Sekisui Chemical Co

Thank you for joining us today. I am Futoshi Kamiwaki, Director, Senior Managing Executive Officer, and Head of the Business Strategy Department. I would like to explain the results for the third quarter and the full year forecast for fiscal 2021. First, please turn to page 1. Forex rate assumptions and results are shown here. Please turn to page 2, where we show the overview of Q3 results. Net sales were 290.7 billion yen. Operating income was 21.9 billion yen, which was a Q3 record high. Ordinary income was 21.8 billion yen, and net income was 16.7 billion yen. In Q3, we were affected by soaring raw material prices and the prolonged impact of shortages in semiconductor supply. But by improving selling prices, increasing the number of new housing units sold, and expanding sales of medical diagnostics, we were able to increase both sales and profits. Sales and operating income progressed slightly ahead of the October plan. ordinary income and the bottom line increased due to foreign exchange gains and gain on the sale of cross shareholdings please turn to page three this is the cumulative total for the third quarter sales operating income and ordinary income increased but there was a decrease in the bottom line owing to a loss on impairment of sexy aerospace corporation in the first half Please turn to page 4. Here we show Q3 net sales and operating income by divisional company. Sales increased in each segment and profits increased significantly in the housing and medical segments in particular. the HPP segment the high-performance plastics company the impact of soaring raw material prices and the shortage of semiconductors increased but selling price improvements cost reduction and cutbacks in fixed costs secured an increase in profits In the housing business, the impact of a surge in component costs grew. Also, new housing orders slowed down in Q3, but both sales and profits increased substantially owing to an upswing in the number of houses sold. In the UIEP Urban Infrastructure and Environmental Products business, the surge of raw material prices expanded further, and we were impacted by delays in certain construction projects. However, we were able to secure the same level of profit as the previous year by improving selling prices. In the medical business, both Japan and overseas demand for diagnostics remained steady. And in the U.S., demand for COVID-19 diagnostics grew, resulting in a significant increase in both sales and profits. Please turn to page 5. This page shows the outlook for market conditions. First of all, global automobile production volume is 10 percent worse than the October forecast. Smartphone shipments are expected to be 95 percent of the previous year's level, broadly in line with the October forecast. As you can see on the top right, regarding housing and visitors, in the second half of fiscal 2021, we were expecting an increase from the previous year, but now we are expecting 92 percent as visitor trends have been stagnant. In addition, although new housing starts are picking up, trends are slightly weaker compared to the October outlook. Domestic NAFSA prices are expected to be 60,000 yen per kiloliter, which is much higher than the October forecast. Please turn to page 6. This is the forecast for the second half of the year. Both sales and profits are expected to increase substantially across the board, and net sales have been revised upward by 8.6 billion yen. Operating income is expected to reach 54.5 billion yen, in line with the October plan. Sales and profits are expected to increase in all segments, but in particular, the medical segment performed well in the third quarter, and we have thus revised up operating income expectations by 1 billion yen. Other segments are expected to be in line with the plan announced in October. Please turn to the next page. Here is a breakdown between Q3 and Q4. In the fourth quarter, we are expecting an increase in profits for the entire company, despite the expectations for a further rise in raw material prices and the prolonged shortage of semiconductors. Next please turn to page 8. This is the analysis of the second half forecast. Sales are expected to increase by 49.7 billion thanks to a partial recovery in market conditions, improved selling prices, and increased sales of high-performance products. Operating income, on the other hand, is expected to increase by 9.7 billion as shown in the table on the right, but the details have changed significantly from the October forecast. First of all, the impact of raw materials has worsened by approximately 10 billion from the October assumptions. Also, sales volume and product mix has also deteriorated by about 3.6 billion owing to the significant impact of the semiconductor shortage. We will make up for this by improving the selling price by a large degree compared to the initial plan and also through greater cost reduction than the initial plan. As for fixed costs, there is a special item in the second half of the fiscal year, which is a decrease in retirement benefit expenses, and this will reduce fixed costs by about 4.4 billion. As a result, we expect to secure an increase of 9.7 billion yen in profit as initially planned. Please turn to the next page. Page 9 shows the forecast for the entire fiscal year. We expect to end the fiscal year with an operating income of 90 billion yen. By segment, the upward revision in the medical business for the second half was reflected in the full year guidance by plus 1 billion yen as well. The other segments are expected to come in line with expectations. Please turn to page 10. This page shows the overview of fiscal year 2021 forecasts. I gave the details for sales and operating income expectations earlier. Ordinary income is expected to reach 94 billion, which will be a record high when achieved. The net income attributable to owners of the parent is forecasted to reach 34 billion yen, which will be a decline year-on-year due to the impact of the aerospace impairment. This page shows the progress under the medium-term management plan. As operating income of 90 billion yen is expected in fiscal year 2021, although we need to continue to be cautious, our view is that the final year target of 110 billion in fiscal year 2022 is now within reach. Next, I'd like to talk about the trends in each segment. First, in the HPP segment, net sales are expected to increase by 15.8 billion yen. As you can see on the top of the page, despite the impact of a drop in automobile production owing to shortages in semiconductor supply as well as smartphone production, we expect a certain level of recovery, especially in the building and infrastructure field, and therefore expect an increase in sales. As for the analysis of changes in operating income, let me break out the plus 2.9 billion increase we are expecting. First, raw materials are expected to be approximately 6 billion yen worse compared to our October forecast. Sales volume and product mix is also worse by about 1 billion yen due to the prolonged effects of the semiconductor shortage. We are forecasting an increase of 2.9 billion yen in profits, however, by offsetting the negative impact through selling price improvement, cost reduction, and the reduction in fixed costs, including special items, as explained earlier. On page 13, I will explain the status of the three strategic fields. First, electronics has been trending steadily. Sales increased in Q3 due to strong demand for panels, and sales are expected to increase in Q4 as well, driven by non-LCD field products such as binder resins for MLCCs. On the other hand, in the mobility field, in Q3 sales remained at previous year levels owing to the growing impact of the drop in automobile production attributable to shortages in semiconductors. As you can see on the graph at the bottom, sales of high-performance interlayer film remained at the same level as the previous year, while sales of interlayer films for HUDs continue to grow year-on-year. In the fourth quarter, we expect to increase sales by expanding sales of high-performance interlayer films, especially HUD interlayer films, owing to a partial recovery in automobile production. We expect HUD interlayer films to grow by more than 10% in the second half. Regarding the aerospace business, which took impairments in the first half of the fiscal year, we are making steady progress in portfolio transformation as planned, especially in securing incremental sales in the non-aviation field. In the housing company, sales are expected to increase by 14.6 billion yen. Details for operating income are shown on the right. First, we are forecasting an increase of 2 billion yen in the housing business. The number of houses sold increased by 273 units compared to the previous year and is expecting to make significant contributions. On the other hand, this segment is also strongly affected by higher component prices and component cost is expected to have a minus 4.5 billion yen impact against the previous year. This is 1.5 billion yen worse than the October forecast. Steel, wood and aluminum are the main materials that are increasing in cost. We will strive to make up for this decline through product mix and cost reduction and keep fixed costs under control so that the housing business can grow by 2 billion. Operating income in the renovation business is expected to increase by 900 million yen and 200 million yen in the others business. also the special factors I mentioned earlier is expected to contribute by plus 1.6 billion yen As a result, we are forecasting an increase of 4.7 billion yen in operating income, which is in line with the October plan. As for the status of orders, new housing orders in the third quarter struggled somewhat and results were 100 percent year-on-year, against the 105 percent plan. We are now forecasting Q4 orders at 101 percent year-on-year. The October forecast was 108 percent. We expect to secure the same level of orders as last year in the second half of the fiscal year. For renovation, orders are expected to reach 106 percent of the previous year's level. This page is about new housing orders. Recovering the number of visitors has been very slow, but as you can see on the right, where we show orders by type of construction, orders for subdivision housing and ready-built houses, an area of focus for us, have been brisk and continues to support overall orders. in terms of measures to secure orders in the second half we will focus on sales activities that integrate online and face-to-face channels which we have developed over the past year especially due to the spread of omicron right now in addition we will strengthen the promotion of smart house and resilience appeal through large capacity storage batteries which is one of our strengths as you can see on the right the ratio of zero energy houses is now at a level where 90 is in view Next is the UIEP company. Net sales are expected to increase by 8.5 billion yen. Operating income in this segment was also strongly affected by higher raw material prices. The impact from raw materials has deteriorated by approximately 2 billion yen from the October forecast. In addition, sales volume and product mix is down by about 1.4 billion yen due to delays in construction, especially overseas. This has had a major impact on sales volume and product mix. We expect to increase profits by 3.1 billion yen, however, by offsetting these factors with improvements in selling prices, cost reduction and fixed costs improvement, including the special factors I mentioned earlier. Here is the status of the three strategic fields of the UIEP company. For piping and infrastructure, the recovery is a little slow for non-residential applications, but firm trends are expected in the housing and plant businesses. The overseas pipeline renewal business has been seeing some delays in construction due to COVID-19. In the building and living environment field, demand for housing is recovering, so we are on a recovery trend. In advanced materials, demand for sheets, especially for aircrafts, is still sluggish. Moreover, orders for FFU railway sleepers have been brisk, but there have been some construction delays overseas. In addition, sales of high-performance molded products such as clean containers used in the pharmaceutical and semiconductor fields are growing more than planned. in addition sales have prioritized products and overseas sales are on a recovery track Lastly, I would like to talk about the medical business. In the medical business, net sales are expected to increase by 8.5 billion yen. As shown in the analysis of operating income on the right, both domestic and overseas sales of diagnostics and the pharmaceutical science field have been strong, and we expect to achieve an increase of 1.6 billion yen, exceeding the October forecast. As a result, we have revised our full-year forecast for the medical business by 1 billion This is the overview by business. As you can see here, demand for diagnostics in Japan declined last year due to a decrease in the number of general outpatients because of COVID-19, but it's been steadily recovering since the beginning of this fiscal year. New products, such as new coagulation equipment, have also contributed to the increase in sales. in addition the overseas diagnostics business on the right has grown significantly compared to the previous fiscal year the two main reasons for this growth are that demand for covet diagnostics kits in the u.s exceeded our expectations and that sales of blood coagulation reagents in china increased significantly in addition sales of pharmaceuticals which are shown in the lower left hand corner is expected to grow significantly in the fourth quarter due to shipments of new active pharmaceutical ingredients that will start contributing to earnings from q4 we believe that this will enable higher sales from the fourth quarter onward new product development and sales trends are shown on the right this concludes my explanation thank you very much for your time