SK Electronics : Summary Report of Consolidated Financial Statements for the Third Quarter of the Fiscal 2020

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Third Quarter, FYE September 2020 Financial Report [Japan GAAP] (Consolidated)

				August 11, 2020
Company Name	SK-Electronics Co., Ltd.	Stock Exchange Listing: Tokyo Stock Exchange
Code No.	6677		URL http://www.sk-el.co.jp
Representative	(Title) President	Masanori Ishida
Contact	(Title) Director	Yasuhisa Mukaida	(TEL) [phone]
Third Quarter Earnings Report	August 11, 2020	Scheduled Date for Commencement－
			of Dividend Payments
Preparation of Summary Supplementary Explanatory Materials: Yes
Quarterly Earnings Presentations: No
			(Rounded down to the nearest ¥ million)

1．Consolidated Results of Operations for the Third Quarter FYE 9/2020 (October 1, 2019 through June 30, 2020)

(1) Consolidated Results of Operations (cumulative)		(% indicates increase/decrease vs. same period of the prior year)
														Net income
		Net Sales		EBITDA	Operating Income	Ordinary Income	attributable to
														owners of the parent
	¥ millions	%	¥ millions	%	¥ millions		%	¥ millions		%	¥ millions	%
3Q FYE 9/2020		14,854	-27.6		3,443	-53.6	-140		－	-187		－	-432		－
3Q FYE 9/2019		20,512	29.9		7,417	57.9	5,491		129.7	5,794		122.9	4,218	123.1
(Note) Comprehensive Income	3Q FYE 9/2020	-9 million yen	(－%)	3Q FYE 9/2019 3,653million yen ( 106.6%)
	Net Income per Share	Diluted Net Income per
						Share
				Yen			Yen
3Q FYE 9/2020			-41.26			－
3Q FYE 9/2019			400.43			－
(Note) EBITDA = Operating	Income + Depreciation
(2) Consolidated Financial Position
		Total Assets		Net Assets			Equity Ratio	Net Assets per Share
			¥ millions		¥ millions				%			Yen
3Q FYE 9/2020			27,839			22,940				82.4		2,187.20
FYE 9/2019			31,415			23,319				74.2		2,224.18
(Reference) Owned Capital	3Q FYE 9/2020 22,940 million yen	FYE 9/2019	23,319 million yen

2．Dividends

		Dividend per Share
	First Quarter	Second Quarter	Third Quarter	Fiscal Year End	Total
	Yen	Yen	Yen	Yen	Yen
FYE 9/2019	－	0.00	－	35.00	35.00
FYE 9/2020	－	0.00	－
FYE 9/2020 (Projected)				－	－

(Note) Revisions to most recently announced dividend forecast: None The year-end dividend forecast for FYE 9/2020 is pending at present.

3．Projected Consolidated Results of Operations for FYE 9/2020 (October 1, 2019 through September 30, 2020)

(% indicates increase/decrease compared to prior year or prior year interim period)

										Net income
	Net Sales	EBITDA	Operating Income	Ordinary Income	attributable to	Net Income
	owners of the	per Share
										parent
	¥ millions	%	¥ millions	%	¥ millions		%	¥ millions	%	¥ millions		%	Yen
Full Year	20,500	-20.5	4,890	-44.5	0		-100.0	0	-100.0	-290		－	-27.65
(Note) Revisions to most recently announced earnings projection: Yes

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*Notes

(1) Changes in significant subsidiaries during the period	:	None
(2) Adoption of special accounting treatment for the preparation of quarterly	:	None
consolidated earnings statements
(3) Changes in accounting policies, changes in accounting estimates and retrospective restatements
<1> Changes in accounting policies in conjunction with revisions of	:	Yes
accounting standards etc.
<2> Changes in accounting policies other than those in <1>	:	None
<3> Changes in accounting estimates	:	None
<4> Retrospective restatements	:	None

(4) Number of shares issued and outstanding (common stock)

<1> Number of shares issued and outstanding at end of	3Q FYE 9/2020	11,368,400 shares	FYE 9/2019	11,368,400 shares
period (including treasury stock)
<2> Number of shares of treasury stock at end of period
3Q FYE 9/2020	879,782 shares	FYE 9/2019	883,804 shares
<3> Average number of shares during the period
3Q FYE 9/2020	10,486,682 shares	3Q FYE 9/2019	10,534,647 shares

(Note) The number of treasury shares deducted when calculating the number of shares of treasury stock at end of 3Q FYE 9/2020, the average number of shares for 3Q FYE 9/2020, and the number of shares of treasury stock at end of FYE 9/2019, the average number of shares for 3Q FYE 9/2019 includes shares held in trust for the director stock-based compensation system.

*This quarterly earnings report is exempt from quarterly review procedures by either a certified public accountant or an audit firms.

*Explanation concerning appropriate use of the projected operating income and other special remarks

The forward-looking statements, including the operating results forecasts, contained in these materials are based on information currently available to the Company and on certain assumptions deemed to be reasonable. Actual business results may differ substantially due to a number of factors. Please see Page 4 "1. Qualitative Information on Consolidated Operating Results for the Third Quarter of FYE September 2020, (3) Qualitative Explanation on Consolidated Earnings Projections" concerning the assumptions used as the basis for the projected operating income and matters to note before using the projected operating income.

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○Attachments Table of Contents

1.Qualitative Information on Consolidated Operating Results for the Third Quarter of FYE September 2020 ………………………4

1. Qualitative Explanation on Consolidated Results of Operations …………………………………………………………4
2. Qualitative Explanation on Consolidated Financial Position ………………………………………………………………4
3. Qualitative Explanation on Consolidated Earnings Projections ……………………………………………………………4
   2.Quarterly Consolidated Financial Statements & Notes ………………………………………………………………………………5

1. Quarterly Consolidated Balance Sheets ……………………………………………………………………………………5
2. Quarterly Consolidated Statement of Income and Consolidated Statement of Comprehensive Income …………………7
3. Notes to the Quarterly Consolidated Financial Statements …………………………………………………………………9
   (Notes relating to the assumptions of going concerns) …………………………………………………………………9
   (Notes in the event of Significant Changes in Shareholders' Equity) ……………………………………………………9
   (Changes in accounting policies) ………………………………………………………………………………………9
   (Additional Information) …………………………………………………………………………………………………9

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1. Qualitative Information on Consolidated Operating Results for the Third Quarter of FYE September 2020

(1) Qualitative Explanation on Consolidated Results of Operations

In the third quarter of consolidated FYE September 2020, although corporate earnings and capital investment were still weak, the economy in Japan recovered modestly, mainly underpinned by an improvement in employment. Economic conditions were very severe reflecting a decline in the economies in Japan and abroad, and in private consumption due to the global spread of the novel coronavirus (COVID-19).

In the flat panel display industry, in China, there was a delay in the launch of new production lines as equipment shipments and overseas technicians were not permitted to enter the country due to ongoing travel restrictions. In South Korea, panel manufacturers announced their withdrawal from the production of large-scale LCD panel for TVs. In the photomask market, there was a contraction in photomask demand owing to a decrease in development at panel manufacturers.

In light of these trends in the market environment, reflecting a contraction in market scale as well as intensified competition with competing manufacturers, SK-Electronics Group experienced a deterioration in product mix due to a substantial drop in orders for large-format photomasks, including 10th generation or higher photomasks.

Accordingly, the SK-Electronics Group posted consolidated net sales of ¥14,854 million, a decrease of 27.6% year-on-year, EBITDA of ¥3,443 million, a decrease of 53.6%, an operating loss of ¥140 million (versus operating Income of ¥5,491 million a year earlier), and an ordinary loss of ¥187 million (in comparison with an ordinary income of ¥5,794 million). Meanwhile, net loss attributable to owners of the parent was ¥432 million (versus net income attributable to owners of the parent of ¥4,218 million).

(2) Qualitative Explanation on Consolidated Financial Position

At the end of the third quarter of consolidated FYE September 2020, total assets came to ¥27,839 million, a decrease of ¥3,576 million versus the end of the prior consolidated fiscal year. This mainly reflects decreases in cash and deposits and construction in progress.

Total liabilities stood at ¥4,899 million, a decrease of ¥3,197 million versus the end of the prior consolidated fiscal year. This mainly reflects decreases in notes and accounts payable - trade, income taxes payable, and other current liabilities.

Total net assets were ¥22,940 million, a decrease of ¥378 million versus the end of the prior consolidated fiscal year. This mainly reflects an increase in foreign currency translation adjustment but a decline in retained earnings.

(3) Qualitative Explanation on Consolidated Earnings Projections

Refer to the Notification Concerning Full-Year Business Forecast, which was released separately today for our full-year earnings projections.

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2. Quarterly Consolidated Financial Statements & Notes

(1) Quarterly Consolidated Balance Sheets

				(Unit: ¥ thousands)
			Prior consolidated fiscal year	Third Quarter FYE9/2020
			(FYE 9/2019)	(Ended June 30, 2020)
Assets
	Current assets
	Cash and deposits	8,300,995	6,443,972
	Notes and accounts receivable - trade	4,338,393	4,038,025
	Merchandise and finished goods	40,772	66,715
	Work in process	407,627	287,295
	Raw materials and supplies	2,037,854	2,259,715
	Other	768,112	539,027
	Allowance for doubtful accounts	-1,250	-1,136
	Total current assets	15,892,504	13,633,614
	Non-current assets
	Property, plant and equipment
	Buildings and structures, net	3,281,541	3,155,077
	Machinery, equipment and vehicles, net	6,920,710	6,896,917
	Land	1,667,702	1,667,702
	Construction in progress	2,347,366	1,309,089
	Other, net	146,617	201,502
	Total property, plant and equipment	14,363,938	13,230,288
	Intangible assets
	Software	353,625	293,303
	Other	393	1,055
	Total intangible assets	354,018	294,358
	Investments and other assets
	Other	932,183	815,205
	Allowance for doubtful accounts	-126,706	-133,638
	Total investments and other assets	805,477	681,566
	Total non-current assets	15,523,435	14,206,214
	Assets	31,415,939	27,839,828

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								(Unit: ¥ thousands)
							Prior consolidated fiscal year	Third Quarter FYE9/2020
							(FYE 9/2019)	(Ended June 30, 2020)
Liabilities
	Current liabilities
		Notes and accounts payable - trade	3,711,833	3,149,614
		Current portion of long-term loans payable	300,000	300,000
		Income taxes payable				917,847	16,177
		Allowance for bonuses to directors	79,474	―
		Other					2,577,540	1,096,184
		Total current liabilities				7,586,694	4,561,977
	Non-current liabilities
		Long-term loans payable				450,000	225,000
		Provision for stock compensation for directors	18,825	30,650
		Other					40,773	81,488
		Total non-current liabilities				509,598	337,138
	Total liabilities					8,096,292	4,899,115
Net assets
	Shareholders' equity
		Capital stock					4,109,722	4,109,722
		Capital surplus				4,167,847	4,167,847
		Retained earnings				15,908,130	15,098,805
		Treasury shares				-982,922	-976,008
		Total shareholders' equity				23,202,778	22,400,366
	Other cumulative comprehensive income
		Valuation	difference	on	available-for-sale	160,727	133,575
		securities
		Foreign currency translation adjustment	-43,859	395,144
		Deferred gains or loss on hedges			―	11,625
		Total other cumulative comprehensive income	116,868	540,346
	Total net assets					23,319,646	22,940,713
Total liabilities and net assets				31,415,939	27,839,828

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(2) Quarterly Consolidated Statement of Income and Consolidated Statement of Comprehensive Income

Quarterly Consolidated Statement of Income

Consolidated Third Quarter

		(Unit: ¥ thousands)
	Third Quarter FYE9/2019	Third Quarter FYE9/2020
	(Oct. 1, 2018 to Jun. 30, 2019)	(Oct. 1, 2019 to Jun. 30, 2020)
Net sales	20,512,307	14,854,181
Cost of sales	12,888,819	13,336,583
Gross profit	7,623,487	1,517,597
Selling, general and administrative expenses	2,131,543	1,657,972
Operating income	5,491,943	-140,374

Non-operating income

Interest income

Real estate rent

Gain on foreign exchange rate translations Insurance proceeds

Other

Total non-operating income

Non-operating expenses

Interest expenses

Rent cost of real estate

Foreign exchange losses

Other

Total non-operating expenses

Ordinary income

Extraordinary income

Subsidy income

Total extraordinary income

Extraordinary losses

Loss on retirement of non-current assets Investment securities valuation loss

Loss on liquidation of subsidiaries and associates

18,304	2,362
22,688	21,811
232,923	－
232	8,923
47,050	10,510
321,199	43,607
4,384	3,382
13,264	13,573
－	73,350
828	486
18,478	90,793
5,794,665	-187,560
100,000	－
100,000	－
423	1,462
－	26,416
57,068	－

Total extraordinary losses	57,491	27,878
Income before income taxes	5,837,173	-215,439
Income taxes - current	1,668,298	169,141
Income taxes - deferred	-127,354	69,180
Refund of income and other taxes	－	-21,120
Total income taxes	1,540,944	217,201
Net income	4,296,229	-432,640
Net income attributable to the non-controlling interests	77,841	－
Net income attributable to owners of the parent	4,218,387	-432,640

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Quarterly Consolidated Statement of Comprehensive Income

Consolidated Third Quarter

		(Unit: ¥ thousands)
	Third Quarter FYE9/2019	Third Quarter FYE9/2020
	(Oct. 1, 2018 to Jun. 30, 2019)	(Oct. 1, 2019 to Jun. 30, 2020)
Net Income	4,296,229	-432,640
Other comprehensive income
Valuation difference on available-for-sale securities	-71,939	-27,152
Foreign currency translation adjustment	-571,129	439,004
Deferred gains or loss on hedges	―	11,625
Other comprehensive income	-643,069	423,478
Comprehensive Income	3,653,159	-9,162
(Comprehensive income attributable to)
Owners of parent	3,612,118	-9,162
Non-controlling interests	41,040	―

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(3) Notes to the Quarterly Consolidated Financial Statements

(Notes relating to the assumptions of going concerns)

The Company had no material items to report

(Notes in the event of Significant Changes in Shareholders' Equity) The Company had no material items to report

(Changes in accounting policies)

Subsidiaries adopting IFRS began applying lease accounting rule IFRS No. 16 (IFRS16) from the first quarter of FYE9/2020. In accordance with this, in principle the lessee must post all leases under assets and liabilities in the balance sheets. In accordance with the transitional measures under IFRS16, we posted the cumulative financial impact to retained earnings at the start of FYE9/2020 to reflect this change in accounting policy.

Note that the impact to Quarterly Consolidated Financial Statements is minimal.

(Additional Information)

(Change in presentation method)

Insurance proceeds posted under other in non-operating income for the nine months up to the end of 3Q FYE 9/2019 is an accounting item posting we began implementing from 3Q FYE 9/2020 to reflect an increase in its monetary importance. To take this change in presentation method into account, we reshuffled the consolidated financial statements for 3Q FYE 9/2019.

Accordingly, in the consolidated statement of income for 3Q FYE 9/2019, the ¥47,283 thousand posted under other in non- operating income was rearranged as insurance proceeds of ¥232 thousand and ¥47,050 thousand under other.

(Accounting estimates)

In accordance with the Implementation Guidance on Recoverability of Deferred Tax Assets, in 3Q FYE 9/2020 we continued to record deferred tax assets mainly taking into account our earnings projects going forward and future earnings potential, which reflect the impact of the spread of the novel coronavirus (COVID-19).

Based on the assumption of a recovery after the impact of the spread of the novel coronavirus (COVID-19) gradually tapers off in 2021, we made the above projections.

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