DIC reported 1H FY12/21 sales of JPY391.8bn (+14.0% YoY), operating profit of JPY27.3bn (+53.1% YoY), recurring profit of JPY28.2bn (+81.5% YoY), and net income attributable to owners of the parent of JPY16.0bn (+55.1% YoY).

As of end-1H FY12/21, sales had achieved 104.5% of company's revised 1H forecast (initial forecast was upwardly revised on May 14, 2021), while operating profit had achieved 116.2%, recurring profit 122.8%, and net income attributable to owners of the parent 128.2%.

1H FY12/21 sales were 4.5% above the company's 1H forecast (upwardly revised on May 14, 2021) and 6.5% above the initial forecast. All segments posted higher 1H sales than the initial company forecast. Demand was higher than the company expected from products for use in semiconductors, electric/electronic devices, automotive materials, and food packaging, as social activities recovered. The semiconductor shortage remains an issue, but demand for materials stayed strong. After earlier struggling, sales are also recovering for cosmetics applications as social activities in China, Europe, and the US resumed.

1H FY12/21 operating profit came in 16.2% above the company's 1H forecast (upwardly revised on May 14, 2021) and 33.2% above the initial forecast. This was due to higher sales, a better product mix, and delays in the timing of raw material cost increases versus the company's expectation.

Full-year FY12/21 forecast revised up (August 10, 2021)

The company's revised forecast for full-year FY12/21 (announced August 10, 2021) calls for sales of JPY840.0bn (+19.8% YoY; previous forecast was JPY750.0bn), operating profit of JPY48.0bn (+21.0%; previously JPY45.0bn), recurring profit of JPY47.5bn (+30.3%; JPY42.0bn), and net income attributable to owners of the parent of JPY22.0bn (+66.3%; JPY20.0bn).

The upward revision to the FY12/21 forecast is due to the overshoot in 1H results, and the additional contribution of BASF Colors & Effects (BCE), the pigment business of Germany's BASF, in 2H, following the acquisition completed on June 30, 2021. On the profit front, the company forecast factors in sales growth due to solid shipments and a contribution from BCE (although it will incur goodwill amortization expenses), one-time costs accompanying the BCE acquisition (inventory step-up*) and increases in the cost of raw materials.

*Inventory step-up: Because the fair value of inventories acquired with an acquisition are typically higher than historical cost, this results in an increase in cost of sales at the time of shipment.

The company projects shipments of major products to remain robust with recovery in domestic and overseas economic activity accompanying progress on COVID-19 vaccinations around the globe in 2H as well. With the addition from 2H FY12/21 of BASF Colors & Effects (BCE), the pigment business of German company BASF following the completion of the acquisition of June 30, 2021, DIC expects sales to increase 19.8% YoY. On the profit front, the company expects additional one-time costs accompanying the BCE acquisition (inventory step-up*) and increases in the cost of raw materials due to higher oil prices, but expects to offset these with solid shipments for operating profit growth of 21.0% YoY. The company intends to continue working to mitigate the impact of higher raw material costs by adjusting prices in each region and for each product. The company plans to pay an annual dividend per share of JPY100, unchanged YoY.

Company 2H forecast for BCE

The company forecasts a 2H (six-month) contribution from BCE of JPY60.0bn to sales and JPY500mn to operating profit including goodwill amortization. It expects one-time costs of JPY4.5bn from inventory step-up. The company will incur all of the inventory step-up costs in FY12/21, so they will not apply from FY12/22 onward.

Versus the company's revised full-year forecast* (upwardly revised on August 10, 2021), Q1 sales had achieved 46.6% (49.0% of full-year FY12/20 results as of end-1H FY12/20), while operating profit had reached 56.9% (45.0%), recurring profit 59.5% (42.7%), and net income attributable to owners of the parent 72.9% (78.1%).

1H sales of JPY391.8bn were up 14.0% (JPY48.0bn) YoY (and +11.4% on a local currency basis). Sales rose YoY in all segments.

With progress on COVID-19 vaccinations and other measures to balance transmission prevention with economic activity in countries around the world, shipments increased in a wide range of fields, including for high-value-added products for use in semiconductors and electrical and electronic products, supported by expansion of digital-related demand and recovery in capital investment both inside and outside Japan. Shipments of automotive materials were also robust, despite concerns about a shortage of semiconductors for the automotive market. Shipments of pigments for cosmetics applications also showed signs of recovery as increased uptake of COVID-19 vaccines led to some easing of pandemic-related restrictions. Shipments of products for food packaging have continued to be brisk, led by overseas business.

1H operating profit of JPY27.3bn was up 53.1% (JPY9.5bn) YoY and 48.9% in local currency terms.

Operating profit was up 53.1% YoY on increased shipments in each segment, especially of high-value-added products, and on price adjustments in response to the strong impact of increases in raw material prices in Q2 triggered by higher crude oil prices.

Factors in operating profit variation

GPM increased 0.6pp YoY to 23.1%, the SG&A ratio fell 0.8pp YoY to 16.2%, and OPM increased 1.8pp to 7.0%.

Net income attributable to owners of the parent

Net income attributable to owners of the parent of JPY16.0bn was up 55.1% YoY. In Q2 (April-June 2021), DIC recorded an extraordinary loss of JPY4.5bn as acquisition-related expenses for BCE. As a result, acquisition-related expenses recorded in 1H totaled JPY5.7bn.

The company plans to pay an annual dividend per share of JPY100 in FY12/21, unchanged YoY.

Segment sales were JPY211.0bn (+11.0% YoY, 49.0% of full-year company forecast).

By region, sales were JPY55.1bn (+7.7% YoY) in Japan, JPY128.2bn (+10.6% YoY, +7.5% YoY in local currency) in the Americas and Europe, and JPY34.7bn (+20.0% YoY, +14.5% YoY in local currency) in Asia. Consolidation adjustments were -JPY6.9bn.

During the third declaration of state of emergency in Japan (from April 25, 2021), the impact on shipments was less that the first state of emergency in the same period of 2020. Sales rose 7.7% YoY.

In the Americas and Europe, sales grew 10.6% YoY on solid shipments of packaging inks.

In Asia, sales were up 20.0% YoY versus 1H FY12/20, when they slumped amid the pandemic.

In the food packaging business, sales of packaging ink increased 6% YoY as shipments of packaging ink continued to grow in Asia, the Americas, and Europe, and another state of emergency declaration in Japan had a limited impact compared with 1H FY12/20.

Sales of publishing ink (mainly for commercial printing and newspapers) rose 14% YoY. The market is shrinking due to increasing take-up of digital media, so the company is working to optimize its global production and business configuration. DIC took advantage of favorable market conditions to increase shipments in Asia, and in the Americas and Europe, it boosted market share on the back of stable supply (some manufacturers faced supply issues, but DIC maintained steady supply, partly due to its global materials procurement), despite only moderate recovery in commercial printing in Japan.

Sales of jet ink (used in digital printing) rose 38% YoY amid robust demand for both commercial use (for billboards, posters, and banners) and office use as social activities resumed. Sales also enjoyed a boost from the acquisition of a US textile inks business in June 2020.

Polystyrene sales were +30% YoY. In 1H, shipments for food packaging increased due to expanding food delivery and take-out demand. However, sales of multilayer films declined 4% YoY, following elevated food demand for the household sector in 1H FY12/20 due to the pandemic.

Segment operating profit was JPY10.5bn (+20.5% YoY, 48.1% of the full-year forecast) and +19.4% YoY on a local currency basis. The OPM was 5.0% (+0.4pp YoY).

By region, operating profit was JPY2.6bn (+6.7% YoY) in Japan, JPY6.4bn (+39.1% YoY, +36.6% in local currency) in the Americas and Europe, and JPY1.8bn (-6.5% YoY, -9.3% in local currency) in Asia. Consolidation adjustments were -JPY200mn.

Operating profit growth of 20.5% YoY was driven by increased shipments of packaging and publishing ink, growth in sales of high-value-added jet inks accompanying solid demand, and price revisions in the Americas and Europe in response to rising raw materials costs.

Segment sales were JPY59.2bn (+8.5% YoY, 34.6% of the full-year forecast) and +6.7% YoY on a local currency basis.

By region, sales were JPY14.0bn (+3.6% YoY) in Japan and JPY49.1bn (+9.5% YoY, +7.0% YoY in local currency) overseas. Consolidation adjustments were -JPY4.0bn.

Shipments of pigments for coatings and plastics were solid. Pigments for color filters and shiny materials (primarily for specialty applications) stayed strong. Pigments for cosmetics were recovering. Sales of TFT liquid crystal display materials declined YoY amid fierce competition with local manufacturers in China.

Sales by key product category were as follows. Sales of general pigments were up 4% YoY on solid shipments of pigments for coatings and plastics. Sales of functional pigments rose 17% YoY as shipments of cosmetics recovered. Shipments of pigments for color filters and shiny materials stayed strong. Sales of TFT liquid crystal display materials declined 24% YoY amid fierce competition with local manufacturers in China. Sales of healthcare foods were up 11% YoY on strong shipments in the US.

By application, in the color business, sales increased overall and shipments of pigments for cosmetics applications also showed signs of recovery as increased uptake of COVID-19 vaccines led to some easing of pandemic-related restrictions. In the display business, sales of color filter pigments increased on growth in shipments due to strong demand for LCD panels, but sales of TFT liquid crystal materials declined due to increased competition with Chinese manufacturers. In the specialty products business, demand for shiny materials for aerated concrete for building materials in Europe continued to grow, boosting sales.

Segment operating profit was JPY7.0bn (+52.2% YoY, 83.1% of the full-year forecast) and +46.5% YoY on a local currency basis.

OPM was 11.8% (+3.4pp YoY). On a quarterly basis, the OPM climbed from a low of 6.7% in Q3 FY12/20 to 8.4% in Q4, 10.4% in Q1 FY12/21, and 13.2% in Q2.

By region, operating profit was JPY3.4bn (+25.8% YoY) in Japan and JPY3.5bn (+86.8% YoY, +71.9% YoY in local currency) overseas. Consolidation adjustments were JPY0mn.

In addition to recovery in shipments of pigments for cosmetics, shipments of high-value-added products such as color filter pigments and shiny materials remained brisk, and rationalization benefits helped drive 52.2% YoY profit growth.

Segment sales were JPY137.4bn (+20.0% YoY, 51.0% of the full-year forecast) or +17.5% on a local currency basis.

By region, sales were JPY97.8bn (+11.1% YoY) in Japan and JPY52.8bn (+43.7% YoY, +36.2% YoY in local currency) overseas. Consolidation adjustments were -JPY13.0bn.

Sales were up 20.0% on solid shipments, primarily for automotive and electronics applications.

Sales by main product category were as follows. Sales of sustainable resin products (umbrella term for environmentally friendly, high-performance strategic resin products, including aqueous, UV-curable, polyester, acrylic, and urethane resins) rose 24% YoY. Sales grew sharply in all categories, with solid shipments across a wide range of applications including automotive, electrical/electronics devices, and building materials.

Sales of epoxy resins, which are mainly used in semiconductor applications, grew 13% YoY on brisk shipments of overall sealants used in automotive components and electronics. Demand from automotive semiconductors and 5G base stations has been solid since FY12/20, and grew further in 1H. During the semiconductor shortage, the company was able to maintain supply and grow sales.

PPS compound sales were up 39% YoY, and grew in all regions thanks to robust orders despite concerns about a shortage of semiconductors for the automotive market. PPS compounds are seeing an expansion in applications as automobiles become more light weight and computerized. In 1H FY12/20, PPS compound shipments declined as automakers halted production, but the company said they recovered sharply in 1H FY12/21, and had exceeded levels of FY12/19. While sales were up 39% YoY in 1H, the company expects growth rates to moderate in 2H.

Sales of industrial tape were up 31% YoY amid solid shipments for mobile devices such as smartphones, a key application. The company said that demand in other areas such as PCs, office equipment, and automotive applications is growing, lessening the dependence on smartphones. It said that wire harnesses for automobiles are increasingly being fastened with industrial tape rather than the traditional screws.

Sales of hollow fiber membrane modules were up 35% YoY. Shipments for semiconductor production applications were solid.

Demand for automotive applications is solid. The company said there was an absence of negative factors for sales in the functional products business as the risk of US-China trade friction has diminished under the new administration, and economic activity in China is resuming with COVID-19 under control. However, profit depends on oil prices. The company thinks that its strategy needs to be geared toward establishing new bases in the rapidly growing Asian region. It said that it would continue to make small acquisitions such as the one it executed in India in 2019 and expand facilities in 2H and beyond.

Segment operating profit was JPY14.1bn (+74.2% YoY, 54.0% of the full-year forecast) and +70.7% on a local currency basis. OPM was 10.3% (+3.2pp YoY).

By region, operating profit was JPY8.9bn (+76.0% YoY) in Japan and JPY5.3bn (+69.7% YoY, +60.7% YoY in local currency) overseas. Consolidation adjustments were -JPY100mn.

Even as the cost of raw materials trends upward, primarily overseas, shipments of mainly high-value-added products such as epoxy resins remained robust, and the company took measures to adjust the pricing for all products, driving sharp profit growth.

BASF Colors & Effects acquisition

Discussed in FY12/21 company forecast section.

In July 2021, DIC, Fukui-based Seiren Co., Ltd., (TSE1: 3569), and the Industrial Technology Center of Fukui Prefecture started supplying samples of a new carbon fiber-reinforced prepreg (CFRP) sheet for automotive applications. According to the company, this product (fast-curing carbon fiber-reinforced prepreg sheet) has the world's fastest curing time and can be stored at room temperature. The product is the result of a major research project by the New Energy and Industrial Development Organization (NEDO) aimed at commercializing fast-curing prepreg made with carbon fiber composites for automotive applications, and subsidized for three years (July 2018-June 2021).

Carbon fiber-reinforced prepreg sheet is an intermediate material in the form of a sheet made by spreading carbon fiber bundles and impregnating the sheet with resin. There are growing applications for CFRP sheet in aircraft, spacecraft, and automobiles due to its light weight and superior strength amid mounting needs for fuel-efficient, lightweight materials. In general, molding and processing CFRP composite materials, including prepreg sheets, have been time-consuming, so technologies that shorten molding times have been sought after to further their spread.

The research project involved a combination of technologies owned by DIC, the Industrial Technology Center of Fukui Prefecture, and Seiren to produce a prepreg sheet with the world's quickest curing time: 30 seconds.

DIC's design technology for fast curing resins (radical curing resins that cure in 30 seconds or less) leveraging the company's strength in polymer design technology

The Industrial Technology Center of Fukui Prefecture's high-speed tow spreading technology

Seiren's high-precision impregnation technologies, which capitalize on its resin film-forming and coating capabilities

Further, conventional epoxy prepreg sheets need frozen or refrigerated storage facilities, but the new product can be stored at room temperature, reducing the need for sheet storage facilities and management.

In June 2021, new seed film for fabricating wiring on high-frequency printed wiring boards that DIC developed with Taiyo Ink Mfg. Co., Ltd., a subsidiary of Taiyo Holdings Co., Ltd. (TSE1: 4626), won the Special Technology Prize at the 53rd Japan Chemical Industry Association awards*.

* The Japan Chemical Industry Association selects winners of the Grand Prize, the Special Technology Prize, and the Environmental Technology Prize each year to honor businesses that have contributed to the development of the chemical industry and economy through the development and commercialization of superior chemical technology.

Designed for electronic devices that use high-frequency 5G bands, the film was developed by DIC and Taiyo Ink as a new application of DIC's metallic nanoparticles in the fabrication of flexible printed wiring boards. The film is coated with DIC's metallic nanoparticles and used as a seed layer for copper plating when forming copper wiring.

With the spread of 5G, copper wiring technology is becoming increasingly important for loss-free transmission of high-frequency signals in the sub-6 and millimeter wave bands it uses. In high-frequency transmission, the higher the frequency band, the more current tends to flow only through the surface layer of the copper wiring; the rougher the surface layer, the greater the transmission loss. This calls for copper wire formation technology that makes all four sides of the wire smooth. This film material enables an extremely smooth interface between the base film and the copper wiring to be created by plating copper on a seed layer of metal nanoparticles.

Also, in the copper seed modified semi-additive process (mSAP) traditionally used to form high-precision wiring, the wires tend to become thin and the surfaces uneven. This is because when the seed copper layer is etched, the copper wires are also dissolved at the same time. The newly developed film material uses a different (non-copper) metal as the seed layer, making it possible to etch only the seed layer and obtain a fine pattern with smooth surfaces without degrading the copper wire.

The company has had a business and capital alliance with Taiyo Holdings since 2017, and is taking steps to build a robust mutual relationship with a view to generating synergies. Going forward, it aims to exploit the synergies from the alliance and build businesses that will help drive further growth and development for the partners.

The company has developed a naturally derived dye in collaboration with a biotech start-up. It is using a joint venture format to develop new products in the life science field incorporating third-party technologies.

The company is collaborating with FP Corporation (TSE1: 7947) in efforts to recycle polystyrene materials. It also plans to recycle packaging film material in collaboration with a major bread manufacturer as part of a range of proactive initiatives.

Q1 FY12/21 results (out May 14, 2021)

DIC reported Q1 FY12/21 sales of JPY190.3bn (+4.7% YoY), operating profit of JPY14.0bn (+40.7% YoY), recurring profit of JPY14.8bn (+78.6% YoY), and net income attributable to owners of the parent of JPY10.2bn (+121.4% YoY). Average forex rates were JPY106.17/USD (2.3% YoY yen appreciation) and JPY127.88/EUR (6.9% YoY yen depreciation).

As of end-Q1 FY12/21, sales had achieved 50.7% of the corresponding target in the company's 1H forecast (announced on May 14, 2021; see below) (versus 52.8% of 1H results as of end-Q1 FY12/20), while operating profit had achieved 59.4% (55.6%), recurring profit 64.4% (53.3%), and net income 81.6% (44.6%).

At the same point in time, sales had achieved 25.4% of the corresponding target in the company's full-year forecast (versus 25.9% of full-year results as of end-Q1 FY12/20), while operating profit had reached 31.0% (25.0%), recurring profit 35.3% (22.7%), and net income 51.0% (34.8%).

'Revised forecast for 1H FY12/21

Along with the Q1 results announcement on May 14, 2021, the company announced a revised forecast for 1H FY12/21 as shown following.

The company left its full-year forecast unchanged due to the still unpredictable longer term impacts of the COVID-19 pandemic on domestic and international earnings, and concerns about the impact of forthcoming price hikes on raw materials.

Q1 sales were JPY190.3bn (+4.7% or +JPY8.6bn YoY; +4.2% YoY on a local currency basis). Although COVID-19 continues to spread, the global economy has been recovering, notably in the US and China, while in Japan as well economic activity has been picking up in the automotive and numerous other industries, and shipments increased in a wide range of fields, including for high-value-added products for use in semiconductors, electrical and electronic products, and automotive materials, among others. Shipments of products for food packaging have continued to be brisk led by overseas business.

The company said that Packaging and Graphics and Functional Products (inks and synthetic resins) sales came in above its internal forecasts, and Color and Display sales were in line. The recovery in cosmetics was sluggish, and liquid crystal display materials struggled, but sales of functional products such as inorganic pigments were solid. Overall, the company said sales were better than expected.

Q1 operating profit was JPY14.0bn (+40.7% or +JPY4.0bn YoY; +40.4% YoY on a local currency basis). Operating profit grew due to overall growth in shipments, particularly of high-value-added products, as well as control of activity expenses and prices revisions in response to the rise in raw materials costs in the Americas and Europe.

Factors in operating profit variation

The company thinks volume growth was partly due to frontloaded orders, from customers mindful of shipping delays and raw material price hikes. Raw material prices rose sharply overseas. The company expects the full effect of raw material prices to be felt in Japan from Q2 onward. Also in Q2, the company expects price rises in its products accompanying higher raw material prices (refer to discussion of Price revisions [from July 21, 2021 deliveries] for details). However, it expects a reactionary drop-off after the Q1 frontloaded orders.

GPM increased 1.2pp YoY to 23.8% the SG&A expense ratio fell 0.6pp YoY to 16.5%, and OPM increased 1.8pp to JPY7.3%.

Net income attributable to owners of the parent

In Q1, net income attributable to owners of the parent was JPY10.2bn, up 121.4% YoY. The company booked extraordinary gains of JPY769mn on the sale of shares in an affiliate.

The company maintained its annual dividend forecast of JPY100 per share, unchanged YoY.

Segment sales were JPY102.4bn (+3.1% YoY, 25.1% of the full-year forecast). Sales were up 3.0% YoY on a local currency basis.

By region, sales were JPY26.4bn (-0.4% YoY) in Japan, JPY62.5bn (+2.8% YoY, +3.3% YoY in local currency) in the Americas and Europe, and JPY16.9bn (+12.7% YoY, +10.3% YoY in local currency) in Asia. Consolidation adjustments were -JPY3.4bn.

Sales were flat YoY in Japan, which has a high proportion of printing ink, on lower demand due to the second declaration of a state of emergency (January 8-March 21, 2021).

Shipments of packaging ink were solid in the Americas and Europe, and sales were up 2.8% YoY, +3.3% YoY in local currency.

Asia posted double-digit sales growth, primarily in China, following a year-earlier slump due to the pandemic.

In the food packaging business, sales rose 3% YoY (on a local currency basis) as shipments of packaging ink rose in Asia, led by the prominent economic recovery in China. Sales did well in the Americas and Europe as well, but declined in Japan due to weak shipments.

Sales of publishing ink (mainly used to print newspapers and other publications) were down 1% YoY (on a local currency basis). In Japan, sales to commercial industries such as for advertising and catalogs were sluggish due to the reinstatement of the state of emergency measures, but overseas, the company capitalized on brisk market conditions in Asia, while shipments were up in the Americas and Europe as well.

Sales of jet ink (used in digital printing) were up 26% YoY as people resumed moving about and shipments of commercial-use ink for billboards, posters, and banners bounced back from the dip in demand a year ago, and sales enjoyed a double-digit increase thanks mainly to the acquisition of a US textile inks business in June 2020.

Polystyrene sales were up 12% YoY, amid significant growth in volume for food packaging at supermarkets. The company said that prices for styrene monomer (raw material) are rising, and margins are temporarily deteriorating, but sales are growing.

Multilayer film sales were down 5% YoY as volumes were flat but product prices dropped YoY.

Segment operating profit was JPY5.4bn (+34.6% YoY, 23.3% of the full-year forecast). Operating profit was +36.7% YoY on a local currency basis. The OPM was 5.3% (up 1.3pp YoY).

By region, operating profit was JPY1.4bn (+13.2% YoY) in Japan, JPY3.2bn (+60.2% YoY, +63.8% in local currency) in the Americas and Europe, and JPY900mn (+8.8% YoY, +7.8% in local currency) in Asia. Consolidation adjustments were -JPY100mn.

This sharp double-digit profit growth was driven by increased shipments of packaging and publishing ink overseas, growth in sales of high-value-added jet inks, and price revisions in response to rising raw materials costs, particularly in the Americas and Europe.

Segment sales were JPY28.8bn (-2.6% YoY, 25.8% of the full-year forecast). They were down 2.2% on a local currency basis.

By region, sales were JPY6.4bn (-3.4% YoY) in Japan and JPY24.1bn (-1.7% YoY, -1.4% YoY in local currency) overseas. Consolidation adjustments were -JPY1.7bn.

As automobile production and other economic activities resumed, shipments of pigments for paint and plastics, a key category, recovered.

Shipments of shiny materials (aluminum pigments), mainly for specialty applications, remained solid on demand for aerated concrete for building materials and agricultural colorants.

Sales of TFT liquid crystal materials declined YoY due to lower prices amid intensifying competition with local Chinese manufacturers.

Sales by main product category were as follows. Sales of general purpose pigments were -7% YoY. Shipments of ink pigments remained lackluster, but pigments for paint and plastics recovered to 2019 levels. Sales of functional pigments were +1% YoY. Pigments for cosmetics continued to struggle due to the pandemic, but shiny materials for specialty applications were solid due to demand for aerated concrete for building materials and agricultural colourants. Liquid crystal material sales were down 25% YoY amid intensifying competition with local Chinese manufacturers. Sales of healthcare foods were -3% YoY. Although health food sales in drugstores struggled, natural blue pigments for food and confectionaries trended well.

By application, in the color business, cosmetics pigment shipments lagged due to persistent mask wearing and travel restrictions amid the ongoing COVID-19 crisis around the world, and sales of pigments for ink declined. In the display business, color filter pigments did well, but TFT liquid crystal materials shipments declined, dragging down sales. In the specialty products business, sales of shiny materials rose YoY thanks to higher demand for aerated concrete for building materials in Europe.

Segment operating profit was JPY3.0bn (+9.2% YoY, 28.1% of the full-year forecast). It rose 8.6% YoY on a local currency basis. The OPM was 10.4% (up 1.2pp YoY).

Although sales were down overall, brisk shipments of high-value-added products such as color filter pigments and shiny materials, as well as rationalization benefits, drove profit growth.

Segment sales were JPY66.6bn (+8.9% YoY, 25.6% of the full-year forecast). They were up 7.6% on a local currency basis.

By region, sales were JPY47.9bn (+2.6% YoY) in Japan and JPY25.5bn (+28.5% YoY, +24.7% YoY in local currency) overseas. Consolidation adjustments were -JPY6.8bn.

Shipments were solid, primarily for automotive and electronics applications. In addition to a sharp recovery in demand, customers' efforts to secure inventories boosted sales amid expectations of rising raw material prices and disrupted logistics chains.

Sales by main product category were as follows. Sales of epoxy resins, which are mainly used in semiconductor applications, rose 12% YoY as they benefitted from brisk shipments of overall sealants used in automotive components and electronics. The company said that demand for sealants used in electronics substrates for 5G base stations, and semiconductors for automotive sensors and control equipment is growing. Sales of industrial tape, which is mainly used for smartphones, were up 24% YoY amid solid shipments for smartphone applications. Sales of sustainable resin products (aqueous, UV-curable, polyester, acrylic, and urethane resins) rose 15% YoY, with sales growth in all product items, notably water-based urethane resins and other materials for automotive applications. PPS compound shipments and sales were up in all regions thanks to the global recovery in automotive markets, with sales growth of 14% YoY primarily for use in hybrid EV motors. PPS compounds are seeing an expansion in applications as automobiles become more light weight and computerized. Sales of hollow fiber membrane modules were up 39% YoY. Shipments for semiconductor production applications were solid.

Segment operating profit was JPY7.6bn (+58.6% YoY, 37.9% of the full-year forecast). It was up 56.6% YoY on a local currency basis. The OPM was 11.4% (up 3.6pp YoY).

While price hikes in raw materials, primarily overseas, are starting to have an impact, growth in shipments of mainly high-value-added products such as epoxy resins drove 58.6% YoY profit growth.

Acquisition of BASF's global pigment business completed

On June 30, 2021, DIC completed the acquisition of assets and shares associated with BASF Color & Effects (BCE) from BASF (Germany), Europe's largest chemical manufacturer. DIC had reached an agreement with BASF regarding the acquisition of the BCE business, which involved related assets, including technologies, patents, and goodwill not included in the share purchase, and the shares of 18 individual companies that make up the business. The DIC group and BASF worked together to close the transaction, and as of June 30, 2021, all relevant procedures were finalized and the acquisition was completed.

BCE, now a member of the DIC group, is based in Europe and has sites around the world, and is one of the world leaders in manufacture of high-performance pigments, effect pigments (for cosmetics), and specialty inorganic pigments. The company sees the business portfolios of BCE and DIC, including technologies, products, production facilities, supply chains, and customer service capabilities as complementary, with little duplication.

The purchase brings together the complementary portfolio of the two companies. The DIC group aims to cement its position as a global leader in the manufacture of pigments by further expanding its product lineup including pigments for displays, cosmetics, coatings, plastics, inks, and specialty applications. It plans to accelerate a qualitative transformation in the pigment business by building infrastructure to provide a wide range of products and solutions to customers globally.

The company said that it would assess the impact of the acquisition on consolidated results and disclose any determinations promptly.

The company's product costs have risen significantly due to higher logistics expenses and raw and auxiliary materials prices. It has been rationalizing operations for some time, but can no longer absorb such increases. The company decided that it would have to revise prices as shown following to ensure stable supply and maintain and improve quality.

DIC reported FY12/20 sales of JPY701.2bn (-8.8% YoY), operating profit of JPY39.7bn (-4.0% YoY), recurring profit of JPY36.5bn (-11.7% YoY), and net income attributable to owners of the parent of JPY13.2bn (-43.7% YoY).

Average exchange rates were JPY106.37/USD (versus JPY109.11/USD in FY12/19) and JPY121.43/EUR (versus JPY122.13/EUR).

Sales declined 8.8% YoY (-6.2% on a local currency basis). Sales in all segments fell on the prolonged COVID-19 pandemic and the ongoing slump in economic activity in a wide range of geographic regions. However, sales of automotive materials and publishing inks showed signs of recovering toward the end of the year.

Operating profit fell 4.0% YoY as depreciation in emerging economy currencies weakened earnings in the overseas business after translation. Operating profit on a local currency basis was up 1.5% YoY. Despite a downturn in sales, operating profit benefitted from lower raw material prices and a decline in costs, including as a result of rationalization measures and lower expenses for sales activities. In addition, shipment volume recovered in the October-December period. Overseas profit levels were higher YoY on a local currency basis thanks to a recovery in shipment volumes, particularly for inks in Asia, the Americas, and Europe, as well as cost reductions, including those achieved through streamlining and reduced outlays for sales activities. On the other hand, recovery in overall shipment volume is taking longer in Japan, resulting in lower profit for the full year despite recovery in Q4.

Net income attributable to owners of the parent was down 43.7% YoY. In addition to one-time expenses related to the acquisition of BASF's pigment business, the company also booked extraordinary losses tied to the acquisition of the business.

Analysis of factors affecting operating profit

A drop in sales volume and deterioration of the product mix had a negative impact on profit of some JPY17.8bn. Sales volume declined across a wide range of categories.

Lower raw material prices had a positive impact on profit of about JPY17.0bn. The prices of raw materials for synthetic resins (linked to naphtha prices) and solvents for inks declined.

A decline in selling prices had a negative impact on profit of about JPY6.1bn. The selling prices of polystyrene and other products fell in line with the drop in petroleum-based raw material prices. In addition, the prices of some synthetic resins fell on relaxation of supply and demand.

Cost improvements gave a boost to profit of about JPY6.9bn, helped by reduced travel expenses in light of the pandemic, social insurance premium reduction or exemption measures in China, and rationalization measures in the ink business.

Forex rates and other factors had a negative impact on profit of some JPY1.6bn.

Segment sales were JPY388.4bn (-6.7% YoY). Sales were down 2.9% YoY on a local currency basis due to depreciation in the currencies of emerging nations.

In the food packaging business, sales of packaging ink rose in Asia, the Americas, and Europe on strong demand as more people ate at home due to the COVID-19 pandemic, but declined in Japan as restraint on outings because of the pandemic led to sluggish sales to convenience stores and other clients. In polystyrene, sales volume remained flat YoY, but sales value declined 14% YoY on a downturn in product prices. Multilayer film sales were down 2% YoY, though demand for food packaging that helps prevent food loss remained firm. In Q4, the number of people going out recovered somewhat in Japan, and sales of packaging ink rose once more.

Sales of publishing ink (mainly used to print newspapers and other publications) showed signs of recovery for advertising and commercial printing in all regions from July, but this was not enough for the company to fully bounce back from the drop in demand caused by the pandemic. On a full-year basis, publishing ink sales in each region fell and overall sales dropped 18% YoY. As for jet ink (used in commercial digital printing), demand dipped in the July-September period, but shipment volume was robust in the October-December period as workers returned to offices in greater numbers and there was recovery in commercial events, so ultimately sales grew 4% YoY.

Segment operating profit was JPY21.8bn (+13.5% YoY, or +23.3% YoY on a local currency basis). Earnings were bolstered by firm shipments of printing inks to the Americas (where there was a presidential election) and Europe, as well as by lower raw material prices and the favorable effects from rationalization measures. A rise in shipment volume for high value-added jet inks also contributed to improved profitability.

Factors contributing to the growth in segment profit included cost reductions, largely on the back of streamlining efforts, and stronger demand for food packaging as the COVID-19 pandemic led to favorable shipment volume throughout the year for packaging inks in Asia, the Americas, and Europe, as well as for multilayer films in Japan.

Segment sales were JPY105.8bn (-9.1% YoY, or -6.7% on a local currency basis).

In the color business, sales of functional pigments declined 12% YoY amid a drop in shipment volume, largely in cosmetics pigments, as mask-wearing became an ingrained part of life around the world. Sales of pigments for ink were weak and sales of general pigments fell 8% YoY.

In the display business, shipments of color filter pigments grew as consumers spending more of time at home led to robust demand for LCD panels. TFT liquid crystal materials sales were down 6% YoY as prices plummeted. On the other hand, sales of shiny materials also rose YoY thanks to higher demand for aerated concrete for building materials in Europe.

As healthcare foods are mostly sold in physical stores, sales of health foods at drugstores struggled. Sales of natural blue colorants showed a steady expansion.

Segment operating profit was JPY8.4bn (-21.7% YoY, or -19.7% YoY on a local currency basis).

In October-December 2020, shipment volume of high value-added display-related products expanded. However, profit declined sharply YoY as the company was unable to offset fixed costs incurred on lower utilization rates at some plants as it sought to adjust production amid weak shipments of cosmetics pigments for the Americas and Europe.

Segment sales were JPY236.0bn (-12.1% YoY, or -11.6% on a local currency basis).

Sales of epoxy resins, which are mainly for use in semiconductor applications, were down 3% YoY as demand slowed in Q3. A rebound in automotive demand in Q4 contributed to favorable shipments.

Sales of industrial tape, which is mainly used for smartphones, were up 8% YoY on growth in 5G smartphone-related demand.

Sales of sustainable resin products (aqueous, UV-curable, polyester, acrylic, and urethane resins) were down 12% YoY, despite a strong recovery in shipments, mainly in automotive applications.

PPS compound sales were down 11% YoY, despite a recovery in automobile markets in a number of countries contributing to a strong YoY improvement in shipments in Q4.

Hollow-fiber membrane module sales were up 5% YoY on growth in shipments triggered by robust investment in new semiconductor manufacturing facilities.

Segment operating profit was JPY17.1bn (-11.1% YoY, or -10.6% on a local currency basis).

The product mix improved on a recovery in shipments of high value-added epoxy resins. Profit also benefitted from lower raw material expenses and cost reductions. However, operating profit declined YoY as shipments of a wide range of industrial products, including automobiles and construction materials, fell throughout the year.

The company reported cumulative Q3 FY12/20 sales of JPY514.3bn (-10.8% YoY), operating profit of JPY25.6bn (-13.2% YoY), recurring profit of JPY23.0bn (-23.4% YoY), and net income attributable to owners of the parent of JPY13.9bn (-24.1% YoY).

Forex rates: Average exchange rates during cumulative Q3 were JPY107.16/USD (versus JPY109.15/USD in cumulative Q3 FY12/19) and JPY120.49/EUR (versus JPY122.56/EUR).

Sales declined 10.8% YoY (-8.2% on a local currency basis). Sales in all segments declined as it did in Q2, although shipment volumes for publishing ink and materials for the automotive industry showed signs of recovery as restrictions on movement amid the COVID-19 pandemic were relaxed.

Operating profit fell 13.2% YoY (-8.1% on a local currency basis). Overseas profit levels were higher YoY on a local currency basis thanks to a recovery in shipment volumes, particularly for inks in Asia, the Americas, and Europe, as well as cost reductions, including those achieved through streamlining and reduced outlays for sales activities. On the other hand, recovery in overall shipment volume is taking longer in Japan, resulting in a larger drop in profit.

Factors behind change in operating profit: 1) Volume/mix: approximately JPY17.7bn negative impact; 2) Raw material price decline: approximately JPY12.5bn positive impact due to decline in naphtha prices; 3) Drop in selling prices: approximately JPY2.9bn negative impact; 4) Improved cost control: JPY6.0bn positive impact; 5) FX/other: approx. JPY1.8bn negative impact.

Net income attributable to owners of the parent decreased 24.1% YoY. There were one-time expenses related to the acquisition of BASF's pigment business.

The D/C ratio at end-September 2020 was 49.9%. Interest-bearing debt increased YoY, but the company has increased liquidity in light of the deterioration of the economic environment. Net interest-bearing debt is declining and the company's financial position is improving.

The Packaging and Graphic segment reported cumulative Q3 FY12/20 sales of JPY286.2bn (-8.3% YoY). Sales were down heavily on a yen basis, and down 4.6% YoY on a local currency basis due to depreciation in the euro and the currencies of emerging nations.

In the food packaging business, sales of packaging ink declined 1% YoY. Demand in Asia was robust, especially in China, while sales remained flat YoY in the Americas and Europe, where demand remained steady. Sales declined in Japan with the pandemic impacting convenience store sales.

Sales of publishing ink (mainly used to print newspapers and other publications) declined 21% YoY. There were signs of recovery for advertising and commercial printing in all regions compared to Q2 (April-June 2020), but this was not enough to fully restore the sluggish demand caused by the pandemic, leading to a decline in sales.

Sales of jet ink (used in digital printing) declined 9% YoY as the increase in telecommuting contributed to a downturn in office-related demand.

Sales of polystyrene declined 14% YoY due to a decline in product pricing reflecting the decline in naphtha prices.

Sales of multi-layer film were flat YoY. Its use in different products has expanded, and shipments have remained steady.

The Color and Display segment reported cumulative Q3 FY12/20 sales of JPY79.9bn (-10.8% YoY, or -8.5% on a local currency basis).

Sales of functional pigments decreased by 15% YoY. Sales in the color business dropped sharply as shipment volumes declined, with a sharp drop in cosmetics pigments as a result of changing lifestyles such as the wearing of masks in many countries around the world. In the display business, sales of color filter pigments and TFT liquid crystal materials were on a recovery track as the LCD panels recovered (used for TVs and PCs), but sales were down YoY.

The Color and Display segment reported cumulative Q3 FY12/20 sales of JPY79.9bn (-10.8% YoY, or -8.5% on a local currency basis).

Sales of functional pigments decreased by 15% YoY. Sales in the color business dropped sharply as shipment volumes declined, with a sharp drop in cosmetics pigments as a result of changing lifestyles such as the wearing of masks in many countries around the world. In the display business, sales of color filter pigments and TFT liquid crystal materials were on a recovery track as the LCD panels recovered (used for TVs and PCs), but sales were down YoY.

Sales of LCDs decreased by 10% YoY due to a decline in shipments, although the rate of decline in selling prices has slowed. Toward the end of 1H, shipment volumes showed a recovery trend as the LCD panel market picked up.

On the other hand, the value of sales of shiny materials was flat YoY due to higher demand for aerated concrete for building materials in Europe.

Sales of general pigments recovered slightly in the July-September quarter, but decreased by 9% YoY. Shipments of ink pigments have been sluggish, but paint and plastic pigments are starting to show a recovery.

Sales of healthcare foods decreased by 14% YoY due to a high volume of over-the-counter sales.

The Color and Display segment reported cumulative Q3 FY12/20 operating profit of JPY6.3bn (-28.9% YoY, or -26.7% on a local currency basis).

Profit declined sharply YoY as the company was unable to offset fixed costs incurred on lower utilization rates at some plants as it sought to adjust production amid weak shipments of cosmetics pigments for the Americas and Europe.

The Functional Products segment reported cumulative Q3 FY12/20 sales of JPY170.4bn (-14.8% YoY, or -14.1% on a local currency basis). Sales have been recovering from the sharp drop in the April-June quarter, but have yet to gain momentum. Overseas, sales are picking more quickly than in Japan, driven mainly by demand for automotive use.

Sales of epoxy resins, which are mainly for use in semiconductor applications, fell 4% YoY as 5G-related demand slowed shipments in Q3 (July-September 2020).

Sales of sustainable resin products (aqueous, UV-curable, polyester, acrylic, and urethane resins) fell 15% YoY. Demand returned at the end of Q3, mainly in the automotive and building materials industries, but this has not led yet to a full recovery.

Sales of PPS compounds declined by 17% YoY. Sales are recovering after Q2, when demand fell sharply. Resin for the auto sector remains relatievly sluggish, but the company believes this reflects inventory building by customers.

Sales of industrial tape declined 3% YoY. Demand related to smartphones remained strong, but shipments for OA equipment were sluggish.

Sales of hollow fiber membrane modules increased by 2% YoY. Shipments to semiconductor manufacturing equipment customers were firm.

The Functional Products segment reported cumulative Q3 FY12/20 operating profit of JPY11.2bn (-13.1% YoY, or -12.4% on a local currency basis).

In addition to the overall decline in shipments, sluggish shipments in epoxy resins, which had previously been strong, led to a decline in the product mix. Profit fell as the company was unable to offset sluggish shipments in epoxy resins, which had previously been steady, with lower raw material costs and cost reduction measures.

Cash flows from operating activities

It appears this moves roughly in line with changes in the pretax profit line. But for DIC fluctuations in pretax profit follow those in sales, so some of the change is offset by changes in working capital.

Cash flows from investing activities

Investing cash flows mainly change with purchases of tangible fixed assets. DIC intends to invest start-up money in high value-added businesses and next-generation businesses under its medium-term plan "DIC111" ending in FY12/21. It plans to spend about JPY400.0bn in capex including about JPY120.0bn on stay-in-business capex and around JPY250.0bn on growth projects including M&A in the three years through FY12/21.

Cash flows from financing activities

In its medium-term plan "DIC105" released in May 2013, the company unveiled a D/C ratio target of 50% to be achieved by 2018. It cleared this target at end-FY12/14, four years ahead of schedule. In its medium-term plan "DIC108," it maintained the D/C ratio target at about 50%. With this balance sheet objective now achieved, the medium-term plan "DIC111" looks to generate cash flow that ensures the D/C ratio does not exceed 50% even if the company fully uses its strategic investment budget of approximately JPY250.0bn.

DIC Corporation published this content on 22 December 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 22 December 2021 01:22:04 UTC.