NANKAI CHEMICAL COMPANY,LIMITED Q2 FY2026 earnings call

Consolidated Interim Financial Results

• The company reported consolidated net sales of 9.176 billion yen, operating profit of 0.607 billion yen, ordinary profit of 0.626 billion yen, and interim net profit attributable to the parent company of 0.434 billion yen, achieving year-over-year revenue and profit growth driven by partial price corrections in both core segments.
• Price correction gains offset negative impacts from the fire-related export decline, reduced agrochemical demand, higher raw material costs, wage increases, higher logistics costs, and lower one-time subsidy revenue, keeping ordinary profit flat year-over-year.

Operational Updates

• The August fire at the Tosa plant was fully repaired, and operations restarted on October 15 with no ongoing operational issues as of the call.
• Increases in fixed assets and unearned revenue on the balance sheet are tied to preparation for a subsidiary's land sale: land preparation/soil improvement costs are deferred, and additional earnest money deposits have been received. A 2.507 billion yen gain on the sale will be recorded as extraordinary income in Q3, with no change to full-year guidance as taxes were already included in initial projections.
• Debt reduction efforts have lowered interest-bearing debt and raised the equity ratio to 38.1%, and the company will continue strengthening its financial position.

Shareholder Return Initiatives

• A new shareholder benefit program will launch for shareholders holding shares as of the end of March 2026, targeting increased medium- and long-term shareholding and improved investor engagement.
• The program offers 3,000 yen worth of local specialty products (or a donation option) for shareholders holding 100+ shares for 1-3 years, and 5,000 yen worth for shareholders holding for 3+ years. All qualifying shareholders holding 100+ shares at the first eligibility date will receive benefits even if their holding period is under 1 year.
• Full-year dividend guidance is set at 60 yen per share (25 yen interim, 35 yen year-end), a 5 yen increase year-over-year.

Growth Strategy

• The company's core competitive advantage is its broad product portfolio built on 120 years of technical expertise and trust, enabling it to identify new demand and develop new businesses centered on environmental recycling.
• Under the Nankai Big Bang Project, the company is prioritizing advancement of drainage equipment upgrading, with a target to finalize the investment decision within the current fiscal year. This upgrade will improve impurity removal capability to capture new demand for treating heavy metal-rich waste that was previously unacceptable.
• Following the drainage upgrade, the company plans to advance equipment renewal for water treatment flocculants produced from recycled sulfuric acid, to stabilize recycled sulfur input and improve profitability via higher production efficiency and higher added-value output.
• Waste sulfur recycling (the first project in the Big Bang plan) requires additional technical verification and environmental assessment, so it will be delayed.
• Tosa desalination business expansion has been completed, but projected demand growth has not materialized, so capacity expansion decisions will be delayed while new demand development continues.
• Long-term growth initiatives focused on environmental recycling are seeing partial progress, with more details to be shared once plans are finalized.

1. Chemicals Business: Despite a decline in high-grade bleached powder export transactions due to the Tosa plant fire, overall revenue increased year-over-year driven by partial product price corrections and strong performance from functional chemicals and the environmental recycling business. Segment profit also slightly exceeded the prior year period, supported by maintained appropriate pricing across the segment and price corrections for select products. There is no publicly disclosed absolute value or revenue contribution percentage for this segment in the provided transcript.

2. Salt Business: Overall sales volume remained nearly flat year-over-year, but higher sales volume of higher-unit-price plum salt and partial product price corrections drove an increase in both revenue and profit year-over-year. There is no publicly disclosed absolute value or revenue contribution percentage for this segment in the provided transcript.

• No revision to the existing full-year consolidated earnings guidance is needed, as all impacts from the subsidiary land sale (including associated taxes) were already incorporated into initial projections at the start of the fiscal year.
• Management maintains the planned full-year dividend of 60 yen per share, a 5 yen increase year-over-year, with an interim dividend of 25 yen per share and year-end dividend of 35 yen per share.

• The August 15 fire at the Tosa plant disrupted exports of high-grade bleached powder, though full operations resumed in October with no lingering material impact to guidance.
• Macroeconomic headwinds including persistent cost inflation and cooling demand create uncertainty for full-year results, and management does not view the current environment as optimistic.
• The projected demand increase for the Tosa desalination business has not materialized as of the call, creating uncertainty around the timeline and return on potential capacity expansion.
• Waste sulfur recycling projects require additional technical verification and environmental assessment, leading to project delays.

Q: Are spot adjustments to product prices possible for Nankai Chemical, given that sales price improvements contributed significantly to positive operating profit this period? / A: Nankai's sales are centered on domestic transactions, with most pricing set through individual negotiations rather than long-term fixed contracts common in international markets. The company confirms that it can adjust prices based on changing market conditions. Amid ongoing rises in raw material and labor costs, the company is prioritizing price adjustment negotiations more than in the past to ensure adequate profitability.

Q: Why does the expected gain on the subsidiary land sale come to 2.5 billion yen when the total sale price is 6.5 billion yen? / A: The sale covers land owned by subsidiary Fuji Amide Chemical, which requires demolition of existing buildings and equipment and mandatory soil improvement work per legal and regulatory requirements. After accounting for the property's book value and these required pre-sale costs, the expected net extraordinary gain is 2.5 billion yen. Tax impacts from the sale were already incorporated in the initial full-year guidance, so no change to projections is needed.

Q: What are the core reasons and goals behind introducing the new shareholder benefit program? / A: The program first serves to thank shareholders for their ongoing support. Its primary business goals are to increase the attractiveness of Nankai Chemical stock and encourage more medium- and long-term shareholding. It also helps increase public understanding of the company: as a mostly B2B chemical manufacturer, Nankai has consumer-facing products like plum pickling salt, and offering local specialty products from its facility locations helps shareholders connect with and better understand the company's business.

Q: What is the scale of investment and expected profit impact for the environmental recycling-focused growth strategy? / A: Most initiatives are still in the planning stage, so specific numerical targets cannot be shared publicly yet. Management confirms that environmental recycling is positioned as the company's core long-term growth sector, and there is clear, strong existing market demand for these services that management has observed firsthand through sales activities. Profitability is a non-negotiable prerequisite for advancing all growth projects.