ISEKI & CO.,LTD. Q3 FY2025 earnings call

Overall 3Q Performance

• The company achieved year-over-year revenue and profit growth for the 3rd quarter of the 2025 December fiscal year. Domestic business delivered strong double-digit growth, while overseas business maintained steady expansion. Operating profit grew on the back of higher sales and prior price adjustment effects, with larger growth in net profit attributable to parent company shareholders driven by fixed asset disposal gains and the absence of prior year structural reform impairment losses.
• Total 9M cumulative sales: 143.7 billion yen (+15.1 billion yen YoY); operating profit: 5.9 billion yen (+2.8 billion yen YoY); net profit attributable to parent shareholders: 4.1 billion yen (+4.6 billion yen YoY).

Project Z (Structural Reform) Progress

• Core initiatives including production site consolidation and sales company integration are progressing broadly in line with plan. Inventory reduction has outperformed plan due to strong domestic sales, with 9.7 billion yen of cumulative inventory reduction achieved year-to-date, even after including the increase from new consolidated overseas subsidiaries. Development optimization is on track for current year benefits, though some variable cost reduction activities that will deliver future benefits have experienced slight delays that the company is actively working to recover.
• Total planned production-related investment for Project Z is 38 billion yen. Current year benefits from Project Z are projected at 1.5 billion yen, with 0.8 billion yen in one-time costs (sales company merger and production relocation costs) that will not recur next fiscal year.

Growth Strategy

• Domestic: Focus growth on the "large, advanced, upland farming, environmental" market segments, and launched a new lawn mowing business to introduce Iseki's well-established European riding lawn mower product line to the domestic market. 2025 year-to-date domestic agricultural machinery sales grew 22% YoY, with order backlog expanding faster than recorded revenue.
• Overseas Europe: Strengthen coordination between consolidated subsidiaries to capture synergies, with plans to expand winter-customized products from Iseki Germany to Nordic markets, and expand turf care products to the Middle East via Iseki France and PTC.
• Overseas North America: Working to recover sales through clearing old inventory and launching new products to address the ongoing soft compact tractor market.
• Overseas Asia: Target sales expansion via synergies with local dealer partners in South Korea; launched promotional campaigns to grow sales in challenging Thai markets; began planned shipments to the Philippines starting in 4Q; and strengthened bid efforts for government tenders in Indonesia.

Balance Sheet & Cash Flow

• The company reduced interest-bearing debt by 9.4 billion yen YoY, improved the debt-to-equity ratio to 0.97x (below 1x), and lifted the equity ratio to 34%. Further debt reduction is expected by year-end as receivables are collected. Operating cash flow turned positive, and free cash flow has remained positive for two consecutive quarters, supported by profit growth and inventory reduction.

Domestic Segments (total +14.4 billion yen YoY):

• Agricultural machinery products: +6.9 billion yen YoY, driven by recovering rice prices and restored farmer purchasing power
• Maintenance services: +0.9 billion yen YoY, steady growth as a stable revenue source
• Implements: +5.0 billion yen YoY, consistent expansion as a stable revenue contributor
• Facility construction: +2.4 billion yen YoY, boosted by completion of large-scale projects during the period

Overseas Segments (total +0.6 billion yen YoY, overall revenue contribution 31.7%):

• Europe: Offset a more than 3.0 billion yen YoY decline from the expiration of 2024 special demand in Germany, with solid performance in France, consolidation gains from UK subsidiary PREMIUM TURF-CARE (PTC), and positive yen depreciation effects resulting in net stable performance
• North America: -1.4 billion yen YoY, weighed by continued softness in the compact tractor market
• Asia: +2.2 billion yen YoY, with strong performance in South Korea (post-inventory adjustment growth) and Indonesia (increased government tenders from agricultural mechanization policy)

• Management upward revised full-year 2025 December fiscal year guidance for the second time, driven by stronger-than-expected performance through the first three quarters. Full-year consolidated sales are now projected at 181.0 billion yen (up 5.5 billion yen from the August 2025 forecast, a new all-time high post-consolidation), with domestic sales projected at 125.5 billion yen (no change to the overseas sales forecast).
• Full-year operating profit is upward revised by 0.5 billion yen to 4.0 billion yen, and net profit attributable to parent shareholders is also upward revised by 0.5 billion yen to 2.3 billion yen.
• The dividend forecast is upward revised to 40 yen per share, representing a 10 yen increase from the prior forecast.
• The 4th quarter is projected to deliver an operating deficit of 1.9 billion yen, which incorporates the historical seasonality of weak domestic agricultural machinery demand in the off-season, and the risk that unfulfilled customer contracts will not be recorded as revenue in the current fiscal year due to ongoing supply constraints.

• Some products are facing supply constraints due to insufficient labor capacity, even as the company operates at maximum production output to meet strong domestic demand. This creates a risk that existing signed orders will not be recorded as revenue in the current fiscal year.
• The compact tractor market in North America remains weak, and potential impacts from Trump-era tariffs are expected to create headwinds for the region's performance in the next fiscal year.
• Supplier input costs continue to rise driven by increasing personnel costs at suppliers and subcontractors, even as commodity prices for raw materials like steel and copper have stabilized, creating ongoing margin pressure.
• Some variable cost reduction initiatives under Project Z that are expected to deliver future benefits have experienced delays, though the company is actively working to recover the missed timeline.
• Seasonal demand patterns mean the 4th quarter is structurally prone to operating deficits, with limited ability to offset this seasonality even with current strong demand.

Q: The company's share price dropped sharply immediately after the upward earnings revision and dividend increase announcement. What does management see as the cause, what is the fair share price level, and what equity story will the company pursue? / A: Management says it does not have a clear explanation for the immediate drop, and plans to analyze whether it stemmed from higher-than-expected market expectations or algorithmic trading. Management notes that it cannot name a specific target share price, but considers a PBR of 1x a fair baseline, and believes the current share price undervalues the company. Management will focus on completing Project Z to improve profitability and the balance sheet to drive share price appreciation to the 1x PBR level.

Q: How large will Project Z's benefits be next fiscal year? / A: Management declined to provide specific numerical guidance for next year. Project Z's production optimization is investment-led, with depreciation costs outweighing efficiency benefits in the initial period, so large net benefits will not appear early. The largest benefits next year are expected from development optimization (full year benefits from the ongoing design overhaul) and domestic sales deepening (further efficiency gains from unified sales companies in logistics, inventory, and large/advanced equipment sales). The 0.8 billion yen in one-time Project Z costs this year will not recur next year. Full guidance for next fiscal year will be released in February 2026.

Q: What are the expected growth drivers and risk factors for 2026 (next fiscal year)? / A: Domestic growth drivers include expansion of large, advanced, upland and environmentally focused agricultural machinery, B2B large equipment sales, the domestic launch of European-sourced riding lawn mowers, and advanced products like duck-robot rice farming systems and agricultural drones. Overseas, management expects growth from expanded regional and product coverage via coordinated operations across Iseki's three consolidated European subsidiaries. The key risk factor is continued challenges in North America, with potential tariff impacts expected next year that the company will work to mitigate.

Q: What is management's outlook for future product price increases? / A: No future price increases have been planned at this point. The company implemented cumulative price increases of more than 10% between 2022 and 2024, and an additional 7% domestic price increase in July 2025. The full benefit of the July 2025 increase will be realized in next fiscal year, as pre-June orders are still being fulfilled at old prices. Management will re-evaluate price increases if ongoing supplier personnel cost-driven input price rises continue, factoring in market conditions. In Europe, the market environment is more favorable for price adjustments compared to other regions.