TAIHEIYO CEMENT CORPORATION Q2 FY2026 earnings call

• Core Strategic Framework: The 2026 mid-term management plan focuses on carbon neutrality (CN) and circular economy, with three core pillars: domestic business revitalization, global strategy, and sustainability promotion.

• Domestic Business Revitalization: Successfully implemented a uniform 2,000 yen per ton price increase across all bulk cement and ready-mix concrete products, with the price hike already implemented and gradually penetrating the market. Built and expanded export hubs to absorb excess domestic demand and secure profitability; invested 7.6 billion yen to rehabilitate silos and loading facilities at the Saeki plant, targeting 3.6 million tons of total exports this year. Promoting JIS standardization for limestone-blended cement to align Japan with global blended cement trends, supporting domestic carbon reduction goals.

• Global Blended Cement Growth Strategy Driven by CN: Global cement markets are rapidly shifting to blended cement (60% of US cement is now blended, vs. just 20% in Japan). The company is expanding supply of high-quality fly ash and supplementary cementitious materials (SCMs) from Japan and Indonesia to the US West Coast, where local SCM supply is constrained. Building two 20,000-ton silos in Japan for export, expected to be completed mid-2026, to serve Southeast Asian and US markets. Completed a large new pier in Indonesia that can handle Handymax vessels, enabling up to 1 million tons of annual cement exports to the US, leveraging Indonesia's low-cost coal for production.

• US West Coast Vertical Integration Completion via M&A: Acquired 41 ready-mix concrete plants from Vulcan across California from Northern California to San Diego, completing the company's long-planned full vertical integration of cement, aggregates, and ready-mix concrete on the US West Coast. The acquisition fills the company's previous gap in the Northern California ready-mix market, strengthening regional supply balance and competitive position. The company is focused exclusively on the US West Coast (no plans for expansion to other US regions at this time), targeting a leading market position in California.

• Southeast Asia Operations: In Vietnam, the business has normalized after COVID-19, and the company plans to accelerate US-bound exports from its Gisong Cement subsidiary. In the Philippines, safeguard measures have reduced inflows of cheap Vietnamese cement, and a new cement export terminal with silos and packing facilities is under construction on Luzon, expected to be completed next year to import high-quality Japanese blended cement. In Indonesia, the company is deepening its strategic partnership with SIG/SBI to develop its new export terminal.

• Carbon Neutrality Initiatives: Partnering with Yakushima Town on the Zero Carbon Island initiative, testing low-carbon and carbon-negative cement solutions and deploying EV fast chargers, targeting Japan's first carbon-negative district/island.

1. Cement Domestic: Domestic sales volume reached 5.656 million tons, down 509,000 tons YoY; export volume reached 1.643 million tons, up 182,000 tons YoY. Revenue was 162.6 billion yen, up 3.3 billion yen YoY; operating profit was 11.2 billion yen, up 6.0 billion yen YoY. Revenue contribution accounted for approximately 37.1% of total consolidated revenue.

2. Overseas Subsidiaries: Aggregate revenue decreased 11.0 billion yen YoY, aggregate operating profit decreased 11.1 billion yen YoY. For US operations: Cement and ready-mix concrete sales volumes declined due to bad weather and high interest rate-driven slowdown in the private sector, leading to lower revenue and profit despite price hikes and cost cutting; aggregates sales volume increased driven by the acquisition of Grymes Rock's business assets last year. Vietnam and Papua New Guinea maintained operating profit roughly flat YoY on the back of rising domestic demand; the Philippines continued to report an operating deficit due to continued inflows of cheap imported cement from Vietnam disrupting the local market. Revenue contribution accounted for approximately ...% of total consolidated revenue (exact percentage not provided in the transcript).

3. Resources, Environment, Building Materials & Civil Engineering, Others: No detailed financial performance data provided in the transcript.

• Full-year consolidated guidance is revised downward: Revenue is projected at 906.0 billion yen (up 9.7 billion yen from previous guidance), operating profit is projected at 70.0 billion yen (down 15.0 billion yen from previous guidance), recurring profit is projected at 68.0 billion yen (down 7.4 billion yen from previous guidance), and net income attributable to parent shareholders is projected at 45.0 billion yen (down 12.4 billion yen from previous guidance).
• Domestic cement full-year guidance: Domestic sales volume projected at 11.3 million tons (down 1.029 million tons from prior forecast), revenue projected at 344.0 billion yen (up 20.6 billion yen YoY), operating profit projected at 26.0 billion yen (up 9.9 billion yen YoY). Lower domestic demand was partially offset by price increase gains and lower fuel costs.
• Overseas full-year guidance: US operations are projected to generate revenue of 273.8 billion yen (down 23.7 billion yen YoY) and operating profit of 26.9 billion yen (down 14.1 billion yen YoY) due to continued high interest rates and private sector slowdown. Vietnam will see lower profit despite higher sales volume due to domestic price competition; the Philippines is expected to remain in operating deficit this year despite improved market conditions from import safeguards.
• The company reaffirms its commitment to achieve at least 33% total payout ratio on average over the 3-year mid-term plan period, even after the large US acquisition.

• Macroeconomic Risk: Sustained high interest rates in the US have caused a sharp slowdown in private residential construction, reducing cement and ready-mix demand significantly. Long-term high interest rates could extend the demand downturn.
• Domestic Demand Risk: Domestic cement demand has declined due to factors including the expansion of 5-day workweek policies in the ready-mix industry, bad weather, and work style reform, with near-term demand remaining under pressure.
• Cost Risk: Rising labor costs, logistics costs, and maintenance costs for aging equipment continue to push up production costs. Unpredictable movements in international coal prices also create cost volatility.
• Regulatory Risk: The upcoming Emissions Trading System (ETS) in Japan will likely increase carbon costs for cement producers, though final system rules and carbon pricing are still unclear.
• Geopolitical and Supply Chain Risk: Ongoing global geopolitical tensions continue to create risk of supply chain disruptions for key raw materials.
• Large Investment Risk: Concurrently progressing two large mine development projects has pushed up near-term capital expenditures significantly, pressuring free cash flow and increasing leverage.

Q: What are the key success factors behind the company's early and effective domestic price hike, and how has customer acceptance changed? / A: The biggest factor was allocating sufficient advance time for customers to pass price increases through to their own products. Second, management aligned sales team commitment: leadership emphasized holding firm on price increases to secure plant survival, which boosted sales team confidence. Management also reassured sales staff that lost domestic volume would be absorbed by the expanded export hub, removing hesitation to push for price increases. Management also educated customers on the multiple structural cost increases and long-term sustainability risks facing the industry, which improved understanding of the need for price adjustment. Overall, the ready-mix industry has become more accepting of necessary price increases compared to past cycles, though acceptance varies across customers.

Q: What explains the larger volume decline in US ready-mix versus cement, and what drives the projected full-year 88 million USD profit decline? / A: In the US, 70% of demand is from the private sector, with ready-mix directly serving private residential construction, while cement demand is supported by stable public infrastructure projects that often use on-site mixing, so cement is less exposed to private residential slowdown. The larger-than-expected profit decline is primarily driven by volume reductions from high interest rates, which have delayed or paused many residential and commercial projects. While the company implemented 5-7 USD per ton price increases this year, some price hikes had to be delayed in competitive, weak-demand markets, so full cost pass-through was not achieved. Rising raw material, labor, and energy costs also increased unit costs, and large inventory buildups from late 2024 created additional negative margin impacts in H1 2025, with volume reduction being the single largest driver of the full-year profit decline.

Q: Does the large 100 billion-yen-class Vulcan acquisition make sense from a capital efficiency perspective, when full vertical integration does not require 100% ownership of all supply chain steps? / A: The company acknowledges the question and agrees that ROIC (return on invested capital) management needs to be strengthened going forward. Historically, the US business was evaluated from a consolidated group perspective, which made independent capital efficiency assessment difficult. Now that the vertical integration build-out is nearly complete, the company will shift to more rigorous ROIC analysis for the US business to optimize capital allocation and improve capital efficiency. The company already tracks 10% operating margin and 10% ROE as core targets, and is now formalizing ROIC-based evaluation for the US segment.

Q: What is the outlook for future domestic price increases after the current 2,000 yen hike is fully implemented? / A: Given ongoing structural increases in labor, logistics, and maintenance costs, further price adjustments will be necessary in the future. The company has already announced no price hikes will occur next year to avoid overwhelming the market, but after ETS details are finalized next year, ongoing incremental price adjustments will become a regular practice rather than one-time events, to reflect ongoing cost changes. The company views sustained price adjustment capability as critical to long-term industry sustainability.