Second Quarter, Overview of 2023 Financial Statements

Business Results

In the six-month period ended June 30, 2023 (“1H 2023”), the global economy recovered, despite weakness in some regions. While the global restraint caused by the pandemic of COVID-19 eased and normalization progressed, the global economy showed progress of inflation, energy and raw material price rise caused by the prolonged situation in Ukraine, occurrence of supply constraints continued. In addition, the semiconductor industry continued to be in an adjustment phase. In the Japanese economy, consumer spending and corporate capital investment showed a gradual recovery. Consolidated sales for 2023 1H decreased to ¥616,126 million, down 6.1% from the corresponding sixth-month period of the previous year (“1H 2022”). Sales of the Chemicals segment increased from 1H 2022. Increased volume in Olefins & Derivatives (the absence of shutdowns related to large-scale maintenance in 1H 2022), higher sales prices and other factors in Graphite Electrodes, and higher volume in Basic Chemicals contributed to the increase in sales. Sales of the Semiconductor and Electronic Materials segment decreased significantly, due to adjustments in the semiconductor-related industry, while the two segments of Mobility and Innovation Enabling Materials also posted declines. Consolidated operating loss for 1H 2023 was ¥13,165 million, down ¥51,116 million from 1H 2022. Although operating income increased due to an increase in the volume of automotive parts in the Mobility segment, operating income decreased significantly in the Semiconductor and Electronic Materials segment. In addition, operating income also decreased in the Innovation Enabling Materials segment due to a decrease in volume and in the Chemicals segment due to a negative impact caused by the inventory difference of Graphite Electrode. Non-operating loss increased due to an increase in financial expenses and a decrease in foreign exchange gains compared to 1H 2022, resulting in an overall increase in ordinary losses of ¥11,357 million. Net loss attributable to owners of the parent was ¥19,817 million, mainly due to the elimination of dividend payments due to the purchase of preferred shares.

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 Backend Semiconductor Materials subsegments decreased due to continued weakness in the semiconductor market since the 2nd half of the previous year. In the Device Solutions subsegment, sales decreased significantly due to continued weakness in HD media demand for data centers from the fourth quarter of the previous year, while SiC epitaxial wafers’ sales increased. As a result, sales in this segment decreased significantly from 1H 2022. 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, sales of the Automotive Products subsegment increased due to the launch of products for new car models. Sales of the Lithium-ion Battery Materials subsegemet decreased due to a slowdown in consumer demand. As a result, sales decreased, and profits increased in this segment from 1H 2022.

Innovation Enabling Materials

In the Innovation Enabling Materials segment, sales and operating income decreased due to a decrease in sales volume, although selling prices were raised due to higher raw material prices.

Chemicals

In the Chemicals segment, although sales of the Olefins & Derivatives subsegment increased significantly from 1H 2022 due to the absence of shutdowns related to large-scale maintenance, operating income decreased due to the negative impact of the inventory valuation difference. In the Basic Chemicals subsegment, sales and operating income increased from 1H 2022 as a result of progress in passing on higher raw material and fuel prices to selling prices. Sales of the Graphite Electrodes subsegment increased from 1H 2022 due to selling price increase based on the cost increase, while operating income decreased due to the negative impact of the inventory valuation difference.

• note: In January 2022, SDK changed segmentation of its financial results. Increase/ decrease was culculated based on new segmentation.
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Financial Conditions

Total assets at the end of 1H 2023 decreased by ¥48,343 million from the end of the previous fiscal year 2022 to ¥2,045,400 million due to an increase in property, plant and equipment, but a decrease in cash and deposits, notes and accounts receivable trade, goodwill and other intangible assets. Total liabilities decreased by ¥47,931 million to ¥1,471,095 million due to a decrease in notes and accounts payable trade and interest-bearing debt. Net assets decreased by ¥413 million, to ¥574,306 million, due to a decrease in retained earnings due to the payment of dividends in the previous fiscal year, despite an increase in foreign currency translation adjustments.

Cash Flow

Net cash used in operating activities during 1H 2023 was ¥48,080 million, an increase of ¥26,159 million from 1H 2022, mainly due to a decrease in trade receivables and inventories, despite a net loss before income taxes. Net cash used in investing activities was ¥45,136 million, an increase of ¥8,520 million from 1H 2022, mainly due to a decrease in income from the sale of investment securities. As a result, free cash flow was ¥2,944 million, an increase of ¥17,999 million from 1H 2022. Net cash used in financing activities was ¥23,491 million, an increase of ¥5,590 million from 1H 2022. As a result, cash and cash equivalents at the end of 1H 2023 decreased by ¥10,593 million from end of 1H 2022 to ¥176,251 million, including the impact of foreign exchange fluctuations.