Last Updated: Aug. 4, 2020
Financial Results for 1Q of FY2020
About trends in HPP demand in the three strategic fields and other matters
Sales of products highlighted under the new Medium-term Management Plan such as heat release materials for 5G base stations, semiconductor processing materials and other non-LCD-related products are increasing. Taking into consideration a variety of factors, including the spread of 5G and upswing in memory demand, new applications are on the rise. We anticipate this trend will continue into the 2Q and beyond.
- *HPP Company:High Performance Plastics Company
Sales in the 2Q of last year were relatively strong due many to substantial shipments of new smartphone products. We anticipate a certain level of correction will emerge in the 2Q of this year, in line with the build-up of certain product inventories in the 1Q of this year, on the back of concerns about damage to the supply chain due to the spread of COVID-19. However, even after taking into consideration these circumstances, sales in the 2Q are forecast to exceed 1Q levels, and believe that trends in the Electronics field are steady.
Heat release materials for 5G base stations and other applications are exhibiting the most growth.
We believe so.
Automotive interlayer film trends in the Mobility field bottomed out in April, recovering slowly over June. We expect to see a gradual recovery in the 2Q in line with trends in automobile production depicted on page 4 of the presentation materials. Meanwhile, lockdowns in India, a mainstay market, had a substantial impact on CPVC in the Building and Infrastructure field where demand was sluggish throughout the April to June quarter. Moreover, we are not expecting a marked recovery in the 2Q for fire-resistant materials mainly in Japan due to the significant impact of stoppages and the postponement of construction work.
The situation differs from region to region. While the recovery in demand is slower than anticipated at the beginning of the period, we are looking at an improvement in the 2Q compared with the 1Q worldwide.
Demand is firm for products that contribute to the conservation of energy and safety including heat shielding interlayer films and interlayer films for head-up display use.
Market conditions in North America and China did not deteriorate as much as projected in the 1Q. Products were also picked up by new models.
As indicated on page 10 of the presentation slides, the consolidated-basis change data for 1Q results and 2Q forecasts are attributable almost entirely to SEKISUI AEROSPACE CORPORATION. Our understanding is that it will take a considerable amount of time for aircraft demand to recover. We will look to improve earnings by transforming our product portfolio targeting such areas as medical devices and promote structural reform.
About trends in housing order and other matters
While unable at this stage to identify a clearly defined trend, on the one hand rebuilding in urban areas is struggling. On the other hand, there are signs that demand for detached houses is increasing in urban areas, especially among first buyers, on the back of firm orders for urban subdivision and ready-built houses.
In the majority of cases, rebuilding customers require in-depth and face-to-face discussions at exhibitions or personal homes. It has therefore proven difficult to engage in negotiations during April and May when the state of emergency had been declared. In contrast, the specifications for suburban subdivision and ready-built houses are simpler than for rebuilding. As a result, it has been easier to negotiate on a subdivision or online basis, making it easier to secure orders.
The downturn in orders since the pandemic began to spread has led to a decline in the number of houses sold in the 1H.
The average lead time from order to sale is four to six months depending on the property. Should 2Q orders recover as planned, the decline in the number of houses sold from the 3Q should narrow. In addition, we will work to expand sales of ready-built houses, which are reported as sales shortly after orders are received.
About the status of the Medical Business
Diagnostics kits developed by our subsidiary, Veredus Laboratories, is mainly sold in Singapore. We have initiated sales in North America as an introductory product. COVID-19-related products are projected to contribute around 1.0 billion yen to 1H sales.
Our product is distinguished by its high diagnostic sensitivity and is ideal for use as a border protection measures at such important locations as international airports.
About 1Q results, 1H results forecasts, and other matters
In light of the declaration of a state of emergency and the implementation lockdowns, certain operations were not undertaken. Working from home became mainstream in the 1Q. As far as fixed costs in the 1Q and 2Q are concerned, the amount of reduction and balance between each quarter are impacted by changes in inventory levels. Each quarter comes out to around the same level after excluding the effects of changes in inventory. In the HPP Company, steps are being taken to integrate operating bases inside and outside Japan, and to promote structural reforms including the combination and shutdown of manufacturing bases in the foam business in Europe and the U.S. We intend to also reduce fixed costs and promote further structural reforms from the 2Q.
The increase is mainly in land for sale in lots and ready-built houses. Moving forward, we will place considerable weight on increasing sales of subdivision and ready-built houses. As is the case in every year, housing work in progress under construction is trending upward as of the end of 1Q.
The bulk of land for sale in lots inventory will comprise of small-scale lots for subdivision and ready-built houses as of the end of the fiscal year under review as opposed to project sites.