AHRESTY CORPORATION Q2 FY2026 earnings call

Overall Consolidated Performance

• Consolidated revenue grew year-over-year, and operating profit improved dramatically from a year-ago deficit to a current surplus. Key drivers include: increased sales volume from recovering domestic Japanese automotive production, production rationalization initiatives carried over from the prior year, and stabilization of previously soaring raw metal market prices. Net profit also increased year-over-year: despite foreign exchange losses, improved operating profit and gains from the sale of affiliate stocks offset negative impacts. The company confirms steady progress on overall profit structure improvement.

US Plant Turnaround (Top Priority)

The US plant narrowed losses year-over-year, but productivity improvement remains incomplete. The company is pursuing a 4-pillar restructuring plan: 1) improve individual product profitability via cost cuts and ongoing price correction negotiations with customers, 2) reduce quality loss costs from defective units via process improvements and on-site training, 3) strengthen governance and management by deploying headquarters talent and establishing regular progress check-ins to rapidly resolve on-site issues, 4) optimize regional resource allocation via production complementarity with the Mexico facility while monitoring US tariff impacts. While progress is ongoing, productivity improvement has been slower than planned; the company aims to accelerate improvements and return the US plant to profitability in the second half.

"SMART Manufacturing" Initiative (Mid-term Core)

The 2025-2027 mid-term management plan centers on "Realizing SMART Manufacturing", shifting the company's philosophy from "you will earn profit if you make good products productively" to "you intentionally make good products in a way that generates profit". The initiative leverages existing production capacity, eliminates waste, boosts total added value, improves process quality and efficiency, and cuts manufacturing costs. It also accelerates prior 3-year profitability-focused manufacturing improvements, and leverages DX and AI to increase per-employee added value. Quality remains the core foundation of the initiative, and the company has already received multiple QCD (quality, cost, delivery) awards from customers this year.

Human Capital Strategy

Ahresty frames human capital as the core source of corporate value, and pursues a 3-pillar strategy for sustainable growth: 1) strategic, planned talent development via a long-term talent roadmap, 2) engagement reform to boost employee motivation and sense of purpose, 3) diversity and inclusion (D&I) reform to foster innovation from diverse workforces. Region-specific priorities are: addressing workforce diversification from Japan's shrinking working-age population, high employment turnover in the US, and building out personnel capacity in high-growth India. Key talent development actions include sending India supervisors to Japan for training and rolling out the standardized "Ahresty Production Way" to Indian frontline staff to build globally consistent manufacturing capability.

Mid-term Management "Reinvent Ahresty"

The 2025-2027 mid-term plan is structured around "continuity and reconstruction" of Ahresty's manufacturing core: the company maintains its commitment to stable supply of high-quality products to earn customer trust, while implementing the philosophy shift to profit-focused manufacturing, with successful pilots already visible in the first half being rolled out company-wide. The plan pursues 9 key initiatives backcast from a 10-year business plan to strengthen customer trust and the profit base.

Financial Overview

• Full-year capital expenditure is projected at 10.3 billion yen, flat year-over-year, with selective investment in new products to maximize return on investment. Depreciation expense is also projected to be flat year-over-year.
• First half operating cash flow increased due to substantially improved earnings power, and free cash flow remained positive. Interest-bearing debt and equity capital levels are nearly unchanged from the prior year end.
• Shareholder return: Full-year dividend per share guidance is maintained at 32 yen. The company's core policy is to maintain a 1.5% minimum dividend on equity (DOE) and a 35% minimum consolidated payout ratio, while maintaining a sound balance sheet to support flexible order handling and growth investment.

Die-casting Business Segments

1. Japan Segment: Reported year-over-year revenue and profit growth. Prior-year workforce optimization reduced fixed cost burdens, and increased sales volume drove substantial profit improvement. Full-year segment profit guidance was upwardly revised to 2 billion yen. No revenue contribution percentage was provided.
2. North America Segment: Aim to turn from prior-year full-year losses to a full-year profit, and achieved a profit in the first half. The segment has two facilities: Mexico consistently contributes positively to group profits, while the US facility remains in turnaround. As of Q2, the North America segment as a whole remained in a net loss. No revenue contribution percentage was provided.
3. Asia Segment: Reported year-over-year revenue growth but profit decline. In China, decreased orders from Japanese customers were offset by new orders from Chinese customers, and production rationalization is ongoing. In India, order volume is growing steadily with market expansion, but delayed productivity improvements for some products pushed up overall segment costs, leading to the full segment's profit decline. No revenue contribution percentage was provided.

Aluminum Business

Sales volume decreased 9% year-over-year, leading to lower revenue. However, higher selling prices and compressed raw material costs led to improved profit performance. No absolute financial values or revenue contribution percentage were provided.

Finished Product Business

Revenue was flat year-over-year, but cost reduction efforts at the individual project level led to increased profit. No absolute financial values or revenue contribution percentage were provided.

• Overall sales volume: While regional differences will persist, overall gradual recovery is expected for the second half of the fiscal year. The sales volume forecast, which accounts for US tariff impacts and China's economic conditions, is maintained at roughly plan levels, with gradual volume growth projected going forward.
• Die-casting Japan segment: Full-year profit guidance was upwardly revised to 2 billion yen, based on strong first half results.
• US plant: The company targets returning the US plant to profitability in the second half of the fiscal year, and will accelerate restructuring efforts to recover slower-than-planned productivity improvement progress.
• Capital expenditure and depreciation: Full-year capital expenditure is projected at 10.3 billion yen (flat year-over-year), and depreciation expense is projected to stay at prior-year levels.
• Dividend: Full-year dividend guidance of 32 yen per share is unchanged, with the company's shareholder return policy maintained.
• Full-year North America segment: The company maintains the target of turning the segment from a prior-year loss to a full-year profit.

• US plant restructuring: Productivity improvement at the US plant is progressing slower than originally planned. Persistently high quality loss costs and low profitability for some products remain material risks, and the turnaround is still incomplete.
• Regional demand and market risks: China's weak economic conditions and reduced orders from some Chinese customers, and US tariff impacts on North American operations create ongoing uncertainty.
• Asia segment headwinds: Delayed productivity improvement for products at the India plant has increased costs and dragged down segment profit, creating ongoing operational risk.
• US high employment turnover: Persistently high labor turnover in the US creates challenges for building stable, productive operations at the US plant.

Q: Can you disclose the amount of the first half loss for the US plant specifically?

A: Ahresty discloses segment-level profit data publicly, and discloses annual operating profit for the US plant in its securities report. However, the company does not disclose semi-annual standalone profit/loss figures for the US plant, so it declines to provide a specific number for this period.

Q: What is Ahresty's view on the EV transition trend, given uneven adoption growth in regions like the US compared to Europe? Is the company's long-term strategy still aligned with prior EV-focused plans?

A: Ahresty's long-term strategy is centered on expansion into electric powertrain vehicles, which includes hybrid vehicles alongside full battery EVs. While the company expects long-term EV adoption growth, it forecasts that plug-in hybrid and full hybrid vehicle demand will grow in the medium term, and the company is currently prioritizing order acquisition for these hybrid vehicle programs. This direction is unchanged from prior strategy.

Q: What is the current update on giga-casting adoption for Ahresty amid the EV shift?

A: Ahresty continues to monitor giga-casting industry trends regularly. The company is continuing development of the core technologies required for giga-casting, including large-scale casting and large component molding, and already holds many relevant core technologies. At this stage, the company is continuing to watch customer adoption trends closely, and there are no concrete plans to deploy specific numbers of giga-casting units at specific facilities yet.