During the twelve months ended 31 March 2015 (FY14), economic conditions in Japan and overseas were generally on a gradual recovery path. In Japan, despite weak consumer spending since the consumption tax increase, corporate profits recovered and capital spending and exports increased due to positive effects of the weaker yen and a steep decline in crude oil prices. Meanwhile, economic growth was weak in China and other emerging countries and the economic recovery in Europe also remained weak, but the US economy continued a solid recovery.
The business environment surrounding the Sumitomo Chemical Group was good as a whole, although there were areas with sluggish market conditions and weak shipment volumes. Under these circumstances, the Sumitomo Chemical Group undertook group wide efforts to improve business performance by increasing selling prices and expanding sales volumes, as well as by cutting costs through thorough streamlining.
As a result, the group’s sales for FY14 increased by JPY132.9 billion compared with the previous fiscal year, to JPY2,376.7 billion. The group posted operating income of JPY127.3 billion, ordinary income of JPY157.4 billion and net income of JPY52.2 billion, all representing increases from the previous fiscal year.
Sales of methyl methacrylate grew due to an increase in shipments and higher market prices. Sales of aluminium also rose due to higher market prices. However, market prices remained low for raw materials for synthetic fibres and shipments of these products decreased. The weaker yen had a positive effect on sales from overseas subsidiaries in yen terms. As a result, the segment’s sales increased by JPY25.1 billion compared with the previous fiscal year, to JPY312.0 billion. Operating income improved by JPY10.5 billion, to a loss of JPY0.4 billion.
Petrochemicals & Plastics
Market prices for petrochemical products dropped due to lower feedstock prices in the second half of FY14. Market prices for synthetic resins also fell, but shipments from Singapore and Japan increased. The weaker yen had a positive effect on sales from overseas subsidiaries in yen terms. As a result, the segment’s sales increased by JPY14.1 billion compared with the previous fiscal year, to JPY806.2 billion, and operating income grew by JPY16.3 billion, to JPY21.2 billion.
Although selling prices of polarising film used in liquid crystal displays (LCDs) and touchscreen panels declined, shipments of these products increased due to growth in demand. The weaker yen had a positive effect on sales from overseas subsidiaries in yen terms. As a result, the segment’s sales increased by JPY42.9 billion compared with the previous fiscal year, to JPY405.1 billion. Operating income decreased by JPY2.5 billion, to JPY32.4 billion, as it was adversely affected by lower selling prices.
Health & Crop Sciences
Sales of the feed additive methionine grew due to a recovery in market prices. In the area of crop protection chemicals, shipments decreased in Japan due mainly to the effects of the consumption tax increase, while shipments rose in overseas markets due to expanded sales. As a result, including the positive effect of the weaker yen, the segment’s sales increased by JPY35.4 billion compared with the previous fiscal year, to JPY362.4 billion, and operating income grew by JPY18.7 billion, to JPY56.9 billion.
In North America, shipments of Lunesta® (sedative hypnotic) decreased sharply as marketing exclusivity ended. But sales increased due to expanded shipments of Latuda® (atypical antipsychotic) and the positive effect of the weaker yen. In China, shipments of Meropen® (carbapenem antibiotic) grew significantly. In Japan, overall sales decreased sharply due to the impacts of Japanese National Health Insurance drug price revisions and competition from generic drugs. As a result, the segment’s sales decreased by JPY15.2 billion compared with the previous fiscal year, to JPY403.6 billion, and operating income declined by JPY18.1 billion, to JPY29.0 billion.
In addition to the above five segments, the Sumitomo Chemical Group engages in supplying electrical power and steam, providing services for the design, engineering, and construction management of chemical plants, providing transport and warehousing, and conducting materials and environmental analysis. For FY14, this segment’s figures included services provided to Petro Rabigh. The segment’s sales increased by JPY30.6 billion compared with the previous fiscal year, to JPY87.5 billion, and operating income rose by JPY7.3 billion, to JPY15.7 billion.
Due to the company’s organisational reform as of 1 April 2015, the Basic Chemicals Segment was eliminated and businesses in this segment were split up and transferred to the Petrochemicals & Plastics Segment and the Energy & Functional Materials Segment, which was established as a new business segment. In addition, a part of businesses in the Petrochemicals & Plastics Segment was transferred to the Energy & Functional Materials Segment.
Inorganic chemicals, raw materials for synthetic fibres, organic chemicals, and methyl methacrylate that had been included in the Basic Chemicals Segment were transferred to the Petrochemicals & Plastics Segment. Alumina products, aluminium, functional materials, additives, and dyes, which had also been included in this segment, were transferred to the Energy & Functional Materials Segment. In addition, synthetic rubber that had been included in the Petrochemicals & Plastics Segment was transferred to the Energy & Functional Materials Segment.
The company decided to pay a year end dividend of JPY3 per share. As a result, the company’s annual dividend for fiscal 2014 was JPY9 per share, including an interim dividend of JPY6 per share, unchanged from the previous fiscal year.
Operating cash flow in FY14 increased by JPY66.5 billion compared with the previous fiscal year, to JPY260.9 billion, due to an increase in income before income taxes and collection of money advanced relating to Petro Rabigh's Rabigh Phase II Project. Cash flow from investing activities was negative JPY56.6 billion, a decrease in cash outflows of JPY78.5 billion compared to the previous fiscal year, due to a decrease in payments for purchase of fixed asset. This resulted in free cash flow of JPY204.2 billion for FY14, compared with JPY59.2 billion for the previous fiscal year. Cash flow from financing activities was negative JPY151.5 billion. The balance of cash and cash equivalents at the end of the fiscal year increased by JPY69.7 billion over the previous year, to JPY202.0 billion.
For FY15, the company forecasts that sales will decrease by 5.3%, to JPY2,250.0 billion, while operating income and ordinary income are projected to be JPY145.0 billion and JPY160.0 billion respectively and net income to be JPY80.0 billion, assuming an exchange rate of JPY115.0/US$ and a naphtha price of JPY47 000/kl.
On 4 October 2015, Sumitomo Chemical will celebrate the 100th anniversary of the commencement of its operations. The company plans to pay a commemorative dividend of JPY2 per share at the time of interim dividend payment for FY15 to express its gratitude to shareholders. As a result, the company will pay an interim dividend of JPY8 per share, including an ordinary dividend of JPY6 per share, and a year end dividend of JPY6 per share. The company’s annual dividend for FY15 will be JPY14 per share, up JPY5 per share from the previous fiscal year.
Adapted from press release by Rosalie Starling
Read the article online at: https://www.hydrocarbonengineering.com/petrochemicals/12052015/sumitomo-chemical-announces-financial-results-for-fy14-748/