Update Regarding Inappropriate Product Testing, etc. : Showa Denko Materials

November 02, 2018

Hitachi Chemical Co., Ltd.

Hitachi Chemical Co., Ltd. announced on June 29, 2018 the existence of inappropriate entries of figures in inspection reports regarding certain lead-acid batteries for industrial use. The company set up a special investigative committee on July 2, and the committee and the company has conducted investigations to ascertain whether there had been any inappropriate testing, etc. regarding products manufactured by any of our domestic plants, including Nabari Works.

The investigations have revealed that inappropriate product testing, etc. had taken place regarding certain of the following products in addition to certain lead-acid batteries for industrial use. We are currently in the process of providing explanations to customers and ascertaining the situation. Please note that we have not discovered any faultiness in product performance, safety issues or legal violations as of the time of this writing.

We hereby offer our deepest apologies for having caused considerable inconvenience and concern to our customers and all other persons concerned.

We will publish the findings of the special investigative committee as soon as possible after receiving their report on the findings. A description of actions we plan to take to prevent similar occurrences in the future will be released at the same time.

1. Products newly revealed to have been subject to inappropriate testing, etc.

It has been revealed that certain of the following products were subject to inappropriate testing, etc. These products represent approximately 10% of our consolidated revenues.

2. Particulars regarding inappropriate product testing, etc.

Particulars of inappropriate testing, etc. consist primarily of the following: (1) failure to conduct tests agreed upon with the customer, (2) use of testing methods other than those agreed upon with the customer, (3) recording of data deviating from actual measured values in test reports, (4) failure to inform the customer of any change in measuring equipment used, and (5) failure to satisfy internal rules (while complying with testing conditions agreed upon with the customer), etc. Please note that corrective measures to deal with these inappropriate testing, etc. events have been carried out promptly.

3. Status regarding customers

We are currently in the process of meeting with our customers to provide explanations and obtain their understanding.

At present approximately 70% (sales value basis) of the relevant customers either have been informed of our technical verification of the products in question as to performance or have completed customers' own performance verification. On the other hand, roughly 30% of the customers have yet to receive a full explanation on the products in question.

We will continue to exert efforts towards completing our performance verification activities as soon as possible, supported by the continued cooperation of our customers.

4. Number of customers affected

Approximately 1,900 firms

Notes:

5. Impact on business results

The impact of this incident on the Hitachi Chemical Group's consolidated performance for the year ending March 2019 is unknown at the present time. If it becomes necessary to revise our projections on consolidated performance released on October 22 this year, an announcement will be made at the appropriate time.