Investor relationsManagement policyMessage from the President

We are steadily advancing the medium-term management plan launched in 2021 with strategies to generate sustainable growth and further enhance our corporate value. In the fiscal year ended March 2023, we achieved record levels for both consolidated net sales and recurring profit. We are continuing to strengthen our current businesses and actively developing new business areas as we seek to further accelerate our business growth.

Fiscal 2023 Performance

The Group’s operating environment continued to be unpredictable with tightening restrictions on semiconductor exports due to the friction between the United States and China, soaring raw material prices and energy costs, the prolonged depreciation of the yen, and the unstable international situation. In addition, the semiconductor and flat panel display (FPD) sectors are in temporary adjustment phases. Although some signs of a recovery in demand have appeared, as initially anticipated, the severe order environment is continuing.

The Group accordingly took steps to minimize the impact from reduced sales in the semiconductor and FPD sectors by aggressively pursuing orders in the iron and steel, industrial machinery, environmental and energy, and other fields. For sustaining growth, we also worked to develop markets for the medium and long term, create new technologies, further reduce costs, and improve our production efficiency.

The Group’s consolidated earnings results for the second quarter of fiscal 2023 were net sales of ¥22,971 million, a decline of ¥1,025 million or 4.3% year on year; operating profit of ¥4,295 million, a decline of ¥1,285 million or 23%; recurring profit of ¥4,590 million, a decline of ¥1,442 million or 23.9%; and net income attributable to owners of parent of 2,985 million, a decline of ¥933 million or 23.8%.

Future earnings outlook and business direction

We expect the current conditions to persist into the near future, including the soaring costs for resources and energy due to the increasing regional conflicts around the world as well as the slowing growth in the Chinese economy, which is a key driver of the global economy. As a leading company in surface modification technology, we will continue to take a longer-term perspective on investing in the development of high-functional coatings and new coating processes as we maintain our position at the forefront of the coating industry.

In the semiconductor field, we are currently investing to ensure we are well positioned for when the demand cycle turns upward by increasing our production capacity and strengthening our ability to meet demand for miniaturization technologies. We are also formulating an order system that will be capable of handling the anticipated increase in demand.

At the same time, we are developing our operations in the environment and energy sectors to become a pillar of our business. We are beginning to see results from our ongoing efforts to identify client needs and strengthen our ability to offer integrated solutions through our sales, manufacturing, and technology departments. We are developing our technologies, strengthening our sales capabilities, and improving the quality we offer to ensure we attain the targets of the medium-term management plan.

We are also applying ESG-oriented management aimed at realizing a sustainable society, including measures to reduce greenhouse gas emissions, increase cooperation throughout our supply chain, promote diversity in our workforce, and manage human capital. We are actively working to achieve the sustainable growth and enhance our corporate value to become a 100-year company.

Shareholder returns

TOCALO considers returning profits to shareholders as an important management measure, and we are actively working to enhance shareholder returns by distributing profits in accordance with our performance results. In consideration of our performance in fiscal 2022, we raised the annual dividend by ¥5 per share to ¥50, representing a dividend payout ratio of 41.4%.

In fiscal 2023, we plan to maintain the annual dividend of ¥50 per share, for a projected dividend payout ratio of 51.7%.

We do not follow a set numerical target for the dividend payout ratio. Our approach has been to emphasize maintaining a stable dividend with a target of the dividend payment representing a minimum of 33% of profits. We have set a new objective to raise this amount to roughly 50% of profits.

In May 2023, TOCALO decided to acquire up to 2 million or ¥20 billion worth of outstanding company shares and retired 2 million shares. The acquisition and retirement of treasury stock is considered an effective means of returning profits to our shareholders, and we intend to execute similar programs in the future while taking into consideration the business environment and financial situation.

Status of the medium-term management plan

Our main focus continued to be the semiconductor field. Although currently in an adjustment phase, we are certain the semiconductor market will continue growing into the long term, and we are steadily investing for the sustainable growth of our company. We are investing in developing technologies and boosting production as well as in improving productivity, such as by automating our production sites. In the semiconductor manufacturing process, we are broadening the applications of our surface treatment processing technology by developing technologies for our core etching equipment and also for other semiconductor manufacturing equipment.

We are also developing new markets for our products outside the semiconductor field, including in core industries in Japan, such as steel, paper pulp, chemicals, ceramics, and non-ferrous metals, as well as environmental and energy fields. We believe we can increase our business opportunity by using our proprietary surface modification technology to support new initiatives by clients to achieve carbon neutrality.

In the environmental and energy field, the increasing use of storage equipment for renewable energy is bringing attention back to rechargeable batteries. We have been developing coatings for rechargeable batteries for many years, and we expect this development to lead to new business growth for our technology. We are also advancing various products in the field of wind power generation, which also has promising growth prospects.

We are also seeing the gradual emergence of opportunities in new business fields, such as agricultural machinery and medical equipment. The medical field is particularly promising for technologies we have cultivated in the semiconductor business, and we intend to leverage our strengths to grow our business in that field. We plan to step up investment to develop technologies for cultivating new business areas. The growth strategies in the medium-term management plan are producing results in each business field, and we are steadily establishing management foundations for sustainable growth in the future.

Continuing our drive for sustainable growth to become a 100-year company

The COVID-19 pandemic is finally winding down, but one of the ongoing areas of concern for our business is geopolitical risk, specifically from US-China relations and situation in Ukraine. As we construct business models to sustain our high market shares, we also need to strengthen our business continuity plans to ensure we can continue providing our services through any type of event, including a natural disaster. At the same time, we are strengthening our human resource base and steadily applying the ESG management initiatives outlined in our medium-term management plan. Everyone in our company is actively working to achieve the sustainable growth that will make us a 100-year company.

We sincerely appreciate your continued support and encouragement.