Sekisui House's Q1 net income rose 62.9% year-over-year to 3M yen, due in part to steady orders, particularly of detached homes and rental housing; net sales up 0.8% year-over-year to 328.8M yen
June 9, 2011
– 1. Qualitative Information Regarding the Consolidated Results for the Three Months under Review (1) Qualitative information regarding consolidated business results
In the first quarter of the consolidated fiscal year ending January 31, 2012, the Japanese economy staged a gradual recovery on the back of the strong growth achieved by the emerging economies and an economic recovery in North America. However, the Great East Japan Earthquake that struck in March 2011 has caused a significant impact on business activities, putting significant downward pressure on corporate earnings. Also, an appreciation of the yen and a decline in share prices in the financial and capital markets meant that the economic outlook remains uncertain.
In the housing market, with the continuation of housing support programs, including the eco-point system, subsidies, and tax incentives aimed at promoting more eco-friendly housing, demand for houses remained almost unchanged, despite concerns about an increase in the rate of the fall in land prices and a declining appetite for housing investments after the earthquake.
In this environment, immediately after the March 11 earthquake, Sekisui House established a disaster-response headquarters with its president assuming the head of the office. Under this initiative, Sekisui House sought to promptly confirm the safety of the owners of Sekisui houses and the damage to the houses. With respect to the Company’s own sales bases, including branches, as well as its factories and other manufacturing facilities, no major damage was reported, and production and shipments were rapidly resumed. It also immediately started to undertake support activities, transporting stockpiled materials to the afflicted areas on the day when the disaster hit. The Company continued its efforts to promptly procure and deliver support goods, while it steadily constructed temporary housing with the cooperation of the government. Moreover, by allocating employees of Sekisui House Group companies and its partner companies to the disaster-hit areas, the Company is fully committed to recovery and reconstruction work.
Our business generally performed well, helped by steady orders, especially for detached houses, and rental housing which offset setbacks in areas hit by the devastating earthquake and tsunami.
In the first quarter of the consolidated fiscal year under review, net sales amounted to ¥328,768 million (up 0.8% year on year). Operating income amounted to ¥8,150 million (up 92.1% year on year), ordinary income to ¥8,434 million (up 86.5% year on year), net income to ¥3,008 million (up 62.9% year on year).
(Custom Detached Houses Business) In the Custom Detached Houses Business, Sekisui House took steps to increase orders in line with the key initiative of its mid-term management plan, the “Green First Strategy” (as a driver of business growth in eco-friendly housing). To respond to demand for the reconstruction of houses after the Great East Japan Earthquake, we also established a system for supplying the standardized housing packages of our steel-framed housing, wood-framed housing, and Sekiwa no Ki no Ie for customers in afflicted areas who are hoping for the early reconstruction of their houses. Meanwhile, responding to an increase in orders for the wood-framed Sha-Wood line that used Bellburn, our original exterior wall, we concluded the transfer of the building material business of Kurosaki Harima Corporation supplied the wall in question. By bringing the production Bellburn in-house, we aimed to improve our production capabilities and achieve cost cutting. As a result, we achieved steady orders, mainly reflecting the continuation of the official stimulus measures.
Sales in the Custom Detached Houses Business amounted to ¥91,702 million for the first quarter of the consolidated fiscal year under review, and operating income to ¥5,145 million.
(Rental Housing Business) In the Rental Housing Business, in February 2011, we launched POR+NUBE, a new product that adopted the new reinforced structural skeleton, and, as a standard feature, SHAIDD55, our original floor-sound insulation system that is able to significantly dampen the sound of impacts on the floor above. Moreover, as part of the our 50th anniversary events, we held the Sha-Maison Festa, an initiative to promote sales of rental housing, for the first time in early March 2011. The Festa attracted more visitors than we initially anticipated. In our Sha-Maison low-rise apartments business, we also established a system to respond to the demand for construction in the afflicted areas by preparing standardized housing packages.
Sales in the Rental Housing Business amounted to ¥52,737 million for the first quarter of the consolidated fiscal year under review, and operating income to ¥1,634 million.
(Houses for Sale Business) In the Houses for Sale Business, by holding the sales promotion event Machinami Sankan-bi (visits to existing subdivisions with superb living environments), Sekisui House effectively carried out the Green First Strategy, and strengthened its sales capabilities. Although certain regions showed signs of a recovery, reflecting the effects of government stimulus packages as was evident in the Custom Detached Houses Business, overall sales nationwide remained sluggish. In response, we took steps to streamline assets by continuing to adjust inventories.
Sales in the Houses for Sale Business amounted to ¥23,971 million for the first quarter of the consolidated fiscal year under review, and operating loss to ¥795 million.
(Condominiums Business) In the Condominium Business, we began sales of new condominiums, including GRANDE MAISON SANGENJAYA PLACE, mainly in urban areas. However, as a result of initiatives to reduce inventories of sales properties, the number of properties supplied to the market declined, and orders remained sluggish.
Sales in the Condominiums Business amounted to ¥9,609 million for the first quarter of the consolidated fiscal year under review, and operating loss to ¥134 million.
(Urban Redevelopment Business) In the Urban Redevelopment Business, we sold Daiba Garden City to Japan Excellent, Inc., a J-REIT. Meanwhile, we are steadily managing Hommachi Garden City, which commenced operations in 2010. We also completed the development of Garden City Shinagawa Gotenyama and Hommachi Minami Garden City in February and March, respectively, and began leasing activities. Meanwhile, we are steadily managing rental properties held by the Sekisui House Group, including rental housing, Prime Maison, the occupancy rate of which showed sound improvement.
Sales in the Urban Redevelopment Business amounted to ¥19,907 million for the first quarter of the consolidated fiscal year under review, and operating income to ¥5,460 million.
(Remodeling Business) In the Remodeling Business, based on the Green First Strategy, we proposed remodeling aimed at energy conservation, installing photovoltaic power generation systems and high-efficiency hot water supply systems by making active use of eco-point system for housing. We also held nationwide Spring Remodeling Fairs, and actively proposed remodeling of detached and rental houses to offer comfortable living to customers in accordance with individual and diversified lifestyles. Meanwhile, we focused on the recovery and reconstruction effort of the owners of our products immediately after the March 11 earthquake, and promptly responded to requests for repairs and related work. As a result, orders remained steady.
Sales in the Remodeling Business amounted to ¥20,362 million for the first quarter of the consolidated fiscal year under review, and operating income to ¥1,570 million.
(Real Estate Management Fees Business) In the Real Estate Management Fees Business, the number of units of Sha-Maison low-rise apartments for block leasing and management by Sekiwa Real Estate companies showed a steady increase. As the rental housing market picked up, particularly in urban areas, the Sekisui House Group was united in undertaking active sales promotions to attract new tenants. Moreover, by continuing to propose housing remodeling to owners in accordance with the needs in the market, we maintained high occupancy rates, especially in the Tokyo metropolitan area.
Sales in the Real Estate Management Fees Business amounted to ¥94,285 million for the first quarter of the consolidated fiscal year under review, and operating income to ¥4,373 million.
(Other Businesses) In overseas business, sales of condominiums in Wentworth Point in Australia, which we are currently promoting, are growing strongly. The properties in Phase 1 that are expected to be delivered during the current term have already been sold out, and more than 90% of the other units that are currently being marketed are under contract. Moreover we began developing urban residential and commercial complexes in Washington State in the United States, and undertook large-scale urban development projects in Shenyang City and Suzhou City in China. We also started to construct a factory that will provide materials for built-to-order housing. In the exterior business, based on our philosophy of Keinenbika, a philosophy of building communities that grow attractive over time, we carried out operations by focusing on the Gohon no ki landscaping concept.
Sales in the Other Business amounted to ¥16,193 million for the first quarter of the consolidated fiscal year under review, and operating loss to ¥1,671 million.
(2) Qualitative Information Regarding Consolidated Financial Conditions Total assets rose ¥22,404 million from the previous fiscal year, to ¥1,365,513 million at the end of the first quarter of the consolidated fiscal year ending January 31, 2012, primarily owing to an increase in tender bonds for the Suzhou and other projects. Liabilities increased ¥24,615 million, to 627,894 million, mainly reflecting the issuing of short-term bonds payable, offsetting payments for notes and accounts payable-trade and income taxes paid. Net assets decreased ¥2,410 million, to ¥735,618 million, chiefly reflecting cash dividends paid, offsetting an increase in net income. Net cash provided by operating activities decreased ¥79,530 million (down ¥38,987 million from the previous fiscal year), primarily attributable to a fall in notes and accounts payable-trade, and an increased in inventories. Net cash provided by investing activities decreased ¥10,039 million (down ¥3,004 million from the previous fiscal year). This was mainly attributable to purchases of property, plant and equipment through investments in leasing properties. Net cash provided by financing activities increased ¥47,579 million (down ¥29,366 million from the previous fiscal year), primarily owing to the issuing of short-term bonds.
(3) Qualitative Information Regarding Consolidated Results Forecast The Company will record an extraordinary loss of approximately ¥1.0 billion, reflecting the effects of the Great East Japan Earthquake, but the implications for the Company’s operations and assets are limited. Given that sales activities are progressing steadily in accordance with the Green First Strategy, the consolidated results forecast for the fiscal year ending January 31, 2012 remains unchanged from the plan announced on March 7, 2011.
2. Other Information (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries that caused a change in scope of consolidation): Not applicable (2) Adoption of simplified accounting methods and special accounting practices for consolidated quarterly financial statements:
1. Simplified accounting methods 1 Method for valuation of inventories
With respect to the valuation of inventories, where inventories are deemed to have declined materially in value,
the book value of such inventory is marked down to reflect the estimated net realizable amounts. 2 Method for calculating deferred tax assets and liabilities
The recoverability of deferred tax assets is calculated on the results forecast in the consolidated financial results for the previous fiscal year, since it is deemed that the business environment and situation with regard to the occurrence of temporary differences have not undergone any material change since the end of the previous fiscal year.
2. Special accounting practices for consolidated quarterly financial statements: Not applicable
(3) Changes in accounting principles, procedures, and presentation for consolidated quarterly financial statements: 1. Changes in significant accounting standards
1 Application of the Accounting Standard for Equity Method of Accounting for Investments and the Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method
The Accounting Standard for Equity Method of Accounting for Investments (Accounting Standards Board of Japan (ASBJ) Statement No. 16 on March 10, 2008), and the Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method (Practical Issues Task Force (PITF) No. 24 on March 10, 2008) were applied from the first quarter of the consolidated fiscal year under review.
The application of the accounting standard and the practical solution described above did not have an impact on the consolidated quarterly financial statements.
2 Application of the Accounting Standards for Asset Retirement Obligations The Accounting Standards for Asset Retirement Obligations (Accounting Standards Board of Japan (ASBJ) Statement No. 18 on March 31, 2008) and the Guidance on Accounting Standards for Asset Retirement Obligations (ASBJ Guidance No. 21 on March 31, 2008) were applied from the first quarter of the consolidated fiscal year under review. As a result of their application, operating income and ordinary income for the first quarter of the consolidated fiscal year under review decreased ¥46 million respectively, and income before income taxes and minority interests declined ¥734 million. The change in asset retirement obligations that resulted from the application of these accounting standards was ¥1,605 million.
2. Change in presentation Notes to Consolidated Quarterly Statements of Income
Following the application of the Cabinet Office Ordinance Partially Revising Regulations on Terminology, Forms and Preparation of Financial Statements (Cabinet Office Ordinance No. 5, March 24, 2009) based on Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, December 26, 2008), income before minority interests is presented in the consolidated statements of income for the first quarter of the fiscal year under review.