TOLI Corporation Q4 FY2025 earnings call

Overall 2025 March Fiscal Year Performance

• The company achieved higher revenue but lower profit: revenue grew from efforts to improve profitability via cost reduction, promotion of high value-added new products, and selective price increases, but rising logistics, labor, depreciation, and new product catalog costs offset these gains.
• Consolidated operating profit decreased by approximately 0.6 billion yen year-over-year. EBITDA saw a slight increase to 8.0 billion yen.
• Operating cash flow was positive 2.469 billion yen; investing cash flow was negative 4.769 billion yen driven by large capital expenditures; financing cash flow was positive 0.842 billion yen from new borrowing. Ending cash and cash equivalents totaled 8.026 billion yen, down 1.434 billion yen year-over-year.
• Fixed assets increased by 3.4 billion yen from investments in the new Itami plant mixing building and the 3rd nylon spinning line for carpet; interest-bearing debt increased by approximately 3.0 billion yen to fund investments.

Review of Previous Mid-Term Plan "SHINKA Plus ONE"

• Completed all three major capital investment projects:
  • A second tile carpet recycling plant entered full operation, reducing industrial waste and increasing recycling rates.
  • Three in-house nylon spinning lines are now fully operational, cutting supply chain risk and lowering production costs via internalization of raw material production.
  • The new 3rd line at Koka TOLI Floor is operational, enabling production of unique high-quality vinyl flooring products, reducing production costs, and improving product quality.
• All 5 consolidated mid-term management targets were achieved for the 2025 March fiscal year, after the 2024 March fiscal year posted record profit but missed the recycling rate target.
• Growth and sustainability investments, plus shareholder returns were delivered almost exactly as planned, despite operating cash flow coming in below plan due to higher-than-expected inventory.

New Mid-Term Plan "SHINKA Plus ONE 2.0" (2025–2028)

• Positioned as Phase II of the TOLI VISION 2030 roadmap, focused on maximizing returns from prior investments and executing new growth strategies.
• Segmented growth strategies:
  • Interior Business (Core): Expand capacity of existing major production lines, maximize investment returns: add capacity to the tile carpet recycling plant, add a 4th nylon spinning line, develop unique digitally printed products, expand the line of eco-label certified products, and achieve further cost reductions. Target revenue growth and profit growth despite rising depreciation from large investments, via market share gains and early realization of investment benefits.
  • Global Business (Growth Segment): Address challenges of diverse local demand, long lead times, low pricing competitiveness, and low current profitability. Expand development of global strategic products focused on environmental regulation compliance, strengthen sales bases in China and ASEAN, expand local inventory and dealer networks in North America. Target revenue growth from the current 2.4 billion yen to 4.0 billion yen by the end of the mid-term plan, and 6.0 billion yen by 2030.
  • Construction Materials & Other (New Growth Seed Segment): Focus on developing products for non-interior cross-industry markets, build on success of existing niche hit products like the Basuna bathroom vinyl sheet. Pursue development of a 5th core business line via industry-academia-government collaboration, advance commercialization of early-stage new business opportunities.
• Enabling Value-Up Driver Strategies:
  • Strengthen management foundations across human capital, digital transformation, brand value, sustainability, and shareholder value.
• Capital Policy:
  • Expect approximately 19.0 billion yen in operating cash flow over the 3-year plan; will use additional borrowing as needed to fund cash requirements.
  • Target reducing the ratio of policy-held stocks to consolidated net assets to below 10% by end-March 2028.
• Shareholder Return Policy:
  • Target a consolidated payout ratio of 50% or a 3.5% return on equity (DOE), as a baseline for stable dividends, with a minimum annual dividend of 19 yen per share (matching the 2024 March fiscal year record high dividend).
  • Flexibly implement share buybacks, target a total average payout ratio of over 70% over the 3-year mid-term plan.
• Core KPIs: Stably achieve consolidated operating profit of over 5.0 billion yen and ROE of over 8.0%.

By product category (pre-segment revision):

1. Vinyl flooring: Sales grew year-over-year, driven by promotional efforts for new low-maintenance products including Sheet Collection NW, NS800 Fine Inlaid, and the newly launched overcoatable residential Crasial Tile, plus continued growth of existing LAY Flooring Pitafi. This category is part of the core 50%+ revenue contribution from vinyl flooring + carpet + adhesives/accessories.
2. Carpet: Sales grew year-over-year, led by strong mid-to-high grade roll carpet demand from the hotel sector. The company expanded the eco-friendly GA-3600 Sustive Back recycled tile carpet line, utilizing the full capacity of the in-house nylon spinning and tile carpet recycling facilities.
3. Wall coverings: Sales grew year-over-year following a refresh of the core TOLI Wall VS series, which improved market competitiveness.
4. Window treatments: TOLI branded curtain sales declined year-over-year, but overall segment sales grew due to increased sales of blinds and curtain rails by group sales subsidiaries.
5. The combined category of wall coverings, window treatments, third-party interior wholesale, and construction accounts for just over 40% of total consolidated revenue.

Following a segment revision effective 2026 March fiscal year, the new segments are:

1. Interior Business: Core domestic business covering manufacturing and sales of TOLI branded interior products, trading of interior materials, and interior construction. Accounts for the vast majority of current revenue.
2. Global Business: Export-focused sales of TOLI branded products to global markets, current revenue of 2.4 billion yen.
3. Construction Materials & Other: Manufacturing/sales of TOLI products for cross-industry and industrial material applications, plus trading of construction materials and housing equipment by group sales companies.

• For the 2026 March fiscal year, the first year of SHINKA Plus ONE 2.0, management forecasts higher revenue but lower profit:
  • Revenue will grow driven by new product-focused promotions, share gains in the core interior business, and sales expansion in growth segments.
  • Profitability will continue to improve long-term from prior large investments that lower production costs and lift average selling prices, but near-term cost increases from temporary higher depreciation, promotional expenses for new product launches, and human capital investment will lead to an overall year-over-year profit decline.

• Domestic new construction starts have been on a declining trend in both residential and non-residential markets, creating headwinds for new construction-focused sales volumes.
• Raw material prices remain persistently high, and labor costs across the entire supply chain continue to increase, creating ongoing upward pressure on production and distribution costs.
• The global business is still at an early stage of scale, with unaddressed challenges of meeting diverse local demand, competitive pricing, and lead time requirements that limit profitability in the near term.

No Q&A section was included in the provided earnings call transcript.