Sekisui Chemical Co

Thank you very much for participating in today's briefing session. I'd like to go straight into the presentation. On the first page, the foreign exchange rate assumption and results are shown. Now let's move on to page two. This is an overview of the first quarter results. Net sales were 248.6 billion yen. Operating income was 11.1 billion yen. Ordinary income was 13.1 billion yen. and net income was 12.5 billion yen. Despite certain lingering effects of COVID-19, we were able to finish the quarter with significant increases, both in sales and profits, year on year. Ordinary income and net income increased substantially thanks to the foreign exchange rate and gain on sales of shares. Sales and operating income progressed slightly above the plans. Please turn to page three. We can see the results of the first quarter by segment. All of the segments saw an increase in profit, resulting in significant increase in group-wide sales and profit. Although HPP, the high-performance plastic company, was impacted by the shortage of semiconductors and the increase in raw material prices, sales of high-performance film grew steadily and the smartphone market trended firmly, resulting in performance exceeding the plans. The housing company was also affected by the upswing in component prices, but finished broadly in line with the plans, thanks to the recovery in orders, as well as our cost reduction efforts. On the other hand, UIEP, the Urban Infrastructure and Environmental Products Company, suffered from the prolonged impact of COVID-19 in Japan, particularly in non-residential demand. This, coupled with the increase in raw material prices, led to results that were slightly below the plans. The medical business ended slightly above the plans due to a recovery in the number of outpatient tests. Please turn to page four. This slide shows the outlook for market conditions. The number of automobiles manufactured globally is expected to recover in the first half, but the recovery is slower than initially expected due to severe winter weather in North America and the shortage of semiconductors. On the other hand, smartphone shipments trended above the original forecast in April. In terms of attracting customers in the housing business, due to the prolonged impact of COVID-19, recovery of the number of visitors to our showrooms has been slow, but the number of overall visitors has continued to increase due to our efforts to attract customers on the web. New housing starts have finally hit bottom and have shifted to a slight upward trend starting in the first half. In addition, the price of domestic NAFTA has risen much more than we initially expected in April, and we expect this trend to continue into the second half. Please continue on to page five. This is the forecast by a divisional company for the first half. Across the board, increases in raw materials and component prices were more than we expected, but we are forecasting that we will meet the operating income plan announced in April thanks to a certain level of improvement in market conditions, sales growth in high-performance products, an increase in selling prices, and cost reductions. We expect HPP will continue to be hit by increases in raw material prices in the second quarter and that the shortage of semiconductors will continue, but these negative impacts will be offset by an increase in selling prices and cost reductions, so we have revised the forecast upward from the April plans. Housing is expected to achieve the plans despite the increase in component prices and the prolonged impact of COVID-19 since orders are recovering. On the other hand, UIEP has been impacted quite severely by the delayed recovery in domestic demand due to COVID-19, as well as by the increase in raw material prices. Therefore, we revised the operating income forecast downward. We predict the medical business will achieve the original plans thanks to the recovery in a number of outpatient tests. Please turn to page six. This page shows the forecast by divisional company for the first and second quarters. We exceeded the plans in the first quarter, but for the second quarter, taking such factors as the increase in raw material prices and the continued shortage of semiconductors into your account, we expect the operating income for the first half to be in line with the initial plans. Please continue to page seven. Here we have the analysis of net sales and profits. We expect that sales will grow by 58.3 billion yen year on year. As for the analysis of operating income, as you can see here, prices for raw materials rose substantially more than we anticipated in April. In addition, sales volume and product mix were slightly weaker than we expected in April due to the shortage of semiconductors. These negative factors will be offset by increases in selling prices, cost reductions, and efforts to control fixed costs, and we expect final numbers to be in line with the plans. And if you look at the analysis of operating income found on the lower part of the slide, you can see that we are expecting increases in raw material prices to be even more severe in the second quarter. Please continue to page eight. Here is the forecast of income for the first half. I have already mentioned net sales and operating income, but for ordinary income and net income for the first half, we also expect to achieve the initial plan set in April. Now onto page 10, please. Here we have an overview by divisional company. First for the HPP company, the higher than expected increases in raw material prices and continued impact of the semiconductor shortage will be offset by the increase in selling prices and cost reductions. We expect profitability to recover to the same level as fiscal year 2019. The forecast for profit is revised upward. Net sales are expected to increase by 31.6 billion yen. As for the analysis of operating income, again, the increase in raw material prices is significantly greater than we expected in April. Also, sales volume and product mix were negatively affected by the shortage of semiconductors, although only slightly, but this impact will be compensated for by increasing selling prices, cost reductions, and efforts to control fixed costs, resulting in an upward revision. Please turn to page 11. On this page, we show the status of the three strategic fields, all of which are progressing in excess of the plans. The concern again is the impact of the semiconductor shortage on demand. For the electronics field, demand for panels drove sales in the first quarter. In the second quarter, we expect the non-LCD business to grow as well. For the mobility field, although aggregate demand has been slightly weaker than we expected due to the semiconductor shortage, we are expecting sales of high-performance films, mainly for interlayer film for HUD head-up displays, to grow steadily. We expect to achieve almost 30% growth in sales volume for these HUD films ear-on-ear. Also, high-performance interlayer films in general, as you can see in the graph on the lower right, are growing steadily, so we will secure profit through these products. On the other hand, for 6C Aerospace, demand for aircraft is expected to remain sluggish. Therefore, we will continue to drive our streamlining efforts according to the plan. As for building and infrastructure shown on the lower left, global demand for CPVC in particular is recovering and business remains firm. Fire-resistant and non-combustible materials are expected to progress broadly in line with the plans, thanks to the recovery in a demand for domestic housing. The housing company will continue to be negatively affected by the increase in prices for materials, in particular wood and steel, but it is expected to achieve planned operating income and net sales through a recovery in orders and cost reduction efforts. On the upper right, you can see the trend in orders. New housing increased by 26% in the first quarter, year on year. Renovation increased steadily as well by 38%. We are expecting 8% and 18% growth respectively for the first half, so we do expect a recovery in orders. In accordance with this, knit sales are expected to grow by 23.4 billion yen. On the right, you can see the analysis of operating income. We are expecting increases of 600 million yen in operating income for housing, 700 million yen for renovation, and 200 million yen for other businesses. In the housing business, the negative impact caused both by the long rains in May and June that slowed down the number of houses sold slightly compared to what we projected in April, by the steep increase in prices for materials is expected to amount to 1.5 billion yen. This is to be offset by reductions in fixed costs, resulting in an overall increase of 600 million yen. And for others, we expect the town and community development business to start contributing fully to earnings, so we expect a positive impact of 200 million yen. Here we have measures for growing new housing orders The chart in the upper middle shows that subdivision housing, especially ready-built houses, which we have been focusing on since the last fiscal year, is expected to trend quite strongly, and the expectation that this business will underpin the general recovery in orders remains the same for this fiscal year. On the lower part of this slide, we show the three growth measures. On the sales front, we plan to strengthen our proposals by integrating online and offline activities. The nationwide rollout of the experience-based life-size model, Green Model Park, is something we would like to focus on especially. On the product front, we will promote the smart house number one project as part of the commemoration of the 50th anniversary of our housing business. We aim to achieve 90% in the ratio of zero energy houses this fiscal year. In terms of land strategy, We will take the know-how we gained in the Asaka Lead Town project and roll it out to subdivisions throughout the country, and we will drive 10 town and community development projects that will cover 300 lots. These initiatives will help us secure orders in the first half. This is the UIEP company. We worked on recovery in sales volume and product mix and the reduction of fixed costs but due to steeply increased prices for raw materials, a sluggish domestic non-residential sector, and the slow recovery in the demand for aircraft, we are revising the forecast for operating income downward for the first half. Net sales were decreased by 2.5 billion yen, but the impact of the business transfer will be 5.4 billion yen, so essentially we have an increase in net sales. As for the analysis of operating income, Again, the prices for raw material rose much more sharply than we expected in April. Although we do expect to grow in sales volume and product mix, that is not enough to offset the increase in raw material prices. Therefore, we are revising the forecast downward. These are the three strategic fields in UIEP. In piping and infrastructure, due to the impact of COVID-19, Recovery in a domestic non-residential sector is particularly slow. On the other hand, for plant piping in Asia and Japan, where semiconductor CapEx is robust, the trend is quite steady. On the lower left, in the building and living environment area, since the new housing start is recovering, we expect the earnings to increase. For the area of advanced materials shown on the upper right, as the demand for aircraft sheets continues to be sluggish, The recovery will be slower than expected. However, we are making progress in developing other applications, such as for pharmaceutical science. In addition, FFU was affected by some delays in certain construction projects, but the demand for FFU for railway sleepers overseas is trending firmly. Our prioritized products and overseas sales are progressing in line with the plans. Lastly, the medical business. For the medical business, since the number of outpatient tests is recovering both in Japan and overseas, we expect to be able to achieve almost the same level of operating income as we had in fiscal year 2019. The pharmaceutical and science business is progressing steadily. Net sales are expected to increase by 5.5 billion yen. As for the analysis of profits, diagnostics in Japan and overseas are driving increase in profit compared to last year. Here we have an overview by business. The domestic diagnostics business is expected to recover to 2019 level, thanks to the recovery in a number of outpatient tests. In the overseas diagnostics business, demand for test kits is slowing, along with the increased vaccination rate in the United States. But this is offset by an expansion in the sales of blood coagulation reagents in other countries, mainly China. On the lower left, we see that the drug development and enzyme business are both progressing in line with the plans.