Dexerials : FY23 Financial Results & Mid-Term Management Plan 2028 (Slide Presentation with transcript) & Summary of Q & A

Dexerials Corporation

Financial Results Briefing for the Fiscal Year Ended March 2024

May 14, 2024

Event Summary

[Company Name]	Dexerials Corporation
[Company ID]	4980-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Fiscal Year Ended March 2024 & Mid-Term
	Management Plan 2028
[Fiscal Period]	Fiscal Year Ended March 2024
[Date]	May 14, 2024
[Number of Pages]	41
[Time]	13:00 - 14:40
	(Total: 100 minutes, Presentation: 64 minutes, Q&A: 36 minutes)
[Venue]	Daiwa Conference Hall (17th Floor, GranTokyo North Tower)
	with simultaneous webcasting
[Number of Speakers]	3
	Yoshihisa Shinya	Representative Director and President
	Kazuyoshi Terashita	Executive Officer
	Shinji Tomita	General Manager, PR&IR Department

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Presentation

Moderator: We will now begin the financial results briefing for the fiscal year ended March 2024 and Mid- Term Management Plan of Dexerials Corporation.

First, I would like to introduce the attendees. Yoshihisa Shinya, Representative Director and President. Kazuyoshi Terashita, Executive Officer. Shinji Tomita, General Manager of PR&IR Department. Attendees are these three persons.

The briefing is scheduled to end at 2:30 PM. Please note that media is also present today. Questions from the participants at the venue will take priority during the Q&A session, followed by audio questions from Zoom webinar participants.

First, Mr. Terashita, Executive Officer, will give an overview of the financial results for FY2023 and the outlook for FY2024, followed by a Q&A session. After that, Mr. Shinya, President and Representative Director, will give an explanation of the Mid-Term Management Plan 2028 "Achieving Evolution," followed by a Q&A session.

Terashita: Thank you very much for taking time out of your busy schedule to join us today. I am Terashita, Head of the Business Management Division. I appreciate your attention.

Yesterday, May 13, we announced our financial results and Mid-Term Management Plan, as well as the timely disclosure of proposals to be submitted to the shareholders' meeting scheduled for June 25. The complete set of materials you are looking at has already been posted on our website.

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This shows today's agenda, which I will explain to you.

This shows the highlights of the financial results.

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First, with respect to the full-year results, sales fell, but profit increased compared to the previous year, and operating profit and net profit reached record highs for the full year.

Although the market recovery in H2 of the year was somewhat moderate and our products were affected by inventory adjustments in H1, our high-value-added products, such as ACF and products for sensor modules, grew mainly for smartphones.

The following is the outlook for FY2024 full-year results. Effective from FY2024, the Company has adopted the International Financial Reporting Standards(IFRS). Based on an assumed exchange rate of JPY140 to the dollar, we project net sales of JPY107 billion and business profit of JPY33.5 billion.

The expansion of high value-added products will absorb the negative impact of phosphor films, and the profit is expected to increase excluding the difference in accounting standards and exchange rate effect. In this fiscal year's results, we have factored in approximately JPY4 billion in strategic expenses related to sustainable growth.

The current Mid-term management plan has enabled us to grow high-value-added products without being affected by the market environment, and in FY2024, we will continue to grow high-value-added products for smartphones and automobiles without being affected by the market and business environment.

The annual dividend is expected to be JPY78 per share for the interim period and JPY26 per share for the year- end period. The Company plans to conduct a stock split to increase the liquidity of its shares and to expanding its base of investors, and plans to increase the annual dividend by JPY56 to JPY156 per share on a pre-split basis.

I will explain our business environment and our company's trends.

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First, with regard to our major end-product markets in FY2023, consumer IT products were affected by inventory adjustments in H1 of the year. On the other hand, in H2 of the year, there was a gradual recovery. As for automotive products, the semiconductor supply shortage has been resolved, and production volume as a whole is recovering.

As for demand for major products in FY2024, the market for major applications is recovering overall. However, we currently expect optical semiconductors and power tools to recover from H2 of the year.

As for tablets, we expect to end sales of Phosphor films due to the shift to OLED displays in customer products. In laptop PCs, we are cautiously watching demand for Phosphor films, but expect it to remain mostly flat due to an increase in Anti-reflection films. On the other hand, we expect an increase in smartphone and automotive sales, as in FY2023, due to an increase in the volume of high value-added products.

I will explain an overview of the full-year financial results.

This shows a summary of the results. In FY2023, both sales and profit were down due to the significant impact of inventory adjustments in H1 of the year. Despite an increase in foreign exchange losses and a decrease in ordinary profit, operating profit and net profit increased to record highs, respectively. EBITDA was also approximately JPY40 billion.

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This graph shows the changes in sales by application compared to the previous year.

As you can see excluding the impact of foreign exchange rates, sales of products for tablets and laptop PCs were affected by inventory adjustments in H1 of the fiscal year, and subsequently declined for the fiscal year, although they are gradually recovering in H2. On the other hand, sales for smartphones exceeded those of the previous fiscal year due to strong sales for Chinese smartphones and the adoption in new parts of applications.

In addition, ACF for automotive applications increased, and optical elastic resin(SVR) contributed to global projects. The main reason for the decline in sales in the Others was the negative impact of the continued inventory adjustment of customers for Surface-mounted type fuses for high current applications.

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This shows a factor analysis of operating profit.

EBITDA, which is an indicator of our earning power, as shown on the lower right, increased by JPY0.9 billion from the previous year.

In analyzing the factors behind this change, I will explain the factors behind the increase or decrease in operating profit, as you can see, since the change in depreciation and amortization is not that significant. Excluding the effect of foreign exchange rates, the price/mix was negative, while the volume/mix was positive. Foreign exchange rates were a factor in the increase due to the weakening of the yen.

For your reference, a chart comparing operating profit in H2 with the same period of the previous year is shown in the upper right corner. Excluding foreign exchange rates, the YoY increase was positive, indicating a clear recovery from H2 of the current fiscal year.

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Next, I will explain an overview of each segment.

The first is the Optical materials and components segment. Sales decreased 7% from the previous year, operating profit decreased 10%, and EBITDA decreased 10%. If you look at category sales on a currency- neutral basis, overall sales of optical films were affected by inventory adjustments for consumer IT and the subsequent weak return, with sales of Anti-reflection films down 7% and Phosphor films down 30%.

Sales of Optical resin materials increased by 11%. In particular, sales of Smart precision adhesives increased by approximately 20% due to an increase in orders per unit as a result of the adoption in new parts. Sales of Optical elastic resin, SVR decreased by approximately 10% due to inventory adjustments.

Next, I will explain the factors behind the change in operating profit in the upper right-hand corner. Volume/mix was affected by a decrease in the volume of Phosphor films and Anti-reflection films.

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This is the electronic materials and components segment.

Net sales increased 6% from the previous year, operating profit increased by approximately 20%, and EBITDA increased by 17%. Inventory adjustments in devices such as Surface-mounted type fuses, Micro devices, and Optical semiconductors had an impact, but the decrease was absorbed by the increase in sales of ACF.

In ACF, in addition to increased sales of ACF for non-display applications, sales of particle-arrayed ACF and regular dispersion type ACF for display applications, mainly for Chinese smartphones, grew respectively, resulting in an overall increase in ACF volume sales. As a result, overall segment sales and profits increased.

With regard to the factors that cause fluctuations in operating profit in the upper right corner, the negative price/mix and other factors are mainly affected by the negative average price of fuses for high-current applications. On the other hand, volume/mix was positive due to an increase in ACF volume for display applications.

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