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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening. I'm Motohiro Oki here of Mitsubishi Chemical Holdings. I thank you for your continued support and understanding. I also thank you for your participation in our net conference today despite your busy schedule.
I'd like to start my presentation on the financial results for the first quarter of the fiscal year ending March 2020.
Please turn to Slide 4. But before I start, there is one important reminder. As was announced in May of this year, LSII, or Life Science Institute, agreed on a strategic capital partnership with PHC Holdings, which engages in the health care business in Japan and overseas. In preparation for the deconsolidation, we have classified the business of LSI Medience and its subsidiaries and affiliates as discontinued operations starting from this past first quarter. Accordingly, items in the consolidated financial results of the first quarter of the previous fiscal year and the current fiscal year are recorded, excluding the discontinued operations.
Without further ado, let me go over the consolidated statements of operations. In the first quarter of the fiscal year ending March 2020, the exchange rate was JPY 109.7 to the U.S. dollar, almost the same level as in the previous year. The price of naphtha was JPY 45,200, about JPY 3,500 lower year-on-year.
Sales revenue decreased JPY 5.4 billion year-on-year at JPY 916.4 billion. The factors for the decrease in sales were: exchange rate, minus JPY 5 billion; price, JPY 31 billion; and volume, plus JPY 31 billion.
The price factor amounted to minus JPY 31 billion, coming from the decline in the price of petrochemical products caused by the fall in the naphtha price and the decline in the market prices of MMA and phenol-polycarbonate chain. The positive figure of JPY 31 billion from volume was mainly due to the effects of the acquisition of the U.S. and European Industrial Gas businesses and the reduced impact of scheduled maintenance and repairs in petrochemicals.
Core operating income was JPY 70.1 billion, JPY 22.2 billion lower than in the previous year. As a result of the decline in the price between raw materials and products following the fall in the MMA market price. An overview of each business segment will be given later.
Special items during the first quarter resulted in expenses totaling JPY 200 million, which was about [ JPY 1 billion ] more than in the previous year. This will be explained in detail later. IFRS-based operating income was JPY 69.9 billion. The financial income or expenses resulted in expenses of JPY 3.3 billion, which is JPY 4.2 billion more than in the previous year. This was mainly due to an increase in the interest expenses of JPY 2.4 billion as a result of increased borrowings in relation to the TNSC's acquisition of the U.S. and European businesses as well as a change in foreign exchange gains and losses.
In the previous year, we recorded a foreign exchange gain of JPY 800 million. Whereas this year, we recorded an exchange loss of JPY 300 million. As a result, income before income taxes was JPY 66.6 billion. The income taxes totaled JPY 18.2 billion. Net income from continuing operations was JPY 48.4 billion. Net income from discontinued operations, mentioned at the outset, was JPY 500 million.
As a result, net income was JPY 48.9 billion, and the bottom line, the net income attributable to the owners of the parent was JPY 37.8 billion, which was down JPY 20.3 billion year-on-year. The share of profit or loss of associates and joint ventures included in the core operating income was JPY 5 billion, down JPY 3.6 billion year-on-year. The main reason for this was a decline in the operating results of the affiliated companies engaged in the MMA business and the phenol-polycarbonate chain business.
Please turn the slide, and here I will review the operating revenue and core operating income by business segment. As you can see, the Performance Products, sales were down JPY 13.5 billion, and core operating income, a decline of JPY 5 billion. For chemicals, sales revenue decreased JPY 27.8 billion, and core operating income dropped by JPY 15.6 billion.
For Industrial Gases, sales increased by JPY 51.8 billion, and core operating income was up JPY 7.8 billion. In Healthcare, sales were down JPY 7.5 billion and core operating income was down JPY 10.3 billion.
In summary, except for Industrial Gases, all other segments recorded lower sales and profit year-on-year. Details will be explained later. The impact of inventory valuation gain or loss worsened by JPY 1.2 billion year-on-year for Performance Products, and by JPY 2.1 billion for chemicals. The comparison of the first quarter and the fourth quarter of the previous fiscal year will be explained at the end of my presentation.
Please turn to the next slide, the analysis of core operating income. On total consolidated basis, profit decreased by JPY 22.2 billion. The factors behind this were: price differential, minus JPY 16.6 billion; volume differential, plus JPY 1.4 billion; fixed cost reduction, plus JPY 3.3 billion; and others, minus JPY 10.3 billion. Of the price differential of minus JPY 16.6 billion on the total consolidated basis, chemicals accounted for minus JPY 14 billion due to the decline in MMA market price and others; and Performance Products accounted for minus JPY 2 billion, coming from the decline in phenol-polycarbonate chain market price and others.
As for volume differential: health care, minus JPY 10.7 billion as our sales of domestic priority products increased, royalty income from Gilenya decreased; Industrial Gases, plus JPY 8.9 billion as an effect of the acquisition of U.S. and European businesses; chemicals, plus JPY 3.9 billion, owing to the reduction in the scale of scheduled repairs and maintenance in petrochemicals. Volume differential totaled plus JPY 1.4 billion on total consolidated basis. The cost reduction was plus JPY 3.3 billion, reflecting a steady progress, others totaled plus JPY 10.3 billion coming from inventory valuation gain (loss) of minus JPY 3.3 billion, deterioration of share of profit and loss of associates and joint ventures, minus JPY 3.6 billion and an increase in repairs and maintenance expenses and R&D expenses.
Let me move on to the performance overview by segment. Performance Products, sales revenue was JPY 272.6 billion, down JPY 13.5 billion year-on-year. Core operating income was JPY 19.5 billion, down JPY 5 billion. By subsegments, functional products posted sales revenue of JPY 170.2 billion and core operating income of JPY 12 billion. Performance Chemicals recorded sales revenue of JPY 102.4 billion and core operating income of JPY 7.5 billion. Those subsegments posted a decline in sales and profit year-on-year.
For functional products, sales and profits decreased due to slowing demand tin products, mainly for semiconductors and automobiles and lower sales volume of high-performance engineering plastics, alumina fibers and others. Of the 2 polyester film plants that had suspended operations due to fires, the Indonesian plant resumed operations in April and began shipping some products in May. The operations at the Chinese plant remained suspended throughout the first quarter but resumed in July.
As for performance Chemicals, sales volume increased for the phenol-polycarbonate chain. As in the previous year, there was an effect of regular repairs and maintenance. However, sales and profits decreased year-on-year as the market price plummeted year-on-year after being very strong during the same period in the previous year.
Some comments on the graph on the lower left, analysis of core operating profit and Performance Products. Price differential, minus JPY 2 billion, mainly came from the decreased price variance between raw materials and products due to the decline in market price of the phenol-polycarbonate chain. Volume differential, minus JPY 800 million was mostly functional products, which recorded a decline in profit despite an increase in sales of optical film product, specifically, clear fit, due to such factors as the effect of last year's fires at 2 polyester film plants, a decrease in production of high-performance engineering plastics caused by slowing semiconductor demand and a decline in aluminum fiber sales due to a slowdown in the automotive business.
In Performance chemicals, there was a decline in sales of some functional products due to the slowdown in semiconductor demand. However, this has been largely offset by the elimination of the impact of scheduled repairs at phenol-polycarbonate chain. Others, as described earlier, was in relation to the inventory valuation gain or loss and worsening of equity income.
Next slide, overview of the performance of the Chemicals segment. Sales revenue totaled JPY 287.3 billion, and core operating income was JPY 20.6 billion, down JPY 27.8 billion and JPY 15.6 billion, respectively. By subsegment, sales of MMA were JPY 81 billion, and core operating income was JPY 13.8 billion, down JPY 27.3 billion and JPY 17.2 billion, respectively. The main reason was the decline in the market prices of MMA monomers and others due to the softening of demand, mainly in China.
As for the price trend of MMA, the average for Q1 this year was $1,879 vis-a-vis $2,618 last year. It's around $1,650 at the moment. The Beaumont plant in the United States, which suspended production in March due to facility trouble, remained offline during the quarter, but it is scheduled to resume operations shortly.
As for petrochemicals, sales revenue was JPY 134.7 billion. And the core operating income, JPY 800 million, up EUR 400 million and JPY 1.3 billion, respectively, versus the previous year. Revenue remained almost unchanged year-on-year, despite the lower naphtha price and accompanied fall in selling price, thanks to the smaller impact of scheduled maintenance at the ethylene production facility.
Profit increased year-on-year, despite such negative factors as falling petrochemical prices and inventory valuation gain difference, thanks mainly to the smaller impact of scheduled maintenance and absence of impact from the polypropylene facility trouble experienced the year before last year at the Kashima plant. As for the ethylene center in Mizushima, a joint investment with Asahi Kasei, operation was temporarily suspended from May 22 through June 25, and it was resumed immediately after the repair work was completed.
As for Carbons, revenue was JPY 71.6 billion and the core operating profit, JPY 6 billion, both were almost unchanged from the previous year. Demand for coke remained strong, thanks to steel demand during the quarter and so was inquiry to the company. As for needle coke, pricing was higher than in the previous year, however, there was excess inventory, both in graphite electrode and electric furnace companies, and our sales to electro companies declined year-over-year.
Now let me move on to the Industrial Gases segment. Sales revenue came to JPY 208.6 billion, and core operating income JPY 21.1 billion, representing an increase of JPY 51.8 billion and EUR 7.8 billion, respectively. Revenue increased year-on-year, mainly due to the contribution of the European and U.S. entities acquired in the second half of the previous year as well as the continued steady performance of overseas businesses. The sales revenue and core operating income generated by the acquired European gas businesses was JPY 44 billion and JPY 6.9 billion, respectively.
Please turn to next page, Health Care segment. Sales revenue stood at JPY 107.9 billion and the core operating income JPY 9.3 billion, an year-on-year decrease of JPY 7.5 billion and JPY 10.3 billion, respectively. Both revenue and profit declined year-on-year. Although key products in Japan grew year-over-year, the royalty revenue for Gilenya is still under arbitration proceedings. Consequently, sales were not booked. Since Gilenya is still under arbitration proceedings with Novartis Pharma, although we did not recognize the portion of the royalty, which is subject to arbitration. During the quarter, we did receive cash payment from Novartis, including the portion as well.
On the development of cutting-edge regenerative medicine using new sales as announced on July 9, the Life Science Institute is going to conduct clinical trials for spinal cord injury as the fourth indication of the therapy. While continuing to carry out the existing trials, we will start new trials for those indications for which effects are confirmed in animal studies, one by one.
Please turn to next page. I will take you through consolidated special items. For the first quarter of fiscal year 2019. Total special items stood at negative JPY 200 million. Major components were: negative EUR 700 million in impairment loss; negative EUR 600 million in loss on sale and the disposal of fixed assets; and EUR 900 million in gain on sale of property, plant and equipment.
Impairment loss was recorded due to the restructuring cost incurred by the Performance Products and Industrial Gas businesses. Loss on sale and disposal of fixed assets was recognized as a result of regular disposal of [ those 3 ] facilities in Yokkaichi. Gain on sale of property was mainly from the sale of idle land.
I will explain the cash flow segment. On next page, please look at the adjusted cash flows in the middle columns. For fiscal '19, Q1, net cash provided by operating activities was cash inflow of JPY 103.7 billion. Net cash provided by investment activities was JPY 57.4 billion. Cash outflow. For operating cash flow, other than income before tax and depreciation amortization, we had a change in operating receivables, payables of plus JPY 22.2 billion due to lower sales caused by regular maintenance and price erosion. Others of minus JPY 40.2 billion, that is mainly attributable tax payment. Investing cash flow consists of capital expenditure of JPY 56 billion cash outflow. In terms of breakdown, there were no major investments. Most of the investments were for capacity expansion and the restructuring. As a result, Q1 free cash flow was JPY 46.3 billion.
Cash inflow. In addition, we reduced cash at hand by reducing interest-bearing debt by JPY 64.4 billion and paying year-end dividend of JPY 44.7 billion.
Please turn to next page for consolidated statements of financial positions. Total assets at the end of Q1 stood at JPY 5.5099 trillion, a decrease of JPY 62.6 billion from the end of the previous year. Let me explain the major drivers. Assets increased by JPY 100 billion due to the booking of lease-related assets as required by IFRS #16, new lease accounting standards. However, we were able to offset this by reducing cash and cash equivalents and trade receivables by JPY 100 billion. The effect of foreign exchange rates lowered assets by JPY 60 billion. All in all, total assets decreased by JPY 62.6 billion.
On the credit side, interest-bearing bond at the end of Q1 was JPY 1.8433 trillion, an increase of JPY 107.1 billion from the end of the previous year. This was due to the booking of lease-related liabilities of around JPY 100 billion as interest-bearing debt as required by IFRS 16. As a result, the net D/E ratio as of the end of the quarter was 1.36%, deterioration of 0.1% from the end of the previous year.
Ratio of equity attributable to owners of the parent was 24.6%, which worsened 0.1% from the year-end. This concludes my explanation of the Q1 financial results.
As mentioned earlier, there are some supplementary comments on Q1 earnings vis-a-vis Q4 last year.
Please turn to Page 16 of your handout titled Sales Revenue and Core Operating Income by Business Segment. I will make some comments on the changes from Q4 to Q1 for each business segment. Functional products improved operating income approximately by JPY 9 billion from Q4. The main driver was impairment loss recognized for some businesses made at the end of the fiscal year as year-end adjustment in view of the challenging business conditions by revising financial forecast as mentioned in the previous net conference.
The clearance of the loss increased operating income in Q1 by JPY 4 billion. The second driver was seasonality, with sales volume adding JPY 3 billion compared with Q4, which was a slow season, partly due to the Chinese New Year. Other factors include: Clearfit sales volume increase and the resumption of operations at the Indonesia polyester plant. Performance chemicals improved earnings by around JPY 2 billion. Drivers were: sales volume increase of some products, such as sustainable resources and absence of expenditures associated with fiscal year-end.
MMA reduced earnings by JPY 1 billion. Although sales volume increased quarter-on-quarter, due to the absence of the Chinese New Year, profit decreased. This is due to the price fall as well as the facility trouble at the Beaumont plant in the United States. Petrochemical increased profit by about JPY 2 billion because of the positive impact from inventory valuation gain and loss overcoming the temporary repair work conducted at the Mizushima Ethylene Center.
Carbon products saw the profit down though the prices held up. It was due to lower sales volume of needle coke caused by the inventory adjustment at electrode and electric furnace companies.
Industrial Gases had a favorable trend, staying almost flat quarter-on-quarter. Health care increased profit by JPY 1 billion due to brisk sales of key products in Japan as well as the absence of payments of SG&A and R&D expenses during the last quarter of the fiscal year.
That's all I have for today. Thank you for your kind attention.
We will now take questions.
Takato Watabe from Morgan Stanley and MUFG Securities.
I'm looking at Slide 5. Very briefly, can you explain the current progress, the current situation of each segment?
Did you say current progress, are you asking about the current situation?
Yes. I'd like to get the feel for the first half performance. Very brief comment per segment would suffice. For instance, functional products looking firm.
Looking at the current situation in the second quarter for functional products, while we do not make detailed forecast for functional products, with the polyester film issue being resolved and raw material prices slightly coming down. With the naphtha price declining, we are seeing an improvement in the declining prices of raw materials. So from the first through the second quarter, we are expecting a slight increase in profit. For Performance Chemicals, regarding the market price of the phenol-polycarbonate chain, we expect the current level to be sustained. Regarding MMA, it's very difficult to foresee the market price. The current level is around $1,650, and we expect this to be sustained, but there are many uncertainties. Regarding the Beaumont plant, the issue has been resolved and the operation is to resume in August, and that would be a plus. For petrochemicals, with the completion of the scheduled and special repair and maintenance at Mizushima, we expect a positive contribution. As for carbon products, regarding the price revisions in July, it's been concluded that the current price level will be maintained. In terms of volume due to inventory adjustments on the part of the customers, there could be some decline, but we expect the level to remain unchanged from the first quarter. As for Industrial Gases, there are some seasonality, but we expect the sales to improve in the second quarter over the first quarter. In health care, in the first quarter, R&D and other general and administrative expenses were smaller than expected. But with the time lag and the expenses being incurred, in the second quarter, we expect expenses to be greater. That is the general outlook.
I see. My second question is on MMA. I understand, it's very difficult to make projections. But looking back on the fourth quarter to the first quarter, the market price spread, narrowed by about $200, and yet your profit remained unchanged. Can you give us a quantitative background associated with the size of production reduction and the impact of the Beaumont plant issue? And at the last earnings briefing, you effectively declared that the market price has hit the bottom and yet prices continued to gradually decline. What is your current view?
Your last question on market price. In China, towards the end of March, it did hit the bottom. And in April, sales did recover temporarily. But in May, triggered by Mr. Trump's Tweet and others, there was a growing concern over the worsening of the U.S.-China trade friction, which resulted in, again, discouraging orders, which had an effect of lowering the market price once again. But more recently, the market price in China, we now feel, is getting close to bottoming out. And we are told that some of the MMA suppliers in China are implementing price hikes. So hopefully, the bottoming out is near. But given the psychological effect of the worsening of the U.S.-China trade frictions, it is very difficult to foresee the future course. Comparing the fourth quarter to the first quarter. The market price did decline. But in terms of volume, we saw a recovery in relation to the effect of the Chinese New Year holidays. So the market price decline was made up for by the increase in volume. So in Asia, overall, it was about the same quarter-on-quarter. There was a slight impact of Beaumont issue, resulting in a decline quarter-on-quarter.
Yamada from Mizuho Securities.
I have two questions. First, can you elaborate on the Performance Products results? You said volume increased for Clearfit. But since smartphone was not strong, should I take it that this was due to an increase in market share? And if that is the case, for a full year, can we expect a strong performance? In addition, for volume differential, alumina fiber and engineering plastics were negative. Automotive business is weak, so should we give up hope on this? Can you elaborate on the volume differential? In addition, polyester film plant fires resulted in volume decrease, you said. Do I take it that this effect has been resolved? Also, regarding fixed cost reduction, I wasn't sure I followed what you said. So could you comment on it again? That's my first question.
Sounded like there were four questions really.
Sorry, I just wanted to understand Performance Products better.
Okay, let me try to answer one by one. First, clear fit. The situation is that in the expanding emerging markets, primarily in India, we are successfully capturing the growing demand. And as a result, sales volume is increasing. Going forward, we expect increased volume to continue to make a contribution.
What about high-performance engineering plastics and alumina fibers, should we expect a sluggish situation to continue?
High-performance engineering plastics and alumina fibers, true, as semiconductor and automobile are major applications. Basically, the current situation, we believe, will continue for some time. He also asked about the polyester film fires. Yes, can we assume that the effect is resolved? From the middle of the first quarter, operations resumed in Indonesia, as I mentioned earlier, and product shipment resumed in May and therefore there would be a contribution in the second quarter and beyond. For the Chinese plant, it remained suspended throughout the first quarter, the April-June quarter, and the operation redeemed in July. We expect the operating rate to gradually recover over time. So the impact of this Chinese operation might have some lingering effect in the second quarter.
What about fixed cost reduction?
The cost reduction of JPY 3.3 billion. You want to know the content?
Yes.
The breakdown by segment was, as you can see on the slide.
For Performance Products, plus JPY 1.2 billion. What were the major factors?
Basically, yield improvement and switching of raw materials and streamlining of logistics or distribution, whose expense is soaring these days. These comprised a fixed cost reduction.
Okazaki from Nomura Securities.
My first question is on Performance Products. The items that you did not cover right now, sales and profitability. More specifically, OPL, EVOH, carbon fiber and battery materials.
As for OPL, sales continue to be strong, about the same level of sales as in the previous year. And we expect this to be maintained going forward. And battery materials, very steady progress, primarily electrolytes. Electrolyte sales are growing at an annual rate of over 20%. As for EVOH, slightly expanded sales than in the previous year. As for carbon fiber, volume is growing for pressure vessels and wind power generation applications.
Do I understand correctly that these products are doing well in terms of profit as well?
Yes. Profit-wise, they are all doing fine.
As for OPL, do I take it that you are not feeling an impact of inventory adjustment of LCD panels?
There might be some effect, but not very significant.
I see. My second question is on carbon products, needle coke. Do you have any figures that you can share with us? How much is the volume declining from the fourth quarter to the first quarter or year-on-year comparison on the first quarter results? And do you also have a projection for the second quarter onward, volume-wise?
We do not have volume data. I don't have that information at hand. But currently, the demand for electric furnace is significantly declining, or rather slightly declining, due to the inventory adjustment. We do not see the electric furnace demand itself weakening dramatically. So once the inventory adjustment completes, we expect needle coke demand to recover.
Is this for both domestic and export?
No. Domestic sales volume is declining. So no change in export. That is correct.
You said that you have kept the price at the same level for July. I suppose there are periodic negotiations, like the next one will be in October and then in January?
No. Basically, with the customers in Japan, we negotiate for a 6-month period, January to June, July to December. And in our negotiation for July, we're told that the agreement was reached to keep the current level.
What about overseas? About the same level as in the previous quarter. So the same price level for the fourth quarter and the first quarter, and that level maintained from the first quarter to the second quarter. Am I correct?
For the second quarter, the situation might be different, might be lower somewhat, but more or less in line with the previous quarter.
This is Takeuchi, SMBC Nikko Securities.
I would like to clarify your comments in response to the question from Mr. Watabe earlier, on Page 5. Your explanation suggested that the Performance Products and chemicals, except for petrochemicals fell below the forecast for the first half. Is that your perception?
Are you referring to the forecast for the first half?
Yes. This time, it was kept unchanged, but isn't it true that in Performance Products and chemicals performance is under pressure?
Well, as far as the current conditions remain as they are, yes, the first half may be under pressure.
Earlier, you shared with us the earnings forecast for Q1 and Q2. Was that based on the premise that the current conditions remain as they are?
Yes, it was.
Understood. My second question is about the status of major products. What's the utilization like? And whether there is any trouble. MMA and Polyolefin and the phenol-polycarbonate chain, could you elaborate on the utilization during Q1? Was there any trouble? I would appreciate your comment.
All right. I will start with MMA, your biggest interest, I suppose. The utilization is about 70% at the moment. That was the level for Q1, and it should be the level in coming months. For others, petrochemicals or polyolefin and polypropylene, full capacity operation is likely to continue. Phenol-polycarbonate chain is also operating basically at full capacity, and it's likely to remain so.
In the calculation of 70% for MMA during Q1 is Beaumont included?
Yes. It's included.
The 70% utilization at the moment is likely to go up toward Q2 because Beaumont ramping up, I suppose?
No. I wouldn't go that far. Beaumont is temporarily suspended due to trouble, but products are not necessarily in short supply because demand was absorbed before the trouble. So as Beaumont ramps up gradually, the overall balance is kept.
Are you keeping competitive plans, such as Saudi, in full operation but leaving others under restraint? Overall, the number is 70% as a result?
Yes. We are trying to maximize the operation of cost-competitive sites and keep the overall utilization at around 70% for now.
This is Miyamoto from UBS Securities.
My first question is about MMA. If I remember correctly, the utilization of 70% also for Q4 in the previous year as in Q1 this year. So it remained flat while price kept falling. Why was it possible to keep the profitability in such an environment? Did you increase the utilization of Saudi Arabia and a lower those of less competitive sites while keeping 70%? Or did you carry out a cost reduction program?
For cost-competitive plants like SAMAC, yes, the utilization is rising. The utilization is one factor, but the inventory fluctuations is another factor that can influence.
Well, the overall utilization is almost flat. The utilization of competitive plants is rising, and shipments are being made out of the inventory to support the increasing sales volume. Is that a fair summary?
Yes, it is.
As for sales quantity, which regions are seeing an increase in terms of demand? You've talked about trade friction earlier, leading us to believe that sales volumes are weak in Asia. Could you elaborate on this?
Is your question about MMA demand trend by region?
Yes, it is. And I also want to understand specifically which region had a greater Q-on-Q growth than others?
The Q-on-Q growth from Q4 to Q1 is influenced substantially by seasonality as well as new plants coming online. Some regions, namely Asia, benefited from those factors to record high Q-on-Q growth. As I mentioned earlier, the region was affected by customers slowing the pace of purchasing since May in the face of deepening concern about the U.S.-China trade friction. The trend appears to be subsiding, with some OEMs starting to raise prices and sales volumes starting to pick up. As for the U.S., the business for paint application was supposed to be in the peak season during the April-June quarter, but the momentum was not as strong as expected, with no noticeable tightness in the market. As for Europe, as in the previous quarter, no clear sign of recovery was observed, and supply-demand is not likely to improve anytime soon.
I see what you mean. I have a second question about shareholder return. This time, with no revision announced, the company kept dividend forecast unchanged. But as the progress during Q1 was rather disappointing, suppose that downward revision is announced going forward, is there a risk that dividend may also be revised down? In other words, what has to happen before the company decides to reduce the dividend?
So far, we have not considered the possibility of revising down the dividend. In terms of what has to happen, it would be something very extreme, such as another GFC. That would trigger a reconsideration. So far, however, our intention is to maintain the guidance.
Considering that the MMA price is staying around $300 lower compared with the company's assumption, even if the price falls further, overall, since you have positive cash, you can afford to prioritize dividend payment of our financial structure?
We will operate the dividend program based on our dividend policy of stable profit distribution with 30% payout ratio on a medium-term basis. Under that policy, even if the MMA price falls to a certain extent, we would not reconsider a dividend payout.
This is Umebayashi from Daiwa Securities.
I just have one question. Earlier, you mentioned that one of the reasons Performance Chemicals generated positive growth Q-on-Q was the recovery in the sales of sustainable resources. The other day, the announcement was made on the capacity expansion for DURABIO, could you give us an update, including outlook of this area?
There is a brief demand for DURABIO and the volume is growing. On top of that, BIO PBS and the like manufactured in Thailand is seeing inquiries turning into orders. That led us to believe that the volumes of these products will continue to grow going forward.
Are you receiving more inquiries than you had originally expected? Do you have that perception?
Compared with the previous year, it's growing considerably, while the public opinion at the moment is going against waste plastics and in favor of BIO, it is growing beyond expectation.
For DURABIO, investment in capacity expansion is being materialized. How about BIO PBS, is the general direction thinking about next steps?
Actually, we are receiving various inquiries, even from well-known restaurant and coffee shop chains. Once those orders are received, we will have to think about capacity expansion, but we will think about it carefully in view of longer-term implications.
This is Okazaki from Nomura Securities.
Sorry, it's me again. Earlier, there was a discussion on EVOH. My question is about Performance Chemicals and Performance Materials. I suppose there is some auto application. Are these products in high demand?
EVOH, per se, is not necessarily designed for autos. The main application is food packages, except for some materials used for fuel tanks of cars. The product is mainly intended for use as food packaging. So it doesn't have so much to do with the slowdown in the demand for cars.
I suppose, doing well as food packaging materials.
Yes, it is.
Another point I want to ask about is Performance Materials, in general, going back to earlier point about crude oil price compared with the company's assumption of JPY 48,000. The naphtha price is now around JPY 42,000. From that perspective, for engineering plastics and the like, will there be a benefit of lower prices of raw materials in Performance Products? I'm asking in general.
It's true that raw materials are getting cheaper. Usually, however, when customers are under pressure, they tend to demand price revision. It truly depends on each product. So I cannot make a general comment. We just have to try not to lower prices as much as possible while monitoring price trends carefully.
Earlier, you mentioned engineering plastics being under pressure. I believe the company is competitive in this area, and is well positioned to benefit, isn't it?
Well, it really depends on the specific case. In terms of the dynamics with customers, however, if a company is better positioned, and then what you said may be true.
Thank you very much. This is the end of the Q&A session.