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

It is the scheduled time, so we would like to start. My name is Kobayashi from the Corporate Communications Department. I will be serving as the MC. Thank you very much for attending our investors' meeting for the DX Strategy today despite your busy schedules. Today, our Vice President, Ueda, will explain first, followed by Q&A sessions. We planned and scheduled to finish this meeting at 4:15 p.m. Japan time. Without further ado, Mr. Ueda, please.

Hello. I'm Ueda, Vice President in-charge of Technology. Thank you for joining us today at Sumitomo Chemicals Investors' Meeting for the DX Strategy. Before I begin my explanation, I would like to talk about the meaning of holding this meeting at this juncture. As you all know, we are currently in the midst of what could be called a crisis since the founding of our company. and all employees are working as one on immediate-term concentrated measures to improve business performance and fundamental structural reforms. One of the driving forces behind the turnaround of the company's performance and business reform is undoubtedly digital transformation. Our company is a company that works to solve social issues through new materials and products created through technological development, and we believe that the key actions to quickly return our company to a growth trajectory are how fast we can turn development around and how we can improve operational efficiency to increase earnings, and we believe that DX will play an extremely important role. Today, I would like to take this opportunity to explain some of our internal potentials which will underpin the announcement of the outline of the fundamental structural reform scheduled for April. Now I would like to start my explanation. Our current medium-term management plan outlines a business strategy of leveraging Sumitomo Chemicals strength and diversity of business, technologies, communities and human resources as well as advance a broadly defined as GX in response to changes in society, we believe that DX is the engine that will accelerate this transformation and growth. In short, what Sumitomo Chemical wishes to accelerate by using the DX engine is to strengthen the competitiveness of our business and create new value. Moreover, we recognize that strengthening the DX engine itself is strengthening the management base. As we have mentioned in the past, we have established 3 DX strategies. As DX Strategy 1.0, we started by improving productivity in the 4 areas of manufacturing, R&D, supply chain and back office and have produced many results. However, we are continuing our efforts to further increase efficiency. As the next step, DX Strategy 2.0, which leverages DX to enhance the competitive advantage of businesses and DX Strategy 3.0, which creates value through new business models will be sequentially ignited, and at present, we are accelerating all 3 engines in parallel. In this diagram, I would like to explain the specific structure of our DX strategy. The bottom row shows the 3 foundations of measures to strengthen the DX engine, namely strengthening the management base and they are securing digital challenge and build out an organization to drive DX, build a digital infrastructure and cultivate a reform-oriented mindset. We believe that these are the foundation of all DX initiatives and core competencies that are directly linked to the potential to fundamentally transform the company. Of these, the cultivating a reform-oriented mindset is not only absolutely necessary for DX, but for all transformations, and conversely, it is something that can only be gained through transformation. So it's clearly stated and incorporated into this engine part of the initiative. Next, as shown on the top left row is about strengthening the competitiveness of our business. This will be achieved through successive efforts of DX Strategy 1.0 and 2.0. To develop and supply products that focus on what our customers want most. We will focus on strengthening the 2 chains: engineering chain and supply chain that are at the heart of manufacturing through DX. Next, DX Strategy 3.0 shown in the upper right corner is an initiative targeting new value creation. By combining our unique data, core technologies and services, we create new value through the realization of new business models. In Chapter 4, we will present the first of this DX Strategy 3.0 new business. The following is an overview of the company-wide structure of DX initiatives. The business units and headquarter work together and are not dependent on a specific DX promotion department. However, rather working on DX across the entire company, reorganization in the company has its own role management tier, HQ and business units. The management team clearly articulates the vision and strategy and guides the realization of DX through key decisions, such as resource allocation. Business units as the main executors of DX will autonomously solve their own business issues through DX. HQ will support the efforts of the business units from a specialized area. And at the same time, they will be in charge of the infrastructure and human resource development necessary for DX. In order to increase the speed of DX, we have implemented 3 organizational enhancement measures since 2019. First, to promote company-wide use of data, the digital and data science innovation department was established as a center of excellence for data science, bringing together data science specialists who have been dispersed throughout the company in HQ. And to strengthen our skills in catching up with innovative technologies, we cofounded Sumika DX Accent with Accenture. Sumika DX Accent deploys Accenture's knowledge and expertise, conducts proof of concept testing of the latest digital solutions and trains digital challenge. Sumika DX Accent was established at about the same time that Sumitomo Chemical Systems service, which had been an IT subsidiary was absorbed into Sumitomo Chemicals IT promotion department and some personnel were assigned to business units to bring business units and IT personnel closer together and make it easier to promote DX. Next, I will introduce strengthening digital challenge as the foundation of DX promotion. We are securing digital human resources through a two-pronged approach, raising the DX literacy level of all employees and developing DX core human resources. The core personnel to lead DX are needed at all sites to promote company-wide cross-functional activities. We are aiming to assign several DX core personnel specialized in the business to every manufacturing department, research group, business unit and are developing approximately 20% of all employees as DX core personnel. In order to foster a DX mindset among all employees, the education program for DX literacy improvement was launched in June 2022 for all executives and employees. The course was designed as an e-learning course so that employees can learn at their own pace. The DX core talent we are looking for are hybrid personnel who have a combination of business knowledge and DX skills. They are expected to accurately identify issues in their own business area, drive sophistication and acceleration of operations through DX and achieve business process transformation. To this end, we have adopted a training method that imparts data science skills, primarily to employees with advanced domain knowledge in the field. We first need to define knowledge and skills that a digital talent must possess in each business area and then develop them through appropriate training programs to achieve the required level. But unfortunately, only a few existing training programs met our requirements. As a result, the majority of the training programs were developed in-house. The training program is characterized with a classroom learning followed by a course where under the guidance of the instructor, trainees practice, the skills using actual business cases. Follow-up support after the completion of the training program is also enhanced to encourage DX core talent to continuously and autonomously work on solving business issues. Meanwhile, for the professional talent who are experts in data science, in addition to the in-house training, we are also increasing mid-career hiring to secure personnel with expertise in research and development, production processes and supply chain, et cetera. The digital and data science innovation department also functions as a center of excellence for strengthening DX talents. The professional talents who acquires sophisticated technology at the department are transferred to the front lines like research and delivers results. And then those experienced talents return to the department and work on the new DX technology. This is how we promote talent development cycle. In April this year, Mr. Kaneko, who's spearheaded the Digital and Data Science Innovation Department for 5 years since its inception and delivered a great result will hand over the baton to Mr. Nishino, who is a data scientist by nature. We look forward to him further accelerating our endeavors. Next, I would like to talk about our data platform. we are trying to create value from data as an asset. To achieve this, a seat in which data can be utilized to a high degree is needed. In other words, it is necessary to store and share data in an appropriate form and to make it immediately accessible and usable. Therefore, we began building a platform to realize the state. Expanding our platform will enable us to make faster decisions by capturing and gaining insights from all the data in the company in real time. This will help us to increase customer confidence, create new products and business and attract new customers. Last year, we also began company-wide use of generative AI. In Japan, it is said that less than 20% of companies have introduced generative AI. One type of generative AI is ChatGPT. We implemented a secure Sumitomo Chemical version of that ChatSCC, where input information does not go outside the company. By utilizing ChatSCC, writing, proof reading and summarizing of the document e-mail as shown here can be done, but we can also use it to propose ideas, create programs and more in various scenes. This has resulted in a 30% plus efficiency gains in the work done using ChatSCC, allowing employees to focus on more creative work. Our strength lies in our core technologies associated with long years of learning, research and development, advanced analysis, increased scale, plant operation and equipment maintenance. We aim to secure a competitive edge and develop our business by utilizing our unique accumulated knowledge. We, therefore, proceeded to link the generative AI with our proprietary data so that the vast amount of knowledge accumulated by each organization in the company can be used more effectively. For example, it enables assistance that accelerate professional work such as quickly identifying past research and applying it to R&D, generating ideas regarding plans for overseas expansion of materials and identifying cases of trouble and countermeasures in manufacturing. As digital innovation accelerates, the risks associated with information systems, such as the growing sophistication of cyber attacks are also increasing. As a government designated critical infrastructure operator in 14 fields, including electricity, gas, water and chemicals, we consider cybersecurity to be an important management issue. As a foundation to promoting DX, we implement security measures globally from a multi-dimensional approach of organizational, institutional, people and technology and physical aspects. I have so far spoken about building a foundation to strengthen our management base. But from here, let me give you some concrete examples of the progress we are making in strengthening the competitiveness of our business, which is one of the things we hope to accomplish through DX. The engineering chain refers to a series of processes from this research and product planning to construction and operation of mass production facilities. We intend to use DX to accelerate the engineering chain and shorten lead times, thereby accelerating the process from product planning to mass production while keeping abreast of changes in market and customer needs. Now let me introduce you to 4 examples in relation to how DX can speed up engineering chain. This section describes our policy initiatives regarding the use of market and IP data. By integrating and analyzing market and business and IP information, we can discern the value of newly developed items and target customers. Our policy is to develop new applications and customers. The figure on the right shows our patent portfolio, which is an analysis of about 4,700 patents that have been published or registered in the last 5 years. The similarity of each patent is analyzed by AI and plotted. Greater the density of the dots, there's greater focus and thus, that business area is said to have strength. The closer the dots are, the more similar the patents are. By performing the same analysis on our competitors' patents and comparing our results with this, we can get useful insights into our business strategy, such as where the white space in our businesses and what kind of patent applications would be effective. And if we partner with which alliance partner, can we supplement each other. Here is an example of accelerated development through R&D using digital technology or digital R&D. In conventional catalyst development, vigorous calculations were time consuming, and it was not possible to efficiently narrow down candidates from many candidates by calculation. By implementing state-of-the-art AI simulation technology in the development of a catalyst, we were able to perform calculations 10,000x faster than the conventional methods. In addition, by combining this with the automation of experiments, we are able to rapidly evaluate a large number of candidate catalysts. Catalysts that can utilize the scheme and contribute to the realization of carbon neutrality are being rapidly developed. We will present a case study of digital R&D and semiconductor material development. In the development of semiconductor materials, it is required to develop a large number of products in a short period of time at high speed. Therefore, we utilize our in-house accumulated big data and have materials informatics automatically suggest candidate compounds, and then we utilize virtual experiments to predict performance and virtual screening from a vast combination of compositions of the automatically suggested compounds. Since verification by experimentation is required only a minimum number of times, we have succeeded in reducing the R&D period to 1/10. The increasing sophistication of our business portfolio requires a high level of quality and manufacturing control to meet customer needs. Developing the material and tuning its properties, we only can test and try the samples, and it takes time to match up with the customers. For the customer and by changing this game of cash flow development, which is inefficient for both the customer and us and by working together to integrate and jointly analyze the customers' product characteristic values with our process data, the manufacturing conditions that contribute to the product characteristics are clarified. This has enabled a high degree of coordination with customer requirements and speeded up the development process. The above for example of strengthening our engineering chain. However, we are also optimizing our supply chain through DX in order to strengthen our business competitiveness. Today's presentation will divide the supply chain into 5 sections: supply and demand, planning, production, inspection, inventory control and sales and logistics. I will explain what initiatives are implemented by each section and their outcomes. In each of the 5 case studies presented here, our goal is to ensure reliable delivery and a stable supply that earns trust as well as to improve our productivity and reduce costs, all based on meeting the needs of our customers. In response to fluctuating demand in the global semiconductor market, a series of supply chain optimizations are required, including rapid sales forecasting, production planning and raw material ordering. However, with the conventional supply system in which actions are taken after receiving orders, it was difficult to take actions in a timely manner and in order to ensure delivery to customers, a situation was seen in which a lot of inventory was held as assurance against lead time. In response to this challenge, we collect, visualize and share data in a timely manner and analyze the data to realize highly accurate sales forecast and plans, thereby shortening lead times, responding quickly to fluctuations in demand in the semiconductor market and establishing a reliable supply system for our customers. Next is the case of production. This diagram illustrates the manufacturing process for a polymer product. The process involves simultaneously degassing and molding polymer products in a device called an extruder. If degraded polymer adheres to the inside of this extruder, product quality may be affected. Until now, process engineers have judged and responded to the abnormal conditions based on analysis values and process behavior. However, there were many areas that depended on the ability of individual engineers and the judgment of abnormalities varied widely. To address this issue, we built an extruder prediction model based on the extruders past process data and actual abnormality data and established indicators that can predict and determine process abnormalities. Besides making it possible for non-experienced process engineers to determine abnormalities, early detection of abnormalities and on-site response minimizes process downtime and avoids product loss of approximately JPY 50 million per year. We have about 10 production lines with similar predictive detection, and we will continue to expand this initiative. In addition, as a matter of course, the stability of the production process and the supply chain is a factor that contributes significantly to inventory reduction. This is an example that we presented in our news release. We have renewed our facilities management system at 8 locations in Japan. By standardizing the equipment management system across the entire company and linking it to the core business system that manages budgets and purchasing data, it is possible to centrally manage a wide range of maintenance-related operations and accumulate data on people, things and money from equipment installation to disposal. The new system is linked to ERP to enable seamless business management from maintenance work planning to purchase orders and construction. By improving the efficiency of information sharing and history retrieval, the system achieves a significant reduction of workload for desk work, which accounts for approximately 70% of the total workload. In the future, we will utilize a wider range of information such as engineering data and operation data that will be newly linked to the new system as big data to quickly realize smart equipment management, including the prediction and avoidance of equipment problems. Through these efforts, we aim to reduce maintenance costs by approximately 30% within a few years. In recent years, the quality of IT-related chemicals has been required to be strictly controlled, and it is necessary to respond to the increasing number of control items, product characteristics other than product specifications as well as to the provision of trend control information on them, not to mention that product specifications are necessary in order to meet the needs of advanced quality control, we plan to introduce a system that can automatically collect data on product inspections, raw materials and manufacturing processes as well as perform statistical analysis, thereby reducing the amount of manual data entry and significantly shortens the process of issuing electronic inspection reports as well as paper inspection reports. Furthermore, we will be able to quickly conduct factor analysis for trends and quality characteristics and establish an advanced quality traceability management system that will satisfy our customers. The last example in the supply chain is the DX of inventory management. This case study is an example of a simulation that calculates the appropriate inventory quantity at a domestic relay site based on sales forecast data to a customer. The figure here on the left is an example of the result where the quantity of inventory to be held 1 or 2 months ahead and in the future, is calculated for each relay site. Based on the customer sales forecast, the appropriate amount of inventory is identified. Furthermore, for optimization, we have established a relay warehouses in locations best suited to customer demand, shortening lead times and ensuring timely and reliable deliveries. And this type of detailed inventory control and understanding is necessary. These realizations have led to inventory reductions and improved cash conversion cycles. Next, I will explain our efforts to create new value through digital transformation as DX 3.0. The upper part of the slide lists the raw materials, strength and value propositions of our company to date. As I mentioned earlier, we will, from now on, consider data and other intangible assets as raw materials and view our know-hows in data analysis and theories backed by science related to materials as a means to create new value. As a result, we will not only provide value in the form of materials that solve social issues and enrich people's lives, but going forward, also solutions and customer experiences as new corporate value. As an incubator to promote this new value proposition, we established a dedicated team called Value-nauts in January of last year to engage in new business creation and startup endeavors. We recruited members with a diverse range of knowledge, experience and above all, motivation from within the company. This team solicited business ideas from within the company and selected the most promising ones through a selection process. Not only that, the team was also involved in planning and product development of the subsequent commercialization of the idea. This was done at a completely different approach and speed from the conventional product development. At the same time, Value-nauts aim to accumulate knowledge of the commercialization process as formal knowledge within the company, which will lead to the creation of the next business. In this past 1-year, we quickly launched our first product, which I will explain in detail on the next page. The explanation will be done by the leader of the Value-nauts and also the -- who spearheads Digital and Data Science Innovation Department from April, Mr. Nishino.

Then let me explain this part as I have been promoting DX Strategy 3.0 together with my team members. The name of the first digital product, which we are launching is called Biondo. It will be a digital networking platform for natural materials. I am showing you on the slide. We are currently launching a limited product version shown here, and we'll soon launch this for the general public. So let me briefly explain the concept of this digital product. Service Go Beyond. Beyond business model that combines the advanced chemical analysis technology for natural materials that we have cultivated through R&D of Agrochemicals products. With the wealth of compound data, we have accumulated through such analysis. The business model is based on the platform that provides such solutions and data. So this is the business model. That's the core technology. Through this business, we hope to discover materials with outstanding usefulness and functionality that have not yet been discovered in the world. Connect people who want to provide new such materials and realize both the creation of customer value and solutions to social issues. By the way, the name Beyond or Biondo comes from the word bio with a surprise or wow in Japanese when describing the value materials and the meaning of taking the lead or "ondo" in Japanese as a platformer. So from here, please allow me to introduce Biondo's vision and a few specific services. There are many materials in the world whose true value has not yet been discovered. There may be fruit trees or trees in the city or forest that we do not think of processing or commercializing or they may be foods that we usually eat without realizing that they contain active ingredients. Here as one of such scope, we would like to look at the social issues and business impact of food devoid of waste loss and value creation of natural materials. Food waste are estimated to be as much as 24 million tonnes per year in Japan alone, and these waste include unused natural materials such as fruit, vegetable peels and leaves. If we can find and utilize the previously unknown or underutilized new value of the ingredients in these unused natural materials, we can reduce the amount of waste and solve the social problem of food loss and promote recycle and upcycling. If active ingredients are discovered in these natural materials, what are the trends in the market needs? As you are probably aware, and I'm sure you can really feel it yourselves, but there is a growing interest in health and beauty as a global trend and the wellness market continues to grow at a high rate. If the natural ingredients has its various health functionality, the fruit with the natural ingredients can be packaged as foods with functional claims. In terms of specific figures, the market has been growing steadily since the Consumer Affairs Agency, we launched the system in 2015. The market sizes already reached JPY 500 billion. Against this backdrop, there has been a very active development of functional foods and attention is increasingly focused on natural ingredients that have not been well known or fully utilized. In fact, I take supplement myself, and I have a strong interest in beauty, but if active ingredients could be found in materials that were previously discarded, and if the materials could be delivered quickly to the people who can commercialize them and thus to us, that would be a wonderful world. Biondo is a digital product and service that aims to make this kind of a world of reality. To conclude my part, I would like to give an overview of Biondo's services and a bit of publicity. Biondo, as I said earlier, integrates 3 services. Ingredient Analysis service for natural materials, provisional data based linking natural ingredients, compounds and active ingredients. So it's a set of database and business matching service that connects sellers and buyers of the materials. So this is implementing that sort of a system of business matching. So let me explain in more detail. With regards to ingredient analysis service, we receive materials from material sellers and comprehensively analyze the several hundred ingredients contained in the materials to determine the content of useful ingredients. This service provides material sellers with an opportunity to discover the value of the materials they have. In terms of database provision, natural ingredients are listed together with the results of the analysis of the ingredients mentioned earlier. And the health functionality of the ingredients can also be referred to. So -- and so you are able to look at all of those all at once. So any of who are looking for natural ingredients or willing to purchase system, they can quickly find natural ingredients with the functions they are looking for. And on the platform through the data, we can easily match the seller and the buyer of the materials. So from this viewpoint of the material seller, it is possible to learn about the new value of the natural materials, they possess and also to find buyers who are in search of those materials. And from the perspective of the buyer of the material, so for example, they're planning to develop a product, and they want a certain functionality, all they need to do is search that function in this database, and they will see the list of the materials, and they will be able to find where they can actually get that material and who they should be contacting. So they are able to access all that information. So in this way, Biondo is able to generate various customer value. Now Biondo, which we have built up in this way, is scheduled for limited launch of the beta version partly in April '24 and launched 4 of general users in July 2024. Even after the launch, we will continue to get feedback from the users, and we will continue to make improvements on the software and augment the data to grow this digital product, thereby grow the service. So this is the way we can grow the digital products. And last, in publicity, we already have a staff of candidates for DX 3.0 theme to follow this Biondo. So what is the pipeline at Sumitomo Chemical. We call the stock of the [indiscernible] called Idea portfolios, and there are actually several themes in there. And hopefully, by FY 2024, we will be able to start the work on this next theme. So we will continue to accelerate our efforts, so we can meet your expectations. Please look forward to it. So this is all to my part, and I would like to pass the baton back to Mr. Ueda again.

So as DX Strategy information meeting, I have talked about DX 1.0, 2.0 and 3.0. So lastly, at the soul of our determination, I would like to say a few words. Sumitomo Chemical for use DX as an engine for sophisticated management and carrying out business transformation to accelerate into a new specialty company. We are working on 3 reforms shown here. Number one, we will strengthen business competitiveness through rapid decision-making and agile actions. As part of this, we will enhance productivity and creativity of human through collaboration with AI and robots. Secondly, we will challenge to create new value with new business models, in particular, realize value creation by leveraging our intangible assets such as data. Thirdly, we will continually address change through innovative talent and organizations. To this end, we will continue to cultivate mindsets where each employee drives reform. Through the DX challenges explained today, we will accelerate our transformation into a new specialty chemical company. Through this transformation, we will work to put Sumitomo Chemical on a strong regrowth trajectory. Thank you very much for your attention.

Mr. Ueda, Vice President. Thank you very much. From here, we would like to go into a Q&A session. In the Q&A session, we will have Mr. Nishino from the Digital and Data Science Innovation Department attend as well.

Now we would like to start the Q&A session. First from Morgan Stanley MUFG Securities. Mr. Watabe, please go ahead.

This is Watabe from Morgan Stanley. Thank you very much for your explanation. At the start, this timing was the crisis since its foundation of the company and DX are going to be leading this transformation is what you have mentioned. However, the DX 1.0, 2.0, but you cannot achieve, meaning that, well, the business performance deteriorate as much and you have 1.0, 2.0 and with the 3.0 fundamentally, how can you change the situation, can you explain in detail, please?

The DX initiatives that I explained to you today are initiatives that started around 2019. We started with the improvement of the productivity and the way we work or how the business has moved forward, we have been working on the reform step by step on these areas. And at the same time, the new technology, as I have mentioned at the middle of my presentation, generative AI or simulation technologies were also incorporated. And to advance and accelerate R&D and others. That's what we were working on. And the effect of those initiatives in numbers, as mentioned before, for the manufacturing productivity, there are JPY 50 million of product loss is in 10 production lines. We were able to improve that. And as I have announced before, the maintenance centrally managed. It was about several JPY 10 billion per annum, so if it's a 30% reduction of that. It will be several billion to JPY 5 billion. How are we able to monetize that. And we have been working on to do so. But as you have currently pointed out, if we share the current situation and what area where these initiatives effective. I do not have a solid answer to you. However, we have been moving the initiatives forward, achieving a certain amount of money that has been reduced. That was a bit qualitative, but does that suffice?

Well, you said that your initiatives will work on the inventory side. And your inventory level compared to other peers is high. Within the last fiscal year, the demand situation was not good. It was the explanation that you have given. And even though you are working on your initiatives still, the surrounding environment is still not good.

We are working on the inventory management, but the market price is not in a good situation.

The other is on Page 18, it's regarding the patent portfolio. How you look at this? The photoresist has quite a high density, and it's at a good position, but it seems that crop protection product seems to be weak but smaller. So can you explain more in detail about this part?

The analysis of the portfolio. Well, the AI is actually plotting this out. Therefore, without reading between the lines, the darker color is the stronger parts. However, having said that, it is kind of dispersed in a way where it's not in a large bulk. That area is reflecting how we apply for a patent or the weakness of the business itself. But what I would like you to confirm here is that the AI thing -- there are technologies that are close, meaning that in our business units, it's allocated next to next type of business unit. There are areas that we can utilize these technologies. It seems that there are areas that we can utilize that. And we are matching that up with various information from other companies and in the society. And we are enhancing the visibility of the situation and responding to that within our work. .

Okay, understood.

So moving on, from SMBC Nikko Securities, Mr. Miyamoto.

So this is Miyamoto from SMBC Nikko Securities. Thank you for the explanation on Page 27 -- I'm sorry 17 and 22. You mentioned about engineering chain, supply chain and some examples of optimization using DX, specifically, in which item or would contribute, which case would contribute to your growth? So for example, you said I mentioned about maintenance -- reduction in the maintenance cost by smart facility. But is there anything domain that Mr. Ueda, you have great expectations for?

So with regards to facility management. So we have repairs cost, which we are actually spending. So we can see an immediate effect on that. It's a 30%. This is efficient maintenance in 20%, and we have sporadic sort of prevention repairs, which is about 10%. So that's 30% in total, and we can expect several billions in effect. Now in the supply chain, from the development to commercialization, we have tried to reduce this to 1/10 of the conventional. So until we are successful in this endeavor, we do not need to spend like several millions of yen. And it's just about improving the efficiency of the development work. So it's difficult to quantify this.

So as a feeling, any area, just regards to examples, I thought the case studies 2 and 3 are quite interesting. What is your expectations?

So with regards to A, I don't know if I should say this or not, but I think it's an issue of combination. So for example, photoresist is a compound catalyst, if we want to combine several different types of catalysts. So the issue of combination, I think we can really exercise and try. I'm sorry, my answer is vague.

I understand your point. And one more thing. Second point, I guess, is about your CapEx or investment about. So company wide, you said that this is a crisis since the foundation and you're trying to streamline your investment. And I think maybe I want to check to see whether you're actually containing the GX investment and also in terms of cost, generally, people use IT vendors. So since you are able to build up on your know-how internally with regards to DX, as an element in which you're able to do a lot in-house. So if you could share this information on both CapEx and OpEx side, appreciated.

So with regards to investment, in our midterm plan, there's a number that we have published but it's actually less than that. Where we're starting from where we see a greater effect. So we prioritize and we implement. And your other question was in-house initiatives. Like I said today, we used to have Sumitomo Chemical System service, and we absorbed this subsidiary, and there were about 200 engineers, which we had absorbed and we have been able to really enhance our in-house capabilities. So we want to effectively utilize that. And also there are sort of sporadic, sort of new initiative, which we may need to do. We may have to align with the external party. I think that your company has really been advancing in-house. So there hasn't been that significant of a change then from before.

Mr. Miyamoto, thank you very much. The next question from Nomura Securities, Mr. Okazaki.

This is Okazaki from Nomura Securities. Can you hear me?

It seems that your voice is slightly small.

This is Nomura Securities, Okazaki. It is related to the previous questions. The effective outcome from DX, listening to what has been mentioned with maintenance and repair costs, several JPY 10 billion will be generated and seems to be the most effective one. In your peers, improving the productivity, they seek about several JPY 10 billion of effect. And in the marketing or new product development, they aim to have a several billion yen of effect. So once again, the money amount image of the effects, the content and in what timeline are you trying to achieve a certain level of effective outcome is what I would like to know?

Mr. Okazaki, thank you very much. Regarding the effect in money amounts, for the business operation efficiency is what I would like to mention, apart from the maintenance and repair for the business operation efficiency and the money amount basis is about JPY 1 billion. This is DX 1.0, 2.0 area, JPY 1 billion. And also approximately about 5,000 man hours in terms of the number of employees between 400 and 500 employees effect will be generated. So how are we going to calculate that in money amount? It will be several billions of yen. And basically, those type of talents are shifted over to a more creative work. Therefore, it's not immediately linked to generating money amount, but that is the situation. Did that suffice your question?

So just confirming that JPY 1 billion and several billion yen is the reduction of the maintenance and repair?

No, excluding.

Okay. So in maintenance repair, you said several billion yen. So in addition to that, it's JPY 1 billion productive improvement in manpower, 5,000?

No the manpower will be shifted over to a more creative job. So it is to improve the productivity, yes.

So in total, it's about -- what JPY 5 billion image?

This type of specific numbers will be coming out from now onwards. So regarding the maintenance and repair costs, we just released it yesterday. So of course, we seek for immediate effect, but that is a situation.

So in terms of the time period to what time or when are you aiming to achieve this, the time period?

Well, we are actually solidifying the fundamental structure reforms and numbers. So we would like to incorporate it in that.

My second question, in 2019, September, within the MI explanatory briefing session, you have made an explanation. And from then, it's about 5 years. And your company's -- compared to other companies that are promoting DX, what is your characteristics or strength. In 2019, you said that the people that are well versed in chemicals, they will shift over to data science, and you will train and educate them. That was the characteristics that you've mentioned at that time. So compared to other peers. What is your characteristics because it's been 5 years since then. So can you explain about that point?

From the time we started, this initiative, the slogan was -- anyone could be MI, meaning that our company can maneuver MI is what we have been working on. And within that, there's, of course, advanced level, medium level. But regarding using MI, everybody also is at a point that they can use it. And also the production technology, we call it material informatics, we said against that there is a process informatics that we use as a word. So that type of technology, we are in a situation that, that also can be leveraged. Therefore, it has taken its roots in the company. And it is already incorporated in our daily jobs. Is that okay? .

Yes, understood very well. That's all.

Next, I want to invite from JPMorgan, Nakada-san.

This is Nakada from JPMorgan. So I want to ask a question about talent development. So do you have your original program. If possible, it would be more efficient in terms of education and facility if you use something off the shelf. But what is it's difficult that you would not be doing so? What is it that you had to develop in-house? I know that you maybe you don't want to disclose too much, but why is it that you needed to do this originally? And what is your competitive advantage in terms of doing this on your own internally? .

So perhaps maybe someone else could supplement my comment as well. But as you point out, we searched quite a bit. And we looked at different courses offered by third parties. But many were skilled focus -- skill focused. So it's about how to develop your DX skills. I think the majority of the training programs were focused on that. Like I said, we want people who understand that business. And then at the same time, how do we embed DX in the business. So that's our way of thinking. So business and DX must be combined. And we needed to have an education that would allow people to combine that or we wanted people to understand how they can leverage DX in their business. So that is why we decided to do this in-house. But since then, so subsequently, even if they go back to their workplace, their own departments, they will be able to leverage that, and that continues on that process of education continues. So that's the situation.

I see so if there's a -- you want to develop talent that would allow people to come up with their own unique ideas in terms of efficiencies in business. So I have a question about Page 18 on the patent portfolio. I think this kind of map once in a while, but I'm not sure how to read this. So for example, so in terms of Agrochemical is small, but there's crop protection products. It seems as though this looks a little weak, photoresist, I can see it's really strong. For example, polarization, since it is quite strong, but do you need to fill in the gap between? Or is this about increasing the dots in the concentrated business? And you're considering in the fundamental structural reform, you have different initiatives. When you think about a decade or 2 decades down the road, is there anything you want to focus on because you are strong in this particular area? Or because this is the way it is, you're not able to show your strength, and that is why you want to exit? So would this lead to selection and concentration in the business that you run?

So this plot, the darkness of this plot will not cause us to make a selection of the process. So for example, crop protection, the color is light, but there's a strength of compounds and compared to that. So photoresist and discrete products, it could be processes or it could be a machine process. There are different types of combination of patents that really shows the strength of the business. So just because there's 1 crop protection, that could be the strength, but it's not necessarily the case. So it's not just about number of plots that determine the strength or weakness, but we have to think about it in the business unit, but at the same time, we also need to think about -- we look at this, may be determined. Maybe this is an area of strength for us.

I see, so depending on the dot, the way you file patents are different, right?

So the meaning of the dots are different from business to business.

I see. So when you do license out or M&A, would this dot be useful, I guess, so informing alliance and also doing M&A as well, how do we augment this? How do you vote on this? Is this going to make a strong or weak?

This would allow us to think in that way as well.

From Daiwa Securities, Mr. Umebayashi.

This is Umebayashi from Daiwa Securities. Can you hear me? Sorry, my camera is not turning on very well. So I would like to ask the question as it is. DX 3.0 from Mr. Nishino, there was an explanation, I would like to ask a question about that. I'm looking at the slides. I don't know the slide page number. However, regarding the business model, I would like you to elaborate more. First of all, the significance of your company doing this business. I wanted to confirm that part. This is like you're showing an example like peeling a tangerine, but your company will analyze such an ingredient and store that in your database. And this is something that you have been doing already. And from the vendor, who would like to supply the tangerine. You will receive fees or you'll say that we have a surplus of something like this. So can you actually give that to some other supplier and charge them for that. Can you please explain this, the mechanics behind this? And this is very different from your business model. But in order to monetize on this, what are you going to do? And if you can elaborate on this point as well.

Thank you very much for your question. I would like to explain the business model first. As you have mentioned in your question, from what kind of people is the best to have the material provided. We are not narrowing it down to people who want their materials to be analyzed or only to those who handle these type of food waste materials. However, each of them have different needs. And we like to slightly customize the content of the business model that we can provide. At Sumitomo Chemicals, we have been doing our own analysis. However, by having the customers ask us to analyze their data, then the volume of the data will increase at an accelerated speed than what we have until now. And then we'll be able to have a large database. And regarding the fee, we are planning to not charge that much fee for the analysis work. Does that satisfy your first question?

Yes.

And regarding your second question, the development of this new digital product, the benefit on us at Sumitomo Chemical till now at the manufacturing plants, we have been manufacturing products. But in addition to that, we have been accumulating a building of the data, and we have the know-how how to utilize these data. And if we consider this as our asset, we should use it. And in addition to this, this type of digital product development can be done in a speedy or agile manner. Therefore, it is important to incorporate that within our businesses is what we are thinking. Well, Mr. Umebayashi, Sumitomo Chemical. For example, if they find a good natural material, why do we make a supplement? We come up with these ideas. However, we are trying to approach things from our strengths. And therefore, this is not something that can be covered with just one word of analysis. Analysis is difficult because there are several hundred ingredients that will come out. And there are not that many companies who can conduct analysis for several hundred ingredients at once, and that's our strength, and that's how we started thinking this. So this is an area that cannot be easily done by others.

Okay, understood very well. That is all from my question.

Do we have any other questions? If we do not have any more questions, then we would like to end the Investors' Meeting for the DX Strategy. Thank you very much for your participation today. This meeting will be available on-demand basis from tomorrow. So please look at it if you need to review it once again. And we would like for you to give us your feedback. We would appreciate your feedback. That is all from us. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]