Earnings Call: Q2 2025

Aug 11, 2025

Summary

H1 operating income rose 22.9% as pricing, cost reductions and overseas pigments offset weaker shipments and FX losses. FY2025 operating income guidance increased to JPY 50B, alongside a higher dividend and investment in semiconductor epoxy-resin capacity.

Thank you all for attending our financial results briefing for Q2. I am President Takashi Ikeda. Let me begin with some highlights and an overview. First, let me give you an overview of our performance in H1 of this fiscal year. Net sales decreased 2.9% YOY to JPY 523.2 billion. Operating income increased 22.9% to JPY 27 billion. Ordinary income increased 1.3% to JPY 20.3 billion. Net income attributable to owners of the parent for the interim period was JPY 13.1 billion, up 104% YOY. Net sales were mainly affected by a slowdown in shipments of pigments and inks in Q2. Operating income, on the other hand, increased significantly due to price revisions and price maintenance, as well as cost reductions, despite the decrease in shipments. The main reason was that the overseas pigment business became profitable. Despite this, ordinary income was almost the same level as the same period last year, but this was due to foreign exchange losses, which pushed down ordinary income. The foreign exchange impact has been greatest in Europe. On the other hand, net income for the interim period increased significantly due to a decrease in extraordinary losses compared to the same period last year. The annual sales forecast for 2025, which was disclosed earlier, has been revised downward slightly from the previous forecast to JPY 1.06 trillion. We continue to expect a slight decrease in shipment volume, mainly due to the volume of inks in Europe and seasonal factors in pigments. On the other hand, some products, mainly high value-added products and functional products, are expected to grow. These products generally have higher profit margins, and together with price revisions, we expect a positive impact on earnings. As a result, we have revised our full year operating profit forecast upward to JPY 50 billion. On the other hand, ordinary income has been revised downward slightly to reflect an increase in foreign exchange losses, but net income remains unchanged because extraordinary losses are expected to decrease as in H1. The extraordinary gain from the sale of artwork is not included in the forecast in this annual net income. In line with this outlook, we have decided to pay an additional JPY 10 billion worth of dividends to shareholders, in accordance with our cash allocation policy, which we have established for 2024, 2025, and 2026. The year-end dividend will be JPY 150, JPY 100 higher than usual, and together with the interim dividend of JPY 50, the annual dividend will be JPY 200. Regarding the details of shareholder returns I mentioned earlier, here is a chart showing our dividend history since 2016. In response to the fact that asset reduction is progressing as planned, we have decided to provide an additional shareholder return of JPY 100 per share in FY 2025. Considering various factors, we will make this decision based on a comprehensive judgment. For the contents of this JPY 100, we will pay a special dividend of JPY 80 and increase the year-end dividend of JPY 20. Accordingly, the minimum dividend for 2026 will be raised from JPY 100 to JPY 120. We have decided based on the significantly improved prospects for record-high profits in 2026. I would like to reiterate the overview of the cash allocation policy I just mentioned. Shown in the figure here are the planned cash in and cash out figures for the three-year period from 2024 to 2026. As highlighted in red in the cash in column on the left, we were able to generate cash inflow of JPY 24 billion in FY 2024 and JPY 5 billion in H1 of this fiscal year as a result of asset reduction. In addition, we expect cash inflow of JPY 10 billion from the sale of artworks expected in H2, and including this cash inflow, we expect to secure the planned JPY 40 billion plus cash by 2026. Regarding the use of these funds, we had allocated JPY 20 billion for strategic investments, and as previously announced, we have decided to use part of this amount to construct a new epoxy resins production facility for electronics applications at our Chiba plant. As for additional shareholder returns, we plan to implement a dividend increase of JPY 100 per share in 2025 and raise the minimum dividend to JPY 120 per share in 2026. We will continue to provide additional shareholder returns when we receive additional cash from asset reductions and other sources. I would like to explain about the strategic investment regarding the construction of a new epoxy resins production facility at the Chiba plant. We have assembled a core set of products as our Chemitronics business and are now focusing on making it a pillar of our next-generation business. Epoxy resins are mainly used for low-dielectric substrates and semiconductor package components. Their demand has been growing steadily, especially due to increased needs for AI servers and related products. Against this backdrop, we are pleased to announce that we have received approval as a plan for ensuring stable supply under Japan's Act on the Promotion of Ensuring National Security through Integrated Implementation of Economic Measures. As a result, we have decided to build a new epoxy resins production facility at our Chiba plant. The construction will be carried out with a maximum subsidy of JPY 3 billion, while the total eligible investment amount is up to JPY 9 billion. Including other non-subsidized investments, we plan to increase our production capacity of epoxy resins for semiconductors by about 60%. We plan to start operations in July 2029. As shown below, we aim to increase sales of resins for low-dielectric substrates and semiconductor packages, mainly for Chemitronics applications, at a CAGR of 10% through 2030, and have decided to invest to achieve this goal. Quarterly performance trends are shown for the past three years. Operating profit in the second quarter of 2025 reached its highest level since the acquisition of C&E. The operating profit margin is also on a steady recovery track, and we are gaining confidence as we move toward achieving record-high profits into next year. That is all for the overview. Good morning, everyone. My name is Takeshi Asai, CFO at DIC Corporation. I would like to present to you the details of the financial results for Q2 of 2025. The document you are looking at now is the consolidated income statement for H1. Since CEO Ikeda has already given you an overview of net sales and operating income, I will talk about a supplemental explanation about items under operating income. Looking at operating income and below, interest expenses showed a slight improvement compared to last year. In particular, regarding overseas, cost reductions due to lower interest rates have been a major factor. Next is foreign exchange gains and losses on the third. Last year, the foreign exchange gain was JPY 0.3 billion. This year, it is negative JPY 4.8 billion, marking a sharp turnaround of JPY 5.1 billion from the previous year and representing the primary factor behind the decline in profit. The primary factor behind the sharp decline in foreign exchange gains and losses is the yen's appreciation against other currencies and the depreciation of many currencies, particularly those of emerging countries. In particular, the significant depreciation of the Turkish lira and the Argentine peso has had a notable impact, resulting in substantial foreign exchange losses. As a result, while operating income increased significantly by an additional JPY 5 billion in the previous year, the level of ordinary income was almost the same as the previous year. For the items below ordinary income, changes in extraordinary loss are notable. Last year, there was a loss of JPY 9.1 billion, but this fiscal year, the loss is JPY 1.9 billion, a decrease of about JPY 7 billion here, and a factor in the increase in profit. As you can see from the breakdown on the right, there were several special factors last year. In particular, the JPY 4.5 billion loss on sales of stocks and investments in affiliates, recorded under extraordinary losses, reflects the loss incurred from the transfer of shares in Seiko PMC, which was a listed subsidiary of the company. Below that is restructuring-related severance losses. This is the restructuring cost in Europe and the U.S., especially in the ink and pigment business, which was negative JPY 3.2 billion last year, but has improved significantly. The reduction in extraordinary losses due to these two main factors resulted in higher income before income taxes compared with the previous year. This, in turn, led to net income attributable to owners of the parent of JPY 6.4 billion last year and JPY 13.1 billion this year, nearly double the previous year's figure. Next page, please. Next is financial health. First of all, at the end of June, net interest-bearing debt was JPY 424.6 billion, an increase of JPY 2.2 billion from the end of December FY 2024. On the other hand, the shareholders' equity was JPY 396.1 billion, a decrease of about JPY 5.3 billion compared to last December. However, as noted beside the figure, the main reason for this negative JPY 5.3 billion is the decrease in the foreign currency translation adjustment on the company's balance sheet caused by the strong yen. That portion was negative by about JPY 13.8 billion, which is the main reason for decrease in the shareholders' equity. As a result, the net D/E ratio increased slightly to 1.07x from 1.05x at the end of December last year. On the other hand, the equity ratio was 32.9%, almost the same level as at the end of December of the previous year. Next page, please. The following are the reasons for the increase or decrease in operating income in this H1. OI, as indicated by the operating income bridge, the leftmost figure is JPY 21.9 billion for H1 of last year, and the right one is JPY 27 billion for the current year. As you can see, the increase or decrease is clear. The positive factor was this sales price. The price here is significantly higher, a positive JPY 8.9 billion. This is a significant increase of JPY 8.9 billion, reflecting the effect of our efforts since last year to adjust selling prices to cover higher costs, as well as a portion of this fiscal year's cost increase from the Trump tariffs, which we have passed on to customers through surcharges. On the other hand, on the left side, there is sales volume and product mix. This is a negative JPY 2.5 billion, and the largest portion of this is related to the Packaging & Graphic segment. This is a significant portion of the negative JPY 2.5 billion. Details will be explained later. See next page 10. Here is a breakdown of overall sales and operating income by segment. We have three major divisions: Packaging & Graphic, Color & Display, and Functional Products. Net sales were down YOY for all divisions, partly due to the strong yen. Packaging & Graphic, in particular, recorded a larger decline. On the other hand, the operating income of the Color & Display business, which is in the middle of the graph, and the overseas business, which is in the middle under Color & Display, went from an operating loss of JPY 2.2 billion last year to a profit of JPY 2.6 billion this year, which is an increase of JPY 4.8 billion over the previous year. This is the main reason for the increase in overall profit. Next page, please. Next is the Packaging & Graphic segment. As I mentioned earlier, sales declined compared to the previous year. Below is a breakdown of sales by region. Sales have declined compared to the previous year in Japan, as well as in the Americas and Europe, particularly in Europe. This is mainly due to sluggish shipments of ink for packaging and, in Japan, polystyrene used for food trays. In both Japan and Europe, rising food prices have led to a decrease in demand, which in turn has reduced shipments of food packaging materials. As a result, shipments of our packaging inks and polystyrene, which is used for packaging, have decreased. These are the main factors behind the decline in sales. Operating profit decreased by JPY 1.8 billion compared to the previous year. In Japan, the negative factors were, as mentioned earlier, the decline in sales of inks for packaging and of polystyrene. The operating profit margin is 5%, which is slightly lower than the 5.8% in Q2 of last year, but the profit level has been almost stable in Q1 and Q2. Next, please. Next is the Color & Display segment: pigments. Sales were almost unchanged from the previous year, but operating income improved significantly. In particular, the overseas pigment business has returned to the black from last year's deficit. As I mentioned in the bridge section earlier, we raised prices to improve profitability. We also benefited from cost reductions from restructuring and other structural reforms, and these were the factors that helped us turn profitable this fiscal year. As shown in the quarterly operating income and operating income ratio on the lower left, we are seeing further improvement in the profit margin from Q1 to Q2. Next page. Next is the Functional Products segment. Sales were almost unchanged from the previous year, but operating income increased by JPY 100 million compared to the previous year. The table below shows the breakdown of sales of principal products. Our main electronics-related products, epoxy resins and industrial use tapes, which are used in smartphones, as well as UV curable resins, have all shown growth compared to the previous year. These have contributed to the increase in profits. The products on the right side of the table are mobility products, which are automotive-related, products related to housing and construction infrastructure, and general industrial applications. The changes vary depending on the product. In particular, sales of polyester resins were down compared to the previous year, but this was offset by increased profits from the products in the Chemitronics and electronics businesses on the left side of the table. Next, please see page 14. This is the Chemitronics business division among the Functional Products segment. Sales were up 4.9% over the previous year, but operating income was negative 15.5% in H1, unfortunately. Shipments of epoxy resins and other high value-added products, such as those for AI servers, PCs, and smartphones, were strong. However, this division is now increasing various technical costs to accelerate implementation in product development, resulting in an increase of about JPY 1.4 billion in costs. As a result, operating income decreased by JPY 600 million from the previous year. Next, please move to page 15. This is the annual forecast. As CEO Ikeda mentioned at the beginning of this presentation, compared with the previous forecast announced in May, net sales and ordinary income are down. However, operating income is expected to be higher, and net income attributable to owners of the parent remains unchanged at JPY 24 billion. The JPY 24 billion in net income does not currently include gains from the sale of artworks. The net negative impact of extraordinary gains and losses has been reduced considerably from the original plan. We are currently projecting the net impact for the year to be approximately JPY 1 billion. The results and key KPIs are shown to the right. ROIC, ROE, and net D/E ratio all improved compared to last year. The dividend is JPY 200 per share. Next, please see page 16. Here are the factors behind the YOY change in operating income shown in the bridge graph. The trend is generally the same as in H1. The positive impact from sales prices is significant. As in H1, we have also factored into the sales price a portion of the raw material cost increase due to the Trump tariffs, which we will cover by passing the raw material cost increase on to the customer. In addition to the cost increases incurred during H1 of the fiscal year, costs are expected to be negative JPY 6.4 billion due to inflation and other cost increases compared to the previous year. As a result, the current projection for annual operating income is JPY 50 billion. That is all from me. Thank you very much.