Chuetsu Pulp & Paper Co.,Ltd. Q2 FY2025 earnings call

• Corporate Vision and Mid-term Strategy

  • Vision 2030 aims to build a circular society and sustainable future through effective utilization of forest resources via existing business growth, environmental business development and innovation
  • Mid-term Management Plan 2025 has two core pillars: structural transformation of existing businesses, and promotion of environmental investment and environmental business utilizing forest resources; the plan targets at least 4.0 billion yen in operating profit and 5% ROE
  • The company is on track to hit its 2030 environmental target of 50% reduction in fossil fuel-derived CO2 emissions from manufacturing versus 2013 levels; 2024 emissions were 48.2% lower than 2013, already exceeding the Japanese government's 2024 NDC target of 29.7% reduction

• Existing Business Progress

  • Completed shutdown of the No. 6 machine at the Takaoka Mill and newly installed a household paper machine, which started commercial operation in February 2024 and is operating smoothly with positive quality feedback
  • External pulp sales volume increased 90.6% compared to 2020, expanding the paper and pulp business segment by 9% versus 2020
  • The joint venture O&C Ivory Board Co., Ltd. (OCIB) faced sustained operational issues and elevated costs in 2024, dragging down overall profit by 0.2 billion yen

• New Environmental Business and Innovation

  • Progressed commercialization of cellulose nanofiber (CNF) under the brand "nanoforest": CNF has been newly adopted as a cosmetic raw material, and adoption is growing in the electronics sector; Matsuo Solder Co., Ltd.'s CNF-infused solder paste has seen accelerating adoption by multiple electronics companies after the quality improvement mechanism was verified through joint research
  • Commercial development of three high-functional CNF variants is ongoing: nanoforest-S (high-defibration CNF), nanoforest-M (hydrophobized CNF), and nanoforest-CMB (CNF molded bodies); pilot testing is mostly complete for high-defibration CNF, and customer sample testing is ongoing for all variants to refine quality and manufacturing processes
  • The company uses an eco-friendly chemical-free water-jet opposing collision method to produce CNF, and also produces bamboo-derived CNF sourced from domestic Kyushu region to help address abandoned bamboo forest issues and support forest conservation
  • Co-developed joint venture Chuetsu Eco Products Co., Ltd. will be dissolved by the end of June 2025 after its co-investor filed for bankruptcy; the company will explore new forms of business for this line of work going forward
  • Coal usage decreased 65% compared to 2020 as part of the company's coal phase-out effort, cutting CO2 emissions by 16,750 tons annually
  • Afforestation projects are underway, targeting 1,000 hectares by 2030, with expansion progressing sequentially since launch in 2022

• ESG and Sustainability Progress

  • Joined the GX League in 2024 and developed a roadmap to achieve carbon neutrality by 2050, advancing energy conservation and fuel conversion to non-fossil/low-carbon fuels
  • Published a group human rights policy aligned with the UN Guiding Principles on Business and Human Rights in March 2025, posted publicly on the company website
  • Set diversity and human capital targets: 25% or higher combined share of female and mid-career hired managers by March 2033, and 100% parental leave take-up rate for all genders by March 2026; as of 2024, 16.5% of managers are female or mid-career hires, and the overall parental leave take-up rate is 86.7%, with male take-up rising sharply to 80% from 38.5% in 2023

• 2024 Full-year Financial Performance Summary

  • Consolidated revenue grew 3.183 billion yen YoY to 111.009 billion yen, driven by higher domestic and export sales volumes of kraft paper, printing paper, and sanitary paper, and higher pulp selling prices from yen depreciation and market recovery despite a slight decrease in pulp volume
  • Operating profit decreased 1.329 billion yen YoY to 4.843 billion yen, as cost increases (raw fuel prices, logistics fees, repair costs) outweighed profit growth from higher sales volume and improved factory efficiency
  • Net profit attributable to parent company shareholders decreased 1.94 billion yen YoY to 1.761 billion yen, due to impairment of fixed assets at Chuetsu Eco Products
  • Annual dividend increased 10 yen per share from 2023 to 70 yen per share for 2024

1. Paper and Pulp Manufacturing Business: 101.407 billion yen in revenue, a 4.581 billion yen increase year-over-year (YoY); segment profit of 3.663 billion yen, an 1.849 billion yen decrease YoY, accounting for ~91.3% of total consolidated revenue. 2. Power Generation Business: 5.622 billion yen in revenue, a 1.417 billion yen decrease YoY (driven by lower power selling prices and temporary shutdown of some generation equipment); segment profit of 0.547 billion yen, a 0.137 billion yen increase YoY, accounting for ~5.1% of total consolidated revenue. 3. Other Businesses: 17.051 billion yen in revenue, which was nearly flat YoY; segment profit of 0.544 billion yen, a 0.265 billion yen increase YoY, driven by higher handling volumes of paper and pulp, accounting for ~15.3% of total consolidated revenue (after inter-segment adjustments). Total consolidated revenue after inter-segment adjustments is 111.009 billion yen, with total segment profit of 4.843 billion yen.

• The company expects 2025 fiscal year to deliver YoY growth in both revenue and profit, forecasting 112.0 billion yen in consolidated revenue (+0.991 billion yen YoY), 4.9 billion yen in operating profit (+0.057 billion yen YoY), 5.2 billion yen in ordinary profit (+0.086 billion yen YoY), and 3.5 billion yen in net profit attributable to parent company shareholders (+1.739 billion yen YoY)
• Revenue growth will come from the full-year effect of price hikes for printing/information paper and cup base paper, plus 4,000 additional tons of paper sales (3,000 tons domestic, 1,000 tons export) driven by higher sanitary paper volume; pulp revenue is expected to decline due to yen appreciation and weaker market conditions
• ROE is forecast to rise 2.9 percentage points YoY to 6%, meeting and exceeding the Mid-term Management Plan 2025 target of 5%+
• The company assumes an average annual exchange rate of 147 JPY/USD and Dubai crude price of $70 per barrel for 2025; sensitivity analysis indicates every 1 JPY of yen depreciation reduces annual profit by 0.105 billion yen, and every $1 per barrel increase in Dubai crude reduces annual profit by 0.06 billion yen
• Capital expenditure is planned at 5.7 billion yen for 2025, up from 5.5 billion yen in 2024; scheduled long-term plant shutdowns for regular maintenance are planned in Q1 and Q3 2025
• Operating profit growth of 0.1 billion yen is driven by 0.5 billion yen in improvement at OCIB (resolving 2024 operational troubles), 0.2 billion yen in raw material cost improvement from yen appreciation, and 0.1 billion yen from higher sales and production volume; these gains offset 0.4 billion yen in negative price impact from pulp and 0.3 billion yen in higher SG&A (including logistics costs)

• Sustained high raw fuel prices (including wood chips, recycled paper) and ongoing increases in logistics costs, labor costs, and repair costs are core pressures on profitability, which could lead to lower-than-expected earnings
• Foreign exchange volatility: yen depreciation increases the company's input costs and reduces profit, with every 1 JPY of unexpected yen depreciation cutting annual profit by 0.105 billion yen
• Crude oil price volatility: higher crude prices increase energy costs, with every $1 per barrel of unexpected price increase cutting annual profit by 0.06 billion yen
• Uncertainty around pulp market conditions, with expected revenue declines from weaker pulp market trends in 2025
• The joint venture Chuetsu Eco Products will be dissolved in 2025 after its co-investor entered bankruptcy proceedings, requiring the company to re-evaluate and restructure this line of business, with uncertainty around future opportunities for the business
• OCIB faced ongoing operational troubles and elevated costs in 2024, which weighed on consolidated profit; while improvement is expected in 2025, operational issues could persist and impact performance

Q: The company is expanding its new material CNF beyond cosmetics. What specific expansion plans do you have for non-cosmetic applications to grow the CNF business going forward? / A: Management is currently focusing on four non-cosmetic sectors: livestock, agriculture, resin/rubber, and electronics. In livestock, the company is expanding beyond chicken house environmental improvement materials to pig and cattle housing applications to grow use cases. In agriculture, it is running trials with prefectural agricultural test centers and large agricultural firms as an alternative input to reduce chemical pesticide use, aligned with Japan's green food system strategy, and is also testing CNF for hard-to-control crop diseases. In resin and rubber, the company is focusing on its powdered CNF product PDP, developing improved formulations to boost performance and usability while cutting manufacturing costs, and also offers custom masterbatch products with high-concentration PDP pre-mixed for customers that struggle with in-house mixing. Adoption of the company's bamboo-derived CNF in solder paste for electronics is already accelerating, with growing customer adoption as the quality improvement mechanism has been validated.