MATSUOKA CORPORATION Q4 FY2025 earnings call

• Company Overview and Core Strengths • Matsuoka is an apparel OEM manufacturer with 70 years of operating history, producing apparel across 5 countries: China, Myanmar, Bangladesh, Vietnam, and Indonesia, with 19,635 total global employees as of the end of March 2025. Approximately 70% of total revenue comes from Fast Retailing (including its overseas subsidiaries), concentrated in casual bottoms and innerwear. • The company's key competitive strength is its multi-country diversified production footprint, which allows it to match production locations to customer needs: Vietnam/China for customers requiring shorter lead times, and Bangladesh/Myanmar for customers seeking lower costs, while also mitigating geopolitical and supply chain risks. The company has decades of early-entry operating experience in Southeast Asian manufacturing markets. • Production automation and smart factory upgrades have improved productivity: automated material handling hanger lines with real-time output sensors identify bottlenecks within the same workday, while automated sewing machines have reduced manual labor for repetitive sewing tasks.

• Mid-term Plan "Vision 2025" Progress • The 5-year mid-term plan (covering 2022 March to 2026 March) completed Phase 1 factory construction on schedule, with 3 new large factories built in Vietnam and Bangladesh by 2023 March. Phase 2 is currently underway to ramp up production at new facilities to match recovering apparel demand. • The three core strategic priorities: 1) Further diversify the supply chain and shift production to ASEAN countries to expand capacity; 2) Advance new material and product development, focused on the fabric processing segment; 3) Strengthen sales capabilities for the core OEM business to secure new orders. • The company targets to increase the share of revenue from ASEAN production to 71% by the end of 2026 March, reducing China's share to 29% from the roughly 50/50 split in 2022 March.

• New Factory Updates • Vietnam Annam Factory: The company's largest factory (100,000 sqm site), focused on high-efficiency large-volume orders, currently employs over 2,000 workers with remaining expansion capacity. • Vietnam Tan Chuoong Factory: A smaller facility focused on high-value, high-complexity products for department store and boutique brand customers. • Bangladesh IMBD Factory: Located in western Bangladesh near the Indian border, has adopted automated hanger lines to improve efficiency, with significant unused production capacity.

• Fabric Processing Business Growth • The fabric processing segment produces laminated breathable waterproof fabric for outdoor and sportswear brands, with two production facilities in China (the main R&D and production hub) and Vietnam (ramping up output). Growth is driven by expanding demand for functional outdoor apparel for both outdoor and everyday town use. • Key customers include major global brands Decathlon, lululemon, and Columbia, with growth supported by the company's in-house R&D capability to meet increasingly strict functional and environmental regulatory requirements from global customers.

• Sustainability and Operations • The company prioritizes improving working conditions in overseas factories, with clean, air-conditioned workspaces, subsidized nutritious meals, on-site nurseries and medical clinics to support worker retention and productivity. • The company actively promotes localization of management, with most factory management roles filled by local hires, including many female local managers, and runs long-term training programs in Japan for high-potential local employees.

For the 2025 March full year, Matsuoka Corporation reported total consolidated revenue of 70.5 billion yen, a record high that beat the original mid-term plan target ahead of schedule. The product segment breakdown (by revenue contribution percentage) is: 1. Casual wear: 62.8% of total revenue, the largest segment, with most volume serving Fast Retailing; 2. Working wear (work uniforms and apparel): 6.6% of total revenue, an important counter-cyclical diversification for the company's portfolio; 3. Innerwear: 13.8% of total revenue, produced end-to-end from knitting, dyeing to sewing at factories in Bangladesh, most of which serves Fast Retailing; 4. Fabric processing: 16.9% of total revenue, the fastest-growing segment. 2025 March full year fabric processing revenue doubled from 2022 March levels, driven by growth in high-margin, 3-layer high-value products. Adjusted operating profit (after removing foreign exchange gains/losses, the company's core performance metric) was 4.2 billion yen, a 30.4% year-over-year increase, marking three consecutive years of growth.

• For the 2026 March full year (the final year of the Vision 2025 mid-term plan), management updated the original quantitative targets to reflect stronger-than-expected performance, raising the revenue target to 74.0 billion yen (from the original 70.0 billion yen) and ordinary profit target to 4.7 billion yen (from the previous 4.2 billion yen, which itself was an upward revision from the original 3.5 billion yen).
• The full year 2026 March guidance forecasts: 74.0 billion yen in revenue (+4.8% year-over-year), 2.5 billion yen in GAAP operating profit (+476.2% year-over-year), 5.0 billion yen in forex-adjusted operating profit (+18.1% year-over-year), 4.7 billion yen in ordinary profit (+11.9% year-over-year), and 3.0 billion yen in net profit attributable to parent company shareholders (+15.4% year-over-year).
• Management expects further profit expansion going forward: the three new factories built under the current mid-term plan are only 1/3 to 1/2 utilized, so incremental volume growth will require only limited additional fixed cost, and worker productivity will improve further as employee proficiency increases at new facilities. Company-wide, there is room to increase total annual production by 20 million units (a 30-40% increase from the 52 million units produced in 2025 March).
• The company maintains a dividend policy targeting a 30% consolidated payout ratio, and has guidance for a 90 yen per share dividend for both 2025 March and 2026 March, which is slightly above the 30% payout target.

• Foreign exchange volatility: The company has large foreign currency-denominated assets and liabilities, with 70% of revenue denominated in US dollars and 50% of cash holdings held in US dollars. Exchange rate fluctuations can create large swings in reported GAAP operating and ordinary profit, as seen in 2025 March: an 1.1 billion yen year-over-year change in forex gains/losses drove a decline in reported ordinary profit despite strong core operating performance. The company will consider hedging only if cost-effective hedging tools become available.
• Geopolitical and country risk: The 2021 military coup in Myanmar has not caused material disruption to the company's operations there, and the company has maintained stable production by adjusting production lines based on order levels. The company's diversified production footprint across 5 countries already mitigates the risk of disruption from political instability or trade friction in any single market.
• US export tariffs: Exports to the US account for only a low single-digit percentage of total company revenue, so the impact of US import tariffs on overall performance is limited, and any expected impact has already been incorporated into the 2026 March guidance.
• Prime market listing risk: The company transferred to the Tokyo Stock Exchange Standard market in 2023 to avoid delisting risk after failing to meet Prime market compliance requirements, and will only consider re-applying for the Prime market once it can sustainably meet the listing criteria long-term.

Q: What enabled Matsuoka to decide on multiple large new factory investments during the current mid-term plan? / A: Management had long observed that apparel brands were actively seeking alternative production locations to China as Chinese labor costs rose, driven by economic development. Matsuoka has always prioritized identifying locations that can provide stable labor access and stable low-cost production, so it pre-emptively invested in new capacity in Vietnam and Bangladesh to meet this expected shift in customer demand.

Q: Can the adjusted operating profit margin continue to improve to as high as 10%, and how much production capacity does the company have left? / A: Management did not give a specific upper limit for margin, but noted that the three new factories built in this mid-term plan are only 1/3 to 1/2 utilized, with limited fixed cost increases needed for additional volume. Worker proficiency will also continue to improve as the factories mature, so profits can continue to expand. Across the whole company, there is room to add 20 million units of annual production, a 30-40% increase from last year's output.

Q: Why has Matsuoka won business from top global outdoor brands for its fabric processing segment, and what drives this growth? / A: Global outdoor brands require increasingly high functional specifications and strict compliance with environmental regulations for materials. Matsuoka differentiates itself through its in-house R&D capability, which can quickly develop and produce laminated films that meet customer requirements, including low-environmental-impact formulations. Many customers now directly appoint Matsuoka based on its proven development and production reputation.

Q: What is the impact of the Myanmar coup on operations, and what is the plan for China production share? / A: The coup has not caused material disruption to operations in Myanmar; the company has maintained stable production by adjusting production lines to match order levels. For China production, Matsuoka plans to maintain a meaningful share of production in China long-term: China offers short transport lead times to Japan, has highly skilled experienced workers, and allows the company to serve orders for the large Chinese domestic market, so it will retain capacity for short lead time and small volume orders.