Kurita Water Industries : Reports Earnings for the Three Months Ended June 30, 2021

FOR IMMEDIATE RELEASE

Kurita Water Industries Reports Earnings for the Three Months Ended June 30, 2021

Tokyo, Japan, July 30, 2021 - Kurita Water Industries Ltd. (the "Company") (TSE Securities Code 6370) announced net sales of 63,199 million yen and profit attributable to owners of parent of 3,740 million yen, or 33.29 yen per share, for the three months ended June 30, 2021 (April 1, 2021 - June 30, 2021).

Results of Operations

Total consolidated orders for the Kurita Group (the "Group") in the three months ended June 30, 2021 rose 18.6% from the level of the year-ago period, to 77,618 million yen, and net sales increased 3.6%, to 63,199 million yen. Business profit* was increased 4.6%, to 5,872 million yen, operating profit was 5,816 million yen, down 0.5% versus the year-ago period, profit before tax was 5,630 million yen, declined 0.9%, and profit attributable to owners of parent amounted to 3,740 million yen, down 4.9%. Operating profit, profit before tax and profit attributable to owners of parent declined due to the absence of the gain on step acquisition of 463 million yen that was posted in the same period of the previous fiscal year in relation to the acquisition of Pentagon Technologies Group, Inc. (Water Treatment Facilities business) in the United States, which was an equity method affiliate and became a consolidated subsidiary.

In the first quarter under review, the Group acquired 51% of the shares in Kurita Aquachemie Limited (Water Treatment Chemicals business) in the Middle East and consolidated both it and its two wholly owned subsidiaries. The Group acquired also Keytech Water Management (Water Treatment Chemicals business), making it a consolidated subsidiary. The operating results of those companies are newly consolidated. The PPA for Pentagon Technologies Group, Inc., which was consolidated in the same period of the previous fiscal year, was determined towards the end of the previous fiscal year, and the results in the same period of the previous fiscal year have been revised retroactively.

During the first quarter of the fiscal year ending March 31, 2022, there were signs of a recovery in the world economy as economic activity moved toward normalization, reflecting economic stimulus measures in the world and the increasing pace of vaccinations. In Japan, production activities in the manufacturing industry recovered against the backdrop of growth in exports, and there were signs of recovery in capital investment in certain sectors. Overseas, the U.S. and Chinese economies recovered steadily. Meanwhile, in certain countries in Europe and Asia, economic recovery was weak due to a resurgence in COVID-19 infections.

In this environment, the Group stepped up initiatives to expand total solutions by focusing on proposal activities that would help solve customer issues such as the reduction of the environmental impact, including water saving, the reduction of CO2 emissions and waste reduction, and an improvement in productivity based on society and customers' deep understanding of issues, aiming to become an indispensable partner of customers in the long term.

• Business profit is the Group's own indicator that measures constant business performance. It is net sales less cost of sales and selling, general and administrative expenses. Although business profit is not defined by IFRS, the Group voluntarily discloses it, believing that it is beneficial for users of its financial statements.

Segment Information

The Group consists of two reportable segments in its segment information: Water Treatment Chemicals and Water Treatment Facilities.

Water Treatment Chemicals

Total Group orders for the Water Treatment Chemicals segment were 29,238 million yen, up 13.7% versus the year-ago period, while net sales rose 13.8%, to 27,901 million yen.

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In terms of profits, business profit amounted to 3,236 million yen, an increase of 15.7% year on year, and operating profit rose to 3,230 million yen, up 16.6% year on year, chiefly due to an increase in net sales.

Both orders and net sales increased slightly in Japan due to a rise in capacity utilization at customers' plants, reflecting a recovery in production activity in the manufacturing industry, while there were no increases in inventories at customers, a contrast to the same period of the previous fiscal year.

Overseas, both orders and net sales rose due to an increase in reaction to a fall in demand a year ago because of stagnant economic activities caused by the spread of COVID-19, the consolidation of the operating results (for three months) of the subsidiaries in the Middle East and Canada acquired in the first quarter under review, and an increase in results in yen at overseas subsidiaries due to the weaker yen.

Water Treatment Facilities

Total Group orders for the Water Treatment Facilities segment were 48,379 million yen, up 21.9% versus the same period of the previous fiscal year. Net sales declined 3.2%, to 35,297 million yen.

Business profit fell to 2,650 million yen, down 6.3% year on year, due to a fall in sales and a rise in selling, general and administrative expenses. Operating profit decreased to 2,591 million yen, a fall of 15.9% year on year, reflecting the absence of a gain on step acquisition of 463 million yen (posted in other income) posted in the same period of the previous fiscal year.

In Japan, both orders and net sales of water treatment facilities for the electronics industry increased. Orders for maintenance services for the industry increased, reflecting the expansion of facilities against a backdrop of firm capacity utilization at customers' plants. Net sales remained almost flat due to progress in the construction of projects for which orders were posted in the previous fiscal year.

Orders for water treatment facilities for general industries climbed, reflecting the posting of orders for large projects, but net sales declined. Orders for maintenance services for the industry increased, reflecting a recovery in demand for maintenance at customers' facilities, but net sales fell. Both orders for and net sales from water treatment facilities for the electric power industry and soil remediation services decreased because orders for large projects declined and the posting of sales from the order backlog ran its course.

Overseas, orders rose due to orders for large water treatment facilities projects in the electronics industry in East Asia. However, net sales declined with the peaking of sales from water treatment facilities for the electronics industry in East Asia, although net sales of tool cleaning service increased.

Total net sales in the ultrapure water supply business in Japan and overseas increased due to the contribution of a contract that began in the previous fiscal year.

Financial Condition

Condition of assets, liabilities and equity

1. Total assets: 423,002 million yen, a decrease of 1,926 million yen from the end of the previous fiscal year)

Current assets totaled 164,037 million yen at the end of the first quarter (June 30, 2021), a decrease of 12,445 million yen from the end of the previous fiscal year (March 31, 2021). This was mainly attributable to a decrease in cash and cash equivalents of 10,638 million yen, chiefly due to the payment of income taxes and fixed assets purchasing expenses, and a decrease in trade and other receivables of 2,604 million yen due to the smooth collection of accounts receivable - trade.

Non-current assets totaled 258,965 million yen at the end of the first quarter, an increase of 10,520 million yen from the end of the previous fiscal year. Property, plant and equipment increased 9,458 million yen chiefly due to the acquisition of new facilities in the ultrapure water supply business (Water Treatment Facilities business) and progress in the construction of a new research and development base in Akishima-shi, Tokyo, which the Company plans to open in April 2022.

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2) Liabilities: 165,611 million yen, a decrease of 1,479 million yen from the end of the previous fiscal year

Current liabilities totaled 85,231 million yen at the end of the period, an increase of 10,279 million yen from the end of the previous fiscal year. This was mainly due to an increase of 12,546 million yen in other financial liabilities and an increase of 4,734 million yen in trade and other payables, while income taxes payable fell 5,946 million yen.

An increase in other financial liabilities is chiefly attributable to liabilities related to the forward contract concluded with non-controlling shareholders of Pentagon Technologies Group, Inc. (Water Treatment Facilities business). They were transferred from non-current liabilities.

Non-current liabilities totaled 80,380 million yen at the end of the period, a decrease of 11,757 million yen from the end of the previous fiscal year. This is because liabilities related to the forward contract were transferred to current liabilities, and other financial liabilities decreased 11,652 million yen.

1. Equity: 257,391 million yen, a decrease of 446 million yen from the end of the previous fiscal year

This principally reflected a decrease of 850 million yen in other components of equity due to a fall in fair value measured through other comprehensive income in association with a decrease in the market value of shares held, while non-controlling interests increased 472 million yen chiefly due to business combinations.

Cash Flows

Consolidated net cash and cash equivalents at the end of the first quarter (June 30, 2021) totaled 51,590 million yen, a decrease of 10,638 million yen from the end of the previous fiscal year (March 31, 2021).

The various cash flows and related factors are outlined below.

1. Cash Flows from Operating Activities

Net cash provided by operating activities during the first quarter ended June 30, 2021 totaled 4,097 million yen, a decrease of 9,616 million yen from the same period of the previous fiscal year. Inflows from profit before tax of 5,630 million yen and depreciation and amortization of 5,606 million yen were partly offset by income taxes paid of 7,657 million yen.

2) Cash Flows from Investing Activities

Net cash used in investing activities totaled 11,026 million yen, an increase of 3,938 million yen from the same period of the previous fiscal year. Cash was used mainly for purchases of property, plant and equipment of 7,967 million yen and the acquisition of subsidiaries of 2,611 million yen (after deducting cash and cash equivalents included in acquired assets).

3) Cash Flows from Financing Activities

Net cash used in financing activities totaled 3,918 million yen, a decrease of 11,536 million yen from the same period of the previous fiscal year. Cash was used mainly for dividends paid of 3,847 million yen.

The Group's basic policy is to constantly secure the liquidity necessary for business operations and establish a stable funds-raising system. Short-term working capital is basically supplied by the Group's own funds. Capital investment and other investments in growth fields depend chiefly on the Group's own funds, but the Group considers financing through bond markets and bank loans as needed. As of the end of the period under review, the Group has concluded commitment line contracts with one financial institution (executed and unexecuted borrowings within the commitment line were ‒ million yen and 20,000 million yen, respectively).

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4) Forecasts for the Fiscal Year Ending March 31, 2022

Regarding the impact of COVID-19, while it is difficult to rationally estimate how COVID-19 will spread and when it will subside, the Company assumes that the economy will recover moderately, given that economic activities are likely to normalize gradually through the second half of the current fiscal year owing to increasing vaccinations around the world and policy measures. Therefore, the Group considers that consolidated earnings forecasts for the fiscal year ending March 31, 2022 will be consistent with the forecast for the first half of the fiscal year ending March 31, 2022 and for the full fiscal year stated in the "Earnings for the Fiscal Year Ended March 31, 2021" released on May 6, 2021.

The business forecasts are made by the Company based on information available at the time of publication of this report and may differ from actual results due to changes in a range of factors.

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Condensed quarterly consolidated financial statements

(1) Condensed quarterly consolidated statement of financial position

		(Million yen)
	As of March 31, 2021	As of June 30, 2021
Assets
Current assets
Cash and cash equivalents	62,228	51,590
Trade and other receivables	97,745	95,141
Other financial assets	2,817	2,733
Inventories	9,911	10,789
Other current assets	3,780	3,781
Total current assets	176,482	164,037
Non-current assets
Property, plant and equipment	117,603	127,062
Right-of-use assets	19,405	19,222
Goodwill	55,596	58,306
Intangible assets	17,320	17,124
Investments accounted for using equity method	1,578	1,245
Other financial assets	33,563	31,593
Deferred tax assets	3,199	4,226
Other non-current assets	177	184
Total non-current assets	248,445	258,965
Total assets	424,928	423,002

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