AP HOLDINGS CO.,LTD. Q4 FY2025 earnings call

Core Financial Recovery

• The company returned to operating profit for the first time in 5 reporting periods, with 21.072 billion yen in total consolidated revenue (+2.3% YoY) and 263 million yen in operating profit, a 370 million yen improvement from the prior period's 110 million yen operating loss.
• 254 million yen in total impairment losses (110 million yen from domestic unprofitable locations, 140 million yen from overseas) led to a slight net loss for the full year, completing the company's 'cleanup' of underperforming assets.
• Net equity was impaired, but the company expects to eliminate excess debt by the end of Q1 FY2026 via a planned subsidiary sale, constrained new openings, and improved profitability.

Turnaround of High-Risk Businesses

• Hong Kong business: Replaced leadership with a proven domestic operating executive in February 2025, closed the unprofitable Harbour City location, cut allocated head office costs from 65 million yen to 26 million yen, and restructured all remaining locations to return to operating profit (except for the recently converted EPC Tsukada Shokudo).
• Kyushu Tsukada Farm: Replaced leadership with a veteran Tsukada Farm executive, closed 5 underperforming stores and recorded 37 million yen in impairment. Post-restructuring, monthly store profit hit 43 million yen in April 2025 (vs 31 million yen budget) and 41 million yen in May 2025 (vs 32 million yen budget), with monthly store margin rising to 14-16% from a full-year 2025 margin of 8.7%.

Strategic Operational Initiatives for FY2026

• Headquarter Cost Reduction: Target a 2.3 percentage point reduction in headquarter cost as a share of revenue by FY2030, via cross-functional role sharing for senior leaders, internalizing more production at the underutilized central kitchen, and converting headquarter departments to revenue-generating business units, which is projected to cut 8-10 equivalent full-time headcount costs.
• Investment Portfolio Rationalization: Pause all new direct-operated store openings in FY2026 to focus on organizational capacity building. Future investments will prioritize high-margin, high-growth segments including ready-to-eat (targeting 4 billion yen in EBITDA on 4 billion yen in revenue by 2030 after expanding production capacity), high-margin restaurant concepts, Indonesian overseas expansion, and the stable standing sushi business.
• Franchise/Licensing Model Expansion: Resume active franchise recruitment after 10 years of focusing on direct operation. The model requires no capital investment from AP Holdings, with 3 million yen in joining fees, 1 million yen in deposit, and 5-6% monthly royalties. The company targets 5 franchise locations in FY2026, with a pathway to 65 locations in future periods. Grilled chicken, high-margin hot pot concept Ura no Yama no Kinoko, and hormone meat concept Shibaura Shokuniku are identified as the strongest initial franchise candidates, with no franchise profit included in current FY2026 guidance.

1. Izakaya segment (centered on Kyushu Tsukada Farm): 30.6% revenue contribution. Revenue decreased 9.5% year-over-year after closing 4 underperforming stores, leaving 62 high-quality remaining locations. Full-year 2025 March term sales hit 4.2 billion yen, with operating profit of 368 million yen, missing the 558 million yen budget target.
2. Specialty store segment: 22.4% revenue contribution. Revenue slightly recovered year-over-year, but operating profit and EBITDA decreased slightly due to closure-related costs from new openings and renovations at fish and hormone meat-focused locations.
3. Restaurant segment: 16.8% revenue contribution. The company's fastest-growing segment, it added 5 new locations in FY2025, with strong performance from new stores driving large increases in both operating profit and EBITDA.
4. Overseas segment: 10.2% revenue contribution. Revenue decreased after closing 2 underperforming Hong Kong locations, but the business is now on a recovery trajectory. Indonesia continues to perform very well, adding 1 new store in March 2025. Hong Kong posted an operating loss of 170 million yen plus 136 million yen in impairment losses for FY2025, but post-restructuring it is projected to return to profit in FY2026.
5. Ready-to-eat (Chukai) segment: 14.1% revenue contribution. Led by Tsukada Farm Plus bento box operations, revenue grew more than 20% year-over-year, with operating profit increasing 78.3% year-over-year, and continued strong sequential growth.
6. Production & Distribution segment: 5.8% revenue contribution. Revenue declined alongside the shrinking izakaya segment, but the segment returned to profit for the first time in 5 periods thanks to increased external sales volume.

• For the 2026 March Term, management guides consolidated revenue of 20.0 billion yen, operating profit of 480 million yen, ordinary profit of 380 million yen, and net profit of 650 million yen, driven by the planned subsidiary sale. The guidance is set at a conservative level aligned with prior period performance for underperforming turnaround businesses, and management targets an upward revision by the interim reporting period.
• Debt excess is projected to be eliminated by the end of Q1 FY2026.
• Ready-to-eat segment targets 4.0 billion yen in revenue and 400 million yen in EBITDA by the 2030 March Term after production capacity expansion.
• Management targets 5 franchise locations contracted in FY2026, with scaled expansion to 65 locations in subsequent periods after proving the model.

• The company currently remains in net negative equity, with excess debt that is only projected to be eliminated in Q1 FY2026, creating near-term financial uncertainty.
• Prior period performance missed budget targets due to slower-than-expected turnaround at the Hong Kong and Kyushu Tsukada Farm businesses, highlighting execution risk for ongoing restructuring efforts.
• The new franchise expansion model is unproven at scale for the company, with no projected revenue included in current guidance, creating uncertainty around long-term growth contributions.
• The existing central kitchen is underutilized, and expanded internalization of production carries execution risk for productivity improvements.
• Raw material and utility price volatility has created past budget deviations, with costs fully priced into current guidance but creating ongoing risk if inflation outpaces projections. Overlap of new openings and restructuring in prior periods stretched management capacity and disrupted existing store performance, a risk that is being mitigated by the pause on new openings in FY2026.

The provided transcript does not include a transcribed question and answer section, so no content is available for this portion.