YAMABIKO CORPORATION Q2 FY2025 earnings call

Core Business Growth & Expansion

• OPE segment: North American subsidiary Echo Inc. has continued running nationwide television advertising on MLB games and sports channels through Q2 2025, with additional airings planned for Q4 2025, alongside digital spot ads on social platforms. The company is building sales and logistics infrastructure for the growing Middle Eastern OPE market, and will establish a sales subsidiary in the United Arab Emirates to drive market development, leveraging Yamabiko products' reputation for stable performance in high-temperature environments.
• Industrial Machinery: Unified North American generator branding from Shindaiwa to ECHO to leverage ECHO's high brand recognition, added a dedicated industrial machinery webpage and produced branded content to strengthen marketing outreach.
• Agricultural and Forestry Business: 5 of the company's electric products were selected for Japan's FY2025 Agricultural Machinery Electrification Promotion Subsidy Program, including 2 robotic mowers, 1 electric aerial work machine, and 2 electric work machines, all recognized for high work efficiency and decarbonization contributions.

New GX-Aligned Business Development

• Launched commercial sales of the 10kVA Multi-Hybrid System in June 2025 after repeated pilot testing. This in-house energy management system prioritizes solar power in sunny weather and battery power in bad weather, cutting generator runtime by over 90%, reducing CO2 emissions and costs, and is suitable for construction sites, event venues, and BCP applications, with current inquiries primarily from enterprises and local governments. Developed in partnership with IKS, which provides batteries and power conditioners.
• Entered a capital and business alliance with i Labo to develop hydrogen conversion technology that allows diesel engines to run on hydrogen. The joint-developed hydrogen engine generator has been demonstrated at the 2024 Tokyo E-Prix and Osaka-Kansai World Expo, and the alliance will advance joint R&D, mass preparation, and business model building.
• Cooperating with Toro, a leading golf course management equipment manufacturer: Yamabiko Europe and Toro are co-developing custom robotic products to be sold through Toro's global sales network covering over 125 countries. The collaboration launched on schedule in spring 2025, and is currently tracking 30% above initial conservative full-year forecasts.

ESG and Human Capital Initiatives

• Selected for the FTSE Blossom Japan Sector Relative Index for the third consecutive year, recognizing the company's ESG efforts by GPIF, Japan's public pension manager.
• Added a donation-linked PPA for solar power at the Hiroshima facility, with donations supporting reforestation activities in Hinohara Village, Tokyo.
• Opened the Yamabiko Kyoto Lab at partner IKS's premises to strengthen joint development for new energy-related businesses, and will support Kansai-region technical recruiting. Will open a Shinjuku satellite office in Tokyo in October 2025 to improve access for specialist recruiting and enable flexible working arrangements.

Shareholder Return

• Maintained stable dividends: plans an annual dividend of 90 yen per share, unchanged from the prior year, despite a full-year forecast for lower profit, aligned with the mid-term plan's commitment to stable dividends based on historical payout. Completed a share repurchase program from March to May 2025, buying back 400,000 shares for approximately 0.9 billion yen, with a 1 billion yen program cap. Allocated 153,000 treasury shares (worth approximately 380 million yen) to the employee stock ownership plan as a stock incentive.

1. Outdoor Power Equipment (OPE): OPE grew in both domestic and international operations, with a 59.8% increase in European revenue driven by dealer inventory normalization after inventory buildup in 2024. North American OPE saw strong growth in home center sales from promotional efforts including television advertising. Domestic OPE sales of chainsaws, trimmers, and sprayers were steady, supported by recovering farmer purchasing power from rising rice prices. 2. Agricultural Management Machinery (Agricultural Machinery): Domestic agricultural machinery revenue increased 7.7% year-on-year on recovering demand. Overseas agricultural machinery revenue decreased 2.7% year-on-year, with sales led by North American group company Cleary Industries, which faces continued weak demand from sustained low soybean prices. Agricultural machinery operating income turned positive in Q2 after a negative Q1 result. 3. General Industrial Machinery (Industrial Machinery): Industrial Machinery struggled in both domestic and overseas markets. Domestic sales of core generator products were stagnant. Overseas (primarily North America) sales were weak as rental companies adopted cautious capex stances due to uncertainty from US tariff policy. There were no major changes in segment revenue contribution share compared to prior periods.

• Full-year 2025 revenue guidance is maintained at 167 billion yen, with the Mid-Term Management Plan 2025 original revenue target set at 170 billion yen. Full-year operating profit is forecast at 18.5 billion yen, 1.1 billion yen lower than the prior year, with operating profit margin and ROE still projected to exceed the mid-term plan targets of 7% and 10% respectively.
• For segment-level full-year forecasts: OPE is expected to grow revenue, driven by solid home center sales in North America and the completion of dealer inventory normalization in Europe, with full-year growth slowing from the first half's pace as expected. Industrial machinery is expected to benefit from stable infrastructure demand, with sales efforts focused on acquiring large customers and rental clients in North America as the economy recovers. Domestic agricultural machinery is expected to hit prior-year levels, while overseas agricultural machinery is expected to see continued delayed recovery.
• The third quarter and beyond assumed foreign exchange rate was adjusted from 140 yen to 145 yen per USD and from 160 yen to 165 yen per EUR (a 5-yen shift to a weaker yen assumption), with full-year average rates set at 147 yen/USD and 163 yen/EUR. Full-year earnings guidance was kept unchanged despite the currency adjustment, as the shift offset the inclusion of updated tariff impacts.
• The mid-term plan's operating profit margin 7% and ROE 10% targets are still expected to be achieved in the final year 2025.

• US tariff policy impacts: Most products sold in the US are assembled by local subsidiary Echo Inc., but key OPE small engines are manufactured in Japan, so the company still faces exposure to import tariffs. The 15% tariff on Japanese imports has been incorporated into the current earnings forecast, with the company working to minimize impact through production shifting, cost reduction, supply chain optimization, and pricing adjustments. The August 2025 expansion of 50% tariffs on steel and aluminum is still under review, with details of customs procedures and calculation rules still unclear, so the full impact cannot be quantified at this stage and has not been included in the current earnings guidance. The company estimates that for a typical small low-cost trimmer, the additional cost per unit would be between 150 yen and 400 yen under current available information, but this remains a preliminary estimate.
• Foreign exchange risk: A stronger yen trend in the first half of 2025 created an 800 million yen foreign exchange loss, compared to a 1.4 billion yen foreign exchange gain in the prior year period, leading to a 14.9% year-on-year drop in ordinary profit and a 25.3% drop in net profit. While gradual production shifting to the US may reduce exchange rate exposure over time, the core business model of Japanese engine manufacturing exported to the US for final assembly will remain in place for the foreseeable future, so the company will continue to face material exchange rate volatility impacts.
• Industry-specific risks: Overseas agricultural machinery faces continued weak demand from low commodity prices. North American industrial machinery demand is impacted by rental company capex caution from macroeconomic uncertainty. European OPE still lacks direct distribution channels to large home center retailers, creating a growth gap that the company identifies as a remaining strategic challenge.

Q: What is the current state of North American OPE market demand by channel, and what is the outlook? / A: The North American OPE market splits into two core channels: the dealer channel focused on professional users, which hit roughly year-ago levels in Q2 2025, and the Home Depot channel focused on general consumers, which grew at a double-digit percentage rate year-on-year. The double-digit growth is attributed to the impact of television advertising and other promotional efforts. OPE is a core part of North American infrastructure with a stable market base, and steady demand is expected to continue for both professional and general consumer segments going forward.

Q: Can you explain the situation of European end-user retail sales and distribution channels? / A: The big jump in Yamabiko's European revenue in 2025 is driven by dealer inventory restocking after overbuilding during the COVID boom, followed by a 2024 inventory correction that cut dealer orders in half. End-user retail sales remained stable and grew steadily through this period with no major demand contraction. In Europe, the company operates primarily on a one-agent-per-country model, with strongest market positions in Southern Europe (France, Italy, Spain). The company does not currently have direct distribution to large home center chains, which is recognized as a key remaining growth challenge. OPE demand is inherently stable, as green space management requires consistent equipment use regardless of short-term economic shifts.

Q: What are the medium-to-long term outlook and residual risks for the US OPE business, particularly regarding electrification? / A: As noted, continued stable growth is expected for the US OPE market supported by population growth. The company has built out a full line of electric OPE products and actively promotes them alongside engine products, following a strategy of offering both options for customers to choose from. Currently, demand for engine products remains strong, especially in large home center channels like Home Depot where engine products are the primary SKU carried for the brand. The company will continue to grow electric offerings, but expects the overall OPE market to grow stably with both product types contributing.

Q: Will supply chain shifts for tariffs reduce the company's sensitivity to yen appreciation? / A: As the company gradually shifts more production to the US, exchange rate sensitivity will likely decrease over time. However, the core business model of manufacturing key engines in Japan and exporting them to the US for final assembly will remain the profit pillar for the foreseeable future, so no abrupt change to exchange exposure is planned. Large-scale production shifting requires major capital investment and transfer of manufacturing know-how, which cannot happen quickly. Modest yen appreciation will not materially erode the cost advantage of Japanese production, so large near-term changes are not expected, and major yen appreciation would require strategic review.