Investor Day 2024

Jun 14, 2024

Slides

Summary

FY 2025 targets were reset to JPY 1.83tn sales, JPY 100bn operating profit and 5% ROE, backed by buybacks and capital optimization. Growth plans center on semiconductors, sustainable packaging, overseas expansion and digital services, while the information and communication profit target was reduced.

Thank you very much for participating in our IR day despite your busy schedule. I am Maro, President and CEO. This is the second IR day following the inaugural event in the previous year. Today, we present the strategy of each business segment with a focus on their growth domains. I would appreciate the following 2 and a half hours will contribute to deepen your understanding for the probability of achieving the target presented in the results meeting in May and each business segment. This is the second year of the midterm plan. We reset the midterm plan target figures to ensure the achievement of ROE of 5% in FY 2025 amid the increasingly uncertain social and economic environment. We reviewed the target in three perspectives of profitability enhancement, bolstering of shareholder returns, and capital optimization. In profitability enhancement, in FY 2025, we aim to achieve net sales of JPY 1 trillion 830 billion, operating profit of JPY 100 billion through scale-up of GL BARRIER, global growth based on advancing SX strategy, expansion of semiconductor-related business, and creation of new pillars of profit in new businesses, as well as improvement and assessment of low profit businesses and strengthening investment. In bolstering of shareholder returns, we conduct JPY 100 billion of share buyback in this FY 2024. Going forward, we continue to implement flexible returns in consideration of progressive profit for the proper control of capital. In capital optimization, in attempt to achieve 15% or lower consolidated net asset ratio, we will accelerate reduction of strategic shareholdings. Through this resetting, we improve the probability of achieving the target, and we retarget 8% or more in the next midterm plan. Next, let me explain the profit growth for FY 2025. As shown in the pie chart above, we change business portfolio so that growth businesses, including GL BARRIER, Japan SX overseas living, frontier and electronics priority businesses, will account for the majority of profit. We will achieve the operating profit of JPY 100 billion. Today, we present on three businesses of FC-BGA, overseas living, and GL BARRIER, and we expect that this opportunity will be the productive one for the investors. This concludes my remarks. Now I'll explain the business strategy of electronic segment. As for agenda, first, I'll explain the overview of electronics business and growth strategy. This will be followed by the detailed explanation of business strategies for FC-BGA and next generation semiconductor packaging as a part of focused businesses. This is a business overview. In electronics business, net sales were JPY 266.5 billion, operating profit was JPY 49.5 billion, and operating margin was 18.6% in FY 2023. The electronics business account for 16% of consolidated net sales of Toppan Holdings. In semiconductors, major products include FC-BGA substrate and photomasks, and their sales were JPY 179.6 billion, and operating margin was 26%. In displays, major products are anti-reflection films, small to medium-sized TFT, and color filters, and their sales were JPY 86.9 billion, and operating margin was 4%. Next, let me explain the growth strategy of electronic segment toward the next midterm plan. As for market trends, new demand is expanding in the electronics device market due to the digital shift in all industrial sectors, driven by the progress of society's DX and SX, and this trend is expected to continue. In our medium-term strategy, we maximize business value by supplying key devices centered on semiconductor-related products. As shown by the chart of vision for electronic segment operating profit expansion on the left, the operating profit of electronic segment will grow gradually from FY 2023 to 2025 based on the prevailing foreign exchange rate in FY 2023, JPY 151.4 to a dollar. By FY 2025, we will devise strategy and implement upfront investment for sustainable growth, and we will accelerate growth centered on semiconductor-related business toward FY 2028. We will transform the business into one with high profitability of 25% or higher operating profit margin. As for the specific strategy, in the field of priority business of semiconductor business, in FC-BGA, we will expand orders for high-end products by enhancing production capacity in Japan and overseas. In the next generation semiconductor packaging, we will establish competitive advantage in technological development. Regarding the enhancement of production capacity, new lines of FC-BGA in Niigata will be online in FY 2025, and mass production will start in FY 2026. Singapore plant will be online in FY 2026, and mass production will start in FY 2027. In the next generation semiconductor packaging, Ishikawa plant will start mass production in FY 2028 or later. In photomasks, we strengthen collaboration between manufacturing bases to bolster supply capacity, and we are accelerating technical development and capital investment for cutting-edge masks, including EUV masks. In existing displays, in antireflection film business, we will drive enhancement in performance and functionality to cater to higher definition displays and expansion of applications. In TFT-LCD, we focus on automotive, industrial equipment, and aerospace and defense fields to maintain leading share in global niche markets. I will explain FC-BGA business more in detail later in my presentation. I will explain the latest results in FY 2023 and the plan for FY 2024 and 2025. Sales and operating profit of electronic segment from FY 2023 to 2025 is shown by the chart. In FY 2025, we aim to achieve net sales of JPY 309 billion and operating profit of JPY 52.5 billion. Changes in operating profit from FY 2023 to 2025 are shown on the right. Despite the absence of the impact of amortization cost due to standardization of useful life that was recorded in FY 2023, profit will decrease in FY 2025 by the adverse foreign exchange impact due to the FX assumption change from JPY 151.4 in FY 2023 to JPY 140, and increasing amortization cost due to the upfront investment for the future growth. But it will be offset by semiconductor businesses, and we will achieve operating profit of JPY 52.5 billion. Specific development in each year are described below. In FY 2023, for FC-BGA, we brought forward the expansion of existing lines in FY 2022 and built robust partnerships with customers. The FC-BGA market softened in FY 2023, but we secured the profit by leveraging our technological advantages to focus effort on server CPUs, network devices, and others. That resulted in a growth in sales and profit in tough market environment. FY 2024 and 2025 are positioned as a period of implementing upfront investment. In FY 2025, there will be a foreign exchange impact, and amortization cost will increase due to upfront investment. But we will secure increases in sales and profit centered on semiconductor-related business. There will be no large-scale increases in capacity for electronic segment in FY 2024 and 2025, but we expect the profit contribution by upfront investment will be in FY 2026, in the sustainable growth phase and beyond. I will explain FC-BGA business, starting with strategy and trends. In FC-BGA business, our customer and technology strategies have been successful, and we are controlling the impact of market fluctuations. In our previous strategy, as shown on the left, we targeted server CPUs, network devices, home video game consoles, CPU, GPU as focus markets, and the technology requirement of substrate size increase, multilayer support, and supporting high speed transmission. In addition to this, as new business opportunities, as shown on the right, backed by the expansion of generative AI demand, we will support chiplets. Chiplet structure represents the technological trend for high-level integration and functionality through chip segmentation, reconfiguration, and mounting of different types of chip. As a future strategy, we would like to focus on markets for generative AI and network devices based on market expansion and intent to provide solutions to social issues. We have two major strategies of scale expansion and technological development. In scale expansion, we launch lines for which investment is complete, and we expect capacity to increase 2.5 times compared to FY 2022. In technological development, we will develop interposer using glass material and FCBGA that supports IOWN 2.0. As shown on the right, FCBGA supporting IOWN 2.0 enables high-speed transmission and low power consumption through optical transceiver mounted on substrate for optical data transmission. Thus, we capture new business opportunities to expand the business on top of the conventional business domains of FCBGA. Next, I'll explain the market environment of FCBGA. Demand for FCBGA increases due to growth of generative AI market, and expectation is heightened for packaging due to chiplet structure. In technological trend, chiplet structure is described first. Generative AIs, learning and inferencing require advanced processing, necessitating chiplet packaging in which different types of chip are mounted. Regarding IOWN 2.0, commercial use of optical board connections will begin in 2026 for data center network devices, and it is expected that introduction will subsequently progress rapidly. This chiplets market will continue to grow substantially, as shown on the right top. As for the market trend for FCBGA, as shown in the chart on the right below, although demand decreased in FY 2023 due to inventory adjustment, we expect stable growth in our target market, with increased demand for generative AI network device semiconductors, driving the FCBGA market from FY 2024 onward. I will explain the roadmap for FCBGA substrate and next-generation semiconductor packaging. We supply semiconductor devices to support solutions for social issues of data traffic increase and need for low power consumption as our major path going forward. As for conventional FCBGA substrate shown below, we've developed technology mainly for network devices. In addition to our existing support for the large multilayered FCBGA, we enhance technological value through supporting IOWN 2.0 with optical board connections and optical inter-chip communication. Furthermore, we launch new lines in Niigata plant and mass production in Singapore plant in parallel. Next-generation semiconductor packaging shown above is mainly for generative AI as a target market. Starting with chiplet structure FCBGA, combined with silicon interposer, we promote technological development with glass core, glass interposer, and organic RDL to create high value-added products. They will be developed in next-generation semiconductor packaging development center and mass-produced in Ishikawa plant. As described here, FCBGA will not be replaced by the next-generation packaging, but will continue to evolve in tandem with chiplets, and structures will be more diversified. Among the things I explained before, I explained the new lines of manufacturing bases where we invest in FCBGA business. In Niigata plant, we launched mass production in 2014, and launched mass production on expanded line in 2022. We plan mass production launch on new lines for FCBGA in 2026. In Singapore plant, we plan the launch of phase 1 at the end of 2026 and expand the FCBGA production, though the timeline of phase 2 is not yet determined. Finally, I will explain the technology and the development strategy of next-generation semiconductor packaging business. We accelerate commercialization of next-generation semiconductor packaging by responding to next-generation technology needs, with experience in technologies accumulated in the FCBGA business. Three of our strong track records are described on the left. First one is our capability in larger and multilayer substrates. We have track record of 20 plus years mass production in FCBGA business, with a sales growth of eight consecutive years. We have strong collaboration with customers who recognize our high-end FCBGA capabilities. Second strength is R&D. We established next-generation semiconductor packaging development center. We will promote development, bringing together knowledge of group companies, including semiconductor front-end process design, microfabrication, glass processing, and conveyance technology that we accumulated in other businesses of electronic segment. In particular, we can apply knowledge on semiconductor front-end processing to develop interposer for inter-chip connections. Third strength is leading-edge tech information. We participate in TSMC 3DFabric Alliance. Our participation in the alliance is backed by the high recognition of our extensive track record in 2.5D packaging substrate deliveries and stable quality. That enabled us to acquire technology information to meet market needs, such as design tools and processes. With these strengths for next-generation semiconductor packaging, we work on solutions to the market technical challenges as shown on the right. To be specific, we aim for mass production at Ishikawa plant, which we acquired from JOLED. With this, I conclude my presentation on electronic segment. Thank you for your attention. I am Noguchi, General Manager of Living and Industry division. Let me start my presentation. Business overview. In living and industry segment, in FY 2023, net sales were JPY 537.4 billion, operating profit was JPY 27.4 billion, and this segment accounts for 32% of consolidated net sales. As for sub-segment, in packaging business, which includes flexible packaging, sales were JPY 404.2 billion, and in decor materials, centering on decor sheets, which are used for walls and flooring, sales were JPY 133.1 billion, as shown here. This slide shows plan of living and industry segment. As shown in the middle, under the medium-term strategy in packaging in Japan and overseas, we focus on growth business of flexible packaging and in overseas decor materials. We shift to high value-added products, and we expand global businesses. In existing business, we implement a structural reform of low-profit businesses. In living and industry segment, we aim to achieve net sales of JPY 589 billion and operating profit of JPY 42 billion in FY 2025. The structure of operating profit in FY 2025 is described in the chart of changes in operating profit shown on the right. In Japan packaging, expect the operating profit growth of JPY 4.5 billion in two years. Reorganization centering on folding carton business will account for 40%, and the product mix change to the high value-added products by the increase in assets packaging, centering on flexible packaging, will account for 60%. Out of the operating profit growth of JPY 3.7 billion in FY 2023, 60% is from profit improvement, including price increase, bigger pass-through, and 40% is from the expansion of SX packaging. Switch to SX packaging has been progressing as expected and has delivered results. We assume it highly likely to achieve profit growth in two years up to FY 2025. As mentioned before, we were mostly able to pass the raw material and energy cost increase to price with understanding of the market. We are negotiating for the price increase due to labor cost and the logistic cost increases in this year, and we will be able to have the successful pass-through of these costs. Overseas packaging will increase profit by JPY 5.2 billion. As for the breakdown, absence of one of adverse factor, including natural disasters and facility troubles happened in India and Indonesia, which happened in the previous year, account for about 20%. Cost improvement impact with the film business expansion account for 20%, and SX packaging expansion in Europe, the U.S., and Asia Pacific region, and the capture of growth market will account for 60%. Overseas decor materials will increase profit by JPY 5.1 billion. As for the breakdown, market improvement from the inflation accounts for 20%, expansion in developed countries and emerging countries through deployment of high value-added products and the use of global platform account for 40%, and the initiatives to improve profitability will account for 40%. In overseas packaging and overseas decor materials, we were able to pass through cost increase 100% as we developed business with a price fit for in line with the market conditions. Today, I will explain focusing on future business growth pillar of living and industry business, overseas packaging, and overseas decor materials, which will increase profit by almost JPY 10 billion in total. Prior to the detailed explanation, I will explain the outline of profit expansion strategy. As shown in the column of specific activities in the middle, in packaging business, we expand profit by expanding market share of SX packaging, meeting the needs of market of each region, centering on flexible packaging. In barrier film business, we expand sales by bolstering lineup of products for mono-materials and enhance cost competitiveness by optimizing global supply system. In film manufacture business, we will strengthen production capabilities in Indonesia and India to strengthen competitiveness of flexible packaging and barrier film through enhanced substrate film manufacturing and enhanced functionality. In decor materials business, we expand sales by expanding share in developed markets through extensive product lineups and high value-added decor sheets, and by enhancing production bases and collaborating with local partners to strengthen sales capabilities in emerging market. Furthermore, we will generate cost synergies by combining TOPPAN's production capabilities with INTERPRINT procurement capabilities. Finally, let me add comments on TOPPAN's SX packaging. We define eco-friendly packaging centered on flexible packaging and film as SX packaging to drive solutions to global environmental issues, including CO2 emission reduction and resource circulation across the entire product life cycle, from material procurement to disposal, and we enhance their development and supply. In particular, with GL BARRIER, which has the prominent competitive advantage as a core, we supply products and services to drive solutions to the global market of Japan and overseas. Let us move to the overseas packaging business presentation. I am Tatewaki of overseas packaging business division. Today, I will present the market trend of flexible packaging, progress of overseas packaging business expansion, and the future growth strategy as shown here. Please turn to page 9. This slide shows the market size of flexible packaging and the future growth forecast by region. The global flexible packaging market is expected to expand from JPY 35 trillion in 2021 to JPY 46 trillion in 2030. Asia, Europe, and North America are expected to serve as three key drivers to lead steady growth, and we also aim to expand business in these three regions. Next page, please. I will explain global increase in sustainable packaging needs. As you know, global move for decarbonization and plastic resource circulation is accelerating as a countermeasure to global warming. As shown on the left, registrations of environmental guidelines are moving forward globally, including in Japan, and in particular, the progress in Europe is prominent with PPWR for packaging waste regulation, and it is agreed that all packaging materials used in Europe is expected to be compliant with design for recycling by 2030. In response to this, major global companies have announced their commitment to sustainable packaging. For example, major global consumer goods companies, P&G, have declared they will switch to 100% reusable and recyclable packaging by 2030. Next, please turn to page 11. In response to these market trends, I would like to explain our overall strategy on a global scale. We will expand SX packaging by implementing two key measures, our own development and the supply of value-added films, and strengthening cost competitiveness through in-house production. I will briefly explain our strategy using the supply chain diagram on the left. Many packaging manufacturers focus from 4 to 6 on printing, lamination, and packaging processing. We are now promoting from 2 to 6 vertical integration from film manufacturing, barrier film processing, to packaging manufacturing. By procuring the development and supply of materials required for SX products in-house, we aim to expand added value and strengthen cost competitiveness by in-house film production. The axis of this strategy is our response to the major changes in packaging materials shown in the diagram on the right-hand side. The conventional product shown in the diagram above was based on a multi-material structure in which different types of plastics were laminated, but there were issues with recyclability. We believe that the mono-material structure using a single plastic shown in the diagram below will become the mainstream in the future. This is one example of SX packaging. In order to take advantage of this major change in the market and build a competitive advantage, extending our business to the material area on the upstream side of the industry is going to be the key. On the next page, I will explain how the expansion of these SX opportunities, which we are focusing on, will contribute to our profit expansion. First, the diagram on the upper left shows the difference in profit margins compared to conventional products and SX packaging. SX packaging requires development capabilities from materials to packaging, so there are few competitors and few substitutes, making it a market that is less likely to be involved in price competition. We expect a profit increase of about 10% compared to the conventional multi-material products. In addition, by targeting major global brands that have announced a clear commitment to sustainable packaging, we have the advantage of being able to produce a much larger quantity than the local brands and efficiently manufacture the same product on a global basis. Although it depends on the product, there is a profit difference of about 12% between the local and global majors. By increasing the ratio of these SX products, we will increase our profits. Next, please look at the diagram on the right. This shows the internal procurement rate of our film materials. Last year, 25% of the film products in our global packaging business were internally procured. By further increasing our capacity in the future, we plan to increase this by 7% in 2025 and to 32% overall. We expect that these improvements in internal procurement rates will reduce material procurement costs. Our strategy is to continue to advance vertical integration as a global packaging converter and increase our internal procurement rate. Next, please look at page 13. This shows the sales growth of our overseas packaging business over the past five years since 2019, as well as the expansion results through major M&A and wholly owned enterprises. Our overseas business, which was JPY 60 billion in 2019, has grown to a business scale of JPY 150 billion in FY 2023, and we expect to further expand our business toward 2025. Page 14 shows our current basis by region. As I mentioned at the beginning, we are expanding our production bases to three regions in Asia, Europe, and the U.S., where market size and growth are expected. Next, I will explain the supply strategy for barrier films, which are key content in our SX strategy. The packaging business is centering around FMCG, or daily consumer goods, and the local production and consumption is a major weapon. In addition to the current two bases in Japan and the U.S., we will build a new barrier film factory in Czech Republic in Europe in 2025 and start supplying barrier films for SX products, realizing a global tripolar structure. Furthermore, as described in the pyramid diagram in the middle, in addition to the retort foods and the liquid products that have been main battlefields of GL film until now, we have developed a new barrier grade targeting dry foods and released it last year from TOPPAN Speciality Films, an Indian company that we acquired. This will expand in our target markets and manufacturing bases for GL BARRIER film. Finally, I will explain our strategies by area. In Europe and the U.S., we will continue to expand synergies, mainly with SX products by utilizing new barrier film bases and packaging bases acquired through M&A. In ASEAN, we have already achieved the number 1 share in Indonesia, the largest market. In preparation for future market growth, we will expand our existing film manufacturing capacity and maintain a high in-house production rate, while continuing to develop the technology and expand production capacity in conjunction with our base in Thailand as an important base for the expansion of Asian production bases for European and American global brands. This concludes our overseas package strategy. Next, we will move on to explain our overseas decor materials business. Thank you for the opportunity. My name is Yamanaka from the Environmental Design division. I would like to explain our overseas decor materials business. This is a table of contents for the overseas decor materials section. I will explain items 1 through 7 in order. First, I will explain the overseas decor materials business in terms of the value chain and our strength. As shown in the value provided in the upper right corner, we manufacture and provide decorative sheets that have the same or better expression as natural wood and stone, making full use of our design capabilities and printing technology. In addition, we use surface processing technology to give them a high resistance to abrasion, preventing shortages of natural materials and environmental destruction, and contributing to sustainable society. In the value chain, we purchase raw materials such as paper and film, print and process the surface, and deliver them to our customers, furniture manufacturers, and panel manufacturers as surface decorative sheets. After processing the base material, they are sold as finished products. There are two main strengths of our overseas decor materials. The first is the technological superiority. We have printing processing technology that can meet various quality requirements and an integrated system from design development to manufacturing, sales, and printing, and we also now provide post-processing and develop sustainable products. Secondly, we have a global platform production base of 15 factories in 11 countries around the world, enabling optimum production close to customers. Next, the market trend of overseas decor materials. According to a forecast by the research company, AFRE, the market will grow at an average annual rate of 3.1% until 2028. Of the current market size of 2 trillion JPY, the world's major decor materials printing companies target high-end and mid-range products, and our company's share of that market is 14%, placing us in the top group, and we will continue to aim to expand our business. Page 21 is about our global platform and the progress of business expansion. The world map on the top shows that we have six bases in Europe, five in Asia, and four in the Americas. The bottom shows the progress of overseas decor materials, starting with the establishment of Toppan Interamerica in 1987. We have made acquisitions of Chiyoda America, Spain Decotec, and INTERPRINT, and we will continue to expand our platform. Next, we will look at the trends in overseas decor materials business. The red line in the graph shows the sales volume, and the blue line shows the profit margin. Both are expressed as an index with 2019, before COVID-19, set at 100. Sales fell significantly in FY 2020 due to the effects of COVID-19, but grew significantly in FY 2021 due to stay-at-home demand. However, from FY 2022, sales fell due to the global inflation triggered by invasion of Ukraine, causing the housing market in each country to deteriorate and decline. In addition, in FY 2023, the Chinese real estate recession became even more serious and the market continued to stagnate. In FY 2024, mortgage interest rates fell from the second half of the year due to the inflation control measures in each country and housing demand recovered. Accordingly, we predict that sales will exceed pre-COVID-19 levels toward FY 2025. On page 23, I will explain our overall overseas strategy. Our strategic axis is to maximize production by leveraging our competitive advantages of high design, high durability, and high added value development and global network. In terms of sales, we have established strategies to meet the different needs of developed and emerging countries. As the pie chart shows, there is a tendency for varieties to diversify in developed countries. We will use TOPPAN's technological capabilities to provide a wide variety of high added value that meets the needs. In emerging countries, the market is titanium paper, so we will utilize INTERPRINT's network to expand the existing products. We have set the strengthening of profitability as a common theme for all bases. As I mentioned in the Living & Industry business strategy earlier, we plan to increase profits by JPY 5.1 billion in FY 2025 compared to FY 2023, with 40% of this coming from expansion developed and emerging countries, 40% from strengthening profitability, and 20% from market recovery. We will explain in more details the measures to achieve these three strategies on the next page onwards. First, about our strategy for developed markets. Our advantages are our technological capabilities we cultivated in Japan, our development resources, and INTERPRINT sales design and marketing capabilities, and these are giving us synergies. The first is the expansion of the film business. We will add printing facilities in the U.S. and expand supply of decor sheets for the growing PVC flooring market. We also launched a film printing business in Germany in 2024. Japan is providing technical support for both. The second is the expansion of sales of furniture decor sheets. We will apply TOPPAN's new coating technology to INTERPRINT to develop high added value decor sheets that other companies simply cannot imitate, and aim to launch them by the end of the year. The third is the development of sustainable products, and we have developed curing decor sheets that can be painted after the coating and are currently expanding it as an alternative to wood veneers by appealing to CO2 reduction effects. Next, I will explain how we will tackle emerging markets. Our competitive advantages here are our global platform and INTERPRINT's design marketing capabilities. First, the construction of a new factory in Turkey. We will introduce integrated production facilities that will enable INTERPRINT to utilize its design capabilities and establish a direct supply system for the Turkish market as well as the neighboring markets. Second, in order to capture the ASEAN markets, the company will invest in JOYFUL Co., Ltd. in Vietnam, and starting this year, will strengthen its design and sales capabilities in cooperation with the INTERPRINT Decor (Malaysia) Sdn. Bhd.. Third, the company will explore new markets starting with exports to India, North Africa, and other markets. Finally, I will explain our efforts to enhance our profitability. INTERPRINT has begun in-house production of gravure inks for titanium paper printing. We have been working on this project fully since 2024 and will complete the rollout to all the INTERPRINT locations by the end of the fiscal year and then continue to expand it to TIA and Japan. We will also strengthen our ability to procure base paper, which accounts for a large proportion of our cost, and reduce costs by diversifying our suppliers and strategic purchasing. Next is productivity enhancement. Using INTERPRINT Decor (Malaysia) Sdn. Bhd. as a model factory, we are developing TOPPAN's production technology capabilities, promoting improvement activities, reducing indirect time, and improving efficiency and yield. We will horizontally roll this service out to all INTERPRINT locations as well. Last year, the COVID-19 pandemic had calmed down, and we were able to invite members of INTERPRINT's engineering and manufacturing departments to Japan for technical training. The results of these efforts will begin to emerge starting from the current fiscal year. By creating such global synergies, we aim to improve the cost ratio by 0.8% in FY 2024 and by 1.9% in FY 2025 year-on-year basis. Although overseas decor materials are greatly affected by the market conditions, we will aim to achieve our midterm plan with the strategies for developed and emerging countries and the strategies to strengthen profitability that I have just mentioned. This concludes the expansion of the business strategies for overseas decor materials and the living and industrial segment. I would like to thank you for your kind attention. First, I, Saito, will explain the overall strategy for the information and communication segment. First, I will explain the business overview. Information and communication business has a business scale of JPY 900 billion in sales and JPY 45.6 billion in operating profit in FY 2023. There are four sub-segments. Digital business and BPO, which are positioned as growth business, and the secure media and communication media, which are mainly existing printing business. Products, services, and sales and profit margins by segment are shown here. The two sub-segments of the growth business are our DX businesses, which we have branded as Erhoeht-X and expanding with five focus solution categories. Next, I will explain our plans for the information and communication segment. The medium-term strategy is to achieve high growth by promoting Erhoeht-X to support our customers' digital transformation as a value co-creation partner. In the digital business and the BPO sub-segments of the growth business, we will expand earnings by scaling up Erhoeht-X. In the existing businesses of secure media and communication media, we will work to maintain and improve profitability through structural reforms. For the information and communication as a whole, we aim to achieve JPY 959 billion in sales and JPY 55 billion in operating profit in FY 2025. Regarding operating profit, we have revised down the operating profit target for FY 2025 by JPY 7 billion from the JPY 62 billion target disclosed in May last year. The background to this is, while we are working on scaling up Erhoeht-X, our proposals are being well received by our clients. There are many cases where our clients need to make a decision to introduce large DX-related projects, and we are now finding that it may take a considerable amount of time before such a decision is made. In addition, market movements have slowed down more than expected in some areas, such as delays in government cloud adoption by local governments. In light of these circumstances, we have made revisions mainly in Erhoeht-X. The revised operating profit of JPY 55 billion is as shown in the operating profit changes. Digital business and BPO are driving profits, while secure media and communication media are expected to decline in profits. We expect a two-year profit increase of JPY 16.2 billion for the digital business and BPO, JPY 5 billion for Erhoeht-X Marketing DX, JPY 7 billion for the secure business, JPY 3 billion for the digital contents, and JPY 1.5 billion for manufacturing and distribution DX, respectively. In BPO, we expect a profit increase of JPY 2.1 billion, and here, too, we expect a growth in hybrid BPO of Erhoeht-X. Today, I would like to explain the strategy for the three drivers of profit growth within Erhoeht-X, Marketing DX, secure business, and hybrid BPO. Before going into too details, I would like to explain the outline of the strategy for the three priority categories. In Marketing DX, we will build a sustainable business model by providing support for our customers by accompanying them by combining DX, which transforms the digital infrastructure, and the CX, which transforms the customer experience. In secure business, we will continue to make key products such as AIRPOST and EngagePlus the de facto standard in Japan. Overseas, we will focus on expanding our business in the areas of government ID, IC cards, and IoT. In hybrid BPO, we will continue to strengthen our efforts to streamline routine and financial affairs for central and the local government ministries and agencies and to meet with outsourcing needs. Erhoeht-X as a whole aims to achieve sales of JPY 400 billion and a profit margin of 10% in FY 2025. Finally, I would like to talk about how we will scale up the three key categories we are focusing on at this time. As for Marketing DX, we will focus on increasing the unit prices by promoting comprehensive orders through expanding our menu of services to support wide range of areas in our customers' marketing process. In the secure business, we will expand in a transaction volume by multiplying the number of the companies adoption our key products, AIRPOST, EngagePlus, and the payment solutions. We will expand the amount of transactions. Overseas, we will work to expand the number of countries adopting our products and the number of items ordered, taking advantage of the increasing demand for government IDs and IC cards, especially in emerging countries. As for in hybrid BPO, in the public sector, we will continue to strengthen orders for BPO for regular subsidies projects from central government's ministries and agencies while expanding horizontally to wide area local governments and expand the number of clients adopting our products. In the financial subsector, we will increase the number of cases and improve added value by standardizing solutions. This concludes the explanation of overall information and communication business. Now we would like to move on to the explanation of our Marketing DX strategy. Next, allow me to explain the Marketing DX. First, I will explain the market trends and our company's challenge in achieving our medium-term plan. As a market, there is a strong need for DX in the marketing field, but only 60% of domestic companies have achieved DX results. It is said that Japan is lagging behind in providing DX for customer experience, CX, and employee experience, EX, compared to Europe and the United States. The DX needs of clients have also now changed from simple digitalization to business transformational support, and there are cases where DX consulting is provided but does not lead to business transformation. Considering the fact that there are now few DX partners with industry knowledge and that DX companies such as system integrators are moving to strengthen their CX departments, we believe that both clients and competitors are beginning to redefine DX. Next, TOPPAN Marketing DX medium-term plan. The sales plan for FY 2025 is JPY 70 billion, with a profit margin of about 10%. There is a need to scale up from the actual performance of JPY 25 billion in FY 2023. Next, we have summarized our own challenges in scaling up our business. We have provided Marketing DX services to about 1,000 companies and received a certain level of evaluation, but our business scale has not extended, remaining limited to transaction in the digital field. In addition, there are issues such as limited expansion of trading opportunities through intercompany collaboration triggered by the holding company, and the need for negotiations with the management for business transformation, which requires a long lead time until a deal is concluded. Since FY 2023, we have been pursuing a strategy to strengthen our business model and scale our business by anticipating market needs and our mission this fiscal year is to accelerate this. Here, I will explain our Marketing DX business strategy. Anticipating the market needs explained earlier, we have integrated our DX digital marketing organization and CX organization to organize the business transformation center since FY 2023. This is an organization to support the customer-centric management transformation practiced by the growing companies such as Amazon. As shown in the diagram below, our concept is to accompany and support our clients' business transformation for the long term by integrating DX, EX and CX, taking advantage of TOPPAN's strength. Our clients have given us positive feedbacks, and we are seeing an increase in pioneering projects. I will explain this business model from the perspective of our company's challenge of business scale. Please here now look at the yellow shaded area at the bottom of the slide. Our former digital marketing organization was highly acclaimed for its services that combined DX and EX. However, because we are limited to digital business, we had issues with the speed of business scale. Therefore, we merged our functions with the CX organization, which is skilled in customer experience design. We are now able to expand our digital marketing extension to the entire marketing value chain, combining online and real-world activities such as advertising, sales promotion, and in-store, and this has expanded our business opportunities. In addition, by integrating the three X's as a service provided, we are able to support the growth of our client's entire business and ensure continuity. Next, we will introduce our business scale strategy to achieve our midterm managing plan. The strategy for scaling up is to focus on five industries and accelerate our efforts by using the business transformation scenarios tailored to the characterizations of each industry, adding JPY 15.5 billion to our results for FY 2023 to achieve JPY 40 billion this fiscal year. This scaling strategy is, one, the average customer spending, two, the number of customers, and three, productivity. One, the strategy for scaling up the average customer spending is to evaluate business transformation support from DX alone. Two, the strategy for scaling up the number of customers is to strengthen the customer contact points at all TOPPAN. Three, the strategy for scaling up productivity is to speed up the expansion of human resources. The details of these three strategies will be explained on the next page onwards. The first is the strategy for scaling up the average customer spending. In order to increase the annual transaction volume from a single client, we are promoting a shift from DX alone to business transformation support. What we are promoting is comprehensive orders by fusing DX and CX. Starting with customer data involved in the DX support, we are accompanying and supporting our clients' business transformation by integrating CX strategies for the entire marketing process of our clients. We have strengthened the CX services 1 through 11 that correspond to our clients' marketing processes. By using customers' data as the basis, we can expand our involvement to other processes regardless of which process we enter, making it possible to continuously enhance our multiple services. In addition to commission-based revenue, we will increase fee-based revenue, which is mainly used in digital marketing operations in order to increase our profitability. In this way, the fusion of DX and CX will lead us to higher profitability in integrated orders, which will become a scale strategy for customer unit price. Here are the three examples of transactions with the clients who are progressing toward integrated orders. The first is an example of strategy step for comprehensive orders, where company A is a retail company and company B and C are the contract-based service companies. There is a value chain process centered around data and in a state where transactions and operations are aligned increased by numbers. I think you can see that our involvement in the value chain is expanding as we get involved in data operations. In the lower right of each box, we indicated how much sales growth is expected in FY 2024 compared to the actual annual transactions as of FY 2022. You can see that business is expanding as a result of the integrated orders of DX and CX. In addition, as stated at the bottom, we aim to achieve high profitability by increasing the ratio of fee-based revenues. For CX type transactions, which are mostly commission type, we will increase the ratio of fee-type revenue with higher profit margin by driving the application of DX and furthermore, by strengthening high-level functions such as consulting and production management. We will raise the profit ratio. The second is a scale strategy to increase the number of customers by strengthening customer technology using all TOPPAN's resources. We amplify opportunities to expand sales by rolling out business sales functions to regional divisions and expanding products that are our entry points. In addition to the information and communication business division, we deploy business sales functions to TOPPAN's living and industry divisions and regional divisions and TOPPAN Edge. We developed sales staff, the business sales, specialized in Marketing DX and are deployed to five business divisions to expand orders creations opportunities nationwide since fiscal 2012. Business sales are also functioning as OJT for sales staff responsible for customer accounts. In addition to expanding sales offices, we also work to expand the range of products and services that can be used as sales leads. In addition to strengthening DX and CX services, we are also expanding hybrid DM and store DX through manufacturing collaboration, increasing product types from 53 last year to 66 this fiscal year. The third is a strategy to scale up production capabilities. Human resources are critical to the Marketing DX business. In addition to strengthening the human resources recruitment, we are also promoting measures to speed up the expansion of human resources that do not rely on requirement. At the end of FY 2023, we had 950 Marketing DX related human resources, and we will expand this number to 1,700 in FY 2025 through the following measures. In terms of resources expansion through M&A and capital alliances, we have acquired Cocolable, a company with a proven track record in growth marketing in advertising and EC development, Fusion, a company with an established reputation for CRM design and operation, and New Standard, a brand development company to enhance capabilities. In addition, as shown in the middle table, we strengthen DX human resources by deepening cooperation with group companies and effectively utilizing resources. We are promoting group synergies and improving productivity through the conversion to AI employees, which has been contributing to earnings since the previous fiscal year. Lastly, I'd like to talk about the five industries and business reform enhancement. We have targeted four industries where we have a track record business transformation and strong customer network. We have developed as-is to-be scenarios for business transformation in the five industries of retail, manufacturers, contract-based services, content, and infrastructure to standardize integrated products. For each of these industries, we set a target sales of FY 2025 and strengthening our strategy. Please see the bottom. In manufacturing BX, with wellbeing as a transformation theme, we began business alliance with Integrate Company Limited, a pioneer in this field. We will strengthen our consulting function and accelerate the speed of closing contracts through management level approach. We will scale up the size of Marketing DX through these strategies. Next, I will explain our business strategy for hybrid BPO. First, let me give you an overview of the business. TOPPAN's hybrid BPO is being rolled out by leveraging strength in business infrastructure in the information field, including operational design, personnel, information management, and handling know-how and security management capabilities cultivated in business support where we work in close proximity to the client's business processes. We are targeting government and finance back-office work in a proposal-based DX offering business combining two DX services of entire TOPPAN Group. For FY 2025, we are targeting sales of JPY 150 billion and a profit margin of 10%. In the BPO business environment as a whole, to address working population decline, changing work style, and increasing business speed, the trend of focusing resources on core operational continues and a market for outsourcing for non-core operation in Japan is expanding for all industries. Due to the need to accelerate the social implementation of the policies, there is an increase in policy implementation business and routine auxiliary business with subsidies added to the policy-related business and back-office work is expanding. While the peak for the scale of government administration services being pushed back due to the delay in the widespread standardization local authority system. In finance, outsourcing needs for highly specialized specific operations such as inheritance will increase in banking securities. There is an increasing trend toward compliance with legal systems such as FATF and continuous customer confirmation, as well as EDECA and other operation due to customer needs. In terms of infrastructure development of business scale, we are creating new strengths by combining the assets of TOPPAN and TOPPAN Edge by adapting a holding company structure. The first of these infrastructure improvements is the company-wide sharing of sales, design, and operational know-how. The know-how acquired by Tokyo-based divisions in highly difficult operations will expand to regional divisions through training and human asset collaboration, and we will strengthen the development and securing of talent by introducing job-based human asset management to raise the level of sales design resources. The second infrastructure improvement is a development of infrastructure for base and system collaboration. We will drive sharing of nationwide business bases and systems to expand capacity and enhance functions and cost competitiveness. Next, I will explain the market environment and growth strategies for government BPO. First, the market environment for government BPO. Please refer to the figure. The figure shows the annual government BPO market size estimated for FY 2023. On the left is the central government agencies, on the right is local governments. The upper row is continuous BPO, and the lower row is one-time BPO. As you can see, the policy-related projects in the green shaded area accounts for the majority, and demand in the outsourcing is expanding, centered on policy implementation business. Although there is a firm need for outsourcing administrative services of municipalities in the orange shaded area, the scale of the business is not expected to be maximized until 2026 or later. Next is market trends and growth strategies. We will significantly grow policy implementation project for central government agencies where demand is expanding and aim to increase share of routine auxiliary operations where the business scale is large despite the market size staying flat. For local authorities, we cultivate a new policy-related project for prefectures by leveraging know-how from central government policies projects. Next, I will explain the challenges and competitive differentiation for each project type. First, policy implementation. In the policy implementation business is the project that use subsidies to support target companies and organizations to implement new policies promptly. In contrast to benefits where the details of support are predetermined, the details of systems and screening is necessary for determining the criteria on which to access the appropriate scope and type of assistant. There are cases in which the screening is atypical and difficult, and design is changed due to the status of the application. In addition, since applicants are not familiar with this type of project, it is necessary to provide assistance in resolving any deficiencies in the application and to support project executions. The key differentiations are system and screening design capabilities based on ability, understanding policies, ability to respond to design changes with seamless system for the sales design and operation, and also communication type of front office that supports the applicant closely separate from the screening center. Next, routine auxiliary operations. For policy that support strengthening of the national economic or environmental infrastructure, such as support for SMEs or expansion of energy saving, routine auxiliary projects are implemented over long time spans. These are routine auxiliary operation projects, and in addition to very large scale projects implemented by the central government, prefectural governments are also developing similar projects that take local characteristic into account. Key differentiations follows. Quantitative screening know-how accumulated in large scale projects for COVID countermeasures, such as standardization application of flexible capacity control, and also expand central policy informations and business know-how acquired by Tokyo-based divisions to regional divisions and to take in connected projects. Next is government administrations. Government administration is services provided to local governments on behalf of their residents, such as free childcare and nursing care services, as well as admin work for their employees, like payroll payments. The need for local governments are shifting from traditional simple administration services to business transformation that improve both efficiency and resident services. The differentiation here is our ability to provide consulting services that not only replace part of the workflow, but also improve business flow efficiency through BPR, formulate the scope of work to be outsourced, review the entire work, and implement DX. That is all for BPO. Mr. Akiho is going to explain the financial BPO. Next, Mr. Akiho from TOPPAN Edge Corporation will explain about financial BPO among hybrid BPO. This is the environment for financial BPO. In response to the changes in the social environment, such as shrinking workforce, diversification of services, and compliance with laws and regulations, financial institutions are stepping up their efforts to improve operational efficiency and reduce cost through outsourcing in order to focus their core operations. As noted in the middle, we see the challenges facing financial institutions such as operational reforms and human resources shortages as a market opportunity for us, and we believe the size of this market is on the rise. Please go to page 28. Next, I will explain our growth strategy. The financial market often has outsourced needs that are common to the industry, as it relies on the guidelines and systems of the Financial Services Agency. We have been working to standardize our outsourcing specifications for several years in response to these needs. As you can see in the figure, we have achieved a level of operational efficiency and cost reduction required by financial institutions by incorporating digital technology into shared operations as well. Please go to page 29. On this page, I would like to explain the operations we are targeting based on the strategy I just explained. There are two major areas. The first is the expansion of BPO services with standardized specifications shown on the left side. This is an area of business that has been outsourced in the past, but we intended to expand the scale of this business through standardization. Our strength includes the ability to provide services combining staffing and a business process improvement proposal, BPR. We offer digital services, and we have the know-how of standardization backed up by the hundreds of individual products we have been commissioned to handle each year. As shown in the bottom, we expanded the number of standardized projects to about 10 as of last fiscal year, and we can finally reach the stage of accelerating horizontal development. The second is, as indicated on the right side, we aim to capture demand in operations requiring expertise that were previously handled in-house and started to be outsourced. This is an area that has begun to be outsourced in recent years, and we are strengthening our structure before the market growth with a view to collaborating with our administrative subsidiaries. We expect that these target operations will account for more than 80% of the growth in the sales of financial BPO business, and we intend to steadily turn them into actual results. Please see page 30. Lastly, I would like to explain the service model for specific, highly specialized operations. Firstly, on the left is inheritance BPO. We provide full support for operations related to the administration of inheritance, including scheme for inheritance reception function, call centers, and handling of on-site administration. On the right side is the foreign exchange and tax and public funds BPO. We provide shared services for foreign exchange, tax and utility bill processing. By incorporating AI OCR, we realized an overwhelming reduction in man-hours. By leveraging TOPPAN's strength in providing combined services establish a unique position against our competitors, and we are currently working on more than 50 inquiries. We will continue to meet the market needs and which are expected to increase in the future. Next, I will explain the security business. We will expand our overall security business from JPY 70 billion in sales and profit margin of approximately 2% in FY 2023, to JPY 105 billion in sales and profit margin of approximately 8% in FY 2025. The five areas to be addressed are listed on this page. Today, I would like to explain the customer communication and global security services with the services to be focused by us. First, let me talk about the security business in Japan. Please go to page 34. This is the overall picture of security business in Japan. Over the years, we have cultivated trust and confidence in our information management and processing technologies through working with financial institutions and being trusted with various types of notifications from local government. Armed with our advanced security technology and operational infrastructure, we support the improvement of corporate operations and DX of customer contact points through a combination of various services of the group. Our security business in Japan consists of three major services listed here. Customer communication is a service that takes a procedural DX as its starting point, providing a variety of outputs by combining data collected by AIRPOST and other services such as EngagePlus through our data management services. Payment services provide users with safe and secure payment services through our payment platform, Thincacloud. IoT will provide product management DX using RFID and other technologies, and office DX using facial recognition technologies, and will lead the transformation of corporate business processes by also linking with each business of L head across. Today, I will discuss the customer communication procedures DX in detail. Please go to page 35. On this page, we will explain customer communication service model. We will offer services that support safe and secure customer communications that improve the business efficiency of our clients and the convenience of customers. The services we provide are in two main categories. As you can see, the information gathering service enables traditional procedure with each financial institution separately, but also allows multiple procedures with all the institutions at once by providing, for example, AIRPOST as a service. On the right, the information distribution and browsing service. By providing multiple distributions and browsing services that combine distribution tailored to customer needs and web viewing, this service enables efficient, effective communication of information. Please go to page 36. Next, I will explain the market environment in customer communication. As you can see, the market size expected to grow to JPY 180 billion in FY 2028. Currently in the market, increased smartphones ownership rate is seen and a corresponding increase in the need of digital notifications. In addition, postal fees are scheduled to increase in FY 2024, and we see the resulting increased needs for digital notification as a business opportunity for us. Furthermore, with the iPhone's compatibility with RCS this year, the RCS base is expected to expand quickly to 90 million users. Our targets and companies are shown on this page. Please go to page 37. Next, I will explain the competitive advantage. Firstly, as mentioned in circle one, we have a customer base for data printing service. Existing notification from 1,800 companies amount to 3.2 billion per year, and we have the brand power of the top share in Japan, as well as the infrastructure to process large volume of data through dedicated lines with our clients. Also, there is early entry in the RCS market, as noted by circle three, and a leading edge through patent strategy, et cetera. Please go to page 38. Next, I will explain our strategy for scaling up. Our revenues model is based on an increase of the number of users due to an increase in the number of adapted companies, as well as the synergistic increase in the number of transactions due to an increase in the number of services provided, and an increase in profitability due to a lower cost ratio and higher profit margin as the number of transaction expands. As shown in the bar chart, the forecast for the number of transaction in our services indicate that the digital shift will accelerate and the number of digital notification is expected to exceed the number of paper notifications in FY 2028. We pursue two strategies described for scaling. The first is to strengthen the sales force for DX services by reinforcing the sales structure through DX specialized sales and acquiring companies with particularly large customer base. Second, to increase the number of services offered. We aim to increase the number of times the services are used by linking them with other services that match the lifestyles and life events of the customers. We view customer communication as the area with the highest sales growth rate among all security business in Japan, and as an area that will contribute to higher profitability and profit margins. Please go to page 39. Next, I would like to explain AIRPOST use cases. Currently, we have started a joint study with the Regional Banks Association of Japan to realize the life infrastructure platform concept, aiming to improve the convenience for consumers by providing one-stop online services for various procedures as address changes associated with life events. We participated in the system vendor, and AIRPOST was adopted as the engine. The service provided by TOPPAN Edge are listed at the bottom on this page in addition to AIRPOST. Now we are expanding this initiative to the nationwide scope. We believe that we have finally taken the first step toward the de facto implementation. We will continue to work with the Regional Banks Association to increase the number of companies that will adopt the system, and also to expand its functions continuously. Please see page 40. Finally, I will introduce a case study from Mitsubishi UFJ NICOS Company Limited as a use case for EngagePlus. This is an example of how EngagePlus and web-based forms can be used to provide optimal information to customers, in addition to traditional paper notifications. The cost reduction impact and effect is about 30% reductions in mailing cost, a reduction in workload for NICOS, and improvement for convenience for customers. TOPPAN Edge will continue to expand the sales of digital notification services from the customer communication starting point and contribute to elevate across expansion and the entire TOPPAN Group. Mr. Ikeda is going to explain the global security. He is the Managing Executive Officer. Thank you very much for your patience. This will be the last part of our presentation. I would like to explain the global security business. This will be the first time that we explain the global security business. Please go to page 42. We are currently expanding our business based on the security technology with a competitive advantage that we have cultivated since the analog era. We already have a large number of achievements, and we are now aiming for significant growth, mainly in global services. Please see page 43. We have three basic strategies. Government solutions with passports and digital IDs, smart card solutions with credit card and cash cards, and IoT solutions with RFID and NFC. Currently, we are developing our business in two main areas, government and smart cards. The number of countries is listed for 2023 results, and target number for 2025. Today, we will focus on government solutions which are currently experiencing significant growth and focus among these solutions. Next is the market trend. By 2030, the world's population is expected to reach 8.6 billion, up from current 7.9 billion. The population is expected to grow significantly, especially in Southeast Asia and Africa. Let me go to global market size. IC cards, government systems, and IoT will be the largest market, growing from about JPY 6.2 trillion in 2022 to JPY 11.8 trillion in 2030. Please go to page 46, business strategy. In order to provide advanced security solutions, it is essential to provide total services from consultation to system development and authentications, as is shown on the left. In 2018, we began to align our solutions and technologies, and through acquisitions, business partnership, and establishment of JVs, we are now ready to serve all areas of the market. Next is our target area. The green dots shown are TOPPAN Group's locations. Since becoming a holding company structure last year, we have been promoting cooperation and pursuing the synergies among group locations. Currently, we are focusing on an area called the Global South, circled by the dotted line. The Global South is expected to become a huge market by 2050, when about one half of the world's population is expected to be concentrated there. Next, target products. The Global South, especially African countries, is rapidly digitizing with national IDs. Until now, it has been impossible to accurately grasp the population and provide adequate admin services. Now, whole countries are working on digitization based on national IDs, creating a great opportunity here for us. We believe that TOPPAN's technology and solutions can contribute to the development of African countries by providing services such as birth registration, ID cards, election systems, passports, and visa issuance. From here, I will explain specific examples. First, the case of Ethiopia. A joint venture company was established to manufacture passports with 51% equity interest in the TOPPAN Group and 49% by Ethiopian government organizations. With a capital of JPY 2 billion, the project is expected to be operational in 2026. Due to the nature of the business, the contracts are long-term based and expected to total several tens of billions of yen. Nextly, in Namibia, we developed and offer a system to digitize the corporate registration application process, and we offer the service. In the Ethiopian case on the right, the passport joint venture led to a good relationship with the government and the production of textbooks for Ethiopian middle and high school students. We received a strong request from the government for local production, as well as inquiries from other African countries. We believe that we are contributing to the spread of education in African countries, including the digitization of education in the future. In South Africa, nextly, we sell national ID cards, biometric registrations, and authentication kits. We have also established joint venture with a local company to participate in local public tenders. On the right is example of a passport and national ID card issuance system in Zimbabwe. Next is a case study of an election solution. African countries are facing major challenges in their election systems, and we have started to provide a full ecosystem from voter information registration kits to ballot counting to solve these problems. As noted on the right, we have already received many inquiries and have high expectations. Now starting from page 53, we have track record of business activities. Page 54 is also track record and results. As you can see, we have already accumulated many achievements, and we are aiming for sales over JPY 50 billion and operating profit in double digits within five years. This concludes the explanation of information and communication segment.