Q2 Financial Results Briefing for the Fiscal Year Ending December 2022

Ino: Good morning, everyone. My name is Kaoru Ino, the President and CEO of DIC Corporation. I would like to thank you for your continued support. Unfortunately, we had to choose a remote meeting format yet again and we would appreciate your understanding.

First, a review of H1 results shows that net sales increased significantly in all segments due to the addition of the C&E business, aggressive pricing initiatives, and the effect of yen depreciation. This was despite stagnant shipments due to automobile production cutbacks and the lockdown in China.

We are pleased to report that the C&E pigments business, which was a cause for concern last year, has achieved sales almost in line with our expectations, following the resolution of the logistics disruption. As a result, total sales increased 33.1% from the previous year to JPY521.4 billion.

Second, I would like to discuss operating profit. Crude oil prices, which rose continuously from the USD70 per barrel level in Q3 last year, have risen further this year against the backdrop of the energy crisis associated with the Ukraine crisis and have remained high at around USD100 per barrel. As a result, the price of domestically produced naphtha was at JPY86,100 in Q2, also due to the impact of the weaker yen.

Last year, in addition to strong shipments of our products to the automotive industry, the operating profit margin was 7% due to the raw material situation at that time. In the current fiscal year, market conditions have deteriorated and raw material and energy prices have risen. As we are rushing to quickly pass on product costs to the pricing, plus, we were able to gain profit thanks to the C&E pigments business, we made good results. Unfortunately, however, the results are not enough to offset the additional cost increases in logistics, utilities, etc. Compared to last year when results were strong, operating income fell 12% to JPY24 billion.

Next, I would like to discuss the outlook for the full year.

Automobile production volume is expected to fall, and the lockdown in China continue to affect the world, while the recession is looming over the European and the US markets. Given the situation, our shipment volume is expected to fall short of the initial forecast. On the other hand, the C&E pigments business starts to be folded into our yearly sales results, plus, continuous cost pass-through and weakened Japanese yen will likely play some role. We revised our forecast upwardly to JPY1.1 trillion. Incidentally, if this consolidated sales target is achieved, it will break the previous record set in the fiscal year ended March 2008.

On the other hand, we forecast an operating profit to hit JPY50 billion, taking into account the deteriorating market conditions and rising costs in addition to raw materials costs, while expecting a significant YoY

improvement in the C&E business and profit contribution from the Italian adhesives company Sapici, which we had acquired in January this year. While this represents a 17% profit increase over the previous year, it is, unfortunately, a downward revision of JPY4 billion from the original plan.

With the recent news that New York crude oil prices fell to the USD87 level, there are expectations of improved profitability due to a narrowing of the price gap. However, the Group was concerned about the outlook for the global economy due to rising interest rates in the US and elsewhere, the tight supply-demand balance resulting from the ongoing Russian crude oil embargo, and concerns about a further deterioration in the European energy situation due to the prolonged Ukrainian crisis.

Next, I would like to discuss the medium- to long-term outlook. Although we are not satisfied with where we are in terms of cost pass-through, C&E business, and profit contribution from the acquisition of Sapici, I believe that we have started to make progress in the Value Transformation to enhance medium- to long-term corporate value, which is outlined in DIC Vision 2030.

In particular, in the C&E business, we expect to create value-added synergies in cosmetics, heat shielding, and automotive applications, etc. In the Sapici adhesives business, we expect to globally develop packaging solutions centered on environmentally friendly products, and expand our Asian business in environmentally friendly products through acquisitions in China and India. This means that major measures to bring forth Value Transformation have begun to progress in all three segments.

Lastly, in addition to the financial results, we have recently received requests to introduce topics that show the progress of DIC Vision 2030 and ESG management, as well as the progress of Value Transformation. The recent ESG presentation was very well received, but since once a year is not timely enough, we have decided to take advantage of this opportunity, albeit in a very limited amount of time.

I would like to take five minutes to explain our response to the circular economy while introducing our dissolution and separation recycling technology, which is a bridge to social implementation of the chemical recycling of polystyrene, and which we have released in a press release. Please refer to page 18.

As shown in the DIC Vision 2030, here is a diagram of our sustainability strategy as a response to the circular economy.

As you know, the Ministry of the Environment has set a guideline that 60% of containers and packaging should be reused or recycled by 2030. As shown in the figure below, we have been studying and developing technologies to bring forth a so-called circular economy, an eco-cycle that is unique to DIC.

The diagram illustrates value transformation. As you can see on the right, there are sales. We're eyeing FP Corporation (FPCO) to fit here. Sales activities with customers can increase the recycling rate. On the left side, procurement activities with suppliers can improve the procurement rate of recyclable raw materials. In between the two, we are working hard to bring forth chemical and material recycling.

The production at the top is DIC's zero-emission activities in Scope One and Two as in the past. We are aiming to demonstrate our social contribution to the circular economy through the implementation of this kind of circulation.

Next, please see page 15. The major topics from the recently published press releases are summarized in this page.

Please look at the lower right. This is a blueprint of the initiative that we are collaborating with FPCO. As for white trays, we are currently recycling the trays in a new way using the recycling system of FPCO: tray to tray.

Another group is colored or patterned trays, which is about 40% of the total trays. As with an example of a bento box, enhancement of product design is practiced by many businesses. Inks are used for color printing. When colored and/or patterned products are pelletized, they turn into black pellets, which limits options of recycling to plastic garbage bags, plastic buckets, or black hangers at dry cleaners, as illustrated with an arrow to the right.

To achieve a complete circular recycling model, we are now working hard on chemical recycling, the second step from the bottom. Before we begin, we need to solve the problem of colored trays, hence, we have

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DIC Corporation published this content on 18 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 August 2022 07:43:08 UTC.