FOR IMMEDIATE RELEASE
Kurita Water Industries Reports Earnings for the Three Months Ended June 30, 2020
Tokyo, Japan, August 6, 2020 - Kurita Water Industries Ltd. (TSE Securities Code 6370) announced net sales of 60,980 million yen and profit attributable to owners of parent of 4,028 million yen, or
35.87 yen per share, for the three months ended June 30, 2020 (April 1, 2020 - June 30, 2020).
Results of Operations
Total consolidated orders for the Kurita Group in the three months ended June 30, 2020 fell 10.0% from the level of the year-ago period, to 65,426 million yen, and net sales decreased 5.2%, to 60,980 million yen. Business profit* was increased 3.8%, to 5,897 million yen, operating profit was 6,128 million yen, down 40.1% versus the year-ago period, profit before tax was 5,964 million yen, declined 42.8%, and profit attributable to owners of parent amounted to 4,028 million yen, down 44.9%. Operating profit, profit before tax and profit attributable to owners of parent declined due to the posting of a gain on the sale of fixed assets of 4,764 million yen in other income in the same period of the previous fiscal year.
Operating results of Pentagon Technologies Group, Inc. (water treatment facilities business) in the United States, which had been an equity method affiliate, were newly consolidated due to acquisition of its additional shares by the Group to make it a consolidated subsidiary in the first quarter under review.
With regard to the market conditions surrounding the Group, exports sharply fell and the production activities of the manufacturing industry declined significantly in Japan, reflecting the spread of coronavirus worldwide. Companies also strengthened their cautious stance on capital expenditures following their deteriorated corporate earnings. Overseas, while the economy was under harsh conditions overall in Europe, the United States and Asia, there were signs of improvement as economic activities were resumed in stages.
In this environment, the Group consistently provided products and services essential for the continuation of business activities of customers and accelerated the development of total solutions by focusing on proposal activities that would help solve customer issues such as the reduction of the environmental impact, energy saving and an improvement in productivity based on deep insight into social and customer issues.
*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 25,723 million yen, down 11.1% versus the same period of the fiscal year ended March 31, 2020, while net sales fell 12.5%, to 24,512 million yen.
In terms of profits, business profit amounted to 2,798 million yen, an increase of 7.9% year on year, and operating profit rose to 2,770 million yen, up 14.1% year on year, because the Group offset a reduction in sales by its efforts to improve the cost of sales ratio and reduce expenses.
Both orders and net sales declined in Japan due to a fall in capacity utilization at plants of customers, except for some customers such as the electronics industry, affected by stagnant economic activities due to the spread of coronavirus.
Overseas, both orders and net sales decreased partly due to the effect of a reduction in sales at
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overseas subsidiaries in yen equivalent because of a stronger yen, in addition to the impact of the spreading coronavirus, despite the new consolidation of operating results (for two months) of U.S.- based Avista Technologies, Inc. and U.K.-based Avista Technologies (UK) Ltd., which were acquired in the previous fiscal year.
Water Treatment Facilities
Total Group orders for the Water Treatment Facilities segment were 39,703 million yen, down 9.3% versus the same period of the previous fiscal year. Net sales increased 0.5%, to 36,467 million yen.
Business profit fell to 3,111 million yen, down 1.6% year on year, affected by a fall in sales of existing businesses excluding new consolidation, and operating profit decreased to 3,362 million yen, a fall of 57.5% year on year, reflecting the absence of a gain on the sale of fixed assets of 4,746 million yen (posted in other income) posted in the same period of the previous fiscal year.
In Japan, while orders for water treatment facilities for the electronics industry increased, net sales declined significantly due to the completion of large projects. While orders for maintenance services decreased sharply in reaction to orders for large projects posted in the same period of the previous fiscal year, net sales remained almost flat due to progress in the construction of projects for which orders were posted in the previous fiscal year.
For water treatment facilities for general industries, although orders declined in reaction to the posting of orders for large projects in the same period of the previous fiscal year, net sales increased with progress in the construction of large projects. Orders for maintenance services fell significantly, reflecting customers' move to postpone the implementation of maintenance of their facilities due to the spread of the coronavirus, but net sales rose slightly thanks to progress in the construction of projects for order backlog. Both orders for and net sales from water treatment facilities for the electric power industry and soil remediation services decreased because orders for and net sales from large projects had run their courses.
Overseas, both orders and net sales increased mainly due to the new consolidation of operating results (for three months) of Pentagon Technologies Group, Inc., although the posting of orders for and net sales from large projects for the electronics industry in East Asia had concluded.
Total net sales in the ultrapure water supply business in Japan and overseas increased partly due to a contract that began in the previous fiscal year.
Financial Condition
Condition of assets, liabilities and equity
- Total assets: 380,449 million yen, a decrease of 7,300 million yen from the end of the previous fiscal year)
Current assets totaled 147,761 million yen at the end of the first quarter (June 30, 2020), a decrease of 15,086 million yen from the end of the previous fiscal year (March 31, 2020). This was mainly attributable to a decrease in cash and cash equivalents of 8,653 million yen, chiefly reflecting the partial repayment of the commitment line contracts, and in trade and other receivables of 7,610 million yen due to the smooth collection of accounts receivable - trade.
Non-current assets totaled 232,688 million yen at the end of the first quarter, an increase of 7,786 million yen from the end of the previous fiscal year. Goodwill increased 9,408 million yen while investments accounted for using equity method decreased 4,958 million yen due to the conversion of Pentagon Technologies Group, Inc. (water treatment facilities business), which had been an equity method affiliate, to a consolidated subsidiary in the first quarter under review. Other financial assets rose 4,690 million yen owning to an increase in unrealized gains mainly caused by a rise in the market value of shares held.
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2) Liabilities: 142,432 million yen, a decrease of 1,208 million yen from the end of the previous fiscal year.
Current liabilities totaled 82,153 million yen at the end of the period, a decrease of 12,255 million yen from the end of the previous fiscal year. This was mainly due to a decrease in borrowings of 9,938 million yen resulting from the partial repayment of the commitment line contracts.
Non-current liabilities totaled 60,278 million yen at the end of the period, an increase of 11,046 million yen from the end of the previous fiscal year. This was chiefly attributable to an increase in other financial liabilities of 10,918 million yen mainly resulting from the initial recognition of the present value of the expected value of shares to be transferred in the future based on the forward contract concluded between Kurita America Holdings Inc., a wholly owned subsidiary of the Company and non-controlling shareholders of Pentagon Technologies Group, Inc.
3) Equity: 238,017 million yen, a decrease of 6,091 million yen from the end of the previous fiscal year
This mainly reflected a fall in capital surplus of 10,605 million yen, mainly as a result of initial recognition related to the aforementioned forward contract for shares in Pentagon Technologies Group, Inc., while other components of equity increased 2,768 million yen due to a rise in fair value measured through other comprehensive income associated with a rise in the market value of shares held.
Cash Flows
Consolidated net cash and cash equivalents at the end of the first quarter (June 30, 2020) totaled 41,561 million yen, a decrease of 8,653 million yen from the end of the previous fiscal year (March 31, 2020).
The various cash flows and related factors are outlined below.
- Cash Flows from Operating Activities
Net cash provided by operating activities during the first quarter ended June 30, 2020 totaled 13,713 million yen, an increase of 9,882 million yen from the same period of the previous fiscal year. This was chiefly due to inflows from a decrease in trade and other receivables of 9,386 million yen, profit before tax of 5,964 million yen and depreciation and amortization of 4,945 million yen.
2) Cash Flows from Investing Activities
Net cash used in investing activities totaled 7,088 million yen, a decrease of 15,570 million yen from the same period of the previous fiscal year. Cash was used mainly for the acquisition of subsidiaries of 4,605 million yen (after deducting cash and cash equivalents included in acquired assets) and purchases of property, plant and equipment of 1,699 million yen.
3) Cash Flows from Financing Activities
Net cash used in financing activities totaled 15,454 million yen, an increase of 31,156 million yen from the same period of the previous fiscal year. Cash was used mainly for a net decrease in short-term borrowings of 10,001 million yen and dividends paid of 4,007 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 bank loans as needed. As of the end of the first quarter under review, the Group has concluded commitment line contracts with four financial institutions (executed and unexecuted borrowings within the commitment line were 25,000 million yen and 45,600 million yen, respectively).
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4) Forecasts for the Fiscal Year Ending March 31, 2021
Regarding the impact of the COVID-19 coronavirus, while the scale of infection and projections on when it will be resolved are still uncertain, the Company assumes that the economy will head moderately recover toward the end of the current fiscal year, given that economic activities have been resumed in stages around the world.
Therefore, the Group considers that consolidated earnings forecasts for the fiscal year ending March 31, 2021 will be consistent with the forecast for the first half of the fiscal year ending March 31, 2021 and for the full fiscal year stated in the "Fourth Quarter Financial Results of the Fiscal Year Ended March 31, 2020" released on May 18, 2021.
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Condensed quarterly consolidated financial statements
(1) Condensed quarterly consolidated statement of financial position
(Million yen) | ||
As of March 31, 2020 | As of June 30, 2020 | |
Assets | ||
Current assets | ||
Cash and cash equivalents | 50,215 | 41,561 |
Trade and other receivables | 96,974 | 89,364 |
Other financial assets | 2,562 | 2,608 |
Inventories | 9,247 | 10,651 |
Other current assets | 3,847 | 3,575 |
Total current assets | 162,847 | 147,761 |
Non-current assets | ||
Property, plant and equipment | 106,358 | 106,498 |
Right-of-use assets | 17,784 | 17,906 |
Goodwill | 47,033 | 56,441 |
Intangible assets | 13,381 | 13,106 |
Investments accounted for using equity method | 7,469 | 2,511 |
Other financial assets | 28,465 | 33,155 |
Deferred tax assets | 4,295 | 2,956 |
Other non-current assets | 113 | 111 |
Total non-current assets | 224,902 | 232,688 |
Total assets | 387,749 | 380,449 |
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(Million yen) | ||
As of March 31, 2020 | As of June 30, 2020 | |
Liabilities and equity | ||
Current liabilities | ||
Trade and other payables | 35,680 | 35,779 |
Borrowings | 35,371 | 25,433 |
Lease liabilities | 4,234 | 4,406 |
Other financial liabilities | 219 | 216 |
Income taxes payable | 1,998 | 2,374 |
Provisions | 1,557 | 1,455 |
Other current liabilities | 15,345 | 12,487 |
Total current liabilities | 94,408 | 82,153 |
Non-current liabilities | ||
Borrowings | 1,305 | 1,672 |
Lease liabilities | 13,701 | 13,824 |
Other financial liabilities | 2,562 | 13,480 |
Retirement benefit liability | 16,913 | 17,306 |
Provisions | 499 | 499 |
Deferred tax liabilities | 1,346 | 1,283 |
Other non-current liabilities | 12,903 | 12,212 |
Total non-current liabilities | 49,232 | 60,278 |
Total liabilities | 143,640 | 142,432 |
Equity | ||
Share capital | 13,450 | 13,450 |
Capital surplus | 8,212 | (2,393) |
Treasury shares | (10,893) | (10,894) |
Other components of equity | 216 | 2,984 |
Retained earnings | 231,456 | 232,027 |
Total equity attributable to owners of parent | 242,442 | 235,175 |
Non-controlling interests | 1,666 | 2,842 |
Total equity | 244,108 | 238,017 |
Total liabilities and equity | 387,749 | 380,449 |
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(2) Condensed quarterly consolidated statement of profit or loss
(Million yen) | ||
Three months ended | Three months ended | |
June 30, 2019 | June 30, 2020 | |
Net sales | 64,305 | 60,980 |
Cost of sales | 42,156 | 39,321 |
Gross profit | 22,149 | 21,659 |
Selling, general and administrative expenses | 16,469 | 15,762 |
Other income | 4,855 | 714 |
Other expenses | 298 | 483 |
Operating profit | 10,236 | 6,128 |
Finance income | 258 | 297 |
Finance costs | 94 | 459 |
Share of profit (loss) of investments accounted for using | 31 | (2) |
equity method | ||
Profit before tax | 10,431 | 5,964 |
Income tax expense | 3,135 | 1,774 |
Profit for the period | 7,296 | 4,189 |
Profit attributable to | ||
Owners of parent | 7,305 | 4,028 |
Non-controlling interests | (9) | 161 |
Profit for the period | 7,296 | 4,189 |
Earnings per share | ||
Basic earnings per share (yen) | 65.07 | 35.87 |
Diluted earnings per share (yen) | ‒ | ‒ |
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(3) Condensed quarterly consolidated statement of comprehensive income
(Million yen) | ||
Three months ended | Three months ended | |
June 30, 2019 | June 30, 2020 | |
Profit for the period | 7,296 | 4,189 |
Other comprehensive income | ||
Items that will not be reclassified to profit or loss | ||
Net change in the fair value of financial assets measured | (359) | 3,031 |
through other comprehensive income | ||
Remeasurements of defined benefit plans | (20) | (24) |
Total of items that will not be reclassified to profit or loss | (379) | 3,007 |
Items that may be reclassified to profit or loss | ||
Exchange differences on translation of foreign operations | (3,358) | (129) |
Cash flow hedges | 104 | (65) |
Share of other comprehensive income of investments | 55 | (39) |
accounted for using equity method | ||
Total of items that may be reclassified to profit or loss | (3,198) | (234) |
Other comprehensive income, net of tax | (3,578) | 2,772 |
Comprehensive income for the period | 3,717 | 6,962 |
Comprehensive income attributable to | ||
Owners of parent | 3,746 | 6,772 |
Non-controlling interests | (29) | 189 |
Comprehensive income | 3,717 | 6,962 |
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(4) Condensed quarterly consolidated statement of changes in equity Three months ended June 30, 2019 (April 1, 2019 - June 30, 2019)
(Million yen)
Equity attributable to owners of parent | ||||||||||
Other components of equity | ||||||||||
Exchange | Financial assets | |||||||||
measured at fair | ||||||||||
Share capital | Capital surplus | Treasury shares | differences on | |||||||
Cash flow | value through | |||||||||
translation of | ||||||||||
hedges | other | |||||||||
foreign | ||||||||||
comprehensive | ||||||||||
operations | ||||||||||
income | ||||||||||
Balance as of April 1, 2019 | 13,450 | 10,265 | (10,932) | (4,671) | 310 | 9,199 | ||||
Profit for the period | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Other comprehensive income | ‒ | ‒ | ‒ | (3,284) | 104 | (359) | ||||
Total comprehensive income for the period | ‒ | ‒ | ‒ | (3,284) | 104 | (359) | ||||
Purchase of treasury shares | ‒ | ‒ | (0) | ‒ | ‒ | ‒ | ||||
Dividends | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Share-based payment transactions | ‒ | 29 | ‒ | ‒ | ‒ | ‒ | ||||
Changes in ownership interests in subsidiaries | ‒ | (4) | ‒ | ‒ | ‒ | ‒ | ||||
Increase (decrease) by business combination | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Liabilities pertaining to forward contracts | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
concluded with non-controlling shareholders | ||||||||||
Transfer from other components of equity to | ‒ | ‒ | ‒ | ‒ | ‒ | (227) | ||||
retained earnings | ||||||||||
Other | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Total transactions with owners | ‒ | 24 | (0) | ‒ | ‒ | (227) | ||||
Balance as of June 30, 2019 | 13,450 | 10,290 | (10,933) | (7,955) | 415 | 8,611 | ||||
(Million yen) | ||||||||||
Equity attributable to owners of parent | ||||||||||
Other components of equity | Non-controlling | |||||||||
Retained | Total | |||||||||
Remeasurements | Total | interests | ||||||||
earnings | ||||||||||
of defined | Total | |||||||||
benefit plans | ||||||||||
Balance as of April 1, 2019 | ‒ | 4,838 | 219,660 | 237,282 | 1,902 | 239,184 | ||||
Profit for the period | ‒ | ‒ | 7,305 | 7,305 | (9) | 7,296 | ||||
Other comprehensive income | (18) | (3,558) | ‒ | (3,558) | (19) | (3,578) | ||||
Total comprehensive income for the period | (18) | (3,558) | 7,305 | 3,746 | (29) | 3,717 | ||||
Purchase of treasury shares | ‒ | ‒ | ‒ | (0) | ‒ | (0) | ||||
Dividends | ‒ | ‒ | (3,040) | (3,040) | (9) | (3,049) | ||||
Share-based payment transactions | ‒ | ‒ | ‒ | 29 | 2 | 31 | ||||
Changes in ownership interests in subsidiaries | ‒ | ‒ | ‒ | (4) | (56) | (60) | ||||
Increase (decrease) by business combination | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Liabilities pertaining to forward contracts | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
concluded with non-controlling shareholders | ||||||||||
Transfer from other components of equity to | 18 | (208) | 208 | ‒ | ‒ | ‒ | ||||
retained earnings | ||||||||||
Other | ‒ | ‒ | 5 | 5 | ‒ | 5 | ||||
Total transactions with owners | 18 | (208) | (2,826) | (3,010) | (63) | (3,074) | ||||
Balance as of June 30, 2019 | ‒ | 1,071 | 224,139 | 238,018 | 1,809 | 239,828 | ||||
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Three months ended June 30, 2020 (April 1, 2020 - June 30, 2020)
(Million yen)
Equity attributable to owners of parent | ||||||||||
Other components of equity | ||||||||||
Exchange | Financial assets | |||||||||
measured at fair | ||||||||||
Share capital | Capital surplus | Treasury shares | differences on | |||||||
Cash flow | value through | |||||||||
translation of | ||||||||||
hedges | other | |||||||||
foreign | ||||||||||
comprehensive | ||||||||||
operations | ||||||||||
income | ||||||||||
Balance as of April 1, 2020 | 13,450 | 8,212 | (10,893) | (9,033) | 503 | 8,747 | ||||
Profit for the period | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Other comprehensive income | ‒ | ‒ | ‒ | (197) | (65) | 3,031 | ||||
Total comprehensive income for the period | ‒ | ‒ | ‒ | (197) | (65) | 3,031 | ||||
Purchase of treasury shares | ‒ | ‒ | (0) | ‒ | ‒ | ‒ | ||||
Dividends | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Share-based payment transactions | ‒ | 28 | ‒ | ‒ | ‒ | ‒ | ||||
Changes in ownership interests in subsidiaries | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Increase (decrease) by business combination | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Liabilities pertaining to forward contracts | ‒ | (10,578) | ‒ | ‒ | ‒ | ‒ | ||||
concluded with non-controlling shareholders | ||||||||||
Transfer from other components of equity to | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
retained earnings | ||||||||||
Other | ‒ | (55) | ‒ | ‒ | ‒ | ‒ | ||||
Total transactions with owners | ‒ | (10,605) | (0) | ‒ | ‒ | ‒ | ||||
Balance as of June 30, 2020 | 13,450 | (2,393) | (10,894) | (9,231) | 437 | 11,778 | ||||
(Million yen) | ||||||||||
Equity attributable to owners of parent | ||||||||||
Other components of equity | Non-controlling | |||||||||
Retained | Total | |||||||||
Remeasurements | Total | interests | ||||||||
earnings | ||||||||||
of defined | Total | |||||||||
benefit plans | ||||||||||
Balance as of April 1, 2020 | ‒ | 216 | 231,456 | 242,442 | 1,666 | 244,108 | ||||
Profit for the period | ‒ | ‒ | 4,028 | 4,028 | 161 | 4,189 | ||||
Other comprehensive income | (23) | 2,744 | ‒ | 2,744 | 28 | 2,772 | ||||
Total comprehensive income for the period | (23) | 2,744 | 4,028 | 6,772 | 189 | 6,962 | ||||
Purchase of treasury shares | ‒ | ‒ | ‒ | (0) | ‒ | (0) | ||||
Dividends | ‒ | ‒ | (3,481) | (3,481) | (532) | (4,013) | ||||
Share-based payment transactions | ‒ | ‒ | ‒ | 28 | 0 | 28 | ||||
Changes in ownership interests in subsidiaries | ‒ | ‒ | ‒ | ‒ | ‒ | ‒ | ||||
Increase (decrease) by business combination | ‒ | ‒ | ‒ | ‒ | 1,517 | 1,517 | ||||
Liabilities pertaining to forward contracts | ‒ | ‒ | ‒ | (10,578) | ‒ | (10,578) | ||||
concluded with non-controlling shareholders | ||||||||||
Transfer from other components of equity to | 23 | 23 | (23) | ‒ | ‒ | ‒ | ||||
retained earnings | ||||||||||
Other | ‒ | ‒ | 47 | (7) | ‒ | (7) | ||||
Total transactions with owners | 23 | 23 | (3,457) | (14,039) | 985 | (13,053) | ||||
Balance as of June 30, 2020 | ‒ | 2,984 | 232,027 | 235,175 | 2,842 | 238,017 | ||||
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(5) Condensed quarterly consolidated statement of cash flows
(Million yen) | ||
Three months ended | Three months ended | |
June 30, 2019 | June 30, 2020 | |
Cash flows from operating activities | ||
Profit before tax | 10,431 | 5,964 |
Depreciation and amortization | 3,919 | 4,945 |
Share of loss (profit) of investments accounted for using | (31) | 2 |
equity method | ||
Loss (gain) on sale of fixed assets | (4,762) | (2) |
Decrease (increase) in inventories | (925) | (963) |
Decrease (increase) in trade and other receivables | 1,655 | 9,386 |
Increase (decrease) in trade and other payables | (1,055) | (2,317) |
Other | 83 | (1,832) |
Subtotal | 9,316 | 15,183 |
Interest received | 1 | 32 |
Dividends received | 197 | 169 |
Interest paid | (6) | (15) |
Income taxes paid | (5,677) | (1,655) |
Net cash provided by (used in) operating activities | 3,831 | 13,713 |
Cash flows from investing activities | ||
Payments into time deposits | (604) | (450) |
Proceeds from withdrawal of time deposits | 295 | 282 |
Purchase of property, plant and equipment | (6,904) | (1,699) |
Proceeds from sale of property, plant and equipment | 496 | 3 |
Purchase of intangible assets | (325) | (318) |
Payments for acquisition of a subsidiary (after deduction | (8,326) | (4,605) |
of cash and cash equivalents included in acquired assets) | ||
Purchase of investments in associates | (5,799) | ‒ |
Other | (1,490) | (299) |
Net cash provided by (used in) investing activities | (22,658) | (7,088) |
Cash flows from financing activities | ||
Net increase (decrease) in short-term borrowings | 19,999 | (10,001) |
Repayments of long-term borrowings | (216) | (260) |
Repayments of lease liabilities | (1,110) | (1,189) |
Dividends paid | (2,910) | (4,007) |
Purchase of shares of subsidiaries not resulting in change | (60) | ‒ |
in scope of consolidation | ||
Other | ‒ | 4 |
Net cash provided by (used in) financing activities | 15,702 | (15,454) |
Effect of exchange rate changes on cash and cash equivalents | (620) | 175 |
Net increase (decrease) in cash and cash equivalents | (3,745) | (8,653) |
Cash and cash equivalents at beginning of period | 35,547 | 50,215 |
Cash and cash equivalents at end of period | 31,801 | 41,561 |
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Notes to Consolidated Financial Statements
(Notes on the Going-concern Assumption)
Three months ended June 30, 2020 (April 1, 2020 - June 30, 2020) Not applicable
(Segment Information)
(1) Overview of reportable segments
The Company's reportable segments are components of the Group about which separate financial information is available. These segments are subject to periodic review to enable the Company's board of directors to decide how to allocate resources and assess performance.
The Group plans comprehensive strategies for the products that it handles in Japan and overseas, and develops a business. The Group's operations are therefore classified into two reportable segments, the Water Treatment Chemicals segment and the Water Treatment Facilities segment.
The Water Treatment Chemicals segment manufactures and sells water treatment chemicals and equipment and provides maintenance services. The Water Treatment Facilities segment manufacturers and sells water treatment system and facilities, supplies ultrapure water, chemical cleaning, tool cleaning, soil and groundwater remediation services, and provides maintenance services that encompass operation, maintenance, and management of water treatment facilities.
(2) Information of reportable segments
Three months ended June 30, 2019 (April 1, 2019 - June 30, 2019)
(Million yen) | |||||
Reportable Segments | Amounts | ||||
reported on the | |||||
condensed | |||||
Water | Water | Total | Adjustments | quarterly | |
Treatment | Treatment | (note 1) | consolidated | ||
Chemicals | Facilities | statement of | |||
profit or loss | |||||
(note 2) | |||||
Sales | |||||
Sales to outside customers | 28,023 | 36,281 | 64,305 | ‒ | 64,305 |
Inter-segment sales and transfers | 174 | 356 | 531 | (531) | ‒ |
Total | 28,198 | 36,638 | 64,836 | (531) | 64,305 |
Segment income | 2,427 | 7,903 | 10,331 | (94) | 10,236 |
Finance income | 258 | ||||
Finance costs | 94 | ||||
Share of profit (loss) of investments accounted for using equity method | 31 | ||||
Profit before tax | 10,431 | ||||
(Notes) 1. Segment income: Amount resulting from eliminations of inter-segment transactions.
2. Segment income is shown at the operating profit level.
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Three months ended June 30, 2020 (April 1, 2020 - June 30, 2020)
(Million yen) | |||||
Reportable Segments | Amounts | ||||
reported on the | |||||
condensed | |||||
Water | Water | Total | Adjustments | quarterly | |
Treatment | Treatment | (note 1) | consolidated | ||
Chemicals | Facilities | statement of | |||
profit or loss | |||||
(note 2) | |||||
Sales | |||||
Sales to outside customers | 24,512 | 36,467 | 60,980 | ‒ | 60,980 |
Inter-segment sales and transfers | 81 | 435 | 517 | (517) | ‒ |
Total | 24,594 | 36,903 | 61,498 | (517) | 60,980 |
Segment income | 2,770 | 3,362 | 6,132 | (4) | 6,128 |
Finance income | 297 | ||||
Finance costs | 459 | ||||
Share of profit (loss) of investments accounted for using equity method | (2) | ||||
Profit before tax | 5,964 | ||||
(Notes) 1. Segment income: Amount resulting from eliminations of inter-segment transactions.
2. Segment income is shown at the operating profit level.
(Business Combination and Acquisition of Non-Controlling Interests)
(Acquisition of Pentagon Technologies Group, Inc.)
On April 1, 2020, Kurita America Holdings Inc., a wholly owned subsidiary of the Company, acquired an additional 26% stake in Pentagon Technologies Group, Inc. ("Pentagon Technologies"), a tool cleaning company operating in the United States in which Kurita America Holdings Inc. held a 25% stake as of the end of the previous fiscal year. As a result, the proportion of equity interest Kurita America Holdings Inc. has in Pentagon Technologies increased to a total of 51%, and Pentagon Technologies became a consolidated subsidiary of the Company.
The Company will make Pentagon Technologies its subsidiary to have a base for overseas service in the electronics industry, which the Company positions as one of its key business fields, and to further strengthen its competitiveness in the market. The Company also aims to accelerate its growth and offer new value by acquiring the cutting-edge tool cleaning technologies and expertise of Pentagon Technologies and creating synergies with the tool cleaning business that the Kurita Group has been developing in Japan.
(1) Acquisition cost and a breakdown Consideration for acquisition
Fair value on the date of acquisition of the shares in the acquired | 5,379 million yen |
company held immediately before the date of acquisition | |
Fair value of the additional shares in the acquired company | 5,594 million yen |
acquired on the date of acquisition | |
Total | 10,974 million yen |
(2) Gain on remeasurement relating to business combinations
As a result of remeasuring equity interest in the acquired company held immediately before the date of acquisition at fair value, the Company has recognized gain on remeasurement relating to business combinations of 463 million yen due to the business combination. The gain is recorded in "Other income" in the condensed quarterly consolidated statement of profit or loss.
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(3) Assets acquired and liabilities assumed
The fair value of identifiable assets acquired and liabilities assumed of Pentagon Technologies Group, Inc. on the date of acquisition are shown below.
(Million yen) | |
Fair value of consideration | 10,974 |
Fair value of assets acquired and liabilities assumed | |
Cash and cash equivalents | 989 |
Trade receivables | 1,707 |
Other current assets | 433 |
Non-current assets | 2,152 |
Trade payables and other payables | (1,351) |
Non-current liabilities | (992) |
Fair value of assets acquired and liabilities assumed (net) | 2,938 |
Non-controlling interests | 1,517 |
Goodwill | 9,554 |
The amount of goodwill that occurred was 9,554 million yen, which reflects expected excess earning power. We do not expect any amounts related to recognized goodwill to be deductible expenses from tax perspective.
Net sales and profit for the period of Pentagon Technologies included in the condensed quarterly consolidated statement of profit or loss for the first quarter under review are 2,695 million yen and 361 million yen respectively.
The amount of goodwill is provisionally determined because the allocation of the acquisition cost is still ongoing as the identification of identifiable assets and liabilities as of the time of business combination and the estimation of their market values have yet to be completed given that the period from the date of business combination to the closing date is short. Non-controlling interests are measured using the proportion of non-controlling interests to the fair value of identifiable net assets of the acquired company.
(4) Transactions that are accounted for separately from business combination
Expenses related to the acquisition for the business combination were 171 million yen. The amount is posted in "Other expenses" in the condensed quarterly consolidated statement of profit or loss.
(5) Forward contract concluded with non-controlling shareholders
With regard to the remaining 49% of shares in Pentagon Technologies, a forward contact has been concluded between Kurita America Holdings Inc. and non-controlling shareholders of Pentagon Technologies, and it has been agreed that Pentagon Technologies will become a wholly owned subsidiary of Kurita America Holdings Inc. with June 30, 2022 as the target date.
The present value of expected value of shares to be transferred based on the forward contract which is 10,578 million yen, is initially recognized as "Other financial liabilities," and the same amount is deduced from "Capital surplus." After the initial recognition, the present value is measured at amortized cost based on the effective interest method, in principle, and the amount of subsequent changes is recognized in profit or loss.
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Kurita Water Industries Ltd. published this content on 06 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 August 2020 06:08:33 UTC