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My name is Yoshiyuki Hirai, Director and Managing Executive Officer of Sekisui Chemical. Let me go over the first quarter results and the outlook for the first half.
At the outset of the fiscal year, we set the currency assumption at JPY 108 against the dollar and JPY 134 against the euro. For the second quarter, we revised the FX assumption to JPY 110 against the dollar and JPY 129 against the euro.
Here is the P&L for the first quarter of fiscal 2018. Although the profit declined, to our disappointment, the result was in line with our expectation. The level of decline for ordinary income and the quarterly net income was more moderate compared to the drop in operating income. This can be explained by the absence of a sizable nonoperating loss this year, as well as looking at extraordinary profit last fiscal year. Adjusting for those extraordinary items, the net income was pretty much flat over last fiscal year.
On this page, you can see the sales and operating income by respective divisional companies. Unfortunately, profit declined for all the divisional companies but the level was on par with the plan. HPP, High Performance Plastics Company, and UIEP, Urban Infrastructure and Environmental Products Company, had front-loaded fixed cost capital spending intended for their strategic investments. On top of that, higher raw material costs resulted in lower profit for Q1, but we believe that the volume and the product mix should grow and improve coming into the second quarter.
The Housing Company performance was impacted by the decline in the number of houses sold in the first quarter due to delays in construction completion, whilst the balance of orders leading into the second quarter is growing. Negative JPY 0.5 billion for elimination and unallocatable accounts includes one-off items of roughly JPY 0.4 billion, such as revising the bonus-preserving criteria for those who have been seconded from outside to a more uniform standard, among others. Those items impacted the results for the first quarter, but that will not be the case for the second quarter and beyond.
Next, on Page 4 is the outlook for the first half. As you can see, we have not revised the guidance announced in April, which is shown in the column on the far right.
As illustrated on this page, the first half operating income projections by divisional companies remain unchanged. The columns in the middle indicate the outlook for Q2. We expect sales and profit growth for all of the divisional companies and hope to maintain this momentum for Q3 and Q4.
For HPP, the fruit of the strategic investment, particularly that of a production ramp-up, will come through and we believe this will help to offset the higher raw material costs and increase in fixed costs, which posed some challenge in the first quarter. For housing, by delivering the new houses in the current order backlog in Q2, we believe we can meet the sales improvement plan for the first half. For UIEP, we are enjoying steady growth, particularly in the overseas business with better volume and product mix. In the domestic market, we will focus on reaching further agreement for product price hike in Q2, although this year, we are behind by 1 month compared to last fiscal year in starting a price negotiation. We will also be spending the R&D expenditure as planned.
Let's look at the analysis of net sales and operating income more closely. On the left is a projection for sales, which is expected to grow by JPY 31.9 billion, partially owing to the impact of new consolidation. However, even after stripping out such impact, we expect the like-for-like sales to grow by JPY 16.9 billion. The analysis of the operating income is illustrated on the right-hand side. The blue box indicated as first half plan below the bar graph explains the components of the minus JPY 1.5 billion as projected in April. The blue box above the bar graph shows the latest updates for the first half and the light blue box indicates the actual progress in the first quarter.
Compared to the April projection, the current expectation for the change stemming from selling quantity and composition will be slightly more moderate mainly due to the Housing Business, whilst the adverse impact of raw materials and fixed costs is expected to be more benign. Net-net, we expect the overall impact to be in line with the original plan, partially thanks to the CR activities.
Now let's go over the details by divisional companies, starting with HPP. On the left is the sales trend. New consolidation will have a sizable contribution to the sales outlook for the first half, but even when adjusting for that, the sales is expected to go up by JPY 4.5 billion. On the right is a projection for operating income, and selling quantity and composition is expected to slightly outperform the guidance. The raw material costs will be lighter than expected and with improvement in CR, or cost-reduction, efforts we should be able to offset the negative implications of the selling price to achieve the operating income in line with the plan. I should also note that there are some one-off items in fixed costs.
Let's focus on the 4 strategic fields in HPP. For electronics, the smartphone-related demand is slightly below our expectation, but Q4 last year, which was the most severe period, is already behind us, and we expect a gradual recovery trend in Q1 and Q2. In Q1, the new application for the ultra-thin foam contributed to the earnings, and we enjoyed brisk business for large-size TV and digital signage applications.
Marketing activities in packaging and semiconductor field, which is a focus under the current midterm business plan, are making good progress, and we will continue our efforts in this field. The red figures indicate incremental contribution coming from new M&As.
In automobiles and transportation, we see the global auto production to be firm in general, although we do detect some slowdown in China. The new production line in Mexico for the interlayer film is now operating at full capacity and is contributing in full to the volume ramp-up of high-performance products. The heat-release material businesses Sekisui Polymatech, acquired last year, is enjoying stronger demand for applications including that of lithium-ion batteries. As announced recently, we will set up production and sales base in Europe for this business. We already have established mainstay business in Roermond, Netherlands, so the base for the heat release materials business should create synergy from the perspective of total solution package for the auto and transportation business.
For building and infrastructure, demand is growing globally for chlorinated PVC, although that trend was somewhat patchy depending on the geography. Asia, such as India, posed some challenges. As we have nearly made our ways into the U.S., we believe we can grow our market share.
For fire-resistance materials, the newly-acquired Soflan business was upbeat on top of the brisk performance with existing products. We will capture further business opportunities as we expect the fire-resistant material demand for urethane, in particular, to grow going forward.
In life science, we are enjoying high-growth for reagent business both in Japan and overseas, with a particular boost coming from China. The diagnostic reagents business that was acquired in Singapore is newly consolidated as of [indiscernible] April, and we will step up our efforts for exploiting new demand in ASEAN from second half onwards. It is not mentioned in the slide, but we have completed the capacity ramp-up of our Iwate plant, which is manufacturing the active pharmaceutical ingredients. We expect the incremental capacity to contribute for sales growth in full from the second half.
Let's now move on to the Housing Company. Regarding sales shown on the left, we incorporated some risk and have somewhat lowered the housing sales projection compared to the original guidance, but the rest, Renovation and frontier, including real estate business, will remain unchanged from the April plan. On the right is the first half forecast for operating income.
The latest operating income expectation versus the first half plan presented in April, reflects weaker sales growth for new housing, and this is mainly because the start of the first quarter was slow. However, we expect a strong year-on-year increase of 150 units for housing sales in Q2, which is a magnitude big enough for us to achieve an impact for results for CR activities potentially better than what it is in the plan. With the combination of these factors, the overall first half profit should be in line with the original guidance.
For the Renovation business, profit was up by JPY 200 million in Q1. It seems that after a long period, the Renovation business has hit the bottom and has finally picked up into profit growth trend. Initiatives to improve efficiency of the overhead functions [indiscernible] the earnings power, including attrition of fixed costs, was nearly completed in the first quarter. So we should be able to achieve more savings on the fixed costs than planned in the first half. However, some of our clients have been deeply impacted by the recent earthquake in Osaka and the torrential rain in the western part of Japan. So as we focus on the recovery efforts for our customers, the sales in Q2 is expected to be lower compared to the original guidance. But this should be offset by other businesses such as the real estate, so the operating income projection for the Housing Company as a whole remains unchanged.
This slide covers the new housing order trend. The graph on the right indicates a 2% year-on-year growth in new housing order booked for the first quarter. The table to the left illustrates how the housing complex was a drag with a 27% year-on-year decline. [indiscernible] at the detached housing, both for steel frame and wood frame grew steadily. The concerned cannibalization did not materialize and both types of housing enjoyed good growth. We were able to increase the sales personnel in model houses, which resulted in higher number of visitors and more discussion about the home purchase. In that context, the 3% year-on-year increase in orders for Q2, shown by the graph on the right, is achievable in our view, and we also have specific measures to that end, shown at the bottom half of the slide.
As for the product strategy, Grand to You V, the wood-frame housing, and Smart Power Station flat roof, the steel-frame housing, are driving the order book growth. We launched the New Parfait in July, with which we aim to capture the rush demand focusing on rebuilding needs. The zero-energy house target of 65% for fiscal 2018 was originally a target set for fiscal 2020. But at the current pace, it seems like we would be able to achieve this goal 2 years ahead of the original plan. This will also be a tailwind for order taking.
For land and subdivision housing, the order is upbeat and we will augment on procurement buying fiscal 2019. As for the sales force strategy, I already mentioned about the sales personnel in model houses. We also have experience-based
showrooms in Osaka and Nagoya, which are attracting visitors in a different way compared to the conventional model houses. With this approach of appealing the performance features of our housing, we have been successful in enhancing the conversion rate. In another words, we have been more successful in luring the visitors to the next stage of actually discussing about specific orders. We are planning to roll this new type of model houses on a nationwide scale.
The sales for UIEP grew, as shown on the left. On the right is analysis of the operating income. At the time of business planning, we projected the domestic business to drop by JPY 0.5 billion year-on-year, and the overseas profit to grow by JPY 0.6 billion, and this breakdown remains unchanged.
On the domestic front, the selling quantity and composition contribution for Q1 was slightly lower compared to 1 year ago. This was because we were 1 month slower than last year for negotiating on a price hike, and the front-loaded demand before implementing a new price observed in Q1 last year was absent this year. However, we expect the last minute spike in demand before the price hike to repeat itself this year in Q2, for which we must make sure we achieve the intended price hike as much as possible.
Domestic demand is extremely strong for nonresidential facilities in the public sector. Traditionally, the demand for pipeline renewal projects tended to concentrate around the fiscal year-end, but such demand is coming out into the market from the first quarter. The combination of these trends leads us to believe that we can recover the selling quantity and composition going forward.
Overseas, marginal profit was weak last year for the aircraft sheet business, as our client was going through an M&A transaction. With the deal being completed, we are now entering a steady recovery. Thanks to the partnership strategy with TIEN PHONG, a company in Vietnam with whom we took some stake, our products have been successfully delivered to the market through their distribution channels.
Let's look at the 3 strategic fields in UIEP more closely. For Piping and Infrastructure, there is some minor risk of delay in the construction schedule, but infrastructure-related demand in pipeline renewal business both in Japan and abroad is firm. For the pipeline renewal business overseas, we have exited from the construction work and now are strictly focused on the sales for materials. We are rolling out the business model which was proven to be successful in Australia and are making a good progress.
I already touched upon the business in Vietnam and ASEAN. For Building and Living Environment, the housing complex demand in the market, not just for ourselves, is weak. So the sales of modular bathrooms are coming down. However, we are expecting some contribution from the new products that we have been working on since last year. For example, we would like to capture the demand for efficient water discharge material to be able to countermeasure torrential rain.
For advanced materials, the aircraft sheet business is recovering with progress made in winning new customers. Traditionally, we were competitive for the business-class and the first-class demand, but we are now starting to cater to the economy-class demand. Good development is made for the medical device business and railway business. The FFU for railway sleeper is trying to penetrate to new customers. Thanks to the regional adoption by the German Railway, which makes us to be hopeful for Q2 and beyond.
All in all, the domestic prioritized product sales is expected to grow by 7% year-on-year in the first half, and the overseas sales is projected to go up by 18% year-on-year.
Lastly, let me quickly share with you the progress status of various measures. Following the midterm business plan, we have made significant investments in fiscal '16 and '17, and now it's time to recoup those investments. Right now, it's a little tough with top-heavy investments, but we do expect to see the impact of those investments coming to fruition steadily from Q2 and beyond. We have implemented measures, so that there will not be any delay in enjoying that fruit. We will continue to focus on this matter with rigorous management.
With that, I'd like to conclude my presentation. Thank you very much for your attention.