IR Briefing Materials

Q&A  Presentation of Financial Results and the Management Plan (Apr 27, 2020)

Last Updated: May 7, 2020

About the impact of COVID-19 on financial results

  • (Page 2 of the presentation materials) Despite forecasting in January that operating income would total 97 billion yen in FY2019, actual results fell short of plans. Is this shortfall attributable entirely to COVID-19?

    We believe that the shortfall is entirely attributable to COVID-19. In addition to the direct impact of suspensions in the supply chain, etc., this includes such indirect factors as a cooling down of consumer sentiment.
    Presentation of Financial Results for FY2019 and the Management Plan

  • (Page 2 of the presentation materials) What assumptions regarding the business environment underpin your thoughts with respect to the impact of COVID-19 on FY2020 operating income plans?

    We believe that COVID-19 will have the greatest impact on the 1Q and gradually transition to a recovery from the 2Q. Thereafter, we are anticipating conditions will return to normal in the 2H. To this, we have added such factors as forecasts of the latest customer demand in each business and field.

  • On a monthly basis, are you projecting COVID-19 will have the greatest impact in April? In the event that the impact should worsen in May and June, will the negative effect increase even further?

    Operations at certain plants in such countries as China have been suspended since February. The impact of these suspensions has been factored into FY2020 plans. As far as our FY2020 plans are concerned, we have also taken into account estimates regarding the number of automobiles manufactured globally by quarter in for example the Mobility field.

About demand forecasts in the three strategic fields of the HPP Company, etc.

  • What are your thoughts on current demand trends and your outlook for the Electronics field?

    Despite the impact of a suspension of the supply chain in China in February, we are seeing a recovery from March. While trends for such final products as smartphones are slightly weak, semiconductor-, 5G base station-, and data center-related demand is increasing. We anticipate this will continue into the future. As far as the Electronics field is concerned, we are expecting a certain level of inventory adjustment will emerge in the 2H.

  • (Page 33 of the presentation materials) Are sales of interlayer films for use in head-up display (HUD) systems expanding?

    Sales increased more than 10% YoY on a volume basis in the 2H of FY2019. Results in the 4Q, which were severely affected by a deterioration in market conditions, also surpassed the previous year. In the 1H of FY2020, we anticipate inevitably falling below the levels recorded in the corresponding period of FY2019. This is despite securing sales volumes higher than the automobile market in the 1H. Meanwhile, factoring in a recovery in automobile market conditions in the 2H, we are projecting sales volumes will increase by more than 30% YoY and exceed the previous year on a full fiscal year basis. This reflects the implementation of measures to strategically increase market share from FY2019.
    Presentation of Financial Results for FY2019 and the Management Plan

  • (Page 32 of the presentation materials) Operations at a new interlayer film production line in Europe are scheduled to comment from the 1Q of FY2020. Looking at conditions in the automobile market, isn’t this a little early?

    This line will largely engage in the production of interlayer films for use in HUD systems. Our intention is to undertake local production to supply a major customer in Europe. In addition, we plan to supply interlayer films for use in certain construction applications.

  • (Page 32 of the presentation materials) As far as the Mobility field is concerned, you have put in place a harsh sales plan for the 1H of FY2020. What is your outlook for general-purpose interlayer film demand? What are your thoughts on product demand excluding interlayer films in the Mobility field?

    On a volume basis, sales of general-purpose interlayer films in the 1H are expected to come in at around 60% of the levels recorded in the corresponding period of FY2019. 2H YoY sales are also expected to fall short. As far as products excluding interlayer films are concerned, demand for interior materials has fallen to around the same level as the automobile market. We are also anticipating similar difficult conditions for exterior molded products, which are manufactured and sold in India.

  • As Sekisui Aerospace Corporation’s principal customer, are you concerned about Boeing’s apparent weak financial results? Is there a risk of goodwill impairment?

    While operations at the Washington plant, which produces ducts and other products, have currently been suspended, the Iowa plant, which manufactures CFRP and related products, is operating at full capacity. Although demand from Boeing is expected to remain harsh going forward, we are not anticipating any impairment loss in FY2019. While dependence on Boeing will remain high for the foreseeable future, we will look to improve productivity and strengthen self-help efforts including the cultivation of new customers in FY2020.

  • As a major destination for the Company’s CPVC products, has the nationwide lockdown in India impacted sales?

    At this stage, we have not seen any material changes in the volume of orders from customers. While anticipating inventory adjustments in the future, we have already taken steps to increase prices as well as our market share. We will continue to work diligently to prevent a drop in sales volumes.

About each business in the Housing Company

  • Are you currently working toward measures aimed at alleviating delays in housing materials delivery, which led to the postponement of handovers in FY2019?

    The incidence of handover postponement in FY2019 was largely due to delays in delivery of housing materials for such items as bidets, IH heaters, dishwashers, and range hoods manufactured in China. With signs that local production is currently returning to normal, we are looking at covering the delayed portion in the 1Q. Having said this, we recognize the need to closely monitor the supply chain both overseas and in Japan in the future.

  • As a part of the change in subsegments from FY2020, steps have been taken to establish the separate Town and Community Development Business. Will condominium sales make up the majority of earnings for this business?

    While condominium sales will indeed make up the majority of earnings, we are also looking at contributions from the sale of ready-built houses with the Town and Community Development Business (Sekisui Chemical) acting as the seller and real estate leasing income (from such sources as CAINZ Corporation at Asaka City). Building on Asaka Lead Town, Sekisui Chemical is also taking the lead in rolling out urban development projects on a nationwide basis. The Town and Community Development Department will mainly engage in planning and procurement while coordinating with sales companies in each area that will take charge of the marketing function.
    * Urban development project: Large-scale development project in which Sekisui Chemical takes the lead in the procurement of land and planning through its Town and Community Development Business.

  • The Company posted an Asaka-related impairment loss in FY2019. Can you provide details?

    Sekisui Chemical posted an impairment loss on the employee dormitory adjacent to Asaka Lead Town. Looking ahead, control will be transferred to the Town and Community Development Business. Plans are in place to utilize the property as rental housing for the general public or housing for the elderly.

About the impact of soft raw material prices on financial results

  • (Page 3 of the presentation materials) Naphtha prices are currently exhibiting a downward trend with levels falling considerably lower than assumptions that underpin the Company’s plans. To what extent do you see this positively affecting financial results in the HPP and UIEP companies?

    As far as the HPP Company is concerned, the purchase prices of raw materials derived from naphtha have essentially been determined for the 1Q. We are expecting a positive impact from the 2Q to a certain extent. While the volume of raw materials purchased will decline in FY2020 as a result of the drop in demand for the Company’s products due to COVID-19, we are still anticipating a positive impact on operating income of roughly 1 to 1.5 billion yen for the full fiscal year. Turning to the UIEP Company, the purchase price of PVC resin is projected to have the greatest impact. While anticipating some effect, we will focus on securing a margin between raw material costs and selling prices.
    Presentation of Financial Results for FY2019 and the Management Plan

About the Company’s approach toward returns to shareholders and strategic investments

  • (Page 16 of the presentation materials) Sekisui Chemical is looking to increase its cash dividend and purchase treasury stock despite forecasting a decrease in profit in FY2020. What is your approach toward returns to shareholders in the future?

    As a part of the process in putting in place our long-term vision and new Medium-term Management Plan, which we intend to announce in May, we have decided on a policy of strengthening returns to shareholders. Despite a temporary decrease in profit in FY2020 as a result of COVID-19, we have decided to increase our cash dividend in a bid to address the expectations of shareholders while taking into consideration the health of our financial position.
    Presentation of Financial Results for FY2019 and the Management Plan

  • (Page 25 of the presentation materials) Capital expenditures are projected to decline in FY2020 compared with FY2019. Does this mean you will control capital investments in order to prioritize returns to shareholders?

    As far as strategic investments including M&As are concerned, we will place increased emphasis on a policy of selection and concentration. We will continue to vigorously undertake investments that are imperative for future growth.