SHIZUOKA GAS CO.,LTD. Q2 FY2025 earnings call

Historical Growth and Strategic Direction

• Shizuoka Gas grew from core city gas and LPG retail to build an LNG receiving terminal in the 1990s, using cost competitiveness from LNG procurement to expand sales to industrial and wholesale customers.
• Leveraging in-house engineering, power operations, and energy expertise, the company entered power and renewable energy businesses in the 2010s.
• Going forward, the company will leverage its mature core city gas business' stable customer base, infrastructure, and stakeholder trust to pursue further growth in overseas operations, lifestyle services, power/renewables, engineering services, LPG, and new business lines.

Completed Strategic Initiatives (First Half 2025)

• Energy Business: Completed acquisition of interests in the North American shale gas development project from Tokyo Gas America's wholly-owned subsidiary TG Eagle Ford Resources LP in May 2025. The investment aims to maximize and optimize the natural gas value chain, offset profit volatility from slide time lags and raw material spread fluctuations, and deliver direct profit contributions. Approved expansion of the company-owned Shizuoka Gas & Power Fuji Power Plant; total combined output will reach 48,000 kW when the expansion comes online in 2027, with planning for additional expansion and a fourth phase investment already underway. All previously invested biomass power plants have begun commercial operations, and the company approved a new investment in a methane fermentation biogas power project to develop operational expertise for future expansion.
• Lifestyle and Real Estate Services: Residential construction firm Good Living joined the group in July 2025, which operates mainly in Hamamatsu and other parts of Shizuoka, Aichi, and Kanagawa prefectures with approximately 200 new construction orders per year. The acquisition allows the company to expand its real estate/housing business from land sales, new construction, renovation, resale of vacant/resale homes to rental, expanding the business beyond the existing city gas service area using Good Living's existing customer channels. Partnered with mui Lab to launch new smart home and smart energy offerings, which will be bundled for new construction and renovation customers. Launched full commercial entry into closed-cycle land-based aquaculture in partnership with startup ARK, after successful trial operations, and secured a land lease from Shizuoka City to begin construction of full-scale facilities. The company has also executed business and capital partnerships with multiple additional startups to support new innovation.
• Corporate Governance and Branding: Launched a new group corporate philosophy: "We pursue a rich and sustainable future through the combined strength of our energy-focused group." The company reorganized its corporate philosophy framework, established new action guidelines and standards, and launched a new brand slogan "Waku Omoi, Wakaseru Mirai." with "excitement (wakuwaku)" as a core keyword, and is currently running internal and external branding activities to embed the new identity. Published its first integrated report and plans to update it annually based on stakeholder feedback. Introduced a restricted stock (RS) compensation program through the employee stock ownership association to increase employee engagement and alignment with shareholder value.

The company reported year-over-year revenue decline for the second quarter of 2025, with total consolidated revenue reaching 103.6 billion yen, a 1.7 billion yen decrease from the prior year.

1. City Gas: City gas sales volume totaled 798 million cubic meters, a 9 million cubic meter decrease year-over-year. Small-scale residential and commercial customers saw a sales volume increase driven by continued low temperatures, and large-scale industrial customers also saw increased volume from new users and higher production at existing customers. This segment had a +0.3 billion yen positive impact on ordinary income compared to the prior year. Wholesale volume saw a large decrease due to contract volume adjustments and demand shifts, driving the overall city gas volume decline.
2. Power: The power segment posted a 1.2 billion yen year-over-year decline in ordinary income. The newly established supply-demand adjustment market generated large one-off profit gains in the prior year that did not repeat this year as market conditions stabilized. The company's customer count for power sales surpassed 100,000 users in the first half.
3. Other Affiliated Businesses (including LPG): This segment posted a +0.2 billion yen positive impact on ordinary income year-over-year, driven by increased sales volume of LPG and power. The North American shale gas development acquisition completed in May 2025 is expected to contribute full-year profit, but underperformance and delayed progress on other overseas projects resulted in a net -0.4 billion yen negative variance from the original annual plan.
4. Foreign Exchange Gains/Losses: Foreign exchange valuation at the Tahara Biomass Power Plant resulted in a 2.9 billion yen year-over-year decline in ordinary income. Long-term forward contracts for raw material procurement generated large valuation gains from yen depreciation in the prior year, but yen appreciation this year resulted in large valuation losses.

• Full-year city gas sales volume is projected at 1,595 million cubic meters, an upward revision of 16 million cubic meters from the original plan, based on first-half results and feedback from wholesale and large industrial customers.
• Full-year total revenue is projected to be roughly flat relative to the original annual plan.
• Slide time lag adjusted ordinary income is projected at 10.5 billion yen, roughly in line with the original plan, representing an 1.1 billion yen year-over-year decrease.
• Reported consolidated ordinary income (including slide time lag effects) is projected at 11.0 billion yen, a 1.5 billion yen upward revision from the original plan, representing a 2.0 billion yen year-over-year decrease.
• Net income is projected at 9.1 billion yen, an 1.1 billion yen upward revision from the original 8.0 billion yen plan, representing a year-over-year increase from 8.7 billion yen in the 2024 full year.
• The company announced an increase in full-year dividends: the year-end dividend per share is raised from the original 20.5 yen to 21.5 yen, following a 20.5 yen interim dividend. Full-year dividend per share is now projected at 42 yen, a 2 yen increase from the prior year, representing a 1 yen increase per share from the original plan. The company maintains its dividend policy targeting a 30% payout ratio, considering progressive dividend growth, performance, and return on equity.

• Some overseas projects have failed to meet expected performance targets or are facing progress delays, which required a conservative downward valuation of these assets relative to the original plan, resulting in a 0.4 billion yen negative impact on full-year projected ordinary income. Volatility in foreign exchange rates continues to create valuation volatility for the Tahara Biomass Power Plant's long-term raw material procurement forward contracts, resulting in a 1.0 billion yen negative variance from the original full-year plan for foreign exchange gains and losses. Market conditions for the power supply-demand adjustment market have stabilized after its launch, eliminating the large one-off profit gains seen in the prior year, creating a permanent structural decline in segment profit relative to 2024 levels.

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