SHIZUOKA GAS CO.,LTD. Q4 FY2024 earnings call

• **Core Business Growth
  • City gas: Continue developing remaining large customers in the service territory, targeting 170 million cubic meters of new customer volume over 2025-2027. Beyond fuel switching from boilers, the company will also pursue replacement or expansion of cogeneration systems.
  • Power: Continue promoting electricity by emphasizing energy efficiency and low environmental impact to grow active customer accounts and sales volume. On the supply side, expand the Fuji power plant of Shizuoka Gas & Power, enter the grid-scale energy storage business (selected for Japanese METI subsidy, targeting 2027 commercial operation), and expand market trading.
• **Renewable Energy Development
  • Progress toward the Group 2030 Vision target of 200,000 kW of total cumulative renewable energy development capacity. All three funded biomass power projects (Toriminami Biomass, Tahara Biomass, Enshu Forest Energy) are operational and progressing well; long-term fuel supply contracts and long-term FX hedges have addressed key biomass procurement margin challenges.
  • Prioritize solar power development for new renewable projects in the near term, and prepare to leverage the company's existing residential sales channel to offer perovskite solar cells to residential customers once the technology reaches mass market adoption.
• **Overseas Business Expansion
  • In 2024, the company approved three key initiatives: investment in a Vietnamese solar power project company, investment in an Indian biogas project company, and establishment of a local Indian subsidiary. The company is hiring experienced overseas talent to source and evaluate projects, with a strong pipeline of opportunities progressing well.
• **Investment Strategy & M&A
  • In 2024, the company spent significant effort on deal sourcing, due diligence, investment talent development and organizational building, leading to delayed investment execution but a growing pipeline of target projects. Brand strengthening efforts increased trust and led to a high volume of unsolicited M&A and business succession deal proposals. Management expects initial results to emerge gradually in H1 2025.
  • Plans 93 billion yen in total investment over 2025-2027, with ~70% allocated to growth businesses and ~10% allocated to natural gas customer development for the core base business.
• **Capital Efficiency & Shareholder Focused Management
  • As of end-December 2024, the share price was 1,070 yen with a PBR of 0.72x, which management views as insufficient. Low PBR is primarily driven by low ROE, which stems from the company's high equity ratio (a strength that provides capacity for aggressive investment like M&A, but the capacity has not been fully utilized, leading to poor market valuation).
  • To improve valuation: improve PER through enhanced shareholder returns and investor communication; improve ROE through pursuing high-return investments financed by debt, which lowers the equity ratio and leverages returns; improving PER and ROE will in turn lift PBR. The company will sell down policy-held shares over the next three years to slim the asset base, improve capital efficiency and boost net income.
• **Shareholder Returns
  • In February 2025, the company updated its dividend policy to explicitly add a "progressive dividend" commitment. The company has increased dividends consistently with profit growth since listing in 2001, but the lack of explicit policy meant it was often excluded from institutional investor screening. Adding the commitment is intended to improve visibility for both institutional and retail investors. The 2024 dividend is 40 yen per share, with a planned 41 yen per share dividend for 2025 (a sequential increase). The company targets a 30% payout ratio; 2024 payout was 34.2%, and 2025 payout is projected to be 38.2%, meeting the target.

1. City Gas: Total sales volume reached 1.582 billion cubic meters, a 1.6% increase year-over-year (up 25 million cubic meters YoY). Small residential customer volume was flat YoY due to conservation and higher temperatures. Large customer volume increased 59 million cubic meters YoY from new client acquisition and higher consumption from existing clients. Wholesale volume decreased 35 million cubic meters YoY due to lower downstream sales. Volume growth contributed +0.3 billion yen to ordinary profit. Total company revenue was 202.2 billion yen, down 11.7 billion yen YoY. Unadjusted ordinary income was 13 billion yen, down 6.9 billion yen YoY; after time lag adjustment, core ordinary income was 11.6 billion yen, up 0.7 billion yen YoY. 2. Power: Successful trading in the supply-demand adjustment market and higher sales volume contributed +1.9 billion yen to ordinary profit YoY. As of end-2024, Shizuoka Gas had 97,000 active power customer accounts, missing its 100,000 customer target. 3. Affiliates & Other: The biomass power generation business (via anonymous partnership investment) contributed +0.5 billion yen to ordinary profit YoY, driven by accounting recognition of valuation gains/losses on long-term foreign exchange contracts for raw material procurement. 4. Selling, General & Administrative (SG&A) and Manufacturing Costs: Despite wage base increases and increased due diligence spending for future investments, cost reduction efforts resulted in a net +0.5 billion yen contribution to ordinary profit YoY. 5. Raw Material Prices & Other: Loose LNG spot markets in H1 2024 widened the gap between Shizuoka Gas' procurement cost and the pass-through Japanese average LNG import price, and the company cut losses on excess contract volumes this year to enable cheaper future spot procurement, resulting in a net -2.6 billion yen impact on ordinary profit YoY.

• Revenue Guidance: Management incorporates expected investment成果 into projections, with revenue targeted at 204.8 billion yen for 2025, 229.5 billion yen for 2026, and 252.6 billion yen for 2027, showing steady growth.
• Ordinary Profit Guidance: After noting 2024 core profit was above underlying operating performance, management puts current underlying ordinary profit at ~10 billion yen, targeting 10.4 billion yen for 2025, 10.8 billion yen for 2026, and 12.4 billion yen for 2027. This brings the company close to its 2030 Vision target of 13 billion yen in consolidated ordinary profit by 2030.
• Net Income & ROE Guidance: Policy-held share sales are expected to boost net income growth above ordinary profit growth. Management targets ROE exceeding the 2030 Vision's 8% target by 2027.

• Biomass fuel procurement margin is cited as a key ongoing challenge for the company's biomass power business, though management notes existing long-term contracts and FX hedging have addressed the issue for now.
• Low return on equity (ROE) driven by underutilization of the company's strong high-equity balance sheet has led to a depressed market valuation (0.72x PBR as of end-2024), which management identifies as a key strategic risk to address.
• Time lag effects in raw material cost pass-through create year-over-year volatility in reported accounting profit, even when core underlying performance is improving.

No question and answer section is included in the provided transcript.