August 10, 2022
TOYO TIRE Corporation
Consolidated Business Performance
for the Second Quarter of FY2022
Page2: Highlights of Financial Results for 2nd Quarter of FY2022
Thank you for your continued support.
Allow me to explain our consolidated financial results for the second quarter of FY2022 (2Q/FY2022), followed by our financial results forecast for FY2022 and then some topics.
First, I will provide you with the highlights of the financial results for 2Q/FY2022.
In the North American market, our main battleground, we recorded strong sales on the back of the recovery in capacity utilization as the last year's workforce shortage at the U.S. Plant was solved and robust demand that has continued since 1Q/FY2022.
As a result, operating income for 1H/FY2022 came in at 26.0 billion yen, almost on par with our previous forecast.
Ordinary income, which factors in all the effects of yen's depreciation not included in operating income under accounting standards, amounted to 38.5 billion yen, and profit attributable to owners of parent totaled 31.0 billion yen, both representing record highs for the first half.
Given these strong showings, we have made an upward revision to our previous full- year ordinary income forecast for FY2022 from 53.0 billion yen to 60.0 billion yen. We have also revised upward our full-year forecast for profit attributable to owners of parent from 38.5 billion yen to 53.0 billion yen, taking into account a gain on sale of investment securities that was announced last month. Both hit record highs for the company.
Accordingly, we will increase the dividend per share by 10 yen. With this, we now forecast the year-end payment to be 50 yen, up from the previous forecast of 40 yen, and the annual payment to be 80 yen, up from 70 yen.
Page3: Financial Results for 2nd Quarter of FY2022 (Jan-Jun)
Here you see the consolidated financial results for 1H/FY2022.
Net sales for 1H/FY2022 saw positive growth compared to the corresponding period of the previous year, but operating income decreased, primarily owing to hikes in raw materials and ocean freight costs.
We posted a forex gain of 13.1 billion yen, which was not included in operating income under non-operating income. As a result, we reported a substantial increase in ordinary income, with the forex impacts being fully factored in, as well as an uptick in ordinary income margin. Along with profit attributable to owners of parent, they all topped our records for the first half.
Page4: Analysis of Operating Income for 2nd Quarter of FY2022 (Jan-Jun) (vs 2021)
This graph shows the factors contributing to year-on-year changes in operating income for 1H/FY2022.
For the Tire Business, sales factors boosted the operating income by 26.6 billion yen, chiefly driven by strong demand in the North American market. The sum breaks down into minus 2.5 billion yen for volume effects and 29.1 billion yen for product price/mix effects, the latter of which includes minus 2.8 billion yen in unrealized profit in inventory.
Production cost pushed down operating income by 2.8 billion yen, which is primarily attributable to rising fuel costs.
The ongoing depreciation of the yen boosted operating income by 5.5 billion yen, while
14.2 billion yen in raw material costs, 13.3 billion yen in ocean freight costs, and 1.1 billion yen in the start-up of the Serbian Plant all worked against operating income.
As a result, operating income for 1H/FY2022 decreased by 1.0 billion yen year-on-year.
Page5: Analysis of Operating Income for 2nd Quarter of FY2022 (Jan-Jun) (vs Previous Forecast)
This slide shows comparisons between the results and the previous forecast of operating income for 1H/FY2022 and the factors that caused the increases/decreases. Shown on the right is a similar analysis of ordinary income after factoring in the full forex impacts, which we believe is a more realistic indicator of our financial results.
I will begin with operating income. For the Tire Business, sales factors pushed up operating income by 2.1 billion yen, chiefly attributable to exports to Southeast Asian countries, whose product mix improved thanks to a successful brand switch from Silverstone to TOYO, as well as brisk demand in the North American market. The sum breaks down into minus 0.1 billion yen for volume effects and 2.2 billion yen for product price/mix effects, the latter of which includes minus 1.6 billion yen in unrealized profit in inventory.
As ocean freight costs for shipment to North America increased, operating income was mostly in line with the forecast, coming in at just 0.5 billion yen short.
With regards to ordinary income, we posted non-operating income of 12.5 billion yen, primarily owing to the forex gain of 13.1 billion yen due to the yen's depreciation, with the result that ordinary income surpassed its forecast by a large margin, reaching 38.5 billion yen.
Page6: Business Segments for 2nd Quarter of FY2022 (Jan-Jun)
This slide shows net sales and operating income for 1H/FY2022 by business segment.
The Tire Business experienced a positive year-on-year sales growth thanks to brisk sales in the North American market, but saw its operating income decline owing to rising raw material and ocean freight costs.
The Automotive Parts Business, on the other hand, managed to maintain roughly the same level of sales as the previous year, despite the negative impact of reduced production by auto manufacturers due to the semiconductor shortage. Its operating loss widened as it was hit hard by soaring prices for raw materials, despite the ongoing efforts to improve the profit structure at each plant.
Page7: Geographic Area Segments for 2nd Quarter of FY2022 (Jan-Jun)
Here we have net sales and operating income for 1H/FY2022 by geographic area segment.
The North America Segment saw both net sales and operating income growing year- on-year. This increase was primarily attributable to strong sales of large-diameter tires for SUVs and pickup trucks, among other things, and price increase. Operating income before royalty payments to the Japan Segment, which reflects the segment's real profitability, recorded positive year-on-year growth.
For the Japan Segment, net sales edged down, and operating income decreased chiefly attributable to soaring raw material and ocean freight costs.
The Other Segment saw its business going well, as the smooth transition from the Silverstone brand to the TOYO brand in Southeast Asia helped to improve the product mix and aggressive efforts to sell priority products in each national market proved to be successful. As we recorded a non-recurring cost for starting up the Serbian Plant, however, the segment sales increased while the segment income decreased.
Page9: Financial Forecast for FY2022 (Jan-Dec)
Next is our latest forecast of the consolidated financial results for FY2022.
Given the benefits of the yen's depreciation and price increase, we have increased the previous forecast for net sales by 15.0 billion yen to 500.0 billion yen. While the operating income forecast remains unchanged at 50.0 billion yen, we have made an upward revision to the previous forecast for ordinary income by 7.0 billion yen to 60.0 billion yen as we posted the forex gain. Similarly, the previous forecast for profit attributable to owners of parent has been revised upward by 14.5 billion yen to 53.0 billion yen in anticipation of extraordinary income from the sale of investment securities scheduled for the second half of FY2022. These numbers for net sales, ordinary income, and profit attributable to owners of parent all represent the company's record highs.
We plan to pay an annual dividend per share of 80 yen, up 10 yen from the previous forecast, in line with the policy laid out in the Mid-term Business Plan, which represents a payout ratio of 30% or higher of the company's real profit, excluding non-recurring and extraordinary profit and loss, such as a gain on sale of investment securities.
We assume the yen will depreciate further from the previous forecast and expect the average exchange rates during FY2022 to be 128 yen against the U.S. dollar and 135 yen against the euro.
Page10: Analysis of Operating Income for FY2022 (Jan-Dec) (vs 2021)
This is a comparison between the latest full-year operating income forecast with the results in the previous year, complete with an analysis of increases and decreases by factor.
We expect sales factors to push up operating income for the Tires Business by 45.6 billion yen year-on-year, what with price increase in the North American market and elsewhere and improved product mix made possible by sales expansion of priority products.
The sum of 45.6 billion yen breaks down into 2.1 billion yen for volume effects and 43.5 billion yen for product price/mix effects, the latter of which includes minus 4.7 billion yen in effects of unrealized profit in inventory.
We expect raw material costs to lower operating income for this business by 30.6 billion yen, which is attributable to rising prices for petroleum products. Ocean freight costs are also expected to lower operating income by 23.5 billion yen due to higher fuel prices.
SGA expenses, on the other hand, are expected to negatively affect operating income for this business in the amount of 2.8 billion yen, chiefly attributable to increases in R&D costs, among others, while the forex factor should boost operating income by 14.4 billion yen due to the yen's depreciation. All in all, we expect operating income for this business to be down by 3.1 billion yen year-on-year.
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