Mitsubishi Chemical Holdings Corp

TSE:4188

Q1-2026 Earnings Call

[Operator]

Ladies and gentlemen, thank you very much for joining us for Mitsubishi Chemical Group's earnings briefing. We will begin the briefing for Q1 of FY 2025. We will begin with a presentation of the results by our CFO, Minoru Kida. We will take questions from the participants after the presentation. We have allocated 60 minutes for the whole of the meeting.

Before we begin, we have a message to the investors. Today's briefing may include forward-looking statements based on information available to the company at the current time. They are all subject to uncertainties and risks. Investors are advised that actual results may differ from such forecasts. Please also be aware that this briefing will be recorded and made publicly available later on our website, including the Q&A session.

With that, we will begin the presentation, and this is our CFO, Minoru Kida.

[Minoru Kida, executive]

Good afternoon, this is Kida speaking. Let me present our results for Q1 FY 2025. First, on the summary slide. The business environment during the first quarter of fiscal 2025 generally remained weak due to the uncertain economic situation, reflecting the impact of U.S. tariffs, while display-related business continued to be strong on the back of the effect of subsidy policy in China and businesses related to semiconductors, barrier packaging and other applications also remain firm.

Core operating income of Chemicals for the first quarter of fiscal 2025 came to JPY 11.6 billion in profit. Despite the accumulation of cost reduction effects through structural reforms and rationalization in force in each business as well as an improvement in volume even in an uncertain operating environment, core operating income decreased 28% year-on-year due mainly to a deterioration in price gap, a decline in market prices for MMA monomer in addition to the recording of an inventory valuation loss in tandem with lower naphtha prices.

Net income attributable to owners of the parent for the group on the whole decreased 51% year-on-year due mainly to a decline in net income of the Pharma segment as a discontinued operation.

Core operating income of the Chemicals for the first quarter of fiscal 2025 was 47% against the first half forecast. While market prices for MMA monomer remained lower than the initial forecast, display-related demand in Specialty Materials exceeded expectations and price gap improved in each business. Consequently, there has been a progress overall toward achieving the first half forecast announced at the beginning of the fiscal year for the group as a whole. Proceeds from the transfer of Mitsubishi Tanabe Pharma Corporation, or MTPC, are expected to be recorded as scheduled in the second quarter. The forecast for the full year remains unchanged from the initial forecast. As for dividend forecast, we also maintained the initial forecast of midyear dividend of JPY 16 per share and an annual dividend of JPY 32 per share.

We will continue to rapidly implement initiatives aimed at portfolio transformation and profit improvement based on the 3 criteria for business selection and 3 disciplined approaches in business operations under the guiding principles for our business operations in the medium-term management plan 2029.

So let me now explain the consolidated statements of operations for Q1. The average exchange rate was JPY 143.8 to the dollar with the yen stronger by 9% year-on-year. Price of naphtha averaged at JPY 66,300 that was down 16% year-on-year. Sales revenue came to JPY 880.7 billion. That's down JPY 136.3 billion year-on-year. Of the decline, foreign exchange accounted for JPY 38 billion, sales prices JPY 23 billion, volume, JPY 19 billion and business restructuring JPY 56 billion. So this was the largest contributor. Core operating income came to JPY 56.6 billion. That's down JPY 7 billion from a year before and 47% against the first half forecast that we presented in May. We'll come to this later.

Special items came to a net positive JPY 4.3 billion. That's up JPY 700 million from the year before. Operating income came to JPY 60.9 billion. Income before taxes JPY 50.2 billion. Net income attributable to owners of the parent came to JPY 19.6 billion, that's down JPY 20.1 billion from the same period last year.

Let me now look at the revenues and core operating income by business segment. For Specialty Materials, revenue decreased 6% year-on-year, but core operating income increased 23%. Revenues decreased JPY 16.2 billion year-on-year due to the sale of business and other factors as a result of steady progress in structural reforms in addition to a decline in raw material prices. Core operating income increased JPY 2.6 billion year-on-year.

Strong demand for display-related and semiconductor-related products and barrier packaging applications led to a favorable start. This is led by Advanced Films & Polymers and Advanced Solutions. For Advanced Composites & Shapes, we are expediting structural reforms in the loss-making carbon fiber-related business. For MMA and Derivatives, revenues was down 18% year-on-year. Core operating income down 65%, reflecting the decline in MMA monomer market prices since the second half of the previous fiscal year. For Basic Materials & Polymers, revenue was down 30%, but core operating loss narrowed by JPY 3.5 billion.

For Materials & Polymers, revenue decreased significantly due to the decline in naphtha prices as well as the impact of the transfer of terephthalic acid business in Indonesia in the previous year, but core operating income decreased only by JPY 1.8 billion. For the carbon products, revenue decreased by JPY 50.9 billion as a result of decline in coking coal prices and the impact of the transfer of Kansai Coke and Chemicals in the previous fiscal year, but the deficit narrowed by JPY 5.3 billion as inventory valuation improved by JPY 2 billion and the effects of structural reforms were realized.

For Chemicals business, core operating income decreased by 18% or rather sales revenue was down by 18% and core operating income decreased by 28% year-on-year. Carbon Products and Specialty Materials business improved steadily. The Chemicals business as a whole deteriorated due to the decline in the MMA market. Industrial Gases revenue decreased by 4% and core operating income decreased by 5% year-on-year.

Let's look at the JPY 7 billion year-on-year decrease in core operating income. The price gap difference had a negative impact of JPY 4.3 billion. This includes a negative impact of foreign exchange by JPY 4.6 billion. Excluding the impact of foreign exchange, the price gap difference was negative for MMA and derivatives due to a decline in market prices, while the difference was positive for polyolefin under Basic Materials & Polymers. The year-on-year volume difference was positive by JPY 500 million. The impact was negative for industrial gases, but positive for Chemicals. There was improvement due to reduced scale of scheduled maintenance and repairs for basic Materials & Polymers and MMA. Cost reduction effect increased year-on-year by JPY 11.5 billion across businesses under both Industrial Gases and Chemicals. Others had a negative impact year-on-year by JPY 14.7 billion. Inventory valuation had a negative impact of JPY 11.3 billion, mainly for Materials & Polymers due to the decline in naphtha prices.

Let's now discuss further details by segment. For Specialty Materials, core operating income increased JPY 2.6 billion year-on-year. Sales volume had a negative impact of JPY 1.1 billion. For Advanced Solutions, the price gap factor improved as we managed to maintain or raise sales prices for semiconductor-related products and other products. However, that was not the case for Advanced Composites & Shapes due to the change in sales mix and the continued deterioration in the competitive environment for pressure vessel applications. Volume had a positive impact of JPY 700 million.

For Advanced Films & Polymers, the volume factor improved mainly due to increased capacity utilization and sales of Soarnol for barrier packaging applications. Demand for polyester film and OPL film for display applications remained strong as high capacity utilization was maintained at our users, thanks to Chinese government subsidies.

For Advanced Solutions, the volume factor declined as demand came down for electrolyte for EVs, mainly in Europe and the United States and decrease in sales volume of display-related materials. For Advanced Composites & Shapes, sales volume was almost flat year-on-year. In FY 2024, Carbon Fiber and Composite business posted core operating loss of JPY 10.2 billion. We are expediting the review of our production structure and sales portfolio to improve profitability. We have already decided to suspend operation of our large tow production facility in Hiroshima and to reduce production of regular tow in the United States in 2025, and we recorded associated impairment loss in FY 2024.

We will steadily improve profits by reducing production and sales of wind turbines and pressure vessels or applications thereof whose profitability has deteriorated and focusing on high value-added applications such as high-end sports, aircraft and defense and our next-generation mobility businesses at CPC in Italy. Cost reduction benefits increased year-on-year by JPY 2.5 billion, reflecting the effects of rationalization such as structural reforms and review of production sites in each business.

MMA and derivatives posted a year-on-year decrease in core operating income of JPY 7.1 billion. The price gap widened by JPY 10.5 billion. Although the price gap for Coating Additives improved, the market price for MMA monomer fell significantly year-on-year and the spread narrowed. The sales volume resulted slightly by JPY 1.6 billion year-on-year due to factors such as the reduced impact of periodic repair of MMA monomer of the Asia region.

Basic Materials & Polymers saw a JPY 3.5 billion year-on-year reduction in deficit. The price gap was a positive JPY 11.5 billion. In Materials & Polymers, the impact of the timing difference or revision of polyolefin sales price and the ability to maintain sales prices at a relatively high level during the naphtha price decline contributed to the profit improvement. In the Carbon Products business, the reduction of production capacity in Kagawa was completed and unprofitable transactions based on marketplace were reduced, resulting in improvement in the price gap compared to the previous period.

The sales volume in Materials & Polymers was a positive JPY 1.7 billion due to factors such as reduced impact of regular maintenance. The impact of cost reduction was JPY 1.9 billion, reflecting the cumulative effect of fixed cost reductions in Material & Polymers and the reduction of production capacity in the carbon products. The other difference of minus JPY 11.6 billion includes a deterioration of JPY 11.5 billion in inventory valuations.

Industrial Gases posted year-on-year profit decline of JPY 2.4 billion. Although there were cost reduction effects and initiatives such as productivity improvements being promoted in each region, profit decreased year-on-year due to the impact of foreign exchange and the decline in volume. These are special items.

In the first quarter, special items amounted to plus JPY 4.3 billion, which is on par with the same period of the previous year. We recorded a gain on business transfer of JPY 8 billion from the transfer of the real estate business and property of service company Dialyx Corporation to [indiscernible] outside the group. On the other hand, we recorded a loss of JPY 1.8 billion from the implementation of structural reforms, including those related to the carbon fiber business in [indiscernible]. In addition, we have recorded expenses of JPY 1 billion related to the transfer of the real estate businesses as well as various expenses related to the shutdown of common facilities.

This is cash flow statement. Net cash provided by operating activities was JPY 60.2 billion. Cash from operating receivables and payables was JPY 18.3 billion, and cash from inventory was negative JPY 400 million, resulting in a total working capital inflow of JPY 17.9 billion. We will continue to manage working capital to improve ROIC in each business.

Net cash used in investing activities was JPY 35.8 billion. Cash flow from CapEx was minus JPY 63.9 billion and growth investment projects in Specialty Materials are progressing [indiscernible] such as capacity increase of CPC and Italy for carbon fiber composite materials and that of Soarnol in the U.K. for barrier packaging applications. Net cash provided by sales of assets was JPY 7.8 billion, and investment loans, et cetera, was positive JPY 20.3 billion. In addition to income from the transfer of noncore business such as the real estate related business of Dialyx, we recorded income from the sale of shareholdings and nonessential assets. As a result, free cash flow was JPY 24.4 billion. Financial cash flow was minus JPY 8.7 billion.

This is the consolidated statement of financial position. Total assets amounted to about JPY 5,840.6 billion, a decrease of JPY 54 billion from the end of the previous fiscal year. Compared to the end of March 2025, the yen depreciated against euro, resulting in an increase of approximately JPY 34 billion due to foreign exchange. On the other hand, trade receivables decreased by approximately JPY 56 billion due to decline in naphtha prices and periodic repair in the first quarter and fixed assets decreased by approximately JPY 13 billion due to the sale of businesses, including the sale of Kansai Coke and Chemicals Company.

Net interest-bearing debt increased by JPY 65.8 billion from the end of the previous year. The net D/E ratio worsened by 0.05 points to 1.11 from 1.06 at the end of the previous fiscal year, partly due to a decrease in capital balance from the share buyback. The funds from the transfer of Mitsubishi Tanabe Pharma are coming in as scheduled in the second quarter, so we expect to see an improvement towards the end of the Q2.

On this page, we'd like to supplement the trend of core operating income from the Q4 of FY 2024 to Q1 of FY '24 and the direction to Q2. Core operating income for the first quarter was JPY 56.6 billion, an increase of JPY 18 billion compared to the fourth quarter. The forecast for core operating income for the first half of the year announced in May is JPY 421 billion and the progress rate as of the first quarter is 47%. Although the M&A market is weaker than initially expected, the group as a whole is progressing in line with the first half forecast of JPY 121 billion due to stronger-than-expected demand for display-related products in Specialty Materials and improvements in the price gap in each business.

Specialty Materials improved by JPY 23.4 billion to JPY 14.1 billion in the first quarter from a loss of JPY 9.3 billion in the fourth quarter of the previous year. In the fourth quarter of previous year, there was a onetime loss of approximately JPY 16 billion, including an impairment loss of JPY 12.9 billion in Advanced Solutions from the impact of year-end closing adjustments in Advanced Composites & Shapes. In addition to the elimination of these onetime factors at the end of the term, demand for polyester films and OPL films for displays remained firm in the first quarter and cost reduction effects from the progress of structural reforms in each business, including carbon fiber also contributed to a significant improvement.

Regarding second quarter, the display market has entered an adjustment phase due to the backlog from the high operating rates in panel manufacturers that have continued since the previous year. And as a result, the demand for our display-related products, including polyester films and OPL films is expected to soften. Also demand in the automotive sector has also softened due to the impact of U.S. trade policy, and we expect profit to be weaker than the first quarter, mainly in Advanced Films & Polymers. MMA and derivatives posted a profit increase of JPY 1.1 billion from JPY 2.8 billion in the fourth quarter of previous year to JPY 3.9 billion in the first quarter of the current year.

The Asian market price for MMA monomer fell from $1,582 in Q4 to $1,430 in Q1. However, some sales transactions in Q1 still reflected in the market price of the previous year. So the price gap deterioration was not as severe as the market price decline. Also reduced impact of regular maintenance resulted in slightly higher profit.

Coating & Additives business performed at the same level as in the fourth quarter, although performance varied by application. In Q2, we believe a decrease in profits is unavoidable due to the weak MMA monomer market. However, compared to past market crashes, we expect the price policy effect of the expanding cost link format to provide a certain level of support.

Basic Materials & Polymers remained generally flat with a loss of JPY 3.6 billion in Q1 compared to a loss of JPY 3.4 billion in Q4 of the previous year. Materials & Polymers deteriorated by JPY 3.8 billion despite improvements in the price gap for polyolefins and elimination impact of the concentrated year-end expenses in Q4 due to a worsening of inventory valuation and the impact of periodic repair at the Okayama plant in Q1.

Carbon products improved by JPY 3.6 billion due to the reduction of unprofitable transactions and cost reduction effects associated with the reduction of production capacity. In the second quarter, we expect further profit improvement in Materials & Polymers due to the reduced impact of periodic repairs and in carbon products due to further improvement in price gap.

Industrial Gases profit decreased by JPY 3.6 billion from JPY 48.6 billion in Q4 in FY 2024 to JPY 45 billion in the first quarter of the fiscal year due to impact of foreign exchange rates and decrease in sales volume in U.S. We expect the business to remain firm in the second quarter. This concludes my explanation.

[Operator]

We will now take questions from the investors. So let's take the first question from Daiwa Securities, Umebayashi-san please.

[Hidemitsu Umebayashi, analyst]

This is Umebayashi from Daiwa Securities. First, I'd like to ask a question about Specialty Materials. This is actually recovering more than I had expected. That's my impression. But then in Q2, if you do subtraction, that would mean that the core operating income is down. It's probably just that Q1 is actually stronger and that the first half, you would probably go up. But what about the films and automotive, there are some concerns -- sorry, optical films and automotive could be concerned. But if you could perhaps provide some additional details about those 3 subsegments?

[Minoru Kida, executive]

Thank you very much for your question. With regard to [indiscernible] monomer, we will actually feel relieved to hear statements like that for -- I mean, Specialty Materials rather than [indiscernible] monomer. So for Specialty Materials, we do understand that it's still weak, but it's now on the growth track again. That's how we feel on the ground with regards to Q1 to Q2, how things would change. With regards to Specialty Materials, we actually have quite good confidence. Also for display application, as I mentioned earlier, we are getting into an adjustment phase and panel inventory levels are high. And so the flow of goods is slower. But with regard to displays, when we were formulating the plan, we were anticipating that we would go into an adjustment phase. So in that sense, yes, Q1 results were actually stronger than initially expected.

Going forward, we will probably come in line with the initial expectation for Specialty Materials as a whole. And particularly for Advanced Films and Advanced Solutions, we will probably trend as was indicated initially. But then if you think about carbon fibers and composites, we are actually seeing some benefits of rationalization from Q1. But as is described in the material, there is some work left to do with regard to price revision. We've been talking about this from before, but the downstream -- the balance between downstream and upstream capacity, there has been a gap, and we need to make sure that the upstream capacity is aligned with the downstream capacity. And in that sense, we think we have made good progress. And we will continue our efforts so that prices can be raised. And raising prices obviously involve improving the product mix, meaning shifting more to high-grade, high value-added products.

[Hidemitsu Umebayashi, analyst]

My second question is about carbon products. And you may have touched on this, but from Q4 previous year to this quarter, I think your losses were almost halved. Could you explain why that happened? And -- so Q2 would probably turn profitable. Would that happen in Q2? And any particular measures you are taking to make sure that you turn profitable?

[Minoru Kida, executive]

With regard to Q4 to Q1 for carbon products, there was an improvement by JPY 3.6 billion, of which JPY 400 million would be inventory valuation. So that was negative. So that means, in reality, there was an improvement by JPY 4 billion. And as I mentioned, compared with the same period previous year, we have this improvement of JPY 53 billion -- JPY 5.3 billion. So excluding the inventory valuation, that's worth JPY 3.3 billion in improvement. And that's probably because our measures are bearing fruit. So we announced reducing the number of ovens and it takes some time. So actually, once in April, we were able to actually close down 100 ovens. And so the impact or the benefits will only really clearly be shown in numbers probably in the second half of this.

But on an apple-to-apple basis, we have actually improved quarter-on-quarter. And we will also need to look at changing the price or terms of trade and price formula. And we don't want to just sell against the coke market price, but we would like to turn into a more tolling business model. So we will charge for the coking operations, and that would be our new business model. So are we getting the full fruit or benefits of those measures as initially expected? Maybe not 100%, to be very honest. For example, the customers may have placed orders and then later cancel that. But with regard to the carbon products, it's a little difficult because both will have this load of 40,000 tonnes. It's not like the [indiscernible] type of parcel delivery for the homes. If there is a sudden cancellation, you will have to find a destination in the market, and then it will be priced at market prices.

So we are not getting 100% of the financial benefits we expected, but we are actually getting closer to that. So the impact of repricing or switching to formula-based pricing, the benefits are really coming in. And whether we can turn profitable in Q2, to be very honest, we probably won't be able to get breakeven in Q2. We will probably have to wait until the second half. By Q4, we would definitely be in profitable territory. And we hope that at least in Q3, hopefully, we can actually turn profitable.

[Operator]

Next question from Morgan Stanley, Watabe-san.

[Takato Watabe, analyst]

I'm Watabe from Morgan. Regarding MMA, earlier you said that the top down is the market price. And the reason is that you still have the price from the previous year remaining. And traditionally, the [indiscernible] and quarter profitability, I think showed similar trends. And can I assume that formula link impact is starting to show. Also you talked about the regular maintenance is one of the reasons as well. And because the MMA market price is not really bottoming out. And I wonder how you look at the market prospects going forward?

[Minoru Kida, executive]

In short, the cost link formula impact virtually, it's not as large as we hoped for. As you know, there might be some differences in the first quarter. So compared with the first quarter previous year, MMA last year, [indiscernible] was about $2,040. And this year in first quarter, it's about $1,240 or so. I think that's the level, meaning that there is a difference of about $800. And on the other hand, the feedstock price is also coming down. In terms of spread, it's about like $300 with $700 less, drop. So if you calculate the amount that we are processing and you can calculate the impact of the spread. But honestly speaking, the impact of cost linked formula would amount to by about JPY 1 billion because it's pretty much determined [indiscernible] still. And in China, it's not even [indiscernible]. We still need to negotiate on a case-by-case basis.

In China, promoting cost linked formula is not easy. It's my feeling. So Asia other than China, to what extent we can -- customers accept cost-linked formula. And even with [indiscernible], we want to set some kind of [indiscernible] and how much we can do that is the key. And in terms of how we look at the market, we believe it's quite difficult, to be honest. Including petrochemical products, the chemicals in China, the trend is, I think, changing. For example, last year, MMA manufacturers, when the prices go up, they will start running the plant and when there's over supply, they would stop operations. And recently, those manufacturing plants are now really suspending operations.

And this does not go only for MMA. It goes for ethanol and other products as well. And this is my personal view, but I think refinery, crackers -- we need to look at their operations overall. And then I think they want to probably defend this. So I think [indiscernible] runs a plant. I think they will probably try to run as much as they want is kind of the feeling that I get. So based on this backdrop, I don't think the market will pick up so soon. And what can we do in this kind of environment? For us, a market that is relatively attractive like North America or India, we need to think about the global allocation. I think we need to really look at the global market and see where we should do our operations, and that would be one of our kind of short-term measures we can take.

[Takato Watabe, analyst]

On that point, in second quarter, you said you cannot avoid the red ink considering the current market price.

[Minoru Kida, executive]

Well, I'm not sure we cannot avoid the loss. This is not something that I can say clearly at this point, but we believe that profit will go down versus first quarter.

[Takato Watabe, analyst]

For Materials & Polymers, aside from the impact of [indiscernible] writing is getting better is because the spread of polyolefin is improving. Are there any other reasons?

[Minoru Kida, executive]

The spread of polyolefins -- we've been able to maintain that this quarter, I would say.

[Takato Watabe, analyst]

How about from second quarter onwards?

[Minoru Kida, executive]

Well, in the first quarter, Okayama is in the midst of periodic maintenance. And we believe that the utilization will go up. But basic materials and petrochemicals other than polyolefin like CD derivatives, C3 derivatives, we talked about MMA, but it's still kind of soft is what we feel. Of course, we're trying to come up with different measures like phenol, we could reduce the capacity next year. So that's something that we could do and think about how much we can keep up with the polyolefin would be the key.

[Takato Watabe, analyst]

You just talked about China. [indiscernible] evolution from government. How do you see this? This is my final question.

[Minoru Kida, executive]

This is quite difficult. We are trying to also approach the government officials. But I think the size is starting to change. I don't think we can do just business as usual. And -- so we need to think about what we can do differently. I think we need to act quickly, not just thinking alone. So we need to think about how we can reduce [indiscernible] difference as well.

[Operator]

Let's go to the next question from Mizuho Securities, Yamada-san, please.

[Mikiya Yamada, analyst]

Yamada speaking. We were talking about Basic Materials & Polymers based on Watabe-san's questions. And my question was mostly answered. But with regard to Material & Polymers, you talked about inventory valuation and that in Q2, the negative factor will be gone. But then in Q2, you are not actually so positive about the outlook for operating income increase. Excluding the formula pricing of polyolefin and C2, C3 derivatives, you're assuming that, that will continue to be weak. In addition, do you have any other downside views?

And then with regard to carbon products, we understand that you still have -- it's difficult. But with regard to just -- Materials & Polymers are doing well. And would that make up for carbon products negative part? How do you actually see the total coming?

[Minoru Kida, executive]

I heard you sneeze. I hope you don't have a bad cold. Please take care. Now with regard to Basic Materials, we're still not at a place where we can say we are safe and confident. With regard to carbon products, we are implementing various measures and the measures are actually bearing positive fruit at a very high probability. But -- and so one target is to turn this profitable by the end of this year, and this is also a requirement for this business to survive for us.

So in Q2 and Q3, as the time goes by, we would obviously closely monitor the situation. And if we cannot see the likelihood of this business turning profitable by the end of this year, we will probably need to make a more difficult decision.

With regard to basic materials, polyolefins are currently doing well. They are performing okay. So this will probably be able to hang in there for a while. And with regard to C2, C3 derivatives or [indiscernible], et cetera, and natural, we will need to look at those products and how much recovery we can see. But then recovery appears to be quite challenging given the situation around the Chinese crackers. It's not really about domestic demand, but it's more about derivatives coming in from the outside market. And if that's the case, we will probably need to think about additional measures.

So towards the second half, we are expecting some weakness. And so the question is how much we can make up for that by other measures like cost control, looking at our production capacity or maybe being clever about the production process, et cetera. We are looking at all aspects. So that's the situation we are in currently.

[Mikiya Yamada, analyst]

Well, with regard to C2, C3 derivatives, assuming the situation doesn't change for them. In Q1, the inventory valuation loss is negative JPY 8.1 billion for Materials & Polymers. And then half of that would be actually resolved by our formula pricing and the time difference. But then there will probably be about JPY 4 billion. And then if the market is flat, you probably wouldn't have to worry too much. But do you actually have other worries or you do not have any other downside factors?

[Minoru Kida, executive]

I don't think there's anything else. For Materials & Polymers, we had some scheduled maintenance and repair that will be gone. So that means Q2 can go up for that. And therefore, we can be quite confident about Q2 being higher than Q1. But this is Kashima, and that would probably account for JPY 3 billion. Okay. Well, actually, Okayama.

[Mikiya Yamada, analyst]

Oh, it's Okayama. On, so that's actually larger. Sorry about that. And actually, I have another question for Advanced Composites & Shapes. So in Q1, you posted a loss larger than I had expected. You mentioned carbon fiber and composites and you talked about production capacity rightsizing in addition to CPC operations trying to realize more sales growth and business expansion. And would the first half come in line with all those measures? And then additional follow-on question, if I may. So this transfer of MTPC, was that as of 30th of June or rather 1st of July?

[Minoru Kida, executive]

I'll start with the easy question. It's the 1st of July for MTPC.

[Mikiya Yamada, analyst]

Okay. I thought it was the end of July.

[Minoru Kida, executive]

Yes. We discussed this as a cash flow for this JPY 510 billion that was not received as of the end of June. And with regard to carbon fiber, for this year, we are seeing the benefit of rationalization upstream. As I mentioned earlier, we talked about capacity that we are looking at, for example, in the United States, we had 4 lines in 2 sites. But one for [indiscernible], we will stop it in full and another site, we will have some lines stopped. And this was actually decided in the previous year. So we actually took some impairments in the year before, but we may not have explicitly explained this here in an analyst briefing like this.

So if you look at our report -- securities report in detail, we did discuss the impairment loss in the United States. So people who have read those all the lines may have actually expected that. And so in Q1, actually, we've already had a benefit of fixed cost reduction in the amount of JPY 1 billion. And then the stoppage of the facility in Japan, that was only announced recently. So for the time being, this [indiscernible] capacity will continue to run. But in the United States, we've already stopped the part of the capacity that we intend to stop. So we are actually going to see the impact in -- already seeing the impact in Q2 as well.

And so we also talked about CPC. We also want to increase more about high-end cars, and that's a little slow, but some of the OEMs have actually given us some orders or order forecast. But then some of the makes that intended to use our products are not selling as intended. So we will probably think about that. So with regard to CPC, we will need to actually look at the existing businesses and the weaknesses.

[Operator]

So next question SMBC Nikko Securities, Miyamoto-san.

[Go Miyamoto, analyst]

I am Miyamoto from SMBC Nikko. I have two questions. First question regarding your management policy measures. Three months ago, you said that you have 3 disciplined approaches for business operation. You said that you expect a profit increase of JPY 5 billion, so JPY 29 billion from the pricing policy and so forth. And you said that the impact is not really generated in the first quarter so much, but now MMA, carbon fiber and so forth, I want to understand the current progress against this plan and if you are behind this plan. And on Page 3, you talked about MMA market is down, but the price gap in each business is improving, and that is one of the drivers for achieving the forecast. So can I assume that the price gap is progressing more than planned in each business? And I want to understand which products they are.

[Minoru Kida, executive]

So JPY 27 billion, JPY 29 billion, yes, we talked about that. And in terms of the progress, starting with the cost at the start of the year, maybe at the business explanation meeting, we said JPY 27 billion is for the asset optimization and this includes cost reduction is what we explained. And earlier in my presentation, we showed you this graph and overall cost portion -- JPY 11.5 billion improvement is what we've showed you. And so JPY 5.2 billion, JPY 5.3 billion. So chemicals and in this regard. So that is the mix, half-half and the other JPY 27 billion, JPY 5.2 billion, JPY 5.3 billion has already been captured. So I would say that it's pretty much in line with the time line for the first quarter, I think we were able to progress.

On the other hand, when it comes to prices, so we said that we will try to do JPY 29 billion. And this does not include market price. And to an extent, we've been able to do this in total. We also have some cost link formula [indiscernible] and also the carbon product [indiscernible] portfolio and we also have others for each business for this fiscal year. So all in all, it's going to be about less than JPY 5 billion or JPY 5 billion will be the amount, I think. And against the JPY 29 billion total, we haven't achieved a quarter yet. So we need to expand the cost linked formula, as I mentioned. And this is something that we will continue to build upon.

So JPY 5 billion, you might think that we're just saying this, but I don't mean to make excuses. But earlier, we showed you the graph for each business and the price gap seems to be in the negative. But there are multiple factors. For example, Specialty Materials, it's negative JPY 1.1 billion for the price gap that's on Page 8. And this is due to the foreign exchange negative impact. And also the carbon fiber price in the first quarter last year was not as low as this. So if you compare first quarter year-on-year, the price reduction or lowering price of the carbon fiber is there. So it's like more than JPY 1 billion. So there are some negative factors other than the price correction, mainly the foreign exchange. Therefore, we will not be able to really show all our efforts to improve the price gap in this slide. So I'm trying to answer your question in a qualitative and qualitative manner as much as possible.

[Go Miyamoto, analyst]

So first quarter, [indiscernible], how is it compared to your original plan?

[Minoru Kida, executive]

Well, this is quite difficult, but we wanted to do a little bit more than this. But MMA formula, changing the MMA formula is something that we could not achieve as much as we wanted. So this is something that we will continue to build upon. And non-MMA, like high value-add Specialty Materials products, we want to make sure that our customers would accept its value, and we wanted to [indiscernible] the customer [indiscernible].

[Go Miyamoto, analyst]

On Phase 3, you talked about including the price gap in each business after the [indiscernible] showing up more than the plan.

[Minoru Kida, executive]

Are you talking about other than MMA?

[Go Miyamoto, analyst]

Well, you said that MMA is one of the downward factor and also display related [indiscernible]. And so is this price gap helping to achieve the numbers versus the plan?

[Minoru Kida, executive]

Yes. I think it's pretty much in line with what we had imagined. But on the other hand, for Specialty Materials, the feedstock prices are coming down, and that also helped improve price gap. So the feedstock prices came down, but we did not reduce the sales price. That's also part of the price gap. So other than MMA, I think we were able to achieve what we had planned for.

[Go Miyamoto, analyst]

My second question is regarding the shareholder return. [indiscernible] CPC was successful and in fourth quarter, you talked about share buyback of JPY 5 billion. I think that was pretty much completed by the end of July. And I was wondering if you have additional plans to do share buyback. I want to understand what are your shareholder return policies going forward?

[Minoru Kida, executive]

So this is something that we've been saying. In order to improve our enterprise value, we need to really make growth investments that's important. And of course, we need to really think about total shareholder return or shareholder value. And since we are expecting large funds coming in and accumulating cash more than what we need is not a good situation. We think it's bad. It's not something that should be the case. We acknowledge that. So we will consider all different elements of the balance and try to reinforce the shareholder return.

[Operator]

The next question will be from Okasan Securities, Nishihira-san.

[Takashi Nishihira, analyst]

Nishihira from Okasan Securities. I have one question. So for Q1, you talked about semiconductor materials. Y-on-Y and Q-on-Q, how did they perform? And then what do you expect for Q2? So my question is about semiconductor materials.

[Minoru Kida, executive]

Thank you for the question. Let's see -- maybe you start with Y-o-Y. So compared with the same period last year, totally speaking, the numbers, okay, if you look at the overall market prices and if you look at the supply chain and the inventory levels, some materials had higher inventory levels, but that is now normalizing. And AI-related demand, as you all know, is strong. But for automotive and industrial applications, we do feel that things have bottomed out. So if you just focus on semiconductor-related on a Y-o-Y income base, it's probably doubled. It's up quite significantly.

On a quarter-on-quarter basis, I don't really want to give you specific figures, but we do see recovery and things are in line with what we had expected. So income levels are coming up. And I talked about the market situation. And for Q2, we expect this current trend to continue. So for semiconductor-related products, I don't want to overstate that, but there could be actually a situation where we beat the forecast. There is some expectation to that effect.

[Operator]

So next question, Goldman Sachs, Ikeda-san.

[Atsushi Ikeda, analyst]

I'm Ikeda from Goldman Sachs. For Advanced Films & Polymers, I have addition question. So barrier packaging materials, the demand is increasing. Is that -- and if possible, can you give us quantitative improvements to be made? I think that [indiscernible] was quite difficult, but I wonder how things are now this year and also for the second half of the year, especially in Europe, there is a recycling regulations being strengthened. And also any potential increase in the demand in the United States?

[Minoru Kida, executive]

Regarding the barrier packaging materials, I think it bottom out when it comes demand, especially in Europe. But do we expect the demand for the inventory to really increase and sales volume increasing? No. Especially on a year-over-year basis, how much it has increased? I would say between 5% to 10% growth rate. So you hear that you might feel like it's increasing, but there are many factors involved. For example, the same period last year, there were troubles in the plant in Europe, and we were not able to ship products, but now it's recovered this year. And with that, we have this kind of rate of growth. And we believe that the demand is probably going to recover from now. So first quarter, it's not that the recovery has fully picked up. And then the second quarter onwards, after it bottomed out, I think it's going to start to pick up, hopefully.

[Atsushi Ikeda, analyst]

Regarding the trading terms or price increase, any thoughts you can share with us? Is there a growing momentum around it or it's going to be further out?

[Minoru Kida, executive]

We are negotiating with customers because the manufacturing cost is going up. And basically, we are negotiating on this with our customers. However, when it comes to Soarnol barrier packaging materials, since last year, we have already been raising prices ahead of other products. And to what extent we can additionally raise prices this year could be somewhat challenging, I would say.

[Operator]

So this will be the final question from Morgan Stanley MUFG Securities, Watabe-san, please?

[Takato Watabe, analyst]

Earlier, there was a question about carbon fibers and you talked about America and [indiscernible]. And -- so what impact would there be on the full year? And so this JPY 15 billion minus -- to make up for that, you will need more. Maybe you have CPC. You also talked about aerospace. Do you have any good stories there?

[Minoru Kida, executive]

Thank you very much for the question. To be very honest, you can't really make up for the JPY 15 billion just by improving on fixed costs. I'm probably not supposed to give you too specific numbers. So I'll try to say away, but maybe in the early half of several billion yen range. So that would be the benefit from reduction in fixed expenses. And it's really important to really change the sales mix. Again, it's very difficult to be specific here, and it's not just aerospace, but defense is another promising application, and we do get some inquiries. And then for such applications, there are some restrictions. It's not just cost performance or it's not just price, there are some considerations you can't purchase from this country or that country just because they are providing at lower prices, right. So aerospace and defense, and particularly with regard to defense. And then defense has a wide range of applications. And sometimes there are applications that we can't speak about, but probably would surprise you, but there are a lot. Okay. We look forward to some good results coming in maybe on the long term.

[Operator]

[indiscernible] for closing remarks.

[Minoru Kida, executive]

Thank you for asking many questions as usual. And thank you for taking time to attend the financial results briefing today. The business environment wasn't perfect due to economic uncertainty, but the effects of the structural reform delivery have been promoting since last year are gradually emerging. And as we've been saying, we will continue to work together as one team to implement the measures and do with sense of speed. Yes, of course, we're trying to do as quickly responsible. So we will come together as one team so that we can implement this so that we can meet the expectations of stakeholders, and we will continue to make our efforts. So we look forward to your continued support. Thank you very much.

[Operator]

Today's conference will be streamlined. It's in our archives. With that, we'd like to end today's conference. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]