Sumitomo Chemical Aktie

My name is Yamauchi, and I will be serving as today's moderator. We appreciate you taking the time out of your busy schedules to attend our Investors Meeting for FY 2025 financial results, management priorities and business strategies.

Today's session will begin with a presentation by our President Mito, followed by a Q&A session, and we are scheduled to conclude at 5:45 p.m.

With that, Mr. Mito, the floor is yours.

Start the Investors Meeting for FY 2025 financial results, management priorities and business strategies. Thank you very much for attending despite your very busy schedule.

Let me start. This is my agenda for today. And here is the summary for today. First, for FY '25 results, we had very strong results. Even looking at underlying results, stripping out our games and dispositions, we had good results. And for guidance for FY 2026, underlying business performance call for solid growth in earnings power. And the driver for that is number one, Agro & Life solutions. And another is ICT and Mobility Solutions. For AGL, this time, in the U.S. Two companies were integrated to build a new company and center on that company bank rational business will be further expanded.

For ICTM, in terms of figures, it is a little slow, but with strategic upfront investments in entering new market new materials markets, we will strengthen the foundation to support future earnings growth. In particular, the rapid shift to AI in our society and to respond to that, we will steadily expand our business. We are starting to establish organization capable of doing that.

As construction of P&P business, we will clear our challenges and lead to strengthening of Essential business. In particular, for Essentials business, the conventional type of business will be strengthened. And at the same time, the business model of the license and catalyst business, that is our IP assets will be used, we will shift to that model. And for investment discipline, we have been repeatedly being mentioned that this is an important issue. So we implement measures through rigorous investment discipline and also focus allocation into strategic capital and also strengthen our organization and then implementing those measures we will improve the capital efficiency and record efforts across the business, the corporate divisions to enhance enterprise value.

So this is a summary of what I'm going to discuss today. Next page. First, the financial results. Sales revenue. Was JPY 2,328 billion, a reduction of about JPY 278 billion for P & ICT business because of the divestiture of these businesses, core operating income was JPY 208.4 billion, an increase of JPY 68 billion. Net income, up JPY 22.4 billion to JPY 60.9 billion and ROE both 6.4% and 5.6%, respectively. In February this year, we revised upwards our forecast, and it is further higher compared to the results of 2024, we are seeing a great improvement.

This breakdown by sector, corporate income by sector. Agro & Life Solutions, is at a similar level as the previous year. There's a slight increase compared to the previous year. It is even higher compared to forecast of February. For ICTM, there is a large reduction compared to previous year. The factors -- there are 2 factors. One is in 2025, early 2025 because of the Trump tariff. There was quite a lot of sales [indiscernible] in 2024. About JPY 10 billion in terms of core operating income. Another point is the recent AI semiconductor boom. So general purpose semiconductors are in shortage. So shipments into the low and middle end smartphones declined and together with that, there was a decline of shipments of our display materials. So for these factors, this led to a decline compared to previous year.

Essential & Green Materials, major factor is the sale of Petro Rabigh shares, leading to a large increase in income. One highlight this year is Sumitomo Pharma's performance. Disposition of Asian business, JPY 49 billion is included, and there were expensed sales of the 3 key products, leading to a large increase in income. So in total, core operating income, JPY 208.4 billion, up JPY 67.9 billion.

Forecast -- before talking about the forecast for 2026, let me talk about our current Middle East installation. For raw materials procurement, the whole company is working hard towards stable supply. In general, we are able to have visibility of requirements up to June. And others, we are -- we have a variety of products. So there are risks here and there, but we are able to secure requirements for the current production plan. For utilization trends, in P&P. Environment of raw materials procurement and inventory situation, considering that operations are continued for Singapore, Unfortunately, in March this year, forced declaration was made. There is a potential supply constraints, so we are closely monitoring the impact. And for others, of course, there are risks. But at the moment, there are no major impediments of operations.

So from an overall perspective, for raw material procurement, settling down. And in terms of procurement, risk is gradually declining, but rather price is getting higher. So how are we going to respond and absorb the price hike through our own efforts of rationalization and efficiencies. And if it's not possible to absorb through those efforts, we would like to consult with our clients about reflecting the cost hike. So it's now at the phase of higher prices for raw materials. But for demand we have not seen at the moment any major decline in demand because of rising prices.

This is the forecast for 2026. Sales revenue, increase of JPY 31.5 billion to JPY 2,360 billion core operating income JPY 6.6 billion is expected. On the underlying performance basis, it's a large increase explain about it in the following slides. And net income, up JPY 9.1 billion. And with that, ROE, 6.8%, improvement of 0.4 percentage points and ROIC down 0.1 percentage points. Sumitomo Pharma increasing capital. So denominator slightly increased compared to 2025, ROIC is slightly lower.

This is the forecast for 2026 by sector. Agro & Life Solutions, JPY 8.7 billion increase is forecasted. [indiscernible] for ICTM, as I mentioned earlier, semiconductor shortage is a factor leading to reduction of shipments of semiconductor materials and fixed costs, in particular, in semiconductor sectors, there were there's impact of investments made in advance, but we expect increase in shipments of semiconductor materials. Essential & Green Materials, JPY 5.6 billion increase is expected. At the moment, the refinery margin of Petro Rabigh has greatly improved, which is included in these results. For Sumitomo Pharma, compared to the previous year, it is a reduction of JPY 14.4 billion.

As you know, in 2025, there is JPY 49 billion of -- from a disposition of Asia business. Excluding that, this is a large increase. So in total, JPY 215 billion core operating income is forecasted.

Next page. And this is showing our -- for '24, '25, '26 core income on underlying performance basis and how they've transitioned. If you look at the 2025 actual, the underlying performance compared to the previous year, we had an increase by JPY 50 billion. And also for 2026, we are not expecting capital gains on business dispositions. So the forecast is an increase of JPY 80 billion income. So on the underlying performance basis this is going to be a significant increase in income that we hope to achieve.

Next, please. And in line with this, our financial standing has significantly improved. If you look at the D/E ratio in 2023, it was 1.3. But at the end of 2025, it became in the range of 0.9. And furthermore, the capital increase of Sumitomo Pharma also contributed to the GE ratio decreasing to 0.8. So financial standing has seen much improvement.

Next, please. And this here, based on the results I've covered so far, this is for FY 2026 dividend forecast. We forecast an increase in the annual dividend to JPY 16 per share. However, having said that, we do not believe this to be at the appropriate level. So in the future, we hope to achieve an annual dividend of JPY 24 per share at an early stage in the future.

Next, please. And from here, I will go into sector strategies. Next, please. But before I go into this topic, I would like to cover the status of our business portfolio. Back in fiscal 2017, we had a core operating income of JPY 262.7 billion. The growth drivers that we've identified we had health agriculture and information electronics. They did not account for 30% of the total of the income. They were less than 30%. Most of the income came from the P&P business. However, if we look at the portfolio today, Almost 60% of the core operating income came from Agro & Life and ICTM for FY 2026 or that is the forecast. So income coming from a P&P has been reduced significantly.

And for others, pharmaceuticals related businesses, if you look at the breakdown, if you look at the profit structure, we have advanced semiconductors and life sciences accounting for much of the earnings of Sumitomo Chemical as of today. Going forward, we will concentrate our investments into the growth drivers so that we can further advance our business portfolio.

Next, please. And first, I will cover the Agro & Life Solutions sector and its strategies. I've had several occasions to talk about the strategies. But for the crop protection chemicals, we are confident in our ability for drug discovery. So from 2024 to -- 2020 to 2024, there were 35 new active ingredients launched to the market. 5 of them came from our company. And 3 of the 5 are expected to become blockbusters. For Rapidicil and [ Pavecto ], we will fully start to register these going forward. So at present, we will focus on how to expand the indifferent sales.

Next, please. And when it comes to INDIFLIN, as was announced before, in the Central and South America, this is used for the [ roster ] disease for soybeans used as a fungicide. When we first developed this product, it was a single market still ahead of a scale of JPY 300 billion. So it was a very attractive and large market. Since then, the market has further expanded. And in 2029, it is expected to become JPY 4 billion -- or JPY 600 billion in size. Therefore, this is a highly attractive market for us. So the market that we are addressing is expanding, but at the same time, competition is becoming more intense intensified.

On the other hand, INDIFLIN has a high performance compared to competitive products. So by further promoting the uniqueness and characteristics of this product, we can further grow our sales in this massive market. And if we look at the surrounding areas, for example, in Paraguay, soybean farming practices similar to that of Brazil. They are also struggling with the rust disease. So we have established a local entity called [ Semico Paraguay ], so that we will also promote sales expansion in the neighboring countries. And also the major target indication is for soybean rust. But this INDIFLIN has effect on various other efficacies. So as you see in this graph, in various countries and targeting various crops, we will continue to expand our indications so that sales will further grow in areas besides soybean.

Next, please. And next, on biorationals. Conventionally, we had VBS that focused on biorationals and MGK, they mostly focus on botanicals or plant-derived materials, -- so these were the businesses that were focused in the biorationals area. But by consolidating the 2 companies, we hope to concentrate the knowledge and experience into this new organization and pursue synergies to further grow the business. And another aspect is that since there were 2 separate companies that have been operating. So by consolidating, we can also rationalize the indirect expenses. We can realize a lean and efficient business operation structure that eliminates redundancies going forward. So biorational sales currently is somewhere between JPY 70 billion to JPY 80 billion. But by early 2030s, we hope to double this sales size.

Next, please. And in order to achieve that goal, these are the specific measures that we are considering especially in the South America, biorationals are gaining traction and further growing. -- as seen here, it has increased by 2.5x over the past 5 years. So we will identify -- we have identified South America as one of the focus areas. And as for North America, biostimulants are gaining much attention. So the FP sciences that we've acquired, their product lineup will be introduced in order to grow the North America business.

And as for Europe, if you look at the third row on the right-hand side from the top -- this shows the number of new product registrations in Europe since 2018 for both biorationals and chemical crop protection. And as the graph shows, since 2020 up to 2025, there has been 0 chemical crop protection registered. Finally, in 2026, there is 1 herbicide registered. But what this shows is that gaining registrations in Europe has become very difficult. However, biorationals are growing its registrations year after year. So we do have capabilities world top-class biorationals capabilities. So this presents us with massive opportunities, and we will be focusing on Europe as well. And as for the portfolio, we have pipeline development for biorationals, close to 40 in the pipeline and for botanicals as well.

In the beginning, it was only the pyrethrins. But in addition to this, we are working on the launch for 2 more products. And not just the chemical crop protection. In the animal nutrition area, we hope to launch 2 products in this area, and we are currently making preparations for that. So in addition to agriculture feed stock additives, we hope to introduce our biorationals.

Next, please. Next is ICTM. Here also, as you know, the semiconductor market is rapidly growing, in particular, AI semiconductor are showing an exclusive expansion of the market. And with that, our semiconductors business is also steadily expanding. And going forward, development of advanced products and top level quality and mass production through that, we will make proactive investments to expand the business. And for that purpose, technology production must be further sophisticated, and we have to accelerate the global deployment.

So as you can see here, in Japan, First, photoresist mothersite, which is Osaka, we will strengthen its function. And recently, next-generation EUV technology center was newly decided to be built. And for well -- sub organization for development, mass production and analysis in an integrated manner. And for R&D, we will start operations of advanced ARF lithography tool. As I will describe later, with that, we will accelerate the development of new products. And also, we will increase the manpower to respond to increased manpower. And for -- therefore, we will establish a plant -- chemical center last year. And we'll will advance the corporation development between Japan and South Korea and also Japan, South Korea, China in places neighboring the customers, we have established our footprint ahead of others. And recently, in the U.S. as well, semiconductor foundry are increasing. And in Texas also we have established our new location. And in the United States in Arizona, TSMC, Intel have foundries. And as you know, Taiwan including TSMC is pleased to be accumulating your larger foundries in the West Coast of United States and in Taiwan to expand our locations there was a major issue. But as we show later, with acquisition of AUECC, we were able to realize geographic expansion.

Next page. So as I have said, this slide shows the significance of acquisition of AUECC -- with acquisition of AUECC, there are 2 significances. One is expansion of territory. And another is solution, be able to provide a broader range of solutions. Expansion of territories, as you can see on the bottom right, as I have already mentioned, Taiwan, West Coast of United States, new manufacturing clients are established. And the strength of Sumitomo Chemicals is in advanced semiconductors technology. In this area, we have a top class analysis technology. And we have established a global organization proactively, so for global locations have already introduced.

And for solution our top class technology can also be used for our AUECC portfolio to further strengthen technology. In our case, IPA or hydrogen peroxide, ammonia hydroxide. We have volumes on products, but AUECC has specialty sector products like hydrochloric acids. So both portfolios getting together, it will be possible to create synergy. And with that the current sales by 2030, we want to double the sales or even more than that.

Next page. So this is photoresist sector. At this management meeting, I have described this before and this is updated. In the immersive AIF, we have a very strong position. One example was the negative type development without using solvents Photoresist developed which can be used for alkaline development that the global top class immersion AIF-resist technology can be further developed to strengthen the business? And what means for doing that. as I introduced earlier, advanced ARF mistrography tool is introduced and recently, operations will start.

In early 2000s, the customers used the advanced lithography tool that was used at that time, we introduced the same tool to accelerate development and with that we're able to establish our strong emerging ARS resist position. But currently, semiconductor manufacturers use FlexArray advanced device. But that is different from this device that is used. The illuminating condition is different by introducing a tool using the same illumination conditions as our customers, we want to further strengthen the emerging AIF resist sector. And for EUV, next-generation High NA EUV. We will expand our own organic molecule resist to aim for a share of 20%.

And for back-end process, in AI semiconductors, with explosive penetration. High integration, higher performance and bigger sizes are advancing and the panels from wafers to panels and larger panels be interested. In the back-end process, Frankly speaking, we are a late comer, but with the changes in manufacturing platform, we take this opportunity and we will expand products that can be introduced in the back-end process as written in the blue letters. Epoxy resin ink and relative materials of temporary bonding and glue cleaner and high-purity Alumina. In these areas, we have already started mass production. So our business will be expanded in the back-end process area as well.

And next, Advanced Medical Solutions sector. This important milestone was achieved -- a drug for Parkinson's disease. -- obtained conditional approval in Japan. So first after approval, clinical studies will be conducted steadily. Clinical study will be conducted with 35 patients after transfusion is completed, we will further increase the number of patients in phases.

In the 2030, early stage of 2030, if this drug is approved in the U.S., this will become a blockbuster product that can grow up to JPY 100 billion in scale.

Next, for other sectors, CDMO business is another area that we are looking forward to. But CDMO business that we conduct -- are not cases that need large investments like antibody drugs, CDMO. With a minimum investments, we want to achieve a maximum benefit. These are the measures that we are going to implement. For example, for advanced small molecules in Japan, we already have a top position. In the future, we also want to have overseas customers. But with the current facilities that we have, sales of only about JPY 40 billion can be achieved with the current production capacity. With efficient investment, we want to increase this size, we announced recently. The Koei Chemical is now subsidiary and use the advanced manufacturing facility as a GMP will be used.

Our technology is being highly appreciated by our customers and our [indiscernible] plant is in full operation. The CRO in the U.S. So we are establishing places to ask for research and provide samples so that the recognition of our company will be further -- this has started in April and already utilization is nearly full. For regenerative medicine, we are front runners. The companies are having difficulties in earning profit, but we reached the 5 consecutive years of profitability. Already, we have 3 CMCs completed starting operations. And already, the 3 plants, we expect full utilization by using subsidies we will begin construction of a fourth plant. After the 4 plants are completed in terms of sales more than a JPY 10 billion of production capacity will be available. So by doing so, we want to further expand our business.

For AGM, as I have said [indiscernible] upstream KO ethylene and downstream prime polymer integration and Petro Rabigh improvement. With refinery margin in Singapore, we will work on with restructuring steadily. And one topic, as I have mentioned at offset, in the P&P business, if there's competition of capital expenditure, it's difficult to win against China. So going forward, we will strengthen the capacity of our existing business and also in the environmental-related business that we have will be licensed to other companies. We will shift our model to earn profit by using our IP.

Recently, this is a recent case our hydrochloric asset oxidation technology was recently provided as a global license to BASF. And also, PMMA chemical recycling and production ordering from ethanol GX-related technologies. This licensing will be accelerated and shift to a model where we could earn profit through this model.

Next page. And next is strengthening management base. As I said in the beginning, investment discipline has been a challenge for us. And as I covered this topic previously, we've thoroughly quantified various risk scenarios to consider them. And also, both from within and outside the company, we thought objective opinions. And we also implemented a decision-making that was agile in order to determine our votes forward. So under the new management processes, one of the first largest investment case, the acquisition of the AUECC, which I've talked about before. And Here, we've sought opinions of experts from inside and outside the company and run multifaceted simulation analysis so that we could have a quick and rational decision-making led to this acquisition.

And the 3 years under the midterm management plan period. As for the progress in capital expenditures, loans and investments, we will have JPY 230 billion invested into growth strategic areas. And 80% of that will focus on AGL and ICT. These are the 2 growth drivers. Already JPY 70 billion and more of strategic investments have been made.

So into Agro and Life Solutions, AGL and CTM, covering 75% of that JPY 70 billion investments already made. So according to the plan, we are proceeding with more focused investments into the 2 growth areas. And next is the reorganization of R&D functions. So far, when unique came to corporate research, we emphasized the importance of autonomy. And in some cases, corporate research would work on research projects that were not necessarily aligned with the business unit research. But we've developed a roadmap for both corporate research and business unit research in an integrated manner. And by having an organization that serves as a cross-functional center, we can focus our R&D resources into areas where we can win. So that is a new structure that we have in place.

Next is on DX. Since before, we've worked on DX 1.0, 2.0 and 3.0. So so we've promoted this. But over the past 2 to 3 years, we've seen a rapid evolution of AI. So we had to pause and revisit our DX strategy. For us as well internally, we have to shift our efforts into utilizing AI. I think that's the stage where we are currently. And you see accelerate democratization of AI shown here. So the employees as well as the management, we working to accelerate the utilization of AI. What we are currently promoting specifically is to have all the information, various types of information found internally in the company and fed that into plug-ins so that information pieces that will help decision-making will be extracted.

And we are also considering the introduction of AI agents that will facilitate such information extraction. Next, in terms of DX 3.0, particularly of the services listed here at [indiscernible], -- this is a service provided to the agricultural sector. In the interest of time, I will not be able to cover the details. But for domestic agricultural sector, we have the potential of becoming a significant platform. So are working on development of various applications and commercialization, and we are proceeding with the work to establish such platform.

Next, please. And as for the executive compensation, -- we are increasing alignment with the business performance and capital efficiency. So the variable remuneration portion will be raised from the 50% before to 60% and also introduce a coefficient for ROIC achievement. So consolidated business performance KPI multiplied by coefficient was used to calculate remuneration. We are introducing this new coefficient multiplying that to the previous formula to calculate the compensation. So that is the new change that we are introducing to the executive compensation system.

And next is the parent subsidiary listing for FY 2024, Shinto Paint, Sumitomo Bakelite and Inabata, we sold all or some shares of these companies. And for FY '25. And just the other day, actually yesterday, Tanaka Chemical and Koei Chemical were made to a wholly owned subsidiary or the plan was announced to make them into a wholly owned subsidiary. Tanaka Chemical has already completed that process. For the remaining companies, we will continue to study them. But the basic way of thinking is that under the group strategy through business growth and synergies if they contribute to maximizing enterprise value, then parent subsidiary listing remains an option to be considered.

Next, at the end, this is the same slide I always share. And once again, to share my resolve, I would like to cover this -- in our company, capital efficiency still needs to be improved much. We are still in the process. So we will work on management, conscious of capital efficiency and enhance enterprise value over the medium to long term. Next, please. And lastly, this is a summary. In FY 2025, business performance recovered strongly. And also, we made further progress in strengthening our financial standing. Of course, we are still in the process we have finally have the groundwork laid out for future growth.

And if we look at the portfolio, in our case, we are already very much focused on life sciences and advanced electronic materials as core businesses. And on the other hand, we have growth drivers, Agro & Life Solutions and ICT and mobility solutions, they are accounting for the majority of earnings. And we are also accelerating the shift towards a portfolio led by world-class businesses such as biorationals and advanced electronic materials. aND particularly, the ICTM Solutions results were somewhat muted, as I said before, but particularly for the semoconductor materials business, we have strengthened our structure to meet the growing AI semiconductor demand, particularly for the back end process materials.

And for the AMS, we've made steady progress in building a foundation for long-term growth. For the AGM as well, we've advanced the structural reforms, and we are shifting towards an IP and licensing driven business model. That concludes my presentation. Thank you.

Thank you very much, Mr. Mito. Now we would like to receive your questions.

So the first question is from Morgan Stanley Energy Securities. Mr. Watabe.

I'm Watabe from Morgan Stanley. And thank you for the good results. So I would like to combine a few questions into one. First, it's 1 year since you became the President. How did Sumitomo Chemical change performance, financial results are getting very good. So I'd like to hear about that. And as our financial results and forecast for this year, how did you include the impact of Middle East? Your you have mentioned that this is partially included, for instance, AGL for example, but this is a situation of adjustment of inventory in Brazil or what is the impact of the recent higher prices in agricultural sector? Our background of Crop Protection chemicals increasing profitability and net profit compared to the operating profit, bottom line seems to be low, explain to me that background as well.

Thank you for your question. First,

[Audio Gap]

Well, last Time. I talked about how I'm adamant about this. But not just that, looking at other pharmaceutical CDMO business, I believe the synergies generated with the CDMO business.

For example, today, conventionally a small molecule, molecule diffusion cell therapy. So these are areas that we've worked on. And these are separate areas, but as modalities, they are increasingly becoming more integrated, for example, nucleic acids. We would have automatic synthesis machines and use the nucleic acids made from that to be used. But -- now this a different method is being used. And for delivery, new conversion tools are being used. So for small molecule organic synthesis technology is very much in need, in demand for these new approaches.

So nucleic asset CDMO and [Audio Gap] using organic synthesis directly l last time when we had a conversation with you, Yamada-san, we come back to the same topic that was covered. So the origin comes from chemicals safety evaluation by Sumitomo Chemical, we decided to use IPS sales evaluating the safety of our chemicals, and that's how this business started and developed to this day.

So it's not necessarily a synthesis. It's not something completely an outlier business. We did -- it's not that we do not have any technical background. It's just that for the longest time, we've accumulated experience and technical capabilities in this area in the world. And the government has provided support and that puts us in the front runner position. So as the Sumitomo Chemical Group, this is a a business area that we certainly would like to continue.

For Pharmaceuticals, R&D costs could be quite enormous. And you may wonder whether Sumitomo Chemical has the ability to support such funding needs. In case of generative and the cell therapy area, the diseases that are targeted are not like a small molecule business where there is a number of patients. We are always considering the necessary R&D costs that may be needed in the future, we are updating ourselves regularly and assess whether there is a sufficient funds to cover the necessary costs. We are in discussion with Sumitomo Pharma and Sumitomo Group, we are frequently updating. But compared to small molecule R&D that requires hundreds of billions of yen of investments. It's smaller by an order of magnitude or even much smaller.

This includes clinical trials in the North America, we believe it's certainly within our capacity to do. So based on these assumptions, we have identified and determined that this would not negatively impact our financial standing that we have enough R&D resources to pursue. Thank you.

Agroscience and ICT investments, as long as there's no risk of underinvesting. I'm fine with that.

So the next question. Is [indiscernible] NBC Nico Securities. Miyamoto.

Thank you for your presentation. I'm Miyamoto, SMBC Niko Securities. Correlations for the financial results. I want to hear about the prospect of Crop Protection Chemicals, which is a standard for growth, in particular about biorationals. You have explained that on Page 17. Previously, M&A in Europe of [indiscernible] Electrochemicals was considered a at growth through biorationals. What is the constitution of such products in Europe? And you expect acceleration growth in 2027. The integrated company in the United States will be operating for such manner from that year or botanical portfolio will be influencing. What is the reason biorationals will accelerate in 2027. And in Europe so far, for chemical crop protection registration I mean tough for protect registration in Europe, is there a risk. Been difficult to register.

First question. biorationals in Europe, in particular, include M&A, what is strategy? Well, as was indicated this time. Registration of new chemical crop protection and also for biorationals, needs for bio rationales are increasing. Brazil, North America, India and next to this, Europe is also a strategic area for biorationals. First, development of products in Europe, we're engaged in development of products in Europe, as we have explained before. The sales organization, there's footprint in Europe, in particular in France, Spain, Italy, in the major agricultural countries and also in the U.K., there is footprint.

But in terms of production and R&D and logistics, we don't have such functions. So for further growth going forward, we have to invest in these functions. As I -- maybe I talked about it before, a corporate-wide resource allocation, an AGL and ICTM are our targets. And AGL remains in Europe. But from a bigger picture, ICT semiconductors, in particular, AI, semiconductors and back-end process sector are areas that we want to concentrate our investment.

And we are seeing improvements of our financial position. And with the surplus power that we can generate from that, if we can invest into AGL than Europe, not only sales organization and portfolio, but production, R&D and logistics in these areas as well, we want to make investments going forward. We are thinking of doing that. And from 2027, biorationals growth will accelerate. There are many factors. One major factor are biosimilars. We are looking forward to this. Biosimilars compared to what we have assumed development and site expansion is taking more time. The product development and registration system is different from country to country. But after registering is made to be able to sell the products there must be higher awareness among customers.

We may test for many years, -- from -- different from crop protection chemicals, it's not something that -- so we can clearly see the outcome. The producers must be able to confirm by themselves improved yield and production. We have continued with the steady efforts during the last few years. And in 2027, by around 2027 in particular -- in North America, we believe this is going to start. It is taking time. But Central buying stimulants, we want to accelerate further growth.

And Chemicals crop protection in Europe is so difficult. So is it all right with Pavecto Well, frankly speaking, Pavecto in Europe to get to registration I'm not saying it is impossible, but rather, compared to other products of our [indiscernible] registration, safety profile is very good. So we will continue to aim for registration. This is not scientific anymore, whether it is registered or not. So I'm sure we will get a registration, but it's difficult to say when we can get to registration. On the other hand, Europe, which sector is a major target. But the targets -- there is a target spot disease in South America. This is not a serious disease in the past. But recently, target spot has increased and Pavecto shows a very good effect on this target spot. So a target is shifting from Europe to South America and Brazil.

So we may be able to get registration earlier. And the major market for Pavecto could be South America and develop into the blockbuster in South America.

In addition, about the financial results, exports from China to South America and Brazil is slowing down. Is that a following win for you?

Well, I'm always asking that question. In addition to slowing down, generics shares are getting higher. So that may become a following wind for us. generic prices are getting higher, so that may be a following wind for us. But maybe locally, there are more careful, we are not seeing yet a big impact. But that is a positive situation for us.

Thank you, Mr. Miyamoto. We will now move to the next question from Nomura Securities, Okazaki-san, please.

This is Okazaki of Nomura Securities. For Essential & Green Materials, I have some questions. On Page 25, PCS production optimization was mentioned here. To the extent possible, could you share the current progress, particularly given the middle East situations. Maybe there have been some delays or even qualitative information. If you could share the progress, I would appreciate that.

And also to President Mito, I do apologize for asking you this question. currently given that the market is performing well. The [indiscernible] has generated much income this term, but Singapore and domestic businesses are experiencing adjustments, correction in terms of utilization of operations. So if you look at the overall balance, the JPY 20 billion operating income for this fiscal year, what is the probability of achieving this?

Yes. Thank you. Regarding the PCS in Singapore and the plans ahead. It's exactly as it is described here. But before I explain the details, I will say that Singapore PCS, since when it comes to this area, I don't have much experience, and I'm no expert. But based on what others have said, for many years over the past years, they've provided products in a stable manner. They've gained much confidence among customers. So a PCS is highly regarded in Asia. On the other hand, there have been oversupplies from China, and this has put downward pressure on their earnings and they are struggling because of that.

They are competitive. They have competitiveness or rather, I should say, they are very much trusted cracker. So within the Singapore petrol complex, they serve as part of the infrastructure. So how are they going to fare in the future, how should we retain this going into the future. I think that's the perspective that we should apply here.

There could be various forms already. This started as a joint venture in the beginning. There are partners. And if we broaden our perspective, the derivative manufacturers could also be considered partners. So in Singapore, they are an important and leading cracker in the upstream in Singapore. As part of the infrastructure, what is possible for us to retain that as part of the infrastructure. So that is the kind of discussion that we are currently having.

Given the recent Middle East situations, the status of utilization it's something that I cannot share based on agreements with the joint venture partners and other stakeholders. So I cannot go into detail, but that is the view I have to this business.

And next, PRC or Petro Rabigh, at present, particularly, it's a refinery margin has significantly improved from January to March -- their January to March period. So for us, it's FY '26 first quarter, their results will be reflected in Q1 FY '26. They performed very strongly. Operating income of $400 million also generated and also JPY 9.2 billion would be reflected in our Q1 results as a result of that.

But what will happen next is very difficult to predict and foresee, the Arabian light premium has gone up. And going forward, margin will be reduced significantly. And PRCs, particularly polymer business, the market price will follow. There will be some time lag. So we are not expecting any expansion of profits there either. So between January, March, the JPY 9.2 billion realized in the period reflected in our first quarter. That's where we are. And anything beyond that either upside or downside has not been considered or incorporated. But given the situation, Chiba, Singapore locations, how should we balance these businesses. In case of Petro Rabigh, as you know, our stake has been declined to 15% so our P&P business core of that is in Singapore and in Chiba.

So these are the core locations for our P&P business. efforts in these businesses to improve business performance. And in fact, for PCS after the Middle East situation settles, as you see here on the slide we hope to review the sales mix and increase customers that will be willing to purchase at higher price and higher price points. And for TPC, we are already starting this and by switching to high value-added grades and to shift sales geographies, we hope to further grow profits for FY 2026, that's the direction that we are heading. And for MMA due to the suspension of the line, we have now established ourselves to start earnings, and we believe we can further expand this fiscal year. In the interest time, I will not be able to cover the details. But for Chiba location, we will focus our efforts. So Singapore and Chiba will be the core for this business, and we hope to achieve the JPY 20 billion of core operating income.

So over JPY 9 billion for the Q1 coming from Petro Rabigh and given the current low utilization in Singapore and domestic location, even given these factors, you can expect a certain level of profits. Right. Well, the disruption coming from the Middle East, to what extent will this be sustained? We do expect this to settle and subside to at some point in time. But what will be the impact then raw materials procurement, if make a misstep in a decision, then we could generate huge losses from inventory valuation. And given the raw material prices are skyrocketing -- of course, given the normal circumstances, this would have a negative pressure on our margin. So there are various factors to be considered. But at this point in time, we are considering both positives and negatives, and we hope to achieve the JPY 20 billion. Thank you.

Thank you very much, Mr. Okazaki. It's now time to conclude. So the next question will be the last question. from UBS Securities. Omura-san.

Omura from UBS Securities. In general, it was really your presentation. Thank you very much for that. I also, just like Mr. Okazaki. With regards to the results for this year, I had more questions. In your presentation, or JPY 215 billion plan. Is that based on a conservative assumption or not? That was not very clear. So for Essentials, and Agro & Life Solutions for these 2 sectors, for example, 9.1 billion in Q1 for Petro Rabigh that is already included the remaining JPY 11 billion. Then what are you looking at in what way these figures? And for Agro & Life Solutions, what are the assumptions in making these figures? For this forecast, could you breakdown the background for those figures.

The performance for this year for Agro & Life nearly JPY 10 billion increase is this achievable or not will be a very important key point. And as you can see here, the key for that is overseas. In particular, Brazil. Kai grew in Brazil or not. That will be the key. And in doing so, as is included in the questions today, a shortage of fertilizers related to the situation in Middle East or demand for crop protection chemicals might decline in Brazil. Of course, there could be such risks. In the case of Brazil, for the last 3 or 4 years, -- because the problem of the distribution inventory market was stagnant. So it is finally reaching a recovery phase. And as was mentioned before, China's generic crop protection products, shipments into Brazil and price. We have not had any clear comments from our team in Brazil, but I certainly think that may happen. And if think in that manner, these figures -- I don't think these are optimistic figures, but are highly achievable figures. And HEM is very difficult. Maybe I said something opposite previously. When the price gets higher or lower, the past theory may not be applicable anymore, rapid price hike or shortage of products may happen.

Then in terms of payment that may not necessarily be negative and Will that advantage remain even if prices decline, maybe not necessarily so. So when will the situation stabilize, how will it happen? Will that be a moderate stabilization? Will there be a rapid fluctuation of the raw material price unless we can identify that, depending on the situation, the impact on profit and loss will greatly change. So it is very difficult to break out into multiple factors and say clearly. But in overall, there are positives and negatives. But JPY 20 billion, which is written here is definitely something you want to achieve. Maybe my answer was not very clear.

It is not clear in your previous comment, but if possible, could you tell me? For Petro Rabigh, JPY 9.2 billion first quarter and after you are not seeing either upside or downside? Do you mean JPY 9.2 billion will continue? Or do you mean 0? What do you mean by that?

Up to JPY 9.2 billion from the -- it is upside compared to the conventional budget. And after that, -- there may be ups and downs. It may be going up first and then go down compared to the budget. So compared with the budget, after Q2, we are not seeing any upside or downside. That's what I meant.

Omura-san, thank you very much for your questions. It is now time to conclude. So FY 2025 financial results, management priorities and business strategies. Investors Meeting is now concluded. Thank you very much for joining us today. Today's briefing will be uploaded onto our company's website from tomorrow, including the Q&A portion.

That is all. Thank you very much once again for your participation today.

..

As it is time to start, we will now begin the conference call for the presentation of financial results for fiscal year 2025 third quarter. Thank you very much for your participation. Today, Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, will give a briefing. And later, we will have a Q&A session. We will conclude the call at around 16:50. Now Mr. Yamauchi, over to you.

Thank you very much. This is Yamauchi speaking. Thank you very much for attending the Sumitomo Chemical conference call despite your busy schedule. I'd like to thank investors and analysts for your deep understanding and support to our management. Thank you very much for that.

Now let me start with a briefing of the financial results for fiscal year 2025 third quarter. Before explaining the details of our financial results, I would like to give a brief update on the status of profit and loss for the third quarter. Core operating income and net income attributable to owners of the parent for the third quarter significantly increased compared to the same period of the previous fiscal year. Core operating income was driven by Sumitomo Pharma's strong sales and partial divestiture of the Asian business recorded a gain.

Core operating income of Essential & Green Materials increased significantly year-on-year with a gain on the partial sale of shares in Petro Rabigh and better trade terms. Agro & Life Solutions crop protection and chemical business had solid performance. Net income attributable to owners of the parent already exceeded in the third quarter, the forecast announced in November. However, we anticipate that the recording of losses from nonrecurring items will be concentrated in the fourth quarter.

Consolidated financial results of the third quarter of FY 2025. Sales revenue was JPY 1.7063 trillion, down JPY 198.5 billion year-on-year. Core operating income expressing recurring earnings power was JPY 186.8 billion, up JPY 126.8 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 6.4 billion. In the same period of the previous year, there was the impact of recognizing our interest in Petro Rabigh's debt forgiveness gain of JPY 86 billion as a nonrecurring item, leading to a profit of JPY 85.4 billion. So compared to the previous year, this has worsened by JPY 91.8 billion. As a result, operating income was JPY 180.4 billion, up JPY 35 billion year-on-year.

Finance income was a loss of JPY 36 billion, improvement of JPY 69.3 billion compared to the same period of the previous year when loss on debt waiver for Petro Rabigh was recognized. Gain or loss on foreign currency transactions included in finance income or expenses was a loss of JPY 7.7 billion, worsening JPY 22.8 billion year-on-year. Income tax expenses was a loss of JPY 300 million, increase of tax burden of JPY 900 million year-on-year. Net income or loss attributable to noncontrolling interests was a loss of JPY 56.8 billion, worsening by JPY 44.7 billion year-on-year with improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the third quarter was a profit of JPY 87.4 billion, up JPY 58.8 billion year-on-year.

Exchange rate and naphtha price, which impact our performance average U.S. dollar rate during the term was JPY 148.71 to a dollar and naphtha price was JPY 65,000 per kiloliter. Yen appreciated feedstock price declined compared to the same period of the previous year.

Next, sales revenue by reporting segment. Please look at Page 6. Total sales revenue was down JPY 198.5 billion year-on-year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by sector, sales price decreased by JPY 49.5 billion, volume decreased by JPY 191 billion. Foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 28 billion. However, the large negative difference in volume is largely due to business restructuring efforts, such as the sale of subsidiaries and business withdrawals and decrease in shipment volume at our sales subsidiary due to a periodic plant maintenance carried out by Petro Rabigh this fiscal year.

Next is Page 7. Total core operating income increased by JPY 126.8 billion year-on-year. Analyzing by sector, price was plus JPY 6 billion. Cost, plus JPY 3.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 117.3 billion. I will explain the details on the following pages. But significant increase in volume of variance gain was largely due to profits from business divestitures.

Next is performance by segment. Please turn to Page 8. Agro & Life Solutions. Core operating income was a profit of JPY 28.1 billion, up JPY 8.6 billion year-on-year. Price variance, trade terms improved for overseas crop protection products. Volume variance, there were long -- there were strong shipments in Japan, India and other regions but income declined from exports due to stronger yen and there was a stronger yen effect of sales of subsidiaries outside Japan when converted into yen. Please turn to the next page.

ICT & Mobility Solutions. Core operating income was a profit of JPY 46.5 billion, down JPY 13.2 billion year-on-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of large LCD polarizing film business, shipments of display-related materials decreased. Shipments of semiconductor process materials such as resist and high priority chemicals increased due to the continued gradual recovery of the semiconductor market. There was lower income from exports due to stronger yen and the stronger yen effect on the sales of subsidiaries outside Japan when converted into yen. Next page.

Advanced Medical Solutions segment. Core operating income was a gain of JPY 300 million, down JPY 900 million year-on-year. Sales and affiliated companies decreased.

Please turn to the next page. For the Essential & Green Materials segment, core operating income was JPY 19.8 billion, an improvement of JPY 64.1 billion year-on-year. As for the price variance, the profit margin for synthetic resins improved alongside the decline in primary raw material naphtha prices, and the profit margin for alumina also improved. Regarding the volume and other variances, we recorded a gain on the sale of a portion of our equity in Petro Rabigh equity method investee company. In addition, refining margins improved at that company, leading to an improvement in profitability and investments accounted for using the equity method. Please go to the next page.

For the Sumitomo Pharma segment, core operating income was JPY 111.2 billion, up by 86.9 billion year-on-year. As for the price difference, due to the impact of NHI drug price revisions within Japan, the selling price fell. Cost differences resulted in a decrease in SG&A due to progress and rationalization and others.

Regarding the volume and other variances, in addition to the increased sales of Orgovyx, a treatment for advanced prostate cancer and Gemtesa, a treatment for overactive bladder, gains from the partial transfer of equity in the Asia business are included. This concludes the overview of by segment performance.

Next page will be the explanation of the consolidated statement of financial position. Total assets at the end of December 2025 totaled JPY 3.5104 trillion, up by JPY 70.6 billion compared to the previous fiscal year-end. Growth in inventory assets due to periodic plant maintenance at the Chiba plant and increased buildup for sales in the fourth quarter and beyond along with the acquisition of tangible fixed assets for new plant construction and expansions were the primary factors driving the increase.

Interest-bearing debt was JPY 1.2215 trillion, down by JPY 64.6 billion compared to the end of the previous fiscal year. As a result, the D/E ratio at the end of December 2025 improved by 0.23x from 1.2x at the end of March 2025, reaching 0.96x.

Next, I will explain the cash flows. Please look at Page 14. Operating cash flows from operating activities was positive at JPY 111.6 billion. However, cash inflows decreased by JPY 29.1 billion year-on-year. Quarterly income before taxes improved. However, this was influenced by factors such as the deduction of gains from business divestitures from operating cash flow and the significant improvement in working capital last year end based on immediate term concentrated measures to improve business performance. Cash flow from investing activities was negative JPY 39.8 billion, a decrease of JPY 96.6 billion year-on-year.

This period also had the sale of part of Sumitomo Pharma's Asian operations. However, the same quarter last year included significant income from the sales of Sumitomo Pharma shares and Roivant and the sale of Sumitomo Bakelite shares. As a result, free cash flow was positive JPY 71.8 billion, a deterioration of JPY 125.7 billion compared to the positive JPY 197.5 billion recorded last third quarter. Cash flow from financing activities resulted in a negative JPY 100.6 billion due to factors such as loan repayments and dividend payments. This represents a decrease of JPY 41.1 billion in outflows year-on-year.

Next, I will explain the outlook for fiscal year 2025. Please go to Page 16. I will explain from the business environment surrounding our company. Regarding the economic conditions, although investments in the field of technology are firmly supporting the global economy, future prospects remain uncertain due to the expansion of protectionism and increased geopolitical risks.

In the main business environment, we use weather symbols to indicate our key business areas and our assessment of their respective environments. From the top regarding crop protection chemicals, we expect price competition to continue and inventory congestion in the distribution chain remains uneven across regions. Regarding the methionine market price, although it recovered in the first half of the fiscal year, we anticipate a continued downward trend in the second half. Displays are showing steady growth in mobile-related components.

Demand for silicon semiconductors has recovered more than anticipated since our previous forecast and is currently showing steady growth. However, performance continues to vary across different fields. The petrochemical and raw materials market will continue to have low margins. That concludes the business environment overview.

Now let me explain the consolidated performance summary. Please turn to Page 17. This is the summary of financial forecast for fiscal year 2025. Core operating income for fiscal year 2025 is forecasted at JPY 200 billion, showing improvement over time with an expected increase of JPY 15 billion compared to the November performance forecast.

As shown in the graph in blue, excluding gains on the divestment of business, profit from business activities improved significantly at Sumitomo Pharma and Essential & Green Materials due to the results of fundamental structure reforms, resulting in a significant increase in profits from approximately JPY 80 billion in the previous fiscal year to approximately JPY 120 billion in the current fiscal year. So it has largely increased. Furthermore, and as for the profits attributable to owners of the parent, it has increased by JPY 1.5 billion to JPY 55 billion. Now furthermore, in light of the upward revision due to improved profit and loss, the year-end dividend per share to shareholders will be increased by JPY 1.5 from the JPY 6 announced in the November financial forecast to JPY 7.5 per share. As a result, the annual dividend amount will increase by JPY 4.5 from the previous year's JPY 9 to JPY 13.5. The payout ratio is expected to be approximately 40%.

And please go to Page 18. This is showing the details of the business performance forecast. First, sales revenue is forecasted at JPY 2.3 trillion, up by JPY 10 billion from the previous forecast. As for the core operating income, as mentioned before, it is forecasted at JPY 200 billion. Net income attributable to owners of the parent as mentioned before will be JPY 55 billion, an increase of JPY 10 billion year-on-year. The assumptions regarding exchange rates and naphtha price are as stated on this slide. As for the sales revenue, we expect an increase due to higher shipments of semiconductor processing materials within our ICT & Mobility Solutions segment.

As for core operating income, I will explain the situation by segment on the next slide. Please go to Page 19. As for the full year business performance by segment, regarding Agro & Life Solutions, Advanced Medical Solutions, Essential & Green Materials and Sumitomo Pharma segments, these 4 segments, as you can see here, the previously announced guidance remains unchanged. As for ICT & Mobility, Semiconductor processing material shipments are expected to increase, leading to a slight increase in profit compared to the previously announced guidance by JPY 2 billion.

For others and company-wide expenses, compared to the previous forecast, we are expecting a JPY 13 billion increase. At the time we made an announcement last time, we consider the uncertainties in the business environment, so we have incorporated risks to a certain extent. The business activities are now progressing steadily. Therefore, we are forecasting an increase in profit compared to the previously announced forecast.

This concludes the explanation of financial results and forecast. I would now like to take questions from the participants.

[Operator Instructions] Now we would like to receive the first question. From Morgan Stanley MUFG Securities, Mr. Watabe.

I'm Watanabe from Morgan Stanley. For Agro & Life Solutions, I have a question. In the third quarter, your profits and sales was not that large, but why was the profit in the third quarter and there are differences by region. And what is the situation of inventory adjustment and the movement towards fourth quarter? And by main products, what is the trend in the fourth quarter forecast compared to last year's fourth quarter, you expect a reduction in profit. Could you talk about Agro & Life Solutions?

Thank you for your question. For Agro & Life Solutions sector, first, in the third quarter situation. Compared to last year, it is true that it is better. And by region, India and also in Japan, things were very solid. And Europe as well, the amount is not that large, but Europe was also firm. And in North America, compared to the same period of previous year, it is at a similar level. South America, it is slightly difficult.

Last year, there was a drought, which is giving an impact. And credit concerns about the clients exist, so there are difficulties in increasing sales. Customers with high creditworthiness, in this case, competition is becoming strong. And by product, well, in that sense, is the main product [indiscernible], South America is a main market, but growth is a little slow.

Sales and profit trend still is not increasing that much, but profit is increasing. What is the reason for that? In the same quarter of the previous year, compared to the previous quarter or previous year, the impact of foreign exchange rate is seen in each region, there will be increase in local currency, but when converted into yen, there are cases which is flat or slightly declining. I think that is the impact. What is the progress of inventory adjustment from crop protection products? What is your prospect for the next fiscal year?

For inventory, in general, it is moving to an improvement direction. United States and India, we are seeing improvements. But in South America, there is still some inventory remaining. So towards the next fiscal year, South America is the place where we have to resolve. Thank you.

We would like to take the next question Mizuho Securities, Mr. Yamada.

This is Yamada from Mizuho Securities. I was told to ask you one question. So I'd like to hear about the third quarter situation outlook regarding the ICT & Mobility Solutions. In the same way as the previous question related to Agro & Life Solutions, I would like to know the details. Specifically, 3 months in third quarter, the -- when you are doing analysis of the variances of core operating income, in 3 months, it was minus JPY 5 billion. And in the 9 months, it was minus JPY 3.7 billion. So year-on-year, it's a plus JPY 1.3 billion is what I think.

For display-related products the shipment has declined. And thinking about the foreign exchange being negative, that means that the semiconductor was quite performing strongly. And so in semiconductor, was resist a good performer or in others good or is resist the contributor? And if so, the DRAM and NAND, the high prices are maintaining. So I would like to know the future trend of this.

Thank you very much for your question. The ICT & Mobility Solutions situation for the third quarter is what you have asked. Looking at the year-on-year basis -- just a moment, please. Regarding semiconductors, from last year, gradually, it is recovering. And by field, memory-related area, the DRAM utilization is increasing and NAND is recovering. However, depending on the customer, it varies. For DRAM, due to the generation change, the South Korean usage is declining.

For logic usage, Taiwan and China, new plants are being -- starting their operation and increasing. So our shipment volume is on the trend of increasing. However, on the other hand, South Korea and United States is flat.

Well, the resist specifically, is there such factors? With memory, it's going to change the generation. However, the U.S. capital part is increasing very well for resist?

For resist, this is the overall situation compared to last year, the sales is increasing.

And this time, you have revised upward so that situation from the third quarter to the fourth quarter, it is a quarter that usually declines, but it's not going to be that way. Is that the correct understanding?

Yes. I have high expectations. Looking forward to it. Thank you.

Now the next question from SMBC Nikko Securities, Mr. Miyamoto.

I'm Miyamoto from SMBC Nikko Securities. I also had a question about Agro & Life Solutions. This may be like Mr. Watabe's question. In the third quarter, there was an increase of JPY 11.5 billion year-on-year in terms of profit. And fourth quarter, you expect a decline compared to previous year. Same quarter, methionine is showing a declining trend. But there were shipments carried forward. So could you tell me what is the impact? In particular, in Q3, as Watabe-san mentioned, sales trend is showing a difference. Sales in the segment in Q3 year-on-year is a drop of about JPY 4 billion, but profit has increased. So when I see your analysis by sector, looking at the volume variance in the first half, it's minus JPY 3.9 billion. So for 3 months, volume variance is a factor of JPY 12 billion increase in profit. But on Page 23, analysis of sales differences, volume variance and for first half was minus JPY 4 billion, but now it's minus JPY 8.4 billion. So minus JPY 4.4 billion in 3 months. So the sales volume variance is quite negative but profit is positive. Could you explain a little more about it? I think the foreign exchange rate has not changed that much.

Please give me a minute. Yes. Thank you for waiting. With regards to relationship with sales, methionine volume is declining. So as sales, there's a drop. However, this is not giving a big impact on profit or losses. But for crop protection chemicals, India is doing well, in Japan also. In particular, in Japan, from Q4, sales carried forward. In other words, there's a trend of customers placing orders in advance. So Q3 has improved. That's a factor for the improvement of Q3.

I see. On Page 27, the sales that we have indicated on crop protection, it is flat. And for Q3, 8 months, it has increased about JPY 2 billion. But one variance has increased that much. Why is it so?

Page 27. I see. This is indicated in yen. But if you look at these figures in dollars, it may look different. First, United States, JPY 2.6 billion negative. But in local currency, it is nearly flat. And India, it is slightly negative. But in local currency, there is an increase. So these are some of the factors. For sales and profit, there is no particular major factors.

I understand. In the fourth quarter, you expect a decline in profit year-on-year. Could you explain that?

Because shipments were carried forward for crop protection products and methionine sales price is showing a declining trend. So that is taken into consideration.

Next from Daiwa Securities, Mr. Umebayashi.

This is Umebayashi from Daiwa Securities. I would like to ask a question regarding Essential & Green Materials. From the second quarter to the third quarter, the trend, the profit and losses improved by JPY 51 billion, and that is due to the Rabigh share sales. But other than that, if there are any factors I would like to know. First of all, as a confirmation, Rabigh, the profit you made from the equity method is at 37.5% or 15% as of the third quarter, I wanted to confirm that. And also, the third quarters in Essential & Green, the sales revenue has increased as well. So I would like to know the background of that. I think the fact is that the business performance is doing well. Did the margin improve? Or did the petrochemical product sales improve? And also the fourth quarter, I believe that there is going to be a periodic plant maintenance. So was there a buildup of inventory due to that or not is what I would like to know.

Thank you very much for your question. Regarding the third quarter's Essentials & Green Materials, as you have pointed out correctly, over here, the Petro Rabigh equity sales is included. When we made a timely disclosure in this November, it was JPY 50 billion, and the number that's close to that is incorporated in this. And other than that, there are improvements that were made for Petro Rabigh. Well, over here, up to the third quarter, it was 37.5%. Our interest was that and we have applied the equity method. And from the fourth quarter, it is going to become 15%. And regarding the refining margin improvement also occurred. So this area has improved as well. And in Singapore as well, TPC, they were due to the improvement of the profit margin, the profit and loss situations have also improved.

So for the sales part, it was a Singapore that was doing well in terms of the sales improvement?

Just a moment, please. Well, the products from Rabigh, the sales of those, that compared to the first quarter and the second quarter, the third quarter is showing a larger growth. And from April to June, it has experienced a periodic shutdown for maintenance. And probably to the second quarter, that impact remained. But from the third quarter, it returned to the regular sales and the fourth quarter for the Rabigh manufactured products, we are looking at it the same way, and that is reflected in the changes. And the impact to the profit is minor. So these are the factors is what we think.

Next, I'd like to receive Mr. Okazaki from Nomura Securities.

I'm Okazaki from Nomura Securities. About the dividend, I'd like to ask a question. As you have mentioned, this time, you are going to increase the dividend. The annual dividend payout ratio is now about 40%. I think you mentioned 30% before. The final profit figures may differ. So is that meaning as a background? And JPY 7.5 billion for the interim period? And next year, depending on the farmers' milestone, there will be other factors where basically you will continue or it will be rather positive. We are gradually becoming confident. Is this understanding correct about the dividend payment.

Thank you for your question. For dividends, as you mentioned, basically, our dividend policy is stable dividend. And with relation to profit, in general, about 30% is the level. At the moment, the profit for this year, we made an upward revision to JPY 55 billion. It is still in the process of recovery. So in terms of dividend payout ratio, a stable minimum dividend payment is going to be made. That is our feeling. So Instead of 30%, it is now 40%. And compared to our initial plan, profit has increased. And about -- we will consider continuing in the future and taking that into consideration, we decided to have this amount of dividend.

So this is a minimum level, more than 38.7%. You have not yet to determine what will be the performance next year, but depending upon situation, there may be other factors but among those JPY 7.5 at a moment is amount that you want to keep. Is my understanding correct?

Yes, you are right.

Next, from Morgan Stanley MUFG Securities, Mr. Watabe.

This is my second time. Regarding Essential & Green Materials, at the flash report, it says that the business transfer gain is JPY 55.8 billion and it was consistent by Rabigh and others. But if you exclude that, it is in the red. And the fourth quarter period of the maintenance shutdown, when we talk about the refining margin right now, I think the Petro Rabigh performance is improving as well, and there is a business integration moving forward. But what is the impact of that? And what are you looking at towards the overall essential and green materials?

Thank you very much. For the divestment gain and the last report, it said JPY 55.8 billion. Yes. After the third quarter cumulative figure, Petro Rabigh, other than Petro Rabigh, we have divested several companies. Nippon AL, which is already disclosed, including that in total is JPY 55.8 billion.

And towards turning around into black ink, regarding Petro Rabigh, it's difficult to share with you what's going to happen in the future. But for the refining margin and probably all of you can assume what the situation is going to be. And I think you can assume in that way. And how it can turn around to profit making, we're in the midst of setting the budget for next fiscal year. So I would like to refrain from commenting.

So the fourth quarter non-recorded loss concentrating, it's mainly in Essential & Green Materials. Is that correct, including essential as well.

To a certain extent, there are planned items for -- from restructuring. But there are some items that we are aware of, such as impairment, but we are looking at it to that extent.

So there is -- do you think that is going to work positive in the next fiscal year, such as the decline in depreciation?

Yes, that's how we are understanding it. However, at this point, it's difficult to give you the full answer.

Well, it is time to conclude. So the next question will be the last question. Yamada-san from Mizuho Securities.

I'm Yamada from Mizuho Securities. This is a detailed point. Under others, this time, though there is an upward revision, for Q4, you expect some level of negative figures. So these are corporate expenses. So it is possible that, that will surface on Q4 and things will become more transparent. So JPY 20 billion to JPY 25 billion corporate costs could be expected from next year onwards. What is the trend of that? Could you tell me that?

Thank you. Under corporate expenses, as you know, the corporate expenses, in particular, R&D expenses are included here. And recently here, regenerative cell research is still under development. So the progress of research expenses is very difficult to make a projection. So these are also included. So we don't expect a large drop next year, but we expect to maintain a certain level in terms of these expenses.

About more than JPY 10 billion R&D will be spent for regenerative cells. And then that is surfaced in a specific quarter like this?

Yes, that is what it is.

Mr. Yamada, thank you very much. With this, I would like to conclude today's conference call. Thank you very much for your participation today. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

As it is time to start, we will now begin the Conference Call for the Presentation of the Financial Results for the Fiscal Year 2025 Second Quarter. Thank you very much for your participation.

Today, Mr. Sasaki, Representative Director and Senior Managing Executive Officer, will give a briefing on the financial results for fiscal year 2025 second quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department to take questions. We will conclude the call at 4:50.

Mr. Sasaki, over to you.

Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call today despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that.

Now let me start with the presentation of the financial results for fiscal year 2025 second quarter. Please turn to Page 4. This is a summary page. Core operating income and net income attributable to owners of parent significantly improved compared to the same period of the previous year. Core operating income of Essential & Green Materials increased significantly year-over-year. There are also profits at Sumitomo Pharma with strong sales results, leading to recording of a sales milestone of ORGOVYX and partial divestiture of the Asian business.

Compared to the forecast announced in August, in addition to strong sales at Sumitomo Pharma, there was improvement in foreign exchange gain or loss from a yen weaker than anticipated, as well as a reduction in the deferred tax liability, resulting in a reduction in the corporate income tax expenses, leading to increase in both core operating income and net profit.

Please turn to Page 5. Consolidated financial results of the second quarter. Sales revenue was JPY 1,954 billion, down JPY 146 billion year-on-year. Core operating income was JPY 108.7 billion, up JPY 79.2 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 5 billion. In the same period of the previous year, there was an impact of recognizing our interest in Petro Rabigh' debt forgiveness gain of JPY 86.5 billion as a nonrecurring factor, leading to a profit of JPY 91.8 billion. So compared to the same period of the previous year, this has worsened by JPY 96.8 billion. As a result, operating income was a profit of JPY 103.7 billion, down JPY 17.6 billion year-over-year.

Finance income was a loss of JPY 15.8 billion. Improvement of JPY 136 billion compared to previous year when a loss on debt waiver Petro Rabigh was recognized. Gain or loss on foreign currency transactions, including finance income expenses was a loss of JPY 6.5 billion, improvement of JPY 28.4 billion year-on-year.

Income tax expenses was a gain of JPY 3 billion, increase of tax burden of JPY 7.2 billion year-over-year.

Net income or loss attributable to noncontrolling interests was a loss of JPY 51.2 billion, worsening by JPY 65 billion year-on-year with the improvement of Sumitomo Pharma's income. As a result, net income attributable to owners of the parent for the second quarter was a profit of JPY 39.7 billion, up JPY 46.2 billion year-over-year.

Exchange rate and naphtha price, which impact our performance, average rate during the term was JPY 146.02 to $1 and naphtha price was JPY 64,900 per kiloliter. Yen appreciated and feedstock price declined compared to the same period of the previous year.

Next, Page 6. Total sales revenue was down JPY 146 billion year-on-year. By segment, sales revenue decreased in all segments, except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by JPY 25 billion. Volume variance decreased by JPY 88.1 billion, and foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by JPY 32.9 billion.

Next, Page 7. Total core operating income increased by JPY 79.2 billion year-over-year. Analyzing by factor, price was plus JPY 6.5 billion, cost, plus JPY 6.5 billion. Volume variance, including changes in equity in earnings of affiliates was plus JPY 66.2 billion, all were positive factors.

Next is performance by segment. First, Agro & Life Solutions. Core operating income was a profit of JPY 11.2 billion, down JPY 2.9 billion year-over-year. Price variance. Profit margin improved for overseas crop protection products. Volume variance, in addition to decrease in shipments of overseas crop protection products, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen.

Next is ICT & Mobility Solutions segment. Core operating income was a profit of JPY 33.1 billion, down JPY 10.5 billion year-over-year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of a large LCD polarizing film business, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen and decrease in shipments of display-related materials.

Advanced Medical Solutions segment. Core operating income was a loss of JPY 1.4 billion, down JPY 1.7 billion year-over-year. Shipments decreased because of difference in the timing of shipments compared to the same quarter previous year for some pharmaceutical ingredients and intermediates.

Essential & Green Materials segment. Core operating income was a loss of JPY 18.6 billion, improvement of JPY 16.1 billion year-over-year. Price variance with a drop in naphtha price, which is a feedstock, profit margins improved in synthetic resins and aluminum. Volume and other variances, there was improvement in profitability in investments accounted for using the equity method at Petro Rabigh due to factors such as improved refining margins.

For Sumitomo Pharma segment, core operating income was a profit of JPY 97.3 billion, up JPY 94.3 billion year-over-year. Price variance, selling prices declined in Japan with NHI drug price revisions. Cost variance. There was a decrease in selling expenses and general and administrative expenses due to progress in rationalization. Volume and other variances in addition to expanded sales of ORGOVYX, a therapeutic agent for advanced prostate cancer and GEMTESA treatment for overactive bladder, gain posted on a partial divestiture of Asian business and ORGOVYX sales milestone are included. This is all for the results per segment.

Next is consolidated statement of financial position. As of the end of September 2025, the total asset stood at JPY 3,364.5 billion year-on-year, this is dropped by JPY 75.3 billion. This is mostly due to a drop in related company's shares by sales of businesses as well as a decrease in cash and equivalents by repayment of interest-bearing liabilities. Interest-bearing liabilities stood at JPY 1,191.7 billion, which has dropped by JPY 94.5 billion compared to the end of the previous term. Equity stood at JPY 1,179.6 billion, which is up by JPY 105.2 billion compared to the end of the previous term.

And now let me explain the consolidated cash flow. The operating cash flow is plus JPY 57.5 billion. However, year-on-year, this is a drop by JPY 5.9 billion. The profit level improved. We saw a deterioration of working capital due to revenue increase at Sumitomo Pharma as well as corporate tax increase. And investing cash flow was minus JPY 16.7 billion year-on-year, this is a drop by JPY 91.1 billion. This term, we had a partial sales of Asian business at Sumitomo Pharma. But in the same period last year, we had a significant income by sales of [ low bound of ] shares by Sumitomo Pharma as well as the sales of Sumitomo Bakelite shares. As a result, free cash flow stood at JPY 41 billion compared to JPY 138 billion the same period of previous year. This is a deterioration by JPY 97 billion.

Cash flow from financing activity was minus JPY 114.8 billion due to repayment of borrowing compared to the same period of last year. This is an increase in outflow of JPY 39.4 billion.

And now I'd like to explain the outlook for fiscal year 2025 on a full year basis. First, let me explain the business environment surrounding our company. Regarding the economic situation, the global economy continues to show signs of a slowdown. Amid heightened uncertainty, the outlook remains unclear.

Below, our assessment of the business environment for our key sector is indicated using weather symbols as usual. For agrochemicals at the top, crop protection, price competition is expected to persist with regional variations in slow-moving inventories in distribution. Methionine market bottomed out at the end of last fiscal year and recovered in the first half of this year, but is expected to decline in the second half.

In displays, mobile-related components remained robust. For semiconductors, although there is a variation by sector, but the demand is anticipated to show a gradual recovery trend.

Regarding petrochemicals and raw materials, low margins are expected to persist.

And now on Page 17, you can see the summary of our financial forecast for fiscal year 2025. We have revised the previous forecast in May to incorporate the recent performance trends and the impact of the partial sales of Petro Rabigh shares. The core operating profit forecast for fiscal year 2025 is JPY 185 billion, which is an increase of approximately JPY 45 billion year-on-year and an increase of JPY 35 billion compared to the previous forecast.

On the left-hand side, the actual gain on sales of business shown in gray was projected to be approximately JPY 50 billion in the May forecast. But by incorporating partial sales of shares in Petro Rabigh, it is revised to approximately JPY 80 billion.

The profit from the business activities shown in blue, representing the underlying profit and loss is projected to show a significant year-on-year increase due to sales expansion at Sumitomo Pharma and reduced stake in Petro Rabigh, we revised it upward from the May forecast, targeting over JPY 100 billion.

By segment, growth areas are -- these 2 segments, Agro & Life Solutions and ICT, Mobility, we expect achieving JPY 100 billion in profit from the business activities.

Regarding the profit and loss associated with the partial sales of Petro Rabigh shares, the combined impact of the valuation loss associated with subscription to new class shares and the increase in loss accounted for by the equity method is expected to be minimal on the final P&L because they are offset with each other.

And now the business performance forecast. We forecast the revenue of JPY 2.29 trillion, a decrease of JPY 50 billion from the previous projection. Core operating profit of JPY 185 billion. Net profit attributable to the owners of the parent of JPY 45 billion. Assumption on the FX and naphtha prices are as stated.

Regarding sales revenue, Sumitomo Pharma expects a strong sales in North America, mainly for ORGOVYX. But Essential & Green Materials except the decrease in revenue due to a decline in shipments resulting from the sales suspension of Petro Rabigh products, which is our subsidiary company. Core operating profit by segment will be explained on the following slide. Net income attributable to the owners of the parent is expected to increase by JPY 5 billion from the previous forecast.

And related to Petro Rabigh company's shares. Cash contribution methodology associated with Petro Rabigh was not clearly identified and the series of profit and loss impact was accounted for and the nonrecurring items. That is how it was incorporated in the forecast. But this year, this time, the methodology for cash contribution and the accounting treatment was finalized. As a result, for 6 months, the sales timing was delayed by 6 months. As a result, the losses we bear under the equity method will increase. As a result, the gains on sales of equity will increase. As a result, core profit significantly increases.

And next, we incur valuation losses of the Class B shares we newly acquired. As a result, there are additions and deductions among accounting items, but the impact on net income is limited as they had been already incorporated in the previous projections. And therefore, impact is not big.

Next, regarding the full year performance or the sales revenue and core operating income by reporting segment. On to Agro & Life Solutions, though shipments shifted from the first to the second half, performance has largely progressed as previously announced with the previous forecast kept unchanged. For ICT and Mobility, EV market recovery is slow and the semiconductor market recovery is slightly moderate compared to our projection with some unevenness. As a result, we have adopted a little bit conservative outlook compared to the previous announcement.

Essential & Green Materials, as I explained earlier, is expected to see a significant increase in core operating profit. At Sumitomo Pharma, mainly due to strong sales in North America, therefore, is expected to see a significant increase in profit compared to the previous forecast. The other segment sees its profit drop compared to the previous forecast. This is due to the fact that at the time of the previous forecast, a certain degree of performance improvement measures were factored in. So they were incorporated into the other categories. However, in this announcement, based on the assumption that they are likely to materialize in each segment, Essential and Sumitomo Pharma numbers are calculated. And therefore, those factors are not incorporated into others.

This concludes our explanation on the financial results and earnings forecast. And now we would like to entertain your questions. Thank you.

[Operator Instructions] Now the first question from Morgan Stanley MUFG Securities, Mr. Watabe.

In your new forecast, Petro Rabigh's sales impact, I'd like to hear more about it. In Essential, JPY 50 billion is included this time, but the increase in profit is JPY 23 billion. What is the reason for that? Not related to Petro Rabigh, there is minus JPY 40 billion for others. You explained because there were recoveries in other segments, but it seems to be too large.

And nonrecurring items, it was minus JPY 45 billion, but with the gains for sale of Rabigh that was assumed, but that is negative. So what is the reduction of JPY 25 billion in nonrecurring items? With the sales related to Petro Rabigh, maybe your forecast was too bearish. Could you explain the reason?

Yes. Thank you for your question. For Petro Rabigh, we announced the influence recently. But for the sales, it's JPY 50 billion of sales proceeds was announced. And as you know, here, there was a time gap of 6 months, and that impact is included. So 22.5% means that the equity method is continued to be applied. So there is an increase in the burden in terms of losses based on the equity method. And that is one factor. And JPY 50 billion, because there were losses from equity method, the sales cost dropped. So in net, it is lower than that. So that included -- the increase in profit was only about JPY 23 billion. Besides, there is included under finance losses for the B shares newly acquired, there is a valuation loss included. So sales of equities, when you calculate the total loss, actually, the impact is not that large.

Yes, I understand. Petro Rabigh, there is a negative in terms of sales proceeds because of equity method.

So let me add to that explanation. How was that included in the original forecast? I think that is your question.

In the original forecast, core operating income -- essentially in Green and EGM, it was not included at all. That is one point. So that makes the difference. And for nonrecurring items, we were including some impact. And by adding some items, for example, valuation loss, it is very difficult to express. So the losses were included in the nonrecurring items. But that is not a nonrecurring item. That is a financial loss. So improvement of a nonrecurring item compared to the forecast is because of this background. So we are not considering the sales gains.

Well, when it's not that we are not taking into consideration at all, as I will explain. And your question, you asked about other corporate expenses compared to the forecast, this has worsened about JPY 24 billion, JPY 25 billion. And that part, in the initial forecast, we included some forecast of improved performance in EGM and Sumitomo Pharma. For both, we had conservative figures and Petro Rabigh equity sales, we were not -- we couldn't talk about it. So without including those figures, these were all added together and included under other corporate expenses, but that is now being distributed into other segments. It is now included in the figures of the relevant segments. So it looks as if the total corporate figures has worsened, but that is the reason.

Is it possible to have such a big negative figure for corporate, about JPY 40 billion? Is that what you mean?

Yes. The reason why it was good so far. Sumitomo Bakelite and other items of profit and loss are included and sales proceeds that happened last year are included. And besides Sumitomo Chemical Engineering and Nihon Medi-Physics, those losses are included under others. But these 2 are already sold. So this fiscal year, there are not so many positive factors. And under others and adjustments, expenses are high. That is how you should interpret it.

Medi-Physics, I think that was Life Science, but I understand. So it's not that you are assuming a larger buffer. If you ask me if you are -- we are conservative, basically, yes, our forecast is intended to be conservative, but we are not including a large buffer.

So you are conservative. I understand.

Now we would like to go on to the next question. Mizuho Securities, Yamada-san, please.

I am Yamada from Mizuho Securities. I would like to double check about the core profit. Agro & Life Solutions in the first half, there was some shortfall. From the first to the second quarter, there was a seasonality. So you said that there is some visibility, but you had some shortfalls from the first half to the second half, there was a timing difference of the shipments. Was it the reason? On a full year basis, there was no change in the forecast. Therefore, my understanding must be correct, but I'd like to double check.

And ICT Mobility Solutions, downward revision, the operating profit and the revenue were revised downward. EV and the semiconductor recovery or delayed that is the reason. Marginal profit margin -- marginal profit ratio against the revenue dropped by JPY 30 billion, operating profit drop was limited to JPY 3 billion. Therefore, the balance seems to be optimistic between the 2. So could you please explain this situation?

First of all, AGL, from the first half to the second half, there was some shift. At this point, in Latin America, business is struggling. From the second to the third quarter, there is some shift that is our awareness. As much as possible, we would like to make a recovery within the third quarter.

On the other hand, in North America or in India, in these regions, so because they are Northern Hemisphere there, we expect more to come. We do not have any unfavorable factors. Well, the slow-moving inventories start to recover. And based on that, so comprehensively, when it comes to AGL, we are likely to achieve the initial projection. Furthermore, JPY 145, that is the ForEx assumption for this projection. Currently, yen is a little bit weaker than that. So I believe that this will also make a further contribution.

And then on to ICT, the major factors are, as correctly pointed out by you, EV and the semiconductor. Although there is some recovery, but not much recovery than we anticipated. So that is some negative impact. They are incorporated. And the profit margin is off, that is what you pointed out. Well, the revenue in itself may be we put the numbers quite roughly and sometimes we round the numbers. So it is not precise. It is better not pay too much attention to the profit.

It does not mean that you made a significant change to ForEx assumption. That is why I thought something is off. However, you more precisely calculate core operating profit. That is why you ended up this result. Am I correct?

Yes. And Agro & Life Solutions, regarding the sales status of new products, is there any delay? Or are there any new products that are sold earlier than schedule?

Well, there is no major delay. That is our current understanding.

The next question is from SMBC Nikko Securities, Mr. Miyamoto.

I'm Miyamoto from SMBC Nikko Securities. I also have a question about Agro & Life Solutions. As a business environment, you have a cloud mark. So what's the current situation? What is the situation of the inventory? There are differences from product to product. So could you explain a little more about it? And in addition, price competition continues. And in terms of price variance, there were improvements of profit margin of foreign crop protection chemicals. So it seems that -- could you explain the price trend and by rationale in different sales situation, could you talk a little more about it?

Yes. Thank you for your question. For AGL, in the first half, in Latin America, situation was a little worse than what we had assumed. For our distribution inventory compared to the previous year, there are improvements, but still the level is high. And generic products, competition is still expected.

For Rapidicil, Argentine, still, we will continue to emphasize expansion of sales. And [ differing ] in Brazil, it is the second season. So this -- we will also continue to expand sales of this large-scale insecticide. So we want to recover from the first half towards the second half.

And the other regions, in the United States, it is improving quite a lot, I believe. And of course, competition with generic products exist. But as North America in general, there's improvement in the desire of our customers to accept our product. North America is a place that is just starting. So we will keep watching.

And in India, India as well, there is a question of the distribution inventory, but there are improvements seen. Not only North America, but also in India, I think we can look forward to the situation in India by watching with care, we hope we will achieve our target at the beginning of the fiscal year.

About the price variance in Latin America, there's still a drop in price and is it getting higher in other regions?

That is a general image.

And how about the situation, the places which price is getting higher?

Price itself, rather than higher prices in the price variance, that is a tug of war with cost. So including the cost, the improvements in some places. That is the meaning here.

I understand. And on Page 29, in Latin America, there was sales and some carried forward in Japan, but the impact in North America is bigger.

Yes, in Japan, currently, including the price of rice, prices are getting higher in Japan. The customers, the farmers have quite a strong desire to purchase their advanced sales. In Central South America, the market is larger. So still the impact remains.

Now we'd like to go on to the next question. Daiwa Securities, Umebayashi-san.

I am Umebayashi from Daiwa Securities. I would like to ask you some questions on ICT and Mobility Solutions. From the first quarter to the second quarter, the revenue is approximately JPY 8 billion. So therefore, it is a significant increase, but the profit, JPY 4 billion drop. So there was a gain on sales of the business in the first quarter. I understand that. But excluding that, so the revenue increase is significant. However, the profit was almost flat. So what is the reason for that?

And especially in the industry, smartphone in North America is strong. And in the second half, you mentioned that you might be a little bit conservative. Why is it that the situation is deteriorating to this extent? Could you elaborate on that?

Well, let me see. ICTM, in comparison with previous year, currently, yen is stronger. That is our assumption. So this is the segment most affected by the ForEx fluctuation. Another factor is the impact of tariff. So at the beginning of the year, we told you that in total, JPY 10 billion of impact will be felt from tariff. And we start to feel that impact now. Throughout the year, this is likely to be within the scope of our projection at the beginning of the year. So the reason for drop this time is, as I explained earlier, EV as well as mobility. These are the major reasons, partially compared to our initial expectation, there are some change from the semiconductor situation. Therefore, they are separately incorporated. Separator of EV feel the impact. So please understand in that way.

Between the first quarter and the second quarter, revenue increased. However, the profit dropped. Well, the profit dropped because in the first quarter, there was gains on sales, but it did not occur in the second quarter. However, between the first quarter and the second quarter, what was the major change in the mobile business?

What was the major change for the polarizing film between the first quarter and the second quarter? Well, there is an impact of the gains on sales, which did occur in the first quarter. So that may have an impact on profit. The display was performing quite well last year. So there was some rebound from the previous year. So there are some irregular elements incorporated here. So please do understand in that manner.

The next question is from Nomura Securities, Mr. Okazaki.

I'm Okazaki from Nomura Securities. For core operating income, a question for confirmation. Essential Green Materials, you made upward revision. But in terms of fundamentals, compared to 6 months ago, is it right to say that there are no major changes? What is your view about Rabigh and Singapore and other places, as was included in previous question, from the first half to second half, losses -- core operating loss tends to increase. What is the item for that? This year, I understand there's not so much difference between first half and second half in terms of sales of business. Could you explain that?

Yes. Thank you. First, for Essential, in terms of wafer mark, I explained, basically, from the beginning of the year until now, there are no changes.

So Singapore, for example, for PCS, we are studying the possibilities of optimization in TPC, MMA. In particular for MMA, restructurings and also rationalizations took place. And on top of that, high profitability items, high value-added items are areas that we plan to shift to maintain the profit. So that is a policy.

As for the environment, we have not changed our view. And for other areas comparing first and the second half, in the second half, for example, this is a matter of how we spend our expenses. For R&D expenses tends to be concentrated in the second half. That is a trend that we see. So that is also included.

Now we are getting closer to the ending time. So now we would like to take the final question. BofA Securities, Enomoto-san, please.

BofA Securities, I am Enomoto. I have a question on net income. Looking at the plan for the second half, there is a significant gap from the operating profit to net income. Various items are included in the operating profit. Why is it that the net income is so compressed in the second half of the year?

Thank you very much for your question. Throughout the year, nonrecurring items, at which timing they will be recorded that also have an impact. JPY 5 billion was the only one that was generated in the first half. However, there are several structural reform-related expenditures that will be occurring, which will be around JPY 25 billion throughout the year. So the remaining portion will incur in the second half.

And regarding the financial profit, it will be skewed towards the second half of the year. That is our view. This is due to ForEx. So this is the current view. It is currently at JPY 150. But based on the assumption of the yen is stronger to JPY 155, then the ForEx loss may occur.

And talking about the tax, as I mentioned earlier, Sumitomo Pharma deferred tax liability reversal gain was observed in the first half. This is extraordinary items in the first half. So this will not appear in the second half. So there are several factors. And therefore, the loss will incur in the second half of the year. So that is my explanation.

The ForEx loss, what is your projection of that for the second half?

Not so much. But our assumption is that, the ForEx is JPY 145.

This concludes the Q&A session. Lastly, Mr. Sasaki will give the final greetings.

Thank you very much for attending today. This fiscal year is the first year of our medium-term plan. And within the medium-term plan, we have set targets. So to achieve the target, we will do our best. So we hope we can continue to have your support. Thank you very much for your participation today.

This concludes today's conference call. Thank you very much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It is now the time to start, so I would like to start. My name is Kobayashi from the Corporate Communications Department. I will serve as the moderator. Thank you very much for attending today's investors' meeting for the Current Priority Management Issues and Business Strategy despite your busy schedules. Today, from our President, Mito, there will be an explanation given followed by a Q&A. We plan to end this meeting at 4:00 p.m.

President Mito, please go ahead.

And once again, thank you very much for attending our Investors' Meeting for the Current Priority Management Issues and Business Strategy despite your busy schedule. Since I assumed the position of the President, it is my first meeting for the Current Priority Management Issues and Business Strategy. So I'd like to give you a thorough explanation. As Kobayashi mentioned right now, we have set aside time for a Q&A. So I would like you to feel free to ask any questions. Please move on to the next slide.

This slide is showing today's agenda regarding the progress on the corporate business plan at the first part. I'm excited about the upgrade business portfolio with new growth strategies. There are 2 factors in here. One is something that I've been talking about is the winning business rooted in our organic synthesis technology, how are we going to grow that. And the other is cultivating new growth businesses. More specifically speaking, it will be the regenerative medicine and cell therapy. And we still have challenges that we have to overcome, so by responding to those issues, we're going to build a greater resilience. And lastly, this is another issue that we need to tackle, which is improvement of the financial and capital efficiency. So I would like to explain about this as well. Next page, please.

This slide is showing the content that I would like to convey to you as key points. Since I have became the CEO, it's been 6 months. And until now, in order to realize the businesses where we can win, we have been saying that we want to work on strengthening the employee engagement. And what I will be sharing with you today, I would like to allocate plenty of time to explain to you the focus on business where we can win. Specifically speaking, the business where we can win is utilizing our strength in organic synthesis technology. And we would like to strengthen our ability as well as upgrade our business. And also Petro Rabigh and as we have announced recently, the business integration with Prime Polymer, the P&P business reorganization is steadily progressing. So I would like to touch upon that as well.

The other structural reform challenge, which is Sumitomo Pharma, especially at the small molecule area. Recently, the 3 key products, sales expansion and the 2 oncology drugs development is progressing. However, on the other hand, in the medium- to long-term direction, what are we going to do about the small molecule drug business? The direction of this, at this point, it's not that something solid, has been decided. However, I would like to organize the content and convey that to you. And also Sumitomo Pharma or our pharmaceutical business regarding the regenerative medicine and cell therapy business, this positioning is different from the small molecule business. This is going to be one of the group's growth business, and we would like to develop it in that way.

Our pharmaceutical business, we would like to separate the small molecule business and the regenerative medicine cell therapy business when I give you the explanation. And also, we would like to thoroughly put efforts to redouble efforts towards ROIC-oriented management, and I would like to explain about strengthening the investment management process. So next, please.

This may be repetitive. However, the slide is showing that what I would like to achieve and aim for as a CEO. The first is a thoroughly play where we can win. Conventionally, there are cases where we have attempted in various businesses. However, recently, the resources for investment is unlimited. So on a thorough manner, we would like to focus on where we can win and where we have a strength so that we will be able to return to the growth trajectory. And the engine for that is going to be the engagement of our employees. So we would like to strengthen that. And this is going to be the objective as the CEO. Next slide, please.

Actually, what is supporting our businesses or what is supporting our company's businesses, the majority of them is based on the organic synthesis technology. For example, for the crop protection products, chemicals is based on that and also the accounting liquid crystals and also filters of semiconductors as well and P&P business-related catalysts. And as the CDMO business for Pharmaceuticals, we are using advanced small molecule APIs and the oligonucleotide. And this is also based on our organic synthesis technology as well. And the technology that we have a strength on having that as a basis and the businesses who have -- has that as a basis in a medium-term perspective, the core operating income of JPY 200 billion; ROE, ROIC, 8%, 6%, respectively. And G&A ratio, we would like to bring it down to 0.8x. So we would like to go back to the growth trajectory and show the future path for us. That is the objective of the medium term for us. Next slide, please.

Over here, once again, I would like to explain about our winning path or where we can win. If you look at this slide, if we look at the exit of our businesses, we are working on various type of businesses. We have growth solutions business, semiconductors, and we have pharmaceuticals as well as P&P business. So if we just look at the exit of area, we have this variety of businesses or distribution businesses. And there are some criticisms that we have a conglomerate discount. However, as I've explained before, it is based on organic synthesis technology, all other businesses are based on that. Therefore, us fine-tuning and brushing up the organic synthesis technology and conducting these businesses has a consistency. And we don't think we have a discount because of that at all. Next page, please.

So winning business is rooted in organic synthesis technology. Regarding this, I would like to explain each one of them from now. First is the winning in Agro & Life Solutions. What you see on this slide is something that I have touched upon in the past several times. In the past, from 2020 to 2024 within the 5 years, globally, there are 33 new crop protection products, API. And Out of that, 5 is developed by our company. Our R&D expenses [indiscernible] compared to them, the major players were 1/3. But in the last 5 years, we have been developing the largest number of products. And each one of them are not small scale, but as you can see, the INDIFLIN, Rapidicil, and Pavecto, we have 3 of them. So our drug discovery capability in terms of the crop protection products, we are no less than the major players globally.

Regarding these 3 products, I would like to give you an explanation. Regarding Pavecto, in Europe, it's a product developed for wheat. And in Europe, in the last several years, there is no registration that is rolled out for the chemical crop protection products. We have confidence in the safety of Pavecto. However, we are struggling for the approval of that in Europe. And that is a fact. But on the other hand, this product I would evaluate in the largest agriculture market, which is Brazil. And recently, the target spot, which is the cap damaging disease and this product is quite effective towards that. And in the late 2020s in Brazil, and also up to now, by then, we were expecting the registration in Europe. However, this Pavecto newly -- we have expectations that it is going to grow into a blockbuster. And for INDIFLIN and Rapidicil, I would like to explain them individually using a different slide. So next, please.

First of all, regarding INDIFLIN, already in terms of the sales, it is getting close to JPY 30 billion. It has grown to that level. However, as you can see on the left-hand side chart, it's not unnecessary the fact that we have a full lineup of this product. What I mean by that? I'm talking about the mixture product. And towards 2030, the lineup of the products, we would like to enhance that. And through that, we would like to further increase the current sales. On the other hand, on the right-hand side, here, we talk about how we want to expand geography, crops and applications. At this moment, we're looking at Brazil soybean, and this is supposed to be a blockbuster product. But other than soybean for Brazil, in Japan and U.S. we're trying to look into specialty crops like fruits. We're trying to obtain applications to these. And depending on crops, we already do have top share. And so there are regions where we have very good shares in revenue.

But last year in India -- but this year in India and also in last year, we have also been able to obtain registration in Australia. And so we do want to make sure we'd be able to expand the revenue of INDIFLIN. So together with more product, we hoped we'd be able to double our revenue by 2030. Next page, please.

Next is Rapidicil. Globally, glyphosate roundup is the top-selling product. But glyphosate, it works as a herbicide for any green plants. But it doesn't mean usually -- usually it doesn't mean specific product would only be able to work to some specific plants and weeds. So that is why you need to make sure you'd be able to mix several products. But glyphosate, it does have very good effective -- efficacy, but it does also damage crops. And so at the beginning of this development, we use this at the roadside and somewhere close to rail tracks. But as you can see, at this moment, we have this no-till farming, and that is where Roundup would be able to increase revenue. And in other words, there is -- this is a place where you have no crops. It's only the weed that you have to kill. And so in other words, it is really used before planting. In other words, preplant burn down. And this is exactly where glyphosate has been able to increase -- the Roundup was able to increase its revenue. And after that, there had been some opportunities in no-till farming.

But what about -- is there any possibility where we'd be able to use the glyphosate gene so that it will be applicable to also some specific crops and so that is where we have been able to obtain a product that would be able to be used in other crops. And so Roundup is now able to -- so we already do have glyphosate, which is the generics, but this is now the top-selling type of the product. Now in this market, Rapidicil just like glyphosate, it works to various plants. It is a nonselective herbicide. And at the same time, it exhibits efficacy in low doses, 130 of glyphosate. And that means there is low impact to the environment. Glyphosate is used globally and so therefore, at the same time, there have been various problems identified.

In other words, you find weeds that will be resistant to this Roundup. Now Rapidicil would be able to show efficacy in these type of weeds as well. And so therefore, we're going to follow where glyphosate had been selling with Rapidicil. And so in 2024, we have been able to obtain registration in Argentina. And in the U.S., we're hoping to be able to do this in 2026. Perhaps this is a conservative view. But perhaps during FY '25, we might be able to obtain registration within U.S. and followed -- what follows would be Brazil. And so in other words, we know that U.S. and Brazil is going to be the main market when it comes to these type of soybeans and corn crop, and so we expect that this is going to be a product that would be able to obtain several billion in revenue.

Now I mentioned that there are weeds that would be resistant to Roundup. But then at this moment, we're trying to go through some research. There are crops that would be able to stand to Rapidicil so there will be resistant weeds to Roundups. And so from 2030 and onwards, we're trying to see if this new research would be able to be utilized. So in other words, doing preplant burn down or perhaps then could be used for over-the-top. If we'll be able to generate revenue through this over-the-top scheme, I'm sure this is going to enable us to see further opportunities for revenue increase.

Next is about Biorational. So we had been trying to find a winning business rooted in organic synthesis technology. Now you may think Biorational, it's not exactly about organic synthesis technology. With that said, I will still say it does have link to our organic synthesis technology. Biorational can exist in nature. And so Biorational to development, this is an area where our organic synthesis technology could be put to use. So oftentimes, fermentization (sic) [fermentation] is the type of technology that will be used, but downstream technology would be very similar to chemical process. And also Biorational can exist in nature. However, there are -- it is a product that cannot be fermented. In other words, chemical synthesis is the -- could be the only way to develop a specific Biorational product.

For example, we had Accede. It was a product for plant -- PGR and amino acid and this is a product -- that could not be made through fermenting -- fermentization (sic) [fermentation] procedure. But we had been able to provide the first PGR using this amino acid, carbonic acid, and so within the Biorational, our technology is being put to use. And so brand capability from the perspective of market share, we are leading the market, but we do want to make sure we'd be able to accelerate the performance. And to do that, it is going to be important that we win in the Brazil market, which is the largest in the world. And we already do have $100 million worth of revenue, but we do want to make sure we'd be able to expand our footprint into crops such as soybean.

There's also a biostimulant. This is the missing piece. But through the acquisition of FBSciences, we are expecting to be able to go into this area as well. At this moment, we already do have more than 40 projects that is going on. And within the botanical, we have Polytrin. We have outstanding share here. But anything other than Polytrin, this is also something that we're trying to accelerate the development in terms of botanical portfolio. At this moment, Biorational, we have revenue of JPY 70 billion but we do want to make sure we'd be able to double this by 2030.

And next, this is about ICT & Mobility Solutions. So in this field, our organic synthesis technology is put to good use. So when it comes to semiconductor materials, they will be photoresist. And so ArF immersion and also EUV resist are the areas where we have very high share. One topic that I'd be able to introduce, especially we have high share in ArF immersion but in creating a specific pattern, there is this negative type development. That is preferred. However, there will be organic treatment required for the development, which means there could be higher cost associated. But we are now able to provide a photoresist that could be used for alkaline development. And by utilizing this nature, we do expect to increase our share.

And also for the EUV area, this is an area where it is getting more advanced. So within the high photoresist areas, we know there's more miniaturization happening at this moment. And so in the molecular, you need to make sure we'd be able to provide resist materials at molecular size to support this miniaturization of semiconductors. And these resist -- recently, we have metal resist, there is a high attention to metal resist. However, there is this good affinity with the existing process. For example, if you wanted to become metal-free or even for the cost perspective, this organic photoresist is becoming favored. So within this photoresist area on a volume base, we're aiming for a 20% market share. Next slide, please.

And regarding the high-purity chemicals, this area with the upfront investments, we have established the supply structure as the first ones to do so, and we are establishing the global procurement structure. But in the U.S., the foundry makers are entering that market. And it's becoming one of the largest site of semiconductor manufacturing. And from China, that the front-end process is going to be start -- excuse me, in India. And through this, we would like to strengthen our platform as well. Recently in Texas, our own company's manufacturing plant is going to be constructed and the -- excuse me, the prototype has already started. However, we are aiming for the mass production starting this fiscal year. And aside the Texas site in the U.S. we believe that it is going to become one of the major sites for semiconductors. So we are considering the further enhancement.

And regarding India, the 1 benefit we have is that the crop protection products manufacturing and selling, we have Sumika which is a very strong manufacturing company. And from semiconductor side, we -- it is reported that it is going to start in Gujarat. But our company in Gujarat, [indiscernible], we have a manufacturing site as well. So in India, having the manufacturing and selling company there is going to become one of the -- our strong benefits for us to be rolling out this high-purity chemicals business there moving forward.

Next will be display materials, OLED polarizing film. This is using our organic synthesis technology, which is the liquid crystal compound. And also from compound to film, we have integrated from design to production technology. And utilizing this, we are holding a #1 position. And as for OLED, other than the application to smartphones, they're applied in tablets and notes. So it is a medium-size display, is the area that is rapidly being applied. So this medium-size area utilizing our proprietary unique technology within the OLED polarizing film, we would like to steadily hold the #1 position. As for automotive polarizers, we are seeing quite of a high growth rate. On the other hand, for the automotive applications, high durability polarizers are necessary or the wider view angles needs to be met. So there is a quite of the stretch requirements.

So at a high-end pricing range, we don't have that much of a high market share. But responding to this manufacturing requests, we would like to expand our high-end priced market share as well. And also foldable display. Recently, panels that are not using the polarizing film, we are seeing an increase of those. And of course, in that case, our OLED polarizing film cannot be used. But on the other hand, the color resist, regarding that, we have an experience of a long-term R&D. And this foldable, this is a CoE technology that does not use polarizing film. So there is this -- that is used for the CoE. The sealant or for the organic materials, the heat stress can be avoided. And from that sense, the low temperature process or low temperature of rigid color resist is asked for. So we have a color resist that will meet that low-temperature requirement. So CoE that does not use the polarizing film in that area as well, we would like to show our presence there surely as well.

Next, is the Advanced Medical Solutions. So CDMO for the medical area in modality, this is showing the target for our CDMO. This middle part -- the antibody drug, we are not going to enter this area. That decision has been already made. This area is made using fermentation technology. For crop protection products, we do have experience for fermentation. But for antibody, it does use the animal antibodies. And also, it requires several hundred billions of yen of investments. So we're not going to enter this area. So small molecules area and the nucleotide area that can be used for gene therapy are the areas that we will be entering.

And also, regarding the CDMO, are utilizing small molecules. So the small molecules APIs as a modality, there is some way of looking at it. It's a legacy, but I personally don't think that is not necessarily the case. One thing is that for the small molecule APIs, the market itself still has more than half of the gigantic medical or pharmaceutical market. Although the growth is gradual, it is still continuing to grow even now. And as shown on the left-hand side, the small molecule APIs are being advanced more and more. The conventional is 300 and 400 compounds, but that is becoming more complex and the precision is increasing. And for the molecule itself, it exceeds 1,000 of small molecule APIs are being developed. And also the technology itself is not inhibiting the protein only. But it will actually guide the protein discarding and which is PROTAC. And the technology ADC is also entering and so it is advancing.

So within this advancing technology area, we would like to use our small molecule technology and grow this business as well. Another strength that we have is something that's already depreciated in Okayama, Gifu, we have a strong site. And in Oita as a plant, we have 3 sites. So the stabilizing the supply. And regarding the compost requirement from the customers, we are able to respond to that. So we do have those capabilities, and we would like to utilize these capabilities to further grow this business.

Next is the guide RNA, which is used for the gene therapy. So this guide RNA for gene editing, it can cut and edit the genome and it will guide the process. And the size is far smaller than messenger RNA. And guide RNA, how it's made is through the chemical synthesis. And also, it's not rewriting the genome, but it's suppressing the genome expression. The monomer usually is 20 to 30 linked, which is the nucleic drug is 20 or 30 connected, but guide RNA has about 100 to 150 linked. And creating nucleic acid through that or making RNA is very difficult, making it pure is very difficult. But for us, from 100 to 150 nucleic acids with a high purity, we have a special monomer technology to realize it. So using this technology, currently, the start-up companies are the mainstream in terms of the gene therapy drugs, but we would like to enter that area. And when it comes to the commercial production, we would like to rapidly increase the business.

So with our technology and with collaboration with the start-up, we believe that, that can be useful for developing new drugs. And our customers, majority have their sites in the United States. So recently, we have established a supporting site in the United States for this business. And therefore, moving forward, major players are starting to enter this area towards the start-ups and the major players, we would like to promote and appeal, our technology is what you're thinking. Next, please.

And next is Essential & Green Materials. So in this field, it's the Chinese players that we have to go through a very tough competition. And so developing your product on your own, paying your CapEx and fight, that is becoming even more difficult nowadays. But on the other hand, in the past, we licensed out our technology to another company and the catalyst could be then offered, and we have been able to expand our footprint that way. And so again, we'd be able to use our organic synthesis technology in coming up with a new process. Target would be a next-generation type of technology that would be a low impact to the environment. And so by developing this technology, it may not be a project that we have to pay capital expenditure, but we might be able to license out. We might be able to provide a catalyst in expanding our own footprint.

For example, KBR and Lummus, we're partnering with these companies so that we'd be able to put some license agreement. And we have not been able to exactly commercialize. But then we still are trying to do some feasibility test with the partners. We're hoping that we'd be able to -- we hope to be able to create some transaction through this initiative.

Next, I'd like to talk about developing some new business portfolio. So in the past, we had been focusing on chemical synthesis and trying to expand our business. However, when we speak of the new field, it may not always be about utilizing organic synthesis technology. But for example, in terms of the regenerative medicine cell therapy, we do believe this is another winning story for us. It's almost 20 years ago or around in 2003, when we started to study regenerative medicine or cell therapy for safety reasons. And it was not that we started to work on something totally new. It was to make sure that we'd be able to address safety of what we provide. It was really an extension of what we have been researching. We have been thinking whether or not this technology could be used for medicine or cell therapy. And so this is something that we -- we do iPS cells or neuro regeneration research. And when iPS cells were developed in Kyoto University, we were also able to brush up this technology.

And so therefore, we now have a presence enough to lead this field. It does not use our organic synthesis technology. However, we do have a technology that is -- that has a great presence in the world in this area. Regenerative medicine or cell therapy that will be using this technology. We know that it has a high barrier for new entrants later on and generative products. We utilize -- we protect this technology through patent groups, and that is why we have this very high entry barrier. And there is a tremendous amount of knowledge required to do this regenerative medicine. And compared to generic, there is quite a limited amount of capital expenditure required. Of course, there will be this specific patent cliff that you'd have to face. And whenever that happens, you'd have to put in a lot of investment when it's about small molecule drug business. But then regenerative medicine business will be quite different.

And so I even would believe this could be one answer to how Sumitomo Pharma, our business would be able to find a growth passage, the winning business. And so that is why we do want to see what more we'd be able to do. Next page.

So in order to make sure we'd be able to spearhead this business, Sumitomo Pharma and us, for example, if it's about drug discovery, we have created RACTHERA based on iPS cell, we're trying to see, like, for example, Parkinson's disease treatment therapy drug. And in August, we have been able to obtain the pre-approval, and we hope to be able to obtain a final approval so that by 2030, it would be able to grow into a blockbuster after this obtaining approval. And for CDMO, we're also -- we also have high expectation to our CDMO business. There are many companies who would come into this field. But what is different from us, we actually do have a very strong basis for this medical business. And by utilizing what technology we have, we have already been able to have a surplus for 4 years in a row, while other peers would have quite difficulty in trying to create a profit. And we know there are various inquiries here.

In order to respond to the growing need, it's not just about completing our third plant; for this, we are now starting to build our fourth plant. But then the investment here is just JPY 15 billion. So compared to antibody products, we know that this investment is quite small. We are using -- leveraging METI subsidies to further limit the amount of investment required as we try to develop this business.

Next, I'd like to move on to speaking about our structural reform. First of all, about Petro Rabigh. On August 2024, we announced our financial improvement plan. And so a total $1,500 million amount of loans have been wrote off. And this is mitigating Petro Rabigh's interest burden. And also we have completed sales of 22.5% of our stake to Aramco. And including the proceeds from this, a total of $1,404 million is expected to be contributed to PRC, which again would further mitigate Petro Rabigh's interest burden. We know it did take some time but at the end of this month, once we'd be able to obtain the approval from the shareholders at the end of this month, we should be able to complete this transaction. And so therefore, our stake of Petro Rabigh would be 15% afterwards from October 2025. Again, this interest burden is going to be -- is going to become much smaller. But then at the same time, it's not only that we need to make sure we'd be able to strengthen the ability of Petro Rabigh to obtain revenue.

So for example, ethane cracker de-bottlenecking or by changing oil type, we're trying to seek whether or not we'd be able to find margin improvement. And what we're trying to show here is just an example of ways to strengthen earnings power of Petro Rabigh. There are several other projects underway so that Petro Rabigh's earnings power would be improved in the short time frame. And even in the mid- to long term, the issues around the Petro Rabigh, one issue was about refinery capacity. And so upgrading the facilities is something Aramco would have experience in and would be able to take initiative in working this together with Petro Rabigh so that Petro Rabigh's refinery capability would be upgraded in again in the short time. Next page.

And now domestic and P&P reorganization, this is also something that we did announce quite recently. So the polypropylene and LLDPE business is now integrated into Prime Polymer. And through this integration, we expect there will be a cost reduction totaling to JPY 8 billion. That is the amount to be enjoyed by Prime -- PRM. And this enables for us to find a more resilient essential business. Next page, please.

Now here, on this slide, I would like to introduce you once again our direction of P&P business. The direction that we're trying to aim is exactly what you find on this slide. In other words, we're going to be concentrating on high value-added products. At the same time, we will be phasing down commodity businesses. We will strengthen ties, reorganization with the peers. And we would like to accelerate shift to solution business that reduce environmental impact. That is exactly what we're trying to do.

And within these efforts, if we look at the action plan execution status, upper stream is optimized operations at Keiyo Ethylene at the bottom stream or the lower stream or downstream, excuse me, having a business integration with Prime Polymer and also Petro Rabigh financial improvement plan and the performance improvement project. And for Singapore, PCS cracker area, that is going to be considered in a continuous manner. But regarding MMA, we will stop 2 lines and achieving profitability. And as for downstream, polyolefin at TPC, high value-added grade by expanding the sales of it this fiscal year and next fiscal year, we would like to achieve this turning into a profit-making business. Next slide, please.

So having said that, the P&P business direction, as shown here, it will be divided into 3 phases. Phase 1 is to strengthen the competitiveness of Chiba Works. Ethylene close the ethylene plant and polyethylene oxide capacity enhancement and also commodity resin, polyester, PVC and polypropylene, polyethylene and ABS business, synthesized rubber, we will either withdraw or integrate with other companies and strengthening it. And as for Phase 2, the collaboration with companies and optimize the production, we would like to further move forward with structural reforms. And following the structural reforms, the direction that we will be heading towards is, as mentioned before, R&D and implementation to society that has a reduced environmental impact. So within Phase 1 and Phase 2s, recently upstream and downstream's structural reforms or withdrawing from the commodity products in the most recent situation, in Japan, we're able to move this forward in the fastest speed. Next slide, please.

Next, the issues of the small molecule drugs. However, this business area in the most recent situation, FY '23, it has occurred with a large amount of losses. However, in a rapid manner, the business is recovering. For the key 3 products against our original expectations, they are increasing their sales and very successful at it. And the next generation's new drug development, enzomenib and nuvisertib, the 2 drugs in the oncology area, the development of that is also accelerated. So in the recent situation, they are achieving quite of a strong recovery. However, on the other hand, moving forward, this small molecule drug. At some point, the LOE, it is going to come about to LOE. And the small molecule drugs blockbuster, it is going to require an enormous amount of development investment, even though we are going to licensing in it from a different separate company, outside company, it's going to require a large amount of investment.

So whether that ability to make those investments exist in Sumitomo Chemical, this is something we need to consider. And also the new -- the drug discovery of the small molecule drugs, the synergy of that with our company business is limited. Therefore, for the small molecule drugs in a short-term perspective, these are 3 key products and the 2 drugs that will develop moving forward, the stability of the profitability is what we're going to aim for. And from the medium- to long-term perspective, we are going to explore partners. So we need to pursue these 2 routes. So within the medium to long term, we would like to show a clear direction of this business.

So lastly, I would like to talk about the improvement of the financial and capital efficiency. In the past, if we look back to our company's performance, the impairment ratio was high. So the process of investment or the governance of it, whether that was adequate or not, those are the reflection points that we have. So the investment management process, we are going to further strengthen it and enhance the probability of investment success. There are 3 key points in this effort. First will be data-driven, next objective and the agile response. As for the data-driven, based on diverse scenarios, we are going to assess the risk in a quantifying manner. And when we can do it, we will not miss the opportunity. So we are going to make a decision based on the quantitative data.

The other one is objectivity. This investment matters for the business units. We do -- we have been respecting the proposal from the businesses. And regarding that, bring in the external expert's perspective, are always bringing the external expert's assessment or the corporate planning's involvement, we would like to increase that involvement. So we'd like to make an objective decision. And for the last part, agile, and this goes more for the CapEx or capital expenditure investments. And for the large-scale investments, when the project is ongoing, there are times that the business environment will change. And once we say it's a go, it's not necessarily the case that we will continue to make that investment. However, in a timely and appropriate way, grasp the changes of the environment. And depending on the case, depending on how the environment changes, we need to make the decision of halting that project in an agile manner.

So through these 3 factors, we would like to enhance the investment management and investment efficiency and that is going to lead to the improvement of ROIC as well. And as for the shareholder returns, FY '23, we had a poor performance. And from the perspective of shareholders' return, we ended up with an undesirable result. And this year, we are planning JPY 12 of dividend. So it is not a sufficient level yet. So in the future, the payout ratio 30%; annual dividend JPY 24 per share is what we would like to realize as soon as possible. The image we have in mind is JPY 200 billion of core operating income and the net income is JPY 140 billion. If we can achieve that, EPS is going to exceed JPY 80. So the payout ratio of 30% and JPY 24 per share is going to become possible. Therefore, at that level, the final net income that target we have, we would like to achieve that as soon as possible, and we'll put efforts towards that.

And lastly, towards enhancing enterprise value is something that I would like to share with you. Conventionally, in this session of the meeting for Current Priority Management Issues and Business Strategies, we did not touch upon this that much is my impression. And this is the ROIC tree, the textbook diagram. It's showing how a company can improve its corporate or enterprise value towards the capital efficiency by thoroughly focusing on improvement of capital efficiency. ROIC and ROE will improve. And through that, enhance the enterprise value is what we would like to do. And I believe the next slide is the last slide.

And if I may summarize today's explanation regarding the upgrade of the business portfolio, as for the crop protection products, we have expectations for 3 blockbusters chemicals. For ICT, we will have a world-class semiconductor and display material business. We have that. And for the pharmaceutical area, we have the advanced small molecule APIs and gene therapy, regenerative medicine, cell therapy. We have the strong CDMO business that is representative of these. And as for the regenerative medicine and cell therapy, Sumitomo Chemical as a whole group, it is one of the segment of the overall pharmaceutical business that the whole Sumitomo Chemical Group should focus. And also from the commodity, the resin product business, we will withdraw ourselves as soon as possible, and we will pivot towards developing the technologies to reduce environmental impact and can be deployed into society.

For restructuring, the P&P business restructuring that we are doing right now, we believe that it has made significant progress domestically and internationally. And the other issue regarding the small molecule drugs, recently, it is showing quite of a strong recovery. However, in the medium- to long-term perspective, being prepared for the patent cliff, we need to come up with a clear path towards that within the medium to long term.

And that concludes my presentation. We will now start the Q&A session.

[Operator Instructions]

First of all, from Morgan Stanley MUFG, Mr. Watabe.

This is Watabe from Morgan Stanley MUFG. Allow me to keep my camera off. And my first question, I'd like to ask around the major change that you are going through. For the past few years, I think you had been working on enhancing your profitability, for example, P&P business or perhaps Petro Rabigh as well as pharmaceutical areas, and that's exactly where you have been putting a lot of resource. I think there was like a lost 1 or 2 years. But now you're coming through some improvement. You talked about how you're trying to go for a winning passage through your organic synthesis technology. And you said -- you also mentioned about elephant in the room. But you have been going through some town hall sessions. You probably have spoke to many people. But do you feel any change within your organization? That is what I would like for you to share with us. That's my first question.

Yes. Thank you very much for your question. Ever since joining this company, I had basically been in agrochemical business. And for example, P&P or ICTM (sic) [ICT&M] or perhaps medical area. I did not have much chance to engage with the members there. But ever since I have assumed this post as a CEO, I have been able to have a lot of dialogues with these people. And I realize what great talent we have, what great technology we have in this company. One more -- another thing I would like to talk about is about enhancing engagement. It is something that I have been pointing out to as many times. And I do believe there are many highly engaged employees. It's just 6 months ever since I assumed this post. But with all these great employees, great technology and with great motivation by everyone, if we'd be able to have all these, I am very confident that Sumitomo Chemical would be able to come back to a growth trajectory. I am very confident about that. But on the other hand, there was this very difficult time during FY '23. And the damage there still have not been recovered fully.

If you look at our financial performance, D/E ratio our target this year is 1.1x. Hopefully, we'd be able to have this even be better controlled, but it is still over 1. And ROIC, ROE, it's still within the 2% range. It is still low. And so capital efficiency or financial status, I do have to believe we still are very vulnerable. This is where we need to have a sense of urgency so that we'd be able to improve our financial status with speed. What I feel the most challenging at the moment is how we'd be able to pedal through. We have great seeds for growth. We have great people. But if it is really about creating financial improvement, we have to also understand that we do not have much ability to invest as much into these growth areas and how to keep the right balance is going to be very difficult, but I hope I'd be able to do my best here.

You mentioned about the ability to invest. You talked about Sumitomo Pharma, a small molecule business, and you're trying to make sure you'd be able to create some results during this year and next. So for example, any divestiture of the business so that you'd be able to use that amount for a more stronger business. And of course, that's exactly what the capital market is paying attention to what you'd be able to do. And I guess that is something that you're trying to honing into. But can you also share with us a little more about what you think about Sumitomo Pharma?

Yes. So in terms of what options we have, I'm sure there are various options at this moment. Compared to a year ago, the conditions behind Sumitomo Pharma has changed drastically. And I will say many times this, but it is making a truly strong recovery at the moment. Amid this situation, the small molecule pharmaceutical business, what can we do with this? But then at the same time, how do we want to be is also something that we have to think about. Especially during this presentation, I talked about what we'd be able to do within the regenerative medicine or cell therapy. And again, this is an area where we don't use our organic synthesis technology, but it does have to do with our long years of development and experience.

And finally, we're starting to bear fruit. And again, as I have mentioned, there is this issue of a patent cliff. But then in terms of this regenerative medicine cell therapy, there isn't really much patent cliff that we'd have to work about. And R&D expense, the clinical trials, for example, in RACTHERA, it's not going to cost too much. And so again, regenerative medicine, I know I have said this many times, but I feel like this is one answer to how we'd be able to proceed this pharma business. And so what we do with Sumitomo Pharma, this pharmaceutical business, the foundation of Sumitomo Pharma is very much living in this regenerative medicine and cell therapy business. And with that experience, we also can create this aspect of how we'd be able to now grow our small molecule business. And it's going to be important that we find the right response.

There are various options to find a capital partner that we'd be able to have a capital alliance with. And just like you mentioned, another option is perhaps to divest this business. So again, it's really these aspects that we need to have in analyzing the current status of Sumitomo Pharma. And again, it's really about making sure we find an answer, the optimal, the correct answer in the end.

Thank you very much, Mr. Watabe. Next from Mizuho Securities, we would like to invite a question from Mr. Yamada.

Yamada from Mizuho Securities. I have 2 questions, please. The first, regarding focusing on the business area that you can win, I think it is quite rational. And within the question and answer with Mr. Watabe, your company's D/E ratio, ROIC and ROE, you have not reached a satisfying level. Therefore, you are in a situation where you cannot make investments in various areas. And saying having that as the condition you're in right now, sorry that I'm repeating. So in this situation, why this regenerative medicine in this financial situation, in this management -- business management situation, why are you going to go into that area? I question that.

Currently, at this point, the clinical trial, the reason why it's not costly is because you're doing it in Japan and you don't do placebo. And also, the expansion size is not that large. Therefore, in the iPS which has the oncology risks or the ophthalmology risks of that iPS, you don't have to roll it out at the mass production level. And that is allowing you to do so. And I believe your achievement till now is wonderful. However, I think you should look at where it has a more affluent management capital. It's better to sell the business to them. I think it is going to be better to provide the growth opportunity for your employees and the company and your employees as well. So what do you think about that?

Thank you very much for your question. The question that you have asked and the points that you have pointed out, I think is quite of a rational statement. Having said that, our company's strategy -- excuse me, investment strategy or investment capability, allow me to explain it once again. I did mention this in the medium-term explanation as well. Our company's depreciation cost on an annual basis is around JPY 150 billion. Recently, it is showing a slight decrease, but it's around JPY 150 billion, let's say it is. And then in 3 years, is JPY 440 billion and maintenance is JPY 190 billion and JPY 130 billion for strategy -- excuse me, JPY 230 billion for strategy. And the majority of this JPY 230 billion, of course, AGL and ICTM. These are 2 growth areas. That is the plan. But within the AGL, in the past, enhancing the footprint mainly in India and Brazil and developing new drugs and the strengthening the Biorational with a biostimulant company. And through that, we're able to take care with the legacy negativity. And so regarding the JPY 230 billion for the regenerative medicine, and we can also invest that in ICTM.

So in a rational manner without increasing investment and we will be able to invest them in the new areas such as regenerative medicine or ICTM is our way of thinking. But medical products development, as you have pointed out, requires quite an amount of capital. That is true. Therefore, we would like to make thorough management of the investments that we make. Furthermore, you may skull me for this is that we are really focused on this, meaning that in year 2025, for the 20 -- several years, we have spent for development. And this is something that we can be proud to the world. This is the first attempt of utilizing iPS cell from Japan. So we would like to realize that. We are focused on that.

And related to that, I would like to ask my second question. Personally, your strength as a company, it was in AGL. You have been talking about that for 20 years, and now you're having capital to move it forward, and I'm really happy for you. But the gene editing area, I think maybe you should be putting more investment there in ICTM, the semiconductor related, a rather more broad solution to be provided, you need various measurement equipments and you need investment in the open innovation as well. So including those investments is JPY 230 billion is all right. So for regenerative medicine, you want to do it on your own. And related to that, Sumitomo Pharma is something that you would like to make considerations is what I thought. Is my understanding correct?

Personally, especially towards AGL, I want you to specialize in that more, and you'll be able to downsize the conglomerate discount. And you will be able to show the demonstration that you're focusing on that area. And I believe that it's going to be quite of a strong positive factor for the shareholders and the market. So as for your company, in a long-term perspective, it's better to have a regenerative medicine and cell therapy. Can you actually explain your thoughts towards that more?

Well, I myself, as you, Mr. Yamada pointed out, the conglomerate discount or the criticism regarding that towards our company or comments towards our company, I think that does make sense. However, one of my response to that is technology-wise, the organic synthetic technology is a consistent foundation of all of what we are saying. And within that, are we going to go into the medical pharmaceutical area? Well, yes, it is true, and I am aware that such criticism does exist.

Right now, you mentioned 3 businesses right now in your question. So AGL, ICTM, which is pharmaceutical, AGL Crop Protection products. And outside Japan in the global arena, there is no company that does both together. That is a fact, true. If I may say, the medical CDMO and the ICTM has an affinity, high level of affinity, meaning that both require a high level of quality and with the customer, it requires a very close communication to roll out the business. So from that perspective, both have an affinity, a high level of affinity as businesses. And so crop protection products or AGL using the organic synthesis technology, using that, it also has a high level of synergy with ICTM.

But currently, if we look at the world, the global companies, the majority of them are the specialty companies for crop protection products. Therefore, I am aware of the fact that such opinions do exist. But for the medium to long term, with this structure and plan that I have explained right now using the backbone technology and also the technology that we can be proud of towards the world, how we can utilize that moving forward to grow the businesses is what I would like to focus on.

When I introduce your company, the diagram on Page 9, based on that, I say that you're not a conglomerate. I think I can do that. However, for regenerative medicine and Sumitomo Pharma, we have to think that is a conglomerate. So including that within this current running and medium-term plan, I hope that you will revisit this area. Thank you very much.

Thank you.

Thank you, Mr. Yamada. Next, we'll take a question from Mr. Miyamoto from SMBC Nikko.

This is Miyamoto from SMBC Nikko. And I also have 2 questions. My first question, I think AGL is your strongest business that you would have. Now when it comes to your crop protection products, you have great pipeline. I look forward to what you'd be able to do. But then if I look at the past 10 years' revenue growth, I feel like it's not really growing on a dollar basis. And I know INDIFLIN is really growing. But then still, you are not really finding much growth in your revenue. And so Mr. Mito, how do you take that? That is something I would like to hear from you. And also, if we're trying to go for nonselective herbicide, don't you think you need to go for -- so like when you try to go here, is this not what you're trying to look into? For example, if you look at the Agro & Life past track record and what do you see into the future?

So first of all, going back to your first question, if we look at the dollar-based revenue growth, you're not really finding much positive track record. I think that is what you're trying to point out to. And first of all, yes, that is a fact. We talked about B2020, A2020. Until we'd be able to complete the development here, there was a time for like 10 years where it had been really difficult to come up with a new product. And the final hit product was [Flumioxidine] (sic) [Flumioxazin] and protein and gene herbicide and pesticides. But these 2 products, the patent had expired. And so therefore, we find a lot of pressure from generic products nowadays. And because of that, there was some time when the revenue growth had been stagnant. So that is true. That is true. But again, the investment that we made in the past to develop new products are now finally bearing fruit. So A220 -- A2020, B2020, the 5 products by making sure that we'd be able to find growth, that is going to become a milestone for the next growth trajectory.

Now your second question, if I may point to the point of your question. If I may speak a bit of what has been happening internally, Rapidicil development -- this goes back like 20 or 25 years ago. Roundup already succeeded. And so therefore, in this Roundup area, we wanted to create a herbicide that would have different mode of action. And so we wanted to create some herbicide resist system. And together with that, we worked on this. It was a major project for us. There have been many events that happened. And the product development itself had been stopped. And to -- and I feel like there already is like Bayer and Syngenta, Corteva, they already do have -- they already do have all these products in place, they already do have the market. And so if we're trying to go into this business now, it's almost impossible. It is quite difficult. And so that is why we have decided to partner with Bayer. And that is how we have been able to develop Rapidicil. And that's exactly how we changed our course through the years.

And your final point, I guess your point of the question is, is there not going to be any M&A within our AGL business? As we try to look into the further future growth of AGL business, I do believe we have already been able to put in all the necessary actions. But again, I have been speaking to the investors ever since I was responsible for AGL. But then if there is any missing piece, it could be how we'd be able to enhance Biorational within Europe. Maybe there could be acquisitions required for there because Europe, there is a farm to fork strategy. In other words, it's about using more -- it's going for more organic procedure in this agro business using less chemicals.

And so therefore, our Biorational business seems to have great potential in this time, in this environment. And it's not just about the product portfolio, but it could be about production method or it could be about registration, it could be about the supply chain. But we have to make sure we have that foundation. And if we wanted that foundation, it's not about creating this from scratch. It could be about acquiring a company that would already have these functions, and that could be one strategy we may want to opt for. And we do want to see what investment capacity we'd be able to have in thinking what options are on the table.

My second question is about Chinese chemical manufacturers. Now they're becoming more advanced. And so can you share with us your take on this part? In your case, in life science or agro areas, AGL, this is an area where we do have quite a good capability. And for photoresist, I think you do have a strength here. But for example, photoresist, I feel like there's a lot of Chinese players really coming into display. And we know that there could be some risks behind some of the development in high-purity chemicals. So especially when you look at the Chinese peers -- Chinese players, how could they impact your performance in the end?

That is a very tough question, but it is also a very important significant question that we have to really identify. If we underestimate Chinese players, if I may, that will hurt us in the end. When it comes to advanced technology, Chinese players, many of them would have a lot of areas that would exceed -- excel the capabilities of Japanese players. And how could we keep on winning in this environment? It's really about always managing what could be the worst-case scenario. In the end, perhaps the golden rule could be something that I've already mentioned. For example, when it comes to organic synthesis technology, we do have a top capability globally, a top capability in the world.

And so the golden rule is to make sure that we'd be able to have like a linear type of ultimate novel innovation in this organic synthesis technology. And that's exactly what I would tell to our researchers. It's not just about trying to come up with something that is slightly better or slightly easy to use because it will take no time for the Chinese players to catch up. It's going to be important that we have something ultimately different, ultimately innovative.

One another thing, if I may. Chinese players certainly are threat. But on the other hand, it's also important to think how we'd be able to partner with these Chinese players. I think that thinking is also important. For example, when it comes to autonomous driving for automobile, I think that's a great example. Toyota and Honda would have their own technology development going on. But there's a lot of Chinese players that would be using start-up capabilities. And so I think there's something we can learn from there. For example, if there's any technology made by some start-ups in China, I'm sure there are some geopolitical issues that we'd have to resolve, but there could be an opportunity in aligning with these people. Of course, we have to make sure that we comply with all the regulation in each market. But if there's any way we'd be able to partner or collaborate with Chinese players, that could also be one option down the road.

Mr. Miyamoto, thank you very much. I would like to take the next question Mr. Okazaki from Nomura Securities.

This is Okazaki from Nomura Securities. My first question is regarding AGL, the agro part. INDIFLIN and Biorational, the strategy of your company, I heard it very well. However, the market is difficult to predict. So North America, Asia, South America, some markets, especially for the tariffs and inventory adjustment. And since you became the President, Mr. Mito, the morale, the business units are increasing is what I've heard. So including all these points, how -- what is your take on the business environment right now?

Thank you very much for your question. First of all, I would like to explain about the business environment. The largest market for us is Brazil. From FY '22 to '23, it experienced quite a volatile up and down due to the effect of COVID. They actually ran to build up the inventory. So they had accumulation of the distributable inventory and they crashed. And looking at the past, in the case of Brazil, they have a cyclical environment. When it's good, each manufacturer put a lot of products in the market. And then from then several years, they face a stagnant time. But the market growth going through this cyclical trend repetitively. So for the last 2 years, '23, '24 and this fiscal year, this distributable inventory situation has been improving, and we thought that the market will move. But that area is still not resolved. So continuing from last fiscal year, Brazil is still facing quite a difficult situation.

And next, the North America, which is another focusing market for us. Originally, the Trump administration tariff due to that with the relationship with China, the corn and soybean export to China is going to decline is what was predicted. And that is going to have a negative impact on the farmers, therefore, have a negative impact on the purchase of the crop protection products. But in fact, well, China does not buy soybeans or corn from the United States that much at all. So the impact of tariff, the U.S. manufactured soybean and corn sales, I believe there's a minimum impact on that is my personal opinion. And also on the other hand, the bioethanol demand is increasing quite a bit. If that is so, even though the price for soybean and corn and feed goes down, it will go over to the ethanol usage. Therefore, in that case, with that type of a relationship of this, the U.S. market this fiscal year is not at its best, but it is going to proceed steadily is how we look at it.

And the next important market is India. There's quite a large impact from the climate. When they have sufficient amount of rain during the monsoon season, then the agriculture activities will be quite active, and we'll be able to sell agricultural products. During the monsoon period or season, if there's no sufficient amount -- there was not much of a sufficient amount of rain at the start. But since then, up to now, it is raining in a steadily manner. So in a total perspective, the largest market, Brazil is facing difficulty. So we cannot -- we need to keep paying attention to the market, but we would like to thoroughly respond to the situation.

And regarding the tariffs, it's very difficult. For example, it's 15% for Japan. But for crop protection products, even though it is in the same crop protection products, depending on the particular product, the tariff rate will differ. So we do need a close management of it. And we have 3 supplying sites for crop protection products is China, India and Japan. And we are looking at the tariff rate in detail. And when it's more advantage to export it from Japan, we will export it from Japan. If it's more beneficial to export it from India, we will do so depending on the product. And by doing such of these movements, we will minimize the impact.

My second question is regarding P&P business direction on Slide 28. I wanted to confirm Prime Polymer for domestic business, well, the comprehensive direction has been solidified. And for Rabigh as well, and for Singapore, for upstream and downstream, I believe there is various discussions. As like a farmer way of thinking, do you have a similar way of thinking? If you can give us a clue of what your thoughts are on.

As for P&P business, as I have mentioned right now, Keiyo Ethylene and Prime Polymer within the domestic [ combinat ] we are able to do this in the fastest way. But this is not the end of the story. Moving forward, in addition, the collaboration with other companies is something that we need to have a forward-looking perspective. That goes for Japan and also the combinat for Singapore as well. The stakeholders, there are quite many stakeholders in Singapore, there is going to be importance on the communication we have with the Singaporean government. So all the complex of Singapore or the complex in the Keiyo area for all of them, if things don't move forward unless we have all the agreements through the collaboration, it should not be the case. So with Mitsui and Idemitsu, where we were able to have a collaboration agreement and move things forward, that is one good outcome. And the way of thinking regarding the antimonopoly law is also one of a positive outcome as well.

So regarding the remaining areas in a parallel manner, of course, we're going to work on strengthening our competitiveness. But a further collaboration with other companies is something that we would like to accelerate as well.

So you are starting from where you can start for upstream, downstream in Singapore?

Yes.

Thank you very much, Mr. Okazaki. It is now close to the time to end. So with that, we'd like to conclude the investors' meeting for the Current Priority Management Issues and Business Strategy. Once again, thank you very much for your attendance today. So today's session, you will be able to see the video stream within our website. Please pay attention if that is going to be helpful. And at the very end, I'd like for you [Audio Gap] This concludes today's session. Thank you very much for your participation today.

As it is time to start, we will now begin the conference call for the presentation of the financial results of fiscal year 2025 1st quarter. Thank you very much for you participation.

Today, Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, will give a briefing on our financial results for fiscal year 2025 1st quarter, and he will later take questions. We will conclude the call at 4:50 p.m.

Mr. Yamauchi, over to you.

Good afternoon. I'm Yamauchi, responsible for the accounting department. Thank you very much for attending our conference call today despite your busy schedule. I would like to thank the investors and analysts for your daily understanding and support to our own management. Thank you very much for that.

Now let me start with a briefing of our financial results for FY 2025 1st quarter. Please turn to the slide, Page 4. Before explaining the details of financial results, I'd like to give a brief update on the status of profit and loss for the first quarter. On the left, the core operating income in 2023, '24, 2025. For 5 years, you can see the figures. In FY 2023, we had a large loss ever since the start as a company. We faced a very difficult situation for our first quarter. For FY 2024, we achieved a V-shaped recovery.and we're able to secure profitability in the first quarter.

And this fiscal year first quarter, the profit we made last year was further expanded. For the first quarter, Sumitomo Pharma performed well and Essential & Green Materials improved its profitability and the addition shipments of Agro & Life Solutions and ICT & Mobility Solutions were strong.

On the right, you can see the net income attributable to owners of the parent for the quarter. For the 3 years, with appreciation of the yen in this quarter, we had a slight loss. For each term, there was a big impact from foreign currency, as you can see in parenthesis, Excluding the impact of foreign currency transactions, just like the core operating income, we're able to achieve steady improvements.

Now next, please turn to Page 5. Let me begin by explaining the business environment around our company in the first quarter of FY 2025. With regards to economic situation, also the global economy is continuing to show signs of gradual recovery. Uncertainty is high due to such factors as policy management, and because of this, the future continues to remain uncertain. And below are our perceptions of the business environment in our major business fields using weather symbols.

The first one, crop protection. Although Q1 is an off-season for demand, there was solid growth in India. The methionine market bottomed out at the end of the last fiscal year and currently shows signs of recovery. For displays, there is still no impact from the backlash of shipments brought forward because of tariffs. And there was solid growth in mobile device-related components. In semiconductor demand for semiconductors varied by field but there are signs of gradual recovery. Petrochemicals and raw materials, the market continues to have low margins.

So next is outline of the consolidated financial results, Page 6. Sales revenue was JPY 526.1 billion, down JPY 86 billion year-on-year. Core operating income expressed in recurring earnings power was a profit of JPY 27.7 billion, up JPY 22 billion year-on-year. Nonrecurring items not included in core operating income was a loss in total of JPY 2.2 billion. In the same quarter of the previous year, there was JPY 10.1 billion gain on sales of fixed assets from the sale of land for dormitories and company housing, leading to a total profit of JPY 5.8 billion.

Compared to the same quarter of the previous year, nonrecurring items worsened by JPY 8.1 billion. As a result, operating income was a profit of JPY 25.5 billion, up JPY 14 billion year-on-year. Finance income had a loss of JPY 19.6 billion, down JPY 45.6 billion year-on-year. Gain or loss on foreign currency transactions included the finance income or expenses had a loss of JPY 16.4 billion because of a strengthening of yen worsening by JPY 45.4 billion year-on-year. Income tax expenses had a loss of JPY 1.9 billion, down JPY 1.7 billion year-on-year.

As a result, for net income attributable to owners of parent for the quarter was a loss of JPY 4.5 billion, down JPY 28.9 billion year-on-year. Exchange rate and naptha price which impact our performance, average rate of U.S. dollars [indiscernible] was JPY 144.5 billion to dollar, and naptha price was JPY 65,500 per kiloliter. Yen appreciated. The feedstock decline compared to the same period of previous year.

Next, sales revenue by business segment, Page 7. Total sales revenue was down JPY 86 billion year-on-year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by JPY 12.5 billion. Volume decreased by JPY 47.6 billion. Foreign exchange transactions variance of foreign subsidiary sales revenue decreased by JPY 25.9 billion.

Next is Page 8. Total core operating income increased JPY 22 billion year-on-year. Analyzing by factor, price was minus JPY 500 million; cost, plus JPY 9.5 billion; volume variance, including changes in equity in earnings of affiliates was plus JPY 13 billion.

Next is performance by segment, Page 9. Agro & Life Solutions segment core operating income was a profit of JPY 2.2 billion, down JPY 2.7 billion year-on-year. Price variance profit margin deteriorated as the methionine market price dropped. Volume variance, there were lower income from exports due to stronger yen centered on overseas crop protection products and stronger yen effect.

Next page. ICT & Mobility Solutions core operating income was a profit of JPY 18.4 billion, down JPY 2.8 billion year-on-year. Price variance, Selling prices of polarizing films dropped. Volume variance, there was a onetime gain on the sale of the large LCD polarizing film business. but lower income from exports due to stronger yen offset the gain.

Next page, please. As for the Advanced Medical Solutions segment, core operating income was a loss of JPY 1 billion, a decrease of JPY 1.5 billion year-on-year. Shipments decreased due to a change in the shipping timing of some active pharmaceutical ingredients and intermediates compared to the same quarter of the previous fiscal year.

Please go to the next page. With regards to Essential & Green Materials segment, core operating income was a loss of JPY 5.5 billion, an improvement of JPY 14.1 billion year-on-year. As for the price variance, profit margins improved and synthetic resins due to the drop in price of main ingredient, naphtha. As for the volume variance, et cetera, there was an improvement in refining margins at Petro Rabigh, an equity method affiliate, resulting in an improvement in profitability and investments accounted for using the equity method.

Next page, please. As for the Sumitomo Pharma segment, core operating income was JPY 21 billion, an increase of JPY 20.1 billion year-on-year. With regards to price variance, sales prices decreased due to NHI drug price revisions in Japan. As for the cost variance, due to the progress of operational streamlining, SG&A expenses decreased. With regards to volume variance, shipments increased due to the expansion of sales of ORGOVYX, a therapeutic agent for advanced prostate cancer; GEMTESA, a treatment for overactive bladder.

This concludes the overview of the business performance by business segment.

On the next page, I will explain the consolidated statement of financial position. Total assets at the end of June 2025 amounted to JPY 3,329.5 trillion, a decrease of JPY 110.2 billion year-on-year. Decrease in cash and cash equivalents due to repayment of interest-bearing debt, seasonal factors affecting the crop protection chemicals and the decline in sales due to the impact of scheduled maintenance at Petro Rabigh were the main factors behind the decrease in notes and accounts receivables. Interest-bearing debt amounted to JPY 1,248.1 trillion. This was a decrease of JPY 38 billion year-on-year. Equity was JPY 1,061.4 trillion, down by JPY 13 billion compared to the end of the previous fiscal year.

Next, I will explain the consolidated statement of cash flows. Please go to Page 15. Cash flows from operating activities resulted in a positive inflow of JPY 24 billion, up by JPY 36.3 billion year-on-year. Mainly due to an increase in collections of accounts receivable for protection chemicals caused by seasonal factors and a decrease in sales associated with scheduled maintenance at Petro Rabigh, accounts receivables decreased resulting in an improvement in working capital.

Cash flows from investing activities resulted in a negative JPY 45.9 billion, a decrease of JPY 128.4 billion year-on-year. During the same quarter of the previous fiscal year there were incomes from the sale of investment securities and fixed assets. As a result, free cash flows was negative JPY 21.9 billion, a deterioration of JPY 92.2 billion compared to the JPY 70.2 billion positive in the same quarter of the previous fiscal year. Cash flows from finance activities resulted in a negative JPY 49.2 billion due to repayment of borrowings, a decrease of JPY 13.8 billion spending year-on-year.

Next, I will explain the outlook for fiscal year 2025 1st half. Please go to Page 17. At the time of the previous financial results announcement on May 14, the impact of tariffs was highly uncertain. Therefore, we only disclosed our full year forecast for fiscal year 2025 and did not disclose forecast for the first half. At this time, finally, we are going to disclose the first half forecast. . And as for the full year financial forecast for fiscal year 2025 announced on May 14 have not been revised. We will be reviewing it at the first half and disclose it for the announcement of the second half.

For the first half of FY 2025, the forecast is sales revenue, JPY 1.100 trillion down, JPY 141.4 billion year-on-year; core operating income, JPY 90 billion, up by JPY 60.5 billion year-on-year; operating income, JPY 85 billion down by JPY 36.2 billion; net income for the quarter attributable to owners of the parent, JPY 25 billion, up by JPY 31.5 billion year-on-year. These are the forecasts. As for the exchange rate and naptha price assumptions, they are as listed on this slide.

I will explain the core operating income in the next slide by business segments. Please go to Page 18. For the first half performance, if you look at the segment, Sumitomo Pharma sold the business and ORGOVYX milestone income will be recorded. So on a year-on-year basis, we are forecasting a large increase. And for the other segments, Essential & Green Materials is expected to see an increase in operating income year-on-year due to the improved profitability at Petro Rabigh and improved profit margins for synthetic resins.

With regards to ICT & Mobility, the impact of a decrease in export earnings due to the strong yen and a decline in profit due to the conversion of overseas subsidiary profits into Japanese yen will be significant and profits are expected to decline compared to the same period of previous year which was extremely strong. Agro & Life Solutions will be affected by the strong yen. However, we profits to remain at the same level as last year due to an increase in shipments.

Furthermore, for the other segments, experiencing a decrease in profit year-on-year is due to the recording of significant profits associated with the sales of business in the first half of fiscal year 2024.

Next page, Page 19. This will be the last slide. This will be the summary of the performance forecast. Regarding the outlook for the first half of the fiscal year, as I have explained, Agro & Life Solutions and ICT & Mobility Solutions segments, they will remain strong in shipments in the second quarter. In addition, we expect the gain from selling Sumitomo Pharma business will also contribute. And therefore, the first -- against the first half forecast, it is a 60% progress.

What is in the parentheses? And the outlook, excluding gains on the sales business, we are making progress towards improvement compared to fiscal year 2024. And the net income attributable to owners of the parent company despite the adverse impact of foreign exchange losses remain positive and is progressing steadily towards the achievement of the annual forecast.

That concludes my explanation.

Thank you very much. Now we'd like to go into a question-and-answer session.

Then the first question from Mr. Watabe from Morgan Stanley MUFG Securities.

I'm Watabe from an Stanley Securities. So I have one question. But from first quarter to the second quarter, for each segment, what do you see with your thinking excluding Sumitomo Pharma and Agro, ICT, Essential chemicals, in particular, in these places, what is the movement? In particular for essential chemicals, deterioration expected because of Rabigh maintenance and the [indiscernible] in China is getting better. And what is your situation in South America as well?

Thank you for your question. So let me answer one by one. First, for Agro & Life Solutions, for the first or second quarter, we expect a large increase in profit. In the first quarter, it is off-season and profit tends to be lower. In our company, in case of North America, it is more concentrated in the second half. Recently, we are also emphasizing South America and India. And these places, relatively speaking, demand starts from the second quarter. In case of India, first quarter is advancing steadily. At the moment, as planned. shipments is expected to be firm in the second quarter. And from Q1 to Q2, we expect a large increase in profits.

For ICT & Mobility solutions, for the first or second quarter, slight decline in profit is projected. I can't mention the concrete figures, but with the restructuring, a onetime gains from sales is included in the first quarter and risks that we expected -- tariff-related risks, last year there was increase in shipments towards the end, and we expected some backlash from that, which were risks, but that didn't happen that much as things are progressing relatively steadily.

For Essential & Green Materials, for the first or the second quarter loss is increasing under the current situation. As you have mentioned, Mr. Watabe, second quarter from April to June, in case of Petro Rabigh, there is a periodic plant maintenance where profit will drop. And we plan to post at in the second quarter. That is one factor included. That is all.

For confirmation, South America recovery and the ratio of investments into Rabigh, what is the percentage that we are using calculating in Q1 and the first half?

For South America the inventory is gradually moving towards improvement, but to a certain extent, there's still some level of inventory. So we will watch the situation with caution. In Petro Rabigh, the ratio percentage, 37.5% as of the first quarter.

How about the second quarter?

For the second quarter sales of shares, when will that happen? It depends on that. After selling, it will be 15%. Before that, 37.5%. It takes time for the procedures. So compared to our projections, the timing of sales is being delayed slightly. But the price of selling remains unchanged from the price we announced last year, 37.5%. Based on that, the income or loss, or loss in terms of equity affiliates gets large. But the sales price decline, we can offset that with the gains on sales. So until when we will maintain the level of 37.5%, if there is a delay, that will not give a negative impact on our performance.

We would like to take the next question from Mizuho Securities. Mr. Yamada, please go ahead.

The full year forecast, you said that you have not revised it. So the first half, you made the forecast. However, for the full year, you have not revised it. So if you subtract the first half from the full year, there is no meaning. It's what I wanted to confirm at the start.

And after I confirm that point, for Agro & Life Solutions and ICT & Mobility solutions, in these two business segments, the current situation against the forecast at the start of the year, how different is it is what I would like to know.

So the first assumption regarding the full year, we have not revised it. Therefore, subtraction, it is -- actually there is -- they're not aligned exactly. And for Agro & Life Solutions and ICT & Mobility, from the original forecast, there's not a large deviation is how we understand. The first quarter, Agro & Life, the profit level was as expected. And for the second quarter, there's a contribution from South America and India. That comprises the forecast. And as for ICT & Mobility at this point, they have not changed from the original forecast.

So if that is so, Agro & Life Solutions, methionine, on a year-on-year basis it's deteriorating. But against the first quarter of the previous year, it is improving. So it's not going to do anything bad. And regarding the new drugs or new drug material, in [indiscernible], it is steadily performing. And for ICT & Mobility Solutions, even though you consider tariff impact, the business performance is going to steadily expand. Is that the correct understanding? Sorry, I wanted to confirm that as an addition.

For Agro & Life solution -- sorry, for ICT, regarding the tariffs impact, at this point, we're not seeing any adverse impact. Therefore, probably for the second quarter, it will be all right. However, regarding the second quarter onwards, what kind of impact will we be experiencing, we need to take a closer look. And at the third quarter announcements, we will make revisions necessary.

Methionine in the first quarter, on a year-on-year basis, it's deteriorating. But against the previous year quarter, it is improving. So it has not changed from the original thought that it has bottom lined. And for the new drug, it is performing as originally expected.

And is it the same way currently?

Yes. For methionine, at the end of the last fiscal year, it has bottomed out and it's improving. And for the new crop protection chemicals, yes, it is steadily performing.

Next is Mr. Miyamoto from SMBC Nikko Securities.

I'm Miyamoto from SMBC Nikko Securities. I have a question about Agro & Life Sciences. Towards the second quarter, on a Q-on-Q basis, you expect an increase of JPY [ 11.4 ] billion. You mentioned the seasonality. But last year or compared to the previous year, it seems that the increase is larger. What are the factors for such a large increase?

In your presentation material, Page 27, north America, you mentioned that sales is being carried backwards. How much is that impact? And in Central and South America, there's a drop because of price competition. How was the trend going forward? And for INDIFLIN, you made a comment about for biorationals. Is that expanding steadily? And for distribution inventory, you mentioned about the situation in South America, but what is the situational inventory in other areas?

Yes. Thank you. For crop protection chemicals, from the first or second quarter, compared to the past, the increase in profit is larger as you mentioned yes, exactly as you mentioned. For this fiscal year, there are some sales of businesses and that is included as a part of the factors. And for INDIFLIN, so far, it is progressing as we have planned. And for the inventory level, gradually, there is an improvement trend which has a positive effect.

The stronger competition in South America and how about the station of biorationals, stronger competition in South America, that factor is already taken consideration. In the second quarter, we don't think the situation will change that much. And compared to a profit we have projected, we are not seeing any worsening. And for biorationals, also, there are no major changes. We are expanding sales as we have planned.

In terms of inventory by region, do you have any information of improvements by region?

Inventory by region -- I'm sorry, for such a detailed question, but well, in all regions, there are -- the trends are improving. We are seeing improvement trend. But Latin America and South America is relatively large. Yes, inventory level is relatively large. There are improvements but it's relatively large, so we need to pay attention.

We would like to take the next question from Daiwa Securities, Mr. Umebayashi.

I am Umebayashi from Daiwa Securities. I have a question related to ICT & Mobility Solutions. It may overlap with the explanation you have provided up to now and year-on-year explanation was given to us right now. Regarding the polarizing film, there is the sales gain that came in of TV and that disappeared, I understand. But for the used mobile devices, the polarizing film volume year on year, how did it perform?

And also regarding the semiconductor materials, though there may be an impact the FX, in terms of the volume how did it perform? I would like to receive the performance. And towards the first quarter to the second quarter, ICT & mobility, it's going to increase about JPY 5 billion in revenue, but profit is going to decline by about JPY 5 billion. So on a Q-on-Q basis, can you explain the reason of the decline in profit and also increase in revenue?

Thank you very much for your question. On a year-on-year basis, each explanation regarding the polarizing film, TV, we have restructured the business. So that has declined. Regarding for the mobile devices and also for automobile usage, it is slightly declining. Last fiscal year, they performed quite strongly. So including that situation, this year compared to last year, the level is slightly lower.

And also regarding semiconductors, the overall picture is that the recovering phase is continuing. However, if we look at the situation year-on-year photoresist is increasing. And in the semiconductors chemicals, it's around the flat range. That's improvement. And increase in revenue and decline in profit, well, one thing is, as I have explained, the temporary profit is included in the first quarter. That's one reason. But for the other aspects, there's a mixture or composition by product. So it's not that there is a large difference.

Well, the sales is increasing. So from the first quarter to the second quarter, the overall picture is that there's an increase in polarizing film for mobile devices and the semiconductor will improve as well. Compared to the first quarter, the second quarter, seasonality-wise, we're getting into the demand season, so that way of thinking is correct.

If that is so, so the first quarter onetime profit was quite of a size, you mean?

It wasn't that large. It was the low several billion yen. So it is in that range.

Next question is from UBS Securities, Omura-san.

I'm Omura from UBS. I have a question on Essential & Green Materials. In the second quarter, you expect losses. Petro Rabigh may be the factor. In the second quarter and for a full year, as fundamentals non-Petro Rabigh businesses, how should that be considered?

On Page 12, the sub-chart you have on Page 12, improvement of profit margin on synthetic resins s, is that a onetime effect or do you expect a gradual improvements? Could you explain that?

The EGM market situation and profit margins, overseas businesses like in Singapore in the first and second quarter and the second half, we don't expect large changes. On the other hand, domestically, with the naptha slide in many contracts, price is determined. So with a drop in price, there's a time lag reflecting that in the selling price. So the first half, that is positive, but that factor will disappear in the second half.

In the first and second quarters -- in the first quarter, naptha price declined, and there are accounting factors, negative factors. For the first or second quarter, there is a slight positive factor. And in the second half, the Chiba factory has a periodic plant maintenance which will be a negative factor in the second half.

Overseas for confirmation. On Page 26, the polyolefin company and PCS, the direction of the profit are different. For this direction, as you have explained, you don't expect large changes. So PCS will be facing difficulties and the polyolefin company is in an improvement trend?

For PCS, there is an accounting factor in the second half. So that is slightly worse. For TPC, we don't have such a factor. So this trend continues.

We would like to take the next question from JPMorgan Securities, Mr. Nakada.

This is Nakada. I just wanted to confirm the onetime factors. Last time you looked at JPY 50 billion. And the Sumitomo Pharma is second quarter and agro is second quarter and ICT is only first quarter, and from what you saw at the beginning of fiscal year the amount has not changed. But from the year, you'll start to see the effect of it. Is that the correct understanding?

Yes.

And next from Morgan Stanley MUFG Securities, Mr. Watabe.

I wanted to ask a question about the onetime factor, and the nonrecurring item was negative JPY 5 billion for first half and minus JPY 45 billion for a full year. This figure remains unchanged? And Singapore and the domestic market, you didn't discuss about restructuring of the sector. What is the situation?

As onetime factors, as I have already mentioned, about JPY 50 billion per year, basically, everything will be reflected in the first half. ICT -- for some part of ICT will be the second half, but pharma and agro second half -- or second quarter, it's in the second quarter. And nonrecurring items, JPY 75 billion for the full year. In the first half, we plan to make a review of this figure.

Do you expect a decline? Or do you mean you will review?

Yes, we will review the figures. Structural reform of petrochemicals, for petrochemicals restructuring, we are taking many measures. But at the moment, there is nothing that we can newly announce. We need a little more time.

We'd like to take the next question, SMBC Nikko Securities, Mr. Miyamoto.

This is Miyamoto from SMBC NIkko Securities. Regarding the inventory, at the first quarter, it seems that it has increased by JPY 21 billion. And with what kind of products is this naptha related product building up this much? The inventory assets, okay, from March to June, you're talking about the increase during that period, correct?

Yes. Well, this part, Agro & Life, led by Agro & Life Solutions towards the demand season, little by little, they are building up the inventory. Therefore, that is the main factor behind this. In a continuous manner regarding the inventory, the direction is to compress it. But within that, on a necessary basis, we are building up the inventory, if you can understand in that way.

Okay. Understood. So naphtha and from the FX situation, it seems that it is at a higher level than the other years. But is there a particular product that has a high level of inventory or special factor why it's built up?

No. There is no special factor why there is a buildup. It is just that we are building up the necessary product.

The next question is from UBS Securities, Mr. Omura.

For agro, for confirmation, you mentioned about the distribution inventory. The level of inventory, in your case, what is the level that you expect for each region? And this distribution inventory you said is improving, but currently, when do you expect there will be improvements from the situation of excessive inventory?

Well, I'm sorry, I don't have information about the actual level. That is my situation.

Well, not in concrete terms, I know it may be difficult. But last year -- compared to last year or the previous year, what is the level of improvement? Is that information also difficult?

We are seeing improvements here. And in Central and South America, the levels is still relatively high. But what is the appropriate level or -- I don't have that information at the moment.

I understand. So basically, the sales people for your company, I think, would collect that information qualitatively, and you gather the information and that is the basis of your comments.

Yes, you are right.

And from JPMorgan Securities, [ Mr. Nakamura ].

This is related to Mr. Watabe's question as before. Recently, I read the interview articles of your CEO and President. Even for the petrochemical, from the proprietary production to outsourcing and looking for the best partner, it seems that there seems to be a deeper structural reform that will be going ahead compared to what was originally -- compared to the medium-term plan. So within the initiatives within the medium-term plan, are there areas that you can go even further?

Sorry, the first part I was not able to hear. Before Pharma, you said -- what did you say? That your CEO said he's going to be focusing on the winning route. And from proprietary internal in-house production to outsourcing, well, we've just started the new medium-term plan, and Mr. Mito is making an appeal to the outside. Whether we're making progress that would change the content of the medium term, that is not the situation. We are steadily going aligned to the medium-term plan.

But Sumitomo Pharma, they are a [ lesser ] company, may be difficult. But when you look for the partner, if your corporate value or the stock value goes up, it's easier to find a partner. So can you comment on that?

It's difficult to comment about the share price, but the performance of Sumitomo Pharma is starting to improve. And there is -- structural reforms are going well and their fixed cost is going down. And sales-wise, for the three main products, especially for the two products, for us, they are performing strongly, and we understand that in a positive manner. So looking for a good partner, they will have to have a good foundation in terms of business management. Therefore, in that sense, we are taking that in a positive way.

In the sense of partner, when we think about the future of Sumitomo Pharma, the areas that Sumitomo Chemical can support, there's a limitation to that. So looking for a partner that is appropriate for a Pharma, that policy or direction has not changed. And their performance improving, maybe it is becoming easier for them to move forward on that and as I think so, as what Mr. Mito was saying.

Thank you very much. So it's now time to conclude the conference call. There are still some people raising their hand, but with this, we would like conclude the Q&A session.

So this concludes today's conference call. Thank you very much for your participation. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]