Astena Holdings Co.,Ltd. Q4 FY2025 earnings call

Overall Financial Results

• The 2025 November term achieved all-time record highs: total sales of 62.7 billion yen, operating profit of 3.017 billion yen, and net income of 2.1 billion yen, returning to net profitability after a net loss in the 2024 term driven by impairment losses. Compared to pre-impairment 2023 term, the company still achieved profit growth.
• Sales missed the July 2024 revised guidance with a 98% achievement rate, but net income exceeded guidance by 122% with 270 million yen in special gains from policy-held share sales.

Capital Efficiency and Shareholder Returns

• Continued reduction of policy-held shares, bringing the share of policy-held shares to net assets down to 10.3%, targeting below 10% by the 2027 term. The company will maintain the current pace of reductions even if it would naturally fall below the target from profit growth.
• Dividend policy is based on stability and performance linkage: 2025 term is expected to pay 18 yen per share, a payout ratio of ~33%. 2026 term will maintain the 18 yen per share payout with a 30.9% payout ratio. After 2027, the company will target a 30% payout ratio linked to profit growth.
• The company will also flexibly consider share buybacks as an additional return tool.

Strategic Initiatives

• Under the mid-long term vision Astena 2030, the company focuses on maximizing corporate value and sustainable growth, prioritizing balance between growth investment and shareholder returns while improving capital efficiency. The company recognizes persistent PBR below 1.0x as a key management issue, and targets improvement through combined gains in profitability, capital efficiency, and market communication.
• Since 2019, the company has invested more than 20 billion yen in M&A and capex for core focus areas, including the recent acquisition of Ikeda Bussan to strengthen the cosmetics raw material platform, and continues to review its portfolio to target higher profitability.
• ESG Initiatives:
  • Environment: Improved CDP climate change score to B- from the 2024 level.
  • Social: Implemented a special incentive scheme for the employee stock ownership plan, granting ~90 million yen in company stock to employees, bringing overall employee participation to ~60% of the group, which is expected to improve long-term share liquidity and promote employee engagement in corporate management.
  • Governance: Created a new unified code of conduct for the entire group, aligned with the company's purpose of "Continuously creating tomorrow's standard", to unify culture as the group grows via M&A.
• Regional Co-creation in Noto: Continued existing agricultural operations (rice, rafuma) and added lemon cultivation starting 2026, maintaining focus on linking regional engagement with business operations.

1. Fine Chemical Business: Operating profit reached 909 million yen, an increase of 314.5% year-over-year, driven by gross margin improvements across all divisions. Q4 operating profit declined due to lower sales, resulting in a net loss for the quarter after allocated corporate management fees. Revenue contribution data was not explicitly provided in the transcript.
2. HBC & Food Business: Achieved large revenue growth driven by strong sales of imported cosmetics, particularly Korean cosmetics brand Torriden in the cosmetics manufacturing and sales division. Profit growth was limited by one-off M&A-related costs from the acquisition of Ikeda Bussan, which was consolidated starting in Q4 2025 November term, so its full-year contribution was limited. Combining Ikeda Bussan with the company's existing cosmetics raw material division moved the combined entity to top 3 market share from 6-8th place previously.
3. Pharmaceutical Business: The ethical pharmaceuticals division saw decreased profit year-over-year: while selection of long-listed brand drugs for selective therapy increased opportunities for generic drug adoption and drove strong sales, drug price revisions left some of the company's generics priced equal or higher than originator drugs, leading to weak sales for those products. The aesthetic medical division achieved profit growth, driven by strong sales of NAVISION DR and better-than-planned sales of the newly launched illsera series.
4. Chemicals Business: The surface treatment chemicals division achieved profit growth from promotion of high value-added products and new customer acquisition for electronic component chemicals in overseas markets, partially offset by a large decline in surface treatment equipment sales after a period of peak demand, leading to a reported decline in overall segment profit after increased allocated management fees. Core business of the segment achieved steady profit growth. The recent strong performance in H2 of the 2025 term was driven by growing sales to AI data centers.
5. Social Impact Business: The healthcare division achieved revenue growth from expanded distribution channels but remained operating at a loss due to continued upfront investment, though its product NAIA received a Good Design Award and gained increased brand recognition. The regional revitalization service Furusato NOW achieved profitability as more partner facilities joined the platform.

• 2026 November term: Targets continued revenue growth and another all-time record high profit, with operating profit expected to reach 3.4 billion yen, a 12.7% increase year-over-year, driven by profit growth in Fine Chemicals and the removal of one-off costs from the prior year.
• 2026 term segment outlooks:
  • Fine Chemical: Strengthen outreach to target clients to win new contracts, continue growing market share for the strong pharmaceutical raw material platform.
  • HBC & Food: Work to realize synergies with Ikeda Bussan, though contribution will be limited by PMI costs and goodwill amortization in the near term.
  • Pharmaceutical: Expect continued growth of the generic drug market from expanded selective therapy, expand production via outsourcing to meet growing demand, and develop new categories for the growing aesthetic medical sector.
  • Chemicals: Strengthen supply chain infrastructure to capture growing demand, particularly from AI-related sectors.
• Updated rolling 3-year medium-term management plan: Targets 76.0 billion yen in sales, 4.0 billion yen in operating profit, and 9.0% ROE by the 2028 term. The prior plan targeted 3.5 billion yen operating profit for 2027, so the company recognizes it is currently ahead of the original plan, and will accelerate M&A synergy realization to solidify target achievement.
• The company is targeting continued improvement in ROE, with a medium-long term target of ~13%.

• Drug price policy uncertainty: Upcoming drug price revisions are not yet finalized, and ongoing regulatory discussions around OTC drug insurance coverage could impact pharmaceutical business performance, leading the company to take a conservative stance on 2026 pharmaceutical profit forecasts.
• M&A execution risk: Past large M&A of Speller Pharma did not meet initial plans, requiring a management restructuring and hands-on intervention to get profitability back on track, with capital recovery delayed compared to original projections.
• One-off operational risk: The Q4 2025 Fine Chemical loss was driven by temporary factors including a raw-material related quality issue at the Iwaki Pharmaceutical Sakura plant that reduced production, though this issue is expected to be fully recovered and the company is pursuing damages from the supplier.
• Interest rate risk: Higher interest rates have increased interest payment risk following the growth in interest-bearing debt, though current Net Debt/EBITDA of ~2.3x remains at a manageable level.

Q: Can you provide an update on the performance of past M&A investments, specifically the 6.3 billion yen acquisition of Speller Pharma and the 5-year-old Iwaki Pharmaceutical Sakura plant investment, compared to original expectations? What is the current scale of Ikeda Bussan's sales and profit, and will you continue reducing policy-held shares even if the ratio naturally falls below 10% from profit growth?

A: (Setoguchi) Speller Pharma's capital recovery is not on track with original expectations, but we restructured the management team 2 years ago, which has driven the current profit improvement trend. This trend is solid, so we are now in a phase of progressing recovery even if the timing is delayed. We do not disclose Ikeda Bussan's current numbers: it is a trading business with no expectation of rapid growth, but the combined entity with our existing business has moved us to 3rd place in industry market share, which creates large opportunity for growth. We will continue steadily reducing policy-held shares through ongoing dialogue with holding companies, regardless of the ratio naturally falling below 10%.

A: (Iwaki) Of the three M&A in Fine Chemical (Speller Pharma, Iwaki Sakura Plant, JITSUBO), Iwaki Sakura recovered all investment costs in ~2.5 years, and JITSUBO's cost recovery is also progressing ahead of plan. Speller Pharma deviated from original plan after 2022, I took hands-on management starting October 2022, and it has now recovered profitability and growth to above original plan levels.

Q: Is the understanding that Ikeda Bussan has ~6 billion yen in sales and ~100 million yen in operating profit, with stable minor profit, correct?

A: That is broadly correct. PMI costs are currently impacting profit, but we expect operational efficiency to improve, and synergy initiatives are already underway, so we expect additional upside from synergies going forward.

Q: What specific initiatives are you planning to strengthen dialogue with investors, and will you focus on institutional or individual investors? ROE has doubled, but PBR remains at ~0.7x and EBITDA multiple is ~6x, leaving the stock undervalued by the market.

A: Specific initiatives are still under internal discussion. Now that ROE has improved and Fine Chemical has recovered, the key priority is to communicate that we are a company that generates solid profits and strong returns. I have been progressing IR initiatives steadily since I became CEO 3 years ago, and we will continue to prioritize sincere, ongoing dialogue. While we do not exclude individual investors, we will focus on gaining attention from institutional investors and will proactively reach out for investor meetings going forward. There are no quick fixes for the current share price level, so consistent, continued engagement is the most important step.

Q: Why did Fine Chemical post a Q4 loss despite full-year profit growth, and is this loss temporary?

A: (Iwaki) Segment operating profit is stated after allocation of corporate management fees; the underlying business was still profitable in Q4. The loss resulted from multiple temporary factors: a raw material-related quality issue at Iwaki Sakura Plant reduced production after three quarters of increasing output, and Speller Pharma had lower than expected sales from prior period orders. For Speller Pharma, sales reflect orders placed 6-9 months prior, so weak orders from April-June 2025 caused the Q4 sales decline, but current order backlog has recovered back to target levels. The quality issue at Sakura occurred at the end of the fiscal year, so it could not be recovered within the fiscal period, but it is fully temporary and we are pursuing damages from the raw material supplier. Q1 of the new term will not see continued red ink, as orders are currently stable.

Q: Why were H1 2025 Chemical profits weaker than H2, what drove the H2 improvement, and is this strength sustainable? The guidance forecasts flattish performance for most segments outside Fine Chemical, is this a conservative forecast, will AI data center demand drive continued growth for Chemicals?

A: (Fujiwara) The H2 2025 improvement was driven by growing sales to AI data centers alongside AI adoption growth, and we expect this trend to continue. We expect a gradual uptrend from the H2 2025 average level going forward.

A: (Setoguchi) The flattish forecast arrows do not mean negative performance, just slower growth than Fine Chemical. For HBC & Food, Ikeda Bussan will contribute steady profit after amortization, and upside is possible if synergies are realized early. For Pharmaceutical, aesthetic medical is growing even as the ethical division faces regulatory headwinds. For Chemicals, the outlook is also for gradual growth. Social Impact is targeting to eliminate its deficit over time. Overall, all segments outside Social Impact are expected to see gradual growth, and we aim to avoid overly conservative forecasting.

Q: Why did you create a new code of conduct at this point, when you already have a stated corporate purpose?

A: (Setoguchi) The trigger was an anonymous suggestion in our digital suggestion box noting that conflicting priorities within SDGs can create confusion on what priorities to follow. I decided to codify our long-standing company precepts of Contribution, Sincerity, and Trust into a clear code of conduct, to give employees a clear framework for action aligned with our 100+ year corporate culture. It is not intended to radically change employee behavior, but to remind everyone to act aligned with our traditional values to deliver on our purpose of creating everyday standards for customers. We first shared it with employees at the 2025 kickoff meeting in December.

A: (Kawano) As we reached our 111th anniversary and many new companies have joined the group via M&A, each acquired company already has its own internal guidelines. We needed a shared common code for all group employees, while respecting existing individual policies, to align all members around shared expectations for stakeholders. There are no contradictions with existing policies, and the direction is unchanged, it just provides a unified common framework for the entire expanded group.

Q: What is the progress on injectable CDMO, and when will it contribute to profit?

A: (Iwaki) We have started receiving orders, and are currently progressing preparations for manufacturing. The lead time for injectable CDMO is around 1.5 years from order to start of manufacturing, with another 1 year for audits before winning orders, so the process takes time. We have started winning orders and expect continued progress. It will be close to whether revenue can be recognized in the current term, that is the current timeline.

Q: What is your approach to financial discipline for M&A and capex amid rising interest rates? Current interest-bearing debt is 22.4 billion yen, and Net Debt/EBITDA is ~2.3x, what is your upper limit for leverage and how do you balance debt repayment with growth investment?

A: (Setoguchi) We currently see no issues with our current leverage level, which is why we have borrowed to fund growth. Going forward, we will make case-by-case decisions based on the size of each transaction. We do not have a fixed internal target ratio, we discuss all potential investments and review all metrics for each opportunity before making a decision, that is our current approach.

Q: Why do you forecast flat operating profit for Pharmaceutical in 2026, after a decline in H2 2025? Will selection therapy expansion drive sales volume growth enough to recover the decline?

A: (Naruse) The 2025 H2 decline was driven by drug price revision in Q2-Q3 2025, plus unexpected increases in SG&A including R&D in Q3-Q4, so underlying core performance is stronger than the reported result. For 2026, expanded selective therapy will lower patient cost-sharing and increase physician incentive to prescribe generics, expanding the number of eligible products will increase sales volume, so we are expanding production via both outsourcing and internal capacity improvements to meet this growing demand. We expect volume growth to offset any ongoing headwinds, and we will control unexpected SG&A increases to keep profit flat. This is a conservative forecast because next year's drug price revision is not yet finalized, and regulatory changes to OTC insurance coverage could also impact the market, and these uncertainties are not yet fully clear, so we maintain a conservative outlook.

Q: Is there room for dividend increases in coming years?

A: (Setoguchi) We have not yet determined a specific upper limit for dividend increases. We use DOE as a minimum benchmark, but we still need further discussion to confirm what level is appropriate, including how to balance the 30% target payout ratio with our current stable dividend policy, so we cannot give a specific number at this point.

Q: Can you share more detail on your growth drivers and how you build brand value to drive growth?

A: (Setoguchi) We are applying the lessons we have learned from marketing and promoting the Korean cosmetics brand Torriden to build our own brands like Pureal and NAIA. We also acquired the legacy brand Vicks Vaporub, and we can leverage the existing brand recognition and global expertise of established legacy brands to drive growth, which is a key growth driver. CDMO is also a core sustained growth driver, as we have discussed in prior sections.

Q: Will you increase focus on platform strategy and social impact strategy as M&A targets, compared to the prior focus on CDMO in Fine Chemical?

A: We will discuss portfolio strategy with the board, and all investment including M&A will be decided based on those discussions. We do not currently have any specific plans for social impact strategy M&A, and we do not have a bias toward low amortization cost businesses specifically, we will continue discussions on the right portfolio mix going forward.

Q: The market does not seem to be pricing in the company's growth and strategic progress, what is your view on the weak share price reaction?

A: (Setoguchi) Thank you for the feedback, we will discuss this issue going forward.