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Message from the President

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

Updated on October 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 second quarter of the Fiscal Year 2019 (fiscal year ending March 2020) and the current situation of the company.

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

 Sales  26.45 billion yen  Down by 0.93 billion yen (3.4%) year-on-year  
 Operating profit  1.74 billion yen  Up by 0.05 billion (2.9%) year-on-year
 Ordinary profit  1.71 billion yen  Down by 0.19 billion (10.1%) year-on-year
 Net profit attributable to
the parent company
 1.30 billion yen  Down by 0.88 billion (40.4%) year-on-year

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

  1) Sales in the Valve & Piping Systems Business segment were adversely affected by such factors as postponement of capital investment both domestically and internationally, and those in the Resin Business segment were also adversely affected by such factors as the economic slowdown in China mainly for products for automotive use. As a result, total sales turned out to be smaller than in the same period of the preceding year. However, since we have been engaged in increasing sales activities and in responding with sincerity to the clients’ problems as we posted in our medium-term business plan, we are steadily developing new demand. These efforts are expected to result in an increase in sales in the future.
  2) Operating profit was adversely affected by the decreased sales as well as increased depreciation expenses due to reinforcement of our production capacity. In the face of that, we have been making efforts in strengthening our profit foundation: In the Valve & Piping Systems Business segment we continued promoting the supply chain reform and, in the Resin Business segment, we have raised the production efficiency to reduce costs.
  3) The important reasons for the net profit attributable to the parent company declining by 880 million yen from the preceding fiscal year were the effects of 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 and the exchange losses.

*This includes approximately 700 million yen special profit, a total of the profit of 1.04 billion yen 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 asset value and is processed in the financial statements as special profit.

2. Summary of the current situation of the company’s business segments

 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, we continued to steadily find new demand through proposing the changes from metal piping to resin one. As a result, the number of new business projects began increasing and therefore we are simultaneously reinforcing our system in anticipation of future increase in demand. Although sales of some types of our mainstay products as well as Dymatrix products declined due to such factors as stagnation or postponement of investment in making liquid crystal or semiconductor products in Eastern Asia, a new movement toward resumption of investment began showing during the term. Demand for maintenance service, such as that for regular repair of factories of domestic corporations, remains firm.
 
  2) In the Resin Business segment, we have continued expanding sales of RCSs through our proposal-type sales activities, so that we may meet the demand of our clients, who are concerned about their necessity for increasing productivity and reducing environmental burdens. With regard to the foam-in-place type heat insulating products, we are promoting cooperation with Rand Wick Co., Ltd., which is mainly engaged in the spraying construction and joined our Group in July this year. Although total 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 productivity.
 
  3) The Water Treatment Business segment registered an increase in sales, thanks to the addition of sales derived from the newly started water desalination business for the purpose of supplying purified water to such places as factories. In contrast, sales and profit in the Natural Resources Exploitation Business segment were smaller than in the preceding fiscal year, because a large-scale project for a geothermal plant planned for the current term was delayed to the second half of the year. The Maintenance Service Business segment saw a substantial increase in both sales and profit over the preceding fiscal year, as we concentrated energy in receiving orders for repair-related construction projects, while order placement for maintenance work was growing steadily.

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.

October 31, 2019
Kazuya Nakano
President and Representative Director