Message from the CFO

In the first half of the fiscal year ended March 31, 2024, the final year of LSV 2030-Stage 1, we faced a challenging operating environment due to a significant decline in the sales volume of electronic and optical products. Additionally, our facility utilization rate fell owing to a decline in orders, and operating losses grew. The operating environment began improving in the second half, spurred mainly by a recovery in orders for semiconductor- and electronic component-related products and adhesive products for seals and labels, as well as the effects of price revisions. However, this upsurge was not enough to compensate for our poor performance in the first half. As a result, sales and profit were down year on year. Consolidated net sales for the year amounted to ¥276.3 billion, operating income was ¥10.6 billion, and profit attributable to owners of parent came to ¥5.2 billion.
Under LSV 2030-Stage 1, we achieved record-high sales and profits in the first year, so we revised our targets upward. However, in the second and third years, we were affected significantly by the deterioration of the external environment and fell short of our targets. During the three-year period, performance was impacted by such factors as unexpectedly high fuel prices and yen depreciation.
To continue contributing to the realization of a sustainable society through new products and businesses, we must maintain a resilient corporate structure that is unaffected by external factors. As CFO, it is my responsibility to improve profitability and asset efficiency, allocate capital strategically, and engage in appropriate information disclosure and constructive dialogue with shareholders and investors in order to drive forward the initiatives of LSV 2030. Under the new medium-term business plan, LSV 2030-Stage 2, we aim to steadily execute these strategies and achieve our targets for the final year of the plan, the fiscal year ending March 31, 2027: consolidated net sales of ¥315.0 billion, operating income of ¥25.5 billion, profit attributable to owners of parent of ¥18.0 billion, an operating profit margin of 8% or more, and return on equity of 8% or more. During the first year of the plan, the fiscal year ending March 31, 2025, we expect the operating environment to remain uncertain. Even so, we anticipate an increase in sales and profits. We project net sales of ¥290.0 billion, operating income of ¥18.0 billion, and profit attributable to owners of parent of ¥13.0 billion, driven by a recovery in sales volume and large orders for semiconductor-related equipment for AI applications.

In the fiscal year ended March 31, 2024, LINTEC acquired Label Supply, a Canadian company that sells adhesive products for seals and labels, while deciding to dissolve LINTEC SPECIALITY FILMS (KOREA), INC. and LINTEC SPECIALTY FILMS (TAIWAN), INC., which manufacture and sell optical-related products. We made this decision due to the lack of prospects for a recovery in performance at both locations, partly due to the rise of Chinese companies in the polarizing film business. Some shareholders and investors suggested tough measures, including the down-sizing of or withdrawal from low-profit businesses in order to optimize the business portfolio. However, we believe our strength lies in our existing structure, comprising three segments and six operations. This arrangement facilitates the integrated production of adhesive products and the transfer and application of technology between operations. Accordingly, our top priority is to improve the profitability of our existing businesses, rather than to downsize or withdraw from businesses. The LINTEC Group has been implementing various measures to enhance profitability, such as reducing costs, improving productivity, and adjusting prices. Despite the headwinds we face, we are steadily seeing positive results from our actions. Moving forward, our policy is to continue making thorough improvements while working to optimize our business portfolio.
Additionally, after the semi-annual creation and analysis of balance sheets for each operation in the fiscal year ended March 31, 2024, issues regarding the turnover ratio of fixed assets and inventory assets became apparent. Following discussions with the heads of each operation, we established KPIs for each operation and are now entering a phase of full-scale execution. Employees are also becoming more engaged in the relationship between their work and financial metrics. Going forward, we will work together on a united front, cultivating close collaboration between the procurement and production departments to improve profitability and earnings.
The utilization of digital transformation (DX) is also essential to the Company becoming more cost competitive. As the person in charge of the cross-functional DX promotion project LDX 2030, I am driving the transformation of our business model through DX. The project is structured into six subcommittees. Each subcommittee is responsible for a transformation theme, such as business process improvement and sales, with the path determined by backcasting from the desired future state. We have developed a road map through the fiscal year ending March 31, 2027, and are implementing measures accordingly.

During the period of LSV 2030-Stage 2, we expect to generate approximately ¥130.0 billion in cash flow. We intend to use this cash mainly for growth investments in areas such as R&D, production facilities, talent acquisition, DX, and M&A, as well as the enhancement of shareholder returns. We plan to strategically allocate funds, funneling investments where needed to enhance corporate value.
We plan to allocate approximately ¥60.0 billion to capital expenditures, which includes the expansion of coating facilities for multilayer ceramic capacitor-related tape and semiconductor-related adhesive tape—both of which are seeing growing demand—as well as the construction of a new factory building at the Komatsushima Plant in Tokushima Prefecture and the implementation of smart factory initiatives to improve production efficiency. In the face of rapid changes in the operating environment, investing proactively will be the key to our success. Doing so builds upon our previous medium-term business plan, and we will quickly put in place a system for responding to increasing demand in such areas as AI and semiconductors.
We plan to invest approximately ¥32.0 billion in R&D. This investment is primarily aimed at the swift creation of new products and businesses, as well as quickly putting in place a production system for CNT pellicles for EUV lithography equipment, which are essential for fine circuit formation in next-generation semiconductors. Some of our R&D initiatives may take time to bear fruit, but we will assess the optimal areas to invest in while leveraging marketing data and other information. Additionally, we will consider M&A opportunities while taking financial risks into account.
In terms of shareholder returns, in principle we will not reduce dividends through the fiscal year ending March 31, 2027. Additionally, we plan to achieve a dividend payout ratio of 40% or higher or a dividend on equity ratio of 3%. We will continue to reinforce our management foundation and strive to enhance shareholder returns by considering the consolidated performance during each fiscal year and maintaining a fundamental policy of providing ongoing, stable dividends. We will assess the need for share buybacks based on the available funds and implement such buybacks flexibly as needed.

Our dialogue with shareholders and investors is a crucial opportunity for us to learn and gain insights. We appreciate the positive expectations for our Advanced Materials Operations and other areas, but we also acknowledge that our price-to-book value ratio (PBR) has remained below 1.0 times. We recognize that our weighted average cost of capital is around 5.3% and feel a strong need to consistently generate return on equity (ROE) that exceeds this level going forward. By diligently implementing the aforementioned initiatives to improve ROE and actively engaging in information disclosure and dialogue to enhance understanding of our management and efforts, we will strive to enhance corporate value and improve our market evaluation.