Showa Denko K.K. (SDK) Operating Income Up 3.5% in First Half 2007.

Tokyo, Japan, Aug 7, 2007 - (JCN Newswire) - Showa Denko  K.K. (TSE: 4004; 'SDK') announces a 3.5% increase in operating income for the first six months (January-June) of 2007, to JPY 34,956 million, on net sales up 13.6%, to JPY 485,127 million. However, ordinary income fell 5.0%, to JPY 27,082 million, due to increases in non-operating expenses. Net income rose 0.1%, to JPY 15,070 million, due mainly to the fall in extraordinary losses.

Despite the soaring crude oil prices and other instability factors, the Japanese economy continued to grow in the first half of 2007 owing to the rise in capital spending against the background of strong corporate earnings and steady exports to the EU and Asia.

In the chemical and nonferrous metals industries, costs of naphtha, aluminum ingot, and other raw materials soared, resulting in a continued severe environment. Meanwhile, the electronics-parts and materials industry showed a steady growth despite partial inventory adjustments.

Under the circumstances, the Showa Denko Group made progress with the implementation of its medium-term consolidated business plan, the Passion Project, aimed at laying the groundwork for long-term, sustainable growth. Under the plan, the Group accelerated the development of "new growth driver" businesses while carrying out structural reforms and reducing costs.

Petrochemicals

Production of ethylene and propylene in the first half of 2007 increased compared with the same period of last year when there was a maintenance shutdown conducted once in every four years. Sales of olefins were up due to the rise in shipment volumes as well as the rise in selling prices, reflecting soaring raw material costs. Sales of organic chemicals were also up due to the rise in selling prices, reflecting higher feedstock costs, and higher shipment volumes of vinyl acetate.

As a result, the Petrochemicals segment's sales increased 32.3%, to JPY 192,195 million, and operating income jumped 61.5%, to JPY 10,884 million.

Chemicals

Production of liquefied ammonia decreased. Sales of acryolonitrile rose due to higher selling prices, and sales of caustic soda, chlorine, and hydrochloric acid rose due to steady shipment volumes. Meanwhile, sales of industrial gases, including oxygen, nitrogen, and hydrogen, fell.

Sales of amino acids, Elaslen(TM) chlorinated polyethylene, and Shodex(TM) liquid chromatography columns increased due to higher shipment volumes. Sales of Shoprene(TM) chloroprene rubber were up due to higher selling prices.

As a result, the Chemicals segment's sales rose 2.9%, to JPY 39,137 million, and operating income jumped 67.2%, to JPY 3,271 million.

Electronics

Production of hard disk (HD) media increased due to the start-up of new production facilities. Sales of HD media increased, reflecting the growing demand and start-up of the new facilities. Sales of compound semiconductors were maintained at the year-earlier level.

Sales of semiconductor-processing specialty gases decreased due to the fall in shipment volumes of LCD panel cleaning agents. Meanwhile, sales of rare-earth magnetic alloys increased substantially due to higher shipment volumes and selling prices.

As a result, the Electronics segment's sales increased 9.1%, to JPY 85,779 million. However, operating income fell 38.4%, to JPY 9,770 million, due to cost increases following the transition to product lines with higher storage capacity as well as increased depreciation expenses as a result of capacity expansion.

Inorganics

Production of graphite electrodes continued at high levels. Sales of ceramics were maintained at previous year's level. However, sales of graphite electrodes increased due to continued steady demand at home and abroad.

As a result, the Inorganics segment's sales increased 11.9%, to JPY 39,397 million. Operating income rose 33.6%, to JPY 9,559 million, due mainly to steady exports of graphite electrodes from domestic plant and steady performance at U.S. subsidiary Showa Denko Carbon, Inc.

Aluminum and other

Production of automotive heat exchangers in the first half of 2007 increased in Japan and the U.S., although there was a slight decline in Europe. Production of rolled products and Shotic(TM) forged products increased, while that of commodity extrusions fell.

Sales from ingot marketing rose, reflecting the trends in the international market. Sales of rolled products were up due to the rise in selling prices, reflecting soaring feedstock costs, and higher shipment volumes of high-purity foils for capacitors. In the extrusions/specialty products business, sales rose due to higher shipment volumes of aluminum cylinders for laser printers and the rise in selling prices of extrusions. Sales of heat exchangers increased slightly in all three regions of Japan, U.S., and Europe. Sales of Shotic(TM) forged products increased due to higher selling prices. Sales of aluminum cans also increased due to higher shipment volumes and selling prices. Meanwhile, the aluminum alloys business was transferred in the second half of 2006.

As a result, the Aluminum segment's sales decreased 1.0%, to JPY 128,619 million, but operating income increased 8.1%, to JPY 4,099 million.

Major Steps Taken in the First Half of 2007

Chemicals

- Development of new photo-curing isocyanate monomer:

The Company developed a new grade of photo-curing isocyanate monomer product (KarenzMOITM-EG) and started sample shipments in July. Compared with the existing KarenzMOITM product, which is used mainly for the production of LCD displays and semiconductors, the new grade features high adhesion strength and curing rate while reducing cure shrinkage by 40%. As a result, KarenzMOITM-EG is expected to find such new applications as surface coating and adhesives.

- Launch of water-soluble vitamin E derivative for skin care:

The Company began full-scale marketing of a new water-soluble vitamin E derivative (TPNaTM) for use in cosmetics. TPNaTM is readily soluble in aqueous solutions, enabling easy formulation in cosmetics. It is readily absorbed through the skin, and transformed quickly into vitamin E in the skin. Thus, TPNaTM is expected to be effective as raw material for skin care product.

Electronics

- Commercial production of 3.5-inch HD media:

In June, the Company began commercial shipments of 334 gigabyte, 3.5-inch HD media based on the perpendicular magnetic recording (PMR) technology. As of June 2007, the product represented the world's largest storage capacity as a 3.5-inch HD media. Demand for large-capacity HD media is growing due to the rise in shipment volumes of HDD recorders that enable high-vision recording of digital high-vision TV programs as well as PCs that enable storage and editing of moving pictures. In January, we started up a PMR-technology-based new plant in Singapore, ensuring stable supply of high-storage-capacity HD media to our customers.

- Developing high-performance, large area-emission organic EL panels:

The Company is developing singlelayer organic electroluminescent (organic EL) devices based on innovative phosphorescent polymer materials. For the green and red light, we have achieved the highest-level external quantum efficiency. Durability for the green light has already reached 350,000 hours. The Company is developing a large area-emission panel based on this polymer technology, aiming to commercialize high-performance organic EL panels for use in displays and general lighting.

- New crystal growth technology for nitride-based semiconductors:

The Company has succeeded in developing a new process for making high-quality nitride-based compound semiconductors to meet growing demand for use in blue/white LEDs. The process, called "Hybrid PPDTM," enables the use of four-inch epitaxial wafers with high quality. The Company has also succeeded in developing blue LEDs with the highest-level brightness on the market today. While blue LEDs are currently used mainly in automotive parts and traffic signals, demand is expected to increase at the annual rate of nearly 20% in the coming five years, due to the development of new applications, including LCD backlighting. In view of substantial increases in orders, the Company decided to expand its LED chip production capacity at its Chiba site from the originally planned level of 100 million units per month to 200 million per month by the end of June 2008.

- In June, the Company's specialty gas storage facility was completed in Anseong-si, Gyeonggi-do, South Korea. The facility is intended as a measure to better serve the rapidly growing semiconductor and LCD panel market in that country. With the completion of the facility, the Company will provide specialty gases to its customers in South Korea in a more timely and reliable manner.

Inorganics

- Capacity expansion for 30"- and 32"-diameter graphite electrodes:

Last year, the Company began strengthening its production setup of 30-inch- and 32-inch-diameter graphite electrodes for use in electric arc furnace steelmaking. As a result, a new line of graphitizing furnace will be completed at the Omachi Plant, Japan, in July and expanded facilities will start up at Showa Denko Carbon, Inc., in the U.S., in the second half of this year. Upon completion, our total production capacity of these large-diameter graphite electrodes will increase from 15,000 tons per year to 25,000 tons per year. Total investments in the capacity expansion will be approximately JPY 1 billion.

- Establishment of JV for F/S regarding alumina project in Indonesia:

In April, the Company established P.T. Indonesia Chemical Alumina, a joint venture with PT. ANTAM Tbk of Indonesia, Straits Trading Amalgamated Resources Private Limited of Singapore, and Marubeni Corporation of Japan. The JV was established to jointly study the feasibility of a chemical-grade alumina project in Indonesia.

Aluminum and other

- Expanding automotive heat exchanger business in China:

We increased our equity participation in Grand Ocean-Showa Auto Air Conditioning (Dalian) Co., Ltd., making it our consolidated subsidiary. Grand Ocean-Showa will expand its production capacity and start producing new NRT(TM) III condensers with around 20% higher performance compared with existing products.

- Absorption of Showa Financing K.K.:

In July, the Company absorbed its wholly owned subsidiary Showa Financing K.K. By taking over Showa Financing's operations, we will enhance the efficiency of financing activities within our Group.

- Launch of world's first aluminum cups for chilled coffee:

Our subsidiary Showa Denko Packaging Co., Ltd. began marketing aluminum cups for beverages, mainly for chilled coffee. This represents the industry's first aluminum cups for chilled coffee, providing high shielding effectiveness and ensuring preservation of natural flavor and taste. The main bodies of the cups can be recycled as aluminum metal.

Projections for 2007 (full-year)

As to the Japanese economy in the second half of 2007, gradual recovery will continue owing to increased capital investment against the background of high-level corporate earnings and recovery in personal consumption. However, due to such factors as exchange rate fluctuations, the rise in prices of oil, aluminum ingots and other raw materials, and possible slowdown of the U.S. economy, the business environment is forecast to remain severe.

Under the circumstances, the Showa Denko Group will aim to lay the groundwork for long-term, sustainable growth based on the Passion Project and pursue thorough cost reductions, thereby striving to improve competitiveness and earning power. The Showa Denko Group's performance forecast for 2007 (full-year) is as follows:

                                                       (millions of yen)
------------------------------------------------------------------------
                  Results         Forecast
                        term ended     term ending
                       Dec. 31, 2006   Dec. 31, 2007    Diff.   Change
------------------------------------------------------------------------

Net sales                  914,533       1,000,000     85,467    9.3%
Operating income            68,727          74,000      5,273    7.7%
Ordinary income             57,514          60,500      2,986    5.2%
Net income                  28,836          33,000      4,164   14.4%
------------------------------------------------------------------------

Net sales, operating income and ordinary income will increase over the previous year to JPY 1,000,000 million, JPY 74,000 million, and JPY 60,500 million, respectively. Net income will increase to JPY 33,000 million. The above forecast is based on the assumption that the exchange rate of the yen will be JPY 115 to the U.S. dollar and the naphtha price will be JPY 56,000/KL.

For details, please refer to the separate news release issued today pertaining to the revision of the full-year performance forecast.

Net sales by business segment

                                                       (millions of yen)
------------------------------------------------------------------------
                   Results        Forecast
                        term ended      term ending
                       Dec. 31, 2006   Dec. 31, 2007     Diff.   Change
------------------------------------------------------------------------

Petrochemicals            335,383         380,000       44,617    13.3%
Chemicals                  79,201          80,000          799     1.0%
Electronics               165,541         200,000       34,459    20.8%
Inorganics                 74,301          80,000        5,699     7.7%
Aluminum and other        260,107         260,000        - 107   - 0.0%
Total                     914,533       1,000,000       85,467     9.3%

------------------------------------------------------------------------

Financial Conditions

i) Assets, liabilities and total equity at June 30, 2007:

Although we continued our efforts to reduce assets, total assets increased JPY 10,676 million, to JPY 1,048,500 million due to increases in inventories and fixed assets. Interest-bearing debt further decreased JPY 6,855 million, to JPY 426,317 million. As a result, total liabilities fell JPY 6,959 million, to JPY 765,372 million.

Total equity increased JPY 17,635 million, to JPY 283,128 million. Notwithstanding the payment of dividends for the previous fiscal year, total equity increased due mainly to a rise in net income for the first half 2007.

ii) Cash flows in first half of 2007:

Net cash provided by operating activities decreased JPY 12,161 million from the same period of last year, to JPY 20,056 million, due to a rise in working capital, reflecting higher raw material costs, and increased payments of corporation tax. Net cash used in investing activities increased JPY 15,229 million, to JPY 32,528 million, due to increases in capital expenditures.

Thus, the free cash flow decreased JPY 27,390 million, to the payment of JPY 12,472 million. Net cash used in financing activities decreased JPY 9,577 million, to JPY 14,083 million, due to reductions in interest-bearing debt. As a result, cash and cash equivalents at June 30, 2007 decreased JPY 25,985 million, to JPY 29,115 million.

iii) Projections for 2007 (full-year):

For the full-year of 2007, cash flows from operating activities will decrease while payments in the category of cash flows from investing activities will continue to increase, due to capital expenditures centering on the Electronics segment. Thus, free cash flow for the year will end up in net payments of about JPY 12,300 million, representing a decrease of around JPY 47,700 million, from last year's net proceeds of JPY 35,450 million. Interest-bearing debt at the end of the year will be JPY 410,000 million, down JPY 23,200 million from the end of last year.

iv) Trends in cash flow indexes

------------------------------------------------------------------------
                          2004   1H2005   2005  1H2006    2006   1H2007
------------------------------------------------------------------------

Equity ratio             18.8%    21.3%  21.0%   20.7%   22.7%    24.0%
Equity ratio on
 market value basis      32.0%    32.3%  53.3%   59.3%   51.6%    50.1%
Debt maturity (years)     8.4      --     5.8      --     4.7       --
Interest coverage %       5.9      8.2    8.9     8.8    12.5      4.8

------------------------------------------------------------------------

Notes:

Equity ratio: Equity / Total assets

Equity ratio on market value basis: Total market value of listed shares / Total assets

Debt maturity (years): Interest-bearing debt / Cash flows from operating activities

Interest coverage ratio: Cash flows from operating activities / Interest payment

Each index is calculated by relevant formulas with financial figures quoted from the consolidated balance sheet.

- Equity is calculated deducting minority interests from total equity.

- Market capitalization is calculated by multiplying the closing share price at the term-end by the number of shares issued, after deducting treasury stock.

- As to the cash flows, the amount of "cash flows from operating activities" in the consolidated cash flow statement is used.

- "Interest-bearing debt" refers to loans payable, commercial paper, and bonds out of all liabilities listed in the consolidated balance sheet.

- As to the interest payment, the amount of "interest expense" in the consolidated cash flow statement is used.

For more information, please visit http://www.sdk.co.jp/aa/english/ir/index.html

About Showa Denko K.K.

Showa Denko K.K. ('SDK'; TSE: 4004, US: SHWDF) is a major manufacturer and marketer of chemical products serving a wide range of fields ranging from heavy industry to the electronic and computer industries. SDK makes petrochemicals (ethylene, propylene), aluminum products (ingots, rods), electronic equipment (hard disks for computers) and inorganic materials (ceramics, carbons). The company has overseas operations and a joint venture with Netherlands-based Montell and Nippon Petrochemicals to make and market polypropylenes. In March 2001, SDK merged with Showa Denko Aluminum Corporation to strengthen the high-value-added fabricated aluminum products operations, and is today developing next-generation optical communications-use wafers. For more information, please visit www.sdk.co.jp.

Source: Showa Denko K.K.

Contact:

Showa Denko K.K.
Nobuhiro Kato
[e-mail]
[phone]

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