MITSUBISHI PENCIL COMPANY,LIMITED Q4 FY2025 earnings call

Overall 2025 Fiscal Performance

• Consolidated net sales: 89.814 billion yen, +1.1% YoY
• Gross profit: 44.522 billion yen, -4.9% YoY; gross margin 49.6%, down 3.2pp YoY
• Operating profit: 9.692 billion yen, -20.5% YoY; operating margin 10.8%, down 2.9pp YoY
• Ordinary profit: 10.028 billion yen, ordinary margin 11.2%, down 3.4pp YoY
• Net income: 6.235 billion yen (down from the prior year which included a large gain on real estate sales)
• Balance sheet: Total assets 183.005 billion yen (+3.5% YoY), equity ratio 75.7% (up 3.1pp YoY); PBR fell to 0.85x from 0.99x YoY
• Cash flow: Operating cash flow was 2.413 billion yen, investment cash flow outflows of 7.92 billion yen, financing cash flow outflows of 1.874 billion yen; ending cash and cash equivalents 32.807 billion yen

Capital and Cost of Equity Focused Management

• Company targets ROE of 8% or higher and PBR of 1x or higher. 2025 results show profit margin of 6.9% (down from 12.7% prior year), total asset turnover 0.50x (down from 0.55x), financial leverage 1.35x (up from 1.33x)
  • Improve profit margin by executing the mid-term management plan to improve profitability, and continue sustained growth and base investment
  • Improve total asset turnover through ongoing balance sheet strengthening, primarily focused on inventory reduction
  • Improve financial leverage via enhanced shareholder returns: added a new 40% consolidated payout ratio target, added to the existing progressive dividend policy, and will conduct flexible treasury stock acquisitions
• 2025 cash allocation: 2.4 billion yen from operating cash flow, 7.1 billion yen spent on growth and base investment, 5.1 billion yen spent on shareholder returns, 4.2 billion yen recorded for R&D
• Enhanced IR activities: Held 2 earnings briefings and ~70 individual IR/SR meetings, investor feedback is shared with the board of directors. A new management stock compensation scheme was introduced for manager-level employees to align incentives with share price performance

Mid-Term Management Plan (2025-2027) Progress & Strategic Initiatives

• Overarching long-term vision ("Desired State 2036") targets total sales of 150 billion yen, operating margin of 15%, with expansion of product offerings, geographic reach, and industry participation. The 2025-2027 mid-term plan, themed "Advance", has two core growth stories: continued growth and diversification of the stationery business, and scale expansion of the non-stationery business to drive progress toward the 2036 vision, supported by strengthened management infrastructure in partnership with stakeholders
• Stationery Business Highlights:
  • POSCA: The overall market continues to grow, but sales declined in 2025 due to prolonged European inventory adjustment. Management plans to target growth by expanding the artist and new consumer fan base
  • uniball & JETSTREAM: uniball saw strong performance from new products ZENTO (soft water-based ballpoint pen) and AIR (with advanced nib technology); JETSTREAM grew sales in both domestic and overseas markets driven by brand enhancement initiatives
  • LAMY: Leverages synergy between Lamy's design strength and Mitsubishi Pencil's technical capability for new product development, and uses Mitsubishi Pencil's global sales network for expansion. Sales of LAMY products via Mitsubishi Pencil's distribution network have launched in Japan, the US, the UK, and France, with further geographic expansion planned. The collaborative product LAMY safari JETSTREAM inside launched first in Japan and saw strong sales
  • Emerging market expansion: The Indian joint venture UNI LINC INDIA PRIVATE LIMITED launched commercial operations and ballpoint pen production and shipments in September 2025, targeting share growth and brand penetration in India and other emerging Asian markets
• Non-Stationery Business Highlights: Built on two core pillars leveraging Mitsubishi Pencil's core stationery technology: 1) Cosmetics business, focused on liquid and pencil eyeliners that continues to expand; 2) Industrial materials business, co-developing conductive slurry for secondary battery materials, targeting future growth
• Management Infrastructure Enhancement: Advancing sustainability initiatives including upcycled products to reduce CO2 emissions; strengthening human capital via new HR, education, and system implementation, plus building an internal environment that supports diverse talent; continuing to strengthen the "uni" corporate brand; advancing new technology development for next-generation products; continuing IT investment focused on both offensive and defensive initiatives

By Business Segment

1. Domestic Stationery Business: +1.385 billion yen in revenue year-over-year (YoY), reaching 30.4 billion yen in 2025, up from 29.1 billion yen in 2024. Growth was driven by strong demand for new products including JETSTREAM, uniball ZENTO, KURUTOGA Wood, and LAMY safari JETSTREAM inside. This segment contributed 33.8% of total consolidated revenue in 2025.
2. Overseas Stationery Business: -1.996 billion yen in revenue YoY, reaching 51.0 billion yen in 2025, down from 53.0 billion yen in 2024. While the LAMY brand contributed to revenue growth, the decline was caused by distribution inventory adjustment for POSCA, which saw large sales growth in the prior year. This segment contributed 56.8% of total consolidated revenue in 2025.
3. Non-Stationery Business: +1.605 billion yen in revenue YoY, reaching 8.3 billion yen in 2025, up from 6.7 billion yen in 2024. Growth was led by overlapping OEM product renewals in the cosmetics business, plus increased orders in both cosmetics and industrial materials segments. This segment contributed 9.2% of total consolidated revenue in 2025.

By Region

1. Japan: 38.3 billion yen revenue (42.8% revenue contribution), +7.2% YoY
2. United States: 12.6 billion yen revenue (14.1% revenue contribution), -6.4% YoY
3. Asia: 15.9 billion yen revenue (17.8% revenue contribution), +4.2% YoY
4. Europe: 17.1 billion yen revenue (19.1% revenue contribution), -5.3% YoY

By Product Category

1. Ballpoint pens: 36.6 billion yen revenue (40.8% revenue contribution), +1.4% YoY
2. Mechanical pencils and refills: 12.3 billion yen revenue (13.8% revenue contribution), +9.2% YoY
3. Sign pens (including POSCA): 23.7 billion yen revenue (26.4% revenue contribution), -12.2% YoY
4. Pencils: 3.4 billion yen revenue, 8.1% YoY decrease
5. Other (including Lamy fountain pens): 13.5 billion yen revenue (12% revenue contribution), +27.5% YoY

• For the FY2026 December term, Mitsubishi Pencil guides consolidated net sales of 94.0 billion yen, representing +4.7% YoY growth from FY2025 actual results. The sales breakdown is:
  • Domestic stationery business: 30.6 billion yen, +0.3% YoY
  • Overseas stationery business: 55.3 billion yen, +8.4% YoY
  • Non-stationery business: 8.1 billion yen, -2.6% YoY
• Management guides operating profit of 10.5 billion yen, operating margin of 11.2% (up 0.4pp from FY2025 actual), ordinary profit of 11.0 billion yen (+9.7% YoY), and net income attributable to parent shareholders of 7.7 billion yen
• Guidance assumes average foreign exchange rates of 150 JPY per US dollar, 175 JPY per euro
• Dividend guidance:
  • FY2025 full year dividend is planned at 52 yen per share (26 yen interim, 26 yen year-end), with a payout ratio of 45.5%
  • FY2026 marks the company's 140th anniversary, so a 1 yen per share commemorative dividend will be added to both the interim and year-end dividends, for a total full year dividend of 55 yen per share (27.5 yen interim, 27.5 yen year-end). This will mark the 24th consecutive year of progressive dividend increases
• Mid-term (2027) target sales: 31.0 billion yen domestic stationery, 63.0 billion yen overseas stationery, 9.0 billion yen non-stationery
• Long-term (2036) target sales: 30.0 billion yen domestic stationery, 70.0 billion yen overseas stationery, 30.0-50.0 billion yen non-stationery, for a total of 150.0 billion yen, with a continued target operating margin of 15%

• External environment risks: Identified demographic change, digital technology evolution, diversified consumer values, and intensifying competition in the stationery industry. Near-term risks also include US reciprocal tariffs, slowing Chinese economic growth, and accelerating inflation, which negatively impacted 2025 results
• Profit headwinds: Rising manufacturing costs and reduced production volume reduced gross profit by 1.449 billion yen in 2025, plus a 455 million yen bad debt loss from a credit incident in the US in Q1 2025, which drove the 20.5% YoY decline in operating profit
• POSCA specific risks: After strong growth in 2022-2023 and production capacity expansion in 2024, 2025 saw oversupply and prolonged inventory adjustment in European distribution, plus intensifying competition from new competitor entry and low-cost alternative products, leading to a 12.2% YoY decline in sign pen sales
• Currency risk: While historically a 1 JPY permanent depreciation against the US dollar would add 50 million yen to 100 million yen in annual profit, ongoing long-term yen depreciation has increased input costs, which now offsets much of the export benefit. Current guidance estimates a 1 JPY permanent yen depreciation would result in a net impact of approximately 50 million yen to annual profit, with high uncertainty around the exact magnitude
• PBR below 1x: The company's PBR has fallen to 0.85x, below the 1x target, which requires sustained improvement in profitability and enhanced shareholder returns to address

Q: What challenges does Mitsubishi Pencil currently face related to global expansion and profitability from the Lamy acquisition, and what are the plans to improve and grow by leveraging corporate synergies?

A: Management does not see major current issues with Lamy; Lamy has very loyal, high-engagement employees, a globally beloved brand, strong technical capability, and strong brand equity. The primary current challenge is adjusting distribution inventory across global markets, which is being addressed incrementally. The core growth plan is to maximize synergies by combining Lamy's brand power, design capability, and technical strength with Mitsubishi Pencil's matching strengths. Following the successful 2025 launch of the collaborative product LAMY safari JETSTREAM inside, 2026 will see the launch of LAMY safari KURUTOGA inside, which combines Lamy's safari platform with Mitsubishi Pencil's KURUTOGA mechanical pencil engine, announced via press release concurrent with this earnings call. Management will continue to leverage Lamy synergies to drive further growth.

Q: What factors are behind the recent slowdown in POSCA sales growth after years of strong expansion, and what is the strategy to return to growth going forward?

A: POSCA saw extremely strong growth in 2022-2023, with demand outstripping supply and factories running at full capacity. Production capacity was expanded significantly in 2024, leading to modest oversupply in 2025. The overall POSCA market continues to expand, which has attracted increasing competitor entry; while this confirms the market is attractive, it has also intensified competition. Inventory adjustment and competition from low-cost alternative products have driven the sales decline. Management expects continued headwinds in Q1 2026, but plans to achieve a recovery starting in the second half of 2026. As the market leader, Mitsubishi Pencil will implement countermeasures for low-cost competition, further strengthen POSCA's brand image and brand value, actively host events to expand the artist and consumer fan base, and return to growth.

Q: What is the operational progress of UNI LINC INDIA PRIVATE LIMITED in India, what is the near-term performance contribution and outlook, and what geographic expansion plans does the company have?

A: Ballpoint pen production launched in September 2025, and production is progressing smoothly with high quality output. The company plans to expand distribution first within India, then primarily to ASEAN countries and other Asian markets, and will continue to prioritize growth in India and the ASEAN region going forward.

Q: What specific measures is the company considering to resolve the PBR below 1x situation and improve corporate value?

A: PBR has remained below 1x, and this is a frequent topic of discussion in investor IR meetings. While share price is ultimately determined by market valuation, the company is focused on three core areas: improving business performance, controlling net equity, enhancing shareholder returns, and improving IR communication of the company's long-term strategy. First, improving ROE is the top priority; current ROE is below the 8% target, and the company is implementing multiple initiatives to improve ROE and deliver stable earnings growth. Second, appropriate net equity management is required, so the company is pursuing enhanced shareholder returns via dividends and treasury stock purchases. In July 2025, the company established a new target 40% consolidated payout ratio (the first explicit numerical target for shareholder returns in the company's history) to strengthen shareholder returns. Third, the company will continue to host earnings briefings and investor meetings to share the company's long-term strategic direction and its approach to shareholder returns and ROE. The company remains committed to achieving a PBR above 1x.

Q: What is the outlook for POSCA distribution inventory going forward?

A: This is a very common question, and it is difficult to give a precise timeline. Through 2025, significant progress has been made in inventory adjustment, production adjustment is stabilizing, and current monthly sales are exceeding prior year levels. Management currently expects POSCA sales to return to growth starting in the second half of 2026.

Q: What is the profit sensitivity to foreign exchange movements?

A: Foreign exchange sensitivity is an estimate, not an exact figure. Historically, the company communicated that a 1 JPY permanent yen depreciation would increase annual sales by 150 million yen to 200 million yen, and increase annual profit by 50 million yen to nearly 100 million yen. Recently, the profit impact has been much smaller than historical levels. As an export-focused company, Mitsubishi Pencil historically viewed yen depreciation as an unqualified tailwind, but multi-year yen depreciation has pushed up input costs, which now pressure profits. The current estimated net impact of a 1 JPY permanent yen depreciation is approximately 50 million yen in annual profit, though exact figures are difficult to calculate. The profit-boosting effect of yen depreciation is much smaller than in the past due to the offsetting impact of higher costs.

Q: How does JETSTREAM growth compare between domestic and overseas markets, which countries are driving overseas growth, and what are the drivers of that growth?

A: JETSTREAM is growing in both domestic and overseas markets, but domestic growth is stronger. JETSTREAM is already a well-established, high-awareness brand in Japan, with most demand coming from dedicated customer requests for the product. Overseas, the strongest growth is in South Korea. It is hypothesized that this is partially due to geographic proximity to Japan, and that the South Korean stationery market has similar characteristics to the Japanese market, so products that perform well in Japan also tend to perform well in South Korea. In summary, domestic growth is the strongest, but JETSTREAM is growing overseas as well, with particularly strong performance in South Korea.