5232.T

Overall Financial Performance

• Interim consolidated net sales hit 105.8 billion yen, a 2.8 billion yen year-over-year decrease driven by lower domestic cement sales volume.
• Interim operating profit hit 4.12 billion yen, an 1.8 billion yen year-over-year increase, supported by cost declines in the cement business and product mix improvements for electrostatic chucks (ESC) in the new materials business.
• Interim net profit hit 5.59 billion yen, a 4.65 billion yen year-over-year increase, driven by gains from sales of policy-held shares.

Strategic Progress and Capital Investment

• Over the current mid-term management plan (finalized this fiscal year), the company completed large-scale strategic investments: carbon neutrality-related equipment installation at multiple plants, extension of the shipping berth at the Akiyoshi Mine, and production capacity expansion for the ESC business.
• The company is aligned with its long-term "SOC Vision2035" strategy, focused on improving existing business profitability and building a foundation for future growth. Management confirms the foundational groundwork for future earnings growth after the next mid-term plan has been solidly completed.

Shareholder Return

• The company followed its mid-term plan target of a 3-year average total return payout ratio of 50%+, completing a 5 billion yen share buyback this fiscal year.
• The company will maintain its annual dividend of 120 yen per share, prioritizing stable dividend continuity.

• Full-year FY2025 consolidated net sales guidance is revised downward to 225.2 billion yen, a 9.8 billion yen reduction from the initial forecast, which still represents a 5.7 billion yen year-over-year increase.
• Full-year operating profit guidance is revised downward to 14 billion yen, a 5 billion yen reduction from the initial forecast, which still represents a 4.65 billion yen year-over-year increase.
• Full-year net profit guidance is revised downward to 10 billion yen, a 4 billion yen reduction from the initial forecast, which still represents a 0.99 billion yen year-over-year increase.
• Full-year domestic cement demand guidance is revised downward from 32 million tons to 31 million tons, driven by weaker-than-expected first half demand. The company forecasts its domestic cement sales volume will hit 6.95 million tons (3.4% year-over-year decrease), with export volume hitting 1.38 million tons (8.5% year-over-year increase).
• Guidance assumptions: average annual exchange rate of 148 JPY/USD, CIF coal price of 138 USD/ton.
• The next mid-term management plan will be announced in spring 2026, with a core focus on advancing business portfolio transformation. The company will finalize details over the next six months.

1. Cement Segment: In the first half of FY2025, the segment achieved an operating profit of 40 million yen, turning to a net profit after a 1.7 billion yen year-over-year improvement. Negative impacts included 700 million yen from lower sales/production volume and 1.6 billion yen from higher manufacturing fixed costs and transportation costs, offset by 1.5 billion yen from higher selling prices and 2.3 billion yen from lower coal and oil prices. For the full FY2025, the segment forecasts a 5 billion yen operating profit, representing a 4.1 billion yen year-over-year improvement. Negative full-year items include 1.1 billion yen from lower volume, 1.7 billion yen from higher power/raw material costs, and 4 billion yen from higher fixed/transportation costs, offset by 6.1 billion yen from higher prices and 3.1 billion yen from lower energy costs. No overall revenue contribution percentage is provided for the segment.

2. Mineral Products Segment: Revenue and profit decreased year-over-year, driven by lower sales volume of limestone for domestic and overseas steel customers, combined with higher mining costs.

3. Building Materials Segment: Revenue and profit decreased year-over-year, driven by lower sales volume of concrete structure repair/reinforcement materials and fewer repair projects.

4. Optoelectronics Segment: The segment narrowed its net loss year-over-year through cost reduction efforts, but remains unprofitable.

• Domestic cement demand has declined for 37-38 consecutive months on a year-over-year monthly basis, driven by persistent chronic labor shortages in the construction and logistics industries and overtime work regulations. Demand is not expected to return to prior levels even after the impact of labor regulation changes eases.
• Cement price hike implementation has been delayed compared to peer competitors, with full effects pushed to the second half of the fiscal year, leading to downward revisions to full-year earnings guidance.
• The LN modulator (CDM) business in the optoelectronics segment remains unprofitable after repeated development delays, and a strategic decision on the future of the business will be required by the end of the fiscal year.
• Manufacturing fixed costs and transportation costs remain elevated, with 600 million yen of extra cost from recent equipment outages. While prevention measures will reduce future outage risks, costs are not expected to fall back to prior levels.
• The upcoming GX-ETS carbon emission trading scheme will create differential impacts across industry players based on carbon intensity per ton of clinker, with no finalized full details on costs or allocation as of the call.

Q: Why has Sumitomo Osaka Cement's cement price hike implementation lagged behind competitors, and will the full ~2,000 yen/ton increase take effect in the second half?

A: The difference in progress stems from customer structure: most competitors own more in-house ready-mix concrete and secondary product subsidiaries, so they can implement price hikes immediately starting in April. Sumitomo Osaka Cement has a higher share of independent professional users, so negotiations proceed more gradually, with progress on par with peers at the professional user level. The full ~2,000 yen/ton increase will nearly fully penetrate by the end of the fiscal year, with nearly 100% of users already having provided signed pricing agreements, and remaining negotiations to conclude by Q4 FY2025.

Q: How will domestic cement demand trend after the 2024 labor regulation changes fully take effect, and will demand recover?

A: Domestic demand has declined year-over-year for 37-38 consecutive months, and the timing of the decline stopping remains unclear, driven largely by ongoing labor shortages and shorter working hours. While contractors still hold large order backlogs, and labor regulation impacts will mostly clear this fiscal year, labor shortages will not resolve quickly, so demand is expected to stay flat at current levels going forward. Infrastructure projects from national resilience initiatives and semiconductor-related private investment will support steady ongoing demand.

Q: What is the current operating and investment status for the electrostatic chuck (ESC) business, and what capacity expansion is planned?

A: Current ESC capacity utilization is approximately 70%, with room to support 30% sales growth without additional capacity expansion. The company is completing a large capacity expansion project scheduled for completion in July 2026, which will double current production capacity in response to customer requests to prepare for expected long-term market growth. Depreciation expenses for the new capacity will start to impact earnings in the second half of FY2026. Excess channel inventory has fallen from a peak of 200% of proper levels to 150% currently, with inventory adjustment nearly complete, and market growth is expected to resume from FY2026 onward.