DIC Corporation (4631) Q2 2026 Earnings Call Transcript

Thank you very much for joining our financial results briefing for Q2 of the fiscal year ending December 2026. I am Takashi Ikeda, the president and CEO of DIC Corporation. Let me begin by discussing the highlights of our overall performance. To summarize H1 as a whole, net sales totaled 593 billion Japanese yen, up 13.3% YOY. The chemitronics business, on which we are placing particular emphasis performed well with a significant 25.5% increase in sales. As a result, operating income reached a record high of 51.8 billion Japanese yen, up 92.2% YOY. Under our full-year outlook, including H2, we expect to continue making progress in expanding sales of high-value-added products across all segments. However, our H1 results were affected by such factors as inventory stockpiling due to the situation in the Middle East and some orders being front-loaded, and we project a corresponding decline henceforth. Even after factoring in those risks, we still expect our annual operating income to reach a record high level. We anticipate that it will jump 49.4% YOY to 78 billion Japanese yen. Furthermore, we have revised our net income forecast upward to 48 billion Japanese yen. We also expect to record an all-time high profit this fiscal year. Based on the full-year outlook shown here, since we project that our net income in particular will significantly exceed our forecast, we have decided to raise dividends and acquire treasury shares beyond our initial plan, in line with our policy of maintaining a total payout ratio of 40% or higher. Accordingly, we plan to pay an annual dividend of 150 Japanese yen per share and repurchase our own shares amounting to 10 billion Japanese yen. With this, we project that our total payout ratio will be above 40%, as we expect it to reach 50%. Please turn to the next page. Regarding the situation in the Middle East that I just mentioned, we have been monitoring it very closely since H1 and have been doing our utmost to address it. The top section shows the details we announced during the Q1 briefing. Based on that announcement, we have summarized our current outlook and views, which are highlighted in the green box at the bottom. Although the risk of supply constraints has decreased significantly compared to Q1, the situation has recently become tense again, so we cannot afford to be complacent. We continue to monitor developments with a sense of urgency as we look ahead. That said, We have gained a reasonable degree of visibility regarding the procurement of raw materials, and we are working closely with suppliers and customers across the supply chain to address the situation. Overall, demand for a stable supply has increased substantially. In Asia and Japan, in particular, there was a period when the supply of raw materials became quite tight, so we made securing raw materials our top priority and focused our efforts on securing materials Rather than worrying about prices. In light of this, we explained the situation to our customers and gained their understanding about the fact that raw material costs are surging more quickly than in the past, so we're able to make progress on price adjustments. On the distribution and sales side, we managed to navigate the situation successfully. However, as expected, there will be some rebound effects from the extraordinary measures we took. In H2, spreads are expected to narrow due to shipments from inventories produced at higher costs. Nevertheless, for the full year, we expect to maintain a relatively high level of operating profit margin. Please turn to the next page. Here, we have summarized the quarterly trends in our results, particularly in terms of operating income. Our performance has been extremely strong since the turn of this year, or from Q1. This was driven by the strong demand and the significant increase in profit in our chemitronics business. And as I mentioned earlier, we were fortunate enough to have been able to adjust our prices to reflect rising raw material costs at an early stage, so our operating margin and, consequently, our operating profit hovered in the higher levels. Our Q1 results did include a one-time gain of 5.9 billion Japanese yen, but even if we exclude that, Our profit in Q2 grew bigger than in Q1. As shown on the right, in addition to Chemitronics, we successfully expanded sales of other high-value-added product lines, comprising jet inks, security inks, and pigments for displays, and those sales made a significant contribution to our profit. We are also seeing that our efforts to maintain and improve the profitability of our core business, represented by pigments, our proceeding is planned, and thanks to Our results continue to be solid every quarter. Please turn to the next page. February 2026. We formulated our cash allocation plan covering 2026 through 2030. In particular, in the cash-out portion, we have set three pillars on the uses of the cash in We Are Anticipating, and those three are strategic investments, shareholder returns, and interest-bearing debt. Since we are currently generating cash somewhat ahead of schedule, we intend to make substantial We have launched a dedicated fund and have begun strategically engaging with promising startups, and we intend to redouble our efforts in this area. Based on our policy of maintaining a total payout ratio of 40% or higher, we have decided to provide additional returns through dividend increases and share buybacks. Even taking these returns into account, our financial position remains sound, as we have maintained a net D ratio of 0.8 times or less. We will now go to the next page. This shows the trend in our shareholder returns. As we announced FI 2025, we were able to significantly increase our total payout ratio 2025 through a regular dividend of 120 Japanese yen plus a special dividend of 80 For the current fiscal year, as I have said earlier, we intend to continue to provide shareholder returns through a combination of dividend increases and share buybacks. We plan to pay an interim dividend of 70 Japanese yen, as scheduled, and a year-end dividend of 80 Japanese yen, representing an increase of 10 Japanese yen from our initial forecast, for a total annual dividend of 150 Japanese yen. Also, effective today, we will proceed with the acquisition of our own shares at a cost of up to 10 billion Japanese yen. With this, our current target is a total payout ratio of 50%, as stated here. That concludes my presentation on the overview of our financial results. Continuing on, Mr. Asai will now provide further details.

Good morning, everyone. My name is Takashi Asai, CFO of DIC Corporation. I will now discuss the details of our Q2 financial results according to the slides on the screen. What you are looking at is our income statement for H1 of the fiscal year. Our net sales and operating income are as presented by Mr. Ikeda earlier. Below the operating income level, we saw an increase in equity in earnings and a positive swing in foreign exchange gains on a YOY basis. The surge in equity earnings of affiliates was attributable to the strong performance of Teo Holdings, an affiliate of our company. Regarding foreign exchange gains and losses, the prior year's results were negatively affected by the impact of hyperinflation accounting, particularly reflecting depreciation of currencies such as the Turkish Lira and the Argentine Peso. This fiscal year, those currencies have remained relatively stable, leading to a substantial improvement compared with the previous year. As a result, ordinary income was 52.3 billion Japanese yen, up 32 billion Japanese yen from the previous year. This is also a record-high figure. With respect to the other items, we recorded extraordinary income and extraordinary losses, and our net income attributable to shareholders of the parent company stood at 37.2 billion Japanese yen, Representing a significant 184.1% YOY surge of 24.1 billion Japanese yen. The breakdown of extraordinary income and extraordinary losses is provided on the right side. In terms of extraordinary income, we posted an income of 2.8 billion Japanese yen from sales of works of art, but as this figure remained unchanged from Q1, it indicates that we are currently conducting sales at the same level. Please turn to the next page. These are the key KPIs that indicate financial health, as reflected in our financial statements. First, our net interest-bearing debt was 382.8 billion Japanese yen at the end of June 2026, down 6.6 billion Japanese yen from the end of FI 2025. This figure shows that we have managed to reduce our interest-bearing debt. Meanwhile, regarding shareholders' equity, it stood at 510 One factor was the increase in retained earnings, which was positive 22.9 billion Japanese yen after deducting the dividends at the end of the previous fiscal year from the increase in profit in the current fiscal year. Another factor was the result of foreign currency translation adjustment due to the weaker yen. If you look at the year-end exchange rates in the lower right corner, the exchange rate was 156.6 Japanese yen to the U.S. dollar at the end of FI 2025, but it became 162.3 Japanese yen, so there was a depreciation of approximately 6 Japanese yen. Consequently, foreign exchange translation accounted for positive 17.7 billion Japanese yen. As a result, the net DE ratio improved from 0.83 times at the end of FI 2025 to 0.75 times as of the end of H1. The equity ratio also improved to 38.3%. The next page is that of a bridge chart showing the change in our operating income in the first six months up to Q2. We start with a figure on the far left, which shows 27 billion Japanese yen for H1 of FI 2025, and this figure ultimately reached 51.8 billion Japanese yen, owing to various factors. First, operating profit from sales volume and product mix, shown on the left, was positive 8.3 billion Japanese yen. This increase in profit was primarily driven by the robust shipments of high-value-added products, such as chemotronics. Next are raw material prices, and then sales prices. On a net basis, it was positive 10.5 billion Japanese yen, representing a significant improvement in the price cost spread. While we are certainly feeling the impact of rising raw material prices, as Mr. Ikeda mentioned earlier, we still managed to record a positive turn in the price gap because the price adjustments we had implemented for our customers proceeded smoothly, and the cost of goods sold in H1 did not yet fully reflect these higher raw material costs. As for the pigments business, restructuring and organizational reforms proceeded as planned, and costs were on track. Furthermore, regarding foreign exchange, the weakening of the yen had a positive impact. Now, with a one-time profit of 5.9 billion Japanese yen recorded in Q1, our operating income at the end of H1 stood at 51.8 billion Japanese yen, as shown on the bridge chart. Next, we have the results by segment. From left to right, we have net sales and then operating income. In all our business segments, the trend was generally one of increased sales and profit. Incidentally, these sales and operating income figures reflect the impact of the weaker yen, so the changes that did not include the impact of the weaker yen are presented on a local currency basis. I will provide further details on the following page and beyond. Next, please. Here, we have the packaging and graphics segment. In terms of sales volume, there was a slight increase compared to the previous year. Given the concerns over the situation in the Middle East, in particular, we saw some customers front-loading their procurement. As a result, sales volume grew steadily. On the other hand, when it comes to prices, as I have already mentioned earlier, we were able to pass on the portion of the surge in raw material costs to our selling prices. As we were able to do that not only in Japan, but also in all regions worldwide, we ended up posting increased sales. Regarding operating income, while there were such factors as the higher selling prices and positive price gaps mentioned earlier, sales volumes of our high-value-added product lines, such as Jet Inks and Security Inks, were extremely strong, leading to a significant rise in our operating income. You can see our quarterly operating income and operating margin in the lower left portion. In the most recent Q2, operating income was 13.4 billion Japanese yen, and the operating margin was 8.3%, which is a very high rate. This was due to the improvement in the price cost spread, as I just explained. Please turn to the next page. The next page shows the color and display segment, centering on pigments. Regarding net sales, as you can see in the middle, they totaled 142.5 billion Japanese yen, representing an 8.6% increase In the lower right corner, we have sales by principal product. Our highest value-added products are pigments for displays and color filters. Sales of these pigments jumped 8% from the previous year. In addition, sales of pigments for plastic applications rose by 7%. While sales volume of these pigments for plastics expanded, sales of pigments for some other applications showed a somewhat sluggish growth compared to the previous year. Meanwhile, with respect to operating income, in addition to the one-time gain of 5.9 billion Japanese yen recorded in Q1, we implemented cost reductions through structural reforms and restructuring, and we worked on various measures to As a result, the operating income of this segment went up compared to the previous year. Please turn to the next page. Next, we have the functional product segment, which includes chemotronics. In this segment, shipments of high-value-added products, primarily in the electronics and chemotronics fields, were exceptionally strong. The chart in the lower right shows the trends in the sales of our principal products. The three on the left, Comprising epoxy resins, industrial-use adhesive tapes, and UV-curable resins are what we refer to as chemotronics-related products, and all three products saw double-digit sales growth compared to the previous year. Also, among the other products in the functional product segment, sales of what we call resins for coatings were robust, as shown in the right half of the same table. This relates to what I mentioned earlier regarding the packaging and graphics segment, but in anticipation of the impact of the situation in the Middle East, We saw a significant volume of front-loaded demand from customers. That led to the rise in sales in this segment. It was particularly noticeable in resins for coatings. As a result, as you can see in the bottom left portion showing the segment's quarterly operating income and operating margin, operating income grew steadily in both Q1 and Q2, while the operating margin reached 14.5% in the most recent Q2. On the next page, we provide the results for the chemotronics business alone. Here, net sales totaled 37.6 billion Japanese yen, up 25.5% weiwai. Operating income stood at 8.1 billion Japanese yen, which is 2.5 times the previous year's figure. Furthermore, the operating margin improved significantly, rising to 21.6% this year compared to 10.9% in H1 of last year. This was particularly due to the large volume of shipments of epoxy resins owing to the demand for AI semiconductors. In addition, in the area of industrial use adhesive tapes and other products, demand for those used in smartphones and other mobile devices rose, leading to improved profit margins and increased sales and profit. Please turn to the next page. These are our forecasts for the full year. We project annual net sales for 2026 to reach 1.14 trillion Japanese yen, up 8.3% To the right of that is our old forecast. This forecast was announced in May this year, during Q1, and we have revised it upward. We project that our operating income will reach 78 billion Japanese yen, ordinary income will be 73 billion Japanese yen, and net income attributable to owners of the parent will stand at 48 billion Japanese yen. We expect both net sales and profit to reach record highs. The key financial KPIs are listed on the right. With regard to ROIC, the current forecast is 6.4% and ROE is 10.1%. We project that the net DE ratio will be 0.8 times or less. As for the net DE ratio, as I mentioned earlier, even after reflecting the 10 billion Japanese yen for share buybacks, we intend to maintain it at 0.8 times or less. The annual dividend has been increased by 10 Japanese yen to 150 Japanese yen. As a result, the total payout ratio is set to 50%. Next, please turn to page 16. Here, we combine the analysis of the operating income bridge in H1 and H2 of the current fiscal year. I will skip the left half since it shows the changes in H1 that I discussed earlier. In the middle, operating Operating income was 51.8 billion Japanese yen in H1 of 2026, while in the far right, operating income is 26.1 billion Japanese yen for H2. These are the differences between H1 and H2. Since these are quite large, we analyzed them. First, in H2, we expect a negative 5.9 billion Japanese yen impact, owing to the fact that the one-time gain of 5.9 billion Japanese yen that we recorded in Q1 will no longer exist. Next, the second largest factor is in our color and display segment, centering on pigments, where net sales and operating income fluctuate significantly due to seasonal factors in H1 and H2 of every year, not only this fiscal year. This impact is expected to result in a decline amounting to about 5 billion Japanese yen for now. As for the other factors, various impacts, such as the risk of a backlash from the situation in the Middle East, as well as the reversal of the front-loaded demand from customers that I mentioned earlier in relation to some inks and performance materials, including resins for coatings, are expected to be seen in H2, and they will act as negative factors on our profit. Then, there are also the impacts of inventories and product costs. We expect margins to compress in H2 as higher-cost inventory is shipped and elevated raw material costs are more fully reflected in cost of sales. Taking all factors into account, we are currently projecting a negative impact of approximately 12 billion Japanese yen. Furthermore, we have factored in a 2.8 billion Japanese yen impact from exchange rate assumptions. In H1, the actual exchange rate was 158 Japanese yen and 32 sen to the U.S. dollar. Since we initially projected that on an annual basis, it will be 150 Japanese yen. As a result, a negative adjustment of approximately 2.8 billion yen has been incorporated to reflect the stronger yen assumption relative to the first half actual rate. We do not yet know what the full year exchange rate will be, but we are taking a conservative view for now. Next, on page 17, we have the bridge chart for full-year operating income. In terms of the trend, it looks like the trend seen in H1 will linger. Now, on page 18, we have the breakdown of our forecasts by segment. As the trends in H1 continue into H2, we are generally taking a rather conservative stance when it comes to our profit in H2 compared to H1 in various areas, so our profit forecasts are more restrained. Page 19 shows the current status of the chemotronics business. As for the outlook for the annual operating margin of this business, we are projecting that it will surge to 18% from last year's 12%. We are on track to maintain at least that level of operating margin. That concludes my presentation. Thank you.