Toray Industries, Inc. (3402) Earnings Call Transcript & Summary

Thank you very much for joining us today despite your busy schedule. On behalf of Toray Group, I'd like to take this opportunity to extend my gratitude towards your continued understanding and your interest in your management and business activities. Now I'd like to report Toray's business results for the third quarter and 9 months ended December 31, 2025, and the business forecast for the fiscal year ending March 2026. Now I'd like to follow the table of content shown on Page 1. This is a summary of the business performance and forecast. During the 9 months in FY 2025, the Japanese economy continued to recover at a gradual pace. However, sluggishness in the flow of goods and holding back on purchases were also seen in some areas against the backdrop of growing uncertainties triggered by the U.S. policy shift under the Trump administration. Amid these circumstances, core operating income of the 9 months decreased year-on-year to JPY 105.1 billion due to the sluggish market conditions and the impact from inventory adjustments, although the company worked on business structure reform and strategic pricing. The full year forecast for core operating income increased to JPY 150 billion compared with the previous fiscal year. Furthermore, the company is proceeding with share buybacks in line with the resolution of the Board of Directors meeting held in November 2024. As of the end of January 2026, the total repurchase price of shares has reached JPY 29 billion, equivalent to 28 million of shares. I'll explain the details starting from the next page. I'd like to begin with a summary of business results for the third quarter and the 9 months ended December 31, 2025. Please turn to Page 4. Consolidated revenue for the 9 months decreased 0.2% compared with the same period a year earlier to JPY 1,919.5 billion. Core operating income decreased 3.4% to JPY 105.1 billion, and profit decreased 46.6% to JPY 40.2 billion. Page 5 is about special items. Special items for the 9 months worsened by JPY 29.1 billion to negative JPY 34.1 billion compared with the same period of the previous fiscal year. Toray recorded JPY 25 billion of impairment losses as profitability worsened in the battery separator film business as a subsidiary in the Republic of Korea due to the sluggish EV market, et cetera. Page 6 about assets, liabilities, equity and free cash flow. As for financial condition at the end of December 2025, both assets and liabilities were affected by the increase in translated yen amount of its overseas subsidiaries caused by yen depreciation. Total assets stood at JPY 3,515.1 billion, up JPY 222.5 billion from the end of the previous fiscal year due primarily to increases in trade and other receivables as well as property, plant and equipment. Total liabilities increased JPY 158.5 billion from the end of the previous fiscal year to JPY 1,630.5 billion, owing mainly to increases in borrowings. Despite the decrease owing to share buybacks, total equity increased by JPY 64 billion compared with the end of the previous fiscal year to JPY 1,884 billion due mainly to increases in other capital components. Owners' equity was JPY 1,762 billion. Interest-bearing liabilities was JPY 985.1 billion, and D/E ratio was 0.56. Free cash flow was positive at JPY 14.1 billion. Page 7 explains about capital expenditures, depreciation and amortization and R&D expenditures. Capital expenditures for the 9 months decreased by JPY 41.9 billion to JPY 102.7 billion on a year-to-year comparison. Meanwhile, depreciation and amortization increased by JPY 1 billion to JPY 100.7 billion. R&D expenditures increased by JPY 1.6 billion to JPY 54.4 billion compared with the same period of the previous fiscal year. Page 8 shows the factor analysis of JPY 3.7 billion decrease in core operating income for the 9 months on a year-to-year comparison. The Fibers & Textiles segment remained strong, mainly in the apparel applications. Meanwhile, in the Performance Chemicals segment, core operating income decreased due to weak sales of battery separator film and lack of temporary factors, including reversal of allowance that increased profit in the previous fiscal year, et cetera. In the Carbon Fiber Composite Materials segment, profit decreased due mainly to the impact of demand correction. As for the net change in price, strategic pricing has proceeded steadily. Core operating income decreased 3.4% compared with the same period of the previous fiscal year, and core operating income margin fell 0.2 points. Using Page 9 and after, I'd like to explain the results of each segment. First, Fibers & Textiles. Revenue of the overall segment increased 3.9% to JPY 804.9 billion compared with the same period a year earlier, and core operating income increased 9.5% to JPY 54.8 billion. The apparel applications were robust as shipment of the fall/winter clothing in Japan was strong overall. As for the industrial applications, amid the sense of stagnation in the market, including the automobile applications, the group strived to reduce costs. Page 10 is the Performance Chemicals segment. Revenue decreased 6.1% to JPY 668.7 billion compared with the same period a year earlier. Core operating income decreased 10.3% to JPY 43.1 billion. In the resins and chemicals businesses, spread of the resins business has improved, but sales were stagnant due to impact from the slowdown in the automobile applications. The chemicals business was affected by the worsening market conditions. In the films business, demand for automobile capacitor and electronic parts-related applications grew, while sales of battery separator film were sluggish. In the Electronics and Information Materials business, OLED-related materials and circuit materials were affected by the slow demand for display panels and intensified competition in China, although a new product for the power industrial applications was launched. Page 11 is the Carbon Fiber Composite Materials segment. Revenue decreased 4.7% to JPY 212.7 billion compared with the same period a year earlier, and this segment posted core operating income of JPY 11.5 billion, 18.6% decrease from the same period a year earlier. In the aerospace applications, sales for a major customer have steadily recovered, accompanying the alleviation of inventory adjustment in supply chain. In the sports applications, sales of the high-end products for outdoor leisure was steady. However, inventory adjustments of the general-purpose products continued. In the industrial applications, the pressure-based applications entered an adjustment phase. Page 12. In the Environment & Engineering segment, revenue increased 11% to JPY 180.3 billion compared with the same period a year earlier, and core operating income increased 3.5% to JPY 17.6 billion. The Water Treatment business was affected by the sluggish market conditions in China, even as the shipment for the Middle East remains strong. As for subsidiaries in Japan, sales of a construction subsidiary was steady. Page 13 is the Life Science segment. Revenue decreased 1.8% to JPY 38.5 billion compared with the same period a year earlier, and core operating income decreased by JPY 0.2 billion to negative JPY 1.1 billion. The Pharmaceutical business was affected by the penetration of the generic version of the drug in Japan, while overseas sales grew mainly in China. In the Medical Devices business, sales of dialyzers for hemodiafiltration was slow. Page 14 shows the business results of major subsidiaries and regions. At Toray International, sales were strong mainly in the Fibers & Textiles, but affected by the cost increase. At our subsidiaries in Southeast Asia, in the Fibers & Textiles business, demand for the apparel applications and automotive applications in the industrial applications was weak. In the Performance Chemicals business, spread of ABS regions has improved. At the subsidiaries in China, in the Fibers & Textiles business, the apparel applications was steady. In the Performance Chemicals business, the chemical business was impacted by the worsening market conditions. As for subsidiaries in the Republic of Korea, sales volume of the Fibers & Textiles business decreased stemming from the scale down of low functionality applications. However, spread has improved. In the Performance Chemicals business, sales of battery separator film was stagnant. Next, I would like to explain the consolidated business forecast for the fiscal year ending March 2026. Please turn to Page 16. The global economy is expected to continue with a gradual recovery phase. While the uncertainties stemming from the Trump tariffs will remain high, their impact on the global economy is likely to be limited. The Japanese economy is also expected to continue with its gradual recovery. However, prevailing economic trends will be affected by the direction of the trade and foreign policies of the U.S., and the responses from other countries, geopolitical tensions and rising prices of primary products, the future of AI demand and the stagnation in the Chinese economy, which may also have a significant impact on the changes in the supply chains and the trade structure in the medium to long term. For the fiscal year ending March 2026, Toray revised its full year consolidated forecast for revenue, taking into consideration its business performance for the 9 months and business environment. The forecast for core operating income and profit attributable to owners of parent remain the same as the announcement on November 14, 2025. Assumed exchange rate from January onwards is JPY 155 per U.S. dollar. Page 17 shows the consolidated business forecast for the fiscal year ending March 2026 by segment. Based on the business performance for the 9 months, Toray has revised its forecast for the Fibers & Textiles and Carbon Fiber Composite Materials segment as well as other relevant segments. Revenue and core operating income are expected to increase owing to sales expansion in the Fibers & Textiles and Environment & Engineering segment in addition to the positive effects from the strategic pricing and profitability improvement projects. Page 18 shows the comparison of core operating income between the forecast announced on November 14, 2025, and the new forecast with breakdowns into segments. The factor behind the difference are shown on the right side of the table. This concludes my presentation. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]