Toyo Ink SC : Briefing transcript of First Half of FY2022 Results Briefing

Financial Results Briefing for the First Half of Fiscal Year Ending December 31, 2022

Presentation(Transcript)

• Date/time:Aug.19, 2022 10:00am - 11:00am (Japan time)
• Speakers:
• • Satoru Takashima: President and Representative Director, and Group CEO

· Hiroyuki Hamada : Managing Director, General Manager of Corporate Planning Division

• • Takeshi Arimura: Executive Officer, Group Financial Director
  • Hideki Okaichi: President and Representative Director, TOYOCOLOR CO., LTD.
  • Toshinori Machida: President and Representative Director, TOYOCHEM CO., LTD.
  • Masato Yanagi: President and Representative Director , TOYO INK CO., LTD.
• Presentation Material:https://schd.toyoinkgroup.com/en/ir/archives/pdflib/2022/frp_fy2022_q2_en.pdf

TRANSLATION:

This is a transcript of Financial Results Briefing for the First Half of Fiscal Year Ending December 2022, held on Aug.19, 2022. This is an English translation of the Japanese original, prepared only for the convenience of shareholders residing outside Japan. The original Japanese version will prevail should there be any difference in the meaning between the English version and the Japanese version.

DISCLAIMER:

The forecast or projections in this material are based on the assumptions and beliefs of our management in light of the information available as of Aug.19, 2022. Changes in global, economic and business conditions could cause actual results to differ materially from these forecasts.

The content of this transcript have been edited or revised by the company.

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Presentation

Takashima: Good morning, everyone. I am Takashima, President and Representative Director of Toyo Ink SC Holdings Co., Ltd. Thank you very much for participating in our online financial results briefing today.

I would like to briefly offer my explanation of H1. We already have this slide on our website, but at the beginning, I would like to briefly talk about a few things that are not on that slide and give you my overall view. First, I would like to talk briefly about our environmental awareness, followed by a review of the Toyo Ink Group during this period, or new issues that have come to light.

The first is environmental awareness. I will explain three rough views, especially when looking from last year to the end of H1 of this year, and then from H2 of this year to the outlook for next year. First, the global economy is in the midst of a recessionary phase, which has been a major concern since the recovery of demand after the COVID-19 pandemic and the rise in interest rates due to inflation.

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On the other hand, in the Japanese economy, prices have been rising gradually due to cost-push inflation caused by the extremely weaker yen and high raw material prices. GDP has been fairly positive in the recent past; however, the previous year, which was bad, and the past two and a half years, which were bad to begin with, have left us with a situation in which the economic environment is only moderately good.

In addition to economics, overall political risks as well as geopolitical risks are changing on a daily basis globally, and the pace of technological change is increasing. How has this environment affected our company? First, regarding the first six months of this year, I would say that we have certainly benefited from the global economic recovery, especially overseas. Consolidated net sales increased by 11.1%, especially overseas, and the ratio of overseas sales to total sales is now slightly over 50%.

In the first six months of the year alone, the increase of raw material prices and energy costs has been significant. As a result, we were affected with raw material costs of JPY11.6 billion and energy costs of JPY900 million, for a total of JPY12.5 billion of pressure on earnings.

I also mentioned earlier the aspect of technological change, and in particular, the changes in the business environment due to this digitalization have been very significant. I think it can be said that it was significant in many aspects of life. On the negative side, for us, commercial printing and publication printing were greatly affected, and the clock has been ticking faster than ever. On the other hand, on a positive note, we see various opportunities being created and new industries and new opportunities emerging in the future.

With that said, we will discuss specific proposals in the second half of the meeting, but we believe that our management team is clear on what needs to be done. In the short term, we will focus on cost reductions, new product development, and price revisions to offset the impact of the sharp rise in raw material prices.

As for the medium- to long-term, we have started a new medium-term management plan from FY2021, and I believe that the direction we are heading in is not mistaken under the changing environment in the medium- to long-term as well. We will provide the products and services needed in this changing world. To go further, I think it is necessary to take an in-depth look at our past product and business portfolios once more, or to review and change them.

Next, I will give a brief look back of our company and the challenges we face.

We started our medium-term management plan, Scientific Innovation Chain, SIC-II, in FY2021, and this year we are just past the halfway point of the second year of the plan. Here we have three policies.

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As I wrote here, the first is to strengthen the profitability of businesses. In short, the policy is to increase profits. The three-year policy remains unchanged, and the annual policy is followed year after year. We have been focusing our efforts and taking steps in this area in two major directions.

We will address businesses that are not profitable. As I have already explained here in the past, we are continuing our business structure reforms centered on the domestic printing inks business, and we believe that it is finally time to put the finishing touches on these reforms.

Then, in order to make the colorants and functional materials-related business stronger and more profitable, we proceeded with the consolidation and elimination of domestic production bases in an effort to increase efficiency. Overseas, we liquidated or withdrew from businesses mainly in France and the Philippines. From H2 through next year, we will implement further reforms in the domestic printing inks business, as I mentioned earlier, and I will explain the details of these reforms later in the printing and information segment.

Another measure to increase profits is to strengthen profit management by variety of profitable products in a disciplined manner. We have several types of products, such as offset inks and materials for color filters, and in FY2020, we had four types of products with an operating profit of JPY1 billion or more per type. We are aiming to increase this number to eight types by FY2023, the final year of the plan. The number of profitable product types increased to five in FY2021.

For FY2022, we have been trying to raise the target to six, but it's been back to five, or even four again lately. However, we will make every effort to somehow increase this number to eight in the next fiscal year. In particular, with regard to these existing products, we are focusing on strategic products that we consider important, and since each product has its own means of increasing profits, we are taking steps to expand our development efforts, to expand our bases in order to expand the area, or to expand the applications of each product. We are taking different measures for each product.

The second policy is to create and expand priority development areas. This means that we will increase the speed of product development and materialize new products narrowing down the areas of what is needed in the world. In particular, we will continue to focus our proposal activities on three areas: environmental, digital, and health care.

First, the field of environment. We are aggressively investing in what we call sustainability science, particularly in lithium-ion batteries materials, which we believe will continue to increase worldwide in Japan, the United States, Hungary, and China. We will continue focusing our investments in this four-location system. To be honest, we have not yet reached the point where we can generate profits from this business. We would like to bring it into a

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form that will contribute to earnings from H2 of next year. I would like to grow it into a major pillar of our company after 2024.

Another is to propose and expand environmentally friendly products. The needs and regulations regarding the environment vary from area to area and country to country. To address these issues, we have prepared various proposals, including water-based, high biomass, biodegradable, and solvent-free proposals, and are promoting them both in Japan and overseas. Then we hope to start a pilot program for a new recycling model for plastic film later this year.

The second area, digital, we call communication science. Here, we are strengthening development with a focus on TOYOCOLOR and TOYOCHEM, especially in the areas of semiconductor components and back-end processes, which are expected to continue to grow in the future. In addition to focusing on technology development, we have also established a technical center base in Shenzhen, China, to strengthen our marketing function. Recognizing that the US and China will continue to be the technology leaders in this digital field, we are enhancing our base in Shenzhen in addition to San Jose, where we have already started to make achievements, such as foldable OCAs.

The third area is health care. In the field of IJ, which we include in the life science field, we have been making progress in the development of water based IJ for film packaging and flexible packaging as a new application. We are in the process of making a start toward full-scale adoption in the next fiscal year and beyond, especially in the United States. In the field of commercial printing and label printing, production has been started at our Chinese base in Tianjin. Sales are expanding in eastern and southern China.

In the life science field, we are strengthening our foundation by entering the market in our own way, while various chemical companies are entering this field with a view to future biopharmaceuticals. We have already announced that we have formed alliances and business partnerships with other companies, and we intend to invest aggressively in ventures, including those in the United States.

The third policy of the medium-term plan is to improve the value of the management base and management resources, which are the foundation for increasing profits and making proposals in new priority areas, as I mentioned earlier. First, regarding ESG-related issues, we announced the TSV, the Toyo Ink Group Sustainability Vision 2050/2030. In July, we disclosed information on TCFD in our latest Integrated Report.

In addition, from the viewpoint of respecting diversity, we are introducing de facto marriage and same-sex partnership systems, expanding the ALLY circle, and making my own declaration of women's active participations.

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