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Edited Transcript of 3405.T earnings conference call or presentation 13-Feb-20 10:59am GMT

Full Year 2019 Kuraray Co Ltd Earnings Call

Osaka Feb 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Kuraray Co Ltd earnings conference call or presentation Thursday, February 13, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Fumio Uegaki

* Hiroaya Hayase

Kuraray Co., Ltd. - Senior Managing Executive Officer & Director

* Hitoshi Kawahara

Kuraray Co., Ltd. - Managing Executive Officer & Director

* Keiji Taga

Kuraray Co., Ltd. - Managing Executive Officer, GM of Corporate Management Planning Office & Director

* Masaaki Ito

Kuraray Co., Ltd. - President & Representative Director

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Conference Call Participants

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* Akiko Kuwahara

BofA Merrill Lynch, Research Division - Research Analyst

* Atsushi Ikeda

Citigroup Inc, Research Division - Director and Analyst

* Go Miyamoto

UBS Investment Bank, Research Division - Analyst

* Mikiya Yamada

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Takato Watabe

Morgan Stanley, Research Division - Research Analyst

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Presentation

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Unidentified Company Representative, [1]

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[Interpreted] It's time to start the session. Thank you very much for coming to our earning presentations despite of your busy schedules.

Let us start the fiscal year 2019 earning presentations of Kuraray Co., Ltd. In the beginning, let me introduce to you today's presentators. From your right-hand side, we have the representative Director and President, Masaaki Ito. Next to him, we have the Director and Senior Managing Executive Officer and Vinyl Acetate Film Company President, Hiroaya Hayase. Next to him, we have the Director and Managing Executive Officer and Vinyl Acetate Resin Company head, Hitoshi Kawahara. Next to him, we have the Director and the Managing Executive Officer, and also responsible for the corporate management planning office, CSR division and administrative unit, Keiji Taga. On the back row, from the right-hand side, we have the Senior Manager, Accounting Department head, Noriaki Namba. And next to him, we have the Senior Manager, Corporate Communications department, Fumio Uegaki.

So today, we have 6 of them with us. Okay. Please.

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [2]

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[Interpreted] Good afternoon, ladies and gentlemen. Thank you very much for coming to our earnings presentation despite of your busy schedules. Today, we have Mr. Kawahara, Vinyl Acetate Resin Company head; as well as Mr. Hayase, Vinyl Acetate Film Company head. And during the Q&A session, please ask the question.

Please turn to Page 2. They've already given a revision of our performances in 2019. We have affected by the economic slowdowns and demand jobs and the sales declined. And also, we have had the various serious problems with us. And the net sales, down by 4.5% and JPY 575.8 billion. Operating income was JPY 54.2 b, down by 17.7%. Ordinary income, JPY 48.3 billion, down 21.1%. Net income went down to the deficit of the JPY 2 billion. It is not limited to Vinyl Acetate, but all the segment declined the sales and the operating income. And also for the net income, because of the litigation-related loss, we have had a minus JPY 2 billion ForEx, and the raw materials cost assumptions, as you can see on the slide.

Next page. This is the factors affecting change in net incomes. Fiscal year 2018 was JPY 33.6 billion. And this year, minus JPY 2 billion. So I'm going to explain the change of the JPY 35.5 billion.

Later, Taga will explain in details, but the operating income went down to the minus JPY 11.6 billion. And also, we have had the U.S. litigation-related loss of minus JPY 50.6 billion because of the litigations, attorney fees and also, we've had some settlement with the plaintiff and insurance, income was JPY 10.4 billion. Others were JPY 4.7 billion. Mainly, it is coming from the impairment, JPY 3 billion. And also the sum of the shares sold of JPY 1.7 billion, and so the result was JPY 4.7 billion. And because the profit reduced and the corporate tax was reduced, and the total income taxes was also JPY 11.6 billion, and a negative JPY 2 billion was the results for the fiscal year 2019.

Please go to the Page 4. Here, they show the outcomes of the main initiatives for the 2019. We have the 3 pillars of the initiative. On the first, pursuant of the competitive superiorities, optical-use poval films. So we've finished the expansion of the wide-width film lines at the Kurashiki plant. And water-soluble PVA films, we've conducted a new production lines at existing U.S. plant and the new U.S. plant is also expected to go into operation and for the PVB film business, the SentryGlas production started in Czech plant in July.

And as for the Kuraray KURAFLEX Okayama plant has started the increase of the capacity. And also, we've strengthened the quality improvement of production efficiencies initiatives with 14 teams.

As for the expansion of the new business field, VECSTAR, the flexible copper clad laminators equipment, installment was decided. For the business expansion of the PLANTIC biomass-based gas barrier materials that we participated in the G20 Innovation Exhibitions at the Karuizawa that was hosted by the Ministry of the Economy, Trade and Industry and the Ministry of the Environment.

Corporate Marketing Group is conducting the promotion of the organization-wide, the cross-divisional activities to develop the new applications.

As for the enhancement of the comprehensive strength of the Kuraray group, as you can see on the slide.

Page 5. This is the forecast for fiscal year 2020. A section of the ForEx, U.S. dollar is JPY 105, JPY 120 for the euro. And domestic naphtha, JPY 43,000 per kiloliters. And based on that, the forecast for the fiscal year 2020, we expect the increase of the sales and net income. Net sales, JPY 590 billion. Operating income, JPY 60 billion. Ordinary income, EUR 56 billion. Net income, JPY 35 billion.

Page 6. This is a key initiative for fiscal year 2020. For the first pillar, as has been announced, the water-soluble poval film plant, was announced for the Poland. And then we would like to expand the sales of the unit detergent packages, EVAL, it is delayed, but we are going to study the new plant in AGM. Calgon Carbon will consider building a new plant in the U.S. for the capacity increase.

Isoprene chemicals. We are steadily proceeding with the project in Thailand. We'll also promote the digitalization for production efficiency with the 14 teams. With the new business field, the VECSTARs, they will consider the accelerating sales and introducing a mass production facilities in anticipation of the popularization of 5G. PLANTICs. We began resin production and supply in the U.S., especially to the Shield Air, and expands the application of the ecofriendly bio-food package material applications.

As for the comprehensive strengths, we'll realize a further synergy effect with the Calgon Carbon business and also we'll prepare to establish the new training institute for improving human resources development and pass on the skills and the know-hows. We'll continuously promote the work-style reforms as well.

Next page is the Page 7. This is about the corporate marketing group activities. In the middle, this is the picture we use for the commercial messages. We used to be in a silo organization, but the corporate viewpoints and also the cross-functional enhancement will lead to the synergy of the different business. The actions to create a customer-centric business and cultures, we have a 6 teams, as you can see in the middle.

Marketing represent data from each business will try to have the contact with the potential customers to introduce the products and the characteristics. We have conducted more than 100 times of the presentation with the potential customers in 2019.

At the bottom, you can see the #2, the launch project to strengthen our global brand. We used to be the different in terms of the catalogs and the logo images with the different businesses. But we are going to unify as a global plan so that we can send the unified message on a global market.

Third point, we'll promote the Kuraray pride, the training system for business creation for young generation employees, and we'll create a new culture to promote the new business challenges.

Number four, we're going to build the shared company-wide, the global CRM system infrastructures, so that we can share the customer informations, and we can have the efficient sales and marketing activities. This team started with the 1 manager for -- from 2018. But now we have 5 peoples, and we are going to expand this organization.

Next page, Page 8. This is the EBITDA trend for your reference from 2010 to the 2019 as well as 2020 forecast. We are trying to convince the peoples by saying that we are not losing the cash earning powers.

2014, we acquired the Vinyl acetate-related business of DuPont and double increase. And also, there was some impact in 2019 because of the EVAL incidents, but we are going to keep the JPY 120 billion level while we'll increase it. And this type of the capital expenditures would be conducted, and then we'll continue to keep the cash earning capabilities.

Next page, please. This shows the dividends. According to the medium-term management plan, Proud 2020, total payout ratio is set at 35% or higher and annual dividends per share is JPY 40 or higher. For fiscal 2019 JPY 42 per share scheduled in June, JPY 20, year-end, JPY 22, and we conducted a share buyback. And for the fiscal 2020, JPY 42 per share is scheduled, interim JPY 21, year-end JPY 21, respectively.

Next, Mr. Taga.

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Keiji Taga, Kuraray Co., Ltd. - Managing Executive Officer, GM of Corporate Management Planning Office & Director [3]

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[Interpreted] Thank you very much. My name is Tara, I'll give you the details of the results of the fiscal 2019. Please look at Page 11. I'm going to explain the segment by segment. This is the Vinyl Acetate segment. As for the PVA resin, sales volume declined due to the decelerating economic conditions. Optical-use poval film, shipments decreased due to the LCD panel inventory adjustment. We completed the expansion of the facilities at the Kurashiki plant in the fourth quarter for the larger panel production, and we started a sample shipment.

Water-soluble PVA film, sales expanded, thanks to growing demand for products for use in unit dose detergent packets. PVB film, sales struggled in auto market despite demand grew for the interlayer SentryGlas. EVAL, gas tank application was affected by a decline in the production number of the vehicles. Sales volume for food packaging application declined despite a gradual recovery in sales from the third quarter onward. And because of this, this segment showed the decline in net sales and operating income.

Next page. Next is the Isoprene segment. Again, we showed the decline in net sales and operating income. [Fine] chemical was strong. However, the SEPTON declined due to the economic deceleration.

GENESTAR's demand for connectors for automotive device group, though sales down due to sluggish demand for electric and electronic devices.

Next is Page 13. This is the Functional Material segment. Again, we show the decline in sales and operating income from the previous year. Methacrylic resin sales decreased and also affected by worsening market conditions.

Medical sales were steady, especially for the dentistry product of the zirconic block. Calgon Carbon demand held steady in North America, whereas sales in Europe was sluggish due to stagnant demand.

In the Carbon Materials business, sales of the high value-added product increased.

Next, Page 14. This is Fibers and Textile segment. Again, we showed the decline in sales and operating income from the previous year. CLARINO sales for luxury product application remained stable though sales struggles for use in shoes.

KURALON for cement reinforcement use remained weak, and sales for reinforcing rubber were negatively affected by a decline in vehicle production. However, VECTRAN were firm, mainly in exports.

Consumer Goods and Materials. KURAFLEX sales for commodity use decreased though sales of the high-value-added products increased steadily.

Next, Page 15. This is the sales and operating income of the fiscal year 2019 by segment in comparison with the previous year.

Page 16, please. On this slide, we are going to talk about fiscal year '19 cash flow. Operating cash flow was JPY 95.6 billion. Investment cash flow was negative JPY 88.6 billion. As a result, free cash flow was JPY 7 billion positive.

Earnings per share was a negative JPY 5.66 with the BPS of JPY 1,527.79. Capital expenditure on decision basis was JPY 51.4 billion.

Accepted -- on acceptance basis. For optical-use poval film, capacity increased. And for the utility, the worst for Okayama. And for the capacity increase of water-soluble PVA films, we saw the CapEx increase by 36 -- JPY 30.6 billion to JPY 97.4 billion. Depreciation was up by JPY 1.5 billion to JPY 58.2 billion. With R&D, was flat at the JPY 21.2 billion.

In -- on this slide, we are talking about the various analysis of operating profit. Operating profit over fiscal year '19 was down JPY 11.6 billion compared to the previous year for the following reasons. First of all, sales volume. Water-soluble PVA films and PVB films, so we increased the capacity. It raised the profit by JPY 0.5 billion. And for utilization due to the global economic slowdown, especially in the optical-use poval films, EVAL, elastomer and GENESTARs, we saw the sales volume to decline with the negative impact of JPY 9.5 billion to profit.

And next, selling prices and product mix and raw materials and fuel prices. Due to our raw materials decline, we saw a JPY 6.5 billion of positive impact. And the selling price in product mix had a JPY 4.5 billion negative impact. As for foreign exchange, mainly due to euro depreciation, we saw JPY 2 billion of negative impact.

For depreciation and amortization, as we see the new plant for the water-soluble, the PVA films, JPY 1.5 billion negative impact was seen. For expenses and others, due to personnel cost increase, we saw JPY 1.1 billion of negative impact.

Please go to Page 18. On this slide, we -- in our balance sheet, we are going to talk about the asset section in comparison to the end of last fiscal year. Our current liability was down by JPY 0.2 billion. The noncurrent asset was up by JPY 44.2 billion. This is due to an increasing construction in progress, including the Isoprene new plant in Thailand.

And also, as we on-balance the leasing transaction with the new standard applied, we saw the tangible assets increase by JPY 57.4 billion. On the other hand, intangible fixed assets was down by JPY 14.2 billion, it includes goodwill.

Next, Page 19, please. On this slide, we are going to show the balance sheet liability and net asset section. The current liability was up by JPY 56.9 billion. On the increase by the insurance and commercial paper had a JPY 24 billion increase. And due to the accrued expenses related to U.S. litigation, JPY 38.3 billion was increased. And on the other hand, there was a replacement of the short-term loans of JPY 11.7 billion. As total, we saw the increase of JPY 56.9 billion. The increase of the fixed liability, as I explained earlier, this is due to on-balancing of the leasing transaction.

Net asset was down by JPY 28.5 billion. It is due to a decrease of the retained earnings of JPY 16.6 billion, and decrease coming from the share buybacks of JPY 6.5 billion. And for the foreign currency transaction adjustment of JPY 5.8 billion. With all these reasons, our equity ratio for fiscal year '19 was 53%. It was down by 5.7 percentage point but we are able to maintain the financial conditions as healthy.

Please go to Page 20. On this slide, we are going to show our forecast for 2020. Both for sales and profits at different levels, explanations were already given by Ito.

For EPS, with the assumed net profit of JPY 35 billion, we expect the EPS to be JPY 101.82 billion. Dividend is expected to be JPY 42 per share.

On the decision basis, the capital expenditure, as we have mentioned, as a key initiatives for fiscal year '20. For the new plant for the water-soluble PVA films and EVAL new plant and the new facility for activated carbon, we expect JPY 95 billion of CapEx. For acceptance basis, we're going to build a new plant for Isoprene in Thailand. And for water-soluble PVA films, MonoSol, and you would guess, in Poland, and we are going to have JPY 100 billion in total.

Depreciation, the amortization, we will be up by JPY 2.9 billion to EUR 61.1 billion, with R&D of JPY 22 billion, up by JPY 0.8 billion.

Next, Page 21. Here, we are going to talk about the various analysis of operating profit. 2020 operating profit compared to previous year is going to be up by 8 -- JPY 5.8 billion for following reasons: For volumes for the optical-use poval films and the water-soluble PVA films, we will be increasing the capacity. It will increase the profit by JPY 2 billion. With utilization, we could say also volume to recover for all businesses, we expect profit to increase by 5 point -- JPY 8.5 billion. For selling prices and the product mix and the raw materials, we assume the raw material prices to be flat from the previous year with the neutral impact.

And for foreign exchanges, we expect the yen appreciation against both the dollar and the euro with a negative impact of JPY 0.5 billion.

For depreciation and amortization, as we see the operation of new plants are both for a particular use for optical-use poval films and water-soluble PVA films, we expect the negative impact of JPY 2.8 billion. For expenses due to the increase in the personnel costs and R&D, we expect JPY 1.4 billion of increase in profit.

And the next, we are comparing the first half and second half, the forecast for 2020, with the last year's actual numbers.

Page 23. This is our forecast by different segments for 2020 in comparison to the last year's levels. As you see in all business segments, we expect the sales and profits to increase.

For Vinyl Acetate segment, for optical-use poval films and the PVA resin, PVB and for the water-soluble PVA films and EVAL, we expect the sales volume to increase in all businesses. For Isoprene segment, we expect the demand recovery for elastomer and GENESTAR. And for Functional Materials, especially for the sales volume, increase of activated carbon is expected.

For the Fibers and Textiles, we expect sales increase of CLARINO, and KURALON and KURAFLEX is going to be steady as well.

For Trading segment, as we expect the sales volume increase for chemical products, and we expect business expansion in the sewing business in Vietnam.

And for the pages following Page 24, we are showing them for your reference. We have the first half and second half, the business forecast for different segments for this year. And for 25, we also have the first half and second half forecast for each of the segment sales compared to last year. And also, there will be -- in the last page, we also show the operating profit by -- for different segments for 2020, both in the first half and second half.

And this sums up my presentation.

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Questions and Answers

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Operator [1]

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So let's now start the Q&A session. (Operator Instructions)

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Atsushi Ikeda, Citigroup Inc, Research Division - Director and Analyst [2]

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Citigroup Securities. My name is Ikeda. I have 2 questions. First of all, as for the Vinyl Acetate from 2018 to 2019, operating income is reduced by the JPY 7.3 billion. Of course, the water-soluble PVA films and also the EVALs was the affecting, but probably the PVA resins and others were probably worse. What is the trend of the volume of those items? And also, what is the reason that the profit declined?

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [3]

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Uegaki is going to talk about this. And also the other 2 gentlemen will also give you a -- the overview.

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Fumio Uegaki, [4]

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My name is Uegaki of the IR. As you said, the Vinyl Acetate, the business from 2018 to '19, the JPY 7.3 billion reductions in operating income. The factors are, first of all, PVA film for the optical use. And in term of the volumes, from '18 to '19, minus 5% or more affected in terms of the burden. So that is the first major reason. And EVAL, from '18, we have had the incident. But from '18 to '19, so volume-wise -- because of the automobile market situations throughout the year, volume-wise, it was minus 5% or a little bit more. But if you look at the breakdowns or -- the second half comparisons is made. And then the -- actually, it is a 5% increase from the previous term. So the 2018 first half was very good before the incident. And then towards the second half, it dropped. And then the -- from that particular timing, the second half was good for the 2019. And also, the water-soluble PVA film, as you said before, the volume is increasing. From '18 to '19, plus 10% or more was the increase. And so the -- our performance was also in accordance with that. And as for the PVA resin, from 2019, we have some gap. For 2019, the major factory had the derivative maintenance period, and that was a major factor, as a negative factor, I mean. And then the volume-wise, from '18 to '19, in the total sense, it was declining by 10%. So we don't see the factors. It accumulated to JPY 7.3 billion. In term of the impact, of course, optical-use PVA film was a major one. That's it from me.

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Hiroaya Hayase, Kuraray Co., Ltd. - Senior Managing Executive Officer & Director [5]

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As has been already said, optical poval film, PVA film, with the polarizers and panels, because of the China subsidies, they increase the capacity. The Korean manufacturers or -- they show the closure of the factories. And China increase the capacity of the productions. And therefore, there was an inventory adjustment. And therefore, the -- our shipment suffered from that. That is the effect.

And as for the inventory adjustment, probably, it will continue in the beginning half of the 2020. But the latter half, we'll see some recovery because the inventory adjustment is done, and then we'll see the recovery in our number.

And also, as for the PVB film, the front glass for the automobile, was affected by the economic slowdown of the China. The vehicles are not selling well. But SentryGlas is increasing in sales by 10% every year. And so we see the growth for this.

And as for the water-soluble PVA films, it is also growing steadily. And now that we've announced the investment in Poland, still, this is going to be a major profit-making business.

That's it from me.

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Hitoshi Kawahara, Kuraray Co., Ltd. - Managing Executive Officer & Director [6]

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Vinyl Acetate resins. I'm in charge of the poval, the EVAL. My name is Kawahara. Just for the poval, the resin, [Uegaki] has talked about, because of the regular maintenance seasons of the overseas factories and also volume reductions by 10% were affecting us, this is coming from the economic decelerations of the customer market, and also, the demand is declining. And also, with the midterm strategic plans, we are now shifting from the low profit-making business to high value-added business. So this strategy is going on. But this shift is now being delayed, while the low profit-making business is also suppressed. So that is the kind of the gap we are seeing right now.

As for the EVAL, if you compare the second half between 2018 and '19, 5% increase, but it was supposed to be higher than that. Unfortunately, recovery is now being delayed. And as a whole, economic situation is still tough, and EVOH growth is not that expected.

And on top of that, the customers, while we will not be able to supply them, have contracted with other suppliers for a year or for several months. So they have had other contracts. And so probably, our estimation was not enough. And the 5% growth was the only level we achieved. For the 2020 fiscal year, we would like to make sure that we're going to have a renewal of the contract for annual basis, and so that we can try to recover this. Thank you.

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Atsushi Ikeda, Citigroup Inc, Research Division - Director and Analyst [7]

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On the second question, as for the optical, the poval films, for the fiscal year 2019, I think profit was reduced because you're going to have a JPY 2 billion depreciation, and the profitability, is it very difficult? So from this fiscal year and the next year, what is a situation for poval film?

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Hiroaya Hayase, Kuraray Co., Ltd. - Senior Managing Executive Officer & Director [8]

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As you said, the product selling prices and because the customers are not making profit, we are receiving a strong pressure from the customers. However, on our part, we are trying to make sure that the customers' productivity will be improved without the loaning our selling prices. Maybe we would make sure that their yield would have been improved. And as a result, customers can make a profit. So it's kind of the proposals could be made.

And also, why with this -- the film, the 10.5 generations, which is going to be a major stream for China, and with such kind of the generations, the customer can make a profit. And our film production equipment had been already launched in Kurashiki. And in January, we started the shipment from Kurashiki. So like that, as a total basis, we would like to make sure that the customer will be satisfied and will make a profit, so that we can reduce the pressure of the selling prices of our products. And that is the basic approach. Thank you.

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Mikiya Yamada, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [9]

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I am Yamada from Mizuho Securities. I understand people from Vinyl Acetate segment are here. But for functional materials, with the carbon -- the materials, Carbon Calgon, what kind of synergies have you been able to create? With the Vinyl Acetate, I think you were able to create synergies with the DuPont. But for Calgon Carbon, I have an impression, the progress is delayed. You were mentioning the synergies to be created by 2020, but it seems like the progress has been delayed. Can you share with us your long term, the profit, the outlook for activated carbon and the strategy?

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Keiji Taga, Kuraray Co., Ltd. - Managing Executive Officer, GM of Corporate Management Planning Office & Director [10]

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Thank you for your question. Myself, Taga, will be giving you the answers. As we acquired Calgon Carbon, we have explained the synergies expected to be JPY 3 billion by 2020. And within -- by 2025 or '26, it will be JPY 10 billion. And that was a target after closing our first year. And in second year, we are able to create approximately JPY 1.5 billion synergy. And for 2020 plan, we were originally planning JPY 3 billion of synergy, but now, the plan is to create synergy of JPY 2 billion-plus. And the capacity was already at full capacity, which was different from our expectations. So we need to increase the capacity. And we are having the collaborative workshops and some other progresses that are making the steady, the progress. So there has been some delay, but we are in line to achieve our target.

From a debottlenecking, we were hoping to generate some synergies, but we identified that there should be something more to be done. So we need to have a new production line. With this, there has been some delaying, delay to generate the synergy of JPY 10 billion.

And for the existing business of Calgon Carbon, there has been some delay or some decline in their businesses. From the other sales increase in Asia and in China, we were going to increase the profit, but there has been some negative impact. By allocating some Japanese personnel, we are trying to improve the situation to catch up. But honestly speaking, there has been some delay in that business progress. Thank you very much.

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Akiko Kuwahara, BofA Merrill Lynch, Research Division - Research Analyst [11]

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Merrill Lynch Japan, Kuwahara. I have 2 questions. First of all, as for the fiscal year 2019 first half, you had the many production problems. And probably as [factors] of the changes, utilizations was probably a dominant one. But to what extent those kind of utilizations has been affecting your income, and JPY 8.5 billion would have been increased in 2020? But because of this year, the production problems, what kind of the impact would be felt in 2020 as well? And also, with the revised forecast, I think you are still making some production adjustments. Are you going to continue this for 2020? What is your approach for the production?

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Keiji Taga, Kuraray Co., Ltd. - Managing Executive Officer, GM of Corporate Management Planning Office & Director [12]

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Thank you very much for your questions. As for the production problems, as indicated last year, we had 3 programs, EVALs and also Calgon Carbon, utility facilities as well as the optical-use poval film production problems. Those at least accumulated and it was affecting JPY 5 billion negatively on profit. And of course, as you know, we have [a big part] from this. And without these impacts, they can make a profit.

As for the production reductions, each business is doing it on the fourth quarter. And inventory remained from the previous year, but from the third quarter, it dropped. So the inventory adjustment is done for now, and we'll be able to improve the performance based on the production volumes.

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Akiko Kuwahara, BofA Merrill Lynch, Research Division - Research Analyst [13]

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Then with this year, fiscal year, utilization improvement, JPY 8.5 billion is stated, but probably, JPY 5 billion is coming from the production reduction. Probably, that is coming from the '18 as well. Can you explain it as production reductions?

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Fumio Uegaki, [14]

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I think Taga has already explained. But our supplement, the JPY 5 billion is set. But from the perspective, the gap from 2020, I think that the EVAL's impact was about half of that JPY 5 billion. And we didn't have any production problems with the '19 year. Actually, the impact from the 2018 was still felt in the 2019. Sales didn't recover immediately. And that is the dip for the 2019.

And as for the optical poval films and the Calgon Carbon, especially on the Calgon Carbon, probably, we lost the business opportunities. And so that amount was calculated. Can we cancel every loss of the business opportunities? Probably no. Half or less that would have been expected, probably JPY 2 billion, that is my guess. And so not all the JPY 5 billion will be returned.

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Akiko Kuwahara, BofA Merrill Lynch, Research Division - Research Analyst [15]

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I see. So on second question, this is kind of a housekeeping question. But you have indicated the -- some growth expectations of the main products. Can you also share the growth expectation for the 2020 for the all type of the products?

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Fumio Uegaki, [16]

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Yes. I will take one by one. First, optical-use poval film, from 2019 to 2020, we expect the 2% growth. Next, water-soluble PVA films, probably 10% increase in 2020 from the previous year. EVAL, we expect 5% or additional from 2019. And the poval resins, PVA resins, probably a little bit positive number is expected. And then the GENESTAR, I didn't talk about the previous term either. From '18 to '19, it was minus 5% plus [alpha]. And then elastomer, from 2018 to 2019, minus 10% was the record. And then for the next term 2020, GENESTAR, probably positive 10% or more. And for the elastomer, for the 2020, plus 5% or more.

That is our expectations for 2020. But in actualities, if you look at the balance between the first half and second half, probably, the second half of 2019, we dropped. So the capability, that might be still continuously in the first half of 2020.

So the third quarter and fourth quarter, we may see the recovery. Probably, we'll start to see some of the signs of the recovery from the second quarter. That's it. Thank you.

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Takato Watabe, Morgan Stanley, Research Division - Research Analyst [17]

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I am Watabe from Morgan Stanley. With the limited time remaining, I will make my questions quick. As usual, on Page 17, the various analysis of our operating income, some other chemical, the companies are indicating the same analysis by different segments. I understand most of your business will be in the Vinyl Acetate, but I was wondering if you can share with us those numbers. And if you can include that in the presentation from next time, it will be easier for us to understand.

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Fumio Uegaki, [18]

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We will discuss the possibility going forward.

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Takato Watabe, Morgan Stanley, Research Division - Research Analyst [19]

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Can you share us some data?

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Fumio Uegaki, [20]

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As you mentioned, for the utilization factor, most of it is in the Vinyl Acetate. And within the utilization factor, with the sales volume decline in the production, the volume adjustment are included. For production adjustment, elastomer was a factor. In the second half of fiscal year '19, this had a major impact. We do not have detailed numbers now to share.

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Takato Watabe, Morgan Stanley, Research Division - Research Analyst [21]

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For the selling prices and product mix, what are the factors?

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Fumio Uegaki, [22]

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For selling price in the production mix, it is also in accordance with the business side. So Vinyl Acetate is a major factor.

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Takato Watabe, Morgan Stanley, Research Division - Research Analyst [23]

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And earlier, optical-use poval, the films, we are going to see the adjustment in the first half. And on the fourth quarter, you produced the profit of JPY 12 billion. Can you share us the strategy to generate the JPY 28 billion of profit in the first half next year?

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [24]

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Back in 2018, on a quarterly basis, profit, operating profit, first quarter was 22.1 -- JPY 22.3 billion, JPY 14 billion in second quarter, JPY 18.1 billion in third quarter and JPY 11.4 billion in Q4. And in 2019, the first quarter number was JPY 14.6 billion, JPY 13.3 billion in second quarter, JPY 14.4 billion in the third quarter and JPY 11.9 billion in Q4. So I understand your point to have some concerns over the jump from JPY 11.9 billion, but I don't think it's ambitious number. But it does not include any possible impact from coronavirus, so we do have some concerns. I cannot give you the details here, but we did not intentionally change our numbers. Without the coronavirus, our -- the forecast should be reasonable numbers.

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Takato Watabe, Morgan Stanley, Research Division - Research Analyst [25]

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And the settlement, the impact for the remaining 20 plant, this is -- are they included in your forecast?

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [26]

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Because we absolutely have no contact with them, we cannot have any reasonable estimation. So it's not included.

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Operator [27]

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We have limited time remaining. So we would like to take 1 or 2 more questions.

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Go Miyamoto, UBS Investment Bank, Research Division - Analyst [28]

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My name is Miyamoto, UBS Securities. I have 2 questions. On the isoprene businesses, I think that your result was less than the planned. And for the fourth quarter, only the JPY 100 million profit is made. You have made a production adjustment as well for the next -- the fiscal year. How are you going to recover? And utilization is also low, but are you going to delay the Thai plant establishment?

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Keiji Taga, Kuraray Co., Ltd. - Managing Executive Officer, GM of Corporate Management Planning Office & Director [29]

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]

Thank you very much for your questions. As for the isoprene, yes, it was lower than we expected. The big factor was the elastomer. The consumer market is China. The economy impact was felt. And also, the production reduction was also giving us the bad results for the fourth quarter. And -- but we have already made the production adjustment once, and the demand forecast is very difficult. And because of the coronavirus as well, we have already taken measures in relation to their capacities, and sales were improved. But from when, we don't know because of the coronavirus situation.

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [30]

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As for the Thai plant, we are not intentionally trying to delay to build the plant. We would like to do it as planned. But it's different from Japan, so we may see the problems. We'd like to implement it as soon as possible. That is our plan.

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Go Miyamoto, UBS Investment Bank, Research Division - Analyst [31]

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On second question about optical vinyl films, the price average was decreased from 2018. And also how about in 2020, the vinyl price is already bottomed up. For the 2020, you were not including selling price reductions for the factors affecting the changes in the income. What do you think?

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [32]

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The prices will be maintained, and that is our approach. If we keep the same, then that might see the reduction in selling prices. But we are going to improve the customer and also will propose a high-value addition product. And then probably average price will not go down. And probably individually, it is different.

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Go Miyamoto, UBS Investment Bank, Research Division - Analyst [33]

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How about the 2019 results?

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [34]

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The same answer will be given again.

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Operator [35]

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Anything else? If not, we would like to conclude today's presentation meeting.

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Masaaki Ito, Kuraray Co., Ltd. - President & Representative Director [36]

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Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]