ASAHI PRINTING CO.,LTD. Q4 FY2025 earnings call

Overall Financial Results

• Achieved revenue and profit growth for the first time in 3 periods: consolidated revenue increased 5.0% YoY to 43.945 billion yen, operating profit increased 2.2% YoY to 2.076 billion yen. Growth missed the original full-year plan due to larger-than-expected inbound demand declines and sustained raw material price hikes, but overall performance improved YoY.
• Profit growth was supported by strong Packaging System Sales Business performance, the absence of one-off M&A advisory fees for Kinta (recorded in the prior period), and the contribution of Kinta's performance, which offset increased cost of goods sold from rising fixed (labor and depreciation) and variable costs.

Mid-term Management Plan "AX2024" (3-year plan covering FY2023-FY2025) Review

• 5 key strategies progress:
  • Market Deepening and Expansion: Successfully executed market-specific strategies for the core printing packaging business and grew the packaging system sales business. Remaining priorities: accelerate growth of the next-generation label business, further expand packaging system sales, and improve responsiveness to fast-changing market demand.
  • Maximizing Added Value: Completed factory restructuring at 3 Toyama facilities and installed labor-reducing machinery. Up next: push forward restructuring at Toyama Higashi and the core Toyama mother factory, and pursue further production efficiency improvements including additional labor-saving equipment.
  • Work Engagement: Expanded the scope of general clerical positions, extended the allowed period of shortened working hours, and launched new internal training programs to build a more inclusive work environment. Remaining task: deepen analysis of engagement survey results to improve employee engagement and build stronger connection to the company.
  • Overseas Business Expansion: Grew revenue at existing overseas subsidiaries Shin-Nippon and Harley, started construction of a new factory, and added Kinta to the group to establish a full printing packaging manufacturing and sales network for pharmaceutical and cosmetics products across Malaysia. Up next: strengthen intra-group collaboration, maximize synergies, and expand new overseas customer development.
  • Management Resource Utilization: Established a dedicated sustainability department and advanced CO2 reduction initiatives. Up next: pursue SBT certification to meet growing customer environmental requirements.
• Quantitative target outcomes: Total revenue exceeded the original 42 billion yen target by 1.945 billion yen (even excluding Kinta), but operating margin missed the 7% target by 2.3 percentage points and ROE missed the 6% target by 0.9 percentage points due to sustained raw material cost hikes. Dividend payout ratio exceeded the 40% target across all three plan years. Management extended the AX2024 plan by 1 year (renamed AX2024+1) to solidify business foundations for the next mid-term plan amid rapid changes in the operating environment.

AX2024+1 (FY2026) Key Initiatives

Focused on 3 core priorities: revenue structure reform, environmental response, and organizational restructuring:

• Revenue Structure Reform: Reallocate management resources to 3 key growth drivers: packaging system sales, label business, and overseas business:
  • Packaging System Sales: Capture growing labor-saving demand, expand sales of the company's proprietary semi-automated machinery, and target 20% revenue growth.
  • Label Business: Prioritize development of high-value added products including RFID labels and digital printing, build out production capacity to expand market share, and target 10% revenue growth.
  • Overseas Business: Leverage expected ASEAN economic growth and intra-group synergies to accelerate expansion; the under-construction new factory will start operations in FY2026, targeting 75% revenue growth over 2024 levels by 2032.
  • Core Printing Packaging Restructuring: Improve profitability via productivity gains from additional labor-saving equipment, inventory optimization, strengthened cost management, and appropriate product pricing.
• Environmental Response: Pursue SBT certification, expand sales of the company's low-environmental-impact "Asahi Smart Color" printing technology, and strengthen development of eco-friendly products.
• Organizational Restructuring: Optimize organizational structure and foster a culture that encourages internal challenge to support ongoing business reform.

Corporate Value Improvement

• Current status: The company's PBR has remained below 1.0x since 2019, with ROE falling below the estimated 6-7% cost of equity, driven by stagnant profit growth amid continued revenue expansion and lower asset turnover from growing total assets. Both profit and balance sheet improvements are required to lift ROE.
• Shareholder Returns: The company maintains a policy of stable dividends with a minimum 40% consolidated payout ratio. For FY2026, it targets an annual dividend of 38 yen per share (44.9% payout ratio). It also announced a 1 billion yen share repurchase program over FY2025-FY2026 for 1.2 million shares (approximately 5% of outstanding shares), targeting a total payout ratio of around 70% including buybacks, as management views the current share price as undervalued.

1. Printing Packaging Materials Business: Accounts for over 90% of consolidated revenue. Revenue increased 3.9% year-over-year to 40.26 billion yen, and segment profit increased 3.4% YoY to 9.256 billion yen. Overseas revenue accounts for over 7% of the segment total; domestic operations saw declining revenue and profit due to lower inbound demand, falling export demand for cosmetics products amid China's economic slowdown, and continued raw material cost increases, while the segment achieved overall growth driven by solid performance from consolidated Malaysian subsidiary Kinta and strong overseas order growth.
2. Packaging System Sales Business: Accounts for over 7% of consolidated revenue, positioned as the company's second core growth driver. Revenue increased 20.7% YoY to 3.155 billion yen, and segment profit increased 24.0% YoY to 506 million yen, fueled by rising market demand for labor-saving solutions and expanded order scale from strengthened full packaging line engineering capabilities.
3. Human Resources Dispatch Business: Revenue increased 3.4% YoY to 529 million yen, and segment profit increased 7.2% YoY to 130 million yen, driven by growing dispatch headcount and upward rate adjustments to pass through rising labor costs.

• For FY2026 (ending March 2026), management targets 2 consecutive years of revenue and profit growth, forecasting consolidated revenue up 2.4% YoY to 45 billion yen, operating profit up 8.4% YoY to 2.25 billion yen, ordinary profit up 4.4% YoY to 2.26 billion yen, and net profit up 5.6% YoY to 1.8 billion yen.
• The FY2026 guidance already includes planned base wage increases aligned with local industry standards, but does not include any projected future price increases for products, making it a conservative forecast; management notes future price adjustments will be considered during the fiscal year if needed amid changing market conditions.
• Overseas business targets 75% revenue growth over FY2024 levels by 2032, with the new under-construction overseas factory scheduled to start operations in FY2026.

• Sustained raw material and energy price hikes outpacing the company's ability to pass through costs to customers, pressuring operating margins.
• Persistent inbound demand declines in Japan and continued economic slowdown in China reducing domestic and export demand for printing packaging products, especially for cosmetics and over-the-counter pharmaceuticals.
• Persistently low ROE below the cost of equity and PBR below 1.0x, reflecting low market growth expectations for the company.
• Employee engagement remains below target, requiring further improvements to retain talent and maintain productivity.

Q: The earnings materials do not separate out the impact of price adjustments on operating profit. Should I understand that no additional price adjustments were implemented in the fiscal year just ended, and can you share the cost impact of these changes? / A: During the 3-year AX2024 plan, the company implemented two rounds of price adjustments to pass through multiple waves of raw material (especially paper) and utility cost hikes. While these price adjustments offset most of the increased costs, unprecedented frequent broad-based inflation and higher labor costs from wage increases still created net downward pressure on profit. Price impacts cannot be easily separated in reporting because adjustments apply to a mix of existing and new products, so overall impacts are reflected in aggregate top-line results.

Q: Does the FY2026 earnings guidance include assumptions for future price adjustments and wage increases? Is the guidance conservative by excluding price adjustment impacts? / A: The guidance includes planned base wage increases aligned with regional manufacturing norms, but does not include any projected future product price adjustments. This is a conservative forecast, and management will evaluate additional price adjustments during FY2026 if market conditions require it.

Q: After the outgoing chairman retires, what strategic direction will the new leadership pursue to expand the company's strengths, both domestically and internationally? / A: The outgoing chairman built the foundation of Asahi Printing's current business, including developing the cosmetics packaging segment from scratch and building out the company's domestic production network. Moving forward, management will first improve profitability of the existing core packaging business, while developing a new mid-term plan and a 10-year corporate vision that expands the business portfolio beyond existing core products. The company will continue to leverage its core printing packaging strength, push into ASEAN and other overseas markets to deliver the company's packaging value, and pursue second- and third-line growth drivers to achieve long-term sustainable expansion.