Showa Denko K.K. (SDK) Reports for the Full Fiscal Year 2005; Operating Income Increases 9.8%.

Tokyo, Japan, Feb 9, 2006 - (JCN Newswire) - Showa Denko  K.K. (TSE: 4004; OTC: SHWDF; XETRA: SWD) announces a 9.8% increase in operating income for the twelve months of 2005 (January-December), to JPY 57,191 million, on net sales of JPY 811,899 million, up 9.6%. Ordinary income jumped 20.7%, to JPY 46,960 million, due partly to improvement in the balance between interest expense and interest/dividend income.

Net income was up 106.0%, to JPY 15,647 million. An extraordinary profit of JPY 10,375 million was recorded due to gain on the sale of fixed assets and investment shares. Meanwhile, an extraordinary loss of JPY 39,570 million was registered due partly to collective amortization of unrecognized transition amounts resulting from the adoption of the new accounting method for employees' retirement benefits. As to appropriation of profits for 2005, the Company is planning to pay dividends of JPY 3 per share, the same amount as in the preceding year.

During the year, despite the soaring crude oil prices and other instability factors, the Japanese economy made a gradual recovery owing to increases in corporate earnings and capital spending as well as the rise in personal consumption against the background of improved employment conditions.

In the chemical and nonferrous metals industries, costs of naphtha, aluminum ingot, and other raw materials soared. However, shipments of chemical products to China and other Asian countries were maintained at high levels. The electronic parts/materials industry showed signs of recovery, although the recovery was not strong enough.

Under the circumstances, the Showa Denko Group proceeded with the development of the "strategic growth businesses" as defined in the Sprout Project (completed at the end of 2005), while continuing to restructure operations and reduce costs.

I. Summary Consolidated Results for the FY Ended Dec. 31, 2004

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1. Results of Operations

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                                     (millions of yen, thousands US$)
                                         Full year ended December 31,
                             2005(JPY)  2004(JPY)     %       2005($)
----------------------------------------------------------------------

Net sales                      811,899    740,706     9.6   6,876,417
Operating income                57,191     52,071     9.8     484,379
Ordinary income                 46,960     38,912    20.7     397,731
Net income                      15,647      7,596   106.0     132,526
Net income / share (basic)       13.70       6.66      --       0.116
Net income / share (diluted)     12.82       6.35      --       0.109

Net income on equity              8.1%       4.4%
Ordinary income on
  total assets                    4.9%       4.1%
Ordinary income to
  net sales                       5.8%       5.3%

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II.  Financial Position (Consolidated)

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                                     (millions of yen, thousands US$)
                                                   As of December 31,
                              2005(JPY)      2004(JPY)        2005($)
----------------------------------------------------------------------

Total assets                    986,233         943,908     8,352,949
Stockhldrs' equity              206,738         177,701     1,750,980
Stockhldrs' equity /share (y)    180.96          155.53          1.53
Stockhldrs' equity ratio          21.0%           17.7%

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III.  Cash Flows (Consolidated)

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                                     (millions of yen, thousands US$)
                                         Full year ended December 31,
                              2005(JPY)       2004(JPY)       2005($)
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Operating Activities            77,966        59,528         660,337
Investing Activities           (18,979)      (12,412)       (160,744)
Financing Activities           (52,455)      (45,123)       (444,270)
Cash and Cash Equivalents
 at end of year                 37,233        29,153         315,347

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The US$ is valued ay JPY118.07 in this statement for convenience only.

II. Summary Results by Business Segment

Petrochemicals

Production and shipments of ethylene and propylene in 2005 remained at high levels due to steady demand. Sales of olefins were up due to higher selling prices, reflecting soaring raw material costs. Sales of organic chemicals were also up due to the rise in selling prices of acetic acid, vinyl acetate and ethyl acetate, reflecting steady demand and high feedstock costs.

Sales of plastics by Showa Highpolymer Co., Ltd. increased due to an increase in selling prices, reflecting the rise in feedstock costs. Meanwhile, sales of plastic products by Heisei Polymer Co., Ltd. remained at the same level as in the preceding year due partly to stagnant sales volumes of plastic products for industrial use.

As a result, the Petrochemicals segment's sales rose 18.4%, to JPY 301,189 million, and operating income increased 8.5%, to JPY 21,837 million.

Chemicals

Production of liquefied ammonia increased over 2004 when there was a scheduled shutdown. Sales of industrial gases fell as a result of the transfer in 2004 of the commodity gas business to TG Showa K.K. Sales of industrial chemicals, including acryolonitrile and ammonia, were up due to steady shipment volumes and prices.

In the specialty chemicals operations, sales of Shoprene polychloroprene synthetic rubber increased due to steady shipment volumes and prices. Shipment volumes of feed-additive vitamin C and chelating agents fell. Sales of agrochemicals fell sharply following the sale of SDS Biotech K.K. in March 2005.

As a result, the Chemicals segment's sales fell 7.7%, to JPY 74,001 million, and operating income decreased 2.2%, to JPY 4,740 million.

Electronics

Shipment volumes of hard disk (HD) media increased substantially following the consolidation of Showa Denko HD Trace Corporation in Taiwan in July 2004 and the expansion of the Group's HD capacities in the latter half of 2004. Meanwhile, shipment volumes of gallium phosphide (GaP) for LEDs declined substantially due to inventory adjustments by the electronic parts industry. Combined sales of HD media and compound semiconductors were up.

In the electronic materials business, sales of semiconductor-processing specialty gases, rare earth magnetic alloys and electroceramics increased due to the rise in shipment volumes. However, shipment volumes of fine carbons fell slightly.

As a result, the Electronics segment's sales increased 19.1%, to JPY 133,902 million, and operating income rose 32.2%, to JPY 19,727 million.

Inorganics

Production of graphite electrodes increased both in Japan and U.S.A. Sales of ceramics were up due to brisk demand for alumina. The graphite electrode business of both Showa Denko K.K. and its U.S. subsidiary Showa Denko Carbon, Inc. recorded increased sales, reflecting a growing demand for steel worldwide.

As a result, the Inorganics segment's sales increased 11.9%, to JPY 61,882 million, and operating income jumped 36.3%, to JPY 8,310 million.

Aluminum

Production of automotive heat exchangers increased in North America, but decreased in Japan and Europe. Production of extrusions and rolled products fell, but production of Shotic forged products rose.

Sales from ingot marketing rose slightly, reflecting the trends in the international market. Sales of Shotic forged products increased due to a growing demand for automotive parts applications. Sales of rolled products fell as increases in the shipment volumes of high purity foils for capacitors were more than offset by decreases in the shipment volumes of general extruded sheets.

In the extrusions/specialty products business, shipment volumes of extrusions decreased while those of aluminum cylinders for laser printers increased, resulting in a slight decline in overall sales. Sales of heat exchangers decreased slightly as shipment volumes fell in Japan and Europe. Sales of aluminum cans were maintained at previous year's level as increases in shipment volumes were offset by decreases in prices.

As a result, the Aluminum segment's sales increased 1.1%, to JPY 240,924 million. However, operating income decreased 32.6%, to JPY 8,310 million, due to the fall of selling prices of aluminum cans, lower shipments of heat exchangers, and the rise in raw material costs.

III. Major Steps Taken in 2005

General

- Preparation of new business plan, the Passion Project:

In November, the Company announced its new medium-term consolidated business plan, the Passion Project, for launch in January 2006.

Petrochemicals

- Completion of structural reform of plastic processing businesses:

In July, the Company transferred its shares in Hymold Co., Ltd., a consolidated subsidiary engaged in the plastic processing business, to the Toyo Denka Kogyo Group. The Company also took restructuring measures at Heisei Polymer Co., Ltd. and Showa Denko Plastic Products Co., Ltd., both engaged in the plastic processing business. Thus, the Company completed overall restructuring in this sector in accordance with the Sprout Project.

- Modification of ethylene plant for more diversification of feedstock:

The Company decided to modify its ethylene plant at Oita Petrochemical Complex to increase the use of non-naphtha feedstock, including NGL. The modification work is to be conducted during the maintenance shutdown starting in the middle of March, 2006. At the same time, the Company will modify certain production lines of the ethylene plant to increase efficiency, thereby increasing the production capacity by 24,000 tons per year, to 677,000 tons per year. The total cost will be approximately JPY 2 billion.

- Expansion of acetic acid/vinyl acetate production capacities:

The Company decided to expand its annual production capacity of acetic acid from 100,000 tons to 130,000 tons, and that of vinyl acetate from 120,000 tons to 175,000 tons, respectively, in the first half of 2006.

Chemicals

- Sale of an agrochemicals subsidiary through MBO:

In March, the Company transferred all of its shares in SDS Biotech K.K., a consolidated subsidiary engaged in the agrochemicals business, to the board members of SDS and Mizuho Capital Partners Co., Ltd. through a management buyout (MBO) scheme.

- Dissolution of a nylon specialty joint venture:

In June, the Company transferred all of its shares in EC-SHOWA DENKO K.K. to the joint venture partner EMS-CHEMIE AG of Switzerland, withdrawing completely from the nylon specialty business.

- New isocyanate monomer "Karenz BEI"

The Company started selling a new grade of high-performance isocyanate monomer (trade name: Karenz BEI) for precision surface treatment of liquid crystal displays and semiconductors. The new product provides photo-setting speed two times that of conventional grades.

Electronics

- Commercial production of perpendicular magnetic recording technology HD media:

The Company started the world's first commercial production of hard disk media (HD) based on the perpendicular magnetic recording technology, enabling a dramatic increase in media recording density. They are 1.89-inch-diameter media for use in mobile music players, having the capacity of 40 gigabytes per disk - double the capacity of conventional longitudinal-recording-technology-based products of the same size.

- Commercial production of 0.85-inch-diameter HD media:

The Company started commercial production of the world's smallest 0.85-inch-diameter HD media. Demand for very-small-diameter HD media, including the 0.85-inch type, is expected to grow rapidly in the near future as they will be installed in cellular phones to enable handling of music and TV programs transmitted via Internet.

- Expansion of HD media production capacity:

The Company decided to increase its HD media production capacity by 3.05 million disks a month, to 13.75 million disks a month, by March 2006 to meet a growing demand for small diameter media for use in mobile music players. The expansion will be carried out through construction of new lines and debottlenecking of existing lines with capital investment of approximately JPY 12 billion. Furthermore, the Company decided to build a new HD media plant in Singapore for start-up in the latter half of 2006. As a result of the construction of the new plant and other expansions, the Company's HD media production capacity will increase to 24 million disks per month by the end of 2008.

- Construction of a new HD media R&D facility:

The Company decided to build a new R&D facility at the premises of its subsidiary Showa Denko HD K.K. to promote the development of the next-generation HD media. The facility, scheduled for completion by the end of April 2006, will cost around JPY 3 billion.

- Launch of near ultraviolet and green LED chips:

In November, the Company started selling high-power near ultraviolet LED chips and bright green LED chips, both based on gallium nitride. With the launch of these two types, the Company became the world's first to provide high-brightness LEDs for all wavelengths, ranging from near ultraviolet to infrared.

- Partnership with public institutions for SiC epi-wafers production:

In August, the Company began joint researches with the National Institute of Advanced Industrial Science and Technology and the Central Research Institute of Electric Power Industry for commercial production of silicon carbide (SiC) epitaxial wafers. Compared with conventional silicon-based semiconductors, SiC epi-wafers offer such advantages as a smaller size and lower loss.

Inorganics

- Dissolution of a low-carbon ferrochrome joint venture:

In March, the Company transferred all of its shares in Middelburg Technochrome (Pty) Ltd., a joint venture with Samancor Limited of South Africa and Marubeni Corporation for the production of low-carbon ferrochrome, to Samancor. With this, SDK completed withdrawal from its metallic materials business.

- Development of separators for high-performance fuel cell:

The Company developed a high-performance molded carbon/resin separator for polymer electrolyte fuel cell to be used as a power source for homes, cars and mobile devices. The new product offers such advantages as higher crack resistance and lower cost.

- Production of 32-inch-diameter graphite electrodes:

The Company started, at its Omachi Plant, commercial production of 32-inch-diameter graphite electrodes for use in electric arc furnaces for steel production. The product represents the largest size in the world. Showa Denko Carbon, Inc., the Company's U.S. subsidiary, will also start production of this size when demand grows further.

- Doubling production capacity of specialty alumina abrasives:

The Company doubled its production capacity of Single Morandum to 4,000 tons a year by introducing a continuous production system. Single Morandum is a specialty alumina abrasive used in grinding stones for precision processing of automotive parts and other hard materials.

- Dissolution of a carbon black joint venture:

In November, the Company withdrew from the carbon black business by dissolving a joint venture with Cabot Corporation of the U.S.A.

Aluminum, etc.

- Sale of shares in Nippon Amazon Aluminium:

In January, the Company sold all of its shares in Nippon Amazon Aluminuim Co., Ltd. (NAAC) to Mitsui & Co., Ltd. NAAC is a company established by Japanese investors in the aluminum smelting business in Brazil.

- Dissolution of Showa Alumi Viewtech:

The Company dissolved its aluminum extrusion consolidated subsidiary Showa Viewtech Co., Ltd. in the latter half of 2005.

- Consolidation of aluminum sheet sales and processing:

To strengthen competitiveness in the rolled products business, the Company consolidated in October the commodity aluminum sheet sales in Eastern Japan at its consolidated subsidiary Showa Denko Aluminum Trading K.K. (SDAT). SDAT also took over aluminum sheet processing operation from Showa Denko Sakai Aluminum K.K.

- Development of new automotive heat exchangers:

The Company developed a new high-performance condenser for car air-conditioners and started selling the product under the trade name of NRT (new refrigerant tube) III. Some Japanese and foreign carmakers have decided to install NRT III in their new models.

- Expansion of aluminum cylinder production capacity:

The Company decided to expand its production capacity of aluminum cylinders to meet growing demand for color laser printers for office use. The Company will increase the capacity from nine million tubes per month to 15 million tubes per month by the end of 2006 through construction of a new plant and upgrading of existing lines, investing a total of approximately JPY 2 billion.

- Cooperation in water treatment business:

Our consolidated subsidiary Showa Engineering Co., Ltd. (SEC) formed an alliance with Veolia Water S.A. of France in the environmental protection business, centering on waste water treatment. SEC transferred 49% of shares in Showa Environment System Co., Ltd., its subsidiary engaged in waste water treatment operation, to the Veolia Water Group to jointly conduct a water treatment business.

IV. Projections for 2006

1) Overall projections

As to the Japanese economy in 2006, personal consumption and capital investment are expected to increase, resulting in gradual recovery of corporate earnings. However, due to the appreciation of yen against the U.S. dollar and expected continuation of high prices of oil, aluminum, and other raw materials, the business environment is forecast to remain severe.

Under the circumstances, the Company will promote the growth strategy as defined in the new Passion Project, developing individualized and competitive products by nurturing the interconnections of inorganic/aluminum and organic chemical technologies. At the same time, the Company will increase the competitiveness of base businesses and lay the groundwork for long-term sustainable growth, thereby striving to fulfill its social responsibility. The Showa Denko Group's performance forecast for 2006 is as follows:

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                                               (Unit: millions of yen)
               Forecast      Results
                      term ending   term ended   Difference  Change
                      Dec. 31, 06   Dec. 31, 05
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Net sales                865,000      811,899       53,101      6.5%
Operating income         62,000       57,191        4,809      8.4%
Ordinary income          51,000       46,960        4,040      8.6%
Net income               24,500       15,647        8,853     56.6%

Net income / share        21.45        13.70

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Net sales, operating income, ordinary income and net income will increase from the 2005 results to JPY 865 billion, JPY 62 billion, JPY 51 billion, and JPY 24.5 billion, respectively. The above forecast is based on the assumption that the exchange rate of the yen will be JPY 110 to the U.S. dollar and the naphtha price will be JPY 45,000/KL. (2) Net sales by business segment

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                                               (Unit: millions of yen)
               Forecast      Results
                      term ending   term ended   Difference  Change
                      Dec. 31, 06   Dec. 31, 05
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Petrochemicals          300,000      301,189      - 1,189    - 0.4%
Chemicals                 75,000       74,001          999      1.3%
Electronics             164,000      133,902       30,098     22.5%
Inorganics               69,000       61,882        7,118     11.5%
Aluminum, etc.          257,000      240,924       16,076      6.7%
Total                   865,000      811,899       53,101      6.5%

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V. Financial Conditions

1. Assets, liabilities and equity at December 31, 2005

We continued our efforts to reduce total assets, including the sale of SDS Biotech in the first half of 2005. However, due to increases in accounts receivable (reflecting increased sales) and inventories (reflecting higher raw material costs) as well as the rise in market prices of investment securities, total assets increased JPY 42,325 million, to JPY 986,233 million.

Interest-bearing debt further decreased JPY 53,602 million, to JPY 448,831 million. Meanwhile, the amount of accrued pension and severance costs rose due to an extraordinary loss pertaining to collective amortization of unrecognized transition amounts resulting from the adoption of a new accounting method. As a result, total liabilities increased JPY 9,384 million, to JPY 730,444 million.

Stockholders' equity increased JPY 29,038 million, to JPY 206,738 million, due to increases in retained earnings, security valuation surplus and land revaluation surplus.

2. Cash flows in 2005

Net cash provided by operating activities increased JPY 18,438 million from the previous year, to JPY 77,966 million, due to increases in operating income and accounts payable, reflecting increased production. Net cash used in investing activities increased JPY 6,567 million, to JPY 18,979 million, due to higher capital expenditures.

Thus, free cash flow increased JPY 11,871 million, to JPY 58,987 million. Net cash used in financing activities increased JPY 7,332 million, to JPY 52,455 million, due to reductions in interest-bearing debt. As a result, cash and cash equivalents at December 31, 2005 increased JPY 8,080 million, to JPY 37,233 million, after changes in the list of the consolidated subsidiaries.

3. Projections for 2006

While cash flows from operating activities will increase, net cash used in investing activities will also increase due to the rise in capital investments and the fall in proceeds from sales of property. Thus, free cash flow for the year is expected to decrease around JPY 77,800 million, to minus JPY 18,800 million. Interest-bearing debt at the end of the year will be JPY 461,000 million, up JPY 12,170 million from the end of last year.

4. Trends in cash flow indexes

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                            2002        2003        2004         2005
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Equity ratio          15.2%       17.7%       18.8%        21.0%
Equity ratio on a
 market value basis 17.4%       29.2%       32.0%        53.3%
Debt maturity (years) 15.5         8.3         8.4          5.8
Interest coverage ratio  3.3         6.0         5.9          8.9

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Notes

Equity ratio: Shareholders' equity / Total assets

Equity ratio on a 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.

- Market capitalization is calculated by multiplying the closing share price at the year-end by the number of shares issued, after deduction of own shares at year-end.

- 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 all debts with interest 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.

FY 2005 Reference Materials

To download the Showa Denko 2005 Consolidated Financial Statements and prsentation materials, please visit the SDK IR homepage at: http://www.sdk.co.jp/aa/english/ir/index.html

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.

Source: Showa Denko K.K.

Contact:

Showa Denko K.K. (SDK)
IR & PR Office
Phone: [phone]

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