Kurimoto,Ltd. Q2 FY2025 earnings call

• Overall Company Context & Strategic Positioning

  • Kurimoto Group operates across two core domains: social infrastructure and industrial equipment, with a balanced 50%/50% revenue split between public and private demand, creating a resilient business model less sensitive to economic cycles. The 3-year mid-term management plan (2024-2026, 2024 is the first year) is positioned as a period of transformation and growth toward the company's 2030 vision, focused on strengthening profitability of stable revenue businesses, active investment in growth driver businesses, capital cost/ share price aware management, and continued advancement of sustainability-focused management.
  • 2024 full year net profit hit a record high, with both revenue and profit exceeding initial management forecasts.

• Shareholder Return

  • The company targets a payout ratio of 50% or higher per its mid-term plan. For 2024, the year-end dividend was increased by 77 yen from the initial announcement to 181 yen per share, bringing full year dividend to 285 yen per share. For 2025, the company plans a 3 yen increase to 288 yen per share full year dividend, maintaining a 50% target payout ratio.

• Business Development Highlights

  • The company has accumulated 15 total orders for the water pipeline design-build (DB) model, which reduces the burden on water utility clients and shortens project timelines amid widespread labor shortages in the water industry, with plans to continue building capability and solution offerings.
  • The company's silencer and third rail protection cover were selected for use at Yumeshima Station, the main station for the Osaka-Kansai World Expo, contributing to lower noise and passenger/worker safety at the site.

• Sustainability Initiatives

  • The company is advancing a full-scale effort to replace coal-based coke with bio-coke for cupola fuel in ductile iron pipe manufacturing, targeting 2050 carbon neutrality. Long-term trials using buckwheat hull-derived bio-coke confirmed 10-15% replacement of coal coke is possible, delivering a 10% reduction in CO2 emissions. A cross-industry working group for cupola carbon neutrality (32 members as of April 2025, backed by Japan's Ministry of Economy, Trade and Industry) has also confirmed that carbonized palm shell molded bio-coal can partially replace coal coke, with industry-wide efforts continuing.
  • The company has published a Partnership Building Declaration aligned with Japanese government initiatives, targeting sustainable, mutually beneficial growth with supply chain partners.

• Capital Cost & Share Price Aware Management Progress

  • The company calculates its cost of equity via the CAPM method as between 6% and 7%. ROE has improved year over year and currently exceeds the cost of equity, with management targeting further expansion of the spread.
  • The original mid-term plan target was to reduce policy-held shareholdings by 30-40% (based on market value as of end-2023) over the 3-year plan period. No meaningful progress was made in 2024 due to extended negotiation timelines and the share acquisition of Nissui Kon Co., Ltd. to strengthen water business collaboration. Management now plans to accelerate the reduction pace over the remaining two years of the plan, targeting a policy-held share (including deemed holdings) to net assets ratio of under 20%.
  • A new IR/SR department was established in 2024, delivering 90 investor engagement opportunities over the year. Feedback is shared with the board of directors, and management has identified ongoing priorities including clearer disclosure of growth strategy, adoption of ROIC-focused management, and visualization of target balance sheet structure, which are under discussion for future disclosure. A new email distribution service for investors launched in April 2025 to improve timely information sharing.

1. Lifeline Segment: Revenue of 62.26 billion yen, a 2.233 billion yen decrease year-over-year, contributing 50% of total group revenue. Operating profit was 4.029 billion yen, a 465 million yen decrease year-over-year, driven by lower revenue at a pipe system group subsidiary and rising selling, general and administrative expenses, even as the valve division saw strong performance from steel mill, hydropower and large overseas projects. 2. Machinery Systems Segment: Revenue of 30.959 billion yen, an 1.814 billion yen increase year-over-year, contributing 25% of total group revenue. Operating profit was 1.747 billion yen, a 255 million yen increase year-over-year, supported by higher maintenance and plant project volume for press equipment and the addition of Sankyo Machinery Co., Ltd. to the group, which drove higher revenue and improved margin. 3. Industrial Construction Materials Segment: Revenue of 33.504 billion yen, an 1.163 billion yen increase year-over-year, contributing 25% of total group revenue. Operating profit was 2.585 billion yen, a 329 million yen increase year-over-year, driven by additional change orders for a bridge construction subsidiary and strong shipments to the power and communications sectors for chemical products, which led to higher revenue and margin improvement.

• For the full year 2025, management expects lower revenue and lower operating/ordinary profit compared to 2024. Net profit is expected to remain flat year-over-year at 7.0 billion yen, driven by special gains from the continued reduction of policy-held shares.
  • Lifeline Segment: Management expects higher revenue and higher profit, as the impact of the Ministry of Land, Infrastructure, Transport and Tourism's water supply/sewerage seismic retrofitting plan gradually materializes, offsetting ongoing headwinds from high prices and labor shortages in the water industry.
  • Machinery Systems Segment: Management expects lower revenue and lower profit, due to rising raw material, energy, transportation and labor costs, plus multiple expected 2024 orders being postponed or canceled at customer request.
  • Industrial Construction Materials Segment: Management expects higher revenue from infrastructure renewal demand, but lower profit, as there are no comparable special profit-generating additional construction projects like the one recorded in the 2024 building materials division.
• The overall total target for the 3-year mid-term management plan remains unchanged, despite segment-level target adjustments.

• Ongoing macroeconomic headwinds: High volatile raw material, energy, and commodity prices; unstable global geopolitical conditions; and exchange rate/equity market volatility create cost and margin pressure.
  • Industry-specific headwinds: Persistent labor shortages in the Japanese water industry, rising labor and transportation costs, and ongoing high inflation impact project planning and profitability across segments.
  • Cash flow impact: The 2024 change in subcontract payment terms (shortening payment terms to 60 days or less per regulatory changes) led to a 9.864 billion yen reduction in trade payables, which drove a negative 2.338 billion yen operating cash flow for the full year 2024.
  • Policy-held share reduction delay: The original first-year reduction target was not met, requiring accelerated execution over the remaining two years of the mid-term plan.

There is no question and answer section included in the provided transcript.