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Edited Transcript of 4021.T earnings conference call or presentation 2-Aug-19 10:59am GMT

Q1 2020 Nissan Chemical Corp Earnings Call

Tokyo Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Nissan Chemical Corp earnings conference call or presentation Friday, August 2, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Junichi Miyazaki

Nissan Chemical Corporation - CFO, Head of Finance & Accounting Dept., Senior EVP - Corporate Strategy & Coordination and Director

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Presentation

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Junichi Miyazaki, Nissan Chemical Corporation - CFO, Head of Finance & Accounting Dept., Senior EVP - Corporate Strategy & Coordination and Director [1]

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I am Miyazaki. Thank you for joining our investors meeting. Please turn to Page 2. Page 2 shows first quarter results. Sales were JPY 48.7 billion; operating profit, JPY 9.3 billion; ordinary income, JPY 10 billion; and net income was JPY 7.8 billion. As shown at the bottom, operating profit in the previous year was JPY 10.7 billion, and it went down to JPY 9.3 billion, down by JPY 1.4 billion year-on-year. However, compared with the previously announced target of JPY 8.7 billion, operating profit was above by JPY 0.6 billion.

Net income was JPY 7.8 billion in the first quarter of this year, down JPY 1 billion year-on-year. But here, also compared with the previously announced target of JPY 7.2 billion, net income was above by JPY 0.6 billion. This is due to the gain on sales of investment securities of JPY 0.9 billion as a part of extraordinary income through the sales of 8 listed company stocks.

Now please turn to Page 3 and 4. Operating profit under Page 3 is described as down JPY 1.4 billion year-on-year. By segment, Pharmaceuticals were up JPY 0.1 billion; Performance Materials were flat; Chemicals were down JPY 0.7 billion; Agrochemicals were down JPY 0.6 billion; and Trading was down JPY 0.1 billion. Detailed information of each segment will be explained later.

Page 4 shows a comparison with the outlook. When you refer to operating profit by segment as for the upside, Performance Materials were up JPY 0.3 billion, Agrochemicals were up JPY 0.9 billion and Pharmaceuticals were up JPY 0.3 billion. As for the downside, Chemicals were down JPY 0.5 billion and Trading was down JPY 0.1 billion. As shown below, in the extraordinary income and loss, gain on sales of investment securities were up JPY 0.9 billion, selling 8 listed companies stocks with a sales amount of the JPY 1.7 billion.

Please turn to Page 6 for cash flows. On financing cash flow, total payout to shareholders including dividend and share repurchase is shown here. Let me offer you its breakdown. Out of the total of JPY 10.4 billion in the first quarter FY '18, dividend was JPY 5.4 billion and the share repurchase was JPY 5 billion. Out of JPY 10 billion in this fiscal year, dividend was JPY 6.2 billion and the share repurchase was JPY 3.8 billion. As of the end of June, we didn't repurchase shares up to the maximum amount of JPY 6 billion. The remnant JPY 2.2 billion is included in the others, shown in 2 columns below of JPY 2.3 billion as the entire JPY 6 billion was cashed out to trust bank first. On cash basis, total impact on cash flows is minus JPY 6 billion.

Page 7 shows balance sheet. Our company has a substantial collection of accounts receivable in Agrochemical segment in March, June period. This is a regular seasonality and a strong in the column of accounts receivable change is minus JPY 5 billion. As for inventories, due to the agrochemicals usage peak time of March to April, inventory is piled up in this quarter, and as of the end of June, it was plus JPY 1.1 billion. Investment securities were minus JPY 2.6 billion. Listed stock created was minus JPY 2.9 billion of which stock sales were minus JPY 0.9 billion, and the variation loss was minus JPY 2 billion.

Page 9 and 10 show the first quarter results. Page 10 shows the operating profit. Please refer to them later.

I will explain by segment. First of all, let me start from Chemicals on Page 12. Table shows the main product sales growth of year-on-year and versus plan. And comments on the year-on-year comparison and versus plan are shown below. I'd like to comment on the bottom part of Fine Chemicals first. Fine Chemicals sales were down by JPY 0.1 billion. Sales of TEPIC for electronic materials were heavily affected. Sales for solder-resist ink were weak, but TEPIC for general applications for export was strong, and its sales increased slightly. As a result, profit in Fine Chemicals were down due to sales decline, cost increase and a negative impact by inventory adjustment.

In Basic Chemicals, in many products, sales dipped slightly with no particular notable decline. In melamine, combined sales of Japan and overseas showed slight changes. In Japan, despite volume decline, prices were up year-on-year, but in export, volume increased, but prices went down. As for profit, fixed cost increased and -- as well as in the case of Fine Chemicals, inventory adjustment affected negatively and profit was down. As a whole in this segment, sales were down JPY 0.3 billion and operating profit was down JPY 0.7 billion year-on-year.

Next, I will explain the comparison with the outlook as shown on the right. As shown in the table on the top, Fine Chemicals sales were below JPY 0.3 billion compared with the outlook. This was due to the sluggish sales of TEPIC for electronic materials, semiconductors, solder-resist ink.

Environmental-related products were also below. In the previous year, we had price hikes, and there was a demand surge prior to the price hike. But this backlash was observed in this quarter. As a result, sales and profit were below outlook in Fine Chemicals.

In the case of Basic Chemicals, compared with the outlook, sales were below substantially by JPY 0.7 billion. Sales of melamine were down both in Japan and overseas. In Japan, we were affected by some customers' shift to Chinese products. And in overseas business, we were also affected by China, and also volume and prices declined. But in China, it seems that the melamine production began to decrease from the end of June. However, we have not confirmed that yet.

Sales of high-purity sulfuric acid and the industrial sulfuric acid, among others, were also down. As a result, with the decline of sales, profit was also down.

Combined sales of Fine Chemicals and Basic Chemicals were down by JPY 1 billion compared with the outlook. And operating profit was down by JPY 0.5 billion.

Please turn to Page 14 for Performance Materials. This slide shows actual sales in the plan of Display Materials, Semis Materials and the Inorganic bar chart.

Please turn to next page. On Page 15, we've seen Display Materials. As shown on the left top, sales of SUNEVER were up 3% year-on-year, and it was in line with the plan. Total sales of Display Materials were up 2%, and it was also in line with the plan.

Page 16 shows the breakdown of Display Material sales. TN sales decreased sharply and VA sales increased substantially. In IPS, due to photos and rubbing offset, sales were almost flat. As you see here by mode and compared with the plan, sales of TN were below, but VA sales were above, and IPS sales were below with rubbing being below plan, but photo sales were above the plan.

As for Semis Materials, please turn back to Page 15 again. Sales of KrF were down 10% year-on-year and were almost in line with the plan. Sales of ArF were down 7% and were below plan. Sales of other Semis Materials were down 2% and below plan. Total sales of Semis Materials were down 6% and below plan.

As a result, moving on to Page 17, profit is shown on this page. As I said, as for inorganic sales of SNOWTEX were down year-on-year and oilfield materials were weak. Within SNOWTEX, sales for polishing materials were sluggish. As a result, as for the segment as a whole, with a fixed cost reduction of JPY 0.2 billion, sales were down by JPY 0.5 billion and operating profit was flat year-on-year. By subsegment, Display Materials profit was up; Semis Materials were down; and Inorganic was down.

As for comparison with the outlook as shown on the right of Page 17, SUNEVER sales were in line with our target, semis Materials were below and the Inorganic materials were also below. Within Inorganic materials, oilfield materials' dip was significant. As for SNOWTEX for general application for end users demand in China, sales for catalyst binder was weaker than anticipated. Sales of SNOWTEX for electronic materials, wafers were below. Fixed cost was substantially below the plan by JPY 0.7 billion. And as a result, sales were below by JPY 0.8 billion, but operating profit was above the target.

In Display Materials, as fixed cost was less than anticipated, sales were in line with the target and the profit was above. Semis Materials sales went down, but profit was in line. Inorganic sales were down, but with less fixed cost, profit was above the target. As a whole, sales were down by JPY 0.8 billion, but operating profit was up by JPY 0.3 billion.

Page 20 is for Agrochemicals. This slide shows sales of main products, and they are all before markdowns. Fluralaner is described with 3 downward arrows, and its sales were down 25% year-on-year. As our plan was minus 45%, it was considerably above the plan. This outlook was based on the shipment requirement from Merck.

ROUNDUP sales were down by 2% year-on-year. Sales of MAXLOAD for farmers were flat, but ROUNDUP AL for general consumers went down. In the effort to expand the customer base, our current mainstay products are reasonably priced lineups and that pushed down the sales slightly.

ALTAIR sales were up. TARGA faced shortage of active ingredients. And we plan to use Chinese generic products, but they had some quality issues and that added to the shortfall. Parts of active ingredients are shared in the manufacturing process of GRACIA. Food production was prioritized, and that was another reason for targets falling short of the target.

Sales of GRACIA, as shown at the bottom of Page 20 by bar chart, sales in this first quarter were too high compared with the previous year to be described in percentage. But as you see here, comparison of plan and actual shows that substantial gap due to the upside of GRACIA and Fluralaner. As for the Agrochemicals, sales as a whole, our original outlook was down 13% year-on-year before markdowns, but actually, it ended up at down 9% year-on-year although they are not described here and the sales were better than the outlook.

Please turn to Page 21. As for the description on Page 21, there is no change from May. And please take a look at the tails of Fluralaner on the right. As I said before, the initial sales outlook of the first quarter were down 45% year-on-year, but as shown here, actual sales were much better, down 25% year-on-year.

As a result, for profit, please turn to Page 22. Let me comment on the year-on-year comparison on the left first. Sales of GRACIA in the first quarter were all domestic. Despite a very robust sales growth of GRACIA, sales of ROUNDUP were down slightly, sales of Fluralaner fell sharply and export sales slipped, and they resulted in the segment sales decline. And inventory adjustment was added to the sales decline of JPY 1.7 billion and profit decline of JPY 0.6 billion.

In comparison with the outlook, please take a look at the right bottom. In GRACIA and Fluralaner, substantial sales were front-loaded to this quarter. And despite the downside of TARGA, as a whole segment, sales were above the target by JPY 0.6 billion. As for profit, sales of high-margin Fluralaner and GRACIA were above the target. And also backed by the lower-fixed cost, operating profit was above the target by JPY 0.9 billion, achieving larger upside than the sales upside of JPY 0.6 billion.

Next for Pharmaceuticals, please turn to Page 24. Sales of LIVALO were up 8% year-on-year. In Japan, trade inventory adjustment on LIVALO has been ongoing for about 2 years, but that came to an end, and that led to the slight positive growth year-on-year. On export front, sales achieved a strong growth due to front-loaded sales in Europe among others. Sales of Custom Chemicals were down 12% year-on-year, which appeared to be large. But as absolute values are small, we regard that almost in line with the budget staying solid.

As for sales of Custom Chemicals, table on the right shows sales of the segment and that of LIVALO, and the gap is that of Custom Chemicals staying at JPY 0.5 billion level almost unchanged. Sales in the first quarter FY '19 were JPY 5.1 billion, and they were JPY 5.7 billion in the first quarter FY '18. So the dip is not material. Our budget was JPY 5.3 billion for the quarter, and therefore, we deem that sales in the first quarter were firm. As a whole segment of Pharmaceuticals, sales were up 1% year-on-year and also above the target.

As for the profit year-on-year, as shown on the left bottom of Page 24 reflecting sales growth of LIVALO, profit was up JPY 0.1 billion with sales increase of JPY 0.1 billion year-on-year. In comparison with the outlook, profit was above target, reflecting sales upside of LIVALO. In Custom Chemicals, inventory adjustment was a positive factor, so not substantial, and this profit was slightly above target.

Please turn to Page 31. As for share repurchase, as already announced, when you refer to the table of share repurchase program, it shows that maximum amount of JPY 6 billion, which was set in May of shares, were already repurchased. And it was completed on the 23rd July with 1.27 million shares repurchased.

That concludes my presentation on the first quarter FY 2019 results.