Mitsubishi Chemical Group Corporation

I'm Minoru Keda, 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 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 continue to perform steadily. amid unstable situations in the Middle East, the business environment remained challenging, with NAFTA price soaring and risk of raw materials procurement rising. However, we're seeing inventory valuations gain and a temporary increase in demand. The co-operating income for the chemicals business increased year-on-year by 48.4 billion to 60 billion yen. Contributing factors to corporate income were the effects of sustained pricing strategies and strong performance of semiconductor-related products and specialty materials, and improved conditions in the MMA market. In basic chemicals, inventory valuation gains resulting from rising raw material prices contribute to higher profits, Despite the expanded scale of scheduled maintenance where we had 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 of overseas products. Partly due to the solid performance of industrial gases, the overall cooperating income for the group increased year-on-year by 57.5 billion yen to 114.1 billion yen. Net income attributable to owners of the parents increased year-on-year by 38.1 billion yen to 57.7 billion yen. Next, I'd like to discuss our earnings forecast. In light of the first quarter results and current business environment, we have revised upwards Our first half forecast for core operating income and net income attributable to owners of the parents from 139 billion to 194 billion yen and from 59 billion to 86 billion yen respectively. Meanwhile, our full year forecast remains unchanged from the previously announced figures due to uncertainties in trends and 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 16 yen per share and annual dividend of 32 yen per share. We will continue to regularly adhere to the three disciplined approaches in business operations, concentrated our management resources on areas that serve as next-generation growth drivers, Instead, we implement proactive growth initiatives to achieve sustainable growth and enhance corporate value. I will now explain the overview of the first quarter of FI March 2037. The average exchange rate for the full year was 160.7 yen to the dollar, representing a 12% depreciation of the yen year-on-year. The NAFTA unit price was The breakdown of the increase was as follows. ¥88 billion increase due to higher selling prices ¥33 billion decreased due to lower sales volume, and ¥68 billion increased due to foreign exchange effects. The core operating income was ¥114.1 billion, up ¥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 4.3 billion yen. Operating income was 118.4 billion yen and income before taxes was 111.8 billion yen. Portly net income attributable to owners of the parent was 57.7 billion yen, up 38.1 billion yen year-on-year. Next, I will explain sales revenue and cooperating income by business segment. For the chemical business as a whole, revenue increased by 76.5 billion yen and profit increased by 48.4 billion yen year-on-year. As for revenue, despite shipment restrictions at some sites due to the situation in the Middle East and expansion in scale of scheduled maintenance and repairs, Compared to the previous period, there was an increase of 76.5 billion yen due to soaring product market prices, an increase in sales volume driven by customers' efforts to secure inventory against the backdrop of the situation in the Middle East, higher selling prices for various products, particularly in specialty materials, and the impact of foreign exchange rates. The corporate income for the chemicals business increased by 48.4 billion yen, driven largely by strong performance of specialty materials, as well as significant inventory valuation gains in basic materials, resulting from rising NAFTA 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 57.5 billion yen year-on-year increase in the core operating income. The price gap was positive at 4.6 billion yen. Well, the price gap deteriorated for polyolefins in the basic materials amid raising NASCAR prices. It improved due to improved selling prices in specialty materials and raising market prices for MMA monomers in MMA and derivatives. The volume resulted in a drop of 1.2 billion yen, and 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 13.8 billion yen with industrial gases and chemical segments, each achieving cumulative effects. Others resulted in a positive impact of 40.3 billion yen. This figure includes a 48.5 billion yen gain on inventory valuations due to soaring NAFTA prices. I will now explain the details by segment. Specialty Materials posted an year-on-year profit increase of 20.9 billion yen. The sales gap was positive at 11.9 billion yen, improving across all sub-segments, including semiconductor-related products. The volume contributed to a rise of 9.1 billion yen. In films and performance materials, the volume improved due to increased sales of polymers for barrier packaging materials and films for multi-layer ceramic capacitors. In composites and shapes, The volume improved due to increased sales of high-performance engineering plastics for semiconductor manufacturing equipment and carbon fiber composite parts, primarily for robotaxis. Cost reductions totaled 4.9 billion yen, 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 5 billion yen was attributable to cost increases resulting from inflation. MMA and derivatives posted 4.3 billion yen increase in profit year-on-year. The sales gap was positive at 7.7 billion yen. 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 5.5 billion yen, 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.

We are operating in basic materials in phase 5, 21.5 billion yen year on year. Prices had a negative impact of $17.7 billion. In basic chemicals, polyolefins selling prices lagged behind rising meltdown prices. Volumes had a negative impact of $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 ¥44 billion, which includes ¥48.4 billion in inventory valuation gains from rising laptop prices. Lastly, industrial gases were operating income increased by ¥9.1 billion year-on-year. Earnings grew thanks to business expansion through acquiring industrial gas businesses in Australia, 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 4.3 billion yen. We recorded a 12.8 billion yen gain on sale of fixed assets from the land transfer for Nippon Sansa Holdings head office relocation. Upset by losses from structural reforms, special items, total positive 4.3 billion yen. Let me explain cash flows. Inferring cash flows was an inflow of 35.1 billion yen. Inventory cash flow was an outflow of 38.1 billion yen, mainly due to higher raw material prices such as NAFTA. Other cash flows were an outflow of 98.7 billion yen, including severance payments for last year's Next Stage Support Program. Investing cash flow was an outflow of 26.3 billion yen.

Capital expenditure was 66.2 billion yen.

growth investments in specialty materials for graphs including capacity expansion in carbon fiber and composite engineering in Italy. Cash flow from asset sales was positive 42 billion yen, driven by proceeds from selling cross-shareholdings. As a result, free cash flow was positive 8.8 billion yen. Financing cash flow was an outflow of 93.4 billion yen, mainly for interest-bearing debt repayments and dividend payments. Here is the consolidated statement of financial position. Total assets increased by 4.4 billion yen from the previous fiscal year end to 5,881,000,000 yen. Cash and cash equivalent. due to debt repayments. Meanwhile, inventories rose by 41.8 billion on soaring raw material prices, and foreign exchange impacts also lifted total assets. Netting these factors, total assets increased by about 4 billion yen. The net DE ratio stood at 0.83, remaining at the same level as standard the previous fiscal year. This page supplements the change in core operating income for supply 255-Q4 to supply 26-Q1 Q1 core operating income reached 114.1 billion yen of 74.7 billion yen compared to Q4 Specialty materials costed ¥38.3 billion in Q1, an improvement of ¥47.8 billion from ¥9.5 billion in Q4. Earnings grew significantly, reflecting the reversal of the ¥30.3 billion impairment loss on store and all related expenses recorded in Q4, steady sales centered on semiconductor-related products and higher sales volume as customers build up inventories amid the Middle East situation.

M&M Derivatives hosted $8.8 billion in Q1, trading profitable by $11.2 billion from $-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 14.8 billion yen in Q1, up 19.3 billion yen from negative 4.5 billion yen in Q4. In addition to resolving the 5.2 billion environment loss on Adelaide Oxide and Adelaide Bricol production facilities in Q4, earnings through this inventory valuation gains improved despite worse price differential for polyolefins from soaring NAFTA prices. Industrial gases decreased by 2.2 billion yen from 56.3 billion yen in Q4, I'll explain the revised financial forecast for first half of FY2026. Based on Q1 results and current business conditions, we have revised our first half forecast. In our May 13 forecast, first half core operating income was set at 139 billion yen. K1 core operating income reached 114.1 billion yen, 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 M&A monomer prices, and inventory valuation gains from rising NAFTA prices. Our future assumptions are 155 yen to the U.S. dollar and a NAFTA price of 86,000 per kiloliter. South Avenue is projected at 1 trillion 38.8 billion yen. Despite lower sales volume following Q1 customers stockpiling, sales are expected to increase further in Q1 as scheduled maintenance and basic chemical ends. Our operating income is expected to decline quarter-on-quarter due to smaller inventory valuation gains and payback from customers stockpiling, but the first half total will reach 194.6%. 194 billion yen, upside of 55 billion from the May forecast.

Our new forecast for operating income is 189 billion yen, and mid-year income before taxes, 175 billion yen.

Net income attributable to owners of the parent is projected at ¥86 billion, an upside of ¥27 billion. Here is the first half forecast by business segment. Specialty materials for operating income is expected at ¥65 billion, up ¥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 forecasts had 10 billion yen, up 5 billion, driven by rising MMA market prices, which I've been explaining. Basic materials is forecast at 12 billion yen, up 18 billion yen, mainly due to larger inventory valuation gains from higher NAFTA prices. Industrial gases is expected at 107 billion yen, up 6 billion yen, probably owing to a weaker yen. That concludes my presentation.

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

Watabe from Morgan Stanley Securities.

Thank you very much for the presentation. Yes, you really produced a profit, didn't you? Thank you. Specialty materials, especially, was performing well. But the temporary demand increase, where in the products did you see that? And 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 with 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 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 would be the term 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 do those second quarter figures mean? Well, basically, we are expecting these numbers to go back to the original budget. We have seen a 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 MLA and maybe you are aware of this but from April 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 Arabia plant has been in suspension since April but rather than shipment restriction there is some shortage in in some sites in Southeast Asia so 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 volume and we cannot expect Saudi Arabian plant to Restart the operation because of uncertainty and that is the assumption that we are using for second quarter and with you so NASA is the next part of your question so in the presentation you've seen this but 111 thousand Eighteen thousand nine hundred yen is the NAFTA price and 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 86,000 yen for NAFTA price but for the past 12 days or past 10 days US forces have started the attacks on Iran and so crude oil blend has also recovered from $90 so it's very difficult to tell what is going to happen so have you seen this reactionary is in decline already from June. Yes, we have seen this from June. for some part, but in April, I'm not going to exaggerate this, but just simply put, just for the purpose of making it easier to understand, 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 onwards, 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 MMA. So the customer inventory levels have been increased, as we can see. So in the second quarter, there might be some reactionary decline that you might expect. Thank you.

Next, we will move on to Miyamoto-san from SMBC Nikko Securities. I'm Miyamoto from SMBC Nikko Securities. Congratulations for the strong performance. I'd like to ask you about the composites and shapes. From the fourth quarter to first quarter, the profit increased by 1 billion. And on page 22, when you look at the breakdown, the profit increased in all subsegments. Could you elaborate on them? And in the second quarter, Q&Q, you expect a profit decline of about 3 billion yen. So why do you expect such a large decline? We talked about flying and stuff happening in this segment as well. And for ZOOC, they said that they will soon start mass production. So can you tell more about the shipment for ZOOC as well?

Thank you very much.

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 profitability profitable in the fourth quarter, finally, and in the fourth quarter of last year, it was 5 million, and this year, 6.4 billion. We were able to build up the profits up to 6.4 billion. And if you add up, it went up about 1.4 billion. But if you look in detail, we call this engineering shapes. This large one is engineering plastic for semiconductor manufacturing. equipment. The shipment for those will increase in the first quarter. And I think this virtually includes some panic buying. So because it's for some vector manufacturing equipment, they don't want to fall short, and customers were sort of rushing to buy anything 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 Consultant 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 licensed for running operations in the United States as well, meaning that the project overall is progressing steadily. and they also need to increase the vehicles. So we want to ensure that we can deliver so that they do not fall short of the price. 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 the first quarter.

Thank you very much.

So, carbon fiber composite, on Q&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 with both the engineering. So we have propellant cooling systems as well, and that we have some decline in the second quarter. But in the second quarter, I think we will be able to increase neutral and the new products. And we've been launching those new products. So that's something that we expect as it grows.

Let's see.

12 billion is a four-year forecast, and you already expected 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, 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 carbon fiber, over the last two 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 four-year basis, I mean, it's still kind of uncertain. Therefore, for the four-year forecast, we have not made any changes.

Thank you very much. Thank you very much.

Next question from UBS Securities, Mr. Omura.

Omura from UBS Securities, thank you.

I have a question on page 17, information electronics. and this time you have made upward revision and 5 billion yen is the upward revision and you have also revised upward sales revenue by 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 going up in prices. That's what they say. So your silica, the synthetic quote, maybe you have easier time in revising your price. Can you explain more about silica material strength? Thank you for your question. So with regard to sales revenue and profits, were there price factors that were involved? Well, in one word, the mix of the product has been changed. So, as you rightly expected, synthetic silica is increasing significantly in profits, but if you ask us if we have increased the prices significantly, yes, but the volume has also increased. As for synthetic silica, there are not so many customers that were selling products too but more recently from the late half of last year there have been more inquiries from new customers and shipments to those customers are increasing so the volume is increasing for synthetic cellulose of course I can't give you too much detail but especially for semiconductor related products There are products that are not growing as much as we expected or fail to reach the volume that we expected, honestly speaking. So for semiconductor processes, there are some materials that 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 composition amongst the different products that we're selling has been changing that has been a greater factor. Thank you. to a supplemental question as for lithography products and also the materials. Have you been experiencing easier time in price revision? You're talking about resist, yes. Well, it's not that easy 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 NASA price or raw material price increase that has been passed on to the selling prices just for that much well Thank you. Next question is

from Miyamada-san from Mizuho Securities.

I'm Miyamada from Mizuho Securities.

So in the second quarter, I don't really understand why you expect declining profits. So inventory valuation differences and others I'd like to confirm. So 40 billion yen or so is expected to It had the gain of about 40 billion. But if you look at the inventory, compared to the year-end of last fiscal year, it increased by 41.8 billion yen. And 600 million yen is related to Nippon Sansho Holdings. So the inventory increased by about 36 billion yen.

And now, if you compare fourth quarter, first quarter, and second quarter,

Specialty Materials Review, there's not much change from the first to second quarter, meaning that the inventory level went up for the specialty materials. So that means that you incur production in other areas substantially to control your inventory level. Is this correct? And if that's the case, maybe there's some impact on the periodic maintenance. And so in the first and second quarter, I think there are positive impacts from the fixed cost allocation and differences in operation and basic material segments. I don't really see such impact in the second quarter. So please elaborate on how I should think about the inventory levels. Thank you very much. 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. But when you say inventory valuation, I really don't like the way it's expressed. So if I explain how we figure that gap, so there is a gap in the price that we receive and how much we expense. 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 60,000 yen in the previous quarter and now we have a new, not the prices, but that is more expensive, like 120,000 yen. So, we should be consuming NAFTA at ¥120,000, but we bought NAFTA at ¥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 declining prices that we receive. But now, the expense portion... Expense portion is expensive than what we had received. That is happening temporarily right now. And the price is, 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 Nasdaq 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, NASA prices, we expect about 86,000 yen. And meaning that majority of that value difference is going to be a lot. 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 two weeks ago, the attack has restarted. And the Brent oil has gone up to about $90. And now the prices, the market prices, those are going up again. And it depends on where now the prices will settle. That is going to determine our second quarter results. And this is something that we're 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 like to control the inventory levels because if we keep high inventory levels and if we see a health decline that's worse, So we really need to have a good control over inventory in the second quarter as part of our business operation.

Thank you very much.

As you mentioned, so it's a difference in valuation received and expenses. So the volume is same. So 40 billion yen of inventory difference, you should see an increase in inventory volume, but it's not really happening. So considering that especially material volume is 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 NAFTA prices go down in the future, we expect the recovery to be much lower So I would like to ask you, in which direction are you 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. 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.

Understood.

Thank you very much. I do understand that you do control inventory level, so we expect to continue your good management operations. Thank you very much.

Next, Mr. Okazaki from Nomura Securities, please. Okazaki from Nomura Securities. Very good business performance. Congratulations on this earnings. I have a question on MMA. Okay. In the fourth quarter, $5.1 billion loss to $4.2 billion profit and also $200 million loss in Q2. So what's the results in Q1 and assumptions for Q2 compared to the current situation, if you can tell us that. And also capacity operation. The Saudi Arabia 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 would be the condition to enable to restart the plant in Saudi Arabia? And the last question is about social reforms. Maybe there is something that you still have some study on. So can you explain as much as you can disclose? Thank you. From first quarter to second quarter, how the prospects have been changing? Well, the way we look at the spread has been changing. In the first quarter, generally speaking, the ISIS Asia has exceeded $2,000. Last year, for the throughout the year fourteen hundred dollars especially toward the fourth quarter it was even lower so now the 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 ice more recently a 1600 to 1700 level is the one that we are 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 prospects 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, there is some difficulty in securing raw materials, especially in Southeast Asia and part of Chinese sites, so we were forced to reduce capacity utilization. But in China, in the petrochemical business system or upstream, there are two plants in China, one in Shanghai, ACH, and also acrylic and also KC plant the CNOC cracker derivatives so we are not sure what is going to happen to those sites yet and in second quarter, it's very difficult to tell what will be the capacity utilization, but at least we are not expecting significant improvements, 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 conditions because we don't know what is going to happen and at least if either side is flying missiles 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 US. So please give us more time. And after that, we can share with you some more specific measures. Q2 market price is about 1600 or 1700. Is that assumption that you are 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 the price, but the spread is going to change. So the capacity utilization is not going to change from Q1 to Q2, so everything else with the spread is going to worsen, and that is going to be reflected in profit. Yes. Thank you.

Next is Umebayashi from Daiwa Securities. So we have one question from one person. Thank you very much. I am Umebayashi from Daiwa Securities. I'd like to ask about sales and performance materials. Changes in Q&Q basis. First quarter to first quarter. So I understand the environmental losses is gone. And the actual revenue increase against 10 billion. And the profit is about 10 billion increase. and if you look at first quarter to second quarter guidance, revenue is going down by 9 billion and profit is going to go down by about 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, talking about the inventory level, that will intentionally be incurred in the second quarter after it's increased in the first quarter. But other than that, maybe trade terms, maybe some of the higher cost of materials is going to happen in the second quarter versus the first quarter, for example.

Thank you.

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 portfolios. 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 edge as well. So for the display, in the second quarter, we expect to kind of settle. So that would be the measures afterwards that I can think of. So overall, the volume is expected to go down, and the highly collapsible liquid is going to go down, and you expect to control inventory. And the LTC, the demand is quite strong. and we did have an expensive 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 as shown in the numbers. Thank you very much.

Thank you very much. This will be the last question that we can take because of the time. Mr. Nishiyama from Citigroup Global Market Japan. Nishiyama from Citigroup Global Market Japan. I would like to ask about information reference and Q1. especially semiconductor profits seems to be quite strong. So what is the background behind this strength? Was there any one-time factors? And from Q1 to Q2, Q1Q, the 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? Thank you very much. As for information on electronics, as was said in the previous question, synthetic silica and cleaning business for semiconductors, those were very strong. But from Q1 to Q2, 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 material price is catching up and spread will contract but there was some special factors in Q1 and there was not a panifying 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 would be the profit that we can get from posting this inventory in the first quarter, but that 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 is 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 1.5 billion yen 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 1.5 billion worth for special factor? No, not that much, but we cannot disclose any detailed numbers. Thank you. Thank you.

I think it's about time. Therefore, we'd like to ask Kira-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'm 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 hope to have a 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 archive so that you can replay it at your convenience. Thank you very much. We'd like to conclude today's conference.