TAKAOKA TOKO CO.,LTD. Q4 FY2025 earnings call

2024 Full-Year Consolidated Results

• Total consolidated revenue was 106.6 billion yen, a 0.7% decrease year-on-year, impacted by a 3.4 billion yen negative revenue impact from the improper quality inspection scandal. Operating income was 6.1 billion yen, a 26.1% decrease year-on-year, with a 2.5 billion yen negative profit impact from the scandal; net income attributable to parent shareholders was 3.8 billion yen, down year-on-year. Results beat the prior upward revised guidance of 106.0 billion yen revenue and 5.0 billion yen operating income by 0.6 billion yen and 1.1 billion yen respectively. 2024 capital expenditure was 4.1 billion yen, and R&D expenditure was 3.8 billion yen, focused on next-generation product development.

Post-Scandal Reform: SQC First Initiative

• Following the discovery of improper inspection practices for gas-insulated switchgear starting in 2021, the company launched the SQC First reform centered on four pillars: 1) Cultivate a corporate culture that prioritizes Safety, Quality, and Compliance (SQC) from executive management to frontline operations; 2) Upgrade frontline capabilities and develop talent and organizational structures to support continuous improvement; 3) Improve quality management and internal control systems, and accelerate factory digital transformation (DX) to embed SQC into operational processes; 4) Restructure the business portfolio to concentrate resources on priority growth areas.

New Corporate Philosophy and 2027 Medium-Term Management Plan (MTMP)

• A new corporate philosophy was established, with a purpose of "Supporting people and society's energy needs through reliable technology and co-creation, for a future full of smiles" and a vision to become a "SERA Company" that designs future energy networks. SQC First and business transformation are core priorities for the 2025-2027 MTMP period, which aims to lay the foundation for recovery and V-shaped growth to a new record high profit by 2027.

Key Strategic Initiatives

• Core Business (Power Equipment & Metrology) Strengthening: Overhaul and grow extra-high voltage received power transformation equipment via industry partnerships, consolidate high-voltage equipment manufacturing hubs and expand transformer factory capacity by 1.2x by 2026 to meet growing demand driven by data center and renewable energy projects. Capture share growth from the full-scale rollout of next-generation smart meters by Japanese power utilities starting in 2025, with participation across the entire smart meter supply chain including production, final assembly, and communication system maintenance.
• Growth Business Expansion: Expand the SERA branded EV infrastructure product line, with the 150kW SERA-150 already launched and the 400kW ultra-fast SERA-400 scheduled for launch in fall 2025. The company holds the top domestic market share for fast EV chargers, with a far lower fault outage rate than competitors, and is expanding turnkey installation/maintenance services and subscription charging businesses. For optical inspection, develop new products to meet demand for advanced semiconductor packaging (including chiplet and interposer testing) and expand overseas sales to offset weak domestic customer investment. Total planned investment and R&D over the 2027 MTMP period is 47.0 billion yen, focused on these priority growth areas.

Financial and Shareholder Strategy

• Changed the dividend policy from a stable dividend framework to a performance-linked framework, targeting a 30% dividend payout ratio based on consolidated net income, with semi-annual dividend payments. The company targets achieving a PBR of 1.0x by 2027, primarily via improving ROE to over 8% by raising net income margin to over 4% through cost reduction, DX, and portfolio restructuring.

1. Power Equipment Segment: Revenue of 59.9 billion yen (56.2% of total consolidated revenue), a 2.2 billion yen decrease year-on-year; segment profit of 6.2 billion yen, an 0.8 billion yen decrease year-on-year. 2. Metrology Business Segment: Revenue of 33.2 billion yen (31.1% of total consolidated revenue), a 2.6 billion yen increase year-on-year; segment profit of 4.4 billion yen, a 0.3 billion yen decrease year-on-year. 3. GX Solutions Segment: Revenue of 10.6 billion yen (9.9% of total consolidated revenue), a 0.2 billion yen increase year-on-year; segment operating loss of 0.2 billion yen, a 0.5 billion yen decrease in profit year-on-year. 4. Optical Applied Inspection Equipment Segment: Revenue of 2.0 billion yen (1.9% of total consolidated revenue), a 1.4 billion yen decrease year-on-year; segment profit of 0.2 billion yen, a 0.5 billion yen decrease year-on-year.

• FY2025 (March 2026) Guidance: Consolidated revenue of 108.0 billion yen (a 1.4 billion yen increase from FY2024), operating income of 6.2 billion yen (almost flat year-on-year), net income attributable to parent shareholders of 3.9 billion yen. The guidance assumes lingering lost order impacts from the prior bidding suspension, and incorporates the expected trend for the Tokyo Electric Power Group's (the company's largest customer, accounting for ~40% of revenue) capital expenditure plans. FY2025 planned capital expenditure is 10.7 billion yen, and planned R&D expenditure is 4.3 billion yen, focused on next-generation product and production line investment.
• 2027 MTMP Targets: By FY2027 (March 2028), targets consolidated revenue of 120.0 billion yen, operating income of 9.0 billion yen, net income attributable to parent shareholders of 5.5 billion yen, and ROE of 8% or higher. This represents exceeding the record high profit achieved in FY2023, delivering V-shaped recovery growth after the 2024 profit decline.
• Long-Term 2030 Targets (unchanged from prior vision): Consolidated revenue of 150.0 billion yen, operating income of 15.0 billion yen, and operating margin of 10%. The segmented revenue targets by 2030 are: 98.0 billion yen for core power/metrology businesses, 36.0 billion yen for expansion areas, and 16.0 billion yen for growth areas.

• A series of improper inspection incidents dating back several years led to bidding suspensions from major customers, resulting in a 3.4 billion yen negative revenue impact and 2.5 billion yen negative operating profit impact in FY2024, and lingering lost order impacts are expected to persist into FY2025.
• The improper incidents damaged stakeholder trust, delayed planned business restructuring and production base consolidation initiatives, and led to dispersed resources across business lines that left ROE below the industry average.
• Weak capital expenditure from semiconductor package substrate manufacturers has caused a sharp drop in orders for 3D inspection equipment in the optical applied inspection segment, leading to a 1.4 billion yen year-on-year revenue decline in FY2024.
• GX Solutions fell back into a net loss in FY2024 after turning profitable in FY2023, and requires tighter portfolio selection and concentration to achieve stable profitability.
• The company's PBR has remained below 1.0x for an extended period, driven by low ROE and low market perception of the company's long-term growth prospects, requiring sustained improvement in profitability and investor engagement to reverse.
• Aging manufacturing facilities and capacity constraints represent a bottleneck to meeting growing demand for core products like extra-high voltage equipment and transformers, requiring large capital expenditure to resolve.

No formal question and answer section is included in the provided transcript.