DIC Corporation Q2 FY2025 earnings call

Consolidated First Half Results

• Net sales: 523.2 billion yen, down 2.9% year-over-year, dragged by slower pigment and ink shipments starting in Q2, and negative yen appreciation impacts
• Operating profit: 27 billion yen, up 22.9% year-over-year, driven by successful price maintenance/ adjustments, cost cutting, and the turnaround of overseas pigment operations to profitability
• Ordinary profit: 20.3 billion yen, up just 1.3% year-over-year, as a 4.8 billion yen foreign exchange loss (driven by sharp depreciation in emerging market currencies like Turkish Lira and Argentine Peso, and broad weakness of European currencies against the yen) offset the operating profit gain
• Net income attributable to parent shareholders: 13.1 billion yen, up 104% year-over-year, as special losses fell from 9.1 billion yen last year to 1.9 billion yen this year (driven by lower restructuring costs and the absence of last year's 4.5 billion yen loss from the sale of星光PMC shares)

Cash Allocation & Shareholder Returns

• Asset reduction is progressing as planned, with 24 billion yen of cash generated from asset reduction in 2024, and 5 billion yen generated in the first half of 2025. A further 10 billion yen is expected from art work sales in the second half, putting the company on track to exceed the 40 billion yen 3-year cash target by 2026
• Based on this progress, an additional 10 billion yen equivalent shareholder return is implemented via a 100 yen per share increase to the year-end dividend, bringing full-year 2025 dividend to 200 yen per share (80 yen special dividend, 20 yen regular year-end increase)
• The minimum dividend floor for 2026 is raised from 100 yen per share to 120 yen per share, as the company expects a new all-time record profit in 2026
• 20 billion yen is allocated to strategic investment, with the remainder going to shareholder returns; additional returns will be implemented if extra cash is generated from further asset reduction

Strategic Capital Investment

• The company will build a new epoxy resin plant at its Chiba factory, focused on epoxy resins for semiconductors (used in low-dielectric substrates and semiconductor packaging, which are seeing strong demand growth driven by AI servers)
• The project is approved as a "supply security plan" under Japan's Economic Security Promotion Act, with up to 3 billion yen in government subsidies for a 9 billion yen subsidized investment amount. The project will increase semiconductor epoxy resin production capacity by ~60%, with commercial operation targeted for July 2029
• The company targets a 10% CAGR for low-dielectric and semiconductor packaging epoxy resin through 2030

1. Packaging & Graphic: Revenue decreased year-over-year (largest decline among all segments), driven by weak demand for packaging inks and polystyrene in Japan, Europe and the Americas amid shrinking end-consumer food demand. Operating profit declined 1.8 billion yen year-over-year, with an operating margin of 5%, down 0.8 percentage points from the prior year, though profit levels remained stable through the first half.
2. Color & Display: Revenue was roughly flat year-over-year, but operating profit improved dramatically. The segment swung from a 2.2 billion yen operating deficit in the prior year period to a 2.6 billion yen operating surplus, a 4.8 billion yen year-over-year improvement driven by price increases, restructuring cost cuts, and a return to profitability in overseas pigment operations. Profit margins continued to improve sequentially from Q1 to Q2.
3. Functional Products: Revenue was nearly unchanged year-over-year, with operating profit increasing 100 million yen year-over-year. High-growth electronics-related products (epoxy resins, industrial tapes, UV-curable resins) grew and offset declines in general industrial/automotive/construction-related products (notably polyester resins). Within the segment, the Chemitronics sub-segment grew revenue 4.9% year-over-year, but operating profit fell 15.5% due to higher product development and implementation costs of 1.4 billion yen.

• Full-year 2025 net sales guidance is revised slightly downward to 1.06 trillion yen, reflecting expected lower shipment volumes of inks in Europe and seasonal headwinds for pigments
• Full-year 2025 operating profit guidance is revised upward to 50 billion yen, driven by higher profits from high-margin high-value-added Functional Products and the benefits of price adjustments
• Full-year 2025 ordinary profit guidance is revised downward to account for expected higher foreign exchange losses
• Full-year 2025 net income attributable to parent shareholders guidance is maintained at 24 billion yen, with no art work sale gain included in the forecast; lower expected special losses offset the ordinary profit downward revision
• Net special gains of around 1 billion yen are currently expected for the full year

• Broad-based yen appreciation against most global currencies, especially sharp depreciation in emerging market currencies, has created large foreign exchange losses that pressure ordinary profit
• Weak end-market demand for packaging and graphic products in Europe, Japan, and Indonesia has pressured shipment volumes and created increased competitive pressure from diverted Chinese exports in Asian markets
• Trump tariffs are expected to increase raw material costs in North America by 3.4 billion yen, with demand impacts most likely to materialize in Q4 2025 that remain uncertain in magnitude
• Low-priced competition from Indian pigment manufacturers is growing in Europe, though DIC notes limited overlap between its high-value product portfolio and low-priced Indian imports
• Uncertainty around demand levels for pigments in plastics and coatings, as customers delay orders amid expected tariff-related price increases

Q: After this year's expected 5.5 billion yen profit gain driven mostly by price spread improvements that are likely peaking, what strategies will DIC use to drive profit growth for next year's target all-time high profit? / A: DIC notes that the structural reform of its pigment business, currently in progress with associated one-time costs, will be largely completed by the end of this year. Next year, DIC will fully capture the cost savings from this reform, while also launching new products and growing volume, including gaining market share to drive large profit gains in pigments. Functional Products, particularly Chemitronics, has shown early recovery signs in 2025. While tariff impacts remain uncertain, DIC expects strong profit growth in Functional Products based on solid demand growth and product strength. Company-wide cost rationalization will also support gains. For growth after 2027, DIC will focus on Chemitronics within smart living, and will release its Phase 2 2030 plan in February next year.

Q: Why did DIC lower the revenue guidance but raise the operating profit guidance for Functional Products for the full year, and will growth be driven by electronics and mobility from H1 to H2? / A: Weak demand for general-purpose products like polyester resin used in construction, housing equipment, and general industrial has pulled overall segment revenue down, driven by product mix shifts. At the same time, the strong growth of high-margin Chemitronics (electronics/chemistry products) has increased overall segment operating profit, even with lower overall volume, as price increases are maintained despite slight declines in raw material prices. DIC confirms electronics and mobility will drive sequential growth from H1 to H2. Trump tariff impacts have not yet appeared in H1 due to supply chain lags, and are expected to mostly materialize in Q4, but the magnitude of demand impacts is still unclear at this stage.

Q: What is the current demand situation for Packaging & Graphic in weak markets like Europe/Asia, and what impact will the acquisition of competitor Huber by a fund have on DIC? / A: Asian demand is indeed weak, partially due to Trump tariffs causing Chinese goods originally bound for the US to shift to Asian markets, increasing price and volume competition for DIC. Indonesia is seeing particularly sharp declines in packaging ink demand, so DIC is focusing on growing demand in South Asia centered on India to offset the weakness. Huber's exit from newspaper ink could have a minor positive impact, but newspaper ink is a small share of DIC's ink business, so any impact on DIC's overall performance is expected to be immaterial, with no meaningful price benefits expected.

Q: Why is Color & Display overseas revenue down, is this due to temporary tariff impacts or weak end demand, and how will DIC respond to growing competition from Indian pigment makers after India's anti-dumping measures on Chinese products? / A: Weak demand for pigments for plastics and coatings is partially driven by customers pausing orders to wait out expected tariff-related price increases, which has slowed volume growth since Q2. DIC has built a cautious full-year profit forecast to account for possible volume declines in H2. While low-priced Indian pigments are gaining share in Europe, DIC's product line focuses on higher-value products that have little overlap with low-priced Indian imports, allowing DIC to maintain stable pricing. DIC also has domestic pigment production in the US, which gives it a competitive advantage against imported Indian product under current US tariff rules.