Shifting to balance sheet–focused management and steadily achieving an 8% ROE by the end of FY2027

New Medium-term Management Plan: Achieve 8% ROE by the end of FY2027

In the new Medium-term Management Plan announced in May 2025, covering the period up to FY2027, we fundamentally reviewed our previous PL-focused management approach and placed emphasis on the improvement of capital efficiency. Therefore, we removed sales from the KPIs and set the most important KPI as achieving an 8% ROE by the end of FY2027. We aim to reach 10% ROE in the long term.

To raise the ROE from 4.3% as of the end of March 2025 to a level of 8%, we will simultaneously pursue profit growth and management of shareholders’ equity.

The operating profit target for FY2027 is ¥120.0 billion, and the target for profit attributable to owners of parent is ¥80.0 billion. To achieve profit growth, we will focus on price pass-through, restructuring of low profitability businesses, a shift to high-value-added products and reinforcement of the Group sales structure, and stable operations and cost reduction. To ensure steady execution, we introduced the CxO system in April 2025. This organizational enhancement builds upon our existing vertical structure to establish a cross-functional framework. Personally, I have already gained increased access to new information previously unavailable to me, and I can feel the tangible impact of enhanced crossfunctional collaboration contributing to our revenue growth.

On the other hand, the key factor regarding equity, the denominator of ROE, is shareholder returns, which include ¥120.0 billion in treasury stock buybacks by FY2027 and a 50% dividend payout ratio. We will steadily achieve an 8% ROE by controlling shareholders’ equity even when operating profit fluctuates. Furthermore, the Group comprises more than 300 companies, with more than 200 included in the consolidated financial statements. We will also conduct more thorough exhaustive reviews of the balance sheets of our Group companies, accelerate the sale of non-core assets, implement asset slimming, vigorously reduce inventory, and work to reduce working capital. On the other hand, while considering interest rate risk and financial soundness, we will proactively utilize debt while applying leverage to reduce capital costs.

For the net D/E ratio, a key indicator of financial soundness, we will raise the target to within 1.0 by applying leverage, up from 0.7 in the previous Medium-term Management Plan. While we actively utilize debt, we now live in a world of meaningful interest rates. Therefore, while maintaining our current credit ratings, we intend to proceed flexibly by carefully balancing cash inflows from asset sales rather than simply increasing debt, and selecting the most advantageous financing methods and terms at the time.

I am keenly aware that the Company’s PBR is currently below 1x. First, I believe firmly achieving an ROE of 8% will serve as the starting point for PBR recovery.

Approach to shareholder returns

Regarding the dividend payout ratio as part of shareholder returns, while maintaining stable dividends as the foundation, we have reviewed our capital structure and considered the appropriate level of shareholders’ equity. As a result, we have determined that a payout ratio of 50% is appropriate at this juncture. Future profit growth and the reduction in the number of shares outstanding through the purchase of ¥120.0 billion in treasury stocks by FY2027 will enable us to increase the dividend per share. Regarding shareholder returns, I believe stable returns are pivotal and do not intend to make changes lightly in response to temporary declines in performance.

Cash allocation

In terms of financial strategy, it is important to continuously secure funding for growth investments and R&D while reviewing the capital structure and distributing cash in a manner that enhances shareholder returns.

Cash flows from operating activities are projected to reach approximately ¥500.0 billion over the three-year period of the new Medium-term Management Plan. Other cash inflows anticipated include the sale of strategic shareholdings for ¥45.0 billion, the sale of shares contributed to retirement benefit trust for ¥21.0 billion, and the sale of lease properties and borrowing.

Using these funds as a source, we plan to allocate ¥50.0 billion to R&D investment and ¥270.0 billion to growth investment over three years. For shareholder returns, we plan to allocate ¥120.0 billion to share buybacks to strengthen our position while maintaining the aforementioned 50% dividend payout ratio. In addition, we plan to allocate ¥220.0 billion to upkeep capex by carefully selecting targets.

Regarding R&D investment, we recognize that greater investment than before is necessary in the areas of sustainable packaging and wood biomass as we work toward transformation of the business portfolio for the future. While the previous three-year Medium-term Management Plan allocated approximately ¥33.0 billion for R&D investment, the new plan targets ¥50.0 billion.
Should this prove to be insufficient, we will firmly advance investments while keeping in mind the potential for further increasing R&D investment tailored to future business. Furthermore, regarding growth investments, we will invest intensively in developing new businesses, including through M&A, with a strong conviction that halting investment would put our future growth at risk. This ¥270.0 billion growth investment also includes funding to acquire forests and to gradually convert coal-fired boilers to LNG fuel starting in FY2027, in line with the previously announced Environmental Action Program.

Financial strategy for business portfolio transformation

Regarding our business portfolio, we monitor it based on clear internal standards incorporating metrics such as EBITDA, ROIC, and operating profit margin. For businesses that fall below our low profitability criteria, we monitor the progress of reconstruction plan formulation and execution before determining the direction of the business̶that is, whether to continue, withdraw, sell, or close it. We will transform into a lean and efficient management structure by divesting from low-profitability businesses and allocating management resources toward growth investments.

We make decisions based on strict hurdle rates regarding investment and exit criteria. The generation of ROIC exceeding WACC is a minimum standard. Regarding the cost of shareholders’ equity, we announced it to be approximately 6%–7% in December 2023 (in a presentation called “Initiatives to Enhance Corporate Value”). However, while we calculate WACC and segment ROIC internally, we do not disclose these figures externally.

I, as CFO, will provide input on all investment decisions. We will thoroughly identify investment risks, carefully distinguish between areas where we take risks and those where we avoid them, rigorously assess whether investments are commensurate with their risks, and pursue a balance between “offensive governance” and “defensive governance.”

In making decisions on overseas investments, which we have positioned as future growth drivers, we basically make the same decisions as we do in Japan, based on whether we can earn a return. In our key focus markets of India and Southeast Asia, we will also consider reviewing our current operations, taking into account country risk, to determine whether the existing hurdle rate is appropriate compared to its contribution to ROE going forward.

Message to stakeholders