Earnings Call: Q4 2021

Apr 27, 2021

I am Keita Kato, President of SEXI Chemical. Thank you for taking time out of your busy schedule to participate in today's IR briefing on financial results. I will explain according to the presentation. For those of you who are participating through teleconferencing systems, please refer to the page number on the bottom right of the slide. First, I will explain the results for fiscal year 2020. On Page 1, foreign exchange rate assumptions and results are stated. Next is an overview of fiscal year 2020 results. The first half of the year was significantly impacted by COVID-nineteen, and the fiscal year also saw a significant decline in net sales and a decrease in profits at all levels. On the right side, you can see that the forecast we announced in January was not achieved. In terms of nonoperating and extraordinary items, we recorded restructuring costs an impairment loss on intangible assets and a gain on the sale of a former factory site. The dividend will be 47 yen per share, an increase of 1 yen per share as planned. Page 3 shows the results by segment for fiscal year 2020. Both sales and profits decreased in each segment. As shown in the box on the right, the profit forecast announced in January was achieved in HPP, high performance plastics as forecasted, but not in the other segments. The main reasons for this were the delay in the coverage of domestic demand for UIET, urban infrastructure and environmental products and the slowdown in demand for diagnostics for COVID-nineteen in the U. S. For the Medical segment. Page 4 shows the business results by segment for the first and second half. In the first half of the fiscal year, profits decreased substantially in each segment due to the significant impact of COVID-nineteen. But in the second half, profits recovered to the same level as the previous year for the entire company. In HPP, sales and profits showed a turnaround in the second half of the fiscal year due to progress in portfolio reforms in the electronics field with the expansion of the non LCD field and sales expansion of high functional products in the mobility field. In the housing business. The first half of the fiscal year, especially the first quarter, was significantly affected by COVID-nineteen, including a decline in orders. However, due to the recovery of orders from the Q2 and the progress of measures to fortify the business structure that were taken throughout the fiscal year, we were able to reduce the level of profit decline in the second half. For UIET, the delay in the recovery of domestic demand and the sluggish demand for aircraft seats continued even in the second half, but we were able to reduce the level of profit decline in the second half by promoting cost reduction and structural reform. The medical business was greatly affected by the decline in the number of outpatient diagnostics, both in Japan and overseas, but we secured almost the same level of profit as the previous year in the second half by expanding sales of COVID-nineteen diagnostic kits as well as new pharmaceutical ingredients that started delivery in the second half and cost reduction. Page 5 shows the analysis of fiscal year 2020 results. On the right side is the analysis of changes in operating income. In addition to the substantial decreases in sales volumes and product mix due to COVID-nineteen, consolidated basis changes affected us negatively, but we made efforts internally to offset the decrease in profits as much as possible through fixed cost reduction and cost reduction, thereby minimizing the decrease in profits. We believe that our ongoing efforts to reduce fixed costs have strengthened our profitability. Particularly in the second half of the fiscal year, in addition to the continuation of internal efforts, HPP turn to profit growth due to better sales volume and product mix. This significantly reduced the profit decline in sales volume and product mix on a company wide basis, which led to a profit level that was about the same as the previous year. Turning to Page 6. I will now explain the fiscal year 2021 plan. The foreign exchange rate assumptions are as stated. On Page 7 is the overview of the fiscal year 2021 plan. Although we assume that the impact of COVID-nineteen will remain by certain extent in fiscal year 2021, we plan a substantial increase in net sales and each level of profit. We're planning operating income to reach 86,000,000,000 yen returning to the fiscal year 2019 level. We also plan to raise the dividend by 2 yen to 49 yen per share, which will be the 12th consecutive year of increasing dividends. And we will also establish a limit for the acquisition of treasury stock again this fiscal year. We will continue to make proactive efforts on shareholder return. On Page 8, I will explain the outlook for market conditions, which is the premise of the fiscal year 2021 plan. As for automobile manufacturing, the impact of COVID-nineteen bottomed out in the Q1 of last fiscal year and has been recovery, and we believe that the recovery trend will continue in the current fiscal year. On the other hand, we recognize as risks the impact from the cold wave in North America and Texas and the stagnation of production due to the shortage of semiconductors, and we have factored them into our plans to a certain extent. Regarding smartphones, demand has been recovering markedly since the second half of last fiscal year, and we expect continued strength this fiscal year due to the expansion of demand for 5 gs switchover, etcetera. However, we recognize that the shortage of semiconductors is a risk, just like in the case of automobiles. The upper right is the forecast for visitors in the housing business. The blue line shows that the number of visitors to our showrooms recovered to only about 70% in the second half of last fiscal year due to the declaration of the state of emergency, but we expect a gradual recovery in the current fiscal year. We will continue to strengthen our efforts to attract customers online to raise the overall level of visitors. As for new housing starts, we do not expect a dramatic turnaround in consumer sentiment, and we expect demand to remain at about the same level as last year this fiscal year. NAFTA prices are assumed to be 42,000 yen per kilowiter due to the sharp rise in prices since the Q4 of last fiscal year. Page 9 shows the fiscal year 2021 plan bidivisional company. Our profitability has been strengthened definitely through continuous efforts to reduce costs. Based off this premise, we expect market conditions to recover to a certain degree. And with the expansion of high value added products, we plan to achieve a significant increase in both net sales and profits in each segment. The presidents of each divisional company we'll explain in detail later, but I would like to make a few points for each segment. In HPP, we will strive to grow through better sales volume and product mix, mainly in the 3 strategic fields and revised profits to a level exceeding that of fiscal 2019. In the housing business, we plan to increase both net sales and profits by returning the number of new housing units sold to the fiscal 2019 level and expanding the contribution from the renovation and Town and Community Development businesses. In new IEP, we plan to increase both net sales and profits by expanding sales of prioritized products in Japan and expanding overseas by acquiring new customers for FFU artificial sleepers. In the medical business. We plan to achieve significant increases in both sales and profit, driven by market recovery in terms of a number of outpatient diagnostics and other factors as well as by overseas diagnostic sales, mainly in the U. S. And China. In the other segment, we will continue to be selective on R and D themes. And towards the commercialization of our biorefinery technology, which converts waste into ethanol, we will make upfront investments into a POC plant. In addition, we will also promote digitalization as well as reorganize in order to strengthen M and A functions, which will be consolidated at the head office level, so that we can prepare for the realization of our long term vision and strengthen ESG Management. Page 10 shows the plan for each divisional company for the first and second half of the fiscal year. We expect domestic demand to recover in the second half of the fiscal year, and we plan to increase profits significantly in the second half of the fiscal year for housing NUIEP, which are mainly businesses driven by domestic demand. Page 11 shows the analysis of the fiscal year 2021 plan. We plan to achieve a large increase in profit in terms of sales volume and product mix by steadily implementing the measures that I have explained so far in each segment. In addition, we will minimize the impact of high raw material costs through cost reduction and improve selling prices of some products and achieve our operating income plan of 86,000,000,000 yen for the fiscal year. We will allocate fixed costs to investments for growth and continued structural reforms and cost innovations. On Page 12, I will now explain the progress of our medium term plan, DRiV 2022. In fiscal year 2021, which will be the core year of the midterm plan, we will work to restore operating income to about the same level as in fiscal 2019 game and pave the way for the achievement of the midterm plan for fiscal 2022. Page 13 is about returns to shareholders. As stated, we will continue to provide proactive shareholder returns as committed in the midterm plan. Turning to Page 14. In order to strengthen our ESG management foundation, we have studied ESG key issues and KPIs in the last fiscal year. We have designated the 7 items listed in the table as key issues and have set KPIs and targets for each of them. Call. That is all from myself. A presentation of the financial results will follow as well as an explanation of the strategies and measures in each segment by the divisional company presidents. Call. I am Tazuya Nishida, Executive Officer and Head of the Corporate Finance and Accounting Department. I will walk you through our financial results for fiscal 2020. Please turn to Page 17. First of all, the number of companies subject to consolidation decreased by 2 companies to 161. The impact of change in the number of consolidated companies on the financial results is as shown here. On Page 18, I will explain the consolidated profit and loss for ordinary income and the items below. Ordinary income totaled 62,600,000,000 yen a decrease of 24,600,000,000 yen due to a decrease in operating income and an increase in miscellaneous expenditures resulting from structural improvement expenses. Extraordinary income for the fiscal year under review was due to the sale of land and a partial review of our stock holdings. On the other hand, extraordinary losses were due to the impairment of intangible assets of Aerospace Corporation recorded in the 3rd quarter as well as the retirement of fixed assets, etcetera. As a result, income before income taxes decreased by 20 point 6,000,000,000 yen Net income decreased by 17,600,000,000 yen to 41,500,000,000 yen due to a slightly smaller decrease in corporate income taxes in relation to the decrease in profit as a result of a larger decrease in overseas profits with relatively low tax rates and a decrease in corporate tax credits due to the impact of fixed cost control and other factors. Page 19 shows the balance sheet. Total assets increased by 44,400,000,000 yen to 1,150,100,000,000 yen As the yen was weaker at the end of March 2021, this resulted in an increase of 22,400,000,000 yen in assets due to foreign exchange rate impact. Inventories increased by 5,700,000,000 yen In the housing sector, we increased inventories of ready built housing and land for sale, well inventories of products and other assets in the nonresidential divisions decreased. Tangible fixed assets increased by 14,100,000,000 yen as a result of capital investments that exceeded depreciation. The decrease in intangible fixed assets was mainly due to amortization and partial impairment of goodwill. Marketable securities increased due to an increase in market value despite a partial review of strategic holdings. Next, please turn to Page 20. Net interest bearing liabilities increased by 9,900,000,000 yen to 50,700,000,000 yen at the beginning of the year, we procured long term funds worth 50,000,000,000 yen to maintain the level of cash on hand in consideration of the downside risk cash inflow due to the impact of COVID-nineteen, but we were ultimately able to limit the increase in net interest bearing liabilities to about 10,000,000,000 yen Retained earnings increased due to positive net income but decreased due to dividends and retirement of treasury stock. The company acquired and retired 8,000,000 shares of treasury stock during the fiscal year under review. In addition, net assets increased due to an increase in valuation difference on marketable securities as a result of an increase in the market value of shares held an increase in foreign currency translation adjustments as a result of the yen's depreciation and an increase in accumulated retirement benefit adjustments as a result of an upturn in pension fund investment returns. ROIC, ROE, equity to total assets and the DE ratio are also shown on the slide. Page 21 shows consolidated cash flows. Operating cash flows were 75,300,000,000 yen This was a decrease in cash inflow compared to the previous fiscal year. Despite our efforts to curb working capital in response to the decrease in profit compared to the previous year. Investing cash flows were a net outflow of 58,500,000,000 yen Despite an increase in capital investment expenditures, fee outflow was less than the cash inflow from operating activities, partly due to proceeds from asset sales. As a result, free cash flow, including dividend payments, resulted in a cash outflow of 5,400,000,000 yen depreciation and amortization, capital expenditures and EBITDA by segment are shown on Page 22. Depreciation, including goodwill amortization, have been on an upward trend, and capital expenditures executed during the fiscal year under review we're 1.3x the level of depreciation and amortization. EBITDA by divisional company, which is the source of funds, is shown in the table below, which are more than twice the level of capital expenditure. Our plans for depreciation and amortization, capital expenditures and research and development expenditures are shown on Page 23. Depreciation and amortization costs are expected to be almost the same as the previous year. R and D expenses are expected to increase in fiscal year 2021 despite a temporary decrease in fiscal year 2020 due to a delay in the accrual of outsourcing expenses. Finally, on Page 24, I would like to once again show our profit and shareholder return plan for fiscal year 2021. In line with our shareholder return policy for the current medium term. We will continue to increase dividends, repurchase and retire treasury stock. That is all from me. I am Ikusuke Shimizu, Divisional Company President of the HPP, High Performance Plastics Company. Thank you for your time today. First of all, please refer to Page 27. In fiscal year 2020. Due to the impact of COVID-nineteen, both net sales and profits decreased to 39,900,000,000 yen and 28,900,000,000 yen respectively. However, we were able to achieve the operating income forecast, which was revised upward in January this year. Looking at the second half of the fiscal year, both sales and profits returned to growth, and the strengthening of our earnings structure is progressing faster than planned. In fiscal year 2021, owing to a positive turnaround in market conditions and the realization of the effects of growth investments. Our plan is to recover back up to a level that exceeds fiscal year 2019, which are net sales of 333,300,000,000 yen 38,000,000,000 yen in operating income. Conference call. Please turn to Page 28. As for the results for fiscal year 2020, net sales were 309,900,000,000 yen including 5,500,000,000 yen increase in sales by Aerospace. But on a year over year basis, net sales decreased by 12,600,000,000 yen from the previous year. The graph on the right shows the analysis of changes in operating income. Although operating income decreased by 8,400,000,000 yen compared to the previous year, we were able to offset increase in sales volume and product mix almost completely by reducing fixed costs and cost reduction, etcetera. Excluding consolidated basis change and foreign exchange effects, the decrease was limited to 1,800,000,000 yen The breakdown by the first and second half are shown at the bottom. Sales volume went down substantially mainly in the Q1, but since the Q2, business improved. And in the second half, sales volume increase year over year, driven mainly by the mobility field. Next is the overview of the fiscal year 2021 plan on Page 29. Net sales are planned to be 333,300,000,000 yen an increase of 23,400,000,000 yen year over year. As you can see in the analysis of operating income on the right, we plan to increase operating income by 9,100,000,000 yen for the fiscal year. This is mainly due to the increase in sales volume and product mix in the 3 strategic fields. In addition to the recovery of demand, we will strive to acquire new customers and increase our market share in each field. In addition, we will minimize the impact from the increase in raw material prices through cost reduction and control fixed costs to about the same level as fiscal 2019 and accelerate cost innovation measures so that we can make the year 1 where we strengthen our profitability in an accelerated manner and shift our focus to growth engines. Let me update you on the progress growth sales and profit increased in the electronics and mobility fields. And although not mentioned on the slide, the electronics field recorded its highest full year profit ever. Building and infrastructure recovered close to the previous year's level. For FY 'twenty one, we are projecting a significant top line growth for all of the 3 strategic fields. Now let me dive into more details on each strategic field. In electronics for fiscal 'twenty, Tablet and high speed communication related demand grew owing to COVID-nineteen, and this resulted in higher sales, mainly driven by the non LCD business. In FY 'twenty one, we acknowledge the risk of slowdown in semiconductor production, but we will continue to strive to expand the sales of non LCD applications, mainly for 5 gs. In mobility, although we struggled in the first half of fiscal 'twenty due to COVID-nineteen, the business recovered from the Q2. And in the second half of the year, the business returned to growth trajectory in both sales and profit, propelled by high performance in 2 layer films. For fiscal 'twenty one, despite the risk of a decline in automobile production call. Due as a result of the cold snap in North America and the recent shortage of semiconductors, we plan to continue to grow sales, mainly with the high performance interlayer films. Sales of aerospace have been challenged due to sluggish aircraft demand, operationalization measures such as plant integration are progressing as planned, and we are strengthening our efforts to transform the portfolio for applications other than aircraft. In addition, demand for aircraft application is expected to bottom out in the first fiscal 'twenty one, you may cover in the second half. In Building and Infrastructure, net sales declined during the first half of the year due to COVID-nineteen. Game. And from the second half, sales were on par to last year, thanks to recovery in demand mainly coming from India. Call. For FY 'twenty one, although we expect the recovery of domestic demand to be slow, we aim to achieve sales growth with a recovery trend in Europe and in the U. S. As well as stronger demand for chlorinated PVC. Cost innovation is one of our top priorities. Supply chain reform through purchasing optimization and productivity improvement and structural reform through a drastic review of lower margin business results are progressing at a faster pace than initially planned, and we expect to exceed the FY 'twenty two target under the current medium term plan in fiscal 'twenty one. We would like to advance these activities ahead of schedule, enhance the profitability and accelerate growth. Page 31 will be the last slide on HPP Company. With regard to the growth engine, we will augment our measures for growth by fully grasping the wave of expanding needs in the medium- to long term in all three fields. We will also focus on nurturing the next growth domains. First, in electronics, the ratio of non LCD sales is projected to make steady progress, reaching 57% in the first half of fiscal Bill 'twenty one and 59% in the second half. We will accelerate the growth of non LCD applications, focusing on semiconductor and heat release materials. At the same time, sales for LCD applications are also steady, and we will strive to diversify our revenue sources so that the ratio of non LCD to LCD products will be 2:one in the medium term. Call. In mobility, we will continue to drive sales of high performance in 2 layer films. During the course of fiscal 'twenty one, call. We will endeavor to achieve sales volume on par with the second half of the previous year during when we generated a very strong sales volume. In addition, we will strive to grow the proportion of HUD application vis a vis the overall sales in order to improve the product mix. Q3. For the HUD application, we aim to increase sales by more than 120%, outpacing the market growth with new customers and new models and by gaining market chair. In addition, we will focus on compiling functions such as adding heat and acoustic insulation functions HUD films and interlayer films with high design quality. In FY 'twenty, We struggled with the sales of thermal insulation and non combustible materials, but we will return to a growth trajectory in fiscal 'twenty one, and we will continue to strengthen sales of non combustible polyurethane and thermal insulation materials and expand your business globally. In for mobility, we will integrate multiple functions to further elevate the performance of the interlayer films. In building an infrastructure, we will focus on various sensors and expand the product portfolio in industrial application health care and protective materials like antivirus spray in light of COVID-nineteen and for us to be able to offer choices that will help to solve social issues. This will be the end of my presentation. Thank you very much for your attention. This is Toshiyuki Kamiyoshi, President of the Housing Company. Let me go through the results and the strategy of the housing company. Page 33 is a trend of our business performance. In fiscal 'twenty, net sales was 485,300,000,000 yen operating income was 30,500,000,000 yen Because of COVID-nineteen, profit declined significantly due to lower orders, mainly for new housing and renovations. However, in the second half of the year, both net sales and operating income recovered to almost the same level as the previous year. For fiscal 'twenty one, we aim to recover the operating income to the level achieved in fiscal 'nineteen by growing the top line and would like to put ourselves back on the growth trajectory with the results achieving targets in the midterm plan. Next, on Page 34, let me go over the analysis of the FY 'twenty results. Due to COVID-nineteen, the number of new houses sold and renovation sales were down. However, we are making progress in our ongoing efforts to strengthen our business structure and to control fixed costs. As shown on the left, net sales decreased by 27,700,000,000 yen slightly below the January forecast due to the impact of the 3rd wave of COVID-nineteen. On the right, you can see the factors, both positive and negative, behind the drop in the operating income. In the housing business, the number of houses sold was 50 units less than the January projection. So in total, It was down by 750 units from the previous year. In value, this was a 600,000,000 yen downside, which was largely covered by improvements in marginal profit and fixed costs. In the renovation business, the marginal profit factor pushed down the operating income by 600,000,000 yen from the January forecast, but 200,000,000 yen was offset by the fixed cost factor. In other businesses, the town and community development business started to contribute to earnings, and the real estate business also performed well, resulting numbers in line with our forecast. The table below the waterfall chart shows a breakdown between the first half and the second half, from which you can see that the second half had good recovery trend, particularly with the renovation business that achieved profit growth. As a result, operating income was 30.5 billion. Next, I would like to explain your plan for the current fiscal year 'twenty one. Although the impact of COVID-nineteen will remain in fiscal 'twenty one, we project the operating income to come back to the level of fiscal 'nineteen as recovery trends from the second half of fiscal 'twenty should help propel the number of houses sold in the housing business and drive the renovation sales on top of the contribution expected from the town and community development business. As indicated on the left, net sales are projected to increase by 39.7 billion from FY 'twenty to 525 billion ad sales are expected to increase in all businesses. Next, I will explain the factors behind the increase and decrease in operating income on the right. In the housing business, we expect a profit growth of 4,000,000,000 yen due to an increase in the number of houses sold by 6 80 units. Despite the expected impact of fixed cost increase, higher prices for housing materials, increased sales activities and upfront investments. In the renovation business, we expect higher fixed costs with the increase in personnel and operating expenses, but we still plan to grow the operating income by 1,800,000,000 yen by returning to sales growth and improving productivity. In other businesses, we project a profit growth of 600,000,000 yen owing to the increased contribution of the town and community development business. In sum, we project an overall operating income growth of 6,500,000,000 yen to 37,000,000,000 yen Next, let's go over the outlook and measures for the new housing orders. The line graph in the upper left hand corner illustrates the trend of the visitors. Overall visitors indicated by the green line shows recovery trend from the second half of fiscal 'twenty, and we expect the total number of visitors to be higher in fiscal 'twenty one compared to fiscal 'nineteen. Moving on to the fiscal 'twenty one plan for the number of orders received by type of construction. We expect the orders for rebuilding to be flat Forney construction to recover to 10% growth and keep the growth momentum with subdivision housing, mainly driven by the ready built houses. For the total order book, we expect a year on year growth of 8%. Subdivision housing, particularly ready built houses, will continue to be the growth driver. And as shown on the right, We expect to bring the order book back to FY 'nineteen level. To win orders, we will further evolve the 3 growth measures that we have workforce. With measures on sales activities and increasing the customer traffic, we will secure the total number of customers by strengthening our website and we'll continue to augment our capabilities for online consultation with the end customers. In addition to the existing experience based showrooms, We are newly rolling out green model park across Japan, where physical and virtual converge for new experience in a real site hands on exhibition space. With all of these efforts, we will strengthen our prominent proposals that fuse the virtual and real world. In terms of product, we will further fortify our appeal on smart homes and new normal and in particular, planned products for the first time buyers and offering in ready built homes. As a driver for the detached housing and subdivision lounge strategy, We will leverage the prominence of Osaka Leitown and roll it out as detached house centric urban development project at the sales companies nationwide. Lastly, I would like to explain about the Stokes business and Town and Community Development Business. Top left for renovation. We plan to increase orders by 16% compared to the previous year by the following measures. 1st, in terms of augmenting the sales activities, we will enhance the frequency and the quality of the periodic home diagnosis and strengthen our proposal capabilities through the further rollout of experience based showrooms, Fami Esu Museum. In addition, call. We will work to smooth out the seasonal sales fluctuation in the renovation business and strengthen online consultation through DX in order to improve productivity. In the real estate business, we will move forward with the nationwide development of the BHIM brand, which was launched last year and contribute to sales growth with the Boeheim branded purchase and resale business. Lastly, as shown by the graph in the middle, we have made steady progress in securing projects in the town and community development business. I am Yoshiyuki Hirai, the President of UIEP. I will start my presentation with a track record Cordova business performance on Page 39. In fiscal 'twenty, business was hit severely by COVID-nineteen, both in Japan and overseas, and net sales and profit declined for the first time since 2014. However, our fundamental business structure was fortified, thanks to cost reduction measures as well as front loading structural reform, including business divestiture. In fiscal 'twenty one, in addition to expanding sales of prioritized products and revitalizing overseas operations. We will firmly embed the rationalization and efficiency improvement efforts we made in fiscal 'twenty in the organization so that the business can return to the profit level of fiscal 'nineteen. Page 40 illustrates the analysis of our business performance in fiscal 'twenty. Net sales declined by 20.3 banyan year on year even after including the impact of the business transfer of 12,500,000,000 yen. It is not mentioned in the slide, But the impact of COVID-nineteen was 11,500,000,000 yen in Japan. And even though the percentage of overseas sales is low, The significant drop in sales of aircraft interior sheets and suspension of construction due to the lockdown caused an €8,200,000,000 decrease in sales. Operating income was down by as much as €8,700,000,000 due to the volume impact, which could not be offset by fixed cost reduction and CER activities, resulting in a 4,200,000,000 yen drop in profit. From the January guidance, the actual operating income was lower by 1,200,000,000 yen owing to a decline in orders for domestic public works and delay in construction due to the lockdowns in various cities outside of Japan. Page 41 is the overview of the plan for fiscal 'twenty one. Excluding the impact of the peso transfer of 5,500,000,000 yen, we are guiding for sales growth of 8,500,000,000 yen In the first half of the year, operating income is expected to increase by only 700,000 yen due to the lingering impact to COVID-nineteen and higher raw material cost. But in the second half, operating income is expected to grow by 3,000,000,000 yen to achieve a record high profit of 11,800,000,000 yen we will improve the sales volume and product mix by focusing on prioritized products and recovery in the overseas business. We will horizontally roll out the efficient sales method using DX tools that we have been piloting since last year. And we will take steps to incorporate the prioritized products in customers' project designs. In addition, as announced on April 12, We plan to raise our prices so that we can cover for the current high raw material prices together with the COGS improvement. Page 42 is a snapshot of the 3 strategic fields and structural reforms. For Piping and Infrastructure business shown at top left, fiscal 'twenty was challenging with the suspension of construction at the outset of the year. And specifically in the nonresidential market. A significant drop in renovation for hotels, schools, hospitals, among others, severely hit the business. However, the weakness was somewhat offset by the relatively steady civil engineering business. And in the second half, the rate of decline was moderated. For fiscal 'twenty one, we expect to capture opportunities with initiatives aimed to incorporate the prioritized products in customers' project designs to drive sales and aim to recover to the FY 'nineteen level for the full year. As shown at bottom left, The building and living environment profit in fiscal 'twenty did not pull as much as sales as a result of exiting the unprofitable products from the market. We will strive to expand our Perfect Food portfolio transformation by augmenting the products in growth domains, such as products for torrential rain and for nursing care, among others. For advanced materials shown at the top right, we completed major business transfers in fiscal 'twenty, and sales of aircraft interior sheets dropped significantly as well. In the sheet business for FY 'twenty one, We will continue to avoid reliance on the aircraft industry and explore other opportunities by commercializing the themes identified in other applications such as pharmaceutical and railways and expand the sales of antibacterial and antivirus products. In fiscal 'twenty, we were also able to expand the application of our synthetic wood FFO other than the railway sleepers in Japan. Although the impact of COVID-nineteen will remain in fiscal 'twenty one, such as budget cuts by domestic level operators, overseas business is generally progressing well, and the construction of the plant in Europe is on schedule. Cost reduction achieved by the structural reforms and productivity improvement measures undertaken in fiscal 'twenty. Going forward, We plan to further strengthen the business space by implementing additional structural reforms, including plant reorganization and making investment for automation as well as improving operational efficiency through DX. Finally, you will find our growth strategy on Page 43. We have defined our prioritized product as products to enhance sustainability and products within the premium framework. You can see just a few examples of such products on the right hand side. We acknowledge that the number of customers taking products that contribute to the SDGs has been increasing recently, and we believe we can return to a similar pace of growth achieved during fiscal 'seventeen through 'nineteen by actively communicating the degree of contribution to the SDGs. In addition, deeply held webinars and we're able to discover many new potential customers in fiscal 'twenty. Once again, we were reminded that webinars contribute greatly to raising awareness of our prioritized products. We are now implementing DxTool so that going forward, we can establish this mechanism as a winning pattern to successfully identify new prospects and turn the opportunity into actual business. The Chiba Solution Center is scheduled to be completed in May and leveraging on that asset with our online capabilities will also prove to be a very powerful proposition. Overseas, We will steadily implement growth strategies in each of our businesses, such as expanding and strengthening cooperation with partners who can provide processing and installation services, cultivating untapped markets and enhancing synergies with Tianfeng in Vietnam. With these measures, call, we will aim for higher net sales compared to fiscal 'nineteen, excluding the aircraft related business. This will conclude my presentation. Thank you very much for your attention. I am Futoshi Kamiwaki, Director, Shinya Managing Executive Officer and Head of Business Strategy Department. Let me walk you through the Medical business. Page 45 is the trend of our business performance. In fiscal 'twenty, profit declined sharply due to the impact of COVID-nineteen and especially due to severe hits stemming from the decline in the number of outpatient tests. In fiscal 'twenty one, we will return to a growth trajectory growth. With recovery in the market and focusing on the overseas diagnostic business and aim to achieve an operating income of 10,000,000,000 yen which will be the highest ever. Page 46 shows the analysis of the business results for fiscal 'twenty. Net sales were down by 200,000,000 yen due to COVID-nineteen. As for operating income, Please refer to the first half and the second half breakdown at lower right. The business was hit particularly in the first half but a sharp decline in operating income due to the impact of COVID-nineteen. However, in the second half, operating income recovered to almost the same level as the previous year, thanks to increased sales of COVID-nineteen diagnostic cuts, mainly overseas as well as fixed cost reductions. The deviance from the January guidance mainly stem from the fact that the sales volume of COVID-nineteen diagnostic tests did not increase as much as expected in the Q4 due to the progress of vaccine rollout in the United States. In addition, sales of influenza tests get slowed down due to the almost complete absence of influenza epidemics. And as a result, brief short of our January forecast. On the other hand, we were able to achieve profit growth in the pharmaceutical science business by expanding sales of new pharmaceutical ingredients. Page 47 is the overview of the business plan for fiscal 'twenty one. As a base story, we expect the market to bounce back from the weakness driving from COVID-nineteen, and we will grow sales of new products that we prepared in fiscal 'twenty, especially in the overseas diagnostic business, to get back on the growth track. To achieve this goal, we will strengthen our production capability in Augment development efforts. Sales are expected to reach 80,000,000,000 yen up year on year by 7,700,000,000 yen and operating income to achieve 10,000,000,000 yen an increase of 3,000,000,000 yen from the previous year. Next on Page 48, I will explain the performance by segment. In fiscal 'twenty, the domestic diagnostics business shown at top left was greatly affected by the decline in the number of AD patients coming to tech test for lifestyle related diseases. In addition, sales decreased due to the absence of demand for influenza tests. However, there was a certain recovery in the second half of the year, and we expect an increase in sales in fiscal 'twenty one with recovery in the number of our patients and the new testing instruments and diagnostic reagents that we worked on in fiscal 'twenty. Temporary closures of clinics stemming from the lockdowns in European states, among other features resulted in a downturn in demand in fiscal 'twenty for the overseas diagnostic business shown at the top right. Despite such adversity, sales grew sharply, thanks to the increase in sales for COVID-nineteen diagnostic kits. In fiscal 'twenty one, we expect the lockdown to be lifted and sales of new products to increase, especially in China, where we were successful in growing sales of blood coagulation equipments in fiscal 'twenty, and we can spec subsequent sales growth reagents for the equipments installed in the market. Oda Pharmaceutical Science business at bottom left was impacted by the lockdown in fiscal 'twenty. We were able to secure an increase in sales, thanks to the contribution of new pharmaceutical ingredients, especially in Japan. In fiscal 'twenty one, the same pharmaceutical ingredients will go into mass production phase, and we can expect sales growth. We also expect to make steady progress toward expansion of production capacity at the Iwate plant, which was announced last fiscal year. In addition, we plan to increase sales by accelerating the growth of the CDMO business. In fiscal 'twenty one, The new product we prepared in fiscal 'twenty will propel sales, and we will also improve the product mix by increasing the ratio of our own products. To that end, call. We also plan to launch more products during fiscal 'twenty one. This will bring me to the close of my presentation. Thank you for your attention.