FEED ONE CO.,LTD. Q4 FY2025 earnings call

Full-Year 2025 March Fiscal Year Financial Results

• Net sales decreased 5.7% year-over-year to 296 billion yen; gross profit increased 3.8% to 31.8 billion yen; SG&A increased 11.1% to 25.531 billion yen (within the initial plan of 25.7 billion yen). SG&A growth was driven by 1.5 billion yen in increased livestock stabilization fund contributions, higher freight and labor costs, and depreciation for the new core system launched in April 2024.
• Operating profit was 6.3 billion yen, ordinary profit was 6.7 billion yen (both hit initial plans despite year-over-year declines); net profit hit a record high of 5.387 billion yen, driven by lower tax burdens from tax credits for wage increases and R&D, and the liquidation of a loss-making affiliate.
• Key metrics: Total sales volume 3.786 million tons (99.3% of plan); EBITDA 10.595 billion yen (103% of plan, down ~600 million yen year-over-year); ROE 10.3%, ROIC 6.1% (both above the targeted cost of equity 8% and WACC 6%); equity ratio improved to 44%, D/E ratio improved to 0.5x, strengthening financial stability for upcoming large investments.

6-Year Cash Allocation (2025.3 - 2030.3)

• Total planned investment of 600 billion yen, focused on feed mills; total planned dividends of ~100 billion yen over the period. Approximately 75% of 700 billion yen total cash outflow will be covered by operating cash flow from net income and depreciation; the remainder will be funded via debt and sales of cross-held shares and real estate.

10-Year Phase 2 Medium-Long Term Strategy

• The first 10 years post-merger (Phase 1) delivered results: sales volume up 10%+ from 3.36 million tons to 3.79 million tons; ordinary profit more than doubled from 3.7 billion yen to 7.7 billion yen; ROE increased from 8.7% to 10.7%; 8 non-core/overlapping affiliates consolidated, reducing the total from 42 to 34; two new large mills completed, and core system update completed in April 2024.
• 2034 March Fiscal Year Vision: 20%+ sales volume growth to 4.8 million tons (if market size holds); EBITDA over 160 billion yen; ROE over 10%, ROIC over 8%; total 10-year cumulative investment of ~800 billion yen. Key current challenges include aging equipment (some mills over 60 years old), regional manufacturing capacity tightness from sales growth, and the need to advance group management sophistication.

Key Strategic Initiatives

1. Proactive Investment: New Fisheries Feed Mill

• Approved a 13 billion yen new feed mill in Toyokawa City, Aichi Prefecture, scheduled for completion in April 2028. The 40,000 ton/year R&D-focused mill will include product development lab functions, with space reserved for future expansion; it will replace the 60-year-old nearby Chita Mill, and is expected to cut fuel costs by 15% and labor costs by 50%. The central Japan location was chosen to serve existing southern aquaculture regions and the expected northward shift of aquaculture and growth of on-land aquaculture in eastern Japan near major consumption centers.
• Strategic focus on sustainable aquaculture feed: expanding fishmeal-free feed, co-developing insect protein applications with universities (early results show insect meal components support fish health), and developing new feed products adapted to offshore aquaculture and new fish species to grow the overall Japanese fisheries feed market from 600,000 tons to 700,000-800,000 tons.

1. Manufacturing Efficiency Improvement

• Reducing product SKUs to increase production capacity: A 13% SKU reduction at the Kitakyushu fisheries mill delivered a 13% increase in production volume. The company targets a 30% SKU reduction across all fisheries mills in the current fiscal year, and will roll out the program to livestock feed (target 10% SKU reduction, expected to deliver ~10% higher capacity to alleviate near-term capacity constraints, while also reducing fixed costs and improving inventory turnover).

1. Differentiation from Competitors

• Core competitive advantage: nutrition-based feed R&D combined with farming technology consulting and flexible use of advantageous raw materials, enabled by proprietary formulation technology. Examples include "Luminous" dairy cow feed that addresses nutrition gaps from modern genetically improved cattle, supporting higher milk yield, guaranteed milk fat content, and cow health, while also contributing to SKU reduction; a full line of heat stress mitigation products for all livestock types, which have delivered strong results in recent years of extreme heat.

1. Advanced Group Management

• Continued affiliate consolidation: will reduce the total number of affiliates from 34 to 27 by October 2025; completed integration of two joint venture feed mills into company-owned operations for cost reduction and improved competitiveness; consolidated overlapping regional sales companies to improve sales efficiency and capital efficiency.

1. Employee Engagement and Capital Management Culture

• ROIC adopted as a core management metric and executive performance KPI, with ongoing internal training and outreach to build company-wide awareness of capital cost management. The company earned the Japanese government's "Health & Productivity Management Outstanding Organization 500" (White 500) recognition; updated personnel policies to increase flexibility (greater location choice, flexible working hours) and improved employee engagement scores, with a special 10,000 yen bonus for employee stock ownership plan members to mark the 10th anniversary of the full merger.

Updated Dividend Policy

• Switched from a stable dividend policy with 25%+ payout target to a progressive dividend policy with a 3% target DOE (dividend on equity), to deliver more stable long-term shareholder returns and reduce sensitivity to short-term earnings volatility. For the current fiscal year, the company will pay a regular dividend of 16 yen per share plus a 5 yen 10th anniversary special dividend, for a total annual dividend of 42 yen per share.

1. Livestock Feed Segment: Reported segment profit of 8.533 billion yen, reaching 109% of the initial plan. Total sales volume was 3.688 million tons, flat at 100.2% year-over-year, outperforming the industry-wide 99.5% year-over-year decline. Chicken and pork feed volumes increased, while cattle feed volumes declined temporarily due to strict profitability management. Despite profit declining year-over-year due to higher selling, general and administrative expenses (SG&A) and increased contributions to the livestock stabilization fund, per-ton gross profit increased thanks to strict cost management. This segment accounts for approximately 97.4% of total company sales volume. 2. Fisheries Feed Segment: Reported segment profit of 1.164 billion yen, reaching 116% of the initial plan, with profit roughly flat year-over-year after adjusting for special prior-year factors. Sales volume fell significantly year-over-year and missed plan due to rising seawater temperatures, but lower imported fishmeal prices and strong growth of the fishmeal-free product "Sustaina ZERO" (launched two years prior for red sea bream) supported profitability and allowed the company to hit its plan. 3. Food Segment: The segment, which handles purchasing, processing, and selling of livestock products, saw a year-over-year profit decline and missed plan. High avian influenza and swine fever/heat stress drove sharp increases in egg and pork purchase prices, and the company was not able to pass along all price increases to customers in time.

• Full-year 2026 March Fiscal Year Guidance: Net sales 311 billion yen, operating profit 6.8 billion yen, ordinary profit 7.0 billion yen (all forecast to increase year-over-year); net profit 5.2 billion yen (slight year-over-year decline due to the absence of the prior year's one-off tax reduction); total sales volume 3.81 million tons; total planned investment over 100 billion yen; EBITDA 11.2 billion yen; ROE 9%, ROIC 6%.
• Segment-level 2026 Guidance: 1. Livestock Feed: Sales volume +0.3% year-over-year to 3.7 million tons; segment profit and EBITDA forecast to increase, with only a small expected increase in stabilization fund contributions. 2. Fisheries Feed: Sales volume +13.1% year-over-year to 112,000 tons, with the impact of rising seawater temperatures expected to ease in the second half of the year; segment profit and EBITDA forecast to increase. 3. Food: Slight profit decline forecast, as high egg prices persist due to ongoing avian influenza impacts.
• 10-year 2034 Vision: 20%+ sales volume growth to 4.8 million tons; EBITDA over 160 billion yen; ROE over 10%, ROIC over 8%.
• The impact of the Trump 2.0 policy on the first quarter of the current fiscal year is expected to be minimal.

• Rising seawater temperatures negatively impact aquaculture production and reduce fisheries feed sales volume, which has already led to a northward shift of Japanese aquaculture operations.
• Overcapacity pressure from aging, outdated mills and regional capacity tightness from 10 years of sales growth limit near-term growth potential.
• Natural resource depletion (especially for fishmeal, the traditional main raw material for fisheries feed) creates supply volatility and price inflation, increasing production cost uncertainty.
• Outbreaks of animal diseases (avian influenza, swine fever) and extreme heat stress drive up raw material prices for the food segment and disrupt production for livestock producers, hurting segment profitability.
• Trump 2.0 trade policies could lead to broader global economic slowdown and reduced inbound/outfood service demand for food products in Japan, which would negatively impact overall demand for the company's products. There is also uncertainty from potential yen appreciation/depreciation swings impacting raw material import costs.

Q: What is the background driving the company's gross profit improvement in recent periods? / A: The company has implemented strict profitability management per ton of feed, which has lifted per-ton gross profit even amid higher SG&A and fund contribution costs. Lower raw material prices (imported corn down 12.2% year-over-year yen basis) and targeted product mix expansion to higher-margin sustainable products such as Sustaina ZERO also supported overall gross margin improvement. The SKU reduction program has also reduced production waste and fixed costs per unit, further supporting gross profit gains.

Q: What is the company's dividend outlook for the 2027 March Fiscal Year? / A: The company has formally adopted a progressive dividend policy with a 3% DOE target, replacing the prior 25%+ payout ratio target. This policy ensures stable dividend growth even amid short-term earnings volatility, and the company has historically avoided cutting dividends even during periods of lower earnings. The 10th anniversary special dividend for 2026 is a one-time event, but the regular dividend will continue to rise gradually in line with the progressive policy framework for 2027 and beyond.

Q: What steps is the company taking to strengthen corporate governance? / A: The company has continued to consolidate overlapping and non-core affiliates to streamline group operations, improving transparency and capital efficiency. ROIC has been adopted as a core performance metric for management compensation, aligning executive incentives with shareholder value creation. The company has also strengthened internal capital cost awareness across all levels of the organization, and improved personnel policies and employee engagement to support long-term operational performance and governance accountability.

Q: What impact could Trump 2.0 trade policies have on Feed One's business? / A: The company's core livestock feed business uses imported corn, which is exempt from new tariffs, and adjusts selling prices every three months based on raw material costs, so short-term profit impact is expected to be limited. If yen appreciation occurs, imported raw material costs will fall, lowering production costs for Japanese livestock producers (a positive impact). A broader global economic slowdown would reduce inbound tourism and out-of-home food demand in Japan, leading to lower overall food demand, which would be a net negative impact for the company. The first quarter impact is expected to be minimal.