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Last updated:Nov 6, 2017

Presentation of Financial Results and Progress under Management Plan for 2Q FY2017

(Financial Results for the First Half and Plan for the Second Half)

(P24) What factors enabled the HPP Company to control fixed costs in excess of plans in the 1H? Will you continue to control fixed costs from the 2H?
While factoring in M&A-related one-time expenses in the 1H, the actual amount posted was less than the level initially planned. We have also factored in an amount equivalent to the 1H in the 2H, that means, we are anticipating a slight increase in real terms.

 *HPP Company: High Performance Plastics Company

What have you identified as risk factors in the 2H?
We believe that fluctuations in exchange rates may pose a risk to the HPP Company. As far as the Housing Company is concerned, unseasonal weather may become a risk. This takes into account the planned concentration of construction work as of the end of the current period. Turning to the UIEP Company, there is a risk that the timing of deliveries will be delayed depending on the project order.

 *UIEP Company: Urban Infrastructure and Environmental Products Company

Plans indicate that the control of fixed costs in the Housing Company in the current fiscal year will exceed forecasts identified at the beginning of the period. Will you see an increase from the next fiscal year?
We will continue to update and upgrade our structure and systems in order to capture orders. This will include promoting model home galleries as well as open house events in order to attract customers and to boost the number of sales staff.

(The Impact of High Raw Material Costs and Other Factors Including the Propriety of Passing on through Increases in Product Prices)

(P25 & P37) To what degree will you be able to cover increases in raw materials costs in the 2H through adjustments in product prices in the HPP and UIEP companies?
While there may be timing differences with respect to general products, the potential exists to reflect any increase in raw material costs in product prices in the HPP Company. As far as high-value-added products are concerned, raw material costs are not the only factor in determining price. As a result, we anticipate certain difficulties in offsetting any increase in raw material costs through adjustments to product prices. Turning to the UIEP Company, increases in PVC costs from April have generally been reflected in product prices from the 2Q. We believe that we will be able to secure margins according to plans in the 2H on the condition that there is no further increase in PVC costs.
What are your assumptions for naphtha prices in the 2H? How will you hedge any further increase in PVC costs?
We are assuming a price of 37,000 yen/KL. We will be forced to again adjust product prices in the event that PVC costs climb further.

(Review of the Four Strategic Fields in the HPP Company)

(P26) What are your reasons for projecting an increase in the pace of 2H sales growth compared with the 1H in the Automobiles and Transportation Field?
In addition to signs of a market recovery in China, following a period of stagnant conditions, we anticipate the release of new automobile models that have adopted high-performance products will have a positive impact in operations in the Automobiles and Transportation Field in the 2H.
Tell us about trends in high-performance interlayer film demand. Can you give us an update on investments aimed at expanding production capacity in Mexico?
Demand for high-performance interlayer films is projected to expand at a rate that exceeds market growth. This is compared with a forecast annual growth rate of around 2% in the automobile market. The rate of growth for HUD-related products, where the Company maintains a major market share, is especially high. Trial production is already underway at the new factory in Mexico. We are making steady progress in acquiring automobile manufacturer certification.
What is your outlook for demand in the Automobiles and Transportation as well as the Building and Infrastructure Fields?
We are seeing signs of a market recovery in China, following a period of stagnant conditions, in the Automobiles and Transportation Field. In addition to this positive turnaround in market condition in China in the 2H, we are expecting the release of new automobile models that have adopted high-performance products. In the Building and Infrastructure Field, we are working to increase our share, while there is still some uncertainty surrounding a pickup in CPVC demand, As far as fire-resistant materials are concerned, there are expectations that infrastructure demand will expand mainly in the Tokyo metropolitan area.

(New Housing Construction, Renovation, and Other Orders)

How will you achieve your plans for new housing construction orders in the 2H?
Taking also into account last year’s demand following the Kumamoto Earthquake, the 1H hurdle was high, whereas the impact is not so much for the 2H We anticipate housing complex trends will continue to mirror the 1H. We will focus mainly on detached houses going forward. In specific terms, we will engage in the full-fledged nationwide sale of “Grand To You V,” which exhibited robust test results in the 1H. Moreover, we will expand sales of Smart Power Station GR, which got off to a strong start following its release at the end of July.
Should you experience strong sales of “Grand To You V,” a product in the low-price range, are you concerned that overall sales prices will decline? Are you worried that this may have a negative impact on earnings?
While an increase in low price range product sales will place downward pressure on the average marginal profit unit price, we will generate marginal profits by increasing sales volume.
How will you bring about a recovery in renovation orders from the 2H?
We will reinforce such strategic products as exterior tiled-walls and modular bathrooms. We will also bolster proposal-type sales in tune with each life stage. Through these means, we will endeavor to lift the unit price per order.

(Progress in Advancing Each Theme under the Current Medium-term Management Plan)

What progress have you made in promoting “fusion” under the Medium-term Management Plan?
We are making steady progress toward increasing sales by 50 billion yen in FY2019, the final fiscal year of the Plan. Looking at specific theme examples, we are advancing the “urban development project,” which utilizes old factory sites in the UIEP Company, developing technologies and products through collaboration between the HPP Company’s foam business and the UIEP Company’s sheet business, and taking an equity interest in TifoPlast Group, a major pipe manufacturer in Vietnam.
(P7) The operating loss in the Others segment is substantial. Is this loss mainly due to lithium-ion battery-related investments?
We expect to incur an operating loss of 9.5 billion yen in the Others segment. Of this total, lithium-ion battery-related investments account for roughly half. Taking into consideration the strong popularity of housing-related products that have already been released, we will pursue investment to expand production capacity. In addition, we are undertaking investments in the development of products for automotive use. In addition, we are adding the expenses mainly for the development of film-type solar cell.
Will you also increase expenditures in the Other segment from the next fiscal year?
We plan to undertake R&D expenditures of 120 billion yen over the three-year period of the current Medium-term Management Plan. Our outlook is to undertake expenditures of 38 billion yen in the current fiscal year, which is essentially in line with the Plan.
The ratio of Environment-contributing Product sales to total sales has remained flat over the past few years. While you have also added new products that contribute to social environment under the current Medium-term Management Plan, what is your Environment-contributing Product sales to total sales ratio target going forward?
Despite an increase in the number of Environment-contributing Products registered over the past few years, results have been flat owing mainly to the substantial downturn in solar power generation system sales in the renovation business. Our goal under the current Medium-term Management Plan is to lift the ratio of Environment-contributing Product sales to total sales to 60% in FY2019. To do this, we will introduce new products including diagnostic reagent systems and products that help counter aging infrastructure that address SDGs. As far as current progress is concerned, we are finalizing efforts to define certain issues relating to the certification of products. As a part of these efforts, we are also incorporating the views of outside experts. Once this has been completed, we anticipate the ratio of Environment-contributing Product sales to total sales will rise to 50% in the current fiscal year.