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Message from the President

Report on the business performance in the first quarter of the fiscal year ending March 2020

Updated on July 31, 2019
Kazuya Nakano
President & Representative Director
ASAHI YUKIZAI CORPORATION

 I would like to extend our sincere appreciation of our shareholders’ continued patronage. It is my pleasure to inform you of our consolidated business results for the first quarter of the Fiscal Year 2019 (fiscal year ending March 2020) and the current situation of the company.

1. Consolidated business performance in the first quarter of the Fiscal Year 2019

 Sales  12.03 billion yen  down 9.2% year-on-year
 Operating profit  0.63 billion yen  down 10.8% year-on-year
 Ordinary profit  0.64 billion yen  down 26.5% year-on-year
 Net profit attributable to the parent company  0.48 billion yen  down 65.4% year-on-year

 The first quarter of the Fiscal Year 2019 started with declines in sales and profit year-on-year on a consolidated basis.

 The business situation in the first quarter of the Fiscal Year 2019 is summarized below.

  1) Sales in the Valve & Piping Systems Business segment were adversely affected by postponement of construction investment both domestically and internationally, and those in the Resin Business segment were also adversely affected by the economic slowdown in China, etc., mainly for products for automotive use. As a result, total sales turned out to be smaller compared with the same period of the preceding year which registered high level of sales; however, as we are steadily implementing measures for finding new demand and for expanding our business, such efforts of ours are expected to result in an increase in sales and profit in the future.
  2) Operating profit registered a decline, adversely affected by the decreased sales as well as the increased depreciation expenses due to reinforcement of our production facilities; however, given that the Valve & Piping Systems Business segment continues maintaining high profit rate and that the Resin Business segment has succeeded in reducing various costs, our business foundation is being strengthened steadily.
  3) Net profit attributable to the parent company was 900 million yen smaller than in the previous fiscal year, significantly affected by the reporting of the negative goodwill (of approximately 700 million yen)* resulting from the acquisition of the Asahi AV Sangyo shares carried out in the preceding fiscal year.

*This includes approximately 700 million special profit, a total of the profit of 1.04 billion arising from the negative goodwill resulting from the acquisition of the Asahi AV Sangyo shares and the loss of approximately 340 million yen due to its incremental acquisition. “Negative goodwill” refers to the profit that arises from a purchase of a corporation at a price lower than its net assets and is processed in the financial statements as special profit.

2. Summary of business performance in each business segment

 The current situation of activities of each business segment is as stated below.

  1) In the Valve & Piping Systems Business segment, while demand for anticorrosive products, in which we have strengths, remained firm, the number of new business products has been increasing as we have continued finding new demand through proposing changes from metal piping to resin one. Although sales of some types of the mainstay products as well as Dymatrix products declined due to stagnation or postponement of investment in making liquid crystal or semiconductor products in Eastern Asia, demand from domestic corporations for maintenance service has still remained firm, leading to brisk sales of such high value-added products as automatic valves and control valves. Business in North America is in good condition as the confusion caused by the U.S.-China trade friction has had little influence on it.
 
  2) In the Resin Business segment, we have continued expanding sales of environment-corresponding type RCSs, while the shortened distribution channels have activated communication with clients. Sales of the foam-in-place type heat insulating materials increased as transactions with large-scale construction offices expanded. Although sales in this segment decreased, adversely affected by the economic slowdown in China, profit was greater than in the preceding fiscal year due to our measures successfully taken, such as increased efficiency of production systems and adjustment of prices of major raw materials.

One of the topics has been that we acquired all shares of a heat insulating construction company, Rand Wick Co., Ltd. on July 1, 2019 to make it one of our subsidiaries. It is our intention to endeavor providing the “environmentally-friendly,” “well-insulating” and “easily-constructible” foam-in-place type heat insulating system, through building a cooperative system of ASAHI YUKIZAI’s foam-in-place type heat insulating system and Rand Wick’s heat insulating construction.
News Release: “Notice on our acquisition of Rand Wick Co., Ltd. shares”
https://www.asahi-yukizai.co.jp/en/news/index.html
 
  3) The operating loss in the Water Treatment Business segment decreased as we reduced the percentage of projects performed in the urban centers where material prices and personnel expenses have conspicuously increased. In the Natural Resources Exploitation Business segment, growth of the order receipts for new projects has slightly slowed. The Maintenance Service Business segment saw an increase in order receipts for the maintenance of the treated water supply facilities whose construction was completed in the preceding year in the center of city, while at the same time order placement for repair work has been trending favorably.

Aiming at realizing continued growth of our Group, we are determined to continue promoting various measures for raising productivity, in addition to the “reform of the product marketing strategy, expansion of overseas sales, supply chain reform, manufacture innovation, and the company-wide cost reduction” as we posted in our mid-term management plan. We truly hope that shareholders will have expectations for the future growth of Asahi Yukizai Group, and will provide unchanged support and guidance to us.

July 31, 2019
Kazuya Nakano
President and Representative Director