Earnings Call: Q1 2022

Aug 4, 2021

Thank you very much for joining us today despite your busy schedule. On behalf of Toure 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 Tori's business results for the Q1 ended June 30, 2021, and the business forecast for the fiscal year ending March 2022. Now I would like to follow the table of contents shown on Page 1. I would like to begin with an overview of business results for the Q1 ended June 30, 2021. Please turn to Page 3. Consolidated revenue for the Q1 increased 29.2% compared with the same period a year earlier to JPY513,700,000,000. Core operating income rose 189 percent to 36,100,000,000 yen and profit increased 214.4 percent to JPY 29,700,000,000. Page 4 is about special items. Special items for the Q1 improved by JPY 2,800,000,000 to minus JPY 200,000,000 compared with the same period of the previous fiscal year. Page 5 is about assets, liabilities, equity and free cash flow. As of June 30, 2021, total assets stood at 2864 point 6,000,000,000 yen up 15,700,000,000 yen from the end of the previous fiscal year, due primarily to an increase in inventories. Total liabilities declined JPY 17,700,000,000 from the end of the previous fiscal year to JPY 1508,900,000,000 owing mainly to declines in bonds and borrowings. Total equity rose by JPY 33,400,000,000 compared with the end of the previous fiscal year to JPY 1355,700,000,000. Owners' equity was JPY 1269,900,000,000. Interest bearing liabilities was 962,000,000,000 yen and the E ratio was 0.76. Free cash flow was 26,100,000,000 yen Page 6 explains about capital expenditures, depreciation and amortization and R and D expenditures. Capital expenditures for the Q1 decreased by JPY 11,700,000,000 to JPY 17,600,000,000 on a year to year comparison. Meanwhile, depreciation and amortization increased by 1,300,000,000 yen to 30,600,000,000 yen R and D expenditures decreased by 600,000,000 yen to 14,500,000,000 yen compared with the same period of the previous fiscal year. This graph on Page 7 describes the factor analysis of a JPY 23,600,000,000 increase in core operating income for the current Q1 on a year to year comparison. The difference in quantity was a +30,000,000,000 yen mainly due to increase in sales and production accompanying the recovery in economic activities. The net change in price was minus JPY 7,900,000,000 due to the rise in raw material prices compared with the same period of the previous fiscal year. We have been working to pass on the rise in raw material prices to the sales price, but this has not been enough to cover the increase in raw material prices. Cost variance, etcetera, was about the same level as the same period of the previous fiscal year. The chart on Page 8 shows the revenue and core operating income results by segment. Using Page 9 and after, I would like to explain the results of each segment. First, 5% Textile. Revenue of the overall segment increased 27% to JPY184,200,000,000 compared with the same period a year earlier and core operating income rose 63.4 percent to JPY11.8 billion. Increase in demand was seen both in Japan and abroad, which led to a positive difference in quantity, but the net change in price turned negative due to the increase in raw material prices compared to the same period of the previous fiscal year. In the apparel applications, some applications continued to be affected by COVID-nineteen, while sports and outdoor applications performed strongly. In the industrial applications, the automotive applications recovered with increased sales volume. Page 10 is the Performance Chemicals segment. Revenue increased 43% to JPY 222,600,000,000 compared with the same period a year earlier, and core operating income increased by JPY19,800,000,000 to JPY 27,900,000,000. Demand for automotive and display related applications was strong and the difference in quantity was positive. The net change in price was also positive due to the efforts to pass on the rise in raw material prices to the sales price. I would like to explain the conditions of each business on the next page. Demand in the resins business was strong given the rebound for the COVID-nineteen, resumed operations of automobile manufacturers and the recovery of the Chinese economy. The Chemicals business saw a recovery in the basic chemicals market. In the films business, battery separated films for lithium ion secondary batteries recovered in the automotive application, while polyester films for optical applications and electronic components performed strongly. In the Electronic and Information Materials business, OLED related demand increased. Page 12 is the Carbon Fiber Composite Materials segment. Revenue increased 6.9 percent to JPY 48,500,000,000 compared with the same period a year earlier, and the segment posted core operating loss of 2,100,000,000 yen a decline of 3,800,000,000 yen from the same period a year earlier. While the sales of wind turbine blades in the industrial applications and sports applications were strong, aerospace applications was affected by the decline in the production rate of commercial aircraft. The segment was affected by the increase in raw material prices. I would like to explain the status of each applications on the next page. Aerospace applications were affected by the decline in the production rate of major customers due to the impact of COVID-nineteen. In the sports applications, demand for bicycles, fishing rods and golf shaft applications for outdoor leisure remains strong. In terms of regular tow products among the industrial applications, demand for environment and energy related fields led by compressed natural gas tank applications and the automotive applications for super luxury cars in Europe saw a recovery. As for large tote products, shipment of wind turbine blade applications remained strong. Page 14, in the Environment and Engineering segment, revenue increased 17.6% to JPY 43,700,000,000 compared with the same period a year earlier and core operating income increased by 2,600,000,000 yen to 3,400,000,000 yen. In the water treatment business, demand for reverse osmosis membranes and other products grew strongly, while shipment to some regions were affected by the COVID-nineteen. Among domestic subsidiaries in the segment, an engineering subsidiary experienced increases in the shipment of some electronics related equipment. Page 15 is the Life Science segment. Revenue remained at the same level as the same period a a year earlier at JPY11.5 billion and core operating income stood at JPY2000000000. In the Pharmaceutical business, sales of pruritus treatment, RIMIDGE, were affected by the introduction of its generic versions as well as by a NHI drug price revision. In the medical devices business, shipment of dialyzers for a shimodial filtration grew strongly in Japan. Page 16 shows the business results of major subsidiaries and regions. Atore International, sales of fibers and textiles, resins, films, chemicals and electronic and information materials increased. At Torre Engineering, shipment of electronics related equipment increased. At our subsidiaries in Southeast Asia, a recovery trend was seen in the fibers and textiles market. Although some applications continue to be affected by the COVID-nineteen. In the industrial applications, there were signs of a recovery in the automotive applications. In the Performance Chemicals business, ABS resins saw a recovery in demand in the CN market, and the spread remains steady. At our subsidiaries in China, the fibers and textiles business was affected by the rise in raw material prices, although there were signs of recovery in the apparel applications. In the Performance Chemicals business, demand in China remained strong in the resins business. As for our subsidiaries in the Republic of Korea, the Fibers and Textiles business was affected by the rise in raw material prices and sales on nonwoven fabrics decreased due to the fall in demand for masks. In the Performance Chemicals business, in the films business, sales of polyester films and battery separated films for lithium ion secondary batteries increased. In the Electronics and Information Materials business, shipment of electronic circuit materials was strong. Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2022. Please turn to Page 18. The global economy, including Japan, is likely to continue its recovery with additional fiscal spending and continued monetary easing by the U. S. And with the rollout of the coronavirus vaccines. However, there remains strong uncertainties such as the lingering low vaccination rates in developing countries and the restrictions on economic activities in response to resurgence in infections with variants. And therefore, the economy is expected to go through the normalization process at a slow pace. For the fiscal year ending March 31, 2022, Toray revised its full year consolidated forecast announced on May 13, taking into consideration its business performance for the 1st 3 months and the business environment. It now expects revenue of JPY 2,250,000,000,000, core operating income of JPY 130,000,000,000 and profit of JPY 90,000,000,000 These forecasts from July onwards is based on assumed foreign currency exchange rates of yen 105 to the U. S. Dollar. Page 19 shows the consolidated business forecast for the fiscal year ending March 2022 by segment. Page 20 shows the comparison of core operating income between the initial forecast and the new forecast with breakdowns into segments. The factors behind the differences are shown on the right side of the table. This concludes my presentation. Thank you for listening.