Sumitomo Chem Unsp/Adr

To start, we will now begin the conference call for the presentation of financial results for fiscal year 2025, the third quarter. Thank you very much for your participation. Today, Mr. Yamauchi, executive officer and general manager of accounting department, will give a briefing, and later, we will have a Q&A session. We will conclude the call at around 1650. Now, Mr. Yamauchi, over to you. Thank you very much. This is Yamauchi speaking. Thank you very much for attending the Sumitomo Chemical Conference call despite your busy schedule. I'd like to thank investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now, let me start with a briefing of our financial results for fiscal year 2025, third quarter. Before explaining the details of our financial results, I would like to give a brief update on the status of profit and loss for the third quarter. Core operating income and net income attributable to owners of a parent for the third quarter significantly increased compared to the same period of the previous fiscal year. Cooperating income was driven by similar farmers' strong sales, and partial divestiture of the Asian business recorded their gains. Corporate income of essential green materials increased significantly year on year with a gain of a partial sale of shares in petro-rabic and better trade terms. Agro and life solutions, crop production, chemical business had solid performance. Net income attributed by the owners of a parent already exceeded the third quarter. The forecast announced in November However, we anticipate that a record of losses from non-recurring items will be concentrated in the fourth quarter. Consolidated financial results of the third quarter of FY2025. Sales revenue was 1,706.3 billion yen, down 198.5 billion yen year-on-year. Core operating income expressing recurring earnings power was 186.8 billion yen, up 126.8 billion yen year on year. Non-recurring items not included in core operating income was a loss in total of 6.4 billion yen. In the same period of a previous year, there was the impact of recognizing our interest in Pedro Rabich's debt forgiveness gain of 86 billion yen as a non-recurring item, leading to a profit of 85.4 billion yen. So compared to previous year, this has worsened by 91.8 billion yen. As a result, operating income was 180.4 billion yen, up 35 billion yen year on year. Finance income was a loss of 36 billion yen, improvement of 69.3 billion yen compared to the same period of previous year, when loss on that waiver for PetroRabic was recognized. Gain or loss on foreign currency transactions, including the finance income or expenses, was a loss of 7.7 billion yen. Income tax expenses was a loss of 300 million yen, increase of tax burden of 900 million yen year on year. Net income or loss attributable to non-controlling interests was a loss of 56.80 billion yen, worsening by 44.7 billion yen year on year with improvement of Sumitomo Pharma's income. As a result, Net income attributable to owners of a parent for the third quarter was a profit of 87.4 billion yen, up 58.8 billion yen year-on-year. Exchange rate and NAFSA price which impact our performance. Average U.S. dollar rate during the term was 148.7 billion yen to a dollar, and NAFSA price was 65,000 yen per kilometer. feedstock price declined compared to the same period of the previous year. Next, sales revenue by reporting segment. Please look at page 6. Total sales revenue was down 198.5 billion yen year-on-year. By segment, sales revenue decreased in all segments except As for year-on-year changes of sales revenue by factor, sales price decreased by 49.5 billion yen, volume decreased by 191 billion yen. Foreign exchange transaction variance of foreign subsidiaries sales revenue decreased by 28 billion yen. However, the large negative difference in volume is largely due to business restructuring efforts, such as the sale of subsidiaries and business withdrawals. And decrease in shipment volume at our sole subsidiary due to a periodic plant maintenance carried out by Petro-Arabic this fiscal year. Next is page seven. Total core operating income increased by $126.8 billion Analyzing by factor, price was plus 6 billion yen, cost plus 3.5 billion yen, volume of variance including changes in equity in earnings of affiliates was plus 117.3 billion yen. I will explain the details on the following pages. But a significant increase in volume of Next is performance by segment. Please turn to page eight. Agro and Life Solutions. Corroborated income was a profit of 28.1 billion yen up 8.6 billion yen year on year. Price variance. Trade terms improved for overseas crop protection products.

Volume variance.

There were strong shipments in Japan, India, and other regions, but income declined from exports due to stronger yen, and there was stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Please turn to the next page. ICT and mobility solutions. Core operating income was a profit of 46.5 billion yen, down 13.2 billion yen year on year. Price variance, selling prices of display-related materials declined. Volume variance, though there was a gain on the sale of large LCD polarizing film with business, shipments of display-related materials decreased. Shipments of semiconductor processing materials such as resists and high purity chemicals increased due to the continued gradual recovery of the semiconductor market. There was lower income from exports due to stronger yen and the stronger yen's effect on the sales of subsidiaries outside Japan when converted into yen. Next page. Advanced medical solution segment. Cooperative income was a gain of 300 million yen down 900 million yen year-on-year. Sales at affiliated companies decreased. Please turn to the next page.

For the essential and grain material segment, core operating income was 19.8 billion yen, an improvement of 64.1 billion yen year-on-year. As for the price variance, The profit margin for synthetic resins improved alongside the decline in primary raw material NAFSA prices, and the profit margin for alumina also improved. Regarding the volume and other variances, we recorded a gain on the sale of a portion of our equity in Petrorabic Equity Method Investee Company. In addition, refining margins improved. at that company, leading to an improvement in profitability in investments accounted for using the equity method. Please go to the next page. For the Semitomo Pharma segment, core operating income was 111.2 billion yen, up by 86.9 billion yen year-on-year. As for the price difference, due to the impact of NHI drug price revisions within Japan, the selling price fell. Cost differences resulted in a decrease in SG&A due to progress in rationalization and others. Regarding the volume and other variances, in addition to the increased sales of Orgovix, a treatment for advanced prostate cancer, and Gemtesa, a treatment for overactive bladder, gains from the partial transfer of equity in the Asia business are included. This concludes the overview of bi-segment performance. Next page will be the explanation of the consolidated statement of financial position. Total assets at the end of December 2025 totaled 3,510.4 billion yen, up by 70.6 billion yen compared to the previous fiscal year end. Growth in inventory assets due to periodic plant maintenance at the Chiba plant and increased buildup for sales in the fourth quarter and beyond along with the acquisition of tangible fixed assets for new plant construction and expansions were the primary factors driving the increase. Interest-bearing debt was 1,221.5 billion yen, down by 64.6 billion yen compared to the end of the previous fiscal year. As a result, the DE ratio at the end of December 2025 improved by 0.23 times from 1.2 times at the end of March 2025, reaching 0.96 times. Next, I will explain the cash flow. Please look at page 14. Operating cash flows from operating activities was positive at 111.6 billion yen. However, cash inflows decreased by 29.1 billion yen year on year. Quarterly income before taxes improved. However, this was influenced by factors such as the deduction of gains from business divestitures, from operating cash flow, and the significant improvement in working capital last year and based on immediate term concentrated measures to improve business performance. Cash flow from investing activities was negative 39.8 billion yen, a decrease of 96.6 billion yen year on year. This period also had the sale of part of Sumitomo Farmer's Asian operations. However, the same quarter last year included significant income from the sales of Sumitomo Farmer's Shells and Roivant and the sale of Sumitomo Bakelite shares. As a result, free cash flow was positive 71.8 billion yen a deterioration of 125.7 billion yen compared to the positive 197.5 billion yen recorded last third quarter. Cash flow from financing activities resulted in a negative 100.6 billion yen due to factors such as loan repayments and dividend payments. This represents a decrease of 41.1 billion yen in outflows year-on-year. Next, I will explain the outlook for fiscal year 2025. Please go to page 16. I will explain from the business environment surrounding our company. Regarding the economic conditions, although investments in the field of technology are firmly supporting the global economy, future prospects remain uncertain due to the expansion of protectionism increased geopolitical risks. In the main business environment, we use weather symbols to indicate our key business areas and our assessment of their respective environments. From the top, regarding crop protection chemicals, we expect price competition to continue and inventory concession in the distribution chain remains uneven across regions. Regarding the methionine market price, Although it recovered in the first half of the fiscal year, we anticipate a continued downward trend in the second half. Displays are showing steady growth in mobile-related components. Demand for silicon semiconductors has recovered more than anticipated since our previous forecast and is currently showing steady growth. However, Performance continues to vary across different fields. The petrochemical and raw materials market will continue to have low margins. That concludes the business environment overview. Now let me explain the consolidated performance summary. Please turn to page 17. This is the summary of financial forecast for fiscal year 2025. Core operating income for fiscal year 2025 is forecasted at 200 billion yen, showing improvement over time with an expected increase of 15 billion yen compared to the November performance forecast. As shown in the graph in blue, excluding gains on the divestment of business, profits from business activities improved significantly at semi-thermal pharma and ancestral grain materials due to the results of fundamental structure reforms resulting in a significant increase in profits from approximately 80 billion yen in the previous fiscal year to approximately 120 billion yen in the current fiscal year. So it has largely increased. Furthermore, And as for the profits attributable to a parent, it has increased by 1.5 billion to 55 billion yen. Furthermore, in light of the upward revision, due to improved profit and loss, the year-end dividend per share to shareholders will be increased by 1.5 yen from the 6 yen announced in the November financial forecast to 7.5 yen per share. As a result, the annual dividend amount will increase by 4.5 yen from the previous year's 9 yen to 13.5 yen. The payout ratio is expected to be approximately 40%. Please go to page 18. This is showing the details of the business performance forecast. First, sales revenue is forecasted at 2.3 trillion yen, up by 10 billion yen from the previous forecast. As for the core operating income, as mentioned before, it is forecasted at 200 billion yen. Net income attributable to owners of the parents, as mentioned before, will be 55 billion yen, an increase of 10 billion yen year-on-year. The assumptions regarding exchange rates and NAFSA prices are as stated on this slide. As for the sales revenue, we expect an increase due to higher shipments of semiconductor processing materials within our ICT and mobility solutions segment. As for core operating income, I will explain the situation by segment on the next slide. Please go to page 19. As for the full-year business performance by segment, regarding agro and live solutions, advanced medical solutions, essential and green materials, and Sumitomo Pharma segments, These four segments, as you can see here, the previously announced guidance remains unchanged. As for ICT and mobility, semiconductor processing material shipments are expected to increase, leading to a slight increase in profit compared to the previously announced guidance by 2 billion yen. For others, and company-wide expenses. Compared to the previous forecast, we are expecting a 13 billion yen increase. At the time we made an announcement last time, we considered the uncertainty in the business environment, so we have incorporated risks to a certain extent. The business activities are now progressing steadily. Therefore, we are forecasting an increase in profit compared to the previously announced forecast. This concludes my explanation of financial results and forecasts. I would now like to take questions from the participants. Thank you.

Thank you very much. Now, I would like to take your questions. Now, I would like to receive the first question. From Morgan Stanley, MEFG Securities, Mr. Watabe. Thank you, Watabe, from Morgan Stanley. Thank you for the presentation. For AgriLife Solutions, I have a question. In the third quarter, there were profits. And sales was not that large, but why was there profit in the third quarter? And there are differences by region. And what is the situation of inventory adjustment and the movement towards fourth quarter and by main products? What is the trend in the fourth quarter forecast compared to last year's fourth quarter? You expect a reduction in profit? Could you tell me about AgriLife Solutions? Thank you for your question. for agro and life solutions sector, first in the third quarter situation. Compared to last year, it is true that it is better, and by region, India and also in Japan, Things were very solid. And Europe as well. The amount is not that large, but Europe was also firm. And in North America, compared to the same period the previous year, it is at a similar level. South America, it is slightly difficult. Last year there was a drought. which is giving an impact, and credit concerns about the clients exist, so there are difficulties in increasing sales. Customers with high credit worthiness, in this case, competition is becoming strong. And byproduct, Well, in that sense, the main product in Japan, South America is a main market, but growth is a little slow. Sales and profit trend. Sales are not increasing that much, but profit is In the same quarter of the previous year, compared to the previous quarter of the previous year, the impact of foreign exchange rate is seen in each region. There may be increases in local currency, but when converted into yen, there are cases which is flat or slightly declining. I think that is the impact. What is the progress of inventory adjustment from crop protection products? What is your prospect for the next fiscal year? For inventory, in general, it is moving to an improvement direction. United States and India, we are seeing improvements, but in South America, there is still some inventory remaining. So towards the next fiscal year, South America is the place where we have to resolve. Thank you very much.

Thank you. Mr. Watabe, thank you very much. We would like to take the next question. Mitsuho Securities. Mr. Yamada, please go ahead. This is Yamada from Missile Securities. Thank you very much for your explanation. I was told to ask you one question, so I'd like to hear about the third or quarter situation outlook regarding the ICT and mobility solutions in the same way as the previous question related to agro and life solutions. I would like to know the details. Specifically, three months in third quarter, when you are doing analysis of the variances of core operating income, in three months, it was minus five. And in the nine months, it was minus 3.7 billion. So year on year, it's a plus 1.3 billion is what I think. For display-related products, the shipment has declined. And thinking about the foreign exchange being negative, that means that the semiconductor was performing strongly. And so in semiconductor, does it resist a good performer or an other's good, or does it resist the contributor? And if so, as the RAM and NAND, the high prices are maintaining. So I would like to know the future trend of this. Thank you very much for your question. The ICT and mobility solution situation for the third quarter is what you have asked. Looking at the year-on-year basis, just a moment, please. Regarding semiconductors, from last year, gradually, it is recovering. And by fields, memory-related area, the DRAM utilization is increasing and NAND is recovering. However, depending on the customer, it varies. For DRAM, due to the generation change, The South Korean usage is declining. For logic usage, Taiwan and China, new plants are starting their operation and increasing, so our shipment volume is on the trend of increasing. However, on the other hand, South Korea and United States,

Well, the resist specifically, is there such factors?

With memory, it's going to change the generation. However, the U.S. capital part is increasing very well for resist.

For resist, this is the overall situation.

Compared to last year, the sales is increasing. And this time, you have revised upward. So that situation, from the third quarter to the fourth quarter. It is a quarter that usually declines, but it's not going to be that way. Is that the correct understanding? Yes. I have high expectations. Looking forward to it. Thank you.

Thank you very much, Mr. Yamada. Now, the next question from SMBC Nuclear Securities, Mr. Miyamoto. Thank you. I'm Miyamoto from SMBC Nuclear Securities. Thank you very much. I also had a question about agro and life solutions. This may be like Mr. Watate's question. In the third quarter, there was an increase of 11.5 billion yen in terms of profit. In the fourth quarter, you expect a decline compared to the previous year. The same quarter, May 7, is showing a declining trend. but there were shipments carried forward. So could you tell me what is the impact, in particular in Q3? As what Adesan mentioned, sales trend is showing a difference. Sales is a segment. In Q3, year-on-year is a drop of about 4 billion, but profit has increased. So when I see your analysis by sector, looking at the volume variance, in the first half, it's minus 3.9. So for three months, volume variance is a factor of 12 billion increase in profit. But on page 23, analogies of sales differences, volume variance, And the first half was minus 4 billion, but now it's minus 8.4. So minus 4.4 in three months. So the sales volume variance is quite a negative, but profit is positive. Could you explain a little more about it? I think the foreign exchange rate has not changed that much. Please give me a minute. Yes, thank you for waiting. With regards to the relationship with sales, methionine volume is declining, so as sales, there's a drop. However, this is not giving a big impact on profit or losses, but for crop protection chemicals, India is doing well in Japan also. in particular in Japan. From Q4, sales carried forward. In other words, there's a trend of customers placing orders in advance. So Q3 has improved. That's a factor for the improvement of Q3. I see. On page 27, the sales that you have indicated, protection, it is slight, and for Q3, eight months, there's increase about two billion, but one variance has increased that much. Why is it so? Page 27, I see. This is indicated in yen, but if you look At the figures in dollars, it may look different. First, United States, 2.6 billion, negative. But in local currency, it is nearly flat. And India, it is slightly negative. But in local currency, there is an increase. So these are some of the factors. For sales and profit, there is no particular major factors. I understand. Thank you. In the fourth quarter, you expect a declining profit year on year. Could you explain that? because the shipments were carried forward for crop protection products, and the sales price is showing a declining trend, so that is taken into consideration. Understand? Thank you very much.

Mr. Miyamoto, thank you very much. Next, from Daiwa Securities, Mr. Umemayashi, please go ahead. Thank you very much. This is from Daiwa Securities. I would like to ask a question regarding essential and green materials. From the second quarter to the third quarter, the trench, the profit and loss has improved by 51 billion yen. And that is due to the share sales. But other than that, if there are any factors I would like to know. First of all, as a confirmation, so Robbie, the profit you made from the equity method is at 37.5% or 15% as of the third quarter. I wanted to confirm that. And also, the third quarters and special and greens, the sales revenue has increased as well. So I would like to know the background of that. I think the fact is that the business performance is doing well. Did the margin improve or did the petrochemical product sales improve? And also, the fourth quarter, I believe that there is going to be a periodic plant maintenance. So was there a buildup of the inventory due to that or not is what I would like to know. Thank you very much for your question. Regarding the third quarter's essentials and green materials, As you have pointed out correctly, over here, the PetroRabic's equity sales is included. When we made the timely disclosure in November, it was $50 billion, and the number that's close to that is incorporated in this. And other than that, there are improvements that were made for PetroRabic Well, over here, up to the third quarter, it was 37.5%. Our interest was that. And we have applied the equity method. And from the fourth quarter, it is going to become 15%. And regarding the refining margin, improvement also occurred. So this area has improved as well. And in Singapore as well, TPC... Due to the improvement of the profit margin, the profit and loss situation has also improved. Thank you very much. So for the sales part, it was Singapore that was doing well in terms of the sales improvement. Just a moment, please. Well, the products from Robbie, the sales of those, That compared to the first quarter and the second quarter, the third quarter is showing a larger growth. And from April to June, it has experienced a periodic shutdown for maintenance, and probably to the second quarter, that impact remained. But from the third quarter, it returned to the regular sales, and the fourth quarter, for the Arabic manufactured products. We are looking at it the same way, and that is reflected in the changes. And the impact to the profit is minor. So these are the factors, is what we think. Okay, understood very well. Thank you very much.

Thank you very much, Mr. Umepayashi. Next. I'd like to receive Mr. Okazaki from Nomura Securities. Thank you. I'm Okazaki from Nomura Securities. Thank you. About the dividend, I'd like to ask a question. As you have mentioned, this time you're going to increase the dividend. The annual dividend payout ratio is now about 40%. I think you mentioned the 30% before. The final profit figures may differ, so is that the meaning as a background? And 7.5 p.m. for the interim period. And next year, depending on the farmer's milestone, there may be other factors, but basically you will continue or it will be rather positive. We are gradually becoming confident. Is this understanding correct about the dividend payment? Thank you for your question. For dividends, as you mentioned, basically our dividend policy is stable dividend and with relations to profit, in general, about 30%. At the moment, the profit for this year, we made an upward revision to 55 billion. It is still in the process of recovery. So in terms of dividend payout ratio, a stable minimum dividend payment is going to be made, that is our feeling, so instead of 30%, it is now 40%. And compared to our initial plan, profit has increased. And about, we will consider continuing in the future and take into consideration we decided to have this amount of dividend. So this is a minimum level, more than 38.7. You have not yet determined what will be the performance next year, but depending on the situation, there may be other factors, but among those, 7.5 yen. At the moment, it's a month that you want to keep. Is my understanding correct? Yes, you are right. That is all. Thank you very much.

Mr. Okazaki, thank you very much. Next, from Morgan Stanley, MUFG of Securities. Mr. Watabe, please go ahead. This is my second time. Regarding essential and green materials. at the flash report it says that the business transfer gain is 55.8 billion and uh it was consisted by rabic and others but if you exclude that it is in the red and the fourth a quarter periodic maintenance shutdown when we talk about the refining margin right now i think uh the petrol route big performance is uh improving as well and there's a business integrations moving forward but What is the impact of that, and what are you looking at towards the overall essential and green materials? Thank you very much for the divestment gain. And the flash report, it says $55.8 billion. Yes. Up to the third quarter, cumulative figure. Central Arabic... Other than Petro-Arabic, we have divested several companies, Nippon A&L, which is already disclosed, including that in total is $55.8 billion. And towards the turning around into Black Ink, regarding Petro-Arabic, it's difficult to share with you what's going to happen in the future. But for the refining margin, and probably all of you can assume what the situation is going to be, and I think you can assume in that way. And how it can turn around to profit-making, we're in the midst. of setting the budget for next fiscal year, so I would like to refrain from commenting. So the fourth quarter non-recorded loss concentrating, it's mainly in essentials and green materials, is that correct? Including essential as well. To a certain extent, there are planned items for some restructuring. But there are some items that we are aware of, such as impairment, but we are looking at it to that extent. So is there a thing that is going to work positive in the next fiscal year, such as a decline in depreciation? Yes, that's how we are understanding it. However, at this point, it's difficult to give you the full answer. Understood. Thank you.

Thank you very much, Mr. Watabe. Well, it is time to conclude, so the next question will be the last question. Yamada-san from Mizuho Securities. Thank you. I'm Yamada from Missouri Securities. Thank you. This is a detailed point. Under others, this time, though there is an upward revision, for Q4, you expect some level of negative figures. So these are corporate expenses, so it is possible that that will surface on Q4 and things will become more transparent. So 20 to 25 billion corporate costs could be expected from next year onwards. What is the trend of that? Could you tell me that? Thank you. Under Corporate expenses, as you know, the corporate expenses, in particular R&D expenses, are included here. And recently here, regenerative cell research is still under development. So the progress of research expenses is very difficult to make a projection So these are also included. So we don't expect the large to drop next year, but we expect to maintain a certain level in terms of these expenses. About more than 10 billion R&D will be spent for regenerative cells. And then that the surfer said in a specific quarter like this, yes, that is what it is. Yes, thank you very much.

Mr. Yamada, thank you very much. With this, I would like to conclude today's conference call. Thank you very much for your participation today. Thank you very much.