SOMMY

• Overall Financial Performance

  • Consolidated Q1 FY26 sales revenue reached 578.2 billion yen, an increase of 52.1 billion yen year-on-year. Core operating income hit 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 FY22.
  • Net income attributable to owners of the parent was 40.8 billion yen, an increase of 45.3 billion yen year-on-year, also the second-highest Q1 result on record.
  • The D/E ratio improved significantly to 0.80x from 0.93x at the end of FY25, driven by strong operating performance and Sumitomo Pharma's 9.78 billion yen capital increase.
  • Free cash flow was negative 44.3 billion yen, a deterioration of 22.3 billion yen year-on-year, due to a temporary increase in working capital after the Chiba plant restarted following periodic maintenance, paired with higher investing cash outflows.

• Balance Sheet Update

  • Total assets as of end-June 2026 were 3,613.5 billion yen, an increase of 208.5 billion yen from end-FY25, mainly due to temporary working capital growth after the Chiba plant restart and higher naphtha prices driving up inventory and accounts receivable.
  • Interest-bearing liabilities decreased 19.3 billion yen year-on-year to 1,132.2 billion yen, while total equity increased 175.8 billion yen to 1,412.4 billion yen, driven by Sumitomo Pharma's public offering.

• Operating Environment Assessment

  • Global economic growth is supported by solid technology sector investment, but remains uncertain due to escalating geopolitical risks in the Middle East.
  • Crop protection shipments are steady overall, with varying levels of inventory congestion across regional distribution chains.
  • Feed additive margins improved in Q1, but soaring raw material prices create an uncertain outlook.
  • The mobile display market remains sluggish amid challenging memory chip procurement conditions, while AI-driven demand keeps the silicon semiconductor market solid.
  • Petrochemical and raw material production has secured sufficient volumes for current plans, but the impact of soaring raw material prices is expected to persist in the near term.

• Management is publishing its first half FY26 forecast for the first time (no first half forecast was released in the prior May update due to unpredictable Middle East risks). For the first half, the company expects 1.17 trillion yen in sales (up 74.6 billion yen year-on-year), 125 billion yen in core operating income (up 16.3 billion yen year-on-year), 122 billion yen in operating income (up 18.3 billion yen year-on-year), and 70 billion yen in net income attributable to owners of the parent (up 30.3 billion yen year-on-year). Core operating income excluding business sale gains is projected to double year-on-year.
• The full year FY26 guidance remains unchanged, as ongoing Middle East turmoil continues to create too much uncertainty for a reliable update. Management will reassess and update the full year forecast when first half FY26 results are announced.
• The annual dividend per share forecast remains unchanged at 16 yen total, split as 8 yen interim and 8 yen year-end.
• First half forecast assumptions are: an average exchange rate of 157 yen to the U.S. dollar, and an average naphtha price of 104,000 yen per kiloliter, based on the projection that current Middle East conditions will continue through the first half.
• Segment-level first half forecasts project significant year-on-year profit growth for Agro and Life Solutions and Essential and Green Materials, a profit decline for ICT & Mobility Solutions (due to the absence of the prior-year large LCD business sale gain and lower display material shipments), and a significant year-on-year profit decline for Sumitomo Pharma (due to higher SG&A and R&D expenses and the absence of the prior-year Asia business sale gain).

1. Agro and Life Solutions: Core operating income of 9.6 billion yen, up 7.4 billion yen year-on-year. The improvement was driven by steady crop protection shipment volume growth and rising margins for feed additives amid tightening market supply. It contributed approximately 15.4% of total company core operating income.
2. ICT & Mobility Solutions: Core operating income of 13 billion yen, down 5.3 billion yen year-on-year. Profit declined due to lower polarizing film selling prices, the absence of a prior-year gain from the sale of the large LCD polarizing film business, and shipment declines from semiconductor shortages, partially offset by higher profits from increased shipments of semiconductor processing materials and super engineering plastics for mobility (driven by China's consumer electronics replacement policy). It contributed approximately 20.9% of total company core operating income.
3. Advanced Medical Solutions: Core operating loss of 1.9 billion yen, a 900 million yen year-on-year decline. The worsening loss stemmed from lower profit margins at affiliated companies due to Middle East geopolitical tensions and year-over-year shipment timing differences for some pharmaceutical active ingredients and intermediates. It represented a negative contribution to total core operating income.
4. Essential and Green Materials: Core operating income of 27.2 billion yen, up 32.7 billion yen year-on-year. Profit growth came from inventory valuation gains from rising product market prices in Japan and Singapore, as well as improved refining margins and higher equity method investment income from affiliate Petro Rabigh in Saudi Arabia. It contributed approximately 43.7% of total company core operating income.
5. Sumitomo Pharma: Core operating income of 18.8 billion yen, down 2.2 billion yen year-on-year. Higher SG&A expenses in North America and increased R&D costs offset gains from expanded sales of ORGOVYX (advanced prostate cancer treatment) and GEMTESA (overactive bladder treatment), which countered the volume decline from the prior-year partial sale of the company's Asia business. It contributed approximately 30.2% of total company core operating income.

• Ongoing geopolitical tensions and turmoil in the Middle East create high uncertainty for the global economic outlook, raw material prices, and the performance of regional affiliated companies, making full year forecasting unreliable at present.
  • El Nino weather patterns create mixed but material regional risks for agricultural crop protection demand: dry conditions and heat in the Northern parts of Brazil and Southeast Asia may reduce planting but increase pest activity, while increased precipitation in Southern Brazil raises flood risk, and delayed monsoons in India have already shifted Q1 shipments to later periods.
  • Soaring raw material (including naphtha) prices continue to put pressure on margins across multiple business segments, particularly for feed additives and petrochemical products.
  • Shortages of semiconductors and challenging procurement conditions for mid- and low-end memory chips are negatively impacting shipments of display-related products in the ICT & Mobility Solutions segment.
  • High inventory levels remain in distribution channels for crop protection products in Brazil, creating uncertainty for near-term shipment volumes.

Q: What is driving the expected large Q2 profit increase in Agro and Life Solutions, and what impact will El Nino have on crop protection demand?

A: Q1 profit growth was driven almost entirely by higher methionine (feed additive) prices from tightening supply due to Middle East tensions, while crop protection had steady performance aligned with prior expectations. The Q2 profit increase reflects seasonal demand: crop protection enters its high season in Brazil, Latin America, and India, while feed additive prices are expected to rise further from Q1 levels. El Nino has mixed regional impacts: it has delayed monsoons in India (shifting shipments from Q1 to Q2), creates mixed risks in Brazil (drought/pest increases in the north, flood risk in the south), and may reduce planting but increase pest demand in Southeast Asia/Australia. Management sees the first half profit forecast as highly likely to be achieved.

Q: Why is core operating income for ICT & Mobility Solutions only projected to rise slightly from JPY 13 billion in Q1 to JPY 15 billion in Q2, even with seasonal demand improvements expected for displays and strong semiconductor growth?

A: Display-related profits are expected to improve quarter-on-quarter, and semiconductor demand remains steady and growing, especially for AI-related processing materials. However, the company is winding down large-format display operations, and mid/low-end display products are being hit by memory chip shortages. In addition, the company has made significant advanced investments in semiconductor capacity, which has increased fixed costs starting in Q2 that offset semiconductor profit growth, leading to a relatively flat sequential result. Mobility-related profits are also expected to see a slight sequential decline.

Q: Why is Essential and Green Materials core operating income projected to decline quarter-on-quarter to JPY 12 billion in Q2, despite improved results at Petro Rabigh?

A: Petro Rabigh's contribution is expected to rise from JPY 9 billion in Q1 to around JPY 17 billion in Q2, driven by continued improving refining margins. The sequential decline is almost entirely driven by the reversal of Q1's temporary inventory valuation gain: Q1 saw JPY 15 billion in gains from the gap between historical inventory costs and rising product market prices, but as naphtha prices stabilized, this temporary gain reverses to a negative adjustment in Q2. Excluding the inventory valuation effect and Petro Rabigh performance, underlying operating results are largely flat quarter-on-quarter. Utilization rates in Japan and Singapore remain stable at current levels, with no plans to increase utilization in the near term.

Q: With spot methionine prices appearing to peak, is the expected Q2 price increase still valid, and what is your outlook for the second half?

A: The company sells almost all methionine on contract, with prices set based on recent spot prices with a time lag, so the expected Q2 price increase is still on track, matching the analyst's understanding. The company is currently operating at full 180,000 tons per year capacity, but the second half market outlook remains too uncertain to forecast, which is one factor supporting the decision to keep the full year guidance unchanged for now.