Sumitomo Chem Unsp/Adr

As it is now the scheduled time, we will begin. My name is Yamauchi, and I will be serving as today's moderator. We appreciate your taking the time out of your busy schedule to attend our investors' meeting for FY 2025 financial results, management priorities, and business strategies. Today's session will begin with a presentation by our president, Mito, followed by a Q&A session, and we are scheduled to conclude at 5.45 p.m. With that, Mr. Ito, the floor is yours.

I'd like to start the investors' meeting for FI 2025 financial results, management priorities, and business strategies. Thank you very much for attending despite your very busy schedule. Let me start. This is the agenda for today. And here is the summary for today. First, the FI 2025 results. We had very strong results. Even looking at underlying results, stripping out our gains and business dispositions, we had good results. And for guidance for FY2036 underlying business performance, call for solid growth in earnings power. And the driver for that is, number one, agro and life solutions. And another is ICT and mobility solutions. For AGL, this time in the U.S., two companies were integrated to build a new company and centralize that company by rational business will be further expanded. For ICPM, in terms of figures, it is a little slow, but with strategic upfront investments and entering new materials markets will strengthen the foundation to support future earnings growth. In particular, the rapid shift to AI in the society and to respond to that, we will steadily expand our business. We are starting to establish an organization capable of doing that. As for the reconstruction of a PNP business, we will clear our challenges and lead to strengthening of essential business. In particular, for essential business, the conventional type of business will be strengthened and at the same time, the business model of a licensed and catalyst business, that is our IP assets, will be used. We will shift to that model. And for investment discipline, we have been with repeatedly being mentioned that this is an important issue. So we implement measures through rigorous investment discipline and also focus allocation into strategic capital and also strengthen our organization. And by implementing those measures, we will improve the capital efficiency and we'll coordinate efforts across business and corporate divisions to enhance enterprise value. So this is a summary of what I'm going to discuss today. Next page. First, the financial results. Sales revenue was $2,328,000,000, reduction of about $278,000,000. For P&P ICT business, because of the diversity of these businesses, core operating income was $208.4 billion, an increase of $68 billion net income. up 22.4 billion to 60.9 billion, and ROE, ROIC, both 6.4% and 5.6% respectively. In February this year, we revised upwards our forecast, and it is further higher compared to the results of 2024. We are seeing a great improvement. This breakdown by sector, corporate income by sector, Agro and Life Solutions is at a similar level as the previous year. There's a slight increase compared to the previous year. It is even higher compared to the forecast for February. For ICTM, there is a large reduction compared to the previous year. The factors, there are two factors. One is in 2025, early 2025, because of the Trump tariff, there was quite a lot of sales carried in advance in 2024, about 10 billion yen in terms of co-operating income. Another point is the recent AI semiconductor boom. So general purpose semiconductors are in shortage So shipments into the low and the middle and the smartphones declined, and together with that, there was a decline of shipments of our display materials. So from these factors, this led to a decline compared to previous year. Essential green materials, major factor is the sale of petro-arabic shares, leading to a large increase in income. One highlight This year is symptom of farmers' performance. Disposition of Asian business, 49 billions included, and there was expanded sales of the three key products leading to a large increase in income. So in total, cooperating income, 208.4 billion yen, up 67.9 billion yen. Before talking about the forecast for 2036, let me talk about the current Middle East situation. For raw materials procurement, the whole company is working hard towards stable supply. In general, we are able to have visibility of requirements up to June, and for others, we are We have a variety of products, so there are risks here and there, but we're able to secure requirements for the current production plan. For utilization trends, Japan PNP, environment of all materials procurement, inventory situation, considering that operations are continued. For Singapore, unfortunately, in March of this year, fourth major declaration was made there's a potential separate constraint, so we are closely monitoring the impact. And for others, of course, there are risks, but at the moment, there are no major impediments of operations. So, from an overall perspective, for raw material procurement, it is settling down, and in terms of procurement, risk is gradually declining, but rather, price is getting higher, so how are we going to respond and absorb the price hike through our own efforts of rationalization and efficiencies, and if it's not possible to absorb through those efforts, we we would like to consult with our clients about reflecting the cost height. So it's now at the phase of higher prices for raw materials, but for demand, we have not seen at the moment any major decline in demand because of rising prices. This is the forecast for 2026 sales revenue Increase of 31.5 billion to 2,360 billion. Co-operating income up 6.60 billion is expected. On the underlying performance basis, it's a large increase. I will explain about it in the following slides. And net income up 9.1 billion. And with that, are we 6.8%. including the 0.4 percentage points, and ROIC down 0.1 percentage points. Symptom of farmers increasing capital, so denominator slightly increased. Compared to 2025, ROIC is slightly lower. This is the forecast for 2026 by sector. Agro and life solutions, 8.7 billion increase is forecasted. Over the hand for ICTM, as I mentioned earlier, semiconductor shortage is a factor leading to reduction of shipments of display materials and fixed costs, in particular in semiconductor sector, there were There's impact of investments made advance, but we expect increase in shipments of semiconductor materials. Essential green materials, 5.6 billion increase is expected. At the moment, the refinery margin of petro-rabi has greatly improved, which is included in these results. For semi-tomopharma, compared to the previous year, it is a reduction of 14.4 billion. As you know, in 2025, there is 49 billion yen from a disposition of Asia business, excluding that this is a large increase. So in total, 215 billion cooperating income is forecasted. Next page.

And this is showing our 24, 25, 26 core income on underlying performance basis and how they've transitioned. If you look at the 2025 actual, the underlying performance compared to the previous year, we had an increase by 50 billion yen. And also for 2026, we are not expecting capital gains on business dispositions, so the forecast is an increase of 80 billion yen in income. So on the underlying performance basis, this is going to be a significant increase in income that we hope to achieve. Next, please. And in line with this, our financial standing has significantly improved. If you look at the DE ratio in 2023, it was 1.3, but at the end of 2025, it became in the range of 0.9. And furthermore, the capital increase of Sumitomo Pharma also contributed to the DE ratio decreasing to 0.8. So financial standing has seen much improvement. Next, please. And this here, based on the results I've covered so far, This is for FY2026 dividend forecast. We forecast an increase in the annual dividend to 16 yen per share. However, having said that, we do not believe this to be at the appropriate level. So in the future, we hope to achieve an annual dividend of 24 yen per share at an early stage in the future. Next, please. And from here, I will go into sector strategies. Next, please. But before I go into this topic, I would like to cover the status of our business portfolio. Back in fiscal 2017, we had a core operating income of 262.7 billion yen. The growth drivers that we've identified We had health, agriculture, and information electronics. They did not account for 30% of the total of the income. They were less than 30%. Most of the income came from the P&P business. However, if we look at the portfolio today, almost 60% of the cooperating income came from Agro and Life and ICTM. for FY2026 or that is a forecast. So income coming from a PNP has been reduced significantly. And for others, pharmaceuticals or related businesses, if you look at the breakdown, If you look at the profit structure, we have advanced semiconductors and life sciences accounting for much of the earnings of semi-thermochemical as of today. Going forward, we will concentrate our investments into the growth drivers so that we can further advance our business portfolio. Next, please. And first, I will cover the agro and life solution sector and its strategies. I've had several occasions to talk about the strategies, but for the crop protection chemicals, we are confident in our ability for a drug discovery. So from 2024 to 2027, 2020, 2020 to 2024, there were 35 new active ingredients launched to the market. Five of them came from our company, and three of the five are expected to become blockbusters. For Rapidofil and Pavecto, we will fully start to register these going forward. So at present, we will focus on how to expand the indifilin sales. Next, please. And when it comes to indifilin, as was announced before, in the Central and South Americas, this is used for the rust disease for soybeans, used as a fungicide. When we first developed this product, it was a single market, still had a scale of 300 billion, so it was a very attractive and large market. Since then, the market has further expanded And in 2029, it is expected to become 4 billion or 600 billion yen in size. Therefore, this is a highly attractive market for us. So the market that we are addressing is expanding, but at the same time, competition is becoming more intense, intensified. On the other hand, in gasoline has a high performance compared to competitive products. by further promoting the uniqueness and characteristics of this product, we can further grow our sales in this massive market. And if we look at the surrounding areas, for example, in Paraguay, their soybean farming practices are similar to that of Brazil. They are also struggling with the rust disease. we have established a local entity called Sumica Paraguay, so that we will also promote the sales expansion in the neighboring countries. And also, the major target indication is for soybean rust, but this endophylline has an effect on various other efficacies. So as you see in this graph, various countries and targeting various crops, we will continue to expand our indications so that sales will further grow in areas besides soybean. Next, please. And next, on biorationals. Conventionally, we had VBS that focused on biorationals and MGK, they mostly focused on botanicals or plant-derived materials. So these were the businesses that were our focus in the bio-rational area. But by consolidating the two companies, we hope to concentrate the knowledge and experience into this new organization and pursue synergies to further grow the business. And another aspect is that since there were two separate companies that had been operating, so by consolidating, we can also rationalize the indirect expenses we can realize a lean and efficient business operation structure that eliminates redundancies going forward. So a biorational sales currently is somewhere between 70 to 80 billion yen, but by early 2030s, we hope to double this sales size. Next, please. And in order to achieve that goal, these are the specific measures that we are considering. especially in the South America, biorationals are gaining traction and further growing. As seen here, it has increased by 2.5 times over the past five years. So we will identify, we have identified the South America as one of the focus area. And as for North America, biostimulants are gaining much attention. So the FE Sciences that we've acquired, their product lineup will be introduced in order to grow the North America business. And as for Europe, if you look at the third row on the right-hand side from the top, this shows the number of new product registration in Europe since 2018 for both biorationals and chemical crop protection. And as the graph shows, since 2020 up to 2025, there has been zero chemical crop protection registered. Finally, in 2026, there is one, herbicide registered. But what this shows is that gaining registrations in Europe has become very difficult. However, biorationals are growing its registrations year after year. So we do have capabilities, world top-class biorational capabilities. So this presents us with massive opportunities, and we will be focusing on Europe as well. And as for the portfolio, we have pipeline development for biorationals, close to 40 in the pipeline, and for botanicals as well. In the beginning, it was only the pyrethrins, but in addition to this, we are working on the launch for two more products. And not just the chemical crop protection, in the animal nutrition area, we hope to launch two products in this area, and we are currently making preparations for that. So in addition to agriculture, feed, So we hope to introduce our biorationals. Next, please. Next is ICTM.

Here also, as you know, the semiconductor market is rapidly growing, particularly AI semiconductors. are showing a exclusive expansion of the market. And with that, our semiconductors business is also steadily expanding. And going forward, development of advanced products and top level quality and mass production. Through that, we will make proactive investments to expand the business. And for that purpose, technology, production, must be further sophisticated, and we have to accelerate the global deployment. So as you can see here, in Japan, first photoresist motor site, which is Osaka, will strengthen its function. And recently, Next Generation EUV Technology Center was newly decided to be built, and for We will establish organizations for development, mass production, and analysis in an integrated manner. And for R&D, we will start operations of an advanced ARF lithography tool. As I will describe later, with that, we will accelerate the development of new products. And also, we will increase the manpower to respond to increased manpower. And for, we will establish and advance the chemical center last year, and we'll advance the cooperation development between Japan and South Korea, and also Japan, South Korea, China, in places neighboring the customers, We have established our footprint ahead of others. And recently in the U.S. as well, semiconductor foundries are increasing. And in Texas also, we have established our new location. And in the United States, in Arizona, TSMC, Intel have foundries. And as you know, Taiwan, including TSMC, is a place where accumulation of larger foundries in the west coast of the United States and in Taiwan to expand our locations there was a major issue. But as we show later, with acquisition of AUECC, we were able to realize geographic expansion. Next page. So as I have said, this slide shows The significance of acquisition of AUECC. With acquisition of AUECC, there are two significances. One is expansion of territory, and another is solution, be able to provide a broader range of solutions. Expansion of territories, as you can see on the bottom right, as I have already mentioned, Taiwan, west coast of the United States. New manufacturing plants are established and the strength of Sumitomo Chemicals is in the advanced semiconductors technology in this area, we have a top class analysis technology. And we have established a global organization so for global locations I have already introduced and for solution. Our top-class technology can also be used for our AUECC's portfolio to further strengthen technology. In our case, IPA or hydrogen peroxide, ammonia hydroxide. We have volume zone products, but AUECC has specialty sector products like hydrofluoric acids. So both portfolios getting together, it will be possible to create synergy. And with that, the current sales by 2030. We want to double the sales or even more than that. Next page. So this is photo resist sector. At This management meeting, I have described it before and it is updated. In the immersive AIF, we have a very strong position. One example was the negative type development without using solvents. Photo resist was developed, which can be used for alkaline development. and that the global top-class immersion AIF resist technology can be further developed to strengthen the business. And what means for doing that? As I introduced earlier, advanced AIF lithography tool is introduced and recently operations will start. In early 2000s, the customers used the advanced lithography tool that was used at the time. We introduced the same tool to accelerate the development and was actually able to establish our strong immersion ARS with this position. But currently, some cultural manufacturers use FlexRay advanced device, but that is different from this device that is used. The illumination condition is different, but by introducing a tool using the same illumination conditions as our customers, we want to further strengthen the immersion area with this sector. And for EUV, next generation high NA EUV, we will expand our own organic molecular molecule resistance to aim for a share of 20%. And for backend process, AI semiconductors with explosive penetration higher integration, higher performance, and bigger sizes are advancing, and panels, from wafers to panels and larger panels are being produced. In the backend process, frankly speaking, we are a newcomer, but with the changes in manufacturing platform, we take the opportunity and we will expand products that can be introduced in the backend process as we can in the blue letters, epoxy, resin ink and the relative materials of temporary bondings and glue cleaner and high purity aluminum. In these areas, we have already started mass production. So our business will be expanded in the backend process area as well. And next, advanced medical solution sector. This is important milestone was achieved. M. Shepery, a drug for Parkinson's disease obtained conditional approval in Japan. So first, after approval, Clinical studies will be conducted steadily. Clinical study will be conducted with 35 patients. After transfusion is completed, we will further increase the number of patients in phases. In the early stage of 2030s, drug is approved in the US, this will become a blockbuster product that can grow up to 100 billion in scale. Next, for other sectors, CDMO business is another area that we are looking forward to. But CDMO business that we conduct are not cases that need large investments like antibody drugs, CDMOs. With a minimum investment, we want to achieve a maximum benefit. These are the measures that we are going to implement. For example, for advanced small molecules in Japan, we already have a top position. In the future, we also want to have overseas customers, but with the current facilities that we have, sales of only about 40 billion yen can be achieved with the current production capacity. With efficient investment, we want to increase this size. We announced recently that Koei Chemical is now 100% subsidiary and use the advanced manufacturing facility as a GMP will be used. Our technology is being highly appreciated by our customers and the way the plant is in full operation. The CRO in the U.S. So we are establishing places to ask for research and provide samples so that the recognition of our company will be further enhanced. This has started in April and already utilization is nearly full. For regenerative medicine, we are frontrunners. The companies are having difficulties in earning profit, but we reached the five consecutive years of profitability. Already we have three CMCs completed, starting operations, and already the three plants. We expect full utilization by using subsidies we will begin construction of a fourth plant. After the four plants are completed in terms of sales, more than 10 billion yen of production capacity will be available. So by doing so, we want to further expand our business. For AGM, as I have said, upstream KO ethylene and downstream prime polymer integration. And Petrovic, there is improvement with refinery margin. Singapore, we will work on with restructuring steadily. And one topic, as I mentioned at the outset, in the P&P business, If there's competition of capital expenditure, it's difficult to win against China. So going forward, we will strengthen the capacity of existing business and also in the environmental related business that we have will be licensed to other companies. We will shift our model to earn profit by using our IP. Recently, this is a recent case, our hydrochloric acid oxidation technology was recently provided as a global license to BASF, and also PMMA chemical recycling and production origin from ethanol, GX-related technologies. This licensing will be accelerated and shift to a model where we can earn profit through this model. Next page. And next is transitioning management base.

As I said in the beginning, investment discipline has been a challenge for us. And as I covered this topic previously, we've thoroughly quantified various risk scenarios to consider them. And also, both from within and outside the company, we sought objective opinions. And we also implemented a decision-making that was agile. in order to determine our policies forward. So under the new management processes, one of the first largest investment case was the acquisition of the AUECC, which I've talked about before. And here we sought opinions of experts from inside and outside the company and ran a multifaceted simulation analysis so that we could have a quick and rational decision making. This led to this acquisition. And the three years under the mid-term management plan period, as for the progress in capital expenditures, loans, and investments, we will have 230 billion yen invested into growth strategic areas, and 80% of that will focus on AGL and ICTM. These are the two growth drivers. Already 70 billion yen and more of strategic investment have been made so into agro and life solutions, AGL and ICPM, covering 75% of that 70 billion yen investments already made. So according to the plan, we are proceeding with more focused investments into the two growth areas. And next is the reorganization of R&D functions. So far, when it came to corporate research, we emphasized the importance of autonomy and In some cases, corporate research would work on research projects that were not necessarily aligned with the business unit research, but we've developed a roadmap for both corporate research and business unit research in an integrated manner, and by having an organization that serves as a cross-functional center, we can focus our R&D resources into areas where we can win. So that is a new structure that we have in place. Next is on DX. Since before, we've worked on DX 1.0, 2.0, and 3.0, so we've promoted this. Over the past two to three years, we've seen a rapid evolution of AI. So we have to pause and revisit our DX strategy. For us as well, internally, we have to shift our efforts into utilizing AI. I think that's at the stage where we are currently. And you see accelerate democratization of AI shown here. So the employees as well as the management, we are working to accelerate the utilization of AI. What we are currently promoting specifically is to have all the information, various types of information found internally in the company and set that into plugins so that information pieces that will help decision making will be extracted. And we are also considering the introduction of AI agents that will facilitate such information extraction. Next, in terms of DX 3.0, particularly of the services listed here, Tsunagu, this is a service provided to the agricultural sector. In the interest of time, I will not be able to cover the details, but for domestic agricultural sector, we have the potential of becoming a significant platform. So we are working on development of various applications and commercializations, and we are proceeding with the work to establish such a platform. Next, please. And as for the executive compensation, We are increasing alignment with the business performance and capital efficiency. So the variable remuneration portion will be raised from the 50% before to 60% and also introduce a coefficient for ROIC achievement. So consolidated business performance KPI multiplied by coefficient was used to calculate remuneration. We are introducing this new coefficient and multiplying that to the previous formula to calculate calculate the compensation. So that is the new change that we are introducing to the executive compensation system. And next is the parent subsidiary listing for FY2024, Shinto Paint, Sumitomo Bakelite, and Inabata. We sold all or some shares of these companies. And for FY25, and just the other day, actually yesterday, Tanaka Chemical and Koei Chemical were made into a wholly owned subsidiary or the plan was announced to make them into a wholly owned subsidiary. Tanaka Chemical has already completed that process. For the remaining companies, we will continue to study them. But the basic way of thinking is that under the group strategy through business growth and synergies, if they contribute to maximizing enterprise value, then parent subsidiary listing remains an option to be considered. Next. At the end, this is the same slide I always share. And once again, to share my results, I would like to cover this. In our company, capital efficiency still needs to be improved. much. We are still in the process, so we will work on management, conscious of capital efficiency, and enhance enterprise value over the medium to long term. Next, please. And lastly, this is a summary. In FY 2025, business performance recovered strongly, and also we made further progress in strengthening our financial standing. Of course, we are still In the process, we finally have the groundwork laid out for future growth. And if we look at the portfolio, in our case, we are already very much focused on life sciences and advanced electronic materials as core businesses. And on the other hand, we have growth drivers, agro and life solutions and ICT and mobility solutions. They are accounting for the majority of earnings. And we are also... accelerating the shift towards a portfolio led by world-class businesses such as biorationals and advanced electronic materials. And particularly the ICTM solutions and results were somewhat muted, as I said before, but particularly for the semiconductor materials business, we have strengthened our structure to meet the growing AI semiconductor demand, particularly for the back-end process materials. For the AMS, we've made steady progress in building a foundation for long-term growth. For the EGM as well, we've advanced the structural reforms, and we are shifting towards an IP and licensing-driven business model. That concludes my presentation. Thank you.

Thank you very much, Mr. Mito. Now I would like to receive your questions. So, the first question is from Morgan Stanley, MEFG Securities, Mr. Watabe. Thank you, I'm Watabe from Morgan Stanley. Thank you for the presentation and thank you for the good results. So, I would like to combine a few questions into one. First, It's one year since you became the president. How did Semitomo Chemical change performance? Financial results are getting very good, so I'd like to hear about that. And as for financial results and forecasts for this year, how did you include the impact of the Middle East? You have mentioned that it is partially included. for instance, ATL example, but what is the situation of adjustment of inventory in Brazil or what is the impact of the recent higher prices in agricultural sector? The background of the crop protection chemicals increasing profitability and net profit compared to the operating profit, bottom line seems to be low. Could you explain me that background as well? Thank you. Thank you for your question. First, one year since I became a president, how did things change? Well, after I assumed the position of the president, I have always been talking about the bottom-up, a place where everyone can speak out and exchange views. I wanted to change the workplace, a place where people are active. And this time, were able to make good recoveries in performance. It's not that there was one big factor for that. Each one, each business unit in each location, many measures, many ideas were executed and I think these are result of accumulation of those efforts. So what I aim for, a bottom-up and autonomous organization aiming for the target. So to everyone working together for that purpose, I think we're able to make one step forward to this type of organization. That is how I evaluate myself. And the situation in the Middle East. In each business sector's performance, risks are included. For example, Related to the second question of Watabe-san, in case of AGL, with a shortage of fertilizers, there may be a delayed planting by the producers, leading to reduction, and for ICTM, material costs are increasing. And So that is a risk that it may not be possible to shift everything into the price. And for EGM as well, it's a similar situation. For each risk in each business sector, the risks are included. At the moment, it's very difficult to say, but the current situation, If this continues until summer or autumn, in total cooperating income basis, there could be a negative risk of about 10 billion, and that is taken into consideration. And for AGL risk, as I have mentioned, it is true that the shortage of fertilizers is something that we are monitoring carefully. But it's very difficult to say. It is true that this may cause a delay in the plantings and that may lead to reduction of sales of crop protection chemicals. But in the case of Brazil, that is a large crop production area in the world. So will there be such a large delay in plantings? I'm not sure. I want to keep watching with care. And for net income, compared to operating income, net profit decline is larger compared to operating profit. Well, this year, we are conservative, like I say, impairment. We are looking at impairment conservatively and also at EGM, essential and green materials, structural reform is still on the way. It's the middle of the way of structural reform. So it's not that we are aggressive, but in advance, we are trying to reflect that. So as a result, net profit is 60 billion. $70 billion, right? For 2026, yes, it's $70 billion. Thank you very much.

Thank you for the question. We would like to take the next question from Missile Hold Securities. Yamada-san, please. Yes, this is Yamada of Missile Hold Securities. Can you hear me? Yes, we can. Thank you. Thank you for the presentation. Looking at the business portfolio transformation and financial standing strengthening have made much progress compared to two years ago. what you've said back then, I think I can certainly see solid progress. And in September last year, the President said that the company would be focused on areas where they can win, and so we are seeing the results in that regard. As for the business portfolio and strategies, I would like to ask further. Towards the end of the presentation, you talked about strengthening management foundation and R&D functions. I think they all make sense. They are reasonable, but in the last summary, you said that agro-life solutions at ICTM, that's where you see areas where you can win for advanced medical solutions. You've now made Koei Chemical as a subsidiary, and you will be promoting the CDMO program. So they all make sense, but is there any missing piece? Is there any area that you still need to further work on? The ICT enhancement has been made, but any other areas that's lacking today? And when you say areas where you can win, for you to win in order to input necessary resources, the other businesses that are not areas where you can win should be terminated in my personal view. So IPS, you said that's one business that you want to do back in September last year. So I don't think there's anything we can do about that. But going into clinical trials, you need massive resources. So how are you going to supply those resources or address the resource needs? And PetroRabic, improvements are made for the essential and green materials business against the ideal end state How much progress have you made? Thank you. Those are my questions. Thank you. First of all, Mr. Yamada gave us a nice summary, AGL, ICTM, and ATM. I believe you were talking about the chemicals and the small molecule in strengthening CDMOs. And I believe your question was asking whether there's any missing piece. That was the first question, as I understood. So regarding this topic, this is something I've been saying since before. For chemical synthesis, organic synthesis technologies are most leveraged in this area. And since this is the first year, so we are still working on it still midway. But since I became president, I've emphasized the importance of leveraging our strengths and focusing on this area. And we are starting to see results of our efforts. So we are moving in the right direction. So rather than seeking and acquiring areas that are missing today, we will further leverage our capabilities the organic synthesis technologies to further achieve successes in this area. And repeatedly, Yamada-san has talked about this IPS. Is this really the business that Sumitomo Chemical should be working on? I believe you've been asking us about that on multiple occasions. The one thing I can say is that, well, last time, I talked about how I'm adamant about this, but not just that. Looking at the other pharmaceutical CDMO business, I believe that there could be synergies generated with the CDMO business. For example, today, conventionally, a small molecule, medium molecule diffusion cell therapy So these are areas that we've worked on, and these are separate areas, but as modalities, they are increasingly becoming more integrated. For example, nucleic acids. We would have automatic synthesis machines and use the nucleic acids made from that to be used, but Now this different method is being used and for delivery, new conversion tools are being used. So for small molecule organic synthesis technology is very much in need, in demand for these new approaches. So a nucleic acid CDMO and small molecule CDMO are starting to see synergies being generated. For cell therapy as well, using gene editing. Basically, genetic editing is taking place and this will be used in therapy. The customers that we are targeting are also working on genome editing as well as cell therapy. We are seeing an increase in the number of customers who do both. When chemical synthesis technologies are in need, of course, we have very strong capabilities at the GPM level, a small molecule through organic synthesis. So leveraging our GMP expertise, small molecule nucleic acids and also iPS cells that could have synergies with the small molecules, we can address both areas. These are the capabilities that we have, and as a whole, as a CDMO business, I think we will be able to position ourselves in a very unique state. So the three areas of CDMO are certainly areas that we hope to continue to address. For drug discovery... This doesn't necessarily mean using organic synthesis directly. The last time when we had a conversation with you, Yamada-san, we come back to the same topic that was covered. So the origin comes from chemicals. safety evaluation by a semi-terminal chemical and we decided to use ips cells for evaluating the safety of our chemicals and that's how this business started and developed to this day so it's not necessarily organic synthesis it's not something completely an outlier business we did it's not that we do not have any technical background it's just that for the longest We've accumulated experience and technical capabilities in this area in the world, and the government has provided support, and that puts us in the front-runner position. So as a semi-terminal chemical group, this is a business area that we certainly would like to continue. For pharmaceuticals, R&D costs. could be quite enormous. And you may wonder whether Sumitomo Chemical has the ability to support such funding needs. In case of generative and cell therapy area, diseases that are targeted are not like a small molecule business where there's a number of patients. We are always considering the necessary R&D costs that may be needed in the future, we are updating ourselves regularly and assess whether there is sufficient funds to cover the necessary costs. We are in discussion with Semitomo Pharma, and at Semitomo Group, we are frequently updating. But compared to small molecule R&D that requires hundreds of billions of yen of investments, it's smaller by an order of magnitude or even much smaller. This includes clinical trials in North America. We believe it's certainly within our capacity to do. So based on these assumptions, we have identified and determined that this would not negatively impact our financial standing, that we have enough R&D resources to pursue this Thank you. Agro-science and ICT investments, as long as there's no risk of under-investing, I'm fine with that. Thank you very much.

So the next question is from CNBC Nuclear Securities, Miyamoto-san. Thank you for your presentation. I'm Yamoto from SMBC and EcoSecurities. Congratulations for the financial results. I want to hear about the prospects of crop protection chemicals, which is a center for growth, in particular about biorationals. You have explained that on page 17. Previously, M&A in Europe of crop protection chemicals was considered an aim that goes to biorationals. What is the current situation of such products in Europe and you expect acceleration growth in 2027? The integrated company in the United States will be operating in a full-fledged manner from that year or the botanical portfolio will be influencing it? What is the reason why biorationals will accelerate in 2027? And in Europe so far, for chemical protection, registration is becoming tough, and for protective registration in Europe, is there a risk of being difficult to register? Thank you very much. First question, biorationals in Europe in particular include M&A. What is the strategy? Well, as was indicated this time, registration for new chemical crop protections and also for biorationals, needs for biorationals are increasing. Brazil, North America, India, and next to these, Europe. is also a strategic area for biorationals. First, development of products in Europe. We're engaged in development of products in Europe, as we have explained before. The sales organization, there's a footprint in Europe, in particular in France, Spain, Italy, in the major agricultural countries and also in the UK, there is footprint. But in terms of production and R&D and the logistics, we don't have such functions. So for further growth going forward, we have to invest in these functions As I may have talked about before, a corporate-wide resource allocation, then AGL and ICTM are the targets. And AGL remains in Europe, but from a bigger picture, ICTM semiconductors, in particular AI semiconductors and the back-end process sector are areas that we want to concentrate our investment. we are seeing improvements of our financial position. And with the surplus power that we can generate from that, if we can invest into AGL, then in Europe, not only sales organization and portfolio, but production, R&D, and logistics in these areas as well. We want to make investments going forward. We are thinking about doing that. And from 2027, bio-rational growth will accelerate. There are many factors. One major factor are bio-stimulants. We are looking forward to this. Bio-stimulants, compared to what we have assumed, development and sales expansion is taking more time. The product development and registration system is different from country to country. But after registration is made, to be able to sell the products, there must be higher awareness among the customers. We may test for many years, but from different protection chemicals, it's not something that we can clearly see the outcome. The producers must be able to confirm by themselves improved yield and production. We have continued with the study efforts during the last few years, and in 2027, by around 2027, in particular in North America, we believe this is going to start, it is taking time, but centered by stimulants. won't accelerate further growth. And chemical scrub protection in Europe is so difficult, so is it all right with Pavecto? Well, frankly speaking, Pavecto in Europe to get a registration, I'm not saying it is impossible, But rather, compared to other products that were aiming at registration, safety profile was very good. So we will continue to aim for registration. This is not scientific anymore, whether it is registered or not. So, I'm sure we will get the registration, but it's difficult to say when we can get the registration. On the other hand, Europe wheat sector is a major target, but the targets, there's a target spot disease in South America. This is not a serious disease in the past, but recently target spot has increased and the perfecto shows a very good effect on this target spot, so the target is shifting from Europe to South America and Brazil. So we may be able to get registration earlier and the major market for PRADECTO could be South America and develop into the blockbuster in South America. Thank you very much. In addition, about the financial results, exports from China to South America and Brazil is slowing down. Is that a falling wind for you? Well, I'm always asking that question. In addition to slowing down, generic shares are getting higher. So that may become a falling wind for us. Generic prices are getting higher, so that may be a falling wind for us. But maybe locally they are more careful. We are not seeing yet a big impact. But that is a positive situation for us. Thank you very much.

Thank you, Mr. Miyamoto. We will now move to the next question from Nomura Securities. Okazaki-san, please. Thank you. This is Okazaki of Nomura Securities. Thank you for today. For essential and green materials, I have some questions. On page 25, PCS production optimization was mentioned here. To the extent possible, could you share the current progress, particularly given the Middle East situation? Maybe there have been some delays or even qualitative information. If you could share the progress, I would appreciate that. And also to President Mito, I do apologize for asking you this question. Currently, given that the market is performing well, The Ramavik has generated much income this term, but Singapore and domestic businesses are experiencing adjustments, correction in terms of utilization operations. So if you look at the overall balance, the 20 billion operating income for this fiscal year, what is the probability of achieving this? Yes, thank you. Regarding the PCS in Singapore and the plans ahead, It's exactly as it is described here, but before I explain the details, I will say that Singapore PCS, since when it comes to this area, I don't have much experience and I'm no expert, but based on what others have said, For many years, over the past years, they've provided products in a stable manner. They've gained much confidence among customers. So PCS is highly regarded in Asia. On the other hand, they have been oversupplied from China, and this has put a downward pressure on their earnings, and they are struggling. because of that they are competitive they have competitiveness or rather i should say they are very much trusted cracker so within the singapore um federal concepts that they serve as part of the infrastructure so how are they going to appear in the future, how should we retain this going into the future? I think that's the perspective that we should apply here. There could be various forms. Already, this started as a joint venture in the beginning. They are partners. And if we broaden our perspective, the derivative manufacturers could also be considered partners. So in Singapore, They are an important and leading cracker in the upstream in Singapore. As part of the infrastructure, what is possible for us to retain that as part of the infrastructure? So that is the kind of discussion that we are currently having. Given the recent Middle East situations, the status of utilization is something that I cannot share based on agreements with the joint venture partners and other stakeholders. So I cannot go into detail, but that is the view I have to this business. And next, PRC or Petro-Arabic. At present, particularly, it's a refinery margin has significantly improved from January to March. their January to March period. So for us, it's FY26 first quarter. Their results will be reflected in our Q1, FY26. They performed very strongly. Operating income of $400 million also was generated, and also $9.2 billion would be reflected in our Q1 results as a result of that. But what will happen next is very difficult to predict and foresee. The Arabian light premium has gone up. And going forward, margin will be reduced significantly. And PRCs, particularly polymer business, the market price will follow. There will be some time lag. We are not expecting any expansion of profits there either. So between January, March, the 9.2 billion yen realized in that period reflected in our first quarter. That's where we are. And anything beyond that, either upside or downside, has not been considered or incorporated. But given the situation, Chiba, Singapore, How should we balance these businesses? In case of Petrol Arabic, as you know, our stake has been declined to 15%. So our P&P business, a core of that is in Singapore and in Chiba. So these are the core locations for P&P business. So we will continue to exert efforts in these businesses to improve business performance. And in fact, for PCS, after the Middle East situation settles, as you see here on the slide, we hope to review the sales mix. and increase customers that will be willing to purchase at higher price ends, higher price points. And for TPC, we are already starting this and by switching to high value added grades and to shift sales geographies, we hope to further grow our profits for FY2026. That's the direction that we are heading. And for MMA, due to the suspension of the line, We have now established ourselves to start earnings, and we believe we can further expand this fiscal year. In the interest of time, I will not be able to cover the details, but for Shiba location, we will focus our efforts. So Singapore and Shiba will be the core for this business, and we hope to achieve the 20 billion yen of core operating income. So over $9 billion for Q1 coming from Petro-Arabic, and given the current low utilization in Singapore and domestic location, even given these factors, you can expect a certain level of profit? Right. The disruption coming from the Middle East, to what extent will this be sustained? We do expect this to settle and subside at some point in time, but what will be the impact then? Raw materials procurement, if we make a misstep in a decision, then we could generate huge losses from inventory valuation. And given the raw material prices are skyrocketing, Of course, given the normal circumstances, this would have a negative pressure on our margin. So there are various factors to be considered. But at this point in time, we are considering both the positives and negatives, and we hope to achieve the 20 billion yen. Thank you.

Thank you very much, Mr. Okazaki. It's now time to conclude. So the next question will be the last question. From UBS Securities, Omura-san. Thank you. I'm Omura from UBS Securities. Thank you for your presentation. In general, it was a very clear presentation. Thank you very much for that. And also, just like Mr. Okazaki, as regards to the results for this year, I had more questions. In your presentation, we're 215 billion in plan. Is that based on a conservative assumption or not? That was not very clear. So for essentials and agri-life solutions, For these two sectors, for example, 9.1 billion in Q1 for petro-rabic, that is already included, so remaining 11 billion. Then what are you looking at, in what way, leading to these figures? And for agri- and life solutions, what are the assumptions in making these figures? For this forecast, could you break down the background for those figures. The performance for this year for agro and life, nearly 10 billion increase, is this achievable or not, will be a very important key point. And as you can see here, the key for that is overseas, in particular Brazil. Can we grow in Brazil or not? That will be the key. And in doing so, as was included in the questions today, shortage of fertilizers related to the surge in Middle East or demand for crop protection chemicals might decline in Brazil. Of course, there could be such risks. On the other hand, the case of Brazil, for the last three or four years, because the problem of the distribution inventory market was stagnant. So it is finally reaching a recovery phase. And as I mentioned before, China's generic crop protection products, shipments into Brazil and price, we have not... had any clear comments from our team in Brazil, but I personally think that may happen. And if we think in that manner, these figures, I don't think these are optimistic figures, but are highly achievable figures, and AGM is very difficult. Maybe I said something operated previously when the price gets higher or lower. The past theory may not be applicable anymore. A rapid price hike or shortage of products may happen. in terms of payments that may not necessarily be negative. And will that advantage remain even if prices decline? Maybe not necessarily so. So when will the situation stabilize? How will that happen? Will that be a moderate stabilization? Will there be a rapid fluctuation of the raw material price? Unless we can identify that, depending on the situation, the impact on profit and loss will greatly change. So it is very difficult to break down into multiple factors and say clearly, but overall there are positives and negatives. which is written here, is definitely something we want to achieve. Maybe my answer was not very clear. Well, thank you very much. It was not clear in your previous comment, but if possible, could you tell me? For Petro-Rabic, 9.2 billion first quarter, and after Q2, you are not seeing either upside or downside. Do you mean 9.2 billion will continue? or do you mean zero? What do you mean by that? After 9.2 billion from the, it is upside compared to the conventional budget and after that, there may be ups and downs. It may be going up first and then go down compared to the budget. So compared with the budget, After Q2, we are not seeing any upside nor downside. That's what I meant. I see. It was very clear. Thank you very much.

Omura-san, thank you very much for your questions. It is now time to conclude. So FY 2025 Financial Results Management Priorities and Business Strategies Investors Meeting is now concluded. Thank you very much for joining us today. Today's briefing will be uploaded onto our company's website from tomorrow, including the Q&A portions.