Sekisui Chemical Co Ltd
TSE:4204
Earnings Call Analysis
Q2-2024 Analysis
Sekisui Chemical Co Ltd
The recent earnings call headed by Keita Kato, President and CEOrevealed a mix of challenges and strengths for the company in the current financial landscape. The first half of FY 2023 showed a depreciated yen that impacted foreign exchange rates, with net sales reaching JPY 611.3 billion and a commendable operating profit of JPY 41.2 billion. Despite a slight miss on operating profit compared to the earlier forecast, ordinary profit and net profit experienced increases, the latter partly owing to the sale of shareholdings, while dividends experienced an upward revision.
Notably, the company's diverse segments highlighted varied performances. The HPP company reported increased profits due to managed fixed costs and foreign exchange gains, while housing company net sales grew favorably. Challenges appeared in the form of sluggish new housing sales. The Urban Infrastructure segment improved profits through stringent cost control although market conditions were not optimal. Similarly, the medical business saw gains in pharmaceutical ingredients but was checked by regulatory delays in the U.S. New ventures, particularly in the Storage Battery business and biorefinery, indicate a strategic movement towards innovation and diversification. Furthermore, investors would appreciate the dividend increase to JPY 35 per share, reflecting the management's confidence in the company's profitability.
The earnings call projected cautious optimism for the second half of the year despite a market outlook that appears mixed. While segments like the HPP and the medical business are expected to witness a rise in both sales and profitability, the housing segment might struggle. Raw materials constraints, particularly the domestic naphtha price, are expected to remain consistent with initial assumptions. Furthermore, net sales are expected to increase significantly to JPY 668.7 billion in the face of challenges in sales volume and product mix attributable to a partial market recovery.
Encouragingly for investors, the full year figures are estimated to reflect burgeoning sales of JPY 1.28 trillion and an operating profit set to match prior forecasts of JPY 100 billion, potentially culminating in record highs for the company. Shareholder returns are not neglected, as evidenced by a further increase in annual dividends to JPY 71 per share and the decision to pursue additional share buybacks, indicative of a strategy foreshadowing bolstered shareholder value.
Breaking down the business into its operational segments discloses a narrative of strategic adjustments and targeted growth. The company experienced lower demand in certain areas, especially Europe and Japan, but seized margin opportunities and foreign exchange gains to bolster operating profit forecasts. The company management plans to leverage market recoveries predicted in the industrial and electronics fields to surge ahead and achieve record-high profits. Notably, this includes a holistic approach to expansion and profitability, fusing product innovation with an intent to expand strategic partnerships globally, especially within the Mobility and Infrastructure sectors.
You don't have any saved screeners yet
My name is Keita Kato, President and CEO. Thank you for taking the time out of your busy schedule to join us today.
Page 1. I will cover the main points of today's IR presentation. Please refer to the table at the top of this page for the first half results and revised plans for the second half and FY 2023. Please note that record high numbers and expected record high figures are marked with a star.
As for the first half results, the number of new houses sold declined due to deterioration in the housing market. In the Medical business, new product approval was delayed. As a result, operating profit for the first half was JPY 41.2 billion. Although this was slightly below the forecast of JPY 42.2 billion announced in July, we achieved an increase of JPY 0.8 billion from the previous year.
Next, our revised plan for the second half and for the FY 2023 although we expect the housing market to remain challenging in the second half. This will be offset by other segments led by the high-performance plastic company, HPP, and we will achieve record high operating profit of JPY 100 billion for the fiscal year as we announced in July.
As we see the housing market deteriorating beyond our expectations, we have culminated measures to strengthen profitability in the housing business, and we have already started some of them. We will continue to promote these measures with a sense of urgency.
Next, shareholder returns. As we plan to achieve a net profit of JPY 75 billion for this fiscal year based on our shareholder return policy, we have raised our annual dividend by JPY 5 from the amount announced in July to JPY 71 million per share, an increase of JPY 12 per share. The interim dividend will be JPY 35 per share, an increase of JPY 6 and the year-end dividend to be JPY 0.36 per share, also an increase of JPY 6.
Given our current cash position, we have set aside an additional 4 million shares for share buyback in the second half to improve capital efficiency and increase shareholder returns. Together with the 4 million shares already purchased in the first half, the share buyback for the fiscal year will total 8 million shares and 4 million treasury shares will be canceled in the second half.
As a key topic, I'd like to mention perovskite solar cells, which is one of the new businesses to accelerate growth. We have moved the project owner from the R&D center to a team reporting directly to the President to further accelerate commercialization. This fiscal year is the first year of a new midterm plan announced in May. We will improve capital efficiency through business portfolio reform and shift our focus more towards growth in order to achieve our long-term vision. Thank you.
My name is Futoshi Kamiwaki, Head of the Business Strategy Department. I will explain the first half results and overall plan for the second half. First, let me discuss foreign exchange rates. As shown here, the first half results show that the yen has depreciated more than that of the last fiscal year and the assumption for this fiscal year.
Page 3, overview of the first half FY 2023 results. Net sales, JPY 611.3 billion, operating profit JPY 41.2 billion, ordinary profit, JPY 51.5 billion. and the profit attributable to owners of parent JPY 44.5 billion. We achieved a net sales increase. Although operating profit was slightly below the July forecast, we achieved an OP increase. Ordinary profit exceeded the July forecast, mainly due to foreign exchange gains.
Net profit also increased due to the sale of gross shareholdings. The interim dividend will be raised by JPY 6 to JPY 35 per share, an increase of JPY 2 from the July forecast.
Page 4, first half results by segment. First, although the market environment remained challenging for the HPP company, the operating profit increased over the July forecast due to secured margin, fixed cost control and the effect of foreign exchange gains, housing companies net sales increased due to a higher housing unit price and solid performance in the renovation business.
However, the operating profit fell below the July forecast due to the significant impact of lower number of houses sold resulting from the sluggish new construction market the UIEP, Urban Infrastructure and Environment Product companies operating profit increased due to margin production and fixed cost control despite sluggish conditions in the housing and nonhousing market.
In the medical business, new pharmaceutical ingredients performed well, but operating profit fell short of the July forecast due to the delays in new product approvals in the U.S. In other segments, we are progressing close to our original plan in progression for new businesses, particularly in the Storage Battery business, biorefinery and R&D.
Page 5, segment results by Q1 and Q2. Group's Q2 operating profit was slightly lower than in the prior year, but HPP Company and the Medical business achieved increases in both net sales and operating profit.
Page 6, first half results analysis. Net sales totaled JPY 611.3 billion, an increase of JPY 3.5 billion from the previous year. You can see operating profit analysis on the right side. Sales volume and product mix were much harsher than the July forecast of JPY 7.3 billion. But the spread between selling prices and raw material prices was widened. In addition, fixed costs were lower than the July forecast, resulting in a profit increase of JPY 0.8 billion, although this is slightly lower than the July forecast.
Page 7. Revised second half and full year plans. Exchange rate assumptions are JPY 145 for the dollar and JPY 158 for the euro.
Page 8, outlook for market conditions. First, global auto production, which exceeded our July forecast in Q2, we expect the rebound in China in second half, but global growth is expected to be slightly below our April assumption.
Next, smartphone shipments. The market is gradually recovering after bottoming out in Q1, although the Q2 results were below the July forecast, we expect a modest recovery starting in Q3.
Next, housing visitors. In the first half, the recovery of exhibition visits was sluggish and the total number of visitors fell below last year's level. We expect the second half visitor number to be similar to the previous year's level, which is weaker than usual.
Next, new housing starts. We expect demand to be lower than expected and to remain sluggish. Finally, the domestic naphtha price assumption, we expect it to remain almost in line with our assumptions.
Page 9, revised second half plan by segment. Although the market condition is expected to remain below our expectations, we forecast a significant increase in both net sales and operating profit at HPP. Sales and profit are expected to decrease at the housing company while sales and profits are expected to increase at the UIEP company and the medical business.
HPP sales are expected to increase due to partial market recovery. By maintaining margins and through foreign exchange gains, we expect operating profit to increase from our original plan in April. The housing companies suffered from continued order weakness resulting in the decline in net sales and operating profit. We will focus on promoting measures to strengthen the profitability of the housing business and expanding the stock business.
UIEP company expects a moderate market recovery. We will continue to focus on securing margins in order to achieve an operating profit that exceeds the original plans. The medical business is expected to post a significant increase in operating profit, mainly due to successful efforts to capture diagnostics demand in Japan and overseas. Other R&D and new businesses are expected to be close to the April plan.
Page 10, second half revised plan analysis. Net sales are expected to reach JPY 668.7 billion, an increase of JPY 33.9 billion from the previous year. The analysis of operating profit is shown on the right. For us, sales volume and product mix are expected to fall below the April plan, but partial market recovery is expected.
In terms of selling prices and raw materials, we will continue to focus on securing margins. Fixed costs will increase mainly due to wage increases, R&D and acceleration of DX, but the effect of foreign exchange gains will contribute to an increase in operating profit of JPY 7.5 billion year-on-year, exceeding the original plan.
Page 11, revised full year plan by segment. Group net sales and operating profit are expected to increase. The impact of declining demand at the housing company will be offset mainly by HPP and other segments. We expect to be able to achieve an operating profit of JPY 100 billion, in line with the original plan and the July forecast.
Page 12, revised full year plan and shareholder returns. Net sales, JPY 1.28 trillion. Operating profit, JPY 100 billion; ordinary profit, JPY 103 billion; net profit, JPY 75 billion. Although net sales will be revised slightly downward, operating profit and net profit will increase as forecast in July, both are expected to reach record highs.
Dividends will be increased by JPY 5 from the July forecast to JPY 12 per share, for an annual dividend of JPY 71 per share. We have secured additional share buyback limit of 4 million shares in the second half for a total of 8 million shares for this fiscal year.
That's all I have to say thank you very much.
I'm Ikusuke Shimizu is the President of the High Performance Plastics Company. First, please see Page 14. This shows our performance. In the first half of FY '23, net sales were at JPY 200.3 billion and operating profit was JPY 23 billion. Net sales were down slightly due to lower-than-expected demand for the construction and consumer products in Europe and Japan. Operating profit increased by JPY 0.6 billion from the July forecast, mainly due to secured margins, fixed cost reductions and the effect of foreign exchange gains.
For the second half, we forecast net sales of JPY 219.4 billion and operating profit of JPY 28.5 billion. Net sales were forecast to increase as we expect the partial market recovery in the industrial and electronics field, mainly in Europe, the U.S. and Japan. We are forecasting a significant operating profit increase, exceeding the original April plan to maintain margins and foreign exchange gains. We are targeting record-high operating profit in the second half and for the full year.
Page 15. The bar graph on the left shows net sales of JPY 200.3 billion for the first half, which is in line with the July forecast, but this indicates a slight decrease of JPY 1.2 billion from the previous year. The chart on the right shows the analysis of operating profit. Operating profit, which has exceeded the July forecast increased by JPY 2.5 billion from the previous year. Although the industrial field struggled with the sales volume and product mix, the mobility field remained firm and the electronics field recovered from the Q2.
As shown in the table below, sales volume and product mix for the entire company recovered to the same level as the previous year in Q2 and the operating profit is now back on the recovery trend due to improved margins and other factors.
Next is the revised second half plan on Page 16. The bar graph on the left shows a plan for net sales of JPY 219.4 billion, an increase of JPY 24.5 billion year-on-year, which is lower than the original April plan based on the assumption of a certain degree of recovery and demand for the construction, consumer goods in Europe, the United States and Japan and the electronics market.
As for analysis of operating profit shown on the right, while there is an increase in fixed cost due to investment in growth and human capital, we plan a large profit increase of JPY 8.9 billion due to an increase in sales volume and product mix in all 3 strategic fields, maintenance of margins and foreign exchange gains.
As you can see, the actual portion of operating profit excluding foreign exchange gains is in line with the plan at the beginning of the period. After factoring in foreign exchange gains, we have raised the second half operating profit plan by JPY 3 billion, and we plan to achieve the highest profit in the second half and for the full year.
Page 17, the last page of the HPP, which shows net sales trends and KPIs in 3 strategic fields. In the electronics field on the upper left, the smartphone and semiconductor markets are recovering more slowly than expected. But as recovery started gradually from Q2, we have factored in the partial market recovery in the second half sales plan.
As shown in the graph on the lower left, sales bottomed out in Q4 2022 and started to gradually increase mainly driven by non-LCD applications. Sales in Q2 grew almost at cruising speed, mainly due to the new contributions from non-LCD applications. In the second half, we will strive to increase sales by expanding sales of high-performance products such as binder resins for MLCC and bio-based adhesive tapes.
Although this is not shown here, the operating profit and the electronics field started to increase from Q2. We forecast an increase in net sales and operating profit in the second half to the same level as in the second half of 2021.
Next, the Mobility field in the middle of this page, there was some adjustment in auto production in China in Q1, but sales have been firm since Q2, and we expect the sales to be generally in line with our expectations. Please see the line graph of high-performance interlayer sales growth for the first half.
Q1 growth was 98%. Q2 growth was 102%. The business was somewhat sluggish in Q1, but the growth in Q2 exceeded the previous year's level. In particular, sales volume of products for HUD, our focus products increased more than 130% and the product mix improved significantly. In addition, shipments of heat release materials from a new plant in North America have started.
In the second half, we will continue to achieve high growth in interlayer film for HUD and accelerate sales expansion of interlayer film with sophisticated dry design and heat insulation properties, mainly for EVs. Sekisui Aerospace is making steady progress in portfolio reform and profitability improvement, and aircraft production volume at company B is recovering to become profitable in FY 2024 on a consolidation basis.
Aerospace aims to achieve profitability in Q4 2023. We haven't stated in this document that we plan to increase net sales and operating profit for the mobility field in the first half and the second half and to increase company-wide full year profit by JPY 11.4 billion. The majority of this increase is expected to come from the mobility field.
Finally, the industrial field on the top right, the first half net sales fell below the July forecast due to the market slump and operating profit dropped and fell below the July forecast, which is not mentioned in the document.
We plan to increase net sales in the second half based on our forecast of some market recovery in the second half, especially in Q4, and we plan to increase operating profit by ensuring margins and reducing fixed costs.
As you can see in the graph below, we struggled with labor saving and green products such as installation materials, [ long cropped ] tapes for packaging machines and blow molded products due to the market weakness in the first half, but we will expand sales of this product in the second half, exceeding the previous year's level.
In any case, we would like to lead the entire company as a highly profitable one with record high operating profit of JPY 51.5 billion for the fiscal year.
That concludes my presentation. Thank you.
I am Toshiyuki Kamiyoshi, President of Housing Company. Let me begin. Page 19, first half results and revised second half plan. Net sales for the first half increased due to increase in unit prices and solid performance in the renovation, real estate and town and community development businesses, but the impact of a lower number of houses sold was severe, causing operating profit to decline and fall below the July forecast.
For the second half, the housing business is expected to post lower net sales and operating profit due to worse-than-expected market slump and the decline in orders, mainly in the first half and Q1. As the number of houses sold declined, the company's operating profit margin has declined. Under the assumption that the current order environment will continue for the time being, we will implement measures to improve the profitability of the housing business ahead of schedule, which were originally planned for the midterm, and we will focus on expanding the stock business, which is a growth area in order to improve profitability as soon as possible.
Next, Page 20, first half results analysis. The housing business posted lower operating profit due to a decline in the number of houses sold and the impact of soaring material prices while the renovation and other businesses performed well and posted higher operating profit. But overall, net sales increase and operating profit decreased. The company has already implemented some of the productivity improvement measures in the first half ahead of the original plan.
Next, analysis of operating profit on the right. To respond to rising material prices and the weaker yen, the housing business has implemented price revisions, increased unit prices through higher value-added products and reduce costs, which has produced tangible financial benefits. However, all these were particularly difficult in Q1, resulting in a JPY 2.7 billion decrease in operating profit due to a significant decrease in the number of houses sold by 430. The operating profit of the renovation and other businesses increased as planned and operating profit for the entire company was JPY 13 billion.
Page 21, second half revised plan analysis. The housing business will strive to minimize the impact of the lower number of houses sold by implementing measures to improve profitability and controlling costs. At the same time, we will further focus on the solidly performing renovation business to continue to increase profit. Net sales by segment on the lower left shows the whole company's net sales are projected to decrease by JPY 3 billion to JPY 274.2 billion due to a sharp decline in housing sales despite sales increases in renovation and other businesses.
The analysis of operating profit on the right show the company's plan to limit the decrease in housing operating profit to JPY 2.1 billion by controlling costs despite a large decrease in the number of houses sold by 450. On the other hand, the fixed costs in the renovation business will increase by JPY 0.2 billion from the April plan due to the transfer of personnel from the housing business but this will be offset by an increase in marginal profit, resulting in a JPY 0.2 billion operating profit increase.
As a result, we have revised our operating profit forecast for the second half to JPY 16.5 billion, down JPY 1.6 billion from the previous year.
The last slide on Page 22, I will cover KPIs by segment and measures to improve profitability. New housing orders for the first half was 85% over the previous year's level, and the ratio was 90% in terms of housing order value. As we were able to increase the new housing unit price through smart house on the right, which offset the decline in the number of new houses orders, to some extent.
For the second half, we have revised our plan for the new housing orders to 101% year-on-year. Although the market condition remains sluggish, we are determined to achieve this target as the new housing order for the second half of last year fell significantly to 88%. The number of orders by construction type in the middle of the top line shows an overall recovery from Q2, and we will continue to expand sales of ready-built houses and apartment buildings, which have been performing well.
In the renovation business at the bottom left, orders are growing steadily as planned, and we will continue to increase and develop sales reps in the second half. Finally, on the bottom right, I'd like to explain measures to improve profitability for sustainable growth. As shown in the chart in the middle, we aim to increase profit by JPY 10 billion in FY 2025 through these measures.
On the fixed cost side, we will want to reform the cost structure to lower the breakeven point. While on the marginal profit side, we will secure the total number of houses and increase unit prices by developing and strengthening areas specific product strategies.
With regard to cost structure reform, we will balance the production of wooden-frame products starting in Q4. As part of the productivity improvement measures and adjusted capacity of each plant, so as to optimize the entire production system in response to changes in demands. In addition, we will shift mainly indirect personnel to the stock business, which is a growth area.
Next area, specific product strategies. We will use our strength of nationwide coverage to further enhance our advantage of our detached houses and apartments for urban and rural markets and aim to increase the number of buildings and unit prices over a wide area.
In addition, we will further strengthen our cost reduction measures in purchasing by cooperating with the development department we will not simply reduce fixed costs to shrink our business, but we will also allocate resources to product strategies to increase marginal profit. With these initiatives, we will aim to realize a JPY 10 billion impact and also accelerate the growth of the stock business as well as talent and community development business, which concludes my presentation of the housing company.
I am Yoshiyuki Hirai, President of the UIEP Company. Let me begin my presentation now. Please refer to Page 24. First, first half results and revised second half plan. In the first half, net sales were JPY 109.7 billion, operating profit was JPY 8.1 billion, and OP margin was 7.3%. Despite the slump in both the housing and nonhousing markets, we were able to increase operating profit by securing margins and controlling fixed costs.
For the second half, we are targeting net sales of JPY 128.1 billion and operating profit of JPY 15.1 billion, achieving increases in both sales and profit with a high OP margin of 11.8%. We expect the market to recover moderately, but as raw materials are currently rising, we will continue to protect margins. As a result, we will aim to achieve operating profit of JPY 23.2 billion and OP margin of 9.8% in FY 2023, and we will continue to renew our historic highs in both OP amount and OP margin this year continuing from last year.
Next on Page 25, first half results analysis. The left side shows net sales of JPY 109.7 billion compared to JPY 110.4 billion in the previous year, a decrease of JPY 0.7 billion. Overseas sales declined by JPY 2.7 billion, which had a significant impact on the company's net sales.
In terms of overseas business, growth driving business such as piping materials for plants and pipeline renewal performed well. However, our PVC resin exports declined due to deteriorating conditions in the Asian PVC market.
Next, analysis of operating profit on the right. Sales of prioritized products grow as well, but the decrease in demand, especially for general purpose products in the pipe system field was significant, resulting in a negative sales volume and product mix of JPY 0.9 billion. Fixed costs deteriorated by JPY 1.2 billion due to higher wages and expenses related to new product development and DX initiatives, secured margin offset these negative impacts, resulting in an OP increase of JPY 0.6 billion to JPY 8.1 billion, a new record high.
Next Page 26, revised second half plan analysis. Net sales on the left shows our plan of JPY 128.1 billion, up from JPY 123.9 billion in the previous year, an increase of JPY 4.2 billion. In contrast to the first half the main sales driver for the second half is overseas business. In October this year, the European plant for FFU, a synthetic wood used for rail road sleepers started operations, and we will increase orders in this area.
We also aim to increase pipe renewal orders in North America, South America, India and other regions. In Japan, we will capture firm public sector demand and expand the sales of prioritized products to increase net sales as market conditions are on a gradual recovery trend.
Next, analysis of operating profit on the right, demand in the housing market is still weak, but we plan to steadily increase sales volume, especially for overseas business and prioritized products. Selling prices in raw materials have changed since April due to the weak PVC market in Asia, we see raw material prices rising, and we will focus on securing margins. We are targeting operating profit of JPY 15.1 billion, which is an increase of JPY 1.4 billion while controlling fixed costs.
Finally, we discussed the 3 strategic fields on Page 27. First, pipe systems on the upper left posted net sales of JPY 54.9 billion in the first half, down JPY 0.6 billion from the previous year. This was mainly due to a decline in overseas export as a result of deteriorating PVC market conditions. Despite strong piping materials for plants in Japan, both housing and nonhousing sales were sluggish in the second half, we plan to increase net sales to JPY 61.1 billion, an increase of JPY 2.4 billion year-on-year, focusing on expanding sales of prioritized products. As recently announced in press release, we will acquire the pipe materials business of ShinEtsu Polymer in November and we want to realize synergies as soon as possible.
Next, building an infrastructure composite materials on the top right. In the first half, net sales were JPY 38.4 billion, an increase of JPY 0.2 billion. The effect of price revision has finally taken hold and we were able to secure margins. For the second half, we plan net sales of JPY 41.7 billion, an increase of JPY 0.4 billion. We will focus on the stable operation of the FFUs European plant and expand overseas adoption, along with the expansion of new product sales in building materials and fire-resistant materials.
Now the infrastructure innovation at the bottom left, net sales for the first half were JPY 12.5 billion, an increase of JPY 0.6 billion. Demand for pipeline renewal recovered both in Japan and overseas, increasing adoption of SPR method. In the water treatment field, we received large orders for plant facilities, which will contribute to sales in the second half and beyond.
For the second half, we planned net sales of JPY 21.4 billion, an increase of JPY 2.7 billion. Demand for pipeline renewal remains strong, and we aim to increase orders together with new partners in the Americas and India.
Finally, I'll cover the growth areas on the lower right. First, as shown in the chart, we are steadily expanding sales of prioritized products. In the second half, we plan to expand sales to JPY 27.1 billion in products that contribute to solving social issues, such as rain water prevention products and plastic piping for building facilities that contribute to labor savings. Overseas sales by region and growth driving business are listed here.
Now concludes my remarks. Thank you.
I am Eiichi Takahashi, President of Sekisui Medical, I'd like to give you an update on our medical business.
Page 29, first half results analysis. The medical business experienced a temporary drop in performance due to the global outbreak of COVID-19 in the first half of FY 2020. Since then, the business has steadily increased its earnings. And in the last fiscal year, the business achieved an OP of JPY 12.5 billion, which was a target in the previous midterm plan.
For the current fiscal year, we plan to achieve an OP of JPY 13.5 billion exceeding the previous year's OP. Net sales for the first half reached a record high of JPY 43.7 billion, driven by contract manufacturing of active pharmaceutical ingredients in the medical business. However, due to upfront investments in R&D, operating profit was JPY 5.1 billion, down from the previous year. Due to the delay in FDA approval, the launch of the COVID-19 test kits in the OTC market was late, resulting in lower operating profit than the July forecast.
As for the revised second half plan, we are forecasting net sales of JPY 52.3 billion and operating profit of JPY 8.4 billion, the highest ever for half year by steadily capturing domestic and overseas diagnostics demand, and we are aiming for full year operating profit of JPY 13.5 billion as originally planned.
Page 30, first half results analysis. Net sales were JPY 43.7 billion, up JPY 0.8 billion from the first half of previous fiscal year, while operating profit was JPY 5.1 billion, down JPY 0.4 billion. Despite growth in sales of blood coagulation reagents in China in the diagnostics business, and the contract manufacturing of new pharmaceutical ingredients and the Pharmaceutical Sciences business, the delayed approval of COVID-19 diagnostic kits in the U.S. and higher fixed costs due to upfront investments in new product development, resulted in higher net sales and lower operating profit year-on-year. We also fell short of the July forecast in both net sales and operating profit.
Next, Page 31, second half revised plan analysis net sales were JPY 52.3 billion, up JPY 5.5 billion year-on-year and operating profit was JPY 8.4 billion, up JPY 1.3 billion year-on-year. In the second half, we expect to expand sales of COVID-19 test kits in the U.S., which significantly depressed open profit in the first half and to steadily capture diagnostic demand in Japan and overseas, along with the favorable exchange rate. We also plan to achieve a record high operating profit on a full year basis.
Page 32 business overview. First, diagnostics in Japan, diagnostic demand was solid in the first half, led by POC demand. In the second half, we continue to capture POC demand and to focus on expanding sales of blood coagulation devices and reagents so as to further strengthen our core business.
Next, overseas diagnostics business on the top right. In the first half, the delay in launching COVID-19 test kits in the U.S. had a significant impact on our results. With kits shipments starting in August, we entered the OTC market for the first time in our corporate history. We also launched the e-commerce sales and we will make up for the delay in the first half by utilizing new sales channels in the second half.
In China, we will continue to focus on expanding sales of large coagulation testing devices and reagents. In addition, we will promote the establishment of local device production and supply chains in China in response to the Chinese government's preferential policies for domestically produced medical devices. In the rest of Asia, we will continue to expand sales of diagnostics reagents to Southeast Asia using Veritas Laboratories in Singapore as a base.
Finally, pharmaceutical sciences on the bottom left. The core of this business is contract manufacturing of new pharmaceutical ingredients at the Iwate plant which was recently certified as a major symbiosis site by the Ministry of the Environment.
Sales of pharmaceutical ingredients performed well in the first half. The new building completed at the end of previous fiscal year is now operating at the higher capacity and we will continue to focus on obtaining new orders in the second half, which concludes my presentation of the medical business.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]