Kuraray Co Ltd

TSE:3405

Earnings Call Transcript 2019-Q1

[Keiji Taga, executive]

This is Taga. Thank you very much for joining our conference call today at the expense of your very busy schedule. As I said in the previous earnings presentation from this year, one by one, president of each company join us in the quarterly earnings presentations in this conference call. Here, we have Mr. Abe, who is the President of Isoprene Company.

Now we'd like to start the earnings presentation of Q1 FY 2019. Please turn to Page 2. This is the performance of Q1 FY '19. As the world economy is slowing down due to the decrease of automobile manufacturing and lower demand for electric and electronic devices, our sales declined as well. As in the slide, the net sales was down by 5% to be JPY 141.6 billion. The operating income declined by 34.5% to be JPY 14.6 billion. The ordinary income declined by 41.6% to be JPY 12.8 billion. The net income declined by 59.7% to be JPY 6.1 billion. Both sales and profit declined significantly year-on-year. As to PPA of Calgon Carbon, with the completion of the acquisition in FY '18, was determined in the end of last year actual numbers of FY '18 are retrospectively applied after the determination.

Page 3, please. From here, I'd like to explain the performance of each segment. First, Vinyl Acetate. In poval resin, the sales volume for commodity use decreased and the product portfolio continued to shift toward high value-added products. In optical-use poval film, due to declined operations on one of the production lines, there was a delay in shipments. As a result, the sales volumes stayed level with the previous year. The trouble is already solved, and there is no impact on Q2 performance. In water-soluble PVA film, sales for use in unit dose detergent continued to expand. In PVB, due to slowdown of economies, the sales volume for automotive and construction applications declined. In EVAL, sales decreased for food packaging applications due to the lingering effect of the fire incident at the United States plant last year. In addition, sales for automotive gas tank applications became weak as the production of automobiles declined. Due to these reasons, both the sales and profit declined significantly. Please turn to Page 4. In Isoprene segment, in Q1, both sales and profit declined. In Isoprene-related, although raw material prices began declining from the end of the previous year, the sales volume of SEPTON decreased as demand contracted mainly in China. However, the performance of fine chemicals remained firm. In GENESTAR, the falling raw material prices contributed, while shipments of connector applications fell due to lower demand for electric and electronic devices. Page 5, please. In Functional Materials, both sales and profit declined year-on-year in Q1. In the actual number for FY '18, we retrospectively applied the determination of PPA for Calgon Carbon. In methacrylate, although a decline in sales volume, results remained stable due to the drop of raw material prices in addition to a continued shift toward high value-added products. In medical, sales were steady, especially for cosmetic and restorative dentistry products. In Carbon Materials and Calgon Carbon, demand remained steady in the activated carbon market, while Calgon Carbon's U.S. plant operations declined because of the utility facility trouble. Please turn to Page 6. In Fibers and Textiles, in Q1, the sales declined, but the profit increased year-on-year. In CLARINO, sales for luxury product applications remained stable. However, sales declined for use in sports shoes. In KURALON, the sales volume increased for use in reinforcing rubber. In consumer goods and materials, sales of will KURAFLEX remained stable as sales of high value-added products expanded, such as medical and cosmetics, despite a fall in the sales figures of commodity products. Please turn to Page 7. This slide shows the FY 2019 Q1 results of each segment in comparison with the results of the previous year for your reference. Page 8, please. This slide shows the operating income difference of JPY 7.7 billion between Q1 of FY '19 and Q1 FY '18 and the factors affecting the change. In terms of volume and capacity utilization, in optical-use poval film, there was an impact from the declined utilization of one of the production lines in Calgon Carbon U.S. factory. In EVAL, the market share declined because of the fire incident and we are in the process of recovery. Also, globally, automobile production declined, and there was an impact on our sales, too. As the economy is slowing down, poval resin, PVB, SEPTON, GENESTAR, the volume of which declined, and totally, we had a decline in profit of JPY 6 billion.

Terms of trade had an impact from the fall of raw material and fuel cost. The cost was reduced. However, due to yen appreciation against the euro, totally, there was no impact. Operating expenses and others increased by JPY 1.7 billion due to increase of depreciation, amortization, R&D expenditure and labor cost. Page 9, please. This slide shows the asset section on the balance sheet and the comparison with the end of last year. Current assets increased by JPY 21.4 billion mainly due to the increase of JPY 7 billion in the inventory. Also, short-term investment securities increased by JPY 16.8 billion. Noncurrent assets increased by JPY 22.1 billion. This is an on-balance effect of JPY 20 billion of the leases of some overseas affiliates due to the application of the new lease accounting standard. Next, Page 10, please. This slide shows liabilities and net assets on the balance sheet. The current liabilities increased by JPY 28 billion. That includes the large investment in Thailand, and we had to address the need for capital. And for that, we issued the commercial paper of JPY 30 billion. Noncurrent liabilities increased by JPY 20.5 billion due to the on-balance of the leases that was explained before that was JPY 20 billion.

Net assets. The impact of JPY 1.6 billion due to the share buyback, and there was a decline in the foreign currency translation adjustment of JPY 1.3 billion. And the dividend payment exceeded the net profit by JPY 1.6 billion. Totally, the decline of JPY 5 billion. Page 11. This slide shows the revised forecast for FY 2019 in comparison with the initial plan. Based on the Q1 result and the recent economic situation, we revised the forecast for the first half and the full year of FY 2019. We have not revised numbers for the second half of the year. Please turn to Page 12. In this slide, we show the revised forecast for FY 2019 in comparison with FY 2018 results. Page 13, please. For your reference, we show this FY 2019 revised forecast per segment in comparison with FY 2018 results and the initial plan. Lastly, Page 14. For your reference, here is the operating income by segment and the comparison of FY 2019 revised forecast with FY 2018 results and the initial plan. With this, I'd like to complete my explanation. Thank you very much.