Japan
May 16, 2017
During the twelve months ended March 31, 2017 (Fiscal 2016), the world economy faced growing uncertainty due to the British vote to exit from the European Union and the inauguration of the new U.S. administration, but the global economy was robust in general, led by the strengthening U.S. economy due to the good employment situation and on expectations of a fiscal expansion. In Japan, although consumer spending remained weak, the economy continued to stay on a moderate recovery path due to improvement in wages and the job market as well as strong corporate earnings.
The business environment surrounding the Sumitomo Chemical Group was initially tough due to the stronger yen and an economic slowdown in emerging countries in the first half of fiscal 2016, but there were signs from late in fiscal 2016 that the situation was improving due to the weaker yen after the U.S. presidential election and higher market prices for petrochemical products.
Under these circumstances, the Sumitomo Chemical Group undertook group-wide efforts to improve business performance. At the same time, the Group worked to further accelerate its transformation into a more resilient Sumitomo Chemical that continues to grow, based on the current three-year Corporate Business Plan for fiscal 2016 to 2018 that has a basic policy of further improving business portfolio, generating more cash flow, and accelerating the launch of next-generation businesses.
As a result, the Group’s sales for fiscal 2016 decreased by ¥147.5 billion compared with the previous fiscal year, to ¥1, 954.3 billion. The Group posted operating income of ¥134.3 billion and ordinary income of ¥166.6 billion, both representing decreases from the previous fiscal year. Net income attributable to owners of the parent was ¥85.5 billion, showing an increase from the previous fiscal year.
The Sumitomo Chemical Group’s financial results by business segment for fiscal 2016 are as follows.
Petrochemicals & Plastics
Market prices of petrochemical products and synthetic resins declined because of lower feedstock prices. Shipments of petrochemical products decreased due to the restructuring of the petrochemical business at the Chiba Works. The stronger yen had a negative effect on sales from overseas subsidiaries in yen terms. As a result, the segment’s sales decreased by ¥85.1 billion compared with the previous fiscal year, to ¥572.0 billion. Operating income declined by ¥2.2 billion, to ¥26.6 billion.
Energy & Functional Materials
Selling prices of aluminum declined due chiefly to the stronger yen. Shipments of resorcinol, a raw material for adhesives, and engineering plastics increased due to a rise in demand. As a result, the segment’s sales decreased by ¥3.1 billion compared with the previous fiscal year, to ¥205.9 billion. Operating income increased by ¥4.4 billion, to ¥7.2 billion.
IT-related Chemicals
Selling prices of polarizing film dropped. Selling prices of touchscreen panels also declined, but shipments increased due to growth in demand. The stronger yen had a negative effect on sales from overseas subsidiaries in yen terms. As a result, the segment’s sales decreased by ¥26.1 billion compared with the previous fiscal year, to ¥358.4 billion. Operating income declined by ¥9.5 billion, to ¥10.3 billion.
Health & Crop Sciences
Sales of the feed additive methionine dropped due to lower market prices. The stronger yen had a negative effect on sales. As a result, the segment’s sales decreased by ¥39.7 billion compared with the previous fiscal year, to ¥319.3 billion. Operating income declined by ¥31.4 billion, to ¥46.2 billion.
Pharmaceuticals
In Japan, although sales of Aimix® (anti-hypertension drug), Trerief® (therapeutic agent for Parkinson’s disease) and other drugs increased, overall sales declined due largely to the impacts of Japanese National Health Insurance drug price revisions and a decrease in shipments of patent-expired originator drugs. In North America, sales of Latuda® (atypical antipsychotic) and other drugs increased steadily. The stronger yen had a negative effect on sales from overseas subsidiaries in yen terms. The segment’s sales increased by ¥8.7 billion compared with the previous fiscal year, to ¥444.2 billion. Operating income rose by ¥12.4 billion, to ¥55.1 billion, due to the expansion of sales in North America.
Others
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. The segment’s sales decreased by ¥2.2 billion compared with the previous fiscal year, to ¥54.4 billion. Operating income declined by ¥2.1 billion, to ¥5.7 billion.
Equity in earnings of affiliates increased by ¥21.0 billion compared with the previous fiscal year, to ¥41.2 billion. Earnings of Petrochemical Corporation of Singapore remained strong. Earnings of Rabigh Refining and Petrochemical Company (Petro Rabigh), which deteriorated in the previous fiscal year due to periodic plant maintenance, improved in fiscal 2016 due chiefly to increased shipments after periodic plant maintenance.
(Note) Change in Business Segment Classification
As of April 1, 2016, battery materials and engineering plastics, which had been included in the IT-related Chemicals Segment, were transferred to the Energy & Functional Materials Segment.
The Company decided to pay a year-end dividend of ¥7 per share. As a result, the Company’s annual dividend for fiscal 2016 is ¥14 per share, including an interim dividend of ¥7 per share.
Net cash provided by operating activities in fiscal 2016 was ¥187.4 billion, a decrease of ¥73.7 billion compared to the previous fiscal year, due chiefly to a decline in operating income and an increase in income taxes paid. Net cash used in investing activities was ¥199.7 billion, an increase in cash outflows of ¥146.1 billion compared to the previous fiscal year, due mainly to the acquisition of Cynapsus Therapeutics Inc. (the present Sunovion CNS Development Canada ULC) and Tolero Pharmaceuticals Inc. by Sumitomo Dainippon Pharma, a subsidiary of Sumitomo Chemical. This resulted in free cash flow of negative ¥12.3 billion for fiscal 2016, compared with positive ¥207.5 billion for the previous fiscal year. Net cash used in financing activities was ¥8.1 billion. The balance of cash and cash equivalents at the end of the fiscal year decreased by ¥22.3 billion over the previous fiscal year, to ¥193.3 billion.
For fiscal 2017, the Company forecasts that sales will increase by 12.1%, to ¥2,190.0 billion, while operating income and ordinary income are projected to be ¥165.0 billion and ¥185.0 billion, respectively, and net income attributable to owners of the parent to be ¥100.0 billion, assuming an exchange rate of ¥110.0/US$ and a naphtha price of ¥37,000/kl.
The Company plans to pay an interim dividend of ¥7 per share and a year-end dividend of ¥7 per share, making the Company’s annual dividend for fiscal 2017 ¥14 per share, unchanged from the previous fiscal year.
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