ANEST IWATA Corporation Q4 FY2025 earnings call

2025 March Fiscal Year Results

• Total company revenue was 54.411 billion yen, with slight year-over-year growth. Operating profit was 5.903 billion yen, a slight year-over-year decline driven by higher overseas personnel costs and increased selling, general and administrative costs from yen depreciation. Ordinary profit and net profit declined due to smaller foreign exchange gains. A year-end dividend of 23 yen per share is planned, bringing full-year dividend to 45 yen per share, a 5 yen per share reduction from the initial forecast.
• Capital expenditure reached ~3.3 billion yen against a 2.6 billion yen plan, with 100%+ progress for both depreciation and R&D spending. A new prototype building was completed at the Tokyo headquarters, and a medium compressor assembly plant in India is scheduled for completion in 2025.

Strategic & Cultural Transformation

• The company labels the 2026-2028 March fiscal period (first medium-term plan) as its "Second Founding Period", timed for its 100th anniversary. It uses backcasting from the 2035 Vision 1000 billion yen revenue target to build strategy, with 18 next-generation leadership candidates (Second Founding Members) collaborating with the executive team to develop plans.
• The company aims to reform internal corporate culture to encourage challenge, building internal branding to support expansion into new adjacent markets instead of only operating in core shrinking coating markets.

First Medium-Term Plan Strategic Priorities

• Organic growth is projected to deliver up to 700 billion yen of the 1000 billion yen 2035 target, with the remaining 300 billion yen to come from new adjacent areas and M&A, which is a core strategic focus of the medium-term plan.
• For the Air Energy segment: Target 37.7 billion yen revenue by the end of the medium-term plan, prioritizing development of energy-efficient oil-free compressors and vacuum pumps, with a 1.5 billion yen sales growth target focused on India.
• For the Coating segment: Target 24.3 billion yen revenue by the end of the medium-term plan, leveraging existing atomization technology to expand into new adjacent markets beyond core coating equipment. The company is working to improve profitability of low-margin full coating systems via new modular product development.

Capital Allocation & Governance

• Total planned investment of 26 billion yen+ over the medium-term plan: 8 billion yen for capital expenditure, 18 billion yen+ for M&A and growth investment.
• Adopted Dividend on Equity (DOE) as the new shareholder return indicator, targeting 7.0%-7.5% DOE over the medium-term with progressive dividend increases, and plans 3 billion to 3.5 billion yen in share repurchases. It targets 11% ROE by the end of the first medium-term plan.
• Strengthened global governance: Added management roles in Europe for financial oversight, is evaluating ERP system integration for global data unification, and updated the board skills matrix to prioritize M&A and new business development experience.

For the 2025 March fiscal year:

1. Air Energy Segment: Total revenue of 33.609 billion yen, accounting for 61.8% of total company revenue. Japan saw revenue growth from price increases, India recorded growing small compressor sales, while Europe declined due to shifting OEM demand and China declined due to weak domestic demand.
2. Coating Segment: Total revenue of 20.679 billion yen, accounting for 38.0% of total company revenue. Europe saw growing airbrush demand driven by new products, with strong performance of automotive repair spray guns and wood coating units in Europe and the Americas; China achieved year-over-year growth from increased inquiries for coating equipment for mechanical parts and resin molded products, though broader market conditions remain weak.
3. Other Segment: Newly established for new business initiatives, holding 0.2% of total company revenue, includes operations of subsidiary ANEST IWATA A.I.R.

• For the 2026 March fiscal year (first year of the new medium-term plan): Total revenue is targeted at 58 billion yen (35.8 billion yen from Air Energy, 22.1 billion yen from Coating, 0.1 billion yen from Other), with operating profit targeted at 5.55 billion yen (a year-over-year decline due to planned investments in growth initiatives, new business, and IT). Full-year dividend is planned at 83 yen per share.
• For the full first medium-term plan (2026-2028 March fiscal years): Target 62 billion yen total revenue, 6.17 billion yen operating profit, 10% operating margin, 11% ROE, and 132 yen EPS by the 2028 March fiscal year.
• The 2035 long-term target is 1000 billion yen in total revenue, with growth coming from both existing core business expansion and new adjacent business development including M&A.
• Guidance assumptions: The company expects continued increases in domestic and overseas personnel costs, logistics costs, and raw material/component prices. It assumes exchange rates hold at 2025 levels but does not include foreign exchange gains/losses in the target, and excludes potential impacts from Trump tariffs due to high outcome uncertainty.

• Shrinking domestic and global coating markets driven by alternative technologies and environmental regulations, creating pressure on the company's legacy core business.
• Low profitability of the coating systems (full coating equipment) segment, which faces intense price competition with local equipment providers and limited differentiation opportunities.
• Weak domestic demand in China and shifting OEM demand in Europe, which created revenue declines in core segments in 2025 and may continue to pressure regional performance.
• Incomplete cross-subsidiary synergy and weak global connectivity across the company's 30+ overseas subsidiaries, which has limited growth in prior periods.
• High uncertainty around global foreign exchange rates and potential new trade tariffs, which create unpriced volatility to projected financial results.

Q: What were the costs and benefits of Anest Iwata's motorsports sponsorship activity, and will the company continue it going forward? / A: Anest Iwata spent approximately 180 million yen on motorsports sponsorship in the prior year. The company did not enter sponsorship for traditional advertising; instead, it uses the paddock environment as a business networking hub where C-suite leaders from major corporations (including automakers) gather regularly. This access has already led to a new major project with a Chinese automaker to develop custom coating equipment. While tangible revenue and profit gains are still in progress, management views the activity as high-value so far, and will continue it until it has fulfilled its role in generating new business opportunities, then discontinue it.

Q: How does the company view M&A as part of the new medium-term strategy, and does it acknowledge the risks of M&A activity? / A: M&A is a core part of the company's strategy to reach the 1000 billion yen 2035 revenue target, as internal organic growth cannot deliver all required growth. The company will focus on M&A in adjacent areas connected to its existing compressor and coating atomization technologies, rather than entering entirely unrelated new markets. It acknowledges standard M&A risks and will conduct strict due diligence to target deals that add value rather than destroy it.

Q: Why has the company gathered all Second Founding next-generation leadership members in the corporate planning department? / A: The centralization is intentional: all strategic projects for the medium-term plan are led by this group, and concentrating them in the strengthened corporate planning department allows for clear progress tracking and accountability. This structure also breaks down silos between existing business units, which supports cross-functional collaboration on new initiatives that is critical to the plan's success.