Rigaku Holdings Corp

We are pleased to present the fiscal results of RIGAC Holdings Corporation for the third quarter of fiscal year 2024. Jun Kawakami, president, will explain the business and growth strategy. And Akihiko Miki, CFO, will explain the financial results and the forecast for the current fiscal year. So we will now begin.

Okay. Hi, this is Jun Kawakami, President and CEO of Aligaku Holding Corporation. Let me give you a kind of brief profile of Aligaku business and our growth strategy. Okay. Aligaku is a leading global company specializing in innovative X-ray analytical solutions for very diversified markets. We've been very deep index lane that really differentiates us from the competition. Company is about 80 billion yen in sales in fiscal 2023, and EBITDA margin is 25%. And we've been growing like 24% CAGR in the last three years or so. So very profitable, rapidly growing business. In terms of footprint, 30% of the sales are coming from Japan, the last 70% of our portfolio is really coming from the global market, so we are a fairly global company. In terms of product business, we have three segments of the business. One is this multi-purpose analytical instruments, which consists of a 45% of ourselves. And the semiconductor process control instruments have a 23% of our portfolio. And a component and services business have a 32% of the business. A very well-balanced, quite diversified business portfolio. In terms of end market reserve, semiconductor and electronic components is 33 percent life science 70 for seven percent and we serve very diversified uh end-use markets like metal battery petrochemical ceramics security you name it okay and also we serve the government and academia market which clearly deep in the r d innovations and the services are consists of 40 percent so that's our business okay in terms of a growth trajectory you have we have been doubling the size of our company in the last three years or so with the expansion of the margin to a 25 percent and you can see that all the three segments have been growing pretty well but this growth has been particularly driven by this semiconductor process control businesses okay all right so we have a three pillar growth strategy Pillar number one is really leveraging fundamental strengths that we have, and then this is the segment of a multipurpose analytical X-ray instruments machine market. Here, we really leverage solid core X-ray technologies, meaning X-ray generators, optics, and detectors. those core components we in-house design and manufacture these key capabilities that's really the our competition don't do so that this is a fundamental differentiation point uh that igaka has this vertical integration to the core component core x-ray technologies With that technology, we serve about $2.3 billion global XR deflection, XR fluorescence market. This market really for the R&D and the research market. So this is a core business that we have, very solid basis for us to build on. Pillar number two is our strategy to drive lab-to-farm expansion. We did it first in semiconductor market and this has been quite successful. What we mean by lab-to-farm is that by serving laboriously around the markets, we find the great technology, good technology, scientific principles that can be used in the production control, process control market. And then we really transform our lab products to a farm environment so that we can serve really online production environment. That's what we did in the semiconductor market. By doing that, our time actually expanded incrementally about $5 billion. So really this lab-to-fab strategy is for us to grow bigger, grow faster, and we know that we can be doing, we can be successful by our experience in semiconductor process control market. We serve all the key semiconductor players, all the tip manufacturers, all the equipment manufacturers, also the lots of laboratories, et cetera, okay? And pillar number three is that our intent and strategy to do this lab-to-farm strategy in other market than semiconductors. We specifically target next-gen compound semiconductors like SSE market. Also, we target battery market and life science market. So really leveraging this R&D technologies getting to your production control of power semiconductor or batteries for EV or batteries for data center or anti-gen or bioscience drug pharmaceutical manufacturing process control. So we have been doing this really to imitate our strategy of success in the semiconductor market. That will give us more market expansion, market creation, more growth opportunities. So those are the three pillars of our growth strategy. Let me talk one by one. Our first one is this R&D market, multi-purpose analytical X-ray. solutions. Market we serve 60% industrial, 40% academia government, but they are all R&D customers. Customers who are looking for innovations, who are looking the way to use X-Ray technologies to come up with their own innovations. In terms of product and technology we use, we use XR deflection technologies, Also, we use this X-ray imaging technologies and also X-ray fluorescence technologies. Those are the three key kind of modalities of X-ray technologies that can give us a good understanding of what material size, structure and element functional quality of the materials. So all the material researches are based on this key X-ray technologies. So we provide that kind of solutions. In terms of market position, we are very close to global number one position in X-ray diffraction market. And we have very dominant market share in Japan, 75%. We serve all the top 10 players in all key industries, semi-pharmaceutical, chemicals, and this business is very sticky. 95% win late when customers do the repeat businesses. So here, our strategy is not worrying too much about the difference. meaning that protecting 75% market share in Japan, but also going global to gain more share in the global market where we still have a room to grow. So we have been investing a lot in the developing commercial infrastructure of global market, namely Americas, India, China, Asia, and we are gaining market share there. So that has been providing us about the industry growth rate in this R&D market by multipurpose analytical X-ray machines. So that's the pillar number one. Okay, so let's kind of jump into pillar number three because this is related to this pillar number one strategy. So we are looking really for the approach to do another laboratory farm in semiconductor electronic components market, battery market, and life science market. Actually, we have witnessed this laboratory farm strategy works in this SIC market last year. We have this XRT micro technology. which really enable us to understand the defect of the crystal structure of this SIC wafer and SIC chip. I mean, creating wafer from SIC is so much more difficult than creating wafer from silicon. Really, customers need to deal with those crystal structure, crystal defects. We provide that technology in the form of XRT micron machine that has been used for R&D purpose for many years. And starting from last year, that technology is really demanding in the FAB environment. So this XRT micro machine has been transforming into a new version with higher throughput, machine-to-machine exact copy capability, et cetera, so that that machine can work in line of SIC fabrication arena. and this business has been really driving our growth in the last year and the first half of this year so we have been witnessing this laptop fab realization in this SAC market and we think that similar things would happen in coming probably two to three years in battery and battery material market because researchers are so active in coming up with the new materials for your battery as well as the new structure of the batteries a machine miniflex xpc is now being used to analyze the new materials for the batteries also city lab hv machine is now being used in fab environment of a battery manufacturer for the final inspection of the battery so this combining kind of technology to identify the materials as well as inspect the battery structure we can really drive this uh love to far um migration in this battery materials in in near future And further down, we've been working on this life science market. Coming up is the Biomax machine. Now it's named Molecularizer machine. This can enable us to see the live antigen in solution. Before, researchers really needed to freeze the antigen to look into the structure. So it's not live, but this machine can look into this antigen in dive-in solution. Very unique capabilities to understand the structure of a protein. And we have opened up the labs in Boston, becoming a part of the community of biopharmaceutical development. And in the future, we aim to use this technology for the manufacturing processes of biomaterial, biopharmaceutical. So this Pillar 3 strategy has lots of potential for us to develop new markets for us. starting from this pillar one strategy okay okay so let's back into the pillar two semiconductor process control market this is the five processes of semiconductor manufacturing And as of today, our technologies are mainly used in this front-end metallurgy purpose, not inspection. This is more of the metallurgy purposes to measure film thickness, material structure, size, shape of the deep hole, etc. So that we can understand what they can the customer can understand this manufacturing process itself is working properly one hour okay if you see the abnormality in data in film thickness etc., they can go back into the processes so that they adjust the processes so that they can directly improve the yield of their manufacturing process. Very, very important technology and the capabilities that the manufacturers have to have in their five processes. So that's a major business that we have, front-end metrology. We're actually expanding into the inspection market of the back-end, but that's still a small business for us. It's a future business for us. All right, so this is a front-end metrology business. As of today, X-ray metrology is still a fraction of the market, total market. Total market is about $4 billion US and the X-ray methodology is only $0.5 billion market but thing is that as the structure of the semiconductor is getting more miniaturized, getting more multi-stacking, getting more multi-materials, there are many applications that existing technology which is the optics mainly can't do enough metallurgy analysis or measurement. So therefore, this X-ray metallurgy market has been growing over 11%, but in the future, we expect that this X-ray metallurgy market is going to complement or supplement more on this optical technologies. like ellipsometer which measures the film thickness or optical cd which measures the size or shape of the structure so we expect that this market we have a tailwind and we can grow quite fast in this metallurgy market of this front end Okay, so that's the fundamental positioning and strategy that we have in this semiconductor process control market. All right, so without the pillar 1, 2, 3 strategy, in the medium term, we think that we can grow 10% CAGR top line consistently. Not talking about short-term boom, etc., but we have a structural growth factor in the semiconductor process control market where X-ray is really complementing or is being used more together with the optics technologies. And also this market expansion to the Pillar 3 strategy, lab-to-farm in other markets and semiconductors. That will give us the 10% CAGR over all businesses. And EBITDA margin is currently 25%. It's going to be about 20% range. a similar margin expansion in operating profit. For us to do that, we're going to beef up the R&D ratio from a current 6% to 7%, to a 9% range in this mid-term, long-term target. So basically, strategy is spend money in the R&D and capture lots of growth opportunities. in the semiconductor process control as well as the pillar 3 new market and also based on this core strengths in our R&D market so that is going to be our mid to long term strategy okay so that's the business kind of fundamentals let me give you the highlight of a third quarter result this year fiscal year 24. we've been growing over 11 percent 11.5 percent in top line and then after profit after tax is growing close to 20 percent So very solid growth trajectory in terms of this fiscal 2024 progress. and multi-purpose analytical instruments has been growing quite good, particularly in the first half of the year, driven by this SSE market growth as well as the China supplemental budget growth. But in the third quarter, we have some delay in terms of large project execution, so that actually was a little bit of a drag in this third quarter performance. Semiconductor process control market also demonstrating solid performance in this 2024 up until third quarter. Primarily driven by this demand growth from advanced logic player and also the WFE's manufacturing equipment players. And memory side, it's going to continue to be a good growth energy for us. We expected demand coming back toward the end of this year. Slight delay indicated from the bottoming up of the investment. But it's solid. So semiconductor overall, our growth has been quite solid. And profitability-wise, South Dakota, as I said, a little bit of a drag of the multi-purpose side from the delay of the execution of a large project. So year over year, profitability is not growing. in terms of margin rate, but we expect that we're going to recover in this profitability in the fourth quarter and as a total year, we are on the right track in demonstrating the margin accretion as a total year. Supporting that statement, our October progress is pretty strong, so that we can expect a good total year for results. That's the kind of highlight of the third quarter. So let me hand it over to Miki-san, our CFO, to talk about the numbers in more detail. Thanks.

Thank you, Kawakami-san. So I am Hihikomiki, GFO of NIGAC Holdings. So I will now explain the results for the third quarter of FY2024. So let us move to page 16. So here is the summary of the third quarter consolidated results. First, I will explain P&L and the IFRS that we have applied. So revenue, as mentioned earlier, totaled 62.6 billion yen, an increase of 6.5 billion yen, or 11.5% over the previous year. The drivers of the revenue increase are as already mentioned by Jun Kawakami, and then I will explain the sales situation by product and by region in the pages to be explained later. Gross profit was 38.3 billion yen and gross profit margin was 61.1%, an increase of 13.4% over the previous year and a one-point improvement in gross profit margin. The increase in the revenue composition of semiconductor process control equipment and services of which gross margins are higher contributed to the improvement. Operating profit also as mentioned earlier was 11.8 billion yen, an increase of 0.8 billion or 7.7% over the previous year. Profit before income tax was 11.5 billion yen, an increase of 0.9 billion yen or 8% from the previous year. Profit after tax for the third quarter year-to-date was 9.0 billion yen, an increase of 1.5 billion yen, or 19.5% from the previous year. A tax credit for R&D expenses and an increase in the ratio of sales in the Americas, where tax rates are relatively lower, reduced income tax, leading to more increases in after-tax profit. Also, although it is not on an IFRS basis in order for us to better understand the performance of our business, we present the results of EBITDA and adjusted income by excluding one-off expense effects, etc. The method of the adjustments are described on page 28 onwards, and please refer to them separately. Adjusted quarterly profit after tax was 10.2 billion yen, up 15.6% from the previous year, and EBITDA and adjusted EBITDA were 15.4 billion yen and 15.5 billion yen, respectively, up 8.7% from the previous year. Other key management indicators are including around expenditure, capital expenditure, and free cash flows are shown below. R&D expenses, which are very important for mid to long-term growth, totaled 4.7 billion yen, a 30% increase over the previous year, and accounted for 7.6% of revenue. We are actively pursuing R&D activities such as development of equipment for the semiconductor market. Capital investment was 3.6 billion yen, an increase of 1.7 billion yen over the previous year. The main reason in the investment is the expansion of the Yamanashi Fund, which is scheduled for completion in the second quarter of next year. Free cash flow was 4.9 billion yen, an increase of 1 billion yen from last year. While there was an increase in expenditure to strengthen the management basis, such as the Yamanashi plant and ERP, operating cash flow associated with higher profits led to the increase from the previous year. Since about 70% of our revenue is from outside of Japan, the current depreciation of the yen is positively contributing to both revenue and profits. Although it is only a rough estimate, we estimate the sensitivity of the cumulative third quarter results to the exchange rate of ¥1 per USD compared to the previous year is about ¥190 million in revenue and ¥80 million in EBITDA. Let me move to page 17. So I will explain the consolidated balance sheet and cash flow. Regarding balance sheet, it compares the balance at the end of the third quarter of this year with the balance sheet at the end of the full year last year. Total assets amounted to 166.1 billion yen, up 3 billion yen from the end of last year. This is mainly due to an increase in cash and cash equivalent, an increase in inventories in preparation for higher sales in the fourth quarter, and an increase in investments due to construction of the expansion of the Yamanashi plant. Regarding liabilities, total current and non-current liabilities decreased by 6.1 billion yen from the end of last year because of the interim income tax payment and repayment of corporate loan. Net assets increased 9.1 billion yen from the end of last year because of the increase in retained earnings. Regarding balance sheet related management indicator, The ratio of net debt to adjusted EBITDA was 1.7 times, steadily decreasing from 2.1 times at the end of last year. The equity ratio was 44.8%, an increase of 4.7 points from the end of last year. This indicates increasing stability. Next is cash flow, which is compared to the same period in the third quarter year-to-date versus the previous year. Operating cash flow was 8.2 billion yen, up 2.7 billion, or 50% from last year. In addition to higher profits, tighter control of inventory growth has led to the increase in the operating cash flow. On the other hand, investment cash flow was ¥3.3 billion, more expenditure by ¥1.8 billion from last year. But this was because of the construction of the expansion of the Yamanashi plant and investment in ERP. From the above, free cash flow was ¥4.9 billion, an increase of ¥1 billion from last year. In terms of financing cash flow, there was an increase in repayment of corporate loan and lease obligations, but the borrowing for the investment in the Yamanashi plant resulted in a higher cash flow of 200 million yen from last year. Net cash flow was 1.2 billion yen, slightly lower than last year. Although free cash flow and financing cash flow increased year on year, net cash flow was lower than last year due to difference in foreign exchange valuation, as the temporary appreciation of Japanese yen in the third quarter resulted in the foreign exchange loss, while last year there was a large foreign exchange gain due to Japanese yen depreciation. Let me move to next page. This is an analysis of the change in adjusted EBITDA in the first nine months of the year versus the prior year. Adjusted EBITDA increased from 14.3 billion yen last year to 15.5 billion yen this year due to the profits derived from the revenue increase, despite an increase in SG&E expense such as R&D and personal costs. However, the ratio of EBITDA to revenue fell from 25.5% last year to 24.8% this year. This was due to decrease in revenue during the three months in the third quarter caused by the delivery delay and also continued increase in R&D and personal expense as explained earlier. As mentioned at the beginning of this report, I believe we will be able to turn things around in the fourth quarter. So let me move to the next page. I will now explain revenue and profits by products. Shown at the upper side of the document is a comparison of revenue and operating profit for the cumulative third quarter versus the previous year. Many parts of the report have already been explained up to this point, but I will give you some key points for product business. Revenue of multipurpose analytical instruments increased 14.7% year-on-year as sales of XRT Micron and TF-XRD to the customers in the semiconductor market and increased orders from last year's supplementary budget project in China contributed to the revenue growth in the first half of the current year. Semiconductor process control instruments Revenue increased 18.3% year-on-year, driven by the Americas and China. Growth in the Americas was driven by sales of advanced logic customers and in China by sales to legacy device customers. The operating profit margin for semiconductor process control instruments was down slightly from the previous year, mainly due to an increase in sales commission resulting from higher sales in China, where sales through distributors are main channel. The lower right side of this page shows the revenue for each quarter. As we have reported earlier, revenue in the third quarter of 2024 is down from the previous year, and this is due to lower sales of multipurpose analytical instruments. Let me explain a little bit more of the detail of the revenue short form. One is the XRD products, which were delayed to quarter 4 due to delay in the delivery of the project in North America. and the delay in customer acceptance of the project in Europe. In addition, life-size products for China are slipping to Q4 due to the time required for acceptance inspection procedures of the customer. Along with those recoveries, we are doing our best to optimize sales in the fourth quarter. Let me move to the next page. This shows the revenue by region. The upper part of the page shows results for the first nine months of the year, and the lower part shows the revenue by quarter. The biggest contributor to the revenue growth in the third quarter cumulative period is China, which we have already talked about sometimes, driven by the influx of the sales made from the large orders in last year's supplementary budget projects in multipurpose analytical instruments, and semiconductor process control instruments driven by the sales growth to legacy device customers. In the Americas, sales of semiconductor process control instruments increased, and in Europe, sales of multipurpose analytical instruments for the semiconductor market, such as XRT-micron and TF-XRD. Sales in Japan were down from the previous year, but this was due to a decline in sales of multilayer mirrors for EUV mask inspection equipment. due to inventory adjustment by the customer, as well as the impact of a large-scale project last year for semiconductor process control equipment, and the introduction of such equipment by a Japanese company to its overseas subsidiaries. In terms of the quarterly trend, a major year-on-year decline is also in Japan, mainly due to the decline in sales of semiconductor process control instruments, as mentioned earlier. Let me move to the next page. Here are the revenues by end market. Comparing the results for the third quarter of 2024 with those for the full year of 2023. The three-point increase in semiconductors and electric components is indicative of the high demand in these markets. The decrease of about 3 points in life science is mainly due to the decrease in sales in the pharmaceutical industry. Since the academia government business is concentrated in March in Japan, in usual case, a comparison between quarter three and the full year should show a higher share of academia or government business. But since the difference is only about one point, we believe there is a further shift in demand to the industry. So we believe that the importance of responding to the semiconductor market and lab-to-fab strategy is further increasing. So let me move to the next page. Here is the amount of R&D and capital investment, and their ratio to sales. R&D expenses are increasing strategically, while capital expenditure increased temporarily due to the expansion of Yamanashi plant. So let me move to the next page. Here is the explanation of the trends in orders received. The left-hand side shows quarterly orders received, and the right-hand side shows quarterly order backlogs. Orders have been tending downward in each quarter since last year. The main reasons for this are On multipurpose analytical instruments, it was due to decrease in China supplementary budget projects. Orders for equipment for the semiconductor process control products has been somewhat delayed due to the changing customer and application profile. Component and services are declined because of inventory adjustment in the customers on multi-layer mirrors for EUV mask inspection equipment. Another reason for decreased order for overall business is advanced orders received as part shortage during COVID-19 have been resolved. Therefore, production due to time have been normalized. That makes the advance order reduction, making the order received has been decreasing. As a result, the order backlog has also decreased, as shown on the right side of this page. However, since the pipeline of projects is growing steadily, we do not believe the demand in the market is declining, so we will continue to strive for order growth by further increasing our competitiveness. through improving lead times by expansion of production capacity with the new Yamanashi plant, responding appropriately to the semiconductor market, high appetite for investment and increased inquiries, and focusing on the application with higher market needs continuously. Let me move to the next page, page 25. I will cover the Earnings Forecast for the fiscal year ending December 2024. It has not changed from the Earnings Forecast disclosed when we received approval for listing on Tokyo Stock Exchange Market. sales are expected to be 88.5 billion yen, an increase of 10.8% year-on-year. Adjusted EBITDA is expected to be 22.6 billion yen, an increase of 11.7% year-on-year. And adjusted net income is expected to be 13.9 billion yen, an increase of 7.1% year-on-year. So let me move to the next page. So this is the last page of my presentation. This shows the dividend payout ratio and ROE. The dividend payout ratio is 30% of consolidated profit as a policy. But since FY2024 is two months and six days after the listing, we are forecasting 2.60 Yen per share, which is equivalent to 2 months of the 30% of the forecasted full-year consolidated profit. That is all for my presentation. Thank you very much.