ZERO CO.,LTD. Q4 FY2025 earnings call

Core Financial Results 2025 June Year

• Total revenue: 147.8 billion yen, +5.0% YoY (from 140.7 billion yen in 2024)
• Operating profit: 10.2 billion yen, +64.4% YoY (from 6.2 billion yen in 2024), beating guidance. 14 of 16 total divisions achieved record operating profit.
• Operating margin: 6.9%, beating the original 5% target
• ROE: 17.9%, up from 11.8% YoY
• PBR rose above 1.0x, meeting Tokyo Stock Exchange requirements; PER fell to 7.2x from 7.5x YoY
• Dividend policy adjusted: payout ratio increased from 25% to 33%, planned dividend of 140 yen per share

Key Operational Achievements

• 2024 Labor Regulation Compliance: Implemented role specialization: licensed drivers focus solely on driving, while non-driving staff handle loading/unloading and on-site prep work, to maintain total vehicle volume under reduced working hour limits
• Strategic Acquisitions: Acquired Zero Plus Maintenance to manage rising vehicle repair and maintenance costs; partial goodwill impairment recorded for Souwing, due to unexpected lost revenue from MIRIVE after Big Motor was acquired by Itochu, but Souwing is projected to deliver record profit in 2026
• Driver Recruitment: Consolidated all group recruitment under Japan Relief, added a recruitment expert as outside director, improved online information disclosure for candidates, which significantly eased recruitment difficulties
• Listing Maintenance: Completed 3 off-exchange block sales and a treasury stock disposal, achieved the required 25%+ circulating share ratio, and expects to be confirmed as meeting TSE listing maintenance standards
• Profitability Focus: Management prioritizes profit growth over raw revenue growth, as share price has historically tracked operating profit rather than revenue
• Partnership Ecosystem: Increased payment rates to partner transport firms, handles shared procurement for all partners (including fuel and supplies) to cut partner costs, strengthening partner loyalty and securing total transport volume

1. Domestic Automotive Related Business: Accounts for 47% of total revenue. Delivered 2.0 billion yen in operating profit growth on a year-over-year basis. Growth was driven by secured transport capacity, solid performance from recently acquired subsidiaries, and targeted price adjustments for new and used vehicle transport services. 2. Human Resource Business: Revenue grew YoY, driven by a full overhaul of driver recruitment strategies. Higher-than-planned upfront investments in the "Unten.com" online driver matching platform weighed on near-term profitability, but these investments are expected to generate future returns. 3. General Cargo Business: Revenue saw a slight YoY decline, but profitability improved. The segment focused on exiting unprofitable warehouse contracts, while port cargo handling operations delivered strong performance, lifting overall segment results. 4. Overseas Related Business: Accounts for 33% of total revenue (mostly from World Windows' used vehicle exports to Malaysia). Overall revenue declined YoY, driven by a sharp drop in revenue from Rikuyu Logistics' China vehicle transport operations. This decline was partially offset by profit growth from World Windows' Malaysia-focused used vehicle export business.

• 2026 June Year Financial Guidance: Target operating profit of 10.3 billion yen, an increase from the 10.2 billion yen 2025 result. Management characterizes this as an ambitious target, with a commitment to avoid year-over-year profit decline.
• Revenue is expected to see a slight decline, aligned with the company's continued focus on profitable growth over raw revenue expansion.
• Excluding the 500 million yen one-off gain from 2025 fire insurance compensation, and accounting for 2.7 billion yen in new costs (salary revisions, system investment, increased partner payments), 27 billion yen in offsetting profit growth is required to hit the 10.3 billion yen target, which management is actively pursuing via volume growth and efficiency gains.
• Key 2026 strategic priorities: expand vehicle transport volume, improve lean operations, invest in digitalization to boost efficiency, leverage cross-group synergies, and resolve bottlenecks at auction yards and ports.
• The mid-term 3-year plan (ending 2027 June) targets over 150.0 billion yen in total revenue and over 10.0 billion yen in operating profit, with 2026 as the critical make-or-break year for the plan.

• Industry and Regulatory Risks: Persistent driver labor shortages post 2024 working hour regulation, rising wage and fuel cost inflation, and increasing difficulty recruiting skilled drivers. EV and larger vehicle trends reduce transport efficiency (fewer vehicles per trailer).
• Market Risks: Used vehicle export to Malaysia operates under a 3-year import license (down from previous 5-year terms), constrained by national policy that prioritizes domestic vehicle production and limits total Japanese vehicle imports, creating policy uncertainty.
• Operational Risks: Persistent bottlenecks at auction yards and ports create inefficiency and wasted capacity. Driver aging requires active generational turnover, and recruitment of younger drivers remains challenging.
• Company Specific Risks: China vehicle transport operations have seen sharp revenue and profit decline, and the business outlook remains uncertain, requiring strategic review in 2026.

Q: How does Zero plan to expand volume in core vehicle transport, especially which segments will it focus on? / A: New vehicle transport is mostly controlled by manufacturer-owned in-house transport firms. Zero primarily handles new vehicle transport for Nissan, Mitsubishi, BMW, and select Mercedes models. Management sees opportunities to cut cross-firm industry waste via the Land Transport Association (chaired by Zero's chairman), expanding cooperative load sharing arrangements with other transporters to increase available capacity. Used vehicle transport is Zero's largest current volume segment, and will remain the core focus for growth. Zero will improve on-time delivery performance by adding on-time delivery rate as a formal KPI for all group and partner operations, leveraging its national network to differentiate via speed and quality. North American industry note 16.6% profit increase for each additional vehicle loaded per 6-vehicle trailer, so the company is focused on maximizing load factors to drive profit growth.

Q: How can bottlenecks at ports and auctions be solved and monetized? How much profit gain can be achieved this year? / A: Current bottlenecks stem from poor coordination and disorganization at auction yards: drivers can spend 3+ hours searching for and preparing a single vehicle for departure, with frequent vehicle relocation causing further delays. At ports, empty return trips due to yard capacity shortages create large amounts of wasted capacity. Zero is addressing this by improving organization (sorting vehicles by transporter for faster pickup), testing digital tracking solutions (RFID/GPS), and removing unnecessary middle-mile stops to streamline flows. Of the 2.7 billion yen in required offsetting profit growth, 700 million yen is allocated to these efficiency improvement costs, and management projects 800 million yen in incremental net profit from these changes in 2026, with further gains coming in future years.

Q: What is the breakdown of the 2.7 billion yen in incremental costs and investments for 2026? / A: Roughly half of the 2.7 billion yen is for higher personnel and labor costs (delayed salary revisions implemented in 2026). The second largest component is large-scale system investment to digitize operations, which management expects will generate future profit returns. The remaining costs are multiple smaller items, all totaling less than 1 billion yen combined. Management has full visibility into all cost items and is actively managing them to hit the full-year profit target.

Q: What capital investment plans does Zero have to improve transport efficiency? / A: The largest near-term investment is digital system investment to automate manual processes for orders, vehicle tracking, and customer service. Zero is also conducting a full review of its depot network, to adjust locations to align with driver preferences for day-tripping routes instead of overnight stops. The company is also evaluating a shift from flat open parking to multi-story automated parking at major hubs to improve space utilization. These projects are included in the current 3-year mid-term plan, with system investment being the most impactful in the near term.