S E Corporation Q4 FY2025 earnings call

Overall 2025 March Fiscal Year Performance

• Full year results were a year-over-year decline in both revenue and profit. While strong demand for disaster prevention and national land resilience projects remained, the decline was driven by fewer large projects compared to the prior record year and widespread construction delays shifting projects to future periods. All profit metrics (gross profit, operating profit, ordinary profit, net profit) declined significantly due to higher personnel and operating expenses for mid-term plan strategic investments, pushing ROE down to 4.9%.
• Balance sheet improved: The company continued to reduce interest-bearing debt, increasing equity ratio and maintaining healthy financial discipline. Operating cash flow was 1.7 billion yen, investment cash flow had 0.9 billion yen in outlays, resulting in free cash flow of 0.807 billion yen. The full year dividend per share was maintained at 13 yen, consistent with prior guidance, resulting in a 3.55% dividend on equity (DOE), meeting the company's 3.5% target.

Mid-Term Management Plan (2023-2025) Positioning & Priorities

• This 3-year period is positioned as a phase to solidify the foundation of existing businesses while planting seeds for future growth, to enable business expansion and diversification in the next mid-term plan. The company's 2030 Vision is to become an enterprise that broadly contributes to solving major social issues (climate change, natural disasters, aging infrastructure, population decline, regional inequality) by combining existing engineering expertise with new technologies.
• Key strategic initiatives are split into two core categories, each managed by dedicated working groups:
  • Future Growth Seeding (Sustainability Initiative A):
    • Power Generation Business: Developing CO2-free power generation using domestically sourced metal fuels. Benchmark plant construction from raw fuel production through combustion was completed in 2024, with trial operations now underway. The company plans to refine the basic business plan, establish a dedicated operating subsidiary, and prepare for IPP (Independent Power Producer) participation in the 2026 March fiscal year, targeting commercial launch around 2028 (the final year of the next mid-term plan).
    • ESCON Business: ESCON (ultra-high strength synthetic fiber reinforced concrete) has unique advantages including light weight, long lifespan, corrosion resistance, and ability to form complex shapes. The company is expanding material use cases beyond existing secondary products, focusing on three applications: road bridge decks, deck joints, and deck top surface repairs. On-site implementation is targeted for the current fiscal year, with 0.04 billion yen in material sales projected for 2026 March fiscal year.
    • BIM Design Support & BIM Implementation Contracting: Leverages the company's Vietnamese group subsidiary VJEC (a joint venture with Hanoi National University of Civil Engineering) to build a pool of BIM technicians to serve the Japanese market, addressing Japan's severe engineering labor shortage. VJEC will remain non-consolidated in 2026 March fiscal year, targeting 0.02 billion yen in net income, with plans for expansion in the next mid-term plan.
    • New Business Development: A dedicated team has narrowed 147 initial business proposals to 5 active candidates, and is conducting customer interviews and prototype testing. The company targets to finalize approximately 2 promising business concepts by the end of the current mid-term plan.
  • Internal Foundation Building (Sustainability Initiative B):
    • Operational Efficiency: Continues to implement digital systems for factory inspection processes and sales-production coordination, with visible productivity improvements to date.
    • Human Resource Initiatives: Implemented comprehensive reforms to recruitment, training, evaluation and compensation systems, including new mentorship and 1-on-1 follow-up programs for young and mid-career employees. The 2026 March fiscal year will focus on embedding these new programs.

Capital Cost & Share Price Awareness Initiatives

• Management acknowledges that the company's ROE is depressed, share price remains sluggish, PBR is at a low level, and trading liquidity is thin, reflecting a lack of market confidence. Management rejects short-term ROE improvement measures that are inconsistent with the long-term 2030 Vision, and will continue prioritizing growth investment while steadily communicating the company's strategy to the market through IR activities to build long-term trust. Share count has gradually increased in recent years, showing some positive impact from ongoing IR efforts.

For the 2025 March fiscal year, total consolidated revenue was 25.887 billion yen, a 2.2% decrease year-over-year from the prior year's 26.474 billion yen. All four segments reported year-over-year revenue decline:

1. Construction Equipment and Materials Manufacturing & Sales: This segment was the largest contributor to the overall revenue decline, driven by fewer large projects, overall construction delays, and project timeline shifts from the current period to future periods, even as demand for ground anchor products and bridge repair products for highway renewal remained strong due to national land resilience and disaster prevention policies.
2. Architectural Materials Manufacturing & Sales: Reported a slight revenue decrease due to individual project factors, but overall performance remained broadly solid.
3. Repair & Reinforcement Construction: Also reported a slight revenue decrease from individual project factors, with broadly solid overall performance.
4. Construction Consulting: Reported a 15% revenue decline, the largest drop among segments, driven by underperformance of JICA (Japan International Cooperation Agency) projects and delays to new projects due to foreign country operational conditions. This segment remained in operating loss for the second consecutive year due to revenue declines and project timeline shifts.

Total operating profit for 2025 March fiscal year was 0.849 billion yen, a 0.515 billion yen year-over-year decrease. The Construction Equipment and Materials segment contributed a 0.355 billion yen operating profit decline from lower revenue plus higher selling, general and administrative expenses tied to mid-term management plan initiatives. Unallocated R&D department personnel and operating expenses also increased significantly year-over-year, driven by R&D spending for the new power generation initiative under the mid-term plan.

• For the 2026 March fiscal year (final year of the current mid-term management plan), management forecasts 26.5 billion yen in consolidated revenue, a 2.4% year-over-year increase, and forecasts a year-over-year decline in all profit metrics: operating profit is projected at 0.472 billion yen, a 0.377 billion yen year-over-year decrease. The revenue growth expectation draws on delayed Noto Peninsula earthquake reconstruction demand that shifted into the current fiscal year. The profit decline is driven by a planned ~0.5 billion yen increase in R&D department personnel and operating expenses as the company accelerates strategic

• Construction project timelines are vulnerable to delays from external factors including labor shortages, overtime regulations, and natural disasters, which can cause project revenue to shift between reporting periods and create volatility in annual results, particularly for the large Construction Equipment and Materials segment.
• Regional non-metropolitan construction demand is on a long-term declining trend, creating pressure on the Architectural Materials segment.
• Ongoing global geopolitical and economic uncertainty creates continued unpredictability for JICA international projects, which has weighed on the Construction Consulting segment's performance in recent years.
• Large strategic investments in new growth areas (power generation, ESCON, BIM services, new business development) will suppress near-term profit margins and ROE, which may lead to continued low market valuation of the company.
• The company's revenue and profit are heavily concentrated in the Construction Equipment and Materials segment, which experiences significant annual volatility from factors including large project volume and disaster-related demand shifts, creating overall earnings volatility for the consolidated business.

No question and answer section was included in the provided transcript.