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Dialogue between an Institutional Investor and Top Management
Focusing management resources on core technologies to become an indispensable company for a sustainable society and diverse stakeholders.

The following is an excerpt from Dexerials Integrated Report 2024.
With the conclusion of the previous Mid-term Management Plan, under which we at Dexerials laid the foundation for achieving sustainable growth and enhanced corporate value, we have launched a new Mid-Term Management Plan, “Achieving Evolution”, in pursuit of even greater growth. In this dialogue, Mr. Kirk Neureiter, president of Fidelity Management & Research Japan Ltd. (“FMR”), who has actively engaged with the Company for many years, and President Yoshihisa Shinya, discussed how institutional investors assess and invest in Dexerials, how they analyze the unresolved challenges from the previous Mid-term Management plan, and what expectations they have for the new plan.

Representative Director and President
Yoshihisa Shinya

President and Portfolio Manager
Fidelity Management & Research (Japan) Inc.
Mr. Kirk Neureiter
Investors hold the Company’s management quality, investment returns, and capital efficiency in high regard

ShinyaFidelity Management & Research Japan (“FMR”) has supported us for many years since we went public in 2015. Even during the period shortly after our listing, when we struggled to meet investor expectations, FMR has consistently supported us as a shareholder and continues to do so today.
NeureiterWhen evaluating a company as an investor, we focus first and foremost on its business model and cash flow generation capability. Dexerials has a diversified business portfolio and highly competitive products grounded in its technological strengths. Its core products such as Anisotropic Conductive Films (ACF) and Anti-reflection films hold significant global market shares, meeting our criteria for investment. In addition, Dexerials is highly trusted by key customers and has built strong relationships with them, which, along with the long-term growth potential of its business, made the Company an appealing investment target. However, for some time shortly after the Company went public, it consistently underperformed its committed management goals, attributing this to the saturation of the consumer IT market. While the Company correctly analyzed the reason for the shortfall, it struggled to apply the insights from this analysis to improve performance. We had multiple discussions with the Company about why progress was slow, and although we did see gradual improvement, a clear improvement in performance remained elusive for some time.
However, after you became the president in 2019, the Company’s performance improved dramatically. While the increased at-home demand for consumer IT products prompted by the COVID-19 pandemic did provide a tailwind, I believe it was your passion for management reform and your leadership that accelerated the pace of earnings improvement, with the reform yielding tangible results. This led to an increase in investors’ regard for the Company’s top management.
ShinyaWhen I first became president, improving cash flow was an urgent priority. We re-evaluated all of our businesses and concentrated management resources on the key areas that required our focus. This led to a significant improvement in EBITDA, with ROE increasing from single digits to over 20%.
NeureiterAs investors, we highly regard Dexerials and its current performance from three key perspectives: management quality, return on investment, and capital efficiency.
Sharing management challenges through engagement Implementing bold reforms in the first half of the previous Mid-term Plan, followed by a shift in focus to accelerate growth in the second half
ShinyaWhen I first met you in 2019, our performance was not very impressive, and you provided us with some tough feedback. However, through continuous engagement with investors, we were able to incorporate your feedback into our management practices, and I’m confident that doing so has helped improve the quality of our management.

NeureiterWe highly regard your IR activities and engagement efforts. Over the past few years, including the period when you struggled to improve your performance, you frequently arranged meetings with investors and answered every question sincerely. Through repeated communications, I believe we reached a shared understanding that, given the limited management resources, scaling back unprofitable businesses and concentrating investments in core businesses was top priority. What stood out to me was that, from the very beginning, you consistently maintained the same stance on your approach to the previous Mid-term Management Plan, without wavering. We have always held your products in high regard, and our expectation that your reforms will yield results at some point remains unchanged.
ShinyaAnd you have consistently provided advice regarding business portfolio management. Once our performance began to recover, you pointed out that our management goals might be too conservative. Given our past experience of failing to meet market expectations shortly after going public, we were determined to achieve the goals we committed to, while accounting for external changes and certain risks. This was the mindset with which we approached the previous five-year Mid-term Management Plan (hereinafter, the previous Mid-term Plan).
NeureiterYou achieved the previous Mid-term Plan targets three years ahead of schedule and, in 2021, updated the plan with new management goals, which you successfully met. Within the Company, did you and your employees feel that growth had accelerated beyond expectations?
ShinyaThe Mid-term Management Plan before the previous one covered three years, but when I became president, I extended the plan duration to five years. In a VUCA*1 era, I felt that a three-year period was too short to present a clear and significant direction for the future. When we first announced the management goals for the previous Midterm Plan, some investors have questioned whether we had learned from our past experiences. However, after thorough internal discussions, we were confident that we could achieve these targets if we took necessary steps. We recognized the need to implement stringent reforms quickly, so during the first two years of the previous Mid-term Plan, we advanced various initiatives to improve cash flow. In the remaining three years, we focused all our efforts on driving growth.
NeureiterThat provides helpful context. When you became president, the PBR was below 1x. Was there a sense of crisis within the Company at that time, and what direction did you want your employees to take?
ShinyaWhen I was first appointed president, the situation was dire, with our market cap at around 45 billion yen and PBR of about 0.9x. There was a strong sense of crisis within the Company, and since we had repeatedly failed to achieve our committed targets, I sensed that employees were losing confidence. From the outset, I told them, “The world is becoming increasingly uncertain, and nobody knows what will happen next. We must become a lean company that can adapt to any situation and take on challenges to achieve further growth.” I also told them that for the Company to change, each of us must change, and if we have made up our minds to change, why not stand at the forefront of that change and enjoy the process?” I embarked on the reforms with a strong commitment, too. I sensed that as the results of the reforms became apparent, employees’ mindsets began to change, and they started to regain confidence.
NeureiterDuring the first two years of the previous Midterm Management Plan, what were the challenges you tackled with top priority?
ShinyaWhile selecting focusing businesses was important, I believed that, to truly transform the Company, top management needed to change first. We transitioned our institutional design from a company with a board of corporate auditors to a company with an audit committee to strengthen corporate governance that contributes to enhancing corporate value. We facilitated a generational shift within the executive officer team and ensured that all employees, including management team, genuinely believed the Company was undergoing change, fostering a transformation-oriented mindset. After that, we implemented initiatives for growth such as relocating our headquarters to better align management with the frontline operations, strengthening our business model, and M&A.
NeureiterAt that time, the external environment was undergoing drastic changes due to the pandemic, US–China tensions, and supply chain disruptions; it was an extremely volatile period. The external environment will likely continue to experience rapid shifts, further highlighting the importance of risk management. In your new Mid-Term Management Plan (hereinafter, new Mid-term Plan) as well, I believe the challenge will be how to enhance investment returns while managing risks effectively.
ShinyaExactly. I believe it is crucial that we make precise investment decisions while anticipating and managing an even wider range of risks going forward.
- *1: VUCA: volatility, uncertainty, complexity, and ambiguity
- *2: At the end of March 2024, Dexerials’ market cap was approximately 400 billion yen and PBR was 4.5x
Focusing on selecting growth markets to secure high investment returns
NeureiterWhen it comes to investment returns, determining which markets to enter is crucial, isn’t it?
ShinyaYes, indeed. In 2016, we entered the automotive market, anticipating a major transformation in the industry. By gaining a clear understanding of technological trends and addressing market demand, we were able to grow our automotive business, which I believe has significantly boosted employee confidence.
NeureiterI understand that Anti-reflection film, your mainstay product for the automotive business is currently used primarily in luxury vehicles. If the product were to be adopted in a wider range of vehicles, including mid-range models, wouldn’t your automotive business grow even faster?
ShinyaExactly as you say. The growth trajectory for our automotive business has become somewhat clear. During the previous Mid-term Plan, we made Kyoto Semiconductor Co., Ltd. (“Kyosemi”)*3, specializing in optical semiconductors, a subsidiary with the goal of entering the photonics field as our next growth domains.
NeureiterBy combining the materials and devices you’ve developed for consumer IT products with Kyosemi’s optical semiconductor technology, it seems you’re now able to offer new solutions.
ShinyaSince entering the photonics business, we’ve realized there is much more room for technological innovation in this field compared to the consumer IT sector. When we present customers in photonics with what our technology can achieve, they are often surprised. We’ve already received numerous inquiries, and we have begun considering developing new products in the photonics domain by applying our technology.
NeureiterIt sounds like you successfully entered the next growth area during the previous Mid-term Plan period. However, I have some concerns. During the previous plan period, you achieved your management goals within just two years, and at that point, I believe you should have revised your management strategy. Investors would have appreciated it if you had presented a clear growth strategy for the next phase of growth, including how you would utilize the higher-than expected profits and prioritize their allocation.
ShinyaThis was an issue left unresolved from the previous Mid-term Plan. Learning from this, we have outlined a capital allocation strategy in the new Mid-term Plan that balances growth investments with shareholder returns.
- *3: Currently, Dexerials Photonics Solutions Corporation.
Investors view the balance between growth investments and shareholder returns in the new Mid-term Plan favorably
NeureiterI support your capital allocation strategy outlined in the new Mid-term Plan, particularly the clear allocation of 130 billion yen for growth investments and an additional investment budget of 50 billion yen, as well as 80 billion yen set aside for shareholder returns. However, if I may add, I would have liked to see more clarity on how your strengths in “Design-in” and R&D activities will impact sales and profits, and how that will ultimately benefit investors.
ShinyaWe are aware of the expectations of our investors, including you, and we will make sure to clarify the points you have raised in the future.
NeureiterI’d like to know which domains you consider promising for growth investments and about your investment project pipeline. Additionally, I’d be interested in hearing about your growth story in these areas.
ShinyaWe have several projects in the pipeline, including those in the R&D stage, and we are carefully prioritizing them and drafting strategies to ensure their success. We are constantly updating information on this front, and plan to share more details with you once we have reached a higher level of certainty.
NeureiterI look forward to hearing more about it. The success of the previous Mid-term Plan was largely due to your focus on core and profitable businesses, where you concentrated investments. I hope you will continue to focus growth investments in and around your core technologies.
ShinyaCertainly. We will continue to leverage our strengths and focus our investments on businesses that create unique value only Dexerials can offer, as well as those where we are the sole supplier.
NeureiterI’m glad to hear that. I strongly encourage you to maintain that approach moving forward.
ShinyaEarlier, you mentioned our strength in the “Design-in” approach. This strength is driven by our exceptional technological capabilities and talented personnel. In the new Mid-term Plan, we have earmarked 45 billion yen for non-financial investments over five years, focused on “Materialities” such as “Technologies” and “Human Capital”.
NeureiterI encourage you to actively communicate that you view “Technologies” and “Human Capital” as priority areas and that you plan to focus your investments accordingly.
ShinyaAlong with the new Mid-term Plan, we have also unveiled our purpose statement, “Empower Evolution. Connect People and Technology.” Looking beyond the new Mid-term Plan period, our goal is to become a company that supports the resolution of a broad range of societal issues by providing materials, devices, and solutions essential for technological evolution, while achieving sustainable growth. We envision a future where we are chosen as an indispensable partner by investors including you, as well as by customers, communities, and stakeholders worldwide, to jointly create a better future. To achieve this, we must continue to grow steadily while expanding our business portfolio. Our purpose embodies this vision, and through backcasting, we have mapped out the next five years in the new Mid-term Plan, identifying the goals we need to aim for and achieve to realize this vision.
Expectations for the Company continue to grow as we create unprecedented products that have never existed before. We are committed to meeting those expectations and pursuing sustainable growth
NeureiterI am thrilled to see what kind of new products and services you will create going forward. I expect you to continue growing by creating new markets through introducing essential products and solutions for the future, developed by combining various technologies, into a wider range of domains, including consumer IT, automotive, and photonics. While it may be difficult to imagine products that no other companies have made, or that no one has ever thought of before, this is what makes your innovations elicit a “Wow!” response and further raises expectations for the Company. From an investor’s perspective, I believe Dexerials is not only indispensable to the capital market but also to society as a whole. I look forward to your continued growth.
ShinyaWe are seeing an increasing number of “Dexerials fans” among investors, including you. Having experienced a period of missed KPI targets, we are even more committed to meeting our investors’ expectations. We will strive to surpass ourselves every day and to achieve sustained growth. We kindly ask for your continued support.
