DIC Corporation Q4 FY2024 earnings call

Long-term Plan Progress

• DIC Vision 2030 is split into Phase 1 (2022-2025, final year 2025) and Phase 2 (2026-2030), with Phase 2 targets to be published in February 2026. The core target of a new all-time high operating profit of 56.5 billion yen for 2026 remains unchanged, and progress is on track.
• 2024 full-year operating profit reached 44.5 billion yen, far exceeding the revised plan target of 30 billion yen, putting the business firmly on a recovery track driven by core business profitability improvements and pigment structural reform.

Key Growth Initiatives for 2025-2026

• Core Business Strengthening: Continue to improve profitability of the pigment business (the largest remaining improvement opportunity) beyond current cost-cutting, and expand polymer business capacity in high-growth China and India to grow the Asian coating polymer business.
• Sustainable New Business Growth: Expand environmental and high-performance products in packaging, with the newly built recycled polystyrene plant ramping up full operations in 2024 and targeting profitability in 2025.
• Smart Living Core Expansion: Chemtronics is the core of Smart Living growth:
  • Target launch of next-generation resist materials and functional sheets in 2025
  • Expand lithium-ion battery materials and develop materials for all-solid-state batteries
  • Pursue Direct to Society initiatives to develop new high-value sensing and sensory materials for AI devices, with plans to concentrate investment (including M&A) on this area in Phase 2
• Total incremental profit potential from these initiatives between 2025 and 2026 is estimated at 7 billion to 10 billion yen.

Capital Efficiency and Shareholder Returns

• Management recognizes improving return on capital is a critical priority to boost corporate value, as current PBR remains below 1x even after 2024 share price gains. 2026 targets are maintained at 4-5% for ROIC (at or above WACC) and 7-8% for ROE (at or above equity cost).
• 24 billion yen in asset compression was achieved in 2024, with total asset compression projected to exceed 40 billion yen by 2026, including 10 billion yen from art work sales in 2025. The company will implement 10 billion yen in additional shareholder returns in 2025 alongside the planned 100 yen per share regular dividend. Net D/E ratio reached 1.05x in 2024, hitting the target range.
• The company cut 10 cross-held share holdings in 2024, reducing the total to 32 holdings, and the ratio of cross-holding market value to net assets fell to 7%, on track to reach the 4% target by 2026.

Museum Restructuring

• Final plan is downsizing and relocation: the collection will be cut to 1/4 of current size, relocated to a public-access site in Tokyo. A final agreement is targeted by the end of March 2025, with non-core artworks to be sold, targeting at least 10 billion yen in cash inflow in 2025. Proceeds will follow the existing cash allocation policy, including potential additional shareholder returns.

European & US Pigment Structural Reform Update

• The program is tracking better than plan: total restructuring cost is now projected at 13.1 billion yen (3 billion yen below original plan), with annual profit contribution reaching 12.5 billion yen by 2026 (2.5 billion yen above original plan). It will deliver 2.3 billion yen incremental profit in 2025 and 2.5 billion in 2026, offsetting 4 billion yen in inflation headwinds.

1. Packaging & Graphic: In 2024, full-year shipment volumes grew 3% in Europe/US and 8% in Asia for packaging ink, while Japanese volumes fell 2% due to food demand declines. Jet ink sales were particularly strong. In Q4 2024, the segment posted 8.8 billion yen operating profit with a 6.2% profit margin, maintained by strong global price discipline. It achieved an ROIC of 8.2% in 2024. For 2025, it is expected to report a 2.3 billion yen operating profit decline due to necessary moderate price cuts.
2. Color & Display: The segment includes pigment products, with full-year 2024 shipment volumes up 8% after customer inventory de-stocking ended in 2023. 2024 full-year operating profit was a negative 0.3 billion yen (operating deficit); excluding a 0.5 billion yen deficit from the exited liquid crystal materials business, the core pigment business posted a 0.2 billion yen operating surplus. Japan posted 5.6 billion yen in operating profit, while overseas operations remained in deficit despite narrowed deficit. It achieved an ROIC of -0.1% in 2024. For 2025, the segment is projected to reach 6.1 billion yen in operating profit, returning to full black ink.
3. Functional Products: Reported a headline 19.6 billion yen year-over-year revenue decline (-6.4%) in 2024, which is fully attributable to the sale of Star PMC and non-core business exit; on an organic basis, revenue grew 20 billion yen (+7.8%). The Chemtronics sub-segment (epoxy resins, industrial tape, UV-curable resins) and mobility-related products (PPS compounds, aqueous resins) grew strongly and contributed heavily to profit, while construction and general industrial products declined. It achieved an ROIC of 7.1% in 2024. For 2025, volume growth is expected, but rising depreciation from capacity expansions and higher IT costs will keep operating profit flat year-over-year.

• 2025 full-year guidance: 1.11 trillion yen revenue (+3.6% YoY), 48 billion yen operating profit, 44 billion yen ordinary profit, 24 billion yen net income attributable to parent shareholders, representing upward revision from the prior 40 billion yen operating profit plan.
• 2025 KPI targets: ROIC of 4.2%, ROE of 6%, net D/E ratio of 1.03x, 100 yen per share regular annual dividend, unchanged from prior plans.
• The 2026 target of 56.5 billion yen operating profit (all-time high) is maintained, and the company confirms it remains on track to hit this goal.
• The 2026 Chemtronics operating profit target of 10 billion to 11 billion yen is maintained, with development on track to hit this range.

• Inflation continues to create cost headwinds for the pigment business, with projected 4 billion yen in negative impacts through 2026, requiring full price pass-through to maintain profitability.
• European and US pigment operations remain in deficit, requiring continued price adjustments to reach appropriate profitability after major demand declines and changed market conditions.
• The packaging & graphics segment faces a necessary cycle of moderate price cuts in 2025 after significant price increases in 2023-2024, leading to an expected 2.3 billion yen profit decline.
• Ongoing restructuring and development costs for Chemtronics create near-term profit headwinds as new products ramp up.

Q: What makes up the 6.2 billion yen 2024 structural reform gain in the overseas pigment business, and what additional synergies contribute to the projected 2.3 billion + 4 billion yen gain for 2025-2026? / A: The 2024 structural reform gain is almost entirely from headcount reduction (led by Europe) and cost/depreciation cuts from factory consolidation. For 2025, half of the 2.3 billion yen structural gain comes from full-year realization of 2024 restructuring measures. Acquisition-driven synergies are counted separately from structural reform cost cuts; the additional 4 billion yen in gains comes from progressing joint R&D and new product launches between DIC and its acquired pigment business, which will drive incremental profit from new product sales.

Q: What drivers will grow Chemtronics profit from 7.6 billion yen in 2024 to 8.4 billion yen in 2025, and is the 2026 target of 10 billion-11 billion yen still on track? / A: The small 2025 profit gap reflects one-time additional costs from consolidating R&D themes into the Chemtronics business unit to accelerate commercialization. The core drivers of growth will remain low-dielectric epoxy for high-frequency applications, industrial tape for mobile devices, and photoresist polymer, which will account for more than half of the projected 2 billion yen profit growth through 2026. The 10-11 billion 2026 target remains on track, with next-generation resist and functional sheets on track to launch in 2025 and scale in 2026 to contribute the remaining incremental profit.

Q: Why does 2025 guidance assume ink price cuts when Q4 2024 saw only minimal price reductions? Is the 2024 result overstated? / A: Price movements should be viewed on multi-quarter/annual cycles rather than quarterly: DIC implemented large price hikes across Europe and the US in 2023-2024 to cover inflation, and the resulting elevated margins are above long-term trend levels. After gaining market share through reliable delivery and quality in recent industry consolidation, moderate price concessions are unavoidable in 2025 to maintain long-term customer relationships. Management confirms 2024's 5.9% operating margin and 8.2% ROIC for the segment are above trend, so the 2025 guidance simply reflects a return to more normal margin levels.

Q: Will pigment price increases continue, especially given the improved competitive position after a major German competitor's bankruptcy? / A: Price increases are not just driven by inflation — they are necessary to reach appropriate profitability after years of demand declines (up to 15-18% volume loss) and changed market and labor conditions in Europe. The market has entered an entirely new stage, so DIC is not just incrementally raising prices, but re-positioning to achieve sustainable, appropriate pricing to build a new competitive position and market relationship, which will continue as needed.