SHIKOKU KASEI HOLDINGS CORPORATION Q2 FY2025 earnings call

• Overall Financial Results • Consolidated cumulative half-year sales: 34.172 billion yen (down 3.0% YoY), operating profit: 5.253 billion yen (up 8.6% YoY), ordinary profit: 5.205 billion yen (down 12.3% YoY), net profit attributable to parent shareholders: 3.729 billion yen (down 7.5% YoY). Annualized ROE is 8.8%, down 0.9pp YoY. • ROIC as of the end of Q2: 21.9% for Chemicals Business, 1.0% for Building Materials Business, and 7.3% for the entire company, up from prior periods after excess capital compression.

• Long-Term Vision "Challenge 1000" • This is a 10-year long-term plan launched in 2020 targeting 100 billion yen in total sales by 2030. The current fiscal year is the final year of STAGE 2, and STAGE 3 (final stage) will launch in January 2026. • A full review confirmed that existing initiatives are insufficient to hit 2029 financial targets, so STAGE 3 planning is ongoing. Management prioritizes 2030+ growth investment over hitting near-term 2029 profit targets, with focused aggressive investment in fine chemicals.

• Key Operational Investments • New Sakade Plant: A new fine chemicals production facility was approved to meet rapidly growing demand for semiconductor-related materials. Located 10 minutes from the R&D center to enable close development-production collaboration, the first production lines are scheduled to start operation around 2027, producing GliCAP and semiconductor process materials. • Tokushima Plant New Facility: Construction of a new R&D/office building will start in September 2025, completing in October 2027, to support growth in functional materials and improve the working environment, with ZEB Ready certification for low environmental impact. • Building Materials Rebranding: Launched new high-value brand "MEGLIO" focused on non-residential, custom, high-margin products. First product is the integrated solar carport "Solis Roof", which has already seen growing inquiries from commercial facilities.

1. Chemicals Business: 24.44 billion yen in cumulative half-year sales (down 0.81 billion yen YoY), with 5.08 billion yen in operating profit (up 0.99 billion yen YoY), accounting for 71.5% of total consolidated sales. Sub-segment performance: - Inorganic Chemicals: Sales declined YoY and QoQ in Q2, due to customer factory disasters and low-price competition from Chinese players for core product insoluble sulfur, though cumulative sales to the Americas (higher selling prices than Asia) increased. Full-year sales are projected at 14.5 billion yen, 1.5 billion yen below the STAGE 2 target. - Organic Chemicals: Q2 sales increased QoQ but declined YoY, due to post-boom correction after last year's strong performance and lower pool demand in the U.S. East Coast from cool temperatures. Full-year sales are projected at 19.0 billion yen, 1.0 billion yen above the STAGE 2 target. - Fine Chemicals: Cumulative half-year performance is strong, with semiconductor process materials up ~300% YoY and GliCAP up ~330% YoY, driven by strong high-end semiconductor demand from AI growth. Full-year sales are projected at 16.5 billion yen, 4.5 billion yen above the STAGE 2 final target, exceeding even the STAGE 3 target. 2. Building Materials Business: 9.17 billion yen in cumulative half-year sales (down 0.29 billion yen YoY), with 0.07 billion yen in operating profit (down 0.48 billion yen YoY), accounting for 26.8% of total consolidated sales. Q2 recorded a 0.21 billion yen operating loss. Full-year sales are projected at 19.0 billion yen, 8.5 billion yen significantly below the STAGE 2 target, due to persistent weakness in the new housing market.

• Full-year 2025 consolidated sales and overall profit guidance are maintained at initial forecast levels, despite internal revisions: fine chemicals sales are revised up 0.65 billion yen offset by a 0.65 billion yen downward revision to building materials profit, with no change to overall ordinary profit and net profit forecasts. The guidance assumes an exchange rate of 145 yen/USD and 165 yen/EUR.
• Full-year capital expenditure is projected at 9.68 billion yen, slightly up from the initial plan, while depreciation is projected at 3.74 billion yen, slightly down due to project delays from H1 to H2.
• The annual dividend per share is maintained at 50 yen, representing a 34% dividend payout ratio based on current forecasts. A 2.794 billion yen share buyback was completed in April 2025, bringing total payout ratio above the 50% target for the fiscal year.
• Detailed STAGE 3 capital allocation and financial targets will be announced in February 2026 alongside full-year 2025 results.

• Inorganic chemicals: Global supply of insoluble sulfur significantly outpaces demand, with ongoing low-price competition from Chinese competitors, pressuring sales volumes and margins. The new plant will require several years of depreciation burdens before contributing full earnings.
• Organic chemicals: Business performance is heavily dependent on North American pool market conditions, leaving it exposed to demand volatility from weather and industry structural changes. Chinese product imports have resumed after antidumping tariffs were lowered, with potential for future price competition.
• Building materials: Persistent downturn in new housing construction, continued high aluminum prices, and current ROIC below cost of capital, requiring urgent profitability improvement. Structural over-reliance on the depressed residential market necessitates a costly strategic shift to non-residential segments.
• Fine chemicals capacity: Current production capacity is already tight to meet rapidly growing AI-related semiconductor material demand, requiring large upfront investment that will temporarily increase depreciation costs and may lower ROIC in the near term.
• Foreign exchange: A 1 yen change in USD/JPY impacts annual operating profit by 0.1 billion yen, so material yen appreciation would pressure overall profitability.

Q: What is the current outlook for price and volume trends in inorganic and organic chemicals, and why is full-year sales guided to increase in H2 despite typical seasonal weakness? / A: For insoluble sulfur, global oversupply from Chinese competitors has not changed, but the newly completed high-grade plant will produce higher quality grades to support higher selling prices and recover some lost volume. All older capacity will be gradually replaced, though this will take time. For organic chemicals, even though H2 is seasonally weak, management expects sales growth from expected market shifts in the fragmented U.S. pool industry and expanded production capacity at the stable Tokushima plant.

Q: What segments will close the 2029 financial target gap, and will Sakade Plant contributions be delayed past 2029? / A: Fine chemicals (GliCAP and semiconductor process materials) are the core growth driver for the 2029-2030 period. New initiatives in sulfur-based inorganic chemicals and consumer sanitary products in organic chemicals will lay their foundational groundwork during STAGE 3. For building materials, the priority is stopping profit declines first through structural reform, not growth: the business will shift focus to non-residential space-focused solutions (rather than volume-focused residential materials) and add in-house design and construction capabilities to deliver higher-value offerings.

Q: Is the strategic direction for building materials to focus on higher-margin products rather than sales volume, and can the company's existing strengths deliver this? / A: This interpretation is correct: the business will abandon volume-based low-price strategies. Shikoku Kasei already holds over 50% share in the landscape exteriors niche, with unique strengths in custom order flexibility and design-in sales that large mass producers cannot easily replicate. This segment has far higher margins than residential building materials, so focusing expansion here will improve profitability despite lower overall volume growth.

Q: What is Shikoku Kasei's winning strategy for inorganic chemicals against low-cost Chinese competition? / A: The company does not compete on volume or price. The strategy is to continuously improve product quality to meet higher customer specifications, leveraging the company's unique long-standing expertise in safe, continuous handling of sulfur and hazardous materials, to rebuild market position through quality differentiation.