Sumitomo Chem Co Ltd Ord

As it is time to start, we will now begin the conference call for the presentation of the financial results for fiscal year 2024, third quarter. Thank you very much for your participation. Today, Mr. Sasaki, Managing Executive Officer, will give a briefing on the financial results for FY 2024, third quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, to take questions. We plan to conclude the call at 5.50. Now, Mr. Sasaki, over to you. Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call despite your busy schedule. I'd like to thank the investors and analysts for your daily understanding and support to our management. I'd like to thank you all for that. Let me start with a briefing of financial results for FY2024 third quarter. Please turn to slide page 4. Before going to the details of financial results, I'd like to summarize some major points that I'd like you to be aware of about the third quarter. Driven by favorable performance of Sumitomo Pharma and ICT and Mobility, core operating income for the third quarter improved significantly, and profit is increasing quarter after quarter. In the same period of a previous year, there was a loss of 113.9 billion yen, but now there is a profit of 60.1 billion yen. gain on the sale of unprofitable and non-core businesses which is being promoted as immediate term concentrated measures to improve business performance? amounted to about a quarter of core operating income for third quarter of FY2024. Net income attributable to owners of a parent for the quarter was positive even with a temporary loss of 23.8 billion yen related to the loan to Petro-Rabic. Overall, we are on track. to achieve our goal of a V-shaped recovery in performance in FI 2024. Next page. Consolidated financial results for FI 2024 third quarter sales revenue was ¥1,904.8 billion, increase of ¥98 billion year over year. Core operating income expressing recurring earnings power was a profit of 60.1 billion yen up 173.9 billion yen year on year. Non-recurring items posted losses such as Sumitomo Farmer's North America business restructuring cost of 14.8 billion yen and impairment loss of 5.5 billion yen. However, The impact of recognizing our interest in Petro-Arabic's debt forgiveness gain of 86 billion yen as a non-recurring factor and 11.5 billion yen gain on sales of fixed assets such as dormitories, company housing and other fixed assets resulted in a profit of 85.4 billion yen. Last year, There was a loss of 46.8 billion yen, including restructuring costs of 25.6 billion yen, with reorganization of Simitomo Pharma's North American subsidiary, and methionine manufacturing facility impairment loss of 15.4 billion yen. Compared to previous year, this is an improvement of 132.1 billion yen. As a result, There was an operating income of 145.4 billion yen, a large improvement of 306.1 billion yen year on year. For finance income, there was an impact of recording of loss on debt waiver for a loan to Petro-Arabic resulting in a loss of minus 105.4 billion yen which is a worsening of 106 billion yen year on year. Gain of foreign currency transactions including the finance income was a profit of 15 billion yen because of a weakening of a yen, which is an improvement of 9 billion yen year on year. As a result, net income attributable to owners of a parent of a quarter was 28.6 billion yen improvement of 138.4 billion yen year on year. Exchange rate and NAFSA price which impact our performance was an average rate during the term of ¥152.64 to a dollar. And NAFSA price was ¥76,500 per kiloliter. Yen weakened and feedstock price increased compared to the previous year. Next is sales revenue by business segment. Sales revenue by business segment are prepared based on new segments from the third quarter due to the reorganization as of October 1, 2024. Total sales revenue was up 98 billion yen year-on-year. and by segment sales revenue increased in all segments except for essential and green materials. Sales revenue year-on-year changes by factor are as follows. Sales price is up 10 billion yen. Volume is up 33.2 billion yen. Foreign exchange transaction variance of foreign subsidiary sales revenue is up 54.8 billion yen. Next page. Total core operating income improved 173.9 billion yen year on year. Analyzing by factor, Price is plus 21 billion yen. Cost is plus 97.5 billion yen. Volume variance including changes in equity in earnings of affiliates is plus 55.4 billion yen. Next is performance by segment. Agro and life solution segment. Co-operating income. Thank you very much. Impairment on methionine in the first half of the previous year reduced the burden of depreciation expenses. For volume variance, there was an increase in shipments of indifilin, which has a high gross margin in overseas crop protection chemicals, and increase in shipments in India and other regions, where the impact of distribution inventory backlogs has lessened. Next page. ICT and Mobility Solutions Segment. Core operating income is 59.7 billion yen, up 15.8 billion yen year-on-year. In price variance, selling prices of polarizing films declined. In volume variance, There was an increase in shipments of polarizing films and touchscreen panels. Demand for semiconductors is also on a gradual recovery trend, and shipments of high-purity chemicals and photoresists increased. Next page. Advanced medical solution segment. Core operating income is ¥1.9 billion. 1.8 billion yen year-on-year. Increase in depreciation of new facilities and other factors worsened cost variance.

In the essentials and green materials segment, core operating income was a loss of 44.3 billion yen, an improvement of 16.2 billion yen year-on-year. In terms of price variance, profit margin improved due to higher market prices of MMA and petrochemical products. Furthermore, regarding to the volume difference, due to the decline in the refining margin of petro-rabi, An equity method affiliated company and deterioration of profit margin of petrochemical products. There was a deterioration in financial performance. As for the semi-tomo farmer segment, core operating income was 19.9 billion yen, a significant improvement of 116.2 billion yen year on year. Thank you very much. Furthermore, in the third quarter, due to the transitioning of myFembri business to be conducted by our company alone, we recorded a lump sum deferred revenue related to the alliance with Pfizer. Please note that the CDMO business for regenerative medicine and cellular medicine does not belong to this segment and due to the impact of our consolidated accounting procedures, the sales revenue and core operating profit for this segment differ from the sales revenue and core operating income announced by Sumitomo Pharma. Thank you very much. was ¥3,739.5 billion, a decrease of ¥195.3 billion compared to the end of the previous fiscal year. The main factors for the decrease were the debt forgiveness of long-term loans to PetroRabic, which are included in others under non-current assets, and the sale of rovent shares by Semitomo Farmer. Interest-bearing liabilities was ¥1,443.7 billion, a decrease of ¥119.8 billion compared to the end of the previous fiscal year. Next, I will explain the consolidated statement of cash flows. Cash flows from operating activities was 140.7 billion yen inflow, an increase of 275.7 billion yen year-on-year. This was mainly due to the improvement in income before taxes. Cash flows from investing activities was positive 56.7 billion yen, an increase of 134.5 billion yen year-on-year. Thank you very much. Next, I will explain the full year outlook for fiscal year 2024. I will start by explaining the business environment surrounding our company. In terms of the economic situation, with uncertainty continuing over financial markets and policy management, the growth rate is expected to remain at a low level. Below that we have used weather symbols to indicate our perception of the business environment in our main business fields. As for crop protection chemicals at the top, although the stagnation of the overseas distribution inventory is gradually being resolved, the selling price is falling due to intensifying competition. As for methionine, higher market prices that continued from the previous year will hit a low and it is anticipated that it will decline in the second half of the fiscal year. As for displays, there will be a strong demand for mobile-related devices. Demand for semiconductors will show signs of gradual recovery. Low margins continue in the petrochemical and raw materials markets. Please look at the next page. The performance forecast for FY 2024, it seems that there will be an upside. However, it has not reached the threshold unnumbered for revision, so it is unchanged from the figure announced on October 30th. So sales revenue of 2.6 trillion yen, core operating income of 100 billion yen and operating income of 180 billion yen, net income attributable to owners of the parent is 25 billion yen. The assumptions for exchange rates and officer prices have been revised as stated based on the current situation. Furthermore, we have revised the breakdown of core operating profit loss by segment from the forecast announced as an image on October 30th, and I will explain this on the next slide. With regards to the dividend forecast for the current fiscal year, We will maintain the same forecast as the previous forecast announced on October 30th with an interim dividend of 3 yen per share, year-end dividend of 6 yen per share, and the annual dividend forecast will be 9 yen per share. This will be the last page. The table compares the forecast announced on October 30th based on the image of the new segments. The top agro and life solutions has factored in a decrease in crop protection chemicals shipments in South America due to poor weather and a fall in the price of methionine, resulting in a deterioration of 7 billion yen in core operating income compared to the initial forecast. ICT and mobility solution is performing steadily. Although Advanced Medical Solutions is also performing steadily, 2 billion yen has been reclassified due to a change in segment following the transfer of shares in Nihon Mediphysics. Essential and Green Materials has revised its forecast downward by 14 billion yen due to a deterioration in the refining margin at Petro-Arabic, a decrease in shipments of synthetic resin, and a deterioration in profit margin. Sumitomo Farmer has revised its forecast upward by 23 billion yen due to an increase in shipments of its three key products, progress in streamlining SG&A and R&D expenses, as well as the impact of changing the segment of RAKFERA, As explained, breakdown by segment has changed, but group as a whole, we will be working on immediate term to improve business performance. Up to the third quarter, we feel that we have been progressing steadily to achieve the full-year targets. That concludes my explanation.

Thank you very much. Now, we'd like to have a question and answer session. The first question is from Morgan Stanley, MEFG Securities, Mr. Watabe. Thank you for your presentation. I'm Watabe from Morgan Stanley. I have one question. You mentioned 100 billion incorporated income. You expect a better result, but for October, Compared to the image of October, you believe there's going to be no major change in terms of $100 billion. What are popular trends? For JFE, the zinc engine was sold. Is that a factor? And the third quarter to the fourth quarter, Agro seems to be doing well, but ICT and mobility and essentials also was good in Q3, but is quite worse in Q4 according to your forecast. Could you explain that? Thank you for your question. First, about our forecast, this remains unchanged, and the background is that When we make our forecast, we expect some upwards. That is how we see. For exchange rate, yen is slightly weakening. That is one factor. And in addition, on the other hand, even now, There are higher uncertainties. Our predictability is getting lower. And looking at such a situation, upward revision, we thought, is not going to be done. So we kept our forecast unchanged. And your question, Like for how to look at the agro business, agro sector. For this sector, from Q3 to Q4, in general we expect an upward situation slightly more than 30 billion. In Q4 last year, it was also about 30 billion. So I don't think it is that different. And that is one background. For ICT and mobility, from Q3 to Q4, for ICT and mobility, from the first quarter, The performance was quite at a high level. So, looking only at the third quarter, it is slightly lower than last year's. But as always, in the fourth quarter, we expect some decline. And of course, Compared to last year, yen is weaker. So if that situation continues, that may be a positive factor. But in general, that is how we look at the situation. So I don't know if I was able to answer your question, but that's my answer. Well, for essential... Is it good because some special factor in the third quarter was the situation for the fourth quarter for essentials? In a sense, there were some divestitures in the third quarter, which was a positive factor to a certain extent, but in principle, There are not so many good factors like the margin level is low, such situation is continuing. Thank you very much. Looking at the share price today, you are keeping the forecast. So it looked as if you just kept it without making any reviews. But looking at the material, it seems that you reviewed the situation and you decided to keep it unchanged. And maybe that is something that affected the market situation, but I ask this question because I wondered why you were having an upward forecast.