Earnings call transcript: Sumitomo Chemical sees core income rise in Q1 2025

Sumitomo Chemical (Market Cap: $4.87B) reported its Q1 FY2025 earnings, highlighting a mixed financial performance with a notable increase in core operating income despite a decline in sales revenue. The company faced a net income loss, but improvements in the Sumitomo Pharma segment and operational efficiencies contributed positively. According to InvestingPro analysis, the stock currently trades at $2.98 and is considered undervalued based on its Fair Value metrics, with a strong YTD return of 33.16%.

Key Takeaways

• Core operating income increased by 22 billion yen year-over-year.
• Sales revenue declined by 86 billion yen compared to the previous year.
• Net income resulted in a loss of 4.5 billion yen.
• Strong performance in the pharma segment and crop protection chemicals.
• Challenges anticipated in ICT and Mobility Solutions due to currency fluctuations.

Company Performance

Sumitomo Chemical’s Q1 FY2025 showed a mixed performance. While the company experienced a decline in sales revenue to 526.1 billion yen, core operating income rose to 27.7 billion yen, reflecting a 22 billion yen increase from the previous year. The net income attributable to the parent company was a loss of 4.5 billion yen, highlighting ongoing challenges despite operational improvements.

Financial Highlights

• Revenue: 526.1 billion yen (down 86 billion yen YoY)
• Core Operating Income: 27.7 billion yen (up 22 billion yen YoY)
• Net Income: Loss of 4.5 billion yen
• Key Exchange Rate: 144.59 yen/USD

Outlook & Guidance

For the first half of FY2025, Sumitomo Chemical forecasts revenue of 1,100 billion yen, core operating income of 90 billion yen, and net income of 25 billion yen. The company anticipates profit growth in its pharma and essential materials segments but acknowledges potential challenges in ICT and Mobility Solutions due to the strong yen. InvestingPro data shows the company maintains a GOOD Financial Health Score of 2.9, suggesting resilience despite market challenges.

Executive Commentary

• "We are seeing improvements in inventory levels, particularly in Central and South America." - Yamauchi
• "The methionine market has bottomed out at the end of the last fiscal year." - Yamauchi
• "We are steadily progressing along our medium-term plan." - Unidentified Speaker

Risks and Challenges

• Currency Fluctuations: The strong yen poses challenges for the ICT and Mobility Solutions segments.
• Market Uncertainty: Global economic recovery remains uncertain, impacting demand forecasts.
• Petrochemical Margins: Low margins in petrochemical markets could affect profitability.
• Tariffs and Trade Policies: Potential impacts from tariffs and foreign exchange fluctuations.
• Semiconductor Demand Variability: Varied demand across semiconductor fields could affect sales.

Q&A

During the earnings call, analysts inquired about regional inventory improvements, segment-specific performance variations, and the potential impact of tariffs and foreign exchange. The company addressed these concerns, emphasizing strategic reviews and ongoing operational improvements. For deeper insights into Sumitomo Chemical’s performance and outlook, InvestingPro subscribers can access comprehensive financial analysis, including exclusive ProTips and detailed valuation metrics in our Pro Research Report, part of our coverage of 1,400+ top stocks.

Full transcript - Sumitomo Chemical Co Ltd CFD (4005) Q1 2026:

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: 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 of 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 of our financial results for FY 2025 first quarter. Please turn to the slide page 4.

Before explaining the details of the financial results, I’d 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 and this fiscal year first quarter. The profit we made last year was further expanded for first quarter. Sumitomo Pharma performed well and Essential and Green Materials improved its profitability and 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 five. Let me begin by explaining the business environment surrounding our company in the first quarter of FY 2025 with regards to economic situation. Also, the global economy is continuing to show signs of gradual recovery. Uncertainty is high due to such factors as policy management and 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 methionine market bottomed out at the end of the last fiscal year and currently shows signs of recovery for displaced. There is still no impact from the backlash of shipments brought forward because of the tariffs, and 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 expressing 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 a parent for the quarter was a loss of ¥4.5 billion, down ¥28.9 billion year on year. Exchange rate and Naphtha price, which impact our performance. Average rate of US dollars during the term was ¥144.59 to $1 and Naphtha price was $600, ¥65,500 per kiloliter. Yen appreciated and feedstock price declined compared to the same period of 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 minus ¥0.5 billion, cost plus ¥9.5 billion, volume of variance including changes in equity in earnings of affiliates was plus ¥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 methionine 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.

Unidentified Moderator/Support Staff, Sumitomo Chemical: Year.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Price variance. Selling prices of polarizing films dropped. Volume of 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.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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, there was an improvement in refining margins at Petro Rabigh, an equity-method affiliate, resulting in an improvement in profitability in investment 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. There was a 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 ¥1,061.0 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 negative ¥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 flow was negative ¥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 negative ¥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 forecast for the first half at this time. Newly, we are going to disclose the first half forecast and 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 in the first half and disclose it for the announcement of the second half. For the first half of FY2025, the forecast is still revenue ¥1,100,000,000,000, 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 NAFSA 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 Farmers sold the business and Orgo BIC’s 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 is 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 Solutions, 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 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, experiencing a 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, they will remain strong in shipments in the second quarter. In addition, we expect the gain from selling Sumitomo Pharma business will also contribute, and therefore, against the first half forecast, it is a 60% progress. What is in the parentheses and the outlook? Excluding gains on the sale of business, we are making progress towards improvement compared to fiscal year 2024, and the net income attributable to owners of the parent company, despite the adverse impact of foreign exchange losses, remained positive and is progressing steadily towards the achievement of the annual forecast. That concludes my explanation.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Thank you very much. Now we would like to go into the questions and answers session.

Unidentified Moderator/Support Staff, Sumitomo Chemical: That.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: 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. From 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 is expected because of Petro 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 our company.

In the 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 the case of India, first quarter is advancing steadily at the moment as planned. Shipments are expected to be firm in the second quarter. From Q1 to Q2, we expect a large increase in profits. For ICT and Mobility Solutions, from the first to the second quarter, slight declining profit is projected. I cannot mention the concrete figures, but with restructuring, a one-time gains from sales is included in the first quarter. 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. 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, in the second quarter from April to June, in the case of Petro Rabigh, there is a periodic plant maintenance where profit will drop and we plan to post that in the second quarter. That is one factor included. That is all. Thank you very much for confirmation. South America recovery and variation of investments into Rabigh, what is the percentage that we are using calculating in Q1 and the first half? For South America, the inventory is gradually moving towards improvement, but to a certain extent there’s 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 will be 15%. Before that, 37.5%. It takes time for the procedures. Compared to our projections, the timing of sales is being delayed slightly. The price of selling remains unchanged from the price we announced last year, 37.5%. Based on that, the income or loss in terms of equity-method affiliates gets larger. The sales price will decline. We can offset that with the gains on sales. When? Until when we will maintain the level 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 37.5% to come with these figures. I understand. Thank you very much.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: The.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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, subtracting subtraction, it is actually there is they’re not aligned exactly. For Agro and Life Solutions and ICT and Mobility from the original forecast, there’s 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’s 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 a year-on-year 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 Video Peninsula, it is steadily performing, and 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 Solution. Sorry, for ICT regarding the tariffs impact, at this point, we’re not seeing any adverse impact. Therefore, 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 announcements, we will make revisions necessary. Methionine in the first quarter on a year-on-year basis, it’s deteriorating, but against the previous year quarter, it is improving. So it has not changed from the original thought that it has bottom line.

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. For the new crop protection chemicals, yes, it is steadily performing. Thank you very much. That is all.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: 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 quarter-on-quarter basis, you expect an increase of ¥11.4 billion. You mentioned seasonality, but last year or 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 ending? In Central and South America, there’s a drop because of price competition. How is that trend going forward? For interfering, you made a comment about biorationals. Is that expanding steadily? For distribution inventory, you mentioned the situation in South America, but what is the inventory situation 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 interfering, 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. 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 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 on improvements by region? Inventory by region? I’m sorry for such a detailed question, but in all regions there are trends improving. We are seeing an improvement trend, but Latin America and South America are 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.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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 year-on-year explanation was given to us right now regarding depolarizing films. There is the sales again that came in of a TV and that disappeared. I understand, but for the used mobile devices, the polarizing film volume, year-on-year, 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 Q-on-Q basis, can you explain the reason of the decline in profit and also increase in revenue? Thank you very much for your question. On a year-on-year basis, each explanation regarding the polarizing film TV, we have restructured the business so that has declined. Regarding 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.

However, if we look at the situation year-on-year, photoresist is increasing and in the semiconductors of chemicals it’s around the flat range. That is 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’s a mixture or composition by product. It’s not that there is a large difference. The sales is increasing. From the first quarter to the second quarter, the overall picture is that there’s 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’re getting into the demand season. 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.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Next question is UBS Securities. Thank you. I’m Mr. 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 stop 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 within Japan, slightly many contracts price is determined. With a drop in price there’s a time lag reflecting that in the selling price.

In the first half that is positive. That factor will disappear in the second half. In the first and second quarters in the first quarter, naphtha price declined. There are accounting factors, negative factors. For the first or 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 polyolefin company and PCs, the direction of a profit are different for this direction. As you have explained, you don’t expect large changes. PCs will be facing difficulties. The polyolefin company is in an improvement trend. For PCs, there is an accounting factor in the second half. That is slightly worse. For TPC, we don’t have such a factor. This trend continues. Thank you very much. I understand. Thank you.

Unidentified Moderator/Support Staff, Sumitomo Chemical: Thank you very much. We would like to take the next question from JP Morgan Securities. Mr. Nakada. This is Nakada.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Hello.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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 fiscal year, the amount has not changed. 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.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: 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. The non-recurring item was negative ¥5 billion for the first half and minus ¥45 billion for the 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, and basically everything will be reflected in the first half. ICT, for some part of ICT, will be the second half. Biopharma and agro, 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.

Unidentified Moderator/Support Staff, Sumitomo Chemical: Thank you very much. We’d 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 first quarter, it seems that it has increased by ¥24.21 billion. With what kind of products is this enough related product building up this much the inventory assets? 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 matter 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.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: The next question is from 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. 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. Last year compared to last year or the previous year, what is the level of improvement? Is that information also difficult? We are seeing improvements here and in Central and South 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. That is the basis of your comments. Yes, you are right. I understand. Thank you very much.

Unidentified Moderator/Support Staff, Sumitomo Chemical: Thank you very much, Mr. Omura.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: And.

Unidentified Moderator/Support Staff, Sumitomo Chemical: 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. Farmer, you said, what did you say that your CEO said he’s going to be focusing on the winning route and from proprietary internal in house production to outsourcing. We just started the new medium.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Term plan.

Unidentified Moderator/Support Staff, Sumitomo Chemical: Mr. Mitch 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 along to the medium term plan. For Sumitomo Pharma, there are a list of companies that may be difficult, but 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. The performance of Sumitomo Pharma is starting to improve and various structural reforms are going well and their fixed cost is going down and sales for the three main products, especially for the two products for us, they are performing strongly and we understand that in a positive manner. Looking for a good partner, they will have to have a good foundation.

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 and their performance improving, maybe it is becoming easier for them to move forward on that and I think so as what Mr. Mito was saying. Sorry I asked a difficult question, but thank you very much.

Yamauchi, Executive Officer and General Manager of Accounting Department, Sumitomo Chemical: Thank you very much. It’s now time to conclude the conference call. There are still some people raising their hand, but with this, let’s conclude the Q and A session. This concludes today’s conference call. Thank you very much for your participation. Thank you very much.

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