Earnings Call: Q2 2021

Nov 10, 2020

Thank you very much for joining us today despite your busy schedule. On behalf of Torrey 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 follow the table of contents shown on Page 1. I would like to begin with a brief summary of business results for the Q2 ended September 30, 2020. Please turn to Page 3. Consolidated revenue for the 2nd quarter declined 19.2% compared with the same period a year earlier to 856,100,000,000 Core operating income decreased 52.3 percent to 34,100,000,000 yen while profit declined by 91.2 percent to 4,500,000,000 yen Page 4 is about special items. Special items for the 6 months period worsened by 25,600,000,000 yen to minus 28,600,000,000 yen compared with the same period of the previous fiscal year, mainly due to CMA, our U. S. Subsidiary recording impairment losses of 24,000,000,000 yen due to profitability decline caused by weak demand for aircraft. Page 5 is about assets, liabilities, equity and free cash flow. As of end of September, total assets stood at 2717,100,000,000 yen a decrease of 16,400,000,000 yen from the end of the previous fiscal year, mainly due to declines in trade receivables. Total liabilities decreased by 12,700,000,000 yen to 1519,900,000,000 yen compared with the end of the previous fiscal year, owing mainly to declines in trade payables. Total equity decreased by 3,600,000,000 yen compared with the end of the previous fiscal year to 1197,200,000,000 yen Owners' equity was 1116,500,000,000 yen Interest bearing liabilities was 10 22,200,000,000 yen and DE ratio was 0.92 points. Free cash flow was positive at 39,200,000,000 yen. Page 6 explains about capital expenditures, depreciation and amortization and R and D expenditures. Capital expenditures during the 6 months period under review was JPY 65,000,000,000 while depreciation and amortization was JPY 59,100,000,000 and R and D expenditures was JPY 30 point 2,000,000,000 yen The major capital expenditure projects are as described on the slide. Next, this graph on page 7 describes the factor analysis of 37,300,000,000 yen decrease in core operating income for the 6 months period on a year to year comparison. The difference in quantity was a minus 62,300,000,000 yen due to the decrease in sales and production with the impact of COVID-nineteen. The net change in price was up plus 8,000,000,000 yen. This was due to the decline in raw material prices compared with the same period of the previous fiscal year. Cost variance, etcetera, was plus 17,800,000 yen as a result of efforts to reduce operating expenses, reduction fixed costs and other expenses. 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, Fibers and Textiles. Revenue of the overall segment declined 21.8 percent to 330,200,000,000 yen compared with the same period of the previous fiscal year and core operating income fell 50% to 15,800,000,000 yen The net change in price was positive reflecting the decline in raw materials prices. However, difference in quantity was significantly negative due to the impact of the stagnation of production activities and consumption behavior caused by the COVID-nineteen in Japan and overseas. In the apparel applications, demand declined due to lockdown and closure of retail stores in various countries. Also in the industrial applications, sales volume for the mainstay automotive applications decreased as automobile manufacturers suspended operations and decreased production volume. Demand for nonwoven fabrics increased for the applications of medical gowns and masks, but fell short of offsetting the decline in overall sales volume in the segment. Page 10 is the Performance Chemicals segment. Revenue declined 16.9% to yen327.3 billion compared with the same period of the previous fiscal year and core operating income fell 27.6 percent to €24,100,000,000 Cost variance, etcetera, was positive because of the cost reduction efforts and the net change in price also turned positive, reflecting the decline in raw materials prices. However, difference in quantity was significantly negative due to the impact of the stagnation of production activities caused by the COVID-nineteen. I would like to explain the conditions of each business on the next page. In the resins business, demand from the automotive and industrial applications declined in Japan and overseas. The chemicals business was affected by the decline in the basic chemicals market. In the films business, demand for battery separated films for lithium ion secondary batteries remained low. The Electronic and Information Materials business was affected by lower production at OLED related customers. Page 12 is the Carbon Fiber Compass Materials segment. Revenue declined 25.5 percent to JPY89,300,000,000 compared with the same period of the previous fiscal year and posted core operating loss of yen 300,000,000 a decline of yen 12,100,000,000 from a year earlier. Tory Group worked towards drastic cost reductions and sales of wind turbine blades in the industrial applications remained strong, while aerospace applications were affected by the decline in the production rate of commercial aircraft. I would like to explain the status of each application on the next page. Aerospace applications were affected by the decline in the production rate of aircraft at major customers due to the impact of COVID-nineteen as well as shutdown of plants. Sports applications remain slow due to the impact of COVID-nineteen. In terms of regular tow products among the industrial applications, demand for environment and energy rated fields did by compressed natural gas tank applications and the automotive applications for luxury cars in Europe were weak due to the impact of COVID-nineteen. As for large tow products, shipments of wind turbine blade applications remain strong. As for composite business, shipments of materials of medical devices for the diagnosis of COVID-nineteen pneumonia expanded. Meanwhile, sales at an overseas composites related subsidiary decreased due to lower demand for automotive applications with the impact of COVID-nineteen. Page 14, in the Environment and Engineering segment, revenue declined 10.3 percent to JPY 78,200,000,000 compared with the same period of the previous fiscal year, while core operating income increased 4.4 percent to 4,000,000,000 yen The impact of decrease in quantity was offset by cost reductions. In the water treatment business, demand for reverse osmosis membranes and other products remained strong on the whole despite shipment to some regions being affected by the COVID-nineteen. Among domestic subsidiaries in the segment, an engineering subsidiary experienced decreases in the shipment of some electronics related equipment. Page 15 is the Life Science segment. Revenue declined 7.1 percent to JPY 24,700,000,000 compared with the same period of the previous fiscal year and core operating income fell 22.9 percent to 800,000,000 yen In the Pharmaceutical business, sales of pruritus treatment REMIC were influenced by the introduction of its generic version and there was an impact of a major NHI drug price revision in April this year. In the Medical Devices business, shipment of dialysis grew strongly in Japan and overseas despite the impact of medical institutions postponing non urgent operations due to the spread of the COVID-nineteen. The company implemented cost reductions including operating expenses. Page 16 shows the business results of major subsidiaries and regions. At Storey International, sales of fibers and textiles, resins, chemicals and films and carbon fiber composite materials were weak. At Storey Engineering, shipment of electronics related equipments decreased. As for our subsidiaries in Southeast Asia, in the Fibers and Tixas business, sales for both apparel and industrial applications remained sluggish due to the impact of COVID-nineteen. In the Performance Chemicals business, while shipment of engineering plastics decreased due to the impact of COVID-nineteen, ABS resins maintained strong sales with recovering demand in the Chinese market, mainly for home appliance applications and the spread also improved. As for subsidiaries in China, sales for non woven fabrics in the fibers and textile business remained strong on the back of increased demand for masks due to the impact of COVID-nineteen. However, sales for apparel applications remained sluggish. As regards to subsidiaries in Republic of Korea, the Fibers and Textiles business were affected by worsening market conditions. However, sales for non woven fabric applications remained strong on the back of increased demand for masks due to the impact of COVID-nineteen. The spread improved with the decline in raw material prices. In the Performance Chemicals business, demand for battery separated films for lithium ion secondary batteries was weak. Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2021. Please turn to Page 18. Forecast for the fiscal year ending March 2021 are based on the assumptions that the spread of COVID-nineteen will repeat the cycle of slowing down and re spreading, but eventually subside. And the economy in Japan and overseas would follow a gradual recovery trend. Torii revised its consolidated business forecast announced on the 7th August this year, taking into consideration its business performance of the first half of the fiscal year and changes in the business environment. The company now expects revenue at JPY 1860 billion, core operating income at JPY 80,000,000,000 and profit at 34,000,000,000 yen This forecast from October onwards is based on an assumed foreign currency exchange rate of 105 yen to the U. S. Dollar. Page 19 indicates consolidated business forecast for the fiscal year ending March 2021 by segment. Page 20 shows the comparison of core operating income between the forecast announced on the 7th August and the new forecast with breakdowns in the segments. Despite the impact of the spread of COVID-nineteen, we will expand sales in markets where demand is growing and promote thorough cost reductions. This concludes my presentation. Thank you very much.