Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sumitomo Chemical Co Ltd (SOMMF, Financial) returned to profitability for the first time in six quarters, with a core operating income of JPY5.7 billion.
- Net income attributable to owners of the parent was JPY24.4 billion, a significant improvement from the loss of JPY33.2 billion in the same period of the previous year.
- All business segments reported year-on-year increases in profit, indicating a broad-based recovery.
- IT-related chemicals achieved a record-high core operating income of JPY18.5 billion, driven by strong shipments of display materials and semiconductor-related materials.
- The company successfully reduced SG&A and R&D expenses by JPY28 billion in the first quarter, contributing to improved profitability.
Negative Points
- Petro Rabigh's results included a significant loss of approximately JPY20 billion, impacting overall profitability.
- The essential chemicals segment faced challenges, particularly with polypropylene due to increased production capacity in China and stagnant demand.
- Despite improvements, the pharmaceuticals segment still reported a core operating income of minus JPY0.5 billion.
- The first quarter saw a decline in automobile production volume, affecting related business areas.
- The company is still facing competitive pressures in South America, particularly in the crop protection chemicals market, which impacted pricing.
Q & A Highlights
Q: On April 30, there was an announcement of the structural reform. About the progress cash flow JPY600 billion to be created or short-term concentrated improvement of performance, what is the current progress? The Q1 core operating income, does that include the sales of assets or not?
A: Thank you for your question. The structural reform announced on April 30 is advancing smoothly, and we are on track to meet our targets. The Q1 core operating income includes only a few sales of businesses, which have minimal impact.
Q: The large increase in profit of IT-related chemicals is nearly based on your ability. There’s nothing in particular included?
A: Yes, the increase in profit for IT-related chemicals is primarily due to increased demand for display and semiconductor materials, with no significant one-time asset sales included.
Q: The plan is a core operating income of JPY100 billion. But in each segment in IT-related chemicals, I think they are having good results. But essential chemicals and health and crop sciences, what is that situation?
A: For IT-related chemicals, good performance is expected to continue. Health and crop sciences typically see higher profits in the second quarter due to seasonality. Essential chemicals face challenges, particularly in the polypropylene market, but we are working towards achieving our full-year target.
Q: Confirmation on the previous question by Watabe-san in Q1 the one-time factor like business transfer is not included. Is it only for IT-related chemicals or for the whole company?
A: The whole company. There's not much included in the whole company. So this is a real earnings power that is shown for the whole company.
Q: In essential chemicals, the cost variance plus 10, so depreciation costs may have been lower. But in fourth quarter in the last fiscal year, there’s large non-recurring losses and 70% were from essential chemicals. That’s what you said. So the depreciation cost decline from that has not manifested itself that much. Has there been any reshuffling of the items?
A: For essential chemicals, the gain is largely due to last fiscal year’s impairment loss. However, there is an increase in fixed costs, so it may look smaller. Some repair or maintenance expenses were incurred in the first quarter but are not expected to continue.
Q: About health and crop sciences on page 12, first, there’s a price variance of plus JPY9 billion. On the other hand, on page 22, in analyzing sales revenue, there’s a volume variance of plus JPY800 million. What’s the background of this difference?
A: In profit and loss, volume variance includes other factors like the weakening of the yen. For sales revenue, there is a decline, but profit is reflected in a higher figure due to the composition of high and low unit price items. India performed well, and inventories are recovering in each region.
Q: The situation of INDIFLIN, how much is that growing? And the new herbicide, Rapidicil, which was registered in Argentina, what is the situation?
A: INDIFLIN is gradually increasing in shipments, with more expected after the second quarter. Rapidicil has been registered in Argentina, and we are working towards early registration in Brazil. We expect peak sales of about JPY100 billion.
Q: In first quarter things were quite well and maybe you can continue this momentum in second quarter. But the first quarter may have been too good. Any changes between those different quarters?
A: For IT-related chemicals, demand is expected to remain strong in the second quarter. Some front-loading may have occurred in the first quarter, but overall performance is expected to continue positively.
Q: The restructuring initiatives, are there additional measures you can take?
A: The short-term intensive improvement initiative includes the sale of businesses and assets. We are negotiating with partners and expect to achieve our targets. Profitability in IT-related chemicals and other segments is progressing better than expected.
Q: For core operating income for this year, sales of businesses one-time gains of JPY30 billion is included, but at the moment does that remain unchanged?
A: Some level of sale of businesses is included in the figures, and we are working towards realizing these sales. The amount remains unchanged within the JPY100 billion target.
Q: Petro Rabigh, there’s a cumulative loss that is building up. What is the future direction?
A: A task force is discussing profitability improvement for Petro Rabigh. We are waiting for their financial results and will take necessary actions as required by Saudi Arabian laws.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
