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 Q1 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 statement which are based on the current expectation 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 Q1 earnings call. I'm Jean-Marc Gilson, CEO of Mitsubishi Chemical Group. Earlier today, we reported our results Q1 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 Chemical Group delivered a record sale of JPY 1.1 trillion for the Q1 , a 19% increase versus last year Q1 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 721 oku yen, and a net income attributable to the parents of the company of 449 oku yen, or 30 yen 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 Q1 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. We are now fully staffed at the executive level with the announced arrival of Ichimura-san as our new Chief Digital Officer. 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 explain in detail the business results for the Q1 .
Thank you. Nakahira, CFO. I will give operational summary of the Q1 of fiscal year ending March 31, 2023, and outlook for the H1 . Page four, please. For the Q1 , 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, giving pressure to our performance. In this business environment, we carried out price transfer activity. As a result, 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 H1 forecast, we achieved 58%. More than 80% naphtha price increase, and we achieved price transfer and cost re-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 parent was JPY 44.9 billion, down 10%. We achieved 73% against our H1 forecast. Here is sales revenue and core operating income by business segment. For all segments, 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 costs prices soared, and we aggressively carried out price pass-through. In Performance Products and industrial gases, price difference was JPY 4.4 billion and JPY 3.6 billion respectively. In chemicals, 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. In chemicals, there was scheduled maintenance and repair, and the volume went down. 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 cost, and also JPY 4 billion by business exit, scale down, and manufacturing lines. That is in line with our plan, and the 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 H1 forecast. 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. Overall, it was flat from last year. Others include alumina fiber business transfer impact and increased labor cost, 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. Polyolefin and other phasing impact of the price revision was a factor. Bisphenol A market price was lower, therefore, price difference was down JPY 17.4 billion. Volume difference was down JPY 18.7 billion. There was a softer demand in automotive sector and petrochemical scheduled repair and maintenance, and also demand was lower in Europe and Asia for MMA.
As for the cost, we have plans, and things are moving according to the plan, including repair method, and we expect to see some reductions from Q2 and onwards. Others include inventory valuation gained from petrochemical that is JPY 20.2 billion. For industrial gases, the income increased JPY 5.7 billion. Along with the fuel cost increase, we could transfer the price 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 healthcare. Healthcare 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 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 how best 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. Sales of RADICAVA, with the launch of oral preparations in the U.S., increased by JPY 1.1 billion. Among the special items, net special items were expenses totaling JPY 4.1 billion, including loss on 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-over-quarter changes, the changes from the Q4 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 Q4 at JPY 72.1 billion. In addition to expanding gain on inventory valuation, we are proudly attributing this to speedy execution of price pass-through and cost reduction efforts in all businesses.
As we enter the Q2 we will continue to strive to secure profits with discipline, assuming that the severe business environment will continue, such as the slowdown in demand for displays in smartphones and the high price of raw materials and fuels. By segment, Performance Products expects slightly weaker performance, given that while strong sales of semiconductors and food applications are expected to continue, sluggish demand is expected for displays in 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 Q1 .
Profit of carbon is expected to decrease due to loss on inventory valuation with a decline in the price of coking coal. Industrial gases expect to remain firm in line with the H1 forecast, although there are concerns about the rising fuel cost in Europe and elsewhere. In healthcare, profits are expected to decline due to the timing of R&D costs being incurred. While the progress in the Q1 exceeded the initial forecast in consideration of the situation from the Q2 onward, the forecast for the H1 and the full year remain unchanged. Thank you for your attention.
Thank you. Let's move into Q&A session. Morgan Stanley MUFG's Watabe-san, please unmute yourself and address your question. Watabe from Morgan Stanley. Thank you very much for the presentation. In the beginning, you mentioned several times you have progressed better than your initial plan, 58% core operating income against the H1 . What was better and what was lower? There was some inventory valuation gain. It seems that's the biggest factor. What are other factors? Against H1 plan, you explained the segment-based activities, but overall, is that in line or there was an upside? Can you explain that, please? Nakahira will answer to this question. For the Q1 progress was 58% against H1 forecast in all segments. The progress was better than 50%. Yes, for petrochemical and carbon there was inventory valuation gain that was significant.
Outside that, those segments, overall, electronics materials and semiconductor materials and food materials and ingredient, the demand was strong. Because of those factors, overall, against H1 forecast, we achieved more than 50%. That's the result for the Q1 . From Q1 to Q2, as of now, there are various developments on 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. For the smartphone-related business, in Q1 was not much different, but in Q2 there was some impact. For raw materials, for example, coking coal in Q1 was more than $500. The price was very high. Q2 seems, it's around $300. There is a significant decline in price.
There are various factors in the H1 . In the H1 . As of May, we had our forecast and we decided we are not going to change our forecast for the H1 . It is in line with your expectation? Yes. Thank you. The second question. In the beginning, Jean-Marc Gilson mentioned petrochemical business carve-out and you're 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? Yes. For petrochemical separation and we mentioned in Forging the Future sort of timeline, and we are in line with that timeline. We do have some discussions and the timing of the start of the process. As of now, we don't think there are any changes to the timing.
As of now, several options are being considered. As of now, we don't have anything specific that we have finalized. Thank you. For pharma, my last question. Unfortunately, Medicago vaccine is not really coming onto the market. What is the direction that you're considering regarding that situation? Shareholders' issue of Medicago, that's another factor. This vaccine cannot be supplied, then what is the overall situation? Can you give more details regarding vaccine? Eli Lilly's collaboration, do you have any midterm target regarding your partnership or collaboration with Eli Lilly? First, Medicago vaccine. Well, 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.
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 are any specific changes to the plan as of now, but minor shareholders and also the Canadian government included, we want to continue to discuss. Regarding the Eli Lilly diabetic product collaboration, that is separate from vaccine, right? Yes, that's right. We announced our collaboration with Eli Lilly. Mr. Kobayashi, do you have any comments to add?
Yes. Kobayashi from Pharma.
Tirzepatide, that is the has been developed by Eli Lilly. Mainly after approval, we will have sales collaboration. We have high expectation on this product, but as of now, what our specific target and so forth, we can't comment on that. Thank you very much. Vaccine for this year will not come out onto the market. Is that your assessment? When you say review business plan, sales would be zero for this year? At least in the Q2 it's not included. As for this year, well, we are sort of waiting for Medicago to answer after review. Thank you.
Thank you, Mr. Watabe, for your questions. The next questioner from SMBC Nikko Securities, Mr. Miyamoto. Please unmute your microphone and start your questions. Thank you. Miyamoto from SMBC Nikko. I have two 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? Your first question, what the issues are? Medicago has been manufacturing samples, but in shifting to the commercial scale production, the production at a stable quality unfortunately was not established. So it's a production process issue.
As for the causes, they are looking into the cause as we speak, trying to get down to the bottom of the issue, which I cannot share with you right now. In the production volume scale-up, they face the issue. Medicago faced the issue. Now, depending on the content of the revised business plan, there are possibilities of things being revisited. Currently, from what we see, for Mitsubishi Chemical Group overall, the amount is not gonna be that large. The impact, financial impact is not a big one. Well, given the size of your operation, maybe the implication is limited. Are we talking about a single-digit oku yen amount? Well, I can't give you the details, but no, it's not that large. I see. How about penalty? Penalty not likely?
We don't have any specific requests or issues emerging regarding that. 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 scheduled maintenance. The utilization was low. Maybe that was the reason for the previous quarter. Whereas in Q1, as the market price increased, you are still suffering in terms of the operating margin. Why is that? Now in Q2, the margin, the market price is coming down. Other than the end to the lockdown in China, are there any other factors that will justify your expected growth and profit in Q2 over Q1? 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 PMMA 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. How about towards Q2? Can you also talk about the utilization rate of your plant? Toward Q2, the China factor, the demand in China is slightly recovering. That's one factor.
Compared to Q1, we expect profit growth. Having said that, there are still many uncertainties. In Europe, the gas price remains high. We do expect quarter-on-quarter increase. For MMA alone, may be a somewhat difficult situation. How about utilization rates of your facilities? In Thailand, due to the feedstock shortage, you are reducing the production. Same in Shanghai. 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. Slight improvement, but not much difference quarter-on-quarter. I see. Thank you. Thank you for responding to all those very detailed questions. Thank you.
Thank you very much. Next question from Mizuho Securities. Mr. Yamada, please go ahead. Yamada from Mizuho Securities, thank you very much. I have two questions. First question is, in the Forging the Future, you said growth area, four areas, especially healthcare. March 2026, four products, more than JPY 130 billion contribution to sales revenue. The RADICAVA start is in line with your expectation considering that. Virus vaccine, you said that there is an issue in scale of production. Equivalence issue or comparability may be an issue that may be difficult to continue. Regarding the other two products, what is the progress of clinical trials? Are the progresses in line with the plan in Forging the Future, or is this clearly behind?
Other areas, EV, 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's none, then you can say none.
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. Semiconductor and food-related areas, we expect good growth. For healthcare, well, vaccine impact, how that impact overall business, we will continue to monitor that. Regarding other developments, Kobayashi can answer to that question for-
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. 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 are in line. NeuroDerm, ND0612, and that is in line with our plan. Enrollment is according to the plan. We will have evaluation, come up with outcome. The MT-7117, as of now, we have all the recruitment completed, so progress is as planned. Thank you. Medicago's vaccine supply delay, that is before scaled production. You can't. You don't. There is no risk of exact comparability or equivalence. You don't have that concern.
Is that right in my understanding?
Well, I would not comment what exactly is happening as of now. That is not disclosed.
I see. Second question. This is also related to Forging the Future. If possible, well, this is a request, then as before, healthcare 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. 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. Their net is about JPY 35 billion increase or JPY 32 billion increase. I understand that, but outside that, our interest-bearing debt is increasing. Is that because of increase in working capital and because of raw materials? If you have cost increase, you can't help that, or are there any other way of managing that?
Going forward, JPY 400 billion asset carve-out included, you had the plan to lower interest-bearing debt. The 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. Thank you.
Thank you very much. As you mentioned, debt is increasing, and that is mainly for the working capital. That is a big factor. FX and raw material cost increase, those are 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 our management, and we are doing that. Additionally, asset sales. That is also a possible consideration as we try to manage the cash better. Also CapEx should be more strictly selected. We do whatever we can. That is our idea.
Asset sales and so forth, well, in the Forging the Future plan we explained to you, we will put ideas into budget and execute. That remains unchanged. Total JPY 3.2 trillion in five years cash flow. As of now, you are very much behind, so I hope you can catch up. Thank you very much. That's all.
Thank you, Ms. Yamada. We'll move on to the next person. Mr. Umebayashi from Daiwa Securities, please unmute your microphone and start your questions. Thank you. Umebayashi from Daiwa Securities. My first question, Performance Products, the volume difference. Question for clarification. I'm looking at slide number 7. By segment, only +1 for volume difference. By three segments, are there pluses and minuses, I understand.
Mm-hmm.
Most probably negative for polymers 'cause only negative is indicated. For other sub-segments, while there are pluses and minuses could you elaborate on this volume difference? Regarding the carbon fibers and battery materials if you could separate those two I would appreciate it. Thank you.
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 carbon material or 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. Compared to Q4, negative growth in other words, a decline. For Q2, compared to Q1, we expect some recovery in demand.
I see. Thank you. Question for clarification. Battery materials, did you say that declined from Q4?
Yes that's what I said.
I see. How about year-over-year?
Year-on-year? Slight growth almost the same level.
I see. Thank you. My second question is with regards to cost reductions, where you are on cost reductions. On a full year basis, 320 oku yen or JPY 32 billion. For Q1 6 billion yen, indicating a slow progress by segment. Industrial gases, JPY 10 billion is the plan for full year and JPY 4.2 billion in Q1, so I think you are ahead of schedule. For other segments Performance Products Chemicals and Healthcare, where are you on cost reductions? And in what way can we expect cost reductions to realize in Q2 onward? Thank you.
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. In relation to the timing of the repair, it is going to be in Q2 that we're gonna see a major impact. About JPY 2 billion as an effect of optimization of repair expenses, withdrawal of 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.
It's 19% for the Q1 but as mentioned earlier, the cost reductions of JPY 32 billion, this is the number that we are committed to achieving. We are looking at the progress at the monthly executive management meeting. We do have the people assigned as the people responsible for achieving this. I think you will see this being achieved.
I see. Thank you.
Thank you very much. Next question from Nomura Securities. Mr. Okazaki, please go ahead. Okazaki from Nomura Securities. Do you hear me okay? Yes. Thank you very much. Performance Products, I have two questions and one question in healthcare. For Performance Products segment, slide 7, there is a price difference year-on-year. It was positive. From Q4 to Q1, do you see the similar gain? From Q1 to Q2, what would be the change? When I look at Q2 compared to the past, against material cost increase, you have better resistance. You seem to have better price transfer. Structurally, any changes executed there?
Thank you for your question. First, a 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. Pricing chemicals and Performance Products outside healthcare, we are doing price transfer really rigorously. We, Mitsubishi Chemical Group, all the employees worked very hard to make pricing very effective. That is our assessment. For Performance Products, in the last year, because of the material cost increase and we were not able to catch up with business price transfer, there was a gap before. 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.
You have one negotiation in April, but that's not the end of the negotiation. For example, strong products that we had, we would have 8 rounds of negotiation for pricing within this year and then the ninth round. We have 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 are more confident about that. Q4 to Q1, the trade condition was positive. Q1 to Q2, what's the outlook, please? Q1 to Q2, yes, in terms of pricing, we will continue to work as a priority. In chemicals, it is a formula-based business. Sorry. For Q1 price is also positive. Sorry, Nakahira-san. I'm talking about Performance Products only, not all company. From Q4 to...
Well, I was talking with each big business segment, and 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. Thank you. The second question. Nakahira-san, you commented, and let me check that, Q1 to Q2 Performance Products, you said softer or sluggish, and that is against your forecast. Is that right? Q1, JPY 21.2 billion. Q2, JPY 19.3 billion. You mentioned sluggish regarding those numbers. That's right. Considering those three segments, they are all weak? Well, for the H1 it's close to our forecast, but with some weak, especially film-related area.
Our display dependence is rather high in this segment, so that would be most impacted. Well, you mentioned that price difference is okay, but the volume difference would be rather challenging. Is that right? Yes. RADICAVA is my last question. In the 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. What is your annual sales expectation increase because of the oral product in average? For RADICAVA oral product, 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, QOL of patient increases, so we have high expectation. Kobayashi-san, do you have anything to add?
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 the patient who hesitate to use an injection. Orals will be increased. That may reduce injection formulation to be a bit lower. Overall, we expect growth here. Thank you.
Thank you very much. We're getting close to the end time. The next person will be the last. From Mitsubishi UFJ Morgan Stanley.
Watabe-san.
Yes, this is Watabe. I hope you can hear me.
Yes. Yes, we can hear you. Thank you. Performance Products, one more question, just one question. I'm looking at slide 7. Looking at the variance analysis, others, alumina fiber business, transfer and increase in cost in tandem with recovery in sales activities increased labor cost it says. Volume plus was minimal, but costs were incurred in Q1, obviously. For Q2, you said that PDP is gonna be weak, but this cost increase, do you expect this to continue in Q2 onward?
Thank you. Among others, we have the transfer of alumina fiber business, and as you correctly indicated, we have increase in labor costs. I did mention labor costs increase. The biggest item is last year, the activities were very good and the bonus being paid in relation to that is included here. In Q2 onwards, we will not expect a recurrence of a similar amount.
For Q2, there will not be much cost increase year-over-year. Am I correct?
Yes, that is a correct understanding.
Thank you very much.
Thank you, Watanabe-san, for your question. It is now time to end the Q&A session. Our CFO, Nakahira-san, any closing remarks? Yes. As far as Q1 is concerned, the results exceeded our original forecast. For Q2 onward, there are many uncertainties. 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. 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 participating.