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

[Interpreted] Welcome, everyone. It's time to start the session. I'll be serving as moderator today. I am Kobayashi from Corporate Communications. Thank you very much for joining us for our investors meeting for business strategy despite a busy schedule today. Today, Agro & Life Solutions sector and ICT & Mobility Solutions sectors will be presented. And after the presentations on those two sectors, we'll entertain questions, and we're planning to end this session at 16:45. Let me introduce the speakers today: Senior Managing Executive Officer, Masaki Matsui; and Senior Managing Executive Officer, Nobuaki Mito. Now the first presentation is on Agro & Life Solutions sector. Over to you, Mr. Mito.

I am responsible for Agro & Life Solutions. I am Mito. Thank you very much for today. So let me explain about our business strategy on our sector. Next slide, please. So this is the agenda for today. First, the sector's profile and vision, and business environment that we face and our policy to address that, and then individual business strategies, and then last one is the 2030 goal. Next, please. Next, please. As you know, on October 1, we have launched a new organization at Sumitomo Chemical. So this slide shows the reorganization in our sector. Health & Crop Sciences sector, there is not much change from the former sector; but Pharma Solution division or CDM division has been separated out; and AgroSolution, Environmental Health, and Animal Nutrition divisions constitute a new Agro & Life Solutions sector. And this shows the Agro & Life Solutions overview. And as you can see, especially for R&D, globally, there are 11 laboratories. So extremely R&D-oriented organization is what you see here. And this is our long-term vision. And R&D is the center of our business: Food, Health and Environment. We are adjusting those social issues. This is our vision. Next, this is our mission. And our central part of the business is Crop Protection and Health, Environmental Health. So we contribute to the realization of returns of agriculture and also sustainable society and life environment is what we would like to contribute to. And this is a mid-range plan review, the current one. In 2019, the business environment was extremely challenging. But since then, we have been steadily growing this business. However, in 2023, this is the issue for the whole crop protection industry. The global channel inventory level has been heightened. And our shipment has declined. So tentatively, we have suffered a drop in profit. But in 2024, we are now trying to be back on the recovery track. And on the right, you see for the future growth, what actions that we're taking: business portfolio transformation, R&D acceleration and new products launch and supply chain strengthening, and digital transformation promotion is one of the issues. And for each one of those, I'd like to explain more in the subsequent slides. And here, you see the business environment that we face. First of all, with regard to the market itself, Brazil and India, especially, are seeing the growth continuously. But on the other hand, there are inexpensive generic crop protection agents are coming into Chinese market. So supply-demand situation has worsened. But especially in EU, this product registration regulation has been made more strict. And so there is a heightened demand and expectation for sustainable products in this context. As for Animal Nutrition, Methionine demand is expected to grow by 3% to 4% continuously. But in addition, high quality and sustainable animal production technology is in demand -- increased demand. And based on this business environment, our policy is the following: we would develop the proprietary products based on our own technology and provide sustainable products and services as solutions. And also, on the other hand, in this challenging business environment, we have to achieve sustainable growth. So we have to strengthen our cost competitiveness and that is essential. And as you saw in the previous slide, the sustainable products is now in increasing demand. And as for crop production business, we are aiming for this regenerative agriculture or business that will contribute to regenerative agriculture. Modern agriculture has contributed to food production significantly. But on the other hand, there was soil erosion, GHG emission, an impact on biodiversity and water system contamination. Those are the issues that we are facing in reality. So while maintaining productivity, we have to address these issues to contribute to regenerative agriculture and that is the kind of products that we would like to promote. And our central part of the business is chemical, biorational, botanical and service fused with DX technologies. Those are the three pillars that we would stick with in our future growth, and more individual specific growth strategies will be explained in a slide -- following slide. But by 2030, the blockbuster in chemical, INDIFLIN, in soybean fungicides is expected to grow. And as biorational and botanical, we have biostimulant that has been weak, will be incorporated together with the existing strong business. And then individual business strategies is the next one. First of all, this slide shows our core technologies that we have and the future deployment using those technologies. First and foremost, at Sumitomo Chemical at Agro & Life Solutions sector, the base technology is organic chemicals technology. So taking advantage of those technologies, Chemicals for Agro and Environmental Health and Biorationals and Botanicals have been grown. As you can see for Chemicals, we have 70-year history and 60-year history for Biorationals and 120-year history for Botanicals. So using those as pillars, we are going to deploy our business going forward, and these are specific topics. And around 2020, the registration and the approval was aimed for among six agents or compounds. And in 2024, all those six were actually launched in the market. That's what you see in this slide. And further back in the past, since 2020, we have launched 20 -- since 2000, we have launched 10 products and five out of those are the B2020 and A2020 project compounds. And for those B2020 and A2020, we would maximize the business, and then also accelerated development of new products. Biorational included we have six products. As I mentioned earlier, by 2024, we had completed the development. And since then, the new fungicide and other products, the total of 10 products are under development. So we will not be complacent with the current status of pipelines, and we'd like to launch the new products one after another. This slide shows our efficiency of the R&D activities. Please look at the bottom left, you can see in recent years, it is getting very difficult to research new compounds. And the -- it is said that only 1 out of 300,000 compounds will make it to market. So it is becoming very difficult and the possibility to launch is getting very low. And also the development costs are rising and the requirements for registration is getting more rigorous, about JPY 20 billion to JPY 30 billion is required for the development of one product. So it is getting difficult to develop new products. That said, the resistance issue and the new pests and diseases, because of these problems, there are rising needs for the new products. Under such circumstances, during 2020 to 2024, on a global basis, the new agricultural, agrichemicals there were a total of 33 in which five were developed and launched by Sumitomo Chemical. Please look at the top right. R&D expenditure comparison. So the global are the Western, the big players, they use the R&D investment 3x the size of ours. But on average, only 2.7 of the product have been launched, but we had successfully launched five the products. So we are very confident in our capability of development of new products. And this page shows the global R&D locations, though we have both at home at Takarazuka for the -- in the Biorational. The global headquarters is located in the North America in the state of Illinois. Other than that, on a global basis, we have basis for the application in R&D sites. So now let us introduce some of our new products starting with INDIFLIN, is a fungicide, especially in the South America. It is very effective for the soybeans-related diseases. And in 11 countries, it has already been registered, and it achieved the tens of billions of the sales only in several years, and we are aiming at doubling it by 2030. Rapidicil, it is herbicide. This year, in Argentina, we launched it for the first time. It is a very high-performing drug. Glyphosate, that is the most bestselling herbicide in the world and the effective of Rapidicil is equally to that the product. And it also had some unique functionalities, and we would like to develop Rapidicil into blockbuster. And by 2030, we are aiming at tens of billions of yen of sale. As to Biorational, it is a very important business for us. First of all, we are going to strengthen R&D for Biorational. And the Biorational research center in the U.S., that will be expanded. And we have been relatively weak in some areas, especially Biostimulant that we are going to strengthen through M&As. And we are going to make a big leap. The new product launches and Biostimulant and Pheromones M&A -- Pheromones was also acquired through M&A. Such new businesses will be developed, and we aim at JPY 150 billion sales by 2030. This shows Biorational Botanical business, the expansion initiatives. So the Biorational and Stimulant and also the other production and also the local formation capability is also being strengthened. In the case of Biorational, we need to have big pipelines. So we have more than 40 R&D projects underway. The 2025, the very first year of the next midterm plan, more than 20 will be completed. Botanical business, we have a very strong portfolio. And the mainstay product is the Natural Pyrethrin and the demand is very strong. And our challenge is to satisfy such strong demands. We need to increase our capacity. So the -- it is made out of the Pyrethrin. So the production of Pyrethrin should be strengthened. And for that purpose, we are currently studying the new sites. Next, our footprint and how to strengthen it. Here, we have the ranking of crop protection market size. Among the top six in five locations, we have established strong footprint. As I mentioned earlier, Rapidicil and INDIFLIN, these three top 3, Brazil, the U.S., but China is a bit difficult. The Argentina -- Brazil, U.S., Argentina, these 2 products are very fitting for these markets. So global footprint, making it stronger and expansion, and that is our strategy. Next, I would like to talk about specific footprint. Starting with India. Already, we exceeded JPY 50 billion of sales. The growth there is very fast. Year-on-year, we are increasing our sales. Currently, in India, we are in the second group. And then we have 75% of the stake in this company. Yes, a listed company, very highly appreciated in the market. Currently, market cap is in the -- closing into the JPY 500 billion level. In Brazil, year-on-year, the market is expanding. Top left shows Brazilian market and the prospect for the expansion of the soybeans. And it is increasing year-on-year. And for the coming 10 years, that we will have 2,000 hectares increase in the area of cultivation and this is for soybeans and corns. And domestically, it is 1.5 million. That is the space for the cultivation in Japan and with the same size of increase will be observed in the Brazilian market. And with that, the agri -- the chemical market will expand as well. The global #1 the market is in Brazil. And in April 2020, [indiscernible] Nufarm, South American business was acquired and how we entered this market. And INDIFLIN, they will and will be -- are the very fitting to this market. Moving on to Europe. Comparing among the individual countries, it is not a big market. But as a Europe whole, it is as big as the North American market, especially in the European market, which is -- regulation is very rigorous. And for our biorational product, we think it is an opportunity. And we position European market as an important market for new products and to strengthen our presence there. This is DX strategy. DX strategy in each country, it's different. So the country-wide the strategy is required. And this is one example. This is for the Japanese example. We are top runner when it comes to Agri, the Chemical, and we are making various platforms for DX for product information, and also, to get together we had the app for that, the tsuna-ag, is called tsuna-ag platform, and we are going to integrate these two platforms, product information and service information platform so that we can promote our business more. The supply chain, the strengthening is very important as well. In China, in the supply chain, but we cannot ignore it. So the procurement in China should be stronger. At the same time, the risks in China should be alleviated. And for that, production in India and production in Japan are being strengthened. And this is my last slide. So to promote those other business strategies, by 2030, we aim at JPY 800 billion of sales and JPY 100 billion of core operating profit. The business environment remains very tough. Competition is intensifying. So there could be some -- the downside, but the chemical, biorational, the products and expansion, new products, we would like to achieve those targets. Thank you.

Next, I want to invite Mr. Matsui from ICT & Mobility Solutions sector.

I am responsible for ICT sector. I'm Matsui. And we have started the new organization from this year. And up until 2027, the next medium-term plan will be launched and we're now preparing for that, but this is beyond '27 and beyond 2030. So this is the vision. ICT-related materials is the central part but electronic materials and mobility-related materials are in our responsibility and sophisticating our existing products, and we would like to contribute to Society 5.0 and provide solutions to realize that by using our core technology and accumulated know-how and provide total solutions. And this is the new sector. The Display Solutions has sustained our business. That represents 50%, and thinning film and high resolution is expected to grow further, and that will also make a significant contribution in the mobile sector for entertainment. And semiconductor-related materials was launched in 1980s, and we have expanded our business area gradually, and mobility has been making progress. And because of miniaturization of semiconductor to support AI and others, there is expanded areas of application. And for the next 10 years, this is the most promising area with the highest expected growth and there are various other mobility-related products. And this is the market that we are related to and directions and needs and what sort of specific lineup that we have at Sumitomo Chemical. Sumitomo Chemical is ahead of 2040s and '50s, so there will be more progress and advancement. And our materials have to be developed in a deeper and wider manner. And display materials also have more applications. We'd like to evolve our proprietary technologies to address this and automotive polarizing film is in Display Solutions category in this material. And as for mobility, the lighter weight vehicle is the short-term goal, but we have to address EV vehicles, and also contribute to infrastructure to support that to realize Society 5.0. And also Aviation is another sector, and we'd like to enhance our products. So the two separate divisions have been integrated. So customer network and technologies that we have are totally different. So we'd like to take advantage of the synergies in a very effective manner. And this is the conclusion of the first part. This is a look back of the current medium-term plan. It's not just a short-term market, but we have to look ahead and establish the business foundation, including this strategic investment, JPY 120 billion investment has been made in those three areas. Former ICT sector as a display and semiconductor, there were a lot of fluctuations in the market. But in total, we are expecting to achieve medium-term targets mostly. And this is the short-term target in 2030. So we have summarized the landscape. Semiconductor materials is going to steadily grow at 1.7x more in the market in 2030. And also 3D and new technologies will come out and new materials will be demanded. And as for display, the mobile OLED penetration will be increased. Convenience and high resolution needs have to be addressed. And as for automotive display, the screen area is expected to double the current one. And our business policy for this, as I said, ahead of 2030 and also beyond 2030, we would like to make preparations for the next 3 years. Miniaturization and 3D technologies have AI and automated driving as a background and there is a huge demand for power, and energy saving is in high demand. So solutions that are totally different from the previous one is needed. And with the technological innovation, we would like to develop those innovative technologies and also evolve cutting-edge technologies. It's not just our in-house technologies, but we'd like to also take advantage of external force as well. And also, we are focused on East Asia previously, but we'd like to also expand our business geographic areas as well. And this is the growth strategy. The semiconductor materials is the first one. This shows the -- after 2000 semiconductor materials, photoresist and high-purity chemicals history that are supporting our business. So semiconductor materials business has not been so prominent in Sumitomo Chemical, but after 2000, we have been making upfront investments and reaping returns. So in this table, in the background, in 2014 -- '24 and 2030, you see the performance of sales and also profit. And we would like to further promote this. And in 2030, we would like to more than double the sales of the current number, and we'd like to enhance development system. And also, we would like to focus on back-end process of semiconductor manufacturing. And in the supply chain has to be established to address the new semiconductor areas. And after 2030, we have to improve our development system for the future. And we would like -- we have also operated in a full scale for the back-end process material. And we like to focus on the cutting-edge areas as well. And this is our product lineup or material lineup. While top-class materials in a wide range, and also, we have entered new markets. And with the integration of divisions, we have enhanced our solution capabilities. So gray is a former ICT and the blue is the former energy. And we'd like to address the issues steadily. We have a very strong feeling for photoresist. And we are going to use lots of development other sources. We could -- the 2.5x larger revenue. And the LCD, ERL and EUV, we are going to continue in-depth development. And for that, we are going to sophisticate our development team. And to have good output, we are working on supply chain as well. More speedily and the most secure supply in Korea and if EUV, the sites were set up. As to EUV, in the current generation, we have acquired some business for some years. But now we are working for the future, the polymer, particularly metal-free. And one -- the molecular side, less than 1 nano will be developed and the valuation of that customer has already started. In the '26 and '27, the real competition will start. And we are going to be the top runner in this area as well. Already as to the existing advanced area, in the next generation, we are going to expand our share. The emerging ArF, we are going to target a 20% of market share. This is high purity chemicals. We have set up the sites overseas. Now we have the top plus the presence. The quality demand is rising in PPQ. In other words, it is going to be a very highly sophisticated management and the system is required. And in Korea, we have already worked on increasing the number of people and we from that side, we would like to deploy products to the rest of the world. From 2010, we started to develop new areas. They are the sophistication and the purity refinement and so on, different customers, different needs and already more than JPY 10 billion of the size is being observed, and we will have more and more new needs and using the new sites that we are going to expand our business. And then, there are lots of reports about the importance of back-end process. The big technological change did not happen, and so we could not enter that market in a serious way. So we were reputated as the front-end company. But with the technology development diversification, there are more and more needs. In those areas, the other semiconductor, the manufacturer of the front-end is also involved in the back-end as well. That means that the materials to satisfy the very complicated needs is required. And by combining our core technology and expertise that will be very helpful in that environment. So it is a chance for us. More specifically, the performance chemicals and the packaging materials, interconnecting materials, there are some business going on. And the mass production is also happening in some areas as the first step. Indeed, 2030s, the first half, 10% of the total sales will come from this area. And then, we use the sites, both in Japan and Korea. And we are considering the various considerations for the front-end and the back-end of the processes. And we were late comer in the display area with the mobile phone, we have been deploying our unique technology. And that we are focusing on the thinner field. And for the smaller the size, the products are based on the OLED. And the more -- much thinner and the more complicated the product-based technology that will be used and there have been the increase in the other volume. In the automotive market, the volume is increasing. And data high precision the needs are increasing. And we would like to satisfy those needs for foldable CoE. The new CoE is also seeing increasing demand. In this area, we have solutions to deploy such technology for -- will be used for the various -- the next-generation devices as well. The polarizer that will be remaining the central part of display. In the coming 1 to 2 months, we will have come to a conclusion to come up with the next step. As you can see on the right-hand side, once the structural reform is done, OLED and automobile, there will be the main parts. And we would like to stick to the very unique product. The sales might come down a little bit, but we are going to challenge the new areas so that we are going to improve both revenue and the profit margin. New areas, antenna, display and for the mobile phones and the transparent LED is one of the next-generation products. For all of them, we can use accumulative technology. We have already started shipments, and we are going to develop this business on the long term. The gallium nitride products, this is going to be used for integrated substrate and epitaxial wafer production. And we already have certain level of production. Toward the end of 2020s, we are going to increase it. And from 2030, the power semiconductors demand will seriously ramp up. On the longer term, we have two other elements of focus. One of them is heat. Here, we have technology to support society in 10 years. As I mentioned earlier, some products use tremendous amount of electricity. So the technological development is required, and we are very interested in working in that area. We are going to utilize and combine various technologies to provide solutions, especially, therefore, the thinner film related product is very effective. And with this reorganization, about 1,000 members will have in the place, and we can use such human resources for this area as well. Regional expansion, Korea and the Northeast Asia are the areas that we have tried to establish the various functions, which contributed to the size of the business. In 2020, we entered the U.S. market as we wished. In recent years, in the semiconductor area, there are factories in Japan as well, new factories. So we are thinking about Japan as well. As you can see on the right-hand side, there are certain areas with some uncertainty, but we think that the Indian market will be a very important stage in the country. And we have already started our consideration. We are going to work on the existing markets, but at the same time, it's very important for us to work on new markets. And about investment, over the 3 years, a total of JPY 150 billion and advanced display will be mainly invested -- have been invested. In Osaka, the semiconductor material-related site exists. But the U.S. and Vietnam, we have been established the site as well. In 2030, currently, we are expecting JPY 300 billion investment. And there, we are going to make a lot of strategic investment, advanced display and also the more promising new areas. It's not only for capacity, but also for new site investment will happen, and we are going to use M&A to be combined with organic growth. Lastly, the growth, the JPY 100 billion of operating income, Society 5.0. Of course, the 2030 is just a passing point. And we are going to look beyond 2030 to increase our profit level. Thank you.

Thank you very much. Now I would like to entertain questions. [Operator Instructions] Now the first person, Morgan Stanley MUFG Securities, Mr. Watabe, please.

Watabe from Morgan Stanley Securities. For each of the sectors, I have one question. Agro, the pipeline is quite strengthened and we have high expectation. But on the other hand, if you look at the market environment, I think that is quite important. The crop protection market has been on the downward trend for the past years, and there is not much growth. And we're expecting a turnaround next year. So what is your thought on that? And also generic impact, how much impact does it have on your products? In the increase and decrease factors, there were negative factors from generics. How much that is the procurement -- prominent in crop production. So there's before 2020 and after 2020, blockbuster expected sales were mentioned previously. So for those 10 projects -- critical projects, if you can share with us your prospect, that will be appreciated.

Thank you for the questions. First of all, as for the view on market environment, as you said, the crop protection market has been for the past 2, 3 years has been sluggish. But if you look back on the past history, especially in Brazil and the U.S., the crop production has been on the cyclical cycle going up and down. But in total, it has been steadily increasing. So in the mid- to long term, the cycle change is not that much of a concern. But for each of the cycles in the past, maybe it takes 4 or 5 years to go back to the normal status. So the current downside started in the late 2023. So we're expecting this challenging environment to continue for -- until the first half of next year. And another important factor in crop production market is commodity prices and grain price if they drop, then farmers income will also drop. Then the investment in agricultural input will also be reduced. And that will have a significant impact on our business. And especially for the short term, grain prices has been declining. So going forward, there will be some impact that we will see in our business that we're closely watching. As for generics materials products, so it all started with the excessive production in China. For example, our herbicides, that mainstay, the market itself is growing significantly. But on the other hand, Chinese production is also increasing significantly. And generic crop protection products produced in China has been flooding the U.S. and South America, and that has been dragging on the price. So in order to address this, our patented original products will have to be developed one after another and grow them. INDIFLIN, Rapidicil are the more specific examples. And which products are affected? The biggest one is the main herbicide, Flumioxazin, is the one that has been affected most. But even with this impact, the selling price has been declining, but the Flumioxazin market, we are commanding the overwhelming top share still. So for the new products and also promoting product life cycle management, the impact on our mainstay product should be mitigated. And also, going forward, in the next 10 years, the new pipeline that is expected to come out, the new insecticide or fungicide, there are promising ones that have been discovered. But also still younger ones, the herbicide has been also discovered after a while, long waited for both. So in terms of growing -- leading the growth, we have to have JPY 100 billion in investment. So we would like to aim for that scale in our development. Thank you.

Methionine, we're hoping that methionine will not go down. And as for ICT, so high purity chemicals is now being promoted. And of course, EUV is one of them, but each company is promoting IPA and ammonia. But what is your strength among those competition? And what sort of products are you looking at in the U.S.? Of course, the customers are not in good shape. So it's a bit of a concern. What is your thought?

So IPA or high purity chemicals rather. So there are four main products: ammonia, hydroxide, hydrogen peroxide, sulfuric acid and IPA isopropyl alcohol. So we are located adjacent to the customers. So we're not sure global champion is appropriate word. But statistically, we are one of the top players, we believe. And what is supporting that is, of course, firstly, we are speedily making investments and start up the plants adjacent to the customer site. And the other is a high-purity technology, including analysis. We are at a relatively high level in those skills and competence. And as for American projects, we are not in a position to disclose specific products, but semiconductor business is a bit of a concern, but we are approaching several U.S. semiconductor manufacturers. And from early 2025, we are going to see the turnaround so that we can start mass production as soon as possible. So in larger projects, we are mostly in line with the original plan. Thank you.

Thank you, Mr. Watabe. Next, from SMBC, Nikko Miyamoto-san, please.

Miyamoto, SMBC Nikko. I have two questions for each sector. First, polarizer, polarizing film. So we are changing the portfolio and in 1 to 2 months, this -- are you talking about the LCD related polarizers of China? And COD, there could be the headwind. When it comes to polarizer, with the shipment reduces, still do you think that you can make the catch up with the different type of films? And the Chinese makers, they are rising for the polarizing area. And in the downstream, they are increasing production of OLED. So is there a risk for the Chinese players to increase the production for the polarizing area?

Thank you for the question. As to China, the business restructuring, you're right. TV and other large polarizer has a very intensified competition. And the technological renovation is one of the key words for us. For TV, the polarizer, the market is pretty much matured. So it's rather difficult to differentiate ourselves using technology. So here, we need to have some drastic change. So it will not take so much time to show you the more specific direction. And as to your second point, as to CoE, it's really difficult to say. But currently, foldable smartphone. In China, the penetration of foldable platform -- the smartphone is rising. But generally speaking, it accounts for a very small amount. And foldable is not always CoE. So in the longer term, I don't think that the CoE is going to show stronger growth. But we are making preparation for CoT as well. And we are already shipping some of the products to some customers. So we would like to work on both. And as to China, OLED, the panel manufacturers and -- are increasing their production. And so the polarizer manufacturers are increasing as well. But as to smartphones, the new functions require a new technology, especially the thinner the product is in demand and lighter. So there are still -- there are some needs that we can work on. The OLED, the polarizer among Chinese other players, we have a quite big market share, and we would like to maintain that leading position.

As to polarizer, I think that you have a good position against the Japanese players as well. So the risk that beaten by the Chinese players is very low.

Well, the goal in terms of technology is far down the road. So you can have a lot of expectation for our advancements.

As to Biorational, FBS acquisition since then, 2 years have passed. What is the synergy you are looking at? And going forward Biorational developments, what is your thought? By 2030, you have the profit target. And I think the Biorational is a big part of it. What are the other specific products? And could you please talk about the growth of Biorationals going forward?

As to FBS, their business at the time of acquisition was not so big. We acquired technology, we think. And as a category, it's not for the agricultural registration. It's Biostimulant. It is to improve the physiological status of the plants. So before the acquisition, we did due diligence. And we thought that the technology is very promising, but the actual technology specific features, the knowledge there is limited. But after the acquisition, we did some evaluation and we thought that we had a very good purchase. So after the acquisition, we need to grow the business. Their business is limited in the North America. So Biostimulant, big market, Brazil and Europe, we are currently working on the registration as Biostimulant. And once it's done, it is going to be a very big business exceeding JPY 10 billion mark. And as to the strategy going forward for Biorational, it's not that there is no one product, which covers everything. So we need to strengthen our product lineup. And for that, as we talked about earlier, currently, we have about 40 projects developments underway. So we are going to make progress on that. And as to sustainable products, seeing increasing demand, especially in Europe. So to ensure portfolio in Europe, well, in Europe, our business platform is still weak because local formation or supply chain is not necessarily strong. So we might start local production in Europe. So to -- or the M&A is one of the strategies to buy time.

Thank you very much, Mr. Miyamoto. Next is from Nomura Securities, Mr. Okazaki, please.

Okazaki from Nomura Securities. I have one question for Agro and ICT. And as for Agro, Page 35 from '24 to 2030, sales and profit prospects are shown. So bio botanical is JPY 70 billion to JPY 150 billion, and that would mean JPY 80 billion increase. INDIFLIN, we don't know exactly, but more than double. So probably more than JPY 30 billion increase and Rapidicil several tens of billions of yen. So those three are the growth drivers in our view. But for other elements like M&As are on your mind, and what is incorporated? And also methionine, the market I thought this would become cash cow, but there is an increased production in China. And that's what I heard. So maybe what is the profitability assumption for methionine? That is my first question.

As for the margin for growth, room for growth, I think what you said is more or less right. That's what we're aiming for in growth. The key -- one of the key is the second from the left, the downside version. So in the current medium-term period, there was more than expected downside pressure from generics in China. As I said earlier, in the next medium term, there will be continued pressure from generics. And what is the biggest is flumioxazin that will be mostly impacted. So the downside, how can mitigate that downside with PLCM, that will be the key to achieving this strategy. And in terms of M&A, that is one of the growth strategy in next medium-term plan. And as I said, in terms of priorities, European Biorational business enforcement -- enhancement and the M&As for that purpose would be the biggest priority. But portfolio procurement through M&A is one option, but what were paying more attention is local R&D, local formulation or production and the enhancement of supply chain in the local area. Once we can achieve this, then we see the benefits of M&As in the medium-term plan after the next one. And as for methionine market, in the first half of this year, the selling price has increased significantly. And so we have recovered and departed from the onetime stagnation. But in the second half, as you know, the prices started to decline again. So as you said, the Chinese manufacturers are aggressively acting in the market. But after 2025, it's very difficult to predict. But it is true that Chinese players are becoming more aggressive but -- I don't know how to put this, but in terms of the market environment or the business management addressing the market environment has been well thought out by each of the companies, including ourselves. And so in the late 2010s to early 2020s, there was a market crush, but we don't expect that to happen again. But having said that, in the methionine business, we're not expecting huge profitability. That will be too optimistic. But on the other hand, there is Animal Nutrition business platform that we have established has to be continue to be taken advantage of. What we are promoting is to thorough rationalization of the methionine business. But Animal Nutrition business other than methionine, should be grown on the other hand. I didn't have time to talk about this today, but in Biorationals, Animal Nutrition products are also there, additive products. There are several different types under development. In the next medium-term plan period, we would like to commercialize this.

So the M&A benefits is not included in this prospect for 2030. Is that correct?

Well, no new M&A effect is incorporated in 2030. Well, well, not in the next medium term, rather. But when it comes to 2030, then M&As that will be implemented the next medium-term plan is incorporated. So in the JPY 800 billion and JPY 100 billion does include some effect from the M&As are going to be done.

So ICT, Page 50 and 51 EUV strategy. So next one and next generation, the existing ones are shown, but that's for existing ones. So negative type was stronger for you, and the positive type is the central part of the market, and you are going to focus more on that. That's what you said. But with regard this negative, positive, what is the strategy? The competitors have started mass production or acquired mass production for negative type. So what is your strategy now? And also for the next-generation type, less than 1 nanometer is what you're talking about. So what is your reaction -- what is the reaction from the market? For existing product types, you don't have too much of a track record as compared to competitors. So do you think you can expect to acquire business in next generation? And what is the timing of actually contributing -- this contributing to your sales? And also ArF immersion. What is your strategy? Can you explain about that briefly?

Well, as for EUV, it's very difficult to classify the products -- well, it's very difficult. But for each of the categories, there are mixed situation. I think, what you see and what you view is in line with what we see. Our strengths relatively is where other players are also working hard according to reports. But if you look at the current status, we are relatively on the steady trend. That's how we see it. And as for the current generation, we are making a lot of improvements. So we cannot share the market share currently. But at a certain business area, we are hoping that we can continue to keep our presence to some extent. And as for next-generation products, high NA, the exposure device or lithography is now being incorporated in each of the companies gradually. So from 2025, albeit in a small amount, we will have some prefight and then the full-scale business will be '26 or '27. And the new concept that we have put together, is now being evaluated by customers and getting feedback from the customers. Among the feedback, we see that the comments like very interesting. So there's a high appreciation from the customers. So we'd like to push this up, so that in the next generation, we'd like to take more shares than the ones for the current business. And as for ArF immersion, we don't know whether we are the first or second, but we are one of the top group companies. And so EUV or ArF there's a choice amongst our customers. Compared to the existing ones, there is a competition that would require a much higher level. We're not going to change this significantly, but the valuation system and development system, including equipment will have to be invested in a huge amount. And so as for ArF version, we expect to be able to maintain a relatively high share.

We're having high expectations.

Thank you, Okazaki-san. Nishihira from Okasan Securities.

Nishihira of Okasan Securities. I have one question. On Page 20, about your Agro business, your discovery, the capability. Could you please talk about why did the probability of success of your development and discovery is high?

Thank you for the question. The success probability of development or rather effectiveness, I would like to touch upon how effective it is, development. First, development time. As you can see here, year-on-year, the conditions for registration are getting more rigorous in the period for development that we could launch after 7 or 8 years at earliest. But now on average, it takes 12 years or so. So the question is how to reduce that time period that will contribute to the success ratio. And for that, we are taking some measures. For the crop protection, and of course, we need to face with some safety issues, high cost, not very effective as agent. So upfront, we identify potential issues. And by working on them proactively, as a result, that we can reduce the development time and rate success ratio. On the left-hand side, at the bottom, only one out of 300,000 compounds is making to market. Currently, the plants and the insects, we apply some compounds and then we take the good hits. But the word recently, we are making shift to more reasonable rationalized approach. Our target is the protein and the structure of protein is using the latest technology, we analyze it. And rather than random testing, we design the approach and pick up the suitable protein. By using such method, the time or the probability to find the candidates, the compound is getting improved. And the large companies are doing the same. But I take pride in saying that we were one of the first runners to do that, and that has contributed to the effective development approach. Thank you.

Thank you very much, Nishinira. Morgan Stanley MUFG Securities, Mr. Watabe, please.

Second time. As for Agro sector. Well, the R&D efficiency is what I wanted to ask about. The Rapidicil registration and launching in Brazil, what is your prospect? And the market cap in India was mentioned. So for the moment, your equity stake will be maintained for the moment. Is that correct?

Well, thank you. For Rapidicil, South America is our largest and the most important target in our view. And how fast you can get registration and get the market up and business up is the biggest priority. If I explain the current status, conventionally, the South America -- in South America, you would apply for registration and it takes about 6 or 8 years on the average, a very long time was taken. However, for this particular compound to Brazilian agriculture, it is a very important agent. And when it comes to the types of this product, and this will be put on the priority list. And then the review by the authority will be accelerated. So 8 years will be reduced significantly. And we are now on that process and the registration application is now underway. Having said that, however, the review of new agent is quite rigorous in Brazil. So there are a lot of homeworks given. So in the best case scenario, we may be able to -- we thought that we could get approval in 2025, but looking at the current status, it could be further down delayed, but we're steady promoting. So we'd like to have the registration as soon as possible and get the market up. As for India, our Indian business has been highly rated. And one of the higher appreciation factors is the following: the Sumitomo Chemical India and Excel Crop Care was acquired, and those two were integrated to have this. And Excel Crop Care was a generic company with a very strong sales network. Another characteristic is that production factory was owned by this company. So as we depart from Chinese business production, the production -- local production is very important and the drug substance, the API production locations are threefold. And if we get the business on that track, then we can increase the business significantly. And also in the supply chain, and you can actually produce generics quite inexpensively in India. So in terms of supply chain increase and the Indian business, this company is quite important, and it is a crown jewel for us. In terms of laws and regulations in India, if we are to increase the stake more than 75%, and we have to go all the way to 100%. But for the listed companies, biggest -- the highest stake that we can get is 75%. So we're not considering to decrease or increase that.

As for ICT, so based on the business, excluding former electronics, the profitability has been improving, but yet operating margin is around 10% or slightly more than 10%. But for other players, there's 20%, 30%, 40% at least. What's the -- where does this difference come from? Can you fill this gap? 2030 may be too early. But beyond that, how are you go about increasing your profitability?

Well, for former electronics and for former ICT, yes, I have been -- we have been increasing the profitability, but what has not been able to be increase is polarizing film for TV sets. And as I said, we have done -- if we go through some drastic streamlining, in terms of ICT, we would be able to enhance profitability furthermore, but what's going to happen next? So once -- despite the streamlining on TV, we are not reaching 15% in 2030. But in the late 2020s photoresist and the chemicals investments, investment in those areas will be required for production facilities and also evaluation and inspection equipment has become more expensive. So that will be concentrated. So 2030 is quite challenging. But if we go beyond 2030, we would be able to increase the profitability further. So for the near term, for polarizer and film for TV sales, we have to do the streamlining. And then development program that is mentioned here if -- once we are successful, then in not late timing of 2030s, we would be able to achieve good profitability.

So for the polarizing films for TV sets, the restructuring expenses, is it included in your prospect or forecast this time? And as for battery-related business, I think margin is not that good. What is your thought on that?

Just briefly, well, as for TV, yes, the expenses are included. We're not sure if we can exhaust the whole expense in this fiscal year, but majority has been included. But in terms of accounting, we're not sure if this is at the operating income level, but we are recording a maturity. As for the battery, of course, EV is now being sluggish for the time being. But as from the IRA, from the U.S., we're not sure if we can have the local business. And the new players from China are emerging, and that has made the competition quite intense. So EV slowdown and the IRA problem in the U.S., even if the things turn positive, for the moment, the battery business -- for the battery business, we're not that optimistic. We cannot be optimistic. And I talked about former ICT, but former electronics, we have to also address this issue, EV battery business.

We have use up time. So we'd like to conclude this investor meeting on business strategy. Thank you very much for your presence. This is just a housekeeping announcements. So as for this investor meeting today, there will be a video that will be uploaded on our website, including Q&A. So please take a look at it in leisure. And every time we ask you to do this, but please help us with your feedback. After completing this session, we'll send the feedback sheet to the participants. So please fill them out. So those who haven't watch the live streaming and also logged in on to, the feedback sheet will be sent back to you. And we will test your feedback for the future meetings. And thank you very much for your presence today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]