SHOWA DENKO REPORT 2017...SHOW ENKO EPORT 2017 3 CONTENTS About Showa Denko 4wa Denko’s Ties with...

TEL : +81-3-5470-3235

Website : http : //www.sdk.co.jp/english/csr.html

E-Mail : [email protected]

Public Relation Office, Showa Denko K.K.

Contact desk

As of January 2017

– SRI indexes adopting Showa Denko

SHOWA DENKOREPORT

2017

2 SHOWA DENKO REPORT 2017

About the media to report our CSR information

SHOWA DENKO REPORT 2017

We publish information focusing on the products, employee activities and the major topics of the period, in order to deepen the stakeholders' understanding about the Showa Denko Group.

SHOWA DENKO REPORT 2017 on the Web (HTML)

The CSR measures of the Showa Denko Group are disclosed on our Web site. As well as focusing on the comprehensibility referring to various guidelines, we disseminate information with an improved quickness on the activities performed during the period.

SHOWA DENKO REPORT 2017(Integrated Report) (PDF)The information comprehensively disclosed on the Web [Integrated Report] (PDF), is issued in PDF as an annual report. We take into consideration the readability, such as the layout at the time of printing, and each chapter can also be printed individually.

This REPORT

Our Vision

Showa Denko Group, under its Vision, has strived to realize “a company contributing to the sound growth of society” that contributes toward

creating a society where affluence and sustainability are harmonized.

We have established our slogan as a declaration to firmly “promise” our stakeholders this policy.

Also, in order to realize our Vision and develop the Group sustainably, we have defined what we should do as the “Our Code of Conduct.”

In order to be trusted and evaluated by society through the continuous improvement of the corporate value, it is important to maintain

and develop appropriate relations with stakeholders such as shareholders, customers, business partners, local communities and employees.

We clarify this as "Our Vision" and promote the management for its realization.

Our Vision

We at the Showa Denko Group will provide products

and services that are useful and safe and exceed our

customers' expectations, thereby enhancing the value

of the Group, giving satisfaction to our shareholders, and

contributing to the sound growth of international

society as a responsible corporate citizen.

Our Code of Conduct

Its Practical Guide

OurVision

Our Slogan“Shaping Ideas”

Our Slogan “Shaping Ideas”

3SHOWA DENKO REPORT 2017

CONTENTS

About Showa Denko

4 Showa Denko’s Ties with Society

6 Message from CEO

8 Message from CFO

10 An Overview of the Showa Denko Group

12 History of the Group

14 Introduction of Businesses of the Group

20 Showa Denko’s Business Model

22 Medium-term business plan, "Project 2020+"

26 R&D of the Showa Denko Group

29 Corporate Governance

34 Risk Management

35 Corporate Ethics and Compliance

35 Fair Business Practice and Customer Care

36 Information Disclosure and Investor Relations

CSR

38 CSR Strategy

42 Stakeholder communications

46 Highlights of CSR Activities

48 Responsible Care

62 CSR procurement

64 Human Rights and Labor Practice

67 Performance Data

70 Third-party Verification

Financial

72 Financial Highlights

73 Management’s Discussion and Analysis

76 Consolidated financial statements

82 Corporate Data

Report scope

Period covered by this ReportThis Report covers information for the period January 1 to December 31, 2016, with some information also provided for 2017.

Organization covered“Showa Denko” as used in the text of this Report refers to Showa Denko K.K., while “Showa Denko Group” refers mainly to Showa Denko and its consolidated subsidiaries in Japan. The financial performance data provided herein are consolidated figures for the Showa Denko Group; environmental performance data are for Showa Denko K.K. Data that include those for Group companies are indicated as such.Social performance data provided herein represent information and figures for Showa Denko K.K. Information on consolidated subsidiaries in Japan and abroad has been added to the sections of Labor Practice and Community Relations.

Publication date August 2017(The next edition is scheduled for publication in August 2018.)

Guidelines/guidance referencedISO 26000: 2010Sustainability Reporting Guidelines (Version 4) from the Global Reporting Initiative (GRI)Environmental Reporting Guidelines 2012 from the Ministry of the Environment of JapanThe International Integrated Reporting Framework from the International Integrated Reporting Council (IIRC)

Prepared by

Public Relation Office, Showa Denko K.K.TEL : +81-3-5470-3235Website http://www.sdk.co.jp/english/csr.htmlE-Mail [email protected]

Editorial policies

The Showa Denko Group has restructured its CSR report and annual report to publish the Showa Denko Report as an integrated report. In this integrated report, we disclose the Group’s financial as well as nonfinancial information, including descriptions of our consideration for the environment and society, governance, and medium- to long-term management strategies.

As for disclosure items, we analyzed our stakeholders' opinions and requests and covered priority topics, focusing on action policies and performance in 2016 and giving specific examples.

On our Website, the online version of the report is also available with more details about the Showa Denko Group's CSR activities, including updated information and environmental and social activity reports from each plant.


Showa Denko’s Ties with SocietyThe Showa Denko Group’s products are used as materials and components in diverse products that support and enrich your life and provide you with added convenience. We at the Showa Denko Group are conducting business in consideration of both the visible and invisible ties that bind the Group to society.

Showa Denko’s Ties with Society

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� Flat-panel TVs・LEDs・LCD glass polishing material・Aluminum heat sinks・Titanium oxide /High-purity

aluminum foil(for capacitors)

� Poultics・Sodium polyacrylate (raw

material for pharmaceuticals)

� Lighting・LEDs

� Cosmetics・Vitamin C derivatives・Vitamin E derivatives

� Apparel・Ammonia (raw materials for

synthetic fibers)

� Water supply・Sodium hypochlorite (antimicrobial)

� Drainpipes・Corrosion-resistant coating

� Windows・Synthetic zeolite

� Containers for yogurt/jelly・Aluminum cap seals・Polypropylene containers

� Aluminum cans

� Beverages・Carbon dioxide

� Perm solutions・Hair-curling agent

� Houses・External wall panels

� Agricultural materials・Obsidian perlite

� Fertilizers

� Helmets・Vinyl ester resins

� Motor bicycle・Forged aluminum rods

�Plant factories・LEDs ・Carbon dioxide・Extruded aluminum shelves

� Electric steel furnaces・Graphite electrodes

� Semiconductor plants・High-purity gasses for semi-

conductor processing・Solvent for semiconductor

processing・Semiconductor abrasives

� Tanks・Corrosion-resistant coating

� Hospitals・Rare-earth magnetic alloys・Chloroprene Rubber (dispos-

able gloves)

� Air-conditioner・SiC epitaxial wafers for

power devices・Rare-earth magnetic

alloys・Synthetic zeolite

� Snack Packages・Normal propyl acetate

(photogravure ink)

� Digital cameras・Semiconductor abra-

sives・Titanium oxide /

High-purity aluminum foil (for capacitors)


About Show

a Denko

CSRFinancial

Showa Denko’s Ties with SocietyThe Showa Denko Group’s products are used as materials and components in diverse products that support and enrich your life and provide you with added convenience. We at the Showa Denko Group are conducting business in consideration of both the visible and invisible ties that bind the Group to society.

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� Rooftops of buildings・Obsidian perlite

� Personal computers・LEDs・High-purity gasses for semicon-

ductor processing・Solvent for semiconductor

processing・Semiconductor abrasives・Solder resist Ink・Alumina (heat radiation materials)・Ethyl acetate (Adhesive)・Rare-earth magnetic alloys (Hard disk drives)・Hard disk media

� Laser beam printers・Aluminum cylinders

� Mobile phones, Smart phones・Litium-ion rechargeable

batteries (Carbon nanofibers, Aluminum laminate film)

・Rare-earth magnetic alloys (Vibration motor)

・Titanium oxide(for capacitors)

� Adhesive・Emulsion・Ethyl acetate

� Data Center・Hard disk media

� E-Bikes・Rare-earth magnetic alloys

� Streetlights・Aluminum poles

� Linear motor train・SiC epitaxial wafers for power

devices・Rare-earth magnetic alloys

� Wind power plants・Rare-earth magnetic alloys・Vinyl ester resins (blades)

� Thermal Power plants・Ammonia(denitration agent)

� Solar power plants・SiC epitaxial wafers for power

devices・High-purity gasses for semicon-

ductor processing

� Automobiles・SiC epitaxial wafers for power

devices・Forged aluminum rods・Cooling devices for power control

units・Lithium-ion rechargeable batteries

(Anode material, Carbon nanofi-bers, Aluminum laminate film)

・Rare-earth magnetic alloys・Ultra-bright LEDs・Synthetic zeolite ・Unsaturated polyester resins ・Emulsion (adhesive raw materials)・Polypropylene

� Traffic signals・Ultra-bright LEDs


Message from CEO

Changes in the business environment

In recent years, the preconditions that are important for the

Showa Denko Group’s business, such as foreign exchange rates

and crude oil and aluminum ingot prices, have been substantially

changing under the influence of the political and economic

trends of countries across the world. The magnitude of such

changes has been increasing in the past few years, making our

surrounding business environment even harder to forecast.

However, we will manage our business from medium- to long-

term viewpoints, without being easily swayed by rapid and short-

term changes in the environment.

Enhancement of business competitiveness and R&D

Showa Denko launched its medium-term business plan, “Project

2020+,” in 2016 and has been expanding the individualized

businesses for higher profitability, while implementing a range

of measures to establish a business structure that helps minimize

revenue fluctuations.

In 2016, Showa Denko announced its decision to acquire

the graphite electrode business of SGL GE Holding GmbH,

while also making SunAllomer Ltd., a company engaged in

the polypropylene business, a consolidated subsidiary in the

petrochemical field. In the hard disk business, we worked to

ensure the appropriateness of the production capacity, thereby

increasing our competitiveness.

In and after 2017, we will continue to implement strategies

to expand the lineup of products and services that are attractive

to customers as well as the lineup of businesses in which we

have competitive advantages and can take top shares in global

markets of a certain scale. In particular we will focus on the

business of high-purity gases for electronics as this market is

expected to flourish.

The future growth of the Showa Denko Group largely depends

on R&D, and we have already achieved substantial R&D results for

lithium-ion battery materials and SiC epitaxial wafers for power

devices over the last couple of years.

We will continue to focus on R&D of these materials for

their commercialization, while making effective use of the

Let us constantly PLUS new value toward the envisioned future


About Show

a Denko

CSRFinancial

technologies possessed by the Group and the opinions of

internal users for the creation of new products and businesses.

Toward achieving the cumulative target for 2018

With regard to the business results for 2016, we substantially

increased profit in the Petrochemical segment against the

backdrop of robust demand. Specifically, operating income

came to 42 billion yen, up 25.5% from 2015, and net income

sharply increased to 12.3 billion yen, due partly to a decrease in

extraordinary loss.

Concerning the business results for 2016, we deeply

apologize to our shareholders, investors, and other stakeholders

for the concerns and problems caused by the delay of the

announcement of financial results, which was finally approved

at an extraordinary meeting of shareholders. The delay occurred

because it took us extra time to make a detailed examination of

the transactions related to one of our subsidiaries.

Under “Project 2020+,” we deem it most important to achieve

the numerical target of 143 billion yen for cumulative operating

income for the three-year period ending 2018. As for cumulative

operating income for the two years from 2016 to 2017, it is

expected to be 102.1 billion yen (as announced on July 24, 2017),

and the actual results have been generally favorable, with the loss

caused by the strong yen being covered by our cost reduction

efforts. We will make investments proactively throughout 2017

toward the achievement of the goal for 2018.

Business activities, CSR, and governance

Corporate social responsibility (CSR) is one of the essential

issues that we need to deal with from a medium- to long-term

perspective. As stated in Our Vision, “We at the Showa Denko

Group will provide products and services that are useful and safe

and exceed our customers’ expectations, thereby enhancing

the value of the Group, giving satisfaction to our shareholders,

and contributing to the sound growth of international society

as a responsible corporate citizen.” In line with this, all Group

employees are committed to acting with firm integrity based on

Our Code of Conduct and contributing to the Group’s business

activities.

CSR is an integral part of our business activities and constitutes

a core element of the management of the Group. In addition

to conducting business activities in consideration of the

environment as a matter of course, we will provide the products,

technologies, and services that meet the needs of our customers

and society at large, which we believe will in turn help us earn

more trust from our stakeholders.

We also need to develop and improve various management

frameworks within the Group, such as those for corporate

governance, compliance, and diversity promotion.

Making use of our features as our strengths

Showa Denko has two unique features, which represent

long- and hard-won assets. First, it has a favorable corporate

culture nurtured by employees who are serious, steadfast, and

enthusiastic about technologies. Second, it has a business

foundation that encompasses a wide spectrum of technologies

and products, including those concerning organic, inorganic,

and aluminum materials. We need to meet the challenge of

making these features our strengths, rather than letting them be

weaknesses.

We cannot survive the market competition by being satisfied

with the status quo. I believe that we can come closer to our

ideal by making tireless efforts for improvement and pursuing a

repeated series of small changes for the better.

We will of course face various difficulties in the process, but we

have multiple options to achieve our ideal. We need to formulate

a multitude of success scenarios for the growth of the Showa

Denko Group, and take actions promptly in response to changes

in the market and the wider environment so as to not miss any

opportunity. As its future vision for 2025, the Showa Denko Group

aims to become a company contributing to the sound growth

of society, which makes the dreams of humankind a reality

through innovation in chemical technology and contributes

toward creating a society in which prosperity and sustainability

are harmonized. I believe that our Group will be able to achieve

further growth by the strenuous efforts of individual employees.

For the desired future, each of us at the Group will continue

adding new value. We warmly invite you to follow the progress of

our upcoming activities.

President and CEOKohei Morikawa


Message from CFO

Showa Denko Group will attain the targets upheld under “Project 2020+”, improve its corporate value, and earn more trust from stakeholders.

1. Performance targets and financial strategies set

under the medium-term business plan,

“Project 2020+”

In the “Project 2020+” plan, we set the 2020 targets of 930 billion

yen for net sales and 70 billion yen for operating income, and

aim to solidify our revenue bases and expand our individualized

businesses for the sustainable growth of the Showa Denko

Group. For 2018, we uphold the following performance targets:

net sales of 855 billion yen, operating income of 57 billion yen,

net income of 30 billion yen, and cumulative free cash flow (FCF)

of 68 billion yen for three years from 2016.

It is essential to secure funds to support the fulfillment of

our individual business strategies toward the attainment of the

predefined numerical targets and to deal with the risks that we

face due to various changes in the business environment.

To this end, we need to maximize our profitability, foster

growth businesses, and enhance our ability to create FCF

by stringently making selective investments. Based on this

recognition, we will steadily implement the financial strategies

to maximize FCF and enhance our risk responses, while ensuring

the sustainable growth of the Group.

Specifically, we will expand our profit and maximize our

investment effect, while making efficient use of our assets by

improving the inventory turnover and compressing the fixed

assets. We will thereby improve our financial structure to achieve

ROA of 6%, ROE of 9%, and a D/E ratio of 1:1 in 2018. As for

returns to shareholders, we have set the target of increasing the

payout ratio to 30% with an eye to earning even more trust from

our shareholders and investors.

2. Results for 2016 and outlook for 2017

In 2016, which was the first year of “Project 2020+,” net sales came

to 671.2 billion yen and were below the target of 810 billion yen.

However, operating income amounted to 42.1 billion yen, up 6.1

billion yen from the targeted value.

In 2017, or the second year of the plan, we expect to record

operating income of 60 billion yen and will make more profits

across all the business segments, excluding the “Others” segment,

DirectorCorporate Officer and CFO

Toshiharu Kato


About Show

a Denko

CSRFinancial

year on year. By comparing the targeted cumulative operating

income for the three-year period set under “Project 2020+” with

the sum of the actual result for 2016 and forecast for 2017, we

find that the current progress rate is 71%. This implies that we

need to make more efforts to ensure the achievement of the

numerical target.

For operating income by segment for the period after the

occurrence of the Great East Japan Earthquake, the business

portfolio, which formerly depended largely on the electronics

segment, has been becoming more balanced as a result of our

having fostered structural reforms.

3. For future growth

It is critical to make investments in a timely manner in order to

grasp all possible opportunities for sustainable corporate growth.

However, we are facing changes at a high rate of speed in the

global market environment, which makes it difficult for us to

be constantly earning profits and achieving results as planned.

Accordingly, controlling the balance between risks and returns is

becoming even more important.

To meet this requirement, we must implement our business

strategies earlier than planned and adopt measures to

enhance our earning ability, including collecting and analyzing

information by taking a market-oriented approach. Further, in

order to diversify our business to make the Group more resistant

to changes in the external environment, we need to implement

discontinuous measures for the optimization of our business

portfolio, including the effective use of M&A.

Through these activities I hope that the Showa Denko

Group will attain the targets upheld under “Project 2020+,”

improve its corporate value, and earn more trust from

stakeholders.

20182017

(Total860)

2016Project 2020+

2016 Actual2017 Forecast

Total(Billions of Yen)

143.0

Progress rate71%

Total102.1

0 30 60 90 120 150

57.050.0

60.042.1

36.0

▪Progress in Cumulative Operating Income under Project 2020+

-‐10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0 Others Aluminum Inorganics Electronics Chemicals Petrochemicals

(Billions of yen)

2011 2012 2013 2014 2015 2016 2017 forecast*

47.4

33.5

42.1

60.0

28.126.0 20.6

2018 plan

2020 image

70.0

57.0

The total does not match consolidated operating income since Adjustment is not included.

(note) From 2017 SDK changes the segmentation (LIB materials is transferred from “Others” to “Electronics”) . Figures of between 2011 and 2016 are based on the previous segmentation.

*Announced on July 24, 2017.

▪Operating income by segment


An Overview of the Showa Denko Group (as of December 2016)

Institute for Integrated Product Development

B

Head O�ce

Nagoya Branch

Osaka Branch

Fukuoka Branch

Kawasaki O�ce

Institute for Advanced and Core Technology

A

Higashinagahara Plant

Kitakata Plant

Isesaki Plant

Oyama Plant

Oyama Plant (Nasu)

Chichibu Plant

Kawasaki Plant

Yokohama Plant

Omachi Plant

Shiojiri Plant

Hikone Plant

Sakai Plant

Tatsuno Plant

Tokuyama Plant

Chiba Plant

B

For information on main Group companies in Japan, please go to the P19

　　

1 A

EuropeSHOTIC Europa Industria de Aluminio Lda.

Showa Denko Europe GmbH

North AmericaShowa Denko Carbon, Inc.

Showa Aluminum Corporation of America

Showa Denko America, Inc.

East AsiaShanghai Showa Chemicals Co., Ltd.

Shanghai Showa Highpolymer Co., Ltd.

Shanghai Showa Electronics Materials Co., Ltd.

Shanghai Showa Highpolymer Trading Co., Ltd.

Zhejiag Quzhou Juhua Showa Electoronic Chemical Materials Co., Ltd.

Showa Denko Sichuan Carbon Inc.

Showa Denko (Dalian) Co., Ltd.

Showa Denko Aluminum (Nantong) Co., Ltd.

Ganzhou Zhaori Rare Earth New Materials Co., Ltd.

SHOWA DENKO New Material (Zhuhai) Co.,Ltd.

Showa Specialty Gas (Taiwan) Co., Ltd.

Taiwan Showa Chemicals Manufacturing Co., Ltd.

Showa Denko HD Trace corp.

Korea Showa Chemicals Co.

Southeast AsiaShowa Specialty Gas Singapore (Pte.) Ltd.

SHOTIC (Singapore) Pte Ltd.

Showa Denko HD Singapore Pte Ltd.

Showa Denko Singapore (Pte)Ltd.

Showa Denko Rare-Earth Vietnam Co., Ltd.

Hanacans JSC

Showa Aluminum Manufacturing Philippines Corporation

Showa Denko HD (Malaysia) Sdn.Bhd.

SHOTIC MALAYSIA Sdn.Bhd.

Europe

East Asia

Southeast Asia

North America

Sites in Japan Overseas Sites

Business Sites

Oita Complex

Company name

Head office location

Number of consolidated subsidiaries

Total number of employee

Consolidated business results

Showa Denko K.K.

13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo 105-8518, Japan

48

10,146

Sales 671billion yen

Operating income 42.1billion yen

Net income attribute to owners of the parent 123billion yen

■ Sales

0

200,000

400,000

600,000

800,000

1000,000

2012 2013 2014 2015 2016

847,803775,732

671,159

872,785

739,675

million yen

■ Operating income

2012 2013 2014 2015 2016

25,953

33,508

42,053

20,551

28,108

0

10,000

20,000

30,000

40,000

50,000million yen

■ Net income attribute to owners of the parent

2012 2013 2014 2015 2016

9,368 9,065

921

12,305

2,929

0

3,000

6,000

9,000

12,000

15,000million yen


About Show

a Denko

CSRFinancial

An Overview of the Showa Denko Group (as of December 2016)

Institute for Integrated Product Development

B

Head O�ce

Nagoya Branch

Osaka Branch

Fukuoka Branch

Kawasaki O�ce

Institute for Advanced and Core Technology

A

Higashinagahara Plant

Kitakata Plant

Isesaki Plant

Oyama Plant

Oyama Plant (Nasu)

Chichibu Plant

Kawasaki Plant

Yokohama Plant

Omachi Plant

Shiojiri Plant

Hikone Plant

Sakai Plant

Tatsuno Plant

Tokuyama Plant

Chiba Plant

B

For information on main Group companies in Japan, please go to the P19

　　

1 A

EuropeSHOTIC Europa Industria de Aluminio Lda.

Showa Denko Europe GmbH

North AmericaShowa Denko Carbon, Inc.

Showa Aluminum Corporation of America

Showa Denko America, Inc.

East AsiaShanghai Showa Chemicals Co., Ltd.

Shanghai Showa Highpolymer Co., Ltd.

Shanghai Showa Electronics Materials Co., Ltd.

Shanghai Showa Highpolymer Trading Co., Ltd.

Zhejiag Quzhou Juhua Showa Electoronic Chemical Materials Co., Ltd.

Showa Denko Sichuan Carbon Inc.

Showa Denko (Dalian) Co., Ltd.

Showa Denko Aluminum (Nantong) Co., Ltd.

Ganzhou Zhaori Rare Earth New Materials Co., Ltd.

SHOWA DENKO New Material (Zhuhai) Co.,Ltd.

Showa Specialty Gas (Taiwan) Co., Ltd.

Taiwan Showa Chemicals Manufacturing Co., Ltd.

Showa Denko HD Trace corp.

Korea Showa Chemicals Co.

Southeast AsiaShowa Specialty Gas Singapore (Pte.) Ltd.

SHOTIC (Singapore) Pte Ltd.

Showa Denko HD Singapore Pte Ltd.

Showa Denko Singapore (Pte)Ltd.

Showa Denko Rare-Earth Vietnam Co., Ltd.

Hanacans JSC

Showa Aluminum Manufacturing Philippines Corporation

Showa Denko HD (Malaysia) Sdn.Bhd.

SHOTIC MALAYSIA Sdn.Bhd.

Europe

East Asia

Southeast Asia

North America

Sites in Japan Overseas Sites

Business Sites

Oita Complex

■ Frequency rate of lost-time injuries

(Major Subsidiaries as of March 31,2017)

0.0

0.1

0.2

0.3

0.4

0.5

2012 2013 2014 2015 2016

0

0.14

0.43

0.25

0.15

0.150.13

0.22

0.24

0.12

Showa DenkoShowa Denko Group

■ Discharged amounts of greenhouse gases

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 2015 2016

2,504

kt-CO2

2,673 2,675 2,687 2,687

■ Number of employees

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 2015 2016

5,802

4,088

9,89010,234

4,329

5,905

10,577

4,645

5,932

10,561

4,688　

5,873

10,146

4,071

6,075

JapanOverseas


History of the Group

★ Showa Denko K.K. ◆ Showa Aluminum Corporation ● Showa Highpolymer Co., Ltd.

1908With the business on track under the spirit of “tenacity

and indomitability”,

established the foundation of the Showa Denko

Group.

Deepened and further developed business,

taking advantage of postwar reconstruction

and rapid growth

1945

Switched to energy-saving products

after overcomingoil crises

1986

Expanded into the energy-saving and high

value-adding business in full-scale,

through the fusion of organic/inorganic and

aluminum technologies.

2001

Engaged inShaping Ideas in pursuit of

evolving chemical company with

individualized products

through the fusion of organic / inorganic and aluminum technologies

2011

Technology and products CSR Event

◆1981Started aluminum can collection activities at certain plants

★1931Started manufacturing ammonium sulfate using domestic technology (Showa Fertilizers K.K.)

★1934Industrialized domestically produced aluminum (Nihon Iodine K.K.)

★1908Established Sobo Marine Products K.K.

★1926Established Nihon Iodine K.K.

●1937Established Riken Kohaku Kogyo K.K.

★1945Resumed production of ammonium sulfate fertilizer

●1951Achieved domestic production of synthetic resin emulsion

●1953Achieved domestic production of unsaturated polyester resin

●1965Achieved domestic production of vinyl ester resin

◆1969Showa Aluminum Can Corporation produced the �rst aluminum can in Japan

◆1981Developed the “Cojunal Method”, a high-purity aluminum re�ning method

◆1921Established Takada Aluminum Equipment Manufacturing K.K.

★1928Established Showa Fertilizers K.K.

★1939Established Showa Denko K.K.

◆1986Started manufacture and sale of aluminum cylinders

◆1990Started company-wide aluminum can recycling activities

★1995Formulated “Responsible Care Action Guidelines”

★1997Published Responsible Care Report

★1998Established “Our Code of Conduct”

★1986Acquired a graphite electrode business in the United States, and established Showa Denko Carbon, Inc.

★1988Expanded into the hard disk business

★2012Established “Our Code of Conduct and Its Practical Guide”

★2013Our long history of aluminum can recycling activities received the “Minister of Economy, Trade and Industry's Prize” of the 3Rs (Reduce, Reuse, and Recycle) Promotion Merit Awards in FY 2013

★2014Resigned the amended Responsible Care Charter

★2014Received the Special Incentive Award of the “Ikumen Company Award 2014” sponsored by the Ministry of Health, Labour and Welfare

★2016Received the “Platinum Kurumin”

★◆2001Merged Showa Aluminum Corporation

★2009

Established Showa Denko HD Yamagata K.K

★●2010Merged Showa Highpolymer Co., Ltd.

★2016Deciding to acquire SGL GE's graphite electrode business

★2017Established Advanced Battery Materials Division

★2003Started the business to recycl used plastic as material for ammonia at Kawasaki Plant

★2005Started mass production of perpendicular magnetic recording hard disks �rst in the world

★2009Started production of cooling devices for power control units

★◆2001With the merger with Showa Aluminum Corporation as the trigger, expanded aluminum can recycling activities to Showa Denko’s plants, o�ces and group companies

★2005Issued a CSR Report

★2005Signed the “RC Charter”

★2011Received the 43rd Ichimura Industrial Award for the “development of cooling devices for power control units”

★2013Our LED lighting equipment for plant growth received the “Nikkei Business Daily Merit Award” of the 2012 Nikkei Superior Products & Services Award

★2016Receives “2016 Top 100 Global Innovators” Award, 2 Years in a Row

★1969Oita Petrochemical Complex started commercial operation

History of the Group

The Showa Denko Group started its business operations by focusing on the bright future of the electrochemical industry, which utilized one of Japan’s

important resources: abundant water energy. Originating from electrochemistry, our Group’s technology further evolved to cover the fields of inorganic

chemistry, organic chemistry and metal materials. Today, the gene of our original technology is inherited to a wide variety of products that are essential in

everyday life, including materials and components used in the information/ telecommunication industry and the automotive industry.


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Product Technology Purchase or intermediate

電気分解

Carbide

Ferroalloys

Graphite

Ceramics

Nitrolime

Graphite electrodes

Abrasive grains Refractory materials Extreme pressure Technologies for making fine powder

VGCFTM(Carbon nanotube)

Magnet alloys

Abrasives for semiconductorsSuper hard materials

Rare earth metal

Titanium

Acetic acids

BMC

LED

Hydrogen

Fertilizers

Chlorine

Salt electrolysis

Alumina Gallium Epitaxial growth

Petrochemical

Sputtering

Chemical vapor deposition

Heat exchangersAluminum cans

Amino acid

Chemical alumina

Aluminum hydroxide

Aluminum cylinders

SHOTICTM

Allylic esters

Hard disksCaustic soda

Vitamin derivatives

Phenol resin

Gases for medical use

Ammonia

Polyolefin

Titanium oxide

ShodexTM

Highpolymer

Catalysts

Acrylonitrile

Melting and castingAluminum

Casting and forging

Rolling

Extrusion

Electrochemical

ElectrolysisElectrical Furnaces

SCMGTM(Material for negative electrodes

in lithium ion cells)

Waterelectrolysis

High-pressuretechnology

Aluminum polymersolid condenser

Biodegradable plastic

Agrochemicalintermediates

Agriculturalchemicals

Organicsynthesis

Specialty gases forsemiconductors

Aluminum foilsfor capacitors

Fused saltelectrolysis

Showa Denko Group's Technological Lineage


Petrochemicals Petrochemicals Division (Olefins Department, Organic Chemicals Department)The Petrochemicals segment provides basic petrochemicals including ethylene and propylene, and organic chemicals derived from them, including acetyls and allyl alcohol derivatives.

We contribute to effective use of resources and high

cost competitiveness by not relying solely on naphtha

(raw material diversication) to produce ethylene, which

is widely used to produce various petrochemicals.

Ethylene

We are promoting the sales of the highly transparent and heat-

resistant film SHORAYALTM as a glass substitute to be used in

displays for mobile devices and other equipment.

Demand for NPAC, which is used as a solvent for special

gravure printing ink, has been increasing as an environment-

friendly substitute for the currently popular toluene.

n-Propyl acetate (NPAC)

QUALEARTM is a new kind of polypropylene manufactured

and sold by SunAllomer Ltd. This product, which is

well balanced in terms of transparency, resistance to

shocks, and rigidity, meets the needs of customers in

the food packaging and automobile fields in particular.

QUALEARTMSHORAYALTM

2016 2015 Increase/decreaseIncrease/ decrease ratio(%)

Sales 1,858 2,313 △455 △19.7

Operating income 207 105 101 96.2

Petrochemicals Segment (Billions of yen)

Introduction of Businesses of the Group

Holding a dialogue meeting with local residents

In February 2016, Showa Denko’s Oita Complex took part in a dialogue meeting with local residents on Responsible Care. The meeting, the 10th of its kind, was organized in partnership with the Japan Chemical Industry Association and 10 companies located in the Oita coastal industrial zone.

About 200 people participated in the biennial meeting, which included a factory tour and a lecture session. Participants were briefed on the safety and environmental measures taken at the plants of the hosting companies and opinions were shared by both sides. Locals had lots of questions, opinions and requests for the participating companies about their earthquake and tsunami countermeasures and environmental issues. As we continue to conduct our business activities, we will firmly keep the opinions of local residents in mind.

Petrochemicals

26%


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Electronic specialty gases are used in production processes

for electronic components such as semiconductors, LCD

panels, LEDs, and solar cells. Showa Denko manufactures

dozens of these high-purity gases including ammonia,

chlorine, and fluorine-containing gases.

Showa Denko manufactures and sells vitamin derivatives (ascorbic

acid PM, ApprecierTM, and TPNaTM), a slimming agent (Hi-Carnitine), and

hair care products (DL-Cysteine and SPIERATM).

RigolacTM, unsaturated polyester resin that meets

requirements for a lightweight material with high durability

and high corrosion resistance, is used for a wide range

of applications including automotive components,

home appliances, and ocean development.

Unsaturated polyester resin

Electronic specialty gases

Cosmetic raw materials

Showa Denko Gas Products Co., Ltd. contributes to

securing safety and stable supply of food resources by

supplying carbon dioxide mainly for carbonated

beverages and dry ice for cooling.

Chemicals

19%


Sales 1,345 1,423 △78 △5.5


Chemicals Segment (Billions of yen)

Carbon dioxide and dry ice

Chemicals Industrial Gases Division, Basic Chemicals Division (Industrial Chemicals Department, Organic Industrial Chemicals Department), Electronic Chemicals Division, Functional Chemicals Division (Functional Polymers Department, Specialty Chemicals Department)The Chemicals segment provides wide-ranging products, from industrial gases, industrial chemicals, high-performance chemicals, and elastomers, to electronic specialty gases and chemicals for the semiconductor industry, resins for reinforced plastics, HPLC columns and raw materials for cosmetics.

Enhancing the supply system in China for the thermosetting bulk molding compound business

In January 2017, Showa Denko New Material (Zhuhai) Co., Ltd. began the mass production and sale of thermosetting bulk molding compounds (BMCs) as the Showa Denko Group’s second BMC base in China.BMC is a thermosetting bulk molding compound made from unsaturated polyester resin as main component, kneaded together with glass fiber and other additives. BMC is put to various uses including headlamp reflectors and engine covers for car applications, and precision mold parts for projectors. Moreover, the range of BMC's use is expected to increase in the future. BMC is expected to be used as sealing material for power-module housings and motors in home appliances including air conditioners and washing machines, and also as sealing material for motors in EVs and hybrid cars.


Electronics Electronics Materials Division, HD Division, Advanced Battery Materials DivisionThe Electronics segment provides compound semiconductor materials for ultrabright and high-output LEDs; rare earth magnetic alloys for high-performance motors; and HD media with high storage capacity for use in PCs, consumer electronics such as DVD recorders and game machines, and servers for data centers. We are supplying lithium-ion battery materials and promoting R&D of fuel cells.

In addition to a broad lineup of infrared LED chips used as light

sources for optical sensors for various applications, we also

offer high-output red LED chips optimized specifically for plant

growth.

LED

As the world’s largest hard disk manufacturer and seller, the

Showa Denko Group is utilizing the leading-edge technologies

to expand the storage capacity of its hard disks, while building

the optimal production and supply system to help the Group

meet the requests of customers in a smooth manner.

HD

The demand for rare earth magnet alloy is growing in fields

such as drive motors for hybrid cars and energy efficient home

electric appliances. We are also strengthening the development

of next-generation magnet alloys with decreased expensive

heavy rare earth content.

For the lithium-ion battery market, we offer a variety

of items, including SCMGTM long-life anode material,

VGCFTM unique anode and cathode additive featuring

high stability and quality, and SPALFTM aluminum laminated

film produced and marketed .

Electronics

14%

Rare earths

Lithium-ion battery materials

In 2017, we transferred the lithium-ion battery material business from the “Others” segment to the “Electronics” segment. As such, the numerical data shown above do not include those for that business.


Sales 1,033 1,315 △282 △21.4

Operating income 139 175 △36 △20.4

Electronics Segment (Billions of yen)

SDK to expand production capacities for LIB materials

SDK positions its LIB materials business as an advantage-establishing business in its medium-term business plan “Project 2020+,” aiming to establish a business model that has competitive advantages in terms of earning power and technical development. Demand for LIB materials has been growing rapidly. This is because demand for large LIBs is increasing mainly for automotive applications, in addition to demand for small LIBs for smartphones.In January 2016, Showa Denko started to outsource a part of its SDXTM carbon-coated aluminum foil in China. Subsequently, in June and August, we decided to enhance the production capacity for our SCMGTM carbon-based anode material and our VGCFTM conduction support agent for cathodes and anodes, respectively.



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Graphite electrodes contribute to iron and steel

recycling as a component to melt iron and steel scraps in

electric steel furnaces. Our graphite electrodes are rated

very highly by customers throughout the world due to

their excellent quality.

With a hardness coming second only to diamond,

CBN is used for tools to cut automotive and other

components.

Alumina is widely used among various industries, for

purposes such as ceramics, filers for plastics, refractories,

and abrasives.

CBN (cubic boron nitride)

SUPER-TITANIATM high-purity titanium oxide is used as

one of the main materials in ceramic capacitors installed

in familiar electronic and electrical devices.

Alumina

Ceramics for capacitors


Sales 509 635 △126 △19.9

Operating income △58 △12 △45 ー

Inorganics Segment (Billions of yen)

Graphite electrodes

Inorganics

7%

Inorganics Ceramics Division, Carbons DivisionThe Inorganics segment provides ceramic products such as alumina, polishing materials, abrasives, and refractories; graphite electrodes for electric steel-making furnaces.

Deciding to acquire SGL GE’s graphite electrode business

In October 2016, Showa Denko K.K. concluded an agreement with the SGL Group of Germany regarding the acquisition of SGL’s graphite electrode business, SGL GE. The transaction is expected to be finalized in the middle of 2017.

With the addition of SGL GE’s manufacturing bases in Europe, the US, and Southeast Asia, Showa Denko’s graphite electrode business will cover the entire world market, enabling it to provide customers with highly attractive products and services so as to further enhance the business and establish its position as a leading graphite electrode supplier.


High-purity aluminum foil is a key material in electronic

components essential to IT devices, home electric

appliances, and automobiles. High-purity aluminum foil

for electrolytic capacitors is produced through precise

control of purity and manufacturing processes.

We are producing SHOTICTM continuously cast rods of

aluminum alloy and their forgings. The fine alloy

structure contributes to reducing the weight

of automobiles and the products are used as parts for

compressors of in-vehicle air conditioners, etc.

We provide oil coolers, heat sinks and other heat

exchangers for industrial equipment, as well as cooling

devices for hybrid car power control units.

Showa Aluminum Can Corporation was the first to manufacture

aluminum cans in Japan. Its lightweight and recyclable

aluminum cans are sold both in Japan and abroad. In 2016 the

production of sleek cans* was also launched at Hanacans’ site in

Vietnam.

Aluminum Cans

Aluminum

14%

High-purity aluminum foil


Sales 986 1,008 △22 △2.2


Aluminum Segment (Billions of yen)

Cooling devices

SHOTICTM

* Sleek cans: have a smaller diameter and greater height compared with regular cans, and are increasingly adopted across the world in recognition of design excellence.

Aluminum Aluminum Rolled Products Division, Aluminum Specialty Components Division, Aluminum Can DivisionThe Aluminum segment provides aluminum materials including rolled, extruded and forged products; and various high-value-added fabricated aluminum products such as high-purity aluminum foil for capacitors, aluminum cylinders for laser beam printers, radiators for power devices installed in hybrid cars and other vehicles, and aluminum cans for beverages.

SDK launches SHOCARESTM bed sensor for care

Showa Denko has developed “SHOCARESTM” bed sensors for care, and started to sell them in October 2016.SDK developed SHOCARESTM bed sensor by taking advantage of aluminum’s properties of high rigidity and light weight. By sensing slight

changes in weight and applying Showa Denko’s original algorithm, the sensor detects the movements of the bed user, including lying on the bed and getting up from the bed, and helps reduce the risk of the user falling out of the bed by informing the nurse or caregiver of the likelihood as detected from the user’s movements.

SHOCARESTM comes with new design to be put on the floor just underneath four legs of a bed, and can be easily used with existing beds.



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The wafers are used as materials for next-

generation power semiconductors, which

are expected to contribute to energy conservation.

They have already been used in power supplies for

data center servers and in devices for railway cars.

E-POLE, produced and marketed by Showa Denko Aluminum Trading

K.K., stores electricity generated by its photovoltaic cells during the day

and uses it to power its LED lamps at night. The system is capable of

providing illumination for three to four days continuously even under

low light and cloudy conditions.

E-POLE lighting system

■ Petrochemicals segment Sun Allomer Ltd. Tsurusaki Kyodo Doryoku K.K.

■ Chemicals segment Showa Denko Gas Products Co., Ltd. Nippon Polytech Corp.

■ Electronics segment Showa Denko HD Yamagata K.K. Showa Denko Packaging Co.,Ltd.

■ Inorganics segment Showa Denko Ceramics Co., Ltd. Showa Fine Ceramics Co., Ltd. Showa Denko Kenso Co., Ltd.

■ Aluminum segment Showa Aluminum Can Corp.

■ Others segment Shoko Co., Ltd. Showa Denko Kenzai K.K.

Major Subsidiaries as of March 31,2017

Etcetera

20%


Sales 1,424 1,472 △49 △3.3

Operating income 18 13 　　4 33.6

Etcetera Segment (Billions of yen)

Development Themes and Related BusinessesIncluded in this section are themes for future businesses as well as the manufacture and sale of various chemical products, light metals, and building and civil engineering materials.

Major Subsidiaries in Japan

The numerical data shown above include those for the lithium-ion bat-tery materials business.

Acquiring non-stick coatings manufacturer the GMM Group

In November 2016, Showa Denko K.K. acquired all shares of the GMM Group, a Hong Kong-based manufacturer and seller of non-stick coating chemicals used to prevent the burning on, fouling, and soiling of cookware, home electrical appliances, and industrial equipment. By the acquisition of these shares, we will expand our value chain into downstream markets to broaden the scope of our technologies that provide the foundation of our business activities, thereby fostering the establishment of new individualized businesses within our Group.

SiC epitaxial wafers

Showa Denko Group's Business Model

Social changes and issues Investment capital Showa Denko Group’s business activities


◦ Multi-polarity of world economy

◦ Changes in the composition of population

◦ Progress of urbanization

◦ Dramatic development of technologies

◦ Changes in the environment surrounding raw materials and fuels

◦ Climate change and depletion of resources

Important CSR issue14 Materiality Issues

Consolidated total assets

¥932.7 billion(As of December31,2016)

Financial capital

Worldwide of production bases

Instrumental capital

R&D budget

¥60 billion(2016-18 total)

Intellectual capital

The number of Group employees

10,146 (As of December31,2016)

Human capital

Cooperation with business partners

Social &relationship capital

Others

Aluminum Electronics

Chemicals

Petrochemicals

Inorganics

Solidify revenue bases

Expand individualized businesses

R&D strategy

Medium-term business plan

Project 2020+

P.22

6segments

P.14

The Showa Denko Group aims to contribute toward creating a society

where affluence and sustainability are harmonized by turning more

of the collective hopes and dreams of society into reality through

the power of chemistry. Specifically, to this end, we input a variety of

capitals that support development of various products and technologies

including production technologies, and output high value-added

products, technologies and services through six business segments.

We will press forward with a strategy to provide customers with highly attractive products and services to increase our competitiveness and take a top share in global markets or competitive markets of a certain size. We will in particular focus on the five market domains: Infrastructure, Energy, Mobility, Living Environment, and Electronics to become an entity that can provide satisfaction to all stakeholders.

Aiming to Contribute toward Creating a Society Where Affluence and Sustainability Are Harmonized

Natural capital

Energy (crude oil equivalent)

1.19million kl(2016, Group total))

Values to be created


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Highlights of C

SR Activities

Financial Highlights

Solution of social issues

Become a company contributing to the

sound growth of society

Contributes toward creating a society

where affluence and sustainability are

harmonized.

Showa Denko Group’s medium- to long-term goals

Expand individualized businesses and increase profitability to build a business structure with minimal revenue fluctuations

◦Mitigating environmental burden ◦Resource recycling

◦Improving resource efficiency◦Diversifying energy sources

◦Efficient use of electricity

◦Safety/Security◦Enhanced durability

◦Emission control◦Improving fuel efficiency

◦Safety/Security ◦Industrialization of agriculture

◦Intensive accumulation and dispatch of information

Energy

Infrastructure

Living Environment

Mobility

Electronics

Values to be created in the five market domains

◦Zero serious environment problems◦Maintain zero emissions

◦Aluminum can recycling: participation rate 100%

◦¥930billion◦¥70billion◦7.5%◦9% more◦1.0 times or less◦30%◦6% more

◦Zero serious equipment incidents

◦Reducing the number of complaints received by half in 2020 relative to 2015.

◦Rate of lost-time injuries as the group: 0.1 or less◦Number of female managers and its ratio :At the end

of 2020 as 40 female managers ( 5% of all managers)◦Ratio of handicapped employees : 2.3 or more

Participation in community activities

Net sales

Operating income

Ratio of Operating income to sales

Return on equity (ROE)

Debt/equity ratio

Payout ratio

Return on assets (ROA)

Prevention of pollution/ Use of sustainable resources

Equipment safety

Consumer safety and health protection

Occupational health and safety/ Human rights and labor practice

Values created in business activities

Financial

Non-Financial

(Image for 2020)


The Showa Denko Group launched the five-year medium-term

business plan, “Project 2020+,” in 2016.

In line with this plan, we will implement innovative measures with

a focus on stability in addition to growth potential and profitability,

including: (1) improving the profitability of existing businesses

through renewal of business models; (2) making the best use of M&A

and business partnerships; and (3) accelerating overseas business

expansion, thereby solidifying the revenue bases and expanding

individualized businesses for sustainable growth.

◆ Showa Denko Group’s contribution to societyWe are operating businesses targeting the five market domains

that we set when we formulated the medium-term business plan:

Infrastructure, Energy, Mobility, Living Environment, and Electronics.

We will supply high value-added products, technologies, and services

to customers by making use of our Group’s materials, components,

technologies, and human resources.

◆ Target image of the Showa Denko Group in 2025We will take a market-oriented approach to our products, which

are developed through a product-oriented approach in the

aforementioned five market domains, with an eye to establishing a

business structure that is not easily impacted by market conditions and

where revenue fluctuations are minimized.

We will increase the share of the individualized businesses in the

Group's total sales from the present 30% to 50%. Also, with a focus

on the growth businesses, we will expand our overseas sales ratio

from 40% to 60%, thereby increasing our profitability and suppressing

revenue fluctuations.

■ Mission of each business

Medium-term business plan: “Project 2020+”

◆ PortfolioFor each business, we are speeding up the measures based on the

missions defined for each category of the business portfolio.

We will produce stable profit and cash flow from the “Base-

shaping” businesses, while proactively expanding the three “Growth-

accelerating” businesses in line with the growth of overseas markets.

In the lithium-ion battery materials business, which we have included

in the “Advantage-establishing” businesses, we will expand our

supply capacity in response to the rapid expansion of the automotive

components market. Also, for SiC epitaxial wafers for power devices, we

are fostering technological development ahead of the full-scale launch

of the market while proactively searching for opportunities in the

market.

For our individual businesses, we are making reexaminations in

consideration of the business environment, profitability, and business

models with a view to restructuring them, including by means of

consolidation and withdrawal.

■ We offer high value-adding “products × technology × services” to 5 market domains

Mobility

Safety/SecurityEnhanced durabilityEmission controlImproving fuel e�ciency

Safety/SecurityIndustrialization

of agriculture

Intensive accumulationand dispatch of

information

Improving resource e�ciencyUtilizing alternative energyE�cient use of electricityDiversifying energy sources

Infra-structure

Energy

ElectronicsMitigating environmentalburdenResource recycling

We o�er high value-adding “products × technology × services” to 5 market domains

Livingenvironment

High

HighLowRate of change (Risk)

Showa Denkoin 2025

ExpandindividualizedbusinessesStabilize income

Showa Denko

in 2015

Operating incom

e margin (Return)

Improvepro�tability

30%

50%

40%

60%

occupy 50% of net sales

Individualized businesses Overseassales

Domesticsales

Aiming to makeindividualized businesses*

occupy 60% of net salesAiming to make overseas sales

*Individualized business:Refers to a business that is exceeding a certain scale, generating a certain level of profit, and offering highly competitive technologies and/or business models.

Base-shaping

Rebuilding

Growth-accelerating

Advantage-establishing

Market and business have certain scale. Have more power to resist market �uctuation, and

make stable pro�t and cash �ow.

HD Graphite electrodesPetrochemicals

Industrial gasesShoticTM

High-purity aluminum foil

Rare earthsCeramicsAluminum specialtycomponents

High-purity gasesfor electronics

Functional chemicalsAluminum cans

Actively take strategic measures.Realize rapid expansion of business

by preempting market growth.

LIB materialsSiC epi-wafer forpower devices

To cope with prospective market growth, establish business model with competitive advantage in terms of business and technical development.

Increase pro�t and cash �ow through rebuilding of business environment, pro�tability and business model.

Medium-term business plan:“Project 2020+”


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The following shows some of the measures we implemented in 2016.

◆ Making SunAllomer Ltd. a consolidated subsidiaryShowa Denko K.K. (SDK) and JXTG Nippon Oil & Energy Corporation

(JXTG) jointly purchased LyondellBasell Group's 50% stake in SunAllomer

Ltd., which had been a joint venture company among the three parties for

production and sale of polypropylene.

Showa Denko made SunAllomer Ltd., a manufacturer of

polypropylene (a major petrochemical derivative), a consolidated

subsidiary as a means of enhancing the competitiveness of its

Oita Complex. SunAllomer has strength in the field of automotive

components such as bumpers, and we will accelerate the expansion of

our Mobility-related business through this subsidiary.

◆ Deciding to purchase SGL GE’s graphite electrode businessShowa Denko K.K. agreed with SGL Carbon SE, a carbon and graphite

product manufacturer headquartered in Wiesbaden, Germany (“SGL

Carbon”), that SDK will acquire SGL GE Holding GmbH (“SGL GE”), which

engages in the graphite electrode business, from SGL Carbon group

(“SGL Group”)

By making SGL GE its subsidiary, the Company will enhance its

efficiency in a highly competitive market, which will enable it to

pursue a higher level of growth by promoting cost-competitiveness

and increasing business durability. With the acquisition of SGL GE, SDK

can cover all areas around the world, including Europe, and becomes

the global leading supplier of graphite electrodes. Based on the new

platform, SDK plans to revitalize the graphite electrode business into a

major profit source.

◆ SDK to Integrate Southeast Asian Bases for Aluminum Automotive Parts

Showa Denko has decided to integrate the aluminum forging plant

of SHOTIC Singapore Pte. Ltd. (STS), located in Singapore, with the

aluminum casting plant of SHOTIC Malaysia Sdn. Bhd. (STM), located

in Johor, Malaysia, aiming to strengthen competitiveness of its SHOTIC

business.

We decided to transfer the forging facilities of STS to STM to establish

an integrated production system including both casting and forging

processes. We aim to improve our product quality and productivity

and manage our bases more efficiently, thereby enhancing our global

competitiveness and appropriately meeting the needs of customers in

the ASEAN, Chinese, and Indian markets.

Here we introduce our progress with the

medium-term business plan, “Project 2020+”

Oita plant of SunAllomer

Graphite electrodes

SHOTIC Malaysia Sdn. Bhd.

Medium-term business plan:“Project 2020+”


Medium-term business plan, "Project 2020+"We will introduce how the Showa Denko Group is creating corporate value through the strategies

implemented by each of the Divisions.

Functional Chemicals Division

Create customer value

for the growth and expansion

of the business

General Manager, Functional Chemicals Division

Mitsuhiro Yada

The Functional Chemicals Division upholds the slogan of pursuing the

creation of customer value.

Based on the belief that we can achieve the growth and expansion

of our business by creating customer value, the Division has been

working to provide the market and customers with value through

cooperation with customers. Market needs are constantly changing

and are becoming increasingly diversified. We must therefore pay

more attention to the market and customers to deliver true value to

customers for coexistence and co-prosperity with them.

The Showa Denko Group has targeted five market domains in its

medium-term business plan, “Project 2020+,” and the Division is dealing

with a range of products and conducting business activities across the

five domains.

For example, in the Infrastructure market, businesses related

to maintenance services, including repair and improvement, are

flourishing in Japan while the establishment of social infrastructure is

in progress mainly in emerging market countries such as China and

India. For the maintenance and building of infrastructure, our products,

specifically, resin materials, are used, and demand for these materials

remains robust.

In the “Mobility” market, resin materials are used in railroad tracks

for high-speed trains, such as the Shinkansen in Japan. If the use

of high-speed trains expands in India and Southeast Asia, business

opportunities will substantially increase for our products.

From the viewpoint of environmental protection, regulations are

becoming tighter, particularly in China. Accordingly, coating materials

that contain no organic solvents are in need and will be popularized

further, and exhaust gas desulfurization equipment, which can remove

SOx and NOx, will be more widely used at thermal power generation

plants. Resin materials are used in this equipment and, moreover,

we have long been supplying columns necessary for environmental

analysis, and our columns are highly evaluated by users.

In the Electronics market, we can deliver a range of functional

materials for energy conservation and power storage.

I often make business trips across Japan, Asia, and around the world,

and even during these trips I am constantly thinking about how to

foster our functional chemicals business, which has a broad product

lineup. When I see more infrastructure being built in other countries, I

get a strong sense of how we are fulfilling an important role in society.

The functional chemicals business is positioned as one of the

“Growth-accelerating” businesses that will produce greater sales and

profit. To meet this expectation, we will accelerate the growth and

expansion of the business by providing all stakeholders with true value

and making contributions to them.


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HD Division

Contributing to an advanced

information society by using a

range of technologies

Senior Managing Corporate OfficerGeneral Manager,HD Division

Jiro Ishikawa

The HD Division is conducting R&D into hard disk (HD) media, and

manufacturing and selling the media to be used in hard disk drives

(HDDs), which are recording devices for computers, external hard disks,

game machines, servers, and others.

The amount of information created across the world is increasing

at an explosive rate due to the advancement of information

technology and changes in society. Such changes include the trend

of posting images taken with a smartphone camera on social media;

the spread of e-commerce, electronic money, and IC cards; the

progress of logistics management by radio frequency identification

(RFID); and the acquisition of data generated by security cameras on

the streets and sensors at factories connected via Internet of Things

(IoT) technology.

HDDs, SSDs, tapes, and optical disks will be used for different

applications as recording devices to store this exponentially

expanding data.

While the shipment of HDDs for use in personal computers will

gradually decrease due to a decline in demand for computers and to

the replacement of HDDs with SSDs, demand for HDDs will continue

to expand for use in servers supporting cloud computing as well as

servers installed at data centers that store and manage vast amounts

of data. HDDs will continue to prevail as large-capacity recording

devices with high cost competitiveness regarding quality and unit

capacity, and we therefore still have great business opportunities in

the HD business.

The HD Division has been maintaining the “Best in Class” position

by making daily improvements to the electromagnetic features and

reliability of its best-in-the-industry products. For HDDs for data

centers, the demand for which will continue to expand, we will

develop 3.5-inch aluminum substrates and media in an integrated

manner to continuously meet market needs. Showa Denko has

technologies that encompass the inorganic and organic materials

markets, and will utilize these versatile materials technologies to

release unique, leading-edge media. Moreover, we will increase

the efficiency of the development systems of our bases and build

a production system appropriate for the size of market demand

to enhance our cost competitiveness and ability to respond to

customers.

Showa Denko will continue to supply “Best in Class” HD media with

high economic rationality to contribute to the advanced information

society as a key component manufacturer for devices that are

indispensable to record the explosively expanding volume of data.


R&D of the Showa Denko Group

In January 2016, the Showa Denko Group started its new medium-term

consolidated business plan “Project 2020+.” Under this new business plan, the Group will strengthen revenue bases of its diverse businesses

and expand its individualized businesses, aiming to contribute to the

solution of social issues in global scale by providing high-value-added

products and services to five market domains, namely, “Infrastructure,”

“Energy,” “Mobility,” “Living environment,” and “Electronics.”

In recent years, customers’ requests to materials and parts are

diversified so much that it is necessary for us to reconcile diverse

technologies with products in order to secure our competitiveness.

We think we can take advantage of this diversity in customers’ needs

by making the most of our wide-ranging chemical technologies that

covers inorganic, aluminum and organic chemicals, and our diverse

human resources that support these technologies.

Therefore, we made it our basic policy on R&D to “Create new value

by forging, polishing, and linking diverse individualized technologies.”

Under this basic policy, we will deepen and fuse our “diverse business

domains,” our “core technologies” that consist of elemental technologies

with competitive advantage, and our “strategic technologies” that

consist of the world-top-level technologies we cultivated over many

years. Thus we will promote R&D in a way of our own.

At the beginning of 2016, in order to conduct this individualized

R&D, we established the Institute for Integrated Product Development,

which we organized by adding research facilities of six locations,

centering on aluminum and inorganics technologies, to the former

Institute for Polymers and Chemicals. On the initiative of this new

R&D organization, we will enhance cooperation among Divisions and

Plants, develop our retained materials into multi-material components,

and quickly respond to our customers’ needs in a creative way. The

Institute for Advanced and Core Technology will deepen our strategic

technologies consisting of “carbon, thin-film, and catalyst technologies,”

and focus on development of next-generation businesses. On the

other hand, in order to realize and maximize the fruits of R&D as early

as possible while making our original businesses and technologies as

the pivot of our R&D activities, we will positively utilize open innovation

and M&A, and strengthen cooperation with our partners.

The Showa Denko Group will make its R&D progress vigorously at

world level by providing customers with original solutions, deepening

and fusing its individualized technologies which are expected to

become sprouts of next-generation growth businesses.

Message from CTO

Managing Corporate Officers & CTO

Jun Tanaka

■ Create new value by forging, polishing, and linking diverse individualized technologies

Organics, Inorganics, Aluminum Diversebusinessdomains

(Nano-carbon/Thin-�lm/Catalyst)

Strategictechnologies Coretechnologies

Materialdesign

Processing

Analysissupport

Synthesisand

Reaction Deepening and fusion of retainedmaterials/technologies⇒ Develop multi-material

componentsPower module,

Resin composite materials

World-top-level technologies we cultivated over many years

Elemental technologieswith

competitive advantage

Infrastructure, Living environment, Mobility, Energy, Electronics

Weight-saving, Heat management,High integration, High durability

Diverse needs:

Create new value by forging, polishing, and linking diverse individualized technologies


About Show

a Denko

CSRFinancial

The Showa Denko Group is planning to invest 60 billion yen in R&D

over three years, starting in 2016, under the new medium-term

business plan, Project 2020+. About 70% of the investment funds will

be directed toward the “Energy” market domain (LIB materials, SiC

epitaxial wafers for power semiconductors, etc.) and the “Electronics”

market domain (electronic material gases and solvents, optical

films, and resins for use as electronic materials) to accelerate the

development of new technologies and products.The remaining 30%

will be spent on the newly added market domains of “Infrastructure,”

“Living environment,” and “Mobility” for the purpose of expanding

“individualized businesses.”

Through these R&D investments and activities, we will offer high

value-added products and services in the five market domains while

creating “individualized businesses” to promote social contribution on a

global scale.

The R&D projects introduced below have the potential to become

our next growing businesses.

1. Power modulesOur power modules offer an example of how we combine the Group’s

technologies, materials and solutions. A power module is made of

various materials such as aluminum, resin and ceramics. We will meet

customer needs for thermal solutions for high output and downsized

power control units, optimum material mix, and multi-materialization

(joining of different materials, etc.) by combining the Group’s power

device, heat sink/insulating panel, cooling device, heat-resistant sealing

resin, and other proprietary technologies so as to pioneer the power

module market.

Plan for R&D 2. Resins for use as electronic materialsResins for use as electronic materials have a range of applications

related to chip-on-film (COF) substrates for smartphones and color

filter substrates for flat panel displays.

In order to meet the demand for smaller smartphones with higher

performance and for flat panel displays with higher resolution, we

are required to increase the performance of our products, including

reliability, flexibility, and heat resistance.

The Showa Denko Group has been speedily meeting the needs of

customers engaged in rapidly changing markets by developing and

honing the polymer design technology for diverse resins such as acrylic

resin, modified epoxy resin, and urethane resin, the technology to mix

additives, and the technology to evaluate physical properties.

3. Nano-carbon materials

Having put commercial production of VGCFTM carbon nanotubes on

track, the Showa Denko Group is currently developing new carbon

materials such as fullerene and graphene. Our R&D targets include

derivatization of fullerenes, development of new functions for nano

thin film materials, and establishment of assessment techniques, and

we will promote the use of the materials for composites, batteries,

electrical wiring, recording devices, and other applications.


R&D of the Showa Denko Group

As the majority of Showa Denko's businesses are operated globally,

we aggressively apply for patents in foreign countries with the aim of

supporting those businesses from the intellectual property side.

The chart shown below is a composition of data shown in "Japan

Patent Office Annual Report 2016" and SDK's own data on the number

of applications for patents. It illustrates that the Showa Denko's global

application ratios were about 10% higher than those by all applicants.

We also make every effort to secure our superiority based on

intellectual property rights, especially in the principal businesses and

newly developed important products by establishing patent networks.

In Our Code of Conduct and Its Practical Guide, we uphold “Respect

for other parties’ intellectual property rights” as one of our rules. To this

end, we built a patent monitoring system to keep track of trends in the

intellectual property rights of others, including patents held outside

Japan.

In order to promote the filing of more valuable patent applications,

we commend our top three employees in terms of number of patent

applications filed in the previous fiscal year and also the top three

employees in terms of the number of patents registered in the previous

fiscal year. In 2016 we established a hall of fame for internal inventors,

and two employees, whose patent filings and inventions each totaled

300 or more, are honored in the hall.

Protection of intellectual property

Acquisition of intellectual property rights and establishment of patent networks

System relating to employee inventions

2010 2011 2012 2014(YEAR)2013

■ Number of application in Japan (Showa Denko)■ Number of global application (Showa Denko)

● Global application ratio (Showa Denko)● Global application ratio (all applicants)

60

50

40

30

20

10

0

(%)(Number of application)1,200

1,000

800

600

400

200

0

▪ Trend of patent application ratio in Japan and abroad

SDK Receives “2016 Top 100 Global Innovators” Award, 2 Years in a Row

Showa Denko has received “The Clarivate Analytics 2016 Top 100 Global Innovators” award. It is two years in a row that

SDK is listed in the annual “Top 100 Global Innovators” which is produced by Clarivate Analytics, formerly the Intellectual

Property & Science business of Thomson Reuters. Clarivate Analytics presented a trophy to SDK.

Clarivate Analytics selected “2016 Top 100 Global Innovators” by utilizing strict and objective data compiled from

its value-added patent citation database “Derwent World Patents Index (DWPI),” which is the world’s largest one in

this category, its intellectual property intelligence platform “Thomson Innovation,” and the company’s original basis

for evaluation. In the screening process of the award, Clarivate Analytics uses scientific and objective methodology

involving four main criteria of “patent volume,” “application-to-grant success,” “globalization” and “citation influence.” This

time, Clarivate Analytics commended SDK’s high performance in “globalization” and “citation influence,” and rated the

latter especially high.

* In the screening process, Clarivate Analytics analyzed various organizations’ patent activity records for the last five years. As for “globalization,” meanwhile, records for the past three years were analyzed.

SDK President Morikawa (left) receiving the trophy

Ceremony held to commend the internal inventors ranked in the top three (2016)


About Show

a Denko

CSRFinancial

Risk management Corporate Ethics and Compliance Fair Business Practice Information Disclosure and IRCorporate Governance

Showa Denko continuously promotes corporate governance to ensure the soundness, effectiveness, and transparency of management, and to contribute enhancing its corporate value, thereby contributing to the sound growth of society and earning its full trust and confidence.

To that end, it is essential for the Company to strengthen relations with its stakeholders, including shareholders, customers, suppliers, community residents, and employees. Based on the above, the Company has clarified its mission in the form of Our Vision and Showa Denko is working hard to realize this Vision.

Basic policies

Corporate Governance

AuditingRapid, e�ective decision-making

and business

Board ofDirectors

Execution of Duty

Internal Audit Department

Shareholder’s meeting

NominationAdvisory Committee

RemunerationAdvisory Committee

AccountingO�ce

Board ofAuditors

Auditors

Sta� Sections

BusinessDivisions

Responsible Care Promotion Council

Risk Management Promotion Council

Human Rights / Corporate EthicsPromotion Council

IR Promotion Council

Security Export Control Committee

Safety Measures Committee

Management Committee

R&D Committee

Top ManagementPresident

Corporate O�cers in Charge

CSR Comm

ittee

Internal Audits

links

Advisory · Report

Accounting

Audit

Accounting

Audit

JobA

udits

We introduced the corporate officer system to draw a clear line

between the two functions of management supervision and business

execution. The top management team, consisting of the President and

corporate officers in charge of respective operations, has been working

for prompt and dynamic decision-making in the areas of management.

Meanwhile, we substantially reduced the number of directors. We

also reinforced the supervision capacity of the Board of Directors by

appointing a minimum of two Independent Outside Directors.

The Board of Directors decides basic policies of the Company. It also

thoroughly discusses and makes decisions regarding matters specified

in the Companies Act or the Company's Articles of Incorporation

as well as important issues in executing business operations, while

promoting prompt and dynamic decision making on management.

We appoint directors with emphasis on the viewpoint of corporate

governance, aiming to strengthen the Board of Directors' monitoring

and supervisory functions and ensure the propriety of decision making

process. We have adopted a management system in which corporate

officers dedicate themselves to business execution, which is their

primary duty, but do not concurrently serve as directors, in principle.

Furthermore, we have abolished the system of officer directors except

the Chairman and the President, while strengthening monitoring by

Auditors including outside Auditors and mutual supervision among

directors.

The term of office of directors is set to one year to ensure a quick

and flexible formation of management team corresponding to changes

in the business environment.

The Management Committee, which is chaired by the President,

deliberates and decides on matters to be referred to the Board of

Directors' meetings and important matters pertaining to overall

management of the Company. The decisions are made after

deliberations on two occasions. As for the investment issues to be

submitted to the Management Committee, risk analysis as well as

achievement/progress management are conducted in advance,

through preliminary risk reviews and examinations by a relevant task

team. The basic business policies including Company's medium-term

business plans are decided not only through the deliberation of the

Management Committee but also through sufficient examination by all

corporate officers.

The R&D Committee deliberates and makes decisions on important

issues related to research and development.

Showa Denko positions CSR Committee at the top level of our

corporate governance system to check all management measures

from the CSR perspective. We also established the Security Export

Control Committee and Safety Measures Committee under the CSR

Committee. Moreover, we set up Responsible Care Promotion Council,

Risk Management Promotion Council, Human Rights/Corporate Ethics

Promotion Council and IR Promotion Council to deliberate on the

respective matters.

Board of Directors

Management Committee and R&D Committee

CSR Committee

■ Corporate governance structure

Implementation status of corporate governance measures


Corporate Governance

Showa Denko employs an auditor system. The Auditors attend the

Board of Directors meetings and other important internal meetings,

offering opinions as necessary. They conduct audits on execution of

business operations through on-site investigations, interviews with

responsible persons, and reference to important documents so as

to provide suggestions, advice, and recommendations for securing

soundness in management. They also audit group companies in

cooperation with auditors of major affiliated companies

We have the Internal Audit Department reporting directly to the

President. The Internal Audit Department investigates the overall

execution of business including group companies and verifies its

accuracy, validity and efficiency. It also investigates and verifies the

functional state of management policies, business plans and internal

control systems. The results of internal auditing are also reported to the

Auditors for mutual cooperation with Auditors' auditing.

Showa Denko concluded an auditing contract with KPMG AZSA, and

this audit corporation performs accounting audits for the Company.

The Accounting Auditor confirms the annual audit plan with the

Auditors and reports the audit results to them. The Accounting Auditor

a

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