Showa Denko K.K. Operating Income Increases 11.6% in 2007

JCN Newswires, Feb 7, 2008

Tokyo, Japan, Feb 7, 2008 - (JCN Newswire) - Showa Denko K.K. (SDK) announces an 11.6% increase in its consolidated operating income for the twelve months of 2007 (January-December), to JPY 76,671 million, on net sales of JPY 1,023,238 million, up 11.9%. Ordinary income was up 4.3%, to JPY 59,989 million, despite increases in non-operating expenses. Net income increased 14.7%, to JPY 33,066 million, due partly to the fall in extraordinary losses.

During the year, despite such instability factors as the soaring crude oil prices, the decline in construction work in the second half of the year, and financial problems following the U.S. subprime mortgage crisis, the Japanese economy continued its gradual recovery owing to steady capital spending against the background of strong corporate earnings and increases in exports to Asian countries.

In the chemical and nonferrous metals industries, the situation remained severe as prices of naphtha and other raw materials soared while fuel and distribution costs also increased. Meanwhile, the electronic parts/materials industry showed a steady growth despite partial inventory adjustments.

Under the circumstances, the Showa Denko Group implemented its consolidated business plan, the Passion Project, with a view to laying the groundwork for long-term sustainable growth. The Group took various steps to expand growth businesses, while continuing its structural reform and cost reduction efforts.

Summary of Results by Business Segment

1. Petrochemicals

Production of ethylene and propylene in 2007 increased from the previous year. This reflects the fact that, in the first half of 2006, we had a maintenance shutdown of the ethylene plant, which is conducted once in every four years. Sales of olefins rose owing to increases in shipment volumes and higher selling prices, reflecting soaring raw material costs. Sales of organic chemicals were up because of higher selling prices, reflecting the rise in feedstock costs, and increased shipment volumes of vinyl acetate.

As a result, the Petrochemicals segment's sales rose 17.8%, to JPY 395,105 million, and operating income increased 19.5 %, to JPY 19,574 million.

2. Chemicals

Production of liquefied ammonia was slightly down. Sales of acryolonitrile were up due to the rise in selling prices, and sales of caustic soda increased owing to steady shipment volumes. Sales of commodity industrial gases, including oxygen, nitrogen and hydrogen, decreased. Sales of Shoprene(TM) chloroprene rubber increased owing to the rise in selling prices while sales of amino acids, Elaslen(TM) chlorinated polyethylene and Shodex(TM) chromatography columns were up due to the rise in shipment volumes.

As a result, the Chemicals segment's sales rose 7.0%, to JPY 84,709 million, and operating income jumped 45.5%, to JPY 7,431 million.

3. Electronics

Production of hard disk (HD) media increased, reflecting the start-up of a new plant in Singapore. Sales of HD media rose owing to increases in shipment volumes, reflecting the capacity expansion and steady demand. Sales of compound semiconductors were also up, reflecting the rise in shipment volumes of aluminum-gallium-indium-phosphide (AlGaInP) ultrabright LED chips.

Sales of semiconductor-processing specialty gases decreased as the shipment volumes of LCD-panel cleaning agents fell. Meanwhile, sales of rare earth magnetic alloys increased substantially because of increases in shipment volumes and selling prices, reflecting sharp increases in raw material costs.

As a result, the Electronics segment's sales increased 21.4%, to JPY 201,013 million. However, operating income decreased 9.8%, to JPY 25,833 million. This was because HD media production costs rose, reflecting the shift to the perpendicular magnetic recording (PMR) technology, and depreciation expenses increased following the HD media capacity expansion. These two factors caused operating income to decrease, mainly in the first half of the year.

4. Inorganics

Production of graphite electrodes remained at high levels. Sales of ceramics were maintained at the previous-year's level. Sales of graphite electrodes increased owing to continued steady demand worldwide.

As a result, the Inorganics segment's sales increased 13.9%, to JPY 84,599 million, and operating income jumped 30.0%, to JPY 20,894 million. The increase in operating income was due mainly to strong exports of graphite electrodes and good performance of Showa Denko Carbon, Inc., of the United States.

5. Aluminum

Production of automotive heat exchangers rose in Japan and Europe, while production in the United States fell because of the suspension of certain product lines. Production of extrusions decreased as the aftereffects of the revision of the Building Standards Law, but production of rolled products and ShoticTM forged products increased.

Sales from ingot marketing decreased owing to the fall in shipment volumes. Sales of rolled products were up due to the rise in selling prices, reflecting higher raw material costs, and increased shipment volumes of high-purity foils for capacitors. Sales of extrusions/specialty products rose mainly due to increases in shipment volumes of aluminum cylinders for laser printers.