Sekisui Chemical Co

My name is Hitoshi Kamiwaki, Senior Managing Executive Officer. Thank you for joining. Please turn to page 1. First, regarding FX rates, Q3 results were impacted by the weaker than expected yen compared to the assumptions shown here. FX sensitivities can also be confirmed on this page. Turning to page 2, here is the overview of Q3 results. Net sales were 312.6 billion yen. Operating profit was 24.7 billion. Ordinary profit 21.3 billion yen and net profit was 14 billion. Revenue increased in Q3 and all profit levels increased. Moreover, operating profit progress slightly exceeded the October plan. Regarding cumulative Q3 results on the right-hand side, sales, operating, and net profit increased. The asterisks indicate record highs. Turning to page 3, here are Q3 results by segment. First, in the HPP, the high-performance plastics company, although the recovery in market conditions was slower than expected, the robust mobility field made up for the drop, resulting in a significant increase in sales and profit, slightly exceeding plan and driving company-wide profit. In the housing company, sales in the third quarter were ahead of schedule due to leveling out sales that exceeded expectations, resulting in both sales and operating profit slightly exceeding plan and operating profits achieving similar levels as the previous year. In the UIEP, Urban Infrastructure and Environmental Products Company, despite sluggish market conditions and delays in non-residential properties, etc., net sales and profits increased as planned due to the maintenance of spreads and thorough control of fixed costs. In the medical business, sales increased but below plan and profits decreased due to the sluggish sales of blood coagulation reagents in Japan and the delay in sales expansion of new products in the United States. Here, once again, the asterisks indicate record highs. Turning to page 4, this page shows the outlook for the market. Global automobile production is expected to exceed the October forecast in both Q3 and Q4. Also, smartphone shipments are trending slightly above the October forecast. On the other hand, the top right graph shows the number of visitors. Recovery has been slow for mainly exhibition visitors and is considerably below the October forecast. In addition, new housing starts also continue to be sluggish, trending below planned substantially. Moreover, domestic NAFTA prices have surged and is higher than October assumptions, which is impacting our performance. Page 5 shows the forecast for the second half by segment. Both sales and profits are expected to increase in all segments except housing. Total company sales and profits are expected to increase as well. In the housing company, sales in the second half are expected to decline due to challenging orders in Q3. As a result, both sales and profit are expected to decrease. The October forecast for net sales and operating profit has been revised down, with an operating profit downward revision by 5 billion yen. Page 6 shows the forecast by segment, broken down into Q3 and Q4. Q4 will continue to be affected by the decline in housing demand, but company total sales are expected to increase, with each segment making up for the decline, mainly driven by the high-performance plastics business. Operating profit is expected to be broadly flat year-on-year. Please turn to page 7. I will explain the analysis of the operating profit forecast for the second half of the fiscal year. Please refer to the analysis on the right. First, sales volume and product mix are expected to increase by $6 billion year on year, but the growth is considerably lower than the October forecast. Market recovery has been delayed, and the sluggish market, especially in the housing sector, is having a significant impact. On the other hand, the spread between selling prices and raw materials has been maintained, which is better than planned. Fixed costs are also kept lower than planned as well. The foreign exchange gains are also expected to contribute to the increase of 2.5 billion yen year on year. However, this is expected to fall short of the October forecast that planned for a 7.5 billion yen increase year-on-year. Next, turning to page 8. This page shows the full fiscal year forecast by segment. We expect both sales and profit to increase in all segments except housing. Total company sales and profits are also expected to increase. In the HPP and UIEP segments, we expect record high profits for the fiscal year in line with October plan. We also expect medical to record its highest profit for the fiscal year, although it had been revised downward from the October plan. Sales and operating profit have been revised downward as mentioned earlier. Operating profit has been revised downward by 5 billion yen. Please turn to page nine. Here is an overview of fiscal year 2023 forecasts. I already talked about the forecast for net sales and operating profit, but for ordinary profit, we are expecting 103 billion yen, which is in line with the October forecast. Net profit is also expected to be 75 billion yen, also in line with the October plan. 75 billion yen will be a record high. year-end dividends are expected to be 36 yen per share at the end of the fiscal year as planned in october and 71 yen per share for the year an increase of 12 yen Please turn to page 10. Here is a slide on consolidated performance. Especially EBITDA at the top is expected to reach 148 billion yen in fiscal 23, which will be a new record high. ROIC and ROE are also expected to reach 7.6% and 10% respectively. From page 11, we break it down by segment. First is the HPP company and the forecast for the second half of the fiscal year. Please refer to the analysis of operating profit on the right side. Sales volume and product mix are broadly in line with the plan, expected to increase by 8.5 billion yen. Although the recovery market conditions in the electronics field, Europe, the U.S., and Japan are below expectations, the robust mobility field is expected to make up for the drop-off. Meanwhile, the spread between selling prices and raw materials is almost in line with the October plan, and with fixed costs expected to be curbed, an 8.9 billion yen increase from the previous year is expected, which is in line with the October plan. Operating profit for the second half of the year will be a record high. Please turn to page 12. Here is a page regarding the three strategic fields. First, in the electronics field, smartphones recovered in Q3, but sales of large-sized LCD panels were sluggish. The semiconductor market recovery was also delayed, trending below the October plan. We expect a gradual recovery in the non-LCD market in Q4. We will continue to expand sales, aiming for adoptions in areas where we have strength, such as MLCC binder resins and biotapes. Regarding the mobility field, sales of interlayer films for head-up displays exceeded the October plan. Q3 sales were 139% year-on-year, and we expect the sales expansion to continue in Q4. Regarding aerospace, demand declined. Due to the impact of the quality issues of the 737 MAX, it's expected to trend slightly lower than planned. As for industrial, on the right, sales decreased due to sluggish demand for construction materials in Europe, the U.S., and Japan in Q3. For Q4, we expect a certain degree of recovery in market conditions, especially for labor-saving and environmentally friendly products. Please turn to page 13. This page is about the housing company. please refer to the analysis of operating profit on the right. Looking at the second half by segment, the housing sub-segment operating profit is expected to decrease by 4.3 billion yen. On the other hand, we expect that the renovation and other recurring type businesses will remain broadly unchanged from the previous year. Looking at the outlook for just the housing business, the sales factor has a negative impact of minus 7.5 billion yen. As orders were sluggish, the number of houses sold is expected to be 200 units less than the October plan or down by 650 units year-over-year, leading to a substantial impact. We will strive to make up for this by improving the sales mix or raising prices. In addition, fixed costs reduction is expected to contribute positively by 600 million yen due to the favorable progress of measures to strengthen profitability. However, this will be not enough to cover the decrease in sales volume, resulting in a decrease of 4.3 billion yen in profit. On the other hand, we expect the renovation and other businesses to perform well. Please turn to page 14. The top left shows new housing orders. Q3 was 93% of the previous year's number of units, and Q4 is expected to recover slightly, but at 95% compared to the previous year. The second half, as a result, is expected to be 94%. The October plan was expecting 101%, so our current view is that it is likely to go below plan quite substantially. Please refer to the table for the breakdown by type of construction. Regarding smart house-related indicators, the ZEH ratio is close to 95% as planned, so we are making steady progress in this area. As for the renovation business, orders received during the second half of the fiscal year is expected to reach 52.6 billion yen, which is 107% compared to the previous year, and orders are increasing steadily. The measures implemented to address the challenge of strengthening profitability of the housing business is expected to improve profitability by 10 billion yen over three years from 2023 to 2025 by reducing fixed costs and improving marginal profit. The impact expected to be materialized in fiscal year 2023 are now progressing at a pace that will enable the effects to be realized ahead of schedule, mainly around fixed cost improvements. As mentioned here, we will optimize the production structure and shift indirect personnel from new housing to the recurring stock business. In addition, we will develop product strategies that fit the purchasing power of each area. We are currently accelerating our efforts ahead of schedule in these areas. Please turn to page 15. This is the second half forecast for the UIEP business. Please refer to the Analysis of Operating Profit. Sales volume and product mix is expected to increase by 1.9 billion yen, but will be lower than the October plan. This is mainly due to the sluggish Japanese domestic housing market and delays to non-residential properties. On the other hand, the spread between selling prices and raw materials is expected to be greater than planned. We also expect to curb fixed costs slightly more than planned, resulting in an operating profit increase of 1.4 billion yen as planned in October. We expect to reach record high profits here as well. Please turn to page 16. This page shows the status of the three strategic fields. First, pipe systems have been affected by the sluggish housing market and delays in the construction of non-housing properties, but piping materials for plants has remained relatively firm by steadily capturing domestic demand for capital investment. In addition, Shinetsu Polymer's piping materials business that we succeeded is gradually starting to contribute. In the building and infrastructures composite materials business on the right side, a plant for FFU synthetic lumber has started operations in Europe. We now have a structure that will enable us to expand overseas adoption. In addition, new fire-resistant and non-combustible materials products are growing steadily. In the infrastructure renovation business on the bottom left, our main product is pipeline renewal. This product continues to perform well both in Japan and overseas. In addition, our prioritized products, mainly polyethylene pipes for water supply, fire extinguishing, and industrial plants have also been performing well. Overseas, CPVC has been slightly affected by a decline in demand in India, but we plan to expand overseas sales of plants, pipeline rehabilitation, and functional materials. Lastly, on page 17, I would like to talk about the medical business. Once again, please refer to the analysis of operating profit. Diagnostics in Japan is expected to increase by 0.3 billion yen, which is slightly less than the October plan, especially due to blood coagulation reagents struggling. Diagnostics overseas is expected to increase by 0.1 billion, which is significantly lower than planned. In particular, the delay in sales expansion of new products in the U.S. had a significant impact. In the pharmaceutical science and other business, performance is expected to be in line with planned. In the second half, we will work on curbing fixed costs, resulting in an operating profit increase of ¥0.4 billion year-on-year. However, this will be ¥900 million lower than the October plan. Please turn to page 18. This page shows the overview by business and field. Regarding diagnostics in Japan, despite slight difficulties in blood coagulation reagents, demand for infectious disease testing for influenza and COVID, etc. remain brisk. In Q4, we are focusing on expanding sales of blood coagulation tests. As for diagnostics overseas, despite sales delays for a new product in the US, blood coagulation reagents remain strong in China. In Q4, we will focus on expanding sales of the new products that were delayed in the US. In pharmaceutical sciences, both new pharmaceutical ingredients and drug development solutions are expected to trend firmly. In the area of new product development, we are preparing a combo kit that enables simultaneous testing for COVID and the flu for the U.S. And in China, we are working on the development of a local production system for diagnostic devices. This concludes my explanation. Thank you very much.