Thank you very much for joining us. Mitsubishi Chemical Group Corporation's financial results briefing. Now, let us begin the meeting.
First, Representative Corporate Executive Officer, President and CEO, Manabu Chikumoto, will deliver opening remarks, followed by a presentation of the second quarter financial results of fiscal year 2026 by Executive Officer and CFO Minoru Kida. Including the subsequent question- and- answer session, the entire meeting is scheduled to last 60 minutes. Before commencing the conference, we'd like to kindly remind you, as investors, that the explanations provided may include forward-looking statements based on current expectations. These statements are subject to risks and uncertainties, and actual results may differ materially from those projected.
Furthermore, please note that the audio recording of today's conference, including the Q&A session, will be posted on our company website. We'll now commence the conference. Mr. Chikumoto, please take the floor.
Chikumoto, the President, thank you very much for attending today's financial results briefing despite your busy schedule today. I would also like to express my sincere gratitude for your ongoing understanding and support for our company's operations. I take this opportunity to reiterate my appreciation. First, I shall provide some brief opening remarks, after which our CFO, Mr. Kida, will present the details of the financial results and forecast. It has now been a year and a half since I assumed the role of President. In our mid-term management plan 2029, published in November 2024, we committed to demonstrating clear improvement within three years. Having now reached the halfway point of that period, I will briefly update you on the current progress. Regarding the portfolio transformation of the chemicals business, our target was to implement changes equivalent to JPY 400 billion in sales revenue by fiscal year 2039.
We have already resolved to implement changes equivalent to JPY 360 billion. Going forward, we'll proceed with a sense of urgency not confined to the JPY 400 billion target. Regarding business growth and profit improvement, we're rigorously implementing price policies, investment decisions, and asset optimization. For specialty materials, we have revised upward the four-year earnings forecast for all three segments, demonstrating steady growth. On the other hand, MMA and D, and BM and P continue to face persistent market weakness and subdued demand, resulting in challenging performance in this fiscal year. We recognize the need for further measures and are advancing internal discussions accordingly. Since I assumed office as President, the management team has remained united in its commitment to transforming the chemicals business to enhance MCC's corporate value. We sincerely request your continued support for our company. CFO Kida.
Good afternoon. This is Kida, the CFO.
First, I will explain the summary of the first half results of the fiscal year March 2026. Core operating income for the first half of fiscal year 2025 surpassed the initial forecast, driven by solid performance in specialty materials, mainly related to semiconductors as well as industrial gases. On the other hand, outlook remained uncertain due to the impact of the U.S. tariffs on economies and no signs of improvement in market prices for methyl methacrylate monomer. For operating income of chemicals for the first half of fiscal 2025, turned out to be JPY 33.1 billion. On top of the accumulation cost reduction effects through structural reforms and rationalization efforts across the group, specialty materials saw an improvement in price gap and sales volume.
Core operating income decreased 12% year-on-year due mainly to the deterioration in price, reflecting a decline in market prices of methyl methacrylate monomer, in addition to the recording of an inventory valuation loss in tandem with lower and after prices. Net income attributable to owners of the parent for the group on the whole increased 169% year-on-year, as the proceeds from the transfer of Mitsubishi to another pharma were recorded in the second quarter as scheduled. Next, I will discuss earnings forecasts for the current period. As mentioned, core operating profit for the first half exceeded the forecast. However, in the second half, demand for products in specialty materials is anticipated to remain firm, whereas it is difficult to expect an early recovery in sluggish demand for products in basic materials and polymers and methyl methacrylate monomer market conditions.
Under such circumstances, the group's core operating income for fiscal 2025 is forecast to be JPY 250 billion after the careful review of operating forecasts for the second half of fiscal 2025. As structural reform will be accelerated in the second half and associated expenses are anticipated to be recorded, the forecast of net income attributable to owners of the parent has been revised from JPY 145 billion to JPY 125 billion. As for dividend forecasts, we maintain the initial forecast of year-end dividend of JPY 16 per share and annual dividend of JPY 32 per share. We will continue to rapidly and steadily implement initiatives aimed at portfolio transformation and profit improvement based on the three criteria for business selection and three disciplined approaches in business operations under the guiding principles for our business operations in the mid-term management plan 2029.
I will now outline the profit and loss situation of the first half of fiscal year ending March 2026. The average exchange rate for the first half was JPY 146.1, representing a 4% appreciation of the year-on-year. After price was JPY 64,700, a 17% decrease year-on-year. Sales revenue stood at JPY 1,799.1 billion, a decrease of JPY 210.7 billion, or 10% year-on-year. The breakdown of the decrease was as follows: JPY 68 billion from price gaps, JPY 47 billion from volume, JPY 24 billion from exchange rates, and JPY 71 billion from business restructuring and other factors. The core operating profit was JPY 126.1 billion, down JPY 3.4 billion year-on-year, exceeding the first half earnings forecast announced in May by JPY 5.1 billion. Details of this will be explained later. Specialty items amounted to a loss of JPY 39.6 billion, a decrease of JPY 17.7 billion year-on-year. Operating profit was JPY 86.5 billion.
Profit before tax was JPY 68.7 billion. Interim net income from discontinued operation was JPY 94.9 billion, which includes the gain on the sale of shares in Mitsubishi Tanabe Pharma Corporation. Interim net income attributable to owners of the parent was JPY 110.1 billion, an increase of JPY 69.2 billion year-on-year. Next, I will explain revenue and core operating income by business segment. For specialty materials, revenue decreased 3% year-on-year, but core operating income increased 37%. Revenue decreased due to the divestiture of business as a result of steady progress in structural reform, a decrease in demand in areas such as EV applications, and the impact of U.S. tariffs. This was down JPY 18.3 billion year-on-year.
Core operating income increased JPY 9 billion year-on-year due to the effects of rationalization, mainly in the carbon fiber-related business, in addition to an improvement in price gap by maintaining and raising sale prices for each product. In MMA and derivatives, revenue decreased 21% year-on-year, and profit decreased 84% year-on-year. This was a significant decrease in revenue and profit due to a decline in market prices of MMA Monomers since the second half of the previous fiscal year. Basic materials and polymers' core operating loss actually narrowed by 28% year-on-year by JPY 9.3 billion. The transfer of shares and subsidiaries lowered raw material prices, and reduced core capacity led to lower sales volume, and the revenue was down by JPY 151.3 billion.
For core operating loss, inventory valuation worsened, but with the timing of polyolefin pricing and structural reform in carbon prices, the result was an improvement by JPY 9.3 billion, so the core operating loss narrowed. For the chemicals as a whole, revenue decreased 16% year-on-year, and core operating income decreased 12%. Although the specialty materials business performed well, leading the performance, and the carbon business improved steadily, or carbon products business improved steadily, the chemicals as a whole was down JPY 4.5 billion in core operating income due to a decline in the MMA market. The industrial gases business was stable, with sales and profit increasing 1% year-on-year. This slide shows the breakdown of the JPY 3.4 billion decline in core operating income year-on-year. Prices accounted for a JPY -12.7 billion. This includes the impact of foreign exchange of a JPY -3.6 billion.
Excluding that impact for price gap, MMA and derivatives worsened due to a decline in market prices. On the other hand, for specialty materials, the prices were maintained and improved, and for basic materials and polymers, there was an improvement due to the polyolefins and carbon selling prices. Volume difference was a JPY -3.2 billion. For industrial gases, this was JPY -3.9 billion, but for the chemicals, volume impact was a JPY +700 million. Cost reduction had a positive impact of JPY 26.5 billion, and each business in both industrial gases and chemicals had a positive impact. Year-on-year differences in others were negative by JPY 14 billion. Inventory valuation loss accounted for JPY 8 billion due to a decline in the price of naphtha. Let me now explain the details by segment. First, on specialty materials, core operating income increased by JPY 9 billion year-on-year.
Price gap accounted for a JPY +4.1 billion. In the carbon fiber business of advanced composites and shapes, price gap worsened due to a difference in sales mix as the competitive environment for pressure vessel application worsened. For advanced films and polymers and advanced solutions, the price gap improved thanks to sales prices being maintained and improved for each product, in particular semiconductor-related products. Volume factor was a positive impact by JPY 2.4 billion. For advanced films and polymers, the volume factor improved due to the increase in capacity utilization and sales of Soarnol for barrier packaging. In advanced solutions, the volume factor was negative year-on-year due to a decrease in demand for electrolytes for EVs, mainly in Europe and the United States, and a decrease in sales volume of printing materials.
For advanced composites and shapes, the year-on-year volume difference was positive due to an increase in demand for high-performance engineering plastics. Cost reductions accounted for JPY 4.9 billion, reflecting the effects of rationalization through the promotion of structural reforms in each business and the review of production sites. For MMA and derivatives, core operating income was down by JPY 22.6 billion year-on-year. The price factor was negative by JPY 22.8 billion. Although the price gap improved for coatings and additives, market prices for MMA Monomers declined significantly year-on-year, and spreads narrowed. The volume difference also worsened by JPY 2.6 billion due to lower demand. Basic materials and polymers recorded a JPY 9.3 billion reduction in losses year-on-year. The price gap improved by JPY 11.4 billion within materials and polymers.
This was driven by the discrepancy in the timing of revision to polyolefin prices and the ability to maintain relatively high sales prices during the naphtha price decline. Carbon business losses saw an improvement in the price gap versus the previous quarter. As the reduction in production capacity at Kagawa was completed, reduction loss-making. Transactions based on market prices. The volume improvement contributed in materials and polymers by JPY 9 billion, partly due to reduced impacts from scheduled maintenance. The cost reduction impact was positive, JPY 3.7 billion, accumulating effects from fixed cost reductions in materials and polymers and business restriction in carbon business. The other difference of minus JPY 6.7 billion resulted from deterioration in inventory valuation gains and losses within materials and polymers, despite a reduction in such losses within the carbon business due to lower raw material prices.
Industrial gases recorded an increase in core operating profit of JPY 1.1 billion year-on-year. Although price gap deteriorated due to rising electricity prices in the U.S. and sales volume decline, primarily in Europe and the U.S., profit increased due to cost reductions through initiatives of productivity improvements being promoted in each region. Specialty items for the first half totaled a JPY -39.6 billion in the first half. As the first quarter recorded a JPY +4.3 billion, the second quarter recognized a new special loss of JPY 43.9 billion. I will supplement several key items. Special retirement expenses include the previously announced costs related to the Next-stage Support Program for employees at Mitsubishi Chemical Corporation. Impairment losses include costs associated with the sale of J-Film, a company of manufacturing and selling packaging materials. I will now discuss the cash flow. Operating cash flow resulted in an inflow of JPY 161.6 billion.
Cash flow from operating receivables and payables was an inflow of JPY 5.6 billion, while cash flow from inventories was an outflow of JPY 7.5 billion, and total working capital resulted in an outflow of JPY 1.9 billion. Although inventory was increased in some businesses to prepare for scheduled maintenance, we will continue to strive for appropriate working capital management across all businesses. Cash flow from investment activities resulted in an inflow of JPY 174 billion. Cash flow from capital expenditure was a JPY -131.8 billion. Gross investments in specialty materials are progressing, including capacity expansion at CPC in Italy for carbon fiber composites and capacity expansion at Soarnol in the U.K. for barrier packaging materials. Cash flow from asset sales was a JPY +503.6 billion.
We are advancing the review of the business portfolio, recording income from the sale of shares in affiliated companies, primarily Mitsubishi Tanabe Pharma, as well as from the disposal of cross-holding shares and non-core assets. Investments and loaned receivables amounted to a JPY -179.8 billion. This includes expenditure related to the acquisition of subsidiaries in Australia and New Zealand in the industrial gases segment. As a result, free cash flow was JPY +335.6 billion. Cash flow from financing activities was JPY -292.3 billion, primarily due to the repayments of interest-bearing debts and share buybacks. Consider the statement of financial position. The total assets amounted to JPY 5,664.1 billion, a decrease of JPY 230.5 billion from the year before. The decrease of about JPY 610 billion was mainly due to the impact of business restructuring centered on the sale of Mitsubishi Tanabe Pharma.
Conversely, factors contributing to the increase in assets included a portion of the proceeds from the sale of Mitsubishi Tanabe Pharma remaining as cash on hand as of the end of September and foreign exchanges. Of these factors, we give us total assets decrease by JPY 230 billion. Net interest-bearing debt decreased by JPY 349.1 billion from a year before, and net debt-to-equity ratio improved significantly to 0.83x from 1.06x at the end of the previous fiscal year. This page provides supplementary information on core operating income from Q1 to Q2. Core operating income for Q2 came to JPY 69.5 billion, up JPY 12.9 billion from the first quarter. For specialty materials, Q2 results were JPY 19.4 billion, up JPY 5.3 billion from JPY 14.1 billion in Q1.
For advanced films and polymers, there was a slight decrease in core operating income due to a lull in display demand driven by subsidy policy in China, and customer inventory adjustment is also happening. For advanced solutions. There was an increase in profit resulting from the completion of a large-scale water treatment equipment project for semiconductor manufacturing and one-time income from certain businesses. There was also increased sales of high-performance engineering plastics for semiconductor manufacturing equipment at advanced composites and shapes. That resulted in reduced loss for specialty materials. For MMA and derivatives, the core operating income was down by JPY 63.6 billion from [JPY 3. billion] Rather, basic materials and polymers increased at JPY 4.4 billion from JPY 3.6 billion in the first quarter to JPY 800 million in the second quarter.
Despite the deterioration in price gap caused by delay in the timing of polyolefin price revisions, materials and polymers became profitable due to an improvement in inventory valuation and a reduction in the impact of scheduled maintenance. On the other hand, carbon products, despite deterioration in inventory valuation, the deficit narrowed due to an improvement in price gap caused by progress in structural reform and cost reduction. Going back to MMA and derivatives, that was down by JPY 3.6 billion from JPY 3.9 billion in the first quarter to JPY 300 million in Q2. This was mainly due to a deterioration in the price gap caused by a decline in market prices for MMA Monomers and other products, as well as a decrease in sales due to a decline in demand.
For industrial gas, there was an increase of JPY 3 billion from JPY 45 billion in Q1 to JPY 48 billion in Q2, mainly due to the impact of foreign exchange rates and newly consolidated industrial gas businesses acquired in Australia and New Zealand. Next, I'd like to explain the revision to the full-year forecast for the full year ending March 2026. The forecast for the second half assumes a foreign exchange rate of JPY 150 to the dollar and a naphtha price of JPY 63,000 per kiloliter. The forecast for full-year revenue is expected to be JPY 3,672 billion, that's down 2% from the initial forecast. Core operating income is revised downward to JPY 250 billion, that's down by 6% from the initial forecast.
For specialty materials, firm demand is expected for each product, but core operating income is expected to be lower than the previous forecast due to a price gap deteriorating in MMA and derivatives and basic materials and polymers due to a decline in market conditions. Details by segment are explained on the next page. Regarding non-recurring special items, we expect to record expenses associated with accelerating business restructuring in the second half. We have revised our full-year forecast of JPY 63 billion to a special loss of JPY 74 billion for the year. As a result, the operating income forecast comes to JPY 176 billion, and net income attributable to owners of the parent is now forecast at JPY 125 billion. Specialty materials is forecast to see a JPY 1.2 billion decrease in profit from JPY 33.1 billion in the first half to JPY 31.9 billion in the second half.
Advanced films and polymers anticipate a JPY 4.6 billion decrease in profit compared to the first half due to scheduled maintenance and operational adjustments in certain businesses, as well as concentrated repair costs. Advanced solutions expect a JPY 4.0 billion decrease in profit compared to the first half due to the absence of large-scale water treatment equipment projects for semiconductor manufacturing present in the first half and the absence of one-off income in certain businesses. Advanced composites and shapes anticipate a JPY 7.4 billion increase in profit compared to the first half, driven by increased sales of carbon fiber composite parts for robotaxis and rationalization effects from reviewing production bases in the carbon fiber business, leading to a progression toward profitability. MMA and derivatives is projected to see a JPY 9.4 billion decrease in profit, shifting from JPY 4.2 billion profit in the first half to JPY 5.2 billion loss in the second half.
This loss is anticipated due to worsening price gap from the continued downturn in MMA monomer market conditions, reduced sales volume from declining demand, and the expected impact of scheduled maintenance. Basic materials and polymers is projected to see an increase in profit of JPY 3.8 billion, shifting from a loss of JPY 2.4 billion in the first half to a profit of JPY 1.4 billion in the second half. Materials and polymers is expected to post a decline of JPY 2.6 billion compared to the first half, despite positive factors such as improved inventory valuation gains and losses and reduced impact from scheduled maintenance, primarily because of worsening price gap caused by timing discrepancies in polyolefin price revisions and reduced sales. Carbon is expected to return to profitability with an increase of JPY 6.4 billion from the first half, driven by improved price gap from progress in structural reforms and cost reductions.
Industrial gases anticipates an increase of JPY 3 billion from the first half, supported by global productivity improvement activities and volume growth in the U.S. driven by recovering demand. Finally, regarding the dividends, the interim dividend per share for FY 2025 was resolved at today's Board of Directors meeting on 31st October to be JPY 16, consistent with the previously announced forecast. The year-end dividend forecast will also be JPY 16 per share, consistent with the previous announcements. Consequently, the annual dividend per share forecast for March 2026 is JPY 32. That concludes my explanation.
Thank you very much, Mr. Kida. We will now take questions from the floor. If you have a question, please use the raise hand function. You can find it on the bottom bar of your Zoom screen. If for some reason it is difficult to give your question in autonomous sound or through the microphone, please use the text function.
There is a Q&A function. When you have the floor, please state your name and affiliation before asking the question. We'd like to give the opportunity for as many people as possible to ask questions, so one question at a time, please. Once we have exhausted questions, we may go into a second round. We hope you will understand, and we appreciate your cooperation. If the question goes into a detail that we need to double-check, we will actually refer to it later, and the Investor Relations team would be more than happy to respond to that. From Morgan Stanley MUFG Securities, Watabe-san, please.
Good afternoon. This is Watabe from Morgan Stanley MUFG Securities. MMA appears to be in a very difficult situation. There is a prolonged sluggishness in the market, which is probably unprecedented. What's happening? At the outset, you mentioned that you are looking at various options.
Do you think you're still the best owner for the MMA business? You've frozen the investment into the United States. What is your position now?
Thank you very much for your question. With regard to MMA, yes, the situation is tough, and it has been so for a while now. Prices, obviously, we are monitoring the trend. In the first half last year, it was above $2,000, and then in the second half, it came down to $1,650. In this first half, it's around $1,350. Recently, it's actually further lower, and it's now at $1,260. Southeast Asia and maybe China is a little different. The question is where we go from here and whether the decline will continue. We believe that for the financial year, the situation will continue. The cause, I'm sure you all have guessed it, right?
It's about China, and there has been large capacity expansions, more than we had expected. There is more supply and/or glut in the market. It is really dog-eat-dog type of competition. We also have two sites in China, and they are operating. Our sites in China are still profitable. If you look at competitors in China and their cost, we can actually estimate the cost structure. If at this level, only one or two players are actually profitable, those are actually located in a special place where there's very cheap natural gas available so that they can actually make cyanide gas. In the case of MMA, there's a byproduct. Usually, you have this collection process that has to make it to the sulfuric acid, but sometimes you will have to change it to something else. Then it's not necessarily so expensive.
In China, there is actually a market for the byproduct, ammonium sulfate. If you are in that special situation, you might be profitable. Generally, and it's true for ACH or C4, for the ordinary play, it should be very difficult, and they're probably running at a loss. That's our guess. Even in China, I don't think people can keep operating like this for an extended period. There might be some ups and downs, but I think there will be some normalization in the overall market going forward. Whether we are the best owner, we still believe we are the best owner. We do see that there are challenges. Maybe some of them were latent and only surfaced. What we are doing now, for example, in India, this is an unsaturated market. Major players are not necessarily there.
We want to be there ahead of others, and that's why we're working hard on marketing. We are sending people over there and accelerating our efforts there. In India, we may actually build an additional capacity. That might be a possibility. At the same time, there are some rather old plants that we will need to think about replacing or maybe consolidating production sites. We will probably need to expedite such efforts. For part of that, some of the operations are done in a form of joint ventures with people in the same industry or sometimes with others. We have partners. We are also discussing with all our partners about what the optimal form of operation for all those sites would be. We are already doing that. That would be the efforts we are taking now.
Thank you very much for the response.
For Q2, the MMA Monomers posted a loss. You said that the Chinese operations are actually profitable. What about Saudi Arabia? Is that working?
Actually, Saudi Arabia is profitable at this point in time. Saudi Arabia is actually a very important site for us. Europe is there, and most of the products that are exported to Europe are from Saudi Arabia. With regard to Saudi Arabia, we have maintained profitability, and we believe that we can maintain that throughout this financial year. Okay, so you're profitable in Saudi Arabia. That would mean that it's probably to the bottom. You're bottoming.
Thank you very much.
Thank you very much. Next question. SMBC Nikko Securities Inc., Mr. Miyamoto, please.
Miyamoto from SMBC Nikko Securities Inc. I would like to ask about profit contribution for expense reduction. The three disciplined approaches to business operation.
JPY 29 billion for price policies and staff reduction or the asset optimization, JPY 27 billion , and MMA price policy. How has it been reflected for the downturn? As for specialty, there's a price increase that has been progressing in semiconductors. Can you talk about price policies and asset optimization in byproduct?
Maybe this is fresh on your memory, but as a target, there's three principles or three disciplined approaches, and that has been targeted. JPY 29 billion for price policies and asset management, JPY 27 billion. Simply put, for the progress so far and prospect, JPY 29 billion for price policy will be secured. As for asset optimization, JPY 27 billion, I think we are overachieving to about JPY 30 billion. However, external environment and deteriorating factors or market factors were expected to be JPY - 15.7 billion yen. This is going to be more than JPY 30 billion because of the market.
As I said, in MMA, if you look at the superficial prices, a JPY 7,750 decline. The low material prices are decreasing, so spread is not that heavily affected, but we have revised by 15 billion this time. For initiative effective, we are making progress. JPY 29 billion was forecasted, but JPY 10 billion was from a cost-linked formula. Actually, we are struggling. What was manifested is like JPY 20 billion yen, approximately. What we expected as JPY 10 billion could turn. Ended up in JPY 4 billion or so. Because the market is so slow and sluggish, and especially even if we talk to the customers in China, they are not that willing to listen to our talk. In Asian countries other than China, we'd like to promote this activity, but probably JPY 4 billion would be as far as we can get.
If we are short of that, then especially in advanced films and film business or synthetic business or semiconductor businesses making up for this. We are actually making our value-added initiatives recognized by the customers, and our sales activities are making sure of that. We can actually make up for the JPY 6 billion that would be in short in methyl methacrylate. I said JPY 29 billion, but in actuality, in the first half, less than half has been already recognized. Price gap chart has been presented to you, waterfall chart. Carbon fiber as compared to the last fiscal year, the pressure vessel was selling higher, so we are now in the negative, but we are going to eliminate that loss from the second half onward so we can secure the gains. As for asset optimization, originally we're expecting JPY 27 billion, but there's a supply chain of businesses.
The large-scale companies' foundation or business foundation rationalization could be added as extra this time. That's what we are now expecting. The original JPY 27 billion in forecast could be increased to JPY 30 billion. That has been reflected in our business forecast this time.
Thank you very much. As for asset optimization, in the first half, year-on-year, how much increase you've seen? Also, business foundation improvement, can you give more colors to that?
Thank you. As for the first half, about half, we are halfway through, probably. Business foundation improvement, what I mean by that is that there's a common cost between business locations like piping and utilities. We can make some progress in terms of rationalization in this area. This is the specifics. We are building up small pieces to see some effects. We have just shared with you just examples, among others.
If you ask us, "What is it?" then it's difficult to say in one word, but we are just accumulating ingenuities in the production site. Both in specialties and basics businesses, in both businesses, that's happening, right? This is about management of factories. What is coming out is just in the factories, but. Okayama or Kurosaki, those large-scale business locations, there's utilities and piping racks and other business location infrastructure. It is actually managed by the supply chain division, and this is something related to the infrastructure of the business locations.
Thank you.
Thank you very much. Next, Mizuho Securities, Yamada-san, please.
Good afternoon. This is Yamada from Mizuho Securities. No one's talking about growth and positive things, so I'm a little sad, but I'm afraid I'll have to join the others here. You're talking about special retirement expenses, and you have this Next-stage Support Program.
You have JPY 32.3 billion. That's larger than expected. I believe that will mean you will reduce your workforce by about 2,000 people, and those would exclude people working at the production front. The percentage is actually rather large. You haven't actually disclosed a specific number with regard to the number of people. Do you think that this won't be a problem? I mean, you're just becoming lean, and you're not losing out on necessary human capital. If my guess is right, then your personnel expenses next year would probably be smaller by JPY 20 billion per year. Is my calculation correct? For the second half and the measures you are taking, do you have any additional information? I'm really focusing on the special items this time. Thank you very much for your question.
Earlier, we actually referred to the special retirement benefits, and this is actually part of the special, and it's also part of the other line here. We call this NSP, which is short for Next-stage Support Program. A total is about JPY 29 billion, and that's in the special items category. For cost reduction expectation for the next financial year and how many people we expect to leave using this program, I'm afraid I am not, we cannot discuss this at this point in time. What we're doing now is that this program actually has a number of objectives. One is to focus on indirect costs. We believe that fixed costs are actually quite high. Yes, human capital is very important, but we could also use AI, etc., to improve the human capital efficiency. The white-collar-based labor productivity improvement, that's something we're trying to focus more on going forward.
Maybe I talked about this before, but back in 2017, since the three companies merged, we haven't really done this in a wholehearted way. Usually, when three companies come together, you will go through a PMI, which we actually didn't really up to this point in time. Another is the age structure. This is serious. We are taking it very seriously. The age structure is very skewed. The percentage of people above 50 is really high among our workforce. Just as an example, if you look at our workforce and if you actually line them in the age, actually, the peak comes at 57 years old. We really want to leverage more younger human resources. We would also need to reflect that for the business management. It's really part of how we try to stimulate the company and really make it more forward-looking.
We need the people that would drive such change. We need boosters. That's part of the objective of this project. With regard to what we are doing in the second half, we talked about total special items, and there's about JPY 9 billion we are actually increasing as opposed to the initial expectation. Behind that, there are additional things. Additionally to what we have already made decisions on, maybe some reorganization of the businesses. We have a better idea and clarity about what we're going to do for some projects, and we are going to try to do that in an expeditious manner. We are working on the three-year process. One and a half years has passed. For at least the major parts, we would like to have decisions made by the end of this financial year.
If we have a three-year period, then the third year is really about preparing for us to really turn the tables around and start moving forward. That's why we are trying to complete all the preparations necessary by the end of this year. I'm afraid at this point in time, I can't go into too much detail.
You talked about NSP, and you said that the total would be JPY 29 billion. Special retirement expenses are JPY 32.3 billion. Part of this is not NSP. Yes, there's also a non-NSP part in the special retirement expenses. What about the personal expenses reduction for next financial year and onward? There would be that happening. For those who are leaving, the human capital, you do have ideas. There will not be a material loss that will hamper your operations. Can we feel secure?
Yes, we have confidence at this point in time.
We actually have a lot of young, able people who haven't been able to come to the forefront. We actually have a great pipeline of such future leaders, and we want them to actually come to the forefront. That would happen from next year and onwards.
Thank you very much. 57 years old. Those were the people you hired at the peak of the bubble economy. I would look forward to a younger workforce at your place. Thank you very much.
Thank you. Next. Mr. Umebayashi from Daiwa Securities .
Thank you very much for the presentation. I am Umebayashi from Daiwa Securities . I would like to ask about the businesses that are growing. Advanced composites and shapes from first half to second half. Core operating income. There was a JPY 6.5 billion profit. Improvement of JPY 7.4 billion from the loss in first half.
You are talking about robotaxi as well. From JPY 124 billion to JPY 140 billion, there's a sales increase of JPY 19 billion. There will be an increase of JPY 7 billion of profit. Is it because of robotaxi effect or rationalization or consolidation of business locations? Can you divide up in those two factors and give us a breakdown? As for robotaxis, I think three months ago in summer, when I asked about this, you were saying that you're manufacturing this one at a time. Now, in the second half, the continued production could be done. Once you move to the continuous production, there might be no profitability or profitability could be taken away. That could happen. Can you tell us if that is not the case? Thank you.
From the first half to second half, the improvement for advanced composite shapes, carbon fiber and composites have much more improvements.
As you can see on the screen, in terms of positive and negative numbers, you can see on the screen. On the other hand, on this segment, the high-performance engine plastic represents a large amount in terms of portion, in terms of sales. In the first and second half, there's a similar movement. In the Christmas season, in December, there could be some dip, but that's how we are prospecting or focusing. Other underlying factors from the fourth quarter or from fourth quarter, robotaxi orders or shipments, not on a sample base, but on a full-scale basis, is to be expected. However, on the other hand, as we have been saying from the other day, in Otake in Hiroshima Prefecture, we have SF-11 production facility. This will be mothballed, and production was stopped in September. From.
Third quarter or second quarter onward, there will be an effect of fixed cost reduction that will be manifested. As for U.S. production lines, some of them will be mothballed. The production termination is still fluid, but as we go into the second half, there will be proper termination, and labor costs and repair costs could be significantly reduced. That effect has been incorporated. If you ask us the numerical breakdown, this is quite sensitive, so I'd like to decline from commenting on that.
Thank you. If that's the case, let me just sort this out. From the third quarter onward, Otake, where there was a termination of production in September, will see some effect. From the fourth quarter, there will be effect from fixed cost reduction in the U.S., and also robotaxi benefits will be shown from Europe. In the fourth quarter, there will be a significant improvement expected.
On that basis, in the next fiscal year, there will be significant profit that we could see. Is that a correct statement to make?
Yes, as you said, that is how we are envisioning. In the third quarter, there will be another set of improvements, and then in the fourth quarter, there will be relatively large improvements expected. In first and second quarter, as you saw, the numbers were there. Minus JPY 1 billion or plus. Let me just check for more exact numbers. Yes, in the first half, JPY - 1.7 billion in total. The breakdown, JPY 1.4 billion in first half and JPY 300 million in second quarter in advanced composite shapes. That's how we have reduced losses in this sector. In the third quarter, we are going into single-digit profits and double-digit profit in the fourth quarter. That's how we see going forward. Thank you.
Aside from robotaxi applications, what are the demand trends for carbon fiber? Maybe you are withdrawing from some businesses, so inclusive of that, can you give us more details?
With regard to demand, it is steadily improving or increasing. On the other hand, there are some winners and losers. The new players are not being able to produce their high-grade ones, but for low-grade ones, maybe newcomers have lower cost. Our intention is to focus on higher-grade products and withdraw from low-grade ones. As for pre-preg, production capacity is quite difficult to tell, and you have to put it in the number of yards, but that is how the demand is. We are having high hopes for new mobility applications. Aside from that, there are several other fields that we can expect some demand. For overall demand, there will be a certain degree of solidness that we can expect.
How we can enter into things new is a success factor.
Thank you. In the fourth quarter, about JPY 5 billion in numbers is something that we can see. We're looking forward to that.
We only have five minutes left. The next person would be the last person. Omura-san from UBS Securities, please.
Good afternoon. This is Omura from UBS Securities. Thank you very much for the presentation. I'd like to follow up on Ueda-san's question on robotaxi in particular. The demand, what type of curve are you expecting for the demand to ramp up? In Las Vegas, there's a test introduction. In San Francisco, you see them running on public roads. If you look at your assumptions and the end demand, are things going in line? For each city, how many of them are you expecting, maybe for the medium term? I would guess that if you look at slide 25 this time, in your MTP, or up to 2030, if you want to achieve that target, you would probably need a large number of them. Perhaps if you could give me a rough image of how you expect demand to ramp up and what is the order of magnitude that you are thinking about with regard to the number of robotaxi cars being sold. If you don't have it on hand, I'm happy to wait for later.
Thank you very much for your question. The number of robotaxis that I expect, that's really on the customer side, and we are not in a position to give you further details here. Let me just give you a kind of a ballpark description.
In 2027, if compared with where we are now, and actually, things are a little behind him, but compared with the first year, we believe that in two years' time, there will be double. In four years' time, the number would be triple. That's our very rough outlook or expectation.
Thank you. Double from where?
Oh, I'm sorry. We'll have to check with that data. The number of robotaxis, we actually are bound by agreement with the client, so we can't really give numbers.
Okay, I get that. I think there are a lot of competition on the end user side. If a client is operating several hundreds and how many cities, that's the type of thing I'm interested in. I hope there will be more visibility going forward. If you actually get an idea on that, please let us know too.
Thank you very much. We'll do so.
Thank you very much. With that, we'd like to conclude the Q&A session. Last but not least, I'd like to ask our CFO to give us closing remarks.
Thank you very much for joining us despite your busy schedule today to attend our earnings result briefing. There is some uncertainty in terms of the economy. The business environment surrounding our company cannot be described as entirely favorable. We are seeing obvious effects from structural reforms and we are making quick decisions since last year. We will continue to work as one company to expedite the execution of these measures and meet the expectations of our shareholders and stakeholders. We sincerely appreciate your continued support. Thank you once again.
Thank you. That concludes today's meeting. Thank you for your attendance.