Sekisui Chemical Co Ltd

TSE:4204

Earnings Call Transcript 2021-Q2

[Keita Kato, executive]

My name is Keita Kato, President of Sekisui Chemical Co., Ltd. Thank you for taking time out of your busy schedule to participate in this conference call today. I will now go through the materials. Please refer to the page numbers in the bottom right-hand corner of the slide.

From Page 1, I will explain the results for the first half of FY 2020. The dollar trended JPY 2 higher than expected in the foreign exchange in the first 6 months.

On Page 2, I will share the overview of the first half results. Sales declined significantly due to the impact of COVID-19. Profits at each level of the business were down as shown in the table. As we announced in the timely disclosure, profit was much higher than expected compared to the July forecast due to fixed cost reductions in all segments and the effect of structural reforms ahead of schedule. As shown in the upper right-hand corner, the pace of second quarter recovery was slower than expected compared to the FY 2020 plan assumptions impact to COVID-19, but we exceeded the planned reduction of fixed costs.

Please turn to Page 3 to view the results breakdown by divisional company. Sales and profits declined in all segments due to COVID-19. However, all segments exceeded the profit plan announced in July, as shown in the columns on the right. The underlying comments indicate the impact of the pandemic.

In the High Performance Plastics Company, or HPP, there was a recovery in demand compared to our expectations despite the sharp drop in demand in the Mobility and Building and Infrastructure fields and SEKISUI AEROSPACE CORPORATION. Due to our further shift in the Electronics business to non-LCD field such as components for semiconductors and with an even greater focus on cost reduction across the divisional company, we significantly exceeded our profit plan.

The Housing Company substantially reduced the number of houses sold due to a decline in orders in the first quarter and construction delays, but we achieved our operating income plan through cost reductions.

The Urban Infrastructure & Environmental Products Company, or UIEP, was impacted by the temporary suspension of construction work in Japan, overseas lockdowns and a decline in demand for aircraft seats. However, we exceeded our profit plan by cutting costs and front-loading our structural reforms.

The Medical business was affected by the decreased demand for outpatient tests both in Japan and abroad, requiring cost reduction initiatives to achieve our profit plan.

In the segments of Other and Eliminations or Unallocatable Accounts, expenses were partially postponed to the second half, while we carefully selected and focused on R&D themes and vigorously promoted reductions in fixed costs.

On Page 4, you can see the results by divisional company for the first and second quarters. We believe the results bottomed out in the first quarter and recovery in the second quarter, albeit slower.

Page 5 shows the analysis of the first half results. On the right, the chart shows the factors that increased or decreased operating income. Sales volumes and product mix dropped year-on-year significantly due to COVID-19. However, we exceeded materially the profit forecast made in July due to the higher-than-expected recovery of demand for Mobility and Building and Infrastructure fields in HPP, larger reduction in fixed cost than planned and front-loading of structural reforms.

I will explain the revised plan for the full year and the second half of the year from Page 6. We have set the exchange rate assumptions at JPY 106 to the dollar, which is JPY 4 higher; and JPY 126 to the euro, which is JPY 6 lower than the initial plan set at the beginning of the fiscal year.

Page 7 shows the revised plan for the full year. Due to the impact of COVID-19, sales are expected to fall sharply, and profits at each level will be lower, but we will continue to promote cost reductions and structural reforms to achieve the operating income target of JPY 70 billion and the subsequent profit targets announced at the beginning of the fiscal year. Our original assumption was that there would be almost no impact from the pandemic in the second half, but demand recovery has been delayed. Despite the situation, we intend to achieve our initial profit target by expanding sales of high-performance products and prioritized products and growth fields, sorely cutting costs, front-loading structural reforms and managing fixed costs at hand as mentioned.

This year marks the first year of our new medium-term management plan, Drive 2022. And we will work to strengthen our profitability and establish a foundation for growth in the coming years.

We expect to pay a dividend of JPY 47 per share for the full year, which is a year-on-year increase of JPY 1, realizing the 11 consecutive years of dividend hikes as initially planned.

Page 8 explains the revised plan by divisional company for the full year. Although net sales and operating income are forecasted to decrease in all segments, we will minimize the decline in profit by our efforts such as cost reductions, and we intend to achieve the full year operating income plan for the 3 divisional companies, HPP, Housing and UIEP, announced at the beginning of the fiscal year.

Please refer to Page 9. In this section, I would like to explain the outlook for market conditions, which is the premise for the revised plan for the full year and the second half of the year. In terms of the number of automobiles manufactured, the red line shows the results for the first half of the year and the second half of the year's latest plans. The second quarter results were 77% year-on-year, which was higher than we projected at the beginning of the year and in July. But we expect the recovery pace in the second half to be slower than we anticipated at the beginning of the year and in July.

Next, the lower-left chart shows smartphone shipments. In the first half, market conditions were worse than our April forecast. But in the second quarter, shipments were 88% year-on-year, which is almost in line with our July forecast. In the second half, we anticipate a gradual recovery due to 5G switchover demand, but the recovery pace will likely be slower than the April forecast.

The top-right chart depicts the state of visitors in the Housing business. It has recovered steadily from the first to the second quarter, but we expect that exhibition visitors in the second half will be about the same as in the second quarter. We expect this to be the new normal with COVID-19, and we will attempt to attract more customers outside of the exhibition visits by strengthening our efforts to attract customers via web and other means to bring the overall visitors to 105% year-on-year. New housing starts are anticipated to fall sharply, which is mostly in line with our expectations.

As you can see in the bottom right, domestic Naphtha price is expected to be JPY 32,500 per kiloliter in the second half of the year, which is slightly lower than our July forecast.

I will now explain the revised plan for the second half of the fiscal year in Page 10. Our original assumption for the second half was that the effects of COVID-19 will be mostly resolved and the business environment would return to normal. Considering the current situation, we expect a considerable decline in revenue due to the delay in demand recovery.

In UIEP, the business transfer as part of the structural reforms is included in the JPY 8.3 billion decrease in revenue. On the other hand, we expect the company-wide operating income to return to profit growth due to a recovery in demand compared to the first half and the continuation of intense efforts to reduce costs in all segments. We may not achieve the second half plan disclosed in April, but we aim to reach the operating income target for the full year, as explained earlier.

Page 11 is an analysis of our revised plan for the second half of the fiscal year. Please refer to the operating income analysis graph on the right. Due to the prolonged impact of COVID-19, sales volumes and product mix are expected to be down significantly from the initial forecast. However, we intend to achieve year-on-year growth by expanding high-performance product sales such as high-performance interlayer films, prioritized products and increasing market share. We aim to increase profit in the second half by mainly improving the spread between raw materials and selling prices and further reducing fixed costs to offset the decrease in profit from foreign exchange and the change of consolidated subsidiaries.

This concludes my explanation. The company president will now present the initiatives and strategies of each divisional company.

[Ikusuke Shimizu, executive]

My name is Ikusuke Shimizu, Company President of High Performance Plastics Company. Let me explain about our divisional company.

Please turn to Page 13. The results of the first half of the fiscal year were extremely challenging due to the impact of COVID-19. The net sales and operating income declined to JPY 139.1 billion and JPY 8.9 billion, respectively. However, we were able to exceed the plan announced in July significantly.

Despite the pandemic continuing impact on primarily the Mobility field, we will return to profit growth in the second half to reach JPY 18.7 billion in operating income through cost reductions and promotions of structural reforms. We expect to achieve our initial full year operating income of JPY 27.6 billion.

Please turn to Page 14. In the first half of the fiscal year, net sales were down by JPY 21.3 billion year-on-year to JPY 139.1 billion. And on a real-term basis, excluding new consolidations and foreign exchange, net sales were down by JPY 24.6 billion. The graph on the right shows the factors for the increase and decrease in operating income. Despite low raw material prices and larger fixed cost reductions vis-à-vis the plans in July, operating income fell by JPY 10.8 billion due to a COVID-19-induced decline in sales volumes in the Mobility and Building and Infrastructure fields and in SEKISUI AEROSPACE CORPORATION.

If you compare Q1 and Q2, after bottoming out in the first quarter, the sales volumes and product mix have improved in both Mobility and Building and Infrastructure fields, as shown in the bottom chart. Operating income was significantly higher than planned in the first half due to lower raw material prices and cost reductions.

On Page 15, I would like to talk about the plan for the second half of FY 2020. Net sales are expected to be down by JPY 3.6 billion year-on-year to JPY 158.4 billion. On a real-term basis, excluding new consolidations and foreign exchange, net sales will decrease by JPY 5.5 billion. The factors for the increase or decrease in operating income are shown on the right. And due to the delayed recovery from the effects of COVID-19, mainly in the Mobility field and the SEKISUI AEROSPACE CORPORATION, we expect a marginal profit decrease of approximately JPY 8.3 billion as a result of the effects of the pandemic, as shown in the call-outs.

As a result, we have revised our second half operating income forecast downward. However, the first half exceeded the operating income projection by a wide margin, and we expect to achieve the full year plan, thanks to lower raw material prices in the second half of the year and our self-help efforts such as cost reductions and fixed cost reductions. Also, we expect to see a year-on-year increase of JPY 1.3 billion in operating income. Therefore, we intend to return to the growth trajectory after hitting the bottom in the first half of the fiscal year.

Next, on Page 16, I would like to report on the 3 strategic fields progress and cost innovation. Overall, the Electronics field is firm, while the Mobility and Building and Infrastructure fields have bottomed out in the first quarter and are on a recovery path.

As shown in the top-left corner, both net sales and operating income in the Electronics field increased in the first half of the year and sales of non-LCD products grew steadily. In the second half, we expect a temporary slowdown in demand due to trade frictions between the U.S. and China, but we plan to increase profits.

In the Mobility field, shown in the upper right, market recovery in the second quarter was better than expected, and some orders were front-loaded from the third quarter, resulting in higher-than-expected results. For the second half, we have made plans based on the assumption that market recovery will be slower than expected, mainly in Europe and the United States. Sales of high-performance interlayer films exceeded the plan in the first half and continue to recover in the second half to achieve year-on-year growth. Specifically, sales of our focus product, wedge films for head-up displays, are growing strongly.

SEKISUI AEROSPACE CORPORATION struggles with sales due to sluggish demand for aircraft, but we will strive to improve its earnings by promoting rationalization measures such as plant integration.

In the Building and Infrastructure fields, shown in the lower left-hand corner, sales of chlorinated polyvinyl chloride, PVC resin, recovered more than expected in the first half of the year, mainly in India, and therefore, exceeded our forecast. However, we expect a delayed return in demand for Infrastructure in ASEAN and the Middle East in the second half. Domestically, although we were affected by the suspension of construction work by major general contractors in the first quarter, sales have been gradually recovering since the second quarter.

As repeatedly mentioned in the past, we are refocusing our efforts on cost innovations, shown in the bottom right. We expect to exceed our initial plan of JPY 6 billion in cost reductions by front-loading the following 3 initiatives: fixed cost reduction by reducing various expenses; supply chain cost innovation by optimizing purchasing and others; and structural reform by reorganizing and optimizing basis. We believe that we are steadily improving our profitability.

Slide 17 is the last slide for the High Performance Plastics Company. Regarding the growth engine, although there is a delay in market condition recovery, medium-term growth potential remains unchanged and we will continue to steadily promote growth measures. First of all, sales of products for non-LCDs in the Electronics field grew steadily in the first half of the year with products for semiconductors and heat release materials for 5G base stations. Demand is expected to slow temporarily in the second half due to the effects of the U.S.-China trade frictions, but the sales ratio of non-LCD products is expected to rise to 56% as planned due to new users and increased market share.

High-performance interlayer films in the Mobility field are recovering at a pace that exceeds market conditions after hitting the bottom in Q1. And we will strive to secure the same level as the previous year in the second half. Especially regarding wedge films for head-up displays, we will aim for high growth exceeding 120% due to the launch of new car models and increased market share.

Sales of thermal insulation and noncombustible materials in the Building and Infrastructure field exceeded the July outlook in the first half, but performance will stay below the previous year's level due to sluggish domestic and overseas infrastructure demand. We will continue to expand sales of nonflammable urethane and thermal insulation materials and promote global expansion.

That is all for myself.

[Toshiyuki Kamiyoshi, executive]

Hello. I am Toshiyuki Kamiyoshi, Divisional Company President of the Housing Company. I will now go into my part of the presentation.

Please turn to Slide 19. First is an overview of fiscal year 2020 first half results. Net sales in the first half were JPY 230.6 billion. Operating income was JPY 13 billion. Both net sales and operating income declined as we were impacted by COVID-19. But due to operational efficiency and fixed cost control, we were able to achieve profits that were JPY 200 million higher than the beginning-of-year profit plan.

Regarding orders, shown in the graph on the right, both new housing and renovation orders were affected by COVID-19 in the first half. And new housing orders were 87% year-on-year. And renovation orders were 84% year-on-year. In particular, new housing orders were greatly affected by COVID-19 in the first quarter but recovered to the same level as the previous year in Q2, exceeding plan by 5 points. As a result, we have been able to secure more beginning-of-year backlog than planned for the second half. Regarding the second half plan, we plan to return to around the previous year's level in both sales and operating income, targeting to return to a sales and profit growth trajectory from fiscal year 2021.

Please turn to Slide 20. Next is the performance analysis for fiscal 2020 first half results. In the first half, despite a substantial decline in sales due to COVID-19, we were able to hedge the impact by reducing costs. In addition, we are making progress that exceeds plan to fortify our business structure, such as optimizing production by centralizing factory operations. Net sales, as shown on the left, decreased by JPY 26.3 billion, which was below the forecast.

Next, the graph on the right shows the analysis of operating income factors. Regarding the Housing business, due to a drop in orders in the first quarter and construction delays, the number of units sold decreased by 489 units from the previous year. Operating income decreased by JPY 3 billion year-on-year. But as we were able to reduce costs by focusing on improving operational efficiency, we were able to exceed the July outlook. Regarding renovation, we were not able to reach the sales forecast, and marginal profit decreased, but fixed cost improved and is progressing more than planned.

In Other businesses, the real estate business performed steadily and came in line with the July outlook. As a result, operating income decreased by JPY 5.6 billion year-on-year and was JPY 13 billion higher than the July forecast.

Please turn to Slide 21. On this page is the second half revised plan. We anticipate a decrease in the number of new houses sold in the second half as well due to COVID-19, but we will continue to aim to recover to the same level of profits recorded in the previous year, focusing on cost reduction and fortifying the business structure.

On the left, regarding net sales, Renovation, Real Estate and Town and Community Development businesses are expected to increase, resulting in a total overall increase of JPY 4.4 billion, reaching JPY 260.4 billion.

Next, on the right side, I will explain the analysis of operating income. In the Housing business, we will strive to keep fixed costs at the same level as the previous year through operational efficiency, et cetera. But we expect a decrease of JPY 1.6 billion from the previous year due to a 160-unit decline in the number of units sold, which is comprised of mainly contracted construction.

Regarding Renovation, although the impact of COVID-19 will persist, demand has recovered from Q2 and profits are expected to increase by JPY 600 million in the second half.

In the Others businesses, due to marginal profit contribution from the Town and Community Development business, profits are expected to increase by JPY 800 million. This results in operating income of JPY 19 billion in the second half, which is JPY 200 million lower year-on-year.

Please turn to Page 22. On this page are measures related to new housing orders. First of all, in the upper left, the number of visitors to the showrooms dropped sharply to 28% in the first quarter due to the impact from COVID-19. Although the second quarter was better, visitors were 80% of the level of the previous year and we expect this trend to continue in the second half. On the other hand, we plan to make up for the decline in overall visitors by strengthening or focusing on attracting customers online.

Next, on the right side, regarding orders by type of construction, in the first half of the year, rebuilding fell sharply due to the impact of COVID-19. Subdivision housing sales were brisk, especially sales for ready-built houses grew 15% year-on-year. We expect the subdivision housing and ready-built houses will continue to be strong in the second half of the year. Based on this thinking, the order plan on the upper right is based on the assumption that the impact of COVID-19 will be longer than previously expected. And the second half plan is expected to be 101% year-on-year. And the full year plan for fiscal year 2020 is expected to be 94% year-on-year.

In addition, looking at the bottom half, where we show measures to acquire orders, we will continue to strengthen and expand growth measures. Specifically, regarding our sales strategy, we will continue to strengthen our efforts to attract customers online and conduct online business negotiations and expand the development of experience-based showrooms from 27 in the first half to 34 in the second half. In terms of products, we launched a GREENMODEL with an evolved energy self-sufficiency feature through which we'd like to increase orders. And we also would like to ensure that we achieve 85% for the zero-energy house ratio.

Furthermore, regarding the land strategy, we have secured 113% of land inventory and 160% of built-for-sale inventory at the end of the first half. And we plan to further increase orders for sale.

Please turn to Page 23. Finally, I'd like to explain about the stock-based businesses and Town and Community Development business. Regarding the Renovation business, on the upper left, orders in the first half fell substantially to 84% compared to the previous year due to the impact of COVID-19, but the market has been on a recovery trend since Q2. And we would like to ensure that we capture that demand.

As for specific measures, first of all, regarding the sales structure, we will continue to expand the Fami-S Museum and strengthen our proposal capabilities. Regarding products, in addition to smart products, we will develop and expand sales of products that respond to needs related to living with COVID-19.

Next, on the right side for Real Estate. In light of the integration of the stock-based businesses, we will work to expand apartment building renovation orders and increased resources for secondhand housing purchase and resale.

For Town and Development, on the bottom half of the slide, we plan to sell 100 units of condominiums, HEIM SUIT Asaka and ASAKA Leadtown in fiscal year 2020. In addition, sales of Higashi Matsuyama Lead Town, which is the second project, started in October. As a result, the Town and Community Development business is expected to reach JPY 3.8 billion in sales in the second half of fiscal year 2020. We are progressing well against the medium-term plan.

That's all for the Housing Company.

[Yoshiyuki Hirai, executive]

Hello. I am Yoshiyuki Hirai, Divisional Company President of the Urban Infrastructure & Environmental Products, UIEP Company.

Please turn to Slide 25. In the first half of the year, net sales and profits declined due to the impact of COVID-19. But due to cost reductions, operating income exceeded the July plan by JPY 1 billion to JPY 2.5 billion. In the second half, the pace of demand recovery is slower than beginning-of-year expectations. But as we expect cost reductions to continue to take effect in the second half, we will strive to return to an increase in profits so that we can achieve a 6-month operating income ratio of 10% or more for the first time ever and also reached record-high profits on a 6-month basis.

Please turn to Slide 26. Please refer to the chart on the left regarding net sales. In Japan, there was a substantial impact of stoppages in construction. And along with this, prioritized products even struggled. And underlying growth rate excluding business transfer was 90% compared to the previous year.

In the overseas business, aircraft sheets decreased significantly. The pipeline renewal business struggled as well due to construction stoppages attributable to lockdowns. Real growth rates were 78% compared to the previous year. This has impacted the sales volume and product mix factors significantly in the analysis of operating income on the right. On the other hand, as a result of promoting fixed cost reductions in anticipation of further deterioration in market conditions, profits were higher than the July outlook.

On Slide 27, I will explain our view for the second half. First of all, looking at the net sales graph on the left, real growth rates excluding business transfer in Japan is expected to be 99%. And for overseas, demand for aircraft remains challenging. We will strive to offset the decline with FFU sleepers that are seeing brisk demand and other products. But even so, the real growth rate is expected to be 91%.

Regarding the analysis of operating income, sales volumes and product mix will be a negative factor compared to the April plan, but we plan to limit the negative impact to JPY 500 million as we plan to grow prioritized products by 20% year-on-year. We will continue to reduce fixed costs through operational efficiency and reorganization of production and will aim for a record-high operating income of JPY 11.5 billion.

Slide 28 is about the 3 strategic fields. First of all, regarding Piping and Infrastructure, sales fell sharply in the first half due to a decrease in housing starts in Japan, the impact of construction stoppages and a decrease in demand for renovations of hotels, schools, hospitals, et cetera. Demand is expected to recover in the second half driven by prioritized products, and we plan to secure the same level of sales as the previous year.

Next, for Building and Living Environment, on the bottom left, this field was also impacted by the decrease in construction starts. In addition, due to the withdrawal from unprofitable businesses and products, sales is expected to decrease in both the first and second halves of the year, but profitability is improving.

As for Advanced Materials, on the upper right, as mentioned in the third bullet point, we sold SEKISUI HINOMARU's agri business, engaged in sales of agricultural chemicals and fertilizers as well as the food tray molded products business. So this impact will be particularly significant in the second half. Furthermore, demand for aircraft sheet has not yet recovered, and we have completed optimizing the production system to reflect this at the end of September. As for FFU, whose demand is strong, we recently announced the establishment of a production base in the Netherlands.

Regarding structural reforms, in addition to the transfer of low profitability businesses and reorganization of production, operational efficiency is improving through digital transformation. In particular, webinars and web-based construction guidance seminars have become established in our sales activities.

The final slide, Slide 29, is our growth strategy. First of all, for prioritized products, in the first half of the year, in addition to construction stoppages especially in Q1, it was difficult to carry out sales activities. But for the second half, as the number of webinars increased from Q2 and adoption is underway, we believe that the plan is in reach.

As for overseas, due to the significant impact of aircraft-related demand, the sales expectations are what you see on the slide. But as you can see on the right, we will promote sheets in order to capture demand for medical and railroad applications as well as engage in rationalization efforts.

For FFUs, we will strive to develop new customers for railway sleepers in North America and Asia and also develop new applications other than railway sleepers. We would like to expand the pipeline renewal business by increasing the number of leading construction partners and introducing new products so that we can return back to 2019 levels by fiscal 2021.

That is all for myself.

[Futoshi Kamiwaki, executive]

Hello. I am Futoshi Kamiwaki, Director, Senior Managing Executive Officer and Head of the Business Strategy Department. I would like to report on the progress of the Medical business.

Please turn to Slide 31. Regarding the first half of the year, the number of outpatient diagnostics decreased due to the impact of COVID-19, resulting in a substantial decrease in sales and profits. The impact of COVID-19 is expected to be prolonged in the second half, but we plan to return to increased profits, owning to a certain degree of market recovery and cost reduction.

Next, please turn to Slide 32. Here is an analysis of net sales and operating income in the first half. Net sales decreased by JPY 2.4 billion year-on-year. Especially in the Diagnostics business, the decrease in demand for diagnostics was a major factor.

Next, let's look at the analysis of operating income on the right. First of all, diagnostics in Japan and overseas had an impact of minus JPY 1.3 billion and JPY 1 billion each compared to the previous year, which was strongly affected by the decrease of diagnostics. On the other hand, the Pharmaceutical Sciences business, on the right, was up by JPY 100 million year-on-year and is performing steadily. Fixed costs have improved by about JPY 700 million from the July plan. But as a result, profits have decreased by JPY 1.9 billion year-on-year in the first half. However, this is JPY 900 million better compared to the July outlook.

Please turn to Slide 33. This page shows the second half outlook. In terms of net sales, we expect an increase of JPY 1.2 billion in the second half due to the certain level of demand recovery in the Diagnostics business and the expansion of the Pharmaceutical Sciences business.

Looking at the analysis of operating income, both the Diagnostics business in Japan and overseas are expected to be up by approximately JPY 400 million year-on-year, accounting for a certain degree of demand recovery and higher added value mainly due to new products, which will enable us to exceed last year profit levels. The Pharmaceutical Science business is expected to increase by JPY 800 million. Orders for major pharmaceutical ingredients are almost confirmed. When achieved, this will result in an increase in profits from the previous year. Fixed costs are expected to be about the same as the previous year. The revised plan strives for JPY 1.6 billion in profits. And with this, we expect to return back to profit growth in the second half.

Please turn to Slide 34. This slide explains each business area. First of all, regarding the Diagnostics business in Japan, sales decreased in the first half due to a decrease in the number of outpatients for lifestyle-related disease diagnostics. In addition, we were impacted in some large cities as we refrained from conducting sales activities at hospitals. In the second half of the year, we expect a certain degree of recovery, and we will work to increase sales and improve profitability with the help of sales expansion of new products.

On the other hand, looking at the overseas Diagnostics business at the top right and comparing the first half with last year's first half. Although there was a decrease in demand for diagnostics, sales of diagnostic kits for COVID-19 increased. This offset the decline in other areas, resulting in sales that was broadly the same as last year levels. In the second half of the year, we expect sales to increase due to continued recovery in demand and sales expansion of COVID-19 diagnostic kits as well as blood coagulation equipment and reagents in China.

As for the Pharmaceutical Sciences business, on the lower left, performance was brisk in the first half, with sales reaching similar levels as last year. In the second half of the year, we are planning to start production and shipment of new pharmaceutical ingredients, which will greatly contribute to profitability and increase sales. The details are shown on the right regarding this. We have decided to invest in production capacity expansion, mainly in the small molecular pharmaceuticals domain in Japan and polymer pharmaceuticals field overseas. We believe that this will lead on to the next medium-term plan. For the small molecule drugs, the first phase of construction has already been completed and we expect to ramp up production from the second half.

That concludes the explanation for the Medical business.

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