AHRESTY CORPORATION Q4 FY2025 earnings call

2022-2024 Previous Mid-Term Management Plan Summary

• 6 of 9 major strategic initiatives met original targets; low-cost high-productivity manufacturing, competitive mold cost targets, and employee engagement targets were not met due to delayed US plant profitability improvements.
• Financial targets for revenue, operating profit, ROA, ROE, and equity ratio were not met due to US plant impairment and special losses from workforce restructuring; electric vehicle (EV) sales ratio was slightly behind target, but the 2030 target of 55% EV sales remains unchanged; CO2 emission reduction targets exceeded expectations.
• Achieved 42% reduction in development lead time vs 2021 via digital transformation; secured a large order from BYD and achieved mass production 90 days after order placement; realized 1.0 billion yen annual cost reduction from restructuring in Japan and 1.5 billion yen annual cost reduction from restructuring in China.

New 2025-2027 Mid-Term Management Plan "Reinvent Ahresty"

• Core focus: Inherit Ahresty's traditional strength of high-quality manufacturing, and shift the organizational mindset from "make good products productively to earn profit" to "deliberately design profitable production of good products".
• Transition from traditional manufacturing improvement to "SMART Manufacturing": Prioritize improvement initiatives by monetary value of quality loss (instead of just defect rate), strategically prioritize productivity improvements that deliver the highest added value, and leverage DX and AI for faster, more efficient operations.
• Set new financial targets: 170 billion yen in revenue by 2027, 3.5% operating profit margin, and 7.0% ROE.

Sales and Growth Strategy

• Core strategy remains focused on capturing electric vehicle component orders (including hybrids, plug-in hybrids, battery EVs and fuel cell vehicles), aligned with current market trends of slower battery EV adoption growth.
• Geographic positioning: Mexico and India are defined as growth driver regions; Japan and the US are stabilization regions; China is a recovery region. Order growth has been achieved with core local customers: BIG3 pickup truck components in Mexico, BYD plug-in hybrid components in China.
• Finished Products Business (aluminum flooring for semiconductor cleanrooms): Maintain top market share in Japan, and expand sales to high-growth US and Indian semiconductor markets.

Operational Improvement Initiatives

• Roll out automated visual inspection for die-cast products, expanded from a successful trial at Tokai Plant; will leverage AI to further improve inspection accuracy and expand rollout in 2025.
• Use BI tools to reduce time spent aggregating production loss data, increasing time available for root cause analysis and improvement, speeding up problem resolution.
• Automate product quotation processes via 3D modeling to reduce lead times, enabling more parallel quotation work and supporting new product order growth.
• Use 3D simulation for production line and factory layout design to eliminate bottlenecks and maximize utilization of existing capacity.

Carbon Neutrality Initiatives

• Achieved 35% CO2 emission reduction vs 2013 baseline in 2024, exceeding the 29% target; targets are 41% reduction by 2027, 50% by 2030, and full carbon neutrality by 2050.
• Completed solar power installation at all eligible domestic facilities in 2024, will expand solar to overseas facilities starting 2025; converted aluminum melting furnace fuel from heavy oil to city gas at Tokai Plant, cutting CO2 emissions by 29% per unit of heat; drive energy saving initiatives to offset cost increases from energy transition.

Die-cast Business (Geographic Segments):

1. Japan: 64.591 billion yen in revenue, +2.584 billion yen year-over-year (YoY); segment profit of 2.32 billion yen, +1.725 billion yen YoY, driven by productivity improvements and fixed cost compression from workforce reduction.
2. North America: 49.704 billion yen in revenue (increased YoY); segment swung from a 1.242 billion yen profit to a 1.617 billion yen loss, due to severe profitability declines at the US plant.
3. Asia: 36.534 billion yen in revenue (increased YoY); profitability improved, driven by fixed cost reduction from production rationalization and lower depreciation from prior year asset impairments.

Aluminum Business: 7.212 billion yen in revenue, +0.155 billion yen YoY; segment profit of 0.226 billion yen, +0.085 billion yen YoY, exceeding plan, even as sales volume fell 9.8% YoY, with higher selling prices offsetting the volume decline.

Finished Products Business: 4.886 billion yen in revenue, -1.237 billion yen YoY (compared to a prior year with large semiconductor-related project deliveries); segment profit of 0.796 billion yen, a slight YoY decline, but maintained high profit margins.

Total consolidated revenue for 2024 was 162.9 billion yen, +4.6 billion yen YoY; operating profit was 3.371 billion yen, +1.0 billion yen YoY; net income was a loss of 2.892 billion yen, an improvement of 4.8 billion yen YoY.

• 2025 full year consolidated guidance: 161.2 billion yen revenue (-1.7 billion yen YoY), 3.6 billion yen operating profit (+0.2 billion yen YoY), and 2.3 billion yen net income (+5.1 billion yen YoY, swing to profit from 2024's net loss). Revenue is planned conservatively to account for US tariff impact and market uncertainty, with a projected revenue decline in the Japan segment offset by revenue growth in the Asia segment from expanded Chinese customer business and increased production from India's second plant. • 2025 full year target to return the US plant to full-year profitability via a four-point turnaround plan. • Total sales volume is projected to be roughly flat YoY in 2025, with growth starting in 2026 driven by mass production of new products in Mexico and India. • Annual capital expenditure will allocate ~50% to growth investment for new products, consistent with the company's financial strategy; depreciation is projected to increase slightly alongside higher capital expenditure. • Dividend policy is updated: maintains a 35% consolidated payout ratio as a base, and adds return on equity (DOE) as a new additional starting in 2025 to reinforce the commitment to stable dividends. • The long-term 2030 target of 55% electric vehicle sales share is maintained, unchanged from prior planning.

• The US plant experienced severe underperformance in 2024: combination of poor workforce retention, soaring wages, and production equipment problems led to a sharp drop in productivity in Q2, delivery disruptions, and record-level operating losses that required a 3.3 billion yen impairment charge and external financial support. US plant turnaround is the company's top priority management issue. • Uncertainty from US trade policy creates broad market uncertainty across the company's regional operations, with potential for reduced demand for products exported to the US that has been incorporated into 2025 planning. • Weak sales performance from Japanese OEMs in China pressured regional profitability in the prior mid-term plan period. • Slower-than-expected growth in battery EV adoption creates risk that electric vehicle sales targets could be delayed, though management views the current strategy targeting all electrified powertrains mitigates this risk. • Development of competitive mold costs has fallen behind original targets from the prior mid-term plan, creating ongoing cost competitiveness risk.

Q: What is the single most important key to achieving the new 2025-2027 mid-term plan targets, especially with growth focused on India and Mexico?

A: Management confirms that the core key to the plan's success is the successful turnaround of the US plant to return it to profitability. A profitable, stable US operation removes the main drag on group earnings and clears the way for focused investment in growth initiatives in India and Mexico, the company's designated long-term growth drivers. Without resolving US plant performance, the company cannot fully allocate resources to expand its high-growth opportunities in other regions.

Q: What are the specific expected returns and investment requirements for the shift to "SMART Manufacturing" under the new mid-term plan?

A: Most SMART Manufacturing initiatives are built on tools and projects already launched in the prior mid-term plan, so large incremental upfront investment is not required. The main expected return is a structural improvement in profitability by prioritizing improvement work on the highest loss-generating issues, rather than spreading resources evenly across all problems. This prioritization will deliver faster, larger reductions in production and quality costs, improving overall group margins without proportional increases in spending.

Q: What are the company's plans for giga-casting adoption, and how will it impact the business?

A: Management notes that giga-casting adoption is still at an early stage across the industry, with customer demand for large integrated castings growing slowly. Ahresty already has the technical capability to produce giga-casted components, and is actively participating in customer consultations and development discussions. The company will invest in giga-casting capacity as firm customer orders are secured, and will align investment with actual demand to avoid overcapacity or wasted capital.