SUMITOMO CHEMICAL COMPANY,LIMITED Q1 FY2027 earnings call

• Overall Financial Performance

  • Core operating income and net income attributable to owners of the parent achieved the second-highest Q1 result on record, only behind Q1 FY22
  • Following Sumitomo Pharma's 9.78 billion yen capital increase, the company's debt-to-equity ratio improved significantly to 0.80x from 0.93x at the end of FY25
  • Total assets as of end-June 2026 were 3.6135 trillion yen, up 208.5 billion yen from FY25 end, driven by temporary working capital increases after the Chiba plant restart and rising NAFTA prices
  • Operating cash flow was a positive 5 billion yen (down 19 billion yen year-on-year in inflows), free cash flow was negative 44.3 billion yen, and financing cash flow was positive 55.6 billion yen driven by Sumitomo Pharma's public offering

• Operational Performance Drivers

  • Price increases contributed 40.5 billion yen of total year-on-year revenue growth, mostly from higher product prices in Essential and Green Materials, while volume declines pulled revenue down 19.2 billion yen from 2025 business divestments
  • Core operating income growth was driven by a 23.7 billion yen volume/equity investment gain (mostly from improved PetroRabic earnings), and a 15 billion yen price gain from inventory valuation differences against rising market prices
  • Agro and Life Solutions growth came from steady crop protection shipment volume growth and expanded margins for feed additives driven by rising market prices
  • ICT and Mobility Solutions saw declining profits from weaker display-related product performance (lower polarizing film prices, no prior-year LCD business sale gain, semiconductor shortage impacts) offset by growing semiconductor-related material shipments driven by AI demand and increased super engineering plastic shipments from Chinese consumer electronics replacement policies
  • Essential and Green Materials growth came from inventory valuation gains from rising product prices in Japan/Singapore and improved refining margins at equity affiliate PetroRabic
  • Sumitomo Pharma saw lower profits from higher North American SG&A and R&D expenses, offset partially by expanded sales of Orgovix and Gemtesa

Consolidated sales revenue for Q1 FY26 was 578.2 billion yen, up 52.1 billion yen year-on-year, with core operating income of 62.3 billion yen, up 34.7 billion yen year-on-year. Net income attributable to owners of the parent was 40.8 billion yen, up 45.3 billion yen year-on-year. Performance by segment:

1. Agro and Life Solutions: Core operating income of 9.6 billion yen, up 7.4 billion yen year-on-year. Revenue contribution accounts for approximately 16.6% of total consolidated sales.
2. ICT and Mobility Solutions: Core operating income of 13 billion yen, down 5.3 billion yen year-on-year. Revenue contribution accounts for approximately 22.5% of total consolidated sales.
3. Advanced Medical Solutions: Core operating loss of 1.9 billion yen, a 900 million yen year-on-year deterioration. Revenue contribution is small relative to total consolidated sales.
4. Essential and Green Materials: Core operating income of 27.2 billion yen, up 32.7 billion yen year-on-year. This is the largest segment, accounting for approximately 47% of total consolidated sales.
5. Sumitomo Pharma Segment: Core operating income of 18.8 billion yen, down 2.2 billion yen year-on-year. Revenue contribution accounts for approximately 13.9% of total consolidated sales.

• First-half FY26 guidance is newly disclosed, while full-year FY26 guidance remains unchanged (no revision, to be reassessed when first-half results are announced due to unpredictable Middle East geopolitical turmoil)
  • First-half FY26 consolidated sales revenue is expected to be 1.17 trillion yen, up 74.6 billion yen year-on-year
  • First-half FY26 core operating income is forecast at 125 billion yen, up 16.3 billion yen year-on-year, with core operating income (excluding business sale gains) expected to double year-on-year
  • First-half FY26 net income attributable to owners of the parent is forecast at 70 billion yen, up 30.3 billion yen year-on-year, and management expects to hit the full-year net income target announced in May by the end of the first half
  • Interim and full-year dividends are maintained at 8 yen per share each, for a total annual dividend of 16 yen per share, unchanged from the May announcement
• Segment first-half guidance:
  • Agro and Life Solutions: Expected to see significant year-on-year profit growth from steady crop protection shipments and improved feed additive margins
  • ICT and Mobility Solutions: Expected to see year-on-year profit decline, due to the absence of the prior-year large LCD business sale gain and lower display-related material shipments, even with steady semiconductor processing material shipments
  • Essential and Green Materials: Expected to see significant year-on-year profit growth from improved PetroRabic profitability and inventory valuation gains from rising product prices
  • Sumitomo Pharma: Expected to see significant year-on-year profit decline due to the absence of prior-year Asian business sale gains and higher North American SG&A/R&D expenses
• Guidance assumptions are based on an average first-half exchange rate of 157 yen per US dollar and an average NAFTA price of 104,000 yen per kiloliter, assuming ongoing Middle East tensions through the first half

• Persistent geopolitical uncertainty from ongoing and deteriorating Middle East turmoil, which creates unpredictable impacts on raw material prices and supply chains, and prevented management from revising full-year FY26 guidance at this time
  • Soaring raw material prices (including NAFTA) are expected to continue impacting results for the foreseeable future, with uncertain outlook for feed additive margins despite Q1 improvements
  • El Niño weather patterns create mixed and uncertain impacts on global crop protection demand, with drought and flood risks across key markets including Brazil, India and Southeast Asia
  • Sluggish demand in the global mobile display market, compounded by increasingly challenging memory chip procurement conditions for mid- and low-end display products
  • Higher fixed costs from pre-production investments in growing semiconductor-related material businesses are pressuring near-term segment profits, even as long-term demand grows
  • Elevated distribution channel inventory levels for crop protection in Brazil create potential near-term shipment risks

Q: Watabe of Morgan Stanley asked for a profit breakdown of Agro and Life Solutions' strong Q1 performance, background to the expected large Q2 profit increase, and the impact of El Niño on global crop protection demand. / A: Q1 profit growth was almost entirely driven by tighter supply-demand for methionine (feed additive) from Middle East tensions that pushed up prices, while crop protection was in its off-peak season with results flat year-on-year. Q2 profit growth will come from both feed additive price increases and the start of the high demand season for crop protection in Brazil, Latin America and India. El Niño creates mixed regional impacts: lower precipitation and higher temperatures in northern Brazil and Southeast Asia reduce planting but increase pest activity, while southern Brazil faces flood risk, and Indian monsoon delays pushed Q1 shipments into Q2, with recovery now underway. Overall, net impact remains uncertain.

Q: Yamada of Mizuho Securities asked why core operating income for ICT and Mobility Solutions is expected to stay roughly flat QoQ between Q1 and Q2, despite expected growth in semiconductor material demand that matches strong industry results. / A: Display segment performance is expected to improve QoQ driven by mobile display growth, while semiconductor material shipment volumes will also grow quarter-over-quarter. However, the expected flat profit comes from pre-investment in fixed capacity for semiconductor-related products that starts impacting costs from Q2, offsetting volume-based revenue gains. Large-size display continues to be wound down, and mid/low-end touch panel products are impacted by memory chip shortages, dragging on overall segment performance.

Q: Miyamoto of SMBC Nikko Securities asked for a regional breakdown of crop protection sales in Q1, background to the expected large Q2 year-on-year profit jump, and the current state of distribution channel inventory by region. / A: In Q1, North American sales were flat in local currency, Central and Latin America saw strong growth (partially from front-loaded Q2 shipments), India saw a slight decline from delayed monsoon, and Europe was flat. Optimal inventory levels have been reached in North America, India and Europe, but Brazil still has elevated distribution inventory. The 35 billion yen year-on-year Q2 profit increase will come more than half from crop protection and over 10 billion yen from feed additive price increases, with all regions growing and Latin America leading the recovery after a sluggish 2025.

Q: Umebayashi of Daiwa Securities asked for the background to the expected flat QoQ core operating income in Essential and Green Materials between Q1 and Q2, and update on Singapore plant utilization. / A: Q1 profits included 15 billion yen in temporary inventory valuation gains from rising NAFTA prices; in Q2, the inventory step-up is reversed as forecast NAFTA prices decline, pulling non-PetroRabic profits down by nearly 20 billion yen. This is offset by higher expected equity income from PetroRabic, which will rise from 9 billion yen in Q1 to 17 billion yen in Q2, resulting in a net flat QoQ result. Utilization in Japan and Singapore remains unchanged from Q1, with no plans to increase utilization as demand is steady but no large new incoming orders, and all required raw material procurement is secured.