EBARA Foods Industry,Inc. Q4 FY2025 earnings call

Company Overview & Core Strategy

• Founded in 1958, headquartered in Yokohama, Kanagawa, with 870 consolidated employees (516 at Ebara Foods core, operating a lean management model). Follows a "Niche & Top" strategy, holding top market share in niche Japanese categories including yakiniku sauce, sukiyaki sauce, asazuke pickling base, and single-serving hot pot.
• Core long-standing hit products: Ougon no Aji yakiniku sauce, launched in 1978 and supported by consumers for 47 years; Pucutto Nabe single-serving portion hot pot seasoning, launched in 2013, with product line expanded to include Pucutto Udon (2016) and Pucutto Chuka (last year), driving strong sales growth over 10 years.

Core Competitive Advantages

• Advanced high-concentration concentration technology: Cultivated since the company's early days producing Hokkaido miso ramen soup base, the technology preserves original flavor and aroma that is released when diluted. Patented technology prevents thick concentrated seasoning from remaining in portion packaging, which received high praise from professional chefs on the popular TV program Job Tune, where all 5 entered products passed evaluation, 4 with perfect unanimous approval.
• Evolved filling technology: Can fill not only liquids but also solid ingredients such as mentaiko and minced meat, enabling expansion of product lines beyond seasonal hot pot to year-round sales of other portion seasonings.

Recent Operational Progress

• A new portion-specific production building was completed at Tsuyama Factory in Okayama in October 2024, establishing a two-location production system with Tochigi Factory, enabling accelerated development and manufacturing of new categories and flavors.
• Progress on Mid-Term Management Plan "Ebara Reboot 2026" (2024-2026, the base-building phase of the 10-year long-term vision):
  • Overseas business: Invested approximately 2.9 billion yen to open a new factory in Thailand in August 2024, which primarily manufactures commercial ramen soup for Japanese restaurants in Southeast Asia. The company is on track to hit the mid-term target of 5% overseas sales ratio this fiscal year, the second year of the plan, and is exploring halal-compliant products to match regional characteristics.
  • Domestic manufacturing restructuring: Acquired land for a new factory in Shimotsuma, Ibaraki, to build a flexible production system capable of handling high-mix low-volume production, with Phase 1 operation targeted for around fiscal 2028. Announced the closure of the aging Gunma Factory, with production of its commercial products being transferred to optimal locations both inside and outside the group to improve efficiency.
• Sustainability initiatives: Adopted chemically recycled PET containers for the new Yakiniku Kannou 400g product, cutting CO2 emissions by 25% versus conventional PET; eliminated cardboard dividers in some product packaging, cutting cardboard usage by 16.7%; switched some hot pot seasoning bottles from glass to PET, achieving 90% weight reduction; has run community food education classes for children in Kanagawa elementary schools since 2008.
• New product launches for meat-related seasonings: Added a new Yakiniku Tare Ponzu flavor to Ougon no Aji, and launched the new lower-priced Yakiniku Kannou series targeted at younger consumers, with enhanced promotional support including TV commercials to reverse the segment's slight decline.
• Shareholder returns: Adopted total payout ratio as a core return metric, targeting a 50%+ total payout ratio in the mid-term plan. Increased the year-end dividend by 2 yen per share this fiscal year following the upward earnings revision, and will strengthen efforts to hit the 50% target next fiscal year, the final year of the mid-term plan. Maintains a popular three-tier shareholder gift program based on holding volume.

1. 2024 Full-Year Consolidated Total Revenue: 47.9 billion yen. Food Business: accounts for 84.1% of total revenue. Within the Food Business: Home-use Products account for 63% of total company revenue (≈80% of Food Business revenue), broken into: Meat-related seasonings (led by Ougon no Aji): slight year-over-year decline, Hot pot seasonings (led by Sukiyaki no Tare and Pucutto Nabe): mid-year sales exceeded meat-related seasonings for the first time ever, Vegetable-related seasonings (led by Asazuke no Moto), Other categories (including Pucutto Udon, Pucutto Chuka, Yokohama Hakuraitei curry): high growth driven by the launch of Pucutto Chuka. Food Business: Commercial-use Products account for 20% of total company revenue, selling a diverse range of products including ramen soup and yakiniku sauce to the food service industry. 2. Logistics Business: accounts for 14.6% of total revenue. 3. Other Businesses: accounts for 1.3% of total revenue. 4. Portion seasoning sales: grew at an annual rate of over 10%, reaching 1.5x the size of 5 years ago; cumulative sales through the third quarter of the current fiscal year hit 6 billion yen, on track to exceed the prior year's full-year result.

• The full-year 2026 fiscal year earnings guidance was upward revised in conjunction with the third quarter earnings release on February 6, 2026. Upward revision drivers include stronger-than-expected hot pot seasoning sales driven by cool autumn/winter temperatures and stable leafy vegetable prices, and solid commercial product sales supported by inbound demand. On the profit side, ongoing cost cuts and completed price adjustments have mitigated the impact of raw material price hikes, leading to expected large profit growth. This fiscal year will see the first operating profit increase in 5 periods and the first net profit increase in 4 periods.
• The 10-year long-term vision (2024-2033) aims to become a company that creates new food categories through unique products and services, with the 10-year period split into three phases: the first 3 years for base building, the next 3 years to establish a growth trajectory, and the final 4 years to achieve a record high operating profit of 3.3 to 3.4 billion yen.
• The mid-term plan targets an overseas sales ratio of 5% or higher, which is on track to be achieved this fiscal year.
• The new Shimotsuma factory Phase 1 is targeted to start operation around fiscal 2028.

• Prior four-year consecutive operating profit decline was driven by two core risks: raw material and logistics cost hikes (price adjustments led to temporary sales volume declines that left cost increases to hit profits first) and higher depreciation expenses from large-scale growth investments. While raw material price increases have stabilized and sales volumes are recovering, the company is still absorbing depreciation costs from recent investments in Tsuyama Factory and the Thailand factory.
• Meat-related seasoning segment faces headwinds from growth in supermarket private brands and rising meat prices, leading to a slight sales decline.
• Expanding portion production creates exposure to raw material price volatility and logistics cost increases, which the company mitigates via dual production bases in eastern and western Japan that cut transportation distances and enable diversified raw material sourcing, while also supporting business continuity planning for disaster events.

Q: What is your view on the long-term growth potential of the single-serving market amid declining birth rates, growing single-person households, and diversifying work styles?

A: While overall population will decline, the number of single-person households (especially elderly single-person households) will continue to increase. Individual eating is also being driven by rising dual-income households and increased remote work, so the overall single-serving market is a growing market for the food industry, and Ebara aims to fully meet this consumer demand.

Q: Do you have plans for new core categories beyond the Pucutto Nabe series to respond to growing single-person and dual-income households?

A: We have already launched Pucutto Udon and Pucutto Chuka, and see potential for expansion into many other categories. Curry and pasta are examples of possible future areas; while we cannot share specific concrete plans at this stage, we see these as viable potential segments and will continue to expand our product line based on thorough consumer needs research. We also share many customer-created arrangement recipes on our website to keep consumers from getting bored with existing products.

Q: What are your competitive advantages and response strategies if new competitors enter the single-serving portion seasoning market?

A: While putting seasoning into portion containers is not technically difficult, creating a consistently delicious final product is very challenging. Our concentration technology is far more advanced than competitors, and our development team is confident that this technology cannot be easily replicated. Filling solid ingredients into portions requires very large capital investment in specialized equipment and cumulative know-how: evenly filling ingredients without clogging lines requires extensive research, creating a very high barrier to entry for new competitors. Our strategy is to continue improving our product lineup, variety, and flavor quality to a level that competitors cannot match.

Q: Where do you see your strongest overall competitive advantage across product development, brand, distribution, and other areas?

A: Every element is indispensable: great flavor is required to get consumers to purchase, so our development team continuously iterates and improves existing products. For brand, we have trademarked the "Pucutto" name, and we are building strong recognition that "Pucutto = Ebara", with the memorable slogan "One Pucutto, One Serving" that drives spontaneous consumer purchase at retail. For distribution, we have secured strong shelf space at supermarkets thanks to our long track record and consistent new product launches, which delivers consistent consumer exposure and drives sales growth. No single element works alone: all are required to deliver results, so our core advantage is our overall combined strength across all these areas.

Q: How do you manage risks related to raw material prices and logistics costs amid production expansion?

A: Portion seasoning production volume has grown significantly, which has already improved production efficiency. Our two-location production system in eastern (Tochigi) and western (Tsuyama) Japan drastically reduces transportation distances, which creates major logistics cost savings. We also diversify raw material sourcing across both regions to mitigate the risk of price increases, and the dual-site structure also improves business continuity for disaster events.

Q: How will you leverage the tailwind of the global Japanese food boom for your overseas business?

A: We have seen rapid growth in Japanese restaurants overseas, especially ramen shops, donburi chains, and other casual Japanese dining chains, and this trend is expected to continue accelerating. We plan to expand sales focused on commercial products for these restaurants, which is the core reason we built the Thailand factory. Our core advantage is our ability to provide a one-stop lineup of seasonings for many different menu items, and we plan to leverage this strength. We are also exploring halal-compliant products to match Southeast Asian regional characteristics. Currently, production is focused on Japanese restaurant clients, especially ramen soup products in flavors including shoyu, miso, and tonkotsu, and we have not yet expanded to consumer retail products for local consumers, which is a future opportunity.

Q: Can you share more details on your future overseas expansion strategy?

A: We started with Shanghai and Hong Kong, then expanded to Taiwan, and more recently to ASEAN countries including Singapore, Malaysia, and Thailand. We built the Thailand factory specifically to target expansion across ASEAN, leveraging Thailand's geographic advantage for easy export to other regional markets. We will gradually expand to other ASEAN countries where we do not yet have a presence, and longer-term we are looking at expansion to India, the Middle East, and Europe, though these are further out on the timeline.

Q: Can you explain how pricing works for commercial transactions, and what is the current profit margin dynamic?

A: Commercial products are lower volume than home-use, and are often closer to made-to-order products to match the unique menu and flavor needs of individual restaurant clients. Pricing is closely tied to custom menu development, and clients will accept appropriate pricing if the product matches their needs. Profit margins are slightly lower than home-use products due to the need for custom, detailed customer service. We are building the new Shimotsuma factory to enable more efficient small-batch production, which will help improve profitability going forward, and growing commercial sales will contribute to overall profit expansion over time.

Q: Is your medium-to-long-term growth driven by new hit products, or by expansion of existing products into new channels and overseas markets? Which path do you see as more reliable?

A: Existing products currently generate the vast majority of our profit. We regularly launch new products, and many are discontinued after 1-2 years if they do not match consumer needs, as we follow a trial-and-error process: we keep products that grow sales and discontinue those that do not. Pucutto Nabe grew rapidly during the pandemic stay-at-home period to become a core hit product, and we will continue this trial-and-error process to find the next large hit product, because long-term growth requires continuous effort to develop new long-selling core products, even as existing products remain the core of our earnings today.

Q: What is your baseline operating profit level excluding temporary factors like raw material price hikes and price adjustment effects?

A: Raw material prices started rising in mid-2021; without those hikes, we would have been able to generate around 3 billion yen-plus in operating profit, similar to 2021 levels. We are currently making large investments that generate around 1 billion yen in annual depreciation, which is currently pressuring profits. Our long-term vision target is to hit a record high operating profit of 3.3 to 3.4 billion yen by absorbing raw material and depreciation impacts to reach that baseline profit level.

Q: What specific steps do you plan to take to improve capital efficiency?

A: We agree there is still room for improvement in ROE, even though we have a relatively high equity ratio. The two core improvement levers are: first, improving core business profit margins by building an efficient new production system at our upcoming factory to steadily improve profitability; second, when we have excess capital, we will consider share buybacks to manage net capital size appropriately. Right now, we are still in a phase of prioritizing capital allocation for growth investments.

Q: What is your view on your current stock price, and what is your shareholder return and dividend policy going forward?

A: We recognize that our PBR is still below 1x, so we do not consider our stock price to be at a sufficient level, and we need to accelerate efforts to convert our past investments into sales and profit growth. We understand shareholders have high expectations for shareholder returns, and we will continue to balance dividends, share buybacks, and the shareholder gift program. The shareholder gift program is very popular with shareholders, so we will continue it, and we will consider expansion while balancing with dividend payouts.

Q: Why are you not investing more in straight-type hot pot soup, which many consumers find easier to use?

A: We previously offered many straight-type products, but it is difficult to differentiate them from competing products, so we currently only offer one NB straight-type product: Small Pot Side Dish Sundubu Jjigae Base. Consumer research showed that straight-type products have common pain points: they are heavy to carry home from the store, and it is hard to adjust the portion to match the number of people eating, leading to excess or shortage. We developed portion seasonings specifically to solve these pain points, which is why we are focused on this format.

Q: Your stock has low trading liquidity, making it hard to buy. Do you have plans to attract more investors?

A: We cannot directly control stock price or trading volume, but we believe improving corporate value (profitability and capital efficiency) and providing clear, accessible information disclosure will expand the investor base and improve market liquidity over time. We will continue to conduct IR activities focused on fairness and two-way communication to become a company chosen by long-term investors.

Q: Your investor relations website is hard to navigate. Can you improve accessibility of disclosures?

A: We take this feedback seriously as an important area for improvement, and we are currently working step-by-step on IR website improvements including better information accessibility, improved visual design for disclosure materials, and optimized viewing for all device types.