MUROMACHI CHEMICALS INC. Q4 FY2025 earnings call

Strategic Portfolio Restructuring

• The company formally announced its decision to withdraw from the health food business by the end of the current fiscal year (ending May 2026) to improve capital efficiency.
• While sales of the health food business grew after active efforts to secure new OEM projects, stable long-term profit growth was not feasible, and withdrawing frees up manufacturing space and personnel for the higher-return pharmaceutical and chemicals segments. The company will not sell the health food business and will reallocate as many former employees as possible to the two remaining growth segments, which will cause a temporary increase in personnel expense.
• The withdrawal is on track to be completed by the end of FY2026, with the company currently communicating with customers and fulfilling all remaining contract obligations.

Long-Term Vision Update

• The company updated its long-term vision (VISION 100), bringing forward the target of achieving 10 billion yen in annual revenue and 10% operating margin from 2032 to 2031.
• The new 3-year Medium-Term Management Plan 2028 (covering FY2026-FY2028) is positioned as a 3-year period to lay a solid foundation for future accelerated growth after business restructuring, rather than focusing on immediate profit growth.

Pharmaceutical Segment Strategy

• Leveraging growing pharma industry demand for domestic API sourcing to mitigate country risk, the company is investing in flow synthesis (continuous production system), a technology aligned with its multi-product, small-batch business model, with a planned total capital investment of 130 million yen to achieve commercial production within the medium-term plan period.
• Currently, 3 core API products account for 67% of pharmaceutical segment revenue; the company will invest 160 million yen over 3 years to launch new products and reduce revenue concentration risk.

Chemicals Segment Strategy

• The segment’s core product is ion exchange resins, with a focus on expanding into high-growth domestic areas including power industry applications and PFAS solutions. Multiple PFAS-removal ion exchange resin products are already commercialized, the company is developing simple PFAS monitoring methods via a joint research project with Tokyo Gakugei University, and has established basic technology for resin regeneration, moving toward commercialization. The company is also a member of the industry-wide Aqua-PFAS project to develop standardized PFAS removal solutions.
• The company will pursue overseas sales of its high-performance ion exchange resins via strategic alliances, and continue to develop new resin applications to drive future growth.

Company-Wide Capability Building

• The company will utilize the manufacturing space and personnel freed up by the health food withdrawal to expand production capacity with minimal additional investment, including expanding logistics and utility infrastructure, introducing partial automation to reduce labor reliance, and improving operational speed and quality via standardized processes and personnel training.
• The company is implementing human capital management, establishing core corporate values and human resources policies, launching specialized committees to address internal issues, and setting KPIs to improve employee engagement.
• The company adopts capital cost-conscious management, targeting long-term goals of PBR above 1.5x, ROE above 10%, and PER above 15x. It introduces progressive dividend policy and starts paying interim dividends starting this fiscal year to strengthen shareholder returns.
• Total planned investment over the 3-year medium-term plan is 1.923 billion yen, with approximately 42% allocated to growth investments including new product development and human capital.

1. Pharmaceutical segment: Net sales of 3.217 billion yen, operating profit of 473 million yen, representing a slight year-over-year decrease in both revenue and profit, contributing 48.4% of total company revenue. 2. Health food segment: Net sales of 1.043 billion yen, operating loss of 98 million yen, with sales increasing year-over-year but operating loss expanding due to withdrawal-related costs, contributing 15.7% of total company revenue. 3. Chemicals segment: Net sales of 2.391 billion yen, operating profit of 57 million yen, achieved a return to positive profit with strong sales growth, contributing 35.9% of total company revenue. Total company net sales for the full year was 6.653 billion yen (up 4.5% YoY), operating profit was 432 million yen (up 2.5% YoY), net income was 241 million yen (down 26.9% YoY due to special losses from the health food business withdrawal).

• FY2026 (ending May 2026) guidance: Management expects net sales of 6.5 billion yen (down 2.3% YoY) and operating profit of 200 million yen (down 53.7% YoY), reflecting the impact of the health food business withdrawal; health food sales are expected to halve, while pharmaceutical and chemical sales are projected to grow steadily. Despite the expected net income decline, the company will maintain its current dividend amount per share.
• For Medium-Term Management Plan 2028: Sales are expected to be flat in the first few years due to the health business withdrawal, and operating profit is expected to remain below previous levels for the 3-year period, due to increased depreciation from aggressive capital investment primarily in the pharmaceutical segment and temporary higher personnel costs from internal reallocation. This investment is expected to drive strong revenue and profit growth after the plan period to hit the 2031 VISION 100 targets.

• The previous medium-term plan (ending May 2025) missed revenue and operating profit targets, due to delayed monetization of new products, soaring raw material and labor costs, and losses related to the health food business withdrawal. While capital efficiency and shareholder return metrics were met, the company must address capability gaps identified in the previous plan period.
• Current production capacity and personnel are insufficient to accommodate the growing pipeline of new sales opportunities in the core pharmaceutical and chemicals segments, which could limit growth if expansion is not executed successfully.
• The company’s stock price has trended downward since its 2021 listing despite growing revenue and profit, and its PER currently trails the average of the Tokyo Stock Exchange Standard market, requiring improved market perception of the company’s long-term growth prospects.

Q: What is the progress of Muromachi Chemical's PFAS business, including when it will contribute to revenue? / A: Muromachi already sells multiple PFAS removal ion exchange resin products, and is currently conducting demonstration tests in partnership with other firms. Regulatory tightening of PFAS standards in 2026 is expected to drive growing market demand, and the company's participation in the cross-industry Aqua-PFAS project strengthens its market position. The company is advancing all three key parts of the PFAS value chain (removal, monitoring, resin regeneration) to capture future market growth.

Q: How will the resources freed up by the health food business withdrawal contribute to performance going forward? / A: The withdrawal frees up manufacturing floor space and existing personnel that can be reallocated to the pharmaceutical and chemicals segments, which need additional capacity to accommodate growing demand. This allows the company to expand capacity with minimal new capital expenditure, improving overall capital efficiency, and will enable faster growth of the two core businesses after a 3-year foundation building period.

Q: What are the key drivers of growth for the pharmaceutical and chemicals segments over the medium term? / A: For pharmaceuticals, growth will come from increasing domestic sourcing demand for APIs from Japanese pharma companies, the implementation of efficient flow production technology, and the launch of new API products to reduce reliance on a small set of existing core products. For chemicals, growth will come from expanding demand for PFAS solutions driven by regulatory tightening, growing demand from the power industry, and expansion into overseas markets via strategic alliances with global partners.

Q: Will the company consider entering entirely new business segments in the future? / A: The company's current priority is to maximize growth of its existing pharmaceutical and chemicals core businesses using the resources freed by the health food withdrawal, so there are no immediate plans to enter entirely new unrelated segments. Management will focus on laying the foundation for growth in its current core businesses to hit its 2031 long-term targets first.