Resonac Holdings Corp

XMUN:SWD

Earnings Call Transcript 2018-Q2

[Kohei Morikawa, executive]

Ladies and gentlemen, I am Kohei Morikawa, President and CEO of Showa Denko. Thank you for taking the time out of your busy schedule to join us at financial results briefing. I would explain 2018 first half financial results and tasks for the second half. This slide shows contents of the briefing. Our CFO, Toshiharu Kato, will present the details of financial results later.

This slide shows 2018 first half financial results. In petrochemicals, there was once every 4 year shutdown maintenance. In Inorganics, tight supply and demand balance of graphite electrodes led to higher international market prices. Businesses in Chemicals, Electronics and Aluminum segment trended strongly.

Operating income was JPY 78.1 billion, 2.2x that of the year before. Ordinary income was JPY 77.8 billion, net income attributable to owners of the parent was JPY 58.1 billion, both record high numbers as first half results.

Based on the good performance and in consideration for the return to the shareholders comprehensively, we decided to pay midterm dividend for the first time in 28 years.

On August 8, together with the first half financial results, we announced revised full year forecast. Net sales forecast is JPY 985 billion. We expect to achieve record high operating income, ordinary income and net income attributable to owners of the parent for 2 straight years.

We expect to see continued strength in the shipment of graphite electrodes, materials for semiconductor industry and others. On the other hand, there are concerns such as U.S. China trade friction and high oil prices.

We believe they will not have a major impact on our business performance this year, but we will continue to watch political and economic trends carefully, so as not to miss any changes.

This shows Project 20+, 3-year total operating income. In the first half, we achieved our target of JPY 143 billion in total. In the second half, we will continue to reduce cost so that we can further increase total operating income.

This slide shows segment-wise 3-year total operating income. On the far left, you see 2013 to 2015 3-year total of JPY 80 billion. This was before the Project 20+. On the right, 3-year total of original plan and revised forecast of 3 segments namely, Chemicals, Electronics and Aluminum and 2 segments namely Petrochemicals and Inorganics during Project 20+ are shown.

With the effects of measures taken, total of Chemicals, Electronics and Aluminum was in line with the medium-term business plan. Compared to the previous 3 years, profit is expected to grow 1.6 fold. Inorganics, which includes graphite electrodes and Petrochemicals benefited from measures and tailwind of market conditions and profits are expected to grow significantly vis-a-vis the medium-term business plan.

This slide summarizes measures that we have taken in this first fiscal year. For Growth-accelerating and Advantage-establishing businesses such as high-purity gases for Electronics, aluminum cans, lithium-ion battery materials and SiC, we have expanded businesses through aggressive investment.

For graphite electrodes, which is one of the base-shaping businesses, we have been realizing effects of post-merger integration. For ceramics business, one of the rebuilding businesses, we plan to transfer our share of PT Indonesia Chemical Alumina at the end of August to focus on high value-added products with unique characteristics.

Next is forecast strategies and tasks for each business. Let me start with graphite electrodes, petrochemicals that are showing strong performance, thanks to favorable market trends.

With more stringent Chinese environmental policies, global electric furnace steel production is expected to expand for several years after hitting the bottom in 2015. We expect the supply of the UHP or ultrahigh power electrodes used for electric steel production to remain tight. In general, graphite electrodes is set to have long cycles and a cyclical business. But the current upward trend started in the second half last year. Until around 2020, tight supply and demand balance is not likely to drastically change. Expansion plans for graphite electrode are announced in China but these are for HP or high power electrodes, which are low in strength and small in diameter. These electrodes are used to maintain molten state of steel in blast furnaces and electric arc furnaces. High grade UHP is used to liquefy steel scraps with high current in electric arc furnaces. We expect the increase of the UHP supply to be a very small part of the whole. Chinese expansion plan for needle coke, which is a main material for graphite electrode is mainly for coal-based needle coke. These cannot be supplied for UHP, which requires high-grade oil-based needle coke and can be only used for high-power or for anode materials for lithium-ion battery.

Therefore, we believe the impact of needle coke expansion in China will be very limited on the supply-demand of UHP. Tight supply of oil-based needle coke needed for UHP production will continue, but since we are #1 global supplier and have long-term relationships based on trust with material manufacturers, procurement has been done stably.

We also have technical strength to manufacture high-grade UHP with coal-based needle coke. Competitors are unable to do the same. By sharing best practices with our business integration partner SGL GE, we are trying to become world #1 in both quality and cost.

Third integration, production capacity of our group expanded to 250,000 tons per year. And we have well-balanced distribution of sites in Asia, Europe and North America. Large-sized electrode is 80 centimeters in diameter, 3-meter or more in length and weighs a little less than 3 tons including connectors. By reviewing the supply network among 3 regions, Europe, U.S. and Asia and by promoting the cluster supply network and also integration of the sales channel, we expect to achieve more than 30% this year of the JPY 4 billion target in 2020.

Next is petrochemicals. In petrochemicals, once every 4-year shutdown maintenance was completed in the first half and full capacity operation continues after the restart. Petrochemical products made from shale gas oil in United States are expected to partially flow into East Asia. But because of strong demand in East Asia, especially China, we expect limited impact. On the other hand, we will continue to closely monitor the changes of supply-demand balance as the oil prices go up. To strengthen the business for the future, in addition to capacity expansion of organic chemicals, we decided to cooperate with oil refining complex. With the commercialization of ethylene derivatives, which is under development and enhancement measures for Ota Complex, we would realize high utilization rate of plant and generate stable cash flow.

Next slide shows hard disk business, which has been earning stable profit during Project 20+. Demand for PC continues to decline. But demand for data centers to store the exponentially growing data will keep on going in mid- to long term.

On top of data center, demand for surveillance camera has been increasing anew. Leveraging our strength, the technological development capability to the maximum, we will create the best-in-class hard disk to meet customers' needs and promote the cost cut measures boosting productivities among others. And disk business will continue to be positioned as one of the core businesses to sustain the groups' earnings.

I will explain high-purity gases for electronics and aluminum cans. The growth accelerating businesses that drove the Chemicals segment and Aluminum segment, which marked the strong growth in earnings during Project 20+. High-purity gases for electronics continue to be in tight supply due to the sustained strong growth of semiconductor memory and LCD display market.

Our company adopted proactive expansion initiatives including the production expansion of high-purity, hydrogen bromide in Kawasaki plant in this first half. The launch of production of CH3F through joint venture with SK materials in Korea, set up of sales and the distribution base in Wuhan to strengthen supply system in central China, and they successfully enhanced our presence in the growth market.

In the second half, we'll promote the distribution network optimization among our bases in East Asia and the U.S. and build a competitive supply system, and will expand the facilities to respond to the growing demand further down the road.

In Aluminum cans business, we are making progress over the new plant construction in Da Nang, as a second base in Vietnam and the new joint venture plant in Thailand. A new plant in Da Nang started operation in this June and established a supply structure of 2 billion cans per year. We will shift to the full utilization promptly, and we launched the joint venture plant operation in Thailand, which is under construction now. This will enable us to secure our firm position in South East Asia market, which enjoys a strong demand in aluminum cans for beverages.

Next, I'll explain the advantage establishing businesses, lithium-ion battery materials and SiC epitaxial wafer for power devices whose earnings growth are highly expected in the next midterm plan.

Environment for the growth of lithium-ion battery material business are being prepared, including the demand recovery in EV market in China and growing demand in Europe. We have been supplying customers with product of high capacity, lower resistance and long life.

In the second half, to meet customers' needs for large products for automotive onboard use, we'll proceed for the relaunch of silicon-graphite composite anode material and accelerate the sales of SPALF aluminum laminate packaging material for automotive on-board use. As I see epi-wafer for power device market is rapidly expanding 1-year earlier than our expectation, our SiC epi-wafer is highly appreciated by the lowest crystal defect density in industry and its high uniformity and our global share will exceed 30%. First expansion was completed in April this year and in September the second expansion will be completed and to accommodate to the rapid growth of the market, the third expansion was decided. With the completion of the third expansion in February next year, the production capacity of high-grade epi-wafer will triple in the 1-year plus period. We'll continue to improve quality and cut cost and enhance our presence in SiC epi-wafer for power devices whose demand is growing further.

Finally, let me explain the basic concept of the next midterm business plan which starts from next year 2019. Since my inauguration as a President, I have been telling that the mission of Showa Denko group is to satisfy all stakeholders. To realize this, I think that, we need to demonstrate that Showa Denko group is on solid foundation at present and with promising future. In 3 years from 2013, we struggled to sustain the solid foundation. But in 3 years our Project 20+ from 2016 up to now, our foundation has become more solid, party benefited by the benign market condition. As a result, we see different landscape. So far, we have been climbing below a seas of clouds. But now we are above it via Project 20+. Now we can view higher mountains with clearer view of path to take to climb to the top.

In 3 years from next year 2019, we'll be at the top of the mountain that we are climbing at present by maximizing the effects of measures already taken. And in the mid-term plan, we will also prepare to climb even higher mountains. To be more specific, we'll use cash that is unearned with a solid foundation during the next midterm plan, free cash flow after the stable dividend will be spent for additional capital investment including M&A, besides strengthening financial position and additional return to shareholders. They will in turn realize future growth and maximize shareholders' value. How shall we utilize the profit and cash flow that was generated by petrochemical and graphite electrode businesses that were benefited by the favorable market conditions for the sake of future growth?

Key point is to evolve 3 existing businesses of Chemicals, Electronics and Aluminum into individualized businesses. And also, we will grow a new seeding businesses. To that end, we will make additional investment including M&A with the profit and a cash flow generated by the petrochemicals and graphite electrode businesses.

Total operating income of 3 segments excluding Petrochemicals and Inorganics are at JPY 120 billion in this midterm plan, and it will be up 50% in the midterm plan of '22 to '24 hitting JPY 180 billion. During the next midterm plan, free cash flow generated by 2 segments of Petrochemicals and Inorganics will be spent effectively for proactive investment and M&A to achieve the goal in the following years. More specific plan will be announced in the midterm plan meeting scheduled in mid-December, and we hope you'll like it. This concludes my presentation. Thank you for your attention.

[Toshiharu Kato, executive]

Ladies and gentlemen, I'm Toshiharu Kato, CFO of Showa Denko. Thank you very much for your interest in the performance of our company. I'd like to now explain the financial results for Q2 of fiscal 2018. Number of consolidated subsidiaries decreased by 1 to 61. Baotou Showa Rare Earth Hi-tech New Material Company Limited was liquidated in Q2, Number of companies under equity method is unchanged from the end of last fiscal year. January to June average exchange rate was JPY 108.7 to the dollar. Yen appreciated by JPY 3.7 year-on-year. End of the term exchange rate used to evaluate assets and liabilities was JPY 110.5 at the end of June, yen appreciated by JPY 2.5 year-on-year.

As for euro, January to June average was JPY 131.6 to the euro, yen depreciated by JPY 10 year-on-year.

As a result of foreign exchange sensitivity review, JPY 1 appreciation against the dollar pushes down the operating income by JPY 600 million per year. With higher oil prices, domestic naphtha price was JPY 48,300 per kiloliter, up JPY 7,800 or 19.3% year-on-year.

Our first half forecast was JPY 41,600. As Aluminum metal supply tightened due to the reduced production in China and impact of the U.S. trade policies and others, Aluminum LME price increased by $325 or 17.2% year-on-year to $2,210 per ton.

Japan premium was $128 per ton in Q2 last year and declined towards the end of the year and rose to $129 in Q2 this year and is at $132 per ton in Q3.

January to June average yen based market price increased JPY 32,000 or 12% year-on-year to JPY 299,000 per ton.

Now please turn to Page 3. This is a summary of first half consolidated results. Net sales were JPY 455.8 billion, up JPY 83.7 billion or 22.5% year-on-year.

Details are shown on Page 5, mainly Inorganic sales grew significantly with the integration of graphite electrode business with SGL GE of Germany in the second half of last year. International market improvements and others.

Operating income was JPY 78.1 billion, up JPY 43.1 billion or 122.9% year-on-year.

Continuing on from Q1. Q2 operating income, ordinary income and net income attributable to owners of the parent were record high quarterly numbers as well as January to June first half number.

I will explain the details on Page 6. Although, profits of 3 segments Petrochemicals, Electronics and Aluminum decreased, profits of other 3 segment Inorganics, Chemicals and others increased especially Inorganics profit grew significantly. Under nonoperating income and expenses in Q2 last year, we booked about JPY 10 billion, withdrawal-related loss of PT Indonesia Chemical Alumina or ICA for short.

Equity in earnings of affiliates improved JPY 9.3 billion year-on-year. As new Taiwan dollar weakened against the U.S. dollar, foreign exchange losses of hard disk subsidiary in Taiwan turned to foreign exchange gains.

Foreign exchange gains and losses improved JPY 2.5 billion year-on-year. Net nonoperating number improved JPY 12.5 billion. Ordinary income was JPY 77.8 billion, up JPY 55.6 billion or 249.8% year-on-year.

Extraordinary profit and loss are shown on the next slide with the absence of withdrawal-related extraordinary loss of ICA, net extraordinary profit and loss improved JPY 7.9 billion.

With higher profits, income taxes increased by JPY 11.1 billion to JPY 15.3 billion.

Profit was JPY 61 billion, up JPY 52.4 billion year-on-year. Mainly with higher profit of Showa Denko Sichuan Carbon Inc., net income attributable to noncontrolling interest increased by JPY 2.1 billion year-on-year to JPY 2.9 billion. Net income attributable to owners of the parent was JPY 58.1 billion, up JPY 50.3 billion or 641.8% year-on-year.

Please turn to Page 4. As there were no major items, extraordinary profit increased by JPY 0.3 billion year-on-year to JPY 0.5 billion.

In the first half last year, JPY 9.6 billion extraordinary loss including about JPY 6.6 billion for provision for loss on guarantees and provision of allowances for doubtful accounts in relation to the withdrawal from the ICA was booked.

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Since there were no major items, extraordinary loss improved JPY 7.6 billion year-on-year to JPY 2 billion. As a result, net extraordinary profit and loss improved JPY 7.9 billion to minus JPY 1.5 billion.

Please turn to Page 5. This shows the consolidated sales by segment. As there was once every 4-year shutdown maintenance, sales decreased year-on-year in Petrochemicals and also in Electronics, but increased in other 4 segments.

Petrochemicals sales were JPY 115.4 billion, down JPY 8.5 billion year-on-year. Due to once every 4-year shutdown maintenance of ethylene plant from March 8 to April 20 olefin volume decreased. With tight supply of ethylene in East Asia, full capacity operation continues after the shutdown maintenance. With higher market price of vinyl acetate and ethyl acetate, organic chemical sales increased. Despite the impact of the shutdown maintenance, SunAllomer Limited sales increased on higher prices reflecting rising material cost.

Chemical sales were JPY 74.6 billion, up JPY 4.5 billion year-on-year. Chloroprene rubber sales were flat year-on-year with higher market prices of acrylonitrile and caustic soda basic chemical sales increased slightly.

Production increase of semiconductor and display industry led to higher shipment of high-purity gases for Electronics, mainly etching gases. Electronic chemical sales increased with higher selling prices of polyester and emulsion reflecting rising material cost Functional chemical sales grew. With tight supply of liquefied carbon dioxide and dry ice, industrial gases sales increased slightly.

Electronic sales were JPY 54.3 billion, down JPY 8.6 billion year-on-year. Hard disk volume decreased 20% year-on-year. Hard disk for near-line server was solid but 2.5-inch media for notebook PCs so declined in shipment due to the transition to the next generation 1 terabyte product. Compound semiconductors and rare earth magnetic alloy sales increased on higher shipments. Lithium-ion battery material sales grew with higher shipment as the production adjustment came to an end in China market.

Inorganics sales were JPY 116.5 billion, up JPY 89.9 billion year-on-year. Fine ceramics shipment for electronic materials grew but ceramic sales decreased on lower volume of general-purpose alumina due to the withdrawal from ICA. China's more stringent environmental policies led to the production increase of electric furnace steel, tight supply due to the brisk demand in U.S. market pushed up the international market prices. With the contribution of Showa Denko Carbon Holding GmbH consolidated in the second half last year, graphite electrode sales grew significantly.

Aluminum sales were JPY 53.3 billion, up JPY 2.4 billion year-on-year. Rolled product sales increased on higher shipment of high-purity foils for capacitors for industrial machineries and automobiles. Aluminum specialty component sales increased on higher market prices along with rising aluminum metal prices. Despite higher volume of aluminum cans in stronger Vietnamese market, sales in Japan decreased slightly. SHOKO Company Limited sales increased on higher volume of petrochemicals and others. SiC epitaxial wafers sales grew on higher volume of 6-inch high-grade epi. Sales of others were JPY 69.6 billion, up JPY 4.6 billion year-on-year.

On Page 6, we are showing the consolidated operating income by segment. While profits of 3 segments declined, profits of other 3 segments grew, especially Inorganics profit showed a major increase.

Petrochemicals profit was JPY 7.4 billion, down JPY 8.7 billion year-on-year. Despite brisk market conditions with tight supply in East Asia, volume decreased due to shutdown maintenance. Steep rise of butadiene market in first half 2017 was not repeated. As a result, olefin profit declined. High level operation of vinyl acetate and ethyl acetate continued but with high material prices of acetic acid, ethyl acetate and others, time lag of selling prices, revisions, organic chemicals profit decreased. Despite impact of the shutdown maintenance, solid supply and demand balance continued and SunAllomer Limited profit was flat year-on-year.

Chemicals profit was JPY 7.8 billion, up JPY 0.9 billion year-on-year. Solid supply-demand balance mainly of acrylonitrile and chloroprene rubber led to the spread improvement. Caustic soda price was revised during the first half and basic chemicals profit increased. Electronic Chemicals profit increased on higher volume of high-purity gases for electronics used in semiconductor where 3D NAND production grew in display industries. Industrial gases profit increased on higher volume with tight supply of liquefied carbon dioxide and dry ice. Functional chemicals profit declined due to higher petrochemical-based material prices, such as styrene monomer, vinyl acetate, acrylic acid and others and time lag before the selling prices revision.

Electronics profit was JPY 5.6 billion, down JPY 6.5 billion year-on-year. As 2.5-inch media for notebook PCs shifted to the next generation products, hard disk shipment decreased and profit declined. Compound semiconductor and rare earth magnetic alloy profits grew with higher volumes. Lithium-ion battery material profit increased slightly on higher volume for China.

Inorganics profit was JPY 58.3 billion, up JPY 58.2 billion year-on-year. In addition to the withdrawal from the sale of low profit ICA product, volume of high value-added products such as feeders for electronic materials and titanium oxide and others increased, ceramics profit grew. Graphite electrode profit showed a major increase on rising international market prices and contribution of consolidation of SHOWA DENKO CARBON Holding GmbH.

Aluminum profit was JPY 2.7 billion, down JPY 0.6 billion year-on-year. Despite higher shipment of high-purity foils for capacitors, due to the time lag of reflecting rising aluminum metal price, rolled products profit declined slightly. Aluminum specialty component profit was about the same as the year before. Despite higher profit of Hanacans Joint Stock Company in Vietnam with higher volume, aluminum can profit decreased on lower volume for beer in Japan and higher aluminum metal price.

SHOKO Company Limited profit increased and volume of SiC epitaxial wafers grew. Profit of others was JPY 1.3 billion, up JPY 1.2 billion year-on-year.

Now please turn to Page 7. This shows operating income breakdown by factor. Volumes increased profit in 4 segments of Chemicals, Inorganics, Aluminum and Others. But the Electronics volume decreased by JPY 5.6 billion in hard disk for notebook PC application and with the generational change. In total, impact was minus JPY 2.7 billion. Price changes in Inorganics segment increased profit by JPY 55.4 billion as the graphite electrode international market price went up sharply due to tight supply and overall impact was JPY 53.3 billion. In petrochemicals, ethylene was firm with tight supply. With C4 fraction, the price of butadiene normalized after the surge in the fast quarter of the previous year and it resulted in minus JPY 2.4 billion. In cost reduction, graphite electrode business consolidation impact materialized partially in Inorganics segment and it pushed up the profit JPY 1 billion. Better efficiency in Chemicals pushed it up by JPY 0.7 billion and the total impact was JPY 3.6 billion.

In others, shutdown maintenance in petrochemicals pushed down the profit by JPY 6 billion. Feedstock adjustment in hard disk in electronic segment in the first quarter and the loss on sales of rare earth material had minus JPY 1.6 billion impact. And in total, that impact was JPY 11.1 billion.

Please turn to Page 8. Total assets as of the end of June was up JPY 31.1 billion compared with the end of the previous fiscal year to hit JPY 1,055,800,000,000 with increase in notes and accounts receivables and inventories along with the sales increasing graphite electrode business.

Total liabilities were down JPY 39.5 billion to JPY 620.2 billion due to the reduced interest-bearing debt despite increasing note and accounts payable. Total net assets were up JPY 70.6 billion to JPY 435.6 billion with the booking of net income and the increasing in capital surplus through the disposal of treasury shares.

Please turn to Page 9. Interest-bearing debt decreased by JPY 25.6 billion to JPY 321.1 billion.

Debt-to-equity ratio improved by 0.21 points over the end of the previous fiscal year to 0.74x. Stockholders' equity ratio improved by 5.6 point to 39.6%.

Page 10, please. Consolidated interest-bearing debt and the debt-to-equity ratio as shown by charts, financial position has been improving steadily.

Please turn to Page 11. Operating cash flow was the inflow of JPY 9.2 billion year-on-year to JPY 52.2 billion due to the increase in net income among others. Investing cash flow was the outflow of JPY 14.2 billion to minus JPY 25.5 billion with a slight increasing expenses for the acquisition of tangible fixed assets and reduced income through the withdrawal of time deposit. As a result, free cash flow was JPY 26.7 billion, down by JPY 5 billion year-on-year.

Financing cash flow was the outflow of JPY 12.9 billion with JPY 3.3 billion less in expenses year-on-year. Interest-bearing debt was down and income increased through disposal of treasury stocks.

Revised full year forecast of cash flow is shown on the right. Operating cash flow JPY 120 billion, investing cash flow JPY 60 billion minus, and free cash flow is higher than the initial forecast at JPY 60 billion. Financing cash flow is minus JPY 38 billion through reduction in interest-bearing debt and Others will be minus JPY 2 billion and cash and cash equivalent will be up JPY 20 billion.

Please turn to Page 12. Selected data of interest dividend income, less expenses and CapEx and others. CapEx increased due to the shutdown maintenance in Petrochemicals. Depreciation increased mainly due to business consolidation in graphite electrode business in Inorganics segment.

Number of employees as of the end of first half increased substantially by 492 mainly due to the business consolidation in graphite electrode business. Total employment cost in the first half also increased partly because of higher bonus in the first half.

Please turn to Page 13, CapEx and depreciation by segment. CapEx increased JPY 3.3 billion year-on-year to JPY 20.7 billion due to the Petrochemicals segment having the large scale shutdown maintenance in every 4 years. And Others segment where SiC epi-wafer facilities are additionally expanded. Depreciation increased JPY 1.1 billion to JPY 19.8 billion, mainly affected by the business consolidation in graphite electrode business.

Please turn to Page 14. This chart shows changes in total number of employees. In comparison with the end of December 2017, when number increased through the business consolidation, headcount declined in Japan and in overseas mainly in hard disk business, it declined. As of the end of June, the number of employees decreased by 275 to 10,589.

Please turn to Page 15. These are the selected data of the second half for the revised forecast of 2018. Earlier forecast was announced in February results meeting. Exchange rate is assumed as JPY 105 to $1 with JPY 5 appreciation of yen to $1, FX sensitivity is revised this time as mentioned. With appreciation of JPY 1 to $1, we have negative impact of JPY 0.3 billion on operating income in the second half.

Naphtha prices assumed as JPY 48,600 per kiloliter for the second half, and aluminum LME price is $2,400 per ton. Interest-bearing debt will be down further from the earlier forecast of JPY 335 billion to JPY 300 billion with a decrease of JPY 46.7 million from the end of 2017.

Number of employees will be down 139 to 10,725. As of the end of June, it was down by 275 compared with the end of the previous year. However, in the second half, employees will be increasing for the new plant in Vietnam, and it will increase 136, from July to December period.

Page 16 and onward show the full year forecast. Net sales JPY 985 billion, operating income was JPY 170 billion, net income attributable to owners of parent JPY 115 billion, and all profits were marked record highs.

Let me comment on the comparison with the earlier forecast. Net sales are JPY 985 billion, revised up by JPY 50 billion over the earlier forecast. Four segments of Inorganics, Petrochemicals, Chemicals and Others were revised up. Aluminum segment remained unchanged and only Electronic segment was revised down.

Operating income is JPY 170 billion, up JPY 33 billion over the earlier forecast. Two segments of Inorganics and Others were revised up, 3 segments Petrochemicals, Chemicals and Aluminum have been firm and kept unchanged, but the Electronic segment was revised down. Nonoperating income and expense is minus JPY 3 billion with the improvement of JPY 2.5 billion due to the decreased loss on FX among others. Ordinary income is JPY 167 billion, up JPY 35.5 billion. Extraordinary profit and loss is minus JPY 11.5 billion, up JPY 0.5 billion due to the extraordinary profit in the first half. Extraordinary loss for the full-year remains unchanged as JPY 12 billion. Accordingly, net income attributable to owners of the parent is JPY 115 billion, up JPY 30 billion vis-à-vis the earlier forecast. Dividends per share is JPY 90 with the interim dividend of JPY 20 as announced.

Please turn to Page 17. Net sales forecast by segment. Petrochemicals sales are JPY 258 billion, up JPY 15 billion over the earlier forecast as olefin supply demand has been firm and ethylene market condition is better than the earlier forecast.

In Chemicals segment, market is better than the earlier forecast in, acrylonitrile, chloroprene rubber and caustic soda in basic chemicals. Electronic chemical shipment will be strong and then, the overall segments sales will be JPY 159 billion, up JPY 4 billion.

In Electronic segment, HD is taking more time for generational shift of 2.5-inch product for PC than our earlier forecast and volume will be slightly down. Whereas magnetic alloy will be slightly behind the target volume. And then, sales will be down by JPY 3 billion to JPY 114 billion.

Inorganics segment sales will be up JPY 37 billion to JPY 255 billion. In ceramics, volume will be increasing for abrasives and fine ceramics for electronic materials. As for the graphite electrode, earlier forecasting made didn't revise the second half global market condition and kept it as 3x plus of the previous year. But this time, we revised it up to 4x plus of the previous year, expecting the significant growth in sales. Today, due to the sign of continued tight supply, global market price is rather stronger than the second half assumption. Aluminum segment JPY 113 billion will be kept intact. [ Beer ] market in Japan is slightly weak, but firm shipment in high-purity foil for aluminum electrolytic capacitors and aluminum specialty components continue. In Others segment, sales will be up JPY 2 billion to JPY 141 billion due to the materialized effect of the additional capacity expansion of SiC epitaxial wafers facility.

Please turn to Page 18, operating income forecast by segment. Operating income of Petrochemicals remains unchanged from the earlier forecast at JPY 20 billion, amid tight supply of olefin in East Asia. Due to the shutdown maintenance compared with the previous year profit is down by JPY 13.4 billion. In Chemicals segment, strong market condition continuing basic chemicals of AN, chloroprene rubber and caustic soda and shipment of electronic chemicals will be strong as expected and the operating income will be kept at JPY 18 billion, unchanged from the earlier forecast. In Electronic segment, shipment of hard disk fell by 20% year-on-year due to the volume decline, caused by the generational shift in notebook PC application. Shipment in the second half will be flat year-on-year and will be better than the first half but due to the revised FX assumption, profit will be down slightly whereas volume will be slightly down. And overall, operating income will be down JPY 2 billion to JPY 15 billion. Operating income in Inorganics segment will be higher than the earlier forecast by JPY 34.5 billion, ceramics have been supported by robust abrasives and fine ceramics for electronics materials. As for the graphite electrode, raw material price of needle coke is increasing, but the market price is higher than the earlier forecast and its profit will be significantly up. Others segment profit will be up JPY 1.5 billion to JPY 3 billion due to higher shipment of SiC epi-wafer among others.

Please turn to Page 19. CapEx will be up JPY 3.3 billion year-on-year to JPY 44.6 billion. Others segment increases CapEx for the additional expansion of SiC epi-wafer capacity and Petrochemicals segment increased with the shutdown maintenance but in the Aluminum segment it will be down due to the peaked out investment in the second plant in Vietnam. Depreciation will be up JPY 0.9 billion year-on-year to JPY 39.4 billion due to the increase in Inorganics segment.

Please turn to Page 20. From here, the first and the second quarter comparisons are shown in summary. I wouldn't comment in details but both sales and profit are increasing driven by Inorganics segment among others. From Page 23 to 26, quarterly operating incomes are shown by bar chart.

Pages 27 and onward show the topics by segment. Please refer to them later.

In general, all business performances have been stronger than the earlier forecast. And we made upward revisions for the second half this time. We continue to make our utmost effort to achieve the revised up target.

This concludes my presentation. Thank you very much for your attention.