4045.T

2025 Full-Year Consolidated Results

• Overall: Consolidated net sales of 162.312 billion yen, operating profit of 14.18 billion yen, marking a year-over-year decrease in revenue and a slight decrease in operating profit. Current profit decreased due to lower foreign exchange gains, but net income attributable to parent shareholders increased to 12.766 billion yen driven by policy-held share sales, with a record high EPS of 117.02 yen driven by share buybacks.
• Balance Sheet & Cash Flow: Cash and cash equivalents decreased by 11.67 billion yen year-over-year. Total assets increased due to share price gains on remaining policy-held shares, despite lower cash from active capex and share buybacks. Liabilities increased by 8.8 billion yen driven by a 10 billion yen new corporate bond issue, equity increased by 2.2 billion yen driven by investment valuation gains, and equity ratio fell 2.2pp to 74.3%. Operating cash flow increased year-over-year driven by contract termination and improved cash conversion cycles; investing cash flow saw higher spending driven by active capex and JV dissolution costs in the U.S.
• Shareholder Return: The company acquired ~7 billion yen of treasury shares, raised the annual dividend by 5 yen to 65 yen per share, resulting in a total payout ratio of 110.1%.

Previous Mid-Term Plan Review

1. Basic Policies:

• "Strengthen new product/new technology development": R&D spending hit 6.7 billion yen in 2025, meeting the target, but commercialization of new products was delayed, leaving the high value-added product sales ratio slightly below target.
• "Expand overseas sales": 13 new locations were established in 8 countries over 3 years, but intense competition driven by Chinese overcapacity led to a 73% achievement rate, with no increase in the overseas sales ratio.
• "Contribute to sustainable society": GHG emission reduction progress hit 80% of target, as full-scale renewable energy introduction is scheduled for 2026.

1. Business Base:

• R&D spending grew to 143% of 2022 levels by 2025, reaching 4% of net sales, with increased patent filings in mobility and medical fields. Cumulative capex over the 3-year period hit 70.6 billion yen, exceeding the 68 billion yen target, with ~half of all spending allocated to growth investments, strengthening the business base.

1. Financial Performance:

• Both net sales and operating profit missed mid-term targets. Commodity products hit targets via price correction, but high value-added products were impacted by delayed semiconductor market recovery and slower EV growth. Rising fixed costs (R&D, depreciation, labor) also slowed operating profit growth.

New 2026-2028 Mid-Term Plan

• Core Vision: The plan uses "Open Innovation to Shape the Future" as its slogan, targeting 18 billion yen operating profit in 2028 and 20 billion yen+ operating profit in 2030, working toward the 2030 goal of holding a portfolio of No.1/Only1 high-performance products and improving corporate value via growth investment and optimal capital structure.
• Key Focus Areas (Four Core Growth Drivers):
  • Semiconductors: Toagosei holds global No.1 market share in key semiconductor manufacturing inputs including high-purity liquefied hydrogen chloride, high-purity potassium hydroxide, and CMP acrylic polymers. The company targets 1.4x 2025 sales by 2028, leveraging accelerating demand driven by AI/DX adoption.
  • Mobility: The company develops products for all vehicle types (FCV, HV, EV, gasoline) and targets 1.5x 2025 sales by 2028, with a focus on improving performance for products for fast-growing hybrid vehicles and future EVs.
  • Medical: This is a new growth driver, with the company's proprietary siRNA nucleic acid medicine and nucleolaron DDS technology in joint development with multiple academia/venture partners. The company is currently co-developing intractable cancer treatments with iCONM, and plans to advance multiple non-clinical trials and enter some clinical trials during the mid-term plan period, marking the company's first full-scale entry into the medical field.
  • Environmental Infrastructure (Aging Sewer Countermeasures): Japan sees 2,600 road sinkholes annually, 70% from aging connection pipes, and demand for repair is growing rapidly. Toagosei's Aron Kasei subsidiary offers a full line of repair products, and is testing an AI/camera non-excavation damage mapping system to improve repair efficiency. The company targets 115% of 2025 sales by 2028.
• Global Strategy: The company built 13 overseas locations in 8 years in the previous plan, and now targets growing overseas sales to 40 billion yen (23% of total sales) by 2028, with a focus on developing high value-added products matched to local demand. The U.S. Krazy Glue instant adhesive business has shifted to a fully-integrated wholly-owned model, targeting a return to profitability via market share gains.
• Capital Expenditure & R&D:
  • Cumulative capex is set at 59 billion yen over 3 years (80% of the previous plan's total), with 58% allocated to growth investments and 20% to efficiency investments, split evenly between high value-added and commodity products. Key projects include expanding high-performance polymer capacity for pharma/cosmetics, expanding high-purity potassium hydroxide capacity for semiconductors, integrating flocculant facilities via business transfer, and updating core systems with SAP S/4 HANA.
  • R&D spending will grow to 7.2 billion yen by 2028 (107% of 2025 levels), maintaining a 4%+ of sales ratio, with a focus on the four core growth areas and active use of external partnerships.
• Sustainability Strategy: The company targets carbon neutrality by 2050 and a 50% GHG emission reduction from 2013 levels by 2030. Starting 2026, the company will use carbon-neutral steam from the Yokohama municipal waste incineration plant to reduce boiler fuel use, and has added solar power (already operational) and the company's first small hydropower plant (operational 2026) to its renewable energy portfolio. The company targets a 40% GHG reduction from 2013 levels by 2028, after hitting 28% reduction by 2025.
• Human Capital & DX Strategy:
  • Human capital: The goal is to improve employee engagement and drive sustainable growth via co-creation, with initiatives including raising compensation, improving work environment (transferee deferral system, health management), strengthening talent recruitment, developing young employees, and building an inclusive workplace for diverse employees.
  • DX: The company will drive business transformation to improve growth and competitiveness, with initiatives including advancing smart factory adoption, improving R&D via AI and materials informatics, and increasing indirect department efficiency via digital tools.
• Financial Strategy:
  • Targets: The company targets maintaining a 70% equity ratio, 6.5% ROE by 2028 and 8% ROE by 2030, and maintains an A or higher credit rating to secure low-cost funding. The core financial goal is to reach a PBR of 1x or higher by 2028.
  • Shareholder Return: The previous mid-term plan maintained a total payout ratio of over 100%, with a payout ratio of just over 50%. The new plan sets a total payout ratio of ~90%, with a higher allocation to dividends, for an average period payout ratio of ~70%. 2026 dividends are set at 70 yen per share (a 5 yen increase), and the shareholder benefit program will continue to help build a stable long-term shareholder base.
  • Cash Allocation: 3-year cumulative operating cash flow (net income + depreciation) is projected at 70 billion yen. After covering increased R&D and labor costs, the company allocates 59 billion yen to capex and 32 billion yen to shareholder return (aligned with the 90% total payout ratio), and plans 10 billion yen in external funding for sustainability investments. The projected end-of-plan cash balance is 25 billion yen (equal to 2 months of sales), maintaining financial health while using external funding to drive growth and maximize corporate value.

• 2026 December Period Guidance:
  • Consolidated net sales: 167 billion yen (year-over-year increase), operating profit: 14.5 billion yen (300 million yen year-over-year increase), net income attributable to parent shareholders: 11.5 billion yen (year-over-year decrease driven by lower policy-held share sale gains and no planned foreign exchange gain inclusion). Annual dividend is set at 70 yen per share, a 5 yen increase year-over-year.
  • Profit breakdown: +2.4 billion yen from price adjustments, +0.8 billion yen from volume growth (limited by profitability-focused sales strategy), offset by -2.9 billion yen in higher fixed costs driven by wage increases and depreciation from new capex.
  • Segment-level guidance: Basic Chemicals expects revenue and profit decline due to contract manufacturing termination (polyvinyl chloride and some monomers) and large scheduled acrylic acid maintenance; Polymer & Oligomer expects revenue and profit growth driven by higher sales to medical/cosmetics/semiconductor customers and improved profitability of lithium-ion battery polymers; Adhesive Materials expects revenue and profit growth driven by higher sales and U.S. restructuring; High Performance Materials expects revenue and profit growth driven by semiconductor market recovery; Resin Processed Products expects continued revenue and profit growth from sewer infrastructure product expansion.
• New 2026-2028 Mid-Term Plan Guidance:
  • Core 2028 targets: Net sales 180 billion yen, operating profit 18 billion yen (3.9 billion yen increase from 2025), R&D spending ratio 4%+ of sales, EPS 130 yen, cumulative 3-year capex 59 billion yen, 40% GHG emission reduction from 2013 levels, 8% female manager ratio, 6.5% ROE, PBR 1x or above.
  • Long-term 2030 targets: Operating profit 20 billion yen+, ROE ~8%.
  • Overseas sales target: 23% of total sales (40 billion yen) by 2028, up from 18% in 2025.
  • The company maintained its long-term carbon neutrality goal of 2050, with a 2030 GHG reduction target of 50% from 2013 levels.

2025 Actual Results:

1. Basic Chemicals Segment: Sharp decline in revenue, driven by the termination of some acrylic monomer contract manufacturing and continued low market prices for acrylic acid esters due to inflows of low-cost Chinese products into Asia. Operating profit is expected to decrease from 2025 levels under the new mid-term plan.
2. Polymer & Oligomer Segment: Solid performance in cosmetics and semiconductor-related products, with revenue increasing due to oligomer price adjustments, but the increase was not enough to offset the overall group decline, leading to a net consolidated revenue decrease. Operating profit declined due to lower lithium-ion battery binder utilization and surging oligomer raw material prices. This segment is projected to have the largest operating profit increase under the new mid-term plan.
3. Adhesive Materials Segment: Toagosei America (part of this segment) recorded lower operating profit due to increased one-time costs from joint venture dissolution and system restructuring. For 2026, the segment expects higher revenue and profit from increased sales volume of functional and mobility-focused adhesives, as well as the U.S. system restructuring, but Toagosei America will keep operating profit flat year-over-year due to increased marketing and advertising spending to gain market share. The segment's mid-term focus is restructuring the U.S. business and developing mobility-related products.
4. High Performance Materials Segment: Sales of high-purity inorganic products declined in 2025 because AI-driven semiconductor demand growth was offset by delayed recovery in other end-markets. For 2026, the segment expects revenue and profit growth from the recovery of the overall semiconductor market (driven by AI data centers), recovery in high-purity liquefied hydrogen chloride sales, and increased sales of high-purity potassium hydroxide to semiconductor customers. Mid-term, the segment will focus on strengthening the quality and supply system for semiconductor chemicals, developing new materials, and launching the medical business, with slower overall profit growth due to ongoing large development investments and depreciation from capacity expansion.
5. Resin Processed Products Segment: Strong performance in 2025, with significant operating profit growth driven by increased sales and price adjustments for aging sewer infrastructure repair products, plus overall profit margin improvements. For 2026, the segment expects continued revenue and profit growth from further expansion of sewer repair products and continued profit correction for environmental infrastructure and eco-material products. Mid-term, the segment will expand sales of sewer aging countermeasure products and develop AI/camera-enabled repair site identification solution services to build a solid market position.

• Ongoing uncertainty from U.S. tariff policy and geopolitical risks, combined with continued inflows of low-cost and increasingly high-end Chinese products into the Asian market, putting pressure on pricing and market share for commodity chemical products.
• Continued domestic inflation driving sharp increases in labor costs and other fixed costs, which requires ongoing price adjustments and sales volume growth to absorb, creating pressure on short-term profitability.
• The delayed recovery of the overall semiconductor market and slower-than-expected EV growth negatively impacted high value-added product performance in the previous mid-term plan, and similar demand delays could impact the new plan's growth targets.
• Existing loss-making businesses (TOAGOSEI SINGAPORE, U.S. Krazy Glue business) require ongoing turnaround investment, and turnaround efforts may not meet expected targets, negatively impacting overall group profitability.
• The current ROE of 6.5% targeted for 2028 is below the Japanese corporate average of near 10%, and the company's strategy of relying on PER improvements to reach a 1x PBR may not deliver the expected stock price gains if market sentiment does not improve as expected.
• New product and technology development (especially in the medical field) carries inherent risk of delays or failure, which could prevent the company from achieving its growth targets.

Q: Regarding the negative 2.9 billion yen fixed cost variance in the 2026 earnings forecast: does this large increase come from acrylic acid repair costs, higher depreciation, wage increases, or other factors? Additionally, outside of environmental infrastructure and eco-materials, which product segments will implement profitability corrections?

A: The majority of the 2.9 billion yen negative fixed cost variance comes from higher labor costs (including wage increases) and higher depreciation. Profitability corrections will apply to all products going forward. Previously, price adjustments focused primarily on variable cost pass-through, but going forward the company will also implement price adjustments to cover higher fixed costs, resetting price bases to enable steady progress on growth investments.

Q: The plan calls for 40% sales growth in semiconductors by 2028 versus 2025, but the High Performance Materials segment's operating profit is not projected to increase much. Is strong growth expected from semiconductor-related products in the Polymer & Oligomer segment? Could you explain the product-by-product contribution breakdown?

A: By product, high-purity liquefied hydrogen chloride (cleaning gas) contributes the most to sales and profit, followed by high-purity hydrochloric acid, high-purity potassium hydroxide, and CMP polymers. The reason High Performance Materials operating profit does not grow much is that the segment includes the medical field in addition to semiconductor products. Medical is in active development investment, which suppresses overall segment profit growth. Additionally, capacity investments for high-purity liquefied hydrogen chloride and high-purity potassium hydroxide generate new depreciation expense, which also slows profit growth for the segment.

Q: In the financial strategy, the 10 billion yen funding for sustainability investments: does this refer to using debt? Also, the 5 billion yen planned asset sales seems small if it is for reducing policy-held shares. What kinds of asset sales do you plan?

A: The 10 billion yen sustainability funding is indeed planned to come from debt, to cover various sustainability-related investments including the new small hydropower plant. The 5 billion yen in asset sales is primarily for policy-held shares. Last year, the company sold 7 billion yen of policy-held shares, and originally planned to reduce the policy-held share to equity ratio to the 10% level, but large stock price increases prevented the company from hitting the target. Going forward, the company will carefully review remaining cross-held shares (mostly with current or prospective partner companies) and act flexibly. The core policy remains to continue selling shares where holding rationale no longer exists.

Q: With a 2028 ROE target of 6.5%, can you really reach a 1x PBR? Could you explain the rationale for thinking this ROE level is enough to hit the PBR target?

A: It is true that many observers think 6.5% ROE is too low to reach 1x PBR. But already, the introduction of the shareholder benefit program alone has driven significant stock price gains. So while the current planned ROE is not high, management aims to reach above 1x PBR by promoting Toagosei as a technology leader and implementing other measures to improve the PER. As of the call, the stock price has already risen to above 0.9x PBR, and management will implement further measures to move to the target from this point.

Q: You have several loss-making businesses such as TOAGOSEI SINGAPORE and the U.S. consumer adhesive business. What is your approach to portfolio rationalization and selectiveness for these assets?

A: As progress on portfolio review, the company has already exited the polyvinyl chloride business, stopping production last year. For the U.S. instant adhesive business, it was loss-making after the JV led to lost end market insight and pushed share down from ~40% to 13%. After deep discussion with stakeholders, management gained confidence that the company can recover share and return to previous scale via targeted investments, so the decision was made to strengthen rather than exit this business. For TOAGOSEI SINGAPORE, the company is currently reviewing options: it is working to cut fixed costs and secure new customers, and has identified growing sales potential for a second monomer product, with trial sales already underway. Future strategy will be determined based on these test results, and management will carefully assess the long-term viability of the Singapore business. Going forward, the company will continue to identify all loss-making or underperforming businesses and review appropriate actions for each.

Q: With Japanese corporate average ROE approaching 10%, isn't a target of 6.5% by 2028 and 8% by 2030 too slow?

A: ROE is impacted by the denominator (equity) and numerator (profit). The company has made large investments over previous years, so the speed of profit recapture from these investments is a key factor. The new mid-term plan also includes large planned investments, and many of these will not generate large profits until later periods, which is why the 2028 target is set at the lower 6.5% level. For the denominator, the company targets a 70% equity ratio, and plans to use more debt to increase financial leverage. Management will work to lift ROE above the 6.5% target over time, and aims to hit 8% or higher by 2030.

Q: Is the path to 1x PBR clearly defined? Could you explain the full logic of how you will reach 1x PBR with a 6.5% ROE?

A: PBR equals ROE multiplied by PER. So even with lower ROE, PBR can increase if PER rises, which depends on raising market expectations for Toagosei's future growth. As mentioned, the shareholder benefit program alone already drove significant gains in PER and stock price. But the company will go beyond this to deliver actions that build long-term market confidence in future growth. The mid-term plan includes a large number of high-quality growth initiatives, and management believes that successful execution of these initiatives will significantly raise market expectations, and earlier delivery of results will also lift ROE and profit. Many of Toagosei's technology engagements cannot be disclosed publicly due to customer confidentiality, but the company has involvement in multiple high-profile ongoing projects that have been reported in the press. Going forward, the company will better communicate its technology leadership and social contribution to lift PER. As actual profits grow, ROE will rise and push PBR even higher.