TRYIF - Toray Industries Inc. (TRYIY) Q2 2023 Earnings Call Transcript

2023-08-11 02:08:08 ET

Toray Industries, Inc. (TRYIY)

Q2 2023 Earnings Conference Call

August 10, 2023, 11:30 PM ET

Company Participants

Masahiko Okamoto - Member of the Board

Conference Call Participants

Presentation

Masahiko Okamoto

Thank you very much for joining us today, despite your busy schedule. On behalf of Toray 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 Toray’s Business Results for the First Quarter ended June 30, 2023 and the Business Forecast for the Fiscal Year ending March 2024.

Now, I would like to follow the Table of Contents shown on Page one. I would like to begin with an overview of business results for the first quarter ended June 30 2023.

We will start on Page 3. Consolidated revenue for the first quarter decreased 4.6% compared with the same period or year earlier to ¥578.1 billion. Operating income decreased to 19.2% to ¥21.9 billion and profit decreased 65.1% to ¥13.9 billion. Special items for the first quarter worsened by ¥24.9 billion to negative ¥1.1 billion.

Page 4 is about assets, liabilities, equity and free cash flow. As per financial condition at the end of June 2023, both assets and liabilities were affected by the increase in translated yen amounts of overseas subsidiaries because of the depreciation of the yen.

Total assets stood at ¥3,347.4 billion, up ¥153.3 billion from the end of the previous fiscal year, primarily to increases in inventories, tangible fixed assets and other financial assets. Total liabilities increased ¥4.6 billion from the end of the previous fiscal year to ¥1,599.8 billion, owing mainly to increases in borrowings.

Total equity rose by ¥111.8 billion, compared with the end of the previous fiscal year to ¥1,747.6 billion. Owners equity was ¥1,643.3 billion, interest bearing liabilities was ¥974.7 billion, and the D/E ratio was 0.59. Free cash flow was positive at ¥12.5 billion.

Page 5 explains about the capital expenditures, depreciation and amortization and R&D expenditures. Capital expenditures for the first quarter increased by ¥7.5 billion to ¥23.5 billion yen on a year-to-year comparison. Meanwhile, depreciation and amortization decreased by ¥0.1 billion to ¥31.9 billion. R&D expenditures decreased by ¥1.2 billion to ¥15.5 billion compared with the same period over the previous fiscal year.

The table on Page 6 describes revenue and operating income by segment. In addition, the graph on this page shows the factor analysis of ¥5.2 billion decrease in operating income for the current first quarter on a year-to-year comparison. The difference in quantity was minus ¥6.6 billion, due to a decrease in production on sales volume, mainly in the Performance Chemical segment.

The net change in price was a plus ¥5.4 billion, due to the falling raw material prices compared with the same period over the previous fiscal year. Cost variance et cetera was minus ¥4.2 billion, mainly due to increase in fixed costs.

Using Page 7 and after, I would like to explain the results of each segment. First, fibers and textiles. Revenue of the overall segment decreased to 0.9% to ¥223.8 billion yen, compared with the same period or year earlier, and the core operating income increased 25.8% to ¥10.9 billion yen. Both apparel applications and hygiene material applications were sluggish respectively due to worsening market conditions in U.S. and Europe and the impact of the worsening supply-demand balance. Industrial applications witnessed a demand recovery trend in automobile applications and there was improvement in the spread from the price decline of natural gas, et cetera in Europe.

Page 8 is the Performance Chemicals segment. Revenue decreased 12.3% to ¥214.8 billion compared with the same period a year earlier and core operating income decreased 56.1% to ¥7.4 billion.

I would like to explain the conditions of each business on the next page. The resins business was weak given the declining demand in the Chinese market. The chemicals business was affected by sluggish market conditions and a decrease in demand of caprolactam. The amount of decline is due to inventory adjustments in supply chain for optical applications and electronic parts in the films business as well as circuit materials in the electronic information materials business.

Page 10 is the carbon fiber composite materials segment. Revenue increased to 0.2% to ¥68.7 billion compared with the same period a year earlier and segments posted core operating profit of ¥2.7 billion, 13.8% increase for the same period a year earlier.

I would like to explain the status of each application on the next page. In the aerospace applications, the production rate of commercial aircraft at the major customer showed a recovery trend. The sports applications was low due to the full-fledged inventory adjustment, mainly in general purpose products for outdoor leisure. In the industrial applications, in regulatory demand for pressure vessels expanded with the rise of environmental awareness, while in large tow, wind turbine blade application entered into an adjustment phase.

Page 12, in the environment engineering segment, revenue increased 10.3% to ¥56 billion compared with the same period a year earlier, and the core operating income increased 76.4% to ¥6.2 billion. In the water treatment business shipment to the U.S. and China the two major markets were reverse osmosis membranes was strong. Further, sales of an engineering subsidiary and a construction subsidiary in Japan were also strong.

Page 13, is a Life Science segment. Revenues decreased 8.4% to ¥11.3 billion compared with the same period a year earlier, and the core operating income decreased by ¥0.6 billion to negative ¥0.5 billion. In the pharmaceutical business, sales of oral anti-pruritic drug REMITCH were affected by the introduction of its generic versions and the NHI drug price revision, and sales of orally active prostacyclin derivative DORNER were affected by inventory adjustment overseas. In the medical devices business, sales of dialyzers were affected by the soaring prices of raw materials and fuels.

Page 14 shows the business results for major subsidiaries and regions. As Toray International sales of fibers or textiles business, chemicals and films decreased. And our subsidiaries in Southeast Asia, in the fibers and textiles business, apparel applications were affected by the worsening market condition in the U.S. and Europe.

In the performance chemical business, areas resins were impacted by demand decrease in China and Asian countries. Other subsidiaries in China in the fibers and textile business, apparel applications were badly affected by sluggish market conditions in the U.S. and Europe. However, sales in the Chinese domestic market was strong. Performance chemical business was affected by the demand decrease in resin products.

And for our subsidiaries in the Republic of Korea, in the fibers and textile business. Although supply demand balance, when we went public worsened, later on [ph] staple fibers improved. Performance chemicals business was affected by the demand decrease in [indiscernible] products. Electronic and information material business was impacted by the decrease in production volume of LCD panels for TVs.

Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2024. Please turn to Page 16. The global economy is showing a gradual recovery, but the pace is expected to remain low due to factors such as the inflation and high interest rates in the U.S. and Europe, dampening consumer spending on capital investment. In China, the process for normalization of economic conditions is likely to be moderate, given the slowdown in demand outside of China on the sluggish real estate market.

The Japanese economy is also expected to show gradual recovery. However, continued monetary tightening in the U.S. and Europe to tackle the sustained inflation is considered to be a downward risk for the global economy. On the fiscal year ending March 31 2024 Toray revised its full year consolidated forecast announced on May 12 2023, taking into consideration its business performance for the first three months of the fiscal year and the changes of business environment. It now expects revenue of ¥2560 billion, core operating income of ¥120 billion and profit of ¥76 billion remain unchanged. These forecasts from July onward is based on an assumed foreign currency exchange rate of ¥135 to the U.S. dollar.

Page 17 shows the consolidated business forecast for the fiscal year ending March 2024 by segment. Page 18 shows the comparison of core operating income between the initial forecast and the new forecast with breakdown into segments. The factors behind the differences are shown on the left side of the table.

This concludes my presentation. Thank you very much.

Question-and-Answer Session

Q -

For further details see: