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Good afternoon. Thank you very much for joining the conference call on Asahi Kasei Corporation's earnings for Q1 FY 2021. This is Futoshi Hamamoto from Investor Relations. We will begin with a presentation from Koshiro Kudo, CFO. After that, we will take questions.
Other participants from Asahi Kasei are Yozo Sato, Corporate Accounting and Control; Takuya Takahashi, Basic Materials Strategic Business Unit, or SBU; Nobuhiro Yamaguchi, Performance Products, SBU; Hiroaki Sugiyama, Specialty Solutions, SBU; Eiji Ishikawa, Specialty Solutions SBU for separators; Izumi Kawata, Asahi Kasei Microdevices Corporation; Kensuke Sakai, Asahi Kasei Homes Corporation; and Yuji Kibe, Asahi Kasei Pharma Corporation.
I will give the floor to Mr. Kudo now.
Good afternoon, and thank you very much for joining us for this earnings briefing. Let us begin with Slide 4. In the first quarter of FY 2021, net sales came to JPY 583.4 billion, operating income was JPY 60.5 billion, ordinary income JPY 65.2 billion and net income attributable to owners of the parent came to JPY 46.4 billion. All these figures are the highest ever for a first quarter. In Q1 last year, earnings were significantly hit by COVID-19. This time, all 3 segments and especially Material posted year-on-year growth for both sales and operating income.
Starting from FY 2021, we are applying the accounting standard for revenue recognition, which means that the criteria used for recognition of net sales and cost of sales are now different for some transactions. Later, we will explain this more in detail by segment. For total consolidated results, however, the impact of this change is minor for both net sales and operating income.
Moving on to Slide 5. This shows quarterly sales and operating income by segment. In Q1 FY 2021 for the Material segment, there was recovery in automotive-related markets. In addition, market prices for petrochemical products rose rapidly on the back of demand recovery, which resulted in inventory valuation gain by the gross average method. Sales and operating income both increased considerably.
The Home segment benefited from the consolidation of McDonald Jones Homes Pty. Ltd, et cetera, and strong performance of other overseas businesses. The change in the method of revenue recognition also pushed up net sales and operating income related to order-built homes. As a result, both sales and operating income increased for the segment.
In the footnotes, we described the impact of the new revenue recognition method by segment. It pushed up operating income for the Homes segment by JPY 1.751 billion.
For Health Care, in Critical Care, ventilator sales are down, but the mainstay defibrillator business was strong. Pharmaceuticals and Medical Devices also had solid performance. As a result, both sales and operating income increased from the same period last year.
Slide 6 shows the statement of income. Net sales for the quarter came to JPY 583.4 billion, up JPY 128.3 billion from the same quarter previous year. Gross profit came to JPY 195.4 billion, and gross margin improved by 0.6 percentage points to 33.5%. SG&A came to JPY 134.9 billion, which is an increase of JPY 15.1 billion. There was an effect of newly consolidated companies such as McDonald Jones and increased expenses for R&D and logistics. Operating income came in at JPY 60.5 billion, up JPY 30.4 billion from or almost double the year before figure. Operating margin came to 10.4%, up 3.8 percentage points from the same period previous year. The net of nonoperating income and expenses came to an income of JPY 4.7 billion. That's up JPY 4.5 billion from the same period previous year. Net equity and earnings or losses of affiliates improved by JPY 3.8 billion, thanks to improved performance at PTT Asahi Chemical Co. Ltd. which produces AN or acrylonitrite in Thailand. The net of extraordinary income and loss came to an income of JPY 3.2 billion. That's an improvement year-on-year by JPY 8 billion. On the extraordinary income side, there was gain on sale of investment securities after unloading some strategic shareholdings and gain on step acquisitions related to McDonald Jones. We entered a capital alliance with McDonald Jones, which is a company in Australia, back in 2017, and had since owned a 40% stake. This time, we acquired an additional 40% and made it a consolidated subsidiary. Among extraordinary losses, we booked business structure improvement expenses, which is mostly related to starting up alternative production capacity after that fire at our semiconductor plant. Income before income taxes came to JPY 68.4 billion. That's up JPY 42.9 billion year-on-year. Income taxes amounted to JPY 21.6 billion, up JPY 10.5 billion as corporate income taxes increased commensurate to pretax income. Net income attributable to owners of the parent came to JPY 46.4 billion, up JPY 32.8 billion year-on-year.
Slide 7 shows the consolidated balance sheet. Total assets increased from the end of March to end of June by JPY 56.8 billion. Goodwill, et cetera, was recorded on acquisitions, including that of Respicardia Inc. in Health Care. Property, plant and equipment increased with CapEx. Application of the accounting standard for revenue recognition resulted in an increase in contract assets and a decrease in inventories. Liabilities increased from the end of March by JPY 27.3 billion. Interest-bearing debt increased by JPY 40.9 billion. Net assets increased by JPY 29.5 billion. Retained earnings increased, thanks to net income attributable to owners of the company of JPY 46.4 billion, which more than offset the JPY 23.6 billion in dividend payout. The debt-to-equity ratio came to 0.47, up 0.02 points, which is within our targeted range of around 0.5.
Slide 8 shows cash flows. Cash flow from operating activities was a net inflow of JPY 30.2 billion. Inflows included income before income taxes of JPY 68.4 billion and depreciation of JPY 28.7 billion. Outflows included accrued expenses coming down by JPY 20.3 billion. Compared with the same period previous year, while income before income taxes increased, working capital, such as trade receivables also increased as sales recovered and the net cash inflow decreased. The investment cash flow was a net outflow of JPY 39.7 billion. Outflows included CapEx and acquisition of Respicardia. Compared with the same period previous year, cash outflow increased in relation to acquisitions, including that of Respicardia. Cash flow from financing activities was a net cash inflow of JPY 11.6 billion. There was a cash outflow due to dividend payment, but that was more than offset by the inflow from fundraising. As a result, cash and cash equivalents at the end of June came to JPY 219.7 billion.
That is all for the first quarter results. Moving on to Page 10, operating performance forecast for the first half of fiscal 2021. The forecast for net sales is JPY 1.198 billion, and for operating income, JPY 106 billion, both of which are higher than the first half of fiscal 2019 pre-COVID level, to achieve the highest ever first half results. We expect increased sales and profit year-on-year on the recovery in the Materials segment. From the previous forecast announced in May, we have made upward revisions to sales and operating income forecast in all 3 segments, especially the Materials segment, reflecting the strong first quarter results and changes made to the exchange rate assumptions for the second quarter, reflecting the depreciation of the yen. Net income attributable to owners of the parent is expected to be JPY 72 billion, a downward revision of JPY 15 billion from the previous forecast in May, at which time, we expected tax expenses to be reduced by about JPY 24 billion this fiscal year in relation to the organizational reconfiguration at Veloxis Pharmaceuticals, Inc. But due to administrative work of the Danish authorities, we rescheduled the timing of recognizing the lower tax expenses from the first half to the second half, thus the downward revision. If we exclude the impact of this rescheduling, we believe that the progress of net income is also strong. Interim dividend is forecasted to be JPY 17 per share.
Next, Page 11, net sales and operating income forecast by segment. I will explain the upward revision made to the previous first half forecast by segment. In Material, we have made upward revision in light of the strong performance in the first quarter, market prices of petrochemical products having risen more than expected and firm sales expected for lithium-ion battery, or LIB separator. Forecast for Homes has also been revised upward as overseas business expects firm performance. Health Care forecast has also been revised upward with firm performance expected in the core businesses of Critical Care, such as conventional defibrillators and LifeVest-wearable defibrillator. In terms of year-on-year comparison of operating income, Material expects significant recovery, while Homes is projected to maintain the same level as in the previous year despite a difficult business environment, and Health Care expects decreased profit compared to the same period of the previous year when there was a special demand for ventilators. But mainstay businesses are projected to perform firmly.
Page 13, breakdown of changes in net sales and operating income by segment. The largest factor was sales volume, which contributed to an increase of JPY 21.4 billion. Sales price contributed to an increase of JPY 20.6 billion due to the rise in the petrochemical market prices, including foreign exchange rates. Others include rising feedstock prices and changes in inventory valuation gain or loss. In summary, sales price was positive JPY 20.6 billion and Others was negative JPY 11.6 billion, indicating improvements in terms of trade.
Page 16, overseas sales. Net sales in the first quarter were, as mentioned earlier, JPY 583.4 billion, of which overseas sales totaled JPY 293 billion. The overseas sales ratio was 50.2%, exceeding 50%. Last year, it was 41%. While the ratio had been around 40% in recent years, it went over 50% this year. Of this amount, about 80% is sales at overseas subsidiaries and the remaining 20% plus is exports from Japan. As we are proceeding with overseas M&A activities, overseas sales are increasing along with the growth of the acquired companies. We expect this trend to continue with some possible fluctuations in the overseas sales ratio from the first quarter level of over 50%.
Page 19, operating income forecast by business category. Operating income is projected to decrease from JPY 60.5 billion in the first quarter to JPY 45.5 billion in the second quarter. During the first quarter, there was a profit in basic materials in relation to inventory valuation gain or loss as well as a nonrecurring gain on the accounting treatment related to the acquisition of Respicardia in Critical Care. In the second quarter, we are expecting a temporary increase in fixed costs and incurring of in-licensing costs in pharmaceuticals. We thus project operating profit to decline by JPY 15 billion quarter-on-quarter. But there are no concerns about demand or the business environment, including economic trends and overseas market conditions. And we consider the forecasted amount of JPY 45.5 billion to be achievable. Also, as stated in the financial statements, we have not changed the full year operating income forecast of JPY 190 billion at this time. Towards the second half, we do not have concerns regarding our business, although there are some uncertainties such as foreign exchange, the impact of COVID-19 and semiconductor shortages. We believe that currently, the progress is generally in line with the May forecast.
That concludes my presentation. Thank you very much for your kind attention.
Let us now take questions.
Watabe from Morgan Stanley MUFG Securities. My first question is about the Material segment. Can you provide more detail on the quarter-on-quarter difference between Q4 FY 2020 and Q1 FY 2021 for the 3 business categories and between Q1 and Q2, please? Can you also tell us how large the inventory valuation gain impact is?
Takahashi speaking for Basic Materials. Could we look at Slide 28, please. Quarterly operating income for Basic Materials was JPY 10.1 billion in Q1, almost unchanged from JPY 9.8 billion in Q4. In fact, there were a number of factors pushing operating income both upwards and downwards. In general, demand is strong and market prices have been solid. In Q1, however, there was a maintenance turnaround at Mizushima Works, which had a negative impact. On the other hand, market prices for the mainstay AN remained rather high. In addition, feedstock prices rose, which resulted in inventory valuation gain. The impact of the maintenance turnaround was for about JPY 3 billion to JPY 4 billion, but the inventory valuation gain more than offset that.
Yamaguchi for Performance Products. Demand has been firm from Q4 FY 2020 to Q1 FY 2021 and into Q2. For automotive applications, in particular, shipments have been strong despite some regions, such as North America, being affected by the shortage of semiconductors. The improvement in operating income from Q4 to Q1 was mostly driven by terms of trade. Feedstock prices rose in Q4, but those higher prices are only reflected in sales prices with a delay. Terms of trade were, therefore, squeezed in Q4 but improved in Q1. Between Q1 and Q2, terms of trade would be squeezed in Q2 as some feedstock prices are still rising quite rapidly. This is one reason for the expected decrease in operating income. In addition, more fixed expenses are to be booked in Q2 towards the end of the first half. Capacity utilization will also be lower in Q2 due to maintenance turnaround. Market-wise, demand is strong for both automotive and nonautomotive applications.
Sugiyama for Specialty Solutions. Compared with Q4 FY 2020, Q1 net sales was down by JPY 4 billion, whereas operating income was up by JPY 3.3 billion. In reality, business remains firm. With regard to net sales, separators and electronic devices were both firm and slightly up quarter-on-quarter. There were, however, onetime factors around a number of products among former performance materials. For example, we booked rather large sales for membrane process chlor-alkali plants in Q4, but not quite so in Q1. Thankfully, performance was firm for other products, separators in particular. And fixed costs were higher in Q4 as it was the final quarter of the financial year. Those factors drove the JPY 3.3 billion quarter-on-quarter increase in operating income.
My next question is about business structure improvement. At the management initiative briefing in May, it was explained that 15 businesses were identified as strategy reformulation businesses. Recently, you announced restructuring your spandex operations in Europe, and I believe that was the first among a series of announcements to come. Do you plan for most of such strategy reformulation for the Material segment within FY 2021? If so, are the associated expenses already budgeted?
This is Kudo speaking. The discontinuation of production in Europe is part of the restructuring of spandex business. Among the 15 strategy reformulation businesses, for some, we may restrategize and reinforce, some we may withdraw from, and for some, we may form an alliance with a partner. The time horizons, therefore, may vary. We do expect to make announcements on some businesses during the current financial year, but it may take more time for others. Now our next medium-term management initiative is due to start in FY 2022. When we announce the new initiative, we may provide an update with more detail. Thank you very much.
Yamada from Mizuho Securities. My first question is about health care. Q1 results for Critical Care came in strong. Last year, from Q1 through Q3, ventilators provided a boost for earnings. How does it look like on a comparable basis, excluding that impact? What about the impact of the acquisition? Can you also explain why you expect net sales and operating income to decline from Q1 to Q2, please?
This is Kudo speaking. With regard to Critical Care, shipments of ventilators peaked in Q2 last year but has come down to normal levels. For Q1 this year, gain on accounting treatment related to the acquisition of Respicardia pushed up operating income. Even excluding that effect, on a comparable basis, the business is performing pretty strong with recovery in conventional defibrillators such as AEDs and defibrillators for professional use and LifeVest. Now with regard to Q2, our operating income forecast is JPY 7.1 billion, down from Q1. The acquisition-related accounting gain will be absent. Orders for LifeVest tend to be slow in summer. In addition, given the resurgence of COVID-19 cases, we are staying on the conservative side. Having said so, judging from results up to July, business performance is stable, and we expect the growth trend to continue for Critical Care.
Can you tell us more about that accounting gain related to the Respicardia acquisition? ZOLL had extended a loan to Respicardia prior to the acquisition, and it became part of the acquisition payment. In that process, there was valuation gain. Is that reflected in operating income?
This is Sato from accounting. According to the U.S. accounting standard, which ZOLL uses, such valuation gain is treated as part of operating income.
My next question is about Homes. Back in FY 2020, Q1 and Q2 orders were very slow. Despite that, Q1 performance this year was firm. Can you tell us why? And total orders from April to July are significantly up from the same period last year. Is this better than expected?
Sakai for Homes. In Q1, adoption of the new accounting standard for revenue recognition artificially pushed up figures. But even excluding that effect, performance was solid partly as the average unit price rose for order-built homes with the increase in larger homes. The upward revision for the first half also reflects firm performance of overseas operations. The value of orders received in Q1 recovered to almost the same level as Q1 FY 2019. The July figures were actually higher. This is generally as expected.
Was the JPY 2.4 billion operating income for overseas business also as expected? And could you explain the JPY 5.7 billion operating income for order-built homes? I would not expect the new accounting standard to have such a significant impact or did it?
Overseas businesses did outperform expectations, particularly in North America. The impact of the change in revenue recognition was slightly higher than expected. As written in Slide 13, it pushed up Homes net sales by JPY 7.9 billion and operating income by JPY 1.8 billion.
Does it mean you have a solid profit margin for order-built homes in a way that allows you to stay profitable even against higher material prices?
Yes.
Miyamoto from SMBC Nikko Securities. I have 2 questions. First on Specialty Solutions. You have upward revised the first half forecast by JPY 5 billion for operating income. I understand that the foreign exchange rate has a significant impact on this business category and suspect it to be a factor, but can you tell us more about the revision? Can you also give us an update on the separator business, which you also upward revised? On the downstream side, it appears that electric vehicles are doing very well in Europe. How does that affect you?
Sugiyama speaking for Specialty Solutions. We have upward revised the net sales forecast for the first half by JPY 9 billion and the operating income forecast by JPY 5 billion. Basically, we expect the same factors that led to strong Q1 earnings to continue. The separator business is strong. The former Performance Materials businesses are also firm. In particular, with COVID-19, stay-at-home demand for IT devices have been strong and associated demand for our products remain firm. Semiconductor-related products are doing well, too. The foreign exchange rate also has a large impact and accounts for about half of the JPY 5 billion upward revision for operating income.
Ishikawa speaking for separators. We have upward revised the forecast for both net sales and operating income this time. The major driver is the wet-process separator for lithium-ion batteries. Demand has been strong for consumer electronics applications, particularly in Q1 and continuing through the first half. The same can be said for automotive-related demand, including that for Europe, too. After that high shipment volume in Q4, we were worried that production capacity may fall short of demand, and that was reflected in our initial forecast. However, with new capacity commissioned ahead of schedule, among other things, we have now upward revised the first half forecast.
In July, a new policy was announced in Europe, recommending phasing out of internal combustion engine vehicles. Given this, do you expect further increase in LIB separator demand?
This is Ishikawa from Separators. We expect demand in Europe to continue to grow significantly going forward. And accordingly, we feel we should consider how best to deal with it.
I see. My next question is on sales of Pharmaceuticals on Page 25. You said previously that sales of ENVARSUS XR exhibited sluggish growth in the fourth quarter due to some temporary factors. In the first quarter, sales increased 26% year-on-year, indicating steady growth. Is it fair to say that the temporary factors have been resolved and the ENVARSUS sales are back on the growth trajectory? Also, do you expect the high growth to continue into the second quarter?
Hamamoto of IR will take that question. As you have correctly indicated, the temporary factors mentioned in the briefing in May have subsided. ENVARSUS XR had been growing at a high growth rate until fiscal 2020 when the impact of COVID-19 dealt a blow in the U.S. MR activities were restricted which affected hospitals adoption of ENVARSUS into new protocols. Also, conversion from other treatments remain below the previous year's level. However, since the first quarter of this year, the overall number of new kidney transplants has been increasing again, and the number of patients on ENVARSUS is steadily increasing as well. So we expect steady growth in the medium to long term.
I see. Can we expect high growth rate -- high sales growth to continue towards the second quarter?
Yes, you can expect that.
Umebayashi from Daiwa Securities. I would like to ask about trends in automotive-related products, which should mainly be the performance products. I see that first quarter recorded a significant increase year-on-year, but how did it compare to the fourth quarter? I believe automotive OEMs had to cut down production due to semiconductor shortages. But it appears that auto parts and component material suppliers, including your competitors, are not affected much, looking at the level of shipments. Now you're expecting a slight decline in profits of the performance products for the second quarter. So I'm wondering whether this means you are expecting a reactionary decline in the second quarter, following a slight over-sell in the first quarter. Can you comment on the trends of automotive-related products from the fourth quarter to the first quarter and then into the second quarter?
Yamaguchi from Performance Products. Yes, global automobile production is now projected to be slightly lower than previously forecasted. Our projection is for production to decline in the first half and then recover in the second half. However, demand from Japanese OEMs and the Asian market is very strong to the extent that production cannot keep up with it. Therefore, while there might be some impact of the reduction in automobile production due to semiconductor shortages, we do not foresee a decline in sales volume of our mainstay automotive-related products, such as engineering plastics and artificial suede Lamous. In the meantime, U.S. automakers seem to be struggling in procuring semiconductors, which is slightly affecting our business in North America. So true operating income is expected to decline from the first to the second quarter, but this is due to such factors as worsening terms of trade and an increase in fixed costs. We do not expect market factors to adversely affect our sales volume from the fourth quarter to the first and second quarters. In fact, there is an upside potential should the business in North America recover.
I see. In other words, there was no advanced shipments in the first quarter. Am I correct?
Yes, that is correct. Now there is a possibility that order inquiries are outpacing the strong performance of the automotive market. And we are paying close attention to whether or not the distribution inventory is building up. For the time being though, we do not anticipate a reactionary decrease in volume.
I see. My next question is somewhat similar in nature, but on separator, specifically, demand for consumer electronics applications. Following a very strong fourth quarter, you were not expecting sales volume to grow that much in the first quarter, including the fact that production would not catch up. But it actually turned out that demand continued to be strong, especially in comparison to the demand and production level of final products. So I'm wondering whether or not we should worry about the possibility of this being an advance shipment to be followed by a reactionary decline going forward?
Ishikawa from Separators. For consumer electronics applications, demand for smartphones in China was very strong in the fourth and the first quarters. But we anticipate that demand will decline slightly going forward due to a glut in distribution inventories. But as far as automotive applications are concerned, demand is expected to be very strong, including in Europe, as mentioned earlier.
Okazaki from Nomura Securities. First, on Homes. You said that the application of the accounting standard for revenue recognition pushed up operating income in the first quarter by JPY 1.7 billion. Do I understand correctly that it will not be repeated in the second quarter onward? Also, Page 22 shows that the operating income from overseas businesses, et cetera, increased year-on-year. I take it that this was due to the acquisition of McDonald Jones. Will you describe the organic growth of McDonald Jones itself and the trend in the Australian housing market?
This is Sakai of Homes. The positive impact of applying the accounting standard for revenue recognition in the first quarter was greater than anticipated. And we expect that this factor will slightly push up operating income in the second quarter as well. But the amount will not be as large as in the first quarter. The Australian business is currently doing very well and progressing well along the plan assumed in the May forecast.
I see. Was the application of this accounting standard already incorporated in the previous forecast? Also, are there any concerns about the COVID impact on the Australian business?
The application of this accounting standard was factored in, in the May forecast. Regarding the COVID impact on the Australian business, we are a bit concerned about some suspensions of construction work at the moment, but we do not expect much long-term impact.
I see. My next question is on Critical Care. Could you kindly comment on the year-on-year growth rate of defibrillators for professional use and LifeVest in the first quarter? Qualitative response would suffice. Could you also share your outlook for the second quarter?
Hamamoto from IR. I'm afraid I'll have to refrain from giving the exact growth rate. In fiscal 2020, the full year sales in Critical Care increased by about JPY 49 billion year-on-year, majority of which was contributed by ventilators. More than half of the JPY 49 billion increase was recorded in the first half of the fiscal year. But in the first quarter, the ventilator contribution was not so large. So in the first quarter of this fiscal year, the growth of defibrillators and LifeVest more than made up for a year-on-year decrease in sales of ventilators. As for the second quarter, we expect defibrillators and LifeVest to continue to grow, but not enough to make up for the year-on-year drop in ventilator sales, given that in the previous fiscal year, ventilator shipments peaked in the second quarter, and thus, Critical Care expects lower sales and lower profit year-on-year for the second quarter.
I see. I believe the pre-COVID growth rate was around 10%. Can we expect a return to that level?
Yes, defibrillators and LifeVest were affected by COVID, but demand is firmly returning at the moment. And so we expect the growth rate to return to the pre-COVID level.
Omura of UBS Securities. My first question is on Homes. I think the business environment surrounding order-built multi-dwelling homes has changed over the last few years, things turning in favor of this particular business. What is your take on the environment surrounding orders for multi-dwelling homes? Also, in light of the steady growth, what kind of growth rate do you expect for the coming few years?
Sakai from Homes. The environment for orders for multi-dwelling homes is generally favorable, and we are taking actions to grow the multi-dwelling homes. In particular, we are working to increase large-scale properties such as value-added rental housing, and the average unit price is rising accordingly. The number of housing starts is expected to decrease going forward, in line with Japan's demographic change. And we recognize that multi-dwelling homes are in a similar environment. But we believe that there still is room to increase our market share for both unit homes and multi-dwelling homes. And we are taking actions accordingly.
I see. Are you seeing any changes in the order environment or demand trends due to COVID impact?
There has been no major change in demand trends. But the means of attracting customer traffic has changed significantly. In the past, we mainly resorted to attracting customer traffic physically to model homes. But now it is done virtually, attracting customer traffic online through websites and the like. But the basic trends seem to remain the same
Okazaki From Nomura Securities again. Can you give us the market prices and price spreads of AN acrylonitrile as always? The first quarter, actual assumptions for the second quarter as well as your future outlook on supply and demand.
Takahashi from Basic Materials. Market prices and spreads in the first quarter were: AN $2,709 per ton and propylene $1,069 for a spread of $1,640, which was slightly higher than previously forecasted. As for the second quarter, we originally assumed that supply and demand balance would gradually relax. Prices were seen to be, on average, AN $2,100, and propylene, $1,000 for a spread of $1,100. Spreads in the first quarter were at a high level due to the impact of cold waves in the U.S. but have gradually declined since. Still, they remain slightly higher than expected due to maintenance turnaround campaigns and production disruptions. Towards the second half, demand is expected to basically remain strong, but with additional supply from the completion of maintenance turnaround as well as a possibility of new capacities coming online in China. We expect supply and demand balance to steady rather than relax. Our plants are expected to basically be on full operation, excluding the impact of maintenance turnaround.
Can you elaborate on what you mean by new capacities in China?
It's not certain at all, but there's a possibility that some new capacities scheduled for next fiscal year might start operating earlier in light of the current market situation. So we will be watching the development closely. But as mentioned earlier, demand is strong, so we believe the supply-demand balance to remain stable.
Watabe from Morgan Stanley MUFG Securities again. Regarding the Basic Materials business, it was explained that the increase in profit due to inventory valuation gain or loss in the first quarter exceeded the decrease of JPY 3 billion to JPY 4 billion due to maintenance turnaround. How much was the impact of inventory valuation gain or loss? Can you also comment on the year-on-year change?
Takahashi from Basic Materials. While the difference in inventory valuation general loss increased profits, it is difficult to give an exact amount partly given that there is a delay in transferring the difference to sales prices. Last fiscal year, market prices fell sharply in the first quarter. So you might want to look at the impact of inventories this year as the reversal of what happened last year.
So in that respect, if we assume that the impact of inventory valuation gain or loss pushed up profit by about JPY 10 billion year-on-year, it seems that there wasn't much increase coming from other factors despite a gain in relation to AN. Would that be a fair statement?
Yes, in that there was an impact of maintenance turnaround as well as the effect of a decrease in sales volume.
I see. Do I understand correctly that there was no impact of inventory valuation gain or loss on performance products?
Yamaguchi from Performance Products. I wouldn't go as far as to say no impact, but nothing major that you should be concerned about.
Thank you. This concludes the conference call. Thank you for your participation.