Message from the CFO

Consolidated core operating income totaled ¥225.0 billion, a decrease of ¥3.8 billion from the previous fiscal year. Core operating income in the Chemicals Business amounted to just ¥24.3 billion and net income attributable to owners of the parent came in at an underwhelming ¥11.8 billion.

A major factor behind these results was the recording of ¥194.9 billion in non-recurring items. The primary components included impairment losses of ¥61.4 billion, special retirement expenses of ¥53.1 billion, and provision for restructuring costs of ¥59.2 billion. We incurred significant expenses as a result of undertaking structural reforms based on our three criteria for business selection: consistent with Vision, competitive advantage, and potential for growth. However, they also demonstrate our firm commitment to completing major structural reforms in fiscal 2025.

In addition, we steadily implemented initiatives based on our three disciplined approaches in business operations: pricing policy, investment decision making, and asset optimization. In fiscal 2025, the promotion of pricing policy and fixed cost reductions through asset optimization contributed to earnings improvement of ¥29.0 billion each, totaling ¥58.0 billion. These efforts have laid the groundwork for our next phase of bold decision-making and further growth from fiscal 2026 onward.

Over the past two years, we have been swiftly reviewing our business portfolio based on our three criteria for business selection and three disciplined approaches to business operations. Retaining businesses that lack future potential hinders our ability to aggressively invest in the areas necessary for growth. We have carried out structural reforms with the conviction that difficult decisions should be made quickly and decisively, rather than prolonging them.

Under the medium-term management plan, we initially targeted the optimization of assets equivalent to sales amounts of approximately ¥400.0 billion through business restructuring and divestitures in the Chemicals Business over the six-year period from fiscal 2024 to fiscal 2029. In just two years, however, we made decisions amounting to approximately ¥490.0 billion, exceeding our initial target. A particularly significant initiative was the restructuring of the coke and carbon materials business. Since fiscal 2024, we have made a series of difficult yet essential decisions for the Company’s long-term future, including the sale of our subsidiary Kansai Coke and Chemicals Company, Limited, significant reductions in production capacity, and ultimately, withdrawal from the business entirely. Although the major restructuring initiatives under consideration have largely been completed, we will continue to optimize our operations, particularly in the Chemicals Business, with a focus on production structure and capital efficiency.

With regard to the 400 billion yen in business restructuring and divestitures outlined in the Medium-Term Management Plan, we have executed a larger-than-planned scale of these measures over the past two years, thereby laying the groundwork for growth starting next fiscal year.

We are also working to reduce fixed costs, including expenses associated with functional units and personnel. One example is the Next-stage Support Program* implemented in fiscal 2025. Although we recorded approximately ¥32.0 billion in one-time expenses, we expect annual labor cost reductions of approximately ¥15.0 billion from fiscal 2026 onward.

In addition to structural reforms, we are actively pursuing pricing policy initiatives. Alongside strengthening pricing policy across businesses within the Specialty Materials segment, we have expanded the application of cost-link formulas in the MMA & Derivatives segment, establishing a mechanism to appropriately reflect changes in raw material costs in selling prices. In fiscal 2025, core operating income of the segment declined by approximately ¥40.0 billion due to market deterioration, the impact of which outweighed benefits from the transition to cost-linked formulas. Nevertheless, I believe it is highly significant that we have established a pricing floor mechanism that helps prevent further price declines.

The net debt-to-equity ratio stood at 0.83 times at the end of fiscal 2025, and we aim to reduce this further to 0.8 times or below. Amid a rising interest rate environment, we will continue to exercise discipline in controlling interest-bearing debt while making appropriate use of financial leverage.

In addition, we have been working to firmly embed return on invested capital (ROIC) management across the Group. ROIC improved in all 10 domestic businesses where ROIC improvement initiatives^*1 were launched in fiscal 2024. In the second half of fiscal 2025, we also began rolling out these initiatives overseas.

In fiscal 2026, we established the new Companywide FP&A Division^*2 within the Finance Division to create a framework that enables each business group to manage operations with a constant focus on capital efficiency. By fostering a culture in which the Finance Division, which handles numerical tasks, works closely with business segments that understand frontline operations to enhance business value, we aim to fundamentally strengthen the Group’s financial position.

With respect to growth investments, we will strategically allocate management resources based on the business portfolio clarified at our IR Day on December 18, 2025. As large-scale growth investments through fiscal 2029, we have already decided to invest approximately ¥200.0 billion in the next-generation and growth-driver quadrants and approximately ¥80.0 billion in the cornerstone quadrant.

Allocation of large-scale growth investment on projects scheduled to begin commercial operation from FY25

*Large-scale growth investment projects scheduled to begin commercial operation after FY25 (projects totaling ¥1 billion or more, excluding subsidies)

Regarding shareholder returns, we will maintain our dividend payout ratio target of 35%. In addition, we have established a minimum annual dividend of ¥32 per share and will consider dividend increases in line with earnings growth.

For fiscal 2026, we forecast core operating income of ¥305.0 billion. In particular, the Chemicals Business is projected to grow significantly, from ¥24.3 billion in fiscal 2025 to ¥100.0 billion. However, it should be noted that this increase includes the elimination of about ¥35.5 billion in one-time losses, such as impairment losses related to the Soarnol business and ethylene oxide and ethylene glycol. Therefore, the estimate effectively represents growth from approximately ¥60.0 billion to ¥100.0 billion.

The primary driver of this growth will be the Specialty Materials segment, which is expected to generate ¥90.0 billion* of the total ¥100.0 billion in core operating income. We expect to achieve earnings growth in the Information Electronics Business Group, including semiconductors, as well as through investment returns in the Composites & Shapes Business Group, which includes C.P.C. S.r.l., an Italian subsidiary involved in robotaxi-related projects. Earnings growth in the Specialty Materials segment is also expected to drive improvements in Companywide ROIC.

On the other hand, the Basic Materials segment, which is currently undergoing structural reforms, is expected to record a loss. The MMA & Derivatives segment is projected to return to profitability, but earnings are still insufficient, requiring further fundamental reforms.

We continue to closely monitor developments in the Middle East, particularly the situation surrounding the Strait of Hormuz and fluctuations in crude oil and naphtha prices. We are taking measures to appropriately reflect the cost of rising raw material prices in customer pricing.

I believe our current share price is undervalued and I attribute the persistently low price-to-book ratio primarily to the market's assessment of our earnings per share (EPS). With respect to our price-to-earnings ratio, I feel that the market has begun to recognize the progress we have made through structural reforms and the resilient growth of our Specialty Materials segment. However, we cannot deny that businesses facing structural challenges, such as MMA and petrochemicals, are perceived as risk factors and weigh on our valuation. That is precisely why I believe the most important task ahead is to deliver concrete results. Demonstrating that the measures we have implemented and will implement going forward are translating into earnings growth through actual performance will strengthen investor confidence in the likelihood of achieving our future targets. While share buybacks will continue to be considered as an option for capital allocation, our foremost priority is to steadily increase profits and improve EPS.

To enhance corporate value, the Group will continue to allocate resources to the next-generation and growth driver quadrants. However, even as we shift from a defensive to a more proactive approach, we will continue to maintain financial discipline. Strong discipline is crucial precisely when pursuing top-line growth. Revenue growth should not be accompanied by disproportionate increases in inventory. We will continue to manage working capital with the utmost rigor.

Discipline does not simply mean curbing expenditures. It also means making the decision not to invest in areas with limited growth potential while preparing to make bold investments when attractive opportunities arise. Carefully selecting investment opportunities based on where capital should and should not be allocated is becoming increasingly important. At the same time, it is essential to maintain financial flexibility by avoiding unnecessary debt during normal times and ensuring that we can act swiftly when opportunities emerge. I believe that maintaining a balance between a bold stance and financial discipline is the mission entrusted to me as CFO.

It has been more than two years since the current management team assumed leadership. From the outset, we designated the first three years as a defining period, aiming to ensure that all stakeholders clearly perceive the changes being made by the Group. Looking back, the first two years were dedicated to large-scale restructuring and business reorganization. We undertook these difficult measures with the conviction that they were essential steps toward future growth. Now, in the third and final year of this defining period, we will shift from a defensive to a more proactive approach.

Our priority is to achieve our core operating income target of ¥100.0 billion in the Chemicals Business. Despite uncertainties such as the global economic and geopolitical environment, we will build upon the solid foundation we have established to deliver concrete results. We are determined to make this a year in which we clearly demonstrate, through our performance, our trajectory toward sustainable growth and profitability. We ask for your continued support going forward.