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Last updated:Feb 5, 2018

Question and Answer in Presentation of Financial Results for the Third Quarter of FY2017

(About the impact of high raw material costs and foreign currency exchange rates)

To what degree has the impact of recent increases in raw material costs been factored in to operating income forecasts for the HPP and UIEP Companies in the 2H?
Increases in the costs of certain resin and urethane raw materials in the HPP Company have been sharper and higher than initially anticipated. In addition to taking into account these factors in current selling price forecasts, steps are being taken to bolster activities aimed at reducing the cost of sales. Turning to the UIEP Company, we do not envisage any secondary price increase in PVC product raw materials in the fiscal year under review.

 *HPP Company: High Performance Plastics Company
 *UIEP Company: Urban Infrastructure and Environmental Products Company

The value of the yen is increasing compared with 4Q assumptions (113 yen:US). Do you envisage any problems in achieving 2H profit plans?
For the most part, we have factored in a certain degree of risk into non-operating profit and loss plans for the 4Q. We do not anticipate any problems in achieving 2H profit plans at this stage.

(About the probability of achieving operating income plans in the 2H)

Turning to page 7 of the presentation materials, you are looking at a substantial increase in sales volume and improvement in the product mix in the 4Q. In which segments and businesses are you expecting this to happen?
We are projecting a substantial increase and improvement in the Housing Company. This also includes the portion of deliveries from the 3Q that were postponed. In the HPP Company, we are anticipating contributions from new products as well as the fully-fledged start of operations at a new interlayer film production line at our Mexico Plant.
Can you elaborate on why cost reductions are progressing in excess of plans in the HPP Company while falling short in the UIEP Company?
Efforts aimed at improving production in factory are progressing ahead of plans in the HPP Company. The main reason for the shortfall vis a vis plans in the UIEP Company is the change in accounting line items at certain businesses. In overall terms, cost reduction activities are progressing steadily.
Sales and profit plans have been set at a considerably high level in the Housing Company. Are you likely to achieve these targets?
Drawing on results in the 3Q, we have for the most part factored into plans the appropriate level of risk. On this basis, we do believe that plans are achievable. We have secured a year-on-year increase in backlog orders as of the start of the 4Q, which also includes the postponement of deliveries that were planned for the 3Q. While both new housing and renovation construction is concentrated in the 4Q, we have secured the necessary capabilities. We will address the situation by gauging the status of progress for houses under development while placing the utmost priority on safety and working diligently to promote onsite collaboration.

(About conditions and other matters in each business field in the HPP Company)

Why are you projecting substantial growth in sales from the 3Q and over the 4Q in the Automobiles and Transportation field?
One reason is the start of operations at a new interlayer film production line at our Mexico Plant. While we will mainly focus on producing high-performance products at this new line, we are also seeing an upswing in the use of high-performance products in Central and South America. Moreover, trends in automobile interior materials are steady globally. Demand for molded products is growing in India and Indonesia. We are seeing sales of tapes for use in automobiles expand.
What is the outlook for high-performance interlayer film demand for use in head-up display systems and other products?
Until recently, the number of new automobiles equipped with head-up display systems was projected to reach around five million in 2020. Currently, estimates indicate this number will reach roughly ten million. Forecasts also suggest that the installation of head-up display systems will spread to new models in the mid-price range. In addition, and taking into consideration the growing demand for sound and heat insulation films, Sekisui Chemical’s goal is to capture a fair share of this demand by leveraging the Company’s strengths including its ability to mix multiple sound and heat insulation as well as other functions.
What is the status of luminous PVB film development?
We are pushing forward with development in Japan and Europe. As far as luminous PVB films for use in construction are concerned, we are almost at the point of market launch. Looking at the status of products for automobile use, we are engaging in marketing activities.
How do you plan to expand in each of the Electronics and Life Science fields over the medium-to-long term?
Historically, liquid crystal-related products have taken up the large majority of our operations in the Electronics field. Currently, we are seeing the steady growth in sales in the packaging/semiconductor and OLED related products. In the future, we will also look to expand sales focusing on these types of fields.
In the mainstay diagnostic reagent business of the Life Science field, positive steps have been taken to reinforce the development platform. Having put in place a development structure, we are therefore in the position to consistently introduce new products. Besides this, we are looking to expand the pharmaceutical ingredient business.

(About housing orders)

While new housing orders declined in December on a single month basis, can we assume that there are no changes to order trends?
We were unable to adequately complete negotiations for new houses subject to closing in December, which resulted in a downturn for the month. This was attributed to poor weather conditions in October. Looking at the 3Q as a whole, the effects of measures aimed at capturing orders are steadily emerging.
What is the status of new wood-frame Grand To You V orders? Has this new product eaten into the performance of existing products?
Grand To You V trends are especially robust in rural areas. While Grand To You V and existing steel-frame products are sold separately with delays in establishing a sales and marketing structure in certain areas, we are working toward a resolution.
The share of the lower priced Grand To You V is increasing compared with existing products. Are you seeing a deterioration in the product mix as a result?
The amount of new orders in the 3Q declined 1% compared with the corresponding period of the previous year. This was mainly attributable to a downturn in the number of higher priced housing complexes and multipurpose home product orders.
What are your thoughts on the likely rush in demand prior to the increase in Japan’s consumption tax rate scheduled in October 2019?
We do not expect the upsurge to be as pronounced compared with the previous tax rate hike. We are anticipating a slight increase in demand mainly in urban areas over the 2H of 2018. Without expecting too much, we will endeavor to increase orders through concerted efforts.
Conditions in the housing complex market are deteriorating. Is this affecting the Company’s orders?
Housing complexes only account for a small portion of the Housing Company’s overall orders. As a result, the impact is limited. Taking into consideration the effects of such factors as reports of housing complex vacancies following the peak in demand related to revisions to inheritance tax legislation, demand for housing complexes is expected to fall in the future. As far as the Housing Company is concerned, we will look to expand orders focusing mainly on detached housing.

(About various measures including efforts to improve the efficiency of the Housing Company production plants)

What is the status of “Cost Innovation through Supply Chain” in the Housing Company, a key issue under the current Medium-term Management Plan? Are you making any progress in such cost reduction measures as the common use of components?
Yes, we are making steady progress with a variety of measures including the reduction of transportation costs through changes in areas of responsibility of production and shipping bases as well as the horizontal deployment of case studies relating to improving productivity. In addition, for example, we are to a certain degree limiting house construction plans for the new Grand To You V product. This is fueling expectations of a downturn in costs through improvements in production efficiency at plants and the common use of components.
Is there are any room for promoting the further automation of housing production factory lines?
Without a doubt, the shortage of trained professionals will become an increasingly pressing issue over the medium-to-long term. In order to demonstrate the strengths of the unit construction method, we are looking at further increase the in-factory production ratio while also considering steps to incorporate external expertise.