Torishima Pump Mfg : Script of the FY2025 Q2 Financial Results Briefing

About this update from Torishima Pump Mfg.co., Ltd.

Event Summary 【Company Name】Torishima Pump Mfg. Co., Ltd. 【Event Name】 Financial Results briefing for the 2nd quarter FY2025 【Financial results announcement date】12th Nov 2025 【Financial results briefing date】12th Nov 2025 【Speaker】Representative Director, CEO Kotaro Harada 【Format】 Webcast My name is Kotaro Harada, Representative Director and CEO of Torishima Pump Mfg. Co., Ltd. Thank you all for taking time out of your busy schedules to attend Torishima's FY2025 Q2 financial results briefing today. Now, I would like to explain a bit more. I will start by discussing the details of our financial results, then I will discuss the key issues we have identified for Torishima, and then I will talk about our progress in addressing those issues, our outlook for the full-year financial results for fiscal year 2025, and finally some key topics. Regarding the second quarter financial results, as we have previously explained, Torishima will celebrate its 110th anniversary in 2029. Towards that time, we are talking about 1, 10, 100, and 1,000 within our company, and we are striving to become the world's number one pump manufacturer with sales of 100 billion yen, operating profit of 10 billion yen, ROE and an operating profit margin of 10%. Although 2019 was only six years ago, when Torishima celebrated its 100th anniversary, sales were around 40 to 50 billion yen, and profits were around 2 to 3 billion yen. We set ourselves a challenging goal of more than doubling these figures to 100 billion yen in sales and 10 billion yen in profits over the next 10 years, but it was a goal that was entirely achievable given the needs of the world. This is our financial results for fiscal year 2025, so I hope you will take a look. First, I have listed the key points of the second quarter financial results. Orders received for the half year were 48.3 billion yen, and we are progressing smoothly toward achieving our annual plan. Regarding sales, we have three demand divisions: domestic public sector demand, domestic private sector demand, and subsidiaries that mainly operate overseas. All divisions performed well, and sales reached 41.2 billion yen, a significant increase in revenue. Regarding profits, the gross profit margin fell 1.6 percentage points, which unfortunately resulted in a decrease in operating profit of 100 million yen compared to the previous year. In addition, while there was an extraordinary gain of 1 billion yen from the sale of shares in the previous fiscal year, there was no such gain this fiscal year, resulting in a decrease of 600 million yen in net income compared to the previous fiscal year. As I mentioned earlier, under these circumstances, sales are progressing smoothly toward the target of 100 billion yen set in our medium-term management plan, and the first half of this fiscal year has reached a record high. While sales are going well, we are strengthening our manufacturing system, but we have not yet fully caught up, resulting in some outsourcing costs and unexpected expenses. We are making investments and implementing measures to address these issues, but the effects are expected to be delayed until next fiscal year. As a result, profits have fallen slightly short of expectations, and we have decided to revise our initial plan downward. Now, I would like to explain the details. Regarding the consolidated financial results, orders and sales are progressing smoothly, but profit levels are somewhat low. Orders received totaled 48.3 billion yen. Although this is below the 57.8 billion yen achieved in the first half of the previous year, it remains the second highest level in the past five years and shows steady progress. As I mentioned earlier, sales are going well in all areas. Regarding profits, gross profit exceeded the previous year's figure, but due to a slight increase in selling and administrative expenses, operating profit was minus 100 million yen, below the previous year's level. As always, I will explain this separately for Torishima Plant [1] alone and for our subsidiaries, mainly our overseas subsidiaries. First, on a non-consolidated basis, sales are steadily growing. High-tech pumps in particular are growing significantly, especially overseas, and are performing well. On the other hand, gross profit remained at the same level as last year's 4.6 billion yen, and selling, general and administrative expenses remained at the same level, so the operating profit margin was on par with last year. I will explain this point in more detail later. Next, regarding subsidiaries, sales have grown steadily by 10% compared to the same period last year, and profits have also increased slightly. However, as we are currently in a period of expansion and are actively investing in new personnel, selling and administrative expenses have increased, and operating profits are at the same level as last year. As you can see, the parent gross profit margin was 14.4% in the second quarter of this fiscal year, down about 3 percentage points from 17.3% in the second quarter of the previous fiscal year. This was a somewhat unexpected development, and I would like to explain the reasons for this in more detail below. This is the trend in consolidated operating profit. Analyzing the changes, profits grew significantly due to increased sales, but as I explained earlier, gross profit decreased by 1.6 percentage points on a consolidated basis. Furthermore, personnel expenses increased by 480 million yen, resulting in a decrease of 100 million yen in consolidated operating profit compared to the same period last year. Now, I would like to explain the trends in non-consolidated profits. As you can see, the non-consolidated gross profit margin was low in the first half of the previous year, but improved in the second half. This is because sales from "public demand," one of the demand segments, are concentrated in the second half. As public demand is a high-profit segment, the gross profit margin remained stable at 20% throughout the year. The first half of this fiscal year saw a fairly low gross profit margin of 14.4%. Although sales are growing, gross profit remains at the same level as last year. The reasons for this include a significant increase in the proportion of high-tech pumps, a concentration of high-margin service sales in the second half of the year, and a bias toward sales from government and public sector demand in the second half of the year. As a result, despite sales increasing, profits are not keeping up, leading to a decline in profit margins. To improve this situation, we are investing in strengthening our "manufacturing capabilities." This initiative aims to significantly expand our manufacturing capabilities as we aim to increase sales from the 40-50 billion yen range at the time of our 100th anniversary (six years ago) to our current target of 100 billion yen. We are also focusing on service, hoping that as our high-tech pumps grow, service sales will follow suit. However, the effects of these efforts are yet to be seen until the next fiscal year, and profit levels in the first half of the year in particular remain very low. The major issue for this fiscal year is how much we can recover from this in the second half of the year. What you see here is the sales trend for high-tech pumps and services. As you can see, in fiscal 2020, the leftmost bar graph shows that sales for services and high-tech pumps were at roughly the same level, with annual sales starting at 14.1 billion yen for high-tech pumps and 15.2 billion yen for services. Since then, high-tech pumps have grown steadily, and currently reach the 35 billion yen level. This fiscal year, sales in the first half alone reached 20.6 billion yen, and if the second half is added, we expect to easily reach the 35 billion yen level. On the other hand, service sales in the first half of the year were almost flat compared to the same period last year, and the proportion of high-tech pumps in total sales increased, which is the reason for the decline in the profit margin of the parent company as a whole. However, the growth of high-tech pumps will lead to future investments, and we are doing very well in achieving record sales. We expect that profit margins will be supplemented by increased service sales in the future. As I mentioned at the beginning, we are also in the process of establishing a structure to become a 100 billion yen company, and this year's sales are steadily increasing to 89 billion yen. Overall, we are growing steadily, but the challenge going forward is how much we can raise our profit levels. There has been no significant change in the ratio of selling, general and administrative expenses to sales, remaining flat. Next, I would like to explain our priority issues, based on what I have said so far. Our priority is how to raise our profit margins. We have been implementing various measures since last fiscal year, and I would like to explain the progress we have made. First, given the significant growth in sales, we are working to strengthen our production capacity in order to establish a system capable of handling sales of around 100 billion yen. As part of this, we have introduced a front-loading method, therefore specifications are finalized as close to the customer as possible at the earliest possible stage, sufficient lead time for the subsequent processes of design and production, thereby ensuring increasing the proportion of in-house production. At the same time, we are also working to increase our existing production capacity. Furthermore, in order to improve overall profitability, we are focusing on the early launch of our service business. The service business is an area that will undoubtedly contribute to sales in the future, and our priority this year was to raise overall profits by getting it on track as quickly as possible. I will now explain the progress of the above measures. First, I'd like to explain our front-loading initiatives. As shown at the bottom of the document, in April of this year, we transferred approximately 10 people from the design department to the sales department. This allows us to finalize specifications at an early stage, closer to the customer, and bring forward the design workload, thereby reducing the burden on the procurement and production departments and establishing a system to promote in-house production. As shown in the graph below, we are trying to determine design flexibility and measures that can be taken before costs are finalized as early as possible. This initiative is going very well, leading to record-high sales of high-tech pumps in the first half of this fiscal year. Design was completed early, procurement and delivery to production are progressing quickly, and the assembly and testing processes are already approaching a level comparable to a 100 billion yen scale system. However, there are still issues to be addressed. Although the assembly and testing departments have improved their internal efficiency and productivity, they recognize that the machining process, which is the pre-process, remains an issue. With regards to machining, because we are dealing with machines, we cannot, for example, operate them at 1.5 times the normal speed. For this reason, we have responded organically up until now, but we still need to increase our machining capabilities in the first place. Therefore, as a measure to increase production capacity, we have been making efforts to utilize subsidiaries and bring external machining companies into the group. I would like to explain the progress we are making. First, at our subsidiary's Indian factory, we have begun construction of a machining factory, and in fact, machining machines have already been temporarily installed within the existing factory. Advance operation within the existing service factory is scheduled to begin in the second half of the year. We are also working to transfer some of the pump models (high-tech pumps) that were previously designed and manufactured at our headquarters to Kyushu Torishima Co., Ltd. This work began in April and was completed in July. This has reduced the burden on the design, manufacturing, and procurement departments at our headquarters, and we are now in a position to more actively promote orders for high-tech pumps. Additionally, we have acquired two overseas machining companies, one in Korea and one in the UK. The Korean company has not yet closed, but it is already operating as a subsidiary. The UK company has closed and is on our balance sheet. We expect that the efficient use of these facilities and subsidiaries will lead to orders, production, and sales from the end of the second half of this fiscal year, and that this will actually be reflected in profits from next fiscal year. We would like to incorporate this as quickly as possible in the second half of the year and produce results. Next, I would like to explain our efforts to strengthen our service business. Unfortunately, we have been slow to receive orders in the first half of this fiscal year. As I have mentioned before, sales of high-tech pumps are growing steadily, but sales of the service business remained almost flat at 12.6 billion yen in the first half of this fiscal year, compared to 12.5 billion yen in the first half of last fiscal year. As a result, the proportion of high-tech pumps has increased, and profit margins have fallen, which is Torishima's current challenge. However, we expect our services business to grow. The development of overseas service bases is also progressing smoothly, and a service factory in Egypt is scheduled to start operations in March of next year. With these planned service bases operating, we can expect to increase our service offerings for the large number of pumps shipped to the Middle East, Egypt, North Africa, and other regions. As I will explain in more detail later, the ratio of orders and sales overseas is increasing, particularly in the United States, and we will continue to focus on strengthening our service business. Given this situation, we would like to announce our full-year financial forecast for fiscal year 2025. Sales are progressing smoothly, and profits are also at a level higher than last year. However, although we are making efforts to raise profit margins as much as possible in the second half of the year, profits are expected to fall slightly below our initial plan. Therefore, while sales remain unchanged, we have revised downward our profit forecasts below operating profit. Regarding the second half, while sales of overseas high-tech pumps increased significantly in the first half, the second half will see a focus on the public sector and domestic private sector, with many areas having relatively high profit margins. Furthermore, as the services of our subsidiaries are expected to grow, we are aiming for profits to exceed expectations. While operating profit is expected to increase from 5.4 billion yen last year to 5.8 billion yen this fiscal year, it fell short of the initial plan of 6.7 billion yen, and we have revised it slightly downward. Ordinary profit and net profit are also expected to be at similar levels. Looking at this figure for the parent and subsidiaries, the absolute amount of profits remains the same as last year. However, I would like to inform you that the profit margin has not increased and the increase in profits is expected to be lower than planned. Next, I would like to talk about the measures we are taking. First, regarding the construction of a machining factory at our subsidiary in India, in Phase 1 we purchased machinery and completed temporary installation within the service factory. The factory will begin accepting machining work that was previously outsourced from the head office from the second half of the year. However, as the factory will not begin full-scale operation until around March of 2026, actual operation will start from next fiscal year. This project is one step in addressing the issue of securing processing machining capabilities within the Torishima Group, and we believe that it is currently progressing as planned. We have also completed the transfer of some of the pumps designed and manufactured at our headquarters to Kyushu Torishima Co., Ltd. We expect to receive orders for approximately 40 units of these pumps during this fiscal year, and by transferring them to Kyushu Torishima Co., Ltd., we are making use of the space that will be freed up to assign design department personnel to sales, and we are also making progress in efforts to streamline design work and speed up the handover to subsequent processes. Next, I would like to explain our acquisition of two overseas machining companies. The first company is a Korean company. We originally used them as an outsourcing partner, but their dependency on Torishima was high, at about 50%. We therefore entered into negotiations and reached an agreement for them to join the Torishima Group and become a wholly owned subsidiary, and we are currently in the process of final closing. Although the actual work has already been ordered directly from our company and processed within the group, the full effects are expected to become apparent from the latter half of the second half of the year. The other company is a British company called KRG. Those of you who have followed Torishima for a long time may remember this company. It was a subsidiary of Torishima until about 10 years ago, but was sold. However, as the need for machining operations became more widespread, our wholly owned subsidiary (TSSE) in the UK has now made it a wholly owned subsidiary again. We have also started placing orders with this company from the second half of the year, and we expect their contribution to profits to become apparent from the latter half of the second half. So, we took three measures to address the bottleneck of machining. The first and second were to bring machining companies in Korea and the UK under our umbrella. The third was to build our own machining factory within our Indian subsidiary and carry out production there. As a result, the necessary measures are progressing smoothly. I apologize for repeating myself, but we are currently promoting our mid-term plan "Beyond 110" in preparation for Torishima's 110th anniversary, with the goal of achieving sales of 100 billion yen and operating profit of 10 billion yen. For the time being, we believe that progress is going smoothly. First of all, we have an order system in place to receive nearly 100 billion yen in sales, and shipments have already reached approximately 90 billion yen. We expect future growth to come from the service business of our subsidiary. On the other hand, machining was a bottleneck in production, and we continued to rely on outsourcing. However, by incorporating this machining company into the group, we believe that if we can advance in-house production, we will be able to bring our profit level close to 10 billion yen. If the service business grows and in-house machining progresses, we will be able to see the achievement of our goal. We will continue to report on our progress. This concludes our financial results explanation for the second quarter of fiscal year 2025.

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