Mitsubishi Chemical Group Corporation

Thank you very much for joining Mitsubishi Chemical Group, a corporation's earnings briefing. As we have now reached this 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 question and answer sessions. We are planning to have a meeting for 16 minutes. Before we begin the conference, we would like to share the following information with the 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. I would like to start the conference. Mr. Tsukamoto, please. Yes. Good afternoon. I am Chiku Mocha, President and CEO of Mitsubishi Chemical Group. Thank you very much for joining us for today for earnings call. Our CFO Chida will provide more detailed explanations later. For FY2025 results, core property income is down 2% to 225 billion yen. However, due to the substantial amount of non-recurring items totaling 194.9 billion yen, operating income declined 79% to 30.1 billion yen, and the profits attributable to owners of the parental sale, 74% to 11.8 billion yen, resulting in extremely challenging results. However, these results reflect our strong determination to fully carry out what must be done by FY2025. 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 material business, Ethereum restructuring in Western Japan, the solution of overseas MMA joint ventures, and voluntary refinement. And the next stage is support a programmer. We also almost completed to recognize major impairment losses associated with the structural reform within the FY25. On the other hand, in our Soano business, which is one of the company's growth drivers, we recorded substantial impairment loss of approximately 30 billion yen following the review of the planned construction in the UK. Furthermore, FY25 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 investment plans progress. as scheduled. In addition, with regard to this matter, we determined that it was necessary to take responsibility for our failure to uphold the three principles of disciplined business management that we had pledged. Accordingly, Aitsuka Mocha, the President and CEO, and Egao, the Management Executive Officer responsible for the Soano business, is going to have a 20% voluntary decline in compensation for six months. In 26, while continue to pursue structural reform and the cost reductions, we expect a significant growth in a specialist material business. In Germany, and in Europe we have commenced operations of a large-scale investment project for the polyester film business and it will contribute to earning contribution. In the semiconductor and battery business we expect to continue to expect existing businesses such as sensitized quartz and precision cleaning for semiconductors and other materials along with significant growth in new projects In the carbon, further business operations will begin in full scale for existing mobility applications, but also business related to robotics. robot taxis and a new type of mobility solution. In addition, we have an aerospace industry to bear fruit. By capturing a steady growth in specialty material businesses, the core operating income will increase substantially, and operating income and profit are to be bootable owners of the parents in FY26. We need to continue to closely monitor uncertainties in the external environment, including the one in Middle East, and we will carefully assess this potential impact. CFO Keda will provide more detailed explanation on this point later. A detailed explanation of the growth strategy for each business will begin, will be provided at the investor briefing on May 25th. Now CFO Keda will explain FY2025 financial results and FY2026 earnings forecast.

Mr. Keda, CFO, please.

I am Keda of CFO. First of all, I would like to summarize the results of FI 2025. Business conditions in specialty materials remained generally solid. However, MMA and basic materials and polymers continue to face challenging conditions. and market is soft, and since March, uncertainty have also increased due to the rising geopolitical risks, particularly in the Middle East. Core operating income in the chemical segment was positive, 24.3 billion yen. 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 ethanol assets in the UK 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 attribute for 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 co-operating income is expected to be $300 5.0 billion yen. Corporate income in the chemical segment is expected to increase 75.7 billion yen to 100 billion yen. This reflects the higher sales volume across products in specialty chemicals continue to cost reduction and recover in MMR market conditions. And industrial gas is expected to be solid. The cooperating income is projected to be 44.3 billion yen year-on-year to 205 billion yen. But this does not include the Middle East impact. We would like you to refer to page 20 for that. Profit at revertible owners of the parent is forecasted to increase to 115.2 billion yen year-on-year to 127 billion yen compared with the previous year when we recorded substantial no recurring losses. related to asset optimization. Asset for shareholder returns, we forecast a dividend of 60 per yen and annual dividend of 32 per share. We will thoroughly implement measures based on the three principles of discipline, the business management, further concentrate management resources on next generation and growth driver businesses, and a steadily execute initiative for the chemical segment.

I will explain the results for the fiscal year and then my strengthening effects. The average exchange rate for a full year was 151.1 per dollar, representing a 1% appreciation of the yen year-on-year. The not-so-price was 65,200 yen, down 14% from the previous fiscal year. Sales revenue was 3,704,000,000 yen, a decrease of 243.6 billion yen year-on-year. The main factors were a 109 billion yen decrease in sales price, 106 billion yen decrease in volume, 66 billion yen decrease from business restructuring, and a 37 billion yen increase in exchange rates. Core operating income was 235 billion yen, down 3.8 billion yen from the previous fiscal year. This fell below our October full-year forecast of 250 billion yen, primarily due to the 30.3 billion yen increment loss following the review of our Sorinor investment plan in the United Kingdom. Special items amounted to negative 194.9 billion, worsening by 107.7 billion yen year-on-year. Operating income was 3.1 billion yen, Income before taxes was $0.7 billion, and net income from discontinued operation was $94.8 billion, including gains from the transfer of Mitsubishi Tanaba Tanabe Farmer Corporation. Net income attributable to the owners of the brand was $11.8 billion, down $33.2 billion year-on-year. Next, I will explain the self-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 295 billion yen due mainly to business ambassadors resulting from steady progress in structural reforms as well as declines in market prices and raw material prices. Gore operating gun was supported by solid performance in specialty materials while carbon products steadily improved. However, for the chemicals business overall, profit decreased by 18.4 billion, due mainly to the deterioration of the MMA monomer market and the recognition of impairment losses on sorano-related fixed assets. Details for each segment will be explained on the following pages. Industrial analysis shows study progress went revenue up 4% and income up 8% year-on-year. Here is a breakdown of the $3.8 billion year-on-year decrease in core operating income. The price gap was a negative $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 4.1 billion yen. While demand in Europe and the U.S. was generally weak, particularly in industrial gases, sales of carbon fiber composite parts mainly for robot axes increased. Cost reduction contributed to a positive 62.2 billion yen. With both industrial gases and chemicals accumulating savings across our prospective businesses, others resulted in a negative 43.5 billion yen. This includes impairment losses on soranol-related expenses in the UK and higher costs associated with inflation. Now, I will provide details by segment. Core operating income for specialty materials increased by 8.4 billion yen per year. The price of gas improved by 8.1 billion yen. 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 15.5 right now. 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 cells, plastics for semiconductor manufacturing equipment, and carbon fiber composite parts, mainly for robot axes. Cost reductions added 13.8 billion yen through structural reforms in businesses and regionalization in platform production-based optimization. The negative 29 billion yen and others was due to the soaring fixed asset impairment loss in the U.K., and inflation-driven costs. MMA and derivatives saw a decrease in core operating income of 37.2 billion yen. The price gap deteriorated by 40.3 billion yen. 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 7.4 billion yen. The price gap was 11.4 billion yen. 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 NAFTA 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 some 0.1 billion yen, primarily from structural reforms in carbon business. The negative 9 billion yen in others reflects environment losses from settling oxide and glucose manufacturing equipment along with poor inventory valuation in materials and polymers.

Poor operating income in industrial gases increased 14.6 billion yen 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, the specialty items. Total non-specialty items for the full year amounted to negative 194.9 billion yen. In the fourth quarter, we recognized an additional 122.6 billion yen in specialty item losses. In the fourth quarter, we recorded a number of expected expenses, including 59.2 billion yen in restructuring provisions, 30.6 billion yen in impairment losses, and 15.8 billion yen in specialty retirement payment. These expenses may have 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 194.9 billion yen, we believe these structural reforms were necessary to support growth from 26 and onward. Let me explain the cash flow. The operating cash flow total to inflow of 433, 436.3 billion yen. Cash flow from operating receivables and payables was an outflow of 16.3 billion yen. Mainly due to a decline, trade payables resulted from the lower NAFTA prices. Investing cash flows resulted in inflow of 124.5 billion. Cash flow related capex was outflow of 292.1 billion. Growth investment projects in specialty materials continue to progress, including capacity expansion for carbon fiber composites in Italy and capacity expansion in the UK for barrier packaging applications. And cash flow from asset sales was positive for 41.6 billion yen. As a part of ongoing portfolio review, we recorded the proceeds from the sales of shares in affiliates, mainly Mitsubishi Tanabe Farm, as well as proceeds from the sales of cross-share holdings and strategic holding. Other investment and financial activities resulted in the outflow of 125 billion yen. This includes expenditures related to the acquisition of subsidiaries in Australia and New Zealand industrial gases segments. As a result, cash flow was positive 560.8 billion yen. Financial cash flow was outflow 375.2 billion yen, mainly due to debt repayment and dividend payments. and share buyback. Next is the consolidated statement. Total assets were 5,876.6 billion yen, down 18 billion yen from the end of previous fiscal year. This mainly reflects a decrease of approximately 630 billion yen due to the business restructuring centered on the sales of Damitsu's MTPC. And 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 increased to approximately 18 billion yen overall. Net interest-bearing debt decreases 387.5 billion yen from the end of the previous year, and the net DE 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 FY25. Cash operating income in the fourth quarter was 39.4 billion yen, down 20.1 billion yen from the third quarter. Specialty materials recorded a loss of 12.9 billion yen in the fourth quarter, a decline of 25 billion yen from the 12.1 billion yen of profits 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 robo-taxis 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 solar and all assets. MMN and derivatives recorded a loss of 3.1 billion yen in the fourth quarter, largely unchanged from 2.6 billion yen in the third quarter. Basic materials and polymers recorded a loss of 1.3 billion yen in the fourth quarter, a decline of 0.8 billion from the 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 51.4 billion yen in the third quarter to 56.3 billion yen in the fourth quarter, an improvement of 4.9 billion yen driven by pricing management and productivity improvement initiatives. Under our current medium-term management plan, we have set the three principles of disciplined business management to improve profitability, chemical business pricing discipline, investment discipline, and asset optimization. In FY 2025, the impact of the measures based on these three principles of discipline management amounted to 58 billion yen. The impact of pricing discipline was 29 billion yen. 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, price increase initiatives were promoted mainly in specialty materials, resulting in a full-year impact of 29 billion yen. Asset optimization delivered an effect of 29 billion yen. This was driven by cost reductions from capacity reductions in carbon business, as well as a number of structural reforms across businesses, including the withdrawal from unprofitable operations. Regarding the selection of concentration in chemicals business, we have made this size of this equivalent to approximately 490 billion yen over the past two years, against the 400 billion yen 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 four-year forecast for fiscal year ending March 27th. Before the forecast details, I will explain the changes and reporting segments. Following the reorganization on April 1st, 2036, our reporting segments will change from the fiscal year ending March 2027 as shown on the slide. Specialty materials will be divided into five segments, films and performance materials, composites and shapes, information electronics, ultramarine compounds, and water and infrastructure. Films and performance materials mainly consist of businesses formerly under advanced films and polymers. Composites and shapes mainly include businesses from the former advanced composites and shapes. Information electronics focuses on semiconductor and battery and electronics businesses previously in advanced solutions. Polymer compounds combines performance polymers previously included in advanced compounds 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 reorganize these groups to enable management to more directly oversee each business and achieve the goals of IDK Vision 35 and our midterm management plan. We apologize for any conveniences to investors and analysts, and appreciate your understanding. I will now present the four-year forecast for the fiscal year ending March 31, 2007. Our forecast assumes an exchange rate of 150 yen to the dollar and an uptick price of 63,000 yen. South Korea's forecast is 3,800,000,000 yen, an increase of 96,000,000 yen from 2005. Core operating income is expected to reach 305,000,000 yen. of 80 billion yen. Operating income is forecast at 300 billion yen, income before taxes at 270 billion yen, and net income from continuing operations at 200 billion yen. Net income attributable to owners of the brand is expected to be 127 billion yen, an increase of 115.2 billion yen. This forecast does not include the impact of the 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 18 billion yen on forecast for operating income for the FY206. In FY206, we expect the benefits from the measures based on the three disciplined approaches and business operations to be 48 billion yen. 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 price for robot axes. As for asset optimization, we expect benefits from fixed cost reductions through the next stage support program implemented in FY25, as well as from our unit efforts to promote cost reductions and structural reforms in each business. Here is a forecast by business segment. Although specialty materials will be affected by higher costs associated with inflation, we expect increased sales and business position as growth drivers. including polyester film for MLCCs, soranol for barrier packaging applications, semiconductor-related businesses, and composite parts mainly for robot axes, in addition to the absence of impairment losses on soranol-related fixed assets. MMA Endurance is expected to turn profitable through higher volume and a gradual recovery in the MMA monomer market. In basic materials, the price gap is expected to deteriorate due to timing differences and 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 balances are forecast to grow profits due to pricing management and productivity improvement initiatives. I will now discuss the dividend forecast. The forecast year-end dividend per share for FY2025 remains unchanged at 16 yen and is scheduled to be resolved at the Board of Directors meeting on May 20th. Regarding the dividend forecast for FY2026, we plan to set both the interim and the year-end dividends at 16 yen per share, the same amount as the year-end dividend for FY2025. As a result, the forecast for the annual dividend for FY2026 This is 32 yen per share. This concludes my presentation.

Thank you very much, Mr. Kedav, CFO. We would like to move on to the question and answer session. Now, first of all, Mogastan MFG will cover some fees. It's one question I'd like to ask you about the impact of the Middle East. It's 18 million yen, and that's raw material. Inventory re-ablation is included in the net out. And what is the situations of the raw materials and the raw materials from Thailand? How about the domestic NAFTA? I think we have a good report about other raw materials other than NAFTA, the procurement and also SAMAC. And 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 situation, I gave you 18 billion yen. And also, as you can see on this page, this is segment by segment details. As you have asked, we have some receivables included. But also, let me give you the assumptions. Now, for the... We have to buy the higher price of NASA, so we will be able to transfer the cost to our customers. So NASA 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. if you cannot produce the production because of shortage of NASA, I don't think that's the situation. We cannot relax, but I don't think it's as serious as you cannot produce. So to the customers who we deliver the products, if there are other products that they get from other suppliers, there might be reduced orders to us because of supply chain issues, and also if there are small quantity amount that we have to procure from inside, there might be some shortage in the supply chain issues. As you have seen, MMA derivatives is 10 billion, so it's more than half of 18 billion yen, as you know. Our core facilities in the Middle East, in the middle of the Middle East, supply chain disruptions or issues is the biggest issue in the Middle East. Well, I think this is only hypothetical. MMA is approximately a loss of 10 million, going down by 10 million. Other than that, you think that it depends on the situation, but it's going to fare quite well. Now the assumption is 60,000 yen or so. 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, NAFTA was higher in the prices. On a monthly basis, there are some payment, you know, increase. But as it comes down, it will profit. So net-in-net, there is not so much impact. It is offset to each other, and some will make the next quarter or next year. But we are not going to positively benefit much. Thank you very much. Watabe-san, thank you very much. Next, we'll move on to Yamato-san from S&BC Nikko Securities.

I am Yamato from S&BC Nikko Securities. I would like to ask you about page 27, special materials, the reasons for the increase in profit in the new year. So, $44.1 billion increase. Journal impermeable loss is deducted. It's about $15 billion or so. So, again, give me the details on this point. Especially the combo tension shapes, the profit increase is quite large. And I think it's a full-fledged shipment for the RoboTax ETH. And the number of shipments for robot axes has tripled or maybe increased by four times. So to that extent, again, please share with the numbers and what is the increase in the process cost. And I would like to ask you mainly the reasons for the increase in profits for the specialties for the new year, including couple of tension shapes. Yes, for page 27, I did make some comments in the variances page. And so what is not shown here Maybe I can verbalize what is kind of shown in between the lines. Regarding composites and shapes, regarding verbal tags, unfortunately, we are not able to give you the details of the number of shipments because of the contractual term. But as you just mentioned, I think you're pretty much right in your direction. So... We started to shift from the latter half of this year to next year. I think it's going to maybe triple or maybe four times next fiscal year. And going forward, we will be able to make profits based on the previous upfront investment or composites. And Italy and CPC, they've been doing a lot of reorganization and restructuring, and they've been producing uncomfortable composite parts, but now we're consolidating the production sites into one place, and we're starting to change our customers for both government and commercial drones. We're getting new inquiries for the aviation and space-related projects, and that is also trying to shape up. For film and performance and materials, I think the biggest one is we have 33 billion of incremental losses, so that is going to result, that is a big factor, And in Germany, we are expecting a new line for the polyester and MMC. Previously, it took some time to get the certification for new customers. Right now, we're starting to make shipments for those. And also for the solenoid, we are seeing a steady increase in the sales as well. So all these types are included. And recording information electronics. This is an area... Next year, we're going to see the launch of the new product, the new investments for synthetic quartz or photo resist. And 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 under current capacity. So, we do see a lot of inquiries related to semiconductor business. So, these are something that we are expecting. And as we explained in the previous conference call, composites, sordal, semiconductor-related, and also gallium monide. So 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 so 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 fact from the Middle East specialty is that about six billion and that is is it mainly related to the raw materials can you tell me which products have difficulty passing on the cost are there any raw material that is facing the shortage because the Middle East and thank you very much we are not seeing any shortage of the materials in a material way. But special items, the ones that we generally think about too much, there are some concerns related to some of the materials. But the majority of the impact from the Middle East is not so much about the price transfer or cost transfer, as I mentioned earlier, raw materials that is something that we didn't, there are some shortage of the materials that we do not necessarily deliver to the customers. But there are some shortage of those materials that lead to the reduction in utilization rate on the part of the customers. And that is part of the supply chain issues. But this is not something that we are considering to count on the cost. And so it's not so much on our part. On the customer side, some of the Australian materials and other materials are in shortage, and that resulted in the lower sales of our products. Thank you very much.

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 2 billion negative impact in the basic chemicals, basic materials area. In the basic materials, it's going to be 2 billion yen, right? So can you explain more in detail? I think utilization was 90% before the conflict in the first half. What's going to be the situation? And how about the other derivatives and 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. And compared to that, our cracker utilization, due to the support from the customers, we were able to continue at the higher level. Now, this time... commodity market is quite difficult and softening but we have the regular maintenance starting from the 9th of May in some plants in Okayama we will be able to continue approximately 80% of utilization after the regular maintenance so we don't know what's going to be utilization level But at this moment, we are not really seeing any big drop of utilization. However, we have to watch the situations and we can be relaxed and be vigilant. However, because the shortage of raw materials could lead to reduced production in some materials and products, so we have to watch the situation. However, especially for the 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, we are concerned that we can change the transportation routes and we can diversify and have multiple procurements. We are already working on that. for the petrochemical basic materials and polymers. I don't think that, you know, we don't have much problem. But, you know, 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 situation. If there are any movements or development, we are going to be agile and take 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 right understanding? And also, as you have pointed out, you do have a regular maintenance. So that is going to, of course, would 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, no, it's the, you know, current development that we watch very carefully. There was a previous question that NASA currently continues to be weak and difficult until the end of September. Are you going to have separate numbers for the first half impact? Yes. If the data is higher, we have to pay higher prices. But if it goes to go higher, it might stay at the flat at some point, and if it comes down, it's going to the opposite impact. So it's very difficult to have the impact of the volatility. There are profit and losses, but to open up, I think net is not going to be much impact. Thank you very much.

Next, Omura-san from UBS Securities. I'm Omura from UBS Securities. Can you hear me? Yes. Thank you very much. So 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, NAFSA, the prices have been going up, but domestic NAFSA, On a converted basis, it's not really going up that much. And such impact in March alone, what was the impact? And inventory levels seem to be a little bit lower than usual. And I was wondering what was the numerical impact from that. And in the first half forecast, From the first quarter to second quarter, how are you going to switch? Any ideas they 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 that the land outside impairment loss was 3.2 billion. And so that's one That is the one data that you need to understand. In 2025, it's minus one billion yen, we believe. So utilization of the truckers went down, but on a full year basis, that did not have a big impact. But we had a higher material cost in the end. And so in 2025, mentioned already. And for our first offer, 5.6. If you divide it in quarters, it's very difficult to explain. For example, if you look at this April month, the numbers were very good. So because it was an after-received cost, we saw a lot of gains. But how long this is going to continue is not really clear. We need to wait until things come to an end. And so it's 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 inventory receipts, we did see a lot of gains in April. It's because you raise prices earlier than usual, and that is the reason for this big gain. I'm just talking about inventory receipts. But, well, we have been discussing with our customers, and when it comes to petrol chemicals, so for each quarter, we have a lot of deep buy. So we refer to the previous quarter. And 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. But if we cannot produce the products, it's going to be a big issue. So 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 months we're going to refer to. So we're referring to customers like that. Understood.

Thank you. 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 NAFTA impact, sorry to be repetitive, but there is a big benefit in the receipts and issues and in and out. But how about the polarity 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, but according to the qualitative hearings, in the receipts and issues, and I think we have more benefits and gains in the receipts. However, as for the details that Nakada-san questioned, so we have to calculate very closely. 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 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? So it's a major gain that you have already identified. Okay, in Omura-san's question, the price, you know, refer was changed to the previous month refer. And you were talking with the customers. What is the time frame 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. But is that going to advance the price negotiations? substantially we have no idea at this moment yet but 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 but for the longer term customers you know the situation could be different in petrochemical employment. MMM is different, but for other products, formula, I think sales is also negotiating with the customers. And 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 questions from Morgan Stanley. If you look back at FY25, 25 billion less target is because of Linker-Malasa, Evernor, and EOG, and that's 35 billion, and gas, that's plus 4.5 billion. So these are the main reasons. Is this understanding correct? Also on page 19, three basic approaches to business operations. This one approaches asset optimization, 35 billion. Next is about 15 billion or so. So I wonder what the rest of 20 billion. So, but looking back at 5.5, so it's a little bit like a math issue but as you just mentioned, Sorner, 30.3 bilin, and EO, EOG, or ethylene, and ethylene grigole, and we also do other ethylene, so 5.2 bilin for intermolysis, so that total 35.5 bilin of intermolysis, chemical, 24.3 billion. And without this interim analysis, it would be 59.8 billion. So the guidance of 65.7 billion, specialty chemicals, 32.4 billion, the core operating profit. So without the interim analysis, it would be 62.6 billion. The guidance was 65 billion. So I think it was pretty much within the range of the guidance interview. And, of course, we're trying to pass on the cost to prices. And there have been a lot of initiatives and measures taken by our employees. One of them is Nextage program. And also we've been trying to reduce costs on a fixed cost level. And the result of all these efforts to save costs, we've been able to see this impact. And that is how we see it from the financial perspective. For FY26, the breakdown of $35 billion, what is included in this? Next stage support program. That reduces headcount to quite a large extent. So that's a little bit more than $10 billion. And for each business, We've been saving costs, like consolidation production sites, and we're reducing not just the fixed costs, but also variable costs. So that's like 10 billion plus. And the logistics and procurement related cost saving is also there. So we've been buying from different places, but We try to centralize the procurement, which we should have done much earlier, and also the logistics. We've been shipping from different places, so we're trying to consolidate them. So that's like a few billions of yen. It's difficult to give you all the roll numbers, but 35 billion yen breakdown on a high level would be what I just explained. Thank you very much.

Thank you very much.

We have our last five minutes, so we'd like to entertain one last question. This is going to a second round. Miyamoto-san of SMBC, Nikko Securities, please. And it's not humorous questions, and it's second round, but sorry for that. Let me ask about MMA. In a new risk here, this case is moderate recovery of the market. Is it going to be $1,500, that assumption? And what's the demand trend and utilization? And also you talked about 10 billion yen of a negative impact because of Middle East. But on the other hand, MMA market is going beyond $2,000. Methanol roll price is increasing. Considered margin-wise, it could be a positive impact. But 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. In China, they said $1,100 was the price offered in the market. However, the operations of the players in the industry in China are also based on the cost assumptions is going to be the level of 1,400 and spread is going to go back to the level that we can be profitable. However, at this moment in ISIS, you know, Southeast Asia, it's coming down, but it's around $2,000. And that's the price index available. And as the mayor has touched upon, And NAFSA is approximately $1,000, a little less than $1,000. So just simply put, just looking at the numbers, spread seems to be widening in some perspective. But if you look at actual prices in China, it's more difficult. So MMA market-wise, it's very difficult to forecast. And that's the current situation. And MMA is going to be a large business and large impact, 18 billion yen. And maybe 10 billion is from MMA, as I explained. But it's not really because of the spread, but it's the volume impact, especially the product from Middle East countries. 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. And we have quite a conservative forecast that it's not coming out from Middle East and that's going to be a negative impact of approximately 10 billion yen. So it's a volume impact mainly and it's not really based on a spread widening or narrowing in the 10 billion numbers. And if this situation continues, for example, because of the reduced production, it's going to be a 10 billion net gain factor, but it's going to be upward because of that pricing of the market. It's a very difficult forecast. In April, MMA is fairly positive. However, there are lots of reasons complicated, intertwined each other, and therefore it's very difficult to understand what's going to take place in the coming months. So thank you very much, Miyamoto-san. Now with this, I would like to close with a Koyo and Ei session. And Mr. Kida, please give us the word.

Thank you very much for joining our earnings presentation today. While FY25 results were challenging, we believe they reflect the implementation of structural reforms necessary for growth from FY26 onwards. And we've been able to implement in a very bold manner. In the new fiscal year, of I-26. Dialogue remains uncertain due to rising geopolitical risks centered on the Middle East. However, 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 with the entire group to meet the expectations of all stakeholders. Thank you for continuing support. Thank you. A 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.