Nippon Fine Chemical Co.,Ltd. Q4 FY2026 earnings call

• Corporate Vision & Purpose Update

  • Management retains its founding mission of contributing to society through chemistry, supporting employee self-actualization, and serving all stakeholders.
  • Long-term vision NFC VISION 2030 retains its 7 core goals with the company statement "Bringing smiles to everyone through the power of 'beauty'".
  • A new corporate purpose was adopted in March 2024: "Continue contributing to the creation of a sustainable society full of smiles through the power of 'chemistry' and 'beauty'".
  • The first two years of the mid-term plan focused on aligning all employees around these unified guiding principles.

• Capital Investment Plan Revision

  • The original plan to invest 2.3 billion yen to expand cosmetic phospholipid production by FY2026 was revised: capacity expansion will be achieved through retrofitting existing equipment instead.
  • Management prioritized a new 8.6 billion yen Cosmetic Ingredients Plant (CIP) for functional cosmetic oils at the Takasago Works, driven by stronger-than-expected demand.
  • CIP will increase production capacity to 2.1-2.3x current levels, with construction running from 2025 to 2029 and commercial operation starting in FY2029.
  • Total 4-year mid-term capital investment was raised from 12 billion yen to 16 billion yen, with 4.9 billion yen of CIP construction costs budgeted for FY2025-FY2026. Total 4-year capital investment has not changed the core strategy of active investment for growth.
  • Other ongoing investments include a new administrative welfare building at Kakogawa Higashi Plant and digitalization investments for a new core enterprise system, which are progressing as scheduled.

• R&D Investment

  • R&D spending hit a record 970 million yen in FY2024 (2.7% of revenue), with a planned 1 billion yen (2.9% of revenue) for FY2025 and 1.02 billion yen for FY2026.
  • Key R&D priorities include commercialization of continuous flow reactors for pharmaceutical phospholipids (targeting revenue by 2030) and using process simulators to improve production efficiency, reduce costs, and cut environmental impact.

• Capital Policy & Shareholder Return

  • The dividend policy target was raised from 3.0% DOE to 3.5% DOE, with FY2024 dividend set at 74 yen per share (9th consecutive year of dividend increases).
  • The target of 100 yen per share dividend (originally planned for 2030) is moved forward to FY2026, corresponding to a 4.3% DOE target. FY2025 dividend is planned at 94 yen per share (10th consecutive increase).
  • The 4-year average total payout ratio target of 50%+ remains unchanged. A 2 billion yen share repurchase program (upper limit of 1.2 million shares) was launched in FY2025 to hit this target.
  • The policy of reducing cross-held shares remains unchanged: target of 17% or less holdings by FY2026 and 10% or less by 2030. 460 million yen in cross-held shares were sold in FY2024, bringing the current holdings ratio to 21%.

All segment performance figures below are for the revised FY2026 (mid-term plan final year) target:

1. ビューティケア (Beauty Care)：Revenue of 9.8 billion yen (up 400 million yen from original plan), operating profit of 2.47 billion yen (up 620 million yen from original plan. Represents 25.8% of total company revenue in the revised plan. Over the first half of the mid-term plan (FY2023-FY2024), the segment grew 1.77 billion yen in revenue and 470 million yen in operating profit compared to FY2022, driven by strong overseas growth of functional cosmetic oils.
2. ヘルスケア (Healthcare)：Revenue of 6.9 billion yen (down 600 million yen from original plan), operating profit of 1.42 billion yen (up 160 million yen from original plan. Represents 18.2% of total company revenue in the revised plan. Over the first half of the mid-term plan, the segment grew 390 million yen in revenue and 320 million yen in operating profit compared to FY2022, following successful commercial launch of two new pharmaceutical phospholipid plants.
3. ファインケミカル (Fine Chemicals)：Revenue of 6.18 billion yen (up 20 million yen from original plan), operating profit of 720 million yen (down 430 million yen from original plan. Represents 16.3% of total company revenue in the revised plan. Over the first half of the mid-term plan, the segment saw a 1.44 billion yen revenue decline and 730 million yen operating profit decline compared to FY2022, driven by ongoing "selection and concentration" portfolio restructuring and intensifying competition for wool grease derivative products.
4. ハイジーン (Hygiene)：Revenue of 9.9 billion yen (down 2 billion yen from original plan), operating profit down 320 million yen from original plan. Represents 26.1% of total company revenue in the revised plan. Over the first half of the mid-term plan, the segment saw a 1.08 billion yen revenue decline and 220 million yen operating profit decline compared to FY2022, driven by shrinking hand sanitizer demand post-COVID-19.

• Overall mid-term plan (FY2023-FY2026) final year (FY2026) guidance: Total revenue revised down to 38 billion yen from the original 41 billion yen; operating profit revised up to 5.8 billion yen from the original 5.7 billion yen; EBITDA revised down to approximately 7.51 billion yen from the original 7.7 billion yen. Operating margin is projected to rise to 15.3% from the original 13.9%, and EBITDA margin is projected at 19.8%, so overall profitability is improving.
• 2030 long-term guidance: Total revenue revised down to 48 billion yen from the original 50 billion yen; operating profit revised up to 8.2 billion yen from the original 7.7 billion yen; EBITDA unchanged from original plan; ROIC target raised from 9.0% to 10.0%. Perovskite solar cell materials are expected to contribute several hundred million yen in revenue starting around 2027, growing steadily through 2030.
• The core basic policy of the 14th mid-term plan, "Growth stage through active investment", remains unchanged. Strategic priorities on phospholipid materials for cosmetics/pharmaceuticals and perovskite solar cell materials, as well as R&D investment strategy, also remain unchanged.

• Beauty Care: Cosmetic phospholipid sales missed plan in the first half of the mid-term plan due to the ALPS treated water issue and slowing Chinese economic growth, weighing on near-term segment performance. • Hygiene: Lingering post-COVID-19 market contraction driven by reduced consumer infection awareness has caused a large downward revision to the segment's revenue and profit outlook, and the shift away from reliance on hand sanitizer will take time to deliver results from new product lines. • Fine Chemicals: Intensified overseas competition has reduced sales of traditional core products including feed-use cholesterol from wool grease derivatives, pressuring near-term profitability during the portfolio restructuring transition. • CIP Project: While the new plant will meet growing long-term demand, depreciation from the large 8.6 billion yen investment is expected to cause a temporary pullback in Beauty Care segment operating profit in 2030 after the plant launches. • Healthcare: Existing pharmaceutical phospholipids face aggressive price competition from overseas rivals, pressuring margins on existing product lines.

Q: Despite the large downward revision to the Hygiene segment's full mid-term target, the current plan projects average annual sales growth of 19% and profit growth of over 20% in the second half of the plan. How is this growth expected to be achieved? / A: Management noted that the large downward revision reflects the sharp post-COVID contraction in hand sanitizer demand over the first half of the mid-term plan. For the second half, growth will come from shifting resources away from hand sanitizer to expanding food hygiene products and developing new clients for hospital and nursing care facility products. New sustainable products like neutral concentrated cleaners developed in the first half are expected to begin contributing to profit, driving the projected growth in the second half.

Q: What factors have put the Healthcare segment on a stronger-than-planned growth trajectory? / A: The strong performance stems from the successful completion of two new pharmaceutical phospholipid plants built with 5.3 billion yen of investment in the previous mid-term plan. The first plant for Gilead Sciences launched commercial production on schedule, and the second plant completed its transition from old facilities in March 2025, enabling full-scale production that has lifted segment revenue and profit ahead of plan. New growth themes are also progressing, including liposome formulation development and open innovation initiatives from the company's Shonan lab.

Q: When will CIP start commercial operation, and when will depreciation expenses begin? / A: CIP construction will run from 2025 to 2029, with commercial operation planned to start in FY2029. Depreciation expenses will begin once the plant enters commercial operation, so they will not impact earnings until after the end of the current mid-term plan (FY2026). Around 4.9 billion yen of construction in progress costs will be recorded over FY2025-FY2026, with no full depreciation impact until the plant is completed.

Q: What are the main challenges facing the company's perovskite solar cell material business? / A: While social implementation and development are progressing on schedule, the main challenges are scaling up production to meet future commercial demand and lowering production costs to compete in the emerging perovskite market. Revenue contribution is not expected until after 2027, so the company is continuing steady development work to build the foundation for commercialization and profitability by 2030.