On May 27, 2020 Nippon Kayaku reported that Summary of Consolidated Financial Results [Japanese GAAP] For the Fiscal Year Ended March 31, 2020 (Press release, Nippon Kayaku, MAY 27, 2020, View Source [SID1234558517])
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1. Consolidated Business Results for the Fiscal Year Ended March 31, 2020 (April 1, 2019–March 31, 2020)
(1) Consolidated Operating Results
(2) Consolidated Financial Position
3. Consolidated Business Results Forecasts for the Fiscal Year Ending March 31, 2021 (April 1, 2020–
March 31, 2021)
The impact from the global spread of the novel coronavirus (COVID-19) has made it difficult to calculate
reasonable consolidated business results forecasts for the fiscal year ending March 31, 2021 at the present time. The
Company has therefore refrained from specifying forecasts. We will carefully assess the impact on business results
and will promptly disclose forecasts when it becomes possible to disclose reasonable forecasts.
Notes
(1) Significant changes in subsidiaries during the fiscal period (changes in designated subsidiaries that result in
changes in scope of consolidation): None
(2) Changes to accounting policies and estimates and restatements
[1] Changes to accounting policies associated with revision of accounting standards or similar items: None
[2] Changes other than [1]: None
[3] Changes to accounting estimates: None
[4] Restatements: None
(3) Number of shares issued (common stock)
[1] Number of shares issued at end of the fiscal period (including treasury stock)
As of March 31, 2020: 177,503,370 shares
As of March 31, 2019: 182,503,570 shares
[2] Number of treasury stock at end of the fiscal period
As of March 31, 2020: 6,709,685 shares
As of March 31, 2019: 9,358,749 shares
[3] Average number of shares during the fiscal period
Fiscal year ended March 31, 2020: 172,597,255 shares
Fiscal year ended March 31, 2019: 173,145,331 shares
1. Non-consolidated Business Results for the Fiscal Year Ended March 31, 2020 (April 1, 2019–March 31, 2020)
(1) Non-consolidated Operating Results
1. Overview of Operating Results, Financial Position, and Future Outlook
(1) Overview of Operating Results for the Fiscal Year Ended March 31, 2020
The global economy continued to see a gradual rebound this fiscal year, however the impact from the spread of the
novel coronavirus (COVID-19) pandemic from January 2020 onward has suppressed economic activity in China,
Europe, and the U.S., resulting in a deceleration in the pace of growth of the global economy. While the Japanese
economy showed signs of a gradual rebound on the back of an improved employment and income environment,
signs of weakness in consumer spending and other areas have appeared due to the infectious disease and the future
outlook remains uncertain.
In the functional chemicals industry, which encompasses functional materials, the need is increasing for high performance materials for use in next-generation high-speed (5G) communication devices in the information
and communication fields and for various kinds of color materials for digital printing in the printing industry. The
global trends in energy and resource conservation are also creating demand for high-strength, lightweight materials
and high-performance catalysts for chemical reactions.
In the pharmaceuticals industry, there is need to both maintain Japan’s national health insurance system and
promote innovations that will deliver drugs with superior therapeutic efficacy to patients with intractable conditions.
The generic drugs and biosimilars markets are experiencing high growth amid healthcare system reforms that take
the costs of social security and medical care into consideration and efforts to maintain healthcare costs at a
reasonable level. Domestic manufacturing of biomedicines and biosimilars is promising from the perspective of
industry development.
In the automotive industry, the automotive market shrank under the added strain of the spread of COVID-19 on
top of the deceleration in economic growth in China and softening of growth in the European market stemming from
changes of testing methods for gas emissions, etc.
Amid these conditions, the Nippon Kayaku Group worked to implement the key themes and resolve the mid- and
long-term key issues outlined in "KAYAKU Next Stage," the mid-term business plan launched this fiscal year. We
worked to cut costs further to reinforce our profit structure, in addition to focusing on strengthening R&D, optimal
allocation of business resources into core businesses, and expanding our overseas business.
The above factors led to growth in consolidated net sales to 175,123 million yen for the fiscal year ended March 31,
2020, an increase of 2,484 million yen (1.4%) year-on-year. This growth resulted from a year-on-year sales growth
in the functional chemicals business and pharmaceuticals business, despite a year-on-year decline in sales in the
safety systems business.
Consolidated operating income totaled 17,485 million yen, a decrease of 2,454 million yen (12.3%) year-on-year. This decline resulted from underperformance of the functional chemicals and safety systems businesses compared with the previous fiscal year, despite year-on-year growth in the pharmaceuticals business.
Consolidated ordinary income was 18,026 million yen, a decline of 3,581 million yen (16.6%) from the previous year. The decline resulted from an increase in foreign exchange losses. year-on-year.
Performance by business segment is as described below.
[1] Functional Chemicals Business
Sales stood at 71,540 million yen, an increase of 1,851 million yen (2.7%) year-on-year.
The functional materials business as a whole outperformed the previous fiscal year. The outperformance came
from strong sales of epoxy resins used in semiconductor encapsulation due to the proliferation of high-speed (5G)
communications devices and IoT and the increasingly sophisticated electronic equipment in vehicles, which more
than compensated for a decline in sales of other products.
The color materials business outperformed the previous fiscal year despite year-on-year underperformance of colorants for inkjet printers for consumer use. The growth in sales resulted from strong growth in colorants for inkjet
printers for industrial applications due to the growth of digital printing.
The catalyst business outperformed the previous fiscal year, both in Japan and overseas. In the Polatechno Group, sales of components for X-ray analysis systems were strong, but sluggish sales of [2] Pharmaceuticals Business
Sales stood at 47,774 million yen, an increase of 1,543 million yen (3.3%) year-on-year.
Pharmaceuticals in Japan were impacted by drug price revisions accompanying the increase in the consumption
tax rate, but the segment outperformed the previous fiscal year as growth in sales contributed to performance due to the switch to biosimilars and generic drugs, and growth in the antibody biosimilars, TRASTUZUMAB BS and
INFLIXIMAB BS, in particular.
Although sales of active pharmaceutical ingredients and contract production for the Japanese domestic market
underperformed the previous fiscal year, exports and diagnostic agents outperformed the previous fiscal year.
Segment profit was totaled 4,135 million yen, an increase of 74 million yen (1.8%) year-on-year.
[3] Safety Systems Business
Sales stood at 46,990 million yen, a decrease of 228 million yen (0.5%) year-on-year.
Business in Japan outperformed the previous fiscal year as firm sales of airbag inflators more than compensated for underperformance in sales of micro gas generators for seatbelt pretensioners compared to the previous fiscal year.
The overseas business saw sales decline from the previous year due to the slump in the automotive market.
Sales of airbag inflators, micro gas generators for seatbelt pretensioners, and squibs all underperformed the previous
fiscal year.
A decline in sales in overseas business led to segment profit of 6,191 million yen, a decrease of 899 million yen
(12.7%) from the previous fiscal year.
[4] Other
Sales stood at 8,817 million yen, a decrease of 682 million yen (7.2%) year-on-year.
The agrochemicals business underperformed the previous fiscal year in both domestic sales and exports.
Sales in real estate and other business decreased compared to the previous fiscal year.
Segment profit totaled 1,543 million yen, a decrease of 45 million yen (2.9%) year-on-year.
dye-type polarizing films resulted in underperformance of the Polatechno Group as a whole, compared with the
previous fiscal year.
The slump in the Chinese market in the color materials business and the decline in sales of the Polatechno Group result in a 1,525 million yen (19.7%) decline in segment profit from the previous fiscal year to 6,202 million yen.
(2) Overview of Financial Position for the Fiscal Year Ended March 31, 2020
Total assets were 278,496 million yen, a decrease of 15,074 million yen from the end of the previous fiscal year. The
main decreases were in securities, a decrease of 6,641 million yen; raw materials and stores, a decrease of 5,691
million yen; and investment securities, a decrease of 4,764 million yen. The main increase was in merchandise and
finished goods, an increase of 3,735 million yen.
Liabilities were 68,477 million yen, an increase of 3,948 million yen compared to the end of the previous
consolidated fiscal year. The main increase was in bonds payable, an increase of 12,000 million yen. The main
decreases were in long-term loans payable, a decrease of 2,596 million yen; and deferred tax liabilities, a decrease of
2,488 million yen.
Net assets were 210,019 million yen, a decrease of 19,023 million yen compared to the end of the previous
consolidated fiscal year. The main decreases were in non-controlling interests, a decrease of 12,327 million yen;
translation adjustments, a decrease of 5,217 million yen; and unrealized holding gains on other securities, a decrease
of 3,518 million yen. The main increase was in treasury stock, an increase of 2,619 million yen.
Profit attributable to owners of parent was 12,815 million yen, a decrease of 2,035 million yen (13.7%)
18,141 million yen, and depreciation and amortization of 12,384 million yen. The above factors more than compensated for income tax paid of 6,140 million yen, and gain on sales of investment securities of 676 million yen.
Net cash used in investing activities totaled 17,543 million yen (versus a cash outflow of 17,694 million yen in the previous fiscal year). The net outflow was mainly due to expenditures of 15,276 million yen for the purchase of
property, plant and equipment and expenditures of 813 million yen for the purchase of intangible assets.
Net cash used in financing activities amounted to 13,894 million yen (versus a cash outflow of 6,437 million
yen in the previous fiscal year). This was mainly due to expenditures for acquisition of equity in subsidiaries that did
not accompany a change in the scope of consolidation of 13,808 million yen, dividends paid of 5,181 million yen,
expenditures for repayment of long-term loans of 4,315 million yen, and payment for purchase of treasury stock of
2,987 million yen, despite a cash inflow of 12,000 million yen in proceeds from issuance of corporate bonds.
Reflecting the above cash flow performance, the balance of cash and cash equivalents at the end of the fiscal
year ended March 31, 2020 was 46,663 million yen, a decrease of 6,034 million yen from the end of the previous
fiscal year.
(4) Future Outlook
Regarding the future business environment surrounding the Nippon Kayaku Group, the global economy will see a
slowdown in the U.S. economy under the impact of the novel coronavirus (COVID-19) and persisting uncertainty
over U.S.-China trade friction. Protracted suppression of economic activity in Europe and China may also add to the
risk of an economic slowdown. Severe conditions in the Japanese economy are expected to persist under the impact
of COVID-19. We must also pay careful attention to the risk that the spread of infection could cause an even greater
slowdown in the Japanese and overseas economies.
Under these conditions, the Nippon Kayaku Group will work to ascertain and respond globally to the changing
conditions. We will endeavor to keep our employees safe, while also continuing efforts to minimize the significant
impact of this infectious disease on the business results of the Nippon Kayaku Group. The Nippon Kayaku Group
also aims to respond flexibly to changes in the business environment and pursue optimal use of operating capital to
increase the shareholder value, as well as expand existing businesses in global growth markets, accelerate the
development of new businesses and new products, and enhance profits.
In the functional chemicals business, we will work on development of distinctive products such as high-performance resins for printed circuit boards used in rapidly proliferating high-speed (5G) communications in the information and communications fields, epoxy resins used in carbon fiber-reinforced plastics, colorants for inkjet printers for digital printing, materials for thermal paper, and high yield catalysts for the manufacture of acrylic acid and methacrylic acid, which contribute to energy and resource conservation.
In the pharmaceuticals business, we will move forward with clinical trials of polymeric micelle anti-cancer drugs and strive to achieve rapid market penetration of Portrazza, a new biologic humanized EGFR antagonist monoclonal antibody anti-cancer drug, by providing information on appropriate use. We are also working on the key issues of achieving greater market penetration of the antibody biosimilars, RASTUZUMAB BS and INFLIXIMAB BS, and expanding our product line-up in cancer-related areas, including distinctive generic drugs.
In the safety systems business, we will work to develop new products in airbag inflators, micro gas
generators for seatbelt pretensioners, squibs, actuators for vehicle hood-raising devices to protect pedestrians,
and other products. We will also focus on developing new automotive safety components for rapidly evolving
automated driving technologies.
The consolidated business results forecasts for next fiscal year have not yet been determined because of the
difficulty of calculating reasonable business forecasts at the present time due to the impact of COVID-19. We will
carefully assess the impact on business results and will promptly disclose forecasts when it becomes possible to
disclose reasonable forecasts.
(5) Basic Policy Concerning Profit Dividends and Dividends for the Fiscal Year Ended March 31, 2020
and Fiscal Year Ending March 31, 2021
The Nippon Kayaku Group focuses heavily on returning profits to shareholders. A medium-term payout ratio has
been set at roughly 40% of profit attributable to owners of parent. This takes into account stable and consistent profit returns and the level of retained earnings. Retained earnings are to be allocated for capital investment and R&D
investment in growing businesses to enhance the value of the Nippon Kayaku Group.
The year-end dividend for the fiscal year ended March 31, 2020 is expected to be 15.0 yen per share. Combined with the dividend paid at the end of the second-quarter, total dividends per share for the full year will be 30 yen.
We plan to continue paying annual dividend of 30 yen per share next fiscal year, 15 yen per share as second quarter dividend and 15 yen per share as year-end dividend
2. Basic Stance on Selection of Accounting Principles
The Nippon Kayaku Group, for the time being, employs generally accepted accounting principles in Japan to prepare its consolidated financial statements. This decision takes into account comparability of different fiscal periods in the consolidated financial statements and with industry peers.
It should be noted that the Company plans to adopt the use of the International Financial Reporting Standards
(IFRS) in a timely and adequate fashion should certain circumstances in Japan and abroad give rise to this need.
[1] Summary of reportable segments
The reportable segments of the Nippon Kayaku Group are structural units of the Group for which separate financial
information can be acquired. These segments are subject to be examined periodically by the Board of Directors in
order to evaluate business results and make decisions on the allocation of business resources.
Business groups are established by product for each reportable segment within the Nippon Kayaku Group. Each
group develops comprehensive domestic and overseas strategies for the products it handles, and introduces business
activities accordingly.
In light of this, the Nippon Kayaku Group primarily consists of product- and service-specific segments that are
based on business divisions. "Functional chemicals business," "Pharmaceuticals business," and "Safety systems
business" are three reportable segments.
[2] Methods for calculating the amounts for sales, profit (loss), assets, liabilities, and other items by reportable segment
The profit reported in each reportable segment is operating profit. Intersegment sales and transfers are calculated
based primarily on market prices and manufacturing costs.
Significant Subsequent Events
(Company split from consolidated subsidiary (simple, abbreviated absorption-type split))
At its Board of Directors meeting held on March 31, 2020, Nippon Kayaku passed the following resolution for the Company to take over the business of manufacturing and selling polarizing films for LCDs, polarizing films for
projectors, and other precision-processed products (hereafter, "the business") from its consolidated subsidiary,
POLATECHNO CO., LTD. (hereafter, "Polatechno"), via an absorption-type split (hereafter, "the absorption-type
split"), effective on October 1, 2020 (planned date).
1. Summary of Transaction
(1) Companies involved in the business combination and names and descriptions of the business The business of Polatechno, a wholly-owned subsidiary, in manufacturing and selling polarizing films for LCDs, polarizing films for projectors, and other precision-processed products
(2) Date of business combination
Date of Board of Directors resolution approving the absorption-type split agreement (Nippon Kayaku): March 31, 2020 Date of Board of Directors resolution approving the absorption-type split agreement (Polatechno): March 27, 2020 Conclusion date of absorption-type split agreement May 22, 2020 (planned date)
Date on which the absorption-type split agreement will become effective: October 1, 2020 (planned date)
Note: This absorption-type merger constitutes an abbreviated split under Article 784, Paragraph 1 of the
Companies Act for Polatechno, the company splitting off the business; and as a simple split under Article 796 Paragraph 2 of the Companies Act for Nippon Kayaku, the succeeding company. Both companies therefore
intend to execute the absorption-type split agreement without obtaining approval from the Shareholders
Meeting.
(3) Legal form of business combination
The form is an absorption-type split (simple absorption-type split) in which Polatechno is the splitting company and
Nippon Kayaku is the succeeding company.
(4) Name of company after business combination
There are no changes planned to the names, location of headquarters, titles and names of representatives, capital,
and fiscal year-end of either company as a result of this absorption-type split at the present time. However, in regard
to the description of the main businesses of the split company after the absorption-type split, there are planned
changes to the land leasing business by the date on which the absorption-type split will be concluded.
(5) Other information concerning the summary of the transaction
Incorporating the business into the Company as a business division will enable more effective use and optimal
allocation of the management resources possessed by both companies, such as human resources, sales channels,
production locations, and intellectual property. The Company is aiming to improve the efficiency of and expand the
business by integrating the R&D structures of both companies to improve the efficiency and speed of R&D,
strengthen governance, and achieve other benefits.
2. Summary of Accounting Standards Implemented
The Company plans to handle the combination as a transaction under common control in accordance with ASBJ
Statement No.21, Accounting Standard for Business Combinations (January 16, 2019) and ASBJ Guidance No.10,
Implementation Guidance on Accounting Standard for Business Combinations and Accounting Standard for
Business Divestitures (January 16, 2019)
(Acceptance of Business Transfer)
The Company approved transfer of the LCD and semiconductor cleaner business (hereafter, "the business") operated
by Henkel AG & Co. KGaA (Headquarters: Dusseldorf; hereafter, "Henkel") to the Company at the Board of Directors meeting on December 24, 2019. The business transfer agreement was concluded on the same day, and the business was transferred on April 1, 2020. A summary of the transaction is provided below.
Summary of Business Combination
(1) Reason for business transfer
LCD and semiconductor cleaners are always used to wash substrates and in the developing and photoresist stripping
processes of circuit formation when manufacturing LCDs, semiconductors, and other products. Many different
cleaners are used in large volumes. The Company has acquired the business as an addition to its existing epoxy
resins for semiconductor encapsulation, MEMS resist, LCD sealants, acrylate for solder resist, and other products to
expand and grow the business domain as manufacturer of materials for LCDs and semiconductors and contribute to
the achievement of the business targets for 2025.
(2) Name of counterparty
Henkel AG & Co. KGaA
(3) Description of business transferred
The Company accepted transfer of the entire business from Henkel. Nippon Kayaku will operate the business in
Japan and overseas in countries other than China and Taiwan. The business will be operated by Kayaku Chemical
(Wuxi) Co., Ltd.*1 in China and by Taiwan Nippon Kayaku Co., Ltd.*2 in Taiwan. We will work to expand the
business in the future through the synergies achieved, including expanding product sales through Nippon Kayaku
Group and Henkel sales channels and pursuing new product development
.
*1A consolidated subsidiary of Nippon Kayaku in Wuxi, Jiangsu Province, China
*2 A consolidated subsidiary of Nippon Kayaku in Taipei, Taiwan
(4) Business transfer date April 1, 2020
(5) Legal form of transfer Business transfer for cash