Mitsubishi Chemical Group Corporation (4188) Earnings Call Transcript & Summary

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.]