Takeda Pharmaceutical Co Ltd (TAK) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for taking part. We are starting this meeting at later timing and also this will be followed by R&D meeting. I'm very pleased to see such a large turnout.

Next slide please. This is the agenda items that I will be spending about 20 minutes to explain about today. Next slide please.

First on the results of fiscal year 2011. In the last fiscal year when we made announcement of midrange plan, we said that midrange plan is going to be a rolling plan every year and the basic strategy is innovation and transformation of corporate culture and through these we will realize stable and sustainable growth. So those are the three pillars for us.

As for stable growth, what we mean by this is that in the market that we have presence in, we will outperform the market growth at least and that is one of the yardsticks for us.

In 2011, the Actos has dropped in sales more than expected and rapid yens depreciation affected our performance, but we have been implementing strategies in accordance with this strategy.

And as for the acquisition of Nycomed, we have -- are seeing the sustainable growth in sight with this acquisition. And we have also strengthened the sales channel in emerging countries where the growth is remarkable and also established a platform for pan-European area.

And as for integration process for Nycomed, it is going to be completed by fiscal year 2014 in Europe. Restructuring takes some time. And sometimes you have to pay 36 months worth of compensation for restructuring in some countries, so it takes time. And negotiations with Rooks Council are going forward smoothly, although it may take time. So I would like you to feel assured.

As for pipeline improvement, AZILVA in Japan and OMONTYS in the US, we have obtained approval for these products. And the Millennium oncology products pipeline have been upgraded smoothly. And the pipeline was a lot of expectation for -- including TAK-875 have gone to the final stage. And I don't remember exactly the name, but Crohn's disease and ulcerative inflammation. We have made some efforts to see the actual results.

And we have acquired Nycomed and as we proceed with the integration, we are seeing 2020 as a completion year and creation and vision and organizational transformation as One Takeda is now being worked out. And as the first step last year Chief Commercial Officer, Dr. Frank Morich, took office in Zurich. And he is responsible for all the commercial businesses outside of the US and outside of the Millennium.

And CMSO, or Chief Medical and Scientific officer, this new position has been established. And Dr. Tachi Yamada has taken office and has taken the responsibility to lead the organization. Through these steps we are implementing transformations.

And this is the consolidated financial results for fiscal year 2011. Net sales increased by JPY89.5 billion or 6.3% to JPY1,508.9 billion. And operating income dropped because of the changes in product mix and amortization costs associated with the Nycomed acquisition. It has dropped by at JPY102.1 billion or 27.8%.

And as for net income, on top of the decrease in operating income there was one-time cost due to rationalization of overseas operations, plus the extraordinary losses. And we have to evaluation losses on deferred tax assets due to changes in taxation system. It has dropped by JPY123.7 billion or 49.9%.

Mr. Takahara, the head of corporate refinancing and controlling department, used to explain about those numbers, but in the interest of time, I'm explaining on his behalf. And if there is more explanation needed, we can take questions afterwards.

With regard to the breakdown of the changes in net sales, Actos dropped by JPY70.3 billion in three regions in total. And yens appreciation had negative impact of JPY42.7 billion, but there was JPY158.8 billion in benefits through acquisition of Nycomed for the half year, and also prescription drugs in domestic markets, such as NESINA and VELCADE, DEXILANT, ULORIC have grown in the US and it has resulted in increasing net sales.

So let me now to talk about fiscal year 2012 to 2014 midrange plan. The challenge in this midrange plan is the entry of generics for Actos for monotherapy in August this year and a fixed dose combination in December this year in the US. And after this entry of generics we have to achieve sustainable growth and we have to increase R&D productivity and reach the pipeline and implement financial strategy that maximizes operating cash flow. And during this midrange plan, we will strive for Global One Takeda by integrating Nycomed and realize the transformation into new Takeda so that we can ensure sustainable growth starting from fiscal year 2012. But in terms of sales at least as you can see we see some results already.

And as for the drivers to realize sustainable growth, sales expansion of legacy Nycomed products in emerging markets, the top-line synergies of Takeda's products through legacy and Nycomed sales infrastructure, an assured launch and early penetration of new products in Japan, US and EU markets. And by implementing those steadily the four-year average growth rate between fiscal year 2012 and 2016 would be about 5% in net sales and mid-20s in operating income. And we believe that we can achieve these targets.

And this is the financial forecast by year during the course of midrange plan. And I will be explaining about each year.

And on April 25 in the US we have received complete response letter about SYR322. And on this we still have much confidence in the utility of this product and we have assumed the registration of this product during the course of this midrange plan. And Dr. Tachi Yamada will be explaining more about this.

And let me add some more, as for Actos impact from [drop] sales, JPY291.2 billion and JPY100 billion for fiscal year 2012 and JPY291.6 billion -- JPY296.2 billion for fiscal year '11. And as for the impact of fiscal year 2011, JPY158.8 billion, but close to JPY320 billion is the contribution that we are expecting from the sales increase from Nycomed, although this is not reported officially.

And we are seeing the annuity impact, JPY280 billion in fiscal year '11 and JPY950 billion in fiscal year 2012. But there is a operating income contribution from Nycomed, but as for business combination accounting, the goodwill amortization and also the resource expensing of the inventory fair value valuation, we are seeing a decrease in operating income in 2012, but we will see increase from 2013. And from 2013 we are seeing positive impacts or a positive increase.

And this is a midrange plan for fiscal year 2012 to 2014 and fiscal year 2013 and 2014. In both years net sales are expected to increase because of increase in sales in emerging countries and new products, such as OMONTYS and as for operating income. For 2013 and 2014 we're expecting an increase in net sales. And for operating income we are continuing investments in emerging countries but we are expecting increasing income because of increase in sales.

And Actos is going to drop in sales because of generic entry and Nycomed sales will make full-year contribution, and I already talked about this. And URL Pharma acquisition impact also will have -- will resulted in JPY40 billion increase. And also we are seeing -- going to see JPY105 billion decrease in operating income because of Nycomed acquisition.

And as for net income, the influence of government subsidy and also gain on sale of marketable securities and refund related to transfer pricing, we are expecting JPY30.8 billion increase. And we are going to see the R&D expenses at the level of JPY300 billion. And even with that level of R&D, we are expecting to see JPY250 billion to JPY300 billion in operating cash flow. And we will repay debts and pay stable dividends through this.

And let me now talk about growth strategies in this midrange plan. In developed and emerging countries, in those two different types of markets, we are going to implement strategies specific to each of the markets after the acquisition of Nycomed. And in developed countries we're expecting average annual growth of 2% until 2016, but market size is still large and it will remain important market for us. And in new medicines that will meet the unmet medical needs so we can expect high potential, so in those developed countries we will emphasize our efforts.

But as for emerging countries, the average annual growth rate is expected to be 11% or two-digit growth until 2016. And it is expected to produce about 70% of the total global market growth. And from short to midterm, branded generics will probably lead the market, but in the mid-to long term, our new medicine sales opportunities are expected to increase.

In the emerging market with the position as a growth driver I would like to now explain about that. In order to achieve a 17% of the CAGR in emerging markets, that exceeds the market growth. To realize that centering around branded generic, the former Nycomed products should grow, and the sales should be expanded. And in addition to that, during this term we would like to quickly launch Takeda's product that meets market needs of emerging countries in this midrange plan. And in addition to that, we would like to aggressively invest in sales infrastructure ready for the launch of new products, including human resources, to securely get the growth by and a result. Approximately the half of the growth forecasts are from fiscal '12 to fiscal '16 will be generated in the emerging markets.

And now we are showing the growth strategy by region. The China, Russia, Brazil are Takeda's most focused growth drivers. In China we will continue aggressive investment in human resource and marketing and we also like to successfully introduce Takeda's DAXAS and NESINA and others. And we like to reach at least JPY50 billion of sales in FY '15 and JPY100 billion sales in FY '20. And we believe that that JPY50 billion yen goal is quite achievable.

And as to Russia, with the Federation's initiative to promote their pharmaceutical industry this remains an important region to support Takeda's business in emerging markets with high growth rate. We would like to drive growth with medicines for cardiovascular diseases, which are a leading cause of death in the region, including legacy Nycomed products and Takeda's pipeline that is EDARBI.

And in Brazil we would like to maintain stable foothold with legacy Nycomed products including OTC. We would also like to concentrate on the launch of new products in the areas of metabolic, cardiovascular disease and oncology. So that we can achieve the growth ratio over our gross sales, which exceeds the growth ratio of the market in those countries.

Next I would like to explain about the sales strategies in the developed world. Japan is a very important market because that is our mother country, and we would like to strictly maintain the number one domestic position. And centering around NESINA and AZILVA, and also respect DAXAS, ROZEREM we would like to grow the new products in a variety of therapeutic areas as quickly as possible.

Next, the US. And I know that to strengthen the business foothold in the United States last month we have announced the agreement of the acquisition of URL Pharma, so that we have obtained the COLCRYS; that is a gout medication. And that achieved the $430 million sales and the high profit margin in the US in 2011. And we believe this will contribute to long and stable sales and profits in the US. And we would like to pass in a cost synergy effect and Anna Protopapas will explain about it later.

And in the US, in addition to the contribution of the sales by Millennium and the URL Pharma, we will be signing the contract with a large dialysis organizations through new product growth and 6% of CAGR in five years to be achieved. And in the EU market we would like to shift to a high rate portfolio by adding new products for specialty care, such as DAXAS, ADCETRIS, et cetera and achieving the 6% CAGR in five years, and also by streamlining organizational structure we would like to achieve that. And next let me talk about the pipeline.

And we expect that we can get the approval of a new chemical entity, excluding line extension, three to five new items every year.

And I announced the variety of the products and pipeline. These are other -- the pipeline products, which can drive a sustainable growth. And more in detail will be explained by Dr. Tachi Yamada in our R&D meeting, which will be held after this meeting.

And the pipeline will drive sustainable growth, exceeding the market growth towards 2020. And R&D efficiency enhancement is the utmost priority issue for us, with CPOC&C, C stands for competitiveness concept. Actively, we would like to allocate the resources to strategic priorities. And we also like to strengthen relationships with regulatory authorities in each country and region to increase probability of success and maximize pipeline value. And this will also be more in detail explained by Tachi Yamada later. And we also like to accelerate the global vaccine development with high demand in emerging countries.

And we established a new business unit back in January this year, and this has been already announced. And during this midrange term, we are going to aggressively invest for the future growth as we did before. More specifically, we would like to specialize the -- invest to the prioritize the pipelines and the late-stage pipeline products. And also we would like to invest for the early penetration of the new products to strengthen the sales structure that will expand business in emerging markets. [Gap filling in] is our basic strategy for M&A and this strategy will remain unchanged.

But on the other hand we would like to further improve the cost efficiency promoted by leveraging the knowledge of legacy Nycomed. And for example the -- reducing the purchasing cost. And we also like to achieve the cost synergies, including through integration of the Nycomed.

And this is the financial strategy of this midrange term. We will enhance the cash management by achieving efficient global cash management. And I know that this year we also would like to optimize the balance sheet so that we can realize a strong financial base for sustainable growth strategy.

And I know that to maintain and enhance strong financial base we are going to ensure the steady payment of debt and also we would like to maintain stable dividend payments. And we are going to maintain annual dividend payment of JPY180 per share, so Fiscal year '12 to '13 as we have announced. And also we would like to pursue continued stable development payment for FY '14 and after.

And this is the summary of the information I had provided to you in this stage meeting. Finally growth past is now within our eyesight. We would like to continue to challenge for new Takeda without slowing down reform in this midrange term. And I would like to ask for your continued support and understanding.

Thank you very much for your attention.

Thank you very much. Now we would like to call upon from global business development the head of this division, Anna Protopapas, who will talk about acquisition of URL Pharma.

I would like to explain to you the strategic and financial benefits for Takeda of the URL acquisition.

The acquisition which we announced in early April of this year involves an upfront payment of $800 million and a royalty on Colcrys sales starting in April 2015 and ending in 2029. The structure of the acquisition allows us to manage our cash prudently and ties the value of the acquisition to the long-term success of Colcrys. We expect this transaction to close after receiving regulatory approvals sometime in June of this year.

URL is a privately held company. Its main product is Colcrys and the key driver for Takeda's interest. Colcrys in 2011 had sales of $460 million. URL has a very strong financial profile -- total sales of $600 million and an operating margin of 50%.

Under the combining Takeda/US sale in URL provides for opportunities to significantly improve and enhance the financial profile of the business. For example, the URL sales effort behind Colcrys is almost identical to the Takeda US sales effort behind ULORIC. Obviously, there are significant opportunities for synergies and an opportunity to significantly enhance the financial profile. We expect this transaction to be accretive on a non-GAAP basis in fiscal year 2012 and on a GAAP basis in fiscal year 2013.

Colcrys has a rather unique history and a rather US-centric history. The main active ingredient of Colcrys is colchicine, a product that has been known to be active and very efficacious in gout patients for actually centuries.

A few years ago, the FDA was concerned about the proper use of colchicine and asked companies and manufacturers to study the use of the drug in patients and submit for approval through the normal processes.

URL invested tens of millions of dollars in studying the product in patients, submitted the data package to the FDA and as a result received approval for three indications -- the treatment of gout flares, the prophylaxis of gout flares and a rather rare disease called Familial Mediterranean Fever.

As a result of this approval, the FDA required every other manufacturer of colchicine to remove their products from the market, allowing Colcrys to be the only colchicine product on the market in the US. More importantly for us, the preclinical and clinical studies performed by URL led to a very robust set of inventions and patents. These patents, we believe, will protect the exclusivity of the product through 2028 to 2029.

So, as I explained, Colcrys is used in the very acute phase of the disease. ULORIC, Takeda's product, is used as a chronic treatment for the disease. Gout inflicts over 8 million Americans. Bringing these two products together allows Takeda to provide a full spectrum of therapeutic options to patients and clinicians and it solidifies our position as a leader in the gout space.

In addition, we add significant revenue to Takeda USA. We have a transaction that is accretive in year one, and we have a structured acquisition price that is prudent in terms of our cash management. We are very excited about this acquisition. We think it is a great fit for the business. Thank you.

Thank you very much. After this reading of financial results of fiscal year 2011 and midrange plan this R&D meeting is to follow. So except for product strategy and R&D, we would like to take questions from the floor at this time. So we would like to move to question and answer session.

I'd like to take questions from the Tokyo floor. The gentleman in the front row please.

From (inaudible). I have one question to Mr. president and one question to (inaudible). As from Nycomed acquisition, it's been one year since the agreement. Looking back on the past year more than expected, have there been any challenges that you encountered? Or are you struggling with something? Or is there anything that have proved to be positive, more positive than expected? Can you mention one positive one negative factor?

And Dr. (inaudible), in the annual shareholders meeting next time, you will take office as a director, so your involvement in Takeda will be changed. So what is the role that you are supposed to play in your view?

So Dr. Frank Morich is supposed to answer that question. I think he will be better positioned to answer the question, but you specifically addressed this question to me, so I would like to answer this question and then let Dr. Morich to add any comments.

It is not an exaggeration at all. The more than expected, like I said, there is none in terms of something that has been more limited] than expected.

As I said in my presentation, with regard to post-acquisition restructuring, things have been going more smoothly than expected. And the fact that things have been going smoothly without major trouble is also due to the leadership of Dr. Morich and the senior management team of legacy Nycomed efforts. But it is a great pleasure for me to see this.

And in terms of sales, we are expecting -- well we are seeing contribution which is more than expected or mostly in line with expectations. In terms of profits except for special factors their contribution has been in line with expectation.

Well, I can only confirm what the president said. Financially both what the sales and the profits that we expected are concerned, synergies all have exceeded our plans or expectations. We have had no major -- actually we had no business disruption because of the restructuring efforts. The restructuring effort -- the president mentioned it -- were mainly in Europe, all of it has gone very, very smoothly, much faster than we expected. So all in all, I think we can after seven months say our business expectations have been exceeded.

If I may answer your question what has been the biggest challenge; we were surprised how similar the cultures of the two companies are. I think for some of us it is still a challenge to cope with the fast pace that some of the Nycomed people have. And it was, I think it for all of us here, a steep, a rather steep learning curve to understand how these emerging markets actually work at this point in time, but I think we manage quite well.

And I think the team that we put together that was from all parts of the Takeda organization from here, from the US, from Europe, I can only use say this team has done a marvelous job. And I think this is something that this company can be very proud of. This is one of the better executed M&A transactions in our industry so far.

And then to address your question to me -- thank you for your question. First let me say that it is an honor to be nominated for the Board of Directors of this particularly esteemed company within Japan. I don't anticipate the role that I'm playing to change very much. Since the day Millennium became a part of the Takeda family of companies, Hasegawason has drawn on his entire leadership team to lead not only their function but to bring whatever expertise they can bring to the entire company. And when you look at across this leadership team and the broader management and operating committee that is the leadership of Takeda each person operates for the good of the whole company. And so that is the way we have been operating up until now and it is the way we will carry on operating.

Thank you very much. Please limit to one question per person. Thank you for your cooperation. Yamaguchi from Citi.

I had the explanation, but operating profit of 2012 will be reduced by JPY100 million. And in the appendix information is included and it's rather detailed, so rather difficult to understand. And a number will decrease from 650 to 1600 or JPY265 billion to JPY160 billion, so can you please tell us the rough, the breakdown of the changes? What increased and what decreased?

Then just briefly I would like to explain about that. From FY in '11 to FY '12, Actos in three regions there would be a decrease expected JPY196 billion due to the generic market penetration, mostly.

And what would be the negative impact to the operating income?

And that would be about JPY180 billion of gross profit. In addition with the acquisition of legacy Nycomed, there is an increment against FY '11 that will be about JPY35 billion, in addition.

And as Anna explained, at URL acquisition there is a contribution of operating income by JPY26 billion or so. And with these pluses and minuses, net-wise there would be the reduction of negative JPY105 billion from FY '11. So let me confirm, so Nycomed JPY35 billion and URL JPY26 billion, they are both operating income basis. Yes, that is correct. Thank you very much.

Thank you very much.

Gentleman in the front row, please.

[Wadusi Hara], Nomura Securities. One question with regard to profitability of Nycomed, what is required to make you due the impairment loss on Nycomed? In this press conference the emerging countries growth is slowing down except for China and other companies. And what investors would ask us about your company is when do you expect impairment loss to be incurred. So what will prompt you to do this, Mr. Takahara?

At the end of September last year, with this acquisition the impairment test at the closing of March was done, obviously. And at this moment there is no impairment loss that has been incurred. As you know, in this impairment loss or impairment test, rather, will be carried out every deer in accordance with Japanese standard. So we're not as sure of course whether this will never happen in the future, but at this moment at least there is no sign of that.

So what will it take to fail this impairment test? Is there any threshold for the sales for instance?

There is no strict rule or rigorous rule, so to be more exact compared to the time of acquisition if the sales in the future show some signs of decline, if the accountants made that judgment, there could be a risk for impairment loss. And Millennium was acquired in 2008 and with this we have been carrying out impairment tests every year, but so far there is no such impact. Thank you.

The next question from the person in the center.

(inaudible) Securities. The Nycomed integration has been explained to be going through very smoothly, but you also said that it will be taking additional three years to complete. What and how do you define the completion of the complete merger and integration, excuse me.

With the timeline of the execution of the restructuring, as the Chairman, the President, alluded to, in some European countries this takes time. It also takes time to get some of the legal entities combined because we have different laws and different countries.

The bulk of the integration work will be done by the end of this fiscal year. So there will be little things that will continue on into 2014. But the bulk of the costs, for which we have made accruals for, that is all covered in fiscal 2011 and 2012.

And when you say level of cost does it mean the human labor, I believe? And how much human labor cost would be reduced? And how much do you think reduction will tell you that total integration is completed?

We have announced I think on 18 January that we will reduce our workforce. That included a reduction in the US, which is not merger-related, by 2800 people, roughly 10%. 2100 of them were merger-related, and this was concentrated in Europe, mainly in Germany, which is about 1,300 or half of these people. And this restructuring is all signed and done. The negotiations with the European (inaudible) Counsel in a good way and in other countries we are in the middle of negotiations, but on a good way finalizing them. But the biggest challenge was Germany, and that is all signed and done.

Thank you very much.

Next question please. Let me make some additional comments. In accordance with this integration, cost synergy is expected to be JPY200 billion, approximately, and restructuring cost will be about JPY70 billion.

In FY '11, JPY35.5 billion has been posted because we have already finished the negotiation with the labor union. And FY '12 JPY21 billion and FY '13, about JPY13 billion are expected to be posted as restructuring costs. And with that we will be over with this process.

Next question, please.

I am [Ito] from EKBP. With regard to URL Pharma, (inaudible) at the beginning of the dosing there is a sudden drop of the uric acid in the blood therefore resulting in the out attack.

So you acquired this company in order to obtain colchicine. It's not just for completing your franchise product mix, but rather you have some marketing strategy which is to deal with this kind of the side effect?

You're right that the two products fit well strategically -- there is a very good fit for the two products. We believe that by selling the two products together, by detailing together, not only would we get the bottom-line synergies but we do think there is a good chance that we can drive top-line synergies because, as you said, one is for the treatment of the acute stage of the disease. And then we could put patients who start with Colcrys, follow on with chronic treatment with ULORIC.

I'm not sure that the translation was correct, but what I understood is that you said that by treating people with ULORIC we would lower uric acid which would lead to gout attacks. Now we are treating them with ULORIC to prevent gout attacks. And having the prevention and acute treatment in one hand and having one sales force that can sell this product to the same prescribers, that is the rationale behind it because we are basically saved one sales force. That is the rationale behind the acquisition.

If I might add I don't have exact figure with me now, but we acquired Colcrys with this acquisition of the company and we expect to have the synergy effects on ULORIC as well. Thank you very much.

[Sockeye] from Credit Suisse. And on page 15 of your presentation about your market strategy in emerging markets and you're going to launch more than one product altogether in this market. And you have made the product and in order to launch the product and in order to get approval, what is the process right now in FY '12? that is this year already. And towards -- by the end of FY '14 are you going to launch this product and is this what you mean by this -- the table? And is this reflected upon your financial aspect?

This is a complex question to answer because all of these markets have different regulations and different regulatory requirements. For example, in Russia you must have clinical trials that have been performed in Russia before you can submit. China has other regulatory requirements. We are addressing this on a drug by drug, country by country basis.

I can say we have already the first approvals in X Nycomed countries; we already have the first launches. This is going to be a process which is largely dependent on the expertise of our -- let's call them ex-Nycomed colleagues because they have the regulatory expertise in these countries. And I think it would be going beyond the scope of this meeting to give you a detailed plan because I mean we're now talking about 70 countries times 10, 15 products. That would be too much to explain in detail.

What you're saying is you cannot disclose detailed plan yet or you don't have detailed plan yet. That's two different answers?

No, we have a plan, but if I will talk about this plan, it will probably take an hour to talk about it.

Can you take probably a different opportunity to discuss this? We can discuss this, yes, anytime, yes.

Thank you.

And having said that, in a major market and a major country we can tell you the rough schedule, but if I am to explain the target date of each individual company and country, excuse me -- product and country -- and those are too detailed. And we do not believe it is necessary for us to disclose that detailed information. And so we can give you the rough timeline of our main products in main countries. And we would like to get back to you later.

We can't see the business model for Nycomed. And as Mr. [Richihara] asked in his question, the emerging country business model would say that if there is a big auction or bidding in one emerging country and then the business would be performing quite well in that particular year. So there are some cyclical aspects. So including that launching schedule and plan, if you don't forecast that then we can't come up with a forecast of our own, so that is why we're asking this.

Well, in -- from Russia there are tender businesses. There is some order that has been received or lost and this could affect the sales in a significant way. In Europe or in China we are doing businesses and especially those tenders are carried out, especially in vaccines, but not in ordinary products that we deal with.

So if there are any specific questions we can answer those questions, but we can't answer this question in a general manner. Thank you very much.

We have received a lot of questions, so the R&D meeting is to follow, so this will be the last question. There is one hand I saw earlier on the left.

I am [Nakahara] from [Nikei] Newspaper. Clarification on numbers, Nycomed goodwill and intangible fixed assets, amortization at -- in autumn last year in euro basis it was recognized but on a yen basis, the goodwill amortization and intangible assets amortization for this fiscal year -- how much do you expect to see in terms of recognition? And as for goodwill in the midrange plan until fiscal year of 2014?

In the cash flow there is always JPY300 billion. Of course, there is goodwill amortization from things other than Nycomed. And you're going to transition to IFRS in 2013. And after the transition that amortization will not take place. Is that correct understanding?

First of all, the intangible assets and goodwill amortization for Nycomed -- how much is included in our forecast for 2012? About JPY63 billion is included.

And goodwill amortization costs for Nycomed and the Millennium altogether in 2012 would total about JPY30 billion and after transitioning to IFRS, don't we have to do this amortization? I think that was your question. If IFRS standards remain as it is then we will not need to do this amortization, in our understanding.

With regard to depreciation, Japanese standard uses [declining past] method, but once we go into IFRS, straight lining -- straight-line method seems to be the principle, so that would give us the impact of JPY10 billion. So JPY30 billion plus JPY10 billion would give us JPY40 billion in improvements in operating income. That is how we see it.

Thank you.

As (inaudible) explained, our next meeting is scheduled, so we need to conclude this meeting. And myself and Takahara will also attend the R&D meeting.

So during the Q&A of course we hope that you can concern your questions mainly in the R&D area, but if you have some burning and remaining questions, then we are ready to answer those questions. And thank you for your understanding.

Thank you very much. And with this, we would like to conclude the first part of the meeting. And we are going to break for about 10 minutes. And from 10.30 we are going to begin the R&D meeting and then like to invite all of you to also remain and also attend the R&D meeting after this. Thank you very much.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.