Event Summary
【Company Name】Torishima Pump Mfg. Co., Ltd.
【Event Name】 Financial Results briefing for the 2nd quarter FY2024 【Financial results announcement date】November 14, 2024
【Financial results briefing date】November 15, 2024
【Speaker】Representative Director, CEO Kotaro Harada
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Hello everyone. I am Kotaro Harada, Representative Director and CEO of Torishima Pump Mfg. Co., Ltd. Thank you very much for taking time out of your busy schedules today to attend this briefing on our financial results for the first half of FY2024. I will now start with my presentation.
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First, I will explain the financial results for the cumulative 2Q period, and then I will talk about the outlook for this year based on that. And finally, I will proceed with TOPIX.
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As for the medium-term financial highlights, orders received have increased in all categories, namely public sector, private sector, and overseas sector. Overall sales revenue has increased due to a significant increase in sales at our subsidiaries. Operating income increased at the subsidiaries, but decreased on a consolidated basis due to a significant decrease in non-consolidated operations. I shall explain about it later in the presentation. As a result, while orders and sales are expected to remain unchanged from the FY2024 full-year plan, operating income has been revised downward. As for the order backlog, as I mentioned at the beginning, we are maintaining a record high level of 115 billion yen thanks to strong orders.
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Here are a few more details and figures. Both orders received and sales increased YoY. Operating income was down 1.3 billion yen YoY, while the ordinary income was down 2.1 billion. The foreign exchange rate at the end of September was 142 yen due to a significant appreciation of the yen, and resulted in a foreign exchange loss of 1.1 billion yen due to a significant negative currency effect on dollar-denominated assets. As a result, ordinary income decreased by 2.1 billion yen compared with the previous year. Medium- term net income was 0.5 billion yen, down 0.8 billion yen from the previous year.
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Orders from the public, private and overseas sectors were all strong, and while demand from the private sector was down slightly in these three sectors, overall sales were up 10%. While I will discuss profits in more detail now, there was an increase in production costs and SG&A expenses; the latter being as planned. But this resulted in a decrease in operating income of 1.3 billion yen. Ordinary income decreased by 0.2 billion yen due to a large foreign exchange loss resulting from the sharp appreciation of the yen since August, as I mentioned earlier. Net income was steady as a result of the sale of certain securities holdings. The gains on the sale being 1 billion yen, the interim net income was 0.5 billion yen.
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As usual, this is divided into parent-only and subsidiaries, mainly overseas. First of all, if you look at the subsidiaries on the right-hand side, you will see that both sales and margin and operating income have increased significantly. We made steady progress in almost all subsidiaries, generating an additional 1.4 billion yen in operating income. This was an improvement of 0.8 billion yen from the previous fiscal year. On the other hand, parent- only sales remained at the same level as the previous year, but gross profit was 4.6 billion yen, which is a decrease of 1.8 billion yen from the previous year. Gross profit margin was exactly 7 points lower. SG&A expenses increased by 0.5 billion yen, but this was as planned, and since profits did not increase but SG&A expenses did, this resulted in a decrease in operating income of 0.8 billion yen, a decrease of 2.4 billion yen from the previous year. It is a fact that the profit margin has gone down, as you can see here in the lower left box. The main reasons for this are rising costs and individual factors. We sold electricity from our wind turbines, but there was a breakdown that reduced electricity sales by approximately 0.2 billion yen compared with the previous year. The FIT feed-in tariff expires next year, so we have decided to leave the turbines as they are without repairing them. As a result, only income from electricity sales is negative. The lower income, together with the planned SG&A expenses, resulted in lower profits. The point is that the gross profit margin fell from 24.3% last year to 17.3%, which is minus 7 points.
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This is the chart that focuses only on the gross profit margin of the parent-only segment for the last 5 years. The red line shows the gross profit margin for the first half, the second half, and the full year. As this narrates, Torishima has always been strong in the second half. This is due to strong sales in the government and public sector, as well as an increase in service parts deliveries towards the end of the fiscal year. The second half of the year is always strong in terms of volume, accounting for almost 60 to 70% of sales. As a result, the gross profit margin is low in the first half of the year, increases in the second half of the year and settles over the full-year. Last year, however, it was 24.3% in the first half and 21.3% in the second half, which was a very exceptional result for the first half. In the first half of this year, however, it fell sharply to 17.3%. Over the last three years, the first half of the year was 19.4%, 21.5%, and 24.3%, respectively. Compared to that, it has deteriorated. There are many reasons for this, but one is that while orders were steady last year, we manufactured high-tech pumps efficiently focusing on a limited number of models. Also, the profit margin was very high because we were processing and assembling them in-house and then selling them. This year, however, there were many different types of products. Although each in small quantities, engineering and designing consumed a lot of time, resulting in shortened delivery lead times. Hence, to meet customer deadlines, we needed to outsource a lot of work, mainly that involved machining. You lose income by outsourcing, which was certainly unplanned this time. On top of that,
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because the outsourcing had to be done on short notice, the cost was higher than we had expected. First, the profit margin declined due to a significant increase in overseas outsourcing in addition to domestic outsourcing.
Then, as I mentioned earlier, while we sold a limited number of product types last year, we sold higher volumes of each of them. Whereas this year we had a fairly large number of product types, but small quantities. Also, sales of the first batch concentrated in the first half. For an instance, if you send ten shipments, the cost will be higher for the first one or two shipments. This is because initial costs, such as those for wooden patterns and so on, add up. This also needs to be reviewed a bit from the accounting standpoint, but the fact that there were a lot of first-shipments was another factor that lowered sales and gross profit margin. Considering this, we closely reviewed the second half. It returned to the normal pattern, with 22.5% predicted for the second half as you can see here. The full- year is expected to be 20.5%.
Therefore, while the first half of this year was only 4.6 billion yen compared to 14.2 billion yen in the previous year, it is expected to return to the 14 billion yen level for the full-year, ensuring that profit will be at the same level as the previous year. However, the year before last was 23.1% and last year was 22.6%, so the forecast of 20.5% for this full-year is 2 to 2.5 points lower than the previous two years. We apologize for not being able to recover that in the second half, but I will explain in a moment what we have done to revise down the full-year profit.
On the other hand, the bar chart shows that five years ago, gross profit was 7.7 billion yen, but last year it was 14.2 billion yen, about double. We believe we can reach the 14 billion yen level again this year. This means that we can take on a lot of work and increase profits, but this year, unexpected outsourcing caused our profits to drop.
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The next thing I want to talk about is the pink, which represents high-tech pumps, and the green, which represents services. Five years ago, high-tech pumps and services were almost level at 14 billion yen. But in the last five years, high-tech pumps have grown significantly. This is certainly not a bad thing, and as high-tech pumps are sold, installed, and put to work, services are expected to grow as well. While services are also growing well, high-tech pumps are currently growing significantly well, with an order backlog of 115 billion, as mentioned earlier, and sales of nearly 90 billion. As a result, sales of high-tech pumps are currently growing faster than planned in the medium-term plan.
This is not a problem, as we see it as an investment in the future and a basis for growing services. However, in contrast to the increased sales of high-tech pumps, our engineering capacity has not been able to keep up and was particularly slow in the first half of the year. This is a problem. We have already begun to take steps to address this issue. For example, the engineering department has launched a design reform project and is beginning to move toward more efficient manufacturing in a single integrated process from sales to production. To minimize outsourcing, we are working hard to increase our production capacity, especially in machining, by establishing a cooperative structure with partner companies and building machining capacity within the company. We believe that these actions will become more concrete in the second half of the year, and we will provide you with regular updates. We expect to have more information to share with you all by the end of the full-year 2024.
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