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Status of Consolidated Cumulative Second Quarter

The global economy during the consolidated cumulative second quarter saw a strong US economy driven by firm consumer consumption but Chinese economy slowed due to the elongation of US-China trade friction. In Europe, the economy slowed on decreased production of automobiles. The Japanese economy was sluggish due to declining corporate profits and capital investments in the manufacturing industry.

Overall, the market environment impacting our Group was sluggish. Automobile-related markets slowed due to weak automobile sales in China, and industrial robot and equipment-related markets saw a decline in demand due to a trend towards a conservative approach to corporate capital investments.

Amid such an operating environment, our Group worked to secure sales by focusing sales activities on growth markets. Specifically, we focused sales and marketing activities on sectors expected to see demand growth for products such as 5G communication base stations and onboard chargers. We also strengthened overseas sales of electric double-layer capacitors and CMOS camera modules. To improve profitability, we implemented various initiatives to reduce fixed expenses, optimize workflow for back office departments, and reduce sales administrative expenses by improving our supply chain to control logistics costs.

Looking at development initiatives, we developed the new RWU/RWX Series, a high-capacitance, screw terminal type aluminum electrolytic capacitor using our proprietary capacitor materials. This series will address demand for the invertor systems used in X-ray power supplies and uninterrupted power supplies (UPS). We also enhanced our product mix by adding a high-capacitance option to the PSG Series of radial lead-type conductive polymer aluminum solid capacitors used in charging adaptors for smartphones and mobile gaming units.

However, orders received were impacted by US-China trade friction, which led to a decline in our plant operating rates. As a result, consolidated earnings for the six months ended September 30, 2019 were net sales of 57,576 million yen (down 20.2% YoY), operating losses of 1,638 million yen (six months ended September 30, 2018 resulted in operating income of 3,130 million yen), ordinary losses of 2,092 million yen (six months ended September 30, 2018 resulted in ordinary income of 3,103 million yen), and losses attributable to owners of parent of 2,485 million yen (six months ended September 30, 2018 resulted in losses attributable to owners of parent of 108 million yen).

As a result of these conditions, it is with sincere regret that we have decided to forego issuing interim dividends for the current fiscal year. We ask our shareholders for their understanding and support.

Status by Division

Status of consolidated cumulative second quarter by division is as indicated below.

  1. Capacitors (52,548 million yen, 91.3% of total sales)
    Division net sales decreased by 18.5% YoY due to a decline in demand for household appliance and industrial equipment-related products in the Asia region, particularly in China.
  2. Mechanical Parts and Other Parts (1,787 million yen, 3.1% of total sales)
    Division net sales decreased by 6.9% YoY due to decreased sales of CMOS camera modules.
  3. Capacitor Materials (2,029 million yen, 3.5% of total sales)
    Division net sales decreased by 46.8% YoY due to decreased demand for electrode foils for aluminum electrolytic capacitors.
  4. Other Products (1,211 million yen, 2.1% of total sales)
    Division net sales decreased 37.7% YoY due to a decreased demand for resale products.

Full-year Forecast

Looking ahead, we anticipate the economic environment will continue to lack transparency. While we expect the US economy will remain firm, the overall global economy faces causes for concern, including elongated US-China trade friction and increasing geopolitical risks and the Brexit issue.

Our Group will unite on initiatives aimed at improving profitability by further advancing workflow optimization and improving our supply chain. For FY2019, the final year of our 8th Medium-term Management Plan, the Nippon Chemi-Con Group has outlined a fundamental strategy of "Restoring public confidence and improving corporate value ahead of our 90th anniversary (promoting aggressive management from the shareholder perspective) and creating a platform for growing into a company with annual sales of 200 billion yen in the 9th Medium-term Management Plan." We will continue implementing measures aimed at strengthening our management platform. For product development, we will develop new products that enable appealing proposals to strategic markets such as automobile electronics, ICT, and industrial equipment. For product sales, we will promote sales of high value-added products such as conductive polymer hybrid aluminum electrolytic capacitors. Our manufacturing, sales, and technology departments will unite to enhance various initiatives aimed at improving profitability. We also will strengthen sales activities to Europe, America and Southeast Asia in order to increase adaptability to demand fluctuations risks caused by economic slowdown in East Asian markets. To promote fundamental reforms to our production management structure, on June 27, 2019, we established a new Production System Headquarters to establish a structure for the centralized management of production operations, from equipment development to system management. We are also promoting a smart factory initiative that involves integrating IoT to enable the real-time visualization of causes of production facility shutdowns. This improved productivity will promote a stronger profit structure.

Our full-year consolidated earnings forecast for FY2019 (year ending March 2020) is net sales of 117,500 million yen (down 16.6% YoY), operating income of 300 million yen (down 94.2% YoY), ordinary losses of 900 million yen (year ended March 2019 resulted in ordinary income of 4,833 million yen), and losses attributable to owners of parent of 1,000 million yen (year ended March 2019 resulted in profit attributable to owners of parent of 917 million yen). Furthermore, our currency rate assumption for 2H is 107 yen/1 USD.

December 2019
Ikuo Uchiyama, Chairman
Norio Kamiyama, President