Summary of the Q&A for Results Briefing of the 3rd Quarter of Fiscal Year 2025 held on February 6, 2025

We are taking a slightly conservative view. We expect a decrease in profit mainly due to the impact of the assessment of the fish in stock in our South American aquaculture business. Still, we do not expect any significant change in business performance.

In the aquaculture business, we expect the expansion trend to continue, including Pesquera Yadran S.A. (hereafter, "PY") in South America, which we acquired, as well as domestic salmon and Japanese amberjack. Meanwhile, in the Food Product Business, new plants in both Europe and North America will begin full-scale operations from next fiscal year, resulting in start-up costs and depreciation expenses. In addition, depreciation burdens from the new domestic plant are also expected, making it difficult to maintain the current fiscal year's profit level. In the Fine Chemicals Business, we expect sales expansion both in and outside Japan.

The aquaculture business has not yet matured, and there may still be years in which volatility arises. However, we believe that by accumulating technology and know-how and further differentiating ourselves from competitors, our aquaculture business will achieve stable, high profitability in the future. As a result, we believe we can grow into a balanced structure between the Marine Products Business and the Food Product Business.

While we aim to achieve our targets ahead of schedule, expectations for PY in South America are high, and we are also immediately after the acquisition. Therefore, we would like to assess the situation in the future before forming a more definitive view.

While we are highly motivated, we would like to refrain from providing a definitive answer at this point. We believe contributions from the newly acquired PY in South America will improve the overall profit margin of the Marine Products Business and create a more balanced business structure with the Food Product Business.

I believe it is necessary to engage in deeper discussions regarding the optimal structure of our business portfolio. As we are currently involved in a wide range of businesses, we should further deepen discussions on how to reorganize and refine existing businesses with a view toward the future.

The market environment is currently in a balanced supply-demand situation, and demand is expected to remain strong for many species next fiscal year as well. Therefore, at this stage, we do not assume any significant price decline.

Marine products market conditions can show temporary and short-term fluctuations depending on timing. However, over the long term, market prices for both trout salmon and Atlantic salmon have been rising gradually. Therefore, in our South American aquaculture business, spot impacts, such as assessments of the fish in stock, may occur going forward as well, but we believe the long-term trend of rising prices will remain unchanged.

We believe the improvement in the aquaculture business this fiscal year was driven roughly half by internal factors and half by external factors. Internal factors include lower mortality rates due to improved seed quality and operational improvements at production sites, such as farming methods and feeding practices, in response to rising seawater temperatures. External factors include benefits from rising market prices. However, even in an environment of higher market prices, a key reason we were able to turn this into profit was leveraging our competitive advantages, such as our full-life-cycle aquaculture of Japanese amberjack. In Japan, we aim to maintain the current profit level while expanding scale to increase profits. Overseas, there remains significant room for growth, and we believe profitability can be further enhanced through initiatives such as collaboration with SALMONES ANTARTICA S.A. and PY.

The area we most want to improve is the bluefin tuna aquaculture business. Previously, bluefin tuna aquaculture required more than 3 years to grow, but we are now increasing the proportion of short-cycle farming of bluefin tuna. In addition, bluefin tuna mortality in the first half of this fiscal year contributed to lower profits. Therefore, next fiscal year, we aim to improve profitability by reducing the proportion of conventional long-cycle bluefin tuna farming, which carries a higher mortality risk due to its more extended farming period, and shifting toward short-cycle farming with higher turnover. We will also expand domestic salmon farming production from approximately 3,000 MT to 10,000 MT, while enhancing aquaculture technology and efficiency through measures such as the introduction of feeding equipment. Furthermore, we plan to improve profitability by increasing survival rates and seed quality.

While feed prices have recently been trending upward, we are working to secure favorable procurement through measures such as long-term contracts.

As of Q3, we are progressing in a way that achieves a significant year-on-year improvement in profitability. Contributing factors include optimizing our sales mix through collaboration with fishing vessels, improving fillet yield ratios, and steady cost-reduction efforts at production and processing sites. Next fiscal year, we will continue these initiatives and aim to achieve profitability by further reducing costs and improving operational efficiency.

Through the first half, procurement costs rose while we were unable to fully pass them through to sales prices, resulting in continued margin compression. From Q3 onward, we gradually passed higher costs on to sales prices, enabling us to recover margins. We expect this trend to continue from Q4 onward, and we aim to achieve further improvement next fiscal year compared with this fiscal year.

It will be realized progressively in the domestic trading business as sales proceed.

In the domestic Food Product Business, we have been able to secure sales through continued price revisions, but declining volumes have made it more challenging to generate profits. In addition, rising rice prices are impacting personal consumption, making overall sales of processed foods challenging. In the overseas Food Product Business, demand for foodservice in North America remains weak, while demand for household consumption is growing. Therefore, we will expand sales channels while maintaining an appropriate balance between foodservice and household demand.

By implementing price revisions from next March to April, we aim to cover increases in raw material costs as well as rising labor and logistics costs.

The primary reason for the upward revision was that the impact of Trump tariffs was smaller than expected. In the overseas household Food Product Business, existing plants are receiving production orders to the extent that they can no longer accept additional orders. Therefore, we intend to respond to demand by building new plants and expanding capacity. Next fiscal year, our policy is to absorb depreciation burdens through increased sales volumes. However, as it will be the first year of operation for newly built and expanded plants, we believe it will be difficult to increase profits significantly. As for risks next fiscal year, tariff-related risks remain, and higher raw material costs are also becoming apparent. Therefore, we are considering a plan to generate profits exceeding this year's level while factoring in these risks.

In principle, we will respond through price revisions. However, aggressively pushing through price revisions could risk customers reducing their purchases. Therefore, we will broadly diversify risk, including by using alternative raw materials.

In Q3, the sales mix shifted toward raw materials for supplements, which have a relatively lower profit margin. In addition, plant utilization was not sufficient, so the increase in profit was smaller than the increase in sales. In Q4, however, we expect the sales mix to shift toward higher-margin pharmaceutical raw materials and plant utilization to rise. As a result, we expect profit growth to outpace sales growth.

We have already started production, and the impact has been reflected in earnings through Q3.

There has been no significant change from the initial plan. In terms of volume, there was some quarterly timing variance, but on a full-year basis, sales are expected to be achieved in line with the initial plan. We also expect sales expansion both domestically and overseas going forward.

If the sales mix among pharmaceutical raw materials, functional raw materials, and mail-order sales does not change, the profit margin will not change. However, the sales mix varies from quarter to quarter, so we cannot make a definitive statement.