Financial Section

Six-Year Summary

Years ended March 31 2010 2011 2012 2013 2014 2015

Results of Operations (Millions of yen)
Net sales 628,706 684,399 687,131 668,494 772,272 809,684
Operating income 13,047 33,532 23,737 24,464 41,573 51,397
 Operating income ratio (%) 2.1 4.9 3.5 3.7 5.4 6.3
Net income (loss) 6,890 10,015 9,379 16,867 29,564 62,297
Research and development expenses 13,819 13,427 12,880 12,208 12,513 12,877
Capital expenditures 30,000 24,700 19,300 26,100 23,700 32,584
Depreciation 51,983 50,317 44,481 36,943 34,677 33,100

Cash Flows (Millions of yen)
Cash flows from operating activities 81,654 49,643 55,322 36,076 67,238 54,107
Cash flows from investing activities -29,150 -26,986 -17,582 -23,448 -26,066 -34,115
Cash flows from financing activities -51,893 -25,907 -22,661 -24,518 -45,534 -20,719
Cash and cash equivalents at end of year 56,915 52,662 67,359 57,358 55,127 55,740

Financial Position (Millions of yen)
Total assets 739,659 725,918 708,721 735,102 721,749 764,206
Total equity 190,898 193,512 200,197 219,286 249,797 320,784
Interest-bearing debt 387,529 364,173 343,559 325,995 286,205 271,500

Per Share Data (Yen)
Net income (loss) per share 11.51 16.74 15.67 28.17 49.35 103,97
Total equity per share 271.59 275.35 285.88 315.15 365.85 482.25
Dividends per share 6.00 6.00 6.00 6.00 6.00 10.00

Key Ratios
Return on equity (%) 4.3 6.1 5.6 9.5 14.5 24.5
Return on assets (%) 0.9 1.4 1.3 2.3 4.1 8.2
Total assets turnover (times) 0.84 0.93 0.96 0.93 1.06 1.06
Equity ratio (%) 22 22.7 24.1 25.7 30.4 37.8
Dividend payout ratio (%) 52.1 35.9 38.3 21.8 12.2 9.6
Debt-to-equity ratio (%) 238.5 221.0 200.8 172.7 130.6 153.5
Number of employees 11,089 11,221 11,238 11,268 11,421 11,594

Stock Indicators
Stock price (closing), end of year (yen) 238 299 230 262 398 606
Market capitalization (millions of yen) 142,404 178,902 137,633 156,913 238,459 364,304
Price earnings ratio (times) 20.7 17.9 14.7 9.3 8.1 5.8
Price book-value ratio (times) 0.88 1.09 0.80 0.83 1.09 1.3

Management's Discussion and Analysis

Generally favorable economic conditions in Japan, a weakening yen, and continued strong demand for many core Tosoh products enabled the Tosoh Group to record further growth in fiscal year 2015, ended March 31, 2015.

The Japanese government stayed the course with its fiscal initiatives during the fiscal year, and business sentiment picked up after the ruling coalition won a landslide victory in fiscal 2015. Capital investment increased in many business sectors, boosting business for some of Tosoh’s domestic operations.

Tosoh’s robust performance can be attributed to the weak yen, declining oil prices, increased shipments of some principal Tosoh products, and a recovery in demand for certain key Tosoh product lines. All of Tosoh’s business groups except the Petrochemical Group recorded growth in sales and profits in fiscal 2015.

Changes in Accounting Standards

Effective beginning with the year ended March 31, 2015, the Company and its consolidated domestic subsidiaries have adopted the Accounting Standards Board of Japan (ASJB)’s “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, May 17, 2012) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, March 26, 2015). Their adoption has changed our determination of retirement benefit obligations and current service costs. For an explanation of the effects of these standards on our operating results, see the “Notes to the Consolidated Financial Statements.”

Changes in Presentation

“Subsidy income” and “Impairment loss,” which were included in “Other, net” under “Other income (expenses)” in the previous fiscal year, are presented separately in the fiscal year ended March 31, 2015 because the amounts of the items have increased in importance. To reflect these changes in the reporting method, a reclassification of accounts has been made for the statements of income for the previous fiscal year.

Net Sales

Tosoh’s consolidated net sales for fiscal 2015 benefited from increased product shipments and the weakening yen. Consolidated net sales increased 4.8%, to ¥809.7 billion (US$6.7 billion).

Operating Expenses and Operating Income

Our cost of sales increased 4.5%, to ¥658.3 billion (US$5.5 billion). Gross profit rose 6.2%, to ¥151.4 billion (US$1.3 billion). And our gross profit margin increased to 18.7%, from 18.5% a year earlier.

Selling, general and administrative expenses edged down 0.9%, to ¥100.0 billion (US$0.8 billion). R&D expenditures climbed 2.9%, to ¥12.9 billion (US$107.2 million).

Operating income rose 23.6%, to ¥51.4 billion (US$427.7 million). Among other income (expenses), foreign exchange gains, net climbed 75.2%, to ¥6.9 billion (US$57.8 million).

Tosoh reported net other income of ¥7.6 billion (US$63.3 million) in fiscal 2015, compared with ¥6.0 billion in the previous fiscal year. Income before income taxes and minority interests advanced 24.1%, to ¥59.0 billion (US$491.0 million).

Net Income

Minority interests in the net income of subsidiaries totaled ¥1.0 billion (US$8.3 million) in fiscal 2015, compared with ¥0.5 billion a year earlier. As a result, the Tosoh Group registered net income of ¥62.3 billion (US$518.4 million), up 110.7% from fiscal 2014.

The jump in net income can be partially attributed to the substantial increase in deferred income taxes, which rose to ¥12.1 billion (US$100.6 million) in fiscal 2015. The substantial increase in deferred income taxes was related to carryforward losses of Nippon Polyurethane Industry Co., Ltd. (NPU), which were assumed by Tosoh Corporation in its October 1, 2014, merger with NPU.

Net income per share, undiluted, amounted to ¥103.97 (US$0.87), compared with ¥49.35 in the previous fiscal year. Tosoh raised its annual dividend per share ¥4.0 per share, to ¥10.00 (US$0.08). The ¥4.0 per share increase included a ¥2.0 per share commemorative dividend in the interim dividend and a ¥2.0 per share dividend of surplus in the year-end dividend.

Performance by Geographic Region

Export sales and sales outside Japan by overseas subsidiaries were ¥344.9 billion (US$2.9 billion) in fiscal 2015. This amount represented 42.6% of consolidated net sales, up 2.0 percentage points from fiscal 2014. Sales in Asia accounted for ¥250.3 billion (US$2.1 billion) of export sales and sales outside Japan and for 30.9% of consolidated net sales, an increase of 0.5 percentage points from a year earlier.

Dividend Policy

Tosoh aims to maintain a balance between its internal reserves for R&D; its capital expenditures, which are designed to sustain steady high growth; and its returns to its shareholders. The company intends to provide a stable dividend to shareholders on a continuous basis, subject to business conditions.

In fiscal 2014, our annual dividends per share were ¥10.00 (US$0.08). As a result, the consolidated payout ratio for the year under review was 9.6%, compared with 12.2% in fiscal 2014. 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 short­term bank loans and other means. The company decides on the funding method for its long­term capital requirements, such as capital investment, after determining the investment recovery period and risk. In fiscal 2015, Tosoh financed its capital expenditures and R&D activities primarily from cash provided by operating activities.

Assets, Liabilities, and Net Assets
Current assets as of March 31, 2015, rose 7.0% from a year earlier, to ¥430.3 billion (US$3.6 billion). Cash and cash equivalents increased marginally, 1.1%, to ¥55.7 billion (US$463.8 million). Trade receivables, a major component of current assets, increased 6.4%, to ¥200.6 billion (US$1.7 billion), while inventories edged up 1.4%, to ¥131.5 billion (US$1.1 billion).

Current liabilities contracted 6.6% from the previous fiscal year, to ¥318.2 billion (US$2.6 billion) in fiscal 2015.

Working capital, therefore, totaled ¥112.1 billion (US$932.9 million), compared with ¥61.3 billion a year earlier. The current ratio was 1.35 times, up from 1.18 times in fiscal 2014.

Property, plant and equipment rose a slight 0.4%, to ¥233.6 billion (US$1.9 billion). As a result, total assets increased 5.9% from a year earlier, to ¥764.2 billion (US$6.4 billion). Interest­bearing debt was ¥271.5 billion (US$2.3 billion) as of March 31, 2015, down from ¥286.2 billion at the previous fiscal year­end. Long­term debt continued its downward trend, contracting 6.4%, to ¥96.8 billion (US$0.8 billion).

Total shareholders’ equity increased 26.4% year on year, to ¥273.6 billion (US$2.3 billion), mainly because of a 39.1% rise in retained earnings, to ¥203.6 billion (US$1.7 billion). Net unrealized gains on securities reflected the rise in stock prices at fiscal year­end and rose 78.0%, to ¥11.0 billion (US$91.3 million).

Total net assets climbed 28.4% year on year, to ¥320.8 billion (US$2.7 billion). Total equity per share was ¥482.25 (US$4.01), compared with ¥365.85 a year earlier. Return on average total net assets was 21.8%, and the net asset ratio was 37.8%, compared with 30.4% in fiscal 2014.

Capital Expenditures and Depreciation

Cash Flows
Net cash provided by operating activities amounted to ¥54.1 billion (US$450.3 million), a decrease from ¥67.2 billion in fiscal 2014. The principal sources of cash were income before income taxes and minority interests and depreciation and amortization. The major use of cash was income taxes paid.

Investing activities absorbed ¥34.1 billion (US$283.9 million) in cash flows, up from ¥26.1 billion in the previous fiscal year. The increase in payments for purchases of property, plant and equipment was the major component of the overall rise in investment cash flows.

Free cash flow, therefore, was positive. The excess of cash flows from operating activities over the cash absorbed in investing activities amounted to ¥20.0 billion (US$166.4 million), compared with free cash flow of ¥41.2 billion in fiscal 2014.

Net cash used in financing activities was ¥20.7 billion (US$172.4 million), compared with ¥45.5 billion in the previous year. The main reasons for the decrease in net cash used were an increase in proceeds from long­term debt and a decrease in the repayments of long-term debt compared with fiscal 2014. Cash and cash equivalents on March 31, 2015, were ¥55.7 billion (US$463.8 million), edging up 1.1% from a year earlier.

Projections for Fiscal 2016

Tosoh is expecting performance to level off in fiscal 2016. The company forecasts consolidated net sales of ¥810 billion, resulting in operating income of ¥67 billion and net income of ¥43 billion.

In preparing these sales and earnings projections for fiscal 2016, Tosoh’s management has assumed an average exchange rate of ¥120.00 to the US dollar, compared with ¥100 in fiscal 2014. Management has also assumed an average naphtha cost—a benchmark of raw material costs in the chemical industry—of ¥53,000 per kiloliter in Japan, down from the projection of ¥70,000 per kiloliter in fiscal 2014.

Financial Statements (PDF)

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