Condensed Transcript of Q&A Session at MGC’s FY2023 Results Briefing
Date/time: May 10, 2024 (Friday) 5:00-6:00 pm (webcast)
Presenter:
Masashi Fujii, President and Representative Director
Motoyasu Kitagawa, Director, Managing Executive Officer, responsible for Corporate Planning and in
charge of CSR & IR Division
Kosei Kondo, General Manager of Finance and Accounting Division(Note about this transcript)
This document has been translated from the Japanese original for reference purpose only. In the event of any discrepancy between
this translated document and the Japanese original, the original shall prevail.
This transcript was edited for clarity and brevity at the Company’s discretion. Additionally, forward-looking statements, including
plans and targets, contained herein, like those in the briefing’s presentation materials, are judgments based on information in theCompany’s possession as of the briefing’s date and certain assumptions deemed reasonable by the Company. Forward-lookingstatements involve uncertainty. Actual outcomes may differ substantially from such forward-looking statements as a result of variousfactors.

Q1: With regard to the impairment loss in the Republic of Trinidad and Tobago, is it correct to say that theimpact of the loss in your company’s equity in earnings of affiliates is 7.4 billion yen? Also, what is thebackground behind this impairment loss? Will there not be a similar impairment loss at the other threemethanol production sites?
A1: As you say, the 7.4 billion yen is the amount of impact in the Company’s equity in earnings ofaffiliates on a yen basis. Regarding the cause of the impairment loss, Trinidad does have some special
factors compared with other sites. The first is an issue with the sales portfolio. I cannot go into detail, but
the market conditions in the main sales target area were extremely bad last year, and export logistics
expenses have also increased dramatically. The second is an issue concerning gas contracts, the content
of which prevented us from obtaining a sufficient spread between gas cost and methanol selling prices
under recent methanol market conditions. At other sites, these factors are not present, and we plan togenerate solid profits during this medium-term management plan. The third factor is that the book value of
non-current assets was extremely high as we have just started operations in Trinidad.
Q2: What impact will the withdrawal of the MGC Filsheet Osaka Plant have on the sheets and films
business? Also, the structural reform of the PC business was mentioned in the recently announced
medium-term management plan. Could you provide some details of that?
A2: The withdrawal of the MGC Filsheet Osaka Plant has already been decided, and we are now in
preparations for it. The current fiscal year is still early, but in the lead up to FY2026 we believe we need tomake an improvement in the billions of yen. The structural reform of the PC business will be explained at
the presentation meeting for the medium-term management plan on May 17.
Q3: In electronic materials, sales have recovered since the last fiscal year. The current fiscal year, sales
have increased even further, and inorganic chemicals have also delivered further growth. Wafer sales
volumes have not really recovered, but it appears that you plan to steadily expand BT materials, OPE,and chemicals for use in semiconductor manufacturing in light of their increasing use in cutting-edge
processes and the emergence of OPE demand related to AI. Is this understanding correct? Also, arethere any risk factors?
A3: In BT materials, sales have steadily recovered each quarter in the last fiscal year. We expect sales tocontinue increasing for all applications in the current fiscal year also; with significant year-on-year growth
expected for the first half compared with lackluster performance in the first half of the last fiscal year. In
the industry, full-scale recovery in demand is expected from July onward, and for 1Q there is a possibilityof a partial recovery. In 2Q, we expect a full-scale recovery, with a possible peak during 3Q. Replacement
demand for smartphones equipped with AI and so on is also likely to have a positive impact for
stimulating demand for BT materials. OPE, which is also growing, is expected to continue to see solid
demand for use in AI servers.
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EL chemicals (chemicals for use in semiconductor manufacturing), which are inorganic chemicals,
continued to see weak general demand in the last fiscal year, but profits exceeded the forecast as a resultof various cost improvements undertaken at overseas subsidiaries. In addition, for users in South Korea,
demand for hybrid chemicals for new fields such as HBM increased. Currently, demand is weak; however,
the adoption of EL chemicals in new product lines in Japan, South Korea, Taiwan, and the United States
is making steady progress, and we expect to see growth in demand for super-pure hydrogen peroxide
and others. With the miniaturization of wiring and increased complexity of manufacturing processes, theamount of chemicals used by one advanced fab is increasing, and from this fiscal year onward, we expect
EL chemicals to become a key profit driver alongside BT materials
Q4: In chemicals for use in semiconductor manufacturing, the recovery of weak demand forpreprocessing has been slow, with chip inventories remaining, while for cutting-edge applications,demand for electronic materials BT and OPE is emerging ahead of others, mainly for AI services and thelike. Is that picture of the situation correct? And if so, if wafer launches increase from around July, I
suppose we should see further expansion of chemicals for use in semiconductor manufacturing, mainlyfor HBM. Is that thinking along the right lines?
A4: I think that assessment is right. To add to that, in the background, demand for chemicals for use in
semiconductor manufacturing is still weak among our North American customers, who are the biggest
users. I think that as a result of that, in the last fiscal year, demand for chemicals used in front-end
processes was somewhat weaker than BT materials used in back-end processes.
Q5: How fast are you expecting BT materials and OPE to grow from the last fiscal year to the current
fiscal year? Can we understand that smartphones will be the main driver of growth in BT materials? Doyou also see an increase in factors driven by the emergence of AI smartphones? With regard to OPE,
how have you factored in the fluctuation in share of PCB customers to earnings forecasts?
A5: We are expecting BT materials to show strong growth in sales from the last fiscal year to the current
fiscal year. These figures are not at all surprising considering the poor performance in 1Q and 2Q of thelast fiscal year. We are expecting demand to grow in general, for general materials, low thermalexpansion materials, materials for high-frequency applications, and materials for BGA, where we havepromoted sales expansion. In terms of volume, the main growth is in low thermal expansion materials for
smartphones and so forth, which we expect to drive growth from the current fiscal year and onward. With
regard to OPE, the AI server market is said to be growing 200% per annum, and our customers’ forecasts
also show strong demand projections. Given concerns of supply chain bottlenecks and inventory
formation, we have taken a somewhat more conservative approach to the current fiscal year compared tothe market view; however, we still expect year-on-year increases in sales and profits.
Q6: For OPE, can we take it that you are able to maintain an extremely high market share? Also, in termsof low-thermal expansion BT materials, is there any other positive factor in play other than simply growthin smartphones? For example, is there any benefit from increased functionality?
A6: For OPE, if you include a wide range of similar materials, the Company’s share is small. At this stage,
however, there does not appear to be any move toward acquiring our share in the fields where ourstrengths lie. There have not been any specifically large changes in the fields that we have protected,
although this depends also on how the end users evaluate our OPE customers. For low thermalexpansion BT materials, we have factored in a recovery in demand for memory for data centers and thelike.
Q7: In the broad definition of BT materials, do you expect to benefit from AI servers and so forth, forexample?
A7: The spread and advance of AI-related devices are also a tailwind for BT materials in our view.
Q8: I have a question about the increase and decrease factors for operating profit on page 15 of thepresentation materials. Within the minus 25.6 billion yen for “Others,” JSP’s deconsolidation makes up
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minus 6.4 billion yen, leaving a real negative factor of minus 19.2 billion yen. What kind of negative
factors are included here?
A8: A significant factor in this is a sharp increase in repair expenses. From the current fiscal year, wehave introduced an allowance for repairs and recorded the allowance upfront, including for the following
two fiscal years. In addition, the current fiscal year is also a year for major regular repairs, making theincrease in repair expenses the largest negative factor. Furthermore, depreciation expenses have alsoincreased, excluding the JSP factor, due to continued major investments to date.
Q9: Repair expenses will increase in the current fiscal year, but will they drop in steps over the next two
fiscal years?
A9: We expect repair expenses to decrease over the next two fiscal years after the current fiscal year.
Q10: Are you going to continue recording European MXDA plant opening costs in the current fiscal year?
A10: We plan to continue recording opening costs in the current fiscal year.
Q11: In the year-on-year forecast for operating profit of aromatic chemicals, the decrease in profit for thecurrent fiscal year has been only around minus 4.0 billion yen even while there is a negative effect ofminus 6.4 billion yen from the deconsolidation of JSP. Considering also that opening costs at the MXDA
Europe plant and repair expenses and so forth will also weigh on profits considerably, what is thebackground to this forecast? Could you provide a breakdown, including positive factors?
A11: Around half of the negative factors are the absence of operating profit from JSP. Other factors
putting pressure on operating profit are a year-on-year increase of around 2.0 billion yen in repair
expenses, including allowance, for the Mizushima Plant, which is the main base for aromatic chemicals,
the recording of opening costs for the MXDA Europe site, and an increase in depreciation expenses foraldehyde equipment, which started operating in the last fiscal year. On the other hand, demand for MXDA
and aldehyde suffered in the last fiscal year, particularly in Europe and the United States, and have finallyreached a situation where demand recovery is anticipated. Our expectations are based on hearing thatinventory processing is now complete and that items are beginning to move. In other areas, we expect tosee growth in profits from MX nylon and xylene separators and derivatives. Overall however, we areforecasting that negative factors will dominate.
Q12: In major product groups by segment, specialty chemicals’ performance exceeded the forecast in thelast fiscal year. Which of inorganic chemicals, engineering plastics, and optical materials contributed tothis result?
A12: The largest improvement was from EL chemicals within inorganic chemicals. Overall demand is still
weak, but profits increased due to progress on cost improvements at overseas subsidiaries. In
engineering plastics, POM was somewhat lower than the previous forecasts, but PC was higher than theforecast, mainly due to strong performance at the subsidiary in Thailand and cost improvements. Opticalmaterials continued to experience favorable conditions, and performed in line with the previous forecast.
Q13: My question is about the repair expenses in aromatic chemicals. Previously, regular repairs in 4Q
each year tended to significantly reduce profits. From the perspectives of both expenses and sales
volume, will the recording of an allowance level these out going forward?
A13: As you have said, we have large and small regular repairs in alternate years, mainly occurring in 4Q.
With the repair expenses, our policy is to level them out over as wide a scope as possible; however, it isnecessary to distinguish the target equipment and construction work, so overall we plan to level out
around 70%. I can’t say that sales volumes will be generally leveled out since we also conduct inventory
management before and after regular repairs.

3Q14: Including the repair allowance, how much do you expect the current fiscal year’s repair expenses toincrease compared to the last fiscal year?
A14: We are expecting an increase of around 5.0 to 10.0 billion yen.
Q15: Regarding OPE, about what percentage of growth have you factored in for change in net sales forthe current fiscal year?
A15: For net sales, the volume factor is bigger than the unit price factor, and we are expecting doubledigit growth year on year.
Q16: Regarding your dividend policy, in the recent medium-term management plan, you have introduced
a progressive dividend policy. Can we interpret this as a sign of confidence that you can minimize
volatility in business results through measures such as business reorganization?
A16: That is correct. It is time to harvest the gains from the investments made to date, and we expect tobe able to steadily reap the rewards of these over the three years of the current medium-term
management plan.
Q17: You are forecasting significant profit growth in EL chemicals for the current fiscal year. Generally
one would expect large investments to result in a heavy depreciation burden, but the profit marginappears to be increasing. Is this partly attributable to an increase in added value, such as products foradvanced memory? Also, breaking it down by region, is there any region in particular where you are
expecting to see growth in the current fiscal year?
A17: With EL chemicals, we have customers who have unofficially signaled contracts and adoption rightin front of us, and in terms of reaping investments also, we expect EL chemicals to drive the entire Group
towards the final year of the medium-term management plan. In the current fiscal year, we are expecting
a full-scale recovery in demand in North America from the second half. In South Korea, we anticipate afull-scale recovery from the second half at the latest, and we also expect positive effects of demand for
HBM and so forth. In other areas, demand for cutting-edge semiconductors in Taiwan and increased
activity in Japan are expected to bring increases in sales and profits from super-pure hydrogen peroxideand super-pure ammonium hydroxide as well as hybrid chemicals.
Q18: In the medium-term management plan, do I understand correctly that EL chemicals is positioned
alongside BT materials as an earnings driver?
A18: Yes, that is correct.

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