Sumitomo Chemical Company (4005) Status Update summary

Business performance and financial targets

• Core operating income is projected to improve by JPY 250 billion in FY2024, with a V-shaped recovery expected after significant losses in FY2023 due to petrochemical margin deterioration and pharma patent cliffs.

• FY2027 targets include JPY 200 billion core operating income, 8% ROE, 6% ROIC, and a D/E ratio of approximately 0.8x, with a long-term goal of JPY 350 billion core operating income and over 10% ROIC by 2035.

• Interest-bearing debt is expected to decrease to JPY 1.27 trillion by end-FY2024, aided by JPY 700 billion in cash generation measures, including asset dispositions and inventory reduction.

• Cash allocation over three years totals JPY 1,130 billion, with JPY 920 billion for CapEx, investments, and R&D, JPY 70 billion for shareholder returns, and JPY 140 billion for loan repayment.

• Dividend policy aims for stable dividends with a payout ratio of about 70%, targeting an annual dividend of JPY 24 per share as soon as possible, with payout ratio expected to exceed 30% during the plan period.

Strategic business focus and investments

• Management resources will be concentrated on Agro and ICT segments, which are immediate growth drivers, receiving about 80% of strategic investments.

• JPY 450 billion will be invested over three years, with JPY 230 billion as strategic investments, mainly in Agro and ICT.

• R&D investments in growth drivers to increase by 30% compared to 2019–2021, focusing on regenerative agriculture, next-gen semiconductors, and advanced healthcare.

• Advanced Medical and Essential & Green segments are positioned for long-term growth, with a shift from petrochemicals to environmental impact reduction businesses.

• Group-wide research themes include bioprocesses, disease risk testing kits, and iPS cell-derived regenerative medicine.

Structural reforms and portfolio management

• Structural reforms include debt forgiveness and share sales in Petro Rabigh, productivity improvements, and rationalization in Singapore and Japan.

• Rabigh's shareholding reduced to 15%, limiting downside impact; Singapore's profitability improvement is not a major factor in the plan.

• Essential and Green Materials target a return to JPY 25 billion profit in FY2027, with nearly half of core operating income from licensing and catalysts.

• A new business portfolio review committee and enhanced investment deliberation process will support ROIC-oriented management.

• Methionine business will benefit from a sales alliance with Itochu, focusing on cost competitiveness and new feed additives.