Briefing on Business Results for the Second Quarter of Year Ending December 31, 2025

Financial Results Briefing for the Second Quarter of the Year Ending December 31, 2025 September 25, 2025

December 31, 2025

(Total: 48 minutes, Presentation: 34 minutes, Q&A: 14 minutes)

Naoki Nakamura President and CEO

Ikuo Shimomura Director and Corporate General Manager

First, allow me to introduce the two company representatives present. To your left is our President and CEO, Naoki Nakamura.

Today's briefing is being held at our Tokyo head office building and is also being streamed live online. The session is scheduled to last for one hour. We will be presenting based on the financial results materials disclosed on our website on September 19.

Following the order of the agenda in the presentation materials, Mr. Nakamura will cover the topics section, Mr. Shimomura will explain the Q2 results for the fiscal year ending December 2025 as well as the full-year forecast, and Mr. Nakamura will then return to present the progress of the medium-term management plan and our sustainability initiatives. After that, we will move on to the Q&A session.

Now, let's begin with the topics section. Mr. Nakamura, please go ahead.

Let me begin with the business environment and key topics. As outlined here, there are two main points regarding the business environment. One, as you are all aware, is the significant lack of momentum in consumer sentiment. This has had a considerable impact on our company, given that we serve a large number of retail clients.

The second point, as stated here, concerns the ongoing consolidation and business alliances within the retail and distribution sectors. In the first half of FY2025, there were cases where, due to specific client circumstances, their market coverage shrank. That is what we are referring to in this context.

We have listed four key topics. Despite the challenging environment, we managed to close the first half period having once again achieved record-high sales. In addition, we conducted a stock split and secondary offering. Third, we acquired shares in Hikari Packs Ishikawa Co., Ltd., making it a subsidiary. Fourth, regrettably, we announced a downward revision to our full-year consolidated earnings forecast, but have maintained our dividend payout. That concludes the topics section.

Net sales came to JPY47.385 billion, representing an increase of approximately 1.6%. However, operating profit was JPY2.863 billion, and ordinary profit was JPY3.038 billion, resulting in a YoY decline. While we achieved revenue growth centered around paper products, factors such as capital investment and labor-related costs, including wage increases, led to a decline in earnings.

As for dividends, we have maintained our original plan, increasing the dividend by JPY6 from the previous fiscal year to JPY58. Please note that we conducted a one-for-three stock split on July 1 of this year.

Next is the table showing performance by product segment.

Our core paper products, which account for just over 70% of total sales, saw steady performance in areas such as paper cartons for food-related uses and shipping packaging materials for e-commerce. However, in other segments, we saw a decline in sales of general-use supplies for department stores and mass retailers.

As I touched upon earlier, increases in capital investment and labor-related costs have been the main contributors to profit decline across segments.

Next slide, please. This graph summarizes the factors behind changes in operating profit for the first half of FY2025.

Our company handles a variety of products, including paper bags, boxes, corrugated cardboard, and film. So, the outcome largely reflects our product mix. Compared to the same period last year, however, the growth in both sales volume and pricing was somewhat limited.

On the other hand, as mentioned earlier, we faced a heavier depreciation burden due to capital investment in manufacturing equipment, as well as labor-related investments. In addition, we incurred costs from utilizing new external warehouses and amortization related to the replacement of our core IT systems. As a result, operating profit declined by approximately JPY662 million YoY.

This slide summarizes the trend in performance by product segment for the first half, from 2020 onward.

As shown, the growth rate for the paper products segment-the dark green area at the bottom of the bar graph-was 4.7%. The composition ratio of this segment has been gradually increasing over the past few years and rose by approximately 2.1 percentage points compared to the previous year.

Moving on to slide nine, this classifies our sales performance by client industry.

Sectors such as apparel, food, convenience stores, e-commerce, and home electronics showed steady growth. In contrast, sales declined in department stores, supermarkets, drugstores, and the life care sector.

Now we move into the product-specific section of the presentation materials. The industry environment is outlined here.

At present, we are working to improve productivity through proactive investment in equipment and to expand our product offerings. At the same time, we are continuing to make active proposals that address rising environmental awareness.

Our ability to offer a combination of products-including paper bags, paper cartons, and corrugated boxes-is a distinctive strength of the Company. We expect the share of paper products in our total sales to continue growing in the future. Therefore, we aim to achieve a growth rate that exceeds the scale of our investments as quickly as possible.

For your reference, the operating margin of the overall paper product business stood at 7.1% for the first half of FY2025.

Next, I would like to explain the section on paper bags within our paper products business.

In addition to further enhancing the production capacity and technological capabilities of our in-house factories, we are also working to strengthen our supply chain by actively leveraging external contractors. We are advancing development and equipment investment in paper-based delivery bags, which contribute to improved transportation and work efficiency. Furthermore, we are focusing on expanding proposals for high value-added products, including those that address environmental concerns, as part of our ongoing efforts to drive sales expansion.

Sales in this category for Q2 grew by 1.4%, reaching JPY14.485 billion. As I mentioned briefly during the previous briefing, the bottom-right section of slide 11 provides a breakdown of sales performance by type of paper bag for your reference.

Speaking generally, as shown on slide 12, paper bags with turned-over top are often used for items such as jewelry, cosmetics, and high-end apparel. On the other hand, for confections, food items, or casual apparel, the more common type is the bag with serrated top.

There is also another category, namely the square bottom paper bags without handles. These are mainly used for home delivery packaging or as small bags that directly contain food. In our classification, these are categorized as square bottom paper bags. Although this is based on results at the halfway point of the fiscal year, we are seeing growth in both the paper bag with turned-over top and the square bottom paper bag without handles.

Now let me move on to the section on paper cartons within our paper products business.

The industry environment is as outlined here. Demand for various food-related packaging continues to be steady. However, we are facing ongoing challenges in securing sufficient workers for manual tasks such as assembling cartons and packing products.

Our company has traditionally focused on the sales of paper containers, especially those for food-related applications, and we have continued to invest in equipment. Given the situation I just described, we are currently concentrating not only on selling packaging but also on offering services that address labor shortages, such as carton assembly and product packing. As a result, we are currently seeing a significant increase in related transactions. Additionally, with regard to environmental compliance, we are steadily preparing to respond to PFAS regulations and fluorine restrictions.

As shown in this graph, the order environment remains strong, similar to what we observed for paper bags. Sales in the paper carton category grew by 4.8% YoY, reaching JPY12.704 billion.

Next is the section on corrugated cardboard products. The industry environment is described in the slide.

We are working to expand our production capacity for delivery materials used in the e-commerce market while also strengthening our development and proposal capabilities in this category. Although this has long been one of our strengths, we are focusing on developing cushioning materials made from corrugated cardboard that use minimal plastic. We are also emphasizing sales of large-format cardboard products by utilizing our in-house manufacturing facilities.

Sales in this category grew by 13.8%, reaching JPY6.745 billion. However, recently, the composition of sales has shifted toward lower-margin products. Additionally, due to intensified competition within the industry, we are seeing a trend of declining gross profit margins. This trend is similar in other categories as well. Going forward, we will continue working to improve profitability by enhancing the value-added features of our products and promoting sales of competitively strong offerings.

Now moving on to the film packaging business. In this segment, demand for plastic carry bags-including shopping bags-has been on a downward trend, driven by continued societal demands for environmental responsibility.

Another key product in this segment is paper-based sanitary products, specifically outer packaging for disposable diapers. Japanese-made products were once highly popular, and we experienced strong demand. However, the rise of local brands in China, coupled with demographic decline, has led to stagnation and weak performance in this area.

In response, we are making aggressive proposals using our proprietary, environmentally friendly, high-definition flexographic printing presses. We are also reinforcing initiatives around thinner film, as well as recycled and biomass materials.

Sales for this segment in Q2 came to JPY6.337 billion, showing a slight decline. That said, as shown in the table at the bottom of the slide, while the total sales volume is still relatively small, sales of flexible packaging and film packaging for food-an area we are focusing on as part of our multi-material sales strategy-are steadily increasing.

Finally, let me explain the "other" business segment.

This segment includes products that do not fall under the previously discussed categories of cartons, bags, cardboard, or film. For example, it includes non-woven and cloth bags, labels, ribbons, and general-use supplies. This section summarizes the performance of these items.

In terms of results, we saw a partial loss of market share due to industry restructuring among some of our clients. Additionally, we experienced some impact from specific cases involving withdrawal from unprofitable transactions. As a result, sales in this segment for Q2 totaled JPY6.116 billion.

Next slide, please. This is the balance sheet, presented as shown. There are no particular comments to add here.

This next slide is a simplified summary of our cash flow.

The key points are as follows: In operating cash flow, depreciation expenses have increased due to investments in machinery and the replacement of our core system. In investment cash flow, we recorded income of JPY884 million, primarily due to the sale of cross-held shares.

Now, I will discuss the forecast for the current fiscal year ending December 2025.

We are forecasting net sales of JPY103 billion and operating profit of JPY7.3 billion, with the rest of the figures as shown on the slide. Please note that due to the stock split we implemented, the figures are not directly comparable to prior years. As for dividends, we plan to maintain the same year-end payout amount as the previous fiscal year.

Going forward, we intend to steadily achieve these results by leveraging our strength in integrated, multi-material sales.

This slide shows the full-year forecast along with the performance trends over the past five years. While we have issued a downward revision this time, we are still aiming to achieve five consecutive years of revenue growth and are continuing efforts to improve operating profit.

This next slide outlines the factors currently identified as influencing the full-year change in operating profit.

First, we aim to secure revenue through product line expansion, the integrated proposals I mentioned earlier, and active development of new customers. At the same time, while we do expect an increase in labor-related investment and amortization costs, our key challenge will be to minimize the extent of profit decline through improvements in productivity and sales margins.

There remains some uncertainty regarding the magnitude and timing of future increases in raw material and logistics costs. However, we intend to offset these impacts by enhancing productivity and promptly passing costs through to selling prices.

That concludes my presentation. Thank you very much.

As mentioned earlier, for the first half of the fiscal year, we recorded JPY47.3 billion in net sales and JPY2.8 billion in operating profit. From here, I would like to go into further detail on those results.

This section highlights the outcomes from two areas where the Company has been focusing its efforts: the food industry and the e-commerce sector.

In the food industry, shown in the upper portion of the slide, we achieved a JPY300 million increase in revenue. In the e-commerce sector, we saw an even greater gain of JPY1 billion, which exceeded our expectations and can be considered a very positive result. The lower part of the slide breaks down the results by product type. The segment with a significant negative impact was the "other" category, as Mr. Shimomura explained earlier. That area pulled down the overall results.

Digging deeper into the food sector, the JPY300 million gain I just mentioned can be broken down as follows-please look at the red middle portion of the slide. The area above it shows a 5.9% increase in paper cartons. This refers to boxes, which saw notable growth. Of that, the subcategory of primary containers-boxes that directly contain food-for which we increased production capacity, showed a 3.4% increase.

However, on the other hand, paper bags used in the food industry, such as for stores located in department store food halls, declined by JPY170 million. So, while the net increase was JPY300 million, we consider the sales performance in paper cartons-a focus area for us-to be progressing in line with plan.

Another product area we want to strengthen is flexible packaging, shown on the right side of the slide-this refers to film. This segment grew 5.7%, but it has not yet matured into a core pillar of the business. I personally see this as an area where further effort is needed.

In the bottom right corner, we have what we refer to as our "solution proposals," which Mr. Shimomura also touched on earlier. This involves situations where we deliver boxes to customers, who then assemble them and fill them with items like confectionery. However, due to labor shortages, this process has become difficult. Our proposal is to provide a solution to that problem, and we are currently working aggressively to promote this offering. Do we have the video ready?

The pre-stacked boxes are automatically supplied in sequence, placed one by one into trays, and then transported along a linear conveyor. A product recognition camera photographs each item as it moves along the conveyor. Through image recognition, it determines the orientation and position of the packaging, after which a robotic arm picks up the product and arranges it accurately before packing.

This initiative has been extremely well received. While we had previously proposed such assembly services, recently the response has been exceptionally strong. Our demonstration at FOOMA JAPAN, shown in the lower left of the slide, also contributed to this momentum. We've received a large number of inquiries, and our existing center is now operating at full capacity.

We also have many partner companies, so we intend to use this center symbolically, as a showcase, and leverage this system to increase orders for paper cartons. That's our goal.

Next, I'd like to discuss the expansion of our business in the e-commerce and online retail markets. In the first half of the year, we recorded a JPY1 billion increase in this area. The majority of that growth came from a 37.3% increase in sales of delivery bags.

At our company, we often use the term "integrated sales" or "multi-material sales." As many of you may have noticed as consumers, when you order something online, it usually arrives in a cardboard box. In the past, people would often say things like, "Why did they ship a single pen in such a big box?" But don't you think that's changed quite a bit recently? Small items are now being packaged in appropriately sized packaging-

and not necessarily in cardboard. Instead, they're often shipped in paper bags or in packaging that falls somewhere in between. I'd like you to understand that we're the ones providing exactly those types of solutions, and this is where we're seeing growth.

One of our customers once told us, "I thought you were just a cardboard company. I didn't know you could do paper bags too." But this isn't limited to just a few major clients-it's a trend we believe can be widely applied across the board. So we expect this growth to continue in the near term.

Now, regarding the segment broadly classified as "Others," as I've mentioned repeatedly, the negative impact we've seen here has largely been due to circumstances on the client side. From that perspective, I believe that this year's performance was affected by several negative factors coinciding during the first half. Some of these are temporary, and since the actual activities at the site level have been progressing according to plan, we do feel a degree of confidence from the results achieved thus far. Of course, this applies to the current fiscal year, but we also have a strong sense that from next fiscal year onward, we can achieve significant renewed growth.

Next, I will provide an update on our human capital strategy.

People have always been a central focus for us, ever since our founding. What we're doing now is modernizing and systematizing that core value to ensure progress. We've continued to devote efforts to human resource development, but among these initiatives, the one we're placing particular emphasis on is our DX training, which has now entered its third term. We are now in a phase where we are working to concretely develop DX talent-people who can help solve issues within each division using digital tools. I personally have high expectations for this program moving into the next fiscal year, and I intend to closely monitor its progress.

The rest of the details are as outlined in the materials.

Now, I will speak about the progress of our financial strategy. The highlighted area in this section is our capital investment, which is progressing according to plan. In the first half of FY2025, we invested JPY650 million, and we expect to reach the full-year target of JPY1.6 billion by combining this with the planned investments in the second half of FY2025.

Among these initiatives, I'd like to touch on what's mentioned in the upper right of the slide-the consolidation of Hikari Packs Ishikawa, a company located in Ishikawa Prefecture. You may not be familiar with their operations, but let me explain: they manufacture what are called paper rigid box-these are rigid, pre-assembled boxes often used for traditional Japanese confectionery packaging. Personally, I was very eager for us to acquire this company. This type of product has enduring demand. It's not a new category by any means, but it continues to have a strong presence. While many traditional Japanese sweets come in simple packaging, the highest-quality ones-though you may not realize it-come in boxes like the ones used for that well-known smartphone. Yes, this company has the machines capable of producing boxes of that caliber. I'm not saying this to boast, but rather to underscore the potential here. Even with standard rigid boxes, we believe there is significant room for market expansion.

In fact, we previously introduced one of these paper rigid box machines at our own company. But they're not easy to operate. People often think you can just buy a machine and hit a button to get it running-but it's not that simple. These machines require a certain finesse. Frankly, I'd like to say a word or two to the packaging machinery industry about that. They don't run smoothly right out of the box. That said, we're already starting to see some synergies from sharing that technical know-how, and I believe there's considerable potential here. I hope you'll look forward to developments in this area. That concludes the explanation for slide 30.

Lastly, I'll touch on the progress of our sustainable management initiatives.

We've structured these into separate materiality KPIs. First, regarding FSC-certified products-we've seen FSC certification become increasingly mainstream. It gained a lot of attention during the Olympics and similar events. We plan to continue putting strong emphasis on growing this part of our business. The current status is shown in the graph.

Second, we are committed to reducing the overall environmental impact of our business activities. We're

tackling this together across both our manufacturing and sales operations, in an integrated manner.

Third is The Pack Forest, which is our in-house foundation initiative. We plan to expand these activities. Although there was a slight decline last year, we are making progress in securing locations, and I believe we can achieve our 2030 goals ahead of schedule.

Fourth, we have committed to increasing the proportion of women in management roles to 15%. Based on that target, we've been actively increasing our recruitment of women. Our employee turnover rate has also decreased significantly. In particular, the number of women who take maternity leave and return to work has increased greatly. For these reasons, I believe this goal is well within reach.