Medium-Term Management Plan artience 2027|Integrated Report 2025 Financial Strategy: Promoting Financial Reform with a Focus on Improving Capital Efficiency

Fiscal 2024 has been a year of great change for our company. The change of the company's name, which had been in business for more than 100 years, and the renewal of the management philosophy had a significant impact on the internal consciousness. Not only did we replace the signboards, but the mindset of strongly transforming all business and corporate activities spread among our employees, and it was a great boost in promoting our measures to improve capital efficiency. The finance department also planned and implemented capital policies such as share buybacks, and implemented measures to improve capital efficiency throughout the company, such as introducing cash flow and efficiency indicators. I think it was a year in which the company as a whole was definitely more conscious of improving capital efficiency.

In fiscal 2024, we introduced ROIC and CCC (Cash Conversion Cycle) as internal management indicators. In February 2025, at the end of the first year of the Medium-Term Management Plan artience 2027, we reviewed and announced the plans we had set out at the start of the Medium-Term Management Plan, including share buybacks and a policy to reduce our shareholdings. Although we were able to achieve our target of ROE of 7.0% or more over three years in the medium-term management plan in fiscal 2024, we believe that this is not a satisfactory level due to the addition of special factors such as gains on the sale of shares. In the future, we will set a revised target of 8.0% or more as an actual value without special factors.

Financial Reform Measures (Progress in FY2024)

* 4.5 million shares or up to 10 billion yen (acquisition period: August 13, 2024 ~ August 12, 2025)

There are two important points to be taken in order to achieve a PBR of 1x, which is one of the major challenges for the finance department.

The first is to achieve an ROE of 7.0% or more and an ROE of 8.0% or more in terms of actual value, without relying on temporary special factors. For this reason, we have set forth "transformation into highly profitable existing businesses" in our management policy, and we are working to improve the profitability of existing businesses. The domestic printing and information-related business, which has been in the red for the past few years, made a significant profit in 2024. In the domestic offset ink business, the deficit narrowed due to structural reforms and price revisions, and in other businesses, the earning power improved due to the shift to high-value-added products, price revisions, and efficiency. We have revised upward our operating income target for 2026 from the initial ¥14.0 billion to ¥19.0 billion.

Another key point is the establishment of new growth areas in our strategic priority business groups. Contrary to expectations for a while, lithium-ion battery materials for EVs have been delayed from the original plan due to the recent slump in the EV market. However, we are preparing to meet a variety of demands when the EV market recovers. As for future growth businesses, there are signs of breakthroughs in the display, semiconductor, and advanced electronics businesses, and we will actively invest in them as growth areas.

In FY2024, the CCC was improved by 3 days, from 114 days to 111 days. Employees at the site worked with enthusiasm to shorten the number of days required to collect inventory and accounts receivable. I think this is the result of the pervasive awareness of how to improve capital efficiency, which is our management policy.

I feel that we are still only halfway through the penetration of ROIC. We are working to increase opportunities for employees to be seen and raise awareness, such as releasing results every month, which used to be distributed on a quarterly basis.

In the past, we have been reducing our shareholdings after verifying the economic rationality of the shares and verifying the benefits associated with holding them compared to the cost of capital and the transaction status, but in fiscal 2024, we took a step further and announced our reduction policy. We aim to set out a more proactive policy and maximize capital efficiency. We will carefully proceed with the reduction of our shareholdings so as not to lose the relationship of trust with our business partners, while linking them to growth investment and shareholder returns, thereby increasing our corporate value.

There is no change in our capital policy to actively return shareholder returns while prioritizing growth investments in the field of advanced electronics and overseas growth regions. In fiscal 2024, due to the fact that profits exceeded the plan, we increased our operating cash flow plan for the three-year medium-term plan from 40.0 billion yen to 48.0 billion yen. We have decided to return a portion of this to our shareholders. Since we expect to achieve better results than originally planned to reduce our shareholdings, we intend to increase our corporate value by using the profits we earn from these reductions to return to shareholders as well as to make growth investments. Going forward, we will continue to aim to improve the level of shareholder returns in line with profit growth.

Shareholder Returns

Cash allocation

Based on the Group policy of strengthening governance, we have increased the number of Outside Director, and now the majority of Director are Outside Director. In a sense, the Outside Director also plays the role of representing shareholders and external stakeholders, so we take the time to carefully explain the agenda to the Outside Director and enhance communication. We have also decided to implement share buybacks in fiscal 2024 and a review of our policy for reducing our shareholdings based on discussions at Board of Directors. I think that decisions are made with an awareness of external requests.

The premise of the optimal capital structure is to maintain an "A rating" in the financial rating. If you don't have a strong enough financial base to get an A rating, you won't be able to invest with spare capacity. When interest rates are rising, if the credit rating is lowered, the cost of financing will also increase.

Improving capital efficiency is an urgent issue. We will aim to maintain an appropriate balance sheet in line with the progress of growth in order to increase corporate value over the medium to long term, with the aim of improving capital efficiency while maintaining an A rating.