Artience : Presentation Briefing transcript of First Half of FY2025 Results Briefing

• Date/time: Aug. 19, 2025, 10:00am - 11:00am (Japan time)

• Presenters:

  Satoru Takashima: President and Representative Director, and Group CEO

  Hiroyuki Hamada, Director Vice President, General Management, Corporate Division Takeshi Arimura, Operating Officer in charge of IR and GM of Finance & Accounting Department Masaki Nagatsubo, Executive Director of TOYOCOLOR CO., LTD.

• Presentation Material:

https://ssl4.eir-parts.net/doc/4634/tdnet/2678145/00.pdf

First, I will explain the performance figures for H1. Net sales were JPY168.732 billion, operating profit was JPY9.373 billion, ordinary profit was JPY8.633 billion and profit attributable to owners of parent was JPY5.474 billion, resulting in a decrease in both revenue and profit.

Net sales decreased JPY3.5 billion from the same period last year, but foreign exchange factors had a negative impact of JPY4.9 billion, due to the yen's appreciation against the US dollar, which rose from JPY154.1 in the previous year to JPY147.5 in the current interim period, as well as against the euro, Chinese yuan, Indian rupee, etc. Excluding this factor, we can say that revenues increased slightly.

Operating profit decreased 11.2% due to a combination of favorable conditions overall in the previous fiscal year, as well as sluggish performance in the Taiwanese market, where we have a large market share, and our inability to capture increased demand in the Chinese market particularly for color filter materials in the colorants and functional materials segment, an expanding deficit in CNT dispersions for LiB, and sluggish growth in the printing and information segment. Details will be explained later. The decline in ordinary profit was larger than that of operating profit, but this was largely due to the impact of foreign exchange rates and the impact of inflation in Turkey, which resulted in a decrease ofJPY2.5 billion YoY.

Although there were no significant extraordinary gains or losses on the net income for the interim period, the corporate tax rate was higher than the previous year's tax rate, mainly due to the fact that taxable income was suppressed by the inclusion in deductible expenses of past losses related to the withdrawal from Myanmar in the previous year.

Regarding the exchange rate, which had a significant impact on ordinary profit and net income for the interim period, we assume that the exchange rate will remain around JPY145 per US dollar in H2 of the fiscal year. We have also factored in some inflation accounting in Turkey, and based on these factors, we have revised our full-year forecast for this fiscal year, as shown on the right side of this slide.

Compared to the forecast at the beginning of the fiscal year, we have decreased net sales by JPY15 billion to JPY355 billion, operating profit and ordinary profit by JPY3 billion to JPY19 billion and JPY18 billion, respectively, and net income for the period by JPY2 billion to JPY15.5 billion. Accordingly, we expect ROE to be 6% at the end of this fiscal year.

I will explain the key points of the financial results. First, I would like to discuss our performance in this H1. Compared to the previous year, the two business segments of polymers & coatings and packaging materials performed well.

In the polymers and coatings segment, sales in China of optical adhesives for displays, functional films for mobile devices and pads, and can coatings were strong.

Sales of packaging materials segment were strong due to sales expansion in Japan, improved production efficiency by integrating product types, and improved profitability by revising prices.

On the other hand, in the color and functional materials segment, while sales of CNT dispersion for LiB were on a recovery trend, the deficit expanded, and materials for color filters were affected by the sluggish Taiwanese market, where we have a large market share, and we were unable to capture increased demand in China.

Status of share buybacks is as disclosed.

Regarding the outlook for the full year, the polymers and coatings and packaging materials segments are expected to remain strong. We will focus on expanding liquid ink sales to the domestic and EMEA markets through the operation of facilities in Turkey, and we also expect to maintain strong sales in Southeast Asia and India.

On the other hand, in color and functional materials, the upfront investment burden for CNT dispersion will increase, and in color filter materials, we have already started a joint venture in China, and we are in the process of acquiring customer certification through this joint venture, however we expect the business environment to remain somewhat difficult in H2. Details of the CNT dispersion will be explained later.

In the printing and information segment, we will recover profitability through the effect of price revisions in Japan and the introduction of cost reduction products, mainly in overseas markets. Metal inks and functional coatings are expected to remain relatively firm.

The impact of the US tariff changes on the overall business is expected to be negligible.

Regarding the progress on our medium-term management plan, now we are in the second year of a three-year period. To recap, policies one and two are our growth strategies. Policy one is the transformation of existing businesses, particularly into high-profit businesses, and policy two is the creation of strategic businesses that will become the pillars of new businesses.

I will explain further later, including the progress of specific figures.

This is the overall picture of the medium-term management plan. The plan for next fiscal year will be the goal for the final year of this medium-term plan, the fiscal year ending December 2026.

We are not currently revising our plans for the next fiscal year. We plan to continue formulating plans to achieve an ROE of 8% or more.

Let me briefly explain the status of the growth strategy I mentioned earlier in terms of numbers. In these charts, the bottom left shows net sales, and the bottom right shows operating profit.

I would like to focus on operating profit on the right. In this FY2025, H1 in orange square indicates the results for H1 of this fiscal year, i.e., operating profit of JPY9.4 billion.

(* In the English version of the PowerPoint document, there is an error in the area of operating profits enclosed by the orange line.)

The growth business mentioned in Policy one amounted to JPY5 billion, and the strategic priority business in dark green mentioned in Policy two amounted to JPY1.1 billion.

The original plan called for an annual forecast of JPY11.2 billion for the growth business and a strategic priority business of JPY3.9 billion, respectively, but as you can see in the revised graph here, we have revised them to JPY10.5 billion and JPY3.2 billion, respectively.

First, I would like to discuss the transformation of existing business group into highly profitable ones. We have divided our existing businesses into three segments: growth businesses, stable earnings base businesses, and structural reforms, and we are particularly investing resources in growth businesses to expand them.

This fiscal year, as I mentioned earlier, the revised target of JPY10.5 billion is assumed to be at the same level as last year, as you can see here.

In the top right column, the strong products are overseas pressure sensitive adhesives, laminating adhesives, and liquid inks. On the other hand, growth has stalled a bit with UV inks.

Our new factory in Turkey has begun mass production operations, focusing on liquid inks, and as I mentioned earlier, we are expanding into not only Turkey but also the surrounding EMEA markets by sending people from Japan on business trips and hiring new local marketers.

In India, where sales are growing steadily, we plan to further increase our investment in liquid ink to achieve full-fledged growth.

As for UV and LED inks, we will leverage our strength in manufacturing from resin to introduce cost-competitive products to get back on a growth trajectory.

Regarding the stable earnings base business in the middle of the chart, we revised the figure to JPY7 billion from last year's JPY8.1 billion.

The main factor behind this are colorants for plastics, which performed well last year, particularly in China for solar cells, but have been struggling this year, and offset inks overseas have also been sluggish.

We will make up for this by expanding sales of colorants, mainly environmentally proposed products, and by revising offset ink prices.

The topics will focus on the global market, particularly in the polymer and coatings and packaging materials segments that are performing well.

We are particularly focusing on Turkey and India in this segment. On the lower right, there are green and orange charts. The green bar represents overseas sales in the polymers and coatings segment, and the orange bar represents overseas sales in the packaging segment.

This is the overseas sales figure before elimination of consolidated results. Excluding the effect of exchange rates converted to yen, overseas sales remained steady. Sales of adhesives are expanding in India, and the expanded facilities are scheduled to be operational early next fiscal year, which we expect will contribute to our business performance.

In the steadily growing liquid ink business, we are in the process of planning additional investment beyond what was originally planned to increase production capacity.

The status of CNT dispersion for LiB. First, I will explain the key adjustments in the figures. Please see the H1 results for FY2025, circled in orange. Q1 sales were JPY0.7 billion, and Q2 sales were JPY1.1 billion, for a total of JPY1.8 billion in H1.

Looking at the regions, first, in the US, shipments to new customers have begun at our bases in the US, but sales to our main customer, SKon, are sluggish, and one other prospective client is revising its plans, so sales remain sluggish.

On the other hand, the Hungarian base in Europe is performing well due to the strong demand from SKon. In addition, we are in the process of expanding the facility for new customers in the coming year and beyond.

The Zhuhai site in China will begin shipments in H2 of this fiscal year, and in terms of the automakers that will use the batteries, not only European cars but also Chinese cars are being targeted.

In Japan, while hybrids were performing well, there were some changes in plans at other customers. As shown in the chart on the right below, we have revised our sales forecasts for 2025 and beyond downwards.

In the following slide, I will explain our future development and market development strategies, but we expect that evaluation of anode and LFP applications will progress, and we have revised our current forecasts accordingly.

Development for all-solid batteries as a new development theme will continue as before. In addition, cost reduction is becoming extremely important, and we are reviewing the raw materials and studying optimization of production processes to promote cost reduction. We hope to achieve our sales target of JPY40 billion, originally projected for 2028, by 2030.

We will also review our capital investment plan for the three years of the medium-term plan as appropriate. The details will be explained later.

Here is our development direction of CNT dispersion for LiB. First, regarding how we perceive the overall global market for electric vehicles, it is said that the EV market grew at more than 10% last year on a GWh basis as compared to the previous year and years before that, although the EV market has slowed down from the original estimate.

Due in part to regulations in various countries, eco-cars are expected to account for more than 70% of all automobiles by 2030. At that point, we are projecting over 2,000 GWh, which means we are about two years behind our original estimate.

Under such circumstances, the artience group have decided the direction of our CNT dispersion development as shown in this slide and will update it when necessary while keeping an eye on market trends as needed.

First, regarding the cathode material, LFP is the mainstream active material, especially in Chinese cars, but each battery manufacturer is aiming for even higher output. The use of CNT is beginning to be utilized as a measure to achieve this goal.Our first goal is to find a way to develop cost-effective CNT dispersions for LFP applications. The use of ternary active materials has become mainstream, particularly among European and American manufacturers, and our second policy is to continue to increase the use of CNTs in this field as we have done up until now.

Third, to achieve high capacity and rapid recharging, the use of CNTs as a conductive material for the negative electrode has begun and is under development. Fourth, we will continue to develop CNT dispersions for all-solid applications as a new development product for the future.

The other policy is our activities in the area of displays and advanced electronics, which is a strategic high priority business area.

This area is doing relatively well, and as shown in the orange chart on the lower right, we have revised our operating profit target from JPY5 billion to JPY6 billion for the next fiscal year, FY2026.

First, in the display-related business above, we are now desperately trying to recover from the delayed start of our joint venture in China.

To expand our share in the Chinese market, our customers have requested that we produce in China, and we are expanding this through this joint venture. We are working to switch from exporting Taiwanese products to further expanding sales at an accelerated pace.

ptical adhesives, one of our polymer and coating products, is performing well. Our capacity utilization rate in Shanghai is so high that we cannot keep up with production, and we are expanding our market share by outsourcing production to other companies. In the future, we will also begin to consider expanding production at our site in Guangdong Province.

The other advanced electronics field is materials for sensors, which we define as optical semiconductor materials. We are also investing in the Moriyama Manufacturing Plant in Shiga Prefecture. In terms of customers, in addition to the existing smartphone applications, multiple manufacturers are now considering and adopting the technology for automotive and other applications. This is an area that we look forward to seeing more of in the future.

Regarding the semiconductor field, we have defined this as a market that the entire artience Group should address several years ago and have begun various initiatives. As previously announced, we have begun a business partnership with a Korean manufacturer and are currently working on multiple development and growth initiatives within Japan.

An example of a product that has started to show results is low-dielectric resin for circuit boards used mainly in data centers. We will also accelerate other developments in this field, such as the development of functional films for semiconductor applications.

ESG topics. There are no major changes, and the 2025 Integrated Report is also available on the web both in Japanese and in English. Please take a look at the report.

One of our management issues is the shortage of labor. New initiatives include the utilization of foreign nationals. In addition to production departments, we are also actively recruiting foreign nationals for R&D development departments and new, e.g., marketing personnel in the semiconductor field.

This is the progress of the capital investment plan. We have not dropped the banner of GROWTH that is the basic concept of our medium-term management plan. We will continue to place the highest priority on cash allocation to investments in growth, capital expenditures, or possibly mergers and acquisitions.

Investment in CNT dispersion for LiB was initially set at JPY30 billion over three years but will be revised accordingly. The full-year capital investment plan for FY2025 is JPY15.8 billion, as shown in

the upper right-hand corner of this page, but actual results in H1 were JPY8.3 billion.

As you can see in the bottom right, our main capital investments are to reduce or postpone investment in CNT dispersions, while we will actively consider investing in the polymer-based products in India that I mentioned earlier, expanding liquid ink production in India from next fiscal year onwards, and investing in semiconductor-related polymer-based products and sensor-related products.

That is all for the explanation from me.

This earnings announcement resulted in a disappointing report of downward revisions to full-year sales and profits. On the other hand, as I mentioned six months ago, I myself feel that the corporate transformation accompanying the name change is making steady progress.

The key to change is to transform the business portfolio and the corporate culture and climate that supports it. Since last year, I have been visiting as many domestic and overseas offices as possible to contact as many employees as possible, and I myself have seen changes through roundtable discussions and dialogues with young and mid-career employees, for example.

This week, about 20 national staff members at the middle management level from overseas have been in Japan since yesterday as part of the overseas manager training program, and yesterday we had an in-depth discussion with them about the corporate reforms and innovations we are working on during the "Dialogue with CEO" session.

In addition, the business units will transform their product or market portfolios, and R&D and other research and development departments will work on new developments.

The Incubation Center, which we started three years ago under my direct supervision, is a mechanism for generating innovation, and we are also building external networks with industries with which we have not previously had relationships.

The in-house platform for generative AI was launched on July 1, and we are beginning to see new developments such as this kind of utilization that we have never seen before. Thank you very much and I look forward to your continued support.

Next, Vice President Hamada explains the results.

This is the consolidated P/L. The details up to operating profit will be explained in detail later.

As for operating profit and below, as we explained earlier, the effect of the weak yen, which we particularly enjoyed last year, has now become significantly stronger compared to the previous year,

resulting in a large difference compared to the previous year. For example, in H1 of FY2024, we had a positive operating balance of JPY1.8 billion, but this year we had a negative balance of JPY780 million, a difference of approximately JPY2.5 billion.

However, looking at H2 of 2024, the cumulative full-year increase is only JPY600 million, which is a little less, so unless there is a significant appreciation of the yen in the future, we do not expect this to deteriorate significantly.

For the full year, we expect an operating loss of about JPY1 billion. Therefore, we expect it to settle at around JPY1 billion, compared to JPY780 million in H1.

This shows quarterly trends. Last year, our growth business categories, which include overseas packaging-related inks and adhesives, UV inks, functional films, and inkjet inks, performed well overall due to increased volume, and color filter materials performed well. We also saw large translation gains due to the weak yen. As a result, operating profit for Q2 in particular was JPY6.2 billion, the highest in recent years.

For H1 of this year, although the flow of this growing business group itself was not bad, our color filter-related business, one of our pillars, was slow to respond to the market change of accelerating shift to China. We have responded to this by creating joint ventures, etc., but there was not much of a contribution in the current fiscal year, so the delay has had an impact, and the loss related to CNT has increased due to the delay in the EV market.

Sales of printing and information products were sluggish due to a lack of demand caused by rising paper prices both domestically and internationally, as well as the low-cost offensive and response of other companies in some regions. Profits were also negative by about JPY300 million due to foreign exchange operating profit and translation gains.

This section explains the analysis of factors behind differences in H1. First, compared to H1 of FY2024, personnel expenses increased by about JPY1.1 billion and depreciation increased by about JPY500 million. The total comes to JPY1.5 billion. Although 11 and 5 do not add up quite a bit, there are other expenses that have decreased.

Raw material prices are breaking even. Domestically there was a JPY1 billion increase compared to the same period last year, which means a profit loss, and overseas there was a JPY1 billion decrease, which meant a profit increase, so the net result is zero.

Then there is the change in sales mix, which is essentially where we always explain the profit contribution from sales expansion. The positive factors were offset by the negative factors, resulting in a negative figure of JPY0.8 billion.

Positive factors include the significant expansion of optical pressure sensitive adhesives in China, which contributed to profits, and steady growth in can coatings overseas. On the other hand, the negative factors were the sluggish growth of CF materials and overseas offset inks, and the delay in the expansion of CNT dispersion.

As for cost reduction, as a manufacturer, we are constantly improving production efficiency, reviewing raw materials, and improving yield rates, and these efforts are the fruits of our ongoing efforts.

The price revision is said to be a plus JPY900 million, but in Japan, price adjustments in response to raw material price increases not only implemented this fiscal year but also include those implemented last year, resulting in an effect of JPY1.9 billion.

On the other hand, overseas business were affected by a decrease of approximately JPY900 million due to the fall in raw material prices and the resulting intensification of competition, so combined, resulted in a positive JPY900 million.

This calculation is based on each department's reporting and average unit price, so in reality, it includes some changes due to changes in the sales mix.

The foreign exchange fluctuation refers to the change in overseas profits converted into yen, which was minus JPY0.3 billion due to the strong yen trend. So, the final result was JPY9.4 billion.

Next, I will explain the factors behind YoY difference in the full-year forecast. The lighter shaded area is the initial forecast, which targeted operating profit of JPY22 billion, and next to it are the figures for each factor in the performance forecast for this fiscal year.

First, there has been an increase in expenses, including personnel costs and depreciation, but the increase in expenses was contained to JPY3 billion from the initial forecast of JPY5 billion because the growth in volume was not as expected, reducing variable costs, and there was a decrease in depreciation due to operational delays, resulting in a JPY2 billion decrease.

As for raw material prices, we expect cost increases to be less than originally forecasted, as domestic raw materials are beginning to show signs of stabilizing, partly due to foreign exchange factors, naphtha factors, and supply and demand balance.

As mentioned, domestic costs increased by JPY1 billion in H1, but in H2 it will be around JPYJPY500 million, bringing it to JPY1.5 billion. Meanwhile, the decline in overseas costs will likely stop, so we had expected a JPY1 billion increase in H1, and while we had expected raw materials to fall, we now expect it to be zero in H2.

We are taking a harsher view of sales expansion than we originally expected. Regarding this, while optical adhesives in China and packaging-related materials, mainly in India and Southeast Asia, are expected to grow steadily, color filter materials, colorants, and overseas UV inks are expected to fall short of initial forecasts, and there are also delays in the adoption of CNT dispersions compared to initial expectations.

In H2, we expect the overseas-related growth business group to be on an upward trend and turn to at least positive JPY800 million in H2, compared to negative JPY800 million in H1. This is only compared to the previous year, so profits fell slightly from the very good H1 of last year to H2

As I explained earlier, we expect the same level of cost reductions in H2 of the fiscal year, but we must accelerate our cost reduction efforts. There are also differences in raw material prices between Japan and overseas, so we will further master the use of overseas raw materials and strengthen purchasing power and efficiency through joint purchasing.

While price revisions to account for increased domestic costs have been delayed in some areas, we expect a JPY3.5 billion increase in domestic sales in H2 thanks to contributions from already implemented measures and ongoing price revision efforts. I mentioned that in H1 it was JPY1.9 billion, and we are forecasting a positive JPY1.6 billion in H2.

Additionally, overseas, we are forecasting a decrease of JPY2 billion due to changes in the sales mix, including falling unit prices due to intensified competition in some areas and sluggish sales of CF materials, which have high unit prices, and we are forecasting an increase of JPY1.5 billion in total

both domestically and overseas.

Regarding exchange rate fluctuations, we are forecasting JPY300 million in H1 and JPY100 million in H2 for the full year, totaling a decrease of JPY400 million.

I will now explain the H1 results by segment and the revised forecast for the full year. In H1, the polymers and coatings segment posted higher sales and profit, the packaging material segment was almost unchanged from the previous year, while colorants and functional materials and printing and information posted lower sales and profit. We expect the same trend to continue for the full year.

In H1 alone, sales decreased by JPY4.9 billion due to foreign exchange, which was a factor of about JPy1 billion in each segment.

I mentioned earlier that the decrease in overseas profits due to exchange rate fluctuations is JPY300 million for H1 and JPY400 million for the full year. We estimate that there will be a profit decrease of about JPY100 million in each of the segments.

The main earnings drivers for the colorants segment are color filter materials and plastic colorants. This is where the segment earned substantial profits, but both businesses were weak compared to the previous year.

In addition, the CNT dispersion business, the centerpiece of our strategic high priority business, is developing a growing deficit due to market delays, and the segment is suffering very badly.

In the area of color filter materials, as mentioned earlier, we have a nearly 40% share of the Taiwanese market, but our customers are sluggish due to competition from Chinese firms, and we are behind in our measures to respond to the shift to China, and we do not expect a major contribution from our joint venture to begin mass production operations next fiscal year.

Also, sales of small and medium-sized panels for PCs and other products with relatively high profit margins were sluggish. Resist inks for sensors, which is used in smartphones and other products, is expanding steadily and is expected to continue to grow. However, at this stage, it has not yet reached the point where it can cover large ones.

Demand for panels in H2 is also not expected to increase from H1, and improvement is not expected until the next fiscal year or later.

Plastic colorants are another pillar of this segment and are a business that operates globally in markets such as packaging materials, home appliances, and automobiles. In this field, the Company has made a reasonable profit through cost reductions and price adjustments. However, products for Chinese solar cells, which contributed significantly to profits in the strong previous fiscal year, are performing poorly due to inventory adjustments, and no recovery is expected in the near future, so profits are expected to decrease.

CNT dispersions were not originally expected to turn a profit this fiscal year, but we had anticipated increased sales in China and other countries and expected profits to improve. However, delays in full-scale adoption and expanded development have resulted in a larger deficit, and we expect the deficit to continue in H2.

Although there are solid businesses such as pigments and inkjet inks, they are not enough to cover the situation I just mentioned, and the segment total is expected to suffer even in the medium-term plan.

The main reasons for the downward revision of the forecast are the harshness and uncertainty of color filter-related materials and the delay in CNT dispersion.

We will improve our CNT dispersions and accelerate the contribution of our CF materials joint venture in China, while also reviewing our businesses and business structure to further strengthen our focus.

Sales and profits increased for polymers and coatings, and we expect this trend to continue for the full year. Demand for functional films, such as smartphone materials, is steady, despite the deteriorating export profitability due to the strong yen and the impact of high raw material prices to some extent and is expected to peak in Q3 and remain firm throughout the year.

In the mainstay adhesives business, optical pressure sensitive adhesives for displays in China grew strongly, driving profits. In this regard, although some inventory adjustment by some customers is expected for optical adhesives, we expect the market to be steady for the full year. Challenges include delays in the revision of domestic adhesive prices and sluggish demand for labels and other applications.

In the area of laminating adhesives for packaging, we expect some recovery in H2, but overall sales will be somewhat sluggish, as export sales have been affected by our customers' reduced workloads. Regarding laminate adhesives for lithium-ion batteries, consumer applications are performing reasonably well, but growth in EVs is sluggish due to weak demand.

Can coatings performed well in Thailand and Turkey and are expected to continue to do so in H2, while low-dielectric resins for semiconductors, one of the growth materials for the future, have proven their performance.

In the packaging materials segment, mainstay gravure inks sales and profit increased in H1 in Japan, excluding the effect of foreign exchange rates.

We expect both sales and profits to increase for the full year as well. Overseas, although there were some missed opportunities in Turkey and other countries in H1, overall profits were higher.

In addition, domestic carton flexographic inks, which are inks for corrugated board, have improved and are making a contribution to profits. What was previously slightly negative has turned positive.

For the segment as a whole, we expect an increase in sales for the full year as well, and profits are expected to be at the same level as last year, when sales were strong. While the Company is doing well in Southeast Asia and India, the depreciation burden of the new plant in Turkey is having an impact. The increase is roughly JPY600 million per year.

We will increase the utilization rate of the new plant and strengthen exports and other activities more than ever, including the sharing of production within the group, to absorb the increase in depreciation.

For the Printing and information segment, profits doubled from FY2023 to FY2024.

In Japan, the printing ink market will continue to shrink this year, but UV inks and functional coatings will ensure profits, and then, both in Japan and overseas, as I mentioned earlier, the significant price increase of printing paper is dampening demand.

Overseas, profits have declined due to competition in some regions, such as India and Europe, including low-cost structures, and the Company is responding by introducing low-cost products. This includes traditional offset inks as well as UV inks.

Our top priority is to steadily tackle the demand for UV and LED that will advance overseas in the future.

This concludes our explanation of our H1 results and full-year forecast for H2.

【END】