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

It is time to start. I am Kobayashi from Corporate Communications Department. I will serve as a facilitator. Thank you very much for attending the investors meeting for FY 2023 First Half Financial Results, management priorities and business strategies, despite your very busy schedule. Today, the President, Mr. Iwata, will make a presentation, and then we'll have a questions-and-answers session. We plan to conclude at 7:00 p.m. Now, President Iwata, over to you.

Good evening. I am the President of the company, Iwata. Thank you very much for attending the Sumitomo Chemicals Investors Meeting for FY 2023, First Half Financial Results, management priorities and business strategies despite your very busy schedule. I'd like to thank the investors for your daily support and understanding to our operations. Thank you very much for attending. This is today's agenda. I will try to focus my presentation as much as I can and leave as much time as possible for Q&A. Please look at Page 3. First, this is executive summary of my presentation. It's roughly divided into 3 sections. First is business performance. As for FY 2023 business performance results of the first half were very tough. Also improvement is expected in the second half because of a significant impact of deterioration in the first half. The full year forecast is revised downward to a core operating income of negative JPY 70 billion and net income negative JPY 95 billion. Having a strong sense of crisis about this situation, the management has initiated 2 company-wide initiatives. The next section is the first initiative out of the 2 initiatives, which is the main theme today, immediate-term, concentrated measures to improve business performance. The details will be explained later. The effect is expected to be an improvement of a scale of JPY 500 billion in cash generation and JPY 50 billion in revenue contribution. The third section is on the fundamental structural reform started in parallel with immediate-term measures. Today, I will explain one of them, the reorganization of Essential Chemicals business in Japan. We intend to release the new corporate business plan which will mainly consist of fundamental structural reforms in mid-2024 ahead of schedule. First, about business performance. Since time is limited, I will not cover the first half financial results released at the end of last month. They are included in the appendices. Please refer to them later. The revised FY 2023 full year performance forecast, which was released today. Sales revenue, [ JPY 2.700s billion ], core operating income, minus JPY 70 billion, operating income, minus JPY 125 billion, net income, minus JPY 95 billion. Sales revenue at each income level were significantly revised downwards from the previous forecast. As for the core operating income, I will explain the following slides. Non-recurring items because of the impairment of methionine [ and ] other factors, losses increased compared to previous forecast. Core operating income by sector compared to the previous forecast. In total, we forecast a reduction of JPY 110 billion in terms of core operating income compared to the previous forecast to minus JPY 70 billion. I will explain on the following pages for the details. FY 2023 business performance forecast by segment, I would like to report the situation and how management is taking action. First, Essential Chemicals. In all 3 locations, the performance was tough. Petro Rabigh margin deteriorated in both refining and petrochemicals and also there was a major impact of scheduled maintenance. Singapore had a margin deterioration and demand was depressed in China. In Japan, selling price adjustments to reflect [ hike in ] raw materials and fuel prices was delayed. So there were 3 negative factors. Recognizing that the oversupply situation caused by the expansion of crackers overseas will not be quickly resolved. We are restructuring operations, mainly in Japan, and we have already begun various projects. In Pharmaceuticals, Latuda cliff has expanded due to the delayed development of post-Latuda. We are adding additional measures to increase the market share of the 3 core products and further implement cost reductions. In Health & Crop Sciences, there were weak market conditions from methionine and reduced shipments of crop protection chemicals in South America. I will talk about methionine later, but we will reduce capacity. In South America, due to the special factor of intentionally accelerating inventory reduction in the first half of the year, I recognize that a decrease in shipments of crop protection products in South America is temporary. In IT-related Chemicals, large-size displays are in the process of restructuring and semiconductors are at a standstill. I understand that the display portfolio reform is progressing well and that for slump in demand for semiconductors will recover from the fourth quarter. In Energy & Functional Materials, we expect income reduction in the second half influenced from the inventory reductions due to both production adjustments. Next, second half forecast compared to the first half. Core operating income will greatly increase from the first half to the second half, looking on a quarterly basis. First quarter was a bottom and improved slightly in the second quarter. In Pharmaceuticals, performance is expected to improve in the third quarter as measures of leverage of 3 core products will take effect in the second half. In the fourth quarter, due to the demand season for crop protection chemicals and recovery of semiconductor market, business is expected to return to the [ black ]. Next is about shareholder returns. We expect a larger loss of minus JPY 95 billion. However, at the moment, we will maintain our forecast of annual dividend of JPY 12 per share. Next, [ please ]. On such situation, let me talk about executive compensation. First half and full year of FY 2023 we expect large losses. We take this situation very seriously as a critical situation [ is ] the foundation of the company. Based on the assumption of a 2023 full year forecast released, officers will receive no bonus for FY 2023. And the addition of the Chairman of the Board, Mr. Tokura and I, Iwata, the President, will voluntarily return 10% of base monthly salary for 5 months from November 2023 through March 2024. In order to [ hold ] this deterioration in performance as much as possible and to ensure a V-shaped recovery in FY 2024, we are currently working on an immediate-term concentrated measures to improve business performance with a sense of urgency throughout the company. Section 2 is about that content. First, this is overall summary. The purpose of these immediate measures, as I have mentioned, is that in addition to ensuring a V-shaped recovery FY 2024, we aim to strengthen our financial position in preparation for the fundamental structural reforms that are being considered in parallel. Totaling all the items we expect to generate about JPY 500 billion of cash by FY 2024. First, on rebuilding business. As explained [indiscernible] me, financial results presentation, in addition to the JPY 25 billion in rationalization benefits, which is on track to achieve, we are deploying a number of projects to further improve business structure. We are building the business, including selling businesses, which is expected to generate JPY 120 billion in cash and improved core operating income by JPY 50 billion. The remaining is about cash generation, reduce inventories, more selective investments, sell assets and leverage freed up capital. All items will be checked to strengthen financial position. With this content, we will first try to stop the bleeding, but these are not sufficient. We have to consider further accumulations. With these immediate-term concentrated measures to improve business performance, financial position by the end of FY 2024 will be strengthened to a certain extent. But by accumulating further additional improvement measures going forward, we aim at early achieving a D/E ratio of 0.7. Now, from those items, first, let me talk about rebuilding the business. In the past rebuilding efforts were mainly focused on loss-making or unprofitable businesses. But this time, we are expanding the scope of rebuilding efforts to [ include ] the viewpoint of whether we are the best owner, even if the business is profitable. We expect an effect of total for the current 30 projects of sales of JPY 270 billion, cash creation, JPY 120 billion and core operating income, JPY 50 billion. But rebuilding projects have many stakeholders including the employees and customers. So the report at mid-stage will be limited in content. We ask for your understanding. From the next page, I'd like to introduce some examples as far as I can tell you. First, regarding the Display Materials business, I would like to explain our progress on the 2 challenges you see here. The top row is the reorganization of the polarizer business, which I have explained to you. Especially for polarizer for large LCDs, competition has been intensifying year-by-year due to the rise of Chinese manufacturers. We are proceeding on partially closing lines and converting one line to OLED automotive applications. This is closing lines equal to about 30% of production capacity. In addition, a fundamental restructuring of the polarizer business for large LCDs in China is under study, and a conclusion will be reached by the end of this fiscal year. The bottom row shows the reform and strengthening of competitiveness of Dongwoo Fine-Chem in Korea, completely exit from the color filter business for displays and streamlining the production systems of the existing display business and converting it to components for antennas and other telecommunication materials. Aiming to acquire excellent talent to strengthen R&D, the company decided to establish a new development site outside of Seoul where many cutting-edge Korean companies are concentrated. Next is regarding the rebuilding of the methionine business. Methionine remains a promising market that is expected to grow at around 5% per year due to population growth and increased demand for meat. That understanding has not changed. On the other hand, the business environment is very severe, mainly due to oversupply caused by competitors' capacity expansions, and we booked all impairment losses of our methionine business in the current financial results. Under these circumstances, we will newly close production lines with low competitiveness during this fiscal year. In addition, we are studying a capacity reduction of about 30% combined with further rationalization by 2024. We will build a more competitive production system to achieve a V-shaped recovery in fiscal year 2024. The methionine market price is currently in a reversal trend, reflecting a tightening supply-demand balance due to production cuts and troubles at other companies. There is a decline of depreciation cost due to the impairment loss. The pricing level that we have right now, it is at the level that for us, it will be a breakeven level. Next, I would like to explain the main points of our efforts regarding immediate-term concentrated measures to improve our financial standing. In terms of inventory reduction, we will work to reduce inventories from approximately JPY 800 billion at the end of the first half of 2023 to JPY 650 billion, a reduction of approximately JPY 150 billion. The company is prepared for temporary deterioration and business performance due to production reduction and will take measures such as reviewing safety inventory levels and using DX to visualize the order and inventory status for timely reflection in production planning. As for more selective investments, while almost all strategic investments are concentrated in growth areas such as life sciences and semiconductor materials, the overall investment was carefully selected. As a result, though, it is expected to decrease by about JPY 150 billion to JPY 600 billion from the JPY 700 billion assumed in the original corporate business plan. Actual capital investment was [ expected ] to be limited about JPY 50 billion on the timing of green-line decision. The remaining JPY 100 billion is described as shrink of investment and loans. However, this is mainly due to decrease in investments and loans related to Petro Rabigh compared to corporate business plan. In addition to the planned sales of cross-share-holdings in the corporate business plan, we will make significant additional sales. By more strictly defining the importance from a business perspective, we plan to sell a total of JPY 50 billion, a decrease of approximately 70% from the end of fiscal year 2022. In the future, we will aim for 0. With regards to leveraging surplus funds through global group financing, we expect to utilize about JPY 70 billion by the end of fiscal year 2024 by optimizing fund procurement and lending across the entire group. In addition, the company expects to sell JPY 30 billion in other asset sales, including the sales of shares and equity method companies. In total, all of this together will generate about JPY 150 billion in cash. Outlook for fiscal year 2024 business performance. In May, we announced measures to bolster growth of businesses and measures to reform and rationalize aimed at a V-shaped recovery to JPY 200 billion in core operating profit for fiscal year 2024, which is written on the top row. We are making steady progress, and we are on track to see the effects of these measures. Looking ahead, however, there are some factors that are worsening the business environment in fiscal year 2024 compared to that in May, including concerns about the prolonged economic stagnation in China and the delay in the recovery of petrochemical market price as well as the sales expansion of Sumitomo Pharma's 3 core pharmaceutical products is not progressing as expected. The JPY 50 billion in immediate-term concentrated measures to improve business performance effect, which was explained earlier, are mostly temporary effects such as gains from the sales of businesses. However, we want to ensure a V-shaped recovery by implementing them with a sense of speed and buildup. So far, I have explained the immediate business performance improvement measures. However, in parallel, the company is considering fundamental structural reform measures. We will be deepening the discussions from now onwards. However, the main discussion points are recognizing the limitations of the traditional growth model, finding a new path towards growth and writing a big picture plan to become the company into -- that will have a presence in the next generation as well. In addition to the restructuring of the Domestic and Essentials Chemicals business, one of the major themes is how to rebuild Rabigh and Singapore. Furthermore, regarding Pharmaceuticals, how do we link the cutting-edge pharmaceutical businesses to our future vision. For IT-related Chemicals and Health & Crop Science, how to clarify another core business for growth and build a strategy for commercialization. In addition, we will discern new businesses that will form the core of future growth and the technologies that will support these businesses. The framework for fundamental structure reform is being studied with a time line to be announced around April of next year. We'll first take a hard look at the areas in which we should move forward on these points, then aim to realize a rebirth into a specialty chemicals company. We will be working on the details from now onwards. However, I believe that the keywords are here as written, technology with an edge, sustainable product groups and delivery solutions. In this context, I believe that in addition to chemical technology, synthetic biology and other biotechnologies will become increasingly important. In the column below, though, I have lined up candidate businesses that will be the core of the future. The following slides introduce some of these themes which have a great deal to do with reducing environmental impact, as partially mentioned in the first half on my explanation. Regarding immediate concentrating measures to improve business performance, we have decided to take a full-fledged step forward, reforming our Domestic and Essential Chemicals business, which we have been studying behind the scenes as a first step in the fundamental structural reform. For the domestic petrochemical industry, low utilization and carbon neutrality are 2 major challenges. And since neither of these issues can be addressed by a single company, there is a common understanding that collaboration among petrochemical companies in Japan is important. I would like to introduce an initiative that took a step forward in this regard. Due to the circumstances of the other party, there is a limit to what I can talk about. However, we are confident that we can report back with more clarity at the early stage. As for the so-called upstream ethylene plants that crack raw naphtha to produce ethylene, propylene. The companies in the Keiyo district are collaborating to convert to carbon-neutral feedstock and are considering rationalization of existing ethylene plants. In addition, we have begun to study corporate collaboration in the downstream of [ resonification ] such as polyethylene and polypropylene and are working to speed up the process so that it can be completed as quickly as possible. As for the upstream, we are promoting collaboration from 2 perspectives. On the left-hand side is the raw material conversion as a carbon neutral response measure, while material -- although we have been conducting various studies towards carbon neutrality in our corporate collaborations, as the first step in the process, we have started a full-scale study on the construction of new ethylene and propylene plants using bioethanol as feedstock. We will continue to study with the aim of completing the plant by 2030. At the same time, as on the right, we are studying the potential of a joint operation by several companies as rationalization of existing ethylene plants. As you know, ethylene plants in Japan continue to operate at low utilization. No rapid improvement in the supply demand balance is expected in the future. For the first part, we will study the potential of a joint operation of ethylene plants for joint ventures or other means. In addition, efforts will be made to reduce CO2 emissions through the application of ammonia fuel and other measures. This is the last slide. Today, I have mainly explained the immediate-term concentrated measures to improve business performance. And as for the fundamental structure reforms, I have only explained the point of first part. At the moment, we are also studying a second and third phase. Therefore, we will be introducing the outline at the beginning of the next fiscal year. At the same time, incorporating these structural reforms will be prepared 1 year ahead of schedule and announced in the middle of 2024. As I explained today, the reform has already started, is ongoing. We will, of course, ensure a V-shape recovery in fiscal year 2024 by properly implementing the plans as they become definite. In the new corporate business plan to be announced in mid-2024, we would like to clearly show you the path to the realization of rebirth into a specialty chemicals company and an overall picture for the new growth. This concludes my explanation.

[Operator Instructions] The first question is Mr. Watanabe from Morgan Stanley MUFJ Securities.

I have 2 questions. One, is about the fundamental structure reform and the immediate measures -- JPY 50 billion in terms of immediate term measures. You said there are many parts covered by selling. This may reduce if you sell profitable companies, but JPY 50 billion, it's maybe difficult to find loss-making companies, excluding Petro Rabigh, and others methionine may be different. So could you explain a little more about how do you plan to achieve the JPY 50 billion? And the fundamental structural reform – Petro Rabigh or pharma may be subject to reform. Could you once again explain this initiative?

Yes. Thank you for your question. The breakdown JPY 50 billion, as I have mentioned, in total, there are about 30 projects. Major ones would be of a scale of JPY 10 billion or JPY 20 billion, but also there are ones of JPY 1 billion or JPY 2 billion. All of those are together. And in all cases, it's difficult to say which business is that. There are also people engage in those businesses, including the customers. It is a very sensitive matter. So it's difficult to disclose the content. But -- Of course, there's improvement of the profit and loss situation by reducing losses, but also there could be sales proceeds by selling businesses, which is another type of contribution. So both together is JPY 50 billion. That is what it means.

For confirmation, core operating income, that is not corporate income, JPY 50 billion, still sounds as if non-recurring items. And will that be posted this fiscal year? Or is that going to be in the next fiscal year?

In FY 2023 -- what will be included in 2023 is very limited. In FY 2023, from the ones that we are already working on, only a few of them will be closing FY 2023. Most of them will be carried forward to 2024.

And in selling businesses, will that be included in the core operating income or not?

It depends on the content of a business that is going to be sold from an accounting perspective. For example, it's not about the content of JPY 50 billion itself, but in the case of pharmaceuticals, to sell a drug, for example, would be included in core operating income from an accounting perspective, so in that sense in our business as well. If business is sold at a certain unit, those proceeds could also be included in the core operating income. And another point about the fundamental structural reform. So that is the very core of a starting point, Rabigh and Pharma. You're absolutely right. So no round is secret. But what is going to be the direction going forward is still subject to deliberations. And also for Rabigh, there is also a counterparty. So it's up to negotiations with the counterparty. So in what way -- in what direction should that proceed, I hope we can have a very good discussion about it. And for Rabigh, currently, how much are we discussing with the counterparty, we want to be -- I want to be as accurate as possible. Well, Rabigh, as you know, has the ethane advantage, and that is the source of competitiveness. When the oil price is $85 or $90, ethane is low in price. So that difference becomes our benefit. If there is volume -- if oil -- crude oil is $85 for 1 year, a cost advantage is supposed to be of about JPY 1 billion in terms of calculation, in terms of logic. That is a source of Rabigh's competitiveness. It's a sort of cash cow which we and Aramco expected in this business. But why is it that this has not been realized? Of course, in petrochemicals business there are ups and downs. But Rabigh was supposed to have a certain level of profit on average despite ups and downs. But why is it the performance is so difficult? Aramco is -- has a strong awareness of the problem and [ enhance ] competitiveness is essential and what measures can be taken to that is something that we are discussing. In petrochemicals, it is supposed to be competitive, but why is it not competitive? That is the area of oil refining. So we share the understanding that the problem is refining. So how to enhance the refining business. A lot of additional investment will be needed. And the Sumitomo Chemical for oil refinery, we cannot make so much technical contributions. And as I have said, Sumitomo Chemicals, we have always been saying that we will not make additional investments to Rabigh. To improve oil refining investment is necessary, but Sumitomo Chemical is not providing investments. We are not in a position of providing that funding. Then what can be done is the theme of a discussion. That is the current situation. So how to resolve that is one of a major point infrastructural reform.

My second question is about our financial results. In the second quarter to the second half, there are many changes by segment. For crop protection chemicals, you said you will reduce inventory, but is applying on having profits for Essential Chemicals [indiscernible] the quarter, maybe with -- [ not yet ] results of Petro Rabigh, but refinery margin has improved, but you expect losses in the second half. And for Energy & Functional Materials, also, you expect losses. So could you explain the background?

Difference between the first and the second half, the major factor -- there are a lot of major elements. But one is on crop protection chemicals, JPY 55 billion difference between first and second half. The major factor is North America demand season is in the second half. That is a major factor. And in Japan, Japan is also in the Northern Hemisphere, which is the demand season in the second half. Crop protection chemicals tend to have a concentrated profit in the second half of the fourth quarter. In Japan and North America, this is the demand season, which provides improvement. That is the basis. And in addition, in the first half, to reduce inventory, generics were sold, though making losses, but these will no longer exist in the second half, which also makes the difference. And in the Latin American countries, INDIFLIN and other our unique products, sales expansion will take place. This is a demand season, special reasons, special factors in the second half. And our own factors leads to JPY 55 billion in Health & Crop Sciences. For Pharmaceuticals, the core 3 products are expected to start, which is JPY 60 billion. And for Essential Chemicals, is it true that in the third quarter, petroleum refining margin was good. But petrochemical products market situation is not that optimistic. So there will be some improvement, but it is difficult to expect a large improvement. And for Energy & Functional Materials, I, myself -- I also not so sure. The reason is that -- I cannot yet understand the reason. I'm not convinced. Toward the second half, quite a lot of inventory reduction is taking place. So there is a concentration of production adjustment in the second half. And also there is a scheduled maintenance in the second half, which is a little longer. So the production adjustment is concentrated in the second half. So Energy & Functional Materials, the gap between first and second half is large. This is the overall situation.

So I hope you will be able to reach a V letter-shape recovery.

Next, from Mizuho Securities, Mr. Yamada.

I have 2 questions. My questions can be short, and you can answer shortly as well. The first is regarding the structural reform. You said that there is no sacred [ grounds ], and you have explained about Rabigh. How about Pharmaceuticals? It is a listed company. So it's probably difficult for you to comment. However, as of the financial results forecast, if it does not achieve the forecast, is it possible to do something about this pharmaceuticals business? It could be your way of thinking, your own thoughts, but if you can give us a comment, it will be appreciative.

That is a very difficult question to answer. But sharing with you the status quo, the current Pharma core 3 products -- looking at its sales expansion, it has not overcome the Latuda cliff yet. But in the summertime, we have reorganized the North American business. There was a $400 million cost reduction. But instead, more than that, we were able to establish the sales expansion structure. So within the 4 months, seeing a solid outcome may be difficult. And as President [ Kimura ] was explaining yesterday, he is working on various sales expansion measures in various areas. So determining that outcome at this point is too early. But up until now, we have respected the independence of the Pharma business. And we are going to respect Plan A. However, if Plan A was not achieved, Plan B, Plan C -- of course, we have been studying that on paper. However, this is the situation that we are facing. So as a parent company, what can we do, meaning that regarding Plan B and Plan C, it is not for the first time, but we are studying it and considering it as we have conventionally been doing.

And also, the additional M&A, there was a mentioning that it's difficult to support that. Therefore, I highly evaluate your financial discipline. So I have high expectations from now onwards. And second question is IT-related Chemicals. This business, I believe that the end market situation is going to largely change. And on the other hand, your company, you're in a close relationship with Samsung Group. Therefore, how are you going to further grow this area? Or, though this business is making profit, is it going to be within the scope of reorganization? So regarding the IT-related Chemicals, I just wanted to confirm with you, is this included in the no sacred grounds? And also for the short and medium-term changes, the OLED further accelerating. Not just that, but the advancement or the sophistication of the semiconductor industry, how are you going to respond to that? So the investments towards that, is that included in the carefully selected investments, so I don't have to be concerned? I think it's difficult to [ lead ] this. So I just wanted to know about this.

As you have pointed out, there are no sacred grounds. So IT-related Chemicals will also be included. And the display -- the LCD display materials, what are we going to do about this? This is going to continue to be within the reorganization scope. It's not that all of the LCD display material is bad. Well, the automotive is good, or maybe not good for LCD, but OLED, we can still continue. So we don't have a policy that we want to do something for the total LCD because we do have a high probability that we will be able to turn around this business in some areas. And also, [ photo register ] -- and not having this as a reorganization target, but...

So in order to do that, various new things are coming. So I believe that they will require various investment in loans. And if you don't do that, you have to do it on your own and then that is going to cost you money. So thinking, your company situation now may be difficult. So what is going to be the direction of this?

So from next year onwards -- it's not that we are discussing the investment amount. However, this time, even though we have now [ done ] it [ where ] the investment is JPY 600 billion, but the JPY 300 billion is for the basic investment. And still, we have remaining JPY 300 billion for growth or investment. The depreciation on annual basis is about [ JPY 160 billion ], [ JPY 170 billion ]. So it is within a depreciation. So it's not an outrageous size of investment. So there are still various things that we can do. But where -- in what area are we going to apply this is something that needs to be thoroughly discussed in the structural reform discussions. [indiscernible]

Next, from SMBC Nikko Securities, Mr. Miyamoto.

My first question is about the fundamental structural reform. On Page 23, Page 24, you mentioned about petrochemicals. In particular, looking at Page 24, bioethanol, ethylene, propylene plants will be newly built. In case of bio-naphtha or chemical recycle could be used in reducing raw material. But do you think bioethanol is your main target? And on the left, new plants and the right-hand side, joint operation. In terms of our time line, could you give me what is the overall image? In particular, in other regions -- cooperation with crackers in other regions, is it difficult to think about it?

Thank you for your question. Your first question -- the first point, here, this is about plant of bioethanol. But of course, we could also consider bio-naphtha, but the possibility of realizing the availability -- or the possibility of continuing in terms of availability, and what is most feasible is bioethanol, I believe. So we first are considering bioethanol as a main route. But it does not mean that we are ignoring bio-naphtha. That is one point. And the left and right, bioethanol and joint operation of existing ethylene plant, as you have just mentioned in your question -- So there may be some slight differences. There may be areas that would be stressed and not. But the new plant of bioethanol -- ethylene from bioethanol would be about 2030. So then there will be joint operations of ethylene or propylene from that. I believe that it will be about 200,000 tonnes in terms of scale, and 200,000 tonnes means that for the existing plants if the demand volume is the same, there will be a reduction. So in terms of timeline, I believe it is taking place at about the same point in time. Well -- so in terms of timeline, the timing of decision making, if it is the same, I think that rather than closing the ethylene plant, constructing ethylene plant will take more time.

Do you mean that the decision making will be the same time or realization will be at the same time?

The start of operation will be at the same time. But even if operation starts, as you say, to build a plant this may take place earlier and joint operation may start when a new plant is built. And to start the operation, how much advance are we going to start working on, I don't have any comment on that, but that is the general image.

How about cooperation with other regions?

It is not impossible, but to be effective, I think it is better to start from plants that are near. Among those that are near, I think it is quite difficult to achieve this level. So with some plant far away, I think the hurdles will be very high. But by starting, there could be different movements, and it would be possible to sink a cooperation with [ other ] regions. But at the moment, we are not considering that. I wonder whether it would be feasible in terms of speed.

My next question is on Page 18, sales of assets. About selling the crusher holdings, your plan is to broadly proceed with that. So are you discussing with a counterparty? And are you quite confident about it? And using the surplus funds of JPY 70 billion, I think you would have done this in the past if it was possible. You were not doing that in the past, but why all of a sudden is it possible to do this? And the selling of assets, I think you refer to the equity method. We have many equity invested companies in the group. So I thought there would be ways of leveraging that. So could you explain a little more about leveraging the surplus funds?

First about cross-shareholdings. Of course we must consider the convenience and the thoughts of a counterparty. So of course, we would consult. But in most of the cases, they understand about our situation. So far, I have not heard that we are facing difficulties. And about leveraging surplus funds, this is a very delicate story. Globally -- a global cash management system -- there are not so many financial institutions capable of providing a global cash management system. And Japanese mega banks cannot do this. But our main financing is with the Japanese banks. So this type of coordination is taking time. This is the actual situation. And in addition, in selling other assets, of course, there are equity method companies, both listed and not listed. We are assuming these companies -- and not only these companies, but unused land is also included, for example. So these are some of the areas that we are considering. And for equity method, it's a little different from the cross shareholdings. The position in the business is a starting point of discussions. So in the discussion of a structural reform, equity method companies would be -- their position should be considered, and that is where this initiative would start. Then depending on the situation, sale of other assets could be revised upwards. It's not yet fixed for FY 2024. I don't know if we can discuss that far, but that is one possibility.

We would like to take the next question from Daiwa Securities, Mr. Umebayashi.

I would like to ask a question. The first is regarding Essential Chemicals. This time there was not much of an explanation regarding Singapore. And this -- I'm sure that you are working on at [ polyolefin ] and MMA. Can you share your thoughts regarding these? And you may not be able to give me a full answer. However, I think you have explained that you will be collaborating with Singapore. So if you can share with us some information as much as you can?

Singapore is one of the themes that we will have thorough discussions within our structural reforms. Singapore, TBC and CBS. And TBC is an infrastructure company. So Sumitomo Chemical alone cannot determine what to do with them. And in terms of the business performance, it doesn't fluctuate that much. And at a certain level, it goes up and down. So it's probably going to be difficult to have a discussion focusing only at PCS. However, for TPC, we are advancing the product portfolio all the time. Polyethylene plant stopped and changed at the polyolefin. So at the high performance function grade [ plan ] is what has become to, and they have quite of a good customers within Asian region. So the current situation, we feel that this is a company that we can utilize more. But to further advance the company, the high-performance materials for retort grade, we can utilize that in the Asian region. So currently, we think that we can utilize this company more. Therefore, including that, we would like to have the discussion regarding Singapore. But in a long-term perspective, Singapore will be the first phase of social execution of reducing the environmental impact. Therefore, the possibility of that being realized is also something that we would like to consider as well. However, MMA has challenges. How are we going to position MMA moving forward? It's different from the general polyolefin. In a way, it's an independent business, so to speak. Therefore, this is a theme that needs to be reviewed separately. As for now, it's not that we have a clear direction on what we're going to do.

I just want to confirm, polyolefin, you are able to make a high-quality products, so you do have strength in it. So you will be leveraging this business. But looking at the recent performance, it seems that they are quite struggling. But even under such circumstances, this fiscal year, the second half or next fiscal year, are you expecting the revenue to recover? Please consider this as my second question.

The second half Singapore sales revenue, I do not have the exact numbers with me right now. However, the Asian petrochemical market, the second quarter of fiscal year 2023, we thought it was the bottom. But even going within the second quarter, it has not recovered. And in the fourth quarter, there is an outlook that it will decline. That is because there's a gap in the Chinese market supply and demand, and that is having a ripple effect into the agent market as well. And depending on when it is going to recover, the [ TPC's ] performance is going to largely change. But the revenue capability that we have at the baseline compared to the polyethylene manufacturers and Asian other areas, [ TPC ] are at the higher level. But if everybody is going down, they will also go down. However, when going into a recovery phase, they will be the first ones to generate revenue. So whether we can have expectations towards them or not, we all need to think about it having the long-term perspective.

We are approaching the time, and we'll conclude. So the next question will be the last one. We can accept only one question. Mr. Okazaki from Nomura Securities.

So one question for confirmation. In the fundamental structure reform, TPC and Rabigh, Singapore and Rabigh, you refer to that. But basically refineries and petrochemicals enhancement is basic. Is that understanding correct in terms of fundamental?

Fundamental means the past growth model of Sumitomo Chemical is reaching a limit. That's how it started. For the next 20 or 20 years -- the future Sumitomo Chemical in 20 years to continue to be a global a company with presence. What business structure, what areas should we be based upon? In case of petrochemicals, to enhance [ inside ] petrochemicals is sufficient to achieve. Petrochemicals is not a conventional image of petrochemicals. But this is positioned as an industry to reduce burden on the environment. That is what you are thinking to reduce, the burden on the environment. That is the nature of the business. And that business will be deployed to Asian countries and other developing countries, maybe through license or by investing by ourselves. So it's such business feasible or not. A green environment type of industry. But general, we are thinking that is not profitable. But if we say we are going to move to an environment-oriented essential business, will that industry survive or not, that is a point of discussion in the fundamental structure reform. So it may be a different perspective from enhancing or strengthening the business.

Then by April next year, is it possible to reduce the burden of the environment or not? Is that going to be announced?

Well, that is not possible. In April next year, what I have just mentioned, from what perspective are we going to think about the business, how we're going to think about Rabigh or about Singapore, the framework of outline of our direction, I want to clarify that by April next year. And based on that outline or framework it may take 2 or 3 years and include that in the corporate business plan.

We are at the scheduled closing time. So with this, we would like to conclude investors meeting for fiscal year 2023 first half financial results, management priorities and business strategies. Thank you very much for participating. Thank you. From here -- so we will deliver through video the presentation today and the Q&A session on our web page starting tomorrow. That is all for today. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]