Oji : May 30, 2025 Medium-Term Management Plan 2027 with Script

Thank you for the introduction. I am Kazuhiko Kamada.

Thank you very much for consistently supporting the Oji Group. I would like to take this opportunity to thank you all again.

Today, I will explain our Medium-Term Management Plan 2027. I will do it as quickly as possible because the organizers want to have sufficient time for questions. Some of this information may not be easy to hear, so I appreciate your understanding.

This is the contents of this session. We will review the previous medium-term management plan, and I will explain the new plan by fleshing out the summary that we announced on April

21. Based on this, I will also explain the Group's Long-term Vision.

Review of FY2022-2024

Medium-Term Management Plan

First, the review of the FY2022-2024 Medium-Term Management Plan. In the middle of the page are our financial targets for FY2024. Compared to the targets, the final results for FY2024, the fiscal year that has just ended, were disastrous. Consolidated operating profit was more than 80 billion yen short of the target. We achieved two of the four targets, the overseas sales ratio and net D/E ratio targets. ROE was also below the target.

Based on our analysis, the major factors for the differences are described here. The cost increase was extremely significant. It had a negative impact of more than 100 billion yen. Other factors included the weakening of the pulp market and the Southeast Asian market. Despite our sales and cost-reduction efforts, the results fell far short of the targets.

This table is more qualitative description.

Major factors for the failure to achieve the targets are listed on the left-hand side. Just after we announced the previous medium-term management plan, external factors emerged, including the Russian invasion of Ukraine and the slowdown of the Chinese economy. Another misfortune was the cyclone that affected Pan Pac, our main mill in New Zealand.

On the other hand, the changes in the business environment described in the middle can occur in any era. I therefore think that we must not attribute our failure to achieve targets to the significant changes in the business environment. We are painfully aware that we must be sufficiently resilient to changes in the business environment and respond to them appropriately, regardless of how significant the changes may be. We will change our structure in this way.

We valued this point greatly when formulating this medium-term management plan. Previously, we focused on the profit and loss statement in pursuit of profit. We have decided to be more aware of the balance sheet.

The measures we formulated in light of these matters are on the right. First, we will uncompromisingly restructure our capital composition. We will also streamline our assets, including idle assets. In addition, we must further enhance the profitability of existing businesses. However, it is not possible to avoid the decreasing demand for printing paper and newsprint, which are existing businesses. We believe that, in these circumstances, we must greatly transform our business portfolio. Based on this, we will strive to improve ROE.

Medium-Term Management Plan - Overview 2027

We have formulated Medium-Term Management Plan 2027 based on the concepts I have explained. First, the slogan for the Long-Term Vision up to 2035 is "Dedicated to Sustainability."

Regarding the slogan's meaning, please look at the basic policy at the bottom. First, we will improve capital efficiency. We will also transform our portfolio. This is not all. To survive as a company that is loved we need to promote sustainability. We must not forget this.

This is further broken down into phases, which are shown on page 8. I will start from the left. Again, in our management, we will focus on improving capital efficiency. We will first implement the major initiatives in this part, particularly in the next three years. After doing this to build a sound structure, we will rapidly push forward with new businesses. This is how we will proceed.

The next phase is the promotion phase described in the middle. After solidifying our foundation, we will transform our portfolio with the goal of expanding sustainable packaging. As we have been explaining, we will increase profitability in the promising markets of India and Southeast Asia. In addition, we will drive the transformation into the forest biomass business in earnest.

We will rapidly expand sustainable businesses. We believe this upward spiral will continue. To explain the forest biomass business, the names of various products are shown here. It is defined at the top where the asterisk is. It is a business of creating products with high added value using forest-derived biomass, including not only wood but also microbes in the soil.

Medium-Term Management Plan - Targets 2027

Now I will explain our numerical targets, which I believe are your primary concern. We have not changed any figures from the summary announced on April 21. We will achieve an ROE of 8% by FY2027, and our longer-term target is 10%.

Our operating profit target is 120.0 billion yen, and our net profit target is 80.0 billion yen. Our target payout ratio is 50%. We aim to buy back 120.0 billion yen of treasury stock. The target net D/E ratio was 0.7 in the previous medium-term management plan. In the current plan, the target is 1.0. Accordingly, we plan to use some leverage.

Assumptions for the medium-term management plan are listed at the bottom. Starting from the left, we assume an exchange rate of 145 yen per US dollar. The exchange rate today happens to be 144 yen per US dollar, almost as planned. The prices of major raw materials and fuels, including woodchips and recovered paper, are based on the current prices. We assume the price of coal to be 100 US dollars and the price of heavy oil to be 67 US dollars. Only the pulp prices are not the current prices. We use the average prices for the past ten years. The pulp prices are extremely volatile, and revenue can fluctuate greatly depending on the which price is used. Therefore, we decided to use the average price over a ten-year period.

Once again, to increase ROE to 8%, we need to increase operating profit and streamline our equity.

This page shows the Group's cash allocation for the coming three years. It was announced in a little different form in the summary that we disclosed in April. I think you have been worried that we might not be able to afford a payout ratio of 50%. Regarding expenditures, we will invest fully in growth and R&D to create sources of revenue in the next era. On top of this, we will steadily implement upkeep investments because existing equipment breaking down could be fatal to a manufacturer like us. Based on this, we will provide shareholder returns through measures such as buying back treasury stock and paying dividends.

They add up to the total cash outflows. Whether there will be sufficient cash inflows for the outflows is shown here. In addition to operating cash flows, we will streamline our assets by taking measures including the sale of cross-shareholdings. We will use debt only to make up for the shortfall. We will not borrow without limit. We will stay within a range that ensures the D/E ratio will be 1.0 or lower. This is enough to balance the right and the left, so there are no problems at all in terms of financing.

Medium -Term

Management Plan

2027

- Fi izancial Strategy

I would like to emphasize that the Group aims to achieve both "Securing Continuous Funds for Growth Investment and R&D" and "Strengthening Shareholder Returns." We will implement growth investments and provide shareholder returns. We are built on this balance.

Regarding the reduction of shareholdings, we already reduced our shareholdings somewhat in FY2024, which makes it confusing, so we have summarized this way. We had announced our previous target of 70.0 billion yen. This time, we have increased it to 120.0 billion yen. Our shareholdings to be reduced can be broken down into strategic shareholdings and shares contributed to the retirement benefit trust.

Regarding the dividend payout ratio, let me reiterate that we will raise it to 50%. We will raise it from the previous 30%. This will be a significant increase in the dividend payout ratio as you see.

Medium-Term

Management Plan 2027 - Business Strategy

The next page shows the same figures by segment. We aim to increase operating profit from

75.0 billion yen in FY2025 to 120.0 billion yen in FY2027. How will we increase it in each segment? That is shown here.

As we explained in the financial results presentation on May 13 and as stated below the table, Walki and IPI were previously included in Others and were transferred to the Household and Industrial Materials segment in the current fiscal year. In addition, the head office cost, which was previously distributed across the segments, is put into Others starting in the current fiscal year.

We included this page in the summary that we announced on April 21. I will explain the specific details of the 1, 2, 3, and 4 you can see here on the next page.

This is a summary of the factors causing the difference between 75.0 billion yen in FY2025 and 120.0 billion yen in FY2027. Starting from the left-the market prices of pulp. I said earlier that the sales prices assumed are the average over the past ten years. Using that average to calculate operating profit will result in a 13.0 billion yen increase from FY2025 in FY2027. The next factor is increasing prices. We have said that we will do this. It is certain. We will begin to increase prices during FY2025. Accordingly, the full effect of these measures will start to be produced in FY2026. The effect will be 10.0 billion yen. Further, if costs increase in and after 2026 due to inflation or similar causes, for example, we will increase prices to directly reflect this. The price increase on this page is the one that we are looking at now.

Next, we will restructure low-profitability businesses. As we have already announced, we will withdraw from the Oji Fibre Solutions containerboard business. As a result, we will post an increase in profit attributed to business restructuring.

The next factor is the sustainable packaging business, a new business that I mentioned earlier today. This will flourish rapidly, causing a 10.0 billion yen increase in profit.

The next factor is stable operation and cost reduction. We have had various troubles, and we will reduce these troubles. This will have a +7.0 billion yen effect.

On the other hand, the decline in demand for newsprint and printing and communication paper, which is included in "Others," is not something that we can stop on our own. Therefore, our assumptions include this decline. In addition, as I will mention later, we have also factored in an increase in costs, including the costs for transitioning from coal to LNG fuel as an environmental measure. Still, we expect to achieve an operating profit of 120.0 billion yen.

Regarding the market prices of pulp, the average price over ten years is 610 US dollars per ton for LBKP (hardwood) and 710 US dollars per ton for NBKP (softwood). The present price of LBKP is 560 US dollars per ton, and we assume the price will be higher than this. However, the price of NBKP is 760 to 770 US dollars per ton. Therefore we have an opposite, conservative view on this.

In addition to LBKP and NBKP, there are other types of pulp, including BCTMP, NUKP and DP. Looking at the averages for NBKP, LBKP, and the other types of pulp, I believe that we have not overestimated prices very much.

The inflation of various prices and expenses are shown here. Since 2021, inflation has been progressing globally, and wages in Japan have also continued to rise since last year. Among these, the increase in freight rates is remarkable. In part, this is beyond what we can solve on our own. Therefore, we will steadily increase prices to reflect the increase in freight rates.

In addition, as I have said, we are setting clear criteria internally to withdraw from low-profitability businesses. Previously we only focused on operating profit, but we will ensure that we examine the effects of investments based on ROIC as well as EBITA and other indicators of cash flows when we are making decisions. We will be rigid about this and withdraw from poorly performing businesses by selling or closing them.

In this context, the most significant decision that we have made recently is regarding the Oji Fibre Solutions containerboard business, which we decided to close.

We will continue to expand the sustainable packaging business. The Oji Group aims to have its products generate profits, and further, contribute to the establishment of a sustainable and bright future, as we already explained when we acquired Walki and IPI.

Regarding our market strategy, among the regions we operate within, Southeast Asia and India in particular are growing very rapidly at present and we have been expanding our businesses there. On the other hand, China and the United States of course impact Southeast Asia and India. Therefore, if the negative impact becomes large and results in structural changes, we will not press ahead with these businesses aggressively. Instead, we will stop and downsize the business depending on the circumstances while steadily achieving growth wherever possible. This is our plan.

In our existing paper and paperboard business, we have been developing a sufficient sales system. In developing new businesses, such as the sustainable packaging business and the forest biomass business, the Oji Group will be in completely unfamiliar markets. We therefore need to build a structure for steadily identifying customer needs in these markets and changing our sales activities to reflect these needs. In response, we have established two new divisions, the Operation Division and the Marketing & Strategy Division shown here. We will repeatedly produce output while these divisions collect and receive information about market needs. We are planning to build this organizational structure.

Long-term Vision -Overview

• Research and Development

• Sustainability Strategy

This is the content of the medium-term management plan. Under Long-term Vision 2035, we will further accelerate the transformation of our portfolio, the improvement of our capital efficiency, and our promotion of sustainability, which are actions we are implementing under the medium-term management plan that I have explained, with the goal of increasing our dedication to sustainability.

We expect that this will result in our current portfolio shown on the left changing significantly, resulting in the ratios shown on the right side by FY2035. While the newsprint and printing paper business will be smaller in scale, we will switch to the forest biomass business using existing equipment we have been using to make paper. The growth of this business is expected to lead to growth of the company as a whole.

Seen from a different angle, it looks like this. With forests at our base, we will expand the sustainable packaging and forest biomass businesses to build a circular economy, maximize our corporate value as a nature-positive company, and achieve carbon neutrality, aiming to be dedicated to sustainability.