Showa Denko K K : 2020 Consolidated Financial Statements and summary

February 17, 2021

2020 Consolidated Financial Results (Summary)

Ⅰ . Results for 2020

1. Summary

(Unit: billions of yen, except for "per share" indicators)

Items	2019 Jan.1 - Dec.31	2020 Jan.1 - Dec.31	Increase/ decrease
Net sales	906.5	973.7	67.2
Operating income	120.8	-19.4	-140.2
Net income attributable to owners of the parent	73.1	-76.3	-149.4
Net income attributable to owners of the parent per share	¥501.03	¥-523.06	¥-1,024.09
Stockholders' equity per share	¥3,423.25	¥2,782.79	¥-640.45
Annual dividend per share	¥130.00	¥65.00 (planned)	¥-65.00

Showa Denko K.K. made Hitachi Chemical Company, Ltd. a consolidated subsidiary, whose current name is Showa Denko Materials Co., Ltd. (Showa Denko Materials), and started on July 1, 2020 to incorporate Showa Denko Materials' sales figures and incomes/losses into its consolidated financial statements.

2. Net sales and Operating income by Segment (Year to year comparison)

(Unit: billions of yen)

Segment	2019 Jan.1 - Dec.31	2020 Jan.1 - Dec.31	Increase/ decrease
Petrochemicals	Net Sales	250.7	193.4	-57.3
Op. Income	17.2	4.9	-12.3
Chemicals	Net Sales	157.5	155.8	-1.7
Op. Income	13.7	13.5	-0.2
Electronics	Net Sales	96.4	97.4	1.0
Op. Income	4.9	9.1	4.3
Inorganics	Net Sales	230.1	82.9	-147.2
Op. Income	89.3	-32.3	-121.6
Aluminum	Net Sales	97.5	80.2	-17.4
Op. Income	1.7	0.4	-1.3
Showa Denko Materials	Net Sales	－	302.7	302.7
Op. Income	－	-6.3	-6.3
Others	Net Sales	126.2	107.3	-18.9
Op. Income	1.8	1.2	-0.6
Adjustments	Net Sales	-52.0	-46.0	6.0
Op. Income	-7.8	-10.0	-2.2
Total	Net Sales	906.5	973.7	67.2
Op. Income	120.8	-19.4	-140.2

Showa Denko K.K. started on July 1, 2020 to incorporate Showa Denko Materials' sales figures and incomes/losses into its financial statements as "Showa Denko Materials segment."

3. Net sales and Operating income by Segment (Quarterly transition)

(Unit: billions of yen)

Segment	2020 CQ1 Jan.1 - Mar.31	2020 CQ2 Apr.1 - Jun.30	2020 CQ3 Jul.1 - Sept.30	2020 CQ4 Oct.1 - Dec.31
Petrochemicals	Net Sales	55.0	40.7	46.8	50.8
Op. Income	-0.2	-3.5	5.0	3.6
Chemicals	Net Sales	36.3	35.7	41.0	42.8
Op. Income	2.3	2.7	4.3	4.2
Electronics	Net Sales	23.6	21.0	24.1	28.7
Op. Income	1.0	0.8	3.0	4.3
Inorganics	Net Sales	21.4	21.6	18.3	21.6
Op. Income	0.8	-23.8	-3.3	-6.1
Aluminum	Net Sales	19.2	19.7	19.6	21.7
Op. Income	0.0	-0.3	-0.1	0.7
Showa Denko Materials	Net Sales	－	－	144.8	157.9
Op. Income	－	－	2.8	-9.1
Others	Net Sales	28.6	27.0	24.5	27.3
Op. Income	0.2	0.3	0.1	0.6
Adjustments	Net Sales	-12.3	-10.8	-9.8	-13.1
Op. Income	-1.7	-4.6	-1.4	-2.3
Total	Net Sales	171.7	154.9	309.4	337.7
Op. Income	2.5	-28.3	10.4	-4.0

February 17, 2021

SHOWA DENKO K.K.

Ⅱ. Forecast for 2021

1. Summary

(Unit: billions of yen, except for "per share" indicators)

Items

2020

2021 ForecastNet sales Operating income

973.7

1,280.0

-19.4

45.0

Net income attributable to owners of the parent

-76.3

-14.0

Net income attributable to owners of the parent per share

¥-523.06

¥-95.97

End of term dividends per share

¥65.00 (planned)

¥65.00

2. Net sales and Operating income by Segment

(Unit: billions of yen)

Segment	2020	2021 Forecast	Increase/ decrease
Petrochemicals	Net Sales	193.4	196.0	2.6
Op. Income	4.9	11.5	6.6
Chemicals	Net Sales	155.8	166.0	10.2
Op. Income	13.5	15.5	2.0
Electronics	Net Sales	97.4	110.0	12.6
Op. Income	9.1	12.5	3.4
Inorganics	Net Sales	82.9	77.0	-5.9
Op. Income	-32.3	3.0	35.3
Aluminum	Net Sales	80.2	58.0	-22.2
Op. Income	0.4	3.5	3.1
Showa Denko Materials	Net Sales	302.7	610.0	307.3
Op. Income	-6.3	10.0	16.3
Others	Net Sales	107.3	111.0	3.7
Op. Income	1.2	1.0	-0.2
Adjustments	Net Sales	-46.0	-48.0	-2.0
Op. Income	-10.0	-12.0	-2.0
Total	Net Sales	973.7	1,280.0	306.3
Op. Income	-19.4	45.0	64.4

Showa Denko K.K. started on July 1, 2020 to incorporate Showa Denko Materials' sales figures and incomes/losses into its financial statements as "Showa Denko Materials segment."

Ⅲ. Cash flow

(Unit: billions of yen)

Cash flows from:	2019	2020	Increase/ decrease	2021 Forecast	Increase/ decrease
Operating activities	78.6	109.3	30.7	135.0	25.7
Investing activities	-48.2	-930.0	-881.9	-75.0	855.0
Free cash flow	30.4	-820.8	-851.2	60.0	880.8
Financing activities	-18.5	896.5	915.1	-60.0	-956.5
Other	-3.0	0.4	3.4	0.0	-0.4
Net increase in cash	8.9	76.2	67.3	0.0	-76.2

Ⅳ. Reference

(Unit: billions of yen, expect for Total number of employees, Exchange rate, and Domestic naphtha price)Items

2019

2020

Capital expenditures Depreciation and amortization R&D expenditures

50.2

37.7

20.6

Gap between interest expense and interest & dividend income Total number of employees Exchange rate (yen/US$） Domestic naphtha price (yen/kl) Interest-bearing debt

0.3

10,813

33,684

109.1 Yen appriciated by 2.2

Total assets

1,076.4

42,000	32,800	-9,200	33,200	400
303.2	1,060.1	757.0	1,030.0	-30.1

2,203.6 1,127.2

106.8 Yen appriciated by 1.8

Increase/ decrease

69.1

18.8

60.6

22.9

34.4

13.8

-4.6

-4.9

22,871

Showa Denko K.K. made Showa Denko Materials a consolidated subsidiary, considered June 30, 2020 as acquisition date, and started to incorporate Showa Denko Materials' financial results into its financial statements. Showa Denko K.K. started to include leasing liabilities in interest-bearing debts in this third quarter, and retrospectively adjusted the balance of interest-bearing debts as of the end of 2019 in the same way.

The above forecast is based on the information available as of today and assumptions as of today regarding risk factors that could affect our future performance. Actual results may differ materially from the forecast due to a variety of risk factors, including, but not limited to, the influence of the coronavirus disease 2019 (COVID-19) on the world economy, the economic conditions, costs of naphtha and other raw materials, demand or market conditions for our products such as graphite electrodes and other commodities, and foreign exchange rates. We undertake no obligation to update the forward-looking statements unless required by law.

Consolidated Financial Statements

For the year ended December 31, 2020

Ⅰ. Consolidated Financial Results

Feb. 17th, 2021

(1) Results of operations:

( in millions, US$ in thousands, except for net income attributable to owners of the parent per share)

Results for the year ended December 31

2019

2020

Increase (Decrease)

2020

Net sales Operating income Ordinary income

906,454

973,700

120,798

(19,449)

119,293

(43,971)

Net income attributable to owners of the parent

73,088

(76,304)

% 7.4 (116.1) (136.9) (204.4)

$

9,407,728

(187,914)

(424,840)

(737,237)

Net income attributable to owners of the parent per share: Basic Net income attributable to owners of the parent per share: Diluted

501.03 ― %

(523.06)

― %

― ―

(5.05)

―

Net income on equity

15.5

(16.9)

Ordinary income on total assets Operating income to net sales

11.1

(2.7)

13.3

(2.0)

Showa Denko K.K. made Hitachi Chemical Company, Ltd. a consolidated subsidiary, whose current name is Showa Denko Materials Co., Ltd. (Showa Denko Materials), and started on July 1, 2020 to incorporate Showa Denko Materials' sales figures and incomes/losses into its consolidated financial statements.

Notes

Important changes in accounting policies : not applicable Comprehensive income:

Results for the year ended December 31,2020	¥(70,188) million
Results for the year ended December 31,2019	¥77,308 million
(2) Financial position:	( in millions, US$ in thousands, except for net income per share)

Dec. 31, 2019	Dec. 31, 2020	Dec. 31, 2020
Total assets Total equity Total equity per share Stockholders' equity ratio	1,076,381 519,433 3,423.25 % 46.4	2,203,606 718,080 2,782.79 % 18.4	$ 21,290,877 6,937,973 26.89 % 18.4

Showa Denko K.K. made Showa Denko Materials a consolidated subsidiary, considered June 30, 2020 as acquisition date, and started to incorporate Showa Denko Materials' sales figures and incomes/losses into its consolidated financial statements.

(3) Cash flows:

( in millions, US$ in thousands)

Results for the year ended December 31
2019	2020	2020
Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of the year	78,554 (48,156) (18,546) 121,734	109,286 (930,047) 896,521 197,928	$ 1,055,905 (8,985,966) 8,662,036 1,912,344

(4) Dividends:

2019	2020	2021forecast
End of Q1 dividends per share () End of Q2 dividends per share () End of Q3 dividends per share () End of Term dividends per share () Total of dividend per share above ()	― 50 ― 80.0 130.0	― 0 ― 65.0 65.0	― 0 ― 65.0 65.0
Total dividends ( in millions)	19,001	9,500
Payout ratio (consolidated) Net assets dividend yield (consolidated)	% 25.9 4.0	% － 2.1	% － －

Ⅱ. Forecast of performance for the year ending December 31, 2021

( in millions, US$ in thousands, except for net income per share)

1st half fiscal year

$

$

Net sales	630,000	6,086,957	1,280,000	12,367,150
Operating income	11,000	106,280	45,000	434,783
Ordinary income	6,000	57,971	35,000	338,164
Net income attributable to owners of the parent	(16,000)	(154,589)	(14,000)	(135,266)
Net income attributable to owners of the parent per share: Basic	(109.68)	(1.06)	(95.97)	(0.93)

※The above forecast is based on the information available at this point of time. Actual results may differ materially due to a variety of reasons, including such economic factors as fluctuations in foreign currency exchange rates as well as market supply and demand conditions.

Notes

Yen amounts have been translated into U.S.dollars for convenience only, at the rate of 103.50 to US$1.00, the approximate rate of exchange as of Dectember 31, 2020.

[Business Results and Financial Conditions] 1. Analysis of business results

(1) Summary

With regard to the Japanese economy in 2020, consumer spending deteriorated rapidly due to the influence of the international pandemic of the coronavirus disease 2019 (COVID-19). Corporate earnings were greatly affected by a slowdown of the world economy caused by the pandemic of COVID-19, and there were also significant effect of a sudden slowdown in domestic consumer spending, a major reduction in export, a fast reduction in overseas production, and a sharp drop in crude-oil prices on corporate earnings. As a result, many companies showed serious deterioration in their business sentiment around the middle of the year. As countermeasures against such an economic downturn, the major powers including Japan, the United States, and the European Union took stimulative monetary and fiscal policies, and there were signs of partial economic recovery. Although business environment of the Showa Denko Group had some unclear factors including resurgence of the spread of COVID-19, uncertainty about economic policy of the new administration of the United States, and US-China trade friction, the semiconductor industry continued to do well, and the automobile industry showed sign of recovery in the second half of 2020.

Taking the current situation into consideration, and giving the highest priority to the preservation of safety and health of our stakeholders including customers, business acquaintances and employees, the Showa Denko Group is implementing various measures to prevent further spread of the infectious disease. To be specific, we have introduced telework, which have been implemented by employees belonging to major plants, divisions, and departments. Especially in the headquarters, since the spread of the infectious disease, we have been taking measures to minimize the percentage of attendance of employees by thoroughly reviewing contents of duties. We have also started to grant special leave to employees who is suspected to be infected with COVID-19, and have been asking employees to refrain from eating in a group. Thus, we are taking various measures to give the highest priority to keeping our employees' health and preventing the spread of COVID-19. At the same time, in our production bases, we have been making utmost efforts to fulfill our corporate social responsibility to continue providing our customers with products essential for infrastructural functions of society.

Medium-term business plan "The TOP 2021"

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

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