NORITZ CORPORATION Q4 FY2025 earnings call

• Consolidated Overall Performance

  • Consolidated revenue was 202.0 billion yen, a slight 0.1 billion yen decrease year-over-year (slight revenue decline).
  • Consolidated operating profit increased 1.9 billion yen year-over-year to 4.3 billion yen, beating both the initial guidance of 3.0 billion yen and the revised guidance of 4.0 billion yen announced on December 4.
  • Net profit decreased 1.0 billion yen year-over-year to 3.3 billion yen, primarily due to the large special gain from securities sales recorded in the prior year.
  • Domestic business delivered increased revenue and increased profit: price adjustments, expanded sales of eco-friendly and high value-added products drove revenue growth, and improved cost ratio and productivity pushed operating profit to more than 1.5x the prior year level. Overseas business delivered decreased revenue but increased profit: despite continued market slowdown in China leading to overall revenue decline, all regions achieved increased profit and turned to full black ink, with operating profit more than doubling the prior year level.

• Domestic Business Strategic Initiatives

  • Profitability enhancement through high value-added and eco-friendly products: All residential hot water and HVAC product lines grew year-over-year, with particularly strong growth for high-efficiency water heaters and hybrid water heaters. The newly launched natural refrigerant hybrid water heater launched in November last year outperformed demand expectations due to its industry-leading environmental performance, energy efficiency and installability. Non-residential segment improved growth and profitability by leveraging its high commercial water heater market share, pushing high-efficiency adoption, and increasing uptake of installation-saving delivery systems, labor-saving remote monitoring and maintenance packages. In the kitchen segment, the new high-end PROGRE built-in hob performed strongly, and range hood sales grew steadily through capture of replacement demand, though the overall kitchen segment still delivered decreased revenue and remains a key area for improvement.
  • New business opportunity creation and connection base building: The initiative aims to strengthen customer connections, provide safety via preventing accidents from aged product deterioration, and build CRM touchpoints for recurring stock business. Pre-failure replacement volume and IoT remote controller sales (the core of CRM) grew steadily. The Noritz co-created water heater recycling program (branded "Smile for People Project") saw steady growth in participating retailer count and collected unit volume, and Noritz has begun building closed-loop recycling that repurposes recycled materials for new water heater production.
  • Cost reduction progress: FY2025 delivered over 1.05 billion yen in cost improvement, bringing cumulative cost reduction under the mid-term management plan "V Plan 26" to over 1.35 billion yen, which is on track to meet targets. The company targets an additional 1.7 billion yen in cost reduction in FY2026 to reach a cumulative total of 3.0 billion yen.

• Overseas Business Regional Initiatives

  • China: Focused on cost control and sales volume retention amid market weakness; shifted focus to offline retail (less impacted by large online demand declines), which drove strong performance of premium Noritz products in Shanghai. Agency sales policies in lower-tier cities were not enough to offset overall online demand declines, but new kitchen products delivered revenue growth, and fixed cost reduction aligned with sales volume led to overall decreased revenue but increased profit.
  • North America: Worked to expand sales of high-efficiency water heaters and commercial equipment, and restructured the heating business. Expanded sales and installation networks to drive large volume growth for commercial equipment including rack system deliveries, and strengthened demand recovery outreach for high-margin heating equipment to gain new orders, resulting in full product line expansion and overall increased revenue, increased profit and black ink status.
  • Australia: Focused on aligning with market electrification trends and cutting costs. Leveraged local subsidiary Dux's tank production strength to drive strong growth of newly launched heat pump water heaters. Improved profitability via material cost control from adjusted sourcing and productivity-driven cost improvement, continuing stable growth with increased revenue and increased profit.
  • Southeast Asia: Focused on market and product development. Opened a new liaison office in Bangkok, Thailand and launched Noritz brand water purifiers in the Thai market in October, making steady progress on market expansion. In Vietnam, equity-method affiliate Kangaroo expanded sales of its own products, improved costs, and won manufacturing contracts for Noritz brand products for the Southeast Asia region, delivering synergy gains and achieving operating profit black ink status.

• Capital Policy

  • The shareholder return policy during the "V Plan 26" mid-term plan commits to paying the higher amount between 50% consolidated payout ratio or 2.5% DOE (dividend on equity).
  • FY2025 planned full-year dividend is 74 yen per share (35 yen interim, 39 yen year-end) based on the 2.5% DOE target.
  • FY2026 planned dividend is 94 yen per share (47 yen interim, 47 yen year-end), a dividend increase based on the 50% payout ratio aligned with the planned 8.6 billion yen net profit.
  • The company will implement share buybacks with an upper limit of 1.0 billion yen to improve capital structure and capital efficiency, targeting lifting ROE above 6%.

1. Domestic Business: Revenue of 136.7 billion yen, a 3.2 billion yen increase year-over-year; Operating profit of 2.1 billion yen, a 0.7 billion yen increase year-over-year. Revenue contribution share of 67.7% of total consolidated revenue. 2. Overseas Business: Revenue of 65.3 billion yen, a 3.4 billion yen decrease year-over-year; Operating profit of 2.1 billion yen, a 1.1 billion yen increase year-over-year. Revenue contribution share of 32.3% of total consolidated revenue. By region: - China: Overall decreased revenue but increased profit; kitchen equipment new products delivered revenue growth. - North America: Achieved increased revenue, increased profit, and turned to full black ink across all product lines. - Australia: Continued stable growth with increased revenue and increased profit, driven by growing heat pump water heater sales. - Southeast Asia: The Vietnamese equity-method affiliate Kangaroo achieved operating profit black ink status through synergies with the Noritz group.

• For FY2026, Noritz plans a full year consolidated revenue of 210.0 billion yen and consolidated operating profit of 4.5 billion yen, representing an outlook of increased revenue and increased profit. Revenue targets are maintained at the initial plan levels: 140.0 billion yen for domestic business and 70.0 billion yen for overseas business.
• Operating profit guidance has been revised to reflect external environment changes: domestic operating profit guidance is revised downward from 2.5 billion yen to 2.2 billion yen, while overseas operating profit guidance is revised upward from 2.0 billion yen to 2.3 billion yen.
• Net profit guidance for FY2026 is 8.6 billion yen, which includes expected special gain from sales of investment securities as part of the plan to reduce cross-held policy shares to below 20% of net assets.
• Domestic business FY2026 targets increased profit via pursuing revenue growth across all segments and cost reduction: In addition to existing initiatives, the company will strengthen focus on customer experience value aligned with growing renovation demand. It will prioritize expanding sales of high-efficiency (including hybrid) and premium water heaters, increase the sales mix of high-value-added kitchen products such as high-end built-in hobs and range hoods, expand solution-based business (including installation-saving systems, remote monitoring and maintenance contracts) in the non-residential segment, and pursue further cost reduction via supply chain planning that revises sourcing and manufacturing processes to offset raw material cost inflation.
• Overseas business FY2026 targets overall increased revenue and increased profit by region: - China: Will accelerate expansion via advancing agency sales policies and opening exclusive stores to develop demand in lower-tier cities, prioritize expansion in high-growth regions, strengthen the kitchen equipment business in addition to core hot water equipment, and further control fixed costs aligned with sales volume to stabilize profit. - North America: Will improve profitability via revising sales channel and product mix, while maintaining the core product lineup of residential tankless, commercial, heating and heat pump products. - Australia: Will improve QCD (quality, cost, delivery) of its core tank production capability, expand sales of heat pump and tankless water heaters aligned with market demand, and pursue organic growth. - Southeast Asia: Will leverage the large market opportunity from rising incomes and water access challenges, and work to expand sales areas and channels for water purifiers and electric water heaters.

• Domestic: The overall kitchen segment experienced decreased revenue amid polarization of built-in hob demand between high-end and entry-level products, leaving it as an ongoing challenge for the business.
• Overseas: Continued market slowdown in China (the largest revenue region for overseas business) led to an overall revenue decline for the overseas segment, as other regions were not able to offset the China market weakness. Ongoing sluggish demand in China remains a core risk for overseas performance.

No question and answer section was included in the provided transcript.