Contact desk Public Relation Office, Showa Denko K.K. TEL : +81-3-5470-3235 Website : http : //www.sdk.co.jp/english/csr.html E-Mail : [email protected]
SHOWA DENKO REPORT 2017
SRI indexes adopting Showa Denko
As of January 2017 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
Our We at the Showa Denko Group will provide products Vision and services that are useful and safe and exceed our Our Slogan customers' expectations, thereby enhancing the value “Shaping Ideas” of the Group, giving satisfaction to our shareholders, and
Our Code of Conduct contributing to the sound growth of international society as a responsible corporate citizen. Its Practical Guide
Our Slogan “Shaping Ideas”
About the media to report our CSR information
This REPORT SHOWA DENKO REPORT 2017 We publish information focusing on the products, employee activities SHOWA DENKO REPORT and the major topics of the period, in order to deepen the stakeholders' 2017(Integrated Report) (PDF) understanding about the Showa Denko Group. The information comprehensively disclosed on the Web [Integrated Report] SHOWA DENKO REPORT 2017 on the Web (PDF), is issued in PDF as an annual (HTML) report. We take into consideration the The CSR measures of the Showa Denko Group are disclosed on our readability, such as the layout at the time Web site. As well as focusing on the comprehensibility referring to of printing, and each chapter can also be various guidelines, we disseminate information with an improved printed individually. quickness on the activities performed during the period.
2 SHOWA 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
Editorial policies 20 Showa Denko’s Business Model The Showa Denko Group has restructured its CSR report and annual report to publish the Showa Denko Report as an integrated report. 22 Medium-term business plan, "Project 2020+" In this integrated report, we disclose the Group’s financial as well as 26 R&D of the Showa Denko Group nonfinancial information, including descriptions of our consideration for the environment and society, governance, and medium- to long- 29 Corporate Governance term management strategies.
As for disclosure items, we analyzed our stakeholders' opinions and 34 Risk Management requests and covered priority topics, focusing on action policies and 35 Corporate Ethics and Compliance performance in 2016 and giving specific examples.
On our Website, the online version of the report is also available 35 Fair Business Practice and Customer Care with more details about the Showa Denko Group's CSR activities, including updated information and environmental and social activity 36 Information Disclosure and Investor Relations reports from each plant. CSR Report scope Period covered by this Report 38 CSR Strategy This Report covers information for the period January 1 to December 31, 2016, with some information also provided for 2017. 42 Stakeholder communications
Organization covered 46 Highlights of CSR Activities “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 48 Responsible Care subsidiaries in Japan. The financial performance data provided herein are consolidated figures for the 62 CSR procurement Showa Denko Group; environmental performance data are for Showa Denko K.K. Data that include those for Group companies are indicated as such. 64 Human Rights and Labor Practice Social performance data provided herein represent information and figures for Showa Denko K.K. Information on consolidated subsidiaries in 67 Performance Data Japan and abroad has been added to the sections of Labor Practice and Community Relations. 70 Third-party Verification Publication date August 2017 (The next edition is scheduled for publication in August 2018.) Financial
Guidelines/guidance referenced ISO 26000: 2010 72 Financial Highlights Sustainability Reporting Guidelines (Version 4) from the Global Reporting Initiative (GRI) 73 Management’s Discussion and Analysis Environmental Reporting Guidelines 2012 from the Ministry of the Environment of Japan 76 Consolidated financial statements The International Integrated Reporting Framework from the International Integrated Reporting Council (IIRC) 82 Corporate Data
Prepared by
Public Relation Office, Showa Denko K.K. TEL : +81-3-5470-3235 Website http://www.sdk.co.jp/english/csr.html E-Mail [email protected]
SHOWA DENKO REPORT 2017 3 Showa Denko’s Ties with Society
The 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 Showa Denko’s Ties with Society business in consideration of both the visible and invisible ties that bind the Group to society.
Water supply Air-conditioner Flat-panel TVs Plant factories Perm solutions ・Sodium hypochlorite ・SiC epitaxial wafers for ・LEDs ・LEDs ・Hair-curling agent (antimicrobial) power devices ・LCD glass polishing material ・Carbon dioxide ・Rare-earth magnetic Aluminum heat sinks Extruded aluminum shelves Houses Drainpipes ・ ・ alloys Titanium oxide /High-purity External wall panels ・Corrosion-resistant coating ・ ・ Synthetic zeolite aluminum foil(for capacitors) ・ Electric steel furnaces Agricultural materials Windows ・Graphite electrodes Snack Packages Poultics Obsidian perlite ・Synthetic zeolite ・ Normal propyl acetate Sodium polyacrylate (raw ・ ・ Semiconductor plants (photogravure ink) material for pharmaceuticals) Fertilizers Containers for yogurt/jelly ・High-purity gasses for semi- conductor processing ・Aluminum cap seals Digital cameras Lighting Solvent for semiconductor ・Polypropylene containers ・ Helmets ・Semiconductor abra- ・LEDs processing ・Vinyl ester resins sives Semiconductor abrasives Aluminum cans ・ ・Titanium oxide / Cosmetics High-purity aluminum Motor bicycle ・Vitamin C derivatives Tanks foil (for capacitors) ・Forged aluminum rods Vitamin E derivatives Beverages ・ ・Corrosion-resistant coating ・Carbon dioxide Apparel Hospitals ・Ammonia (raw materials for ・Rare-earth magnetic alloys synthetic fibers) ・Chloroprene Rubber (dispos- able gloves)
4 SHOWA DENKO REPORT 2017 The 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 Showa Denko’s Ties with Society business in consideration of both the visible and invisible ties that bind the Group to society.
About Showa Denko
CSR
Financial
Automobiles E-Bikes Rooftops of buildings Mobile phones, Smart phones ・SiC epitaxial wafers for power ・Rare-earth magnetic alloys ・Obsidian perlite ・Litium-ion rechargeable devices batteries (Carbon nanofibers, Aluminum laminate film) ・Forged aluminum rods Streetlights Personal computers Rare-earth magnetic alloys ・Cooling devices for power control ・Aluminum poles ・LEDs ・ units (Vibration motor) ・High-purity gasses for semicon- ・Lithium-ion rechargeable batteries ductor processing ・Titanium oxide(for capacitors) (Anode material, Carbon nanofi- Linear motor train bers, Aluminum laminate film) ・SiC epitaxial wafers for power ・Solvent for semiconductor devices processing Adhesive ・Rare-earth magnetic alloys Rare-earth magnetic alloys ・Semiconductor abrasives ・Emulsion ・Ultra-bright LEDs ・ ・Solder resist Ink ・Ethyl acetate ・Synthetic zeolite Wind power plants ・Alumina Unsaturated polyester resins ・ ・Rare-earth magnetic alloys (heat radiation materials) Data Center Emulsion (adhesive raw materials) ・ ・Vinyl ester resins (blades) ・Ethyl acetate (Adhesive) ・Hard disk media ・Polypropylene ・Rare-earth magnetic alloys (Hard disk drives) Thermal Power plants Hard disk media Traffic signals ・Ammonia(denitration agent) ・ ・Ultra-bright LEDs Laser beam printers Solar power plants Aluminum cylinders ・SiC epitaxial wafers for power ・ devices ・High-purity gasses for semicon- ductor processing
SHOWA DENKO REPORT 2017 5 Message from CEO
Let us constantly PLUS new value toward the envisioned future
Changes in the business environment In 2016, Showa Denko announced its decision to acquire the graphite electrode business of SGL GE Holding GmbH, In recent years, the preconditions that are important for the while also making SunAllomer Ltd., a company engaged in Showa Denko Group’s business, such as foreign exchange rates the polypropylene business, a consolidated subsidiary in the and crude oil and aluminum ingot prices, have been substantially petrochemical field. In the hard disk business, we worked to changing under the influence of the political and economic ensure the appropriateness of the production capacity, thereby trends of countries across the world. The magnitude of such increasing our competitiveness. changes has been increasing in the past few years, making our In and after 2017, we will continue to implement strategies surrounding business environment even harder to forecast. to expand the lineup of products and services that are attractive However, we will manage our business from medium- to long- to customers as well as the lineup of businesses in which we term viewpoints, without being easily swayed by rapid and short- have competitive advantages and can take top shares in global term changes in the environment. markets of a certain scale. In particular we will focus on the business of high-purity gases for electronics as this market is Enhancement of business competitiveness and R&D expected to flourish. The future growth of the Showa Denko Group largely depends Showa Denko launched its medium-term business plan, “Project on R&D, and we have already achieved substantial R&D results for 2020+,” in 2016 and has been expanding the individualized lithium-ion battery materials and SiC epitaxial wafers for power businesses for higher profitability, while implementing a range devices over the last couple of years. of measures to establish a business structure that helps minimize We will continue to focus on R&D of these materials for revenue fluctuations. their commercialization, while making effective use of the
6 SHOWA DENKO REPORT 2017 technologies possessed by the Group and the opinions of environment as a matter of course, we will provide the products, internal users for the creation of new products and businesses. technologies, and services that meet the needs of our customers and society at large, which we believe will in turn help us earn Toward achieving the cumulative target for 2018 more trust from our stakeholders. We also need to develop and improve various management With regard to the business results for 2016, we substantially frameworks within the Group, such as those for corporate increased profit in the Petrochemical segment against the governance, compliance, and diversity promotion. backdrop of robust demand. Specifically, operating income came to 42 billion yen, up 25.5% from 2015, and net income Making use of our features as our strengths sharply increased to 12.3 billion yen, due partly to a decrease in extraordinary loss. Showa Denko has two unique features, which represent About Showa Denko Concerning the business results for 2016, we deeply long- and hard-won assets. First, it has a favorable corporate apologize to our shareholders, investors, and other stakeholders culture nurtured by employees who are serious, steadfast, and for the concerns and problems caused by the delay of the enthusiastic about technologies. Second, it has a business announcement of financial results, which was finally approved foundation that encompasses a wide spectrum of technologies at an extraordinary meeting of shareholders. The delay occurred and products, including those concerning organic, inorganic, because it took us extra time to make a detailed examination of and aluminum materials. We need to meet the challenge of the transactions related to one of our subsidiaries. making these features our strengths, rather than letting them be Under “Project 2020+,” we deem it most important to achieve weaknesses. the numerical target of 143 billion yen for cumulative operating We cannot survive the market competition by being satisfied CSR income for the three-year period ending 2018. As for cumulative with the status quo. I believe that we can come closer to our operating income for the two years from 2016 to 2017, it is ideal by making tireless efforts for improvement and pursuing a expected to be 102.1 billion yen (as announced on July 24, 2017), repeated series of small changes for the better. and the actual results have been generally favorable, with the loss We will of course face various difficulties in the process, but we caused by the strong yen being covered by our cost reduction have multiple options to achieve our ideal. We need to formulate efforts. We will make investments proactively throughout 2017 a multitude of success scenarios for the growth of the Showa toward the achievement of the goal for 2018. Denko Group, and take actions promptly in response to changes
in the market and the wider environment so as to not miss any Financial Business activities, CSR, and governance opportunity. As its future vision for 2025, the Showa Denko Group aims to become a company contributing to the sound growth Corporate social responsibility (CSR) is one of the essential of society, which makes the dreams of humankind a reality issues that we need to deal with from a medium- to long-term through innovation in chemical technology and contributes perspective. As stated in Our Vision, “We at the Showa Denko toward creating a society in which prosperity and sustainability Group will provide products and services that are useful and safe are harmonized. I believe that our Group will be able to achieve and exceed our customers’ expectations, thereby enhancing further growth by the strenuous efforts of individual employees. the value of the Group, giving satisfaction to our shareholders, For the desired future, each of us at the Group will continue and contributing to the sound growth of international society adding new value. We warmly invite you to follow the progress of as a responsible corporate citizen.” In line with this, all Group our upcoming activities. 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 Kohei Morikawa to conducting business activities in consideration of the President and CEO
SHOWA DENKO REPORT 2017 7 Message from CFO
Director Corporate Officer and CFO Toshiharu Kato
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 to maximize FCF and enhance our risk responses, while ensuring under the medium-term business plan, the sustainable growth of the Group. “Project 2020+” Specifically, we will expand our profit and maximize our investment effect, while making efficient use of our assets by In the “Project 2020+” plan, we set the 2020 targets of 930 billion improving the inventory turnover and compressing the fixed yen for net sales and 70 billion yen for operating income, and assets. We will thereby improve our financial structure to achieve aim to solidify our revenue bases and expand our individualized ROA of 6%, ROE of 9%, and a D/E ratio of 1:1 in 2018. As for businesses for the sustainable growth of the Showa Denko returns to shareholders, we have set the target of increasing the Group. For 2018, we uphold the following performance targets: payout ratio to 30% with an eye to earning even more trust from net sales of 855 billion yen, operating income of 57 billion yen, our shareholders and investors. net income of 30 billion yen, and cumulative free cash flow (FCF) of 68 billion yen for three years from 2016. 2. Results for 2016 and outlook for 2017 It is essential to secure funds to support the fulfillment of our individual business strategies toward the attainment of the In 2016, which was the first year of “Project 2020+,” net sales came predefined numerical targets and to deal with the risks that we to 671.2 billion yen and were below the target of 810 billion yen. face due to various changes in the business environment. However, operating income amounted to 42.1 billion yen, up 6.1 To this end, we need to maximize our profitability, foster billion yen from the targeted value. growth businesses, and enhance our ability to create FCF In 2017, or the second year of the plan, we expect to record by stringently making selective investments. Based on this operating income of 60 billion yen and will make more profits recognition, we will steadily implement the financial strategies across all the business segments, excluding the “Others” segment,
8 SHOWA DENKO REPORT 2017 year on year. By comparing the targeted cumulative operating 3. For future growth income for the three-year period set under “Project 2020+” with the sum of the actual result for 2016 and forecast for 2017, we It is critical to make investments in a timely manner in order to find that the current progress rate is 71%. This implies that we grasp all possible opportunities for sustainable corporate growth. need to make more efforts to ensure the achievement of the However, we are facing changes at a high rate of speed in the numerical target. global market environment, which makes it difficult for us to be constantly earning profits and achieving results as planned. ▪Progress in Cumulative Operating Income under Project 2020+ Accordingly, controlling the balance between risks and returns is becoming even more important. 2016 2017 2018 (Billions of Yen) Project Total To meet this requirement, we must implement our business 2020+ 36.0 50.0 57.0 143.0 About Showa Denko (Total860) strategies earlier than planned and adopt measures to
2016 Actual Total enhance our earning ability, including collecting and analyzing 2017 Forecast 42.1 60.0 102.1 Progress rate 71% information by taking a market-oriented approach. Further, in 0 30 60 90 120 150 order to diversify our business to make the Group more resistant to changes in the external environment, we need to implement For operating income by segment for the period after the discontinuous measures for the optimization of our business occurrence of the Great East Japan Earthquake, the business portfolio, including the effective use of M&A. portfolio, which formerly depended largely on the electronics Through these activities I hope that the Showa Denko segment, has been becoming more balanced as a result of our Group will attain the targets upheld under “Project 2020+,” having fostered structural reforms. improve its corporate value, and earn more trust from CSR stakeholders.
▪Operating income by segment
(Billions of yen) Others Aluminum Inorganics Electronics Chemicals Petrochemicals 80.0 70.0
70.0 60.0 57.0 60.0 47.4 42.1 50.0 33.5 28.1 40.0 26.0 20.6 Financial 30.0
20.0
10.0
0.0 2011 2012 2013 2014 2015 2016 2017 2018 2020 -‐10.0 forecast* plan image
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.
SHOWA DENKO REPORT 2017 9 An Overview of the Showa Denko Group (as of December 2016)
Company name Showa Denko K.K. Head office location 13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo 105-8518, Japan Number of consolidated subsidiaries 48 Total number of employee 10,146 Consolidated business results Sales 671billion yen Operating income 42.1billion yen Net income attribute to Europe owners of the parent 123billion yen SHOTIC Europa Industria de Aluminio Lda. Showa Denko Europe GmbH
Business Sites Europe
Sites in Japan Overseas Sites
Higashinagahara Plant North America Kitakata Plant East Isesaki Plant Asia Oyama Plant Head O ce Oyama Plant (Nasu) East Asia Nagoya Branch Chichibu Plant Shanghai Showa Chemicals Co., Ltd. Southeast Asia Chiba Plant Shanghai Showa Highpolymer Co., Ltd. Osaka Branch Shanghai Showa Electronics Materials Co., Ltd. Kawasaki Plant Fukuoka Branch Shanghai Showa Highpolymer Trading Co., Ltd. Yokohama Plant Zhejiag Quzhou Juhua Southeast Asia Kawasaki O ce Showa Electoronic Chemical Materials Co., Ltd. Showa Specialty Gas Singapore (Pte.) Ltd. Omachi Plant 1 A Showa Denko Sichuan Carbon Inc. SHOTIC (Singapore) Pte Ltd. B A Institute for Advanced Shiojiri Plant Showa Denko (Dalian) Co., Ltd. Showa Denko HD Singapore Pte Ltd. and Core Technology Showa Denko Aluminum (Nantong) Co., Ltd. Showa Denko Singapore (Pte)Ltd. B Institute for Integrated Hikone Plant Product Development Ganzhou Zhaori Rare Earth New Materials Co., Ltd. Showa Denko Rare-Earth Vietnam Co., Ltd. Sakai Plant SHOWA DENKO New Material (Zhuhai) Co.,Ltd. Hanacans JSC North America Tatsuno Plant Showa Specialty Gas (Taiwan) Co., Ltd. Showa Aluminum Showa Denko Carbon, Inc. Taiwan Showa Chemicals Manufacturing Co., Ltd. Manufacturing Philippines Corporation Tokuyama Plant Showa Aluminum Corporation Showa Denko HD Trace corp. Showa Denko HD (Malaysia) Sdn.Bhd. of America Oita Complex Korea Showa Chemicals Co. SHOTIC MALAYSIA Sdn.Bhd. For information on main Group companies in Japan, Showa Denko America, Inc. please go to the P19
■ Sales ■ Operating income ■ Net income attribute to owners of the parent
million yen million yen million yen 1000,000 50,000 15,000 847,803 872,785 42,053 775,732 12,305 800,000 739,675 40,000 12,000 671,159 33,508 9,368 9,065 600,000 30,000 28,108 9,000 25,953 20,551 400,000 20,000 6,000
2,929 200,000 10,000 3,000 921 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
10 SHOWA DENKO REPORT 2017 An Overview of the Showa Denko Group (as of December 2016)
Europe SHOTIC Europa Industria de Aluminio Lda. Showa Denko Europe GmbH
Business Sites Europe
Sites in Japan Overseas Sites About Showa Denko
Higashinagahara Plant North America Kitakata Plant East Isesaki Plant Asia Oyama Plant Head O ce Oyama Plant (Nasu) East Asia Nagoya Branch Chichibu Plant Shanghai Showa Chemicals Co., Ltd. Southeast Asia Chiba Plant Shanghai Showa Highpolymer Co., Ltd. Osaka Branch Shanghai Showa Electronics Materials Co., Ltd. Kawasaki Plant Fukuoka Branch Shanghai Showa Highpolymer Trading Co., Ltd. Yokohama Plant Zhejiag Quzhou Juhua Southeast Asia CSR Kawasaki O ce Showa Electoronic Chemical Materials Co., Ltd. Showa Specialty Gas Singapore (Pte.) Ltd. Omachi Plant 1 A Showa Denko Sichuan Carbon Inc. SHOTIC (Singapore) Pte Ltd. B A Institute for Advanced Shiojiri Plant Showa Denko (Dalian) Co., Ltd. Showa Denko HD Singapore Pte Ltd. and Core Technology Showa Denko Aluminum (Nantong) Co., Ltd. Showa Denko Singapore (Pte)Ltd. B Institute for Integrated Hikone Plant Product Development Ganzhou Zhaori Rare Earth New Materials Co., Ltd. Showa Denko Rare-Earth Vietnam Co., Ltd. Sakai Plant SHOWA DENKO New Material (Zhuhai) Co.,Ltd. Hanacans JSC North America Tatsuno Plant Showa Specialty Gas (Taiwan) Co., Ltd. Showa Aluminum Showa Denko Carbon, Inc. Taiwan Showa Chemicals Manufacturing Co., Ltd. Manufacturing Philippines Corporation Tokuyama Plant Showa Aluminum Corporation Showa Denko HD Trace corp. Showa Denko HD (Malaysia) Sdn.Bhd. of America Oita Complex Korea Showa Chemicals Co. SHOTIC MALAYSIA Sdn.Bhd. Financial For information on main Group companies in Japan, Showa Denko America, Inc. please go to the P19
(Major Subsidiaries as of March 31,2017)
■ Number of employees ■ Discharged amounts of greenhouse gases ■ Frequency rate of lost-time injuries
Overseas Showa Denko Group Showa Denko Japan kt-CO2 12,000 3,000 0.5 10,577 2,673 2,675 2,687 2,687 0.43 10,234 10,561 2,504 9,890 10,146 10,000 2,500 0.4
8,000 4,088 4,329 4,645 4,688 4,071 2,000 0.3 0.25 6,000 1,500 0.22 0.2 0.24 4,000 1,000 0.14 0.15 5,802 5,905 5,932 5,873 6,075 0.15 0.13 0.1 2,000 500 0.12 0 0 0 0.0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
SHOWA DENKO REPORT 2017 11 History of the Group
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.
★ Showa Denko K.K. ◆ Showa Aluminum Corporation ● Showa Highpolymer Co., Ltd. Technology and products CSR Event 1908 ★1931 ★1908 ◆1921 With the business on track Started manufacturing ammonium sulfate using domestic Established Sobo Marine Established Takada Aluminum under the spirit of “tenacity Products K.K. Equipment Manufacturing K.K. and indomitability”, technology (Showa Fertilizers K.K.) 1926 1928 established the foundation ★1934 ★ ★ of the Showa Denko Industrialized domestically produced aluminum (Nihon Established Nihon Iodine Established Showa Fertilizers Group. K.K. K.K. Iodine K.K.) ●1937 ★1939 Established Riken Kohaku Established Showa Kogyo K.K. Denko K.K.
★1945 ◆1981 ★1969 Resumed production of ammonium sulfate fertilizer Started aluminum can collection activities at certain Oita Petrochemical Complex started 1945 plants commercial operation ●1951 Deepened and further Achieved domestic production of synthetic resin emulsion developed business, taking advantage of ●1953 postwar reconstruction Achieved domestic production of unsaturated polyester and rapid growth resin ●1965 Achieved domestic production of vinyl ester resin ◆1969 Showa Aluminum Can Corporation produced the rst aluminum can in Japan
◆1981 Developed the “Cojunal Method”, a high-purity aluminum re ning method
◆1986 ◆1990 ★1986 Started manufacture and sale of aluminum cylinders Started company-wide aluminum can recycling activities Acquired a graphite electrode business in the United States, and established Showa Denko 1986 ★1995 Carbon, Inc. Switched to energy-saving Formulated “Responsible Care Action Guidelines” products ★1997 after overcoming Published Responsible Care Report oil crises ★1998 Established “Our Code of Conduct”
★1988 Expanded into the hard disk business
★2003 ★◆2001 ★◆2001 Started the business to recycl used plastic as material for With the merger with Showa Aluminum Corporation as Merged Showa Aluminum Corporation ammonia at Kawasaki Plant the trigger, expanded aluminum can recycling activities to Showa Denko’s plants, o ces and group companies ★2009 2001 ★2005 ★2005 Established Showa Denko HD Yamagata K.K Expanded into the Started mass production of energy-saving and high perpendicular magnetic Issued a CSR Report ★●2010 recording hard disks rst in the value-adding business in ★2005 Merged Showa Highpolymer Co., Ltd. full-scale, world Signed the “RC Charter” 2009 through the fusion of ★ organic/inorganic and Started production of cooling aluminum technologies. devices for power control units
★2011 ★2012 ★2016 Received the 43rd Ichimura Industrial Award for the Established “Our Code of Conduct and Its Practical Guide” Deciding to acquire SGL GE's graphite electrode business “development of cooling devices for power control units” 2011 ★2013 ★2017 2013 Engaged in ★ Our long history of aluminum can recycling activities Established Advanced Battery Materials Division Shaping Ideas in pursuit of Our LED lighting received the “Minister of Economy, Trade and Industry's Prize” evolving chemical equipment for plant of the 3Rs (Reduce, Reuse, and Recycle) Promotion Merit company with growth received the “Nikkei Awards in FY 2013 individualized products Business Daily Merit Award” of the 2012 Nikkei Superior ★2014 through the fusion of Products & Services Award Resigned the amended Responsible Care Charter organic / inorganic and aluminum technologies ★2016 ★2014 Receives “2016 Top 100 Global Innovators” Award, 2 Years in Received the Special Incentive Award of the “Ikumen a Row Company Award 2014” sponsored by the Ministry of Health, Labour and Welfare ★2016 Received the “Platinum Kurumin”
12 SHOWA DENKO REPORT 2017 Showa Denko Group's Technological Lineage
Product Technology Purchase or intermediate
Carbide Nitrolime
Magnet alloys Electrical Furnaces
Ferroalloys Rare earth metal About Showa Denko SCMGTM Graphite electrodes VGCFTM(Carbon nanotube) (Material for negative electrodes in lithium ion cells) Graphite
Super hard materials Abrasives for semiconductors
Abrasive grains Refractory materials Extreme pressure Technologies for making fine powder
Ceramics Electrochemical CSR
Acetic acids Allylic esters Catalysts
Aluminum polymer Biodegradable solid condenser Phenol resin plastic Petrochemical Highpolymer BMC Fertilizers Polyolefin ShodexTM Organic Financial Ammonia synthesis Vitamin derivatives Hydrogen Gases for medical use Electrolysis 電気分解 Amino acid Water High-pressure electrolysis technology Acrylonitrile Agricultural Agrochemical Specialty gases for chemicals intermediates semiconductors Chlorine Caustic soda Sputtering Hard disks Salt electrolysis Aluminum hydroxide LED
Alumina Gallium Epitaxial growth Chemical vapor deposition
Chemical alumina Aluminum foils Aluminum cans Heat exchangers for capacitors Rolling Aluminum cylinders Fused salt electrolysis Aluminum Melting and casting Extrusion SHOTICTM Casting and forging Titanium oxide Titanium
SHOWA DENKO REPORT 2017 13 Introduction of Businesses of the Group
Petrochemicals 26%
Petrochemicals Segment (Billions of yen) Increase/ 2016 2015 Increase/ decrease decrease ratio(%)
Sales 1,858 2,313 △455 △19.7
Operating 207 105 101 96.2 income
Petrochemicals Division Petrochemicals (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.
Ethylene We contribute to effective n-Propyl acetate Demand for NPAC, which is use of resources and high (NPAC) used as a solvent for special cost competitiveness by not gravure printing ink, has been relying solely on naphtha increasing as an environment- (raw material diversication) friendly substitute for the to produce ethylene, which currently popular toluene. is widely used to produce various petrochemicals.
We are promoting the sales of SHORAYALTM QUALEARTM is a new kind of QUALEARTM the highly transparent and heat- polypropylene manufactured resistant film SHORAYALTM as a and sold by SunAllomer glass substitute to be used in Ltd. This product, which is displays for mobile devices and well balanced in terms of other equipment. transparency, resistance to shocks, and rigidity, meets the needs of customers in the food packaging and automobile fields in particular.
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.
14 SHOWA DENKO REPORT 2017 Chemicals 19%
Chemicals Segment (Billions of yen) Increase/ 2016 2015 Increase/ decrease decrease ratio(%)
Sales 1,345 1,423 △78 △5.5
Operating 138 107 31 29.1 income About Showa Denko
Industrial Gases Division, Basic Chemicals Division (Industrial Chemicals Department, Organic Industrial Chemicals Department), Electronic Chemicals Division, Functional Chemicals 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.
Electronic Electronic specialty gases are Unsaturated RigolacTM, unsaturated specialty gases used in production processes polyester resin polyester resin that meets for electronic components requirements for a lightweight CSR such as semiconductors, LCD material with high durability panels, LEDs, and solar cells. and high corrosion resistance, Showa Denko manufactures is used for a wide range dozens of these high-purity of applications including gases including ammonia, automotive components, chlorine, and fluorine- home appliances, and ocean containing gases. development.
Showa Denko manufactures and Cosmetic raw Showa Denko Gas Products Carbon dioxide sells vitamin derivatives (ascorbic Co., Ltd. contributes to
materials and dry ice Financial acid PM, ApprecierTM, and TPNaTM), a securing safety and stable slimming agent (Hi-Carnitine), and supply of food resources by hair care products (DL-Cysteine supplying carbon dioxide and SPIERATM). mainly for carbonated beverages and dry ice for cooling.
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.
SHOWA DENKO REPORT 2017 15 Introduction of Businesses of the Group
Electronics 14%
Electronics Segment (Billions of yen) Increase/ 2016 2015 Increase/ decrease decrease ratio(%)
Sales 1,033 1,315 △282 △21.4
Operating 139 175 36 20.4 income △ △
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. Electronics Electronics Materials Division, HD Division, Advanced Battery Materials Division
The 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.
LED In addition to a broad lineup of Rare earths The demand for rare earth infrared LED chips used as light magnet alloy is growing in fields sources for optical sensors for such as drive motors for hybrid various applications, we also cars and energy efficient home offer high-output red LED chips electric appliances. We are also optimized specifically for plant strengthening the development growth. of next-generation magnet alloys with decreased expensive heavy rare earth content.
As the world’s largest hard disk HD For the lithium-ion battery Lithium-ion manufacturer and seller, the market, we offer a variety battery materials Showa Denko Group is utilizing of items, including SCMGTM the leading-edge technologies long-life anode material, to expand the storage capacity VGCFTM unique anode and of its hard disks, while building cathode additive featuring the optimal production and high stability and quality, and supply system to help the Group SPALFTM aluminum laminated meet the requests of customers film produced and marketed . in a smooth manner.
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.
16 SHOWA DENKO REPORT 2017 Inorganics 7%
Inorganics Segment (Billions of yen) Increase/ 2016 2015 Increase/ decrease decrease ratio(%)
Sales 509 635 △126 △19.9
Operating 58 12 45 income △ △ △ ー About Showa Denko
Inorganics Ceramics Division, Carbons Division
The Inorganics segment provides ceramic products such as alumina, polishing materials, abrasives, and refractories; graphite electrodes for electric steel-making furnaces.
Graphite Graphite electrodes Alumina Alumina is widely used electrodes contribute to iron and steel among various industries, for recycling as a component to purposes such as ceramics, CSR melt iron and steel scraps in filers for plastics, refractories, electric steel furnaces. Our and abrasives. graphite electrodes are rated very highly by customers throughout the world due to their excellent quality.
With a hardness coming CBN SUPER-TITANIATM high-purity Ceramics for second only to diamond, titanium oxide is used as
(cubic boron nitride) capacitors Financial CBN is used for tools to one of the main materials in cut automotive and other ceramic capacitors installed components. in familiar electronic and electrical devices.
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.
SHOWA DENKO REPORT 2017 17 Introduction of Businesses of the Group
Aluminum 14%
Aluminum Segment (Billions of yen) Increase/ Increase/ 2016 2015 decrease decrease ratio(%)
Sales 986 1,008 △22 △2.2
Operating 44 26 19 72.3 income
Aluminum Rolled Products Division, Aluminum Specialty Components Division, Aluminum Aluminum Can Division
The 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.
High-purity High-purity aluminum foil is Cooling devices We provide oil coolers, aluminum foil a key material in electronic heat sinks and other heat components essential to exchangers for industrial IT devices, home electric equipment, as well as cooling appliances, and automobiles. devices for hybrid car power High-purity aluminum foil control units. for electrolytic capacitors is produced through precise control of purity and manufacturing processes.
TM We are producing SHOTICTM SHOTIC Showa Aluminum Can Corporation Aluminum Cans continuously cast rods of was the first to manufacture aluminum alloy and their aluminum cans in Japan. Its forgings. The fine alloy lightweight and recyclable structure contributes aluminum cans are sold both in to reducing the weight Japan and abroad. In 2016 the of automobiles and the production of sleek cans* was products are used as parts for also launched at Hanacans’ site in compressors of in-vehicle air Vietnam. conditioners, etc. * 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.
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.
18 SHOWA DENKO REPORT 2017 Etcetera 20%
Etcetera Segment (Billions of yen) Increase/ Increase/ 2016 2015 decrease decrease ratio(%)
Sales 1,424 1,472 △49 △3.3
Operating 18 13 4 33.6 income
The numerical data shown above include those for the lithium-ion bat- tery materials business. About Showa Denko Development Themes and Related Businesses
Included 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.
SiC epitaxial wafers The wafers are used E-POLE E-POLE, produced and marketed by as materials for next- lighting system Showa Denko Aluminum Trading generation power K.K., stores electricity generated by CSR semiconductors, which its photovoltaic cells during the day are expected to contribute and uses it to power its LED lamps to energy conservation. at night. The system is capable of They have already been providing illumination for three to used in power supplies for four days continuously even under data center servers and in low light and cloudy conditions. devices for railway cars.
Major Subsidiaries in Japan Financial
■ Petrochemicals segment ■ Electronics segment ■ Aluminum segment Sun Allomer Ltd. Showa Denko HD Yamagata K.K. Showa Aluminum Can Corp. Tsurusaki Kyodo Doryoku K.K. Showa Denko Packaging Co.,Ltd.
■ Chemicals segment ■ Inorganics segment ■ Others segment Showa Denko Gas Products Co., Ltd. Showa Denko Ceramics Co., Ltd. Shoko Co., Ltd. Nippon Polytech Corp. Showa Fine Ceramics Co., Ltd. Showa Denko Kenzai K.K. Showa Denko Kenso Co., Ltd.
Major Subsidiaries as of March 31,2017
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.
SHOWA DENKO REPORT 2017 19 Showa Denko Group's Business Model
Aiming to Contribute toward Creating a Society Where Affluence and Sustainability Are Harmonized
The Showa Denko Group aims to contribute toward creating a society We will press forward with a strategy to provide customers where affluence and sustainability are harmonized by turning more with highly attractive products and services to increase our of the collective hopes and dreams of society into reality through competitiveness and take a top share in global markets or the power of chemistry. Specifically, to this end, we input a variety of competitive markets of a certain size. We will in particular focus capitals that support development of various products and technologies on the five market domains: Infrastructure, Energy, Mobility, Living including production technologies, and output high value-added Environment, and Electronics to become an entity that can provide products, technologies and services through six business segments. satisfaction to all stakeholders.
Social changes and issues Investment capital Showa Denko Group’s business activities
Financial capital
Consolidated total assets ¥932.7 billion (As of December31,2016)
Instrumental capital Petrochemicals Worldwide of production bases
Others Medium-term Chemicals ◦ Multi-polarity of world Intellectual business plan economy capital Project 2020+ ◦ Changes in the R&D budget Solidify revenue bases composition of population ¥60 billion Expand individualized businesses (2016-18 total) ◦ Progress of R&D strategy urbanization Aluminum P.22 Electronics ◦ Dramatic development Human of technologies capital ◦ Changes in the environment The number of Group employees surrounding raw Inorganics materials and fuels 10,146 (As of December31,2016) ◦ Climate change and depletion of resources Social & relationship capital Important CSR issue Cooperation with business partners 14 Materiality Issues
Natural capital
Energy (crude oil equivalent)
1.19million kl 6segments (2016, Group total)) P.14
20 SHOWA DENKO REPORT 2017 A b
Values to be created o
u t S h o
w
a
D e
n Showa Denko Group’s medium- to long-term goals k o Expand individualized businesses and increase profitability to build a business structure with minimal revenue fluctuations H
Values to be created in the five market domains i g h l i Infrastructure ◦Mitigating environmental burden ◦Resource recycling g h
t
◦Improving resource efficiency ◦Efficient use of electricity s
Energy o Solution of f ◦
Diversifying energy sources C S
R social issues ◦ ◦
Mobility Safety/Security Emission control A c
◦Enhanced durability ◦Improving fuel efficiency t i v i t Living Environment ◦Safety/Security ◦Industrialization of agriculture i e s Electronics ◦Intensive accumulation and dispatch of information
Values created in business activities F i n a
Contributes toward n Financial c
i
(Image for 2020) a l
Net sales ◦¥930billion creating a society H i g
Operating income ◦¥70billion h l where affluence and i g
Ratio of Operating income to sales ◦7.5% h t s Return on equity (ROE) ◦9% more sustainability are Debt/equity ratio ◦1.0 times or less harmonized. Payout ratio ◦30% Return on assets (ROA) ◦6% more Non-Financial
Participation in community activities ◦Aluminum can recycling: participation rate 100%
Prevention of pollution/ ◦Zero serious environment problems Use of sustainable resources ◦Maintain zero emissions Become a company Equipment safety ◦Zero serious equipment incidents contributing to the Consumer safety and ◦Reducing the number of complaints received by half health protection in 2020 relative to 2015. sound growth
Occupational health and ◦Rate of lost-time injuries as the group: 0.1 or less of society safety/ Human rights and ◦Number of female managers and its ratio :At the end of 2020 as 40 female managers ( 5% of all managers) labor practice ◦Ratio of handicapped employees : 2.3 or more
SHOWA DENKO REPORT 2017 21 Medium-term business plan: “Project 2020+”
Medium-term business plan: “Project 2020+” Individualized businesses Domestic Overseas 30% sales sales 40%
50% 60% The Showa Denko Group launched the five-year medium-term Aiming to make business plan, “Project 2020+,” in 2016. individualized businesses* Aiming to make overseas sales In line with this plan, we will implement innovative measures with occupy 50% of net sales occupy 60% of net sales a focus on stability in addition to growth potential and profitability, including: (1) improving the profitability of existing businesses High through renewal of business models; (2) making the best use of M&A and business partnerships; and (3) accelerating overseas business Operating income margin (Return) Showa Denko Improve in 2025 pro tability expansion, thereby solidifying the revenue bases and expanding individualized businesses for sustainable growth. *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.
◆ Showa Denko Group’s contribution to society Expand Showa Denko We are operating businesses targeting the five market domains individualized businesses in 2015 that we set when we formulated the medium-term business plan: Stabilize income Low High Infrastructure, Energy, Mobility, Living Environment, and Electronics. Rate of change (Risk) We will supply high value-added products, technologies, and services to customers by making use of our Group’s materials, components, ◆ Portfolio technologies, and human resources. For each business, we are speeding up the measures based on the missions defined for each category of the business portfolio. ■ We offer high value-adding “products × technology × services” to We5 o er market high value-addingdomains “products × technology × services” We will produce stable profit and cash flow from the “Base- to 5 market domains shaping” businesses, while proactively expanding the three “Growth- Intensive accumulation and dispatch of accelerating” businesses in line with the growth of overseas markets. information Mitigating environmental burden Electronics In the lithium-ion battery materials business, which we have included Resource recycling in the “Advantage-establishing” businesses, we will expand our Infra- Living structure environment supply capacity in response to the rapid expansion of the automotive Mobility components market. Also, for SiC epitaxial wafers for power devices, we Safety/Security Industrialization are fostering technological development ahead of the full-scale launch Energy of agriculture of the market while proactively searching for opportunities in the market. Improving resource e ciency Safety/Security Utilizing alternative energy Enhanced durability For our individual businesses, we are making reexaminations in E cient use of electricity Emission control Diversifying energy sources Improving fuel e ciency consideration of the business environment, profitability, and business models with a view to restructuring them, including by means of
◆ Target image of the Showa Denko Group in 2025 consolidation and withdrawal. We will take a market-oriented approach to our products, which ■ Mission of each business are developed through a product-oriented approach in the
aforementioned five market domains, with an eye to establishing a To cope with prospective market Actively take strategic measures. growth, establish business model with Realize rapid expansion of business business structure that is not easily impacted by market conditions and competitive advantage in terms of by preempting market growth. business and technical development. where revenue fluctuations are minimized. High-purity gases LIB materials for electronics We will increase the share of the individualized businesses in the SiC epi-wafer for Advantage- Growth- Functional chemicals power devices establishing accelerating Group's total sales from the present 30% to 50%. Also, with a focus Aluminum cans
on the growth businesses, we will expand our overseas sales ratio Rare earths Rebuilding Base- HD Graphite electrodes Ceramics shaping Petrochemicals from 40% to 60%, thereby increasing our profitability and suppressing Industrial gases Aluminum specialty TM components Shotic revenue fluctuations. High-purity aluminum foil Increase pro t and cash ow through Market and business have certain scale. Have rebuilding of business environment, more power to resist market uctuation, and pro tability and business model. make stable pro t and cash ow.
22 SHOWA DENKO REPORT 2017 Here we introduce our progress with the Medium-term business plan: medium-term business plan, “Project 2020+” “Project 2020+”
The following shows some of the measures we implemented in 2016.
◆ Making SunAllomer Ltd. a consolidated subsidiary Showa 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 About Showa Denko 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. Graphite electrodes
◆ 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 CSR 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
Oita plant of SunAllomer competitiveness and appropriately meeting the needs of customers in the ASEAN, Chinese, and Indian markets. ◆ Deciding to purchase SGL GE’s graphite electrode business Showa Denko K.K. agreed with SGL Carbon SE, a carbon and graphite product manufacturer headquartered in Wiesbaden, Germany (“SGL Financial 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 SHOTIC Malaysia Sdn. Bhd. major profit source.
SHOWA DENKO REPORT 2017 23 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 opportunities will substantially increase for our products. creation of customer value. From the viewpoint of environmental protection, regulations are Based on the belief that we can achieve the growth and expansion becoming tighter, particularly in China. Accordingly, coating materials of our business by creating customer value, the Division has been that contain no organic solvents are in need and will be popularized working to provide the market and customers with value through further, and exhaust gas desulfurization equipment, which can remove cooperation with customers. Market needs are constantly changing SOx and NOx, will be more widely used at thermal power generation and are becoming increasingly diversified. We must therefore pay plants. Resin materials are used in this equipment and, moreover, more attention to the market and customers to deliver true value to we have long been supplying columns necessary for environmental customers for coexistence and co-prosperity with them. analysis, and our columns are highly evaluated by users. The Showa Denko Group has targeted five market domains in its In the Electronics market, we can deliver a range of functional medium-term business plan, “Project 2020+,” and the Division is dealing materials for energy conservation and power storage. with a range of products and conducting business activities across the I often make business trips across Japan, Asia, and around the world, five domains. and even during these trips I am constantly thinking about how to For example, in the Infrastructure market, businesses related foster our functional chemicals business, which has a broad product to maintenance services, including repair and improvement, are lineup. When I see more infrastructure being built in other countries, I flourishing in Japan while the establishment of social infrastructure is get a strong sense of how we are fulfilling an important role in society. in progress mainly in emerging market countries such as China and The functional chemicals business is positioned as one of the India. For the maintenance and building of infrastructure, our products, “Growth-accelerating” businesses that will produce greater sales and specifically, resin materials, are used, and demand for these materials profit. To meet this expectation, we will accelerate the growth and remains robust. expansion of the business by providing all stakeholders with true value In the “Mobility” market, resin materials are used in railroad tracks and making contributions to them. for high-speed trains, such as the Shinkansen in Japan. If the use of high-speed trains expands in India and Southeast Asia, business
24 SHOWA DENKO REPORT 2017 HD Division
Contributing to an advanced information society by using a range of technologies About Showa Denko
Senior Managing Corporate Officer General Manager, HD Division Jiro Ishikawa CSR
The HD Division is conducting R&D into hard disk (HD) media, and capacity, and we therefore still have great business opportunities in manufacturing and selling the media to be used in hard disk drives the HD business. (HDDs), which are recording devices for computers, external hard disks, The HD Division has been maintaining the “Best in Class” position game machines, servers, and others. by making daily improvements to the electromagnetic features and The amount of information created across the world is increasing reliability of its best-in-the-industry products. For HDDs for data at an explosive rate due to the advancement of information centers, the demand for which will continue to expand, we will Financial technology and changes in society. Such changes include the trend develop 3.5-inch aluminum substrates and media in an integrated of posting images taken with a smartphone camera on social media; manner to continuously meet market needs. Showa Denko has the spread of e-commerce, electronic money, and IC cards; the technologies that encompass the inorganic and organic materials progress of logistics management by radio frequency identification markets, and will utilize these versatile materials technologies to (RFID); and the acquisition of data generated by security cameras on release unique, leading-edge media. Moreover, we will increase the streets and sensors at factories connected via Internet of Things the efficiency of the development systems of our bases and build (IoT) technology. a production system appropriate for the size of market demand HDDs, SSDs, tapes, and optical disks will be used for different to enhance our cost competitiveness and ability to respond to applications as recording devices to store this exponentially customers. expanding data. Showa Denko will continue to supply “Best in Class” HD media with While the shipment of HDDs for use in personal computers will high economic rationality to contribute to the advanced information gradually decrease due to a decline in demand for computers and to society as a key component manufacturer for devices that are the replacement of HDDs with SSDs, demand for HDDs will continue indispensable to record the explosively expanding volume of data. 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
SHOWA DENKO REPORT 2017 25 R&D of the Showa Denko Group
Message from CTO
Create new value by forging, polishing, and linking diverse individualized technologies
Managing Corporate Officers & CTO Jun Tanaka
In January 2016, the Showa Denko Group started its new medium-term years. Thus we will promote R&D in a way of our own. consolidated business plan “Project 2020+.” Under this new business plan, the Group will strengthen revenue bases of its diverse businesses At the beginning of 2016, in order to conduct this individualized and expand its individualized businesses, aiming to contribute to the R&D, we established the Institute for Integrated Product Development, solution of social issues in global scale by providing high-value-added which we organized by adding research facilities of six locations, products and services to five market domains, namely, “Infrastructure,” centering on aluminum and inorganics technologies, to the former “Energy,” “Mobility,” “Living environment,” and “Electronics.” Institute for Polymers and Chemicals. On the initiative of this new R&D organization, we will enhance cooperation among Divisions and In recent years, customers’ requests to materials and parts are Plants, develop our retained materials into multi-material components, diversified so much that it is necessary for us to reconcile diverse and quickly respond to our customers’ needs in a creative way. The technologies with products in order to secure our competitiveness. Institute for Advanced and Core Technology will deepen our strategic We think we can take advantage of this diversity in customers’ needs technologies consisting of “carbon, thin-film, and catalyst technologies,” by making the most of our wide-ranging chemical technologies that and focus on development of next-generation businesses. On the covers inorganic, aluminum and organic chemicals, and our diverse other hand, in order to realize and maximize the fruits of R&D as early human resources that support these technologies. as possible while making our original businesses and technologies as the pivot of our R&D activities, we will positively utilize open innovation Therefore, we made it our basic policy on R&D to “Create new value and M&A, and strengthen cooperation with our partners. by forging, polishing, and linking diverse individualized technologies.” Under this basic policy, we will deepen and fuse our “diverse business The Showa Denko Group will make its R&D progress vigorously at domains,” our “core technologies” that consist of elemental technologies world level by providing customers with original solutions, deepening with competitive advantage, and our “strategic technologies” that and fusing its individualized technologies which are expected to consist of the world-top-level technologies we cultivated over many become sprouts of next-generation growth businesses.
■ Create new value by forging, polishing, and linking diverse individualized technologies
Organics, Inorganics, Aluminum Diverse Infrastructure, Living environment, business Mobility, Energy, Electronics domains Material design
Diverse needs: Weight-saving, Heat management, Synthesis High integration, High durability and Reaction Deepening and fusion of retained materials/technologies Core ⇒ Develop multi-material Strategic Processing technologies components technologies (Nano-carbon/ Power module, Thin- lm/Catalyst) Analysis Resin composite materials support Elemental technologies with World-top-level technologies competitive advantage we cultivated over many years
26 SHOWA DENKO REPORT 2017 Plan for R&D 2. Resins for use as electronic materials Resins for use as electronic materials have a range of applications related to chip-on-film (COF) substrates for smartphones and color The Showa Denko Group is planning to invest 60 billion yen in R&D filter substrates for flat panel displays. over three years, starting in 2016, under the new medium-term In order to meet the demand for smaller smartphones with higher business plan, Project 2020+. About 70% of the investment funds will performance and for flat panel displays with higher resolution, we be directed toward the “Energy” market domain (LIB materials, SiC are required to increase the performance of our products, including epitaxial wafers for power semiconductors, etc.) and the “Electronics” reliability, flexibility, and heat resistance. market domain (electronic material gases and solvents, optical The Showa Denko Group has been speedily meeting the needs of films, and resins for use as electronic materials) to accelerate the
customers engaged in rapidly changing markets by developing and About Showa Denko development of new technologies and products.The remaining 30% honing the polymer design technology for diverse resins such as acrylic will be spent on the newly added market domains of “Infrastructure,” resin, modified epoxy resin, and urethane resin, the technology to mix “Living environment,” and “Mobility” for the purpose of expanding additives, and the technology to evaluate physical properties. “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 modules CSR Our 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 3. Nano-carbon materials (joining of different materials, etc.) by combining the Group’s power Having put commercial production of VGCFTM carbon nanotubes on device, heat sink/insulating panel, cooling device, heat-resistant sealing track, the Showa Denko Group is currently developing new carbon resin, and other proprietary technologies so as to pioneer the power
materials such as fullerene and graphene. Our R&D targets include Financial module market. 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.
SHOWA DENKO REPORT 2017 27 R&D of the Showa Denko Group
Protection of intellectual property In-house awarding system to commend employee inventions
Acquisition of intellectual property rights and establishment of patent networks In order to promote the filing of more valuable patent applications, we commend our top three employees in terms of number of patent As the majority of Showa Denko's businesses are operated globally, applications filed in the previous year and also the top three employees we aggressively apply for patents in foreign countries with the aim of in terms of the number of patents registered in the previous year. In supporting those businesses from the intellectual property side. 2016 we established the Patent Hall of Fame, and two employees, The chart shown below is a composition of data shown in "Japan whose patent filings and inventions each totaled 300 or more, entered Patent Office Annual Report 2016" and SDK's own data on the number the Patent Hall of Fame. 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.
▪ Trend of patent application ratio in Japan and abroad
■ Number of application in Japan (Showa Denko) ● Global application ratio (Showa Denko) ■ Number of global application (Showa Denko) ● Global application ratio (all applicants) Ceremony held to commend the internal inventors ranked in the top three (2016) (Number of application) (%) 1,200 60 1,000 50 800 40 600 30 400 20 200 10 0 0 2010 2011 2012 2013 2014(YEAR)
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
28 SHOWA DENKO REPORT 2017 Risk management Corporate Ethics and Compliance Fair Business Practice Information Disclosure and IR Corporate Governance
Corporate Governance
Basic policies Board of Directors
Showa Denko continuously promotes corporate governance to ensure the soundness, effectiveness, and transparency The Board of Directors decides basic policies of the Company. It also of management, and to contribute enhancing its corporate thoroughly discusses and makes decisions regarding matters specified value, thereby contributing to the sound growth of society in the Companies Act or the Company's Articles of Incorporation and earning its full trust and confidence. as well as important issues in executing business operations, while To that end, it is essential for the Company to strengthen promoting prompt and dynamic decision making on management. relations with its stakeholders, including shareholders, We appoint directors with emphasis on the viewpoint of corporate customers, suppliers, community residents, and employees. governance, aiming to strengthen the Board of Directors' monitoring Based on the above, the Company has clarified its mission in the form of Our Vision and Showa Denko is working hard to and supervisory functions and ensure the propriety of decision making realize this Vision. process. We have adopted a management system in which corporate
officers dedicate themselves to business execution, which is their About Showa Denko primary duty, but do not concurrently serve as directors, in principle. Furthermore, we have abolished the system of officer directors except ■ Corporate governance structure the Chairman and the President, while strengthening monitoring by Shareholder’s meeting Auditors including outside Auditors and mutual supervision among directors.
Audits Auditing The term of office of directors is set to one year to ensure a quick
Rapid, e ective decision-making Job and business Board of and flexible formation of management team corresponding to changes
Nomination Audit Audit Accounting Auditors Accounting Advisory Committee in the business environment. Board of O ce Advisory · Report Auditors Directors Remuneration Advisory Committee Management Committee and R&D Committee CSR Execution of Duty links The Management Committee, which is chaired by the President, Top Management deliberates and decides on matters to be referred to the Board of President Corporate O cers in Charge Directors' meetings and important matters pertaining to overall Internal Audit Department management of the Company. The decisions are made after Responsible Care Promotion Council deliberations on two occasions. As for the investment issues to be Internal Audits CSR Committee Risk Management Promotion Council submitted to the Management Committee, risk analysis as well as
Human Rights / Corporate Ethics achievement/progress management are conducted in advance, Promotion Council through preliminary risk reviews and examinations by a relevant task IR Promotion Council team. The basic business policies including Company's medium-term Financial
Security Export Control Committee business plans are decided not only through the deliberation of the Management Committee but also through sufficient examination by all Safety Measures Committee Business Divisions corporate officers. Sta Sections Management Committee The R&D Committee deliberates and makes decisions on important issues related to research and development. R&D Committee
CSR Committee
Showa Denko positions CSR Committee at the top level of our corporate governance system to check all management measures Implementation status of from the CSR perspective. We also established the Security Export corporate governance measures Control Committee and Safety Measures Committee under the CSR Committee. Moreover, we set up Responsible Care Promotion Council, We introduced the corporate officer system to draw a clear line Risk Management Promotion Council, Human Rights/Corporate Ethics between the two functions of management supervision and business Promotion Council and IR Promotion Council to deliberate on the execution. The top management team, consisting of the President and respective matters. 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.
SHOWA DENKO REPORT 2017 29 Corporate Governance
Board of Auditors account, among others, their corporate and individual performance. Candidates for the Audit & Supervisory Board Members must possess, Showa Denko employs an auditor system. The Auditors attend the in addition to an appropriate level of expertise in the areas of finance Board of Directors meetings and other important internal meetings, and accounting, sufficient knowledge, experience and capabilities to offering opinions as necessary. They conduct audits on execution of fulfill their obligations as Audit & Supervisory Board Members. business operations through on-site investigations, interviews with The Nomination Advisory Committee deliberates the nomination responsible persons, and reference to important documents so as of candidates for the aforementioned positions and submits to provide suggestions, advice, and recommendations for securing recommendations to the Board of Directors. The Committee is an soundness in management. They also audit group companies in advisory body to the Board of Directors and more than half of its cooperation with auditors of major affiliated companies members are independent outside directors.
Explanation regarding the selection of Overview of Governing Bodies/ senior management personnel and the Committees/Councils nomination of candidates for Directors and Audit & Supervisory Board Members
Governing Members Meeting frequency Body Reasons why each candidate has been nominated are stated in the Once or twice a month 9 members (Three of them are outside Reference Materials for the General Meeting of Shareholders. Board of directors.) (As of March 2017) (The board had 15 meetings Directors in 2016. The average rate of Chairperson: Chairman of the Board attendance was 99%.) Criteria on the independence of outside directors President, Corporate Officers in Charge, and other Corporate Officers and General Managers Management of Staff Departments as deemed necessary by Once a week in principle The Board of Directors has established independence standards for Committee the President Chairperson: President Outside Directors based on independence criteria stipulated by law CSR and the Tokyo Stock Exchange and selects candidates who meet the Same as above Twice a year in principle Committee standards. See the Attachment of Corporate Governance Basic Policies Board of 5 Auditors (Three of them are outside Auditors. Auditors (One is female.)) for the independence standards.
Policies and procedures for the Board of Internal Audit Department Directors in determining the remuneration of senior management personnel and Directors
We have the Internal Audit Department reporting directly to the President. The Internal Audit Department investigates the overall Showa Denko has newly introduced performance-linked stock-based execution of business including group companies and verifies its remuneration, and the remuneration of Executive Directors and accuracy, validity and efficiency. It also investigates and verifies the Corporate Officers now consists of base remuneration, which is decided functional state of management policies, business plans and internal according to job title and others, as well as short-term performance- control systems. The results of internal auditing are also reported to the linked remuneration and mid- to long-term performance-linked Auditors for mutual cooperation with Auditors' auditing. remuneration, which are determined in consideration of corporate and individual performance and others under the performance evaluation Accounting audits system. The Remuneration Advisory Committee as an advisory body to the Showa Denko concluded an auditing contract with KPMG AZSA, and Board of Directors and a majority of its members are Independent this audit corporation performs accounting audits for the Company. Outside Directors and Outside Audit & Supervisory Board Members. It The Accounting Auditor confirms the annual audit plan with the deliberates the remuneration of each Executive Director and Corporate Auditors and reports the audit results to them. The Accounting Auditor Officer and submits recommendations to the Board of Directors. and the Auditors also exchange information and views as required, to Remuneration of Outside Directors consists of base remuneration only. promote their cooperation. The amount of remuneration paid to Directors and Audit & Supervisory Board Members in 2016 is as given below. Policies and procedures of the Board of Directors in the selection of senior management personnel Total amount of Number of persons and the nomination of candidates for Directors remuneration Directors and Audit & Supervisory Board Members ¥218 million 7 (except outside Directors)
Audit & Supervisory Board Members Candidates for Directors must possess sufficient knowledge, ¥56 million 3 (except outside Auditors) experience and capabilities to fulfill their obligations as Directors. Outside Directors ¥68 million 6 Senior management personnel are selected by additionally taking into and Outside Auditors
30 SHOWA DENKO REPORT 2017 Risk management Corporate Ethics and Compliance Fair Business Practice Information Disclosure and IR Corporate Governance
Board of Directors/Audit & Supervisory Board
Board of Directors About Showa Denko CSR Akiyoshi Morita * Toshiharu Kato Keiichi Kamiguchi Tomofumi Akiyama * Masaharu Oshima *
Representative Director, Chairman of the Board Representative Director, President Jun Tanaka Hideo Ichikawa Kohei Morikawa Hidehito Takahashi *Outside Members
Audit & Supervisory Board Financial
Yukio Obara * Kiyomi Saito *
Saburo Muto Akira Koinuma Hiroyuki Tezuka * *Outside Members
SHOWA DENKO REPORT 2017 31 Corporate Governance
Outside Director Interview
The Board of Directors is open and fair The Company has a well-functioning corporate governance system
1967 Joined Toyota Motor Co., Ltd. (currently Toyota Motor Corporation) 1999 Senior Managing Director, Toyota Motor Corporation 2000 Executive Vice President, Aichi Steel Corporation 2004 President, Aichi Steel Corporation 2008 Chairman, Aichi Steel Corporation 2011 Advisor, Aichi Steel Corporation 2012 Director, of the Company (incumbent) 2015 Counselor, Aichi Steel Corporation (incumbent)
Q What is your evaluation of the Board of Directors? Q What did you feel when visiting the facilities of Showa Denko? A I feel that it is managed in a very good manner. At its meetings, all members, including the president, chairman, and A Showa Denko is engaged in a range of businesses and one of other directors, listen sincerely to others’ opinions, including its unique characteristics is that it has many professionals at very frank ones, and if someone takes issue with a certain each of its workplaces. I felt, however, that these professionals opinion, participants spontaneously launch into a proactive should interact with each other more proactively beyond discussion of the subject. The Board of Directors' meetings departmental boundaries. In particular, Showa Denko is now are held very openly and fairly, which testifies to the company struggling to generate synergy effects by using its versatile having a well-functioning corporate governance system. technologies, and if employees who have different knowledge and backgrounds frequently exchange thoughts and pool Q What role do you think you are expected to fulfill their wisdom, it will give birth to various new and innovative as an outside director? ideas. In order to cultivate this kind of corporate culture, I have been advising the company to foster cross-departmental A General shareholders usually have few opportunities to offer communication between directors and departmental their opinions directly to the management team, and I think managers. I should ascertain whether the team is making appropriate decisions on behalf of the shareholders. However, because Q What do you expect of Showa Denko toward the I myself have worked as a member of a management team, future? I can understand the magnitude of the responsibility assumed by the president. I therefore work to be a good sympathizer A I think the individualized businesses, which are unique to and adviser to the Board in addition to performing a Showa Denko, have great potential. For a company to achieve monitoring function. I have made a range of managerial sustainable growth, it is necessary to take a global view. The decisions under the motto, “You can always find hints for world needs businesses that help make all people across management by getting your hands dirty.” Taking a hands-on the world happy as well as technologies that are friendly to approach seems to have become a habit of mine as a result of the global environment. Showa Denko has produced lots working at Toyota Motor for many years. At Showa Denko, too, of individualized businesses, and I am convinced that it can I visit the facilities whenever I can, seeking clues for guiding continue to produce unique and epoch-making ideas going the company toward a better future. forward.
Outside Director Akiyoshi Morita
32 SHOWA DENKO REPORT 2017 Risk management Corporate Ethics and Compliance Fair Business Practice Information Disclosure and IR Corporate Governance
Outside Director Interview
Let us take advantage of diverse technologies to inspire synergy effect and innovation
1974 Joined Nippon Telegraph and Telephone Public Corporation (currently Nippon Telegraph and Telephone Corporation) 1995 Professor, Applied Chemistry Department, Graduate School of Engineering,
The University of Tokyo About Showa Denko 2013 Project Professor, Synchrotron Radiation Research Organization, The University of Tokyo Emeritus Professor, The University of Tokyo (incumbent) 2014 Project Researcher, Synchrotron Radiation Research Organization, The University of Tokyo (incumbent) 2015 Director, of the Company (incumbent)
Q What role do you think you are expected to fulfill passes, and you might be able to respond more successfully as an outside director? to rapid changes in the broader environment by making effective use of open innovation rather than sticking to using A I believe that my mission as an outside director is to lead technologies that you have developed yourself. But if you management to the right direction from the viewpoint of a cut your R&D investment, it might endanger the future of the
third party. Outsiders can often take a broader view of the company, which you must avoid at all costs. What is important CSR situation than insiders, in an unhurried and sober manner. In is to keep a good balance. On a case-by-case basis, the particular, in recent years, Showa Denko has been fostering management team should lead the company in a desirable M&A globally, and there are more and more projects in which direction for technological development. the company must make objective decisions, including as to how much the company can pay for an M&A and on the Q What challenges do you think Showa Denko integration process to be followed. I have been engaged in should meet for the future? research and am not a business administration professional.
However, I make it a rule to point out anything that I have A I think Showa Denko can use its diversity as an advantage. Financial doubts about from a third-party perspective. The company has a range of technologies and it can definitely For R&D, I work to give advice as an expert. If possible, I increase its corporate value by fusing these technologies specify what innovation could be achieved with a certain successfully. However, I do not think the company needs technology and how the company can contribute to society to fuse its technologies in each of the business fields. The by way of a certain product, thinking that it is critical for the company could make large-scale innovation happen by company to link its own technologies with the needs of the fusing its technologies in a few promising fields to generate age and society as a means of increasing its corporate value. synergies, and what matters is the ability to identify the technologies to be fused. In the future, the speed of change Q Thinking about the future, how should the will further increase due to AI and IoT, and not only executives management team utilize the company’s but also on-site employees, particularly engineers, will be technologies? required to have that ability.
A Even if you have an innovative technology, you cannot make innovation happen for society if you do not have a business model to utilize that technology. The management team therefore should at all times have a future vision regarding how to utilize and further develop the company’s technologies. However, you should be careful not to attribute too much Outside Director importance to the independent development of technologies. Every technology will eventually become outdated as time Masaharu Oshima
SHOWA DENKO REPORT 2017 33 Risk management
Risk management Earthquake risks We consider factors such as the estimated frequency of earthquakes Risk management system and seismic motions in the regions where our offices are located in We have established a risk management system around the CRO order to prioritize our buildings and facilities for seismic diagnosis and (Chief Risk Officer). Important risk-related matters are deliberated by reinforcement work. the Risk Management Promotion Council and determined by the CSR Moreover, since 2007, we have been working on business continuity Committee. plan (BCP), mainly assuming damage caused by earthquakes. With reference to the business continuity guidelines provided by the Cabinet Risk management activities Office of Japan, we create a BCP promotion framework, establish basic We manage risks concerning company activities, including policies, determine important operations at each business division, environmental preservation, security and disaster prevention, product worksite, and major affiliated companies, and find bottlenecks related quality, export control, agreements, etc., through preliminary reviews to these important operations, and thus establish BCPs. We also and an approval system based on internal rules and regulations. In promote business continuity management (BCM) activities, which addition, offices engage in efforts on a daily basis to minimize risks are aimed at ensuring business continuity through documentation, such as fires, explosions, leakages, work-related accidents, occupational education, training and review of BCPs. diseases, poor quality products, and environmental contamination and keep their impacts to a minimum even if they should occur. Information security risks The Showa Denko Group has its own Information Security Regulations Risk inventory and Personal Information Protection Guidelines to assist it in dealing Our Group has been conducting risk inventory every year, including its appropriately with information-related risks. We also take every overseas bases. Risk inventory is conducted in the order of opportunity to help all employees understand these rules and raise (1) extraction of risks, (2) assessment of potential impact, (3) planning security awareness among them through e-learning and Cyber of countermeasures, and (4) implementation and confirmation of Security Month activities. In April 2017 we renewed the content of countermeasures. We plan and implement company-wide measures the e-learning program. We are continuously enhancing information against common risks chosen from the risks extracted by each security also at our Group companies outside Japan. section. In 2016, we addressed common risks such as earthquake risks, As for targeted attacks, which have recently been posing a threat, we information security risks, and general affairs risks. are collecting the latest information by participating in the activities of the Japan Chemical Industry Association and the Japan Petrochemical ▪ Risk inventory flow chart Industry Association. Further, we regularly conduct drills to reduce related risks by raising employee awareness.
Company-wide Implementation & summary Extraction con rmation of General affairs risks of risks countermeasures Since 2009, our Group has been continuing efforts to enhance risk management of general affairs operations. Specific examples are: (1) Activities of Company-wide Extraction & each section activities revision of common risks identification of administration risks by using the “Guidelines”, which cover operations related to general affairs from the perspective of risk Assessment of Planning of potential impact countermeasures Planning management, as well as planning of countermeasures; (2) sharing of countermeasures against common risks best practices and responses as well as enhancement of the database for better understanding of applicable laws; (3) conducting periodic manager meetings and general meetings (trainings) for general affairs personnel to reinforce cooperation among themselves; and (4) exchange of opinions at offices and plants. In 2016, we had opportunities to exchange opinions about the risks at 10 of our bases. At the general meeting (training) held for general affairs personnel, participants shared the advanced initiatives implemented at the Chiba Regional Office. In addition to continuing these traditional measures, we are also taking new measures, including selecting six employees from among those in charge of the risks at the bases for a project to propose the direction and specific measures to be taken for the risks in and after 2017.
34 SHOWA DENKO REPORT 2017 Corporate Governance Information Disclosure and IR Risk management Corporate Ethics and Compliance Fair Business Practice
Corporate Ethics and Fair Business Practice Compliance
Basic policies Basic policies
The Showa Denko Group positions "compliance with social The Showa Denko Group promotes CSR procurement*, following justice and corporate ethics" as the top management priority and our firm beliefs that we must prevent corruption and bribery, comply operates the company based on compliance. As fundamental with Antimonopoly Act, and promote socially aware and environment mechanisms to promote and establish compliance on a group- conscious procurement throughout our supply chain. wide basis, the Human Rights/Corporate Ethics Promotion Council * For CSR procurement, please see page 62. is established under the CSR Committee chaired by the president while a chief risk officer (CRO) in charge of risk and compliance management across the Group is appointed. Furthermore, in addition to recurrence prevention measures Activities in 2016 and the proper punishment for compliance violations, there is a framework in place to prevent or find and properly address As in the previous year, we continued to conduct the following problems at an early stage through an internal check system and activities in accordance with Our Code of Conduct and Its Practical inside denunciation system. About Showa Denko Guide:
Activities in 2016 1. Prevention of Corruption and Bribery In addition to ensuring that employees abide by our legal guidelines 1. Corporate Ethics Month on the prohibition of bribery, we provided education on country- The Showa Denko Group sets every January as Corporate Ethics Month. specific anti-bribery laws for organizations concerned within the Group As in the previous years, in the 2016 Corporate Ethics Month, to make sure that they strictly comply with anti-bribery laws in their we organized group discussions using Our Code of Conduct and respective countries. Its Practical Guide in each workplace, including Group companies outside Japan, and ensured that all executives and managers signed 2. Conformance to the Antimonopoly Act and submitted, respectively, “The Oath of Office” and “The Oath of We ensured that all organizations concerned within the Group observe CSR Compliance with Our Code of Conduct and Its Practical Guide.” the Act on Prohibition of Private Monopolization and Maintenance of Furthermore, this year again, we implemented e-learning on Fair Trade (“Antimonopoly Act”) and engage in free and fair competition corporate ethics and compliance targeting managers. This e-learning by providing them with education based on our Antimonopoly Act program is mandatory for those who have been promoted. Compliance Manual and rules concerning what they must and must not do when interacting with competitors. For Our Code of Conduct and Its Practical Guide , please see page 38.
2. Corporate Ethics Hotline 3. Security export control A "Corporate Ethics Hotline" has been established for group employees For all export products, Showa Denko’s Security Export Control in Japan to prevent, or correct at an early stage, matters that conflict Committee, established under the CSR Committee, determines whether Financial with various rules such as laws and internal regulations as well as or not government permission is required, investigates customers, and violations of corporate ethics. We have also been reinforcing our system makes a decision on whether to enter into each transaction through for preventing power harassment and sexual harassment to resolve any systematized procedures. issues as quickly as possible. In 2016 we received 28 reports and implemented measures mainly to prevent whistle-blowers from being treated unfairly and to provide follow-up on how the reported matter was handled to each whistle- blower. At the same time we worked to promote employees’ access to the hotline service by intermittently providing information on the service contact and how to use it. In addition, four of our overseas Group companies have appointed a person to serve as the contact for inside denunciation. We will continue strengthening these efforts.
▪ Number of requests for consultation received by the Corporate Ethics Hotline (Including anonymous requests)
2013 2014 2015 2016
41 44 46 28
SHOWA DENKO REPORT 2017 35 Corporate Governance Risk management Corporate Ethics and Compliance Fair Business Practice Information Disclosure and IR
Information Disclosure and IR
Basic policies Provision of IR information through our website We kept shareholders and investors informed about pertinent Showa Denko believes disclosure and investor relations play vital information via our IR site, where we provide financial results as well roles in deepening shareholder and investor understanding of our approach to various issues, including corporate management, as details of business activities and systems, including the corporate business activities, and strategy, helping these stakeholders governance system. accurately assess our corporate value. Our information disclosure The information provided on the IR website includes press releases, measures are based on the following policies: financial results summaries, and other materials disclosed in a timely manner. We also began emailing IR news, including news releases and Outline of the basic policies: 1. W e seek to communicate proactively with shareholders and online updates, to those who have subscribed for the service. investors and to improve management transparency. Further, in response to an increase in the amount of traffic our 2. W e strive to disclose information concerning Showa Denko in a website gets from tablets, smartphones, and other devices, we created clear, fair, timely, and accurate manner to deepen understanding an online version of our English-language annual report and adopted of and trust in our company. responsive design for our frequently accessed website for individual investors in order to display information in a format suitable for the accessing terminal. Activities in 2016 We also worked to ensure that investors outside Japan would be kept updated on our business via the English IR website by posting important information such as financial results simultaneously in We communicated with shareholders and investors through various means as explained below. Japanese and English and providing almost the same content in the two languages. General meeting of shareholders Before mailing out the notice of convocation of the general meeting of shareholders, Showa Denko also published that notice on our website to ensure shareholders had sufficient time to consider the agenda items. In order for more shareholders to exercise their voting rights, we enabled the shareholders who were not able to attend the meeting to exercise their votes by means of mail or the Internet. Recognition of our IR activities During the meeting, we answered questions from shareholders in as Showa Denko was rated highly in the selection of Awards for Excellence clear and intelligible manner as possible, since we position the general in Corporate Disclosure by securities analysts of the Securities Analysts meeting of shareholders as the golden opportunity for communication Association of Japan. Moreover, our IR site was named an excellent with shareholders. We also provided a display space to introduce some website by Nikko Investor Relations in its Website Quality Ranking and of the Group’s products and technologies. received the Internet IR Commendation Award from Daiwa Investor Relations and the bronze prize in the Gomez IR Site Ranking from Morningstar. Communicating with institutional investors and shareholders For institutional investors and securities analysts in Japan, in addition to meeting them individually upon request, we also held briefings and online conferences to explain financial results as well as meetings to keep them updated on the progress of the business plan and main businesses. In December 2016 we reported on the progress made under the medium-term business plan, “Project 2020+,” and actively contacted institutional investors and securities analysts both in and ESG indexes adopting Showa Denko outside Japan to explain the details. For institutional investors and shareholders outside Japan, financial results reports and other materials prepared in English were provided, while the president and/or CFO visited Europe, North America, and Asia several times during the year to explain in person the financial As of January 2017 results and the business plan. For individual investors, we participated in events organized for individual investors, as part of which we held seminars on our businesses and business plan and exhibited our products.
36 SHOWA DENKO REPORT 2017 CSR
38 CSR Strategy Message from CSR Officer CSR Policy Materiality Showa Denko Group and the SDGs
42 Stakeholder communications Stakeholder communications Participation in Community Activities Interaction with Stakeholders
46 Highlights of CSR Activities 48 Responsible Care Management Action Plan Environmental Conservation Equipment safety / Access to Essential Occupational Health Chemical Substances Safety Quality Assurance
62 CSR procurement 64 Human Rights and Labor Practice 67 Performance Data 70 Third-party Verification
SHOWA DENKO REPORT 2017 37 CSR Management of Showa Denko
Message from CSR Officer
That is CSR well established in the heart of each one of us.
Taichi Nagai Corporate Officer
In the new medium-term business plan launched in 2016, the Showa Promote dialogue with stakeholders Denko Group, for the first three years until 2018, will in its CSR activities The United Nations has adopted the Sustainable Development Goals focus on realizing safe and stable operations as well as sustainable (SDGs), which comprises 17 goals to be attained by the international development; ensuring strict compliance with legislation and community by 2030. In response, the Japanese government launched observing social and corporate ethical norms; and promoting dialogue the SDGs Promotion Headquarters headed by the prime minister with stakeholders. in 2016. Accordingly, more attention will be paid to measures implemented by companies for the environment, society, and Realize safe and stable operations as well as sustainable governance (ESG). In response, the Showa Denko Group needs to development precisely identify what the public expects of it and what challenges it As a corporate group producing and distributing chemicals, we give will face, and then incorporate the findings in its corporate activities, for priority to safety above all else and, by continuing to promote Active which dialogue with stakeholders is indispensable. In addition to official Safety* activities, will make our utmost effort to prevent industrial meetings with stakeholders organized under various circumstances, accidents, equipment-related incidents, and environmental troubles we will work to create more opportunities to communicate with from occurring. Moreover, we consider our Responsible Care program, stakeholders through our group-wide aluminum can recycling in which we pay close attention to safety, health and environment at activities, participation in local events, and on other occasions where all stages of life cycle of chemical substances, to be one of our core CSR we contribute to local communities. activities. Under our Responsible Care action plan, we will implement and further improve activities specified for each category of “Safety Through CSR activities conducted by our Group employees with a high and disaster prevention,” “Occupational safety and health,” “Chemical level of CSR awareness, we will fulfill our social responsibilities, realize as substance safety,” and “Environmental safety.” In addition to these many of the hopes and dreams of society and people as possible, and activities, we will also work hard to offer products, technologies and contribute to creating a society where affluence and sustainability are services that will help solve social issues as part of our efforts to achieve harmonized. sustainable development.
*Active Safety: The Showa Denko Group’s unique activities in which we analyze past accidents and troubles, and take measures to prevent their recurrence
Ensure strict compliance with legislation and observe social and corporate ethical norms Observing social and corporate ethical norms is one of the most important priorities for the Showa Denko Group and constitutes the basis of its management. We will ensure that all of our employees behave with integrity based on “Our Code of Conduct and Its Practical Guide,” which was established to give employees guidelines on what to keep in mind and how to behave in order to realize “Our Vision.”
38 SHOWA DENKO REPORT 2017 Human Rights and Stakeholder communications Highlights of CSR Activities Responsible Care CSR Strategy CSR Strategy Labor Practice
CSR Policy
Given our currently promoted medium-term consolidated business plan Project 2020+ , the Showa Denko Group aims to “contribute medium-term consolidated business plan toward creating a society where affluence and sustainability are harmonized” while conducting business in such a way that our products and technologies contribute to solving social issues including We contribute to creating a society where the topics of global environment, energy, and resources. affluence and sustainability are harmonized. During Project 2020+, we will focus on the issues of “responsible CSR policies for 2016 to 2018 care,” “risk management and environment-conscious business All employees are thus expected to behave with integrity and in management,” “corporate ethics and compliance,” and “dialogue with conformity with “Our Vision” and “Our Code of Conduct” and to contribute to society through business activities.
stakeholders,” as well as the materiality issues selected. About Showa Denko (1) Realize safe and stable (2) Ensure strict compliance with At the Showa Denko Group, CSR is regarded as the responsibility of operations as well as sustainable legislation and observe social and each and every employee. All employees are thus expected to behave development. corporate ethical norms. - Consolidate the business with integrity and in conformity with “Our Vision” and “Our Code of foundation in a way that is (3) Promote dialogue with Conduct” and to contribute to society through business activities. compatible with low-carbon stakeholders. society. With its products, technologies and services, the Group will - Contribute to CO2 emission contribute to creating a society where affluence and sustainability are reduction and resource recycling. harmonized.
CSR promotion Framework
Our group has established the CSR Committee composed of the Care activities such as those for the environment, safety, and quality CSR members of the Management Council, which serves as a framework to assurance. The General Affairs & Human Resources Department is associate business measures with CSR. Under the CSR Committee, we responsible for human rights, corporate ethics and compliance, while established the Responsible Care Promotion Council, Risk Management the Public Relations Office is responsible for CSR communications and Promotion Council, Human Rights/Corporate Ethics Promotion Council, is engaged in proposing and implementing individual policies and and the IR Promotion Council. These councils plan and propose measures. individual topics related to CSR as well as discuss matters to be presented to the CSR Committee. ▪CSR promotion Framework
In addition, the Group has a framework where the CSR Department, Financial CSR Committee Environment & Safety Office , Quality Assurance Office , General Affairs & Human Resources Department, and the Public Relations Office assist each business division and workplace perform various CSR activities Human Rights / Responsible Care Risk Management IR Promotion Corporate Ethics such as those for human rights, corporate ethics and compliance, risk Promotion Council Promotion Council Council Promotion Council management, Responsible Care and other matters as staff departments. The CSR Department functions as the secretariat of the CSR Committee, plans and summarizes basic policies and comprehensive Business Division and Workplace measures regarding CSR. The department also collects CSR related Staff departments. information and supervises risk management in our group. We have General Affairs & Human Resources CSR Department Department established the Environment & Safety Office and the Quality Assurance Office under the CSR Department in order to promote Responsible
SHOWA DENKO REPORT 2017 39 CSR Managment of Showa Denko
Materiality
Materiality of issues of the Showa Denko Group
We assessed the materiality of each issue that may affect the to long-term issues. sustainability of society from the perspectives of both the Group and The diagram below shows how each of material issues of the Group its stakeholders and narrowed them down to 14 material issues. and core issues of ISO 26,000 listed in the left part is correlated to each The material issues selected are aligned with the Group’s medium- medium- to long-term issue of the Group in the right part. This diagram was also included in a Group newsletter to ensure that all employees
Issues for which demand across the Group understand the correlation Issues for which demand from society is high, but it Signifi- from society is high, and is difficult for the Group to priority is high for the Group cance to contribute to solutions stake- holders Issues for which immediate Issues for which demand action is judged from society is low, but unnecessary priority is high for the Group
Significance to our company
Core subjects addressed Medium- to long-term management issues Materiality in ISO26000
Provision of products, technologies and services Social Contribution Contributing to local communities Participation in Community Activities Provision of products, technologies and services Prevention of Pollution Provision of solutions for social issues
Use of sustainable resources The Environment Focus on sustainability Strengthening Responsible Care Measures to climate change Contributing to creating a society Reduction in the consumption of where a uence and sustainability are resources and energy, conservation of Safety and harmonized the global environment Equipment safty disaster prevention* Safe and stable operations Consumer Safety and Health Protection Realization of zero accidents and disasters Consumer issues Safety and disaster prevention Access to Essential Services Equipment safety, countermeasures against large-scale disasters Protection of intellectual property Fair business practices Maintenance of product safety Thorough compliance Thorough corporate ethics Safety of chemicals, quality assurance Corporate ethics* Compliance with social and corporate ethical norms Thorough risk management Occupational Health and Safety
Creating a comfortable workplace Labor practices/Human rights Promotion of diversity Embracing and leveraging the Development of Human Resources potential of diversity Enhancement of Decision-making process, structure Corporate Governance corporate governance Maintenance of sound, e ective and transparent management
*The issues in italics are not included in the core subjects of ISO 26000, but are listed here because they are considered to be important to the Group.
40 SHOWA DENKO REPORT 2017 Human Rights and Stakeholder communications Highlights of CSR Activities Responsible Care CSR Strategy CSR Strategy Labor Practice
Showa Denko Group and the SDGs
The Sustainable Development Goals (SDGs) are composed of 17 goals incorporated in the 2030 Agenda for Sustainable Development, which was adopted at the United Nations Sustainable Development Summit held in September 2015 and enforced on January 1, 2016. The Showa Denko Group is implementing measures to contribute to the attainment of these goals through business, and will consider the goals when selecting its issues of materiality, deeming them as important issues for stakeholders. About Showa Denko
Relations between materiality issues, major stakeholders and SDGs
Stakeholders Local communities Business partners Shareholders Environment Employees Customers 関連する Materiality Reason for selection as a materiality issue page SDGs CSR
Provision of products, It is the most fundamental issue for the company to contribute to 14-19 technologies and services society as a manufacturer. 2 3 4 ◯ ◯ ◯ ◯ ◯ ◯ 6 7 8 Community involvement It is a highly important issue for the company to foster social 9 42-45 and development contribution and win-win relationships with local communities. ◯
Prevention of Pollution ◯ ◯ 56-57 Measures for global environmental issues, such as those for the 7 Use of sustainable resources mitigation of climate change and effective use of resources, are ◯ 52,57 highly important. Measures to climate change ◯ ◯ 53-55 Financial Industrial safety, disaster control, and equipment safety are not Equipment safety included in the ISO 26000 issues, but they are highly important for a 8 ◯ ◯ ◯ 58 chemical company.
Consumer Safety and Safety of chemical products, product liability, and quality assurance 60-61 Health Protection are all extremely important items for a chemical company. ◯
It is deemed to be highly important because the company is committed to supplying products for social infrastructure (ECOANNTM Access to Essential Services 58 ammonia, sodium hypochlorite, and graphite electrodes) in a stable 6 ◯ ◯ manner.
Respecting the company’s own intellectual property and that of Protection of intellectual others is a precondition for the prompt commercialization of an 28 property 9 ◯ ◯ achievement.
It is highly important for individual employees to act with high Thorough corporate ethics ethical awareness for the company to win and maintain the trust of ◯ ◯ ◯ ◯ ◯ ◯ 35 society.
Occupational Health and It is highly important for the company to achieve zero incidents and 59 Safety ensure the safety of Group employees. ◯
Creating a comfortable It is important for the company to respect diversity and human rights 64-66 workplace to maintain good relations with stakeholders including employees. 5 8 ◯ ◯
Development of Human It is highly important for the company to retain and develop human 65 Resources resources and diversify employment. ◯
The process/structure of decision making is highly important for the company because it is related to management’s commitment to Decision-making process, corporate social responsibility, the formulation of corporate policies, ◯ 29-33 structure strategies, and targets, and to the establishment of the governance process, and thus constitutes the core of corporate governance.
SHOWA DENKO REPORT 2017 41 Stakeholder communications
Stakeholder communications
The Showa Denko Group wants to be a company that fulfills our social responsibilities for all stakeholders and a company that is trusted and appreciated by them. We will clarify our responsibilities for all stakeholders, understand their expectations and issues regarding our group through communication, and reflect the results in our corporate activities.
Customers Business partners
The Showa Denko Group strives to provide customers with safe and The Showa Denko Group strives to earn even more trust from its reliable products and services that meet their needs, thereby giving business partners to maintain win-win relationships with them. them satisfaction and securing their ongoing patronage.
Communication opportunity Communication tool Communication opportunity Communication tool Website Purchasing activities News releases Website CSR visits News releases CSR reports Sales activities Self-evaluation and other opportunities CSR reports Showa Denko reports Trade shows Showa Denko reports Service center Product brochures Plant tours and other opportunities Safety Data Sheet Advertisements Local communities and authorities
The Showa Denko Group strives to ensure that local communities and Shareholders and investors authorities have confidence in the safety and stability of its operations.
The Showa Denko Group strives to achieve business results that are Communication opportunity Communication tool satisfactory to shareholders and investors, thereby ensuring that they Website Plant tours will continue to hold shares in the Group. News releases RC community dialogues CSR reports Environmental monitoring Showa Denko reports Experiment classes and other Communication opportunity Communication tool CSR site reports opportunities Website Plant newsletters News releases Financial results and business briefings CSR reports Shareholders’ meetings Showa Denko reports Online conferences Financial results (summary) Seminars Financial statements Local communities and authorities Other IR activities and other opportunities Financial results presentation materials Annual reports Reports to shareholders The Showa Denko Group strives to provide rewarding worksites in which employees and their families can take pride.
Communication opportunity Communication tool Website News releases MBO (management by objective) CSR reports Labor management consultations Showa Denko reports Family tours Group news (paper and web) Portal site on the intranet
Briefing on business results held for institutional investors
Family tour held jointly by Showa Denko’s head office and Kawasaki Plant
42 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Highlights of CSR Activities Responsible Care CSR procurement Stakeholder communications Labor Practice
Participation in Community Activities
Basic policies the activities. The Showa Denko Group conducts a variety of unique activities Aluminum cans collected by employees are purchased by the Group to interact with local residents and make contributions to companies where they work and then sold on to Showa Aluminum their communities, including providing classes-on-demand on Can Recycling Center Co.,Ltd. and others for recycling. Sales profits chemistry and the environment, conducting environmental gained through these activities are donated to various welfare facilities conservation activities jointly with local residents, and recycling and organizations in each area. aluminum cans.
▪Participation rate of the activity Activities in 2016 (%)
98.8 98.9 About Showa Denko 100 98.3 96.6 As in the previous years, we conducted a wide range of activities 95 94.3 atvarious locations in 2016.
90 Education In order to deepen people's understanding and interest on chemistry, 0 the Showa Denko Group is 2012 2013 2014 2015 2016(YEAR) actively engaged in educational activities such as classes-on- Others demand at local elementary and We also issue a newsletter on activities conducted by our bases, junior high schools, plant visit organize plant tours for local residents, and give support to local open to students up to university cultural and sports promotion as a means of fostering communication CSR and internship. Provision of a class-on-demand with local communities. (Higashinagahara Plant, Showa Denko K.K.)
Improvement of the environment around the worksites The Showa Denko Group cares about and cleans up the Oita Complex publishes CSR report
environment around our plants Financial The Oita Complex of Showa Denko K.K. decided to replace its and offices in cooperation conventional RC report, which focused mainly on the environment with local residents and local and safety, with a CSR report this year. We made this decision with a view to meeting the needs of local residents who wanted to know municipalities. Cleanup activity for Lake Aoki (Omachi Plant, Showa Denko K.K.) more about the company, and because we also wanted to better introduce our company to local residents. “We formed a project team, which is mainly composed of female employees of the Oita Complex, to make a CSR report that is easy Community development and social welfare to understand, even for those who do not know much about The Showa Denko Group strives to contribute to development of local chemistry or the Complex. The members held a series of discussions economy, for example, by participating and assisting in events, urban in order to make a reader-friendly report with lots of photos to give it a soft tone. We will hand out copies of the report to visitors to planning and town planning activities, providing small and medium- the Complex, starting with the family tour of the site to be held in sized companies with technical August.” advice and support, employing local residents, and procuring local goods and materials. We also contribute to local community through welfare-related and other activities. Great East Japan Earthquake reconstruction aid activity (Head Office, Showa Denko K.K.) Project members
Aluminum can recycling activities The Showa Denko Group’s aluminum can recycling activities started in 1972. In 2016, a record-high 98.9% of Group employees participated in
SHOWA DENKO REPORT 2017 43 ステークホルダーダイアログ
Interaction with Stakeholders Example: Recycling of Waste Plastics
For the creation of an environment-friendly community
The Kawasaki Plant of Showa Denko K.K. is located in Kawasaki City, Plastic Recycle (KPR) plant. We began manufacturing hydrogen from Kanagawa Prefecture. Kawasaki City is certified by the Ministry of waste plastics in 2003 with an eye to ensuring a stable supply of the Economy, Trade and Industry as an “Eco-Town.” gas, which is used in the production of ammonia. The “Eco-Town” project is designed to foster the creation of advanced At the KPR plant, waste plastic containers, packaging, and other environment-friendly communities. It deems “zero emissions” as the materials collected by municipalities are broken down at a high basis for the creation of an environment-friendly regional economy and temperature for conversion into hydrogen, which is used in the as a major driving force for regional revitalization. manufacture of ammonia. Ammonia is produced at the facility adjacent In support of the Eco-Town project, the Kawasaki Plant established to the KPR plant. a chemical recycling facility for waste plastics that we call the Kawasaki We hold tours of the plant to widely publicize this recycling initiative.
Comments from stakeholders: Fujimino City・Miyoshi Town Environmental Center
Of all the cities in Saitama Prefecture, what they have learned at home, which will in turn help raise awareness of Fujimino City produces the smallest the importance of waste sorting among local households. amount of household waste on a per- For denitration, our center’s heat recovery and recycling facilities use capita basis as a result of making an all- ammonia made by Showa Denko K.K. from waste plastics, meaning waste out effort to reduce and recycle waste to plastics sorted by citizens for recycling are used at the center to purify respond to the problems caused by the exhaust gas. The recycling system helps citizens easily understand the aging of the municipal waste treatment effect of waste sorting and we think it is a very good recycling initiative. center. In the city, “waste newspaper” and “waste magazines and other paper waste” are collected separately. The Mr. Yazawa, head of the separate collection of confectionary Fujimino City・Miyoshi Town boxes, toilet paper tubes, and other items Environmental Center, and Mr. that otherwise tend to be disposed of Kubota, a Center employee as combustible waste helps reduce the amount of waste to be incinerated. At present, waste collected from households in the city is sent to the Fujimino City・Miyoshi Town Environmental Center, which was opened last year and houses an environmental education facility called the “Eco-Lab.” At the Eco-Lab, we particularly focus on the education of children and welcome local elementary and junior high school students in Fujimino City and Miyoshi Town to the facility as part of their social studies classes. Samples of plastic packages, volume-reduced RPF produced at the KPR plant, and insect bite relievers (daily-use products made from ammonia) are displayed We teach them about the treatment and sorting of household waste using along with a mock-up of a bale of waste plastic packaging. The KPR plant is also actual waste items with the expectation that the children will practice introduced on the panel installed in the back.
44 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Highlights of CSR Activities Responsible Care CSR procurement Stakeholder communications Labor Practice
Making ammonia by using waste plastics
Mechanism of recycling Contribution to the creation of a Ammonia is usually produced by using hydrogen, which is derived low-carbon society by breaking down naphtha and other fossil fuels. Plastics, made from The significance of the KPR plant is increasing for the creation of a low- oil, are gasified at the KPR plant for conversion into hydrogen. Just carbon society. like fossil fuel-derived hydrogen, this hydrogen can be used as a raw In July 2015, Showa Denko concluded an agreement with material for producing ammonia. Kawasaki City to foster mutual cooperation toward the creation of a By-products exhausted during the recycling process are also used low-carbon society based on hydrogen energy. The two parties are effectively. In particular, carbon dioxide is refined by Group companies conducting demonstration tests locally toward the creation of such for sale as material for carbonated drinks and dry ice. Waste plastics are an environment-friendly society by using low-carbon hydrogen made thus recycled at a rate of nearly 100%. from waste plastics. About Showa Denko
Crush molding Gasify Produce ammonia What’s ammonia? Ammonia Across the world, ammonia is produced in greater quantities than any other chemically synthesized product. It is mainly used as a material for fertilizer, synthetic fiber, and resin, and for the denitration of air pollutants emitted from thermal power plants and waste treatment plants. Molding plastics Showa Denko produces ammonia in an Using Waste Plastics Synthesis CO2 separation Compression, Synthesis gas circulation environment-friendly manner by using the material supplied from the KPR plant. The product is thus named “ECOANNTM” (meaning ecological ammonia). Fossil fuels Reforming CSR
Comments from stakeholders: KPR plant tour participants
❖ Specified Nonprofit Corporation Kawasaki Creative Project ❖ Tim Hornyak, journalist I have learned how the sorted waste is treated, which I did not know I was impressed to see that Showa Denko's chemical recycling plant in before. I am also surprised to learn that products made by the Kawasaki Kawasaki can extract valuable materials from waste plastic apparently
Plant are used in products that are familiar to me. without producing any emissions. My hope is that industry will embrace Financial The tour made me think about the disposal of waste, and I made a zero-emission manufacturing to we can bequeath a cleaner planet to decision to sort waste more strictly. I want to take my children on the tour. future generations. (Summary of opinions given by tour participants)
Receiving Eco Mark certification
The chemical recycling at the KPR plant is conducted not to use waste plastics as fuel but to recycle them into products to be sold in the market. The sorting of waste by general consumers thus helps foster the recycling of resources as products. In recognition of these facts, we have received Eco Mark certification for the chemical recycling process.
SHOWA DENKO REPORT 2017 45 Highlights of CSR Activities
Environmental
The Showa Denko Group promotes various measures to reduce greenhouse gas emissions and energy consumption as part of its efforts to combat global warming and support resource conservation. HD Division of Showa Denko K.K. receives 2016 RC Moreover, to prevent air, water, and soil pollution, we are working to commendation from the Japan Chemical Industry reduce the release of chemical substances by fuel conversion and Association.
improvement of the manufacturing process while also decreasing the In 2014, the HD Division of Showa Denko K.K. and Showa Denko generation of waste by fostering reuse and recycling. We are thereby Electronics Co.,Ltd. reduced the use of electricity by about 25% continuing to achieve zero emissions (meaning that waste sent to final relative to 2010 as a result of continuing to enhance energy conservation at their HD manufacturing facilities since the landfill is 1% or less of total waste generated). occurrence of the Great East Japan Earthquake in 2011.
▪Discharged amounts of greenhouse gases (2016 Showa Denko Group)
CO2 (Energy source origin) 2,545kt-CO2 Total CO2 (Non-energy source origin) 85kt-CO₂ 2,687 Other 6 GHGs 57kt-CO₂ kt-CO₂
▪Rate of final landfill of industrial waste (Showa Denko Group)
0.32%
Commemorative photo of the commended
*For the scope of Group companies, please refer to the boundary information posted on the website. Social
The Showa Denko Group is working to build relationships of trust with stakeholders. For example, we are proactively holding chemistry experiment classes for children, who are the rising generation, as Aluminum can recycling activity well as factory tours as a means of contributing to local communities The Showa Denko Group is recycling aluminum cans. The cans through our technologies, human resources, and equipment. collected by employees are purchased by their companies and We are also implementing measures to promote diversity to provide then sold to Showa Aluminum Can Recycling Center, Ltd., a Group all employees of the Group with workplaces where diverse values are company, and others. Proceeds from the activity are donated to respected and all members can work with vigor. various facilities and organizations located in the regions where the companies are operating.
▪Ratio of handicapped employees (2016, Showa Denko K.K.)
2.64%
▪Number of female managers and its ratio (2016, Showa Denko K.K.)
Number of female Ratio managers Donation made at the Oyama Plant of Showa Denko K.K. 26 0.71%
46 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Responsible Care CSR procurement Highlights of CSR Activities Labor Practice
Safety
As an entity engaged in the chemical industry, the Showa Denko Group’s first priority is safety. We are continuing the Active Safety activities* to prevent occupational accidents, equipment-related incidents, and Granted a prize from the chairman of the Japan environmental problems. Industrial Safety & Health Association *1 Active Safety activities: The Showa Denko Group’s unique activities in which we In October 2016, Showa Denko K.K. won the fiscal 2016 prize from analyze past accidents and troubles, and take measures to prevent their recurrence the chairman of the Japan Industrial Safety & Health Association in recognition of its efforts to foster Active Safety activities by using its Activity Safety Checklist developed in-house and of the ▪Trends infrequency rate of lost-time injuries outstanding achievements that the company made by introducing About Showa Denko ● Showa Denko ● Chemical Industries an occupational safety and health management system. ● Showa Denko Group* ● All Industries 2.0 1.66 1.59 1.58 1.61 1.63 1.5
0.88 1.0 0.85 0.82 0.76 0.81
0.43 0.5 0.22 0.25 0.14 0.15 0.12 0.24 0.15 0.13 0.0 0 2012 2013 2014 2015 2016 (Year)
*2 For the scope of Group companies, please refer to the boundary information CSR posted on the website. Commendation ceremony
CSR procurement
Our CSR procurement aims to mutually improve the corporate value of both our business partners and Showa Denko by sharing with them and requesting their compliance with the Showa Denko Group CSR Procurement Guidelines (http://www.sdk.co.jp/english/about/procurment/csr.html). The guidelines provide specific CSR activities that we request our business partners to conduct. In order to confirm their compliance with the guidelines, in 2015 we continued performing three activities: asking business partners to assess their own CSR activities (“self-assessments”), visiting them for inspection purposes Financial (“CSR visits”), and doing follow-up checks on their improvement (“follow-up”).
Certifications
Certified as a “Platinum Kurumin” company Showa Denko K.K. received Platinum Kurumin certification from the Tokyo Labour Bureau overseen by the Ministry of Health, Labour and Welfare as a company that is outstandingly supportive of employees’ childcare among Kurumin-certified companies.
Selected to be one of the Excellent Enterprises of Health and Productivity Management (“White 500”) Showa Denko K.K. was selected to be one of the Excellent Enterprises of Health and Productivity Management (“White 500”) in February 2017. We will continue to implement measures to help employees and their families maintain and promote their health.
SHOWA DENKO REPORT 2017 47 Responsible Care Management
Responsible Care Action Guidelines
Showa Denko established the “Responsible Care Action Guidelines” in When the RC Charter was amended in 2014, March 1995. These guidelines stipulate management policies related we re-signed, making clear our willingness to the environment, safety, and health. Our Group promotes activities to promote RC activities through global based on these action guidelines. collaboration. In addition, we also signed the Responsible Care Global Charter in 2005, pledging our support for and implementation of the charter.
Responsible Care Global Charter Signatory Certificate
Responsible Care Action Guidelines (Showa Denko Group Action Guidelines)
1. Throughout the entire life cycle of products, we shall make our best efforts to 5. We shall enrich risk assessments and risk management concerning the effects of review and improve business activities continuously from the view points of the products and materials we handle on safety, health, and the environment, ensuring safety & health and protecting the environment. and we shall provide information on the safe use and handling of our products to our stakeholders as well. 2. We shall make our best efforts towards sustainable development by harmonizing our production activities with the global environment, not only 6. In overseas business activities, technology transfer, and international trading of through conventional approaches to environmental preservation, but also chemical products, we shall give full consideration to ensuring safety and health, through promotion of changing raw materials, energy conservation, waste and protecting the environment. reduction and recycling, reductions in the release of chemical substances, etc. 7. We shall comply with international rules, domestic laws and regulations, and 3. In the development of new products and businesses and in the establishment, make our best efforts to cooperate with the relevant international organizations, enlargement, and renovation of facilities, we shall undertake our best efforts to domestic and foreign administrative bodies, etc. ensure safety and health and to protect the environment. 8. We shall participate proactively in various activities related to the ensuring of 4. We shall promote R&D and develop technologies that will contribute to the safety & health and environmental protection, and make our best efforts to improvement of safety and health and to the protection of the environment. We communicate with society to achieve better understanding and trust. shall also promote the marketing of alternative or new products.
Responsible Care promotion system
The Responsible Care Promotion Council is placed under the CSR Business Development Center and 13 major Group companies. At Committee to have preliminary deliberations on important issues overseas Group companies (manufacturing) as well, we have identified concerning Responsible Care activities. achievements relating to Responsible Care and provided local As of February 2017, we are promoting Responsible Care at our guidance to expand the target scope. headquarters, 13 business divisions, 15 workplaces, 3 branches, the
▪ Responsible Care Promotion system
CSR Committee Responsible Care Aluminum Can Recycling Promotion Council Promotion Subcommittee
Safety Measures Committee
CSR Department
Environment & Safety Office
President & CEO Work sites ( Production sites, R&D bases, etc., of the group )
Board of Auditors Divisions etc. ( Divisions Branches, Headquarters, etc. )
* Group Companies Tsurusaki Kyodo Doryoku K.K. Showa Denko Ceramics Co., Ltd., Shiojiri System of worksites Chart for reference : Each worksite defines its own system Showa Co., LTD., Showa Denko Packaging Co., Ltd., Showa Aluminum Can Manager in overall Promotion Persons in charge of themes Corp., Showa Denko Sakai Aluminum Co.,Ltd., Showa Denko Electronics Charge of Councils etc. ( Subcommittees ) K.K. Union Showa K.K. Niigata Showa K.K. Showa Aluminum Can Recycling Responsible Care Center, HI-PACK Co., LTD., Showa Denko Gas Products Co., Ltd., Clean-S Secretariat ( Section of environment & safety ) or the Manager in charge of environment & safety Showa Co., Ltd. Shinshu Showa K.K. and Frontier Carbon Corp
48 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
The労働安全 PDCA cycle Auditing structure
The Showa Denko Group works to achieve continuous improvement Showa Denko and its major Group companies conduct audits as in its Responsible Care activities through the plan-do-check-act described below for their worksites to assess and improve their (PDCA) cycle of formulating Responsible Care activity plans (plan), Responsible Care activities. implementing these (do), auditing and evaluating the results (check), and reflecting these via management review in the next round of Self-audit objectives and activity plans (act). Workplaces of Showa Denko and its major Group companies evaluate their own Responsible Care systems and implementation statuses ▪ The PDCA cycle based on a checklist, so as to reflect the results in the following year's targets and action plans in order to move forward with continuous
Formulating improvement. About Showa Denko management policies and objectives Worksite auditing A P The Environment & Safety Office of the CSR Department audits Management Activity worksites to both, make evaluations and improvements regarding review Continual plans improvement Responsible Care at Showa Denko and its major group companies. In 2016, we audited 33 workplaces (including our headquarters, branch offices and business divisions). C D The CSR Committee deliberates these results to reflect them in the Internal audit, policies, goals and plans of the entire company and Group companies. evaluation of Implementation results CSR Education system Environmental management system
The Showa Denko Group, employees receive Responsible Care The Showa Denko Group has been continually working to improve education that focuses on occupational safety, environment the environmental management system and reduce environmental preservation and compliance when they join the company or are burdens. promoted. Internal auditors for environmental management systems See our website for a list of sites that obtained certifications and occupational safety and health management systems are also regarding environmental systems, quality management systems, or
provided with annual training. In this way, we ensure that all employees occupational health and safety management systems. Financial are familiar with Responsible Care.
Responsible Care training for new manufacturing section managers
Responsible Care training for newly appointed manufacturing section managers was held at the Oita Complex on October 24 and 25, 2016, with the participation of 23 managers from across the Showa Denko Group. The training included group work for risk assessment exercises regarding the actual facilities and operations of the Oita Complex and case studies on past disasters and violations. The training helped participants raise their awareness about the importance of fulfilling their responsibilities and demonstrating leadership as on-site managers.
SHOWA DENKO REPORT 2017 49 Responsible Care Action Plan
Every two or three years, the Showa Denko Group establishes a and promote Responsible Care. medium-term Responsible Care action plan, which is then used as the Targets, achievements, evaluations of major efforts in 2016, as well as basis for annual action plans during the period covered. targets for 2017 are as follows. All workplaces draft detailed action plans based on the We will continue to promote active engagement in these efforts to comprehensive plan, tailored to local conditions and circumstances, meet our targets.
◎: Fully achieved (100%) ○: Achieved 80% or more △: Achieved less than 80% (Numerical data without range indications apply to Showa Denko only.)
Evalu- Policy and plans for 2016 Results and progress in 2016 Policy and plans for 2017 ation Policy Let no environmental abnormality occur. · Four environmental problems occurred within the Policy Let no environmental abnormality occur. Showa Denko Group. · Make effective use of the checklist to prevent · Thoroughly instill Active Safety at each environmental problems. · T horoughly instill Active Safety at each Environmental · Implemented measures to reduce risks in each plant. △ plant. Management Plans · Eliminate environmental risks. plant. Plans · Eliminate environmental risks. · Factor biodiversity into daily business · Examined and implemented various activities, such · Factor biodiversity into daily business activities. as conservation of green areas and reduction of activities. environmental impact of wastewater in accordance with the circumstances of each plant. Continuing to improve unit energy Continuing to improve unit energy Policy Policy consumption. · F ailed to achieve benchmark on soda. consumption. · Implemented periodic reporting. △ Plans Thorough energy conservation. Plans Thorough energy conservation. Global Reduction in GHG and promotion of · GHG emissions: 30% reduction (Showa Denko) Reduction in GHG and promotion of warming Policy energy conservation towards the and 26% reduction (group) in comparison to 2005 Policy energy conservation towards the Initiatives realization of a low-carbon society. levels. realization of a low-carbon society. ◎ · Unit energy consumption as designated shippers Study year-to-year changes in unit Environmental conservation Study year-to-year changes in unit energy Plans in 2015 and reduction plans for 2016 reported to Plans energy consumption and share best consumption and share best practices. authorities. practices. · Maintain zero emissions. · Maintain zero emissions. Policy · Contributing to a recycling-based · M aintain zero emissions. Policy · Contributing to a recycling-based society. · Amount of final disposal by landfill: 254 tons (Showa society. ◎ Reducing the amount of final disposal Denko, down 498 tons from 2015), 323 tons (Showa Reducing the amount of final disposal Plans by landfill through efforts such as more Denko Group, down 528 tons from 2015). Plans by landfill through efforts such as more Reducing effective use of sludge. effective use of sludge. industrial · P roduction through chemical recycling of plastic Contributing to a recycling-based Policy Contributing to a recycling-based society. Policy waste waste: up10. 3% from 2015 society. · P aper recycling (Head Office): 83.6% (up 0.3% from 2015) ○ Plans Promoting recycling. · Aluminum can recycling: 98.9% of Group Plans Promoting recycling. employees participated, with each bringing in an average of 585 cans/ year. · Emissions of JCIA PRTR-listed substances: 163 tons Policy Reducing chemical emissions. (down 5% from 2015). Policy Reducing chemical emissions. · Emissions of hazardous air pollutants: 14 tons Reduce emission at plants with a total Reducing (down28% from 2015). Reduce emission at plants with a total emission of 10 tons/year or more, and chemical · Failed to achieve reduction of emissions of 4 ○ emission of 10 tons/year or more, and reduce emission of chemical substances substance Plans substances with a current emission level of 5 tons/ Plans reduce emission of chemical substances with a current emission level of 5 tons/ year or more, as well as reduction of emissions from with a current emission level of 5 tons/ year or more. 2 plant with a total emission level of 10 tons/year year or more. or more. Responses · Estimate the frequency of related risks to water Estimate the frequency of related risks and influence exerted over the plants. Plans Conduct a survey on the plants in Japan. Plans resource- and influence exerted over the plants. ◎ · Conduct a survey on the plants outside related risks Japan. Policy Realizing equipment-incident-free status · Equipment incidents within the Showa Denko Policy Achieve zero incidents. Group: 4 (1 fire, 1 leakage, and 2 cases of equipment breakdown). · Thoroughly implementing "Active · Completed the plan for the wider use of the Safety" activities equipment incident prevention checklist at all the plants.
Safety and disaster prevention · Complete the horizontal deployment plan of the equipment incident · Made improvement plans to be implemented · Enhance the change management prevention checklist. after the completion of the evaluation of safety system (to make assessments on · Expand coverage of measures to prevent capabilities (for Oita, Kawasaki, Isesaki, and Tatsuno the establishment/abolishment of recurrence at plants where incidents facilities) as part of the ongoing effort. equipment). had occurred. · Promoted implementation of irregular case risk · Continue examining the methods · Establish and implement a method for assessments (e.g., start up, shut down, upon to assess the risk of equipment in an determining equipment incident risk emergency stops). Equipment *1 unsteady state. · Ensuring the implementation of HRM · Continued checking the risks associated with high △ safety Plans Plans · Continue implementing anti-seismic/ examinations risk materials (HRMs) by conducting engineering tsunami measures. · C onsider how to conduct risk assessments. · Foster the planned provision of disaster assessments regarding non-stationary · Systematically performed emergency drills and control training and education. states and unusual operations internal audits at each plant. · Improve the auditing, education, and · M aintain and improve measures · Formulated and promoted anti-liquefaction examination methods at the plants that against earthquakes for each piece of measures and earthquake resistance reinforcement have received certification for high- equipment and facilities plans for important facilities handling high- pressure gas treatment. · S ystematically promote emergency drills pressure gas and hazardous materials as well as for and education particular buildings. · M aintain and improve PDCA at · Introduced an insulating-type Accelerating Rate authorized high-pressure gas plants, etc. Calorimeter (ARC) to prevent polymerizable. · Updated the certification for high-pressure gas treatment at the Oita Complex (in January 2016).
50 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
◎: Fully achieved (100%) ○: Achieved 80% or more △: Achieved less than 80% Evalu- 労働安全Policy and plans for 2016 Results and progress in 2016 Policy and plans for 2017 ation · Nur ture a sound safety culture. · Nurture a sound safety culture. Policy · A chieve and maintain zero accidents Policy · Achieve and maintain zero accidents with or without lost time at each site. with or without lost time at each site. · Showa Denko Group: Experienced 2 incidents · Rate of lost-time injuries as the group: resulting in employees taking time off work , 2 0.1 or less. · Rate of lost-time injuries as the group: 0.1 E or less incidents without lost work time. · limination of dangerous equipment Occupational · Showa Denko Group lost-work time incident rate: and work. · Elimination of dangerous equipment △ Enhance r safety and work. 0.15 · isk sensitivity through · Oyama, Hikone, and Omuta Plants of Showa training. Plans · Enhance risk sensitivity through training. Plans Enhance measur · Obtain, maintain and renew the Aluminum Can Corporation received external · es to prevent incidents, commendation for their safety activities. including behavioral incidents in accreditation of our occupational safety irregular operations. and health management system and · Make necessary assessments without review the system. fail before changing a process or an operation. Policy Zero work-related illnesses*2 Policy Zero work-related illnesses.
Occupational health and safety Occupational · Enhancing sanitation management · Zero work-related illnesses. · Enhancing sanitation management ◎ Health structure. · Enhanced heat stroke measures. structure. About Showa Denko Plans · Improving work environment and work Plans · Improving work environment and work methods. methods.
Policy Implemented the Showa Denko Group Implemented the Showa Denko Group Vivid Health Promotion Plan. Policy Vivid Health Promotion Plan. "Showa Denko Group Vivid Health Promotion Plan" Activity Results [compared with benchmark year Showa Denko Group Vivid Health (2012)] Promotion Plan Phase2 1. Prevention of lifestyle-related diseases. 1. Preventing lifestyle-related diseases. · P revalence rate of hypertension, fat levels, and 2. Improving mental healthcare. blood sugar levels increased. 3. Improving lifestyles. · S creening rate: Increased for colorectal cancer and 4. Steadily implementing medical. decreased for stomach cancer, breast cancer, and examinations and follow-up cervical cancer. Set the following three priority items while continuing to pursue the targets Showa Denko Group Vivid Health 2. The ratio of employees at high risk of mental health problems decreased. set for 2016: Promotion Plan. (1) Enhance the follow-up activities Health 1. Preventing lifestyle-related diseases. 3. C ontinuous efforts remain necessary to improve management employees’ lifestyles. △ (interviews by doctors/guidance 2. Improving mental healthcare. Plans on health) to be conducted after Plans 3. Improving lifestyles. · The percentage of employees with an “appropriate St body weight” decreased while that of employees regular health checkups. 4. eadily implementing medical (2) R examinations and follow-up. who exercise on a daily basis increased. educe overtime work and increase The percentage of those getting insufficient rest interviewing of employees by (sleep) slightly decreased, while that of employees doctors.
working long hours increased. (3) Enhance health support activities CSR · "People who walk for 1 hour or more" increased according to the situation of each and "People who smoke" decreased. plant. · The percentage of heavy drinkers and that of daily *Focus more on helping employees to drinkers increased. be vigorous in their private and work 4. The follow-up rate failed to reach 100%. lives through appropriate interviews by doctors and health guidance rather than on improving the prevalence rate. · Three cases of abnormal management and 1 case of mismanagement. · Integrated management system for chemical Policy No mismanagement. substances: For the enhancement of the SDS Policy No mismanagement. function for overseas use and the provision of the
Consumer and Health Protection Safety REACH Volume tracking function, made necessary preparations for launch within 2017. · Made appropriate responses to both domestic and overseas regulations: 1. Enhanced the internal management system in Financial response to the revision of the laws, and shared information about the cases of inappropriate · Ensure the appropriate use of chemical management across the board. substances in products. Chemical 2. Made responses to the revision of overseas laws, 1. Update information about the laws · Enhance the database for internal substance including responses to the US TSCA Chemical △ and guidelines enforced in Japan and Management sharing of information on chemical Data Reporting (CDR) rule, the law on hazardous abroad. substances contained in products, as substances in Thailand, and the annual chemical 2. Ensure legal compliance for the well as the comprehensive chemicals substance reporting rules enforced in China and delivery (and export) of (new and management system. Plans South Korea. Plans existing) products. · Respond to Japanese and overseas laws · Revised labels and SDSs to comply with GHS · Enhance the integrated management and regulations appropriately. *3 regulations in Indonesia, Vietnam, Thailand, and system for chemical substances and · Revise SDS and labeling to make them other countries by the 2016 deadline. the database for the management of conform to the amended Industrial · Completed the revision of the labels and SDSs chemical substances used in products. Safety and Health Act. to comply with the revised Industrial Safety and · Revise labels and SDSs to comply with Health Act of Japan (enforced on June 1, 2016). the GHS regulations both in Japan and · Fostered risk assessment in response to the revision abroad. of the Industrial Safety and Health Act of Japan (by holding training seminars and clarifying the targeted substances). Ensure product safety and consistent, Ensure product safety and consistent, reproducible quality. 1. A s a result of carrying out risk assessments reproducible quality. · A chieve zero product accidents and zero before the release of products and the shipment · Achieve zero product accidents and Policy compliance violations. of samples as necessary, the risks decreased. Policy zero compliance violations. · R educe major complaints to zero and Formulated the rules on nano-materials from a · Reduce major complaints to zero and Quality assuranceQuality minimize quality loss. new risk management perspective. minimize quality loss. 2. C omplied with the quality-related laws and 1. M ake sure that product release voluntary industry standards and had no inspections and sample pre-shipment Quality product-related incidents. Regularly checked the inspections are conducted without fail. compliance status. ◎ assurance C omply with laws and regulations 1. Reduce risk by risk assessment. 2. 3. C onducted process improvement activities based 2. Enhance legal management including concerning quality and voluntary on quantitative indicators and made outstanding ensur standards set by industry organizations ing compliance with voluntary Plans achievements. Shared the best practices across Plans standards. and others. the company. M 3. Ensur e process stabilization through 3. anage the quality of process 4. L earned lessons from past customer complaints to capability in a steady manner. proper process capability quality identify and reduce quality risks and also prevent 4. Establish a risk-based approach. management. such risks. As a result, reduced the number of 4. Identify quality risks and proactively complaints by about 30% relative to 2015. introduce necessary measures. *1 HRM : High Risk Material *2 Work-related illnesses : Legally recognized work-related sickness by the Workers' Compensation Insurance Law. Appearing symptoms of illness caused by exposure to harmful factors under circumstances of employers' control. *3 SDS (Safety Data Sheet): This is a document provided by the supplier to the user (customer) of a chemical substance, covering such matters as its name, toxicity, and physical/chemical properties; cautions concerning its handling and storage; and emergency measures. SHOWA DENKO REPORT 2017 51 Responsible Care Environmental Conservation
Resource use and environmental impact
Actual values of environmental loads for 2016 are as follows:
INPUT OUTPUT Products Energy Showa Denko （crude oil equivalent） Group Showa Denko K.K. only Emissions of air pollutants 1000Mℓ Showa Denko Group （+10Mℓ） K.K. only companies 1 Group companies* Greenhouse gas（kt-CO2) 2,211(+8) 475(-9) SOx(t) 324(-36) 4(0) 190Mℓ NOx(t) （+10Mℓ） 1,255(-158) 23(-1) Internal Soot and dust (t) 63(-24) 1(0) Utilization JCIA PRTR-listed substances (t) 148(-5) 242(-20) 2 JCIA Toxic atmospheric pollutants (t)* 14(0) 1(+1) Showa Denko K.K. only Emissions of water pollutants Water 2,805t Showa Denko Group (-484t) K.K. only companies Showa Denko K.K. only COD (t) 360(-5) 4(0) Group companies Total nitrogen (t) 480(-23) 1(0) 54.11M㎥ Total phosphorus (t) 8(-1) 0(0) -12.4M 0t （ ㎥） JCIA PRTR-listed substances (t) 14(-5) 1(0) Group companies Waste Wastewater volume (kt) 26,620(-2,051) 3,733(+29) 4.61M㎥ Reduction （- 0.8M㎥） Showa Denko K.K. only Emission of soil pollutants Showa Denko Group 62,589t JCIA PRTR-listed K.K. only companies (+16,466t) substances (t) 0(0) 0(0) Group companies industrial waste discharge 7,903t Showa Denko Group Raw materials （- 233t) K.K. only companies Total waste discharged to outside (t) 20,038(-936) 9,360(-1,308) Reused by third parties (t) 10,856(+973) 5,774(-90) Volume reduction by consignee (t) 8,928(-1,411) 3,467(-1,238) Final land ll disposal (t)*3 254(-498) 69(-30) The gures in parentheses represent increases or decreases relative to the previous year. *1 S cope of the Showa Denko Group : Total for the 9 consolidated manufacturing subsidiaries in Japan; Showa Denko Gas Products Co., Ltd., Showa Denko Ceramics Co., Ltd,.(Toyama), Showa Aluminum Can Corp., Showa Denko Packaging Co., Ltd., Niigata Showa K.K. Nippon Polytech Corp., Showa Denko Kenso ,Co., Ltd., Showa Denko HD Yamagata K.K. and Showa Fine Ceramics Co., Ltd., GHG emissions include those for Showa Denko Electronics K.K. and Tsurusaki Kyodo Doryoku Co., Ltd., and exclude those Niigata Showa K.K. Nippon Polytech Corp., Showa Denko Kenso ,Co., Ltd., Showa Fine Ceramics Co., Ltd., which are not required to report emissions as emitters designated under the Act on Promotion of Global Warming Countermeasures. *2 Emissions of toxic atmospheric pollutants are included in emissions of PRTR-listed substances. *3 Final landfill disposal: Including only waste generated from production activities during the year.
▪ Showa Denko Group Companies outside Japan
2015 2016
Discharged amounts of greenhouse gases kt-CO2 445 402
The amount of water used million m3 336 330
Wastewater volume kt 2,188 2,823
Final landfill volumes of industrial waste kt 3,864 4,748
Grappling with water resources
The importance of water resources is globally recognized. The Showa discharged from the plants to the environment. Denko Group conducts surveys on water resource-related risks at its We also contribute to the safety of food and agriculture by plants, and is proactively implementing measures to reduce the use manufacturing sodium hypochlorite used to ensure the safety of water of water at the plants by making examinations for the efficient use of and promoting the reuse of water used for hydraulic power generation water, while working to maintain and improve the quality of water for agriculture.
52 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
Environmental労働安全 Accounting Biodiversity Efforts
Actual values of environmental accounting for 2016 are as follows: Basic policies
▪ Environmental accounting (million yen) Showa Denko gives due consideration to biodiversity. It is investment Expenses
Capital participating in the Japan Business and Biodiversity Partnership* and assessing the influence exerted over biodiversity by its business activities. *Japan Business and Biodiversity Partnership: A multi-stakeholder biodiversity Capital investments and expenses asso- initiative that consists of business entities which endorse “Action Policies
Cost within business site Pollution ciated with prevention of 494 176 of Japan Business and Biodiversity Partnership” and are implementing or prevention atmospheric/water/soil pollution, noise, planning to implement one or more actions among them, and economic vibration, odor, etc. organizations, NGOs, researchers, local/national governments and other public organizations which support those business entities' biodiversity initiatives. Capital investments and expenses Global envi- associated with energy conservation ronmental 792 625 and combating global warming and About Showa Denko protection ozone-layer depletion Activities in 2016 Capital investments and expenses Resource associated with resource conservation 137 767 recycling and waste treatment At the worksites, we select and implement tasks that are considered Upstream and down stream Costs associated with reducing environmental impact in business necessary from the viewpoint of biodiversity protection from among costs operations upstream and 5 17 various environmental conservation activities conducted at each downstream, including green purchasing and recycling of products worksite including water resource management, greenery expansion, and packaging and community activities. Administrative costs relating to Administrative environmental conservation, As in the previous year, we continued to focus mainly on the
costs including environmental issues following three tasks in 2016: (1) development of plans for proper training, introduction of 0 549 environmental management systems, management of greenery areas; (2) implementation of proactive and environmental impact evaluations measures to reduce the environmental impact of wastewater; and CSR R & D costs Costs associated with research and (3) promotion of programs that make effective use of the unique development of environment friendly 489 318 products and technologies characteristics of each worksite. To address these tasks, we conducted
outreach costs Environmental conservation costs for necessary investigation and examination, and promoted specific Community local community outreach activities not directly linked to business measures that match the locational characteristics of each worksite. operations, such as environmental con- 25 13 servation projects in communities, dialogue with residents, and plant tours
Other Compensation for health damages re- sulting from environmental pollution, 20 186 etc. Financial Total 1,962 2,651
▪ Reducing environmental impact (t) 1990 2016
SOx 3,698 324
NOx 3,522 1,255 The Tokuyama Plant of Showa Denko K.K. participated in the local exchange event held 283 63 Soot and dust by the Yamaguchi Prefecture’s Shunan Agriculture and Forestry Office with a focus on forests and water resources. COD 786 360
Total nitrogen 607 480
Total phosphorus 51 8
Landfill disposal 19,723 254
▪ Economic benefits (million yen) Energy conservation 273
Resource recycling 472
Waste reduction 48
Other 1
Total 794 Goats are used to weed the premises of Showa Denko Ceramics’ Toyama Plant.
SHOWA DENKO REPORT 2017 53 Responsible Care Environmental Conservation
Global Warming Prevention Measures Case 1 Active utilization of recycling resources The Showa Denko Group actively utilizes iron, aluminum, plastic and other recycling resources. Basic policies For example, our graphite electrodes are used for the production The Showa Denko Group promotes various measures to reduce of crude steel from steel scrap in electric furnaces. CO2 emissions from greenhouse gas emissions and energy consumption as part electric furnace steel production are as low as 25% of those from iron of its efforts to combat global warming and support resource conservation. ore-based blast furnace steel production. Our graphite electrodes alone
have the effect of reducing CO2 emissions by an amount exceeding the total Scope 1 and Scope 2 emissions generated by the entire Group. Activities in 2016 We also produce aluminum cans from recycled aluminum, helping
us reduce CO2 emissions to only 3% of those of aluminum production
1. Reduction of CO2 emissions from bauxite. Some of the recycled aluminum comes from a campaign The Group continued its efforts to reduce greenhouse gas emissions, conducted across the Group in which more than 5 million aluminum including improvement of production processes, conversion of energy cans are collected each year thanks to the cooperation of employees. conservation activities, and modifying equipment. Furthermore, we use plastic waste as a feedstock for the production of ammonia, carbon dioxide, and dry ice. For this, we adopt a chemical
* recycling process that disintegrates plastic waste, which would ▪ Trends in discharged amounts of greenhouse gases otherwise have been incinerated and disposed of, down to the ■ 6GHGs ■ Non-energy source origin molecular level before it is reconstituted as a new product. Amount discharged Energy source origin (kt-CO ) ■ 4,000 3,621 Case 2 Development of components and materials 3,500 that help reduce CO2 emissions from use and 3,000 2,673 2,675 2,687 2,687 2,504 57 2,500 85 disposal of finished products 2,000 The Showa Denko Group is committed to developing components and
1,500 materials that help reduce CO2 emissions from the use and disposal 2,545 1,000 of finished products. For example, our graphite anode materials and 500 separators are used for rechargeable lithium-ion secondary batteries 0 2005 2012 2013 2014 2015 2016 (FY) and fuel cells, respectively, contributing to the reduction of on-road Reference year CO2 emissions from next-generation vehicles. We also supply highly * The results for 2012 to 2015 were revised due to recalculations made for the Oita Complex. functional materials that contribute to reducing CO2 emissions across society. These include SiC epitaxial wafers (next-generation material for 2. Utilization of our own hydroelectric power stations power semiconductors), alumina (ultra high-voltage insulator material Showa Denko owns and operates hydroelectric power stations at its to reduce power loss), aluminum hydroxide (material that enhances four plants.In 2016, we completed the repair of two of these power the efficiency of wastewater treatment), and other materials that are stations so as to utilize them on a long-term basis. used in products and help reduce their energy use. In fiscal 2016, the amount of power generated by these hydroelectric power stations accounted for 15% of our total power consumption, up 1% relative to fiscal 2015.
3. Implementation of c-LCA* The Showa Denko Group assesses CO2 emissions across the entire life cycle of each product, encompassing not just direct emissions (Scope 1) and indirect emissions (Scope 2) during production but also emissions during the procurement of raw materials and the use, Separators for fuel cell Aluminum hydroxide disposal and recycling of products (Scope 3), contributing to the
reduction of CO2 emissions across society as a whole.
*c-LCA (carbon-Life Cycle Analysis) is a methodology to assess the CO2 emissions in the total lifecycle of products from the time their raw materials are taken, they are manufactured, distributed, used up, to the time they are abandoned. *The Greenhouse Gas (GHG) Protocol classifies emissions into three scopes: Scope 1 (Direct emissions from the reporting company), Scope 2 (Indirect emissions from the generation of purchased or acquired electricity), and Scope 3 (Other indirect emissions from the reporting company’s supply chain).
54 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
Scope 3 GHG emissions(kt/YEAR) Freight ton-km ▪ 労働安全 ▪ Category The amount of emission (million ton-km) 600 1 Purchased goods and services 1,459 505 488 2 Capital goods 78 500 467
3 Fuel- and energy-related activities not include in 467 400 388 Scope1 and 2 349
4 Upstream transportation and distribution 24 300
5 7 Waste generated in operations 200 6 Business travel 3 100 7 Employee commuting 1 0 11,270 Other (down stream) 2012 2013 2014 2015
2016 (FY) About Showa Denko
4. Reducing environmental impact through supply ▪ Ratios for use of various modes of transport (FY2016) chain management (SCM) ■ Sea As a way to reduce its environmental impact, Showa Denko is also ■ Rail Road committed to improving transportation efficiency across its entire (%) ■ 100 supply chain from the procurement of materials through to production, 22.0 30.9 80 sales and delivery. 1.1 55.8 In particular, to reduce the environmental impact associated with 1.5 60 logistics, we are promoting a modal shift from truck to rail and ship 4.1 transportation as well as making efficient use of large trucks and 40 67.7 40.1 76.9 increasing their loading efficiency to reduce our CO2 emissions. 20
In fiscal 2016, in addition to promoting a modal shift, we also CSR strove to reduce the energy consumed for transportation by making 0 CO2 emissions Freight ton-km Freight ton more use of our internal warehouses to reduce the frequency of transportation to external warehouses and by relocating the storage 5. Promoting energy saving in office locations to reduce long-distance transportation. In the fiscal year, Using the tight electric power conditions after the Great East Japan per-unit energy consumption decreased year on year, although CO2 Earthquake disaster as an opportunity, we have implemented thorough emissions increased due to increased transportation volume. This is energy saving measures even in the office buildings, including mainly because we increased the proportion of ship transportation (on a ton-kilometer basis), which is superior to transportation by truck in introduction of energy-efficient air conditioners and LED lights. Financial terms of per-unit energy consumption.
▪P55_輸送部門におけるCO₂排出量とエネルギーTransportation sector's CO2 emissions and energy consumption rate
● CO2 emissions by transport sector ■ Unit energy consumption for transport (kt) (kl per million ton-km) 35 35 29.3 29 30 27.5 30 22.8 23.5 25 25
20 20
15 15 22.2 21.8 22.4 24.7 22.9 10 10
5 5
0 0 2012 2013 2014 2015 2016 (FY)
SHOWA DENKO REPORT 2017 55 Responsible Care Environmental Conservation
▪ Total amounts released of harmful atmospheric pollutants Environmental considerations ; (Showa Denko) Atmosphere, water and soil (t) 25
Basic policies 21 20 18 To prevent air, water, and soil pollution, the Showa Denko Group 17 endeavors to reduce the release and environmental impact of 15 14 14 chemical substances through fuel switching, improvement of production processes, and other measures 10
Reducing emissions of hazardous air pollutants 5 Of the 12 substances designated by the Japan Chemical Industry Association (JCIA) as hazardous air pollutants, the Showa Denko Group 0 handles nine. In 2016, we continued our efforts toward reducing the 2012 2013 2014 2015 2016 (FY) emissions of these substances by promoting a shift to alternative substances and collection and recycling of the substances. ▪ Change in discharged amounts of substances with atmospheric impact (Showa Denko)
● NOX Reducing our environmental impact on the air ● SOX (t) ● Soot and dust To reduce emissions of SOx, NOx, dust and soot, and other substances 1,500 1,413 1,324 having adverse effects on the air, the Group continued advancing 1,267 1,255
a variety of measures including fuel switching, improvement 1,200 of combustion methods, proper operational management of 966 desulfurization and denitrification devices, and reduced fuel 900 consumption through waste heat recovery. 600 453 398 369 360 Reducing our environmental impact on water 324 300 174 166 To reduce chemical oxygen demand (COD), total nitrogen, total 112 87 63 phosphorus, and other water pollution indexes, the Group continued 0 implementing various measures including improvement of production 2012 2013 2014 2015 2016 (YEAR) processes, upgrading and proper operational management of wastewater treatment facilities, and recycling of water. ▪ Discharged amounts of substances with water quality impact (Showa Denko) ● total nitorogen ● COD Measures to prevent soil and groundwater pollution (t) ● total phosphorus 600 On occasions such as changes in the uses of plant sites or soil removal, 510 503 480 the Showa Denko Group undertakes surveys and other measures 500 458 419 in line with the Soil Contamination Countermeasures Law and local 400 government regulations. 380 365 355 365 300 360
Minamata disease in Niigata Prefecture 200
Fifty years have passed since the outbreak of Niigata 100 Minamata disease was officially recognized. 13 10 10 9 8 Maintaining an awareness of the significant scale at which 0 2012 2013 2014 2015 2016 (YEAR) we have caused damage to the victims and residents of neighboring areas through contamination of the Agano River, Showa Denko is committed to collaborating with the Japanese Government as well as local governments in order to cope with this issue with sincerity, and provide solutions in accordance with the Act on Compensation,etc. for Pollution-related Health Damage and other relevant laws and regulations.
56 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
Reducing労働安全 Industrial Waste Reducing Chemical Substance Discharge
Basic policies Basic policies
The Showa Denko Group will continue to achieve zero emissions As a member of the Japan Chemical Industry Association (JCIA), (meaning that waste sent to final landfill is 1% or less of total waste Showa Denko has been voluntarily investigating the amount of generated). chemical substances discharged and transferred by the company to reduce the emission of the substances. We also plan and implement reduction measures for each of our plants
Activities in 2016
To reduce disposal of industrial waste, the Showa Denko Group
Activities in 2016 About Showa Denko has been taking various actions including the reuse of waste acids and waste alkalis, use of waste oil and waste plastics as fuel for heat Showa Denko investigated the amount of 417 substances, including recovery, and effective use of inorganic sludge as a raw material PRTR-listed substances, discharged and transferred by the company for cement and others. These measures have been helping us curb and reported the results to JCIA. generation and promote reuse and effective use of waste materials. Showa Denko will continue to make focused efforts to reduce discharge volumes by preparing reduction plans for each site 1. Reducing volume of landfill disposal for PRTR-listed substances and for substances with high annual We continued to reduce the generation of industrial waste and the discharge volumes. The Company is currently seeking to ascertain volume of final landfill waste, thereby continuing to achieve zero and assess potential impact in areas surrounding its sites and improve emissions (with the Group’s landfill rate of 0.32%). communication with local communities and governments concerning We also inspected our contractors for intermediate treatment and risks as it works to reduce discharge volumes. final disposal and confirmed that they treat and dispose of our waste CSR properly. ▪ Released of PRTR-listed substances ▪ The amount of industrial waste discharge ■ Into air (Showa Denko) ■ Into water (Showa Denko) ■ Showa Denko (t) (t) ■ Into air (Showa Denko Group) ■ Into water (Showa Denko Group) ■ Showa Denko Group (Japan) 500 30,000 26,060 415 24,454 384 390 25,000 22,910 400 373 20,974 20,038 20,000 292 300 242 Financial 15,000 200 10,739 9,360 10,000 8,441 8,669 8,842 105 148 100 5,000 26 26 20 15 1 14 0 0 2012 2013 2014 2015 2012 2013 2014 2015 2016 (FY) 2016 (FY)
▪ Trends of the final landfill volumes of industrial waste ▪ PRTR-listed substances released and transferred (Showa Denko) 2012 2013 2014 2015 2016
Showa Denko 1,850 1,087 912 752 254 Volume released / transferred Group Companies 235 273 246 99 69 in Japan
Volume Total volume transferred released 2. PCB control 459t 163t Based on its PCB control checklist, Showa Denko K.K. regularly checks the status of stored polychlorinated biphenyl (PCB) waste. This waste is appropriately stored in suitable facilities to prevent leaks. Additionally, Into soil Into water Into air each worksite submits an annual report on the status of stored PCB 0t 14t 148t waste and related matters to the prefectural governor, as required under the Law Concerning Special Measures against PCB Waste. Taking full advantage of the waste processing facilities of Japan Environmental Safety Corporation etc., we are continuing systematic disposal of PCB waste.
SHOWA DENKO REPORT 2017 57 Responsible Care Equipment safety / Access to Essential Services
Equipment safety Access to Essential Services
Basic policies Basic policies
The Showa Denko Group aims to reduce equipment-related In its business activities, the Showa Denko Group is committed accidents to zero by promoting the Active Safety initiative in which to providing “Access to essential services.” This means that we will we analyze past incidents to prevent recurrences. not discontinue any services that are as indispensable for day-to- day life as water supply without granting a reasonable extension of time.
Activities in 2016 Activities in 2016 In 2016, there were three equipment accidents, in which there were fortunately no personal injuries involved. Because a series of serious The Showa Denko Group continued offering products and accidents have occurred in Japan’s chemical industry since 2011, we technologies with a high level of customer satisfaction as well reminded ourselves of the starting point of the Active Safety initiative as information on them in order to further enhance the trust and and, continued various activities including intensive discussions on loyalty of customers toward the Group. Although not many of our safety at Safety Meetings held within the Management Committee products are offered directly to consumers, we ensured, as usual, the chaired by the president. safe and stable supply of sodium hypochlorite used for sterilizing tap water, amino acids used as raw materials for medical and agricultural 1. Thorough implementation of high risk material chemicals, and other products important for essential services. (HRM) examinations For new facilities handling highly self-reactive and other hazardous HRMs, we identified and introduced preventive measures for every potential risk we found in relation to the facilities during engineering reviews. Ensuring the safety of food to be delivered to 2. Response to the industrial safety action plan consumers: Dry ice drawn up by the Japan Petrochemical Industry Association (JPCA) Showa Denko Gas Products Co., Ltd. handles various industrial gases. One of these, carbon dioxide, is present in large amounts all We advanced continuous improvement through a plan-do-checkact around you. This gas is used in a variety of fields, including for the (PDCA) cycle to achieve the goals of maintaining zero serious accidents manufacture of foods, industrial products, and medical products and disasters under the medium-term business plan and management as well as for the protection of the global environment, and thus contributes widely to industry as an essential gas. policies in order to ensure safe and stable operations in accordance Dry ice is made by solidifying carbon dioxide gas. Dry ice with Our Vision. is as cold as −78.9 degrees Celsius and is mainly used for the transportation and storage of foods and medical and chemical Under our safety control implementation plan, we placed particular products at low temperatures. Also, by taking advantage of its focus on risk assessment of unusual conditions and operations, while natural characteristics, dry ice (sublimated directly into gas) is implementing educational training sessions and various improvement used for blast cleaning that is friendly to both workers and the environment. activities to enhance our safety culture and strengthen our safety We are contributing to food safety and security and to various foundation. industrial fields through these products.
3. Precautions against earthquakes The Showa Denko Group has been making earthquake risk assessments for its facilities and buildings and sequentially making and implementing seismic reinforcement plans for them. Giving top priority to high-pressure gas facilities and facilities where hazardous materials are handled, we are fostering safety measures, and have completed measures for tanks that are regulated as those containing hazardous or quasi-hazardous materials.
58 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
Responsible Care Occupational Health and Safety
Occupational Safety ▪ Trends in frequency rate of lost-time injuries
● Showa Denko ● Chemical Industries Basic policies ● Showa Denko Group* ● All Industries 2.0 In order to eliminate work-related accidents, the Showa Denko 1.66 1.59 1.61 1.63 Group is promoting Active Safety activities by using its own Active 1.58 Safety Checklist developed in-house. 1.5
0.88 1.0 0.85 0.82 0.76 0.81
0.43 Activities in 2016 0.5 0.22 0.25 0.14 0.15 0.12 0.24 0.13 In 2016, we revised the Active Safety Checklist by adding a new 0 0.15
0.0 About Showa Denko 2012 2013 2014 2015 2016 (YEAR) item based on the results of the safety incident analysis made in *Scope of Group companies (As of December 2016) consideration of recent trends for the improvement of the Active Safety Tsurusaki Kyodo Doryoku K.K., Showa Denko Ceramics Co.,Ltd. , Shinshu Showa K.K. , Shiojiri Showa Co. Ltd., Showa Denko Packaging Co., Ltd. , Showa Aluminum Can Corp., activities. Showa Denko Sakai Aluminum K.K., Showa Denko Electronics K.K., Union Showa K.K., However, in 2016, we had three lost-time injuries (of which two Niigata Showa K.K., Showa Aluminum Can Recycling Center, HIPACK Co., Ltd., Showa Denko Gas Products Co., Ltd., Clean-S Showa K.K., Nippon Polytech Corp., Showa Denko were caused by falls). In light of the fact that most of the incidents, Kenso K.K., Showa Fine Ceramics Co., Ltd. , Showa Denko HD Yamagata K.K., and Fuyo Perlite Co., Ltd. including minor ones, were behavioral incidents, we focused on the enhancement of the risk simulation facilities and on education Asbestos at our bases, and conducted activities to reduce risks from broader The Group neither manufactures nor sells any products incorporating viewpoints, including organizing asbestos. safety exchange meetings and For employees who have directly or indirectly handled asbestos, mutual inspections between the we perform periodic health checkups as required by relevant laws. No bases. We are thereby improving incidents of health impairment have occurred in employees. We are CSR the risk sensitivity and awareness continuing to respond to various consultations from those who have of employees. retired from our Group. Virtual experience of risks associated with the use of safety belts
▪ 2016-2017 List of RC-related awards received by the Showa Denko Group companies Name of award Recipient site and individual Mouth received 2016
Responsible Care 10th JCIA Annual Responsible Care Award (Award for Effort) HD Sector, Showa Denko K.K. May Financial Fiscal 2016 Excellent Hazardous Materials Facility Accredited by the Tsurusaki Kyodo Doryoku K.K. June Commissioner of the Fire and Disaster Management Agency Disaster prevention Eiichi Kudo , Production Department , Oita Complex of Showa Denko Fiscal 2016 Japan Petrochemical Industry Association Maintenance Award October K.K. Naoya Shinozaki, Production Department, Oyama Plant of Showa Fiscal 2015 Minister of Health, Labour, and Welfare's Award for business- Denko K.K. January facility managers who place priority on safety Makoto Nakano , Shiojiri Plant of Showa Denko Ceramics Co., Ltd., Accident-free record certificate from the Ministry of Health, Labour and Oyama Plant of Showa Denko K.K. Welfare (Second-class) February Accident-free record certificate from the Ministry of Health, Labour and Omuta Plant of Showa Aluminum Can Corp. Welfare (First-class) Health and Safty Merit Award of the 40th JCIA Safety Awards Omuta Plant of Showa Aluminum Can Corp. occupational safety Omuta Plant of Showa Aluminum Can Corp. Special Award for Excellence, 2015 Japan Aluminum Association May Oyama Plant of Showa Aluminum Can Corp. Occupational Safety Awards Hikone Plant of Showa Aluminum Can Corp. Accident-free record certificate from the Ministry of Health, Labour and Showa Denko Electronics K.K. June Welfare (Third-class) Fiscal 2016 Japan Industrial Safety and Health Association President's Showa Denko K.K. October Award 2017 Fiscal 2017 Excellent Hazardous Materials Facility Accredited by the Disaster prevention Hikone Plant of Showa Aluminum Can Corp. June Commissioner of the Fire and Disaster Management Agency Fiscal 2016 Minister of Health, Labour, and Welfare's Award for business- Toru Aoki , Shiojiri Plant of Showa Denko Ceramics Co., Ltd. January facility managers who place priority on safety Safty Merit Award of the 41th JCIA Safety Awards Showa Denko Electronics K.K. Health and Omuta Plant of Showa Aluminum Can Corp. Special Award for Excellence, 2016 Japan Aluminum Association occupational safety Oyama Plant of Showa Aluminum Can Corp. Occupational Safety Awards May Showa Denko Sakai Aluminum K.K. Award for Excellence, 2016 Japan Aluminum Association Occupational Oyama Plant of Showa Denko K.K. Safety Awards
SHOWA DENKO REPORT 2017 59 Responsible Care Chemical Substances Safety
Chemical Substances Safety Moreover, to help customers use chemicals in a safe manner, we are centrally managing a database of collected safety information as well as the information about the enactment and revision of the Basic policies related laws and regulations. By using this database, we create and At the World Summit on Sustainable Development (WSSD) held update our Safety Data Sheets (SDSs)*1, product labels, and yellow in 2002, participants agreed to pursue the goal of minimizing cards*2 as necessary, so that we can provide the latest and appropriate the adverse effects of chemicals on human health and the information on chemical safety. environment by 2020, and activities to ensure the safety of chemicals have since been fostered across the world. *1 SDS (Safety Data Sheet): In order to “provide products and services that are useful and safe This is a document provided by the supplier to the user (customer) of a chemical substance, covering such matters as its name, toxicity, and physical/chemical and exceed our customers’ expectations,” the Showa Denko Group properties; cautions concerning its handling and storage; and emergency is striving to ensure the safety of its chemical products throughout measures. *2 Yellow card: their life cycle, from R&D through to the design, manufacture, sale, This refers to an emergency contact card, which is recommended by JCIA, to distribution, use, and disposal stages. We will also proactively take a briefly describe appropriate response by transportation company personnel, police, and fire-fighters in the event of accidents involving hazardous or toxic risk-based approach, specifically, by considering various items, such substances. as how our customers will use our products and how they will be disposed of, to identify any risks and reduce them. 2． Safety management for chemical products To ensure the safety of its chemical products, the Showa Denko Group assesses associated risks and implements necessary measures in each Activities in 2016 of the stages of R&D, design, manufacture, sale, distribution, use, and disposal of the products. 1. Collection and provision of information on In particular, before we ship a sample new product to a customer or chemical safety (to ensure safety for customers) put a new product on the market, we assess the product-related risks The Showa Denko Group collects, analyzes, and examines safety in a comprehensive manner, including checking the characteristics of information at its Safety Evaluation Center. In 2016 we revised the the product and its safety information and how it will be used by the regulations on the collection of safety information and clarified the customer. We established and are using a system to decide whether safety information necessary for each of the R&D, design, manufacture, to ship or launch the product based on criteria that include the and sales stages. implementation of safety measures to deal with the identified risks. We have also established a system to obtain, without fail, information For products that might be taken into or come into contact with the about the enactment and revision of chemical substance-related laws human body, we assess their risks very stringently. and regulations in Japan and abroad, thereby ensuring compliance with such provisions.
▪ Comprehensive chemicals management system
Site/Department
View/Input/Search Volume Reporting (CSCL,PRTR) SDS SDK/ Supplier Chemical Management Government System Non-inclusion Certificate Chemical Use Information Management DB Environment Customers & Safety, Regulatory DB Quality Assurance Various Reports (SDS/Labels, Inclusion Survey/ JIPS Report,etc.) RoHS Survey Mater/ Date Integration
ERP System (Shipping Ticket/ Data Production WEB Search/View Line RC Record) Acquisition Platform
60 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities CSR procurement Responsible Care Labor Practice
Responsible Care Quality Assurance
Quality Assurance 2. Reducing complaints As for complaints about the quality of our products, we set the target of reducing the number of complaints received by half in 2020 relative Basic policies to 2015. To this end, we closely examined the causes of complaints The Showa Denko Group offers safe, reliable products and and implemented measures to prevent the reoccurrence of similar services to customers. For this purpose, we organizationally and problems, while building a system to learn and share lessons from the systematically conduct various “product safety” activities to assure complaints made to the Showa Denko Group across all departments customers that our products are safe throughout their life cycle, from design and development to market release, production, as a preventive measure. We also made it possible to share the best sales, and aftersales. The quality of our products is maintained practices across the board to deal with complaints. As a result, in 2016 in accordance with the Quality Assurance and Quality Control the number of complaints dropped by about 30% year on year. Rules ("Rules") established within the company as well as through compliance with laws and regulations. We review the Rules annually to revise them according to ▪ Trends in annual numbers of complaints About Showa Denko changes in the environment and society and thereby keep them (With a score of 100 representing the number of claims in 2015) (Showa Denko) effective to ensure product safety. (%) 250 203 205 ▪ Quality Assurance and Quality Control Rules 200 179
Design and Marketing and 150 development manufacture 100 Product safety screening New-Product launch procedures 100 Product risk assessment Quality assurance capability Safety tests screening 717171 Procedures for changes in manufacturing conditions 50
After-sale Sales 0 2015 2012 2013 2014 Reference year 2016 (YEAR) Management of Screening before concluding contracts CSR after sale information and speci cations Screening of sales and PR materials
3. Education and training To improve quality assurance and management across the Group, we Activities in 2016 upheld the slogan of enhancing on-site capabilities, and clarified the goals to be attained by the departments in charge of quality assurance. To enhance our quality assurance and management capabilities, we We also began reviewing the education system, including collective
implemented the following activities: education and e-learning, to help the departments attain their goals. Financial
1. Quality management system 4. Quality diagnoses (Quality control scheme) Personnel from the Head Office’s Quality Assurance Office visit and The Showa Denko Group has established quality management carry out annual quality diagnoses at the Group’s sites, including the systems suitable for each product and organization, and has acquired Divisions, Plants, and Group companies, to clarify their strengths and certification for ISO 9001, IATF 16949, and other international standards. weaknesses and share the findings. To comply with the revised standards before the end of the transition In 2016 the quality assurance personnel identified problems faced period (end of 2018), we began conducting necessary activities, which by the sites regarding the ability to manufacture products with uniform will result in the enhancement of our quality management systems and quality (process ability), risk assessment, and on-site education, which higher quality of our products and services. led to improvements at the sites. Also, the best practices clarified through the quality diagnoses were shared across the Group.
SHOWA DENKO REPORT 2017 61 CSR procurement
CSR procurement Self-assessments We ask our business partners to fill out self-assessment questionnaires to check how well they meet the Showa Denko Group CSR Basic policies Procurement Guidelines. The survey is conducted once every three Showa Denko undertakes CSR procurement, attaching importance years in the case of major business partners and at the time of starting to the society- and environment-conscious business activities in transactions in the case of new business partners. We carefully the entire supply chain from the procurement of raw materials check every response and the analyzed results are fed back to the to manufacture and sale. To promote CSR procurement, we respondents for continuous improvement implement the following policies. 1) W e will take a comprehensive approach in selecting most suitable supplier partners based upon economic rationality by ▪ Self-assessments taking into consideration quality, price, delivery period, credibility of management, safety, services, technological competence and Comparison of average scores of partners 1st cycle who responded to the self-assessment 2ndcycle attention to environment and society. for two times 2) In selecting our supplier partners, we have an open-door policy Corporate Ethics & Compliance for business opportunities with sincerity, fairness and honesty, 100 disregarding the nationality, past records of transaction and the Social Contributions 80 Quality & Product Safety corporate group relationship of the candidate companies. 60 3) Our purchasing activities shall be in compliance with laws and 40 regulations, as well as our internal rules. 20 Information Security Fair Trade
Activities in 2016 Human Rights & Labor Environmental Preservation Safety & Health of Worksites Our CSR procurement aims to mutually improve the corporate value of both our business partners and Showa Denko by sharing with them and requesting their compliance with the Showa Denko Group CSR Procurement Guidelines (http://www.sdk.co.jp/english/about/ CSR visits procurment/csr.html). The guidelines provide specific CSR activities that The objective of CSR visits is to check that CSR activities are conducted we request our business partners to conduct. In order to confirm their properly by our business partners at their actual sites. Purchasing compliance with the guidelines, in 2016 we continued performing personnel from each plant visit about 40 business partners every year three activities: asking business partners to assess their own CSR to confirm that their responses to the self-assessment questionnaire are activities (“selfassessments”), visiting them for inspection purposes true and correct and to interview them to communicate our policies to (“CSR visits”), and doing follow-up checks on their improvement and gather necessary information from them. (“follow-up”). We also spread these CSR procurement activities to our Group ▪ CSR visits companies in Japan and carried out self-assessment surveys of the ■ Cumulative numbers of visits business partners of five Group companies, with the agreement of (Visits) ● Number of visits those Group companies. Moreover, we created English and Chinese 400 339 versions of our self-assessment questionnaires for business partners 350 301 outside Japan and began asking them to fill them in. 300 261 250 207 200 149 150
100 54 58 54 50 40 38 0 2012 2013 2014 2015 2016 (YEAR)
62 SHOWA DENKO REPORT 2017 Human Rights and CSR Strategy Stakeholder communications Highlights of CSR Activities Responsible Care CSR procurement Labor Practice
Follow up The Showa Denko Group responds appropriately and in good faith If any area needing improvement is found at any business partner as a to meet customer requests to reduce the use of harmful substances result of a self-assessment and/or CSR visit, we work closely together and to reassure customers that the Group's products do not use or with the partner for improvement to ensure that they will meet the incorporate harmful chemical substances subject to regulations in the guidelines. EU or other regions.
Examples of advice Human rights · We requested business partners in the areas of raw materials, In order to conduct business that takes human rights throughout construction, packaging, logistics, etc. to develop regulations and the supply chain into consideration, we ask our business partners to provide education on compliance to employees to increase their respect basic human rights, prohibit discrimination, ensure proper compliance awareness. work conditions, and protect the rights of the workers through our CSR · W e requested business partners in the areas of raw materials, procurement program. We work together with our partners to comply About Showa Denko packaging, etc. whose business continuity plans for emergency with these matters. situations were inadequate to develop and maintain a sufficient system that will assure us a stable supply of their products. Addressing Conflict Minerals Purchasing minerals (tin, tantalum, tungsten, and gold) from Congo and its neighboring countries is considered as a large international Approach in the supply chain problem because you fund local armed groups, consequently have a part in local conflicts, and cause violation of human rights and environmental destruction by purchasing them. Efforts to meet environmental and social demands We, the Showa Denko Group, continued our efforts to prevent the The movement toward selecting and procuring products that have the use of conflict minerals as part of our activities to promote respect for minimum possible environmental impact throughout their life cycles, human rights and CSR procurement, which are conducted based on from material procurement to use and disposal, is rapidly spreading
Our Code of Conduct and Its Practical Guide. CSR around the world.
CSR visits Financial
We promote CSR procurement over a three-year cycle, using self-assessment, CSR visits, and follow-ups as our three mainstay activities. Our aim is to increase our corporate value and maintain and develop win-win relationships with our business partners, fostering open discussion with them in the process. For self-assessment, we non-selectively send questionnaires to our business partners, while for CSR visits, personnel in charge of procurement at our bases choose the partners to visit. Those selected include partners who are important for the business continuity of the bases and partners identified as warranting inspection in light of the self-assessment results. During the CSR visits, we talk with the partners to share the details of the Showa Denko Group CSR Procurement Guidelines, enhance mutual trust, and mutually increase our corporate value. CSR visits tend to be mistaken for audits, but we explain to our partners that CSR visits provide opportunities for us to exchange opinions openly with them, and we do in fact check their measures on-site through open dialogue. "CSR visits help us foster dialogue with our partners and understand them more deeply. We share the results of the CSR visits with those in charge of procurement and SCM within our Group by using a database, which anyone among such personnel can access” (Comment by a member of Purchasing & SCM Department). “In our daily operations we are in contact only with our counterparts at our partner companies, but in CSR visits we also often meet people in charge of CSR. We can exchange opinions on procurement from the viewpoint of BCP and deepen our understanding of the partner, and CSR visits thus represent a very significant activity indeed.” (Comment by a person in charge of SCM at one of the bases) After a CSR visit, the details are reported and fed back to the partner to further enhance mutual trust.
Self-assessment results, questionnaire, and CSR visit reporting
SHOWA DENKO REPORT 2017 63 Human Rights and Labor Practice
P64_ 連結従業員数の推移 Human Rights and Diversity ▪ Trends in the number of employees on consolidated basis ■ Total number of employees in Japan on consolidated basis ■ Number of female employees in Japan on consolidated basis Total number of all overseas employees on consolidated basis Basic policies ■ 7,000 ■ Number of overseas female employees on consolidated basis 5,905 5,932 5,873 6,075 The Showa Denko Group considers compliance with social 6,000 5,802 and corporate ethical norms to be one of its most important 4,645 4,688 5,000 4,329 management priorities. It positions respect for human rights as 4,088 4,071 4,000 the core issue of this policy. In this context, we set up the Human Rights/Corporate Ethics Promotion Council as a subordinate 3,000 2,000 council of the CSR Committee which is chaired by the President. 1,239 1,287 1,361 1,322 1,108 The Human Rights/Corporate Ethics Promotion Council regularly 1,000 599 618 642 641 690 reviews the Group’s human rights policies, plans activities for each 0 year, and determines the basic direction of activities on a mid- to 2012 2013 2014 2015 2016 (YEAR) long-term basis with the aim of enhancing a culture of respect for Number of female managers and its ratio (Showa Denko) human rights across the Group. ▪ We also incorporated “Management Respecting Employee 2012 2013 2014 2015 2016 Diversity” into our business strategy and have since been working Number of female 14 14 18 23 26 to promote diversity under the slogans of “Make the most of the managers potential of yourself” and “Make the most of the potential of others.” Female managers 0.35 0.36 0.47 0.62 0.71 ratio(%)
4. Employment of handicapped persons Activities in 2016 As part of our effort to promote diversity, we continue to proactively employ people with disabilities. At our Head Office in 2016, we Various activities were conducted at each office, plant and Group introduced necessary facilities for the internal printing of business cards company to promote human rights. and others for Group employees, and began accepting orders for the In particular, for diversity, we started the third phase (“Practice”) in printing service as a means of providing people with intellectual and 2016, having completed the previous two phases of “Recognize” and mental disabilities with more work options. “Understand.” In the current phase, individual employees conducted Also, at other bases in Japan, we are supporting the employment of specific activities to reform management, communication, work styles, people with disabilities by measures such as taking on interns. and themselves. ▪Ratio of handicapped employees ● Showa Denko 1. Enlightening activities regarding human rights (%) Legal requirement The Showa Denko Group has been holding training seminars on 3.0 2.71 2.48 2.34 2.64 human rights in the workplace and discrimination in society to 2.5 2.28
enlighten employees on the issues, aiming to have all employees 2.0 2.0 2.0 2.0 2.0 undertake 1.5 hours of education on human rights and corporate 1.89 1.5 ethics each year. 1.0
0.5 2. Handling harassment 0.0 To eliminate all kinds of harassment at its workplaces, the Showa 2012/6 2013/6 2014/6 2015/6 2016/6 Denko Group is continuing awareness-raising activities for employees, (Year/Month) increasing the contacts for consultation services, and raising the level of counseling services available. 5. Employment of the aged We reemploy retired employees so that they can continue to use their 3. Support programs to help female/foreign long-accumulated skills and expertise at their workplaces. employees play active roles ▪Ratio of reemployed employees (Showa Denko) The Showa Denko Group aims to increase the percentage of women (％) among section managers and those in higher positions to 5% in 2020. 100
In 2016, to this end, we held training seminars and opinion exchange 95 sessions with role models for female mid-level career track employees. 90 89 90 88 We are also sequentially creating and supplying multilingual 85 versions of internal documents as a means of retaining non-Japanese 85 83 employees and empowering them to demonstrate more of their 80 abilities. 0 2012 2013 2014 2015 2016 (YEAR)
64 SHOWA DENKO REPORT 2017 CSR Strategy Stakeholder communications Highlights of CSR Activities Responsible Care CSR procurement Human Rights and Labor Practice
Promoting mental and physical health Development of Human Resources
Basic policies Basic policies
To work vigorously without anxiety, it is important for each of The Showa Denko Group develops its workforce through a variety employees to maintain and promote health of his/her own and the of programs. whole family throughout lifetime. Toward this end, we are currently implementing the Showa Denko Group Vivid Health Promotion Plan, a four-year (2013 to 2016) plan aimed mainly at the prevention and improvement of Training System lifestyle-related diseases and the development of sound mental Showa Denko’s training system comprises mainly of Programs by health. Role, Programs by Challenge, and Programs by Function, and training suitable for the role and expected career path of each employee About Showa Denko is provided annually. To support self-development, we also offer Activities in 2016 correspondence courses and e-learning programs. Moreover, we proactively develop human resources with international caliber. To To help employees prevent and recover from lifestyle-related diseases, this end, we provide employees with opportunities to study foreign we provided follow-up support, including follow-up care and health languages at universities outside Japan, obtain an MBA, receive guidance, after health checkups. We also implemented the Mental practical training at our subsidiaries outside the country, and participate Health Promotion Plan established in 2012 as part of our steady efforts in manager training provided individually by these subsidiaries. to promote the development of healthy minds. We also carried out the stress checks of employees as part of their Personnel system regular health checkups in line with the Japanese Industrial Safety and Showa Denko is operating a personnel system that values growth Health Act, conducted follow-up activities for those with high mental and development. Known as the “MB-OJT system,” it incorporates OJT stress, and made improvements at workplaces found to be highly elements into the conventional management-by-objectives (MBO) CSR stressful to promote employees’ mental health. framework. In the face-to-face discussion between employees and their supervisors called “commu-cussion,” employees and supervisors develop a shared understanding of the employee’s targets and performance appraisals and discuss what has and what has not been achieved as well as what lessons were learned for the future. This helps individual employees to achieve self-growth and development. Selected to be one of the Excellent Enterprises of Health and Productivity Management Financial Employee surveys (“White 500”) We conducted a Showa Denko Group job satisfaction survey in December 2014, to which 7,726 employees of Group companies in Showa Denko K.K. was selected to be one of the Excellent Enterprises Japan responded, for a 91.7% response rate. of Health and Productivity Management (“White 500”) in February 2017. Under this program, commendations are given to both large Based on the results of this survey, we implement various measures, companies and SMEs that have achieved outstanding results in including changing the personnel system, while holding an ongoing health management by implementing measures to meet local health series of dialogue meetings for middle-level managers. challenges or the health promotion initiatives recommended by Nippon Kenko Kaigi*. Showa Denko was commended in recognition of the formulation of the Showa Denko Group Vivid Health Promotion Plan, under which we are implementing measures in cooperation with the health insurance association. * Organization established to provide governmental support to assist entities in the private sector to conduct practical activities to help individuals prolong their years of healthy life and receive appropriate medical services
SHOWA DENKO REPORT 2017 65 Human Rights and Labor Practice
Creating a comfortable workplace 2. Promoting sound work-life balance Showa Denko’s work-life balance support programs are designed to meet the needs of employees at different stages of life. In 2016, we Basic policies continued our efforts to encourage both men and women to use the It is important for the growth of our Group that it meets social programs. needs through the lively work of employees who are able to live in harmony with society. Support programs The Showa Denko Group is implementing measures to help ▪ individual employees lead fulfilling lives as members of the Main Systems Description
community. Eligible: Employees with one or more years of continuous service Childcare leave who live with dependent children of less than two years of age. Available through the day preceding the child's second birthday. Shortened Eligible: Employees with one or more years of continuous service working hours and who have a child of preschool age or who are eligible for Activities in 2016 for childcare/ family-care leave. Eligible employees may choose to reduce family care standard working hours by up to two hours/day. Eligible: Employees who have accumulated leave time (annual 1. Reducing total work hours and encouraging the paid holidays carried over from year to year). Employees may Cumulative take days off to participate in a school event (up to and including use of annual paid leave leave elementary school children), respond to temporary closing of We re-examined working environments, among other activities, to classes, or nurse a child or family member. reduce total work hours and encourage the use of annual paid leave. Eligible: Employees with one or more years of continuous service who have a family member requiring nursing care are eligible. Family care Employees may take this leave for a total of 93 days or a total Trend in working hours (per employee per year) leave of 12 months over two years from the start of the leave period, ▪ depending upon the relationship between the employee and the family member in need of care. ■ Showa Denko (Hours) ● Manufacturing industry average*1 2,500 Number of employees who took the advantage of the work-life 2,040.0 2,031.6 2,047.2 2,053.2 2,049.6 ▪ balance support systems Showa Denko (2016) 2,000 Male Female Total
1,500 Childcare leave 65 33 98
Family care leave 1 1 2 1,000 Shortened working hours for 1 54 55 2,008.5 2,009.1 2,023.1 2,002.9 2,008.4 childcare/family care 500
0 2012 2013 2014 2015 2016 (YEAR) 3.Relations with the labor union The company and the labor union have established a relationship of *1…The manufacturing industry average was prepared using the data in the "Annual report on the monthly labour survey" published by the Ministry of Health, Labour trust over many years by establishing (1) Solutions through discussions, and Welfare (2) Pursuit of stable employment and job satisfaction, and (3) Working ▪ Annual paid holidays taken (per employee per year) together to improve work conditions through company growth and ■ Showa Denko higher profitability as the basis of the labor agreement. 2 (Days) ● Manufacturing industry average* In 2016, in addition to regular dialogues via the Labor-Management 15 13.6 13.2 13.6 Committee, extra meetings were held to discuss a range of themes, 12.7 12.8 such as the compensation system and the support required for employees to make childcare or nursing care compatible with their 10 10.3 10.2 10.3 10.1 10.4 work.
5
0 2012 2013 2014 2015 2016 (YEAR)
*2…The manufacturing industry average was prepared using the data in the "General survey on working conditions" published by the Ministry of Health, Labour and Welfare.
66 SHOWA DENKO REPORT 2017 Performance Data
Report Classification Items Boundaries Units 2014 2015 2016 Number Corporate ethics and compliance Number of requests for consultation received Showa Denko group cases 44 46 28 35 by the Corporate Ethics Hotline Labor practices Number of employees Male Consolidated subsidiaries Japan persons 5,290 5,232 5,385 64 Female Consolidated subsidiaries Japan persons 642 641 690 64 Total number of employees in Japan Consolidated subsidiaries Japan persons 5,932 5,873 6,075 64 Male Consolidated subsidiaries Japan persons 3,284 3,366 2,963 64 Female Consolidated subsidiaries Japan persons 1,361 1,322 1,108 64 Total number of employees in Japan Consolidated subsidiaries Japan persons 4,645 4,688 4,071 64 Total Consolidated subsidiaries persons 10,577 10,561 10,146 64 Number of female managers Number of female managers Showa Denko K.K. persons 18 23 26 64 female managers ratio Showa Denko K.K. % 0.47 0.62 0.71 64 About Showa Denko Ratio of reemployed employees Showa Denko K.K. % 90 85 89 64 Ratio of handicapped employees Showa Denko K.K. % 2.48 2.71 2.64 64 Working hours (per employee per year) Showa Denko K.K. hours 2,023.1 2,002.9 2,008.4 66 Annual paid holidays taken (per employee per year) Showa Denko K.K. days 13.2 13.6 13.6 66 Number of job separation (excluding retirement and permanent transfer ) Showa Denko K.K. persons 49 52 68 – Job separation rate (excluding retirement and permanent transfer) Showa Denko K.K. % 1.3 1.4 1.9 – The average age Showa Denko K.K. age 40.0 40.2 40.1 – The average length of continuous employment Showa Denko K.K. years 17.1 17.2 16.9 – The average overtime work per employee per month Showa Denko K.K. hours 18.7 17.9 18.2 – Childcare leave Male Showa Denko K.K. persons 50 69 65 66 Female Showa Denko K.K. persons 35 41 33 66 Total Showa Denko K.K. persons 85 110 98 66 CSR Family care leave Male Showa Denko K.K. persons 3 0 1 66 Female Showa Denko K.K. persons 0 0 1 66 Total Showa Denko K.K. persons 3 0 2 66 Shortened working hours Male Showa Denko K.K. persons 2 1 1 66 for childcare / family care Female Showa Denko K.K. persons 33 34 54 66 Total Showa Denko K.K. persons 35 35 55 66 Ratio of reinstated employees to those who took childcare leave Showa Denko K.K. % 100.0 100.0 100.0 – Labor union Number of unionized Employees Showa Denko K.K. persons 2,987 2,868 2,857 –
Ratio of unionized Employees Showa Denko K.K. % 78.4 77.7 78.3 – Financial Number of incidents resulting in lost-time injuries Showa Denko group cases 6 4 3 59 Infrequency rate of lost-time injuries Showa Denko K.K. 0.24 0.25 0.13 59 Showa Denko group 0.43 0.15 0.15 59
CSR procurement CSR visits cases 54 40 38 62 Local community and social contribution Education Dispatched employees Showa Denko K.K. cases 26 25 20 – as instructors Showa Denko K.K. man-hours 705 585 716 – Accepted interns Showa Denko K.K. cases 36 27 28 – Showa Denko K.K. persons 64 74 85 – Improvement of the environment Cleaning activities Showa Denko K.K. cases 125 120 105 – around the worksites Showa Denko K.K. hours in total 6,717 6,780 5,906 – Cooperation for and granting Promotion of arts, subsidies to arts, culture and sports: Showa Denko K.K. thousand yen 4,878 5,378 8,800 – culture and sports spend Events Showa Denko K.K. persons 5,313 7,691 7,866 – Exchange with Facilities rented Showa Denko K.K. hours 10,573 10,762 11,772 – local communities guided plant tours Showa Denko K.K. persons 9,351 6,467 7,524 – Harmonizing with local economy: Community development and social welfare Showa Denko K.K. thousand yen 1,662 2,466 2,110 – spend Aluminum can recycling: Showa Denko K.K. % 98.3 98.8 98.9 – participation rate Aluminum can recycling: proceeds Showa Denko K.K. thousand yen 1,752 1,336 888 – Collaborating with NPOs and local Showa Denko K.K. thousand yen 131 120 252 – organizations: spend
SHOWA DENKO REPORT 2017 67 Performance Data
Report Classification Items Boundaries Units 2014 2015 2016 Number Environmental conservation
Discharged amounts of CO2 (energy source origin) Showa Denko group kt-CO2 2,537 2,538 2,545 54 greenhouse gases CO2 (non-energy source origin) Showa Denko group kt-CO2 91 87 85 54
GHGs other than CO2 Showa Denko group kt-CO2 47 62 57 54
Total Showa Denko group kt-CO2 2,675 2,687 2,687 54
Showa Denko K.K. / Showa Denko K.K. kt-CO2 2,212 2,203 2,211 54 Group companies in Japan Group companies in Japan kt-CO2 463 484 475 54
Total Showa Denko group kt-CO2 2,675 2,687 2,687 54
Transportation sector's CO2 emissions kt-CO2 29.0 22.8 23.5 55
The amount of water used Showa Denko K.K. million m3 5,926 5,535 5,411 52
Group companies in Japan million m3 335 469 461 52
Wastewater volume Showa Denko K.K. thousand t 29,136 28,671 26,620 52
Group companies in Japan thousand t 3,705 3,704 3,733 52
Environmental conservation
The amount of industrial waste discharge Showa Denko K.K. t 24,454 20,974 20,038 57
Group companies in Japan t 8,842 10,739 9,360 57
Final landfill volumes of industrial waste Showa Denko K.K. t 912 752 254 57
Group companies in Japan t 246 99 69 57
Release of PRTR-listed substances Into air Showa Denko K.K. t 198 153 148 57
Group companies in Japan t 186 262 242 57
Into water Showa Denko K.K. t 25 19 14 57
Group companies in Japan t 1 1 1 57
Total Showa Denko K.K. t 223 172 163 57
Group companies in Japan t 187 263 243 57
Total amounts released of harmful atmospheric pollutants Showa Denko K.K. ｔ 18 14 14 56
Discharged amounts of SOx Showa Denko K.K. t 369 360 324 56 substances with atmospheric impact NOx Showa Denko K.K. t 1,324 1,413 1,255 56
Soot and dust Showa Denko K.K. t 112 87 63 56
Discharged amounts of COD Showa Denko K.K. t 355 365 360 56 substances with water quality impact Total phosphorus Showa Denko K.K. t 10 9 8 56
Total nitrogen Showa Denko K.K. t 510 503 480 56
Environmental accounting Total amount of capital investment Showa Denko group million yen 1,664 2,492 1,962 53
Total expenses Showa Denko group million yen 3,185 3,186 2,651 53
Economic benefits Showa Denko group million yen 1,169 704 794 53
68 SHOWA DENKO REPORT 2017 List of Data Collection Boundaries
▪ Scope of Group companies Others (amount of water used, Energy, chemical substance Industrial acciden GHG emissions discharge into air and statistics water, industrial waste discharge)
Showa Denko Gas Products Co., Ltd. ○ ○ ○
Showa Denko Ceramics Co., Ltd. (Toyama) ○ ○ ○
Showa Aluminum Can Corp. ○ ○ ○ Consolidated subsidiaries
Showa Denko Packaging Co., Ltd. ○ ○ ○
Showa Denko HD Yamagata K.K. ○ ○ ○ About Showa Denko Niigata Showa K.K. － ○ ○
Nippon Polytech Corp. － ○ ○
Showa Denko Kenso K.K. － ○ ○
Tsurusaki Kyodo Doryoku K.K. ○ － ○ Japan Showa Fine Ceramics Co., Ltd. － ○ ○
Shiojiri Showa Co. Ltd. － － ○
Showa Denko Sakai Aluminum K.K. － － ○ Other affiliated companies Other SHOWA DENKO Electronics K.K. ○ ○ ○
Union Showa K.K. － － ○
Showa Aluminum Can Recycling Center － － ○
HIPACK Co., Ltd. － － ○ CSR
Clean-S Showa K.K. － － ○
Shinshu Showa K.K. － － ○
Fuyo Perlite Co., Ltd. － － ○
Taiwan Showa Chemicals Manufacturing Co., Ltd. (including Showa Specialty Gas (Taiwan.) Co., Ltd.) ○ ○ －
Zhejang Quzhou Juhua Showa Electoronic Chemical Materials Co., Ltd. ○ ○ －
Showa Denko Carbon, Inc. ○ ○ － Financial Showa Denko Sichuan Carbon, Inc. ○ ○ －
Showa Denko Aluminum (Nantong) Co., Ltd. ○ ○ － Consolidated subsidiaries SHOTIC (Singapore) Pte Ltd. ○ ○ Abroad SHOTIC Europa Industria de Aluminio Lda. ○ ○ －
SHOTIC MALAYSIA SDN. BHD. ○ ○ －
Showa Aluminum ManufacturingPhilippines Corporation ○ ○ －
Showa Denko (Dalian) Co., Ltd. ○ ○ －
Showa Denko HD Singapore Pte Ltd. ○ ○ －
Showa Denko HD (Malaysia) Sdn. Bhd. ○ ○ －
Showa Denko HD Trace corp. ○ ○ －
Ganzhou Zhaori Rare Earth New Materials Co., Ltd. ○ ○ －
Showa Denko Rare-Earth Vietnam Co., Ltd. ○ ○ －
SHOWA DENKO REPORT 2017 69 Third-party Verification
We received the third-party verification about the quantitative data concerning our CSR performance shown in this SHOWA DENKO CSR Report 2017 from SGS Japan Inc.
70 SHOWA DENKO REPORT 2017 Financial
72 Financial Highlights
73 Management’s Discussion and Analysis
76 Consolidated financial statements
82 Corporate Data
SHOWA DENKO REPORT 2017 71 Financial Highlights Showa Denko K.K. and Consolidated Subsidiaries
million yen
For the year 2011 2012 2013 2014 2015 2016
Net sales 854,158 739,675 847,803 872,785 775,732 671,159
Operating income ( loss ) 47,357 28,108 25,953 20,551 33,508 42,053
Ratio of Operating income to sales ( % ) 5.5 3.8 3.1 2.4 4.3 6.3
Net income ( loss ) 40,018 23,448 23,488 21,731 32,050 38,690
Net income attribute to owners of the parent 16,980 9,368 9,065 2,929 921 12,305
Net cash provided by operating activities 69,437 53,310 63,565 66,996 61,170 68,949
Net cash provided by (used in) investing activitie △ 38,671 △ 41,741 △ 55,203 △ 46,876 △ 42,497 △53,754
Free cash flow 30,766 11,569 8,362 20,120 18,674 15,195
Net cash provided by (used in) financing activities △ 17,295 △ 20,150 △ 6,805 △ 24,856 △ 21,336 △13,220
R&D expenditures 21,597 20,633 20,435 20,362 20,289 17,313
Capital expenditures 38,794 42,503 44,370 47,318 44,059 39,276
Depreciation and amortization 49,413 46,232 39,779 40,673 42,137 38,761
At year-end 2011 2012 2013 2014 2015 2016
Total assets 941,303 933,162 985,771 1,009,843 940,494 932,698
Total net assets 295,745 314,966 345,811 319,087 308,142 311,231
Shareholders’ equity ratio ( % ) 26.8 29.2 30.6 29.7 31.5 31.8
Return on equity ( ROE ) ( % ) 6.9 3.6 3.2 1.0 0.3 4.1
Interest-bearing debt 347,308 342,262 353,686 383,124 368,835 359,929
Debt/equity ratio (Times) 1.17 1.09 1.02 1.20 1.20 1.16
Per share (yen) 2011 2012 2013 2014 2015 2016
Net income—primary 11.35 6.26 6.06 1.99 6.45 86.27
Cash dividends (applicable to the period*) 3 3 3 3 3 -
(Note)SDK consolidated every ten shares of its common stock into one share on July 1, 2016. The above-mentioned “Profit(s) attributable to owners of parent per share: Basic/Diluted” are calculated on the assumption that the share consolidation had been carried out at the beginning of 2015
*SDK paid a dividend of ¥30 per share based on the record date of May 11, 2017 at the extraordinary general meeting of shareholders which was held in June 2017.
72 SHOWA DENKO REPORT 2017 Consolidated financial Management’s Discussion Corporate Data Financial Highlights statements and Analysis
Management’s Discussion and Analysis
Results of Operations which took place in the second half of the previous year. As a result, the Chemicals segment’s sales decreased ¥7,763 million, Consolidated net sales in 2016 totaled ¥671,159 million (US$5,762 or 5.5%, to ¥134,529 million (US$1,155 million). Operating income million), a decrease of ¥104,573 million, or 13.5%, from the from basic chemicals business increased due to a reduction in costs previous year. Sales figures decreased in all segments including the of materials resulting partly from an increase in the ratio of recycled Petrochemicals segment where sales decreased due to a fall in product plastics among raw materials to produce ammonia. Operating income prices, reflecting a decline in raw naphtha price. from industrial gases and functional chemicals businesses also The cost of sales decreased ¥108,930 million, or 16.7%, to ¥544,994 increased, while that from electronic chemicals business decreased due million (US$4,678 million), reflecting the decrease in net sales. Selling, to a strong yen. Overall, the segment recorded operating income of general and administrative expenses decreased ¥4,189 million, or ¥13,824 million (US$119 million), up ¥3,118 million, or 29.1% from the 4.7%, to ¥84,111 million (US$722 million). R&D expenditures decreased previous year. ¥2,976 million, to ¥17,313 million (US$149 million). About Showa Denko We recorded operating income of ¥42,053 million (US$361 million), Electronics up ¥8,545 million, or 25.5%, from the previous year due to the major Production of HD media in 2016 decreased from the previous year due increase in operating income of the Petrochemicals segment resulting to a decrease in shipment volumes of media for use in PCs, which could from strong demand in Asia, and due also to the increase in operating not be compensated by the increase in shipment volumes of media for income of Chemicals, Aluminum, and Others segments. On the other use in servers. However, shipment volumes of HD media for use in PCs hand, the operating income of the Electronics segment decreased due in the second half of the year recovered from the level of the first half of to lower shipment volumes of HD media. The operating income of the the year, and that in the fourth quarter of 2016 was higher than that in Inorganics segment also decreased. the same period of the previous year. Under this market environment, overall sales of HD media decreased due to the decrease in shipment Information by Business Segment volumes mentioned above and the impact of a strong yen. Sales of rare earth magnetic alloys and compound semiconductors also decreased.
A breakdown of net sales and operating income by business segment As a result, the Electronics segment’s sales decreased ¥28,153 CSR is as follows. million, or 21.4%, to ¥103,339 million (US$887 million). Operating income of the segment decreased ¥3,565 million, or 20.4%, to ¥13,907 Petrochemicals million (US$119 million) due to the decrease in shipment volumes of Production of ethylene and propylene slightly decreased from the HD media especially in the first half of the year, which could not be previous year due to coinciding shutdowns of plants to produce compensated by the increase in shipment volumes in the second half derivatives for periodic maintenance at Oita Complex in the first of the year. Nevertheless, operating income from HD media business in half of the year. Sales of olefins decreased due to a decline in prices the second half of 2016 increased from that in the same period of the
of products caused by a drop in raw naphtha price, despite strong previous year due to the realization of effects of our efforts during the Financial demand for olefins in the Asian market. Sales of organic chemicals also first half of 2016 to streamline production capacity and reinforce cost decreased due to a fall in the sales prices of vinyl acetate and ethyl competitiveness of the HD media business. acetate resulting from a decline in prices of raw materials. As a result, the Petrochemicals segment’s sales decreased ¥45,505 Inorganics million, or 19.7%, from the previous year, to ¥185,783 million (US$1,595 Production volume of graphite electrodes slightly increased from the million). The segment recorded operating income of ¥20,690 million previous year. However, sales of graphite electrodes decreased due to a (US$178 million), up ¥10,147 million, or 96.2% due to a decline in prices decline in market prices resulting from the adjustment of production in of raw materials and the continued high operating rates in olefins and the steel industry in Asia and the United States under the influence of organic chemicals businesses in response to strong demand in the overproduction in China. Sales of ceramics decreased due to a decline Asian market. in shipment volumes. As a result, the Inorganics segment’s sales decreased ¥12,607 million, Chemicals or 19.9%, to ¥50,870 million (US$437 million). The segment recorded Production of liquefied ammonia and high-purity gases for electronics an operating loss of ¥5,758 million (US$49 million), a deterioration of increased from the previous year. Sales of electronic chemicals slightly ¥4,510 million from the previous year. However, aiming to revitalize increased due to continued high-level shipment volumes, despite profitability of the graphite electrode business, the Showa Denko the impact of a strong yen. Sales of industrial gases slightly increased. Group took measures to improve cost competitiveness of this business On the other hand, sales of basic chemicals decreased due partly to at production bases in Japan and the United States. a decline in the sales prices of some products including acrylonitrile following a fall in prices of raw materials, despite continuously high shipment volumes of products. Sales of functional chemicals decreased due to the transfer of our phenolic resin business to another company,
SHOWA DENKO REPORT 2017 73 Management’s Discussion and Analysis
Aluminum Sales in Asia (excluding Japan) Domestic sales of high-purity foil for aluminum electrolytic capacitors The Chemicals segment’s sales decreased due partly to a decline in increased from the previous year due to an increase in production of air sales of high-purity gases for electronics, which are products of our conditioners and electronic parts for automobiles. Overall sales of rolled electronic chemicals business, resulting from a strong yen. products increased due partly to the increase in shipment volumes of For the functional chemicals business, a decline in Shanghai Showa high-purity foil for aluminum electrolytic capacitors in China recorded Highpolymer Co., Ltd.’s sales also contributed to the decrease in sales by Showa Denko Aluminum (Nantong) Co., Ltd. in addition to the figures of the Chemicals segment. The Electronics segment’s sales abovementioned sales increase in the domestic market. Sales of decreased due to a decrease in the demand for HD media for PCs and aluminum specialty components decreased due to a fall in aluminum the strong yen. The Inorganics segment’s sales decreased due partly metal price and lower shipment volumes for some automotive to a decline in market prices of graphite electrodes. The Aluminum applications. Sales of aluminum cans increased due to higher shipment segment’s sales increased due partly to the installation of a line to volumes recorded by Hanacans Joint Stock Company of Vietnam. produce can ends at Hanacans Joint Stock Company. The Others As a result, the Aluminum segment’s sales decreased ¥2,181 million, segment’s sales decreased due partly to significant decreases in or 2.2%, to ¥98,575 million (US$846 million). Operating income of the Shoko Co. Ltd.’s sales and Shoko (Shanghai) Co., Ltd.’s sales. As a result, segment increased ¥1,854 million, or 72.3%, to ¥4,416 million (US$38 consolidated sales from operations in Asia (excluding Japan) decreased million) due to an increase in shipment volumes of rolled products and ¥50,306 million, or 19.4%, to ¥208,626 million (US$1,791 million). higher shipment volumes of aluminum cans recorded by Hanacans. Sales in the Rest of the World Others The Inorganics segment’s sales decreased due to a fall in market prices Sales of lithium ion battery (LIB) materials increased slightly due to an of graphite electrodes manufactured by Showa Denko Carbon, Inc. of increase in shipment volumes for automotive applications in addition the United States. to higher shipment volumes for use in smartphones. However, Shoko As a result, consolidated sales from operations in the rest of the Co., Ltd.’s sales decreased. world decreased ¥10,505 million, or 24.8%, to ¥31,893 million (US$274 As a result, the Others segment’s sales decreased ¥4,870 million, or million). 3.3%, to ¥142,364 million (US$1,222 million). However, the segment recorded an operating income of ¥1,775 million (US$15 million), up Other Income (Expenses) and Net Income ¥446 million, or 33.6% from the previous year due to the increase in shipment volumes of LIB materials. Attributable to Owners of the Parent The gap between interest expenses and interest and dividends Information by Geographic Area income improved ¥565 million to expenses of ¥1,590 million (US$14 million), due mainly to the decrease in interest expenses. We recorded Sales in Japan a gain in the equity in earnings of unconsolidated subsidiaries and The Petrochemicals segment’s sales decreased due to a fall in affiliates to which the equity method is applied in the amount of market prices of products reflecting a drop in raw naphtha price. The ¥4,328 million (US$37 million), an improvement of ¥2,412 million, due Chemicals segment’s sales decreased due to a decline in the market partly to an improvement in business results of affiliates in synthetic price of acrylonitrile and the transfer of our phenolic resin business to resin-related operations in consequence of market recovery and higher another company. Sales figures of the Electronics segment decreased operating rates. due to lower shipment volumes of compound semiconductors, rare With regard to foreign exchange gain (losses), the Group earth magnetic alloys, and HD media. In the Inorganics segment, recorded foreign exchange losses of ¥1,658 million (US$14 million), a sales of ceramics decreased due to lower sales volumes, and sales deterioration of ¥1,217 million due mainly to the appreciation of the of graphite electrodes decreased due to a decline in market prices, yen. despite an increase in shipment volumes. The Aluminum segment’s We recorded a loss of ¥3,222 million (US$28 million), net, on sales decreased due to a decline in sales prices of aluminum specialty retirement and sales of noncurrent assets, an improvement of ¥647 components resulting from a fall in aluminum metal price, and due million, due partly to retirement losses resulting from replacements of also to a decrease in sales volumes of aluminum specialty components, facilities in the Inorganics and Chemicals segments. We also recorded despite an increase in sales volumes of high-purity foil for aluminum a loss of ¥15,644 million (US$134 million) for the impairment loss, electrolytic capacitors. Sales figures of the Others segment decreased an increase of ¥4,966 million, due partly to our recognition of an due to a decrease in Shoko Co., Ltd.’s sales. impairment loss amounting to ¥7,743 million as a result of the write- As a result, consolidated sales from operations in Japan decreased down of the book value of fixed assets used in the aluminum specialty ¥43,763 million, or 9.2%, to ¥430,639 million (US$3,697 million). components business operated in Oyama City, Tochigi Prefecture, a part of which became excessive assets after the divestiture of the automotive heat exchanger business in 2012 and the following decrease in shipment volumes. We also posted an impairment loss
74 SHOWA DENKO REPORT 2017 Consolidated financial Financial Highlights Management’s Discussion Corporate Data statements and Analysis
amounting to ¥4,530 million concerning the Electronics segment’s Capital Expenditures electronics materials business. Capital expenditures decreased ¥4,784 million from the previous Gain on sales of investment securities decreased ¥7,984 million, to year, to ¥39,276 million (US$337 million). We replaced hydropower ¥72 million (US$1 million), because we did not record a gain on sales plants and expanded facilities to produce electronic chemicals. We of listed stocks, which we had recorded in 2015. We did not post a also implemented construction works for various purposes, including loss on provision of allowance for doubtful accounts, which we had reinforcement of production facilities, efficiency improvement, posted ¥13,404 million in 2015. The sum of extraordinary losses other maintenance of production facilities, and environmental preservation. than those mentioned above improved ¥3,090 million, to ¥3,125 million (US$27 million), due mainly to decrease in loss on valuation of Cash Flows investment securities. Net cash provided by operating activities increased ¥7,779 million from Overall, the total of other income (expenses), net, i.e., the total the previous year, to ¥68,949 million (US$592 million), due partly to of non-operating income (expenses) and extraordinary income the increase in operating income. Net cash used in investing activities About Showa Denko (expenses), net, improved ¥2,920 million, to a loss of ¥24,524 million increased ¥11,257 million, to ¥53,754 million (US$461 million), due (US$211 million). partly to an expenditure to acquire additional shares in a subsidiary As a result, the Company posted income before taxes and accompanying a change in the scope of consolidation, and an increase noncontrolling interests of ¥17,529 million (US$150 million), up ¥11,465 in term deposits. Thus, free cash flow ended up in the proceeds of million from the previous year. ¥15,195 million (US$130 million), a deterioration of ¥3,478 million. Net Corporate tax decreased ¥19,271 million, to ¥3,691 million (US$32 cash used in financing activities decreased ¥8,116 million due to less million), due to the rebound from the previous year’s increase in reduction in interest bearing debt than the previous year, and ended corporate tax caused by a revision of the taxation system and a partial up in the payment of ¥13,220 million (US$113 million). liquidation of deferred tax assets resulting from a revision of the As a result, taking the effects of exchange rate fluctuations into Company’s income forecast accompanied by the formulation of the account, cash and cash equivalents at the end of 2016 increased ¥1,589 new medium-term consolidated business plan. Thus, the Company million, to ¥56,186 million (US$482 million). recorded net income attributable to owners of the parent of ¥12,305 CSR million (US$106 million), * From 2017 SDK changes the segmentation (LIB materials is transferred from “Others” to “Electronics”) .Figures of 2016 are based on the previous segmentation. up ¥11,384 million from the previous year.
Financial Position
Total Assets Total assets decreased ¥7,797 million from the end of the previous year,
to ¥932,698 million (US$8,007 million), due partly to the decrease in Financial inventory reflecting falls in material and fuel prices, notwithstanding the increase in accounts receivable. Cash and deposits increased ¥5,860 million, to ¥69,914 million (US$600 million). Net property, plant and equipment decreased ¥15,158 million, to ¥487,135 million (US$4,182 million), due partly to the posting of impairment losses, despite the new consolidation of SunAllomer Ltd. Total investments and other assets increased ¥3,810 million, to ¥110,486 million (US$948 million), due partly to the decrease in allowance for doubtful accounts.
Liabilities Interest bearing debt decreased ¥8,906 million, to ¥359,929 million (US$3,090 million). Total liabilities decreased ¥10,885 million, to ¥621,467 million (US$5,335 million), due partly to the decreases in interest bearing debt and notes and accounts payable-trade.
Net Assets Net assets increased ¥3,089 million from the end of the previous year, to ¥311,231 million (US$2,672 million), due partly to the posting of net income attributable to owners of the parent.
SHOWA DENKO REPORT 2017 75 Consolidated financial statements
Consolidated Balance Sheets At December 31, 2016 and 2015
Thousands of Millions of yen U.S. dollars
ASSETS 2016 2015 2016
Current assets Cash and deposits ¥ 69,914 ¥ 64,054 $ 600,170 Notes and accounts receivable 157,846 146,810 1,355,022 Allowance for doubtful accounts (699) (880) (5,997) Inventories 91,347 105,926 784,162 Deferred tax assets 4,092 3,029 35,129 Other current assets 12,576 12,586 107,957 Total current assets 335,077 331,525 2,876,442
Property, plant and equipment Land 242,816 251,851 2,084,440 Buildings and structures 267,889 265,136 2,299,670 Machinery, equipment and vehicles 791,398 773,229 6,793,701 Construction in progress 49,575 48,660 425,574 1,351,678 1,338,877 11,603,385 Less : Accumulated depreciation (864,544) (836,583) (7,421,612) Net property, plant and equipment 487,135 502,293 4,181,773
Investments and other assets Investment securities 74,951 76,568 643,415 Long-term loans 6,922 3,300 59,418 Net defined benefit asset 365 19 3,131 Deferred tax assets 9,115 8,877 78,249 Other 27,940 33,777 239,851 Allowance for doubtful accounts (8,807) (15,864) (75,602) Total investments and other assets 110,486 106,676 948,462
Total assets ¥ 932,698 ¥ 940,494 $ 8,006,676
76 SHOWA DENKO REPORT 2017 Management’s Discussion Financial Highlights Consolidated financial Corporate Data and Analysis statements
Thousands of Millions of yen U.S. dollars
LIABILITIES AND NET ASSETS 2016 2015 2016
Current liabilities Short-term debt ¥ 71,895 ¥ 81,000 $ 617,176 Current portion of long-term debt 58,234 59,386 499,908 Notes and accounts payable 143,556 153,451 1,232,343 Income taxes payable 3,890 2,429 33,397 Provision for repairs 38 62 326 Provision for bonuses 2,253 1,904 19,339
Provision for stock payments 25 – 216 About Showa Denko Provision for business structure improvement 382 83 3,276 Provision for Niigata Minamata Disease 118 126 1,010 Other current liabilities 30,402 32,651 260,980 Total current liabilities 310,792 331,093 2,667,971
Noncurrent liabilities Long-term debt less current portion 229,800 228,449 1,972,703 Deferred tax liabilities 4,041 3,873 34,693 Provision for repairs 2,759 1,377 23,685 Provision for business structure improvement 1,121 475 9,623 Provision for director retirement 73 – 627 Provision for stock payments 59 – 508
Net defined benefit liability 21,923 15,185 188,194 CSR Deferred tax liabilities for land revaluation 33,144 35,893 284,522 Other noncurrent liabilities 17,754 16,006 152,411 Total noncurrent liabilities 310,675 301,259 2,666,966
Contingent liabilities
Net assets Shareholders' equity
Capital stock Financial Authorized, 330,000,000 shares Issued , 2016– 149,711,292 shares 140,564 – 1,206,657 Issued , 2015– 1,497,112,926 shares – 140,564 – Capital surplus 62,033 62,221 532,521 Retained earnings 65,358 55,202 561,061 Less: Treasury stock at cost, 2016– 7,192,815 shares (10,502) – (90,153) Less: Treasury stock at cost, 2015– 68,858,573 shares – (10,157) – Total shareholders' equity 257,453 247,829 2,210,086 Accumulated other comprehensive income Valuation difference on available-for-sale securities 4,519 3,927 38,789 Deferred gains or losses on hedges 320 (326) 2,750 Revaluation reserve for land 31,026 31,307 266,339 Foreign currency translation adjustments 14,239 18,611 122,231 Remeasurements of defined benefit plans (10,996) (4,835) (94,397) Total accumulated other comprehensive income 39,107 48,683 335,712 Non-controlling interests 14,671 11,629 125,941 Total net assets 311,231 308,142 2,671,739 Total liabilities and net assets ¥ 932,698 ¥ 940,494 $ 8,006,676
SHOWA DENKO REPORT 2017 77 Consolidated Statements of Income For the years ended December 31, 2016 and 2015
Thousands of Millions of yen U.S. dollars
2016 2015 2016
Net sales ¥ 671,159 ¥ 775,732 $ 5,761,512 Cost of sales 544,994 653,924 4,678,464 Gross profit 126,164 121,808 1,083,048 Selling, general and administrative expenses 84,111 88,299 722,043 Operating income 42,053 33,508 361,005
Other income (expenses) Interest and dividends income 1,641 1,922 14,085 Equity in earnings of unconsolidated subsidiaries and affiliates 4,328 1,917 37,157 Gain on sales of investment securities, net 72 8,056 620 Loss on valuation of investment securities (66) (1,813) (567) Foreign exchange gains (losses) (1,658) (441) (14,234) Rent income on noncurrent assets 1,506 1,613 12,928 Gain (loss) on sales of noncurrent assets, net 808 (415) 6,935 Interest expenses (3,231) (4,077) (27,738) Loss on retirement of noncurrent assets (4,030) (3,454) (34,596) Impairment loss (15,644) (10,678) (134,291) Gain on bargain purchase 686 – 5,889 Loss on mothballing of operation (3,122) (1,710) (26,797) Provision of allowance for doubtful accounts – (13,404) – Other, net (5,815) (4,960) (49,920) Total (24,524) (27,444) (210,528) Income before income taxes and Non-controlling interests 17,529 6,064 150,477 Income taxes Current 3,168 3,437 27,194 Deferred 523 10,525 4,492 Net income (loss) 13,838 (7,898) 118,791 Net income (loss) attributable to non-controlling interests 1,533 (8,819) 13,162 Net income (loss) attribute to owners of the parent ¥ 12,305 ¥ 921 $ 105,629
Yen U.S. dollars Per share amounts Net income – primary ¥86.27 ¥6.45 $0.74 Net income – fully diluted – – – Cash dividends (applicable to the period) – 3.00 – Note: 1. Net income per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year. Diluted net income per share for 2016 and 2015 were not disclosed because there were no dilutive shares. 2. T he Company plans to resolve payment of a dividend of ¥30 per share based on the record date of May 11, 2017 at the extraordinary general meeting of shareholders to be held in June 2017.
78 SHOWA DENKO REPORT 2017 Management’s Discussion Financial Highlights Consolidated financial Corporate Data and Analysis statements
Consolidated Statements of Comprehensive Income For the years ended December 31, 2016 and 2015
Thousands of Millions of yen U.S. dollars
ASSETS 2016 2015 2016
Net income (loss) ¥13,838 ¥ (7,898) $ 118,791 Other comprehensive income: Valuation difference on available-for-sale securities 516 (3,212) 4,429 Deferred gains or losses on hedges 629 (1,421) 5,399 Revaluation reserve for land 1,824 3,779 15,661 Foreign currency translation adjustments (4,520) (2,320) (38,803) Remeasurements of defined benefit plans, net of tax (6,167) 9 (52,943)
Share of other comprehensive income of unconsolidated subsidiaries About Showa Denko 41 119 350 and affiliates accounted for using equity method Total other comprehensive income ¥ (7,678) ¥ (3,046) $ (65,907) Comprehensive income ¥ 6,160 ¥ (10,945) $ 52,883 Comprehensive income attributable to: Owners of parent 4,807 (1,661) 41,266 Non-controlling interests 1,353 (9,284) 11,618 CSR Financial
SHOWA DENKO REPORT 2017 79 Consolidated Statements of Changes in Net Assets For the years ended December 31, 2016 and 2015 Thousands Millions of yen capital stock shares of Number of Capital stock surplus Capital earnings Retained Treasury stock sale securities available for- difference on Valuation hedges or losses on Deferred gains land forreserve Revaluation adjustments translation currency Foreign benefit plan defined ments of Remeasure- int controlling Non- assets Total net erests
Balance at December 31, 2014 1,497,113 ¥ 140,564 ¥ 62,221 ¥ 56,896 ¥ (10,153) ¥ 6,783 ¥ 1,262 ¥ 27,908 ¥ 19,018 ¥ (4,899) ¥ 19,488 ¥ 319,087 Cumulative effects of changes in – – – 29 – – – – – 2,668 – 2,697 accounting policies Restated balance 1,497,113 140,564 62,221 56,925 (10,153) 6,783 1,262 27,908 19,018 (2,231) 19,488 321,784 Dividends from surplus – – – (4,285) – – – – – – – (4,285) Net income (loss) attributable to owners – – – 921 – – – – – – – 921 of the parent Purchase of treasury stock – – – – (5) – – – – – – (5) Disposal of treasury stock – –0–0––––––0 Increase by increase of consolidated – – – 1,084 – – – – – – – 1,084 subsidiaries Decrease by increase of consolidated – – – (304) – – – – – – – (304) subsidiaries Decrease by decrease of consolidated – – – (225) – – – – – – – (225) subsidiaries Increase by increase of associates – – – 637 – – – – – – – 637 accounted for using equity method Change in treasury shares of parent arising from transactions with non- – ––––––––––– controlling shareholders Reversal of revaluation reserve for land – – – 355 – – – – – – – 355 Other – – – 93 – – – – – – – 93 Net changes of items other than – – – – – (2,856) (1,588) 3,398 (407) (2,604) (7,858) (11,915) shareholders' equity Balance at December 31, 2015 1,497,113 ¥ 140,564 ¥ 62,221 ¥ 55,202 ¥ (10,157) ¥ 3,927 ¥ (326) ¥ 31,307 ¥ 18,611 ¥ (4,835) ¥ 11,629 ¥ 308,142 Cumulative effects of changes in – ––––––––––– accounting policies Restated balance 1,497,113 140,564 62,221 55,202 (10,157) 3,927 (326) 31,307 18,611 (4,835) 11,629 308,142 Dividends from surplus – – – (4,285) – – – – – – – (4,285) Net income (loss) attributable to owners – – – 12,305 – – – – – – – 12,305 of the parent Purchase of treasury stock – – – – (345) – – – – – – (345) Disposal of treasury stock – – (0) – 0 – – – – – – 0 Increase by increase of consolidated – – – 70 – – – – – – – 70 subsidiaries Decrease by increase of consolidated – ––––––––––– subsidiaries Decrease by decrease of consolidated – ––––––––––– subsidiaries Increase by increase of associates – ––––––––––– accounted for using equity method Change in treasury shares of parent – – (188) – – – – – – – – (188) arising from transactions with non- controlling shareholders Reversal of revaluation reserve for land – – – 2,093 – – – – – – – 2,093 Other (1,347,402) – – (27) – – – – – – – (27) Net changes of items other than – – – – – 592 646 (281) (4,372) (6,161) 3,042 (6,535) shareholders' equity Balance at December 31, 2016 149,711 ¥ 140,564 ¥ 62,033 ¥ 65,358 ¥ (10,502) ¥ 4,519 ¥ 320 ¥ 31,026 ¥ 14,239 ¥ (10,996) ¥ 14,671 ¥ 311,231
Thousands Millions of yen capital stock shares of Number of Capital stock surplus Capital earnings Retained Treasury stock sale securities available for- difference on Valuation hedges or losses on Deferred gains land forreserve Revaluation adjustments translation currency Foreign benefit plan defined ments of Remeasure- int controlling Non- assets Total net erests
Balance at December 31, 2015 1,497,113 $ 1,206,657 $ 534,132 $ 473,878 $ (87,193) $ 33,711 $ (2,797) $ 268,751 $ 159,765 $ (41,510) $ 99,831 $ 2,645,225 Cumulative effects of changes in ––––––––––– accounting policies Restated balance 1,497,113 1,206,657 534,132 473,878 (87,193) 33,711 (2,797) 268,751 159,765 (41,510) 99,831 2,645,225 Dividends from surplus – – – (36,782) – – – – – – – (36,782) Net income (loss) attributable to owners – – – 105,629 – – – – – – – 105,629 of the parent Purchase of treasury stock – – – – (2,962) – – – – – – (2,962) Disposal of treasury stock – – (1) – 2 – – – – – – 2 Increase by increase of consolidated – – – 599 – – – – – – – 599 subsidiaries Decrease by increase of consolidated – ––––––––––– subsidiaries Decrease by decrease of consolidated – ––––––––––– subsidiaries Increase by increase of associates – ––––––––––– accounted for using equity method Change in treasury shares of parent – – (1,610) – – – – – – – – (1,610) arising from transactions with non- controlling shareholders Reversal of revaluation reserve for land – – – 17,971 – – – – – – – 17,971 Other (1,347,402) – – (234) – – – – – – – (234) Net changes of items other than – – – – – 5,078 5,547 (2,412) (37,534) (52,887) 26,110 (56,098) shareholders' equity Balance at December 31, 2016 149,711 $ 1,206,657 $ 532,521 $ 561,061 $ (90,153) $ 38,789 $ 2,750 $ 266,339 $122,231 $ (94,397) $125,941 $2,671,739
80 SHOWA DENKO REPORT 2017 Management’s Discussion Financial Highlights Consolidated financial Corporate Data and Analysis statements
Consolidated Statements of Cash Flows For the years ended December 31, 2016 and 2015
Thousands of Millions of yen U.S. dollars
2016 2015 2016
Cash flows from operating activities Income before income taxes and Non-controlling interests ¥ 17,529 ¥ 6,064 $ 150,477 Adjustments for: Depreciation and amortization 38,761 42,137 332,741 Impairment loss 15,644 10,678 134,291 Amortization of goodwill – 1,354 – Amorization of negative goodwill (11) – (97) Increase (decrease) in allowance for doubtful accounts (6,441) 14,220 (55,291) Increase (decrease) in net defined benefit liability 6,744 (6,903) 57,895 Interest and dividends income (1,641) (1,922) (14,085) Interest expenses 3,231 4,077 27,738 Equity in (earnings) losses of unconsolidated subsidiaries and affiliates (4,328) (1,917) (37,157)
Loss (gain) on sales and valuation of investment securities (6) (6,243) (53) About Showa Denko Loss on retirement of noncurrent assets 4,030 3,454 34,596 Loss (gain) on sales of noncurrent assets (808) 415 (6,935) Decrease (increase) in notes and accounts receivable-trade (2,380) 22,134 (20,432) Decrease (increase) in inventories 20,112 18,119 172,647 Increase (decrease) in notes and accounts payable-trade (10,315) (24,502) (88,548) Other, net (10,044) (16,733) (86,219) Subtotal 70,076 64,430 601,566 Interest and dividends income received 5,565 4,193 47,773 Interest expenses paid (3,227) (4,115) (27,698) Income taxes paid (refund) (3,466) (3,337) (29,750) Net cash provided by (used in) operating activities 68,949 61,170 591,891 Cash flows from investing activities
Payments into time deposits (29,438) (28,962) (252,709) CSR Proceeds from withdrawal of time deposits 25,287 31,006 217,078 Purchase of property, plant and equipment (38,317) (41,263) (328,930) Proceeds from sales of property, plant and equipment 1,724 697 14,799 Purchase of investment securities (3,163) (23,446) (27,155) Proceeds from sales of investment securities 173 23,725 1,487 Purchase of investments in subsidiaries – (862) – Purchase of investments in subsidiaries resulting in change in scope of consolidation (2,132) – (18,302) Net decrease (increase) in short-term loans receivable (1,231) (386) (10,567) Payments of long-term loans receivable (4,077) (2,810) (34,996) Financial Collection of long-term loans receivable 322 520 2,766 Other, net (2,903) (715) (24,921) Net cash provided by (used in) investing activities (53,754) (42,497) (461,449) Cash flows from financing activities Net increase (decrease) in short-term debt (7,242) 5,713 (62,170) Proceeds from long-term loans payable 42,288 50,240 363,018 Repayments of long-term loans payable (49,273) (71,006) (422,976) Proceeds from issuance of bonds 17,000 10,000 145,935 Redemption of bonds (10,000) (10,000) (85,844) Proceeds from share issuance to non-controlling shareholders – 129 – Cash dividends paid (4,267) (4,272) (36,627) Cash dividends paid to non-controlling shareholders (376) (435) (3,229) Other, net (1,350) (1,705) (11,589) Net cash provided by (used in) financing activities (13,220) (21,336) (113,482) Effect of exchange rate changes on cash and cash equivalents (523) (1,058) (4,488) Net increase (decrease) in cash and cash equivalents 1,453 (3,721) 12,472 Cash and cash equivalents at beginning of the year 54,597 55,162 468,682 Increase in cash and cash equivalents resulting from newly consolidated subsidiaries 136 3,002 1,167 Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation – (7) – Increase in cash and cash equivalents resulting from merger – 161 – Cash and cash equivalents at end of the year ¥ 56,186 ¥ 54,597 $ 482,321
SHOWA DENKO REPORT 2017 81 Management’s Discussion Financial Highlights Financial Data and Analysis Corporate Data
Corporate Data (As of Jne 30, 2017)
Company Name Showa Denko K.K Head Office 13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo
Formed June 1, 1939 105-8518, Japan
Capital 140,564 million Phone: +81-3-5470-3235
Employee Consolidated : 10,097 Parent : 3,633 URL: http://www.sdk.co.jp/english
Subsidiaries & Consolidated subsidiaries: 48 E-mail: [email protected] Affiliates Equity method applied: 12
Commercial America Singapore Subsidiaries Abroad Showa Denko America, Inc. Showa Denko Singapore (Pte.) Ltd. 420 Lexington Avenue, Suite #2335A, 2 Shenton Way #15-03/04, SGX Centre 1, New York, NY 10170, U.S.A. Singapore 068804 Phone: +1-212-370-0033 Phone: +65-6223-1889 Fax: +1-212-370-4566 Fax: +65-6223-6007
Germany China Showa Denko Europe GmbH Showa Denko (Shanghai) Co., Ltd. Konrad-Zuse-Platz 3, 18F, Wang-Wang Building No. 211, Shimen Yi Road, 81829 Munich, Germany Shanghai, 200041, People's Republic of China Phone: +49-89-939-9620 Phone: +86-21-6217-5000 Fax: +49-89-939-96250 Fax: +86-21-6217-9840
Stocks information
Number of Shares Outstanding 149,711,292
Number of Shareholders 79,064
*SDK consolidated every ten shares of its common stock into one share on July 1, 2016.
■ Shareholders (Top 10) ■ Shareholders by Sector
Number of Shares Rate of Securities firms Treasury shares Shareholder Held Shareholding 1,812 6,893 (in thousands) (%) Japanese corporate entities 1.21％ 4.60％ The Master Trust Bank of Japan Ltd. (T) 6,516 4.56 7,633 5.10 Financial firms Japan Trustee Services Bank Ltd. (T) 5,554 3.89 ％ 54,593 Fukoku Mutual Life Insurance Company 5,517 3.86 36.47％ Foreign corporate Japan Trustee Services Bank Ltd. (T9) 4,512 3.16 entities, etc. 40,994 Total number of The Dai-ichi Life Insurance Company Limited 3,600 2.52 shares held 27.38％ STATE STREET BANK AND TRUST COMPANY 3,110 2.18 149,711
Sompo Japan Nipponkoa Insurance Inc. 3,007 2.11
Meiji Yasuda Life Insurance Company 2,645 1.85
Showa Denko Employee Shareholding Association 2,544 1.78 Individuals 37,785 Nippon Life Insurance Company 2,006 1.40 25.24％
82 SHOWA DENKO REPORT 2017 Contact desk Public Relation Office, Showa Denko K.K. TEL : +81-3-5470-3235 Website : http : //www.sdk.co.jp/english/csr.html E-Mail : [email protected]
SHOWA DENKO REPORT 2017
SRI indexes adopting Showa Denko
As of January 2017