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Financial Results Conference Call - Q&A Transcript

3rd Quarter Ended December 31, 2020

Date and Time: 6:00-7:00 p.m. Tuesday, January 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 3Q (9 months) cumulative ended December 31, 2020 compared to 3Q cumulative ended December 31, 2019.

The factors impacting the change in operating income are,

- Fixed costs Approx. +8.0 billion yen
- Price reduction offset by streamlining, etc. Approx. +5.5 billion yen
- Sales volume variance Approx. +5.5 billion yen
- Royalty income Approx. +4.0 billion yen
- Impact of foreign exchange Approx. -4.0 billion yen
- Product mix Approx. -3.0 billion yen
- Others Approx. -0.5 billion yen

As a result, operating income increased by 15.7 billion yen.

2. Please explain the background behind the reduction in fixed costs of the current fiscal year and outlook of the next fiscal year.

In current fiscal year, the cost of activities was curbed due to COVID-19. In addition, personnel expenses were reduced due to a decrease in automobile production in North America. As for activity expenses, since the work style reform is proceeding sharply, we do not anticipate it will return to levels as before. The plan for Fiscal Year 2021 will be examined in light of these changes in environment.

3. In the factors contributing to changes in consolidated business results, "price reduction offset by streamlining, etc." had a positive impact. Please explain the background in detail, such as contribution of price increase for polarizer in the market or a larger progress in rationalization than usual.

The increase of market prices for polarizers had limited impact on business results. The major factor in the increase in profits were rationalization for production in laptop and tablet device, those demand grew significantly in this period.

4. Please explain the factors in the increase or decrease in the consolidated operating income for 3Q (3 months) ended December 31, 2020 compared to 3Q ended December 31, 2019.

The factors impacting the change in operating income are,

- Sales volume variance Approx. +12.5 billion yen
- Price reduction offset by streamlining, etc. Approx. +2.5 billion yen
- Fixed costs Approx. +1.5 billion yen
- Impact of foreign exchange Approx. -2.0 billion yen

As a result, operating income increased by 14.4 billion yen.

5. Please explain the factors in the increase or decrease in the consolidated operating income for 3Q (3 months) ended December 31, 2020 compared to the previous quarter ended September 30, 2020.

The factors impacting the change in operating income are,

- Sales volume variance Approx. +8.5 billion yen
- Product mix Approx. +2.5 billion yen
- Price reduction offset by streamlining, etc. Approx. +0.5 billion yen
- Fixed costs Approx. -2.0 billion yen
- Impact of foreign exchange Approx. -1.0 billion yen

As a result, operating income increased by 8.6 billion yen.

6. Please explain the background of the significant improvement in the operating margin of Industrial Tape in 3Q, and the deficit in 4Q's forecast, then the outlook for the next fiscal year.

In Functional Base Products, sales of semiconductor-related materials used in the manufacturing process increased. Electronic component for high-end smartphone also remained firm, and profitability improved significantly due to an increase in demand for general industry materials. In Transportation business, the product mix was better with strong performance of car electronics related products. The Company is considering implementing structural reforms for the “demand that won’t recover”, which will result to the decline in 4Q.

7. At the Annual Investors’ Meeting, vibration-damping material for automobiles was explained as "demand that won’t recover", though the business contributed to the Company's performance in 3Q. Are there any changes to the strategy?

In our medium-to long-term strategy, Transportation Business is to focus on car electronics related products. Currently, demand for vibration-damping materials for automobiles is strong, but it is difficult to expect the demand last long. In 4Q, we have incorporated expenses of almost 4 billion yen for the cost of structural reform.

8. Please explain the details about "Non-TV polarizer, etc." in Information Fine Materials as well as the factors that contributed to the change in 4Q.

Demand for polarizer for smartphones was better than expected, but revenue declined compared with the previous fiscal year. In the current fiscal year, polarizer for laptop and tablet device contributed significantly to the increase in profits. We expect this strong demand to continue in 4Q, but we expect a decline in 4Q as a whole, due to usual seasonal factors.

9. Please explain the reasons for the upward revision to the full-year forecast of Information Fine Materials.

The revision was made based on the factor that the demand for polarizer for laptop and tablet device increased from the background of expanding telework.

10. Please explain how much “high-precision circuits” contributed to the increase in sales of Flexible Printed Circuits, and the outlook for the future.

In Flexible Printed Circuits, sales of products for HDDs are also strong. High-precision circuits have begun to make contribution, accounting for approximately 30% of Flexible Printed Circuits revenues. We expect further expansion in the next fiscal year.

11. Please explain the advantages of Nitto in “high-precision circuits” and the preparatory status of the manufacturing system for increasing in orders from the next fiscal year onward.

We believe that we have a technological advantage over other companies. The manufacturing system is already prepared, and we will further stabilize production and respond to rising demand from the next fiscal year onward.

12. Please explain the reasons for the upward revision to the full-year forecast of Life Science and the background to the return of profitability in 4Q.

The revision was made based on the strong performance of the oligonucleotide contract manufacturing business. In addition, we expect a royalty income from drug discovery business in 4Q.

13. Since there is a rising expectation for nucleic acid drugs as therapeutics and vaccines against COVID- 19, how Nitto can contribute to such situation?

The nucleic acid drug business is divided into oligonucleotide contract manufacturing and drug discovery. We have begun to respond to the inquiry from customers for COVID-19 vaccines in areas related to the contract manufacturing. We will report back with any achievement.

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