Earnings Call: Q4 2020

Apr 27, 2020

Thank you for participating in the conference call. I am Keita Kato, and I was appointed as the president of Sekisui Group in March this year. First, I'd like to mention the countermeasures we are taking against the COVID 19 situation. We recently set up the emergency response headquarter by I serve as a chair. This is intended to make appropriate decisions To cope with the situation, should the current repercussions of COVID-nineteen expand further and last longer? We intend to establish a working environment where we place the highest priority in securing the health and safety over employees and their families. We also intend to swiftly and thoroughly communicate any impact we will anticipate on the business to the investors and the shareholders as much as possible. Now let me start my presentation. I will walk you through the presentation material. I will refer to the slide numbers which are indicated at the right bottom corner for each slide. On Slide 2, He will find the assumptions in our thought process for the FY 2020 business plan, which reflects the impact of COVID nineteen. We assume that the business environment in mid April, which was when we structured this business plan for FY 2020, but continue until June. And gradually recovered thereafter and your legal back to normal in the second half. Rate subject to the timing of when things will settle down. In considering which businesses will be impacted, we expect the global auto production, smartphone production and sales would be impacted as well as the medical business. As the number of health check-in in hospital tests for lifestyle related disease are declining. In Japan, as people choose to stay home, visitors to the model houses, number of discussion for home purchase and housing starts are all on the decline. And furthermore, the construction work has been delayed. For SecooSafe Group, having a wide variety of business portfolio, all the businesses are exposed to the challenge. We see material impact, particularly in the mobility field within high performance plastics company or HPP, a new housing and home renovation business within the housing company. Given that background, for the FY 2020 business plan, we will strive to minimize the impact of COVID 19 through unwavering efforts, including structural reform and aim to maintain an augment applied chain to definitely achieve a V shaped recovery from the second half. As for the impact on FY19 results, operating income flow showed by JPY 2,900,000,000 compared against the outlook announced in January. We have highlighted the breakdown by each divisional company on the slide. Let me also touch upon how we build the business plan for FY 2020. Normally, we make our annual business plan in February. However, at that point this year, the impact of COVID nineteen was still not clear So we tentatively came up with a business plan that did not reflect the impact of COVID-nineteen. That plan is referred to as FY 2020 initial plan on the slide. Under which we set the sales target as 1,000,000,000,000,000 and operating income target as 1,000,000,000. With the global spread of COVID 19 since then, today, we are announcing a business plan reflecting as much as or the impact of COVID nineteen that we can anticipate at this point based on the assumption that I have already mentioned. Due to COVID-nineteen, the consolidated operating income will be pushed down by 1,000,000,000 versus the initial plan of which 16,200,000,000 is within HPP, mainly from the mobility field. Using slide 3, I will illustrate the outlook for market conditions, which is used as the premise for the fiscal 2020 business plan. The auto production is expected to be hit severely in the first half, particularly in Q1 and recover leading into the latter half of the fiscal year. Having said that, we expect the total annual order production to be down by approximately 20%. We anticipate the gradual recovery for smartphone shipment as markets switch to 5G in the second half. The outlook for the overall visitors for the housing business is indicated by the graphite top right. Visitors Kamado houses shown by the blue line is under pressure with people choosing to stay home, and we expect a big dip in Q1. To offset this, we will focus on the Internet channel to get more requests for information from the customers and fortify the communication. The housing starts throughout the year is expected to drop significantly with weaker consumer sentiment. The NAFTA price considering the recent trend could potentially decline further compared to what we are expecting today. Now let me go over the FY 2019 results in FY 2020 plan. The currency assumptions for U. S. Dollar and euro are indicated on slide 4. The results for fiscal 19 is illustrated on slide 5. We studied to feel a significant impact of COVID 19s is February, mainly in HPP And Housing business, and net sales was down year on year by JPY 13,500,000,000 and respective profit lines were down accordingly. Operating income declined by 8% year on year. The dividend was unchanged from the plan And with the year end dividend set at JPY 23, the full year dividend was raised by JPY 2 year on year to JPY 46 per share, marking the 10th year of consecutive dividend hike. Slide 6 shows the results by each divisional company. Also short of the January guidance due to COVID 19. The left table illustrates the breakdown by divisional companies in year on year change. The operating income for HPP company was down significantly as the business was did by the protracted weakness in the global auto markets from the first half, compounded by the impact of COVID 19 later in the year. The operating income for housing company was flattish from last year as COVID 19 cost delays in the delivery of new houses and renovate homes at the end of the fiscal year. Although urban infrastructure and environmental products company, or UIEP's drug with overseas with the deterioration in the business environment. The company renewed the previous record high profit by growing the sales and profit in Japan. Details presentation will be provided later by the company presidents. We also made progress in narrowing down and concentrating on the themes for R&D. On slide 7, He will find the results for the first half and the second half. In the first half, we secured consolidated operating income that was nearly the same as the previous year, but in the second half, consolidated profit as well as the operating income for each divisional company were down caused by the weakness in the global market as well as the impact of COVID 19 in Q4. Slide 8 shows our analysis of the FY19 results. Looking at the different elements impacting the operating income, although we benefited from lower raw material cost as well as further reduction in the fixed cost, The weaker market in COVID 19 hit us hard and sales volume and product mix had a huge negative impact in HPP. In addition, new consolidation led to further profit decline and Yens started to strengthen. As a result, the operating income declined year on year. From Slide 10, I'd like to walk you through our business plan for FY 2020. The currency assumption is JPY 110,000,000,000 at least a US dollar and JPY 120,000,000 against a euro as indicated on this slide. On Slide 11, you will find a plan for FY 2020. Based on the assumption that I explained at the outset, we put together the business plan having reflected all the impact that we could anticipate in mid April. We are aiming for an operating income target of JPY 70,000,000,000. The dividend is planned to be raised by JPY 1,000,000,000 to JPY 47,000,000 per share, to continue the dividend hike streak for 11 consecutive years. We are also setting up a share buyback program once again this fiscal year. And will cancel 8,000,000 treasury stock. We will continue to actively engage in shareholder return. Slide 12 shows the FY 2020 plan by divisional Companies. Operating income is expected to drop significantly in HPB in housing. Did you assume your impact from COVID 19, whereas for UIEP, the profit decline is anticipated to be more moderate. The table on the right illustrates how the current business plan compares against the initial plan which did not reflect COVID-nineteen. The impact of COVID-nineteen is estimated to be 1,000,000,000 for the group, out of which 16,200,000,000 is in HPP and 8,500,000,000 in housing. This slide is the divisional company's plan for the first half. We expect a huge profit decline in the first half, as COVID nineteen would impose a severe limitation on the economic activities, especially in the first quarter. Having said that, to be ready for the recovery in the second half, we will do our utmost to maintain the supply chain, including keeping our plants operations. The impact for respective divisional companies is indicated on the slide. As shown by the right table, Of the COVID 19 impact of JPY 28,000,000,000 for the full year, most of the amount or JPY 24,700,000,000 will hit the P and L in the first half. Slide 14 outlines the plan for the second half. We expect the COVID-nineteen impact to subside and plan for start to profit growth. This will be evident particularly in HPP as we anticipate a V shaped recovery with dedicated efforts in cost innovation and normalization of supply chain. Housing will be hit by the decline in the first half order, But by fortifying a ready built housing business, we aim to recover the second half profit to be close to the second half profit in the previous year. In UAE EP, we will continue to feel the impact of drop in the start, but we aim for profit growth by expanding the sales of the prioritized product. Slide 15 is the analysis on the outlook for FY 2020. Thank chart on the right illustrates the factors behind the change in operating income. As I have been explaining, the impact of COVID nineteen in the first half is going to be severe, triggering a big negative impact on sales volume and product mix. However, we will strive for a V shaped recovery in the second half. As your internal efforts, We will continue to tackle the overall cost renovation for the supply chain, reduce cost of self, restructure reform, and further lower the fixed cost. Let me also talk about our shareholder return policy using Slide 16. In fiscal 2020, we are planning to pay a full year dividend of per share, which will mark 11 straight years of dividend hike. I'd like to draw your attention to the table that was also laid out in a previous midterm business plan. From FY 'twenty, marking the 1st year under the new midterm business plan, We will further augment your commitment to shareholder return and make the policy more transparent. As our shareholder return policy in the near term business plan, we have set up a dividend payout ratio target of over 35% and DOE of over 3%. We have also clearly stated the total return ratio and criteria for canceling the treasury stock. Slide 17 explains how we are positioning FY 2020. As we continue to be placed under the state of emergency with birth of COVID nineteen, we will endeavor to minimize the impact as much as possible by doing what we can do. We also have our eyes already on post COVID 19 to make sure that we have the capabilities in place to capture the demand that will be pushed out. Fy 'twenty is the 1st year under the new midterm business plan and details will be unveiled in a presentation schedule for May 22nd. In the 1st year of the new midterm business plan, we will strive to overcome this big challenge and prepare ourselves to capture the growth opportunity to bring the group back onto the growth trajectory from the next fiscal year onward. I am Katziyani Shida, a Executive Officer, Head of Corporate Finance And Accounting Department. Let me go over the highlights of the fiscal 2019 results. The number of consolidated companies, as shown on the slide 19, has increased on a basis by 10 to 163 entities. Out of the 15 newly consolidated companies, 7 were due to the acquisition of Sekisui Aerospace Corporation. The impact on the financial statement is shown by the bottom table. Slide 20 is a summary of P and L, and I will give you details on items below the ordinary income. Ordinary income was 87,000,000,000 yen, marking gum or moderate profit decline on operating income, thanks to the improvement on the non operating income and expenses. Extra ordinary profit is mainly booked due to the ownership adjustment of the strategically held stocks, both in FY201819. This profit item grew, thanks to a bigger gain on sales in FY 2019. The extra ordinary loss was up due to the valuation loss on investments on securities and asset impairment loss. As a result, pretax profit was down by slightly over JPY 10,000,000,000, and corporate income tax among others decreased accordingly. Net income was 58,900,000,000, down by 7,200,000,000 year on year. Moving on to the balance sheet on Slide 21, the total assets increased by 78.6 1,000,000,000,000,001,000,000,000. Most of that increase were 1,000,000,000,000 was due to increase in the newly consolidated companies such as SA Aerospace. Inventories were up by JPY 25,000,000,000. This was mainly due to the JPY 19,800,000,000 increase in the housing company as we are building up inventory for subdivision for sales and ready built houses as well as increase in the working progress for houses. Tangible non current assets increased by JPY 27,800,000,000 as our CapEx was higher than the depreciation. Increasing the intangible on current assets was due to increase in goodwill and others due to the Sekisui Aerospace deal. Investments and securities were down, partially due to reduction in the business related stock holdings, as well as decline in market value of stocks we hold compared to the end of fiscal 2018. As shown on Slide 22, Total interest bearing liabilities increased by JPY 63,800,000,000 as a result of active investment and shareholder return. Net interest bearing debt, adjusted for cash and deposits was JPY 40,800,000,000, and our financial position has shifted from net cash to net debt. For retained earnings, net income grew, which was partially offset by dividend and cancellation of treasury stocks. In FY 2019, we have also bought back 8,000,000 shares and have canceled them. In addition, during FY 2019, due to sales of stocks in decline in the unrealized holding gain on securities as well as a drop in currency translation adjustments for stronger yen, the growth of the total net assets was muted to 1,000,000,000. ROE, equity on total assets, and the E ratio are all shown at the bottom of the table. Let's move on to the consolidated cash flow on Slide 23. Operating cash flow has improved from last year with positive inflow of JPY 92,600,000,000. Compared to the operating income, the operating cash flow was better positioned compared to the previous year. Mainly because of the higher depreciation and less cash outflow on working capital compared to FY 2018. The investment cash flow was negative JPY 100,600,000,000. CapEx peaked in FY 2018 and started to pick out But during FY 2019, we increased the spending on M and A quite substantially. Net net, the free cash flow was slightly over negative 30,000,000,000 yen. Depreciation, CAPEX, and EBITDA by segments are illustrated on Slide 24. Depreciation as well as goodwill amortization is on the rising trend and CapEx in FY2019 was 1 6 times compared to the depreciation expenses. EBITDA for each divisional company, which is a pull for CapEx, is indicated by the column at the far right and it stands roughly twice as high compared to the capital spending. FY20 plan for depreciation, CapEx and EBITDA are shown on Slide 25. Due to depreciation incurred from the investments executed among other factors, the depreciation is expected to rise. We plan to curb the overall fixed cost, but plan to keep the level of total R and D spending. On Slide 26, I'd like to reiterate the overview of FY 2020 plan as well as the shareholder return. We plan to raise the level of shareholder return by continuing to raise dividend buyback shares and cancel treasury stocks. This will conclude my presentation. Thank you for your attention. Company president of High Performance Plastics Company. Let me start my presentation on HPP. Slide 29 shows the performance trend. Looking back the results from FY19, net sales declined year on year and operating income was down for 2 consecutive years due to the deterioration on the global market, especially in the auto industry, as well as the COVID nineteen impact from Q4. At the same time, we also made some progress in terms of growth investments having completed the acquisition of AIM Aerospace Corporation with an intention to paper aways into the aircraft market. For FY 2020, the first half profit is projected to decline due to COVID nineteen. But assuming that from the second half, the impact of COVID nineteen will subside and the auto market will start to recover. We are expecting an operating income of 27,600,000,000 yen. Slide 30 illustrates the analysis of the FY19 results. Net sales were down by 1,000,000,000 year on year to 1,000,000,000 And adjusting for new consolidation in currency fluctuation, the decline in effect would have been JPY 15,600,000,000. A chart on the right shows the analysis of the operating income. We benefited from year on year decline in raw material cost as well as the year on year savings and the fixed cost, thanks to emergency and other measures taken. However, salt volume was down due to COVID 19, particularly in the mobility field, a one off cost increase for plant integration of AM Aerospace, among others. As a result, operating income was down by 1,000,000,000 year on year. Compared against our January guidance, sales volume and product mix had a significant negative impact due to COVID nineteen. The breakdown of the impact of COVID 19 is outlined at the bottom left corner. JPY 4,400,000,000 negative impact on the total operating income at over 3,100,000,000 is from the mobility field stemming from the global auto supply chain disruption and 1,000,000,000 in product for industrial application due to sharp demand drop in Japan since the end of February. On Slide 31, Here we'll find the business plan for FY 2020. Net sales projection is JPY 315,000,000,000, down by 1,000,000,000 year on year. If we adjusted back for new consolidation, currency fluctuation and other elements, the sales decline in effect would be JPY 21,000,000,000. The chart on the right explains the moving factors behind the operating income. Despite the positive news of lower material cost, Sales volume and product mix will deteriorate substantially mainly for the mobility field and the operating income is expected to be down by 1,000,000,000 year on year. The breakdown of the impact in the first half and the second half is shown below the waterfall chart. The first half will be hit severely by COVID 19. And overall, the operating income will be down by JPY 16,000,000,000, At of which JPY 14,700,000,000 will be due to sales volume and product mix. On the other hand, for the second half, assuming that this pandemic was subside, we plan to improve on the sales volume and product mix in mobility and electronics business. The details of the 16.2000000000 COVID 19 impact is explained at the bottom left corner. Most of the impact will be stemming from the profit decline in the mobility field due to drop in the oil production and the impact is expected to be rather limited for the electronics in building an infrastructure business. Given the current situation we are in, we plan to further accelerate our initiatives on cost innovation and business structure reform, which we rolled out last fiscal year. Next, let's look at the situation around the 3 strategic fields on slide number 32. As I mentioned earlier, with the exception of the mobility field, electronics and building and infrastructure fields are relatively robust. First, regarding the electronics field, fiscal year 2019 continued to be a firm year when taking out businesses we have withdrawn from. The first half of fiscal year twenty twenty is expected to stay flat due to the impact from COVID nineteen, but for the second half, We expect sales growth coming from higher 5G demand and other factors. We will continue to promote the diversification of profit sources by expanding non LCD fields. In the mobility field, we struggled in fiscal year 'nineteen due to the deterioration of the automobile market and the impact of COVID 19. We expect these trends to continue in the first half of fiscal year twenty twenty, mainly in the first quarter resulting in a large drop In the second half of the year, on the premise that the impact from COVID 19 will dissipate. We are planning for an increase in sales anticipating a recovery in the automobile market. Such as wedge films for HUDs and high performance films, as well as work on profitability improvement at Aerospace. Regarding Building And Infrastructure, we will strive to increase share of CPVC and also extend sales of thermal insulation and non combustible materials. Cost innovation will be our most important initiative, and we will accelerate 3 measures in order to rebuild our earnings structure. Reduction of fixed costs by cutting various expenses. Promotion of supply chain cost innovation, such as procurement, optimization, etcetera, and structural reform through optimization of business consolidation. Slide number 33, the final slide for the HPP business talks about our growth engines. First of all, Sales of the non LCD products in the electronics field are increasing and products such as highly adhesive easy release tape, sofa, for semiconductors, and heat releasing materials used at 5 g base stations are doing well. The sales ratio for non LCD products is expected to rise to 56% in fiscal year 2020, Regarding high performance interlayer films in the mobility field, we had a tough time in fiscal year 'nineteen, but we have been able to secure market share. In order to normalize the business by the second half of fiscal year twenty we will focus on extending sales of which films for HUDs in particular, as well as continue to increase the adoption of high performance films. For heat insulation and non combustible materials, we will strive to expand sales centering on non combustible urethane, whose market is rapidly expanding. Lastly, in the next generation growth domains, we are focusing on certain themes for new product development so as to prepare ourselves for future growth. In electronics, that would be next generation displays and 5 g. In mobility, next generation automobiles, and CFRPs for aircrafts, and in building an infrastructure, safety and labor saving construction. This concludes my part. Hello. I am Toshiyuki Kamiyoshi, divisional company president for the housing company. I will now go straight into my explanation for the housing company. Please turn to slide number 35. First of all, in fiscal 2019, sales were 1,000,000,000, and operating income 1,000,000,000. COVID-nineteen affected performance significantly, and all businesses fell short of plan resulting in a decline in income we underachieved the outlook due to delays in housing material deliveries in Q4 due to COVID-nineteen. Next, with respect to orders on the right hand side, new housing and renovation orders were both affected by COVID-nineteen in fourth quarter. With new housing orders down by 6% year on year and renovation orders down by 5% year on year. As for the profit plan for fiscal 2020, we anticipate that we will struggle to receive orders for the first half due to COVID nineteen, and forecast operating income at 32,000,000,000 yen, which will be a decline year on year. Please turn to slide number 36. Here is an analysis of net sales and operating income. In fiscal year 2019, we fell short of our sales plan due to the impact from COVID 19. Despite controlling costs, operating income decreased year on year. With regards to net sales on the left hand side graph, sales increased 1% year on year or by 6,200,000,000 yen, However, compared to plan, all businesses fell short. Next, looking at the analysis of operating income on the right hand side graph, and the housing business, processes were delayed because of material procurement difficulties due to COVID 19. The number of units sold decreased by 26 units compared to the previous year. And as we were able to make up for the increase in fixed costs, operating income decreased by 1,900,000,000 yen. The renovation business also experienced process delays, resulting in sales underperformance and a decline in marginal profit. However, operating profit came in broadly flat compared to the previous year due to improvement in fixed costs. In addition, profits increased by 1000000 and the other domestic businesses due to the growth of the real estate business. As a result, divisional company total operating income decreased by 1,200,000,000 year on year. Moreover, the impact of COVID 19 on our operating income forecast was -2,700,000,000 yen, as shown on the bottom left of the slide. The breakdown for each business is shown in detail and the decrease in the number of houses sold by 218 units had a substantial impact on us. Please turn to slide number 37. Here's an outline of our plans for fiscal year 2020. In fiscal year 20, we think that a profit decrease in the first half is unavoidable due to a large decline in orders. Mainly in the first quarter because of COVID 19. However, in the second half, we aim to recover back up to the same level of profits as the previous year. Regarding the net sales outlook on the left hand side, sales for all businesses are expected to decrease by 1% or 7,400,000,000 year on year to 1000000000 As for the analysis of operating income on the right hand side, we expect operating income to decrease by JPY 5,900,000,000 for the housing business. As we anticipate, the number of houses sold to decrease by 5 20 units due to COVID-nineteen and because fixed costs are expected to increase due to growth investments. With respect to the renovation business, Also due to COVID-nineteen, we are expecting operating income to decrease by 2,200,000,000 in the first half. But as we plan for an order recovery in the second half after COVID 19 subsides, we expect full year profit decline to be 1,000,000,000 year on year. In the others business, marginal profit of the Town And Community Development business is expected to manifest leading to a profit increase of 1,000,000,000. Due to these reasons, profits 8000000000 year on year for the full year. The impact of COVID-nineteen on the initial plan's operating income is minus 8,500,000,000 yen as shown on the bottom left. Please turn to slide number 38. Regarding new housing orders, first, the visitor outlook is shown at the top left of the page. For the first quarter visitors to model home galleries, our expected show a significant decrease tentatively to 20%. However, as we did during the second half of last fiscal year, we will continue to focus on attracting visitors online in order to make up for the decrease in overall customers. Regarding the breakdown of orders as shown on the right, in the second half of fiscal year twenty nineteen, although there was a large drop off in rebuilding and apartment building orders from the fourth quarter due to COVID nineteen, company owned land, especially ready built houses, are performing positively year on year. In the first half of this fiscal year, we are planning to further strengthen sales of ready built houses, so as to make up for the other businesses, As for the order outlook for fiscal 2020, as shown in the graph on the right, assuming that COVID 19 settles down during Q1, We expect orders to decline by 18% in the first half and increase by 10% in the second half which is about the same sales level as fiscal 2018. Regarding measures to secure orders, details are available at the bottom left and we will continue to strengthen and expand our growth measures. Specifically with regards to our Salesforce, We plan to strengthen web marketing based on customer trends and expand the development of experience based showrooms to thirty two locations. In terms of product strategy, we are focusing on a smart house number 1 strategy, aiming for a VEH ratio of 85% and strengthening sales of ready built houses. Also, regarding land strategy, We have secured sufficient inventories with 9% more of land inventory and 51% more ready built houses inventory compared to 2019. We plan to increase ready built home murders by 33% year on year in the first half. Please turn to slide number 39. Here, we elaborate about our high owners business, which includes Renovation, Real Estate And Town And Community Development. First, regarding the Renovation business on the left hand side, Orders are expected to slow down during Q1 due to significant COVID 19 impact. However, we will strive to steadily capture recovery demand after the virus settles down. As for measures, we will aim to improve efficiency in our sales structure by assigning dedicated people conducting periodical diagnostics and strengthening our capabilities to make proposals by extending the FAMI S Museum. As a result, we will step up orders for storage batteries and proposal based products, such as bathroom products. Furthermore, Like what we do with new housing construction, we will work to level out construction and sales and improve productivity. Next, regarding the real estate business on the upper right, we will strive to realize renovation collaboration, in light of the integration of the stock based businesses and focus on further capturing properties that are not currently managed. As well as increasing resources for brokerage and secondhand housing purchases and resale. As for the town and community development business, we are planning to sell 100 units of condominiums at Haim Sweet Asaka. As for overseas and residential, please refer to the details on the slide. Hello. I am Yoshiyuki Hirai, company president for the Urban Infrastructure And Environment Products U IEP Divisional Company. I will go straight into my presentation. Please turn to slide number 41, where we show performance trends. Operating income in fiscal year 2019 fell short of plan due to the impact from COVID 19 in Q4. But we were able to reach record highs for the 4th consecutive fiscal year at 15,500,000,000 yen. We believe the COVID 19 impact is unavoidable, especially during the first half of fiscal twenty twenty. Hence, the profit plan is outstanding sales of prioritized products and the overseas business. Turning to slide number 42, Net sales on the left increased by 1,600,000,000 on an actual basis when excluding structural reforms. In Japan, general purpose products struggled in the second half of the year due to decreased housing starts, but we were able to expand sales of prioritized products steadily In the overseas business, sales of FSU products for railway sleeper applications increased steadily. However, overall sales came in broadly flat year on year due to sluggish sales of industrial piping materials, which was affected by companies cutting CapEx as well as aircraft sheets, which was affected by the deterioration in the aviation industry. The impact from COVID 19 as shown at the bottom was minus 4,600,000,000 yen on net sales and minus 1,000,000,000 on operating income. In Japan, construction work was delayed or suspended due to late material deliveries and in the overseas business, the aircraft sheets business was affected in particular. As a result, the impact of sales volumes and product mix on operating income, as you can see on the operating income analysis on the right, ended up being 1,400,000,000 yen lower than the January outlook. The rest of the factors were broadly in line with expectations. Please turn to slide number 43. Regarding the fiscal year 2020 plan, we expect net sales shown on the left to decrease by 1,000,000,000, out of which minus 1,000,000,000 is expected to be the impact due to a decrease in housing starts as well as a drop off in public works orders. The overseas business is expected to account for a 4,000,000,000 NDC increase in sales due mainly to a downturn in aircraft production. Another factor that is not accounted for in our plan is the recent situation around general construction companies in Japan that are suspending construction work. If the suspension is prolonged, the negative impact on our performance will become larger as a matter of course. Looking at the graph on the right, sales volumes and product mix impact on operating income is expected to be minus 2,800,000,000 yen, which includes COVID nineteen's impact of 3,300,000,000 However, we will strive to minimize the decline of earnings by focusing on selling price, raw materials, spread expansion, cost reduction, and reducing fixed cost. The next slide, number 44 is the forecast for the 3 strategic fields. Net sales are expected to decrease for all three fields in the first half of the year, but we plan for a sales increase in the second half. First, for piping and infrastructure, in addition to a decrease in housing starts, as most of the large construction projects have been completed prior to the Olympic games, the first half will be a sluggish period. However, there will be some positives due to the postponement of the gains. Before the postponement, we were originally expecting 2nd quarter net sales to significantly decrease due to construction work we in the Tokyo Metropolitan area. Now with the postponement, we expect that some work can be carried out after all. And we will strive to capture demand associated to it as much as possible. There will be some large projects in the second half, so our plan is to grow mainly prioritized products. Sales for the building and living environment field is also expected to gradually decrease. Due to less housing starts as well as the withdrawal from unprofitable products through structural reform. However, profit margins are expected expected to be significant in the first half, so significant that the growing medical application demand will not be able to make up for the decline. However, we expect an increase in sales in the second half due to a recovery in aircraft as well as support from railway sleeper applications as its advantage in cold weather regions have been recognized lately, leading to increased customer adoptions. As for structural reforms, Our plan is to reduce fixed costs by more than 5,000,000,000 yen over the current medium term plan. We will steadily implement measures that we have started to work on since fiscal 2019, such as streamlining and automating production, utilizing digital transformation and identifying unprofitable fields. Slide number 45 is the final page of my part. Talking about growth strategies. Prioritize products are growing steadily as shown on the graph. The products have been categorized in areas associated with solving social issues such as resolving labor shortages, counter measures for aging of infrastructure, responding to climate change and growth fields. These social issues are expected to become even more serious going forward. So we will strive to address the challenges by not only our current products, but to also grow by developing new products that can solve issues at a higher level. For example, as you can see on the right, the second example is Sewage Pipe Rehabilitation Materials. Recently, this product was used for aging infrastructure. However, we developed a new product that can be combined together with automation technology in order to address labor shortage issues. And enables shorter, weather agnostic, safe and quiet construction work. In other words, we are able to solve 2 or 3 social issues with one single product. We hope that this will lead to substantially higher customer satisfaction, and higher awareness towards social contribution amongst our employees. As for the overseas business, we expect sales to decrease by JPY 4,000,000,000 due to COVID 19, but we will continue to implement sales expansion measures to prepare for demand recovery. As you can see on the right chart, partner strategies are critical in each of our businesses and we will strive to expand markets together with processing and construction companies or companies that we have a stake in. Also for SFU, we are thinking about starting to take action to establish a production base in Europe where demand is growing. That is all for myself, Thank you. Hello. I am Hutoshi Kamiwaki, Senior Managing Executive Officer and Head of the Business Strategy Department. I will give an explanation of Here are the performance trends for the business. In fiscal year 2019, net sales increased due mainly to the diagnostics business overseas, but operating income decreased for the first time in 3 years due to some advanced investments. For fiscal 2020, we are expecting COVID-nineteen to impact us mainly in the first half, but expect a recovery in the second half resulting in operating income that is broadly flat year on year. Please turn to slide number 48. Here is an analysis of sales and operating income for fiscal 2019. The overseas diagnostics business steadily grew in particular, resulting in 1,900,000,000 net sales growth. Looking at the analysis on the right, profits increased mainly driven by the overseas diagnostics business. The domestic Diagnostics business was impacted partially by COVID 19, but achieved profit growth. Regarding the Pharmaceutical Sciences business, cancellations due to customer specific reasons led to a one off order decline. Which weighed on profits. Please refer to the bottom left. Approximately 1,300,000,000 impacted operating income in fiscal 2019 due to COVID 19. Especially at hospitals, typical outpatient tests are declining, such as lifestyle disease related diagnostics. Please turn to slide number 49. Here is the overview of the fiscal year 2020 plan. Net sales are expected to increase by 1,600,000,000 yen. Looking at the analysis of operating income on the right, On top of the overseas diagnostics business that is performing well, we expect profit growth in the domestic diagnostics as well as the pharmaceutical sciences businesses too. As we expect the first half to be impacted by COVID-nineteen, our plan is to increase earnings mainly in the second half of the year. Please refer to the bottom left. The impact from COVID 19 in fiscal 2020 is expected to be about -1,700,000,000 yen at the operating level. Lifestyle related disease diagnostics are expected to decrease during the first half of the year. Due to a decline in outpatients. As for COVID 19 related test kits, we do sell some in the overseas markets but the impact on our business is expected to be limited. It is sold in some overseas markets and will be a positive factor on net sales growth. Please turn to slide number 50. Sales by business are broken down here. For the domestic diagnostics business, we will strive to accelerate the launch of new products in particular and plan for a sales increase. COVID 19 will impact the first half of fiscal twenty twenty, but we expect a recovery in the second half As for overseas diagnostics that is doing well, we plan for net sales growth in both the 1st and second halves In China, we are planning to begin operating a new plant and will continue to seek growth through the expansion of blood coagulants. As for pharmaceutical sciences at the bottom left, although we will see some impact from COVID 19 in the first half, we expect sales growth for manufacturing pharmaceutical ingredients and expect this to be a driver for sales growth in the second half of the year. Please refer to the bottom right. Fiscal year 2020 will also be a very important year for new products. New product introductions are expected to be about double compared to fiscal 2019, and we will strive to expand sales. This concludes the explanation about the medical business.