Nippon Paper Industries Co.,Ltd. Q2 FY2026 earnings call

Core H2 2025 Business Priorities

• Solidify the operational foundation to prepare for the next medium-term management plan, implement targeted profitability improvement measures amid changing market conditions
• Deliver full profitability improvement at Opal, unlock early investment returns for other lifestyle-related businesses, expand profit for wood/building materials/civil construction (a core pillar of the next medium-term plan), and advance preparations for capital cost and share price-focused management

Paper and Paperboard Segment Base Strengthening

• Continue cost reduction and cost improvement efforts to offset rising labor and logistics costs; implement price increases for printing paper in addition to already announced paperboard price adjustments
• Restructure the production system to maintain operating rates and secure base profit; as part of restructuring, the No. 8 paper machine at Shiraoi Mill, N2 paper machine and No. 9 boiler at Yatsushiro Mill will be shut down by the end of November 2025
• Drive development of eco-friendly products with customer collaboration, and adjust export volumes based on market conditions; maintain stable operations, strengthen BCP frameworks, and continue cost reduction while evaluating further production restructuring to address ongoing demand decline

Opal Profitability Improvement

• Maryvale Mill's conversion to a packaging paperboard dedicated mill is progressing as planned: energy efficiency improvement, operational stabilization and output growth are on track, with September 2025 pulp production hitting an all-time high; however, weak packaging sales reduced in-house paperboard consumption, and weak export market conditions for corrugated liner pushed selling prices below plan
• Following an early-2025 labor dispute that caused an operational shutdown, the labor agreement has been revised to allow flexible labor terms aligned to production; the company will pursue further fixed cost cuts, expand sales of corrugated products to increase in-house paperboard consumption, and increase differentiated product offerings
• The Wodonga Plant start-up increased capacity, consolidated existing sites, delivered planned productivity gains and fixed cost cuts, pushing the packaging business to black ink in H2 2024; however, the stagnant Australian economy has pushed corrugated shipment growth and non-corrugated packaging sales below plan
• The company views Australian corrugated demand stagnation as temporary, tied to weak consumer sentiment from inflation and higher housing costs; it will pursue product differentiation aligned to the paper packaging transition, expand sales even in the stagnant market, accelerate site consolidation and cost cutting, and evaluate non-profitable business exits to achieve early Opal profitability in future periods

Capital Cost and Share Price Focused Management

• Current PBR remains at a low 0.2x-0.3x, with delayed Opal profitability improvement and high financial leverage as core issues; 2025 fiscal year ROE is projected to be in the 2% range, leaving a large gap with the 7%-10% estimated cost of equity
• A trial capital efficiency management framework was launched in 2025: group companies set KPIs tied to annual financial targets, with quarterly progress reporting to the board of directors; the framework will be formalized into internal targets for the next medium-term management plan
• The next medium-term plan will set 2030 KGIs, paired with KSFs and KPIs, with quarterly progress reporting to the board to enable monitoring of business-level profitability and capital efficiency to guide resource allocation and non-core asset reduction

Next Long-Term Vision and Medium-Term Management Plan

• The company is developing a 10-year long-term vision (2026-2035) and 5-year medium-term plan (through 2030), using its full forest-to-end-product value chain to identify priority growth areas; planning combines forward forecasting with backcasting from 2050 social challenges including demographic change, food security and climate change
• The company is currently evaluating expansion into new areas including agriculture/forestry/fisheries, food/water, civil construction, mobility, energy, personal care, and culture/education
• The next medium-term plan will center on expanding lifestyle-related business profit and growing forest/wood-related businesses, with the goal of driving sustainable growth while contributing to a circular economy based on forest resources

1. Paper and Paperboard Segment: Decreased revenue and year-over-year operating profit. Domestic revenue fell due to weakened export market conditions reducing export sales volumes for paper and paperboard, while operating profit declined from higher labor and logistics costs plus poor export market conditions. JTOy in Europe saw continued weak demand for thermal paper, leading to further year-over-year profit decline. This segment reported an operating loss of 1.5 billion yen in the first half.
2. Lifestyle-Related Segment: Increased revenue and significant year-over-year operating profit growth, driven primarily by overseas operations. Domestic operations saw solid performance: the full-period contribution from the newly operational Crecia Miyagi Plant increased sales volumes, and price adjustments for liquid paper containers and household paper offset higher raw material, labor and logistics costs. Overseas operations delivered a 11.7 billion yen year-over-year profit improvement: Opal achieved 5.4 billion yen improvement from unit cost and fixed cost cuts at Maryvale Mill, while North America's NDP achieved 6.3 billion yen profit growth after the prior-year large maintenance shutdown impact resolved. This segment accounted for the majority of the company's 9 billion yen total first-half operating profit.
3. Energy Segment: Decreased revenue due to lower power sales volume, but maintained year-over-year operating profit at prior-year levels.
4. Wood, Building Materials & Civil Construction Related Segment: Increased revenue and 1.3 billion yen year-over-year operating profit growth, driven by higher demand for biomass fuel and improved sales mix at AMCEL.
5. Other: Adjustments from inter-segment eliminations accounted for most of the 0.9 billion yen net variance.

• Full-year 2025 guidance was downgraded due to the impact of Australian economic stagnation on Opal's packaging sales volume and weak global corrugated liner export market conditions; full-year net sales are now projected at 1.2 trillion yen, a 5 billion yen reduction from the initial plan
• Full-year operating profit is now projected at 30 billion yen, a 4 billion yen downward revision from the initial plan; ordinary profit and net profit are each downgraded by 2 billion yen
• No change to the planned dividend payout: 5 yen interim dividend and 10 yen year-end dividend, maintaining prior shareholder return guidance
• The overall overseas operating profit guidance was cut from an initial 3.5 billion yen profit to a 1 billion yen operating loss, driven by the Opal revision; domestic business guidance is broadly maintained, with the company targeting 30 billion yen domestic operating profit for the third consecutive year
• Opal full-year operating loss is now projected at 80 million USD, a 45 million USD downward revision from the initial forecast, though this still represents an improvement from the 115 million USD 2024 operating loss
• For H2 2025: the paper and paperboard segment is projected to return to 6.5 billion yen operating profit (an 8 billion yen improvement from the H1 1.5 billion yen operating loss), driven by lower fixed cost burdens after H1 maintenance shutdowns and price adjustment impacts; the full-year segment is projected to deliver a 3.3 billion yen year-over-year profit decline
• The lifestyle-related segment full-year is projected to deliver 16.1 billion yen year-over-year profit growth: 4.3 billion yen from domestic operations, 11.8 billion yen from overseas operations; H2 overseas profit is expected to be broadly flat year-over-year, as continued Maryvale improvement is offset by ongoing Opal packaging segment losses
• H2 2025 consolidated operating profit is projected at 21 billion yen, up from H1 9 billion yen; domestic lifestyle business will see seasonal H2 sales growth in household paper and healthcare, plus expanded price adjustment impacts driving a 2.4 billion yen H2 profit increase over H1; Opal H2 profit will match H1 levels, while NDP will deliver ~3 billion yen H2 profit improvement after H1 scheduled maintenance impacts resolve
• The company targets to meet the mid-term plan 2025 goal of net interest-bearing debt below 710.8 billion yen (with a net D/E ratio of 1.7x) via H2 operating profit growth and non-core asset sales including investment securities

• Persistent weak export market conditions for paper and paperboard, particularly for corrugated liner in Southeast Asia and North America, continues to pressure segment profitability
• Sustained increases in labor and logistics costs have outpaced internal cost reduction efforts, requiring price adjustments to maintain margins
• Stagnant Australian economic growth has weakened consumer spending sentiment, leading to slower than expected corrugated packaging demand growth and ongoing losses at Opal's packaging business
• High fixed costs, particularly labor costs, at Opal's Maryvale Mill remain a core structural challenge for profitability
• Early 2025 labor dispute at Opal caused operational shutdown losses, which were recorded as special losses in H1 results
• A boiler malfunction at the Yatsushiro Mill in December 2024 caused restoration costs that were recorded as special losses, with the unit only returning to normal operation in September 2025
• Weak thermal paper demand in Europe continues to pressure profitability at JTOy
• The company's current PBR is very low at 0.2x-0.3x, ROE is projected at only ~2% which is well below the 7%-10% cost of equity, and high financial leverage remains a key investor concern
• Yen appreciation has reduced the yen value of overseas subsidiary assets, lowering total consolidated assets on the balance sheet

The full Q&A content is hosted externally by Nippon Paper at https://www.nipponpapergroup.com/ir/library/2025/ and no transcribed text is included in the provided source material.