SANRITSU CORPORATION Q4 FY2025 earnings call

Overall 2025 March Term Financial Results

• Total consolidated revenue: 20.122 billion yen, an increase of 723 million yen year-over-year, but missed the initial forecast by 1.8%.
• Operating profit: 1.034 billion yen, an increase of 169 million yen year-over-year. This includes a 180 million yen non-core one-off gain related to prior year misconduct resolution; excluding this factor, core operating profit decreased year-over-year, primarily due to lower profit contribution from the Chinese subsidiary.
• Ordinary profit: Increased 15 million yen year-over-year, after accounting for 101 million yen in extraordinary external investigation costs for the prior misconduct.
• Net profit attributable to parent shareholders: 468 million yen, a decrease of 103 million yen year-over-year, driven by a 113 million yen special loss from the Chinese subsidiary share transfer.

Strategic & Mid-Term Management Plan Progress

• The company maintains its long-term vision of shifting from passive operations to proactive solution-based customer service, focused on identifying and solving customers' core logistics needs.
• Original mid-term plan (2024-2026 March Term) targets: 22 billion yen in revenue, 1.1 billion yen in operating profit, 5% operating profit margin. As of the final year (FY2026), revenue is projected to come in ~1 billion yen short, and operating margin is projected at 4.5%, primarily due to underperformance in the US business.
• The company shifted its global expansion strategy from European entry to focusing investment on the US East Coast, which has led to US revenue coming in 800 million yen below original plan, and operating profit coming in 80 million yen below original plan.
• Key strategic initiatives completed/in progress:
  • DX: Phase 1 analog-to-digital conversion is complete. The company now uses the "Rojimeter" analysis tool to collect and analyze warehouse operation data. It has already achieved 1,011 hours of labor productivity gains against a 1,000-hour year 2 target, and targets an additional 800 hours of gains in the coming year.
  • Capital investment: The Fuchu Warehouse (Murayama Facility) opened in October 2024, targeting power conversion device customers, and is now in full operation with advanced automation including AUTOSTORE robotic picking and automated large movable rack systems. A new 2,000-tsubo warehouse at the Port of Savannah, Georgia (US) is under construction, scheduled for completion in July 2025, targeting heavy cargo like machine tools for import into the US. A new large-scale warehouse in the Narita area is also under construction, scheduled for completion ahead of increased cargo volumes from Narita airport runway expansion, targeting semiconductor manufacturing equipment handling.
  • Human resources: Ongoing packing skills training for core business employees, and specialized customer-focused solution sales training for dedicated account managers.

Sustainability & ESG Initiatives

• Formalized a basic sustainability policy, and introduced the "PivottA Sustainability" platform to drive awareness and measure impact: all employees view a 3-minute sustainability video every two weeks, with annual impact measurement.
• Launched a company-wide cardboard art contest, using recycled cardboard (leveraging the company's packaging design expertise) to promote recycling, after previously holding a biennial paralympic art contest to support disabled employment and social inclusion.
• Advanced diversity, equity and inclusion initiatives in the third year of the program: conducted employee listening sessions, revised personnel systems, updated feedback processes, improved welfare facilities (changing rooms, break rooms), and worked to eliminate unconscious bias through increased visibility of women in leadership.
• Conducted community outreach via the company's table tennis club, including a youth exchange event with local elementary and middle school students, and achieved top competitive results (women's doubles runner-up at the All-Japan Table Tennis Championships).

By product group:

• Machine tools: Decreased by 1.265 billion yen year-over-year due to cyclical industry slowdown, customer production adjustments, and reallocation of some products to the small precision equipment segment.
• Large precision equipment: Increased by 524 million yen year-over-year, driven by strong performance of semiconductor manufacturing equipment and newly added power conversion device handling.
• Other: Increased by 1.035 billion yen year-over-year, driven by strong automotive-related parts handling in sea freight operations.

By business segment (FY2025 March Term):

• Packing Business: Increased revenue and increased profit. Weak machine tool performance was offset by strong demand for semiconductor manufacturing equipment, automotive-related parts, and power conversion devices.
• Transportation Business: Increased revenue and increased profit. Driven by a recovery in medical device handling and successful pass-through of higher outsourcing costs to customer prices. Operating profit margin rose 4.1 percentage points year-over-year.
• Warehouse Business: Increased revenue, but decreased profit. The Fuchu Warehouse new opening drove revenue growth, but slower customer acquisition for available space (including external warehouses) and higher initial startup costs for Fuchu Warehouse led to lower profit.
• Leased Building Business: Increased revenue and increased profit, driven by full occupancy of the company's headquarter building.

By region:

• United States: Revenue of 1.802 billion yen, up 41 million yen year-over-year. A USD-based revenue decline of ~USD 820,000 was offset by 11 JPY of yen depreciation, resulting in a net increase on a yen basis.
• China: Revenue of 185 million yen, down 40% (136 million yen) year-over-year. Driven by slowing domestic capital investment and the absence of a large one-off factory relocation project from the prior year. The Chinese subsidiary was fully divested via share transfer at the end of March 2025.

• For FY2026 March Term, the company guides total revenue of 21 billion yen, an increase of 878 million yen year-over-year, driven by full-scale operation of Fuchu Warehouse, contribution from the new Savannah, Georgia warehouse, and a cyclical recovery in the machine tool sector.
• Operating profit is guided at 950 million yen, a decrease of 84 million yen year-over-year. Excluding the 180 million yen one-off non-core gain in FY2025, core operating profit from the main business is projected to increase ~100 million yen year-over-year.
• Net profit is guided at 490 million yen, an increase of 22 million yen year-over-year, as the FY2025 base included a large special loss from the Chinese subsidiary divestment.
• The original mid-term management plan final year target for operating margin (5%) will not be met, with a projected 4.5% operating margin.
• Dividend policy maintains a 30% payout ratio baseline. For FY2025, the company proposes a 31 JPY per share dividend (same as prior year, equal to a 37% payout ratio after excluding one-off investigation costs), and guides a 27 JPY per share dividend for FY2026 consistent with the 30% payout ratio.
• Large precision equipment revenue is projected to decline slightly due to the exit from China, with a back-loaded full-year plan reflecting near-term weakness from Trump administration tariff uncertainty.
• US revenue is projected to decline 102 million yen year-over-year, reflecting weaker near-term domestic investment demand and ongoing supply chain review by major machine tool customers.

• Uncertainty around US tariffs related to the Trump administration has led to near-term weak demand, rushed pre-tariff rush shipments in March 2025, and cautious capital investment planning from major customers in the first half of FY2026.
• US domestic investment demand is currently weak, with major automotive customers having fully paused investment amid uncertainty over North American production sourcing plans, creating near-term revenue uncertainty.
• The Fuchu Warehouse has not yet achieved full customer occupancy, leading to delayed profit contribution from the new facility.
• Ongoing wage increases will add more than 40 million yen to cost in FY2026, requiring continued price management and productivity improvements to maintain cost structures.
• Geopolitical risks heavily impact the sea freight business, with ongoing alliances and restructuring among container liner companies adding uncertainty to shipping logistics and pricing.
• Future expansion into Europe remains uncertain, as the company has identified that market conditions for the company's steel packing technology are not yet favorable.

Q: How has your assessment of the global business environment changed over the past year amid the new Trump tariff risk and potential European retaliatory tariffs?

A: Management follows a go-see principle for global strategy, and notes that US investment appetite was strong in August 2024 before the Trump administration took office, but has softened gradually since the end of 2024. Currently, major automotive customers have fully paused investment due to uncertainty about future North American production arrangements. However, management notes that Japanese exports to the US will remain competitive because US manufacturing labor costs are still too high to allow full shift to local sourcing, so the company will capture the resulting opportunities. Management shifted the original European expansion plan to focus on the US East Coast after a market study found steel packing penetration in Europe was not yet ready for entry, and will continue to evaluate European investment cautiously, while watching for opportunities from cargo flows from the US East Coast to Europe.