Teijin Ltd

TSE:3401

Earnings Call Transcript 2020-Q3

[Yoshihisa Sonobe, executive]

I am Sonobe. I will explain the financial results of the third quarter of FY 2019 and the full year outlook for FY 2019.

Let me briefly explain the key points for the third quarter results. Regarding the business performance for the 9 months of fiscal year 2019, operating income was JPY 48.2 billion, which is on par with the result of the previous fiscal year of JPY 48.1 billion. In FY 2019, aramid fibers, Healthcare in Japan and IT business remained strong, and recovery of profitability of CSP, Continental Structural Plastics, in automotive composites business contributed to the results as well.

While there were such positive factors, negative impact was felt in the sluggish market for polycarbonate resins and significant decline of overseas sales of FEBURIC due to its patent cliff. This resulted in the flat growth in operating income.

As for the full year outlook for FY 2019, there is no change from the previous announcement with operating income of JPY 55 billion while there were some changes in the breakdown for each segment.

First, I will explain the results of the third quarter. The first point of the highlights is the same as explained earlier. Revenue and operating income are as indicated on this page, and profit attributable to owners of parent was down year-on-year from JPY 40.8 billion to JPY 30.2 billion. This is due to a decline in foreign exchange gain in nonoperating income as well as recognition of extraordinary loss for expenses associated with the transfer of subsidiaries in Film business.

Next page explains the PL. Let me skip items I already covered and complement on balance tax burden in profit attributable to owners of parent and income before income taxes compared to the previous fiscal year. According to this table, it looks tax burden in this third quarter is slightly higher year-on-year. Actually, the level of this fiscal year is normal, and the results of the previous fiscal year were affected by tax effect due to the use of the loss carried forward of Toho Tenax and clear outlook for revenue as a result of extended reexamination period for FEBURIC. ROE was 9.7% and ROIC was 9.7% as well.

On upper right, CapEx for the 9 months of FY 2019 increased JPY 5.8 billion year-on-year to JPY 46.5 billion. And the depreciation and amortization was up JPY 2.5 billion year-on-year. We recognized a slight appreciation of yen for exchange rates.

Next slide is overview of Materials Business field. Aramid fibers contributed to profit owing to improvement in product mix and price. However, its sales volume for automotive applications declined slightly, especially for rubber reinforcement material and friction material.

Regarding carbon fibers. While sales of aircraft applications were almost on par with the previous fiscal year, up-front investments increased, for instance, for building a new plant in the U.S.

As for Resin and Plastics Processing. Profitability of commodity products was negatively affected by the sluggish polycarbonate market.

Regarding Composites. Solid sales were achieved for flagship product of CSP, such as pickup trucks and SUVs, and its profitability is recovering year-on-year.

Polyester Fibers & Trading and Retail saw sluggish sales in Fiber Materials and Apparel, mainly due to unseasonable weather while Industrial Textiles and Materials performed well during the quarter.

Healthcare benefited from strong FEBURIC sales in Japan as well as a steady trend in Home Healthcare. Due to the patent cliff, however, in overseas markets, profits were down slightly year-over-year.

Others mainly consists of Infocom business. The e-comics distribution surveys as well as IT service for hospitals posted a steady performance.

Next is nonoperating items. Foreign exchange gain, including gain on valuation of derivatives recorded last year was down this year, and the dividends income recorded last year was also substantially down this year because of the strategically held shares had been already sold. Both factors affected the company's earnings negatively.

As an extraordinary item, business structure improvement cost was recorded as a result of onetime expense incurred for the divestiture of the Film business, as explained earlier. Combination of this and the absence of the settlement received recorded last year were the factors behind the deterioration by about JPY 6 billion.

Next is financial position. The bottom chart shows the factors behind the changes. Cash and deposits increased from the end of the previous year, mostly driven by the sales proceeds of the Film business. Trade receivables decreased also due to the impact of the Film business divestiture. Tangible and intangible assets increased, half of which was due to the change in lease accounting and the other half due to the acquisition of Renegade Materials Corporation and Benet Automotive.

Next is outlook for fiscal year 2019. Projected net sales and operating income are unchanged. By segment, however, Materials is revised downward, and Healthcare is revised upward.

Profit attributable to owners of parent is kept unchanged.

Dividend forecasts are also kept unchanged at JPY 60 per share.

Next is net sales and operating income. Please refer to the year-on-year change from FY '18 being JPY 5 billion. Almost all of the JPY 5 billion is attributable to the same factors as for Q3. In other words, the gap we had at the end of Q3 has been carried over straight into the full year forecast.

Next is a comparison with the previous outlook. There are some changes made on the segment level. Materials were revised down by JPY 1.5 billion. There are 3 factors for the downward revision, namely, the decline in polycarbonate resin prices, the impact of a warm winter on Teijin Frontier included in the Polyester Fibers & Trading Retail business and impact of the delayed launch of GM new model on CSP included in Composites business and Others. Those are the factors behind the downward revision by JPY 1.5 billion.

On the other hand, Healthcare was revised upward by about JPY 1 billion in view of the strong third quarter performance.

Next is key financial indicators. Compared with the targeted medium-term ROE of 10%, the current outlook is 8% for ROE and also for ROIC based on operating income.

EBITDA is remaining almost at the same level as year ago, meaning we are falling short of the medium-term target.

That's all for myself. Thank you.

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