Showa Denko: Fiscal 1Q08 Financial Results

Showa Denko K.K. announced its business results for the first quarter (January 1 – March 31) of 2008, in which the Company recorded a 7.8% increase in net sales over the same period of the previous year, to JPY 246,882 million. However, operating income decreased 35.3%, to JPY 9,709 million, due mainly to the rise in depreciation expenses, the appreciation of the yen against the U.S. dollar, and soaring raw material/fuel costs.

Ordinary income fell 54.5%, to JPY 4,815 million, and net income of the quarter was down 50.4%, to JPY 3,210 million.

SDK and its Group companies are carrying out a three-year consolidated business plan, the Passion Project, that runs from 2006 through 2008, with the aim of establishing the groundwork for long-term sustainable growth. Under the project, we are continuing to expand strategic growth businesses while promoting structural reforms and cost reductions.

Net Sales and Operating Income by Segment

Petrochemicals
Sales rose 14.4%, to JPY 100,425 million. While sales of organic chemicals were maintained at the level of the first quarter of the previous year, sales of olefins increased due to the rise in selling prices, reflecting soaring raw material costs. Operating income decreased 43.6%, to JPY 2,749 million, due to lower export prices of olefins and higher cost of methanol used as raw material for acetic acid.

Chemicals
Sales increased 3.4%, to JPY 19,415 million, and operating income rose 0.2%, to JPY 1,594 million. Sales of acrylonitrile were up, reflecting steady selling prices and shipment volumes. Sales of ammonia increased due to the rise in selling prices. Sales of chloroprene rubber rose, reflecting steady shipment volumes and selling prices, while sales of amino acids increased due to the rise in shipment volumes.

Electronics
Sales increased 25.7%, to JPY 49,194 million. Sales of hard disk (HD) media increased due to the rise in shipment volumes as a result of capacity expansions and steady demand. Sales of compound semiconductors fell due to lower shipment volumes, while sales of specialty gases for semiconductor processing increased slightly. Sales of rare earth magnetic alloys were up due to the rise in shipment volumes as well as the rise in selling prices, reflecting soaring raw material costs. Operating income fell 35.9%, to JPY 2,636 million. This was due mainly to the rise in depreciation expenses, reflecting the expansion of HD media production capacity, lower-than-expected output of HD media as a result of the switching of production lines, and the appreciation of the yen.

Inorganics
Sales increased 5.7%, to JPY 19,747 million. Sales of ceramics rose slightly while sales of graphite electrodes increased due to steady demand. Operating income fell 2.4%, to JPY 4,236 million, reflecting soaring fuel/raw material costs for the ceramics business.

Aluminum
Sales fell 10.2%, to JPY 58,101 million. Sales of aluminum ingots fell due to lower shipment volumes. Although the business of high-purity foils for capacitors was steady, overall sales of rolled products decreased as a result of our withdrawal from the commodity foils operations. Sales of extrusions/specialty products fell, notwithstanding higher shipment volumes of aluminum cylinders for laser printers, as shipment volumes of commodity extrusions decreased in the aftermath of the revision of the Building Standard Law. Sales of heat exchangers were maintained at the level of the same period of 2007. Sales of Shotic forged products and aluminum cans decreased due to the fall in shipment volumes. Operating income decreased 90.2%, to JPY 136 million, due partly to the rise in fuel costs for the power generation business as an independent power provider.

Financial conditions for the January 1 – March 31, 2008 period (as compared with the conditions at December 31, 2007)

Total assets at the end of the quarter amounted to JPY 996,531 million, a decrease of JPY 33,098 million from the level at December 31, 2007, owing to decreases in accounts receivable and fixed assets. Interest-bearing debt increased JPY 10,163 million, to JPY 405,809 million. Total equity at the end of the quarter decreased JPY 10,551 million, to JPY 288,109 million, despite the quarterly net income, owing to the payment of dividends and the fall in the foreign exchange adjustment account.

Major steps taken during the first quarter of 2008

Electronics
Launch of the world’s first 1.3-inch HD media based on PMR technology: In January, we began commercial shipments of the world’s first 1.3-inch HD media with storage capacity of 40 gigabytes per disk, using our perpendicular magnetic recording (PMR) technology. To the best of our knowledge, our 1.3-inch HD media had the world’s highest storage capacity for this size available on the market as of the end of April 2008. As the new product ensures the manufacture of lighter HD drives with lower electricity consumption and higher resistance to shock, it is expected to be used in such applications as high-definition camcorders, mobile music players, and very small notebook PCs.

Chemicals
Sale of shares in Kokusai Eisei: In March, we sold 90% of the shares we owned in our wholly consolidated subsidiary Kokusai Eisei Co., Ltd., to Iwatani International Corporation. Kokusi Eisei’s operations center on sanitary control. The sale of shares is intended as a measure to expand Kokusai Eisei’s business through synergies with Iwatani’s operations.

Aluminum
Completion of a new aluminum slab refining line: In January, our consolidated subsidiary Showa Denko Sakai Aluminum K.K. (SSK) completed construction of a new aluminum slab refining line. Following the start-up of the new refining line, SSK’s high-purity aluminum foil production capacity increased from 1,500 tons a month to more than 1,800 tons a month. SSK sells its high-purity aluminum foils for use in aluminum electrolytic capacitors for high-performance digital electric appliances, including flat-panel TVs, and for automobiles. SSK has the largest share in the high-purity aluminum foil market in Japan and overseas. We will continue to meet growing demand through further capacity expansion in a timely manner and the provision of high-quality product.

Forecast for the 1st half year ending June 30, 2008
Net sales of JPY 510 billion and net income of  JPY 8,500 million.