Showa Denko K.K. (SDK) Reports Operating Income Up 23.4% in Jan. - March Period.

Tokyo, Japan, May 16, 2006 - (JCN Newswire) - Showa Denko  K.K. (SDK; TSE: 4004) has reported results for the first quarter of 2006 (January 1 - March 31). The Company recorded a 23.4% increase in operating income over the first quarter of 2005, to JPY 15,412 million, on net sales up 8.0%, to JPY 205,407 million. Ordinary income increased 23.7%, to JPY 12,821 million. Meanwhile, net income of the quarter fell 40.1%, to JPY 7,869 million, as there was a substantial amount of extraordinary profit in last year's first quarter due to the sale of shares in SDS Biotech K.K.

The term saw Showa Denko K.K. and its Group companies start implementing the new medium-term consolidated business plan, the Passion Project, with the aim of establishing the groundwork for long-term sustainable growth.

In the Petrochemicals segment, sales rose 5.9%, to JPY 70,638 million, but operating income fell 44.3%, to JPY 2,928 million. As a result of the maintenance shutdown of the ethylene plant, which is conducted once in every four years, the shipment volumes of olefins decreased. Nevertheless, sales of olefins and organic chemicals were up due to higher selling prices, reflecting a rise in the raw material costs. Sales of plastics by Showa Highpolymer Co., Ltd., increased slightly due to a rise in the selling prices.

In the Chemicals segment, sales fell 8.5%, to JPY 17,938 million. Operating income dropped 23.1%, to JPY 1,021 million, due partly to the sale of SDS Biotech K.K., an agrochemicals subsidiary, in the first half of 2005. Sales of acrylonitrile and ammonia were up due to the rise in selling prices. Sales of commodity industrial gases, such as oxygen, nitrogen and hydrogen, were maintained at the year-earlier level. Sales of specialty chemicals increased slightly due to higher shipment volumes of amino acids and Shoprene polychloroprene synthetic rubber. Sales of agrochemicals fell sharply as a result of the sale of SDS Biotech.

In the Electronics segment, sales increased 30.2%, to JPY 38,791 million, and operating income jumped 127.0%, to JPY 8,021 million. Sales of hard disk (HD) media increased, reflecting continued brisk demand and start-up of part of the new facilities. Sales of compound semiconductors were maintained at the year-earlier level. However, sales of rare earth magnetic alloys fell, reflecting the customer industry's inventory adjustments. Sales of specialty gases for semiconductor processing were up due to higher shipment volumes.

In the Inorganics segment, sales increased 16.9%, to JPY 16,813 million and operating income climbed 64.2%, to JPY 3,218 million. Sales of ceramics and graphite electrodes increased due to steady demand.

In the Aluminum segment, sales rose 2.4%, to JPY 61,228 million, but operating income fell 46.9%, to JPY 1,066 million, reflecting the soaring aluminum ingot prices. Sales of Shotic forgings rose due to increases in shipment volumes. Sales of heat exchangers also rose due to slight recovery in shipment volumes of automotive heat exchangers at home and abroad. Meanwhile, sales of rolled products and extrusions/specialty products fell slightly as a result of lower shipment volumes. Sales of aluminum cans also fell.

I. Consolidated Financial Summary for the Three Months ended March 31, 2006

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                                         (yen millions, US$ thousands)
                           Three Months Ended     Change
                        3/30/2006   3/30/2005      % YoY         US $*
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Operating Results

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Net Sales                 205,407     190,245       8.0     1,748,595
Operating Income           15,412      12,492      23.4       131,203
Income Before Taxes        12,821      10,366      23.7       109,143
Net Income                  7,869      13,130     (40.1)       66,987
EPS (basic)(yen)             6.89       11.49        --         0.059
EPS (diluted)(yen)            .46       10.60        --         0.055

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                            As of       As of
                        3/31/2006   3/31/2005                   US $*
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Financial Position

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Total Assets              972,503     939,670               8,278,735
Total Sh'hldrs Equity     195,439     189,844               1,663,739
Shareholders EPS (yen)     171.01      166.17                    1.46
Sh'hldrs Equity Ratio (%)    20.1        20.2

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The U.S.$ is valued at JPY 113.19 for this statement.

II. Net Sales and Operating Income by Segment for the Three Months ended March 31, 2006

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                                         (yen millions, US$ thousands)
                              Three Months Ended
                          3/31/2006    3/31/2005    Change      US $*
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Petrochemicals
   Net Sales                 70,638       66,692     3,946    601,332
   Operating Income           2,928        5,254    (2,326)    24,925

Chemicals
   Net Sales                 17,938       19,595    (1,657)    17,200
   Operating Income           1,021        1,328      (307)       600

Electronics
   Net Sales                 38,791       29,782     9,008     34,300
   Operating Income           8,021        3,534     4,487      5,400

Inorganic Materials
   Net Sales                 16,813       14,386     2,427     15,300
   Operating Income           3,218        1,959     1,258      2,000

Aluminum
   Net Sales                 61,228       59,790     1,438     59,200
   Operating Income           1,066        2,007      (941)     1,900

HQ costs and other
   Net Sales                     --           --        --         --
   Operating Income            (842)      (1,590)      749     (1,500)

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Total
   Net Sales                205,407      190,245    15,162  1,748,595
   Operating Income          15,412       12,492     2,921    131,203

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III. Financial conditions for the January 1 - March 31, 2006 period (as compared with the conditions at December 31, 2005)

Total assets at the end of the quarter amounted to JPY 972,503 million, a decrease of JPY 13,730 million from the level at December 31, 2005. Interest-bearing debt decreased JPY 3,051 million, to JPY 445,779 million, as a result of our continuous efforts to reduce debt. Stockholders' equity at the end of the quarter decreased JPY 11,299 million, to JPY 195,439 million, due mainly to the payment of dividends for 2005 and the fall in land revaluation reserve (following adoption of more conservative accounting standards), notwithstanding an increase in net income.

IV. Major steps taken since the beginning of 2006

Petrochemicals

- Further diversification of ethylene feedstock and capacity expansion

During the maintenance shutdown in March and April of the ethylene plant at the Oita Petrochemical Complex, we modified the plant to increase the use of non-naphtha feedstock. At the same time, we modified certain production lines of the plant to improve efficiency, thereby increasing the production capacity by 24,000 tons per year, to 677,000 tons per year. The total cost was approximately JPY 2 billion.

- Expansion of acetic acid/vinyl acetate production capacity

We increased our production capacity of acetic acid from 100,000 tons per year to 130,000 tons per year, and that of vinyl acetate from 120,000 tons per year to 175,000 tons per year, respectively.

- Development of a new grade of Pichit moisture removal sheet

Showa Denko Plastic Products Co., Ltd., a consolidated subsidiary of SDK, developed a new grade of Pichit moisture removal sheet for perishable foods. In addition to food-preserving functions, the new grade features a good design suitable for use as a gift.

- Establishment of a new company for production of PP bands

Heisei Polymer Co., Ltd., a consolidated subsidiary of SDK, established a joint venture with Tsukasa Chemical Industry Co., Ltd. and Dan Sangyo K.K. to jointly produce polypropylene-based bands for use as binding tapes. The three companies intend to strengthen the competitiveness of their PP band business through the joint venture.

Chemicals

- Launch of "gentle-to-hair" new curling agent

We started selling "gentle-to-hair" new curling agent, which efficiently gives natural curling, under the trade name of Spiera.

- Launch of new additive for photo-curing resins

We started selling multifunctional-thiol-based compounds for addition to photo-curing resins to improve their performances. The product, sold under the trade name of Karenz MT, represents the world's first commercial production of multifunctional-thiol-based compounds for this application.

Electronics

- HD media production capacity expanded to 13.75 million disks per month

We have expanded our HD media production capacity to 13.75 million disks a month, up 3.05 million disks per month from the capacity as at the end of December 2005. The expansion is intended as a measure to meet growing demand, mainly for small-diameter HD media for use in mobile music players. The expansion was completed at the end of March through construction of new lines and the debottlenecking of existing lines mainly at our sites in Chiba (Japan) and Taiwan. Capital investment for the project amounted to approximately JPY 12 billion.

Inorganics

- Development of large-sized sintered compacts of CBN

In April, we started selling sintered compacts of cubic boron nitride to be used mainly for cutting automotive parts. The compacts can be provided in thicknesses at the highest levels in the world.

- Increased production of 30" and 32" -diameter graphite electrodes

To meet growing demand from electric arc furnace steelmakers, we decided to increase our production of large-sized graphite electrodes. We are providing both 30-inch-diameter and the world's largest 32-inch-diameter electrodes.

- Joint F/S for alumina project in Indonesia

We reached agreement with PT. ANTAM Tbk of Indonesia, Straits Trading Amalgamated Resources Private Limited of Singapore, and Marubeni Corporation of Japan on implementation of a joint feasibility study for a chemical-grade alumina plant in Indonesia.

Aluminum

- New plant for aluminum cylinders for laser printers

We decided to increase our production capacity of aluminum cylinders for laser printers by constructing a new plant in Oita based on the latest technology and improving processes at existing plants. The decision was made in view of the growing demand for color laser printers, especially for office use. The location of the new plant has been changed from Nasu to Oita to better serve the need of our customers in western Japan. The total cost of the project will be approximately JPY 2 billion.

- Decision to dissolve Showa Aluminum Fabrication

In March, we decided to dissolve Showa Aluminum Fabrication Co., Ltd., an affiliate engaged in the production of aluminum baseball bats.

About Showa Denko K.K.

Showa Denko ('SDK'/TSE: 4004/OTC: 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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