Sekisui Chemical Co., Ltd. (SUI.SG) Earnings Call Transcript & Summary

Thank you for participating in the conference call. I am Keita Kato, and I was appointed as the President of Sekisui Group in March this year. First, I'd like to mention the countermeasures we are taking against the COVID-19 situation. We recently set up the emergency response headquarter while I serve as a Chair. This is intended to make appropriate decisions to cope with the situation should the current repercussion of COVID-19 expand further and last longer. We intend to establish a working environment where we place the highest priority in securing the health and safety of our employees and their families. We also intend to swiftly and thoroughly communicate any impact we would anticipate on the business to the investors and the shareholders as much as possible. Now let me start my presentation. I will walk you through the presentation material. I will refer to the slide numbers, which are indicated at the right bottom corner for each slide. On Slide 2, you will find the assumptions in our thought process for the FY '20 business plan, which reflects the impact of COVID-19. We assume that the business environment in mid-April, which was when we structured this business plan for FY '20, would continue until June and gradually recover thereafter and nearly go back to normal in the second half. The business performance may fluctuate subject to the timing of when things will settle down. In considering which businesses will be impacted, we expect the global auto production, smartphone production and sales would be impacted as well as the medical business as the number of health check and in-hospital test for lifestyle-related disease are declining. In Japan, as people choose to stay home, visitors to the model houses, number of discussion for home purchase and housing starts were all on the decline, and furthermore, the construction work has been delayed. For Sekisui Group having a wide variety of business portfolio, all the businesses are exposed to the challenge. We see material impact, particularly in the Mobility field within High Performance Plastics Company, or HPP, a new housing and home renovation business within the Housing Company. Given that background, for the FY '20 business plan, we will strive to minimize the impact of COVID-19 through unwavering efforts, including structural reform and aim to maintain and augment the supply chain to definitely achieve a V-shaped recovery from the second half. As for the impact on FY '19 results, operating income fell short by JPY 2.9 billion compared against the outlook announced in January. We have highlighted the breakdown by each divisional company on the slide. Let me also touch upon how we build the business plan for FY '20. Normally, we make our annual business plan in February. However, at that point this year, the impact of COVID-19 was still not clear, so we tentatively came up with a business plan that did not reflect the impact of COVID-19. That plan is referred to as FY 2020 Initial Plan on the slide, under which we set the sales target as JPY 1.1866 trillion and operating income target as JPY 98 billion. With the global spread of COVID-19 since then, today, we are announcing a business plan reflecting as much as possible the impact of COVID-19 that we can anticipate at this point based on the assumption that I have already mentioned. Due to COVID-19, the consolidated operating income will be pushed down by JPY 28 billion versus the initial plan, of which JPY 16.2 billion is within HPP, mainly from the Mobility field. Using Slide 3, I will illustrate the outlook for market conditions, which is used as the premise for the fiscal '20 business plan. The auto production is expected to be hit severely in the first half, particularly in Q1 and recuperating into the latter half of the fiscal year. Having said that, we expect the total annual auto production to be down by approximately 20%. We anticipate a gradual recovery for smartphone shipment as markets switch to 5G in the second half. The outlook for the overall visitors for the housing business is indicated by the graph at top right. Visitors to model houses shown by the blue line, is under pressure, with people choosing to stay home, and we expect a big dip in Q1. To offset this, we will focus on the Internet channel to get more requests for information from the customers and fortify the communication. The housing starts throughout the year is expected to drop significantly with weaker consumer sentiment. The naphtha price, considering the recent trend, could potentially decline further compared to what we are expecting today. Now let me go over the financial results in FY '20 plan. The currency assumptions for U.S. dollar and euro are indicated on Slide 4. The results for fiscal '19 is illustrated on Slide 5. We started to feel a significant impact of COVID-19 this February, mainly in HPP and Housing business. And net sales was down year-on-year by JPY 13.5 billion, and respective profit lines were down accordingly. Operating income declined by 8% year-on-year. The dividend was unchanged from the plan. And with the year-end dividend set at JPY 23, the full year dividend was raised by JPY 2 year-on-year to JPY 46 per share, marking the 10th year of consecutive dividend hike. Slide 6 shows the results by each divisional company, also short of the January guidance due to COVID-19. The left table illustrates the breakdown by divisional companies and year-on-year change. The operating income for HPP Company was down significantly as the business was severely impacted by the protracted weakness in the global auto markets from the first half, compounded by the impact of COVID-19 later in the year. The operating income for Housing Company was flattish from last year, as COVID-19 caused delays in the delivery of new houses and renovated homes at the end of the fiscal year. Although Urban Infrastructure & Environmental Products Company, or UIEP, struggled overseas with the deterioration in the business environment, the company renewed the previous record high-profit by growing the sales and profit with the prioritized products in Japan. Detailed presentation will be provided later by the company presidents. We also made progress in narrowing down and concentrating on the themes for R&D. On Slide 7, you will find the results for the first half and the second half. In the first half, we secured consolidated operating income that was nearly the same as the previous year. But in the second half, consolidated profit as well as operating income for each divisional company were down, caused by the weakness in the global market as well as the impact of COVID-19 in Q4. Slide 8 shows the analysis of the FY '19 results. Looking at the different elements impacting the operating income. Although we benefited from lower raw material costs as well as further deduction in the fixed costs, the weaker market in COVID-19 hit us hard, and sales volume and product mix had a huge negative impact in HPP. In addition, new consolidation led to further profit decline and the yen started to strengthen. As a result, the operating income declined year-on-year. From Slide 10, I'd like to walk you through our business plan for FY '20. The currency assumption is JPY 110 against the U.S. dollar and JPY 120 against the euro, as indicated on this slide. On Slide 11, you will find the plan for FY '20. Based on the assumption that I explained at the outset, we put together the business plan, having reflected all the impact that we could anticipate in mid-April. We are aiming for an operating income target of JPY 70 billion. The dividend is planned to be raised by JPY 1 to JPY 47 per share to continue the dividend hike straight for 11 consecutive years. We are also setting up a share buyback program once again this fiscal year, and we'll cancel 8 million treasury stocks. We will continue to actively engage in shareholder return. Slide 12 shows the FY '20 plan by divisional companies. Operating income is expected to drop significantly in HPP and Housing due to a severe impact from COVID-19, whereas for UIEP, the profit decline is anticipated to be more moderate. The table on the right illustrates how the current business plan compares against the initial plan, which did not reflect COVID-19. The impact of COVID-19 is estimated to be JPY 28 billion for the group, out of which JPY 16.2 billion is in HPP and JPY 8.5 billion in Housing. This slide is the divisional company's plan for the first half. We expect a huge profit decline in the first half as COVID-19 would impose a severe limitation on the economic activities, especially in the first quarter. Having said that, to be ready for the recovery in the second half, we will do our utmost to maintain the supply chain, including keeping the plant operations. The impact for respective divisional companies is indicated on the slide. As shown by the right table, out of the COVID-19 impact of JPY 28 billion for the full year, most of the amount, or JPY 24.7 billion, will hit the P&L in the first half. Slide 14 outlines the plan for the second half. We expect the COVID-19 impact to subside and plan for substantial profit growth. This will be evident, particularly in HPP, as we anticipate the V-shaped recovery with dedicated efforts and cost innovation and normalization of supply chain. Housing will be hit by the decline in the first half order. But by fortifying a ready-built housing business, we aim to recover the second half profit to be close to the second half profit in the previous year. In UIEP, we will continue to feel the impact of drop in the starts, but we aim for profit growth by expanding the sales of the prioritized products. Slide 15 is the analysis on the outlook for FY '20. The chart on the right illustrates the factors behind the change in operating income. As I have been explaining, the impact of COVID-19 in the first half is going to be severe, triggering a big negative impact on sales volume and product mix. However, we will strive for a V-shaped recovery in the second half. As our internal effort, we will continue to tackle the overall cost innovation for the supply chain, reduce cost of sales through structural reform and further lower the fixed costs. Let me also talk about our shareholder return policy using Slide 16. In fiscal '20, we are planning to pay a full year dividend of JPY 47 per share, which will mark 11 straight years of dividend hike. I'd like to draw your attention to the table at the top right. We will maintain a stable dividend policy that was also laid out in the previous midterm business plan. From FY '20 marking the first year under the new midterm business plan, we will further augment our commitment to shareholder return and make the policy more transparent. As to our shareholder return policy in the new midterm business plan, we have set up a dividend payout ratio target of over 35% and DOE of over 3%. We have also clearly stated the total return ratio and criteria for canceling the treasury stocks. Slide 17 explains how we are positioning FY '20. As we continue to be placed under the state of emergency with the spread of COVID-19, we will endeavor to minimize the impact as much as possible by doing what we can do. We also have our eyes already on post COVID-19 to make sure that we have the capabilities in place to capture the demand that will be pushed out. FY '20 is the first year under the new midterm business plan, and details will be unveiled in a presentation scheduled for May 22. In the first year of the new midterm business plan, we will strive to overcome this big challenge and prepare ourselves to capture the growth opportunity to bring the group back onto the growth trajectory for the next fiscal year onward. This will conclude my presentation. Thank you for your attention.

I am Tatsuya Nishida, the Executive Officer, Head of Corporate Finance and Accounting Department. Let me go over the highlights of the fiscal '19 results. The number of consolidated companies, as shown on the Slide 19, has increased on a net basis by 10 to 163 entities. Out of the 15 newly consolidated companies, 7 were due to the acquisition of SEKISUI AEROSPACE CORPORATION. The impact on the financial statement is shown by the bottom table. Slide 20 is a summary of P&L, and I will give you details on items below the ordinary income. Ordinary income was JPY 87 billion, marking a more moderate profit decline on operating income, thanks to the improvement on the nonoperating income and expenses. Extraordinary profit is mainly booked due to the ownership adjustment of the strategically held stocks, both in FY '18 and '19. This profit item grew, thanks to a bigger gain on sales in FY '19. The extraordinary loss was up due to the valuation of an investment in securities and asset impairment loss. As a result, pretax profit was down by slightly over JPY 10 billion and corporate income tax, among others, decreased accordingly. Net income was JPY 58.9 billion, down by JPY 7.2 billion year-on-year. Moving on to the balance sheet on Slide 21. The total assets increased by JPY 78.6 billion to JPY 1.1024 trillion. Most of that increase, or JPY 71.3 billion, was due to increase in the newly consolidated companies, such as SEKISUI AEROSPACE. Inventories were up JPY 25 billion. This was mainly due to the JPY 19.8 billion increase in the Housing Company, as we are building up the inventory for subdivision land for sales and ready-built houses as well as increase in the work in progress for houses. Tangible noncurrent assets increased by JPY 27.8 billion as our CapEx was higher than the depreciation. Increase in the intangible noncurrent assets was due to increase in goodwill and others due to the SEKISUI AEROSPACE deal. Investments in securities were down, partially due to reduction in the business-related stock holdings as well as decline in market value of the stocks we hold compared to the end of fiscal '18. As shown on Slide 22, total interest-bearing liabilities increased by JPY 63.8 billion as a result of active investment in shareholder return. Net interest-bearing debt, adjusted for cash and deposits, was JPY 40.8 billion, and our financial position has shifted from net cash to net debt. For retained earnings, net income grew, which was partially offset by dividend and cancellation of treasury stocks. In FY '19, we have also bought back 8 million shares and have canceled them. In addition, during FY '19, due to sales of stocks and decline in the unrealized holding gain on securities as well as the drop in currency translation adjustments with stronger yen, the growth of the total net assets was muted to JPY 1.5 billion. ROE, equity on total assets and D/E ratio are all shown at the bottom of the table. Let's move on to the consolidated cash flow on Slide 23. Operating cash flow has improved from last year, with positive inflow of JPY 92.6 billion. Compared to the operating income, the operating cash flow was better positioned compared to the previous year, mainly because of the higher depreciation and less cash outflow on working capital compared to FY '18. The investment cash flow was negative JPY 100.6 billion. CapEx peaked in FY '18 and started to peak out. But during FY '19, we increased the spending on M&A quite substantially. Net-net, the free cash flow was slightly over negative JPY 30 billion. Depreciation, CapEx and EBITDA by segments are illustrated on Slide 24. Depreciation as well as goodwill amortization is on the rising trend. And CapEx in FY '19 was 1.6x compared to the depreciation expenses. EBITDA for each divisional company, which is a pull for CapEx, is indicated by the column at the far right, and it stands roughly twice as high compared to the capital spending. FY '20 plan for depreciation, CapEx and EBITDA are shown on Slide 25. Due to depreciation incurred from the investments executed, among other factors, the depreciation is expected to rise. We plan to curb the overall fixed cost, but plan to keep the level of total R&D spending. On Slide 26, I'd like to reiterate the overview of the FY '20 plan as well as the shareholder return. We plan to raise the level of shareholder return by continuing to raise dividend, buy back shares and cancel treasury stocks. This will conclude my presentation. Thank you for your attention.

I am Ikusuke Shimizu, Company President of High Performance Plastics Company. Let me start my presentation on HPP. Slide 29 shows the performance trend. Looking back the results from FY '19, net sales declined year-on-year and operating income was down for 2 consecutive years due to the deterioration on the global market, especially in the auto industry as well as the COVID-19 impact from Q4. At the same time, we also made some progress in terms of growth investments, having completed the acquisition of AIM Aerospace Corporation, with an intention to pave our way into the aircraft market. For FY '20, the first half profit is projected to decline due to COVID-19. But assuming that from the second half, the impact of COVID-19 will subside and the auto market will start to recover, we are expecting an operating income of JPY 27.6 billion. Slide 30 illustrates the analysis of the FY '19 results. Net sales were down by JPY 18.9 billion year-on-year to JPY 322.4 billion. And adjusting for new consolidation and currency fluctuation, the decline in effect would have been JPY 15.6 billion. The chart on the right shows the analysis of the operating income. We benefited from year-on-year decline in raw material costs as well as the year-on-year savings and the fixed costs, thanks to emergency and other measures taken. However, sales volume was down due to COVID-19, particularly in the Mobility field, and one-off costs increase for plant integration of AIM Aerospace, among others. As a result, operating income was down by JPY 7.7 billion year-on-year. Compared against the January guidance, sales volume and product mix had a significant negative impact due to COVID-19. The breakdown of the impact of COVID-19 is outlined at the bottom left corner. JPY 4.4 billion negative impact on the total operating income, out of which JPY 3.1 billion is from the Mobility field, stemming from the global auto supply chain disruption, and JPY 0.7 billion in products for industrial application due to sharp demand drop in Japan since the end of February. On Slide 31, you will find the business plan for FY '20. Net sales projection is JPY 315 billion, down by JPY 7.4 billion year-on-year. If we adjust it back for new consolidation, currency fluctuation and other elements, the sales decline in effect would be JPY 21 billion. The chart on the right explains the moving factors behind the operating income. Despite the positive news of lower material cost, sales volume and product mix will deteriorate substantially, mainly for the Mobility field, and the operating income is expected to be down by JPY 9.5 billion year-on-year. The breakdown of the impact in the first half and the second half is shown below the waterfall chart. The first half will be hit severely by COVID-19. And overall, the operating income will be down by JPY 16 billion, out of which JPY 14.7 billion will be due to sales volume and product mix. On the other hand, for the second half, assuming that this pandemic will subside, we plan to improve on the sales volume and product mix in Mobility and Electronics business. The details of the JPY 16.2 billion COVID-19 impact is explained at the bottom left corner. Most of the impact will be stemming from the profit decline in the Mobility field due to drop in the oil production. And the impact is expected to be rather limited for the Electronics and Building and Infrastructure business. Given the current situation we are in, we plan to further accelerate our initiatives on cost innovation and business structure reform, which we rolled out last fiscal year. Next, let's look at the situation around the 3 strategic fields on Slide #32. As I mentioned earlier, with the exception of the Mobility field, Electronics and Building and Infrastructure fields are relatively robust. First, regarding the Electronics field, fiscal year 2019 continued to be a firm year when taking out businesses we have withdrawn from. The first half of fiscal year 2020 is expected to stay flat due to the impact from COVID-19. But for the second half, we expect sales growth coming from higher 5G demand and other factors. We will continue to promote the diversification of profit sources by expanding non-LCD fields. In the Mobility field, we struggled in fiscal year '19 due to the deterioration of the automobile market and the impact of COVID-19. We expect these trends to continue in the first half of fiscal year 2020, mainly in the first quarter, resulting in a large drop-off in sales, including sales at Aerospace due to COVID-19. In the second half of the year, on the premise that the impact from COVID-19 will dissipate, we are planning for an increase in sales, anticipating a recovery in the automobile market. We will continue to extend adoptions of interlayer films such as wedge films for HUDs and high-performance films as well as work on profitability improvement at Aerospace. Regarding Building and Infrastructure, we will strive to increase share of CPVC and also expand sales of thermal insulation and noncombustible materials. Cost innovation will be our most important initiative, and we will accelerate 3 measures in order to rebuild our earnings structure: reduction of fixed costs by cutting various expenses; promotion of supply chain cost innovations such as procurement optimization, et cetera; and structural reform through optimization of business consolidation. Slide #33. The final slide for the HPP business talks about our growth engines. First of all, sales of the non-LCD products in the Electronics field are increasing. And products such as highly adhesive easy-release tape, SELFA, for semiconductors and heat-releasing materials used at 5G base stations are doing well. The sales ratio for non-LCD products is expected to rise to 56% in fiscal year 2020. Regarding high-performance interlayer films in the Mobility field, we had a tough time in fiscal year '19, but we have been able to secure market share. In order to normalize the business by the second half of fiscal year '20, we will focus on expanding sales of wedge films for HUDs in particular as well as continue to increase the adoption of high-performance films. For heat insulation and noncombustible materials, we will strive to expand sales, centering on noncombustible urethane, whose market is rapidly expanding. Lastly, in the next-generation growth domains, we are focusing on certain themes for new product development so as to prepare ourselves for future growth. In Electronics, that would be next-generation displays and 5G; in Mobility, next-generation automobiles and CFRPs for aircrafts; and in Building and Infrastructure, safety and labor-saving construction. This concludes my part. Thank you.

Hello. I am Toshiyuki Kamiyoshi, Divisional Company President for the Housing Company. I will now go straight into my explanation for the Housing Company. Please turn to Slide #35. First of all, in fiscal 2019, sales were JPY 512.9 billion, and operating income, JPY 37.8 billion. COVID-19 affected performance significantly, and all businesses fell short of plan, resulting in a decline in income for the first time in 4 fiscal years. Especially for the Housing and Housing Renovation businesses, we underachieved the outlook due to delays in housing material deliveries in Q4 due to COVID-19. Next, with respect to orders on the right-hand side, new Housing and Renovation orders were both affected by COVID-19 in the fourth quarter, with new housing orders down by 6% year-on-year and renovation orders down by 5% year-on-year. As for the profit plan for fiscal 2020, we anticipate that we will struggle to receive orders for the first half due to COVID-19 and forecast operating income at JPY 32 billion, which will be a decline year-on-year. Please turn to Slide #36. Here is an analysis of net sales and operating income. In fiscal year 2019, we fell short of our sales plan due to the impact from COVID-19. Despite controlling costs, operating income decreased year-on-year. With regards to net sales on the left-hand side graph, sales increased 1% year-on-year or by JPY 6.2 billion. However, compared to plan, all businesses fell short. Next, looking at the analysis of operating income on the right-hand side graph, in the Housing business, processes were delayed because of material procurement difficulties due to COVID-19. The number of units sold decreased by 26 units compared to the previous year. And as we were able to make up for the increase in fixed costs, operating income decreased by JPY 1.9 billion. The renovation business also experienced process delays, resulting in sales underperformance and a decline in marginal profit. However, operating profit came in broadly flat compared to the previous year due to improvement in fixed costs. In addition, profits increased by JPY 600 million in the other domestic businesses due to the growth of the real estate business. As a result, Divisional Company total operating income decreased by JPY 1.2 billion year-on-year. Moreover, the impact of COVID-19 on our operating income forecast was minus JPY 2.7 billion, as shown on the bottom left of the slide. The breakdown for each business is shown in detail, and the decrease in the number of houses sold by 218 units had a substantial impact on us. Please turn to Slide #37. Here's an outline of our plans for fiscal year 2020. In fiscal year '20, we think that a profit decrease in the first half is unavoidable due to a large decline in orders, mainly in the first quarter because of COVID-19. However, in the second half, we aim to recover back up to the same level of profits as the previous year. Regarding the net sales outlook on the left-hand side, sales for all businesses are expected to decrease by 1% or JPY 7.4 billion year-on-year to JPY 505.5 billion. As for the analysis of operating income on the right-hand side, we expect operating income to decrease by JPY 5.9 billion for the Housing business, as we anticipate the number of houses sold to decrease by 520 units due to COVID-19 and because fixed costs are expected to increase due to growth investments. With respect to the renovation business, also due to COVID-19, we are expecting operating income to decrease by JPY 2.2 billion in the first half. But as we plan for an order recovery in the second half after COVID-19 subsides, we expect full year profit decline to be JPY 1 billion year-on-year. In the Others business, marginal profit of the town and community development business is expected to manifest, leading to a profit increase of JPY 1 billion. Due to these reasons, profits are expected to go down by JPY 5.8 billion year-on-year for the full year. The impact of COVID-19 on the initial plan's operating income is minus JPY 8.5 billion, as shown on the bottom left. Please turn to Slide #38. Regarding new housing orders, first, the visitor outlook is shown at the top left of the page. For the first quarter, visitors to model home galleries are expected to show a significant decrease tentatively to 20%. However, as we did during the second half of last fiscal year, we will continue to focus on attracting visitors online in order to make up for the decrease in overall customers. Regarding the breakdown of orders, as shown on the right, in the second half of fiscal year 2019, although there was a large drop-off in rebuilding and apartment building orders from the fourth quarter due to COVID-19, company-owned land, especially ready-built houses are performing positively year-on-year. In the first half of this fiscal year, we are planning to further strengthen sales of ready-built houses so as to make up for the other businesses. As for the order outlook for fiscal 2020, as shown in the graph on the right, assuming that COVID-19 settles down during Q1, we expect orders to decline by 18% in the first half and increase by 10% in the second half, which is about the same sales level as fiscal 2018. Regarding measures to secure orders, details are available at the bottom left, and we will continue to strengthen and expand our growth measures. Specifically, with regards to our sales force, we plan to strengthen web marketing based on customer trends and expand the development of experience-based showrooms to 32 locations. In terms of product strategy, we are focusing on a Smart House No. 1 strategy, aiming for a ZEH ratio of 85% and strengthening sales of ready-built houses. Also, regarding land strategy, we have secured sufficient inventories, with 9% more of land inventory and 51% more ready-built houses inventory compared to 2019. We plan to increase ready-built home orders by 33% year-on-year in the first half. Please turn to Slide #39. Here, we elaborate about our Heim owners business, which includes renovation, real estate, and town and community development. First, regarding the renovation business on the left-hand side, orders are expected to slow down during Q1 due to significant COVID-19 impact. However, we will strive to steadily capture recovery demand after the virus settles down. As for measures, we will aim to improve efficiency in our sales structure by assigning dedicated people conducting periodical diagnostics and strengthening our capabilities to make proposals by expanding the Fami-S Museum. As a result, we will step up orders for storage batteries and proposal-based products, such as bathroom products. Furthermore, like what we do with new housing construction, we will work to level out construction and sales and improve productivity. Next, regarding the real estate business on the upper right, we will strive to realize renovation collaboration in light of the integration of the stock-based businesses and focus on further capturing properties that are not currently managed as well as increasing resources for brokerage and second-hand housing purchases and resale. As for the town and community development business, we are planning to sell 100 units of condominiums at HEIM SUITE Asaka. As for overseas and residential, please refer to the details on the slide. That is all for the Housing Company.

Hello. I am Yoshiyuki Hirai, Company President for the Urban Infrastructure & Environmental Products, UIEP divisional company. I will go straight into my presentation. Please turn to Slide #41, where we show performance trends. Operating income in fiscal year 2019 fell short of plan due to the impact from COVID-19 in Q4, but we were able to reach record highs for the fourth consecutive fiscal year at JPY 15.5 billion. We believe the COVID-19 impact is unavoidable, especially during the first half of fiscal 2020. Hence, the profit plan is down year-on-year. However, we will strive to minimize the decline in earnings by focusing on expanding sales of prioritized products and the overseas business. Turning to Slide #42. Net sales on the left increased by JPY 1.6 billion on an actual basis when excluding structural reforms. In Japan, general purpose products struggled in the second half of the year due to decreased housing starts. But we were able to expand sales of prioritized products steadily. In the overseas business, sales of FFU products for railway sleeper applications increased steadily. However, overall sales came in broadly flat year-on-year due to sluggish sales of industrial piping materials, which was affected by companies cutting CapEx as well as aircraft sheets, which was affected by the deterioration in the aviation industry. The impact from COVID-19, as shown at the bottom, was minus JPY 4.6 billion on net sales and minus JPY 1.5 billion on operating income. In Japan, construction work was delayed or suspended due to late material deliveries. And in the overseas business, the aircraft sheets business was affected in particular. As a result, the impact of sales volumes and product mix on operating income, as you can see on the operating income analysis on the right, ended up being JPY 1.4 billion lower than the January outlook. The rest of the factors were broadly in line with expectations. Please turn to Slide #43. Regarding the fiscal year 2020 plan, we expect net sales, shown on the left, to decrease by JPY 9 billion. Out of which, minus JPY 8.1 billion is expected to be the impact from COVID-19, as shown at the bottom. Out of that amount, Japan is expected to account for JPY 4 billion due to a decrease in housing starts as well as a drop-off in public works orders. The overseas business is expected to account for a JPY 4 billion decrease in sales, due mainly to a downturn in aircraft production. Another factor that is not accounted for in our plan is the recent situation around general construction companies in Japan that are suspending construction work. If the suspension is prolonged, the negative impact on our performance will become larger as a matter of course. Looking at the graph on the right, sales volumes and product mix impact on operating income is expected to be minus JPY 2.8 billion, which includes COVID-19's impact of JPY 3.3 billion. However, we will strive to minimize the decline of earnings by focusing on selling price, raw material spread expansion, cost reduction and reducing fixed costs. The next slide, #44, is the forecast for the 3 strategic fields. Net sales are expected to decrease for all 3 fields in the first half of the year, but we plan for a sales increase in the second half. First, for Piping and Infrastructure, in addition to a decrease in housing starts, as most of the large construction projects have been completed prior to the Olympic Games, the first half will be a sluggish period. However, there will be some positives due to the postponement of the games. Before the postponement, we were originally expecting second quarter net sales to significantly decrease due to construction work restrictions in the Tokyo metropolitan area. Now with the postponement, we expect that some work can be carried out after all, and we will strive to capture demand associated to it as much as possible. There will be some large projects in the second half, so our plan is to grow mainly prioritized products. Sales for the Building and Living Environment field is also expected to gradually decrease due to less housing starts as well as withdrawal from unprofitable products through structural reform. However, profit margins are expected to improve. For Advanced Materials, the drop-off in aircraft-related demand is expected to be significant in the first half, so significant that the growing medical application demand will not be able to make up for the decline. However, we expect an increase in sales in the second half due to a recovery in aircraft as well as support from railway sleeper applications, as its advantage in cold weather regions has been recognized lately, leading to increased customer adoptions. As for structural reforms, our plan is to reduce fixed costs by more than JPY 5 billion over the current medium-term plan. We will steadily implement measures that we have started to work on since fiscal 2019, such as streamlining and automating production, utilizing digital transformation and identifying unprofitable fields. Slide #45 is the final page of my part, talking about growth strategies. Prioritized products are growing steadily, as shown on the graph. The products have been categorized into areas associated with solving social issues, such as resolving labor shortages, countermeasures for aging of infrastructure, responding to climate change and growth fields. These social issues are expected to become even more serious going forward. So we will strive to address the challenges by not only our current products, but to also grow by developing new products that can solve issues at a higher level. For example, as you can see on the right, the second example is sewage pipe rehabilitation materials. Originally, this product was used for aging infrastructure. However, we developed a new product that can be combined together with automation technology in order to address labor shortage issues and enables shorter, weather-agnostic, safe and quiet construction work. In other words, we are able to solve 2 or 3 social issues with 1 single product. We hope that this will lead to substantially higher customer satisfaction and higher awareness towards social contribution amongst our employees. As for the overseas business, we expect sales to decrease by JPY 4 billion due to COVID-19, but we will continue to implement sales expansion measures to prepare for demand recovery. As you can see on the right chart, partner strategies are critical in each of our businesses, and we will strive to expand markets together with processing and construction companies or companies that we have a stake in. Also for FFU, we are thinking about starting to take action to establish a production base in Europe, where demand is growing. That is all for myself. Thank you.

Hello. I am Futoshi Kamiwaki, Senior Managing Executive Officer and Head of the Business Strategy Department. I will give an explanation of the Medical Business. Please turn to Slide #47. Here are the performance trends for the business. In fiscal year 2019, net sales increased, due mainly to the diagnostics business overseas, but operating income decreased for the first time in 3 years due to some advanced investments. For fiscal 2020, we are expecting COVID-19 to impact us mainly in the first half, but expect a recovery in the second half, resulting in operating income that is broadly flat year-on-year. Please turn to Slide #48. Here is an analysis of net sales and operating income for fiscal 2019. The overseas diagnostics business steadily grew in particular, resulting in JPY 1.9 billion net sales growth. Looking at the analysis on the right. Profits increased, mainly driven by the overseas diagnostics business. The domestic diagnostics business was impacted partially by COVID-19, but achieved profit growth. Regarding the pharmaceutical sciences business cancellations due to customer-specific reasons led to a one-off order decline, which weighed on profits. Please refer to the bottom left. Approximately JPY 1.3 billion impacted operating income in fiscal 2019 due to COVID-19. Especially at hospitals, typical outpatient tests are declining, such as lifestyle disease-related diagnostics. Please turn to Slide #49. Here is the overview of the fiscal year 2020 plan. Net sales are expected to increase by JPY 1.6 billion. Looking at the analysis of operating income on the right. On top of the overseas diagnostics business that is performing well, we expect profit growth in the domestic diagnostics as well as the pharmaceutical sciences businesses, too. As we expect the first half to be impacted by COVID-19, our plan is to increase earnings, mainly in the second half of the year. Please refer to the bottom left. The impact from COVID-19 in fiscal 2020 is expected to be about minus JPY 1.7 billion at the operating level. Lifestyle-related disease diagnostics are expected to decrease during the first half of the year due to a decline in outpatients. As for COVID-19-related test kits, we do sell some in the overseas markets, but the impact on our business is expected to be limited. It is sold in some overseas markets and will be a positive factor on net sales growth. Please turn to Slide #50. Sales by business are broken down here. For the domestic diagnostics business, we will strive to accelerate the launch of new products in particular and plan for a sales increase. COVID-19 will impact the first half of fiscal 2020, but we expect a recovery in the second half. As for overseas diagnostics that is doing well, we plan for net sales growth in both the first and second half. In China, we are planning to begin operating a new plant, and we'll continue to seek growth through the expansion of blood coagulants. As for pharmaceutical sciences at the bottom left, although we will see some impact from COVID-19 in the first half, we expect sales growth in the second half. In the pharmaceutical business, in particular, we have already locked in orders for manufacturing pharmaceutical ingredients and expect this to be a driver for sales growth in the second half of the year. Please refer to the bottom right. Fiscal year 2020 will also be a very important year for new products. New product introductions are expected to be about double compared to fiscal 2019, and we will strive to expand sales. This concludes the explanation about the Medical Business. Thank you for your attention.