grems,Inc. Q4 FY2025 earnings call

• Overall Financial Performance

  • The company achieved all-time record consolidated revenue and operating profit for the 2025 March fiscal year, driven by revenue growth in both ECS and retail electricity segments.
  • 9 consecutive years of dividend increases were completed, with a full-year dividend of 79 yen per share implemented.
  • The company maintains a strong financial position, with an equity ratio of 62.3% and positive operating cash flow growing 4.6 billion yen year-over-year.

• Organizational and Segment Restructuring

  • Starting from the 2026 March fiscal year, ECS and SHP segments will be merged into the new Energy Solution (ES) segment. This streamlines operations due to overlapping product lines (solar panels, storage batteries), enables flexible personnel allocation, and simplifies performance tracking for investors, separating flow-based product sales (ES) and stock-based recurring revenue (retail electricity).

• Core Business Strategies: Energy Solution

  • Targets small and medium-sized enterprise (SME) customers with commercial solar PV systems for on-site self-consumption, with 4,500 cumulative installed customers as of 2025 March fiscal year end. The company focuses on low-voltage, small-scale (fewer than 10 employees) facilities that face limited competition, faster approval, and better cash flow than large high-voltage projects.
  • Cross-sells storage batteries to existing solar customers to capture unused excess generation, increasing customer lifetime value. Around 600,000 potential SME target sites exist in the domestic market, with only 0.8% penetrated to date, leaving large room for growth.
  • Co-developed an AI image recognition system to automatically assess roof suitability for solar installation from satellite imagery, cutting manual work and accelerating new customer development efficiency.

• Core Business Strategies: Retail Electricity

  • Maintains a unique fuel cost adjustment clause that passes through market price increases to customers when average low-voltage market prices exceed 13 yen per kWh, and hedges procurement risk via forward contracts and secured long-term fixed-price relative power purchase agreements, eliminating negative spread risk.
  • Intentionally targets low load factor customers (below 10% average load factor, compared to the 30-40% industry average for new power retailers), which delivers higher per kWh base rates and better margins.
  • Launched a multi-license strategy, adding a second retail electricity license via GR Consulting to reduce opportunity loss and enable more efficient direct customer acquisition from existing GR Consulting customer bases.

• New Business Initiatives

  • Entered the grid-scale storage battery business, with 2 storage facility construction projects planned for the 2026 March fiscal year. The company targets early entry to capture first-mover advantage in the supply-demand adjustment market, and the business has high synergy with the company's existing retail electricity operations.

For the 2025 March fiscal year:

1. Energy Cost Solution (ECS) Segment:
   • Gross profit: 5.807 billion yen, a 1.162 billion yen increase year-over-year, but 846 million yen below plan. Operating income was 1 billion yen higher year-over-year, driven by strong commercial solar PV sales growth, but 539 million yen below plan due to backlog adjustment. Revenue grew 24.4% year-over-year, contributing 32.6% of total consolidated gross profit.
2. Smart House Project (SHP) Segment:
   • Gross profit: 1.694 billion yen, a 151 million yen decrease year-over-year, and 108 million yen below plan. The segment has been operating at a steady ~4.5 billion yen in annual revenue and ~500 million yen in annual operating income, targeting storage battery demand for residential properties post-FIT tariff expiration. It contributes 9.4% of total consolidated gross profit.
3. Retail Electricity Segment:
   • Gross profit: 3.481 billion yen, a 715 million yen increase year-over-year, and 738 million yen above plan. Operating profit grew 24.6% year-over-year, driven by a 5,000-contract increase in customer accounts, secured low fixed-price power purchase agreements that cut procurement costs by 612 million yen, and effective risk hedging. It contributes 19.3% of total consolidated gross profit.

Consolidated totals: Total revenue hit a record high, up 11.5% year-over-year with a 3.432 billion yen increase. Consolidated operating profit was 6.5 billion yen, up 24.6% year-over-year (also a record high).

• For the 2026 March fiscal year, the company guides consolidated revenue of 35.816 billion yen, up 7.4% year-over-year, and consolidated operating profit of 7.15 billion yen, up 10% year-over-year (a new record high). The 10% operating profit growth guidance is conservative, as it includes large planned human capital investments.
• The merged Energy Solution segment is guided to deliver 13.8% year-over-year operating profit growth, reaching 5.1 billion yen, with commercial solar PV sales targeted to grow 24% year-over-year.
• A 10th consecutive year of dividend increases is planned, with a full-year dividend of 85 yen per share. The company raised its target payout ratio from 30% to 40% of net profit starting from the 2025 March fiscal year.
• The company plans to hire 100 new graduate graduates, approximately 3 times the prior year's intake, to expand sales capacity for the large untapped commercial solar market, with this hiring investment factored into the 10% operating profit guidance.
• Retail electricity is expected to deliver stable recurring profit, with effective risk hedging already in place for the 2026 March fiscal year, and the company targets to add more customer contracts than the 5,000 added in the prior year.

• The company notes that global energy prices have remained high and sticky after the post-Fukushima increase, which sustains customer demand for solar self-consumption but creates ongoing procurement price volatility that can impact margins if hedging is ineffective.
• Large-scale expansion of customer acquisition relies on successfully onboarding and training a 3x larger cohort of new graduates, which carries execution risk for near-term sales productivity.
• The new grid-scale storage battery business is in early development, with no revenue or profit contribution expected in the 2026 March fiscal year, requiring upfront investment that adds near-term cost pressure.

Q: Why has retail electricity profit growth guidance slowed to 4.5% year-over-year from 23.4% growth in the prior year? / A: The high prior year growth was driven by a large one-time 9.46 yen per kWh drop in relative power procurement prices, which cut total procurement costs by 1.6 billion yen. This large one-time favorable market shift will not repeat. The company also carried excess buffer in prior year guidance that is no longer needed after putting in place stable repeatable risk hedging. Going forward, growth will come from steady increases in customer count, which delivers predictable, stable growth rather than large one-time jumps. Contract count grew 8% year-over-year to 63,000 in the prior year, and the company expects this steady growth trajectory to continue with high predictability for the coming year, with procurement already locked in at stable rates for 2026.

Q: What benefits does the new multi-license strategy for retail electricity provide? / A: Previously, the company could not directly offer retail electricity contracts to GR Consulting customers, requiring a handoff to Gremz Power that created opportunity loss. With an additional license, the company can now bundle retail electricity offers directly with other services for GR Consulting customers, improving conversion efficiency and eliminating lost sales opportunities, with no additional material regulatory or operational cost.

Q: What is the rationale for the large increase in new graduate hiring for the coming year? / A: The total addressable market for commercial solar for SMEs is 600,000 total candidate sites, of which only 4,500 (0.8%) have been developed to date. There is enormous untapped growth potential, so the company is investing heavily in expanding sales capacity now to capture this market over the medium to long term, with the large new hire intake expected to drive stronger growth in future periods after onboarding and training.