4114.T

Overall Results

• The first half of fiscal 2025 delivered a year-over-year decrease in total consolidated revenue and profit. Total revenue was 200.2 billion yen (down 6.7 billion yen YoY), operating profit was 9.0 billion yen (down 1.4 billion yen YoY), and segment profit (operating profit + equity method gains/losses) was 9.6 billion yen (down 2.6 billion yen YoY). Positive factors including expanded margins from lower raw material prices, higher volume of electronics materials and SAP were offset by higher SG&A, lower inventory valuation gains, and an impairment charge at an equity method investee (Umicore Shokubai, an automotive catalyst JV).

Solutions Business Operational Updates

• Specialty Division: Water treatment applications are performing steadily, but the Taiwan subsidiary's commodity surfactant business is struggling due to Chinese import competition. Amine products for water treatment are expected to grow long-term, while CO2 absorption product commercialization is delayed by 1-2 years. Management plans to shift the product portfolio from low-margin commodity surfactants to high-value, high-margin specialty products, and will expand production capacity to meet growing demand.
• Electronics Division: Sales of AcryView acrylic resin for optical films and silica fine particles are growing, driven by strong demand from larger, higher-definition TV panels. Management will launch higher value-added grades and expand production capacity. Iodine production via subsidiary Nihon Iodine is performing well, with plans to expand production via new well development. Silica nanoparticles for semiconductor underfill and solder resist applications will have expanded capacity, with commercial production starting next fiscal year. The acrylic resin market for optical films is forecast to grow at 8% annually, driven by 55-inch+ larger panels.
• Other Solutions Segments: Construction is accelerating synergies from the E-Tech acquisition, with plans to expand into North America. Lithium-ion battery electrolyte (Ionel) has reached profitability at the Chinese JV, with plans to expand capacity in China and build a new factory in Kitakyushu, Japan. A large manufacturing facility has been approved for the health/medical segment to support growth.

Materials Business Operational Updates

• Weak market conditions for AA (acrylic acid) and AES caused by Chinese oversupply are expected to continue. SAP volume is growing from emerging market expansion, and management plans to add 50,000 tons of capacity in Indonesia to serve high-growth Global South markets. The company will implement group-wide production optimization to improve profitability.

Shareholder Return

• The policy is to pay the higher amount between 100% payout ratio or 2% DOE, plus active share repurchases. For fiscal 2025, an interim dividend of 50 yen per share and full-year dividend of 100 yen per share is planned. Including a planned 7.0 billion yen share repurchase, total payout ratio is expected to hit ~146%, higher than last year, with plans to increase returns further as profit grows toward 2027.

• Management raised its full-year 2025 fiscal year guidance, increasing forecast operating profit and pre-tax profit by 1.0 billion yen each to 18.0 billion yen and 21.0 billion yen respectively. The full-year forecast total revenue is 405.0 billion yen and net profit is 15.0 billion yen, with full-year results still expected to deliver year-over-year lower revenue and profit.
• The upward guidance revision is primarily driven by expected expanded margins and higher volume in the Solutions business.
• ROE, ROA, and ROIC are all expected to remain in the 3% range for the full year.
• While some projects (such as CO2 absorption amines) are delayed, management still believes the current medium-term management plan targets are achievable, with outperformance in high-growth segments (electronics, SAP) expected to offset weaker performance in mature commodity segments.

2025 Fiscal Year First Half (Interim) Results:

1. Materials (Mateerials) Business: Revenue of 139.7 billion yen, a 9.8 billion yen year-over-year decrease; segment profit of 6.5 billion yen, a 2.7 billion yen year-over-year decrease. The decline was driven by weak market conditions and lower sales volume for AES (acrylic esters) and specialty esters, which offset volume growth for SAP (superabsorbent polymer). This segment accounts for approximately 69.8% of total company revenue.
2. Solutions Business: Revenue of 60.5 billion yen, a 3.1 billion yen year-over-year increase; segment profit was nearly flat year-over-year after a non-recurring impairment charge. Excluding the impairment charge, the segment delivered year-over-year revenue and profit growth, driven by volume growth in display-related electronics materials and the acquisition of E-Tech. Weak performance at the Taiwanese specialty subsidiary offset some gains. This segment accounts for approximately 30.2% of total company revenue.

Full-Year 2025 Fiscal Year Forecast:

1. Materials Business: Forecast revenue of 281 billion yen, a 13.1 billion yen year-over-year decrease; forecast segment profit of 12.2 billion yen, a 3.7 billion yen year-over-year decrease.
2. Solutions Business: Forecast revenue of 124 billion yen, an 8.7 billion yen year-over-year increase; forecast segment profit of 6.7 billion yen, a 0.6 billion yen year-over-year increase.

• Persistent oversupply and weak market conditions for acrylic acid (AA), acrylic esters (AES), and commodity surfactants from Chinese competition, which negatively impacts profitability of the Materials business and the Specialty division of the Solutions business.
• Inflation has slowed SAP demand growth below earlier expectations.
• Impairment charges at equity method investees (Umicore Shokubai) weighed on current period results, and will impact full-year profit.
• Higher fixed costs from long-term turnaround at overseas subsidiaries, higher inventory processing costs, higher SG&A from R&D investment and the E-Tech acquisition, and higher transportation costs from volume growth all put downward pressure on profitability.
• Some growth projects such as CO2 absorption amine products are delayed by 1-2 years, pushing their contribution to after the current medium-term plan period.

Q: Is the expected year-over-year profit decline in the Solutions business's Specialty division mostly caused by weak performance of commodity surfactants, and what is the plan to improve profitability next fiscal year? / A: Weak performance is mainly driven by the commodity surfactant business at the Chinese-Taiwanese joint venture, which has faced heavy pressure from low-priced Chinese products across Asian markets. To improve profitability, management will expand high-growth, profitable amine product lines, and actively shift the portfolio from low-margin commodity products to high-value, high-margin specialty surfactant products.

Q: What is the targeted sales size for silica fine particles in the electronics segment? / A: Nippon Shokubai targets exceeding 1.0 billion yen in total sales for the entire silica fine particle business. The company is currently prioritizing development of silica nanoparticles, targeting revenue of several hundred million yen within the current medium-term management plan period, with further strong growth expected after that.

Q: Given that multiple key segments are performing worse than originally expected for the medium-term plan, are the original plan targets still achievable, and what is the strategy to hit them? / A: There are both underperforming and outperforming segments versus the original plan. Commodity surfactants and ester market conditions are worse than expected, and CO2 absorption projects are delayed by 1-2 years, pushing some growth to after the plan period. However, SAP volume growth is exceeding expectations, and electronics segment growth is also stronger than planned. Management expects strong growth from these outperforming segments will offset weakness in other areas, so the original medium-term plan targets are still achievable at this time.

Q: How competitive is AcryView acrylic resin versus competing PET-based optical films, and what is the outlook for market share growth? / A: Growth is not primarily driven by switching from PET to acrylic. Nippon Shokubai is gaining share among manufacturers that already produce acrylic-based optical films, so there is limited direct competition with PET. As demand for higher-functionality, higher-definition panels grows, adoption of Nippon Shokubai's high-performance acrylic resin will continue to expand in line with customer production plans.