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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you very much for taking part in the briefing on the Fiscal 2018 Second Quarter Financial Results of Asahi Kasei Corporation. I'll be serving as the moderator today. I am Futoshi Hamamoto, Investor Relations.
Let me first introduce participants from our company today: Yutaka Shibata, CFO; Yozo Sato, Corporate Accounting & Control; Toshiyasu Horie, Petrochemicals Strategic Business Unit, SBU; Yukifumi Kuwaba, Performance Polymers SBU; Akira Fukuda, Separators SBU; Izumi Kawata, Asahi Kasei Microdevices Corp.; Kensuke Sakai, Asahi Kasei Homes Corp.; Hiroki Ideguchi, Asahi Kasei Pharma Corp. Now I'd like to ask Mr. Shibata to make a presentation.
I am Yutaka Shibata, CFO of the company. Thank you very much for joining us despite your busy schedule today. I will give you an overview of the financial results of the first half of fiscal 2018 and the forecast for the full fiscal year. Please turn to Page 2.
What I'd like to tell you first is that we have been able to achieve new records as our first half results for net sales, operating income, ordinary income and net income attributable to owners of the parent.
To give you the performance by segment. In Material, sales and operating income increased. If you look at further breakdown of the results, in fibers, shipments increased for Lamous microfiber suede and Bemliese continuous-filament cellulose nonwoven. While in Chemicals, acrylonitrile, or AN, improved its terms of trade and increased shipments. And in Electronics, shipments of lithium ion battery separators increased.
In Homes segment, sales increased, but operating income remained almost flat year-on-year. In order-built homes business, the number of buildings delivered for unit homes fell, but in real estate business, both rental management and condominium construction showed strong performance.
In Health Care segment, we have achieved increases in both sales and operating income. In medical devices, Planova virus removal filters saw increased shipments. Critical Care business continued to perform well, with an increase in shipments of defibrillators for professional use.
I will explain about the forecast for the full fiscal year of 2018 later in my presentation, but we have made upward revisions for net income, operating income, ordinary income and net income attributable to the owners of the parent, representing record highs for net sales, operating income and ordinary income.
One of the highlights in the second quarter of fiscal 2018 is the completion of the acquisition of Sage Automotive Interiors, Inc., or Sage, on September 27, making it one of our consolidated subsidiaries. In the first half, we have incorporated the balance sheet but not the P&L of Sage on our consolidated financial statements as its P&L will be reflected in our second half results. Therefore, the earnings results of Sage has not been included in the first half of fiscal 2018.
The forecast for the full fiscal year of 2018 thus have the earnings of Sage, Incorporated. When you compare the balance sheets between the end of March 2018 and the end of September 2018, you can see that total assets increased by JPY 264.9 billion, of which JPY 140.5 billion is attributed to the acquisition of Sage. We also provisionally assumed JPY 80 billion in goodwill associated with this acquisition.
Since we have yet to complete PPA, or purchase price allocation, we want you to regard it as a provisionally calculated figure.
Let me move on to Page 6, which shows the summary of financial results.
Net sales totaled JPY 1,041.5 billion, up JPY 76.7 billion year-on-year. Operating income was JPY 104.3 billion, up JPY 11.7 billion year-on-year. Ordinary income increased by JPY 12.1 billion to JPY 110.3 billion and net income attributable to owners of the parent by JPY 8.1 billion to JPY 78.9 billion, thus breaking the previous records at all these P&L item lines.
The domestic naphtha price was JPY 51,000 per kiloliter, up JPY 13,500 year-on-year. And this affected various parts of our businesses. The market average exchange rate was JPY 110 to the U.S. dollar. The interim dividend for the first half of fiscal 2018, as we announced at the earnings report for the first quarter, will be JPY 17 per share.
Under our current midterm management initiative, "Cs for Tomorrow 2018," the target total return ratio for fiscal 2018 is set at 35%. We intend to decide upon the year-end dividends based on the actual net income attributable to the owners of the parent posted for fiscal 2018, in consideration of the total return ratio of 35%.
Page 7 shows the summary of statements of income on a consolidated basis. We posted net sales of JPY 1,041.5 billion and gross profit of JPY 336.5 billion, with gross margin staying almost flat year-on-year. Selling, general and administrative expenses totaled JPY 232.2 billion, up JPY 11.6 billion from the year before. Primary reasons include the increased headcounts to reinforce sales activities as well as expenses associated with the relocation of the head office.
Operating income was JPY 104.3 billion, representing 10% as a percentage of sales. Net nonoperating income was positive, as was the case in the previous year, totaling JPY 6 billion. This was mainly because of the improved performance by PTT Asahi Chemical Company Limited or PTTAC in Thailand, which brought about net equity in earnings of affiliates of JPY 6.7 billion.
Net extraordinary income was a surplus of JPY 4.9 billion due to gain on sales of investment securities posted through continued sale of some of the strategic holdings of shares in this fiscal year. This brought us income before income taxes of JPY 115.1 billion and net income attributable to owners of the parent of JPY 78.9 billion.
Please take a look at consolidated balance sheets on Page 8. Total assets increased by JPY 264.9 billion, primarily because of consolidation of Sage, which pushed up the total assets by JPY 140.5 billion. Other reasons include the increased inventories in Homes segment as well as increased inventories due to the rise in feedstock costs.
Moreover, noncurrent assets increased because of a rise in capital investments. Liabilities increased by JPY 179.9 billion, mainly because we procured funds to finance the acquisition of Sage, which led to the rise in interest-bearing debts. With these increased interest-bearing debts, the D/E ratio was 0.32 as of the end of September 2018.
Net assets increased by JPY 85 billion, primarily due to the increased retained earnings and weaker yen seen toward the end of the first half, which resulted in a rise in foreign currency translation adjustment.
Next, Page 9 shows cash flow statements. Net cash inflow provided by operating activities was JPY 73.7 billion, down JPY 40 billion from a year before, due primarily to increases in corporate income tax payment and inventories, as was mentioned earlier. Investment associated with the acquisition of Sage and funds raised for that transaction resulted in the net outflow of cash flow from investing activities of JPY 119.1 billion and net cash inflow from financing activities of JPY 61.2 billion. Consequently, cash and cash equivalents at the end of the period was JPY 168.8 billion.
Now I'd like to explain about the status of each segment using the slides from Page 13.
First, on fibers. Sales posted JPY 72.8 billion and operating income, JPY 7.3 billion, representing positive year-on-year growth in both sales and profits. We were affected by the rise in feedstock costs, but increases in shipments of Lamous and Bemliese contributed to the growth.
For the Chemicals business category, net sales increased year-on-year to JPY 427.3 billion. Operating income also increased to JPY 59.3 billion. Both sales and operating income increased for petrochemicals. Terms of trade improved for AN, and this time, there was no maintenance turnaround at the naphtha cracker of Asahi Kasei Mitsubishi Chemical Ethylene Corporation in contrast with the previous year.
With regard to AN, the market price in the first half averaged $2,078 per ton of AN against $1,098 per ton of propylene. The resulting spread was $980 per ton. For performance polymers, sales increased, but operating income decreased. Sales of engineering plastics remained firm, but operating income was down year-on-year after very favorable terms of trade for synthetic rubber in the same period last year. Performance materials and consumables also booked sales growth, but operating income declined.
Among performance materials, ion-exchange membranes and other products booked firm sales. Shipments for electronic materials, however, decreased. Cost increased for consumables.
Now to Electronics. Sales came in at JPY 77.9 billion, up JPY 300 million year-on-year. Operating income was unchanged at JPY 5.6 billion. For separators, sales and operating income were both up thanks to increased lithium ion battery separator shipments. On the other hand, sales and operating income were down for electronic devices. Sales of camera module devices for smartphones, among others, were down from the same period of FY 2017.
For Homes, sales increased to JPY 271.8 billion, while operating income was unchanged at JPY 24.3 billion. Order-built homes were down for both sales and operating income due to decreased number of buildings delivered for Hebel Haus unit homes. On the other hand, both sales and operating income increased for real estate remodeling and others thanks to firm performance of rental management and condominium construction. The value of new orders for order-built homes in the first half increased by 8.8% from the same period previous year. The increase was for both unit homes and multidwelling homes.
For Construction Materials, sales came to JPY 26.9 billion, up JPY 800 million year-on-year, while operating income was almost unchanged at JPY 1.9 billion. Shipments were firm for insulation materials, but feedstock costs rose. For Health Care, sales came in at JPY 68.4 billion, operating income at JPY 10.6 billion, both up year-on-year. For pharmaceuticals, both sales and operating income decreased. Shipments of newer drugs, such as Teribone osteoporosis drug, increased. However, sales of long-listed products decreased due to reduced reimbursement prices and competition from generics.
For devices, both sales and operating income increased thanks to increased shipments of Planova.
Last but not least, let us look at Critical Care. Sales increased year-on-year to JPY 86 billion. Operating income also increased to JPY 11.4 billion. Shipments of defibrillators for professional use were strong. The table on the lower side of the slide shows results in U.S. dollars. U.S. dollar-based sales increased by 13.8% year-on-year.
Gross operating income before PPA impact increased by 18.3%.
Now let us look at the forecast, starting from Slide 21. This time, we have upward-revised the forecast for net sales, operating income, ordinary income and net income attributable to owners of the parent from the figures we published in May. The revised forecast means new record highs for net sales, operating income and ordinary income. The new forecast is next JPY 2,210 billion for net sales, up JPY 55 billion from the May forecast; JPY 210 billion for operating income, up JPY 20 billion; JPY 222 billion for ordinary income, up JPY 23 billion; and JPY 160 billion for net income attributable to owners of the parent, up JPY 20 billion.
Actually, in FY 2017, when we booked the highest-ever net income attributable to owners of the parent, the figure was boosted by about JPY 17.2 billion due to a onetime effect of the U.S. tax reform as tax effect accounting resulted in lower-than-usual tax expenses. Taking this into consideration, this JPY 160 billion forecast would be, in effect, the highest ever on a comparable basis.
For the domestic naphtha price, we are now assuming JPY 53,800 per kiloliter, which is JPY 3,800 higher than the initial assumption. The assumed exchange rate in May was JPY 105 to the U.S. dollar, but now we are assuming JPY 110 to the dollar, reflecting recent levels. We have not revised the annual dividend forecast, which is currently JPY 34 per share.
As I mentioned earlier, we may revisit this against the total return ratio target of 35% when we have full year results.
Let us now turn to Slide 24, which shows the operating income forecast by business category. The operating income forecast for fibers is JPY 14.5 billion, upward-revised by JPY 500 million. Each business continues to be firm and nonwovens, such as Lamous, in particular.
From the second half, Sage will be newly consolidated, which has a significant impact on sales. The sales forecast is upward-revised by JPY 25 billion. Regarding the impact on operating income, while we are still in the midst of the PPA process, we expect that after amortization of goodwill, the net impact on operating results would be almost neutral.
For Chemicals, the forecast is upward-revised by JPY 15.5 billion to JPY 109 billion. Part of this comes from the exchange rate, but the largest factor is the wider spread for AN. The AN market price stayed at high levels in the first half, that will probably moderate sometime in the second half. We now assume an average price of $2,000 per ton of AN against $1,100 per ton of propylene, for a spread of $900 per ton over the full year.
For Electronics, the new forecast is JPY 10 billion, upward-revised by JPY 2.5 billion. This comes from the exchange rate and reduced fixed expenses for separators. The forecast for Homes is unchanged at JPY 61 billion. The value of new orders and number of buildings delivered are both in line with the initial plan.
We have downward-revised Construction Materials by JPY 500 million to JPY 4 billion in operating income. We are being a little conservative here as shipments of AAC, autoclaved aerated concrete, and insulation panels may fall short of plan.
For Health Care, the operating income forecast is JPY 18.5 billion, upward-revised by JPY 1 billion. Among the medical devices, Planova performed well in the first half, and we expect full year results to exceed the initial forecast. Critical Care has been upward-revised by JPY 3.5 billion to JPY 23.5 billion. This comes from the effect of the foreign exchange rate and continued strength in defibrillators for professional use.
This concludes my presentation. Thank you very much.
Let me move to Q&A session. Please raise your hands if you have any questions.
Yamada from Mizuho Securities. I have 2 questions. You explained about the forecast for the full year. In Chemicals, given the profit in the first half significantly higher than the forecast announced in May, can't you raise the profit forecast slightly more for the second half? Or are there any risks you expect in areas other than AN? Likewise, Homes in the first half overachieved the profit forecast in May, but has been left unchanged in its forecast for the full year. Have there been any time lag in deliveries of houses? Could you explain a bit more?
Horie from Petrochemicals SBU. If I may comment on petrochemicals, in the second half, we do not expect much upside because there is a slight uncertainty in demand due to the trade friction between the U.S. and China. We have slightly factored in the concern in terms of volume. Moreover, the maintenance turnarounds for polystyrene and MMA are scheduled in the second half, which causes the fixed expenses more skewed toward the second half. These are some of the factors eroding the profit in the second half.
Kuwaba from the Performance Polymers SBU. As for the performance polymers, I would like to compare the forecast announced in May and the latest forecast for -- both for the second half. First, in engineering plastics, in the first half, the feedstock costs were higher, but in the second half, price increases and other measures will help improve the terms of trade significantly, and thus, we expect to see an upside in profit from the forecast in May. As for synthetic rubber, in the second half, we believe things will go mostly in line with our original assumption. Given all these factors, we have decided to make an upward-revision to the profit forecast for the second half announced in May.
Hamamoto of IR. Let me make some comments on the performance materials and consumables. When the forecasts presented in May and this time are compared, foreign exchange rates are working slightly favorably for us and sales of ion-exchange membranes are showing strong performance, while electronic materials are expected to fall short of the original forecast in May with less volume. Consumables are mostly in line with the forecast in May.
In Homes, sales in the first half was slightly behind the forecast and yet a positive growth in profit was achieved, which makes me believe that Homes segment has become structurally more profitable. Could you explain why sales forecast has been raised while profit forecast has been lowered in the second half compared to those announced in May?
Sakai from Asahi Kasei Homes. Let me take up that question. Some of the SG&A expenses planned for the first half have been carried over to the second half, which is the biggest reason, and the business itself has been going well.
My second question. In Health Care, in both medical devices and pharmaceuticals, profit was ahead of the forecast in the first half and yet the forecast for the second half has been revised down. Could you give us more details behind this decision? And in Critical Care, it doesn't seem that you have raised your forecast for the second half as much as one would expect. Could you explain more about your thoughts around this?
Ideguchi from Asahi Kasei Pharma. Let me explain about the pharmaceuticals first. Compared to the second half of the previous fiscal year, we have incorporated increases in sales volumes of newer drugs, including Teribone. As in the case of first half, impacts from NHI drug price revisions and competition from generics are expected to result in drop in sales of long-listed drugs. But this is likely to be offset by the increased sales of newer drugs, and therefore, we forecast a year-on-year positive growth in profit. Sales increase from exports, including those to China, is another factor counted for the year-on-year increase. However, as for medical devices, the Planova performed significantly well in the second half of the previous fiscal year compared to which we are slightly conservative for the second half of this fiscal year. As a result, our forecast ended up in a year-on-year drop in profits for the total Health Care business category.
Shibata speaking. Just to add to what has been said. In Critical Care, compared to the forecast in May, the second half forecast has been raised for profit this time. As for pharmaceuticals and medical devices, the latest 4-year forecast is an upward-revision to the one in May. In Planova, some of the demand expected for the second half has been moved up in the first half this year, and so I would like you to evaluate the performance on a full year basis.
Was the demand for Planova that shifted from the second to the first half large in amount? Critical Care in the first half was significantly ahead of the forecast in May. Were there any particular reasons, such as carryover of some expenses from the first to second half, or structural factors to drive up sales?
Shibata speaking. Planova is used in the production of plasma derivatives and biotherapeutics, but the timing of the shipments is uneven and varied from customer to customer. Since we have a limited group of customers, we directly talk to them to update ourselves on their status and put together the forecast based on the information. So I would like you to understand that these are the numbers that have taken into account that sort of demand information. In Critical Care, what was positive in the first half was the timing of shipments. There are several reasons for that. One is defibrillators for the military. They are not purchased every month or at any regular intervals. But in the first half, there were strong shipments for the military.
Watabe from Morgan Stanley MUFG Securities. There are 2 questions. The first question has to do with Electronics. Sales have not grown much from the first to second quarter, and the profit was flat in the first half year-on-year. Despite that, there was JPY 3.4 billion in positive contribution from operating cost and others, which I suspect was due to the change in the way of depreciating CapEx in Japan to the straight-line method. If this is the case, even with this onetime positive factor, you ended up with a profit growth, which makes me worry that things maybe really challenging. You said electronics devices saw a drop in profit. Have the prices of separators been falling significantly for instance? Could you give me more details on year-on-year and first to second quarter comparison for separators and electronic devices separately?
Fukuda from Separators SBU. Let me explain about comparison between Q1 and Q2. Electronics in total saw its sales and profit grow. Separators had their sales increase, but profit remained unchanged. The sales volume of dry-process lithium ion battery separators did increase, but partly due to increased fixed costs, the operating income remained flat despite the increased sales value.
Kawata from Asahi Kasei Microdevices. Let me explain about electronic devices. Sales in the second quarter were about the same as in the first quarter, but due to the change in product mix, profit posted an increase.
How did you perform in Q2 as compared to the same period last year in Electronics?
Fukuda speaking. Electronics, as a whole, fell both in sales and profits in Q2 year-on-year, but separators enjoyed an increase in sales and profits. As I said, this was mainly due to the increased sales volume of dry-process lithium ion battery separators. In comparing Q2 this year and Q2 last year, for wet-process lithium ion battery separators, added production capacity that has become operational in the first half of fiscal 2018 is expected to start contributing to the financial results on a full scale in the second half. And so the volume has not grown in terms of year-on-year comparison. But we plan to grow the volume in the second half.
Kawata speaking. With regard to electronic devices, those for camera modules used in smartphones underperformed in the previous year, which had a significant impact on the overall result of decreasing both sales and profits.
On Page 15, am I correct to say that what is referred to, under the operating income increase is due to operating cost and others, is change in the depreciation method?
Fukuda speaking. In this operating income increase/decrease factor analysis, sales prices and operating costs and others, are mostly attributed to separators, both are primarily due to changes in product mix and more or less offset each other. Operating costs and others also include the benefits of the increased capacity utilization ratio.
I understand that a total impact of slightly less than JPY 4 billion was attributed to the change in the depreciation method for the entire company. By segment, which one has been affected more?
Shibata speaking. I don't have the exact numbers at hand now, but Chemicals has benefited most as they have more capital investment.
Are you saying that Electronics has not been affected much?
We have made a lot of investments in separators as well, so there was an impact from separators, but our understanding is that Chemicals benefited more.
My second question is about orders received in Homes segment. Consumption tax hike is likely to be implemented next year, while extension of mortgage loan tax credits is expected. How do you envision they would impact your business?
Sakai from Asahi Kasei Homes. We have left the forecast for the orders for the full year unchanged from the one announced in May. In the first half, orders received were relatively strong, most of which is attributed to our own efforts. There have been many natural disasters recently, which has heightened people's awareness of protection against disasters. By reinforcing trainings for our sales personnel on our strengths, including disaster resilience, rebuilding and value-added rental properties, we plan to emphasize those advantages to our customers to grow sales further. We have not assumed that much impacts from mortgage tax credit extension and consumption tax hike.
Takeuchi from SMBC Nikko Securities. With regard to Chemicals, according to Slide 24, the operating income was JPY 59.3 billion in the first half, with JPY 49.7 billion forecast for the second half. Can you provide a breakdown by each of the 3 businesses, please? What is your assumption for AN in the second half?
Horie for Petrochemicals. With regard to AN, the spread in the second half is assumed at $825 per ton, whereas in the first half, it was $980 per ton, meaning, terms of trade worsened in the second half. In addition, we are scheduling maintenance turnaround for polystyrene and MMA in the second half, which pushes up fixed expenses. As a result, operating income for petrochemicals will decrease from the first half to the second.
Kuwaba for Performance Polymers. For Performance Polymers, we expect operating income growth from the first half through the second for both engineering plastics and synthetic rubber. For engineering plastics, feedstock cost rose in the first half and put downward pressure on operating income. But in the second half, sales prices are raised so that terms of trade are better. For synthetic rubber, demand is generally higher in the second half than in the first, and sales volume, therefore, increases.
Hamamoto from Investor Relations. For performance materials and consumables, our forecast is roughly flat between the first and second half. Consumables will be slightly down due to the usual seasonality. Performance materials will be mixed. We expect performance coating materials to be up, but electronic materials to be slightly down, for example. But all combined, the forecast is flat.
With regard to polymers, you are assuming a naphtha price of JPY 56,500 per kiloliter in the second half, higher than in the first half. Do you assume terms of trade to improve in the second half from the very unfavorable state in the first half?
Kuwaba for Performance Polymers. Yes, that is correct.
My next question is on AN. Market prices are now softening perhaps since Q2 was too good. What do you expect going forward? How do you expect supply and demand to be in the second half? And what about capacity utilization?
Horie for Petrochemicals. Regarding market prices of AN, we do not expect a major decline during the October to December quarter due to maintenance turnaround in October and November. However, in the January to March quarter, most of the turnaround would have been completed and production levels would return to normal. In addition, new capacity in China may come online as early as March, which means supply may start to increase in the January to March quarter. On the demand side, although there's no tangible impact yet, we do recently see some signs of cautiousness in the market in relation to the trade friction between the United States and China. This uncertainty has been factored into our forecast, particularly for Q4. Meanwhile, we intend to keep capacity utilization at around 85% to 90%, while keeping a close eye on demand, just as we have been doing.
One confirmation, please. You assume an average spread of $825 per ton in the second half. Will the January to March spread be narrower than October to December below that average? And would spreads in both Q2 and Q3 be above $900 per ton?
Yes, that's correct.
Ikeda from Citigroup Global Markets Japan, Inc. Regarding separators, can you provide some quantitative indication about shipments, how they grow in the first half and what you expect over the full year, please? And if possible, can you tell us about the trend by application for automotives, energy storage systems or ESS and consumer electronics respectively, please?
Fukuda for Separators. Let me share with you the usual index of monthly average shipments relative to Q1 FY 2013. If we say the Q1 FY 2013 average was 100, then monthly shipments in FY 2017 averaged 279 in the first half and 291 in the second half, as mentioned previously. The average for the first half of FY 2018 came to 353. For the full year, we are expecting shipments to be up by approximately 30% from the previous year. Demand continues to be strong, and production is running at full capacity for both wet-process separators and dry-process ones. As I mentioned earlier, for the dry process, shipments increased significantly year-on-year thanks to the completed capacity expansion. For the wet process, year-on-year growth may appear to have moderated in Q2. This is partly because new capacity commissioned towards the end of the first half will only contribute in full from the second half. It is also because Q2 last year was very strong, and we were already operating very close to full capacity. From the second half onwards, however, with the added capacity, we expect volume growth. With regard to growth in different fields of application, we expect continued steady annual growth of several percent for consumer electronics use. For use in automotives, the growth rate is about 30% to 40% per annum. ESS is also showing strong growth now, but it is a very young market and therefore hard to forecast. We are carefully watching how it develops. It is certainly a promising growth area as increased use of renewable energy requires combining wind or solar power generation with power storage systems.
I have a follow-on question there. I would assume that future CapEx would have to be quite large in scale, perhaps in hundreds of millions square meters or so. What ideas do you have for FY 2019 and onwards?
We have already announced plans of CapEx up to FY 2020. As market growth continues, we may decide on further expansion, and if so, we will make announcements in due course. As for the scale of expansion, given the nature of the process, the wet-process capacity will be expanded in relatively large increments, while the dry process can be ramped up in smaller increments. Any expansion plan will take into consideration and make the most of such characteristics.
My second question is on Critical Care. With regard to defibrillators for professional use, as your competition is discontinuing their major product line, you must be gaining market share. Can you confirm whether that is indeed the case and whether that will continue going forward? In addition, can you also tell us at about how you intend to expand LifeVest operations outside of the United States, please?
This is Shibata speaking. We are not in a position to comment on other companies. But as a fact, the share of ZOLL in the North American market has indeed increased over the past year. Actually, 5 years ago, when we acquired ZOLL, they already had the #1 market share for professional use defibrillators in North America. So ZOLL has always been strong, and they have taken good advantage of that position to grow their business and further increase market share. They have also continued to develop and introduce new products. This market was already relatively mature, so we were not expecting rapid growth, but they have managed to maintain growth, and part of it is apparently by taking market share from competition. I'm afraid it is difficult to tell how long this will continue. With regard to LifeVest, they are now available in Japan, Germany and France, in addition to the United States. As a medical device, it takes some time for market penetration as we need to work through regulatory and health insurance systems. But the potential is big, so we will keep working on it.
Umebayashi from Daiwa Securities. I have a question on automotive-related business as a whole. I know there are regional differences that automotive-related demand may be relatively weaker in China and Europe, for example, but stronger in other regions. But overall and combined, given seasonality, sales in the second half should be higher than in the first. It sounds like your business is generally doing well, but what areas could potentially be affected by a sudden downturn in demand? How about engineering plastics, synthetic rubber for fuel-efficient tires or Sage? And in relation to Sage, I have another question. It appears that the Sage contribution to your second half fiber sales forecast is about JPY 25 billion. That should translate into about JPY 50 billion per year. But according to information you have provided previously, my impression was that Sage sales should be closer to JPY 55 billion per annum. Where does the difference come from? Is it due to intercompany elimination with some Lamous sales now internal to the group?
Shibata speaking again. With regard to Sage, as you say, the difference is due to intercompany elimination. Regarding automotive-related business, we do not manage all of that as a unified business segment, so it is difficult to provide an all-encompassing answer to your question given that we serve the automotive industry in many ways across fibers, engineering plastics, synthetic rubber and Electronics. As I mentioned earlier, Lamous shipments for automotive use have been very strong, with most of the growth coming from use for automotive interiors.
Kuwaba for Performance Polymers. Let me add a comment on engineering plastics and synthetic rubber. According to auto sales statistics, there appears to have been a slowdown in September. Especially in China, automobile sales volume was down 11% from a year ago. In fact, sales in China has been down year-on-year for 3 months in a row, with July down by 3%, August down by 3% and September down by 11%. We are therefore carefully watching developments in the Chinese market, including whether all this is due to the recent escalation in trade friction with the United States. Actually, our sales of engineering plastics and synthetic rubber in China have somewhat slowed down recently. Thank you very much.
This brings us to the end of today's briefing. Thank you very much for joining us.