AZ-COM MARUWA Holdings Inc. Q2 FY2026 earnings call

Core Financial Results (First Half / Second Quarter)

• Total revenue: 113.054 billion yen, +11.4% YoY, 51.4% progress against full-year target
• Operating profit: 6.068 billion yen, +40.2% YoY, 51.0% progress against full-year target; operating margin improved to 5.4% from 4.1% in the prior year period
• Recurring profit: 6.269 billion yen, +36% YoY, 52.2% progress against full-year target
• Net profit attributable to parent shareholders: 3.991 billion yen, +40.2% YoY, 54.7% progress against full-year target

Strategic Initiatives for Building a High-Profit Business (Medium-Term Management Plan 2028)

• Focus on four core priorities: (1) profit growth via new client acquisition despite labor and vehicle shortages; (2) pass through cost increases via price adjustments targeting a minimum 5% average rate increase; (3) reduce cost of goods sold via strict daily KPI management; (4) reduce SG&A ratio via data-driven cost control

Operational Evolution and Group Capability Strengthening

• Invest in automation and robotics to address labor shortages: implemented full automation at the new Matsumoto Kiyoshi logistics center in Kyushu, targeting 0 inventory, 100% delivery accuracy, and zero inspection to cut costs and improve working conditions
• Partner with JDSC to leverage AI for vehicle dispatch optimization, to support future management of 30,000 total vehicles including AZ-COM Network member vehicles

New Facility Expansion

• Launched operations at AZ-COM Matsubushi EAST in Saitama Prefecture: a 5-story, 22,500 total tsubo facility with 35m total height (approved via special negotiation with national and prefectural regulators), includes a 750-seat cafeteria and -25°C freezer, and adds base isolation for BCP resilience
• Total group logistics center footprint is 17 facilities, 155,000 total tsubo, including large-scale Amazon-focused facilities in Ome (Tokyo) and Yokohama (Kanagawa), a 16,000 tsubo facility in Itabashi (Tokyo), and a dangerous goods facility in Koga (Ibaraki)

Growth Segment Development

• Expand direct farm-sourced logistics for low-temperature food business: cuts out 7% public market fees and 15% wholesaler markup + 22-23% management fees to deliver cost savings to supermarket clients, with plans for significant future expansion
• Expand BCP/emergency logistics business: currently holds contracts with 99 total local governments (32 of 47 prefectures, 67 municipalities), targeting coverage of all 1,780 Japanese local governments; demonstrated capability during the 2024 Noto Peninsula earthquake (one of 8 government-selected emergency transport providers); developing joint emergency stockpiling for Tokyo 23 wards that can cut space costs by ~50% by moving storage to lower-cost suburban locations

Labor Shortage Response

• Adjusted hiring targets: original 5-year plan of 3,000 new graduates and 2,000 experienced hires has been flipped to 2,000 new graduates and 3,000 experienced hires to address tight new graduate supply post-COVID; still hitting annual targets of 1,000+ total new hires
• Grew the AZ-COM Network industry group to 2,875 member companies as of October 2025, targeting 3,000 members this fiscal year, 5,000 by 2030, and 10,000 by 2040; runs regular training and management education for members

Organizational Change

• Kenji Hirano appointed as new President of Maruwa Transport, the group's core operating subsidiary; Hirano is a 38-year veteran of the firm who grew Tohoku Maruwa Logistics to 10 billion yen in annual revenue, and the leadership change is timed for the firm's 50th anniversary.

• Last Mile Business: Revenue decreased 4.6% year-over-year to 19.036 billion yen (16.8% of total revenue), dragged down by a major GMS client exiting the online supermarket home delivery business.
• EC Normal Temperature Transport Business: Revenue increased 10.8% year-over-year to 29.5 billion yen (26.1% of total revenue), driven by new client acquisition, expansion of inter-center and long-haul trunk transport, and overall growth of transport volume.
• EC 3PL Business: Revenue increased 22.5% year-over-year, driven by full-year operation of a logistics center for a major e-commerce client and opening of a new logistics center.
• Low-temperature Food 3PL Business: Revenue increased 9.6% year-over-year, supported by full-year operation of a supermarket-focused logistics center opened in the prior period, higher unit prices from food inflation, and increased shipment volume.
• Pharmaceutical/Medical 3PL Business: Revenue increased 14.1% year-over-year, driven by business expansion of main client Matsumoto Kiyoshi Cocokara & Company and full operation of a new dedicated logistics center.

• Full-year FY2026 guidance is maintained at the levels announced in May, with the forecast being intentionally conservative as the first year of the Medium-Term Management Plan 2028
• The guidance already incorporates expected costs for new logistics center operational stabilization, upfront investment for productivity improvement at existing centers, and costs from facility consolidation
• Dividend policy is maintained: the firm follows a progressive dividend policy with a target payout ratio of 40%; FY2026 annual dividend is set at 16 yen per share (payout ratio 59%), with a commitment to continue steady stable dividend increases going forward
• AZ-COM Matsubushi EAST is targeting 80% utilization by April 2026 (start of next fiscal year) and 100% utilization by October 2026, with full profit contribution expected starting FY2027

• Persistent labor and vehicle shortages across the industry require ongoing investment in automation, adjusted hiring strategies, and reliance on foreign workers for large new facilities
• Price negotiations to pass through rising labor and input costs are progressing slower than targeted, with only 40% of the targeted 5% average price increase completed as of the first half
• The upcoming April 2026 implementation of revised logistics industry and trucking regulations is still under internal review, though the company expects limited direct impact due to its core 3PL/hub-and-spoke model that does not focus on long-haul trucking
• Large new 30,000+ tsubo logistics facilities require 1,200-1,500 workers each, creating ongoing staffing challenges even with adjusted hiring plans
• Price negotiations with major large clients are particularly difficult, even though clients are willing to enter negotiations, creating uncertainty about the timing and magnitude of future price increases
• Upfront investment costs for new facilities, automation, and BCP infrastructure create near-term cost pressure that requires sustained long-term utilization and revenue to offset

Q: How much did Q2 results beat plan, how much of the upside will go to AZ-COM Matsubushi EAST costs, and was Q2 alone above plan? / A: Revenue grew 11.4% YoY, operating profit grew 40.2% YoY, and Q2 alone came in above the original plan. The company maintains its original full-year guidance, with no changes to the outlook, as the forecast already accounts for planned investment and consolidation costs for the second half. The company has a historical second-half weighted revenue and profit pattern, so the strong first half progress is consistent with the full-year plan.

Q: What is the client migration progress for AZ-COM Matsubushi EAST, and will it contribute fully in FY2027? / A: Full operation for both normal temperature and cold chain logistics at the facility will start in April 2026, per client requests to align with the Japanese fiscal new year. 80% of the facility's capacity is expected to be operational by the April launch, with full 100% utilization targeted by October 2026. All client commitments are already in place, though price negotiations are still ongoing, and the company plans to only pursue contracts that deliver adequate profitability. Full profit contribution is expected starting in FY2027.

Q: What impact will the upcoming logistics and trucking law reforms have on the company? / A: The company's core business model is 3PL with a hub-and-spoke network, and it does not operate large amounts of long-haul trucking, so it does not expect major direct negative impacts from the reforms. Cross-functional teams are still conducting detailed reviews of the regulatory changes, and the company plans to finalize a full response strategy within the current fiscal year.

Q: What is the current progress of price increase negotiations, how does progress differ for large clients, and is progress on track with the original plan? / A: The company is negotiating price increases with over 300 clients, breaking down cost increases to show rising labor and fuel costs logically. As of the first half, 40% of the targeted 5% average price increase has been completed, which is below the original 50% target for the first half. Large clients are included in negotiations but are the most difficult to reach agreements with. The current 40% overall progress is below target, but the company notes that most clients are willing to negotiate, and it will continue pushing for agreements into the second half and future years, as continued labor cost increases mean additional price increases will be needed over time.