4100.T

Mid-term Strategy (Vision 2026)

• Vision 2026 is a 3-year plan (FY2024-FY2026) aligned with long-term 2030 targets: 8%+ operating margin, 10%+ ROE, 40%+ equity ratio, and targeted CO2 emission reductions. The FY2026 end target is 5% operating margin, 11% ROE, and 29% equity ratio.
• Three core strategic pillars: Business Strategy, Financial Strategy, and Human Resources Strategy.

Portfolio Management

• Categorizes businesses by growth and profitability to prioritize resource allocation:
  • Growth: Magnet materials and dielectric (MLCC) materials, focused on maximizing group synergies and expanding business domain to capture long-term growth.
  • Next-Generation: Soft magnetic materials and environmental impact reduction initiatives, advancing new business creation via industry-academia-government collaboration.
  • Revitalization & Restructuring: LIB precursor (TAM dissolution/liquidation proceeding on schedule), hydrotalcite (shift to high-value products after collaboration termination), colored pigments & toner (rationalization and efficiency improvement for profit growth).

Financial Strategy Progress

• Focused on improving capital efficiency and cash flow:
  • Cash Conversion Cycle (CCC) shortened from 6.6 months (end-March 2025) to 5.7 months (end-H1 FY2025).
  • Free Cash Flow (FCF) improved from -1.2 billion yen (end-September 2024) to +0.2 billion yen (end-September 2025), a 1.4 billion yen improvement.
  • Uses NPV and ROIC metrics for investment decision-making to improve return on capital.
  • Stabilizing the base for dividend resumption; no dividend planned yet as the financial foundation is not yet sufficient.

Human Resources Strategy Progress

• Succession Planning: Provides development opportunities for young employees to build data-driven business management and stakeholder engagement skills for next-generation leadership.
• DX Talent Development: Launched a dedicated DX department, runs generative AI training and on-the-job training, and is leading efficiency improvements ahead of planned core system renewal next fiscal year.
• Diversity & Inclusion: Implements career leader training for female employees, expands work-life balance policies (shortened hours, parental/medical leave), and achieved 100% male paternity leave uptake, currently building supporting workplace systems.

• Full-year FY2025 consolidated revenue guidance is 28.5 billion yen, a 0.5 billion yen downward revision from the May forecast, driven primarily by weaker-than-expected soft magnetic material sales that will continue through the second half. This represents a 3.2 billion yen year-over-year decrease, largely due to the elimination of TAM's revenue after its liquidation.
• Full-year operating profit guidance is 1.0 billion yen, a 0.1 billion yen upward revision from the May forecast. Despite soft magnetic material headwinds, ongoing improvement efforts across other businesses remain on track, resulting in a full-year operating profit forecast that is 1.6 billion yen higher than the prior year's 0.6 billion yen loss.
• Full-year ordinary profit guidance is a 0.3 billion yen loss, a 0.9 billion yen downward revision from May, as the weaker-than-expected performance of the equity-method affiliate for LIB materials is expected to continue through the full year.
• Full-year net profit guidance is a 0.7 billion yen loss, a downward revision from May's 0.2 billion yen profit forecast, following the negative impact from the equity-method affiliate's performance.
• The full-year operating margin is currently projected to fall short of the 4% target, but management will continue efforts to close the gap in the second half.
• For full-year segment outlooks:
  • Dielectric materials (MLCC for AI) is projected to hit a record full-year revenue, up 0.4 billion yen YoY, but will remain operating at a loss due to development investment for expansion into new product areas (from raw materials to dispersions), with contributions to profit expected from next fiscal year onward.
  • Soft magnetic materials is expected to post a 0.5 billion yen YoY operating profit decline, though collaboration with the Korean subsidiary is progressing and building a foundation for future growth.
  • The TAM dissolution process remains on schedule, and the elimination of prior period losses drives a net positive contribution to full-year operating profit.

Toda Kogyo organizes its business into portfolio categories under two core segments: Electronic Materials and Functional Pigments. 2025 first half (H1) performance by category:

1. Growth Category:
   • Magnet Materials: Revenue decreased 0.7 billion yen year-over-year (YoY) due to weak demand and heightened competition in the Chinese market; operating profit increased 0.3 billion yen YoY driven by cost improvements from new manufacturing processes. Contributes ~41% of total H1 consolidated revenue.
   • Dielectric Materials (AI-related MLCC-focused): Revenue increased 0.2 billion yen YoY to a record H1 high; operating profit decreased 0.1 billion yen YoY due to higher R&D investment for new development themes. Contributes ~14% of total H1 consolidated revenue.
2. Revenue Base Category:
   • Catalysts and Iron Oxide Materials: No material change in revenue or operating profit YoY. Combined, contributes ~25% of total H1 consolidated revenue.
3. Next-Generation Category:
   • Soft Magnetic Materials: Revenue increased YoY; operating profit decreased 0.1 billion yen YoY due to intense price competition in the Chinese market. Contributes ~10% of total H1 consolidated revenue.
4. Revitalization & Restructuring Category:
   • LIB Precursor: No major revenue change; operating profit increased 0.4 billion yen YoY following the decision to dissolve and liquidate Canadian subsidiary TAM, eliminating prior period losses.
   • Hydrotalcite: No major revenue change; no material operating profit impact.
   • Colored Pigments & Toner: No major revenue change; operating profit improved 0.3 billion yen YoY from consistent cost reduction efforts. Combined, these three businesses contribute ~10% of total H1 consolidated revenue.

Overall consolidated H1 revenue was 14.3 billion yen (down 0.2 billion yen YoY), and operating profit was 0.6 billion yen (up 0.9 billion yen YoY from a 0.2 billion yen loss in the prior year period).

• Intense competition in Chinese markets for magnet materials and soft magnetic materials has driven lower sales and pricing pressure, pressuring segment profitability.
• Global EV market slowdown has severely hurt the performance of the LIB materials equity-method affiliate, leading to large unexpected equity-method losses that dragged down H1 and full-year net profit and ordinary profit results.
• Geopolitical and trade regulations for rare earth materials create potential for supply chain delays, though Toda Kogyo does not use heavily regulated heavy rare earths so current impact is limited.
• The company's equity ratio dropped 4 percentage points YoY to 22% following TAM liquidation-related provisions, leaving the financial foundation still insufficient to support stable shareholder dividends.
• The planned 4% full-year operating margin target is at risk of being missed, with current projections coming in below target.

Q: How has MLCC R&D spending changed year-over-year, and what is the full-year R&D plan for this segment? / A: Management declined to share absolute spending figures, but confirmed that R&D investment for MLCC has increased year-over-year. The company has reallocated additional personnel and capital to MLCC development and new business expansion, including depreciation-related investments for new initiatives, to support long-term growth in this AI-focused area.

Q: Can you share the standalone equity method profit/loss figure for BASF Toda Battery Materials? / A: Management declined to disclose the specific figure, noting that Toda Kogyo holds a minority stake in the joint venture, so it is not appropriate for the company to release standalone financial details of the business.

Q: What share of Toda's bonded magnets are rare earth magnets, how do rare earth/rare metal price fluctuations impact profit, and what is the outlook for future raw material prices? / A: Rare earth magnets make up approximately 40% of Toda's bonded magnet output, and the company does not use heavily regulated heavy rare earths, so there is no major production impact from current trade restrictions. Rare earth price changes do not materially impact profit, as the company passes raw material price changes through to customers via pricing linked to market rates. Management declined to provide a forward-looking forecast for raw material prices.