Nitta Gelatin Inc. Q4 FY2025 earnings call

• Overall Financial Performance

  • The NGU production shutdown reduced total revenue, but improved group profitability significantly, delivering a record high for operating profit, ordinary profit, and net profit attributable to parent company shareholders. NGU shutdown improved profitability by approximately 1.6 billion yen.
  • Operating profit hit 3.93 billion yen, more than doubling year-over-year; ordinary profit was 4.145 billion yen (+74% YoY) including 140 million yen in foreign exchange gains; net profit attributable to parent shareholders was 3.159 billion yen, a 5 billion yen increase from the prior year's 1.85 billion yen net loss (driven by the elimination of NGU productivity losses and impairment charges, plus reduced corporate taxes related to NGU liquidation).
  • Balance sheet: Current assets decreased 350 million yen due to working capital efficiency initiatives including shorter receivable terms and inventory control; total liabilities decreased 2.654 billion yen driven by lower short-term borrowing, with interest-bearing debt reduction on track; net assets increased 3.105 billion yen from higher retained earnings, resulting in total assets of 40.413 billion yen (+451 million YoY).
  • Cash flow: Operating cash flow increased on higher pre-tax profit; investing cash flow decreased due to the absence of prior year "Mirai-kan" construction costs; financing cash flow was negative due to debt reduction. Ending cash and cash equivalents was 4.636 billion yen.

• NGU Liquidation Update

  • After suspending production in the prior year, liquidation procedures have progressed, with dissolution approved in February 2025 and expected completion in June 2025. Management will now reallocate all human and financial resources previously dedicated to NGU to core mid-term plan strategies and base strengthening.
  • NGU debt forgiveness reduced corporate taxes by approximately 900 million yen, increasing net profit. Of the resulting 600 million yen cash increase, 100 million yen will be distributed to shareholders via special dividend, and 500 million yen will be used for additional interest-bearing debt repayment.

• Mid-Term Management Plan (2024-2026, covering fiscal years ending March 2025 to 2027) Progress

  • Profit levels have already exceeded the final year target of the plan; ROE and ROIC also exceed plan targets, and cash conversion cycle is progressing on track. Management is reviewing and will announce updates to operating and net profit targets if needed.
  • All segments except Biomedical now exceed the 7% ROIC target (and the 5% WACC hurdle), with overall group profitability improved. The majority of plan initiatives are on track: Biomedical has achieved overseas sales expansion but remains below its full-year sales target; cash conversion cycle has improved from revised trading terms but still needs further inventory reduction work.
  • Capital allocation has been updated: Operating cash inflow is 1.5 billion yen higher than originally planned; 1.6 billion yen in additional debt reduction (beyond the original plan) and 100 million yen in additional shareholder returns will be allocated. Early completion of debt reduction will allow more cash to be focused on growth investment and base strengthening for the future.
  • P/B ratio remains at a low 0.72x; management will continue working to improve profitability, reduce business risk via stronger global governance, and lift expected future growth rates.

• Shareholder Return Enhancement

  • For the 2025 March fiscal year, a 4 yen per share increase in ordinary dividend to 20 yen, plus a 5 yen per share special dividend, resulting in a total annual dividend of 25 yen per share.
  • For the 2026 March fiscal year, management plans a further 4 yen per share increase in ordinary dividend to 24 yen per share, which is expected to hit the mid-term plan final year target of 2.0% or higher DOE.

Total consolidated revenue for the 2025 March fiscal year was 38.745 billion yen, a 4.1% decrease year-over-year, driven primarily by the January 2024 production shutdown of Nitta Gelatin USA (NGU) in North America. Excluding the NGU shutdown impact, all segments saw overall positive performance:

1. Gelatin: +4.8% year-over-year (excluding NGU impact). Demand was strong in Japan for gummy candy, soft capsule, and photographic applications, with increased sales for home cooking/eating products (confectionery, cooking ingredients, frozen foods) amid cost of living pressures. North America saw growth in general food applications and imported bovine bone gelatin for soft capsules from Nitta Gelatin India.
2. Collagen Peptide: +25.8% year-over-year (excluding NGU impact). Japan saw a slight revenue decline from reduced customer product sales, but North America grew volumes from new client development, and India/Asian markets remained strongly positive.
3. Food Materials: -4.8% year-over-year. Gelling agents for confectionery and desserts grew, but this was offset by reduced sales of stabilizers for meat processing.
4. Biomedical: +31.8% year-over-year. Sales grew to major domestic customers, and sales to an overseas medical materials manufacturer (launched in Q2) performed strongly.

• For the 2026 March fiscal year, management forecasts total revenue of 40 billion yen (+3.2% YoY) and operating profit of 4 billion yen (+1.8% YoY), targeting a second consecutive year of record high profit after incorporating expected impacts from US tariff measures.
• Growth strategies for the coming year include: 1) Leveraging stable quality and supply to capture continued growth in Japan's gummy candy market, with differentiated products from Nitta Gelatin Canada (high jelly strength, low-odor gelatin); 2) Continued focus on capturing global demand for capsule gelatin; 3) Expanding collagen peptide capacity at Nitta Gelatin India to double output starting June 2025, to support new market development across Asia, North America, and other regions, building on growing brand recognition in the fast-growing Asian market.
• The 2026 March fiscal year ordinary dividend guidance is 24 yen per share, which is expected to achieve the mid-term plan's DOE target of 2.0% or higher.

• US tariff measures: Additional tariffs are expected on gelatin and collagen peptide exported to the US from Japanese and Indian production sites. Management's base policy is to pass through additional tariff costs to US customers to minimize impact, but there is risk of delayed pass-through, intensified price competition, and resulting changes to sales volumes. The 2026 fiscal year guidance incorporates the impact of a 10% additional tariff remaining in place through the end of March 2026, but continued uncertainty requires ongoing monitoring of market and policy developments.
• P/B ratio remains stuck at a low 0.72x, creating valuation risk that management is working to address through profitability improvement and risk reduction.
• While most mid-term plan initiatives are on track, Biomedical is still below its sales target, and inventory reduction efforts for working capital improvement have not yet been completed, leaving room for operational underperformance.

The provided earning call transcript does not include a question and answer section.