As it is time to start, we will now begin the conference call for the presentation of the financial results for fiscal year 2025, first quarter. Thank you very much for your participation. Today, Mr. Yamauchi, Executive Officer and General Manager of the Accounting Department, will give a briefing on the financial results for fiscal year 2025, first quarter, and he will later take questions. We will conclude the call at 4:50 P.M. Mr. Yamauchi, over to you.
Good afternoon. I'm Yamauchi, responsible for the Accounting Department. Thank you very much for attending our conference call today. Despite your busy schedule, I would like to thank the investors and analysts for your daily understanding and support to our management. Thank you very much for that. Now, let me start with a briefing on the financial results for FY 2025, first quarter. Please turn to the slide page 4.
Before explaining the details of the financial results, I would like to give a brief update on the status of profit and loss for the first quarter. On the left, the core operating income in 2023, 2024, 2025, for five years, you can see the figures. In FY 2023, we had a large loss ever since the start of the company. We faced a very difficult situation from the first quarter. For FY 2024, we achieved a V-shaped recovery and were able to secure profitability in the first quarter. In this fiscal year, first quarter, the profit we made last year was further expanded. For the first quarter, Sumitomo Pharma performed well, and Ascension Green Materials improved its profitability. In addition, shipments of Agro and Life Solutions and ICT and Mobility Solutions were strong.
On the right, you can see the net income attributable to owners of the parent for the quarter for the three years. With appreciation of the yen in this quarter, we had a slight loss. For each term, there was a big impact from foreign currency, as you can see in parentheses, excluding the impact of foreign currency transactions. Just like the core operating income, we were able to achieve steady improvements. Now, next, please turn to page 5. Let me begin by explaining the business environments around our company in the first quarter of FY 2025. With regards to the economic situation, although the global economy is continuing to show signs of gradual recovery, uncertainty is high due to such factors as policy management. Because of this, the future continues to remain uncertain. Below are our perceptions of the business environment in our major business fields using weather symbols.
The first one, crop protection. Although Q1 is an off-season for demand, there was solid growth in India. The miscellaneous market bottomed out at the end of the last fiscal year and currently shows signs of recovery. For displays, there is still no impact from the backlash of shipments brought forward because of tariffs. There was solid growth in mobile device-related components. In semiconductors, demand for semiconductors varied by field, but there are signs of gradual recovery. Petrochemicals and raw materials, the market continues to have low margins. Next is the outline of the consolidated financial results, page 6. Sales revenue was ¥526.1 billion, down ¥86 billion year on year. Core operating income expressed in recurring earnings power was a profit of ¥27.7 billion, up ¥22 billion year on year. Non-recurring items not included in core operating income was a loss in total of ¥2.2 billion.
In the same quarter of the previous year, there was a ¥10.1 billion gain on sales of fixed assets from the sale of land for dormitories and company housing, leading to a total profit of ¥5.8 billion. Compared to the same quarter of the previous year, non-recurring items worsened by ¥8.1 billion. As a result, operating income was a profit of ¥25.5 billion, up ¥14 billion year on year. Finance income had a loss of ¥19.6 billion, down ¥45.6 billion year on year. Gain or loss on foreign currency transactions included in finance income or expenses had a loss of ¥16.4 billion because of a strengthening of the yen, worsening by ¥45.4 billion year on year. Income tax expenses had a loss of ¥1.9 billion, down ¥1.7 billion year on year.
As a result, the net income attributable to owners of the parent for the quarter was a loss of ¥4.5 billion, down ¥28.9 billion year on year. Exchange rate and NASDAQ price, which impact our performance, average rate of U.S. dollars during the term was ¥144.59 to a dollar, and NASDAQ price was ¥65,500 per kiloliter. Yen appreciated and fixed stock price declined compared to the same period of the previous year. Next, sales revenue by business segment, page 7. Total sales revenue was down ¥86 billion year on year. By segment, sales revenue decreased in all segments except Sumitomo Pharma. As for year-on-year changes of sales revenue by factor, sales price decreased by ¥12.5 billion, volume decreased by ¥47.6 billion, foreign exchange transactions variance of foreign subsidiary sales revenue decreased by ¥25.9 billion. Next is page 8. Total core operating income increased by ¥22 billion year on year.
Analyzing by factor, price was - ¥0.5 billion, cost + ¥9.5 billion, volume variance including changes in equity in earnings of affiliates was + ¥13 billion. Next is performance by segment, page 9. Agro and Life Solutions segment, core operating income was a profit of ¥2.2 billion, down ¥2.7 billion year on year. Price variance, profit margin deteriorated as the miscellaneous market price dropped. Volume variance, there were lower income from exports due to stronger yen centered on overseas crop protection products and stronger yen effect. Next page, ICT and Mobility Solutions, core operating income was a profit of ¥18.4 billion, down ¥2.8 billion year on year. Price variance, selling prices of polarizing films dropped. Volume variance, there was a one-time gain on the sale of the large LCD polarizing film business, but lower income from exports due to stronger yen offset the gain. Next page, please.
As for the Advanced Medical Solutions segment, core operating income was a loss of ¥1 billion, a decrease of ¥1.5 billion year on year. Shipments decreased due to a change in the shipping timing of some active pharmaceutical ingredients and intermediates compared to the same quarter of the previous fiscal year. Please go to the next page. With regards to the Essential and Green Materials segment, core operating income was a loss of ¥5.5 billion, an improvement of ¥14.1 billion year on year. As for the price variance, profit margins improved in synthetic resins due to the drop in price of main ingredient naphtha. As for the volume variance, etc., there was an improvement in refining margins at Petro Rabigh and equity method affiliate, resulting in an improvement in profitability in investments accounted for using the equity method. Next page, please.
As for the Sumitomo Pharma segment, core operating income was ¥21 billion, an increase of ¥20.1 billion year on year. With regards to price variance, sales prices decreased due to NHI drug price revisions in Japan. As for the cost variance, due to the progress of operational streamlining, SG&A expenses decreased. With regards to volume variance, shipments increased due to the expansion of sales of Orgovyx, a therapeutic agent for advanced prostate cancer, and Gemtesa, a treatment for overactive bladder. This concludes the overview of the business performance by business segment. On the next page, I will explain the consolidated statement of financial position. Total assets at the end of June 2025 amounted to ¥3,329.5 billion, a decrease of ¥110.2 billion year on year.
Decrease in cash and cash equivalents due to repayment of interest-bearing debt, seasonal factors affecting the crop protection chemicals, and a decline in sales due to the impact of scheduled maintenance at Petro Rabigh were the main factors behind the decrease in notes and accounts receivables. Interest-bearing debt amounted to ¥1,248.1 billion. This was a decrease of ¥38 billion year on year. Equity was ¥1,061.4 billion, down by ¥13 billion compared to the end of the previous fiscal year. Next, I will explain the consolidated statement of cash flows. Please go to page 15. Cash flows from operating activities resulted in a positive inflow of ¥24 billion, up by ¥36.3 billion year on year.
Mainly due to an increase in collections of accounts receivable for crop protection chemicals caused by seasonal factors and a decrease in sales associated with scheduled maintenance at Petro Rabigh, accounts receivables decreased, resulting in an improvement in working capital. Cash flows from investing activities resulted in a - ¥45.9 billion, a decrease of ¥128.4 billion year on year. During the same quarter of the previous fiscal year, there were incomes from the sale of investment securities and fixed assets. As a result, free cash flows were - ¥21.9 billion, a deterioration of ¥92.2 billion compared to the ¥70.2 billion positive in the same quarter of the previous fiscal year. Cash flows from financing activities resulted in a - ¥49.2 billion due to repayment of borrowings, a decrease of ¥13.8 billion spending year on year. Next, I will explain the outlook for fiscal year 2025, first half.
Please go to page 17. At the time of the previous financial results announcement on May 14, the impact of tariffs was highly uncertain. Therefore, we only disclosed a full-year forecast for fiscal year 2025 and did not disclose a forecast for the first half. At this time, we are going to disclose the first-half forecast. As for the full-year financial forecast for fiscal year 2025 announced on May 14, it has not been revised. We will be reviewing it, the first half, and disclosing it for the announcement of the second half. For the first half of fiscal year 2025, the forecast is sales revenue ¥1.1 trillion, down ¥141.4 billion year on year. Core operating income ¥90 billion, up by ¥60.5 billion year on year. Operating income ¥85 billion, down by ¥36.2 billion.
Net income for the quarter attributable to owners of the parent ¥25 billion, up by ¥31.5 billion year on year. These are the forecasts. As for the exchange rate and NASDAQ price assumptions, they are as listed on the slide. I will explain the core operating income in the next slide by business segments. Please go to page 18. For the first-half performance, if you look at the segment, Sumitomo Pharma sold the business and Orgovyx milestone income will be recorded. On a year-on-year basis, we are forecasting a large increase. For the other segments, Essential and Green Materials are expected to see an increase in operating income year on year due to the improved profitability at Petro Rabigh and improved profit margins for synthetic resins.
With regards to ICT and Mobility, the impact of a decrease in export earnings due to the strong yen and a decline in profit due to the conversion of overseas subsidiary profits into Japanese yen will be significant, and profits are expected to decline compared to the same period of the previous year, which was extremely strong. Agro and Life Solutions will be affected by the strong yen. However, we expect profits to remain at the same level as last year due to an increase in shipments. Furthermore, for the other segments, the decrease in profit year on year is due to the recording of significant profits associated with the sales of business in the first half of fiscal year 2024. Next page, page 19. This will be the last slide. This will be the summary of the performance forecast.
Regarding the outlook for the first half of the fiscal year, as I have explained, Agro and Life Solutions and ICT and Mobility Solutions segments will remain strong in shipments in the second quarter. In addition, we expect the gain from selling Sumitomo Pharma business will also contribute. Therefore, against the first-half forecast, it is a 60% progress. What is in the parentheses and in the outlook excluding gains on the sales business, we are making progress towards improvement compared to fiscal year 2024. The net income attributable to owners of the parent company, despite the adverse impact of foreign exchange losses, remains positive and is progressing steadily towards the achievement of the annual forecast. That concludes my explanation.
Thank you very much. Now, we would like to go into the questions and answers session. The first question is from Mr. Watabe from Morgan Stanley MUFG Securities.
Thank you. I'm Watabe from Morgan Stanley MUFG Securities. I have one question, but from the first quarter to the second quarter, for each segment, what is your way of thinking, excluding Sumitomo Pharma and Agro, ICT, essential chemicals? In particular, in these places, what is the movement in particular for essential chemicals? Deterioration expected because of Rabigh's periodic plant maintenance, and the glyphosate market in China is getting better. What is your situation in South America as well?
Thank you for your question. Let me answer one by one. First, for Agro and Life Solutions, for the first to the second quarter, we expect a large increase in profit. In the first quarter, it is an off-season, and profit tends to be lower. In your company, in case of North America, it is more concentrated in the second half. Recently, we are also emphasizing South America and India. In these places, relatively speaking, demand starts from the second quarter. In case of India, the first quarter is advancing steadily. At the moment, as planned, shipments are expected to be firm in the second quarter, and from Q1 to Q2, we expect a large increase in profits. For ICT and Mobility Solutions, from the first to the second quarter, a slight decline in profit is projected.
I cannot mention the concrete figures, but with the restructuring, one-time gains from sales are included in the first quarter, and as risks that we expected, tariff-related risks. Last year, there was an increase in shipments towards the end, and we expected some backlash from that, which were risks, but that didn't happen that much, and things are progressing relatively steadily. For Essential and Green Materials, from the first to the second quarter, loss is increasing under the current situation. As you have mentioned, Mr. Watabe, second quarter from April to June, in case of Petro Rabigh, there is a periodic plant maintenance where profit will drop, and we plan to post that in the second quarter, and that is one factor included. That is all.
Thank you very much. For confirmation, South America recovery and the ratio of investments into Rabigh, what is the percentage that we are using in calculating in Q1 and the first half? For Latin America, the inventory is gradually moving towards improvement, but to a certain extent, there is still some level of inventory. We will watch the situation with caution. In Petro Rabigh, the ratio percentage is 37.5% as of the first quarter. How about the second quarter? For the second quarter, sales of shares, when will that happen?
It depends on that. After selling, it will be 15%; before that, 37.5%. It takes time for the procedures, so compared to our projections, the timing of sales has been delayed slightly, but the price of selling remains unchanged from the price we announced last year, 37.5%. Based on that, the income on loss or loss in terms of equity affiliates gets large, but the sales price will decline. We can offset that with the gains on sales. Until when we will maintain the level of 37.5%, even if there is a delay, that will not give a negative impact on our performance. I understand that, but in the second quarter, you are calculating at 37.5% to come with these figures.
I understand. Thank you very much.
Thank you very much, Mr. Watabe. We would like to take the next question from Mizuho Securities. Mr. Yamada, please go ahead.
Hello. The full-year forecast, you said that you have not revised it. The first half, you made the forecast; however, for the full year, you have not revised it. If you subtract the first half from the full year, there is no meaning, is what I wanted to confirm at the start. After I confirmed that point, for Agro and Life Solutions and ICT and Mobility Solutions in these two business segments, the current situation against the forecast at the start of the year, how different is it, is what I would like to know.
The first assumption regarding the full year, we have not revised it. Therefore, subtraction, it is actually they are not aligned exactly. For Agro and Life Solutions and ICT and Mobility, from the original forecast, there is not a large deviation, is how we understand. The first quarter, Agro and Life, the profit level was as expected, and for the second quarter, there is a contribution from South America and India that comprises the forecast. As for ICT and Mobility, at this point, they have not changed from the original forecast. If that is so, Agro and Life Solutions, methionine on an ear-on-ear basis, it's deteriorating, but against the first quarter of the previous year, it is improving, so it's not going to do anything bad. Regarding the new drugs or new drug material, in vitro penicillin, it is steadily performing.
For ICT and Mobility Solutions, even though you consider tariff impact, the business performance is going to steadily expand. Is that the correct understanding? Sorry, I wanted to confirm that as an addition.
For Agro and Life Solutions, sorry, for ICT regarding the tariffs impact, at this point, we are not seeing any adverse impact. Probably for the second quarter, it will be all right. However, regarding the second quarter onwards, what kind of impact will we be experiencing? We need to take a closer look, and at the third quarter announcements, we will make revisions necessary. Methionine in the first quarter, on an ear-on-ear basis, it's deteriorating, but against the previous year quarter, it is improving. It has not changed from the original thought that it has bottomed out.
For the new drug, it is performing as originally expected. Is it the same way currently?
Yes. For methionine, at the end of the last fiscal year, it has bottomed out, and it's improving. For the new crop protection chemicals, yes, it is steadily performing.
Thank you very much. That is all.
Thank you very much. Next is Mr. Miyamoto from SMBC Nikko Securities.
Thank you. I'm Miyamoto from SMBC Nikko Securities. I have a question about Agro and Life Solutions. Towards the second quarter, on a Q1/Q2 basis, you expect an increase of ¥11.4 billion. You mentioned the positionality, but last year, compared to the previous year, it seems that the increase is larger. What are the factors for such a large increase? In your presentation material, page 27, North America, you mentioned that sales are being carried backwards. How much is that impact? In Central and South America, there is a drop because of price competition. How will that trend going forward? For endophrine, you made a comment, but for biorationals, is that expanding steadily? For distribution inventory, you mentioned about the situation in South America, but what is the situation in inventory in other areas?
Yes, thank you. For crop protection chemicals, from the first to the second quarter, compared to the past, the increase in profit is larger, as I mentioned. Yes, exactly as you mentioned. For this fiscal year, there are some sales of businesses, and that is included as a part of the factors. For endophrine, so far, it is progressing as we have planned. For the inventory level, gradually, there is an improvement trend, which has a positive effect.
The stronger competition in South America, and how about the situation of biorationals?
Stronger competition in South America. That factor is already taken into consideration. In the second quarter, we don't think the situation will change that much. Compared to the profit we have projected, we are not seeing any worsenings. For biorationals, for biorationals also, there are no major changes. We are expanding sales as we have planned.
Thank you very much. In terms of inventory by region, do you have any information of improvements by region?
Inventory by region? I'm sorry for such a detailed question, but in all regions, the trends are improving. We are seeing an improvement trend. Latin America and South America is relatively large. Yes, inventory levels are relatively large. There are improvements, but it's relatively large, so we need to pay attention.
Thank you very much.
Thank you very much, Mr. Miyamoto. We would like to take the next question from Daiwa Securities. Mr. Umebayashi, please go ahead.
I am Umebayashi from Daiwa Securities. I have a question related to ICT and Mobility Solutions. It may overlap with the explanation you have provided up to now. An ear-on-ear explanation was given to us right now. Regarding the polarizing film, there is the sales gain that came in of a TV, and that disappeared, I understand. For the used mobile devices, the polarizing film volume, ear-on-ear, how did it perform? Also, regarding the semiconductor materials, though there may be an impact of the FX in terms of the volume, how did it perform?
I would like to receive the performance and towards the first quarter to the second quarter, ICT and Mobility, it's going to increase about ¥5 billion in revenue, but profit is going to decline by about ¥5 billion. On a Q1/Q2 basis, can you explain the reason for the decline in profit and also increase in revenue? Thank you very much for your question. On an ear-on-ear basis, each explanation regarding the polarizing film. TV, we have restructured the business, so that has declined. For the mobile devices and also for automobile usage, it is slightly declining. Last fiscal year, they performed quite strongly. Including that situation, this year compared to last year, the level is slightly lower. Also, regarding semiconductors, the overall picture is that the recovering phase is continuing. If we look at the situation ear-on-ear, photoresist is increasing, and in semiconductor chemicals, it's around the flat range.
That's improvement. An increase in revenue and decline in profit? One thing is, as I have explained, the temporary profit is included in the first quarter. That's one reason. For the other aspects, there is a mixture or a composition by product, so it's not that there is a large difference. The sales are increasing. From the first quarter to the second quarter, the overall picture is that there is an increase in polarizing film for mobile devices, and the semiconductor will improve as well. Compared to the first quarter, the second quarter, seasonality-wise, we are getting into the demand season, so that way of thinking is correct. If that is so, the first quarter, one-time profit was quite of a size, you mean? It wasn't that large. It was the low several billion yen. It is in that range.
Okay, thank you very much.
Next question. UBS Securities Omura-san.
Thank you. I'm Omura from UBS. I have a question about Essential and Green Materials. In the second quarter, you expect losses. Petro Rabigh may be the factor. In the second quarter and for a full year, as fundamentals, non-Petro Rabigh businesses, how should that be considered? On page 12, the step chart you have on page 12, improvement of profit margins of synthetic resins, is that a one-time effect or do you expect gradual improvements? Could you explain that? Thank you.
The EGM, market situation and profit margins. Overseas businesses like in Singapore, in the first and second quarter and the second half, we don't expect large changes. On the other hand, domestically, we have a number of contracts with prices determined. With a drop in price, there is a time lag reflecting that in the selling price. In the first half, that is positive, but that factor will disappear in the second half. In the first and second quarters, in the first quarter, Naphtha price declined, and there are accounting factors, negative factors. From the first to the second quarter, there is a slight positive factor. In the second half, the Chiba factory has a periodic plant maintenance, which will be a negative factor in the second half. Overseas, for confirmation, on page 26, the polyethylene company and the PCS, the direction of the profit are different.
For this direction, as you have explained, you don't expect large changes, so PCS will be facing difficulties, and the polyethylene company is in an improvement trend. For PCS, there is an accounting factor in the second half, so that is slightly worse. For TPC, we don't have such a factor, so this trend continues. Oh, thank you very much.
I understand. Thank you.
Mr. Omura, thank you very much. We would like to take the next question from JP Morgan Securities. Mr. Nakada.
This is Nakada. Hello, one. I just wanted to confirm of the one-time factors. Last time, you looked at ¥50 billion, and the Sumitomo Pharma part is second quarter, and Agro is second quarter, and ICT is only first quarter. From what you saw at the beginning of the fiscal year, the amount has not changed, but from the middle of the year, you'll start to see the effect of it. Is that the correct understanding?
Yes.
Okay, no change. Okay, thank you very much.
Thank you very much.
Thank you very much. Next, for Morgan Stanley MUFG Securities, Mr. Watabe.
Thank you. I wanted to ask a question about that one-time factor, and the non-recurring item was - ¥5 billion for the first half and -¥45 billion for a full year. This figure remains unchanged. Singapore and the domestic market, you didn't discuss restructuring of the sector. What is the situation?
As one-time factors, as I have already mentioned, about ¥50 billion per year. Basically, everything will be reflected in the first half. ICT, for some part of ICT, will be the second half, and for the Pharma and Agro, the second half of the second quarter. It's the second quarter. Non-recurring items, ¥75 billion for the full year. In the first half, we plan to make a review of this figure.
Do you expect a decline? Or do you mean you will review?
Yes, we will review the figures. Structural reform of petrochemicals. For petrochemicals, restructuring, you are taking many measures, but at the moment, there is nothing that we can newly announce. We need a little more time. Thank you very much.
Thank you.
Thank you very much. We would like to take the next question. SMBC Nikko Securities. Mr. Miyamoto, please go ahead.
This is Miyamoto from SMBC Nikko Securities. Regarding the inventory at the first quarter, it seems that it has increased by ¥21 billion. With what kind of products is this, a NAFSA-related product building up this much? The inventory assets, okay. From March to June, you're talking about the increase during that period, correct?
Yes. This part, Agro and Life, led by Agro and Life Solutions, towards the demand season, little by little, they are building up the inventory. Therefore, that is the main factor behind this. In a continuous manner, regarding the inventory, the direction is to compress it, but within that, on a necessary basis, we are building up the inventory, if you can understand in that way.
Okay, understood. NAFSA and from the FX situation, it seems that it is at a higher level than the other years. Is there a particular product that has a high level of inventory or special factor why it's built up?
No, there is no special factor why there is a buildup. It is just that we are building up the necessary product. Thank you very much.
The next question is for UBS Securities. Mr. Omura.
Thank you very much. For Agro, for confirmation, you mentioned the distribution inventory. The level of inventory, in your case, what is the level that you expect for each region? This distribution inventory, you said, is improving, but currently, when do you expect there will be improvements from the situation of excessive inventory? I'm sorry, I don't have information about the actual level. That is my situation. Not in concrete terms, I know it may be difficult, but compared to last year or the previous year, what is the level of improvement? Is that information also difficult? We are seeing improvements, I hear, and in Latin America, the level is still relatively high. What is the appropriate level? I don't have that information at the moment.
I understand. Basically, the salespeople for your company, I think, would collect that information qualitatively, and you gather that information, and that is the basis of your comments? Yes, you are right. I understand. Thank you very much.
Thank you very much, Mr. Omura. From JP Morgan Securities, Mr. Nakamura, please go ahead.
This is related to Mr. Watabe's question as before. Recently, I read the interview articles of your CEO and President, even for the petrochemical from the proprietary production to outsourcing and looking for the best partner. It seems that there is a deeper structural reform that will be going ahead compared to what was originally compared to the medium-term plan. Within the initiatives, within the medium-term plan, are there areas that you can go even further?
Sorry, the first part I was not able to hear. Before Pharma, you said, what did you say?
That your CEO said he's going to be focusing on the winning route. From proprietary production, internal in-house production to outsourcing.
We've just started the new medium-term plan. Mr. Mitsuo is making an appeal to the outside whether we're making progress that will change the content of the medium-term. That is not the situation. We are steadily going aligned to the medium-term plan. Sumitomo Pharma, there are a list of companies that may be difficult.
When you look for the partner, if your corporate value or the stock value goes up, it's easier to find a partner. Can you comment on that?
It's difficult to comment about the share price, but the performance of Sumitomo Pharma is starting to improve. Various structural reforms are going well, and their fixed cost is going down. Sales-wise, for the three main products, especially for the two products, for us, they are performing strongly. We understand that in a positive manner. Looking for a good partner, they will have to have a good foundation in terms of business management. In that sense, we are taking that in a positive way. In the sense of partner, when we think about the future of Sumitomo Pharma, the areas that Sumitomo Chemical can support, there's a limitation to that. Looking for a partner that is appropriate for Pharma, that policy or direction has not changed. Their performance improving, maybe it is becoming easier for them to move forward on that. I think so, as what Mr. Mito was saying.
Sorry, I asked a difficult question, but thank you very much.
Thank you very much. It's now time to conclude the conference call. There are still some people raising their hand, but with this, we would like to conclude the Q&A session. This concludes today's conference call. Thank you very much for your participation. Thank you very much.