PICKLES HOLDINGS CO.,LTD. Q4 FY2025 earnings call

1. Overall FY2025 Financial Results

• Consolidated net sales reached 41.518 billion yen, a 3.5% decrease year-over-year.
• Operating profit reached 1.279 billion yen, a 23.3% decrease year-over-year, while EBITDA reached 2.284 billion yen, a 12.4% decrease YoY. The decline was driven by lower sales, spiking input prices for key vegetables (napa cabbage, cucumber) caused by abnormal weather, and rising logistics costs.
• Total assets grew 2.528 billion yen YoY to 30.242 billion yen, driven by construction of the new Ibaraki plant and new corporate office facilities. Interest-bearing debt increased to 4.849 billion yen. Cash balance ended the period at 4.974 billion yen.

2. Priority Strategy 1: Profitability Improvement

• SKU rationalization: 10% SKU reduction was completed across the group in FY2025, focused on low-margin, high-complexity side dish SKUs at the core Tokorozawa plant. Despite SKU cuts, the plant achieved higher YoY sales, a 120 million yen profit increase, and a 1.8 percentage point margin improvement. An additional 10% SKU cut is planned for Tokorozawa in FY2026, with rollout of efficiency standards to all group plants.
• Selling price review: The company moved from its historical approach of avoiding aggressive price hikes to systematic price increases aligned with rising costs. Price increases have already been implemented for imported kimchi and cucumber nukazuke, with targeted hikes for 3 core Gohan ga Susumu Kimchi products implemented for wholesale and select customers in September 2024. Full price/portion adjustments for all customers will launch in May 2025, with price reviews for asazuke products currently in progress.
• Production efficiency & automation: The new Ibaraki plant, which serves all of the Kanto region for core kimchi production, launched in December 2024. Hourly production capacity doubled compared to legacy facilities, and is currently operating at over 80% utilization. The legacy kimchi line from Tokorozawa will be transferred to Teikoku Foods in Himeji, Hyogo to improve Kansai region production capacity and efficiency. AI-powered sorting technology from Ibaraki will be rolled out to all group plants.

3. Priority Strategy 2: Capital Efficiency Focused Management

• Current performance: FY2025 PBR was 0.65x, ROE was 5.3%, and PBR improvement is a core management target, with a goal of exceeding 1x PBR.
• Capital allocation: Over the 3-year period from FY2026 to FY2028, 30 billion yen is earmarked for growth investment, including M&A targeting targets that deliver synergy with existing business, expand production capacity, or extend sales coverage.
• Shareholder returns: The company has increased dividends for 11 consecutive years, with a FY2025 dividend of 26 yen per share (payout ratio 33.7%) plus 1,500 yen worth of product shareholder benefits. A FY2026 dividend of 27 yen per share is planned to continue increasing shareholder returns.

4. Priority Strategy 3: Expansion into New Products and New Segments

• Core brand refresh: The Gohan ga Susumu Kimchi line, the company's core brand, returned to peak (pandemic stay-at-home demand) sales levels in FY2025, driven by strong promotion and expanded distribution in western Japan drug stores. The brand is being expanded from a kimchi-only brand to a total

By product type:

• Own-manufactured products (asazuke, kimchi, side dishes): Revenue decreased in FY2025 due to stronger consumer frugality and constrained sales amid rising vegetable input costs. For FY2026, the company projects product revenue of 28.539 billion yen (accounting for 69.6% of total projected revenue).
• Traded goods (third-party sourced takuan, pickled plums, and other goods sold via the group's vendor network, including all revenue from fabless subsidiary Food Label): Revenue decreased sharply in FY2025 driven by falling demand for onigiri/bento ingredients. For FY2026, the company projects traded goods revenue of 12.460 billion yen (accounting for 30.4% of total projected revenue).

By sales channel:

• Mass retail channel: FY2025 revenue of 31.749 billion yen. FY2026 projected revenue of 31.011 billion yen.
• Convenience store channel: FY2025 revenue of 6.461 billion yen, which decreased due to discontinuation of high-volume Chinese yam products for convenience stores. FY2026 projected revenue of 6.555 billion yen, expecting growth from aligned product development.
• Food service/other channel: FY2025 revenue of 3.308 billion yen, which decreased due to falling sales of commercial pickled plums for onigiri/bento. FY2026 projected revenue of 3.432 billion yen.

• For the FY2026 (February 2026) consolidated performance, management forecasts net sales of 41.0 billion yen (a 1.2% decrease YoY) and operating profit of 1.5 billion yen (a 17.3% increase YoY).
• The change in depreciation method from declining balance to straight-line starting in FY2026 is expected to reduce annual depreciation expense by approximately 190 million yen, which is already incorporated into the full-year profit forecast.
• The forecasted sales decline reflects intentional pullback from low-margin SKUs as part of profitability improvement initiatives, while the profit growth is driven by expected stabilization of vegetable purchase prices, improved production efficiency, and gross margin gains from price adjustments.
• Medium-term rolling plans have been revised downward from prior targets to reflect persistently high commodity prices, with a shifted focus to protecting profitability over chasing top-line sales growth. Management targets growing new business segments to over 1.0 billion yen in combined revenue, split between 0.5 billion yen from the OH!!! business and overseas expansion, and 0.8 billion yen from sweet potato products, frozen goods, and health-oriented products.

• Persistently abnormal weather continues to create high risk of poor harvests for raw vegetable inputs, which can reduce yields and product quality even under contract farming, forcing the company to purchase additional supplies at elevated spot market prices and squeezing margins.
• Rising rice prices have reduced consumer demand for onigiri and bento, leading to lower sales of the company's onigiri filling products, an impact that management expects to continue as rice prices are forecast to remain high.
• Logistics costs are expected to continue rising, putting ongoing pressure on operating expenses.
• Retail store closures (including Ito-Yokado location cuts) are expected to reduce annual sales by approximately 600 million yen, which the company plans to offset through expansion to other retail channels.
• Consumer frugality amid broader inflation has created weak demand for pickled products, particularly asazuke, leading to lower sales volume.
• Price hikes for core products may result in some volume decline, as historical data shows a 30% sales drop after a prior price increase for imported kimchi.

Q: What specific measures will management take to lift the current depressed share price, which trades at 0.6x P/B? / A: The company's core strategy for FY2026 is prioritizing profit over top-line sales growth. Management is cutting low-margin, high-complexity SKUs and rolling out industry-wide price hikes to pass through rising input costs even if that reduces sales volume. By systematically improving profitability, management expects to drive P/B improvement over time.

Q: Why was the price increase for the core Gohan ga Susumu Kimchi delayed, and what is the outlook for sales if prices rise above 198 yen at retail? / A: As the industry's leading manufacturer, the company was cautious about moving first on price hikes since smaller peer firms would struggle to raise prices without the market leader moving first. Starting in May 2025, all retail locations will implement price increases that will push the retail price above 200 yen. Consumers are already aware that raw napa cabbage prices have spiked dramatically (retail 1/4 cut cabbage now exceeds 200 yen, up from 98 yen historically), so management expects consumer acceptance of the necessary price adjustment. The company will now pass through all rising input (including a 5%+ wage increase) costs to protect profitability after years of absorbing costs via internal efficiency gains.

Q: What is the current outlook and progress for the new frozen food business segment? / A: Consumer demand for retail frozen pickled products remains very limited, but the company sees strong demand and traction for commercial frozen ingredients, which align with foodservice needs to reduce food waste. The company will prioritize expanding commercial frozen food distribution, rather than pursuing the competitive retail frozen market. Sales are already growing steadily in the western Japan region, consistent with the company's broader regional expansion goals.

Q: What is the company's view on why prior medium-term plans missed targets, and how will the company grow sales over the medium term? / A: The main driver of missed targets was unexpected extreme weather that caused a sharp spike in napa cabbage prices in the second half of FY2025, forcing the company to curtail planned promotional activities for core cabbage-based products. The company revises its 3-year plan annually to reflect current market conditions, and the new plan prioritizes profit over aggressive sales growth amid persistently high raw material prices. Once price increases for asazuke are fully implemented in April and May 2025, management expects to have a stable structure to protect profits and hit the revised medium-term targets by selling products at prices aligned with raw material costs.