Toppan Holdings Inc

I am Kurobe, CFO of Toppan Holdings Inc. Thank you for taking time out of your busy schedule to join us at Fiscal 2024 Full Year Results Briefing. So let me present the overall Fiscal 2024 Full Year Results. First of all, In FY 2024, as you can see on page 3, the net sales were ¥1,717.9 billion, up 2.4% year-on-year. Operating profit was 84 billion yen, up 13.1% year-on-year. Looking at different segments, information and communication sales grew 3.3%, but profit growth was flat due to upfront investments for DX business for portfolio transformation. Living and industry sales increased by 2%. Profit grew by 21.5%. Eco-friendly SX packaging performed well, driving overall profits. Electronic sales and profit grew about 5%. Photo masks showed strong performance throughout the year. FCBGA profit grew from the second half, contributing to the higher performance. Profit attributable to owners or parent was ¥89.3 billion, up 20%. In addition to higher operating profit ¥183.8 billion, extraordinary income, including gain on sale of investment securities, was posted. Despite the extraordinary loss of ¥88.3 billion, including the impairment loss, net profit exceeded the plan. ROE was 6.6%, up 1.2 points year-on-year. About 100 billion yen treasury shares were purchased as announced and equity was reduced. Dividend will be 56 yen per share, up 8 yen year-on-year. Please turn to page 4. This shows the changes in operating profit. Forex impact was minus 0.2 billion yen. As holding company expenses decreased, infrastructure development costs pushed up the profit by 1.9 billion yen. Airhead cross was minus 1 billion yen. Japan Essex and overseas living was 6.8 billion yen. Semiconductors, 5.5 billion yen, both pushing up the profit. As for cyclical businesses, textbooks were negative, U.S. election related was positive. Overall, 0.8 billion yen profit increase. Existing businesses, minus 0.3 billion yen due to stagnant publishing and commercial printing and TFT LCD business. In total, operating profit was 87.8 billion yen. In addition, one-time expenses associated with M&A was about 2 billion yen. Enterprise tax associated with the divestment of the strategic shareholding was about 1.8 billion yen up year-on-year. As a result, operating profit was 84 billion yen, mostly on track. Now let's go into each segment. Please turn to page 5. Information and communication net sales were 929.3 billion yen, up 3.3% year-on-year. Operating profit was flat at 45.6 billion yen. Subsegments are shown on the table. In digital business, marketing DX, overseas securities business, and payment business in Japan contributed to higher sales. Profit growth was small because of decrease of digital content businesses. In BPO, with the absence of one-time projects of the year before, sales declined. However, order mix improved with increased continuous projects for public sector and financial institutions, and profit margin was maintained. In secure media, smart cards and other security printing expanded. U.S. election-related solutions contributed to overseas financial printing. Sales and profit increased. In communication media, existing print media such as publication and commercial printing continued to contract. Business forms also declined. Overall sales and profit decreased. Next is page 6. For your reference, we summarized the results of Airhead Cross. As a whole, sales grew with results steadily being achieved in focus fields in the three main categories of Marketing DX, Security Business, and Hybrid . Profit margin growth was flat due to the increase in upfront costs associated with bolstering resources to scale the business. For Elhead Cross, we are focused on three major categories to enhance our competitiveness. Also, we are bolstering personnel for sales, planning, and development to strengthen the structure. Profit level is not yet sufficient, but we would make sure to achieve results. Next is living and industry on page 7. Sales work. 548 billion yen up 2% year-on-year. Operating profit was 33.3 billion yen up 21.5%. 1.8 billion unplanned M&A-related expenses are included. Results were mostly in line with the plan. Both sub-segments saw higher sales and profit. In packaging, SX packaging grew mainly in Europe and also in Asia. Barrier films also trended strongly. Essex packaging grew also in Japan. From the second half, pass-through of the higher personnel, energy and other costs started. Sales and profit increased. In decor materials, sales and profit grew. Although overseas market recovery is delayed, profit increased as we focused on the cost reduction such as production efficiency improvement. In Japan, we captured strong renovation demand. Export of decorative sheets for furniture showed strength. Sales and profit increased. Next is electronics. Please turn to page 8. Sales were 279.9 billion yen, up 5% year-on-year. Operating profit was 52 billion yen, up 4.8% year-on-year, exceeding the plans. The core of the semiconductor business FCBGA sales increased for the full year, but the profit decreased. The profit grew in the second half with strong performance for AI servers and network switches. Photo masks performed well throughout the year, driven by the demand for advanced products, including development applications. Sales and profit increased as a result of an all-semiconductor business sales and profit group.

In the display business, anti-reflection films for televisions and automotive applications performed well, while color filters were on par with the previous year. On the other hand, demand for TFT LCDs for industrial equipment did not recover, and for the display business as a whole, it was higher sales but lower profit. Next, some additional information on the impact of exchange rates in the electronics segment, page 8. Impact of exchange rates in the electronic segment was 600 million yen in fiscal 24. Due to large rate fluctuations during the year, it was difficult to grasp the actual situation in yen terms. Therefore, we made an estimate based on fixed exchange rate assumptions for the entire year. The dark purple bars show the quarterly operating profit assuming a fixed exchange rate of 140 yen per dollar. As you can see from this graph, operating profit improved after bottoming in the first quarter and was stable thereafter. We have been applying the year-end rate for accounting treatment of our foreign currency transactions. However, with the further expansion of our global business from the new fiscal year, we will change our accounting method using the yearly average rate. Please turn to page 10. I will now explain the main items of the statements of income. Gross profit margin improved by 0.9% to 24%. favorable performance of high-value-added businesses such as semiconductors and SX packaging contributed. SG&A expenses increased by 15.9 billion yen, and SG&A ratio was 19.1%. The main factor for this was a 13.1 billion yen increase in personnel costs. About half of this was due to increased hit counts from overseas M&A, along with regular selling increases and additional personnel. due to business restructuring. On the other hand, system costs for organizational restructuring in infrastructure development decreased by 3.6 billion yen. To reduce the SG&A ratio, we will streamline head office functions and optimize personnel allocation and aim for a stronger profit structure. In extraordinary income, we had a 173.3 billion yen gain on sales of securities as we executed a planned reduction of strategic shareholdings. On the other hand, we had an impairment loss of 67.1 billion yen in extraordinary losses. We are promoting structural reforms along with the expansion of growth businesses in order to realize business portfolio transformation. We are reorganizing manufacturing sites in the existing printing business and working to enhance profitability at underperforming European bases in the decor materials businesses and recording impairment losses as well. We will continue to carefully examine the content of our assets and accelerate the recovery of funds invested. Next is the balance sheet. The last day of fiscal 24 was the day before the closing of the Sanoko deal on April 1st, so the 270 billion yen acquisition fund accumulated shows up as both cash and deposits and short-term borrowings on the balance sheet. On April 1st, upon payment to Sanoko, the cash and deposits will be reclassified into various assets. We proceeded to sell strategic shareholdings as planned, and the total amount of investment securities decreased by about 140 billion yen year-on-year. As a result, the ratio to net assets including deemed owned shares stood at 15.4%. Also, due to a 100 billion yen share buyback and other factors, total shareholders' equity decreased by about 120 billion from the previous year. Next is the consolidated cash flow status. Operating cash flow for the fiscal year was 64.7 billion yen due to an increase in profit before income taxes and other adjustments. Investment cash flow amounted to 47 billion yen as we engaged in active investments of about 170 billion yen, including gross investments while also promoting the sale of strategic shareholdings. As a result, free cash flow, which is the sum of operating cash flow and investment cash flow, amounted to 111.8 billion yen in income. Financing cash flow amounted to 120.3 billion yen in income. Although we conducted a share repurchase of 100 billion yen, we also secured external borrowings of 270 billion yen to prepare for the acquisition of Sunago's TFP business on April 1st. As a result of all these, cash and cash equivalents at the end of the fiscal year increased by 230.3 billion yen year-on-year, reaching 753.1 billion yen. Please also refer to the right side for the graph for trends in capital expenditures and depreciation expenses. This concludes the explanation of our financial results for the fiscal year ending March 2025. Next, we explain the transition to new KGI or key goal indicators. Please turn to page 14. We are currently advancing our business portfolio transformation by accelerating growth through M&A, expanding globalization and driving structural reforms. With recent major M&A like the Sonoco business, we feel that the current GAAP-based KGI's are not adequate to capture the track record of growth and enhancement of corporate value. Therefore, to more appropriately indicate cash generation capability and earning capacity expansion based on the core business, and also to have better comparability with global peers, we will establish and transition to new KGI's. The new KGI's will be defined as written in the bottom left of the slide with EBITDA, non-GAAP operating profit, non-GAAP net profit, and ROE. We will proceed with preparations this year to introduce them fully from the next fiscal year ending March 2027. Please turn to page 15. For your reference, this shows the past two years' results and the fiscal 25 forecast based on the new KGI indicators. For fiscal 25, non-GAAP operating profit will be 114.9 billion yen, non-GAAP profit attributable to owners of parent 83.5 billion yen, and ROE 6.4%. Also, EBITDA will be 200 billion yen. Starting this fiscal year, we will disclose these metrics on a quarterly basis. That concludes my explanation.

Thank you very much for joining us today. This is Maro, CEO. I would like to present Fiscal 2025 Results Forecast. This is the final fiscal year of the MTP, so I would like to look back on the past two years and also summarize the initiatives for FY25. As for the overall progress, there were some variations in the level of progress between the segments. But we are generally in line with the plan, including the profit levels and capital policy actions. As for business portfolio transformation, we see steady earnings expansion of growth businesses. We are working on the structural reform of low-profit businesses and promoting to realize transformation. In order to expand the growth businesses, we are transitioning the information and communication to DX business. Our health growth is steadily growing. In living and industry, global business and SX packaging are growing. We decided to make large-scale acquisition in global packaging. In electronics during these two years, mainly semiconductor-related business has become the driver of overall profit. As for the structural reform, we have made progress in folding cartons business restructuring and TFD-LCD business downsizing. In printing business of information and communication, based on the prospect of the speed of the market contraction, reorganization decision was made mainly in publication printing. During this fiscal year, we will further scale LH cross and expand the size of the business through consolidating the acquired businesses in global packaging and also by growing the semiconductor related business. We would enhance the cash flow generation capability. We would also bolster the investments to growth businesses for the future. We will make sure to materialize the effect of the fixed cost reduction conducted last year. We will continue to work on the selection of the businesses and exit decisions. About capital policy, based on the policy to balance the investments and shareholder returns, we executed 140 billion yen treasury share purchases during the two years and accelerated the reduction of strategic shareholdings. For this fiscal year, we would enhance the shareholder returns through additional Treasury share purchases and dividend increase and ensure the reduction of the strategic shareholdings to less than 15% of consolidated net assets and further accelerate the reduction. In the final fiscal year of MTP, we would make sure to achieve the financial targets that we are committed to and gain momentum toward next MTP. Next is page 18, FY 2025 full-year forecast. Net sales forecast is 1,880,000,000 yen, up 9.4% year-on-year. Operating profit, 92,000,000 yen, up 9.4%. Profit attributable to owners of the parent, 65,000,000 yen. ROE forecast is 5%. I will explain each segment later. For your reference, non-GAAP standards numbers are also shown. Operating profit 114.9 billion yen. Profit is 83.5 billion yen. ROE 6.4%. EBITDA forecast is 200 billion yen level. FX assumptions is 140 yen to the dollar and 154 yen to the euro. 30 billion yen share buybacks are planned for this fiscal year. Page 19 shows the main factors for revision of the operating profit plan announced in May last year. The segment breakdown of the change of the total from ¥100 billion to ¥92 billion are shown. Information and communication profit is revised from ¥55 billion to ¥46.5 billion, including the negative impact due to the review of LH cross-plan, and standardization of the bonus provision period in anticipation for integration of the operating company. Positive impact of the effects of the structural reform of existing printing business is included. Living and industry plan is unchanged at 42 billion yen. Main factors include the positive impact on profit after goodwill amortization with consolidation of acquired businesses such as Sonoco, and negative impact of one-time expenses of acquisition and bonus provision period standardization. Electronics profit is revised from 52.5 billion to 50 billion yen. Semiconductor-related was positive factor, while TFT LCD and anti-reflective film in display was negative. Adjustments are minus 46.5 billion yen, 3 billion yen lower than the previous plan, including the right sizing of the holding company expenses. As a result, operating profit forecast for the final fiscal year of the MTP is ¥92 billion. If the impact of the bonus provision period standardization ¥5 billion and items related to the Sonoco business acquisition ¥3 billion are excluded, the profit is the same level as the previous plan of ¥100 billion. We will accelerate the synergy generation with Sonoco and aim for the upside. Next is operating profit year-on-year changes. Please turn to page 20. Negative factors on profit include a forex impact 6.2 billion yen, bonus provision period standardization 5 billion yen, cyclical businesses 6.2 billion yen, infrastructure development costs 5.3 billion yen, M&A expenses including Sonoco 2.2 billion yen. Positive factors are airhead growth 6.1 billion yen, Japan Essex and overseas living 11.3 billion yen, semiconductors 5.7 billion yen, existing businesses 9.8 billion yen. Fiscal 2025 operating profit plan is 92 billion yen. As mentioned earlier, excluding the bonus provision period standardization and M&A expenses of Sonoco, which are not factored in the previous plan, the profit is the same level at 100 billion yen. Non-GAAP operating profit plan is 114.9 billion yen, as shown on the far right. Next, page 21 shows the plan for each segment. Information and communication segment. Sales are expected to decline 2.4% year-on-year to 207 billion yen. Operating profit up 1.8% year-on-year to 46.5 billion yen. For your reference, non-GAAP operating profit is expected to be 50.9 billion yen. Let me go into the sub-segments. Much higher sales and profit are planned for digital business. As for overseas security business, through the M&A of last year to this year, government ID and smart card business in global south will start to significantly contribute. In marketing DX business, we made upfront investment in personnel last year to scale. By enhancing the sales capabilities, data management and operation, and by focusing on the selective services, we aim to expand the sales and improve profitability. Higher sales and profit are expected also for BPO. Percentage of the continuous projects for public sector and financial institutions will increase. Both with the absence of the large private sector projects in the previous year, sales increase will be small. With improved order mix, profit is expected to rise. Lower sales and profit are expected for secure media. Overseas financial printing will see decline without U.S. election solutions of last year. DPS sales will decrease but profitability will improve due to the better business terms through activities since the previous year. Lower sales and profit are expected also for communication media. Cyclical business of textbooks will decrease and existing printing business of publication, commercial printing, and business forms continue to contract. We will improve the profitability by incorporating the fixed cost reduction effects of structural reform. Next is page 22, talking about L Health Cross. In FY25, we would expand sales and improve profitability to scale the business, focusing on three main categories. In Marketing DX, we participate from the consulting support for clients' marketing process and grow their revenue by providing business process streamlining support and solutions centered on data. At the same time, we would enhance profitability by narrowing down the solutions provided and driving shift to AI. As for security business in overseas, business expansion is expected in global south regions. In Japan, notification digitalization services and payment business are forecast to grow. In hybrid BPO, We will leverage BPR capabilities and business process design expertise to expand the orders for continuous projects. Next, page 23 shows the living and industry. In FY25, sales are expected to grow 34.8% year-on-year to 739 billion yen. Operating profit forecast is 42 billion yen, up 26%. Non-GAAP-based operating profit is 59.7 billion yen. Let's look at each sub-segment. Higher sales and profit are forecast for packaging. In overseas, film, barrier film and packaging businesses are expected to continue to expand at existing bases. In addition, Sonoco, an Italian film company, will be consolidated in Q2, pushing up the sales significantly. Full-fledged profit contribution will start from the next year due to the one-time M&A related cost, but cash generation capability will improve greatly. In Japan, the robust expansion is forecast with growing SX packaging, mainly the flexible packaging, and expect the effects of the folding carton business restructuring. For decor materials, higher sales and profit are forecast. In overseas, higher profitability is expected with production efficiency improvement and reduction of the material costs and depreciation expenses. In Japan, increase of the decorative sheets for non-residential sector and growth for the special design business are expected.

Next is an update on the acquisition of Sanogo's business, page 24. The acquisition was completed as scheduled on April 1st. Once again, the strategic intent was to acquire the customer and manufacturing base in Americas, build a global supply chain platform from filmmaking to package manufacturing, and provide recyclable packaging that meets sustainability needs globally. The transition overview, the provisional acquisition price is about 275.8 billion yen. It is financed by the company's own funds from asset divestment and by external borrowing. Financial Impact, the target business for the fiscal year ending December 24th, has 208.5 billion yen in revenue and 35.7 billion in EBITDA. The estimated goodwill and intangible assets are about 200 billion in total. Next is the financial profile of the packaging business after integration, page 25. The combined sales of our packaging business and Sonoco's thermal-formed and flexible packaging business will exceed 600 billion, with EBITDA over 80 billion. Through this, we aim to firmly establish our position as a global leader in sustainable packaging. Also, the ratio of overseas sales in packaging business will be 56%, rising significantly from the previous 35%. And we will further expand earning capacity going forward by generating synergies. Here, I explain the synergies resulting from this acquisition, page 26. As shown, toward establishing our global strategy, the strengths possessed by us and Sonoco are highly complementary, both regionally and technologically. We believe this will allow us to realize a strong synergistic relationship and stable growth over the medium to long term. Page 27. For synergies in sales, we expect the following. Expansion of packaging business for global CPG customers in Americas, expansion of GL business in Americas, expansion of sales in other regions, leveraging customer base in Americas, and expansion of packaging business for Japanese customers in Americas. For synergies in procurement, we will pursue joint purchasing of materials globally and regionally and drive supply within the group with higher in-house film production. In R&D, we will leverage each other's resources to win new customers and enhance development capabilities for new SX packaging products such as monomaterial barrier packaging. For human assets and processes, we will pursue fusion of management and manufacturing systems in global deployment. We will provide further details on these synergies at the Global Packaging Business Strategy Briefing in July. Next is the electronic segment, page 28. For this fiscal year, we are projecting net sales of 259 billion yen down 7.5% year-on-year and operating profit of 50 billion down 4%. Operating profit on a non-gap basis will be 50.3 billion. If we exclude the 5.4 billion exchange rate impact for electronics segment, operating profit would have risen. Let me now explain the situation by sub-segment. Semiconductors are expecting higher sales and lower profit, but excluding the exchange rate impact, we are projecting a profit increase. In FCBGAs, we will drive qualification to expand the proportion of products for AI. The new line at the Niigata plant will go online as land. For next-generation semiconductor packaging, we will invest to construct a pilot line at the Ishikawa plant. We forecast continued expansion for photo masks based on taking in demand from the strong merchant photo mask market in each region globally. Wide-ranging investments will be made to maintain and expand capacity for products ranging from mature to advanced. For the display business, we expect both sales and profits to be lower. The TFT LCD business will see sales decline due to structural reforms of selling giant plus shares, but profitability will improve. Anti-reflective films should see growth for high-value added products for large TVs and automotive applications. We will also advance preparations for launch of an ultra-wide line. Although the overall profit forecast for electronics may appear sluggish due to exchange rate impact and others, the business environment for semiconductors remains solid. Capacity-increased investments to capture opportunities from market expansion should begin to bear fruit and contribute to earnings beginning in the next fiscal year. Also, as announced today, alongside our earnings release, we'd like to report that we are preparing for the listing of our Photomask subsidiary TechSend Photomask. As we prepare for this listing, we will consider the overall capital efficiency and governance for the whole company, with an aim to promote the growth of both companies and maximize corporate value. In the future, we will consider taking TechSend to an equity method affiliate. At this time, the specific timing of the listing has not been determined. Should any matters requiring disclosure arise in the future, we will announce them promptly. Next, as a reference, I briefly explain the impact of U.S. tariff policies on our business. Page 29 Regarding the impact of tariffs on the segments and businesses shown, we recognize the following potential risks for direct exports. Decrease in sales revenue due to decline in sales volume for indirect exports. A decrease in sales due to change in U.S. exports of companies we do business with for production in the U.S. A risk of increase in purchasing costs. Value of direct export sales is about 10 billion yen, so profit impact should be minor. Although we have not incorporated tariff impact into the planned figures, we will monitor the situation since it is continuing to change. Next is our cash allocation policy. In fiscal 24, funds from divestment of assets, mainly shareholdings and additional borrowing were allocated to acquisitions and other gross investment as well as share buybacks. In fiscal 25, cash out funds will transition from stock to flows. As for the cash allocation plan in the current MTP, based on the initiatives and policies just explained, we have revised our disclosure in May last year to the updated version on the right. For cash-in, borrowings will increase by about $200 billion with the acquisition of Sunrico's business. As for asset sales, mainly the reduction of strategic shareholdings are expected to increase to $240 billion. For cash out, we expect gross investments to increase from 450 billion to 810 billion. Main reasons are listed on the right, which I will explain shortly. For shareholder returns, we plan 30 billion share buybacks this fiscal year along with dividend increases amounting to a total of 220 billion. Page 31 Our approach for this fiscal year is to maximize cash flow and further improve ROE. We will focus investment on growth fields and accelerate business shift, assess low-profit and underperforming businesses and drive structural reform, implement flexible share buybacks considering total payout ratio. With these three initiatives, we will conduct optimal allocation. Regarding capital policy, as stated, we commit to conduct share buybacks of $30 billion, reduce strategic shareholding to less than 15% of consolidated net assets. Next, I will discuss our investment strategy, page 32. To strengthen M&A-led business investment and gross investment to expand earnings in the next MTP, we have revised the total investment for the current three-year MTP from $450 billion to $810 billion. Business investments will increase $270 billion from the previous announcement. This is mainly due to the M&A of Sonoco's business. Capital investment will increase by a total of $90 billion, covering both growth businesses that we will actively expand and cash-generating businesses. The main items are semiconductor-related businesses such as FCBGA, including next-generation packaging and photo masks, as well as capital investment for newly acquired companies. Next, the status of reduction of strategic shareholdings, page 33. As we continued to reduce strategic shareholdings in light of capital costs and financing at the end of March 25, we are at 15.4% of consolidated net assets down from 24.8% at the end of March 2024. we will accelerate reduction going forward and target less than 10% of net assets in fiscal 26 and beyond. Finally, about the business strategy briefings. Until last year, we held an IR day in early June, but in order to deepen investors' and analysts' understanding of each individual business, we are revising the format of these briefings. This fiscal year, we plan to hold multiple business strategy briefing sessions, each for a different segment. The first briefing will be the Global Packaging in Living and Industry scheduled for July 8th from 3.30pm. We hope you will join us. The second will be for Information and Communication on September 5th from 10.30am and the third will be for Electronics planned for December. We will announce details as soon as they are finalized. This concludes my explanation. Thank you very much.