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Status of the Consolidated First Half of Fiscal Year 2023

Norio Kamiyama, Representative Director and President

Looking at the global economy during the consolidated cumulative first six months of the Fiscal Year Ending March 2024, in the USA, the economy benefitted from the firm consumption of services and other consumer spending thanks to a relatively favorable employment environment. On the other hand, the economy in Europe trended downwards as the elongation of the situation in Ukraine contributed to stagnant consumer spending. In China, the termination of "zero-COVID" policy led to a temporary recovery in consumer spending, but the pace of recovery later slowed on factors such as stagnant exports and a decline in real estate demand. In Japan, the economy trended towards a recovery.

Looking at the market environment influencing the Nippon Chemi-Con Group, overall performance on automotive markets was firm. Exports were favorable for automotive manufacturers thanks to the gradual alleviation of semiconductor shortages and yen depreciation, and demand for parts used in vehicle electrification also increased. Industrial equipment markets saw a slowdown in corporate capital investments due to uncertainty about the economy as various countries increased interest rates to address inflation. ICT markets continued to see inventory adjustments for PCs and servers for data centers.

Amid this operating environment, our Group steadily advanced the policies outlined in our 10th Medium-term Management Plan.

Our sales development efforts included working to increase sales of high value-added products to the vehicle electronics market and the ICT market, both of which are projected to see long-term growth. We also started construction on a new manufacturing wing at the Chemi-Con East Japan Corp. Miyagi Plant to increase production of hybrid capacitors to increase production capacity for highly profitable, high value-added products.

Our product development efforts included the development of new products for the KHU Series and LHU Series of snap-in type aluminum electrolytic capacitors to expand the selection of voltage ranges and sizes of products used in applications such as server power supplies. We also developed a supercapacitor module for large-scale facilities and other applications requiring use in high-voltage and high-current situations. Selling packages featuring 24 cells of supercapacitors connected in a series is expected to contribute to reducing labor hours related to the construction of high-voltage systems.

As a result of these efforts, consolidated earnings for the cumulative first six months of the Fiscal Year Ending March 2024 were net sales of 80,341 million yen (up 4.3% YoY), operating income of 5,123 million yen (up 5.6% YoY), and ordinary income of 5,320 million yen (up 10.8% YoY). However, net losses attributable to owners of parent were 22,781 million yen (previous fiscal year was net losses attributable to owners of parent of 514 million yen) due to having recorded extraordinary losses related to antitrust law.

It is with sincere regret that we have decided to forego issuing an interim dividend for the consolidated fiscal year ending March 2024. We offer our deepest apologies to our shareholders.

Status by Product Group

The consolidated first half status by product group is as follows.

  1. Capacitors (¥75,634 million, 94.1% of total sales)
    Net sales of the product group increased by 7.3% YoY due to increased demand in the automotive electronics market.
  2. Mechanical Parts and Other Parts (¥1,872 million, 2.3% of total sales)
    Net sales of the product group decreased by 11.6% YoY due to decreased demand for mechanical parts.
  3. Capacitor Materials (¥2,141 million, 2.7% of total sales)
    Net sales of the product group decreased by 34.5% YoY due to decreased demand for electrode foils used in aluminum electrolytic capacitors.
  4. Other Products (¥692 million, 0.9% of total sales)
    Net sales of the product group decreased by 41.3% YoY due to decreased demand for resale products.

Full-year Outlook

Looking ahead, the domestic economy is projected to trend towards a mild recovery. With the continued normalization of economic activities following COVID-19, an improved economy is expected to benefit from firm consumer spending thanks to an improved employment environment. Looking at the global economy overall, however, there remains the risk of economic downturn due to countries adopting policies of monetary tightening and the increasingly complex situation in Ukraine. As a result, we project the operating environment influencing the Nippon Chemi-Con Group will continue to lack certainty.

Our Group will continue to steadily implement the policies outlined in our 10th Medium-term Management Plan, including expanding sales of high value-added products, particularly hybrid capacitors, and increasing plant productivity.

On October 1, 2023, our consolidated subsidiary Chemi-Con Machinery Corp. was absorbed into Chemi-Con East Japan Corp. as part of a merger. On the same day, Chemi-Con Nagaoka Corp. was absorbed into Chemi-Con Yamagata Corp., and the corporate name was changed to Chemi-Con Device Corp. Through these mergers, we have consolidated related businesses and departments, which will enable us to reduce costs and accelerate the speed of business management.

To ensure the smooth implementation of the core policies of our 10th Medium-term Management Plan, we are planning on capital procurement via the third-party allotment of class shares. This agenda will take effect officially pursuant to a resolution at the Extraordinary General Meeting of Shareholders scheduled for December 22, 2023. Additionally, to allocate facility investment capital towards the growth sectors outlined in our Medium-term Management Plan, we also conducted capital procurement via the third-party allotment of common shares.

Nippon Chemi-Con and our subsidiary United Chemi-Con (hereinafter, "we/our/the Company") have reached a settlement with the plaintiffs in the class action civil suit (direct purchasers, indirect purchasers) filed in the USA in relation to electrolytic capacitor and film capacitor transactions. However, there are civil suits filed by multiple plaintiffs (hereinafter, "individual plaintiffs") who did not join the class plaintiffs (direct purchasers).

In June 2023, a verdict was issued by the United States District Court for the Northern District of California ordering payment of US $150.677 million regarding the civil suit filed by the Avnet, Inc., one of said individual plaintiffs, claiming compensation for damages. Believing this verdict to be unjust, we filed an appeal with the United States Court of Appeals for the Ninth Circuit. While we do not recognize any liability for compensation of damages, after a comprehensive evaluation of all relevant matters, in July 2023, we reached an agreement with Avnet, Inc. and three other companies to pay a total settlement amount of US $125 million and paid this amount.

With the payment of this settlement amount, the Company has been relieved of our obligation to pay US $150.677 million stipulated in the abovementioned judgment as well as the obligation to pay Avnet, Inc.'s attorney's fees that we would otherwise have had to bear.

Furthermore, in September 2023, we agreed to pay a total of US $75 million as a settlement with Arrow Electronics, Inc., an individual plaintiff whose settlement had not yet been reached.

As a result, all civil lawsuits filed against the Company in the United States seeking compensation for damages for violations of the United States Antitrust Law regarding electrolytic capacitors and film capacitors have been concluded.

Our consolidated full-year earnings forecast for the fiscal year ending March 2024 is net sales of 153,000 million yen (down 5.5% YoY), operating income of 10,000 million yen (down 22.7% YoY), ordinary income of 9,000 million yen (down 18.1% YoY), and 20,000 million yen in losses attributable to owners of parent (previous FY was 2,273 million yen in profit attributable to owners of parent). The assumed exchange rate is US $1 = JPY140.

December 7, 2023

Norio Kamiyama
Representative Director and President