IDEC CORPORATION Q4 FY2025 earnings call

Corporate Restructuring and One-Time Items

• IDEC recorded approximately 2.6 billion yen each in special gain and special loss for structural reform initiatives. Special gains came from the sale of the closed Kyoto facility, fixed asset sales from US site reorganization, and the sale of the solar power generation business subsidiary transferred in March 2025.
• Special losses included 1.4 billion yen for workforce optimization via the expanded second career support program in Japan, and 1.0 billion yen for excess inventory disposal as part of structural reform costs.

Organizational and Global Structural Reform

• Transitioned from a Japan-centered functional organization structure to a global business operation structure in April 2025, moving to a customer-centric market-in organizational model. A new Global Operations Committee was established to accelerate global strategy planning, execution and review.
• Established a three-polar global system centered on Japan, the US, and Europe, shifting marketing and development to regional hubs to capture local customer needs and speed up product releases.

Business Portfolio and Production Optimization

• Divested non-core businesses: transferred the solar power generation business to Tokyo Gas Group and transferred the fine bubble business, to focus resources on core operations.
• For core businesses: HMI will improve sales and profitability by integrating the sales, design and production functions of IDEC and acquired APEM; high-margin safety business will drive global expansion, focusing on safety products and mobility-focused solutions.
• Reorganized global production bases on a local-for-local principle: opened a new factory in Mexico to gradually transfer production for the US market; consolidated existing bases in Japan, Asia and Europe, outsourced non-core processes, and expanded strategic production partnerships to improve efficiency and reduce lead times.

Digital and Talent Strategy

• Rolled out a unified global supply chain management (SCM) system starting from Japan in 2024 to centralize supply and demand data, improve forecasting accuracy, and balance customer satisfaction with operational efficiency.
• Expanded the second career support program in Japan to optimize headcount, with 1.4 billion yen in one-time costs recorded in FY2025; introduced global talent management to identify, develop and optimally deploy talent across regions.

Solution Business Growth Priorities

• Leverage IDEC's broad component portfolio to expand customer problem-solving solutions, growing the solution sales share from 10% to over 15% in three years (targeting 20% long-term).
• Prioritize key growth industries: automotive for innovation, AMR/robotics for growth, and material handling/construction machinery for accelerating HMI market change.
• Target 15% or higher new product contribution ratio by FY2028 March Term, up from 10% in FY2025, and grow the safety business revenue 1.5x over the three-year plan.

IDEC reports three core product segments for FY2025 March Term: 1) HMI Segment: Market inventory returned to normal levels by the end of the period, but full-year sales declined due to distribution inventory adjustment impacts in the first half of the year. 2) Automation & Sensing Segment: Sales of programmable controllers declined primarily in the Americas region. 3) Safety & Explosion-Proof Segment: Sales of safety-related equipment declined, driven by lower demand from key industries (semiconductor, robotics) centered in Japan and China markets. By region, Japan saw sales decline due to stagnation in major industries and ongoing inventory adjustment; the Americas saw a slight sales increase as distribution inventory stabilized and orders trended upward, with temporary excess inventory at a small number of agents having no residual impact; EMEA and Asia Pacific both posted sales declines, driven by European economic slowdown and Chinese economic slowdown respectively. Full-year consolidated sales were 67.4 billion yen, a 7.3% decrease year-over-year; consolidated operating profit was 3.7 billion yen, a 41.8% decrease year-over-year.

• FY2026 March Term Full-Year Guidance: Consolidated sales are projected at 68.7 billion yen, a 2% increase year-over-year, with an expected operating margin of 6.9%. The company assumes foreign exchange rates of 145 JPY/USD and 160 JPY/EUR.
• The Automation & Sensing segment expects a sales decline due to extended inventory digestion at OEM customers; all other core segments are projected to deliver revenue growth, with the solar power business removed from guidance following its divestment.
• Capital expenditure is projected at 8.3 billion yen for FY2026, as the company continues DX and new regional site investment.
• The annual dividend per share is maintained at 130 JPY, matching the prior year payout; the company will cancel 1.85 million treasury shares (5.56% of total outstanding shares) on May 23.
• Three-Year Mid-Term Management Plan (FY2026 - FY2028 March Term): Targets consolidated sales of 77 billion yen or higher, operating margin of 13% or higher, and ROIC of 7% or higher by FY2028 March Term.
• Cash allocation over the three-year plan will prioritize maintaining stable shareholder returns (dividends) while investing in DX, product development, M&A, and new site establishment to drive growth and improve capital efficiency.

• The company faces impacts from new US tariff policy; it expects to absorb impacts via product price increases, production transfer and expanded local manufacturing in the US, but ongoing policy changes may create unforeseen impacts.
• The company faces intensifying competition with local Chinese manufacturers in factory automation products, and slowing demand from the Chinese market due to broader economic slowdown.
• Persistent economic slowdown in the European region has depressed demand for IDEC products in EMEA.
• Industry-wide inventory adjustment cycles created near-term headwinds to sales and profit in FY2025.

Q: What was the size and impact of one-time factors affecting Q4 FY2025 orders in Asia Pacific, and what is the underlying order trend and outlook for FY2026? / A: The large Q4 order increase in Asia Pacific (led by China) stemmed from revised distributor contracts to improve supply stability, which included pre-booking orders for scheduled delivery in future periods. Even after excluding this one-time factor, Asia Pacific orders are on a clear expansion trajectory. Japan orders are flattish to slightly increasing after removing a one-time Q3 semiconductor capital equipment order; orders are not deteriorating. The Americas and EMEA also saw improving order trends from Q3 to Q4, with the Americas holding steady after accounting for site consolidation one-offs. Overall, the global order trend is on a gradual recovery.

Q: How does IDEC plan to absorb the impact of US tariff policy changes? / A: IDEC is mitigating US tariff impacts through a combination of product price adjustments, shifting production of US-bound goods to the new Mexico facility, and expanding local production capacity at US sites. Management will monitor policy developments closely and disclose any material changes as they arise.

Q: What are the key priorities to strengthen IDEC's solution business? / A: The main focus is shifting from a pure product component business to higher-value added solutions by combining IDEC's broad component portfolio with application-specific expertise. Key initiatives include packaged solutions like collaborative safety packages for cobot and AMR workcells, expanded safety consulting services to meet tightening global safety standards, and pre-integrated application-specific solution packages (such as AMR packages combining ez-Wheel products with IDEC hardware and software) that can be scaled broadly across customers.