Minutes

Conference call on November 8th, 2021 to explain Business Results for

FY21Q2 Summary of Explanations

[Note]

Please refer to data available at: https://ssl4.eir-parts.net/doc/4185/ir_material_for_fiscal_ym4/108309/00.pdf

P1 Management Policy

・Our core businesses are Digital Solutions business (especially Semiconductor materials) and Life Sciences business. In FY24, we will achieve historical high OP of 60 billion yen, ROE of 10% or more, and ROIC maximization.

・In the individual businesses, we will expand top-line significantly, and maintain high profit margins in Semiconductor materials. In Life Sciences business, we will continue to grow to achieve sales of over 100 billion yen and ROS of 20% in FY24.

・Based on these targets, we plan to make steady progress toward FY24.

P2.Summary

(Overall)

・In FY21H1, sales, core OP, and profit attributable to parent increased, exceeding our initial projection and recorded high growth rate YoY. As a result, we revised the full-year projection upward.

• The revised earnings projection reflects an increase in sales and profit, particularly for Semiconductor materials, that exceeded initial expectations. It also reflects the impact of the acquisition of Inpria Corporation, a developer and manufacturer of next-generation EUV lithography, which became a wholly-owned subsidiary in October 2021. We are currently reviewing the accounting treatment, but 6 billion yen is added to its core OP in FY21H2 as a result of valuation profit based on existing equity interests.
  (Digital Solutions)
  ・In FY21H1, the Semiconductor materials business achieved sales growth of + 13% YoY and led profit growth. In addition to the existing products, the EUV photoresist has been expanded. The sales growth of EUV photoresist alone was more than double that of the previous year.
  ・In the revised full-year projection, Semiconductor materials sales are expected to grow + 15% YoY while the silicon wafer market is expected to grow at an CAGR + 10%. Core OP for Semiconductor materials is expected to grow by more than 25% YoY, excluding the valuation profit for Inpria. The core OP margin ratio will also increase YoY. The Digital Solutions business as a whole was revised upward in sales and profit despite a downward revision in Edge Computing.

(Life Sciences)

・FY21H1 achieved high sales growth of + 29% YoY. Strong growth in each sub-segment. In particular, CRO, Bioprocess materials and IVD (diagnostic agents) grew their sales more than expected. Profit resulted almost as expected, but was affected by CDMO's advanced investment in capacity expansion, which starts the engineering run at the end of FY21Q3, and by adjustments in manufacturing capacity utilization due to the materials supply shortage from the end of last year.

・The full-year projection includes continued growth in each sub-segment. Since October 2021, CDMO production has improved to normal levels. The Life Sciences business is expected to achieve of core OP margin ratio of 10% in FY21H2. The new facility of CDMO starts the engineering run from the end of FY21Q3. The customer pipeline, a leading indicator for the top line, is growing at a CAGR +20% and is expected to grow for FY22.

(Other)

・We plan to increase its dividend forecast for FY21 from 60 yen to 70 yen, starting with the interim dividend for FY21H1. Our company's dividend policy is to give top priority to growth investments aimed at improving corporate value while setting approximately 50% of shareholder return as a guideline. With regard to dividends, we've decided to increase dividends in consideration of the long-term stability and the business outlook. The payout ratio is approximately 42% for the fiscal year and approximately 49% excluding valuation profit on Inpria.

P3 Summary 1 - FY21H1 Result vs Original Projection

・Comparison of FY21H1 Results and Initial Projection. ・The overall progress rate was high at over 50%.

・In the Digital Solutions business, Semiconductor materials expanded significantly and Display materials performed well. Edge Computing planned to boost sales of near-infrared (NIR) filters for smartphone camera modules, but fell short due to a weak smartphone market and delays in adoptions at new customers.

・The Life Sciences business performed mostly in line with the initial projection.

・The Plastics business also made steady progress thanks to the recovery in demand.

P4 Summary 2 - YoY

・YoY and QoQ of each business.

・Sales and profit increased significantly YoY. ・Sales increased and core OP decreased QoQ.

・Sales of the Digital Solutions business also increased QoQ. In the Semiconductor materials, profit increased significantly in FY21Q1, but it was adjusted in FY21Q2 due to the timing of costs.

In Life Sciences business, sales of CDMO declined slightly. Due to an increase in cost, profit decreased QoQ. Overall performance was well.

・Sales of the Plastics business basically performed well as FY21Q1, though profit decreased due to inventory effects.

P5 Projections for FY21＜Revised＞

・A comparison between the full-year projection as of May 2021 and the revised projection. ・Sales of Semiconductor materials are expected to grow +15% YoY, which is about twice the initial projection of +8% YoY. At the same time, profit is also expected to increase. EUV photoresists will performe well in FY21H2. In FY21Q4, some of the EUV materials for the advanced node, 3nm is expected to start the sales. As for Inpria, the acquisition process was completed in October 2021 and valuation profit will be recorded in FY21Q3. PPA of 56.5 billion yen for Inpria has been conducted and we will determine amortized assets, etc. within FY21. ・Display materials outperformed expectations in FY21H1 due to strong demands for TVs and PCs. Since the market for panels has been declining, the full-year projection includes some adjustments to operations in later FY21.

・Edge computing is in the process of being evaluated for new adoptions of NIR. However, sales are expected to remain at the same level as the previous fiscal year due to sluggish smartphone sales, including a shortage of semiconductors.

・The Life Sciences business expects CDMO sales to expand in FY21H2, as mentioned above. We expect that significant progress will be made toward achieving the mid-term plan of over 100 billion yen in sales and core OP margin ratio of 20%.

・Sales of the Plastic business are expected to be about the same as FY21H1, although the decline in automobile production due to the shortage of semiconductors is uncertain. The sales price formula due to the increase in raw material prices will be revised in FY21H2, which will improve the top line and trading spread.

P6 Segment Data : Digital Solutions business

YoY

・Sales and profit increased.

• Sales of Semiconductor materials increased significantly by +13%. The EUV sales growth doubled from the previous year. The underlayers, KrF, and packaging materials were particularly increased.
  ・For Display materials, sales of alignment films and passivation coats increased significantly to each +15% and +20% YoY. Respectively, shipments to China increased. Sales of colored resists

and other materials decreased as expected due to the withdrawal from local production in South Korea and Taiwan as we announced the business reorganization.

QoQ

・Sales increased and profit decreased. ・Sales continued to be strong.

・For OP, expenses that were not incurred in FY21Q1 were incurred in FY21Q2. Inventory effects are also affected. The overall amount of cost is normal throughout FY21H1.

P8 Segment Data : Life Sciences business

YoY

・Sales and profit increased. Sales increased in each sub-segment.

・Sales of Bioprocess materials increased sharply due to the expansion of customer pipelines. The CRO is also perfoming well in the drug discovery and development services of the oncology. QoQ

・Sales increased and profit decreased. CRO, Bioprocess materials and IVD continued to perform well.

・CDMO was affected by the adjustments of manufacturing run, but it is moving toward more solid improvement. Although we still have to watch issues with the material supply shortage closely, the situation is now under control, including inventory and suppliers, and it is back to the normal production.

P9 Segment Data : Plastics business

YoY

・Sales and profit increased significantly. Sales both at domestic and abroad increased with a recovery in the automobile market.

QoQ

• Sales was flat and profit decreased. However, it is mainly due to the inventory effect. It perfomed welll same as in FY21Q1.

P 10 Elastomers Structural reform

・The Elastomers business is classified as discontinued business from FY21, and it is reflected only in the net profit.

・In FY21H1, the Elastomers business performed well due to a recovery in the customer market, growth in SSBR sales, and progress in cost reduction.

・Business restructuring expenses related to the transfer of the Elastomers business to ENEOS Corporation will occur. B/S as of March 2022 will affect the final transfer price, so the net income forecast of the discontinued business is assumed as 0 at the moment.

P 11 Structural reform / Capital allocation

・Net cash improved significantly as of the end of September 2021, including the classification of the Elastomers business as a discontinued business and cash income from the transfer of Kumho Polychem Co., Ltd. and sale of cross-shareholdings.

・For the Inpria acquisition, we made the payment of approximately 46.7 billion yen in October 2021 and partial bridge funding is done. Our financial position is now net debt. Cash income from transferring the Elastomers business on April 1, 2022 is expected in early FY22.

・We see no issues with execution of the basic policy of capital allocation like invest in future business growth, including M&A as the stable finance position is maintained.

・In addition, based on the stable cash flow growth in the future, we decided to increase the dividend for FY21.

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