Sekisui Chemical Co

This is Futoshi Kamiwaki, representative director and head of business strategy department. I'd like to go over the financial results for the first quarter of fiscal 2022. Page one shows the currency assumption. Initially, the currency assumption against the dollar was 150 yen in the business plan. The actual in Q1 was 130 yen, and for Q2, we are assuming 133 yen against the dollar. The first half guidance is expected to positively benefit from the currency. Page 2 illustrates the results of the first quarter. Net sales grew to 282.3 billion yen, with the operating income reaching 13.8 billion, ordinary income 21.4 billion, and net income 14.6 billion yen. All the profit lines were up, and ordinary income in particular increased significantly due to the impact of foreign exchange gains. Page 3 is net sales and operating income by respective companies for the first quarter. Both sales and profit increased for all the segments. The high-performance plastics company, or HPP, was affected by stagnant automobile production and high raw material and fuel prices, but these were offset by improved selling prices and fixed cost reduction. In addition, foreign exchange gains helped the segment to achieve the target as planned. For the housing company, new housing orders remained strong. Despite the ongoing impact of soaring component prices, progress was slightly above the plan thanks to the increase in the number of houses sold and progress in leveling up sales fluctuation. In Urban Infrastructure and Environmental Products Company, or UIEP, the market is showing a certain level of recovery. Although the business has been impacted by higher raw material costs, we took thorough steps such as improving the selling prices for securing spread, and the performance was pretty much on par with the plan and recorded the highest profit ever for the first quarter. The medical business was impacted by the lockdowns in China, but thanks to the steady progress for domestic diagnostics business and pharmaceutical sciences business, the overall medical business is generally performing in line with the plan. Page 4 indicates the market assumptions. First, the global automobile production struggled slightly in the first quarter, with the production volume at 96% year-on-year, deviating from the forecast. We expect recovery in Q2, mainly driven by China, with the overall market at 121% year-on-year, partially due to the low base effect last year. Smartphone shipment was slightly below the expectation of 102% year-on-year in the first quarter. For the second quarter, we are assuming 98% year-on-year, partially due to the lockdowns in China and some inventory adjustment by the manufacturers. For the housing business, we were able to secure visitors at a level comparable to last year, and the housing stats are starting to show gradual recovery. Domestic NAFTA price, which is indicated for the level of raw material prices, is much higher at 84,000 yen per 1 kiloliter versus assumption of 70,000 yen, which suggests that the business is likely to be severely impacted by the soaring raw material prices. Page 5 is the outlook for the first half, and we expect all the segments to achieve growth in both net sales and profit. The guidance for operating income is 39 billion yen, and progress is in line with the plan, with each segment expected to book the operating income as anticipated. Looking closely by segments, HPP is likely to be impacted by the rising raw material prices and slowdown of global demand, but we plan to offset that by improving the selling prices, cost reduction or CR activities, and currency gains so that we can achieve the operating income target. Housing is also expected to be affected by soaring prices of steel, lumber, and other materials, but we expect to achieve the plan by increasing the number of new houses sold. In UIEP, raw material prices will continue to rise, but we will focus on securing spreads and achieve the plan by capturing a certain level of market recovery. In the medical business, there's been a delay in getting the approval for COVID-19 testing kits, but domestic diagnostic reagents business and pharmaceutical sciences business are performing well, and we believe we will be able to achieve the targets. Page six breaks down the first half into Q1 and Q2. For the housing business, profit in Q2 is expected to decline year-on-year because we were able to bring forward a large amount of the sales to Q1 as part of our effort to live with the quarterly sales fluctuation. For the other segments, we expect both sales and profit to continue to grow in the second quarter. Page 7 analyzes the changes behind the consolidated operating profit for the first half. Net sales is projected to grow by 65.4 billion yen. The waterfall chart on the right illustrates that the raw material prices rose significantly more than our April assumption. On the other hand, selling price has been improving considerably compared to the April plan. Although the sales volume and product mix factor is trending slightly short of the April plan due to the market conditions, we still have 10.5 billion yen gain vis-a-vis the previous year. With these efforts, as well as some fixed cost savings and currency benefit, we expect to achieve the operating profit growth of 3.5 billion yen as planned. Next, I would like to show you the profit outlook for the first half on page 8. Revenue guidance for the first half is revised up by 19.1 billion yen versus the original plan to 613.3 billion yen, while the operating profit forecast is kept unchanged. Ordinary profit is revised up by 5 billion yen from the April forecast to 46 billion yen. Net profit is also revised up by 3.5 billion yen. Next on page 9 is a forecast for the full year of fiscal 22. The second half guidance remains unchanged from the April forecast. So the revised guidance for the full year simply reflects the upward revisions made to net sales, ordinary income, and net income for the first half. I will now explain the business by segment starting with HPP on page 10. first-half sales is projected to increase by 36.2 billion yen. As shown by the analysis of operating profit on the right, OP is affected by a sharp rise in raw material prices, significantly more severe than the April projection. However, we have been able to improve the selling price almost at the same pace. At the same time, As indicated by the cost reduction bar, we have also been impacted by the steep rise in LNG prices, mainly in Europe, by more than 2 billion yen. This impact has been minimized through CR activities. And although the sales volume and product mix are affected by deteriorating market conditions, we were able to secure an increase of 700 million yen, driven mainly by high-performance interlayer film. Considering the foreign exchange gains on top of all the factors just explained, we projected 2.2 billion yen gain on OP as stipulated in the business plan. Next, let me offer some details on the three strategic fields using page 11. In the electronics field, we expected a decline in demand for LCDs in the second quarter, with inventory adjustment expected to take place in the quarter. In the non-LCD field, we anticipate the demand to remain firm, especially in the semiconductor field. The mobility business on the right is being affected by the automobile production cutback stemming from the impact of the lockdowns in China and the shortage of components due to the situation in Ukraine. However, more models are adopting the interlayer film for head-up displays in the sales-having firm, and we expect 15% growth in sales for the first half. Sekiso Aerospace business is on track to return back to profitability. The building and infrastructure business is shown on the bottom left. The demand for chlorinated PVC is very strong, mainly in India, and improvement on the selling price has been achieved as planned. In addition, fire-resistant and non-combustible materials are also performing well backed by the recovery of the domestic housing market, and we expect a significant increase in sales. In the housing business on page 12, we are forecasting a 13.2 billion increase in net sales for the first half. Orders were firm, with orders for new housing and renovation in the first quarter at 100% and 104% respectively, and the orders for the first half projected at 100% and 108%. The waterfall chart on the right illustrates that the number of houses sold increased by 190 units from the previous year, and the business was also strongly affected by the sharp rise in component prices, especially for steel and lumber. As a result, the OP for the housing business is expected to go down by 400 million yen. On the other hand, the renovation business remains strong, with the OP going up by 500 million yen year-on-year. For the other businesses, the OP is projected to grow by 100 million yen thanks to the firm trend for town and community development business and purchase and resale business. Overall, we expect to achieve the target of 200 million yen growth in OP in line with the business plan. Page 13 presents our measures for the new housing orders. The table in the middle shows the number of orders by type of construction, and you can see that subdivision housing and ready-built houses, which we are strategically focusing, are driving the orders. On the other hand, for rebuilding and apartment housing, we have been able to win orders at a level comparable to the previous year by expanding the zero-energy homes, which is one of our strengths. The bottom half of the slide outlines our strategies for winning orders, which is a combination of attracting customers, product strategies, and loan strategies. As mentioned on the right-hand side on the product strategy, the ratio of zero-energy homes is nearly 90%, and the adoption rate of storage batteries is 80%. We will continue to capture orders leveraging our strength in smart and resilient housing. We plan to expand the same concept to earth-based houses in the second quarter. Next is the UIEP on page 14, for which we project a revenue growth of 11.6 billion yen in the first half. The analysis of operating profit illustrates that the impact of raw material prices has been more severe than what we expected in April, but at the same time, improvement on the selling prices has been greater than our April assumption, and we have been able to offset the impact of higher raw material prices. For sales volume and product mix, we've been able to capture the demand recovery from Q1, and this factor would also have some positive impact. In sum, we are on track to achieve our 1.8 YONOP growth target in the first half as planned. We also marked a record high profit in the first quarter. Page 15 shows the details of the three strategic fields for which a significant sales growth is projected for the first half due to the following reasons. Strong demand in the piping and infrastructure field thanks to the demand for detached houses. Firm industrial piping materials demand from the semiconductor sector. An improvement on the selling prices. In building and living environment, demand for new housing, apartment building, and renovation was particularly strong leading to an increase in sales. In the advanced materials field shown at top right, the sheet business, which was severely impacted by the pandemic, is on a recovery trend with an increasing demand for aircraft refurbishment used for domestic flights. In addition, demand for FFU well-worn sleepers for North America is showing signs of recovery, and we project an increase in sales here as well. We also expect sales over prioritized products and overseas sales, which are important KPIs, to grow steadily. Lastly, the medical business on page 16. Sales is expected to increase by 3.1 billion for the first half. As shown by the OP waterfall chart on the right, the diagnostics business overseas is under a little bit of pressure due to some delay in the approval schedule for the COVID-19 testing kits in the U.S. and the impact of the lockdowns in China. In contrast, domestic diagnostics reagents business and pharmaceutical sciences business is performing above the plan. In sum, we expect to achieve an OP growth of 1.2 billion yen. Page 17 is the overview by business. In the domestic diagnostics business, the performance of COVID-19 testing kits and general testing reagents have been very strong. Overseas diagnostics business is struggling slightly due to the factors I mentioned earlier, but sales of diagnostic reagents other than for COVID-19 is on the recovery trend, especially in Europe and the U.S. In the pharmaceutical sciences business at bottom left, orders for new active pharmaceutical ingredients are progressing as planned and sales is increasing steadily. As for the new products, in the U.S., there's been some delay in the authorization process for our proprietary COVID-19 testing kits, and we are aiming to resubmit part of the application in the second half to complete the application process. This will be the end of my presentation. Thank you very much for your attention.