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Good evening, ladies and gentlemen. I am Motohiro Takeuchi, CFO of Showa Denko. Thank you very much for your continued attention to our business performance.
I will explain the financial results of the first quarter 2019, the first quarter results announcement in Reiwa era.
Please turn to Page 2. Number of consolidated subsidiaries was 57, 1 less than the end of the previous year. In Electronics segment, while LED manufacturing subsidiary, SHOKO Electronics was newly consolidated, whereas SHOWA DENKO CARBON Shanghai whose news was released with the integration of former SGL GE was liquidated in Inorganics segment. And SHOTIC Singapore, which was transferred to SHOTIC Malaysia, was liquidated in Aluminum segment. And with the 2 companies' exclusion, we have less consolidated companies.
As for exchange rate, $1 was JPY 110.2 on average in January-March period, with yen depreciated by JPY 1.9 per dollar compared with JPY 108.3 in the same period of the previous year.
Year-end rate to be used for variation of assets and liabilities was JPY 111 to a $1 at the end of March, unchanged from JPY 111 as the end of the previous year.
EUR 1 was JPY 125.2 on average in January-March period, with yen appreciated by JPY 8.1 per euro compared with JPY 133.2 to euro in the same period of the previous year.
Regarding the FX sensitivity, with the expansion of graphite electrode business from this year with JPY 1 appreciation in both of dollar-yen and euro-yen exchange rates, annual operating profit will be down by JPY 1 billion respectively, including the translation difference of overseas subsidiaries.
Domestic naphtha price was JPY 41,200 per kiloliter, down by 14% or JPY 6,700 year-on-year compared with JPY 47,900 in the same period of the previous year.
Aluminum LME price was affected by demand decrease due to economic slowdown in China, affected by tariff imposition by the U.S. and it was $1,881 per ton, down by 13.1% or $283 compared with $2,163 in the same period of the previous year. Premium was impacted by softening supply/demand and it went down from $103 in the fourth quarter of the previous year to $85 in the first quarter of this year. But in the second quarter, it was set as $105.
Domestic market price denominated in yen on average from January to March was JPY 258,000, down by 10.7% or JPY 31,000 compared with JPY 289,000 in the same period of the previous year.
Please turn to Page 3. This slide shows a summary of the first quarter 2019. Net sales were JPY 234.7 billion, up JPY 20 billion or 9.3% year-on-year. Details will be provided on Page 5, but Inorganics segment has seen the international market price increase in graphite electrode business. And in Petrochemicals segment, shutdown maintenance of every 4 years was completed in the previous year and the full operation continued in this year and they pushed up the sales. Operating income was JPY 45.4 billion, up JPY 11.1 billion or 32.4% year-on-year.
Although there were some variants by segment, the progress vis-Ă -vis the first half operating income forecast of JPY 91 billion was 50%. Despite the naphtha feedstock adjustment in Petrochemicals segment and lower demand period in Chemicals segment, with shutdown maintenance in February to March, solid progress has been made.
Operating income, ordinary income and net income attributable to owners of the parent shown in this first quarter was a record highest for the first quarter. Ordinary income was JPY 44.2 billion, up JPY 11.5 billion or 35.3% year-on-year. As for nonoperating income and expenses in equity and earnings of affiliates, high utilization continued in a styrene monomer, but adjustment was booked due to its accounting closure in March. And combined with the time lag and material costs to transfer to price in Japan polyethylene, the profit was squeezed and it worsened by JPY 1.1 billion year-on-year.
In foreign exchange gains or losses in the previous year through the first quarter, yen appreciated and the losses of JPY 2.4 billion was booked. But in this year, there were slight gains and the year-on-year improvement was JPY 2.6 billion.
And in this year, JPY 0.7 billion of plant environmental improvement expense was recognized. Accordingly, nonoperating income and expenses improved by JPY 0.4 billion. Extraordinary profit and loss didn't mark any major items and combined improvement was JPY 0.5 billion.
Income taxes were JPY 9.5 billion, with addition of JPY 3.8 billion, along with the profit growth.
Net income was JPY 34.3 billion, up JPY 8.2 billion and net income attributable to owners of the parent were JPY 33.1 billion, up JPY 8.4 billion or 34.1% year-on-year.
Please turn to Page 4. Extraordinary profit increased by JPY 0.3 billion year-on-year, with gain on series of investment securities by selling down part of equities.
Extraordinary losses had no major items and it ended at JPY 0.7 billion, with the reduction of JPY 0.2 billion losses year-on-year. As a result, extraordinary profit and loss net was minus JPY 0.4 billion, with the improvement of JPY 0.5 billion.
Please turn to Page 5, consolidated sales by segment. Sales in 3 segments of Electronics, Aluminum and Others, decreased year-on-year, but Chemicals segment was flat and Inorganics and the Petrochemicals segment increased. And as a whole, total sales increased.
Sales in Petrochemicals segment increased JPY 8.9 billion year-on-year to JPY 62.7 billion. In olefins, in the same period of the previous year, large-scale shutdown maintenance of every 4 years was carried out. But in this year, full operation continued without the shutdown and the shipment volumes of ethylene and propylene increased and the sales went up. In organic chemicals, shipment volumes of vinyl acetate and ethyl acetate increased and the sales were up. In SunAllomer, continued high utilization pushed up the sales.
Sales in Chemicals segment increased slightly by JPY 8 million year-on-year to JPY 36 billion. In basic chemicals, sales of chloroprene rubber were up with firm volumes and prices. Ammonia sales were flat year-on-year, but acrylonitrile sales dropped due to market price declines and the total sales were down. Market price of acrylonitrile hit the bottom at $1,400 per ton in the first quarter and recovery was made recently to over $1,700.
In electronic chemicals due to adjustment in semiconductor and LCD panel industries, shipment volume increase was limited and the sales increased slightly.
In functional chemicals, certain price of polyester, among others, increased due to material cost increase and the sales increased slightly.
In industrial gases, sales were flat year-on-year. Sales in Electronics segment decreased JPY 8.2 billion year-on-year to JPY 20.6 billion.
As for hard disks for PC applications, PC shipment continued to be low -- lower due to CPU shortage and significant hard disk drive production adjustment were made for data centers, affected by global IT investment slowdown. And the shipment volumes of our media decreased close to 30% year-on-year and the sales sharply declined.
As for media shipment for data centers, initially planned launch of media shipment for 14-terabyte drive was delayed to second quarter, but hard disk drive shipment for global major data center companies started in the second quarter. Media shipment in the second quarter will increase by 20% over the first quarter.
In compound semiconductors, sales fell due to volume decline. In rare earth magnetic alloy, due to the structure reform conducted in the previous year volumes went down substantially and the sales were down.
In lithium-ion battery materials sales were down due to the volume decline for EVs in China. Silicon carbide epitaxial wafers volumes increased due to capacity expansion to respond to the demand increases by railway companies, among others.
Silicon carbide epitaxial wafers shifted to Electronics segment from Others segment from this year. And the amounts in 2018 are based on the new segmentations after the shift.
Sales in Inorganics segment increased JPY 21 billion year-on-year to JPY 72.4 billion. In ceramics, shipment increased in fine ceramics for electronic materials, including titanium oxide and heat radiation fillers, but shipment volumes of general-purpose aluminum declined substantially due to the structural reforms in the previous year and sales went down.
In graphite electrode, despite the softening supply and demand of thin-diameter electrode in Chinese market, international market price increased due to the tight supply growth by the robust electric furnace steel production in the U.S. market, among others, and sales increased drastically. Our Others selling price in the first quarter was fivefold of 2017, as initially planned.
Contract price for East Asia in April to September period went up compared with that of October-March period. Sales in Aluminum segment decreased JPY 1.1 billion year-on-year to JPY 23.8 billion.
High-purity foils for capacitors for automotive applications were firm, but shipment for industrial equipment decreased due to the slowdown in investment in semiconductor industries and others, and sales were down.
In aluminum specialty components, volumes for automotive parts and industry equipment were down and sales decreased. In aluminum cans, domestic sales increased slightly, but in Vietnam, capacity expansion delivered in shipment increase and sales growth.
Sales in Others segment decreased JPY 0.9 billion year-on-year to JPY 32.4 billion. Sales of SHOKO Co. Ltd. were flat year-on-year, but overseas trading subsidiaries sales decreased.
Please turn to Page 6. Consolidated operating income by segment. Profit decreased year-on-year in 4 segments, including Electronics, but Inorganics segment profit increased substantially and Petrochemicals segment also showed profit growth. As a result, in total, operating income increased by JPY 11.1 billion.
Operating income in Petrochemicals segment increased JPY 0.6 billion year-on-year to JPY 4 billion in olefins, compared with the previous year with the large shutdown maintenance of every 4 years, shipment volumes increased and it pushed up the profit by JPY 3 billion, but naphtha rated a negative impact of JPY 2 billion, which includes a feedstock adjustment by naphtha price declines and squeeze spread of our cracked fuel oil and C4 fractions slashed the profit.
In organic chemicals, volumes increased in vinyl acetate and ethyl acetate and profit increased. In SunAllomer, polypropylene products -- production continued through utilization and that pushed up the profit.
Operating income in Chemicals segment decreased JPY 1.2 billion year-on-year to JPY 2.4 billion. In basic chemicals, first quarter is usually slow due to a shutdown maintenance of major plant in Kawasaki in February and March. But this year, additionally, due to weak market price of acrylonitrile profit was down.
In the electronic chemicals due to shipment mix change in high-purity gases for electronics, profit decreased. Industrial gases and the functional chemical showed slight declines in profit.
Operating income in Electronics segment decreased JPY 3.3 billion year-on-year to minus JPY 0.3 billion. In hard disks, due to shipment volume decline affected by production adjustment of hard disk drive for data centers, profit went down. In compound semiconductors, due to volume declines for industrial equipment, profit was down.
In rare earth magnetic alloy, due to volume declines with the structural reforms, profit decreased. In lithium-ion battery materials, shipment volume declines for China led to profit decrease. Silicon carbide epitaxial wafer business, which shifted to this segment from this year, showed slight profit decrease in the first quarter due to development cost increase.
Operating income in Inorganics segment increased JPY 14.7 billion year-on-year to JPY 39.5 billion. In ceramics, in addition to the improvement by the withdrawal from loss-making general-purpose alumina business, volume increased in fine ceramics for electronics, including titanium oxide increased the profit.
In graphite electrode, international market price was boosted, backed by the stronger demand and profit increased. Operating income in aluminum segment decreased JPY 1.1 billion year-on-year to JPY 0.3 billion. Volumes in high-purity foil for capacitors decreased for industrial equipment and profit was down.
In aluminum specialty components, volumes declined for automotive parts and industry equipment and profit decreased. In aluminum cans, domestic business profit increased slightly, but in Hanacan in Vietnam due to start-up cost, profit was flat year-on-year. And in total, profit increased slightly.
Operating income in Others segment decreased JPY 0.4 billion year-on-year to JPY 0.3 billion. SHOKO Co. Ltd. profit increased slightly, but overseas trading subsidiaries profit decreased slightly.
Please turn to Page 7. As for total assets as of the end of March, cash and the deposit decreased from the end of the previous fiscal year and notes and accounts receivable decreased due to market price declines in Petrochemicals segment, among others. However, inventories increased due to graphite electrode business products and the raw materials market price increased and fixed assets also increased, and the total asset increased JPY 8.9 billion to JPY 1,083.9 trillion.
As for total liabilities, interest-bearing debt increased due to dividend payment, among others, but due to a decrease in notes and accounts payable, liabilities decreased JPY 12.8 billion from the end of the previous year to JPY 596.8 billion.
Total net assets increased JPY 21.7 billion to JPY 487 billion, mainly due to net income attributable to owners of the parent compared with the end of the previous year.
Please turn to Page 8. Interest-bearing debt increased JPY 8.3 billion to JPY 296.2 billion from the end of the previous year. Debt-to-equity ratio improved by 0.01 point to 0.61x from the end of the previous year.
Stockholders' equity ratio improved by 1.6 point to 43.1%. And although it is not listed in the slide, we were rated single A as of March 22.
Please turn to Page 9. From Page 9 to 12, quarterly operating income by segment are shown by bar charts. Page 13 and onward shows topics by segment. I will explain 2 investment, which are not listed in the materials, but which were announced today.
First, let me explain the introduction of S/4HANA. We decided to introduce SAP S/4HANA, an Enterprise Resource Planning ERP system developed by SAP SE, and we'll start operation of the new system in January 2020. Establishing information platform which will support further globalization of group's business activities, especially in the fields of graphite electrodes and HD media. We will strengthen marketing function to maximize customer experience, our management strategy in our new mid-term business plan, TOP '21.
ERP system gathers and accumulates various primary information about production, logistics, sales, accounting and procurement. It will realize integrated management of information gathered, not only from Japan, but also from global business bases deployed in Asia, Europe and the U.S., where we utilize a system for issuing the sophisticated sales forecast and estimating the profit and loss, so that the company can make proper decisions quickly.
We also introduced cross-sectional Customer Relationship Management, CRM, to generate new business opportunities. This IT infrastructure investment costs us approximately JPY 4 billion.
We're analyzing information accumulated in the system with AI and other technologies to realize more efficient management of the group and offer excellent solutions with combination of products and services.
Next, I'll explain the investment to improve graphite electrode business. On investment to improve graphite electrode business, which was announced in new mid-term business plan, TOP '21 and the financial results meeting in February, we formulated a plan for announcement this time.
Since 2017, graphite electrode business has been sustaining high utilization with the expanded production of electric furnace steel. Plants of former SGL, that the company acquired in the fourth quarter of 2017, have incurred a limited investment for renewals.
But in order to sustain high-level production for long time, we deem that making forecast aggressive investment for improvement in 2019 and 2020, the first half of the TOP '21 will be most effective rather than continuing piecemeal investment for renewals. During the period of construction works, approximately 5% of the group's production capacity will be affected.
In summary, compared with the consolidated business forecast announced on February 14, though some differences are observed by segment, generally, the progress has been solid. We continue to make our utmost effort to achieve the target for the initial year of the new midterm business plan, the TOP '21.
With this, I conclude the presentation. Thank you for your attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]