Sumitomo Pharma Co U/Adr

It is now time, so we will begin our Q1 2026 Financial Results Conference Call. Thank you very much for joining us. Today, Yamauchi, Managing Executive Officer, will explain the financial results for FY2026 first quarter, followed by a Q&A session with Matsuo, General Manager of Accounting Department. The session is scheduled to finish at 4.50 PM. Mr. Yamauchi, please start. Yamauchi from Sumitomo Chemicals. Thank you very much for taking the time out of your busy schedule to join our conference call today. We'd like to take this opportunity to express our sincere thanks Thank you to our investors and analysts for your continued understanding and support of our company's management. I will now explain the overview of our financial results for FY26 first quarter. Please turn to slide 4. Before explaining the details of the financial results, let me briefly explain the profit and loss status for Q1. Core operating income increased significantly from ¥27.7 billion in Q1 of FY25 to ¥62.3 billion in Q1 of FY26. Net income attributable to owners of the parent was ¥40.8 billion in Q1, up by ¥45.3 billion from the prior year thanks to an increase in core operating income. This was the second best Q1 core operating income and net income attributable to owners of the parent on record following Q1 of FY22, which were ¥64.1 billion and ¥70 billion respectively. In Q1, Core operating income improved significantly in essential and green materials thanks to better profit margins at Petro Rabig and a temporary gain on the difference between the inventory valuation of materials and their increased market price, as well as agro and life solutions due to strong shipments of crop protection products and better margins for feed additives, and in ICT and mobility solutions thanks to increased shipments of semiconductor processing materials. Due to our strong business performance and Sumitomo Pharma's 97.8 billion yen capital increase, the DE ratio improved significantly to 0.80 times, from 0.93 times at the end of FY25. Next, more details. For Q1 of FY26, consolidated sales revenue was 578.2 billion yen, up by 52.1 billion yen year-on-year. Core operating income, which shows a recurring profitability, was 62.3 billion yen, up by 34.7 billion yen year-on-year. Non-recurring items not included in core operating income totaled a loss of 1.3 billion yen, an improvement of 900 million yen year-on-year. As a result, operating income was 61 billion yen, up by 35.6 billion yen year-on-year. Finance income and expenses was a loss of 700 million yen which improved by 18.9 billion yen year on year. Gains on foreign currency transactions included in finance income and expenses was 1.6 billion yen due to the weakening yen and improvement of 18 billion yen year on year. Income tax expenses was a loss of 9 billion yen up by 7 billion yen and Katsuhiko Nishida. and the NAFTA price was ¥118,500 per kiloliter, resulting in a weaker yen and higher raw material prices compared with the prior year. Next, I will explain the sales revenue by reporting segment. Please turn to page 6. Company-wide sales revenue increased by ¥52.1 billion year on year, and revenue of all segments increased. Regarding the year-on-year change in sales revenue, a company-wide analysis by Factor shows that revenue increased by ¥40.5 billion due to price. This was mainly due to rising product prices in essential and green materials. Revenue decreased by ¥19.2 billion due to volume, Shipments decreased primarily in essential and green materials due to the transfer of sales rights to petro-rabic products in FY25 and the impact of the sale of Japan A&L's business in FY25. Foreign currency conversion variance was an increase of 30.7 billion yen. Next, please turn to page 7. Our core operating income increased by ¥34.7 billion year-on-year. Company-wide variance analysis shows that price was up ¥15 billion, which was primarily due to a gain from the difference between inventory valuations and rising product market prices in essential and green materials. Cost was negative ¥4 billion, mainly due to increased fixed costs associated with investments in semiconductor-related products in ICT and mobility solutions. Volume, including the variance in equity method investment, was up by ¥23.7 billion. This was mainly due to the improvement in equity and earnings of Petro-Rabic in essential and green materials. Next, I will explain the performance overview for each segment. Please turn to page 8. In agro and life solutions, core operating income was 9.6 billion yen, an increase of 7.4 billion yen year-on-year. Crop protection shipments remained steady, and the improved shipment volume resulted in increased profits. Feed additives profits increased thanks to profit margins improvement from the rising market prices. Please turn to the next page. ICT and mobility solutions core operating income was 13 billion yen, down by 5.3 billion yen year on year. Profit in display related products declined due to decline in the selling prices of polarizing films. Absence of prior year gain on the sale of the large LCD polarizing film business and decline in shipments due to a shortage of semiconductors. Semiconductor related products saw increased profits thanks to increase in shipments due to growing demand for semiconductors. Mobility related products saw increased profits thanks to increase in shipments of super engineering plastics driven by China's consumer electronics replacement policy. Please turn to the next page. In advanced medical solutions, Poor operating loss was 1.9 billion yen, down by 900 million yen year on year. Profits decreased as profit margins as affiliated companies declined due to the Middle East geopolitical tensions and shipment timing difference for some active pharmaceutical ingredients and intermediates from the prior year. Please turn to the next page.

As for essential and grain materials segment, core operating income was ¥27.2 billion, up by ¥32.7 billion year-on-year. In Japan and Singapore, increases in product market prices generated gains on inventory valuation, leading to profit growth. In Saudi Arabia, Petro-Arabic Our equity method affiliate improved refining margins and others which led to an improvement in equity method investment income resulting in higher profits. Please see the next page. As for Sumitomo Pharma segment, core operating income was 18.8 billion yen down to 2.2 billion yen year on year. As for cost variances, while costs decreased due to the partial sale of the Asia business in FY25, SG&A expenses in North America and R&D expenses increased. Regarding volume and other variances, although shipments decreased due to the partial sale of our Asian operations in FY25, shipments and increased as a result of expanded sales of Orgovix, a treatment for advanced prostate cancer, and Gemtesa, a treatment for overactive bladder. This concludes the overview of financial results by segment. The next page will explain the consolidated statement of financial position. Total assets as of the end of June 2026 amounted to 3,613.5 trillion yen, An increase of 208.5 billion yen compared to the end of fiscal year 25. The main factors were the restart of the Chiba plant following its periodic plant maintenance in January through March 2026, and a temporary increase in working capital, including accounts receivables and inventory, due to the surge in NAFSA prices. Interest-bearing liabilities totaled 1 trillion 132.2 billion yen, a decrease of ¥19.3 billion compared to the end of FY25. Equity totaled ¥1,412.4 billion, an increase of ¥175.8 billion compared to the end of FY25. This increase was primarily due to the impact of Sumitomo Pharma's public offering. Next, I will explain the consolidated cash flows. Please turn to page 14. Cash flows from operating activities was positive at 5 billion yen, a decrease of 19 billion yen in cash inflows year-on-year. This was primarily due to a temporary increase in working capital and others associated with the restart of the Chiba plant following its periodic plant maintenance in January through March 2026. Investing cash flow was a negative 49.2 billion yen and increase in outflows of 3.3 billion yen year-on-year. As a result, free cash flow was a negative 44.3 billion yen, a deterioration of 22.3 billion yen compared to the negative 21.9 billion yen recorded in the same quarter of the previous fiscal year. Cash flow from financing activities was positive 55.6 billion yen driven by factors such as Sumitomo Pharma's public offering and improvement of 104.8 billion yen year-on-year. Next I will explain our outlook for the first half of FY26. Please turn to page 16. I will begin by explaining the business environment surrounding our company during the first half of FY26. Regarding the economic outlook, while investment in the technology sector is providing solid support for the global economy, the outlook remains uncertain due to the geopolitical risks, including the deteriorating situation in the Middle East. In the main business environment, we use weather icons to indicate our major business sectors and our assessment of their respective business environments. Starting from the top, regarding agricultural chemicals, crop protection products, current shipment remains steady, but the level of inventory congestion and distribution chains varied by region. Regarding feed additives, although profit margin improved in the first quarter, Raw material prices continue to soar and the outlook remains uncertain. In the display sector, the mobile market will remain sluggish due to the increasingly challenging procurement conditions for memory chips. The silicon semiconductor will remain solid, mainly driven by AI-related areas. As for the petrochemicals and raw materials, although we have secured the quantities necessary for current production plans, the impact of soaring raw material prices is expected to continue for the time being. This concludes the overview of the business environment. I will now explain the financial forecast summary. Please turn to page 17. At the time of our previous financial results announcements on May 14, The impact of the situation in the Middle East and other factors were extremely difficult to predict. Therefore, we provided only full-year forecasts for FY26 and did not disclose first-half forecasts. We are now announcing our first-half financial forecasts. For the first half of FY26, we expect core operating income to be 125 billion yen and quarterly net income attributable to owners of the parent company to be 70 billion yen. Core operating income excluding gains on the sale of business is expected to double year-on-year. We expect to achieve the forecast for quarterly net income attributable to owners of the parent company announced in May by the end of the first half. Regarding core operating income, in the essential and green materials will significantly improve due to profit margins improvement at petro-robbing and temporary gain on the variance between the inventory valuation. In the agro and life solutions, crop protection products shipments remain strong and profit margin for feed additives will improve. In ICT and mobility solutions, while shipments of display-related materials are projected to decline, shipments of semiconductor processing materials are expected to increase. That said, regarding our full-year forecast, as it remains difficult to predict the future amid ongoing turmoil in the Middle East, we have not revised it at this time. We will reassess and provide an update When we announce our first half financial results. Next, I will explain page 18, Summary of Performance Forecasts. First, our exchange rate assumptions for the first half forecast are based on exchange rate Thank you very much. Based on these assumptions, sales revenue is expected to be 1.17 trillion yen, an increase of 74.6 billion yen year-on-year. Core operating income is expected to be 125 billion yen, an increase of 16.3 billion yen year-on-year. Operating income to be 122 billion yen, an increase of 18.3 billion yen year-on-year, quarterly net income attributable to owners of the parent company to be 70 billion yen, an increase of 30.3 billion yen year-on-year. As for dividend, interim dividend will be 8 yen, year-end 8 yen, and annual dividend of 16 yen per share remains unchanged, which we announced in May. Next, page 19, I will explain sales revenue incorporating income by reporting segment. Regarding a forecast for the first half of the fiscal year, I will explain the comparison with the same period of the previous year by segment. For agro and life solutions driven by steady shipments of crop protection products and rising market prices for feed additives, we expect a significant increase in profit year on year. For ICT and mobility solutions, while shipments of semiconductor processing materials remain steady, Expect a decline in profit due to the absence of the gain from the sale of the large-size LCD business recorded in the same period of last year and a decrease in shipments of display-related materials. Essential and green materials segment due to improved profitability at petro-robic and gains from inventory We will now have a Q&A session.

We will now appoint the first questioner. Morgan Stanley, MEFG Securities. Watabe-san, please go ahead. This is Watabe from Morgan Stanley. Thank you very much. Agro and life is my question. In Q1, you are off to a fairly good start. Methionine and crop protection. I want you to do a breakdown. And for the inventory adjustment, you said there are regional variances. 20 billion in Q2. You're expecting a big profit increase. What is the background to that and El Nino impact? How do you see the El Nino impact for crop protection? If you could elaborate, please. Thank you for the question. So AGL, Agro and Life Solutions. First of all, in Q1, Profit was 9.6 billion yen, which is compared to 2.2 billion last year. It was a significant improvement. But this improvement was mainly due to the methionine feed additives. Due to Middle East situation, the supply demand is tightening. So in Q1, Prices rose and that was the impact. For crop protection, Q1 is not the busy season, busy demand season, and there is not much difference from last year. From Q2 onward, Expecting Q2 and onward, we think we are in line with the forecast. And to your question on El Niño. This year, El Niño is expected to have a big impact. And the impact of crop protection in each region, I think, is your question. The impact of El Niño is mainly not in the northern but the southern hemisphere. It impacts the southern hemisphere more. Basically, it will not rain as much and temperature rises. The precipitation declines, temperature rises. Now, by region, Brazil, first of all. Brazil is a big country, so the southern part and northern part are different. In the northern part, closer to the equator, as I mentioned earlier, precipitation declines and temperature rises, and that is the trend. And this will negatively impact the planting of the crops on one hand, but if temperature rises, Insect increases, pests increases, which is a plus, so we don't know which will be the bigger factor, positives or negatives. It's hard to say. On the other hand, in the southern part, precipitation increases. A few years ago, there was a flood in the southern part, and so there's a risk of that possibly happening again. and next is India. El Niño impact is already emerging globally in India. Monsoon is coming later and so the planting seeding is pushed out or becoming later and so Q1 in India Next is Southeast Asia, Vietnam, Thailand and Indonesia. So rain declines and temperature rises and so this may The impact of the planting and seeding, but as I mentioned earlier, if high temperature continues, the insects, the pests increase. So that may be a positive factor. Australia is roughly the same as Southeast Asia. From Q1 to Q2, the increase. So feed additives will improve and crop protection In Q2, Brazil and Latin America will enter the high demand season and India will also enter the high demand season. So there will be positives coming from the crop protection that is factored in. So this time your first half forecast was issued. Agro has high probability? Yes, we think so. Thank you. Thank you very much.