Nitto Denko Stock

Thank you very much for participating today's Annual Investors Meeting despite your busy schedule. This is today's agenda. Nitto RISE 2028 Mid-term Management Plan. And then we are going to talk about mid- to long-term growth drivers. We have divided this section into 2 parts. And then finally, we will touch upon financial strategy and the capital management policy.

Now this is the positioning of the new mid-term management plan. In this MTMP, we are aiming to become essential ESG Niche Top company by 2030 and actual initiatives will be shown later on, but Double recognition is that -- the growth through Double recognition is going to be the focus of Nitto RISE 2028. In terms of business performance, well, against the result of FY '25, in FY '28, we are aiming to achieve JPY 220 billion of OP, 20% OP margin, and then ROE, 14%. For FY 2030, we are aiming at JPY 240 billion or more OP and 20% or more operating profit to revenue and then ROE, 15% or more.

Now let me explain about the definition of Double recognition. This is our internal recognition system. Now Flags recognition first. For example, environmental-friendly products or products that contribute to human life are certified as Flags recognition. I have shown you recognition criteria here. And the other one is Niche Top recognition. This is a differentiation strategy targeting a #1 market share in niche fields. And in order to be recognized as such, we need to secure a top market share and a strong performance. Double recognition products are going to fulfill those 2 recognition criteria, and we are going to expand such Double recognition products and services. By doing so, we would like to hit the balance of the creation of economic value and contribution to the society. It's not about just generating good business results. We would like to make contribution to the world so that we can enhance corporate value.

Now in FY 2025, the percentage of Double recognition products represented about 40% of the total sales. We are planning to bring it up to 50% in 2030. And you see the breakdown of the approved products. And you also see the actual items of future candidate products for Double recognition. They would include like a Digital Interface product groups such as components for AI/AR glasses. And the other components for semi Green Tech area would include gas and solvent separation as well as the ITO films for solar batteries. And the other category is Human Life that would include oligonucleotide DDS and CDMO for oligonucleotide therapeutics.

Now how we are going to compete on this Niche Top strategy? First, we have technology leadership in high-end category. So that's very important area. And then depending on the changes in the business environment, product life cycle will eventually change and the product life cycle will move on to -- from high end to middle end and the low end. So the middle-end category sees more competition. However, we can expect more volume. So we aim to offer high value-added products, and we aim to enhance our cost competitiveness so that we can generate good cash in middle end. And finally, low-end area, we will consider withdrawal, exit, or business transfer. And partially, we will consider option to generate cash through licensing opportunities.

So this is a triangle or like a pyramid where we see businesses in different stages. Now our system behind the consistent success in creating Niche Top, we have dominant overwhelming technology first, and we have Sanshin-activity. We have #1 share in customers. And by enhancing our presence in certain customers, and then we can capture their following needs, and we can deliver what they need in a speedy manner at high level of perfection. And also, we have strengths in supply chain management, IP management. By leveraging these strengths, we can further enhance the presence in the same customers.

And then we will receive first call for the second needs from the customers. So this is a very good cycle, positive cycle. And this is how we are competing with our products. This is a number by segment. So FY '28 OP margin JPY 220 billion. And green is Industrial Tape, blue Optronics. And in FY '28, the peak, this is Human Life. We are expecting this Human Life to represent about 5%. Now we are going to establish a well-balanced business portfolio. In doing so, we would like to grow Human Life category.

About Industrial Tape and Optronics, we focus on this, especially for this, we have the items for automobiles and CISFLEX, AI/AR materials and also ITO film for the solar batteries, for industrial batteries, semiconductor process, semiconductor materials, components, they are organic. But in terms of product portfolio, we will continue changing them. And then, while we try to raise the level of revenue for existing segment, and we make sure that the composition would be optimal.

Next is the investment to support the growth. This is back -- on the left-hand side, we have the former plan. The total capital expenditure was JPY 263.3 billion. And then these are the breakdowns. And then on the right-hand side, we have the new, medium-term plan. And at this point, so here, the capital expenditure would stand at JPY 300 billion to JPY 400 billion, which is larger than that of the previous plan. And then about the segment, it is about the same. But one thing to note is shown here.

This is related to semiconductors. We decided to make further investment for the semiconductors. So out of JPY 300 billion to JPY 400 billion, about JPY 63 billion would be spent on this investment for semiconductors. As we will explain in the Industrial Tape in the case of semiconductors, process materials would be a larger part. So we make investment for this part. And then in the case of Optronics, here, we make investment for the advanced semiconductor materials.

From now onward, I'd like to explain to you the mid-term to long-term growth drivers. I'd like to explain to you how we making priorities. First is the Digital Interface. We have had the smartphones, which are the digital terminals and also digital centers -- the digital infrastructure meant for digital centers or data centers rather. And then for the existing, we will move on to flexible sensors or AI/AR glasses components. We try to commercialize all these in the years to come. Then here, we will focus on semiconductor-related businesses. So this is the next focus area. This is for the expansion of the current business. So process materials will be expanded even further. And then we will have the semiconductor substrates or packaged materials for advanced packages. So mid-term, long term, we will make sure that these are the pillars of our businesses.

Then within the framework of the semiconductors for infrastructures, the wastewater treatment membranes for the semiconductor manufacturing processes, we have already received inquiries about this from our potential customers. So we plan to focus more on this area. Let me touch upon the growth themes in the semiconductor segment. On the left-hand side, we have a target state. The pale blue shows the existing business, the process materials, for semiconductors, this will grow as shown here, this is our projection. Then on top of that, we will have the dark blue area for which we will have more focus. There are 3 areas. One is the semiconductor substrates and package materials, for example, thin substrates for chip mounting or sheet type electronic component and also, one more thing, which have been already explained to you at the investors meeting last year. high-speed interconnect interposer, which have been jointly developed with IBM. We continue to have investment and try to make sure that we have good communication with our customers and have the commercialization effort toward the year 2028.

We will focus also on the process materials. So here, the total amount would be -- the revenue target would be JPY 100 billion or more. Again, this will be one of the major access or major pillars of our business. Next is AI/AR smart glasses. In terms of application trend, we talked about the shift from VR to AR. Then at this point, we insert one more stage, which is AI glasses. That means that it does not have any images, but still, there is a possibility of them enabled to be able to enable to take pictures. So this is the AR glass and application or business opportunities here in terms of engineering is materials for holograms or the adjusted -- light adjusted IT AR and also some of the activities meant for the light control or the -- and also for the high definition and narrow width and flexible resistance.

Now we would like to move on to the next stage, which is the Perovskite solar cell. And here, this shows the potential change of the market size for the Perovskite. In here, the market size in 2030 would be 110 gigawatts. And then in 2040, that will be about JYP [ 4,500 billion ]. So we will have the 500 billion -- excuse me, we have the IT films, which would serve as the electrode for the OPV. And so what is the strength of our IT film? For the touch panel technologies, we have the low, the -- we had various activities. For example, we had thin ITO films with low resistivity and high transparency. And so that means that it is possible to acquire a large amount of the solar light. And also in the case of low resistivity, it means that we will have very high level of conversion efficiency. And that's the reason why we are receiving very high valuation. And so we will have commercialization in the year 2028. And in the year 2030, the amount of revenue would be about JPY 10 billion.

Moving on, I will speak about the kind of activities we have for the market for the foldable smartphones. This bar chart shows the optical clear adhesive revenue forecast or OCA revenue forecast. This blue part is the foldable. But in terms of applications, this is -- this shows the number of units of the display. So that means that we will see the expansion of the market for the foldables in the future. At this point, it is about 7%. So the foldable explains about 7% against the total market, but still, the rate seems to be higher than expected.

Compared with the flexible or rigid panel, foldable is soft and flexible. So that means that the necessary OCA layers will be larger. That means that it is conducive to the expansion of the demand and some of the functions needed is anti-reflection and also shock resistance and the decrease of fold creases. It has been the request that we are receiving, and we have been working on the technological development.

And next point is the total solution. We are handling various components. So if we are able to integrate all these into one, then that means that we are able to reduce cost for the customers or raise productivity in their manufacturing. So it is important for us to complete each and every layer and have good communication with the customers. And then finally, we'll be able to suggest or provide total solutions so that we are able to make a contribution for the society.

For the high-end smartphones, electrical release tape, and cushion shock absorption, we have different technologies here, and this is the size of the business so far as of 2025 and the evolution of displays such as foldable and right to repair, which is a sustainability theme are now emerging as new trend. So we would like to respond to those emerging trends so that we can make more than 17% CAGR for revenue.

Now in terms of sustainability initiatives, I've introduced -- we've introduced the right to repair, electrical release tape, we have an intention to expand and also recycling -- recycled materials would probably see larger demand in the future. So we would like to catch up with those themes. Now evolution of displays, i.e., foldable. As I mentioned earlier, with OCA, under the theme of industrial category, we see emerging needs of foldable. For example, panel bonding for foldable display and protection for moving components as well as shock absorption. Customers are seeking more functionality than the conventional adhesives. So if we take revenue of OLED as one, we expect 2.1 size of revenue for foldable. So we would like to catch up with this trend. Now be it OCA high-end -- be it high-end tape, we need investment. And actually, we are making investment in Toyohashi new plant. So electrical release tape and OCA production capacity is being expanded currently through the CapEx.

In the past, we've had one plant for Industrial Tape, another plant for Information Fine Materials. But this new Toyohashi plant, this plant will cover both electrical release tape and OCA. So we are adding new production line. And we are using DX and we are also going to introduce highly automated equipment, and this will be the eco-friendly equipment. And the production capacity will become 1.7x bigger compared to FY '25. And the construction already started. And from FY '28, we are going to use the first unit to -- for Information Fine Materials and then the first unit for Industrial Tape. So the mass production in this plant is expected to start in FY '28.

In terms of the growth of the Automotive Display Business, Well, you see the market trend here. The panel unit is not growing. However, area, because display is becoming larger area is growing more than the number of panels. And we have polarizing films in this display panel. And we've partly started mass production of polarizing film, but OCA front panel such as light anti-reflection are now coming in. So not only polarizing films by offering more product, we would like to make growth towards 2028 in this Automotive Display Business.

Now this is about CISFLEX for HDD. As you know, recently, the data center demand for AI is very strong. And this strong demand is expected to continue and even grow in coming few years. So if you look at the sales volume forecast for CISFLEX, we believe we can maintain stable, steady growth going forward. We already have high share. So by closely monitoring what's happening in the market, we would like to secure supply capacity on our end.

So that's all from myself. Now I would like to hand over to Katayama, our CTO.

Now I would like to introduce part 2 of mid- to long-term growth drivers from a Human Life segment perspective. Human Life segment can be divided into separation film Personal Care and also Oligonucleotide business. So I would like to take you through one by one.

Now this is oligonucleotide-related business. This market is growing at a pace of 20% per annum. In the past, this is only targeting at rare diseases, but now it's finally used as a main modality of the major diseases. Now our oligonucleotide CDMO business in this time mid-term business plan is planning revenue and profit growth. CDMO, due to the nature of CDMO business, we need to make sure that we are involved in new clinical trials. But at the same time, some clinical trials can be discontinued. So we see a reshuffle of the pipeline constantly.

But last year, our biggest expectation on hepatitis B treatment made a good result on Phase III of the clinical trial. That was a very good news. And finally, this hepatitis B drug is very likely to be launched in 2027. We are communicating with customers toward the launch, initial shipment, and the mass production. This -- the characteristics of this new hepatitis B treatment is as follows: Conventional hepatitis B treatment was about the prevention of the proliferation of the virus. So the treatment has to be taken for a very long time, oftentimes for the rest of the patient's life. But this newly developed hepatitis B disease is directly working on the cause, pathogen. As a result, hepatitis B itself can be cured. The potential number of patients is set to be 250 million people in the world. So we believe we can make long-term contribution to the human kind, and we are planning to generate profit.

And also for the synthesis of oligonucleotide, polymer beads are necessary, and we offer such polymer beads. In this time, MTMP, we have a strong expectation on the polymer beads, the currently available oligonucleotide and to be launched new hepatitis B treatment. On top of that, we have other major products where we have a very strong presence. Going forward, the global rollout of the big commercial therapy, we can expect upside. We already have Miyagi new plant up and running. And this year, San Diego new plant is going to start operation. With those, now we have sufficient capacity.

Also about the oligonucleotide, we have our own expertise. So we have been continuing our drug discovery effort. But in recent years, it is not that we try to aim for the final -- the completion of the drug discovery, but rather we try to focus on DDS or Drug Delivery System. So we have been focusing on the platform technology development. At this point, we are focusing on certain areas. For example, the blood cancer, autoimmune disease, or congenital hereditary diseases, which are the intractable diseases. Take a look at the conventional cell and gene therapies on the left-hand side.

First, the blood is collected and transported to the outside organization at the appropriate medical institution. The cells are processed and then it is fed back to the patient. It requires a long time. So -- and also, it is a huge burden for the patients. But now, what we try to do is to introduce cell-targeted DDS. That means that oligonucleotide will be delivered to targeted cells. And then within the body, in vivo, the cells are potentiated and normalized. In this way, we are able to reduce the cost of care and physical burden through process simplification. This physical burden reduction is the most important point here. And with this concept in the last 2 years or so, we have been working on the R&D. So what we are covering is in vivo CAR-T cell, which is the target. And we are very successful here in the animal study.

And at this point, we are thinking of licensing out of this technology. We try to have communication, and also the consultation, and also discussion with the large pharmaceutical companies. So what we try to do is to provide platform technologies. In this way, we'll be able to have the penetration of this oligonucleotide technologies.

Then I'd like to speak about the Separation Membrane Business. When I say separation membrane business, there are many areas to be covered. And also, there are a lot of market segments. At this point, we are focusing on the collection and the reuse of materials. And the focus area -- one of the focus areas is semiconductors. To look back, we have been providing the high-purity water for the production of electronic materials and the semiconductors. So we have been focusing on the RO membranes and UF membranes, namely reverse osmosis and ultrafiltration. So this also is expected to be expanded. And at the same time, we have the problem of the Strait of Hormuz that has resulted in the fragmentation of the supply chain. And also many people are focused on the enhancement of the preparedness for environmental protection.

So here, many people are thinking about the recycling of the precious water resources. Same holds true with the semiconductor region. So what we try to do is to focus on the collection and recycling of the water from the manufacturing processes of semiconductors and the membranes necessary for that are the area of our expertise. Especially important is the RO separation of water and also solvent. So this is a total solution that we are trying to provide. And we have been successful in these films of the effluent treatment and solvent separation. Up until recently, up until now, we have no other choice but to focus on the previous method of the incineration or biological treatment. But now we are having the new technologies, which is more favorable in terms of development and also, economically.

And so with the wastewater treatment, we have the treatment membranes, it is already handled and used in the water treatment industry, but especially important is the niche area of semiconductors. So we are quite sure that we'll be the #1 or de facto #1 position. So we have membrane to have the -- to create high-purity water and also to have the membranes for the recycling of the water. And here, our aim is to have JPY 10 billion for the year 2030.

The third point is the Personal Care Business. In the past, we had parts or components for the diapers. So recently, we are trying to look into the new area. So what we try to do is to cultivate the customer base to create new accounts so that we are able to provide highly differentiated products. So we -- this is a major shift for us. And here, this is the new -- the left-hand side, it says new account sales expansion. So we try to come up with the new ones, new products with this here. What we try to do is the pouch film, which -- what we try to do is adhesive-free stretchable materials for diapers or biodegradable non-woven fabric wipes for babies or thin pouch films. And also fem care, also what we try to do is the new material -- new products with the thin film technology and anisotropic thread technology, which is meant for the feminine care and adult diapers.

And also one more thing is the shock absorbing films for mobile products. So these are the application areas where we have -- we are seeing the increase of the actual commercialization for the Personal Care Business, after we were -- we successfully acquired a new company, we are seeing the increase of the revenues. So our major characteristics related to this business is improving. And we try to have this kind of the multi-faceted growth technology or growth strategy.

That's all for me. For the next theme, the financial strategy and capital management policy will be handled by the Iseyama, our CFO.

Thank you very much. I will explain the financial strategy and capital management policy. This will be explained by Iseyama. There are 3 pages. So please take a look at this slide. This shows the overview or a major point of what I want to communicate to you. Please take a look at the blue area. We have the profit growth. At the end of -- in the final year of the mid-term business plan, the operating profit should be JPY 220 billion. And the second point is the capital efficiency. The goal is ROE 14%. So these 2 are the profit growth and capital efficiency improvement. So what we try to do is to balance growth investment and the -- of the profit growth and the capital efficiency. This is what we try to do. And there are various -- there are very important measures we have to take, which is namely, the cash allocation and balance sheet management.

Finally, we have the financial stability and the shareholders' equity ratio at this moment is about 80%, plus or minus. This is important. This is not only for the final year, but rather for each year, we make sure that we will keep shareholders' equity ratio of 80%. So this should be the maximum amount. This is the upper limit guidance. For the cash allocation, we try to balance growth investment with shareholder returns at a high level. And for the balance sheet management, we try to create a lean balance sheet, which is focused on the ROIC management. So each business division, we use the ROIC management so that we are able to have a lean balance sheet.

First is about cash allocation. I'd like to explain to you the details of cash allocation. To the left, you see the previous MTP operating cash flow, which was JPY 565.6 billion. So that was the operating cash flow generated already. And in this time MTMP, we are going to achieve -- we are going to aim at JPY 600 billion. And the second bar graph, says cash sources on top, cash sources for the allocation. So let me explain about this. Now JPY 600 billion of operating cash flow and also cash and deposit. This is the necessary working capital to grow organically. And then on top, we have debt. This is for potential inorganic growth such as M&A. So when we have an M&A deal, we would like to use that. And then in between cash sources and allocation, there is one line.

So if we exclude M&A, you see shareholder returns. Currently, total payout ratio is 60% or higher as a target. And then CapEx, JPY 300 billion to JPY 400 billion. So when you look at this bar chart, shareholder returns, CapEx and in between the are graded color. This means CapEx of JPY 300 billion to JPY 400 billion is set as a target in a range. In the last previous mid-term business plan, CapEx was JPY 263.3 billion. So we are expecting a CapEx higher than that. But this range, JPY 300 billion to JPY 400 billion is the key. So we don't set the target exactly. We believe JPY 300 billion is very likely, but this additional JPY 100 billion, we will be deciding later whether we want to use it for shareholder return or CapEx. So we take this extra JPY 100 billion as a buffer. We scrutinize every investment opportunity and then try to hit the balance. That's why we set CapEx in a range.

Finally, balance sheet management. And you see the concept image here for cash on hand. Some people said that our cash on hand is too much. But this time, we set upper limit of cash on hand guidance. We set appropriate level at 3 months' worth of average monthly revenue. We take it as an upper limit. Now working capital and the current asset. These will be mainly composed of various business units. So through the ROIC, our aim is to improve the turnover. Now to the right, you see shareholders' equity and debt. For shareholders' equity, we set the upper limit of the shareholders' equity ratio guidance at 80%. And that's the plan for this time MTMP. So we don't really have an intention to further enhance equity ratio. Rather, we set the upper cap. And then we save the rest for the potential big M&A opportunities. And then we are going to utilize debt -- interest-bearing debt.

This is how we are trying to hit the balance or our balance sheet management. Especially for the working capital, we are trying to optimize cash conversion cycle, CCC. CCC has been used as one of the KPI, but we have an intention to improve this further so that we can generate more cash in shorter duration. Now for the investment decision, we look at the capital cost. So we look at ROIC and WACC spread. We are aiming to generate a better spread through the investment, and that's another key here.

Finally, challenges in the new MTMP. First, we promote customer-driven Niche Top strategy. This is Nitto's winning formula. If you remember that triangular formula, we have a good presence already in the customers. And so that now we are in a good position to receive first goal to generate another business. And also, we are linking Nitto's core technology with growth market. We have various technologies, but not all of them are tightly connected to the market needs. This is a potential for us. So those needs in the core technologies are to be connected further, and we are going to identify specific theme.

And cross-border management focused on people. We are a Japanese company, but we are doing business and competing globally. So not only Japanese, but also our people working in our global group companies needs to be able to work in a good working environment. So we would like to create such environment and culture. And we would like to demonstrate results through numbers. So we need to generate good results while making contribution to the society.

And then towards 2030, now we have a new MTMP. But those target number needs to be fully in line with our core strategy. Starting this April, we have a new management team. What we will be carrying on is Challenges, Flags, Sanshin-activities, Niche Top strategies. Those things will not change even under the new management team. And this new MTMP, we will be pushing up the composition of products and services that are Doubles recognized. And we will aim at well-balanced business portfolio such as HLS. And also for the product portfolio, we would like to make further transformation of the product portfolio so that we can enhance our corporate value. So I would like to ask for your continued support. Thank you very much for your listening.

Would like to move into the Q&A session. Please feel free.

Thank you for your explanation. I'm from Citi Group Securities. I'm looking at the business opportunities on Page 13 about the semiconductors. So your core technologies are very much in line with the kind of technologies needed in the field of semiconductors. But like I understand that you have the research about POF with the Professor Koike of the Keio University and the -- also you had some production technologies, the research. But again, back then, it was very difficult for you to reflect that on to your business outcomes. So could you tell us a bit about your understanding of the challenges in the next 3 years, especially about the bar chart on the Page 13? So could you make a breakdown for that?

Thank you for your question. Thank you very much for your question. In the past, we have been focusing on the process materials or process components, but we have new themes here. And here, we are seeing the increase of the requirements or needs for semiconductors, and that's the reason why we have shifted the attention. There are 3 things -- the semiconductors, we have been doing 3 things here. And then we have -- we are already teaming up with the outside partners. So we are focusing on certain things.

And also to a certain extent, it is increasing the percentage of the achievement of our business plans. So I like to continue reporting to you about the progress, your target revenue would be JPY 220 billion.

And what would be the percentage of semiconductors against this JPY 220 billion?

Well, as can be seen here, well, about the size of the revenue, operating profit being about 30%.

So I think you are able to calculate this figure based on this. Well, that means that will be 10% or 10% plus. Is that what you mean?

Yes.

Then the second point is about the M&A. In the -- you had Mondi and Bend, which have been acquired in the mid-term business plan 2 times ago. But in the previous mid-term business plan, you were -- you did not have the large M&A. And then the other day, you had the announcement of the earnings for the third quarter. And you said that you had the -- you were discussing M&A. But the March, you announced the share buyback. So that means that the -- you are not thinking about the M&A at this moment. So could you tell us a bit about the changes that have been -- that you are observing here? And are you thinking of having the M&A or a large-size M&A for the next midterm business plan. So it would be the Mondi kind of human life or tech-related M&A in the area of semiconductors?

Well, about M&A for each segment, we are not making -- having any discussions here, but we may have some contribution for the equity. And so whenever we have opportunities, we will continue looking at this seriously.

So in terms of this -- for the budget, you are utilizing interest-bearing debt. So could you tell us a bit about the size, about the figures?

So at this point, the interest-bearing debt has not been put into the budget. So we learned from the previous experiences. So for the mid-term plan, we -- in the past, we had some figures based on the projections for the M&A. And at this point, it is 14%. And in the previous M&A figure, we were thinking of realizing the percentage of 15%. But based on the lessons learned, we said to ourselves that the M&A is still uncertain. So we decided not to incorporate that into this.

So the figures that we are presenting to you is based on the organic businesses that we have as a basis. So in terms of the actual figures. So whenever we have some of the opportunities, we will decide on this. But still, we try to make sure we will stick to the discipline of the finance. That's all.

Next person in E1, please.

I am Watabe from Morgan Stanley. So I think your -- today's message is that you are going to focus on semi, including separation film. If I look at Page 13, I guess the profit of semi is mainly coming from display, but for '28, '30, you are expanding your semi related businesses. But for semi materials, we are going to see more consolidation. I'm not sure if those consolidation will be relevant to your business, but how do you see those opportunities? Semi Materials consolidation when that happened last time, I think your name was included. In order to buy time, you may want to do big M&A, but what's your approach? And I think the current mainstay is the process material, but how do you see the potential change over time in the competitive landscape?

Yes. Thank you very much for your question. Regarding your point on consolidation, of course, it's ideal if we can do everything by ourselves. but supplementary technology, we may want to buy or we may want to buy time. Whether or not the size of the M&A is going to be big or not, but we have a flexible approach to the potential collaboration with the external parties. For process materials, including for AI application, it's booming nowadays. The volume is growing at heat resistance and then chemical resistance, process yield, all those new things that we need to secure to fulfill the needs of the customers.

My second question is the oligonucleotide CDMO business on Page 21. I think you have a different color code for the breakdown of revenue forecast. Number two, hepatitis B, the one on top in blue, in this fiscal year, it will grow, but next fiscal year, it will come down. But then the clinical part is expected to grow in the future. Can you give us more colors on like customer CD&E. And the CDMO business seems very competitive globally. Not many companies are making good profit out of the CDMO. But how are you planning to win in this business?

Now on the breakdown of this bar chart on Page 22, sorry, I cannot offer you details. But for hepatitis B, toward the initial shipment, we've already started mass production. So when this is kind of complete, we may see some negative rebound, and that is already a part of our forecast. But when it comes to the new innovative therapy, this kind of negative rebound is something we cannot avoid, but that is already factored into our forecast number. And other projects are in Phase II, Phase III, and it really depends on the success. We do have our KPI and we multiply certain coefficient.

Do you use such objective KPI. What about the profitability?

Well, CDMO business is very competitive. And our share is not as high as before. But the project number-wise, we are still in the top share. So we need to have richer pipeline. We need to make sure that we have a team which has high success probability.

D1. Person in D1.

Takayama from Goldman Sachs. So I'd like to speak -- ask you some questions about the details and also the entire picture about the foldable. I understand that you have been preparing for the foldable technologies. But this year, I understand that you have not been able to have the insertion of the foldables into the market just a little bit. So could you tell us a bit about why it was very difficult for you to have a large amount? And also, could you comment on what you do for the years -- next year after that and also after that?

And as can be seen here, looking at the smartphone market as a whole, the percentage of foldable is very limited. So in that respect, our customers have not decided on the direction of technologies. Sometimes they say this kind of technology or function is needed. And then after that, they would say something else. But the amount of the stage of the mass production for a certain model is limited. And sometimes they would say that the timing was -- there was a mismatch of the timing, and we say that there are some situations where we have to suffer from that.

And then in the case of smartphones, every year, the new models are inserted into the market. So they work on the design and then they would go into the mass production. And then many of the customers are working on the designing of the model for next year. And then there could be the requirement for the technologies. And then in that situation, we have to make sure that we would have technological -- the strength here. That will be the starting point of our strength.

So -- however, this having been said, if you have a small amount at the entry level, you have difficulty. But still at this point, can you safely say that it is possible to have larger percentage of share in the years to come?

Yes.

And then next is about the overall picture. You talked about the Double Recognition. So this is quite new. Could you tell us a bit about the reason why you have to have Double Recognition? So there are many things that are required from the society. And then why is it that you have to have the Double Recognition? Do you think -- could you tell us a bit about the rationale behind it? I'm not sure whether this would make sense. So the cash flow issue is having a good momentum. And then that will be the JPY 600 billion worth of the cash flow for the mid-term plan, then automatically, does it go to the return for the shareholders? Could you make a comment on this? So maybe these are 2 questions.

For the year 2030, we try to have our vision here. And so do we have to become the essential ESG Niche Top company. So there could be many things that is related to ESG. So that will be the environment and also we are able to solve social issues. And at the same time, we have to make sure that we have good revenues or profit. So these are the 2 goals that we have to have. So the measure here is to have the increase of the double recognized products or Double Recognition. That would be conducive to the achievement of the goals for the year 2030.

So by having the Double Recognition, maybe are there any possibilities that you will not be able to issue some of the products into the market because of the distance of Double Recognition?

No, not at all. We will see the increase of the percentage of the Double Recognition or double recognized products, and we make sure that we will have a contribution for the society. In this way, this would boost the corporate value.

About the cash flow question. Allow me to answer your question about the cash flow. And earlier, I think I explained in my presentation, for this mid-term business plan, the cash flow, the operating cash flow would be the JPY 600 billion. And here, the utilization, how we use is the return to the shareholders and the capital expenditures. And then so the priority is unchanged. But we always prioritize investment, but where we don't have any favorable investees, then in that situation, we have to go back to the balance sheet. And as I said, the cash and the equity ratio has the upper limit. So that means that if the -- in that situation, without that, then we have to go back to the shareholders' returns.

I understand that. So this is about JPY 100 billion. If you have the result, which is over JPY 600 billion, and then the M&A is we make it to the certain figures. And then there is a cap for the equity ratio and also cash and cash equivalent. In that situation...

Well, we have not -- in some cases, we could have the return for the shareholders. And also in the future, we will also think about the investment. So to a certain extent, we have to have accumulated cash. So I'm not able to disclose actual figures for that. So we look at the situation and then try to make a judgment here.

Next person in G1.

I am Miyamoto from SMBC Nikko. Earlier, you talked about your challenge under new MTMP. You assumed the position of CEO in April and now you're in new MTMP. What is your priority KPI? I think it's going to be top line, but is it really the case? Or would it be like OP margin or OP itself, ROE?

Conventionally, our company is committed to operating income, not top line. So we've prioritized on operating income. If we start seeking for top line, we will have to go for like a share increase while reducing cost. But Nitto's way of doing business is basically to make sure that we have a good business in high end, which is high-end area, gives us good margin. And then eventually, after the life cycle, the product will come into middle end, low end, and then we also follow those.

My second question is on Page 18. Your new plant in Toyohashi. This is a very big investment for you. Can you give me more colors on this? For example, or like other than battery bonding, you may want to go into other applications for electrical release technology? Or like are you getting business opportunities on new smartphone application or for OCA, you have foldable application? Do have you had like more visibility into such? for Industrial Tape information, film materials, it seems like the borders between different business units have been lowered now.

I think we presented to you OCA chart here. This shows our sales plan compared to '25, '26, we see -- we are expecting a nice growth in '28. And this is the industrial for high-end tape, including electrical release. '28 is in this new MTMP period, but we are expecting continued growth even beyond 2030. And those are factored into our investment plan.

Now Toyohashi plant details. In the past few years, we've been promoting HR rotation. So for example, like in the past, people who are working in the industrial business had always stayed within the industrial business. But now we've been promoting people rotation, and that is helping us to enhance cross-functional communication to lower the barrier between different BU.

So you made an investment decision. That means for OC and tape, you have a good visibility into the future sales forecast?

Yes.

If possible, for electrical release tape, like what's your plan to expand from the current battery bonding for smartphone to the others? Like are you still looking into smartphone application? Or are you looking at like a non-smartphone application?

Last year's presentation, I've made a comment saying that application is almost infinite. So starting with smartphone battery to the actual like a body frame or the other application, that's how we see the potential. So if in the case of battery bonding, we are going to expand the customers in the same application. And for body frame, there were some schedules postponement on the side of customers, but we've been continuing our R&D activities so that we can meet the needs from different application.

D3.

I'm from Nomura Securities. I have my first question. You have been talking about the growth strategies. So I'd like to ask you a question about the kind of the businesses that you see some challenges. Page 7, you have been trying to pursue Niche Top strategy. So you try to have the royalty business for the highly competitive market. So at this point, you have the middle market -- middle end market. And then in the future, you will think about the structural reforms. So could you tell us a bit about the kind of the market or business segment where you see some challenges?

Well, we have difficulty giving you the actual concrete discussions. So our business is basically B2B. So in the case of B2B, we are covering various industries with various areas with various customers. So we are conducting business as such. And then looking at the economic situation, for example, there could be some decline in the industry. And then in that situation, certainly, we will look at the trend of the business in line with the transition of the industry as a whole. So we try to make a judgment as early as possible and try to work on the -- kind of the structural reform for these businessses.

My second question is again about the semiconductor field about your strategy. Please refer to Page 13. You said that this kind of thin substrates for chip mounting would make further contribution then in the year 2028 or 2030. I understand that there could be a major shift of the technology in this field. For example, panel level package or the glass core substrate or silicon bridge embedding. So against these changes of the technologies, could you tell us a bit about your core technologies relative to the potential changes?

Thank you very much for your question. For these themes, 3 themes that I explained, we collaborate with external partners and we are having discussions. And also, we are presenting our technology, and they are evaluating our technology level. And certainly, there are things that we have not been able to cover. And also sometimes the customers are looking at the future technologies, and they try to realize these new technologies with our core technologies.

So sometimes the customers are looking at the new technology, the brand-new technologies for their devices, and they are now looking at Nitto's technology, which is not existent at this moment. So that means that we are now getting into these initiatives when the technology changes.

So what are some of the changes of the technologies? Do you have any -- for this?

Well, we are now discussing things with external partners. So we are not able to disclose that at this moment.

Person in H2, please.

I am Nishihira from Okasan Securities. I have a couple of questions. CEO, Mr. Akagi, I think this is your first time to do your annual investors meeting. And I have a question relating to corporate governance. Takasaki-san and Akagi-san, what's your roles and responsibilities? And Akagi-san, you oversees the company as a whole. And is there anything that you would like to change at the company level, in terms of like how it was done before and in terms of the problems that you see.

So I am a COO. So when it comes to the overall company strategy direction, I consult with Takasaki, and I am a COO. So I am more in charge of execution itself, and that's my main mission. Now what I need to do is the portfolio transformation and forging next growth pillar, such as like semiconductor business. And internally, as we mentioned before on structural reform, but further utilization of DX AI, digital technologies, that will also be a part of my mission.

My second question is about semi-related business separation film. Semi manufacturers, when they introduced the separation film system, their equipment and your separation film? Well, I guess, semiconductor manufacturer wants to sell this as one system. And that means that introduction cost is going to be expensive. From a semi manufacturers perspective, would that make an economic sense? So semiconductor manufacturers can only recycle like solvent after using separation film?

With regard to this system, as been presented, we are closely working with customers. And as you said, from environmental perspective, there is a big and clear benefit. The question is that would that make economic sense? Currently, incineration, biodegradation, treatment, those are currently done, but this require big space vertically and horizontally. And after such process, the company needs to pay a lot of disposal cost. So from OpEx, CapEx perspective, we believe our film treatment system is in advantageous position. That's been already acknowledged. So the question for us is how we can expand this business.

F1, please.

Please. Allow me to ask you 2 questions. My first question about the Double Recognition that you talked about earlier. You gave us the explanation, you talked about some of the products and the -- if they're -- you talked about several products today and are there some of them which are outside of the scope of the Double Recognition. And also, when you say Double Recognition, they are also the global Niche Top. So that means the differentiation is already there. That means that it is high end, profitability is high. And also, we are able to say that the entrance barrier is high. So is this the correct understanding?

The second is how you create -- you select Flags product. So Flag, you have the Flag products. And if you focus too much on the Flags, that means that you will focus on the -- you will place emphasis on the ESG rather than the profitability. So could you tell us a bit about how you have the criteria of the Flags?

Please come back to this chart. We explained this here. So we have the candidate products shown here.

So I understand -- so that means that they are -- they have not been recognized, right?

Yes. So the ones already recognized is shown here -- is not shown here. They are the mass produced products. So we have Flags and Niche Top products. So in the case of Niche Top, we have to pay attention to the share and also profitability. And so we have to see the level of commercialization and make sure that will be included in the double recognized product arena. We have the existing products and then at this point, we have the level of -- the operating profit level of 18%, but it should be higher than that.

For the Flags, yes, you have a point. We do not focus too much on the profitability -- well, in the case of the Flags, we have to pay attention to the profitability. So in that respect, it is important to have KPI of Double Recognition. So even if it is a Flags, we make sure that it is profitable as well. So certainly, we have the existing products. And then internally, we try to secure that kind of a fear for our management purposes.

Earlier, you gave us the list of the candidates. So that means that they will be the recognized items in the year 2030. So that explains the 50%. So this red part will become blue. At this point, it is red, but in the year 2030, that will be blue, they will doubly recognized. So is this the kind of image or vision you have?

Yes.

Then -- so when you say double recognition, that means that it doesn't make sense if it does not fill the 2 criteria. So you try to win in the Double Recognition, especially in the semiconductor or electronic materials, China is gaining momentum because of their national policy. They are providing subsidies and also as a government, they are inserting a large amount of the management resources. Then certainly, it is a capital gain, and this should have a strength in the mass-produced products.

But in the case of your company, you are focusing on Niche Top. So in that situation, you don't have to have direct competition with the companies from China. So that means that you are not having the harsh competition against China. So could you tell us about your take on that? So for the year 2030, how do you see China? Even if China is now inserting a large amount of management resources into this arena, do you think it is possible that you will be able to win over China? Could you tell us a bit about some checkpoints?

So I show you the triangular chart. High-end, middle-end and low-end. This is a chart we have shown you. We try to focus very much on high-end products or high-end area. This is also about the non-semiconductor products. For example, for the material -- display materials, sometimes we start from high-end and then we go down to middle-end, low- and then sometimes the supply chain would go to China.

So we have already explained that. So for each business, we try to make sure we understand the stages for semiconductors, depending on the business environment. We are not able to expect the products to remain in high-end forever. It will go down to middle-end and the low-end. So the point here is to what extent we are able to create new high-end products.

So about the differentiation who is China, that should be for the first call. So you -- your strength on the combination of various technologies and your capability to make a proposal to the customers at an early stage. Is that the determining factor for your success?

Yes. So the starting point would be the large share. We should be #1. And so we receive the themes for the new themes from the customers, and then we realize that. And the customer would say Nitto is the right partner. However, having said that, every year, they have new models and with the change, they will incorporate new technologies. And then in a situation, they would have the new materials, and we will be the one to -- for them to give the final -- first call.

And so if we are able to do this securely and tightly, then we are able to have a strength over the customers. And in this way, we will have the -- we will be the partner of choice for these customers in the next time around. So we try to expand the scope of products in various fields.

The person who's sitting in, A1 please.

I am Watabe from Morgan Stanley. I have one question. The display is now shifting from LCD to OLED. And for -- it seems like when this switch happens, your share is dropping for some reason. Why? Can you explain? If my understanding is not correct, please correct me.

Polarizing film for smartphone, when we look at that, volume-wise, China -- well, we see big volume for China and non-North American customers. So the total share remains the same.

What about the strong brands?

We are struggling in penetrating those strong brands. But in some part, they are adopting our film. But again, every year, their model changes. They come to us every time. So it really depends on how strong our proposal can be.

F1 again.

Allow me to ask you the second time. The -- I'm from Mizuho Securities. I have 2 questions. First is again about the semiconductors, about the theme of the growth for the semiconductors. Please refer to Page 13. This is about -- it say roll-to-roll process. So that means that you are talking about the 2D processes. So mass production of the 2D products. So you are talking about sheet type, the electronic products, interposers, and also semiconductor, the ICs.

So the role, you are able to work on that in the form of the films and also external partnership. So some of them are producing substrates and others are making packages and also the chips and dies and all these different people would be involved, so with the collaboration of these people. So that means that are you thinking of formulating the syndicate so that it is possible to have the exchanges of information with these people for the semiconductor, the board and also packaging materials. So for the areas you want to grow, could you tell us a bit about the level of the commonalities here?

About the roll-to-roll process, yes. And so everything is the roll-to-roll process. So this is our core technology. So that means that we utilize roll-to-roll process and make the best use of that strengths. For example, this kind of shape in the substrates or sometimes we are able to have competitive advantages in terms of cost. So in various themes, we try to make the best use of roll-to-roll technology. Interposers as well, for the OLED interposers or sometimes for the thin films, I'm not sure what you are trying to make with this. But you are talking about the -- with the commercialization in the circuit, the materials. So by introducing roll-to-roll process, you are able to work on the increase of the trust, the credibility and also it is possible to have the best out of the mass production.

Yes. My second question is about M&A. Could you also give us more explanation about the M&A and cash flow? Operating profit is JPY 200 billion and the operating cash flow for the 3-year total will be JPY 600 billion, which seems to be small. And so could you confirm these figures first and foremost? And also about the past, the cumulative operating profit. And then in the situation, clearly, this seems to be smaller than the past. So this is a confirmation.

And the second point is about M&A. As was mentioned, Nitto Denko has been very strong. You have a niche field, and then you are -- sometimes in the case of semiconductors, you are not going to the liquid systems. And so this -- can we safely assume that you will not go to the areas where you have strength. So that will be too risky. Could you give us your take on that?

Thank you very much for your question. First is about the cash flow. In the previous mid-term business plan, the cumulative figure was the JPY 656 billion. So it is not that we are conservative this time. So it is in line with the plans based on the calculation, that will be JPY 600 billion. So apparently, it doesn't seem to be too small. And then about M&A.

Yes. As was mentioned, we are not thinking about going to a totally different world. So we try to focus on the existing products or technologies, and we try to maximize our synergy based on what we already have.

Again, the confirmation. In 2028 in March, the earnings would drop. That's the reason why you have the lower operating cash flow.

No.

Person in G1, please.

I am Miyamoto from SMBC Nikko Securities. I have a couple of questions. Number one, Page 19 on display for auto. If it's a case of the polarizing film for auto, you have a top market-leading position. Are you able to maintain this competitiveness? And also as -- in compared to the market growth, it seems like your growth expectation for auto application seems weak. So what's the background? And which one do you expect more like OCA or something else?

It's about area. Area is growing. But for automotive display, there are different categories, high-end, middle-end, low-end, as such. And high-end category is all about performance, higher performance, higher reliability, larger view angle, like all those high value-added products are in high-end, and that's our priority focus. And at the same time, we have different way of doing business in middle-end. Inclusive of low-end, the market is expanding, and we are going to maintain high share in high end to do these numbers.

And to your second question, the big part -- well, the 2025 numbers are actual, and these are OCA. So while growing OCA and light controlling ITO is something that we would like to grow further in '27 and '28.

Understood. My second question is the impact of Middle East situation. In your earnings call, you're talking about the impact of raw material cost increase. Can you give me the update on solvent procurement? For industrial tape, biggest competitor is 3M, who has a big business in America. So what will be the impact in relation to that? And what's your competitive position against the smaller GP makers?

In terms of the procurement, our procurement group has been tightly communicating with suppliers every day. We don't see major issues for now. And we have secured necessary raw materials in coming few months, but the cost is indeed going up. So the question is how we can pass on those incremental costs to the actual product price, and we are scrutinizing the potential impact and already working on the potential price increase negotiation.

The impact on the like smaller-sized manufacturers. Those smaller-sized manufacturers are not able to procure certain materials, so they are now coming to us and place order with us. Against 3M was the situation. Seems like the impact of Iran war is marginal, minor. No issue with procurement. But cost-wise, how we can further minimize the cost impact is still an ongoing challenge.

H3, please.

I'm from Nomura Securities. I have one question about the figure that you have presented. Please refer to Page 9, Optronics. So this is JPY 220 billion of the impact of the 2028, 65% is Optronics. So vis-a-vis the simple calculation, that will be JPY 143 billion. So that means that your plan in 2026 would be lower than the JPY 150 billion. So this is a slight decrease. Could you tell us a bit about some of the drops of the potential of some of the product? Maybe there could be some adjustment of the figures. So could you explain the background of the figures?

So we don't have any negative segment for the adjustment. So the image of this is that from 2025 to 2028, there will be a slight increase for the Optronics, so there is no decrease.

In the case of OCA and the display for automobiles, you talked about the growth drivers. So are there any figures, the reasons, any factors that would temper with the -- or that will be the negative against these positive figures.

Display market or industry is already mature. So that means that cost competition will be much harsher in the years to come. So that area would be somewhere that we are behind.

D1.

This is my second question. My name is Takayama. I'm from Goldman Sachs. So you talked about the Middle East. So I understand that there is a firm contract for several months. So I understand that you will have no problem for -- in the years to come. So procurement would not be a major problem. So that will be the main scenario. The price negotiation for Q1, we have guidance already. But when the price goes up further, there will be a widened gap. And that's something that we need to expect.

Incoming -- well, we have visibility in coming few months. But given the current circumstances, our supplier cannot really commit in coming 6 months or so. So we would like to continue communication. For pricing, when price goes up, are we able to pass on everything to the sales price? The answer is no. There is still a gap. But that gap is not material enough to impact our business performance.

My second question is about semi, thin substrate for chip mounting and also sheet electric components. What is the expected application? And can you also explain about why these items are needed? Sorry about this basic question.

It's difficult to answer. But to give you some clues, like thin -- it says thin substrate for chip mounting. So the thinness is required in this application. So that will -- that might be a key to your question. And for the sheet type product, due to the confidentiality agreement with the customers, I cannot offer you more details.

Okay. Now conventional strength of you reside with devices. But recently, AI server, physical AI, those themes are quite booming. Can you target at those? Can you think about targeting at those in a booming application right now like toward like 2030?

Yes.

With this, we'd like to close the Q&A session. With this, we'd like to close Nitto Denko -- thank you very much for your participation for a long time.