NORITZ CORPORATION Q2 FY2025 earnings call

• Mid-Term Management Plan "V Plan 26" Update

  • The plan balances growth of financial and non-financial value toward the 2030 vision, organized around 3 core strategic priorities. The final year (2026) performance target was revised to 210 billion yen in revenue and 4.5 billion yen in operating profit to reflect recent external market changes.
  • 1. Business Portfolio Transformation: Domestic business will reduce over-reliance on residential hot water products by growing the kitchen and non-residential segments to expand overall sales and profit. Overseas business will reduce concentration risk from China (which holds a large share of overseas revenue) by accelerating expansion in North America and Southeast Asia to diversify risk. A cumulative total cost reduction target of 3 billion yen is set for the plan period. The 2025 full-year cost reduction target of 0.8 billion yen is on track, with 356 million yen achieved in the first half.
  • 1. Expanded Strategic Investment and Capital Policy: ROE improvement is the top priority, with total planned investment of 32.5 billion yen across the plan period, 23.5 billion yen of which will go to growth areas. Capital policy focuses on improving cash allocation via enhanced shareholder returns, reducing policy-held shares, and canceling treasury stock.
  • 1. Sustainability-Driven Management: The company prioritizes "Q+ESG" (quality plus ESG) as core material issues, and has been selected for the FTSE Blossom Japan Index for 3 consecutive years, with an ESG score of 3.7 (up 0.4 points year-over-year).

• Interim Operational Progress Highlights

  • Domestic Business: Pre-failure replacement sales connected to customer relationship platforms grew 1.2x YoY. Recovered water heater volumes for recycling grew 1.3x YoY, and the company launched a closed-loop recycling scheme in June 2025 to advance resource circulation.
  • Capital Policy: The full-year dividend per share is maintained at 71 yen (up 2 yen from 2024), with an interim dividend of 35 yen per share. The planned treasury stock purchase program with an upper limit of 2 billion yen was completed in July 2025 after reaching the full amount.

1. Domestic Business: Total revenue was 65.2 billion yen, up 4.1 billion yen year-over-year, contributing 66.2% of total consolidated revenue. Operating profit was 0.6 billion yen, a 1.3 billion yen increase year-over-year. Breakdown of domestic sub-segments:

• Residential Hot Water and Air Conditioning: High value-added and eco-friendly products performed well, with premium water heaters growing 1.2x YoY and hybrid water heaters exceeding prior year sales volume; water heater energy efficiency improved 2 percentage points.
• Non-residential Segment: Sales grew in double digits YoY, with commercial water heater sales increasing despite price adjustments, and the new thermal solution business launched in 2024 progressed smoothly with system development and deliveries completed.
• Kitchen Segment: Overall sales grew, with range hood sales growing 1.2x YoY from channel expansion, offsetting a 2 percentage point drop in the mid-to-high premium ratio for built-in stoves from product mix shifts.

1. Overseas Business: Total revenue was 33.2 billion yen, down 1.6 billion yen YoY, contributing 33.7% of total consolidated revenue. Operating profit was 0.9 billion yen, up 0.3 billion yen YoY, delivering profit growth despite lower revenue. Breakdown of overseas regions:

• China: Persistent market weakness led to lower sales volume for both residential water heaters (which make up most of China's revenue) and kitchen appliances, but targeted production adjustment and strict cost control allowed the region to deliver profit growth despite lower revenue.
• North America: High-efficiency tankless water heater sales grew 1.1x YoY, commercial water heater sales also increased. The previously underperforming high-margin heating boiler business improved losses via sales growth and cost reductions from normalized component sourcing, narrowing the region's overall loss.
• Australia: Currency impacts pushed down yen-denominated revenue, but local currency revenue grew: heat pump water heater sales doubled YoY, and residential tankless water heater sales grew 1.1x YoY. Cost improvements from production equipment updates delivered profit growth for the region.
• Southeast Asia (new market development): Local product development for electric water heaters, water purifiers, and kitchen appliances progressed smoothly, with sales network expansion from a Vietnam base, and the equity-method affiliate Kangaroo saw a 4 percentage point cost rate improvement from Noritz manufacturing support.

• Full year 2025 guidance is maintained at 205 billion yen in consolidated revenue and 3 billion yen in consolidated operating profit.
  • Domestic business full year guidance is maintained at 137 billion yen in revenue and 1.5 billion yen in operating profit, driven by expansion of high value-added and eco-friendly products, new business opportunity development, and strengthened customer and brand infrastructure.
  • Overseas business full year guidance is maintained at 68 billion yen in revenue and 1.5 billion yen in operating profit, focused on restructuring existing operations, building local subsidiary autonomy, and advancing Southeast Asian market development.

• Persistent market downturn in China, which represents a large share of overseas revenue, creates ongoing downside pressure on overseas sales volumes and overall consolidated revenue.
  • High geographic concentration of overseas revenue in China creates material concentration risk for the company's overseas business segment. Domestic business still faces structural over-reliance on the residential hot water segment, requiring continued portfolio transformation to mitigate this risk.

No Q&A section was included in the provided transcript.