SFS Group AG
SIX:SFSN
SFS Group AG
SFS Group AG, a Swiss powerhouse with roots tracing back to the early 20th century, has established itself as a formidable player in the fasteners and precision components sector. The company's journey began humbly in Switzerland, crafting elements vital for construction and industrial purposes. Over the years, SFS expanded its repertoire, diving deep into the intricate arenas of automotive, aerospace, and medical technology sectors. At its core, SFS Group specializes in the design and production of high-quality mechanical fastening systems, engineered components, and logistics services. These offerings align well with industries that demand precision and reliability, ensuring SFS's products remain integral to the production processes of their clients.
How does SFS make its mark and, subsequently, its revenue? It’s a mix of innovation and strategic positioning. As industries evolve, SFS remains at the forefront by investing heavily in R&D to create solutions that not only meet but often anticipate the unique demands of its customers. This approach has fostered long-term partnerships with key players across diverse sectors, creating a steady stream of both project-specific and recurring revenue. By nurturing a network of global manufacturing sites and sales offices, SFS ensures responsiveness and agility, making it an indispensable component of its customer's supply chains. The company's financial strength, rooted in its ability to consistently deliver complex, high-performance components and systems, showcases its prowess as not just a supplier, but a vital collaborator across industries.
Earnings Calls
In the first half of FY2024, Toray achieved record results with a 7.9% revenue increase to JPY 1,294.1 billion and a remarkable 62.6% boost in core operating income to JPY 79.1 billion. Profit surged by 92.3% to reach JPY 55.5 billion. The company has revised its full-year forecast, projecting revenue of JPY 2,590 billion, core operating income of JPY 145 billion, and profit of JPY 88 billion for FY2025. Strategic initiatives in share buybacks and capital efficiency improvements are underway, with planned buybacks totaling JPY 100 billion amidst a backdrop of recovering demand across key segments.
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Thank you very much for joining us today despite your busy schedule. On behalf of Toray Group, I'd 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 second quarter ended September 30, 2024, and the business forecast for the fiscal year ending March 2025.
Now I'd like to follow the table of contents shown on Page 1. This is a summary of the business performance and forecast. Core operating income of the first 6 months was JPY 79.1 billion, a significant increase compared with the same period of the previous year. It is a record high as business results for the 6 months. Based on the business operation for the first 6 months and other factors, we revised upward the business forecast for the fiscal year ending March 2025, which was announced on May 13. Furthermore, the company resolved to repurchase shares of its common stock at the Board of Directors meeting held on November 7.
In May 2024, the company announced a policy for accelerating capital efficiency improvement by reducing cross-shareholdings by half over 3 years from FY 2024 to 2026, also stating that all proceeds from sales of cross-shareholdings will be used for share buybacks. This resolution for repurchase shares is pursuant to this policy for reduction of cross-shareholdings.
I'll explain the details starting from the next page. I'd like to begin with a brief summary of business results for the second quarter ended September 30, 2024. Please turn to Page 4. Consolidated revenue for the 6 months increased 7.9% compared with the same period a year earlier to JPY 1,294.1 billion. Core operating income increased 62.6% to JPY 79.1 billion, and profit increased 92.3% to JPY 55.5 billion.
Page 5 is about special items. Special items for the 6 months improved by JPY 4.6 billion to positive JPY 0.4 billion compared with the same period of the previous fiscal year.
Page 6 about assets, liabilities, equity and free cash flow. As for financial condition at the end of September 2024, both assets and liabilities were affected by the decrease in translated yen from its overseas subsidiaries due to appreciation of the currency. Total assets stood at JPY 3,365.9 billion, down JPY 100.7 billion from the end of the previous fiscal year due to decreases in trade and other receivables.
Total liabilities decreased JPY 92.6 billion from the end of the previous fiscal year to JPY 1,527.6 billion, owing mainly to decreases in bonds and borrowings. Total equity decreased by JPY 8.1 billion compared with the end of the previous fiscal year to JPY 1,838.3 billion. Owners' equity was JPY 1,726.8 billion. Interest-bearing liabilities was JPY 889 billion, and D/E ratio was 0.51. Free cash flow was positive at JPY 65.4 billion.
Page 7 explains about capital expenditures, depreciation and amortization and R&D expenditures. Capital expenditures for the 6 months increased by JPY 33.3 billion to JPY 88.4 billion on a year-to-year comparison. Meanwhile, depreciation and amortization increased by JPY 1.4 billion to JPY 66.4 billion. R&D expenditures increased by JPY 2.2 billion to JPY 35 billion compared with the same period of the previous fiscal year.
The table on Page 8 describes revenue and core operating income by segment. In addition, the graph on this page shows the factor analysis of JPY 30.5 billion increase in core operating income for the 6 months on a year-to-year comparison. Production and sales in the Fibers & Textiles, Performance Chemicals and Carbon Fiber Composite Materials segments have expanded, capturing the demand increase and recovery. As for the net change in price, strategic pricing has proceeded at a pace exceeding the plan and contributed to the increase in core operating income. Core operating income increased 62.6% compared with the same period of the previous fiscal year, and core operating income margin rose 2.1 points as a result of capturing the strong demand and the promotion of structural reform.
Using Page 9 and after, I'd like to explain the results of each segment. First, Fibers & Textiles. Revenue of the overall segment increased 7.1% to JPY 515.5 billion compared with the same period a year earlier, and core operating income increased 26.6% to JPY 34.4 billion. Apparel applications were robust overall as cargo movement of the summer clothing in Japan and shipment from overseas trading subsidiaries were strong. In the industrial applications, airbag textiles in the automobile applications were strong by capturing the increase in demand.
Page 10 is the Performance Chemicals segment. Revenue increased 10.3% to JPY 477.5 billion compared with the same period a year earlier. Core operating income significantly increased 134.2% to JPY 34 billion, as demand recovery and improvement in the utilization rate in the films business have contributed to improvement in profit.
I'd like to explain the conditions of each business on the next page. Resins business was affected by the production decline in some Japanese automobile manufacturers, but demand recovered in non-automobile applications for China and ASEAN. The Chemicals business remained strong. In the films business, profit improved due to demand growth in electronic parts-related applications owing to rebound from inventory adjustment in the supply chain as well as improvement in the utilization rate.
In the electronic and information materials business, demand for OLED-related materials and circuit materials saw some recovery. Breakdown of increase in core operating income by segment is shown in the graph on the right. In addition to the demand recovery in the resins and films business, effects of the profitability improvement project, known as D Pro, implemented at overseas subsidiaries contributed to the increase in core operating income.
Page 12 is the Carbon Fiber Composite Materials segment. Revenue increased 8.3% to JPY 152.8 billion compared with the same period a year earlier, and the segment posted core operating income of JPY 11.7 billion, 54.4% increase from the same period a year earlier. In addition to the recovery in sales volume of the aerospace applications, decreases in utility costs from lower electricity and natural gas prices in Europe contributed to the increase in core operating income.
I'd like to explain the status of each application on the next page. In the aerospace applications, demand from a major customer recovered steadily. In the sports applications, inventory adjustment continued in general purpose products for outdoor leisure, but sales of high-end products was strong. In the industrial applications, the wind turbine blade applications saw a gradual recovery.
Page 14 is the Environment & Engineering segment, revenue increased 2.6% to JPY 114.5 billion compared with the same period a year earlier, and core operating income increased 15.9% to JPY 11.8 billion. In the water treatment business, demand remained strong, but shipments for major products in the Middle East were strong. Furthermore, sales of an engineering subsidiary in Japan was strong.
Page 15 is the Life Science segment. Revenue increased 3.2% to JPY 25.6 billion compared with the same period a year earlier, and core operating income decreased by JPY 0.1 billion to negative JPY 0.6 billion. The Pharmaceutical business was impacted by the penetration of generic versions of drugs and the NHI drug price revision. In addition, sales volume was stagnant overseas. In the Medical Devices business, shipment of dialyzers were strong in Japan and overseas, but affected by the soaring prices of raw materials and fuels.
Page 16 shows the business results of major subsidiaries and regions. At Toray International, sales of resins, films and electronic and information materials businesses was strong. At the subsidiaries in Southeast Asia, in the Fibers & Textiles business and automobile applications in the industrial applications was strong. In the Performance Chemicals business, demand for ABS resins in China and ASEAN was on a recovery trend. At the subsidiaries in China, in the Fibers & Textiles business, apparel applications and industrial applications, especially in the automobile applications were strong. In the Performance Chemicals business, sales of resins were strong. As for our subsidiaries in the Republic of Korea, in the Fibers & Textiles business, supply and demand balance of nonwoven fabric worsened. However, sales of filament and staple fibers improved. In the Performance Chemicals business, sales of films and electronic information materials were strong.
Next, I'd like to explain the consolidated business forecast for the fiscal year ending March 2025. Please turn to Page 18. The global economy is likely to gradually recover along with the decline in inflation rate and monetary easing. The Japanese economy is also expecting a gradual recovery. However, the downward risks for the economy in Japan and overseas include potential changes in fiscal and trade policies in the U.S. following the presidential election, prolonged real estate recession in China, and the impact on consumption in the U.S. and Europe caused by the financial policies as well as changes in the Bank of Japan's monetary policy and foreign exchange fluctuations.
For the fiscal year ending March 31, 2025, Toray revised its full year consolidated forecast announced on May 13, 2024, taking into consideration its business performance for the 6 months of the fiscal year and the changes of the business environment. It now expects revenue of JPY 2,590 billion, core operating income of JPY 145 billion, and a profit of JPY 88 billion. This forecast from October onwards is based on an assumed foreign currency exchange rate of JPY 140 to the U.S. dollar.
Page 19 shows the consolidated business forecast for the fiscal year ending March 2025 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.
Next, I would like to explain about the progress of medium-term management program, Project AP-G 2025. On Page 22, I'd like to explain about the business structure reform based on the 4 categories of growth potential and profitability as a measure to improve each business field. The figure in the bottom right is the 4 categories of growth potential and profitability. The pink business field in the left half of the figure are the low profitability businesses. Not only do we promote business structure reform for low growth and low profitability businesses for such business fields, but we also implement the projects to improve profits of specified businesses and companies, Darwin Project, abbreviated as D Pro, for specific businesses and companies with large capital investment.
The light blue business field in the right half and upper left are those expected to be highly profitable. From these businesses, we prioritize allocation of funds and personnel to competitive businesses to assist for future growth. For low growth and low profitability businesses, we have set the rules on studying withdrawal or downsizing. These businesses that apply to these rules will be on the table for consideration. Also, in addition to businesses that fall under the D Pro, we will consider downsizing assets that do not contribute to the growth of the businesses.
Page 23 summarizes the initiatives in D Pro and the effects. Zoltek, large-tow carbon fiber business, enhances global operations by utilizing high-cost competitive products made in Mexico. The business became profitable ahead of schedule in the second quarter of FY 2024 due to initiatives for fixed and utility cost reduction and recovering demand for the wind turbine blade applications.
In the PET films business, we have implemented retirement of production lines that were not expected to be utilized in the future. We will work to restore profitability within FY 2024 by promoting sales expansion and strategic pricing in addition to further cost reduction. In the PP spunbond business, we are implementing thorough reduction of fixed costs. However, due to the slight delay in the development of differentiated products, this business is expected to be profitable in the first half of FY 2025.
TPM has already restored profitability, but we aim for further improvement in core operating income by promoting high added value creation. The polyester staple fiber business has already reduced fixed costs by implementing optimization of production capacities in the global production sites, including production transfer between Japan and Southeast Asia. Moreover, promoting sales expansion for high added value products such as recycled or microfiber products, the business has become profitable ahead of schedule.
Page 24 shows specifically implementation of business structure reforms for low growth and low profitability businesses. In addition to the initiative of D Pro, we are implementing initiatives for low growth and low profitability businesses as shown on the bottom left. Specifically, in our Fibers & Textiles business, supply chains have been built within the group utilizing the production sites in Japan, Southeast Asia and East Asia. Therefore, by identifying competitiveness of each product and customer, we are currently restructuring production sites. In addition to these initiatives, we are discussing, deliberating and implementing other structural reforms.
On Page 25, I would like to explain about the strategic pricing, which is promoted under 1 of the 5 basic strategies, ultimate value creation. Strategic pricing can be categorized broadly as 1 through 3 in the table. We are proceeding with price correction and product mix improvements that are effective in short term in parallel with creation of new products and new value that are effective in the medium to long term.
Specific initiatives of strategic pricing are shown on this slide. We are steadily improving profitability through the initiatives to reflect the customer value and the competitiveness of our products to the sales price. Moreover, we share best practices and know-how company-wide. And as for products which have made progress on strategic pricing, we give feedback from sales promptly to production, technology and R&D to accelerate the cycle of product development. Through strategic pricing with a focus on the price correction, we aim for improvement in core operating income of more than JPY 10 billion, and we are seeing effects of the initiatives ahead of schedule.
On Page 26, I'll explain about the progress on reduction of cross-shareholdings and share buybacks. Sales amount is expected to be about JPY 100 billion in FY 2024, and we expect to achieve the target 2 years ahead of schedule. We plan additional sales in FY 2025. Since we have a good prospect for the sales of cross-shareholdings in FY 2024, we resolved JPY 100 billion of share buybacks at the Board of Directors meeting on November 7, 2024.
Lastly, I'll explain about improvement of governance and incentive program of the Employee Stock Ownership Association. As it takes a certain amount of time to develop and commercialize our materials, we value management from a long-term perspective and set a relatively high ratio of fixed portion in the remuneration system for the members of the Board to avoid shortsighted management. While we acknowledge that a long-term perspective is still important, in order to achieve sustainable growth even in a rapidly changing business environment, we will set KPIs for medium- to long-term management issues, clarify performance responsibility and encourage management from a medium- to long-term perspective. We will also consider introduction of a restricted stock remuneration system, aiming for the management with an awareness of the stock price. As for stock, we have improved the incentive program to promote the welfare of employees and increase the sense of participation in the company's management.
This concludes my presentation. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]