DAI-ICHI CUTTER KOGYO K.K. Q4 FY2025 earnings call

• 2025 June Full Year Financial Overview • The Dai-ichi Cutter Kogyo group reported full year consolidated net sales of 20.228 billion yen, operating profit of 1.647 billion yen, ordinary profit of 1.791 billion yen, and net income attributable to parent company shareholders of 1.327 billion yen, marking a year-over-year decline in both revenue and profit. • The main drivers of the decline were lower highway renewal construction volume in the core segment, the deconsolidation of the former reuse and recycling subsidiary, and increased cost expenses. The company issued a downward revision to full year guidance on June 16. • The balance sheet remained stable, with increased cash and deposits, and a 3.3 percentage point rise in equity ratio from the prior year end.

• Mid-Term Management Plan (Medium-Term Management Plan 2027, covering 2025-2027) Review • The plan's core strategy is built on business strategy (strengthen advantages of existing businesses, expand existing businesses, develop and expand new businesses) and organizational strategy (develop talent and build operational structures to support execution). • The first year (2025 June) missed targets: planned sales of 21 billion yen versus actual 20.228 billion yen, planned operating profit of 2.5 billion yen versus actual 1.647 billion yen. The miss was driven by external factors (lower highway renewal orders, higher costs) and does not change the company's overall medium-term strategic direction, and the company remains committed to achieving the 2027 final target.

• Business Strategy Progress • Strengthening existing business advantages: Established a new department to coordinate sales offices, enabling smoother sharing of project status and allocation of construction teams. Co-developed a water jet muddy water recycling device with Ryuki Engineering, which achieves 99.95% impurity removal, enables 60-70% water reuse, cuts processing costs and reduces environmental load, with test construction completed for upcoming rollout. Developed new unpowered follow-up cutting method Quattro FX, which enables high-precision, safe edge cutting for bridge renewal projects with improved safety, reduced dust scatter, shorter工期 and stable quality. • Expanding existing businesses: Increased headcount for both sales and construction in the West Japan area. • New business development: Entered practical verification phase for laser construction methods. Currently testing and verifying the CoolLaser G19-6000 high-power laser coating and rust removal device developed by Toyoco, an invested company that recently listed on the Tokyo Stock Exchange Growth market. This method reduces dust, improves work environment, removes salt and oil to improve repaint adhesion, and works in narrow/complex sites, though it is still in the exploratory phase with limited construction experience and unproven profitability.

• Organizational Strategy Progress • Implemented a third base salary increase to counter inflation, adding a flat 10 thousand yen to base salary for all regular employees from April 2025, with equivalent raises for non-regular staff, to improve retention and build a talent pipeline. Total employee count grew to 592, with on-site construction staff increasing from 323 in 2020 June to 401 in 2025 June. • Introduced an ERP system to enable company-wide sharing of on-site knowledge and data to improve efficiency and support R&D. • Established the Affiliated Company Management Department to strengthen group governance, and the new Business Creation Headquarters to drive new business development, focusing on cultivating talent for new area initiatives.

• M&A Strategy • The company continues to pursue M&A aligned with its medium-term strategy: searching for same-industry targets to strengthen existing business advantages, exploring complementary targets for existing business expansion (including West Japan candidates) and having conducted initial outreach, and searching for partners to accelerate laser method business expansion. No specific deals have been finalized to date.

1. Cutting and Drilling Construction Segment: This is the company's core主力 segment. It reported decreased revenue and decreased profit in 2025 June period, driven by a large drop in highway renewal construction orders. Within the segment, highway construction sales decreased sharply, while private sector capital expenditure related construction increased, and public sector construction outside of highways (roads, bridges) remained solid. The segment accounts for the majority of the group's total revenue. 2. Building Maintenance Segment: This segment achieved increased revenue and increased profit, driven by successful acquisition and execution of large developer projects. 3. Reuse and Recycling Segment: This segment was deconsolidated at the end of Q1 2024 June period and is excluded from reporting segments for 2025 June period.

• For 2026 June period, the company expects revenue to increase, driven by solid performance from public and private sector orders offsetting flat highway renewal construction volume at 2025 June period levels. Operating profit and ordinary profit are expected to increase year-over-year, while net income attributable to parent shareholders is expected to decrease due to lower special gains.
• 2026 June period guidance is below the original medium-term plan target, consistent with the outcome of 2025 June period and current market conditions.
• The 2027 June period (final year of Medium-Term Management Plan 2027) target is maintained unchanged, and the company remains committed to achieving it.
• For shareholder returns, the company increased 2025 June period dividend per share from the initial 38 yen to 40 yen, raising payout ratio from 21.8% to 34%. The 2026 June period expected payout ratio is 34.9%, and the company will prioritize stable, sustainable dividends going forward, maintaining a target payout ratio of at least 30%.
• The company plans to continue active investment in human resources, and increase investment in R&D and business area expansion for the medium term.

• Lower-than-expected highway renewal construction orders due to client-side budget and scope reviews create near-term revenue and profit pressure, as this has been a historically large source of revenue for the core segment.
• Rising operating costs: Travel and business trip costs for cross-regional projects, outsourcing costs to partner contractors, and labor costs from base salary increases have put upward pressure on total project costs, squeezing profit margins.
• New technologies including the CoolLaser method remain in the verification phase, with limited construction experience and unproven cost competitiveness and profitability, creating uncertainty around their contribution to future growth.
• M&A pipeline remains at the exploratory stage with no closed transactions, creating uncertainty around the company's ability to deliver planned growth through M&A.
• Persistent PBR below 1x reflects undervaluation by the market, and the company acknowledges it has not sufficiently communicated its value to investors.

Q: Why did highway renewal construction drop suddenly in the second half of 2025 June period, was it due to company-specific issues like construction mistakes? / A: The decline is not caused by any construction errors or company-specific issues. The main factor is that the client is conducting a broad review of the overall budget, scale, and specifications for highway renewal projects, leading to prioritization of higher-priority projects and delayed execution of other projects. The reduction is an industry-wide adjustment to overall order volume, not a company-specific problem.

Q: How does management view the persistent situation where PBR remains below 1x, and what is the approach going forward? / A: Management recognizes this as a major issue for the company. We acknowledge that we have not sufficiently communicated our strengths and value proposition to shareholders and investors, and we take this feedback sincerely. We will work to build out better information disclosure systems to more clearly convey the company's attractive attributes to the market.

Q: There are a lot of open M&A discussions but no closed deals, what is the actual progress of the company's M&A strategy? / A: It is true that we do not have any specific progress to announce publicly at this point. We have received a substantial number of inbound opportunities, covering targets that could create synergy with existing businesses, expand geographic position in West Japan, and support entry into new business areas. We are conducting careful due diligence to evaluate potential synergy with the Dai-ichi Cutter Kogyo group, and will announce updates promptly once a deal is finalized.

Q: Will the company maintain the current medium-term plan target for the final 2027 fiscal year even after the first two years missed original projections? / A: The 2026 June projection is below original plan because we set it based on 2025 actual results and current market conditions, including the ongoing adjustment in highway renewal order volume. We have not changed the final 2027 June medium-term target, and we remain fully committed to working to achieve the original goal.

Q: What impact will the national budget allocation for sewer system maintenance and repair have on the company going forward? / A: Demand for our cutting technology is growing broadly across all aged underground lifeline infrastructure including sewers, water pipes, and gas pipes, not just sewers. We are already seeing increased inquiries and project opportunities from inspection work through recovery of existing pipes. While the pace of growth will depend on national and local government budget prioritization, we expect sustained increased demand for our cutting capabilities in this area going forward.