AIPHONE CO.,LTD. Q4 FY2025 earnings call

Overall Business Environment

• The Japanese yen weakened further YoY, creating positive tailwinds for overseas revenue translation but increasing costs for imported raw materials beyond initial expectations. • Domestic demand for multi-family housing renovation remains at high levels driven by rising security awareness, but soaring construction costs have led to delays and scaling back of new construction projects for condominiums, hospitals, and other facilities. • Geographical market conditions vary: North America faces capital expenditure stagnation from election-related uncertainty; Europe sees a gradual recovery from prolonged economic stagnation; Asia-Oceania faces construction investment stagnation due to instability in China's real estate market.

New Service/Product Initiatives (Shift from Product Sales to Solution Sales)

• Pabbit parcel delivery solution: Integrated with Aiphone's multi-family intercom systems and PacPort's cloud service to enable automatic unlock of building entrances and secure unattended delivery, addressing the social problem of repeated redelivery. Partnerships have expanded beyond parcel couriers to include online grocers and food delivery providers, with the first nationwide food delivery integration already launched in a new condominium development. The Japanese Ministry of Land, Infrastructure, Transport and Tourism recently issued formal guidance confirming alignment with fire regulations, which is expected to accelerate adoption among hesitant developers and property managers. • CareRings Contact application: A communication tool for medical and nursing facility staff that enables real-time visibility of on-duty staff and attributes to streamline handoffs and communication. A hospital trial found doctor inquiry calls to wards dropped 93% after implementation, supporting work style reform for medical professionals.

Strategic Direction & Mid-Term Plan Progress

• Long-term strategy: Leverage projected strong domestic multi-family renovation demand over the next decade to shift the company's growth focus to overseas markets, while expanding solution/ service-based revenue models alongside traditional product sales. Targets long-term ROE of 10% or higher. • 8th Mid-Term Management Plan core strategic themes: Expand domestic customer services, grow overseas business to a three-pole structure, strengthen development capabilities, and build a resilient business foundation to support long-term growth. • Development capability enhancement: Aiphone has acquired three software development subsidiaries in recent years (most recently Nihon Microlink in December 2024) to secure development resources and build internal capability for growing software development needs.

• Shareholder Returns: Maintains a stable dividend policy with increased payout levels. Annual dividend for FY2025 is planned at 130 yen per share (50 yen interim, 80 yen year-end), including additional returns under the 8th Mid-Term Plan, with a projected consolidated payout ratio of 58.8%.

Consolidated total revenue for FY2025 was 63.31 billion yen, up 3.2% year-over-year (YoY), marking the 4th consecutive year of record high revenue. By geographic segment:

1. Domestic Japan: Total revenue was 45.35 billion yen, up 4.5% YoY, accounting for 71.6% of total consolidated revenue. Domestic sub-segments:
   • Detached housing market: 4.54 billion yen, up 9.9% YoY (7.2% of total consolidated revenue), with new construction sales up 7.7% YoY and renovation sales up 16.6% YoY driven by rising security awareness.
   • Multi-family housing market (core market): 30.52 billion yen, up 6% YoY (48.2% of total consolidated revenue), with new construction sales up 2.1% YoY and renovation sales up 8% YoY driven by high security demand and front-loading ahead of price hikes.
   • Care market: 7.62 billion yen, down 6% YoY (12.0% of total consolidated revenue), with new construction sales down 0.3% YoY and renovation sales down 8.1% YoY due to a pullback from post-COVID elevated sales in the prior year.
2. Overseas: Total revenue was 17.95 billion yen, up 0.1% YoY on a yen basis, accounting for 28.4% of total consolidated revenue. Overseas sub-segments:
   • North America (core overseas market): 11.77 billion yen, down 1% YoY on a yen basis (down 6.2% YoY in local currency), 18.6% of total consolidated revenue, impacted by a pullback from prior year backlog clearance, election-related capital expenditure stagnation, and intensified competitor price competition.
   • Europe: 4.33 billion yen, up 4.5% YoY on a yen basis (up 0.1% YoY in local currency), 6.8% of total consolidated revenue, with strong sales growth of IP network-compatible intercom systems driven by active business development.

• For FY2026 (ending March 2026), Aiphone guides consolidated revenue of 65.4 billion yen, up 3.3% YoY, and consolidated operating profit of 4.5 billion yen, up 18% YoY. • Revenue growth is expected to be driven by continued strong security demand and expanding renovation sales in the domestic market, while expanding sales of IP network-compatible products in overseas markets despite ongoing macro uncertainty. • The 8th Mid-Term Management Plan's final year (FY2026) operating profit target has been revised downward to 4.5 billion yen, 1.1 billion yen below the prior revised mid-term target, due to higher-than-expected costs from yen depreciation, rising R&D spending, and wage increases. • Aiphone plans to implement further price adjustments in July 2025 (domestic) and matching adjustments for regional markets overseas to offset rising costs, though most of the impact from these adjustments is not expected to appear until the second half of FY2026, so the impact on full-year FY2026 results is projected to be limited. • The impact of potential new US tariff policy has not been incorporated into the current FY2026 guidance due to high uncertainty.

• Sustained yen depreciation: Aiphone's business structure has a higher share of overseas production than overseas sales, so yen weakness increases production and procurement costs more than it boosts revenue translation, creating net downward pressure on operating profit. For FY2026, Aiphone assumes an exchange rate of 148 yen/USD and 4.3 yen/Thai baht. • Rising development costs: R&D spending has risen from the 30-35 billion yen range to sustained higher levels due to growing software development scope, rising outsourcing costs, and delayed schedules from product design changes due to prior COVID and component shortages, with multiple large development projects running concurrently. • Macro and market risks: New construction projects in Japan face delays and scaling back from soaring construction costs; North American capital expenditure is stagnant due to presidential election uncertainty; China's real estate instability has suppressed construction investment in Asia-Oceania; and intensified price competition in key North American urban markets has pressured sales growth. • Uncertainty over US trade policy: Unresolved changes to US tariff policy create unquantified downside risk to FY2026 results, as the impact has not been incorporated into current guidance.

No formal Question and Answer section was included in the provided transcript.