RIKEN TECHNOS CORPORATION Q2 FY2026 earnings call

Core Financial Results

• Consolidated H1 FY2026 results: net sales of 65.567 billion yen (+3.4% YoY), operating profit of 5.533 billion yen (+15.8% YoY), ordinary profit of 5.486 billion yen (+16.5% YoY), net income attributable to parent shareholders of 3.461 billion yen (+32.4% YoY). This marks the 5th consecutive half-year of record-high revenue and profit, with ROS at 8.4% (also a half-year record).
• Regional results: Japan sales 31.9 billion yen (+1.3 billion yen YoY), Asia sales 22.4 billion yen (+1 billion yen YoY), North America sales 10.9 billion yen (-200 million yen YoY), with overseas sales accounting for 51.2% of total revenue.

3-Year Mid-Term Management Plan Progress ("One Vision, New Stage 2027")

The plan launched in April 2025 focuses on two core pillars: growing earning power and advancing sustainability, with three core strategies for earning power:

• Strategy 1: Global One Company: Building an optimized global production system, approved capacity expansion for food packaging materials and Mie Factory expansion, prioritizing non-Japanese customer development in ASEAN, and strengthening globalized raw material sourcing.
• Strategy 2: Exceed Customer Expectations: Deepening integrated global operations via the Monozukuri (Manufacturing) General Headquarters, strengthening purchasing department involvement from the early material development stage, and expanding joint development with suppliers and customers.
• Strategy 3: Pursue New Businesses / New Products: Established a new Monozukuri Review Committee to identify development themes, collaborated with the IP department to develop new applications via IP landscape analysis, and advancing industry-academia collaboration projects.

Financial & Capital Strategy

• Balance Sheet Reform: Targeting an efficient balance sheet without excess shareholder equity. H1 achievements include optimizing receivable terms and inventory levels, selling idle land, and reducing cross-held policy shares to generate cash for growth investment and shareholder returns.
• Investment Allocation: Planned total investments over the 3-year plan: ~4 billion yen for food packaging wrap capacity expansion at Saitama and Mie factories, ~9 billion yen for Mie Factory expansion. The company will continue active investment to support growth and priority segment expansion.
• Shareholder Returns: Targets a consolidated payout ratio of ~35%, plans a 6 yen increase in full-year dividend to 47 yen per share, approved acquisition of 3 million treasury shares (to be fully retired), for a total 2025 payout ratio of 105.7%.

R&D and Human Capital Investment

• R&D: Developing low-specific-gravity high-flame-retardant compounds, advancing material shift from rubber to elastomer, launched new freshness-preserving film "Fresh Balance", and progressing development of biomass decorative films. Leveraging open innovation with external partners to increase the share of revenue from new products.
• Human Capital: Implementing company-wide employee participation recruitment, strengthening hiring of globally oriented talent, revised new-hire on-site training programs, developing local national staff at overseas subsidiaries into management roles, introduced employee stock-based compensation, increased holding association incentives, and plans to revise executive compensation systems and introduce career self-development support.

Sustainability and Governance

• Climate Targets: Aims for 46.2% CO2 emission reduction by 2030 and full carbon neutrality by 2050, currently progressing solar power installation at manufacturing subsidiaries in Thailand and Vietnam.
• Governance Improvements: Increased the number of female directors, introduced medium-long term performance-linked executive compensation, strengthened BCP and human rights due diligence, and expanded IR/SR engagement with stakeholders.

1. Transportation Segment: H1 FY2026 sales of 21.088 billion yen, up 4.5% YoY; segment profit of 2.195 billion yen, down 450 million yen YoY. Revenue contribution: ~32.2% of total consolidated H1 sales. Full-year FY2026 forecast: sales of 41.7 billion yen, up 580 million yen YoY; segment profit of 4.25 billion yen, down 619 million yen YoY. 2. Daily Life & Healthcare Segment: H1 FY2026 sales of 18.425 billion yen, up 1.4% YoY; segment profit of 1.958 billion yen, up 342 million yen YoY. Revenue contribution: ~28.1% of total consolidated H1 sales. Full-year FY2026 forecast: sales of 37.7 billion yen, up 891 million yen YoY; segment profit of 3.85 billion yen, up 328 million yen YoY. 3. Electronics Segment: H1 FY2026 sales of 12.812 billion yen, up 4.9% YoY; segment profit of 808 million yen, up 358 million yen YoY. Revenue contribution: ~19.5% of total consolidated H1 sales. Full-year FY2026 forecast: sales of 26.8 billion yen, up 2.111 billion yen YoY; segment profit of 1.3 billion yen, up 322 million yen YoY. 4. Building & Construction Segment: H1 FY2026 sales of 13.232 billion yen, up 438 million yen YoY; segment profit of 532 million yen, up 79 million yen YoY. Revenue contribution: ~20.2% of total consolidated H1 sales. Full-year FY2026 forecast: sales of 27.3 billion yen, up 1.85 billion yen YoY; segment profit of 1.1 billion yen, up 89 million yen YoY.

• Full-year FY2026 consolidated guidance: Revenue maintained at 134 billion yen, operating profit maintained at 10.5 billion yen, ordinary profit maintained at 10.3 billion yen. Net income was upwardly revised by 700 million yen to 6.5 billion yen due to expected gains from policy share sales.
• Mid-term plan target: For the final year (FY2028 March Term), targets total revenue of 150 billion yen, operating profit of 12 billion yen, net income of 6.5 billion yen, and maintains ROE above 10%. As of September 2025, PBR already exceeds 1.0x, and the company aims to maintain and improve this level.
• New product revenue ratio target: The mid-term plan targets a 23% share of revenue from products developed in the prior 3 years. As of H1 FY2026, the ratio is 13%, up 3 percentage points from the end of March 2025, progressing in line with the planned 6 percentage point increase over 3 years.

• Sales volume missed the initial H1 forecast by 3%, leading to a 221 million yen negative impact on operating profit.
• Persistent cost increases: Rising logistics costs, depreciation from active investment, and increasing labor costs act as headwinds to profit growth.
• Foreign exchange volatility: Full-year guidance was calculated using an assumed USD/JPY rate of 149 yen, but recent rates have moved to 153-155 yen, which may require future guidance revisions.
• Limited market share in North America: Riken Technos holds only 3-4% share of the North American PVC compound market, requiring additional sales enhancement investment, with flat sales volume representing a persistent strategic challenge.
• Labor shortage: The company faces challenges in hiring sufficient personnel, requiring ongoing investment in labor-saving automation and productivity improvements.

Q: What caused the revenue decline in the U.S. market, and what are the company's future outlook and strategies for the region? / A: The H1 decline was primarily driven by yen appreciation compared to the prior year: USD averaged 152.33 yen in H1 FY2025, vs 149 yen in H1 FY2026, which reduced the yen value of local revenue. Sales volume was flat, which is the core challenge, as the company only holds 3-4% market share for PVC compounds in the U.S. The company is currently strengthening its sales capabilities in the region, has expanded production capacity, and plans to prioritize growth in its strong Building & Construction segment in the U.S. U.S. auto sales demand is currently stable, providing a good foundation for future growth.

Q: Are the planned food packaging wrap capacity expansions at Saitama and Mie factories adding new film-forming lines? What additional benefits come from this investment? / A: Yes, both factories are adding new film-forming lines and rewinding equipment, with material capacity expansion beyond a single small line. The investment also replaces aging 50-year-old equipment, reducing high overhaul costs, while improving production efficiency and enabling labor savings. The new equipment improves energy efficiency, reduces CO2 emissions, and also supports D&I initiatives by upgrading facilities to enable more women to work in production roles, with assistive equipment to handle heavy 20kg bulk rolls. Depreciation will increase temporarily under declining-balance depreciation, but after the 8-year depreciation period, profitability will improve.

Q: What is the competitive landscape for data center compound products, and what is Riken Technos' competitive advantage? / A: Data center cables require high reliability for heat resistance, pressure resistance, and optical performance, which is an area where Japanese manufacturing has inherent strength, giving the company an advantage over overseas competitors, with Japanese-made quality viewed as a strength. Main domestic competitors focus on olefin-based compounds, while Riken Technos offers PVC and elastomer compounds. The core advantage of PVC vs olefin is superior inherent flame resistance; olefin requires expensive flame retardant additives like antimony which have seen extreme price increases, while Riken Technos has enhanced its own flame retardant technology to achieve differentiation. The company also offers custom compound development as a specialist, which suits the varied needs of data center cable makers, and adds additional features like high voltage resistance and weather resistance for outdoor applications.

Q: After the 2029 Mie Factory expansion, are there further expansion plans, and what type of capacity will be added? / A: A new TPE (thermoplastic elastomer) line will start operation at Mie Factory in December 2025 via a scrap-and-build program, which has left the existing site severely space-constrained. The company acquired an adjacent 30,000 square meter plot (the maximum allowed under local zoning rules) for expansion, with site development and new construction starting in 2029. The new site will add new production lines sequentially, not all at once, with the specific line types still under review over the next 1-2 years. The expansion is primarily targeted at elastomer compound capacity to meet growing demand for material substitution from rubber, and will also incorporate labor-saving equipment and potentially consolidate warehouse operations to improve efficiency.