Sumitomo Chemical Company, Limited ($4005)

My name is Yamauchi, and I will be serving as today's moderator. We appreciate you taking the time out of your busy schedules to attend our Investors Meeting for FY 2025 financial results, management priorities and business strategies. Today's session will begin with a presentation by our President Mito, followed by a Q&A session, and we are scheduled to conclude at 5:45 p.m. With that, Mr. Mito, the floor is yours.

Start the Investors Meeting for FY 2025 financial results, management priorities and business strategies. Thank you very much for attending despite your very busy schedule. Let me start. This is my agenda for today. And here is the summary for today. First, for FY '25 results, we had very strong results. Even looking at underlying results, stripping out our games and dispositions, we had good results. And for guidance for FY 2026, underlying business performance call for solid growth in earnings power. And the driver for that is number one, Agro & Life solutions. And another is ICT and Mobility Solutions. For AGL, this time, in the U.S. Two companies were integrated to build a new company and center on that company bank rational business will be further expanded. For ICTM, in terms of figures, it is a little slow, but with strategic upfront investments in entering new market new materials markets, we will strengthen the foundation to support future earnings growth. In particular, the rapid shift to AI in our society and to respond to that, we will steadily expand our business. We are starting to establish organization capable of doing that. As construction of P&P business, we will clear our challenges and lead to strengthening of Essential business. In particular, for Essentials business, the conventional type of business will be strengthened. And at the same time, the business model of the license and catalyst business, that is our IP assets will be used, we will shift to that model. And for investment discipline, we have been repeatedly being mentioned that this is an important issue. So we implement measures through rigorous investment discipline and also focus allocation into strategic capital and also strengthen our organization and then implementing those measures we will improve the capital efficiency and record efforts across the business, the corporate divisions to enhance enterprise value. So this is a summary of what I'm going to discuss today. Next page. First, the financial results. Sales revenue. Was JPY 2,328 billion, a reduction of about JPY 278 billion for P & ICT business because of the divestiture of these businesses, core operating income was JPY 208.4 billion, an increase of JPY 68 billion. Net income, up JPY 22.4 billion to JPY 60.9 billion and ROE both 6.4% and 5.6%, respectively. In February this year, we revised upwards our forecast, and it is further higher compared to the results of 2024, we are seeing a great improvement. This breakdown by sector, corporate income by sector. Agro & Life Solutions, is at a similar level as the previous year. There's a slight increase compared to the previous year. It is even higher compared to forecast of February. For ICTM, there is a large reduction compared to previous year. The factors -- there are 2 factors. One is in 2025, early 2025 because of the Trump tariff. There was quite a lot of sales [indiscernible] in 2024. About JPY 10 billion in terms of core operating income. Another point is the recent AI semiconductor boom. So general purpose semiconductors are in shortage. So shipments into the low and middle end smartphones declined and together with that, there was a decline of shipments of our display materials. So for these factors, this led to a decline compared to previous year. Essential & Green Materials, major factor is the sale of Petro Rabigh shares, leading to a large increase in income. One highlight this year is Sumitomo Pharma's performance. Disposition of Asian business, JPY 49 billion is included, and there were expensed sales of the 3 key products, leading to a large increase in income. So in total, core operating income, JPY 208.4 billion, up JPY 67.9 billion. Forecast -- before talking about the forecast for 2026, let me talk about our current Middle East installation. For raw materials procurement, the whole company is working hard towards stable supply. In general, we are able to have visibility of requirements up to June. And others, we are -- we have a variety of products. So there are risks here and there, but we are able to secure requirements for the current production plan. For utilization trends, in P&P. Environment of raw materials procurement and inventory situation, considering that operations are continued for Singapore, Unfortunately, in March this year, forced declaration was made. There is a potential supply constraints, so we are closely monitoring the impact. And for others, of course, there are risks. But at the moment, there are no major impediments of operations. So from an overall perspective, for raw material procurement, settling down. And in terms of procurement, risk is gradually declining, but rather price is getting higher. So how are we going to respond and absorb the price hike through our own efforts of rationalization and efficiencies. And if it's not possible to absorb through those efforts, we would like to consult with our clients about reflecting the cost hike. So it's now at the phase of higher prices for raw materials. But for demand we have not seen at the moment any major decline in demand because of rising prices. This is the forecast for 2026. Sales revenue, increase of JPY 31.5 billion to JPY 2,360 billion core operating income JPY 6.6 billion is expected. On the underlying performance basis, it's a large increase explain about it in the following slides. And net income, up JPY 9.1 billion. And with that, ROE, 6.8%, improvement of 0.4 percentage points and ROIC down 0.1 percentage points. Sumitomo Pharma increasing capital. So denominator slightly increased compared to 2025, ROIC is slightly lower. This is the forecast for 2026 by sector. Agro & Life Solutions, JPY 8.7 billion increase is forecasted. [indiscernible] for ICTM, as I mentioned earlier, semiconductor shortage is a factor leading to reduction of shipments of semiconductor materials and fixed costs, in particular, in semiconductor sectors, there were there's impact of investments made in advance, but we expect increase in shipments of semiconductor materials. Essential & Green Materials, JPY 5.6 billion increase is expected. At the moment, the refinery margin of Petro Rabigh has greatly improved, which is included in these results. For Sumitomo Pharma, compared to the previous year, it is a reduction of JPY 14.4 billion. As you know, in 2025, there is JPY 49 billion of -- from a disposition of Asia business. Excluding that, this is a large increase. So in total, JPY 215 billion core operating income is forecasted. Next page. And this is showing our -- for '24, '25, '26 core income on underlying performance basis and how they've transitioned. If you look at the 2025 actual, the underlying performance compared to the previous year, we had an increase by JPY 50 billion. And also for 2026, we are not expecting capital gains on business dispositions. So the forecast is an increase of JPY 80 billion income. So on the underlying performance basis this is going to be a significant increase in income that we hope to achieve. Next, please. And in line with this, our financial standing has significantly improved. If you look at the D/E ratio in 2023, it was 1.3. But at the end of 2025, it became in the range of 0.9. And furthermore, the capital increase of Sumitomo Pharma also contributed to the GE ratio decreasing to 0.8. So financial standing has seen much improvement. Next, please. And this here, based on the results I've covered so far, this is for FY 2026 dividend forecast. We forecast an increase in the annual dividend to JPY 16 per share. However, having said that, we do not believe this to be at the appropriate level. So in the future, we hope to achieve an annual dividend of JPY 24 per share at an early stage in the future. Next, please. And from here, I will go into sector strategies. Next, please. But before I go into this topic, I would like to cover the status of our business portfolio. Back in fiscal 2017, we had a core operating income of JPY 262.7 billion. The growth drivers that we've identified we had health agriculture and information electronics. They did not account for 30% of the total of the income. They were less than 30%. Most of the income came from the P&P business. However, if we look at the portfolio today, Almost 60% of the core operating income came from Agro & Life and ICTM for FY 2026 or that is the forecast. So income coming from a P&P has been reduced significantly. And for others, pharmaceuticals related businesses, if you look at the breakdown, if you look at the profit structure, we have advanced semiconductors and life sciences accounting for much of the earnings of Sumitomo Chemical as of today. Going forward, we will concentrate our investments into the growth drivers so that we can further advance our business portfolio. Next, please. And first, I will cover the Agro & Life Solutions sector and its strategies. I've had several occasions to talk about the strategies. But for the crop protection chemicals, we are confident in our ability for drug discovery. So from 2024 to -- 2020 to 2024, there were 35 new active ingredients launched to the market. 5 of them came from our company. And 3 of the 5 are expected to become blockbusters. For Rapidicil and [ Pavecto ], we will fully start to register these going forward. So at present, we will focus on how to expand the indifferent sales. Next, please. And when it comes to INDIFLIN, as was announced before, in the Central and South America, this is used for the [ roster ] disease for soybeans used as a fungicide. When we first developed this product, it was a single market still ahead of a scale of JPY 300 billion. So it was a very attractive and large market. Since then, the market has further expanded. And in 2029, it is expected to become JPY 4 billion -- or JPY 600 billion in size. Therefore, this is a highly attractive market for us. So the market that we are addressing is expanding, but at the same time, competition is becoming more intense intensified. On the other hand, INDIFLIN has a high performance compared to competitive products. So by further promoting the uniqueness and characteristics of this product, we can further grow our sales in this massive market. And if we look at the surrounding areas, for example, in Paraguay, soybean farming practices similar to that of Brazil. They are also struggling with the rust disease. So we have established a local entity called [ Semico Paraguay ], so that we will also promote sales expansion in the neighboring countries. And also the major target indication is for soybean rust. But this INDIFLIN has effect on various other efficacies. So as you see in this graph, in various countries and targeting various crops, we will continue to expand our indications so that sales will further grow in areas besides soybean. Next, please. And next, on biorationals. Conventionally, we had VBS that focused on biorationals and MGK, they mostly focus on botanicals or plant-derived materials, -- so these were the businesses that were focused in the biorationals area. But by consolidating the 2 companies, we hope to concentrate the knowledge and experience into this new organization and pursue synergies to further grow the business. And another aspect is that since there were 2 separate companies that have been operating. So by consolidating, we can also rationalize the indirect expenses. We can realize a lean and efficient business operation structure that eliminates redundancies going forward. So biorational sales currently is somewhere between JPY 70 billion to JPY 80 billion. But by early 2030s, we hope to double this sales size. Next, please. And in order to achieve that goal, these are the specific measures that we are considering especially in the South America, biorationals are gaining traction and further growing. -- as seen here, it has increased by 2.5x over the past 5 years. So we will identify -- we have identified South America as one of the focus areas. And as for North America, biostimulants are gaining much attention. So the FP sciences that we've acquired, their product lineup will be introduced in order to grow the North America business. And as for Europe, if you look at the third row on the right-hand side from the top -- this shows the number of new product registrations in Europe since 2018 for both biorationals and chemical crop protection. And as the graph shows, since 2020 up to 2025, there has been 0 chemical crop protection registered. Finally, in 2026, there is 1 herbicide registered. But what this shows is that gaining registrations in Europe has become very difficult. However, biorationals are growing its registrations year after year. So we do have capabilities world top-class biorationals capabilities. So this presents us with massive opportunities, and we will be focusing on Europe as well. And as for the portfolio, we have pipeline development for biorationals, close to 40 in the pipeline and for botanicals as well. In the beginning, it was only the pyrethrins. But in addition to this, we are working on the launch for 2 more products. And not just the chemical crop protection. In the animal nutrition area, we hope to launch 2 products in this area, and we are currently making preparations for that. So in addition to agriculture feed stock additives, we hope to introduce our biorationals. Next, please. Next is ICTM. Here also, as you know, the semiconductor market is rapidly growing, in particular, AI semiconductor are showing an exclusive expansion of the market. And with that, our semiconductors business is also steadily expanding. And going forward, development of advanced products and top level quality and mass production through that, we will make proactive investments to expand the business. And for that purpose, technology production must be further sophisticated, and we have to accelerate the global deployment. So as you can see here, in Japan, First, photoresist mothersite, which is Osaka, we will strengthen its function. And recently, next-generation EUV technology center was newly decided to be built. And for well -- sub organization for development, mass production and analysis in an integrated manner. And for R&D, we will start operations of advanced ARF lithography tool. As I will describe later, with that, we will accelerate the development of new products. And also, we will increase the manpower to respond to increased manpower. And for -- therefore, we will establish a plant -- chemical center last year. And we'll will advance the corporation development between Japan and South Korea and also Japan, South Korea, China in places neighboring the customers, we have established our footprint ahead of others. And recently, in the U.S. as well, semiconductor foundry are increasing. And in Texas also we have established our new location. And in the United States in Arizona, TSMC, Intel have foundries. And as you know, Taiwan including TSMC is pleased to be accumulating your larger foundries in the West Coast of United States and in Taiwan to expand our locations there was a major issue. But as we show later, with acquisition of AUECC, we were able to realize geographic expansion. Next page. So as I have said, this slide shows the significance of acquisition of AUECC -- with acquisition of AUECC, there are 2 significances. One is expansion of territory. And another is solution, be able to provide a broader range of solutions. Expansion of territories, as you can see on the bottom right, as I have already mentioned, Taiwan, West Coast of United States, new manufacturing clients are established. And the strength of Sumitomo Chemicals is in advanced semiconductors technology. In this area, we have a top class analysis technology. And we have established a global organization proactively, so for global locations have already introduced. And for solution our top class technology can also be used for our AUECC portfolio to further strengthen technology. In our case, IPA or hydrogen peroxide, ammonia hydroxide. We have volumes on products, but AUECC has specialty sector products like hydrochloric acids. So both portfolios getting together, it will be possible to create synergy. And with that the current sales by 2030, we want to double the sales or even more than that. Next page. So this is photoresist sector. At this management meeting, I have described this before and this is updated. In the immersive AIF, we have a very strong position. One example was the negative type development without using solvents Photoresist developed which can be used for alkaline development that the global top class immersion AIF-resist technology can be further developed to strengthen the business? And what means for doing that. as I introduced earlier, advanced ARF mistrography tool is introduced and recently, operations will start. In early 2000s, the customers used the advanced lithography tool that was used at that time, we introduced the same tool to accelerate development and with that we're able to establish our strong emerging ARS resist position. But currently, semiconductor manufacturers use FlexArray advanced device. But that is different from this device that is used. The illuminating condition is different by introducing a tool using the same illumination conditions as our customers, we want to further strengthen the emerging AIF resist sector. And for EUV, next-generation High NA EUV. We will expand our own organic molecule resist to aim for a share of 20%. And for back-end process, in AI semiconductors, with explosive penetration. High integration, higher performance and bigger sizes are advancing and the panels from wafers to panels and larger panels be interested. In the back-end process, Frankly speaking, we are a late comer, but with the changes in manufacturing platform, we take this opportunity and we will expand products that can be introduced in the back-end process as written in the blue letters. Epoxy resin ink and relative materials of temporary bonding and glue cleaner and high-purity Alumina. In these areas, we have already started mass production. So our business will be expanded in the back-end process area as well. And next, Advanced Medical Solutions sector. This important milestone was achieved -- a drug for Parkinson's disease. -- obtained conditional approval in Japan. So first after approval, clinical studies will be conducted steadily. Clinical study will be conducted with 35 patients after transfusion is completed, we will further increase the number of patients in phases. In the 2030, early stage of 2030, if this drug is approved in the U.S., this will become a blockbuster product that can grow up to JPY 100 billion in scale. Next, for other sectors, CDMO business is another area that we are looking forward to. But CDMO business that we conduct -- are not cases that need large investments like antibody drugs, CDMO. With a minimum investments, we want to achieve a maximum benefit. These are the measures that we are going to implement. For example, for advanced small molecules in Japan, we already have a top position. In the future, we also want to have overseas customers. But with the current facilities that we have, sales of only about JPY 40 billion can be achieved with the current production capacity. With efficient investment, we want to increase this size, we announced recently. The Koei Chemical is now subsidiary and use the advanced manufacturing facility as a GMP will be used. Our technology is being highly appreciated by our customers and our [indiscernible] plant is in full operation. The CRO in the U.S. So we are establishing places to ask for research and provide samples so that the recognition of our company will be further -- this has started in April and already utilization is nearly full. For regenerative medicine, we are front runners. The companies are having difficulties in earning profit, but we reached the 5 consecutive years of profitability. Already, we have 3 CMCs completed starting operations. And already, the 3 plants, we expect full utilization by using subsidies we will begin construction of a fourth plant. After the 4 plants are completed in terms of sales more than a JPY 10 billion of production capacity will be available. So by doing so, we want to further expand our business. For AGM, as I have said [indiscernible] upstream KO ethylene and downstream prime polymer integration and Petro Rabigh improvement. With refinery margin in Singapore, we will work on with restructuring steadily. And one topic, as I have mentioned at offset, in the P&P business, if there's competition of capital expenditure, it's difficult to win against China. So going forward, we will strengthen the capacity of our existing business and also in the environmental-related business that we have will be licensed to other companies. We will shift our model to earn profit by using our IP. Recently, this is a recent case our hydrochloric asset oxidation technology was recently provided as a global license to BASF. And also, PMMA chemical recycling and production ordering from ethanol GX-related technologies. This licensing will be accelerated and shift to a model where we could earn profit through this model. Next page. And next is strengthening management base. As I said in the beginning, investment discipline has been a challenge for us. And as I covered this topic previously, we've thoroughly quantified various risk scenarios to consider them. And also, both from within and outside the company, we thought objective opinions. And we also implemented a decision-making that was agile in order to determine our votes forward. So under the new management processes, one of the first largest investment case, the acquisition of the AUECC, which I've talked about before. And Here, we've sought opinions of experts from inside and outside the company and run multifaceted simulation analysis so that we could have a quick and rational decision-making led to this acquisition. And the 3 years under the midterm management plan period. As for the progress in capital expenditures, loans and investments, we will have JPY 230 billion invested into growth strategic areas. And 80% of that will focus on AGL and ICT. These are the 2 growth drivers. Already JPY 70 billion and more of strategic investments have been made. So into Agro and Life Solutions, AGL and CTM, covering 75% of that JPY 70 billion investments already made. So according to the plan, we are proceeding with more focused investments into the 2 growth areas. And next is the reorganization of R&D functions. So far, when unique came to corporate research, we emphasized the importance of autonomy. And in some cases, corporate research would work on research projects that were not necessarily aligned with the business unit research. But we've developed a roadmap for both corporate research and business unit research in an integrated manner. And by having an organization that serves as a cross-functional center, we can focus our R&D resources into areas where we can win. So that is a new structure that we have in place. Next is on DX. Since before, we've worked on DX 1.0, 2.0 and 3.0. So so we've promoted this. But over the past 2 to 3 years, we've seen a rapid evolution of AI. So we had to pause and revisit our DX strategy. For us as well internally, we have to shift our efforts into utilizing AI. I think that's the stage where we are currently. And you see accelerate democratization of AI shown here. So the employees as well as the management, we working to accelerate the utilization of AI. What we are currently promoting specifically is to have all the information, various types of information found internally in the company and fed that into plug-ins so that information pieces that will help decision-making will be extracted. And we are also considering the introduction of AI agents that will facilitate such information extraction. Next, in terms of DX 3.0, particularly of the services listed here at [indiscernible], -- this is a service provided to the agricultural sector. In the interest of time, I will not be able to cover the details. But for domestic agricultural sector, we have the potential of becoming a significant platform. So are working on development of various applications and commercialization, and we are proceeding with the work to establish such platform. Next, please. And as for the executive compensation, -- we are increasing alignment with the business performance and capital efficiency. So the variable remuneration portion will be raised from the 50% before to 60% and also introduce a coefficient for ROIC achievement. So consolidated business performance KPI multiplied by coefficient was used to calculate remuneration. We are introducing this new coefficient multiplying that to the previous formula to calculate the compensation. So that is the new change that we are introducing to the executive compensation system. And next is the parent subsidiary listing for FY 2024, Shinto Paint, Sumitomo Bakelite and Inabata, we sold all or some shares of these companies. And for FY '25. And just the other day, actually yesterday, Tanaka Chemical and Koei Chemical were made to a wholly owned subsidiary or the plan was announced to make them into a wholly owned subsidiary. Tanaka Chemical has already completed that process. For the remaining companies, we will continue to study them. But the basic way of thinking is that under the group strategy through business growth and synergies if they contribute to maximizing enterprise value, then parent subsidiary listing remains an option to be considered. Next, at the end, this is the same slide I always share. And once again, to share my resolve, I would like to cover this -- in our company, capital efficiency still needs to be improved much. We are still in the process. So we will work on management, conscious of capital efficiency and enhance enterprise value over the medium to long term. Next, please. And lastly, this is a summary. In FY 2025, business performance recovered strongly. And also, we made further progress in strengthening our financial standing. Of course, we are still in the process we have finally have the groundwork laid out for future growth. And if we look at the portfolio, in our case, we are already very much focused on life sciences and advanced electronic materials as core businesses. And on the other hand, we have growth drivers, Agro & Life Solutions and ICT and mobility solutions, they are accounting for the majority of earnings. And we are also accelerating the shift towards a portfolio led by world-class businesses such as biorationals and advanced electronic materials. aND particularly, the ICTM Solutions results were somewhat muted, as I said before, but particularly for the semoconductor materials business, we have strengthened our structure to meet the growing AI semiconductor demand, particularly for the back end process materials. And for the AMS, we've made steady progress in building a foundation for long-term growth. For the AGM as well, we've advanced the structural reforms, and we are shifting towards an IP and licensing driven business model. That concludes my presentation. Thank you.

Thank you very much, Mr. Mito. Now we would like to receive your questions. So the first question is from Morgan Stanley Energy Securities. Mr. Watabe.

I'm Watabe from Morgan Stanley. And thank you for the good results. So I would like to combine a few questions into one. First, it's 1 year since you became the President. How did Sumitomo Chemical change performance, financial results are getting very good. So I'd like to hear about that. And as our financial results and forecast for this year, how did you include the impact of Middle East? Your you have mentioned that this is partially included, for instance, AGL for example, but this is a situation of adjustment of inventory in Brazil or what is the impact of the recent higher prices in agricultural sector? Our background of Crop Protection chemicals increasing profitability and net profit compared to the operating profit, bottom line seems to be low, explain to me that background as well.

Thank you for your question. First, [Audio Gap] Well, last Time. I talked about how I'm adamant about this. But not just that, looking at other pharmaceutical CDMO business, I believe the synergies generated with the CDMO business. For example, today, conventionally a small molecule, molecule diffusion cell therapy. So these are areas that we've worked on. And these are separate areas, but as modalities, they are increasingly becoming more integrated, for example, nucleic acids. We would have automatic synthesis machines and use the nucleic acids made from that to be used. But -- now this a different method is being used. And for delivery, new conversion tools are being used. So for small molecule organic synthesis technology is very much in need, in demand for these new approaches. So nucleic asset CDMO and [Audio Gap] using organic synthesis directly l last time when we had a conversation with you, Yamada-san, we come back to the same topic that was covered. So the origin comes from chemicals safety evaluation by Sumitomo Chemical, we decided to use IPS sales evaluating the safety of our chemicals, and that's how this business started and developed to this day. So it's not necessarily a synthesis. It's not something completely an outlier business. We did -- it's not that we do not have any technical background. It's just that for the longest time, we've accumulated experience and technical capabilities in this area in the world. And the government has provided support and that puts us in the front runner position. So as the Sumitomo Chemical Group, this is a a business area that we certainly would like to continue. For Pharmaceuticals, R&D costs could be quite enormous. And you may wonder whether Sumitomo Chemical has the ability to support such funding needs. In case of generative and the cell therapy area, the diseases that are targeted are not like a small molecule business where there is a number of patients. We are always considering the necessary R&D costs that may be needed in the future, we are updating ourselves regularly and assess whether there is a sufficient funds to cover the necessary costs. We are in discussion with Sumitomo Pharma and Sumitomo Group, we are frequently updating. But compared to small molecule R&D that requires hundreds of billions of yen of investments. It's smaller by an order of magnitude or even much smaller. This includes clinical trials in the North America, we believe it's certainly within our capacity to do. So based on these assumptions, we have identified and determined that this would not negatively impact our financial standing that we have enough R&D resources to pursue. Thank you. Agroscience and ICT investments, as long as there's no risk of underinvesting. I'm fine with that.

So the next question. Is [indiscernible] NBC Nico Securities. Miyamoto.

Thank you for your presentation. I'm Miyamoto, SMBC Niko Securities. Correlations for the financial results. I want to hear about the prospect of Crop Protection Chemicals, which is a standard for growth, in particular about biorationals. You have explained that on Page 17. Previously, M&A in Europe of [indiscernible] Electrochemicals was considered a at growth through biorationals. What is the constitution of such products in Europe? And you expect acceleration growth in 2027. The integrated company in the United States will be operating for such manner from that year or botanical portfolio will be influencing. What is the reason biorationals will accelerate in 2027. And in Europe so far, for chemical crop protection registration I mean tough for protect registration in Europe, is there a risk. Been difficult to register.

First question. biorationals in Europe, in particular, include M&A, what is strategy? Well, as was indicated this time. Registration of new chemical crop protection and also for biorationals, needs for bio rationales are increasing. Brazil, North America, India and next to this, Europe is also a strategic area for biorationals. First, development of products in Europe, we're engaged in development of products in Europe, as we have explained before. The sales organization, there's footprint in Europe, in particular in France, Spain, Italy, in the major agricultural countries and also in the U.K., there is footprint. But in terms of production and R&D and logistics, we don't have such functions. So for further growth going forward, we have to invest in these functions. As I -- maybe I talked about it before, a corporate-wide resource allocation, an AGL and ICTM are our targets. And AGL remains in Europe. But from a bigger picture, ICT semiconductors, in particular, AI, semiconductors and back-end process sector are areas that we want to concentrate our investment. And we are seeing improvements of our financial position. And with the surplus power that we can generate from that, if we can invest into AGL than Europe, not only sales organization and portfolio, but production, R&D and logistics in these areas as well, we want to make investments going forward. We are thinking of doing that. And from 2027, biorationals growth will accelerate. There are many factors. One major factor are biosimilars. We are looking forward to this. Biosimilars compared to what we have assumed development and site expansion is taking more time. The product development and registration system is different from country to country. But after registering is made to be able to sell the products there must be higher awareness among customers. We may test for many years, -- from -- different from crop protection chemicals, it's not something that -- so we can clearly see the outcome. The producers must be able to confirm by themselves improved yield and production. We have continued with the steady efforts during the last few years. And in 2027, by around 2027 in particular -- in North America, we believe this is going to start. It is taking time. But Central buying stimulants, we want to accelerate further growth. And Chemicals crop protection in Europe is so difficult. So is it all right with Pavecto Well, frankly speaking, Pavecto in Europe to get to registration I'm not saying it is impossible, but rather, compared to other products of our [indiscernible] registration, safety profile is very good. So we will continue to aim for registration. This is not scientific anymore, whether it is registered or not. So I'm sure we will get a registration, but it's difficult to say when we can get to registration. On the other hand, Europe, which sector is a major target. But the targets -- there is a target spot disease in South America. This is not a serious disease in the past. But recently, target spot has increased and Pavecto shows a very good effect on this target spot. So a target is shifting from Europe to South America and Brazil. So we may be able to get registration earlier. And the major market for Pavecto could be South America and develop into the blockbuster in South America.

In addition, about the financial results, exports from China to South America and Brazil is slowing down. Is that a following win for you?

Well, I'm always asking that question. In addition to slowing down, generics shares are getting higher. So that may become a following wind for us. generic prices are getting higher, so that may be a following wind for us. But maybe locally, there are more careful, we are not seeing yet a big impact. But that is a positive situation for us.

Thank you, Mr. Miyamoto. We will now move to the next question from Nomura Securities, Okazaki-san, please.

This is Okazaki of Nomura Securities. For Essential & Green Materials, I have some questions. On Page 25, PCS production optimization was mentioned here. To the extent possible, could you share the current progress, particularly given the middle East situations. Maybe there have been some delays or even qualitative information. If you could share the progress, I would appreciate that. And also to President Mito, I do apologize for asking you this question. currently given that the market is performing well. The [indiscernible] has generated much income this term, but Singapore and domestic businesses are experiencing adjustments, correction in terms of utilization of operations. So if you look at the overall balance, the JPY 20 billion operating income for this fiscal year, what is the probability of achieving this?

Yes. Thank you. Regarding the PCS in Singapore and the plans ahead. It's exactly as it is described here. But before I explain the details, I will say that Singapore PCS, since when it comes to this area, I don't have much experience, and I'm no expert. But based on what others have said, for many years over the past years, they've provided products in a stable manner. They've gained much confidence among customers. So a PCS is highly regarded in Asia. On the other hand, there have been oversupplies from China, and this has put downward pressure on their earnings and they are struggling because of that. They are competitive. They have competitiveness or rather, I should say, they are very much trusted cracker. So within the Singapore petrol complex, they serve as part of the infrastructure. So how are they going to fare in the future, how should we retain this going into the future. I think that's the perspective that we should apply here. There could be various forms already. This started as a joint venture in the beginning. There are partners. And if we broaden our perspective, the derivative manufacturers could also be considered partners. So in Singapore, they are an important and leading cracker in the upstream in Singapore. As part of the infrastructure, what is possible for us to retain that as part of the infrastructure. So that is the kind of discussion that we are currently having. Given the recent Middle East situations, the status of utilization it's something that I cannot share based on agreements with the joint venture partners and other stakeholders. So I cannot go into detail, but that is the view I have to this business. And next, PRC or Petro Rabigh, at present, particularly, it's a refinery margin has significantly improved from January to March -- their January to March period. So for us, it's FY '26 first quarter, their results will be reflected in Q1 FY '26. They performed very strongly. Operating income of $400 million also generated and also JPY 9.2 billion would be reflected in our Q1 results as a result of that. But what will happen next is very difficult to predict and foresee, the Arabian light premium has gone up. And going forward, margin will be reduced significantly. And PRCs, particularly polymer business, the market price will follow. There will be some time lag. So we are not expecting any expansion of profits there either. So between January, March, the JPY 9.2 billion realized in the period reflected in our first quarter. That's where we are. And anything beyond that either upside or downside has not been considered or incorporated. But given the situation, Chiba, Singapore locations, how should we balance these businesses. In case of Petro Rabigh, as you know, our stake has been declined to 15% so our P&P business core of that is in Singapore and in Chiba. So these are the core locations for our P&P business. efforts in these businesses to improve business performance. And in fact, for PCS after the Middle East situation settles, as you see here on the slide we hope to review the sales mix and increase customers that will be willing to purchase at higher price and higher price points. And for TPC, we are already starting this and by switching to high value-added grades and to shift sales geographies, we hope to further grow profits for FY 2026, that's the direction that we are heading. And for MMA due to the suspension of the line, we have now established ourselves to start earnings, and we believe we can further expand this fiscal year. In the interest time, I will not be able to cover the details. But for Chiba location, we will focus our efforts. So Singapore and Chiba will be the core for this business, and we hope to achieve the JPY 20 billion of core operating income. So over JPY 9 billion for the Q1 coming from Petro Rabigh and given the current low utilization in Singapore and domestic location, even given these factors, you can expect a certain level of profits. Right. Well, the disruption coming from the Middle East, to what extent will this be sustained? We do expect this to settle and subside to at some point in time. But what will be the impact then raw materials procurement, if make a misstep in a decision, then we could generate huge losses from inventory valuation. And given the raw material prices are skyrocketing -- of course, given the normal circumstances, this would have a negative pressure on our margin. So there are various factors to be considered. But at this point in time, we are considering both positives and negatives, and we hope to achieve the JPY 20 billion. Thank you.

Thank you very much, Mr. Okazaki. It's now time to conclude. So the next question will be the last question. from UBS Securities. Omura-san.

Omura from UBS Securities. In general, it was really your presentation. Thank you very much for that. I also, just like Mr. Okazaki. With regards to the results for this year, I had more questions. In your presentation, or JPY 215 billion plan. Is that based on a conservative assumption or not? That was not very clear. So for Essentials, and Agro & Life Solutions for these 2 sectors, for example, 9.1 billion in Q1 for Petro Rabigh that is already included the remaining JPY 11 billion. Then what are you looking at in what way these figures? And for Agro & Life Solutions, what are the assumptions in making these figures? For this forecast, could you breakdown the background for those figures.

The performance for this year for Agro & Life nearly JPY 10 billion increase is this achievable or not will be a very important key point. And as you can see here, the key for that is overseas. In particular, Brazil. Kai grew in Brazil or not. That will be the key. And in doing so, as is included in the questions today, a shortage of fertilizers related to the situation in Middle East or demand for crop protection chemicals might decline in Brazil. Of course, there could be such risks. In the case of Brazil, for the last 3 or 4 years, -- because the problem of the distribution inventory market was stagnant. So it is finally reaching a recovery phase. And as was mentioned before, China's generic crop protection products, shipments into Brazil and price. We have not had any clear comments from our team in Brazil, but I certainly think that may happen. And if think in that manner, these figures -- I don't think these are optimistic figures, but are highly achievable figures. And HEM is very difficult. Maybe I said something opposite previously. When the price gets higher or lower, the past theory may not be applicable anymore, rapid price hike or shortage of products may happen. Then in terms of payment that may not necessarily be negative and Will that advantage remain even if prices decline, maybe not necessarily so. So when will the situation stabilize, how will it happen? Will that be a moderate stabilization? Will there be a rapid fluctuation of the raw material price unless we can identify that, depending on the situation, the impact on profit and loss will greatly change. So it is very difficult to break out into multiple factors and say clearly. But in overall, there are positives and negatives. But JPY 20 billion, which is written here is definitely something you want to achieve. Maybe my answer was not very clear.

It is not clear in your previous comment, but if possible, could you tell me? For Petro Rabigh, JPY 9.2 billion first quarter and after you are not seeing either upside or downside? Do you mean JPY 9.2 billion will continue? Or do you mean 0? What do you mean by that?

Up to JPY 9.2 billion from the -- it is upside compared to the conventional budget. And after that, -- there may be ups and downs. It may be going up first and then go down compared to the budget. So compared with the budget, after Q2, we are not seeing any upside or downside. That's what I meant.

Omura-san, thank you very much for your questions. It is now time to conclude. So FY 2025 financial results, management priorities and business strategies. Investors Meeting is now concluded. Thank you very much for joining us today. Today's briefing will be uploaded onto our company's website from tomorrow, including the Q&A portion. That is all. Thank you very much once again for your participation today. ..