Overview of 2023 Financial Statements

Business Results

In the year ended December 31, 2023 (“2023”), the global economy continued to normalize and recover due to the easing of restrictions on activities related to the COVID-19 pandemic. However, the semiconductor industry continued the adjustment phase, and the global inflation and the prolonged situation in Ukraine continued to raise energy and raw material costs, as well as supply constraints, resulting in weaknesses in some regions. In the Japanese economy, consumer spending and corporate capital investment showed a gradual recovery. Consolidated sales for 2023, decreased to ¥1,288,869 million from the year ended December 31, 2022 (“2022”), mainly due to a decrease in sales volume in all segments, including the Semiconductor and Electronic Materials segment, which decreased due to adjustments in the semiconductor and electronic materials-related industries. Consolidated operating income of 2023 decreased to a loss of ¥3,764 million. Operating income increased in the Mobility segment due to an increase in the volume of automotive parts and in the Innovating Materials segment due to price increase in some products. Operating income in the Semiconductor and Electronic Materials segment declined significantly. And in the Chemicals segment, operating income declined mainly due to the negative impact of the difference between receipt and payment of graphite electrodes. Ordinary income for 2023 was a loss of ¥14,773 million due to a decrease in foreign exchange gains from 2022. Net income attributable to owners of the parent for 2023 was a loss of ¥18,955 million, decreased from 2022, mainly due to changes in ordinary income and a decrease in tax expenses resulting from the recognition of deferred tax assets.

Segment Information

Net sales by Segment

Operating Income by Segment

Semiconductor and Electronic Materials

In the Semiconductor and Electronic Materials segment, sales of both Front-end Semiconductor Materials and Back end Semiconductor Materials subsegments decreased due to continued weakness in the semiconductor market since the 2nd half of 2022. In the Device Solutions subsegment, sales decreased significantly due to continued weakness in HD media demand for data centers from the fourth quarter of 2022, while SiC epitaxial wafers’ sales increased. As a result, sales in this segment decreased from 2023. Operating loss was recorded due to a decrease in sales as well as inventory write-downs and loss on disposal of inventories of HD Media.

Mobility

In the Mobility segment, the decrease in sales of the Automotive Products subsegment due to the impact of the divesture of ISOLITE GmbH in 2022 was offset by an increase in volume due to the recovery of automobile production and the launch of new models. Sales of the Lithium-ion Battery Materials subsegemet decreased due to a slowdown in consumer demand. As a result, sales in this segment increased and operating income increased from 2022.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, from 2022, sales decreased due to a decrease in volume, and on the other hand, operating income increased due to higher selling prices caused by a rise in raw material prices.

Chemicals

In the Chemicals segment, sales of the Petrochemicals subsegment decreased due to a decline in naphtha prices, despite an increase in volume from 2022 due to the absence of shutdowns related to large-scale maintenance. Operating income, on the other hand, increased mainly due to widened product-naphtha spreads. In the Basic Chemicals subsegment, despite volume declines in some products, sales remained unchanged from 2022 and operating income increased due to the progress in passing on higher raw material and fuel prices to selling prices. Sales of the Graphite Electrodes subsegment decreased due to a decline in both sales volume and product sales price compared to 2022. And operating income also decreased due to a negative impact of the inventory valuation difference and a write-down of inventory assets.

Financial Conditions

Total assets at the end of 2023, decreased by ¥61,791 million from the end of the previous fiscal year 2022 to ¥2,031,953 million due to a decrease in inventories and intangible fixed assets such as goodwill. Total liabilities decreased by ¥65,741 million to ¥1,453,285 million due to a decrease in interest-bearing debt. Net assets increased by ¥3,949 million, to ¥578,668 million, mainly due to an increase in foreign currency translation adjustments.

Cash Flow

Net cash provided by operating activities during the current fiscal year 2023 was ¥118,686 million, an increase of ¥19,310 million from the previous fiscal year 2022, mainly due to a decrease in inventories, despite a net loss before income taxes. Net cash used in investing activities was ¥61,869 million, an increase of ¥7,202 million from 2022, mainly due to a decrease in income from the sale of property, plant and equipment and income from the sale of investment securities, despite the recording of income from the sale of subsidiary shares accompanied by a change in the scope of consolidation. As a result, free cash flow was ¥56,817 million, an increase of ¥12,108 million from 2022. Net cash used in financing activities was ¥62,880 million, a decrease of ¥40,387 mainly due to a decrease in expenditures for repayment of long-term debt. As a result, cash and cash equivalents was ¥189,915 million, an increase of ¥3,859 million, including the impact of currency fluctuations.