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

Hi. I am Kato. Thank you very much for participating in today's session despite your busy schedule. Starting on Page 1. I would like to explain some of today's highlights the message to stress. First, the result for FY 2024. In FY 2024 net sales increased by JPY 41.2 billion to JPY 1,297.8 billion. Operating profit grew by JPY 13.6 billion, exceeding the JPY 100 billion and landing at JPY 108 billion. Profit at all levels exceeded the January forecast and recorded highs. ROE was 10.2%. We plan to continue to grow sales and operating profit in FY 2025. Operating profit is set at JPY 115 billion as per the midterm plan, and we aim to record highs at each level of profit. There are some uncertainties such as the impact of tariffs and FX fluctuations, which I will explain later. But we've managed to set a profit plan as of the end of March to achieve the final year target of the midterm management plan. We believe our earnings power is steadily growing and is driving our growth. As for shareholder returns, since the final profit for FY 2024 was JPY 81.9 billion. As per our shareholder return policy, we increased the year-end dividend by JPY 2 from the January forecast to JPY 42 per share or annual dividend of JPY 79 per share. For FY 2025, we plan to increase the annual dividend by JPY 1 to JPY 80 per share, the 16th consecutive FY of dividend growth. We've set a limit of 4 million shares for the share buyback and will cancel 4 million shares. Page 2 is progress of the midterm plan. First, the investment plan. The cumulative total for the 2 years until FY 2024 on a resolution basis was JPY 195.8 billion. We had capacity expansion in High Performance Plastics and CapEx for the launch of mass production lines for perovskite solar cells and so increase in gross investment projects. As such, strategic CapEx is expected to exceed the budget set in the midterm plan. We will also continue to watch several M&A projects, mainly in growth areas. Below left is strategic innovation. Regarding perovskite solar cells, we set a new company in January are making good progress towards the launch of a 100-megawatt skill production line. In the bottom right for strengthening the ESG management platform, the sales ratio of products enhancing sustainability grew steadily to 77%. We'll continue our efforts to contribute to the natural environment and to solving social issues while achieving profitability and sustainable growth. Page 3. This page explains our shareholder return track record policy and plans for FY 2025 for your reference. In FY 2025, we continue to actively make return to shareholders, aiming to increase dividends for the 16th consecutive fiscal year with a focus on increasing profits and dividends. And that's all from myself. Thank you

This is Ikusuke Shimizu, Head of Business Strategy. I will cover the FY '24 for financial results and the plan for FY '25. Please turn to Page 4. The FX rates are indicated on the slide. Page 5 is the overview of the FY '24 results. As Mr. Kato explained at the outset, all profit lines grew marking record highs. The blue star marks indicate record high figures. Operating profit reached JPY 108 billion. Page 6 illustrates the segment results. In HPP, growth was driven by high performance products mainly in the electronics field, resulting in higher sales and a substantial increase in operating profit. In housing, despite the delay in the new housing market recovery in some rural areas, we were able to hold a decline in profit and achieved a significant profit growth, through measures to strengthen profitability and growth of the renovation business. In UIEP, although the market remains sluggish, we achieved sales and profit growth by improving the selling price and expanding sales of prioritized products. The Medical business achieved higher sales and profits by growing the sales of testing kits overseas and the Pharmaceutical Ingredients business. HPP, UIEP and Medical renewed the previous record high profits. The other sequential results were as indicated on the slide. Page 7 illustrates the segment results breakdown for the first and the second half. The second half results are indicated on the right. HPP Housing and Medical achieved significant profit growth again in the second half. Steady OP growth was sustained in UIEP as well. The other segment in consolidated figures were as illustrated on the slide. Page 8 shows the analysis of the FY '24 results. The factors behind the OP change are indicated on the right. Due to the sluggish domestic and overseas markets, sales volume and the product mix contribution fell short of the January forecast, but sales increased significantly year-on-year, owing to expanded sales of high-performance products. Despite the impact of higher fixed costs and raw material costs. Operating profit was up by JPY 13.6 billion, surpassing the January forecast to JPY 108 billion. Let me switch up the topic to FY '25 plan from page 9. The FX assumptions are as stated. The FY '25 plan was formulated in March before the announcement of the U.S. reciprocal tariff measures and I will cover the potential impact later in my presentation. Page 10 is the business plan and shareholder returns for FY '25. As stated by Mr. Kato at the outset, we are guiding for operating profit of JPY 115 billion and net profit of JPY 82 billion, in line with our medium-term plan. We raised the annual dividend by JPY 1 to JPY 80 per share, marking the 16th consecutive year of dividend hike. Page 11 illustrates your outlook for market conditions. The global auto production volume in the upper left has slightly exceeded our expectation in the fourth quarter of FY '24. For FY '25, we expect the volume to be roughly on par with the previous year. The smartphone shipment volume in the lower left was in line with our expectation and on par with the previous year in Q4 of 2024. For FY '25, we expect the shipments to slightly exceed the previous year. Upper right, total visitors to the housing business in the second half of FY '24 were down year-on-year, and we expect modest year-on-year decline for FY '25 as well. As indicated below the table, we expect new housing starts to continue to decline, falling below 800,000 units in FY '25. Lower right, domestic naphtha price was slightly above the forecast in Q4 of FY '24. We expect the price to drop slightly year-on-year in FY '25. Page 12 demonstrates the FY '25 plan by segment. We project to achieve higher sales and profits for all segments with the three segments excluding housing expected to achieve record high profits. For HPP, we'll continue to focus on expanding sales of high-performance products aiming for sales and profit growth as well as the new record high profit. For Housing, while the number of orders is expected to remain nearly flat year-on-year. We plan to achieve sales and profit growth on the back of higher unit prices and growth in the renovation business. In UIEP, we plan to achieve new record high profits by continuing to expand sales of prioritized products, increasing overseas sales and thoroughly securing spreads. In Medical, we aim to achieve record profits by securing domestic and overseas diagnostic demand and strengthening new orders in the pharmaceutical science business. In other segments, we'll focus on making steady progress to the purpose perovskite solar cell business in particular. Page 13 is the FY '25 segment outlook for the first half and the second half. In the first half, we plan to increase profit in HPP and Housing. In the second half, we aim to grow the profit in all segments. Page 14 shows the analysis of the FY '25 plan. Please take a look at the waterfall chart on the right. FY '25 plan calls for another significant profit growth from the sales volume and the product mix component. On the other hand, we expect an increase in fixed costs due to investments in human capital in the new ERP system that went live this fiscal year. However, we plan to cover these increases through improvements in selling prices and CR, et cetera, aiming for JPY 115 billion in OP, up by JPY 7 billion year-on-year. Please turn to Page 15. As FY '25 is the final year of the current one-term plan, let me also highlight the progress. The upper section shows the FY '25 plan against alternatives outlined in the midterm plan. Q3 changes in downturns in market conditions, sales will fall short of the medium-term plan. But nevertheless, sales continue to grow steadily. Profits were in line with the medium-term plan. The lower section indicates the progress of profit plan by segment. While the Housing and Medical segments will not meet the targets in the midterm plan, HPP and UIEP are expected to achieve the midterm targets. Page 16 provides a GAAP analysis versus the midterm plan. Due to changes in market conditions, sales volume and product mix contribution will fall short of expectation, but this will be offset by improvements in selling price, control over fixed cost as well as FX gains, resulting projecting profits in line with the midterm plan. Page 17 is the historical trend of consolidated performance. Through our efforts to date, we believe we have made solid progress in enhancing our earnings capability and improving profitability while also achieving steady growth. Further eyes on the future growth, we'll focus on our OP target of JPY 115 billion for FY '25 to renew the record high profit for 2 years in a row and achieve the midterm plan targets. Page 18 will be the last page from me. As we all know, the outlook remains uncertain due to the impact of U.S. reciprocal tariff policy and motile FX market. I'd like to give this opportunity to reiterate the assumptions and thinking behind our FY '25 plan. First, as we typically formulate our plans for the next fiscal year around February and March, the impact of tariffs and other factors has not been reflected. As shown at the upper right, we estimate the direct impact of reciprocal tariff measures to be approximately negative JPY 2.5 billion on OP. However, we plan to offset this by the measures outlined here. The lower right table outlines the other potential impacts, such as weaker demand, retaliatory tariffs by other countries and FX fluctuations and forecasting is extremely difficult. That said, we respond appropriately as circumstances change and focus on taking all possible mergers within the company's capacity to minimize the impact. That concludes my part. Thank you for your attention.

Yes, this is Nishida speaking. Please allow me to explain the FY 2024 result. Page 20 shows changes in consolidated subsidiaries and their impact on financial figures. Sekisui solar film in charge of perovskite business has been consolidated from fourth quarter of FY 2024 upon its establishment. For consolidated P&L on page 21, I will explain the items below ordinary profit. Ordinary profit was JPY 111 billion, up by JPY 5 billion. The smaller increase than operating profit is mainly due to a JPY 7.4 billion deterioration in FX gains and losses. Throughout FY 2023, the Japanese yen depreciated by around JPY 18 against the dollar, resulting in an FX gain of JPY 7 billion, whereas in FY 2024, the yen appreciated by about JPY 2. In both fiscal years, extraordinary profit included a gain on sales of policy shareholdings of slightly more than JPY 14 billion. The main extraordinary loss in FY 2024 was an impairment loss of JPY 2 billion as a result of review of future plans for a portion of the diagnostics business in the U.S. Net income increased JPY 4.0 billion to JPY 81.9 billion, the historical high. Next is the balance sheet on Page 22. Total assets increased by JPY 7.5 billion. Excluding foreign exchange and changes in consolidated companies Total assets grew by JPY 16.7 billion. Inventories increased by JPY 15.6 billion. The main changes include a decrease in inventories of ready-built housing in the housing company, an increase in work in process for construction and increase in raw materials in the nonresidential division. Investment securities decreased by JPY 22.3 billion, mainly due to sales. Next, is on Page 23. Net interest-bearing liabilities was negative JPY 31.8 billion and remained virtually debt free. Retained earnings increased due to net income and the decrease due to shareholder returns. We purchased and canceled 4 million treasury shares, respectively, in FY 2024. Valuation difference on available-for-sale securities decreased by an amount equivalent to unrealized gains due to the sale of stock holdings. Equity to asset ratio, NDE ratio are also shown on the list. ROIC was 8.1%, an improvement of 0.8%. ROE was 10.2%, a slight decrease year-on-year. This is because the percentage increase in shareholders' equity was higher than the percentage increase in net income. In addition to the increase in retained earnings, the currency translation adjustment at the beginning of the year were larger than in the previous year since equity capital is calculated as an average of the beginning and the end of the year. Next is consolidated cash flow, Page 24. Operating cash flow was JPY 119.2 billion, a JPY 12.6 billion improvement year-on-year. In addition to improved profit, working capital also improved. But cash outflows from the tax payment increased. This was due to higher than normal tax payments in FY 2024 due to the sale of securities in FY 2023. Investment cash flow was a cash out of JPY 61.5 billion. Cash out increased due to CapEx increased by JPY 9.9 billion from the previous year, while cashing from sales marketable securities decreased by JPY 23 billion. Free cash flow, including dividend payments was a cash-in of JPY 24.8 billion. On top of this, there was a cash out of JPY 8.9 billion for share buyback, resulting in a decrease in interest-bearing debt and an increase in cash on hand. Depreciation and Capital Expenditures and EBITDA by segment are shown on Page 25. Depreciation and CapEx are on an increase. And in the previous fiscal year, executed Capital Expenditures of about 1.3x depreciation and amortization. EBITDA source of funds increased by JPY 14.6 billion to a record high. The plan for depreciation, Capital Expenditures and R&D expenses are shown on Page 26. We plan to significantly increase CapEx in FY 2025 to support capacity expansion and other activities. That JPY 105 billion includes JPY 15 billion expenditures related to the perovskite sekisui plant less subsidies. Investment at Sakai will continue in FY 2026. That's all from me. Thank you.

My name is Akira Asano, and in January this year, I was appointed as the Company President of HPP. Let me share the business status of HPP. Page 28 illustrates the performance trend of HPP since FY 2015. Despite reshuffling our business portfolio with UIEP in the second half of FY 2022, we still achieved record high profits for two consecutive years in FY '23 and FY '24. FY '24 stood out with a significant profit growth driven by high performance products in the electronics field. Looking ahead to FY '25, despite global market uncertainties, we'll continue to focus on expanding sales of high-performance products in all strategic fields to achieve both sales and profit growth aiming for three consecutive years of record high profits. Page 29 shows the FY '24 results and how we fared against the previous year. Although the global market, including Auto, remained sluggish, we were successful in exciting sales in electronics, mainly through the advanced semiconductors in mobility with high-performance interlayer, and in industrial field, with labor saving and environmentally friendly products. Sales were up year-on-year by JPY 34.5 billion to JPY 447.4 billion with operating profit growing substantially by JPY 10.3 billion year-on-year to JPY 61.2 billion. Looking at factors behind the OP growth. volume and mix element was up significantly, and we also enjoyed the FX benefit. The impact of raw materials was offset by improvement in selling price and CR, et cetera. Underpinning with HPP's record high profits for both the second half and the fiscal year. Page 30 provides the analysis of FY '25 plan and the year-on-year changes. Despite the outlook of continued downturn in the auto market, we aim to achieve a few consecutive years of record profit by increasing volume and mix contribution, primarily in mobility including the aviation sector with some signs of recovery, increases in fixed costs such as R&D and human capital investments with the next midterm plan on our mind, as well as the raw material cost impact will be covered through improvements in selling prices in CR, et cetera. Sales is expected to go up by JPY 35.5 billion year-on-year to JPY 482.9 billion, with OP growing by JPY 2.8 billion to JPY 64 billion, marking a third consecutive year of record high profit. Page 31 shows the net sales trends and KPIs for three strategic fields. In electronics, the smartphone market and demand for large panels are expected to remain robust, and we anticipate steady growth in FY '25. In particular, we continue to strive for share gains and capturing key orders in the non-LCD field, focusing mainly on advanced semiconductors. In mobility, will continue to expand sales of NHPP products, mainly for head-up displays in the Intelligent film business and focus on growing sales of heat wave materials for electrical equipment. Furthermore, with aerospace achieving profit in the second half of FY '24 and expected to make full contribution this year, we'll step up our efforts for sales growth in the aviation and air mobility field. In the industrial field, sales are on an upward trend due to improvements in selling prices, they made weak market conditions. In addition, sales of labor shaping and environmentally friendly products, including sensors and key materials are progressing steadily, and we will continue to focus on maintaining spreads while elevating our presence in this field. This concludes my presentation on HPP. Thank you for your attention.

I am Yoshida from Housing Company. Please refer to Page 33. First, performance trend. In FY 2024, the new housing market was relatively strong in urban areas, but remained sluggish in rural areas. Operating profit increased significantly as a result of profitability enhancing efforts in the housing business and order growth in the renovation business and exceeded the January forecast. For FY 2025, we do not expect the market recovery and the number of new housing orders to remain roughly the same as the previous year. but we plan for an increase in net sales and operating profit on the back of a continued increase in unit prices through expanded sales of high-priced products and renovation business growth. Next, Page 34. For FY 2024 result analysis. The left graph net sales shows a decrease for the housing business due to a decline in the number of houses sold, an increase for the renovation business due to order growth. The company's overall sales decreased by JPY 5.7 billion. As for the changes in operating profit for the housing business, the impact of a decline in the number of houses sold was offset by product mix reduction in measures to strengthen profitability geared towards reducing fixed costs and posted an increase of JPY 2.3 billion. The renovation business was up by JPY 1.6 billion, thanks to contribution by shift personnel and the enhancement of periodic inspections to steadily capture demand. The overall OP was JPY 31.5 billion, JPY 400 million more than the forecast announced in January. Next, 2025 plan on Page 35. Net sales is shown to the left. In the housing business, we plan the sales increase by increasing the number of houses sold and unique prices on the back of improvement of the product mix. In the innovation and residential business, we plan to increase overall sales by JPY 16 billion to JPY 540 billion through a continued growth in orders. To the right operating profit is planned to grow by JPY 4.5 billion to JPY 36 billion, with each segment reporting an increase. In the housing business, we plan an increase of JPY 3 billion year-on-year as an increase in the number of houses sold and an increase in the unit price through sales expansion of high-priced products, mainly in urban areas will offset an increase in fixed cost to better support sales effort. In the renovation business, we plan an increase of JPY 1.1 billion by growing orders. In the residential business, we plan to reduce the margin of profit increase due to investment for sustainable growth. Next, Page 36 for the status of each business. to the left of new housing orders. In FY 2024, ordering unit was slightly lower than the January forecast, but on a value basis, it increased by 104% in the second half of the year. In FY 2025, we do not expect the market recovery and plan orders against the previous year. However, we'll focus on expanding orders for custom-built detached housing and apartment buildings and other high-priced products and plan to continue to increase the value of orders. Next is orders by type of construction in the middle. The number and the value of apartment buildings increased contributing to an increase in the unit price. In FY 2025, we'll focus on expanding sales of detached houses and apartment buildings. We also strengthened area-specific product strategies to grow orders. Next on the right measures to enhance profitability. We achieved the target 1 year ahead by reducing fixed cost for new housing business, mainly by shifting personnel to growth areas. Based on the strengthened profit base, we will strengthen in area-specific marketing and launch products strategically to make a shift towards marginal profit growth in FY 2025. In the renovation business, bottom left, orders are steadily increased in FY 2024. In FY 2025, we'll continue to upgrade periodic diagnosis and enhance sales capabilities aiming for further growth. In the residential business to the right bottom-hand side, we aim stable growth by increasing the number of dwelling units under management at real estate business and focus on the purchase resale as well as the asset utilization business. Town and Community Development business is steadily growing. We'll focus on securing projects in the lead-up to the next midterm plan. For a sustainable growth based on the revenue base of changes and by the profitability enhancement ages will generate stable profits in the new housing business and drive growth of renovation and the residential business. And that's all for Housing Company. Thank you.

This is Yoshiyuki Hirai, Company President. I will start my explanation from Page 38, showing the performance trend. For FY '24, net sales were JPY 240.5 billion, with OP of JPY 23 billion and the operating margin of 9.5%, which were all new record highs. Despite sluggish residential and nonresidential market, we secured sales and profit growth by improving the selling prices and expanding sales of prioritized products. And for the OP, we renewed the record highs for 3 consecutive years. In FY '25, we'll continue to grow the sales of prioritized products increased overseas sales and through secured spreads. Aiming for net sales of JPY 251.8 billion and OP of JPY 26 billion, which should be recognized for the fourth consecutive year and operating margin of over 10%. Page 39 is the FY '20 results analysis. The consecutive years of sales and profit growth were achieved by nearly offsetting the higher total costs, including raw materials and fixed costs and by improving selling price as indicated on the right. On the other hand, our results were significantly short of the January guidance. The main factors were construction delays due to overtime restrictions in the industry. drop in orders and delays in pipeline renewal work in Japan and overseas, among others. We recognize that the point year-on-year decline in the volume and mix factor is a major challenge for us. Page 4 shows the plan for FY '25. First, the domestic market. We expect both residential and nonresidential market to be flat year-on-year. but we are planning for sales and OP growth that will renew the previous record highs. As for the factors behind the OP change shown on the right, we plan to offset the negative impact of raw material and fixed costs by volume and mix contribution, mainly in the second half as well as improving the selling prices. For sales volume and product mix, our efforts in Japan will be to expand the sales of prioritized products such as earthquake-resistant PE pipes product. Overseas will focus on expanding sales of new CPVC products and acquiring new orders for FFU and pipe rehabilitation. Pipes cells loaded to semiconductor plants are also expected to grow in the second half. improvements in selling prices achieved in the second half of last fiscal year will contribute in the first half of this year. Page 41 illustrates the three strategic fields. First, on the pipe system at upper left, we expect sales to be down in the first half and up in the second half. The piping market is anticipated to remain flat year-on-year in the residential and nonresidential sectors. Our CapEx demand is expected to recover in the second half. We aim to grow the sales of prioritized products and work tenaciously to secure spreads. For CPVC, in our mid-market India, the channel inventory is expected to remain high in the first half. As such, we do not expect significant growth for the full year, but will strive for market share gains with new products that are competitively priced. In building and infrastructure composed materials that are right, we plan for sales growth in both the first and the second half for FY '25. We continue to expand new applications for stent in noncombustible materials and work to secure orders for FFUs, for which implies are increasing digital presence over our European plant. In Unit Bath, the focus is on capturing demand for nursing care and renovation. For infrastructure renovation at lower left, the plan aims for sales growth in both the first and the second half of this year. In the pipe renewal business in Japan, we'll focus on winning projects that emerge from nationwide checks and overseas we'll focus on acquiring new orders as through collaboration with construction partners. For Aqua Systems, we'll focus on orders through large projects such as factory facilities as well as water storage panel tanks. In the growth areas shown on the bottom right, we continue to grow results of the prioritized products. Some product groups were newly added the fiscal year. So the growth appears to be significant. We'll focus on increasing adoption of products that contribute to disaster prevention and mitigation, such as earthquake-resistant PE pipes, fire-resistant products and pipe renewal materials. Overseas sales variation will be driven by new CPVC products and FRP railway sleepers. Sales in the growth driving business segment saw a slowdown in the second half of FY '24, but with preparations progressing smoothly, we'll strive to achieve our targets for FY '25. That concludes my presentation.

Thank you for your attention I am Takahashi from Sekisui Medical. Page 43 for performance trend. In FY 2024, sales of infectious disease testing kits in U.S. -- in the U.S. remained strong, while mainstay pharmaceutical ingredient API sales and the draft development solutions order trended solid. As a result, we achieved record high sales and profit with net sales of JPY 99.2 billion and operating profit of JPY 12.8 billion. In FY 2025, we work to capture diagnostics in Japan and overseas and strengthen efforts to capture new orders in the pharmaceutical science business while targeting record high net sales of JPY 102.2 billion and operating profit of JPY 14.5 billion for a second consecutive line. Page 44 shows FY 2024 results analysis. As shown on the left, net sales were JPY 99.2 billion, up by JPY 6.6 billion from the previous year. In the sales of infectious disease test and kits, net sales increased by JPY 3.1 billion, as shown in the parentheses. Operating profit increased JPY 1.6 billion year-on-year to JPY 12.8 billion, thanks to a major increase in the sales of infectious disease testing kits in the U.S. in the overseas diagnostics business as well as strong sales of mainstay API in the pharmaceutical science business. In addition, fixed cost reductions in Japan and overseas led to overshooting of the January forecast, resulting in an increase of both sales and income. Next, Page 45, our review of FY '25 plan. On the left, sales is planned at JPY 102.2 billion, up by JPY 3 billion from the previous year. And the sales, excluding infectious disease testing kits are expected to grow by JPY 2.7 billion. Operating profit to the right is planned to grow by JPY 1.7 billion to JPY 14.5 billion. Although we expect a decrease in shipments of some products to major customers in the U.S. We steadily captured domestic demand for diagnostic reagents and continue to focus on acquiring new orders in the pharmaceutical science business and so on. As such, we aim for the second consecutive year of record high profits Finally, Page 46 for overview by business. To the left top hand side, in the domestic diagnostics business, we've steadily captured demand mainly for immunology testing in FY 2024. For FY '25, we launched an advanced model of our mainstay automated blood coagulation analyzer in Japan on the 23rd of this month. While responding to customer needs, we will also focus on expanding sales of instruments and reagents in the blood coagulation area to capture further demand for testing. Next, in the upper right, overseas diagnostics business. In FY '24, were affected by a decline in demand for testing in China due to its preferential treatment of domestic products but we grew sales significantly by expanding sales of infectious disease testing is the U.S. to compensate for the drop. In FY '25, although we expect impact of a shipment decline in some products for major customers in the U.S. In China, we plan to launch a new model for blood coagulation. We'll continue to acquire new customers by enhancing our instruments lineup. Left bottom hand side in the Pharmaceutical Sciences business, sales of mainstay API and the contract research in the Drug Development Solutions business were strong in FY '24, and we stay focused on acquiring new orders in FY '25. Finally, the bottom right shows the sales trend of our priority infectious disease testing kits. In FY '25, we continue to steadily capture demand for testing as we did last year. And that's all for our medical business. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]