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Message from Management

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We are moving forward with
structural reforms in response to
a tough operating environment

Miyuki Ishihara
Representative Director & President

Despite growth in sales volume overseas,
net sales and income
decreased due to declining aluminum ingot prices

Fiscal 2019, ending March 31, 2020, is the second year of our mid-term management plan, which we announced in May 2018. In accordance with this plan, UACJ has been executing proactive growth strategies while working to steadily generate returns on past investments. Recently, however, market conditions changed suddenly as the global economy began to decelerate, resulting in a very difficult operating environment. Although initially caught off guard, we formulated a structural reform plan, announced in September 2019, to promptly respond to the operating environment and have begun initiating the reforms.

During the first half of fiscal 2019, the global IT and semiconductor market continued to worsen as China’s economy decelerated, which was exacerbated by the country’s trade war with the United States that began in 2018. In Japan, although the corporate and household sectors continued to grow moderately, the outlook remained unclear due to the slowdown of the global economy.

At the same time, in Japan’s market for flat-rolled aluminum products, demand for can stock and automotive parts remained stable. Demand was sluggish, however, for flat-rolled aluminum used in electric devices, precision machinery, and liquid crystal and semiconductor manufacturing equipment. Consequently, in the first six months of the fiscal year, the UACJ Group’s domestic sales volume decreased slightly compared with the same period of the previous fiscal year. Sales volume of extruded aluminum products was also down year on year, due to declining demand for automotive heat exchangers and parts used in buses, trucks, and motorcycles, despite solid demand for passenger vehicle parts and construction materials.

These decreases in sales volume of both flat-rolled and extruded aluminum products were generally in line with declining demand in the domestic market. On the other hand, the Group’s sales volume outside Japan was up year on year, driven by strong sales of flat-rolled aluminum for can stock manufactured by Tri-Arrows Aluminum Inc. and UACJ (Thailand) Co., Ltd. As a result, overall sales volume for the Group as a whole increased compared with the same period of the previous fiscal year. Despite this increase, however, consolidated net sales decreased by 4.9% to ¥314.6 billion in the first half of fiscal 2019, due to the impact of a decline in aluminum ingot prices, which are reflected in our product sales prices.

As a result of the decline in aluminum ingot prices, inventory valuation deteriorated in the first half of the fiscal year, negatively impacting profits. Compared with the same period of the previous fiscal year, operating income fell 71.1% to ¥3.4 billion and ordinary income dropped 94.6% to ¥0.4 billion. The Company also posted a net loss attributable to owners of the parent of ¥3.4 billion, largely due to ¥0.9 billion in losses associated with structural reforms following the sell-off of the UACJ Group’s copper tubing business.

Sales Volume of Flat-Rolled Aluminum Products (Thousands of tons)
Product category FY2018 1st half FY2019 1st half Difference
Can stock 322 350 28
Foil stock 25 22 (3)
Casings and substrates* 8 9 1
Automotive parts 70 74 4
Thick plate 24 17 (7)
General-purpose materials 85 104 19
Total 533 576 43
Sold to the Japanese market: 260
Sold to markets outside Japan: 274
Sold to the Japanese market: 256
Sold to markets outside Japan: 320
(4)
47

* PC and smart device casings; electronic equipment substrates

Analysis of consolidated ordinary income

* UWH: UACJ Automotive Whitehall Industries, Inc.

Full-year forecast revised in consideration
of the challenging operating environment and outlook

UACJ disclosed its forecast of consolidated financial results for fiscal 2019 in May of this year, but we downwardly revised the forecast in August in consideration of various factors. Among them, we expect inventory valuation to deteriorate further due to a projected decline in aluminum ingot prices. We also foresee sluggish sales of aluminum thick plates for liquid crystal and semiconductor manufacturing equipment due to the slowdown of China’s economy and its trade war with the United States. In addition, negligible growth is projected in Japan’s flat-rolled aluminum products market. Following the revision, we now forecast net sales of ¥670.0 billion, operating income of ¥10.0 billion, and ordinary income of ¥4.0 billion. Net income attributable to owners of the parent was not included in the revised forecast because it is difficult to make well-grounded estimates at this point in time, but we intend to announce our forecast as soon as such estimates can be calculated, particularly after the effects of structural reforms are evident. In the absence of this forecast, we have yet to set the dividend amount for fiscal 2019, but will promptly announce the amount when relevant calculations are possible. We appreciate the patience and understanding of the Company’s shareholders.