Nippon Paper Industries Co.,Ltd. Q4 FY2025 earnings call

Overall Financial and Balance Sheet Results

• Full-year consolidated net sales reached 1.1824 trillion yen, up 15.1 billion yen year-over-year, with operating profit of 19.7 billion yen, up 2.4 billion yen (+14.1%) year-over-year. Net income came in at 4.5 billion yen, beating the initial forecast of 3 billion yen.
• Net interest-bearing debt fell to 694.9 billion yen at fiscal year-end, hitting the mid-term management plan target of below 710 billion yen one year ahead of schedule. The adjusted net debt-to-equity ratio stood at 1.84x.

Business Structure Transformation Progress

• The company has shifted management resources to the growing lifestyle-related business over 10 years in response to declining graphic paper demand. For FY2025, this segment is projected to account for over 40% of both consolidated net sales and operating profit, with sales more than doubling and operating profit more than tripling from 2015 levels.
• After the 2022 crisis caused by unprecedented raw material price hikes, operating profit has returned to an improving trend from 2023, and is projected to recover to 2019 levels in FY2025.

2025 (FY2025) Key Priorities

• Lifestyle-related business expansion and profit strengthening: Leverage in-house technology to develop high-value-added environmentally friendly products, expand production capacity and drive cost improvements, and implement further price adjustments to offset cost increases where needed. Sub-segment priorities include expanding overseas liquid paper container sales and developing eco-friendly products, expanding household paper/healthcare sales via new equipment and leveraging in-house pulp for cost competitiveness, and expanding sales of functional cellulose, coating resins, and OLED functional films.
• Opal profit improvement: After reaching a basic labor agreement following a Q1 2025 labor dispute and shutdown, the company will dispatch Japanese technical experts to strengthen maintenance and establish optimal operating conditions, pursue further fixed cost cuts and end-to-end cost reduction, shift sales to high-margin products and stable market regions, and maximize capital investment efficiency for the packaging business to achieve full-year Opal profitability by H2 2025.
• Paper and paperboard business base strengthening: Aim for stable operations, productivity improvement, and continued cost reduction, with planned idling of 6 paper machines over the 5-year mid-term plan to cut production capacity by ~30% (870,000 tons) versus 2020 and reduce fixed costs by ~10 billion yen, while maintaining 90% capacity utilization after consolidation.

Balance Sheet Focused Management

• The company set a target to reduce cross-shareholdings by 15 billion yen from FY2025 to FY2027, with the goal of eliminating almost all policy-held cross-shareholdings. Proceeds from sales will be used for growth and environmental investments, including expanding household paper operations at Yatsushiro Mill and building a new black liquor recovery boiler at Ishinomaki Mill.
• The company continues to target a net interest-bearing debt balance below 710 billion yen and adjusted net D/E of ~1.7x by FY2025-end, and will pilot ROIC and KPI management in preparation for the next mid-term plan starting in 2026.

Green Strategy and Next Mid-Term Plan Direction

• The company will expand domestic wood operations, supporting the sustainable domestic forestry cycle to increase stable domestic wood supply, raising the domestic procurement rate for papermaking raw materials (already 36%, well above the industry average), and expanding domestic wood distribution volumes, targeting growth in the wood/building materials segment.
• The company will advance breeding technology for overseas plantations in Brazil and Australia, aiming to improve CO2 fixation efficiency by 30% by 2030 at its Brazilian AMCEL plantation, and explore new revenue streams including carbon credit projects and technical support for third-party plantations.
• For the 2026-next long-term vision and mid-term plan, the company will review its full value chain from forest resources to downstream consumer businesses, and evaluate expansion into new areas including agriculture, food, water, construction, energy, personal care, and education.

1. Paper and Paperboard Segment: Revenue decreased year-over-year, with a 3.4 billion yen decrease in operating profit. The decline was driven by falling graphic paper demand reducing sales volume, 4.5 billion yen in profit decline from higher chip and wastepaper costs due to yen depreciation, and cost increases for labor and logistics that offset cost-cutting efforts. Overseas JTOy saw reduced thermal paper demand in Europe, but narrowed its year-over-year deficit on recovering sales volumes.
2. Lifestyle-Related Segment: Revenue increased year-over-year, with a 2 billion yen increase in operating profit. Domestic operations gained from price adjustments in packaging, higher sales volumes and price adjustments in household paper, healthcare, and chemicals. Overseas, Opal delivered full-year increased profit via improved operating efficiency and fixed cost cuts, while NDP saw full-year decreased profit due to major maintenance outages in H1 but returned to strong year-over-year profit growth in H2 after resuming normal operations.
3. Energy Segment: Revenue decreased year-over-year due to increased maintenance outage days and falling electricity selling prices following coal price declines, but operating profit increased year-over-year on generally stable operations, delivering a 2 billion yen operating profit increase.
4. Wood, Building Materials, and Civil Engineering Segment: Revenue increased year-over-year despite falling new housing starts, driven by higher fuel chip handling volumes, but operating profit decreased by 0.2 billion yen year-over-year.

• For FY2025, the company forecasts consolidated net sales of 1.205 trillion yen (+1.9% year-over-year), operating profit of 34 billion yen (+72.5% year-over-year), ordinary profit of 26 billion yen, and net income of 12 billion yen. Guidance includes an estimated special loss for the Q1 Opal labor dispute and shutdown.
• The paper and paperboard segment is forecast to see a 3.3 billion yen year-over-year decrease in operating profit, while the lifestyle-related segment is projected to deliver a 21.1 billion yen year-over-year increase in operating profit, driven by 9.2 billion yen of improvement at Opal and 7.6 billion yen of improvement at NDP.
• Overseas operations as a whole are forecast to return to full-year net profit (3.5 billion yen) in FY2025, shifting from a full-year 11.9 billion yen deficit in FY2024, driven by the absence of 2024's large NDP maintenance outage and continued sequential improvement at Opal.
• Domestic operations are projected to see a slight year-over-year decline in operating profit, remaining broadly on track with mid-term plan targets.
• The mid-term management plan 2025's 40 billion yen operating profit and 5%+ ROE targets are not expected to be met in the final year (FY2025), due to broader cost inflation and slower-than-expected Opal improvement. Management will pursue additional upside to hit the 40 billion yen operating profit target through accelerated cost reduction, price adjustments, faster investment return realization, and Opal profit improvement.
• The company announced a 5 yen per share increase in the FY2025 interim dividend to 15 yen per share, following a planned 10 yen per share FY2024 year-end dividend.
• Key forecast assumptions: average full-year USD/JPY rate of 152 yen, 2025 Australian coal benchmark price of $130 per ton, continued declining domestic graphic paper demand.

• Graphic paper demand has been steadily declining, and the trend is expected to continue in FY2025, pressuring the paper and paperboard segment's performance.
• Ongoing increases in raw material, energy, labor, and logistics costs continue to pressure profitability across all segments, with cost increases expected to outpace internal cost reduction efforts in the paper and paperboard segment in FY2025.
• Opal's profit improvement has lagged original plan, and it recorded a 115 million Australian dollar full-year deficit in FY2024. While management targets H2 2025 full-facility profitability, continued operational or market issues could delay the turnaround and hurt group results.
• US trade policy uncertainty is not reflected in the FY2025 forecast, and any adverse policy changes could negatively impact overseas operations.
• Foreign exchange volatility poses profit risks: while a 1 yen appreciation against the USD is estimated to increase annual profit by 650 million yen, significant deviation from the 152 yen forecast could drive results away from projections.

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