TOYO KANETSU K.K. Q4 FY2025 earnings call

Overall Financial Performance:

• Consolidated results grew both revenue and profit year-over-year, exceeding the August 2024 upward guidance. Total consolidated revenue hit an all-time high of 60.474 billion yen, with operating profit of 4.131 billion yen, ordinary profit of 4.403 billion yen, and net income attributable to parent shareholders of 3.638 billion yen. Annual dividend per share reached 236 yen, marking 5 consecutive years of dividend increases, and ROE hit 9.5%, exceeding the previous mid-term plan's 8% target.
• The company reduced cross-shareholdings of policy-held stocks to 8.1% of net assets, repaid debt to reduce total liabilities, and maintained a consolidated equity ratio above 50%. EPS exceeded 400 yen and BPS exceeded 5,000 yen, though PBR remains below 1x.

New Mid-Term Management Plan (FY2025-FY2027, Phase 2 aligned with 2030 long-term targets):

• The corporate slogan is "ACTION FOR THE FUTURE", with a goal of establishing a growth foundation for the future, aligned with the 2030 target of 90 billion yen in total consolidated revenue. Updated materiality prioritizes addressing climate change/environmental issues and labor shortages from aging demographics, with supporting focus on new technology development, co-creation with partners, productivity improvement, risk management, governance, and advanced human capital management.
• Three core corporate priorities: • Business Growth: Restructure the business portfolio. Expand scale and improve profitability of the core Logistics Solution business, maintain stable earnings and expand scale for the Plant business, establish the Mirai Sosei business as the company's third revenue pillar, and invest in R&D for the next-generation energy business. Allocate more management resources to Logistics and Mirai Sosei to drive growth. • Productivity Improvement: Standardize products and internal processes to optimize costs, quality, and lead times, build a lean operating structure to offset rising personnel and raw material costs, and strengthen overall profitability. • Human Resource Strengthening: Increase investment in talent development, improve compensation (implemented two base pay increases in the prior fiscal year), revise personnel systems to support challenging work, and improve employee engagement to build a diverse, high-capability workforce.

Segment Priority Initiatives: • Logistics Solution: Target 40 billion yen revenue by FY2027 and 60 billion yen by 2030, expand into new business areas, improve productivity via hardware/software standardization, and drive differentiation through new technology development. • Plant: Improve work efficiency via automation and talent development to expand revenue scale while maintaining stable earnings, maintain technical capacity for new tank construction amid the energy transition. • Mirai Sosei: Focus growth on the environment and disaster prevention sectors, prioritize synergy with existing group operations over pure revenue growth from M&A, and target becoming the third core revenue pillar. • Next-Generation Energy Development: Continue R&D for large liquid hydrogen tanks, and build foundational capacity for future ammonia and liquefied CO2 tank construction to prepare for the energy transition.

ESG and Capital Strategy:

• Advance ESG management aligned with updated materiality, with key priorities including GHG emission reduction, advanced human capital management, and strengthened occupational safety. Changed shareholder return policy from a payout ratio target to a 4% dividend on equity (DOE) target to prioritize stable dividends. The company plans to allocate over 5 billion yen to total dividends over the 3-year plan period, with 11 billion yen earmarked for growth investment, maintain interest-bearing debt below 0.8x net assets, and target an equity ratio of ~50%.

1. Logistics Solution Business: Revenue of 37.8 billion yen (62.5% of total consolidated revenue), operating profit of 3.722 billion yen, achieving all-time high revenue and profit. Order intake increased 295 million yen to 34.338 billion yen, with an order backlog of 33.544 billion yen. 2. Plant Business: Revenue of 10.349 billion yen (17.1% of total consolidated revenue), operating profit of 1.041 billion yen, growing revenue and profit year-over-year. Order intake hit 10.535 billion yen, with an order backlog of 6.12 billion yen, both increasing year-over-year. 3. Next-Generation Energy Development Business: Revenue of 2.158 billion yen (3.6% of total consolidated revenue), with an operating loss of 433 million yen, as it remains in the pre-production investment phase for R&D. Order intake far exceeded initial forecasts at 6.869 billion yen, with an order backlog of 5.579 billion yen. 4. Mirai Sosei (Future Creation) Business: Revenue of 9.882 billion yen (16.3% of total consolidated revenue), operating profit of 873 million yen, delivering lower revenue but higher profit year-over-year.

• The new 2025-2027 mid-term management plan targets 68 billion yen in consolidated revenue, 4.3 billion yen in operating profit, and ROE of 8% or higher by the final fiscal year (FY2027).
• Segment-level FY2027 targets: 40 billion yen revenue and 4.1 billion yen operating profit for Logistics Solution; 14.5 billion yen revenue and 0.9 billion yen operating profit for Plant; 13 billion yen revenue and 1.1 billion yen operating profit for Mirai Sosei.
• The 2025 planned dividend is 200 yen per share based on the new 4% DOE policy, with an expected payout ratio of 61.9%.
• Long-term target of 90 billion yen in consolidated group revenue by 2030 is maintained, with the 2025-2027 plan serving as the foundational growth phase to hit this long-term goal.

• Intensifying cost competition across all business units, coupled with ongoing upward pressure on personnel and raw material costs, which could compress margins without sufficient productivity improvement.
• The Plant business faces a long-term trade-off between stable demand for traditional oil-related tank maintenance and the ongoing energy transition away from fossil fuels, requiring a strategic repositioning of the business to align with decarbonization trends.
• The Next-Generation Energy Development business is in a multi-year pre-commercial investment phase, leading to ongoing operating losses in the near term with uncertain long-term revenue upside.

Q: What explains the gap between the previous mid-term plan's 16.7 billion yen revenue target for Mirai Sosei and the 9.882 billion yen actual result, and what is the strategic change for the new plan? / A: The transcript is cut off mid-question, but management confirms the revised 13 billion yen FY2027 revenue target for Mirai Sosei reflects a refocus on environment and disaster prevention, shifting from broad expansion via M&A to prioritizing synergy with existing group operations.

Q: What is the company's outlook for ROE in FY2027, and can the 9.5% FY2025 result be sustained? / A: The mid-term plan sets a target of 8% or higher ROE for FY2027. The 9.5% FY2025 result included one-off gains from policy share sales, so the 8% target reflects a sustainable core profitability target aligned with the plan's capital efficiency goals.

Q: What are the plans for decarbonization-related projects in the new mid-term plan? / A: The company will leverage its Plant and Next-Generation Energy Development segments to support the transition to clean energy, continuing R&D for large hydrogen storage tanks and building technical capacity for ammonia and liquefied CO2 tank projects to capture decarbonization market demand.