277.0

17.0274.0

15.0253.0

22.0304.0

PetrochemicalsPetrochemicals

O.I.SalesO.I.SalesO.I.SalesO.I.Sales

2008plan

2007plan

2006plan

2005Forecast （note1）

（unit: billion yen）

The performance forecast and plan are based on the economic conditions and the Company’s policy at this point of time. Please note that actual results may differ materially from the forecast and the plan due to a variety of factors, including changes in the market conditions.

Part III Financial targets

Yearly Sales and Operating Income PlanPart III Part III Financial targetsFinancial targets

Yearly Sales and Operating Income PlanYearly Sales and Operating Income Plan

To invest over 200 billion yen in 3 years in strategically selecTo invest over 200 billion yen in 3 years in strategically selectedtedbusiness areas while continuously improving the strength. business areas while continuously improving the strength.

To focus on growth businessesTo focus on growth businessesAbout 60% of the total investmentAbout 60% of the total investment

P. 46

Cheetah Project 100 billion yen

Sprout Project120 billion yen

CaPexCaPex for the for the Passion ProjectPassion Project

About 200 billion yenAbout 200 billion yen

Growth Growth businessesbusinesses 60%60%

Base businessesBase businesses40%40%

Total depreciation in the three years:140 billionTotal depreciation in the three years:140 billion


Capital ExpendituresPart III Part III Financial targetsFinancial targets

Capital ExpendituresCapital Expenditures

To expand spending on R & D expenditures for realizing To expand spending on R & D expenditures for realizing technologytechnology-- oriented company oriented company

To spend about 60 % of the total R & D expenditures forTo spend about 60 % of the total R & D expenditures forGrowth drivers and BusinessesGrowth drivers and Businessesto be developed at an accelerated paceto be developed at an accelerated pace

To spend about 10% forTo spend about 10% fornew products for the futurenew products for the future

P. 47

Cheetah Project 47.5 billion yen

Sprout Project52.6 billion yen

R&D expenditures for R&D expenditures for the Passion Projectthe Passion Project

70.0 billion yen70.0 billion yen

Businesses to be Businesses to be developed at an developed at an accelerated pace 38%accelerated pace 38%

New products for the New products for the future 10%future 10%

Growth DriversGrowth Drivers24%24%

Base businesses, Base businesses, CorporateCorporate 28%28%


R & D ExpendituresPart III Part III Financial targetsFinancial targets

R & D ExpendituresR & D Expenditures

Accumulated cash flows for the 3 yearsAccumulated cash flows for the 3 yearsCash flows from operating activitiesCash flows from operating activities 260 billion260 billionCash flows from investing activitiesCash flows from investing activities (200) billion(200) billionFree cash flows Free cash flows 60 billion60 billion

P. 48


Cash FlowsPart III Part III Financial targetsFinancial targets

Cash FlowsCash Flows

P. 49

PassionPassion

PASSIONPASSIONPASSION

P.50

Passion is Showa DenkoPassion is Showa Denko’’s DNA s DNA

““Always pursue higher goalsAlways pursue higher goals with perseverance. with perseverance. ””

““Human strength is the Key to success. Human strength is the Key to success. All employees are going to join forces with great All employees are going to join forces with great enthusiasm.enthusiasm.””

PassionOur values expressed in five CsPassionPassionOur values expressed in five CsOur values expressed in five Cs

Joining forces with great enthusiasmJoining forces with great enthusiasmJoining forces with great enthusiasm

ChallengeChallengeCommitCommitCompleteCompleteCollaborateCollaborateContributeContribute

Engine for the spiral of growthEngine for the spiral of growthEngine for the spiral of growthP.51

Contribute toContribute tothe good of societythe good of society

Provide individualized products for higher trust and evaluation

Provide individualized products Provide individualized products for higher trust and evaluationfor higher trust and evaluation

Very useful products, Very useful products, increased value in returnincreased value in return

PassionCreating the spiral of growthPassionPassionCreating the spiral of growthCreating the spiral of growth

P.52

Ambition and strong Ambition and strong will to accomplish goalswill to accomplish goals

Pursuing creativity Pursuing creativity and the No.1 positionand the No.1 position

New Medium-term Consolidated Passion Project...New Medium-term Consolidated Business Plan...

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