Sumitomo Chem Unsp/Adr

As it is time to start, we will now begin the conference call for the presentation of the financial results for fiscal year 2025, first quarter. Thank you very much for your participation. Today, Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, will give a briefing of the financial results for fiscal year 2025, first quarter, and he will later take questions. We will conclude the call at 4.50 p.m. Mr. Yamauchi, over to you. Good afternoon. I'm Yamauchi, responsible for the accounting department. Thank you very much for attending our conference call today despite your busy schedule. I would like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now, let me start with the briefing of the financial results for FY 2025 first quarter. Please turn to the slide, page four. Before explaining the details of the financial results, I'd like to give a brief update on the status of profit and loss for the first quarter. On the left, the core operating income In 2023, 2024, 2025, for five years, you can see the figures. In FY2023, we had a large loss ever since the start of the company. We faced a very difficult situation from the first quarter. For FY2034, we achieved a V-shaped recovery. and were able to secure profitability in the first quarter. And this fiscal year, first quarter, the profit we made last year was further expanded. For the first quarter, Sumitomo Pharma performed well, and Ascension Green Materials improved its profitability, and in addition, shipments of Agro and Life Solutions and ICT and Mobility Solutions were strong. On the right, you can see the net income attributable to owners of the parent for the quarter for the three years. With appreciation of the yen in this quarter, we had a slight loss. For each term, there was a big impact from foreign currency, as you can see in parentheses, excluding the impact of foreign currency transactions, just like the core operating income were able to achieve steady improvements. Now, next, please turn to page five. Let me begin by explaining the business environments around our company in the first quarter of FY2025. With regards to economic situation, although the global economy is continuing to show signs of gradual recovery, uncertainty is high due to such factors as policy management. And because of this, the future continues to remain uncertain. And below, are our perceptions of a business environment in our major business fields using weather symbols. The first one, crop protection, although Q1 is an off-season for demand, there was solid growth in India. The messianic market bottomed out at the end of the last fiscal year and currently shows signs of recovery. For this place, there is still no impact from the backlash of the shipments brought forward because of the tariffs. And there was solid growth in mobile device-related components. In semiconductors, demand for semiconductors varied by field, but there are signs of gradual recovery. Petrochemicals and raw materials, the market continues to have low margins. So next is the outline of the consolidated financial results, page six. Sales revenue was 526.1 billion yen, down 86 billion yen year on year. Core operating income expressing recurring earnings power was a profit of 27.7 billion yen, up 22 billion yen year on year. Non-recurring items not included in core operating income was a loss in total of 2.2 billion yen. In the same quarter of the previous year, there was 10.1 billion yen gain on sales of fixed assets from the sale of land for dormitories and company housing, leading to a total profit of 5.8 billion yen compared to the same quarter of the previous year, Non-recurring items worsened by 8.1 billion yen. As a result, operating income was a profit of 25.5 billion yen, up 14 billion yen year on year. Finance income had a loss of 19.6 billion yen down 45.6 billion yen year on year. Gain or loss on foreign currency transactions included in finance income or expenses had a loss of 16.4 billion yen because of a strengthening of a yen worsening by 45.4 billion yen year on year. Income tax expenses had a loss of 1.9 billion yen, down 1.7 billion yen year-on-year. As a result, the net income attributable to owners of a parent for the quarter was a loss of 4.5 billion yen, down 28.9 billion yen year-on-year. Exchange rate and NAFSA price, which impact our performance, average Rate of U.S. dollars during the term was 144.59 yen to a dollar and now the price was 65,500 yen per kiloliter. Yen appreciated and feedstock price declined compared to the same period of previous year. Next, sales revenue by business segment. Page 7. Total sales revenue was down 86 billion yen year-on-year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, Sales price decreased by 12.5 billion yen. Volume decreased by 47.6 billion yen. Foreign exchange transactions variance of foreign subsidiary sales revenue decreased by 25.9 billion yen. Next is page eight. Total core operating income increased by 22 billion yen year on year. Analyzing by factor. Price was minus ¥500 million, cost plus ¥9.5 billion. Volume of variance, including changes in equity in earnings of affiliates, was plus ¥13 billion. Next is performance by segment. Page 9. Agri-and-life solutions segment. Co-operative income was a profit of 2.2 billion yen down 2.7 billion yen year-on-year. Price variance. Profit margin deteriorated as the methionine market price dropped. Volume variance. There were lower income from exports due to stronger yen centered on overseas crop protection products and stronger yen effect. Next page. SAT and mobility solutions, cooperating income was a profit of ¥18.4 billion, down ¥2.8 billion year-on-year. Price variance. Selling prices of polarizing films dropped. Volume variance. There was a one-time gain on the sale of the large LCD polarizing film business, but lower income from exports due to stronger yen offset the gain. Next page, please.

As for the advanced medical solution segment, core operating income was a loss of 1 billion yen, a decrease of 1.5 billion yen year on year. Shipments decreased due to a change in the shipping timing of some active pharmaceutical ingredients and intermediates compared to the same quarter of the previous fiscal year. Please go to the next page. With regards to essential and green material segment, core operating income was a loss of 5.5 billion yen and improvement of 14.1 billion yen year on year. As for the price variance, profit margins improved in synthetic resins due to the drop in price of main ingredient NAFSA. As for the volume variance, et cetera, there was an improvement in refining margins at Petro-Rabig, an equity method affiliate, resulting in an improvement in profitability in investments accounted for using the equity method. Next page, please. As for the Sumitomo Pharma segment, core operating income was ¥21 billion, an increase of ¥20.1 billion year on year. With regards to price variance, sales prices decreased due to NHI drug price revisions in Japan. As for the cost variance, due to the progress of operational streamlining, SG&A expenses decreased. With regards to volume variance, shipments increased due to the expansion of sales of Orgovix, a therapeutic agent for advanced prostate cancer, and Gemtesa, a treatment for overactive bladder. This concludes the overview of the business performance by business segment. On the next page, I'll explain the consolidated statement of financial position. Total assets at the end of June 2025 amounted to ¥3,329.5 billion, a decrease of ¥110.2 billion year on year. Decrease in cash and cash equivalents due to repayment of interest-bearing debt seasonal factors affecting the crop protection chemicals and a decline in sales due to the impact of scheduled maintenance at Petrol Robic were the main factors behind the decrease in notes and accounts receivables. Interest-bearing debt amounted to ¥1,248.1 billion. This was a decrease of ¥38 billion year-on-year. Equity was 1 trillion 61.4 billion yen down by 13 billion yen compared to the end of the previous fiscal year. Next, I will explain the consolidated statement of cash flows. Please go to page 15. Cash flows from operating activities resulted in a positive inflow of 24 billion yen up by 36.3 billion yen year on year. Mainly due to an increase in collections of accounts receivable for crop protection chemicals caused by seasonal factors and a decrease in sales associated with scheduled maintenance as petro-robic accounts receivables decreased, resulting in an improvement in working capital. Cash flows from investing activities resulted in a negative 45.9 billion yen, a decrease of 128.4 billion yen year-on-year. During the same quarter of the previous fiscal year, there were incomes from the sale of investment securities and fixed assets. As a result, free cash flows was negative 21.9 billion yen, a deterioration of 92.2 billion yen compared to the 70.2 billion yen positive in the same quarter of the previous fiscal year. Cash flows from finance activities resulted in a negative 49.2 billion yen due to repayment of borrowings, a decrease of 13.8 billion yen spending year on year. Next, I will explain the outlook for fiscal year 2025 first half. Please go to page 17. At the time of the previous financial results announcement on May 14th, the impact of tariffs was highly uncertain. Therefore, we only disclosed a full year forecast for fiscal year 2025 and did not disclose forecast for the first half. At this time, newly, we are going to disclose the first half forecast. And as for the full year financial forecast for fiscal year 2025 announced on May 14th, have not been revised. We will be reviewing it the first half and disclose it for the announcement of the second half. For the first half of FY 2025, the forecast is sales revenue 1 trillion 100 billion yen down 141.4 billion yen. year-on-year. Core operating income, 90 billion yen, up by 60.5 billion yen year-on-year. Operating income, 85 billion yen, down by 36.2 billion yen. Net income for the quarter attributable to owners of the parent, 25 billion yen, up by 31.5 billion yen year-on-year. These are the forecasts. As for the exchange rate and NASA price assumptions, they are as listed on the slide. I will explain the core operating income in the next slide by business segments. Please go to page 18. For the first half performance, If you look at the segment, Sumitomo Farmer sold their businesses and Orgo Bic's milestone income will be recorded. So on an year-on-year basis, we are forecasting a large increase. And for the other segments, Essential and Green Materials is expected to see an increase in operating income year-on-year due to the improved profitability at Petro-Robic and improved profit margins for synthetic resins. With regards to ICT and mobility, the impact of a decrease in export earnings due to the strong yen and a decline in profit due to the conversion of overseas subsidiary profits into Japanese yen will be significant, and profits are expected to decline compared to the same period the previous year, which was extremely strong. Agri-life solutions will be affected by the strong yen. However, we expect profits to remain at the same level as last year due to an increase in shipments. Furthermore, For the other segments experiencing a decrease in profit on-year due to the recording of significant profits associated with the sales of business in the first half of fiscal year 2024. Next page, page 19. This will be the last slide. This will be the summary of the performance forecast. Regarding the outlook for the first half of the fiscal year, as I have explained, agro and life solutions and ICT and mobility solutions segments, they will remain strong in shipments in the second quarter. In addition, we expect the gain from selling semi-terminal farmer business will also contribute. And therefore, against the first half forecast, it is a 60% progress. What is in the parentheses? And the outlook excluding gains on the sales business, we are making progress towards improvement compared to fiscal year 2024. and the net income attributable to owners of the parent company, despite the adverse impact of foreign exchange losses, remain positive and is progressing steadily towards the achievement of the annual forecast. That concludes my explanation.

Thank you very much. Now, we would like to go into a questions and answers session. Then the first question is from Mr. Watabe from Morgan Stanley MUFG Securities. Thank you. I'm Watabe from Morgan Stanley MUFG Securities. So I have one question, but from first quarter to the second quarter, for each segment, what is your way of thinking, excluding seminal pharma and agro, ICT, essential chemicals, in particular in these places, what is the movement in particular for essential chemicals that are reaching expected because of periodic plant maintenance? And the market in China is getting better. And what is your situation in South America as well? Thank you for your question. So let me answer one by one. First, for agri-life solutions. From the first to the second quarter, we expect a large increase in profit. In the first quarter, it is a off season and profit tends to be lower. In your company, In case of North America, it is more concentrated in the second half. Recently, we are also emphasizing South America and India. In these places, relatively speaking, demand starts from the second quarter. In case of India, first quarter is advancing steadily at the moment as planned. Shipments is expected to be firm in the second quarter, and from Q1 to Q2, we expect large increase in profits. For ICT and mobility solutions from the first or second quarter, slight decline in profit is projected. I cannot mention the concrete figures, but with the restructuring, A one-time gains from sales is included in the first quarter, and as risks that we expected, tariff-related risks last year, there was increase in shipments towards the end, and we expected some backlash from that, which were risks, but that didn't happen that much, and things are progressing relatively steadily. For essential and green materials, from the first to the second quarter, loss is increasing under the current situation. As you have mentioned, Mr. Watabe, second quarter, from April to June, in case of petro-rabic, there is a periodic plant maintenance where profit will drop. And we plan to post that in the second quarter, and that is one factor included. That is all. Thank you very much. For confirmation, South America recovery and the ratio of investments into RABIG, what is the percentage that you are using, calculating in Q1 and the first half? For South America, The inventory is gradually moving towards improvement, but to a certain extent, there's still some level of inventory. So we will watch the situation with caution. In Petro-Arabic, the ratio percentage, 37.5% as of the first quarter. How about the second quarter? For the second quarter, sales of shares, when will that happen? It depends on that. After selling, it will be 15%. Before that, 37.5%. It takes time for the procedures, so compared to our projections, the timing of sales is being delayed slightly, but the price of selling remains unchanged from the price we announced last year, 37.5%. Based on that, the income loss in terms of equity affiliates gets large, but the sales price will decline, we can offset that with the gains on sales. So until when we will maintain the level 37.5%, even if there is a delay, that will not give a negative impact on our performance. I understand that. But in second quarter, you are calculating a 37.5% to come with these figures. I understand. Thank you very much.

Thank you very much, Mr. Watabe. We would like to take the next question from Mizuho Securities. Mr. Yamada, please go ahead. Hello. The full year forecast, you said that you have not revised it. So the first half, you made the forecast. However, for the full year, you have not revised it. So if you subtract the first half from the full year, there is no meaning, is what I wanted to confirm at the start. And after I confirmed that point, for agro and life solution and ICT and mobility solutions in these two business segments, the current situation against the forecast at the start of the year, how different is it, is what I would like to know. So the first assumption, regarding the full year, we have not revised it. Therefore, subtracting, subtraction, it is actually there is, they're not aligned exactly. And for agro and life solutions and ICT and mobility, From the original forecast, there's not a large deviation is how we understand the first quarter agro and life. The profit level was as expected. And for the second quarter, there's a contribution from South America and India that comprises the forecast. And as for ICT and mobility at this point, They have not changed from the original forecast. So if that is so, agro and life solutions, methionine, on a year-on-year basis, it's deteriorating. But against the first quarter of the previous year, it is improving. So it's not going to do anything bad. And regarding the new drugs or new drug material, in the open initial, It is steadily performing and for ICT and mobility solutions, even though you consider tariff impact, the business performance is going to steadily expand. Is that the correct understanding? Sorry, I wanted to confirm that as an addition. For agro and life solution, Sorry, for ICT, regarding the tariffs impact, at this point, we're not seeing any adverse impact. Therefore, probably for the second quarter, it will be all right. However, regarding the second quarter onwards, what kind of impact will we be experiencing? We need to take a closer look. And at the third quarter announcements, we will make revisions necessary. Methionine in the first quarter, an year-on-year basis, it's deteriorating. But against the previous year quarter, it is improving. It has not changed from the original thought that it has bottom line. And for the new drug, it is performing as originally expected. And is it the same way currently? Yes. For methionine, at the end of last fiscal year, it has bottomed out, and it's improving. And for the new crop protection chemicals, yes, it is steadily performing. Thank you very much. That is all.

Thank you very much. Next is Mr. Miyamoto from SMBC Niko Securities. Thank you. I'm Miyamoto from SMBC Niko Securities. I have a question about agro and life sciences. Towards the second quarter, on Q and Q basis, you expect an increase of 11.4 billion. You mentioned the positionality. But last year, or compared to the previous year, it seems that the increase is larger. What are the factors for such a large increase? In your presentation material, page 27, North America You mentioned that sales is being carried backwards. How much is that impact? And in Central and South America, there's a drop because of price competition. How was that trend going forward? And for end-of-frame, you made a comment, but for biorationals, is that expanding steadily? And for distribution inventory, you mentioned about the situation in South America, but what is the situation of inventory in other areas? Yes, thank you. For crop protection chemicals, from the first to the second quarter, compared to the past, the increase in profit is larger, as I mentioned. Yes, exactly as you mentioned. For this fiscal year, There are some sales of businesses and that is included as a part of the factors. And for Indiferin, so far, it is progressing as we have planned. And for the inventory level, Gradually there is an improvement trend which has a positive effect. The stronger competition in South America and how about the situation of biorationals? Stronger competition in South America that factor is already taken consideration. In the second quarter, we don't think the situation will change that much. And compared to a profit we have projected, we are not seeing any worsenings. And for biorationals, for biorationals also, there are no major changes. We're expanding sales as we have planned. Thank you very much. And in terms of inventory by region, do you have any information of improvements by region? Inventory by region? I'm sorry for such a detailed question, but in all regions, the trends are improving. We are seeing an improvement trend. But Latin America and South America is relatively large. Yes, inventory levels are relatively large. There are improvements, but it's relatively large, so we need to pay attention. Thank you very much.

Thank you very much, Mr. Miyamoto. We would like to take the next question from Daiwa Securities. Mr. Umebayashi, please go ahead. I am Umebayashi from Daiwa Securities. I have a question related to ICT and mobility solutions. It may overlap with the explanation you have provided up to now. An ear-on-ear explanation was given to us right now regarding depolarizing film. There is the sales gain that came in of TV and that disappeared, I understand. But for the used mobile devices, the polarizing film volume, ear on ear, how did it perform? And also regarding the semiconductor materials, though there may be an impact of the effects in terms of the volume, how did it perform? I would like to receive the performance and towards the first quarter to the second quarter, ICT and mobility, it's going to increase about $5 billion in revenue, but profit is going to decline by about $5 billion. So on a queue on queue basis, can you explain the reason of the decline in profit and also increase in revenue? Thank you very much for your question. On an ear in ear basis, each Explanation regarding the polarizing film. TV, we have restructured the business, so that has declined. Regarding for the mobile devices and also for automobile usage, it is slightly declining. Last fiscal year, they performed quite strongly. So including that situation, this year compared to last year, the level is slightly lower. And also regarding semiconductors, the overall picture is that the recovering phase is continuing. However, if we look at the situation ear on ear, photoresist is increasing. And semiconductors or chemicals, it's around the flat range. That's improvement. An increase in revenue and decline in profit. Well, one thing is, as I have explained, the temporary profit is included in the first quarter. That's one reason. But for the other aspects, there's a mixture or composition by product. So it's not that there is a large difference. Well, the sales is increasing. So from the first quarter to the second quarter, the overall picture is that there's an increase in polarizing film for mobile devices and the semiconductor will improve as well compared to the first quarter, the second quarter. Seasonality-wise, we're getting into the demand season, so that way of thinking is correct. If that is so, so the first quarter one-time profit was quite of a size, you mean? It wasn't that large. It was the The low, several billion yen, so it is in that range. Okay, thank you very much.

Next question is for UBS Securities, Omura-san. Thank you, I'm Omura from UBS. I have a question about essential and green materials. In the second quarter, you expect losses. Petro-rabic may be the factor. In the second quarter and for a full year, as fundamentals, non-petro-rabic businesses, how should that be considered? On page 12, the step chart you have on page 12, improvement of profit margins of synthetic resins, is that a one-time effect or do you expect gradual improvements? Could you explain that? Thank you. The EGM, market situation and profit margins. Overseas businesses, like in Singapore, in the first and second quarter and the second half, we don't expect large changes. On the other hand, domestically, with NASA sliding many contracts, price is determined. So with a drop, In price, there's a time lag reflecting that in the selling price. So in the first half, that is positive, but that factor will disappear in the second half. In the first and second quarters, in the first quarter, NAFSA price declined, and there are accounting factors, negative factors. For the first and second quarter, there is a slight positive factor. And in the second half, the Chiba factory has a periodic plant maintenance, which will be a negative factor in the second half. Overseas, for confirmation, on page 26, the polyolefin company and the PCS, the direction of a profit are different. For this direction, as you have explained, you don't expect large changes. So PCS will be facing difficulties, and the polyolefin company is in an improvement trend? For PCS, there is an accounting factor in the second half, so that is slightly worse. For TPC, we don't have such a factor, so this trend continues. Thank you very much. I understand. Thank you.

Mr. Omada, thank you very much. We would like to take the next question from JP Morgan Securities, Mr. Nakada. This is Nakada. Hello, one. I just wanted to confirm of the one-time factors. Last time you looked at 50 billion, and the Semitomo Farmer part is second quarter, and agro is second quarter, and ICT is only first quarter. And from what you saw at the beginning of fiscal year, the amount has not changed. But from the year, you'll start to see the effect of it. Is that the correct understanding? Yes. Okay, no change. Okay, thank you very much. Thank you very much. Thank you very much.

And next, for Morgan Stanley, MRVG Securities, Mr. Watabe. Thank you. I wanted to ask a question about that one time factor and the non-recurring item was negative 5 billion for first half and minus 45 for a full year. This figure remains unchanged? And Singapore and the domestic market, you didn't discuss about restructuring of the sector. What is the situation? As one-time factors, as I have already mentioned, about 50 billion per year. And basically, everything will be reflected in the first half. ICT, for some part of ICT, will be the second half, and the pharma and agro, the second half, or second quarter. It's the second quarter. And non-recurring items, 75 billion for the full year. In the first half, We plan to make a review of this figure. Do you expect a decline? Or do you mean you will review? Yes, we will review the figures. Structure reform of petrochemicals. For petrochemicals restructuring, We are taking many measures, but at the moment there is nothing that we can newly announce. We need a little more time. Thank you very much. Thank you.

Thank you very much. We'd like to take the next question. SMBC, Nikko Securities. Mr. Miyamoto, please go ahead. This is Miyamoto from SMBC, Nikko Securities. Regarding the inventory, at first word, it seems that it has increased by 21 billion. And with what kind of products is this enough as a related product building up this much? The inventory assets, okay. From March to June, you're talking about the increase during that period, correct? Yes. Well, this part, Agro and Life, led by Agro and Life Solutions, towards the demand season, little by little, they are building up the inventory Therefore, that is the main factor behind this. In a continuous matter regarding the inventory, the direction is to compress it. But within that, on a necessary basis, we are building up the inventory, if you can understand in that way. Okay, understood. So NAFSA and from the FX situation, it seems that it is at a higher level than the other ears. But is there a particular product that has a high level of inventory or special factor why it's build up? No, there's no special factor why there is a build up. It is just that we are building up the necessary product. Thank you very much.

The next question is for UBS Securities, Mr. Omura. Thank you very much. For agro, for confirmation, you mentioned about the distribution inventory. The level of inventory in your case, what is the level that you expect for each region? And this distribution inventory, you said, is improving. But currently, when do you expect there will be improvements from the situation of excessive inventory? Well, I'm sorry. I don't have information about the actual level. That is my situation. Well, not in concrete terms. I know it may be difficult. But last year, compared to last year or the previous year, what is the level of improvement? Is that information also difficult? We are seeing improvements. are here, and in Central and South America, the level is still relatively high. But what is the appropriate level? I don't have that information at the moment. I understand. So basically, the salespeople for your company I think would collect that information qualitatively and you gather that information and that is the basis of your comment. Yes, you are right. I understand. Thank you very much.

Thank you very much, Mr. Omura. And from JP Morgan Securities, Mr. Nakamura, please go ahead. This is related to Mr. Watabe's question as before. Recently, I read the interview articles of your CEO and president. Even for the petrochemical from the proprietary production to outsourcing and looking for the best partner. It seems that there seems to be a deeper structural reform that will be going ahead. compared to what was originally compared to the medium term plan. So within the initiatives, within the medium term plan, are there areas that you can go even further? Sorry, the first part I was not able to hear. Before farmer, you said, what did you say? That your CEO said he's going to be focusing on the winning route. and from proprietary internal in-house production to outsourcing. Well, we've just started the new medium term plan. And Mr. Amito is making an appeal to the outside Whether we're making a progress that will change the content of the medium term, that is not the situation. We are steadily going along to the medium term plan, but Semitomo Pharma, there are a list of companies, may be difficult, but when you look for the partner, if your corporate value or the stock value goes up, it's easier to find a partner. So can you comment on that? It's difficult to comment about the share price, but the performance of Semitomo Pharma is starting to improve. And various structural reforms are going well, and their fixed cost is going down. And sales-wise, for the three main products, especially for the two products, for us, they are performing strongly. And we understand that in a positive manner. So looking for a good partner. they will have to have a good foundation in terms of business management. Therefore, in that sense, we are taking that in a positive way. In the sense of partner, when we think about the future of Semitomo Pharma, the areas that Semitomo Chemical can support, there's a limitation to that. So looking for a partner that is appropriate for a farmer, that policy or direction has not changed. And their performance improving, maybe it is becoming easier for them to move forward on that. And as I think so, as what Mr. Mito was saying. Sorry, I asked a difficult question, but thank you very much.

Thank you very much. So it's now time to conclude the conference call. There are still some people raising their hand, but with this, we'll let conclude the Q&A session. So this concludes today's conference call. Thank you very much for your participation. Thank you very much.