Sumitomo Chemical Company, Limited (4005) Earnings Call Transcript & Summary

Hello, everyone. Thank you very much for joining us today to discuss our current priority management issues and business strategy. I'd also like to express my deepest appreciation to our investors and analysts for your continued support for and understanding of our business. This time, we moved to an online meeting, and we may not have a smooth interactions as before, especially when it comes to Q&A. So I would like to ask for your patience and kind cooperation. Let's go to Page 2. This is today's agenda. First, I'm going to talk about our latest performance, and then I will give you an update on the progress in achieving the goals of the current corporate business plan. And finally, I'd like to present a mid- to long-term outlook of our business. Before talking about our latest results and forecast, let's take a look at Page 4. I'm going to briefly talk about the impact of the COVID-19 pandemic on our global business. First of all, since the coronavirus outbreak, ensuring the health and the safety of our employees around the globe has been our top priority. While at the same time, we also understand and fulfill our responsibility of ensuring the stable supply of materials needed by the society. In fact, as we speak, more than 170 Japanese employees of Sumitomo Chemical around the world are working to fulfill our responsibility. The chemical industry is considered to be an essential and key industry that supports the social infrastructure, and as such, is exempted from closure. And that's why there has been no significant impact on our operations to date. Also, we ensure our employees work from home and restrict business travel to prevent infections. Those measures have worked well. And so far, there has been no interruption in our operations as none of our employees is affected with the virus. On the next page, Page 5, you see the actual results for fiscal year 2019. We announced these figures on May 15, so I don't think I have many things to tell you, except one thing, that is net income attributable to owners of the parent, which is down JPY 87.1 billion from the year before. This is a bigger drop than the drop in core operating income between fiscal year 2018 and 2019, almost half of that drop, or JPY 42 billion came from a reversal of deferred tax asset and currency losses. So this is a loss without any cash outflow. On the other hand, our core operating income fell 35% from the year before, which I think warrants our performance before items. Let's jump to Page 8. This is our full year earnings forecast for fiscal year 2020. There is very much uncertainty around our business climate because of the coronavirus. And that is why we didn't present the earnings forecast for fiscal year 2020 when we announced the fiscal 2019 full year results on May 15. Clearly, it is a dynamic situation today, but we still wanted to let you know at least where we are headed. So this time, first, I'm going to give you the baseline for fiscal year 2020 core operating income, which excludes downside risks due to COVID-19 and other uncertainties. And then I will talk about how much negative impact there will be on our results. We set the baseline for our core operating income for fiscal year 2020 at JPY 130 billion, which is on par with the fiscal year 2019. And we have estimated approximately JPY 20 billion to JPY 50 billion in operating income could be lost due to the impact of the uncertain factors such as the current pandemic. And that will potentially put our core operating income in the range of JPY 80 billion to JPY 110 billion for fiscal year 2020. Please take a look at the next page, Page 9. We break down our baseline forecast for core operating income by sector. Petrochemicals & Plastics income is expected to fall by almost JPY 10 billion from the year before in anticipation of a further market slowdown. The other bigger drop is expected for Pharmaceuticals, but that is in part because of the upfront costs of R&D investment and increased selling, general and administrative expenses for the major compound being developed by Roivant Sciences, which is approximately JPY 66 billion. I will come back to this topic later. But without the JPY 66 billion upfront payment, Pharmaceuticals core operating income would exceed JPY 100 billion, which I believe is very strong performance for baseline scenario. The other sectors will be growing strongly. In particular, Health & Crop Sciences is expected to make an even stronger recovery, thanks to a pickup in the methionine market and a recovery in crop protection product shipments. On the next page, I'm going to talk about the downside risk factors. We assume there are 2 kinds of risks. One is, of course, the impact of the COVID-19 pandemic, which we estimate to be approximately JPY 15 billion to JPY 35 billion. The assumption here is that the same level of impact as the impact we predicted for the first quarter will continue until the end of 2020 and this vast range of estimate is meant to factor in the impact depending on where to place its peak. In the automotive sector, for example, the weaker demand will result in a decline in shipments of our Petrochemicals & Plastics products as well as Energy & Functional Materials products. And the weaker display demand will lead to a drop in the volume of our IT-related Chemicals products such as materials and components for smartphone and TV. In contrast, however, the impact on our life sciences business, including Pharmaceuticals and crop protection products, is expected to be negligible. And we want to remind ourselves that 40% of our group's revenue comes from our life sciences business. Here, let me give you the figure for this April. The revenue impact is about JPY 20 billion, down 10% from the forecast. The impact on our profit is about JPY 2.5 billion to JPY 3 billion. Now I just spoke that the overall impact of the coronavirus on our business was estimated to be JPY 15 billion to JPY 35 billion for the year. When you break this down by sector, the impact will be almost evenly divided among the 3 sectors that is Petrochemicals & Plastics, Energy & Functional Materials, and IT-related Chemicals with IT-related Chemicals being slightly bigger than the other 2. As other non COVID-19 risks, we factor in a drop in earnings of our affiliated companies and losses from the difference of product prices due to sharp fall in crude oil prices and these are estimated to be JPY 5 billion to JPY 15 billion. Once again, the total impact arising from the 2 risk factors is estimated to be JPY 20 billion to JPY 50 billion for fiscal year 2020. And it's not the kind of impact that is going to affect our results for fiscal year 2020, but there is actually another kind of impact of the COVID-19 pandemic, which is a possible delay in the Pharmaceutical development and clinical trials. For example, for napabucasin and its Phase III trial for colorectal cancer, its results were supposed to be out in July, but now it's delayed until fall or later. The next page, Page 11 describes our profit sensitivity to crude oil prices and the impact following the recent free fall of oil prices. Typically, if crude oil prices go down, the cost of utilities or feedstock will also go down, and that will push up profit margins. But for us, lower prices of oil will lead to a reduction in ethane benefit at our Rabigh plant in Saudi Arabia which almost offsets any improvement in profit margins for the group. Next, I'd like to give you an update on our progress on the corporate business plan, which started last year. Let's jump to Page 14. We are anticipating these changes to take place in our business climate in the medium term. And most notably, the ongoing global economic slowdown seems more likely to slide into a deep recession, as you all know quite well. And in this business climate, we have been saying that we must persevere for the couple of years before things get better for the future of our group. But now it is conceivable that we are at a more crucial point. Over the past 6 months, since we met last time, the business climate surrounding us has gotten worse, especially for the petrochemical markets as we put in the category of bad news on the right side of Page 15. But of course, we have some good news here on the left side of the page, and we're going to give you more detail on that later. Page 16 is what I call goody list, and I showed it to you last time as well. It's a list of our promising products and technologies being developed right now or coming out of market very soon. There are 14 of them, and I'm going to give you an update mainly on 3 of them highlighted in red. Next, I'm going to provide you with a summary of progress that has been made in each sector towards achieving our goals of the corporate business plan. Please take a look at Page 18. Let's start with Petrochemicals & Plastics. On the left side of the page, we put our action plans and major issues to be addressed. And on the right side, we describe the progress we made over the last year, and those in red are the progress that has been made over the last 6 months. The third item from the top, the Petro Rabigh project and the last one, chemical recycling technology, I'm going to give you those details later. The fourth item, which is our technology licensing business is something we particularly focus on right now. So I want you to look at Page 19. One of the major items in our technology licensing business is our propylene oxide production technology, or PO cumene process. This process has lower environmental impact than other processes and does not produce any by-product. For this technology, we were awarded the grand prize, a top rating in the technology category by the Japan Chemical and Industry Association in May this year. The last time we won this award was 17 years ago. This PO-only process is licensed out to one of the largest state-run oil companies in India in 2019. On the right side of the page, you see a graph and the blue line represents the growth in PO production capacity at the PO-only process licensees. And the market share of our process has grown to 20% in the new catalyst plants around the world during the period shown in the graph. The next sector is Energy & Functional Materials, and I want you to take a look at the text in red color. One of the reasons why the sales of our super engineering plastics products, LCP, have increased over the last 6 months, is that an increase in demand for high-speed data transmission connectors for data centers. The other progress I want to talk about briefly is the launch of a joint research course with Kyoto University for the development of a solid-type battery. Please take a look at the text at the bottom. This is part of our efforts to speed up a comprehensive joint development between the industry and academia. And one of the topics I want to highlight today for Energy & Functional Materials is the status of a super engineering plastics in 5G and in CASE. Please take a look at Page 21. On the left side of the page, as I explained last time, we describe the characteristics of LCP. Unlike polyamide, which is commonly used for 4G communication, LCP has lower permittivity and dielectric loss tangent because it absorbs less moisture. But there are improved polyamide products in the market as well. So we still remain in the middle of the competition for the materials for next-generation substrates. No clear winner material has emerged yet. As you can see the right side of the page, the demand for super engineering plastics is definitely on the rise as the automotive industry is moving towards the CASE concept. Super engineering plastics components are not only lightweight but possess high formability, heat resistance, thin wall strength and other desirable properties, and these are gradually adopted by automakers. Next, it is the IT-related Chemicals sector. Dramatic changes happening in the display industry right now. Major changes are taking place now. LG and Samsung announced that they both would withdraw from LCD TV display market with respect to mobile device displays. The media have recently reported that the supply of the U.S. major semiconductors to Huawei is extremely in danger. And these developments are alarming and require our quick judgment and action. But today, I want to draw your attention to photoresist because we focus on the progress that has been made over the last 6 months and will explain our actions with respect to immersion ArF photoresist, in particular, which have a high market share worldwide. Please go to the next page, Page 23. Our actions to capture the demand for semiconductor materials start with increasing our production capacity of a semiconductor cleaning agent at 2 plants in China, Xi'an in the West and Changzhou in the East. And from there, we serve our customers in all over China. With respect to photoresists, we are moving ahead with the development of new technologies following the trend of miniaturization and multilayered wiring. We are leading the pack with regards to immersion ArF, or EUV photoresist. A new plant we built in our Osaka Works to enhance photoresist production is going to be operational this year. In addition, we've also started construction of a new research building in the Osaka Works, which is expected to open in 2022. With these actions in place, we want to raise our sales revenue of semiconductor materials business by more than 50% by fiscal 2021 compared with fiscal 2018. The next sector I want to talk about is Health & Crop Sciences. Please take a look at Page 24. In this sector, we saw notable progress in the pipeline development, and we also completed the acquisition of 4 subsidiaries of Nufarm in South America. These 2 are the major developments that we have seen over the last 6 months. On the next page, you see how much progress has been made for each crop protection compound in our pipeline. In B2020, the first one, INDIFLIN, is something we're going to launch with high expectations in South America. And all the 4 compounds in B2020 have already been filed for approval. The expected sales revenue from these 4 compounds is approximately JPY 40 billion annually. For A2020, I want to talk about the second line, which is pipeline B. This is a next-generation herbicide. I talked about this before. We expect to launch it in 2024 or later. Our collaboration with Bayer has so far been very successful and a lot of progress has been made. The topic I'm going to talk about today with regards to Health & Crop Sciences is our Crop Protection business in India. India is the world's fifth largest crop protection market and growing as high as 7% to 8% annually. Not only that, India has a huge growth potential because the average use of crop protection chemicals per unit area in India is less than 1/10 of that in Japan. Sumitomo Chemical was the second largest player in India back in fiscal year 2018 with the 2 local subsidiaries combined. And the integration of these 2 subsidiaries was completed in 2019. So we hope to be the largest crop protection producer in India by 2025, driven by the synergy of integration in developing new drugs and additional marketing tailored to the specific needs of the local market. Next, we describe our strategy for Pharmaceuticals on Page 27. As you all know, the biggest issue we have to address is how to keep our earning power after the LOE of our blockbuster, Latuda. We continued to see very strong sales of Latuda, bringing in about JPY 190 billion in fiscal year 2019 alone. For fiscal year 2020, the annual sales revenue of Latuda is still expected to rise 2% to 3% from fiscal year 2019. Also, good progress has been made with regard to the development of the major drugs acquired through the strategic alliance with Roivant Sciences, and I will give you more detail on that later. And just below that, our apomorphine hydrochloride sublingual film for the treatment of off episodes in patients with Parkinson's disease was approved on May 21. This is a big victory for us as the product is expected to earn about JPY 50 billion in annual sales revenue, and it is slated to be launched in September this year. The last one is Nihon Medi-Physics diagnostic radiopharmaceuticals. The affiliated company of our group that specialize in PET diagnostics is actively looking into commercialization of what is called Theranostics, a new business model that combines diagnosis and therapy using radioactive isotope. Recently, a new research lab was built to speed up the commercialization process and has been opened since earlier this year. On the next page, Page 28, this is a list of drugs in our development pipelines. As a matter of fact, this year, 2020 is really make-or-break for the future of Sumitomo Dainippon Pharma because, as you can see the list, the 3 products in 2020 and the 5 products in 2021 are either to be approved or filed for approval in 2020. And if we just add up all these products that are to be approved or filed for approval in 2020, these will potentially generate JPY 400 billion in annual sales revenue. These products will be our strong assets in 2022 and beyond and serve to bridge the gap until 2023 when our SEP-363856, a successor drug to Latuda, gets approved, and that's the thinking behind our development pipeline. Next, I'd like to give you updates on the progress on our large-scale investment projects. Let me start with Petro Rabigh project. The Rabigh plans have been under a periodical maintenance shutdown since this March. We were very much worried that we may not be able to do the maintenance shutdown because of the coronavirus pandemic, but it went without any hiccup, and the plants have been coming back to operation one by one since early May. You will see below the total investment amount for Rabigh Phase II project and how much of that will be covered by Sumitomo Chemical. The total amount is $9.1 billion, and $5.2 billion will be covered through project financing. And then the next key moment comes between June and September when the completion guarantee is released. One of the conditions for the release was recapitalization, but it seems extremely difficult to raise capital in the capital market in Saudi Arabia. That is why alternative approaches are being considered, such as a loan from the parent companies or a debt guarantee. Rabigh's actual result for January to March, which is our first quarter is out, and I'm sure you all know this, it's a pretax loss of $547 million. It is a huge loss, but this is the result of the combination of 3 very unique factors. We had the periodical maintenance shutdown in March, the refining margins turned negative, and there was a big drop in crude oil prices which led to losses from the significant difference of product prices. The next topic I want to talk about is our acquisition of 4 Nufarm subsidiaries in South America. Please take a look at Page 31. The deal closed on April 1 this year and we will begin integrated operations with the former Nufarm subsidiaries from August in each country with the shared vision in place. Our sales revenue in South America was about JPY 30 billion in fiscal year 2019. But with the acquisition, it will be around JPY 100 billion in fiscal year 2020. And we plan to bring it to more than JPY 200 billion in the future. Concrete progress has been made already. We filed 2 mixture products of INDIFLIN for approval, which I already talked about in the slide explaining our development pipeline. And we hedge herbicide resistance risk by having different types of mixture product. The next page is about our business of methionine, a feed additive. I want you to look at the graph at the page's bottom left, which shows the research firm's data for market prices of methionine. The selling prices hit the bottom in late 2019, and since then have been turning upward fortunately, thanks in large part to steady growth in demand and the fact that the producers having struggled with the low prices for so long have finally begun to raise prices. In addition, the cheap prices of naphtha have also helped us with low feedstock cost. But we should not be at the whims of these external factors. In fact, we put in place a number of measures for improving profitability and are working to cut costs by several billions of yen also in 2020. Please go to Page 33. It's about the strategic alliance with Roivant Sciences. This deal closed in last December. It's been very reassuring to see that good progress has been made in the evaluation process of the direct candidates in pipeline we acquired from Roivant. Over the past 6 months, we completed the filing for relugolix for the treatment of prostate cancer in the United States and for the treatment of uterine fibroids in Europe. And it is expected that the filing for uterine fibroids will be completed very soon in the United States as well. In addition, though it's not on the slide, we received good preliminary results for the Phase III trial for the treatment of endometriosis. And just below, we have also completed in the United States, the filing for vibegron for the treatment of overactive bladder. So we have these pieces of really good news, but that also means that more investment for the development or more selling, general and administrative expenses are necessary. In fact, we have to spend close to JPY 16 billion in fiscal year 2019, and it is expected that we're going to spend another JPY 66 billion in fiscal year 2020, and that is a big factor that will significantly pull our profit margins down for fiscal year 2020. Next, I would like to give you a brief update on the progress with regards to the basic policies of our corporate business plan. First, let me explain about the development of next-generation businesses. Please take a look at Page 35. This is a picture I showed you last time as well. It is describing our innovation ecosystem, and the areas where progress has been made are highlighted in orange color. From right to left, clockwise, we have invested in and have partnership in place with start-ups, such as SweeGen, a next-generation stevia sweetener company; or NanoScent, which is developing a scent recognition sensor. With respect to partnerships with academia, we formed a comprehensive partnership with Kyoto University for the development of solid-type batteries, as I mentioned earlier. Also, we established a more corporate venturing and innovation offices or CVIs to drive open innovation. Today, we have a CVI office in Boston and in Silicon Valley in the United States and one in Cambridge, U.K. We also need to enhance our ability to develop POC, proofs of concept, in order to evaluate the technology found by our CVI, and we put in place those capabilities in Tsukuba, Japan and Cambridge, U.K. So there are many things we're doing to build innovation ecosystem. And of course, we can't talk about them all because of the time constraint. So please refer to the subsequent pages of the information pack later, if you're interested, and if necessary, I will answer your questions regarding this in the Q&A session. Please take a look at Page 39. I want to talk about another important issue that needs to be addressed in our corporate business plan, which is digital innovation, and we put together a list of accomplishments on Page 40. First of all, we are making good progress in talent development. We are now expecting to have 14 data scientists very soon with our goal of 20 by the end of the current corporate business plan period. As for data engineers, our goal is to train and certify a total of 150 data engineers over the 3 years, 100 data engineers working in our plants and 50 data engineers working in our R&D division. We have so far, trained and certified 65 data engineers today. While we are doing the talent development, we also put together a project team for each area, plant, R&D, supply chain management and back office in order to further enhance productivity. But I'm going to skip the details about the progress that has been made in each area. Next, I'd like to discuss the mid- to long-term outlook for the group's performance. Please go to Page 43. Let's take a look at our performance forecast in terms of core operating income. Core operating income continues to decline until fiscal year 2020 because of the ongoing downturn in the petrochemical market and an increase in upfront sales and development expenses in our Pharmaceuticals sector. And it seems very unlikely that we will be able to achieve the original target of JPY 280 billion in core operating income in fiscal year 2021, the final year of the current corporate business plan period. So we've pushed the target forward to fiscal year 2024, which is the final year of the next corporate business plan period. And we're now getting our act together to make sure we achieve this goal next time around. There are 3 drivers of profit growth. First, expanding the crop protection business, primarily in India and South America; second, launching new pharmaceutical products; and third, getting new high functionality materials to the market in the IT-related Chemicals and Energy & Functional Materials businesses. Let me then explain each of these drivers in depth. Please go to the next page, Page 44. Let's start with the Health & Crop Sciences sector. Core operating income came in at only JPY 2.1 billion for this sector in fiscal year 2019, but we expect an improvement in weather conditions and inventory in channel due to a pickup in demand. So it is more likely that the sector will make a moderate recovery this year. And its core operating income is expected to be around JPY 30 billion for fiscal year 2020. Of course, the question is what we are going to do to bring that to JPY 80 billion from here? We're going to make sure we successfully launch the B2020 pipeline products and sell them across our global footprint, which now includes India and South America. That's the first thing we're going to do in overseas crop protection markets. In addition, we will focus on selling more of what we call biorational products on nonchemical crop protection products, which include microbial pesticides or plant-derived products. With respect to methionine, we are going to be competitive in a market where the selling prices are rising and the cost of feedstock is falling at the same time, but also by making sure we reduce our cost wherever possible. Those are the actions that we believe will help bring us to our goal of earning JPY 80 billion in annual core operating income in the future. The next page, Page 45, is about the outlook of our Pharmaceuticals sector. The chart you see describes how we think the sector's core operating income will change over the next several years. The bars in pink for fiscal year 2019 and fiscal 2020 represent the upfront sales and development expenses for the Roivant products that will bring down the core operating income. I already explained that. The impact of these expenses will last until fiscal year 2021, and then the core operating income is expected to make a quick recovery in fiscal year 2022 when those major products we acquired from Roivant are launched. But we assume that this recovery will be short-lived, and the core operating income will begin to decline once again during fiscal year 2023 because of the patent cliff of Latuda. And finally, the sector's earnings are expected to be back on track for steady growth in fiscal 2024 and beyond. In case you haven't noticed, the year at the end of the chart has an X. This is the same for the chart on this page, the last page and the next page as well. It's 2020 something. The X doesn't mean 2028 or '29 or some year close to 2030. Rather, we are anticipating more like the year 2024 or '25. The next is the outlook for Energy & Functional Materials and IT-related Chemicals or what is known as high-functionality materials fields. Our goal is that these 2 sectors combined will be able to earn JPY 80 billion in core operating income in several years from now. We saw a relatively solid performance in fiscal year 2019 with JPY 45 billion in core operating income in total. And of course, we want to bring this to the next level. In the Energy & Functional Materials sector, the biggest growth driver is needless to say, battery components, but our super engineering plastics for the 5G network and mobility devices as well as inorganic materials will also be core products. With respect to IT-related Chemicals, flexible display components will be one of the core products and the photoresists, which I talked about earlier and compound semiconductors for 5G applications will also be the key for growth. Next, I'd like to explain what we are doing to improve our financial strength on Page 47. We created a road map to restore financial discipline by fiscal year 2024, and are now monitoring our progress towards this goal. In order to restore financial discipline, we need to increase our earning power and be able to generate more cash flow. While at the same time, we are also focused on the 3 reductions. These are investment, asset sales and CCC, cash conversion cycle. Let me start with investment. The initial estimated amount of our CapEx and other investment during the 3 years of our current corporate business plan, was expected to go up to JPY 950 billion on a decision-making basis due to the 2 large-scale acquisitions. But in the future, we're going to be more selective in where and how we invest and are now trying to reduce the total investment amount by JPY 100 billion from the initial estimate, although we will never let go of an opportunity to grow. In addition to that, we are selling some of our assets, as described on Page 48. We made a decision to dispose of about 20% of the shares held in cross shareholding arrangements and other assets in the total amount of about JPY 50 billion. We know that there is not much room for improvement in CCC since we've been working on this for many years. However, we're going to do more to improve our cash conversion cycle and hope to cut around JPY 50 billion by reducing the cycle by another 8 to 9 days through digital innovation and other new technologies. Putting those actions in place, we hope, will bring back our debt-to-equity ratio to 0.7 by 2024, which is our mid- to long-term target, as described on Page 49. We are tracking our progress against the road map. Next, I want to briefly talk about what we're doing with regard to ESG. Please take a look at Page 51. Our efforts of recent years have seen significant progress in our ESG activities and have been increasingly recognized by several independent organizations. One of which is the CDP, carbon disclosure project, the organization that evaluates corporation's actions against climate change. The CDP has awarded us the highest rank of A for 2 years in a row. The A List is an exclusive club of top 2% of companies joining this program. In addition, our comprehensive action plan towards not only the environment, but also society and governance is considered well balanced and highly recognized by the FTSE and MSCI. The fourth index is MSCI Japan Empowering Women Index, and our score is still relatively low. We will get our act together to improve this score going forward. The last slide is EcoVadis, which is about evaluation of suppliers. We finally received gold prize for our efforts in 2019. We will keep focused on our activities towards ESG, and let me give you more concrete examples of our actions. One of the actions I want to introduce today is our chemical recycling initiative. Please take a look at Page 52. We all know that the 3 Rs, reuse, reduce and recycle, are essential to make our economy more environmentally friendly. And we believe the ultimate form of recycling to be chemical recycling, which we are committed to and are focused on. You see the green lines in the picture, and they represent the processes where we work with Sekisui Chemical to turn waste to ethanol and turn ethanol to polyethylene. And the red line is a process being developed through a joint project with Muroran Institute of Technology in Hokkaido, which is aimed to manufacture olefins directly from post use plastic waste used in the catalyst we developed. In addition to that, though we didn't put this on the slide, we are trying to complete the third process of chemical recycling, if you will, which is to convert carbon dioxide into methanol. We're now trying to find a solution to the long-standing issue of low reaction efficiency of this process by developing a new catalyst that will boost the reaction. And we hope that our innovation will help the commercialization of this conversion process in the near future. In fact, we think we will be able to make a public announcement on this in the next couple of months. Please go to the next page, Page 53. Here, it describes what we are doing to help contain the COVID-19 pandemic. This pandemic has once again reminded us that there are so many things that the chemical industry can do to help people and our communities. Each chemical company around the globe has been playing its part to support the society. And of course, we also have been doing many things to support the efforts against the pandemic. For example, one of our affiliate companies, Koei Chemical is supplying active ingredients for Avigan, Favipiravir and Remdesivir to pharmaceutical companies. That's the first thing you see on this slide. And just below that, we provided our polyethylene film for agricultural use to be used to create PPE. It was part of our emergency response, and we prioritized those deliveries to PPE makers. Using agricultural film to create PPE is, of course, something we didn't expect at all, but we think this is also an innovation on our part. Also, Sumitomo Dainippon Pharma joins the COVID-19 Research Database program to provide free access to medical data concerning COVID-19, and these are just a few examples of what we are doing. Please take a look at Page 55. As a way to conclude my presentation, I would like to draw your attention to the 2 areas we are going to focus on this year. We all know that the 6 basic policies of our current corporate business plan, and they are here to stay in the face of the coronavirus crisis. Having said that, however, we have adjusted our priorities a little because of the worsening of the business climate during the pandemic. That is why we're going to put particular focus on further improving our business portfolio. This used to be the third priority, but we've moved this up and are now particularly focused on enhancing our earning power. I mentioned earlier that our life sciences business that is pharmaceutical and crop protection businesses, generate 40% of the total annual revenue. And it has been less impacted by the pandemic than other businesses. And this clearly shows our advantage as a general chemical company undertaking various businesses in light of our company-wide resistance to the pandemic and the changes in the business environment. I wouldn't go so far as to say that this is a conglomerate premium, but certainly, our diversified business portfolio has proved its stability. Meanwhile, we are well aware of the need to improve profitability of each of our business, and that's where we would like to place our focus on. The other area we focus on is to ensure post-merger integration, PMI, with large-scale acquisitions we have made over the past couple of years, whether it is Roivant Sciences, Nufarm subsidiaries in South America and a lesser scale, Tanaka Chemical, we have to pave the way for capitalizing on these acquisitions during the next corporate business plan period. Lastly, as I talked about last time, Sumitomo Chemical upholds and embodies the business philosophy of Sumitomo Group. Our business must benefit society at large, not just our own interest, to generate both social and economic values. By creating economic value and social value in an integral way and making practical contributions to help solve social issues faced by our society in those fields mentioned here, we aspire to be a company that makes our stakeholders feel joy and are proud of being so. And that brings to the end of my presentation. Thank you very much for watching.