ICHIMASA KAMABOKO CO.,LTD. Q2 FY2025 earnings call

• Overall Financial Results: The company achieved year-over-year revenue and profit growth for the period. Net profit reached 950 million yen, beating both the prior year period and consensus forecasts, driven by a gain from consolidating Indonesian joint venture PT. KML ICHIMASA FOODS (KIF). ROE improved from 5.1% to 6.4% year-over-year. Operating profit rose from 920 million yen to 1.02 billion yen, with the largest positive contribution from a 200 million yen gain from sales growth, a 110 million yen reduction in manufacturing costs led by stabilized surimi prices, and 180 million yen in cost savings from rationalization and productivity improvements. These gains offset 90 million yen in higher energy costs, 50 million yen in higher depreciation and manufacturing expenses, and 250 million yen in higher selling and logistics expenses. The equity ratio improved 1.6pp to 44.4% following steady debt repayment after the second headquarters factory construction. Operating cash outflow was driven by inventory increases due to rising surimi prices, and investing cash outflow came from ongoing capital expenditures.

• Seafood Segment Operational Initiatives: The company will implement a price increase for deliveries from March 1, 2025, to absorb rising input costs and improve profit structure. To avoid the demand destruction seen after the last price hike, the company will expand promotional activities for Salad Stick (which has already proven resilient to price adjustments due to strong consumer acceptance), launch new spring/summer products aligned with cost and time efficiency trends, and increase promotion of fish protein as a highly digestible, efficient protein source to address expected future global protein shortages. The company will add a 20% production capacity increase for crab stick via equipment upgrades at the second headquarters factory and line relocation to other factories, moving from a concentrated production model to a distributed multi-site model for better business continuity planning (BCP) and sustained revenue security. The company is running a range of 60th anniversary promotional campaigns to thank stakeholders.

• Mushroom Segment Operational Initiatives: The segment will continue focusing on raising selling prices and achieving stable cultivation. On the sales side, it will expand the adoption of by-weight loose selling (reducing labor for pre-packing and cutting food waste, which has been well received by consumers) and leverage the seafood segment's promotional expertise to drive in-store activation for retail partners. On the production side, it will continue rationalization and labor-saving, particularly automating the maitake cutting process to address labor shortages and reduce costs. It will also invest in adjusted cultivation environment controls to avoid the "summer fatigue" yield declines that occurred in 2024, targeting stable output despite increasingly common extreme heat.

• Strategic and Sustainability Initiatives: The company has completed the additional share acquisition of Indonesian joint venture KIF, turning it into a consolidated subsidiary and core overseas hub, aligned with the company's 2045 "ICHIMASA30 Vision" goal of becoming a global firm contributing Japanese food to global consumers. It will accelerate local marketing and sales expansion to speed up overseas growth. For sustainability, the company switched 100% of Hokkaido factory power to renewable energy in April 2024, bringing the group-wide share of renewable power to 26% and targeting 5,700 tons of annual CO2 reductions. The company has a target to cut Scope 1 and 2 CO2 emissions 50% from 2013 levels by 2030, and has already adopted recycled ECO trays (30% lower CO2 vs conventional) for some products and biomass film (24% lower CO2) for Salad Stick packaging. It has also extended shelf life for new spring/summer products to reduce food waste.

1. Suisan Nennseihin & Prepared Food (Seafood Surimi & Prepared Dish) Segment: Both sales volume and total revenue grew year-over-year. Core products including Salad Stick beat sales volume targets, driven by strong demand as a convenient no-prep time-saving item during the extended hot summer, plus promotional effects for the 50th anniversary of crab stick. Koban Tempura, launched in 2023, saw significant sales growth as a frozen bulk value product aligned with cost-conscious consumer demand. Operating profit grew strongly year-over-year, supported by sales expansion and cost reduction from ongoing labor-saving investments. The 2024 December osechi (New Year's dish) category within this segment achieved record-high revenue, despite a 3% overall market contraction, with the early-launch strategy matching shifting consumer buying patterns and the award-winning premium product Keiroku achieving over 6x year-over-year sales growth.

2. Mushroom Segment: Average selling prices increased year-over-year due to industry-wide price hikes driven by poor vegetable harvests from extreme heat and drought. However, sales volume decreased year-over-year: sustained high temperatures after autumn reduced demand, and high summer temperatures reduced per-mushroom weight during the key autumn sales window, leading to opportunity loss from insufficient inventory. Total revenue declined year-over-year. Despite efforts to cut costs via rationalization and labor-saving, the segment could not absorb all increases in raw material, energy, and labor costs, resulting in a year-over-year operating profit decline. This segment's first half (the strongest profit period of the year) saw particularly weak performance.

• The full-year 2025 June term earnings guidance is maintained at the originally announced level, with no upward or downward revision following the first half results.

• Key raw material surimi prices are expected to rise further in 2025: while the 2025 U.S. Alaska pollock catch limit was increased 4% and current season catches are strong, rising global demand for fish protein and a global industry shift toward higher-margin fillet production (away from surimi production) create sustained upward price pressure. Bird flu has driven rising egg prices, and poor kelp harvests from 2024 extreme heat are expected to lead to higher purchase prices and more difficult procurement.
• Energy prices are expected to remain high despite recent softening, with continued uncertainty from global economic trends in the U.S. and China and unstable Middle East geopolitics. Logistics and labor costs are also expected to keep rising, leading to sustained overall cost increases for the business.
• The mushroom segment faces continued structural and climate-related risks: extreme heat and prolonged residual summer heat have become more common, leading to repeated yield declines during the key autumn sales window that create opportunity loss and pressure profitability.

Q: If input costs continue rising in the future, does management plan for additional price hikes beyond the March 2025 increase? / A: Management says no additional price hikes are planned at this point, after implementing the March 2025 adjustment. However, it notes that surimi procurement costs keep rising, and further exchange rate-driven increases are possible, so it will continue to closely monitor market trends.

Q: What is the company's plan for future overseas business expansion after consolidating the Indonesian joint venture? / A: Management says overseas expansion is a must given Japan's shrinking domestic market, and is a core pillar of the 2045 ICHIMASA30 Vision. The consolidation of KIF completes the first stage of building out the overseas business foundation, with KIF as the core regional hub. From 2026, the company will enter the second 10-year growth stage to accelerate overseas expansion.

Q: How will the company respond to rising Japanese interest rates after the Bank of Japan's policy rate hike? / A: Management will mitigate the impact of rising rates by prioritizing low fixed-rate funding, balancing fixed and variable rate debt to keep total borrowing costs low, and leveling repayment schedules to smooth debt service outlays. It will also consider hedging options including longer fixed-rate tenors and interest rate derivatives if rapid rate rises are expected.

Q: What is the turnaround plan for the underperforming mushroom segment? / A: Management acknowledges the segment's weak first half results, caused by incomplete price hikes to absorb higher costs and opportunity loss from lower yields in the key sales period. It will prioritize stable cultivation, strengthen promotional activities including in-store events and bulk packs, and accelerate rationalization and labor-saving initiatives to cut costs and improve profitability.

Q: What is the progress on new business initiatives in the mid-term management plan? / A: Management says it continues exploring opportunities across multiple areas, evaluating both greenfield startup and M&A options. It is actively considering both domestic and cross-border M&A deals, but cannot disclose specific details at this stage, and will continue screening opportunities based on expected synergy.