Earnings call transcript: Mitsubishi Chemical’s Q1 2025 revenue falls, stock surges

Mitsubishi Chemical Group reported a challenging Q1 2025, with sales revenue of ¥880.7 billion, down ¥136.3 billion year-over-year. Despite the decline, the company’s stock surged by 31.62% to a recent price of ¥843, nearing its 52-week high of ¥852.6. With a market capitalization of $7.38 billion and an attractive EV/EBITDA ratio of 6.78x, the company trades at 0.65 times book value. According to InvestingPro analysis, the stock appears overvalued at current levels. The market’s positive reaction might be attributed to strategic shifts and cost reductions, which the company emphasized during its earnings call.

Key Takeaways

• Q1 FY2025 revenue decreased by ¥136.3 billion year-over-year.
• Stock price increased by 31.62%, nearing its 52-week high.
• The company is focusing on high-value segments and structural reforms.
• Cost reductions amounted to ¥11.5 billion across various businesses.

Company Performance

Mitsubishi Chemical faced a tough Q1 2025, with significant declines in sales revenue and net income. The company’s revenue declined 4.14% in the last twelve months, while maintaining a healthy dividend yield of 3.89%. The company attributed the drop to factors such as foreign exchange impacts, lower sales prices, and reduced volumes. Despite these challenges, the company is making strategic moves to focus on high-value products and markets, which may have contributed to the positive stock market reaction. InvestingPro data shows an analyst consensus rating of 2.36, suggesting moderate optimism about the company’s strategic direction.

Financial Highlights

• Sales Revenue: ¥880.7 billion (down ¥136.3 billion year-over-year)
• Core Operating Income: ¥56.6 billion (down ¥7 billion year-over-year)
• Net Income Attributable to Owners: ¥19.6 billion (down ¥20.1 billion year-over-year)

Outlook & Guidance

Mitsubishi Chemical maintained its full-year forecast, signaling confidence in its strategic initiatives and cost reduction efforts. The company anticipates potential earnings upside in semiconductor-related segments in Q2, with a targeted profitability in carbon products by the end of the year.

Executive Commentary

"The business environment is far from perfect due to economic uncertainty, but the effects of the structural reform that we have been promoting since last year are gradually emerging," stated the company in its closing remarks. Management also emphasized the importance of global market strategies, saying, "We need to think about the global market and see where we should do our operations."

Risks and Challenges

• Economic Uncertainty: Ongoing global economic challenges could impact demand.
• Weak MMA Monomer Market: Persistent weakness in this market segment might affect profitability.
• Chinese Market Dynamics: Overproduction by state-run plants could lead to oversupply issues.
• Supply Chain Pressures: Potential disruptions could affect production and delivery timelines.

Q&A

During the earnings call, analysts inquired about the company’s challenges in the MMA market pricing and structural reforms in the carbon fiber business. Management discussed potential price improvements and explored trends in the semiconductor and barrier packaging markets. InvestingPro analysis reveals a GOOD overall Financial Health Score of 2.87, supported by a solid current ratio of 1.52. For deeper insights into Mitsubishi Chemical’s financial health and growth prospects, including exclusive ProTips and comprehensive analysis, investors can access the detailed Pro Research Report available on InvestingPro.

Full transcript - Mitsubishi Chemical Holdings Corp (4188) Q1 2026:

Moderator, Mitsubishi Chemical Group: Ladies and gentlemen, thank you very much for joining us. For Mitsubishi Chemical Group’s earnings briefing, we will begin the briefing for Q1 of FY 2025. We will begin with a presentation of the results by our CFO Minoru Kida. We will take questions from the participants after the presentation. We have allocated 60 minutes for the whole of the meeting. Before we begin, we have a message to the investors. Today’s briefing may include forward-looking statements based on information available to the company at the current time. They are all subject to uncertainties and risks. Investors are advised that actual results may differ from such forecasts. Please also be aware that this briefing will be recorded and made publicly available later on our website, including the Q&A session. With that, we will begin the presentation and this is our CFO Minoru Kida. Good afternoon. This is Kida speaking.

Let me present results for Q1 FY 2025. First on the summary slide. The business environment during the first quarter of fiscal 2025 generally remained weak due to the uncertain economic situation reflecting the impact of U.S. tariffs, while display-related business continued to be strong based on the effect of subsidy policy in China and businesses related to semiconductors, barrier packaging, and other applications also remained firm. Core operating income of chemicals for the first quarter of fiscal 2025 came to ¥11.6 billion in profit despite the accumulation of cost reduction effects through structural reforms and rationalization efforts in each business as well as an improvement in volume even in an uncertain operating environment.

Core operating income decreased 28% year on year due mainly to a deterioration in price gap, a decline in market prices for MMA monomer in addition to the recording of an inventory valuation loss in tandem with lower naphtha prices. Net income attributable to owners of the parent for the group on the whole decreased 51% year on year due mainly to a decline in net income of the pharma segment at the discontinued operation. Core operating income of the chemicals for the first quarter of fiscal 2025 was 47% against the first half forecast, while market prices for MMA monomer remained lower than the initial forecast, display-related demand in specialty materials exceeded expectations and price gap improved in each business. Consequently, there has been a progress overall toward achieving the first half forecast announced at the beginning of the fiscal year for the group as a whole.

Proceeds from the transfer of Mitsubishi Tanabe Pharma Corporation or MTPC are expected to be recorded as scheduled in the second quarter. The forecast for the full year remains unchanged from the initial forecast. As for dividend forecast, we also maintain the initial forecast of mid-year dividend of ¥16 per share and an annual dividend of ¥32 per share. We will continue to rapidly implement initiatives aimed at portfolio transformation and profit improvement based on the three criteria for business selection and three disciplined approaches in business operations under the guiding principles for our business operations in the Medium Term Management Plan 2029. Let me now explain the consolidated statements of operations. For Q1, the average exchange rate was ¥143.8 to the dollar, with the yen stronger year on year. The price of naphtha averaged at ¥66,600. That was down 16% year on year.

Sales revenue came to ¥880.7 billion, down ¥136.3 billion year on year. Of the decline, foreign exchange accounted for ¥38 billion, sales prices ¥23 billion, volume ¥19 billion, and business restructuring ¥56 billion. This was the largest contributor. Core operating income came to ¥56.6 billion, down ¥7 billion from a year before and 47% against the first half forecast that we presented in May. We will come to this later. Special items came to a net positive ¥4.3 billion, up ¥700 million from a year before. Operating income came to ¥60.9 billion. Income before taxes ¥50.2 billion. Net income attributable to owners of the parent came to ¥19.6 billion, down ¥20.1 billion from the same period last year. Let me now look at the revenues and core operating income by business segment. For specialty materials, revenue decreased 6% year on year, but core operating income increased 23%.

Revenues decreased ¥16.2 billion year on year due to the sale of business and other factors. As a result of steady progress in structural reforms in addition to a decline in raw material prices, core operating income increased ¥2.6 billion year on year. Strong demand for display-related and semiconductor-related products and barrier packaging applications led to a favorable start. This is led by advanced films and polymers and advanced solutions for advanced composites and shapes. We are expediting structural reforms in the loss making carbon fiber related business for MMA and derivatives. Revenue was down 18% year on year. Core operating income down 65% reflecting the decline in MMA monomer market prices since the second half of the previous fiscal year. For basic materials and polymers, revenue was down 30%, but core operating loss narrowed by ¥3.5 billion.

For materials and polymers, revenue decreased significantly due to the decline in naphtha prices as well as the impact of the transfer of terephthalic acid business in Indonesia in the previous year. Core operating income decreased only by ¥1.8 billion. For the carbon products, revenue decreased by ¥50.9 billion as a result of the decline in coking coal prices and the impact of the transfer of Kansai Coke and Chemical in the previous fiscal year. The deficit narrowed by ¥5.3 billion as inventory valuation improved by ¥2 billion and the effects of structural reforms were realized. For chemicals business, core operating income decreased by 18% or rather sales revenue was down by 18% and core operating income decreased by 28%. Year on year, carbon products and specialty materials business improved steadily. The chemicals business as a whole deteriorated due to the decline in the MMA market.

Industrial gases revenue decreased by 4% and core operating income decreased by 5% year on year. Let’s look at the ¥7 billion year on year decrease in core operating income. A price gap difference had a negative impact of ¥4.3 billion. This includes a negative impact of foreign exchange by ¥4.6 billion. Excluding the impact of foreign exchange, the price gap difference was negative for MMA and derivatives due to a decline in market prices while the difference was positive for polyolefin. Under basic materials and polymers, the year on year volume difference was positive by ¥500 million. The impact was negative for industrial gases but positive for chemicals. There was improvement due to reduced scale of scheduled maintenance and repairs for basic materials and polymers and MMA. Cost reduction effect increased year on year by ¥11.5 billion across businesses under both industrial gases and chemicals.

Others had a negative impact year on year by ¥14.7 billion. Inventory valuation had a negative impact of ¥11.3 billion mainly for basic materials and polymers due to the decline in naphtha prices. Let’s now discuss further details by segment. For specialty materials, core operating income increased ¥2.6 billion year on year. Sales volume had a negative impact of ¥1.1 billion. For advanced solutions, the price gap factor improved as we managed to maintain or raise sales prices for semiconductor-related products and other products. However, that was not the case for advanced composites and shapes due to the change in sales mix and the continued deterioration in the competitive environment. For pressure vessel applications, volume had a positive impact of ¥700 million. For advanced films and polymers, the volume factor improved mainly due to increased capacity utilization and sales of Soanol for barrier packaging applications.

Demand for polyester film and OPL film for display applications remained strong as high capacity utilization was maintained at our users thanks to Chinese government subsidies for advanced solutions. The volume factor declined as demand came down for electrolytes for EVs mainly in Europe and the U.S. and decrease in sales volume for display-related materials for advanced composites and shapes. Sales volume was almost flat year on year in FY2024. Carbon fiber and composites business posted core operating loss of ¥10.2 billion. We are expediting the review of our production structure and sales portfolio to improve profitability. We have already decided to suspend operation of our large tow production facility in Hiroshima and to reduce production of regular tow in the U.S. in 2025, and we recorded associated impairment loss in FY2024.

We will steadily improve profits by reducing production and sales of wind turbines and pressure vessels or applications thereof whose profitability has deteriorated and focusing on high-value-added applications such as high-end sports, aircraft and defense, and on next-generation mobility businesses. At CPC in Italy, cost reduction benefits increased year on year by ¥2.5 billion reflecting the effects of rationalization such as structural reforms and review of production sites in each business.

MMA and derivatives posted a year-on-year decrease in core operating income of ¥7.1 billion. The price gap worsened by ¥10.5 billion. Although the price gap for coating additives improved, the market price for MMA monomer fell significantly year-on-year and the spread narrowed. The sales volume resulted slightly by ¥1.6 billion year-on-year due to factors such as the reduced impact of periodic repair of MMA monomer in the Asia region. Basic materials and polymers saw a ¥3.5 billion year-on-year reduction in deficit. The price gap was a positive ¥11.5 billion in materials and polymers. The impact of the timing difference for revision of polyolefin sales price and the ability to maintain sales prices at a relatively high level during the naphtha price decline contributed to the profit improvement in the carbon products business.

The reduction of production capacity in Kagawa was completed and unprofitable transactions based on market price were reduced, resulting in an improvement in the price gap compared to the previous period. The sales volume in the materials and polymers was a positive ¥1.7 billion due to factors such as the reduced impact of regular maintenance. The impact of cost reduction was ¥1.9 billion, reflecting the cumulative effect of fixed cost reductions in materials and polymers and the reduction of production capacity in the carbon products. The other difference of minus ¥11.6 billion includes a deterioration of ¥11.5 billion in inventory valuation losses. Industrial gases posted a year-on-year profit decline of ¥2.4 billion, although there were cost reduction effects from initiatives such as productivity improvements being promoted in each region. Profit decreased year-on-year due to the impact of foreign exchange and a decline in volume. These are special items.

In the first quarter, special items amounted to ¥4.3 billion, which is on par with the same period of the previous year. We recorded a gain on business transfer of ¥8 billion from the transfer of the real estate business and property of service company Dialects Corporation to a party outside the group. On the other hand, we recorded a loss of ¥1.8 billion from the implementation of structural reforms, including those related to the carbon fiber business in special retirement payments. In addition, we have recorded expenses of ¥1 billion related to the transfer of the real estate businesses as well as various expenses related to the shutdown of common facilities. This is the cash flow statement. Net cash provided by operating activities was ¥60.2 billion.

Cash flow from operating of receivables and variables was ¥18.3 billion and cash flow inventory was ¥0.4 billion, resulting in a total working capital inflow of ¥17.9 billion. We will continue to manage working capital to improve ROIC in its business. Net cash used in investing activities was ¥35.8 billion. Cash flow from CapEx was minus ¥63.9 billion and growth investment projects and specialty materials are progressing smoothly, such as capacity increase of CBC and delay for carbon fiber and composites materials and that of Soranor in the UK for bearer packaging applications. Net cash provided by sales of assets was ¥7.8 billion and investment loans etc. was positive to ¥20.3 billion. In addition to income from the transfer of non-core business such as real estate related business of Daiwa Securities Co. Ltd., we recorded income from the sale of cross shareholdings and non-residual assets.

As a result, free cash flow was ¥24.4 billion. Financial cash flow was minus ¥38.7 billion. This is the consolidated statement of financial positions. Total assets amounted to ¥5,840.6 billion, a decrease of ¥54 billion from the end of the previous fiscal year. Compared to the end of March 2025, the yen depreciated against euro resulting in an increase of approximately ¥34 billion due to foreign exchange. On the other hand, trade receivables decreased by approximately ¥56 billion due to decline in naphtha prices and periodic repair in the first quarter and fixed assets decreased by approximately ¥13 billion due to the sale of businesses including the sale of Kansai Koken Chemicals Company.

Net interest-bearing debt increased by ¥65.8 billion from the end of the previous year, the net DE ratio worsened by 0.05 points to 1.11 from 1.06 at the end of the previous fiscal year, partly due to a decrease in capital balance from the share buyback. The funds from the transfer of Mitsubishi Tanabe Pharma Corporation are coming in as scheduled in the second quarter, so we expect to see an improvement toward the end of Q2. On this page we would like to supplement the trend of core operating income from the Q4 of FY2024 to Q1 of FY2024 and the direction toward Q2. Core operating income for the first quarter was ¥56.6 billion, an increase of ¥8 billion compared to the fourth quarter.

The forecast for core operating income for the first half of the year announced in May is ¥121 billion and the progress rate as of the first quarter is 47%. Although the MMA market is weaker than initially expected, the group as a whole is progressing in line with the first half forecast of ¥121 billion due to a stronger than expected demand for display related products in specialty materials and improvements in the price gap in each business. Specialty materials improved by ¥23.4 billion to ¥14.1 billion in the first quarter from a loss of ¥9.3 billion in the fourth quarter of the previous year.

In the fourth quarter of the previous year there was a one-time loss of approximately ¥16 billion including an impairment loss of ¥12.9 billion, advanced solutions and the impact of year-end closing adjustments and advanced composites and shapes in addition to the elimination of these one-time factors at the end of the term. Demand for polyester films and OPL films for displays remained firm in the first quarter and cost reduction effects from the progress of structural reforms in each business including carbon fiber also contributed to a significant improvement. Regarding the second quarter, the display market has entered an adjustment phase due to the backlash from the high operating rates and panel manufacturers that have continued since the previous year and as a result demand for our display related products including polyester films and OPL films is expected to soften on sale.

Demand in the automotive sector has also softened due to the impact of U.S. trade policy and we expect profits to be weaker than the first quarter mainly in advanced films and polymers. MMA and derivatives posted a profit increase of ¥1.1 billion from ¥2.8 billion in the fourth quarter of the previous year to ¥3.9 billion in the first quarter of the current year. The Asian market price for MMA monomer fell from $1,582 in Q4 to $1,430 in Q1. However, some sales transactions in Q1 still reflected the market price of the previous year, so the price gap deterioration was not as severe as the market price decline. Also, reduced impact of regular maintenance resulted in slightly higher profit. Coating additives business also performed at the same level as in the fourth quarter, although performance varied by application.

In Q2, we believe a decrease in profits is unavoidable due to the weak MMA monomer market. However, compared to past market crashes, we expect the price policy effect of the expanding cost-linked formula to provide a certain level of support. Basic materials and polymers remain generally flat with a loss of ¥3.6 billion in Q1 compared to a loss of ¥3.4 billion in Q4 of the previous year. Basic materials and polymers deteriorated by ¥3.8 billion despite improvements in the price gap for polyolefins and elimination. The impact of the concentrated Iran expenses in Q4 was due to a worsening of inventory valuation and the impact of periodic repair at the Okayama plant. In Q1, carbon products improved by ¥3.6 billion due to the reduction of unprofitable transactions and cost reduction effects associated with the reduction of production capacity.

In the second quarter, we expect further profit improvement in basic materials and polymers due to the reduced impact of periodic repairs and in carbon products due to further improvement in price gap. Industrial gases profit decreased by ¥3.6 billion from ¥48.6 billion in Q4 and FY 2024 to ¥45 billion in the first quarter of the fiscal year. Due to the impact of foreign exchange rates and decrease in sales volume in the U.S., we expect the business to remain firm in the second quarter. This concludes my explanation.

Thank you. Kida-san. We will now take questions from the investors. Let’s take the first question from Daiwa Securities Co. Ltd. Umebayashi-san, please. Good afternoon, this is Hidemitsu Umebayashi from Daiwa Securities Co. Ltd. Thank you very much for the presentation. First, I’d like to ask a question about specialty materials. This is actually recovering more than I had expected. That’s my impression. In Q2, if you do a subtraction, that would mean that the core operating income is down. It’s probably just that Q1 is actually stronger and that the first half would probably go up. What about the films and automotive? There are some concerns. Sorry. Optical films and automotive could be a concern. If you could perhaps provide some additional details about those three subsegments. Thank you very much for your question.

With regard to specialty materials, we will actually feel relieved to hear statements like that for specialty materials rather than stereo manual. For specialty materials, we do understand that it’s still weak, but it’s now on the growth track again. That’s how we feel on the ground. With regards to Q1 to Q2, how things would change, with regards to specialty materials, we actually have quite good confidence also for display application. As I mentioned earlier, we are getting into an adjustment phase and panel inventory levels are high, so the flow of goods is slower. With regard to displays, when we were formulating the plan, we were anticipating that we would go into an adjustment phase. In that sense, yes, Q1 results are actually stronger than initially expected. Going forward, we will probably come in line with the initial expectation.

For specialty materials as a whole, and particularly for advanced films and advanced solutions, we will probably trend as was indicated initially. If you think about carbon fiber and composites, we are actually seeing some benefits of rationalizations from Q1. As is described in the material, there’s some work left to do. With regard to price revision, we’ve been talking about this from before, but downstream, the balance between downstream and upstream capacity, there has been a gap and we may need to make sure that the upstream capacity is aligned with the downstream capacity. In that sense, we think we have made good progress and we will continue our efforts so that prices can be raised. Raising prices obviously involves improving the product mix, meaning shifting more to high grade, high value added products. Thank you very much.

My second question is about carbon products and you may have touched on this, but from Q4 previous year to this quarter, I think your losses were almost halved. Could you explain why that happened? Q2 would probably turn profitable, would that happen in Q2 and any particular measures you are taking to make sure that you turn profitable. Thank you. With regard to Q4 to Q1 for carbon products, there is an improvement by ¥3.6 billion, of which ¥400 million would be inventory valuation. That was negative. That means in reality there was an improvement by ¥4 billion. As I mentioned, compared with the same period previous year, we have this improvement of ¥5.3 billion. Excluding the inventory valuation, that’s worth ¥3.3 billion in improvement. That’s probably because our measures are bearing fruit. We announced reducing the number of hook ovens and it takes some time.

Once in April we were able to actually close down 100 ovens. The impact or the benefits will only really clearly be shown in numbers probably in the second half of this. On an apple to apple basis we have actually improved quarter on quarter and we will also need to look at changing the price or terms of trade and price formula. We don’t want to just sell against the Coke market price, but we would like to turn into a more tolling business model. We will charge for the coking operations and that would be our new business model. Are we getting the full fruit or benefits of those measures as initially expected? Maybe not 100% to be very honest. For example, the customers may have placed orders and then later cancel that.

With regard to the carbon products it’s a little difficult, tricky because one boat will have this load of 40,000 tons. It’s not like the Yamato Transport type of parcel delivery for the homes. If there’s a sudden cancellation you will have to find a destination in the market and then it will be priced at market prices. We are not getting 100% of the financial benefits we expected, but we are actually getting closer to that. The impact of repricing or switching to the formula-based pricing, the benefits are really coming in and whether we can turn profitable in Q2, to be very honest, we probably won’t be able to get a break even in Q2. We will probably have to wait until the second half. By Q4 we would definitely be in profitable territory and we hope that at least in Q3 hopefully we can actually turn profitable.

Thank you very much for all that.

Next question. Morgan Stanley MUFG, please unmute yourself and ask your question. I am Watanabe from Morgan, thank you very much. Regarding MMA, earlier you said that it’s not down, it’s the market price and the reason is that you still have the price from the previous year remaining. Traditionally, the ICIS and quarter profitability I think showed some similar trends. Can I assume that formula link impact is starting to show? Also, you talked about the regular maintenance as one of the reasons as well. Because MMA market price is not really bottoming out, I wonder how you look at the market prospects going forward. Thank you very much. In short, the cost link formula impact, fortunately, it’s not as large as we hoped for. As you know, there might be some differences in the first quarter.

Compared with the first quarter previous year, MMA, last year ICIS was about $2,040 and this year in first quarter it’s about $1,240 or so. I think that’s a level meaning that there’s a difference of about $800. On the other hand, the feedstock price is also coming down. In terms of spread, it’s about like $300 or $700 less drop. If you calculate the amount that we are processing, you can calculate the impact of the spread, but honestly speaking, the impact of cost link formula would amount to about ¥1 billion because it’s pretty much determined by ICIS still. In China, it’s not even ICIS. We still need to negotiate on a case by case basis. In China, promoting cost link formula is not easy is my feeling.

In Asia, other than China, to what extent we can ask customers to accept cost link formula, and even with ICIS, we want to set some kind of floors and how much we can do that is the key. In terms of how we look at the market, we believe it’s quite difficult to be honest. Including petrochemical products, the chemicals in China, the trend is I think changing. For example, last year MMA manufacturers, when the prices go up, they will start running the plants. When there’s an overflow of supply, they would stop the operations. Recently, those manufacturers in China are not really suspending operations. This does not go only for MMA, it goes for ethanol and other products as well.

This is my personal view, but I think refinery crackers, we need to look at their operations overall and then I think they want to probably defend this. I think state-run plants will probably try to run as much as they want, is kind of the feeling that I get. Based on this backdrop, I don’t think the market will pick up so soon. What can we do in this kind of environment for the U.S. market that is relatively attractive, like North America or India? We need to think about the global allocation. I think we need to really look at the global market and see where we should do our operations. That would be one of our short-term measures that we can take on that point. Second quarter, you said you cannot avoid the red ink considering the current market price.

I’m not sure if we cannot avoid the loss. This is not something that I can say clearly at this point. We believe that profits will go down versus first quarter for materials and polymers. Aside from the impact of inventory, I think it’s getting better because the spread of polyolefin is improving. Are there any other reasons? The spread of polyolefins, we’ve been able to maintain that this quarter, I would say. How about from second quarter onwards? In the first quarter, Okayama is in the midst of periodic maintenance and we believe that the utilization will go up. Basic materials and petrochemicals other than polyolefin, like C3 derivatives, you talked about MMA, but it’s still kind of soft is what we feel. Of course, we’re trying to come up with different measures like phenol. We could reduce the capacity next year.

That’s something that we could do and think about, you know, how much we can keep up with. The polyolefin would be the key. We just talked about China anti-evolution from government. How do you see this? This is my final question. This is quite difficult. We are trying to also approach the government officials. I think the tide is starting to change. I don’t think we can do just business as usual. We need to think about what we can do differently. I think we need to act quickly, not just thinking alone. We need to think about how we can reduce the time difference as well. Thank you very much.

Thank you very much. Let’s go to the next question from Mizuho Securities, Yamada san, please. Hi, Yamada speaking. Thank you very much for the briefing. We were talking about basic materials and polymers based on Watanabe san’s questions and my question was mostly answered. With regard to materials and polymers, you talked about inventory valuation and that in Q2 the negative factor will be gone. In Q2 you are not actually so positive about the outlook for operating income increase excluding the formula pricing of polyolefin and C2, C3 derivatives. If you’re assuming that that will continue to be weak, do you have any other downside views? With regard to carbon products, we understand that you still have. It’s difficult, but with regard to materials and polymers are doing well. Would that make up for carbon products negative part? How do you actually see the total coming?

Thank you very much. I heard you sneeze. I hope you don’t have a bad cold. Please take care. With regard to basic materials, we’re still not at a place where we can say we are safe and confident. With regard to carbon products, we are implementing various measures and the measures are actually bearing positive fruit at a very high probability. One target is to turn this profitable by the end of this year. This is also a requirement for this business to survive for us. In Q2 and Q3, as time goes by, we would obviously closely monitor the situation. If we cannot see the likelihood of the business turning profitable by the end of this year, we will probably need to make more difficult decisions. With regard to basic materials, polyolefins are currently doing well.

They are performing okay, so this will probably be able to hang in there for a while. With regard to C2, C3 derivatives or acrylic, etc., naturals, we will need to look at those products and how much recovery we can see. Recovery appears to be quite challenging given the situation around the Chinese crackers. It’s not really about domestic demand, but it’s more about derivatives coming in from the outside markets. If that’s the case, we will probably need to think about additional measures. Towards the second half we are expecting some weakness, and the question is how much we can make up for that by other measures like cost control. Looking at our capacity, production capacity, or maybe being cleverer about the production process, et cetera, we are looking at all aspects. That’s the situation we are in currently.

With regard to C2, C3 derivatives, assuming the situation doesn’t change for them in Q1, the inventory valuation loss is negative ¥8.1 billion for materials and polymers. Half of that would be actually resolved by formula pricing and the time difference, but then there will probably be about ¥4 billion. If the market is flat, you probably wouldn’t have to worry too much. Do you actually have other worries or do you not have any other downside factors? I don’t think there’s anything else. For materials and polymers, we had some maintenance scheduled. Maintenance and repair will be gone, so that means Q2 can go up for that. Therefore, we can be quite confident about Q2 being higher than Q1. This is Kashima and that would probably account for ¥3 billion. Okay. Oh, actually Okayama. Oh, it’s Okayama. Oh, so that’s actually larger. Thank you. Sorry about that.

Actually, I have another question. Advanced composites and shapes. In Q1 you posted a lot larger than I had expected. Earlier you mentioned carbon fiber and composites and you talked about production capacity. Right. Sizing in addition to the CPC operations, trying to realize more sales growth and business expansion. Would the first half come in line with all those measures? Additional follow-on question, if I may. The transfer of Mitsubishi Tanabe Pharma Corporation was that as of June 30, or rather July 1. July 1. Thank you. I will start with the easy question. It’s the first of July for Mitsubishi Tanabe Pharma Corporation, okay, thank you very much. I thought it was the end of July. We discussed this as a cash flow for this ¥510 billion that was not received as of the end of June.

With regard to carbon fiber, for this year we are seeing the benefit of personalization upstream. As I mentioned earlier, we talked about capacity that we are looking at. For example, in the United States we had four lines in two sites, but one for ligure toe we will stop it in full and another site will have some lines stopped. This was actually decided in the previous year, so we actually took some impairment in the year before. We may not have explicitly explained this here in an analyst briefing like this, but if you look at our report, Securities report in detail, we did discuss the impairment loss in the United States. People who have read those, all the lines may have actually expected that. In Q1 we’ve already had a benefit of fixed cost reduction in about the amount of ¥1 billion.

The stoppage of the facility in Japan was only announced recently. For the time being this large tow capacity will continue to run. In the United States we’ve already stopped the part of the capacity that we intend to stop. We are actually going to see the impact and already seeing the impact in Q2 as well. We also talked about CPC. We also want to increase more about high end cars and that’s a little slow, but some of the OEMs have actually given us some orders or order forecasts. Some of the makes that intended to use our products are not selling as expected, so we probably think about that. With regard to CPC we will need to actually look at the existing businesses and see weaknesses. All right, thank you very much for the answers.

Next question. SMBC Nikko Securities, Miyamoto-san, please unmute yourself. I am Yamamoto from SMBC Nikko. I have two questions as well. First question regarding your management policy measures. Three months ago you said that you have three discipline approaches for business operations. You said that you expect profit increase of ¥5 billion, so ¥29 billion from the policy, pricing policy and so forth. You said that the impact is not really generated in the first quarter so much, but now MMA, carbon fiber and so forth. I want to understand the current progress against this plan.

If you are behind this plan and on page 3 you talked about MMA market is down but the price gap in each business is improving and that is one of the drivers for achieving the forecast, can I assume that the price gap is progressing more than planned in each business and I want to understand which products they are. Thank you very much. So ¥27 billion, ¥29 billion. Yes, we talked about that. In terms of the progress, starting with the cost at the start of the year, maybe at the business explanation meeting, we said ¥27 billion is for the asset optimization and this includes cost reduction is what we explained. Earlier in my presentation we showed you this graph and overall cost portion ¥11.5 billion improvement is what we showed you. So ¥5.2, ¥5.3 billion. So chemicals and industrial gases.

That is a mix half, half and out of ¥27 billion, ¥5.2, ¥5.3 billion has already been captured. I would say that it’s pretty much in line with the timeline for the first quarter. I think we were able to progress. On the other hand, when it comes to prices, we said that we will try to do ¥29 billion. This does not include market price and to what extent we’ve been able to do this in total cost. We also have some cost-linked pricing formula versions and also the carbon products sales portfolio and we also have others for each business for this fiscal year. All in all it’s going to be about less than ¥5 billion.

Or.

¥5 billion would be the amount I think and against the ¥29 billion total, we haven’t achieved a quarter yet. We need to expand the cost-linked formula as I mentioned. This is something that we will continue to focus on. So, ¥5 billion. You might think that we’re just saying this, but I don’t mean to make excuses, but earlier we showed you the graph for each business and the price gap seems to be all in the negative, but there are multiple factors. For example, specialty materials, it’s negative ¥1.1 billion for the price gap. That’s on page 8. This is due to the foreign exchange negative impact. Also, the carbon fiber price in the first quarter of last year was not as low as this. If you compare first quarter year on year, the price reduction or lowering price of the carbon fiber is there.

It’s like more than ¥1 billion. There are some negative factors other than the price correction, mainly the foreign exchange. Therefore, we have not been able to really show all our efforts to improve the price gap in this slide. I am trying to answer your question in a qualitative and quantitative manner as much as possible. Thank you very much. First quarter, ¥5 billion progress, how is it compared to your original plan? This is quite difficult, but we wanted to do a little more than a little bit more than this. The MMA formula, changing the MMA formula is something that we could not do as much as we wanted. This is something that we will continue to focus on.

Non-MMA, like high value-add specialty materials products, we want to make sure that our customers would accept its value and we wanted to appeal to the customers who haven’t yet. Page 3. You talked about improving the price gap in each business after the display thing is showing up more than the plan. Are you talking about other than MMA? You said that MMA is one of the downward factors and also display-related demand is going up. Is this price gap helping to achieve the numbers versus the plan? Yes, I think it’s pretty much in line with what we had imagined. On the other hand, for specialty materials, the feedstock prices are coming down and that also helped improve price gap. The feedstock prices came down but we did not reduce the sales price. That’s also part of the price gap.

Other than MMA, I think we were able to achieve as what we had planned for. Thank you. My second question is regarding the shareholder return. Transfer of MTPC was successful and in the fourth quarter you talked about share buyback of ¥5 billion. I think that was pretty much completed by the end of July. I was wondering if you have additional plans to do share buyback. I want to understand what are your shareholder return policy going forward. This is something that we’ve been saying. In order to improve our enterprise value, we need to really make growth investments. That’s important. Of course we need to really think about total shareholder return or shareholder value. Since we are expecting large funds coming in and accumulating cash more than what we need is not a good situation. We think it’s bad. It’s not something that should be the case.

We acknowledge that. We will consider all different elements of the balance and try to reinforce which you will return. Thank you very much.

Okay, the next question will be from Okasan Securities. Nishihira san. Nishihira from Okasan Securities. I have one question. For Q1 you talked about semiconductor materials. Year on year and quarter on quarter, how did they perform, and what do you expect for Q2? My question is about semiconductor materials. Thank you for the question. Let’s see, maybe start with year on year. Compared with the same period last.

Year.

Relatively speaking, the numbers. Okay. If you look at the overall market prices and if you look at the supply chain and the inventory levels, some materials had higher inventory levels but that is now normalizing. AI-related demand, as you all know, is strong but for automotives and industrial applications we do feel that things have bottomed out. If you just focus on semiconductor-related, on a year-on-year income basis it’s probably doubled. It’s up quite significantly on a quarter-on-quarter basis. I can’t, I don’t really want to give you specific figures, but we do see recovery and things are in line with what we had expected. Income levels are coming up and I talked about the market situation. For Q2 we expect this current trend to continue. For semiconductor-related products, I don’t want to overstate that, but there could be actually a situation where we beat the forecast.

There’s some expectation to that effect. Thank you very much. That’s all from me.

The next question, Goldman Sachs Ikeda-san. Please unmute yourself and ask your question. I’m Ikeda from Goldman Sachs. For advanced films and polymers, I have an additional question. So, barrier packaging materials, the demand is increasing, you said, and if possible, can you give us quantitative improvements that have been made? I think that trade term is quite difficult, but I wonder how things are now this year and also for the second half of the year, especially in Europe. There are recycling regulations being strengthened and also any potential increase in the demand in the United States. Thank you very much. Regarding the barrier packaging materials, I think it did bottom out when it comes to demand, especially in Europe, but do we expect the demand or the inventory to really increase and sales volume increasing? No, especially on a year-over-year basis, how much has it increased?

I would say between 5% to 10% growth rate. If you hear that, you might feel like it’s increasing, but there are many factors involved. For example, the same period last year, there were troubles in the plant in Europe and we were not able to ship products, but now it’s recovered this year. With that, we have this kind of rate of growth, and we believe that the demand is probably going to recover from now. First quarter, it’s not that the recovery has fully picked up, and in the second quarter onwards, after it bottomed out, I think it’s going to start to pick up, hopefully. Regarding the trading terms or price increase, any thoughts you can share with us? Is there growing momentum around it or is it going to be further out?

We are negotiating with customers because the manufacturing cost is going up, and basically we are negotiating on this with our customers. However, when it comes to sornal barrier packaging materials, since last year, we have already been raising prices ahead of other products. To what extent we can additionally raise prices this year, that could be somewhat challenging, I would say. Thank you very much.

This will be the final question from Morgan Stanley MUFG Securities, Watanabe-san, please. Earlier there was a question about carbon fiber and you talked about America and Otake, and what impact would there be on the full year? This ¥15 billion minus, to make up for that, you will need more maybe. You see you had CPC. You also talked about aerospace. Do you have any good stories there? Thank you very much for the question. To be very honest, you can’t really make up for the ¥15 billion just by improving on fixed costs. I’m probably not supposed to give you too specific numbers, so I’ll try to stay away. Maybe in the early half of several billion yen range. That would be the benefit from reduction in fixed expenses. It’s really important to really change the sales mix. Again, it’s very difficult to be specific here.

It’s not just aerospace, but defense is another promising application and we do get some inquiries. For such applications there are some restrictions and it’s not just cost, performance, or just price. There are some considerations; you can’t purchase from this country or that country just because they are providing at lower prices. Right. Aerospace and defense, and particularly with regard to defense, have a wide range of applications and sometimes there are applications that we can’t speak about, but probably would surprise you, but there are a lot. We look forward to some good results coming in, maybe in the long term.

Thank you for asking many questions as closing remarks.

Usual.

Thank you for taking time to attend the financial results briefing today. The business environment is far from perfect due to economic uncertainty, but the effects of the structural reform that we have been promoting since last year are gradually emerging. As we’ve been saying, we will continue to work together as one team to implement the measures and do with a sense of speed. Of course we’re trying to do as quickly as possible. We will come together with one team so that we can implement this, so that we can meet the expectations of stakeholders and we will continue to make our efforts. We look forward to your continued support. Thank you very much. Today’s conference will be streamlined as an archive. With that, we like to end today’s conference. Thank you very much.

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