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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
It is time now to start, so we would like to start. My name is Kobayashi from the Corporate Communications Department. I will be serving as the facilitator today. Thank you very much for attending today's Investors' Meeting for FY 2022 Financial Results, Management Priorities and Business Strategies, despite your busy schedules.
Today, our company President, Keiichi Iwata, will give you an explanation at the start. And adding Managing Executive Officer Sasaki, then we will open the floor for questions. We're scheduled to end this meeting at 5:30 p.m. Japan time.
Mr. Iwata, please go ahead.
Hello, everyone. I'm Iwata, the Company President. Thank you very much for attending our Investors' Meeting for FY 2022 Financial Results, Management Priorities and Business Strategies. I would like to extend my sincere thanks to all of our investors for your understanding and support towards our company management.
This is today's agenda. First, I will explain our FY 2022 earnings overview followed by FY 2023 and FY 2024 business performance forecasts.
Please go to Page 4. First of all, as for the FY '22 results, sales revenue was JPY 2,895.3 billion. Core operating income was JPY 92.8 billion. Operating income was minus JPY 31 billion. Net income attributable to owners of the parent, in other words, net income was JPY 7 billion. And this shows that on a year-on-year basis, there was a large decrease at each profit level, excluding the sales revenue, which was a record high.
I will explain about the core operating income in the following slide. As for the operating income, it has largely declined due to recording a large amount of impairment loss in the Pharmaceuticals business and business structural reform expenses for the reorganization of our North American subsidiary.
As for net income, though it remained positive, it has largely declined on a year-on-year basis due to decline in tax expenses as a result of lower core operating income as well as a reversal of noncontrolling interest as a result of a loss incurred at Sumitomo Pharma.
The exchange rate and naphtha price that impacts our performance for this fiscal year were JPY 135.5 to the dollar and JPY 76,600 per kiloliter, respectively. This was a weaker yen and a higher raw material cost on a year-on-year basis.
As for the comparison with the forecast announced on February 1 shown on the right column, core operating income went down. However, finance income/expenses was able to offset that, and net income has increased.
Next is our core operating income by segment in comparison to last year. As shown, excluding the strong performance of crop protection products, all other segments have experienced a decline in profit, especially Essential Chemicals & Plastics and Pharmaceuticals resulted in a large decline. And IT-related Chemicals, semiconductor materials were strong. However, on the other hand, due to the decrease in demand for display materials, though the level of core income -- operating income remained high, it has declined.
Essential Chemicals & Plastics resulted in a large decline in profit due to worsening profit margin resulting from soaring raw material prices as well as the global economic slowdown, which led to lower shipments of synthetic resin and other products at all bases in Japan, Singapore and Rabigh.
In Pharmaceuticals, core operating income declined significantly due to an increase in SG&A expenses associated with new drugs, a decease in Latuda sales associated with patent cliff and the impact of NHI price revisions in Japan. It was a minus JPY 142 billion, it became JPY 92.8 billion overall.
As for the variance factors from the forecast announced on February 1, if I may touch upon only the segments that have significant differences, IT-related Chemicals has incorporated a decline in shipments of display materials. However, January-March period, shipment did not decline as much as expected; and the yen weakened against the U.S. dollar, resulting in increased profit.
Health & Crop Sciences resulted in a decrease in profit due to lower market price from methionine. Pharmaceuticals resulted in declined profit due to lower-than-expected shipments of Latuda due to the mentioned factors. It was a decline in core operating income even against the announced forecast.
Next, I will explain the business performance forecast for FY '23/24. First, I will explain our business environment outlook through FY '24 in terms of the economy and our major business areas, which form the premise of our earnings forecast. As I mentioned at March 7 meeting, the outlook for the global economy is difficult to predict. IMF announced, it's the latest forecast in April, low growth is expected to continue for the time being due to the conflict in Ukraine and financial instability in various countries.
Below that, the business environment for our major businesses areas is -- are indicated by the weather symbols. Specifically, as for raw material prices, we expect prices to remain high. On the other hand, petrochemical product market prices are expected to bottom out in 2023 and recover as the building of new ethylene plants will settle down.
In the automotive sector, production will recover moderately as the shortage of semiconductors is resolved. For displays, the worst is expected to be over due to the reaction from drop in demand from people staying at home, et cetera. However, we expect a difficult business environment for TVs as competing manufacturers have emerged in China.
In semiconductors, the demand is temporarily declining in reaction to the past. However, growth trends such as 5G remains unchanged and is expected to be on a recovery track from the second half of 2023 onward. Crop protection products are expected to see generally strong demand, although temporary effects such as higher selling prices will disappear. For methionine, negative factors such as avian influenza are expected to disappear and market prices are expected to bottom out.
As for Pharmaceuticals, we expect a difficult profit loss situation in FY 2023 due to the end of the exclusive sales period of Latuda, a blockbuster drug that has supported our business performance to date. However, we expect a recovery in 2024 due to growth of new drugs.
Based on the mentioned above, I will explain the outlook for FY 2023 and '24. Normally, we will disclose only the FY '23 forecast. However, since FY '23 results are in an irregular state due to Latuda's patent cliff and other factors, we have decided to disclose FY 2024 results, which is expected to recover together with the FY '23 forecast.
The center column, FY 2023 business performance forecast is sales revenue, JPY 2,900 billion; core operating income, JPY 40 billion; operating income, JPY 20 billion; net income, JPY 10 billion. Below this, the annual average raw material prices and exchange rate is stated. We are forecasting the naphtha price to be JPY 70,000 per kiloliter and exchange rate to be JPY 135 to the dollar.
Core operating income is expected to decrease due to a large loss in Pharmaceuticals, which is largely affected by the Latuda cliff. On the other hand, both operating income and net income are expected to increase due to not having the large impairment losses recorded in FY 2022.
Next, as for FY 2024, we plan to achieve a V-shaped recovery from the latter half of fiscal year 2023 to the JPY 200 billion level and core operating income through multiple drivers of profit growth, which will be explained later in this report. On the other hand, when compared to the JPY 300 billion target for the final year of the initial medium-term plan, this is a downward revision. We hope to achieve this target by 2026 at the latest. For FY 2024, the annual average assumptions for raw materials and exchange rate are naphtha price, JPY 70,000 per kiloliter, and the exchange rate of JPY 130 to the dollar.
Core operating income by segment for FY '23, FY '24 is as shown. The last few years have been very volatile for Pharmaceuticals, so they are listed in 2 separate sections. The 4 segments in the red box, other than Pharmaceuticals, are expected to see steady growth over the next 2 years. In Essential Chemicals & Plastics, since market price recovery is expected to start in the second half of FY 2023, the turnaround to profit making will be FY '24.
Energy & Functional Materials will increase profit through FY 2024 due to demand recovery and enhancement effects. In IT-related Chemicals, demand for semiconductors is expected to recover from the second half of 2023 onward, and the recovery is also expected in FY '24 when the effects of photoresist and other production enhancements and rationalizations will contribute.
In the Health & Crop Science, we expect steady growth mainly in South America and biorational. The total for the 4 divisions is expected to be JPY 106 billion in FY '23, JPY 166 billion in FY '24 and a profit growth of JPY 80 billion over the 2 years from FY '22 to FY '24.
On the other hand, for Pharmaceuticals, although the impact of the Latuda cliff will be significant in 2020 -- FY 2023, we expect the business to return profitability in FY '24. From the next slide, I would like to explain the factors for increasing profits for FY '24 separately for the 4 divisions and for the Pharmaceuticals, which is largely affected by special circumstances.
First is regarding the drivers of growth in core operating income for the first 6 months, excluding Pharmaceuticals. The slide shows the variance analysis of core operating income for FY 2024 compared to FY 2022. Results from investments, M&As and other measures to expand new facilities and strengthen business operations, increasing profit due to the effect of reorganization and rationalization of low-profit business, other due to improvement in supply and demand and changes in the market. These 3 are how we have organized ourselves.
As you can see, in FY 2024, we will increase profits by approximately JPY 80 billion compared to FY '22. However, we will aim for recovery that is not dependent on turnaround in the external environment that is self-recovery, plus JPY 50 billion in reinforcing businesses and plus JPY 25 billion by reviewing and streamlining low-profit businesses. I will explain main items of each of the 2, bolstering and reform and rationalization on the following slides.
First of all is regarding bolstering growth businesses. The largest contribution will come from the crop protection products area. For the last several years, the company has continued to make large investments, including the acquisition of Nufarm South American subsidiary and the development of new crop protection products and production system development, and these investments will steadily contribute to profits.
In addition, regenerative agriculture or environmentally oriented agriculture that contributes to greenhouse gas emission reduction biodiversity has recently been attracting attention. Not only limited to biorational products, low environmental impact crop protection products such as flumioxazin, Rapidicil and seed treatments are going to also contribute. The company will proactively continue to expand its business through M&A and alliances with other companies to leverage its strengthened business base and expand sales.
As for the recently launched INDIFLIN, it is our future growth driver due to the high potential of the agent and being able to utilize the infrastructure of Nufarm in South America, which was acquired. Through continued strengthening of promotions and enhancement of the manufacturing systems, the company expects to achieve sales over JPY 40 billion in FY 2024.
Next is products for semiconductor applications. We have been gradually increasing photoresist production in preparation for strong demand for semiconductors. And by FY '24, we will complete new production capacity in Osaka and South Korea. Although demand has temporarily declined, when demand recovers in the second half of 2023 and beyond, the effects of this capacity expansion will make a full contribution.
With regard to high-purity alumina for semiconductors, we have been developing optimum grades in anticipation of increasing demand for semiconductor production equipment. It is scheduled to be launched this year. And like photoresist, we intend to bring it to the market shortly.
Moreover, in high-performance material product line, we are showing only the representing cases. However, LCP will complete its enhancement this year, and we aim to expand our market share in battery motor applications in the expanding EV market. The listed subsidiary has also made investment in the past such as plant enhancement, and the results of these investments is expected to be seen in 2023/'24.
EV, pharmaceuticals, intermediates and high-function lenses are areas where growth is expected in the medium to long term, and we would like to lay the ground for further growth. Together with the crop protection products I already mentioned, we believe the contribution profit from these products will amount to JPY 50 billion in FY 2024.
Next, I will explain the contribution to profit from the reform and rationalization of low-profit businesses. First, in the area of restructuring, we are promoting structural forms in the display materials business by further upgrading our product portfolio and optimization production allocation. Once the measures currently underway are completed, we expect to benefit from rationalization alone in excess of JPY 10 billion per year. The contribution to business performance will start from FY 2024, but we will see this as speedy as possible. With regard to existing exiting and shrinking, we have already completed our exit from caprolactam and dyestuffs, which we announced last April. And we expect to complete the reorganization of EPDM and chemical fertilizers by the end of fiscal 2023. In addition, we have decided to exit from S-SBR, Solution SBR plant in Singapore, which we're announcing for the first time.
Finally, on the rationalization, in addition to contribute to the steadily accumulating rationalization items, through steady improvement efforts such as procurement of low-cost raw materials and reduction in manufacturing costs, we'll also work on the rationalization projects I mentioned the other day, such as optimization of head-office overhead and corporate research expenses and improvement of operational efficiency by utilizing IT DX in order to shift to a leaner profit structure. This project has already kicked off and will be carried out under a cross-divisional project structure. We expect these improvements to contribute approximately JPY 25 billion to profits by fiscal year 2024 as compared to FY 2022.
And as a related topic, I would like to mention the future direction and reform of the Essential Chemicals business. We will produce and provide essential materials to the market using technologies that reduce environmental impact such as chemical recycling. Therefore, it is our mission to develop and implement carbon-neutral technologies, from a medium- to long-term perspective, remains unchanged. Moreover, we will work to strengthen the business structure by adding the 3 perspectives mentioned about.
With regard to the integrated operations of Japan and Singapore, we'd like to demonstrate our unique strengths not found in industry peers by dividing functions in a way where technologies to reduce environmental impacts will be developed in Japan and implemented and manufactured in Singapore. In both locations, we're upgrading our product portfolio. And by more closely working together, we're taking specific steps on the optimization of the polyolefin production systems in both locations.
On the other hand, since it is difficult for a single company to carry out structural reforms in the petrochemicals business on its own, we're working on specific measures from a medium- to long-term perspective in cooperation with external parties. There is no -- we would like to have a clearer idea on broad directions in the next 2 years until 2024.
About the Pharmaceuticals. In the Pharmaceuticals, Sumitomo Pharma already announced its 5-year midterm business plan on April 28. And by further expanding sales of Orgovyx, Myfembree and Gemtesa, the 3 key drugs that have been nurtured as post-Latuda products, and by rationalization through the reorganization of North American subsidiaries, we aim to achieve a V-shaped recovery towards FY 2024. The key to achieving this goal will be the success of sales expansion of the 3 drugs, each of which has advantages over competing drugs and has sufficient potential to become a blockbuster, as mentioned on the slide.
This year, we will accelerate the promotion of the 3 drugs, which was delayed due to the impact of COVID-19, and focus on further raising awareness of the strengths of the 3 drugs by raising or revising packaging inserts and accumulating study data. In addition, we will work to maximize the potential for the 3 drugs by maximizing the effects of alliance with other companies for Orgovyx and Myfembree and expanding the indications for Gemtesa so that we can achieve combined sales revenue of JPY 200 billion from the 3 drugs in FY 2024.
With respect to the organization of North American subsidiaries, by reducing duplicated operations, simplifying the chain of command and generating synergies, we expect to achieve an annual rationalization benefit of approximately JPY 400 million (sic) [ $400 million ] or about JPY 50 billion by fiscal 2024 compared to fiscal 2022.
Next, I would like to share with you 2 pipeline items that are expected to drive the mid- to long-term growth of Pharmaceuticals in fiscal 2025 and beyond. First, Ulotaront, it is a schizophrenia drug where Sumitomo Pharma has strengths with a different mechanism of action than existing drugs and a potential new treatment option. It was codeveloped with Otsuka Pharmaceutical aiming to launch in the U.S. in fiscal 2024 for schizophrenia.
And adjunct to the -- or we expect it to become a blockbuster that would beat Latuda by expanding indications to include 2 more adjunctive for major depressive disorder and generalized anxiety disorder. Regenerative medicine and cell therapies development is underway through open innovations, and some products have already been launched, while others shown on the slide will be launched in fiscal 2024 and 2025.
We aim to achieve sales of more than JPY 100 billion in the 2030s by fully ramping up operations in Japan by fiscal 2027 and then expanding globally. In addition to the 2 items introduced here, we have several others in the pipeline. And we'll continue to promote in-house new drug development for further sustainable growth after the expansion of the 3 post-Latuda drugs.
So far, I have given explanations for Pharmaceuticals and the other business separately. But if we look at the overall picture, you can see this slide, Latuda cliff has had a major negative impact. But to overcome that, we have the following as drivers for profit growth by bolstering of growth businesses such as regenerative agriculture, products for semiconductor applications and high-performance materials, we hope to reap the benefit of about JPY 50 billion.
The profit contribution of JPY 75 billion will come from reform and rationalization of low-profit businesses, including reorganization of the pharmaceutical subsidiaries in North America, structural reform of the display business and exits from unprofitable businesses such as caprolactam. And on top of those, there will be a profit contribution from sales expansion of 3 key drugs. We believe these factors will enable us to return to a growth trajectory with core operating income of JPY 200 billion in FY 2024 as the first step.
Regarding financial standing, here's the outlook for interest-bearing liabilities and debt-to-equity ratio. Interest-bearing liabilities have remained high due to the current deteriorating business environment and the pharmaceutical-related M&As. In addition, we'll take more aggressive measures for the next 2 years to improve the cash balance as we are below the profit levels set out in the corporate business plan.
There are 3 key points. The first, reducing capital expenditure and investments and loans by more than JPY 100 billion compared to the initial 3-year corporate business plan by carefully selecting projects. The second, enhancing asset efficiency by selling strategic equity holdings. And third, utilize surplus funds within the group by introducing a global cash management system. And by implementing those 3 measures, we will maintain and achieve our goal of achieving a debt-to-equity ratio of 0.7x at the end of fiscal 2024.
Next, I would like to discuss shareholder returns. Our policy on shareholder returns is to maintain stable dividends while aiming to achieve a stable dividend payout ratio of approximately 30% over the mid to long term. As you can see, in fiscal 2022, net income was JPY 7 billion, a significant decrease from fiscal 2021. And the annual dividend was JPY 18 per share, a decrease of JPY 6 from fiscal 2021.
As for dividend forecast for fiscal 2023, as we place importance on maintaining stable dividends, which is one of our dividend policies, and as mentioned, our further performance will steadily show the results of our efforts to upgrade our business portfolio, we have set our annual dividend forecast at JPY 12 per share. Going forward, we will improve our earnings power so that we can recover our business performance in fiscal 2024 and pay an annual dividend of JPY 24 per share or more.
Finally, I would like to mention capital efficiency. The target level ROI is set at 7% and 10% for ROE. And in the slide, you can see the graph for ROI. Red is intercompany, green is Pharma and gray is 4 segments excluding Pharma. And for the past few years -- or rather, it has been steadily increasing up until FY 2021. But for the past few years, due to failure to develop post-Latuda products, all indicators have fallen below the target levels. And we believe that these circumstances have affected our stock prices. So it is essential that we steadily achieve the return to the growth trajectory that we just described and demonstrate this in our performance.
That concludes my presentation. Thank you very much for your attention.
Thanks. Iwata, thank you very much. And from now, we would like to open up the floor for questions. [Operator Instructions]
First, Morgan Stanley MUFG Securities, Mr. Watabe.
My name is Watabe from Morgan Stanley. First of all, regarding the revenue environment of the Health & Crop Sciences, the second half, usually in the fourth quarter, you generate profit. The reason for not generating profit, is it only the reason for methionine and others? And you said that towards FY '24, you were speaking about the drivers for increase in profit. This Crop Sciences, in terms of numbers, what is your outlook on this, including the qualitative factors as well? That is my first question.
Thank you very much for your question. FY 2022 fourth quarter, the performance or the profit and loss performance, the Health & Crop Sciences was not too strong. As I've mentioned, it is because the methionine performance was lower than what we have expected.
Within the actual market price up to the April to June of FY 2022, it has recovered and it has remained in the high level. However, from July to September or from August onwards or from summer onwards, it started to gradually decline. And the degree of the decline -- or this decline did not stop from the end of the year to the beginning of -- from the end of the year to the end of the fiscal year, and we thought that we could see a bit of recovery, but this last quarter showed an extreme decline.
And as for the crop protection products, how should I explain this? The volume was lower than what we had expected. Was it -- the impact was not as large as methionine. And also regarding the Crop Science, in the past, this fourth quarter was an important period. That is true. There is a large impact from the North Hemisphere, Northern Hemisphere. The Southern Hemisphere or the center part, the sales in those areas are increasing. So compared to the past in terms of seasonality, we are not seeing much in Crop Sciences, and we are not seeing those trends anymore.
And also, Health & Crop Sciences, in the finished fiscal year, the first half, the generic prices were strong. And that is going to drop in FY '23, and you are expecting increase in profit. And the revised plan for FY '24, you're looking for a big jump. That is the contribution from INDIFLIN and the methionine's reaction.
In terms of the market situation, yes, it is, as you said, for FY '23, there's a worsening of the profit margin that there is some impact of that. But North America and South America, the crop protection products will increase. But we're not thinking of that much of a large increase. But for FY 2024, methionine will slightly recover is what we are expecting. Of course, we are not looking at it as a large recovery, but we believe that it will show a slight recovery. And as for -- we expect that INDIFLIN, as in crop protection products, will increase and biorational as well.
The second question is to rationalization and reorganization. It is JPY 25 billion and JPY 10 billion, and display is going to recover as well. And the remaining JPY 15 billion, the Solution SBR, even though that is withdrawn, I don't think there's a large impact. But how is this JPY 15 billion generated?
First of all, the JPY 10 billion of display impairment is not reflected. The integration of the production lines are the consolidation of the sites. That is still difficult. So it's not that we have a specific plan, and we are still in the stage of preparation. Therefore, if I explain in specifics, it may not move forward smoothly. So JPY 10 billion and above, what we mean that by this is to consolidate the production lines and the offices and sites. That's the rationalizations and remaining part of JPY 15 billion. So the lactam, FY 2022, made a large loss. So the dye and EPDM -- the dye as well as EPDM was making a loss. So removing those loss-making products will have a large impact in the numbers. And as for the company-wide reform project, the JPY 10 billion is from the reduction of fixed expenses or fixed costs. For example, improving efficiency of IT expenses or looking at the company-wide common themes or IT system, those are things that we would like to look at. If we accumulate all that, we believe that we will be able to generate JPY 25 billion.
So when it becomes JPY 200 billion, the dividend will be JPY 24. That is going to be FY '24, you will have the visibility? Is that correct?
The one target level is to exceed JPY 200 billion at the operating income level. And it's a JPY 200 billion, so if you think about the taxes, 70% is JPY 140 billion. And 30% of payout ratio of that will be -- it's about JPY 40 billion. So if you divide it back, it is going to be about JPY 24. That is the model of the calculation. So in that sense, of course, this is not a number to be so proud of. However, we would like to bring it up to that profit level.
Thank you very much, Mr. Watabe. Now let me go on to the next one. Mr. Yamada from Mizuho Securities, please.
Yamada from Mizuho Securities. The first question. Now the business performance was quite challenging. Rabigh and Sumitomo Pharma, and for both, they are both listed companies. So you don't have the full control over them, and also disclosure is limited. So your control is not full. Is it because of the drug and the business performance? This could become a negative impact, a significant negative impact on your stock price for the short term, in my view.
Is there any rebuttal or any disagreement that you have? And could you share them with us? And if you think that this makes sense, then how are you going to optimize business portfolio and the position those 2 companies and plan to grow as a Sumitomo Chemicals? It is a very strategic question, but there is very dramatic changes in the business performance. So that's why I'd like to ask this question once again.
Thank you very much for your question. I don't know how to put this, but it is a very essential question that you asked. If I can share my view with you, with regard to the positioning of Rabigh, we believed that this had been the cash cow. That's how we invested in this. And the only risk that is associated with it is the country risk. That's what we thought. But fortunately, the country risk has not manifested itself up until now. But if there is any trouble in operations, there were other factors involved, but there's no such problem anymore now. And the operation is now smooth, and they have this capability. But now...
And yet, they have not become the cash cow. Why? That is the key question.
So the most difficult risk, which is country risk, has not manifested itself. Given that, if -- what was supposed to be the support for our business performance for the group, that was what we thought of this business. But unfortunately, that is not the case. But in quarter 1, quarter 2 of 2022, there was a high profitability of Rabigh, January through June. So that was the true capability that we thought. But from July to September, the situation has reversed. So the market in linked products is really scary.
And basically, as you know, there should be some benefit in the feedstock prices. So we thought that it will be natural to benefit or enjoy profit margin. But unfortunately, in fiscal 2022, second half and first half of fiscal 2023, it has become challenging. But essentially, ideally, it has to be a cash cow. That's my view.
And as for the Pharma business, in recent years, the health care -- the chemical companies are now entering into pharmaceuticals and health care. And the drug discovery is the core of the core of the health care and pharmaceutical companies. And that is a great benefit for chemical companies if they have that. And there should be synergy in businesses, of course, safety, evaluation and bio and genome, there are common technological foundation. So there is affinity in terms of technology. But we have to have a business structure that was not -- will not be affected, too, by the market prices.
So on top of the crop science, health care should be the stable business, which is not subject to the fluctuations in the market. But there is a patent cliff once in several tens of years, and we are seeing this patent cliff in fiscal 2022 and 2023. But there is a climate change in -- or weather change in crop science. But actually, health care should be more stable to support the profitability in a more stable manner. That is how it should be in essence.
And so in that sense, since Sumitomo Pharma is a listed company, we cannot get directly involved. But it is positioned as a business that can support the company's profit in a stable manner. But ironically, those 2 vehicles in fiscal '22 and '23 happens to be deteriorated. And they have just overlapped and coincided with each other. It just happens, and that has put Sumitomo Chemicals in a difficult position. That's my own analysis. Thank you.
So Sumitomo Pharma, [ SEP-363856 ], a great mechanism of action is held. And we believe that your technology is involved, so we are expecting more improvements.
And second question, so in life science, the strength that is demonstrated is INDIFLIN, in my view. And in fiscal 2024, it's more than JPY 40 billion. That's what you said. But I think for mid to long term, we could expect more than double this amount. Is it too much, do you think? Or if it is not, then in '28 and '29, the regional geographic expansion and indication expansion through these, you could reach these levels naturally. Is that correct?
Well, that is more encouraging comments than what we -- I have been able to hear from our own business team members. But for the moment, what Mr. Yamada is expecting to see or rather the huge blockbuster corporation product, I hadn't heard about that.
So let me -- this is the [ PTC ], this is a lot more -- or larger. So the [ PTC ] is larger than [ full oxygen ]?
Well, yes, in terms of the expectation on the scale, yes, that is correct.
And Mr. Yamada, thank you very much. Next, SMBC Nikko Securities, Mr. Miyamoto, please go ahead.
This is Miyamoto from SMBC Nikko Securities. First question is regarding the Essential Chemicals. At the finished quarter -- fourth quarter, JPY 32.2 billion net loss, and new fiscal year is a minus JPY 7 billion. The loss is going to be compressed largely. And looking at the Rabigh first half, the first half, the loss has been reducing, but still declining. And through petrochemicals recently, looking at the market situation, you are showing a recovery. But how -- what -- how are you looking at this recovery, market situation recovery or the equity method situation? Can you explain that?
Regarding Rabigh-related matters, they have not announced any of their performances or forecasts. Therefore, it is extremely difficult for us to comment on it. January to March, the Rabigh situation deteriorated, that is correct. But Rabigh Unit 2, the scheduled shutdown for maintenance was occurring in February and March, but that is not going to happen in the second half is what we are forecasting.
So Rabigh part, I do understand that you cannot elaborate that much. However, can you share with us how we should look at the improvements that will be made?
The large market recovery, we do not expect that much in the Essential Chemicals & Plastics. The rationalization effect is what I have explained to you. The [ raptom ], we have stopped that, and we had a large loss in FY '22. But in FY '23 onwards, it is going to be reduced by large is one factor. And also, MMA, FY 2022, was following quite a difficult performance. But the margin, that abnormal trend is not going to continue is how we look at it.
And as for Singapore, I believe Mr. Takeshita explained to you before, but Singapore in the last 10 years, it was the vehicle to generate profit. Therefore, currently, they are facing a difficult situation. However, it is difficult to assume that this situation is going to continue. Therefore, we're not looking at a major improvement. But if we add all these factors, we believe that it will achieve a certain level of numbers.
Understood. My second question is related to the Health & Crop Sciences. In the new fiscal year, you're looking at JPY 4.7 billion plus in terms of profit. With the methionine impairment, how much of the reduction impact does it have? And methionine, in the new fiscal year, what are you looking at in terms of performance?
And for INDIFLIN, the sales, what is your forecast for FY 2024? The crop market situation is still strong. But in the new fiscal year, what are the ups and downs that you are looking at?
INDIFLIN, for FY '23, in terms of the numbers, I will explain if it is possible. And as for methionine's impairment effect, the impairment amount is JPY 16 billion. Therefore, between JPY 2 billion to JPY 3 billion, it's still going to have an effect in terms of profit and loss level.
And as for the sales price, in the budget for '23 and '24 -- FY '23/'24, we have not increased it that much, and that is because the current level is very low. And as I have explained previously, January-March of 2023, it was a historical low in terms of hitting -- in other words, it hit the bottom. And we will be starting from there, meaning starting from the lowest is how we look at it.
So the annual average methionine sales price, calculation-wise, is going to be lower than FY 2022's average sales price. And that's how severely we are looking at in terms of calculating the profit and loss for this.
If possible, can you touch upon the environment for the crop protection products?
For INDIFLIN, I cannot give you the clear numbers. However, between JPY 25 billion to JPY 30 billion, that is the assumption that we have. And as for the crop protection products, every year, somewhere in the world, there are instable weather or drought occurring and that becomes -- always impacts of not reaching the budget. For the last several years, that was not the environment, of course. In the West Coast of North America, there were floods. And others, there are partial incident, events as such, but we don't have a major climate event as such. So for FY '23/'24, we have not reflected such factors in the numbers.
Thank you very much, Mr. Miyamoto. Now I'd like to move on to the next one. From Nomura Securities, Mr. Okazaki, please, go ahead with your question.
Okazaki from Nomura Securities. There are 2 questions. The first one is IT-related Chemicals. In the new fiscal year, first and -- first and second half profit balance, JPY 12 billion for the first half and JPY 26 billion for the second half. So as you said, semiconductor-related products will come back in the second half, but display and semiconductor-related products from the second half of the previous fiscal year to the first and -- first half and second half of new fiscal year, what was -- what will be the trend?
And for [ LB ], I think the -- in recent months, I think things are going well. But what is the profitability of display products? And the restructuring in displays, JPY 10 billion or plus is more in 2022 and not contributing too much in 2023. Is that correct? So is there any onetime factor in terms of cost? Can you explain more about that?
As for the display products' structural reforms, there are 2 items. First one, for example, from the large-scale to automotive or from LCD to OLED, there's a change in the market -- target markets, but that's not included in here. We're just focusing on how we can reduce the cost. That is the only one that's included. So we're spending the next year to consolidate production lines and consolidation of sites. And so they are not going to contribute in 2023. We're speedily doing this, but we have to spend 1 year for '23. So JPY 10 billion is not going to come until fiscal 2024.
And as for the first half and second half profit balance, what would be the recovery trend in display and semiconductor, that's what you asked. So the profitability by subsegment is not disclosed. So it's a bit difficult for me to say this, but that's for displays. We're quite conservative. So most of the rebound of recovery is coming from the semiconductor-related ones. That's how you can understand it.
So for the first half, semiconductor demand is quite challenging. And so the profit increase is coming from semiconductor recovery. Is that correct?
Yes, that is correct. And of course, obviously, within display businesses, the small-scale smartphone applications where Sumitomo has strength, there could be a slight increase in demand in second half. So for large-scale display, profitability recovery is not included, but this is also part of the upgrading of structure and product portfolio. So that has been taken into account.
So additional question. As for display-related restructuring or the JPY 10 billion plus in 2024 fiscal year, so that will be completed and run its course. So what you have been saying is included in all in here. Is that correct?
Well, we can't say for sure, but we are still along the way. We have to do further. But how are we going to go about doing that? We have to consider various factors. So it has not been translated into specifics. But by the end of fiscal 2023, you can have more visualization. Yes, so obviously, we would materialize this in fiscal year 2023 or by the end of 2023.
Now Energy & Functional Materials, so you are expecting a reduction in profits in 2023. With resorcinol and lithium-ion battery separators, what will be the business environment and the market environment for the new fiscal year?
For resorcinol, for the past 4 to 5 years, it has been driving the profitability. It has been the core product. But from the end of last year, the environment has deteriorated significantly. This is due to global demand rather than market situation. The global demand has deteriorated, but there is a buildup of inventory, including interim inventory.
So from the second half of 2022 to 2023's first half, there has been production adjustment. So from the second half of 2022 to '23, the profitability is going to be difficult. But once the adjustment run its course, then we could be at the cruise speed, and we can have more expectation in 2024 fiscal year.
And as for separator, there's a strong demand that we're seeing. So we are expecting -- or there is an encouraging plan from battery manufacturers as well. So more than we think, in fiscal 2024, there could be more upside in the results. But for the moment, we have not taken into account too many factors. So the profit decrease in the new fiscal year is mostly coming from resorcinol. Yes, that is the biggest factor. And then -- well, for more details, alumina, aluminum market prices deterioration has been also reflected. It's not that big number, but that's all.
Mr. Okazaki, thank you very much. Next, Morgan Stanley MUFG Securities, Mr. Watabe. I'm sorry, we are getting close to the ending time. So can you limit your question to one question?
Well, I was only going to ask one question. Regarding the reorganization of Chiba, the domestic crackers' productivities is declining. So from the 3-companies alliance, I think it is going to further move forward. So there is the position of the Chairman, but the overall picture, looking at the low utilization of petrochemicals and the reorganization, how are you looking at it?
That is an extremely difficult question. I myself, the reorganization is set with carbon neutral. I don't think the reorganization alone is going to move forward, meaning that in order to realize becoming carbon neutral, we alone cannot do that. Therefore, I have built -- constructed a new plant using biomass or through chemical recycling, have a co-procurement of the raw materials.
By moving forward, these initiatives will be able to build up the image of the new plant, and that is going to lead to the reorganization. I think these have become a set is how I look at it. The initiatives for reaching carbon neutral mainly will be centered or led by complexes. And the initiatives at these complexes going well, and the next step will be reorganization, but it's not reorganization alone.
So at Keiyo, they have several units of crackers and ethylene units. So there are several options. The complex, that only has one unit of cracker. Even though they want to reorganize, it's difficult because they cannot eliminate the ethylene cracker. So ethylene cracker is not just ethylene, but there are derivatives that will be manufactured from them, the 4 other companies. So they cannot reorganize alone.
So the complexes that have multiple crackers are the ones that have many options. So in that sense, the Keiyo complex, 3 companies there, we would like to be the forerunners of such reforms. And that is why we are working on various initiatives on a daily basis. But the bottleneck of this is the antimonopoly law, meaning that using the new materials for bio that's construct a new plant, and that is irrelevant to antimonopoly law.
But by constructing such a plant, what is going to be with the relationship with the existing ethylene plants, that is going to be a discussion. When we build a new plant, we have to have that discussion or the new plant is going to be left in air. So that is why we will have a discussion. However, at that time, to what extent, how much of ethylene and propylene do we need? Having that discussion is not allowed.
So without that discussion, what kind of discussions can take place?
So we do have such restrictions, so we cannot have such discussions. And this is something that has been conveyed to the authorities. And to the antimonopoly law regulating authority, we have been conveying this message. However, things are not moving forward. Therefore, whatever we consider, that part is going to be the bottleneck.
Thank you very much, Mr. Watabe. We are getting close to the scheduled ending time. So with that, we would like to conclude the business briefing, so Investors' Meeting for Fiscal 2022 Financial Results, Management Priorities and Business Strategies. Thank you.
So just housekeeping announcements. The briefing session will be distributed on our website, including the Q&A. So please take advantage of that.
So that's all. Thank you very much for your attendance today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]