NORITZ CORPORATION Q4 FY2024 earnings call

Mid-Term Management Plan (V Plan 26) Overview

• The plan targets simultaneous improvement of financial and non-financial value to achieve the 2030 vision, with three core strategic priorities: 1) business portfolio transformation, 2) expanded strategic investment and capital policy, and 3) sustainability-driven management. The plan's final year (2026) targets were revised downward from 230 billion yen revenue / 9 billion yen operating profit to 210 billion yen revenue / 4.5 billion yen operating profit to reflect recent external environment changes.
• Target 3.0 billion yen in cumulative cost reduction by 2026. Total planned investment of 32.5 billion yen, with 23.5 billion yen allocated to growth areas. Capital policy focuses on strengthened shareholder returns, reduced cross-shareholdings, and treasury stock cancellation to improve cash allocation. Sustainability is pursued via a "Q+ESG" framework that integrates unique quality standards with ESG priorities.

Domestic Business Operational Progress

• Penetration of eco-friendly, social issue-solving products: Hybrid water heater sales grew 1.4x year-over-year supported by residential energy efficiency subsidies; energy efficiency of gas/oil water heaters improved 3 percentage points. Range hood sales through mass retail channels grew 1.3x year-over-year, and a higher mix of mid-to-high end built-in hobs supported revenue growth. Premium water heaters with disinfection features saw lower sales due to weak overall hot water equipment demand.
• Strengthened customer connections: IoT remote control sales grew 1.1x year-over-year; after-sales maintenance contracts grew 1.2x year-over-year, steadily expanding customer touchpoints. Product replacement from inspections saw a slight year-over-year increase despite a small drop in total inspection volume.
• Non-residential segment growth: Commercial water heater sales were solid driven by inbound-related accommodation investment; maintenance contracts grew 1.2x year-over-year. The new thermal solutions business launched full operations in December 2024, with steady progress in deepening penetration in customer-facing segments and exploring non-customer-facing applications.
• Cost reduction: 0.3 billion yen in cost reduction achieved in the first year (2024), in line with plan. Annual targets are disclosed as 0.8 billion yen for 2025 and 1.9 billion yen for 2026, to hit the cumulative 3.0 billion yen target.

Overseas Business Operational Progress

• Local subsidiary independence for existing business growth: In China, progress continues on local independence and building a kitchen appliance business despite the broader market slowdown. In North America, a new independent business unit was launched, and high-efficiency tankless water heater sales grew 1.4x year-over-year through contractor training, promotional efforts and new product launches; high-margin heating boilers remained weak due to prior supplier switching delays and ongoing contractor shortages. In Australia, expanded product assortment for electrification aligned with policy trends drove strong growth across product lines.
• New business development (geography and product): New hubs were opened in Southeast Asia to build out a sales network. The equity-method investee Kangaroo Co. achieved full-year operating profit break-even with full support from the Noritz Group.

Capital Policy Progress

• Three cross-held shareholdings (including Asics) were sold in 2024, reducing holdings in nominal terms, but progress as a percentage of net assets remained flat due to rising market valuations of remaining holdings.

1. Consolidated: Total revenue of 202.2 billion yen, up 0.3 billion yen year-over-year; operating profit of 2.3 billion yen, down 1.4 billion yen year-over-year; net profit of 4.3 billion yen, up 3.5 billion yen year-over-year, boosted by gains on sale of investment securities. Revenue contribution of domestic business is 66%, and revenue contribution of overseas business is 34%.
2. Domestic Business: Total revenue of 133.4 billion yen, up 2.0 billion yen year-over-year; operating profit of 1.3 billion yen, up 0.9 billion yen year-over-year (increased revenue and profit). Within domestic segments:

• Residential hot water segment: Revenue decreased due to lower new housing starts and weak durable goods demand, even though a recovery was seen in the second half.
• Non-residential segment: Revenue increased driven by growing investment in accommodation facilities.
• Kitchen segment: Revenue increased driven by stronger replacement sales of range hoods. Non-residential and kitchen segment growth fully offset the residential hot water segment revenue decline. 3. Overseas Business: Total revenue of 68.7 billion yen, down 1.7 billion yen year-over-year; operating profit of 1.0 billion yen, down 2.4 billion yen year-over-year (decreased revenue and profit). Within overseas segments:
• China: Revenue and profit decreased due to market deterioration, lower demand, intensified price competition, falling sales and elevated raw material costs. Kitchen appliances (built-in hobs, range hoods) grew 1.3x year-over-year despite the broader slowdown.
• North America: Revenue increased driven by strong demand for tankless water heaters and strengthened marketing, but operating profit decreased due to higher marketing costs and weak performance in the high-margin heating segment.
• Australia: Revenue and profit increased; heat pump water heater sales grew 13.8x year-over-year, and tankless water heater sales grew to 1.2x year-over-year in household and 1.1x in commercial driven by electrification policy tailwinds and New Zealand market expansion.

• 2025 Full-Year Consolidated Guidance: Management projects 205.0 billion yen in consolidated revenue and 3.0 billion yen in consolidated operating profit.
• 2025 Domestic Business Guidance: Domestic revenue is targeted at 137.0 billion yen, with operating profit targeted at 1.5 billion yen. Growth will be driven by expanding sales of high value-added and eco-friendly products, capturing new business opportunities, and strengthening business foundations via expanded customer touchpoints and brand penetration.
• 2025 Overseas Business Guidance: Overseas revenue is targeted at 68.0 billion yen, with operating profit targeted at 1.5 billion yen. The priority is restructuring existing businesses based on 2024 performance, advancing local subsidiary independence, and growing new businesses including heat pump water heater operations in North America and Australia and market expansion in Southeast Asia.
• Shareholder Return Guidance: The 2.5% DOE (dividend on equity) policy is maintained. A full-year dividend of 71 yen per share is planned for 2025, representing a further increase from the 2024 full-year dividend of 69 yen (up from the prior 67 yen forecast). A 2.0 billion yen treasury share repurchase program is planned to improve capital efficiency and capital structure, aligned with management focused on cost of capital and share price performance.

• Domestic market: Weak demand for durable consumer goods and declining new housing construction volumes negatively impact the large residential hot water segment, weighing on overall domestic performance.
• China dependency risk: China accounts for a large share of overseas revenue, and prolonged market deterioration, demand decline and intensified price competition in China led to sharp declines in overall overseas revenue and profit in 2024.
• North American operational risk: Supplier switching delays for high-margin heating boilers and ongoing contractor shortages have led to sustained weak sales in this profitable segment, dragging down regional profitability.
• Cross-shareholding reduction progress: While nominal cross-shareholdings were reduced in 2024, rising market valuations of remaining holdings left progress as a share of net assets flat, delaying achievement of capital allocation targets.

The provided transcript does not include a question and answer section, so there are no relevant exchanges to summarize.