Sumitomo Rubber Industries : 2024 1Q Financial Results with transcripts

Sumitomo Rubber Industries, Ltd.

Q1 Financial Results Briefing for the Fiscal Year Ending December 2024

May 13, 2024

Event Summary

[Company Name]	Sumitomo Rubber Industries, Ltd.
[Company ID]	5110-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Q1 Financial Results Briefing for the Fiscal Year Ending December 2024
[Fiscal Period]	FY2024 Q1
[Date]	May 13, 2024
[Number of Pages]	30
[Time]	18:00 - 18:50
	(Total: 50 minutes, Presentation: 24 minutes, Q&A: 26 minutes)
[Venue]	Webcast
[Venue Size]
[Participants]
[Number of Speakers]	4
	Satoru Yamamoto	President and CEO, Representative Director
	Hidekazu Nishiguchi	Director, Managing Executive Officer
	Naoki Okawa	Director, Senior Executive Officer
	Hitoshi Hino	Executive Officer, General Manager of
		Accounting & Finance Headquarters
[Analyst Names]*	Shiro Sakamaki	Daiwa Securities
	Kazunori Maki	SMBC Nikko Securities

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation

Moderator: Thank you for waiting. We will begin the financial results briefing for Q1 of the fiscal year ending December 2024 of Sumitomo Rubber Industries, Ltd.

My name is Nakayama from the Investor Relations Office and I will serve as today's moderator.

First of all, allow me to introduce today's speakers. Satoru Yamamoto, President and Representative Director of Sumitomo Rubber Industries.

Yamamoto: This is Yamamoto. Thank you for your attendance.

Moderator: Next, Hidekazu Nishiguchi, Representative Director and Managing Executive Officer.

Nishiguchi: I am Nishiguchi. Thank you.

Moderator: Naoki Okawa, Director and Senior Executive Officer.

Okawa: I'm Okawa. Thank you.

Moderator: Hitoshi Hino, Executive Officer and General Manager of the Accounting and Finance Division.

Hino: This is Hino. Thank you.

Moderator: Today's briefing will be conducted in accordance with the materials posted on our website, which will also be projected on the screen. First, Mr. Yamamoto, President, will give an overview of the financial results for Q1 of the fiscal year ending December 31, 2024 and explain our key initiatives, followed by a detailed review of the results by Mr. Okawa, Senior Executive Officer. After the presentation, we will accommodate your questions.

Now, let me ask President Yamamoto to proceed.

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Yamamoto: This is Yamamoto. Thank you very much for attending our financial results presentation for Q1 of the fiscal year ending December 31, 2024.

I will give you an overview of our Q1 results and major initiatives we are currently undertaking. First, please see page six.

In Q1 of FY2024, our group's sales revenue, business profit, operating profit, and quarterly net income all reached record highs.

The business profit margin, which is set as a financial target in the mid-term plan, was also improved to the level of 8%.

Sales revenue and business profit of the tires business also reached record highs. We were able to increase sales of overseas replacement tires mainly in North America and Europe. Sales of the FALKEN WILDPEAK series, our flagship products for pickup trucks and SUVs in North America, remained strong.

Our new product, WILDPEAK A/T4W, which we are proud to finally introduce this year, has been very well received by customers for its aggressive design and performance. Thanks to that, sales are steadily increasing. We intend to drive sales by leveraging our local sales base, which has been growing in strength in recent years.

In the sports business, sales of golf clubs increased in the core markets of North America and Japan. Sales of XXIO 13, which was released last December, have been steadily increasing. Sales of tennis balls decreased in Europe mainly due to an increase in offshore inventories, which were affected by the disruption of Suez Canal operations.

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In the industrial and other business, sales of infrastructure-related products increased, but sales of rubber parts for office automation equipment and household goods decreased. Sales of rubber parts for medical applications decreased due to the sale of a European subsidiary at the end of January.

Next, let me discuss some of our major initiatives. In January of this year, we established the tires business unit to unify our manufacturing, sales, and engineering functions. This led to an enhancement of cross- functional cooperation and acceleration of various actions. Staff from each section work together to manage the tires business to further improve profitability.

For the North American business, which is our top priority for structural reform as part of the strategic consolidation on existing businesses, we are making progress to determine the course by the end of this year. Although we are unable to give you a definite time frame at this point, we feel that we are getting closer to the day when we can tell you about it.

In addition, we also aim to determine the course of other businesses that we already implemented a structural reform outside of North America by the end of this year.

Furthermore, as a foundation for growth line of business, we are developing business with our proprietary Active Tread technology and Sensing Core.

Active Tread, a newly invented rubber technology that switches performance according to road conditions, was first unveiled as a concept tire at the Japan Mobility Show last October, and development has continued steadily since then. This fall, we will launch a next-generationall-season tire equipped with Active Tread technology.

In January, I personally took the wheel at our test course in Nayoro, Hokkaido, to witness the perfection of its performance on ice. Last week, I checked its wet and dry performance on the test course in Okayama, where I was able to validate its high grip performance on dry surfaces, as well as cornering and turning in circles on wet and slippery surfaces. I felt even more confident after experiencing the capabilities of the next-generationall-season tire with Active Tread technology. I am looking forward to its launch.

The tire sensing technology, Sensing Core, is an evolution of the low air pressure warning system, DWS, that we have been offering for over 30 years and enables the advance detection of danger based on data obtained through tires.

This year, we will begin offering a sensing system for fleet operators and automakers to detect tire pressure, wear, road surface conditions, and signs of wheel fall-off.

Active Tread and Sensing Core, two proprietary technologies that are key to our growth strategy, will both be officially launched in the market this year. Please stay tuned.

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Moving on to page 20 for the full-year forecast for 2024.

Sales revenue is expected to be JPY1.2 trillion, 102% of the previous year's level. Business profit is expected to be JPY80 billion, 103% of the previous year. Operating profit is expected to be JPY61 billion, 95% of the previous year. Net income is expected to be JPY38 billion, approximately 103% of the previous year's level. We have revised our net income forecast upward from that announced in February of this year.

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Please turn to page 32.

For 2024, we plan to pay an interim dividend of JPY29 and a year-end dividend of JPY29, for an annual dividend of JPY58, which is unchanged from the forecast announced in February of this year.

This concludes my part of the presentation. Thank you.

Moderator: Next, Mr. Okawa, Senior Executive Officer, will review the details of the financial results for Q1 of the fiscal year ending December 31, 2024.

Okawa: I'm Okawa. Thank you very much for participating in our financial results briefing today.

I would like to take this opportunity to express my sincere gratitude for all of our stakeholders for their continued support.

Let me review our financial results for Q1 of FY2024.

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Please see page seven.

As shown in the blue box, consolidated results for Q1 of FY2024 were JPY291.4 billion in sales revenue, JPY23.2 billion in business profit, JPY20.7 billion in operating profit, and JPY24.8 billion in quarterly net income, all of which were record highs for Q1.

The business profit margin also improved from 2.9% last year to 8% this year. Although the effect of the yen's depreciation is a major factor, our continued efforts to improve profitability are gradually taking effect.

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Please refer to page nine for sales revenue and business profit by segment.

Q1 results are shown in the blue box.

Tire sales revenue was JPY244.1 billion, 106% of the same period last year, and business profit was JPY18.3 billion. Although unit sales decreased YoY, both sales revenue and business profit reached record highs in Q1.

Sales revenue in the sports business amounted to JPY36.7 billion, 103% of the same period of the previous year, and business profit amounted to JPY4.2 billion, 77% of the same period last year. Although sales revenue reached record high, driven by the new product XXIO 13 launched at the end of last year which enjoyed a volume growth in North America and Japan, business profit decreased YoY due to the inflation of overseas production costs with the yen's depreciation.

In the industrial and other business, sales revenue was JPY10.6 billion, 92% of the previous year's level, and business profit was JPY0.7 billion, 117% of the previous year's level, due to the sale of a European manufacturing and sales subsidiary for medical rubber products at the end of January.

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Please refer to page 12 for the analysis of the factors for increase or decrease in business profit for January to March from the same period of the previous year.

Raw materials had a positive impact of JPY3.8 billion due to stable prices of petroleum-based materials.

Volume and mix saw a positive impact of JPY11.1 billion. The details are shown in the blue box on the left, of which North American antidumping duties had a positive effect of JPY3.8 billion partly due to refunds resulting from sales price optimization. Unrealized profit had a positive impact of JPY7.2 billion, a large difference from the negative impact of the previous year. Others, at the bottom, had a negative impact of JPY2.8 billion, but this is mainly due to the negative impact of volume.

In addition to the dollar and euro, the yen weakened against many currencies, resulting in a positive JPY5.3 billion in foreign exchange.

Despite other negative factors such as worsening productivity due to decreased production volume and sales and soaring labor costs, the tires business as a whole recorded an increase of JPY16.3 billion in profit. This, together with sports, negative JPY1.2 billion, and industrial and other, positive JPY0.1 billion, resulted in a company-wide total profit increase of JPY15.2 billion.

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