Good afternoon, and welcome to our IR day today. It's been a long time since December 2021, and really glad to meet you again today. Let's jump right into it. What are you going to hear about today? The presentation that I'm going to give is really an update on Forging the Future. It's been 14 months now since December 2021, and what we're going to do today is really talk about the achievements and the solid progress that we've made. I think that what you're going to see is that our focus is really on execution about Forging the Future. We're going to talk about the five pillars of our Forging the Future strategy. Out of the five pillar, we will deliver both, on one hand, organic growth, we're talking about EBITDA of about JPY 700 oku yen.
We will also deliver cost improvements of about JPY 1,250 oku yen by 2025. That's an increase from the number that we communicated to you in December 2021. We are also committed and are making progress on petrochemical and carbon and the exit from this business. At the same time, with the change in the chemical industry, we must become leaner as a company. We must become more digital, and we cannot achieve this whole transformation without the help of our employees. Empowering our employees to drive this transformation is really key for us. What you're going to see also is that we are investing for the future. We will improve our balance sheet, and we will improve shareholder returns.
Long term, the purpose of our company is clear, and it's more than ever, as you will see, a KAITEKI vision and a relentless focus on the well-being of people and the planet. I'm going to cover four chapters over the next 45 minutes. I'm going to talk, and I'm going to start and talk about the new Mitsubishi Chemical Group. This is a very different company than the one you used to know. I'll give you a detailed update on the five pillars of Forging the Future. I will spend time on the business growth plans, and then I'm going to wrap it up into our vision for the future. All our stakeholders have our commitment that we are driving this change despite the fact that there are some serious headwinds in the chemical industry right now.
Let's talk about the new Mitsubishi Chemical Group. We are transforming our company, and we are really transforming our company to become a specialty materials in the future. That was the main key point in December 2021, moving away over time from its historical base of a commodity company. To do that, we updated our purpose and our slogan. Now in our purpose, what you see is that we lead with innovative solutions. Innovation is now completely core to our purpose. On the right-hand side, you can see also that our slogan is very direct and explicit. We are a scientific company, we lead with science. Now, improving life in all its form is our goal.
As we do both, we really have a duty to create value for our shareholders and at larger term, for our stakeholders, our shareholders, our employees, our customers, and society at large. Why are we optimistic about this transformation? The reason why we're optimistic really finds its foundation on the following three reasons. Number one, all of our focus markets, as we spell them, are completely aligned with key trends that you see not only in Japan, but across the world. Two, all support a strong sustainability agenda. Three, as a company, we have very strong capabilities to be successful in each and every one of them.
We are committed to deliver both financial and non-financial targets. For our shareholders, and I mean specifically on the left-hand side and financial returns, despite the exit from petrochemical, and we are treating it in the whole presentation as a 50/50 JV that is deconsolidated, the profitability will be up in terms of core operating income, EBITDA, return on invested capital, and earning per share. By 2025, with this kind of level of profitability, we will be well on our way to become a specialty materials company. In terms of the non-financial targets, these are the ones that are really directed to the rest of our stakeholders. Sustainability goals. Our customer, employees, and we have some very strong non-financial targets for each and every one of them. You cannot continue to operate in the chemical industry if you are not focused on GHG reductions.
Our pledge is there to reduce by 30%. One thing that we upgraded is waste reduction. It was not enough part of what we were doing, so we have now raised really the focus on waste reduction as a company. Customer satisfaction, we always have been pretty good, but we need to continue to improve. Employee engagement and going to close to 80% of employee engagement is a key goal for us. We need to have our employee to understand where we go and be committed and drive the process and the transformation of our company. In terms of diversity among management, it is critical for us. We have set ourself a goal of about 40% in terms of diversity among management. Let me shift now to an update of our Forging the future goals.
I'm sure that you remember our Forging the future had five very specific pillars. Since December 2021, we have focused 100% of our attention as a management to drive the execution of these five pillars. Let me summarize them again one by one. Number one talks about growth, performance, and sustainability. Our company must grow organically. Growing by just M&A is not growth. We must grow back again organically. We must grow back because of our innovation. We must grow back because of our commercial presence, but we must sell more of what we have. At the same time, we need to be more selective. We need to be more global, and we need to be more profitable. About strategic cost management, in the chemical industry, cost management is everything.
I have spent 33 years in the chemical industry, for 30 years I have heard every day about cost management. That's one thing that I really want to bring into our company is cost management. We can only spend money on what we need. We need to eliminate all unnecessary costs, and we need to restructure all non-essential activities. Part of the refocus that I talked about is about the exit that we talked in December 2021, the exit from petrochemical and carbon product, and I will say a few words about these. To go to 2025 and beyond, as I said, we need to have a leaner workforce. We need to be faster in decision-making.
We need to have less management, we also need to be a lot more digital, I'm going to spend a little bit of time talking about that's a big area of investment for us. We need to empower our workforce. Workforce, digital, are major area of investment for us. The last pillar talks about strategic capital allocation. We must have the right balance in our company between reinvesting, investing into the business, and making sure that we are rewarding our shareholders the right way. Three of the five pillars that I just talked about will contribute to that increase in profitability at the same time as they will help reduce volatility in our earnings.
Growth out of the three pillars will contribute to about JPY 700 oku yen . As I said, compared to the original goal of Forging the future, the cost transformation has been increased to JPY 1,350 oku yen. The exit of petrochemical and carbon compared to 2021 will reduce the EBITDA by about JPY 1,100. By 2025, you will have a more profitable, a lot more focused, and less volatile company. All the business will contribute to the improvement of the company. Each business will deploy its own tactic to achieve their goal. In terms of performance products, the strategy is very clear. This is all about geographic expansion, commercial expansion, and transfer of responsibility to the regions. Decision-making needs to be very close to the markets. We do have a lot of products. We need to sell them more.
In terms of our gas business, we need to continue to grow. We are winning large projects. We are winning large projects across the world. We need to win large projects at the same time as maintaining a very high profitability in the U.S., in Europe, and in Asia Pacific. We must also fix and restructure the low profitability business that we have in Japan. In terms of healthcare, we need to continue the strong growth that we've seen in the core business in Japan and in the U.S. this year. We need also to focus on fewer indications. We need to stop overextending. We need, and as you know and you've seen it, we are taking decisions to exit from non-core business. In terms of MMA, we need to strengthen this number one position.
We need to do that to shift our assets to a low-cost technology. I'm going to spend a little bit more time explaining how. We're going to do that by supporting all the sustainability goals that I talked about. Emission reduction, net zero is still a focus for us. I talked about waste and water management. We are really pushing also the growth of what we call sustainability-related products. We are confident that we can achieve both profitability and meeting all of our sustainability goals. In terms of innovation, our long-term growth can only be sustained with a strong culture of innovation. To that effect, over the last 15 months, we have completely realigned all of our R&D capability, from business focus to external collaboration to our venture fund. We have realigned all that with our key focus markets.
We have established for each platform, markets, short, medium, and long-term goals to always be ahead of the competition across the world. We are also constantly investing in new capabilities, whether digital, whether infrastructure, whether new talent joining the company. On the right-hand side, you see one of many examples that we could share with you in terms of realigning from a now technology that you see that we have for EV mobility, I'm talking here about electrolyte for EV battery. We are one of the world leader in terms of electrolytes. We have unique capabilities, but we are also working on tomorrow, working on gel electrolytes. We are also working on the day after tomorrow with solid-state electrolytes. This is just one of the many examples of realigning completely your capabilities along markets and with a horizon, short, medium, long-term.
In terms of the cost transformation, there is a massive change in the chemical industry. You have very high energy costs. You have very fast digitalization. As a company, us, we cannot sit idle, and we must bring our cost in line with global standards. We have been accelerating the implementation of restructuring. We announced restructuring in our healthcare business. We have been exiting for unprofitable business. We have closed plants, and we announced that in the U.S., in E.U., in Japan. In procurement, we are doing major efforts to aggregate the demand across all the businesses that we have and really leverage our size, which was never done before, to buy from a position of strength. In terms of the general and administrative, we are consolidating very fast a lot of legal entities. We have announced a workforce optimization in the U.S. and in E.U.
We have announced plan to outsource a lot of non-core activities. All together, this is why we have increased the target to JPY 1,350 oku yen. By the end of 2023, we will have more than JPY 800 that will be delivered, and we are expecting this to be a significant contributor to a step change in profitability. We are also committed to exit the petrochemical and carbon business. As far as petrochemical is concerned, I'm not going to go back on the logic of industry consolidation. I think this has been discussed many times. My only comment there is that since December 2021, all the events across the world have been very supportive of what we were recommending. The discussion now are really gathering pace. In terms of us, in 2022, we did the detailed planning.
In 2023, when you're going to look at our results, we're going to carve out completely the results of petrochemical and carbon. They will be reported separately in terms of P&L and balance sheet. Fiscal year 2024, our goal is unchanged, and it is to create a JV with a strong goal of early deconsolidation from our results. We are making progress. I think we are on track, and the talks about postponing are simply not true. As for carbon chemical, we have multiple discussions and multiple potential partners or buyers, and our target is still for sale in fiscal year 2023. The fourth pillar talks about lean, it talks about digital, and it talks about empowerment.
In terms of a leaner structure, every single acceleration that you see right now in terms of structural reform has only been possible because of all the changes we've made over the last two years. We have eliminated multiple management layers. We have dramatically improved decision-making. Now we are at a point where we will be moving business growth responsibility to the regions. Part of the simplification is the reduction in the really high number of legal entities that we had in this company. A very big number of legal entities drives a lot of very high cost. Our goal there is to reduce the number of legal entities by 25% across the world. Simplification also means workforce reduction through natural attrition, outsourcing, some of the cost reductions that I talked about. Some workforce reduction like the one we announced in the U.S.
We are expecting that by 2025, we will see a 10% reduction in the workforce in our company. Let me talk now a few minutes about digital, because it is really key for the future. In the future, there will be no more chemical industry. There will only be a digital chemical industry. Digitalization at every step, from order entry to shipping, to R&D, to HR Digitalization everywhere. Wherever you can automate, you must automate and remove cost. To achieve that goal, we are investing JPY 700 oku yen over the next three years to do four things. One is to standardize the business process across our company. We are consolidating all of the systems in just a few systems. Meantime, we're moving everything also to the cloud.
We are building a very strong data management structure in the company so that we can use and exploit that data for much better business decision-making. To do all that, we are training and hiring people who are really digital savvy, because we need a workforce to be completely capable to work in what I call a total digital age. To drive this transition, we need our employees to be with us and to take the lead. To do that, we're going through a very significant cultural transformation. We are developing our next generation leaders. We've established three distinct new leadership development program in the company. We are training our employees to work in a global company.
We are implementing rules and making sure that in the future, promotion will only be given to people with very strong performance, and we are moving away from a seniority-based system entirely. We are also, as I said, accelerating diversity in leadership. We must do that if we want to become a truly global leader in the chemical industry. We need also, are pushing and promoting a cultural change that embraces value creation, where every employee understands what it means to create value in our company. To do that, we also need to provide an environment that is safe and healthy, and that's why we also have very strong goal. We are in the chemical industry, and safety is number one priority. We are very safe company to work at, but you are never safe enough.
We have a very strong goal to continue to improve our performance. Let me now go and shift and go a little bit deeper into our business growth plans. First, let me share with you maybe some new faces, new business leadership team. If I can describe that team, I would use three words: strength, experience, and maybe the most important, high energy. All this energy directed to building the Mitsubishi Chemical Group of the future. As I shared a few times, the transformation is really governed by a shift towards specialty materials. All and every business will improve profitability through a mix of growth and cost reduction. Performance Product will grow and pass a core operating income of 10% on a sustainable basis.
Gas business, we are number four in the world, we need, it will close the gap with its close competitors. You all know better than I do that our close competitors, Linde, is the number one most valuable chemical company in the world. Air Liquide is the number three most valuable chemical company in the world. Air Products is the number six most valuable chemical company in the world. We are number four, we really have a lot of potential to increase our value tremendously and close the gap. There is zero reason why there is a 1: 10 ratio in market valuation. The refocus of the pharma business. The refocus is there, and I will talk about it. The refocus is not just by itself.
The pharma business has been doing, in its core business, very well this year in Japan and in the U.S., is expected to continue to do very well. The story now of MMA is the one, to me, of a business in transition. We need to maintain a healthy level of profitability, partly driven by market and market economics, while at the same time, we are starting and embarking onto a major asset shift towards an asset base with much lower operating costs. In all the presentation, Petro is treated as equity earnings, the equity earnings here in 2025 is about JPY 100 oku yen, assuming a 50/50 JV. Let's talk about Performance Product. We had a long presentation in September, the numbers here didn't change. Our Performance Product business, frankly, is ideally positioned for growth.
We are present, and we are reinforcing our position in key markets. We have really thousands of great products available. We need to sell them globally. The strategy is simple here. We need to invest in global commercial infrastructure, give responsibility to the regions. Some pilots that we have run this year, mostly in the U.S., have really proven the point to us that this is the right way to go. Also, we need to reinforce our innovation to sustain growth. Our EV and mobility, and then digital and food business, will all grow at high growth rate, in line with the market growth. In EV and mobility, we just highlighted there a few of the products. There are many more. Just highlighted the electrolyte fiber-reinforced plastic composites. In digital semicon cleaning, high-end epoxy, equipment component films.
You might have seen also that we are ready to double the capacity at Gelest and introduce a brand-new dry resist in the electronic industry, first time. In food, we have some very good position, both on a ingredient level, mostly emulsifiers, but also on food protection, PET films, barrier materials, GOHSENOL, Soarnol, a lot of these products. The growth of EBITDA for performance product will be driven 30% by pure growth at the speed of the market, and then a strong contribution from price and mix, as we are expecting that the growth will come from products that have significantly higher margins than existing ones. We are also counting on a 25% of that increase in EBITDA to come from cost transformation that we are driving across the company.
To highlight the shift to a global market approach, we are radically changing the way we do business, and we will announce a completely different organization starting in April, an organization where the shift of responsibility will be given to regions. We want to put boots on the ground in the regions. We need to work closely with customers that are growing fast. We need to have better key customer management practice. Value pricing is a key topic for us. In my experience, it is always a key topic for a company that has its root in commodities, where historically, pricing as cost plus is the norm. We need to rewire our company to think differently, and we need to have a much better, and that's what we're doing, streamlined innovation.
You can see on the graph that over time, and rather quickly, and this is just a phenomenon that has been happening, this is not new. The sales in Japan are really diluted over time because most of the growth is happening actually in these markets outside Japan, and we need to capture it. Special attention also to a range of fast-growing products, and we call them the sustainable brands. These products are being specified in multiple applications. These products have something special, because they are the proof that at the same time you can have product with very high specifications, products that are highly sustainable, and products that are also highly profitable. Let's talk now about the gas business. The gas business will continue to grow through the four regions. It's going to continue to grow by winning, on one hand, large projects.
We are winning large projects across the world for air separation unit. Very new to us and very recent, we are starting to win also very large projects for blue hydrogen HyCO units. We won a very big one in India in December. We also have part of the business supplying specialty gases for medical and semiconductor applications with very high margin. As you can imagine, we are actively exploring and engaging in technical R&D and digital synergies between Nippon Sanso and MCG. The pharma business, as I said, is going through a significant transformation. We are investing in the pharma business, but we are refocusing the pharma business. We are spending money on AI to speed up drug discovery. We are spending money on developing precision medicines around three plus one indication.
We are spending money on digitalizing the business and doing things like real-time data tracking of patients, so we can adjust medications. Our healthcare business, and I want all of you to really understand that, our healthcare business really had two phases, last year and even before. Our core business in Japan and the U.S. is doing very well. With the success of oral RADICAVA in the U.S., is doing better in the U.S. than expected. We are also continuing to see the growth of STELARA, CANAGLU, and a few other products in Japan. Profit and sales are up in Japan even with the cost reduction that we have to bear every year. We are optimistic about the short and medium-term pipeline.
Now, on the other hand, in our pharma business, we have had what I would call an overextension into fields that were outside the core strength of the company. These led to severe losses and nearly completely offset the profit that was made in our core business. After several years of large impairments, a deep analysis of the business, we have decided now to restructure the business along two axes. We need to focus on fewer indications that are in line with our R&D and clinical strength. We need also to focus on Japan and the U.S. We cannot do everything. Our pharma business is a JPY 4,000 oku yen business. It is not a JPY 40,000 oku yen business. We must be selective into what we do. As a result of all these changes, we will grow R&D again. We will do it in Japan.
We will work on our core indications. We will now focus on central nervous system, autoimmune disease, diabetes and kidney, and selectively on oncology, and mostly for rare diseases. You will see a step change in profitability starting next year. We are looking forward to the new leadership of Tsujimura-san to rejuvenate our pharma business. MMA is all about cost leadership. It is about what do we need to do to defend our number one position. We do have the best low-cost technology with our Alpha process. We have the largest capacity. We have the largest share of the merchant market. The business is growing. This is the queen of plastic, as it is called. It finds its way across multiple industries, mobility, building materials, displays, transparent sheets, coatings. It is everywhere. But we are not the only one investing.
In order to retain our position and our leadership position, we must transition to fewer plants, ultimately, most of them Alpha process. The Alpha process has such a huge cost advantage that it can be two to three times cheaper on a cash cost basis. This is all about a race to cost leadership. It's that race to maintain global business leadership. In the plan, we have a little bit more than JPY 2,000 oku yen in CapEx to support the construction of a brand-new plant in the U.S. What you will see also is that while we execute that plan, you're going to see more of the older plant closure. You have seen over the last several years the closure of a plant in the U.S., the closure of a plant in the U.K.
We're going to keep on shutting down these old plants because they are uncompetitive. It's about making that transition. If you put all together and all the business combined, through a mix of growth and cost reductions, we will reach, by 2025, a level of EBITDA that has never been achieved, either in an absolute term or as a percentage. By 2025, as I said, you will have a very different business with different options in front of you. The last pillar is about capital allocation. As we bring back the business to an acceptable profitability level, we're going to generate significant cash flows, ex R&D, in the amount of about JPY 21,500 oku yen. We're going to allocate the capital as follows. About 50% will go in CapEx, with the lion share going in performance product and in gas.
As I said, a little bit more than JPY 2,000 is also going in M&A. About 18% will be reinvested into R&D with, for sure, the largest share going to our pharma business. Remember that in 2020 and 2021, we had two big problem. We had a lack of profitability and a mountain of debt. We are working to improve profitability. Through this plan, we are also working to reduce our debt and to put back the company at a better place. We have included about JPY 2,700 in debt repayment, and we are aiming for a net debt to EBITDA below three. Also, net debt to equity below one. Part of the plan is to increase our payout ratio from about 30% now to 35% in 2025. When we do all that, we will still have JPY 2,500 oku yen in uncommitted capital by 2025.
Implementing this Forging the Future strategy will accomplish three key and critical financial goal. One, it's going to bring back growth, profitability, and very importantly, productivity. Two, it's going to fix our balance sheet. Three, it's going to generate, as we progress towards 2025, significant capital and leverage potential for targeted M&A or share buyback. This is all linked together. We need to improve profitability so we can reduce our debt and we can create more options for us. Our vision for the future is very clear. We will be a leading specialty materials company. We will be a global innovator, and we will be a leading specialty materials company that takes good care of all its stakeholders. We will take good care of shareholders, take good care of employees, of customers, and society.
Forging the future is our strategy to pivot towards that vision of becoming a specialty materials company. We planned this in 2021. Since December 2021, we have started execution. We are accelerating now the execution on the five pillars. You have seen a lot more announcements about what we are doing. Our aim and our commitment is to deliver fully on each pillars. That will lead us in 2025 with four strong businesses, a stronger balance sheet, and many options to go forward. In conclusion, we have made significant progress since December 2021. As a management team, as a company, we are committed to the dual implementation of growth and cost reduction. We understand very well that cost reduction, some of them are one-off. We need to bring back a mentality of cost control and productivity in the company. We will exit petro and coke.
We will have a leaner, digital, and more empowered company. Ultimately, we will create value for our shareholders. KAITEKI will continue to be our north star above all of that. As a company, we are really committed to achieving our vision. Thank you very much for your attention.
Thank you very much. We will now take questions.
Thank you. Morgan Stanley MUFG, Watabe. It was a very powerful presentation. Thank you. I think your stock price went up a little, probably reflecting that strong presentation. My first question is on MMA. Is MMA specialty? I think it's really turning into commodity to use it as a specialty for the business in U.S. and ACH4, with the closure of that, is it going to get better? Dow is already using the ethylene process that is close to Alpha process, so I am afraid they are ahead of you in the U.S. What is your take on that? FY 2025 onward, would the supply and demand balance get better? Any comments on MMA business?
Thank you for the question. Good question. In terms of the MMA balance going forward, we think that it is impossible for the MMA business to continue the way it is. We really hit rock bottom the last quarter. There were many reasons for it that have been explained, I think at our last meeting. It was mostly driven by Chinese demand and supply complete imbalance. Is MMA a specialty business? No, it is not. It is not a specialty business. It is not. It is also a crown jewel. There are not many businesses where Japanese chemical companies have a leadership on all the front, as I explained. The other one is PVC at Shin-Etsu.
For us, we really think that there is a way when we have such a strong technology that has been demonstrated at scale already in Singapore and in SAMAC in Saudi Arabia, to go and grab that leadership. In the U.S., a lot of the existing facilities have a limited shelf life because of their cost. The key in MMA is to be bold. It's shut down all the old assets while you build. If we are not bold enough, we cannot retain our leadership. We have to be very bold. For us to make that investment, we're going to have to see that the market stabilizes and that we have a great game plan to shut down old assets. Many people have asked me, why don't you divest? It's a good business. We need to focus on it.
There is money to be made if you play your cards correctly.
[Deine] is ahead of you, or do you not feel that [Deine] is ahead of you?
Not really. I think there is plenty of capacity of demand in the U.S. to fill more than one plant. This is the first plant that they build. This is the third one we built. We need to make the decision when it makes sense financially. We got to have a great return on investment, internal rate of return, and we got to have an acceptable payback time. At the end of the day, this is about economics as well as strategy.
I see. Thank you. My second question is on performance products. Your strategy was very clear. Thank you very much. For the next three years, JPY 1,000 oku yen profit improvement. I don't know about others, but I personally have a question mark on that. It's going to be a tall order. What product areas, what products do you think would grow? I think your plan includes M&A as well. Can you talk about that?
Again, this is a market-driven strategy, you can point at only one product, specialty materials doesn't grow like that. Specialty materials grow by focusing on an industry, riding the industry across multiple products. I can go again and cite you what I think will be growing very fast. I'm pretty sure about the fast growth that we're going to see in electrolyte business. It's growing super fast right now. It will continue. We are investing to double capacity. We're going to bring again some. The Gelest product is another one. We have our semiconductor cleaning with the building of fabs. We are sold out right now. We are seeing a lot of growth in some of these businesses. Remember this year, in performance product, we are better results than last year, even though the economic environment is really bad.
In a normal environment, I think we are ideally positioned to really get the growth from the EV and mobility, from digital, and from the food market on the ingredient side as well as on the film side. Remember, we just built two brand new plant. We've finished one in Indonesia, just built, just started up. We will start construction of a PET plant also in Germany. We have a lot of investment ongoing. Epoxy is the same also, where we have investment ongoing right now. Going on, you know, we're building a big, a huge plant in the U.K. based on really strong demand for this product in Europe. We have multiple opportunities to grow.
Thank you. I have great expectation. Thank you.
Okay. Yamada-san, go ahead.
This is Mikiya from Mizuho Securities. Please allow me to speak in English.
Sure.
I have two questions regarding the first one is healthcare.
According to your presentation, your expectation in ROIC in healthcare seems to be just around a few percent, which I think is not enough. In order for us to judge the value of healthcare, obviously, the short-term profit is not everything. However, could you please elaborate, how are you planning to increase the value of healthcare, and why healthcare has to be within your group? This is not a specialty material business. This is healthcare. This is life science, different science, in my opinion.
Thank you very much for your question. In terms of healthcare and in terms of pharma, we have the business. As I said, I said it last December, and I repeat it now, we're going to fix all these businesses. You cannot have options until you fix businesses. For this plan, as I explained, until 2025, it's about creating options also. We are fixing that business. Fixing that business is two things, is one, refocusing the business and eliminating everything that we've done, maybe in the past that has not paid off and is a huge amount of money. That's one. The other one is refocus on indications where we have been successful in the past. It is not that our pharma business has no pipeline. We have a pipeline. We have a pipeline that beyond 2025 has a value that is higher than JPY 4,000 oku yen.
We have been working on quite a few things that have value, even though we removed some of them, like Medicago, that had significant value for us. We do have a pipeline, and as a proof, the business is growing right now. It's not only an internal pipeline, we also have a very strong in-license business too, with the licensing that has been done to us based on a really strength of our commercial footprint in Japan. Having Mounjaro being in license in Japan. This is the number 1 big blockbuster nearly in the world, and we are going to be the one commercializing it in Japan. It's a mix of different things. We need to reinvest in the pharma business, and that's why we are doing what we're doing. We cannot continue to spend all that millions and forgetting about what's our core business.
We are refocusing, reinvesting into our core business, and we're going to be reinvesting in R&D in Japan.
Thanks very much for the revelations. However, if I understand it correctly, the pipeline seems to be slightly deteriorated compared to one year ago, thanks to the termination of the vaccine and also termination of the immune cell therapy developments as well. According to this page, I can't see the NDL0612, which is basically the Parkinson's. There seems to be some delay in the pipeline. Please correct me if I was wrong. As far as new cell therapeutical treatment is concerned, if I understand correctly, the doctors involved seems to be unhappy with your stance not to share the full detailed data and this could potentially be harmful if you do not treat it well, for the future open innovation, including clinical trials. Could you please wipe out my concerns?
Thank you for your opinion. We are obviously aware of the position that certain other parties have. Patients are always our number one priority.
Yeah.
We take this issue very seriously. We refrain from specific comments regarding clinical trials.
For now.
We refrain, and we will announce the results at the appropriate time.
We had a press release, we stand by our press release. Our press release was very carefully crafted, and it says, "We have been investing since 2015. However, after a comprehensive review and careful consideration of the latest clinical developments, the timeline for commercializations, and the pharmaceutical business strategy going forward, we have decided to discontinue the development." That's our official statement.
Understood. How about the vaccine termination as well? Is it same thing?
We always look at the net present value that something can contribute. This company has invested way in excess of JPY 1,000 oku yen in Medicago. For us, it is about what is the future, how much money to get to that future, and is it creating value for our shareholder? For any program, anywhere, whether pharma or anything. When we reach a conclusion that the net present value is negative, we cannot work on project like that for our shareholders.
Yeah. If I understand correctly, you have spent approximately JPY 90 billion-JPY 100 billion for clinical testing for the vaccine, as well as basically building the new plant. I understand it. Thanks very much. One more thing. This is just a clarification of some numbers. If I understand correctly, the numbers shown on the capital allocation page is the accumulation of the March 2024 to March 2026, right? Three years.
Yep.
If I understand it correctly, if you could achieve everything you said in this presentation, you can raise approximately JPY 2.1 trillion or something like that, so it reconciles. If you couldn't make it, could you please prioritize the capital allocations?
We will prioritize capital allocation to make sure that we don't overspend. That's it. As I said, we are committed to this. We will do it, but it's a good question. If things happen, I cannot predict what the economy's going to do, but the strength of a company is its reaction, and you can be absolutely sure that we're going to react and prioritize capital spending to make sure that we do not overinvest and underachieve. I cannot give you a typical list of what we're going to cut, but you can be sure that we'll be adjusting our spending in light of different economic conditions.
Well, options will go down.
Our options will go down, yeah.
Okay, understood. So far, basically all option go down. Understood. Thanks very much.
Thank you. Miyamoto-s an?
Thank you very much for your presentation.
Miyamoto from SMBC Nikko. I have two questions. First, with regards to your policy on petrochemical exits. Initially, you were considering integration with another petrochemical company. What is your view now? With what kind of companies are you negotiating right now? Looking at page 32, I understand that a gain on the divestiture is included. Does this include petrochemical and what amount? I understand that now, you are establishing a joint venture, which would be different. If it's going to be 50/50 Equity with a similar size company, I'm afraid it's not going to be very effective. Do I understand that for FY 2025 it will be joint venture, but as a next step, you will be selling that, correct?
Our goal is to exit from petrochemical. It's going to be done in steps. It's going to be done with JV. Then it's going to be done in creating that JV, running it. At the end of the day, it's going to be for us to leave and exit from that JV. I cannot share the detail of what we are doing right now. We are under non-disclosure agreement. I will not share any detail about the negotiations that are taking place.
Originally, you were thinking of integrating with a petrochemical company. Are you looking at a wider industry as well? You have cracker in Mizushima and Kashima. I'm afraid it will be very difficult to integrate with other players. Over the last 18 months or 14 months, where do you see the difficulties and where do you see a potential? I think the business environment is getting worse. I think it's getting even more difficult. Can you talk about that?
A non-disclosure agreement. I will not share any more details.
Understood. Thank you. My second question is on performance products. You talked about electrolytes, I think it's unlikely that you'll be selling that business. Are there any plans to reform the portfolio of performance products? You did sell and announce the sale of some of the businesses. Could it be that maybe you sell some high-value business and use that cash to invest into a greater growth potential business? Can you talk about the policy for performance products?
No, you are correct. We are looking, as we said. Whatever is non-target in terms of market and whatever doesn't have the right profitability, we are looking to exit. That's for sure. What I said also is that before we reinvest and make targeted acquisitions, which I really hope we're going to do, we need to be on the right track in terms of profitability and debt reduction. I will not support any new M&A before we have proven to ourselves that we can have a much higher profitability business and that we have an ability to reduce our debt. After that, when we're on track, we're going to do, and that's the goal.
That's why I said on the slide of capital allocation that by the end of 2025, when we accomplish this, we have room to maneuver and we have capital and potential leverage again, to make very targeted acquisitions in the specific markets where we want to operate.
Understood. Thank you very much.
Thank you very much. Next, Okazaki-san.
Thank you very much for your presentation.
I have two questions. First, performance product, slide page 23. From 2021 to 2025 on the right-hand side, growth and performance and cost reform, then 2022 is over. For the next three years, what's the proportion for those three? Growth this year was not big, so you expect more growth in the next three years. In terms of performance and cost transformation, how it's going to progress? Performance and cost transformation, any specific idea, as much as you can disclose towards [JPY 25,000 oku yen] level of achievement? Can you give some numbers in a quantitative manner in your plan going ahead?
We are not disclosing the cost reduction by businesses. I explained all the cost savings, we are on track, we will deliver these, this is the allocation for performance product. We will deliver that. Now, your question about 2022 is a real one. 2022 is a difficult year. You've seen it. I would say this is probably one of the most difficult year in the chemical industry for a very long time. It's not going to continue like that forever. It's going to bounce back, it's going to go back to normal at one point. You will see a jump in earnings in our company, but also in performance product once the economy goes back to normal. As I said, we didn't see any lowering of our COI this year, even though the economic conditions, we shared that with you.
Display was just nonexistent. Some of our driver from the past disappeared. They will come back. That's why we are confident in our projections.
If I may add, the numbers on this page, there are no specific numbers, but you can see the percentage, the proportions. That is right. Regarding cost transformation, overall JPY 1,350 oku yen. For healthcare, it will go into healthcare, but other than that, the performance products would have most of that.
Another point also is it's 16% of EBITDA. I've run and I've seen going from 8%- 16% in three years. You make the right decision, you can do that. It is a challenge, but that's why we have a management team that's committed to doing that. We have the product. I think we are deploying the right strategy, we will do everything to achieve that goal. It's 16%. It's not 35%. It's 16%, which is just the limit for me to get to the point of being a specialty chemical. There is a lot of things that we need to do, but it's there. The variable margin in that business is there. It's not as if it's not there. It is there. It's about us and how we manage it.
This year, particularly this year, energy and material cost increased, and you could have very good pricing, and that contributed to performance. In 2023 and onwards, do you think this can be achieved? What is your feedback on this? You, Mr. Gilson, I understand that you talk to sales forces very actively. What's your forecast for the next year and onwards?
This is one point that I tried to convey before. When you shift from a commodity-type mentality to a specialty-type mentality, the first thing you talk about is commercial strategy. There's two parts in commercial strategy that you need to get correctly. It's your market and marketing strategy, and your pricing strategy. Because historically, companies that are coming from a commodity angle do not have the right pricing strategy. We have started this year with pretty good success of rolling out pricing strategy, pricing seminar to all our workforce. It's not enough. We need to move into a value pricing mode. Value pricing means it is a detailed line by line item. Is my pricing correct for this customer? Yes, no. Shouldn't I increase? There is tremendous potential in our company because it's never been the focus.
There is a lot of money on the table that we're going to fight for to get. Our products have actually a lot of value.
Thank you. The second question, page 32, regarding the dividends. Just to confirm. Year-on-year dividend EPS, DPS was at JPY 30, and for FY 2023 are going to increase. For FY 2025, 35%. Do we need to wait until 2025? It depends on profit level, I suppose. Can you give us more explanation on that? Regarding JPY 2,500 oku yen, this must be case by case, buyback and M&A and others. What are others, I wonder? Can you explain also the priority of those, please?
In terms of the dividend policy is we're going to increase to 35% in three steps. We're going to increase 1%, 2% a year until we reach 35%. We're going to see where we are, and then we're going to think about again, is this the end or do we continue? Historically, Japanese companies have been paying very low dividends. We are a mature company that should be paying higher dividend, but we need to approach it in steps in line with our increase in profitability and fixing our balance sheet. We cannot be ahead of our turnaround goal. Turnaround first, dividends slightly after, but not the other way around.
Annual DPS. DPS will increase from JPY 30. Also regarding priority, which comes first, M&A, share buyback, and others?
You are a good analyst, you know numbers very well. You can use the dividend rate and the earnings per share, and you can look and you can see where it is now, and you can make your own calculation. If we deliver this plan, it is going to be a significant growth in dividend per share. We need to deliver, and we are committed to delivering it. In terms of what comes first, I cannot tell you now. We will see when we are there. In our plan every year, we will increase the absolute amount. That's our plan. Thank you.
Thank you. Umebayashi-san, please.
Thank you. Umebayashi from Daiwa Securities. I have some number related questions. Looking at slide 216 on exit rates, with the simplification of organization, workforce reduced by about 10%, it says. Currently, you have about 70,000 people, meaning you are going to reduce 7,000. Medicago, I think 600, 700 people. Where else? Petrochemical exits, is that part of this projection?
No. To answer to your question. First, this is ex-Nippon Sanso. We are not talking about Nippon Sanso in that number. The base is 50,000, not 70,000. The rest is 5,000 in net reduction. This does not include exiting from petrochemical. This is a real net reduction. We've announced already, way over 1,000 directly this year. We have natural attrition in this company that is in the range of 1,500 to 2,000 per year. We're going to manage the attrition. Medicago was, as you said, 500, 600, and then we had Cassel plant that was 300, and then we had just announced a workforce reduction in the U.S., which was more than 200. We are doing a lot of things. We have an outsourcing that we just announced with our systems. It's going to be several hundred people.
Overall, when you put all this together, we will be at 5,000 in terms of workforce reduction.
I see. Thank you. Very helpful. Thank you. Another question. I'm looking at slide 21. Again, related to petrochemical exit. The equity or profit in equity from JV, about JPY 100 oku, and I think that seems about 200 JV. It seems 200, half of that will be 100. Core profit, I think you have to have about JPY 300 oku to achieve this figure. In your petrochemical business, last year was very good. Before that, I think the value was smaller. Are you trying to raise your current petrochemical business to JPY 300 oku, or are you thinking of combining with other company for a total of JPY 300 oku?
It's a good question, but the assumption that we've made here is the JV. Sure, JV is with partners, and we will have 50% of the net income. That's all I can say.
Understood. Thank you very much.
We need to close soon. The next question would be the last. Nakahara-san, go ahead.
Tokai Tokio Marine, Nakahara is my name. Very strong presentation. Thank you very much. First, for FY 2021, in December, you mentioned Shin-Etsu Chemical, a super specialty company, that is what you said. I wondered if you are not willing to catch up for that. I heard the presentation today, pricing, change to react. I feel much better now. This is Shin-Etsu Chemical's spirit. You need to improve the quality of your business. For pricing, you had much work, by product, by customer, item by item, you have worked. Instead of cost-plus approach in the past, you have shifted. Depending on customers, you get whatever you can get. That was very strong remark.
In terms of cost reduction, the digitalization must be very effective. I read this digitalization exponential by exponential. You can expect a very big change according to that book that I read recently. It's written by an American. Regarding chat, you have some good quality. Maybe you don't need human intervention at all because digitalization is getting better. You have reduced layers of management. The top management, including cross-selling, pricing can directly be engaged in various activities and decisions. That must have been very effective in improving margin. What did you do exactly? What are the actual outcomes? Can you show some examples?
Two things, one about Shin-Etsu first. I've known them for many years. They were our number one competitor and customer when I was at Dow Corning. I've known them for many years. For many years, this is, in my mind, my most admired chemical company in the world. The best managed chemical company. Constant attention on price, on cost, lean, efficient, customer-focused. This is definitely a goal, not for us, for anyone in the chemical industry. It can be done, even though some of the business are a little bit commoditized. It's all about how you do. You can extract money from anything as long as you manage it well. That's for Shin-Etsu. I'm a big admirer of what they do. In terms of digital, what you are saying is absolutely correct.
I've been in companies before that have taken all these steps 10, 15 years ago, and I could see what it did to the We are behind. Many companies are behind in terms of digitalization. We got to go. We must go. That's why we're investing so much to digitalize as many steps we can on the business process side and on the manufacturing process sides. We must. It is not normal that in these days we still do not have online channels for sale. We got to go there very fast. That's why I said there is no more normal chemical industry in the future. There will only be a digital chemical industry, and we cannot let all the other companies do that and us fall behind.
We must be in part of the leaders in terms of doing that, hence our real focus to do that, because from it will come efficiency, productivity, and quality also. I am a very strong believer based on previous experience.
In the midterm plan, you say you invest JPY 700 oku yen, you have 20 some ERP, and you need to consolidate, and you need to go through digitalization. I don't think JPY 700 billion is not enough. With this small amount of investment, do you have a very ingenious way?
It's the next three years. I never said that we're going to stop after three years or that we're going to be completely done after three years. We have some catch-up to do, and we have started on that catch-up. We have started to put everything together to migrate to common systems. There are steps. We are not starting now. We started in December 2021, and with the hiring of Tim Ross, he's been driving a great process across the company. I don't think you can do that in three years. It's not going to be enough, and it's going to be more expensive than JPY 700 oku yen. It must be done, otherwise, you're going to be left behind.
Thank you very much. With that, we close Mitsubishi Chemical Group Investor Day 2023. We thank you very much for your participation.