2602.T

On-Going Progress & Identified Challenges

• In-line progress: ISF Group cocoa butter equivalent (CBE) and chocolate fat sales volume are largely on plan, despite temporary mark-to-market valuation losses; Fine Chemicals has grown domestic cosmetic raw material sales volume via new customer wins.
• Key challenges: Slow progress on general purpose oil price adjustments in domestic oils, declining home-use general purpose oil sales volume, ongoing olive oil profit margin pressure, and slower-than-planned initial execution of the Value UpX medium-term plan (with temporary negative operating cash flow in the first half).

Immediate Priority Actions

• Complete domestic oil price adjustments as quickly as the top near-term priority.
• Simultaneously recover olive oil sales volume and improve its profit margin.
• Implement short-term expenditure and resource allocation reviews following the guidance downward revision.

Medium-Term (to 2028) Strategic Initiatives

• Domestic market: Restore sales volume aligned with shifting market demand, led by a review of the home-use product portfolio based on detailed market analysis, while updating strategy and improving capital efficiency.
• Global chocolate fats: Expand CBE-centered sales to grow profit, with sequential production capacity expansion starting in H2 2025. Plans call for 26% higher sales volume and 62% higher gross profit by 2028 versus 2025 levels, with collaborative new product development with key customers.
• Cosmetic raw materials: Grow sales volume on plan, use the newly opened Thailand representative office to expand sales and marketing in Southeast Asia, prioritize production and pricing adjustments for high-demand products, manage supply constraints with aligned production and sales planning, strengthen relationships with Chinese local manufacturers, and target 43% higher sales by 2028 versus 2025.
• Functional oils & oil agents: Focus on creating added value beyond basic oil functionality (e.g., simplified cooking processes, reduced error rates for business customers) to solve customer problems. Expand reach to unreached customers by combining traditional outbound sales with growing inside sales capabilities, leveraging the company's existing incubation function and strengthened user support.

• Consolidated full-year 2025 guidance was revised to 540 billion yen in revenue (- no prior revision provided, core change is on profit) and 15 billion yen in operating profit, representing a downward revision from prior guidance. Consolidated full-year guidance also includes 14 billion yen in ordinary profit and 23.5 billion yen in net income attributable to parent shareholders.
• Global Oils & Processed Fats full-year operating profit guidance was downward revised from 6.2 billion yen to 5.6 billion yen; the change is driven by a reassessment of palm oil mark-to-market impacts, with no major change to core business profit plans. Chocolate fat sales volume for the full year is projected to be 13% higher year-over-year.
• Oils & Oilseeds full-year operating profit guidance was sharply downward revised from 10 billion yen to 5.3 billion yen, due to a larger-than-expected first half downturn that cannot be offset by second half price adjustment progress, combined with expected ongoing sales volume declines and rising raw material costs.
• Processed Foods & Materials full-year operating profit guidance was downward revised due to expected lower chocolate sales volume and rising raw material costs. Fine Chemicals guidance is unchanged from prior estimates.
• Full-year company-wide ROIC is projected at 4%. Global Oils & Processed Fats will see a temporary ROIC decline due to ongoing investments; Oils & Oilseeds and Processed Foods & Materials will see ROIC decline to 3.2% due to lower profit; Fine Chemicals ROIC is projected to rise above 10%. Full-year operating cash flow is projected at 20 billion yen.

1. Global Oils & Processed Fats: Increased revenue driven by higher sales volume and rising selling prices amid palm oil price increases, but operating profit decreased from 2.4 billion yen to 1.4 billion yen. The decline was due to lower profit per unit (following a transient high-margin period in the prior year) and mark-to-market impacts from palm oil trading. Full-year 2025 operating profit guidance is a downward revision from 6.2 billion yen to 5.6 billion yen, driven primarily by a reassessment of mark-to-market impacts, with no major change to core business profit plans. 2. Oils & Oilseeds: Revenue declined due lower home-use sales volume and lower meal selling prices. Operating profit decreased from 5.8 billion yen to 2.7 billion yen, hit by rising total costs of 3.75 billion yen, slower-than-expected price adjustments that limited revenue gains to 1.7 billion yen, and higher selling, general & administrative expenses. Full-year 2025 operating profit guidance was sharply downward revised from 10 billion yen to 5.3 billion yen, due to an expected sales volume decline, rising oil costs, and an inability to fully offset the first half downturn with expected second half price adjustment progress. 3. Processed Foods & Ingredients: Increased revenue and operating profit, driven by higher chocolate selling prices from price adjustments at Daito Cacao and proper pricing of MCT in functional materials. Operating profit rose from 1.3 billion yen to 2 billion yen. Full-year 2025 operating profit guidance was downward revised due to expected lower chocolate sales volume and rising raw material costs. 4. Fine Chemicals: Revenue increased, with higher domestic cosmetic raw material sales volume, but higher overseas manufacturing costs kept profit flat year-over-year. No major change to full-year 2025 guidance, with profit expected to match prior year levels, and ROIC projected to exceed 10%.

• Domestic general-purpose oil price adjustments are progressing much slower than expected, amid relatively stable raw material prices that reduce customer urgency to accept changes, leading to lower-than-planned profit in the Oils & Oilseeds segment.
• Domestic home-use oil sales volume is declining faster than expected, driven by rising consumer cost-cutting sentiment amid broader economic pressure in Japan.
• Palm oil price volatility creates mark-to-market valuation impacts that can cause sharp short-term profit fluctuations in the Global Oils & Processed Fats segment.
• Japan's population decline is progressing faster than official prior projections, which could lead to long-term gradual domestic oil demand contraction and eventual industry production capacity surplus.
• Supply constraints have emerged for high-demand cosmetic raw material products, which could limit near-term sales growth for the Fine Chemicals segment.

Q: Cocoa prices have fallen recently. Does this have any material impact on CBE demand or pricing for your global oils business? / A: Management states that the recent decline from peak cocoa prices has not had a large enough impact to require a revision to CBE business plans. They expect that stabilizing cocoa prices will support a recovery in the recently shrinking global chocolate market, and plan to use this favorable environment to expand CBE distribution and market penetration. (187 characters)

Q: What is your outlook for CBE selling prices and sales volume next year, and what is your production capacity plan going forward? / A: Management expects 2026 average CBE selling prices to be roughly in line with 2025 levels, with 2027+ prices expected to be similar to 2026 on current plans. Higher production capacity in 2026 will support higher sales volume, and the company maintains its long-term policy of expanding CBE production in line with expected growth of the chocolate market. (248 characters)

Q: How is general purpose oil price adjustment progressing in your domestic oils business, and what is the current sales volume trend? / A: Price adjustments are progressing slower than originally expected, which management attributes to relatively stable raw material prices that make it harder to communicate the need for changes to customers. Home-use sales volume has declined sharply, driven by broad consumer cost-cutting across the Japanese market, but demand is shifting toward higher value-added products like olive oil, sesame oil, and rice bran oil. (294 characters)

Q: How will you get the domestic oils business back on track for your Value UpX medium-term targets next year? / A: The top near-term priorities are solidifying newly implemented general purpose oil price adjustments to drive 2026 profit recovery, and restoring olive oil sales volume first before improving its profit margin. Management will also quickly re-evaluate the current product portfolio to align with shifting home-use demand patterns, and push value-added products like functional oils to business and processing customers. (276 characters)

Q: Do you expect industry overcapacity as domestic sales decline, and how will you approach cross-company collaboration moving forward? / A: Management does not expect immediate large-scale industry overcapacity, as prior projections forecast flat total demand from slightly higher per-capita consumption offsetting population decline, but notes faster-than-expected population decline will create pressure over time. The company's approach to non-competitive collaboration with peers remains unchanged, and it will continue to pursue feasible collaborative projects steadily. (281 characters)