Financial Results 2017

Transcription

1 KH Neochem Co., Ltd. Financial Results 2017 February 13, 2018 Copyright (C) KH Neochem Co., Ltd. all rights reserved.

2 Contents I. Overview of Operating Results II. Overview of Financial Results 2017 III. Outlook

3 I. Overview of Operating Results Financial Results 2017 and Outlook 2018 Keiichi Asai President and CEO Copyright (C) KH Neochem Co., Ltd. all rights reserved.

4 Summary of Results 2017 Operating income reached a record high for the third consecutive year, and the bottom line also hit a record high Changes Results Results Amount % Net sales % Gross profit % Operating income % Operating income margin 11.2% 12.1% - 1% Ordinary income % Profit attributable to owners of parent % Exchange rate ( /$) % Domestic naphtha ( /KL) 32,800 40,500 7,700 23% 3

5 Results 2017 (Trend by Segment) In 2017, both revenue and profit increased year on year in each segment. Basic Chemicals Performance Electronic (plasticizer raw materials, solvents, etc.) (refrigeration lubricants raw materials, cosmetic raw materials, etc.) (high-purity solvents, etc.) Areas of use Areas of use Areas of use Paints Wire harnesses Air conditioners Cosmetics Semiconductors LCD panels Increase in Revenue and Profit Net sales 45.6 billion (up 19%) Gross profit 6.8 billion (up 18%) Increase in Revenue and Profit Net sales 37.3 billion (up 23%) Gross profit 12.4 billion (up 43%) Increase in Revenue and Profit Net sales 11.0 billion (up 13%) Gross profit 3.2 billion (up 4%) Firm demand in the automobile field, etc Improvement of overseas market conditions associated with environmental regulations in China Note: The figures in parentheses represent YoY changes. Strong demand for refrigeration lubricants raw materials Effect of capacity expansion for cosmetic raw materials Continued strong sales to the semiconductor industry Steady sales of LCD panels 4

6 Initiatives in 2017 Implementation of strategies in the Medium-Term Business Plan ( ) and various initiatives Implementation of strategies in the Medium-Term Business Plan Strengthening and rationalization of management structure and various initiatives 1. Globally expand performance chemical sales Gross profit 15.6 billion, up 33% year on year (Performance materials 12.4 billion, Electronic materials 3.2 billion) Refrigeration lubricant raw materials and cosmetic raw materials grew 2. Enhance profitability of basic chemicals Cost reduction target 2.0 billion Cumulative progress of up to % ( 1.6 billion) 3. Establish a base for the future Decision of capacity increase for refrigeration lubricant raw materials Preparation of the construction of a new plant for plasticizer raw materials in Taiwan (Dispatch of engineers, facility design, consideration of financing) 4. Improvement of corporate governance Increased one independent outside director to two Evaluation of the effectiveness of the Board of Directors by a third party organization 5. Rationalization and increased efficiency of the Group Made subsidiary in Singapore dormant 6. Improvement of financial strategies Acquisition of a credit rating, issued CP, and refinancing 7. Active dialogue with stakeholders Briefing session for individual investors, plant tour, overseas IR Efforts for social contribution activities 5

7 Initiatives in 2017 Investment to support growth potential and contribution to global environmental protection Decision to expand capacity for refrigeration lubricant raw materials Overview of the plan Areas of use Refrigeration lubricant raw materials Refrigeration lubricant is a special lubricant oil used inside air-conditioners. Growing demand for airconditioners Protection of the ozone layer Air-conditioners Reduction of global warming Yokkaichi Plant Chiba Plant Date of operation 2020 (planned) Investment amount 7.5 billion (planned) New construction and capacity increase of 50% Date of operation Investment amount Q (planned) Less than 100 million Capacity expansion with multiple plants 6

8 Forecasts 2018 Maintain the high operation rate despite a decline in income due to active large-scale periodic maintenance Changes Results Forecasts Amount % Net sales % Gross profit % Operating income % Operating income margin 12.1% 10.8% - -1% Ordinary income % Profit attributable to owners of parent % Exchange rate ( /$) % Domestic naphtha ( /KL) 40,500 48,000 7,500 19% 7

9 Initiatives in 2018 Initiatives for ensuring safe and stable operation, the core of our business, and securing high profitability Accomplishment of active large-scale periodic maintenance Various initiatives to secure high profitability 1. Appropriate price policy in response to the external environment Rising crude oil and naphtha prices Safe and stable operation Improvement of the supply-demand balance Needs for high quality Strategic moves for stable supply in the future Establishment of a plant management office and stronger management Active preventive maintenance Handing down of technologies to the next generation and the cultivation of human resources 2. Continuation of comprehensive streamlining and cost reduction Improvement of production efficiency and strengthening of facility purchase Achievement of the 2.0 billion target in the three-year Medium-Term Business Plan 8

10 Initiatives in 2018 Lead to the next medium-term business plan based on capacity expansion for refrigeration lubricant raw materials and the establishment of overseas production bases. Capacity expansion for refrigeration lubricant raw materials Establishment of overseas production bases for the future Construction of a new plant for plasticizer raw materials in Taiwan Production item: Isononyl alcohol (INA) Areas of use Air-conditioners 1. Yokkaichi Plant (new facilities) Launch of a construction project team Aim to commence construction by the end of the current fiscal year Formulation of sales strategy after operation Establishment of logistics necessary for sales Decision on a constructor Commencement of construction 2. Chiba Plant (improvement of facility efficiency) Improvement to multiple plant Mobilized and more efficient production Demand for INA tends to increase significantly Kaohsiung Taiwan Taichung Taipei Planned construction site 9

11 Progress in the Medium-Term Business Plan Aim for operating income of 10.5 billion, 30% higher than the initial plan, in 2018, the final year of the Medium-Term Business Plan. Net sales Operating income 89.2 Medium-Term Business Plan Results Forecasts Medium-Term Business Plan Medium-Term Business Plan Note: In 2015, both net sales and operating income exclude the figures for sold subsidiaries. 10

12 Progress in the Medium-Term Business Plan Progress in strengthening the financial base for growth investments in the future Interest-bearing debt Results Results Results Forecasts Medium-Term Business Plan 34.1 billion 31.3 billion 24.7 billion 24.7 billion 25.0 billion Equity ratio 20% 28% 33% 37% 30% or more ROE 38% 28% 29% 22% 20% Medium-Term Business Plan Interest-bearing debt is reduced in a planned manner. The equity ratio is rising steadily. ROE is at the highest level in the industry. 11

13 Shareholder Return Plan to increase dividends in 2017 and maintain the same amount in Results Forecast as of August Results/Plan Plan Interim dividend Year-end dividend Annual dividend Note: Dividends in 2016 include the commemorative dividend for listing of 3.5. The year-end dividend in 2017 is to be determined at the general meeting of shareholders held in March : Increase dividends from 50 to : Plan to maintain the same amount, despite an expected income decline. Investments for growth in the future are also taken into account. 12

14 II. Overview of Financial Results 2017 Kenichi Hirai, Board Director & Chief Financial Officer Copyright (C) KH Neochem Co., Ltd. all rights reserved.

15 Summary of Results 2017 Operating income reached a record high for the third consecutive year, and the bottom line also hit a record high Changes Results Results Amount % Net sales % Gross profit % Operating income % Operating income margin 11.2% 12.1% - 1% Ordinary income % Profit attributable to owners of parent % Exchange rate ( /$) % Domestic naphtha ( /KL) 32,800 40,500 7,700 23% 14

16 Variance Analysis of Operating Income 2017 Operating income increased 2.5 billion (28%) due to the strong sales volume in each segment billion Volume and mix: Strong demand, particularly for performance materials 11.5 SG&A expenses: Larger logistics expenses due to a rise in volume Other: Technology licensing fees from Taiwan 2016 Results Price differences Volume and mix Fixed manufacturing costs SG&A expenses Other Affiliates and elimination 2017 Results 15

17 Breakdown of Net Sales 2017 Net sales increased due to growth in volume and a rise in naphtha prices Results: 80.2 billion 2017 Results: 94.7 billion Electronic 9.8 billion Other 1.8 billion 12% 2% Electronic 11.0 billion Other 0.7 billion 12% 1% Performance 30.3 billion 38% 48% Basic Chemicals 38.3 billion Performance 37.3 billion 39% 48% Basic Chemicals 45.6 billion Basic Chemicals (plasticizer raw materials, solvents, etc.) Performance 機能性材料 (refrigeration lubricants raw materials, ( 冷凍機油原料 化粧品原料等 cosmetic raw materials, etc.) ) Electronic (high-purity solvents, etc.) 16

18 Breakdown of Gross Profit 2017 The composition ratio of performance materials rose given an increase in their gross profit of 3.7 billion, and basic chemicals also performed well Results: 18.7 billion 2017 Results: 22.7 billion Electronic 3.1 billion 16% Other 1.2 billion 7% 31% Basic Chemicals 5.8 billion Electronic 3.2 billion Other 0.3 billion 14% 1% 30% Basic Chemicals 6.8 billion Performance 8.7 billion 46% Performance 12.4 billion 55% Basic Chemicals (plasticizer raw materials, solvents, etc.) Performance (refrigeration lubricants raw materials, ( 冷凍機油原料 化粧品原料等 cosmetic raw materials, etc.) ) Electronic (high-purity solvents, etc.) 17

19 III. Outlook 2018 Kenichi Hirai, Board Director & Chief Financial Officer Copyright (C) KH Neochem Co., Ltd. all rights reserved.

20 Forecasts 2018 Maintain the high operation rate despite a decline in income due to active large-scale periodic maintenance Changes Results Forecasts Amount % Net sales % Gross profit % Operating income % Operating income margin 12.1% 10.8% - -1% Ordinary income % Profit attributable to owners of parent % Exchange rate ( /$) % Domestic naphtha ( /KL) 40,500 48,000 7,500 19% 19

21 Variance Analysis of Operating Income 2018 (Forecast) A decline in sales volume and an increase in fixed costs are expected due to large-scale periodic maintenance billion Price differences: Appropriate price policy and steady overseas market conditions Volume and mix: Impact of periodic maintenance Fixed manufacturing costs: Periodic and preventive maintenance Results Price differences Volume and mix Fixed manufacturing costs SG&A expenses Other Affiliates and elimination 2018 forecast 20

22 Breakdown of Net Sales 2018 (Forecast) Net sales are expected to increase in each segment due to a rise in naphtha prices Results: 94.7 billion 2018 forecast: 97.0 billion Electronic 11.0 billion Other 0.7 billion 1% Electronic 11.1 billion Other 0.7 billion 1% 12% 11% Performance 37.3 billion 39% 48% Basic Chemicals 45.6 billion Performance 38.5 billion 40% 48% Basic Chemicals 46.7 billion Basic Chemicals (plasticizer raw materials, solvents, etc.) Performance (refrigeration lubricants raw materials, cosmetic raw materials, etc.) Electronic (high-purity solvents, etc.) 21

23 Breakdown of Gross Profit 2018 (Forecast) Gross profit is likely to decline in each segment due to a fall in sales volume and an increase in fixed costs as a result of periodic maintenance Results: 22.7 billion 2018 forecast: 21.5 billion Electronic 3.2 billion Other 0.3 billion 14% 1% Electronic 3.1 billion 15% Other 0.3 billion 1% 30% Basic Chemicals 6.8 billion 30% Basic Chemicals 6.5 billion Performance 12.4 billion 55% Performance 11.6 billion 54% Basic Chemicals (plasticizer raw materials, solvents, etc.) Performance (refrigeration lubricants raw materials, ( 冷凍機油原料 化粧品原料等 cosmetic raw materials, etc.) ) Electronic (high-purity solvents, etc.) 22

24 Copyright (C) KH Neochem Co., Ltd. all rights reserved. Appendix

25 Balance Sheet 2017 Progress in strengthening the financial base due to the buildup of income 2016/ /12 Changes Current assets Current and noncurrent liabilities 2016/ /12 Changes Cash and deposits Accounts payable - trade Accounts receivable - trade Interest-bearing debt Inventories Other Other Shareholders equity Non-current assets Property, plant and equipment Intangible assets Capital stock and capital surplus Retained earnings Accumulated other comprehensive income Other Non-controlling interests Total assets Liabilities and net assets

26 Statement of Cash Flows 2017 Strong cash flows from operating activities and the reduction of interest-bearing debt Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Changes in cash and cash equivalents Balance of cash and cash equivalents

27 Development in Results (Quarterly) Income declined in 4Q mainly due to a rise in naphtha prices and increased inventories for periodic maintenance. Net sales Operating income Net income Q 1Q 2Q 3Q 4Q Q 1Q 2Q 3Q 4Q 4Q 1Q 2Q 3Q 4Q

28 Development in Results by Segment (Quarterly) Both net sales and gross profit remained firm in each segment. Net sales Gross profit Other Electronic Performance Basic Chemicals /4Q 17/1Q 2Q 3Q 4Q /4Q 17/1Q 2Q 3Q 4Q Basic Chemicals (plasticizer raw materials, solvents, etc.) Performance (refrigeration lubricants raw materials, ( 冷凍機油原料 化粧品原料等 cosmetic raw materials, etc.) ) Electronic (high-purity solvents, etc.) 27

29 CAPEX, Depreciation and R&D Expenses (Annual) In 2018, the production base will be strengthened by active facility and preventive maintenance. CAPEX Depreciation R&D expenses Plan Plan Plan 28

30 Inventories, Interest-bearing Debt and Shareholders Equity ratio (Annual) Financial stability improved because results remained strong. (%) Inventories Interest-bearing debt Equity ratio Plan Plan Plan 29

31 Overview of Earnings of Consolidated Subsidiaries 2017 Subsidiaries secured stable earnings Results Results Changes Kurogane Kasei Co., Ltd. Kurogane Fines Inc. KH Neochem Americas Net sales Operating income Net sales Operating income Net sales Operating income Note: KH Neochem Americas was consolidated in

32 Summary of Results 2017 and Outlook 2018 In 2017, operating income marked a record high for the third consecutive year, and income hit a record high at each level. Net sales increased 14.5 billion year on year (+18%) Operating income increased 2.5 billion year on year (+28%) Refrigeration lubricant raw materials performed well due to the expansion of the air-conditioner market and growing demand due to increasing environmental awareness. Cosmetic raw materials benefited from the effect of capacity expansion in the previous year. Electronic materials were also steady, particularly in the semiconductor field. Basic chemicals also enjoyed strong demand in the automobile field, and overseas market conditions also improved, reflecting tight supply due to environmental regulations in China. As a result, net sales increased 18% year on year, and operating income rose 28%. The bottom line also climbed 36%, and income marked a record high at each level. In 2018, the market environment will remain favorable, but we will actively allocate resources to strengthen the production base. Net sales increased 2.3 billion year on year (+2%) Operating income decreased 1.0 billion year on year (-9%) While income is expected to decline, given higher expenses due to large-scale maintenance and the falling operation rate, we will actively allocate resources for strengthening the production base to meet further growth in demand in the future by securing safe operation and stable supply. 31

33 Note: The information presented herein is intended neither to solicit nor induce investors to either purchase or sell shares of KH Neochem. The forward-looking statements in this document such as those regarding future prospects of the business include assumptions and forecasts based on information available as of the date of this document, and accordingly such statements do not constitute KH Neochem s assurance or guarantee. This document also contains figures for reference purposes that have not undergone audit. As such, please note that actual results may materially vary from those expressed or implied herein, due to various future risks and uncertainties. Also, please be aware that neither KH Neochem nor the information providers shall bear liability for any damages incurred from use of this data. Contact KH Neochem Co., Ltd. Copyright (C) KH Neochem Co., Ltd. all rights reserved.