Showa Denko KK
TSE:4004
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
American Express Co
NYSE:AXP
|
Financial Services
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Target Corp
NYSE:TGT
|
Retail
|
|
US |
Walt Disney Co
NYSE:DIS
|
Media
|
|
US |
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
|
US |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
2 625.5
3 922
|
Price Target |
|
We'll email you a reminder when the closing price reaches JPY.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Estee Lauder Companies Inc
NYSE:EL
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Church & Dwight Co Inc
NYSE:CHD
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
American Express Co
NYSE:AXP
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Target Corp
NYSE:TGT
|
US | |
Walt Disney Co
NYSE:DIS
|
US | |
Mueller Industries Inc
NYSE:MLI
|
US | |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Good evening. I am Takeuchi, CFO of Showa Denko. Thank you very much for your continued interest in our business performance. I'd like to walk you through the results of the third quarter FY2019. Please turn to Page 2.
The number of consolidated subsidiaries was 63 with 9 new consolidations and 4 exclusions from the end of the previous year. As for new consolidation, in the first half, an LED manufacturing subsidiary in Electronics segment, SHOKO Electronics, was added. Within the coating material business, which was included in Chemicals segment in July, the Industrielack AG ILAG Group that we acquired in July and GMM Group that was acquired in 2016 were added as a part of 8 companies as consolidated subsidiaries. 3 companies were excluded in the first half. They are: SHOWA DENKO CARBON Shanghai in the Inorganics segment, whose needs were weakened despite this consolidation with SGL GE's integration; SHOTIC Singapore in Aluminum segment, whose transfer to SHOTIC Malaysia was already completed; and Showa Esterindo Indonesia in Petrochemicals segment, whose liquidation process was already completed. In the second half, in Aluminum segment, Showa Aluminum Corporation of America was consolidated through merger with Showa Denko America, and in total, the number decreased by 4.
Equity method applied companies were 11, remained unchanged from the end of the previous year. Exchange rate was JPY 109.2 on average from January to September and yen appreciated by JPY 0.5 from JPY 109.6 year-on-year. Year-end rate to be used for a variation of assets and liabilities was JPY 107.9 with the yen's appreciation of JPY 3.1 from JPY 111 of the previous year-end. And against euro, the January to September average was JPY 122.7 with the yen's appreciation of JPY 8.3 per euro from JPY 131 of the corresponding period of the previous year. Foreign exchange sensitivity was JPY 1 billion for a year with a move of JPY 1 to $1, including translation difference of overseas subsidiaries. But as for JPY-EUR rate, as announced in August, after reviewing the impact on consolidated financials, it was revised to JPY 0.3 billion with the move of JPY 1 to euro.
Domestic naphtha price was JPY 42,250 per kiloliter with the drop of crude oil price, and it went down by JPY 7,800 or 15.6% year-on-year from JPY 50,050 in the same period of the previous year. Aluminum LME price was down due to demand decline caused by Chinese economic slowdown to $1,829 per ton, down by $334 or 15.4% year-on-year from $2,163 in the same period of the previous year. Premium started from $85 in the first quarter this year due to concerns for economic slowdown, and it recovered to $105 in the second quarter, $108 in the third quarter, but it dropped to $97 in the fourth quarter. After pricing yen, for January to September on average was JPY 251,000 per tonne, and it went down by JPY 45,000 or 15.2% year-on-year from JPY 296,000 in the same period of the previous year.
Please turn to Page 3. This shows consolidated summary from January to September 2019. Sales was JPY 695.6 billion, down by JPY 29.4 billion or 4.1% year-on-year. Details will be explained on Page 5.
The sales in Chemicals segment increased. The sales in Electronics segment fell drastically due to volume decline in the first half in hard disk business and 5 segments posted sales declines. Operating income was JPY 109.3 billion, down by JPY 25.2 billion or 18.7% year-on-year. Details will be provided on Page 6. But in Inorganics segment, production was cut back in graphite electrode business, and hard disk volume decrease in electronics segment reduced profit.
Ordinary income was JPY 107.6 billion, down by JPY 26.6 billion or 19.8% year-on-year. As for nonoperating income and expenses, interest and the dividends income and expenses improved by JPY 0.8 billion due to repayment of subordinate loan in the previous year, but foreign exchange gains or losses were minus JPY 0.4 billion, and equity in earnings of affiliates incurred cost increase of JPY 0.7 billion due to sluggish synthetic resin market. Other expenses included the environmental expenses for plants increased. And in total, expenses increased JPY 1.4 billion and a loss of JPY 1.7 billion was incurred. Extraordinary profit and loss will be explained on the next page, but it was loss of JPY 2.1 billion in net and improved JPY 0.4 billion year-on-year.
Income taxes went down by JPY 5.7 billion with profit declines. Effective tax rate was 21%, almost remains unchanged year-on-year. Net income attributable to noncontrolling interest was JPY 2.3 billion due to profit decline of Showa Denko Sichuan Carbon, and it improved by JPY 2.1 billion year-on-year. Net income attributable to owners of the parent was JPY 81 billion, down by JPY 18.3 billion or 18.4% year-on-year. Operating income, ordinary income and the net income attributable to owners of the parent were second highest in the record.
Please turn to Page 4. As for extraordinary profit, we have been selling down the investment securities, and mainly in the first half, we posted gain on sales of investment securities of JPY 1.3 billion. Combined with the gain on sales of noncurrent assets of JPY 0.7 billion, extraordinary profit was JPY 2.2 billion, up JPY 1.6 billion year-on-year. As for extraordinary loss, we posted impairment loss of JPY 1.3 billion with partial line suspension of Oyama and Hikone plants in aluminum cans business with the decision to optimize production capacity of domestic aluminum cans business. Also, JPY 0.6 billion loss on liquidation of petrochemical subsidiary Showa Esterindo Indonesia and loss on sales of other noncurrent assets resulted in the loss of JPY 4.3 billion with the expenses increase of JPY 1.2 billion year-on-year.
As a result, extraordinary profit and loss on net was minus JPY 2.1 billion with JPY 0.4 billion improvement year-on-year.
Please turn to Page 5. This shows consolidated sales by segment. Chemicals segment sales increased year-on-year, but sales in 5 segments, including petrochemical, decreased. And in total, sales declined. Petrochemicals segment sales were down JPY 2 billion year-on-year to JPY 189.6 billion. Olefins volume increased compared to the previous year when we had a large shutdown maintenance of every 4 years in ethylene plant. However, market prices were down due to softening supply-demand of petrochemical products in Asia. Sales in organic chemical declined due to market prices decline of vinyl acetate, ethyl acetate, among others. SunAllomer sales increased slightly due to volume increase. Chemicals segment sales were up JPY 0.5 billion year-on-year to JPY 115.6 billion. In basic chemicals, sales of ammonia and chloroprene rubber were almost flat year-on-year, but acrylonitrile sales declined due to market price decline. And as a whole, sales declined slightly. In electronic chemicals, volume declined affected by adjustment in semiconductor and display industries.
Sales in industrial gases and functional chemicals increased slightly, and coating material business that we acquired was newly consolidated. Electronics segment sales were JPY 70 billion, down by JPY 15.3 billion year-on-year. In hard disk business affected by massive production adjustment of hard disk drive for data centers caused by global IT investment slowdown. Shipment from January to September was down 15% year-on-year, mainly in the first half, and posted substantial sales decline. From second quarter, media shipment for data center already started to recover.
In compound semiconductors, sales went down due to volume decline. In rare earth magnetic alloy business, structural reform resulted in a substantial sales decline. In lithium-ion battery materials, sales declined due to volume decline for Chinese EV. In SiC epitaxial wafers business, volume was up with the expanded demand for railways, among others, and sales increased. Inorganic segment sales were down JPY 2 billion year-on-year to JPY 190.1 billion.
In ceramics business, volume of general purpose alumina decreased due to structural reform implemented in the previous year, and sales were down. In graphite electrode business in European market, slowdown in steel production and drawdown of customers' inventory led to weaken the supply demand. However, affected by tightening supply-demand that started in the previous year, international market prices picked up, and sales increased. Our average selling price from January to June was, as initially planned, 5x of the standard year of 2017. And in July to December period, high level price of close to 5x is sustained.
Aluminum segment sales were down JPY 7.4 billion year-on-year to JPY 73.7 billion. In aluminum rolled products, shipment of high-purity foil for capacitors declined slightly, affected by production adjustment of industrial machineries and others. In aluminum specialty components, shipment of auto parts declined, especially in Europe. And the volume of products for industrial machinery was down and sales declined.
Aluminum can sales almost remain unchanged. As for sales of Others segment, sales of SHOKO Co. Ltd. were down year-on-year. And in total, with a decline of JPY 5.9 billion year-on-year, sales stood at JPY 95.8 billion.
Please turn to Page 6. It shows consolidated operating income by segment. It was down year-on-year by JPY 25.2 billion. In Petrochemicals segment, profit was down JPY 2.2 billion year-on-year to JPY 13.3 billion. Olefin volume increased year-on-year as we carried out large-scale shutdown maintenance of once every 4 years in the previous year, but feedstock adjustment worsened due to naphtha price decline and the spreads tightened in ethylene, butadiene and cracked fuel oil due to weakened supply-demand in Asia, and the profit declined. Organic chemicals profit increased due to volume increase of vinyl acetate. Polypropylene volume of SunAllomer increased and profit increased. In Chemicals segment, profit was down JPY 3.1 billion year-on-year to JPY 9.5 billion. Basic chemicals profit increased slightly.
In electronic chemicals, volume of high-purity gases for electronic materials declined, affected by production adjustment in semiconductor and display industries. And due to product mix change as well, profit declined. In industrial gases business, due to volume decline and transportation cost increase caused by long shutdown maintenance of the material sole supplier in Western Japan, profit declined. In functional chemicals, profit was almost flat year-on-year.
In Electronics segment, profit was down JPY 7.8 billion year-on-year to JPY 3 billion. In hard disk business, affected by shipment delay of hard disk drive for data centers, which was caused by slowdown in data center investment mainly in the first quarter, volume declined and profit declined as well.
In compound semiconductors, profit declined with volume decline. In rare earth magnetic alloy business, profit was almost flat year-on-year. In lithium-ion battery materials, profit declined due to volume decline for China. As for SiC epitaxial wafer business, which was transferred to this segment from this year, development cost increased from this year with its inclusion in division, and profit declined.
In Inorganics segment, profit was down JPY 13 billion to JPY 84.9 billion. In ceramics, despite improvement made with withdrawal from general purpose alumina business, products for electronic materials decreased, affected by the production adjustment in semiconductor industry, and profit decreased. In graphite electrode business, international market prices were up due to tight supply-demand in the previous year. But customers' inventory drawdown, in particular in Europe, caused lagged supply-demand and due to production cutback, volume declined and profit declined as well.
In Aluminum segment, operating income was down JPY 2.6 billion to JPY 1.4 billion. As for high-purity foil for capacitors, volume declined for industrial machineries and profit declined. In aluminum specialty components, volume declined for automotive components and industrial machineries and profit declined. Profit in aluminum cans increased. In Others segment, SHOKO profit increased, but profit in overseas sales subsidiaries decreased. And in total, profit was down JPY 0.4 billion to JPY 0.9 billion.
Please turn to Page 7. This shows operating income year-on-year variance up to September by factor. As for volumes in Inorganics, mainly in Europe, graphite electrode production cutback led to volume decline with the impact of JPY 24.3 billion. In Electronics, mainly in hard disk, volume decline the first half worsened the number by JPY 5.1 billion. In Aluminum, mainly in aluminum specialty components, shipment decline for automotive worsened the number by JPY 3.6 billion. And in total, impact was minus JPY 31.4 billion. As for prices, in Petrochemicals, due to market price declines in ethylene, C4 fractions and cracked fuel oil, minus JPY 6 billion impact was observed. But in Inorganic segment, international market prices in graphite electrode surged, and it was plus JPY 15.2 billion. And as a whole, company impact was plus JPY 9.9 billion. As for cost reductions, through measures to improve productivity in Aluminum, Inorganic and Chemicals segment and others, impact was plus JPY 5.3 billion. And as for others, in Petrochemicals, due to the absence of shutdown maintenance of the ethylene plant in the previous year, impact was plus JPY 6 billion. But to -- due to worsened feedstock adjustment caused by naphtha price decline, impact was minus JPY 3 billion, and net impact was plus JPY 2.5 billion.
In Inorganics, time lag in raw material needle coke's price increase was negative impact of JPY 5 billion. In Electronics, due to R&D cost increase of SiC business change into division, negative cost impact was JPY 1.8 billion. Putting it all together, it was minus JPY 8.9 billion.
Please turn to Page 8. This shows a summary of July to September 2019. Sales were JPY 220.1 billion, down JPY 49 billion or 18.2% year-on-year. Details will be explained on Page 9, but mainly due to volume decline caused by graphite electrode production reduction and market price decline in Petrochemicals segment.
Operating income was JPY 23.8 billion, down by JPY 32.8 billion or 57.9% year-on-year. Ordinary income was JPY 22.8 billion, down by JPY 33.9 billion or 59.8% year-on-year. Nonoperating income and expenses, due to a decline in equity in earnings of affiliates, year-on-year net, was minus JPY 1.1 billion with expenses increase of JPY 1.1 billion.
As for extraordinary profit and loss, in this quarter, there was no major factor, but net figure improved by JPY 0.1 billion year-on-year and posted JPY 0.9 billion loss. As for income taxes, with profit decline, it was down by JPY 6.7 billion year-on-year to JPY 6 billion. Net income attributable to owners of the parent was down by JPY 26.2 billion or 63.3% to JPY 15.1 billion.
Please turn to Page 9. Consolidated sales by segment. Sales increased year-on-year in Chemicals segment, but in other 5 segments, sales decreased. In Petrochemicals segment, sales were down JPY 14.1 billion to JPY 62.1 billion. Olefin sales decreased due to market prices decline despite our plants' continued full utilization.
Organic chemical sales were down due to market prices decline in vinyl acetate and ethyl acetate. SunAllomer sales declined also due to market prices decline. In Chemicals segment, sales increased JPY 1.6 billion year-on-year to JPY 42.1 billion. Basic chemicals, industrial gases and functional chemicals sales were flat year-on-year. But in electronic chemicals, volume declined due to production adjustment in semiconductor and display industries.
However, benefited by new consolidation of coating material business we acquired through M&A, in total, sales increased.
In Electronics segment, sales decreased JPY 3.2 billion year-on-year to JPY 25.4 billion. Hard disk business began to recover gradually, hitting the bottom in the past quarter, but volume declined slightly year-on-year and sales decreased.
Originally, shipment of media for 14-terabyte drive for data center was scheduled in the first quarter, but it was pushed back to the second quarter. However, shipment for data center has been increasing.
As for compound semiconductors, due to volume decline caused by industrial machineries adjustment and as for rare earth magnetic alloy due to structural reform, their sales decreased, respectively. Lithium-ion battery material business sales were down due to volume decline for Chinese EV. In SiC epitaxial wafer business, because of slowdown in solar power investment in China, export volume was declining and sales went down. In Inorganics segment, sales were down JPY 28.3 billion to JPY 47.4 billion. In ceramics business, general purpose alumina volume was down due to structural reform, and sales of abrasives and fine ceramics declined also due to volume declines. In graphite electrode business, we are reducing production to respond to weaker steel production, mainly in Europe, and weakening supply-demand affected by decline in apparent demand caused by the destocking of customers' inventory, which was built up in the previous year, and our sales declined. Price in July to December is sustained at high level of close to 5x of standard year of 2017. In Aluminum segment, sales went down JPY 3.1 billion to JPY 24.7 billion. Shipment of high-purity foil for capacitors decreased, affected by production adjustment of industrial machinery and others, and sales declined.
Sales of aluminum specialty components decreased as volume for automotive materials and industrial equipment decreased. Sales of aluminum cans business were flat year-on-year. In Others segment, sales of SHOKO were down. And in total, sales were down JPY 2.9 billion year-on-year to JPY 31.5 billion.
Please turn to Page 10. Consolidated operating income by segment. Operating income was down JPY 32.8 billion year-on-year. Petrochemicals segment operating income was down JPY 3.3 billion year-on-year to JPY 4.8 billion. Olefins profit declined due to market prices decline caused by Chinese economic slowdown. Organic chemicals profit declined as market prices of vinyl acetate and ethyl acetate declined. SunAllomer's profit increased due to continued high utilization of polypropylene facilities.
In Chemicals segment, operating income was down JPY 0.9 billion year-on-year to JPY 4 billion. Basic chemicals profit increased due to increased power volume in power generation business. Electronic chemicals profit decreased as volume of high-purity gases for electronics declined, affected by production adjustment of semiconductor and display industries and also products mix changes. Industrial gases profit declined slightly due to demand decline for carbon dioxide gases amid unseasonable weather. Functional chemicals profit was almost unchanged year-on-year.
In Electronics segment, operating income was down JPY 2.8 billion to JPY 2 billion. Hard disk business shipment recovered almost to the level of the same period of the previous year. But due to feedstock adjustment impact by the volume decline in the first half, profit declined. In both of compound semiconductors and rare earth magnetic alloy business, profit declined due to volume declines. Lithium-ion battery materials profit declined due to volume decline for China. In SiC epitaxial wafers business, which was transferred to this segment from this year, profit declined due to development cost increase with its inclusion in [ division ] in this year as well as export declines caused by the investment contraction in solar power generation in China.
In Inorganics segment, profit declined JPY 26.7 billion year-on-year to JPY 13.1 billion. In ceramics, general purpose alumina profit improved due to structural reform, but volume within abrasives and fine ceramics decreased and profit declined. In graphite electrode, profit declined due to volume declines by production cutback as well as raw material needle coke's price increase was materialized in price in this quarter by the time lag, and fixed cost increased due to production reduction.
In Aluminum segment, operating income was down JPY 0.4 billion year-on-year to JPY 0.9 billion. High-purity foil for capacitor profit declined due to volume decline for industrial machinery and others. Aluminum specialty components profit declined due to shipment volume declines for automotive parts materials and industrial equipment. Aluminum cans profit increased due to cost improvement. In Others segment, operating income was down JPY 0.1 billion to JPY 0.3 billion with profit declines of SHOKO.
Please turn to Page 11. In total, assets as of the end of September vis-Ă -vis the end of the previous fiscal year, inventories increased mainly in Inorganics through price increases of graphite electrode raw materials. But notes and accounts receivable decreased in Petrochemicals due to naphtha price declines, and total asset decreased JPY 5.8 billion to JPY 1,069.2 billion. As for total liabilities, despite interest-bearing debt increase of JPY 16.6 billion due to increase in notes and accounts payable and the market price declines in Petrochemicals raw materials, they dropped by JPY 58.8 billion to JPY 550.9 billion. Total net assets increased by JPY 53 billion to JPY 518.3 billion, mainly due to increasing quarterly net income.
Please turn to Page 12. Interest-bearing debt was JPY 304.6 billion, up JPY 16.6 billion year-on-year. Gross debt-to-equity ratio was 0.61x, almost unchanged from the end of the previous fiscal year. Shareholders' equity ratio improved 5.1 points to 46.6%.
Please turn to Page 13. Page 13 shows consolidated interest-bearing debt and D/E ratio by chart. Financial structure has been steadily improving. From Page 14 to 16, comparisons of the second quarter and the third quarter listed as reference. I just gave the explanation in details, but sales in the third quarter declined in 4 segments, except 2 segments of Chemicals and Electronics.
Operating income in Inorganics segment decreased with production cutbacks in graphite electrode business, but increased in Chemicals and Electronics segments, among others. Volumes in near-line media for data center in hard disk business increased, and memory production was trending up in semiconductor industry, whereas in automotive-related industries, tough production adjustments still continues.
Please turn to Page 17. This shows quarterly summary. From Page 18 to 21, quarterly operating incomes are shown by segment by bar chart. Page 22 and onward show topics by segment for reference.
Finally, let me comment on the consolidated business forecast revised on August 7. In graphite electrode business, compared to August when we announced our revised forecast, steel production has been slowing down, especially in Europe, and we are expanding production reduction in European sites.
In other segments, uptrend in shipment of hard disks for data center has turned clear, and semiconductor production, which affects high-purity gases for electronic materials, began to increase finally. On the other hand, production adjustment in auto-related materials in Europe and China, among others, continue to be tough. As mentioned, against the consolidated business forecast on August 7, the progress was rather slow, but many segments have been on the moderate recovery track, bottoming out in the first quarter except graphite electrode business, and the signs of further improvement are observed. We continue to make our utmost effort.
Currently, preparation for the progress announcement against the midterm plan is ongoing. We plan to hold a presentation meeting from 4 p.m. on December 10. I appreciate if you could spare time for the occasion in December.
This concludes my presentation. Thank you very much for your attention.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]