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Financial Results Conference Call - Q&A Transcript

Fiscal Year Ended March 31, 2021

Date and Time: 6:30-7:30 p.m. Monday, April 26, 2021

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 Fiscal 2020 (12 months ended March 31, 2021) compared to Fiscal 2019 (12 months ended March 31, 2020).

The factors impacting the change in operating income are,

- Sales volume variance Approx. +17.5 billion yen
- Price reduction offset by rationalization, etc. Approx. +6.5 billion yen
- Royalty income Approx. +6.0 billion yen
- Fixed costs Approx. +3.0 billion yen
- Impact of foreign exchange Approx. -9.0 billion yen

As a result, operating income increased by 24.1 billion yen.

2. Please explain the factors in the increase or decrease in the consolidated operating income for 4Q (3 months) ended March 31, 2021 compared to 3Q (3 months) ended December 31, 2020.

The factors impacting the change in operating income are,

- Royalty income Approx. +2.5 billion yen
- Product mix Approx. +1.0 billion yen
- Sales volume variance Approx. -7.5 billion yen
- Restructuring charges (impairment losses) Approx. -6.0 billion yen
- Price reduction offset by rationalization, etc. Approx. -2.0 billion yen
- Fixed costs Approx. -2.0 billion yen
- Others Approx. -1.6 billion yen

As a result, operating income decreased by 15.6 billion yen.

3. Please explain the impact of the concern about semiconductor supply in the 1st and 2nd half of Fiscal 2021 forecasts.

The impact is assumed for semiconductor process materials and automotive-related materials in Functional Base Products and is recognized as one of the risk factors. However, at the moment, it is limited.

4. Please explain the impairment in Transportation business and its integration with Functional Base Products.

With regard to impairment losses, the Company proceeded with structural reform of our domestic facilities. The effect of this reduction in costs for the new fiscal year is expected to be a certain amount. In the Transportation business, the synergy will be maximized by integrating with the Functional Base Products from Fiscal 2021 onward. After integration, the Company plans to increase its business performance, particularly in electronics related products.

5. Please explain the background about the decline in revenue and income of Optronics in Fiscal 2021 compared to the previous year.

Sales of Flexible Printed Circuits is expected to increase, while Information Fine Materials is expected to decrease. Demand for notebook PCs and tablets will continue, on the other hand, optical films for TV are expected to decrease. The Company will promote a shift to royalty income on the optical films for TV and plans to record royalty revenues of 3-4 billion yen in Fiscal 2021. Sales of ITO film mainly for use in LCD smartphone applications, are expected to decline.

6. Please explain the background about the increase of 20 billion yen in sales of Flexible Printed Circuits in Fiscal 2021 compared to the previous year.

The background is the growth in the hard disk drive (HDD) related products and the high-precision circuits. Production of HDDs is expected to decrease, but high-capacity types are expected to increase. High-precision circuits will respond to the smartphone production in Fiscal 2021 with attempts of adoption by other new models.

7. Please explain the plans for capital expenditures in high-precision circuits in Fiscal 2021 and Fiscal 2022 onward.

In addition to the investment to high-precision circuits, the Company plans to invest in building a stable production system for HDD related products.

8. Please explain the background about 3 billion yen deficit in Life Science in Fiscal 2020, including trends in oligonucleotide therapeutic manufacturing business (CMO), royalty and impairment losses.

Actually, sales of the CMO business increased. Royalty, which was scheduled in Fiscal 2020, will be postponed in Fiscal 2021. In terms of impairment, the Company proceeded with reform of fixed assets that will be no longer valuable to the CMO business. As a result of the above, both of the revenue and income dropped.

9. In Life Science's forecasts for Fiscal 2021, revenue is 37.5 billion yen, but please explain the speed of growth in sales and forecast for the operating income margins after Fiscal 2021. Please also explain the factors that affect Life Science in Fiscal 2021 other than the royalty.

The sales of the CMO business are expected to grow by approximately 5 - 6 billion yen. In addition, royalty income is scheduled to be recorded in Fiscal 2021. In the CMO business, sales are expected to steadily grow due to the increase in pipelines and progress in the clinical trial stage. Meanwhile, as to the commercial production which was announced in the investment plan released on March 31, the full-scale operation will begin in Fiscal 2023, and its contribution to the revenue and income from that point onwards.

  

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