Tokushu Tokai Paper Co.,Ltd. Q4 FY2025 earnings call

Overall Financial Results

• Full-year consolidated total revenue: 94.8 billion yen, up 8.283 billion yen year-over-year, hitting an all-time high. Operating profit: 3.928 billion yen, up 1.632 billion yen year-over-year. Ordinary profit: 6.227 billion yen, up 39 million yen year-over-year, also an all-time high.
• Net income attributable to parent shareholders fell 983 million yen year-over-year to 3.607 billion yen, due to upfront special losses for Gifu plant closure site clearing (recognized ahead of land sale special gains) plus impairment losses from Fibric business withdrawal.

Strategic Direction & Portfolio Transformation

• The company's long-term goal is to become an "only-one business company" that opens the future with customers through technology and trust, contributing to society and the environment as a unique, high-impact corporate group focused on differentiation across all operations (product quality, sales, R&D, service, delivery).
• The company is building a two-wheel growth strategy combining paper manufacturing and environment-related businesses to drive corporate value growth, aiming to become a circular economy company that integrates the manufacturing (arterial) and recycling (venous) industries to contribute to a sustainable society.
• The 6th Medium-Term Management Plan (final year FY2025) saw targeted environment-related businesses (recycling, whisky) grow as planned; the Fibric growth business was exited due to no expected expansion, though its unique technology is still being evaluated for new applications, and the packaging business is having its future assessed as premium segment growth underperformed expectations.
• The 7th Medium-Term Management Plan is being developed under the new president with innovative content, targeting 8% ROE by FY2030; full disclosure is scheduled for May 2026.

Differentiation Initiatives by Core Business Area

• Industrial Materials Business: The Shimada Mill achieves 80% lower CO2 emissions vs 2005 levels through a combination of black-liquid-fueled recycling boilers and RPF-fueled biomass boilers, a clear competitive advantage vs peers that still rely primarily on coal boilers. A 13th biomass boiler is planned, and a rock heat storage power generation demonstration is under construction with partners, with a clear path to carbon neutrality supported by existing hydropower sales and J-credits from the Southern Alps.
• Consumer Products Business: The segment has stable demand for hygiene products (paper towels, toilet paper) centered on commercial and inbound demand. It holds a competitive advantage from its established know-how to use stable-supply corrugated recycled paper (offsetting reduced graphic paper waste supply) and maintain high absorbency/softness even with recycled and unbleached pulp, with no medium-term raw material supply risk.
• Special Materials Business: The Mishima Mill's competitive advantage is its clean, high-quality paper production: it is expanding demand for clean, low-contamination specialty functional paper (non-fluorine oil-resistant paper, aramid insulation paper, sterilization paper, dust-free paper) to offset declining demand for legacy information paper, and is expanding overseas sales of high-quality fancy/printing paper in East Asia and Europe.
• Environment-Related Business (New Growth):
  • Natural resource utilization: Whisky production at the Ikawa Distillery (1,200m elevation) has received strong market praise for its unique flavor, with limited releases selling well. All initial-year forest J-credit allotment sold out, and the company is exploring ways to increase CO2 sequestration in the Southern Alps.
  • Resource recycling: The company has established an integrated network for waste plastic collection from Kanto to Chubu via the consolidation of three group companies, with a new RPF production plant under construction to expand capacity. It has recently launched a high-purity plastic sorting line that enables recycling of previously hard-to-process mixed plastics, leveraging paper manufacturing's existing crushing/sorting/quality control capabilities to develop differentiated advanced recycling.

1. Industrial Materials Business: Revenue increased due to continued rising selling prices to joint venture NTI (aligned with raw fuel cost increases), despite weak overall demand for corrugated base paper and kraft paper from consumer slowdown amid high domestic inflation. Operating profit decreased year-over-year because a hydropower plant was shut down for 1.5 months in Q2 due to equipment trouble. All profits from NTI sales are reflected as equity method investment income in ordinary income, not included in segment operating profit. No absolute segment revenue/profit was provided outside of overall profit impact. 2. Special Materials Business: Revenue increased, as the October 2024 price pass-through to offset rising raw fuel costs lifted revenue, and recovering demand for special functional paper offset continued shrinkage in the specialty printing paper market to deliver higher overall sales volume. Operating profit increased, as price adjustment effects and higher volume offset the impact of yen-based depreciation for dollar-denominated imported pulp, which had stabilized after prior price spikes. 3. Consumer Products Business: Revenue increased for the segment: paper towel sales volume grew despite limited price adjustment effects, while toilet paper price hikes contributed to full-year revenue even though commercial retail sales volume underperformed. Operating profit decreased slightly year-over-year, as ongoing large raw fuel cost increases offset the revenue gains. 4. Environment-Related Business (the company's core focus segment): Revenue increased 4.908 billion yen year-over-year, driven by strong performance in industrial waste intermediate treatment, RPF manufacturing/sales, sewer and civil engineering/landscaping work, plus consolidation of 9 months of earnings from newly acquired subsidiary Kito. Segment operating profit increased 407 million yen year-over-year to 529 million yen, as higher earnings from existing subsidiaries (Toei for increased material recycling volume, Tokushu Tokai Forest for civil engineering work, Rex for expanded RPF production, Toyama for new whisky sales) offset one-time due diligence costs and goodwill amortization from the Kito acquisition.

• For FY2026 (April 2025 - March 2026), management guides total revenue of 99 billion yen, up 4.2 billion yen year-over-year; operating profit of 5 billion yen, up 1.072 billion yen year-over-year; ordinary profit of 7 billion yen, up 773 million yen year-over-year; and net income attributable to parent shareholders of 4.9 billion yen, up 1.293 billion yen year-over-year.
• Positive operating drivers: Full-year contributions from recent special materials business price adjustments, penetration of April 2025 consumer products business price hikes, and strong sales volume growth in both segments are expected to offset 287 million yen in negative impacts from ongoing raw fuel price increases (centered on waste paper and domestic pulp).
• Expected headwinds: A 585 million yen negative impact from higher labor costs (aligned with human capital investment), repair expenses, and depreciation depreciation is partially offset by 258 million yen in additional profit growth from the environment-related business, leading to the net guided operating profit increase.
• Ordinary profit growth is expected even though equity method investment income from NTI is guided to stay flat year-over-year, due to the large operating profit gain from core segments.

• Ongoing raw fuel price increases (centered on waste paper and domestic pulp) are expected to continue creating negative margin pressure in FY2026.
• Weak consumer demand amid high domestic inflation has depressed demand for packaging paper and consumer product segments, leading to slower-than-expected volume growth in some product lines.
• The joint venture NTI has not implemented price adjustments since summer 2022 amid rising raw material costs, leading to a large drop in NTI profits that reduced Tokushu Tokai's equity method income by 1.683 billion yen year-over-year in FY2025.
• A 1.5-month unplanned shutdown of the industrial materials business hydropower plant due to Q2 equipment trouble reduced FY2025 segment operating profit.
• Legacy graphic/specialty printing paper demand continues to shrink due to long-term digitalization trends, requiring ongoing product portfolio rebalancing in the special materials segment.
• Planned growth in some new segments (premium packaging, Fibric) has underperformed expectations, requiring strategic re-evaluation and exit in the case of Fibric.

No Q&A section was included in the provided transcript.