Last Updated: May 7, 2020
Financial Results for FY2019 and the Management Plan
About the impact of COVID-19 on financial results
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
About the Company's approach toward returns to shareholders and strategic investments
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.
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.