DENKA

To Our Shareholders

To Our Shareholders

With the SDGs as our compass, we will continue to challenge ourselves to resolve a variety of social issues, and strive to enhance corporate governance to accurately reflect social demands, aiming to an indispensable corporate member of society.

During the fiscal year ended March 31, 2021 (fiscal 2020), the Japanese economy faced difficult conditions including substantial restrictions on economic activities overall, and a significant downturn, especially in personal consumption and exports, due to the spread of COVID-19. The global economy deteriorated, primarily in Europe and the United States as the COVID-19 pandemic continued to spread, except in China and some other regions. In the chemical industry, demand declined during the first half of the fiscal year, due to the spread of COVID-19, but corporate earnings remained resilient overall, with a subsequent recovery in demand, primarily in the automobile and semiconductor sectors.
Against this economic backdrop, in order to realize “The Denka Value” corporate philosophy, the Group pushed ahead with the refocusing of the business portfolio and the introduction of innovative processes, two strategies set forth in our “Denka Value-Up” five-year management plan launched in 2018, and focused its efforts on expanding businesses and enhancing profitability, under the three elements of our growth vision: to be a “Specialty-Fusion Company” with sustainable and sound growth.
As a result, during the year under review, sales volumes declined overall, as a consequence of the fall in demand due to the global economic slowdown, despite a positive contribution from growth in electronics and highly advanced product lines and new healthcare products. In addition, net sales decreased due to revisions to selling prices for certain products in step with declines in raw material prices. Turning to earnings, operating income increased to the highest level on record, thanks to an increase in sales of high value-added products for growth sectors, as well as a reduction in fixed costs. Ordinary income and profit attributable to owners of the parent also increased, both exceeding the previous fiscal year’s levels.
In fiscal 2020, the middle year of “Denka Value-Up,” along with the progress in process innovation, we began to observe tangible results from the growth strategies we progressively implemented up until now, primarily in the healthcare field and environment and energy field, and we achieved a new record level of operating income. We are progressing smoothly along the path to becoming a “Specialty-Fusion Company,” the objective of our long-term growth vision, and we were able to reaffirm that the direction of our initiatives under “Denka Value-Up” has been correct. We have positioned the final two years of the “Denka Value-Up” plan, including fiscal 2020, as an important period of preparations to leap ahead to our vision for the next management plan. As a first step towards being an indispensable corporate member of society, we are focusing on three “Value-Up” initiatives, concerning our business, the environment, and human resources.
From April this year, we have implemented a change in top management to respond the unprecedented changes that have occurred in the Company’s environment since last year. At the same time, we undertook a restructuring of business divisions to promote the further optimization and expansion of our businesses. If the proposal submitted to the 162nd Ordinary General Meeting of Shareholders is approved, we will reduce the number of Directors from twelve to nine, a more appropriate composition to clarify the respective roles of the Board of Directors and executive management, with the aim of further enhancing the effectiveness of discussion by the Board of Directors, and expediting its decision-making. In addition, we will increase the proportion of Outside Directors, and strengthen their degree of involvement in the Board of Directors.
The social requirements placed on corporate governance are growing ever higher, including the enhanced standards of governance required from companies in the Prime Market under the new market segments to be introduced by the Tokyo Stock Exchange next spring. We will continue to strive for a higher level of corporate governance, accurately reflecting these requirements.
We will continue to deepen transformation and coordination across the whole Group. With the SDGs as our compass, we will challenge ourselves to resolve a variety of social issues in ways that only Denka can, to be an indispensable corporate member of society, of which all our employees and stakeholders can feel proud.
We hope we can count on the continued understanding and support of our shareholders in this endeavor.

May 2021

Chairman and Representative Director Manabu Yamamoto
Representative Director, President Toshio Imai

Shareholder Returns and Investment Plan
(Management Plan「Denka Value-Up」 / fiscal 2018~2022)

Following the completion of the Denka100 management plan, the final year of which is fiscal 2017, Denka will implement “Denka Value-Up,” a new management plan that will reinforce its operating base over a five-year course beginning in fiscal 2018 with the aim of enhancing corporate value and ensuring sustainable growth.
In line with our policy on shareholder returns as described below, we seek to steadily return profits yielded by initiatives executed under our management plan to shareholders while allocating a portion of such profits to such strategic investments as M&A for further growth. We will thereby strive to ensure our financial soundness in addition to maximizing shareholder returns and the resources available for forward-looking strategic investments.

Shareholder Returns

We aim to achieve a total shareholder return ratio of 50%.
(Total shareholder return ratio = (cash dividends + shares repurchased) / net income attributable to owners of the parent for the fiscal year)
In addition, we focus on maintaining the stable payment of cash dividends while flexibly carrying out share repurchases by giving due consideration to such factors as a trend in stock prices.

Investment Plan

We will invest a total of ¥200 billion over a five-year period.
Of this, strategic investment: ¥75 billion (¥15 billion/year)
M&A, etc.: ¥60 billion
Process reforms: ¥15 billion
Regular investment: ¥125 billion (¥25 billion/year)