Quarterly Financial Results for the Third Quarter, Ended December 31, 2016 (Japanese GAAP, Consolidated) February 8, 2017 Name of Listed Company: Kaneka Corporation Stock Exchange Listings: Tokyo, Nagoya Code Number: 4118 URL http://www.kaneka.co.jp Representative: Mamoru Kadokura Title: President, Representative Director Contact Person: Keiji Suzuki Title: General Manager Accounting Department Phone: +81-6-6226-5169 Scheduled date for submitting financial statements: February 13, 2017 Scheduled date of dividend distribution: Note: Figures have been rounded down to the nearest million yen. 1. Consolidated Business Performance for the Third Quarter, Ended December 31, 2016 (from April 1, 2016 to December 31, 2016) (1) Consolidated business performance (cumulative) (% indicates year-on-year change) Net income attributable Net sales Operating income Ordinary income to owners of parent million % million % million % million % Apr. 2016 Dec. 2016 408,082 (2.2) 24,570 (16.3) 20,762 (19.2) 12,952 (21.0) Apr. 2015 Dec. 2015 417,204 0.8 29,360 75.1 25,692 47.6 16,401 63.3 Note: Comprehensive income: 20,346 million (-5.7%) nine months ended December 31, 2016 17,102 million (-15.9%) nine months ended December 31, 2015 Net income per share Fully diluted net income per share Apr. 2016 Dec. 2016 39.03 38.99 Apr. 2015 Dec. 2015 49.15 49.11 (2) Consolidated financial position Total assets Net assets Shareholders equity ratio million million % As of December 31, 2016 598,304 316,997 50.3 As of March 31, 2016 577,251 308,722 50.6 (Reference) Shareholders equity: 300,746 million as of December 31, 2016 292,208 million as of March 31, 2016 2. Dividends Annual dividends 1st Quarter 2nd Quarter 3rd Quarter Year-end Annual Apr. 2015 Mar. 2016 8.00 10.00 18.00 Apr. 2016 Mar. 2017 9.00 Apr. 2016 Mar. 2017 (Forecasts) 9.00 18.00 Note: Changes in dividend forecast during the quarter under review: No 3. Forecast for consolidated business performance for the year ending March 31, 2017 (from April 1, 2016 to March 31, 2017) (Percentage figures represent changes from the corresponding periods of the previous fiscal year) Net sales Operating income Ordinary income Net income attributable to owners of parent Net income per share million % million % million % million % Full year 560,000 0.9 38,500 0.7 34,000 2.9 21,000 0.1 63.28 Note: Revisions to consolidated business performance forecasts during the quarter under review: No
4. Other (1) Changes in principal subsidiaries during the term: No (2) Application of simplified methods of accounting and specific accounting methods: No (3) Changes in accounting principles, changes in estimates, or restatements 1. Changes owing to revisions in accounting standards: No 2. Changes other than 1. above: No 3. Changes in accounting estimates: No 4. Restatements: No (4) Number of shares outstanding (common stock) 1. Number of shares issued at the end of the period December 31, 350,000,000 (including treasury stock): 2016 shares 2. Shares of treasury stock at the end of the period: December 31, 17,903,979 3. Average number of shares during the period (calculated cumulatively from the beginning of the fiscal year) 2016 December 31, 2016 shares 331,831,487 shares March 31, 2016 350,000,000 shares March 31, 2016 18,356,481 shares December 31, 2015 333,682,914 shares (Disclosure of Implementation Status of Review Procedures) As of the date of this report, the review procedures prescribed in the Financial Instruments and Exchange Act were not complete. (Explanations or other items pertaining to appropriate use of operating results forecasts) The operating results forecasts and certain other statements contained in this document are forward-looking statements, which are rationally determined based on information currently available to the company. For a variety of reasons, actual performance may differ substantially from these projections. They do not constitute a guarantee that the company will achieve these forecasts or other forward-looking statements. For cautionary items used in operating results forecasts, please refer to (3) Consolidated Business Forecasts under 1. Quarterly Consolidated Business Performance on page 4.
Supplementary Materials Contents 1. Quarterly Consolidated Business Performance --------------------------------------------------- P. 2 (1) Consolidated Business Performance -------------------------------------------------------------- P. 2 (2) Consolidated Financial Position ------------------------------------------------------------------- P. 3 (3) Consolidated Business Forecasts ------------------------------------------------------------------ P. 4 2. Other Information ------------------------------------------------------------------------------------------ P. 4 (1) Changes in Principal Subsidiaries during the Term -------------------------------------------- P. 4 (2) Application of Specific Accounting Methods in Preparation of Financial Statements -- P. 4 (3) Changes in Accounting Principles, Changes in Estimates, or Restatements ------------ P. 4 3. Quarterly Consolidated Financial Statements ------------------------------------------------------- P. 5 (1) Quarterly Consolidated Balance Sheets ---------------------------------------------------------- P. 5 (2) Quarterly Consolidated Statements of Income and Comprehensive Income ------------ P. 7 (3) Quarterly Consolidated Statements of Cash Flows -------------------------------------------- P. 9 (4) Notes on Consolidated Financial Statements ---------------------------------------------------- P.10 (Notes on the Premise of a Going Concern) ----------------------------------------------------- P.10 (Notes in the Event of Significant Changes in the Amount of Shareholders Equity) --- P.10 (Segment Information) -------------------------------------------------------------------------------- P.10 1
1. Quarterly Consolidated Business Performance (1) Consolidated Business Performance The global economic outlook lacked strength overall during the first nine months under review (April 1, 2016 to December 31, 2016). The global economy and financial markets were greatly shaken by two unexpected events: the U.K.'s decision to withdraw from the EU and the election of Donald Trump as the new president of the U.S. The impact of these events spread to and slowed down the economies of developed, emerging, and resource-rich countries. The Japanese economy was also affected: exports weakened due to the impact of the global economic slowdown and the appreciation of the yen, and personal consumption stagnated. In this business environment, the Kaneka Group reported consolidated net sales of 408,082 million (down 2.2% year on year), and operating income was 24,570 million (down 16.3% year on year), due to the effect of the yen appreciation and sluggish demand in the electronic market, despite accomplishing an increase of total sales volume by expansion of sales of new products and specialized products. Ordinary income was 20,762 million (down 19.2% year on year), and net income attributable to owners of the parent was 12,952 million (down 21.0% year on year). By segment, sales increased year on year in the Functional Plastics and Foodstuffs segments and decreased in the Chemicals, Expandable Plastics and, Life Science, Electronic, and Synthetic Fibers and Others segments. Operating income increased year on year in the Chemicals and Foodstuffs segments, was approximately the same level in Functional Plastics, and decreased in the Expandable Plastics and, Life Science, Electronic, and Synthetic Fibers and Others segments. Operating performance by business segment was as follows: 1) Chemicals In the PVC resins business, profits improved due to the increasing sales volume in Asian markets, although net sales decreased due to the yen appreciation and the fall in raw materials prices. In the Specialty PVC resins business, Paste PVC continued its firm sales, mainly for Asia, and sales of Chlorinated PVC resins for the U.S. and Asia continued to expand. The caustic soda business remained sluggish due to the delayed recoveries of domestic market conditions. As a result of the foregoing, segment sales decreased 8,298 million, or 10.6%, year on year to 69,873 million, and the segment posted operating income of 4,524 million, an increase of 1,032 million, or 29.6%, year on year. 2) Functional Plastics In the modifiers business, sales volume increased for domestic and overseas as Kaneka Group expanded sales for new applications as in the non-pvc field. The modified silicone polymers business saw an increase in sales volume in all regions in both domestic and overseas. This was because the polymers were evaluated highly for their unique quality and expanded sales in the construction and other industrial fields. The construction of new production facilities for the modifiers (to be operational in March, 2017) and for the modified silicone polymers (to be operational in July, 2017) in Malaysia made steady progress. After operations start, Kaneka Group will respond rapidly to expanding demand in Asian market. In addition, by making CEMEDINE CO., LTD. a consolidated subsidiary of the Group from January, 2016, the Kaneka Group made progress in realizing Group synergies focusing on overseas development. As a result of the foregoing, segment sales increased 9,976 million, or 14.3%, year on year to 79,930 million, and the segment posted operating income of 10,896 million, approximately the same level year on year. 3) Expandable Plastics and Demands in the expandable polystyrene resins and products business remained sluggish in the agriculture and fisheries fields. On the other hand, sales in the extruded polystyrene foam boards business were solid due to a recovery of the Japanese housing-related markets. Moreover, the segment saw expanded sales of bead-method polyolefin foam in the Asian market, particularly in the automotive field. As a result of the foregoing, segment sales decreased 1,327 million, or 2.6%, year on year to 49,086 million, and the segment posted operating income of 5,007 million, down 143 million, or 2.8%, year on year. 4) Foodstuffs In the Foodstuff business, the Group focused on strengthening R&D, and developing and 2
selling new products that anticipate consumer needs in order to add high added-value to the product mix amid a continued faltering in domestic demand and consumer preference for low prices and in progressing food diversity. Being affected by bad weather during the summer season, the Group improved profitability by launching new products and promoting business structural reforms designed to strengthen and streamline the entire supply chain. As a result of the foregoing, segment sales increased 1,905 million, or 1.7%, year on year to 111,075 million, and the segment posted operating income of 3,512 million, an increase of 1,040 million, or 42.1%, year on year. 5) Life Science In the medical devices business, sales of the blood purification business remained sluggish. On the other hand, sales for overseas markets in the vascular intervention business expanded steadily due to the enlarging of joint businesses with other companies and the obtaining of results by conducting new joint businesses, despite the dampening effect of the revision of reimbursement prices in domestic markets. In the pharmaceutical business, sales expanded steadily in the active pharmaceutical ingredients (API) market and the bio-pharmaceutical market. The functional foodstuffs business saw a steady increase in sales volume of the reduced form of coenzyme Q10, mainly in the U.S market, which is the biggest market. Moreover, the Group saw sales increase following the launch of a Food with Functional Claims System in the Japanese market. As a result of the foregoing, segment sales decreased 1,362 million, or 3.1%, year on year to 42,090 million, and the segment posted operating income of 8,392 million, down 245 million, or 2.8%, year on year. 6) Electronic Overall sales of ultra-heat-resistant polyimide film and high thermal conductive graphite sheet were affected by a slow start in the overall smartphone market and the yen appreciation, despite the expansion of sales of mainly high-function products as the new driving forces in line with progress in high-functioning smartphones made in China. In the photovoltaic modules business, the sales volume for a major house manufacturer expanded due to it being evaluated highly for the function and beauty of its new products, and profitability improved in tandem with the continued implementation of business structural reforms. The business concentrated more on expanding the sales of new products and high-function products using heterojunction technology, which has one of the world s highest conversion efficiencies, and on initiatives to provide solutions contributing to the realization of net zero energy houses. As a result of the foregoing, segment sales decreased 4,073 million, or 13.3%, to 26,612 million, and the segment posted an operating loss of 1,300 million. 7) Synthetic Fibers and Others In the synthetic fibers business, the segment was strongly impacted by the yen appreciation, despite putting efforts into expanding sales of products with high added-value and reducing costs. Also the segment was impacted by the sluggish economy in Africa overall and the delay in a recovery in the Asian market. The segment continued planning to improve profits by making higher functional products through utilizing R&D, and by utilizing competition of new production facilities in Malaysia. As a result of the foregoing, segment sales decreased 5,942 million, or 16.8%, year on year to 29,413 million, and the segment posted operating income of 8,906 million, a decrease of 3,739 million, or 29.6%, year on year. (2) Consolidated Financial Position 1) Status of Assets, Liabilities and Equity Total assets were 598,304 million as of December 31, 2016, up 21,053 million compared with March 31, 2016, mainly due to increases in notes and accounts receivable-trade, and investment of stock. Liabilities were 281,306 million, an increase of 12,778 million, mainly due to increases in notes and accounts payable-trade. Net assets (equity) increased 8,275 million, to 316,997 million, mainly due to an increase in the retained earnings. 2) Consolidated Cash Flows Net cash provided by operating activities during the first nine months of the fiscal year was 37,709 million, mainly due to income before income taxes, and depreciation and amortization. Net cash used in investing activities amounted to 28,606 million, mainly owing to the purchase of property, plant and equipment. Net cash used in financing activities came to 10,860 million, mainly owing to the repayment of loans payable and cash dividends paid. As a result, cash and cash equivalents as 3
of December 31, 2016 totaled 41,120 million. (3) Consolidated Business Forecasts The global economy is expected to recover as a whole, although there are many uncertainties about the future, including the impact of the birth of the new political administration in the U.S., sharp fluctuations in crude oil prices and the problem of the U.K. s withdrawal from the EU. The Japanese economy is also forecast to recover moderately, on the back of the global economy s recovery. The Kaneka Group s performance during the nine months ended December 31, 2016 was strongly impacted by the appreciation of the yen, sluggish demand for smartphones in the electronics market, and other factors. From January 1, 2017 onwards, however, the business performance overall is forecast to move to a recovery, mainly due to the expected increase in demand in the electronics-related market, expansion of sales of new products in the Foodstuffs Product business, expansion of overseas sales in the Chemicals and Functional Plastics businesses, and increase of sales in the pharmaceutical field. The Group will strive to expand earnings by further reinforcing its product differentiation ability and cost reduction, and by further accelerating business structural reforms initiatives such as ensuring the contributions of new products. As a result, the Group has not revised its full-year consolidated business forecast for the fiscal year ending March 31, 2017 announced November 9, 2016. 2. Other Information (1) Changes in Principal Subsidiaries during the Term There were no changes in the scope of consolidation of specific subsidiaries during the first nine months of the fiscal year under review. (2) Application of Specific Accounting Methods in Preparation of Financial Statements Nothing to report (3) Changes in Accounting Principles, Changes in Estimates, or Restatements Nothing to report 4
3. Quarterly Consolidated Financial Statements (1) Quarterly Consolidated Balance Sheets FY2015 FY2016 3rd Quarter Term ended March 31, 2016 Term ended December 31, 2016 5
FY2015 FY2016 3rd Quarter Term ended March 31, 2016 Term ended December 31, 2016 6
7
Quarterly Consolidated Statements of Comprehensive Income FY2015 3rd Quarter From April 1, 2015 to December 31, 2015 FY2016 3rd Quarter From April 1, 2016 to December 31, 2016 8
(3) Quarterly Consolidated Statement of Cash Flows FY2015 3rd Quarter FY2016 3rd Quarter From April 1, 2015 to December 31, 2015 From April 1, 2016 to December 31, 2016 9
(4) Notes on Consolidated Financial Statements (Notes on the Premise of a Going Concern) No corresponding transactions Quarterly Financial Results for the Third Quarter, Ended December 31, 2016, Kaneka Corporation (4118) (Notes in the Event of Significant Changes in the Amount of Shareholders Equity) No corresponding transactions (Segment Information) Term from April 1, 2015 to December 31, 2015 1) Sales and Income (Loss) by Segments Sales Chemicals Functional Plastics Expandable Plastics and Reporting Segment Foodstuffs Life Science Electronic Synthetic Fibers and Others Segment Total Adjustment Total Customers 78,172 69,954 50,413 109,170 43,452 30,685 35,356 417,204 417,204 Intersegment 704 526 40 5 23 188 952 2,441 (2,441) Total 78,876 70,480 50,454 109,176 43,475 30,874 36,308 419,646 (2,441) 417,204 Segment income 3,491 10,974 5,151 2,472 8,638 552 12,645 43,927 (14,566) 29,360 (Note) Segment income is reconciled with operating income in the quarterly consolidated financial statements. 2) Reconciliations between Segment Total and Quarterly Consolidated Statements of Income (Adjustments) Income Amount Segment total 43,927 Elimination of intersegment transactions (1) Companywide expenses (Note) (14,556) Other adjustments (8) Operating income in the quarterly consolidated statements of income 29,360 (Note) Companywide expenses primarily are expenses for basic R&D that are not allocable to any reporting segment. 10
Term from April 1, 2016 to December 31, 2016 1) Sales and Income (Loss) by Segments Sales Chemicals Expandable Functional Plastics and Plastics Reporting Segment Foodstuffs Life Science Electronic Synthetic Fibers and Others Segment Total Adjustment Total Customers 69,873 79,930 49,086 111,075 42,090 26,612 29,413 408,082 408,082 Intersegment 798 698 69 4 25 165 1,084 2,846 (2,846) Total 70,672 80,628 49,156 111,080 42,115 26,778 30,498 410,929 (2,846) 408,082 Segment income (loss) 4,524 10,896 5,007 3,512 8,392 (1,300) 8,906 39,940 (15,370) 24,570 (Note) Segment income (loss) is reconciled with operating income in the quarterly consolidated financial statements. 2) Reconciliations between Segment Total and Quarterly Consolidated Statements of Income (Adjustments) Income Amount Segment total 39,940 Elimination of intersegment transactions (7) Companywide expenses (Note) (15,352) Other adjustments (10) Operating income in the quarterly consolidated statements of income 24,570 (Note) Companywide expenses primarily are expenses for basic R&D that are not allocable to any reporting segment. 11