Annual Report 2018

Five-year Summary

Fiscal Years (ended March 31)
2014 2015 2016 2017 2018
Results of Operations (millions of yen)
  Net sales 772,272 809,684 753,736 743,028 822,858
  Operating income 41,573 51,397 69,445 111,217 130,581
     Operating income ratio (%) 534 6.3 9.2 15.0 15.9
  Net income attributable to owners of the parent company 29,564 62,297 39,675 75,664 88,795
  R&D expenses 12,513 12,877 13,743 14,370 15,502
  Capital expenditures 23,700 33,149 27,924 37,756 39,494
  Depreciation and amortization 34,677 32,789 31,788 29,976 29,756
Cash Flows (millions of yen)          
  Cash flows from operating activities 67,238 54,107 99,884 115,716 115,430
  Cash flows from investing activities -26,066 -34,115 -27,917 -34,724 -43,129
  Cash flows from financing activities -45,534 -20,719 -50,827 -68,829 -51,745
  Cash and cash equivalents at end of year 55,127 55,740 74,869 85,460 106,179
Financial Position (millions of yen)          
  Total assets 721,749 764,206 734,770 786,623 852,803
  Total equity 249,797 320,784 373,724 448,336 528,067
  Interest-bearing debt 286,205 271,500 199,572 139,844 107,840
Per Share Data (yen)          
  Net income per share 98.70 207.94 125.22 233.12 273.49
  Total equity per share 731.69 964.50 1048.46 1272.85 1,511.69
  Dividends per share 6.00 10.00 14.00 24.00 44.00
Key Ratios          
  Return on equity (%) 14.5 24.5 12.6 20.1 19.6
  Return on assets (%) 4.1 8.2 5.4 9.7 10.9
  Total assets turnover (times) 1.06 1.06 1.03 0.95 0.96
  Equity ratio (%) 30.4 37.8 46.3 52.8 57.6
  Dividend payout ratio (%) 12.2 9.6 22.4 20.6 20.5
  Debt-to-equity ratio (%) 130.6 153.5 106.1 80.9 66.2
  Number of employees (consolidated) 11,421 11,594 12,037 12,292 12,595
Stock Indicators          
  Stock price (closing), end of year (yen) 398 606 473 978 2,088
  Market capitalization (millions of yen) 238,459 364,304 307,527 635,858 678,769
  Price earnings ratio (times) 8.1 5.8 7.6 8.4 7.6
  Price book-value ratio (times) 1.09 1.3 0.9 1.5 1.4

Management's Discussion and Analysis

In fiscal 2018, ended March 31, 2018, Tosoh reported all-time highs in sales and profits. Higher prices for naphtha and other raw materials and favorable market conditions overseas sparked an increase in petrochemical product prices, which contributed to the rise in revenue. The increase in operating income was driven by improved sales prices, which offset increases in raw fuel prices. Profit attributable to owners of the parent company consequently likewise increased. The decrease in production volume in China related to the strengthening of environmental regulations there has led to the tightening of the supply-demand balance. It has also served to enhance Tosoh’s competitiveness in the region.

The Petrochemical Group recorded an increase in net sales on the strength of increased product prices, and this and a strong performance by the Chlor-alkali Group drove the increase in parent company revenue. Net sales by the Specialty Group and ancillary businesses rose, while the Engineering Group recorded a marginal decrease in net sales. Operating income for the Petrochemical Group showed a modest increase, while the Chlor-alkali Group recorded significant growth in operating income. Both the Specialty and Engineering Groups saw decreased operating income, whereas operating income for ancillary businesses was essentially unchanged from fiscal 2017.

Higher corporate earnings and increasingly robust capital investment in Japan buoyed the continued steady recovery of the Japanese economy. The global economy also improved on the strength of economic growth in developed nations, driven primarily by the nations of Europe and by the United States. Continued stability is in question, however, given tenuous geopolitical situations in the Middle East, and an increasingly tense international trade environment.

Share Consolidation

Effective from October 1, 2017, Tosoh Corporation consolidated its common shares at the ratio of one share for two shares. Net income per share is calculated based on the assumption that the consolidation was implemented at the beginning of the fiscal year ended March 31, 2014.

Net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period.

Diluted net income per share reflects the potential dilution that could occur if stock options were fully exercised.

Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective years, including dividends to be paid after the end of the year.

Cash dividends per share applicable to the period for the fiscal year ended March 31, 2018, comprise interim dividends of ¥12.00 (pre-consolidation) and year-end dividends of ¥32.00 (post-consolidation).

Net Sales

Consolidated net sales totaled ¥822.9 billion (US$7.7 billion), a 10.7% increase compared with fiscal 2017.

Operating Expenses and Operating Income

Cost of sales increased 10.2%, to ¥581.8 billion (US$5.5 billion). And gross profit rose 12.0%, to ¥241.0 billion (US$2.3 billion), for a gross margin of 29.3%, up from 29.0% in fiscal 2017. Selling, general and administrative expenses increased 6.1%, to ¥110.5 billion (US$1.0 billion). Research and development expenses climbed 7.9%, to ¥15.5 billion (US$145.9 million). Operating income rose 17.4%, to ¥130.6 billion (US$1.2 billion). Other expenses were ¥231.0 million (US$2.2 million), compared with ¥683.0 million a year earlier. The decrease in other expenses was due to gains in interest and dividend income and to reduced impairment and other losses. Income before income taxes rose 17.9%, to ¥130.4 billion (US$1.2 billion).

Net Income

Profit (loss) attributable to non-controlling interests totaled a loss of ¥2.5 billion (US$23.1 million), compared with a loss of ¥2.0 billion a year earlier. Profit attributable to owners of the parent was thus ¥88.8 billion (US$835.8 million), an increase of 17.4% over fiscal 2017.

Net income per share, primary, was ¥273.49 (US$2.57), up from ¥233.12 a year earlier. Tosoh increased its cash dividends per share by ¥20.0 from fiscal 2017, to ¥44.0 (US$0.41).

Performance by Geographic Region

Export sales and sales outside Japan by overseas subsidiaries were ¥385.6 billion (US$3.6 billion) in fiscal 2018. This represented 46.9% of consolidated net sales, up 1.1 percentage points over fiscal 2017. Sales in Asia, excluding Japan, were ¥275.0 billion (US$2.6 billion) and represented 33.4% of net sales, up 1.5 percentage points over fiscal 2017.

Dividend Policy

Tosoh aims to maintain a balance between internal reserves for R&D, capital expenditures to support consistently high growth, and shareholder returns. The company intends to deliver stable dividends, subject to business conditions. In fiscal 2018, cash dividends per share were ¥44.00 (US$0.41). The consolidated payout ratio was 20.5%, compared with 20.6% in fiscal 2017. Tosoh will continue to invest its internal reserves in competitive product development and global business strategies in a bid to respond to anticipated changes in its business environment.

Financial Position and Liquidity

Fund Procurement and Liquidity Management

Tosoh raises working capital as necessary through short-term bank loans and other means. The company decides on the funding method for its long-term capital requirements, such as capital investment, after determining the investment recovery period and risk. In fiscal 2018, net cash provided by operating activities was the prime source of funding for capital expenditures and R&D.

Assets, Liabilities, and Net Assets

Total current assets as of March 31, 2018, were up 11.7% from a year earlier, to ¥500.6 billion (US$4.7 billion). Cash and cash equivalents were up 24.2%, to ¥106.2 billion (US$999.4 million). Trade receivables rose 10.1%, to ¥219.7 billion (US$2.1 billion). Inventories rose 11.3%, to ¥141.8 billion (US$1.3 billion). Total current liabilities increased 2.7%, to ¥254.6 billion (US$2.4 billion).

Working capital therefore totaled ¥246.1 billion (US$2.3 billion), compared with ¥200.1 billion a year earlier. The current ratio was 1.97 times, up from 1.80 times in fiscal 2017.

Property, plant and equipment increased 3.7%, to ¥243.4 billion (US$2.3 billion). Total assets therefore rose 9.0%, to ¥852.8 billion (US$8.0 billion). Interest-bearing debt was ¥107.8 billion (US$1.0 billion) as of March 31, 2018, down from ¥139.8 billion at the previous fiscal year-end. Long-term debt, less current maturities, continued to decrease, contracting 33.4%, to ¥38.3 billion (US$360.5 million).

The company invested ¥39.4 billion (US$370.9 million) in facilities and equipment during the year under review, principally on environmental upgrades. That figure includes investments in intangible assets. Tosoh spent ¥5.4 billion to add and upgrade capacity in the Petrochemical Group; ¥15.5 billion on the Chlor-alkali Group; ¥14.9 billion on the Specialty Group; ¥1.4 billion on the Engineering Group; ¥1.5 billion on ancillary businesses; and ¥698.0 million on company-wide shared facilities.

Total shareholders’ equity was up 17.5% to ¥471.8 billion (US$4.4 billion), driven primarily by a 23.3% rise in retained earnings, to ¥372.1 billion (US$3.5 billion). Meanwhile, net unrealized gains on securities increased 28.8% to ¥16.8 billion (US$158.0 million).

Due to increases in bills and accounts receivable, total assets increased 9.0% to ¥852.8 billion (US$8.0 billion). A decrease in interest-bearing liabilities resulted in total liabilities falling ¥9.6 billion, to ¥324.7 billion (US$3.1 billion).

Total net assets were ¥528.1 billion (US$5.0 billion), an increase of 17.8% over fiscal 2017. Total equity per share was ¥1,511.69 (US$14.23), up from ¥1,272.85 a year earlier. Return on average total net assets was 10.4%, up from 9.7% a year earlier. The equity ratio was 57.6%, up from 52.8%.

Capital Expenditures and Depreciation

Cash Flows

Net cash provided by operating activities amounted to ¥115.4 billion (US$1.1 billion), down from ¥115.7 billion in fiscal 2017. The principal sources of cash were income before income taxes, depreciation and amortization, and other income. The major uses of cash were a decrease in trade receivables and income taxes paid.

Net cash used in investing activities was ¥43.1 billion (US$406.0 million), up from ¥34.7 billion in the previous fiscal year, largely because of increased payments for purchases of property, plant and equipment.

Free cash flow therefore fell from ¥81.0 billion in fiscal 2017 to ¥72.3 billion (US$680.5 million) in fiscal 2018.

Net cash used in financing activities was ¥51.7 billion (US$487.1 million), compared with ¥68.8 billion in the previous year. A reduced net decrease in short-term bank loans was offset by the absence of the previous year’s proceeds from cash dividends paid. Cash and cash equivalents on March 31, 2018, were ¥106.2 billion (US$999.4 million), up 24.2% from a year earlier.

Projections for Fiscal 2019

We foresee the pace of growth in the Japanese economy slowing somewhat compared with fiscal 2018 given the appreciation of the yen and the decline in stock prices. Exports are expected to continue to perform well, and employment and income are forecast to continue to improve. Combined, these factors should contribute to sustained gradual growth in the domestic economy.

Tosoh’s operations are affected by a host of external factors, including fluctuations in the prices of feedstock from abroad, changes in product prices, and varying economic conditions in emerging nations in Asia and elsewhere. We will continue to closely monitor all conditions and situations and be ready to act intelligently and decisively.

We operate amid rapidly changing conditions. But, our medium-term business plan, which covers the three years to March 31, 2019 enables us to construct an operational portfolio robust enough to withstand changes in the external environment. It ensures stable, safe operation and the strategic and effective management of the Tosoh Group.

The medium-term plan targets net sales of ¥850 billion, operating income of ¥110 billion, ordinary income of ¥112 billion, and profit attributable to owners of the parent company of ¥76 billion in the year ending March 31, 2019. These objectives are based on a domestic naphtha price of ¥47,000 a kiloliter and an exchange rate of ¥105 to the US dollar.

Download Tosoh's fiscal 2018 audited financial statements » (PDF)

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