Toppan : Transcript of Fiscal 2023 Full Year Results Briefing

TOPPAN Holdings Inc.

Fiscal 2023 Full Year Results Briefing

May 15, 2024

Event Summary

[Company Name]	TOPPAN Holdings Inc.
[Company ID]	7911-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Fiscal 2023 Full Year Results Briefing
[Fiscal Period]	FY2023 Annual
[Date]	May 15, 2024
[Venue]	Webcast
[Number of Speakers]	4
	Hideharu Maro	Representative Director, President & CEO
	Kazunori Sakai	Representative Director, Executive Vice
		President & COO
	Takashi Kurobe	Director, Managing Executive Officer, Chief
		Financial Officer & Chief Risk Officer
	Tetsuro Ueki	Senior Managing Executive Officer,
		Electronics Division, TOPPAN Inc.

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Presentation

Moderator: Hello everyone. Thank you very much for taking time out of your busy schedule today to participate in the online financial results presentation of TOPPAN Holdings Inc., for the full fiscal year ended March 31, 2024.

Today's briefing is attended by Hideharu Maro, President & CEO of TOPPAN Holdings; Kazunori Sakai, Executive Vice President & COO; Takashi Kurobe, Chief Financial Officer; and Tetsuro Ueki, Senior Managing Executive Officer, Electronics Division, TOPPAN Inc.

Today, CFO Kurobe will first provide an overview of the financial results for the fiscal year ended March 31, 2024, and an outlook for the fiscal year ending March 31, 2025. CEO Maro will then discuss the progress of the medium-term plan. The presentation will be followed by a question-and-answer session.

The entire briefing is expected to last approximately 70 minutes. Please refer to the Materials for Results Briefings available in the Investors section of the TOPPAN Holdings website.

Before we begin our online presentation, I would like to remind everyone. In the following discussion, we may state forward-looking statements based on our current expectations, all of which are subject to risks and uncertainties. I would like to remind everyone in advance that actual results may differ from the projections.

Now, Mr. Kurobe will give an overview of the financial results.

Kurobe: Hello, I am CFO Kurobe. Thank you very much for taking time out of your busy schedule today to attend our financial results briefing for the fiscal year ended March 31, 2024. Today, I would like to present our full-year results for the fiscal year ended March 31, 2024, and our outlook for the fiscal year ending March 31, 2025.

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First of all, let's look at the overall performance for the full fiscal year ended March 31, 2024. Please see page three.

For the fiscal year ended March 31, 2024, the Company's consolidated net sales increased 2.4% YoY to JPY1,678.2 billion, operating profit decreased 3.1% to JPY74.2 billion, ordinary profit increased 2% to JPY82.8 billion, and profit attributable to owners of parent increased 22.2% to JPY74.3 billion. As for net sales, semiconductors, Japan SX packaging, and textbooks grew. The weak yen also contributed to the increase in sales.

Despite the increase in net sales and effects of the weak yen, operating profit did not reach the previous year's level due to one-time costs that arose in association with transition to a holding structure, but it exceeded the revised plan.

Profit attributable to owners of parent increased and exceeded the revised plan due to a gain on sales of investment securities. ROE was 5.4%, reflecting the share buybacks of JPY44.9 billion.

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Please see page four. I will explain the key points of profit by segment.

Let's see Information & Communication. In Erhoeht-X, BPO contracted due to one-time projects handled in the previous year but all other priority categories saw growth. In existing fields, game/trading cards and textbooks, which were to be revised, performed well, resulting in an increase in overall segment sales and profit.

In Living & Industry, packaging in Japan performed well with contribution from SX products. In overseas packaging, strong performance was seen for products for food, as well as the contribution of new consolidation through M&A. The manufacturing problems at overseas bases, announced at the previous briefing, ended during Q4.

Market conditions for décor materials were weak both domestically and overseas, but we focused on environmentally friendly décor sheets and other high value-added products in Japan and secured the same level of sales as the previous year, including overseas. As a result, the entire Living & Industry segment achieved higher sales and double-digit profit growth.

In Electronics, sales increased for the full year. Although the FC-BGA substrate business was affected by inventory adjustments mainly for general-purpose servers in H2, we took in orders for high-end products such as AI servers.

Photomasks performed well, taking in demand for the Asia market. In display-related products, demand slowed down for TFT-LCDs for automotive applications, but anti-reflection films centered on use for PCs recovered and remained firm. Although there was a one-time increase in expenses such as higher amortization costs, overall segment sales and profit increased.

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Next on page five are the details of the changes in operating profit.

Operating profit of JPY76.6 billion for FY2022 included JPY2.9 billion of profit added due to the change in the accounting year of our semiconductor subsidiary, so the actual operating profit excluding this effect is JPY73.7 billion.

With this JPY73.7 billion as a starting point, in FY2023, the first factor contributing to lower profits was a JPY7 billion increase in infrastructure development costs, including replacement costs for legacy facilities. On the other hand, Erhoeht-X saw growth in each priority category and minimized the impact of the loss of large public sector BPO projects handled in the previous fiscal year.

As for other priority businesses, Japan SX and overseas living added JPY1.4 billion, mainly in flexible packaging, despite the manufacturing problems overseas. Semiconductors increased by JPY12.3 billion due to strong sales of FC-BGA substrates and photomasks. Each of them boosted profits.

In the cyclical businesses, profit increased due to textbook-related cyclical orders, despite a decrease for business related to US elections in the previous year. In existing businesses, anti-reflection films and other products contributed to boost the operating profit.

As a result, operating profit on a core business basis expanded to JPY87 billion. However, due to an increase in photomask amortization costs and one-time costs associated with transition to a holding structure, final operating profit for FY2023 was JPY74.2 billion.

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Then see page six. In addition to the segment-by-segment earnings trends discussed earlier, I would like to explain the major changes in the income statement from the previous year.

SG&A increased by JPY27.5 billion due to an increase in personnel costs resulting from wage and headcount increases, as well as one-time costs in connection with transition to a holding structure.

In the extraordinary account, there was an extraordinary income of JPY74.1 billion through sales of investment securities, while an extraordinary loss of JPY23.4 billion was also recorded in impairment losses. Impairment losses were mainly related to flexible packaging manufacturing facilities in North America, digital business- related assets, and contract-filling-related manufacturing plants. These measures were taken in response to the slower-than-expected market rise and the winding down of businesses due to structural reforms, and we will improve profitability over the medium to long term through these measures.

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For your reference, page seven shows quarterly changes in main items on the income statement, page eight for main items on the consolidated balance sheet, and page nine for the status of cash flows. You can check them later.

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Next, I will discuss the full-year results for each segment. Please see page 10.

First is the Information & Communication segment. The full-year net sales increased 1.4% YoY to JPY900 billion, and operating profit rose 7% to JPY45.6 billion.

If you look at each sub-segment, in digital business, the Erhoeht-X digital content, security, and manufacturing and distribution DX priority categories grew.

In BPO, there was progress in producing results for areas of focus, such as government and quasi-public sector projects, which helped to largely cover decline in large-scale projects handled in the previous year.

In secure media, there were decreases in sales and profit due to the impact of cyclical orders in the overseas financial printing business in the previous year.

In communication media, there were increases in sales and profit due to contribution from textbook-related cyclical orders.

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