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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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[Interpreted]Thank you very much for joining the conference call of Mitsubishi Chemical Group. We now start the conference.
First, CEO, Jean-Marc Gilson, will give you short remarks followed by CFO and Executive Vice President, Yuko Nakahira, to give financial results for the first quarter of FY 2022. Then we will have a Q&A session. The total meeting will last 60 minutes.
Before starting, please note that the presentation may contain forward-looking statements, which are based on the current expectations and information available now and are subject to risks and uncertainties. Actual results could differ materially from what is stated here. Today's conference call, including Q&A, will be posted on our website later.
Let's start. Our CEO, Jean-Marc Gilson, please start.
Good afternoon all of you, and welcome to our first quarter earnings call. I'm Jean-Marc Gilson, CEO of Mitsubishi Chemical Group. Today -- earlier today, we reported our results for the first quarter of our 2022 fiscal year. Against the backdrop of soaring raw materials and energy prices, rising salaries across the globe, inflation and supply chain constraints, Mitsubishi Chemicals Group delivered a record sale of JPY 1.1 trillion for the first quarter, a 19% increase versus last year first quarter results. I must congratulate our teams across the globe who showed tremendous discipline and strength in passing directly to our customers the vast majority of the raw material prices and energy increases that we experienced since April.
This, combined with cost reductions, led to a better-than-expected core operating income of JPY 72.1 billion, and a net income attributable to the parent of the company of JPY 44.9 billion or JPY 30 per share on a diluted basis.
It is worth noting for me that all businesses delivered at or above budgeted level albeit at a lower COI level than last year, except for our gas business. It is also worth noting that this was the best quarter since our first quarter last year.
The only downside in Q1 came from Medicago and its inability to supply the contracted volume to the Canadian government due to unexpected late manufacturing issues. We will address Medicago and COVID-19 vaccine during the Q&A.
Apart from that, I and the management team are satisfied and encouraged by the progress we made this last quarter against our new Forging the Future strategy. We are nearing the definition of the petrochemical carve-out. Our cost saving activities are ramping up across the company. Our new organization is up and running without any major transition issues. And we are now fully staffed at the executive level with the announced arrival of Ichimura-san as our new Chief Digital Officer.
And last but not least, we are putting the final touches to our growth strategy for our Performance business that will be shared with our investors this coming late September.
I will now let CFO, Nakahira-san, to explain in details the business results for the first quarter.
[Interpreted] Thank you. Nakahira, CFO. I will give operations summary of the first quarter of fiscal year ending March 31, 2023, and outlook for the first half.
Page 4, please. For the first quarter, yen was 20% depreciated from last year, material and fuel costs soared. Naphtha price was up 81% to JPY 86,100 giving us very challenging business environment compared to our initial expectation of JPY 81,000. It was much higher in pressure to our performance. In this business environment, we carried out price transfer actively.
As a result, the sales revenue reached JPY 1,106.5 billion, up 19% from last year. It was a record quarterly sales revenue. In all segments, sales revenue increased from the same period last year.
Core operating income was JPY 72.1 billion, down 19% from the same period last year, yet against the first half forecast. We achieved 58%. More than 80% naphtha price increase, and we achieved price transfer and cost reduction in a very steady manner.
Also thanks to yen depreciation, we achieved much more than our initial expectation. Operating income was JPY 68.0 billion, down 22%. Income before tax was JPY 75.1 billion, down 12%.
Net income attributable to owners of the period was JPY 44.9 billion, down 10%. We achieved 73% against our first half forecast.
Year sales revenue and core operating income by business segment. For all segment, sales revenue increased. For core operating income, in Industrial Gases, it was up from last year, but other segments went down. Company-wide it was down JPY 16.6 billion. Core operating income decrease of JPY 16.6 billion breakdown is shown here. Price difference was down JPY 11 billion as material and fuel cost prices soared and we aggressively carried the price pass-through. And in Performance Products and Industrial Gases, price difference was JPY 4.4 billion and JPY 3.6 billion, respectively. But in Chemical, there was a phasing of price transfer of polyolefin, therefore, down JPY 17.4 billion.
As for volume difference, it was down JPY 14.1 billion. Automotive and display application demand was lower than last year. And in Chemicals, there was scheduled maintenance and repair and volume. However, semiconductor overall demand was strong. Outside chemicals, we achieved more sales volume than last year.
In terms of cost reduction, it was JPY 6.0 billion, achieving 19% of the annual reduction of JPY 32 billion. Annually, we expect about JPY 2 billion by optimization of repair costs. And also JPY 4 billion by business exits, scale down and manufacturing lines, and that is in line with our plan in Q2 and onward, will recognize those numbers.
Regarding cost reduction, we monitor through monthly management meeting and cost discipline is an ongoing progress.
For Performance Products, there was a decrease of JPY 5.4 billion, achieving 52% of first half forecast to get better than our forecast.
In Performance Products, price trend of material cost for each product was monitored, and we achieved price transfer contributing to better profit. For volume difference for automotive and display, demand was soft. However, in semiconductor and food application, we continue to see steady growth. And overall, it was flat from last year.
Others include alumina fiber business transfer impact and increased labor costs, including compensations.
Next is chemicals. It was down JPY 15.9 billion in core operating income. Naphtha price was up 81% from last year, and we aggressively progressed price transfer, but polyolefin and other phasing impact of the price revision was a factor. And this will now, a, our market price was lower. Therefore, price difference was down JPY 17.4 billion. Difference was down JPY 18.7 billion. There was a softer demand in automotive sector and petrochemicals, case, repair and maintenance and also demand was lower in Europe and Asia for M&A.
As for the cost, we have plans and things are looking according to the plan, including repair method, and we expect to see some reductions from Q2 and onwards. Others include inventory valuation gain from petrochemical that is JPY 20.2 billion.
For Industrial Gases, the income increased JPY 5.7 billion, along with fuel cost increase, we could price -- have the price transfer to and -- in various regions, an increase of JPY 3.6 billion. Volume was also strong in and outside Japan, especially electronics applications. Cost reduction is ongoing as planned.
Next is Health Care. Health Care profit decreased by JPY 1.4 billion. Price difference due to the drug price revisions amounted to minus JPY 1.9 billion. Volume difference saw significant contributions from priority products, STELARA, Dysval, and oral Radicava in the U.S. The COVID-19 vaccine could not be supplied to the Canadian government due to issues with the transition to commercial scale production. We continue to not record royalty on income on Gilenya, which is under ongoing litigation.
The negative figure in others is mainly due to the impact of the depreciation of the yen on overseas R&D expenses. Medicago is currently reviewing the business plan in response to production issues and pandemic situation. We will take this opportunity to review the revised Medicago business plan and discuss with joint venture partners and Canadian government on help us to overcome the situation.
Details of revenue in Pharmaceuticals, sales of mainstay STELARA increased by JPY 3.7 billion. Sales of Dysval launched this year totaled JPY 1.2 billion, and sales of Radicava with the launch of oral preparations in the U.S. increased by JPY 1.1 billion.
Amongst the special items, net of special items was expenses totaling JPY 4.1 billion, including loss and arbitration award of Nippon Sanso Holdings in the U.S.
Next, cash flows. Operating cash flow was net inflow of JPY 23.5 billion. Investing cash flow was net outflow of JPY 62.6 billion. Free cash flow was net outflow of JPY 39.1 billion. Inventories increased significantly due to the unexpected depreciation of the yen and rising raw material prices.
Currently, we are working on reducing working capital as a priority management item. In addition, we will strive to improve cash flows by carefully selecting and reducing capital investment and accelerating sale of assets.
Financial cash flow was a net inflow of JPY 32.9 billion, added with the effect of exchange rate changes, JPY 13.4 billion. Cash and cash equivalents at the end of the period totaled JPY 253 billion, an increase of JPY 7.2 billion from the beginning of the period.
Next, the financial positions. Total assets were JPY 5,845.6 billion, an increase of JPY 231.7 billion year-on-year of which an increase of JPY 193 billion was the effect of exchange rates. Total liabilities were JPY 3,884.5 billion, an increase of JPY 154.9 billion. Equity totaled JPY 1,961.1 billion, an increase of JPY 116.8 billion. The net debt to equity ratio was 1.4, the same as at the beginning of the term.
Lastly, but not the least, I would like to show you the quarter-on-quarter changes. The changes from the fourth quarter of the last fiscal year. As naphtha prices continue to rise, core operating income increased JPY 18.7 billion from JPY 53.4 billion in the fourth quarter at JPY 72.1 billion.
In addition to expanding gain on inventory valuation, we are probably attributing this to speedy execution of price pass-through and cost reduction efforts in all businesses.
As we enter the second quarter, we will continue to strive to secure profits with discipline assuming that the severe business environment will continue suggest a slowdown in demand for displays and smartphones and the high price of raw materials and fuels.
By segment, Performance Products expect slightly weaker performance, given that while strong sales of semiconductors and food applications are expected to continue, sluggish demand is expected for displays and smartphones. Chemicals expects MMA to see demand recovery with the end to Shanghai lockdown, but the outlook in Europe and elsewhere is expected to remain uncertain.
As for petrochemicals, we expect gain on inventory valuation gains to decrease, but profits are projected to increase due to the elimination of the effects of periodic maintenance in the first quarter.
Profit of carbon is expected to decrease due to loss on inventory valuation with a decline in the price of coking coal. Industrial gas is expected to remain firm in line with the first half forecast, although there are concerns about the rising fuel cost in Europe and elsewhere.
In Health Care, profits are expected to decline due to the timing of R&D costs being incurred. All the progress in the first quarter exceeded the initial forecast in consideration of the situation from the second quarter onward, the forecast for the first half and the full year remain unchanged.
Thank you for your attention.
[Interpreted] Let's move into Q&A session. Morgan Stanley MUFJ, Watabe-san.
[Interpreted] Watabe from Morgan Stanley. In the beginning, you mentioned several times, you have progressed better than your initial plan, 58% core operating income against the first half. What was better? And what was lower? There was some inventory valuation gain. It seems that's the biggest factor, but are there other factors? And against first half plan, you explained the segment-based activities. But overall, is that in line or there was an upside? Can you explain that, please?
[Interpreted] For the first quarter progress, it was 58% against first half forecast in all segments. The progress was better than 50%. Yes, for petrochemical and carbon, there was an inventory valuation gain that was significant. And outside of those settlements, overall electronics materials and semiconductor materials and food materials and increasing, the demand was strong. And because of those factors, overall, against first half forecast, we achieved more than 50%. That's the result for the first quarter.
But from Q1 to Q2, as of now, there are various developments in the market regarding the demand for display especially TV panel materials. Well, in Q1, it was relatively weak. And in Q2 and beyond, it is getting weaker. And for the smartphone-related business in Q1, was not much different. But in Q2, there was some impact. And for raw materials, for example, coking coal in Q1 was more than $500. The price was very high in Q2. Seems it's around $300. There is a significant decline in price. So there are various factors. In the first half of May, we had our forecast, and we could be decided we are not going to change our forecast for the first half.
[Interpreted] So it is in line with your expectation?
[Interpreted] Yes.
[Interpreted] And the second question. In the beginning, Mr. Gilson mentioned, Petrochemical business carve out, and you are close to the finalization. That's how it sounded to me, there are various reports, and what is the progress so far? As much as possible, can you answer to this question?
[Interpreted] Yes. For petrochemical separation and we mentioned in both in the future sort of time line, and we are in line with that time line. We do have some discussions and the timing of the start of the process that as of now, we don't think there are any changes to the timing. And as of now, several options are being considered. As of now, we don't have anything specific that we have finalized.
[Interpreted] And then for pharma. My last question. Unfortunately, Medicago vaccine is not really coming on to the market. And what is the direction that you're considering regarding that situation? And shareholders issue of Medicago, that's another factor. If this vaccine cannot be supplied, then what is the overall situation? Can you give more details regarding vaccine? And Lilly's collaboration, do you have any midterm target regarding your partnership or collaboration with Eli Lilly?
[Interpreted] First, Medicago vaccine for commercial production -- for stable production, there is an issue, and we could not supply vaccines to the Canadian government. That was quite a disappointment, indeed.
And some factors regarding that issue and actions to resolve, we are discussing, and we would like to review the overall business plan, taking this opportunity. That's what we are doing. It's not there any specific changes to the plan as of now. But minor shareholders and also the Canadian government included, we want to continue to discuss.
[Interpreted] And regarding the Lilly diabetic product collaboration, that is separate from vaccine, right?
[Interpreted] Yes, that's right. We announced our collaboration with Eli Lilly. Mr. Kobayashi, do you have any comments to add?
[Interpreted] Yes. Kobayashi from Pharma. Tirzepatide that is -- has been developed by Eli Lilly mainly after approval, we will have seen collaboration, and we have high expectation on this product. But as of now, what are specific targets and so forth, we can't comment on that.
[Interpreted] Vaccine for this year will not come out on to the market. Is that your assessment? When you say review business plan, sales would be 0 for this year?
[Interpreted] At least in the second quarter, it's not included. But as for this year, well, we are sort of waiting for Medicago to answer after review.
[Interpreted] the next question from SMBC Nikko Securities, Mr. Miyamoto.
[Interpreted] Miyamoto from SMBC Nikko. I have 2 questions. My first question is on vaccine, a follow-up question. Based on what you just said, I was not really able to have a better understanding of what the issues are. Could you elaborate? Is it the production process issue, and therefore, there is room for improvement?
And also in relation to vaccine, COVID-19, how much tangible and intangible assets are being recorded? And what's the expectation going forward?
[Interpreted] Your first question, what the issues are. We have been -- or Medicago has been manufacturing samples, but in shifting to the commercial scale production, the production at a stable quality. Unfortunately, it was not established. So it's a production process issue.
As for the causes, they are looking into the costs as we speak, trying to get down to the bottom of the issue, which I cannot share with you right now and the production volume scale up, they face the issue, Medicago face the issue.
Now depending on the content of the revised business plan. There are possibilities of things being revisited. But currently, for what we see for Mitsubishi Chemical Group overall, the amount is not going to be that large. The financial impact is not a big one.
[Interpreted] Well, given the size of your operation, maybe the implication is limited. But are we talking about a single-digit oku yen amount?
[Interpreted] Well, I can't give you the details, but no, it's not that large.
[Interpreted] I see. How about penalty? Penalty not likely?
[Interpreted] We don't have any specific requests or issues emerging regarding that.
[Interpreted] My second question is on MMA. Following Q4, look like margin is reducing, OP margin seems like a little over 3%. In Q3, there was a SAMAC maintenance. The utilization was low. And so maybe that was the reason for the previous quarter. Whereas in Q1, as the market price increase, you are still suffering in terms of the operating margin. Why is that?
And now in Q2, the margin -- the market price is coming down. So other than the end to the lockdown in China, are there any other factors that will justify your expected growth in profit in Q2 over Q1?
[Interpreted] Thank you for your question. From Q4 to Q1, regarding that quarter-on-quarter change, you are correct. There was a periodic maintenance and repair in Q4 and therefore, an increase in profit quarter-on-quarter.
In Q1, especially in China and Europe, significant volume reduction. Shanghai lockdown was one factor in China. And for automotive and construction materials applications, there was a big decline.
In Europe, the paint application was strong, but PMC and automotive applications were sluggish.
As for market price, $2,100 level is what we see today. But partly in China, the market price is declining, which is affecting the profit margin.
[Interpreted] How about towards Q2? Can you also talk about the utilization rate of your plant?
[Interpreted] Toward Q2, the China factor, the demand in China is slightly recovering. That's one factor. So compared to Q1, we expect profit growth.
Having said that, there's still many uncertainties. And also in Europe, the gas price remains high. So we do expect quarter-on-quarter increase. For MMA alone, may be somewhat difficult situation.
[Interpreted] How about utilization rates of your facilities?
[Interpreted] In Thailand, due to the feedstock shortage, you are reducing the production. Same in Shanghai. And we're told that the periodic maintenance is extending more than expected. 65% was the utilization rate in Q1. And currently, in Q2, the projection is 68% or thereabout. So slight improvement, but not much difference quarter-on-quarter.
[Interpreted] Next question from Mizuho Securities, Mr. Yamada.
[Interpreted] Yamada from Mizuho Securities. I have 2 questions. First question is in the forging future. You said growth area -- 4 areas, especially Health Care. March 2026, 4 products, more than JPY 130 billion contribution to sales revenue, but the Radicava start is in line with your expectation considering that? And virus vaccine, you said that there is an issue in new scale of production then equivalent issue or comparability may be an issue that may be difficult to continue and compare.
Regarding the other 2 products, what is the progress of clinical trials? Is the progress is in line with the plan in Forging the Future? Or is this clearly behind? And other areas [ EB digital food ], functional performance, product and volume increase, it's not really clearly seen, but are there any factors that we can expect more? If there is none, you can say none.
[Interpreted] As of now, our segment disclosure is not by market but by the end of September, we can mention that as a growth strategy, overall growth strategy. And semiconductor and food-related areas, we expect good growth.
And for Health Care, well, vaccine impact, how that impact our business, we will continue to monitor that. But regarding other developments, Kobayashi can answer to that question.
[Interpreted] This is Kobayashi speaking. Medicago vaccine was mentioned already. Its supply is delayed against the plan, and we will consider the impact of that going forward. And then Radicava, in addition to injection, we had orals and that launched in June, we'll see how it grows going forward. We need to watch that carefully, but it seems things in line.
The NeuroDerm ND061, and that is in line with our plan and enrollment is according to the plan. We will have a valuation come up with outcome. The MT-7117, as of now, we have all the recruitment completed. So progress is as planned. Thank you.
[Interpreted] Medicago's vaccine supply delay. That is the full scale production. You can't -- there is no risk of exact comparability or equivalents. You don't have that concern. Is that right in my understanding?
[Interpreted] Well, I would not comment what exactly is happening as of now. So that is not disclosed.
[Interpreted] I see. Second question, this is also related to Forging the Future. If possible, well, this is a request. Then as before, Health Care-related R&D cost and important index. I hope you will disclose from Mitsubishi Tanabe. I don't see any disclosure on that point. If there are any, please let me know where I can find that.
And also the balance sheet. Interest-bearing debt is increasing. And in terms of structure, asset liability management and foreign-based asset has to be held in Nippon Sanso Holdings. And the net is about JPY 35 billion increase or JPY 72 billion increase. I understand that. But outside that, interest-bearing debt is increasing. Is that because of increase in working capital and because of raw materials and if your cost increase, you can't have that? Or are there any other way of managing that?
And going forward, JPY 400 billion asset carve-out included, you had a plan to lower interest-bearing debt. But current carve-out can really reduce JPY 400 billion, including asset sales, according to your plan for the progress or any update as of now.?
[Interpreted] Thank you very much. As you mentioned, that is increasing, and that is mainly for the working capital, that is a big factor. The FX and raw material cost increase, those very strongly impacting additionally for the carbon business, shipment. Phasing is another factor in supply chain confusion and there is more inventory level because of that.
Having said that, we don't think this is a good situation for us. We have a sense of urgency and risk. So well first, we need to reduce working capital. We need to step up management, and we are doing that.
Additionally, asset sales. That is also possible consideration as we try to manage the cash better. And also CapEx should be more strictly selected, we do whatever we can. That is our idea and asset sales and so forth. Well, in the Forging Future plan, we explained to you, we will put ideas into budget and execute. That remains unchanged.
[Interpreted] Total [ JPY 3.2 billion ] in 5 years cash flow. And as of now, you are very much behind. So I hope you can catch up. Thank you very much.
[Interpreted] Mr. Umebayashi from Daiwa Securities.
[Interpreted] Umebayashi from Daiwa Securities. My first question. Performance Products, the volume difference -- a question for clarification. I'm looking at Slide #7. By segment, only plus 1 for volume difference. And by 3 segments, there are pluses and minus, I understand. Most probably negative for polymers because -- only negative as indicated. But for other subsegments, are there are pluses and minuses, could you elaborate on this value difference?
And regarding the carbon drivers and battery materials, if you could separate those two, I would appreciate it.
[Interpreted] Films and molding materials, some negatives because there is high dependency on display, I think. In addition, alumina fiber business transfer had an impact as well.
As for Advanced Solutions, relatively strong. Semiconductor-related and electronic materials-related businesses had a very strong performance in terms of volume as well.
As for carbon fiber and battery materials separated regarding common material -- carbon fibers, for aircraft, it's on the way to recovery. Compared to the past, I think we're getting closer to see a full recovery. For sports, automotive pressure vessel and others, we do see a strong movement.
As for battery materials, in terms of demand, there has been an impact of lockdown in China as well as -- because of the semiconductor shortage, demand declined on the part of the customers. So compared to Q4 negative growth, in other words, a decline. For Q2 compared to Q1, we expect some recovery in demand.
[Interpreted] I see. Question for clarification. Battery Materials, did you say that it declined from Q4?
[Interpreted] Yes, that's what I said.
[Interpreted] I see. How about year-on-year?
[Interpreted] Year-on-year, slight growth, almost the same level.
[Interpreted] I see. My second question is with regards to cost reductions. Where you are on cost reductions?
[Interpreted] On a full year basis, [ JPY 320 oku ] or JPY 32 billion. For first quarter, JPY 6 billion, indicating a slow progress. By segment, Industrial Gases, JPY 10 billion is the plan for full year and JPY 4.2 billion in Q1.
[Interpreted] So I think you are ahead of schedule. But for other segments, Performance Products, Chemicals and Health Care, where are you on cost reductions? And in what way can we expect cost reductions to realize in Q2 onwards?
[Interpreted] True. Compared to the full year plan, it's 19%. The progress is 19%, so it may seem low. in Chemicals, optimization of repair cost is a big item. And in relation to the timing of the repair, it is going to be in Q2 that we're going to see a major impact. About JPY 2 billion as an effect of optimization of repair expenses. Withdraw business and line consolidation, about JPY 4 billion impact is projected. We are seeing as planned, so we should be seeing the effect.
For others, office consolidation and operational efficiency improvement for those. We are seeing in line with the quarter-on-quarter progress. So it's 19% for the first quarter. But as mentioned earlier, the cost reductions of JPY 32 billion. This is the number that we are committed to achieving. And we are looking at the progress at the monthly executive management meeting. We do have the people signed as people responsible for achieving this. So I think you will see this being achieved.
[Interpreted] Next question from Nomura Securities, Mr. Okazaki.
[Interpreted] Okazaki from Nomura Securities. For Performance Products, I have 2 questions. And 1 question on Health Care. For Performance Products segment, Slide 7. There is a price difference year-on-year, it was positive. And from Q4 to Q1, do you see the similar gains from Q1 to Q2, what would be the change?
And when you -- when I look at 2 quarters compared to the past, against material cost increase, you have better resistance. You seem to have better price transfer. Structurally, any changes executed there?
[Interpreted] Thank you for your question. First, company-wide pricing, JPY 11 billion of price difference company-wide. That is minus -- well, more than JPY 200 billion impact from material cost increase and the same level of increase to be captured by pricing and that -- there was a gap of JPY 11 billion.
So pricing Chemicals and Performance Products outside Health Care, we are doing price transfer really vigorously. We, Mitsubishi Chemical Group, all the employees worked very hard to make pricing very effective. That is our assessment.
And for Performance Products, in the last year because of the material cost increase, we were not able to catch up with business price transfer. There was a gap before. But in the first part of this year and onwards, we expect the price would remain high. So we are always engaged in negotiation for pricing. So you have one negotiation in April, but that's not the end of the negotiation.
For example, strong products. We had -- we would have 8 rounds of negotiation for pricing within this year and then the ninth round. So we had examples like that.
Regarding pricing psychologically, there is less resistance, and we are executing very well and hope this will be better translated into the result, and we're more confident about that.
[Interpreted] And Q4 to Q1, the trade condition was positive, and Q1 to Q2, what's the outlook, please?
[Interpreted] Q1 to Q2, yes, in terms of pricing, we will continue to work as a priority. And in Chemicals, it is a formula-based business. Sorry. So for Q1 price is also positive.
[Interpreted] Sorry, Nakahira-san. I'm talking about Performance Products only not all company from Q4, too.
[Interpreted] Well, I was talking with each business segment. Some negotiation concluded, some still ongoing process and the conclusion may be a bit delayed. But actually, we have prospect, and we think we have good prospects to be concluded. So there will be more pricing in Q2. So I expect that price difference will continue quarterly basis. That is our assessment.
[Interpreted] And the second question, Nakahira-san, you commented, and let me check that Q1 to Q2 Performance Products. You said software is sluggish, and that is against your forecast. Is that right?
[Interpreted] Q1, JPY 21.2 billion; Q2, JPY 19.3 billion. And you mentioned the sluggish regarding those numbers, that's right.
[Interpreted] So considering those 3 segments, they are all weak?
[Interpreted] Well, for the first half, it's close to our forecast, but some -- especially film-related area where display dependence is rather high in this segment so that would be most impacted.
[Interpreted] Well, you mentioned that price difference is okay, but the volume difference would be rather challenging. Is that right?
[Interpreted] Yes.
[Interpreted] And then Radicava is my last question. In U.S., you have the oral product, JPY 1.1 billion for Q1 compared to last year. What is the feedback from June regarding this oral product? Maybe you don't have full assessment. And what did your annual sales expectation increase because of the oral products added?
[Interpreted] For Radicava oral product, and the sales start so far has been very good, according to what I heard. Well, this is an oral medicine.
And in a significant manner, [indiscernible] patient increases, so we have high expectations. Kobayashi-san, you have anything to add?
[Interpreted] It is as Ms Nakahira mentioned, in terms of efficacy, it's the same, but injection and daily administration versus oral medicine and it's more convenient. That is different, particularly for those patients who hesitate to use an injection. So orals will be increased that may reduce injection formulation to be a bit lower, but overall, we expect growth here. Thank you.
[Interpreted] We're getting close to the end time. So the next person will be the last. From Mitsubishi UFJ Morgan Stanley, Watanabe-san.
[Interpreted] Yes, this is Watanabe. Can you hear me?
[Interpreted] Yes, we can hear you.
[Interpreted] Performance Products. One more question, just one question. I'm looking at Slide 7. And looking at the various analysis. Others, alumina fiber business transfer and increasing costs in tandem with recovery in sales activities to increase labor cost at SaaS. Volume plus was minimal, but costs were incurred in Q1, obviously. For Q2, you said that PDP is going to be weak, but this cost increase, do you expect this to continue in Q2 onward?
[Interpreted] Thank you. Among others, we have the transfer of alumina fiber business, and as you correctly indicated, we have increase in labor cost -- I did mention labor cost increase. But the biggest item is last year, the activities were very good and the bonus being paid in relation to that is included here. So in Q2 onwards, we will not expect a recurrence of a similar amount.
[Interpreted] So for Q2, there would not be much cost increase year-on-year. Am I correct?
[Interpreted] Yes, that is a correct understanding.
[Interpreted] Thank you, Watanabe-san, for your question. It's now time to end the Q&A session. Our CFO, Nakahira-san, any closing remarks?
[Interpreted] Yes. As far as Q1 is concerned, the results exceeded our original forecast. For Q2 onwards, there are many uncertainties. And with that in mind, we are going to make every effort to secure profit with discipline. We ask for your continued support and understanding. Thank you for joining us today. Thank you.
[Interpreted] With this, we conclude today's conference call, and it will be archived and you can watch it again from our company website. Thank you very much for your participation.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]