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26 Mid-Term Management Plan Progress Review

• Two of the three plan years are complete. 2025 full-year results are expected to come in below original plan, driven by Philippine business impairment, US market slowdown, and lower-than-expected domestic cement demand.
• Cumulative operating cash flow over the three-year period is projected at 360 billion yen, 40 billion yen below the original 400 billion yen target. Cumulative growth investment is projected at 460 billion yen, 100 billion yen above original plan, driven by unplanned acquisitions including Tokuyama's cement sales rights and US assets.
• Domestic cement demand is declining 6% annually, versus the original plan projection of stable 35 million ton annual demand; 2026 demand is now projected at 30.3 million tons, a 17.1% downward deviation from plan.
• The company successfully delivered an industry-changing 2,000 yen per ton price increase via early public announcement, enabling full price pass-through across the entire supply chain, a structural shift from past industry practices.
• Mixed cement supply chain development is a core competitive advantage: the company has built leading procurement capability for cementitious materials (fly ash, slag) in Japan, with a trans-Pacific supply chain and distribution hubs on the US West Coast leveraging CalPortland Company's sales network, which is difficult for competitors to replicate.
• Carbon neutral 2050 strategy progress: C2SP kiln CO2 capture technology development has met its performance targets, with basic design complete, but full CCUS commercialization is delayed by challenges in procuring low-cost green hydrogen for methanation.

Initiatives for Early PBR > 1x Achievement

• Domestic business: Acquiring Tokuyama's domestic cement sales rights via a carve-out spin-off, expected to close after JFTC clearance in October 2025, to expand the weak Western Japan customer base, optimize supply chains, and increase production facility utilization via synergy gains.
• Global business: Maximize synergy from US vertical integration, leverage the company's cementitious materials supply capability to address the US West Coast shortage of these inputs for mixed cement, and increase investor communication to improve market understanding of US business value.
• Capital efficiency improvement: Plan to sell ~20% of listed cross-held policy shares by the end of the 26 mid-term plan, and ~50% cumulative by the end of the next mid-term plan. Prioritize profitable real estate asset sales to fund growth investment. Completed full exit from the Chinese cement manufacturing business in March 2026.
• Group strategy: Re-evaluate the role of all group affiliates to improve profitability and capital efficiency; completed full acquisition of Pacific Systems and partial stake sale of A&A Material.
• Shareholder return enhancement: Increased 2025 full-year dividend from 80 yen to 100 yen per share, will maintain 100 yen as a minimum annual dividend going forward, and will continue opportunistic share buybacks, with progressive dividend policy under active consideration.
• Investor engagement enhancement: Moved the IR team from the general affairs department to the corporate planning department in April 2025 to speed up incorporation of market feedback into corporate strategy, and will continue regular top management briefings.

• The company maintains its long-term target of achieving 10% ROE and 100 billion yen+ consolidated operating profit, targeting early achievement after 2026.
• The acquisition of Tokuyama's cement sales rights is expected to increase the company's domestic production facility utilization by ~10 percentage points, with full synergy benefits realized by the second half of 2028.
• Vulcan Materials' ready-mix concrete business acquisition in the US is expected to close in the first half of the current fiscal year, with synergy benefits expected to start in the second half of the year.
• Target to return the Philippine business to single-year operating profit breakeven within the current fiscal year.
• The company is evaluating the introduction of segment-level ROIC measurement for the next mid-term management plan to improve capital efficiency accountability.
• PBR > 1x is a key near-term corporate priority, with all initiatives focused on early achievement of this target.

The transcript does not provide disaggregated absolute financial results or revenue contribution percentages for individual product segments. High-level performance is discussed at the consolidated business unit level: 1) Domestic cement business: completed a 2,000 yen per ton price increase, delivering 18.5 billion yen in annual profit improvement in 2025, offsetting a 4.9 billion yen profit decline from lower domestic demand; 2) US global segment: facing demand slowdown due to high interest rates, with ongoing investments in vertical integration; 3) Philippines global segment: recorded impairment losses in 2025, facing pressure from low-cost Vietnamese cement imports that captured 25% of the local market by 2024; 4) Resources and environment business: ongoing pricing optimization to improve profitability.

• Domestic cement demand is declining faster than originally projected, driven by industry labor shortages, the adoption of 2-day workweeks, higher construction costs, and delayed projects.
• Global demand uncertainty: US cement demand is depressed by aggressive interest rate hikes, while the Philippine market faces sustained price pressure from large volumes of low-cost Vietnamese cement imports.
• High growth investment has pushed up leverage: net DER is expected to rise temporarily to ~0.7x after current investments, versus the company's 0.5x target level.
• Current energy and labor cost inflation requires further price pass-through, which depends on industry cooperation across the supply chain, even after past structural changes.
• CCUS commercialization is delayed by supply chain constraints for low-cost green hydrogen, pushing back full deployment beyond original projections.

Q: How much additional volume will Taiheiyo gain from the Tokuyama cement sales rights acquisition, and what is the expected impact on capacity utilization and profitability? / A: Tokuyama currently supplies just under 3 million tons annually to the domestic market, and Taiheiyo targets retaining close to 100% of these customers. The acquisition is expected to increase the company's overall production facility utilization by roughly 10 percentage points. Since the deal requires no major new capital investment, all additional volume will flow through as marginal profit, with the total benefit expected to match Tokuyama's historical profitability for this business. Retaining high customer retention is the top priority for the integration. (338 characters)

Q: Does the company maintain its 10% domestic cement operating profit margin target, and are there remaining barriers to future price increases? / A: The 10% target has not been abandoned, but rising fixed costs mean the company has not yet hit the target, so further price pass-through for recent cost increases is required. The company will announce a new price policy promptly after JFTC clearance for the Tokuyama acquisition is complete. Past industry barriers to price increases (difficulty passing costs along the supply chain) have been removed by the shift to early advance price announcements and the recent adoption of shipment-based pricing across ready-mix cooperatives, so future price increases are expected to be implementable. (481 characters)

Q: Can the original 100 billion yen operating profit target still be achieved, and what steps will close the current gap? / A: The company will implement appropriate price policy to offset rising costs following recent competitor price announcements. The base profit uplift from integrating Tokuyama's volume will be the main contributor to closing the gap, with full synergy effects expected to be realized in the second half of 2028 after the two-year transition period. The company remains confident that the 100 billion yen target is achievable, with contributions from a return to profit at the Philippine business after impairment and a demand recovery in the US. (370 characters)

Q: Is vertical integration to improve pricing, like that being pursued in the US, feasible in Japan and other Asian markets? / A: Vertical integration delivers strong profitability gains in Europe and the US because those markets have limited players, high barriers to new entry, and can achieve oligopolistic scale in aggregates and ready-mix. In most Asian markets, by contrast, entry into cement, ready-mix, and aggregates is far easier, with faster and lower-cost new facility development. As a result, a full vertically integrated structure like that in the US is not achievable in the near term in Japan or most other Asian markets. (350 characters)