FY2017 Financial Results and FY2017 Forecasts DISCO CORPORATION DISCLAIMER Statements in this PowerPoint with respect to DISCO's current strategies, plans, estimates, and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of DISCO. These statements are based on management's assumptions and beliefs in light of the information currently available to it and therefore you should not place undue reliance on them. DISCO cautions you that a number of important factors could cause actual results to differ materially from those discussed in the forward-looking statements, and you should not make decision on your investment thoroughly based on these statements. Such factors include, but not limited to, (i) general economic conditions and levels of demand in DISCO's markets; (ii) developments in technology and resulting changes in semiconductor and/or electronic component manufacturing process; (iii) levels of capital investment for manufacturing semiconductors and/or electronic components; (iv) expansions of the area for products and technologies using semiconductors and/or electronic components and its expanding speed; (v) DISCO's ability to continue to offer products and services corresponding to developments of new semiconductors and/or electronic components and new technologies for manufacturing them; (vi) exchange rates, particularly between the yen, the U.S. dollar, and the euro, and other currencies.
FY2017 Earnings Results 2 FY2017 FY2017 QoQ FY2016 Millions of Yen 1Q Amount (%) Amount (%) Net Sales 42,115 44,414-2,299-5.2% 33,964 8,150 24.0% Gross Profit 25,238 26,142-904 -3.5% 18,287 6,951 38.0% Gross Profit Margin 59.9% 58.9% 1.0p - 53.8% 6.1p - SG&A 11,446 11,035 410 3.7% 10,323 1,123 10.9% Operating Income 13,792 15,107-1,315-8.7% 7,963 5,829 73.2% Ordinary Income 13,670 14,929-1,259-8.4% 8,111 5,559 68.5% Ordinary Income Margin 32.5% 33.6% -1.1p - 23.9% 8.6p - Income before income taxes and minority interests 13,557 15,005-1,448-9.7% 8,073 5,484 67.9% Net Income 9,471 10,672-1,201-11.3% 6,068 3,403 56.1% YoY Sales: More than 40,000 million was achieved for two consecutive-quarters. From the previous quarter, equipment sales decreased, and consumables increased. GP Rate: The GP rate increased due to changes in sales composition and reached record high. SG&A: Personnel expenses and R&D expenses increased slightly from the previous quarter. The SG&A rate was approx. 27%. Operating income: Although the operating income decreased approx. 9% compared to the same quarter of the previous year, an operating income of more than 10,000 million was achieved for three consecutive-quarters.
FY2017 Earnings Results 3 FY2017 FY2016 Millions of Yen Amount (%) Net Sales 86,529 65,238 21,291 32.6% Gross Profit 51,381 35,288 16,092 45.6% Gross Profit Margin 59.4% 54.1% 5.3p - SG&A 22,481 20,396 2,085 10.2% Operating Income 28,899 14,892 14,007 94.1% Ordinary Income 28,600 15,605 12,996 83.3% Ordinary Income Margin 33.1% 23.9% 9.2p - Income before income taxes and minority interests 28,563 15,088 13,475 89.3% Net Income 20,143 11,863 8,280 69.8% Sales: Shipments in both equipment and consumables were firm, and sales posted a record high. GP rate: The GP rate increased due to the positive impact of the foreign exchange, as well as high added-value products and improvement in sales composition. SG&A: Although personnel expenses increased, SG&A decreased to 26% due to the increase in sales. Operating income: The operating income increased 94% compared to the same quarter in 2016, and reached the previous halfyear record by a significant amount. YoY
Quarterly Consolidated Financial Results 500 400 100 million yen (Oku yen) Net Sales Operating Income Ordinary Income Margin 60% 50% 40% 4 300 30% 20% 200 10% 100 0% -10% 0-20% -30% -100 FY2008 1Q FY2009 1Q FY2010 1Q FY2011 1Q FY2012 1Q FY2013 1Q FY2014 1Q FY2015 1Q FY2016 1Q FY2017 1Q -40% An operating income of more than 10,000 million was achieved for three consecutive-quarters. An ordinary income margin of more than 30% was maintained for two consecutive-quarters.
Quarterly Consolidated Sales/Orders 5 600 100 million yen (Oku yen) Order Backlog Net Sales Order 500 400 300 200 100 0 FY2008 1Q FY2009 1Q FY2010 1Q FY2011 1Q FY2012 1Q FY2013 1Q FY2014 1Q FY2015 1Q FY2016 1Q FY2017 1Q Receiving inquiries have slowed down. The total value of orders for Q2 was approx. 39,600 million, and the order backlog amounted to 15,800 million.
Quarterly Consolidated Sales Breakdown by Product 6 500 450 100 million yen (Oku yen) Precision Parts (Tecnisco) 400 350 Industrial Products 300 Others 250 200 Maintenance Parts 150 100 Consumables 50 Precision Processing Equipment 0 FY13 1Q FY14 1Q FY15 1Q FY16 1Q FY17 1Q The total volume of equipment shipments decreased QoQ, but dicing saw and grinder shipments remained high. Shipments of consumables, which are the precision processing tools, increased by more than 10% QoQ, and more than 20% YoY.
Product and Equipment Sales Breakdown FY17 7 FY17_ Product Sales Breakdown Precision Processing Equipment 52% Consumables 24% Maintenance Parts 8% Others 14% Industrial Products 2% Precision Processing Equipment Breakdown Dicing Saws 80% Grinders 20% Dicing Saws Breakdown Blade Dicers 70% Laser Saws 30% Grinders Breakdown DGP(for thin wafers) 70% Normal Grinders 30%
Equipment, Non-consolidated Cutting and Dicing Saws* Sales Breakdown by Application *Cutting and dicing saws include blade dicers and laser saws 8 Nonsemiconductors Other semiconductors Optical semiconductors Package IC FY13_1Q FY14_1Q FY15_1Q FY16_1Q FY17_1Q As in the previous quarter, the number of shipments remained high in a wide range of applications, especially memory applications. The composition ratio dicing saws in Q2 was 70% for blade dicers, and 30% for laser saws.
Equipment, Non-consolidated Grinders and Polishers* Sales Breakdown by Application 9 *Grinders and polishers also include surface planers and grinder/polishers Nonsemiconductors Wafer manufacturing Other semiconductors Optical semiconductors IC Semiconductor FY13_1Q FY14_1Q As with dicing saws, the shipment volume of grinders remained high in a wide range of applications, especially memory applications. FY15_1Q Demand increased for grinders in areas besides thinning, such as discrete devices in other semiconductors. FY16_1Q FY17_1Q * Starting from FY14 1Q, the sales categories have been amended as follows: Semiconductors: IC + optical semiconductors + other semiconductors Electronic components: Non-semiconductors
Consolidated Consumables* Sales 10 *Consumables include dicing blades, grinding wheels, and dry polishing wheels, etc. FY13_1Q FY14_1Q FY15_1Q FY16_1Q FY17_1Q Sales of Consumables in FY17_ reached their highest. The shipments of Consumables for semiconductors and non-semiconductors remained firm due to high capacity utilization at many manufacturers.
Sales Breakdown by Region Consolidated 100 million yen (Oku yen) 100% 1,000 Japan 900 80% 800 700 1Q 11 60% 40% 20% North America Europe Asia 600 500 400 300 200 100 0% FY16_ FY17_ 0 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 Asia Japan Europe North America : In the first half of the year, sales in each region greatly exceeded the previous year s level due to active investments in Asia, as well as in Japan, America, and Europe. : Sales decreased. Although sales declined in all regions except Taiwan and China, it remained at high level. QoQ in nearly all of the regions, excluding Taiwan and China. However, sales remained high.
Balance Sheet (Summary) 12 FY2017 FY2017 Millions of Yen 1Q Amount Cash and deposits 81,640 72,536 9,104 Notes and account receivable 44,670 47,278-2,608 Inventories 30,633 31,007-374 Total current assets 163,065 155,346 7,719 Property, plant and equipment 66,576 66,385 191 Total noncurrent assets 73,028 71,317 1,711 Total assets 236,093 226,664 9,430 Current liabilities 42,642 43,761-1,119 Noncurrent liabilities 729 796-67 Total liabilities 43,372 44,557-1,185 Total net assets 192,721 182,106 10,615 Total liabilities and net assets 236,093 226,664 9,430 Equity Ratio 81.2% 79.9% 1.3p Comparison with End of June Assets: As the collection of accounts receivable advanced cash and deposits increased substantially. Liabilities: While income tax payable and accounts payables increased, liabilities decreased due to the repayment of interest-bearing debt. Net assets: The earned surplus increased, and the equity rate increased by 1.3 points to 81.2%.
Cash Flow (Summary) FY2017 FY2016 Millions of Yen Amount Net cash provided by (used in) operating activities 27,031 20,379 6,652 Income before income taxes and minority interests 28,563 15,088 13,475 Depreciation and amortization 2,851 2,970-119 Decrease (increase) in notes and accounts receivable- Decrease (increase) in inventories Increase (decrease) in notes and accounts payable-trade -5,137-483 -4,654 55 3,795-3,740 2,631 789 1,842 Income taxes (paid) refund -3,342-4,181 839 Others 1,409 2,400-990 Net cash provided by (used in) investing activities Purchase of property, plant and equipment -4,142-3,179-963 -3,388-2,907-482 Others -753-272 -481 Free cash flow 22,888 17,199 5,689 Net cash provided by (used in) financing activities -19,271-9,007-10,263 Cash dividends paid -10,433-8,226-2,207 Others -8,837-781 -8,056 Net change in of cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 3,919 7,381-3,462 71,690 57,162 14,528 75,610 64,543 11,067 Cash Flow from Operating Activities: Increased about 27,000 million. Operating cash flows remained at high level - Income before income tax increased compared to FY16_ - Although there was a net cash decrease due to a decrease of accounts receivables and payment of corporate tax. Cash Flow from Investing Activities: Decreased by about 4,100 million. Mainly due to the acquisition of the tangible fixed assets Cash Flow from Financial Activities: Decreased by about 19,200 million Mainly due to the payment of the dividends and the repayment of interest-bearing debt. (about 9,000 million) Free Cash Flow Increased about 22,800 million The balance of cash and cash equivalents as of September 30 was about 75,600 million. 13
FY2017 Earning Forecast 14 100 million yen (Oku yen) Actual Earning Forecast FY2017 1Q Full Year YoY Net Sales 444 421 865 355 363 718 1,583 18.0% Operating Income 151 138 289 77 90 167 456 45.5% Ordinary Income 149 137 286 79 94 173 459 44.7% Net Income 107 95 201 55 71 126 327 35.1% Operating Income Margin 34.0% 32.7% 33.4% 21.7% 24.8% 23.3% 28.8% Ordinary Income Margin 33.6% 32.5% 33.1% 22.3% 25.9% 24.1% 29.0% Net Income Margin 24.0% 22.5% 23.3% 15.4% 19.6% 17.5% 20.7% (Reference) Previous year's results FY2016 1Q Full Year Net Sales 313 340 652 302 388 690 1,342 Operating Income 69 80 149 61 103 164 313 Ordinary Income 75 81 156 53 109 161 317 Net Income 58 61 119 36 87 123 242 Operating Income Margin 22.2% 23.4% 22.8% 20.2% 26.7% 23.9% 23.4% Ordinary Income Margin 24.0% 23.9% 23.9% 17.4% 28.0% 23.4% 23.6% Net Income Margin 18.5% 17.9% 18.2% 12.0% 22.5% 17.9% 18.0% Predicted exchange rate US$1 = 105 yen, 1 Euro = 125 yen Effect of 1-yen fluctuations to the exchange rate (consolidated, annualized) US$: about 700 million yen, Euro: about 30 million yen
Dividend Policy and Dividend Payment 15 FY2017 (Reference) FY2016 FY2017 Intermediate dividend 141 (Yen) Forecast Actual Actual Intermediate dividend Year-end dividend 141 141 83 157 291 FY2017 Year-end dividend: 157 Breakdown Performance-linked dividend: 89 (Based on dividend policy clause 1) One -third of the surplus: 68 (Based on dividend policy clause 3) Annual dividend 298 374 Dividend Policy Decisions concerning the distribution of surpluses are made by the general meeting of shareholders, in the case of the final dividend, and by the Board of Directors, in the case of the interim dividend. 1.Adopting a performance?linked dividend policy and aiming at giving clearer priority to shareholder returns, our target dividend payout ratio is 25% of the consolidated half-yearly net income. There will be interim and final dividends, each of which will be equivalent to 25% of the half-yearly consolidated net income. 2.Irrespective of the level of income, we will maintain a reliable dividend of 10 per half-year. This means that the minimum yearly dividend will be 20. 3.Except when there is a loss, if the year-end balance of cash and deposits after payment of dividends and income taxes is greater than projected funding requirements for the acquisition of technology resources, such as through patent purchases and investment in venture businesses, facility expansion, the retirement of interest-bearing debt and other purposes, one-third of that surplus will be added to dividends. [Remarks] The 20 payout stipulated in our stable dividend policy may be reviewed if there are consolidated net losses in three consecutive years.
[Reference] Calculation Surplus Distribution as Additional Dividends Additional dividends: One third of the surplus will be added to the performance-linked dividends. Necessary Funds Expected year-end balance of cash and deposits: 76,100 million Working capital (Two months sales) Technology purchases (Including M&A) 26,400 million 12,000 million Facility expansion (C-Zone and D-Zone in Kuwabata Plant) 20,600 million - = Refund of interestbearing debt - Payment of taxes, performancelinked dividends, etc. Total necessary funds: 68,800 million 9,800 million Excess cash: 7,300 million Expected additional dividends: Excess cash of 7,300 million/ 3/ number of shares = 68 per share
Consolidated R&D/CAPEX Forecast 17 180 160 140 100 million yen (Oku yen) CAPEX Depreciation R&D Expenses 120 100 80 60 40 20 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FCT Investment Forecast in FY2017 R&D: Investments of around 15,000 million are planned in order to proactively conduct R&D (around 14,600 million in FY2016). Capital spending: Investments of around 10,000 million are planned for the construction of new factory buildings ( 11,500 million in FY2016). Depreciation: As in the previous year, depreciation expenses are expected to be around 6,000 million ( 5,900 million in FY2016).
Operating Environment and Our Business: FY2017 100 million yen (Oku yen) Capital investment by customers became active in a wide range of applications, especially in semiconductor applications. The sales of dicing saws and grinders for applications such as flash memory, high-performance processors, and electronic components increased 50% compared to the previous year. Manufacturers production activities were active and the capacity utilization rate was high. The shipment volume of consumables steadily increased. 18 New records were set in both sales and profits for H1. An ordinary income was achieved which exceeded that of FY2000 by 30%, setting a new record. Intermediate dividends : 141 from performance linked funds
Forecasted Operating Environment 19 New records for the highest sales and earnings are expected to be set for the fifth consecutive year due to the continued investments of customers in a wide range of applications, especially in memory applications. 100 million yen (Oku yen) In order to meet the constantly-growing KKM needs, the production space and production capacity will be increased. Establishment of Nagano Works (April 2018) Hiring approx. 550 new employees Enhancing the production capacity of equipment, such as manual dicing saws Expansion of Kuwabata Plant (C-Zone and D-Zone) Enhancing the production capacity of precision processing tools We will continue to focus on strengthening both our organizational management and our operational management, with our corporate philosophy, DISCO Values, at the core of our activities.
FY2017 Full Year Sales Forecast Breakdown by Product 20 FY16 FY17 Full Year Full Year YoY Revised forecast Precision processing equipment -4% 30% Grinders -13% 50% DGP (for thin wafers) 7% 30% Non-DGP (Area besides thinning) -40% 90% Dicing saws 1% 20% Non-laser 3% 30% Laser -3% 10% Precision blades and wheels 16% 20% Other products, subsidiaries 12% -5%
21 [Reference] Graph of the Overall Trends for the Half-Year
Equipment, Non-consolidated Cutting and Dicing Saws* Sales Breakdown by Application 22 *Cutting and dicing saws include blade dicers and laser saws Nonsemiconductors Other semiconductors Optical semiconductors Package IC FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Equipment, Non-consolidated Grinders and Polishers* Sales Breakdown by Application 23 *Grinders and polishers also include surface planers and grinder/polishers Nonsemiconductors Wafer manufacturing Other semiconductors Optical semiconductors IC Semiconductor FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 * Starting from FY14 1Q, the sales categories have been amended as follows: Semiconductors: IC + optical semiconductors + other semiconductors Electronic components: Non-semiconductors
Consolidated Consumables* Sales 24 *Consumables include dicing blades, grinding wheels, and dry polishing wheels, etc. FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Product and Equipment Sales Breakdown FY17 25 FY17_ Product Sales Breakdown Precision Processing Equipment 55% Consumables 22% Maintenance Parts 7% Others 14% Industrial Products 2% Precision Processing Equipment Breakdown Dicing Saws 70% Grinders 30% Dicing Saws Breakdown 70% Blade Dicers 30% Laser Saws Grinders Breakdown DGP(for thin wafers) 70% Normal Grinders 30%
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