briefing on results for the 1st half of the term ending mar....

November 18, 2013

Briefing on Results forthe 1st Half of the Term

Ending Mar. 2014

Copyright ⓒ 2013 Takasago International Corporation All Right Reserved2

Today’s Topics

About the Fire at Hiratsuka Factory

I. Overview of the Financial Results for the1st Half of the Term Ending Mar. 2014

II. Earnings Forecast for the Term EndingMar. 2014Ritaro Igaki, President and Chief Executive Officer

III. Building of a Safety Management System and Restoration of Production CapacityHiroyuki Matsumoto, Senior Vice President, Chief of Corporate Planning Division

IV. Overseas Bases and Overseas StrategiesHironori Kasamatsu, Senior Vice President, Chief of Corporate Administration Division

* In this presentation material, “second quarter” is called “first half.”

About the Fire at Hiratsuka Factory

Copyright ⓒ 2013 Takasago International Corporation All Right Reserved3 Copyright ⓒ 2013 Takasago International Corporation All Right Reserved

Outline of the fire accident

Date and time of occurrence: April 10, 2013 (Wednesday), 11:04 a.m. Site: Hiratsuka factory, flavor production building Damage: No injuries, three-story reinforced concrete building

(total floor area 6316 m2) destroyed. Outline of the accident: A fire broke out during the work of segmenting ethyl acetate

into smaller sized stainless containers from a drum. The fire spread across the floor, and inflammable materialssuch as stored raw materials went up in flames.

The Accident Prevention Committee was established.With the assistance of an independent organization, the Committee investigated the cause while obtaining confirmation from outside experts based on their specialist knowledge, formulated a draft emergency plan, and proposed permanent preventive measures. The Committee also published an accident report in August 2013.

Preventive measures in response to the fire and the rebuilding of the safety management system will be discussed later.

I. Overview of Financial Results for the 1st Half of the Term Ending Mar. 2014


Fiscal 2014/3 1st Half Results

2013/31st halfresult


Year-on-year change

2014/3 Estimate

Announced on Aug. 12

Comparison with estimate

Amount % Amount %

Net sales 60,152 66,234 6,081 10.1 66,000 234 0.4

Gross profit 18,667 20,953 2,286 12.2 ‒ ‒ ‒

Gross margin 31.0% 31.6% ‒ ‒ ‒ ‒ ‒

SG&A expenses 14,856 16,564 1,708 11.5 ‒ ‒ ‒

Operating income 3,810 4,388 577 15.2 4,300 88 2.0

Ordinary income 3,837 4,604 766 20.0 4,300 304 7.1

Extraordinary income/losses 104 -1,351 -1,456 ‒ ‒ ‒ ‒

Net income 2,641 2,178 -463 -17.5 2,000 178 8.9

[Unit: million yen]


Exchange rates USD:EUR:

80 yen103 yen

96 yen126 yen

96 yen126 yen



Year-on-year change

Amount %

Net sales 60,152 66,234 6,081 10.1

Gross profit 18,667 20,953 2,286 12.2

Gross margin 31.0% 31.6% ‒ ‒

Operating income 3,810 4,388 577 15.2

Ordinary income 3,837 4,604 766 20.0

Net income 2,641 2,178 -463 -17.5


[Unit: million yen]• Net sales increased in all regions

but Japan, where the fire had an impact.

• The overseas sales ratio rose to 46%.

• The positive impact of foreign exchange rates was approximately 5.0 billion yen.

• Operating income increased 15% due to the effect of higher sales in many regions and lower raw material costs.

• Net income declined due to the positing of an extraordinary loss of 1.3 billion yen for the fire at Hiratsuka Factory.

Overview

Fiscal 2014/3 1st Half Results


80 yen103 yen

96 yen126 yen

Sales in Each Region—Japan, Americas, Europe, Asia


Fiscal 2014/3 1st Half Results -- Sales in Each Region --

(1) Sales in each region Japan

FlavorsSales of carbonated and sports drinks and ices increased due to the effect of extreme heat.

The impact of the fire accident was offset by the contribution of new products, etc.

FragrancesThe market has been re-vitalizing in the area of fabric softeners with substantive and long-lasting fragrances.

New products such as fabric softeners and liquid detergents and renewed products drove sales (sales of fragrances have remained steady since fiscal 2010).

Aroma chemicals

The overseas market as a whole was recovery. Firm demand for synthetic mentholcontinued.

Demand for the Company’s mainstay menthol increased. Exports were steady, partly backed by the weaker yen.

Fine chemicalsA stronger tendency to use generic drugs had a significant impact on manufacturers of pharmaceutical intermediates.

Sales of major existing intermediates (those for antibiotic drugs, etc.) declined, although some new products contributed to sales.


Market overview Company’s situation

-1.0%

Japan 35.4 billion yen 54% Americas 13.1 billion yen 20% Europe 8.6 billion yen 13% Asia 8.9 billion yen 13%

Japan

Sales66.2 billion

yen

35.9 35.8 35.4

1st half of term endedMarch 2012


1st half of term endingMarch 2014

9.7 9.8

13.1




(2) Sales in each region Americas

FlavorsIn North America, sales increased in the mint business for large customers. Sales also showed double-digit growth at the business base in Brazil (South American business).

Fragrances Although sales increased in South and Central Americas, sales were weak in North America for both multinational companies and local customers.

Fine chemicals Sales declined given a growing tendency to use generic drugs


Company’s situation

* Comparison in local currency terms

+33.4%

Americas

Sales66.2 billion

yen



7.46.7

8.6




(3) Sales in each region Europe

Flavors Sales to large customers with whom relations were strengthened increased steadily, and sales of flavors for dairy products and confectioneries remained strong.

FragrancesSales of fine fragrances were on par with the year-ago level. In other areas, sales increased slightly as sales to large customers increased and decreased, depending on customer.

Aroma chemicals Both sales to the Group companies and those to customers outside the Group increased, partly thanks to the recovery in the overall flavor and fragrance market.



+28.6%


Sales66.2 billion

yen

Europe



6.77.7

8.9




(4) Sales in each region Asia

Flavors

In China, sales of flavors for confectioneries to large customers and sales to local customers were steady. Sale increased favorably in Southeast Asia, but foreign exchange had a large impact. At a new flavor factory in Singapore, transfer is scheduled to be completed by the end of the year. Sales in Dan Kaffe (Malaysia), which was eliminated from the scope of consolidation, were a factor to push down sales.

Fragrances Sales of fragrances for daily necessities to major customers and multinational companies increased significantly in both China and Southeast Asia.



+16.0%

Asia

Sales66.2 billion

yen




Operating Income Status




Year-on-year change

Amount %

Net sales 60,152 66,234 6,081 10.1

Gross profit 18,667 20,953 2,286 12.2

Gross margin 31.0% 31.6% －－

SG&A expenses 14,856 16,564 1,708 11.5


Ordinary income 3,837 4,604 766 20.0

Extraordinary income/losses 104 -1,351 -1,456 －

Net income 2,641 2,178 -463 -17.5


[Unit: million yen]

Operating income

Americas-1

Asia+2Europe

+2

38 44

Japan+2

[Japan]Profitability in exports improved due to the weaker yen.Fragrance business remained strong. [Americas]SG&A expenses increased in Central and South America.[Europe]Operations returned to profitability, mainly thanks to lower raw material prices and an earnings recovery at subsidiaries in Spain.[Asia]Profits increased significantly due to lower raw material prices and the weaker yen (currency translation), in addition to strong sales.

Foreign exchanges

+2


80 yen103 yen

96 yen126 yen

Fiscal 2014/3 1st Half Results -- Operating Income --

Consolidated elimination

-2



Year-on-year change

Amount %

Net sales 60,152 66,234 6,081 10.1

Gross profit 18,667 20,953 2,286 12.2

Gross margin 31.0% 31.6% －－

SG&A expenses 14,856 16,564 1,708 11.5


Ordinary income 3,837 4,604 766 20.0

Extraordinary income/losses 104 -1,351 -1,456 －

Net income 2,641 2,178 -463 -17.5


[Unit: million yen]

Extraordinary income/losses

Impact of the fire at Hiratsuka Factory

Insurance income (1st half) 0

Loss due to fire

Abandonment of noncurrent assets

0.6 billion yen

Abandonment of inventories

0.2 billion yen

Other expenses 0.4 billion yen

Total 1.3 billion yen


80 yen103 yen

96 yen126 yen

Fiscal 2014/3 1st Half Results -- Extraordinary Income/Loss --

II. Earnings Forecast for the Term Ending Mar. 2014




Year-on-year change

Amount %

Net sales 118,973 121,000 2,026 1.7

Gross profit 36,295 －－－

SG&A expenses 30,009 －－－

Operating income 6,285 5,000 -1,285 -20.5

Ordinary income 7,475 5,000 -2,475 -33.1

Net income 4,673 3,000 -1,673 -35.8

Fiscal 2014/3 Full-Year Earnings Forecast

[Unit: million yen]


Sales forecast by region

Overseas sales ratio 42%

Impact of 1 yen change in exchange rates on salesDollar/yen 300 million yenEuro/yen 150 million yen


80 yen103 yen

96 yen126 yen

Japan Americas Europe Asia

2012/3result

2013/3result

2014/3estimate

Operating cash flows 6,890 5,724 6,000

(Depreciation and amortization) (4,895) (4,619) (4,800)

Investingcash flows -3,955 -5,363 -10,000

Financing cash flows -3,743 1,372 3,400Net increase

(decrease) in cash and cash equivalents

-931 2,131 -600Cash and cash equivalents at

beginning of period12,136 11,205 13,336

Cash and cash equivalents atend of period

11,205 13,336 12,736

Fiscal 2014/3 Forecast for Consolidated Cash Flows

[Unit: million yen]

- Increase in overseas investment inSingapore, Germany, USA, etc.

- A capital investment of approx. 3.0 billion yen to restore production capacity

- Excluding the investment in a new factory in western Japan(Final investment amount and time of payment yet to be determined)

- Increase in loans payable for investment

Investing cash flows


Financing cash flows

III. Building of a SafetyManagement System and Restoration of Production Capacity


Fire at Hiratsuka Factory and Preventive Measures

Date and time of occurrence: April 10, 2013 (Wed.), 11:04 a.m. Site: Second floor of flavor production building inside Hiratsuka Factory Damage: No injuries, three-story reinforced concrete building (total floor area 6316 m2) destroyed. Overview of accident: During the blending of flavors for toothpaste, static electricity caused a fire during the work

of segmenting ethyl acetate into smaller stainless containers from a drum spread to inflammable materials such as raw materials. The building was almost completely destroyed.


Preventive measures


Accident Prevention Committee: With the assistance of an independent organization, the Committee investigated the cause of the accident, drafted an emergency plan, and proposed permanent preventive measures.

Preventive measures: 1. Measures to avoid causing fire

Full implementation of measures based on strict rules to avoid generating naked flames in work areas

2. Measures to contain fire Full implementation of measures based on strict rules to identify and contain risk factors3. Measures requiring an immediate response

Drilling in emergency countermeasures by the entire Takasago Group after the accident4. Permanent measures Educate personnel and create an organization focused on safety measures5. Development of preventive measures

Sessions at all factories of the Takasago Group to check responses and share information

Outline of the accident

Rebuilding of the Safety Management System

20

Copyright ⓒ 2013 Takasago International Corporation All Right Reserved

20

Scope

Give strong assurance that “safety comes before anything else” and rebuild the safety system with strong determination.

To foster safety awareness and develop a safety culture

OrganizationEHS HEAD QUARTERS (new)

TOP

Workplaces

Business places

Headquarters

C

A D

PPolicyBudget

Guidelines

Objective

Approaches

Activity results

Implement PDCA with greater awareness on a Company-wide basis.

• Strong cooperation with relevant divisions

• Budget and authority for safety measures

• President & Chief of Headquarters

20

Environmentalconservationhealth

Securityand

disasterprevention

Occupationalsafety

Establishment of BCP System

Copyright ⓒ 2013 Takasago International Corporation All Right Reserved21 Copyright ⓒ 2013 Takasago International Corporation All Right Reserved21

Measures for early restoration

Improvement of the effectiveness of alternate

productionSecuring of inventory

• Establish Takasago West Japan Co., Ltd. in western Japan• Enhance existing facilities

For early resumption of important operations –Activities to fulfill our supply responsibility

Each business division:Identify the most urgent

items.

Production division:Examine complementary

production between factories.

R&D and each division:Standardize raw materials

and revamp flavor and fragrance formulations.

Make a Group-wide effort and provide practical training.

Copyright ⓒ 2013 Takasago International Corporation All Right Reserved

Flavor Production System(1) Restoration of production capacity

Construction work to repair and improve facilities that included safety measures using the lessons from the fire was undertaken mainly at Hiratsuka Factory and Kashima Factory.

Production capacity that had been destroyed was restored in October 2013


Operation commencing time: October 2013Improvements: Production facilities of flavors, etc. and storage warehouse, etc.Investment: Hiratsuka Factory Approx. 1.1 billion yen, Kashima Factory

Approx. 1.3 billion yen, etc.Total amount of repairs and improvements: Approx. 3.0 billion yen

* Changes in flavor production capacity in Japan

Occurrence of fire

Apr. 2013

Restoration of production capacity

Oct. 2013


(2) Establishment of Takasago International Western Japan Factory Co., Ltd.

Promote BCP and improvements in production efficiency throughout the Takasago Group.

Aim to increase customer satisfaction.• Improve efficiency from production to logistics in western Japan.• Increase productivity with the latest facilities• Achieve high-level safety, health and environmental responsiveness.


Operation commencing: First half of 2015 (planned)Facilities: Production facilities of flavors, etc. and logistics facilities, etc. Production capacity: Approx. 3,000 tons (estimate at the operation commencing time)Location: Hiroshima

Flavor Production System

* Changes in flavor production capacity in Japan

Occurrence of fire

Apr. 2013

After the construction

of a new factory2015

Restoration of production capacity

Oct. 2013

IV. Overseas Bases and Overseas Strategies


Brazil

Australia

Mexico

U.S.A.

VenezuelaGuatemala

U.S.A.

South Africa

China

United Kingdom

France

Indonesia

PhilippinesMalaysiaVietnamThailand

Singapore

GermanyItaly

Russia

India

Spain

Taiwan

JapanKorea

Madagascar

Morocco

Turkey

Overseas Bases (27 Countries and Regions in the World)


Production/Sales

Sales


Investment: Approx. $45 millionSite area: 14,000 m2

Production capacity:Approx. 20,000 tons

27 Countries and Regions in the World -- Overseas Strategies --

(1) New factory in Singapore – Operations started

Enable an increase in production capacity, enhancement of the R&D function, and comprehensive

business development in Asia.

Respond to increasing demand in Asia

8%Beverage

2012-2017 market forecast

Changes in sales of Takasago in Asia 1H FY2014/3

Confectioneries8%

Fragrances, etc.

8%Cosmetics, etc.

8% 7%Soap/detergent


Joint venture with Ramanandraibe Export Co.Collector of vanilla beansLeading company in Madagascar

Local division of rolesRamanandraibe

Export Co.Collection and ripening

of vanilla beans

TAKASAGO MADAGASCAR S.A.

Purchase of ripened beans and extraction of

vanilla essence

Stable procurement of raw materials is possible by establishing a production base in a growth area.


(2) Vanilla project – Takasago brand LA VANILLE T has started up


Secures the largest vanilla beans collection capacity.Extracts essence from vanilla beans.


Acquisition of SOCIETE CANANGA S.A.R.L.Natural product extraction and processing company in Morocco Takasago Morocco, a processing facility, was established based on CANANGA S.A.R.L.

TAKASAGO MOROCCO

Secondary processing of raw vanilla essence

Rapid supply to Europe, the world’s largest vanilla market, is possible.




Exports vanilla essence (Takasago’s technology) to each processing facility.

TAKASAGO MOROCCO





Exports vanilla essence (Takasago’s technology) to each processing facility.

TAKASAGO MOROCCO

• Global production volume of vanilla beans: 7,508 mtMadagascar-grown vanilla beans: Approx. 1,587 mt

(Source: Data of FAOSTAT 2011)• Use of vanilla flavor:

Confectionery, frozen deserts, dairy products, etc.

Encompasses commercial distribution from upstream to downstream (procurement of vanilla beans for delivery

to customers)

Realize a stable supply of vanilla flavor.


Takasago facilities

Supply vanilla flavors to customer preferences.



NotesThis reference material has been produced with the purpose of providing information regarding the business contents, strategies, and performance of our corporate group as of November 18, 2013, not promoting the investment in the securities issued by our company.The opinions and forecasts, etc. written in this reference material are based on the judgment of our company as of the time of its production. We do not guarantee or assure the accuracy or completeness of the information. In addition, the information may be revised without notice.

Thank you for your kind attention.

For inquiries: Hironori Kasamatsu, Director /Chief of Corporate Administration Division

TEL: 03-5744-0523 FAX:03-5744-0512http://www.takasago.comE-mail:[email protected]

briefing on results for the 1st half of the term ending mar....

Documents