ELECOM CO.,LTD. Q4 FY2025 earnings call

• Company and Purpose Update

  • Elecom has expanded its product portfolio from early PC racks to smartphone accessories, tablets, healthcare, security, and beauty home appliances, with over 1,900 consolidated employees. The company established its corporate purpose "Better being" in May 2024, focusing on delivering better products, services, and contributions to society.
  • The company is on track to hit its mid-term management plan target of average annual operating profit growth of over 10%, targeting 16.5 billion yen in operating profit for the 2027 March fiscal year.

• 2025 March Fiscal Year Operational Outcomes

  • After a weak first half, significant gross margin and operating margin improvement was achieved in the second half, driven by early completion of Tescom structural reform, double-digit revenue and profit growth at Elecom standalone BtoB, and improved supply of new products for peripherals, power and I/O devices. BtoC new product sales reached 11 billion yen in 2025 (up from 7.7 billion yen in 2024), accounting for 20% of total BtoC sales, with new product gross margin approaching 50%. BtoB standalone achieved double-digit growth in the second half, with annual recurring maintenance revenue reaching ~1.2 billion yen, at a gross margin of just under 70%.
  • Investing in local product verification equipment in Shenzhen and Kanagawa has shortened product development cycles. Operating cash flow exceeded 17 billion yen, a record high, driven by improved cash conversion cycle and inventory optimization. M&A payback for Tescom is progressing faster than expected: ~6.6 billion yen of the 9.6 billion yen acquisition price has already been recovered via non-core asset sales and operating cash flow, with full recovery expected in less than 4 years (vs the original 5-year plan).

• 2026 March Fiscal Year Key Priorities

  • BtoC: Gain market share in competitive categories including I/O devices, power supplies, and networking, expand sales of new products in Tescom beauty/appliances, cooking, and healthcare, targeting 14 billion yen in new product sales. EC: Grow 20%+, expand SNS usage, fully enter Rakuten market, pursue a "head strategy" to target top 5 category rankings on Amazon and grow large-scale >100 million yen SKUs, and prepare for future DtoC expansion. BtoB: Standardize Elecom standalone's high-productivity sales processes across group subsidiaries, grow solution bundled sales (e.g. security cameras + Wi-Fi installation), double maintenance revenue, and prepare for potential integration of Japan Antenna with DX Antenna following a planned September 2025 share swap. Overseas: Shift US-focused NESTOUT production to Malaysia to avoid Trump tariffs, expand into Malaysia and Indonesia after already achieving profitability in China and Taiwan, with market research initiated for Philippines, Thailand, and Vietnam.
  • Corporate foundation: Launched a new DX Promotion Department on April 1 to drive AI and RPA adoption for corporate overhead efficiency, build out segment-level operating profit visibility by fully allocating shared costs and headcount across BtoC and BtoB, with the new management framework planned to launch in the 2027 March fiscal year. Continue prioritizing customer satisfaction (CS), employee satisfaction (ES), incentive programs, and sustainability management.

• Capital Policy and Shareholder Return

  • The company maintains a 16-consecutive-year track record of increasing dividends, with a planned 4 yen increase to 52 yen per share for 2025, aligning with its policy of progressive dividends and a minimum 30% payout ratio (recent payout has been ~40%).

For the 2025 March fiscal year (full year consolidated): total net sales reached 118.007 billion yen, with operating profit at 13.5 billion yen, marking two consecutive years of revenue and profit growth. The 2026 March fiscal year planned segment sales are: BtoC at 57.5 billion yen (44% of total planned revenue), EC at 24.5 billion yen (19% of total planned revenue), BtoB at 44.5 billion yen (34% of total planned revenue), and Overseas at 3.5 billion yen (3% of total planned revenue). In the 2025 March fiscal year second half, BtoC recorded ~1.7 billion yen in net sales growth, BtoB Elecom standalone growth offset an ~1.1 billion yen decline at Hagiwara Solutions, leading to overall BtoB net sales growth of ~1.8 billion yen, and EC grew by ~500 million yen. Subsidiary Tescom achieved full year sales of 10.424 billion yen and operating profit of 1.1 billion yen, contributing 768 million yen in operating profit after goodwill amortization. In 2025 March fiscal year Q4, the consolidated operating profit margin improved to 13.5%.

• For the 2026 March fiscal year, Elecom guides consolidated net sales of 130 billion yen, gross profit of 51.045 billion yen, and operating profit of 14.9 billion yen, representing 10.1% year-over-year operating profit growth, maintaining the mid-term plan's 10% annual growth target. Internal targets are more aggressive, targeting 115-116% year-over-year BtoB revenue growth and a new all-time high operating profit.
  • The full year operating profit growth target of +1.368 billion yen year-over-year expects +948 million yen growth in the first half, with a strong first half performance identified as critical to hitting the full year target. The guidance is set conservatively to ensure it is achieved in line with the mid-term plan, despite management expecting operating margins to come in above the guidance based on current second half 2025 momentum.
  • Foreign exchange guidance uses a 1 USD = 160 JPY assumption for budget setting. 64% of planned USD-denominated purchases are already hedged at an average 137.33 JPY per USD, resulting in an expected average settlement rate of ~140.10 JPY, lower than the budgeted rate, with a 1 JPY per USD change impacting annual profit by ~155 million yen. The company has set a 2.3 billion yen cost reduction target to offset remaining foreign exchange pressure.

• Foreign exchange risk: A stronger-than-expected depreciation of the yen against the US dollar would increase procurement costs and compress profit margins, with an average 145 JPY settlement rate estimated to increase total annual procurement costs by 4 billion yen.
  • New product risk: High-gross-margin new products launched in the second half of 2025 may require additional discounting if they fail to gain market traction, which would pressure profitability.
  • US expansion risk: The proposed shift of production to Malaysia to avoid US Trump tariffs is expected to take 2-3 months, creating near-term supply chain disruption risk for the US market.
  • Subgroup productivity risk: Group subsidiaries DX Antenna currently has half the sales productivity of Elecom standalone, and raising productivity to match Elecom's levels is expected to take 2-3 years, creating near-term margin pressure for the BtoB segment.

Q: Given Elecom's increasingly diversified business mix, switching to segment operating profit-based management makes logical sense. What is the timeline for implementing this change and when can investors expect segment operating profit disclosure? / A: Management agrees that operating profit-based tracking is necessary to understand true segment profitability, as BtoB and BtoC have very different discount and pricing structures. Currently, the company does not have segment budgets that fully allocate shared selling, general and administrative costs. Management will begin the work of allocating personnel and overhead across BtoC and BtoB through the late 2025 to early 2026 period, with the new operating profit-based management framework launching for the 2027 March fiscal year. Public disclosure of segment operating profit will likely follow an additional year after implementation.