INTERLIFE HOLDINGS CO.,LTD. Q4 FY2025 earnings call

• 4th Mid-Term Management Plan (MMP) Final Year Results: The 4th MMP achieved all stated goals, with 2025 February Term results (16.94 billion yen consolidated revenue, 875 million yen operating profit) greatly exceeding the initial full-plan targets of 15.5 billion yen revenue and 550 million yen operating profit, delivering record-high profit. Key achievements include: 1) Completed business portfolio restructuring, reducing 8 subsidiaries to 5 and 6 segments to 3; 2) Strengthened the Osaka base, which achieved 104.3% year-over-year revenue growth to 2.573 billion yen driven by Osaka Expo and surrounding redevelopment projects; 3) Generated synergies from the acquired Sanken System; 4) Developed the new patented eco-friendly ceiling material Atlas Board, which has already been adopted in high-profile hotel and university projects; 5) Improved operational efficiency via shared services consolidation at the holding company, construction digitalization (DX), and in-house logistics, cutting SG&A expense ratio to 14.8%; 6) Advanced capital cost and shareholder value focused management, completing share buybacks and cancellations that lifted ROE to 18% and PBR to 1.36x; 7) Progressed ESG initiatives including greenhouse gas emission monitoring, material reuse, and improved working conditions for employees. The final year delivered 34.2% year-over-year consolidated revenue growth to 16.94 billion yen, 223.7% year-over-year operating profit growth to 875 million yen, with an operating margin of 5.2%, and a 12 yen per share dividend increase to 20 yen per share. - 5th Mid-Term Management Plan Overview: Launched the 5th MMP under the slogan "NEXT STAGE 2030", with a vision to become a one-of-a-kind group of specialized professionals providing integrated comfortable space production. Key strategic priorities include: 1) Business portfolio restructuring: Gyokoh Kogyo will be sold to Tobu Building Management Co., Ltd., and Facility Management will be merged into Nissho Interlife to eliminate the Facility and Maintenance segment, establishing an integrated end-to-end service structure from construction to maintenance for improved client service and profitability; 2) Build new growth foundations: Leverage existing core business strengths, expand sales of new products like Atlas Board, and pursue M&A that delivers synergies with existing businesses; 3) Improve profitability: Prioritize high-margin large project orders, shift from outsourcing to in-house operations, optimize construction processes, and adopt digital technology to boost productivity; 4) Advance ESG: Promote energy conservation and material reuse, increase human capital investment, and continue capital cost and shareholder value focused management to lift enterprise value. - Key 5th MMP Financial KPIs: Target 5%+ operating margin, 40%+ payout ratio, 13%+ ROE, and 1.5x+ PBR over the 3-year plan period, with a goal of reaching 200 billion yen revenue and 10 billion yen operating profit by the plan's final year, and a 200 billion yen combined revenue split equally between the two core segments (100 billion yen each for interior construction and audio/lighting equipment) and 100 billion yen market capitalization by 2030, in anticipation of the opening of Osaka IR in 2030.

1. Interior Construction Business: Revenue was 9.728 billion yen, a 53.6% year-over-year increase, accounting for 57.4% of total consolidated revenue. Segment profit was 529 million yen, a 278.8% year-over-year increase, driven by strong large project order intake and completion, and cost savings from in-house logistics. 2. Audio and Lighting Equipment Business: Revenue was 5.784 billion yen, a 30% year-over-year increase, accounting for 34.1% of total consolidated revenue. Segment profit was 494 million yen, an 83.7% year-over-year increase, supported by Osaka Expo-related works, large hotel project completions, and full-year contribution from Sanken System after acquisition. 3. Facility and Maintenance Business: Revenue was 1.427 billion yen, a 23.8% year-over-year increase, accounting for 8.5% of total consolidated revenue. The segment posted a segment loss of 8 million yen due to correction costs on a large public project handled by Gyokoh Kogyo. Total combined segment revenue across all three segments was 16.94 billion yen, a 41.9% year-over-year increase, and total combined segment profit was 1.015 billion yen, a 125.6% year-over-year increase.

• 2026 February Term is projected to deliver lower revenue and profit compared to 2025 February term, primarily due to the sale of Gyokoh Kogyo (removing ~500 million yen in revenue) and the abnormally high level of high-margin large projects completed in the 2025 term. The core existing businesses are projected to maintain stable revenue roughly flat with the prior year. - The company holds an opening order backlog of ~8.7 billion yen for the new term, exceeding the prior year's opening backlog of ~8.5 billion yen, and aims to grow profit by steadily converting backlog to revenue and improving profit margins. - The 3-year 5th MMP targets are maintained: 5%+ operating margin, 40%+ payout ratio, 13%+ ROE, 1.5x+ PBR, with a 200 billion yen revenue and 10 billion yen operating profit target for the plan's final year. - Long-term guidance for 2030 anticipates Osaka IR-driven growth, targeting 200 billion yen total revenue split equally between the two core business segments, and 100 billion yen market capitalization. - The 20 yen per share dividend is maintained for 2026 February, despite the projected moderate decline in net profit, resulting in a projected payout ratio of 51.7% that meets the company's stable dividend commitment.

• Chronic industry-wide construction labor shortage that may limit the company's ability to meet strong demand. - High cyclicality of the interior construction business, which is heavily exposed to broader economic fluctuations. - Intense competition in the interior construction industry, which may pressure order intake and margins. - The unusually high profit level achieved in the 2025 February term is difficult to sustain, creating near-term pressure to maintain profitability. - The company still faces gaps in sufficient specialized human resource recruitment and development, limiting growth capacity.

Q: The 5th MMP vision states Interlife is a unique group combining both interior construction and audio/lighting businesses. In what types of projects does this model create competitive advantage, and who are the main competitors for large, high-margin projects? / A: Interior construction work comes in after building structure completion, while audio/lighting work requires early involvement from the design stage for wiring and system planning. The ideal combined project is winning both interior work from Nissho Interlife and audio/lighting work from System Engineering for the same facility (such as hotel banquet halls), though intense competition in interior construction means this ideal outcome is not always possible. A key advantage of the combined structure is its risk diversification: interior construction is highly sensitive to economic cycles, while audio/lighting work typically receives orders 2-3 years in advance, making it more resilient to sudden economic downturns. For competition, the interior construction industry has many large, established competitors such as Nomura Kogeisha, making it very competitive, while the audio/lighting specialty industry is very niche with few large players and no other listed companies, allowing Interlife to leverage its competitive advantage more easily here.