Toray Industries Inc

TSE:3402

Earnings Call Transcript 2022-Q1

[Masahiko Okamoto, executive]

Thank you very much for joining us today despite your busy schedule. On behalf of Toray Group, I would like to take this opportunity to extend my gratitude towards your continued understanding and your interest in our management and business activities.

Now I would like to report Toray's business results for the first quarter ended June 30, 2021, and the business forecast for the fiscal year ending March 2022.

Now I would like to follow the table of contents shown on Page 1. I would like to begin with an overview of business results for the first quarter ended June 30, 2021.

Please turn to Page 3. Consolidated revenue for the first quarter increased 29.2% compared with the same period a year earlier to JPY 513.7 billion. Core operating income rose 189% to JPY 36.1 billion, and profit increased 214.4% to JPY 29.7 billion.

Page 4 is about special items. Special items for the first quarter improved by JPY 2.8 billion to minus JPY 0.2 billion compared with the same period of the previous fiscal year.

Page 5 is about assets, liabilities, equity and free cash flow. As of June 30, 2021, total assets stood at JPY 2,864.6 billion, up JPY 15.7 billion from the end of the previous fiscal year due primarily to an increase in inventories. Total liabilities declined JPY 17.7 billion from the end of the previous fiscal year to JPY 1,508.9 billion, owing mainly to declines in bonds and borrowings.

Total equity rose by JPY 33.4 billion compared with the end of the previous fiscal year to JPY 1,355.7 billion. Owner's equity was JPY 1,269.9 billion. Interest-bearing liabilities was JPY 962 billion. And D/E ratio was 0.76. Free cash flow was JPY 26.1 billion.

Page 6 explains about capital expenditures, depreciation and amortization and R&D expenditures. Capital expenditures for the first quarter decreased by JPY 11.7 billion to JPY 17.6 billion on a year-to-year comparison. Meanwhile, depreciation and amortization increased by JPY 1.3 billion to JPY 30.6 billion. R&D expenditures decreased by JPY 0.6 billion to JPY 14.5 billion compared with the same period of the previous fiscal year.

This graph on Page 7 describes the factor analysis of JPY 23.6 billion increase in core operating income for the current first quarter on a year-to-year comparison. The difference in quantity was a plus JPY 30 billion, mainly due to increase in sales and production, accompanying the recovery in economic activities.

The net change in price was a minus JPY 7.9 billion due to the rise in raw material prices compared with the same period of the previous fiscal year. We have been working to pass on the rise in raw material prices to the sales price, but this has not been enough to cover the increase in raw material prices. Cost variance, et cetera, was about the same level as the same period of the previous fiscal year.

The chart on Page 8 shows the revenue and core operating income results by segment.

Using Page 9 and after, I would like to explain the results of each segment. First, Fibers & Textiles. Revenue of the overall segment increased 27% to JPY 184.2 billion compared with the same period a year earlier, and core operating income rose 63.4% to JPY 11.8 billion. The increase in demand was seen both in Japan and abroad, which led to a positive difference in quantity, but the net change in price turned negative due to the increase in raw material prices compared to the same period of the previous fiscal year.

In the apparel applications, some applications continued to be affected by COVID-19, while sports and outdoor applications performed strongly.

In the industrial applications, the automotive applications recovered with increased sales volume.

Page 10 is the Performance Chemicals segment. Revenue increased 43% to JPY 222.6 billion compared with the same period a year earlier, and core operating income increased by JPY 19.8 billion to JPY 27.9 billion. Demand for automotive and display-related applications was strong and the difference in quantity was positive. The net change in price was also positive due to the efforts to pass on the rise in raw material prices to the sales price. I would like to explain the conditions of each business on the next page.

Demand in the resins business was strong given the rebound for the COVID-19, resumed operations of automobile manufacturers and the recovery of the Chinese economy. The chemicals business saw a recovery in the basic chemicals market. In the films business, battery separator films for lithium-ion secondary batteries recovered in the automotive application, while polyester films where optical applications and electronic components performed strongly. In the electronic and information materials business, OLED-related demand increased.

Page 12 is the Carbon Fiber Composite Materials segment. Revenue increased 6.9% to JPY 48.5 billion compared with the same period a year earlier, and the segment posted core operating loss of JPY 2.1 billion, a decline of JPY 3.8 billion from the same period a year earlier. While the sales of wind turbine blade in the industrial applications and sports applications were strong, aerospace applications was affected by the decline in the production rate of commercial aircraft. The segment was affected by the increase in raw material prices. I would like to explain the status of each applications on the next page.

Aerospace applications were affected by the decline in the production rate at major customers due to the impact of COVID-19. In the sports applications, demand for bicycles, fishing rods and golf shaft applications for outdoor leisure remained strong. In terms of regulatory products among the industrial applications, demand for environment and energy-related fields led by compressed natural gas tank applications and the automotive applications for super luxury cars in Europe saw a recovery. As for large tow products, shipment of wind turbine blade applications remained strong.

Page 14. In the Environment & Engineering segment, revenue increased 17.6% to JPY 43.7 billion compared with the same period a year earlier, and core operating income increased by JPY 2.6 billion to JPY 3.4 billion. In the water treatment business, demand for reverse osmosis membranes and other products grew strongly, while shipment to some regions were affected by the COVID-19. Among domestic subsidiaries in the segment, an engineering subsidiary experienced increases in the shipment of some electronics-related equipment.

Page 15 is the Life Science segment. Revenue remained at the same level as the same period a year earlier at JPY 11.5 billion, and core operating income stood at JPY 0.2 billion. In the pharmaceutical business, sales of pruritus treatment, REMITCH, were affected by the introduction of its generic versions as well as via NHI drug price revision. In the medical devices business, shipment of dialyzers for hemodiafiltration grew strongly in Japan.

Page 16 shows the business results of major subsidiaries and regions. At Toray International, sales of fibers and textiles, resins, films chemicals and electronic and information materials increased. At Toray Engineering, shipment of electronics-related equipment increased. At our subsidiaries in Southeast Asia, our recovery trend was seen in the fibers and textiles market, although some applications continued to be affected by the COVID-19. In the industrial applications, there were signs of recovery in the automotive applications. In the Performance Chemicals business, ABS resins saw a recovery in demand in the ASEAN market, and the spread remained steady.

At our subsidiaries in China, the Fibers & Textiles business was affected by the rise in raw material prices, although there were signs of recovery in the apparel applications. In the Performance Chemicals business, demand in China remained strong in the resins business.

As for our subsidiaries in the Republic of Korea, the Fibers & Textiles business was affected by the rise in raw material prices, and sales of nonwoven fabrics decreased due to the falling demand for masks. In the Performance Chemicals business, in the films business, sales of polyester films and battery separated films for lithium-ion secondary batteries increased. In the electronics and information materials business, shipment of electronic circuit materials was strong.

Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2022.

Please turn to Page 18. The global economy, including Japan, is likely to continue its recovery with additional fiscal spending and continued monetary easing by the U.S. and with the rollout of the coronavirus vaccines. However, there remained strong uncertainties, such as the lingering low vaccination rates in developing countries and the restrictions on economic activities in response to resurgence in infections with variants. And therefore, the economy is expected to go through the normalization process at a slow pace.

For the fiscal year ending March 31, 2022, Toray revised its full year consolidated forecast announced on May 13, taking into consideration its business performance for the first 3 months and the business environment. It now expects revenue of JPY 2,250 billion, core operating income of JPY 130 billion and profit of JPY 90 billion. This forecast from July onwards is based on assumed foreign currency exchange rate of JPY 105 to the U.S. dollar.

Page 19 shows the consolidated business forecast for the fiscal year ending March 2022 by segment.

Page 20 shows the comparison of core operating income between the initial forecast and the new forecast with breakdowns into segments. The factors behind the differences are shown on the right side of the table.

This concludes my presentation. Thank you for listening.