YAMABIKO CORPORATION Q4 FY2025 earnings call

2025 Full-Year Consolidated Results

• Consolidated net sales grew 5.6% year-over-year to 174.02 billion yen, and operating profit grew 0.4% year-over-year to 19.722 billion yen, hitting all-time records for both metrics. All three numerical targets under the outgoing Mid-Term Management Plan 2025 were achieved.
• The negative impact of US additional tariffs was limited via supply chain reconfiguration, cost reduction initiatives, and partial price pass-through, though delayed price adjustments created a minor negative impact in 2025.
• Historically, the fourth quarter had been unprofitable through 2022, but the past three fiscal years (including 2024 and 2025) have delivered positive Q4 profits.

Key Achievements Under Mid-Term Management Plan 2025

• OPE Multi-Solution Expansion: Launched a full lineup of global-spec electric OPE platforms in 2023 after starting pilot work in 2022, enabling both engine and electric power solutions to meet professional customer demand.
• Manufacturing Base Consolidation: Closed the Shenzhen, China assembly plant in 2023; business operations have ended, employee separation processes are complete, and liquidation is ongoing.
• Strategic Partnership for Industrial Machinery Growth: Focused on expanding the industrial machinery segment to build a more balanced business portfolio. Developed Energy Management Systems (EMS) for decarbonization, decentralized power grids, and power supply optimization, launched EMS-related new products in 2024 that have been adopted by local governments for BCP use. Built an ecosystem of partners to access missing technologies, and demonstrated a prototype hydrogen generator that operated at a Formula E event.
• Overseas Industrial Machinery Strengthening: Selected North America ECHO as the base for industrial expansion, unified the Shindaiwa brand under the better-known ECHO brand in North America and launched a large-scale marketing campaign in early 2026 to leverage existing ECHO brand investment synergies. Completed an earlier-than-planned asset-based M&A for a US floodlight business.
• New Robot Demand Creation: Achieved a robotics technology breakthrough in Europe in 2024, developing stable long-term pattern driving technology that handles on-site noise and variables, and launched a new commercial product. This led to an OEM supply agreement with Toro, with the business launched in 2024-2025, and it will remain a core growth pillar for Mid-Term Management Plan 2028.
• Profit Improvement: Implemented price adjustments to offset cost increases, which have been well accepted by professional customers who prioritize productivity and durability. Advanced automation and labor saving including VA/VE to cut costs, reconfigured the supply chain in response to US tariffs, and is preparing a long list of vertical integration initiatives for further profit improvement.
• Management Base Strengthening: Appointed the former president of ECHO as a director to support global group management, added external experts to the board and committees, designed and launched global internal audit standards. Revised the personnel evaluation system, published the revised executive evaluation framework, earned DX certification in 2023, launched an in-house training program that has developed 15 internal DX evangelists, and continues this initiative.

New Corporate Vision & Portfolio Strategy for Mid-Term Management Plan 2028

• Updated the corporate vision to "a company that continues to create new value for outdoor work sites", from the previous description as a "global comprehensive outdoor working equipment manufacturer".
• Portfolio strategy goals: Reduce the Americas region sales share from 61% to 50% by growing the European business as a key growth driver, and increase the industrial machinery segment sales share from under 10% to 25%. Within the OPE segment, increase the share of electric products and robots while retaining a large overall OPE share, and explore expansion into Asian markets for Japanese agricultural machinery to offset limited domestic growth.

1. Outdoor Power Equipment (OPE) Segment: This segment achieved growth in both revenue and profit. All regions delivered solid sales growth, with Europe recording a 33.6% year-over-year increase (excluding foreign exchange impact) driven by a rebound from 2024's decline and expanded robot business with partner The Toro Company. This segment was the core driver of the company's 2025 record results. It currently accounts for the majority of consolidated sales, with the Americas region holding a 61% share of total company sales as of 2025.
2. General Industrial Machinery (Sanki) Segment: Both sales and operating profit fell below year-ago levels. Domestic generator sales struggled, while North America delivered double-digit year-over-year growth, but a sales decline in Latin America limited overall Americas growth to just 1.4% year-over-year. Higher raw material costs hit profit more severely in this segment than other segments. It currently accounts for less than 10% of total consolidated sales.
3. Agricultural Management Machinery (Noki) Segment: Both sales and operating profit were below prior year levels. Domestic sales increased due to rising rice prices boosting farmer demand for productivity improvements, but the Americas segment saw double-digit declines overall, driven by poor performance at North American subsidiary Crary Industries amid low grain (especially soybean) prices.

• 2026 December Full-Year Guidance: Management expects continued growth in revenue and profit, forecasting 6.3% year-over-year sales growth to 185 billion yen, operating profit of 21 billion yen, ordinary profit of 20 billion yen, and net profit of 15 billion yen.
  • Sales growth will come from OPE and industrial machinery growth in North America, and continued expansion of European business. On the profit side, higher personnel and IT costs are planned, but full-year contributions from North American price adjustments and growth of high-margin robotic lawnmowers will offset these increases.
  • Segment-specific 2026 forecasts: OPE expects continued strong sales in North America home center channels and continued strong demand for robotic lawnmowers in Europe. Industrial machinery expects sales growth in North America including contributions from the acquired floodlight business. Agricultural machinery expects continued declining sales in North America due to ongoing low grain prices.
  • Operating profit growth drivers: 3.3 billion yen from sales growth excluding exchange impacts, and 0.6 billion yen from favorable exchange impacts. Gross margin pressure from raw material costs and tariffs will be offset by price adjustments and growth of the high-margin robot business. Selling, general and administrative expenses will increase to fund forward-looking investments in human capital, IT, and R&D.
• Mid-Term Management Plan 2028 (through fiscal 2028) Guidance: Targets consolidated net sales of 210 billion yen, operating margin of 13%, and ROE of 14% by the final year. This plan is a stepping stone to the longer-term target of 250 billion yen in consolidated sales by 2030.
• Cash Allocation Guidance for Mid-Term Management Plan 2028: Expects cumulative operating cash flow of approximately 55 billion yen over the three-year plan period. Cash will be allocated to strategic growth investment (including M&A and facility expansion/new construction), base investment (system updates and structural reform costs), and shareholder returns. Debt will be used as needed depending on project size and timing to pursue investments with greater speed.
• Shareholder Return Guidance: Maintains a target payout ratio of 30% to continue stable dividends based on past dividend performance. Will continue to consider comprehensive return policies including share repurchases based on growth investment progress, financial conditions, and stock market trends. For 2026, plans a 20 yen year-over-year increase in full-year dividend, with 55 yen interim and 55 yen terminal dividend.

• US tariff policy creates ongoing cost uncertainty, and the recent unconstitutional ruling on US tariff policy creates additional uncertainty that the company is still monitoring, with no clear assessment of impact available at this time.
• Shifting the business portfolio toward lower-margin product categories (including electric OPE) could pressure overall asset efficiency and return metrics if not managed properly.
• Accumulation of excess cash on the balance sheet could lead to lower capital efficiency if unutilized growth investment budgets are not reallocated to shareholder returns.
• In the growing robot business, competitors could catch up to Yamabiko's current technological lead without continued sustained investment.
• The domestic Japanese market for agricultural and forestry outdoor work is facing long-term decline in the working population, creating ongoing structural headwinds for domestic business.
• Geopolitical risk and inflation have increased operational uncertainty compared to previous periods.

Q: What is the total negative impact of US tariff policy on 2025 operating profit, and what is the impact of the recent unconstitutional ruling on US tariff policy?

A: We decline to disclose a specific total impact amount. As noted in our presentation, delayed price adjustments for tariffs created a negative headwind in 2025, but we expect the full-year impact of price adjustments to offset almost all tariff impact in 2026. Regarding the unconstitutional ruling, the situation remains unclear at this point, and we will continue to gather information and monitor developments.

Q: What is the progress of price pass-through for US tariff costs?

A: We raised prices on parts and accessories first in June last year, followed by price increases for distributors in October and for home centers in December. We consider price pass-through for the impact of tariffs to be largely complete at this point.

Q: The company is shifting its portfolio away from its highest-margin core business to expand into new areas to improve balance, so how do you plan to improve asset efficiency while expanding into lower-margin segments to hit your ROE improvement target?

A: You are correct that engine products have the highest profit margins, as we control the full value chain from aluminum casting through finished production. Robots have very high added value, with a cost structure centered on systems and software, and we expect strong profit contribution from this segment. Portable electric products do have lower profitability than engine products, but adding electric products to our portfolio prevents lost sales and maintains customer traffic, creating synergies with our engine business. Currently, robots already deliver higher profits than engine products. We also plan to expand into new high-margin, high-added-value areas like cloud-based service contracts in future medium-term plans. While the share of engine products in the sales mix will decline, we will maintain sales volume and revenue of engine products while improving profitability through thorough VA/VE, and grow the robot business significantly to offset any mix impact.

Q: The current cash allocation plan lacks clarity on what will happen to unused growth investment budget, and the 30% payout ratio is lower than global standards. Could you share your thinking on cash allocation and capital cost, given that the company is now net cash positive after paying down historical debt and will generate large amounts of free cash flow going forward?

A: We are thinking seriously about these issues. We have only included high-probability visible projects in our current three-year forecast, and we will need to use some debt for additional future opportunities that are not currently visible, so the 55 billion yen cumulative operating cash flow will not be sufficient to cover all potential opportunities. We chose to present only high-certainty projects first in line with our company's approach, given feedback that some investors prefer that approach. We take seriously the feedback that we should develop a more comprehensive long-term plan and conduct thorough simulations for capital allocation and leverage changes. We are increasingly conscious of the proper approach to capital cost, and we ask for a little more time to develop a more detailed plan that we can share with investors, while continuing this dialogue to improve disclosure.

Q: What impact have your recent price increases had on sales volume? Have you lost market share or seen demand decline from the hikes?

A: There has been no negative impact on sales volume from our price increases. We did face complications around timing of price adjustments due to fluctuating tariff rates and coordination with retail partners, so we did not delay price adjustments intentionally, we just coordinated to find appropriate timing with our retail partners. The main concern we had was that price increases would hurt unit sales, but we have not seen any issues with that at all. We have operations in the US and use multiple overseas bases including Vietnam to adapt to changing supply chain conditions, and we have been able to move quickly to adapt to changing circumstances. This experience has also highlighted the need for even stronger VA/VE cost reduction going forward.

Q: What factors have driven the strong performance of the robot business, and can you maintain competitive advantage over the medium to long term?

A: Our older robot models relied on random driving that was very inefficient, so the key breakthrough was developing stable patterned autonomous driving using RTK and GNSS positioning. Achieving stable autonomous driving in real-world conditions was the key technical breakthrough, and this technical strength led to the OEM partnership with Toro. To maintain our advantage, we are expanding R&D and manufacturing capacity for robots at our European subsidiary from this year to next. We are investing to strengthen sensing technology and widen the gap with competitors. We are also investing heavily to build our ECHO brand in North America and Europe, creating strong brand assets that new entrants will struggle to match. We acknowledge that without continued investment competitors could catch up, but we currently hold a strong leading position and will continue to invest in R&D to maintain our competitive advantage.