IBOKIN Co.,Ltd. Q2 FY2025 earnings call

Core Strategic Framework

• Maintain a consistent strategy since listing: promote one-stop services combining the three core businesses of demolition, environmental, and metal. Position demolition (a "hunting-type" business with no regional restrictions) as the growth engine, and environmental/metal (stable "farming-type" businesses that rely on material delivery to own factories) as the stable operating base, maximizing synergies between the two business models to expand order volume.
• Maintain balanced resource allocation, aim to expand the operating territory of environmental and metal businesses, and leverage cross-segment collaboration to increase factory utilization.

Growth Initiatives for Demolition Business

• Prioritize capacity building for large, high-difficulty projects: Ibokin has completed demolition of over 100 wind power plants (the most among Japanese demolition contractors), and will continue to expand this growing business line as decommissioning demand increases.
• Add additional ultra-large demolition heavy machinery: The first unit introduced in 2023 has maintained very high utilization, with frequent cross-regional deployment across the Kanto-Kansai area. A larger, higher-performance second unit will be introduced soon to meet the trend of growing project size.
• Expand sales locations, increase the number of staff at existing Tokyo and Osaka branches, and explore opening new branches in other major Japanese cities to increase general contractor order volume.
• Integrate capabilities from the recently acquired subsidiary Mitsue (acquired January 2025): leverage Mitsue's strong local presence in Hyogo, large heavy machinery fleet, and specialized asbestos removal capabilities to expand in-house services and improve group-wide equipment utilization.
• Add a new customer service: calculate and report CO2 emissions from demolition projects and the CO2 reduction contribution from scrap recycling, with a successful pilot already completed, to be rolled out to all projects.

Expansion Initiatives for Stable Base Businesses

• Expand into major metropolitan areas: strengthen existing Tokyo and Osaka hubs, evaluate new locations to add capacity, and actively pursue M&A and new yard development to expand business territory.
• Strengthen cross-segment collaboration in the Kansai region: environmental and metal business teams collaborate on local demolition orders to increase delivery volume to own factories and raise utilization rates.

Operational Transformation and Capability Building

• Invest in advanced technologies including remote operation and autonomous operation to lead transformation in the recycling industry.
• Shift from a volume-dependent traditional business model to a hybrid model that combines material processing with knowledge/technology-based services, transitioning from labor-intensive to knowledge-intensive operations.
• Prioritize talent recruitment and development: the large project loss provided valuable operational experience, including training 5 new ultra-large heavy machinery operators, building on-site management teams, and accumulating know-how for high-difficulty projects that will support future growth.

1. Demolition Segment: Revenue of 1.416 billion yen, up 5.5% year-over-year. Reported an operating loss of 56.127 million yen due to cost overruns on large projects, resulting in a year-over-year decrease in profit. This segment accounts for approximately 30.6% of total consolidated revenue. 2. Environmental Segment: Revenue of 994 million yen, up 3.1% year-over-year, driven by growth in industrial waste processing contracts from spot transactions. Profit decreased year-over-year due to compressed recycling resource sales margins caused by low iron scrap prices. This segment accounts for approximately 21.5% of total consolidated revenue. 3. Metal Segment: Revenue of 2.21 billion yen, down 17.5% year-over-year, as higher processing volume of scrap from nearby large demolition projects was offset by falling iron scrap prices. Profit increased year-over-year due to the growth in old scrap processing. This segment accounts for approximately 47.8% of total consolidated revenue. Total consolidated revenue: 4.622 billion yen, down 7.3% year-over-year.

• Management maintains the original full-year 2025 December fiscal year guidance: total revenue of 10.5 billion yen, full-year ordinary profit of 826 million yen, with the interim period having reached 4.6 billion yen in revenue and 195 million yen in ordinary profit. Management expects to recover performance in the second half and meet full-year targets.
• Price assumption: Iron scrap and non-ferrous metal prices are expected to stay at current levels in the second half of 2025. Medium-term, iron scrap prices are expected to rise due to growing global demand from electric arc furnace steel production driven by decarbonization trends.
• Macroeconomic assumption: International trade negotiation disruptions are expected to ease, with a recovery in personal consumption and corporate equipment renewal in the second half.
• Dividend guidance: Maintain the planned full-year dividend of 32 yen per share, unchanged from the prior year. The company targets a payout ratio of 20% as a base, with a medium-term goal of 30% while retaining sufficient capital for future expansion and strengthening the balance sheet.

• Large demolition projects carry significant unforeseen cost risks: the interim operating loss from the demolition segment was driven by unexpected cost increases on two large projects, including: 1) External factor: low demand for road base material made it impossible to dispose of demolition debris at nearby facilities, requiring long-distance transport that increased disposal and transport costs. 2) Internal factor: strategically aggressive pricing for a first order from a major new client, plus higher costs from complying with unfamiliar client-specific site and safety rules when entering a new sector as a general contractor. 3) Unforeseen site conditions: the project involved a much more robust structure than initially estimated (a disaster evacuation shelter with ultra-high strength concrete), requiring additional equipment, repair, and fuel costs. 4) Manpower shortages amid rapid business growth, increasing project size, and growing general contractor order volume.
• Iron scrap price volatility: revenue and profit for both the metal and environmental segments are heavily exposed to fluctuations in global scrap prices, which can reduce earnings even when processing volumes rise.

Q: Have all expected losses from the unprofitable large demolition projects been recognized in the first half, or will there be additional losses in the second half? / A: There are two large loss-making projects. One was an unusually strong disaster evacuation shelter building, which required much more work and higher costs than expected. The second was Ibokin's first general contractor project in the chemical plant sector, which had unfamiliar rules that drove up costs. All expected remaining losses for these projects have been fully accrued and recognized in the first half, so there will be no further negative impact from these projects in future periods.

Q: Will the newly introduced ultra-large heavy machinery be used for wind power plant demolition? / A: The new ultra-large heavy machinery Ibokin is adding is a long-reach excavator for large buildings and factories, and it will not be used for wind power plant demolition. Wind power demolition uses large cranes to lower blades and generation units before gradually dismantling the tower, so Ibokin uses different equipment for that line of work.

Q: Can Ibokin recycle wind turbine blades after wind power plant demolition? / A: Ibokin handles full recycling for all components of decommissioned wind plants near its western Japan facilities: all metal components are fully recyclable. Ibokin and a cement manufacturer jointly developed a 100% recycling system for composite turbine blades, which completed successful pilot testing. The process is already in use at a few partner cement plants, and Ibokin plans to expand the network to create a nationwide recycling system for blades.

Q: What are Ibokin's plans for additional industrial land in the Hanshin region? / A: The existing Hanshin facility is at full capacity, so Ibokin is searching for an additional larger plot to complement existing operations, planned to serve as a collection hub for waste from the Osaka metropolitan area that feeds into the group's other processing facilities. Ibokin will pursue investment within a prudent range aligned with its capital position, and will announce details once a deal is finalized.