Toray Industries Inc
TSE:3402
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Toray Industries Inc
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Thank you very much for coming here 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 our business results for the third quarter of fiscal March 2019 and the business forecast for the fiscal year ending March 2019.
Please look at Page 1. These are the topics that I will cover today. I would like to begin with a brief summary of business results for the third quarter of fiscal year ending March 2019.
Now please look at the table on the right side of Page 3. Net sales for the 9 months ended December 31, 2018, increased 9.7% to JPY 1,808.3 billion compared with the same period of the previous fiscal year, and operating income declined 8.9% to JPY 112.4 billion. Ordinary income fell 8.3% to JPY 111.4 billion, and net income increased 4.8% to JPY 81.3 billion.
Please look at the table on the right side of Page 4. Nonoperating income of the 9 months period under review increased by JPY 3.3 billion, due mainly to increase in interest and dividend income and equity in earnings of affiliates. Meanwhile, nonoperating expenses increased by JPY 2.4 billion, primarily due to increase in costs related to films-related idle facilities as well as interest expenses. As a result, nonoperating income and expenses net improved by JPY 900 million to minus JPY 900 million compared with the same period of the previous fiscal year.
Page 5 is about special credits and charges. Special credits for the 9 months period under review increased by JPY 13.7 billion, primarily due to the increase in gain on sales of property, plant and equipment resulting from the sale of idle land. Special charges improved by JPY 6.1 billion to JPY 6.9 billion, mainly due to decrease in loss on liquidation and devaluation of subsidiaries and affiliated companies, loss on impairment of fixed assets and environmental expenses. As a result, special credits and charges net improved by JPY 19.9 billion to JPY 10.3 billion compared with the same period of the previous fiscal year.
Page 6 is about assets, liabilities and net assets. As of end of December 2018, total assets stood at JPY 2,781.0 billion, up JPY 205.1 billion from the end of March 2018, primarily due to the recording of goodwill and intangible assets associated with the acquisition of TenCate as well as increase in current assets, including notes and accounts receivable. Please find the amount and the amortization period of goodwill and intangible assets related to TenCate on this slide.
Total liabilities increased by JPY 162.9 billion to JPY 1,569.7 billion, owing mainly to a higher level of interest-bearing debts due to the issuance of straight corporate bonds last July.
Total net assets rose JPY 42.2 billion to JPY 1,211.4 billion, reflecting an increase in retained earnings due to recognition of net income.
Owner's equity was JPY 1,129.9 billion. Interest-bearing debts was JPY 969.5 billion. And D/E ratio was 0.86 points.
Page 7 explains about capital expenditures, depreciation and R&D expenses. Capital expenditures increased by JPY 1.1 billion to JPY 108.8 billion on a year-to-year comparison. Please find details of major capital expenditure projects on this slide.
Depreciation increased by JPY 5.7 billion to JPY 77.1 billion. R&D expenses increased by JPY 3.2 billion to JPY 49.9 billion.
This graph on Page 8 describes the factor analysis of JPY 11.0 billion decrease in consolidated operating income for the 9 months period on a year-to-year comparison. The difference in quantity was a plus JPY 24.9 billion from the increase in production quantity and sales volume related to sales expansion. The net change in price was a minus JPY 17.2 billion despite the efforts to pass on rise in raw material prices to the sales price in order to cope with the rise in raw material prices.
Cost variance, et cetera, was minus JPY 18.6 billion, due mainly to increase in costs and production fixed costs related to sales expansion.
Page 9 presents net sales and operating income results by segment. Using Page 10 and after, I would like to explain the 9 months results of each segment. First, Fibers & Textiles.
Overall sales of the segment increased 9.1% to JPY 761.1 billion compared with the same period a year earlier, and operating income rose 3% to JPY 60.3 billion. Although the segment as a whole was affected by the rise in raw material prices, Toray Group covered the negative impact through sales expansion and cost reduction.
In apparel applications, the group worked to expand the business format that integrates fibers to textiles to final products. Shipment of garments and textiles increased due to the clearance of distribution stock of autumn/winter garments, reflecting the last season's cold weather.
In terms of industrial applications, overseas, there were signs of a demand slowdown for automotive applications in China. However, in Japan, sales of automotive applications remained strong as a whole.
Page 11 is the Performance Chemicals segment. Overall sales increased 9.2% to JPY 654.9 billion compared with the same period a year earlier, and operating income declined 6.8% to JPY 52.0 billion. The segment as a whole was affected by the rise in raw material prices and saw an increase in production fixed costs related to the capacity increase of a battery separator film facilities.
I would like to explain each business condition described on the next slide. In the resins business, we expanded sales of automotive applications while passing on the rise in raw material prices to the sales price. The chemicals business saw an improvement in the basic chemicals market, and sales of fine chemical products also increased. In the films business, battery separator films for lithium-ion secondary batteries and MLCC release films remained strong. The electronic and information materials business was affected by the slowing demand for OLED-related materials, while electric circuit materials at a Korean subsidiary performed strongly.
Page 13 is the Carbon Fiber Composite Materials segment. Overall sales increased 20.4% to JPY 154.3 billion compared with the same period a year earlier, while operating income fell 44.4% to JPY 8.4 billion. Sales volume expanded across the board in and outside Japan, mainly in aircraft and industrial applications. The consolidation of TenCate also contributed to the increase in sales. Meanwhile, the segment was affected by rising raw material prices and intensifying competition, and the cost of starting a new project at a composite subsidiary overseas increased. Major reasons for the decrease in the adjustments of operating income include expenses incurred in relation to the amortization of goodwill associated with the consolidation of TenCate as well as costs related to the acquisition and the increase of unrealized profit from transactions between the group companies related to aircraft applications.
Now this is Page 14. In the aerospace applications, final demand, particularly for small and medium-sized aircraft, was strong, and shipments remained steady in the supply chain.
In sports applications, demand for materials for bicycles, golf shafts, rackets and hockey sticks showed signs of recovery, and we proceeded with sales expansion of high value-added products.
In the industrial applications, shipments remained strong in the environment and energy-related field, led by compressed natural gas tank applications and wind turbine blade applications. Moreover, shipment of composites of PC chassis and electrode substrates for fuel cell vehicles continued to be favorable.
Page 15. In the Environment & Engineering segment, overall sales increased 8% to JPY 184.6 billion compared with the same period a year earlier, while operating income declined 15.5% to JPY 7.9 billion. In the water treatment business, demand for reverse osmosis membranes and other products, in general, grew strongly on the whole in Japan and abroad. However, there was an impact of the decline in sales prices due to intensifying competition. Also, inventory was written down at the Toray parent company.
In terms of Japanese subsidiaries in the segment, construction projects proceeded steadily, and the delivery of real estate properties increased at a construction subsidiary. On the other hand, an engineering subsidiary experienced decrease in the shipment of some electronic-related equipments.
Page 16 is the Life Science segment. Overall sales increased 1.1% to JPY 40.2 billion compared with the same period a year earlier, while operating income declined 36.2% to JPY 1.2 billion.
In the pharmaceutical business, sales volume of DORNER increased for overseas markets but were affected by its generic versions and the revision of National Health Insurance drug price standards in Japan. Sales of REMITCH were influenced by the market entry of its generic versions.
In the medical devices business, while being affected by the reduction of the insurance reimbursement prices in Japan and increase in raw material prices, shipment of dialyzers grew strongly in Japan and overseas. Sales volume of dialysis machines also expanded.
The main cause of the decline in the adjustments of operating income was the decrease of the adjustment of unrealized profit from transactions between the group companies.
Page 17 shows the business results of major subsidiaries and regions. At Toray International, Fibers & Textiles business performed strongly. Toray Engineering experienced decrease in the shipment of some electronics-related equipments. At Toray Construction, construction works made progress, and the delivery of real estate properties increased.
In subsidiaries in Southeast Asia, sales of Fibers & Textiles business expanded with sales expansion of garments, textiles for apparel applications and adding value at the same time but was affected by the rise in raw material prices.
In the Performance Chemicals business, there was a rapid shrinking of [ spread ] for general-purpose grade ABS resins due to the slump in the Chinese market.
As for subsidiaries in China, Fibers & Textiles business reported strong performance as a whole with sales expansion of garments, textiles for apparel applications and adding value at the same time. In the Performance Chemicals business, the group proceeded with passing on rise in raw material prices to the sales price.
In terms of subsidiaries in Korea, Fibers & Textiles business was affected by the sluggish domestic market and intensifying competition. In the Performance Chemicals business, we pursued sales expansion of battery separator films and PPS resins. However, sales of high-functional electric circuit materials remained sluggish.
On Page 18, here shows the comparison of operating income between the second quarter and the third quarter. Consolidated operating income decreased JPY 9.1 billion from JPY 43.8 billion in the second quarter to JPY 34.7 billion in the third quarter. The variance factors of the JPY 9.1 billion decrease are explained on the right side of the slide with breakdowns into segments.
Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2019.
Please turn to Page 20. As for the forecast for the fiscal year ending March 31, 2019, Toray revised its full year consolidated forecast reflecting the business performance of the 9 months ended December 31, 2018, and the change in the business environment. It now expects consolidated net sales of JPY 2,400 billion, operating income of JPY 140 billion, ordinary income of JPY 135 billion and net income attributable to owners of parent of JPY 90 billion. This forecast from January onwards is based on an assumed foreign currency exchange rate of JPY 110 to the U.S. dollar.
Page 21 indicates the consolidated business forecast for the fiscal year ending March 2019 by segment. The upper table represents net sales, and the lower table shows operating income, with the difference from the previous forecast located on the far right of the slide.
Please look at Page 22. We have made revisions mainly in operating income of 5% textiles, Performance Chemicals and Environment & Engineering segments, respectively. In Fibers & Textiles, we expect overall sales to decrease, reflecting global economic downturn, as seen in economic slowdown in China and Europe. In Performance Chemicals, in the resins business, we have factored in sales slowdown of ABS resins from the deteriorating market conditions, as seen from the sluggish Chinese market. In the films and electronic and information materials businesses, we expect sales of smartphone-related materials to decrease due to the smartphone market slowdown. As for Environment & Engineering, there was a write-down of inventory in the water treatment business, and there was an impact from the cancellation of a water treatment project, which was included in the previous forecast. In addition, we expect earnings to be weak overall, including trading companies.
This concludes my presentation. Thank you very much.