Q1 2027 Sumitomo Chemical Earnings Call

August 4, 2026

Speaker #1: 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 the Accounting Department.

Makoto Matsuo: 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 FY26 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 Chemical. Thank you very much for taking the time out of your busy schedule to join our conference call today. We would 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.

Operator: 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 FY 2026 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.

Speaker #1: The session is scheduled to finish at 4:50 p.m. Mr. Yamauchi, please start. Yamauchi from Sumitomo Chemical. Thank you very much for taking the time out of your busy schedule to join our conference call today.

Toshihiro Yamauchi: Yamauchi from Sumitomo Chemical. Thank you very much for taking the time out of your busy schedule to join our conference call today. We would 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 FY 2026 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.

Speaker #1: 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.

Speaker #1: I will now explain the overview of our financial results for FY26 first quarter. Please turn to slide 4. Before explaining the details of the financial results, let me briefly explain the profit and loss status for Q1.

Speaker #1: Core operating income increased significantly from 27.7 billion yen in Q1 of FY 25 to 62.3 billion yen in Q1 of FY 26. Net income attributable to owners of the parent was 40.8 billion yen in Q1, up by 45.3 billion yen from the prior year thanks to an increase in core operating income.

Toshihiro Yamauchi: Core Operating Income increased significantly from JPY 27.7 billion in Q1 of FY25 to JPY 62.3 billion in Q1 of FY26. Net income attributable to owners of the parent was JPY 40.8 billion in Q1, up by JPY 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 JPY 64.1 billion and JPY 70 billion, respectively.

Toshihiro Yamauchi: Core Operating Income increased significantly from JPY 27.7 billion in Q1 of FY 2025 to JPY 62.3 billion in Q1 of FY 2026. Net income attributable to owners of the parent was JPY 40.8 billion in Q1, up by JPY 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 FY 2022, which were JPY 64.1 billion and JPY 70 billion, respectively.

Speaker #1: This was the second-best Q1 core operating income and net income attributable to owners of the parent on record, following Q1 of FY22.

Speaker #1: These were ¥64.1 billion and ¥70 billion, respectively. In Q1, core operating income improved significantly in Essential and Green Materials thanks to better profit margins at Petro Rabigh and a temporary gain on the difference between the inventory valuation of materials and their increased market price. There was also an improvement in Agro and Life Solutions, due to strong shipments of crop protection products and better margins for feed additives, as well as in ICT and Mobility Solutions, thanks to increased shipments of semiconductor processing materials.

Toshihiro Yamauchi: In Q1, Core Operating Income improved significantly in Essential & Green Materials, thanks to better profit margins at Petro Rabigh and a temporary gain on the difference between the inventory valuation of materials and their increased market price, as well as Agro & Life Solutions due to strong shipments of crop protection products and better margins for feed additives, and in ICT & Mobility Solutions, thanks to increased shipments of semiconductor processing materials. Due to our strong business performance and Sumitomo Pharma's JPY 97.8 billion capital increase, the D/E 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 JPY 578.2 billion, up by JPY 52.1 billion year on year. Core Operating Income, which shows a recurring profitability, was JPY 62.3 billion, up by JPY 34.7 billion year on year.

Toshihiro Yamauchi: In Q1, Core Operating Income improved significantly in Essential & Green Materials, thanks to better profit margins at Petro Rabigh and a temporary gain on the difference between the inventory valuation of materials and their increased market price, as well as Agro & Life Solutions due to strong shipments of crop protection products and better margins for feed additives, and in ICT & Mobility Solutions, thanks to increased shipments of semiconductor processing materials. Due to our strong business performance and Sumitomo Pharma's JPY 97.8 billion capital increase, the D/E ratio improved significantly to 0.80xfrom 0.9 3 times at the end of FY 2025. Next, more details. For Q1 of FY 2026, consolidated sales revenue was JPY 578.2 billion, up by JPY 52.1 billion year on year. Core Operating Income, which shows a recurring profitability, was JPY 62.3 billion, up by JPY 34.7 billion year on year.

Speaker #1: Due to our strong business performance and Sumitomo Pharma's ¥97.8 billion capital increase, the D/E ratio improved significantly to 0.80 times from 0.93 times at the end of FY25.

Speaker #1: Next, more details. For Q1 of FY 26, 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.

Speaker #1: Non-recurring items not included in core operating income totaled a loss of ¥1.3 billion, an improvement of ¥900 million year on year. As a result, operating income was ¥61 billion, up by ¥35.6 billion year on year.

Toshihiro Yamauchi: Non-recurring items not included in Core Operating Income totaled a loss of JPY 1.3 billion, an improvement of JPY 900 million year on year. As a result, operating income was JPY 61 billion, up by JPY 35.6 billion year on year. Finance income and expenses was a loss of JPY 700 million, which improved by JPY 18.9 billion year on year. Gains on foreign currency transactions included in finance income and expenses was JPY 1.6 billion due to the weakening yen, an improvement of JPY 18 billion year on year. Income tax expenses was a loss of JPY 9 billion, up by JPY 7 billion in the tax burden year on year. As a result, net income attributable to owners of the parent was JPY 40.8 billion, an increase of JPY 45.3 billion compared to the same quarter of the previous year.

Speaker #1: Finance income and expenses was a loss of ¥700 million, which improved by ¥18.9 billion year on year. Gains on foreign currency transactions, included in finance income and expenses, was ¥1.6 billion, due to the weakening yen and an improvement of ¥18 billion year on year.

Speaker #1: Income tax expenses resulted in a loss of ¥9 billion, an increase of ¥7 billion in tax burden year on year. As a result, net income attributable to owners of the parent was ¥40.8 billion, an increase of ¥45.3 billion compared to the same quarter of the previous year.

Speaker #1: Regarding exchange rates 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.

Toshihiro Yamauchi: Regarding exchange rate and naphtha prices which affect our company's performance, the average exchange rate for the US dollar during the period was ¥159.57 to the dollar, and the naphtha price was JPY 118,500 per kiloliter, resulting in a weaker yen and higher raw material prices compared with the prior year. I will explain the sales revenue by reporting segment. Please turn to page six. Company-wide sales revenue increased by JPY 52.1 billion 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 JPY 40.5 billion due to price. This was mainly due to rising product prices in Essential & Green Materials. Revenue decreased by JPY 19.2 billion due to volume.

Speaker #1: Next, I will explain the sales revenue by reporting segment. Please turn to page 6. Company-wide sales revenue increased by ¥52.1 billion year on year, and revenue of all segments increased regarding the year-on-year change in sales revenue.

Speaker #1: A company-wide analysis by factor shows that revenue increased by ¥40.5 billion due to price. This was mainly due to rising product prices in essential and green materials.

Speaker #1: 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 Petro Rabigh products in FY25 and the impact of the sale of Japan A&L's business in FY25.

Toshihiro Yamauchi: Shipments decreased primarily in Essential & Green Materials due to the transfer of sales rights to Petro Rabigh products in FY 2025 and the impact of the sale of Nippon A&L's business in FY 2025. Foreign currency conversion variance was an increase of JPY 30.7 billion. Please turn to page seven. Our Core Operating Income increased by JPY 34.7 billion year-on-year. Company-wide variance analysis shows that price was up JPY 15 billion, which was primarily due to a gain from the difference between inventory valuations and rising product market prices in Essential & Green Materials. Cost was JPY -4 billion, mainly due to increased fixed costs associated with investments in semiconductor-related products in ICT & Mobility Solutions. Volume, including the variance in equity method investment, was up by JPY 23.7 billion. This was mainly due to the improvement in equity and earnings of Petro Rabigh in Essential & Green Materials.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: Cost was negative for billion yen, 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.

Speaker #1: This was mainly due to the improvement in equity and earnings of Petro Rabigh in Essential and Green Materials. Next, I will explain the performance overview for each segment.

Toshihiro Yamauchi: I will explain the performance overview for each segment. Please turn to page eight. In Agro & Life Solutions, Core Operating Income was JPY 9.6 billion, an increase of JPY 7.4 billion 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 & Mobility Solutions Core Operating Income was JPY 13 billion, down by JPY 5.3 billion 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.

Speaker #1: Please turn to page 8. In Agro and Life Solutions, core operating income was ¥9.6 billion, an increase of ¥7.4 billion year on year.

Speaker #1: Crop protection shipments remained steady, and the improved shipment volume resulted in increased profits. Feed additives profits increased thanks to profit margin improvement from the rising market prices.

Speaker #1: Please turn to the next page. ICT and Mobility Solutions core operating income was ¥13 billion, down by ¥5.3 billion year on year.

Speaker #1: Profit in display-related products declined due to a decrease in the selling prices of polarizing films and the absence of the prior year's gain on the sale of the large LCD polarizing film business.

Speaker #1: And a decline in shipments due to a shortage of semiconductors. Semiconductor-related products saw increased profits thanks to an increase in shipments due to growing demand for semiconductors.

Speaker #1: Mobility-related products saw increased profits, thanks to an increase in shipments of super-engineering plastics driven by China's consumer electronics replacement policy. Please turn to the next page.

Toshihiro Yamauchi: 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 JPY 1.9 billion, down by JPY 900 million 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. Essential & Green Materials segment, Core Operating Income was JPY 27.2 billion, up by JPY 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, Petro Rabigh, our equity method affiliate, improved refining margins and others, which led to an improvement in equity method investment income, resulting in higher profits.

Speaker #1: In Advanced Medical Solutions, core operating loss was ¥1.9 billion, down by ¥900 million year on year. Profits decreased as profit margins at affiliated companies declined due to Middle East geopolitical tensions and shipment timing differences for some active pharmaceutical ingredients and intermediates from the prior year.

Speaker #1: Please turn to the next page. As for the Essential and Green Materials segment, core operating income was ¥27.2 billion, up by ¥32.7 billion year on year.

Speaker #1: In Japan and Singapore, increases in product market prices generated gains on inventory valuation, leading to profit growth. In Saudi Arabia, Petro Rabigh, our equity-method affiliate, improved refining margins and other factors led to an improvement in equity-method investment income, resulting in higher profits.

Speaker #1: Please see the next page. As for the Sumitomo Pharma segment, core operating income was ¥18.8 billion, down ¥2.2 billion 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.

Toshihiro Yamauchi: Please see the next page. As for Sumitomo Pharma segment, Core Operating Income was +JPY 18.8 billion, down JPY 2.2 billion year-on-year. As for cost variances, while costs decreased due to the partial sale of the Asia business in FY 2025, 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 FY 2025, shipments increased as a result of expanded sales of ORGOVYX, a treatment for advanced prostate cancer, and GEMTESA, a 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 JPY 3,613.5 billion, an increase of JPY 208.5 billion compared to the end of fiscal year 2025.

Speaker #1: 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 Orgovyx, a treatment for advanced prostate cancer, and GEMTESA, a treatment for overactive bladder.

Speaker #1: 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 ¥3,613.5 billion, an increase of ¥208.5 billion compared to the end of fiscal year 2025.

Speaker #1: 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 receivable and inventory, due to the surge in naphtha prices.

Toshihiro Yamauchi: 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 naphtha prices.

Speaker #1: Interest-bearing liabilities totaled 1 trillion 132.2 billion yen, a decrease of 19.3 billion yen compared to the end of FY 25. Equity totaled 1 trillion 412.4 billion yen, an increase of 175.8 billion yen compared to the end of FY 25.

Makoto Matsuo: Interest-bearing liabilities totaled JPY 1,132.2 billion, a decrease of JPY 19.3 billion compared to the end of FY 2025. Equity totaled JPY 1,412.4 billion, an increase of JPY 175.8 billion compared to the end of FY 2025. This increase was primarily due to the impact of Sumitomo Pharma's public offering. Next, I will explain the consolidated cash flows. Please turn to page 14. Cash flows from operating activities was +JPY 5 billion, a decrease of JPY 19 billion 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 -JPY 49.2 billion, an increase in outflows of JPY 3.3 billion year-on-year.

Toshihiro Yamauchi: Interest-bearing liabilities totaled JPY 1,132.2 billion, a decrease of JPY 19.3 billion compared to the end of FY 2025. Equity totaled JPY 1,412.4 billion, an increase of JPY 175.8 billion compared to the end of FY 2025. This increase was primarily due to the impact of Sumitomo Pharma's public offering. Next, I will explain the consolidated cash flows. Please turn to page 14. Cash flows from operating activities was +JPY 5 billion, a decrease of JPY 19 billion 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 -JPY 49.2 billion, an increase in outflows of JPY 3.3 billion year-on-year.

Speaker #1: This increase was primarily due to the impact of Sumitomo Pharma's public offering. Next, I will explain the consolidated cash flows. Please turn to page 14.

Speaker #1: Cash flows from operating activities were positive at ¥5 billion, a decrease of ¥19 billion 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 maintenance from January through March 2026.

Speaker #1: 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.

Makoto Matsuo: As a result, free cash flow was -JPY 44.3 billion, a deterioration of JPY 22.3 billion compared to the -JPY 21.9 billion recorded in the same quarter of the previous fiscal year. Cash flow from financing activities was +JPY 55.6 billion driven by factors such as Sumitomo Pharma's public offering, an improvement of JPY 104.8 billion year-on-year. Next, I will explain our outlook for the H1 of FY 2026. Please turn to page 16. I will begin by explaining the business environment surrounding our company during the H1 of FY 2026. 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.

Toshihiro Yamauchi: As a result, free cash flow was -JPY 44.3 billion, a deterioration of JPY 22.3 billion compared to the -JPY 21.9 billion recorded in the same quarter of the previous fiscal year. Cash flow from financing activities was +JPY 55.6 billion driven by factors such as Sumitomo Pharma's public offering, an improvement of JPY 104.8 billion year-on-year. Next, I will explain our outlook for the H1 of FY 2026. Please turn to page 16. I will begin by explaining the business environment surrounding our company during the H1 of FY 2026. 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.

Speaker #1: Cash flow from financing activities was a positive ¥55.6 billion, driven by factors such as Sumitomo Pharma's public offering and an improvement of ¥104.8 billion year on year.

Speaker #1: 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.

Speaker #1: Regarding the economic outlook, while investment in the technology sector is providing solid support for the global economy, the outlook remains uncertain due to geopolitical risks, including the retaliating situation in the Middle East.

Speaker #1: 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 and crop protection products: current shipments remain steady, but the level of inventory congestion and distribution changes varied by region.

Makoto Matsuo: Starting from the top, regarding agricultural chemicals, crop protection products, current shipment remains steady, but the level of inventory congestion and distribution chains vary by region. Regarding feed additives, although profit margin improved in the Q1, raw material prices continued 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.

Toshihiro Yamauchi: Starting from the top, regarding agricultural chemicals, crop protection products, current shipment remains steady, but the level of inventory congestion and distribution chains vary by region. Regarding feed additives, although profit margin improved in the Q1, raw material prices continued 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.

Speaker #1: Regarding feed additives, although profit margin improved in the first quarter, raw material prices continued to soar and the outlook remains uncertain. In the display sector, the mobile market will remain sluggish due to increasingly challenging procurement conditions for memory chips.

Speaker #1: The silicon semiconductor will remain solid, mainly driven by AI-related areas. As for 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.

Speaker #1: 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 announcement on May 14, the impact of the situation in the Middle East and other factors was extremely difficult to predict; therefore, we provided only full-year forecasts for FY26 and did not disclose first-half forecasts.

Makoto Matsuo: At the time of our previous financial results announcement on 14 May, 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 FY 2026 and did not disclose H1 forecasts. We are now announcing our H1 financial forecasts. For the H1 of FY 2026, we expect Core Operating Income to be JPY 135 billion and quarterly net income attributable to owners of the parent company to be JPY 70 billion. 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 H1.

Toshihiro Yamauchi: At the time of our previous financial results announcement on 14 May, 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 FY 2026 and did not disclose H1 forecasts. We are now announcing our H1 financial forecasts. For the H1 of FY 2026, we expect Core Operating Income to be JPY 135 billion and quarterly net income attributable to owners of the parent company to be JPY 70 billion. 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 H1.

Speaker #1: We are now announcing our first-half financial forecasts. For the first half of fiscal year 2026, we expect core operating income to be ¥125 billion and quarterly net income attributable to owners of the parent company to be ¥70 billion.

Speaker #1: 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.

Speaker #1: Regarding core operating income, in the official agreement materials, we'll significantly improve due to profit margins improvement at PetroRobin and temporary gain on the variance between the inventory valuation.

Makoto Matsuo: Regarding Core Operating Income, in the Essential & Green Materials, will significantly improve due to profit margins improvement at Petro Rabigh and temporary gain on the variance between the inventory valuation. In the Agro & Life Solutions, crop protection products shipments remain strong and profit margin for feed additives will improve. In ICT & 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 H1 financial results. Next, I will explain page 18, summary of performance forecasts.

Toshihiro Yamauchi: Regarding Core Operating Income, in the Essential & Green Materials, will significantly improve due to profit margins improvement at Petro Rabigh and temporary gain on the variance between the inventory valuation. In the Agro & Life Solutions, crop protection products shipments remain strong and profit margin for feed additives will improve. In ICT & 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 H1 financial results. Next, I will explain page 18, summary of performance forecasts.

Speaker #1: 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, we'll shipments of display-related materials are projected to decline; shipments of semiconductor processing materials are expected to increase.

Speaker #1: 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.

Speaker #1: 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 an exchange rate of 155 yen to the dollar for the second quarter, and we project a rate of 157 yen to the dollar for the first half as a whole.

Makoto Matsuo: First, our exchange rate assumptions for the H1 forecast are based on an exchange rate of JPY 155 to the dollar for the Q2 and project a rate of JPY 157 to the dollar for the H1 as a whole. Additionally, assuming that the current situation in the Middle East will continue throughout the H1, we project a naphtha price of JPY 90,000 per kiloliter for the Q2 and JPY 104,000 per kiloliter for the H1 as a whole. Based on these assumptions, sales revenue is expected to be JPY 1.17 trillion, an increase of JPY 74.6 billion year-on-year. Core Operating Income is expected to be JPY 125 billion, an increase of JPY 16.3 billion year-on-year. Operating income is to be JPY 122 billion, an increase of JPY 18.3 billion year-on-year.

Toshihiro Yamauchi: First, our exchange rate assumptions for the H1 forecast are based on an exchange rate of JPY 155 to the dollar for the Q2 and project a rate of JPY 157 to the dollar for the H1 as a whole. Additionally, assuming that the current situation in the Middle East will continue throughout the H1, we project a naphtha price of JPY 90,000 per kiloliter for the Q2 and JPY 104,000 per kiloliter for the H1 as a whole. Based on these assumptions, sales revenue is expected to be JPY 1.17 trillion, an increase of JPY 74.6 billion year-on-year. Core Operating Income is expected to be JPY 125 billion, an increase of JPY 16.3 billion year-on-year. Operating income is to be JPY 122 billion, an increase of JPY 18.3 billion year-on-year.

Speaker #1: Additionally, assuming that the current situation in the Middle East will continue throughout the first half, we project a naphtha subprice of ¥90,000 per kiloliter for the second quarter and ¥104,000 per kiloliter for the first half as a whole.

Speaker #1: Based on these assumptions, sales revenue is expected to be ¥1.17 trillion, an increase of ¥74.6 billion year on year. Core operating income is expected to be ¥125 billion, an increase of ¥16.3 billion year on year. Operating income is forecast to be ¥122 billion, an increase of ¥18.3 billion year on year. Quarterly net income attributable to owners of the parent company is expected to be ¥70 billion, an increase of ¥30.3 billion year on year.

Makoto Matsuo: Quarterly net income attributable to owners of the parent company to be JPY 70 billion, an increase of JPY 30.3 billion year on year. As for dividend, interim dividend will be JPY 8 and JPY 8, an annual dividend of JPY 16 per share remains unchanged, which we announced in May. Next, page 19. Regarding our forecast for the H1 of the fiscal year. Regarding our forecast for the H1 of the fiscal year, I will explain the comparison with the same period of the previous year by segment. For Agro & 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.

Toshihiro Yamauchi: Quarterly net income attributable to owners of the parent company to be JPY 70 billion, an increase of JPY 30.3 billion year on year. As for dividend, interim dividend will be JPY 8 and JPY 8, an annual dividend of JPY 16 per share remains unchanged, which we announced in May. Next, page 19. Regarding our forecast for the H1 of the fiscal year. Regarding our forecast for the H1 of the fiscal year, I will explain the comparison with the same period of the previous year by segment. For Agro & 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.

Speaker #1: As for dividend, interim dividend will be 8 yen year end 8 yen and annual dividend of 16 yen per share remains unchanged, which we announced in May.

Speaker #1: Next, page 19, regarding our forecast for the first half of the fiscal year. Regarding our forecast for the first half of the fiscal year, I'll explain the comparison with the same period of the previous year by segment.

Speaker #1: 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.

Speaker #1: For ICT and mobility solutions, we expect shipments of semiconductor processing materials to remain steady. We anticipate a decline in profit due to the absence of the gain from the sale of the large-sized LCD business recorded in the same period last year and a decrease in shipments of display-related materials.

Makoto Matsuo: For ICT & 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 & Green Materials segment, due to improved profitability at Petrochemical 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 Sumitomo Pharma, due to the absence of gains from the sale of the agent 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.

Toshihiro Yamauchi: For ICT & 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 & Green Materials segment, due to improved profitability at Petrochemical 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 Sumitomo Pharma, due to the absence of gains from the sale of the agent 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.

Speaker #1: The essential and green materials segment benefited from improved flexibility at PetroRabigh and gains from inventory valuation driven by rising market prices for synthetic resin and other products. We expect a significant increase in profit year on year.

Speaker #1: At Sumitomo 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.

Speaker #1: 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 will hear that your question has been confirmed.

Operator: 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. Thank you very much. We will now appoint the first questioner, Morgan Stanley MUFG Securities, Watabe, please go ahead.

Makoto Matsuo: 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. Thank you very much. We will now appoint the first questioner, Morgan Stanley MUFG Securities, Watabe, please go ahead.

Speaker #1: 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 turn, but you can ask as many questions as you want, as many times as you want. Thank you very much.

Speaker #1: We will now appoint the first questioner. Morgan Stanley and EFG Securities, what are there—some? Please go ahead. This is a question from Morgan Stanley.

Takato Watabe: This is Takato from Morgan Stanley. Thank you very much. Agro & 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. For the inventory adjustment, you said there are regional variances. JPY 20 billion in Q2, you are expecting a big profit increase. What is the background to that? El Niño impact, how do you see the El Niño impact for crop protection? If you could elaborate, please.

Speaker #1: Thank you very much. Agro and Life is my question. In Q1, you are off to a fairly good start. Ms. Ione and Crop Protection, I want you to do a breakdown.

Speaker #1: 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?

Speaker #1: And El Niño impact—how do you see the El Niño impact for crop protection? If you could elaborate, please? Thank you for the question.

Makoto Matsuo: Thank you for the question. AGL, Agro & Life Solutions. First of all, in Q1, profit was JPY 9.6 billion, which is compared to JPY 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. In Q1, prices rose, and that was the impact. For crop protection, Q1 is not the 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. To your question on El Niño, this year, El Niño is expected to have a big impact. The impact of crop protection in each region, I think is your question. The impact of El Niño is mainly not in the northern, but the Southern Hemisphere.

Speaker #1: So, AGL—Agro and Life Solutions. First of all, in Q1, profit was ¥9.6 billion, compared to ¥2.2 billion last year. It was a significant improvement, but this improvement was mainly due to methionine feed additives, due to the Middle East situation.

Speaker #1: The supply-demand is tightening, so in Q1, prices rose and that was the impact for crop protection. Q1 is not the busy demand season.

Speaker #1: 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.

Speaker #1: And to your question on El Niño, this year El Niño is expected to have a big impact. The impact of crop protection in each region, I think, is your question.

Speaker #1: The impact of El Niño is mainly not in the northern, but the southern hemisphere; it impacts the southern hemisphere more. Basically, it will not rain as much and temperatures rise.

Makoto Matsuo: It impacts the Southern Hemisphere more. Basically, it will not rain as much and temperature rises.

Speaker #1: So, the precipitation declines and temperature rises. Now, by region, first of all, Brazil. Brazil is a big country, so the southern part and the northern part are different. In the northern part, it's closer to the equator.

Toshihiro Yamauchi: The precipitation declines, temperature rises. Now, by region, Brazil, first of all. Brazil is a big country, 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, that is the trend. This will negatively impact the planting of the crops on one hand. If temperature rises, insects increase, pests increase, which is a plus. We don't know which will be the bigger factor, positive or negative. 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, there is a risk of that possibly happening again. Next is India. El Niño impact is already emerging globally.

Makoto Matsuo: The precipitation declines, temperature rises. Now, by region, Brazil, first of all. Brazil is a big country, 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, that is the trend. This will negatively impact the planting of the crops on one hand. If temperature rises, insects increase, pests increase, which is a plus. We don't know which will be the bigger factor, positive or negative. 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, there is a risk of that possibly happening again. Next is India. El Niño impact is already emerging globally.

Speaker #1: As I mentioned earlier, precipitation declines and temperature rises, and that is the trend. This will negatively impact the planting of the crops on one hand. But when temperature rises, insects increase, pests increase, which is a plus.

Speaker #1: So, we don't know which will be the bigger factor, positive or negative. It's hard to say. On the other hand, in the southern part, precipitation increases.

Speaker #1: A few years ago, there was a flood in the southern part, so there is a risk of that possibly happening again. Next is India.

Speaker #1: The impact of El Niño is already emerging globally, including in India. The monsoon is arriving later, and as a result, planting and seeding are being delayed. This caused Q1 shipments in India to be lower than we had anticipated. However, it started to rain in July, so we're starting to see a recovery.

Toshihiro Yamauchi: In India, monsoon is coming later, the planting seeding is pushed out or becoming later. Q1 in India, shipment was lower than our anticipation. It is starting to rain in July, we're starting to see a recovery. Next is Southeast Asia, Vietnam, Thailand, and Indonesia. Rain declines and temperature rises, this may impact the planting and seeding. As I mentioned earlier, if the high temperature continues, insects, pests increase. That may be a positive factor. Australia is roughly the same as Southeast Asia. Wada, your third question. I could not hear your third question very well. Could you repeat? Q1 to Q2, you are expecting a big profit increase? From Q1 to Q2, the increase. Feed additives will improve and crop protection in Q2.

Speaker #1: Next is Southeast Asia: Vietnam, Thailand, and Indonesia. So, rainfall declines and temperature rises, and this may impact planting and seeding. But as I mentioned earlier, if the high temperatures continue, the insects—the pests—increase.

Speaker #1: So that may be a positive factor. Australia is roughly the same as Southeast Asia. And what are they? Your third question— I could not hear your third question very well.

Speaker #1: Could you repeat? So, from 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.

Speaker #1: 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.

Toshihiro Yamauchi: Brazil and Latin America will enter the high-demand season, and India will also enter the high-demand season. There will be positives coming from the crop protection. That is factored in. This time your H1 forecast was issued. Agro has high probability? Yes, we think so.

Speaker #1: That is factored in. So this time, your first-half forecast was issued. Agro has a high probability? Yes, we think so. Thank you. Thank you very much.

Makoto Matsuo: Thank you. Thank you very much.

Takato Watabe: Thank you. Thank you very much.

Speaker #1: Are there some? Thank you very much. I'd like to take the next question. Mitsuho Securities. Yamada-san, please go ahead. This is Yamada from Mitsuho.

Toshihiro Yamauchi: Wada-san, thank you very much. I would like to take the next question. Mizuho Securities, Yamada-san, please go ahead.

Operator: Wada-san, thank you very much. I would like to take the next question. Mizuho Securities, Yamada-san, please go ahead.

Mikiya Yamada: This is Yamada from Mizuho. Hello. I have a question regarding the ICT & Mobility section. The display for performance is weak. That is because the general purpose usage and the large size is not doing well. Overall, the competitors, their performance is good. Where you are going, not just the resist type, but various things is selling from Q1 to Q2 is the demand season. The semiconductor display on a quarter-on-quarter, I assume that it is going to improve, but is that the case? For Q1, JPY 13 billion, Q2, JPY 15 billion. It seems that the Core Operating Income is not going to change that much. The movement from Q1 to Q2 in this segment, I would like to know.

Speaker #1: Hello. I have a question regarding the ICJ Mobility section. The display for performance is weak. That is because of the general-purpose usage and the large size.

Speaker #1: I was not doing well. But overall, the competitors' performance is good. Where you're going, not just the resist type, but various things, is selling from the first quarter to the second quarter, as this is the demand season.

Speaker #1: So the semiconductor display on a quarter on quarter, I 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.

Speaker #1: So, regarding 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.

Toshihiro Yamauchi: Thank you very much for your question. This ICT part, as you have mentioned, the Q1 results was JPY 13 billion, and the H1 is JPY 28 billion. If you do the calculation, the Q2 is JPY 15 billion. Display and semiconductors and others. If we look at them, the display itself towards the Q1 to Q2, we expect an improvement. Regarding semiconductors, there's no seasonality. Therefore, Q1, Q2, we believe that there will not be a major movement between these two quarters. The other mobility part from the Q1 to Q2, there is not a major factor here. However, there's a slight decline. That is the situation. As for display

Makoto Matsuo: Thank you very much for your question. This ICT part, as you have mentioned, the Q1 results was JPY 13 billion, and the H1 is JPY 28 billion. If you do the calculation, the Q2 is JPY 15 billion. Display and semiconductors and others. If we look at them, the display itself towards the Q1 to Q2, we expect an improvement. Regarding semiconductors, there's no seasonality. Therefore, Q1, Q2, we believe that there will not be a major movement between these two quarters. The other mobility part from the Q1 to Q2, there is not a major factor here. However, there's a slight decline. That is the situation. As for display

Speaker #1: This ICT part. As you have mentioned, the first quarter result was ¥13 billion, and the first half is ¥28 billion. So, if you do the calculation, the second quarter is ¥15 billion.

Speaker #1: Display and semiconductors, and others. If we look at them, the display itself toward the first to second quarter, we expect an improvement. Regarding semiconductors, there's no seasonality.

Speaker #1: 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.

Speaker #1: That is the situation. As for displays for mobile applications, we believe that this area is going to see strong growth—that is our forecast.

Makoto Matsuo: For the displays for mobile applications, we believe that 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. As the memory shortage, we're not being impacted at the high end, but the middle end and low end will started to get impacted. For us, it will be the touch screen panels for us, and these areas that will be impacted. As for semiconductors, there's not a large move in between the Q1 and Q2. However, here as a forecast, we believe it is steady. The market itself is growing quite a bit.

Speaker #1: 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 started to get impacted.

Speaker #1: So for us, it will be the touchscreen panels. These areas will be impacted. As for semiconductors, there’s not a large movement between the first and second quarter.

Speaker #1: However, here, as forecast, we believe it is steady. The market itself is growing quite a bit. So, purity chemicals and liquid crystals—they are going to grow steadily this fiscal year.

Makoto Matsuo: Photoresist and the high-purity chemicals and liquid crystals, they are going to grow steadily this fiscal year, we don't have any concerns here. For semiconductors, looking at the other company's financial results, the market overall, the wafers, the June shipment volume was a record high, is what was mentioned. They said that this situation is going to continue. Regarding the wafer delivery to the fabs, we believe between the Q1, Q2, it's going to show an increase. 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 is flat, that's fine, but please explain.

Speaker #1: So, we don't have any concerns here. For semiconductors, looking at the other companies' financial results and the overall market, the wafer shipment volume for June was mentioned as a record high.

Speaker #1: And they said that this situation is going to continue. So regarding the wafer delivery to the fabs, we believe that between the first quarter and the second quarter, it's going to show an increase.

Mikiya Yamada: They said that this situation is going to continue. Regarding the wafer delivery to the fabs, we believe between the Q1, Q2, it's going to show an increase. 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 is flat, that's fine, but please explain.

Speaker #1: And regarding the technology node, how will it progress? I believe that your company's product is going to increase. Are the risk factors different, or is your way of thinking different from the market?

Speaker #1: 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.

Toshihiro Yamauchi: Just a moment, please. Thank you for waiting, Mikiya-san. From the Q1 to Q2, 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 Q1. We're seeing a slight increase in fixed costs, especially from the Q2 onwards. There are things that will start moving from the Q2. There's an impact of the fixed cost increase from the Q2. The fixed cost, with the cost variance apart, we will start to see a slight negativity. There's an advance investment that occurred, it's going to become this way.

Speaker #1: From the first to the second quarter, there's a slight flatness that you see. The semiconductor-related part is going to show growth. However, we have been making various investments towards the semiconductor-related area.

Speaker #1: 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.

Speaker #1: So there's an impact from 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.

Speaker #1: So, it's going to become this way. Yes, the cost variance part, the streamlining positive factors are included, but also the fixed cost increase—they're both included.

Makoto Matsuo: Yes. The cost variance part, the streamlining positive factors included, but also the fixed cost increase, they're both included. 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.

Speaker #1: So maybe it's difficult to understand. However, this fiscal year, fixed costs are increasing. Is the reason for the shipment increasing, but the profit not increasing as much?

Speaker #1: Okay, understood very well. Thank you. Thank you, Yamada-san. Next question. SMBC Nikko Securities, Miyamoto-san, please go ahead. SMBC Nikko Securities, Miyamoto speaking. I have some questions about Agro and Life Sciences.

Mikiya Yamada: Okay, understood very well. Thank you.

Toshihiro Yamauchi: Thank you, Yamada-san. Next question. SMBC Nikko Securities, Miyamoto-san, please go ahead. SMBC Nikko Securities, Miyamoto speaking. Agro & Life is my question. At page 29, crop protection sales year on year is 12% increase in Japan and Central and Latin America, you're front-loading. Including that, excluding the FX, it is flat year on year. Q1 year on year, if you could elaborate on where you stand. Q2 year on year, Agro & Life sales, it will look like 30% up. What is the increase in crop protection year on year? You are expecting a big jump in profit. What's the background? As Watabe-san said earlier, the distribution stock, there may be regional variances. If you could elaborate on that too, in the distribution channel. Crop protection sales by region.

Toshihiro Yamauchi: Thank you, Yamada-san. Next question. SMBC Nikko Securities, Miyamoto-san, please go ahead.

[Analyst] (SMBC Nikko Securities Inc.): SMBC Nikko Securities, Miyamoto speaking. Agro & Life is my question. At page 29, crop protection sales year on year is 12% increase in Japan and Central and Latin America, you're front-loading. Including that, excluding the FX, it is flat year on year. Q1 year on year, if you could elaborate on where you stand. Q2 year on year, Agro & Life sales, it will look like 30% up. What is the increase in crop protection year on year? You are expecting a big jump in profit. What's the background? As Watabe-san said earlier, the distribution stock, there may be regional variances. If you could elaborate on that too, in the distribution channel.

Speaker #1: Page 29. So, crop protection sales year on year is a 12% increase. In Japan and Central and Latin America, you're front-loading. So including that, excluding the FX, it is flat year on year.

Speaker #1: So, one—Q1 year on year—if you could elaborate on where you stand. And Q2 year on year. So, agro and life sales look like they're up about 30%.

Speaker #1: What is the year-on-year increase in crop protection? You are expecting a big jump in profit, so what's the background? And, as Watabe-san said earlier, there may be regional variances in distribution stock.

Speaker #1: 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 a yen-denominated basis, but on a dollar-denominated basis, it is flat or a slight decline.

Toshihiro Yamauchi: 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 a slight decline. This is because of the time lag in shipment. 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 a 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. In Europe and others, no big change here. Our inventory in the distribution channel. North America, India, and Europe, we have already reached the optimal inventory level.

Toshihiro Yamauchi: First of all, North America, it is positive plus on the yen-denominated basis, but on the dollar-denominated basis, it is flat or a slight decline. This is because of the time lag in shipment. 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 a 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. In Europe and others, no big change here. Our inventory in the distribution channel. North America, India, and Europe, we have already reached the optimal inventory level.

Speaker #1: This is because of the time lag in shipment. So, it is not that we are seeing some negative foundational, essential factors. And in Central and Latin America, profit is increasing significantly.

Speaker #1: There is an increase on a foreign currency-denominated basis as well. There is partial front loading from Q2, and that is also helping the increase. Asia and India.

Speaker #1: For India, as I mentioned earlier, because of the monsoon, there is a shift from Q1 to Q2, so there is a slight decline. As for Europe and others, there is no big change here.

Speaker #1: And our inventory in the distribution channel—North America, India, and Europe—we have already reached the optimal inventory level. But in Central and Latin America, especially Brazil, there is still a rather high inventory level in the distribution channel.

Toshihiro Yamauchi: 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 a year-on-year basis. Yes, okay, Q2 on a year-on-year basis. Just a moment, please. Q2 on a year-on-year basis, increase of JPY 35 billion. The reason for this increase is, one, crop protection is increasing, and feed additives is also increasing. To give you some numbers. Crop protection. Of the JPY 35 billion increase, more than half is crop protection. In feed additives, more than JPY 10 billion increase. The price will rise further from Q1 to Q2, so that is the positive impact based on our assumption. Thank you. Crop protection Q2 will be 20% increase year-on-year. Which area? INDIFLIN or Biorationals, and region-wise, where would that be? Because this is a big jump in profit.

Speaker #1: Next, the trend from Q1 to Q2. Yes, Q2 profit increased on a year-on-year basis. Yes, okay, Q2 on a year-on-year basis. Just a moment, please.

Speaker #1: So, Q2 on a year-on-year basis saw an increase of ¥35 billion. The reason for this increase is that crop protection is increasing, and feed additives are also increasing. To give you some numbers—

Speaker #1: Crop protection. So, of the ¥35 billion increase, more than half is crop protection, and feed additives account for more than ¥10 billion of the increase. Prices will rise further from Q1 to Q2.

Speaker #1: So that is the positive impact, based on our assumption. Thank you. So, crop protection in Q2 will see a 20% increase year-on-year. Which area, in defreeding or biomass, or region-wise, where would that be?

[Analyst] (SMBC Nikko Securities Inc.): Thank you. Crop protection Q2 will be 20% increase year-on-year. Which area? INDIFLIN or Biorationals, and region-wise, where would that be? Because this is a big jump in profit. If you could elaborate, please. By region, all regions are growing: North America, Latin America, Asia. Q2 year-on-year, they are all growing, enjoying profit increase.

Speaker #1: Because this is a big jump in profit. So, if you could elaborate, please. By region, all regions are growing—North America, Latin America, and Asia. In Q2, year on year, they are all growing.

Toshihiro Yamauchi: If you could elaborate, please. By region, all regions are growing: North America, Latin America, Asia. Q2 year-on-year, they are all growing, enjoying profit increase. Understood. Latin America is higher in terms of the amount of profit increase. As we mentioned in the full-year forecast, until last year, Latin America was sluggish, but is now on the recovery track. 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 would like to take the next question. Daiwa Securities, Umebayashi-san, please go ahead.

Speaker #1: Enjoying a 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 it is now on the recovery track.

Toshihiro Yamauchi: Understood. Latin America is higher in terms of the amount of profit increase. As we mentioned in the full-year forecast, until last year, Latin America was sluggish, but is now on the recovery track. Therefore, Latin America recovery is expected to be rather large.

Speaker #1: And therefore, Latin America's recovery is expected to be rather large. Yes, understood. Thank you very much for the details. I thank you very much, Miyamoto-san.

[Analyst] (SMBC Nikko Securities Inc.): Yes, understood. Thank you very much for the details.

Operator: Thank you very much, Miyamoto-san. I would like to take the next question. Daiwa Securities, Umebayashi-san, please go ahead.

Speaker #1: I'd like to take the next question. Diverse Securities, remember, please go ahead. Thank you very much. This is Umebayashi from Diverse Securities. I'd like to ask you about essential and green materials.

Hidemitsu Umebayashi: Thank you very much. This is Umebayashi from Daiwa Securities. I would like to ask you about Essential & Green Materials, the changes from Q1 to Q2. In Q2, on a Q1-Q2 basis, the Core Operating Income you predict to be JPY 12 billion. For Q1, I believe there was not much a major change. Japan and Singapore's performance was the reason, but I would like to know the background on that. Also, Singapore's utilization situation. I believe that one plant is suspending its operation, but can you share the current situation?

Speaker #1: The changes from the first to second quarter. In the first, that second quarter, on the Q1, Q2 basis, the core operating income, a year, predict to be ¥12 billion.

Speaker #1: For the first quarter, I believe there was not much major change. Japan and Singapore's performance was the reason, but I'd like to know the background on that.

Speaker #1: And also, regarding Singapore's utilization situation, I believe that one plant is suspending its operation. Could you share the current situation? Thank you very much.

Toshihiro Yamauchi: Thank you very much for your question. EGM's Q1 to Q2 trends, I believe, was your question.

Speaker #1: For your question regarding EGM's first quarter to second quarter trends—I believe that was your question—this part is, as you have imagined, the major factor is the inventory valuation and the PetroRavi situation.

Makoto Matsuo: This part is as you have imagined. The major factor is that the inventory valuation and the PetroRabigh situation. For PetroRabigh, at the local site, their financial results have been already disclosed. If I may share with you, Q1 at the equity method affiliate, JPY 9 billion has been recorded. Q2, about JPY 17 billion is included. The local financial results, the January to March, Q1 was JPY 400 million, Q2, JPY 700 million revenue, and that is incorporated. In the other areas, about slightly under JPY 20 billion deterioration is occurring. This part, the inventory variation is the cause. The valuation of the inventory of Q1 was JPY 15 billion. The Q2, the naphtha price, we reduced it to the current pricing. Therefore, we are expecting it to return in the negative. That is the situation.

Speaker #1: For PetroRavi, at the local site, their financial results have already been disclosed. So, if I may share with you, the first quarter exit equity method affiliate is 9 billion.

Speaker #1: Has been recorded. Second quarter, about ¥17 billion. This includes the local financial results: for January to March, the first quarter was ¥400 million; the second quarter, ¥700 million.

Speaker #1: Revenue, and that's incorporated. In the other areas, slightly under $20 billion deterioration is occurring. In this part, the variation in inventories is the cause.

Speaker #1: The valuation of inventory for the first quarter was $15 billion. But in the second quarter, the NAFSA price—we reduced it to the current pricing.

Speaker #1: Therefore, we are expecting it to return in the negatives. That is the situation. Regarding the inventory valuation, and Ravi, other than these two, there is not much of a change between the first quarter and second quarter—this is how we look at it.

Makoto Matsuo: The inventory valuation and Rabigh, other than these two, Q1 and Q2, 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 Q1 is the recent situation. As for raw materials and naphtha, 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. Here, there's 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 Q2 you are looking at it to be flat, but if you get more naphtha, is it going to increase?

Speaker #1: Regarding utilization, you asked a question. The situation in both Japan and Singapore has not been changing from the first quarter; this is the recent situation.

Speaker #1: As for raw materials and NAFSA, we are able to procure them. In consultation with the customers, the necessary amount is produced and sold at appropriate pricing.

Speaker #1: So, is the situation here that there is no major positive or negative? Does this answer your question? Thank you very much. Regarding the Singapore part, do you have an outlook that utilization will increase a bit?

Hidemitsu Umebayashi: Thank you very much. The Singapore part, do you have an outlook that the utilization will increase a bit? Well, maybe Q2 you are looking at it to be flat, but if you get more naphtha, is it going to increase?

Speaker #1: Well, maybe for 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.

Makoto Matsuo: Well, currently, we are not thinking of increasing the utilization. Right now, in line with the customer demand, we are operating. It's not that we are receiving additional large-scale inquiries. For the time being, we believe we will maintain the current situation. That is all. Thank you very much. Thank you. Thank you, Umebaysan. Next question is from Nomura Securities, Okazaki-san, please go ahead.

Speaker #1: Right now, in line with 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.

Speaker #1: That is all. Thank you very much. Thank you.

Speaker #2: Thank you, Umebayashi-san. The next question is from Nomura Securities. Okazaki-san, please go ahead.

Operator: Next question is from Nomura Securities, Okazaki-san, please go ahead.

Speaker #1: This is Okazaki from Nomura Securities. Can you hear me? Yes. Thank you. My question is on Agro and Life Solutions. Ms. Ayanin, you mentioned that from Q1 to Q2, the market price will rise.

Shigeki Okazaki: This is Okazaki from Nomura Securities. Can you hear me?

Makoto Matsuo: Yes.

Toshihiro Yamauchi: Thank you. My question is on Agro & Life Solutions. Methionine, you mentioned that from Q1 to Q2, the market price will rise, but the current spot price seems to have peaked out. Your sales price shipment has some time lag from spots, the market price will rise in July, September, vis-a-vis April, June. Is my understanding correct?

Speaker #1: 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.

Speaker #1: 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 contract and so we refer to spot price and decide on our prices.

Makoto Matsuo: Yes, you are right. Basically, we do not sell in spots much. We sell to our customers based on contract, we refer to spot price and decide on our prices, there are some time lags.

Speaker #1: So, there are some time lags. Basically, 180,000 tons per year capacity, and this high level is continuing in Q1 and Q2. It's difficult to forecast the second half, but if you have any comments, you could share with us regarding the market price.

Toshihiro Yamauchi: Basically, 180,000 tons per year capacity, and this high level is continuing in Q1 and Q2? It's difficult to forecast the H2, if you have any comments you could share with us for the market price?

Speaker #1: First of all, regarding capacity utilization—will we be at full capacity? We are maintaining full capacity operations. For the second half, it's difficult to forecast, and that is why we have not issued a full-year forecast.

Makoto Matsuo: First of all, capacity utilization will be full capacity. We are maintaining a full capacity operation. For the H2, it's difficult to forecast. That is why we have not issued a full year forecast. We need to ascertain further and make the right decision.

Speaker #1: We need to ascertain further and make the right decision. Yes, thank you very much. Thank you.

Toshihiro Yamauchi: Yes. Thank you very much.

Makoto Matsuo: Thank you. Thank you very much, Okazaki-san. We are getting close to the scheduled ending time. We’d like to consider the next question as the last question. UBS Securities, Omuda-san, please go ahead. This is Omuda from UBS Securities. Thank you very much. I’m looking at page nine and page 24 for ICT & Mobility Solutions. On page nine, there’s the factors for volume plus positive and negative numbers. I’d like you to break this down and give me a quantitative explanation. On page 24, under mobility, it says that to make the sales price appropriately. With the sales price, it is a positive, on page nine with the volume comment and the sales price, there’s no comment. I’d like you to supplement the explanation in those two areas. Just a moment, please.

Speaker #2: Thank you very much. Okazaki-san.

Speaker #1: We are getting close to the scheduled ending time, so we would like to consider the next question as the last question. UBS Securities, Omura-san, please go ahead.

Speaker #1: 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 are factors for volume, plus positive and negative numbers.

Speaker #1: 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, but the sales price, it is a positive.

Speaker #1: But on page nine, with the volume, a comment, and the sales price, there's no comment. So I'd like you to supplement the explanation in those two areas.

Speaker #1: Just a moment, please. First of all, on page nine, where it says "volume and others," it's almost close to zero, but there's a positive and negative—plus and minus.

Makoto Matsuo: First of all, on page nine, where it says volume and others, it’s almost close to zero, 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, in the middle of several JPY 10 billion. Also here, the impact of yen depreciation is included. Here as the segment, it’s about JPY 50. Compared to last year, it’s a JPY 15 depreciation, that much is included, the other areas will be the negative part. These will be display related. Over here, last year’s sales gain, part of that, the large size TV business was sold or divested, this year that does not occur. For the semiconductor part, the middle end and low end part is not performing well.

Speaker #1: The positive factors will be that the semiconductor materials are positive. It's becoming a positive number. I cannot share the exact numbers with you here, but it's in the several tens of billions of yen.

Speaker #1: And also, here, the impact of a yen depreciation is included. Here, as the segment, it's about 50. So compared to last year, it's a ¥15 depreciation.

Speaker #1: 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.

Speaker #1: And for the semiconductor part, the middle-end and low-end segments are not performing well. But actually, the touch screen is being impacted by that.

Makoto Matsuo: Actually, the touch screen panels is being impacted by that. Basically, those factors are included in here is how I would like you to understand this. Also, where 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. That’s where the difference in revenue is showing. You see a lot of that in Essential & Green Materials, in other areas, the crude oil derived products, there is cost increased. That part also is incorporated or passed on. That’s why it is like this. 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. I hope you will understand in that way. Okay, understood.

Speaker #1: So basically, those factors are included in here. This 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.

Speaker #1: Therefore, the price is being increased in line with that, and that's where the difference in revenue is showing. You see a lot of that in essential materials, but in other areas, such as crude oil-derived products, there is a cost increase.

Speaker #1: And that part is also incorporated or passed on, so that's why it is like this. You're saying that it is not written in the core operating income?

Speaker #1: It's not written. It's not that large. We're just increasing it only by the amount that the raw material price increased. So I hope you will understand in that way.

Speaker #1: Okay, understood. The mobility volume difference on page nine is not that large, but you still wrote it on this page. Well, in mobility, regarding the Chinese economic stimulus measures, there is a replacement of home appliances.

Makoto Matsuo: The mobility’s volume difference on page nine, it is not that large, you still wrote it on this page. Well, in mobility, the Chinese economic stimulus measures, there is a replacement of home appliance, there are a lot of the super engineering plastics are used. That is used as the positive factor. Maybe you’ve already seen it in there. We changed the material by showing you by subsegments, by products. 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, Omuda-san. We have exceeded the time, we would like to close today’s conference call. Thank you very much again for your attendance today. Thank you.

Speaker #1: And there, a lot of the super plastics are used. So that is used as a positive factor. So maybe you've already seen it and know.

Speaker #1: So we changed the material by showing you the sub-by-sub segments by products. And so that's why, even though the number is not large, it is written.

Speaker #1: Okay. Understood. Thank you very much. This concludes my questions. Thank you. Thank you very much, Omura-san.

Speaker #2: We have exceeded the time, so we would like to close today's conference call. Thank you very much again for your attendance today. Thank you.

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Q1 2027 Sumitomo Chemical Earnings Call

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