Mitsubishi Chemical Stock

I am Minoru Kida, the CFO. Thank you very much for joining us in this hot weather. First, I'd like to explain the financial results summary for the first quarter of fiscal year March 2027. During the first quarter for FY March 2027, I'd like to give you the summary.

During the first quarter, Specialty Materials continued to perform steadily. Amid unstable situations in the Middle East, the business environment remained challenging with naphtha price soaring and risk of raw materials procurement rising. However, we're seeing inventory valuation gains and a temporary increase in demand.

The core operating income for the Chemicals business increased year-on-year by JPY 48.4 billion to JPY 60 billion. Contributing factors to core operating income were the effects of sustained pricing strategies and strong performance of semiconductor-related products in specialty materials and improved conditions in the MMA monomer market in MMA.

In Basic Chemicals, inventory valuation gains resulting from rising raw material prices contributed to higher profits despite the expanded scale of scheduled maintenance where we had a scheduled maintenance in Ibaraki. This year, a production slowdown to prioritize continued operation of cracker plants in response to the situation in the Middle East and a decrease in sales volume caused by an influx of lower prices overseas products.

Partly due to the solid performance of Industrial Gases, the overall core operating income for the group increased year-on-year by JPY 57.5 billion to JPY 114.1 billion. Net income attributable to owners of the parent increased year-on-year by JPY 38.1 billion to JPY 57.7 billion.

Next, I'd like to discuss our earnings forecast. In light of the first quarter results and current business environment, we have revised upward our first half forecast for core operating income and net income attributable to owners of the parent from JPY 139 billion to JPY 194 billion and from JPY 59 billion to JPY 86 billion, respectively. Meanwhile, our full year forecast remains unchanged from the previously announced figures due to uncertainties in trends in raw material prices. We have not created any new forecast, and there is no change.

From the previously announced figures, our dividend forecast also remains unchanged, a year-end dividend of JPY 16 per share and annual dividend of JPY 32 per share. We'll continue to rigorously adhere to the 3 disciplined approaches in business operations, concentrate our management resources on areas that serve as next-generation growth drivers and steadily implement proactive growth initiatives to achieve sustainable growth and enhance corporate value.

I will now explain the overview of the first quarter of FY March 2027. The average exchange rate for the full year was JPY 160.7 to the dollar, representing a 12% depreciation of the yen year-on-year. The naphtha unit price was JPY 118,900, up 79% year-on-year. Sales revenue totaled JPY 1,042 billion, up JPY 123.5 billion or 14% year-on-year. The breakdown of the increase was as follows: JPY 88 billion increase due to higher selling prices; JPY 33 billion decrease due to lower sales volume; and JPY 68 billion increase due to foreign exchange effects.

The core operating income was JPY 114.1 billion, up JPY 57.5 billion year-on-year. This represents 82% of the first half earnings forecast announced in May. I will explain the details of this later.

Special items amounted to positive JPY 4.3 billion. Operating income was JPY 118.4 billion, and income before taxes was JPY 111.8 billion. Quarterly net income attributable to owners of the parent was JPY 57.7 billion, up JPY 38.1 billion year-on-year.

Next, I will explain sales revenue and core operating income by business segment. For the Chemicals business as a whole, revenue increased by JPY 76.5 billion and profit increased by JPY 48.4 billion year-on-year. As for revenue, despite shipment restrictions at some sites due to the situation in the Middle East and expansion and scale of scheduled maintenance and repairs compared to the previous period, there was an increase of JPY 76.5 billion due to soaring product market prices, an increase in sales volume driven by customers' efforts to secure inventory against the backdrop of situation in the Middle East, higher selling prices for various products, particularly in Specialty Materials and the impact of foreign exchange rates.

The core operating income for the Chemicals business increased by JPY 48.4 billion, driven largely by strong performance of Specialty Materials as well as significant inventory valuation gains in basic materials resulting from rising naphtha prices. Industrial Gases segment showed steadily progress -- steady progress with revenue up 15% and profit up 20% year-on-year. Details for each segment will be explained later on a separate page.

The following is a breakdown of the JPY 57.5 billion year-on-year increase in the core operating income. The price gap was positive at JPY 4.6 billion. While the price gap deteriorated for polyolefins in the basic materials amid rising naphtha prices, it improved due to improved selling prices in Specialty Materials and rising market prices for MMA monomers in MMA and derivatives. The volume resulted in a drop of JPY 1.2 billion.

In Specialty Materials, although sales of various products were expanded, the volume worsened due to restrictions on shipments from certain MMA sites caused by the situation in the Middle East as well as an increase in the scale of scheduled maintenance and repairs in the basic chemicals. Cost reductions resulted in a positive impact of JPY 13.8 billion with Industrial Gases and Chemicals segments each achieving cumulative effects. Others resulted in a positive impact of JPY 40.3 billion. This figure includes a JPY 48.5 billion gain on inventory valuations due to soaring naphtha prices.

I will now explain the details by segment. Specialty Materials posted a year-on-year profit increase of JPY 20.9 billion. The sales gap was positive at JPY 11.9 billion, improving across all subsegments, including semiconductor-related products. The volume contributed to a rise of JPY 9.1 billion. In Films and Performance Materials, the volume improved due to increased sales of polymers for barrier packaging materials and films for multilayer ceramic capacitors. In Composites and Shapes, the volume improved due to increased sales of higher performance engineering plastics for semiconductor manufacturing equipment and carbon fiber composite parts, primarily for robotaxis.

Cost reductions totaled JPY 4.9 billion, driven by the cumulative effects of rationalization measures such as the Next-Stage Support Program and the review of production sites across business units. The others of negative JPY 5 billion was attributable to cost increases resulting from inflation.

MMA and Derivatives posted JPY 4.3 billion increase in profit year-on-year. The sales gap was positive at JPY 7.7 billion. Market prices for MMA monomers improved from a year before, leading to a widening of spreads, as I said before. In functional chemicals as well, sales gap improved due to higher sales prices for additives. The volume resulted in a drop of JPY 5.5 billion. On the other hand, in the MMA segment, the volume deteriorated due to shipping restrictions at some sites and sluggish operating rates caused by the situation in the Middle East.

Core operating income in Basic Materials increased by JPY 21.5 billion year-on-year. Prices had a negative impact of JPY 17.7 billion. In Basic Chemicals, polyolefin selling prices lagged behind rising naphtha prices. Volumes had a negative impact of JPY 6.3 billion. Volumes worsened due to larger scheduled maintenance in basic chemicals and lower sales from an influx of low-priced overseas products. Others had a positive impact of JPY 44 billion, which includes JPY 48.4 billion in inventory valuation gains from rising naphtha prices.

Lastly, Industrial Gases. Core operating income increased by JPY 9.1 billion year-on-year. Earnings grew, thanks to business expansion through acquiring industrial gas businesses in Australia and New Zealand as well as cost reductions from productivity initiatives across regions.

Next, Special Items. Special items in the first quarter had a positive impact of JPY 4.3 billion. We recorded a JPY 12.8 billion gain on sale of fixed assets from the land transfer for Nippon Sanso Holdings head office location offset by losses from structural reforms, special items totaled positive JPY 4.3 billion.

Now let me explain cash flows. Operating cash flow was an inflow of JPY 35.1 billion. Inventory cash flow was an outflow of JPY 38.1 billion, mainly due to higher raw material prices such as naphtha. Other cash flows were an outflow of JPY 98.7 billion, including severance payments for last year's Next-Stage Support Program.

Investing cash flow was an outflow of JPY 26.3 billion. Capital expenditure was JPY 66.2 billion. Growth investments in Specialty Materials progressed, including capacity expansion in carbon fiber and composite engineering in Italy. Cash flow from asset sales was positive JPY 42 billion, driven by proceeds from selling cross shareholdings. As a result, free cash flow was positive JPY 8.8 billion. Financing cash flow was an outflow of JPY 93.4 billion, mainly for interest-bearing debt repayments and dividend payments.

Here is the consolidated statement of financial position. Total assets increased by JPY 4.4 billion from the previous fiscal year-end to JPY 5,881 billion. Cash and cash equivalents decreased by JPY 82 billion due to debt prepayments. Meanwhile, inventories rose by JPY 41.8 billion on soaring raw material prices and foreign exchange impacts also lifted total assets. Netting these factors, total assets increased by about JPY 4 billion.

The net D/E ratio stood at 0.83, remaining at the same level as the end of the previous fiscal year. This page supplements the change in core operating income for FY 2025 Q4 to FY 2026 Q1.

Q1 core operating income reached JPY 114.1 billion, up JPY 74.7 billion compared to Q4. Specialty Materials posted JPY 38.3 billion in Q1, an improvement of JPY 47.8 billion from negative JPY 9.5 billion in Q4. Earnings grew significantly, reflecting the reversal of the JPY 30.3 billion impairment loss on Soarnol-related fixed assets recorded in Q4, steady sales centered on semiconductor-related products and higher sales volume as customers build up inventories amid the Middle East situation.

MMA Derivatives posted JPY 80 billion in Q1, turning profitable by JPY 11.2 billion from negative JPY 3.2 billion in Q4. This was driven by rising MMA monomer market prices and increased sales volumes from customer inventory stockpiling and functional chemicals.

Basic Materials recorded JPY 14.8 billion in Q1, up JPY 19.3 billion from negative JPY 4.5 billion in Q4. In addition to resolving the JPY 5.2 billion impairment loss on ethylene oxide and ethylene glycol production facilities in Q4, earnings through these inventory valuation gains improved despite worse price differentials for polyolefins from soaring naphtha prices. Industrial gases decreased by JPY 2.2 billion from JPY 56.3 billion in Q4 to JPY 54.1 billion in Q1, mainly due to reduction of electronics-related equipment and construction concentrated in Q4.

Next, I'll explain the revised financial forecast for first half of FY 2026. Based on Q1 results and current business conditions, we have revised up our first half forecast. In our May 13 forecast, first half core operating income was set at JPY 139 billion. Q1 core operating income reached JPY 114.1 billion, showing strong progress of 82%. This strong performance was driven by robust demand for semiconductor products, higher sales volume from customer inventory building amid Middle East tensions, higher MMA monomer prices and inventory valuation gains from rising naphtha prices.

Our Q2 assumptions are JPY 155 to the U.S. dollar and naphtha price of JPY 86,000 per kiloliter. Sales revenue is projected at JPY 1,038.8 billion. Despite lower sales volumes following Q1 customer stockpiling, sales are expected to increase over Q1 as scheduled maintenance in basic chemical ends. Our operating income is expected to decline quarter-on-quarter due to smaller inventory valuation gains and payback from customer stockpiling. But the first half total will reach JPY 194 billion, upside of JPY 55 billion from the May forecast.

Our new forecast for operating income is JPY 189 billion and midyear income before tax is JPY 175 billion. Net income attributable to owners of the parent is projected at JPY 86 billion, an upside of JPY 27 billion.

Here is the first half forecast by business segment. Specialty Materials core operating income is expected at JPY 65 billion, up JPY 27 billion from the May forecast. Factors include robust semiconductor demand, volume growth from customer inventory stockpiling due to Middle East conditions and improved selling prices across products. MMA and Derivatives is forecast at JPY 10 billion, up JPY 5 billion, driven by rising MMA monomer market prices, which I've been explaining. Basic Materials is forecast at JPY 12 billion, up JPY 18 billion, mainly due to larger inventory valuation gains from higher naphtha prices. Industrial Gases is expected at JPY 107 billion, up JPY 6 billion, partly owing to a weaker yen.

That concludes my presentation.

Thank you very much. Now I'd like to move into Q&A session. Now we'd like to move to the first question from Morgan Stanley MUFG Securities, Mr. Watabe.

Watabe from Morgan Stanley Securities. Yes, you really produced profits, didn't you? Specialty Materials, especially was performing well, but the temporary demand increase, where in the products did you see that? And if quantitatively, there will be all segments where there will be decreasing from first quarter to second quarter, this will be true, but can you explain more? And what would be the recovery of the shipment restriction sites? And what about inventory valuation gains and losses in the second quarter? If you can explain all these special factors.

Well, thank you very much. As for temporary demand increase, the first part of your question, so we cannot really specify which products that we have seen this in. For specialty materials products, well, for semiconductor-related products, we have not seen them too much. But even in those products, partially for this emergency situation, customers are all, in general, wanted to secure their inventory, so we cannot really specify which products.

And quantitatively, basically, it's very difficult to specify that. But in the second quarter, what will be the turn that we are expecting? Well, there will be some reactionary decrease that we are expecting. And from the first quarter to second quarter, probably the numbers are expected to decline, as you can see from the numbers that we have shown. But what about -- what does those -- do those second quarter figures mean?

Well, basically, we are expecting these numbers to go back to the original budget. We have seen much increase in the first quarter in sales, but we're not expecting that much decline in the second quarter because of that in Specialty Materials. So in the panic buying effect impact from the first quarter is, as I just explained.

And with regard to shipment restrictions, more specifically, the biggest one is in MMA. And maybe you are aware of this, but from April, the plant in Saudi Arabia has not been operating. And this is really natural, but rather than securing the operation, we are giving top priority safety.

And at the other end of the Hormuz Strait and where there is a risk of missile landing, we cannot really operate the plant. So unfortunately, Saudi Arabian plant has been in suspension since April. But rather than shipment restriction, there is some shortage in raw materials in some sites in Southeast Asia. So we may -- it may not be so appropriate to say shipment restriction, but we were not able to produce products because of shortage of raw materials. And so there is some decline in volumes. And we cannot expect the Saudi Arabian plant to restart the operation because of uncertainty, and that is the assumption that we are using for second quarter.

And with regard to naphtha is the next part of your question. So in the presentation, you've seen this, but 111,000 -- JPY 118,900 is the naphtha price and JPY 86,000 is the first half assumption, and there is some decline because of that. It's very difficult to specify the amount. We did come up with JPY 86,000 for naphtha price. But for the past 12 days or past 10 days, U.S. forces have started the attacks in Iran. And so crude oil Brent has also recovered from $90. So it's very difficult to tell what is going to happen.

So have you seen this reactionary losses or decline already from June? Yes, we have seen this from June for some products. But in April, I'm not going to exaggerate this. But just simply put, just for the purpose of making it easier to understand, the panic buying, so to speak, was to some extent, seen. But in Japan, crackers and other derivatives, we had assured the customers that we are going to continue to operate the cracker plant and others. So there was some panic buy in April. But from May onward, customers have a bit settled down.

So there is some reactionary decline even within the first quarter in some products. But for overseas products, especially, especially this tendency was prominent in China. So the Chinese players have come to buy in large amounts, especially in MMA. So the customer inventory levels has been increased as we can see. So in the second quarter, there might be some reactionary decline that you might expect.

Next, we will move on to Miyamoto-san from SMBC Nikko Securities.

I'm Miyamoto from Nikko -- SMBC Nikko Securities. Congratulations for the strong performance. I'd like to ask you about the composite and shapes. From the fourth quarter to first quarter, the profit increased by JPY 1 billion. And on Page 22, when you look at the breakdown, the profit increase in all subsegments, but could you elaborate on them? And on the second half -- in the second quarter, Q-on-Q, you expect a profit decline of about JPY 3 billion. So why do you expect such a large decline? You talked about buying. Is that happening in this segment as well?

And for ZOOX, they said that they will soon start the mass production. So can you tell more about the shipment for us, ZOOX as well?

So I feel a little bit impressed when you say it was a very strong performance because it was only for the first quarter, but we hope that we will be able to sustain this performance as much as possible.

Now regarding your question, composite and shapes, last year, in the fourth quarter, we were able to turn profitable in the fourth quarter finally. And in the fourth quarter of last year, it was JPY 5 billion. And this year, JPY 6.4 billion, we were able to build up the profit potential up to JPY 6.4 billion. And if you add up, it went up about JPY 1.4 billion. But if you look in detail, we call this engineering shapes. This -- the large one is engineering plastic for semiconductor manufacturing equipment. The shipment for those really increased in the first quarter. And I think this part will include some panic buying. So because it's for semiconductor manufacturing equipment, they don't want to fall short and customers were sort of rushing to buy, and I think that's more intense compared to other products. And in the second quarter, we expect some reactionary decline.

On the other hand, for the carbon fiber composite for ZOOX, it's coming as expected and the monthly production is also increasing. And we believe we will be able to deliver as we planned for this fiscal year. As you just mentioned, yesterday, I think ZOOX, they said that they will get license for running operations in United States as well, meaning that the project overall is progressing steadily, and they also need to increase the vehicles. So we want to make sure that we can deliver so that they do not fall short of the products.

So for carbon fiber composite, first quarter, second quarter, I don't think there will be major changes in numbers. But in the engineering shapes, the high-performance engineering plastics, we expect some reactionary decline in the second quarter versus first quarter.

So carbon fiber composite on Q-on-Q, we thought that you'll be able to expect increase in profits, but you're saying that the fixed cost is going to go up? Or are you being a little bit conservative?

When it comes to composite, we're not really being conservative. But if you look first quarter to second quarter, especially in the first quarter, I think we were able to capture higher prices ahead of schedule, especially composite engineering. So we have propellant business as well, and that we expect some decline in the second quarter. But in the second quarter, I think we will be able to increase the new products. And we've been launching those new products. So that's something that we expect as a growth.

I see. JPY 12 billion is the full year forecast. And you already posted -- you expect JPY 10 billion in the first half, which means that it's growing higher than expected. So which one specifically do you think is really growing stronger than what you had expected initially?

Well, maybe this is my personal opinion. But engineering shapes, as I mentioned at the outset. So this is for semiconductor manufacturing equipment. The demand is very strong. So we can expect some upside. And maybe I should not call this upside. But for the carbon fiber over the last 2 years, we've been going through major structural reform. And this impact of supply chain rationalization, I think we're starting those to take effect. And we're also launching new products as well. So those are some of the factors for a potential upside. But how it will turn out on a full year basis, I mean, it's still kind of uncertain. Therefore, for the full year forecast, we have not made any changes.

Next question from UBS Securities, Mr. Omura.

Omura from UBS Securities. I have a question on Page 17, Information Electronics. And this time, you have made upward revision and JPY 5 billion is the upward revision. And you have also revised upward the sales revenue by JPY 5 billion. So probably this will be mainly from the price factor. But if there are any other factors, please let us know. And because the wafer manufacturers or wafer materials are going up in prices, that's what they say. So your silica, the synthetic quartz, maybe you have easier time in revising your price. Can you explain more about silicon materials trend?

Thank you for your question. So with regards to sales revenue and profits, well, were there price factors that are involved? Well, in one word, so the mix of the products has been changed. So as you rightly expected, synthetic silica or quartz is increasing significantly in profits. But do you ask -- if you ask us if we have increased the prices significantly, yes, but volume has also increased.

As for synthetic silica, there are not so many customers that we're selling products to. But more recently, from the late half of last year, there have been more inquiries from new customers and shipments from those customers -- to those customers are increasing. So the volume is increasing for synthetic silica quartz. But I cannot give you too much detail, but especially for semiconductor-related products, there are products that are not growing as much as we expected or have failed to reach the volume that we expected, honestly speaking.

So for semiconductor processes, there are some materials that they are selling, but the customers have improved their production processes, and they have been able to save the volume of products that we have been selling for use. And so honestly speaking, there was some decline in volume, but synthetic silica and also there's cleaning business that is increasing significantly as well. So the price factors were there, but product mix has been changing. So the competition amongst the different products that we're selling has been changing. That has been a greater factor.

To supplement your question, as for lithography products and also the materials, have you been experiencing easier time in price revision? Or you're talking about resist?

Yes. Well, it's not that easy to price -- to do price revision or convince customers to accept that, but we're not in that much challenging situation in terms of price increase. So we're not feeling that much that it has become easier to convince customers for price increase.

Okay. Then just for clarification. So naphtha price or raw material price increase that has been passed on to the selling prices just for that much.

Well, if you ask us yes or no, then honestly speaking, we cannot tell which one yet. But on the other hand, for the petrochemical-derived basic materials, we have been making sure that we can pass on the cost increase to the selling prices, and we have been able to do that.

Next question is from Yamada-san from Mizuho Securities.

I am Yamada from Mizuho Securities. So in the second quarter, I don't really understand why you expect a decline in profits. So inventory valuation differences and others, I'd like to confirm. So JPY 40 billion or so is expected absolute value. We had a gain of about JPY 40 billion. But if you look at the inventory compared to the year-end of last fiscal year, it increased by JPY 41.8 billion and JPY 600 million is related to Nippon Sanso Holdings. So the inventory increased by about JPY 36 billion.

And if you compare fourth quarter, first quarter and second quarter specialty materials revenue. So not much changed from the first to second quarter, meaning that the inventory level went up for the specialty materials. So that means that you curb production in other areas substantially to control your inventory level. Is this correct? And if that's the case, maybe there is some impact from the periodic maintenance.

And so in the first to second quarter, I think there are positive impact from the fixed cost allocation and differences in operation and Basic Materials segment. I do not really see such impact in the second quarter. So please elaborate on how I should think about the inventory levels.

So I said thank you, but I'd like to also apologize as well. Maybe I'm not fully understanding what you said fully because I was not able to fully catch up perhaps. But when you say inventory valuation came down a lot, I like -- I really don't like the way it's expressed. So if I explain how we fill that gap. So there is a gap in the price that we receive and how much we expensed, and we try to multiply that with the volume. So I would like to make sure that people would understand.

So when we say inventory valuation gains and losses, I don't think it's a good naming. So we have about JPY 60,000 in the previous quarter. And now we have a new naphtha prices is more expensive like JPY 120,000. So we should be consuming naphtha at JPY 120,000, but we bought naphtha at JPY 60,000 in the previous year. So that is reflected in the numbers. And I'm sure you know this, Yamada-san. So we're seeing the decline in prices that we received. But now the expense portion, the expense portion is expensive than what we had received. That is happening temporarily right now. And the prices, if that continues to drop, the expense portion is going to decline, but at some point, it will catch up and converge. And depending on how naphtha will move, it's very difficult to predict.

And in the first half, we had this much gap. But in the second quarter, as I mentioned earlier, naphtha prices, we expect about JPY 86,000, meaning that the majority of that gap or valuation difference is going to peel off. So the biggest reason for the decline in the first to second quarter is that one. However, how this is going to really turn out? Well, about 2 weeks ago, the attack has restarted. And if you look at the oil, the Brent oil has gone up to about $90 and not surprises, the market price is also going up again. And it depends on where naphtha prices will settle. That is going to determine our second quarter results. And this is something that we are really struggling with.

Now when you look at different inventory items levels, so when the cost is rising, the inventory valuation is going to go up. But especially when it comes to specialty materials, we do see an increase in the inventory levels volume-wise. So in the second quarter, we would like to control the inventory levels because we keep high inventory levels and if we see sales decline, that's worse. So we really need to have a good control of our inventory in the second quarter as part of our business operation.

As you mentioned, so it's a difference in valuation receipts and expenses. So the volume is the same. So JPY 40 billion of inventory difference, you should see an increase in inventory volume, but it's not really happening. So considering that specialty material volume should be going up. We assume that you had a very controlled production in the first quarter. Is this correct?

And according to what you said, you will be controlling production in the second quarter as well. So when the naphtha prices go down in the future, so we expect the recovery to be much lower. So I would like to ask you how -- in which direction we're going to make efforts.

We will continue to make efforts. But when it comes to details of the quarterly inventory levels, we will not be able to disclose. But are we intentionally controlling our inventory levels? Not really. But if you look at the results, like MMA, that's one of the representative products. In many ways, production was lower than what we had planned for. And in order to meet customers' demand, we did produce quite a lot with some of the products. So it's very difficult to say across the board. However, in the second quarter, controlling inventory level is something that we need to be very meticulous about and very cautious about.

I do understand that you do control inventory levels, so we expect to continue your good management operations.

Next, Mr. Okazaki from Nomura Securities, please.

Okazaki from Nomura Securities. Very good business performance. Congratulations on the earnings. I have a question on MMA. In the fourth quarter, JPY 5.1 billion loss to JPY 4.2 billion profit and also JPY 2 billion, JPY 200 million loss in Q2. So what was the results in Q1 and assumption for Q2 compared to the current situation, if you can tell us that.

And as for operation, capacity operation, the Saudi Arabian plant, you have suspended the operation in Q1, and you expect this to continue. But what about the capacity utilization in other plants in Q1 and Q2? And with regard to conditions for restarting Saudi plant, you said that missiles are flying and you cannot really restart the plant. But what will be the condition to enable you to restart the plant in Saudi Arabia?

And the last question is about structural reforms. Maybe something -- there is something that you still have some study on. So can you explain as much as you can disclose?

From first quarter to second quarter, how the changes have been -- how the prospect has been changing? Well, the way we look at the spread has been changing. In the first quarter, generally speaking, the ICIS Asia has exceeded $2,000. And last year, throughout the year, $1,400, especially toward the fourth quarter, it was even lower. So naphtha prices were lower, obviously. So it's not just the product prices, but the product prices has been higher in the first quarter. That was a big factor. But in the second quarter, so this is expected to decline significantly. And if you look at the ICIS more recently, 1,600 to 1,700 level is the one that we're looking at. And also, there is one step lower in China. So in the first quarter, we were easier, but we cannot have that much easy prospect in the second quarter.

And as for capacity utilization, as I said, in Saudi Arabia is in the situation that I stated. So it's been suspended. For others, so there is some difficulty in securing raw materials, especially in Southeast Asia and part of Chinese sites. So we were forced to reduce our capacity utilization. But in China, the petrochemical business is upstream, there are 2 plants in China, one in Shanghai, ACH and also acrylic and also [ Kaishi ] plant, the CNOC cracker derivatives. So we are not sure what is going to happen to those sites yet.

And in the second quarter, it's very difficult to tell what will be the capacity utilization, but we -- at least we are not expecting a significant improvement. So that's the assumption that we have incorporated in this prospect for second quarter. What are other questions? Well, structural reforms and the conditions to restart Saudi Arabian plant.

Well, conditions for Saudi Arabian plant, we cannot really specify the condition because we don't know what is going to happen. And at least, if either side is flying missiles, it is not -- it is out of question to restart the plant. So permanent ceasefire has to be there in order to restart the plant.

And as for the structural reforms, we are making steady progress. And at least for the moment, we have withdrawn from the joint venture in Taiwan. So we are the subsidiary of the Taiwan, we have shown that we're going to sell the shares in this. But what about India? And we have to also reconsider what we are going to do in the U.S. So please give us more time. And after that, we can share with you some more specific measures.

Q2 market price is about 1,600 to 1,700 is that assumption that you're using?

Yes.

And as for capacity utilization, you are assuming that there is no change in Q1 and Q2. So profit is going to decline because of the market price decline. Is that correct?

Yes, correct. It's not just a price, but the spread is going to change. So the capacity utilization is not going to change from Q1 to Q2. So everything else would -- the spread is going to worsen, and that is going to be reflected in profits.

Next is Umebayashi-san from Daiwa Securities. So we ask one question from one person.

I'm Umebayashi from Daiwa Securities. I'd like to ask about films and performance materials, changes in Q-on-Q basis. So fourth quarter to first quarter -- so I understand the impairment losses has gone and the actual revenue increase against JPY 10 billion and the profit is about JPY 10 billion increase. And if you look at first quarter to second quarter guidance, revenue is going down by JPY 9 billion and profit is going to go down by about JPY 7 billion. So I think the profit changes is substantial compared to the changes to the revenue.

And Yamada-san earlier in the Q&A asked you about the inventory level that looked intentionally being curbed in the second quarter after its increase in the first quarter. But other than that, maybe trade terms, maybe some of the cost -- higher cost of materials is not going to happen in the second quarter versus first quarter, for example?

So you talked about the fourth quarter of previous fiscal year. But if you look at the changes from first to second quarter this year, I understand your question is mainly the difference between first to second quarter this year. So let me answer based on that assumption. First of all, we do expect some level of reactionary decline.

Films and performance materials, we have very broad customer portfolio. We do have some automotive. We have some electrical and also dial-up. It's like a wrap for food packaging. So we do expect some reactionary decline in various areas.

And another one is display related. We had very strong results in the first half, because when there's sports event, TV sells very well and the World Cup had an impact as well. So for the display in the second quarter, we expect to kind of settle. So that would be the major factors that I can think of. So overall, the volume is expected to go down and highly profitable liquid crystal is going to go down, and you expect to control inventory. And the MLCC, the demand is quite strong. And we do not really expect a decline in the second quarter from the first quarter. But what you just mentioned or what other people mentioned is pretty much going to happen from the first to second quarter is shown in the numbers.

This will be the last question that we can take because of the time. Mr. Nishiyama from Citigroup Global Markets Japan.

Nishiyama from Citigroup Global Markets Japan. I'd like to ask about information electronics in Q1, especially semiconductor profits seems to be quite strong. So what is the background behind this strength? Was there any onetime factors? And from Q1 to Q2, Q-on-Q, as information electronics, there was a slight increase in profit, but there is going to be a slight increase in revenue, but a big decline in profits. So what is the background behind this?

Well, as for information electronics, as was said in the previous question, synthetic silica and cleaning business for semiconductor, those were very strong. But from Q1 to Q2, was there any -- is there going to be any major drop? We don't expect that. But from Q1 to Q2, what is going to decline, then partially, the spread is going to deteriorate rather than sales price decline, but raw materials price is catching up and spread will contract. But there were some special factors in Q1, and there was not a panic buying, but is very much detailed gallium nitride. Well, so far, was in the incubation initiatives. So it's just accounting processing, but we're not posting any sales. So it's just expenses that were posted. But from this fiscal year, we are expecting very much on gallium nitride.

So from this fiscal year, we're going to recognize sales for gallium nitride products. And at the same time of recognition of sales, the inventories for sales will be posted in the first quarter. So that will be the profit that we can get from posting this inventory in the first quarter, but that is gone in the second -- is going to be gone in the second quarter. So there is some special factor in accounting process in the first quarter. But with regard to commercial environment, like volumes and prices to customers, between first quarter and second quarter, there's not major -- no major change. So what happened in the first quarter is expected to continue in the second quarter.

So as for the special factor for first quarter, is it going to be worth JPY 1.5 billion? And in the second quarter, profitability will decline from the first quarter. But if you look at the guidance from the first -- beginning of the fiscal year, the profitability is still higher. So profitability improvement is progressing. Is that correct? Yes. So JPY 1.5 billion worth for special factor? No, not that much, but we cannot disclose any detailed numbers.

I think it's about time. Therefore, we'd like to ask Kida-san, CFO, to give a closing remark.

Thank you very much for joining our earnings presentation today amid your busy schedule. I know the hot weather is continuing. And I was answering all your questions, and I'm very hot. So I apologize, but I have to take off my jacket. So the first quarter results were strong compared to our initial outlook. Although uncertainty remains ahead, we will continue working as one group to meet stakeholder expectations.

We will continue to make efforts. We will continue to make improvements. But in the first quarter, we had unexpectedly good results, partially due to GI. And we up to have this strong performance as a result of our efforts, and we'd like to seek your continued support. Thank you very much.

Thank you very much. Today's conference will be delivered as archived so that you can replay at your convenience. Thank you very much. We'd like to conclude today's conference.

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

Thank you very much for joining Mitsubishi Chemical Group Corporation's earnings briefing. As we have now reached its time to start, we would like to begin the meeting. To start, President and CEO, Mr. Manabu Chikumoto will give the opening remarks, followed by a presentation on the fiscal year ending March 2026 second quarter financial results by CFO, Mr. Minoru Kida.

After that, we will proceed to a question-and-answer session. We are planning to have a meeting for 60 minutes. Before we begin the conference, we would like to share the following information with our investors. In the presentation today, we may refer to forward-looking statements based on the current expectations. Please be advised that all such statements involve risks and uncertainties, and actual results may differ significantly from those projections. And also, this conference is going to be posted in our website later, and I hope you understand. Now I would like to start the conference. Mr. Chikumoto, please.

Good afternoon. I am Chikumoto, President and CEO of Mitsubishi Chemical Group. Thank you very much for joining us for today's earnings call. Our CFO, Kida, will provide more detailed explanations later. But for FY 2025 results, core operating income is down 2% to JPY 225 billion. However, due to the substantial amount of nonrecurring items totaling JPY 194.9 billion, operating income declined 79% to JPY 30.1 billion and the profit attributable to owners of the parent fell 74% to JPY 11.8 billion, resulting in an extremely challenging result.

However, these results reflect our strong determination to fully carry out what must be done by FY 2025. For the company's future growth, as a result, we made decisive structural reforms such as essential substantial sustainable growth, the withdrawal of the coke and carbon materials business, ethylene restructuring in Western Japan, dissolution of overseas MMA joint ventures and the voluntary retirement and the next stage support program. We also almost completed to recognize major impairment losses associated with the structural reform within the FY '25.

On the other hand, in our Soarnol business, which is one of the company's growth drivers, we recorded substantial impairment loss of approximately JPY 30 billion following the review of the plant construction in the U.K. Furthermore, FY '25 results fell short of our previous forecast. We take these matters very seriously. We would like to sincerely apologize to our shareholders and all our stakeholders for the concerns that we have caused you.

We recognize that this is quite exceptional in nature. And at this point, similar impairment risks have not materialized in any of our other investment projects. Going forward, management will implement even stricter oversight and monitoring than before to ensure the investment plans progress as scheduled. In addition, with regard to this matter, we determined that it was necessary to take responsibility for failure to uphold the 3 principles of disciplined business management that we had pledged. Accordingly, Chikumoto, as the President and CEO; and Egawa, the Management Executive Officer responsible for the Soarnol business, is going to have a 20% voluntary decline in compensation for 6 months.

In '26, while continuing to pursue structural reform and cost reductions, we expect a significant growth in our Specialty Materials business. In Germany and in Europe, we have commenced operations of a large-scale investment projects for the polyester film business and it will contribute on to earning contribution. In the semiconductor and battery business, we expect to continue existing businesses such as synthetic quartz and precision cleaning for semiconductors and anode materials, along with significant growth in the new projects.

In the carbon fiber business, operations will begin in full scale for existing mobility applications, but also business related to robotaxis and a new type of mobility solution. In addition, we have aerospace industry to bear fruit.

By capturing a steady growth in our Specialty Materials businesses, the core operating income will increase substantially in operating income and a profit attributable to owners of the parent in FY 2026. We need to continue to closely monitor uncertainties in the external environment, including the one in Middle East, and we will carefully assess these potential impact. CFO Kida will provide more detailed explanation on this point later. A detailed explanation of the growth strategy for each business will be provided at the investor briefing on May 25th. Now, CFO Kida will explain FY 2025 financial results and FY 2026 earnings forecast. Now, Mr. Kida, CFO, please.

I am Kida, CFO. First of all, I would like to summarize the results of FY 2025. Business conditions in Specialty Materials remained generally solid. However, MMA and Basic Materials & Polymers continued to face challenging conditions. Market is soft, since March, uncertainty have also increased due to the rising geopolitical risk, particularly in the Middle East. Core operating income in the Chemicals segment was positive, JPY 24.3 billion.

In addition to earnings growth driven mainly by improved margins and higher volumes in Specialty Materials, we also benefited from better margins and cost reductions resulting from structural reform in the coke business. On the other hand, worsening MMA monomer market conditions together with impairment loss related to Soarnol assets in the U.K. had a significant impact, resulting in a 43% decline year-on-year. Supported by solid performance in industrial gases, however, the group as a whole limited the decline to 2% year-on-year. Profit attributable owners of the parent decreased 74% year-on-year.

Although we recorded gains related to the transfer of Mitsubishi Tanabe Pharma, this was outweighed by losses associated with the decline to withdraw from the coke and carbon material businesses, as well as special retirement payment related to the Next-stage Support Program at Mitsubishi Chemical Corporation. Now let me go to the 2026. The core operating income is expected to be JPY 305.0 billion. Core operating income in the chemicals segment is expected to increase JPY 75.7 billion year-on-year to JPY 100 billion. This reflects higher sales volume across products in specialty chemicals, continued cost reduction, and recovery in MMA monomer market conditions. Industrial gas is expected to be solid.

The core operating income is projected to be JPY 44.3 billion year-on-year to JPY 205 billion. This does not include the Middle East impact. Now we would like you to refer to page 20 for that. Profit attributable owners of the parent is forecasted to increase to JPY 115.2 billion year-on-year to JPY 127 billion compared with the previous year when we recorded substantial non-recurring losses related to asset optimization.

As for shareholder returns, we forecast a dividend of JPY 60 and annual dividend of JPY 32 per share. We will thoroughly implement measures based on the 3 principles of disciplined business management, further concentrate management resources on next-generation and growth driver businesses, and steadily execute initiative for the chemical segment.

I will explain the results for the fiscal year ended March 2026. The average exchange rate for the full year was 151.1 per dollar, representing a 1% appreciation of the yen year-on-year. The naphtha price was JPY 65,200, down 14% from the previous fiscal year. Sales revenue was JPY 3,704 billion, a decrease of JPY 343.6 billion year-on-year. The main factors were a JPY 109 billion decrease in sales price, a JPY 106 billion decrease in volume, a JPY 66 billion decrease from business restructuring, and a JPY 37 billion increase from exchange rates. Core operating income was JPY 225 billion, down JPY 3.8 billion from the previous fiscal year.

This fell below our October full year forecast of JPY 250 billion, primarily due to the JPY 30.3 billion impairment loss following the review of our Soarnol investment plan in the U.K. Special items amounted to negative JPY 194.9 billion, worsening by JPY 107.7 billion year-on-year. Operating income was JPY 3.1 billion, income before taxes was JPY 0.7 billion, and net income from discontinued operation was JPY 94.8 billion, including gains from the transfer of Mitsubishi Tanabe Pharma Corporation. Net income attributable to owners of the parent was JPY 11.8 billion, down JPY 33.2 billion year-on-year. Next, I will explain the sales revenue and core operating income by business segment. In the chemicals business overall, sales revenue decreased 11% and profit decreased 43% year-on-year.

Sales revenue decreased by JPY 295 billion, due mainly to business divestitures resulting from steady progress in structural reforms as well as declines in market prices and raw material prices. Core Operating Income was supported by solid performance in Specialty Materials while carbon products steadily improved. For the chemicals business overall, profit decreased by JPY 18.4 billion, due mainly to the deterioration of the MMA monomer market and the recognition of impairment losses on Soarnol-related fixed assets. Details for each segment will be explained on the following pages. Industrial gases showed steady progress, with revenue up 4% and income up 8% year-on-year. Here is a breakdown of the JPY 3.8 billion year-on-year decrease in Core Operating Income. The price gap was a negative JPY 26.6 billion.

While price gap in MMA and derivatives deteriorated significantly due to falling market prices, Specialty Materials maintained and improved selling prices, and price gap improved for polyolefins and carbon products in Basic Materials and Polymers. Volume was a positive JPY 4.1 billion. While demand in Europe and the U.S. was generally weak, particularly in industrial gases, sales of carbon fiber composite parts mainly for robotaxis increased. Cost reduction contributed to a positive JPY 62.2 billion, with both industrial gases and chemicals accumulating savings across their respective businesses.

Others resulted in a negative JPY 43.5 billion. This includes impairment losses on Soarnol-related fixed assets in U.K. and higher costs associated with inflation. Now I will provide details by segment. Core operating income for Specialty Materials increased by JPY 8.4 billion year-over-year. The price gap improved by JPY 8.1 billion. Advanced Films and Polymers and Advanced Solutions saw price gap improvements by maintaining or raising prices for semiconductor-related and other products.

The volume gap contributed a positive JPY 15.5 billion. In Advanced Solutions, semiconductor-related businesses, particularly precision cleaning services, saw higher sales volumes, but volume was negatively impacted by lower demand for EV electrolytes, mainly in Europe and U.S. Advanced Composites and Shapes volume improved due to increased sales of high-performance engineering plastics for semiconductor manufacturing equipment and carbon fiber composite parts mainly for robotaxis. Cost reductions added JPY 13.8 billion through structural reforms in businesses and rationalization impact from production-based optimization. The negative JPY 29 billion in others was due to the Soarnol fixed asset impairment loss in the U.K. and inflation-driven costs.

MMA and Derivatives saw a decrease in core operating income of JPY 37.2 billion. The price gap deteriorated by JPY 40.3 billion. While the price gap in coating and additives improved, the MMA monomer market fell sharply, narrowing spreads. Basic Materials and Polymers narrowed its loss by JPY 10.4 billion. The price gap was JPY 11.4 billion. In Materials and Polymers, profit improved due to the timing lag in polyolefin sales price adjustments and the ability to maintain sales prices at a relatively high level during the decline in naphtha prices. In the carbon business as well, the price gap improved year on year as the reduction of production capacity in Kagawa was completed and loss-making transactions based on market prices were reduced. Cost reductions added JPY 7.1 billion, primarily from structural reforms in carbon business.

The negative JPY 9 billion in others reflects impairment losses on ethylene oxide and glycols manufacturing equipments along with poor inventory valuation in Materials and Polymers.

Core operating income in industrial gases increased JPY 14.6 billion year on year. Although earnings margins were negatively impacted by higher electricity costs in the United States and sales volumes declined mainly in Europe and North America, earnings increased due to cost reductions driven by productivity improvement initiatives across each region. Next, specialty items. Total non specialty items for the full year amounted to negative of JPY 194.9 billion. In the fourth quarter, we recognized an additional JPY 122.6 billion in specialty losses, specialty item losses. In the fourth quarter, we recorded a number of expenses, including JPY 59.2 billion in restructuring provisions, JPY 30.6 billion in impairment losses, and JPY 15.8 billion in specialty retirement payment.

These expenses mainly resulted from the promotion of various structural reform measures, including the withdrawal from the coke and the carbon material business. Although the full year total reached to a substantial amount of JPY 194.9 billion, we believe these structural reforms were necessary to support growth from 2026 and onward. Let me explain the cash flow. The operating cash flow totaled to inflow of JPY 436.3 billion. Cash flow from operating receivables and payables was an outflow of JPY 16.3 billion, mainly due to a decline in trade payables resulted from the lower naphtha prices. Investing cash flows resulted in inflow of JPY 124.5 billion. A cash flow related CapEx was outflow of JPY 292.1 billion.

Growth investment projects in Specialty Materials continue to progress, including capacity expansion for carbon fiber composites in Italy and capacity expansion at Soarnol in the U.K. for barrier packaging applications. Cash flow from asset sales was positive JPY 141.6 billion. As a part of ongoing portfolio review, we recorded proceeds from sales of shares in affiliates, mainly Mitsubishi Tanabe Pharma, as well as proceeds from the sales of cross-shareholdings and strategic holding.

Other investment and financial activities resulted in the outflow of JPY 125 billion. This includes expenditures related to the acquisition of subsidiaries in Australia and New Zealand Industrial Gases segments. As a result, cash flow was positive JPY 560.8 billion. Financial cash flow was outflow JPY 375.2 billion, mainly due to debt repayment and dividend payments and share buyback. Next is the consolidated statement.

Total assets were JPY 5,876.6 billion, down JPY 18 billion from the end of previous fiscal year. This mainly reflects a decrease of approximately JPY 630 billion due to the business restructuring centered on the sales of the MTPC. On the other hand, assets increased due to cash proceeds remaining on hand at the end of March from the MTPC sale, as well as the impact of foreign exchange movement.

Netting these factors, total assets decreased to approximately JPY 18 billion overall. Net interest-bearing debt decreased to JPY 387.5 billion from the end of the previous year, and the net D/E ratio, debt-to-equity ratio, improved significantly to 0.83 from 1.06 at the end of the last year. This page provides additional details on the changes in core operating income from the third quarter to the fourth quarter of FY 2025.

Cash operating income in the fourth quarter was JPY 39.4 billion, down JPY 20.1 billion from the third quarter. Specialty Materials recorded a loss of JPY 12.9 billion in the fourth quarter, a decline of JPY 25 billion from the JPY 12.1 billion of profit recorded in the third quarter. Although results benefited from the end-of-winter holiday impacts in Europe and North America, improved performance in the composite parts business, mainly for robotaxis and rationalization efforts, and effects from the partial suspension of general purpose carbon fiber production lines, earnings declined significantly due to the impairment losses related to Soarnol assets.

MMA & Derivatives recorded a loss of JPY 3.1 billion in the fourth quarter, largely unchanged from JPY 2.6 billion in the third quarter. Basic Materials & Polymers recorded a loss of JPY 1.3 billion in the fourth quarter, a decline of JPY 0.8 billion from the JPY 0.5 billion loss in the third quarter.

In the carbon, earnings returned to profitability due to improvement in inventory valuation gains and losses. On the other hand, Materials and Polymers losses widened, mainly due to impairment losses related to ethylene oxide and ethylene glycol production facilities. Industrial gases increased from JPY 51.4 billion in the third quarter to JPY 56.3 billion in the fourth quarter, an improvement of JPY 4.9 billion, driven by pricing management and productivity improvement initiatives.

Under our current Medium-Term Management Plan, we have set the 3 principles of disciplined business management to improve profitability of chemical business: pricing discipline, investment discipline and asset optimization. In FY 2025, the impact of measures based on these three principles of disciplined management amounted to JPY 58 billion. The impact of pricing this discipline was JPY 29 billion. In carbon, this was driven by reducing loss-making export sales and shifting to cost-linked pricing formulas.

In MMA, the expansion of cost-linked pricing formulas also contribute to the improvement. In other businesses as well, pricing increase initiatives were promoted mainly in Specialty Materials, resulting in a full-year impact of JPY 29 billion. Asset Optimization delivered an effect of JPY 29 billion. This was driven by cost reductions from capacity reductions in carbon business, as well as a number of structural reforms across businesses, including the withdraw from unprofitable operations.

Regarding the selection of concentration in chemicals business, we have made divestitures equivalent to approximately JPY 490 billion over the past two years against the JPY 400 billion targeted for the business restructuring and investment and divestment set out in the medium-term management plan, thereby establishing a foundation of growth.

Next, I will discuss the full year forecast for fiscal year ending March 2027. Before the forecast details, I will explain the changes in reporting segments. Following the reorganization on April 1, 2026, our reporting segments will change from the fiscal year ending March 2027, as shown on this slide.

Specialty Materials will be divided into five segments: Films and Performance Materials, Composites and Shapes, Information Electronics, Polymer Compounds, and Water and Infrastructure. Films and Performance Materials mainly consists of businesses formerly under Advanced Films and Polymers.

Composites and Shapes mainly includes businesses from the former Advanced Composites & Shapes. Information Electronics focuses on semiconductor and battery and electronics businesses previously in Advanced Solutions. Polymer Compounds combines performance polymers previously included in Advanced Films and Polymers with engineering plastics and polypropylene compounds from the Materials and Polymers. Water and Infrastructure includes water and environmental and infrastructure businesses from the former Advanced Solutions. MMA and Derivatives remains largely unchanged and mainly consists of businesses previously included in MMA and Derivatives. Basic Materials mainly consists of businesses from the former Basic Materials and Polymers.

We reorganized these groups to enable management to more directly oversee each business and achieve the goals of KAITEKI Vision 35 and our mid-term management plan. We apologize for any inconveniences to investors and analysts and appreciate your understanding.

I will now present the full-year forecast for the fiscal year ending March 31, 2027. Our forecast assumes an exchange rate of JPY 150 to the dollar and a naphtha price of JPY 63,000. Sales revenue is forecast at JPY 3.8 trillion, an increase of JPY 96 billion from FY 2025. Core operating income is expected to reach JPY 305 billion, up JPY 80 billion. Operating income is forecast at JPY 300 billion, income before taxes at JPY 270 billion, and net income from continuing operations at JPY 200 billion.

Net income attributable to owners of the parent is expected to be JPY 227 billion, an increase of JPY 115.2 billion. This forecast does not include the impact of Middle East tensions, such as the potential closure of the Strait of Hormuz. If the current situation persists through September, we estimate a downside impact of approximately JPY 18 billion on forecast core operating income for the FY 2026.

In FY 2026, we expect the benefits from the measures based on the three disciplined approaches in business operations to be JPY 48 billion. As part of our pricing policy, we will continue promoting price increases centered on Specialty Materials. Regarding investment benefits, we expect profit contributions from the full-scale shipment of carbon fiber composite parts for robotaxis.

As for asset optimization, we expect benefits from fixed cost reduction through the Next-stage Support Program implemented in FY 2025, as well as from our continued efforts to promote cost reductions and structural reforms in each business. Here is the forecast by business segment. Although Specialty Materials will be affected by higher costs associated with inflation, we expect increased sales in businesses positioned as growth drivers, including polyester film for MLCCs, Soarnol for barrier packaging applications, semiconductor-related businesses, and composite parts mainly for robotaxis, in addition to the absence of impairment losses on Soarnol-related fixed assets. MMA & Derivatives is expected to turn profitable through higher volume and a gradual recovery in the MMA monomer market.

In Basic Materials, although price gap is expected to deteriorate due to timing differences in polyolefin price revisions, losses are expected to narrow due to improvements in inventory valuation gains and losses and the absence of impairment losses on ethylene oxide and ethylene glycol production facilities. Industrial Gases is forecast to grow profits through pricing management and productivity improvement initiatives. I will now discuss the dividend forecast. The forecast year-end dividend per share for FY 2025 remains unchanged at JPY 16 and is scheduled to be resolved at the Board of Directors meeting on May 20th. Regarding the dividend forecast for FY 2026, we plan to set both the interim and the year-end dividends at JPY 16 per share, the same amount as the year-end dividend for FY 2025. As a result, the forecast for the annual dividend for FY 2026 is JPY 32 per share. This concludes my presentation.

Thank you very much, Mr. Kida, CFO. We would like to move on to the question and answer session. Now, first of all, Morgan Stanley MUFG, Watabe-san, please.

It's one question I would like to ask the impact of Middle East. It's JPY 18 billion, and that's a raw material. Inventory reevaluation is included in the netted out. What is the situations of the raw materials and the raw materials from Thailand? How about the domestic naphtha? I think we have a good report about other raw materials, other than naphtha is a procurement. What's the inventory evaluation? Can you elaborate on the Middle East situations more in detail?

Thank you very much for your question. The Middle East situations, I gave you JPY 18 billion and also as you can see on this page, this is a segment-by-segment details. As you have asked, we have some receivables included. Also, let me give you the assumptions. For the, you know, we have to buy the higher price of naphtha, we will be able to transfer the cost to our customers.

Naphtha procurement cost, if it goes substantially higher, it's not going to be just a cost increase that we have to bear, but we will transfer the cost to the customers. In addition, you know, if you cannot produce the production because of a shortage of naphtha, I don't think that's the situation. We can't now relax, but I don't think it's as, you know, serious as you cannot produce.

To the customers who we deliver the products, if there are other products that, you know, they get from other suppliers, there might be, you know, reduced orders to us because of supply chain issues. And also, if there are small quantity amount that we have to, you know, procure from inside, there might be some shortage in the supply chain issues. As you have seen, MMA derivatives is JPY 10 billion. It's more than half of JPY 18 billion. As you know, our core facilities in the Middle East, in the middle of Middle East is, you know, supply chain disruptions or issues, is the biggest issue in the Middle East.

I think this is only hypothetical. MMA is approximately a loss of JPY 10 million, going down by JPY 10 million. Other than that, you think that it depends on the situations, but it's going to fare quite well. Naphtha assumption is JPY 60,000 or so. In the basic chemicals in the first half, it's going to be the losses, but it is going to be substantially positive. What do you think?

Thank you very much. You know it very well. In the month of April alone, naphtha was higher in the prices. On a monthly basis, there are some payment, you know, increase. As it comes down, it will profit. Net in net, there is no -- not so much impact. It is offsetting each other and some will remain in the next fiscal, next quarter or next year but we are now going to positively benefit much. Thank you very much.

Watabe-san, thank you very much. Next, we'll move on to Miyamoto-san from SMBC Nikko Securities.

I am Miyamoto from SMBC Nikko Securities. I would like to ask you about page 27, Specialty Materials. The reason for the increase in profit in the new year. JPY 44.1 billion increase. Soarnol impairment loss is deducted. It's about JPY 15 billion or so. Can you give me the details on this point? Especially the Composites and Shapes, the profit increase is quite large. I think it's a full-fledged shipment for the robotaxis. The number of shipments for robotaxis has tripled or maybe increased by 4x. To that extent, can we share what's the numbers and what is the increase in the process costs? I would like to ask you mainly the reasons for the increase in profits for the Specialty Materials for the new year, including Composites and Shapes.

Yes. For page 27, I did make some comments in the variances page. What is not shown there, maybe I can verbalize what is kind of shown between the lines. Regarding the composite engine shapes, regarding robotaxis, unfortunately, we are not able to give you the details of the number of shipments because of the contractual terms. As you just mentioned, I think you're pretty much, you're right in your direction. We started to ship from the latter half of this year, but next year I think it's gonna maybe triple or maybe 4x next fiscal year. Going forward, we will be able to make profits based on the previous upfront investment for composites.

Italian CPC, we've been doing a lot of reorganizations and restructuring, they've been producing unprofitable composite parts, now we're consolidating the production sites into one place. We're starting to change our customers for both government and commercials. Drones, we're getting new inquiries for the aviation and space related projects, that is also starting to shape up.

For Films and Performance Materials, I think the biggest one is where we have JPY 33 billion in impairment losses. That is going to resolve. That is a big factor. In Germany, we are expecting a new line for the polyester and MLCC. Previously, it took some time to get the certification for new customers, but now we're starting to make shipments for those. Also for the Soarnol, we are seeing steady increase in the sales as well.

All these factors are included. Regarding Information Electronics, this is an area next year we are going to see the launch of the new product with new investments for synthetic quartz or rigid photoresists.

This year, we've seen a lot of inquiries regarding the synthetic quartz, and we are currently expecting to sell to the extent we can in our current capacity. We do see a lot of inquiries related to semiconductor business. These are something that we are expecting. As we explained in the previous conference call, composite, Soarnol, sort of semiconductor related, and also gallium nitride. This is something that we expect for the next generation. I don't think it's going to really drive the sales next fiscal year for gallium nitride, but these are the areas where we can expect quite a lot of increase in the volume for the next fiscal year. Thank you very much.

Regarding the impact from the Middle East, Specialty, you said about JPY 6 billion. Is that mainly related to the raw materials? Can you tell me which products have difficulty passing on the cost? Are there any raw materials that are facing the shortage because of Middle East

Yes, thank you very much. We are not seeing any shortage of the materials in a material way but special items, the ones that we do not really think about too much, there are some concerns related to some of the materials. The majority of the impact from the Middle East is not so much about the price transfer or cost transfer, as I mentioned earlier.

Materials, raw materials that is something -- there are some shortage of the raw materials that we do not necessarily relay to the customers. There are some shortage of the drones that we do not necessarily be able to deliver to the customers but there are some shortages of those materials that lead to the reduction of utilization rate on the part of the customers, and that is part of the supply chain issues. This is not something that we are considering to pass on the cost. It's not so much on our part. On the customer side, some of the auxiliary materials and other materials are in shortage, and that resulted in the lower sales of our products.

Thank you very much, Miyamoto-san. Okazaki-san, I think you have raised your hand. Nomura Securities, Okazaki-san, please.

I'm Okazaki, Nomura Securities. Thank you very much. The Middle East situation covers the petrochemical area. If this continues till September, it is going to be JPY 2 billion negative impact in the basic chemicals basic materials area. In the basic materials it's going to be JPY 2 billion, right? Can you explain more in detail? I think utilization it was 90% before the conflict. In the first half, what's going to be the situation, and how about the other derivatives on the market impact?

Thank you very much for the question. First of all, cracker utilization. For example, before the war in Japan, in general, cracker utilization was approximately 75% or so. Compared to that, our co-cracker utilization due to the, you know, support from the customers, we were able to continue at the higher level. Now, this time, our commodity market is quite difficult and softening. No, we have the regular maintenance starting from the 9th of May in the some plants in Okayama. We will be able to continue approximately 80% of utilization. After the regular maintenance, we don't know what's going to be utilization level. At this moment, we are not really seeing any deep, big drop of the utilization.

However, we have to watch the situations and we cannot be relaxed and be vigilant. However, because a shortage of raw material could lead to reduced production in some materials and products, so we have to, you know, watch the situation. However, especially for the JPY 2 billion negative, is not really based on the big reduction in the production at this moment.

Now, as for the reduced production or supply chain concerns of the customers, were no concern, but we can change the transportation routes, and we can diversify and have a multiple procurement. We are already working on that for the petrochemical and Basic Materials and Polymers. I don't think that, no, we don't have much problem. No, it's very difficult to forecast what's going on and whether our actions are completely right.

As far as we continue to have this concern, we cannot be relaxed and, therefore we are going to be vigilant and watch the situations. If there are any movements or development, we are going to be agile and, take a very quick actions.

In the total amount of yen, it's not going to be a large amount, however it's going to be mainly due to the reduced production. Is that a right understanding? As you have pointed out, you do have a regular maintenance, so that is going to, of course, would, you know, be already discounted and included in your original plan. Is that right?

Yes, your understanding is completely right. Of course, there are some reduced production expected. However, rather than that, it's the, you know, current development that we watch very carefully. There was a previous question that naphtha currently continues to be weak and difficult till the end of September. Are you going to have separate numbers for the first half impact? Yes. If the naphtha, you know, is higher, we have to pay higher prices. If it goes to -- go higher, you know, it might, you know, stay at flat at some point. If it comes down, it's going to be opposite impact. It's very difficult to, you know, have the impact of the volatility. There are profit and losses, but off and on, I think net it's not going to be much impact. Thank you very much.

Next, Omura-san from UBS Securities.

I am Omura from UBS Securities. Can you hear me?

Yes.

Thank you very much. It's a little detailed question. I'd like to ask about the Materials and Polymers. In the fourth quarter, from the third to fourth quarter, I just wanted to confirm the changes. From March, naphtha on a spot basis, the prices have been going up. Domestic naphtha on a converted basis, it's not really going up that much. Such impact in March alone, what was the impact? Inventory levels seems to be a little bit lower than usual, and I was wondering what was the numerical impact from that. In the first half, forecast. From the first quarter to second quarter, how are you going to switch? Any ideas that you can share with us at this moment? Thank you very much.

Petrochemicals, especially in the third to fourth quarter changes, I know it's not easy to see and understand. Ethylene oxide, impairment loss was JPY 5.2 billion. That's one area -- that is the one data that you need to understand and FY 2025, it's minus JPY 1 billion on we believe. Utilization of crackers went down, but on a full year basis, that did not have a big impact.

We had a higher material cost in the end. And so FY 2025, as I mentioned already, and for first half of 2026, FY 26. If you divide it into quarters, it's very difficult to explain. For example, if you look at just April month, you know, the numbers were very good. Because of the naphtha received cost, we saw a lot of gains.

But how long this is going to continue is not really clear, and we need to wait until things come to an end. It is difficult for us to give you the detailed forecast of what is going to happen for each quarter. Therefore, unfortunately, we are not able to really share any detailed numbers.

Understood. Thank you very much. However, if you look at April month alone, as you just said, you have enjoyed a lot of gains.

Yes. If you look at the receipts, inventory receipts, we did see a lot of gains in April.

Is it because you raised prices earlier than usual, and that is the reason for this big gain?

I am just talking about inventory receipt. We had been discussing with our customers, and when it comes to petrol chemicals. For each quarter, we had a lot of rebuy. We refer to the previous quarter. In the second quarter, we refer to the price in the previous quarter, which is first quarter, and deliver to the customers based on that. If we cannot produce the products, it's gonna be a big issue. We need to discuss with customers. For example, we could refer to the previous month so that we can kind of shorten the time lag of which month we're going to refer to. There are certain customers like that.

Understood.

Thank you very much, Omura-san. JP Morgan. Nakada-san, please.

JP Morgan, Nakada. Can you hear me?

Yes, we can. Go ahead, please.

Once again, in the naphtha impact, I'm sorry to be repetitive, but there is a big benefit in the receipts and issues and in and out. How about the polyolefin as a business in April? There is a gain in the in and out, and the spread, you know, negative impact is more than offset by the price differences of in and out.

Thank you very much. For the month of April, we haven't closed, and we don't have detailed numbers yet. We had a Golden Week of consecutive holidays and in operating days, it's not a monthly timing.

According to the qualitative hearings, in the receipts and issues, I think we have more benefit and gains in the receipts. However, as for the details that Nakada-san questioned, we have to calculate very closely, and we also need analysis.

Is that due to the inflow and outflow, or is that actually we have taken the entire spread?

We haven't closed the numbers for the month of April yet. We have to be able to wait on the results and also what we are going to do in May. However, for the month of April, for the receipts and issues, I think it's positive because of the inventory received.

Yes. It's a major gain that you have already identified. Okay. In Omura-san's question, the price reference was changed to the previous month reference. You're talking with the customers. What is the timeframe that customers will accept the price increase, and how you decide the price with the customers? In MMA, I think you are going to change how you charge the customers. Is that going to advance the price negotiation substantially?

We have no idea at this moment yet. You know, we are saying that every time, you know, every time when we ship, we are going to have the market price increase to be accepted. For the longer term customers, you know, the situation could be different in petrochemical and for MMA is different.

For other products, formula, I think sales, is also negotiating with the customers. At this moment, what's the percentage of the customers, what's the percentage of revenue that can accept the price increase is not yet fully identified yet.

Thank you very much. Sorry for the long question. Thank you very much.

Next, Watabe-san, your second round of question from Morgan Stanley.

If you look back at FY 2025, JPY 25 billion missed target, is it because of the impairment loss of ethylene and EOG, and that's JPY 35 billion, and gas was plus JPY 4 or 5 billion. These are the main reasons. Is this understanding correct?

Also, on page 19, three basic approaches to business operations, disciplined approaches. Asset optimization JPY 35 billion. Next-stage is about JPY 15 billion or so. I wonder what the rest of JPY 20 billion. Looking back on FY 2025, it's a little bit like a math issue, but as you just mentioned, we're JPY 30.3 billion in EO, EOG or ethylene and ethylene glycol. We also do other ethylenes, JPY 5.2 billion for the impairment losses. That totals JPY 35.5 billion of impairment losses.

Chemical, JPY 24.3 billion. Without this impairment losses, it would be JPY 59.8 billion. The guidance was of JPY 65.7 billion, Specialty Chemicals JPY 32 billion, the core operating income. Without the impairment losses, it would be JPY 62.6 billion. The guidance was JPY 65 billion. I think it was pretty much within the range of the guidance in our view.

Of course, we're trying to pass on the cost to prices, and there's been a lot of initiatives and measures taken by our employees. One of them is Next-stage Support Program. Also we've been trying to reduce costs on the fixed cost level. The result of all these efforts to save cost, we've been able to see this impact. That is how we see it from the financial perspective.

For FY 2026, the breakdown of JPY 35 billion, what is included in this? Next-stage Support Program. That reduces the headcount to quite a large extent. That's a little bit more than JPY 10 billion. For each business, we've been saving cost, like consolidation production sites, and we're reducing not just the fixed cost but also variable costs. That's like JPY 10 billion plus. The logistics and procurement related cost saving is also there. We've been buying from different places, we try to centralize the procurement, which we should have done much earlier, and also the logistics. We've been shipping from different places, but we're trying to consolidate that. So, that's like, you know, a few billion of yen. It's difficult to give you all the raw numbers, but JPY 35 billion breakdown on a high level will be what I just explained.

Thank you very much. We have five minutes, so we'll like to entertain one last question. This is going to a second round. Miyamoto-san of SMBC Nikko Securities, please.

It's not humorous questions and it's second round, sorry for that. Let me ask about MMA. In the new risk year, base case is a moderate recovery of the market. Is it going to be $1,500 as assumption? What's the, you know, demand, trend, and utilization? Also, you talked about a JPY 10 billion of a negative impact because of the Middle East. On the other hand, MMA market is going beyond $2,000. Methanol raw price is increasing. Considered margin-wise, it could be a positive impact but JPY 10 billion negative impact, what's the margin assumption of MMA?

Thank you very much for the question. First of all, as for the MMA market assumptions, originally, before the war, 1,400, or a little less than 1,400 was the assumptions. You know, in China, they said 1,100 as the price offered in the market. However, the, you know, operations of the players in the industry in China, also based on the cost assumptions, is going to be the level of 1,400. Spread is going to go back to the level that we can be profitable. However, at this moment in ICIS, you know, Southeast Asia, it's coming down, but it's around $2,000. That's the price index available.

As may have touched upon, naphtha is approximately $1,000, a little less than $1,000. Just simply put, just looking at the numbers, the spread seems to be widening in some perspective. If you look at actual prices in China, it's more difficult. MMA market-wise, it's very difficult to forecast, and that's the current situation. You know, MMA is going to be a large business and large impact, JPY 18 billion. Maybe JPY 10 billion is from MMA as I explained. It's not really because of the spread, but it's the volume impact, especially the products from Middle East. You know, you produce in Middle East and export to other countries is going to be slower.

It's getting more and more difficult compared to the time before the war. We have a quite conservative forecast that it's not coming out from Middle East, and that's going to be a negative impact of approximately JPY 10 billion. It's the volume impact mainly, and it's not really based on the spread widening or narrowing in the JPY 10 billion number. If this situation continues, for example, some ask, you know, because of the reduced production, it's going to be a JPY 10 billion, you know, negative impact. It's going to be upward, you know, because of that pricing of the market in indications. It's very difficult to forecast. If you look at April, MMA is slightly positive. However, there are lot of reasons, complicated and intertwined each other, and therefore it's very difficult to understand what's going to take place in the coming months.

Thank you very much, Miyamoto-san. With this, we'd like to close the Q&A session. Mr. Kida, please give us the word.

Thank you very much for joining our earnings presentation today. While FY 2025 results were challenging, we believe they reflect the implementation of structural reforms necessary for growth from FY 2026 onwards, and we've been able to implement in a very bold manner. In the new fiscal year, FY 2026, the outlook remains uncertain due to rising geopolitical risks centered on the Middle East. Having thoroughly completed our structural reforms over the past two years, and with the growth of Specialty Materials, we expect a significant increase in profits. We will continue working together across the entire group to meet the expectations of all stakeholders. Thank you for continued support. Thank you.

The recorded archive of today's conference will be available for on-demand playback at any time. Please feel free to access at your convenience. This concludes today's conference. Thank you very much.

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

Thank you very much for joining us for the earnings briefing of Mitsubishi Chemical Group Corporation. We will begin with a presentation on results of Q3 FY 2025 by our CFO, Minoru Kida, and then take questions. We have 60 minutes scheduled for the whole of this conference.

Before we begin the conference, let us remind investors that we may make forward-looking statements based on company expectations and information available as of now, which are subject to risks and uncertainties, which may be beyond company control. Please be advised that actual results or outcome may turn out to be significantly different. Please also be advised that this conference is recorded and will be made publicly available on our website.

With that, we would like to begin, and I'd like to give the floor to our CFO.

Good afternoon, everyone. Thank you very much for joining us this afternoon. Let me begin with an overall summary of Q3 FY 2025 results. So during the third quarter of FY 2025, semiconductor-related businesses performed steadily. However, the business environment remains sluggish for materials-related businesses due to economic stagnation and uncertainty in various regions with no signs of improvement in market prices and demand.

Core operating income of Chemicals for the first 9 months came to JPY 41.2 billion. Core operating income decreased 22% year-on-year as the situation remained challenging for MMA monomer and Basic Materials despite the accumulation of cost reduction effects in addition to revenue growth due mainly to the price gap in Specialty Materials. The MCG Group's overall core operating income decreased only 2% year-on-year, partly due to solid performance of Industrial Gases. Net income attributable to owners of the parent for the group on the whole increased 77% year-on-year due mainly to the proceeds from the transfer of Mitsubishi Tanabe Pharma recorded in Q2 despite the nonrecurring loss recorded in Q3, resulting from the decision to withdraw from the coke and carbon materials businesses.

With regard to the full year forecast, as the company expects to record additional nonrecurring losses associated with the acceleration of structural reforms, including the recent decision to withdraw from the coke and carbon materials businesses, we have revised the forecast for profit attributable to owners of the parent for the full year from JPY 125 billion to JPY 47 billion. The forecast for core operating income remains unchanged after the revision -- after our first half earnings in October, reflecting the expectation that an early recovery in sluggish demand for products in Basic Materials & Polymers and MMA monomer market conditions would be difficult.

As for dividend, we maintain the initial forecast of year-end dividend of JPY 16 per share and an annual dividend of JPY 32 per share. We will continue to rapidly and steadily implement initiatives aimed at portfolio transformation and profit improvement based on the 3 criteria for business selection and 3 disciplined approaches in business operations under the guiding principles for our business operations in the Medium-term Management Plan 2029.

Now on profit and loss for the first 3 quarters. The average exchange rate during the 3 quarters was JPY 149.3 to the dollar with the yen appreciating 2% year-on-year. The average price of naphtha was JPY 65,000 per kiloliter, down 15% year-on-year. Revenue during the period came to JPY 2,737.3 billion, down JPY 245.4 billion or 8% year-on-year. Major negative factors here were JPY 89 billion due to prices, JPY 91 billion due to volume, and JPY 66 billion related to business restructuring. Core operating income came to JPY 185.6 billion, down JPY 4.6 billion year-on-year and is generally progressing well against the forecast for the second half announced in October.

Special items came to a net loss of JPY 72.3 billion, down JPY 27.8 billion year-on-year. Operating income came to JPY 113.3 billion. Income before income taxes, JPY 89.3 billion. Net income from discontinued operations came to JPY 94.8 billion, which includes the gain from the transfer of Mitsubishi Tanabe Pharmaceutical shares. Profit attributable to owners of the parent came to JPY 105.4 billion, up JPY 46 billion year-on-year.

Next, let us review revenue and core operating income by segment. For Specialty Materials, revenue came down 2% year-on-year, but core operating income increased 35%. Revenue declined by JPY 19.5 billion year-on-year due to the divestiture of business as a result of steady progress in structural reforms, lower demand for applications related to EV and for construction materials, and the impact of U.S. tariffs. Core operating income increased by JPY 11.8 billion year-on-year, thanks to rationalization, mainly in the carbon fiber-related businesses in addition to improvement in the price gap through retaining and improving selling prices for each product.

For MMA & Derivatives, both revenue and operating income came down significantly by 18% and 95%, respectively, year-on-year due to the continued decline in market prices of MMA monomers since the second half of the previous fiscal year. For Basic Materials & Polymers, revenue was down 24% year-on-year, but operating loss was reduced by JPY 9.1 billion. Revenue decreased by JPY 191.6 billion year-on-year due to the impact of the transfer of shares in subsidiaries and lower feedstock prices as well as a decline in sales volume after reducing coke production capacity. Core operating loss was reduced by JPY 9.1 billion year-on-year. Inventory valuation worsened, but there was a positive impact of the timing of sales price revision for polyolefins and the benefits of structural reforms in carbon products.

For Chemicals business as a whole, revenue decreased 13% year-on-year and core operating income came down by 22% year-on-year. Specialty Materials was firm and drove performance and carbon products improved steadily. However, with the decline in the MMA market, Chemicals as a whole had core operating income decline by JPY 11.5 billion year-on-year. Industrial Gases has been steady with revenue up 3% and core operating income up 5% year-on-year.

Slide 6 is a breakdown of the JPY 4.6 billion decline in core operating income. Prices had a negative impact of JPY 23.8 billion. This includes a negative JPY 1.2 billion impact of the foreign exchange rate. Excluding that, the price impact was significantly down for MMA & Derivatives due to a decline in market prices. On the other hand, Specialty Materials succeeded in retaining and improving selling prices. The price impact was positive for Basic Materials & Polymers, too. That was also true for carbon products. Volumes had a negative impact of JPY 9.2 billion. Demand was firm for semiconductor-related businesses, but particularly for Industrial Gases, demand in Europe and the United States was generally weak. Cost reductions had a positive impact of JPY 41.1 billion, reflecting increased effects in each of the Industrial Gases and Chemicals businesses. Others had a negative impact of JPY 12.7 billion and includes cost increases due to inflation and deterioration in inventory valuation gains and losses due to a decline in naphtha prices.

Let me provide further detail by segment. At the segment level, major factors of year-on-year changes are not much different from Q2. For Specialty Materials, core operating income was up by JPY 11.8 billion year-on-year. Prices had a positive impact of JPY 7 billion for Advanced Films & Polymers and Advanced Solutions. This was thanks to retaining and raising selling prices, in particular for semiconductor-related products. The volume factor was positive by JPY 600 million. For Advanced Films & Polymers, volumes had a negative impact due to customer inventory adjustments for display applications. For Advanced Solutions, volumes had a negative impact as demand declined for electrolytes for use in EVs, mainly in Europe and the United States, and as sales volume of construction materials and printing materials declined. For Advanced Composites & Shapes, the volume factor was positive, thanks to increased demand for high-performance engineering plastics.

Cost reductions had a positive impact of JPY 10.1 billion, thanks to rationalization involving structural reforms and review of production sites in each business. The negative difference of JPY 5.9 billion from others came from increased costs associated with inflation. MMA & Derivatives recorded a profit decrease of JPY 31.4 billion year-on-year. The price gaps deteriorated by JPY 33.5 billion. While the price gaps for Coatings & Additives improved, the market price of MMA monomers declined significantly year-on-year, narrowing the spread. The volume also worsened by JPY 3.4 billion due to reduced demand.

Basic Materials & Polymers reduced its loss by JPY 9.1 billion year-on-year. The price gaps improved by JPY 9 billion. Within Materials & Polymers, discrepancy in the timing for revision to polyolefin prices and the ability to maintain relatively high sales prices during the naphtha price decline phase contributed to profit improvement. The Carbon business also saw an improvement in the price gaps from the year before as a reduction of production capacity in Kagawa was completed, reducing loss-making transactions based on market prices. The cost reduction impact was positive JPY 5.1 billion, accumulating effects from fixed cost reduction in Materials & Polymers and structural reforms in carbon products. Other differences were negative JPY 4.5 billion, reflecting increased costs due to inflation. Although inventory valuation losses in the carbon business decreased due to falling raw material prices, valuation gains and losses in Materials & Polymers deteriorated.

Industrial Gases recorded a JPY 6.9 billion increase in core operating income year-on-year. Although price gaps deteriorated due to rising electricity prices in the U.S. and sales volume decreased, primarily in Europe and the U.S., profit increased due to the effects of cost reduction through productivity improvements being promoted in each of the regions.

Special items for the first 3 quarters totaled a negative JPY 72.3 billion. The first half recorded a negative JPY 39.6 billion. In the third quarter, we recognized an additional JPY 32.7 billion losses. And as announced on February 2, we have decided to withdraw from the coke and carbon materials business. Measures such as reducing fixed costs through downsizing production, reviewing the sales portfolio and implementing thorough cost reductions were progressing steadily and profitability was improving. However, the overseas coke market remains depressed due to prolonged oversupply caused by excess production in China. There is no prospect of resolving this structural issue. Therefore, we have decided that achieving medium- to long-term growth would be difficult even with various measures to improve profitability and superior quality of our coke.

Furthermore, the carbon material business continues to face oversupply and sluggish demand. Considering these circumstances and comprehensively reviewing the mid- to long-term positioning of these product lines within our overall business portfolio against our 3 criteria for business selection, consistency with our vision, competitive advantage and growth potential, we have decided to withdraw from these product lines. And consequently, we recorded a nonrecurring loss of about JPY 19 billion in the third quarter, primarily due to impairment losses on fixed assets. We anticipate equipment removal costs and expenses related to employee support measures totaling about JPY 66 billion, which will be recorded as estimates in the fourth quarter of FY March 2026.

Let me now explain cash flow. Operating cash flow resulted in an inflow of JPY 247.7 billion. Cash flow from inventories was an outflow of JPY 6.4 billion, primarily due to building up inventories in preparation for full-scale shipments of carbon fiber composites parts for robotaxis. Investing cash flow resulted in an inflow of JPY 123.1 billion. Cash flow from capital expenditures was negative JPY 209 billion. Growth investments in specialty materials are progressing, including capacity expansion at CPC in Italy for carbon fiber composites and in the U.K. for Soarnol for barrier packaging applications.

Cash flow from asset sales was positive JPY 534 billion. This reflects proceeds from the sale of shares in associated companies and group companies, primarily MTPC, as well as proceeds from the sale of cross shareholdings and noncore assets driven by our ongoing portfolio review. Investing activities resulted in a net outflow of JPY 201.9 billion. This includes expenditures related to the acquisition of subsidiaries in Australia and New Zealand within the Industrial Gases segment. As a result, free cash flow was positive JPY 370.8 billion. Cash flows from financing activities were negative JPY 347.3 billion, primarily due to repayments of interest-bearing debt, dividend payments and share buybacks.

Now the consolidated statement of financial positions. Total assets were JPY 5,821.5 billion, down JPY 73.1 billion from the end of the previous fiscal year. There was a drop of JPY 630 billion, primarily due to the impact of business restructuring centered on the sale of MTPC. On the other hand, factors contributing to an increase in assets included the portion of proceeds from the sale of MTPC remaining as cash on hand as of the end of December and foreign exchange rates. Net of these factors, total assets decreased by about JPY 73 billion. Net interest-bearing debt decreased by JPY 324 billion from the end of the previous fiscal year, and the net D/E ratio improved significantly to 0.83 from 1.06 at the end of the previous fiscal year.

This slide shows the trends in core operating income from the second quarter to the third quarter of FY March 2026. The core operating income for the third quarter was JPY 59.5 billion, a decrease of JPY 10 billion from the second quarter. Specialty Materials recorded JPY 12.1 billion, a decline of JPY 6.9 billion from JPY 19 billion in the second quarter. In Advanced Films & Polymers, sales increased as customer inventory adjustments for display applications allowed, but profit decreased due to scheduled maintenance and repairs at some sites and the impact of winter holidays in Europe and U.S.

In Advanced Solutions, semiconductor-related businesses generally performed well, but profit decreased due to the absence of onetime revenues from large-scale water treatment project for semiconductors completed in the second quarter and other temporary factors at some businesses. Advanced Composites & Shapes saw improved performance in its high-performance carbon fiber and composite parts businesses, but losses widened due to the impact of winter holidays in Europe and U.S. MMA & Derivatives recorded a loss of JPY 2.6 billion, down JPY 2.9 billion from the second quarter. This was primarily due to worsening price gaps caused by weak market conditions for MMA monomers as well as the impact of scheduled maintenance and repairs at various sites.

Basic Materials & Polymers saw a JPY 1.7 billion decrease in profit from JPY 1.2 billion in the second quarter to a loss of JPY 0.5 billion in the third. Materials & Polymers posted a loss despite improved inventory valuation gains and losses due to deteriorating price gaps caused by timing differences in polyolefin price revisions. However, in carbon products, the loss narrowed due to improved price gaps from progress in structural reforms and improved inventory valuation gains and losses. Industrial Gases saw a decline in sales volume due to sluggish gas demand. However, foreign exchange impacts, price management, and productivity improvement activities led to an increase in profit from JPY 48 billion in the second quarter to JPY 51.4 billion in the third quarter, up JPY 3.4 billion.

Next, I will explain the revisions to the full year earnings forecast for FY March 2026. We maintain our full year forecast for sales revenue and core operating income announced at the interim results earnings briefing. While core operating income for the third quarter was JPY 59.5 billion, the Chemicals business as a whole performed largely as expected and the Industrial Gases business also showed steady progress. We will continue our efforts to achieve the full year core operating income target of JPY 250 billion. However, due to the recognition of losses associated with the withdrawal from the coke and carbon materials businesses and acceleration of structural reforms, we anticipate additional losses under special items, resulting in the latest forecast for the full year of a loss of JPY 180 billion. Accordingly, the latest forecast for operating income of JPY 70 billion and net income attributable to owners of the parent of JPY 47 billion.

And this concludes my explanation. Thank you for your attention.

Thank you very much for your kind attention. We will now take questions. So first, I'd like to invite from SMBC Nikko Securities, Miyamoto-san.

This is Miyamoto from SMBC Nikko Securities. Earlier, you talked about Chemicals market, and you said that it was generally as expected. But if you look at Specialty Materials, toward Q4, some of the business would be challenged to meet the full year target. So if you could perhaps talk about the outlook for Q4 maybe qualitatively for each segment, please?

Thank you very much, Miyamoto-san, for your question. So towards Q4, well, this time, JPY 250 billion target is maintained, as I mentioned earlier. So as you look at Q3 results, you can actually do the math. And you understand that for Chemicals, we will need an income of about JPY 20 billion in Q4. for Industrial Gases, we will need about JPY 45 billion. As of now, and obviously, there are uncertainties, but if you look at segment by segment, I may be able to provide some light.

Advanced Films & Polymers, there's seasonality. In Q4, this is always down. That is an annual pattern. So that would be a negative factor. But overall, the business is expected to transition firmly. For Advanced Solutions, again, we do have some negative factors such as scheduled maintenance. But as I mentioned earlier, the demand for use in semiconductors is strong. And so we believe that Q4 should also be firm.

Then Advanced Composites & Shapes, and this is where you ask questions, and there's a lot of focus on. In Q3, the high performance engineering plastic is usually centered around Europe and the holiday actually has a negative factor. But then in Q4, that typically comes back. With regard to composite parts or like used in robotaxis, this will really start up in calendar 2026. So every year, we are shipping for about 100 units. So this business, we have quite high certainty that this will be more profitable.

For MMA, in Q3, there were a lot of scheduled maintenance turnaround. So that will be gone. But then the market situation is still challenging. Currently, if you look at ICIS levels, $1,280, that's probably $30 to $50 better than where it was at the bottom. So the competition in China is being challenged. But then if you look at the feedstocks, the acetone prices are coming up slightly, and that is pushing up the MMA prices a little bit. So we do see some signs of MMA prices rising. And then after the Chinese New Year, we will try to focus on what happens to the prices and supply-demand balance.

For Basic Materials & Polymers, petrochemicals would be challenged. And that's probably unchanged from up to Q2. For polyolefins, the strength is continuing. Polypropylene is as expected. But even for polyethylene, the strength is actually exceeding our expectations. But then for the liquid ethylene derivatives, for example, ethylene glycol and acid-based ones or C3 propylene and oxo alcohol, acrylic acid, those are still facing difficulties.

For carbon products, in Q4, we expect this to turn profitable. Recently, we announced the withdrawal from the business, but there is still profitability here, thanks to structural reforms. And maybe I'm braving myself, but we did really make really, really hard and difficult efforts, and that is really bearing fruit, and that will be making tangible contribution in Q4. So that was the overall view of what we are or what we expect for Q4.

Just one follow-up question. So what about cost reduction? This time, about JPY 29 billion from prices. And then you were also looking at asset reduction and that was the expectation.

We haven't changed the outlook there. We will continue to work on pricing policy, and this is clearly making a difference in Q3, and we will continue for this in Q4.

Next question from Yamada-san from Mizuho Securities.

Yamada from Mizuho Securities. Carbon products restructuring was mentioned, and thank you very much, it was on February 2, I was not able to make it, but I'd like to learn more taking this opportunity. Impairment loss of JPY 19 billion is recognized and 600 members will be giving support for the retransfer. And adding that, probably the loss will be JPY 25 billion or JPY 30 billion losses. But you are saying that JPY 80 billion level losses to be recognized. So there will be dismantling costs that will be incurred that much. Why is this large?

And also carbon materials and cokes, you have withdrawn from these businesses. So the whole group is going to be withdrawn. And why IFRS, it is not categorized as discontinued businesses and the downward revision for discontinued ones. The restructuring expenses for carbon businesses is outweighed by this recognition. Why is that?

Thank you very much. For the losses in the carbon products business -- carbon business, well, I'm repeating myself, but what has been recognized in the third quarter is about JPY 19 billion or JPY 18.5 billion, and majority was the impairment losses on fixed assets, and also inventory losses also recorded valuation. So all the losses recognized in third quarter is impairment losses. And as I said, in the fourth quarter, this is just an estimate for the time being, so it's not accurate. But at the moment, we're estimating JPY 66 billion in losses to be recognized.

And on this JPY 66 billion, there's a dismantling fee, removal fee of equipment and also support for employees that are transferred. And also, there will be some close-up and shutdown expenses for the businesses. And removal and dismantling construction cost would be really large. And to what extent you would do this is really a question. Those that are not related to safety will be removed, and then the remaining ones will be just left in place. That is one approach, but you can also dismantle everything on the ground.

And then there are long pipes that are under the ground, and you may have to pull them out in a sense. But at this time, of course, we have to consider possibly attracting other businesses on light. So we are now trying to remove everything on the ground, then that dismantling fee is really large at this moment and this will be recorded in the P&L, but this will be incurred for the next several years. So in the discount calculation, the net present value under the discounting will be recognized as the losses for this fiscal year. So that's why we have estimated JPY 66 billion.

And then as for the discontinued businesses, why we are not categorizing this in the discontinued businesses? Compared to the accounting standards, the discontinued ones won't have the scope of those that have the businesses that will be continued for more than 1 year. So we've decided to withdraw from this business, but the ultimate shutdown of this coke business will not be until the second half of fiscal 2027, because there are long-term contracts that we have signed with the customers and we have to fulfill that contract obligation.

And put it differently, you cannot really switch off all the lights of the house. That is not the case that is going to happen. So at least we have to keep burning the cokes for 1 year or more, and that business will be continuous. So that's why we are not allowed to reclassify this as discontinued businesses compared to the regulations. So full withdrawal in the fiscal 2027.

So in the beginning of 2027, is it going to be classified as discontinued business?

That will be difficult.

Okay.

So we are expecting in the second half of fiscal 2027 or by March 2028, at latest, all the shipments that are scheduled will be completed. So if you look at MPTC, maybe you can get the year. But in the case of Mitsubishi Tanabe Pharmaceutical, the sale was announced to be July 1. And then the first quarter would be the one where this would be classified as discontinued business. So this will be the timing that you have to look at. So probably this is not going to be classified as discontinued business until first quarter or second quarter of 2027. So this will be part of coke's business until then.

Okay. So the downward revision was more than the total of JPY 66 billion and JPY 19 billion. Why is that?

Well, I'm sorry, but we cannot disclose details by item. But in December, Chikumoto explained about this, but majority of the ones should be dealt with by the end of this fiscal year. And so as far as we can, we would like to put this to an end. And then we have some idea about how to do it now. And obviously, for ethylene in the Western Japan, that is also taken into account. And there are many backlog ones that have been accumulated for many years, will have to be dealt with, and we would put it to an end by the end of this fiscal year.

Next, we would like to invite Watabe-san from Morgan Stanley MUFG Securities.

This is Watabe speaking. Overall for Q3, you have the core operating income of JPY 66 billion (sic) [ JPY 59.5 billion ]. Was it mostly in line? Could you give us a more granular view? And for carbon products, next year, you are expecting that to be breaking even?

Thank you very much for the question. With regard to Q3, the original expectations and how did the results fare? Obviously, there are some ups and downs, but generally speaking, they were in line. And then obviously, there are some ups and downs or deviations. So perhaps let me go through this. Maybe MMA and Films really came in line with expectations, almost exactly. And there was some upside for Advanced Solutions. For semiconductor-related businesses like synthesized core or cleaning agents for semiconductors, those actually came in a little better than expected.

On the other hand, AC&S, Advanced Composites & Shapes, that was slightly down. For high-performance engineering plastics, there were some small M&As that we executed in the United States. And so the United States operations were expected to grow more. But then the high-performance engineering plastic operations in the United States slightly underperforming. That could relate to Industrial Gases. But overall, throughout the year, the trading in the United States was generally low or slower than expected.

Another area was petrochemical that was slightly down. Material & Polymers, as I mentioned, the polyolefins were very strong. Sometimes they exceeded expectations, but the liquids like C2/C3 derivatives, they were expected to improve further, but it appears that the Chinese products are still having a great impact and a drag on the market, and the prices were lower. So that was slower than expected.

And then what was better than expected was Industrial Gases. Industrial Gases are steady, and we expected it to be steady, but it's a little better than expected. So that would be the review of 3 quarter against what we had expected. I'm sorry, it was a bit qualitative.

So for carbon products, next quarter or next year would be 0 breakeven?

Yes, close to 0. In Q4, as I mentioned earlier, it is to turn profitable. But then carbon product contracts are usually on an annual basis. So we are negotiating next year's prices and contracts. And so we are trying to transition into tolling business that is less subject to market prices. And for some customers, they have accepted that, and we have been able to do that in this financial year, but obviously, it depends on the counterpart. So in Q4, we are in a review or a new approach for this, and that is making us profitable in Q4. We're not sure if we can do that for everyone in next financial year, but we probably won't have billions of yen of losses going forward.

Next question, Okazaki-san from Nomura Securities.

Okazaki from Nomura Securities. In the December briefing, carbon products and MMA and petrochemicals businesses are struggling. That's what you said. So by the end of this fiscal year, you are going to come up with certain measures and actually that was done for carbon products. But as for the remaining ones, MMA and petrochemicals, in what way can we expect a certain announcement by the end of this fiscal year? What is your current thoughts?

Thank you very much for the question. As for carbon products, yes, we have made announcement. And in the carbon products business, as Yamada-san said, so even if we say carbon product business, there's not much that is left with us. So as for carbon business, we have clarified the future direction. So the remaining question is how to execute that. But for the remaining 2 businesses, as for petrochemicals, the Western Japan ethylene was already explained. And Mizushima cracker will be shut down, that was decided, but in a sense. So this is not the end of the story, but actually, this is the beginning of the story.

So, so far, as we have the opportunity to have dialogues, we have been explaining about this, but crackers are just a part of the whole business. So what about the derivatives other than crackers? So this is also true with Western Japan ethylene business. But as for petrochemicals, why do we have to stay involved? So we're not planning to make a lot of profits from petrochemicals. But as a green chemical business foundation technologies, petrochemical has relevance. But in terms of commercial and monetization, so we talked about ethylene, but when it comes to derivatives, you have to look at broadly, looking at various options like collaborations. So that's what we are discussing right now.

So with regard to collaborations, I'm not sure whether we can get to that point or not. But that is a general direction that we are having a discussion on. And what are the steps that we have to follow until we reach that time. And those steps will be announced by the end of March. Whether this can be explained by March 31 or at the timing of full year earnings results for this fiscal year, we may announce that. So there might be some time lag, but that's the time frame that we're looking at for now.

As for MMA, compared to petrochemicals and cokes, in terms of the scale, it is one order of magnitude smaller. So as we explained in the briefing the other day, so there are 3 businesses that would require structural reforms in the quadrant diagram in the left bottom corner. But there's some differences in terms of priorities or scales between MMAs and the other 2, because we stay #1 player in MMA in the world, and we have the ability to compete still.

So how we can take advantage of our competitive advantage and take action in the market? And what about the global allocation of our system? And what do we do about production capacity? There are several options, and we would like to put them into one single package and present it by the end of March.

With regard to MMA, so even if the current market condition continues, can we expect this to break even in the next fiscal year?

If the current market condition continues, then we are not going to make it to the breakeven, honestly speaking, of course. What about the prices of the asset. $1,280 on ICIS basis, that's the price. But it used to be $1,230 or $1,240 on ICIS basis, so it is going up, but still we're not there yet. So there needs to be one more round of cost reduction. And also, there's production allocation and relationship with joint ventures have to take into account. So there was unevenness in terms of capacity adjustment in some sites. So at the current price level, we may be able to have a breakeven or not almost there, barely there.

Next, Umebayashi-san from Daiwa Securities, please.

This is Umebayashi from Daiwa Securities. I have a question about the 3-way consolidation in West Japan for petchem. So you talked about green investments and the facilities, the tank, et cetera, for those new chemicals, and you've got this grant from the national government. So it's not each player, but you'll start this new joint venture, the 3-way joint venture. That's my understanding. But then the dismantling expenses at Mizushima for the ethylene cracker, et cetera, that should actually be borne by all the 3 parties. That sounds like a fair way to me. But in reality, is it maybe you and Asahi Kasei, the joint venture, is that joint venture going to shoulder all that? And if that's the case, it doesn't seem too fair as a scheme. So could you elaborate on that, please?

Thank you very much for the question. First and foremost, maybe the other way around. With regards to who bears losses and expenses, this joint venture you mentioned, the specific framework, we are using JVs and LLP, and they are different. So there will be one LLP. And if the LLP is with 3 companies coming on equal footing, so that's investment. And then the LLP would actually take care of everything that is not so essential. So the Mizushima dismantling, et cetera, those expenses that are associated with closure of what is already there, those will be borne by the 3 parties in an equal way. But then this JV, this is about the continued operation. This side will depend on the offtake balance among the 3 parties. So the investment would depend on how much offtake is expected from each partner. So the JV will be about the remaining operations. And then the LLP is for dismantling, et cetera, for the remaining -- for the discontinued operations, and that will be borne equally by the 3 parties.

Thank you very much for that clarification. So that kind of a negative part, taking care of what's no longer necessary. So the losses there would probably happen after the operations cease? Or do you actually try to allocate some expenses upfront?

With regard to that, we're not in a position to share all that in detail today, and I'm not in a position to discuss specific figures. But obviously, it will be done according to accounting rules. And what the accounting rules say that if you have something that isn't going to be utilized in the future, you will need to do impairment. That's the route. So such impairments would probably happen before long. And then what happens after that, dismantling, et cetera, we have yet to finalize the fine details. So at this point in time, the only thing I can say is that the losses will be borne equally, effectively by the 3 parties. So that's probably the only thing that is certain at this point in time.

There's only 8 minutes left. Are there any other questions? Miyamoto-san, please go ahead.

Miyamoto from SMBC Securities. I would like to ask one more question. With regard to carbon composite, from 2026 calendar year, there has been a shipment of 100 units per month. So in terms of production, are you already doing mass production? Or for the next fiscal year, you are going to increase the production rate and shipments will be increased from April to June or July to September. Can you give us the current status of that carbon complex -- composites.

Well, calendar year and fiscal year are mixed together, so it may have been confusing. But from 2026 calendar year, the shipments have been started on a full-scale basis. Because of the relationship with the customers, I cannot specify the exact number of units to be shipped. But for this fiscal year or fiscal 2025, total number of units to be shipped, there's still several hundreds that we have in mind. But for the next fiscal year, as estimate, there's going to be quite a large number, like 4x more is the order of magnitude we're looking at in terms of forecast.

So I'm not sure if what you are imagining is in line with what we have. But compared to fiscal 2025, in 2026 fiscal year, there's going to be a huge increase in units, and there will be more contribution to profit. That's what we're expecting to see.

Okay. On December IR Day, the production units has been increased from 5 per week to 10 per week, but this has been one more step of increase, and there's no problem in terms of increasing the production volume that much. Can you give us the answer?

You talked about 10 per units, but in January or February, that 10 units per week has been made larger by 3x or 4x in January and February, and that will be further increased in fiscal 2026. That's what we are expecting for now.

Then the past 1, 2 months, there has been increase in the production quite a lot, and there's going to be further increase in the production volume, and there's no problem that you're facing. So in January and February, the shipment units is going to be increased larger. So what about the production volume? The production volume has been increased.

Let me give the floor to our CFO once again.

Ladies and gentlemen, thank you very much for joining us for the earnings conference. There is some uncertainty and sluggishness with regard to economy here and there, and the business environment around us isn't that favorable yet. But at the same time, we talked about a lot of nonrecurring items, and we will continue our efforts toward portfolio reform and profitability improvement. We will accelerate that. And we are now seeing some tangible results and effects of those efforts. So we will continue our company-wide efforts to implement those measures so as to live up to the expectation of our stakeholders. We ask for your continued support. Thank you very much.

Thank you very much. And with this, we would like to close today's earnings conference. Thank you very much once again for joining us.

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

It's time to start the IR Day of Mitsubishi Chemical Group Corporation. Thank you very much for attending this session in your busy schedule. Investors and shareholders, thank you for joining us physically and through the online.

My name is Shimizu from IR office. I will be moderating this session today.

Let me introduce the speakers for today. Mitsubishi Chemical Group Corporation, Representative Corporate Executive Officer, President and CEO, Chikumoto; Corporate Executive Officer, Chief Transformation Officer, Araki; Corporate Executive Officer, Chief Financial Officer, Kida.

Prior to starting the presentation by Chikumoto, President, I would like to inform you on several points. First, we will take questions. After the presentation, we will hold a Q&A session. Today's session is held in hybrid format. The presentation by the President and also the replies to the questions will be in Japanese language. At the same time, simultaneous interpretation into English is provided.

Those of you in this room, please use the receiver to listen into English interpretation. Online participants, please select your language using the interpretation button on the screen. And the video and audio including the Q&A will be posted on our company's website later on.

Now, I would like to hand over to Chikumoto-san.

Good afternoon, everybody. Thank you very much for joining us today. And also thank you very much for your understanding and support to our business and to our company. Thank you very much.

Today, I will give you an update from the last IR Day, KAITEKI Vision 35, and also the Mid-Term Management Plan 2029. And I'm happy to report the progress, and I will also explain our plan for the future.

There are four points in today's message. First, Specialty Materials. And Specialty Materials is growing beyond our expectation. It is increasing profitability. Going forward, mainly from Specialty Materials, we want to be actively make investment.

On the other hand, MMA and Basic Chemicals, which are vulnerable to market volatility, we are impacted by the Chinese increased production and we are hit hard, especially for MMA, the market volatility hit us very hard. Last year, this was contributing to the profit. But this year, it will be making a loss.

For the Petrochemical, later, I will come back to explain this. As you know, there is a three company collaboration and also progress plan regarding rationalization and green transformation. The plan is in progress according to the plan. But there is excess production capacity and the loss-making business requires rationalization, which was a bit delayed and profitability was suffering from that.

For the Carbon business, we have the structural reform. We reduced production from 25 coking up to 15 and we are making breakeven point, but the domestic steel situation is rather challenging and Chinese cokes manufacturers are selling at lower price, and we are impacted market condition. So the situation remains challenging.

And the three disciplined approaches in business operations, the core policy of our Mid-Term Management Plan, we are delivering this as the core of our management. And going forward, we would like to stick to the plan. And later, I'll come back to this.

And by sticking and penetrating these three approaches, profitability is improving. And for the next-generation and growth driver, we will concentrate our investment here and for further improvement and also the new business, which will be the source for our future profit, and that should be contributing faster to our profitability, and that is ongoing process.

Lastly, management commitment. I will explain that, and we say that and we do it. And that is our management commitment. We work as a team, and we confirm the current situation and our new commitment, we hope to -- you can feel that through my presentation.

Today's topics are shown here. First Mid-Term Management Plan guiding principles. Pricing policy, investment decision-making and asset optimization. We will execute this to achieve JPY 140 billion profit contribution, of which we achieved in the 1 year and 6 months and JPY 59 billion, that is 42%. So in 4 years, we can achieve 58%. That's the plan. But we have this JPY 140 billion in plan, it will go up and the rest of 58%. In the next 4 years, you may thing we are not working. We want to make sure that we can exceed this number.

This is by segment Specialty Materials. More than we expected, profitability is improving. And we are feeling that very deeply. May forecast said JPY 46 billion in profit. But October forecast has changed to JPY 65 billion. Now it is exceeding this number. And in the next 4 years, JPY 40 billion (sic) [ JPY 43.5 billion ] with three disciplined approaches. But then the rest would be JPY 144 billion. And so, we want to exceed this number, and we want to have concentrated investment.

On the other hand, the market condition hit hard for Base Materials, Polymers and MMA derivatives. The environment has deteriorated, especially for MMA, China impact was hitting hard. And because of the market condition, we are making a loss. And we need to accelerate our structural reform. Today, because of the -- our relations to the partners, I can't give you details, but actions are being taken already.

Basic Materials & Polymers, which I'll come back to explain later, already actions are taken. But we can do construction at the repair and maintenance timing. And regarding the rationalization of production, we are a bit delayed. That is true.

Regarding three company collaboration, it is in line with the plan. So now later, we should be able to make announcement to you. There are three structural reforms. And by the end of March, we should have come up with a plan so that we can execute. And for the next year, MMA should be profitable, and Petrochemical, we hope to make a profit. And for the Carbon business, the challenge continues. But we are close to breakeven, and we need further actions on the top of the existing actions, and we are trying to come up with specific actions internally.

Overall, Industrial Gases as planned is showing growth and profitability is unshaken. So, for Chemicals, JPY 170 billion growth, we will make investment appropriately and rationalization speed should be accelerated. Those are two main themes.

And this time around, business portfolio is clarified and our focus area is clarified or structural reform area is clarified. And for each area, growth strategy is explained.

On the right, those are the focus area and the growth potential versus profitability, you can see, and cash earning Cornerstone business and the growth is driven by growth drivers. And for the next future growth, profit and next generation area and areas for structural reforms. You can see which portfolio fits by each business segment that we have.

For Cornerstone business, we have batteries, electronics, films and carbon fiber, carbon fiber and composites and infrastructure solutions, those will fit here. For the growth driver, Semiconductor and Polymers include SoarnoL, barrier materials mainly and high-performance film, engineered performance, Engineering plastic shapes and solutions.

For the next-generation GaN-on-GaN, that is a substrate for semiconductor in terms of quality. We are among the top level in the world. I'm sure about that, and that should grow large in scale, and we will accelerate investment to have higher speed. And NTT's photon is a project we have jointly and we work with partner for developing businesses.

For semiconductor like EUV metal resist. Already in U.S., we make investment and construction is almost completed. And for thermal management, the other day in the U.S. we have the second investment decision to this U.S. venture company that was decided and the contribution to the profit should be realized soon.

For chemical recycling plant business is included here for us. Green transformation is one of the important business areas for the next-generation.

Structural reforms include Carbon, MMA Materials and Polymers. As you can see, we have already made investment of JPY 200 billion to growth driver and next-generation JPY 80 billion for the Cornerstone business generating cash. So, you can see the level of investment on our side.

This is just an image and how the investment will contribute to the profitability is shown here. Also green transformation. Naturally for next-generation and growth driver, we concentrate and focus and the Cornerstone generating cash, green transformation is essential and in structural reform, particularly in petrochemical, green transformation is considered and discussing green transformation can impact the world.

But in terms of profitability, actually, this is a new business opportunity. We want to stay as a top runner. And together with METI, we have discussions regarding how we can advance green transformation in Japan. We always have that discussion.

This is the growth driver and semiconductor products are shown here. One is Synthetic Quartz and Cleaning Services and EL hydrochloric acid. And our semiconductor business is not limited to these. They are #1 in shares, it says. And we negotiate with customers, and we provide super high purity and super low contamination products. And so, this is not just #1, but this is the only one product. And those only one products in the semiconductor area should grow, that would make our contribution in the semiconductor industry.

And this is for the next-generation and planting seeds. GaN-on-GaN substrate, it can be vertical or horizontal and data centers power consumption can be largely reduced by this. And currently, this is an issue. Our data center construction and power consumption is an issue. Where do you get the power from is an issue. And this, we can provide one solution to that.

We make investment here and R&D should be accelerated. And also for EUV MR registry already in U.S. the investment is completed and the construction is almost completed, and this is close to the actual operation. And also Neutron shielding materials or electromagnetic wave absorption and optical waveguides would be required and R&D is ongoing.

As the growth driver and also as Cornerstone business, we have carbon fiber and composite. We have a lot of facilities in the upstream and the balance between the upstream and downstream was not optimal. So, we closed Everstone plant in the U.S., reduced the Sacramento plant. And we have temporarily halted the operation in Hiroshima. And we optimized the production capacity in upstream and also made investment in composites and parts.

So, in this March, we will be able to turn to profitability for this business segment in overall. We have been running in loss until last year, which will finally turn to profitability. We have been working on rationalization and integration during the past 1.5 years, and we can reap the benefit for -- in next fiscal year and also new projects are launched.

And for CFRP the mobility and other projects have been launched without the contribution yet, we will be -- we have already turned this to profitability. This is Engineering Shapes & Solutions, the semiconductor and medical are the sources of the profit.

How much growth can we expect from these Engineering Shapes & Solutions, you can see from the graph, we have expanded the capacity in Thailand factory and also in Belgian factory. We intend to expand the investment here.

For medical application, we need to coordinate with the customers. And for semiconductor, when we develop the materials, we talk to the semiconductor manufacturers. So these are unique products.

For Films & Polymers, there's no doubt that this generates a strong profit -- profitability is, so this is the largest cash generating business. This applies to high-performance films and also general purpose industrial films, we have high competitive strength and high quality, and we are currently making profit strongly, especially SoarnoL for barrier material and MLCC Film for semiconductor or in display area as well, the high-resolution film is highly valued by our customers. And for the advanced display, we are a dominant player.

On the other hand, MMA, where restructuring is necessary, we are impacted by the major capacity expansion in China and the market have deteriorated. And we have introduced 60% home ratio, but still impacted by the market environment, and we will continue to optimize the production capacity and rationalize plans without competitive strength. And we will revisit the sales strategy to optimize the supply chain.

Indian market is steadily growing, and this can be separated from the impact of China. So, we are exploring the possibility of new projects in India. We have no intention to give up MMA: C2, C3, C4. It is only our company with these three technologies. The production increase in China, how can we avoid the impact of that and introduce the latest technology and reduce the cost? Those are the efforts we will continue. And downstream Polymer and MMA Derivatives, we will focus on expanding them and secure the revenue in that area. For excess MMA and Monomer, we are to rationalize.

The Basic Materials & Polymers. In this area, we are to implement -- we were able to implement the rationalization at the time of the regular maintenance and the cost reduction was achieved. We will further implement such measures in the future. Western Japan ethylene production facilities reorganization is underway. We will be able to give you further report by the end of this fiscal year. And carbon products, we will further pursue structural reform.

Green transformation in Kashima, the recycling efforts are underway, but this is operating in test phases. There are challenges. One is the material collected, used plastics, they are diverse. So, we need to collect the operation data in order to optimize the operation.

And also currently, the plant is 20,000 tonnes. How can we expand to 200,000 tonnes? We are discussing with partners. The commercial operation can be started in March. We have been discussing with plant owners. And once we can start the commercial operation, this plant will generate profit.

Biomass with these partners, currently, we are working on projects. Japan Airlines, I think it was today or yesterday, there was report on the newspaper to use 10% SAF. And I think they were mentioning 2030, and we would like to work together. The project in Abu Dhabi is underway, and there were issues of cost reduction, but there was a major progress recently. And by the -- within next fiscal year, we would like to decide on this as well.

On capital allocation, JPY 3.170 trillion will be allocated with this weight. The shareholder return and debt repayment will make up 25%. Investment in Chemicals business will be 44%. And within this, growth and strategic investment will be 27%. The rest will be investment in group business, mostly for Nippon Sanso.

The financial soundness target net D/E ratio of 0.8 or lower. For shareholder return policy, dividend payout ratio target will be 35%. The minimum amount -- annual dividend of JPY 32 per share. And we will consider additional share buybacks as opportunities arise.

Next, on evolution of business foundations on human capital. Next Stage Support Program was introduced. This is to provide to the employees opportunity to consider next career. And as a result of having employees of 50 years old or higher consider working at new places, we had more than 1,000 employees make decisions.

One objective was to optimize the workforce age distribution; two, and also improve the workforce productivity; furthermore, we have younger capable talent and to provide job opportunities to those people. So, those were the objectives of Next Stage Support Program.

Currently, when -- for talent management, all of the leadership team has members, have good grasp of the outstanding talent and young talents, cross-organizational assignments and tough assignments are given to promote the growth of such young talents. And on HR system, global database has been developed, and we have framework of post-off and also double ladder consisting of management and professional ladders.

On the dialogue with the employees, last year, we have held dialogues for more than 40 times and the leadership team is visiting all locations around the world to hold direct dialogues. We communicate management policies and receive questions and leverage the feedback in our management.

Another project is so-called Work Improvement project. We received a total of 7,200 suggestions, and they include discontinuation of inefficient work or unnecessary meetings. We scrutinized all of these proposals. And when the decisions are not convincing, we raised it to upper layer and had discussions at the executive level.

As a result, for 4,100 tasks, we decided to discontinue. And for the tasks that could not be discontinued due to safety or compliance or governance reasons, the explanations were provided to the employees and decided and made it convincing. And next year, we would like to introduce another project to collect work improvement ideas or what they want to do in order to raise their motivations.

In the Employee Engagement Survey, we felt that the employee engagement is on the right track of improvement. We would like to continue to focus on improving employee engagement. For the salaries and bonuses of the executives, we have made changes so that it better reflects the profitability of the scope of responsibility and also align the perspectives with investors.

We doubled the TSR-linked portion. And also the independent Board member ratio was raised from 50% to 75%, especially by having members with the thorough knowledge on the management. We were able to improve the management capability.

And lastly, I would like to cover the management commitment. In addition to the one published in November last year, we made three additions. First, we are to execute three disciplined approaches in business operations with commitment and persistence, the JPY 140 billion. On this amount, we would like to further add on top through this measure. For structural reform, unrealistic measures will not have any meaning. So, we are to execute the measures that can be executed. And 5 years later, through these measures and also through the acceleration of the specialty business, we can further compensate.

And we have clarified the business portfolio, and we will continue to focus on the investment into next generation and growth driver quadrants and also continue to generate cash from the Cornerstone businesses. And for structural reform areas, we will present the direction once again around end of March next year.

During the past 1.5 years, 70% or 80% of the measures were defensive, and 20% to 30% were offensive. And through these measures, we have improved our ability to generate profit, but there are tasks still to be done during the remaining 3 months. And I have confidence that we will be able to complete them all by the end of this fiscal year.

For next fiscal year, we will focus -- shift our focus mode to the offense. My personal view is 90% is offense and 10% is defense. But Kida-san may not agree. So, I shall set the weight to 80% to 20%. But my personal view is that, since we have done so much, next phase is to shift to the offense. That is what I have in my mind.

Once again, this is the review of our purpose. We lead with innovative solutions to achieve KAITEKI, the well-being of people and the planet. Thank you for your kind attention.

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

Thank you very much for joining us for Mitsubishi Chemical Group Corporation's Financial Results Briefing. Now let us begin the meeting.

First, Representative Corporate Executive Officer, President and CEO, Manabu Chikumoto, will deliver opening remarks followed by a presentation of the second quarter financial results of fiscal year 2026 by Executive Officer and CFO, Minoru Kida. Including subsequent question-and-answer session, the entire meeting is scheduled to last 60 minutes.

Before commencing the conference, we would like to kindly remind you as investors that the explanations provided may include forward-looking statements based on current expectations. These statements are subject to risks and uncertainties, and actual results may differ materially from those projected. Furthermore, please note that the audio recording of today's conference, including the Q&A session, will be posted on our company website.

We will now commence the conference. Mr. Chikumoto, please take the floor.

Chikamoto, the President. Thank you very much for attending today's financial results briefing despite your busy schedule today. I would also like to express my sincere gratitude for your ongoing understanding and support for our company's operations. I take this opportunity to reiterate my appreciation.

First, I shall provide some brief opening remarks, after which our CFO, Mr. Kida, will present the details of the financial results and forecast. It has now been 1.5 years since I assumed the role of President. In our midterm -- Medium-Term Management Plan 2029 published in November 2024, we committed to demonstrating clear improvement within 3 years. Having now reached the halfway point of that period, I will briefly update you of the current progress.

Regarding portfolio transformation of the Chemicals business, our target was to implement changes equivalent to JPY 400 billion in sales revenue by fiscal year 2029. We have already resolved to implement changes equivalent to JPY 360 billion. Going forward, we'll proceed with a sense of urgency, not confined to JPY 400 billion target. Regarding business growth and profit improvement, we're rigorously implementing price policies, investment decisions and asset optimization.

For Specialty Materials, we have revised upward the full year earnings forecast for all 3 segments, demonstrating steady growth. On the other hand, MMA&D and BM&P continue to face persistent market weakness and subdued demand, resulting in challenging performance in this fiscal year. We recognize the need for further measures and are advancing internal discussions accordingly. Since I assumed office as President, the management team has remained united in its commitment to transforming the Chemicals business to enhance MCC's corporate value. We sincerely request your continued support for our company.

Now CFO, Kida.

Good afternoon. This is Kida, the CFO. First, I will explain the summary of the first half results of the fiscal year March 2026. Core operating income for first half of fiscal year 2025 surpassed initial forecast driven by solid performance in Specialty Materials, mainly related to semiconductors as well as industrial gases. On the other hand, outlook remained uncertain due to the impact of the U.S. tariffs on economies, and no signs of improvement in the market prices for MMA Monomer.

Core operating income of Chemicals for first half of fiscal 2025 turned out to be JPY 33.1 billion. On top of the accumulation of cost reduction effects through structural reforms and rationalization efforts across the group, Specialty Materials saw an improvement in price gap and sales volume. Core operating income decreased 12% year-on-year due mainly to a deterioration in price, reflecting a decline in market prices of MMA Monomer, in addition to the recording of inventory valuation loss in tandem with lower naphtha prices.

Net income attributable to owners of the parent for the Group on the whole increased 169% year-on-year as the proceeds from the transfer of Mitsubishi Tanabe Pharma were recorded in the second quarter as scheduled.

Next, I will discuss earnings forecast for the current period. As mentioned, core operating profit for the first half exceeded the forecast. However, in second half, demand for products in Specialty Materials is anticipated to remain firm, whereas it is difficult to expect an early recovery in sluggish demand for products in Basic Materials and Polymers and MMA Monomer market conditions. Under such circumstances, the Group's core operating income for fiscal 2025 is forecast to be JPY 250 billion after the careful review of operating forecast for second half of fiscal 2025.

As structural reform will be accelerated in the second half and associated expenses are anticipated to be recorded, the forecast of net income attributable to owners of the parent has been revised from JPY 145 billion to JPY 125 billion. As for dividend forecast, we maintain the initial forecast of year-end dividend of JPY 16 per share and annual dividend of JPY 32 per share. We will continue to rapidly and steadily implement initiatives aimed at portfolio transformation and profit improvement based on the 3 criteria for business selection and 3 disciplined approaches and business operations under the guiding principles for our business operations in the Medium-Term Management Plan 2029.

I will now outline the profit and loss situation of the first half of fiscal year ending March 2026. The average exchange rate for the first half was JPY 146.1, representing a 4% appreciation of the yen year-on-year. Naphtha price was JPY 64,700, a 17% decrease year-on-year. Sales revenue stood at JPY 1,799.1 billion, a decrease of JPY 210.7 billion or 10% year-on-year. The breakdown of the decrease was as follows: JPY 68 billion from price gaps, JPY 47 billion from volume, JPY 24 billion from exchange rates and JPY 71 billion from business restructuring and other factors.

The core operating profit was JPY 126.1 billion, down JPY 3.4 billion year-on-year, exceeding the first half earnings forecast announced in May by JPY 5.1 billion. Details of this will be explained later. Specialty items amounted to a loss of JPY 39.6 billion, decrease of JPY 17.7 billion year-on-year. Operating profit was JPY 86.5 billion. Profit before tax was JPY 68.7 billion and interim net income from discontinued operation was JPY 94.9 billion, which includes the gain on the sale of shares in Mitsubishi Tanabe Pharma Corporation. Interim net income attributable to owners of the parent was JPY 110.1 billion, an increase of JPY 69.2 billion year-on-year.

Next, I will explain revenue and core operating income by business segment. For Specialty Materials, revenue decreased 3% year-on-year, but core operating income increased 37%. Revenue decreased due to the divestiture of business as a result of steady progress in structural reform, a decrease in demand in areas such as EV applications and the impact of U.S. tariffs. This was down JPY 18.3 billion year-on-year.

Core operating income increased JPY 9 billion year-on-year due to the effects of rationalization, mainly in the carbon fiber-related business. In addition to an improvement in price gap by maintaining and raising selling prices for each product. And in MMA & Derivatives, revenue decreased 21% year-on-year and profit decreased 84% year-on-year. This was a significant decrease in revenue and profit due to decline in market prices of MMA Monomers since the second half of the previous fiscal year.

Basic Materials and Polymers core operating loss actually narrowed by 28% year-on-year by JPY 9.3 billion. So that was on revenue, the transfer shares and subsidiary, lower raw material prices and reduced coke capacity led to lower sales volume and revenue was down by JPY 151.3 billion. For core operating loss, inventory valuation worsened, but with the timing of polyolefin pricing and structural reform in carbon prices, the result was an improvement by JPY 9.3 billion, so the core operating loss narrowed.

For the Chemicals as a whole, revenue decreased 16% year-on-year and core operating income decreased 12%. Although the Specialty Materials business performed well leading the performance and the Carbon business improved steadily or Carbon Products business improved steadily, the Chemicals as a whole was down JPY 4.5 billion in core operating income due to a decline in the MMA market. The Industrial Gases business was stable with sales and profit increasing 1% year-on-year.

This slide shows the breakdown of the JPY 3.4 billion decline in core operating income year-on-year. Prices accounted for a negative JPY 12.7 billion. This includes the impact of foreign exchange of negative JPY 3.6 billion. Excluding that impact for price gap, MMA & Derivatives were worsened due to a decline in market prices. On the other hand, for Specialty Materials, there was -- the prices was maintained and improved. And for Basic Materials and Polymers, there was an improvement due to the polyolefins and carbon selling prices.

Volume difference was negative JPY 3.2 billion. For Industrial Gas, this was negative JPY 3.9 billion. But for the Chemicals, volume impact was a positive JPY 700 million. Cost reduction had a positive impact of JPY 26.5 billion, and each business in both Industrial Gas and Chemicals had the -- had a positive impact. Year-on-year differences in others were negative by JPY 14 billion. Inventory valuation loss accounted for JPY 8 billion due to a decline in the price of naphtha.

Let me now explain the details by segment. First, on Specialty Materials. Core operating income increased by JPY 9 billion year-on-year. Price gap accounted for positive JPY 4.1 billion. In the Carbon Fiber business of Advanced Composites & Shapes, price gap worsened due to difference in sales mix as the competitive environment for pressure vessel application worsened. But for Advanced Films & Polymers and Advanced Solutions, the price gap improved, thanks to sales prices being maintained and improved for each product, in particular, semiconductor-related products.

Volume factor was a positive impact by JPY 2.4 billion. For Advanced Films & Polymers, the volume factor improved due to the increase in capacity utilization and sales of Sonol for barrier packaging. In Advanced Solutions, the volume factor was negative year-on-year due to a decrease in demand for electrolytes for EVs, mainly in Europe and the United States and a decrease in sales volume of printing materials. For Advanced Composites & Shapes, the year-on-year volume difference was positive due to an increase in demand for high-performance engineering plastics.

Cost reductions accounted for JPY 4.9 billion, reflecting the effects of rationalization through the promotion of structural reforms in each businesses and the review of production sites. For MMA & Derivatives, core operating income was down by JPY 22.6 billion year-on-year. The price factor was negative by rather JPY 22.8 billion. Although the price gap improved for Coating & Additives, but market prices for MMA Monomers declined significantly year-on-year and spreads narrowed. Volume difference also worsened by JPY 2.6 billion due to lower demand.

Basic Materials & Polymers recorded JPY 9.3 billion reduction in losses year-on-year. The price gap improved by JPY 11.4 billion. Within Materials & Polymers, this was driven by the discrepancy in the timing of revision to polyolefin prices and the ability to maintain relatively high sales prices during the naphtha price decline. Carbon business also saw an improvement in the price gap versus the previous quarter as a reduction in production capacity at Kagawa was completed, reduction loss-making -- reducing loss-making transactions based on market prices. The volume improvement contributed in Materials & Polymers by JPY 9 billion, partly due to reduced impacts from scheduled maintenance.

The cost reduction impact was positive JPY 3.7 billion, accumulating effects from fixed cost reductions in Materials & Polymers and business restructuring in Carbon business. The other difference of minus JPY 6.7 billion resulted from deterioration in inventory valuation gains and losses within Materials & Polymers despite a reduction in such losses within the Carbon business due to lower raw material prices.

Industrial Gases recorded an increase in core operating profit of JPY 1.1 billion year-on-year. Although price gap deteriorated due to rising electricity prices in the U.S. and sales volume declined primarily in Europe and the U.S., profit increased due to cost reductions through initiatives of productivity improvements being promoted in each region. Specialty items, special items for the first half totaled a negative JPY 39.6 billion in the first half. As the first quarter recorded a positive JPY 4.3 billion, the second quarter recognized a new special loss of JPY 43.9 billion. I will supplement several key items.

Special retirement expenses include the previously announced costs related to the next stage support program for employees at the Mitsubishi Chemical Corporation. Impairment losses include costs associated with the sale of J-Film, a company of manufacturing and selling packaging materials.

I will now discuss the cash flow. Operating cash flow resulted in an inflow of JPY 161.6 billion. Cash flow from operating receivables and payables was an inflow of JPY 5.6 billion, while cash flow from inventories was outflow of JPY 7.5 billion and total working capital resulted in an outflow of JPY 1.9 billion. Although inventory was increased in some businesses to prepare for scheduled maintenance, we'll continue to strive for appropriate working capital management across all businesses. Cash flow from investment activities resulted in an inflow of JPY 174 billion. Cash flow from capital expenditure was a negative JPY 131.8 billion.

Growth investments in Specialty Materials are progressing, including capacity expansion at CPC in Italy for carbon fiber composites and capacity expansion at Sonol in the U.K. for barrier packaging materials. Cash flow from asset sales was a positive JPY 503.6 billion. We're advancing the review of the business portfolio, recording income from the sale of shares in affiliated companies, primarily Mitsubishi Tanabe Pharma as well as from the disposal of cross-holding shares and noncore assets.

Investments and loans receivables amounted to a negative JPY 179.8 billion. This includes expenditure related to the acquisition of subsidiaries in Australia and New Zealand in the Industrial Gases segment. As a result, free cash flow was positive JPY 335.6 billion. Cash flow from financing activities was negative JPY 292.3 billion, primarily due to the repayments of interest-bearing debts and share buybacks.

Consolidated statement of financial position. The total assets amounted to JPY 5,664.1 billion, a decrease of JPY 230.5 billion from the year before. Decrease of about JPY 610 billion was mainly due to the impact of business restructuring centered on the sale of MTPC. Conversely, factors contributing to the increase in assets included a portion of the proceeds from the sale of MTPC remaining as cash on hand as of the end of September and foreign exchanges. Net of these factors will give us total assets decreased by JPY 230 billion. Net interest-bearing debt decreased by JPY 349.1 billion from a year before, and net debt-to-equity ratio improved significantly to 0.83 from 1.06 at the end of the previous fiscal year.

This page provides supplementary information on core operating income from Q1 to Q2. Core operating income for Q2 came to JPY 69.5 billion, up JPY 12.9 billion from the first quarter. For Specialty Materials, Q2 results was JPY 19.4 billion, up from -- up JPY 5.3 billion from JPY 14.1 billion in Q1. For Advanced Films & Polymers, there was a slight decrease in core operating income due to a lull in display demand driven by subsidy policy in China and customer inventory adjustment is also happening.

For Advanced Solutions, there was an increase in profit resulting from the completion of a large-scale water treatment equipment project for semiconductor manufacturing and onetime income from certain businesses. There was also increased sales of high-performance engineering plastics for semiconductor manufacturing equipment at Advanced Composites & Shapes that resulted in reduced loss for Specialty Materials. For MMA & Derivatives, the core operating income was down by JPY 3.6 billion from JPY [indiscernible].

Rather, Basic Materials & Polymers increased JPY 4.4 billion from JPY 3.6 billion in the first quarter to JPY 800 million in the second quarter. Despite a deterioration in price gap caused by delay in the timing of polyolefin price revisions, materials and polymers became profitable due to improvement in inventory valuation and a reduction in the impact of scheduled maintenance. On the other hand, Carbon products, despite deterioration in inventory valuation, the deficit narrowed due to an improvement in price gap caused by progress in structural reform and cost reduction.

And going back to MMA & Derivatives, that was down by JPY 3.6 billion from JPY 3.9 billion in the first quarter to JPY 300 million. In Q2, this was mainly due to a deterioration in the price gap caused by decline in market prices for MMA Monomers and other products as well as decrease in sales due to decline in demand. For Industrial Gas, there was an increase of JPY 3 billion from JPY 45 billion in Q1 to JPY 48 billion in Q2, mainly due to the impact of foreign exchange rates and newly consolidated Industrial Gas businesses acquired in Australia and New Zealand.

Next, I'd like to explain the revision to the full year forecast for the full year ending March 2026 status. The forecast for the second half assumes a foreign exchange rate of JPY 150 to the dollar and naphtha price of JPY 63,000 per kiloliter. The forecast for full year revenue is expected to be JPY 3.672 billion, that's down 2% from the initial forecast. Core operating income is revised downward to JPY 250 billion, that's down by 6% from the initial forecast.

For Specialty Materials, firm demand is expected for each product, but core operating income is expected to be lower than the previous forecast due to price gap deteriorating in MMA & Derivatives and Basic Materials & Polymers due to a decline in market conditions.

Details by segment are explained on the next page. Regarding nonrecurring special items, we expect to record expenses associated with accelerating business restructuring in the second half. We have revised our full year forecast of JPY 63 billion to a special loss of JPY 74 billion for the year. As a result, the operating income forecast comes to JPY 176 billion and net income attributable to owners of the parent is now forecast at JPY 125 billion.

Specialty Materials is forecast to see JPY 1.2 billion decrease in profit from JPY 33.1 billion in the first half to JPY 31.9 billion in the second half. Advanced Films & Polymers anticipates a JPY 4.6 billion decrease in profit compared to the first half due to scheduled maintenance and operational adjustments in certain businesses as well as concentrated repair costs.

Advanced Solutions expects JPY 4.0 billion decrease in profit compared to the first half due to the absence of large-scale water treatment equipment projects for semiconductor manufacturing present in the first half and the absence of one-off income in certain businesses. Advanced Composites & Shapes anticipate JPY 7.4 billion increase in profit compared to the first half, driven by increased sales of Carbon Fiber composite parts for robotaxis and rationalization effects from reviewing production basis in the Carbon Fiber business, leading to a progress toward profitability.

MMA & Derivatives is projected to see a JPY 9.4 billion decrease in profit, shifting from JPY 4.2 billion profit in the first half to JPY 5.2 billion loss in the second half. This loss is anticipated due to worsening price gap from the continued downturn in MMA Monomer market conditions, reduced sales volume from declining demand and the expected impact of scheduled maintenance. Basic Materials & Polymers is projected to see an increase in profit of JPY 3.8 billion, shifting from loss of JPY 2.4 billion in the first half to profit of JPY 1.4 billion in the second half.

Materials & Polymers is expected to post a decline of JPY 2.6 billion compared to the first half despite positive factors such as improved inventory valuation gains and losses and reduced impact from scheduled maintenance, primarily because of worsening price gap caused by timing discrepancies in polyolefin price revisions and reduced sales. Carbon is expected to return to profitability with an increase of JPY 6.4 billion from the first half, driven by improved price gap from progress in structural reforms and cost reductions.

Industrial Gases anticipates an increase of JPY 3 billion from the first half compared by -- supported by global productivity improvement activities and volume growth in the U.S. driven by recovering demand. Finally, regarding the dividends, the interim dividend per share for FY 2025 was resolved at today's Board of Directors meeting on 31st October to be JPY 16, consistent with the previously announced forecast. The year-end dividend forecast will also be JPY 16 per share, consistent with the previous announcements. Consequently, the annual dividend per share forecast for March 2026 is JPY 32. That concludes my explanation.

Thank you very much, Mr. Kida. We will now take questions from the floor. [Operator Instructions] So from Morgan Stanley MUFJ Securities, Watab-san, please.

This is Watabe from Morgan Stanley MUFG Securities. So M&A appears to be in a very difficult situation. There is a prolonged sluggishness in the market, which is probably unprecedented. So what's happening? And at the outset, you mentioned that you are looking at various options. So do you think you're still the best owner for the MMA business? There's a -- you've frozen the investment into the United States. So what are you -- what is your position now?

Thank you very much for your question. With regard to MMA, yes, the situation is tough and that it has been so for a while now. And prices, obviously, we are monitoring the trend. In the first half last year, it was above $2,000. And then in the second half came down to $1,650. In this first half, it's around $1,350. Recently, it's actually further -- it's lower and it's now at $1,260. So Southeast Asia and maybe China is a little different. And so the question is where we go from here and whether the decline will continue.

We believe that for the financial year, the situation will continue. The cost, I'm sure you all have guessed it, right, it's about China, and there has been large capacity expansions more than we had expected. And so there's more supply and a glut in the market. So it's really dog-eat-dog type of competition. And we also have 2 sites in China, and they are operating. Our sites in China are still profitable. But if you look at our competitors in China and the cost, we can actually estimate the cost structure.

And if at this level, only 1 or 2 players are actually profitable. And those are actually located in a special place like where there's a very cheap natural gas available so that they can actually make cyanide gas or in the case of MMA, there's byproducts. And usually, you have this collection process so as to make it to the sulfuric acid. But sometimes you will have to change it to something else. And then it's not necessarily so expensive. But in China, there is actually a market for the byproduct ammonium sulfate.

So if you are in that special situation, you might be profitable. But generally, and it's true for ACH or C4, for the ordinary player, it should be very difficult, and they're probably running at a loss. That's our guess. So even in China, I don't think people can keep operating like this for extended period. So there might be some ups and downs, but I think there will be some normalization in the overall market going forward. Now whether we are the best owner, we still believe we are the best owner, but we do see that there are challenges, maybe some of them were latent and only surfaced.

And what we are doing now, for example, in India, this is an unsaturated market. Major players are not necessarily there. We want to be there ahead of others, and that's why we're working hard on marketing. We are sending people over there and accelerating our efforts there. So in India, we may actually build an additional capacity. That might be a possibility. And at the same time, there are some rather old plants that we will need to think about replacing or maybe consolidating production sites. We will probably need to expedite such efforts.

And for part of that, some of the operations are done in the form of joint ventures with people in the same industry or sometimes with others. So we have partners. So we are also discussing with all our partners about what the optimal form of operation for all those sites would be. We are already doing that. So that would be the efforts we are taking now.

So for Q2, the MMA Monomers are posted a loss, but you said that the Chinese operations is actually profitable. What about Saudi Arabia? Is that working?

Actually, Saudi Arabia is profitable at this point in time. Saudi Arabia is actually a very important site for us. Europe is there and most of the products that are exported to Europe are from Saudi Arabia. With regard to Saudi Arabia, we have maintained profitability, and we believe that we can maintain that throughout this financial year.

Okay. So you're profitable in Saudi Arabia, that would mean that it's probably to the bottom -- your bottoming.

Next question, SMBC Nikko Securities, Mr. Miyamoto, please.

Miyamoto from SMBC Nikko Securities. I would like to ask about profit contribution for expense reduction. The 3 disciplined approaches to business operation, JPY 29 billion for price policies and staff reduction or the asset optimization, JPY 27 billion and MMA price policy, how has it been reflected for the downturn? And as for Specialty, there's a price increase that has been progressing in semiconductors. So can you talk about price policies and asset optimization by product?

Well, maybe this is fresh on your memory, but as a target, there's 3 principles or 3 disciplined approaches, and that has been a target. So JPY 29 billion for price policies and asset management, JPY 27 billion. So simply put, for the progress so far and prospect, JPY 29 billion for price policy will be secured. And as for asset optimization, JPY 27 billion, I think we are overachieving to about JPY 30 billion. However, external environment deteriorating factors or market factors were expected to be minus JPY 15.7 billion, but this is going to be more than JPY 30 billion because of the market.

As I said, in MMA, if you look at the superficial prices, JPY 750 decline. So the low price -- raw material prices are decreasing. So spread is not that heavily affected. But we have revised by JPY 15 billion this time. But for initiative effective, we are making progress and JPY 29 billion was forecasted, but JPY 10 billion was from the formula -- cost-linked formula. But actually, we are struggling. So what was manifested is like JPY 20 billion approximately.

So what we expected as JPY 10 billion could turn -- ended up in JPY 4 billion or so. Because the market is so slow and sluggish and especially even if we talk to the customers in China, they are not that willing to listen to our talk. So in Asian countries other than China, we'd like to promote this activity, but probably JPY 4 billion would be as far as we can get. But if we are short of that, then especially in Advanced Films and film business or synthetic business or semiconductor business is making up for this. So we are actually making our value-added initiatives recognized by the customers and our sales activities are making sure of that.

So we can actually make up for the JPY 6 billion that will be ensured in MMA. And I said JPY 29 billion, but in actuality in the first half, less than half has been already recognized. So price gap chart has been presented to you, a waterfall chart. And Carbon Fiber as compared to the last fiscal year, the pressure vessel was selling higher. So we are now in the negative, but we are going to eliminate that loss from the second half onward, so we can secure the gains.

And as for asset optimization, originally, we're expecting JPY 27 billion, but there's a supply chain businesses. So the large-scale companies foundation or business foundation rationalization could be added as extra this time. That's what we are now expecting. So the original JPY 27 billion in forecast could be increased to JPY 30 billion. So that has been reflected in our business forecast this time.

As for asset optimization in the first half year-on-year, how much increase you've seen? And also business foundation improvement, can you give more color to that?

Thank you. As for the first half, about half -- we are halfway through probably. And business foundation improvement, what I mean by that is that there's a common cost between business locations like piping and utilities. We can make some progress in terms of rationalization in this area and this is the specifics. We are building up small pieces to see some effects. So we have just shared with you just examples, among others. So if you ask us what is it, then it's difficult to say in one word, but we are just accumulating ingenuities in the production site.

So both in Specialties and Basics businesses, in both businesses, that's happening, right?

Well, this is about the management of factories. But what is coming out is just in the factories, but Okayama or Kurasaki, those large-scale business locations, there's utilities and piping racks and other business location infrastructure is actually managed by supply chain division. And so this is something related to infrastructure of the business locations.

Next, Mizuho Securities, Yamada-san, please.

This is Yamada from Mizuho Securities. So no one is talking about growth and positive things. So I'm a little sad, but I'm afraid I'll have to join the others here. So you're talking about special retirement expenses and you have this next-day support program. And so you have JPY 32.3 billion, that's larger than expected. I believe that, that will mean you will to reduce your workforce by about 2,000 people. And those would exclude people working at the production front. So the percentage is actually rather large.

You haven't actually disclosed a specific number with regard to the number of people. Do you think that this won't be a problem? I mean, you're just becoming lean and you're not losing out on necessary human capital? And if my guess is right, then your personnel expenses next year would probably be smaller by JPY 20 billion per year. Is my calculation correct?

And then for the second half and the measures you are taking, do you have any additional information because I'm really focusing on the special items this time?

Thank you very much for your question. Earlier, we actually referred to the special retirement benefits. And so this is actually part of the special, and it's also part of the other line here. We call this NSP, which is short of next-day support program. So a total is about JPY 29 billion, and that's in the special items category. For cost reduction expectation for the next financial year and how many people we expect to leave using this program, I'm afraid I am not -- we cannot discuss this at this point in time.

What we are doing now is this program actually has a number of objectives. One is to focus on indirect costs. We believe that fixed costs are actually quite high. So yes, human capital is very important, but we could also use AI, et cetera, to improve the human capital efficiency. So the white collar-based labor productivity improvement, that's something we are trying to focus more on going forward. And maybe I talked about this before, but back in 2017, since the 3 companies merged, we haven't really done this in a wholehearted way.

But then usually, when 3 companies come together, you will go through a PMI, which we actually didn't really up to this point in time. Another is the age structure. This is serious. We are taking it very seriously. The age structure is very skewed. The percentage of people above 50 is really high among our workforce. So just as an example, if you look at our workforce and if you actually line them in the age, actually, the peak comes at 57 years old. So we really want to leverage more younger human resources. And we would also need to reflect that for the business management.

So it's really part of how we try to stimulate the company and really make it more forward-looking. And we need the people that would drive such change. We need boosters, and that's part of the objective of this project. And with regard to what we are doing in the second half, we talked about total special items, and there's about JPY 9 billion. We are actually increasing as opposed to the initial expectation. And behind that, there are additional things additionally to what we have already made decision on, maybe some reorganization of the businesses, we have a better idea and clarity about what we're going to do for some projects, and we are going to try to do that in an expeditious manner.

So we are working on the 3-year process, 1.5 year has passed. So the major part -- for at least the major part, we would like to have decisions made by the end of this financial year because if we have a 3-year period, then the third year is really about preparing for us to really turn the tables around and start moving forward. So that's why we are trying to complete all the preparations necessary by the end of this year. But I'm afraid at this point in time, I can't go into too much detail.

So you talked about NSP, and you said that the total would be JPY 29 billion. Special retirement expenses are JPY 32.3 billion. So a part of this is not NSP?

Yes, there is also a non-NSP part in the special retirement expenses.

And so what about the personnel expenses reduction for next financial year and onwards? So there would be that happening. And for those who are leaving the human capital, you do have ideas. So you will -- that there will not be a material loss that will hamper your operations. Can we feel secure?

Yes, we have confidence at this point in time. We actually have a lot of young able people who haven't been able to come to the forefront. We actually have great pipeline of such future leaders, and we want them to actually come to the forefront, and that would happen from next year and onwards.

57 years old, that was the most people you hired at the peak of the bubble economy. So I look forward to a younger workforce at your place.

Next, Mr. Umebayashi from Daiwa Securities.

I am Umebayashi from Daiwa Securities. I would like to ask about the businesses that are growing. Advanced Composites & Shapes from first half to second half. Core operating income, there was a JPY 6.5 billion profit, improvement of JPY 7.4 billion from the loss in the first half, and you are talking about robotaxi as well. And from JPY 124 billion to JPY 140 billion, there's a sales increase of JPY 19 billion. So there will be an increase of JPY 7 billion of profit. Is it because of robotaxi effect or rationalization or consolidation of business locations?

Can you divide up in those 2 factors and give us the breakdown? And as for robotaxis, I think 3 months ago in summer, when I asked about this, you were saying that you're manufacturing this one at a time. But now in the second half, the continued production could be done and once you move to the continuous production, there might be no profitability or profitability could be taken away, that could happen. So can you tell us if that is not the case?

Thank you. So from the first half to second half, the improvement for Advanced Composites & Shapes, Carbon Fiber and Composites have much more improvements. As you can see on the screen, in terms of positive and negative numbers, you can see on the screen. And on the other hand, on this segment, the high-performance engineered plastic represents a large amount in terms of portion in terms of sales. And in the first and second half, there's similar movements. In the Christmas season in December, there could be some dip, but that's how we are expecting or forecasting.

For other underlying factors from the fourth quarter or from fourth quarter, robotaxi orders or shipments not on a sample base, but on a full-scale basis, that is to be expected. However, on the other hand, as we have been saying from the other day, in Otake in Hiroshima Prefecture, we have SF11 production facility, and there will be -- this will be mothballed and production was stopped in September.

And from third quarter or second quarter onward, there will be effect of fixed cost reduction that will be manifested. And as for U.S. production line, some of them will be mothballed and the production termination is still fluid. But as we go into the second half, there will be a proper termination and labor cost and repair costs could be significantly reduced, and that effect has been incorporated. But if you ask us the numerical breakdown, this is quite sensitive. So I'd like to decline from commenting that.

So if that's the case, and let me just sort this out. From the third quarter onward, Otake, where there was a termination of production in September, we will see some effect. And from the fourth quarter, there will be effect from fixed cost reduction in the U.S. and also robotaxi benefits will be shown in from Europe. So in the second -- in the fourth quarter, there will be a significant improvement expected. And on that basis, in the next fiscal year, there will be significant profit that we could see. Is that a correct or fair statement to make?

Yes. As you said, well, that is how we are envisioning. In the third quarter, there will be another set of improvements. And then in the fourth quarter, there will be relatively large improvements expected. So in first and second quarter, as you saw, the numbers were there, minus JPY 1 billion or plus. Let me just check for more exact numbers. Yes. In the first half, minus JPY 1.7 billion in total. The breakdown, JPY 1.4 billion in the first half and JPY 300 million in second quarter in Advanced Composites & Shapes. So that's how we have reduced losses in this sector. But in the third quarter, we are going into single-digit profits and double-digit profit in the fourth quarter. That's how we see going forward.

So aside from robotaxi applications, what are the demand trend for Carbon Fiber? Maybe you are withdrawing from some businesses. So inclusive of that, can you give us more details?

With regard to demand, it is steadily improving or increasing. But on the other hand, there are some winners and losers. So the new players are not being able to produce the high-grade ones. But for low-grade ones, maybe newcomers have lower cost. So our intention is to focus on higher-grade products and withdraw from low-grade ones. And as for prepreg, well, production capacity is quite difficult to tell, and you have to put it in the number of yarns, but that is how the demand is.

But we are having high hopes for new mobility applications. But aside from that, there are several other fields that we can expect some demand. So for overall demand, there will be a certain degree of solidness that we can expect, but how we can enter into things new is a success factor.

So in the fourth quarter, about JPY 5 billion in numbers is something that we can see. So we're expecting -- looking forward to that.

We only have 5 minutes left. So the next person would be the last person. Omura-san from UBS Securities, please.

This is Omura from UBS Securities. I'd like to follow up on Umebayashi-san's question on robotaxi in particular. So the demand, how -- what type of curve are you expecting for the demand to ramp up? In Las Vegas, there's a test introduction. In San Francisco, you see them running on public roads. And so if you look at your assumptions and the end demand, are things going in line? And then for each city, how many of them are you expecting maybe for the medium term?

I would guess that if you look at Slide 25 this time in your MTP up to 2030, if you want to achieve that target, you would probably need a large number of them. So perhaps if you could give me a rough image of how we expect demand to ramp up? And what is the order of magnitude that you are thinking about with regards to the number of robotaxi cars being sold? Or if you don't have it on hand, I'm happy to wait for later.

Thank you very much for your question. The number of robotaxis that I expect, that's really on the customer side. And I don't -- we are not in a position to give you further details here. But let me just give you a kind of a ballpark description. In 2027, FY, compared with where we are now and actually, things are a little behind. But compared with the first year, we believe that in 2 years' time, they will be double. And then in 4 years' time, the number would be triple. That's our very rough outlook or expectation.

Double from where?

I'm sorry. We'll have to check with that data. But the number of robotaxis, we actually are bound by an agreement with the client. So we can't really give numbers.

Okay. I get that. I think there are a lot of competition on the end user side. So like if a client is operating like several hundreds and how many cities, that's the type of thing I'm interested in. And I hope there will be more visibility going forward. And if you actually get to an idea on that, please let us know, too.

Thank you very much. We will do so.

With that, we'd like to conclude Q&A session. Last but not least, I'd like to ask our CFO to give us closing remarks.

Well, thank you very much for joining us despite your busy schedule today to attend our earnings results briefing. So there's some uncertainty in terms of economy. So business environment surrounding our company, cannot be described as entirely favorable, but we are seeing obvious effect from structural reforms that we are making quick decisions since last year, and we will continue to work as one company to expedite the execution of these measures and meet the expectations of our shareholders and stakeholders. So we sincerely appreciate your continued support. Thank you once again.

That concludes today's meeting. Thank you for your attendance.

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