■Performance Trends

1. Overview of financial results for the fiscal year ending March 31, 2024

(1) Profit and loss situation

Shoei Pharmaceutical's financial results for the fiscal year ended 2024/3 were sales of 22,595 million yen (down 7.9% from the previous fiscal year), operating income of 440 million yen (down 9.8% from the same period), ordinary profit of 651 million yen (down 3.2% from the same period), and net income attributable to parent company shareholders of 491 million yen (up 1.5% from the same period).

Sales prices declined due to sluggish natural oil and fat price rates, and in addition, orders and sales volumes from major domestic customers related to automobiles and textile oils also declined due to concerns about a slowdown in overseas economies and changes and developments in the Chinese economy, etc., so sales of the main chemical products declined, and overall sales also declined.

Meanwhile, efforts to expand sales of imported products underpinned profit margins, and the gross profit margin improved to 8.4% (7.7% in the previous fiscal year) due to a steady trend in export raw materials due to the depreciation of the yen. As a result, gross profit increased 0.3% from the previous fiscal year to 1,891 million yen, a record high. However, since it was not possible to absorb the increase in SG&A expenses (3.9% increase from the previous fiscal year), operating profit declined compared to the previous fiscal year.

Since the company's non-operating income greatly exceeds non-operating expenses due to dividends received, real estate rental fees, etc., ordinary income tends to be larger than operating income. Therefore, the range of decline in ordinary profit was smaller than operating income, and since the amount of corporate tax etc. was smaller than the previous fiscal year, net income attributable to parent company shareholders increased slightly compared to the previous fiscal year.

(2) Financial Status and Cash Flow Status

As for the financial situation at the end of the 2024/3 fiscal year, current assets were 11,068 million yen (up 1,509 million yen from the end of the previous fiscal year). Mainly due to an increase of 664 million yen in cash and deposits, 862 million yen in notes receivable and accounts receivable (including electronic record receivables), respectively, and a decrease of 39 million yen in inventory assets. Fixed assets were 5,747 million yen (up 508 million yen from the same period). Mainly due to a decrease of 12 million yen in tangible fixed assets due to depreciation and an increase of 520 million yen in investments and other assets. As a result, total assets increased 2,017 million yen from the previous fiscal year to 16,815 million yen.

Total liabilities were 8,678 million yen (up 1,250 million yen from the end of the previous fiscal year). Mainly due to an increase of 1,162 million yen in notes payable and accounts payable, a 50 million yen decrease in short-term loans, and an increase of 125 million yen in deferred tax liabilities. Total net assets increased 767 million yen from the previous fiscal year to 8,137 million yen. Mainly due to an increase of 369 million yen in retained earnings due to the recording of net income attributable to parent company shareholders, and 341 million yen in other securities valuation differences, respectively. As a result, the capital adequacy ratio at the end of the 2024/3 fiscal year was 48.4% (49.8% at the end of the previous fiscal year).

As for the cash flow situation for the fiscal year ending 2024/3, cash flow from operating activities was income of 818 million yen. The main income was net income before tax adjustments of 651 million yen, depreciation and amortization expenses of 13 million yen, a decrease of 48 million yen in inventory assets, and an increase of 1,128 million yen in purchase debt, and the main expenses were an increase of 846 million yen in sales receivables. Cash flow from investment activities amounted to 18 million yen of expenditure. The expenditure was 21 million yen, mainly due to the acquisition of investment securities. Cash flow from financial activities amounted to 172 million yen of expenditure. The main expenses were a decrease of 50 million yen in short-term loans and a dividend payment of 122 million yen. As a result, cash and equivalent goods increased by 640 million yen during the fiscal year ending 2024/3, and the balance at the end of the fiscal year ended was 1,901 million yen.

2. Trends by business segment for the fiscal year ending 2024/3

(1) Chemicals business

Sales in the chemicals business declined to 20,520 million yen (down 9.1% from the previous fiscal year), and operating profit declined to 530 million yen (down 11.6% from the same period). As a result of the market price of natural oils and fats, which affects sales prices, moving at a lower price level compared to the previous fiscal year throughout the year, sales prices also remained sluggish. Furthermore, due to concerns about a slowdown in overseas economies and changes and developments in the Chinese economy, orders from major domestic customers related to automobiles and textile lubricants also remained sluggish. As for profit margins, profit margins were underpinned by the expansion of sales of imported products and strong sales of export raw materials due to the depreciation of the yen.

In domestic commercial practice, sales prices of oleochemical products are determined by reflecting palm oil price trends, and the company's purchase price is determined based on that. Therefore, trends in the international market price of palm oil will have a direct impact on the company's sales price, but this worked in a negative direction in the 2024/3 fiscal year.

(2) Trends in the daily necessities business

Sales in the daily necessities business reached 750 million yen (down 9.6% from the previous fiscal year), and operating profit declined to 76 million yen (down 12.4% from the same period). Sales of some standard products (detergents, deodorants for specific applications, etc.) remained steady, but overall, they were sluggish due to refraining from purchasing due to rising prices, etc., and in terms of profit, a tough business environment continued due to the effects of depreciation of yen, high raw materials, and cost increases in packaging materials and logistics costs. By market channel, the ratio of main co-op routes and net/sales routes increased, but the ratio of mass retailer routes and commercial routes declined.

(3) Trends in the civil engineering and construction materials business

Sales in the civil engineering and construction materials business were 1,325 million yen (up 18.8% from the previous fiscal year), and operating profit was 0 million yen (operating loss of 28 million yen in the previous fiscal year). Construction of civil engineering materials (ground improvement work and concrete repair and reinforcement work) showed a recovery trend due to tunnel construction on the Tokyo Outer Ring Road and road construction properties related to the Osaka Expo, etc., and sales of materials, additives, etc. used in construction remained steady. Sales of environmental improvement drugs were strong due to newly ordered large railway tunnel construction properties. As a result, segment profits recovered slightly to surplus.

(Written by FISCO Visiting Analyst Noboru Terashima)