Sumitomo Chemical Company, Limited

It is now time, so we will begin our Q1 2026 Financial Results Conference Call. Thank you very much for joining us. Today, Yamauchi, Managing Executive Officer, will explain the financial results for FY2026 first quarter, followed by a Q&A session with Matsuo, General Manager of Accounting Department. The session is scheduled to finish at 4.50 PM. Mr. Yamauchi, please start. Yamauchi from Sumitomo Chemicals. Thank you very much for taking the time out of your busy schedule to join our conference call today. We'd like to take this opportunity to express our sincere thanks to our investors and analysts for your continued understanding and support of our company's management. I will now explain the overview of our financial results for FY26 first quarter. Please turn to slide four. Before explaining the details of the financial results, let me briefly explain the profit and loss status for Q1. core operating income increased significantly from ¥27.7 billion in Q1 of FY25 to ¥62.3 billion in Q1 of FY26. Net income attributable to owners of the parent was ¥40.8 billion in Q1, up by ¥45.3 billion from the prior year, thanks to an increase in core operating income. This was the second best Q1 core operating income and net income attributable to owners of the parent on record following Q1 of FY22, which were 64.1 billion yen and 70 billion yen respectively. In Q1, core operating income improved significantly in essential and green materials thanks to better profit margins at PetroRabic and a temporary gain on the difference between the inventory valuation of materials and their increased market price, as well as agro and life solutions due to strong shipments of crop protection products and better margins for feed additives, and in ICT and mobility solutions thanks to increased shipments of semiconductor processing materials. Due to our strong business performance and Sumitomo Pharma's 97.8 billion yen capital increase, the DE ratio improved significantly to 0.80 times from 0.93 times at the end of FY25. Next, more details. For Q1 of FY26, consolidated sales revenue was 578.2 billion yen, up by 52.1 billion yen year on year. Core operating income, which shows a recurring profitability, was 62.3 billion yen, up by 34.7 billion yen year-on-year. Non-recurring items not included in core operating income totaled a loss of 1.3 billion yen, an improvement of 900 million yen year-on-year. As a result, operating income was 61 billion yen, up by 35.6 billion yen year-on-year. finance income and expenses was a loss of 700 million yen, which improved by 18.9 billion yen year on year. gains on foreign currency transactions included in finance, income, and expenses was 1.6 billion yen due to the weakening yen and improvement of 18 billion yen year-on-year. Income tax expenses was a loss of 9 billion yen, up by 7 billion yen in the tax burden year-on-year. As a result, net income attributable to owners of the parent was 40.8 billion yen, an increase of 45.3 billion yen compared to the same quarter of the previous year. Regarding exchange rate and NAFTA prices, which affect our company's performance, the average exchange rate for the US dollar during the period was 159.57 yen to the dollar, and the NAFTA price was 118,500 yen per kiloliter, resulting in a weaker yen and higher raw material prices compared with the prior year. Next, I will explain the sales revenue by reporting segment. Please turn to page 6. Company-wide sales revenue increased by 52.1 billion yen year-on-year, and revenue of all segments increased. Regarding the year-on-year change in sales revenue, a company-wide analysis by Factor shows that revenue increased by 40.5 billion yen due to price. This was mainly due to rising product prices in essential and green materials. Revenue decreased by ¥19.2 billion due to volume. Shipments decreased primarily in essential and green materials due to the transfer of sales rights to PetroRabic products in FY25 and the impact of the sale of Japan A&L's business in FY25. Foreign currency conversion variance was an increase of ¥30.7 billion. Next, please turn to page 7. Our core operating income increased by ¥34.7 billion year-on-year. Company-wide variance analysis shows that price was up ¥15 billion, which was primarily due to a gain from the difference between inventory valuations and rising product market prices in essential and green materials. Cost was negative ¥4 billion, mainly due to increased fixed costs associated with investments in semiconductor-related products in ICT and mobility solutions. Volume, including the variance in equity method investment, was up by ¥23.7 billion. This was mainly due to the improvement in equity and earnings of PetroRabic in essential and green materials. Next, I will explain the performance overview for each segment. Please turn to page 8. In Agro and Life Solutions, Core operating income was 9.6 billion yen, an increase of 7.4 billion yen year-on-year. Crop protection shipments remained steady, and the improved shipment volume resulted in increased profits. Feed additives profits increased thanks to profit margins improvement from the rising market prices. Please turn to the next page. ICT and Mobility Solutions core operating income was 13 billion yen, down by 5.3 billion yen year-on-year. Profit in display-related products declined due to decline in the selling prices of polarizing films, absence of prior year gain on the sale of the large LCD polarizing film business, and decline in shipments due to a shortage of semiconductors. Semiconductor-related products saw increased profits thanks to increase in shipments due to growing demand for semiconductors. Mobility-related products saw increased profits thanks to increase in shipments of super engineering plastics driven by China's consumer electronics replacement policy. Please turn to the next page. In advanced medical solutions, core operating loss was 1.9 billion yen, down by 900 million yen year on year. Profits decreased as profit margins as affiliated companies declined due to the Middle East geopolitical tensions and shipment timing difference for some active pharmaceutical ingredients and intermediates from the prior year. Please turn to the next page.

As for essential and grain material segment, core operating income was ¥27.2 billion, up by ¥32.7 billion year-on-year. In Japan and Singapore, increases in product market prices generated gains on inventory valuation, leading to profit growth. In Saudi Arabia, Petrorabic, our equity method affiliate, improved refining margins and others, which led to an improvement in equity method investment income, resulting in higher profits. Please see the next page. As for Sumitomo Pharma segment, core operating income was 18.8 billion yen, down 2.2 billion yen year on year. As for cost variances, while costs decreased due to the partial sale of the Asia business in FY25, SG&A expenses in North America and R&D expenses increased. Regarding volume and other variances, although shipments decreased due to the partial sale of our Asian operations in FY25, shipments increased as a result of expanded sales of Orgovix, a treatment for advanced prostate cancer, and Gemtesa treatment for overactive bladder. This concludes the overview of financial results by segment. The next page will explain the consolidated statement of financial position. Total assets as of the end of June 2026 amounted to 3 trillion 613.5 billion yen, an increase of 208.5 billion yen compared to the end of fiscal year 25. The main factors were the restart, of the Chiba plant following its periodic plant maintenance in January through March 2026 and a temporary increase in working capital, including accounts receivables and inventory, due to the surge in NAFSA prices. Interest-bearing liabilities totaled ¥1,132.2 billion, a decrease of ¥19.3 billion compared to the end of FY25. Equity totaled ¥1,412.4 billion, an increase of ¥175.8 billion compared to the end of FY25. This increase was primarily due to the impact of Sumitomo Farmer's public offering. Next, I will explain the consolidated cash flows. Please turn to page 14. Cash flows from operating activities was positive at 5 billion yen, a decrease of 19 billion yen in cash inflows year-on-year. This was primarily due to a temporary increase in working capital and others associated with the restart of the Chiba plant following its periodic plant maintenance in January through March 2026. Investing cash flow was a negative 49.2 billion yen, an increase in outflows of 3.3 billion yen year-on-year. As a result, free cash flow was a negative 44.3 billion yen, a deterioration of 22.3 billion yen compared to the negative 21.9 billion yen recorded in the same quarter of the previous fiscal year. Cash flow from financing activities was positive 55.6 billion yen driven by factors such as Semitomo Farmer's public offering and improvement of 104.8 billion yen year-on-year. Next, I will explain our outlook for the first half of FY26. Please turn to page 16. I will begin by explaining the business environment surrounding our company during the first half of FY26. Regarding the economic outlook, while investment in the technology sector is providing solid support for the global economy, the outlook remains uncertain due to the geopolitical risks, including the deteriorating situation in the Middle East. In the main business environment, we use weather icons to indicate our major business sectors and our assessment of their respective business environments. Starting from the top, regarding agricultural chemicals, crop protection products, current shipment remains steady, but the level of inventory congestion and distribution chains varied by region. Regarding feed additives, although profit margin improved in the first quarter, raw material prices continue to soar and the outlook remains uncertain. In the display sector, the mobile market will remain sluggish due to the increasingly challenging procurement conditions for memory chips. The silicon semiconductor will remain solid, mainly driven by AI-related areas. As for the petrochemicals and raw materials, although we have secured the quantities necessary for current production plans, the impact of soaring raw material prices is expected to continue for the time being. This concludes the overview of the business environment. I will now explain the financial forecast summary. Please turn to page 17. At the time of our previous financial results announcements on May 14th, The impact of the situation in the Middle East and other factors were extremely difficult to predict. Therefore, we provided only full-year forecasts for FY26 and did not disclose first-half forecasts. We are now announcing our first-half financial forecasts. For the first half of FY26, we expect core operating income to be 125 billion yen and quarterly net income attributable to owners of the parent company to be 70 billion yen. Core operating income excluding gains on the sale of business is expected to double year-on-year. We expect to achieve the forecast for quarterly net income attributable to owners of the parent company announced in May by the end of the first half. Regarding core operating income, in the essential and green materials will significantly improve due to profit margins improvement at petro-robbing and temporary gain on the variance between the inventory valuation. In the agro and life solutions, crop protection products shipments remain strong and profit margin for feed additives will improve. In ICT and mobility solutions, while shipments of display-related materials are projected to decline, shipments of semiconductor processing materials are expected to increase. That said, regarding our full-year forecast, as it remains difficult to predict the future ahead amid ongoing turmoil in the Middle East, we have not revised it at this time. We will reassess and provide an update when we announce our first half financial results. Next I will explain page 18 Summary of Performance Forecasts First, our exchange rate assumptions for the first half forecast are based on exchange rate of 155 yen to the dollar for the second quarter and project a rate of 157 yen to the dollar for the first half as a whole. Additionally, assuming that the current situation in the Middle East will continue throughout the first half. We project enough subprice of 90,000 yen per kilo liter for the second quarter and 104,000 yen per kilo liter for the first half as a whole. Based on these assumptions, sales revenue is expected to be 1.17 trillion yen, an increase of 74.6 billion yen year-on-year. Core operating income is expected to be 125 billion yen, an increase of 16.3 billion yen year-on-year. Operating income to be 122 billion yen, an increase of 18.3 billion yen year-on-year. Quarterly net income attributable to owners of the parent company, to be ¥70 billion, an increase of ¥30.3 billion year-on-year. As for dividend, interim dividend will be ¥8, year-end ¥8, and annual dividend of ¥16 per share remains unchanged, which we announced in May. Next, page 19, regarding our forecast for the first half of fiscal year. Regarding a forecast for the first half of the fiscal year, I will explain the comparison with the same period of the previous year by segment. For agro and life solutions driven by steady shipments of crop protection products and rising market prices for feed additives, we expect a significant increase in profit year on year. For ICT and mobility solutions, while shipments of semiconductor processing materials remain steady, We expect a decline in profit due to the absence of the gain from the sale of the large-size LCD business recorded in the same period of last year and a decrease in shipments of display-related materials. Essential and green materials segment due to improved profitability at petro-robic and gains from inventory valuation driven by rising market prices for synthetic resin and other products, we expect a significant increased profit year-on-year. At Tsumitomo Pharma, Due to the absence of gains from the sale of the Asian business, as well as increases in SG&A expenses and R&D expenses in North America, we expect a significant decrease in profit year-on-year. This concludes my explanation.

We will now have a Q&A session. If you have any questions, please press asterisk one. If it is accepted, you can hear that your question was confirmed. After we appoint you, please ask your question. If you would like to cancel your question, please press asterisk two. We would like to ask you to ask one question per person per time, but you can ask many questions as many times as you want. So, thank you very much. We will now appoint the first questioner. Morgan Stanley, MEFG Securities. Watabe-san, please go ahead. This is Watabe from Morgan Stanley. Thank you very much. Agro and life is my question. In Q1, you are off to a fairly good start. Methionine and crop protection. I want you to do a breakdown. And for the inventory adjustment, you said there are regional variances. So 20 billion in Q2. You're expecting a big profit increase. What is the background to that? And El Nino impact. How do you see the El Nino impact for crop protection? If you could elaborate, please. Thank you for the question. So AGL, Agro and Life Solutions. First of all, in Q1, profit was 9.6 billion yen, which is compared to 2.2 billion last year. It was a significant improvement but this improvement was mainly due to the methionine feed additives. Due to Middle East situation, the supply demand is tightening. So in Q1, prices rose and that was the impact. For crop protection, Q1 is not the busy season, busy demand season. And there is not much difference from last year. From Q2 onward, expecting Q2 and onward, we think we are in line with the forecast. And to your question on El Nino, This year El Nino is expected to have a big impact. And the impact of crop protection in each region I think is your question. The impact of El Nino is mainly not in the northern but the southern hemisphere. It impacts the southern hemisphere more. basically rain will not it will not rain as much and temperature rises so precipitation declines temperature rises now by region Brazil first of all Brazil is a big country so The southern part and northern part are different. In the northern part, closer to the equator, as I mentioned earlier, precipitation declines and temperature rises, and that is the trend. and this will negatively impact the planting of the crops on one hand, but if temperature rises, Insect increases, pests increases, which is a plus, so we don't know which will be the bigger factor, positives or negatives. It's hard to say. On the other hand, in the southern part, precipitation increases. A few years ago, there was a flood in the southern part, and so there's a risk of that possibly happening again. And next is India. El Niño impact is already emerging globally in India. Monsoon is coming later. And so the planting seeding is pushed out or becoming later. And so Q1 in India shipment was lower than our anticipation, but it is starting to rain in July. So we're starting to see a recovery. Next is Southeast Asia, Vietnam, Thailand, and Indonesia. So rain declines and temperature rises, and so this may impact the planting and seeding. But as I mentioned earlier, if the high temperature continues, the insects, the pests increase. So that may be a positive factor. Australia is roughly the same as Southeast Asia. And Watanabe-san, your third question. I could not hear your third question very well. Could you repeat? So, Q1 to Q2, you are expecting a big profit increase? From Q1 to Q2, the increase. So, feed additives will improve and crop protection... In Q2, Brazil and Latin America will enter the high demand season and India will also enter the high demand season. So there will be positives coming from the crop protection that is factored in. So this time your first half forecast was issued. Agro has high probability? Yes, we think so. Thank you. Thank you very much.

Thank you very much. I would like to take the next question. Mizuho Securities. Yamada-san, please go ahead. This is Yamada from Mizuho. Hello. I have a question regarding the ICT mobility section. The display performance is weak. That is because the general purpose usage and the large size is not doing well. But overall, the competitors' performance is good. But where you're going, not just the resist type, but various things is selling. From the first quarter to the second quarter is the demand season. So the semiconductor to play on a quarter on quarter. assume that it is going to improve. But is that the case? For the first quarter, $13 billion. The second quarter, $15 billion. It seems that the operating income is not going to change that. The core operating income is not going to change that much. So the movement from the first quarter to the second quarter in this segment, I would like to know. Thank you very much for your question, this ICT part. As you have mentioned, the first quarter results was $13 billion, and the first half is $28 billion, so if you do the calculation, the second quarter is $15 billion. Display and semiconductors and others. If we look at them, the display itself, towards the first to second quarter, we expect an improvement. And regarding semiconductors, there's no seasonality. Therefore, first quarter, second quarter, we believe that there will not be a major movement between these two quarters. And the other mobility part from the first to second quarter, there is not a major factor here. However, there's a slight decline. That is the situation. As for display, for the displays for mobile applications, we believe that it is going to strongly grow. That is our forecast. However, regarding towards the large size displays, Our company is starting to wind down in that area. Therefore, we believe that this area is not that good of a performance and also as the memory shortage. We're not being impacted at the high end, but the middle end and low end will start to get impacted. So for us, it will be the touch screen panels for us. and these areas will be impacted. And as for semiconductors, there's not a large move in between the first and second quarter. However, here, as forecast, we believe it is steady. The market itself is growing quite a bit, so photoresist. And the high purity chemicals and liquid crystals, they are going to grow steadily this fiscal year, so we don't have any concerns here. For semiconductors, looking at the other company's financial results, the market overall, the way for the June shipment of volume was a record high, is what was mentioned. And they said that this situation is going to continue. So regarding the way for delivery to the fabs, we believe between the first quarter, second quarter, it's going to show an increase. and the technology node, how it will progress. I believe that your company's product is going to increase. Is the risk factors different, or your way of thinking is different from the market? If that is the assumption, and if you're saying that it's flat, that's fine, but please explain. Just a moment please. Thank you for waiting, Yamada-san. From the first to second quarter, There's a slight flatness that you see. The semiconductor-related part is going to show a growth. However, we have been making various investments towards the semiconductor-related area. And we're seeing that in the first quarter, we're seeing a slight increase in fixed costs, especially from the second quarter onwards. There are things that will start moving from the second quarter. So there's an impact of the fixed cost increase from the second quarter. So the fixed cost, with the cost variance apart, we will start to see a slight negativity. And there's an advance investment that occurred, so it's going to become this way. Yes. The cost variance part, the streamlining positive factors included, but also the fixed cost increase, they're both included, so maybe it's difficult to understand. However, this fiscal year, fixed cost increasing. is the reason for the shipment increasing, but the profit not increasing as much. Okay, understood very well. Thank you.

Thank you, Yamada-san. Next question. SMBC Nikko Securities, Miyamoto-san, please go ahead. SMBC, Niko Schifridis, Miyamoto speaking. I have, so agro and life is my question. Page 29, so crop protection sales year on year is 12% increase in Japan and the Central and Latin America, you're front loading, so including that. excluding the FX, it is flat year-on-year, so Q1 year-on-year, if you could elaborate on where you stand, and Q2 year-on-year, so agro and life sales will look like 30% up. What is the increase in crop protection year-on-year? you are expecting a big jump in profit. So what's the background? And as Watabisan said earlier, so the distribution stock, there may be regional variances. So if you could elaborate on that too, in the distribution channel. So crop protection, sales by region. First of all, North America it is positive plus on the yen denominated basis but on the dollar denominated basis it is flat or slight decline this is because of the time lag in shipment so it is not that we are seeing some negative foundational essential factors. In Central and Latin America, profit is increasing significantly, increasing in foreign currency based denominated basis as well. There is partial front loading from Q2, and that is also helping the increase. Asia and India. For India, as I mentioned earlier, because of the monsoon, there is a shift from Q1 to Q2, so there is a slight decline. And Europe and others, no big change here. And our inventory in the distribution channel North America, and India, and Europe. We have already reached the optimal inventory level, but in Central and Latin America, especially Brazil, still has rather high inventory level in the distribution channel. Next, the trend from Q1 to Q2. Yes, Q2 profit increase on the year-on-year basis. Yes, okay, Q2 on the year-on-year basis. Just a moment, please. So Q2 on a year-on-year basis, increase of 35 billion yen. The reason for this increase is one crop protection is increasing and feed additives is also increasing So to give you some numbers, crop protection. So of the 35 billion in increase, more than half is crop protection and feed additives, more than 10 billion increase the price will rise further from Q1 to Q2. So that is the positive impact based on our assumption. Thank you. So crop protection Q2 will be 20% increase year-on-year. Which area in the freeing or by less or and region wise where would that be? Because this was a big jump in profit. So if you could elaborate please So by region All regions are growing, North America, Latin America, Asia. So Q2, year on year, they are all growing, enjoying profit increase. Understood. Latin America is higher. in terms of the amount of profit increase. And as we mentioned in the full year forecast, until last year, Latin America was sluggish, but is now on the recovery track. And therefore, Latin America recovery is expected to be rather large. Yes, understood. Thank you very much for the details.

Thank you very much, Miyamoto-san. I'd like to take the next question. Daiwa Securities, Umebayashi-san, please go ahead. Thank you very much. This is Umabayashi from Daiwa Securities. I'd like to ask you about essential and green materials, the changes from the first to second quarter. In the second quarter, on a Q&Q basis, the core operating income, you predict to be $12 billion. For the first quarter, I believe there was not much a major change. Japan and Singapore's performance was the reason, but I'd like to know the background on that, and also the Singapore's utilization situation. I think I believe that one plant is suspending its operation, but can you share the current situation? Thank you very much for your question. EGM's first quarter to second quarter trends, I believe was your question. This part is, as you have imagined, the major factor is that the inventory valuation and the PetroRabic situation. For PetroRabic, at the local site, their financial results have been already disclosed. So if I may share with you, the first quarter exit equity method affiliate, $9 billion. has been recorded. Second quarter, about 17 billion is included. The local financial results, the January to March, the first quarter was 400 million, the second quarter 700 million revenue, and that's incorporated. And in the other areas, about slightly under 20 billion deterioration is occurring. This part, the inventories variation is the cause. The valuation of the inventory of the first quarter was $15 billion, but the second quarter, the NAFSA price, we reduced it to the current pricing. Therefore, we are expecting it to return in the negatives. That is the situation. Therefore, the inventory valuation and Rabiq other than these two, the first quarter and second quarter, there's not much of a change between the two quarters is how we look at it. Regarding utilization, you asked a question. The situation both in Japan and Singapore, It has not been changing from the first quarter as the recent situation. As for raw materials and NAFSA, we are able to procure them. With consulting with the customers, the necessary amount is produced and sold at an appropriate pricing is the situation. Therefore, here, there is no major positive or negative. Does this answer your question? Thank you very much. The Singapore part? Do you have an outlook that the utilization will increase a bit? Well, maybe the second quarter you are looking at it to be flat, but if you get more NAFSA, is it going to increase? Well, currently, We are not thinking of increasing the utilization. Right now, in line with the customer demand, we are operating. Therefore, it's not that we are receiving additional large-scale inquiries. So, for the time being, we believe we will maintain the current situation. That is all. Thank you very much. Thank you.

Thank you, Umebashi-san. So next question is from Nomura Securities. Okazaki-san, please go ahead. This is Okazaki from Nomura Securities. Can you hear me? Yes. Thank you. My question is on agro and life solution, methionine. you mentioned that from Q1 to Q2 the market price will rise but the current spot price seems to have peaked out so your sales price shipment has some time lag from spots and so The market price will rise in July, September, vis-a-vis April, June. Is my understanding correct? Yes, you are right. Basically, we do not sell in spot much. We sell to our customers based on the contract. And so, we refer to spot price and decide on our prices, so there are some time lags. and basically 180,000 tons per year capacity and this high level is continuing in Q1 and Q2. and it's difficult to forecast the second half, but if you have any comments you could share with us for the market price. First of all, capacity utilization will be full capacity. We are maintaining a full capacity operation. For the second half, it's difficult to forecast, and that is why we have not issued a full year forecast. We need to ascertain further and make the right decision. Yes, thank you very much. Thank you.

Thank you very much, Okazaki-san. We are getting close to the scheduled ending time, so we'd like to consider the next question as the last question. UBS Securities, Omura-san, please go ahead. This is Omura from UBS Securities. Thank you very much. I'm looking at page 9 and page 24 for ICT mobility solutions. On page 9, there's the factors for volume plus positive and negative numbers. So I'd like you to break this down and give me a quantitative explanation. And on page 24, under mobility, it says that to make the sales price appropriately, With the sales price, it is a positive. But on page 9 with the volume comment and the sales price, there's no comment. So I'd like you to supplement the explanation in those two areas. Just a moment, please. First of all, on page 9, where it says volume and others, it's almost close to zero, but there's a positive and negative, plus and minus. The positive factors will be the semiconductor materials. It's positive. It's becoming positive number. I cannot share with you numbers here, but several ten billions yen in the middle of several ten billions of yen. And also here, the impact of yen depreciation is included. Here as the segment, It's about 50, so compared to last year, it's a 15 yen depreciation, so that much is included. And the other areas will be the negative part. These will be display related. And over here, Last year's sales gain, part of that, the large-size TV business was sold or divested, and this year that does not occur. And for the semiconductor part, The middle end and low end part is not performing well, but actually the touchscreen is being impacted by that. So basically, those factors are included in here is how I would like you to understand this. And also, we're on the mobility part, the difference in sales. Regarding price optimization, The raw material prices are increasing. Therefore, the price is being increased in line with that. And that's where the difference and revenue is showing and you see a lot of that in essential materials but in other areas the crude oil derived products there is cost increased and that part also is incorporated or passed on so that's why it is like this. The You're saying that it is not written in the core operating income. It's not written. It's not that large. We're just increasing it only the amount that the raw material price increase. So I hope you understand in that way. Okay, understood. The mobilities volume difference on page 9. It is not that large, but you still wrote it on this page. Well, but in mobility, the Chinese economic stimulus measures, there is a replacement of a home appliance. And there, a lot of the super Plastics are used, so that is used as the positive factor. So maybe you've already seen it and know. So we changed the material by showing you by sub-segment by products. And so that's why there, even though the number is not large, it is written. Okay, understood. Thank you very much. This concludes my question. Thank you. Thank you very much, Omura-san.

We have exceeded the time, so we would like to close today's conference call. Thank you very much again for your attendance today.