J-OIL MILLS, INC. Q4 FY2025 earnings call

• Overall Financial Results

  • The company achieved all-time record profits across all profit lines, exceeding full-year guidance, driven by profitability enhancement efforts and expanded sales of high value-added products. Revenue declined year-over-year due to falling selling prices for oil & fat products and meal, but profit increased on lower raw material costs and focused sales expansion.
  • Balance sheet improvements: Inventory assets decreased by 9.7 billion yen year-over-year from inventory optimization and lower raw material unit costs. Interest-bearing debt was reduced to improve financial health, and free cash flow improved to over 10 billion yen, building a solid financial base for future growth investment.

• Existing Business Profitability Enhancement

  • For household oils & fats: Expanded distribution of the low-environmental-impact "Smart Green Pack" product line, and grew market share for olive oil by adjusting prices and expanding the product portfolio with blended products and small-sized offerings despite falling demand from cost-conscious consumer behavior.
  • For commercial oils & fats: Demand remained solid driven by inbound recovery and food service growth. The company focused on maintaining cost-appropriate pricing and expanding sales of high value-added functional products, and will launch an improved long-lasting oil product under the "Chotoku" series using the proprietary SUSTEC technology to reduce waste oil volume and cut environmental impact.
  • High value-added product gross margin improved 1.8 percentage points year-over-year to 19.2%, though contribution remains below the company's target, with further expansion planned.

• Business Portfolio Transformation

  • The company is pursuing portfolio upgrading to reduce volatility from raw material price and exchange rate fluctuations, leveraging its strengths in combined oil & fat and functional starch expertise to provide total "deliciousness design" solutions for processed food customers. It will systematically codify deliciousness design knowledge and explore new business models leveraging this expertise.
  • The company has started developing a mid-to-long term business portfolio and business model, and will consider M&A and strategic partnerships to build new capabilities, with plans to expand the "deliciousness design" concept overseas focused on ASEAN and North America.

• Management Infrastructure Enhancement

  • Established a Human Capital Committee in April 2025 to drive human capital management initiatives including talent development, health management, wellbeing, and DEI, to build an organizational culture aligned with the company's values.
  • Will consolidate three scattered R&D sites in Kanagawa and Shizuoka into one integrated site by January 2027, to improve cross-segment collaboration and R&D competitiveness for new material and application development.
  • Launched a company-wide digital transformation (dX) initiative with 4 core reform themes, focused on building competitive advantage through transformation of business, products, services, and business models, with 2025 dedicated to foundation building.

• Sustainability and New Business Initiatives

  • Partnered with NEDO, Japan Transocean Airlines, and Taiyo Oil to complete the first domestic flight in Okinawa using sustainable aviation fuel (SAF) produced from inedible plant seeds (Terminalia catappa, Pongamia pinnata). The company will collaborate with Okinawan organizations to expand cultivation and use of non-edible SAF raw materials to promote local production for local consumption of SAF, with no impact on food demand.

• Shareholder Return

  • 2024 full-year dividend per share is 70 yen, including a 10 yen 20th anniversary commemorative dividend, which is the highest level since the company's listing. The company plans to maintain a 70 yen per share dividend for 2025 to deliver stable shareholder returns.

2024 Full-Year (Fiscal 2024 ended March 2025):

1. Oil & Fats Segment: Revenue decreased 4.9% year-over-year due to falling selling prices following lower raw material market prices. Operating profit increased 1.29 billion yen year-over-year, driven by lower main raw material (soybean, rapeseed) costs that offset rising infrastructure and labor costs, plus expanded sales of high value-added products. High value-added products within the segment grew revenue 3.8% year-over-year.
2. Specialty Food Segment: Revenue decreased 11.7% year-over-year due to the exit from the household margarine business. Within the segment:
   • Dairy-based PBF achieved a 100 million yen year-over-year profit improvement from structural reform effects and full pass-through of powdered oil & fat price hikes.
   • Food Ingredients saw a 90 million yen year-over-year profit decrease due to one-time costs from discontinuing general-purpose starch for cardboard applications as part of structural reform. Overall company operating profit increased 18.3% year-over-year from 7.24 billion yen to 8.57 billion yen, an increase of 1.3 billion yen.

2025 Full-Year Fiscal Guidance:

• Consolidated guidance: Revenue of 240 billion yen (up 4% year-over-year), operating profit of 9 billion yen (up 5% year-over-year), ordinary profit of 10 billion yen, net income attributable to parent shareholders of 7 billion yen, and ROE of 7%.
• Segment guidance:
  • Oil & Fats Segment: Revenue of 219.5 billion yen (up 4.9% year-over-year), operating profit of 8.3 billion yen (flat year-over-year). The company plans to expand market share through further distribution expansion of Smart Green Pack and new product launches for household oils, and strengthen solution-based sales for commercial oils to gain share and expand profit.
  • Specialty Food Segment: Revenue will decline year-over-year due to structural reform (exit from household margarine and ViOLife plant-based cheese brand), but operating profit is planned at 0.6 billion yen, representing an increase year-over-year. Within the segment: Dairy-based PBF is expected to deliver 280 million yen in year-over-year profit growth, and Food Ingredients is expected to deliver 190 million yen in year-over-year profit growth after exiting low-margin general-purpose starch and focusing on high value-added functional starch.
• Mid-term management plan progress: All key indicators including operating profit (all-time high in 2024) are improving steadily toward the final mid-term target, with ROIC lifted by asset efficiency improvements from inventory compression and policy-held share sales. The only gap is slower-than-target growth in emerging growth areas including overseas business, with accelerated investment planned from 2025 onward.

• Persistently harsh cost environment: Logistics costs, packaging material costs, and energy costs remain elevated, and are expected to continue rising further in 2025, putting pressure on profitability.
• Market challenges: Domestic demand for household oils & fats is on a declining trajectory due to population decrease and cost-conscious consumer behavior, and the domestic core oil & fat business has high earnings volatility that contributes to the company's stock trading below book value (PBR < 1.0x).
• External volatility: Raw material prices face persistent volatility from strong global demand (including biofuel demand) and sharp exchange rate fluctuations, plus climate-related risks to raw material and energy supply.
• Strategic gap: Growth of new growth areas including overseas business is slower than planned, and the company has not yet clearly communicated a new long-term growth strategy to the market, which is a key factor behind the low PBR. Current ROE is only roughly equal to the cost of shareholder equity, also weighing on market valuation.

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