It may be the first loss in 11 years! The chemical giant faces its “biggest crisis since its founding”

Japan’s Sumitomo Chemical said on November 1 that it expected a loss of 95 billion yen ($628 million) in fiscal 2023, which would be its first loss in 11 years.

The semi-annual report released by Sumitomo Chemical on the same day showed that sales revenue in the first half of the fiscal year ending September 30, 2023 was 1.187 trillion yen, a year-on-year decrease of 22.4%; net loss was 76.3 billion yen, compared with a profit of 81.1 billion yen in the same period last year Yuan.

The semi-annual report shows that from April to September 2023, Sumitomo Chemical’s basic chemicals and plastic products suffered an operating loss of 44.4 billion yen, compared with a profit of 23.3 billion yen in the same period last year. At the same time, the energy and functional materials division’s operating profit fell by more than half from the same period to 6.5 billion yen.

Sumitomo Chemical said profit margins on its petrochemical products fell as the global economic downturn reduced demand. In addition, weak demand for crops in South America has also affected health and agricultural businesses.

Sumitomo Chemical expects a consolidated final profit and loss (International Accounting Standards) loss of 95 billion yen ($628 million) in fiscal 2023 (ending March 2024), compared with a profit of 6.9 billion yen in the previous fiscal year.

According to Nihon Keizai Shimbun, the switch from the previously expected profit of 10 billion yen to a loss will be the first final loss in 11 years starting from fiscal year 2012 (using Japanese accounting standards), and the highest loss since 2000.

Sumitomo Chemical believes that economic slowdown is one of the main factors. In addition, its petrochemical business in Saudi Arabia and other places was lower than expected, and its agricultural-related business was also sluggish.

At the online briefing that day, Sumitomo Chemical President Keiichi Iwata said, “This is the biggest crisis since its founding.” He revealed that in view of the severe performance, the company will suspend director bonuses until March 2024. President Iwata and Chairman Tokura Masakazu will also voluntarily return 10% of the monthly basic director remuneration within five months.

Sumitomo Chemical predicts that sales revenue (equivalent to operating income) will decrease by 7% in fiscal 2023 to 2.7 trillion yen, indicating a loss of 70 billion yen in the “core operating profit and loss” of the main business profit, and a profit of 92.7 billion in the previous fiscal year. yen, lowering their previous forecasts by 200 billion yen and 110 billion yen respectively.

Core operating profit in all five areas was revised down from previous forecasts. The greater impact is on “basic chemicals” such as petrochemical products. The core operating profit and loss is reduced by 68 billion yen, and the loss is expected to be 75 billion yen. In terms of health and agriculture-related businesses, methionine is facing intensified competition with Chinese companies and other companies, resulting in price declines and asset impairment losses will be included.

In order to improve performance, Sumitomo Chemical will promote sales or downsizing of 30 businesses, and it is expected that core operating profit will improve by 50 billion yen. In the methionine field, we plan to reduce the production capacity of the Ehime Prefecture plant by 30% from the end of fiscal 2018.