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

Thank you very much for participating in the Sumitomo Chemical Conference Call for Fiscal 2020 Financial Results. Today, Mr. Sasaki, Managing Executive Officer, will give you a briefing on financial results for FY 2020. Later, he will be joined by Mr. Tan, General Manager of Accounting Department to take questions. Mr. Sasaki, the floor is yours.

I'm Sasaki of Sumitomo Chemical. Thank you very much for attending the conference call today despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to the management of our company. Thank you very much for that. Now I will start with the presentation of the financial results for FY 2020 and outlook for FY 2021. Please turn to Slide -- Page 4. The revised outlook for consolidated financial results for FY 2020 was announced on the 26th of last month, and the content is similar. Sales revenue was JPY 2.287 trillion, increase of JPY 61.2 billion year over year. Core operating income showing recurring earnings power was JPY 147.6 billion, increase of JPY 15 billion year-over-year. Nonrecurring items not included in core operating income as profit direction changes in fair value of contingent consideration was JPY 22.5 billion. And gain on sale of property, plant and equipment was JPY 18.7 billion. On the other hand as losses, there was impairment loss of JPY 40.8 billion and restructuring charges of JPY 6.3 billion. So in net, there was a loss of JPY 10.5 billion. Compared to the previous term, this is a worsening of JPY 15.4 billion. As a result, operating income was JPY 137.1 billion, down JPY 400 million year-over-year. Finance income or expenses, this was a gain of JPY 700 million, improvement of JPY 7.7 billion year-over-year. Out of this, in gain or loss on foreign currency transactions, there were gains of JPY 9.3 billion because of a weakening of the yen towards the end of the year with an improvement of JPY 14.8 billion year-over-year. Income tax expenses was JPY 69.7 billion, down JPY 6.4 billion year-over-year. As a result, net income attributable to owners of the parent was JPY 46 billion, up JPY 15.1 billion year-over-year. As for exchange rate and naphtha price which influences our performance, the average U.S. dollar rate during the term was JPY 106.10 to $1 and naphtha price was JPY 31,300 per kiloliter. Compared to the previous term, yen strengthened and the feedstock price decreased. Next is sales revenue by business segment. Please turn to Page 5. Let me start from sales revenue. Total sales revenue increased by JPY 61.2 billion year-over-year. By segment, IT-related Chemicals, Health & Crop Sciences and Pharmaceuticals had increase in sales revenue. On the other hand, In Petrochemicals & Plastics and Energy & Functional Materials, sales revenue decreased. As for changes of sales revenue compared to the previous term, analyzing by sector. Sales price decreased by JPY 49 billion. Volume increased by JPY 144.5 billion. Foreign exchange transaction variance of foreign subsidiary sales revenue dropped JPY 34.3 billion. Next is Page 6. Total core operating income increased JPY 15 billion year-over-year. By segment. In IT-related Chemicals and Health & Crop Sciences, core operating income increased and decreased in Petrochemicals & Plastics and Pharmaceuticals. Analyzing by sector. Price was minus JPY 4 billion and cost was minus JPY 7.5 billion. On the other hand, volume variance, including changes in equity in earnings of affiliates, was a positive JPY 26.5 billion. Volume variance, as you can see in the chart below, in IT-related Chemicals and Pharmaceuticals and Health & Crop Sciences, we've increased in shipments. This was a positive JPY 77.2 billion. On the other hand, shipments dropped with the COVID-19 pandemic, which was a negative JPY 29 billion. Worsening of equity earnings of affiliates was a minus JPY 21.7 billion. Let me introduce the results by segment. Page 7. In Petrochemicals & Plastics segment, sales revenue was JPY 589.3 billion, down JPY 67.6 billion year-over-year. Core operating income was minus JPY 12 billion, down JPY 26.5 billion year-over-year. In sales revenue, with a drop in the feedstock price, such as naphtha, market prices of petrochemicals dropped. In volume, Petro Rabigh, which is an equity affiliate, had periodic plant maintenance. Therefore, sales volume of Sumitomo Chemical Asia and others declined. In addition, with a drop of economic activities as a result of the impact of COVID-19, there was decrease in shipments of synthetic resins mainly for automotive use. In core operating income, there was decrease in equity earnings from investment affiliates such as Petro Rabigh and decrease in shipments due to the COVID-19 pandemic. So core operating income decreased. Next page, please. Energy & Functional Materials segment. Sales revenue was JPY 245.2 billion, down JPY 9.8 billion year-over-year. Core operating income was JPY 20.3 billion, which is nearly flat from the previous term. In sales revenue, in sales price. Sales price of aluminum and cathode materials declined. In volume, there was decrease in shipments of lithium-ion secondary battery separators and synthetic rubber for automotive use due to the COVID-19 pandemic. But revenue increased because of onetime increase in license revenue and others. In core operating income, there was a decrease in shipments due to the COVID pandemic. On the other hand, margin improved with a drop in feedstock price, so core operating income was at the same level as the previous year. Next page, IT-related Chemicals segment. Sales revenue was JPY 431.8 billion, up JPY 26.9 billion year-over-year. Core operating income was JPY 39.7 billion, up JPY 14.6 billion year-over-year. In sales revenue, the selling price of polarizing film declined. But in volume, with increasing demand, shipments of high-purity chemical and photoresists, which are processing materials for semiconductors, increased. And with stay-home demand, work-from-home demand, shipments of materials for display applications increased, leading to increase in sales revenue. In core operating income. Rationalization and increased shipping volume was higher than the decline in the selling price so the result was an increase in income. Next page is Health & Crop Sciences segment. Sales price was JPY 423 billion, increase of JPY 79.3 billion year-over-year. Core operating income was JPY 31.5 billion, up JPY 29.5 billion year-over-year. In sales price. Sales increased with the acquisition of South American subsidiaries of Nufarm in April 2020, and there was increased shipments of crop protection products in India. Furthermore, market prices for methionine increased. As a result, sales revenue increased year-over-year. In core operating income. There was improvement of methionine margin and the addition to the cost variance, such as rationalization of methionine and reduction of expenses and acquisition of South American business and increase of crop protection products in India led to increase in core operating income. Next page. In the Pharmaceuticals segment. Sales price was JPY 546.5 billion, increase of JPY 30.6 billion year-on-year. Core operating income was JPY 71.7 billion, down JPY 3.6 billion year-on-year. In sales price. There was increase in shipments of Latuda in North America, and also relugolix-related revenues were recognized. And in Japan, there was contribution of domestic sales of Equa and EquMet, which was launched in the previous year, leading to increase in sales revenue. Core operating income. Though there was increase in sales price, fixed cost of Sumitovant and subsidiaries were recognized for the full year, leading to a reduction of core operating income. This was outlining our performance by segment. Next page is a breakdown of nonrecurring items. I will not cover the details. I would like to move on to the next page, consolidated balance sheets. Total assets for the year ended March 2021 was JPY 3.9903 trillion, up JPY 336.2 billion from the end of the previous year. This is primarily due to increase in cash and cash equivalents from securing liquidity on hand. Interest-bearing liabilities was JPY 1.3511 trillion, up JPY 46.4 billion from the end of the previous year. In the meantime, net outstanding interest-bearing debt balance, offsetting cash and cash equivalents and interest-bearing liabilities decreased. Equity was JPY 1.4821 trillion, up JPY 89.5 billion from the end of the previous year. As a result, equity attributable to owners of the parent to total assets or equity ratio was 25.5%, a 0.2-point improvement from the end of the previous year. Let me turn to consolidated cash flow. Please turn to Page 14. Cash flows from operating activities was JPY 374.5 billion, up JPY 268.5 billion year-over-year owing to receiving upfront payment for signing of development and sales alliance agreement at Sumitomo Dainippon Pharma and improved working capital. Cash flows from investment activities was an outflow of JPY 177.4 billion, down JPY 322.3 billion in outflow year-over-year. This is primarily due to payment of consideration at Sumitomo Dainippon Pharma based on strategic alliance with Roivant Sciences. As a result, free cash flows was an inflow of JPY 197.1 billion, which is an increase in inflow of JPY 590.7 billion from an outflow of JPY 393.7 billion last year. Cash flows from financing activities was an outflow of JPY 40 billion, a decrease in inflow by JPY 413.5 billion year-over-year. Let me turn to our outlook for fiscal year 2021. Please turn to Page 16. For fiscal year 2021, our assumptions for foreign exchange is JPY 110 to $1 dollar and for naphtha, JPY 47,000 per kiloliter. Our sales revenue projection is JPY 2.610 billion, up 14.1% year-over-year. Core operating income, JPY 200 billion, up 35.5% from FY '20. Operating income JPY 180, up 31.3% from FY '20. Net income attributable to owners of the parent, JPY 100 billion, up 117.2% year-over-year. ROE, 9.2% -- 9.6%. This is our projection. As for cash dividend, interim dividend of JPY 10, year-end dividend of JPY 10, annual dividend of JPY 20 is our guidance. Let me turn to sales revenue forecast by business segment on Page 17. Our outlook for sales revenue for FY '21 is JPY 2.610 trillion in total, up JPY 323 million from FY '20. Increase in sales revenue is expected across all segments. Analysis by factors show plus JPY 111 billion in sales price variance, plus JPY 181.3 billion in volume variance, plus JPY 30.7 billion in foreign exchange conversion variance of sales revenue of overseas subsidiaries. Page 18. Our outlook for core operating income is JPY 200 billion, up JPY 52.4 billion from FY '20. By segment. While fall in income is expected in Energy & Functional Materials segment and Pharmaceuticals segment, all other segments are expected to see gains. Analysis by factors shows while price and cost variance factors fall, each by JPY 9.5 billion and JPY 39 billion, respectively, from FY '20, volume variance factor, including changes in equity and earnings from investment in affiliates, is expected to improve by JPY 100.9 billion. Let me turn to segment analysis. Please turn to Page 19. For the Petrochemicals & Plastics segment. Sales revenue, JPY 760 billion, up JPY 170.7 billion from FY 2020. Core operating income, JPY 36 billion, up JPY 48 billion year-over-year. Sales revenue is expected to increase, owing to higher market prices, no impact of periodic plant maintenance at Petro Rabigh, which was incurred in FY '20 as well as increase in shipment volume that suffered from the COVID-19 pandemic. While negative impact from periodic plant maintenance scheduled at Chiba Works and PCS and equity method affiliate is expected, core operating income is expected to increase on the back of improved performance of Petro Rabigh and recovery from the impact of COVID-19. Next page, please. For the Energy & Functional Materials segment. Sales revenue, JPY 280 billion, up JPY 34.8 billion year-over-year. Core operating income, JPY 19 billion, down JPY 1.3 billion year-over-year. Sales revenue is expected to increase with higher selling price and expected shipment recovery, which suffered from the impact of COVID-19. Core operating income is expected to decrease with decline in profit margin from increased raw material prices and no impact from license income that was recognized in fiscal year 2020. Please turn to the next page. For the IT-related Chemicals segment. Sales revenue, JPY 435 billion, up JPY 3.2 billion year-over-year. Core operating income, JPY 40 billion, up almost -- actually almost flat year-over-year. Sales revenue is expected to increase in view of sales promotion of semiconductor process materials such as photoresists and high-purity chemicals, while impact of decline in the selling price is expected to continue. Core operating income is expected to increase as a result of negative impacts from drop in sales price, compensated by increase in shipment volume and cost reduction achieved through streamlining. Please turn to the next page. Health & Crop Sciences. Sales revenue, JPY 460 billion, up JPY 37 billion year-over-year. Core operating income, JPY 38 billion, up JPY 6.5 billion year-over-year. Sales revenue is expected to increase because of higher market price for methionine and increase in shipments of crop protection chemicals in North America and South America. The same applies for core operating income, increase expected owing to improved performance in crop protection chemicals overseas and methionine. Next page, please. For the Pharmaceuticals segment, sales revenue, JPY 610 billion, up JPY 63.6 billion year-over-year. Core operating income JPY 67 billion, down JPY 4.7 billion year-over-year. Sales revenue is expected to increase from increase in shipments of Latuda in North America, increase in sales from Sumitovant and contribution of new alliance projects. Core operating income is expected to drop, while increase in sales revenue is expected with increase in SG&A expenses in Sumitovant. This is all for core operating income. Next is our guidance on cash flows. Cash flows from operating activities, an inflow of JPY 220 billion, down JPY 154.5 billion from fiscal year 2020. Cash flows from investing activities, an outflow of JPY 150 billion, down JPY 27.4 billion in outflow from the previous year. As a result, free cash flows will be JPY 70 billion in inflow. Our forecast for interest-bearing debt balance is JPY 1.350 trillion at the end of fiscal year 2021. The core operating income of JPY 200 billion and net income of JPY 100 billion, I would not say this is sufficient. But ROE is approximately 10%, and I think it will offer a yardstick for us to achieve the target. We would like to give all we have to achieve our targets. That is all for my presentation on earnings, and I am happy to take your questions. Thank you for joining today. Now we would like to take your questions.

The first question is from Mr. Watabe, Morgan Stanley MUFG Securities.

First, the core operating income is increasing; JPY 200 billion on net income, JPY 100 billion for guidance is very high despite the impact of COVID-19. First is about Petrochemicals. In the term just ended, Petro Rabigh profit and loss contribution to the negative was about JPY 40 billion and the first quarter was about JPY 7 billion. So JPY 48 billion forecast for this year increase of income is expected, which means that even with the 0, you can explain only through Petro Rabigh to explain the improvement. There are factors of periodic maintenance, but there were improvements of methacrylate as well. So what is the situation around market? What is the overall situation of Petrochemicals, including this point?

Thank you for your question. Petrochemicals was your question. Yes, as you mentioned, JPY 12 billion loss and then a profit of JPY 36 billion, so a for JPY 48 billion improvement overall is expected. So I have a simple analysis. As price factors, JPY 7.5 billion is described. And for this, as you have mentioned, the improvements of margin and other factor is expected, which are taken into consideration. Now in addition, another major factor is a volume variance. Of course, profit or loss of equity affiliates, improvement is expected. In Petro Rabigh, of course, as I always mentioned, is a listed company. So future projections, it's very difficult to say anything about it. But of course, we expect improvement. On the other hand, the Chiba Works also. And in Singapore, there are plans of having a periodic plant maintenance, which could be a negative factor. So the total result are those numbers. Did I answer your question?

So does it mean that currently -- or in the future, market price, you expect a drop going forward?

Well, currently, there are several factors. Of course, the competitors may have periodic plant maintenance or the market price is good now because in North America, there is a cold weather which may be influencing the operations according to press reports. And with this background, the market price is at a very high level. These may be temporary factors and will not continue forever. That is our view.

About IT-related Chemicals, In the second half of the year just ended, I think the situation was very good and the movement towards the end of the term and forecast for this year, smartphones, televisions and semiconductors, you expect growth. What is the situation in the OLED, polarizing film share for smartphones included? Could you explain that?

In IT-related Chemicals, in the year last ended, JPY 39.7 billion our figures. In the beginning of the year, the impact of COVID-19 was expected in display, in materials, that could be an influence. But in the second half -- or in the third and the fourth quarter -- on the fourth quarter, rather, basically, demand tends to be stabilized or is at term with lower demand. But I think the situation was relatively good. And in this situation, as for the future, there are several fluctuating factors. One concern as negative factor are the customers. They are going through reorganization restructuring, which may have an impact. And of course, selling price may drop. These may be some factors. And very gradually, I believe the market will be more shifted towards China. The market will gradually change, and I think this may also have an impact. And in general, the assumption of exchange rate, JPY 110, we are looking at a slightly weaker yen, which may have a positive impact. But in general, the level may be similar to that of the previous year for polarizing film. And for touchscreen panels, I think our situation may be similar. In case of glass, the situation may be good. Our glass so far was good, but now there may be some worsening. But for films, we are causing concerns, but we are taking necessary measures. So we expect some improvements. So those 2 together, the situation may remain flat for the full year. And for semiconductor-related materials, the movement is robust. We expect the movement to be good. So the shortage of semiconductors right now, we are seeing many changes. And there are negative factors. But for the full year in FY 2021, the level may be similar to that of FY 2020. Thank you very much.

I would like to move to the next question. From Mizuho Securities, Mr. Yamada, please.

May I ask my question? This is Yamada from Mizuho. I have 2 questions. Number one, in Health & Crop Sciences segment, methionine market prices, as was explained, it has gone up and also growth in sales of crop protection chemicals in North America. Methionine, how do you expect it to move at the end of the year? INDIFLIN, I think, will come out at the end of this year, INDIFLIN. But taking INDIFLIN into consideration, the volume impact, it seems to be quite conservative. Nufarm, you acquired, South American postmerger integration, the progress that you're expecting and your views on INDIFLIN. If you could separate those 2 and talk about the impact on volume, please.

Thank you very much for your question. This is on Page 22. Methionine price changes, price trends. As you may know, finally, we are seeing recovery in methionine prices. This, I think, is what I can, first of all, say to you. In the third quarter, that was the bottom. And the gradual improvement is expected. That's what I said, I think, back in February, but that is exactly what we are seeing as a trend, underlying trend. And in addition to that, the background to the higher market price is, as I mentioned earlier, under Petrochemicals & Plastics is the impact of the cold weather in North America, and that is also combined by the planned periodic plant maintenance needs or suspension of operation at our competitors. So that, I think, is leading to the higher market prices. This is, however, a temporary positive trend, which may not continue for long time -- long term. But over the year, I think to a certain extent, it could have a positive impact. That is how we see the market price for methionine. And as for crop protection business overseas, we're expecting increase in shipment in North America and South America. That's what I mentioned in my presentation. And for North America, 2019, there was some extreme weather, and there was inventory remaining at a high level, but this situation, I think, is recovering. It has not recovered completely, but this positive trend, should I say, is expected to continue. And recently for soil -- soy -- soybeans, expect that the planting area is expanding, and therefore, that is a positive trend. And also in South America, INDIFLIN that you talked about, 2021 in Brazil and other parts of South America, we expect it to be registered, which will be the main initiative, main for this year. There are some areas in South America -- in North America where it has been registered and been shipped. But it's yet to come in South America. But in terms of contribution in the second -- in 2021, it is yet to come. That's the situation with the INDIFLIN because it will start shipment in 2021 and beyond that will we expect contribution. So in terms of contribution in 2021, we think it will be quite limited. As for INDIFLIN, it's going to go into the distribution channel. So I was expecting that it could pick up some -- to a certain extent this year, but that is not the case. It will probably start to come out in -- towards the end, maybe in the fourth quarter of this year. That is our expectation at this moment. And so that is why I am saying that the impact for '21 will be limited.

I see. So expectation is more towards next fiscal year?

Yes, that is how we would like you to interpret.

The price of methionine, going forward, it's expecting to decrease. Is that how you're factoring in your plan?

The spot prices are extremely or very high already at this moment, and there are some onetime factors that are associated to that. The spot prices that we're seeing, which is at a very high level, we don't expect that to continue over the long term. A terrible situation had continued for so much time. So for so long, there was a time like $4.50, $4.50 at some point in time.

Yes, I recall that. So compared to that time, I do not think that this is such a terrible price. But am I wrong?

Well, how should I say it? In principle, as we always say, every year, demand 6%, 7% growth in demand. That's what we expect in the past and always -- and that also holds true today. Compared to 2019 in 2020, maybe on average, there was like a 10% growth per annum. But at the end of the day will be a plus/minus of flat perhaps, but because there are fluctuations, but that's the kind of growth that we are expecting from 2020 to '21. That's the kind of market price increase that we are expecting.

Okay. Let me ask you another question. Operating cash flow is expected to decrease this year because of sales increase and therefore, working capital will also increase. But I think you were working to address this so I would like to receive some comments on that.

Yes. How should I say it? This fiscal year, fiscal 2020, operating cash flow was quite good, and I explained this briefly. But there was onetime license payment from Pfizer, which was quite significant. It was an extraordinary factor which will no longer be there for 2021. And also sales revenue -- sales is expected to increase. But in terms of shipment, we're expecting recovery from COVID-19, but working capital will be under more of a pressure and that could be a negative factor. That's how we see it.

The next question is Mr. Okazaki from Nomura Securities.

I'm Okazaki from Nomura Securities. I have 2 questions. One is about Energy & Functional Materials. Towards the new fiscal year, what is the trend of major products, battery sourcing, engineering plastic and others? What is the trend and also resorcinol?

For Energy & Functional Materials. In general, we expect some drop in income towards 2022. The factors for that, in terms of resorcinol, I believe because of impact of COVID 19, the negative impact will disappear and will be positive. And similarly, for battery materials, recoveries from the impact of COVID-19 is included. And for super engineering plastics for automotive use and others, in this area, also, we believe the sales will increase. But we are having a forecast of reduced income because there was a onetime license income, which will no longer exist. So we are considering that influence. As I mentioned, for our major 3 products, what are the major areas that expect growth in shipments? The largest growth we expect for resorcinol, we are quite firm that there will be growth. And for automotive use as well, we expect increase.

And my second question is about IT-related Chemicals. As was mentioned earlier, in the second -- in the first or the second quarter for television, polarizing films and for smartphones as well, what is the current demand environment? And for OLED smartphone polarizing film share in the new fiscal year, what is the trend for the new models?

For polarizing panels-related items. In FY 2020, television sales volume grew very much. And on the other hand, in FY 2021, we -- there are views that the growth may not be that high. And also for notebook types, there was a large growth in 2020, but in FY 2021, we expect a rather limited growth. And for smartphones in FY 2020, in particular, in the first half, the situation was not good. But we expect growth in this fiscal year. And under such a situation, OLED will grow quite a lot, we expect. Smartphone -- share of OLED or smartphone panels in FY 2021 will be larger this year compared to the past years and the rate, until now, was about 30% or more, but now we believe will grow to about 40%. So the overhead ratio is higher in our case. So we believe this have a positive impact.

For televisions and notebooks, the demand situation is not very firm. We hear that from other companies. But is that situation the same in your case?

Yes, basically for television, use -- the situation is very good. The panel price may be slightly high, and this may be impact the shortage of semiconductors, which is a reason for some concern. But basically, the environment is very good. The situation is very good.

SMBC Nikko Securities, Mr. Miyamoto, please.

This is Miyamoto from SMBC Nikko Securities. My first question is about IT-related Chemicals. Earlier, you said that you're expecting semiconductor driving growth, especially photoresists. How much growth are you expecting? It might be difficult for you to share specific numbers. But is it growing compared to other semiconductor materials? And also EUV-related photoresists, if you have any updates on development, please share that with us.

Your question related to resists. In terms of trend, it is quite strong, it's robust. In terms of breakdown, what is the sales breakdown and profit or income, I am not ready to share it with you, but -- I cannot share it with you, but it is growing quite significantly. These are existing products. And products for memory and for logic, towards 2021, we expect the performance to improve further. But of course, manufacturing volume, there are limitations to that. And therefore, the contribution is limited and therefore, it may not grow significantly. But we do expect a robust growth. EUV, actually, we are putting a lot of emphasis in that area. Compared to our peers, we must admit that we were slightly behind. But we are putting all our efforts in order to catch up with our peers. Since this will pertain to specific customers, I am terribly sorry, but some of the deals have already started and I think some of it will come out in the news, and I therefore, would like you to keep yourself updated to that.

And also my second question is IT-related Chemicals-related. Looking at your new plan, and I am looking at Page 21, JPY 8 billion in price variance you're expecting. In this price variance, a little bit smaller, maybe about 2% in ASP. That's having -- you have in mind, the panel chain prices are rising, and therefore, there's a slow rise in price variance from the previous year. [ SOP, SIPO and Sanofi ], I think, increase in capacity is expected this year, but what is your take on that?

As for polarizing films, and this is what we see every year, but price is expected to decline. That is a trend that we are expecting to see. But as you pointed out, the speed of decline in price of polarizing film, that would differ across different years. And the way we look at the decline in the price of polarizing film is not that we're expecting a slow decline. But to compensate the decline, well, we are seeing a weaker yen in our assumptions. And that is factored in, in our analysis of the sales price variance. Please interpret in such a way.

So foreign exchange, that is not included in the conversion variance?

Well, of course, there is a conversion variance in the foreign exchange, but the sales price could pick up and that could have a positive impact.

You're talking about export?

Yes, that is what I mean.

I will move on to the next question, Mr. Watabe from Morgan Stanley MUFG Securities, please.

I'm sorry for asking the question for a second time. For dividend, JPY 10 at the end of the year. So compared to 2019, there is a higher level. I think profit level is changing. I would like to hear about the dividend policy and the cash allocation.

Yes. Thank you for your question. For dividends, JPY 20 is the expected amount with JPY 100 billion net income, 30% or more -- about 33% of dividend payout ratio. Our dividend policy basics is that, first of all, to provide stable dividend payment. Of course, if the profit level is very low, there may be changes. But even if it is low, at a certain level -- we plan to provide a certain level of dividend. And in addition, in the mid- and long-term perspective, for the payout ratio, we are aiming at a level of about 30%. In FY 2019 or 2020, the profit level was not satisfactory from our perspective. So as a result, dividend payout ratio 2019 was about 19% and in the last fiscal year, slightly more than 15%. But gradually, we want to aim at the level of about a 30% dividend payout ratio, and we'll secure a profit level that can provide this level. So returning to our shareholders we believe the dividend is one of the most important items.

And yesterday in Dainippon Sumitomo for FY '22, JPY 120 billion core operating profit was reduced to JPY 60 billion. Is that an impact of your medium-term plan? Or in the market from the next fiscal year forwards, there are concerns about the performance of Dainippon Sumitomo Pharma -- or Sumitomo Dainippon Pharma. So what is your take on this?

The Sumitomo Dainippon Pharma medium-term plan was announced and these figures were announced. There are several factors for this. One major factor is opposed to Latuda considering the many measures were taken, but they are not necessarily going well. For instance, for napabucasin as a cancer agent didn't work well. That is one background. And to supplement this, there was a partnership with Roivant. And so far, I believe this is going well. But leading cost was quite high, that burden was very high. And in that sense, for Sumitomo Dainippon Pharma, the initial target set, the profit level set in the target is, I believe, is going to be delayed slightly. For FY 2021, in the performance forecast, I think this situation is reflected.

We are nearing the end of this meeting. I would like to make the next question, the final question for today. Mitsubishi UFJ Morgan Stanley, Mr. Watanabe.

I am Watanabe from Mitsui UFJ Securities. I'm looking at Page 6. Impact of COVID for the full year, JPY 29 billion. And gradually, the impact was -- got weaker and that went down to like JPY 3 billion towards the end, and therefore, we're expecting that the impact of COVID will be less than next fiscal year. JPY 50 billion in increase in profit income. But apart from Petrochemicals & Plastics, you're expecting a flat growth. Is there a significant impact -- negative impact that would offset the improved impact from COVID-19? What would that be?

Thank you for the question. For this fiscal year, as you said, JPY 29 billion impact that was reduced to JPY 3 billion in impact from COVID-19. But the shipment has decreased. Shipment dropped. That led to this negative number. Apart from that, there's also areas in crop protection chemicals or Pharmaceuticals where shipment was positive, which is not factored in the number. We only looked at the negative impact. And in the same time, the expenses were not incurred. This is as a result of COVID-19 impact, but this was not also factored in. And so just looking at the negative factor, this JPY 29 billion. But there are also positive factors and those positive factors will also be gone in the new fiscal year. And there will be some remaining. For example, for aircraft applications, that will also remain as an impact, but the impact will not be that significant. And therefore, in terms of large impact from COVID-19 is not expected in the new fiscal year, and that is how we came up with our forecast.

I want to ask another brief question. Cash flow forecast for this fiscal year. You said that in terms of negative impact, last year, you had the lump sum payment from Pfizer, which was a significant amount. Relugolix, if this is approved, separate milestone income will also come in relugolix, but that is not factored in, in this year's numbers?

Well, for fiscal '21, it is not factored in, I believe. It is not factored in.

So it's -- the reactionary drop is reflected?

Well, the profit recognition of relugolix is going to be in phases, in installments. And so what you described in other words, a timing of approval, fiscal year '21, I do not think that was factored in, in the numbers for our outlook for fiscal '21. But it will be recognized in installments.

JPY 650 million that you received last year will be recognized in phases. But when it is approved, JPY 200 million will be paid. I think you had a release on that. But that is not included in the cash flow projections. Is that correct?

Yes, the timing of approval and the impact from the timing of approval is not factored into our numbers for fiscal -- this fiscal year.

Thank you very much, Mr. Watanabe. It's now time to conclude. This concludes our Q&A session. Lastly, I'd like to have the closing remarks by Mr. Sasaki.

Thank you very much for your participation today. This is now a new fiscal year FY 2021. In the current medium-term business plan, this is a final year, and the current situation is that one concern is the tension between U.S. and China, leading to stronger regulations, which may be a negative factor. And with the deployment of a vaccine, recoveries from COVID-19 will become gradually clear. I think that is the situation. And in any event, in our case, we have taken several measures so far, and we have to lead that to actual outcomes. And also, our financial position must be improved. That is what we are thinking about. We ask for your continued support going forward. Thank you very much for your attendance.

This concludes the conference call. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]