OUG Holdings Inc. Q3 FY2025 earnings call

External Environment Overview

• The Japanese economy saw a gradual recovery in the third quarter, but real wage improvement stagnated. Consumer behavior continued to be driven by cost-cutting as wage growth failed to keep pace with rising consumer prices.
• In the seafood distribution industry, demand from food service, accommodation, and inbound tourism recovered, while domestic at-home consumption demand stagnated due to high prices.

Business Strategy Initiatives

• Strengthened fresh seafood (wild and farmed) business: Group subsidiary Daiwa Summit approved the launch of a gas replacement packaging business in December 2024, which is expected to reduce food waste and cut labor costs.
• Deepened and expanded the Kanto market through hub strategy: Planned to build a proprietary logistics center covering the western Kanto region and acquired land in Yokohama to relocate the aging Yokohama sales office; already relocated the Kurume sales office to a more accessible logistics center in Tosu in August 2024.

Operational and Financial Base Improvement

• Exited unprofitable businesses: Liquidated two insolvent companies with no expected profit improvement, including Kanku Trading Co., Ltd. (food processing) in December 2024 and Motoi Co., Ltd. (seafood intermediate wholesale) in January 2025.
• Optimized capital structure: Fully sold two holdings of cross-held policy stocks in September 2024 to reduce policy holdings; began implementation of a group cash management system to compress working capital.
• Human resource and internal environment improvement: Held leadership training for director, executive officer, and department head tiers linked to succession planning in February and November 2024; implemented a restricted stock incentive plan for employee stock ownership associations in September 2024; enrolled all group employees in a new group term life insurance in January 2025.

IR and Shareholder Return Improvements

• Adopted a new dividend policy targeting a 1.6% connected shareholder equity dividend ratio (DOE) to maintain a stable dividend level, effective for dividends with a record date of March 31, 2025.
• Improved disclosure and investor outreach: Released updated earnings presentation materials in May 2024, November 2024, and February 2025, and posted content to a dedicated investor relations website for individual investors in May 2024; plans to enhance the shareholder bonus system.

1. Seafood Goods Receiving Business: The segment recorded a 5.1% year-on-year revenue increase in the third quarter, with an overall 8 billion yen (0.8 billion yen converted per rules) revenue increase year-to-date. Operating profit grew 97.3% year-on-year, and ordinary profit increased 96.9% year-on-year, accounting for the largest share of the group's total profit contribution. 2. Off-market Seafood Wholesale Business: The segment recorded a 3.4% year-on-year revenue increase in the third quarter, with an overall 3.6 billion yen (0.36 billion yen converted per rules) revenue increase year-to-date. Operating profit grew 30.7% year-on-year, and ordinary profit increased 25.2% year-on-year, making it the second largest profit contributor. 3. Aquaculture Business: The segment recorded a 14.6% year-on-year revenue increase in the third quarter, with an overall 0.6 billion yen (600 million yen converted per rules) revenue increase year-to-date. However, high feed costs led to an operating loss, with a nearly 0.4 billion yen (400 million yen converted per rules) year-on-year decrease in operating profit. 4. Other segments (food processing, logistics, etc.): No specific absolute financial figures were disclosed in this call.

• Full-year (fiscal year ending March 2025) guidance was revised upward across all core metrics: connected sales raised from 335 billion yen to 340 billion yen, operating profit raised from 3.7 billion yen to 4.4 billion yen, and ordinary profit raised from 3.7 billion yen to 5.0 billion yen.
• The year-end dividend per share guidance was raised from 85 yen to 96 yen, aligned with the new 1.6% DOE target dividend policy.
• For the fourth quarter, management expects sales to come in at approximately 72.6 billion yen (sluggish performance after the peak year-end demand season), with flat performance expected at 0.1 billion yen (100 million yen) operating profit and 0.16 billion yen (160 million yen) ordinary profit.
• The mid-term management plan 2024 (with this fiscal year as the first year) is progressing ahead of the original plan through the third quarter, driven by strong performance from the two core seafood segments.

• Aquaculture business: Persistently high feed prices driven by prolonged yen depreciation keeps the operating environment extremely difficult; the segment recorded an operating loss in the third quarter despite higher sales, with a nearly 0.4 billion yen (400 million yen) year-on-year profit decrease. While yellowtail prices are recovering due to inventory drawdown from high water temperature-related poor growth, cost pressure remains elevated.
• Seafood supply and cost headwinds: Processed seafood segments face raw material shortages and rising purchase prices; currency depreciation keeps the price of imported seafood materials elevated, creating margin pressure for procurement-focused operations.
• Demand and industry headwinds: At-home seafood consumption remains stagnant due to high consumer prices, and some restaurant customer bankruptcies have created negative pressure for the off-market wholesale segment's food service-focused sales unit.

Q: What is the company's new dividend policy and how does it apply to the current fiscal year? / A: The company adopted a new policy targeting a 1.6% connected shareholder equity dividend ratio (DOE) to maintain stable dividend levels. This policy applies starting with the dividend for the fiscal year ending March 2025. Following strong year-to-date performance and the new policy, the company raised the 2025 year-end dividend forecast from 85 yen per share to 96 yen per share, balancing internal reserve needs for future growth and stable shareholder returns.

Q: What key progress has the company made on capital efficiency and capital cost-focused management initiatives? / A: Management has made progress across multiple areas: two unprofitable insolvent subsidiaries were liquidated to exit non-performing businesses, two policy-held cross stocks were fully sold to reduce inefficient holdings, a group-wide cash management system is being rolled out to optimize working capital, and a clear DOE dividend target has been adopted to align returns with shareholder equity. All initiatives are progressing on schedule.

Q: What is the strategic rationale for the Kanto region hub expansion in the off-market wholesale business? / A: The Kanto market is a key growth priority for the group. Building a dedicated logistics center covering western Kanto and relocating the aging Yokohama sales office will improve distribution efficiency, support better temperature-controlled product management, and enable the segment to capture growing demand from mass retail and inbound tourism-driven food service in the region, supporting long-term revenue and profit growth in the large Kanto market.

Q: What is the outlook for the struggling aquaculture segment? / A: Yellowtail prices are in a recovery phase after 2023 production increases led to price declines through mid-2024. Global high water temperatures caused stunted growth that led to more small-size fish shipments, which sped up inventory digestion ahead of the year-end demand season. However, feed prices remain elevated due to yen depreciation, so the difficult operating environment is expected to continue in the near term, even as prices recover gradually.