Last Updated: Feb. 4, 2020
Financial Results for 3Q of FY2019
About the HPP Company's financial results and such factors as trends in the three strategic fields
The HPP Company reported an increase in profit in the Electronics field. While operating income in the 3Q declined 0.9 billion yen compared with the 2Q for the HPP Company as a whole, more than half of this downturn was in the Automobiles and Transportation field. Moreover, results were impacted by difficult industrial sector conditions (tapes and other general products) mainly in Japan.
- *HPP Company:High Performance Plastics Company
Operating income is projected to increase mainly in the Building and Infrastructure as well as Automobiles and Transportation fields. In the Building and Infrastructure field, successful steps are being taken to steadily increase sales of thermal insulation and noncombustible materials and to expand the share of the CPVC market in such countries as India. In the Automobiles and Transportation field, the new pickup of interlayer films for HUDs, where the liquidation of customers' stocks has been delayed due to a downturn in demand across the market as a whole, is expected to boost sales in the 4Q. Despite a forecast decline in profit due to such seasonal factors as the spring festival, trends are expected to be steady in the Electronics field focusing mainly on non-LCD-related products.
The new pickup of interlayer films, where the liquidation of customers' stocks has been delayed due to a downturn in demand across the market as a whole, is expected to record sales in the 4Q. Looking at products for HUDs in particular, sales in the 4Q are anticipated to clime around 30% compared with the previous year. This is up from the increase of just above 20% compared with the previous year in the 3Q. Taking into consideration the delay in customer certification, the new production line in Europe is scheduled to commence operations in the 1Q of FY2020.
We believe there was a slight rush in forward-looking demand from certain customers, who were wary of a fourth round of U.S. tariffs taking effect on Chinese imports. Moreover, our share is also increasing with growth in sales of adhesive tapes for smartphones and TVs. As far as the market is concerned, trends are projected to slightly exceed the Company's forecast as of October.
Our efforts are progressing in line with plans. We have cutback costs by around 3 billion yen in the 2H of FY2019 alone. In addition, we are reviewing the entire supply chain. This includes implementing purchasing and distribution reforms and improving productivity. We have also initiated steps to reorganize and optimize bases as a part of efforts to implement a series of structural reforms. Starting from the next fiscal year, we expect to reduce costs by around 10 billion yen on a cumulative basis over a three-year period.
About the impact on financial results of the new coronavirus
First, the impact on financial results of the new coronavirus has not been factored into the revised 2H plans announced in this instance. In addition, the Company does not maintain any production base in the areas around Hubei Province where the virus is expanding. As far as future financial results are concerned, an impact is conceivable should directives be issued to halt operations at the industrial complexes where the Company maintains plants. The impact could extend to the manufacture of automobiles due to a stoppage of activities by automobile manufacturers. We recognize the need to closely monitor the activities of customers as well as trends across the supply chain
Veredus Laboratories, a Group company based in Singapore, engages in the development, manufacturer and sale of molecular analyzers and diagnostic reagents for infectious diseases and anthrax biological weapons. The company has already commenced steps to develop products for the new coronavirus and is scheduled to launch a chip (diagnostic reagent) to detect MERS, SARS and the new coronavirus. Plans are in place to market this product in Singapore. Sales in other countries are yet to be determined.
About the impact on financial results of Boeing's cutback in production
The Company's aircraft sheets are mainly geared toward the first-class and business class markets. The number of first- and business-class seats in the BOEING 737 MAX aircraft is limited. Added to this, and interior upgrade demand for the previous model, we believe any impact on financial results will be nominal. Because Boeing is a principal customer of SEKISUI AEROSPACE CORPORATION, we will carefully monitor future production and demand trends. We will then factor any findings in financial results plans for the next fiscal year.
- *UIEP Company:Urban Infrastructure and Environmental Products Company
The vast majority of the company's sales are to Boeing if we include indirect deliveries as a second- and third-tier supplier. We are currently analyzing the degree to which financial results will be impacted from the next fiscal year by Boeing's cutback in production.
About such matters as housing and renovation orders
As far as new housing is concerned, orders mainly for rebuilding and apartment complexes stalled due to the consumption tax rate hike in October and a temporary downturn in consumer sentiment. Meanwhile, the Company has secured YoY increases in orders for its subdivision operations, where first buyers make up its principal customer, and smart houses, areas in which it focuses. Despite a substantial drop-off in the number of visitors in October as a result of the large-scale typhoon that hit Japan in the middle of the month, we believe it is possible to achieve 4Q plans on the back of the recovery in visitor numbers from November and successful efforts to secure a YoY increase. From a Renovation Business perspective, in addition to restrictions on sales activities that came naturally as a result of the typhoon in mid-October, the incidence of reconstruction relating to the such factors as the torrential rain in Western Japan resulted in a strong performance in the 3Q of the previous year. In the 4Q, we plan to build on the upswing in storage battery sales, where demand is increasing mainly from post-FIT scheme customers, while also utilizing the new nationwide rollout of Fami-S Museums as a tool in negotiations. Through these means, we hope to achieve plans.
We are looking at recording sales from the next fiscal year and are projecting a total of around 7 billion yen.
About such matters as the UIEP Company's financial results
Profit fell in the 3Q mainly because PVC pipes for general use struggled. This was largely due to the correction and downturn in demand following the consumption tax rate hike. From a profit improvement perspective, we have promoted the reorganization of production bases in east and west Japan under the current Medium-term Management Plan. In specific terms, we have undertaken efforts to reduce costs in various areas. This includes efforts to optimize the number of items manufactured as well as the distribution structure and systems, and to increase productivity. Some of these investments have already born fruit. We are expecting these measures will help further reduce costs from the next fiscal year.
Despite concerns regarding a shortage of construction workers, we believe increase in public sector budgets relating to the Plan for National Resilience will open up chances to further expand sales mainly of prioritized products in which the UIEP Company focuses.
About Other businesses
The eliminations or unallocatable accounts segment is mainly comprised of headquarters' expenses. While costs relating to the Company's Tokyo Headquarters relocation increased compared with the previous fiscal year, successful steps were taken to control other indirect expenses compared with plans as of the start of the period. Meanwhile, research and development under the control of headquarters and new businesses are included in the Other segment. In this regard, while profit is improving compared with the previous period as a result of efforts to promote a selection and concentration theme, we are steadfastly investing in such areas as large-scale new businesses where expectations are especially high.