IR Briefing Materials
Question and Answer in Presentation of Financial Results and Progress under Management Plan for FY2017(Apr 26, 2018）
Last Updated: May 7, 2018
About the status of progress under the Medium-term Management Plan
Progress toward the final fiscal year operating income target of 120 billion yen appears to be a little slow as of the end of the first year of the Medium-term Management Plan. Are there any initiatives where progress is delayed?
Looking at the external environment, results are being affected by higher than expected increases in raw and housing material costs. Meanwhile, the Company’s initiatives are in overall terms progressing in accordance with plans. As indicated on page 15 of the presentation materials, the effects of a large number of the Company’s various initiatives are projected to materialize over FY2019, the final fiscal year of the Medium-term Management Plan. Moving forward, we will focus on achieving our objectives for FY2018 as a steppingstone toward FY2019.
Presentation of Financial Results and Progress under Management Plan for FY2017
The Housing Company appears to be experiencing a delay in achieving its operating income target of 50 billion yen under the Medium-term Management Plan. What steps will be taken to bring the Housing Company closer to its plans for FY2018 and FY2019?
As far as the Housing Company’s plans for FY2018 are concerned, the housing and renovation businesses are around 5 billion yen behind schedule compared with the target set at the time the Medium-term Management Plan was formulated. With the exception of the higher than expected upswing in mostly housing material prices, and in particular steel, initiatives in the housing business are progressing in line with plans. In the renovation business, we will work to transform the business model in a bid to return to a revenue and earnings growth trajectory.
About FY2017 results and FY2018 forecasts
- Energies were mainly channeled toward controlling fixed costs in FY2017 compared with forecasts as of January. What kinds of specific items were subject to control?
In the housing business, we focused on controlling promotional expenses. From each of Headquarters as well as HPP and UIEP Company perspectives, we cutback non-urgent expenditure.
*HPP Company：High Performance Plastics Company
*UIEP Company：Urban Infrastructure and Environmental Products Company
Forecasts indicate a substantial increase in fixed costs in FY2018. Which items are expected to increase?
The increase in fixed costs in FY2018 is largely attributable to labor costs. We are increasing sales personnel in the Housing Company as well as staff in the HPP and UIEP companies ahead of strategic investments including the construction of new production lines.
About HPP Company FY2018 plans
Looking at plans in FY2018, the HPP Company will again refrain from adjusting product prices to completely offset the high cost of raw materials. What is your approach toward securing a spread between raw material costs and product prices?
While promoting application of the naphtha formula, where increases in the prices of naphtha-related materials can automatically be transferred to product prices, we are unable to transfer raw material costs to the prices of certain products due to such factors as the competitive environment as well as the terms and conditions of contracts. For these products, every effort is being made to maximize total marginal profit through a variety of measures including efforts to increase sales volume.
In FY2018, the HPP Company is looking to substantially increase sales volumes and significantly improve the product mix in each of the electronics and life science fields. What products does the HPP Company have in mind?
Under the current Medium-term Management Plan, we are promoting efforts to strengthen the portfolio (shift to non-liquid fields) in the electronics field. As a result, we are seeing an upswing in sales of OLED-related component as well as implementation and semiconductor materials. In the life science field, we are channeling our attention toward several products, where we maintain a leading global market share, with a particular focus on diagnostics reagents.
Again, in the HPP Company, fixed costs are projected to increase substantially in FY2018 compared with the fiscal year under review. Will fixed costs continue to increase in FY2019 and beyond?
While we will commence depreciation of several new projects and strategic investments going forward, we are not anticipating any sudden increase in fixed costs.
About the outlook for demand in the four strategic fields of the HPP Company
What is your outlook for demand in the electronics field and especially for smartphone products?
Demand in the 4Q of FY2017 fell substantially below forecasts identified at the time of the Company’s 3Q financial results announcement. Demand in the 1Q of FY2018 is projected at around the same level. In putting forward plans, we are not anticipating any major recovery in the 2Q. Meanwhile, we are seeing the effects of efforts to cultivate new customers and applications and initiatives aimed at increasing market share.
What is your outlook for demand in the automobiles and transportation field by region, and especially China and the U.S.?
China is actively promoting the shift to electric vehicles. We are therefore expecting demand for such products as soundproofing and heat insulation interlayer films to rise. In the U.S., the use of high-performance interlayer films is increasing. Even when assuming a downturn in the number of new models manufactured, we anticipate any negative flow-on effect will be minor.
What is the status of soundproofing, insulation, and other high-performance interlayer film sales growth? Can you tell us about operations at the new production line in Mexico?
The rate of high-performance interlayer film use is outstripping growth in the number of automobiles produced worldwide. We are seeing an upswing in applications including in the side and roof glass used in the manufacture of automobiles. Operations commenced at the new production line in Mexico in January this year. Operations are essentially at full capacity.
Has the pace of interlayer film application growth in head-up display systems slowed?
The use of head-up display system interlayer films is steadily increasing mainly in luxury cars in Europe.
About the outlook for the housing market and such factors as the status of housing orders
What are the reasons behind the relatively strong result in monthly housing orders in March 2018?
The effects of new products are quite substantial. In addition to the extremely popular “GRAND TO YOU V” brand of wood-frame houses released in earnest in October, 2017, the steel-frame, three-story “DESIO Urban” brand launched in January, 2018 has also contributed to results.
What is your outlook for orders in FY2019? With Japan’s consumption tax rate scheduled to increase in October 2019, are you expecting any major reaction given the anticipated transitional measures specified date of March 31, which would allow home buyers to avail themselves of the lower consumption tax rate, with respect to contracts from April in the next fiscal year?
The current consumption tax rate shall apply for built-for-sale houses sold between April and September 2019. We are ramping up the purchase of land for sale that there will be a certain rush in demand. As far as contract housing is concerned, we will leverage the short construction periods attributable to the Company’s Unit Construction Method to facilitate handover up to September prior to the consumption tax rate hike for orders received around April and May 2019.
About the outlook for aircraft sheet and other demand
Why has there been a delay in the recovery of demand for aircraft sheets in the UIEP Company? Are you anticipating a recovery in the current fiscal period, and if so, what are the prospects?
Orders from one of our major customers declined dramatically due to a period of temporary confusion relating to the proposal by a client company to undertake an acquisition. In the end, this decline has persisted for a full year. After clearing away the necessary steps for the acquisition in March, we are witnessing a pickup in orders. On this basis, we believe the prospects of a recovery are high.
About the Other Segment
It appears that the Company undertook considerable expenditures in the Other Segment in FY2017. FY2018 forecasts indicate this trend will continue. Can you provide us with specific details, and when will this expenditure contribute to earnings?
For the most part, expenditures are slated to contribute to earnings from the next Medium-term Management Plan. Film-type lithium-ion batteries and the Urban Development Project are expected to contribute to earnings from FY2019. Moreover, we are confident that our R&D activities are on the right track and will continue to pursue such themes as next-generation solar cells and technologies that convert waste to ethanol.
The Company is projecting a further deterioration in its operating loss in the Other Segment in FY2018. Can you provide details?
In addition to investments aimed at expanding film-type lithium-ion battery production capacity announced the other day, the Company will focus mainly on boosting its R&D activities while strengthening manufacturing technologies. As far as eliminations or unallocatable accounts are concerned, other expenditures include efforts to reinforce the global governance structure by establishing regional headquarters and enhancing information security systems.