EXEDY Corporation Q4 FY2026 earnings call

Strategic Positioning & Mid-term Plan Progress

• Exedy targets a 10% ROE by 2030, up from the prior 8% target. The 2024-2026 mid-term plan is positioned as a transformation period, and the first two years have outperformed all target metrics, with ROE already improved to 7.3%
• The company is restructuring its declining AT business, implementing impairment, liquidating the unprofitable US subsidiary, cutting headcount at two China sites, and actively pursuing cost pass-through and price optimization to maintain profitability. Core AT/MT businesses are expected to continue generating stable profits to support the company's transformation.

Aftermarket Business Expansion

• Leveraging its long-established global sales network and brand power in the MT aftermarket, the company is expanding product offerings to cover non-Japanese vehicles (Korean, Chinese, European heavy-duty vehicles), adding 54 new non-Japanese vehicle SKUs in 2025, and expanding AT friction material SKUs (12 new SKUs launched in 2025)
• The company recently established a joint venture with Italy's FRAP, a manufacturer of high-quality suspension and steering components, to expand global sales of FRAP's aftermarket products through Exedy's sales network.

New Business Development Progress

• The company's current pipeline of electrified new businesses targets 70.8 billion yen in revenue by 2030, with a total pipeline of over 140 billion yen when including additional early-stage opportunities, and the company is actively pursuing M&A to add new projects
• Commercial e-mobility: Revised strategy from selling components to OEMs to offering retrofit series hybrid systems for logistics/parcel delivery operators (to help cut CO2 emissions and maintain range), and revised the 2030 revenue target from 28.9 billion yen to 8.0 billion yen
• In-wheel motor: Recently acquired UK-based leading in-wheel motor manufacturer Protean, which has mass production capacity and already won a design win for the Renault 5 Turbo 3E, with multiple ongoing inquiries from European OEMs. The 2030 revenue target is set at 14.9 billion yen
• Drone business: Agricultural drone mass production for the North American market is delayed to September 2026 due to US regulatory impacts, with a 2030 revenue target of 8.9 billion yen. In Japan, the company is strengthening domestic drone development capabilities by acquiring AileLinX's control technology and talent

Capital Allocation & Shareholder Return

• Updated the mid-term plan operating cash flow forecast from 87.0 billion yen to 96.0 billion yen. The company maintains a policy of prioritizing cash for growth investment, with 30.0 billion yen allocated to growth investment, and returning all excess cash to shareholders while maintaining a 60% target equity ratio
• For 2026, the company approved a dividend increase from 300 yen per share to 350 yen per share, plus an 8.0 billion yen share repurchase, for a total 100% payout ratio over the 2025-2026 two-year period. Post mid-term plan, the company will maintain a minimum 5% DOE, prioritize stable dividends, and conduct opportunistic share repurchases

Governance & Stakeholder Engagement

• In 2025, the board became majority-independent, with 2 female independent directors. The company plans to transition to a nominating committee-based governance structure in 2026 to improve decision-making speed and governance effectiveness
• The number of shareholder/investor dialogues has doubled year-over-year, and feedback is shared with the board and incorporated into management where it improves corporate value

1. 2026 March Fiscal Year Actual Results:

• AT Business: Revenue decreased year-over-year, driven by large order volume declines in the Americas (due to Exedy America liquidation) and Japan, offset partially by strong order growth in Asia/Oceania (Thailand). Operating profit increased year-over-year, led by the Exedy America liquidation gain and Asia/Oceania order growth.
• Two-wheel Business: Revenue increased 4.3 billion yen year-over-year, driven by strong order growth in Indonesia and India.
• Other Business (including new business): Revenue and operating profit declined year-over-year, due to increased new business-related expenses (mostly personnel costs). Total consolidated revenue was 303.9 billion yen (-1.8% YoY), total operating profit increased 1.8% YoY, net profit increased 7.3% YoY, and ROE improved to 7.3% (+0.9 ppts YoY).

1. 2027 March Fiscal Year Forecast:

• AT Business: Revenue is forecast to decrease, with the largest decline expected in China (in line with prior planned gradual order decline following prior impairment and restructuring). China AT operating profit is forecast to decrease 2.3 billion yen due to lower order volume. Overall AT business operating profit is expected to remain stable.
• Other Business (new business): Revenue is forecast to increase the most, including consolidated revenue from Kawamata Seiki and Fuwa Drone, plus sales from agricultural drones and Protean in-wheel motors. Japan Other business operating profit is forecast to increase 1.9 billion yen, driven by prior year impairment impacts and consolidation of Kawamata Seiki.
• Corporate Expenses: Japan corporate expenses are forecast to decrease 1.5 billion yen due to higher new business-related costs; Asia/Oceania operating profit is forecast to increase 2.2 billion yen from monetization of non-operating assets in Thailand. Total consolidated revenue is forecast at 305.0 billion yen (+0.4% YoY), operating profit forecast at 24.5 billion yen (+10.2% YoY), and ROE forecast at 7.5% (+0.2 ppts YoY).

• Exedy upwardly revised its 2027 March Fiscal Year full year earnings guidance compared to prior estimates, forecasting 0.4% year-over-year consolidated revenue growth to 305.0 billion yen, and 10.2% year-over-year operating profit growth to 24.5 billion yen
• The mid-term capital allocation plan's operating cash inflow forecast was upwardly revised from 87.0 billion yen to 96.0 billion yen, maintaining the 30.0 billion yen planned growth investment allocation
• The 2030 ROE target was upwardly revised from 8% to 10%, and the company is accelerating progress to hit this target ahead of schedule
• No changes to the core 2030 new business overall revenue target were made, though individual project targets were updated: commercial e-mobility was revised down from 28.9 billion yen to 8.0 billion yen, in-wheel motor was set at 14.9 billion yen, and agricultural drones were set at 8.9 billion yen

• Tensions in the Middle East: If maritime shipping to the Middle East is halted for one month, Exedy estimates a 0.7 billion yen negative impact on consolidated revenue, with 0.6 billion yen from direct exports to its Dubai subsidiary and 0.1 billion yen from indirect impacts on domestic OEM vehicle sales. Management notes current impacts cannot be accurately estimated, so this risk is not reflected in the 2027 earnings forecast
• US additional tariffs: Exedy paid 0.6 billion yen in unpassed-through additional tariffs in 2026, which is not reflected in the 2027 forecast. While refund applications are mostly approved, the timing of refunds depends on US government processing
• New business development: New businesses are in early stages, require upfront R&D and investment, market conditions can change, and there is inherent downside risk to 2030 revenue and profitability targets. For acquired new businesses like Protean, goodwill impairment may be required if performance falls far short of plan
• Price negotiation risk: While most customers have agreed in principle to price increases, final negotiations are still ongoing, and price increases may be delayed to future fiscal periods if negotiations do not conclude on schedule
• Supply chain risk: Middle East tensions could disrupt supplies of intermediate materials such as oils and fats used in manufacturing, requiring switching to alternative suppliers, and the company is actively monitoring supply conditions to respond flexibly
• AT demand risk: EV adoption continues to reduce AT demand globally, with continued double-digit annual volume declines expected for Exedy's torque converter products

Q: Can you explain the background of growing AT product volumes in Asia/Oceania alongside the sale of non-operating assets in Thailand? / A: The AT growth in Asia/Oceania comes from aftermarket replacement parts, a business that leverages know-how from an acquired Oceania subsidiary, and Exedy plans to continue expanding this segment. The non-operating asset being sold is excess factory land purchased in 2014 to prepare for future AT demand growth. Due to slowing AT demand from EV adoption, the land is no longer needed, so it is being sold to improve capital efficiency.

Q: What downside risks and upside opportunities exist for new businesses after the downward revision to the commercial e-mobility target? / A: Management acknowledges that all new business targets can move up or down, as market conditions and industry environments change constantly. The company targets high-potential markets and prioritizes developing competitive products to ensure commercial viability, but inherent volatility remains.

Q: What is the downside impact of newly acquired Protean on 2027 and future earnings, and when will it contribute to profits? / A: The 2027 forecast includes a 0.76 billion yen pre-tax deficit in the "other-other" segment, most of which comes from Protean, as R&D costs are upfront and initial production volumes are small. If the company wins planned mass production programs, Protean is targeting 14.9 billion yen in revenue by 2030 and could turn profitable around 2029-2030. Under IFRS, Exedy does not amortize goodwill, but impairment would be required if performance falls far below plan.