Resonac Holdings Corp
XMUN:SWD
Resonac Holdings Corp
Resonac Holdings Corp., formerly operating under the guise of Showa Denko, unfurls its business narrative as a diversified player in Japan's materials sector. This enterprise crafts a legacy woven with innovation and industrial prowess, producing a wide array of chemical products that are indispensable to various segments of modern life. With its roots deeply planted in chemical manufacturing, Resonac dabbles across the spectrum of electronics, mobility, and life sciences—areas primed for growth in an increasingly technologically propelled world. Imagine the electronic titan building semiconductors or automobiles striving for efficiency and environmental stewardship, and you will likely find Resonac's materials acting as silent yet critical actors in the background.
The company's financial lifeline springs from its ability to adapt and cater to a plethora of industrial needs, channeling its robust portfolio into fiscal strength. Resonac derives its revenue streams from various domains; for instance, its chemicals and materials power the electronics that form the backbone of digital infrastructure. Furthermore, its commitments to environment-enhancing technologies find Resonac at the forefront of creating materials that aid in reducing carbon footprints, enhancing energy efficiency, and promoting sustainability. Through strategic investments and innovative solutions, Resonac not only maintains its market relevance but continually seeks the next horizon in materials science, guiding its ambitious journey forward in the global market.
Earnings Calls
Resonac Holdings Corporation reported a robust Q3 for fiscal 2024, with net sales rising 9% year-on-year to JPY 1,027.5 billion and operating income jumping by JPY 63.2 billion, boosting it to JPY 58.9 billion. The Semiconductor and Electronic Materials segment was pivotal, increasing sales by 36% to JPY 328.5 billion, leading to an operating income surge of JPY 57.8 billion. The company revised its full-year operating income forecast upward by JPY 16.5 billion to JPY 77.5 billion, expecting an EBITDA margin improvement from 8.2% to 13.6%. Overall, the results reflect strong performance and a positive outlook due to recovering demand in semiconductors.
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Hello, everyone. I am Hideki Somemiya, CFO of Resonac Holdings Corporation. Thank you very much for your understanding and support for our company. Let me explain the financial results overview of Q3 of fiscal 2024. Page 2 shows key takeaways. There are 2 points. First, the Q1 to Q3 results were strong, driven mainly by Semiconductor and Electronic Materials segment. Sales and profit grew significantly year-on-year. The second point is that based on these results and the market trends, we revised full year forecast. Operating income forecast is revised upward compared to earlier forecast.
Now let me explain Q1 to Q3 financial results. Page 4 shows the summary of Q1 to Q3 consolidated results comparing fiscal 2023 and '24. Please refer to the table on the left. In Q1 to Q3, net sales were JPY 1,027.5 billion, up JPY 85.2 billion or 9% year-on-year. Operating income was JPY 58.9 billion, up JPY 63.2 billion year-on-year. Ordinary income was JPY 46.5 billion, up JPY 53.6 billion year-on-year. Net income attributable to owners of the parent was JPY 50.8 billion, up JPY 57.1 billion year-on-year. EBITDA was JPY 142.4 billion, up JPY 64.9 billion year-on-year. EBITDA to sales ratio or EBITDA margin was 13.9%, improvement of 5.6 points.
Page 5 shows the breakdown of operating income changes from minus JPY 4.3 billion to JPY 58.9 billion in Q1 to Q3 in 2024. Profit increased by JPY 63.2 billion year-on-year. The biggest factor was sales volume, pushing up the profit by JPY 34.5 billion. Mainly JPY 34.7 billion increase was in Semiconductor and Electronic Materials. The major reason was sales volume recovery of semiconductor materials and hard disk media. Sales price pushed up the profit by JPY 21.4 billion. About half of this is related to higher naphtha prices in Chemicals segment.
Another half was due to corporate-wide impact from the weak yen and price revisions reflecting higher material costs. Variable and fixed costs pushed up the profit by JPY 0.9 billion. In Chemicals, higher naphtha prices lowered profit. In Semiconductor and Electronic Materials, the effect of the fixed cost reduction through the restructuring of Hard Disk Media business was a major factor. Lastly, others pushed up the profit by JPY 6.4 billion. In Semiconductor and Electronic Materials, product mix improved and the impact of lower others and adjustments is included.
Pages 6 to 7 show the breakdown of segment operating income changes. These are for your reference. Page 8 shows the results by segment. Here, we are showing the sales, operating income and EBITDA by segment comparing fiscal 2023 and '24. Semiconductor and Electronic Materials shown at the top, saw much higher sales and operating income year-on-year. Chemicals, fourth from the top, saw lower sales and profit. Pages 9 through 12 show segment summary.
First, Page 9 shows the Semiconductor and Electronic Materials. Sales grew 36% year-on-year to JPY 328.5 billion. Operating income saw a significant increase of JPY 57.8 billion to reach JPY 45.3 billion. In addition to gradual recovery of semiconductor demand, semiconductor materials for AI semiconductor was strong and sales volume of hard disk media recovered. Segment EBITDA margin increased from 11.4% in Q1 to Q3 2023 to 26.2%. Profitability is improving. Page 10 shows Mobility. Sales were almost flat year-on-year at JPY 160.7 billion. Operating income increased by JPY 0.7 billion year-on-year to JPY 3.5 billion. In automotive products as car production recovered gradually, there was a launch of products for new models. However, sales declined due to the sluggish demand in Thailand, which is one of the important markets. As for lithium-ion battery materials, weak consumer demand continued, but sales grew on higher sales volume for EVs.
Page 11 shows Innovation Enabling Materials. Sales grew by 6% year-on-year to JPY 71.8 billion. Operating income increased by JPY 2.9 billion year-on-year to JPY 8.5 billion. Both sales and profit grew on price revision to reflect higher material costs and increased sales volume. Page 12 is Chemicals. Sales were almost flat year-on-year at JPY 381.1 billion. Operating income declined JPY 3.8 billion to JPY 6.4 billion. Olefins and Derivatives sales grew on higher naphtha prices, but sales volume was down due to the first half shutdown maintenance of petrochemical derivatives. Sales of basic chemicals were largely unchanged year-on-year. Higher material price of some products led to lower operating income. Finally, both sales and profit of graphite electrode decreased on lower prices due to weak market condition. That's all for segment results.
Page 13 shows the nonoperating income and expenses and extraordinary profit and loss year-on-year comparison, starting with the net nonoperating income and expenses, is worsened by JPY 9.5 billion year-on-year. The major reason was the foreign exchange, which has worsened, while yen was weak in Q1, Q3 in the fiscal '23. In fiscal '24, especially at the end of September, yen strengthened. And as a result, FX loss booked in Q1, Q3 and FX gains and loss worsened by JPY 9.9 billion year-on-year. Next, the net extraordinary profit and loss improved by JPY 2.3 billion year-on-year. During Q1 and Q3 this year, JPY 25.7 billion gain on sale of former headquarters and former hard disk media facility in Taiwan was booked.
In the same period last year, the similar amount of gain was booked for the sale of Diagnostic Medicine business and others. The difference is related to the restructuring. In Q1 to Q3 '24, the JPY 4.7 billion business restructuring expenses was booked in relation to the sale of regenerative medicine subsidiaries. The same period of previous year, there was an extra retirement payment as well as the impairment loss in Hard Disk Media business, JPY 10 billion was booked. In comparison to that, there was an improvement.
Page 14 is consolidated balance sheet. Starting from the left, the total assets at the end of September were JPY 2,059.6 billion, up JPY 27.6 billion from the end of last fiscal year. Total intangible fixed assets were down by JPY 34.9 billion due to the amortization of goodwill. Cash and deposits increased by JPY 52.6 billion, mainly from the business activities. Total liabilities was JPY 1,443.3 billion, down JPY 10 billion from December end due to the JPY 18.8 billion decreases in other liabilities. JPY 100 billion convertible bond issued during the term is included in interest-bearing debt in this table. Long-term debt was repaid with this, and therefore, increase of the interest-bearing debt remained at JPY 16.3 billion from the end of last fiscal year. Net interest-bearing debt at the end of the last fiscal year was JPY 826.2 billion and JPY 789.8 billion at the end of September, down JPY 36.3 billion.
Total net assets were JPY 616.4 billion, up JPY 37.7 billion from the end of last year. The JPY 50.8 billion net income in Q1 to Q3 pushed up the retained earnings and dividend payment of the last fiscal year pushed down the retained earnings. Higher revaluation reserve for land included in the total accumulated other comprehensive income is offset by the same decrease amount of the retained earnings, having no impact on the net asset balance. Major indicators are shown at the bottom, mainly with the increase of the equity and cash deposit, debt equity ratio improved from 1 to 0.9x. The equity ratio also improved from 27.2% at the December end to 28.7%. As usual, at the footnote, we mentioned that to calculate the net D/E ratio, we evaluate 50% of the subordinated loan as equity capital based on the credit rating of Japan credit rating agency.
Next, let me talk about 2024 performance forecast. Page 16 shows the consolidated forecast. In the middle, there is a column C. This is a revised full year forecast announced on November 12. Based on the recent performance trend and others, in comparison to the operating loss and others of the previous fiscal year, sales forecast is up by JPY 93.1 billion. Operating income up by JPY 81.3 billion. Net income attributable to owners of the parent is up by JPY 51 billion. EBITDA margin is expected to improve from 8.2% to 13.6%. On the right-hand side, please refer to the column B. This is a comparison to earlier forecast. Operating income forecast is up by JPY 16.5 billion. As a result of the detailed review of nonoperating income and expenses and extraordinary profit and loss, income before income taxes remains the same. And with higher taxes due to the improved profit, net income attributable to owners of the parent is expected to slightly decrease.
Page 17 shows the revised forecast by segment. In the middle, there is a column which says a full year forecast. Out of the full year operating income forecast of JPY 77.5 billion, 80% at JPY 61.5 billion is in Semiconductor and Electronic Materials. The full year EBITDA margin of this segment is expected to be 26.6%. Now on the right-hand side, we are showing the 2023 results as well as earlier forecast comparison. So higher net income and higher profitability is thanks to the continued strength of the Semiconductor and Electronic Materials segment. Now in comparison to the earlier forecast, while sales and profit of Semiconductor and Electronic Materials was up, in Chemicals, sales and profit were lower due to the decreased naphtha prices.
On this slide, we are showing the quarterly trend from Q1 to Q3. You can see the improvement every quarter. In addition to the absolute amount of the profit, EBITDA margin has reached 31.4% in Semiconductor and Electronic Materials in Q3 and corporate-wide margin was 16.3%. So we are getting closer to our target of 20%. In a rough estimate, excluding the olefins and derivatives businesses, company-wide EBITDA margin in Q3 is about 20%. We will continue to improve profitability toward achieving 20% EBITDA margin. Pages 19 and onwards are appendix. These are for your reference. That concludes my presentation. Thank you for your attention.