On November 10, 2020 Kureha Corporation reported that (Press release, Kureha Corporation, NOV 10, 2020, View Source [SID1234570476])
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1. FY2020 Half-Year Results (Period April 1-September 30, 2020) FY2020 1H operating profit: ¥6.2bn (down ¥4.1bn YoY)
• Limited impact of COVID on manufacturing and sales operations
• Challenging market conditions for Advanced Materials with slower automobile and shale oil production
• Primary factors attributing to operating profit:-¥2.9bn operating loss in the PGA business due to lower sales volumes (-¥1.5bn) and temporary cost of sales related to PGA manufacturing facility*(-¥1.4bn) *
There was no resin production at the US PGA plant in the 1H period, and expenses related to the plant were all temporarily recorded as cost of sales (to be incurred as inventory assets after PGA production in 3Q)
-Lower sales volumes in other businesses due to COVID-related economic slowdown, business transfer (blow bottle), effects of mandatory drug price revisions, etc. (-¥1.9bn)-Absence of a discount business purchase gain recorded in prior year (-¥1.5bn)-Lower raw materials and fuel cost (+¥0.9bn)
-Lower SG&A expenses amid COVID (+¥1.3bn)
Shareholder returns and cash flow
• FY2020 interim dividend: ¥85 per share (same amount as FY2019) FY2020 year-end dividend: ¥85 per share (same amount as FY2019)
• The balance of cash and cash equivalents at the end of FY2020 1H amounted to ¥17.6bn (¥10.3bn up from FY2019 1H end) including cash from sale of investment securities, which will be used for further capital investment while hedging against credit risks amid COVIDRevenue down on lower sales volumes in Advanced Materials, Specialty Chemicals and Specialty Plastics’ packaging materials business, partially offset by higher Construction and environmental business volumes
• Operating profit down due largely to lower PGA volumes and temporary cost of sales related to the US PGA plant combined with the lack of prior year’s bargain business purchase gain, partially offset by margin expansion in environmental businesses
• Profit for the period decreased on lower operating profit and profit before income tax AM: Decline driven by PPS, PGA and carbon products, despite improved earnings for PVDF SC: Decline in industrial chemicals more than offsetting higher profit in agrochemicals SP: Profit even with prior year due to profit increase for fishing lines offset by a decline in packaging materials CO: Profit even with prior year despite higher sales volumes in the civil engineering business OO:
Growth driven by higher environmental engineering business volumesAdvanced plastics PPS: Profit declined on lower volumes for automobile applications and lower equity income in affiliates PVDF: Higher profit driven by volume growth for LiB binder applications, partially offset by declines in other applications PGA: Revenue down on lower frac plugs and stock shapes volumes as shale oil production slowed with falling oil prices; a sharp decline in operating profit resulting from temporary cost of sales related to the US plant (plant expenses temporarily recorded due to no production in 1H) Carbon products Profit down on lower carbon fiber sales volume for automobile and furnace insulation applications Other Profit even with prior year despite higher adhesive sales volumeAgrochemicals Higher profit driven by higher fungicides volumes Pharmaceuticals Profit improved on lower expenses, despite a decline in sales affected by the National Health Insurance drug price revisions Industrial chemicals Revenue and profit decreased due to slower demand for organic and inorganic chemicals amid COVID-related slumpHome products / Fiber products Higher profit driven by volume growth for ‘Seaguar’ fishing lines, despite flat home products sales Packaging materials Profit declined due to slower sales of heatshrink multilayer film in EU and Australia meat markets amid COVID, combined with effects of the transfer of the blow-bottle business (divested in FY2019)
Construction Revenue up on higher number of civil engineering projectsEnvironmental Engineering Profit growth driven by higher industrial waste processing and treatment volumes Logistics Revenue and profit even with prior year Hospital Operations Declines in revenue and profitFY2020 Full-year forecast: ¥14.5bn in operating profit (¥3.5bn down YoY)
• Sales expected to pick up from 3Q onward at a varying speed for each segmentAdvanced Materials exclusive of PGA to record ¥1.1bn increase in operating profit
• Expansion of environmental engineering business driven by higher industrial waste treatment volumes
• Operating profit of ¥14.5bn projected based on core operating profit at ¥15bn (¥1.0bn down YoY) and a ¥2.5bn decrease in the net effect of other income and expenses (gains from fixed asset sales and business restructuring cost recorded in FY2019)
Capital investment PPS: 5000 ton capacity increase at Iwaki Factory; commercial operations scheduled for February 2021 PVDF: Monomer process enhancements at Iwaki Factory; commercial operations scheduled for April 2022 Revenue decline led by:-Slower PGA demand in sluggish shale market-Effects of the bottle business transfer-Slower demand for industrial chemicals partly offset by-Higher PVDF volume for LiB binder applications-Expansion of the environmental business
• Operating profit down due to lower segment operating profit led by Advanced Materials and a decrease in the net effect of other income and expenses
• Profit before income tax to decrease on lower operating profit
• Profit for the period to decrease on lower profit before income taxAM: PGA-related operating loss more than offsetting PVDF volume growth SC: Improved demand for agrochemicals after prior year’s inventory adjustments SP: Slower sales for packaging materials more than offsetting volume growth of fishing lines CO: Fewer high-margin projects and intensified market competition OO: Higher environmental engineering business volumesAdvanced plastics: Revenue down, profit down
-Negative impact of falling oil prices and slower shale oil production on PGA sales-Slower demand for PPS in auto market
-Robust volume growth of PVDF LiB binder in the EV market supported by environment and economic policies Carbon products: Revenue down, profit down-Decreased sales of carbon fiber used for automobile sliding parts Other: Revenue up, profit up-Increasing demand for high-performance materials in recovering semiconductor and 5G marketsAgrochemicals: Revenue up, profit up-Improved demand for agrochemicals after customers’ inventory adjustments Pharmaceuticals: Revenue down, profit down
-Effects of mandatory drug price revisions and distribution inventory adjustments Industrial chemicals: Revenue down, profit down-Slower demand for organic and inorganic chemicalsHome products & Fiber products: Revenue up, profit up-Continued demand for fishing lines due to increasing popularity of recreational fishing amid the pandemic-Flat sales growth for home products (NEW Krewrap, Kichinto-san series) Packaging materials: Revenue down, profit down-Slower sales of heat-shrink multilayer film in EU and Australia meat markets amid COVID-Effects of the transfer of the blow-bottle business (divested in FY2019)Construction: Revenue down, profit down-Decrease in high-margin construction projects-Intensified market competitionEnvironmental engineering: Revenue up, profit up-Higher industrial waste processing and treatment volumes related particularly to low PCB concentration wastes Logistics: Revenue down, profit down-Slower demand in and outside the Group Hospital operations: Revenue down, profit down-Fewer number of visiting patients
3. Consolidated Companies
4. Supplementary Marketing strategy for business expansion By improving the current PGA frac plugs and offering price flexibility for customers, we aim to promote PGA frac plugs for use in the entire horizontal wellbore and increase sales volume.
② Technological strategy for business expansion As a first step, we will develop a differentiated nonPGA dissolvable frac plug by leveraging our original technologies to enhance the product lineup, and begin to sell the plug in areas with low-tomiddle ground temperatures. Next we will develop a PGA frac plug targeted for the ultra-low-to-low temp areas and expand the sale of PGA frac plugs in all temperature areas.Primary customers are major South Korean and Chinese lithium-ion battery (LiB) makers
• Maintains a roughly 40% share in the automotive LiB cathode binder market
• LiB production was largely disrupted due to COVID during the first six months of FY2020, but the market is rapidly recovering on the back of tighter environmental regulations and economic stimulus policies
• Commenced production and supply of PVDF binder specialty grades at the China Changshu plant in May 2020
• Will continue to study for additional PVDF manufacturing facility, although delayed due to COVID, and will release details including its location (most likely in China) by Spring 2021. Commercial operations of the new plant is scheduled to start in FY2024 Kureha Ecology Management (KEM) leverages its waste treatment technologies for hard-to-detoxify wastes such as industrial wastes with low polychlorinated biphenyl (PCB) concentration and chlorine-and fluorine-based halogen compounds
• In FY2019, KEM acquired full ownership of Himeyuri Total Work Co. which owned a final treatment site for industrial wastesKureha’s basic policy for the distribution of earnings is to strengthen the company overall to realize longerterm growth, prepare for future business expansion, enhance retained earnings, and provide a stable and continued dividend.
◼ Share repurchase allows flexible capital management and is considered as a viable option. *Presently Kureha is closely watching for any credit risks and effects of COVID on the financial market and has no plan to repurchase its own shares. These materials are supplied to provide a deeper understanding of our company, and are not intended to as a solicitation for investment or other actions.
• These materials have been prepared by our company based on the information available at this point in time. However, actual performance may produce results that differ from the plan due to unforeseeable events and factors.
• Please utilize these materials using you own judgment and responsibility.