4188.T

Structural Reform and Portfolio Optimization

• The company completed decisive structural reforms in FY 2025, including withdrawal from the coke and carbon materials business, ethylene restructuring in Western Japan, dissolution of overseas MMA joint ventures, and a voluntary retirement program. All major impairment losses tied to these reforms were recognized in FY 2025.
• Over the past two years, the company completed divestitures totaling ~490 billion yen against a 400 billion yen medium-term target, establishing a foundation for future growth. Cumulative impact from the three principles of disciplined management (pricing discipline, investment discipline, asset optimization) reached 58 billion yen in FY 2025, with 29 billion yen from pricing improvements and 29 billion yen from asset optimization.
• Net debt-to-equity improved significantly to 0.83 from 1.06 year-over-year, following debt repayment and proceeds from asset sales including the Mitsubishi Tanabe Pharma share transfer.

Growth Driver Operational Updates

• Large-scale polyester film investment projects in Germany have commenced operations and are expected to contribute to earnings in FY 2026.
• Carbon fiber composite parts for robotaxis began shipments in the second half of FY 2025, with shipments expected to triple to 4x in FY 2026. Production consolidation at the Italian CPC facility has eliminated unprofitable output, and new inquiries for aerospace, drone, and space projects are progressing.
• Semiconductor-related businesses (synthetic quartz, precision cleaning services) saw strong volume growth in FY 2025, with new capacity and product launches planned for FY 2026 to meet elevated incoming inquiries.

Accountability for the Soarnol U.K. Project

• A 30 billion yen impairment loss was recorded for the Soarnol U.K. plant construction review, which caused FY 2025 results to miss the prior October forecast of 250 billion yen core operating income. Management confirmed no similar impairment risks exist for other ongoing investment projects.
• President and CEO Manabu Chikumoto and the Soarnol business head have volunteered for a 20% reduction in compensation for 6 months to take responsibility for the project overrun. Stricter investment oversight and monitoring will be implemented going forward.

Segment Reorganization

• Effective April 1, 2026, the reporting segments will be reorganized: the former Specialty Materials segment will be split into 5 new segments (Films and Performance Materials, Composites and Shapes, Information Electronics, Polymer Compounds, Water and Infrastructure), while MMA and Derivatives and Basic Materials (formerly Basic Materials and Polymers) will remain largely intact. The change is intended to enable more direct oversight to meet KAITEKI Vision 35 goals.

• FY 2026 (ending March 2027) Consolidated Guidance: Forecast sales revenue of 3.8 trillion yen (up 96 billion yen from FY 2025), core operating income of 305 billion yen (up 80 billion yen year-on-year), and net income attributable to owners of the parent of 127 billion yen (up 115.2 billion yen year-on-year), a substantial recovery after FY 2025's large non-recurring losses. The guidance assumes an exchange rate of 150 yen per USD and a naphtha price of 63,000 yen. This guidance does not include the potential impact of prolonged Middle East tensions.
• Segment Forecasts: The Chemicals segment core operating income is expected to rise 75.7 billion yen year-on-year to 100 billion yen, driven by higher specialty materials volumes, continued cost reductions, and recovering MMA market conditions. Industrial Gases core operating income is projected to rise to 205 billion yen, with steady profit growth from pricing and productivity initiatives. Specialty Materials will see profit growth from increased sales of key growth products and the absence of the 2025 Soarnol impairment. MMA & Derivatives is expected to return to profitability, while Basic Materials will narrow its losses.
• Dividend Guidance: The FY 2025 year-end dividend remains unchanged at 16 yen per share. For FY 2026, the interim and year-end dividends are forecast to be 16 yen per share each, for a total annual dividend of 32 yen per share, unchanged from FY 2025.
• If Middle East tensions persist through September 2026, management estimates a downside impact of 18 billion yen to the FY 2026 core operating income forecast, with over half of this impact concentrated in MMA & Derivatives.
• Expected cumulative benefit from disciplined management initiatives in FY 2026 is 48 billion yen, including contributions from new investment projects (notably full-scale robotaxis carbon fiber shipments) and fixed cost reductions from the 2025 Next-stage Support Program.

For full-year FY 2025: Consolidated sales revenue was 3.704 trillion yen, down 343.6 billion yen year-on-year. Core operating income was 225 billion yen, down 2% (3.8 billion yen) year-on-year. Operating income was 3.1 billion yen, down 79% year-on-year, and net income attributable to owners of the parent was 11.8 billion yen, down 74% year-on-year. 1. Chemicals Segment (overall): Sales revenue decreased 11% year-on-year, core operating income was 24.3 billion yen, a 43% (18.4 billion yen) decline year-on-year. Revenue contribution percentage is not explicitly provided for the full restructured FY 2025 segments. - Specialty Materials: Core operating income increased 8.4 billion yen year-on-year, to a profit before the Soarnol impairment; the 29 billion yen negative impact from the U.K. Soarnol impairment and inflation costs resulted in a fourth quarter FY 2025 loss of 12.9 billion yen. Positive drivers included 8.1 billion yen in price gap improvements, 15.5 billion yen in volume gains from semiconductor-related products and robotaxis carbon fiber composite parts, and 13.8 billion yen in cost reduction gains. - MMA and Derivatives: Core operating income decreased 37.2 billion yen year-on-year, with a 40.3 billion yen deterioration in price gap due to sharply falling MMA monomer market spreads. The segment recorded a fourth quarter loss of 3.1 billion yen. - Basic Materials and Polymers: Narrowed its full-year loss by 10.4 billion yen year-on-year, driven by 11.4 billion yen in price gap improvements and 7.1 billion yen in cost reductions from carbon business structural reforms. A 9 billion yen negative impact from ethylene oxide/glycol facility impairment and poor inventory valuation resulted in a fourth quarter loss of 1.3 billion yen. 2. Industrial Gases Segment: Sales revenue increased 4% year-on-year, core operating income increased 14.6 billion yen (8% year-on-year) to 200.7 billion yen full-year. Fourth quarter core operating income rose to 56.3 billion yen, up 4.9 billion yen from the third quarter, driven by pricing management and productivity improvements. The segment represents approximately 89.2% of group core operating income before non-recurring items.

• Geopolitical risk from ongoing Middle East tensions poses the most significant near-term uncertainty. A prolonged disruption could lead to 18 billion yen of downside core operating income impact, driven by supply chain disruptions that reduce customer production and order volumes, rather than inability to pass through higher naphtha costs to customers. Over half of the estimated impact is concentrated in MMA & Derivatives, with 6 billion yen impact on Specialty Materials and 2 billion yen on Basic Materials.
• While the company has diversified procurement routes and adjusted pricing mechanisms to mitigate naphtha price volatility, persistent high naphtha prices or supply shortages could still lead to unexpected production cuts or margin compression.
• While management has confirmed no similar impairment risks exist for other investment projects after the Soarnol U.K. impairment, unforeseen delays or cost overruns in ongoing large-scale growth investments could lead to future write-downs.
• Weak demand in Europe and North America for EV-related materials and general industrial products remains a drag on segment performance, and continued macroeconomic softness could further suppress volume growth.

Q: Can you elaborate on the 18 billion yen downside impact from prolonged Middle East tensions, including procurement risks and inventory valuation impacts? / A: The 18 billion yen estimate assumes tensions persist through September 2026. Management notes that most higher naphtha costs can be passed through to customers, and there is no immediate risk of production shutdown from raw material shortage. The majority of the impact comes from supply chain disruptions that reduce customer production and order volumes, not direct cost or spread impacts. Over half of the 18 billion yen downside (10 billion yen) comes from MMA & Derivatives, which is most exposed to Middle East supply chain disruptions. Net price volatility impacts offset across quarters, with minimal long-term net impact.

Q: What drives the large projected profit increase for Specialty Materials in FY 2026, especially for Composites and Shapes related to robotaxis shipments? / A: The single largest factor is the absence of the 30 billion yen Soarnol impairment recorded in FY 2025. For Composites and Shapes, robotaxis carbon fiber composite shipments are expected to triple to 4x year-on-year, as full-scale production ramps up after a late 2025 launch. Management cannot disclose shipment numbers due to contractual obligations. Additional growth drivers include: production consolidation in Italy that eliminated unprofitable output, new aerospace/drone project inquiries, ramping shipments of MLCC polyester film from the new German line, steady Soarnol volume growth, and new semiconductor product launches for synthetic quartz and photoresists.

Q: What is the breakdown of the 35 billion yen FY 2025 asset optimization benefit from disciplined management, and was the 25 billion yen FY 2025 core operating income miss entirely driven by impairment losses? / A: Without the 35.5 billion yen total impairment losses (30.3 billion for Soarnol, 5.2 billion for ethylene oxide/glycol), FY 2025 chemicals segment core operating income would have been very close to the original guidance. For the 35 billion yen asset optimization benefit, roughly 10 billion yen comes from fixed cost reductions via the Next-stage Support Program voluntary retirement scheme, more than 10 billion yen comes from cross-business cost savings from production site consolidation, and several billion yen comes from centralized procurement and logistics consolidation. The results are broadly in line with planned targets after accounting for the unforeseen impairment.

Q: Why is the 10 billion yen Middle East impact on MMA negative even when current spot MMA prices are higher and spreads have widened? / A: The 10 billion yen negative impact is almost entirely a volume impact, not a spread impact. Original MMA market assumptions for FY 2026 were around $1,400 per ton, with current spot prices near $2,000 per ton. However, prolonged Middle East tensions have slowed MMA exports from Middle Eastern producers, disrupted regional supply chains, and reduced customer order volumes for Mitsubishi Chemical's MMA products, which accounts for the negative forecast impact. Spread dynamics are volatile and difficult to forecast, with current positive spreads offset by supply chain-driven volume declines.