Kuraray Co Ltd

TSE:3405

Earnings Call Transcript 2020-Q3

[Keiji Taga, executive]

Hello. This is Taga. Thank you very much for attending our conference call out of your very busy schedules. We will commence the earnings presentation for FY 2020 third quarter.

Please go to Page 2. In the third quarter of FY 2020, demand recovered in main applications, such as automobile, electronic devices and display. However, cumulatively, from January to September, demand was weak, hit by COVID-19. As the slide shows, net sales and all income declined year-on-year. The price of foreign exchange and raw materials and fuel are shown on the bottom of the slide.

Please go to Page 3. From here, I would like to explain the conditions of businesses by segment. First, starting from Vinyl Acetate. Poval resin, sales remained weak due to stagnant global demand and a subsequent production adjustment. Optical-use poval film, due to recovery in demand, especially for large displays, sales remained firm. Water-soluble PVA film, sales continue to expand for use in unit dose detergent packets. PVB film, sales were affected by stagnant demand for construction and automotive applications. EVAL, sales volume increased for food packaging application due to expanded at-home consumptions, but sales for gas tank applications fell due to a decline in the number of vehicles produced.

With this, net sales and operating income declined in the third quarter. However, in comparison to our second half plan, third quarter net sales and operating income are both over 50% in terms of progress rate, as shown on the bottom of the chart.

Please go to Page 4. This is Isoprene segment. For the third quarter, net sales and operating income declined year-on-year. Isoprene, sales of isoprene chemicals and SEPTON, thermoplastic elastomer were affected by stagnant demand, mainly in China and the rest of Asia. GENESTAR, sales has been steady for electric and electronic device applications. Sales for automotive applications were affected by the decline in automobile production.

In the third quarter, net sales were mostly on track for isoprene. However, for operating income, we are behind plan due to longer duration of maintenance in Kashima plant, leading to lower operation.

Please go to Page 5. The third quarter result for Functional Material. The net sales and operating income declined year-on-year. Methacrylate. Overall business was affected by rising raw material costs and worsening market conditions despite an increase in sales of spatter-blocking barrier panels and displays. Medical. Although dental materials businesses struggled early on in Europe and U.S. as a result of an increase in the number of closed dental clinics, demand is on track toward a recovery as clinics later reopened. Calgon carbon, sales were steady, even during COVID-19, as the products underpin people's daily lives. In the carbon materials businesses, sales increased for water treatment applications. With expanding demand, we decided to expand the facilities at the plant of Calgon Carbon, the U.S. high-performance activated carbon and the Belgium reactivated carbon for industries.

The third quarter result for Functional Materials is ahead of plan for the second half.

Please go to Page 6. This is Fibers and Textiles segment. In the third quarter, net sales and operating income declined year-on-year. For CLARINO, sales volume decreased due to receding demand in Asia and Europe. Demand for KURALON stagnated and sales volume decreased for cement reinforcement and rubber materials. In consumer goods and materials, sales of KURAFLEX were weak as demand for cosmetic and automotive applications stagnated despite an increase in sales for mask-related applications.

Result of third quarter for Fibers and Textiles, the sales is behind the plan. The operating income is ahead of second half plan. However, there will be impact from the maintenance of Okayama plant, which is scheduled. Therefore, we are right on track.

Please go to Page 7. This slide indicates third quarter result by segment year-on-year. Please utilize this as your reference.

Please go to Page 8. Here, you can see the gap of operating income compared with third quarter 2020 and 2019 and explains the factors of JPY 9.8 billion. For volume and capacity utilization, the sale of water-soluble poval film and GENESTAR increased. However, sales volume declined in poval resin, PVB, elastomer, CLARINO. And by this, we have adjusted production.

With this, operating income was impacted negatively by JPY 12.5 billion. Terms of trade, foreign exchange decreased by appreciation of yen to the dollar and the euro. However, with the advantage of lower price of raw material and fuel, in total, operating income increased by JPY 1.5 billion. Operating expenses and others, depreciation and amortization increased, but due to the decrease of expenses, it was affected positively by JPY 1.2 billion. By this, in total, OPI declined by JPY 9.8 billion.

Please go to Page 9. Here, assets of our balance sheet in comparison with December end 2019 is indicated. Current asset increased by JPY 90.4 billion. Although inventories decreased, we increased long-term loans payable and issued commercial paper and bonds payable. Cash and cash deposits increased by JPY 130 billion, increase in current asset. Noncurrent assets decreased by JPY 6.5 billion. By this, total asset increased by JPY 83.9 billion.

Please go to Page 10. This is the liabilities and net asset of our balance sheet. Current liability decreased by JPY 3.5 billion. It increased due to commercial paper issuance, while accrued expenses decreased. Noncurrent liabilities increased by JPY 97.9 billion. This mainly comes from increased long-term loans payable and issuing bonds payable, as explained earlier. Net asset decreased by JPY 10.5 billion, mainly due to decrease of foreign currency translation adjustment. Equity ratio for the third quarter is 47.7%, the same level as at the second quarter end. By this, it declined by 5.3% compared to FY '19.

Please go to Page 11. This is a business forecast for fiscal year 2020. In the third quarter, we have seen demand recover for part of our mainstay application. Actual result is developing better than the previous forecast for Vinyl Acetate and Functional Materials segment. Therefore, we revised the full year forecast as shown on the chart. Comparing the revised forecast with the previous, net sales is plus JPY 10 billion to JPY 520 billion. Operating income, plus JPY 7 billion to JPY 40 billion. Ordinary income, plus JPY 6 billion to JPY 35 billion. Net income, plus JPY 2 billion to JPY 15 billion. The assumption of foreign exchange and price of raw material and fuel are as shown on the bottom of the slide.

Please go to Page 12. The revised forecast of net sales and operating income by segment in comparison with the original are indicated.

Please go to Page 13. Here, we show the revised forecast of FY '20 in comparison with FY '19 results.

Please go to Page 14. This is net sales for third quarter and full year forecast by segment in comparison with the FY '19 actual.

Please go to Page 15. This is operating income for third quarter and full year forecast by segment in comparison with FY '19 actual.

With this, I would like to conclude my presentation. Thank you very much for your kind attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]