3877.T

2025 Interim (First Half) Financial Performance

• Consolidated revenue: 53.052 billion yen, down 2.52 billion yen YoY. The decline was driven by falling export pulp prices and lower paper sales volumes, partially offset by price adjustments for printing and information paper. Domestic paper sales fell 1,000 tons (due to declining graphic paper demand, partially offset by higher hygiene paper sales), while export sales fell 11,000 tons due to weak Asian demand and rising Chinese export pressure.
• Operating profit: 1.355 billion yen, down 1.771 billion yen YoY. While efficient production reduced costs, higher fixed, logistics, and personnel costs offset gains, alongside falling pulp prices and lower paper sales volumes.
• Recurring profit: 1.554 billion yen, down 1.443 billion yen YoY. Net profit attributable to parent shareholders: 0.982 billion yen, down 1.062 billion yen YoY. Interim dividend increased 5 yen to 40 yen per share.

Mid-Term Management Plan 2025 Strategic Progress

The plan is anchored on two core pillars aligned with Vision 2030: (1) structural transformation of existing businesses to build a circular economy via effective forest resource use, and (2) expansion of environmental investment and environmental businesses leveraging forest resources.

• Existing Business Transformation:
  • Completed conversion of the idled No. 6 machine at the Takaoka Mill to a new household paper machine, which started commercial operation in February 2024 with positive quality feedback.
  • External pulp sales volume is projected to increase 96.2% compared to FY2020, driven by expanded production and sales.
  • Completed acquisition of Sanyo Seishi's business rights and transfer of Bun'un-do's stationery business to achieve portfolio rationalization.
• Environmental Business and New Product Development:
  • Cellulose Nanofiber (CNF) brand nanoforest® achieved its first commercial product adoption: CNF compounded rubber was selected for the band of Casio's PRO TREK outdoor watch, recognized for both functional improvement and environmental sustainability.
  • Pilot development of three high-performance CNF product lines is ongoing: high-defibrillation CNF (almost completed validation at the Sendai Mill) and hydrophobic CNF/CNF molded products (in slower validation with customer feedback incorporation at the Takaoka research lab). Development timelines are being adjusted to align with changing market demand and environmental priorities.
  • Joint venture Chuetsu Eco Products is being dissolved after its co-investor entered bankruptcy, and the company is exploring new business models for this segment.
  • Coal use in existing boilers has been cut by 90.6% compared to FY2020, delivering a 23,355-ton CO2 reduction. Afforestation is progressing toward a 1,000-hectare target by FY2030.
• Portfolio Shift: The paper and pulp business segment is projected to expand its revenue share by 10 percentage points compared to FY2020, while the energy business share is projected to decline 4 percentage points due to total revenue growth and partial generation facility shutdowns in FY2024.

ESG and Sustainability Updates

• Environmental: Awarded Eco-Ship Mark excellent operator certification for modal shift efforts (shifting freight from truck to rail/sea transport) to reduce carbon emissions. The company's Sendai Mill and wholly-owned subsidiary Chuetsu Bussan received the certification.
• Social/Governance: Published the Chuetsu Pulp Group Human Rights Policy in March 2025, and launched annual CSR surveys across the value chain starting this fiscal year to identify and mitigate human rights risks.

• Full-year FY2025 consolidated guidance: Revenue of 110 billion yen (down 1.009 billion yen from prior year), operating profit of 3.7 billion yen (down 1.143 billion yen YoY), recurring profit of 4.1 billion yen (down 1.014 billion yen YoY), and net profit attributable to parent shareholders of 2.7 billion yen (up 0.939 billion yen YoY).
• The mid-term management plan 2025 target of 4 billion yen operating profit and 5%+ ROE is expected to be missed this fiscal year, with projected 3.7 billion yen operating profit and 4.6% ROE, due to sharp deterioration in domestic and global pulp and paper market conditions.
• Annual dividend is planned at 80 yen per share, a 10 yen increase from the prior year, with an announced dividend policy review and potential further increase for the FY2025 year-end dividend.
• The guidance assumes a full-year average exchange rate of 150.40 yen per USD (2 yen stronger YoY), Dubai crude price of 73 USD per barrel (8 USD lower YoY), and H2 2025 assumptions of 155 yen per USD and 70 USD per barrel, with raw material prices reset to current market levels.
• H1 operating profit is 1.4 billion yen, with H2 operating profit projected to recover to 2.3 billion yen driven by higher sales volumes, price adjustment effects for wallpaper base paper, and cost reductions from efficient production. The year-over-year 11 billion yen operating profit decline reflects 15 billion yen in negative factors (7 billion yen from lower selling prices, 3 billion yen from higher raw fuel costs, 3 billion yen from net lower sales volumes, 2 billion yen higher SG&A) partially offset by 4 billion yen in positive factors (2 billion yen improvement at OCIB joint venture, 1 billion yen overall cost improvement, 1 billion yen from product valuation adjustment rollover).

1. Paper and Pulp Manufacturing Business: Revenue of 48.196 billion yen, a decrease of 2.745 billion yen year-over-year (YoY). Segment profit was 0.879 billion yen, a decrease of 1.676 billion yen YoY, accounting for ~90.8% of total consolidated revenue (after inter-segment adjustments).
2. Power Generation Business: Revenue of 2.803 billion yen, flat YoY. Segment profit was 0.25 billion yen, a decrease of 0.064 billion yen YoY, accounting for ~5.3% of total consolidated revenue.
3. Other Businesses: Revenue of 8.762 billion yen, an increase of 0.375 billion yen YoY driven by higher construction orders. Segment profit was 0.203 billion yen, a decrease of 0.032 billion yen YoY due to rising personnel and material costs, accounting for ~16.5% of total consolidated revenue (after inter-segment adjustments). Including inter-segment adjustment, total consolidated revenue decreased by 2.52 billion yen YoY, and total segment profit decreased by 1.771 billion yen YoY.

• Weak global pulp market conditions: Persistent weak pulp pricing driven by slowing Asian demand, strong Chinese export competition, and uncertainty from Chinese production/export trends, South American supply levels, and North American/European economic conditions. The company noted that while export prices have likely bottomed, the outlook remains highly uncertain.
• Cost pressures: Rising fixed costs (repairs, labor), logistics costs, and raw material costs (waste paper, fuel) that are only partially offset by efficiency gains and favorable exchange rate impacts for wood chips.
• Market demand decline: Long-term declining demand for graphic paper in the domestic market, and near-term weaker export demand for paper that reduces overall sales volumes.
• Joint venture risk: The dissolution of Chuetsu Eco Products due to the bankruptcy of its co-investor creates uncertainty for the planned environmental business line the venture was developing.

Q: The company recently announced it is reviewing its dividend policy. What is the current policy, what changes are being considered, and when will the new policy take effect?

A: The company's current core policy is to maintain stable dividends to avoid large swings even when earnings fluctuate. Over the past several years, it has deliberately increased dividends in response to growing shareholder attention, but no quantitative target (such as payout ratio or DOE) is currently set. The company is reviewing different quantitative frameworks and will announce a decision once finalized, with the goal of setting the new policy between the end of the interim period and the year-end, and implementing it as early as the 2026 fiscal year-end dividend.

Q: When will the new dividend policy apply to the FY2026 March year-end dividend, or will it start in FY2027?

A: No specific implementation date has been finalized, but management intends to implement the new policy for the upcoming year-end dividend if possible.

Q: What is the company's outlook for pulp market conditions going forward?

A: Management believes that export pulp prices have likely bottomed out. However, pulp market conditions are heavily dependent on external factors outside the company's control, including Chinese pulp and paper production and export volumes, South American supplier output, and economic trends in Europe and North America. As a result, the future outlook for pulp markets remains highly uncertain.