Nagase & Co., Ltd. TSE:8012

Nagase : FY2024 Second Quarter Financial Briefing

Published November 27, 2024 at 8:52 a.m. UTC

Source: MarketScreener

FY2024

Second Quarter

Financial Briefing

NAGASE&CO.,LTD.

Stock exchange listing : Tokyo (Prime Market)

Code number : 8012

November ６, 2024

Executive Summary

FY2024

Second

Quarter

Results

Prinova Group profits declined due to ongoing challenging conditions in the manufacturing and allowance for doubtful accounts.

Nagase Viita profit declined due to weak sales in Functional Materials for cosmetics due to sluggish demand in China, the final consumption market

Trading business performed well in the Functional Materials, Advanced Materials & Processing, and Electronics & Energy segments due to moderate recovery in the semiconductor, electrical appliances and electronics industries, and other industries

Sales were strong for Nagase ChemteX formulated epoxy resin used in semiconductors for high-end servers in the generative AI market

We contributed to narrowing operating losses by withdrawing from the color formers business in the U.S., where we suffered large deficits, as part of our efforts in the Improve Area

We expect to improve profitability through ROIC management and increase gross profit margin from 17.5% to 19.2%

FY2024

Earnings

Projections

We forecast the lower-than-expected performance in the manufacturing business in the Prinova Group to continue in the second half of the year

We plan to add production lines, anticipating that sales of formulated epoxy resins for high-end server semiconductors (e.g.,those used in generative AI) will remain strong in the second half of the year.

Our expectation to post record-high operating income remains unchanged, with no revisions to our overall consolidated forecast, despite performance variations across segments (individual segment forecasts remain subject to revision).

Medium-Term

Management

Plan ACE 2.0

Growth strategy initiatives
Change in shareholder returns (increase in dividend for FY2024)
Revision of Materiality to achieve sustainability

Copyright © 2024 Nagase & Co., Ltd.	2

Business Environment by Segment

Industry	Full-Year FY2024 Initial Forecast	First Half Trends		Second Half Trends	Segment

	Automotive applications to remain		Growth in both automotive and		Growth in Asia is likely to remain sluggish,
Coatings		construction applications was sluggish,		despite a production recovery among
strong, but generally flat overall
		remaining generally flat overall		manufacturers in Japan

							Functional

Color Formers	Oversupply to continue while market		Withdrew from the color formers business in the U.S.	Materials
conditions remain sluggish		usiness in Japan is also in a reduced equilibrium.


	Moderate recovery, full-scale recovery		Recovery varied by category, but saw
	in the second half of the fiscal year,			Demand for high-end applications to
Semiconductors		strong demand for high-end
with sales of high-end applications to			grow
	continue strong		applications

							Electronics
			Production of TV panels ended in
Display	Demand to recover year on year		Japan, while overseas production		Likely to remain at first-half levels		& Energy
			remained flat year on year

			High-end performance was strong
Smartphones	Expected growth year on year		year on year. Persistent sluggish		Likely to remain at first-half levels
	middle- and low-end performance due

			to interim inventories				Advanced

	Overall demand and resin market		Moderate recovery in demand and		Strong performance likely to continue		Materials
OA and Games			through Q3, with an inventory
conditions to make a moderate recovery		resin market conditions
			adjustment phase in Q4

	Moderate recovery in automobile		Steady automobile production in the		Moderate recovery in Japan, while
Automobiles		U.S., while production declined in		challenging conditions to continue in		Mobility
production to continue
		Japan and Asia		Asia

	Demand to increase while sales of raw		Slightly sluggish overall sales of
		brand-name and generic drugs, with
Medical	materials decrease due to patent			Likely to remain at first-half levels
	minimal impact on our handled
	expiration of brand-name drugs, etc.
		products

							Life &
			Sluggish growth in final demand in
Cosmetics	Overall demand to continue to recover			Likely to remain at first-half levels		Healthcare
	China


	Demand in the U.S. market to continue		Slower-than-expected demand		Recovery of demand in the U.S. to
Food		recovery, with sluggish market price in		remain slow, with a gradual recovery in
to recover
		the U.S. market		certain market price

*Based on the business environment of the Nagase Group, excluding one-time losses, etc. (Forecasts may not be consistent with general industry trends)

Copyright © 2024 Nagase & Co., Ltd.	3

Contents

■ FY2024 Second Quarter Results and FY2024 Earnings Projectionｓ	P5～P24

■ Medium-Term Management Plan ACE 2.0	P25～P36

Appendix：

✓Review : Management Conscious of Capital Costs and Share Prices -From the FY2023 Financial Briefing- ✓Sales, Gross Profit, and Operating Income by Quarter (Before Allocation of Corporate & Others)

✓Major Cash Inflows and Outflows for FY2021-FY2023

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FY2024 Second Quarter Results

and FY2024 Earnings Projectionｓ

		■ Consolidated Statements Income	P6
		■ Gross Profit by Region	P7
		■ Gross Profit by Business & Segment	P8

		■ Operating Income by Business & Segment	P9

		■ Sales, Gross Profit and Operating Income by Quarter	P10

		■ Segment Overview	P11～P15

		■ Overview of Major Manufacturing Subsidiaries	P16～P18

		■ Consolidated Balance Sheets	P19

		■ Consolidated Cash Flows	P20

		■ FY2024 Earnings Projection	P21～P23

		■ Shareholder Returns	P24

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Consolidated Statements Income

Gross profit was the highest ever for the cumulative consolidated second quarter; gross profit margin improved across all business segments
Operating income reached a record high in the cumulative consolidated second quarter and operating income margin improved, despite higher general and administrative expenses, including selling and personnel expenses stemming from increased logistics costs
Despite challenges in the Prinova Group manufacturing business, consolidated performance overall was favorable compared to our full-year forecast

						100 millions of yen

	FY2023 2Q	FY2024 2Q	Change	Vs.PY	Forecast	Achievement

Sales	4,501	4,809	307	107%	9,400	51%

Gross profit	788	921	132	117%	1,800	51%
	17.5%	１９.２％	1.6ppt	－	19.1%	－
SG&A expenses	644	710	66	110%	1,435	－

Operating	144	210	65	145%	365	58%
income

＜OP ratio＞	3.2%	4.4%	1.2ppt	－	3.9%
Ordinary	142	202	60	142%	352	58%
income


Profit Attributable
to owners of the	102	159	57	156%	280	57%
parent

US$ Exchange rate	@ 141.1	@ 152.8	@ 11.7	Weak yen	@ 148.0
(period average)


RMB Exchange rate	@ 19.7	@ 21.2	@ 1.4	Weak yen	@ 20.0
(period average)

Offset to sales and cost of sales from revenue recognition standards: FY2023 2Q -¥132.0 billion, FY2024 2Q -¥135.5 billion
Impact from foreign exchange: Gross profit, +¥4.4 billion; Operating income, +¥0.7 billion

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Gross Profit by Region

Higher profit both domestic and overseas
Increase in domestic business sales, due to higher sales of raw materials and formulated epoxy resins for semiconductor industries
Profits increased due to impacts of the weakening yen overseas, higher sales of food ingredients (mainly in Europe and the U.S.), and higher sales of resins in ASEAN countries

		Domestic & Overseas Gross profit(100 millions of yen)		Overseas gross profit By Region(100 millions of yen)
							550					Other



1,000			Total 921		100%					Total 512	8

						500					1.6%
900			Overseas		90%				Other1.6%	Europe	16.0%
							450			81
				512				Total 430
			Total 788							7
800				80%

			Overseas				400		Europe
			430						15.8%
								67
700				70%


			Overseas gross	Overseas gross			350				Americas
600		profit ratio	profit ratio		60%					39.2%
	54.5%	55.6%						200
					300

									Americas
500					50%			163	38.0%
				250

400					40%	200
										ASEAN
											17.6%
									ASEAN		90
300					30%	150		17.4%
								74

200		Domestic	Domestic		20%
	408		100
			358						Greater
								Greater
										China
100					10%			China	27.2%	25.6%
				50		131
								117


0					0%	0
	FY2023 2Q	FY2024 2Q


							FY2023 2Q	FY2024 2Q

※Domestic figures under Domestic & Overseas Gross Profit include inter-regional adjustments

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Gross Profit by Business & Segment

Trading business profits increased to ¥7.4 billion due to strong performance in the Functional Materials, Advanced Materials & Processing, and Electronics & Energy segments , stemming from moderate recoveries, mainly in the semiconductor, electrical appliances , and electronics industries
Manufacturing business profits increased ¥5.9 billion, mainly due to higher food ingredient sales at the Prinova Group in Life & Healthcare, narrowed losses in the Functional Materials color formers business, and higher sales of formulated epoxy resins at Nagase ChemteX in the Electronics & Energy business
The Life & Healthcare, Functional Materials, and Electronics & Energy segments grew significantly (see Segment Overview for more

details).

Gross Profit By Business & Segment (100 millions of yen)

Change in Gross Profit By Segment (100 millions of yen)

1,000																							Life &
		Total 921																				Healthcare	921


						Total 921														40
900																		Electronics	Mobility	Corporate
																	& Energy		& Others
							Functional								29	10		0

	Total 788				Total 788		Materials	18.5%			Functional
800							Materials
						170
			Manufa		Functional					37	Advanced
			cturing			Advanced
				Materials
				16.8%			788			Materials
700			41.7%	Materials
	Manufa		384		132		& Processing14.2%						& Processing

	cturing				Advanced		130								14

600	41.3%			Materials

325			& Processing14.8%
			Electronics
					116
						& Energy	21.0%
500
				Electronics		193			FY2023 2Q												FY2024 2Q

					& Energy	20.7%

400					163		Mobility
						9.1%
							83
					Mobility								History of Gross Profit(100 millions of yen)
					9.4%
			Trading		73

300

Trading		& Other

200	& Other	58.7%	537	58.3%		Life &			457	463		425		432
463			Life &		37.2%	387			401
				38.3%	Healthcare
					Healthcare		342
100					301

0
By Business	By Business	By Segment	By Segment

	FY2023 2Q	FY2024 2Q	FY2023 2Q	FY2024 2Q
* Calculation of segment composition ratios does not include																	0			0


Corporate & Others and eliminations									１Q			２Q			３Q	４Q

							Copyright © 2024 Nagase & Co., Ltd.				FY2023		FY2024	8

Operating Income by Business & Segment

Trading business profits increased approx. ¥6.8 billion due to an increase in gross profit and impacts of actuarial gains and losses
Despite strong sales of formulated epoxy resins by Nagase ChemteX and narrowed losses in the color formers business, manufacturing business profits decreased by approx. ¥0.3 billion overall, mainly due to the impact of lower profit in the Prinova Group
Corporate & Others profits increased, mainly due to the impact of actuarial gains and losses
(retirement benefit actuarial differences: approx. ¥0.9 billion in expenses in fiscal 2023 and ¥3.5 billion in profit for fiscal 2024, equally prorated and recorded on a quarterly basis)

240

Operating Income by Business & Segment(100 millions of yen)

Change in Operating Income By Segment (100 millions of yen)

220

200

180

160

140

120

100

Total 210		Total 210
Manufa
cturing 19.5%		Functional
	Materials
40		28.3%
	54

Total 144	Total 144
	Advanced
	Functional
	Materials
	Materials	18.4%
Manufa	16.4% & Processing
24	35
cturing 30.0%	Advanced

Materials
43
& Processing17.0%

	25	Electronics
Trading
	& Energy	31.2%
& Other 80.5%	Electronics
59
& Energy
169	28.2%
	42

			Corporate
	Electronics	Mobility	& Others	210
	& Energy	5	23
	17

	Functional
	Materials		Life &
	29
		Healthcare
	Advanced
		(20)
	Materials

	& Processing
144	9

FY2023 2Q

FY2024 2Q

History of Operating Income (100 millions of yen)

(20)

Trading				Mobility
& Other		Mobility	11.3%	11.8%
70.0%	17	22
101
			Life &

		Life &	27.1%	Healthcare 10.3%
		Healthcare	19
		40		Others
				18

Others

(5)

By Business

By Segment

107103

6975

FY2023 2Q

FY2024 2Q

FY2023 2Q

FY2024 2Q

Calculation of segment composition ratios does not include Corporate & Others and eliminations

１Q

２Q

３Q

４Q

FY2023 FY2024

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Sales, Gross Profit and Operating Income by Quarter

Gross profit has remained strong since fiscal 2023
Second-quarteroperating income in the manufacturing business declined from the first quarter, primarily due to weak performance in the Prinova Group, while the trading business continued to perform well, despite the impact of a one-time gain recorded in Functional Materials in the first quarter.

100 millions of yen

Quarterly results							2Q		FY2024	Achieve
							forecast	ment

			１Q	２Q	３Q	４Q	YTD		FY2023
				Actual

	Sales	FY2024	2,392	2,417				4,809		9,400	51%
		FY2023	2,240	2,261	2,275	2,224	4,501		9,001

		YoY%	6.8%	6.9%				6.8%		4.4%
	Gross profit	FY2024	457	463				921		1,800	51%
		FY2023	387	401	425	432	788		1,647

		YoY%	18.3%	15.3%				16.8%		9.3%
		FY2024	19.1%	19.2%				19.2%		19.1%

		FY2023	17.3%	17.8%		18.7%	19.4%	17.5%		18.3%

	Manufacturing	FY2024	188	195				384
		FY2023	165	160		183	185	325		695

	Trading	FY2024	269	267				537
		FY2023	221	241	242	246	463		952

	Operating income FY2024	107	103				210		365	58%
		FY2023	69	75		85	75	144		306
		YoY%	54.3%	37.1%				45.4%		19.2%

		FY2024	4.5%	4.3%				4.4%		3.9%

		FY2023	3.1%	3.3%		3.8%	3.4%	3.2%		3.4%

	Manufacturing	FY2024	24	16				40
		FY2023	26	17		25	21	43		91

	Trading	FY2024	83	86				169
		FY2023	43	58		59	54	101		214

*Manufacturing figures represent the aggregate totals of manufacturing subsidiaries.

*Trading figures include the aggregate totals of NAGASE and our sales subsidiaries, as well as Corporate & Others and eliminations

*Certain eliminations for FY2023 have been reclassified to manufacturing

Copyright © 2024 Nagase & Co., Ltd.	10