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Financial Results Conference Call - Q&A Transcript

2nd Quarter Ended September 30, 2020

Date and Time: 6:30-7:30 p.m. Monday, October 26, 2020

Please note that this document is not a direct transcript of the Q&A session from the conference call, but is a simple summary including additions and corrections at the discretion of the company. The results and forecasts are forward-looking statements determined by the Company based on currently available information that may include risks and uncertainties. Please be aware that actual results may vary significantly due to various factors.

1.Please explain the factors in the increase or decrease in the consolidated operating income for 2Q (6 months) ended September 30, 2020 compared to 2Q ended September 30, 2019.

The factors impacting the change in operating income are,

- Fixed costs Approx. +6 billion yen
- Royalty income Approx. +4 billion yen
- Price reduction offset by streamlining, etc. Approx. +3 billion yen
- Sales volume variance Approx. -7.5 billion yen
- Impact of foreign exchange Approx. -2 billion yen
- Product mix Approx. -2 billion yen

As a result, operating income increased by 1.3 billion yen.

2. Please explain "price reduction offset by streamlining, etc." in 2Q (6 months) in detail.

Until now, price reduction has been largely affected by TV-related products, but the sales composition ratio is declining, and the impact is no longer as large as before. On the other hand, with regard to rationalization and other measures in the 2Q of the fiscal year under review (6 months), there was a significant positive impact from products for laptop and tablet device.

3. Please explain the factors in the increase or decrease in the consolidated operating income for 2Q (3 months) ended September 30, 2020 compared to the previous quarter ended June 30, 2020.

The factors impacting the change in operating income are,

- Sales Volume Variance Approx. +20 billion yen
- Price reduction offset by streamlining, etc. Approx. +1 billion yen
- Product mix Approx. -5 billion yen
- Royalty income Approx. -4 billion yen
- Fixed costs Approx. -3.5 billion yen
- Others Approx. -1 billion yen

As a result, operating income increased by 7.5 billion yen.

4. Please explain the forecasts for the 2H of the fiscal year for Industrial Tape, including restructuring costs.

In the 2H of the fiscal year, the product mix is expected to deteriorate. Specifically, we expect the demand for the assembling materials for smartphone to peak in 2Q (from July to September) and to decline in future. On the other hand, in the automotive business, we expect demand for certain products with relatively low profitability to increase in the 2H of the year. In addition, for businesses with relatively low profitability, we have option to carry out structural reforms, and some of the costs are incorporated in the forecasts.

5. Please explain the forecasts for the 2H of the fiscal year for Information Fine Materials, compared to the 1H.

The demand of polarizers for TVs is expected to decline in the 2H of the fiscal year. On the other hand, materials for laptop and tablet device are growing from the background of expanding telework, and we expect them to continue through the 2H of the fiscal year. For products for smartphone, the demands were different among smartphone manufacturers, but decreased as a whole from 1H to 2H. It is also expected to decrease compared to 2H of previous fiscal year. In addition, we have incorporated the impact of U.S.-China trade conflict and other factors in our forecasts.

6. Please explain the outlook of products for smartphone in Information Fine Materials in 2H and next fiscal year.

In smartphones, OLED displays are becoming the mainstream instead of LCDs, and we expect customers' market shares to change as well. The overall sales mix of optical films for smartphones is expected to decline, however, we intend to increase the products for OLED displays and focus particularly on business development in high-end areas.

7. Please explain the factors that have improved the margin of Optronics from 1Q (3 months) to 2Q (3 months), excluding royalty incomes.

Increase of sales of the materials for laptop and tablet device in Information Fine Materials, as well as the products other than hard disk drives (HDDs) in Flexible Printed Circuits, contributed to the improvement of profit margins.

8. In Flexible Printed Circuits, the sales revenue forecast for the full fiscal year is increasing compared to the previous fiscal year. Please explain the factors and the background behind.

Currently, the majority of sales revenue from Flexible Printed Circuits is derived from HDDs. Demand for these HDDs is expected to grow in future for high-capacity applications, which are expected to make a significant contribution to sales in Nitto. In addition, new applications for hearing instruments and smartphones have also begun contributing to the results from the 2Q of this fiscal year.

9. Please explain the outlook of Optronics for next fiscal year, comprehensively taking into account trends in telework demand, OLED smartphones, flexible printed circuits, etc.?

We expect steady growth throughout Optronics as a whole. Flexible Printed Circuit will supplement the revenue of polarizer for TVs, which is expected to decline in Information Fine Materials. In Information Fine Materials, we will focus on OLED display applications, which are expected to be widely adopted in the high-end market. We do not anticipate a sharp decline in demand for materials for laptop and tablet device.

10. Please explain the capital investment plan related to contract manufacturing of oligonucleotides in Life Science.

The market is growing steadily. We are preparing to respond to the increase in the volume of orders due to large-scale projects and other factors in the future. Capital Investment will be made from the next fiscal year onward.

11. Please explain the contribution of the royalty income in Life Science in the latest forecasts.

Royalty income related to nucleic acid drug discovery is incorporated in our latest forecasts, in 4Q. We are currently working on utilization of intellectual property related to drug delivery systems, anticipating a record of profits from the next fiscal year onward.

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