Morinaga & Co.,Ltd. Q4 FY2025 earnings call

New CEO Strategic Priorities

• Continue purpose-driven leadership aligned with the company's founding corporate philosophy, with three core strategic pillars:
  • Maximization of intangible value: Prioritize investment in human capital (high employee engagement is a core competitive advantage), R&D&E (high-reproducibility low-cost mass production engineering know-how is a core competency), and enterprise-wide DX acceleration to strengthen long-term competitiveness.
  • Ambidextrous management: Balance incremental improvement of core businesses with accelerated development of new high-growth priority areas (health business, DTC/ecommerce) that will drive long-term enterprise value.
  • Global expansion: Target growing overseas sales to 75 billion yen (25% of total consolidated sales) by 2030, anchored by the HI-CHEW brand.
• Long-term 2030 vision: Transform Morinaga into a wellness company, with explicit focus on capital cost management.

Mid-term Plan Progress (2024 Medium-Term Management Plan)

• Despite far higher raw material costs than planned at the outset of the plan, the company delivered top-line growth and increasing profit while continuing long-term intangible investment, which management views as a positive outcome.
• Key capital efficiency metrics (ROE, ROIC, DOE) are tracking above plan targets, supported by policy share sales, share buybacks, and capital reduction initiatives that have lifted ROE above medium-term plan targets.
• Core challenge: The sales share of high-priority growth areas has declined, so re-establishing a clear growth trajectory for the in business and U.S. business (core of global strategy) is a top near-term priority.
• There is a gap between current operating profit projections and the original medium-term plan final year target, driven largely by cacao price impacts on the confectionery segment. Management is updating the roadmap to target, with a focus on accelerating candy category shift and improving capital efficiency.

Operational Updates by Segment

• in Business: Prior year underperformance stemmed from extreme heat reducing outdoor/sports event demand (misaligning with planned Olympic-focused sports marketing) and production constraints that forced early end of sale for some SKUs. FY2026 plans: shift marketing focus from sports to daily lifestyle support, add mid-summer promotion to capture casual users, expand production capacity for top-selling in Jelly Grape, and extend the sales window for the Lemon SKU to drive growth.
• U.S. Business: Prior year headwinds from inflation-driven convenience channel weakness and heightened competition. FY2026 priorities: (1) strengthen sales promotion in Mass/Food channels ahead of the 2027 launch of the second U.S. factory, (2) launch a HI-CHEW core flavor quality update (reversing the inner/outer double structure, which delivered strong growth when implemented in Japan 10 years ago), (3) expand SKUs with new packaging/sizes and line extensions. The new Chargel brand has found product-market fit with the "thirst-quenching snack" concept, with strong growing repeat sales via EC that will be scaled to offline channels.
• R&D Strategy: Pursue ambidextrous technical strategy: continue advancing core technologies supporting top 3 flagship brands, while exploring new value creation aligned with the wellness vision, including emotional/sensory science research into the mental wellness benefits of confectionery.
• DX & Operational Enablement: Completed domestic core system replacement in January 2025 without business disruption, with U.S. manufacturing subsidiary cutover planned for May 2025 to enable global process standardization. Rolled out company-wide internal generative AI tool MORI AI Chat to support productivity improvement and upskilling.
• Financial & Shareholder Strategy: Reduced cash holdings and policy-held shares, completed share buybacks and cancellation to improve capital efficiency. Set a new target to cut policy-held share holdings in half by the end of the 2024 medium-term plan to reduce cost of equity. Confirmed 10 consecutive years of dividend increases, with a planned 5 yen per share increase for FY2025 and another 5 yen increase planned for FY2026, added an interim dividend to improve shareholder return attractiveness, and maintains flexible share buyback programs.

For the 2025 March fiscal year, consolidated net sales reached 228.9 billion yen, with operating profit of 21.2 billion yen, net income of 17.7 billion yen, and EBITDA of 31.1 billion yen, all hitting new all-time highs.

1. Confectionery & Food Segment: Drove overall sales growth, but faced severe margin pressure from soaring cacao prices, resulting in a year-over-year operating profit decline despite higher revenue. Key brands including HI-CHEW, Morinaga Ramune, DARS, and Calle de Chocolat all outperformed market growth after price adjustments. Biscuits recovered in Q4 after a post-price-adjustment slowdown, delivering full-year revenue growth. This segment accounts for the majority of domestic core revenue.
2. Frozen Dessert Segment: Outgrew the overall market to deliver strong revenue growth. Top performers including Itachoco Ice, The Crepe, and Icebox grew well above market rates, while Choco Monaka Jumbo faced headwinds from prior year comparables and price adjustments before recovering to growth in March after quality updates. Vanilla Monaka Jumbo delivered consistent full-year growth above prior year levels.
3. in Business (Health & Wellness Segment): Total revenue was slightly down year-over-year, as in Bar and powdered protein struggled even as in Jelly slightly outgrew prior year levels. Operational efficiency and optimized product mix delivered an increase in operating profit. Oishii Aojiru (delicious green juice) in direct-to-consumer (DTC/ecommerce) performed strongly, but the core Oishii Collagen Drink missed prior year sales amid lower new customer acquisition, though profitability improved due to controlled marketing spend. Revenue contribution from this high-margin segment is a key strategic priority.
4. Overseas Business: Current total overseas sales stand at ~30 billion yen, accounting for 13% of total consolidated sales. U.S. HI-CHEW saw retail sales decline year-over-year due to inflation headwinds and intense competition in the convenience channel, but grew 1%+ year-over-year on a shipment basis in local currency, with double-digit sales growth in the Food channel and successful new channel expansion.

• For the 2026 March fiscal year, management guides consolidated net sales of 240 billion yen (4.8% year-over-year growth), which would mark a 5th consecutive all-time high. Operating profit is guided to 21.4 billion yen (new all-time high), with EBITDA guided to 31.7 billion yen (also a new all-time high).
• The 2024 Medium-Term Management Plan is at the midpoint of the 2030 long-term vision, which targets 300 billion yen in total sales and an operating margin of 12%+ by 2030. Management remains focused on hitting 2024 medium-term plan targets while advancing toward 2030 goals.
• For key priority growth segments, management targets high growth in frozen desserts, the in business, and the U.S. business in FY2026, ahead of a broader rebound in medium-term profitability.
• Starting in FY2026, all consolidated subsidiaries will align their fiscal year end to March 31 to improve reporting and operational consistency.

• Raw material prices: Cacao and overseas dairy prices remain at elevated levels, with highly uncertain future trajectory, and are expected to create a 5 billion yen negative headwind to operating profit in FY2026.
• U.S. tariff policy: Current U.S. tariff policy proposals create high uncertainty, with the potential for negative impacts on both Morinaga's exports to the U.S. and U.S. domestic manufacturing that relies on imported raw materials. Policy uncertainty makes it impossible to reasonably quantify impacts, so potential tariff costs are not included in the FY2026 guidance, and represent a downside risk to results if implemented.
• Consumer sentiment: Weakening consumer purchasing power from economic headwinds could create further downside risk if it reduces demand for Morinaga's products.
• Medium-term plan target gap: Unanticipated raw material cost increases have created a gap between current operating profit projections and the original 2024 medium-term plan final year target, requiring adjusted strategy to close the gap.

Q: Capital markets see low confidence in Morinaga's long-term growth because the company has not explained how it will structurally drive growth for its two key brands, in Jelly in domestic and HI-CHEW in the U.S. For in Jelly, how will the company structurally grow the brand beyond one-off promotional initiatives? For U.S. HI-CHEW, how is the company strengthening organizational processes to overcome current challenges and support future European expansion? / A: The company is actively shifting resource allocation to priority growth businesses. For in Jelly, the brand follows a lifetime value strategy, focused on expanding its value proposition across all life stages. As the leading jelly drink brand, it is focused on expanding the overall market, with current successful efforts targeting children and women, and ongoing R&D and test marketing targeting seniors and infants to expand the addressable market. For U.S. HI-CHEW, the current slowdown follows unsustainable pandemic-era growth, and HI-CHEW still holds only ~1.2% market share with plenty of room to grow penetration and awareness. Management has updated the organizational structure: a board director now directly serves as head of the overseas business division, and the U.S. general manager has been promoted to executive-level待遇, creating a faster decision-making structure that directly connects top management to local U.S. operations to support growth. (1198 characters)