I would like to thank an old investor for attending the Mitsubishi Chemical Group Corporation Earnings Conference Call, despite your very busy schedule.
定刻となりましたので、
It is now time, so allow us to begin the conference call.
はじめに、
First, Manabu Chikumoto, Representative Executive Officer and President, will give a presentation looking into the courses for us to follow. The Executive Officer and the Chief Financial Officer, Minoru Kida, will explain the financial results briefing for the fiscal year ended March 2024.
その後の質疑応答を含め、
After the presentations, we're going to have again a session. Actually, the entire program is going to be lasting 60 minutes. Before we begin the conference, I would like to make a disclaimer to investors. In the explanation that follows, we may state future forecasts based on current expectations, but please note that all of these statements involve risks and uncertainties, and actual results may differ significantly from the forecasts. In addition, please note that the audio of today's conference, including the Q&A session, will be posted on our website.
それでは、
now let us begin the conference call. Mr. Chikumoto, please.
はい、皆さんこんばんは。
Yes, hello. This is Manabu Chikumoto, the CEO. I'd like to, first of all, thank you for your precious time to spread your busy schedule attending this conference call. Also, I would like to actually express our sincere appreciation for your understanding and support for our business operations. Thank you indeed. That said, at 1:00 P.M. we have released the certification of the textile products today. Here we need to offer our sincere apologies. We have discovered a certification defect in the triacetate fiber Soalon manufactured and sold by our consolidated subsidiary, Mitsubishi Chemical Corporation. We deeply apologize to our shareholders, business partners, and other related parties for the inconvenience and concern this may have caused.
Based on the amount of the transaction we have confirmed, we believe that the impact on our performance will be minor at this time, but if future investigations determine that it will have a significant impact on our performance, we will notify you promptly. We will do our utmost effort to prevent recurrence, and we would like to appreciate your continued support and encouragement. That said, allow me to make my presentation following the slides. I'd like to explain the purpose and also the future policies going forward. Mitsubishi Chemical Corporation has the purpose actually in KAITEKI is the world for the well-being of the people and the planet. Again, we are going to stick with the purpose going forward.
That said, actually, when I was on the management planning, actually KAITEKI Vision, that was announced back in 2020, and after that four years have passed and we experienced COVID-19 and also the geopolitical changes and also other uncertainties. The geopolitical situations have become a lot more complex, carbon neutrality, and the circular economy are some of the issues we are faced with. That said, we have KAITEKI Vision was reviewed. Again, moving into 2035, we are working on the new vision and our policies. The Mitsubishi Chemical Corporation needs to be truly united among all the employees actually so that we can truly be truly active working on our activities.
As for our future direction, we have a management policy forging the future, and we are utilizing our solid management foundation to further accelerate our businesses. We have a new management vision, KAITEKI Vision 35, and we'll be formulating it. Also we are to clarify the groups of our business portfolio policy, and we will be promoting our business growth strategies, and we will be continuing with our structural reforms and rationalization and also accelerate our efforts of the green transformation. The petrochemical businesses will be restructured, and specialty materials businesses will be our focus going forward. We'll be concentrating our resources into the specialty materials, and we are to transform into a green specialty chemical company that leads innovations to realize KAITEKI.
Thank you very much, Mr. Chikumoto.
First, I'd like to have Mr. Kida. Would you please?
Hello, everybody. This is Kida speaking, the CFO. Allow me to explain the financial results for the fiscal year ended March 2024 as well as the forecast for the fiscal year 2025 ending March. First summary: During this fiscal year, actually demand remained sluggish in the semiconductor-related market and in the industrial materials in general, and the business environment surrounding the chemical industry was tough throughout the entire period. In this environment, the sales volume in the Specialty Materials and the Basic Materials decreased significantly compared to the previous fiscal year.
On the other hand, North America recovery in industrial gases and healthcare remained strong, and while sales revenue for the entire group decreased 5% compared to the previous fiscal year, core operating income increased 4% excluding the impact of the lump sum revenue recognition of the Gilenya royalties in the previous fiscal year. So we are faced with such a tough business environment, but we actively promoted price management and cost reduction activities, which led to an improvement in the difference between the sales and purchase prices and cost reductions compared to the previous fiscal year. In addition, we made steady progress in the sales of non-core businesses and activities to reduce working capital, and the free cash flow improved JPY 111.5 billion year-on-year to JPY 219.1 billion.
As we enter the fiscal year ending March 2025, the business environment remains uncertain, but we are seeing signs of demand recovery for some products. Demand for the specialty materials and basic materials, which was quite sluggish in the previous fiscal year, is expected to recover gradually in the second half of the year, although there are going to be uncertain differences depending on the regions and products. We expect industrial gases and healthcare to remain strong. We'll continue to promote self-efforts, so to speak, such as business restriction and price management and cost reduction. We expect operating income for the fiscal year ending March 2025 to be JPY 250 billion, up 20% from the previous fiscal year, and the profit attributable to owners of parent to be JPY 52 billion down 57% from the previous fiscal year when we recorded a large amount of non-recurring profit.
I will now explain the financial results for the fiscal year ended March 2024 consolidated basis. The average exchange rate to the US dollar to the full year was JPY 145.3 to the US dollar, 7% depreciation of the yen compared to the previous fiscal year. The Naphtha unit price was JPY 69,100 , down 10% compared to the previous fiscal year. Sales revenue was JPY 4,387.2 billion, 5% down compared to the previous fiscal year. Operating income was JPY 208.1 billion, down 36% year-on-year basis. Compared to the latest earnings forecast announced in November last year, revenue down by 2% and operating income down by 17%.
Non-recurring profit over the special items was JPY 53.7 billion, up JPY 196.6 billion compared to the previous fiscal year when we recorded a large loss related to the closure of the MMA and Cassel plant and the liquidation of Medicago and healthcare. Operating income, JPY 261.8 billion. Income before tax was JPY 240.5 billion, and profit attributable to owners of parent was JPY 119.6 billion, up about approximately JPY 23.2 billion compared to the previous fiscal year. This represents an increase of 11% from the earnings forecast we made, JPY 135 billion announced in November. Now, this shows sales revenue and core operating income for each business segment. Specialty Materials, 5% down in revenue and 90% down in profit compared to the previous fiscal year.
Demand was sluggish throughout the year, and the films and molding materials in particular saw a large drop in performance compared to the previous forecast due to the adjustment phase of the semiconductor and electronics-related markets. Industrial gases continued to perform well, with revenue up 6% and profit up 35% compared to the previous fiscal year, and the profits also increased dramatically compared to the November forecast. Healthcare, revenue was down 18% and profit down 61% compared to the previous fiscal year, almost in line with the previous forecast due to the fact that royalty income from the previous fiscal year of JPY 125.9 billion, which was recognized in a lump sum following the result of the arbitration decision regarding royalties for the multiple sclerosis treatment in the previous fiscal year. Excluding this, the Radicava increase in the U.S. and also the cost reduction actually had a major impact.
Actually, it would give us the improvement of 28% in profit year-on-year. MMA down 8% in sales compared to the previous fiscal year. Increase in the profit of JPY 4.8 billion. Amid continued sluggish demand, the company achieved a profit for the full fiscal year, partly due to the effect of the cost reductions resulting from the closure of the factory in the U.K. Basic Materials, again a loss of JPY 19.3 billion. Year-on-year basis, actually sales went down 10%. Profit went down JPY 31.4 billion, which was lower than the previous forecast. All the factors behind the decrease in profits compared to the previous fiscal year, the impact of inventory devaluation and gains and losses was negative JPY 11.9 billion.
Petrochemicals was also affected by the recording of the impairment losses in the derivatives business in the fourth quarter, but avoided the loss for the full-year basis. Carbon Products posted a loss of JPY 19.3 billion for the full fiscal year as there was no improvement in the coke market throughout the period. Now, the breakdown of the JPY 117.5 billion decline in the core operating income compared to the previous fiscal year. Of the JPY 117.5 billion decline, excluding the impact of Gilenya and the healthcare of JPY 125.9 billion in the previous fiscal year, the increase would be JPY 8.4 billion. The volume differences were negative, mainly for Specialty Materials and Basic Materials, but the positive difference between buying and selling due to the promotion of price management exceeded this.
Cost reduction was positive at JPY 100.6 billion, 26% higher than the annual reduction target of JPY 80 billion for the fiscal year. The contribution in the fourth quarter was about JPY 18.6 billion. On the other hand, the difference in other items was negative at JPY 103.8 billion, in addition to the deterioration of the inventory valuation profit loss of JPY 13 billion. This includes one-time factors related to healthcare. Other factors included the decrease in equity method profit loss and increase in fixed costs due to the inflation and other factors. Now, I would like to explain the details by segment. First, Specialty Materials. Here we had a decline of JPY 46.2 billion year-on-year. The difference between sales and purchase was JPY 24.3 billion. Cost reduction was positive JPY 16 billion.
Amid weak demand, as I stated in the outset, each subsegment worked to maintain and improve sales prices, improving the differences between sales and purchases. We also promoted cost reduction activities. On the other hand, the impact of sluggish demand resulted in a large negative volume difference. In polymers and compounds, the automotive application market recovered, and there was an expansion in new adoption and increased sales of bio-polycarbonate, but demand for the barrier packaging materials, paints, inks, and adhesives were weak. In films and molding materials, demand recovered from the third quarter to the fourth quarter, for particularly the high-performance engineering plastics for the semiconductor applications and the carbon fibers for the wind power generation applications, but the volume decreased significantly compared to the previous quarter. In advanced solutions, the semiconductor market continued to be in adjustment phase. Some products for cutting-edge processes showed a recovery trend.
Some products such as photolithography materials performed well, but overall demand was sluggish and sales decreased compared to the previous quarter for the high-performance chemicals and precision cleaning services. Next, industrial gases. This performed rather well, up JPY 42 billion year-on-year basis. Although volume was not strong, but price patrol and productivity improvement efforts implemented in all regions were quite successful, and these activities made good contributions to the profit. In healthcare, core operating profit decreased by JPY 87.9 billion due to the impact of revenue recognition of Gilenya in the previous fiscal year. In addition to the significant growth in the sales of Radicava oral formulations in North America, sales of domestic pharmaceutical priority products and new products were also strong.
In addition, the effect of cost reduction, such as reduction in the research and development expenses due to the addition to withdrawal from the Medicago's business in the previous fiscal year, contributed quite greatly. MMA increased profit by JPY 4.8 billion year-on-year basis. The difference between sales and purchase was affected by the decline in the MMA monomer market compared to the previous fiscal year. The difference in volume improved due to the reduction in the scale of regular maintenance and increased operation compared to the previous fiscal year. In addition, the cost reduction effect was accumulated due to the decision to close the Cassel plant in the U.K. in the previous fiscal year. Basic Materials were down JPY 31.4 billion in profit.
The difference between buying and selling was a positive factor due to the time difference of the price revision of the polyolefin at Petrochemicals, but the overall difference was negative. The difference in the volume, again, was another factor, negative factor. Difference in others, actually the impact of the inventory valuations, again including negative JPY 11.9 billion, which was a major factor.
Special items totaled positive JPY 53.7 billion. Last year, there was an exit of Medicago, and also we had to book losses from the Cassel. But this year, for March 2024, there were some gains, and also CPC faced recognition as a subsidiary. That has been positive for us. Here's the cash flow statement. Operating cash flow was JPY 465.1 billion. This is positive. We continue to strengthen cash management activities throughout the company.
Despite weak demand, we controlled inventory volumes and improved inventory cash flow from JPY 45.2 billion from the outflow side last year to the inflow side of JPY 30.3 billion. Investment cash flow was JPY 246.1 billion. CapEx for future growth was made mostly in industrial gases and specialty materials. In addition, we recorded cash flow of JPY 72.3 billion positive from asset sales, mainly from sale of coal assets and sale of strategic shareholding. As a result, free cash flow was JPY 219.1 billion, a significant increase from previous year. Financing cash flow where the outflow was JPY 241.7 billion. Here are the consolidated statements with RBS. Total assets amounted to JPY 6,104.5 billion, up JPY 330.2 billion from the end of the previous period. The main factor was the impact of effects, contributed to a JPY 324 billion increase.
Net interest-bearing debt decreased by JPY 35.3 billion from the end of the previous fiscal year. The net D/E ratio was 1.16. Compared to 1.33 at the end of the previous fiscal year, this is an improvement of 0.17. We will now add some explanation to the trend of the core operating income from the third to the fourth quarter. Core operating income for the fourth quarter was JPY 24.2 billion, a decrease of JPY 40.1 billion from the third quarter. Specialty Materials posted a loss of JPY 12 billion for the fourth quarter. Compared to the third quarter, there was a recovering demand for various products, including barrier packaging applications, high-performance engineering plastics, carbon fibers, and polyester films. But profits declined due to one-time factors such as capacity utilization adjustments for inventory optimization in some businesses and the impact of year-end closing adjustments.
Industrial Gases continued to perform well in the fourth quarter following the third quarter. Although for the healthcare, the sales of Radicava in North America remained strong in the fourth quarter. The segment saw a decrease in profit compared to the third quarter due to negative rebound from Q3 sales of prescription drugs in Japan and the concentration of SG&A and R&D expenses at the end of the quarter. In MMA, there was no significant recovery in demand in Q4 since Q3. The supply demand in Asia remained tight due to the supply-side factors. A trading gap for sales and purchase improved due to the higher market prices. In addition, MMA returned to profitability in the fourth quarter due to the better utilization without regular maintenance shutdown. Basic Materials posted a loss of JPY 8.9 billion in the fourth quarter.
Petrochemicals' trading margin improved due to a delay in the timing of polyolefin revisions. However, inventory valuation gain decreased, and some derivative businesses booked incremental losses on fixed assets. Therefore, in Q4, we posted a loss of JPY 2 billion. The carbon business posted a loss as well. It's a loss of JPY 6.9 billion due to deteriorating trading margins and shrinking inventory valuation gains and continued soft coke market conditions. Next, we'll explain our forecast for the fiscal year ending March 2025. Before I get into the details, I'd like to talk about the change in reporting segments. With the change in organization since 1st April , our reportable segments for the fiscal year ending March 2025 and thereafter will change as in the slide. The specialty materials segment will be disclosed in three subsegments: advanced films and polymers, advanced solutions, and advanced composites and shapes.
Advanced films and polymers is classified mainly as businesses that were previously part of polymers and films. Advanced solutions will be similar to the existing advanced solutions subsegment. Advanced composites and shapes used to be molding materials businesses. In addition, the coating additives business will be disclosed separately as one subsegment under the MMA segment. In the materials and polymers business, the sustainable polymers and engineering plastics businesses were added from the former polymers to the existing petrochemicals business. Those businesses with greater affinity are now in the same segment so that we can further strengthen cooperation among businesses to accelerate growth. We apologize for any inconveniences this may cause the investors and analysts, and appreciate your understanding. Next, I will explain the main topic for today, our full year forecast for the fiscal year ending March 2025.
The forecast assumes an exchange rate of 150 JPY per US dollar and an asset unit price of 75,000 JPY. Full year revenue is projected to be JPY 4,623 billion. It's a 5% increase over the fiscal year ending March 2024. Core operating income is projected to be JPY 250 billion. It's up 20% from the previous year. Operating income is JPY 210 billion. It is a 20% decrease from FY 2024. Net income attributable to owners of the parent company is projected at JPY 52 billion. This is down 57%. Here are our forecasts by business segment. In accordance with the change in disclosure segment we explained earlier, the results for the fiscal year March 2024 have been reclassified for comparison purposes. Specialty Materials expect to increase by JPY 16.6 billion from March 2024.
Of this, advanced films and polymers expect a recovery in demand for polyester films and other products. Advanced solutions expect a recovery in demand for its semiconductor-related businesses through the second half of the year. Advanced composites and shapes, it's expected to see a recovery in demand for high-performance engineering plastics from semiconductor and other general industrial applications, as well as carbon fibers for various applications such as wind power generation and sports and automobiles based on the recent recovery trend. In light of the recent recovery trend, we expect a recovery in demand for high-performance engineering plastics for semiconductors and other general industrial applications. We assume further upper profit growth in industrial gases, up JPY 11 billion from March 2024. In the fiscal year March 2025, we expect strong demand to continue globally. Productivity increase, measures and cost reductions impact is also factored in.
Pharma is expected to see a decrease of JPY 14.3 billion from March 2024. Although we expect sales of Radicava ORS to remain strong, we have included the impact of energy price revisions for prescription drugs in Japan and increased HGMA and R&D expenses for the launch of new products. MMA and derivatives, it's expected to increase by JPY 14.1 billion from the fiscal year ending March 2024. Of this amount, JPY 13.3 billion is to come from MMA business. Based on the current trend in Asia, we have factored in improved trading margins compared to the previous year, improved capacity utilization, and cost reductions due to structural reforms in Hiroshima. Basic materials and polymers, it's expected to increase by JPY 17.7 billion from March 2024.
Although inventory valuation gains will shrink for both petrochemicals and carbon, we anticipate an improvement in the coke trading margin due to lower coking coal prices and improvement in the volume margin for petrochemicals, including elimination of the impact of last year's troubles and the positive effects of cost reductions, respectively. We expect profit to increase in the second half over the first due to reduction in the scale of scheduled maintenance in petrochemicals and improvement in inventory valuation gains/losses in carbon. The following is our operating income analysis by factors. We forecast the gross profit to increase by JPY 41.9 billion from March 2024 to March 2025.
The trading margins for the sales and purchases, that will be negative in pharma due to the impact of the energy price revisions for prescription drugs in Japan and the impact of a cost increase in Europe and the U.S. in industrial gases. On the other hand, trading margins are expected to improve in MMA and derivatives and basic materials, polymers. As for the volume differences, we expect a recovery in demand in each market, including semiconductors, mainly in specialty materials. On cost reduction, we continue our plans in each business segment throughout the year. Although the management team has changed, we will continue to streamline operations to improve profitability.
The other variants include the impact of a reduction in inventory valuation gains in basic materials and polymers, as well as an increase in fixed costs due to inflation and other factors in each business, and an increase in selling and R&D expenses for the launch of new products in pharma. We consider our forecast of JPY 250 billion in core operating income as a must-achieve target. We'll accelerate business portfolio reforms and growth strategies to further increase profits. Finally, I'd like to discuss dividends. The year-end dividend per share for the fiscal year March 2024 is, as announced, JPY 16. It will be resolved at the board of directors meeting on 20th May . For the fiscal year ending March 2025, we forecast second quarter end and year-end dividends to be the same as the year-end March 2024. That means JPY 16 per share.
As a result, the annual dividend forecast for the fiscal year ending March 2025 is JPY 32 per share. We plan to announce our future dividend policy based on our new growth strategy and capital allocation policy in business presentation that is scheduled to take place in the fall. This concludes my explanation.
Thank you, Mr. Kida
Now, I would like to have the Q&A session. Now, again, let me introduce the questionnaires. Morgan Stanley MUFG Securities. Watabe, please. Please go ahead with the question.
Morgan Stanley, this is Watabe. Thank you for the presentation. Two plus one, please. And first, the first question goes to Mr. Chikumoto, the new CEO. In the fall, the strategies will be in work time. But during the press conference, I thought you told us that you are going to actually make the further advancement in terms of timing.
Well, it's been one month since you became the CEO. Again, how you are going to actually go through the improvement, again, on trying to unite employees and also working on this new organization and specialty chemicals and actually have dropped. How you are going to improve this business performance in this particular segment?
Thank you indeed for your question. Mr. Chikumoto, please.
Yeah, thank you again for your questions. Well, actually, in the fall, it's going to be too late. I think that's the message I'm hearing from many of you. Of course, the sooner the better. Yes, I would agree to that. But of course, I'd like to go for whatever we can do. Again, with this new organization, it implies starting from February, actually, we started working on many hidden activities behind the scenes.
So actually, the new members are truly fully appreciating what we're supposed to do. And so going forward, actually, almost every week, weekly, we have spent about half a day, a full day. We are actually working on many important agenda decisions we have to make. Yes, the vision is going to be officially announced in the fall. The vision and strategy will be announced officially in the fall time. But again, we're not going to be just waiting for the fall time. We'd like to actually go for whatever the activities actually we can work on. And also announcements will be following those activities one after another.
So when we get back in the fall time, maybe you may be giving us a response that, "Wow, you seem to be ahead of the innovational plan." As for the employees' motivation question, well, I think this has become the serious, the crisis matter, so to speak. And actually, the petrochemical and also the carbon, which I made referral to last year, of course, we have to make further efforts. Actually, in these areas, yes, there have been some concerns. Actually, among the operators and employees, actually, they decided to leave us, start working for the other businesses. But starting from January and February, then churn actually rate actually has been stopped. And our employees actually have become a lot more active and positive. Actually, they are actually having higher motivation, so to speak, if I'm not wrong. Another point, if I may, actually, our purpose.
Yes, actually, concentration is going to be the game we have to go for. Why we engage in such, such, such business operations? Why we are coming to an office every day? I think all these things can be explained by this purpose. So this KAITEKI is going to be, again, an important driving force. As for our efforts to make money, profit, of course, there we have to be somewhat patient. Again, we need to come up with the most appropriate pricing policies. And we have to actually work on whatever the activities we have to go for based upon the most appropriate pricing. Yes, that's what we have to do. So I think this is going to be clearly defined. Of course, rationalization, as Kida-san mentioned this, of course, there is not the stopping point working on the rationalization. And also, this has become an important global activity.
I think you can expect us a lot.
Thank you indeed. Yes, I have a big question. My second question, the fourth quarter just ended. Well, then one-time loss, the impairment, and also the specialties business actually has shown quite a tough season. I wonder if you could expand on those seasons again by referring to the specific numbers. And actually, what kind of impact you may have in the new fiscal year. Yes, the fourth quarter, SM/BM, actually one-time factor. And also moving into the fourth quarter, what kind of improvements will be possible?
Here now, I'd like to have Kida-san to respond too.
Well, in regard to the SM/BM, I think there are several factors. First, impairment, about JPY 4 billion or around impairment paid.
And also inventory adjustment, as I mentioned at this point earlier, actually this year, actually we need to work on compressing the inventory and the working capital to actually improve. That's what we have done. So for that, actually, we had an actual stop, plant operations, to work on the inventory adjustment as much as JPY 2.5 billion in profit. And also, again, one-time factors, whether or not they are truly more factors. For example, actually depreciation in value on the inventory size or actually some of the losses, and we simply cannot make a recovery. Yes, we had those three major issues: impairment of JPY 4 billion and inventory adjustment of JPY 2.5 billion. And also the financial adjustment and JPY 2 billion plus. I think they are the major factors.
Two segments put together, am I right? Assuming that way. Specialties and the basic materials put together.
I was referring to the specialty materials.
May I remind you that?
Okay, thank you. On the basic side, it's not that large. As for the basic materials, allow me to say the following. In terms of impairment, actually, phenol, BPA, actually plant, of course, again, is faced with the loss of JPY 4.2 billion. Again, this is quite large.
Thank you. I got it. In regard to the healthcare, the Radicava, actually competitive drug, actually going through the fading, they're out again in this competition. So how do you feel about it? And Mounjaro, actually, you shared the latest number in the previous fiscal year. I wonder if you could share the latest updates.
Radicava and Mounjaro actually in FY2024 are actually in the forecast. And here I'd like to have Chikumoto-san to respond to that question. Yes, Akihiro, to make a response.
Actually, in regard to the Radicava, Phoenix actually is the thing I think you're referring to, if I'm not wrong. Well, actually decided to withdraw from the market. Actually, this is going to be minus an option available to the patients. So we feel really bad about that. Migration to the Radicava, of course, some 100 patients are going to go through this transition. That could be quite possible. But having said that, that actually is not reflected into the latest forecast in terms of the numbers. Concerning your second question, well, this is Mounjaro, right? Matter. Well, in the previous fiscal year, of course, the numbers are not given there. But as you said in the bottom for the current fiscal year, well, actually they are not disclosed. I hope you understand that.
That said, actually on the forecast for the sales revenue by product, please refer to page 52. Long-term efforts there. The Mounjaro is actually part of the current fiscal year, so the sales revenue, I think you can make educated calculations. The year 1998 , actually due to the agreement with them, we simply cannot disclose the number. So actually the number there is going to go up.
Thank you indeed. Thank you.
Now, let me introduce the next question. From SMBC, we have Mr. Miyamoto. Please ask a question.
Yes, this is Miyamoto speaking from SMBC. And I have two questions myself as well. The first question is for the President Chikumoto. And this may not be an easy question for us right now. But option number three, you talk about clarifying the business portfolio strategy for the group as a whole.
I have read your interviews in the industrial papers. Once again, can you tell us how you feel or think about your business portfolio? You have two different businesses, chemicals and pharma. Still, industrial gases make up the major part of your profit. There was also a talk about things from certain businesses in the previous management team. Can you discuss more about your business portfolio strategy? Thank you very much.
We can say that everything is under review. Industrial gases have strong earning power. It is also growing in a stable manner. That is a fact. Pharma business too, including Radicava, we have strong products still. We are very grateful for this. On the other hand, if you look at the chemical businesses, we are losing our capabilities to earn profit or revenues.
We are stressed about this. Then there is no quick remedy to this to increase our revenues. But recently, we have been working on pricing strategies. We are not caught up in the past. But we are speaking with our customers about it. We are gaining our customers' understanding on our pricing. We are hoping to realize that pricing strategy works well for us. That's what we have been doing the past year. We are still working on cost reductions. That is making progress overseas as well. Including that, we are to increase earning power of the chemical businesses. About the carbon business, the overseas market is still not doing well. But gradually, there has been some improvement in March, April. Fundamentally speaking, spread is bad. Still, business market is not doing well.
There are some special factors in Australia. The price with the material that we have been purchasing that is going up. Still, we are discussing about how we can prevent from incurring losses. Also about the future plans. That is one of the important items for us to review. We are looking into all the possibilities. For any business, we are not biased. We might make an announcement after a thorough review. But so far, nothing's decided.
Regarding synergy with pharma, the difficulties of managing pharma and chemicals together, can you discuss about it?
Regarding synergy between pharma and chemical business, I think that it's quite difficult for us to achieve. Industrial gases too, if there's a strong synergy or not, well, I think it's still difficult for us to achieve. It's my personal observation. Understand.
The second question is about MMA. In fourth quarter, in spite of the market growth, it seems that your profit was not quite catching up. Then I was wondering if you had to book any impairment losses. Then also you are planning to increase your profit by a greater amount in the new fiscal year. But it seems that trend is quite slow. Also material shortage or regular maintenance, well, they could be an impact to you as well. So if we can discuss about the MMA forecast and also the latest trend as we are now entering into the new fiscal year. Okay, so MMA Q4, if there are any one-time factors and also business prospect for fiscal year 2024. Mr. Akita, can you please take this question?
Yes, this is Kida speaking.
So, regarding any one-time factors that may be causing an impact, we don't really see such one-time factors or the impact. If we think about current market, it's more about the supply-side problem. Asia has been tight. Phenol is not doing well. So naphtha is not coming out. Because of natural, we are not getting the byproduct out as H2, that it's tight. So this situation might continue for some time. But then in the end of the day, as I had explained earlier, as a part of performance forecast, we are at JPY 210. That is a must-achieve target. So of course, we are being careful to an extent here. Then market situation right now, I cannot really say how much. But this may not be one-time. Current situation might continue for some time.
And then if we take the current or latest price level, I think that is the level we should be referring to. And I think we'll be trending around the latest price.
So regarding the $2,000, which is the latest, how do you see the market to trend from here? And also how about consolidated budget-wise?
So recently, it's exceeding $2,000. And I think $2,000 is good enough. And then about Louisiana weekly, we are doing a review now. So no decision has been made yet. But I will continue to review.
Understand. Thank you.
Let me introduce the next person. Daiwa, excuse me. Mr. Umebayashi, please.
Thank you indeed. This is Umebayashi from the Daiwa Securities. Actually, I have two questions. The first question is actually Specialty Materials. Again, fourth quarter and profit and loss in the previous fiscal year.
Actually, you made a reference to the impairment and also the other negative factors in the fourth quarter. Put them together, JPY 8.5 billion negative factors according to what I've heard from you. But that said, actually JPY 12 billion in the fourth quarter and the loss size. So showing that I think it is going to be quite substantial loss and impact. But actually looking at the revenue on the Specialty side, and actually Q- on- Q actually improvement by the JPY 9 billion. So even though the sales grew, but actually in terms of what's the reason why business substance actually has not been improved? From Q3 to Q4, actually revenue grew. But profit actually went down. What's the reason?
Can I like to have Kida-san to respond to that question?
Yes, in the fourth quarter, yes. And we had a quite tough situation, Specialty Materials, particularly so.
As I mentioned at this point earlier, actually in our focus for the full year performance, in the fourth quarter, yes, the full year impact actually had a negative on several aspects and Basic Materials. Yes, and actually demand actually seems to be recovering step by step. But still, there seems to be too much in inventories. Films and moldings, I think, is the toughest area as far as you're concerned. And semiconductor side, yes, there has been some recovery. But still, engineering plastics actually is not coming into the full recovery. Next, CPC. Again, fully integrated as a subsidiary. But PPA and purchase price allocation on the buying side, actually more than we had expected. Actually, the depreciation actually was much higher, pushing down on the profit level.
Thank you. Then actually, well, actually M&A actually had an impact on the growth in sales revenue. Am I right?
Yes, what you said is right. Again, I explained clearly.
Thank you indeed. Allow me to move on to the second question concerning the pharmaceutical business on page 48. The GOBIK and others are actually introduced here. Tetra Pak and actually in the syringe. Actually, JPY 15.8 billion is the forecast of the growth in the current fiscal year. Then actually, what is going to be the driving forces for such a growth?
Again, this is going to give you the quite positive marginal improvement. I wonder if you could expand on these aspects.
Thank you for that question. GOBIK, the FY2024 and ORS. What is going to be the growth potential? Here I'd like to have Tsujimura-san to respond.
Yes. Again, from the four to the five combinations. Well, with this, I think we believe that there is going to be rather strong potentiality.
When it comes to the vaccine, of course, there is no official drug price. Actually, here we need to look into the specific reduction of the prices compared with the actual vaccines. And actually, yes, the price actually is somewhat at a lower level. But actually, again, it is going to take only one injection. So compared with the four mixes, and actually the impact on the patients will be much less hard. So this is going to be a positive factor. Did I answer your question?
Well, thank you indeed for your response. The revenue actually is expected to grow dramatically. But going forward, you believe that the sales revenue is going to continue to grow. And also in terms of the profitability, whether or not we can have certain expectations and in terms of the profit.
Well, actually, it's rather difficult for me to expand on the profitability. But as for the sales revenue, well, definitely going forward, I think we need to make further efforts so that we can grow on revenue. And GOBIK, well, together with Pfizer, actually we're going to actually work on what we call co-promotion. I think we are going to have an extended sales channel so that we can actually have more access to the wider population of the patients. So the co-promotion is going to be done with Pfizer. Actually JPY 15.2 billion for the current fiscal year. Definitely, this is going to be the starting number.
Well, that's all from me. Thank you indeed.
Thank you. Let me introduce the next question. From Mizuho, we have Mr. Yamada.
Yes, this is Yamada speaking from Mizuho Securities. I have two questions. And also one question on pharma.
A total of three questions. Now with generic products, you do have a number of such generic products. Celdex is one of them. There is a 70% price reduction. Then when it comes to Radicava, there is a potential to see a major increase with the growth in the U.S. But is this enough as the price reduction? Because for the Mounjaro, marginal profit is quite low. This may not be such a major impact. Can you discuss about this?
Yes, Tsujimura-san, please.
Yes, can you please rephrase your question? I'd like to confirm your question.
Yes, so regarding the generics, Mounjaro is now increasing. It's +1, +2, +3 according to this chart. There are a lot of products where the price points are down, such as Celldesk, also Talion.
For those products, price declines about 30% or 40%. But when it comes to Radicava, if the Radicava's growth is this much, then price reduction impact could be quite significant. Even Mounjaro may increase. It's not in clinical studies. So marginal profit may not be that high. For the pharma, how is it possible to suppress price decline at this level?
You asked about Radicava. Also another thing about generics. That's right. I was mixing the questions because this is a question about the pricing impact. We are not really able to disclose the information concerning Mounjaro. But then here, this is JPY 12.3 billion generics. This is an increase from previous year. The generics prices are down significantly. But still, this is a major increase. For Mounjaro, that means we can still expect a significant increase in sales.
As for Mounjaro. Shipment restrictions, as of now, we'll go back to regular shipment. So Mounjaro's revenue increase impact is included into these numbers to an extent. So I believe that Mounjaro is going to show a significant growth.
So if this is the sales that we are going to achieve, then does that mean Mounjaro is going to grow so much? But then I think Mounjaro's marginal profit is not so high. So how much is the price reduction impact? That's how we say it. So does that mean Mounjaro's marginal profit is at enough level?
We cannot really say. I'm sure you know, Mr. Yamada. So our answer is rather vague. I think about it because I wasn't quite convinced by these numbers. So excuse me for asking. And then I have another question. This is about your financial financing strategy.
Now, in my understanding, your financials are quite weak. If we are to start Alpha- III, then you might have to spend JPY 300 billion or so. Then if we look at your R&D allocations, in pharma, you are spending. But for others, SMBG, even if we are to add them up, it's still lower than Mitsui Chemicals. We talked about realizing the KAITEKI Vision at the beginning. If you look at this around the spending, they don't quite match your statement. Even before the full time, will there be any announcement on new development or if there is any plan or anything that you are looking into now? If we can share the way of thinking.
Thank you very much. So in order to improve financials, how we think about the capital allocation going forward? I believe that was your question. So Mr. Akihiro, would you like to take this question?
Yes, Mr. Yamada asking the hardest question. This is something we ask ourselves every day. Now we do have one major target, D/E 1 or below one. This is something that we always discuss about. This is not going to change in our new midterm plan either, I believe. Then, of course, we have to make plans over the investment. Of course, we have to think about how we can allocate our money. As Mr. Tsujimura had said, as a part of the portfolio discussion, we are everything on the table. If we are to think about the best owner, it's not about pharma or the gas or specialty materials. Everything has to be put on the table as we review.
And then even for the capital allocation, I think that we have to work based on a certain hypothesis. And then when it comes to Alpha-3 and for a major specific project, how can we as a finance tackle this? I don't know. First, we have to plan for the financing, either direct or indirect. Or we may ask for the partner to work together. Or we may ask for the third-party investors. So these options will have to be looked into as well. So it could be a combination of more than one. So I think that will be our approach going forward.
Understand. So you are open-minded about taking the external capital in to secure the optimal management resources. So is that a correct way to understand?
Right. So when we speak about external, it is difficult to implement.
But then it could be done on a project basis. We may work with others as partners. And so if this is a major project, then we can ask another entity to hold the capacity for some time. So we like to be diverse about it.
Understand. Thank you very much. And then finally, this is a question from Mr. Tsujimura about direction going forward. And you are to formulate the KAITEKI Vision 35. And I think this sounds great. And then I was wondering why 30 went away in a half year. So I think it is very important for the employees to get together as one. But do you have any plans to change your HR system? Or is this going to be more comprehensive plans? And over the three major elements of management, can you discuss about resource strategies?
Right.
HR system too, I think that we will have to change. First of all, we have to set a vision. Then we are going to work on strategies to realize that. Then to support our strategies, we have to have HR systems or the organization and the way we process operations in the company that will have to be formulated or decided. That was a part of Mr. Yamada's question. We'd like to increase our R&D spending too. We are not just to spend on anything. But we should concentrate our spending on something that we are good at. That's why there is a selection process. We have to select and concentrate. That's what we mean by putting everything on the table.
Understand. Thank you very much. Looking forward very much to the major reforms. Thank you.
Next question is going to be the last question. From Okazaki, Nomura Securities, please.
Yes, this is Okazaki from Nomura Securities. Actually, I have two simple questions. The first question goes to Tsujimura. Well, earlier, you made reference to the announcement to be made in the fall. For example, looking at the portfolios and industrial gases and others, actually, I wonder if you'll be able to actually go through the details and in these areas. Actually, we are reviewing these areas. Actually, I think we have to wait for the certain progress to be made vis-à-vis the specific process then. I think we can actually share the information in front of you. I think that's what we have to do.
That said, in the full time when we explain these things, actually, if you believe that, oh, come on, you have already explained these matters actually prior to this announcement on the occasions, that's the kind of expectation. So does that include reviewing the portfolio?
Yes, you're right.
My second question goes to Kida-san. JPY 250 billion, actually, on her core and operating income was mentioned. But looking at external factors, I think external factors are going to have great impact on your business performance. So, for example, of course, you have to make your own efforts. Again, you believe that making your own efforts on your side and being able to actually improve the core and operating income, I would like to get some feeling how you feel about it. Actually, again, I'm, of course, an outsider.
I'm not quite sure whether or not, to what extent, you'll be successful.
FY 2024 forecast, again, a basic thought behind it. Improvement, again, here. I'd like to have Kida-san to respond to that question.
I think what you said is right. Particularly chemical business, particularly, is going to be affected by the external factors. Yes, that's what we see, actually, in the price and also the differences between buying and sell. Looking at the previous fiscal year and be it semiconductors and also the sort of specific customers, for example, wind and power and then other customers. In those specific groups of customers, yes, there has been some sensitive issues. The wind power generation, of course, has been supported by the government side. So that has given us, no, no, no, the attraction, so to speak. We have to look into all these end-to-end aspects.
Whatever we have communicated, again, we have to go for it. Tsujimura and other top executives actually are truly determined. Again, JPY 250 billion is the specific number. Actually, we have to actually work on the specific activities. Actually, looking into the possible ups and downs. Again, taking into account the possible ups and downs, actually, we have come up with JPY 250 billion. Whether or not we have the full confidence? Well, I think we believe that we have to go for it. That's what we believe. Also then our own efforts on our own. Well, self-efforts, again, JPY 250 billion, that's included for the current fiscal year. JPY 47 billion and a bit less than JPY 50 billion in a cost reduction is also part of this entire picture. Industrial gas is actually a major number. Again, within each business segment.
Well, actually, if you pay attention to analysis we have made in the previous fiscal year, of course, cost reduction was made as an effort. But also others actually stand out. So I think we have to further work on those and others. Again, then Hiroshima, MMA, actually being stopped and others actually are introducing some of those efforts. Actually, it is going to be as much as JPY 25 billion. Yes, certainly, we're going to be affected by the external factors. JPY 250 billion, definitely, majority of it is coming from external factors. At the same time, I think we are going to make further in-house cost reductions. Again, working on this journey of the rationalization. And we're going to continue this kind of effort. And they are also part of this plan to go for the JPY 250 billion.
Well, I have big expectations in that regard. Thank you.
Again, on this conference, it's going to be posted in the archive. Of course, you can come to the website and then listen to it anytime. This concludes our conference. Again, thank you for your precious time, despite your busy schedule in the evening hours. Thank you indeed.