Overview of 2022 Financial Statements

Business Results

With regard to the global economy in the first quarter of 2022 (January 1 – March 31), it was stagnant due to the global restraint on economic activities caused by the pandemic of coronavirus disease 2019 (COVID-19), a rise in prices of raw materials and fuels and restrictions on supply side of them caused by the situation in Ukraine, and disorder in distribution of goods and materials. However, manufacturing industries including the semiconductorrelated industry, whose market remained strong, were in the process of recovery. As for the Japanese economy, recovery of consumer spending was at a standstill. However, corporate sector as a whole showed a sign of recovery while export remained steady.

The Showa Denko Group has been giving the highest priority to all stakeholders' safety and health including that of our customers, business acquaintances and employees, and implementing various measures to prevent further spread of COVID-19. To be specific, we are taking various measures including companywide introduction of teleworking. The Group continues implementing measures which give priority to the security of employees’ safety and prevention of infection of COVID-19, including grant of special leave when infection is suspected and faithful practice of off-peak commuting through introduction of complete flextime. At the same time, in our production bases, we are making utmost efforts to fulfill our corporate social responsibility to continue providing our customers with products essential for infrastructural functions of society.

In the first quarter of 2022, the Group recorded consolidated net sales of ¥307,992 million, down 9.3% from the same period of the previous year due mainly to the sale of several businesses. Sales in the Semiconductor and Electronic Materials segment remained strong due to a recovery of production in the semiconductor related industry. Sales in the Innovation Enabling Materials segment and the Chemicals segment also increased due to a rise in the market prices of products. However, sales in the Mobility segment decreased due to a decline in production of cars caused by short supply of semiconductors. Sales figures of businesses sold in 2021, including those of Energy Storage Devices and Systems business, Aluminum Can business, Aluminum Rolled Products business, and Shoko Co., Ltd. were included in that of the Others segment. Operating income of the Group in the first quarter of 2022 decreased by 26.2% from the year-before period, to ¥15,361 million due mainly to the time lag between a rise in raw material prices, passing the rise in costs on to the prices of products, and sale of businesses. Non-operating income increased due mainly to a decrease in interest expense despite a decline in equity in earnings of affiliates. Ordinary income of the Group decreased by 20.6% from the year-before period, to ¥19,919 million. The Group recorded net income attributable to owners of the parent of ¥8,434 million, up 62.5% from the year-before period due mainly to recovery from recording of extraordinary loss in the year-before period caused by environmental expense.

Segment Information

Net sales by Segment

Operating Income by Segment

Semiconductor and Electronic Materials

In the Semiconductor and Electronic Materials segment, sales increased by 17.8% from the year-before period, to ¥107,344 million, despite transfer of Printed Wiring Board business which took place in the fourth quarter of 2021. Sales in the Front-end Semiconductor Materials and Back-end Semiconductor Materials subsegments increased due mainly to strong demand for semiconductors. Sales in the Device Solutions subsegment substantially increased due mainly to an increase in shipment volumes of HD media for use in data centers. As a result, the Semiconductor and Electronic Materials segment recorded operating income of ¥12,935 million, up 56.0% from the year-before period due to an increase in sales, despite a rise in prices of raw materials.

Mobility

In the Mobility segment, sales decreased by 4.2% from the year-before period, to ¥44,379 million. Sales in the Automotive Products and Lithium-ion Battery Materials subsegments decreased due mainly to a decline in production of cars caused by short supply of semiconductors. The Mobility segment recorded operating income of ¥352 million, down 67.7% from the year-before period due partly to a substantial rise in prices of raw materials, in addition to a decline in production of cars mentioned above.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, sales increased by 13.4% from the year-before period, to ¥34,304 million. Sales of some products increased due partly to a substantial rise in prices of raw materials. However, operating income in this segment decreased due partly to a decline in production of cars and a time lag between a rise in raw material costs and passing it on to the prices of products. As a result, the segment recorded operating income of ¥2,864 million, down 31.3% from the year-before period.

Chemicals

In the Chemicals segment, sales increased by 9.9% from the year-before period, to ¥95,068 million. Sales in the Petrochemicals subsegment decreased due partly to a decline in the automobile industry’s demand for petrochemical products and once-in-four-year shutdown maintenance in the Oita Complex. Operating income in the Petrochemicals subsegment significantly decreased due to the shutdown maintenance in the Oita Complex and a negative impact of naphtha price factor. Sales in the Basic Chemicals and Industrial Gases subsegment increased due partly to a small increase in sales of industrial gases and a rise in prices of basic chemicals caused by a substantial rise in prices of raw materials and fuels. However, operating income in the Basic Chemicals and Industrial Gases subsegment decreased due mainly to a time lag between a rise in raw material costs and passing it on to the prices of products. Sales and operating income in the Graphite Electrodes subsegment increased due mainly to increases in sales volumes and product prices. As a result, operating income in the Chemicals segment decreased by 68.4% from the year-before period, to ¥2,249 million.

• note: In January 2022, SDK changed segmentation of its financial results. Increase/ decrease was culculated based on new segmentation.

Financial Conditions

Total assets at the end of the quarter amounted to ¥2,147,600 million, an increase of ¥5,210 million from the level at December 31, 2021. Total assets increased due partly to increases in inventories, property, plant and equipment. Total liabilities decreased by ¥11,242 million, to ¥1,312,696 million, due partly to a decrease in notes and accounts payabletrade. Net assets at the end of the quarter increased by ¥16,452 million, to ¥834,904 million, due partly to an increase in foreign currency translation adjustments.

Business Results

With regard to the global economy in the first half of 2022 (January 1–June 30), it was stagnant due to the global restraint on economic activities caused by the pandemic of coronavirus disease 2019 (COVID-19) including Shanghai lockdown, a rise in prices of raw materials and fuels and restrictions on supply side of them caused by the situation in Ukraine, and disorder in distribution of goods and materials. However, semiconductor-related industry continued booming. As for the Japanese economy, consumer spending showed a sign of recovery. Corporate sector as a whole showed a sign of recovery while export remained steady.

The Showa Denko Group has been giving the highest priority to all stakeholders’ safety and health including that of our customers, business acquaintances and employees, and implementing various measures to prevent further spread of COVID-19. To be specific, we are taking various measures including companywide introduction of teleworking at home and satellite offices. The Group continues implementing measures which give priority to the security of employees’ safety and prevention of infection of COVID-19, including grant of special leave when infection is suspected and faithful practice of off-peak commuting through introduction of complete flextime. At the same time, in our production bases, we are making utmost efforts to maintain our operations and continue providing our customers with products, thereby contributing to maintenance of infrastructural functions of society.

In the first half of 2022, the Group recorded consolidated net sales of ¥656,033 million, down 5.4% from the same period of the previous year due mainly to the sale of several businesses, which decreased net sales by about ¥100 billion. Sales in the Semiconductor and Electronic materials segment remained strong due to a recovery of production in the semiconductor related industry. Sales in the Innovation Enabling Materials segment and the Chemicals segment also increased due to a rise in the market prices of products. However, sales in the Mobility segment decreased due to a decline in production of cars caused by short supply of semiconductors. Sales figures of businesses sold in 2021, including those of Energy Storage Devices and Systems business, Aluminum Can business, Aluminum Rolled Products business, and Shoko Co., Ltd. were included in that of the Others segment. Operating income of the Group in the first half of 2022 decreased by 22.0% from the year-before period, to ¥37,082 million. Operating income in the Semiconductor and Electronic Materials segment increased substantially. However, operating income in the Mobility, Innovation Enabling Materials, and Chemicals segments decreased due mainly to the time lag between a rise in raw material prices and passing the rise in costs on to the prices of products. Sale of businesses also pushed down the Group’s consolidated operating income. Non-operating income increased due mainly to foreign exchange gain. Ordinary income of the Group decreased by 6.7% from the year-before period, to ¥46,845 million. Net income attributable to owners of the parent increased by ¥45,138 million from the year-before period, to ¥31,727 million due mainly to recovery from last year’s recording of extraordinary loss caused by an expenditure to cover the cost of structural reform related to the transfer of energy storage devices and systems business.

Segment Information

Net sales by Segment

Operating Income by Segment

Semiconductor and Electronic Materials

In the Semiconductor and Electronic Materials segment, sales increased by 12.3% from the year-before period, to ¥220,354 million, despite transfer of Printed Wiring Board business which took place in the fourth quarter of 2021. Sales in the Front-end Semiconductor Materials and Back-end Semiconductor Materials subsegments increased due mainly to strong demand for semiconductors. Sales in the Device Solutions subsegment substantially increased due mainly to an increase in shipment volumes of HD media for use in data centers. As a result, the Semiconductor and Electronic Materials segment recorded operating income of ¥26,801 million, up 26.7% from the year-before period due to an increase in sales, despite a rise in prices of raw materials.

Mobility

In the Mobility segment, sales decreased by 3.2% from the year-before period, to ¥86,689 million. Sales in the Automotive Products subsegment increased due mainly to an increase in demand from some customers, despite a decline in production of cars caused by short supply of semiconductors. However, Sales in the Lithium-ion Battery Materials subsegment decreased. The Mobility segment recorded operating loss of ¥1,187 million, a decrease of ¥2,195 million from the year-before period due partly to a substantial rise in prices of raw materials.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, sales increased by 6.7% from the year-before period, to ¥70,005 million. This segment’s net sales increased due partly to a rise in prices of products caused by a substantial rise in prices of raw materials. However, operating income in this segment decreased due partly to a decline in production of cars and a time lag between a rise in raw material costs and passing it on to the prices of products. As a result, the segment recorded operating income of ¥5,385 million, down 34.8% from the year-before period.

Chemicals

In the Chemicals segment, sales increased by 17.3% from the year-before period, to ¥224,526 million. However, operating income in the segment decreased. Sales in the Petrochemicals subsegment increased due mainly to a rise in sales prices of products caused by a substantial rise in naphtha price, despite once-in-four-year shutdown maintenance in the Oita Complex. Operating income in the Petrochemicals subsegment decreased due to a decrease in sales volumes caused by this shutdown maintenance. Sales in the Basic Chemicals and Industrial Gases subsegment increased due partly to a rise in prices of products caused by a substantial rise in prices of raw materials and fuels. However, operating income in the Basic Chemicals and Industrial Gases subsegment decreased due mainly to a time lag between a rise in raw material costs and passing it on to the prices of products. Sales and operating income in the Graphite Electrodes subsegment increased due mainly to a rise in product prices. As a result, operating income in the Chemicals segment decreased by 32.0% from the year-before period, to ¥13,112 million.

• note: In January 2022, SDK changed segmentation of its financial results. Increase/ decrease was culculated based on new segmentation.

Financial Conditions

Total assets at the end of the first half of 2022 amounted to ¥2,221,979 million, an increase of ¥79,590 million from the level at December 31, 2021. Total assets increased due partly to increases in inventories, property, plant and equipment, despite decreases in cash and deposits, and intangible fixed assets including goodwill. Total liabilities increased by ¥302,430 million, to ¥1,626,367 million due mainly to an increase in interest-bearing debts caused by financing of funds to acquire preferred stock issued by a subsidiary through a subordinated loan. Net assets at the end of the first half of 2022 decreased by ¥222,840 million, to ¥595,612 million, due mainly to a decrease in　noncontrolling interests caused by the Company’s acquisition of preferred stock owned by financial institutions, despite an increase in foreign currency translation adjustments.

Cash Flow

Net cash provided by operating activities during the first half of 2022 amounted to ¥21,874 million, a decrease of ¥33,427 million from the same period of the previous year, due partly to increases in inventories and the amount of payment of income taxes. Net cash used in investing activities increased by ¥26,223 million from the year-before period, to ¥36,616 million due partly to an increase in expenditure for acquisition of tangible fixed assets. Thus, free cash flow ended up in an expenditure of ¥14,742 million, a decrease in proceeds of ¥59,650 million from the same period of the previous year. Cash flows from financing activities ended up in an expenditure of ¥18,214 million, a decrease in expenditure of ¥55,432 million from the year-before period. As a result, after the effects of exchange rate fluctuations are taken into account, cash and cash equivalents at the end of the first half of 2022 decreased ¥12,756 million from the level at December 31, 2021, to ¥222,183 million.

Business Results

In the nine-month period ended September 30, 2022 (“2022 1Q-3Q”), while the global restraint caused by the pandemic of COVID-19 being eased and normalization progressed, the global economy showed progress of inflation, energy and raw material price rise caused by the prolonged situation in Ukraine, occurrence of supply constraints, standstill in the recovery of consumption in some regions. Also we are beginning to see some signs of adjustments in the semiconductor industry, which has been performing steadily. In the Japanese economy, consumer spending, corporate capital investment and production showed signs of a gradual recovery.

Consolidated sales for 2022 1Q-3Q, decreased to ¥1,034,152 million, down 1.7% from the corresponding nine-month period of the previous year (“2021 1Q-3Q”). While the Semiconductor and Electronic Materials segment performed well due to the recovery of the semiconductor-related industry, and sales in the three segments of Mobility, Innovation Enabling Materials, and Chemicals also increased due to rising market conditions, impact of divestment conducted in the previous fiscal year caused ¥140,000 million sales decrease. The previous fiscal year figures for Energy Storage Devices and Systems business, Aluminum Can business, Aluminum Rolled Products business which were divested, and SHOKO CO., LTD. which was excluded from consolidated accounting due to reduction of stake, are included in the Others segment. Consolidated operating income for 2022 1Q-3Q decreased to ¥53,536 million, down 25.6% from 2021 1Q-3Q. Although the operating income of the Semiconductor and Electronic Materials segment increased, in three segments of Mobility, Innovation Enabling Materials, and Chemicals, due to the time lag between rise in raw material prices and shift to product prices caused decline in operating income. And also divestment had impact on decrease in operating income. Non-operating income increased mainly due to foreign exchange gains, and ordinary income decreased to ¥64,125 million, down 12.5% from 2021 1Q-3Q.
Net income attributable to owners of the parent of 2022 1Q-3Q increased to ¥35,451 million, up ¥45,781 million from 2021 1Q-3Q due to the absence of an extraordinary loss such as a business structure improvement charge related to the divestment of the Storage Devices and System business recorded in 2021 1Q-3Q.

Segment Information

Net sales by Segment

Operating Income by Segment

Semiconductor and Electronic Materials

In the Semiconductor and Electronic Materials segment, sales of both Front-end Semiconductor Materials and Backend Semiconductor Materials subsegments increased due to strong demand for semiconductors since the beginning of the year, despite the recent adjustments in semiconductor production and the impact of the divestment of the Printed Wiring Board business which took place in the fourth quarter of the previous fiscal year, 2021. In Device Solutions subsegment, sales also increased primarily due to higher volumes of HD media for data centers. As a result, the segment posted sales of ¥332,322 million (up 7.1% from 2021 1Q-3Q) and operating income of ¥39,823 million (up 15.1% from 2021 1Q-3Q) due to an increase in sales despite the impact of rising raw material prices.

Mobility

In the Mobility segment, while automobile production recovery progresses, sales of Automotive Products subsegment increased due to an increase in demand from some customers. Sales of the Lithium-ion Battery Materials subsegment decreased due to a decline in consumer demand. As a result, the segment posted sales of ¥134,891 million (up 2.6% from 2021 1Q-3Q) and operating loss of ¥1,800 million (down ¥2,485 million from 2021 1Q-3Q) ,due in part to the impact of rising raw material prices.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, sales increased modestly partly due to higher product prices causedby higher raw material prices. However, operating income in the segment decreased due to a time lag in price passthrough. As a result, the segment posted sales of ¥105,572 million (up 1.4% from 2021 1Q-3Q) and operating income of ¥7,461 million (down 35.7% from 2021 1Q-3Q).

Chemicals

In the Chemicals segment, sales of Petrochemicals subsegment increased, mainly due to higher selling prices caused by the sharp rise in naphtha prices, despite once-in-four-year large-scale maintenance with shutdown. Operating income decreased, due to reduction in spreads and a decrease in sales volume caused by the large-scale maintenance with shutdown. Sales of the Basic Chemicals subsegment increased due to higher selling prices affected by higher raw material and fuel prices, however, operating income declined due to a time lag in price passthrough. Sales and operating income of the Graphite Electrodes subsegment increased mainly due to higher selling prices. As a result, the segment posted sales of ¥376,976 million (up 23.8% from 2021 1Q-3Q) and operating income of ¥19,321 million (down 37.5% from 2021 1Q-3Q).

• note: In January 2022, SDK changed segmentation of its financial results. Increase/ decrease was culculated based on new segmentation.

Financial Conditions

Total assets at the end of the third quarter increased by ¥57,067 million from the end of the previous fiscal year, to ¥2,199,457 million, due to an increase in inventories and property, plant and equipment, despite a decrease in cash and deposits and intangible assets such as goodwill. Total liabilities increased by ¥265,769 million, to ¥1,589,706 million due to an increase in interest-bearing debt as a result of financing through subordinated loans to acquire preferred stock issued by a subsidiary. Net assets decreased by ¥208,701 million, to ¥609,751 million, due to a decrease in noncontrolling interests resulting from the acquisition by our company of preferred stock owned by financial institutions, despite an increase in foreign currency translation adjustments.

Business Results

In the year ended December 31, 2022 (“2022”), while the global restraint caused by the pandemic of COVID-19 eased and normalization progressed, the global economy showed progress of inflation, energy and raw material price rise caused by the prolonged situation in Ukraine, occurrence of supply constraints, standstill in the recovery of consumption in some regions. Also we saw some adjustments in the semiconductor industry, which has been performing steadily. In the Japanese economy, consumer spending and corporate capital investment showed signs of a gradual recovery.
Consolidated sales for 2022, decreased to ¥1,392,621 million, down 1.9% from the year ended December 31, 2021 (“2021”). Although strong demand for semiconductors, a recovery in automobile production, and higher selling prices contributed to higher sales, there was a decline of approximately ¥160,000 million yen in sales in divestment, which was implemented in the previous fiscal year. The previous fiscal year figures for Energy Storage Devices and Systems business, Aluminum Can business, Aluminum Rolled Products business which were divested, and SHOKO CO., LTD. which was excluded from consolidated accounting due to reduction of stake, are included in the Others segment. Consolidated operating income for 2022, decreased to ¥59,371 million, down 31.9% from 2021. The delay to raise product prices after the rise in raw material prices and the divestments affected negatively. Non-operating income increased mainly due to foreign exchange gains, despite an increase in interest expenses, and consolidated ordinary income of 2022 decreased to ¥59,367 million, down 31.7% from 2021.
Net income attributable to owners of the parent of 2022 was ¥30,793 million, up ¥42,887 million from 2021 due to the absence of an extraordinary loss such as a business structure

Segment Information

Net sales by Segment

Operating Income by Segment

Semiconductor and Electronic Materials

In the Semiconductor and Electronic Materials segment, sales of both Front-end Semiconductor Materials and Backend Semiconductor Materials subsegments increased due to strong demand for semiconductors since the beginning of the year, despite the recent adjustments in semiconductor Back-end production. In Device Solutions subsegment,
sales remained unchanged due to HD media volumes decrease caused by a slowdown in demand for data centers from the fourth quarter while SiC epitaxial wafers’ sales increased. Sales and operating income for the previous fiscal year include the Printed Wiring Board business which was divested in the fourth quarter of the previous fiscal year,
2021.
As a result, the segment posted sales of ¥427,171 million (up 1.0% from 2021) and operating income of ¥44,228 million (down 10.8% from 2021) due to the impact of rising raw material prices.

Mobility

In the Mobility segment, sales of Automotive Products subsegment increased due to automobile production recovery from the 2nd half of the year and the increase in demand from some customers. Sales of the Lithium-ion Battery Materials subsegment decreased due to a decline in consumer demand.
As a result, the segment posted sales of ¥180,626 million (up 3.9% from 2021) and operating loss of ¥1,489 million (up ¥532 million from 2021), due in part to the impact of rising raw material prices.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, sales decreased due to decline in sales volume, although selling prices were raised due to higher raw material prices.
As a result, the segment posted sales of ¥141,081 million (up 1.6% from 2021) and operating income of ¥9,838 million (down 27.9% from 2021).

Chemicals

In the Chemicals segment, sales of Petrochemicals subsegment increased, mainly due to higher selling prices caused by the sharp rise in naphtha prices, despite once-in-four-year large-scale maintenance with shutdown. On the other hand, operating income decreased due to a decrease in sales volume caused by the large-scale maintenance with shutdown, and inventory valuation difference. Sales of the Basic Chemicals subsegment increased due to higher selling prices affected by higher raw material prices, however, operating income declined due to an increase in cost mainly caused by higher fuel prices. Sales and operating income of the Graphite Electrodes subsegment increased mainly due to higher selling prices.
As a result, the segment posted sales of ¥527,825 million (up 22.5% from 2021) and operating income of ¥24,910 million (down 34.3% from 2021).

• note: In January 2022, SDK changed segmentation of its financial results. Increase/ decrease was culculated based on new segmentation.

Financial Conditions

Total assets at the end of the current fiscal year 2022 decreased by ¥41,969 million from the end of the previous fiscal year 2021 to ¥2,100,421 million due to increases in inventories, property, plant and equipment, despite decreases in cash and deposits, and intangible fixed assets including goodwill.
Total liabilities increased by ¥201,806 million to ¥1,525,744 million due to an increase in interest-bearing debts caused by borrowing a subordinated loan to acquire preferred stock issued by a subsidiary.
Net assets decreased by ¥243,775 million, to ¥574,677 million, due to a decrease in non-controlling interests resulting from the repurchase of preferred stock held by financial institutions, despite an increase in foreign currency translation adjustments account.

Cash Flow

Net cash provided by operating activities during the current fiscal year 2022 was ¥100,349 million, an increase of ¥14,934 million from the previous fiscal year, mainly due to an increase in income before income taxes. Net cash used in investing activities decreased by ¥83,273 million from the previous fiscal year. This was mainly due to an increase in expenditure of ¥20,115 million from the acquisition of property, plant and equipment, an increase in income of ¥18,737 million for the sale of property, plant and equipment, and the impact of expenditure of 84,133 million yen for the sale of subsidiary shares accompanying a change in the scope of consolidation in the previous fiscal year.
As a result, free cash flow was ¥45,681 million yen, a decrease of ¥98,208 million from the previous fiscal year. Net cash used in financing activities was ¥103,964 million, a decrease of ¥17,777 million, including ¥4,096 million used for long-term borrowings, ¥287,635 million yen used for acquisition of shares of subsidiaries without changes in the scope of consolidation, and the effect of ¥82,405 million in proceeds from the issuance of shares in the previous fiscal year.
As a result, cash and cash equivalents at the end of the fiscal year, including the impact of currency fluctuations, decreased by ¥48,255 million from the end of the previous fiscal year to ¥186,683 million.