Dowa : Second Quarter Business Results with Script

Hello, everyone.

Thank you for attending our results briefing.

My name is SEKIGUCHI Akira. I am president and representative director of DOWA HOLDINGS. Today, I would like to talk to you mainly about the outlook for the second half of FY2021.

I hope you will bear in mind that the forecasts for FY2021 do not include the results and forecasts of Fujita Kanko Inc., which is an entity accounted for using equity method.

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Let me explain the results for the first half of FY2021.

The first-half figures are actual results and equity method income of Fujita Kanko Inc. is therefore included.

In the first half of FY2021, both sales and profit increased significantly year on year. We believe this is largely attributable to three factors.

Firstly, exchange rates and metal prices were both favorable. These were the biggest factors behind the increases in sales and profit.

The second factor is recovery from the effects of the COVID-19 pandemic. In FY2020, the Metal Processing segment and the Heat Treatment segment, both of which have a large proportion of automotive-related customers, were severely hit during the first half. In FY2021, business was still not completely back to normal but conditions were more similar to pre-COVID conditions.

Similarly, the Los Gatos Mine in Mexico suspended operations for one-and-a-half months from mid-April 2020 in accordance with the Mexican government's mandated suspension of operations and fell into a loss in FY2020. However, with a return to normal operations in FY2021, the mine is achieving profitability in line with its true potential.

The third factor is materialization of the effects of measures implemented to date. The progress we made in FY2021, such as startup of the business of recycling non-burnable waste in the Environmental Management & Recycling segment and the start of mass production and sale of short-wavelength-infrared LEDs in the Electronic Materials segment, is another factor behind the increases in sales and profit.

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Looking next at the FY2021 full-year forecasts. The forecasts do not reflect the results and forecasts of Fujita Kanko Inc.

The "fall in precious metal prices" is in comparison with average prices in the first half. Since we handle a great deal of precious metals such as gold, silver and platinum group metals (PGM), the impact of price volatility in precious metals cannot be ignored.

PGM prices in particular started rising sharply from the third quarter of FY2020 and reached a peak in the first quarter of FY2021. Since we assumed that PGM prices would be similar to September levels, this means that prices will appear low when compared with peak levels.

I will discuss the "automobile production cutbacks" in more detail later but the impact is apparent in the Heat Treatment segment. The Metal Processing segment, on the other hand, is expected to escape any direct impact.

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We expect that ordinary income will decrease through the second half compared with the first half but anticipate that our target markets will remain firm.

The "fall in precious metal prices," which is one of the factors behind decreased profit in the Environmental Management & Recycling segment and the Nonferrous Metals segment is based on the assumption of low prices during the second half, compared with the first half, when prices peaked. Although we have been involved in this industry for many years, we feel that the level of prices when they peaked in the first quarter of FY2021 was excessively high and, if anything, we see it as reassuring from the standpoint of business operations that prices passed their peak and entered an adjustment phase.

In the Electronic Materials segment, we forecast firm demand for silver powder. In LEDs business, we fully launched new short-wavelength-infrared LEDs from the second quarter of FY2021. Initially, we received many orders, partly reflecting the build-up of inventories at customers. However, in the second half, demand has levelled off and a negative impact in terms of a difference in LEDs product mix has emerged but we consider this to be the impact of transition to stable operation.

The decreased profit of the Metal Processing segment is chiefly attributable to accounting treatment. In the first half of FY2021, the Metal Processing segment recorded a gain on the reversal of temporary derivative losses recognized at the end of FY2020, which bolstered first- half profit, and the segment will post decreased profit in the second half.

The Heat Treatment segment will post higher profit in the second half than the first due to the usual concentration of sales of industrial furnaces in the second half. Although the Heat Treatment segment has been affected by automobile production cutbacks, on a groupwide basis, the impact will be limited.

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Moving on, I would now like to discuss each segment in more detail.

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