Mitsui Chemicals Inc (MITUF) June 5, 2026 Investor Update Transcript

Hello, everyone. Thank you for taking the time out of your busy schedules to join us today for our Physical 2026 CEO presentation. To begin, as we did during our previous earnings presentation, I would like to briefly review the Physical 2025 financial results and the figures for Physical 2026 to confirm our current situation. Following that, I'd like to explain the initiatives we will undertake to realize Vision 2030 and, in particular, what exactly we mean by our vision of becoming a global specialty company and how we plan to achieve it. Here are the physical 2025 financial results and a full-year outlook for physical 2026. In fiscal year 2025, while operating income before special items increased in our specialty chemicals domains, we continued to post a loss due to factors such as low operating rates in the basic and green materials segment and inventory valuation issues. With sales revenue declined, and while operating income before special items grew in our specialty chemical domains, the basic and green materials saw its loss widen due to the operational issues, the inventory valuation losses I mentioned earlier, and the impact of a recent situation in the straight-up homes. However, looking ahead to fiscal 2026, we expect sales revenue to increase and plan to further expand our growth domains. As for the basic and green materials, while we aim to reduce operational issues and achieve a solid profit, there are some uncertainties in the external environment, so we are projecting a loss of 3 billion yen. As I explained during the earnings presentation, the impact of the trade of homes amounts to 15 billion yen and is included in the other category. Therefore, excluding that impact, operating income before special items would have been 120 billion yen instead of 105 billion yen. Looking at the bottom line, we project net income attributable to owners of the parent company to be 34.4 billion yen for physical year 2025 and 45 billion yen for physical year 2026. We're committed to working hard to achieve these targets. So this chart shows numerical trends and our financial targets. while our specialty chemicals domains are driving group-wide earnings capital efficiency remains an issue due to a continued deficit in basic and green materials and impairment loss and we are accelerating business portfolio transformation to improve capital efficiency while the area shown in the line graph on the left represents our growth domains our operating income before special items has plateaued somewhat in terms of efficiency as shown on the right our roe stands at 4.0 percent and our roic at 4.5 percent so we recognize that we must make efforts to significantly improve these figures as i explained at the november ceo presentation our operating cash flow has been steadily increasing from 50 billion yen to 120 billion yen and in recent years to 200 billion yen our goal is to tunnel this cash flow into investments to ensure we maintain a growth cycle previously we explained that over a four-year period we would allocate approximately 900 billion yen toward investment comprising 200 billion yen multiply four equal 800 billion 150 yen from improved capital efficiency and other resources totaling roughly 1 trillion yen our basic policy remains to follow this approach generating cash flow and directing it toward ensuring steady growth as for shareholder returns while the situation in this trade of homes remains uncertain at present we have confirmed that we are expanding our growth domains as with the previous announcement the dividend will be 37.5 yen for the interim dividend and 37.5 yen for the year-end dividend for a total of 75 yen for full year as noted in the red at the beginning of this section we completed purchase of 30 million yen of shares to improve capital efficiency moving on to the next point regarding our shareholder return policy we aim to maintain a total return ratio of 40 percent or higher and a doe of three percent with the goal of raising the DOE to 4% by fiscal year 2028. Although this pertains to non-financial metrics, these are the results for the rose value and the blue value for fiscal year 2025. As shown in the bar chart on the left, blue value stands at 30% and rose value at 27%. These figures represent the sales revenue ratio. However, as I mentioned earlier, since the top-line figures for rose value and the blue value did not decline significantly, they have actually increased relatively. While we recognize that chemical products are extremely important to society, I believe our customers view our rose value and blue value products as even more valuable as they offer them added value. For this reason, we believe that our gross profit on the right side of the balance sheet is also growing steadily. Next, I would like to explain our initiatives leading up to Vision 2030. As we have mentioned previously, we have decided our focus into growth domains and essential basic and green materials. For the growth domains, we'll proactively invest resources including M&A and global expansion. However, we won't stop there. Even for businesses in growth domains that face challenges with capital efficiency, we will take decisive action to restructure them and transform our portfolio. Our goal is to become a high-growth, high-profit global specialty company. As for basic and green materials with green chemicals at the core, we aim to promote regional and cross company collaboration to become a resilient basic and green materials company that supports japanese industry i know you must be concerned given the daily news reports but i would like to address the current situation regarding the middle east conflict and the strategic direction of basic green materials as for basic green materials regarding the events at the end of february and the situation in march we generally secure our enough supply at least two months in advance and select the best available option based on market condition at that time in early march the nafta situation became quite unstable although we had secured ships we were unsure whether the april shipment would actually arrive or if the vessels would even make it through that area so the situation was quite uncertain however since the lehman shock we have been holding economic emergency response meetings whenever there are fluctuation in exchange rates crude oil prices or stock prices using such market indicators as triggers for these meetings we held an emergency meeting in march bringing together all business sectors functional sectors and corporate departments to assess the current situation we also centralized management of the outlook for nafta and the status of our customers for those products as part of a response since With the cooperation of the government, we have managed to get a handle on the procurement situation. We have established that we can source supplies from North America, South America, Africa and other regions. So since we are looking two months ahead, that is, from May through June and July, the outlook is becoming clearer. As we are approaching our scheduled maintenance period, we will bridge the gap until then. While our Ichihala Works operations will continue, we'll be able to maintain the supply chain for those areas as well. What we considered most important at the time was ensuring that operations run smoothly and that we didn't run out of stock. If we ran out, it would immediately cause panic, so we made sure to maintain a steady supply to prevent customers from stockpiling or buying in bulk. Since it was difficult for us to predict what the future held, we decided not to ramp up production ratio too quickly, but rather to maintain the current supply levels for existing customers. As a result, our operating rate has declined slightly, however, as noted here, the outlook has become clearer and we expect to increase our operating rate starting in July, raising it from just under 70% to around 80%. To achieve this, we must inevitably raise our prices, as the procurement cost of NAFTA has risen significantly across the company. the prices of raw materials and fuel including heavy oil are on the rise so we have no choice but to implement price increases commensurate with these costs since we have to spend extra money to purchase these items we ask our customers to share in that cost i expect those customers will in turn pass on some of the cost to their own customers but we operate our business by carefully balancing these factors and determining the appropriate purchase prices and volumes through dialogue with our customers however relying on that alone would lead to cash flow timing discrepancies so we are making it a key management priority to ensure smooth cash flow by deferring non-urgent expenditures and carefully selecting investments and expenses on the other hand regarding the social landscape the term nasa which was virtually unheard of until last physical year is now mentioned almost daily as the petrochemical industry is a backbone industry supporting all sectors of the japanese economy and its importance for economic security has been reaffirmed strengthening japan's industrial complexes is essential i believe this has been reported by the media and i think public awareness has grown significantly regarding just how widespread chemical products have become even in the areas like this and how much they contribute to the convenience of our daily life. It's unclear how long it will take for the impact on the trade of homes to fully subside, but I believe a new era is on the horizon. What does that mean? Well, I think we'll certainly see a move away from the dependence on the Middle East and toward diversifying our supply sources. But it's not just about oil. We'll also recognize the importance of biofuels, for example. And when it comes to recycling, we will need to keep the plastic we have produced from imported materials circulating within japan to reduce our overall import well i think it will be difficult to completely eliminate plastic i believe the trend toward reducing plastic use will certainly continue in this direction although we did not specifically anticipate the situation in the strait of homes we have defined basic and green materials at the foundation supporting japan's critical social infrastructure therefore we plan to strengthening the business through the integration of crackers, as indicated by the red mark on the left, and the integration of deliberative products. After that, we will split off this division so that the company can freely focus on the green initiatives it wishes to pursue. Alternatively, we aim to establish an organization that collaborates with our government. As outlined below, our goal is to become Japan's leading basic and green materials company and to become a strong business entity able to support domestic industry throughout the entire supply chain i will now discuss the topic in more detail as you are all well aware the first point concerns our collaboration in west japan this involves integrating the crackers at mitsui chemicals osaka works and amex mizushima works that is those operated by mitsubishi chemical and asahi kasei and we're moving forward with this plan with a target date of physical year 2030 this isn't just about integration as indicated in the green below we are exploring asahi kasu's levolfin technology which produces ethylene and other products from bioethanol with the aim of increasing c2 c3 that is ethylene and propylene we are exploring this initiative with the aim of producing materials similar to our nasa derived product at this stage we are still at the pilot plant level but with support from the government's hard to abate program we intend to steadily move forward with this integration as you can see on the right side of the chart the restructuring plan for the crackers in eastern japan has largely been finalized we held discussions with idemitsu kousan within the framework of the llp to determine which cracker to close and how to enhance competitiveness the conclusion reached to retain the mitsui Chemicals Cracker and operated jointly with Idemitsu. The section of Avanet Diagram, although this falls outside the scope of our review, shows that Maduzen Petrochemical and Keio Ethylene have also decided to shut down their crackers. The area beyond that, marked by the expanding green box, represents derivative products. We are integrating Sumitomo Chemicals Polyethylene business with our prime polymer division to create stronger entity. Furthermore, They have Meguri, a brand focused on recycling and bio-based materials, concepts similar to our own. I believe this will also help strengthen our brand presence in the green sector. However, that's not all. We also plan to integrate our research and development efforts, which I believe will enable us to develop new materials and products that are even more competitive. We are actively pursuing these initiatives to strengthen our basic and green materials business. Unfortunately, this will take some time. So while we may still be in the early stages, and some might say our current figures don't reflect that yet, we have not included the polyolefin integration project in the Physical 26 budget. However, we expect it to be included starting in the second half of the physical year, and we anticipate that the next physical year will finally bring tangible results from our collaboration with Idemitsu Kousan. I'll skip the details here since we already released various announcements on this topic, but regarding B-Player, Re-Player, and the use of biomass and chemical recycling. These are initiatives we are pursuing not only as a chemical manufacturer, but also in collaboration with our customers. We intend to continue strengthening our partnership with the Japanese chemical companies mentioned earlier to further enhance the value of these initiatives. I believe I've mentioned this before, but when it comes to what I intend to focus to under this new leadership structure, my current assessment of the situation is that The global chemical industry is at an unprecedented turning point. However, I can confidently state that our company possesses world-class product technology, which means our group has the potential to generate growth. Capitalizing on this distinctive product and noting that not only Mitsui Chemicals or other Japanese chemical companies, but the global chemical industry is at an unprecedented turning point, We believe that, as the momentum for its restructuring grows, this means we have an opportunity to reinvent the group. I don't believe the goals of Vision 2030 will undergo any major changes, but my message, as stated at the bottom, is that we grow alongside our customers. I want us to take another good look at this customer-centric perspective. The growth of the entire company depends on the growth of everyone who supports Mitsui Chemicals. My message is that it's not just the management team leading the way. Rather, everyone's growth contributes to the company's growth. We intend to take on new challenges as a united global team. Through this, we aim to establish ourselves as a truly global specialty company. I will now explain what this entails and the strategies we have in mind. The horizontal axis represents the ratio of overseas sales. The vertical axis represents ROS, and the size of the bubbles indicates operating income before special items. In the ICT, life and health care, and mobility sectors, the proportion of overseas sales exceeds 50%. As a global specialty company, we aim to achieve ROS of over 15%, but we haven't quite achieved the level yet. Though we are currently about 10%, our goal is to move this figure up toward the top right of the chart. Now, as I believe I've explained in some previous materials, but this illustrates what I mentioned earlier, that we still possess significant strengths. However, the key point here is that we expand this product line in the future. We won't simply be building more of the same plans. When it comes to commodities, it's crucial to deliver the same product as quickly as possible to meet customer demand. However, for our next expansion, we are committed to ensuring that it involves highly competitive products or products that expand our product range. We intend to achieve this through facility upgrades, which will drive growth and lead to increased production and expanded capacity. To that end, we are engaged in ongoing technological development. I will explain a few examples shortly, but the best part is that we have production bases right where the demand is the highest, the local production for the local consumption, tailored to meet that specific demand. We can't exactly build massive plants everywhere, but take the mobility sector, for example, sales revenue in the Americas is overwhelmingly high and profit margins are also strong. we deliver products tailored to our customers in the americas we have a similar business model in the aSEAN region below that india on the left is still a bit small but i believe it has significant potential the question is how to grow this market and expand our network while the initial setup costs are quite high expanding the network doesn't require as much investment so as demand in india grows a bit more the bubble size will expand and i expect it will move upward toward the top right of the chart similarly while japan still accounts for a large share of the coding and engineering materials india boasts very high profit margins this is because we identified opportunities in india began local production there and are now supplying those products and we're doing the same In addition, by connecting several of these, whether you can call them reactors or equipment, and scaling up production, we can continue to expand our capacity. This means we won't need to make a large investment in the next phase. Instead, we can tailor our production to meet demand and align with our customers' specific product requirements. As a result, we haven't been able to achieve high revenue operating profit and a high return on sales. establishing our own production facilities can be quite challenging in terms of capital efficiency so this serves as an example of our expansion into new regions and fields in the bottom left corner the number of sites established up to physical 2021 it's shown in blue and those from physical 2022 onward in red specifically this refers to sdc in the u.s the blue section illustrated the processes by which SDC itself continue to grow. First, they established sites in the U.S. and then moved to Singapore. However, Singapore serves as a site for expanding into China, while our core technical service operations are firmly established in China, later through a company called Kotec. We established bases in Europe and in the U.K. We plan to leverage these technical service bases to manufacture our products in the U.S. and Singapore and expand globally. We recognized that we needed to expand our reach in this field a bit further, so we acquired Coban, the company marked in red here. They manufacture machinery and equipment, and SDC supplies the chemical agents used in the machinery. By leveraging this synergy, we aim to create synergistic effects. Additionally, since they have a wide network of locations, particularly a large number of technical service centers, we plan to utilize their technical service centers. For example, when it comes to Mitsuye Chemicals products, such as an item that Coburn currently sources from other companies, we're actively working to maximize synergies by demonstrating that Mitsuye Chemicals can manufacture those materials in-house. What's particularly interesting is that I recently visited India. Coburn's Indian base serves as a hub from which they've expanded into most African countries and various other markets. They went out on their own and spent a month evaluating various technical service providers, achieving an exceptionally high growth rate of 18% as a result, rather than expanding manufacturing facilities. They are increasing the number of technical support locations, as shown in the table, from 5 to 9. This is an example how to achieve higher global revenue and profit margins. As I mentioned earlier, we have expanded our sales channels and applications through M&A, and this is an example of e-cross tape. As you know, IkroState, which was previously manufactured in Japan, is now being produced on a larger scale in Taiwan. However, while our main customers are based in Taiwan, we also have clients in South Korea and China. Here, we act as a solution provider, with our Japanese engineers providing on-site guidance and holding global meetings to enhance everyone's technical skills, enabling us to meet our customers' needs at each of our locations. While it's not yet fully evident that countries like India will be putting significant effort into the ICT sector in the future, we are proceeding with our plans by combining technical support sites with production sites, keeping this potential in mind. Next, let's look at the example of agrochemical products. While we discussed acquiring companies through M&A and establishing our own technical service centers, this case is a bit different. In the agrochemical product sector, we have always been particularly skilled at producing active ingredients, essentially the raw extracts used in agrochemical products, and our primary market has been Japan. The challenge lies in globalizing this product. As shown in this graph, the market has expanded significantly in physical 2011, physical 2017, and physical 2025. When expanding globally, we must adapt to local conditions, such as the prevalence of certain types of fields or the specific crops being grown, by modifying the active ingredients into a formulation that is less soluble in water, suitable for spraying, or designed to last longer in specific fields. Through this partial investment, we are partnering with local companies to penetrate local markets and deliver products tailored to those regions. As this approach has expanded globally, we have acquired Meiji Seika Pharma, as I mentioned earlier, and expanded our product lineup. We are now actively pursuing a business model that involves further global expansion through these partnerships. So far, I have been talking about our business operations, but we actually apply a similar approach to R&D as well. This time, we are separating research and development to accelerate the pace of development. Our technical service centers also serve as technical development hubs. Based on this mapping, we plan to establish a technical center here to connect local offices with one another. We also aim to expand the coverage of each region, for example, enabling access from India to Africa or from India to Europe to foster dialogue with our customers and further in-house our developing capabilities. Another point is that I believe the United States plays a crucial role in the field of life sciences. One approach we're taking in this regard is to identify promising startups early on. By gaining early exposure to their technologies, we have established our second corporate venture capital fund. Additionally, in Cincinnati, we are collaborating R&D with a company that serves as a biochemical incubator. We believe this is essential for our research effort as it follows to quickly identify new technologies and new markets. While I didn't go into detail about the figures for individual businesses in this presentation, We plan to refine our projections further through our strategic review process as we move toward November. At this point, however, ICT is in the upper right as life and health care, and while mobility has grown significantly in scale, its growth in the upper right is somewhat gradual. As for our growth domains, the blue line indicates our path toward becoming a global specialty company as represented in the dotted blue line. As I mentioned earlier, there are various strategies available, but I believe it is crucial to start by focusing on the local level. This is our basic approach. The key is differentiation, expanding our fields and reaching our new regions, as demonstrated in our R&D efforts, being the first to identify to act on information regarding societal change. With the mindset, we will continue to expand our reach into new regions and fields. To that end, I believe M&A may be necessary. However, for those businesses that fall short, unfortunately failing to meet our expectations or where we may not be the best fit, we intend to finalize our plans to restructuring these businesses and affiliated companies by the end of fiscal year 2026. As I have shown in this graph several times, the focus is on each region. As described in the text here, we are developing regional strategies to address the question of how to approach the U.S. and India. We will start by developing regional strategies to address questions such as, what should we do in East Asia, what should we do in ASEAN, and what should we do in EMEA. As shown in the next slide, we will then align these strategies with our business strategies. Until now, the business sectors have been responsible for developing and rolling out regional strategies. However, since we have regional offices that oversee our affiliated companies, we plan to establish a regional strategy office to expand its capabilities. Using this matrix, we intend to link each region's regional strategy with its business strategies to establish a clear direction and move forward. This slide is a bit unconventional, but in a sense, while Mitsui Chemicals is often mentioned in connection with M&A, I frequently hear people question whether our M&A efforts have actually been successful. As I mentioned in my introduction a little while ago, I was transferred to the Osaka Works in 1992 and then to headquarters in 2010, where I was primarily responsible for M&A. Since my focus at that time was on the vision care sector, and this is back in 2010, I frequently handled deals involving companies like FSI and LTI. Although this was an SDC acquisition, we also expanded our MR operations by acquiring Akomon AG. In the areas where we have strong businesses, the right side of this chart, we have established strengths, and we expanded our new product lineup, we can effectively reach our existing customers. This approach tends to work quite well. The other area involves bringing our existing products to customers in new markets. I believe the example of agricultural chemicals I mentioned earlier illustrates this point, and we plan to expand this effort. field one is where we see the most success we acquired pericles business from asahi kasei and it seems both companies are growing through positive synergies the most challenging part is the top right quadrant of this chart figuring out to how to tackle this field this is a crucial step for portfolio transformation and kruta case serves as an example of its potential kruta had a strong brand recognition in europe within our group it had one of the highest contribution margins and was steadily expanded its sales in europe but the sales approach was completely different we build plans which resulted in a huge increase in fixed cost and we ramped up operations the more we sold the more we could recoup our cost in their case controlling sgna ratio is extremely important because the more they sell the more sell stuff they need this leads to a situation where top offline revenue is growing, but profits aren't keeping pace. So the key question is how to address this. Additionally, they like the ability to adapt their operations to regional needs, and their management was heavily focused on Germany to strengthen our sales capabilities rather than relying on minty chemicals itself to handle AI-driven customer data analysis and management. We're currently implementing structural reforms for hiring Americans with expertise in this industry. This involves reducing back-office staff and consolidating production sites, rather than cutting sales personnel. Since reducing the sales force would lead to decline in revenue, we are proceeding with caution in that regard, while working to increase co-operating income before special items, as shown in the graph on the left. We are reducing our SD&A headcount and focusing on the most critical areas, as shown on the right. We are currently taking steps to lower our SD&A ratio. Since these measures are already yielding results, I believe Kruzo is becoming a very strong pillar of Meipsey Chemical's healthcare business. This is toward the end of the presentation, and it's something I'm currently working on right now. I have identified two key concepts, growth and evolution, and I am focusing on the growth of our customers and the evolution of each individual. I have developed four themes, and I'm calling it the 100-day plan, with the goal of breaking it down into 100 days. There is no point in dragging things out indefinitely, So I have set the 100-day timeline, which is about three months, and I'm currently moving forward with planning based on these four themes. First of all, as you can see from the list of issues for consideration, I'm thinking of R&D initiatives and the production technologies derived from them. Particularly those needed for growth domains might be a bit different. Or perhaps we need to get deeply involved right from the start of the development. We are examining the first point from both of these perspectives. And in terms of strengthening domestic industrial complexes, as I mentioned earlier regarding collaboration, this is one of the key challenges we face. As for the second point, which concerns strengthening production technology, this is extremely important. Since we're a manufacturing company, our very reason for existence depends on ensuring stable operations and providing peace of mind to society. Therefore, we must consider how to raise the bar in these areas. The third point is people. As I mentioned earlier regarding our global expansion, this isn't just about the domestic market. We're committed to developing a global workforce. The challenge then is how to cultivate global professional teams, one in which individual continues to grow and evolves. Finally, rather than just improving operations through digital transformation, we want to transform our management itself. These four roles are from the top, the CTO, followed by the head of production engineering, then the CHRO, and finally the CFO. The CXOs will ensure the business areas I mentioned earlier are properly integrated across the organization, a matrix structure that I believe will become evident here as well. Through this approach, we aim to improve management efficiency across the entire company and build an even stronger Mitsui chemicals. Since digital transformation is the top priority, the CDO is expected to be involved in every aspect of the business. This is an approach aimed at strengthening our solution providing capabilities, whereas we need to explain things from a technical perspective, telling customers, this is what will happen. We now need to focus on what customers on the left side of the spectrum are seeking, and the next generation of customers we expect from solutions. The offering we currently provide will likely be increasingly difficult to differentiate. The customers may not even be aware of this final point. By keeping our finger on the pulse of societal trends a year ahead of everyone else, we can anticipate changes in society and among our customers. We intend to stay ahead of these trends, not just through development, but also by leveraging research and link these efforts to cross-functional technology portfolio mentioned at the top of this document, thereby driving our research and development forward. From a materials perspective, this technology is currently fragmented, but I believe that from the customer's perspective, all these elements come together. While this is a production engineering approach, we have encountered various issues that have caused you all concern. And it has had an impact on our bottom line. When a problem arises, we implement countermeasures and roll them out across the board. Then, when the next problem comes up, we do the same, implement countermeasures and roll them out. From an outsider's perspective, this approach can be hard to understand, and it raises questions about whether it's really effective. It can also end up feeling like a game of a guacamole. Therefore, we need to first clearly define the ideal state and then innovate our production technology to achieve it. One of these initiatives will serve as a starting point for incident-driven measures I mentioned earlier. These align with the three goals outlined by General Manager of the Production Engineering Division, sustainable plants that can be trusted, plants where anyone can ensure safe, stable operations, and plants that help people evolve further. While I believe digital transformation and AI are key to all three, we intend to use these three pillars as the foundation for evolving our factories. This is the final slide. We are aiming to increase corporate value. We are planning to promptly achieve ROE above cost of equity and expand the spread to enhance our corporate value of your business portfolio transformation, going asset-light, bolstering shareholder returns. We are determined to become a strong business entity that supports Japan through basic and green materials. Another point is that we plan to expand and grow our three growth domains on a global scale. By clearly demonstrating this, we aim to build a company that inspired confidence in investors, a company where people feel secure about investing, and I believe it is essential to back this up with concrete figures. Thank you very much.