NOHMI BOSAI LTD. Q4 FY2025 earnings call

Completed Stage II (FY2023-FY2025 March Term) Review

• Successfully achieved both the full Stage II sales and operating profit margin targets, despite an initial expectation that the 133 billion yen sales target would not be met. The company captured strengthening construction demand to outperform projections.
• Sustainability management advanced steadily, but unaddressed gaps remain in M&A post-merger integration (PMI) resourcing, digital transformation (DX) promotion structures, and new business investment.

Medium-Term Strategic Framework

• The 10-year Medium-Term Vision 2028 is split into three stages, with Stage III (FY2026-FY2029 March Term) serving as the final phase to deliver the 2028 vision. The core strategic direction is to deepen existing core business while exploring new business areas, with the long-term goal of achieving a zero-fire-damage society and expanding into non-fire disaster prevention domains.

Three Core Stage III Key Initiatives

• Human Capital and DX Acceleration
  • Continue aggressive workforce expansion, targeting 400 new hires at Nohmi Bosai and 100 new hires at group companies over the 4-year Stage III period. All additional resources will be prioritized for deployment to high-margin existing businesses to reduce opportunity loss from unmet strong renovation demand.
  • Established KPIs for human capital management, including a target score for annual employee engagement surveys to measure progress.
  • Accelerate DX initiatives: continue developing new cloud services including the already launched TASKis and in-development N-HOPS, and transform customer-facing processes including inspection and construction to increase customer value and internal efficiency.
• Active M&A for Business Expansion
  • M&A will focus on disaster prevention adjacent and related industry areas, building on the addition of 3 companies to the group during Stage II.
  • Addressed Stage II's PMI resourcing shortage by establishing a dedicated M&A and integration team at the launch of Stage III to strengthen execution capacity.
• New Business Creation via Open Innovation
  • Continue the Future Co-Creation Project for new business ideation, and pursue external collaboration, alliances, and minority investments to expand into new domains rather than relying solely on internal resources.
  • Stage II generated multiple new services including fire VR experience (now expanding to a volcanic disaster version), the Sukotokuru+ service growing its order book, and N-HOPS which is conducting ongoing pilot tests with local governments. Stage III will focus on scaling these existing new services.

Capital and Shareholder Strategy

• Updated the ROE target from 9%+ to 10%+, with ongoing focus on profitability improvement, enhanced shareholder returns, and expanded IR activities to improve capital efficiency and reduce capital cost.
• Stage III capital allocation: plan to allocate at least 20 billion yen to growth investments including M&A. An additional 24 billion yen in capital expenditures will be drawn from existing Stage II approved plans, funded by operating cash flow and on-hand cash, with borrowing available if growth investment needs exceed available cash. Dividends will follow a target 50% payout ratio, with potential payout ratio increases considered based on future performance. The FY2026 March term full-year dividend is targeted at 100 yen per share, reaching the 50% payout goal after hitting 40% in FY2025.

1. Fire Alarm Equipment Segment: Achieved record-high sales, orders, and order backlog amid strong demand from both new construction and renovation markets. The segment delivered increased revenue and profit, with profit margins maintained at prior period levels following successful company-wide price adjustments to offset raw material cost increases. Revenue contribution proportion is not explicitly stated.
2. Fire Extinguishing Equipment Segment: Hit record-high revenue, profit, and orders, surpassing the FY2020 March term results, driven by a high opening order backlog and strong demand across both general and special properties including road tunnel large-scale projects. Profit margins recovered to pre-existing levels following price adjustment efforts. Ending order backlog also reached a new record high. Revenue contribution proportion is not explicitly stated.
3. Inspection and Maintenance Segment: All metrics (orders, order backlog, sales, profit) reached new record highs for the second consecutive period. Despite an initial forecast of a slowdown after strong prior period repair work results, robust renovation market demand and active sales drove double-digit revenue growth in repair work, lifting overall segment profit. Revenue contribution proportion is not explicitly stated.

Consolidated full-year results: Total sales hit 133.6 billion yen (all-time high), up 15.1 billion yen year-over-year and 3.6 billion yen above forecast. Order value reached 139.6 billion yen, up 16.1 billion yen year-over-year, and ending order backlog reached 69.9 billion yen, up 5.9 billion yen year-over-year (both new records). ROE reached 8.8%, up 1.6 percentage points year-over-year. All profit metrics (operating, ordinary, net income attributable to parent shareholders) hit all-time highs and exceeded forecasts.

• For the FY2026 March term, management forecasts the first ever 140+ billion yen in consolidated sales, a fourth consecutive record high order volume, and a second consecutive record high annual profit, driven by the high starting order backlog and continued strong domestic disaster prevention market demand.
• All three business segments are forecast to deliver year-over-year revenue and profit growth: Fire Alarm Equipment will grow construction-integrated sales while maintaining product sales levels; Fire Extinguishing Equipment will grow sales off a record high starting backlog with strong special property inquiries; Maintenance and Inspection will see stable growth in core maintenance with repair work holding near the prior year's record level.
• The operating profit forecast is 16.5 billion yen, with a 29 billion yen increase in SG&A from planned human capital and R&D investment offset by 23 billion yen in profit growth from higher sales and 13 billion yen from improved cost ratios.
• For the Stage III (FY2029 March term end) medium-term target, management upwardly revised the prior targets: operating profit margin from 10%+ to 12%+, and ROE from 9%+ to 10%+, while maintaining the existing sales target of 170 billion yen or higher.

• A compliance incident was disclosed: some employees obtained certified supervisory engineer qualifications by taking technical certification exams without meeting the required supervised practical experience conditions under the Construction Business Act. Management apologized for the concern caused to investors.
• Construction labor remains in a persistent shortage, creating a risk of opportunity loss amid strong market demand.
• Raw material prices and labor costs continue to rise, putting ongoing pressure on profit margins.
• The macroeconomic outlook has uncertainty stemming from US policy trends that impact the broader Japanese economy.
• Large-scale M&A could create cash shortfalls even after accounting for on-hand cash and operating cash flow, requiring additional debt financing.
• Stage II left unaddressed operational risks including insufficient resourcing for M&A post-merger integration, underdeveloped DX promotion structures, and underinvestment in new business development.

No question and answer section was included in the provided transcript.