Q&A at the Progress Briefing on Medium Term Business Plan
Reference: Material for the Progress Briefing on 2022-2024 New Medium Term Business Plan
URL: https://www.mitsuikinzoku.com/LinkClick.aspx?fileticket=%2bfkf7v9%2bD10%3d&tabid=227&mid=1027
Note:
PKG = Package substrate
HDI = High density interconnect—a printed circuit board with a high wiring density that serves
as a motherboard■Q&A Session
The person answering the question was President and Representative Director, Takeshi Nou.
【Total or multiple segments】
Q.
FY2024 (the final year of MTP22) results targets were not achieved due to lower sales andhigher costs. Could you share President's view on how your company could have gotten
closer to the results targets?
A.
Regarding initiative to improve social value, I believe, there is nothing to reflect. The initiatives
have been implemented thoroughly following the discussions with management members andmembers of the Board of Directors within or beyond expectations. Regarding financial value, I
deeply regret revenues are falling short of what we promised for earnings in FY2024. In eachbusiness, we left out the perspective of efficiency to some extent. Although catalysts haveboosted results, higher precious metal prices have reduced turnover leading to inefficiencies
and greater volatility. I think our management team did not take enough measures to addressthese points. Regarding MicroThin™, in response to the decrease in profit margins while
selling prices have not decreased, no action was taken until costs rose. Our management
team is responsible for this issue and regrets it very much. From FY2024, performance
evaluation metrics for Directors and Senior Executive Officers start to include efficiency
indicators. This will incentivize the heads of each business unit to focus not only on profit andloss but also on efficiency.
Q.
We are told that Ambidexterity and Integrated thinking-based management described at thebottom of P2 (Briefing materials) have been made more progress than expected. Could you
share more specifics than just the plan?
A.
Management methods are completely different for existing and new businesses. In order toincrease income in existing businesses, we need to focus on cutting costs and other shortterm issues, but in contrast, in new businesses, we need to invest with strong determination,
looking further ahead than in the foreseeable future. Before Business Creation Sector was
established, when I was the head of Engineered Materials Sector, there was a sector for
running existing and new businesses side by side. I found it extremely difficult to have both
existing and new businesses under the single sector, so I clearly divided the organizational
structure in MTP22. As I mentioned on the business briefing session last month, I believe,
Business Creation Sector is beginning to function successfully due to the organizational
reform as mentioned. Although the outcome is currently not in sight, this organization issowing the seeds for the next five to ten years.

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Q.
In addition to the business growth perspective, are you considering business cut? For
example, business management that cuts out businesses that do not contribute much toprofits and leaves only profitable businesses can be considered. Could you share yourthoughts on this?
A.
We have two options for business cut. For one option, if a certain product within product linesof each business declines in profitability, there is a way to stop the business even if it isprofitable and bring the personnel there to other businesses. For the other option, it is a way
to stop a business altogether. The areas targeted for business restructuring apply to thebusiness to be cut in terms of dynamic management of business portfolios. For example, forbusinesses that cannot be expanded by our company, it is unfortunate for those involved inthat business, which is why it is quite possible to cut out the relevant business. Mobility Sector
in MTP22 should be carefully monitored progress. We are currently reviewing Mobility Sector
including businesses in Mobility Sector.
Q.
Could you tell us what you are concerned about among the changes in the external
environment compared to when MTP22 was started? Costs are rising and Generative AI isgrowing considerably, in contrast to smartphones and other devices that are maturingsomewhat. This trend seems to be an opportunity for your company, but it has not led to any
business results. Considering the overall changes in this external environment, and in light of
the tailwind, what are your thoughts on the situation where business performance is struggling
to grow?
A.
Among the changes in the external environment since the start of MTP22, some werecompletely unexpected. For Engineered Materials, I did not at all expect to see such a brakeon smartphones, the supply destination of copper foils and engineered copper powders, andsuch a drop in semiconductors for about a year and a half. The higher the profit margin, themore profit is squeezed when sales decline. For this reason, we missed our target by quite abit. For another change in automobile industry, I think it was a big change for our company toexperience such a sharp downturn in the performance of Japanese companies in China,
which are our customers for ACT and catalysts. For metals, market prices are lower than theoriginal plan. Japanese yen depreciated against the dollar to nearly 160 yen. Rising energy
costs have nearly canceled out the benefits of yen depreciation. As a result, metal prices,foreign exchange, and energy costs had a negative impact in total. Another point I would liketo mention is our initiatives for carbon neutrality. Carbon neutrality is becoming more prevalentthan initially expected, and we've changed to work firmly on decarbonization such as
initiatives of Hachinohe Smelting described this time.
Regarding the topic that Generative AI growth is an opportunity for our company, our products
will contribute to the coming Singularity world with AI and other technologies, which will also
contribute to our company's profitability. For copper foil, engineered powders and HRDP®, weanticipate that business conditions will improve as such a world becomes a reality.
Q.
We’ve heard that FY2024 forecast deeply falls short of the initial target of MTP22 and thelong-term numerical target of 2030 will be maintained. Please kindly explain how themilestones are managed in case of a major deviation like this time. I believe that we shouldhave a few more additional actions as contingency plans for FY2024. Are there any
supporting factors to maintain expectations for the long-term goal of 80 billion yen?

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A.
There are two reasons not to change the long-term 2030 goal at this time despite the very
high volatility. For one reason, with such a drastically changing environment, we do not see
much reason to lower the target now. While automotive-related sales are becoming very
tough, development of products for automobiles is progressing such as copper foil and copper
powders for MLCC, so we can't find enough negative factors to change it in the long run.
We’ve just started discussion on our next mid-term plan MTP25. Verifying the certainty of 80
billion yen is part of the agenda. For the other reason, we believe that the themes in Business
Creation Sector including HRDP®, SE and carbon neutrality are progressing much better than
expected, and we expect to see growth in profits from them. Let me add one more thing. With
the introduction of WACC by sector for this time, we expect to see a turnover of our businessportfolio by FY2030 as we select and accelerate investments and accelerate mergers andacquisitions. For these reasons, we do not believe that the 2030 target should be changed
now, and we will continue to discuss this issue for formulating MTP25.
【Engineered Materials Segment】
Q.
Do you actually take action to raise the price of copper foil? Do you have any thoughts on thefeasibility of raising prices?
A.
Regarding raising prices of copper foils, we have priced by the square meter or kilogram, andif volume increases, we have lowered the price as a volume discount, and if volume does notincrease, we have maintained the price. Automobile manufacturers have been asking us tolower our prices on an annual basis, but we have taken the stance that we will maintain our
prices. However, as costs have risen so much, we cannot maintain the same prices as before,
and last year we raised prices only for a few customers who understood the situation. Since
the cost increase is even larger than the price increase, we are beginning to consider how toproceed with the price increase in FY2024. Negotiations for price increases also take time,
three or four months. Our competitors have been offering prices much lower than ours fromthe beginning, but we have not lost market share for MicroThin™ we have raised prices on.
We are proceeding to raise prices based on our overwhelming superiority in terms of quality,
delivery, and capacity. We cannot mention the specific period of negotiations or the extent of
the price increase, but we are in such a position.
Q.
High-grade VSP is considered to be the one that gets the tailwind from the generative AI. Are
there any particular changes in the competitive environment for this product? Please explain
whether the competitive advantage of high grade-VSP is at least as great as that ofMicroThin™.
A.
Regarding the competitiveness of high-grade VSP used in AI servers, we are overwhelmingly
strong. The reason for our strength is our development capabilities. Development takes placein Japan (Ageo City, Saitama Prefecture) and Taiwan, and collaboration is working well.
Manufacturing is performed in Taiwan. It is a very good match for our surface treatment
technology and roughening technology and other technologies that we have developed over
the years. Development in Taiwan is an overwhelming advantage. This is because we canwork closely with a large number of customers in Taiwan and China, and can develop
products that are suitable for customer's resin in advance of other competitors. Moreover, wehave a base not only in Taiwan but also in Malaysia, and our capability for mixing productionin Taiwan and Malaysia is an extremely significant strength of our copper foil products. Highgrade VSP is manufactured in Taiwan, and mid-range varieties that were manufactured in

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Taiwan are also manufactured in Malaysia.
Q.
The development system and roughening technology were mentioned as competitiveness ofhigh-grade VSP, but as a matter of fact, high-grade VSP doesn't require as much hightechnology as MicroThin™ and other copper foil manufacturers can also manufacture highgrade VSP according to my study. As for current market conditions, I have heard about themarket share for MicroThin™, but I would like to know what market share you have for highgrade VSP. Also, I would like to ask for comments on whether other companies can really
manufacture this product.
A.
High-grade VSP is not as difficult to develop and manufacture as MicroThin™. In a few years,
competitors may catch up with us with similar products, but by that time, customers' resin
products will have become more advanced, and we will need to develop new products tomeet their needs. We are more competitive than our competitors in terms of our capacity todevelop materials for products upgraded by customers. Even though this competitive
advantage is not as high as MicroThin™, we believe that we can and must maintain thecurrent level of market share given that we are developing this product in Japan and Taiwan.
Another strength is our capacity, and we can use a variety of facilities by changing the
manufacturing mix. Our advantage at this point is very strong, not so different fromMicroThin™. On the other hand, it is also true that unlike MicroThin™, high-grade VSP canalso be manufactured by competitors.
Although we do not know the actual market share of high-grade VSP, as it is unknown foreach customer, we are sure that the market share of high-grade VSP is overwhelmingly
strong, probably 70 to 80%.
Q.
If any of your company's products would benefit from generative AI, I think high-grade VSP isa definite candidate right now. On top of high-grade VSP, how much do MicroThin™ and
HRDP® benefit from generative AI?
A.
Servers also contain memory and modules, and AI servers need to increase their mounting
density to achieve faster processing speeds. For this reason, the demand for MicroThin™ and
HRDP® will increase for memory and modules, not substrates. We have not achieved
profitability at this point in time, but we expect to achieve profitability by 2030.
Q.
The market size of Nippon Yttrium is about 10 billion yen, which is small compared to copper
foil, etc. We have heard that it is still quite promising. Could you let us know more about how
promising it is?
A.
While there are only about three companies in Japan that handle rare earths, Nippon Yttrium
handles a variety of products, including recycling. I'll refrain from commenting on the market
size, however, 50 to 60% of Nippon Yttrium's profits are related to semiconductors, and we
expect to see growth in that area in the future.
【Mobility Segment】
Q.
Regarding ACT manufacturing automobile components, could you comment on review of the
MTP22 period until now and future prospects?

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A.
As of ACT, our current business environment is extremely severe as Japanese car
manufacturers in China are struggling very badly, and we have changed our businessstructure in Japan and China. In short, we have completed a series of structural reforms to get
the appropriate staffing numbers. However, since this is not enough for future growth, we
believe it is extremely important to have the development capability to become a door systemmanufacturer. Our global market share of door locks is more than 20%, and we are by allmeans competitive in making door locks. However, for the door system, we are in a very
difficult situation in terms of software development and linkage with ECU. Although we are
increasing the number of development personnel for this area, the hurdles are quite high, andI believe we must discuss how we can extend ACT business before the next mid-termbusiness plan. We recognize that the situation in ACT is becoming even more difficult thanthat at the beginning of MTP22.
【Business Creation Sector】
Q.
Packages used in AI servers are increasingly being mounted in multiple layers, andtransmission loss must be kept as low as possible. I think it would be easier to manufacture a
product like HRDP®. Could you give us your view on whether demand will increase ahead of
expectations?
A.
Products for AI are definitely moving in the direction of multi-layer implementation andheterogeneity. HRDP® demand increase is expected, but new products take time forcustomers to become accustomed to using them. I suppose it depends on when and how
soon. When demand increases in earnest, there is some concern about the first line in
GEOMATEC, including quality, so we aim to respond to the increase in demand by
introducing the second line. There is a line in GEOMATEC's facility that customers use toevaluate HRDP®, and customers frequently come there to evaluate the product with them, so
growth can be expected for those customers. HRDP® never cannibalizes MicroThin™. We
are very optimistic about HRDP®.
Q.
A new topic for solid electrolytes for all-Solid State Battery (ASSB) was that a new plant for
initial mass production is being considered. If the supply destination is for automotive
applications, I don't think a new mass-production plant will be built unless some degree of
adoption has been determined. I would like to hear your view.
A.
Prior to the construction of the new plant intended for the mass production of all solid-statebatteries, there is no specific product adoption being discussed at this time. Please
understand that we now have a very strong sense that our products will be needed for all
solid-state batteries no matter what angle we consider. We are currently in the process ofdesigning a mass production plant, and by the end of the first half of the year we will have aclear idea of whether or not the plant will be built, after considering this we will explain thedetails publicly. Since test products are almost never used directly by automobile
manufacturers for mass production, we assume that automobile manufacturers are the supply
destination of products from the initial mass production plant.

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