Screen Holdings Co U/Adr

Hello everyone, it's time to start the earnings call for the financial year that ended in March 2024 of Screen Holdings. Thank you very much for taking the time to attend today. My name is Chiho Otobie and I'm an Executive Officer and Head of the Corporate Communications Department. Thank you very much again for being here today. The documents for presentation today will be announced on the website at half past three or have already been posted. And we will also post a recording of today's earnings call later on. Please use it for your convenience. This earnings call is also being interpreted into English. So we have an English conference room set up on Teams. We would use English interpretation to have people from other countries and other languages follow the conference. There are three things in terms of housekeeping that I'd like to mention ahead of the conference. First of all, your cameras and microphones are muted by the organiser on Teams. And when it comes to doing Q&A, we will enable your microphone so that you can switch it on. This is just a measure of precaution to ensure a smooth progression of the conference. Please also refrain from mentioning specific customers or specific products of competitors or names of competitors. And please understand that we can't make comments on the situation of specific other companies. We will have time for questions and answers at the end of the presentation, and we will mention details on that later. So let me briefly introduce the participants on the side of screen holdings. First of all, Mr Toshio Hiroi, the representative director, president and CEO of Screen Holdings. Thank you very much for taking the time today. Mr. Yoichi Kondo, Representative Director and CFO. Hello, my name is Kondo. Thank you very much for being here today. Mr. Akihiko Miyagawa, Senior Executive Officer and Head of the Financial Strategy Division. Hello, everyone. Thank you very much for attending. So we will start this by a presentation from Mr. Kondo about the financials of the year that just ended. Mr. Kondo, you have the floor. Thank you very much. I'd like to give you the details of our business results and the forecast for the year that ended in March 2024. We've increased our revenue, operating income, operating profit margin, ordinary income and net income and we've also exceeded the forecast that were presented in January. We were paying out another ¥140 of dividend at the end of the term, which is ¥448 before split. We've reached record highs for sales and profits, also for OP Income and OP Margin, for SP, For GA, both sales and profits increased year-on-year, and we achieved a record high OP margin. For FT, sales decreased year-on-year, managed to reduce loss. And for PE, both sales and profits decreased year-on-year. Net sales for the full year were 504.9 billion, operating income 94.1 billion, operating margin 18.6%, ordinary income 94.2%, and net income 70.5%. Net sales up 9.6% or 44 billion, the OP income up 17.7 billion, ordinary income up 60.8 billion and net income up 13 billion. Sales revenue, operating income and operating margin are shown here. And these are the results of value up 2023. So we've improved the profitability, we've improved revenue as well. Next page, please. This is the revenue proportion by region. 82.4% overseas, Japan 17%, China 12%, and so on. So we see that China has reached a very high level. Next page, please. This is the composition of the group sales by segment. SP has reached a very high level at 82.7%. These are the results for the fourth quarter. SP, 129.6 billion. Operator income, 32.5 billion and operating margin, 25.1%. GA net sales, 11.7 billion. OPE income, 7 billion and OP margins 6.7 billion. FT, net sales 10.7 billion, 0.2, operating income and OP margins 2.2%. And PA, net sales 4.1 billion. On the right-hand side, you find the numbers for the full year. SPE, 417.6 billion. GA, net sales of 47.7 billion. FT, net sales of 23.2 billion. and negative 0.4 billion operating income for FT, OP margin minus 1.8% for FT. PE net sales of 14.6 billion, OP margin of 1.8 billion, OP income 1.8 and 12.7% margin. This is the year-on-year comparison by segment. For SP, Q and Q, both sales to profit increased, sales to foundries increased as well as those to China and North America. And this exceeded our expectations in terms of profitability because we drove down fixed cost. And some of the evaluation equipment was moved into this period. So operating income was higher than expected. Year-on-year is also an increase for sales and profits. Sales to foundries increased while sales to memory applications declined. It is similar to the Q&Q situation. For GA, both sales and profits decreased. The recurring business, however, remained solid. In terms of year-on-year, both sales and profits increased. POD and other equipment sales, as well as recurring business, remained solid. And we also had some help from FX. For FT, both sales and profits increased. And we are profitable for the first time on a quarterly basis since two years. We've returned to profitability on a quarterly basis. sales decreased year-on-year and managed to reduce loss for business restructuring. For PE, both sales and profits increased and OP margin improved to the 10% range. In terms of year-on-year, both sales and profits decreased and due to the sluggish investment in packaged substrates. This is the financial standard for our balance sheet. The total assets are 676.8 billion. And the cash is still quite abundant. Some of it is included in other current assets. But the figures I've seen. This is the cost of the cash flow. Minus 31.0 operating cash flow. For the fourth quarter, we've decreased the payment cycle, 60 days cash. And so this is just a temporary decrease of financial cash flow. And it's going to improve going forward. Financial cash flows and others are seen. This is the analysis of operating income growth. From the 76.4 billion in FY23 March, plus 18 billion for sales and capacity utilization, plus 13 billion for profitability, and minus 15 billion for fixed cost, plus two for exchange rates, taking us to 94.1 billion. Increase in sales and capacity utilization mainly to SP and profitability, SP and FT. labor costs, and R&T, that is what is being used. Exchange rates mainly impacted GA and PE. This is all the presentation from my side. Thank you very much, Mr. Condor, for the presentation. Mr. Hideaway will now talk about the business environment and the outlook. Mr. Hideaway, our CEO, you have the floor. Yes, I'd like to say a few words about the business environment and the outlook. for the business environment, for SVE, the market for semiconductors, for PCs, smartphones, and sort of applications we see expected growth, especially for servers on a monetary basis. The WFE outlook forecasts a growth of investment in China, and the dealers also say that, the DRAM also expected to recover in the second half, Taiwan is going to take the lead in leading edge node investments. So we see a positive outlook here. Power devices investment could become weaker going forward. For GA, in May there will be the Drupa exhibition. And for that, some customers have remained their purchases. We are going to announce new products at the Drupa and we expect to recover afterwards. For displays, the demand has improved as expected. And we are going to turn profitable this period. OLED is increasing gradually this financial year. And for PE, the memory demand print circuit boards has seen a slightly weaker demand and we expect the recovery in the later half.

So overall focus of the business for the full year In comparison with the previous year, we expect the increase in sales and profit. So we will be aiming for renewing the record high for the four years in a row for the profit as well as the sales. And then for the year dividend, then we will be achieving the record high. That would be 224 yen. And this year, so the value of further 2026 and the new midterm business management plan will be started, which will be explained later. As for the SPE business, so WFE, as I mentioned previously, so calendar year 2023 will be minus 5%. That is a landing of the calendar year 2023. And as for the 2024, the market will be growing by the mid-single-decent percentage. And the fund logics and for the leading edge, so then those investments, this will be accelerated so this would be accelerated further as for the memory so the DRAM investment and it would be restarted in the latter half of the year as for the application as the investment as for the fund tree so that due to the increase of the demand of the AI application and the mass production would be front loaded as for the logic and then installation of the new factories and it would be a progress in accordance with that plan as for the memory So related to the AI application in the second half of the year and the GLM CapEx, so that would be restarted. And then we are expecting the recovery as for the land. So gradually the market will be recovered. As for the image device and the power devices, so they are relatively slowing down. As for the image element, investment in China will go up. So as for the power device, it's a little bit sluggish. As for the Chinese market, so the existing and the emerging foundries and the memory combined, so the investment for the mature nodes application will become active. So on this page, so this is about the sales by the application, queue-on-queue. So deal and flush will increase, driven by China. year-on-year for Q4, so that the foundry made a significant increase, and the increase happened in Jiram, driven by China as well. And then, so that the 129 billion SBE sales was a record high, and SQ4, so that it's making a production to the production productivity, so that the free year, year-on-year, So the foundry made a significant increase, and for the dealer, there was an increase, and driven by China as well. And the post sales services and sales increased. However, relatively, the proportion or share decreased. So at the end of the last year, it was the 18% that is the share of the post sales service. Next, please. So this is by the forecast by region. So queue on queue. so that the sales to China will increase, and so is the sales to North America. So year-on-year, and the sales to China as well as sales to United States doubled. So that the full year-on-year, so that the sales to China, so that the more than doubled, and then the sales to North America made a significant sales, so the trend is very similar to the full Q year-on-year, So next page is about the focus of the H1 of this year. So as you can see, the situation is very similar to the H2 of the last year. So the DRAM and the logic is slightly increasing, but the picture is very similar to the picture of the H2 of the previous year. So this is by region. And again, so that dependency on China, Taiwan, excuse me, so the dependency in China will be continued in the H1 this year, and the ratio of the China goes up, and then the ratio of Taiwan goes up. So this is our expectation. So this tendency, so that will be the same in comparison between the H2 and the H1 of the previous year and this year. As for the GA, I mentioned about the droop-up in the ink business. The recurring business has been starting up and this is going to be stabilized. For the free year, OP margin will be the same as the last year. This is our target. As for the FTE, the display demand made a turnaround as we expected. so that the order of the audit will be gradually increasing. But the sales is mainly coming from the LCD for this year. So for the first year, we expect a return to profitability as for the BE, so that the investment in package will be recovered in the second half of the year, and the post-sales service is solid, and the OP margin of the 10% will be maintained. Next, please. So this is about the forecast of the business on the H1, so that the overall H1, so that 276 and the 48, so that the billion operating income and the 17.4% is the margin. And then the second half is the 52 billion, 18.3% for the free year, so that the 560 billion yen of the sales and operating income is the 100%. So the billion, this is the first time for us. And the margin is 17.9%. And then current ordinary profit is 100 billion. And the net income is 72. By segment, SPE is driving So that is the 460 billion yen of the sales and the operating income is 106 billion at 23% and the GA is 48 billion and the 3 billion and the 6.3% of the margin. And the FT, 36 billion of the sales and the profit that will be happening, 1 billion at 2.9 percentage. And the PE and the sales will be 15 billion and 2% of the OP income and at the 13.3 percentage. And the others, so there will be 3 percentage and a minus and the 12 billion. This is adjustment of the growth investment. As for the CAPEX, So some of the capex have been already completed, and the R&D, so that will be $27 billion, and the capex will be $39.8 billion, and then depreciation will be $10.8 billion. And then January, our forecast is for the capex. So this, as we explained, this will be 30 billion, but there is an increase by 9.8 billion, as you can see at the commentary at the bottom. So this is due to the acquisition of the building and the land in order to expand the capacity of the production of SBE. So in anticipation of the next mid-term business plan, starting in March of 2028, we made a strategic investment. And this year, so this fiscal year, So R&D, so that's 33 billion, and the capex is the 30 billion, and then depreciation would be 13 billion yen. As for the R&D, it's coming from the SPE, strategic investment, as well as the investment in the new business. This is our plan. As for the capex... So the centering around the SPE, so that we will establish the facilities for the R&D and then as well as the manufacturing, and then we will build new buildings for the SPE. So this is for the CAPEX plan. So FY20-24-00, as well as the forecast of the 2025-03, So and sales and capacity utilization, there will be a plus of the 28 billion and the profitability improvement is 1 billion and the fixed cost will be going up at the minus 22 billion and exchange of the exchange rate is a minus 1 billion. And then overall end will be 100 billion. As for the sales, as well as the capacity utilization increase is driven by the SPE. Improvement of the profitability is coming from the SPE and the FT. As well as the increase of the fixed assets, this is due to the growth investment in the SPE. And then as the GE and the PE are influenced by the exchange rate. So as for the dividend, so that the FY202403, we will be renewing the record high. As Mr. Kondo has already explained, I will be skipping the explanation. So the FY2025 March, so our forecast will be renewing the record high. So the ¥224 was already explained. So that before and converting it into the split, this is going to be the 448 yen. It is going to be increasing the record high by one yen. So later I will be explaining. So that the and then 30 percent of the payout ratio has been the policy. And then so that we are. So that's continuing this policy of the 30 percent or above of the payout ratio. So next is the Value App Father 2026, and the outline will be explained. Please go on.

First of all, let's look at the highlights of Value App 2023. In July 2022, we revised the targets, but we've achieved all the new targets. And I'm not going to read all the figures, but you can see for yourselves. And looking at it by segment, the values by segment, SPE far exceeds the original target. For GA and PE, we have still reached the target. FT had the issue that the display industry saw lower investment, so it's under the target. However, we see a recovery or we are targeting recovery within this period, the current running period and the new MCP. Let's take a look at the economic value outcome. We have three basic strategies, one of which is creating innovation and increasing corporate value through a same cycle. And we've rolled this out within the company and innovation management was introduced. We've selected the topics and we've revised the R&D strategy. So we've ingrained this in the company culture and for the existing markets, increasing the market share and working on the new scale of new businesses. It's still lagging behind in terms of the results, so this is the challenges that we see. We are going to continue investing in this part. On the bottom, generating cash flow is equivalent to profits by improving both profitability and efficiency. It's a target that we've worked on. We've introduced RIC management and it has penetrated the company. We have a RIC hurdle rate. for our portfolio management, which is the x-axis. And the y-axis is the revenue growth rate. So we see how the different businesses are performing. And we've established this new framework and it has taken root in the company. We've also leveraged SQ3 and SQ4 investments. SQ3 is now fully operational. And it helps us to improve profitability. We've also restructured underperforming businesses. And currently, most of the businesses are turning a profit in the last year of the plan. And we've also shifted the focus to cash flow management based on RIC. And this new structure has also been rolled out over the company and is taken up. On the next page, we talk about the social value. I'm not going to go into the details, but you can see this at your own convenience. And let's look at the major markets during the next mid-term plan. This is the prerequisite for our plans. And this will, of course, have an impact on our own results for WFE. The compound annual growth rate is expected to be 5.8% for GA. The digital printing market is expected to exhibit a growth rate of 3.3% annually. FT is somewhat difficult. 2023 had little investment, so we hopefully can jump on the recovery in 2024-2025. GA is 21%. In 26, we expect to see a normalization for PA circuit boards. The annual growth rate, compound growth rate is 0.6% as of the forecast. So we want to leverage our market share and new products to expand new markets. As for our basic initiatives, main initiatives in the next mtp the current value app 2023 uh when we've uh stabilized our financial foundation this will be the springboard to go to one trillion revenue and this is the growth path for this uh for business growth um as i've said uh we've introduced portfolio management and we're going to do this by product, portfolio management by product on a product basis and also broaden our RIC management approach. For business growth, we'd like to increase our presence in the industry and show new value to the customer with our technological capabilities. So we need products that can make this appeal and also help us increase our market share. That's our goal to receive this evaluation and to increase market share by that. In terms of innovation management, it says new technologies, new products on the market. Of course, putting new technologies, new products on the market is important for us. We are also going to use our new developments, new technologies for our existing businesses as well. And the results will be creating new businesses worth 10 billion yen in terms of sales. In terms of the intellectual property, we want to use it with the technology strategy and the R&D strategy. On the right hand side, you see the Business Foundation. Our approach to human resources in terms of strategy is to create a vibrant corporate culture and make people feel rewarded. These kinds of measures are going to make the whole company more vibrant. And so the key element here is to be a solution creator. For our financial strategy, we want to build a risk resilient financial standing that supports our endeavours in the business growth sphere. For digital strategy, information security has been an important topic in recent years and months, and we're going to work on this as well as DX to drive productivity. In terms of the facilities strategy, it's about developing facilities that support our business growth and also that support R&D This time, we also have a common strategy, which is the sustainability strategy and the brand strategy, which are centered here at the middle of the page. The products that we provide and the services that we provide with our businesses have to make a contribution to sustainability by their performance, and they have to drive our brands, our solutions. So these two things are also contributions to business growth and they are also part of the business growth and the business foundation. This talks about the financial targets. On a community basis, we have introduced the targets of one point trillion or more in terms of revenue over three years. and an average OP margin of 19% or above, RIC 15% or above, and the shareholder return policy is more than 30% dividend to payout ratio, and also a flexible share buybacks based on how Broker's investment in growth plays out. The left-hand side is a four-term programme, so that's something you have to keep in mind during the comparison. This is for each individual segment. Regarding SPE, it's 1.5 trillion over a term of three years, 1.5 trillion yen, average OP margin 23 to 25%. This is the range that we are aiming for. And for GA, we are aiming for 150 billion or more in Sayers community. average OPE margin of 6 to 9%. For FT, we are targeting the cumulative sales of 100 billion yen or more and average OPE margin of 3 to 5%. For PE, a cumulative sales of 50 billion yen or more and an average OPE margin between 12 and 15%. This cumulative approach is based on the fact that in the mid and long term, we have certain growth stages. Value-up further 2026 is where we see this as the first step and then to extend it to the next mid-term plan. So I hope I can benefit from your understanding regarding this.