SUMITOMO CHEMICAL COMPANY,LIMITED Q1 FY2026 earnings call

Overall Consolidated Financial Performance

• Consolidated sales revenue for Q1 FY2026 was 578.2 billion yen, up 52.1 billion yen year-on-year. Core operating income was 62.3 billion yen, up 34.7 billion yen year-on-year, marking the second-highest Q1 core operating income on record (behind only Q1 FY2022).
• Net income attributable to owners of the parent was 40.8 billion yen, an increase of 45.3 billion yen year-over-year.
• The D/E ratio improved significantly to 0.80x from 0.93x at the end of FY2025, driven by strong operating performance and Sumitomo Pharma's 97.8 billion yen capital increase.
• Total assets as of end-June 2026 stood at 3,613.5 billion yen, up 208.5 billion yen from end-FY2025, primarily due to a temporary working capital increase following the restart of the Chiba plant after periodic maintenance.
• Operating cash flow was positive 5 billion yen, a 19 billion yen decrease in inflow year-over-year, while free cash flow was negative 44.3 billion yen, a 22.3 billion yen deterioration year-over-year. Financing cash flow was positive 55.6 billion yen, a 104.8 billion yen improvement year-over-year driven by Sumitomo Pharma's public offering.

Operational Updates

• Average Q1 exchange rate was 159.57 yen to the U.S. dollar, and average naphtha price was 118,500 yen per kiloliter, representing a weaker yen and higher raw material prices than the prior year.
• For the company overall, year-over-year revenue growth of 52.1 billion yen was driven by a 40.5 billion yen increase from higher product prices (primarily in Essential and Green Materials) and a 30.7 billion yen increase from foreign currency conversion, partially offset by a 19.2 billion yen decrease from lower volume stemming from prior-year business divestments.
• The Chiba plant restarted operations in Q1 after periodic maintenance from January to March 2026, leading to a temporary increase in working capital.
• Petro Rabigh, the company's Saudi Arabian equity method affiliate, saw significant margin improvement that drove strong gains in the Essential and Green Materials segment.

1. Agro and Life Solutions: Core operating income was 9.6 billion yen, increasing 7.4 billion yen year-on-year. Revenue contribution is not explicitly disclosed in the transcript. Profit growth was driven by steady improved shipment volumes for crop protection products and higher margins on feed additives.
2. ICT & Mobility Solutions: Core operating income was 13 billion yen, decreasing 5.3 billion yen year-on-year. Profit declines stemmed from lower polarizing film selling prices, the absence of a prior-year gain from selling the large LCD polarizing film business, and lower shipments due to semiconductor shortages. These declines were partially offset by higher profits from increased shipments of semiconductor processing materials and higher shipments of super engineering plastics driven by China's consumer electronics replacement policy.
3. Advanced Medical Solutions: Core operating loss was 1.9 billion yen, a 900 million yen deterioration in profit year-on-year. Profit decreased due to lower margins at affiliated companies from Middle East geopolitical tensions and year-over-year differences in shipment timing for some active pharmaceutical ingredients and intermediates.
4. Essential and Green Materials: Core operating income was 27.2 billion yen, increasing 32.7 billion yen year-on-year. Profit grew from inventory valuation gains driven by rising product market prices in Japan and Singapore, and improved equity method investment income from better refining margins at affiliate Petro Rabigh in Saudi Arabia.
5. Sumitomo Pharma: Core operating income was 18.8 billion yen, decreasing 2.2 billion yen year-on-year. Higher SG&A expenses in North America and increased R&D costs offset the positive impact of lower costs from the prior-year partial sale of the Asia business and expanded shipments of ORGOVYX and GEMTESA.

• Management is releasing its first half FY2026 forecast for the first time, after opting not to publish a first half forecast in May due to high uncertainty from Middle East tensions. The full year FY2026 forecast remains unchanged at this time, as uncertainty remains; management will reassess and update the full year forecast when reporting first half results.
• For the first half FY2026, management forecasts consolidated sales revenue of 1.17 trillion yen (up 74.6 billion yen year-on-year), core operating income of 125 billion yen (up 16.3 billion yen year-on-year), operating income of 122 billion yen (up 18.3 billion yen year-on-year), and net income attributable to owners of the parent of 70 billion yen (up 30.3 billion yen year-on-year). Core operating income excluding business sale gains is expected to double year-on-year, and management expects to hit the full year net income target by the end of the first half.
• The interim dividend of 8 yen per share, full year dividend of 16 yen per share, remains unchanged from the May announcement.
• First half forecast assumptions: average exchange rate of 157 yen to the dollar, average naphtha price of 104,000 yen per kiloliter, and ongoing Middle East tensions through the half.
• Segment level first half forecasts: Agro and Life Solutions expects significant year-over-year profit growth; ICT & Mobility Solutions expects lower year-over-year profit due to the absence of the prior-year large LCD business sale gain and lower display-related shipments; Essential and Green Materials expects significant year-over-year profit growth from Petro Rabigh margin improvement and inventory valuation gains; Sumitomo Pharma expects significant year-over-year profit decline due to the absence of the prior-year Asia business sale gain and higher SG&A/R&D expenses in North America.

• Geopolitical tensions in the Middle East create uncertainty for business performance, and have already negatively impacted Advanced Medical Solutions margins and created supply chain tightness for feed additives.
• Global economic outlook remains uncertain despite solid support from technology sector investment, due to ongoing geopolitical risk.
• Raw material (including naphtha) prices have risen significantly, and the impact of elevated prices is expected to continue for the foreseeable future.
• Memory chip procurement conditions are increasingly challenging, leading to sluggish demand for mobile display products, with middle and low-end display applications particularly impacted.
• El Niño creates uneven, uncertain impacts on global crop protection demand, with varying regional risks including delayed monsoons in India, drought in Southeast Asia/Australia, and flood risk in southern Brazil.
• Inventory levels in crop protection distribution channels are uneven, with Brazil holding elevated inventory that creates uncertainty for near-term sales.

Q: What drove the large projected Q1 to Q2 profit increase in Agro and Life Solutions, and how is El Niño expected to impact crop protection demand? / A: Q1 profit improvement for the segment was mostly driven by tightening supply/demand for methionine feed additives from Middle East tensions, which pushed up prices. Crop protection had steady performance in Q1 (its off-peak season). The Q2 profit increase is driven by feed additive price continuing to rise, and crop protection entering its peak demand season in Brazil, Latin America, and India. El Niño impacts vary by region: it brings drought and higher pest pressure (positive for crop protection demand) to northern Brazil, Southeast Asia, and Australia, with flood risk to southern Brazil and delayed monsoon planting in India (which has begun recovering in July).

Q: Why is core operating income for ICT & Mobility Solutions projected to stay nearly flat between Q1 and Q2, even though display demand is expected to improve quarter-on-quarter? / A: Display segment profits are expected to improve from Q1 to Q2, driven by mobile display growth, with large-sized displays continuing to decline as the company winds down that business. Semiconductor materials demand is steady with no strong seasonality quarter-to-quarter, and mobility product profits are expected to see a slight decline. The flat overall outlook is primarily due to increased fixed costs from ongoing semiconductor-related investment, which will start impacting results starting in Q2, offsetting semiconductor materials shipment growth.

Q: Why is Essential and Green Materials core operating income projected to decline quarter-on-quarter to 12 billion yen in Q2, after 27.2 billion yen in Q1, and what is the current plant utilization outlook in Singapore? / A: The large quarter-on-quarter decline is driven by the reversal of Q1 inventory valuation gains: Q1 saw 15 billion yen in gains from rising product market prices, but Q2 naphtha price declines will reverse these gains, leading to a negative impact from inventory valuation. This is partially offset by higher equity income from Petro Rabigh, which is projected to rise from 9 billion yen in Q1 to 17 billion yen in Q2. Excluding inventory valuation and Petro Rabigh results, underlying performance is flat between quarters. Plant utilization in both Japan and Singapore is stable at current levels, and the company does not plan to increase utilization in Singapore as no large new customer demand has emerged.

Q: What is the outlook for methionine feed additive prices after spot prices appear to have peaked? / A: Sumitomo Chemical sells most methionine under contract rather than on the spot market, with contract prices adjusted based on spot prices with a time lag. The projected Q2 price increase reflects this lag. The company maintains full capacity utilization of its 180,000 ton per year production facility, but the second half price outlook remains too uncertain to forecast at this point, consistent with the decision to hold the full year guidance unchanged.