デクセリアルズ（4980） – Consolidated Financial Results for the Fiscal Year Ended March 31, 2022

Consolidated Financial Results for the Fiscal Year Ended March 31, 2022 〔Under Japanese GAAP〕 Tokyo Stock Exchange https://www.dexerials.jp/en Listing: URL: Company name: Dexerials Corporation Security code: 4980 Representative: Yoshihisa Shinya, Representative Director and President Contact: Phone: Date of annual general meeting of shareholders: Date of payment of year-end dividends: Annual Securities Report (Yukashoken Hokokusho) filing date: Preparation of supplementary briefing material on financial results: Investors meeting presentation for financial results: Shinji Tomita, General Manager, IR Department, Corporate Strategy Division +81-285-39-7950 June 17, 2022 June 20, 2022 June 17, 2022 Yes Yes (for securities analysts and institutional investors) May 10, 2022 1. Consolidated financial results for the fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (1) Consolidated operating results (Percentage indicates year-on-year changes.) (Note) Amounts less than one million yen have been omitted. Net sales Operating profit Ordinary profit Profit attributable to owners of parent Fiscal year ended Millions of yen 95,712 65,830 March 31, 2022 March 31, 2021 % Millions of yen 26,642 11,339 45.4 14.1 % Millions of yen 25,023 10,844 135.0 145.6 % Millions of yen 16,669 5,329 130.8 146.8 % 212.8 94.9 Note: Comprehensive income For the fiscal year ended March 31, 2022: ¥17,909 million [199.6%] [156.7%] For the fiscal year ended March 31, 2021: ¥5,977 million Note: EBITDA For the fiscal year ended March 31, 2022: ¥32,478 million [84.6%] For the fiscal year ended March 31, 2021: ¥17,590 million [63.1%] Note: The Company has adopted the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29 , March 31, 2020) and others from the beginning of the fiscal year ended March 31, 2022. Basic earnings per share Diluted earnings per share Return on capital Ordinary profit to total assets Operating profit to net sales Fiscal year ended March 31, 2022 March 31, 2021 Yen 274.61 87.60 Reference: Share of profit or loss of entities accounted for using equity method For the fiscal year ended March 31, 2022: ¥(431) million For the fiscal year ended March 31, 2021: ¥(207) million Note: For the purpose of calculating the amounts of earnings per share, the number of shares of the Company held by the Trust was included in the number of treasury shares, which was to be deducted from the calculation of the average number of shares of common stock during the period. Yen 272.78 87.06 % 28.5 10.4 % 22.5 12.0 % 27.8 17.2 (2) Consolidated financial position Total assets Net assets Capital to asset ratio Net assets per share Millions of yen As of 127,410 March 31, 2022 March 31, 2021 95,201 Reference: Capital (Shareholders’ equity + Accumulated other comprehensive income) Note: For the purpose of calculating the amounts of net assets per share, the number of shares of the Company held by the Trust Millions of yen 64,140 53,305 As of March 31, 2022: ¥63,735 million As of March 31, 2021: ¥53,305 million % 50.0 56.0 Yen 1,063.24 874.66 was included in the number of treasury shares, which was to be deducted from the number of shares issued at the end of the period. (3) Consolidated cash flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at end of period Fiscal year ended March 31, 2022 March 31, 2021 Millions of yen 25,804 13,187 Millions of yen (12,434) (2,471) Millions of yen (5,783) (4,259) Millions of yen 29,363 20,531 2. Dividends Fiscal year ended March 31, 2021 March 31, 2022 Fiscal year ending March 31, 2023 (forecast) First quarter- end Yen – – – Second quarter-end Cash dividends per share Third quarter- end Yen – – – Yen 17.00 30.00 Fiscal year- end Yen 27.00 30.00 30.00 Total dividends (Annual) Dividend payout ratio (Consolidated) Dividend on equity (Consolidated) Total Yen Millions of yen 2,824 44.00 3,810 60.00 35.00 65.00 % 50.3 21.8 19.7 % 5.2 6.2 Reference: Total payout ratio (consolidated) before amortization of goodwill For the fiscal year ended March 31, 2022: 42.3% For the fiscal year ending March 31, 2023 (forecast): 44.7% (For more details, please see page 6 of the Attached Materials.) Notes: 1. For the forecast dividends for the fiscal year ending March 31, 2023, please refer to “Notice Regarding the Dividend Forecast (Commemorative Dividends for the 10th Anniversary) for the Fiscal Year Ending March 31, 2023” released on May 10, 2022. 2. The amounts of total dividends (annual) include the dividends (of ¥145 million for the fiscal year ended March 31, 2021 and ¥179 million for the fiscal year ended March 31, 2022) for the shares of the Company held by the Trust. 3. For the purpose of calculating the amounts of dividend on equity for the fiscal years ended March 31, 2021 and 2022, the number of shares of the Company held by the Trust was included in the number of treasury shares. 3. Forecast of consolidated financial results for the fiscal year ending March 31, 2023 (from April 1, 2022 to March 31, 2023) Net sales Operating profit Ordinary profit Millions of yen 110,000 Millions of yen 31,000 Fiscal year Yen 329.48 Notes: For the purpose of calculating the amount of basic earnings per share, the number of shares of the Company held by the Trust as of the end of the fiscal year ended March 31, 2022 was included in the number of treasury shares, which was to be deducted from the calculation of the average number of shares of common stock during the period. % 20.0 % 16.4 % 14.9 % 18.3 Millions of yen 29,600 For more information on the consolidated financial results for the fiscal year ended March 31, 2022, please refer to the supplementary briefing material on financial results, Annual Securities Report (available in Japanese only) to be filed on June 17, 2022, and other materials, which you can find on our website at https://www.dexerials.jp/en/ir/library/index.html. (Percentage indicates year-on-year changes.) Basic earnings per share Profit attributable to owners of parent Millions of yen 20,000 [Notes] scope of consolidation): None (1) Changes in significant subsidiaries during the current period (Changes in specified subsidiaries resulting in the change in (2) Changes in accounting policies, changes in accounting estimates and restatements of prior period financial statements (a) Changes in accounting policies due to application of new or revised accounting standards: Yes (b) Changes in accounting policies due to reasons other than above (a): (c) Changes in accounting estimates: (d) Restatements of prior period financial statements: Note: For further details, please see “3. Consolidated Financial Statements and Notes, (5) Notes to consolidated financial None Yes None statements (Changes in accounting policies) and (Changes in accounting estimates)” on page 16 of the Attached Materials. (3) Number of shares of common stock issued (a) Number of shares issued (including treasury shares) As of March 31, 2022: As of March 31, 2021: (b) Number of treasury shares 64,493,400 shares 64,276,700 shares As of March 31, 2022: As of March 31, 2021: 4,548,709 shares 3,332,948 shares (c) Average number of shares of common stock during the period 60,700,276 shares 60,838,156 shares Fiscal year ended March 31, 2022: Fiscal year ended March 31, 2021: Notes: 1. As a result of the exercise of stock options during the fiscal year ended March 31, 2022, the number of shares issued as of March 31, 2022 has increased by 216,700 shares. 2. As the Company has introduced a stock compensation plan which delivers shares with restrictions on transfer, the Company’s shares are included in the number of treasury shares at the end of the period (293,800 shares as of March 31, 2022 and 293,800 shares as of March 31, 2021) mainly for the purpose of allotting them as restricted shares. 3. As the Company has introduced an Employee Stock Ownership Plan (“J-ESOP”) and a Board Benefit Trust (BBT), the number of shares of the Company held by the trust account is included in the number of treasury shares as of the end of the period. In addition, the number of shares of the Company held by the Trust (an average of 3,682,050 shares for the fiscal year ended March 31, 2022 and an average of 3,250,499 shares for the fiscal year ended March 31, 2021) was included in the number of treasury shares to be deducted in the calculation of the average number of shares of common stock during the period. [Reference] Overview of non-consolidated financial results 1. Non-consolidated financial results for the fiscal year ended March 31, 2022 (from April 1, 2021 to March 31, 2022) (1) Non-consolidated operating results (Percentage indicates year-on-year changes.) Fiscal year ended March 31, 2022 March 31, 2021 Net sales Millions of yen Operating profit Ordinary profit Net income % Millions of yen % Millions of yen % Millions of yen 88,189 60,580 45.6 16.1 22,405 145.1 9,139 236.6 22,918 104.5 11,207 196.5 % 14,579 133.1 6,253 156.9 (2) Non-consolidated financial position Total assets Millions of yen 111,751 88,052 As of March 31, 2022 March 31, 2021 Reference: Capital (Shareholders’ equity + Valuation and translation adjustments) * This consolidated financial results report is not subject to audit procedures to be performed by certified public accountants or an As of March 31, 2022: ¥53,497 million As of March 31, 2021: ¥46,166 million % 47.9 52.4 Net assets Millions of yen 53,497 46,166 Capital to asset ratio audit firm. * [Proper use of earnings forecast, and other special notes] (Disclaimer with respect to earnings and other forecasts) The forward-looking statements including results forecasts contained in this document are based on information currently available to the Company and certain assumptions that the Company deems reasonable. Accordingly, the Company does not intend to promise their achievement. Actual results may differ from these forecasts and forward-looking statements due to various factors. Contents for Attached Materials 1. Overview of Operating Results, etc. ···································································································· P. 2 (1) Analysis of operating results ········································································································ P. 2 (2) Analysis of financial position ······································································································· P. 5 (3) Basic policy for profit distribution and dividends for the current and next fiscal years ···································· P. 6 (4) Management policy ·················································································································· P. 7 2. Basic Policy Regarding Selection of Accounting Standards········································································· P. 8 3. Consolidated Financial Statements and Notes ························································································· P. 9 (1) Consolidated balance sheets ········································································································ P. 9 (2) Consolidated statements of income and consolidated statements of comprehensive income ······························ P. 11 Consolidated statements of income ································································································ P. 11 Consolidated statements of comprehensive income ············································································· P. 12 (3) Consolidated statements of changes in net assets ················································································ P. 13 (4) Consolidated statements of cash flows ···························································································· P. 15 (5) Notes to consolidated financial statements ······················································································· P. 16 (Going concern assumption) ········································································································ P. 16 (Significant changes in shareholders’ equity) ····················································································· P. 16 (Changes in accounting policies) ································································································· P. 16 (Changes in accounting estimates) ································································································· P. 16 (Business combinations) ············································································································· P. 17 (Supplemental information) ········································································································· P. 19 (Segment information, etc.) ········································································································· P. 20 (Per share information) ·············································································································· P. 22 (Significant subsequent events) ···································································································· P. 23 4. Other ········································································································································ P. 25 (1) Appointment of directors ············································································································ P. 25 – 1 – 1. Overview of Operating Results, etc. (1) Analysis of operating results (Operating results for the current fiscal year) During the current fiscal year (from April 1, 2021 to March 31, 2022), although the global economy showed signs of recovery in economic activity in major countries and regions, there are concerns about the possible returning economic stagnation due to the effects of the rapid spread of the novel coronavirus infection (COVID-19) caused by its new variants, as well as the rising prices of resources. In addition, the outlook is even more uncertain due to a shortage of semiconductors, supply chain disruptions, exchange rate fluctuations, and rising geopolitical risks such as the U.S.-China friction and the Russia-Ukraine conflict. Among major industries served by the products of the Dexerials Group (hereinafter “the Group”), the consumer IT product market saw an increase in demand for high-end products of smartphones and laptop PCs. In this business environment, the Group endeavored to prevent further spread of COVID-19, prioritizing health and safety of its stakeholders including employees and customers, as well as to stay in business and continued to meet its customers’ demand all through the year. Furthermore, the Group strove towards the accomplishment of the updated Mid-term Management Plan released on May 10, 2021. In a new domain, the Group made efforts to expand sales of its products in the automotive business. In the existing domain, the Group continued to review its business portfolio to achieve a qualitative change, and promoted efficiency improvements by strengthening businesses and reviewing production bases. Furthermore, efforts to develop and propose products that anticipate technological trends led to increased sales of high-value-added products. Consequently, we achieved a year-on-year increase in profit thanks to an increase in sales of surface mounted type fuses as well as a strong sales performance of differentiating technology products such as optical films, anisotropic conductive films (ACF), and smart precision adhesives (SA). As a result of the above, we reported net sales for the current fiscal year of ¥95,712 million (up 45.4% year-on-year) with operating profit of ¥26,642 million (up 135.0% year-on-year). Ordinary profit was ¥25,023 million (up 130.8% year-on-year) primarily due to an increase in foreign exchange losses. Profit before income taxes was ¥23,777 million (up 208.9% year-on-year) primarily due to the recognition of loss on retirement of property, plant and equipment as extraordinary losses. Consequently, profit attributable to owners of parent amounted to ¥16,669 million (up 212.8% year-on-year). Operating results by segment and sales by product category are presented as follows. 1) Optical Materials and Components business Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 (Millions of yen) Year-on-year change Net sales Operating profit 49,159 13,127 28,572 5,522 72.1% 137.7% (Note) Net sales include inter-segment transactions. ・ The business segment reported net sales of ¥49,159 million (up 72.1% year-on-year) and operating profit of ¥13,127 million (up 137.7% year-on-year). ・ The Optical films product category reported year-on-year increases in both sales and profit because of newly marketed phosphor films beginning to fully contribute to earnings in the first quarter of the current fiscal year on top of an increase in quantity of products sold for laptop PC displays and automotive displays in anti-reflection films. ・ The Optical resin materials product category reported year-on-year increases in both sales and profit mainly due to expansion of the products for tablets and automobiles in optical elastic resins and an increase in quantity of the products sold for smartphones for major customers in smart precision adhesives (SA). ・ The Optical solutions product category reported a year-on-year decrease in sales due to the termination of production of existing projects in the automotive display business using our products terminated and changes in certain commercial distributions. – 2 – 2) Electronic Materials and Components business Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2021 (Millions of yen) Year-on-year % change Net sales Operating profit 47,195 15,304 37,395 7,614 26.2% 101.0% (Note) Net sales include inter-segment transactions. ・ The business segment reported net sales of ¥47,195 million (up 26.2% year-on-year) and operating profit of ¥15,304 million (up 101.0% year-on-year). ・ The Adhesive materials product category reported year-on-year increases in both sales and profit mainly due to an increase in quantity of general-purpose items for automobiles and laptop PCs. ・ The Anisotropic conductive films (ACF) product category reported year-on-year increases in both sales and profit primarily due to an increase in sales of particle-arrayed ACF for displays of high-end smartphone models and also due to customers’ adoption of new products for sensor modules mainly for cameras and particle-arrayed ACF. ・ The Surface mounted type fuses product category reported year-on-year increases in both sales and profit due to an increase in quantity of products for high current items such as power tools, E-Scooter (electric motorcycles), and cordless electric cleaners. ・ The Micro devices product category reported a year-on-year increase in sales due to an increase in quantity of inorganic devices as a result of winning contracts with new customers on top of a recovery of demand for projectors. Meanwhile, efforts to reduce fixed costs contributed to improving profitability. – 3 – (Earnings forecast for the next fiscal year) Consolidated earnings forecasts for the fiscal year ending March 31, 2023 are presented as follows. Consolidated earnings forecasts for the fiscal year ending March 31, 2023 Fiscal year ended March 31, 2022 (Actual) Fiscal year ending March 31, 2023 (Forecast) (Millions of yen) Year-on-year change Consolidated net sales Operating profit Ordinary profit Profit attributable to owners of parent 95,712 26,642 25,023 16,669 110,000 31,000 29,600 20,000 14.9% 16.4% 18.3% 20.0% (These forecasts are based on the assumed exchange rate of ¥118.0 per U.S. dollar.) For the fiscal year ending March 31, 2023, we anticipate that the economy going forward will be increasingly uncertain with concerns including the impacts of trade friction between the U.S. and China and the Russia-Ukraine conflict, a surge in inflationary pressure all around the world, a rebound of infection cases at home and abroad, and possible stagnation of the economy due to the prolonged “zero corona policy” imposed by the Chinese government authority. Under the said circumstances, we aim to achieve a year-on-year increase in both sales and profit for the fiscal year ending March 31, 2023 even after taking account of a risk of economic slowdown in the second half. To this end, we will focus on further expanding sales of anisotropic conductive films (ACF) and smart precision adhesives (SA) for smartphones, of which the high-end products account for a growing proportion. Furthermore, in surface mount type fuses, we respond to the growing demand for high current items such as E-Scooter (electric motorcycles) and electric tools through increased production capacity as well as expand sales of anti-reflection film and SVR, or optical elastic resin, for the automotive industry. Meanwhile, the assumed exchange rate for the next fiscal year is ¥118.0 per U.S. dollar, compared to the actual exchange rate of ¥112.4 per U.S. dollar for the current fiscal year. We believe that the impact of the Russia-Ukraine conflict on our consolidated financial results for the fiscal year ending March 31, 2023 is minimal at this point. However, we will promptly make an announcement if any significant impact on our financial results is anticipated as the future situation changes. (Disclaimer with respect to earnings forecasts) The forward-looking statements including earnings forecast contained in this report are based on information currently available to us and certain assumptions that we believe are reasonable. Accordingly, we can give no assurance that such statements will prove to be correct. Actual results may differ from the results anticipated in these forward-looking statements due to a variety of factors. – 4 – (2) Analysis of financial position 1) Summary of assets, liabilities and net assets (Assets) the previous fiscal year. Total assets at the end of the current fiscal year amounted to ¥127,410 million, an increase of ¥32,209 million from the end of Current assets amounted to ¥65,086 million, an increase of ¥21,827 million from the end of the previous fiscal year. This increase can mainly be explained by increases of ¥8,832 million in cash and deposits, ¥6,500 million in notes and accounts receivable – trade, ¥2,073 in raw materials and supplies, and ¥1,123 in merchandise and finished goods. Non-current assets amounted to ¥62,324 million, an increase of ¥10,382 million from the end of the previous fiscal year. This increase can mainly be explained by increases of ¥4,909 million in goodwill, ¥1,974 million in construction in progress, ¥862 million in deferred tax assets, and ¥857 million in buildings and structures, net. (Liabilities) Total liabilities at the end of the current fiscal year amounted to ¥63,270 million, an increase of ¥21,373 million from the end of the previous fiscal year. Current liabilities amounted to ¥49,803 million, an increase of ¥24,251 million from the end of the previous fiscal year. This increase can mainly be explained by increases of ¥6,500 million in short-term borrowings, ¥5,008 million in income taxes payable, ¥4,654 million in notes and accounts payable – trade, and ¥4,169 million in other. Non-current liabilities amounted to ¥13,466 million, a decrease of ¥2,877 million from the end of the previous fiscal year. This decrease can mainly be explained by decreases of ¥2,341 million in long-term borrowings and ¥621 million in other. (Net assets) Total nets assets at the end of the current fiscal year amounted to ¥64,140 million, an increase of ¥10,835 million from the end of the previous fiscal year. This increase can mainly be explained by increases of ¥13,016 million in retained earnings, ¥883 million in foreign currency translation adjustment, and ¥404 million in non-controlling interest, which were partially offset by an increase of ¥3,953 million in treasury shares. 2) Summary of cash flows previous fiscal year to ¥29,363 million. Cash and cash equivalents (hereinafter “cash”) at the end of the current fiscal year increased ¥8,832 million from the end of the A summary of each category of cash flows and main causes of changes are presented as follows. (Cash flows from operating activities) Net cash provided by operating activities was ¥25,804 million (up 95.7% year-on-year), which mainly consisted of profit before income taxes of ¥23,777 million. (Cash flows from investing activities) Net cash used in investing activities was ¥12,434 million (up 403.1% year-on-year) due mainly to purchase of shares of subsidiaries resulting in change in scope of consolidation of ¥7,074 million and purchase of property, plant and equipment of ¥4,742 million. (Cash flows from financing activities) Net cash used in financing activities was ¥5,783 million (up 35.8% year-on-year) due mainly to repayments of long-term borrowings of ¥4,677 million and purchase of treasury shares of ¥4,000 million, which were partially offset by proceeds from short-term borrowings of ¥6,500 million. – 5 – (3) Basic policy for profit distribution and dividends for the current and next fiscal years We regard return of profits to shareholders as one of the most important management tasks. With a recognition that increasing corporate value through investments for growth is the common interests of our shareholders, we have established a basic policy that we should first give priority to business investments leading to sustainable corporate value improvement and then make shareholder returns in line with profit growth with the target total payout ratio to consolidated profit attributable to owners of parent before amortization of goodwill (See Note 1) of approximately 40%. We determine the actual amount of dividends by comprehensively considering factors such as the amount of investments required for growth, the estimated free cash flow (See Note 2), the total payout ratio including share buyback and the importance of stable dividend distribution, while securing a sound financial base. As for year-end dividends for the fiscal year ended March 31, 2022, the Board of Directors’ meeting held on May 10, 2022 resolved to pay 30.0 yen per share. As a result, the total annual dividend will be 60.0 yen per share (compared to 44.0 yen per share for the previous fiscal year) with the interim dividend of 30.0 yen per share already paid. Regarding the profit distribution for the next fiscal year ending March 31, 2023, we will follow the above basic policy and plan to pay the annual ordinary dividends of 60.0 yen per share (consisting of an interim dividend of 30.0 yen per share and a year-end dividend of 30.0 yen per share) plus 5.0 per share commemorative dividends to mark the 10th anniversary of the founding. For more information, please refer to “Notice Regarding the Dividend Forecast (Commemorative Dividends for the 10th Anniversary)” released on May 10, 2022. As a basic policy for dividend payment from surplus, we will pay dividends twice a year in the form of an interim dividend and a year-end dividend. While it is stipulated in accordance with Article 459, Section 1 of the Companies Act that the Company can pay dividends from retained earnings based on resolution of the Board of Directors, the Company plans to pay a year-end dividend based on a resolution of the general meeting of shareholders. (Reference) Distribution of profit Total payout ratio Before amortization of goodwill After amortization of goodwill Current fiscal year ended March 31, 2022 (actual) Next fiscal year ending March 31, 2023 (forecast) 42.3% 44.7% 46.9% 50.2% (Note 1) Total payout ratio to consolidated profit attributable to owners of parent before amortization of goodwill Total payout amount (=Annual total dividends paid +Annual total share buyback) = Consolidated profit attributable to owners of parent + Amortization of goodwill × 100 (Note 2) Free cash flow = Operating cash flow + Investing cash flow – 6 – (4) Management policy 1) Basic policy for corporate management Corporate philosophy “Integrity: Have Integrity and Sincerity” Under the corporate philosophy “Integrity: Have Integrity and Sincerity,” the Company strives to address its customers’ needs and challenges, generate value that exceeds their expectations, and resolve social issues through developing and providing innovative functional materials and technological solutions with a combination of outstanding and unique technologies. The Company believes that this will realize sustainable business growth and improvement in business results, thereby leading to the enhancement of corporate value as a result. Corporate vision “Value Matters—Unprecedented innovation, unprecedented value.” The Company fulfills its customers’ needs and resolves their challenges, constantly aiming to generate values that exceed its customers’ expectations with unique and innovative technologies to develop and provide sophisticated functional materials. The Company believes that this will realize business growth and improvement in business results, leading to the enhancement of corporate value as a result. With this vision in mind, we aim to be a “company that achieves sustainable growth by addressing social issues through the delivery of high value-added products and technological solutions.” 2) Medium- to long-term corporate strategy Toward the corporate image to be built up over a long period, the Company has formulated the Mid-term Management Plan “Challenges for Evolution” covering the five-year period from the fiscal year ended March 31, 2020 to the fiscal year ending March 31, 2024, which is positioned as a phase to ensure a sustainable growth through business expansion in new domains where social issues have surfaced. We are proud to acknowledge that, during the fiscal year ended March 31, 2022, we achieved the management targets for the last fiscal year of the updated Mid-term Management Plan released on May 10, 2021 two years earlier than expected. Over the remaining two years of the plan as a preparatory period for the next Mid-term Business Plan, under the basic policy, we will further strengthen our management base and implement our growth strategies ahead of schedule to achieve sustainable growth and enhance corporate value. a) Three basic policies Based on the following three basic policies, we will continue to engage in initiatives to evolve into a company that grows sustainably through business expansion in new domains. (i) Accelerate growth in new domains (ii) Qualitatively change businesses in the existing domains (iii) Strengthen the management base b) Performance indicators The Company considers ROE (return on equity) as an indicator that relates to the sustainable growth of corporate value, and EBITDA as an indicator that measures the Company’s earning strength. Furthermore, starting from the fiscal year ended March 31, 2022, we have introduced ROIC as a new performance indicator. (Note) EBITDA (Indicator to measure earning strength/cash generating ability) = Operating profit + Depreciation recorded as operating expenses + Amortization of goodwill ROIC (Indicator to measure investment efficiency) = (Operating profit x (1 – Effective tax rate) ) / (Capital + Interest-bearing debts) x 100 ROE (Indicator to measure capital efficiency) = Profit attributable to owners of parent / Capital x 100 – 7 – (Disclaimer) The forward-looking statements contained in the description above on the Mid-term Management Plan are based on information currently available to the Company and certain assumptions that are believed to be reasonable, and no responsibility is borne as to the accuracy or completeness of the forward-looking statements. Actual results may differ from the results anticipated in these forward-looking statements due to a variety of factors, and the Company gives no assurance that such statements will prove to be correct. Additionally, regardless of actual results, etc., from the date of the publishing of this document, the Company has no obligation to continuously update the content of this document, nor does it have such a policy. The description above is only disclosed with the intent of providing reference information to investors in making decisions; please make final decisions regarding investments on your own. The Company shall not be held liable for any losses resulting from the use of any part of this document in reaching an investment decision. The Company seeks sustainable growth through continuing to work on various measures under the basic policy set forth in the current Mid-term Management Plan, while developing the necessary measures to achieve sustainable growth in the fiscal year ending March 31, 2025 and beyond. During the fiscal year ending March 31, 2023 in particular, we will focus on addressing 3) Issues to be addressed by the Company the issues and initiatives described as follows. i) Accelerate growth in new domains On March 24, 2022, the Company made Kyoto Semiconductor Co., Ltd. a subsidiary. Since the initial announcement of the current Mid-term Business Plan in 2019, we have focused on growth in the automotive domain. As the next growth area, we will further expand the high-speed communications and sensing domains with Kyoto Semiconductor Co., Ltd. at the core. We will develop and provide new products and technologies, while creating synergies, with Kyoto Semiconductor Co., Ltd. to steadily expand our business performance and prepare for the creation of new products, thereby aiming for sustainable growth in the next Mid-term Business Plan and beyond. ii) Qualitatively change businesses in the existing domains As a result of our efforts to provide high value-added products that preempt the technological trends of the world, we expect that high value-added product business will continue to expand. Specifically, with a new line now in operation for surface mounted type fuses, a differentiating technology product, we aim to expand business for high current applications, where demand is particularly strong. We will also focus on expanding sales of smart precision adhesives (SA) and anisotropic conductive films (ACF) for high-end models of smartphones, which are expected to increase market share. In addition, we aim to increase sales of anti-reflection films by expanding its adoption for in-vehicle displays. iii) Strengthen management base In our efforts to enhance corporate value, we will not only grow our business through the expansion of differentiating technology products, but also strengthen our focus on non-financial capital and intangible assets that support sustainable growth, such as DX (Digital Transformation), environmental initiatives, and BCP (Business Continuity Plan). As for engagement with employees and society, we will promote diversity in work style as well as develop various measures to coexist in harmony with society and local communities where our business bases are located, including Tochigi prefecture, where we relocated our head office in July 2021. 2. Basic Policy Regarding Selection of Accounting Standards With respect to applying International Financial Reporting Standards (IFRS), the Company is currently assessing differences between International Financial Reporting Standards (IFRS) and Japanese GAAP, as well as impacts of a change in accounting standards on the Company. As of the date of filing this report, we have not yet made any decision on this matter. – 8 – (Millions of yen)Previous fiscal year (As of March 31, 2021) Current fiscal year (As of March 31, 2022) 3. Consolidated Financial Statements and Notes (1) Consolidated balance sheets Assets Current assets: Cash and deposits Notes and accounts receivable – trade Electronically recorded monetary claims – operating Merchandise and finished goods Work in process Raw materials and supplies Other Allowance for doubtful accounts Total current assets Non-current assets: Property, plant and equipment: Buildings and structures Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles, net Land Other Construction in progress Accumulated depreciation Other, net Total property, plant and equipment Intangible assets: Goodwill Patent right Other Total intangible assets Investments and other assets: Shares of subsidiaries and associates Retirement benefit asset Deferred tax assets Other Allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets 20,531 12,639 157 2,670 2,468 2,392 2,400 (2) 43,259 30,163 (20,425) 9,738 36,219 (29,719) 6,500 3,357 1,646 6,483 (5,089) 1,393 22,635 20,683 1,120 1,251 23,055 591 2,868 1,867 935 (11) 6,252 51,942 95,201 – 9 – 29,363 19,140 289 3,794 3,565 4,465 4,468 (2) 65,086 32,288 (21,693) 10,595 38,755 (31,651) 7,103 3,572 3,620 7,664 (5,915) 1,749 26,642 25,592 831 1,541 27,966 160 3,250 2,730 1,586 (12) 7,716 62,324 127,410 (Millions of yen) Previous fiscal year (As of March 31, 2021) Current fiscal year (As of March 31, 2022) Liabilities Current liabilities: Notes and accounts payable – trade Electronically recorded obligations – operating Short-term borrowings Current portion of long-term borrowings Accounts payable – other Accrued expenses Income taxes payable Provision for bonuses Other Total current liabilities Non-current liabilities: Long-term borrowings Retirement benefit liability Deferred tax liabilities Other Total non-current liabilities Total liabilities Net assets Shareholders’ equity: Share capital Capital surplus Retained earnings Treasury shares Total shareholders’ equity Accumulated other comprehensive income: Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets 8,433 1,948 – 4,677 3,595 711 1,813 2,440 1,932 25,552 10,808 4,375 222 937 16,344 41,896 16,106 16,106 22,717 (3,491) 51,439 (587) 1,807 645 1,866 – 53,305 95,201 – 10 – 13,087 2,928 6,500 4,465 5,935 877 6,822 3,084 6,102 49,803 8,467 4,385 297 316 13,466 63,270 16,170 16,170 35,733 (7,444) 60,629 (359) 2,691 774 3,105 404 64,140 127,410 (2) Consolidated statements of income and consolidated statements of comprehensive income Consolidated statements of income (Millions of yen) Previous fiscal year (From April 1, 2020 to March 31, 2021) Current fiscal year (From April 1, 2021 to March 31, 2022) Selling, general and administrative expenses Net sales Cost of sales Gross profit Operating profit Non-operating income: Interest income Rental income Compensation income Other Total non-operating income Non-operating expenses: Interest expenses Foreign exchange losses Share of loss of entities accounted for using equity method Loss on investments in investment partnerships Depreciation Other Loss on sale of property, plant and equipment Loss on retirement of property, plant and equipment Total non-operating expenses Ordinary profit Extraordinary income: Gain on sale of non-current assets Gain on change in equity Gain on liquidation of subsidiaries Insurance income Total extraordinary income Extraordinary losses: Impairment loss Restructuring expenses Head office relocation expenses Compensation for damage Total extraordinary losses Profit before income taxes Income taxes – current Income taxes – deferred Total income taxes Profit Profit attributable to owners of parent – 11 – 65,830 37,475 28,354 17,015 11,339 10,844 9 90 – 96 62 83 196 207 221 83 31 691 0 26 – 57 85 223 89 956 1,809 – 154 3,232 7,696 2,519 (152) 2,367 5,329 5,329 95,712 50,525 45,186 18,543 26,642 1,130 1,904 25,023 8 67 36 172 285 49 431 160 43 90 51 – 242 293 – 5 825 202 – 155 349 1,539 23,777 7,918 (809) 7,108 16,669 16,669 Consolidated statements of comprehensive income (Millions of yen) Previous fiscal year (From April 1, 2020 to March 31, 2021) Current fiscal year (From April 1, 2021 to March 31, 2022) Profit Other comprehensive income: Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total other comprehensive income Comprehensive income Comprehensive income attributable to: Owners of parent Non-controlling interests 5,329 (742) 648 741 647 5,977 5,977 – 16,669 227 883 128 1,239 17,909 17,909 – – 12 – (3) Consolidated statements of changes in net assets Previous fiscal year (from April 1, 2020 to March 31, 2021) Balance, April 1, 2020 16,021 16,021 19,562 (3,255) 48,349 Common stock Capital surplus Retained earnings Treasury shares Total Shareholders’ Equity (Millions of yen) Restated balance 16,021 16,021 19,562 (3,255) 48,349 85 85 (2,174) 5,329 (0) (0) 0 170 (2,174) 5,329 (331) 95 (331) 96 Balance, March 31, 2021 16,106 16,106 85 85 3,155 22,717 (235) (3,491) 3,089 51,439 Accumulated Other Comprehensive Income Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total Total Net Assets Balance, April 1, 2020 155 1,159 (96) 1,218 49,567 Restated balance 155 1,159 (96) 1,218 49,567 – – 170 (2,174) 5,329 (331) 95 – 647 3,737 53,305 Cumulative effects of changes in accounting policies Changes of items during period Issuance of new shares – exercise of share acquisition rights Dividends of surplus Profit attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Transfer of loss on disposal of treasury shares Net change of items other than shareholders’ equity Total changes of items during period Cumulative effects of changes in accounting policies Changes of items during period Issuance of new shares – exercise of share acquisition rights Dividends of surplus Profit attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Transfer of loss on disposal of treasury shares Net change of items other than shareholders’ equity Total changes of items during period Balance, March 31, 2021 – 13 – (742) (742) (587) 648 648 1,807 741 741 645 647 647 1,866 Current fiscal year (from April 1, 2021 to March 31, 2022) Shareholders’ Equity (Millions of yen) Balance, April 1, 2021 16,106 16,106 22,717 (3,491) 51,439 Common stock Capital surplus Retained earnings Treasury shares Total Restated balance 16,106 16,106 22,714 (3,491) 51,435 64 64 Cumulative effects of changes in accounting policies Changes of items during period Issuance of new shares – exercise of share acquisition rights Dividends of surplus Profit attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Transfer of loss on disposal of treasury shares Net change of items other than shareholders’ equity Total changes of items during period Cumulative effects of changes in accounting policies Changes of items during period Issuance of new shares – exercise of share acquisition rights Dividends of surplus Profit attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Transfer of loss on disposal of treasury shares Net change of items other than shareholders’ equity Total changes of items during period Balance, March 31, 2022 16,170 16,170 64 64 13,019 35,733 (3,953) (7,444) 9,193 60,629 Accumulated Other Comprehensive Income Deferred gains or losses on hedges Foreign currency translation adjustment Remeasure- ments of defined benefit plans Non- controlling interests Total Net Assets Total Balance, April 1, 2021 (587) 1,807 645 1,866 Restated balance (587) 1,807 645 1,866 (3,650) 16,669 (3) (4,000) (4,000) 46 (3) 128 (3,650) 16,669 46 – – 53,305 (3) 53,302 128 (3,650) 16,669 (4,000) 46 – 1,644 10,838 64,140 – 14 – Balance, March 31, 2022 (359) 2,691 227 227 883 883 128 128 774 1,239 1,239 3,105 404 404 404 Previous fiscal year (From April 1, 2020 to March 31, 2021) (Millions of yen) Current fiscal year (From April 1, 2021 to March 31, 2022) (4) Consolidated statements of cash flows Cash flows from operating activities: Profit before income taxes Depreciation Amortization of goodwill Interest and dividend income Interest expenses Foreign exchange (gains) losses (Gain) loss on sale of non-current assets Loss on retirement of property, plant and equipment Impairment loss Restructuring expenses (Gain) loss on investments in investment partnerships Loss (gain) on liquidation of subsidiaries (Gain) loss on change in equity Insurance income Compensation income Loss on compensation for damage Head office relocation expenses Increase (decrease) in provision for bonuses Changes in retirement benefit asset/liability Share of loss (profit) of entities accounted for using equity method (Increase) decrease in notes and accounts receivable – trade (Increase) decrease in inventories Increase (decrease) in notes and accounts payable – trade (Increase) decrease in other receivables Increase (decrease) in other payables Increase (decrease) in income taxes payable (size-based business tax) Other, net Subtotal Interest and dividends received Interest paid Proceeds from insurance income Compensation for damage paid Proceeds from compensation Income taxes paid Net cash provided by (used in) operating activities Cash flows from investing activities: Purchase of investment securities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Purchase of shares of subsidiaries and associates Purchase of shares of subsidiaries resulting in change in scope of consolidation Other, net Net cash provided by (used in) investing activities Cash flows from financing activities: Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Purchase of treasury shares Cash dividends paid Repayments of lease obligations Proceeds from exercise of stock options Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period – 15 – 7,696 4,674 1,798 (9) 62 282 222 89 956 1,809 83 – (26) (57) – 154 – 928 (1,080) 207 (2,637) (1,771) 2,984 (51) (1,516) 43 478 15,320 10 (62) 57 (154) 159 (2,144) 13,187 (200) (2,383) (353) 497 (34) – 2 (2,471) – 6,000 (7,847) (331) (2,174) (76) 170 (4,259) 295 6,751 13,779 20,531 23,777 4,207 1,788 (8) 49 (35) (45) 825 202 – 43 (242) – – (36) 349 155 551 (188) 431 (4,583) (3,318) 3,440 17 859 143 1,005 29,390 8 (48) – (348) – (3,197) 25,804 (158) (4,742) (509) 53 – (7,074) (3) (12,434) 6,500 – (4,677) (4,000) (3,650) (84) 128 (5,783) 1,246 8,832 20,531 29,363 (5) Notes to consolidated financial statements (Going concern assumption) Not applicable. (Significant changes in shareholders’ equity) Repurchase of treasury shares The Company repurchased 922,800 shares of its own shares based on a resolution at the Board of Directors’ meeting held on November 1, 2021 and 339,800 shares of its own stock based on a resolution of the Board of Directors’ meeting held on February 28, 2022. As a result, treasury shares increased by ¥3,953 million during the current fiscal year. (Changes in accounting policies) (Application of accounting standard for revenue recognition, etc.) The Company has adopted the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020, hereinafter “Accounting Standard for Revenue Recognition”) and others from the beginning of the current fiscal year, and recognizes revenue at the amount expected to be received in exchange for promised goods or services when control of the promised goods or services has been transferred to the customer. However, in accordance with the alternative approach stipulated in Paragraph 98 of the “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 26, 2021), for domestic sales of goods or products, revenue is recognized at the time of shipment if the period from the time of shipment to the time when control of the goods or products is transferred to the customer is a normal period of time. In accordance with the transitional approach stipulated in the proviso of Paragraph 84 of the Accounting Standard for Revenue Recognition, the cumulative effect of retrospective application of the new accounting policy prior to the beginning of the current fiscal year is added to or deducted from retained earnings at the beginning of the current fiscal year, and the new accounting policy is applied from such beginning balance. However, the new accounting policy was not applied retrospectively to contracts for which almost all revenue amounts were recognized prior to the beginning of the current fiscal year in accordance with the previous accounting standard, applying the method stipulated in Paragraph 86 of the Accounting Standard for Revenue Recognition. The effect of the adoption of this accounting standard and others on the consolidated financial statements is immaterial. (Changes in accounting estimates) (Change in estimate of asset retirement obligations) In the current fiscal year, the Company changed its estimate of the asset retirement obligations that had been recorded as restoration obligations for the real estate lease contract of the former head office, specifically in terms of restoration costs and estimated period of use, in response to new information obtained about vacating the premises. The change in estimate did not affect operating profit or ordinary profit for the current fiscal year, but reduced profit before income taxes by ¥28 million. – 16 – (Business combinations) (Business combination through acquisition) The Company resolved at the Board of Directors’ meeting held on February 17, 2022 to acquire shares in Kyoto Semiconductor Co., Ltd. and thereby acquired the shares on March 24, 2022. (1) Summary of business combination 1) Name of acquired company and its business outline Name of acquired company: Kyoto Semiconductor Co., Ltd. (“Kyoto Semiconductor”) Business outline: Optical semiconductor business Development, manufacturing and sale of opto-semiconductor/composite semiconductor devices and modules 2) Primary reasons for business combination We determined that an alliance with Kyoto Semiconductor would allow for the maximum use of management resources of both the Company and Kyoto Semiconductor, generate synergies in a wide range of fields beyond the semiconductor field, and ultimately drive business growth of the two companies. Specifically, we expected that the alliance would generate synergies through joint development and delivery of new products and technologies in markets with significant growth potential, such as high-speed telecommunication and sensing markets, and through the use of each other’s sales channels for the expansion of customer bases. 3) Date of business combination March 24, 2022 (deemed acquisition date: March 31, 2022) 4) Legal form of business combination Acquisition of shares for cash 5) Name of the acquired company after business combination No change to the company name 6) Percentage of voting rights acquired 81.1% 7) Basis for choosing the acquired company Dexerials Corporation acquired the shares in exchange for cash consideration. (2) Period of the acquired company’s business performance included in the consolidated financial statements As the deemed acquisition date is March 31, 2022, the business performance of the acquired company is not reflected in the consolidated statement of income, as the acquired company falls within the scope of consolidation only on consolidated balance sheets. (3) Acquisition cost of the acquired company and breakdown by type of consideration Consideration for the acquisition Cash ¥8,557 million Acquisition cost ¥8,557 million (4) Details of major acquisition-related costs Advisory and other fees: ¥204 million 1) Amount of goodwill ¥6,825 million 2) Cause for goodwill (5) Goodwill resulted from the acquisition, its origin, and amortization method and period Goodwill originates primarily from expected excess earning power from future business developments. The difference between the acquisition cost and the fair value of the net assets corresponding to the equity stake acquired on the date of the business combination is recognized as goodwill. 3) Amortization method and period Goodwill is amortized using the straight-line method over 10 years. – 17 – (6) Allocation of acquisition costs At the end of the current fiscal year, we had not completed the identification and measurement of the market value of the assets and liabilities identifiable as of the date of business combination, and thus, the allocation of acquisition costs was not yet complete. The acquisition costs therefore were provisionally accounted for based on reasonable information available at the (7) Breakdown of assets acquired and liabilities assumed on the date of business combination (8) Estimated effect of business combination on consolidated statement of income and its calculation method based on the assumption that the business combination was completed at the beginning of the current fiscal year time. Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities ¥3,169 million¥2,025 million¥5,194 million¥1,699 million¥1,421 million¥3,120 millionNet sales: Operating profit: Ordinary profit: Profit before income taxes: Profit attributable to owners of parent: Basic earnings per share: ¥3,982 million ¥467 million ¥486 million ¥296 million ¥171 million ¥1,160.63 (Method for calculating the estimated effect) The estimated amount of the effect of the business combination is the difference between net sales and profit/loss calculated based on the assumption that the business combination was completed at the beginning of the current fiscal year and net sales and profit/loss on the statement of income of the acquired company. – 18 – (Supplemental information) (Employee Stock Ownership Plan (“J-ESOP”)) The Company has introduced an Employee Stock Ownership Plan (“J-ESOP”) as an incentive program to grant employees the Company’s shares for the purpose of increasing their motivation and morale to improve the Company’s stock price and business performance by more strongly linking their compensation to the Company’s stock price and financial results and sharing economic benefits with shareholders. The Company’s shares remaining in the trust are posted as treasury shares in the net assets section at the book value in the trust (excluding the amount of ancillary expenses). The book value and the number of the treasury shares at the end of the previous fiscal year and at the end of the current fiscal year are ¥3,103 million and 2,961 thousand shares and ¥3,065 million and 2,925 thousand shares, respectively. (Board Benefit Trust (BBT)) The Company has introduced a Board Benefit Trust (BBT) as a performance-based stock compensation plan for directors and executive officers (excluding directors who are Audit and Supervisory Committee members and outside directors; the same applies hereinafter) to more clearly link their compensation to the Company’s financial results and stock value and increase their awareness of contributing to better business performance and enhancing corporate value continuously over the medium to long terms by sharing the benefits of rising stock price and the risks of falling stock prices. The Company’s shares remaining in the trust are posted as treasury shares in the net assets section at the book value in the trust (excluding the amount of ancillary expenses). The book value and the number of the treasury shares at the end of the previous fiscal year and at the end of the current fiscal year are ¥62 million and 77 thousand shares and ¥54 million and 67 thousand shares, respectively. – 19 – (Segment information, etc.) (Segment information) Information on amounts of net sales, profit (loss), assets, liabilities and other items by reportable segment Previous fiscal year (from April 1, 2020 to March 31, 2021) Reportable Segment Optical Materials and Components Electronic Materials and Components Total (Millions of yen) Adjustment (Note) Consolidated Net sales Sales to external customers Intersegment sales or transfers Total Segment profit Segment assets Other items Depreciation Increase in property, plant and equipment and intangible assets 28,546 26 28,572 5,522 18,522 2,480 37,284 110 37,395 7,614 13,477 2,193 65,830 137 65,967 13,137 31,999 4,674 – (137) (137) (1,798) 63,202 1,798 65,830 – 65,830 11,339 95,201 6,472 1,627 1,162 2,790 1,042 3,832 Note: The amount of adjustment for segment profit of ¥1,798 million is the amount of amortization of goodwill that does not belong to any reportable segment. (Reference) Net sales by region: Japan ¥22,704 million Taiwan ¥7,205 million China ¥20,696 million ¥8,007 million Other South Korea ¥7,215 millionCurrent fiscal year (from April 1, 2021 to March 31, 2022) Reportable Segment Optical Materials and Components Electronic Materials and Components Total (Millions of yen) Adjustment (Note) Consolidated Net sales Sales to external customers Intersegment sales or transfers Total Segment profit Segment assets Other items Depreciation Increase in property, plant and equipment and intangible assets 49,049 109 49,159 13,127 25,921 2,377 1,429 46,662 532 47,195 15,304 27,349 1,829 9,555 95,712 642 96,354 28,431 53,271 4,207 10,985 – (642) (642) (1,788) 74,139 1,788 1,089 95,712 – 95,712 26,642 127,410 5,995 12,075 Notes: 1. The amount of adjustment for segment profit of ¥1,788 million is the amount of amortization of goodwill that does not belong to any reportable segment. 2. Assets of Kyoto Semiconductor Co., Ltd., which became a consolidated subsidiary on March 24, 2022, are included in the assets of the “Electronic Materials and Components business.” (Reference) Net sales by region: Japan ¥25,577 million Taiwan ¥20,771 million China ¥24,809 million Other ¥10,553 millio