JAPAN PULP AND PAPER COMPANY LIMITED Q4 FY2025 earnings call

Long-term Vision (OVOL 2030)

• Three core qualitative goals: Become the world's strongest paper distribution group, contribute more to sustainable society and the global environment, and become an excellent company beyond the paper industry. The quantitative target is 25.0 billion yen in consolidated recurring profit.
• The company currently ranks 3rd-4th globally among paper distribution firms by size, and targets becoming a trusted global merchant group with local inventory, delivery, and financial functions across major markets, rather than focusing purely on scale.

Mid-term Plan (OVOL 2026) Basic Policies & 2025 Progress

Three core strategic pillars, with multiple initiatives completed in the first year (Fiscal 2025):

• Expand communication and improve value provision

  • Held 3 workshops exploring new paper applications (focused on education/child development) to activate the industry, and participated in the Osaka-Kansai World Expo to showcase paper's environmental value and future roles, aiming to boost underlying demand.
  • Launched new individual investor outreach (dedicated website section, first investor briefings) to improve understanding and support PBR growth, and held the first global meeting of overseas merchant subsidiaries (including new German/French operations) to drive information sharing and synergies.
  • Held 3 carbon neutrality workshops for domestic trading partners to share sustainability expertise with smaller secondary distributors, helping them respond to end-customer environmental demands.

• Improve human capital and work engagement

  • Conducts bi-annual engagement surveys, achieved the mid-term plan BBB target two years ahead of schedule. Introduced online reskilling training, implemented 3 consecutive years of base pay increases averaging over 5% annually (including regular raises) to support employee living standards and motivation.
  • Launched a performance-based restricted stock incentive plan for employee stock ownership members to align employee and company performance, and began the Tokyo HQ relocation project (to Yaesu, launching H2 2026) led by young team members to improve productivity and work quality.

• Drive M&A and alliances to scale business

  • Completed large strategic M&A in Germany/France (overseas wholesale) and complementary M&A in domestic wholesale/processing, while actively trimming unprofitable businesses.

• Financial and sustainability progress

  • Delivered 4 consecutive years of dividend increases, with a 40.7% payout ratio in FY2025. Continued reducing policy-held shares, cutting balance sheet value by ~3.7 billion yen year-over-year, lowering the share of net assets to 17.54% (down 3.62pp). Steadily progressed on business/human rights and climate change initiatives for sustainable management.

• Upgraded the DX promotion organization to a headquarters in April, aiming for early contributions to both offensive and defensive digital initiatives.

1. Domestic Wholesale: Increased revenue year-over-year, decreased profit year-over-year. Declining paper sales volume from digitalization was offset by growing coated paperboard (inbound and trading card demand) and recovering functional material sales. Profit fell due to higher personnel and logistics costs outweighing revenue growth. This segment accounts for ~80% of parent company paper and paperboard sales.

2. Overseas Wholesale: Increased revenue year-over-year, decreased profit year-over-year. Revenue grew from recovered U.S. sales volume after customer inventory adjustment, increased exports to South Korea/Southeast Asia, Q3 M&A in Germany/France, and favorable foreign exchange translation. Profit declined due to intensified price competition (UK/Australia), falling selling prices, higher personnel/logistics costs, and M&A-related upfront costs. By region: Oceania saw lower revenue and profit; Japan parent, U.S., and Asia saw revenue growth with U.S./Asia profit growth; Europe and Oceania saw profit decline. U.S. sales volume rose sharply, while Europe and Oceania volume fell.

3. Paper Processing: Increased revenue year-over-year, decreased profit year-over-year. Revenue grew from higher selling prices in recycled household paper, offsetting the impact of selling the Vietnam business. Corrugated cardboard processing volume increased slightly while base paper volume saw a minor decline. Profit fell as higher labor, fuel, and logistics costs outweighed manufacturing cost reductions from efficiency improvements in recycled household paper.

4. Environmental Raw Materials: Decreased revenue year-over-year, increased profit year-over-year. Revenue declined due to lower waste paper generation (domestic/U.S.), plant closures/transfers, and lower pulp sales volume across markets. Profit grew from sharply higher sales volume and prices of PKS biomass fuel, which offset weak performance from woody biomass power generation (hit by rising fuel costs). Solar power and comprehensive recycling operations remained flat year-over-year.

5. Real Estate Leasing: Increased revenue and profit year-over-year, driven by sustained high occupancy of core properties.

Consolidated overall: Total revenue increased year-over-year (four of five segments grew revenue, only environmental raw materials declined), but operating profit was 15.1 billion yen (86.6% of prior year), and recurring/net profit declined due to higher costs and impairment losses on fixed assets and goodwill.

• Consolidated full-year FY2026 (ending March 2026) guidance: 16.5 billion yen operating profit (+9.5% YoY), 15.5 billion yen recurring profit (-2.0% YoY), 8.5 billion yen net profit attributable to parent shareholders (+12.3% YoY).
• Dividend guidance: Plans a further increase to 28 yen annual dividend (14 yen interim, 14 yen final), for an expected 40.6% payout ratio, maintaining the progressive dividend policy targeting 30%+ payout during the mid-term plan.
• Segment forecasts:
  • Domestic Wholesale: Continued gradual decline in paper demand, but expects ongoing recovery in paperboard demand; higher logistics and personnel costs are forecast.
  • Overseas Wholesale: Expects prolonged market weakness and continued upfront costs from recent M&A before synergies materialize, but also forecasts M&A benefits and growth in high value-added product sales.
  • Paper Processing: Forecasts higher raw material, energy, and logistics costs, but also expects higher corrugated sales volume and cost reductions from manufacturing rationalization.
  • Environmental Raw Materials: Expects continued decline in waste paper generation alongside falling paper and paperboard consumption.
• Management acknowledges that external headwinds have increased the difficulty of achieving the OVOL Mid-term Management Plan 2026 final year targets, and full positive profit contribution from the new German/French operations is now expected to slip to late FY2026 or FY2027.

• Prolonged weakness in global paper and paperboard demand: Outside of the U.S., demand has remained negative in Europe, Oceania, and Southeast Asia longer than initially expected, with graphic paper demand seeing double-digit declines in major European markets, pulling down overseas segment profitability significantly.
• Upfront costs from recent large M&A in Germany/France have created a larger-than-expected near-term profit drag, pushing back the timeline for positive contribution to consolidated results.
• Sustained high raw material, energy, and logistics costs, as well as ongoing labor cost inflation, are pressuring profit margins across all segments.
• U.S. additional tariffs (linked to proposed trade policy changes) create major uncertainty: Directly impacted trade volumes total ~40,000 tons annually (~6.3 billion yen in revenue), and broader indirect impacts from global economic slowdown reducing overall paper demand cannot be reliably predicted at this stage.
• Domestic structural headwinds: Long-term gradual decline in domestic paper demand and a shrinking labor force continue to pressure performance.
• These factors combined have meaningfully increased the difficulty of achieving the original final year targets for the OVOL Mid-term Management Plan 2026.

Q: What is the timeline and key priorities for restoring profitability to the newly acquired German and French paper wholesale businesses? / A: Management states that prolonged weak demand in Western European graphic paper markets means restoring profitability will take longer than initially expected. Upfront integration and operating costs have pressured near-term earnings, with full positive consolidated contribution now targeted for late FY2026 or FY2027. The company has paired local management with Tokyo HQ support to prioritize returning the combined business to its pre-bankruptcy revenue scale of 100-120 billion yen as quickly as possible, which is the core near-term priority for the overseas wholesale segment. (1467 characters total)