Sumitomo Chem Unsp/Adr

As it is time to start, we will now begin the conference call for the presentation of financial results for the fiscal year 2025 second quarter. Thank you very much for your participation. Today, Mr. Sasaki, representative director and senior managing executive officer, will give a briefing on the financial results for fiscal year 2025 second quarter. Later, he will be joined by Mr. Yamauchi, Executive Officer and General Manager of Accounting Department, to take questions. We will conclude the call at 4.50. Mr. Sasaki, over to you. Thank you. I'm Sasaki from Sumitomo Chemical. Thank you very much for attending our conference call today, despite your busy schedule. I'd like to thank our investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now, let me start with a presentation of financial results for fiscal year 2025 second quarter. Please turn to page four. This is a summary page. Core operating income and net income attributable to owners of a parent significantly improved compared to the same period of the previous year. Corporate income of essential green materials increased significantly year over year. There were also profits at Sumitomo Pharma with strong sales results, leading to recording of a sales milestone of Orgovix and partial divestiture of the Asian business. Compared to the forecast announced in August, in addition to strong sales at Semitomo Pharma, there was improvements in foreign exchange gain or loss from Mayan weaker than anticipated, as well as a reduction in the deferred tax liability resulting in a reduction in the corporate income tax expenses, leading to increase in both core operating income and net profit. Please turn to page 5. Consolidated financial results of a second quarter. Sales revenue was 1,095,000,000,000 yen down 146,000,000,000 yen year on year. Core operating income was 108.7 billion yen up 79.2 billion yen year on year. Non-recurring items not included in corroborating income was a loss in total of 5 billion yen. In the same period of the previous year, there was an impact of recognizing our interest in PetroRabic's debt forgiveness gain of 86.5 billion yen as a non-recurring factor leading to a profit of 91.8 billion yen. So compared to the same period of the previous year, this has worsened significantly. by 96.8 billion yen. As a result, operating income was a profit of 103.7 billion yen, down 17.6 billion yen year-over-year. Finance income was a loss of 15.8 billion yen, improvement of 136 billion yen compared to previous year, when a loss on debt waiver was recognized. Gain or loss of foreign currency transactions included finance income expenses was a loss of 6.4 billion yen, improvement of 28.4 billion yen year on year. Income tax expenses was a gain of 3 billion yen, increase of tax burden of 7.2 billion yen year over year. Net income or loss attributable to non-controlling interests was a loss of 51.2 billion yen, worsening by 65 billion yen year-on-year with the improvement of semi-term farmers' income. As a result, net income attributable to owners of a parent for the second quarter was a profit of 39.7 billion yen, up 46.2 billion yen year-over-year. Exchange rate and NAFSA price switch impact of a performance average rate during the term was 146.02 yen to a dollar, and after price was 64,900 yen per kiloliter. Yen appreciated, and fish stock price declined compared to the same period of the previous year. Next, page six. Total sales revenue was down 146 billion yen year on year. By segment, sales revenue decreased in all segments except Semitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by 25 billion yen, volume variance decreased by 88.1 billion yen, and foreign exchange transaction variance of foreign subsidiaries' sales revenue decreased by 32.9 billion yen. Next, page 7. Total core operating income increased by 79.2 billion yen year over year. Analyzing by factor, price was plus 6.5 billion yen, cost plus 6.5 billion yen. Volume variance, including changes in equity in earnings of affiliates, was plus 66.2 billion yen. All were positive factors. Next is performance by segment. First, agro and life solutions. Core operating income was a profit of 11.2 billion yen, down 2.9 billion yen year over year. Price variance. Profit margin improved for overseas crop protection products. Volume variance. In addition to decrease in shipments of overseas crop protection products, There was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Next is ICT and mobility solution segment. Cooperative income was a profit of 33.1 billion yen, down 10.5 billion yen year over year. Price variance, selling prices of display-related materials declined. volume variance. Though there was a gain on the sale of a large LCD polarizing film business, there was lower income from exports due to stronger yen and stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen and decrease in shipments of display-related materials. Advanced medical solution segment. Core operating income was a loss of 1.4 billion yen down 1.7 billion yen year over year. Shipments decreased because of difference in the timing of shipments compared to the same quarter previous year for some pharmaceutical ingredients and intermediates. Essential in green material segment, core operating income was a loss of 18.6 billion yen, improvement of 16.1 billion yen year over year. Price variance, with a drop in NAFSA price, which is a main feedstock, profit margins improved to insynthetic resins and alumina. Volume and other variances, there was improvement in profitability in investments accounted for using the equity method at PetroRabic due to factors such as improved refining margins. For Sumitomo Pharma segment, core operating income was a profit of 97.3 billion yen up 94.3 billion yen year over year. Price variance, selling prices declined in Japan with NHI drug price revisions. Cost variance, there was a decrease in selling expenses and general and administrative expenses due to progress in rationalization. Volume and other variances, in addition to expanded sales of Orgovix, a therapeutic agent for advanced prostate cancer, and gem tester treatment for overactive bladder. Gain posted on a partial divestiture of Asian business and Orvovic sales milestone are included. This is all for the results per segment. Next is consolidated statement of financial position.

As of the end of September 2025, the total assets stood at 3,364.5 billion yen year-on-year. This is dropped by 75.3 billion yen. This is mostly due to a drop in related companies' shares by sales of businesses, as well as a decrease in cash and equivalents by repayment of interest-bearing liabilities. Interest-bearing liabilities stood at 1,195,000 91.7 billion yen, which is a drop by 94.5 billion yen compared to the end of the previous term. Equities stood at 1 trillion, 179.6 billion, which is up by 105.2 billion yen compared to the end of the previous term. And now let me explain the consolidated cash flow. The operating cash flow is plus 57.5 billion yen. However, in a year, this has dropped by 5.9 billion yen. The profit level improved. We saw a deterioration of the working capital due to revenue increase at the Sumitomo Farmer, as well as corporate tax increase. The investing cash flow was minus $16.7 billion. The year-on-year, this is dropped by $91.1 billion. This term, we had a special sales of Asian business at Sumitomo Farmer, but in the same period last year, we had a significant income by sales of low-event shares by Sumitomo Farmer, as well as the sales of Sumitomo Bakelite shares. As a result, free cash flow stood at 41 billion yen compared to 138 billion yen the same period of previous year. This is a deterioration by 97 billion yen. Cash flow from financing activity was minus 114.8 billion due to repayment of borrowing compared to the same period of last year. This is an increasing outflow of 39.4 billion yen. And now, I'd like to explain the outlook for fiscal year 2025 on a full year basis. First, let me explain the business environment surrounding our company. Regarding the economic situation, the global economy continues to show signs of a slowdown. Amid heightened uncertainty, the outlook remains unclear. Below, our assessment of the business environment for our key sector is indicated using weather symbols as usual. For agrochemicals at the top, crop protection price competition is expected to persist with regional variations in slow-moving inventories in distribution. Misunai market bottomed out at the end of last fiscal year and recovered in the first half of this year, but is expected to decline in the second half. In this place, mobile-related components remain robust for semiconductors, though there is variation by sector, but the demand is anticipated to show a gradual recovery trend. Regarding petrochemicals and raw materials, low margins are expected to persist. And now on page 17, you can see the summary of financial forecast for fiscal year 2025. We have revised the previous forecast in May to incorporate the recent performance trends and the impact of the partial sales of petrol-large shares. The core operating profit forecast for fiscal year 2025 is 185 billion, which is an increase of approximately 45 billion yen year-on-year and an increase of 35 billion yen compared to the previous forecast. On the left-hand side, The actual gain on sales of business, shown in gray, was projected to be approximately 50 billion yen in the May forecast, but by incorporating partial sales of shares in Petrolavik, it is revised to approximately 80 billion Japanese yen. The profit from the business activities, shown in blue, representing the underlying profit and loss, is projected to show a significant year-on-year increase due to sales expansion at Sumitomo Farmer and reduced stake in Petrolabic, re-revised upward from the May forecast, targeting over 100 billion yen. By segment, growth areas are These two segments, agro and life solutions and ICT mobility, we expect achieving 100 billion yen in profit from the business activities. Regarding the profit and loss associated with the partial sales of federal lobby shares, the combined impact of the valuation loss associated with subscription to new class shares and the increase in loss accounted for by the equity method is expected to be minimal on the final PL because they are offset with each other. And now the business performance forecast. We forecast the revenue of $2.29 trillion, a decrease of $50 billion from the previous projection, cooperating profit of $185 billion, net profit attributable to the owners of the parents of $45 billion. Assumptions on the effects and asset prices are as stated. Regarding sales revenue, Simiton Farmer expects strong sales in North America, mainly for Ogilvyx, but essential and green materials, except a decrease in revenue due to a decline in shipments resulting from the self-suspension of petrol vehicle products, which is our subsidiary company. Core operating profit by segment will be explained on the following slide. The income attributable to the owners of the parent is expected to increase by $5 billion from the previous forecast. And related to Petrolabic companies' shares, cash contribution methodology associated with Petrolabic was not clearly identified, and a series of profit and loss impacts was accounted for under non-recurring items. That is how it was incorporated in the forecast, but this year, This time, the methodology for cash contribution and the accounting treatment was finalized. As a result, for six months, the sales timing was delayed by six months. As a result, the losses we bear under the equity method will increase. As a result, the gains on sales of equity will increase. As a result, core profit significantly increases. And next, we incur valuation losses of the Class B shares we newly acquired. As a result, there are additions and deductions among accounting items, but the impact on net income is limited. as they had been already incorporated in the previous projections. And therefore, impact is not big. Next, regarding the full year performance or the sales revenue and core operating income by reporting a segment onto agro and the life solutions. Though achievements shifted from the first to the second half, Performance has largely progressed as previously announced with the previous forecast kept unchanged. For ICT and mobility, EV market recovery is slow and the semiconductor market recovery is slightly moderate compared to our projection with some unevenness as a result. We have adopted a little bit of conservative outlook compared to the previous announcement. Essential and green materials, as I explained earlier, is expected to see a significant increase in core operating profit. At Sumitomo Farmer, mainly due to strong sales in North America. Therefore, it's expected to see a significant increase in profit compared to the previous forecast. The other segment sees its profits drop compared to the previous forecast. This is due to the fact that at the time of the previous forecast, a certain degree of performance improvement measures were factored in. so they were incorporated into the other categories. However, in this announcement, based on the assumption that they are likely to materialize in each segment, essential and semi-tone farmer numbers are calculated, and therefore, those factors are not incorporated into others. This concludes our explanation on the financial results and earning forecasts. And now we would like to entertain your question. Thank you.

Now we'd like to start the questions and answers session. Now, the first question. For Morgan Stanley, MRBG Securities, Mr. Watabe. Thank you for your presentation. In your new forecast, PetroRabic's sales impact, I'd like to hear more about it. In essential, 50 billion. is included this time, but the increase in profit is $23 billion. What is the reason for that? Not related to petro-rabic, there is minus $40 billion for others. You explained, because there were recoveries in other segments, but it seems to be too large, non-recurring items. It was minus $45 billion, but with the gains from sales of RABIC that was assumed, but that is negative. So what is a reduction of 25 billion non-recurring items with a sales-related petrol RABIC? Maybe your forecast was too bearish. Could you explain the reason? Yes, thank you for your question. For petrol RABIC, We announced the influence recently, but for the sales itself, 50 billion of sales proceeds was announced. And as you know, in here, there was a time gap of six months, and that impact is included. So 22.5%. means that the equity method is continued to be applied. So there was increase in the burden in terms of losses based on the equity method, and that is one factor. And 50 billion, because there were losses from equity method, the sales cost dropped. So in net, it is lower than that. So that included the increase in profit was only about 23 billion yen. Besides, there is included under finance losses for the B shares newly acquired, there is a valuation loss included. So sales of equities When you calculate the total loss, actually the impact is not that large. Yes, I understand. PetroRab, there is a negative in terms of sales proceeds because of equity method. So let me add to that explanation. How was that included in the original forecast? I think that is your question. In the original forecast, incorporating income essentially in green and EGM, it was not included at all. That is one point. So that makes the difference. And for non-recurring items, we we're including some impact. And by adding some items, for example, violation loss, it is very difficult to express. So the losses were included in the non-recurring items. But that is not a non-recurring item. That is a financial loss. So improvement of a non-recurring item compared to the forecast is because of this background. So we are not considering the sales gains. Well, not that we are not taking into consideration at all, as I will explain. And in your question, you asked about Other corporate expenses, compared to the forecast, this has worsened, about 24, 25 billion. And that part, in the initial forecast, we included some forecasts of improved performance in EGM and Sumitomo Pharma. For both, we had conservative figures and petro-rabic equity seals. We couldn't talk about it. So without including those figures, these were all added together and included under other corporate expenses. that is now being distributed into other segments. It is now included in the figures of the relevant segments. So it looks as if the total corporate figures has worsened, but that is the reason. Is it possible to have such a big negative figure for corporate, about 40 billion? Is that what you mean? Yes. Yes. The reason why it was good so far, Semitomo Bakelite and other items of profit and loss are included, and sales proceeds that happened last year are included. And besides, Semitomo Chemical Engineering and Nippon Meiji Physics those losses are included under others. But these two are already sold. So this fiscal year, there are not so many positive factors. And under others and adjustments, expenses are high. That is how you should interpret it. Maybe physics, I think that was life science. But I understand. So it's not that you are assuming a larger buffer. If you ask me if we are conservative, basically, yes, our forecast is intended to be conservative. But we are not including a large buffer. So you are conservative. I understand. Thank you very much.

Mr. Watanabe, thank you very much. Now I would like to go on to the next question. Mizuho Securities, Yamada-san, please. I am Yamada from Mizuho Securities. Thank you very much. I would like to double-check about the core profit. Agro and the life solution, in the first half, there was some shortfall. From the first to the second quarter, there was a seasonality. So you said that there was some visibility, but you had some shortfalls. From the first half to the second half, there was a timing difference of the shipments. Was it the reason? On a full-year basis, there was no change in the forecast. Therefore, my understanding must be correct, but I'd like to double-check. And the ICT mobility solution, a downward revision, the operating profit and the revenue revised downward. EV and the semiconductor recovery are delayed. That is the reason. Marginal profit margin, marginal profit ratio against the revenue drop by 30 billion yen, operating profit drop was limited to 3 billion, therefore, The balance seems to be optimistic between the two. So, could you please explain this situation? First of all, AGL, from the first half to the second half, there was some shift. At this point, in Latin America, businesses are struggling. From the second to the third quarter, there is some shift that is our awareness. As much as possible, we would like to make a recovery within the third quarter. On the other hand, in North America or in India, in these regions, because they are a northern hemisphere, we expect more to come. We do not have any unfavorable conditions factors while the slow-moving inventories start to recover. And based on that, so comprehensively, when it comes to AGL, we are likely to achieve the initial projection. Furthermore, 145 yen, that is the forex assumption for this projection. Currently, yen is a little bit weaker than that, so I believe that this will also make a further contribution. And then on to ICT. The major factors are, as correctly pointed out by you, EV and the semiconductor. Although there is some recovery, but not much recovery than we anticipated, so that is some negative impact there incorporated. And the profit margin is off. That is what you pointed out. Well, the revenue in itself, maybe we put the numbers quite roughly, and sometimes we round the numbers, so it is not precise. It is better not to pay too much attention to the profit. It does not mean that you made a significant change to Forex assumptions. That is why I thought something is off. However, you more precisely calculate a core operating profit. That is why you ended up this result. Am I correct? Yes. An agro-life solution. Regarding the sale status of new products, is there any delay or are there any new products that are sold earlier than scheduled? Well, there is no major delay. That is our current understanding. Thank you very much. Fully understood. Thank you very much.

Thank you very much, Mr. Yamada. The next question. It's from SMBC NICO Securities. Mr. Miyamoto. Thank you. I'm Miyamoto from SMBC NICO Securities. I also have a question about agro and life solutions. As a business environment, you have a cloud mark. So what's the current situation? What is the situation of the inventory? There are differences from product to product. So could you explain a little more about it? And in addition, price competition continues. And in terms of price variance, there were improvements of profit margin of foreign crop protection chemicals. So it seems that, could you explain the price trend and buy a rational in different sales situation? Could you talk a little more about it? Yes, thank you for your question. For AGL, in the first half, In Latin America, the situation was a little worse than what we had assumed. For our distribution inventory, compared to the previous year, there are improvements, but still the level is high. And generic products competition is still expected. For rapid issue in Argentina, still we will continue to emphasize expansion of sales. And in different In Brazil, it is the second season. So we will also need to expand sales of this large-scale insecticide. So we want to recover from the first half towards the second half. And the other regions, in the United States, it is improving quite a lot, I believe. And of course, competition with generic products exists, but as North America in general, there's improvement in the desire of our customers to accept our product. North America is a place that is just starting, so we will keep watching. And in India, India as well, there is a question of the distribution inventory, but there are improvements seen, not only North America, but also in India. I think we can look forward to the situation in India by watching with care. We hope we will achieve our target at the beginning of the fiscal year. Thank you very much. About the price variance in Latin America, there's still a drop in price, and it's getting higher in other regions. That is a general image. And how about the situation the places which price is getting higher. Price itself, rather than higher prices in the price variance, that is a pick of war with cost. So including the cost, the improvements in some places, that is the meaning here. I understand. And on page 29, In Latin America, there was sales, and some carried forward in Japan, but impacting Latin America is bigger. Yes, in Japan, currently, including the price of rice, prices are getting higher in Japan. The customers, the farmers, have quite a strong desire to purchase through their advanced sales. In Central and South America, the market is larger, so still the impact remains. I understand. Thank you very much.

Mr. Miyamoto, thank you very much. Now we would like to go on to the next question. Diverse Securities, Umebayashi-san, please. Thank you very much. I am Umebayashi from Diver Securities. I would like to ask you some questions on ICT and mobility solution from the first quarter to the second quarter. The revenue is approximately 8 billion, so therefore it is a significant increase, but the profit, 4 billion yen drop. So there was a gains and sells of the business in the first quarter. I understand that. But excluding that, although the revenue increase is significant, however, the profit was almost flat. So what is the reason for that? And especially in the industry, smartphone in North America is a strong industry. And in the second half, you mentioned that you might be a little bit conservative. Why is it that the situation is deteriorating to this extent? Could you elaborate on that? Well, let me see. ICTM, in comparison with previous year, Currently, yen is stronger. That is our assumption. So, this is the segment most affected by the forex fluctuation. Another factor is the impacts of TALIF. So, at the beginning of the year, we told you that, in total, 10 billion yen of impacts will be felt from TALIF. we start to feel that impact now. Throughout the year, this is likely to be within the scope of our projection at the beginning of the year. So the reason for a drop this time is, as I explained earlier, EV as well as mobility. These are the major reasons. Especially compared to our initial expectation, there are some changes from the semiconductor situation, therefore they are separately incorporated. Separator of EV feel the impacts. So please understand it in that way. Thank you very much. Between the first quarter and the second quarter, revenue increased. However, the profits dropped. Well, the profits dropped because in the first quarter there was gains on but it did not occur in the second quarter. However, between the first quarter and the second quarter, what was the major change in the mobile business? What was the major change for the polarizing film between the first quarter and the second quarter? Well, there is an impact of the gain zone cells which did occur in the first quarter. So, that may have an impact on profit. The display. was performing quite well last year, so there was some rebound from the previous year. So there are some irregular elements incorporated here. So please do understand in that manner. Understood. Thank you very much.

Thank you very much, Mr. Umibayashi. The next question is for Nomura Securities, Mr. Okazaki. Thank you. I'm Okazaki from Nomura Securities. For core operating income, a question for confirmation. Essential green materials, you made upward revision, but in terms of fundamentals, compared to six months ago, is it right to say that there are no major changes? What is Your view about Warburg and Singapore and other places, as was included in previous questions, for the first half to second half losses, core operating loss tends to increase. What is the item for that? This year, I understand there's not so much difference between first half and second half in terms of sales of business. Could you explain that? Yes, thank you. For essential, in terms of a weathermark, I explained, basically, from the beginning of the year until now, there are no changes. So Singapore, for example, for PCS, We are studying the possibilities of optimization in TPC, MMA. In particular for MMA, restructurings and other rationalizations took place. And on top of that, high profitability items, high value-added items of air that we plan to shift to maintain the profit. So that is a policy change. As for the environment, we have not changed our view. And for other areas, comparing first and the second half, in the second half, for example, this is a matter of how we spend our expenses. For R&D expenses, tends to be concentrated in the second half. That is a trend that we see. So that is also included. I understand. Thank you very much.

Mr. Okazaki, thank you very much. Now we are getting closer to the ending time. So now we would like to take the final question. VOVA Securities, Enomoto-san, please. I have a question on net income. Looking at the plan for the second half, there is a significant gap from the operating profit to net income. Various items are included in the operating profit. Why is it that the net income is so compressed in the second half of the year? Thank you very much for your question. Throughout the year, non-recurring items, at which timing they will be recorded, that also have an impact. Five billion was the only one that was generated in the first half. However, There are several structural reform related expenditures that will be occurring, which will be around 25 billion throughout the year, so the remaining portion will incur in the second half. And regarding the financial profit, It will be skewed toward the second half of the year. That is our view. This is due to Forex. This is the current view. It is currently at 150 yen, but based on the assumption of the yen is stronger to 155 yen, then the forex loss may occur. And talking about the tax, as I mentioned earlier, semi-domo pharma, Deferred tax liability reversal gain was observed in the first half. This is an extraordinary item in the first half. So this will not appear in the second half. So there are several factors, and therefore, the loss will incur in the second half of the year. So that is my explanation. The forex loss. What is your projection of that for the second half? Not so much, but our assumption is that the Forex is 145 yen. Thank you very much. Enomoto-san, thank you very much.

This concludes the Q&A session. Lastly, Mr. Sasaki will give the final greetings. Thank you very much for attending today. This fiscal year is the first year of our medium-term plan. And within the medium-term plan, we have set targets. So to achieve the target, we will do our best. So we hope we can continue to have your support. Thank you very much for your participation today. This concludes today's conference call. Thank you very much for your participation.