OKADA AIYON CORPORATION Q4 FY2025 earnings call

Overall Performance & Strategic Direction

• The company's full-year FY2025 (March 2025) results saw a 1.9% YoY decline in total revenue to 26.582 billion yen, a 16.2% YoY decline in operating profit to 2.279 billion yen, a 20.5% YoY decline in ordinary profit to 2.238 billion yen, and a 21.8% YoY decline in net income to 1.475 billion yen, with overall lower earnings driven by weak overseas demand while the domestic segment hit record revenue and profit.
• Q4 FY2025 achieved 6.3% YoY revenue growth to 7.032 billion yen and 46.9% YoY operating profit growth to 463 million yen, marking a return to year-over-year growth in both revenue and profit.
• The company is advancing its long-term vision "VISION 30", targeting 300 billion yen in total revenue, and aims to develop a new long-term plan after achieving this goal early via the 3-year rolling plan.

Domestic Market Strategy

• Expand production capacity and normalize lead times for crushers: After expanding production capacity and diversifying casting material suppliers, lead times have normalized for most models, and the company will continue resolving delays for remaining models. It will also strengthen sales and after-sales service via new branch openings in the Kanto and Kansai regions.
• Strengthen forestry machinery business: Following the sales integration with Nansei Machinery, the company has established the only after-sales service system for forestry machinery among domestic manufacturers, and will expand the product lineup of high-performance forestry machinery to grow market share.
• Product development and capacity expansion: Subsidiary Aiyon Tech will expand production capacity for cast steel crushers and develop large machinery for plant and ship demolition; Nansei Machinery will upgrade high-performance harvester models and improve production profitability.
• Maintain stable high-margin revenue from cable crane business for dam and hydropower plant construction/renewal projects.

Overseas Market Strategy

• North America: Management expects inventory adjustments among rental companies to end and demand to recover starting July 2025. The company holds more than 6 months of inventory to buffer tariff impacts, will add a 10% surcharge on top of standard annual price increases to partially pass through 25% tariffs, and will actively expand crusher sales (targeting 100 million yen in crusher revenue for FY2026) alongside existing hydraulic breaker sales, while expanding distribution to Canada, Mexico and new dealer channels.
• Europe: Launch a global model hydraulic breaker and expand the product lineup of sorting grapples, and hire local sales staff to grow market share.
• Asia: Launch competitively priced entry-level models developed in Thailand to target high-end customers across Asia and the Middle East, while strengthening after-sales support to compete with low-cost Chinese products.

Management Base Strengthening

• Capital allocation and operational efficiency: Reduce current inventory levels from ~6.1-6.2 months of sales to a target 4.5-5 months to improve operating cash flow generation. Target ROE of 10%+ and ROIC of 7.5%+ to improve capital productivity.
• Capital investment plan: Acquired land for a new relocated Kansai branch in Osaka and new North Kanto sales office in Saitama, both scheduled for completion by March 2026. Over the next 3 years, the company will also invest in factory expansion, headquarter reconstruction, new training centers, and core system upgrades to improve production efficiency.
• Human resources strategy: Deliver 3 consecutive years of 5%+ wage increases, and will continue to revise personnel and evaluation systems to improve employee engagement, with turnover held below 5%.
• Sustainability and governance: Improved CDP climate change score from B- to B, and the female director ratio will reach 28.6% after the 2025 annual shareholder meeting.
• Shareholder returns: Plans a full-year dividend of 74 yen per share for FY2025 (up 4 yen YoY) and 75 yen per share for FY2026 (up 1 yen YoY), marking 16 consecutive years of dividend increases, in line with the target payout ratio of 30%+.

1. Domestic Segment: Total revenue increased 352 million yen year-over-year, with operating profit hitting a record high of 1.928 billion yen, up 6.1% YoY. By product category: - Demolition Environment Attachments: Revenue contribution increased 4pp to 51% of total company revenue, driven by strong crusher sales which grew 12.0% YoY. - Forestry, large environment machinery, and other segments: Revenue declined due to a pullback after strong performance in the prior two fiscal years. - Cable cranes: Maintains high profit margins with stable expected revenue. 2. Overseas Segment: Total revenue declined 865 million yen YoY, with operating profit dropping 61.9% YoY to 345 million yen. By region: - North America: Revenue declined 12.4% YoY to 4.218 billion yen, accounting for 71% of total overseas revenue (up 2pp YoY). - Europe: Revenue declined 14.0% YoY to 994 million yen, accounting for 17% of total overseas revenue (down 1pp YoY). - Asia & Other: Revenue declined 11.9% YoY to 768 million yen, accounting for 12% of total overseas revenue (down 1pp YoY). Total overseas revenue accounts for 22.5% of the company's total revenue, down 1.1pp YoY.

• Full-year FY2026 (March 2026) guidance targets revenue of 28.0 billion yen, operating and ordinary profit of 2.5 billion yen, and net income of 1.7 billion yen, projecting a return to revenue and profit growth driven by stable domestic expansion and overseas recovery.
• The 3-year rolling plan (FY2025-FY2027) targets revenue of 300 billion yen, operating and ordinary profit of 2.8 billion yen, and net income of 1.9 billion yen for FY2027 (March 2027), with further targets of 320 billion yen in revenue, 3.2 billion yen in operating/ordinary profit, and 2.18 billion yen in net income for FY2028 (March 2028). The plan lowers prior overseas growth assumptions to account for uncertain demand and tariff impacts, while still targeting consecutive record revenue and profit.
• The company expects to achieve the "VISION 30" 300 billion yen revenue target early via domestic expansion and gradual overseas recovery.

• Slower-than-expected recovery from construction machinery demand downturn in North America and Europe, driven by persistent inflation and monetary tightening, which could pressure overseas revenue and profitability longer than expected.
• Uncertainty over U.S. trade policy and tariffs: While the company holds 6+ months of inventory and will partially pass through costs via surcharges, higher-than-expected tariffs or competitive price responses could hurt profitability.
• Persistent geopolitical tension, volatile resource and energy prices, and continued inflation could increase input costs and pressure margins.
• Domestic talent acquisition remains challenging, even as the company has kept turnover below 5% to date.
• Elevated current inventory levels have compressed operating cash flow generation over the past 3 years, and inventory normalization may take longer than expected.

Q: How have the changed underlying assumptions impacted the new rolling plan? / A: The new plan incorporates slower-than-expected overseas demand growth and increased tariff-related uncertainty from prior forecasts. It maintains the core goal of hitting the 300 billion yen VISION 30 revenue target early, while adjusting growth projections to reflect the more challenging operating environment, and still aims to deliver consecutive record revenue and profit. The plan is structured as an annual rolling review to adapt to changing market conditions. (417 characters)

Q: What is the current status of lead times for domestic crushers after capacity expansion? / A: After expanding production capacity and securing new suppliers for cast steel components, lead times have normalized for almost all crusher models, resolving prior post-pandemic component shortage delays. Order backlogs have stabilized after an earlier spike, and both new orders and backlogs are now growing, creating a positive growth cycle as capacity expansion continues to match rising demand. (359 characters)

Q: What is the outlook for crusher sales growth in the North American market? / A: The North American market for crushers is large and underpenetrated for Okada Aiyon. The company has already seen strong early demand from demo trials, with Okada MidWest recording completed sales of crushers paired with excavators. The company targets 100 million yen in North American crusher revenue for FY2026, and views crusher expansion as a key growth lever to offset ongoing hydraulic breaker demand weakness from rental inventory adjustments. (398 characters)

Q: How is the company progressing on North American rental inventory adjustment, and when is recovery expected? / A: The industry-wide inventory adjustment that started in Q4 FY2024 has lasted longer than initially expected, but broad industry consensus points to a demand recovery starting around July 2025. Okada Aiyon has built up 6 months of inventory to buffer against the downturn and tariff impacts, and is already expanding direct sales to end-users via its acquired MidWest subsidiary to offset weak distributor and rental demand in the near term. (391 characters)